§ 178.34

Eligibility for insured loans. Loans by eligible lenders who have in effect an agreement with the Commissioner are insurable under this subpart only if made to a student who (a) has been accepted for enrollment at an eligible institution, or in the case of a student attending an eligible institution, is in good standing there as determined by the institution, (b) is carrying at least one-half the normal full-time workload as determined by the institution, (c) provides the lender with a statement from the institution certifying that the conditions stated in paragraphs (a) and (b) of this section have been met, and in addition, sets forth a current schedule of tuition and fees, and its estimate of the costs of room, board and any other costs which the institution determines to be necessary to the pursuit of the student's education, (d) provides the lender with statement of any financial aids which are to be made available to the student during the period for which the loan is sought, (e) provides the lender an assurance that the loan will not be used for any purpose other than for the costs of education for the period covered by the application, and (f) provides to the lender a statement listing the dates and amounts of other loans to him, which are covered under this part and Part 177 of this chapter.

§ 178.35 Rate of interest; late charges.

(a) Rate of interest. The maximum rate of interest on the unpaid principal balance of a loan may not exceed 7 percent per year calculated from the date of disbursement of funds by the lender to the borrower, exclusive of any premium for insurance.

(b) Late charges. The note may provide for the assessment of a charge for failure of the borrower to pay all or any part of an installment within 10 days after its due date or to file satisfactory evidence of entitlement to deferment of such installment pursuant to § 178.37(e). The amount of any such charge may not exceed 5 cents for each dollar of each Installment due or $5 per each such installment whichever is the lesser.

[33 F.R. 374, Jan. 10, 1968, as amended at 33 F.R. 11540, Aug. 14, 1968]

§ 178.36 Insurance premiums.

(a) Rate. The lender will be liable to the Commissioner on all insured loans to pay a premium in an amount equal to

one-fourth of 1 percent per annum of the unpaid principal balance of the loan (excluding interest or other charges which may have been added to principal).

(b) Collection of premiums. Premiums covering that period of time which runs from the disbursal of the loan to the time that it is anticipated in accordance with instructions issued by the Commissioner, that repayment of principal is to begin shall be payable at the time the loan is disbursed. Premiums attributable to all other periods during which the loan is outstanding shall be payable periodically as determined by the Commissioner except that the Commissioner may waive the payment of all or part of such premiums if he determines that such premiums are not necessary to the maintenance of an adequate reserve fund for the payment of claims.

(c) Payment of premiums. The Commissioner may set off insurance premiums payable to him by the lender against amounts payable by the Commissioner to the lender on account of interest benefits or claims.

§ 178.37 Advancement and repayment of loans.

(a) Evidence of indebtedness. All insurable loans shall be evidenced by a promissory note which meets the requirements of section 8(a) of the Act. The Commissioner shall from time to time make available a promissory note form which meets the statutory requirements. Any substantive deviation from the provisions of the most current promissory note form made available by the Commissioner must be approved by the Commissioner prior to the making of any loans to be evidenced thereby. A copy of every executed note shall be supplied to the student maker thereof.

(b) Security and endorsement. The loan shall be made without security and without endorsement, except that if the borrower is a minor and his note would not constitute a valid and enforceable obligation under applicable local law, endorsement may be required.

(c) Commencement of repayment. The note evidencing the loan shall provide for repayment of the principal amount together with interest thereon in periodic installments beginning (1) not earlier than 9 months nor later than 1 year after the date on which the student ceases to carry at an eligible institution at least one-half the normal full-time

academic workload as determined by that institution and (2) in the case of correspondence students, 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.

(d) Repayment period. The terms of the note shall provide: (1) For repayment over a period of not less than 3 years, nor more than 6 years from the commencement of the repayment period, but in no event over a period in excess of 9 years from the date of execution of the note; and (2) that the total of the payments by a borrower during any period during which repayment of principal is required with respect to the aggregate amount of all loans to that borrower that are insured by the Commissioner under this part shall be at a rate of not less than $360 per annum or the balance of all such loans (together with interest thereon) whichever amount is less.

(e) Deferment. Periodic installments of principal need not be paid, but interest shall accrue and be paid during any period (1) in which the borrower is pursuing a full-time course of study at an institution of higher education within the United States or at a comparable institution outside the United States approved for that purpose by the Commissioner, (2) not in excess of 3 years, during which the borrower is a member of the Armed Forces of the United States, or (3) not in excess of 3 years during which the borrower is in service as a volunteer under the Peace Corps Act. Where repayment of the loan is deferred, the period of deferment shall not be included in the minimum or maximum period allowed for repayment of the loan provided for in paragraph (d) of this section.

(f) Student's liability for interest. The student borrower shall not be liable for any portion of the interest on the note which is payable by the Commissioner, and the lender will not collect or attempt to collect such portion of the interest. Interest on loans insured under this subpart which is not payable by the Commissioner shall be payable in installments over the period of the loan except that if provided in the note or other written agreement, any interest payable by the

student may be deferred until not later than the date upon which payment of the first installment of principal falls due, in which case, interest that has so accrued during that period may be added on that date to the principal (but without thereby increasing the insurance liability under this part).

(g) Acceleration. The student borrower may accelerate repayment of the whole or any part of the loan without penalty.

(h) Payment of insurance premiums. The lender may require that the borrower pay, in addition to principal and interest due, an amount equal to the insurance premium that the lender is required to pay to the Commissioner on any loan. § 178.38 Payment of interest benefits.

(a) Where an insured loan is made to a student who on the basis of information submitted to the lender on the loan application meets the requirements of

178.2, the Commissioner shall on the basis of such information and periodic inquiries of the institution as to the enrollment status of the student borrower, determine the interest to be paid at the applicable rate on behalf of each student.

(b) The payment shall be limited to: (1) The total amount of the interest on the unpaid principal balance of each loan which accrues 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 therafter.

(c) In no event shall payments under subparagraph (1) or (2) of paragraph (b) of this section include any interest on interest or any other charges which may have been added to principal or exceed the interest payable by the student.

(d) The Commissioner's obligation to pay interest shall terminate (1) upon default by the borrower, or (2) upon a determination of the death or total and permanent disability of the borrower but (i) in cases where the repayment period has commenced, not later than 120 days following the failure to receive a regularly scheduled installment or (ii) in cases where the repayment period has not commenced, not later than 120 days following the holder's receipt of a request for loan cancellation on account of such causes.

$ 178.39 Loan cancellation; death or disability.

(a) In the event the borrower dies, the obligation to make any further payments of principal and interest shall be canceled. A determination as to whether or not a borrower is entitled to cancellation on account of death shall be made by the holder on the basis of a certificate of death or such other official proof as is conclusive under State law.

(b) In the event the borrower becomes totally and permanently disabled, the obligation to pay any further payments of principal and interest shall be canceled. A determination based on medical evidence supplied by the borrower on forms provided by the Commissioner as to whether the borrower is entitled to cancellation of indebtedness on account of total and permanent disability shall be made by the holder, subject to the approval of the Commissioner.

§ 178.40 Procedures for filing claims.

(a) General. The Commissioner will honor claims for reimbursement for loss on a loan insured pursuant to this subpart only if: (1) The loan is determined to be in default (as defined in § 178.1 (n)) or has been canceled in accordance with § 178.39 or the borrower has been adjudicated a bankrupt; (2) the lender has used due diligence in attempting to effect collection of a defaulted loan; (3) a written demand for payment has been made on the borrower and any endorser on a defaulted note not less than 30 days nor more than 60 days prior to the filing of the claim for loss; and (4) the claim is supported by such documents as are required by the Commissioner.

(b) Collection of loans. The lender shall use due diligence in the servicing and collection of loans insured under this subpart, and shall utilize collection practices no less extensive and forceful than those generally in force among financial institutions.

(c) Filing of claim application. A claim for reimbursement for loss on an insured loan shall be filed on a form provided by the Commissioner and may be made at such time as the lender has determined, in the case of default, that the loan cannot be collected, or after such time as the lender determines the borrower to have died or become totally and permanently disabled or upon notification that the borrower has been adjudicated a bankrupt. Such claims shall be sub

mitted together with the original or copies of all documents relating to the approval and servicing of the loan including all collection efforts made (whether by the original lender or by any subsequent holder) and in the case of a loan in default, an affidavit, on a form to be supplied by the Commissioner to the effect that to the best of the lender's knowledge and belief, the borrower is not entitled to deferment of the repayment of the principal of the loan as provided for in § 178.37(e). In cases of loss on account of cancellation for death or total and permanent disability, the claim shall also be accompanied by the documents forming the basis for the determi nation. In cases of bankruptcy the claim shall be accompanied by copies of any correspondence, including proofs of claim, directed to or received from the referee in bankruptcy and any objections to the discharge of which the lender may be aware.

(d) Assignment of note. Payment of a claim shall be contingent upon receipt of an assignment to the United States of America of all right, title and interest of the lender of the note on which the claim is filed, without warranty except that the note qualified for insurance under this subpart.

§ 178.41 Records, reports, and inspec tions.

(a) The lender shall maintain complete and accurate records of all federally insured loan accounts which shall reflect each transaction so as to afford ready identification of each borrower's account and the status thereof and shall contain full and proper documentation to support a claim for loss.

(b) The lender shall retain all records pertaining to each applicant to whom a loan is made until such time as the Commissioner has no further need for such records.

(c) The lender shall submit such reports and information as the Commissioner may reasonably require in connection with the administration of the program, and will permit the Government's authorized representatives at any reasonable time to inspect its books and accounts insofar as they relate to loans insured under this subpart.

§ 178.42 Transfer of insured loan.

(a) A loan insured under this subpart shall not be transferred or assigned,

including assignment as security, except to another eligible lender.

(b) The Commissioner shall be notified of any assignment of a note insured under this subpart where the right to receive interest payments has also been assigned. The borrower shall be notified of the assignment of any note insured under this subpart where the assignment results in his being required to make installment payments or direct other matters connected with the loan to another party.

(c) The approval of the Commissioner is required prior to transfer or assignment of a note to any eligible lender who has not entered into an agreement with the Commissioner pursuant to this subpart. The Commissioner shall approve such transfer or assignment only if he has assurance that all matters required of lenders under this part will be complied with by one or more of the parties to such transfer or assignment.

(d) The insurance coverage on notes transferred or assigned in accordance with the provisions of this section shall remain in full force and effect and any matters required to lenders in order to perfect a claim on such notes under this part may be performed by the transferee or assignee.

§ 178.43 Termination of insurance.

The agreement covering insurance of loans provided for in § 178.32 may be terminated after reasonable notice and an opportunity for a hearing, if the Commissioner finds the lender has failed to comply with any of the provisions of this part including (1) the exercise of reasonable care and diligence in the making and collection of loans, (2) payment of premiums required pursuant to § 178.36, or (3) the filing of such reports and the keeping of such records as may be required pursuant to § 178.41. After issuance to and the receipt of such notice by the lender, and pending action taken on the basis of a hearing, if any, the Commissioner shall no longer issue certificates of loan insurance pursuant to § 178.32(b).

§ 178.44 Forbearance.

Nothing in this subpart shall be construed to preclude any forbearance for the benefit of the student borrower which may be agreed upon by the parties to the insured loan and approved by the Commissioner.

The purpose of this part is to provide for awards as authorized by sections 403, 404, and 405 of title IV of the Civil Rights Act of 1964, as amended, for technical assistance, training institutes, and grants to school boards in connection with desegregation of public elementary and secondary schools. (42 U.S.C. 2000c) § 180.02

Definitions.

Except as otherwise specified, the following definitions shall apply to the terms used in this part:

(a) (1) "Desegregation" means (except for purposes of §§ 180.16 and 180.26) the assignment of students to public schools and within such schools without