§292g Risk-based Premiums

Summary

For loans made on or after January 1, 1993, the Secretary requires an extra fee based on the school’s loan default rate. If a school’s default rate is 5% or less, the borrower pays an extra 6% of the loan principal. If the rate is over 5% but not more than 10%, the borrower pays 8% and the school pays 5%. If the rate is over 10% but not more than 20%, the borrower pays 8% and the school pays 10%. Borrowers may not get loans for attendance at schools with a default rate above 20%. If a creditworthy parent or other responsible person cosigns, the borrower’s fee is cut in half. Schools with default rates above 5% must submit a plan each year saying how they will lower defaults and must give exit interviews that explain repayment, deferment, forbearance, and the effects of default. Before making a school ineligible, the Secretary must give it at least one hearing and may consider special circumstances. The Secretary can waive some rules if a school’s default rate is not a good measure because it made too few loans. For the three-year period starting October 13, 1992, Historically Black Colleges and Universities are not barred for rates over 20% and instead are treated under the 10–20% rule. A school may also pay off its students’ defaulted loans to lower its risk category. Definitions (one line each): eligible borrower = someone who can get the loan; eligible institution = a school that can participate; default rate = the percentage of loans that go into default.