 
      CHAPTER 28--HIGHER EDUCATION RESOURCES AND STUDENT ASSISTANCE
 
                    SUBCHAPTER IV--STUDENT ASSISTANCE
 
              Part B--Federal Family Education Loan Program
 
Sec. 1078-6. Default reduction program


(a) Other repayment incentives

                          (1) Sale of loan

        (A) Each guaranty agency shall enter into an agreement with the 
    Secretary which shall provide that upon securing consecutive 
    payments for 12 months of amounts owed on a loan for which the 
    Secretary has made a payment under paragraph (1) of section 1078(c) 
    of this title, the guaranty agency (pursuant to an agreement with 
    the Secretary) or the Secretary shall, if practicable, sell the loan 
    to an eligible lender. Such loan shall not be sold to an eligible 
    lender who has been found by the guaranty agency or the Secretary to 
    have substantially failed to exercise the due diligence required of 
    lenders under this part. Neither the guaranty agency nor the 
    Secretary shall demand from a borrower as monthly payment amounts 
    referred to in this paragraph more than is reasonable and affordable 
    based upon the borrower's total financial circumstances.
        (B) An agreement between the guaranty agency and the Secretary 
    for purposes of this paragraph shall provide--
            (i) for the repayment by the agency to the Secretary of 81.5 
        percent of the amount of the principal balance outstanding at 
        the time of such sale, multiplied by the reinsurance percentage 
        in effect when payment under the guaranty agreement was made 
        with respect to the loan; and
            (ii) for the reinstatement by the Secretary (I) of the 
        obligation to reimburse such agency for the amount expended by 
        it in discharge of its insurance obligation under its loan 
        insurance program, and (II) of the obligation to pay to the 
        holder of such loan a special allowance pursuant to section 
        1087-1 of this title.

        (C) A loan which does not meet the requirements of subparagraph 
    (A) may also be eligible for sale under this paragraph upon a 
    determination that the loan was in default due to clerical or data 
    processing error and would not, in the absence of such error, be in 
    a delinquent status.

                    (2) Use of proceeds of sales

        Amounts received by the Secretary pursuant to the sale of such 
    loans by a guaranty agency under paragraph (1) of this subsection 
    shall be deducted from the calculations of the amount of 
    reimbursement for which the agency is eligible under paragraph 
    (1)(B)(ii) of this subsection for the fiscal year in which the 
    amount was received, notwithstanding the fact that the default 
    occurred in a prior fiscal year.

                      (3) Borrower eligibility

        Any borrower whose loan is sold under paragraph (1) shall not be 
    precluded by section 1091 of this title from receiving additional 
    loans or grants under this subchapter and part C of subchapter I of 
    chapter 34 of title 42 (for which he or she is otherwise eligible) 
    on the basis of defaulting on the loan prior to such loan sale.

            (4) Applicability of general loan conditions

        A loan which is sold under paragraph (1) of this subsection 
    shall, so long as the borrower continues to make scheduled 
    repayments thereon, be subject to the same terms and conditions and 
    qualify for the same benefits and privileges as other loans made 
    under this part.

(b) Satisfactory repayment arrangements to renew eligibility

    Each guaranty agency shall establish a program which allows a 
borrower with a defaulted loan or loans to renew eligibility for all 
title IV student financial assistance (regardless of whether the 
defaulted loan has been sold to an eligible lender) upon the borrower's 
payment of 6 consecutive monthly payments. The guaranty agency shall not 
demand from a borrower as a monthly payment amount under this subsection 
more than is reasonable and affordable based upon the borrower's total 
financial circumstances. A borrower may only obtain the benefit of this 
subsection with respect to renewed eligibility once.

(Pub. L. 89-329, title IV, Sec. 428F, as added Pub. L. 99-498, title IV, 
Sec. 402(a), Oct. 17, 1986, 100 Stat. 1394; amended Pub. L. 100-50, 
Sec. 10(u), June 3, 1987, 101 Stat. 346; Pub. L. 101-239, title II, 
Sec. 2005(a), Dec. 19, 1989, 103 Stat. 2116; Pub. L. 102-325, title IV, 
Sec. 420, July 23, 1992, 106 Stat. 534; Pub. L. 103-208, Sec. 2(c)(38)-
(40), Dec. 20, 1993, 107 Stat. 2466; Pub. L. 105-244, title IV, 
Sec. 421, Oct. 7, 1998, 112 Stat. 1696.)

                       References in Text

    Title IV, referred to in subsec. (b), means title IV of the Higher 
Education Act of 1965, Pub. L. 89-329, which is classified generally to 
this subchapter and part C (Sec. 2751 et seq.) of subchapter I of 
chapter 34 of Title 42, The Public Health and Welfare. For complete 
classification of title IV to the Code, see Tables.


                               Amendments

    1998--Subsec. (b). Pub. L. 105-244 substituted ``Satisfactory 
repayment arrangements to renew eligibility'' for ``Special rule'' in 
heading.
    1993--Subsec. (a)(2). Pub. L. 103-208, Sec. 2(c)(38), substituted 
``paragraph (1) of this subsection'' for ``this paragraph'' and ``this 
subsection'' for ``this section''.
    Subsec. (a)(4). Pub. L. 103-208, Sec. 2(c)(39), substituted 
``paragraph (1) of this subsection'' for ``this paragraph''.
    Subsec. (b). Pub. L. 103-208, Sec. 2(c)(40), inserted at end ``A 
borrower may only obtain the benefit of this subsection with respect to 
renewed eligibility once.''
    1992--Subsec. (a). Pub. L. 102-325, Sec. 420(1)-(3), redesignated 
subsec. (b) as (a), in par. (1)(A) substituted ``Each guaranty agency 
shall enter into an agreement with the Secretary which shall provide 
that upon'' for ``Upon'' and inserted provision at end that neither the 
guaranty agency nor the Secretary demand from the borrower as monthly 
payments more than is reasonable and affordable based upon the 
borrower's total financial circumstances, in par. (3) inserted ``or 
grants'' after ``loans'', and struck out former subsec. (a) which 
related to program requirements for the default reduction program.
    Subsec. (b). Pub. L. 102-325, Sec. 420(4), added subsec. (b). Former 
subsec. (b) redesignated (a).
    1989--Pub. L. 101-239 amended section generally, substituting 
provisions relating to default reduction program for former provisions 
relating to rehabilitation of defaulted loans.
    1987--Subsecs. (b), (c). Pub. L. 100-50 redesignated subsec. (c) as 
(b) and struck out former subsec. (b) which read as follows: ``The loans 
which shall be eligible for rehabilitation under this section shall be 
only those loans which are made to borrowers who, at the time of default 
on the loan, are unemployed or institutionalized.''


                    Effective Date of 1998 Amendment

    Amendment by Pub. L. 105-244 effective Oct. 1, 1998, except as 
otherwise provided in Pub. L. 105-244, see section 3 of Pub. L. 105-244, 
set out as a note under section 1001 of this title.


                    Effective Date of 1993 Amendment

    Amendment by Pub. L. 103-208 effective as if included in the Higher 
Education Amendments of 1992, Pub. L. 102-325, except as otherwise 
provided, see section 5(a) of Pub. L. 103-208, set out as a note under 
section 1051 of this title.


                    Effective Date of 1987 Amendment

    Amendment by Pub. L. 100-50 effective as if enacted as part of the 
Higher Education Amendments of 1986, Pub. L. 99-498, see section 27 of 
Pub. L. 100-50, set out as a note under section 1001 of this title.


   Publicity Through Communications Media of Availability of Default 
                            Reduction Program

    Section 2005(b) of Pub. L. 101-239 provided that: ``The Secretary of 
Education shall, from funds available through student loan collections, 
commencing not less than 30 days before the beginning of the default 
reduction program required by the amendment made by this section 
[amending this section], and continuing throughout the duration of such 
program, widely publicize (through various communications media) the 
availability of the default reduction program.''

                  Section Referred to in Other Sections

    This section is referred to in sections 1072a, 1085 of this title.
