§1072b Agency Operating Fund

Summary

Each guaranty agency must create an Operating Fund within 60 days after October 7, 1998. The agency can invest the money in that fund following prudent investor rules. The fund must get six kinds of payments, including the loan processing and issuance fee paid by the Secretary (under section 1078(f)), 30 percent of certain administrative cost payments received after October 7, 1998 for loans insured before that date, the account maintenance fee (section 1087h), the default aversion fee (section 1078(l)), remaining amounts collected on defaulted loans after the Secretary’s share (excluding amounts sent to the Federal Fund under 1072a(c)(2)), and other receipts listed in the Secretary’s regulations. Money in the Operating Fund can be used for student loan work the agency chooses, such as processing applications, sending out loans, checking enrollment and repayment status, preventing defaults, collecting defaulted loans, training schools and lenders, outreach, and compliance checks. The agency may transfer money from the Operating Fund to the Federal Fund; such transfers are final and become U.S. property. Quick definitions: default collection = collecting on a loan after a default claim was paid; default aversion = helping collect on delinquent loans before they default; enrollment and repayment status management = checking a student’s enrollment and loan paperwork. The Operating Fund is the agency’s property except for money transferred from the Federal Fund under 1072a(f). The Secretary generally cannot control how the agency spends the fund but may require reports and audits (1078(b)(2)). If the agency owes money back to the Federal Fund because of a transfer under 1072a(f), then the Operating Fund may only pay student loan program expenses and the Secretary may regulate spending.