42 U.S.C. § 297a

(a) Agreements to establish and operate fund authorized The Secretary is authorized to enter into an agreement for the establishment and operation of a student loan fund in accordance with this part with any public or nonprofit private school of nursing which is located in a State. (b) Provisions of agreements Each agreement entered into under this section shall— (1) provide for establishment of a student loan fund by the school; (2) provide for deposit in the fund, except as provided in section 298d of this title , of (A) the Federal capital contributions paid from allotments under section 297d of this title to the school by the Secretary, (B) an additional amount from other sources equal to not less than one-ninth of such Federal capital contributions, (C) collections of principal and interest on loans made from the fund, (D) collections pursuant to section 297b(f) of this title , and (E) any other earnings of the fund; (3) provide that the fund, except as provided in section 298d of this title , shall be used only for loans to students of the school in accordance with the agreement and for costs of collection of such loans and interest thereon; (4) provide that loans may be made from such fund only to students pursuing a full-time or half-time course of study at the school leading to a baccalaureate or associate degree in nursing or an equivalent degree or a diploma in nursing, or to a graduate degree in nursing; and (5) contain such other provisions as are necessary to protect the financial interests of the United States. (c) Regulatory standards applicable to collection of loans (1) Any standard established by the Secretary by regulation for the collection by schools of nursing of loans made pursuant to loan agreements under this part shall provide that the failure of any such school to collect such loans shall be measured in accordance with this subsection. With respect to the student loan fund established pursuant to such agreements, this subsection may not be construed to require such schools to reimburse such loan fund for loans that became uncollectable prior to 1983. (2) The measurement of a school’s failure to collect loans made under this part shall be the ratio (stated as a percentage) that the defaulted principal amount outstanding of such school bears to the matured loans of such school. (3) For purposes of this subsection— (A) the term “default” means the failure of a borrower of a loan made under this part to— (i) make an installment payment when due; or (ii) comply with any other term of the promissory note for such loan, except that a loan made under this part shall not be considered to be in default if the loan is discharged in bankruptcy or if the school reasonably concludes from written contacts with the borrower that the borrower intends to repay the loan; (B) the term “defaulted principal amount outstanding” means the total amount borrowed from the loan fund of a school that has reached the repayment stage (minus any principal amount repaid or cancelled) on loans— (i) repayable monthly and in default for at least 120 days; and (ii) repayable less frequently than monthly and in default for at least 180 days; (C) the term “grace period” means the period of nine months beginning on the date on which the borrower ceases to pursue a full-time or half-time course of study at a school of nursing; and (D) the term “matured loans” means the total principal amount of all loans made by a school of nursing under this part minus the total principal amount of loans made by such school to students who are— (i) enrolled in a full-time or half-time course of study at such school; or (ii) in their grace period.