§ 1085.
(d)
Eligible lender
(1)
In general
Except as provided in paragraphs (2) through (6), the term “eligible lender” means—
(A)
a National or State chartered bank, a mutual savings bank, a savings and loan association, a stock savings bank, or a credit union which—
(i)
is subject to examination and supervision by an agency of the United States or of the State in which its principal place of operation is established, and
(ii)
does not have as its primary consumer credit function the making or holding of loans made to students under this part unless (I) it is a bank which is wholly owned by a State, or a bank which is subject to examination and supervision by an agency of the United States, makes student loans as a trustee pursuant to an express trust, operated as a lender under this part prior to
January 1, 1975, and which meets the requirements of this provision prior to
July 23, 1992, (II) it is a single wholly owned subsidiary of a bank holding company which does not have as its primary consumer credit function the making or holding of loans made to students under this part, (III) it is a bank (as defined in
section 1813(a)(1) of title 12) that is a wholly owned subsidiary of a nonprofit foundation, the foundation is described in
section 501(c)(3) of title 26 and exempt from taxation under section 501(a) of such title, and the bank makes loans under this part only to undergraduate students who are age 22 or younger and has a portfolio of such loans that is not more than $5,000,000, or (IV) it is a National or State chartered bank, or a credit union, with assets of less than $1,000,000,000;
(B)
a pension fund as defined in the Employee Retirement Income Security Act [
29 U.S.C. 1001 et seq.];
(C)
an insurance company which is subject to examination and supervision by an agency of the United States or a State;
(D)
in any State, a single agency of the State or a single nonprofit private agency designated by the State;
(E)
an eligible institution which meets the requirements of paragraphs (2) through (5) of this subsection;
(F)
for purposes only of purchasing and holding loans made by other lenders under this part, the Student Loan Marketing Association or the Holding Company of the Student Loan Marketing Association, including any subsidiary of the Holding Company, created pursuant to
section 1087–3 of this title, or an agency of any State functioning as a secondary market;
(G)
for purposes of making loans under sections 1078–2(d) and 1078–3 of this title, the Student Loan Marketing Association or the Holding Company of the Student Loan Marketing Association, including any subsidiary of the Holding Company, created pursuant to
section 1087–3 of this title;
(H)
for purposes of making loans under sections 1078(h) 1 and 1078(j) of this title, a guaranty agency;
(I)
a Rural Rehabilitation Corporation, or its successor agency, which has received Federal funds under Public Law 499, Eighty-first Congress ([64 Stat. 98] (1950));
(J)
for purpose of making loans under
section 1078–3 of this title, any nonprofit private agency functioning in any State as a secondary market; and
(K)
a consumer finance company subsidiary of a national bank which, as of October 7, 1998, through one or more subsidiaries: (i) acts as a small business lending company, as determined under regulations of the Small Business Administration under section 120.470 of title 13, Code of Federal Regulations (as such section is in effect on October 7, 1998); and (ii) participates in the program authorized by this part pursuant to subparagraph (C), provided the national bank and all of the bank’s direct and indirect subsidiaries taken together as a whole, do not have, as their primary consumer credit function, the making or holding of loans made to students under this part.
(2)
Requirements for eligible institutions
(A)
In general
To be an eligible lender under this part, an eligible institution—
(i)
shall employ at least one person whose full-time responsibilities are limited to the administration of programs of financial aid for students attending such institution;
(ii)
shall not be a home study school;
(iii)
shall not—
(I)
make a loan to any undergraduate student;
(II)
make a loan other than a loan under section 1078 or 1078–8 of this title to a graduate or professional student; or
(III)
make a loan to a borrower who is not enrolled at that institution;
(iv)
shall award any contract for financing, servicing, or administration of loans under this subchapter on a competitive basis;
(v)
shall offer loans that carry an origination fee or an interest rate, or both, that are less than such fee or rate authorized under the provisions of this subchapter;
(vi)
shall not have a cohort default rate (as defined in subsection (m)) greater than 10 percent;
(vii)
shall, for any year for which the institution engages in activities as an eligible lender, provide for a compliance audit conducted in accordance with
section 1078(b)(1)(U)(iii)(I) of this title, and the regulations thereunder, and submit the results of such audit to the Secretary;
(viii)
shall use any proceeds from special allowance payments and interest payments from borrowers, interest subsidies received from the Department of Education, and any proceeds from the sale or other disposition of loans, for need-based grant programs; and
(ix)
shall have met the requirements of subparagraphs (A) through (F) of this paragraph as in effect on the day before February 8, 2006, and made loans under this part, on or before April 1, 2006.
(B)
Administrative expenses
(C)
Supplement, not supplant
(3)
Disqualification for high default rates
(4)
Waiver of disqualification
Whenever the Secretary determines that—
(A)
there is reasonable possibility that an eligible institution may, within 1 year after a determination is made under paragraph (3), improve the collection of loans described in
section 1078(a)(1) of this title, so that the application of paragraph (3) would be a hardship to that institution, or
(B)
the termination of the lender’s status under paragraph (3) would be a hardship to the present or for prospective students of the eligible institution, after considering the management of that institution, the ability of that institution to improve the collection of loans, the opportunities that institution offers to economically disadvantaged students, and other related factors,
the Secretary shall waive the provisions of paragraph (3) with respect to that institution. Any determination required under this paragraph shall be made by the Secretary prior to the termination of an eligible institution as a lender under the exception of paragraph (3). Whenever the Secretary grants a waiver pursuant to this paragraph, the Secretary shall provide technical assistance to the institution concerned in order to improve the collection rate of such loans.
(5)
Disqualification for use of certain incentives
The term “eligible lender” does not include any lender that the Secretary determines, after notice and opportunity for a hearing, has—
(A)
offered, directly or indirectly, points, premiums, payments (including payments for referrals and for processing or finder fees), prizes, stock or other securities, travel, entertainment expenses, tuition payment or reimbursement, the provision of information technology equipment at below-market value, additional financial aid funds, or other inducements, to any institution of higher education, any employee of an institution of higher education, or any individual or entity in order to secure applicants for loans under this part;
(B)
conducted unsolicited mailings, by postal or electronic means, of student loan application forms to students enrolled in secondary schools or postsecondary institutions, or to family members of such students, except that applications may be mailed, by postal or electronic means, to students or borrowers who have previously received loans under this part from such lender;
(C)
entered into any type of consulting arrangement, or other contract to provide services to a lender, with an employee who is employed in the financial aid office of an institution of higher education, or who otherwise has responsibilities with respect to student loans or other financial aid of the institution;
(D)
compensated an employee who is employed in the financial aid office of an institution of higher education, or who otherwise has responsibilities with respect to student loans or other financial aid of the institution, and who is serving on an advisory board, commission, or group established by a lender or group of lenders for providing such service, except that the eligible lender may reimburse such employee for reasonable expenses incurred in providing such service;
(E)
performed for an institution of higher education any function that such institution of higher education is required to perform under this title, except that a lender shall be permitted to perform functions on behalf of such institution in accordance with section 1092(b) or 1092(l) of this title;
(F)
paid, on behalf of an institution of higher education, another person to perform any function that such institution of higher education is required to perform under this subchapter, except that a lender shall be permitted to perform functions on behalf of such institution in accordance with section 1092(b) or 1092(l) of this title;
(G)
provided payments or other benefits to a student at an institution of higher education to act as the lender’s representative to secure applications under this subchapter from individual prospective borrowers, unless such student—
(i)
is also employed by the lender for other purposes; and
(ii)
made all appropriate disclosures regarding such employment;
(H)
offered, directly or indirectly, loans under this part as an inducement to a prospective borrower to purchase a policy of insurance or other product; or
(I)
engaged in fraudulent or misleading advertising.
It shall not be a violation of this paragraph for a lender to provide technical assistance to institutions of higher education comparable to the kinds of technical assistance provided to institutions of higher education by the Department.
(6)
Rebate fee requirement
(7)
Eligible lender trustees
Notwithstanding any other provision of this subsection, an eligible lender may not make or hold a loan under this part as trustee for an institution of higher education, or for an organization affiliated with an institution of higher education, unless—
(A)
the eligible lender is serving as trustee for that institution or organization as of September 30, 2006, under a contract that was originally entered into before September 30, 2006, and that continues in effect or is renewed after September 30, 2006; and
(B)
the institution or organization, and the eligible lender, with respect to its duties as trustee, each comply on and after January 1, 2007, with the requirements of paragraph (2), except that—
(i)
the requirements of clauses (i), (ii), (vi), and (viii) of paragraph (2)(A) shall, subject to clause (ii) of this subparagraph, only apply to the institution (including both an institution for which the lender serves as trustee and an institution affiliated with an organization for which the lender serves as trustee);
(ii)
in the case of an organization affiliated with an institution—
(I)
the requirements of clauses (iii) and (v) of paragraph (2)(A) shall apply to the organization; and
(II)
the requirements of clause (viii) of paragraph (2)(A) shall apply to the institution or the organization (or both), if the institution or organization receives (directly or indirectly) the proceeds described in such clause;
(iii)
the requirements of clauses (iv) and (ix) of paragraph (2)(A) shall not apply to the eligible lender, institution, or organization; and
(iv)
the eligible lender, institution, and organization shall ensure that the loans made or held by the eligible lender as trustee for the institution or organization, as the case may be, are included in a compliance audit in accordance with clause (vii) of paragraph (2)(A).
(8)
School as lender program audit
Each institution serving as an eligible lender under paragraph (1)(E), and each eligible lender serving as a trustee for an institution of higher education or an organization affiliated with an institution of higher education, shall annually complete and submit to the Secretary a compliance audit to determine whether—
(A)
the institution or lender is using all proceeds from special allowance payments and interest payments from borrowers, interest subsidies received from the Department, and any proceeds from the sale or other disposition of loans, for need-based grant programs, in accordance with paragraph (2)(A)(viii);
(B)
the institution or lender is using not more than a reasonable portion of the proceeds described in paragraph (2)(A)(viii) for direct administrative expenses; and
(C)
the institution or lender is ensuring that the proceeds described in paragraph (2)(A)(viii) are being used to supplement, and not to supplant, Federal and non-Federal funds that would otherwise be used for need-based grant programs.
([Pub. L. 89–329, title IV, § 435], as added [Pub. L. 99–498, title IV, § 402(a)], Oct. 17, 1986, [100 Stat. 1408]; amended [Pub. L. 100–50, § 10(aa)], June 3, 1987, [101 Stat. 347]; [Pub. L. 101–239, title II], §§ 2003(a)(2), 2007(a), Dec. 19, 1989, [103 Stat. 2113], 2120; [Pub. L. 101–508, title III, § 3004(a)], Nov. 5, 1990, [104 Stat. 1388–26]; [Pub. L. 101–542, title III, § 301], Nov. 8, 1990, [104 Stat. 2387]; [Pub. L. 102–26, § 2(a)(1)], Apr. 9, 1991, [105 Stat. 123]; [Pub. L. 102–325, title IV], §§ 416(e)(2), 427(a), (b)(1), (c)–(g), July 23, 1992, [106 Stat. 519], 549, 550; [Pub. L. 103–66, title IV], §§ 4046(b)(1), 4106(b), Aug. 10, 1993, [107 Stat. 362], 368; [Pub. L. 103–208, § 2(c)(55)]–(62), Dec. 20, 1993, [107 Stat. 2468], 2469; [Pub. L. 103–235, § 1], Apr. 28, 1994, [108 Stat. 381]; [Pub. L. 103–382, title III, § 357], Oct. 20, 1994, [108 Stat. 3967]; [Pub. L. 104–208, div. A, title I, § 101(e) [title VI, § 602(b)(1)(A)]], Sept. 30, 1996, [110 Stat. 3009–233], 3009–283; [Pub. L. 105–244, title I, § 102(b)(2)], title IV, § 429(a)–(c)(1), (d), title IX, § 901(d), Oct. 7, 1998, [112 Stat. 1622], 1704–1709, 1828;