[USC07] 20 USC 1078-6: Default reduction program
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20 USC 1078-6: Default reduction program Text contains those laws in effect on November 16, 2018
From Title 20-EDUCATIONCHAPTER 28-HIGHER EDUCATION RESOURCES AND STUDENT ASSISTANCESUBCHAPTER IV-STUDENT ASSISTANCEPart B-Federal Family Education Loan Program

§1078–6. Default reduction program

(a) Other repayment incentives

(1) Sale or assignment of loan

(A) In general

Each guaranty agency, upon securing 9 payments made within 20 days of the due date during 10 consecutive months of amounts owed on a loan for which the Secretary has made a payment under paragraph (1) of section 1078(c) of this title, shall-

(i) if practicable, sell the loan to an eligible lender; or

(ii) beginning July 1, 2014, assign the loan to the Secretary if the guaranty agency has been unable to sell the loan under clause (i).

(B) Monthly payments

Neither the guaranty agency nor the Secretary shall demand from a borrower as monthly payment amounts described in subparagraph (A) more than is reasonable and affordable based on the borrower's total financial circumstances.

(C) Consumer reporting agencies

Upon the sale or assignment of the loan, the Secretary, guaranty agency or other holder of the loan shall request any consumer reporting agency to which the Secretary, guaranty agency or holder, as applicable, reported the default of the loan, to remove the record of the default from the borrower's credit history.

(D) Duties upon sale

With respect to a loan sold under subparagraph (A)(i)-

(i) the guaranty agency-

(I) shall, in the case of a sale made on or after July 1, 2014, repay the Secretary 100 percent of the amount of the principal balance outstanding at the time of such sale, multiplied by the reinsurance percentage in effect when payment under the guaranty agreement was made with respect to the loan; and

(II) may, in the case of a sale made on or after July 1, 2014, in order to defray collection costs-

(aa) charge to the borrower an amount not to exceed 16 percent of the outstanding principal and interest at the time of the loan sale; and

(bb) retain such amount from the proceeds of the loan sale; and


(ii) the Secretary shall reinstate the Secretary's obligation to-

(I) reimburse the guaranty agency for the amount that the agency may, in the future, expend to discharge the guaranty agency's insurance obligation; and

(II) pay to the holder of such loan a special allowance pursuant to section 1087–1 of this title.

(E) Duties upon assignment

With respect to a loan assigned under subparagraph (A)(ii)-

(i) the guaranty agency shall add to the principal and interest outstanding at the time of the assignment of such loan an amount equal to the amount described in subparagraph (D)(i)(II)(aa); and

(ii) the Secretary shall pay the guaranty agency, for deposit in the agency's Operating Fund established pursuant to section 1072b of this title, an amount equal to the amount added to the principal and interest outstanding at the time of the assignment in accordance with clause (i).

(F) Eligible lender limitation

A loan shall not be sold to an eligible lender under subparagraph (A)(i) if such lender has been found by the guaranty agency or the Secretary to have substantially failed to exercise the due diligence required of lenders under this part.

(G) Default due to error

A loan that does not meet the requirements of subparagraph (A) may also be eligible for sale or assignment under this paragraph upon a determination that the loan was in default due to clerical or data processing error and would not, in the absence of such error, be in a delinquent status.

(2) Use of proceeds of sales

Amounts received by the Secretary pursuant to the sale of such loans by a guaranty agency under paragraph (1)(A)(i) shall be deducted from the calculations of the amount of reimbursement for which the agency is eligible under paragraph (1)(D)(ii)(I) for the fiscal year in which the amount was received, notwithstanding the fact that the default occurred in a prior fiscal year.

(3) Borrower eligibility

Any borrower whose loan is sold or assigned under paragraph (1)(A) shall not be precluded by section 1091 of this title from receiving additional loans or grants under this subchapter (for which he or she is otherwise eligible) on the basis of defaulting on the loan prior to such loan sale or assignment.

(4) Applicability of general loan conditions

A loan that is sold or assigned under paragraph (1) shall, so long as the borrower continues to make scheduled repayments thereon, be subject to the same terms and conditions and qualify for the same benefits and privileges as other loans made under this part.

(5) Limitation

A borrower may obtain the benefits available under this subsection with respect to rehabilitating a loan (whether by loan sale or assignment) only one time per loan.

(b) Satisfactory repayment arrangements to renew eligibility

Each guaranty agency shall establish a program which allows a borrower with a defaulted loan or loans to renew eligibility for all subchapter IV student financial assistance (regardless of whether the defaulted loan has been sold to an eligible lender or assigned to the Secretary) upon the borrower's payment of 6 consecutive monthly payments. The guaranty agency shall not demand from a borrower as a monthly payment amount under this subsection more than is reasonable and affordable based upon the borrower's total financial circumstances. A borrower may only obtain the benefit of this subsection with respect to renewed eligibility once.

(c) Financial and economic literacy

Each program described in subsection (b) shall include making available financial and economic education materials for a borrower who has rehabilitated a loan.

(Pub. L. 89–329, title IV, §428F, as added Pub. L. 99–498, title IV, §402(a), Oct. 17, 1986, 100 Stat. 1394 ; amended Pub. L. 100–50, §10(u), June 3, 1987, 101 Stat. 346 ; Pub. L. 101–239, title II, §2005(a), Dec. 19, 1989, 103 Stat. 2116 ; Pub. L. 102–325, title IV, §420, July 23, 1992, 106 Stat. 534 ; Pub. L. 103–208, §2(c)(38)–(40), Dec. 20, 1993, 107 Stat. 2466 ; Pub. L. 105–244, title IV, §421, Oct. 7, 1998, 112 Stat. 1696 ; Pub. L. 109–171, title VIII, §8014(h), Feb. 8, 2006, 120 Stat. 171 ; Pub. L. 110–315, title IV, §426, Aug. 14, 2008, 122 Stat. 3235 ; Pub. L. 111–39, title IV, §402(d)(1), July 1, 2009, 123 Stat. 1941 ; Pub. L. 113–67, div. A, title V, §501, Dec. 26, 2013, 127 Stat. 1186 .)

Amendments

2013-Subsec. (a)(1)(A)(ii). Pub. L. 113–67, §501(1), added cl. (ii) and struck out former cl. (ii) which read as follows: "on or before September 30, 2011, assign the loan to the Secretary if-

"(I) the Secretary has determined that market conditions unduly limit a guaranty agency's ability to sell loans under clause (i); and

"(II) the guaranty agency has been unable to sell loans under clause (i)."

Subsec. (a)(1)(D)(i). Pub. L. 113–67, §501(2), added cl. (i) and struck out former cl. (i) which read as follows: "the guaranty agency-

"(I) shall repay the Secretary 81.5 percent of the amount of the principal balance outstanding at the time of such sale, multiplied by the reinsurance percentage in effect when payment under the guaranty agreement was made with respect to the loan; and

"(II) may, in order to defray collection costs-

"(aa) charge to the borrower an amount not to exceed 18.5 percent of the outstanding principal and interest at the time of the loan sale; and

"(bb) retain such amount from the proceeds of the loan sale; and".

2009-Subsec. (a)(1). Pub. L. 111–39, §402(d)(1)(A)(i), amended par. (1) generally. Prior to amendment, par. (1) related to the sale of a loan by a guaranty agency or the Secretary.

Subsec. (a)(2). Pub. L. 111–39, §402(d)(1)(A)(ii), substituted "paragraph (1)(A)(i)" for "paragraph (1) of this subsection" and "paragraph (1)(D)(ii)(I)" for "paragraph (1)(B)(ii) of this subsection".

Subsec. (a)(3). Pub. L. 111–39, §402(d)(1)(A)(iii)(II), substituted "sale or assignment." for "sale."

Pub. L. 111–39, §402(d)(1)(A)(iii)(I), which directed substitution of "sold or assigned under paragraph (1)(A)" for "sold under paragraph (2)", was executed by making the substitution for "sold under paragraph (1)" to reflect the probable intent of Congress.

Subsec. (a)(4). Pub. L. 111–39, §402(d)(1)(A)(iv), substituted "that is sold or assigned under paragraph (1)" for "which is sold under paragraph (1) of this subsection".

Subsec. (a)(5). Pub. L. 111–39, §402(d)(1)(A)(v), inserted "(whether by loan sale or assignment)" after "rehabilitating a loan".

Subsec. (b). Pub. L. 111–39, §402(d)(1)(B), inserted "or assigned to the Secretary" after "sold to an eligible lender".

2008-Subsec. (a)(1)(A). Pub. L. 110–315, §426(1)(A), inserted at end "Upon the sale of the loan to an eligible lender, the guaranty agency or other holder of the loan shall request any consumer reporting agency to which the guaranty agency or holder, as applicable, reported the default of the loan, to remove the record of default from the borrower's credit history."

Subsec. (a)(5). Pub. L. 110–315, §426(1)(B), added par. (5).

Subsec. (c). Pub. L. 110–315, §426(2), added subsec. (c).

2006-Subsec. (a)(1)(A). Pub. L. 109–171, §8014(h)(1), substituted "9 payments made within 20 days of the due date during 10 consecutive months" for "consecutive payments for 12 months".

Subsec. (a)(1)(C), (D). Pub. L. 109–171, §8014(h)(2), (3), added subpar. (C) and redesignated former subpar. (C) as (D).

1998-Subsec. (b). Pub. L. 105–244 substituted "Satisfactory repayment arrangements to renew eligibility" for "Special rule" in heading.

1993-Subsec. (a)(2). Pub. L. 103–208, §2(c)(38), substituted "paragraph (1) of this subsection" for "this paragraph" and "this subsection" for "this section".

Subsec. (a)(4). Pub. L. 103–208, §2(c)(39), substituted "paragraph (1) of this subsection" for "this paragraph".

Subsec. (b). Pub. L. 103–208, §2(c)(40), inserted at end "A borrower may only obtain the benefit of this subsection with respect to renewed eligibility once."

1992-Subsec. (a). Pub. L. 102–325, §420(1)–(3), redesignated subsec. (b) as (a), in par. (1)(A) substituted "Each guaranty agency shall enter into an agreement with the Secretary which shall provide that upon" for "Upon" and inserted provision at end that neither the guaranty agency nor the Secretary demand from the borrower as monthly payments more than is reasonable and affordable based upon the borrower's total financial circumstances, in par. (3) inserted "or grants" after "loans", and struck out former subsec. (a) which related to program requirements for the default reduction program.

Subsec. (b). Pub. L. 102–325, §420(4), added subsec. (b). Former subsec. (b) redesignated (a).

1989-Pub. L. 101–239 amended section generally, substituting provisions relating to default reduction program for former provisions relating to rehabilitation of defaulted loans.

1987-Subsecs. (b), (c). Pub. L. 100–50 redesignated subsec. (c) as (b) and struck out former subsec. (b) which read as follows: "The loans which shall be eligible for rehabilitation under this section shall be only those loans which are made to borrowers who, at the time of default on the loan, are unemployed or institutionalized."

Effective Date of 2013 Amendment

Pub. L. 113–67, div. A, title V, §501, Dec. 26, 2013, 127 Stat. 1186 , provided that the amendments made by section 501 of Pub. L. 113–67 are effective July 1, 2014.

Effective Date of 2009 Amendment

Pub. L. 111–39, title IV, §402(d)(2), July 1, 2009, 123 Stat. 1942 , provided that: "The amendments made by paragraph (1) [amending this section] shall be effective on the date of enactment of this Act [July 1, 2009], and shall apply to any loan on which monthly payments described in section 428F(a)(1)(A) [42 U.S.C. 1078–6(a)(1)(A)] were paid before, on, or after such date of enactment."

Effective Date of 2006 Amendment

Amendment by Pub. L. 109–171 effective July 1, 2006, except as otherwise provided, see section 8001(c) of Pub. L. 109–171, set out as a note under section 1002 of this title.

Effective Date of 1998 Amendment

Amendment by Pub. L. 105–244 effective Oct. 1, 1998, except as otherwise provided in Pub. L. 105–244, see section 3 of Pub. L. 105–244, set out as a note under section 1001 of this title.

Effective Date of 1993 Amendment

Amendment by Pub. L. 103–208 effective as if included in the Higher Education Amendments of 1992, Pub. L. 102–325, except as otherwise provided, see section 5(a) of Pub. L. 103–208, set out as a note under section 1051 of this title.

Effective Date of 1987 Amendment

Amendment by Pub. L. 100–50 effective as if enacted as part of the Higher Education Amendments of 1986, Pub. L. 99–498, see section 27 of Pub. L. 100–50, set out as a note under section 1001 of this title.

Publicity Through Communications Media of Availability of Default Reduction Program

Pub. L. 101–239, title II, §2005(b), Dec. 19, 1989, 103 Stat. 2118 , provided that: "The Secretary of Education shall, from funds available through student loan collections, commencing not less than 30 days before the beginning of the default reduction program required by the amendment made by this section [amending this section], and continuing throughout the duration of such program, widely publicize (through various communications media) the availability of the default reduction program."