
From the U.S. Code Online via GPO Access
[wais.access.gpo.gov]
[Laws in effect as of January 23, 2000]
[Document not affected by Public Laws enacted between
  January 23, 2000 and December 4, 2001]
[CITE: 42USC292f]

 
                 TITLE 42--THE PUBLIC HEALTH AND WELFARE
 
                    CHAPTER 6A--PUBLIC HEALTH SERVICE
 
               SUBCHAPTER V--HEALTH PROFESSIONS EDUCATION
 
                          Part A--Student Loans
 
    subpart i--insured health education assistance loans to graduate 
                                students
 
Sec. 292f. Default of borrower


(a) Conditions for payment to beneficiary

                           (1) In general

        Upon default by the borrower on any loan covered by Federal loan 
    insurance pursuant to this subpart, and after a substantial 
    collection effort (including, subject to subsection (h) of this 
    section, commencement and prosecution of an action) as determined 
    under regulations of the Secretary, 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 his 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, except that, if the insurance beneficiary including any 
    servicer of the loan is not designated for ``exceptional 
    performance'', as set forth in paragraph (2), the Secretary shall 
    pay to the beneficiary a sum equal to 98 percent of the amount of 
    the loss sustained by the insured upon that loan.

                     (2) Exceptional performance

        (A) Authority

            Where the Secretary determines that an eligible lender, 
        holder, or servicer has a compliance performance rating that 
        equals or exceeds 97 percent, the Secretary shall designate that 
        eligible lender, holder, or servicer, as the case may be, for 
        exceptional performance.

        (B) Compliance performance rating

            For purposes of subparagraph (A), a compliance performance 
        rating is determined with respect to compliance with due 
        diligence in the disbursement, servicing, and collection of 
        loans under this subpart for each year for which the 
        determination is made. Such rating shall be equal to the 
        percentage of all due diligence requirements applicable to each 
        loan, on average, as established by the Secretary, with respect 
        to loans serviced during the period by the eligible lender, 
        holder, or servicer.

        (C) Annual audits for lenders, holders, and servicers

            Each eligible lender, holder, or servicer desiring a 
        designation under subparagraph (A) shall have an annual 
        financial and compliance audit conducted with respect to the 
        loan portfolio of such eligible lender, holder, or servicer, by 
        a qualified independent organization from a list of qualified 
        organizations identified by the Secretary and in accordance with 
        standards established by the Secretary. The standards shall 
        measure the lender's, holder's, or servicer's compliance with 
        due diligence standards and shall include a defined statistical 
        sampling technique designed to measure the performance rating of 
        the eligible lender, holder, or servicer for the purpose of this 
        section. Each eligible lender, holder, or servicer shall submit 
        the audit required by this section to the Secretary.

        (D) Secretary's determinations

            The Secretary shall make the determination under 
        subparagraph (A) based upon the audits submitted under this 
        paragraph and any information in the possession of the Secretary 
        or submitted by any other agency or office of the Federal 
        Government.

        (E) Quarterly compliance audit

            To maintain its status as an exceptional performer, the 
        lender, holder, or servicer shall undergo a quarterly compliance 
        audit at the end of each quarter (other than the quarter in 
        which status as an exceptional performer is established through 
        a financial and compliance audit, as described in subparagraph 
        (C)), and submit the results of such audit to the Secretary. The 
        compliance audit shall review compliance with due diligence 
        requirements for the period beginning on the day after the 
        ending date of the previous audit, in accordance with standards 
        determined by the Secretary.

        (F) Revocation authority

            The Secretary shall revoke the designation of a lender, 
        holder, or servicer under subparagraph (A) if any quarterly 
        audit required under subparagraph (E) is not received by the 
        Secretary by the date established by the Secretary or if the 
        audit indicates the lender, holder, or servicer has failed to 
        meet the standards for designation as an exceptional performer 
        under subparagraph (A). A lender, holder, or servicer receiving 
        a compliance audit not meeting the standard for designation as 
        an exceptional performer may reapply for designation under 
        subparagraph (A) at any time.

        (G) Documentation

            Nothing in this section shall restrict or limit the 
        authority of the Secretary to require the submission of claims 
        documentation evidencing servicing performed on loans, except 
        that the Secretary may not require exceptional performers to 
        submit greater documentation than that required for lenders, 
        holders, and servicers not designated under subparagraph (A).

        (H) Cost of audits

            Each eligible lender, holder, or servicer shall pay for all 
        the costs associated with the audits required under this 
        section.

        (I) Additional revocation authority

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

        (J) Noncompliance

            A lender, holder, or servicer designated under subparagraph 
        (A) that fails to service loans or otherwise comply with 
        applicable program regulations shall be considered in violation 
        of the Federal False Claims Act.

(b) Subrogation

    Upon payment by the Secretary 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) exceeds the 
amount of the loss, the excess shall be paid over to the insured. The 
Secretary may sell without recourse to eligible lenders (or other 
entities that the Secretary determines are capable of dealing in such 
loans) notes or other evidence of loans received through assignment 
under the first sentence.

(c) Forbearance

    Nothing in this section or in this subpart shall be construed to 
preclude any forbearance for the benefit of the 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.

(d) Reasonable care and diligence regarding loans

    Nothing in this section or in this subpart shall be construed to 
excuse the eligible lender or holder of a federally insured loan from 
exercising reasonable care and diligence in the making of loans under 
the provisions of this subpart and from exercising a substantial effort 
in the collection of loans under the provisions of this subpart. If the 
Secretary, after reasonable notice and opportunity for hearing to an 
eligible lender, finds that the lender has failed to exercise such care 
and diligence, to exercise such substantial efforts, to make the reports 
and statements required under section 292e(a)(3) of this title, or to 
pay the required Federal loan insurance premiums, he shall disqualify 
that lender from obtaining further Federal insurance on loans granted 
pursuant to this subpart until he 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, exercise 
substantial effort, or comply with such requirements, as the case may 
be.

(e) Definitions

    For purposes of this section:
        (1) The term ``insurance beneficiary'' means the insured or its 
    authorized assignee in accordance with section 292e(c) of this 
    title.
        (2) The term ``amount of the loss'' means, with respect to a 
    loan, unpaid balance of the principal amount and interest on such 
    loan, less the amount of any judgment collected pursuant to default 
    proceedings commenced by the eligible lender or holder involved.
        (3) The term ``default'' includes only such defaults as have 
    existed for 120 days.
        (4) The term ``servicer'' means any agency acting on behalf of 
    the insurance beneficiary.

(f) Reductions in Federal reimbursements or payments for defaulting 
        borrowers

    The Secretary shall, after notice and opportunity for a hearing, 
cause to be reduced Federal reimbursements or payments for health 
services under any Federal law to borrowers who are practicing their 
professions and have defaulted on their loans insured under this subpart 
in amounts up to the remaining balance of such loans. Procedures for 
reduction of payments under the medicare program are provided under 
section 1395ccc of this title. Notwithstanding such section 1395ccc of 
this title, any funds recovered under this subsection shall be deposited 
in the insurance fund established under section 292i of this title.

(g) Conditions for discharge of debt in bankruptcy

    Notwithstanding any other provision of Federal or State law, a debt 
that is a loan insured under the authority of this subpart may be 
released by a discharge in bankruptcy under any chapter of title 11, 
only if such discharge is granted--
        (1) after the expiration of the seven-year period beginning on 
    the first date when repayment of such loan is required, exclusive of 
    any period after such date in which the obligation to pay 
    installments on the loan is suspended;
        (2) upon a finding by the Bankruptcy Court that the nondischarge 
    of such debt would be unconscionable; and
        (3) upon the condition that the Secretary shall not have waived 
    the Secretary's rights to apply subsection (f) of this section to 
    the borrower and the discharged debt.

(h) Requirement regarding actions for default

                           (1) In general

        With respect to the default by a borrower on any loan covered by 
    Federal loan insurance under this subpart, the Secretary shall, 
    under subsection (a) of this section, require an eligible lender or 
    holder to commence and prosecute an action for such default unless--
            (A) in the determination of the Secretary--
                (i) the eligible lender or holder has made reasonable 
            efforts to serve process on the borrower involved and has 
            been unsuccessful with respect to such efforts, or
                (ii) prosecution of such an action would be fruitless 
            because of the financial or other circumstances of the 
            borrower;

            (B) for such loans made before November 4, 1988, the loan 
        involved was made in an amount of less than $5,000; or
            (C) for such loans made after November 4, 1988, the loan 
        involved was made in an amount of less than $2,500.

                (2) Relationship to claim for payment

        With respect to an eligible lender or holder that has commenced 
    an action pursuant to subsection (a) of this section, the Secretary 
    shall make the payment required in such subsection, or deny the 
    claim for such payment, not later than 60 days after the date on 
    which the Secretary determines that the lender or holder has made 
    reasonable efforts to secure a judgment and collect on the judgment 
    entered into pursuant to this subsection.

                      (3) State court judgments

        With respect to any State court judgment that is obtained by a 
    lender or holder against a borrower for default on a loan insured 
    under this subpart and that is subrogated to the United States under 
    subsection (b) of this section, any United States attorney may 
    register such judgment with the Federal courts for enforcement.

(i) Inapplicability of Federal and State statute of limitations on 
        actions for loan collection

    Notwithstanding any other provision of Federal or State law, there 
shall be no limitation on the period within which suit may be filed, a 
judgment may be enforced, or an offset, garnishment, or other action may 
be initiated or taken by the Secretary, the Attorney General, or other 
administrative head of another Federal agency, as the case may be, for 
the repayment of the amount due from a borrower on a loan made under 
this subpart that has been assigned to the Secretary under subsection 
(b) of this section.

(j) School collection assistance

    An institution or postgraduate training program attended by a 
borrower may assist in the collection of any loan of that borrower made 
under this subpart which becomes delinquent, including providing 
information concerning the borrower to the Secretary and to past and 
present lenders and holders of the borrower's loans, contacting the 
borrower in order to encourage repayment, and withholding services in 
accordance with regulations issued by the Secretary under section 
292n(a)(7) of this title. The institution or postgraduate training 
program shall not be subject to section 1692g of title 15 for purposes 
of carrying out activities authorized by this section.

(July 1, 1944, ch. 373, title VII, Sec. 707, as added Pub. L. 102-408, 
title I, Sec. 102, Oct. 13, 1992, 106 Stat. 2002; amended Pub. L. 103-
43, title XX, Sec. 2014(a)(2), June 10, 1993, 107 Stat. 215; Pub. L. 
105-392, title I, Secs. 142(a), (b), 144(a), Nov. 13, 1998, 112 Stat. 
3579, 3581.)

                       References in Text

    The Federal False Claims Act, referred to in subsec. (a)(2)(J), 
probably means the False Claims Act which was the popular name for 
sections 231, 232, 233, and 235 of former Title 31, Money and Finance. 
Sections 231, 232, 233, and 235 were repealed by Pub. L. 97-258, 
Sec. 5(b), Sept. 13, 1982, 96 Stat. 1084, and reenacted by the first 
section thereof as sections 3729 to 3731 of Title 31, Money and Finance.


                            Prior Provisions

    A prior section 292f, act July 1, 1944, ch. 373, title VII, 
Sec. 706, as added Oct. 12, 1976, Pub. L. 94-484, title II, Sec. 204, 90 
Stat. 2249, authorized contracts under this subchapter without regard to 
certain provisions, prior to the general revision of this subchapter by 
Pub. L. 102-408.
    Another prior section 292f, act July 1, 1944, ch. 373, title VII, 
Sec. 707, as added July 30, 1956, ch. 779, Sec. 2, 70 Stat. 720; amended 
Oct. 5, 1961, Pub. L. 87-395, Sec. 8(d), 75 Stat. 827; Sept. 24, 1963, 
Pub. L. 88-129, Sec. 2(a), 77 Stat. 164; Nov. 18, 1971, Pub. L. 92-157, 
title I, Sec. 102(k)(2)(A), 85 Stat. 437, provided for recapture of 
payments relating to grants for construction of health research 
facilities, prior to repeal by Pub. L. 94-484, title II, Sec. 201(a), 
Oct. 12, 1976, 90 Stat. 2246.
    A prior section 707 of act July 1, 1944, was classified to section 
292g of this title prior to the general revision of this subchapter by 
Pub. L. 102-408.


                               Amendments

    1998--Subsec. (a). Pub. L. 105-392, Sec. 142(a), designated existing 
provisions as par. (1), inserted heading, substituted ``determined, 
except that, if the insurance beneficiary including any servicer of the 
loan is not designated for `exceptional performance', as set forth in 
paragraph (2), the Secretary shall pay to the beneficiary a sum equal to 
98 percent of the amount of the loss sustained by the insured upon that 
loan.'' for ``determined.'', struck out at end ``Not later than one year 
after October 13, 1992, the Secretary shall establish performance 
standards for lenders and holders of loans under this subpart, including 
fees to be imposed for failing to meet such standards.'', and added par. 
(2).
    Subsec. (e)(4). Pub. L. 105-392, Sec. 142(b), added par. (4).
    Subsec. (g). Pub. L. 105-392, Sec. 144(a), substituted 
``Notwithstanding any other provision of Federal or State law, a debt 
that is a loan insured'' for ``A debt which is a loan insured'' in 
introductory provisions.
    1993--Subsec. (g)(1). Pub. L. 103-43, Sec. 2014(a)(2)(A), amended 
par. (1) generally. Prior to amendment, par. (1) read as follows: 
``after the expiration of the five-year period beginning on the first 
date, as specified in subparagraphs (B) and (C) of section 292d(a)(2) of 
this title, when repayment of such loan is required;''.
    Subsec. (j). Pub. L. 103-43, Sec. 2014(a)(2)(B), added subsec. (j).


                    Effective Date of 1998 Amendment

    Pub. L. 105-392, title I, Sec. 142(c), Nov. 13, 1998, 112 Stat. 
3581, provided that: ``The amendments made by subsections (a) and (b) 
[amending this section] shall apply with respect to loans submitted to 
the Secretary for payment on or after the first day of the sixth month 
that begins after the date of enactment of this Act [Nov. 13, 1998].''
    Pub. L. 105-392, title I, Sec. 144(b), Nov. 13, 1998, 112 Stat. 
3581, provided that: ``The amendment made by subsection (a) [amending 
this section] shall apply to any loan insured under the authority of 
subpart I of part A of title VII of the Public Health Service Act (42 
U.S.C. 292 et seq.) that is listed or scheduled by the debtor in a case 
under title XI, United States Code [Title 11, Bankruptcy], filed--
        ``(1) on or after the date of enactment of this Act [Nov. 13, 
    1998]; or
        ``(2) prior to such date of enactment in which a discharge has 
    not been granted.''

                  Section Referred to in Other Sections

    This section is referred to in sections 292b, 292o of this title.
