spouse, and his parents for the tax year immediately preceding the execution of the note or written agreement evidencing the loan, and deducting from such sum an amount equal to the amount allowable on account of exemptions for such individuals for such year (pursuant to sec. 151 of the Internal Revenue Code or, in the case of residents of Puerto Rico, pursuant to sec. 25 of the Commonwealth Tax Act of 1954).

(b) Computation of income from foreign sources. In cases where any of the income of the borrower, his spouse or his parents is not subject to taxation under the Internal Revenue Code or the Commonwealth Tax Act of 1954 due to the fact that such individual is (1) residing abroad, or (2) a nonresident alien, such income shall be included in the borrower's adjusted family income. Income described in clause (1) shall be treated as if subject to taxation under the Internal Revenue Code and computed (together with any income which is subject to taxation) in accordance with paragraph (a) of this section. Income described in clause (2) shall be computed in accordance with instructions issued by the Commissioner.

(c) Exclusion of income of parents or spolse in exceptional circumstances. The income of a parent, or parents living together shall be excluded from consideration under paragraph (a) or (b) of this section if the borrower is not and, during the 12 months preceding the determination, has not been (1) residing with, (2) claimed as a dependent for Federal income tax purposes by, nor (3) the recipient of an amount in excess of $600 from, such parent or parents. The income of a spouse shall also be excluded from such consideration where there has been a legal separation approved by a court or a separation which has, in fact, existed for 12 months or more.

(d) Method of determination. The determination of the adjusted family income of a student borrower shall be made on the basis of information submitted on forms supplied or approved by the Commissioner. The determination shall be made each time funds are advanced, except that no new determination need be made with respect to funds advanced (1) within the same tax year in which a determination was last made or (2) on a line of credit extended after May 31, 1967, where a determination has been made during the preceding 12

month period in connection with funds advanced on such line of credit.

[32 FR 8147, June 7, 1967, as amended at
33 FR 374, Jan. 10, 1968]

Subpart B-Interest Benefits-State and
Private Nonprofit Student Loan Insur-
ance Programs and Direct State Loan
Programs

SOURCE: The provisions of this Subpart B appear at 31 FR 14943, Nov. 26, 1966, unless otherwise noted.

§ 178.11 In general.

Interest benefits as set forth in § 178.15 are available with respect to loans insured under State and private nonprofit student loan insurance programs meeting the requirements of § 178.12 or § 178.13, and with respect to direct State loan programs meeting the requirements of § 178.14.

§ 178.12

Agreements for Federal payments to reduce student interest costs for insured loans.

(a) (1) Except to the extent permitted in § 178.13, interest benefits shall be available only if the guarantee agency has first entered into an agreement with the Commissioner pursuant to paragraph (b) of this section. The Commissioner may enter into such an agreement if he determines that the program of the guarantee agency:

(1) Authorizes the insurance of loans in amounts up to at least $1,000 to any individual student in any academic year or its equivalent, after taking into account other loans covered by this part and Part 177 of this chapter which the student has received in the same academic year or its equivalent;

(ii) Authorizes the insurance of loans to an individual student for at least 2 academic years of study or training or their equivalent;

(1) Provides that (a) the student borrower shall be entitled to accelerate without penalty the repayment of the whole or any part of the insured loan, and (b) the insured loan shall be repaid within 9 years from the date of execution of the note or other written evidence of the loan;

(iv) Subject to subdivision (1) of this subparagraph, provides that, where the total of the insured loans to any student which are held by one person exceeds $1,000, repayment of such loans shall be in installments over a period of not less than 3 years nor more than 6

years beginning not earlier than 9 months nor later than 1 year after the student ceases to pursue a full-time course of study or training at an eligible institution, except that if the program provides for the insurance of loans for part-time study (less than full-time but not less than one-half time) at eligible institutions, the program shall provide that (a) such repayment period will begin not earlier than 9 months nor later than 1 year after the student ceases to carry at an eligible institution at least one-half the normal full-time workload as determined by the institution, and (b) in the case of correspondence students, such repayment period will begin not earlier than 9 months nor later than 1 year after the expiration of a 90-day period following the student borrower's failure to submit a required assignment, or the expiration of a 90-day period following the stated normal time for completion of the program, whichever comes first;

(v) Authorizes interest on the unpaid principal balance of the loan at a yearly rate not in excess of 6 percent per year exclusive of any premium for insurance which may be passed on to the borrower, but such insurance premium may not result in charges in excess of the equivalent of one-half of 1 percent per year on the unpaid principal balance;

(vi) Insures not less than 90 percent of the unpaid principal balance of loans insured under the program;

(vii) Provides that the benefits of the loan insurance program will not be denied any student because of his family income or lack of need if his adjusted family income at the time of the execution of the note or other written evidence of agreement is less than $15,000, as determined under § 178.3;

(viii) Provides that a student may obtain insurance under the program for a loan for any year of study or training at an eligible institution; and

(ix) In the case of a State loan insurance program, provides that such State program is administered by a single State agency, or by one or more nonprofit private institutions or organizations under the supervision of a single State agency. For purposes of this subparagraph, "supervision" includes the responsibility for setting all policies and procedures for the operation of the program.

(2) The conditions of subparagraph (1) (1) of this paragraph will be met if

the student loan insurance program authorizes advances of at least $1,000 to a full-time student and (if the program includes half-time students) at least $500 to a half-time student during any 12month period.

(b) The agreement shall contain such provisions and assurances and be supported by such information as the Commissioner may require pursuant to section 9(b) (2) of the Act, including provisions for termination. Termination will not affect any obligation previously incurred pursuant to the agreement and, if ordered by the Commissioner, will not become final until the guarantee agency has been afforded an opportunity for a hearing.

§ 178.13

Interim coverage for insured loan programs.

(a) In lieu of entering into an agreement described in § 178.12, a guarantee agency may apply for interim coverage under which Federal payments may be made to reduce student interest costs. In such cases Federal payments may be made only with respect to a student loan for which the note was executed and the loan was insured and advanced between October 22, 1965, and June 30, 1967, inclusive. The application shall be in such form as the Commissioner may prescribe, and shall be approved only if the Commissioner determines that the student loan insurance program meets the following conditions:

(1) Interest charges may not exceed 6 percent per year of the unpaid principal balance of the loan exclusive of any premium for insurance which may be passed on to the borrower; and

(2) Repayment of such loans shall be in installments (1) beginning not earlier than 60 days after the student borrower ceases to be a full-time student in an eligible institution, or, if insurance is available for part-time study (less than full-time, but not less than half-time), ceases to carry at an eligible institution at least half the normal full-time workload as determined by the institution or (fi) in the case of a correspondence student, beginning not earlier than 60 days after the expiration of a 90-day period following the student borrower's failure to submit a required assignment, or the expiration of a 90-day period following the stated normal time for completion of the program, whichever comes first.

(b) The application by a guarantee agency shall also contain an assurance

that the applicant and lenders making loans insured under the loan insurance program of that guarantee agency will comply with all regulations of this subpart regarding interest payments.

(c) The application by a guarantee agency shall also contain such other provisions as the Commissioner determines to be necessary for obtaining information to make payments of interest on behalf of students and otherwise to carry out the purposes of this part.

§ 178.14 Federal payments to reduce student interest costs on direct State loans.

(a) Federal payments to reduce student interest costs may be made on behalf of students who meet the requirements of 178.2 and who have received a loan under a direct student loan program of a State which, except to the extent otherwise required by State law in effect prior to the promulgation of this section, meets the following requirements:

(1) Interest charges do not exceed 6 percent per year of the unpaid principal balance of the loan;

(2) Repayment of such loans is in installments (i) beginning not earlier than 60 days nor later than 1 year after the student borrower ceases to be a full-time student in an eligible institution, or if loans are available for part-time study (less than full-time, but not less than half-time), ceases to carry at an eligible institution at least one-half the normal full-time workload as determined by the institution or (ii) in the case of a correspondence student, beginning not later than 60 days after the expiration of a 90-day period following the student borrower's failure to submit a required assignment, or the expiration of a 90-day period following the stated normal time for completion of the program, whichever comes first;

(3) The maximum amount of loans to any individual student does not exceed $1,000 in any academic year or its equivalent.

(b) For purposes of this section, a direct State student loan program includes only those programs which are available to students in one or more categories of eligible institutions.

$178.15 Amount of interest benefits

and procedures for payment. (a) After a loan is made to a student meeting the requirements of § 178.2 (or an application is received from such stu

dent for Federal interest payments), a report shall be submitted to the Commissioner in such form as the Commissioner may require. On the basis of such report, the Commissioner shall periodically inquire of the guarantee agency (or State loan agency) or of the institution, or of both, as to the enrollment status of the student borrower. On the basis of such reports and inquiries, the Commissioner will compute the interest to be paid at the applicable rate to each holder on behalf of each student. Upon certification of the computation, the Commissioner will pay the amount so determined at least every 6 months.

(b) The payment shall be limited to:

(1) The total amount of the interest on the unpaid principal balance of each loan which accrued prior to the beginning of the repayment period of such loan; and

(2) Three percent per year of the unpaid principal balance of any such loan thereafter.

(c) In no event shall payments under subparagraph (1) or (2) of paragraph (b) of this section include any interest on interest added to principal or exceed on interest payable by the students, after taking into consideration the amount of any interest on that loan which the student is entitled to have paid on his behalf for that period under any insured loan program.

(d) The Commissioner's obligation to pay interest shall terminate upon default by the borrower, or upon endorsement of the note in favor of the guarantee agency, whichever occurs first. § 178.16 Effective dates.

Interest payments under this subpart shall be made with respect to a student loan only if the note covering such loan was executed and the loan was advanced on or after October 22, 1965, under a program meeting the requirements of § 178.12, § 178.13 or § 178.14, and

(a) Not later than June 30, 1967, if the loan was insured under a program meeting only the requirements of § 178.13, or

(b) Not later than June 30, 1968, if the loan was made under a student loan insurance program covered by an agreement pursuant to § 178.12, or under a direct State student loan program covered by $178.14, except that such date is extended in the case of a loan for which the note was executed and the advance made note later than June 30, 1972,

if

(1) Such loan is made to a student who had obtained a prior loan on or before June 30, 1968, with respect to which interest is payable under this subpart, and

(2) Such loan is made to continue the student's educational program. Subpart C-Advances for Reserve Funds of State and Private Nonprofit Loan Insurance Programs SOURCE: The provisions of this Subpart o appear at 31 F.R. 14944, Nov. 26, 1966, unless otherwise noted.

§ 178.21

In general.

(a) The Commissioner may make advances to any State with which he has entered into an agreement pursuant to 178.12 for the purpose of helping to establish or strengthen the reserve fund of the student loan insurance program covered by such agreement.

(b) If for any fiscal year a State does not have a student loan insurance program which is covered by an agreement pursuant to § 178.12, and the Commissioner determines, after consultation with the chief executive officer of that State, that there is no reasonable likellhood that the State will have such a student loan insurance program for such year, the Commissioner may make advances for such year to one or more private nonprofit guarantee agencies with which he has entered into such an agreement.

(c) The Commissioner may make advances to a State guarantee agency (with which he has such an agreement) and to one or more nonprofit private guarantee agencies (with which he has such an agreement) in that State if he determines that such advances are necessary in order that students in each eligible institution have access through such institution to a student loan insurance program which meets the requirements of § 178.12.

§ 178.22 Applications.

Applications for funds made available
pursuant to § 178.21 shall be submitted
at such time or times and in such manner
and shall contain such information as
the Commissioner may require.
§ 178.23

Allocation and payment of
State's allotment.

(a) If in any State there is no State student loan insurance program that is covered by an agreement pursuant to § 178.12 and extending to all eligible

students at eligible institutions who are residents of that State (regardless of the State in which the eligible institution is located), the State allotment, as determined in accordance with the first two sentences of section 3(b) of the Act, shall be allocated and reallocated from time to time among all guarantee agencies covering such residents, on the basis of the most recent information available to the Commissioner as to the coverage of the loan insurance programs of such agencies.

(b) Payments on account of allocations and reallocations shall be made on the basis of the most recent information available to the Commissioner concerning the expected demand for insured loans under this part and such other information as he may deem appropriate. § 178.24 Terms and conditions of ad

vances.

Advances of funds to a guarantee agency shall be upon such terms and conditions (including conditions relating to the time or times of payment) consistent with the requirements of § 178.12 as the Commissioner determines will best carry out the purposes of the Act and shall be repaid at such time or times as may be agreed to by the Commissioner, in light of the maturity and solvency of the fund for which the advance was made, and shall be made pursuant to an agreement which shall include such other terms and conditions as are agreed to by the Commissioner and the guarantee agency, including the following:

(a) Funds advanced pursuant to this subpart shall be used only for the purpose of insuring loans for the same category of students on account of which the Federal advance was made. Loan insurance premiums, if any (referred to in § 178.12(a) (1) (v)), and interest or other earnings derived from such funds may be used for such purposes and for expenditures necessary for the proper and efficient administration of the program;

(b) The applicant shall submit such financial reports as the Commissioner may reasonably require to enable him to carry out his functions under this subpart. If, on the basis of such report and such other information as may be appropriate, the Commissioner determines that any of the funds advanced pursuant to this subpart are no longer required to maintain an adequate reserve, he may require that such funds be returned to the Federal Government or made avail

able to some other guarantee agency within the State; and

(c) Such other provision as the Commissioner finds necessary to protect the interests of the United States and promote the purposes of the Act.

Subpart D-Federal Loan Insurance

SOURCE: The provisions of this Subpart D appear at 33 F.R. 874, Jan. 10, 1968, unless otherwise noted.

178.31 Purpose.

The purpose of this subpart is to make federally insured loans available to the eligible students of a State where the Commissioner is unable to find that insured loans are reasonably available under State and private nonprofit student loan insurance programs covered by an agreement entered into pursuant to § 178.12. § 178.32

Issuance of Federal loan insurance certificates. (a) The Commissioner will enter into agreements with eligible leaders in accordance with section 14(a) (3) of the Act under which a default in the repayment of the principal amount of loans made by the lender (on instruments which meet the requirements of § 178.37) will be covered by Federal loan insurance certificates issued pursuant to the provisions of this subpart.

(b) Each eligible lender with which the Commissioner has entered into an agreement pursuant to paragraph (a) of this section may make application to the Commissioner for the issuance of a certificate of Federal loan insurance in connection with each application for a loan which the lender has initially determined to be eligible for such insurance coverage. Upon receipt of such application, which shall be filed on such form and in such manner as may be determined by the Commissioner, the Commissioner shall determine whether or not the loan is insurable and if the loan is determined to be insurable, the Commissioner shall issue a certificate of insurance to the lender covering the loan and setting forth the amount of the insurance. The insurance evidenced by a certificate of insurance shall become effective upon the date of issuance of the certificate and shall extend to all disbursements made pursuant to the loan, except that no disbursements made on a loan prior to the issuance of the certificate of insurance shall be covered by such certificate.

(c) The amount of loss on any loan covered by a certificate of insurance issued by the Commissioner under this subpart shall be the amount equal to the unpaid balance of the principal amount of such loan other than any interest or any other charges which may have been added to, and become a part of, the principal amount of the loan.

(d) The Commissioner may, if he finds it necessary to do so in order to assure an equitable distribution of the benefits of this part, assign, within the maximum amount specified within the Act, Federal loan insurance quotas applicable to eligible lenders, or to States or areas, and may from time to time reassign unused portions of these quotas.

(e) The lender may not make disbursement of any of the proceeds of the loan to a student borrower earlier than is reasonably necessary to meet the purposes for which the loan was made. § 178.33

Limitations governing maxi. mum amount of federally insured loans.

(a) Annual amounts. The Commissioner will not insure loans to any student in any academic year of study in an amount in excess of $1,000 after taking into account other loans covered by this part which the student has already received during the same period of study. The Commissioner will, however, insure loans of proportionately larger amounts made to a full-time student pursuing a program of study longer than an academic year, but in no event for any 12-month period in amounts in excess of $1,333 after taking into account other loans covered by this part which the student has already received during such 12-month period of study.

(b) Aggregate amounts. The Commissioner will not in the case of an individual student insure any amount of a loan which, together with the outstanding principal on all other loans to such student covered under this part, exceeds $2,000.

(c) Higher education loans. The Commissioner will not insure loans to any student under this subpart for any academic year if such student has already received a loan for that academic year which was insured by the Commissioner under Part 177 of this chapter (the Higher Education Student Loan Insurance Program).