(h) The term "State" includes, in addition to the several States of the Union, the Commonwealth of Puerto Rico, the District of Columbia, Guam, American Samoa, the Virgin Islands, and the Trust Territory of the Pacific Islands.

(i) "Nonprofit", as applied to an agency, organization

or institution,

means owned and operated by one or more nonprofit corporations or associations no part of the net earnings of which inures, or may lawfully inure, to the benefit of any private shareholder or individual.

(j) “Full-time student" means a student who is enrolled in, and is carrying a sufficient number of credit hours or clock hours to complete the training program in which he is enrolled in no more than the number of semesters, terms or clock hours normally taken therefor at the institution in which he is enrolled. This term includes any student who is pursuing any combination of courses, work experience, or special studies (whether or not for credit) which the institution considers full-time study, but in no case less than 25 clock hours or 14 semester or quarter hours of instruction, or its equivalent.

(k) "Half-time student" means a student who is carrying at least one-half the normal full-time workload as described in paragraph (j) of this section. All students engaged in a program of study by correspondence which is offered as requiring at least 12 hours preparation per week shall be considered halftime students for the purpose of this part.

(1) "Guarantee agency" means the State agency or private nonprofit institution or organization administering a student loan insurance program.

(m) "Holder" means only an eligible lender or an assignee who meets the qualifications of an eligible lender, but in no event includes the guarantee agency with respect to loans insured by it.

(n) "Default" means the failure to make an installment payment when due, or to comply with other terms of the note or other written evidence of agreement, which persists (e.g., is not cured either by payment or other appropriate arrangements) in the case of a loan repayment in monthly installments for 120 days, or in the case of a loan repayable in less frequent installments for 180 days.

(o) "State student loan insurance program" means a program under which a State agency is authorized to insure loans, and to enter into agreements with the Commissioner, and which extends to one or more categories of students who are residents of the State.

§ 178.2 Student eligibility for interest benefits.

(a) A student (1) who has received a loan from an eligible lender under a student loan insurance program meeting the requirements of § 178.12 or § 178.13 or under a direct State student loan program meeting the requirements of § 178.14, (2) who is enrolled or has been accepted for enrollment as at least a half-time student in an eligible institution, (3) whose adjusted family income is less than $15,000, and (4) who is a national of the United States or is in the United States for other than a temporary purpose and intends to become a permanent resident thereof, is eligible for payment on his behalf of a portion of the interest as determined under § 178.15(a).

(b) To have interest payments made on his behalf, a student shall submit to the lender a statement in such form as the Commissioner shall prescribe, which shall include:

(1) A certification by an eligible institution that he is enrolled at the institution or has been accepted for enrollment;

(2) An assurance by the student that the loan on which interest payments are to be made has not been and will not be used for any purpose other than for the costs of education for the academic year covered by the application;

(3) Information necessary to determine, pursuant to § 178.3, whether his adjusted family income is less than $15,000; and

(4) Information concerning other loans made to him which are covered under this part or Part 177 of this chapter.

(c) The lender, acting in good faith, may, in the absence of information to the contrary, rely upon statements submitted by the borrower and his family pursuant to paragraph (b) of this section.

§ 178.3 Adjusted family income.

(a) Computation. In general, adjusted family income will be computed by adding 90 percent of the adjusted gross in

comes (as defined in sec. 62 of the Internal Revenue Code, or in the case of residents of Puerto Rico, as defined in sec. 22(n) of the Commonwealth Tax Act of 1954) of the student borrower, his spouse, and his parents for the tax year immediately preceding the execution of the note or written agreement evidencing the loan, and deducting from such sum an amount equal to the amount allowable on account of exemptions for such individuals for such year (pursuant to sec. 151 of the Internal Revenue Code or, in the case of residents of Puerto Rico, pursuant to sec, 25 of the Commonwealth Tax Act of 1954).

(b) Computation of income from foreign sources. In cases where any of the income of the borrower, his spouse or his parents is not subject to taxation under the Internal Revenue Code or the Commonwealth Tax Act of 1954 due to the fact that such individual is (1) residing abroad, or (2) a nonresident alien, such income shall be included in the borrower's adjusted family income. Income described in clause (1) shall be treated as if subject to taxation under the Internal Revenue Code and computed (together with any income which is subject 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 paragraph (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

Interest benefits as set forth in § 178.15 are available with respect to loans insured under State and private nonprofit student loan insurance programs meeting the requirements of § 178.12 or § 178.13, and with respect to direct State loan programs meeting the requirements of § 178.14.

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

(a) (1) Except to the extent permitted in § 178.13, interest benefits shall be available only if the guarantee agency 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 program of the guarantee agency:

(i) Authorizes the insurance of loans in amounts up to at least $1,000 to any individual student in any academic year or its equivalent, after taking into account other loans covered by this part and Part 177 of this chapter 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 2 academic years of study or training 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 9 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 stuIdent which are held by one person exceeds $1,000, repayment of such loans

shall be in installments over a period of not less than 3 years nor more than 6 years beginning not earlier than 9 months nor later than 1 year after the student ceases to pursue a full-time course of study or training at an eligible institution, except that if the program provides for the insurance of loans for part-time study (less than full-time but not less than one-half time) at eligible institutions, the program shall provide that (a) such repayment period will begin not earlier than 9 months nor later than 1 year after the student ceases to carry at an eligible institution at least one-half the normal full-time workload as determined by the institution, and (b) in the case of correspondence students, such repayment period will begin not earlier than 9 months nor later than 1 year after the expiration of a 90-day period following the student borrower's failure to submit a required assignment, or the expiration of a 90-day period following the stated normal time for completion of the program, whichever comes first;

(v) Authorizes interest on the unpaid principal balance of the loan at a yearly rate not in excess of 6 percent per year 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 percent per year on the unpaid principal balance;

(vi) Insures not less than 90 percent of the unpaid principal balance of loans insured under the program;

(vil) 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 family income at the time of the execution of the note or other written evidence of agreement is less than $15,000, as determined under § 178.3;

(viii) Provides that a student may obtain insurance under the program for a loan for any year of study or training 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) (1) of this paragraph will be met if the student loan insurance program 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 12month period.

(b) The agreement shall contain such provisions and assurances and be supported by such information as the Commissioner may require pursuant to section 9(b) (2) of the Act, including provisions 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 guarantee agency has been afforded an opportunity for a hearing.

§ 178.13 Interim coverage for insured loan programs.

(a) In lieu of entering into an agreement described in § 178.12, a guarantee agency 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 October 22, 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 percent per year 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 (1) 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 workload as determined by the institution or (i) in the case of a correspondence student, beginning not earlier than 60 days after the expiration of a 90-day period following the student borrower's failure to submit a required assignment, or the expiration of a 90-day period following the stated normal time for com

pletion of the program, whichever comes first.

(b) The application by a guarantee agency shall also contain an assurance that the applicant and lenders making : loans insured under the loan insurance program of that guarantee agency will comply with all regulations of this subpart regarding interest payments.

(c) The application by a guarantee agency 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. § 178.14

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

(a) Federal payments to reduce stu¿dent interest costs may be made on behalf of students who meet the requirements of § 178.2 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 section, meets the following requirements:

(1) Interest charges do not exceed 6 percent per year of the unpaid principal balance of the loan;

(2) Repayment of such loans is in installments (i) 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 (less than full-time, but not less than half-time), ceases to carry at an eligible institution at least one-half the normal full-time workload as determined by the institution or (ii) in the case of a correspondence student, beginning not later than 60 days after the expiration of a 90-day period following the student borrower's failure to submit a required assignment, or the expiration of a 90-day period following the stated normal time for completion of the program, whichever comes first;

(3) The maximum amount of loans to any individual student does not exceed $1,000 in any academic year or its equivalent.

(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.

§ 178.15 Amount of interest benefits and procedures for payment.

(a) After a loan is made to a student meeting the requirements of § 178.2 (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.

(c) In no event shall payments under subparagraph (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. § 178.16 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 on or after October 22, 1965, under a program meeting the requirements of § 178.12, § 178.13 or § 178.14, and

(a) Not later than June 30, 1967, if the loan was insured under a program meeting only the requirements of § 178.13, or

(b) Not later than June 30, 1968, if the loan was made under a student loan insurance program covered by an agreement pursuant to § 178.12, or under a

direct State student loan program covered by § 178.14, 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

(2) Such loan is made to continue the student's educational program. Subpart C-Advances for Reserve Funds of State and Private Nonprofit Loan Insurance Programs

§ 178.21 In general.

(a) The Commissioner may make advances to any State with which he has entered into an agreement pursuant to § 178.12 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 § 178.12, 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 advances for such year to one or more private nonprofit guarantee agencies with which he has entered into such an agreement.

(c) The Commissioner may make advances to a State guarantee agency (with which he has such an agreement) and to one or more nonprofit private guarantee agencies (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 § 178.12.

§ 178.22 Applications.

Applications for funds made available pursuant to § 178.21 shall be submitted at such time or times and in such manner and shall contain such information as the Commissioner may require.

§ 178.23 Allocation and payment of State's allotment.

(a) If in any State there is no State student loan insurance program that is covered by an agreement pursuant to § 178.12 and extending to all eligible students at eligible institutions who are residents of that State (regardless of the State in which the eligible institution is located), the State allotment, as determined in accordance with the first two sentences of section 3(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 most recent information available to the Commissioner concerning the expected demand for insured loans under this part and such other information as he may deem appropriate. § 178.24 Terms and conditions of ad

vances.

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 § 178.12 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 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 § 178.12(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 ap