 
      CHAPTER 28--HIGHER EDUCATION RESOURCES AND STUDENT ASSISTANCE
 
                    SUBCHAPTER IV--STUDENT ASSISTANCE
 
              Part B--Federal Family Education Loan Program
 
Sec. 1080. Default of student under Federal loan insurance 
        program
        

(a) Notice to Secretary and payment of loss

    Upon default by the student borrower on any loan covered by Federal 
loan insurance pursuant to this part, and prior to the commencement of 
suit or other enforcement proceedings upon security for that loan, the 
insurance beneficiary shall promptly notify the Secretary, and the 
Secretary shall if requested (at that time or after further collection 
efforts) by the beneficiary, or may on the Secretary's own motion, if 
the insurance is still in effect, pay to the beneficiary the amount of 
the loss sustained by the insured upon that loan as soon as that amount 
has been determined. The ``amount of the loss'' on any loan shall, for 
the purposes of this subsection and subsection (b) of this section, be 
deemed to be an amount equal to the unpaid balance of the principal 
amount and accrued interest, including interest accruing from the date 
of submission of a valid default claim (as determined by the Secretary) 
to the date on which payment is authorized by the Secretary, reduced to 
the extent required by section 1075(b) of this title. Such beneficiary 
shall be required to meet the standards of due diligence in the 
collection of the loan and shall be required to submit proof that the 
institution was contacted and other reasonable attempts were made to 
locate the borrower (when the location of the borrower is unknown) and 
proof that contact was made with the borrower (when the location is 
known). The Secretary shall make the determination required to carry out 
the provisions of this section not later than 90 days after the 
notification by the insurance beneficiary and shall make payment in full 
on the amount of the beneficiary's loss pending completion of the due 
diligence investigation.

(b) Effect of payment of loss

    Upon payment of the amount of the loss pursuant to subsection (a) of 
this section, the United States shall be subrogated for all of the 
rights of the holder of the obligation upon the insured loan and shall 
be entitled to an assignment of the note or other evidence of the 
insured loan by the insurance beneficiary. If the net recovery made by 
the Secretary on a loan after deduction of the cost of that recovery 
(including reasonable administrative costs and collection costs, to the 
extent set forth in regulations issued by the Secretary) exceeds the 
amount of the loss, the excess shall be paid over to the insured. The 
Secretary may, in attempting to make recovery on such loans, contract 
with private business concerns, State student loan insurance agencies, 
or State guaranty agencies, for payment for services rendered by such 
concerns or agencies in assisting the Secretary in making such recovery. 
Any contract under this subsection entered into by the Secretary shall 
provide that attempts to make recovery on such loans shall be fair and 
reasonable, and do not involve harassment, intimidation, false or 
misleading representations, or unnecessary communications concerning the 
existence of any such loan to persons other than the student borrower.

(c) Forbearance not precluded

    Nothing in this section or in this part 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 Secretary, or to preclude forbearance by the Secretary in the 
enforcement of the insured obligation after payment on that insurance. 
Any forbearance which is approved by the Secretary under this subsection 
with respect to the repayment of a loan, including a forbearance during 
default, shall not be considered as indicating that a holder of a 
federally insured loan has failed to exercise reasonable care and due 
diligence in the collection of the loan.

(d) Care and diligence required of holders

    Nothing in this section or in this part shall be construed to excuse 
the holder of a federally insured loan from exercising reasonable care 
and diligence in the making and collection of loans under the provisions 
of this part. If the Secretary, after a reasonable notice and 
opportunity for hearing to an eligible lender, finds that it has 
substantially failed to exercise such care and diligence or to make the 
reports and statements required under section 1078(a)(4) of this title 
and section 1079(a)(3) of this title, or to pay the required Federal 
loan insurance premiums, the Secretary shall disqualify that lender for 
further Federal insurance on loans granted pursuant to this part until 
the Secretary is satisfied that its failure has ceased and finds that 
there is reasonable assurance that the lender will in the future 
exercise necessary care and diligence or comply with such requirements, 
as the case may be.

(e) Default rate of lenders, holders, and guaranty agencies

                           (1) In general

        The Secretary shall annually publish a list indicating the 
    cohort default rate (determined in accordance with section 1085(m) 
    of this title) for each originating lender, subsequent holder, and 
    guaranty agency participating in the program assisted under this 
    part and an average cohort default rate for all institutions of 
    higher education within each State.

                           (2) Regulations

        The Secretary shall prescribe regulations designed to prevent an 
    institution from evading the application to that institution of a 
    cohort default rate through the use of such measures as branching, 
    consolidation, change of ownership or control, or any similar 
    device.

                (3) Rate establishment and correction

        The Secretary shall establish a cohort default rate for lenders, 
    holders, and guaranty agencies (determined consistent with section 
    1085(m) of this title), except that the rate for lenders, holders, 
    and guaranty agencies shall not reflect any loans issued in 
    accordance with section 1078(j) of this title. The Secretary shall 
    allow institutions, lenders, holders, and guaranty agencies the 
    opportunity to correct such cohort default rate information.

(Pub. L. 89-329, title IV, Sec. 430, as added Pub. L. 99-498, title IV, 
Sec. 402(a), Oct. 17, 1986, 100 Stat. 1397; amended Pub. L. 102-325, 
title IV, Sec. 423, July 23, 1992, 106 Stat. 543; Pub. L. 105-244, title 
IV, Sec. 426, Oct. 7, 1998, 112 Stat. 1702.)


                            Prior Provisions

    A prior section 1080, Pub. L. 89-329, title IV, Sec. 430, Nov. 8, 
1965, 79 Stat. 1244; Pub. L. 90-575, title I, Sec. 113(b)(5), Oct. 16, 
1968, 82 Stat. 1021; Pub. L. 92-318, title I, Sec. 132B(c), June 23, 
1972, 86 Stat. 262; Pub. L. 94-482, title I, Sec. 127(a), Oct. 12, 1976, 
90 Stat. 2125; Pub. L. 95-43, Sec. 1(a)(33), June 15, 1977, 91 Stat. 
216; Pub. L. 96-374, title IV, Secs. 416(a)(1), (b), 422, title XIII, 
Sec. 1391(a)(1), Oct. 3, 1980, 94 Stat. 1420, 1421, 1432, 1503; Pub. L. 
99-272, title XVI, Secs. 16014(a)(2), 16022, Apr. 7, 1986, 100 Stat. 
341, 349, related to default of student borrowers under Federal loan 
insurance program, prior to the general revision of this part by Pub. L. 
99-498.


                               Amendments

    1998--Subsec. (a). Pub. L. 105-244 inserted ``the institution was 
contacted and other'' after ``submit proof that'' in third sentence.
    1992--Subsec. (e). Pub. L. 102-325 added subsec. (e).


                    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.


                      Study of Fraud-Based Defenses

    Pub. L. 102-325, title XIV, Sec. 1403, July 23, 1992, 106 Stat. 817, 
directed Secretary of Education to conduct a study of impact of fraud-
based defenses on Federal Family Education Loan Program and to submit a 
report to Congress on the study not later than 19 months after July 23, 
1992, prior to repeal by Pub. L. 105-332, Sec. 6(b)(2), Oct. 31, 1998, 
112 Stat. 3128.

                  Section Referred to in Other Sections

    This section is referred to in sections 1075, 1079, 1080a, 1082, 
1092b of this title.
