Sallie Mae 2005 Annual Report Download - page 210

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Student loans are discharged if the borrower becomes totally and permanently disabled. A physician
must certify eligibility for discharge.
If a school closes while a student is enrolled, or within 90 days after the student withdrew, loans made
for that enrollment period are discharged. If a school falsely certifies that a borrower is eligible for the
loan, the loan may be discharged. And if a school fails to make a refund to which a student is entitled, the
loan is discharged to the extent of the unpaid refund.
Rehabilitation of Defaulted Loans
The Department of Education is authorized to enter into agreements with the guarantor under which
the guarantor may sell defaulted loans that are eligible for rehabilitation to an eligible lender. For a loan to
be eligible for rehabilitation, the guarantor must have received reasonable and affordable payments for 12
months (reduced to 9 payments in 10 months effective July 1, 2006), then the borrower may request that
the loan be rehabilitated. Because monthly payments are usually greater after rehabilitation, not all
borrowers opt for rehabilitation. Upon rehabilitation, a borrower is again eligible for all the benefits under
the Higher Education Act for which he or she is not eligible as a default, such as new federal aid, and the
negative credit record is expunged. No student loan may be rehabilitated more than once.
Guarantor Funding
In addition to providing the primary guarantee on FFELP loans, guarantee agencies are charged with
responsibility for maintaining records on all loans on which they have issued a guarantee (“account
maintenance”), assisting lenders to prevent default by delinquent borrowers (“default aversion”), post-
default loan administration and collections and program awareness and oversight. These activities are
funded by revenues from the following statutorily prescribed sources plus earnings on investments.
Source Basis
Insurance Premium......................... Up to 1% of the principal amount guaranteed, withheld
(Changes to Federal Default Fee July 1, 2006) from the proceeds of each loan disbursement.
Loan Processing andIssuance Fee............ .4% of the principal amount guaran
teed in each fiscal
year, paid by the Department of Education.
Account Maintenance Fee................... .10%of the original principal amountof loans
outstanding, paid by the Department of Education.
Default Aversion Fee....................... 1%of the outstanding amount of loans submitted by a
lender for default aversion assistance, minus 1% of the
unpaid principal and interest paid on default claims,
which is, paid once per loan by transfers out of the
Student Loan Reserve Fund.
Collection Retention ....................... 23% of the amount collected on loans on which
reinsurance has been paid (18.5% collected for a
defaulted loan that is purchased by a lender for
rehabilitation or consolidation), withheld from gross
receipts. Guarantor retention of collection fees on
defaulted consolidation loans is reduced from 18.5% to
10% (effective October 1, 2006), and reduced to zero
beginning October 1, 2009 on default consolidations
that exceed 45 percent of an agency’s total collections
on defaulted loans.