 
      CHAPTER 28--HIGHER EDUCATION RESOURCES AND STUDENT ASSISTANCE
 
                    SUBCHAPTER IV--STUDENT ASSISTANCE
 
              Part B--Federal Family Education Loan Program
 
Sec. 1078-9. Special insurance and reinsurance rules


(a) Designation of lenders, servicers, and guaranty agencies

                            (1) Authority

        Whenever the Secretary determines that an eligible lender, 
    servicer, or guaranty agency has a compliance performance rating 
    that equals or exceeds 97 percent, the Secretary shall designate the 
    eligible lender, servicer, or guaranty agency, as the case may be, 
    for exceptional performance. The Secretary shall notify each 
    appropriate guaranty agency of the eligible lenders and servicers 
    designated under this section.

                  (2) Compliance performance rating

        For purposes of paragraph (1), a compliance performance rating 
    is determined with respect to compliance with due diligence in the 
    collection of loans under this part for each year for which the 
    determination is made. Such rating is equal to the percent of all 
    due diligence requirements applicable to each loan, on average, as 
    established by the Secretary by regulation, with respect to--
            (A) loans serviced during the period by the eligible lender 
        or servicer; or
            (B) loans on which loan collection was attempted by the 
        guaranty agency.

(b) Payment to lenders and servicers

                    (1) 100 percent payment rule

        Each guaranty agency shall pay each eligible lender or servicer 
    (as agent for an eligible lender) designated under subsection (a) of 
    this section 100 percent of the unpaid principal and interest of all 
    loans for which claims are submitted for payment by that eligible 
    lender or servicer for the one-year period following the receipt by 
    the guaranty agency of the notification of designation under this 
    section or until the guaranty agency receives notice from the 
    Secretary that the designation of the lender or servicer under 
    subsection (a) of this section has been revoked.

                      (2) Revocation authority

        The Secretary shall revoke the designation of a lender or 
    servicer under subsection (a) of this section if any quarterly audit 
    required under subsection (c)(5) of this section is not received by 
    the Secretary by the date established by the Secretary or if the 
    audit indicates the lender or servicer failed to maintain 97 percent 
    or higher compliance with program regulations, as reflected in the 
    performance of not less than 97 percent of all due diligence 
    requirements applicable to each loan, on average, as established by 
    the Secretary for the purpose of this section, for 2 consecutive 
    months or 90 percent for 1 month.

                          (3) Documentation

        Nothing in this section shall restrict or limit the authority of 
    guaranty agencies to require the submission of claims documentation 
    evidencing servicing performed on loans, except that the guaranty 
    agency may not require greater documentation than that required for 
    lenders and servicers not designated under subsection (a) of this 
    section.

                  (4) Payments to guaranty agencies

        The Secretary shall pay to each guaranty agency designated under 
    subsection (a) of this section the appropriate percentage under this 
    subsection for the 1-year period following the receipt by the 
    guaranty agency of the notification of designation under subsection 
    (a) of this section.

(c) Supervision of designated lenders and servicers

                (1) Audits for lenders and servicers

        Each eligible lender or servicer desiring a designation under 
    subsection (a) of this section shall have a financial and compliance 
    audit of the loan portfolio of such eligible lender or servicer 
    conducted annually by a qualified independent organization from a 
    list of qualified organizations promulgated by the Secretary in 
    accordance with standards established by the Comptroller General and 
    the Secretary. The standards shall measure the lender's or 
    servicer's compliance with the due diligence standards and shall 
    include a defined statistical sampling technique designed to measure 
    the performance rating of the eligible lender or servicer for the 
    purpose of this section. Each eligible lender or servicer shall 
    submit the audit required by this section to the Secretary and to 
    each appropriate guaranty agency.

         (2) Additional information on lenders and servicers

        Each appropriate guaranty agency shall provide the Secretary 
    with such other information in its possession regarding an eligible 
    lender or servicer desiring designation as may relate to the 
    Secretary's determination under subsection (a) of this section, 
    including but not limited to any information suggesting that the 
    application of a lender or servicer for designation under subsection 
    (a) of this section should not be approved.

                   (3) Secretary's determinations

        The Secretary shall make the determination under subsection (a) 
    of this section based upon the audits submitted under this section, 
    such other information as provided by any guaranty agency under 
    paragraph (2), and any information in the possession of the 
    Secretary or submitted by any other agency or office of the Federal 
    Government. If the results of the audit are not persuasively 
    rebutted by such other information, the Secretary shall inform the 
    eligible lender or servicer and the appropriate guaranty agency that 
    its application for designation as an exceptional lender or servicer 
    has been approved.

                          (4) Cost of audit

        Each eligible lender or servicer shall pay for all the costs of 
    the audits required under this section.

                        (5) Compliance audit

        In order to maintain its status as an exceptional eligible 
    lender or servicer, the lender or servicer shall undergo a quarterly 
    compliance audit at the end of each quarter (other than the quarter 
    in which status as an exceptional lender or servicer is established 
    through a financial and compliance audit, as described in subsection 
    (c)(1) of this section), and submit the results of such audit to the 
    Secretary and such appropriate guaranty agency. The compliance audit 
    will review compliance with due diligence requirements for the 
    period since the last audit.

                       (6) Loss of designation

        If the audit performed pursuant to paragraph (5) fails to meet 
    the standards for designation as an exceptional lender or servicer 
    under subsection (a)(1) of this section, the lender or servicer 
    shall lose its designation as an exceptional lender or servicer. A 
    lender or servicer receiving a compliance audit not meeting the 
    standard for designation as an exceptional lender or servicer may 
    reapply for designation under subsection (a) of this section at any 
    time.

                     (7) Due diligence standards

        Due diligence standards used for determining compliance under 
    paragraph (5) shall be promulgated by the Secretary after 
    consultation with lenders, guaranty agencies and servicers and shall 
    consist of a list of specific elements for the Federal regulations 
    selected to provide an indication of systems degradation.

                 (8) Additional revocation authority

        Notwithstanding any other provision of this section, designation 
    under subsection (a) of this section may be revoked at any time by 
    the Secretary if the Secretary determines that the eligible lender 
    or servicer has failed to maintain an overall level of regulatory 
    compliance consistent with the audit submitted by the eligible 
    lender or servicer under this section or if the Secretary believes 
    the lender or servicer may have engaged in fraud in securing 
    designation under subsection (a) of this section or is failing to 
    service loans in accordance with program regulations.

(d) Supervision of designated guaranty agencies

                   (1) Audit of guaranty agencies

        Each guaranty agency desiring a designation under subsection (a) 
    of this section shall have a financial and compliance audit of the 
    defaulted loan portfolio of such guaranty agency conducted annually 
    by a qualified independent organization or person from a list of 
    qualified organizations or persons promulgated by the Secretary in 
    accordance with standards established by the Comptroller General and 
    the Secretary. The standards shall include defined statistical 
    sampling techniques designed to measure the performance rating of 
    the guaranty agency for the purpose of this section. Each guaranty 
    agency shall submit the audit required by this paragraph to the 
    Secretary.

                     (2) Quarterly sample audits

        The Secretary may require quarterly sample audits as a means of 
    determining continued qualification of the guaranty agency for 
    designation as an exceptional guaranty agency.

                   (3) Secretary's determinations

        The Secretary shall make the determination under subsection (a) 
    of this section based upon the audits submitted under this section 
    and other information in his possession. If the results of the audit 
    are not persuasively rebutted by such other information, the 
    Secretary shall inform the guaranty agency that its application for 
    designation as an exceptional guaranty agency has been approved.

                         (4) Costs of audits

        Each guaranty agency shall pay for all of the costs of the 
    audits regulated by this section.

                      (5) Revocation for fraud

        The Secretary may revoke the designation of a guaranty agency 
    under subsection (a) of this section at any time if the Secretary 
    has reason to believe the guaranty agency secured its designation 
    under subsection (a) of this section through fraud or fails to 
    comply with applicable regulations.

                 (6) Revocation based on performance

        Designation as an exceptional guaranty agency may be revoked at 
    any time by the Secretary upon 30 days notice and an opportunity for 
    a hearing before the Secretary upon a finding by the Secretary that 
    the guaranty agency has failed to maintain an acceptable overall 
    level of regulatory compliance.

(e) Special rule

    Reimbursements made by the Secretary on loans submitted for claim by 
an eligible lender or loan servicer designated for exceptional 
performance under this section shall not be subject to additional review 
by the Secretary or repurchase by the guaranty agency for any reason 
other than a determination by the Secretary that the eligible lender, 
loan servicer, or guaranty agency engaged in fraud or other purposeful 
misconduct in obtaining designation for exceptional performance.

(f) Limitation

    Nothing in this section shall be construed to affect the processing 
of claims on student loans of eligible lenders not subject to this 
paragraph.

(g) Claims

    A lender, servicer, or guaranty agency designated under subsection 
(a) of this section failing to service loans or otherwise comply with 
applicable program regulations shall be considered in violation of 
section 3729 of title 31.

(h) Evaluation

    Not later than 3 years after July 23, 1992, the Comptroller General 
shall submit to the Chairman of the Senate Labor and Human Resources 
Committee and the House Committee on Education and Labor, an evaluation 
of the provisions of this section including, but not limited to, the 
following:
        (1) The effectiveness of due diligence performed by lenders and 
    servicers receiving designation as exceptional lenders or servicers 
    from the perspective of securing maximum collections from borrowers.
        (2) A quantification of the dollar volume of claims that were 
    paid to exceptional lenders and servicers that would not have been 
    paid under applicable program provisions prior to the enactment of 
    this section.
        (3) An assessment of the impact of this section on the financial 
    condition of guaranty agencies.
        (4) An assessment of the savings to lenders, servicers, and 
    guaranty agencies resulting from designation as exceptional 
    performance.
        (5) An identification of specific administration steps that 
    lenders, servicers, and guaranty agencies do not have to perform as 
    a result of designation as exceptional lenders, servicers, or 
    guaranty agencies.
        (6) A recommendation for program modifications applicable to all 
    program participants based on the findings of the evaluation.
        (7) A recommendation for modifications to this section and 
    whether the program should be continued.

(i) Termination

    After receipt of the study authorized in subsection (h) of this 
section, the Secretary may terminate such program if he determines such 
termination to be in the fiscal interest of the United States.

(j) Definitions

    For the purpose of this section--
        (1) the term ``due diligence requirements'' means the activities 
    required to be performed by lenders on delinquent loans pursuant to 
    regulations issued by the Secretary;
        (2) the term ``eligible loan'' means a loan made, insured or 
    guaranteed under this part;
        (3) the term ``servicer'' means an entity servicing and 
    collecting student loans which--
            (A) has substantial experience in servicing and collecting 
        consumer loans or student loans;
            (B) has an independent financial audit annually which is 
        furnished to the Secretary and any other parties designated by 
        the Secretary;
            (C) has business systems which are capable of meeting the 
        requirements of this part;
            (D) has adequate personnel who are knowledgeable about the 
        student loan programs authorized by this part; and
            (E) does not have any owner, majority shareholder, director, 
        or officer of the entity who has been convicted of a felony.

(Pub. L. 89-329, title IV, Sec. 428I, as added Pub. L. 102-325, title 
IV, Sec. 422, July 23, 1992, 106 Stat. 536; amended Pub. L. 103-208, 
Sec. 2(c)(46), Dec. 20, 1993, 107 Stat. 2467.)

                          Codification

    July 23, 1992, referred to in subsec. (h), was in the original ``the 
date of enactment of this Act'', which was translated as meaning the 
date of enactment of Pub. L. 102-325 which enacted this section, to 
reflect the probable intent of Congress.


                               Amendments

    1993--Subsec. (g). Pub. L. 103-208 substituted ``section 3729 of 
title 31'' for ``the Federal False Claims Act''.

                         Change of Name

    Committee on Education and Labor of House of Representatives treated 
as referring to Committee on Economic and Educational Opportunities of 
House of Representatives by section 1(a) of Pub. L. 104-14, set out as a 
note preceding section 21 of Title 2, The Congress. Committee on 
Economic and Educational Opportunities of House of Representatives 
changed to Committee on Education and the Workforce of House of 
Representatives by House Resolution No. 5, One Hundred Fifth Congress, 
Jan. 7, 1997.


                    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.

                  Section Referred to in Other Sections

    This section is referred to in sections 1078, 1087-1 of this title.
