§ 681.20 The Secretary's collection efforts after payment of a default claim.

After paying a default claim on a HEAL loan, the Secretary attempts to collect from the borrower and any valid endorser in accordance with the Federal Claims Collection Standards (4 CFR parts 101 through 105), the Office of Management and Budget Circular A–129, issued January 2013, and the Department's Claims Collection Regulation (34 CFR parts 30, 31, and 34). The Secretary attempts collection of all unpaid principal, interest, penalties, administrative costs, and other charges or fees, except in the following situations:

(a) The borrower has a valid defense on the loan. The Secretary refrains from collection against the borrower or endorser to the extent of any defense that the Secretary concludes is valid. Examples of a valid defense include infancy or proof of repayment in part or in full.

(b) A school owes the borrower a refund for the period covered by the loan. In this situation, the Secretary refrains from collection to the extent of the unpaid refund if the borrower assigns to the Secretary the right to receive the refund.

(c) The school or lender or holder is the subject of a lawsuit or Federal administrative proceeding. In this situation, if the Secretary determines that the proceeding involves allegations that, if proven, would provide the borrower with a full or partial defense on the loan, then the Secretary may suspend collection activity on all or part of a loan until the proceeding ends. The Secretary suspends collection activity only for so long as the proceeding is being energetically prosecuted in good faith and the allegations that relate to the borrower's defense are reasonably likely to be proven.

(d) The borrower dies or becomes totally and permanently disabled. In this situation, the Secretary terminates all collection activity against the borrower. The Secretary follows the procedures and standards in 34 CFR 685.213 and 34 CFR 685.212(a) to determine if the borrower is totally and permanently disabled. If the borrower dies or becomes totally and permanently disabled, the Secretary also terminates all collection activity against any endorser.