Maintained for Historical Purposes

This resource is being maintained for historical purposes only and is not currently applicable.

This document contains corrections and other technical changes to the William D. Ford Federal Direct Loan (Direct Loan) Program final regulations published in the Federal Register on December 1, 1994 (59 FR 61664). These regulations apply to loans under

FR part
VI
Attachments:
PublicationDate: 6/12/96
FRPart: VI
RegPartsAffected: Citation : (R)600.5
Citation : (R)668.15
Citation : (R)685.102
Citation : (R)685.200
Citation : (R)685.202
Citation : (R)685.204
Citation : (R)685.205
Citation : (R)685.212
Citation : (R)685.214
Citation : (R)685.215
Citation : (R)685.301
Citation : (R)685.303
Citation : (R)685.305
PageNumbers: 29897-29901
Summary: This document contains corrections and other technical changes to the William D. Ford Federal Direct Loan (Direct Loan) Program final regulations published in the Federal Register on December 1, 1994 (59 FR 61664). These regulations apply to loans under the Federal Direct Stafford/Ford Loan Program, the Federal Direct Unsubsidized Stafford/Ford Loan Program, the Federal Direct PLUS Program, and the Federal Direct Consolidation Loan Program, collectively referred to as the Direct Loan Program. The Secretary also corrects minor technical errors and omissions in the Institutional Eligibility regulations contained in 34 CFR Part 600, Subpart A, and the Student Assistance General Provisions regulations contained in 34 CFR Part 668, Subpart B.
CommentDueDate:

  
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[


[Federal Register: June 12, 1996 (Volume 61, Number 114)]
[Rules and Regulations]
[Page 29897-29901]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr12jn96-33]




[[Page 29897]]


_______________________________________________________________________

Part VI





Department of Education





_______________________________________________________________________



34 CFR Part 600, et al.



William D. Ford Federal Direct Loan Program; Final Rule


[[Page 29898]]



DEPARTMENT OF EDUCATION

34 CFR Parts 600, 668, and 685

RIN 1840-AC18


William D. Ford Federal Direct Loan Program; Institutional
Eligibility Under the Higher Education Act of 1965, as Amended; Student
Assistance General Provisions

AGENCY: Department of Education.

ACTION: Final Regulations.

-----------------------------------------------------------------------

SUMMARY: This document contains corrections and other technical changes
to the William D. Ford Federal Direct Loan (Direct Loan) Program final
regulations published in the Federal Register on December 1, 1994 (59
FR 61664). These regulations apply to loans under the Federal Direct
Stafford/Ford Loan Program, the Federal Direct Unsubsidized Stafford/
Ford Loan Program, the Federal Direct PLUS Program, and the Federal
Direct Consolidation Loan Program, collectively referred to as the
Direct Loan Program. The Secretary also corrects minor technical errors
and omissions in the Institutional Eligibility regulations contained in
34 CFR Part 600, Subpart A, and the Student Assistance General
Provisions regulations contained in 34 CFR Part 668, Subpart B.

EFFECTIVE DATE: These regulations take effect July 12, 1996.

FOR FURTHER INFORMATION CONTACT: Ms. Meredith Merrill, Program
Specialist, U.S. Department of Education, 600 Independence Avenue, S.W.
(ROB-3, Room 3053), Washington, DC 20202-5400. Telephone: (202) 708-
9406. Individuals who use a telecommunications device for the Deaf
(TDD) may call the Federal Information Relay Service (FIRS) at 1-800-
877-8339 between 8 a.m. and 8 p.m., Eastern time, Monday through
Friday.
SUPPLEMENTARY INFORMATION: The following regulations are amended to
clarify the regulations and to correct errors and omissions in the text
of the Direct Loan Program final regulations published on December 1,
1994 (59 FR 61664), the Institutional Eligibility regulations, 34 CFR
Part 600, and the Student Assistance General Provisions regulations, 34
CFR Part 668.

The Direct Loan Program

Section 685.102 has been amended to correct a typographical error
in a reference to the Federal Family Education Loan (FFEL) Program and
to include a reference to grace period, which was inadvertently omitted
in the description of a Direct Subsidized Consolidation Loan under the
definition of the Federal Direct Consolidation Loan Program. In order
to reflect a statutory change made by the Higher Education Technical
Amendments of 1993, Public Law 103-208, this section also has been
amended to clarify that a borrower may make satisfactory repayment
arrangements on a defaulted Direct Loan for the purposes of regaining
title IV eligibility only one time.
Section 685.200 has been amended to accurately reflect the
requirement that a student must be enrolled or accepted for enrollment
on at least a half-time basis in order to be eligible to receive a
Direct Loan. Paragraph (c) of this section has been amended to clarify
the definition of ``satisfactory repayment arrangement'' for the
purpose of consolidating a defaulted loan. Further, this section has
been amended to correct a grammatical error in the text and an error in
a cross-reference to another section in Part 685.
Section 685.202 clarifies the interest rate calculations for Direct
Subsidized and Direct Unsubsidized Loans. The 2.5 percentage point
adjustment on the interest rate for in-school, grace, and deferment
periods only applies to loans first disbursed on or after July 1, 1995.
For loans disbursed prior to July 1, 1995, the interest rate
calculation for all periods is based on a 3.1 percentage point
adjustment.
Paragraphs (b)(1) through (5) of Sec. 685.202 clarify that the
Secretary does not capitalize all interest that has accrued on a
borrower's principal balance. Instead, the Secretary only capitalizes
the amount of interest that accrues on the loan amount that the
borrower has not paid.
Paragraph (b)(2) of Sec. 685.202 is amended to clarify that, when a
borrower enters repayment, the Secretary will capitalize the unpaid
interest that accrued during the in-school and grace periods on a
Direct Unsubsidized Consolidation Loan that is eligible for a grace
period.
Paragraph (b)(3) of Sec. 685.202 also clarifies the Secretary's
intent that the limit on the amount of interest that is capitalized
under the Income Contingent Repayment and Alternative Repayment plans
does not apply during periods of deferment for unsubsidized loans and
does not apply during periods of forbearance for any Direct Loan.
Section 685.204 has been amended to clarify that a Direct Loan
borrower who has an outstanding balance on a FFEL Program loan made
prior to July 1, 1993, at the time he or she applies for a first Direct
Loan, will remain eligible for the FFEL Program deferments on all
Direct Loans until all loans with those deferments are fully repaid,
even if the borrower repays the FFEL Program loans in full before the
Direct Loans are paid in full.
Section 685.204 also has been amended to add language that reflects
the existing policy in the Direct Loan Program that a borrower who has
defaulted on the repayment of a Direct Loan generally is not eligible
for a deferment. However, comparable to Sec. 682.210(a)(8) in the FFEL
Program, Sec. 685.204(e) allows a borrower who has defaulted on a
Direct Loan to be eligible for a deferment if the borrower contacts the
Direct Loan Servicing Center and makes payment arrangements
satisfactory to the Secretary.
Section 685.205 has been corrected to state that a borrower, not
the endorser, must be the recipient of a national service educational
award in order to qualify for forbearance.
Section 685.212 has been amended to clarify which payments the
Secretary returns to a borrower when a loan is discharged. Once the
Secretary receives acceptable documentation that a borrower is eligible
for a specific discharge, any payments received during the period
between the date the borrower met the eligibility requirements and the
date the discharge was approved will be returned to the person who sent
the payment. Furthermore, any payments received after the date the
discharge was approved will be returned to the person who sent the
payment.
Section 685.214 has been amended to conform with the technical
corrections made in Sec. 685.301.
Section 685.215 has been amended to specify which loans under
subpart II of part A of title VII of the Public Health Service Act may
be consolidated into a Direct Consolidation Loan. Paragraph (d) of this
section is amended to reflect terminology consistent with the
definitions in Sec. 685.102(b). This section also has been amended to
specify that the limit on collection costs charged to a borrower who
consolidates a defaulted loan applies only to defaulted Direct Loans
and FFEL Program loans.
Section 685.301 clarifies that, although certain circumstances
allow for a late disbursement of a loan, a school must originate a loan
while the student meets the borrower eligibility requirements in
Sec. 685.200. The terminology in this section has been changed to
reflect that schools certify loan information in the Direct Loan
Program by means of the origination process.
Section 685.301 also has been amended to clarify that a Direct Loan
may be disbursed in a single installment

[[Page 29899]]

prior to the midpoint of the loan period if the date of the scheduled
disbursement coincides with the beginning of the next scheduled term
for which the school has an anticipated disbursement date. For example,
a borrower at a term-based school that uses quarter hours would be
allowed to receive the first and second Direct Loan disbursements in a
single installment at the beginning of the second quarter even though
this may occur prior to the mid-point of the loan period.
Section 685.303 has been amended to clarify that a school must
determine whether or not a student has continuously maintained
eligibility before Direct PLUS proceeds are disbursed to the parent
borrower. Paragraph (d) of this section has been amended to clarify
that a school may not make a late disbursement to a borrower that
exceeds the student's cost of attendance for the period of enrollment
completed by the student. Further, paragraph (d) clarifies that a
school may not make a late disbursement if the student's last recorded
date of attendance is earlier than the 30th day of the period of
enrollment if the loan was subject to the 30-day delayed disbursement
requirements for first-year, first-time borrowers. These requirements
are the same as in the FFEL Program.
Section 685.305 has been amended to clarify those procedures a
school must follow for determining the withdrawal date for a student
who did not return for the next scheduled term following a summer
break. This section also is amended to correct an error in the cross-
reference to the Student Assistance General Provisions regulations.

Institutional Eligibility

Section 600.5 has been amended to correct a technical error which
references the manner in which certified public accountants must
examine the accuracy of a proprietary institution's calculations
regarding the 85 percent rule contained in Sec. 600.5(a)(8). Paragraph
(e) of this section was mistakenly amended in the Federal Register of
November 29, 1994, to reference an accountant performing an ``agreed-
upon procedures attestation engagement.'' This paragraph has been
corrected to accurately reflect the Secretary's intent that a certified
public accountant must engage in an ``examination'' level attestation
agreement under which he or she examines management's assertions that
it satisfied the 85 percent requirement.

General Provisions

Section 668.15 has been amended to clarify that the audit described
in paragraph (e)(1) also may be performed by State auditors if they
meet the independence requirements of Government Auditing Standards.

Waiver of Proposed Rulemaking

In accordance with the Administrative Procedure Act, 5 U.S.C. 553,
it is the practice of the Secretary to offer interested parties the
opportunity to comment on proposed regulations. However, the regulatory
changes in this document are necessary to correct minor technical
errors and omissions in the Direct Loan Program final regulations
published on December 1, 1994, the Institutional Eligibility
regulations, 34 CFR Part 600, and the Student Assistance General
Provisions regulations, 34 CFR Part 668. The changes in this document
do not establish any new substantive rules. Therefore, the Secretary
has determined that publication of a proposed rule is unnecessary and
contrary to the public interest under 5 U.S.C. 553(b)(B).

Executive Order 12866

These final regulations have been reviewed in accordance with
Executive Order 12866. Under the terms of the order, the Secretary has
assessed the potential costs and benefits of this regulatory action.
The potential costs associated with these final regulations are
those resulting from statutory requirements and those determined by the
Secretary as necessary for administering these programs effectively and
efficiently. Burdens specifically associated with information
collection requirements, if any, are identified and explained elsewhere
in this preamble under the heading Paperwork Reduction Act of 1995.
In assessing the potential costs and benefits--both quantitative
and qualitative--of these final regulations, the Secretary has
determined that the benefits of the regulations justify the costs.
The Secretary has also determined that this regulatory action does
not unduly interfere with State, local, and tribal governments in the
exercise of their governmental functions.

Paperwork Reduction Act of 1995

These regulations have been examined under the Paperwork Reduction
Act of 1995 and have been found to contain no information collection
requirements.

Regulatory Flexibility Act Certification

The Secretary certifies that these regulations will not have
significant economic impact on a substantial number of small entities.
Small entities affected by these regulations are small institutions of
higher education. These regulations contain technical amendments
designed to clarify and correct current regulations. The changes will
not have a significant economic impact on the institutions affected.

Assessment of Educational Impact

The Secretary has determined that the regulations in this document
would not require transmission of information that is being gathered by
or is available from any other agency or authority of the United
States.

List of Subjects

34 CFR Parts 600 and 668

Administrative practice and procedure, Colleges and universities,
Consumer protection, Education, Grant programs-education, Loan
programs-education, Reporting and recordkeeping requirements, Student
Aid.

34 CFR Part 685

Administrative practice and procedure, Colleges and universities,
Education, Loan programs-education, Reporting and recordkeeping
requirements, Student Aid, Vocational education.

(Catalog of Federal Domestic Assistance Numbers: 84.007 Federal
Supplemental Education Opportunity Grant Program; 84.032 Federal
Stafford Loan Program; 84.032 Federal PLUS Program; 84.032 Federal
Supplemental Loans for Students Program; 84.033 Federal Work Study
Program; 84.038 Federal Perkins Loan Program; 84.063 Federal Pell
Grant Program; 84.069 Federal State Student Incentive Grant Program;
84.268 William D. Ford Federal Direct Loan Program; and 84.272
National Early Intervention Scholarship and Partnership Program.)

Dated: June 3, 1996.
Richard W. Riley,
Secretary of Education.

The Secretary amends Parts 600, 668, and 685 of title 34 of the
Code of Federal Regulations as follows:

PART 685--WILLIAM D. FORD FEDERAL DIRECT LOAN PROGRAM

1. The authority citation for Part 685 is revised to read as
follows:

Authority: 20 U.S.C. 1087a et seq., unless otherwise noted.


Sec. 685.102 [Amended]

2. In Sec. 685.102, paragraph (a)(3), introductory text, after the
word ``Loan''

[[Page 29900]]

remove the word ``Program''; in paragraph (b), in the definition of
``Federal Direct Consolidation Loan Program'', in paragraph (1), add
``, grace,'' after ``in-school''; in the definition of ``Satisfactory
repayment arrangement'', at the end of paragraph (1), add a new
sentence to read, ``A borrower may only obtain the benefit of this
paragraph with respect to renewed eligibility once.''.
3. In Sec. 685.200, paragraph (a)(1)(i), add ``, or accepted for
enrollment, on at least a half-time basis'' after the word
``enrolled''; in paragraph (b)(7)(iii), remove the word ``is'' after
the word ``history''; and paragraph (c) is revised to read as follows:


Sec. 685.200 Borrower eligibility.

* * * * *
(c) Defaulted FFEL Program and Direct Loan borrowers. Except as
noted in Sec. 685.215(d)(1)(ii)(F), in the case of a student or parent
borrower who is currently in default on an FFEL Program or a Direct
Loan Program Loan, the borrower shall make satisfactory repayment
arrangements, as described in paragraph (2) of the definition of that
term under Sec. 685.102(b), on the defaulted loan.
* * * * *
4. In Sec. 685.202, paragraph (a)(1)(i), before the first sentence,
add, ``Loans first disbursed prior to July 1, 1995.''; remove the
words, ``in repayment'' and add, in their place, ``during all
periods''; paragraph (a)(1)(ii) is revised; in paragraph (b)(1), add
the word ``unpaid'' before the word ``accrued''; in paragraph (b)(2),
add ``or a Direct Unsubsidized Consolidation Loan that qualifies for a
grace period'' after ``Direct Unsubsidized Loan'', add the word
``unpaid'' before the word ``interest''; in paragraph (b)(3), remove
the word ``For'' and add ``Notwithstanding Sec. 685.208(g)(5) and
Sec. 685.209(d)(3), for'' at the beginning of the sentence, add the
word ``unpaid'' after the words ``capitalizes the''; in paragraph
(b)(4), add the word ``unpaid'' after the word ``capitalizes'', remove
the words, ``payable by the borrower''; in paragraph (b)(5), add the
word ``unpaid'' after the word ``capitalize'', and remove the words
``payable by the borrower'' to read as follows:


Sec. 685.202 Charges for which Direct Loan Program borrowers are
responsible.

(a) * * *
(1) * * *
(ii) Loans first disbursed on or after July 1, 1995.
(A) During the in-school, grace, and deferment periods. The
interest rate during any twelve-month period beginning on July 1 and
ending on June 30 is determined on the June 1 immediately preceding
that period. The interest rate is equal to the bond equivalent rate of
91-day Treasury bills auctioned at the final auction held prior to that
June 1 plus 2.5 percentage points, but does not exceed 8.25 percent.
(B) During all other periods. The interest rate during any twelve-
month period beginning on July 1 and ending on June 30 is determined on
the June 1 immediately preceding that period. The interest rate is
equal to the bond equivalent rate of 91-day Treasury bills auctioned at
the final auction held prior to that June 1 plus 3.1 percentage points,
but does not exceed 8.25 percent.
* * * * *
5. In Sec. 685.204, in paragraph (b), remove ``paragraph (d)'' and
add, in its place, ``paragraphs (d) and (e)''; in paragraph (d)
introductory text, add ``borrower's first'' before ``Direct Loan'', and
add new paragraph (e) to read as follows:


Sec. 685.204 Deferment.

* * * * *
(e) A borrower whose loan is in default is not eligible for a
deferment, unless the borrower has made payment arrangements
satisfactory to the Secretary.


Sec. 685.205 [Amended]

6. In Sec. 685.205, paragraph (a)(4), remove the words, ``or
endorser''.
7. In Sec. 685.212, paragraph (f) is revised to read as follows:


Sec. 685.212 Discharge of a loan obligation.

* * * * *
(f) Payments received after eligibility for discharge. Upon receipt
of acceptable documentation and approval of the discharge request, the
Secretary returns to the sender, or, for a discharge based on death,
the borrower's estate, those payments received after the date that the
eligibility requirements for discharge were met but prior to the date
the discharge was approved. The Secretary also returns any payments
received after the date the discharge was approved.
* * * * *


Sec. 685.214 [Amended]

8. In Sec. 685.214, paragraph (a)(1)(iii), before ``in the
occupation,'' remove the word ``certified'' and add, in its place, the
word, ``originated''; in paragraph (c)(1)(iii)(B), remove the word
``certified'' and add, in its place, the word, ``originated''.
9. In Sec. 685.215, paragraph (b)(19), add ``and Loans for
Disadvantaged Students (LDS) made under subpart II of part A of title
VII of the Public Health Service Act'' after ``(HPSL)''; paragraph
(b)(21) is removed; paragraph (b)(22) is redesignated as (b)(21); in
redesignated paragraph (b)(21), remove the word ``Loans'' and add, at
the beginning of the paragraph, the words ``Nursing loans''; in
paragraph (c)(3) remove ``(22)'' and add, in its place, ``(21)'';
paragraph (d) (1)(ii)(E) is revised; and, in paragraph (f)(1)(iii), add
``Direct Loan or FFEL Program'' before the word ``loan'' to read as
follows:


Sec. 685.215 Consolidation.

* * * * *
(d) * * *
(1) * * *
(ii) * * *
(E) In default but has made satisfactory repayment arrangements, as
defined in paragraph (2) of that term under Sec. 685.102(b), on the
defaulted loan; or
* * * * *
10. In Sec. 685.301, in the section heading, remove the word
``Certification'' and add, in its place, ``Origination''; paragraph
(a)(1) is revised; in paragraph (a)(3) introductory text, remove the
word ``certify'' and add, in its place, ``originate''; in paragraph
(a)(4)(ii), remove the word ``certifies'' and add, in its place,
``originates''; in paragraph (b)(2)(iv), add ``or if the date of the
first disbursement coincides with the beginning of the second or
subsequent semester, quarter, or similar division of the loan period
for which the loan was made,'' after ``made'' to read as follows:


Sec. 685.301 Origination of a loan by a Direct Loan Program school.

(a) * * *
(1) A school participating in the Direct Loan Program shall ensure
that any information it provides to the Secretary in connection with
loan origination is complete and accurate. A school shall originate a
Direct Loan while the student meets the borrower eligibility
requirements of Sec. 685.200. Except as provided in 34 CFR Part 668,
subpart E, a school may rely in good faith upon statements made in the
application by the student.
* * * * *
11. In Sec. 685.303, paragraph (b)(2)(i), add ``, or a parent in
the case of a PLUS Loan,'' after ``student'', remove the words ``whom
the school determines'' and add, in their place, ``if the school
determines the student''; remove ``or'' at the end of paragraph
(d)(3)(i), remove the period at the end of paragraph

[[Page 29901]]

(d)(3)(ii), and add, in its place, a semi-colon, and add new paragraphs
(d)(3) (iii) and (iv) to read as follows:


Sec. 685.303 Processing loan proceeds.

* * * * *
(d) * * *
(3) * * *
(iii) A late disbursement to a borrower if the student's last
recorded day of attendance is earlier than the 30th day of the period
of enrollment for which the loan is intended if the loan was subject to
the delayed disbursement under Sec. 685.303(b)(4); or
(iv) A late disbursement that, including all prior disbursements,
exceeds a student's documented educational costs for the period of
enrollment completed by the student before the student ceased to be
enrolled at the school on at least a half-time basis.
* * * * *
12. Section 685.305 is revised to read as follows:


Sec. 685.305 Determining the date of a student's withdrawal.

(a) Except as provided in paragraph (b) of this section, a school
shall follow the procedures in 34 CFR 668.22(j) for determining the
student's date of withdrawal.
(b) For a student who does not return for the next scheduled term
following a summer break, which includes any summer term(s) in which
classes are offered but students are not generally required to attend,
a school shall follow the procedures in 34 CFR 668.22(j) for
determining the student's date of withdrawal except that the school
must determine the student's date of withdrawal no later than 30 days
after the start of the next scheduled term.
(c) The school shall use the date determined under paragraph (a) or
(b) of this section for the purpose of reporting to the Secretary the
student's date of withdrawal and for determining when a refund must be
paid under Sec. 685.306.

(Authority: 20 U.S.C. 1087 et seq.)

PART 600--INSTITUTIONAL ELIGIBILITY UNDER THE HIGHER EDUCATION ACT
OF 1965, AS AMENDED

1. The authority citation for Part 600 continues to read as
follows:

Authority: 20 U.S.C. 1088, 1091, 1094, 1099b, 1099c, and 1141,
unless otherwise noted.

2. Section 600.5 is amended by revising paragraph (e) to read as
follows:


Sec. 600.5 Proprietary institution of higher education.

* * * * *
(e)(1) An institution shall substantiate the required calculations
in paragraph (a)(8) of this section by having the certified public
accountant who prepares its audited financial statement required under
34 CFR 668.15 report on the accuracy of its determination that the
percentage of its revenues derived from title IV, HEA program funds is
not more than 85 percent of its revenues.
(2) The certified public accountant's report shall be based on
performing an examination-level ``attestation engagement'' in
accordance with the American Institute of Certified Public Accountants
(AICPA's) Statement on Standards for Attestation Engagements #3,
Compliance Attestation, and the certified public accountant shall
include that attestation report with the audit report referenced in
paragraph (e)(1) of this section.
(3) The certified public accountant's attestation report shall
indicate whether the institution's determination that the percentage of
its revenues derived from title IV, HEA program funds is not more than
85 percent of its revenues, is accurate, i.e. fairly presented in all
material respects.
* * * * *

PART 668--STUDENT ASSISTANCE GENERAL PROVISIONS

1. The authority citation for Part 668 continues to read as
follows:

Authority: 20 U.S.C. 1085, 1088, 1091, 1092, 1099c, and 1141,
unless otherwise noted.


Sec. 668.15 [Amended]

2. In Sec. 668.15, paragraph (e)(1), in the second sentence,
remove, ``certified public accountant'' and add, in its place,
``auditor''; remove ``generally accepted auditing standards'' and add,
in its place, ``Government Auditing Standards''.

[FR Doc. 96-14820 Filed 6-11-96; 8:45 am]
BILLING CODE 4000-01-P



]

Last Modified: 06/24/1998