34 C.F.R. § 685.211 Miscellaneous repayment provisions.
Title 34 - Education
Link to an amendment published at 71 FR 45714, Aug. 9, 2006. (a) Payment application and prepayment. (1) The Secretary applies any payment first to any accrued charges and collection costs, then to any outstanding interest, and then to outstanding principal. (2) A borrower may prepay all or part of a loan at any time without penalty. If a borrower pays any amount in excess of the amount due, the excess amount is a prepayment. (3) If a prepayment equals or exceeds the monthly repayment amount under the borrower's repayment plan, the Secretary— (i) Applies the prepaid amount according to paragraph (a)(1) of this section; (ii) Advances the due date of the next payment unless the borrower requests otherwise; and (iii) Notifies the borrower of any revised due date for the next payment. (4) If a prepayment is less than the monthly repayment amount, the Secretary applies the prepayment according to paragraph (a)(1) of this section. (b) Repayment incentives. To encourage on-time repayment, the Secretary may reduce the interest rate for a borrower who repays a loan under a system or on a schedule that meets requirements specified by the Secretary. (c) Refunds and returns of title IV, HEA program funds from schools. The Secretary applies any refund or return of title IV, HEA program funds that the Secretary receives from a school under §668.22 against the borrower's outstanding principal and notifies the borrower of the refund or return. (d) Default—(1) Acceleration. If a borrower defaults on a Direct Loan, the entire unpaid balance and accrued interest are immediately due and payable. (2) Collection charges. If a borrower defaults on a Direct Loan, the Secretary assesses collection charges in accordance with §685.202(e). (3) Collection of a defaulted loan. (i) The Secretary may take any action authorized by law to collect a defaulted Direct Loan including, but not limited to, filing a lawsuit against the borrower, reporting the default to national credit bureaus, requesting the Internal Revenue Service to offset the borrower's Federal income tax refund, and garnishing the borrower's wages. (ii) If a borrower defaults on a Direct Subsidized Loan, a Direct Unsubsidized Loan, a Direct Unsubsidized Consolidation Loan or a Direct Subsidized Consolidation Loan, the Secretary may designate the income contingent repayment plan for the borrower. (e) Ineligible borrowers. (1) The Secretary determines that a borrower is ineligible if, at the time the loan was made and without the school's or the Secretary's knowledge, the borrower (or the student on whose behalf a parent borrowed) provided false or erroneous information or took actions that caused the borrower or student— (i) To receive a loan for which the borrower is wholly or partially ineligible; (ii) To receive interest benefits for which the borrower was ineligible; or (iii) To receive loan proceeds for a period of enrollment for which the borrower was not eligible. (2) If the Secretary makes the determination described in paragraph (e)(1) of this section, the Secretary sends an ineligible borrower a demand letter that requires the borrower to repay some or all of a loan, as appropriate. The demand letter requires that within 30 days from the date the letter is mailed, the borrower repay any principal amount for which the borrower is ineligible and any accrued interest, including interest subsidized by the Secretary, through the previous quarter. (3) If a borrower fails to comply with the demand letter described in paragraph (e)(2) of this section, the borrower is in default on the entire loan. (4) A borrower may not consolidate a loan under §685.220 for which the borrower is wholly or partially ineligible. (f) Rehabilitation of defaulted loans. (1) A defaulted Direct Loan, except for a loan on which a judgment has been obtained, is rehabilitated if the borrower makes 12 consecutive, on-time, reasonable, and affordable monthly payments. The amount of such a payment is determined on the basis of the borrower's total financial circumstances. If a defaulted loan is rehabilitated, the Secretary instructs any credit bureau to which the default was reported to remove the default from the borrower's credit history. (2) A defaulted Direct Loan on which a judgment has been obtained may not be rehabilitated. (Authority: 20 U.S.C. 1087a et seq.) [59 FR 61690, Dec. 1, 1994, as amended at 64 FR 57961, Oct. 27, 1999; 64 FR 59043, Nov. 1, 1999; 65 FR 65629, Nov. 1, 2000; 66 FR 34765, June 29, 2001; 67 FR 67081, Nov. 1, 2002]
Title 34: Education
PART 685—WILLIAM D. FORD FEDERAL DIRECT LOAN PROGRAM
Subpart B—Borrower Provisions
§ 685.211 Miscellaneous repayment provisions.
