Fiscal Management: Collections (October 2000)

COLLECTIONS

The regulations for the health professions and nursing student assistance programs provide that "each school at which a fund(s) is established must exercise due diligence in the collection of all loans due the fund(s)." Part II is intended to clarify this requirement and to aid those schools for which the management of student loans is a new and unfamiliar responsibility. The chapters in this part identify the required procedures which constitute due diligence. Part I, Chapter 4 of both Health Professions Programs and Nursing Programs also contain additional information on deferment and repayment provisions for the Federal Capital Contribution loans needed in working with borrowers.

It is important to note that the Loans for Disadvantaged Students Program and Primary Care Loan Program are governed by the same regulations as the Health Professions Student Loan Program, including the collection and due diligence requirements.

Health Professions Federal Capital Contribution (FCC) Loans include

Health Professions Student Loans;

Loans for Disadvantaged Students; and

Primary Care Loans.

Nursing Federal Capital Contribution (FCC) Loans include

Nursing Student Loans.

CHAPTER 1 DUE DILIGENCE SUMMARY

Due diligence is the process by which sound collection procedures are exercised. Such procedures usually result in a low rate of student loan delinquency. In the exercise of due diligence, a school must use the steps outlined below in accordance with the regulatory requirements:

conduct and document an entrance interview (individually or in groups) with the borrower prior to disbursing funds in an academic year. During the entrance interview, the school must:

obtain documentation which indicates that the borrower is aware of the rights and responsibilities associated with funds; and
obtain personal information which would assist in locating the borrower if he or she fails to keep the school informed of his or her current address.

These requirements may be met by correspondence if the school determines that a face-to-face meeting (individually or in groups) is not practical.

conduct and document an exit interview (individually or in groups) with the borrower. During the exit interview, the school must:

provide each borrower with information necessary to carry out the terms of repayment;
remind the borrower of the rights and responsibilities associated with the funds; and
update the personal information collected prior to disbursing the funds which would assist in locating the borrower if he or she fails to keep the school informed of his or her current address.

If the borrower terminates studies without advance notice, the school must document attempts to inform the borrower of the substance of the exit interview and to secure exit interview information from the borrower by mail.

notify the borrower in writing of the impending repayment obligation at least twice during the grace period.

notify a borrower who is in deferment status in writing of the impending repayment obligation one to three months prior to the expiration of the approved period of deferment.

perform regular billing.

follow up past due payments with a series of at least four documented and reasonably spaced attempts to contact the borrower, at least three of which must be in writing at not more than 30-day intervals, prior to the loan becoming 120 days past due, provided that the school has a current address for the borrower.

perform address searches when necessary.

use collection agents, which may include the use of an internal collection agent.

become a member of a credit bureau and notify the credit bureau of accounts past due by more than 120 days.

In place of one or more of the procedures outlined above schools may substitute collection techniques that are equally or more effective, but only after they have demonstrated the effectiveness of the techniques and obtained written approval from the Secretary.

[42 CFR Part 57.210 and 42 CFR Part 57.310]