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(h) The term "State" includes, in ad- (0) "State student loan insurance prodition to the several States of the Union, gram" means a program under which the Commonwealth of Puerto Rico, the a State agency is authorized to insure District of Columbia, Guam, American loans, and to enter into agreements with Samoa, the Virgin Islands, and the Trust the Commissioner, and which extends to Territory of the Pacific Islands.

one or more categories of students who (i) "Nonprofit”, as applied to an are residents of the State. agency, organization institution,

§ 178.2 Student eligibility for interest means owned and operated by one or

benefits. more nonprofit corporations or associations no part of the net earnings of which

(a) A student (1) who has received inures, or may lawfully inure, to the

a loan from an eligible lender under a

student loan insurance program meetbenefit of any private shareholder or individual.

ing the requirements of $ 178.12 or (j) “Full-time student” means a stu

$ 178.13 or under a direct State student dent who is enrolled in, and is carry

loan program meeting the requirements ing a sufficient number of credit hours

of $ 178.14, (2) who is enrolled or has or clock hours to complete the training

been accepted for enrollment as at least

a half-time student in an eligible insti. program in which he is enrolled in no more than the number of semesters,

tution, (3) whose adjusted family interms or clock hours normally taken

come is less than $15,000, and (4) who is therefor at the institution in which he

a national of the United States or is in is enrolled. This term includes any stu

the United States for other than a temdent who is pursuing any combination of

porary purpose and intends to become a courses, work experience, or special stud

permanent resident thereof, is eligible ies (whether or not for credit) which the

for payment on his behalf of a portion

of the interest as determined under institution considers full-time study, but

§ 178.15(a). in no case less than 25 clock hours or

(b) To have interest payments made 14 semester or quarter hours of instruction, or its equivalent.

on his behalf, a student shall submit to

the lender a statement in such form as (k) "Half-time student” means a stu

the Commissioner shall prescribe, which dent who is carrying at least one-half

shall include: the normal full-time workload as de

(1) A certification by an eligible instiscribed in paragraph (j) of this section. All students engaged in a program of

tution that he is enrolled at the institu

tion or has been accepted for enrollstudy by correspondence which is offered

ment; as requiring at least 12 hours prepara

(2) An assurance by the student that tion per week shall be considered half

the loan on which interest payments are time students for the purpose of this

to be made has not been and will not be part.

used for any purpose other than for the (1) "Guarantee agency" means the

costs of education for the academic year State agency or private nonprofit insti

covered by the application; tution or organization administering a

(3) Information necessary to deterstudent loan insurance program.

mine, pursuant to § 178.3, whether his (m) "Holder" means only an eligible

adjusted family income is less than lender or an assignee who meets the $15,000; and qualifications of an eligible lender, but

(4) Information concerning other in no event includes the guarantee agency loans made to him which are covered with respect to loans insured by it. under this part or Part 177 of this

(n) “Default" means the failure to chapter. make an installment payment when due, (c) The lender, acting in good faith, or to comply with other terms of the may, in the absence of information to note or other written evidence of agree- the contrary, rely upon statements subment, which persists (e.g., is not cured

mitted by the borrower and his family either by payment or other appropriate

pursuant to paragraph (b) of this

section. arrangements) in the case of a loan repayment in monthly installments for § 178.3 Adjusted family income. 120 days, or in the case of a loan repay- (a) Computation. In general, adjusted able in less frequent installments for 180 family income will be computed by adddays.

ing 90 percent of the adjusted gross incomes (as defined in séc. 62 of the Inter- respect to funds advanced (1) within nal Revenue Code, or in the case of the same tax year in which a determinaresidents of Puerto Rico, as defined in tion was last made or (2) on a line of sec. 22(n) of the Commonwealth Tax credit extended after May 31, 1967, Act of 1954) of the student borrower, his where a determination has been made spouse, and his parents for the tax year during the preceding 12-month period · immediately preceding the execution of in connection with funds advanced on the note or written agreement evidenc- such line of credit. ing the loan, and deducting from such (32 F.R. 8147, June 7, 1967] sum an amount equal to the amount allowable on account of exemptions for

Subpart B-Interest Benefits-State such individuals for such year (pursuant

and Private Nonprofit Student Loan to sec. 151 of the Internal Revenue Code Insurance Programs and Direct State or, in the case of residents of Puerto Loan Programs

Rico, pursuant to sec, 25 of the Commoni wealth Tax Act of 1954).

$ 178.11 In general. (b) Computation of income from Interest benefits as set forth in § 178.15 foreign sources. In cases where any of are available with respect to loans inthe income of the borrower, his spouse sured under State and private nonprofit or his parents is not subject to taxation student loan insurance programs meetunder the Internal Revenue Code or the ing the requirements of g 178.12 or Commonwealth Tax Act of 1954 due to § 178.13, and with respect to direct State the fact that such individual is (1) re- loan programs meeting the requirements siding abroad, or (2) a nonresident of $ 178.14, alien, such income shall be included in

§ 178.12 Agreements for Federal paythe borrower's adjusted family income.

ments to reduce student interest costs Income described in clause (1) shall be

for insured loans. treated as if subject to taxation under the Internal Revenue Code and com

(a) (1) Except to the extent pern.itted puted (together with any income whic in § 178.13, interest benefits shall be is subject to taxation) in accordance

available only if the guarantee agency with paragraph (a) of this section. In

has first entered into an agreement with come described in clause (2) shall be

the Commissioner pursuant to paragraph computed in accordance with instruc- (b) of this section. The Commissioner tions issued by the Commissioner. may enter into such an agreement if he (c) Exclusion of income of parents or

determines that the program of the guarspouse in exceptional circumstances.

antee agency: The income of a parent, or parents living

(1) Authorizes the insurance of loans together, shall be excluded from consid- in amounts up to at least $1,000 to any eration under paragraph (a) or (b) of individual student in any academic year this section if the borrower is not and, or its equivalent, after taking into acduring the 12 months preceding the count other loans covered by this part determination, has not been (1) resid- and Part 177 of this chapter which the ing with, (2) claimed as a dependent

student has received in the same acafor Federal income tax purposes by, nor

demic year or its equivalent; (3) the recipient of an amount in excess (ii) Authorizes the insurance of loans of $600 from, such parent or parents. to an individual student for at least 2 The income of a spouse shall also be academic years of study or training or excluded from such consideration where their equivalent; there has been a legal separation ap- (iii) Provides that (a) the student proved by a court or a separation which borrower shall be entitled to accelerate has, in fact, existed for 12 months or without penalty the repayment of the more.

whole or any part of the insured loan, (d) Method of determination. The de- and (b) the insured loan shall be repaid termination of the adjusted family in- within 9 years from the date of execution come of a student borrower shall be of the note or other written evidence of made on the basis of information sub- the loan; mitted on forms supplied or approved (iv) Subject to subdivision (ii) of by the Commissioner. The determina- this subparagraph, provides that, where tion shall be made by the lender each the total of the insured loans to any stutime funds are advanced, except that no dent which are held by one person exnew determination need be made with ceeds $1,000, repayment of such loans shall be in installments over a period of (2) The conditions of subparagraph not less than 3 years nor more than 6 (1) (1) of this paragraph will be met if years beginning not earlier than 9 the student loan insurance program aumonths nor later than 1 year after the thorizes advances of at least $1,000 to 8 student ceases to pursue a full-time full-time student and (if the program course of study or training at an eligible includes half-time students) at least $509 institution, except that if the program to a half-time student during any 12provides for the insurance of loans for month period. part-time study (less than full-time but (b) The agreement shall contain such not less than one-half time) at eligible provisions and assurances and be supinstitutions, the program shall provide ported by such information as the Comthat (a) such repayment period will be- missioner may require pursuant to secgin not earlier than 9 months nor later tion 9(b) (2) of the Act, including prothan 1 year after the student ceases to visions for termination. Termination carry at an eligible institution at least will not affect any obligation previously one-half the normal full-time workload incurred pursuant to the agreement and, as determined by the institution, and (b) if ordered by the Commissioner, will not in the case of correspondence students, become final until the guarantee agency such repayment period will begin not has been afforded an opportunity for a earlier than 9 months nor later than 1 hearing. year after the expiration of a 90-day period following the student borrower's

f 178.13 Interim coverage for insured

loan programs. failure to submit a required assignment, or the expiration of a 90-day period fol- (a) In lieu of entering into an agreelowing the stated normal time for com- ment described in g 178.12, a guarantee pletion of the program, whichever comes agency may apply for interim coverage first;

under which Federal payments may be (v) Authorizes Interest on the unpaid made to reduce student interest costs. principal balance of the loan at a yearly In such cases Federal payments may be rate not in excess of 6 percent per year made only with respect to a student loan exclusive of any premium for insurance for which the note was executed and the which may be passed on to the borrower, loan was insured and advanced between but such insurance premium may not October 22, 1965, and June 30, 1967, inresult in charges in excess of the equiva- clusive. The application shall be in such lent of one-half of 1 percent per year on form as the Commissioner may prescribe, the unpaid principal balance;

and shall be approved only if the Com(vi) Insures not less than 90 percent of missioner determines that the student the unpaid principal balance of loans in- loan insurance program meets the folsured under the program;

lowing conditions: (vii) Provides that the benefits of the (1) Interest charges may not exceed 6 loan insurance program will not be de- percent per year of the unpaid principal nied any student beoause of his family balance of the loan exclusive of ary income or lack of need if his adjusted premium for insurance which may be family income at the time of the execu- passed on to the borrower; and tion of the note or other written evidence (2) Repayment of such loans shall be of agreement is less than $15,000, as de- in installments (1) beginning not earlier termined under $ 178.3;

than 60 days after the student borrower (vilt) Provides that a student may ob

ceases to be a full-time student in an tain insurance under the program for a eligible institution, or, if insurance is loan for any year of study or training at available for part-time study (less than an eligible institution; and

full-time, but not less than half-time), (1x) In the case of a State loan insur

ceases to carry at an eligible institution ance program, provides that such State

at least half the normal full-time workprogram is administered by a single State agency, or by one or more nonprofit

load as determined by the institution or private institutions or organizations un

(ii) in the case of a correspondence der the supervision of a single State

student, beginning not earlier than 60 agency. For purposes of this subpara- days after the expiration of a 90-day graph, "supervision" includes the re- period following the student borrower's sponsibility for setting all policies and

failure to submit a required assignment, procedures for the operation of the or the expiration of a 90-day period folprogram

lowing the stated normal time for completion of the program, whichever comes 8 178.15 Amount of interest benefits first.

and procedures for payment. (b) The application by a guarantee

(a) After a loan is made to a student agency shall also contain an assurance

meeting the requirements of g 178.2 (or that the applicant and lenders making

an application is received from such stuloans insured under the loan insurance

dent for Federal Interest payments), a program of that guarantee agency will

report shall be submitted to the Commiscomply with all regulations of this sub

sioner in such form as the Commissioner part regarding interest payments.

may require. On the basis of such re(c) The application by a guarantee

port, the Commissioner shall periodically agency shall also contain such other pro

inquire of the guarantee agency (or visions as the Commissioner determines

State loan agency) or of the institution, to be necessary for obtaining informa

or of both, as to the enrollment status tion to make payments of interest on

of the student borrower. On the basis behalf of students and otherwise to carry

of such reports and inquiries, the Comout the purposes of this part.

missioner will compute the interest to & 178.14 Federal payments to reduce

be paid at the applicable rate to each student interest costs on direct State

holder on behalf of each student. Upon loans.

certification of the computation, the

Commissioner will pay the amount so (a) Federal payments to reduce stu- determined at least every 6 months. dent interest costs may be made on be

(b) The payment shall be limited to: half of students who meet the require

(1) The total amount of the interest ments of $ 178.2 and who have received

on the unpaid principal balance of each & loan under a direct student loan pro

loan which accrued prior to the begingram of a State which, except to the

ning of the repayment period of such extent otherwise required by State law

loan; and in effect prior to the promulgation of

(2) Three percent per year of the unthis section, meets the following requirements:

paid principal balance of any such loan

thereafter. (1) Interest charges do not exceed

(c) In no event shall payments under 6 percent per year of the unpaid principal

subparagraph (1) or (2) of paragraph balance of the loan; (2) Repayment of such loans is in in

(b) of this section include any interest stallments (i) beginning not earlier than

on interest added to principal or exceed 60 days nor later than 1 year after the

the interest payable by the student, after student borrower ceases to be a full-time

taking into consideration the amount of student in an eligible institution, or if

any interest on that loan which the stuloans are available for part-time study

dent is entitled to have paid on his behalf (less than full-time, but not less than

for that period under any insured loan

program. half-time), ceases to carry at an eligible institution at least one-half the normal

(d) The Commissioner's obligation to full-time workload as determined by the

pay interest shall terminate upon deInstitution or (11) in the case of a cor

fault by the borrower, or upon endorserespondence student, beginning not later

ment of the note in favor of the guaranthan 60 days after the expiration of a

tee agency, whichever occurs first. 90-day period following the student bor- 8 178.16 Effective dates. rower's failure to submit a required as

Interest payments under this subpart signment, or the expiration of a 90-day

shall be made with respect to a student period following the stated normal time

loan only if the note covering such loan for completion of the program, which- was executed and the loan was advanced ever comes first;

on or after October 22, 1965, under a (3) The maximum amount of loans to program meeting the requirements of any individual student does not exceed $ 178.12, § 178.13 or $ 178.14, and $1,000 in any academic year or its equiva- (a) Not later than June 30, 1967, 11 the lent.

loan was insured under a program meet(b) For purposes of this section, a di- ing only the requirements of g 178.13, or rect State student loan program includes (b) Not later than June 30, 1968, 11 only those programs which are available the loan was made under a student loan to students in one or more categories of insurance program covered by an agree

1. min!'2 eligible institutions......

ment pursuant to g 178.12, or under a

direct State student loan program cov- $ 178.23 Allocation and payment of ered by $ 178.14, except that such date State's allotment. is extended in the case of a loan for

(a) If in any State there is no State which the note was executed and the ad

student loan insurance program that is vance made not later than June 30, 1972, covered by an agreement pursuant to if

$ 178.12 and extending to all eligible (1) Such loan is made to a student

students at eligible institutions who are who had obtained a prior loan on or residents of that State (regardless of the before June 30, 1968, with respect to State in which the eligible institution is which interest is payable under this sub- located), the State allotment, as deterpart, and

mined in accordance with the first two (2) Such loan is made to continue the

sentences of section 3(b) of the Act, student's educational program.

shall be allocated and reallocated from

time to time among all guarantee agenSubpart - Advances for Reserve

cies covering such residents, on the basis Funds of State and Private Non

of the most recent information available profit Loan Insurance Programs to the Commissioner as to the coverage

of the loan insurance programs of such § 178.21 In general.

agencies. (a) The Commissioner may make ad- (b) Payments on account of allocavances to any State with which he has

tions and reallocations shall be made on entered into an agreement pursuant to

the basis of the most recent information § 178.12 for the purpose of helping to

available to the Commissioner concernestablish or strengthen the reserve fund

ing the expected demand for insured of the student loan insurance program

loans under this part and such other covered by such agreement.

information as he may deem appropriate. (b) If for any fiscal year a State does

$ 178.24 Terms and conditions of adnot have a student loan insurance pro

vances. gram which is covered by an agreement

Advances of funds to a guarantee pursuant to § 178.12, and the Commis

agency shall be upon such terms and sioner determines, after consultation

conditions (including conditions relating with the chief executive officer of that

to the time or times of payment) conState, that there is no reasonable likeli

sistent with the requirements of g 178.12 hood that the State will have such a as the Commissioner determines will best student loan insurance program for such carry out the purposes of the Act and year, the Commissioner may make ad- shall be repaid at such time or times as vances for such year to one or more may be agreed to by the Commissioner, private nonprofit guarantee agencies

in light of the maturity and solvency of with which he has entered into such an

the fund for which the advance was agreement.

made, and shall be made pursuant to an (c) The Commissioner may make ad

agreement which shall include such

other terms and conditions as are agreed vances to a State guarantee agency

to by the Commissioner and the guar(with which he has such an agreement)

antee agency, including the following: and to one or more nonprofit private

(a) Funds advanced pursuant to this guarantee agencies (with which he has subpart shall be used only for the pursuch an agreement) in that State if he pose of insuring loans for the same catedetermines that such advances are nec- gory of students on account of which the essary in order that students in each Federal advance was made. Loan ineligible institution have access through surance premiums, if any (referred to in such institution to a student loan in

§ 178.12(a) (1) (v)), and interest or other surance program which meets the re

earnings derived from such funds may quirements of $ 178.12.

be used for such purposes and for ex

penditures necessary for the proper and § 178.22 Applications.

efficient administration of the program; Applications for funds made available

(b) The applicant shall submit such

financial reports as the Commissioner pursuant to g 178.21 shall be submitted

may reasonably require to enable him to at such time or times and in such manner

carry out his functions under this suband shall contain such information as part. If, on the basis of such report and the Commissioner may require.

such other information as may be ap

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