§1078–9. Special insurance and reinsurance rules

(a) Designation of lenders, servicers, and guaranty agencies

(1) Authority

Whenever the Secretary determines that an eligible lender, servicer, or guaranty agency has a compliance performance rating that equals or exceeds 97 percent, the Secretary shall designate the eligible lender, servicer, or guaranty agency, as the case may be, for exceptional performance. The Secretary shall notify each appropriate guaranty agency of the eligible lenders and servicers designated under this section.

(2) Compliance performance rating

For purposes of paragraph (1), a compliance performance rating is determined with respect to compliance with due diligence in the collection of loans under this part for each year for which the determination is made. Such rating is equal to the percent of all due diligence requirements applicable to each loan, on average, as established by the Secretary by regulation, with respect to-

(A) loans serviced during the period by the eligible lender or servicer; or

(B) loans on which loan collection was attempted by the guaranty agency.

(b) Payment to lenders and servicers

(1) 100 percent payment rule

Each guaranty agency shall pay each eligible lender or servicer (as agent for an eligible lender) designated under subsection (a) of this section 100 percent of the unpaid principal and interest of all loans for which claims are submitted for payment by that eligible lender or servicer for the one-year period following the receipt by the guaranty agency of the notification of designation under this section or until the guaranty agency receives notice from the Secretary that the designation of the lender or servicer under subsection (a) of this section has been revoked.

(2) Revocation authority

The Secretary shall revoke the designation of a lender or servicer under subsection (a) of this section if any quarterly audit required under subsection (c)(5) of this section is not received by the Secretary by the date established by the Secretary or if the audit indicates the lender or servicer failed to maintain 97 percent or higher compliance with program regulations, as reflected in the performance of not less than 97 percent of all due diligence requirements applicable to each loan, on average, as established by the Secretary for the purpose of this section, for 2 consecutive months or 90 percent for 1 month.

(3) Documentation

Nothing in this section shall restrict or limit the authority of guaranty agencies to require the submission of claims documentation evidencing servicing performed on loans, except that the guaranty agency may not require greater documentation than that required for lenders and servicers not designated under subsection (a) of this section.

(4) Payments to guaranty agencies

The Secretary shall pay to each guaranty agency designated under subsection (a) of this section the appropriate percentage under this subsection for the 1-year period following the receipt by the guaranty agency of the notification of designation under subsection (a) of this section.

(c) Supervision of designated lenders and servicers

(1) Audits for lenders and servicers

Each eligible lender or servicer desiring a designation under subsection (a) of this section shall have a financial and compliance audit of the loan portfolio of such eligible lender or servicer conducted annually by a qualified independent organization from a list of qualified organizations promulgated by the Secretary in accordance with standards established by the Comptroller General and the Secretary. The standards shall measure the lender's or servicer's compliance with the due diligence standards and shall include a defined statistical sampling technique designed to measure the performance rating of the eligible lender or servicer for the purpose of this section. Each eligible lender or servicer shall submit the audit required by this section to the Secretary and to each appropriate guaranty agency.

(2) Additional information on lenders and servicers

Each appropriate guaranty agency shall provide the Secretary with such other information in its possession regarding an eligible lender or servicer desiring designation as may relate to the Secretary's determination under subsection (a) of this section, including but not limited to any information suggesting that the application of a lender or servicer for designation under subsection (a) of this section should not be approved.

(3) Secretary's determinations

The Secretary shall make the determination under subsection (a) of this section based upon the audits submitted under this section, such other information as provided by any guaranty agency under paragraph (2), and any information in the possession of the Secretary or submitted by any other agency or office of the Federal Government. If the results of the audit are not persuasively rebutted by such other information, the Secretary shall inform the eligible lender or servicer and the appropriate guaranty agency that its application for designation as an exceptional lender or servicer has been approved.

(4) Cost of audit

Each eligible lender or servicer shall pay for all the costs of the audits required under this section.

(5) Compliance audit

In order to maintain its status as an exceptional eligible lender or servicer, the lender or servicer shall undergo a quarterly compliance audit at the end of each quarter (other than the quarter in which status as an exceptional lender or servicer is established through a financial and compliance audit, as described in subsection (c)(1) of this section), and submit the results of such audit to the Secretary and such appropriate guaranty agency. The compliance audit will review compliance with due diligence requirements for the period since the last audit.

(6) Loss of designation

If the audit performed pursuant to paragraph (5) fails to meet the standards for designation as an exceptional lender or servicer under subsection (a)(1) of this section, the lender or servicer shall lose its designation as an exceptional lender or servicer. A lender or servicer receiving a compliance audit not meeting the standard for designation as an exceptional lender or servicer may reapply for designation under subsection (a) of this section at any time.

(7) Due diligence standards

Due diligence standards used for determining compliance under paragraph (5) shall be promulgated by the Secretary after consultation with lenders, guaranty agencies and servicers and shall consist of a list of specific elements for the Federal regulations selected to provide an indication of systems degradation.

(8) Additional revocation authority

Notwithstanding any other provision of this section, designation under subsection (a) of this section may be revoked at any time by the Secretary if the Secretary determines that the eligible lender or servicer has failed to maintain an overall level of regulatory compliance consistent with the audit submitted by the eligible lender or servicer under this section or if the Secretary believes the lender or servicer may have engaged in fraud in securing designation under subsection (a) of this section or is failing to service loans in accordance with program regulations.

(d) Supervision of designated guaranty agencies

(1) Audit of guaranty agencies

Each guaranty agency desiring a designation under subsection (a) of this section shall have a financial and compliance audit of the defaulted loan portfolio of such guaranty agency conducted annually by a qualified independent organization or person from a list of qualified organizations or persons promulgated by the Secretary in accordance with standards established by the Comptroller General and the Secretary. The standards shall include defined statistical sampling techniques designed to measure the performance rating of the guaranty agency for the purpose of this section. Each guaranty agency shall submit the audit required by this paragraph to the Secretary.

(2) Quarterly sample audits

The Secretary may require quarterly sample audits as a means of determining continued qualification of the guaranty agency for designation as an exceptional guaranty agency.

(3) Secretary's determinations

The Secretary shall make the determination under subsection (a) of this section based upon the audits submitted under this section and other information in his possession. If the results of the audit are not persuasively rebutted by such other information, the Secretary shall inform the guaranty agency that its application for designation as an exceptional guaranty agency has been approved.

(4) Costs of audits

Each guaranty agency shall pay for all of the costs of the audits regulated by this section.

(5) Revocation for fraud

The Secretary may revoke the designation of a guaranty agency under subsection (a) of this section at any time if the Secretary has reason to believe the guaranty agency secured its designation under subsection (a) of this section through fraud or fails to comply with applicable regulations.

(6) Revocation based on performance

Designation as an exceptional guaranty agency may be revoked at any time by the Secretary upon 30 days notice and an opportunity for a hearing before the Secretary upon a finding by the Secretary that the guaranty agency has failed to maintain an acceptable overall level of regulatory compliance.

(e) Special rule

Reimbursements made by the Secretary on loans submitted for claim by an eligible lender or loan servicer designated for exceptional performance under this section shall not be subject to additional review by the Secretary or repurchase by the guaranty agency for any reason other than a determination by the Secretary that the eligible lender, loan servicer, or guaranty agency engaged in fraud or other purposeful misconduct in obtaining designation for exceptional performance.

(f) Limitation

Nothing in this section shall be construed to affect the processing of claims on student loans of eligible lenders not subject to this paragraph.

(g) Claims

A lender, servicer, or guaranty agency designated under subsection (a) of this section failing to service loans or otherwise comply with applicable program regulations shall be considered in violation of section 3729 of title 31.

(h) Evaluation

Not later than 3 years after July 23, 1992, the Comptroller General shall submit to the Chairman of the Senate Labor and Human Resources Committee and the House Committee on Education and Labor, an evaluation of the provisions of this section including, but not limited to, the following:

(1) The effectiveness of due diligence performed by lenders and servicers receiving designation as exceptional lenders or servicers from the perspective of securing maximum collections from borrowers.

(2) A quantification of the dollar volume of claims that were paid to exceptional lenders and servicers that would not have been paid under applicable program provisions prior to the enactment of this section.

(3) An assessment of the impact of this section on the financial condition of guaranty agencies.

(4) An assessment of the savings to lenders, servicers, and guaranty agencies resulting from designation as exceptional performance.

(5) An identification of specific administration steps that lenders, servicers, and guaranty agencies do not have to perform as a result of designation as exceptional lenders, servicers, or guaranty agencies.

(6) A recommendation for program modifications applicable to all program participants based on the findings of the evaluation.

(7) A recommendation for modifications to this section and whether the program should be continued.

(i) Termination

After receipt of the study authorized in subsection (h) of this section, the Secretary may terminate such program if he determines such termination to be in the fiscal interest of the United States.

(j) Definitions

For the purpose of this section-

(1) the term "due diligence requirements" means the activities required to be performed by lenders on delinquent loans pursuant to regulations issued by the Secretary;

(2) the term "eligible loan" means a loan made, insured or guaranteed under this part;

(3) the term "servicer" means an entity servicing and collecting student loans which-

(A) has substantial experience in servicing and collecting consumer loans or student loans;

(B) has an independent financial audit annually which is furnished to the Secretary and any other parties designated by the Secretary;

(C) has business systems which are capable of meeting the requirements of this part;

(D) has adequate personnel who are knowledgeable about the student loan programs authorized by this part; and

(E) does not have any owner, majority shareholder, director, or officer of the entity who has been convicted of a felony.

(Pub. L. 89–329, title IV, §428I, as added Pub. L. 102–325, title IV, §422, July 23, 1992, 106 Stat. 536 ; amended Pub. L. 103–208, §2(c)(46), Dec. 20, 1993, 107 Stat. 2467 .)

Codification

July 23, 1992, referred to in subsec. (h), was in the original "the date of enactment of this Act", which was translated as meaning the date of enactment of Pub. L. 102–325 which enacted this section, to reflect the probable intent of Congress.

Amendments

1993-Subsec. (g). Pub. L. 103–208 substituted "section 3729 of title 31" for "the Federal False Claims Act".

Change of Name

Committee on Education and Labor of House of Representatives treated as referring to Committee on Economic and Educational Opportunities of House of Representatives by section 1(a) of Pub. L. 104–14, set out as a note preceding section 21 of Title 2, The Congress. Committee on Economic and Educational Opportunities of House of Representatives changed to Committee on Education and the Workforce of House of Representatives by House Resolution No. 5, One Hundred Fifth Congress, Jan. 7, 1997.

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.

Section Referred to in Other Sections

This section is referred to in sections 1078, 1087–1 of this title.