§292g Risk-based premiums

Summary

For loans made on or after January 1, 1993, the federal government must charge risk-based fees to borrowers and sometimes to the school. The fee depends on the school’s loan default rate. If the default rate is 5 percent or less, the borrower pays 6 percent of the loan principal. If the rate is over 5 percent but not more than 10 percent, the borrower pays 8 percent and the school pays 5 percent. If the rate is over 10 percent but not more than 20 percent, the borrower pays 8 percent and the school pays 10 percent. No loans may be made for attendance at a school with a default rate over 20 percent. If a creditworthy parent or other responsible person co-signs, the borrower’s fee is cut in half. Schools with default rates above 5 percent must write and get approval for a plan to reduce defaults and must give exit interviews that explain repayment, deferment, forbearance, and what happens if a borrower defaults. The Secretary must give a school at least one hearing before banning it, and may waive some requirements if the school has too few loans to make its rate reliable. For the three-year period starting October 13, 1992, the ban on loans to schools over 20 percent did not apply to Historically Black Colleges and Universities; instead those schools were handled under the 10–20 percent rules. A school may also pay off borrowers’ defaulted loans to lower its risk category.