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IFAPFSA Information for Financial Aid ProfessionalsU.S. Department of Education
Citations: (R)682.402AsOfDate: 12/31/95
Death, disability, closed school, falsecertification, and bankruptcy payments.(a) General. (1) Rules governing the payment of claims based on filing for relief in bankruptcy, and discharge of loans due to death, total and permanent disability, attendanceat a school that closes, and false certification by a school of aborrower's eligibility for a loan, are set forth in this section.(2) If a PLUS loan was obtained by two parents asco-makers or a Consolidation loan was obtained by a marriedcouple, and only one of the borrowers dies, becomes totally andpermanently disabled, has collection of his or her loanobligation stayed by a bankruptcy filing, or has that obligationdischarged in bankruptcy, the other borrower remains obligatedto repay the loan.(3) Except for a borrower's loan obligation dischargedby the Secretary under the false certification dischargeprovision of paragraphs (e)(1)(ii) of this section, a loan qualifiesfor payment under this section only to the extent that the loan islegally enforceable under applicable law by the holder of theloan.(4) For purposes of this section--(i) The legal enforceability of a loan is conclusivelydetermined on the basis of a ruling by a court or administrativetribunal of competent jurisdiction with respect to that loan, or aruling with respect to another loan in a judgment that collaterallyestops the holder from contesting the enforceability of the loan;(ii) A loan is conclusively determined to be legallyunenforceable to the extent that the guarantor determines,pursuant to an objection presented in a proceeding conductedin connection with credit bureau reporting, tax refund offset,wage garnishment, or in any other administrative proceeding,that the loan is not legally enforceable; and(iii) If an objection has been raised by the borrower oranother party about the legal enforceability of the loan and nodetermination has been made under paragraph (a)(4)(i) or (ii) of this section, the Secretary may authorize the payment of aclaim under this section under conditions the Secretaryconsiders appropriate. If the Secretary determines in that or anyother case that a claim was paid under this section with respectto a loan that was not a legally enforceable obligation of theborrower, the recipient of that payment must refund that amountof the payment to the Secretary.(b) Death. (1) If an individual borrower dies, or, on orafter July 23, 1992 the student for whom a parent received aPLUS loan dies, the obligation of the borrower and anyendorser to make any further payments on the loan isdischarged.(2) In determining that a borrower (or student) hasdied, the lender may rely on a death certificate or other proof of death that is acceptable under applicable state law. If a deathcertificate or other acceptable proof of death is not available,the borrower's obligation on the loan can be discharged only if
the guaranty agency determines that other evidenceestablishes that the borrower (or student) has died.(3) After receiving information indicating that theborrower (or student) has died, the lender, if it believes theinformation to be reliable, shall suspend any collection activityagainst the borrower and promptly request that the borrower'srepresentative (or the student's parent in the case of a PLUSloan) provide the documentation described in paragraph (b)(2)of this section. During the suspension of collection activity,which may not exceed 60 days, the lender shall diligentlyattempt to obtain documentation verifying the borrower's (orstudent's) death. If, despite diligent attempts, the lender is notable to confirm the borrower's (or student's) death within 60days, the lender shall resume collection activity from the pointthat it had been discontinued and is deemed to have exercisedforbearance as to repayment of the loan during the period whencollection activity was suspended.(4) Once the lender has determined under paragraph(b)(2) of this section that the borrower (or student) has died, thelender may not attempt to collect on the loan from theborrower's estate or from any endorser.(5) The lender shall return to the sender anypayments received from the estate or paid on behalf of theborrower after the date of the borrower's (or student's) death.(c) Total and permanent disability. (1) If the lenderdetermines that an individual borrower is totally andpermanently disabled, the obligation of the borrower and anyendorser to make any further payments on the loan isdischarged. A borrower is not considered totally andpermanently disabled on the basis of a condition that existed atthe time he or she applied for the loan, unless the borrower'scondition has substantially deteriorated later, so as to renderthe borrower totally and permanently disabled. In the case of aConsolidation loan, the borrower must certify that the conditiondid not exist prior to the time the borrower applied for each of the underlying loans, unless the condition has substantiallydeteriorated, so as to render the borrower totally andpermanently disabled. If the condition existed prior to the datethe Consolidation loan was made, the borrower must providethe lender with the disbursement dates of the underlying loans if the information does not already appear in the borrower's loanfile possessed by the lender.(2) After being notified by the borrower or theborrower's representative that the borrower claims to be totallyand permanently disabled, the lender promptly shall requestthat the borrower or the borrower's representative submit on aform provided or approved by the Secretary a certification by aphysician who is a doctor of medicine or osteopathy and legallyauthorized to practice in a State that the borrower is totally andpermanently disabled. The lender shall continue collection untilit receives either the certification of total disability or a letterfrom a physician stating that the certification has beenrequested and that additional time is needed to determine if theborrower is totally and permanently disabled. Except asprovided in paragraph (c)(4) of this section, after receiving thephysician's certification or letter, the lender may not attempt tocollect from the borrower or any endorser.(3) After being notified that the guaranty agency haspaid a disability discharge claim, the lender shall return to thesender any payments received by the lender after the date thatthe borrower became totally and permanently disabled ascertified by the physician. At the same time that the lenderreturns the payment, it shall notify the borrower that there is noobligation to repay a loan discharged on the basis of disability.(4) If the lender determines that a borrower whoclaims to be totally and permanently disabled is not in factdisabled, or if the lender does not receive the physician'scertification of total disability within 60 days of the receipt of the
physician's letter requesting additional time, as described inparagraph (c)(2) of this section, the lender shall resumecollection and shall be deemed to have exercised forbearanceof payment of both principal and interest from the date thelender received the physician's letter requesting additional timeand may capitalize, in accordance with Sec. 682.202(b), anyinterest accrued and not paid during that period.(d) Closed school.--(1) General. (i) The Secretaryreimburses the holder of a loan received by a borrower on orafter January 1, 1986, and discharges the borrower's obligationwith respect to the loan in accordance with the provisions of paragraph (d) of this section, if the borrower (or the student forwhom a parent received a PLUS loan) could not complete theprogram of study for which the loan was intended because theschool at which the borrower (or student) was enrolled, closed,or the borrower (or student) withdrew from the school not morethan 90 days prior to the date the school closed. This 90-dayperiod may be extended if the Secretary determines thatexceptional circumstances related to a school's closing would justify an extension.(ii) For purposes of the closed school dischargeauthorized by this section--(A) A school's closure date is the date that the schoolceases to provide educational instruction in all programs, asdetermined by the Secretary;(B) The term "borrower" includes all endorsers on aloan; and(C) A "school" means a school's main campus or anylocation or branch of the main campus, regardless of whetherthe school or its location or branch is considered eligible.(2) Relief available pursuant to discharge.(i) Discharge under paragraph (d) of this section relieves theborrower of an existing or past obligation to repay the loan andany charges imposed or costs incurred by the holder withrespect to the loan that the borrower is, or was otherwiseobligated to pay.(ii) A discharge of a loan under paragraph (d) of thissection qualifies the borrower for reimbursement of amountspaid voluntarily or through enforced collection on a loanobligation discharged under paragraph (d) of this section.(iii) A borrower who has defaulted on a loandischarged under paragraph (d) of this section is not regardedas in default on the loan after discharge, and is eligible toreceive assistance under the Title IV, HEA programs.(iv) A discharge of a loan under paragraph (d) of thissection must be reported by the loan holder to all creditreporting agencies to which the holder previously reported thestatus of the loan, so as to delete all adverse credit historyassigned to the loan.(3) Borrower qualification for discharge. In order toqualify for discharge of a loan under paragraph (d) of thissection a borrower shall submit to the holder of the loan awritten request and sworn statement. The statement need notbe notarized, but must be made by the borrower under penaltyof perjury, and, in the statement, the borrower shall state--(i) Whether the student has made a claim withrespect to the school's closing with any third party, such as theholder of a performance bond or a tuition recovery program,and if so, the amount of any payment received by the borrower(or student) or credited to the borrower's loan obligation;(ii) That the borrower (or the student for whom aparent received a PLUS loan)--
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