§1078–6. Default reduction program

(a) Other repayment incentives

(1) Sale of loan

(A) Each guaranty agency shall enter into an agreement with the Secretary which shall provide that upon securing consecutive payments for 12 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, the guaranty agency (pursuant to an agreement with the Secretary) or the Secretary shall, if practicable, sell the loan to an eligible lender. Such loan shall not be sold to an eligible lender who 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. Neither the guaranty agency nor the Secretary shall demand from a borrower as monthly payment amounts referred to in this paragraph more than is reasonable and affordable based upon the borrower's total financial circumstances.

(B) An agreement between the guaranty agency and the Secretary for purposes of this paragraph shall provide-

(i) for the repayment by the agency to the Secretary of 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) for the reinstatement by the Secretary (I) of the obligation to reimburse such agency for the amount expended by it in discharge of its insurance obligation under its loan insurance program, and (II) of the obligation to pay to the holder of such loan a special allowance pursuant to section 1087–1 of this title.

(C) A loan which does not meet the requirements of subparagraph (A) may also be eligible for sale 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) of this subsection shall be deducted from the calculations of the amount of reimbursement for which the agency is eligible under paragraph (1)(B)(ii) of this subsection 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 under paragraph (1) shall not be precluded by section 1091 of this title from receiving additional loans or grants under this subchapter and part C of subchapter I of chapter 34 of title 42 (for which he or she is otherwise eligible) on the basis of defaulting on the loan prior to such loan sale.

(4) Applicability of general loan conditions

A loan which is sold under paragraph (1) of this subsection 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.

(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 title IV student financial assistance (regardless of whether the defaulted loan has been sold to an eligible lender) 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.

(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 .)

References in Text

Title IV, referred to in subsec. (b), means title IV of the Higher Education Act of 1965, Pub. L. 89–329, which is classified generally to this subchapter and part C (§2751 et seq.) of subchapter I of chapter 34 of Title 42, The Public Health and Welfare. For complete classification of title IV to the Code, see Tables.

Amendments

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 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

Section 2005(b) of Pub. L. 101–239 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."

Section Referred to in Other Sections

This section is referred to in sections 1072a, 1085 of this title.