Kentucky Administrative Regulations
Title 11 - KENTUCKY HIGHER EDUCATION ASSISTANCE AUTHORITY
Chapter 3 - Kentucky Loan Program
Section 11 KAR 3:045 - Permissible charges by lenders to borrowers
Universal Citation: 11 KY Admin Regs Service 3:045
Current through Register Vol. 51, No. 3, September 1, 2024
RELATES TO: KRS 164.744(1), 164.748(1), (3), (14), 164.753(2), 164.766, 34 C.F.R. 682.202, 20 U.S.C. 1077a, 1078(B)(1)
NECESSITY, FUNCTION, AND CONFORMITY: KRS 164.744(1) empowers the authority to insure loans to students, provided that the loans meet the criteria of the federal Act. Pub.L. 102-325, enacted July 23, 1992, reauthorized the federal Act and made substantial changes in the insured student loan programs. This administrative regulation is necessary to prescribe the charges that lenders may impose on borrowers, either directly or indirectly.
Section 1. Interest Rates on Subsidized Federal Stafford Loans.
(1) The annual
interest rate on the unpaid principal balance (including any capitalized
interest added to principal) of a subsidized federal Stafford loan for a
borrower who, on the date of signing the promissory note or other written
evidence of that loan, does not owe an outstanding balance on a previous
federal Stafford loan shall be:
(a) Seven (7)
percent for a loan covering a period of instruction beginning before January 1,
1981;
(b) Nine (9) percent for a
loan covering a period of instruction beginning on or after January 1, 1981,
but before September 13, 1983;
(c)
Eight (8) percent for a loan covering a period of instruction beginning on or
after September 13, 1983;
(d) For
any loan to cover the cost of instruction for any period of enrollment
beginning on or after July 1, 1988:
1. Eight
(8) percent during the period beginning on the date of the disbursement of the
loan and ending four (4) years after the commencement of repayment;
and
2. Ten (10) percent during the
remainder of the repayment period;
(e) For any loan for which the first
disbursement is made on or after October 1, 1992, during any twelve (12) month
period beginning on July 1 and ending on June 30, be determined by the
secretary on the preceding June 1 and be equal to the bond equivalent rate of
ninety-one (91) day treasury bills, auctioned at the final auction held prior
to such June 1, plus three and one-tenth (3.1) percent, except that the rate
shall not exceed nine (9) percent. The secretary shall determine the rate of
interest under this paragraph after consultation with the U.S. Secretary of the
Treasury and shall publish such rate in the Federal Register as soon as
practicable after the date of determination;
(f) Eight (8) percent for any loan made, on
or after October 1, 1992, to a borrower, who on the date of entering into the
note or other written evidence of the loan, has an outstanding balance of
principal or interest on any federal SLS loan, federal PLUS loan, or federal
consolidation loan.
(2)
The interest rate on a subsidized federal Stafford loan for a borrower who, on
the date of signing the promissory note or other written evidence of that loan,
has an outstanding balance on a previous federal Stafford loan, shall be the
applicable interest rate on the previous loan.
(3) Treatment of excess interest payments on
accounts resulting from decline in treasury bill rates;
(a) If, with respect to a loan for which the
applicable interest rate is ten (10) percent under subsection (1)(d) of this
section at the close of any calendar quarter, the sum of the average of the
bond equivalent rates of ninety-one (91) day treasury bills auctioned for that
quarter and 3.25 percent is less than ten (10) percent, then an adjustment
shall be made to a borrower's account by calculating excess interest in the
amount computed under paragraph (b) of this subsection, and crediting the
excess interest to the reduction of principal to the extent provided for under
paragraph (c) of this subsection;
(b) The amount of any adjustment of interest
on a loan to be made under this subsection for any quarter shall be equal to
ten (10) percent minus:
1. The sum of the
average of the bond equivalent rates of ninety-one (91) day treasury bills
auctioned for the calendar quarter, plus 3.25 percent; multiplied by
2. The outstanding principal balance of the
loan (not including unearned interest added to principal) at the end of the
calendar quarter; divided by
3.
Four (4).
(c) Annual
adjustment of interest and borrower eligibility for credit. Any adjustment
amount computed pursuant to paragraph (b) of this subsection for any quarter
shall be credited, by the holder of the loan on the last day of the calendar
year in which such quarter falls, to the loan account of the borrower so as to
reduce the principal balance of such account. No credit shall be made to the
loan account of a borrower who on the last day of the calendar year is
delinquent for more than thirty (30) days in making a required payment on the
loan. Any credit which is to be made to a borrower's account pursuant to this
subsection shall be made effective commencing no later than thirty (30) days
following the last day of the calendar year in which the quarter falls for
which the credit is being made. Nothing in this subsection shall be construed
to require refunding any repayment of a loan. At the option of the lender, the
amount of such adjustment may be distributed to the borrower either by
reduction in the amount of the periodic payment on the loan, by reducing the
number of payments that shall be made with respect to the loan, or by reducing
the amount of the final payment of the loan.
(4)
(a) If,
with respect to a loan (other than a loan for which the interest rate is
determined in accordance with subsection (1)(e) of this section) made on or
after July 23, 1992 to a borrower, who on the date of entering into the note or
other written evidence of the loan, has an outstanding balance of principal or
interest on any other authority insured loan, the sum of the average of the
bond equivalent rates of ninety-one (91) day treasury bills auctioned for that
quarter plus three and one-tenth (3.1) percent is less than the applicable
interest rate, then an adjustment shall be made by calculating excess interest
in the amount computed under paragraph (b) of this subsection; and
1. During any period in which a student is
eligible to have interest subsidy payments paid on his or her behalf by the
secretary, by crediting the excess interest to the amount due from the
secretary; or
2. During any other
period, by crediting such excess interest to the reduction of principal to the
extent provided in paragraph (c) of this subsection.
(b) Amount of adjustment. The amount of any
adjustment of interest on a loan to be made under this subsection for any
quarter shall be equal to the applicable interest rate minus the sum of:
1. The average of the bond equivalent rates
of ninety-one (91) day treasury bills auctioned for such calendar quarter, plus
three and one-tenth (3.1) percent; multiplied by
2. The outstanding principal balance of the
loan (not including unearned interest added to principal) at the end of such
calendar quarter; divided by
3.
Four (4).
(c) Annual
adjustment of interest and borrower eligibility for credit. Any adjustment
amount computed pursuant to paragraph (b) of this subsection for any quarter
shall be credited, by the holder of the loan on the last day of the calendar
year in which such quarter falls, to the loan account of the borrower so as to
reduce the principal balance of such account. No credit shall be made to the
loan account of a borrower who on the last day of the calendar year is
delinquent for more than thirty (30) days in making a required payment on the
loan. Any credit which is to be made to a borrower's account pursuant to this
subsection shall be made effective commencing no later than thirty (30) days
following the last day of the calendar year in which the quarter falls for
which the credit is being made. Nothing in this subsection shall be construed
to require refunding any repayment of a loan. At the option of the lender, the
amount of such adjustment may be distributed to the borrower either by
reduction in the amount of the periodic payment on the loan, by reducing the
number of payments that shall be made with respect to the loan, or by reducing
the amount of the final payment of the loan.
(5)
(a) The
participating lender shall not collect from a borrower any amount of interest
that is payable to the lender by the secretary on behalf of the borrower as a
subsidy under the federal Act.
(b)
The participating lender shall not charge interest or receive interest
subsidies for loans for which the disbursement checks have not been cashed or
for which electronic funds transfers have not been completed.
Section 2.
(1) Interest Rates on Unsubsidized Federal
Stafford Loans. The annual interest rate on the unpaid principal balance
(including any capitalized interest added to principal) of an unsubsidized
federal Stafford loan for a borrower shall be the variable rate determined
under Section 1(1)(e) of this administrative regulation.
(2) Interest that accrues on loans under this
section during periods in which payments of principal are deferred shall, if
agreed upon by the borrower and the lender:
(a) Be paid monthly or quarterly;
or
(b) Be added to the principal
amount of the loan not more frequently than quarterly by the lender.
Section 3. Interest Rates for Federal Supplemental Loans for Students and Federal PLUS Loans.
(1) In general. Except as provided in
subsections (2), (3), (5) and (6) of this section, the applicable rate of
interest on federal Supplemental Loans for Students and federal PLUS loans made
on or after October 1, 1981, shall be fourteen (14) percent per year on the
unpaid principal balance (including capitalized interest) of the
loan.
(2) The applicable interest
rate on a federal SLS loan made to cover a period of enrollment beginning on or
after October 17, 1986 or a federal PLUS loan, if the federal SLS loan or
federal PLUS is disbursed prior to July 1, 1987, shall be:
(a) Nine (9) percent for a loan made on or
after January 1, 1981, but before October 1, 1981;
(b) Fourteen (14) percent for a loan made on
or after October 1, 1981, but before November 1, 1982; or
(c) Twelve (12) percent for a loan made on or
after November 1, 1982.
(3) Reduction of rate after decline in
treasury bill rates. If for any twelve (12) month period beginning on or after
October 1, 1981, the secretary, after consultation with the U.S. Secretary of
the Treasury, determines that the average of the bond equivalent rates of
ninety-one (91) day treasury bills auctioned for such twelve (12) month period
is equal to or less than fourteen (14) percent, the applicable rate of interest
for loans made on and after the first day of the first month beginning after
the date of publication of the determination shall be twelve (12) percent per
year on the unpaid principal balance of the loan.
(4) Increase of rate after increase in
treasury bill rates. If for any twelve (12) month period beginning on or after
the date of publication of a determination under subsection (2) of this
section, the secretary, after consultation with the U.S. Secretary of the
Treasury, determines that the average of the bond equivalent rates of
ninety-one (91) day treasury bills auctioned for such twelve (12) month period
exceeds fourteen (14) percent, the applicable rate of interest for loans made
on and after the first day of the first month beginning after the date of
publication of that determination under this subsection shall be fourteen (14)
percent per year on the unpaid principal balance of the loan.
(5) Availability of variable rates.
(a) Except as provided in paragraphs (c) or
(d) of this subsection, for any loan disbursed on or after July 1, 1987, or any
new loan made to refinance previous federal SLS loans or federal PLUS loans
made prior to that date, the applicable rate of interest during any twelve (12)
month period beginning on July 1 and ending on June 30 shall be determined
under paragraph (b) of this section, except that the rate shall not exceed
twelve (12) percent.
(b) For any
twelve (12) month period beginning on July 1 and ending on June 30, the rate
determined under this paragraph shall be determined by the secretary on the
preceding June 1, after consultation with the U.S. Secretary of the Treasury,
and published in the Federal Register as soon as practicable after the date of
determination, and shall be equal to the bond equivalent rate of fifty-two (52)
week treasury bills auctioned at the final auction held prior to such June 1,
plus 3.25 percent.
(c)
Notwithstanding paragraph (a) of this subsection, for any federal SLS loan for
which the first disbursement is made on or after October 1, 1992, the
applicable interest rate shall be determined for any twelve (12) month period
beginning on July 1 and ending on June 30 by the secretary on the preceding
June 1, after consultation with the U.S. Secretary of the Treasury, and
published in the Federal Register as soon as practicable after the date of
determination, and shall be equal to the bond equivalent rate of fifty-two (52)
week treasury bills auctioned at the final auction held prior to such June 1,
plus three and one-tenth (3.1) percent, and the interest rate shall not exceed
eleven (11) percent.
(d)
Notwithstanding paragraph (a) of this subsection, for any federal PLUS loan for
which the first disbursement is made on or after October 1, 1992, the
applicable interest rate shall be determined for any twelve (12) month period
beginning on July 1 and ending on June 30 by the secretary on the preceding
June 1, after consultation with the U.S. Secretary of the Treasury, and
published in the Federal Register as soon as practicable after the date of
determination, and shall be equal to the bond equivalent rate of fifty-two (52)
week treasury bills auctioned at the final auction held prior to such June 1,
plus three and one-tenth (3.1) percent, and the interest rate shall not exceed
ten (10) percent.
(6) A
holder may at any time combine multiple loans that it holds for a borrower
under a single repayment schedule, which provides for a single principal
payment and a single payment of interest, and interest shall accrue on the
combined balance at the weighted average of the rates of all included
loans.
(7) Interest that accrues on
loans under this section during periods in which payments of principal are
deferred shall, if agreed upon by the borrower and the lender:
(a) Be paid monthly or quarterly;
or
(b) Be added to the principal
amount of the loan not more frequently than quarterly by the lender.
Section 4. Interest on Federal Consolidation Loan. Federal Consolidation loans shall bear interest at an annual rate on the unpaid principal balance of the loan (including any capitalized interest) that is equal to the greater of the weighted average of the interest rates on the loans consolidated, rounded to the nearest whole percent, or nine (9) percent.
Section 5. Capitalization.
(1) A
participating lender may add accrued interest and unpaid insurance premiums on
a loan to the borrower's unpaid principal balance in accordance with
subsections (2) and (3) of this section. This increase in the principal balance
of a loan is called "capitalization."
(2) A lender may capitalize interest that has
accrued:
(a) During the in-school period or
grace period, if capitalization is expressly authorized by the promissory note,
or by written consent of the borrower;
(b) During a period of authorized
deferment;
(c) During a period of
forbearance, in which interest is forborne; or
(d) During the period from the date the first
installment payment was due until it was made.
(3) A lender may capitalize accrued interest
under subsection (2)(a) through (c) of this section no more frequently than
quarterly, except that capitalization is again permitted when repayment is
required to begin or resume. A lender may capitalize accrued interest under
subsection (2)(d) of this section only on the date repayment of principal
actually begins.
(4) Capitalization
on claim. Interest accrued and unpaid at the time of payment of an insurance
claim by the authority due to the default or bankruptcy of the borrower shall
be capitalized at the time of payment of the claim.
Section 6. Origination and Loan Processing Fees.
(1) Origination fee for a subsidized
federal Stafford loan.
(a) Except as provided
in paragraph (d) of this subsection, under the subsidized Robert T. Stafford
Federal Student Loan program, a participating lender shall charge a borrower an
origination fee of five (5) percent of the principal amount of the loan, to be
deducted proportionately from each installment disbursement of the proceeds of
the loan prior to payment to the borrower.
(b) The origination fee authorized in
paragraph (a) of this subsection shall not be taken into account for purposes
of determining the amount of interest that may be charged pursuant to Section 1
of this administrative regulation.
(c) The lender shall refund the portion of
the origination fee previously deducted from the loan or multiply-disbursed
portion thereof by a credit against the borrower's loan balance if:
1. The loan check is returned uncashed to the
lender;
2. The loan is repaid in
full within 120 days of disbursement;
3. The loan check has not been cashed within
120 days of disbursement; or
4. The
loan proceeds disbursed by electronic funds transfer have not been released
from the restricted account maintained by the participating institution within
120 days of disbursement.
(d) The origination fee authorized by
paragraph (a) of this subsection shall be increased to five and five-tenths
(5.5) percent for any loan made or disbursed during a period of sequestration
pursuant to Pub.L. 99-177 (the "Balanced Budget and Deficit Control Act of
1985").
(2) Origination
fee for an unsubsidized federal Stafford loan.
(a) The participating lender shall charge the
borrower and pay to the secretary a combined origination fee and insurance
premium in the amount of six and five-tenths (6.5) percent of the principal
amount of the loan, to be deducted proportionately from each installment
disbursement of the proceeds of the loan prior to payment to the
borrower.
(b) The combined fee and
premium shall not be taken into account for purposes of determining the amount
of interest that may be charged pursuant to Section 2 of this administrative
regulation.
(3)
Origination fee for a federal SLS loan or a federal PLUS loan.
(a) On each federal SLS loan or federal PLUS
loan made on or after October 1, 1992, the participating lender shall charge
the borrower and pay to the secretary an origination fee of five (5) percent of
the principal amount of the loan, to be deducted proportionately from each
installment disbursement of the proceeds of the loan prior to payments to the
borrower.
(b) The origination fee
authorized in paragraph (a) of this subsection shall not be taken into account
for purposes of determining the amount of interest that may be charged pursuant
to Section 3 of this administrative regulation.
(4) Administrative charge for refinancing a
federal SLS loan or a federal PLUS loan.
(a) A
participating lender that makes a new loan to refinance previous federal SLS
loans or federal PLUS loans made prior to July 1, 1987 and held by that lender,
may charge a borrower an amount not to exceed $100 to cover the administrative
costs of making the loan or, not more than one-half (1/2) of which shall be
paid to the authority to cover the cost of reissuance.
(b) No administrative fee authorized in
paragraph (a) of this subsection may be charged to a borrower by a
participating lender that makes a loan to refinance previous federal SLS loans
or federal PLUS loans made prior to July 1, 1987 that are held by a holder
other than that lender.
(5) Federal Consolidation Loan program. No
administrative fee, charged by the authority to a participating lender to cover
the costs of increased or extended liability with respect to insurance of a
consolidation loan, may be charged to the borrower or otherwise deducted from
the loan proceeds.
Section 7. Insurance Premium. The insurance premium is a charge made by the authority to the lender, incident to the guarantee the lender receives against default by the borrower.
(1)
(a) If the insurance premium is provided for
in a borrower's promissory note or other written evidence of a subsidized
federal Stafford loan, a federal SLS loan, or a federal PLUS loan, including a
new federal SLS loan or federal PLUS loan to refinance previous federal SLS
loans or federal PLUS loans made prior to July 1, 1987 that are held by a
holder other than that lender, a participating lender may charge the borrower a
single insurance premium actually paid by the lender to the authority equal to
not more than three (3) percent of the principal amount of the loan, by
deduction proportionately from each installment disbursement of the proceeds of
the loan.
(b) Notwithstanding
paragraph (a) of this subsection, no additional insurance fee may be charged to
the borrower with respect to a new loan to refinance previous federal SLS loans
or federal PLUS loans made prior to July 1, 1987 that are held by the lender of
the new loan.
(2)
Insurance premium for an unsubsidized federal Stafford loan. A participating
lender may charge to a borrower the combined origination fee and insurance
premium authorized by Section 6(2) of this administrative regulation.
(3) Federal consolidation loan. No insurance
premium shall be charged to the borrower on any federal consolidation
loan.
Section 8. Late Charges.
(1) If authorized by the borrower's
promissory note or other written evidence of the debt, the holder may require
the borrower of any authority insured student loan to pay a late charge under
the circumstances described in subsection (2) of this section. This charge
shall not exceed six (6) cents for each dollar of each late installment
payment.
(2) The holder may require
the borrower to pay a late charge if the borrower:
(a) Fails to pay all or a portion of a
required installment payment within ten (10) days after it is due;
and
(b) Fails to provide written
evidence that verifies the borrower's eligibility for an authorized deferment
of the payment.
Section 9. Collection Charges.
(1) If
provided for in the borrower's promissory note or other written evidence of the
debt, the holder may require that the borrower pay costs incurred by the holder
or its agent in collecting installments not paid when due, including, but not
limited to, attorney's fees, court costs, telegrams, and long distance
telephone calls.
(2) The costs
referred to in subsection (1) of this section shall not include normal
collection costs associated with preparing letters or notices or with making
personal contacts with the borrower, such as local telephone calls.
Section 10. Penalty for Prepayment. The borrower shall be entitled to accelerate without penalty repayment of the whole or any part of an authority insured student loan.
STATUTORY AUTHORITY: KRS 13A.100(3), 164.746(6), 164.748(4), 34 C.F.R. 682.401(b)(10)(ii)
Disclaimer: These regulations may not be the most recent version. Kentucky may have more current or accurate information. We make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained on this site or the information linked to on the state site. Please check official sources.
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