Section 682.305 document

TITLE 34--EDUCATION

DEPARTMENT OF EDUCATION

PART 682--FEDERAL FAMILY EDUCATION LOAN (FFEL) PROGRAM--Table of Contents

Subpart C--Federal Payments of Interest and Special Allowance

Sec. 682.305 Procedures for payment of interest benefits and special

allowance and collection of origination and loan fees.

(a) General. (1) If a lender owes origination fees or loan fees

under paragraph (a) of this section, it must submit quarterly reports to

the Secretary on a form provided or prescribed by the Secretary, even if

the lender is not owed, or does not wish to receive, interest benefits

or special allowance from the Secretary.

(2) The lender shall report, on the quarterly report required by

paragraph (a)(1) of this section, the amount of origination fees it was

authorized to collect and the amount of those fees refunded to borrowers

during the quarter covered by the report.

(3)(i)(A) The Secretary reduces the amount of interest benefits and

special allowance payable to the lender by--

(1) The amount of origination fees the lender was authorized to

collect during the quarter under Sec. 682.202(c), whether or not the

lender actually collected that amount; and

(2) The amount of lender fees payable under paragraph (a)(3)(ii) of

this section.

(B) The Secretary increases the amount of interest benefits and

special allowance payable to the lender by the amount of origination

fees refunded to borrowers during the quarter under Sec. 682.202(c).

(ii) For any FFEL loan made on or after October 1, 1993, a lender

shall pay the Secretary a loan fee equal to 0.50% of the principal

amount of the loan.

(iii) The Secretary collects from an originating lender the amount

of origination fees the originating lender was authorized to collect

from borrowers during the quarter whether or not the originating lender

actually collected those fees. The Secretary also collects the fees the

originating lender is required to pay under paragraph (a)(3)(ii) of this

section. Generally, the Secretary collects the fees from the originating

lender by offsetting the amount of interest benefits and special

allowance payable to the originating lender in a quarter, and, if

necessary, the amount of interest benefits and special allowance payable

in subsequent quarters may be offset until the total amount of fees has

been recovered.

(iv) If the full amount of the fees cannot be collected within two

quarters by reducing interest and special allowance payable to the

originating lender, the Secretary may collect the unpaid amount directly

from the originating lender.

(v) If the full amount of the fees cannot be collected within two

quarters from the originating lender in accordance with paragraphs

(a)(3)(iii) and (iv) of this section and if the originating lender has

transferred the loan to a subsequent holder, the Secretary may,

following written notice, collect the unpaid amount from the holder by

using the same steps described in paragraphs (a)(3)(iii) and (iv) of

this section, with the term ``holder'' substituting for the term

``originating lender''.

(4) If an originating lender sells or otherwise transfers a loan to

a new holder, the originating lender remains liable to the Secretary for

payment of the origination fees. The Secretary will not pay interest

benefits or special allowance to the new holder or pay reinsurance to

the guaranty agency until the origination fees are paid to the

Secretary.

(b) Penalty interest. (1)(i) If the Secretary does not pay interest

benefits or the special allowance within 30 days after the Secretary

receives an accurate, timely, and complete request for payment from a

lender, the Secretary pays the lender penalty interest.

(ii) The payment of interest benefits or special allowance is deemed

to occur, for purposes of this paragraph, when the Secretary--

(A) Authorizes the Treasury Department to pay the lender;

(B) Credits the payment due the lender against a debt that the

Secretary determines is owed the Secretary by the lender; or

(C) Authorizes the Treasury Department to pay the amount due by the

lender to another Federal agency for credit against a debt that the

Federal agency has determined the lender owes.

(2) Penalty interest is an amount that accrues daily on interest

benefits and special allowance due to the lender. The penalty interest

is computed by--

(i) Multiplying the daily interest rate applicable to loans on which

payment for interest benefits was requested, by the amount of interest

benefits due on those loans for each interest rate;

(ii) Multiplying the daily special allowance rate applicable to

loans on which special allowance was requested by the amount of special

allowance due on those loans for each interest rate and special

allowance category;

(iii) Adding the results of paragraphs (b)(2)(i) and (ii) of this

section to determine the gross penalty interest to be paid for each day

that penalty interest is due;

(iv) Dividing the results of paragraph (b)(2)(iii) of this section

by the gross amount of interest benefits and special allowance due to

obtain the average penalty interest rate;

(v) Multiplying the rate obtained in paragraph (b)(2)(iv) of this

section by the total amount of reduction to gross interest benefits and

special allowance due (e.g., origination fees or other debts owed to the

Federal Government);

(vi) Subtracting the amount calculated in paragraph (b)(2)(v) of

this section from the amount calculated under paragraph (b)(2)(iii) of

this section to obtain the net amount of penalty interest due per day;

and

(vii) Multiplying the amount calculated in paragraph (b)(2)(vi) of

this section by the number of days calculated under paragraph (b)(3) of

this section.

(3) The Secretary pays penalty interest for the period--

(i) Beginning on the later of--

(A) The 31st day after the final day of the quarter covered by the

request for payment; or

(B) The 31st day after the Secretary's receipt of an accurate,

timely, and complete request for payment from the lender; and

(ii) Ending on the day the Secretary pays the interest benefits and

the special allowance at issue, in accordance with paragraph (b)(1)(ii)

of this section.

(4) A request for interest benefits and special allowance is

considered timely only if it is received by the Secretary within 90 days

following the end of the quarter to which the request pertains.

(5) A request for interest benefits and special allowance is not

considered accurate and complete if it--

(i) Requests payments to which the lender is not entitled under

Secs. 682.300 through 682.302;

(ii) Includes loans that the Secretary, in writing, has directed

that the lender exclude from the request;

(iii) Does not contain all information required by the Secretary or

contains conflicting information; or

(iv) Is not provided and certified on the form and in the manner

prescribed by the Secretary.

(c) Independent audits. (1) If a lender originates or holds more

than $5 million in FFEL loans during its fiscal year, it must submit an

independent annual compliance audit for that year, conducted by a

qualified independent organization or person. The Secretary may,

following written notice, suspend the payment of interest benefits and

special allowance to a lender that does not submit its audit within the

time period prescribed in paragraph (c)(2) of this section.

(2) The audit required under paragraph (c)(1) of this section must--

(i) Examine the lender's compliance with the Act and applicable

regulations;

(ii) Examine the lender's financial management of its FFEL program

activities;

(iii) Be conducted in accordance with the standards for audits

issued by the United States General Accounting Office's (GAO's)

Government Auditing Standards. Procedures for audits are contained in an

audit guide developed by and available from the Office of the Inspector

General of the Department;

(iv) Be conducted at least annually and be submitted to the

Secretary within six months of the end of the audit period. The initial

audit must be of the lender's first fiscal year that begins after July

23, 1992, and must be submitted within six months of the end of the

audit period. Each subsequent audit must cover the lender's activities

for the period beginning no later than the end of the period covered by

the preceding audit;

(v) With regard to a lender that is a governmental entity, the audit

required by this paragraph must be conducted in accordance with 31

U.S.C. 7502 and 34 CFR part 80, appendix G; and

(vi) With regard to a lender that is a nonprofit organization, the

audit required by this paragraph must be conducted in accordance with

OMB Circular A-133, Audit of Institutions of Higher Education and Other

Nonprofit Institutions, as incorporated in 34 CFR 74.61(h)(3). If a

nonprofit lender meets the criteria in Circular A-133 for choosing the

option for a program-specific audit, and so chooses, the program-

specific audit must meet the requirements in paragraphs (c)(1) through

(c)(2)(iv) of this section.

(vii) The Secretary may determine that a lender has met the

requirements of paragraph (c) of this section if the lender has been

audited in accordance with 31 U.S.C. 7502 for other purposes, the lender

submits the results of the audit to the Office of Inspector General, and

the Secretary determines that the audit meets the requirements of this

paragraph.

(Approved by the Office of Management and Budget under control number

1845-0020)

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1082, 1087-1)

[57 FR 60323, Dec. 18, 1992, as amended at 58 FR 9119, Feb. 19, 1993; 59

FR 61428, Nov. 30, 1994; 60 FR 31411, June 15, 1995; 64 FR 18978, Apr.

16, 1999; 64 FR 58627, Oct. 29, 1999]