ten inquiries and other communications from a borrower and any endorser of a HEAL loan.

(b) Conversion of loan to repayment status. (1) When a lender determines that a borrower's loan is about to enter the repayment period, the lender must promptly contact the borrower in order to establish the terms of repayment.

(2) Terms of repayment are established in a written schedule that is made a part of, and subject to the terms of, the borrower's original HEAL note.

(3) The lender may not surrender the original promissory note to the borrower until the loan is paid in full. At that time, the lender must give the borrower the original promissory note. (Approved by the Office of Management and Budget under control number 09150043)

§ 60.35 HEAL loan collection.

A lender must exercise due diligence in the collection of a HEAL loan with respect to both a borrower and any endorser. In order to exercise due diligence, a lender must implement the following procedures when a borrower fails to honor his or her payment obligations:

(a) When a borrower is delinquent in making a payment, the lender must remind the borrower within 15 working days of the date the payment was due by means of a letter, telephone call, or personal contact. If payments do not resume, the lender must attempt to contact both the borrower and any endorser at least three more times at regular intervals during the following 4-month period. These contacts must become progressively more firm in tone.

(b) When a borrower is 60 days delinquent in making a payment, the lender must request preclaim assistance from the Public Health Service. This preclaim assistance consists of a series of letters to the borrower urging the borrower to contact the lender and resume payments. The Secretary does not pay a default claim if the lender fails to request preclaim assistance in this situation.

(c) If a lender does not sue the borrower, it must send a final demand

letter to the borrower and any endorser at least 30 days before a default claim is filed.

(d) A lender may omit any or all overdue notices, including the final demand letter, when the borrower's correct address is unknown. However, the lender must attempt to locate the borrower through normal commercial collection techniques, including contacting any endorser or other individual named on the borrower's application. If these efforts are unsuccessful, the lender must request assistance through use of the Public Health Service preclaim assistance. If the Public Health Service preclaim assistance locates the borrower, the lender must implement the due diligence procedures described under § 60.35(a)-(c). When the Public Health Service preclaim assistance is unable to locate the borrower, a default claim may be filed by the lender. The Secretary does not pay a default claim if the lender fails to request preclaim assistance where the borrower's address is unknown.

(e) If a lender sues a defaulted borrower or endorser, it may first apply the proceeds of any judgment against its reasonable attorney's fees and court costs, whether or not the judgment provides for these fees and costs. (Approved by the Office of Management and Budget under control number 09150036)

(b) A lender may exercise forbearance in accordance with terms that are consistent with the minimum annual payment requirement and the 25- and 33-year limitations on length of repayment (described in § 60.11) if the lender and borrower agree in writing to the new terms.

(c) A lender may also exercise forbearance for periods of up to 6 months in accordance with terms that are inconsistent with the minimum annual payment requirement if the lender complies with the requirements listed below. Subsequent renewals of the forbearance must also be documented in accordance with the following requirements:

(1) The lender must reasonably believe that the borrower intends to repay the loan but is currently unable to make payments in accordance with the terms of the loan note. The lender must state the basis for its belief in writing and maintain that statement in its loan file on that borrower.

(2) Both the borrower and an authorized official of the lender must sign a written agreement of forbear

ance.

(3) If the agreement between the borrower and lender provides for deferment of all payments, the lender must contact the borrower at least every 3 months during the period of forbearance in order to remind the borrower of the outstanding obligation to repay.

(Approved by the Office of Management and Budget under control number 09150036)

§ 60.38 Assignment of a HEAL loan.

A HEAL note may not be assigned except to another HEAL lender or the Student Loan Marketing Association (popularly known as “Sallie Mae") and except as provided in § 60.40. In this section "seller" means any kind of assignor and "buyer” means any kind of assignee.

(a) Procedure. A HEAL note assigned from one lender to another must be subject to a blanket endorsement together with other HEAL notes being assigned or must individually bear effective words of assignment. Either the blanket endorsement or the HEAL note must be signed and dated by an

authorized official of the seller. The buyer must notify the Secretary of the assignment within 30 days of the transaction. The buyer must assure that the borrower is notified if the assignment results in the borrower being required to make installment payments or direct other matters connected with the loan to a party other than the seller. The notice to the borrower must contain a clear statement of all the borrower's rights and responsibilities which arise from the assignment of the loan, including a statement regarding the consequences of making payments to the seller subsequent to receipt of the notice.

(b) Risks assumed by the buyer. Upon acquiring a HEAL loan, a new holder assumes responsibility for the consequences of any previous violations of applicable statutes, regulations, or the terms of the note except for defects under § 60.41(d). A HEAL note is not a negotiable instrument, and a subsequent holder is not a holder in due course. If the borrower has a valid legal defense that could be asserted against the previous holder, the borrower can also assert the defense against the new holder. In this situation, if the new holder files a default claim on a loan, the Secretary denies the default claim to the extent of the borrower's defense. Furthermore, when a new holder files a claim on a HEAL loan, it must provide the Secretary with the same documentation that would have been required of the original lender.

(c) Warranty. Nothing in this section precludes the buyer of a HEAL loan from obtaining a warranty from the seller covering certain future reductions by the Secretary in computing the amount of insurable loss, if any, on a claim filed on the loan. The warranty may only cover reductions which are attributable to an act or failure to act of the seller or other previous holder. The warranty may not cover matters for which the buyer is charged with responsibility under the HEAL regulations.

(Approved by the Office of Management and Budget under control number 09150035

§ 60.39 Death and disability claims.

(a) Death. The Secretary will discharge a borrower's liability on the loan in accordance with section 738 of the Act upon the death of the borrower. The holder of the loan may not attempt to collect on the loan from the borrower's estate or any endorser. The holder must secure a certification of death or whatever official proof is conclusive under State law. The holder must return to the sender any payments, except for refunds under § 60.21, received from the estate of the borrower or paid on behalf of the borrower after the date of death.

(b) Disability. (1) The Secretary will discharge a borrower's liability on the loan in accordance with section 738 of the Act if the borrower is found to be permanently and totally disabled on recommendation of the holder of the loan and as supported by whatever medical certification the Secretary may require. A borrower is totally and permanently disabled if he or she is unable to engage in any substantial gainful activity because of a medically determinable impairment, which the Secretary expects to continue for a long and indefinite period of time or to result in death.

(2) After being notified by the borrower or the borrower's representative that the borrower claims to be totally and permanently disabled, the holder of the loan may not attempt to collect on the loan from the borrower or any endorser. The holder must promptly request that the Secretary determine whether a borrower has become totally and permanently disabled. With its request, the holder must submit medical evidence no more than 4 months old that it has obtained from the borrower or the borrower's representative.

(3) If the Secretary determines that the borrower is totally and permanently disabled, the lender must return to the borrower any payments, except for refunds under § 60.21, that it receives after being notified that the borrower claims to be totally and permanently disabled.

(Approved by the Office of Management and Budget under control number 09150036)

§ 60.40 Procedures for filing claims.

(a) A lender must file an insurance claim on a form provided by the Secretary. The lender must attach to the claim all documentation which the Secretary may require. Failure to submit the required documentation may result in a claim not being honored. The Secretary may also deny a claim that is not filed promptly. The Secretary requires for all claims the following documentation:

(1) The original promissory note;
(2) The loan application; and
(3) History of any payments.

(b) The Secretary's payment of a claim is contingent upon receipt of all required documentation and an assignment to the United States of America of all right, title, and interest of the lender in the note underlying the claim. The lender must warrant that the loan is eligible for HEAL insur

ance.

(c) In addition, the lender must comply with the following requirements for the filing of default, death, disability, and bankruptcy claims:

a

(1) Default claims .(i) Unless lender has notified the Secretary that it has filed suit against a defaulted borrower, it must file a default claim with the Secretary within 60 days after a loan has been determined to be in default. Default means the persistent failure of the borrower to make a payment when due or to comply with other terms of the note or other written agreement evidencing a loan, under circumstances where the Secretary finds it reasonable to conclude that the borrower no longer intends to honor the obligation to repay. In the case of a loan repayable (or on which interest is payable) in monthly installments, this failure must have persisted for 120 days. In the case of a loan repayable (or on which interest is payable) in less frequent installments, this failure must have persisted for 180 days.

(ii) In addition to the documentation required for all claims, the lender must submit with its default claim the following:

(A) The repayment schedule; (B) A collection history;