Due diligence was first defined in NDSL regulations on November 24, 1976. Those regulations became effective on December 24, 1976. An institution must show that its efforts to collect a defaulted note complied with that definition if the note fell into default after December 24, 1976. If the note fell into default before December 24, 1976 it is only necessary to show what action was taken.

(The definition of due diligence in the NDSL regulations of August 24, 1978, differs from the definition of November 24, 1976, in that it requires use of a collection agency, litigation, or both in some instances. The regulations of August 24, 1978, became effective September 28, 1978, which is less than one year ago. Therefore, no loan currently eligible for assignment or referral is affected by that change, because a loan must have been in default at least two years to be eligible for assignment or referral.)

To refer a note for collection, follow essentially the procedures previously announced for assignment with the following changes:

1. Do not send us the original promissory note. Send us a photocopy instead.

2. Cross out the heading "Assignment of Defaulted Notes(s)" and insert "Referral of Collection of Defaulted Note(s)" on the top of the OE 553 Form which will now be used for "referrals" as well as "assignments".

3.

4.

In the "Remarks" section of the OE 553 Form, type "These loans
are referred for collection to the United States as provided
under section 467 of the Higher Education Act of 1965. We
understand that the Commissioner will return the amount collected
minus a collection charge of 20 percent of the amount collected."

The "Certification by Institutional Representative" section of the OE 553 Form must also be completed as acknowledgment of the agreement.

Upon receipt of your transmittal, the Office of Education will promptly verify your listing of attachments and acknowledge their receipt. Upon receipt of this acknowledgment you should proceed to debit and credit your ledger entries to facilitate the reporting requirements, in Part II, Section A of the forthcoming NDSL Fiscal Operations Report and Section C - Cumulative Repayment Information.

Referred or assigned notes should be sent to:

Mrs. Florence V. Taylor

Chief, Services and Collections Section
Campus and State Grants Branch, DPO
Bureau of Student Financial Assistance
U.S. Office of Education
Washington, D.C. 20202

To date, nearly 200,000 loans have been assigned to the Commissioner under the older authority contained in section 463(a)(5) of the Act. Institutions that wish to convert that assignment to a referral will be given a chance to do so as soon as procedures can be worked out. All institutions that have made assignments will be furnished an agreement form listing the loans assigned and offering the institution an opportunity to change as many of those assignments as legally possible to referrals.

If an institution accepts that opportunity, funds collected after that conversion will be returned to the institution, minus a 20 percent collection charge. Further details will be announced later. If you have any questions, please contact Ms. Florence V. Taylor at (202) 2459727 or your Regional Office of Education.

Distribution: President

Chief Business Officer
Financial Aid Administrator

Note:

PRODUCTION COMPARISON REPORT

The OE production figures were taken from the "Collection News, Attachment No. 2".

Attachment No. 2A

Estimated monthly expenses are founded on the basic costs incurred in collection operations by private enterprises, in addition to information we obtained while conducting training seminars for the collection staff at the Office of Education.

Note: GAO has established that government expenses to collect monies are twice that of commercial agencies. (Reference: Page 8, Comptroller General's Report, FGMSD-78-59)

One obvious cost difference is that OE's collectors average $3,500 per month gross collections, versus commercial collectors which average $15,000 per month gross collections, both working student loans.

GSL Collectors (1,100 collectors, including some supervisors and support staff with an average salary, including benefits, of $1,000 per month)

$1,100,000

attachment no. 2 (court costs, filing fees, process

Skip-tracing Directories (only one set per office)

2,000

Computer Service (including all related expenses, such as data entry, personnel, programs and changes, and all transaction charges, etc.)

190,000

SEGUROMINAL DEFAULT RATE REPORT

Attachment No.3

Listed below is a sampling of schools, both two and four years, throughout the Tited States, reflecting the reduction in delinquency rates. We feel this significant reduction in default rates would prevail if all 3300 schools participating in the NDSL Program were polled, with perhaps the exception of some schools where the wogram has been abused.