Current through Register Vol. 51, No. 3, September 1, 2024
RELATES TO:
KRS
164.740(6), (16),
164.748(5),
(13),
20 U.S.C.
1078(B)(1)(U),
1085(d),
34 C.F.R.
682.401(b)(17)(i)(A), (B)
NECESSITY, FUNCTION, AND CONFORMITY:
KRS
164.748(1) authorizes the
board to "provide loan guarantees, upon such terms and conditions as the board
may prescribe within the limitations provided by
KRS
164.740 to
164.785,
and the federal act in respect of loans to eligible students."
KRS
164.748(5) authorizes the
board to "enter into contracts with eligible lenders approved by the state to
lend moneys, upon such terms and conditions as may be agreed upon between the
authority and the eligible lender, to provide for the administration of student
financial assistance programs, including, but not by way of limitation, the
authority's program of insured student loans." The authority is the designated
guarantor for the state of Kentucky under the Robert T. Stafford Federal
Student Loan Program, the Federal Plus Program, the Federal Consolidation Loan
Program, and the Federal Supplemental Loans to Students Program pursuant to the
federal act of 1965, as amended (20
U.S.C. 1071 et seq.) and agreements with the
secretary. Section 428(b)(1)(U) of the federal act requires the authority to
provide for the eligibility of all lenders described in 435(d)(1) of the
federal act under reasonable criteria.
34 C.F.R.
682.401(b)(17)(A) requires
the authority to establish and disseminate the criteria for lender eligibility.
This administrative regulation sets forth the criteria for approval of lender
participation and execution of a contract of insurance with eligible lenders.
This amendment is necessary to eliminate a geographic limitation on
organizations that may participate as lenders, and eliminate definitions now
contained in
11 KAR
3:001.
Section
1. In order to be considered for participation in the authority's
insured student loan program, a lender shall submit to the authority, if
requested, information sufficient to enable the authority to determine the
eligibility of the lender and whether it meets the following criteria. In
determining whether to enter into a contract of insurance with an applicant,
and, if so, what the terms of the contract will be, the authority considers:
(1) Whether the applicant is an organization
described in, and not disqualified pursuant to, 435(d) of the federal act
(20 U.S.C.
1085(d));
(2) Whether the applicant is capable of
complying with federal regulations and 11 KAR Chapter 3 as they apply to
lenders participating in the authority's insured student loan
program;
(3) Whether the applicant
is capable of implementing adequate procedures for making, servicing, and
collecting insured student loans;
(4) Whether the applicant has had prior
experience with a similar federal, state, or private nonprofit student loan
program, and the amount and percentage of loans that are currently delinquent
or in default under that program;
(5) The financial resources of the applicant;
and
(6) In the case of a school
that is seeking approval as a lender, whether it is accredited.
Section 2.
(1) The authority may enter into a contract
of insurance with an eligible lender approved by the secretary, if the lender
is:
(a) Capable of complying with federal
regulations and 11 KAR Chapter 3 as they apply to lenders participating in the
authority's insured student loan program;
(b) Capable of implementing adequate
procedures for making, servicing, and collecting insured student loans;
and
(c) Located in any
state.
(2) The authority
shall issue loan guarantees for lenders under contracts described in Section 3
of this administrative regulation without regard to the residency of the
borrower or the state in which the educational institution is
located.
(3) In the event that loan
guarantees are issued pursuant to subsection (2) of this section, and none of
the principal parties (lender, educational institution or borrower) are located
in the Commonwealth, then, for purposes of the federal act, the authority shall
deem the state in which the participating lender is located to be the area
served by the authority.
Section
3. The Contract of Insurance.
(1) In order to participate, an eligible
lender shall execute a contract of insurance with the authority. No loan
guarantee shall be issued by the authority unless it is covered by such an
agreement.
(2) In general, under a
contract of insurance, the participating lender agrees to comply with all laws,
administrative regulations, and other requirements applicable to its
participation as a lender. In return the authority agrees to insure each
eligible loan held by the lender against the borrower's default, death, total
and permanent disability, or bankruptcy.
(3) The authority may include in a contract
of insurance a limit on the duration of the contract and the number or amount
of loans the participating lender may make or hold.
(4) Except as otherwise approved by the
authority, a contract of insurance with a school lender limits the loans made
by that school lender that will be covered by the loan guarantee to those loans
made to students, or to parents borrowing on behalf of students, who are:
(a) In attendance at that school;
(b) In attendance at other schools under the
same ownership as that school; or
(c) Employees or dependents of employees, or
whose parents are employees, of that school lender or other schools under the
same ownership, under circumstances the authority considers appropriate for
loan guarantees.
(5) A
limit imposed under subsection (4) of this section on a school lender that
makes loans to students, or to parents of students, in attendance at other
schools under the same ownership, or to employees, or to dependents or parents
of employees of those other schools may be imposed on a school-by-school
basis.
STATUTORY AUTHORITY:
KRS
164.746(6),
164.748(4),
20 U.S.C.
1078(B)(1)(U), 34 C.F.R.
401(b)(17)(i)(A), (B)
