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Notes

34 C.F.R. §§ 674.41–674.46

6 sections in range

§674.41. Due diligence—general requirements.

34 C.F.R. § 674.41

(a)
General. Each institution shall exercise due diligence in collecting loans by complying with the provisions in this subpart. In exercising this responsibility, each institution shall, in addition to complying with the specific provisions of this subpart—
(1)
Keep the borrower informed, on a timely basis, of all changes in the program that affect his or her rights or responsibilities; and
(2)
Respond promptly to all inquiries from the borrower.
(3)
Provide the borrower with information on the availability of the Student Loan Ombudsman's office if the borrower disputes the terms of the loan in writing and the institution does not resolve the dispute.
(b)
Coordination of information. An institution shall ensure that information available in its offices (including the admissions, business, alumni, placement, financial aid and registrar's offices) is provided to those offices responsible for billing and collecting loans, in a timely manner, as needed to determine—
(1)
The enrollment status of the borrower;
(2)
The expected graduation or termination date of the borrower;
(3)
The date the borrower withdraws, is expelled or ceases enrollment on at least a half-time basis; and
(4)
The current name, address, telephone number and Social Security number of the borrower.
Notes, amendments, and revision history

Amendments

[52 FR 45555, Nov. 30, 1987, as amended at 59 FR 61411, Nov. 30, 1994; 64 FR 58312, Oct. 28, 1999]

Source

Source: 52 FR 45555, Nov. 30, 1987, unless otherwise noted.

Authority

Authority: 20 U.S.C. 1071—1087ii; 1087dd(h)(1)(D).

Amendments

[52 FR 45555, Nov. 30, 1987, as amended at 59 FR 61411, Nov. 30, 1994; 64 FR 58312, Oct. 28, 1999]

§674.42. Contact with the borrower.

34 C.F.R. § 674.42

(a)
Disclosure of repayment information. The institution must disclose the following information in a written statement provided to the borrower either shortly before the borrower ceases at least half-time study at the institution or during the exit interview. If the borrower enters the repayment period without the institution's knowledge, the institution must provide the required disclosures to the borrower in writing immediately upon discovering that the borrower has entered the repayment period. The institution must disclose the following information:
(1)
The name and address of the institution to which the debt is owed and the name and address of the official or servicing agent to whom communications should be sent.
(2)
The name and address of the party to which payments should be sent.
(3)
The estimated balance owed by the borrower on the date on which the repayment period is scheduled to begin.
(4)
The stated interest rate on the loan.
(5)
The repayment schedule for all loans covered by the disclosure including the date the first installment payment is due, and the number, amount, and frequency of required payments.
(6)
An explanation of any special options the borrower may have for loan consolidation or other refinancing of the loan, and a statement that the borrower has the right to prepay all or part of the loan at any time without penalty.
(7)
A description of the charges imposed for failure of the borrower to pay all or part of an installment when due.
(8)
A description of any charges that may be imposed as a consequence of default, such as liability for expenses reasonably incurred in attempts by the Secretary or the institution to collect on the loan.
(9)
The total interest charges which the borrower will pay on the loan pursuant to the projected repayment schedule.
(10)
The contact information of a party who, upon request of the borrower, will provide the borrower with a copy of his or her signed promissory note.
(11)
An explanation that if a borrower is required to make minimum monthly repayments, and the borrower has received loans from more than one institution, the borrower must notify the institution if he or she wants the minimum monthly payment determination to be based on payments due to other institutions.
(b)
Exit counseling.
(1)
An institution must ensure that exit counseling is conducted with each borrower either in person, by audiovisual presentation, or by interactive electronic means. The institution must ensure that exit counseling is conducted shortly before the borrower ceases at least half-time study at the institution. As an alternative, in the case of a student enrolled in a correspondence program or a study-abroad program that the institution approves for credit, the borrower may be provided with written counseling material by mail within 30 days after the borrower completes the program. If a borrower withdraws from the institution without the institution's prior knowledge or fails to complete an exit counseling session as required, the institution must ensure that exit counseling is provided through either interactive electronic means or by mailing counseling materials to the borrower at the borrower's last known address within 30 days after learning that the borrower has withdrawn from the institution or failed to complete exit counseling as required.
(2)
The exit counseling must—
(i)
Inform the student as to the average anticipated monthly repayment amount based on the student's indebtedness or on the average indebtedness of students who have obtained Perkins loans for attendance at the institution or in the borrower's program of study;
(ii)
Explain to the borrower the options to prepay each loan and pay each loan on a shorter schedule;
(iii)
Review for the borrower the option to consolidate a Federal Perkins Loan, including the consequences of consolidating a Perkins Loan. Information on the consequences of loan consolidation must include, at a minimum—
(A)
The effects of consolidation on total interest to be paid, fees to be paid, and length of repayment;
(B)
The effects of consolidation on a borrower's underlying loan benefits, including grace periods, loan forgiveness, cancellation, and deferment opportunities;
(C)
The options of the borrower to prepay the loan or to change repayment plans; and
(D)
That borrower benefit programs may vary among different lenders;
(iv)
Include debt-management strategies that are designed to facilitate repayment;
(v)
Explain the use of a Master Promissory Note;
(vi)
Emphasize to the borrower the seriousness and importance of the repayment obligation the borrower is assuming;
(vii)
Describe the likely consequences of default, including adverse credit reports, delinquent debt collection procedures under Federal law, and litigation;
(viii)
Emphasize that the borrower is obligated to repay the full amount of the loan even if the borrower has not completed the program, has not completed the program within the regular time for program completion, is unable to obtain employment upon completion, or is otherwise dissatisfied with or did not receive educational or other services that the borrower purchased from the institution;
(ix)
Provide—
(A)
A general description of the terms and conditions under which a borrower may obtain full or partial forgiveness or cancellation of principal and interest, defer repayment of principal or interest, or be granted an extension of the repayment period or a forbearance on a title IV loan; and
(B)
A copy, either in print or by electronic means, of the information the Secretary makes available pursuant to section 485(d) of the HEA;
(x)
Require the borrower to provide current information concerning name, address, social security number, references, and driver's license number, the borrower's expected permanent address, the address of the borrower's next of kin, as well as the name and address of the borrower's expected employer;
(xi)
Review for the borrower information on the availability of the Student Loan Ombudsman's office;
(xii)
Inform the borrower of the availability of title IV loan information in the National Student Loan Data System (NSLDS) and how NSLDS can be used to obtain title IV loan status information; and
(xiii)
A general description of the types of tax benefits that may be available to borrowers.
(3)
If exit counseling is conducted through interactive electronic means, the institution must take reasonable steps to ensure that each student borrower receives the counseling materials, and participates in and completes the exit counseling.
(4)
The institution must maintain documentation substantiating the institution's compliance with this section for each borrower.
(c)
Contact with the borrower during the initial and post deferment grace periods.
(1)
(i)
For loans with a nine-month initial grace period (NDSLs made before October 1, 1980 and Federal Perkins loans), the institution shall contact the borrower three times within the initial grace period.
(ii)
For loans with a six-month initial or post deferment grace period (loans not described in paragraph (b)(1)(i) of this section), the institution shall contact the borrower twice during the grace period.
(2)
(i)
The institution shall contact the borrower for the first time 90 days after the commencement of any grace period. The institution shall at this time remind the borrower of his or her responsibility to comply with the terms of the loan and shall send the borrower the following information:
(A)
The total amount remaining outstanding on the loan account, including principal and interest accruing over the remaining life of the loan.
(B)
The date and amount of the next required payment.
(ii)
The institution shall contact the borrower the second time 150 days after the commencement of any grace period. The institution shall at this time notify the borrower of the date and amount of the first required payment.
(iii)
The institution shall contact a borrower with a nine-month initial grace period a third time 240 days after the commencement of the grace period, and shall then inform him or her of the date and amount of the first required payment.
Notes, amendments, and revision history

Amendments

[52 FR 45555, Nov. 30, 1987, as amended at 53 FR 49147, Dec. 6, 1988; 57 FR 32346, July 21, 1992; 59 FR 61411, 61415, Nov. 30, 1994; 64 FR 58312, Oct. 28, 1999; 67 FR 67077, Nov. 1, 2002; 74 FR 55661, Oct. 28, 2009]

Source

Source: 52 FR 45555, Nov. 30, 1987, unless otherwise noted.

Authority

Authority: 20 U.S.C. 1071—1087ii; 1087dd(h)(1)(D).

Amendments

[52 FR 45555, Nov. 30, 1987, as amended at 53 FR 49147, Dec. 6, 1988; 57 FR 32346, July 21, 1992; 59 FR 61411, 61415, Nov. 30, 1994; 64 FR 58312, Oct. 28, 1999; 67 FR 67077, Nov. 1, 2002; 74 FR 55661, Oct. 28, 2009]

§674.43. Billing procedures.

34 C.F.R. § 674.43

(a)
The term billing procedures, as used in this subpart, includes that series of actions routinely performed to notify borrowers of payments due on their accounts, to remind borrowers when payments are overdue, and to demand payment of overdue amounts. An institution shall use billing procedures that include at least the following steps:
(1)
If the institution uses a coupon payment system, it shall send the coupons to the borrower at least 30 days before the first payment is due.
(2)
If the institution does not use a coupon system, it shall send to the borrower—
(i)
A written notice giving the name and address of the party to which payments are to be sent and a statement of account at least 30 days before the first payment is due; and
(ii)
A statement of account at least 15 days before the due date of each subsequent payment.
(3)
Notwithstanding paragraph (a)(2)(ii) of this section, if the borrower elects to make payment by means of an electronic transfer of funds from the borrower's bank account, the institution shall send to the borrower an annual statement of account.
(b)
(1)
An institution shall send a first overdue notice within 15 days after the due date for a payment if the institution has not received—
(i)
A payment—
(ii)
A request for deferment; or
(iii)
A request for postponement or for cancellation.
(2)
Subject to § 674.47(a), the institution may assess a late charge for loans made for periods of enrollment beginning on or after January 1, 1986, during the period in which the institution takes any steps described in this section to secure—
(i)
Any part of an installment payment not made when due, or
(ii)
A request for deferment, cancellation, or postponement of repayment on the loan that contains sufficient information to enable the institution to determine whether the borrower is entitled to the relief requested.
(3)
The institution shall determine the amount of the late charge imposed for loans described in paragraph (b)(2) of this section based on either—
(i)
Actual costs incurred for actions required under this section to secure the required payment or information from the borrower; or
(ii)
The average cost incurred for similar attempts to secure payments or information from other borrowers.
(4)
The institution may not require a borrower to pay late charges imposed under paragraph (b)(3) of this section in an amount, for each late payment or request, exceeding 20 percent of the installment payment most recently due.
(5)
The institution—
(i)
Shall determine the amount of the late or penalty charge imposed on loans not described in paragraph (b)(2) of this section in accordance with § 674.31(b)(5) (See appendix E); and
(ii)
May assess this charge only during the period described in paragraph (b)(2) of this section.
(6)
The institution shall notify the borrower of the amount of the charge it has imposed, and whether the institution—
(i)
Has added that amount to the principal amount of the loan as of the first day on which the installment was due; or
(ii)
Demands payment for that amount in full no later than the due date of the next installment.
(c)
If the borrower does not satisfactorily respond to the first overdue notice, the institution shall continue to contact the borrower as follows, until the borrower makes satisfactory repayment arrangements or demonstrates entitlement to deferment, postponement, or cancellation:
(1)
The institution shall send a second overdue notice within 30 days after the first overdue notice is sent.
(2)
The institution shall send a final demand letter within 15 days after the second overdue notice. This letter must inform the borrower that unless the institution receives a payment or a request for deferment, postponement, or cancellation within 30 days of the date of the letter, it will refer the account for collection or litigation, and will report the default to a credit bureau.
(d)
Notwithstanding paragraphs (b) and (c) of this section, an institution may send a borrower a final demand letter if the institution has not within 15 days after the due date received a payment, or a request for deferment. postponement, or cancellation, and if—
(1)
The borrower's repayment history has been unsatisfactory, e.g., the borrower has previously failed to make payment(s) when due or to request deferment, postponement, or cancellation in a timely manner, or has previously received a final demand letter; or
(2)
The institution reasonably concludes that the borrower neither intends to repay the loan nor intends to seek deferment, postponement, or cancellation of the loan.
(e)
(1)
An institution that accelerates a loan as provided in § 674.31 (i.e., makes the entire outstanding balance of the loan, including accrued interest and any applicable late charges, payable immediately) shall—
(i)
Provide the borrower, at least 30 days before the effective date of the acceleration, written notice of its intention to accelerate; and
(ii)
Provide the borrower on or after the effective date of acceleration, written notice of the date on which it accelerated the loan and the total amount due on the loan.
(2)
The institution may provide these notices by including them in other written notices to the borrower, including the final demand letter.
(f)
If the borrower does not respond to the final demand letter within 30 days from the date it was sent, the institution shall attempt to contact the borrower by telephone before beginning collection procedures.
(g)
(1)
An institution shall ensure that any funds collected as a result of billing the borrower are—
(i)
Deposited in interest-bearing bank accounts that are—
(A)
Insured by an agency of the Federal Government; or
(B)
Secured by collateral of reasonably equivalent value; or
(ii)
Invested in low-risk income-producing securities, such as obligations issued or guaranteed by the United States.
(2)
An institution shall exercise the level of care required of a fiduciary with regard to these deposits and investments.
Notes, amendments, and revision history

Amendments

[52 FR 45555, Nov. 30, 1987, as amended at 53 FR 49147, Dec. 6, 1988; 57 FR 32346, July 21, 1992; 59 FR 61412, Nov. 30, 1994; 64 FR 58315, Oct. 28, 1999; 67 FR 67077, Nov. 1, 2002]

Source

Source: 52 FR 45555, Nov. 30, 1987, unless otherwise noted.

Authority

Authority: 20 U.S.C. 1071—1087ii; 1087dd(h)(1)(D).

Amendments

[52 FR 45555, Nov. 30, 1987, as amended at 53 FR 49147, Dec. 6, 1988; 57 FR 32346, July 21, 1992; 59 FR 61412, Nov. 30, 1994; 64 FR 58315, Oct. 28, 1999; 67 FR 67077, Nov. 1, 2002]

§674.44. Address searches.

34 C.F.R. § 674.44

(a)
If mail, other than unclaimed mail, sent to a borrower is returned undelivered, an institution shall take steps to locate the borrower. These steps must include—
(1)
Reviews of records in all appropriate institutional offices;
(2)
Reviews of telephone directories or inquiries of information operators in the locale of the borrower's last known address; and
(3)
If, after following the procedures in paragraph (a) of this section, an institution is still unable to locate a borrower, the institution may use the Internal Revenue Service skip-tracing service.
(b)
If an institution is unable to locate a borrower by the means described in paragraph (a) of this section, it shall—
(1)
Use its own personnel to attempt to locate the borrower, employing and documenting efforts comparable to commonly accepted commercial skip-tracing practices; or
(2)
Refer the account to a firm that provides commercial skip-tracing services.
(c)
If the institution acquires the borrower's address or telephone number through the efforts described in this section, it shall use that new information to continue its efforts to collect on that borrower's account in accordance with the requirements of this subpart.
(d)
If the institution is unable to locate the borrower after following the procedures in paragraphs (a) and (b) of this section, the institution shall make reasonable attempts to locate the borrower at least twice a year until—
(1)
The loan is recovered through litigation;
(2)
The account is assigned to the United States; or
(3)
The account is written off under § 674.47(g).
Notes, amendments, and revision history

Amendments

[52 FR 45555, Nov. 30, 1987, as amended at 59 FR 61412, Nov. 30, 1994]

Source

Source: 52 FR 45555, Nov. 30, 1987, unless otherwise noted.

Authority

Authority: 20 U.S.C. 1071—1087ii; 1087dd(h)(1)(D).

Amendments

[52 FR 45555, Nov. 30, 1987, as amended at 59 FR 61412, Nov. 30, 1994]

§674.45. Collection procedures.

34 C.F.R. § 674.45

(a)
The term “collection procedures,” as used in this subpart, includes that series of more intensive efforts, including litigation as described in § 674.46, to recover amounts owed from defaulted borrowers who do not respond satisfactorily to the demands routinely made as part of the institution's billing procedures. If a borrower does not satisfactorily respond to the final demand letter or the following telephone contact made in accordance with § 674.43(f), the institution shall—
(1)
Report the account as being in default to any one national credit bureau; and
(2)
(i)
Use its own personnel to collect the amount due; or
(ii)
Engage a collection firm to collect the account.
(b)
(1)
An institution must report to any national credit bureau to which it reported the default, according to the reporting procedures of the national credit bureau, any changes to the account status of the loan.
(2)
The institution must resolve, within 30 days of its receipt, any inquiry from any credit bureau that disputes the completeness or accuracy of information reported on the loan.
(c)
(1)
If the institution, or the firm it engages, pursues collection activity for up to 12 months and does not succeed in converting the account to regular repayment status, or the borrower does not qualify for deferment, postponement, or cancellation on the loan, the institution shall—
(i)
Litigate in accordance with the procedures in § 674.46;
(ii)
Make a second effort to collect the account as follows—
(A)
If the institution first attempted to collect the account using its own personnel, it shall refer the account to a collection firm.
(B)
If the institution first attempted to collect the account by using a collection firm, it shall either attempt to collect the account using institutional personnel, or place the account with a different collection firm; or
(iii)
Submit the account for assignment to the Secretary in accordance with the procedures set forth in § 674.50.
(2)
If the collection firm retained by the institution does not succeed in placing an account into a repayment status described in paragraph (c)(1) of this section after 12 months of collection activity, the institution shall require the collection firm to return the account to the institution.
(d)
If the institution is unable to place the loan in repayment as described in paragraph (c)(1) of this section after following the procedures in paragraphs (a), (b), and (c) of this section, the institution shall continue to make annual attempts to collect from the borrower until—
(1)
The loan is recovered through litigation;
(2)
The account is assigned to the United States; or
(3)
The account is written off under § 674.47(g).
(e)
(1)
Subject to § 674.47(d), the institution shall assess against the borrower all reasonable costs incurred by the institution with regard to a loan obligation.
(2)
The institution shall determine the amount of collection costs that shall be charged to the borrower for actions required under this section, and §§ 674.44, 674.46, 674. 48, and 674.49, based on either—
(i)
Actual costs incurred for these actions with regard to the individual borrower's loan; or
(ii)
Average costs incurred for similar actions taken to collect loans in similar stages of delinquency.
(3)
For loans placed with a collection firm on or after July 1, 2008, reasonable collection costs charged to the borrower may not exceed—
(i)
For first collection efforts, 30 percent of the amount of principal, interest, and late charges collected;
(ii)
For second and subsequent collection efforts, 40 percent of the amount of principal, interest, and late charges collected; and
(iii)
For collection efforts resulting from litigation, 40 percent of the amount of principal, interest, and late charges collected plus court costs.
(4)
The Fund must be reimbursed for collection costs initially charged to the Fund and subsequently paid by the borrower.
(f)
(1)
An institution shall ensure that any funds collected from the borrower are—
(i)
Deposited in interest-bearing bank accounts that are—
(A)
Insured by an agency of the Federal Government; or
(B)
Secured by collateral of reasonably equivalent value; or
(ii)
Invested in low-risk income-producing securities, such as obligations issued or guaranteed by the United States.
(2)
An institution shall exercise the level of care required of a fiduciary with regard to these deposits and investments.
(g)
Preemption of State law. The provisions of this section preempt any State law, including State statutes, regulations, or rules, that would conflict with or hinder satisfaction of the requirements or frustrate the purposes of this section.
(h)
As part of the collection activities provided for in this section, the institution must provide the borrower with information on the availability of the Student Loan Ombudsman's office.
Notes, amendments, and revision history

Amendments

[52 FR 45555, Nov. 30, 1987, as amended at 53 FR 49147, Dec. 6, 1988; 57 FR 32346, July 21, 1992; 59 FR 61412, Nov. 30, 1994; 62 FR 50848, Sept. 26, 1997; 64 FR 58312, Oct. 28, 1999; 67 FR 67077, Nov. 1, 2002; 72 FR 61997, Nov. 1, 2007]

Source

Source: 52 FR 45555, Nov. 30, 1987, unless otherwise noted.

Authority

Authority: 20 U.S.C. 1071—1087ii; 1087dd(h)(1)(D).

Amendments

[52 FR 45555, Nov. 30, 1987, as amended at 53 FR 49147, Dec. 6, 1988; 57 FR 32346, July 21, 1992; 59 FR 61412, Nov. 30, 1994; 62 FR 50848, Sept. 26, 1997; 64 FR 58312, Oct. 28, 1999; 67 FR 67077, Nov. 1, 2002; 72 FR 61997, Nov. 1, 2007]

§674.46. Litigation procedures.

34 C.F.R. § 674.46

(a)
(1)
If the collection efforts described in § 674.45 do not result in the repayment of a loan, the institution shall determine at least once every two years whether—
(i)
The total amount owing on the borrower's account, including outstanding principal, accrued interest, collection costs and late charges on all of the borrower's Federal Perkins, NDSL and National Defense Student Loans held by that institution, is more than $500;
(ii)
The borrower can be located and served with process;
(iii)
(A)
The borrower has sufficient assets attachable under State law to satisfy a major portion of the oustanding debt; or
(B)
The borrower has income from wages or salary which may be garnished under applicable State law sufficient to satisfy a major portion of the debt over a reasonable period of time;
(iv)
The borrower does not have a defense that will bar judgment for the institution; and
(v)
The expected cost of litigation, including attorney's fees, does not exceed the amount which can be recovered from the borrower.
(2)
The institution shall sue the borrower if it determines that the conditions in paragraph (a)(1) of this section are met.
(3)
The institution may sue a borrower in default, even if the conditions in paragraph (a)(1) of this section are not met.
(b)
The institution shall assess against and attempt to recover from the borrower—
(1)
All litigation costs, including attorney's fees, court costs and other related costs, to the extent permitted under applicable law; and
(2)
All prior collection costs incurred and not yet paid by the borrower.
(c)
(1)
An institution shall ensure that any funds collected as a result of litigation procedures are—
(i)
Deposited in interest-bearing bank accounts that are—
(A)
Insured by an agency of the Federal Government; or
(B)
Secured by collateral of reasonably equivalent value; or
(ii)
Invested in low-risk income-producing securities, such as obligations issued or guaranteed by the United States.
(2)
An institution shall exercise the level of care required of a fiduciary with regard to these deposits and investments.
(d)
If the institution is unable to collect the full amount owing on the loan after following the procedures set forth in §§ 674.41 through 674.46, the institution may—
(1)
Submit the account to the Secretary for assignment in accordance with the procedures in § 674.50; or
(2)
With the Secretary's approval, refer the account to the Department for collection.
Notes, amendments, and revision history

Amendments

[52 FR 45555, Nov. 30, 1987, as amended at 59 FR 61412, 61415, Nov. 30, 1994; 67 FR 67077, Nov. 1, 2002]

Source

Source: 52 FR 45555, Nov. 30, 1987, unless otherwise noted.

Authority

Authority: 20 U.S.C. 1071—1087ii; 1087dd(h)(1)(D).

Amendments

[52 FR 45555, Nov. 30, 1987, as amended at 59 FR 61412, 61415, Nov. 30, 1994; 67 FR 67077, Nov. 1, 2002]