Summary: The Secretary proposes to amend the regulations governing the Federal Family Education Loan (FFEL) Program. The FFEL regulations govern the Federal Stafford Loan Program, the Federal Supplemental Loans for Students (Federal SLS) Program, the Federal PLUS Program, and the Federal Consolidation Loan Program, collectively referred to as the Federal Family Education Loan Program. The Secretary is proposing to make changes to the due diligence requirements for lenders and guaranty agencies participating in the FFEL Program.
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[Federal Register: September 6, 1996 (Volume 61, Number 174)]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
Department of Education
34 CFR Part 682
Federal Family Education Loan Program; Proposed Rule
DEPARTMENT OF EDUCATION
34 CFR Part 682
Federal Family Education Loan Program
AGENCY: Department of Education.
ACTION: Notice of proposed rulemaking.
SUMMARY: The Secretary proposes to amend the regulations governing the
Federal Family Education Loan (FFEL) Program. The FFEL regulations
govern the Federal Stafford Loan Program, the Federal Supplemental
Loans for Students (Federal SLS) Program, the Federal PLUS Program, and
the Federal Consolidation Loan Program, collectively referred to as the
Federal Family Education Loan Program. The Secretary is proposing to
make changes to the due diligence requirements for lenders and guaranty
agencies participating in the FFEL Program.
DATES: Comments must be received on or before November 5, 1996.
ADDRESSES: All comments concerning these proposed regulations should be
addressed to Pamela A. Moran, U.S. Department of Education, Post Office
Box 23272, Washington, DC 20026-3272. Comments may also be sent through
the internet to email@example.com.
To ensure that public comments have maximum effect in developing
the final regulations, the Department urges that each comment clearly
identify the specific section or sections of the regulations that the
comment addresses and that comments be in the same order as the
Comments that concern information collection requirements must be
sent to the Office of Management and Budget at the address listed in
the Paperwork Reduction Act section of this preamble. A copy of those
comments may also be sent to the Department representative named in the
FOR FURTHER INFORMATION CONTACT: Ron Streets, Program Specialist, Loans
Branch, Policy Development Division, Policy, Training, and Analysis
Service, U.S. Department of Education, 600 Independence Avenue, S.W.
(room 3053, ROB-3), Washington, DC 20202-5449. Telephone: (202) 708-
8242. 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
The Secretary is proposing to amend 34 CFR Part 682 of the
Department's regulations to improve the administration and the
integrity of the FFEL Program. By improving program efficiency, these
proposed regulations will reduce burden for lenders and improve the
collection of outstanding FFEL loans and potential liabilities owed to
Proposed Regulatory Changes
The Secretary proposes to amend the following sections of the
regulations to reflect changes needed to improve the due diligence
provisions in the FFEL Program.
Section 682.401 Basic Program Agreement
The Secretary proposes to amend Sec. 682.401(b)(27) by codifying
the interpretation outlined in the Department's Dear Colleague Letter
95-G-286 dated November 1995, to permit guaranty agencies to retain
collection costs totaling up to 18.5 percent of the outstanding
principal and accrued interest of a defaulted FFEL loan that is repaid
by a consolidation loan as long as their collection costs are included
in the payoff amount certified by the guaranty agency.
Section 682.404 Federal Reinsurance Agreement
The Secretary proposes to amend Sec. 682.404(a)(2)(ii) by requiring
guaranty agencies to offer preclaims assistance to lenders no later
than the 75th day of delinquency. Currently, the regulations do not
include an explicit deadline by which the guaranty agencies must
provide this service and some agencies have not provided preclaims
assistance on a timely basis. This proposal would create uniformity in
the treatment of delinquent borrowers and ensure that preclaims is
initiated early enough to successfully avert default.
This section is also amended to require guaranty agencies, as part
of their preclaims assistance to lenders, to provide counseling and
written consumer information to the borrower by the 100th day of
delinquency informing the borrower of the option to consolidate student
loans under the FFEL Program or the Federal Direct Consolidation Loan
Program to avoid default. The Secretary believes that providing this
information to delinquent borrowers during the preclaims assistance
process will help reduce defaults by ensuring that borrowers have
information regarding consolidation when it is critically needed.
Failure of the agency to provide this information would constitute a
violation of due diligence in servicing a loan.
This section is further amended to require that payments made by a
borrower on a defaulted loan to a guaranty agency must be first applied
to the agency's collection costs attributable to that payment on the
loan and then to reinsured interest and principal. This amendment will
ensure that the borrower remains responsible for paying collection
costs as required by section 484A(b) of the Higher Education Act of
1965, as amended. The Secretary also solicits particular comment on
whether a guaranty agency should be allowed to apply the borrower's
payment to incidental charges such as late charges first, after
collection charges, rather than only after all principal and interest
as is currently the case.
Section 682.410 Fiscal, Administrative, and Enforcement Requirements
The Secretary proposes to amend Sec. 682.410(b)(2) that governs the
amount of collection charges guaranty agencies may charge the borrower.
These regulations propose to require guaranty agencies to assess a
defaulted borrower the same amount of collection charges assessed by
the Department for loans held by the Department. The collection rate
currently assessed by the Department is 25 percent. The Secretary
believes that standardization of collection costs across the industry
will both reduce confusion and ensure equitable treatment for borrowers
whose FFEL loans are guaranteed by multiple guaranty agencies. The
Secretary will inform guaranty agencies annually what the applicable
rate is in sufficient time for agencies to make necessary system
changes. However, the Secretary solicits additional comment on whether
agencies should be provided with the flexibility to assess less than
the Department's collection rate if the agency's actual costs of
collection support this.
The Secretary also proposes to amend Sec. 682.410(b)(6)(vii)(A)
that currently provides guaranty agencies the option of either
initiating wage garnishment or instituting a civil suit against the
borrower whose loans have defaulted. These proposed regulations remove
that option and instead require that guaranty agencies initiate wage
garnishment proceedings if the borrower has sufficient income. If the
agency determines that the borrower has insufficient income to satisfy
the debt by garnishment, but has assets from
which the debt can be satisfied, the guaranty agency will be required
to assign the debt to the Department so the Secretary can file a civil
suit against the borrower. The Department intends to litigate assigned
accounts through the Department of Justice in order to place a lien
against the borrower's assets to satisfy the debt. The Secretary
believes that this change will result in more effective collection of
defaulted loans across the country because guaranty agencies have had
varying success in collecting loans through litigation.
Section 682.411 Due Diligence by Lenders in the Collection of Guaranty
The Secretary proposes to amend Sec. 682.411(c) to expand the
length of time from 1-10 days delinquent to 1-15 days delinquent that
lenders will have to send the first written notice or collection letter
to a delinquent borrower. This change will afford the lender additional
time to receive payments from a delinquent borrower before it has to
send out the first warning of delinquency to that borrower. This
reduces the lender's burden of beginning the due diligence process
prematurely for delinquent borrowers whose payments are received within
the maximum proposed 15-day period.
The Secretary also proposes to amend Sec. 682.411(d)(2) to modify
the requirements for the two collection letters that must be sent to a
borrower during the period of 16-180 days delinquent (16-240 days
delinquent for a loan repayable in installments less frequently than
monthly) to include additional warnings to the borrower that the
guaranty agency may: (1) Institute proceedings to offset other payments
made by the federal government to the borrower; and (2) assign the loan
to the federal government for litigation against the borrower.
Section 682.413 Remedial Actions
Section 682.413(b) is amended to expand the possible remedial
action available to the Secretary if a guaranty agency fails to meet
the requirements of Sec. 682.410 to include mandatory assignment of
FFEL loans to the Department at the Secretary's discretion. Currently
the only penalty available to the Secretary is loss of reinsurance. The
Secretary does not believe that this is always in the best interest of
Executive Order 12866
1. Assessment of Costs and Benefits
These proposed 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 the proposed regulations are
those determined by the Secretary to be necessary for administering
this program 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 proposed 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.
To assist the Department in complying with the specific
requirements of Executive Order 12866, the Secretary invites comment on
whether there may be further opportunities to reduce any potential
costs or increase potential benefits resulting from these proposed
regulations without impeding the effective and efficient administration
of the program.
2. Clarity of the Regulations
Executive Order 12866 requires each agency to write regulations
that are easy to understand.
The Secretary invites comments on how to make these proposed
regulations easier to understand, including answers to questions such
as the following: (1) Are the requirements in the proposed regulations
clearly stated? (2) Do the regulations contain technical terms or other
wording that interferes with their clarity? (3) Does the format of the
regulations (grouping and order of sections, use of headings,
paragraphing, etc.) aid or reduce their clarity? Would the regulations
be easier to understand if they were divided into more (but shorter)
sections? (A ``section'' is preceded by the symbol ``Sec. '' and a
numbered heading; for example, Sec. 682.413 Remedial action.) (4) Is
the description of the regulations in the SUPPLEMENTARY INFORMATION
section of this preamble helpful in understanding the regulations? (5)
What else could the Department do to make the regulations easier to
A copy of any comments that concern how the Department could make
these proposed regulations easier to understand should be sent to
Stanley M. Cohen, Regulations Quality Officer, U.S. Department of
Education, 600 Independence Avenue S.W. (Room 5100, FB-10), Washington,
Regulatory Flexibility Act Certification
The Secretary certifies that these proposed regulations would not
have a significant economic impact on a substantial number of small
According to the U.S. Small Business Administration Size Standards,
small entities affected by these regulations are lenders with assets
below $100,000,000. Two provisions of these regulations affect small
(and large) lenders. The first could provide a positive economic
benefit to small (and large) lenders by providing additional
flexibility for regulatory compliance. This provision does not impose a
significant adverse economic impact. The second provision would impose
minor economic costs on small (and large) lenders by requiring them to
modify two letters sent to delinquent borrowers. These letters are
required by existing regulations. These additional costs would not have
a significant adverse economic impact. This activity would protect the
Federal fiscal interest as well as the interests of the borrowers under
The Secretary particularly requests comments from small lenders on
whether the proposed changes would have a significant economic impact
Paperwork Reduction Act of 1995
Section 682.411 contains information collection requirements. As
required by the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)),
the Department of Education has submitted a copy of this section to the
Office of Management and Budget (OMB) for its review.
Collection of Information: Federal Family Education Loan Program
These regulations strengthen the collectibility of delinquent FFEL
loans by participating lenders. Monies collected under these
regulations enable new and continuing students to borrow to help defray
the cost of education.
The public reporting and recordkeeping burden for this collection
of information is estimated to be 3,398.31 hours in order to make the
necessary system changes to: (1) add additional warnings to the
existing collection letters sent to delinquent borrowers and (2)
increasing the period
of time lenders will have to send the first written notice or
collection letter to a delinquent borrower. This is a one-time
The estimated burden for incorporating the additional warning
paragraphs into the existing collection letters was calculated as
Responses......................... x 1
Hours per respondent.............. x 0.083 (5 minutes)
Annual reporting burden........... 483.81 hours
The estimated burden associated with expanding the window regarding
when the first collection letter is sent to a delinquent borrower was
calculated as follows:
Responses........................ x 1
Hours per respondent............. x 0.5 (30 Minutes)
Annual reporting burden...... 2,914.50 hours
Total annual burden hours=3,398,31................................
Organizations and individuals desiring to submit comments on the
information collection requirements should direct them to the Office of
Information and Regulatory Affairs, OMB, Room 10235, New Executive
Office Building, Washington, D.C. 20503; Attention: Desk Officer for
U.S. Department of Education.
The Department considers comments by the public on this proposed
collection of information in--
<bullet> Evaluating whether the proposed collection of information
is necessary for the proper performance of the functions of the
Department, including whether the information will have a practical
<bullet> Evaluating the accuracy of the Department's estimate of
the burden of the proposed collection of information, including the
validity of the methodology and assumptions used;
<bullet> Enhancing the quality, usefulness, and clarity of the
information to be collected; and
<bullet> Minimizing the burden of collection of information on
those who are to respond, including through the use of appropriate
automated electronic, mechanical, or other technological collection
techniques or other forms of information technology; e.g., permitting
electronic submission of responses.
OMB is required to make a decision concerning the collection of
information contained in these proposed regulations between 30 and 60
days after publication of this document in the Federal Register.
Therefore, a comment to OMB is best assured of having its full effect
if OMB receives it within 30 days of publication. This does not affect
the deadline for the public to comment to the Department on the
Invitation To Comment
Interested persons are invited to submit comments and
recommendations regarding these proposed regulations.
All comments submitted in response to these proposed regulations
will be available for public inspection, during and after the comment
period, in room 3053, Regional Office Building 3, 7th and D Streets,
S.W., Washington, DC between the hours of 8:30 a.m. and 4 p.m., Monday
through Friday of each week except federal holidays.
Assessment of Educational Impact
The Secretary particularly requests comments on whether the
proposed regulations in this document would 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 in 34 CFR Part 682
Administrative practice and procedure, Colleges and universities,
Education, Loan programs-education, Reporting and recordkeeping
requirements, Student aid, Vocational education.
Dated: July 31, 1996.
Richard W. Riley,
Secretary of Education.
(Catalog of Federal Domestic Assistance Number 84.032, Federal
Family Education Loan Program)
The Secretary proposes to amend part 682 of title 34 of the Code of
Federal Regulations as follows:
PART 682--FEDERAL FAMILY EDUCATION LOAN (FFEL) PROGRAM
1. The authority citation for part 682 continues to read as
Authority: 20 U.S.C. 1071 to 1087-2, unless otherwise noted.
2. Section 682.401 is amended by revising paragraph (b)(27) to read
Sec. 682.401 Basic program agreement.
* * * * *
(b) * * *
(27) Collection Charges and Late Fees on Defaulted FFEL loans being
Consolidated. (i) A guaranty agency may add collection costs in an
amount not to exceed 18.5 percent of the outstanding principal and
interest to a defaulted FFEL Program loan that is included in a Federal
(ii) When returning the proceeds from the consolidation of a
defaulted loan to the Secretary, a guaranty agency may only retain the
amount added to the borrower's balance pursuant to paragraph (b)(27)(i)
of this section.
* * * * *
3. Section 682.404 is amended by revising paragraph (a)(2)(ii) and
paragraph (f) to read as follows:
Sec. 682.404 Federal reinsurance agreement.
* * * * *
(a) * * *
(2) * * *
(ii) Preclaims assistance means collection assistance made
available to the lender by the guaranty agency no later than the 75th
day of delinquency. This assistance must include collection activities
that are at least as forceful as the level of preclaims assistance
performed by the guaranty agency as of October 16, 1990, and involves
the initiation by the guaranty agency of at least 3 collection
activities, one of which is a letter designed to encourage the borrower
to begin or resume repayment. As part of their preclaims assistance,
guaranty agencies must provide counseling and written consumer
information to the borrower by the 100th day of delinquency informing
the borrower of the borrower's option to consolidate the defaulted loan
under the FFEL Program or the Federal Direct Consolidation Loan Program
to avoid default. Failure of the agency to provide this information
constitutes a violation of the guaranty agency's obligation to perform
due diligence in collecting a loan; and
* * * * *
(f) Application of borrower payments. A payment made to a guaranty
agency by a borrower must be applied first to the collection costs due
only for the amount collected in the particular payment month on the
loan and then to reinsured interest and then to principal. The
borrower's payments may be applied to other incidental charges, such as
late charges, only after the repayment of all principal and interest.
* * * * *
4. Section 682.410 is amended by revising paragraphs (b)(2) and
(b)(6)(vii)(A) to read as follows:
Sec. 682.410 Fiscal, administrative, and enforcement requirements.
* * * * *
(b) * * *
(2) Collection charges. Whether or not provided for in the
borrower's promissory note, the guaranty agency
shall charge a borrower an amount equal to reasonable costs incurred by
the agency in collecting a loan on which the agency has paid a default
or bankruptcy claim. These costs may include, but are not limited to,
all attorney's fees, collection agency charges, and court costs. The
amount charged a borrower must equal the amount the same borrower would
be charged for the cost of collection if the loan was held by the U.S.
Department of Education.
* * * * *
(6) * * *
(vii) * * *
(A) Except as provided in paragraph (b)(6)(vii)(B) of this section,
during this period but not sooner than 30 days after sending the notice
described in paragraph (b)(5)(vi) of this section, the agency shall
initiate proceedings to offset the borrower's state and federal income
tax refunds and other payments made by the federal government to a
borrower, and shall initiate wage garnishment proceedings against the
borrower by the 225th day. If the agency determines that the borrower
has insufficient income to satisfy the debt through wage garnishment,
but has assets from which the debt can be satisfied, the agency shall
assign the loan to the Department by the 545th day.
* * * * *
5. Section 682.411 is amended by revising paragraphs (c) and (d) to
read as follows:
Sec. 682.411 Due diligence by lenders in the collection of guaranty
* * * * *
(c) 1-15 days delinquent: Except in the case where a loan is
brought into this period by a payment on the loan, expiration of an
authorized deferment or forbearance period, or the lender's receipt
from the drawee of a dishonored check submitted as a payment on the
loan, the lender during this period shall send at least one written
notice or collection letter to the borrower informing the borrower of
the delinquency and urging the borrower to make payments sufficient to
eliminate the delinquency. The notice or collection letter sent during
this period must include, at a minimum, information for the borrower
regarding loan consolidation, forbearance and other available options
to avoid default.
(d) 16-180 days delinquent (16-240 days delinquent for a loan
repayable in installments less frequent than monthly): (1) Unless
exempted under paragraph (d)(4) of this section, during this period the
lender shall engage in at least four diligent efforts to contact the
borrower by telephone and send at least four collection letters urging
the borrower to make the required payments on the loan. At least one of
the diligent efforts to contact the borrower by phone must occur
before, and another one must occur after, the 90th day of delinquency.
(2) At least two of the collection letters required under paragraph
(d)(1) of this section must warn the borrower that if the loan is not
paid, the lender will assign the loan to the guaranty agency that, in
turn, will report the default to all national credit bureaus, and that
the agency may institute proceedings to offset the borrower's state and
federal income tax refunds and other payments made by the federal
government to a borrower or to garnish the borrower's wages, or assign
the loan to the federal government for litigation against the borrower.
* * * * *
6. Section 682.413 is amended by redesignating paragraph (b) as
paragraph (b)(1) and adding a new paragraph (b)(2) to read as follows:
Sec. 682.413 Remedial actions.
* * * * *
(b)(1) The Secretary requires a guaranty agency to repay
reinsurance payments received on a loan if the lender, third-party
servicer, if applicable, or the agency fails to meet the requirements
of Sec. 682.406(a).
(2) The Secretary may require a guaranty agency to repay
reinsurance payments received on a loan or to assign FFEL loans to the
Department if the agency fails to meet the requirements of
* * * * *
[FR Doc. 96-22812 Filed 9-5-96; 8:45 am]
BILLING CODE 4000-01-P