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 a statement of any financial aids which are to be made available to him 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 pursuing his 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 made under programs covered under this part and Part 178 of this chapter.

§ 177.45 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 year of the unpaid principal balance of the loan (excluding interest or other charges which may have been added to the 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.

§ 177.46 Disbursement and repayment of loans.

(a) Evidence of indebtedness. All insurable loans shall be evidenced by a promissory note which meets the requirements of section 427(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) Disbursement. A lender may make a loan to a student borrower in such installments as are deemed appropriate by the lender, except that the proceeds disbursed during a given semester, quarter, or term should not be greater than the amount required by the student for that academic period. 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.

(d) 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.

(e) Repayment period. The terms of the note shall provide: (1) For repayment over a period of not less than 5 years, nor more than 10 years from the commencement of the repayment period, but except as otherwise specifically provided for in this part, in no event over a period in excess of 15 years from the date of execution of the note; and (2) that the total of 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 made under programs covered under this part or Part 178 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.

(f) 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 eligible institution, (2) not in excess of 3 years, during which the borrower is a member of the Armed Forces of the United States, (3) not in excess of 3 years during which the borrower is in service as a volunteer under the Peace Corps Act or (4) not in excess of 3 years during which the borrower is in service as a full-time volunteer under title VIII of the Economic Opportunity Act of 1964. Where repayment of the loan is deferred, the period of deferment shall not be included in the minimum or maximum periods allowed for repayment of the loan provided for in paragraph (e) of this section.

(g) 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).

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

(i) 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.

§ 177.47

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 such obligation is to be canceled on account of death shall be made by the holder on the basis of a certification 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 such obligation is to be canceled on account of total and permanent disability shall be made by the holder subject to the approval of the Commissioner.

§ 177.48 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 § 177.1(n)) or has been canceled in accordance with § 177.47 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 in the case of default may be made at such time as the lender has determined, 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 submitted 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 holder's knowledge and belief, the borrower is not entitled to deferment of the repayment of the principal of the loan as provided for in § 177.46 (f). 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 determination. 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

§ 177.49

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 and as provided for in § 177.7.

(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 com

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plied 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 of lenders in order to perfect a claim on such notes under this part may be performed by the transferee or assignee.

§ 177.50

Termination of insurance.

An agreement covering insurance of loans provided for in § 177.42 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 (a) the exercise of reasonable care and diligence in the making and collection of loans, (b) payment of premiums required pursuant to § 177.45 or (c) the filing of such reports and the keeping of such records as may be required pursuant to § 177.8. 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 insure loans made by the lender or be liable under a comprehensive certificate of insurance. § 177.51 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.

(a) "Act" means the National Vocational Student Loan Insurance Act of 1965 (P.L. 89-287, 79 Stat. 1037-1049, 20 U.S.C. 981-996).

(b) "Internal Revenue Code" means the Internal Revenue Code of 1954 as amended (Title 26, United States Code).

(c) "Academic year" means the period of time in which a full-time student would normally be expected to complete 28 semester hours, 42 quarter hours, or 900 clock hours of instruction or its equivalent.

(d) "Commissioner" means the U.S. Commissioner of Education or his designee.

(e) "Eligible institution" or "institution" means a business or trade school,

or technical institution or other technical or vocational school in any State which (1) admits as regular students only persons who have completed or left elementary or secondary school and who have the ability to benefit from the training offered by such institution; (2) is legally authorized to provide, and provides within that State, a program of postsecondary vocational or technical education designed to fit individuals for useful employment in recognized occupations; (3) has been in existence for 2 years or has been specially accredited by the Commissioner as an institution meeting the other requirements of this paragraph; and (4) is accredited (1) by a nationally recognized accrediting agency or association listed by the Commissioner pursuant to this paragraph, (ii) if the Commissioner determines there is no nationally recognized accrediting agency or association qualified to accredit schools of a particular category, by a State agency listed by the Commissioner pursuant to this paragraph, and (iii) if the Commissioner determines there is no nationally recognized or State agency or association qualified to accredit schools of a particular category, by an advisory committee appointed by him and composed of persons specially qualified to evaluate training provided by schools of that category, which committee shall prescribe the standards of content, scope and quality which must be met by those schools in order for loans to students attending them to be insurable under the Act, and shall also determine whether particular schools meet those standards. For the purpose of this paragraph, the Commissioner shall publish a list of nationally recognized accrediting agencies or associations and State agencies which he determines to be reliable authority as to the quality of education or training afforded.

(f) "Program of postsecondary vocational or technical education" means a program of vocational or technical education designed to provide occupational skills more advanced than those generally provided at the high school level and which provides not less than 300 clock hours of classroom instruction or its equivalent, or in the case of a program offered by correspondence, requiring normal completion in not less than 6 months.

(g) "Eligible lender" means an eligible institution as defined in paragraph (e) of this section, or an agency or in

strumentality of a State, or a financial or credit institution (including banks, credit unions, savings and loan associations and insurance companies) which is subject to examination and supervision by an agency of the United States or of any State.

(h) The term "State" includes, in addition to the several States of the Union, the Commonwealth of Puerto Rico, the District of Columbia, Guam, American Samoa, the Virgin Islands, and the Trust Territory of the Pacific Islands.

(i) "Nonprofit", as applied to an agency, organization or institution, means owned and operated by one or more nonprofit corporations or associations no part of the net earnings of which inures, or may lawfully inure, to the benefit of any private shareholder or individual.

(j) "Full-time student" means a student who is enrolled in, and is carrying a sufficient number of credit hours or clock hours to complete the training program in which he is enrolled in no more than the number of semesters, terms or clock hours normally taken therefor at the institution in which he is enrolled. This term includes any student who is pursuing any combination of work experience, or special stud<courses, ies (whether or not for credit) which the institution considers full-time study, but in no case less than 25 clock hours or 14 semester or quarter hours of instruction, or its equivalent.

(k) "Half-time student" means a student who is carrying at least one-half the normal full-time workload as described in paragraph (j) of this section. All students engaged in a program of study by correspondence which is offered as requiring at least 12 hours preparation per week shall be considered halftime students for the purpose of this part.

(1) "Guarantee agency" means the State agency or private nonprofit institution or organization administering a .student loan insurance program.

(m) "Holder" means only an eligible lender or an assignee who meets the qualifications of an eligible lender, but in no event includes the guarantee agency with respect to loans insured by it.

(n) "Default" means the failure to make an installment payment when due, or to comply with other terms of the note or other written evidence of agreement, which persists (e.g., is not cured either by payment or other appropriate

arrangements) in the case of a loan repayment in monthly installments for 120 days, or in the case of a loan repayable in less frequent installments for 180 days.

(0) "State student loan insurance program" means a program under which a State agency is authorized to insure loans, and to enter into agreements with the Commissioner, and which extends to one or more categories of students who are residents of the State.

(p) "Totally and permanently disabled" means the inability to engage in any substantial gainful activity because of a medically determinable impairment, which impairment is expected to continue for a long and indefinite period of time or to result in death.

[31 F.R. 14942, Nov. 26, 1966, as amended at 33 F.R. 374, Jan. 10, 1968]

§ 178.2 Student eligibility for interest benefits.

(a) A student (1) who has received a loan from an eligible lender under (i) a student loan insurance program meeting the requirements of § 178.12 or § 178.13, (ii) a direct State student loan program meeting the requirements of § 178.14, or (iii) the program of Federal loan insurance provided for in Subpart D of this part, (2) who is enrolled or has been accepted for enrollment as at least a halftime student in an eligible institution, (3) whose adjusted family income is less than $15,000 and (4) who is a national of the United States, or is in the United States for other than a temporary purpose and intends to become a permanent resident thereof, or has his principal actual dwelling place, of a continuing and lasting nature as distinguished from temporary, without regard to his intent, in the Trust Territory of the Pacific Islands is eligible for payment on his behalf of a portion of the interest as determined under § 178.15 or § 178.38.

(b) To have interest payments made on his behalf, a student shall submit to the lender a statement in such form as the Commissioner shall prescribe, which shall include:

(1) A certification by an eligible institution that he is enrolled at the institution or has been accepted for enrollment;

(2) An assurance by the student that the loan on which interest payments are to be made has not been and will not be used for any purpose other than for the