§292g Risk-based Premiums

Summary

For loans made on or after January 1, 1993, the Secretary must charge a risk-based fee to the borrower and, when required, to the school. The fee depends on the school's loan default rate (how often its students fail to repay, as defined elsewhere). If the default rate is 5% or less, the borrower pays 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%. No loans are allowed for attendance at schools with a default rate over 20%. If a creditworthy parent or other responsible person cosigns the loan, the borrower’s fee must be cut in half. Schools with default rates above 5% must submit an annual plan to reduce defaults and give exit interviews that explain repayment, deferment, forbearance, and default. The Secretary must offer at least one hearing before blocking a school from the program and can grant waivers if the default rate is unreliable because too few loans were made. Between October 13, 1992 and three years after that date, Historically Black Colleges and Universities are treated differently: they are not barred for having over 20% defaults, but they are handled under the high-risk rules. A school may also pay off its students’ defaulted loans to lower its risk category.