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reported, and the Federal share returned to the Federal Government, by the due date of the required report which identifies the excess monies. The school's determination is subject to the review and approval of the Secretary.

(b) Funds established with Federal capital loans. (1) Each Federal capital loan is subject to the terms of the promissory note executed by an authorized official on behalf of the borrowing school.

(2) The Federal capital loans must be carried in a special account of the school, to be used by the school only for (i) repayments of principal and interest on Federal capital loans; and (ii) costs of litigation; costs associated with membership in credit bureaus; and, to the extent specifically approved by the Secretary, other collection costs that exceed the usual expenses incurred in the collection of health professions student loans.

(c) Failure to comply with the requirements of this section will subject a school to the noncompliance provisions of $57.218 and the Department's Claims Collections regulations (45 CFR part 30), as appropriate. (Approved by the Office of Management and Budget under control number 0915-0047) (44 FR 29055, May 18, 1979, as amended at 48 FR 25069, June 3, 1983; 56 FR 40725, Aug. 15, 1991; 61 FR 6123, Feb. 16, 1996)

(iv) Of exceptional financial need in the case of students of medicine or osteopathic medicine. A student will be considered to demonstrate exceptional financial need if the school determines that his or her resources, as described in paragraph (b)(1) of this section, do no exceed the lesser of $6,700 or onehalf of the costs of attendance at the school. Summer earnings, educational loans, veterans (G.I.) benefits and earnings during the school year will not be considered as resources in determining whether an applicant meets the eligibility criteria for exceptional financial need, but will be considered in determining the amount of funds a student may receive; and

(v) In compliance with the requirement to register for the draft, if required to do so under section 3 of the Military Selective Service Act.

(2) An applicant who has previously attended an institution of higher education must submit a financial aid transcript which includes at least the following data:

(i) Applicant's name and social security number;

(ii) Amounts and sources of loans and grants previously received by the applicant for study at an institution of higher education;

(iii) Whether the applicant is in default on any of these loans, or owes a refund on any grants;

(iv) Certification from each institution previously attended by the applicant that the applicant has received no financial aid, if applicable; and

(v) From each institution previously attended, the signature of an official authorized by the institution to sign such transcripts on behalf of the institution.

(b) Selection of applicants. The school will select qualified applicants, including medical (M.D. and D.O.) applicants, and determine the amount of student loans by considering:

(1) The financial resources available to the student by using one of the national need analysis systems or any other procedure approved by the Secretary of Education in combination with other information which the school has regarding the student's financial status. The school must take

$57.206 Eligibility and selection of

health professions student loan ap

plicants. (a) Determination of eligibility. (1) Applicants are eligible for consideration for a health professions student loan if they are:

(i) Residents of the United States and either a citizen or national of the United States, an alien lawfully admitted for permanent residence in the United States, a citizen of the Commonwealth of the Northern Mariana Islands, a citizen of the Republic of Palau, a citizen of the Republic of the Marshall Islands, or a citizen of the Federated States of Micronesia;

(ii) Enrolled, or accepted for enrollment in the school as full-time students;

(iii) In need of the amount of the loan to pursue a full-time course of study at the school;

The maximum amount loaned during a 12-month period to any student enrolled in a school which provides a course of study longer than the 9month school year may be proportionately increased.

into account, regardless of the tax status of the student, the expected contribution from parents, spouse, self or other family members; and

(2) The costs reasonably necessary for the student's attendance at the school, including any special needs and obligations which directly affect the student's ability to attend the school on a full-time basis. The school must document the criteria used for determining these costs.

(c) Selection of medical (M.D. and D.O.) student applicants. In addition to the factors in $57.206(b), the school must select medical (M.D. and D.O.) students graduating after June 30, 1979, based on the order of greatest need, taking into consideration the other resources available to the student through the school. For purposes of establishing priority for selecting medical (M.D. and D.O.) student applicants to receive health professions student loans, summer earnings, educational loans, veterans (G.I.) benefits, and earnings during the school year will be considered as financial resources.

(d) Verification of loan information. The school must verify, to the best of its ability, the information provided by the student on the loan application. To comply with this requirement, a school may require that a student provide, for example: Photocopies of the parents', student's, and spouse's Federal income tax forms with original signatures for the most recent tax year (or certification that no Federal income tax return was filed); tax returns that are certified as having been received by the Internal Revenue Service; or other documentation that the school considers necessary to help assure that information on the loan application is correct. (Approved by the Office of Management and Budget under control number 0915-0047) (44 FR 32698, June 7, 1979, as amended at 48 FR 25069, June 3, 1983; 49 FR 38112, Sept. 27, 1984; 52 FR 20987, June 3, 1987; 53 FR 46549, Nov. 17, 1988; 56 FR 19293, Apr. 26, 1991; 61 FR 6123, Feb. 16, 1996) $57.207 Maximum amount of health

professions student loans. The total of the health professions student loans made from the fund to any student for a school year may not exceed $2,500 and the cost of tuition.

$57.208 Health professions student

loan promissory note and disclo

sure requirements. (a) Promissory note form. Each health professions student loan must be evidenced by a properly executed promissory note in a form approved by the Secretary. The school must safeguard the promissory note against fire, theft, and tampering.

(1) Each promissory note must state that the loan will bear interest on the unpaid balance computed only for periods during which repayment of the loan is required, at the rate of 5 percent per year.

(2) Each promissory note must contain an acceleration clause provided by the Secretary, which will permit the acceleration of delinquent loans at the school's option.

(3) A copy of each executed note must be supplied by the school to the student borrower.

(b) Security. A school must require security or endorsement if the borrower is a minor and if, under the applicable State law, the note signed by him or her would not create a binding obligation. The school may not require security or endorsement in any other circumstances.

(c) Disclosure requirements. (1) For any loan made after June 30, 1986, the school shall, at the time the loan is made, provide the following loan information to the student:

(i) The yearly and cumulative maximum amounts that may be borrowed by the student;

(ii) The terms under which repayment of the loan will begin;

(iii) The maximum number of years in which the loan must be repaid;

(iv) The interest rate that will be paid by the borrower and the minimum amount of the required monthly payment;

(v) The amount of any other fees charged to the borrower by the lender;

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(vi) Any options the borrower may have for deferral, cancellation, prepayment, consolidation, or other refinancing of the loan;

(vii) A definition of default on the loan and a specification of the consequences which will result to the borrower if the borrower defaults, including a description of any arrangements which may be made with credit bureau organizations;

(viii) To the extent practicable, the effect of accepting the loan on the eligibility of the borrower for other forms of student assistance; and

(ix) A description of the actions that may be taken by the Federal Government to collect the loan, including a description of the type of information concerning the borrower that the Federal Government may disclose to:

(A) Officers, employees, or agents of the Department of Health and Human Services,

(B) Officers, employees, or agents of schools with which the Secretary has an agreement under this subpart, or

(C) Any other person involved in the collection of a loan under this subpart.

(2) For any loan made after June 30, 1986, the school shall, prior to the borrower's completion or termination of studies at the school, provide the following loan information to the student:

(i) Each amount borrowed by the student under this subpart;

(ii) The total amount borrowed by the student under this subpart; and

(iii) A schedule for the repayment of the amounts borrowed under this subpart, including the number, amount, and frequency of payments to be made.

(3) In addition to the requirements set forth in paragraphs (c)(1) and (c)(2) of this section, the school must comply with the applicable requirements of Truth in Lending Regulation Z (12 CFR part 226).

$57.209 Payment of health professions

student loans. (a) Health professions student loans from any fund may be paid to or on behalf of student borrowers in installments considered appropriate by the school except that a school may not pay to or on behalf of any borrower more during any given installment period (e.g., semester, term, or quarter) than the school determines the student needs for that period.

(b) No payment may be made from a fund to or on behalf of any student borrower if at the time of the payment the borrower is not a full-time student. 8 57.210 Repayment and collection of

health professions student loans. (a) Each health professions student loan, including accrued interests, will be repayable in equal or graduated periodic installments in amounts calculated on the basis of a 10-year repayment period. Except as otherwise provided in this paragraph, repayment of a loan must begin one year after the student ceases to be a full-time student.

(1) If a borrower reenters the same or another school as a full-time student within the 1-year period, the date upon which interest will accrue and the repayment period will begin will be determined by the date on which the student last ceases to be a full-time student at that school.

(2) The following periods will be excluded from the 10-year repayment period:

(i) All periods for up to a total of 3 years of active duty performed by the borrower as a member of the Army, Navy, Air Force, Marine Corps, Coast Guard, National Oceanic and Atmospheric Administration Corps or the U.S. Public Health Service Corps;

(ii) All periods for up to a total of 3 years of service as a volunteer under the Peace Corps Act;

(iii) All periods of advanced professional training including internships and residencies, except as specified in paragraph (a)(2)(vi) of this section;

(iv) All periods during which the borrower is pursuing a full-time course of study at an eligible health professions school;

(v) A period not in excess of 2 years during which a borrower who is a full

(Approved by the Office of Management and Budget under control number 0915-0047) (44 FR 29055, May 18, 1979, as amended at 48 FR 25069, June 3, 1983; 50 FR 34420, Aug. 23, 1985; 52 FR 20987, June 3, 1987; 56 FR 19293, Apr. 26, 1991; 57 FR 45734, Oct. 5, 1992)

time student in a health professions rower's participation in such training. school leaves the school, with the in- To qualify for such deferment, the feltent to return to such school as a full- lowship training program must be one time student, to engage in a full-time which: educational activity which is directly (1) Is a full-time activity in research related to the health profession for or research training or in health care which the individual is preparing. To policy; and qualify for such deferment, the full- (2) Is a formally established fellowtime educational activity must be one ship program which was not created for which:

a specific individual; or (A) Is part of a joint-degree program (B) A full-time educational activity or a formal program of joint study in which is directly related to the health conjunction with the health profession profession for which the borrower prefor which the borrower is preparing at pared at the school, as determined by the school; or

the school from which the borrower re(B) Is an activity which will enhance ceived his or her loan, and is engaged the borrower's knowledge and skills in in by the borrower no later than 12 the health profession for which the bor- months after the completion of the rower is preparing at the school, as de- borrower's participation in advanced termined by the school.

professional training as described in The borrower must request such paragraph (a)(2)(iii) of this section, or deferment from the school in which he prior to the completion of the boror she is enrolled no later than 60 days rower's participation in such training. prior to leaving such school to engage To qualify for such deferment, the fullin the full-time educational activity. time educational activity must be one The school must then determine, no which: later than 30 days prior to the bor- (1) Is part of a joint-degree program rower's leaving such school, whether in conjunction with the health profesthe borrower qualifies for such sion for which the borrower prepared at deferment. A borrower who qualifies the school; or for this type of deferment receives the (2) Is required for licensure, registragrace period upon completion or termi- tion, or certification in the health pronation of his or her studies leading to fession for which the borrower received the first professional degree in the the HPSL loan; or health discipline being pursued. If the (3) Is a full-time educational program borrower fails to return to school, the in public health, health administraschool retroactively must begin the tion, or a health care discipline diborrower's grace period based on the rectly related to the health profession date the borrower terminated his or for which the borrower received the her studies at the school, and must loan. begin the repayment period imme- (3) To receive a deferment, a bordiately following the end of the grace rower must, no later than 30 days prior period; and

to the onset of the activity (or no later (vi) A period not in excess of 2 years than 30 days prior to the due date of during which a borrower who is a grad- the first payment if the borrower beuate of a health professions school par- gins the activity during the grace peticipates in:

riod), and annually thereafter, provide (A) A fellowship training program the lending school with evidence of his which is directly related to the health or her status in the deferrable activity, profession for which the borrower pre- and evidence that verifies deferment pared at the school, as determined by eligibility of the activity. This evithe school from which the borrower re- dence must include certification by the ceived his or her loan, and is engaged Program Director or other authorized in by the borrower no later than 12 official that the borrower's activity months after the completion of the meets the deferment requirements. The borrower's participation in advanced borrower must also notify the school professional training as described in upon completion or termination of the paragraph (a)(2)(iii) of this section, or activity. It is the responsibility of the prior to the completion of such bor- borrower to provide the lending school

with all required information or other information regarding the requested deferment. The school may deny a request for deferment if it is not filed in accordance with the requirements of this section.

(4) Subject to the provisions of paragraph (b)(3) of this section, a borrower must establish a repayment schedule with the school providing for payments not less often than quarterly. Any borrower whose repayment is delinquent more than 60 days must establish a monthly repayment schedule with the school. However, a borrower may at his or her option and without penalty, prepay all or part of the principal and accrued interest at any time.

(5) A school may grant forbearance whenever extraordinary circumstances such as unemployment, poor health or other personal problems temporarily affect the borrower's ability to make scheduled loan repayments.

(b)(1) Each school at which a fund is established must exercise due diligence in the collection of health professions student loans due the fund. In the exercise of due diligence, a school must follow procedures which are at least as extensive and effective as those used in the collection of other student loan accounts due the school, and must use the steps outlined below in accordance with collection practices which are generally accepted among institutions of higher education:

(i) Conduct and document an trance interview (individually or in groups) with the borrower prior to disbursing HPSL funds in an academic year. During the entrance interview the school must obtain documentation which indicates that the borrower is aware of the rights and responsibilities associated with HPSL funds and personal information which would assist in locating the borrower if he or she fails to keep the school informed of his or her current address. The requirements of this subparagraph may be met by correspondence, if the school determines that a face-to-face meeting (individually or in groups) is impracticable.

(ii) Conduct and document an exit interview (individually or in groups) with the borrower. During the exit interview, the school must provide

each borrower with information necessary to carry out the terms of repayment, remind the borrower of the rights and responsibilities associated with HPSL funds, and update the personal information collected prior to disbursing HPSL funds which would assist in locating the borrower if he or she fails to keep the school informed of his or her current address. If the borrower terminates studies without advance notice, the school must document attempts to inform the borrower of the substance of the exit interview and to secure exit interview information from the borrower by mail.

(iii) Notify the borrower in writing of the impending repayment obligation at least twice during the grace period;

(iv) Notify a borrower who is in deferment status in writing of the impending repayment obligation 1 to 3 months prior to the expiration of the approved period of deferment;

(v) Perform regular billing;

(vi) Follow up past due payments with a series of at least four documented and reasonably spaced attempts to contact the borrower, at least three of which must be in writing at not more than 30-day intervals, prior to the loan becoming 120 days past due, provided that the school has a current address for the borrower;

(vii) Perform address searches when necessary;

(viii) Use collection agents, which may include the use of an internal collection agent;

(ix) Institute legal proceedings against borrowers after all other attempts at collection have failed, unless the school determines, subject to the approval of the Secretary, that such litigation would not be cost-effective; and

(x) Become a member of a credit bureau and notify the credit bureau of accounts past due by more than 120 days. In place of one or more of the procedures outlined above schools may substitute collection techniques that are equally or more effective, but only after they have demonstrated the effectiveness of the techniques and obtained written approval from the Secretary.

(2) Late charge. (i) For any health professions student loan made after June 30, 1969, but prior to October 22,

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