Risk-based premiums

Source Credit

(a) Authority
With respect to a loan made under this subpart on or after January 1, 1993, the Secretary, in accordance with subsection (b), shall assess a risk-based premium on an eligible borrower and, if required under this section, an eligible institution that is based on the default rate of the eligible institution involved (as defined in section 292o of this title).
(b) Assessment of premium
Except as provided in subsection (d)(2), the risk-based premium to be assessed under subsection (a) shall be as follows:
(1) Low-risk rate
With respect to an eligible borrower seeking to obtain a loan for attendance at an eligible institution that has a default rate of not to exceed five percent, such borrower shall be assessed a risk-based premium in an amount equal to 6 percent of the principal amount of the loan.
(2) Medium-risk rate
(A) In general
With respect to an eligible borrower seeking to obtain a loan for attendance at an eligible institution that has a default rate of in excess of five percent but not to exceed 10 percent—
(i) such borrower shall be assessed a risk-based premium in an amount equal to 8 percent of the principal amount of the loan; and
(ii) such institution shall be assessed a risk-based premium in an amount equal to 5 percent of the principal amount of the loan.
(B) Default management plan
An institution of the type described in subparagraph (A) shall prepare and submit to the Secretary for approval, an annual default management plan, that shall specify the detailed short-term and long-term procedures that such institution will have in place to minimize defaults on loans to borrowers under this subpart. Under such plan the institution shall, among other measures, provide an exit interview to all borrowers that includes information concerning repayment schedules, loan deferments, forbearance, and the consequences of default.
(3) High-risk rate
(A) In general
With respect to an eligible borrower seeking to obtain a loan for attendance at an eligible institution that has a default rate of in excess of 10 percent but not to exceed 20 percent—
(i) such borrower shall be assessed a risk-based premium in an amount equal to 8 percent of the principal amount of the loan; and
(ii) such institution shall be assessed a risk-based premium in an amount equal to 10 percent of the principal amount of the loan.
(B) Default management plan
An institution of the type described in subparagraph (A) shall prepare and submit to the Secretary for approval a plan that meets the requirements of paragraph (2)(B).
(4) Ineligibility
An individual shall not be eligible to obtain a loan under this subpart for attendance at an institution that has a default rate in excess of 20 percent.
(c) Reduction of risk-based premium
Lenders shall reduce by 50 percent the risk-based premium to eligible borrowers if a credit worthy parent or other responsible party co-signs the loan note.
(d) Administrative waivers
(1) Hearing
The Secretary shall afford an institution not less than one hearing, and may consider mitigating circumstances, prior to making such institution ineligible for participation in the program under this subpart.
(2) Exceptions
In carrying out this section with respect to an institution, the Secretary may grant an institution a waiver of requirements of paragraphs (2) through (4) of subsection (b) if the Secretary determines that the default rate for such institution is not an accurate indicator because the volume of the loans under this subpart made by such institution has been insufficient.
(3) Transition for certain institutions
During the 3-year period beginning on October 13, 1992—
(A) subsection (b)(4) shall not apply with respect to any eligible institution that is a Historically Black College or University; and
(B) any such institution that has a default rate in excess of 20 percent, and any eligible borrower seeking a loan for attendance at the institution, shall be subject to subsection (b)(3) to the same extent and in the same manner as eligible institutions and borrowers described in such subsection.
(e) Payoff to reduce risk category
An institution may pay off the outstanding principal and interest owed by the borrowers of such institution who have defaulted on loans made under this subpart in order to reduce the risk category of the institution.

History

(July 1, 1944, ch. 373, title VII, §708, as added Pub. L. 102–408, title I, §102, Oct. 13, 1992, 106 Stat. 2004.)

Editorial Notes

Editorial Notes

Prior Provisions
A prior section 292g, act July 1, 1944, ch. 373, title VII, §707, as added Oct. 12, 1976, Pub. L. 94–484, title II, §205, 90 Stat. 2249; amended Aug. 1, 1977, Pub. L. 95–83, title III, §307(r), 91 Stat. 395, related to delegation of authority by the Secretary, prior to the general revision of this subchapter by Pub. L. 102–408.
Another prior section 292g, act July 1, 1944, ch. 373, title VII, §708, as added July 30, 1956, ch. 779, §2, 70 Stat. 720; amended Oct. 5, 1961, Pub. L. 87–395, §8(d), 75 Stat. 827; Sept. 24, 1963, Pub. L. 88–129, §2(a), 77 Stat. 164, prohibited Federal interference with administration of institutions where grants were made for construction of health research facilities, prior to repeal by Pub. L. 94–484, title II, §201(a), Oct. 12, 1976, 90 Stat. 2246.
A prior section 708 of act July 1, 1944, was classified to section 292h of this title prior to the general revision of this subchapter by Pub. L. 102–408.

Statutory Notes and Related Subsidiaries

Effective Date
Section effective Jan. 1, 1993, and until such date, former section 294e(c) of this title, as in effect on the day before Oct. 13, 1992, to continue in effect in lieu of this section, see section 103 of Pub. L. 102–408, set out as a note under section 292 of this title.