(a) Due diligence in originating a program loan. The corporation shall notify a lender that a potential borrower has selected the lender for a program loan. The lender shall:

1. (1) in the absence of contrary information, rely in good faith upon statements of the borrower, the student (if not the borrower), the cosigner, the eligible college and the corporation made in the program loan application process provided, that such reliance shall not cause an education loan that is later determined to be ineligible for payment from a default reserve fund to become eligible for any payment;
2. (2) determine that all required forms have been completed, if applicable, by the borrower, any cosigner, student and eligible college before disbursing the program loan;
3. (3) ensure each program loan contains a legally enforceable promissory note; and
4. (4) confirm that all underwriting criteria have been met, including but not limited to, income verification, college verification, approved financial literacy completion and absence of disqualifying defaults.

(b) Due diligence in disbursing a program loan. A lender shall perform the following due diligence in disbursing a program loan:

1. (1) verify the program loan's initial eligibility for payment from the applicable default reserve fund;
2. (2) disburse funds in at least two but no greater than four installments within any full academic year, unless the student is in attendance for one term during the academic year;
3. (3) disburse by means of electronic funds transfer (EFT) through the corporation;
4. (4) make the initial disbursement of the proceeds of the program loan no earlier than 10 days before the beginning of the loan period of the program loan and no later than 180 days after the end of the loan period;
5. (5) allow one disbursement for any loan period that is equivalent to one semester, trimester or summer term; and
6. (6) with respect to program loans eligible for sale to a public benefit corporation, have entered into a contract with such public benefit corporation establishing the terms of sale for such program loans, the eligibility requirements for the applicable default reserve fund, and such other terms as the public benefit corporation may prescribe.

(d) Due diligence in servicing a loan. The holder, or other entity servicing the program loan on behalf of the holder, shall:

1. (1) report information in accordance with industry standards at least monthly to all national consumer reporting agencies, or as otherwise directed by the corporation;
2. (2) make available a toll-free telephone number for borrowers to inquire about their program loan(s) and provide appropriate staff to respond to such inquiries in a timely fashion; and

3. (3) upon receipt of a request for discharge based on the death or total and permanent disability of the student for which a program loan was taken while a student or of a request for discharge or deferment based on the death of the borrower while on active military duty:

   1. (i) suspend collection activity for 60 days against the individual in question;
   2. (ii) request documentation to validate the death or total permanent disability of the student while a student or the death of the borrower while on active military duty;
   3. (iii) comply with procedures in the program's default avoidance and claim manual for submitting claims to the corporation;
   4. (iv) upon approval of a claim by the corporation, return any payments made by, or on behalf of, the borrower or cosigner after the date of death or determination of total and permanent disability of the student while a student or the date of death of the borrower while on active military duty to the borrower or cosigner; and

   5. (v) upon denial of a claim by the corporation, apply administrative forbearance for the period of time used to determine eligibility for program loan discharge and resume any collection activity.

      (e) Enrollment status.

4. (1) If a holder, or the entity servicing the program loan, is made aware that a student is no longer enrolled at a title IV eligible college on at least a half time basis, the holder, or the entity servicing the program loan, must, within 45 days, contact the student borrower and establish a repayment schedule.

5. (2) A holder, or entity servicing the program loan, must notify the corporation upon receiving notification that a student is no longer enrolled at an eligible college on at least a half time basis.

   (f) Application of payments.

6. (1) Payments made by, or on behalf of, a borrower on a program loan shall first be applied to any outstanding fees, then to any interest, and then to principal.
7. (2) Payments made in excess of outstanding fees and interest shall be applied to the principal balance, unless application to subsequent monthly payments has been requested by the payor prior to the reduction of the principal balance.

8. (3) Borrowers may prepay on their program loan balance without penalty.

   (g) Sale or transfer of program loans.

9. (1) A program loan may be sold or transferred to another holder described in paragraph (1) or (2) of the definition of such term in section 2213.1(s) or a holder as described in paragraph (3) of such subdivision who is acting as a fiduciary for a holder described in such paragraph (1) or (2) after the program loan has been fully disbursed. Any sale to the agency or to another public benefit corporation authorized to finance the purchase or making of program loans under the Public Authorities Law, shall be subject to an agreement between the holder and such public benefit corporation and to the availability to such public benefit corporation of the proceeds of bonds issued to fund such purchase. In connection with such sale, the holder may receive an origination fee to be determined annually by the public benefit corporation. Holders selling program loans shall notify the corporation of the name and business address of the buyer.
10. (2) The agency shall use the proceeds of its bond issuance to fund the purchase of fixed-rate program loans from holders. On or after the issuance of bonds by the agency to fund the program loan purchases, the corporation shall notify holders of the availability of proceeds for the sale of program loans to the agency, and the interest rate on the program loans. Holders opting to sell fixed-rate program loans to a public benefit corporation shall initiate the sale within 60 days of the last disbursement of the program loan or at such other time and subject to such other terms as may be provided by the agreement between the holder and the public benefit corporation, subject to the availability of the proceeds of bonds issued to fund such purchase and in compliance with the terms of the agreement.
11. (3) Each holder of fixed-rate program loans shall inform the corporation and the agency prior to the date provided by the agreement between the holder and the agency for each academic year of its intent to sell fixed-rate program loans made during that academic year to the agency and, if so, must enter into an agreement with the agency for such purpose. No fixed-rate program loan offers shall be made by a lender until such lender has informed the corporation and the agency of its intent to sell or hold the program loans. A lender shall notify the corporation and the agency of its intent to make and sell any remaining fixed-rate program loans available in an academic year.

12. (4) Any unsold program loan(s) may only be sold or transferred:

    1. (i) to the agency, its trustee, or a credit or liquidity provider, at the option of the agency;
    2. (ii) to another holder, if the current holder of the program loan ceases business operations due a merger, insolvency or receivership; or
    3. (iii) for securitization purposes.
13. (5) Loans may be transferred where there is only a change in the identity of the entity servicing the program loan on behalf of the holder.

14. (6) The current holder and new holder, or new entity servicing a program loan, shall notify the borrower, within 45 days of the sale or transfer, of the name, address, and telephone number(s) of the new holder and/or servicer and the address of the entity to whom subsequent payment or communication must be sent.

    (h) Compliance with applicable laws related to program loans.

    All holders shall comply with all applicable laws and regulations relating to originating or servicing of private educational loans.