§1072a Federal Student Loan Reserve Fund

Summary

Guaranty agencies must put the money and liquid assets from their old reserve accounts into a new Federal Student Loan Reserve Fund within 60 days after October 7, 1998. The agency picks the kind of account, but the Secretary must approve. The money in the Federal Fund must be invested in low-risk U.S. or State-backed securities or similar investments approved by the Secretary. Any interest or earnings from the Federal Fund belong to the United States. The Federal Fund must receive certain payments, including reinsurance payments, parts of collections on defaulted loans, borrower insurance premiums, some preclaims payments, 70 percent of certain administrative cost payments for loans insured before October 7, 1998, and other receipts the Secretary sets. The money may only be used to pay lender claims and to send a default-aversion fee into the agency’s Operating Fund. The Federal Fund and nonliquid assets bought with it are owned by the United States in proportion to the federal share, and the Secretary can limit or stop uses that misuse federal money. To set up the Operating Fund, an agency may move up to 180 days of normal operating cash from the Federal Fund during the first 3 years, but not more than 45 percent of the Federal Fund balance as of September 30, 1998, and it must leave enough to pay claims. Some agencies may transfer interest for 3 years if they show need. Repayment of transferred sums must begin by the start of the fourth year and finish within 5 years after the Operating Fund is created; special waivers and limited extensions for repaying transferred interest are allowed under stated conditions. The Secretary must count amounts owed to the Federal Fund when setting minimum reserve rules. Definitions: Federal Fund — the new Federal Student Loan Reserve Fund; Operating Fund — the agency’s Agency Operating Fund used for normal operations.