to taxation) in accordance with paragraph (a) of this section. Income described in clause (2) shall be computed in accordance with instructions issued by the Commissioner.

(c) Exclusion of income of parents or spouse in exceptional circumstances. The income of a parent, or parents living together, shall be excluded from consideration under paragraphs (a) or (b) of this section if the borrower is not and, during the 12 months preceding the determination, has not been (1) residing with, (2) claimed as a dependent for Federal income tax purposes by, nor (3) the recipient of an amount in excess of $600 from, such parent or parents. The income of a spouse shall also be excluded from such consideration where there has been a legal separation approved by a court or a separation which has, in fact, existed for 12 months or more.

(d) Method of determination. The determination of the adjusted family income of a student borrower shall be made on the basis of information submitted on forms supplied or approved by the Commissioner. The determination shall be made by the lender each time funds are advanced, except that no new determination need be made with respect to funds advanced (1) within the same tax year in which a determination was last made or (2) on a line of credit extended after May 31, 1967, where a determination has been made during the preceding 12-month period in connection with funds advanced on such line of credit.

[32 F.R. 8146, June 7, 1967] Subpart B-Interest Benefits-State and Private Nonprofit Student Loan Insurance Programs and Direct State Loan Programs

§ 177.11 In general.

Interest benefits as set forth in § 177.15 are available with respect to loans insured under State and private nonprofit student loan insurance programs meeting the requirements of § 177.12 or §177.13, and with respect to direct State loan programs meeting the requirements of § 177.14.

§ 177.12 Agreements for Federal payments to reduce student interest costs for insured loans.

(a) (1) Except to the extent permitted in § 177.13, interest benefits shall be

available only if the appropriate State agency or private nonprofit institution or organization has first entered into an agreement with the Commissioner pursuant to paragraph (b) of this section. The Commissioner may enter into such an agreement if he determines that the State or private nonprofit student loan insurance program:

(i) Authorizes the insurance of loans in amounts up to least $1,000, but not exceeding $1,500, to any individual student in any academic year or its equivalent after taking into account other loans covered by this part and 45 CFR Part 178 which the student has received in the same academic year or its equivalent;

(ii) Authorizes the insurance of loans to an individual student for at least 6 academic years of study or their equivalent;

(iii) Provides that (a) the student borrower shall be entitled to accelerate without penalty the repayment of the whole or any part of the insured loan, and (b) the insured loan shall be repaid within 15 years from the date of execution of the note or other written evidence of the loan;

(iv) Subject to subdivision (iii) of this subparagraph, provides that, where the total of the insured loans to any student which are held by any one person exceeds $2,000, repayment on such loans shall be in installments over a period of not less than 5 years nor more than 10 years beginning not earlier than 9 months nor later than 1 year after the student ceases to pursue a full-time course of study at an eligible institution, except that if the program provides for the insurance of loans for part-time (less than full-time but not less than one-half time) study at eligible institutions, the program shall provide that such repayment period shall begin not earlier than 9 months and not later than 1 year after the student ceases to carry at an eligible institution at least onehalf the normal full-time academic workload as determined by the institution;

(v) Authorizes interest on the unpaid principal balance of the loan at a yearly rate not in excess of 6 per centum per annum exclusive of any premium for insurance which may be passed on to the

borrower, but such insurance premium may not result in charges in excess of the equivalent of one-half of 1 per centum per annum of the unpaid principal;

(vi) Insures not less than 80 per centum of the unpaid principal of loans insured under the program;

(vii) Provides that the benefits of the loan insurance program will not be denied any student because of his family income or lack of need if his adjusted annual family income at the time the note is executed is less than $15,000, as determined under § 177.3;

(viii) Provides that a student may obtain insurance under the program for a loan for any year of study at an eligible institution; and

(ix) In the case of a State loan insurance program, provides that such State program is administered by a single State agency, or by one or more nonprofit private institutions or organizations under the supervision of a single State agency. For purposes of this subparagraph, "supervision" includes the responsibility for setting all policies and procedures for the operation of the program.

(2) The conditions of subparagraph (1) (i) of this paragraph will be met if the student loan insurance program (i) authorizes advances of not more than $1,500 to a student during any 12-month school period (normally beginning in September) or authorizes advances to any student during such 12-month period of not more than an amount which bears the same ratio to the number of credit hours for which a full-time or half-time student borrower is registered during any such 12-month period as $1,500 multiplied by the sum of the academic years or their equivalent leading to the degree or certificate, bears to the total sum of credit hours required to earn such a degree or certificate; and (ii) authorizes advances of at least $1,000 to a full-time student and (if the program includes half-time students) at least $500 to a half-time student during any 12-month school period.

(b) The agreement shall contain such provisions and assurances and be supported by such information as the Commissioner may require pursuant to section 428(b) of the Act, including provision for termination. Termination will not affect any obligation previously incurred pursuant to the agreement and, if ordered by the Commissioner, will not

become final until the State agency or nonprofit institution or organization has been afforded an opportunity for a hearing.

[31 F.R. 6109, Apr. 21, 1966, as amended at 31 F.R. 14836, Nov. 23, 1966]

§ 177.13 Interim coverage for insured loan programs.

(a) In lieu of entering into an agreement described in § 177.12, a State agency or nonprofit institution or organization may apply for interim coverage under which Federal payments may be made to reduce student interest costs. In such cases Federal payments may be made only with respect to a student loan for which the note was executed and the loan was insured and advanced between November 8, 1965, and June 30, 1967, inclusive. The application shall be in such form as the Commissioner may prescribe, and shall be approved only if the Commissioner determines that the student loan insurance program meets the following conditions:

(1) Interest charges may not exceed 6 per centum per annum of the unpaid principal balance of the loan exclusive of any premium for insurance which may be passed on to the borrower; and

(2) Repayment of such loans shall be in installments beginning not earlier than 60 days after the student borrower ceases to be a full-time student in an eligible institution, or, if insurance is available for part-time study (less than full-time, but not less than half-time) ceases to carry at an eligible institution at least half the normal full-time academic workload as determined by the institution.

(b) Such application shall also contain an assurance that the applicant and lenders making loans insured under the loan insurance program of that State or private nonprofit institution or organization will comply with all regulatoins of this subpart regarding interest payments. The application shall also contain such other provisions as the Commissioner determines to be necessary for obtaining information to make payments of interest on behalf of students and otherwise to carry out the purposes of this part.

§ 177.14 Federal payments to reduce student interest costs on direct State loans.

(a) Federal payments to reduce student interest costs may be made on be

half of students who meet the requirements of § 177.2 and who have received a loan under a direct student loan program of a State which, except to the extent otherwise required by State law in effect prior to the promulgation of this Regulation, meets the following requirements:

(1) Interest charges may not exceed 6 per centum per annum of the unpaid principal balance of the loan;

(2) Repayment of such loans is in installments beginning not earlier than 60 days nor later than 1 year after the student borrower ceases to be a full-time student in an eligible institution, or if loans are available for part-time study, ceases to carry at an eligible institution at least one-half the normal full-time academic workload as determined by the institution; and

(3) The maximum amount of loans to any individual student does not exceed the maximum amounts provided for in section 425(a)(1) of the Act.

(b) For purposes of this section, a direct State student loan program includes only those programs which are available to students in one or more categories of eligible institutions.

§ 177.15 Amount of interest benefits and procedures for payment.

(a) After a loan is made to a student meeting the requirements of § 177.2 (or an application is received from such student for Federal interest payments), a report shall be submitted to the Commissioner in such form as the Commissioner may require. On the basis of such report, the Commissioner shall periodically inquire of the guarantee agency (or State loan agency) or of the institution, or of both, as to the enrollment status of the student borrower. On the basis of such reports and inquiries, the Commissioner will compute the interest to be paid at the applicable rate to each holder on behalf of each student. Upon certification of the computation, the Commissioner will pay the amount so determined at least every 6 months.

(b) The payment shall be limited to: (1) The total amount of the interest on the unpaid principal balance of each loan which accrued prior to the beginning of the repayment period of such loan; and

(2) Three percent per year of the unpaid principal balance of any such loan thereafter.

86 090-68- -28

(c) In no event shall payments under subparagraphs (1) or (2) of paragraph (b) of this section include any interest on interest added to principal or exceed the interest payable by the student, after taking into consideration the amount of any interest on that loan which the student is entitled to have paid on his behalf for that period under any insured loan program.

(d) The Commissioner's obligation to pay interest shall terminate upon default by the borrower, or upon endorsement of the note in favor of the guarantee agency, whichever occurs first. [31 F.R 14836, Nov. 23, 1966]

§ 177.16 Effective dates.

Interest payments under this subpart shall be made with respect to a student loan only if the note covering such loan was executed and the loan was advanced (a) on or after November 8, 1965, under a program meeting the requirements of § 177.12, § 177.13 or § 177.14, and approved by the Commissioner prior to July 1, 1966, or (b) on or after the date specified by the Commissioner in cases where such program is approved on or after July 1, 1966, and

(1) Not later than June 30, 1967, if the loan was insured under a student loan program pursuant to § 177.13, or

(2) Not later than June 30, 1968, if the loan was made under a student loan insurance program covered by an agreement pursuant to §177.12, or under a direct State student loan program covered by § 177.14, except that such date is extended in the case of a loan for which the note was executed and the advance made not later than June 30, 1972, if

"(1) Such loan is made to a student who had obtained a prior loan on or before June 30, 1968, with respect to which interest is payable under this subpart, and".

(ii) Such loan is made to continue the student's educational program. [31 F.R. 6109, Apr. 21, 1961; 31 F.R. 6591,. May 3, 1966]

Subpart C-Advances for Reserve Funds of State and Private Nonprofit Loan Insurance Programs § 177.21 In general.

(a) The Commissioner may make advances to any State with which he has entered into an agreement pursuant to section 428 (b) of the Act for the purpose of helping to establish or strengthen the

reserve fund of the student loan insurance program covered by such agreement.

(b) If for any fiscal year a State does not have a student loan insurance program which is covered by an agreement pursuant to section 428 (b) of the Act, and the Commissioner determines, after consultation with the chief executive officer of that State, that there is no reasonable likelihood that the State will have such a student loan insurance program for such year, the Commissioner may make such advances for such year to one or more nonprofit private institutions or organizations with which he has entered into such an agreement.

(c) The Commissioner may make advances to a State program (with which he has such an agreement) and to one or more nonprofit private institutions or organizations (with which he has such an agreement) in that State if he determines that such advances are necessary in order that students in each eligible institution have access through such institution to a student loan insurance program which meets the requirements of section 428(b).

§ 177.22 Applications.

Applications for funds made available pursuant to § 177.21 shall be submitted at such time or times and in such manner and shall contain such information as the Commissioner may require.

§ 177.23

Allocation and payment of State's allotment.

(a) If, in any State, there is no State student loan insurance program (covered by an agreement pursuant to section 428(b) of the Act) extending to all students at eligible institutions who are residents of that State (regardless of the State in which the eligible institution is located) the State's allotment, as determined in accordance with the first two sentences of section 422(b) of the Act, shall be allocated and reallocated from time to time among all guarantee agencies, covering such residents, on the basis of the most recent information available to the Commissioner as to the coverage of the loan insurance programs of such agencies.

(b) Payments on account of allocations and reallocations shall be made on the basis of the Commissioner's most recent estimates of the expected demand for insured loans and such other information as the Commissioner may deem appropriate.

§ 177.24 Terms and conditions of ad.

vance.

Advances of funds to a guarantee agency shall be upon such terms and conditions (including conditions relating to the time or times of payment) consistent with the requirements of section 428 (b) as the Commissioner determines will best carry out the purposes of the Act and shall be repaid at such time or times as may be agreed to by the Commissioner, in the light of the maturity and solvency of the fund for which the advance was made, and shall be made pursuant to an agreement which shall include such other terms and conditions as are agreed to by the Commissioner and the guarantee agency, including the following:

(a) Funds advanced pursuant to this subpart shall be used only for the purpose of insuring loans for the same category of students on account of which the Federal advance was made. Loan insurance premiums, if any (referred to in § 177.12 (a) (1) (v)), and interest or other earnings derived from such funds may be used for such purposes and for expenditures necessary for the proper and efficient administration of the program;

(b) The applicant shall submit such financial reports as the Commissioner may reasonably require to enable him to carry out his functions under this subpart. If, on the basis of such report and such other information as may be appropriate, the Commissioner determines that any of the funds advanced pursuant to this subpart are no longer required to maintain an adequate reserve, he may require that such funds be returned to the Federal Government or made available to some other guarantee agency within the State; and

(c) Such other provision as the Commissioner finds necessary to protect the interests of the United States and promote the purposes of the Act.

Subpart D-[Reserved]

§ 178.1

Definitions.

As used in this part:

(a) "Act" means the National Vocational Student Loan Insurance Act of 1965 (P.L. 89-287, 79 Stat. 1037-1049, 20 U.S.C. 981-996).

(b) "Internal Revenue Code" means the Internal Revenue Code of 1954 as amended (Title 26, United States Code).

(c) "Academic year or its equivalent" means the period of time in which a fulltime student would normally be expected to complete 28 semester hours, 42 quarter hours or 900 clock hours of instruction, or its equivalent. For purposes of this part, 18 months is considered the equivalent of an academic year when applied to a program offered by correspondence.

(d) "Commissioner" means the U.S. Commissioner of Education or his designee.

(e) “Eligible institution” or “institution" means a business or trade school, or technical institution or other technical or vocational school in any State which (1) admits as regular students only persons who have completed or left elementary or secondary school and who have the ability to benefit from the training offered by such institution; (2) is legally authorized to provide, and pro

vides within that State, a program of postsecondary vocational or technical education designed to fit individuals for useful employment in recognized occupations; (3) has been in existence for 2 years or has been specially accredited by the Commissioner as an institution meeting the other requirements of this paragraph; and (4) is accredited (1) by a nationally recognized accrediting agency or association listed by the Commissioner pursuant to this paragraph, (ii) if the Commissioner determines there is no nationally recognized accrediting agency or association qualified to accredit schools of a particular category, by a State agency listed by the Commissioner pursuant to this paragraph, and (iii) if the Commissioner determines there is no nationally recognized or State agency or association qualified to accredit schools of a particular category, by an advisory committee appointed by him and composed of persons specially qualified to evaluate training provided by schools of that category, which committee shall prescribe the standards of content, scope and quality which must be met by those schools in order for loans to students attending them to be insurable under the Act, and shall also determine whether particular schools meet those standards. For the purpose of this paragraph, the Commissioner shall publish a list of nationally recognized accrediting agencies or associations and State agencies which he determines to be reliable authority as to the quality of education or training afforded.

(f) "Program of postsecondary vocational or technical education" means a program of vocational or technical education designed to provide occupational skills more advanced than those generally provided at the high school level and which provides not less than 300 clock hours of classroom instruction or its equivalent, or in the case of a program offered by correspondence, requiring normal completion in not less than 6 months.

(g) "Eligible lender" means an eligible institution as defined in paragraph (e) of this section, or an agency or instrumentality of a State, or a financial or credit institution (including banks, credit unions, savings and loan associations and insurance companies) which is subject to examination and supervision by an agency of the United States or of any State.