20 USC 1072 - Advances for reserve funds of State and nonprofit private loan insurance programs

U.S Code last checked for updates: Aug 16, 2025

§ 1072.

Advances for reserve funds of State and nonprofit private loan insurance programs

(a)

Purpose of and authority for advances to reserve funds

(1)

Purpose; eligible recipients

(2)

Matching requirement

No advance shall be made after June 30, 1968, unless matched by an equal amount from non-Federal sources. Such equal amount may include the unencumbered non-Federal portion of a reserve fund. As used in the preceding sentence, the term “unencumbered non-Federal portion” means the amount (determined as of the time immediately preceding the making of the advance) of the reserve fund less the greater of—

(A)

the sum of—

(i)

advances made under this section prior to July 1, 1968;

(ii)

an amount equal to twice the amount of advances made under this section after June 30, 1968, and before the advance for purposes of which the determination is made; and

(iii)

the proceeds of earnings on advances made under this section; or

(B)

any amount which is required to be maintained in such fund pursuant to State law or regulation, or by agreement with lenders, as a reserve against the insurance of outstanding loans.

Except as provided in section 1078(c)(9)(E) or (F) of this title, such unencumbered non-Federal portion shall not be subject to recall, repayment, or recovery by the Secretary.

(3)

Terms and conditions; repayment

(b)

Limitations on total advances

(1)

In general

(2)

Calculation of population

(c)

Advances for insurance obligations

(1)

Use for payment of insurance obligations

(2)

Amount of advances

(A)

Except as provided in subparagraph (B), the amount to be advanced to each such State shall be equal to 10 percent of the principal amount of loans made by lenders and insured by such agency on those loans on which the first payment of principal became due during the fiscal year immediately preceding the fiscal year in which the advance is made.

(B)

The amount of any advance determined according to subparagraph (A) of this paragraph shall be reduced by—

(i)

the amount of any advance or advances made to such State pursuant to this subsection at an earlier date; and

(ii)

the amount of the unspent balance of the advances made to a State pursuant to subsection (a).

Notwithstanding subparagraph (A) and the preceding sentence of this subparagraph, but subject to subparagraph (D) of this paragraph, the amount of any advance to a State described in paragraph (5)(A) for the first year of its eligibility under such paragraph, and the amount of any advance to any State described in paragraph (5)(B) for each year of its eligibility under such paragraph, shall not be less than $50,000.

(C)

For the purpose of subparagraph (B), the unspent balance of the advances made to a State pursuant to subsection (a) shall be that portion of the balance of the State’s reserve fund (remaining at the time of the State’s first request for an advance pursuant to this subsection) which bears the same ratio to such balance as the Federal advances made and not returned by such State, pursuant to subsection (a), bears to the total of all past contributions to such reserve funds from all sources (other than interest on investment of any portion of the reserve fund) contributed since the date such State executed an agreement pursuant to section 1078(b) of this title.

(D)

If the sums appropriated for any fiscal year for paying the amounts determined under subparagraphs (A) and (B) are not sufficient to pay such amounts in full, then such amounts shall be reduced—

(i)

by ratably reducing that portion of the amount allocated to each State which exceeds $50,000; and

(ii)

if further reduction is required, by equally reducing the $50,000 minimum allocation of each State.

If additional sums become available for paying such amounts for any fiscal year during which the preceding sentence has been applied, such reduced amounts shall be increased on the same basis as they were reduced.

(3)

Use of earnings for insurance obligations

(4)

Repayment of advances

(5)

Limitation on number of advances

Except as provided in paragraph (7), advances pursuant to this subsection shall be made to a State—

(A)

in the case of a State which is actively carrying on a program under an agreement pursuant to section 1078(b) of this title which was entered into before October 12, 1976, upon such date as such State may request, but not before October 1, 1977, and on the same day of each of the 2 succeeding calendar years after the date so requested; and

(B)

in the case of a State which enters into an agreement pursuant to section 1078(b) of this title on or after October 12, 1976, or which is not actively carrying on a program under an agreement pursuant to such section on such date, upon such date as such State may request, but not before October 1, 1977, and on the same day of each of the 4 succeeding calendar years after the date so requested of the advance.

(6)

Payment of advances where no State program

(A)

If for any fiscal year a State does not have a student loan insurance program covered by an agreement made pursuant to section 1078(b) of this title, and the Secretary determines after consultation with the chief executive officer of that State that there is no reasonable likelihood that the State will have such a student loan insurance program for such year, the Secretary may make advances pursuant to this subsection for such year for the same purpose to one or more nonprofit private institutions or organizations with which he has made an agreement pursuant to subsection (c), as well as subsection (b), of section 1078 of this title and subparagraph (B) of this paragraph in order to enable students in that State to participate in a program of student loan insurance covered by such agreements.

(B)

The Secretary may enter into an agreement with a private nonprofit institution or organization for the purpose of this paragraph under which such institution or organization—

(i)

agrees to establish within such State at least one office with sufficient staff to handle written, electronic, and telephone inquiries from students, eligible lenders, and other persons in the State, to encourage maximum commercial lender participation within the State, and to conduct periodic visits to at least the major eligible lenders within the State;

(ii)

agrees that its insurance will not be denied any student because of his or her choice of eligible institutions; and

(iii)

certifies that it is neither an eligible institution, nor has any substantial affiliation with an eligible institution.

(7)

Emergency advances

The Secretary is authorized to make advances, on terms and conditions satisfactory to the Secretary, to a guaranty agency—

(A)

in accordance with section 1078(j) of this title, in order to ensure that the guaranty agency shall make loans as the lender-of-last-resort; or

(B)

if the Secretary is seeking to terminate the guaranty agency’s agreement, or assuming the guaranty agency’s functions, in accordance with section 1078(c)(9)(F)(v) of this title, in order to assist the agency in meeting its immediate cash needs, ensure the uninterrupted payment of claims, or ensure that the guaranty agency shall make loans as described in subparagraph (A).

(d)

Recovery of advances during fiscal years 1988 and 1989

(1)

Amount and use of recovered funds

(2)

Determination of guaranty agency obligations

In determining the amount of advances which shall be repaid by a guaranty agency under paragraph (1), the Secretary—

(A)

shall consider the solvency and maturity of the reserve and insurance funds of the guaranty agency assisted by such advances, as determined by the Comptroller General taking into account the requirements of State law as in effect on October 17, 1986;

(B)

shall not seek repayment of such advances from any State described in subsection (c)(5)(B) during any year of its eligibility under such subsection; and

(C)

shall not seek repayment of such advances from any State if such repayment encumbers the reserve fund requirement of State law as in effect on October 17, 1986.

(e)

Correction for errors under reduction of excess cash reserves

(1)

In general

(2)

Amount

(f)

Refund of cash reserve payments

The Secretary shall, within 30 days after July 23, 1992, pay the full amount of payments withheld or canceled under paragraph (3) of this subsection to any guaranty agency which—

(1)

was required to eliminate excess cash reserves, based on the maximum cash reserve (as described in subsection (e) of this section as in effect on September 1, 1988) permitted at the end of 1986;

(2)

appealed the Secretary’s demand that such agency should eliminate such excess cash reserves and received a waiver of a portion of the amount of such excess cash reserves to be eliminated;

(3)

had payments under section 1078(c)(1) of this title or section 1078(f) of this title previously withheld or canceled in order to be applied to satisfy such agency’s obligation to eliminate excess cash reserves held by such agency, based on the maximum cash reserve (as described in subsection (e) of this section as in effect on September 1, 1988) permitted at the end of 1986; and

(4)

according to a Department of Education review that was completed and forwarded to such guaranty agency prior to

(g)

Preservation and recovery of guaranty agency reserves

(1)

Authority to recover funds

Notwithstanding any other provision of law, the reserve funds of the guaranty agencies, and any assets purchased with such reserve funds, regardless of who holds or controls the reserves or assets, shall be considered to be the property of the United States to be used in the operation of the program authorized by this part. However, the Secretary may not require the return of all reserve funds of a guaranty agency to the Secretary unless the Secretary determines that such return is in the best interest of the operation of the program authorized by this part, or to ensure the proper maintenance of such agency’s funds or assets or the orderly termination of the guaranty agency’s operations and the liquidation of its assets. The reserves shall be maintained by each guaranty agency to pay program expenses and contingent liabilities, as authorized by the Secretary, except that—

(A)

the Secretary may direct a guaranty agency to return to the Secretary a portion of its reserve fund which the Secretary determines is unnecessary to pay the program expenses and contingent liabilities of the guaranty agency;

(B)

the Secretary may direct the guaranty agency to require the return, to the guaranty agency or to the Secretary, of any reserve funds or assets held by, or under the control of, any other entity, which the Secretary determines are necessary to pay the program expenses and contingent liabilities of the guaranty agency, or which are required for the orderly termination of the guaranty agency’s operations and the liquidation of its assets;

(C)

the Secretary may direct a guaranty agency, or such agency’s officers or directors, to cease any activities involving expenditure, use or transfer of the guaranty agency’s reserve funds or assets which the Secretary determines is a misapplication, misuse, or improper expenditure of such funds or assets; and

(D)

any such determination under subparagraph (A) or (B) shall be based on standards prescribed by regulations that are developed through negotiated rulemaking and that include procedures for administrative due process.

(2)

Termination provisions in contracts

(A)

To ensure that the funds and assets of the guaranty agency are preserved, any contract with respect to the administration of a guaranty agency’s reserve funds, or the administration of any assets purchased or acquired with the reserve funds of the guaranty agency, that is entered into or extended by the guaranty agency, or any other party on behalf of or with the concurrence of the guaranty agency, after August 10, 1993, shall provide that the contract is terminable by the Secretary upon 30 days notice to the contracting parties if the Secretary determines that such contract includes an impermissible transfer of the reserve funds or assets, or is otherwise inconsistent with the terms or purposes of this section.

(B)

The Secretary may direct a guaranty agency to suspend or cease activities under any contract entered into by or on behalf of such agency after January 1, 1993, if the Secretary determines that the misuse or improper expenditure of such guaranty agency’s funds or assets or such contract provides unnecessary or improper benefits to such agency’s officers or directors.

(3)

Penalties

(4)

Availability of funds

(h)

Recall of reserves; limitations on use of reserve funds and assets

(1)

In general

(2)

Deposit

(3)

Required share

The Secretary shall require each guaranty agency to return reserve funds under paragraph (1) based on the agency’s required share of recalled reserve funds held by guaranty agencies as of September 30, 1996. For purposes of this paragraph, a guaranty agency’s required share of recalled reserve funds shall be determined as follows:

(A)

The Secretary shall compute each guaranty agency’s reserve ratio by dividing (i) the amount held in the agency’s reserve funds as of September 30, 1996 (but reflecting later accounting or auditing adjustments approved by the Secretary), by (ii) the original principal amount of all loans for which the agency has an outstanding insurance obligation as of such date, including amounts of outstanding loans transferred to the agency from another guaranty agency.

(B)

If the reserve ratio of any guaranty agency as computed under subparagraph (A) exceeds 2.0 percent, the agency’s required share shall include so much of the amounts held in the agency’s reserve funds as exceed a reserve ratio of 2.0 percent.

(C)

If any additional amount is required to be recalled under paragraph (1) (after deducting the total of the required shares calculated under subparagraph (B)), such additional amount shall be obtained by imposing on each guaranty agency an equal percentage reduction in the amount of the agency’s reserve funds remaining after deduction of the amount recalled under subparagraph (B), except that such percentage reduction under this subparagraph shall not result in the agency’s reserve ratio being reduced below 0.58 percent. The equal percentage reduction shall be the percentage obtained by dividing—

(i)

the additional amount required to be recalled (after deducting the total of the required shares calculated under subparagraph (B)), by

(ii)

the total amount of all such agencies’ reserve funds remaining (after deduction of the required shares calculated under such subparagraph).

(D)

If any additional amount is required to be recalled under paragraph (1) (after deducting the total of the required shares calculated under subparagraphs (B) and (C)), such additional amount shall be obtained by imposing on each guaranty agency with a reserve ratio (after deducting the required shares calculated under such subparagraphs) in excess of 0.58 percent an equal percentage reduction in the amount of the agency’s reserve funds remaining (after such deduction) that exceed a reserve ratio of 0.58 percent. The equal percentage reduction shall be the percentage obtained by dividing—

(i)

the additional amount to be recalled under paragraph (1) (after deducting the amount recalled under subparagraphs (B) and (C)), by

(ii)

the total amount of all such agencies’ reserve funds remaining (after deduction of the required shares calculated under such subparagraphs) that exceed a reserve ratio of 0.58 percent.

(4)

Restricted accounts required

(A)

In general

(B)

Requirement

(C)

Installments

In each of fiscal years 1998 through 2002, each guaranty agency shall transfer the agency’s required share to such restricted account in 5 equal annual installments, except that—

(i)

a guaranty agency that has a reserve ratio (as computed under subparagraph (3)(A)) equal to or less than 1.10 percent may transfer the agency’s required share to such account in 4 equal installments beginning in fiscal year 1999; and

(ii)

a guaranty agency may transfer such required share to such account in accordance with such other payment schedules as are approved by the Secretary.

(5)

Shortage

(6)

Enforcement

(A)

In general

(B)

Prohibition

(C)

Waiver

(7)

Limitation

(A)

Restriction on other authority

(B)

Use of termination collections

Any reserve funds directed by the Secretary to be returned to the Secretary under subsection (g)(1)(B) during such period that do not exceed a guaranty agency’s required share of recalled reserve funds under paragraph (3)—

(i)

shall be used to satisfy the agency’s required share of recalled reserve funds; and

(ii)

shall be deposited in the restricted account established by the agency under paragraph (4), without regard to whether such funds exceed the next installment required under such paragraph.

(C)

Use of sanctions collections

Any reserve funds directed by the Secretary to be returned to the Secretary under subsection (g)(1)(C) during such period that do not exceed a guaranty agency’s next installment under paragraph (4)—

(i)

shall be used to satisfy the agency’s next installment; and

(ii)

shall be deposited in the restricted account established by the agency under paragraph (4).

(D)

Balance available to Secretary

(8)

Definitions

For the purposes of this subsection:

(A)

Default reduction activities

The term “default reduction activities” means activities to reduce student loan defaults that improve, strengthen, and expand default prevention activities, such as—

(i)

establishing a program of partial loan cancellation to reward disadvantaged borrowers for good repayment histories with their lenders;

(ii)

establishing a financial and debt management counseling program for high-risk borrowers that provides long-term training (beginning prior to the first disbursement of the borrower’s first student loan and continuing through the completion of the borrower’s program of education or training) in budgeting and other aspects of financial management, including debt management;

(iii)

establishing a program of placement counseling to assist high-risk borrowers in identifying employment or additional training opportunities; and

(iv)

developing public service announcements that would detail consequences of student loan default and provide information regarding a toll-free telephone number established by the guaranty agency for use by borrowers seeking assistance in avoiding default.

(B)

Reserve funds

The term “reserve funds” when used with respect to a guaranty agency—

(i)

includes any reserve funds in cash or liquid assets held by the guaranty agency, or held by, or under the control of, any other entity; and

(ii)

does not include buildings, equipment, or other nonliquid assets.

(i)

Additional recall of reserves

(1)

In general

Notwithstanding any other provision of law and subject to paragraph (4), the Secretary shall recall, from reserve funds held in the Federal Student Loan Reserve Funds established under section 1072a of this title by guaranty agencies—

(A)

$85,000,000 in fiscal year 2002;

(B)

$82,500,000 in fiscal year 2006; and

(C)

$82,500,000 in fiscal year 2007.

(2)

Deposit

(3)

Required share

The Secretary shall require each guaranty agency to return reserve funds under paragraph (1) on the basis of the agency’s required share. For purposes of this paragraph, a guaranty agency’s required share shall be determined as follows:

(A)

Equal percentage

(B)

Calculation

The equal percentage reduction shall be the percentage obtained by dividing—

(i)

$250,000,000, by

(ii)

the total amount of all guaranty agencies’ reserve funds held on September 30, 1996, less any amounts subject to recall under subsection (h).

(C)

Special rule

(4)

Offset of required shares

(5)

Definition of reserve funds

The term “reserve funds” when used with respect to a guaranty agency—

(A)

includes any reserve funds in cash or liquid assets held by the guaranty agency, or held by, or under the control of, any other entity; and

(B)

does not include buildings, equipment, or other nonliquid assets.

(Pub. L. 89–329, title IV, § 422, as added Pub. L. 99–498, title IV, § 402(a), Oct. 17, 1986, 100 Stat. 1354; amended Pub. L. 100–203, title III, §§ 3001(a), 3002(a), Dec. 22, 1987, 101 Stat. 1330–36, 1330–38; Pub. L. 102–325, title IV, §§ 412, 416(p)(8), July 23, 1992, 106 Stat. 511, 527; Pub. L. 103–66, title IV, §§ 4041(a), (2)(A), 4042, Aug. 10, 1993, 107 Stat. 354, 357; Pub. L. 103–208, § 2(c)(1),

cite as: 20 USC 1072