§ 21-16-711 — Notice of default; authority to pay unpaid balance of principal to financial institutions; financial institutions to deliver note to authority

(a) The authority shall establish and at all times
maintain one (1) or more adequate reserve funds to provide for
defaults on student loans financed pursuant to this article.
All financial institutions offering loans to be financed
pursuant to this article and the authority, on all loans made
directly to students pursuant to this article, shall charge a
loan reserve fee of not more than five percent (5%) of the total
face amount of the loan. The authority may from time to time
decrease this percentage in furtherance of this plan. In order
for a loan to qualify for default coverage by the authority
under this article, the financial institution shall deposit the
loan reserve fee into reserve funds established by the authority
under this section. The authority shall establish procedures
for the collection and deposit of the loan reserve fee and for
the payment of defaults on secured loans. The loan reserve fee
is not a finance charge for purposes of any state or federal
consumer credit law.
(b) In the event of a default on any loan owned by the
authority or security obligation of the authority, the authority
shall take all lawful steps to collect on all loans acquired,
administered or financed pursuant to this article and in
accordance with commercially reasonable terms and subject to any
applicable state or federal statutes, may contract with a
private collection agent for loan collection.
(c) In the event of a default on any loan not owned by the
authority but administered or financed pursuant to this article,
the authority shall as soon as practicable after receipt of
demand by a financial institution containing a statement of the
nature and the reason for the default, pay, from the loan
reserve funds established pursuant to this article, to the
financial institution one hundred percent (100%) of the unpaid
balance of the principal on the note. Upon payment, the
financial institution shall endorse, without recourse or
warranty, and deliver to the authority the note, together with
all of the rights of the financial institution under any
guaranty or endorsement of the note and with respect to any
security for the payment of the note.