PRIA, Government Policy, Made Personal

Summary

The Secretary can give a certificate that insures a student loan when an eligible lender applies on the forms and with the proof the Secretary requires. The certificate names the amount and terms of the insurance. The insurance usually starts on the date the certificate is issued, but if the Secretary makes a prior commitment, the insurance can be effective back to when the loan or a payment under a line of credit was made. Insurance ends if the lender is 60 days late in paying the required premiums. The lender’s application must promise to pay those premiums and to send any reports the Secretary requires while the loan is covered. Instead of a separate certificate for each loan, the Secretary may give a lender a single comprehensive certificate that automatically covers that lender’s insurable loans made after the certificate date and before a stated cutoff, up to a total limit. The Secretary can set conditions like reporting and premium rules and can confirm coverage of new loans by endorsing the certificate; those endorsements can only be challenged for fraud, deliberate misstatement, or obvious error. Loans made after the cutoff are not covered unless the certificate says so or the Secretary makes a special commitment. Premiums may not exceed one-fourth of 1 percent per year of the unpaid principal (not counting added interest), are paid in advance, and may be refundable or not required after borrower default, death, or total and permanent disability if notice and a claim were made or the Secretary paid the loss. Insurance rights can be assigned as security only to another eligible lender under rules. Combining several insured loans into one does not cancel the insurance; the Secretary may reissue or amend the certificate for the consolidated loan.

Title 20, §1079

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(a)Loan-by-loan insurance

(1)Authority to issue certificates on application

If, upon application by an eligible lender, made upon such form, containing such information, and supported by such evidence as the Secretary may require, and otherwise in conformity with this section, the Secretary finds that the applicant has made a loan to an eligible student which is insurable under the provisions of this part, he may issue to the applicant a certificate of insurance covering the loan and setting forth the amount and terms of the insurance.

(2)Effectiveness of certificate

Insurance evidenced by a certificate of insurance pursuant to subsection (a)(1) shall become effective upon the date of issuance of the certificate, except that the Secretary is authorized, in accordance with regulations, to issue commitments with respect to proposed loans, or with respect to lines (or proposed lines) of credit, submitted by eligible lenders, and in that event, upon compliance with subsection (a)(1) by the lender, the certificate of insurance may be issued effective as of the date when any loan, or any payment by the lender pursuant to a line of credit, to be covered by such insurance was made. Such insurance shall cease to be effective upon 60 days’ default by the lender in the payment of any installment of the premiums payable pursuant to subsection (c).

(3)Contents of applications

An application submitted pursuant to subsection (a)(1) shall contain (A) an agreement by the applicant to pay, in accordance with regulations, the premiums fixed by the Secretary pursuant to subsection (c), and (B) an agreement by the applicant that if the loan is covered by insurance the applicant will submit such supplementary reports and statement during the effective period of the loan agreement, upon such forms, at such times, and containing such information as the Secretary may prescribe by or pursuant to regulation.

(b)Comprehensive insurance coverage certificate

(1)Establishment of system by regulation

In lieu of requiring a separate insurance application and issuing a separate certificate of insurance for each student loan made by an eligible lender as provided in subsection (a), the Secretary may, in accordance with regulations consistent with section 1074 of this title, issue to any eligible lender applying therefor a certificate of comprehensive insurance coverage which shall, without further action by the Secretary, insure all insurable loans made by that lender, on or after the date of the certificate and before a specified cutoff date, within the limits of an aggregate maximum amount stated in the certificate. Such regulations may provide for conditioning such insurance, with respect to any loan, upon compliance by the lender with such requirements (to be stated or incorporated by reference in the certificate) as in the Secretary’s judgment will best achieve the purpose of this subsection while protecting the United States from the risk of unreasonable loss and promoting the objectives of this part, including (but not limited to) provisions as to the reporting of such loans and information relevant thereto to the Secretary and as to the payment of initial and other premiums and the effect of default therein, and including provision for confirmation by the Secretary from time to time (through endorsement of the certificate) of the coverage of specific new loans by such certificate, which confirmation shall be incontestable by the Secretary in the absence of fraud or misrepresentation of fact or patent error.

(2)Uncovered loans

If the holder of a certificate of comprehensive insurance coverage issued under this subsection grants to a student a line of credit extending beyond the cutoff date specified in that certificate, loans or payments thereon made by the holder after that date pursuant to the line of credit shall not be deemed to be included in the coverage of that certificate except as may be specifically provided therein; but, subject to the limitations of section 1074 of this title, the Secretary may, in accordance with regulations, make commitments to insure such future loans or payments, and such commitments may be honored either as provided in subsection (a) or by inclusion of such insurance on comprehensive coverage under the subsection for the period or periods in which such future loans or payments are made.

(c)Charges for Federal insurance

The Secretary shall, pursuant to regulations, charge for insurance on each loan under this part a premium in an amount not to exceed one-fourth of 1 percent per year of the unpaid principal amount of such loan (excluding interest added to principal), payable in advance, at such times and in such manner as may be prescribed by the Secretary. Such regulations may provide that such premium shall not be payable, or if paid shall be refundable, with respect to any period after default in the payment of principal or interest or after the borrower has died or becomes totally and permanently disabled, if (1) notice of such default or other event has been duly given, and (2) requests for payment of the loss insured against has been made or the Secretary has made such payment on his own motion pursuant to section 1080(a) of this title.

(d)Assignability of insurance

The rights of an eligible lender arising under insurance evidenced by a certificate of insurance issued to it under this section may be assigned as security by such lender only to another eligible lender, and subject to regulation by the Secretary.

(e)Consolidation not to affect insurance

The consolidation of the obligations of two or more federally insured loans obtained by a student borrower in any fiscal year into a single obligation evidenced by a single instrument of indebtedness shall not affect the insurance by the United States. If the loans thus consolidated are covered by separate certificates of insurance issued under subsection (a), the Secretary may upon surrender of the original certificates issue a new certificate of insurance in accordance with that subsection upon the consolidated obligation; if they are covered by a single comprehensive certificate issued under subsection (b), the Secretary may amend that certificate accordingly.

Notes & Related Subsidiaries

Editorial Notes

Prior Provisions

A prior section 1079, Pub. L. 89–329, title IV, § 429, Nov. 8, 1965, 79 Stat. 1243; Pub. L. 94–482, title I, § 127(a), Oct. 12, 1976, 90 Stat. 2123; Pub. L. 96–374, title XIII, § 1391(a)(1), (2), Oct. 3, 1980, 94 Stat. 1503, related to certificates of Federal loan insurance, prior to the general revision of this part by Pub. L. 99–498.

§1079 Certificate of Federal Loan Insurance—effective Date of Insurance

Summary

Title 20, §1079

Notes & Related Subsidiaries

Editorial Notes

Prior Provisions

Citations & Metadata