Maintained for Historical Purposes

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The Secretary amends the Student Assistance General Provisions (General Provisions) regulations. The General Provisions regulations govern elements common to all of the Federal Student Financial Aid Programs authorized by Title IV of the Higher Education

FR part
IV
Attachments:
PublicationDate: 12/1/95
FRPart: IV
RegPartsAffected: Citation : (R)668.17
Citation : (R)668.85
Citation : (R)668.86
Citation : (R)668.90
PageNumbers: 61759-61774
Summary: The Secretary amends the Student Assistance General Provisions (General Provisions) regulations. The General Provisions regulations govern elements common to all of the Federal Student Financial Aid Programs authorized by Title IV of the Higher Education Act of 1965, as amended (HEA) (hereafter Title IV Programs). These amendments modify the Secretary's Federal Family Education Loan (FFEL) Program default reduction initiative and implement default prevention measures in the William D. Ford Federal Direct Loan (Direct Loan) Program. These regulations also streamline the limitation, suspension, and termination (L, S, and T) actions against an institution and prevent an institution from evading the consequences of a high FFEL Program cohort default rate, Direct Loan Program cohort rate, or weighted average cohort rate.
CommentDueDate:

  
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[


[Federal Register: December 1, 1995 (Volume 60, Number 231)]
[Rules and Regulations ]
[Page 61759-61774]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01de95-17]



[[Page 61759]]

_______________________________________________________________________

Part IV





Department of Education





_______________________________________________________________________



34 CFR Part 668



Student Assistance General Provisions; Final Rule


[[Page 61760]]


DEPARTMENT OF EDUCATION

34 CFR Part 668

RIN 1840-AC17


Student Assistance General Provisions

AGENCY: Department of Education.

ACTION: Final Regulations.

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

SUMMARY: The Secretary amends the Student Assistance General Provisions
(General Provisions) regulations. The General Provisions regulations
govern elements common to all of the Federal Student Financial Aid
Programs authorized by Title IV of the Higher Education Act of 1965, as
amended (HEA) (hereafter Title IV Programs). These amendments modify
the Secretary's Federal Family Education Loan (FFEL) Program default
reduction initiative and implement default prevention measures in the
William D. Ford Federal Direct Loan (Direct Loan) Program. These
regulations also streamline the limitation, suspension, and termination
(L, S, and T) actions against an institution and prevent an institution
from evading the consequences of a high FFEL Program cohort default
rate, Direct Loan Program cohort rate, or weighted average cohort rate.

EFFECTIVE DATE: These regulations take effect July 1, 1996. However,
affected parties do not have to comply with the information collection
requirements in Sec. 668.17 until the Department of Education publishes
in the Federal Register the control number assigned by the Office of
Management and Budget (OMB) to these information collection
requirements. Publication of the control number notifies the public
that OMB has approved these collection requirements under the Paperwork
Reduction Act of 1995.

FOR FURTHER INFORMATION CONTACT: Mr. Douglas Laine, Program Specialist,
Direct Loan Policy Group, Policy Development Division, U.S. Department
of Education, 600 Independence Avenue, SW, room 3045, Regional Office
Building 3, 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: On September 21, 1995, the Secretary
published a Notice of Proposed Rulemaking (NPRM) for part 668 in the
Federal Register (60 FR 49178). The NPRM included a discussion of the
major issues surrounding the proposed changes which will not be
repeated here. The following list summarizes those issues and
identifies the pages of the preamble to the NPRM on which a discussion
of those changes can be found:
The Secretary proposed to define a measurement similar to the FFEL
Program cohort default rate under the Direct Loan Program, a ``cohort
rate'' for Direct Loans, and to establish institutional eligibility
requirements, based on the repayment of Direct Loans by the
institution's former students, that are similar to those in the FFEL
Program (pages 49179-49181).
Further, the Secretary proposed that a Direct Loan institution with
an excessive Direct Loan Program cohort rate or weighted average cohort
rate be permitted to avoid a loss of participation by showing the
existence of exceptional mitigating circumstances (pages 49182-49184).
The Secretary proposed to modify the cohort default rate appeal
process and the exceptional mitigating circumstances under which an
institution may appeal its statutory loss of eligibility to participate
in the FFEL Program on the basis of its cohort default rate (page
49184).
Finally, the Secretary proposed to streamline the current L, S, and
T procedures and to limit the grounds on which a hearing officer may
decide when an L, S, and T action is unwarranted (pages 49182-49185).
The Secretary has combined in a separate new paragraph the
provisions that were contained in Sec. 668.17(d)(1) (iii) and (iv), (e)
(5) through (11), and (f) (5) through (10). These paragraphs
established an institution's FFEL Program cohort default rate, Direct
Loan Program cohort rate, and weighted average cohort rate,
respectively, when an institution changes status during a fiscal year.
A change of status occurs, for example, when an institution merges with
another institution or a branch of an institution joins a free-standing
institution. These provisions have been consolidated into a new
paragraph (g).

Substantive Changes to the NPRM

The following discussion reflects substantive changes made to the
NPRM in the final regulations. The provisions are discussed in the
order in which they appear in the proposed rules.

Section 668.17 Default Reduction and Prevention Measures

Participation Rate Index Formula

A change has been made to the formula used to determine the
percentage of an institution's students who borrow under the FFEL or
Direct Loan programs for calculating the participation rate index under
Sec. 668.17(c)(1)(ii)(A). The proposed rules provided that an
institution would base the percentage of its students that borrow under
the FFEL or Direct Loan programs on the number of students enrolled at
least half-time at the institution.
The final rules have been changed to provide that an institution
must base the percentage of its students that borrow under the FFEL or
Direct Loan programs on the number of its ``regular students'' enrolled
at least half-time. A ``regular student'' is a student who is enrolled
or accepted for enrollment at an institution for the purpose of
obtaining a degree, certificate, or other recognized educational
credential offered by that institution. This definition is contained in
34 CFR 600.2.

Economically Disadvantaged Rate Formula

A change has been made to the formula used to determine the
percentage of an institution's students who come from economically
disadvantaged backgrounds under Sec. 668.17(c)(1)(ii)(B). The proposed
rules provided that the percentage of an institution's students coming
from economically disadvantaged backgrounds would be based on all of
the institution's students.
The final rules have been changed to provide that the percentage of
an institution's students that come from disadvantaged economic
backgrounds must be based on the institution's regular students.

Placement Rate Formula

A number of changes have been made to the formula used to calculate
an institution's placement rate under Sec. 668.17(c)(1)(ii)(B)(2). The
formula contained in the proposed rules considered a former student who
was initially enrolled full-time as successfully placed if, on the date
the institution submits the appeal, the former student:
(1) is employed, or had been employed for at least 13 weeks,
following his or her last day of attendance at the institution; or
(2) is enrolled or was enrolled for at least 13 weeks in a higher
level program at another institution for which the institution's
program provided substantial preparation.
The placement rate calculation has been revised to provide that:
(a) only former regular students who were initially enrolled at least
half-time be

[[Page 61761]]
considered in the placement rate; and (b) a student will be considered
as successfully placed by the institution if the former student:
(1) has been employed in an occupation for which the institution's
program provided training for at least 13 weeks within the 12-month
period after the date of the student's last day of attendance; or
(2) is employed in an occupation for which the institution's
program provided training on the day after 12 months following the date
of the student's last day of attendance.
The final regulations provide that a student who is still enrolled
in the institution on the day after 12 months after the date of the
student's last day of attendance and is making satisfactory academic
progress in the program in which he or she was initially scheduled to
complete is excluded from the cohort of students used to determine the
institution's placement rate. The proposed rules would have included
such students in the placement rate.
Further, under the final regulations, a student or former student
may not be considered successfully placed if the institution is the
student's or former student's employer.
Finally, the final regulations provide that, in calculating the
placement rate formula under Sec. 668.17(c)(2), a student who is
initially enrolled at least half-time, but less than full-time, will be
considered to be scheduled to complete his or her program during the
amount of time normally it would take that student to complete the
program based on his or her initial enrollment.

Completion Rate Formula

A change has been made to the formula used to calculate an
institution's completion rate under Sec. 668.17(c)(1)(ii)(B)(1). The
formula contained in the proposed rules would have based the
institution's completion rate on all initially enrolled full-time
students. The final rules have been amended to base the institution's
completion rate on all initially enrolled full-time regular students.

Submission of Appeal Information

A change has been made to Sec. 668.17(c)(1)(ii) to provide that an
appeal on the basis of exceptional mitigating circumstances must be
submitted to the Secretary in a format prescribed by the Secretary and
must include data elements requested by the Secretary. The proposed
rules identified specific detailed information an institution would
have to provide in an appeal. The Secretary has removed this detailed
information from the final regulations. Instead, the final regulations
provide that any information an institution submits regarding an appeal
must:
<bullet> be submitted in a format prescribed by the Secretary, and
<bullet> include information the Secretary has determined is
necessary to evaluate the appeal.
The Secretary expects that institutions will be provided with the
format in which the appeal must be submitted and the data elements that
must be included when the institution is notified of its cohort default
rate data in accordance with Sec. 668.17(i).
The information that the Secretary may require in an appeal may
include, but is not necessarily limited to, information relating to
student enrollment, loan periods, expected family contributions (EFC),
adjusted gross incomes, withdrawal dates, graduation dates, transfers,
job placement, employer information, job titles, and dates employed.
This information is the same information currently required of
institutions submitting appeals. Institutions will likely be familiar
with these data items since the Official Default Rate Guide (formerly
Enclosure B), which is provided to institutions along with their cohort
default rates, lists these data elements. The Secretary does not expect
these items to change substantially.
Section 668.17(c)(6) of the final regulations has been revised to
require the chief executive officer of an institution to certify, under
penalty of perjury, that the appeal information is true and correct.

Completion and Placement Rate Appeals

In Sec. 668.17(c)(1)(ii)(B), a change has been made to an
institution's right to appeal using the exceptional mitigating
circumstances appeal based on both the percentage of an institution's
students that come from disadvantaged economic backgrounds and the
institution's completion rate or placement rate. The proposed rules
limited the exceptional mitigating circumstance appeal that included
the completion rate to public and private nonprofit institutions, and
limited the exceptional mitigating circumstances appeal that included
the placement rate to proprietary institutions.
The final regulations have been revised to require degree-granting
proprietary institutions as well as public or private nonprofit degree-
granting institutions, to appeal using the completion rate component,
whereas nondegree-granting institutions, public, private nonprofit, or
proprietary, may only appeal based on the placement rate component.

Guaranty Agency Verification of Data

The final regulations have been changed in Sec. 668.17(c)(8) to
provide that an institution will not lose its eligibility to
participate in the FFEL or Direct Loan programs during the appeal
process if a guaranty agency does not respond in a timely manner to the
institution's timely request to verify data included in the
institution's FFEL Program cohort default rate that the institution
believes is inaccurate. The proposed rules had provided that an
institution would lose its eligibility to continue to participate in
the appeal process if it did not submit all of its appeal information
to the Secretary within 30 days following notification of the loss of
eligibility.
Section 668.17(c)(1) now requires an institution that appeals on
the basis of inaccurate data to inform the Secretary that it is
appealing on this basis at the same time it submits its request to
verify its FFEL Program cohort default rate data to the guaranty
agency. Further, an institution must provide its verified data to the
Secretary within five working days after it receives that data from the
guaranty agency.

Independent Audit of Appeals

The final regulations have been changed in Sec. 668.17(c)(7) to
provide that an institution choosing to appeal its loss of eligibility
on the basis of exceptional mitigating circumstances must provide a
statement from an independent auditor that verifies the information
included in the appeal within 60 days following the institution's
notification of the loss of eligibility. The proposed rules provided
that this information be submitted by the 30th day following
notification of the loss of eligibility. The final rules continue to
require that the rest of the appeal be submitted by that 30th day.
Further, the regulations have been amended to provide more specific
guidance concerning the methodology that must be used by an independent
auditor to determine if the information contained in the appeal is
correct.

Data Period

The final regulations have been changed in Sec. 668.17(c)(1)(ii)(B)
to clarify that the 12-month period used to determine the percentage of
the institution's student body that comes from disadvantaged economic
backgrounds must be the same 12-month period the institution uses to
determine its placement rate or completion rate. The proposed rules
were read to allow the institution the option to choose a different 12-
month

[[Page 61762]]
period for the placement rate or completion rate than the one used for
the percentage of the institution's student body that comes from
disadvantaged economic backgrounds.

Direct Loan Program Cohort Rate and Weighted Average Cohort Rate

The final regulations have been changed in Secs. 668.17(e)(1)(ii)
and 668.17(f)(1)(ii) to provide that a Direct Loan borrower who is in
the income-contingent repayment (ICR) plan on his or her loan and, for
270 days, had scheduled monthly payments that are less than $15 and
less than the interest that is accruing on the loan each month will be
included in an institution's Direct Loan Program cohort rate or
weighted average cohort rate. Under the proposed rules, such a borrower
would be included in the Direct Loan Program cohort rate or weighted
average cohort rate only if such conditions existed at the end of the
fiscal year following the fiscal year the borrower entered repayment on
the loan.

L, S, and T

The final regulations have been revised in Sec. 668.17(a)(5) so
that the Secretary will cease any L, S, and T action taken against an
institution solely on the basis of its FFEL Program cohort default
rate, Direct Loan Program cohort rate, or weighted average cohort rate
if the institution successfully appeals under the exceptional
mitigating circumstances. The proposed rules provided that the
Secretary would withdraw an L, S, and T action against an institution's
participation only in the FFEL Program if the institution successfully
appeals under exceptional mitigating circumstances.
The final regulations have been revised in Sec. 668.17(c)(1)(ii)(A)
to provide that an institution with an FFEL Program cohort default
rate, Direct Loan Program cohort rate, or weighted average cohort rate
that exceeds 40 percent will not be eligible to appeal a loss of
eligibility to participate in the FFEL or Direct Loan programs under
the participation rate index.

Analysis of Comments and Changes

In response to the Secretary's invitation in the NPRM, 150 parties
submitted comments on the proposed regulations. An analysis of the
comments and the changes follows. Major issues are grouped according to
subject, with references to the appropriate sections of the regulation.
Technical and other minor changes, and suggested changes the Secretary
is not legally authorized to make under the applicable statutory
authority, generally are not addressed.

General

Comments: Many commenters argued that the HEA requires that these
regulations be subject to a negotiated rulemaking process.
Discussion: The Secretary does not agree with the commenters.
Section 457 of the HEA requires the Secretary, to the extent
practicable, to promulgate regulations that implement the provisions of
Part D of the HEA (which authorizes the Direct Loan Program) through a
negotiated rulemaking process. Although these rules will affect Direct
Loan institutions, these regulations do not directly implement any
provisions contained in Part D of the HEA. The HEA does not require the
Secretary to institute a negotiated rulemaking process for every
regulation that has an affect on the Direct Loan Program. Moreover, the
HEA does not require negotiated rulemaking for amendments to existing
regulations. In any case, it was not practicable to conduct negotiated
rulemaking for these amendments.
Changes: None.
Comments: Many commenters believed that the comment period for this
proposed rule was too short, especially due to the fact that the
Secretary published six proposed rules during the same week. The
commenters indicated that it would be more appropriate for the
Secretary to provide a longer comment period to allow them to provide
more complete responses to the proposed rules.
Discussion: In the six sets of proposed rules mentioned above, the
Secretary proposed numerous improvements and necessary changes to the
Student Financial Assistance Programs. The ``Master Calendar''
provisions contained in section 482 of the HEA require that regulations
be published in final form by December 1 prior to the start of the
award year for which they will become effective. Because of the
importance of implementing these changes and improvements for the award
year beginning July 1, 1996, the Secretary established a comment period
that allows publication of these final regulations by December 1, 1995,
as required by the ``Master Calendar'' timeframe. The Secretary always
endeavors to provide as long a comment period as possible.
Changes: None.
Comment: A number of commenters representing proprietary
institutions questioned the Secretary's decision to distinguish between
non-degree-granting proprietary and public or private nonprofit
institutions for purposes of calculating Direct Loan Program cohort
rates and weighted average cohort rates. These commenters argued that
there was no basis for this distinction because proprietary
institutions offer the same programs as public institutions (such as
community colleges), which offer job training in a broader educational
context. These commenters criticized the proposal to include in the
cohort default rate calculation for proprietary non-degree granting
institutions, Direct Loans repaid through an ICR plan under which the
borrower makes payments less than $15 a month and that payment results
in negative amortization. Other commenters representing other types of
educational institutions supported the distinctions included in the
draft regulations.
Discussion: The Secretary believes it is appropriate to distinguish
between different types of institutions in calculating cohort default
rates. First, numerous reports by congressional committees (including
the Senate's Permanent Subcommittee on Investigations) and the General
Accounting Office, as well as the Department's own reviews of
individual institutions, have concluded that many proprietary
institutions (particularly non-degree-granting institutions) use
promises of job training and placement to entice students to enroll and
then the institutions fail to provide worthwhile services. Second,
those commenters who urged the Secretary not to distinguish between
different types of institutions are asking the Secretary to ignore the
overwhelming evidence that student loan default rates (and the
associated costs to students and taxpayers) are much higher in the
proprietary sector than in any other sector of higher education. For
example, among the institutions for whom cohort default rates were
calculated for Fiscal Year 1992 (which are the most recent final rates
available), 444 institutions were subject to loss of FFEL eligibility
for the first time based on default rates over 25 percent for the three
most recent fiscal years. Of those institutions, 396 (89 percent) were
proprietary institutions. Similarly, of the 205 institutions whose loss
of eligibility was extended based on excessive default rates, 186 (91
percent) were proprietary; and of the 376 institutions subject to
limitation, suspension or termination from participation in all Title
IV programs based on excessive default rates, 324 (86 percent) were
proprietary. Propreitary institutions represented 44 percent of all
institutions for whom

[[Page 61763]]
cohort default rates were calculated based on students and former
students entering repayment on FFEL Program loans in fiscal year 1992.
Further, the Fiscal Year 1992 data show that proprietary
institutions had default rates of 30.2 percent, twice the national
average for all institutions, and that public two-year institutions had
rates of 14.5 percent. These data do not support the commenters'
arguments that public institutions that offer vocational programs
similar to those offered by many proprietary institutions should be
treated the same as proprietaries for purposes of calculating Direct
Loan Program cohort rates or weighted average cohort rates.
In analyzing this information, the Secretary has concluded that
non-degree-granting proprietary institutions present a particular risk
to students and taxpayers. The Secretary believes that these
institutions would have a particular incentive to encourage their
student borrowers to request an ICR plan in an attempt to mask their
failure to provide worthwhile training, which results in employment
that only allows a borrower to make minimal loan payments while falling
further behind on the loan through negative amortization.
Changes: None.
Comments: Many commenters responded to the Secretary's invitation
to comment regarding whether the Secretary should implement measures to
prevent an institution from evading the proposed rule under which a
Direct Loan Program cohort rate and weighted average cohort rate are
calculated for non-degree-granting proprietary institutions using an
ICR component if such an institution switched to a nonprofit status.
The commenters felt that the current Internal Revenue Service
requirements to establish nonprofit status are sufficiently rigorous,
costly, and lengthy so as to prevent an institution from switching from
profit to nonprofit status to avoid the consequences of a high default
rate. Commenters argued that this type of decision would more likely be
made for business reasons rather than for the purpose of evading
regulatory requirements.
Discussion: The Secretary has carefully evaluated the comments
received on this issue and believes that further consideration is
warranted prior to implementing any regulatory or procedural changes
that would prevent an institution from switching from profit to
nonprofit status to avoid the consequences of a high default rate.
Changes: None.
Comments: Many commenters responded to the Secretary's request for
public comment regarding adding a measure to the default rate
definition for borrowers for whom payment has been deferred for an
extended period of time under the economic hardship or unemployment
deferments, or a forbearance. The commenters argued that including
borrowers whose payments had been deferred for an extended period of
time in the default rate definition results in ``punishing'' an
institution for informing students of their rights to defer or forbear
payments in certain circumstances. Further, some commenters argued that
the benefits to students of avoiding defaults through the use of
deferments and forbearance would outweigh the potential for abuse by
unscrupulous institutions that might try to artificially lower their
default rates.
Discussion: The Secretary agrees with the commenters that the use
of deferments and forbearances benefit students by preventing defaults.
The Secretary believes that this issue warrants further consideration
prior to implementing any changes. The Secretary will continue to
monitor the use of deferments and forbearances in both the Direct Loan
and FFEL Programs to determine if further action is needed.
Changes: None.
Comments: Many commenters suggested that if the Secretary was
planning to provide Direct Loan Program institutions with tools, such
as reports on delinquent borrowers, access to borrower information on a
toll-free servicing telephone number, and free loan counseling
materials for entrance and exit counseling, to help it reduce its
default rate, similar tools should be provided to the FFEL Program
institutions. The commenters stated that the Secretary has obligations
to help reduce default rates in the FFEL Program.
Discussion: The Secretary assures these commenters that he is
equally concerned about reducing defaults in both the FFEL and Direct
Loan programs and agrees that it is in the best interests of
institutions, borrowers, and taxpayers to help reduce the incidence of
student loan defaults by providing institutions with default prevention
tools. The HEA and the FFEL Program regulations provide FFEL
institutions with numerous tools to reduce their default rates. The
Secretary, guaranty agencies, and various institutional associations
have offered institutions training opportunities and information
designed to reduce FFEL Program cohort default rates. Direct Loan
institutions will be treated similarly. Some commenters suggested
specific measures that could be taken to assist institutions in
reducing defaults. The Secretary will carefully consider these
suggestions to enhance default prevention techniques in both the FFEL
and Direct Loan programs.
Changes: None.

Section 668.17(a)(1)

Comments: Many commenters were concerned that the language in
Sec. 668.17(a)(1) implies that an institution will not be notified of
its FFEL Program cohort default rate, Direct Loan Program cohort rate,
or weighted average cohort rate if that rate is equal to or less than
20 percent. The commenters suggested that all institutions should be
notified of their FFEL Program cohort default rates, Direct Loan
Program cohort rates, or weighted average cohort rates.
Discussion: The Secretary notes that this language is in current
regulations and was originally included in an NPRM published on
February 28, 1994 (59 FR 9526, 9572) and that no commenters raised
questions about this provision. The Secretary has traditionally
provided default rate notices to all institutions and all institutions
receive their default rate prior to publication under 34 CFR
668.17(j)(1) (ii) and (iii). However, it is most important that
institutions with rates over 20 percent receive notice of their final
rates since it is these institutions that may face sanctions based on
their rate. The Secretary originally provided that only institutions
with rates over 20 percent would be guaranteed to receive a notice
because of the possibility that future budget reductions would require
cuts in this area. The Secretary agrees with the commenters that,
whenever feasible, all institutions should be notified of their FFEL
Program cohort default rates, Direct Loan Program cohort rates, or
weighted average cohort rates. The Secretary plans to notify all
institutions of their rates.
Changes: None.

Section 668.17(a)(2)

Comments: Many commenters suggested that the Secretary should not
take L, S, and T action against an institution that is appealing its
loss of eligibility to participate in the FFEL or Direct Loan programs
under exceptional mitigating circumstances until a final decision is
made on the appeal. The commenters reasoned that it is unfair to
eliminate an institution from participating in all of the Title IV
programs before the institution has had a chance to prove to the
Secretary that exceptional mitigating circumstances

[[Page 61764]]
justify the institution's continued participation in the FFEL or Direct
Loan programs. Other institutions argued that it would be unfair to
take L, S, and T action against an institution before the institution
has had a chance to demonstrate to the Secretary that its rate is not
accurate and that a recalculated rate would be equal to or less than 40
percent.
Other commenters suggested that the Secretary should not initiate
an L, S, and T action against an institution that has few participants
in the FFEL or Direct Loan programs.
Discussion: First, the Secretary notes that the initiation of an L,
S, and T action is discretionary. The Secretary does not plan to
initiate such action against an institution unless the FFEL Program
cohort default rate, Direct Loan Program cohort rate, or weighted
average cohort rate on which the action is based is final. Moreover,
institutions are further protected since the hearing officer will find
that the action is not warranted if the rate is not final. The
Secretary believes that these provisions will ensure that an
institution will not be harmed from action taken against it on the
basis of a cohort default rate that is not final.
The Secretary does not agree with the commenters that an
institution should be exempt from L, S, and T action until an
institution's appeal under exceptional mitigating circumstances is
decided. However, the Secretary does agree with the commenters that if
an institution successfully appeals its loss of eligibility based on
its FFEL Program cohort default rate, Direct Loan Program cohort rate,
or weighted average cohort rate on the basis of exceptional mitigating
circumstances, any L, S, and T action taken solely on the basis of that
cohort rate should be withdrawn.
With respect to the commenter's concerns that an institution with
few participants in the FFEL and Direct Loan programs should be exempt
from L, S, and T action, the Secretary would like to assure the
commenters that he does not intend to take L, S, and T action against
an institution if that institution has less than five students
borrowing under the FFEL and Direct Loan programs.
Changes: The final regulations have been revised in
Sec. 668.17(a)(5) so that the Secretary will cease any L, S, and T
action taken against an institution solely on the basis of its FFEL
Program cohort default rate, Direct Loan Program cohort rate, or
weighted average cohort rate if the institution successfully appeals
under the exceptional mitigating circumstances.
Comments: Many commenters believed that the Secretary should take
L, S, and T action against an institution's participation in the Direct
Loan Program if that institution has FFEL Program cohort default rates
that are equal to or exceed 25 percent for three consecutive fiscal
years. The commenters believed that this change is needed for
comparability in the FFEL and Direct Loan programs, because the
Secretary is proposing to take L, S, and T action against an
institution's participation in the FFEL Program if it has a Direct Loan
Program cohort rate or weighted average cohort rate that equals or
exceeds 25 percent for three consecutive fiscal years.
Discussion: The Secretary does not agree with the commenters that a
change is needed for purposes of comparability between the FFEL and
Direct Loan programs. The statute provides the Secretary the authority
to establish institutional participation requirements for the Direct
Loan Program. Under the current Direct Loan Program regulations in 34
CFR 685.400, an institution is not eligible to continue to participate
in the Direct Loan Program if it has an FFEL Program cohort default
rate that equals or exceeds 25 percent for three consecutive fiscal
years. The Secretary does not have the authority to establish similar
institutional participation requirements for FFEL Program institutions.
Therefore, the Secretary believes that the regulations already address
the commenter's concerns.
Changes: None.

Section 668.17(c)

Comments: Many commenters suggested that the 30-day timeframe under
which an institution may appeal a loss of eligibility under inaccurate
data or exceptional mitigating circumstances be extended. The
commenters argued that 30 days did not provide enough time to compile
the data needed to support an appeal under exceptional mitigating
circumstances, nor did it provide a guaranty agency enough time to
verify any inaccurate data in the institution's rate. Many commenters
also suggested that the proposed requirement to have an appeal under
exceptional mitigating circumstances verified by an independent auditor
would not be possible within the 30-day timeframe.
Discussion: The 30-day timeframe to appeal under exceptional
mitigating circumstances or inaccurate data is mandated by section
435(a)(2) of the HEA. The Secretary does not have the authority to
extend this timeframe. The Secretary believes that an institution and a
guaranty agency should, in most cases, be able to comply with the 30-
day timeframe, particularly in light of the draft cohort default rate
review process.
However, the Secretary realizes that there may be exceptional cases
in which a guaranty agency fails to respond to an institution in a
timely manner. Therefore, the Secretary has decided to retain the
current regulations and permit an institution to continue to
participate in the FFEL Program during the appeal process when a
guaranty agency's failure to respond to an institution's timely request
results in the appeal being submitted later than 30-day deadline,
provided the institution notifies the Secretary that it is appealing
its FFEL Program cohort default rate data at the same time it requests
verification of its cohort default rate data from the relevant guaranty
agency(ies). An institution will be required to submit its verified
data to the Secretary within five working days from the date it
receives the verified data from such guaranty agency(ies).
Based on the comments received, the Secretary appreciates that an
institution may have difficulty obtaining an independent auditor's
verification of the information that must be submitted in the appeal
within the 30-day timeframe. However, the Secretary believes that this
verification is necessary. The Secretary has been persuaded that a 60-
day timeframe would be more appropriate for submission of the
independent auditor's verification. The institution must submit the
appeal data within 30 days; only the auditor's attestation may be
submitted after the 30-day deadline.
Changes: The final regulations have been amended in
Sec. 668.17(c)(8) to provide that an institution may continue to
participate in the FFEL Program if that institution fails to submit an
appeal based on inaccurate data by the 30-day deadline if that failure
is the result of a guaranty agency's failure to respond to the
institution's timely request for verification of its FFEL Program
cohort default rate data. The final regulations have also been amended
in Sec. 668.17(c)(7) to provide that the independent auditor's
verification of the information in the appeal must be submitted to the
Secretary within 60 days after the institution is notified that it will
lose its eligibility to participate in the FFEL or Direct Loan
programs.
Comments: Many commenters suggested that an independent auditor
should be able to verify the accuracy of the information submitted in
an exceptional mitigating circumstances appeal based on a sample. The
commenters indicated that this would

[[Page 61765]]
greatly assist them in meeting the appeal deadlines, as well as reduce
the cost of an appeal.
Discussion: The Secretary believes that the verification process
should be the same for all institutions. Further, the Secretary
believes that requiring an independent auditor's statement on
management's assertions in accordance with the Standards for
Attestation Engagement #3 would ensure consistency and allow a sample
as an acceptable means for an independent auditor to verify the
information submitted in an appeal based on exceptional mitigating
circumstances.
Changes: The final regulations have been amended in
Sec. 668.17(c)(7) to provide that an independent auditor must provide a
statement on management's assertions that the information contained in
the appeal is complete, accurate, and determined in accordance with the
requirements of Sec. 668.17. The examination level engagement must be
performed in accordance with the Statement on Standards for Attestation
Engagements #3. This authorizes an independent auditor to do whatever
testing of management's assertions that the auditor feels is necessary.
Sampling may be an acceptable technique for an auditor to use under
this situation.
Comments: Some commenters suggested that the chief executive
officer of an institution be required to certify under penalty of
perjury that the information submitted in an appeal is true and
correct.
Discussion: The Secretary agrees with the commenters. The Secretary
believes that this additional certification is appropriate to help
ensure that the information submitted in an appeal is correct. The
Secretary's experience in reviewing such appeals based on exceptional
mitigating circumstances has demonstrated that some institutions have
submitted false or erroneous information in their appeals.
Changes: The final regulations have been changed in
Sec. 668.17(c)(6) to provide that an institution's chief executive
officer must certify under penalty of perjury that the information
included in the appeal is true and correct.

Section 668.17(c)(1)(ii)(A)

Comments: Many commenters suggested that the institution's
participation rate index and the determination of the percent of
students coming from disadvantaged economic backgrounds should be
calculated based on the number of regular students at the institution
rather than all the students enrolled at the institution. The
commenters argued that, for purposes of the economically disadvantaged
rate, it would be difficult to determine if a student who was not a
regular student had an EFC of zero if that student did not apply for a
Pell Grant or if the student was not eligible for a Pell Grant.
Further, many of the commenters indicated that they do not maintain
data relating to students who are not regular students, therefore, it
would be difficult to provide data regarding such students in an
appeal.
Discussion: The Secretary is willing to accommodate the commenters'
concerns to the fullest extent possible and to minimize any burden
associated with preparing an exceptional mitigating circumstances
appeal when these changes do not undermine the integrity of the appeal
process. The Secretary understands that it may be problematic for some
institutions to obtain EFC data or other data relevant to an appeal for
a student who is not a regular student. The Secretary believes that
using data for regular students will provide an accurate assessment of
an institution's students with economically disadvantaged backgrounds.
Also, the Secretary believes that it is appropriate to base the
institution's participation rate index on the percentage of the
institution's students who are eligible for loans and who actually
borrow under the FFEL or Direct Loan programs. The Secretary agrees
that the inclusion of students who are not eligible for loans would not
contribute to a meaningful indicator of the percentage of an
institution's students who participate in the loan programs.
Changes: The Secretary has amended the formula in
Sec. 668.17(c)(1)(ii)(A) for the participation rate index to base the
index on regular students enrolled at least half-time at the
institution. The Secretary has also amended the formula in
Sec. 668.17(c)(1)(ii)(B) for determining the percent of an
institution's students that come from economically disadvantaged
backgrounds to be based on regular students at the institution.
Comments: Many commenters objected to the Secretary's statement in
the preamble of the proposed rule that only institutions with FFEL
Program cohort default rates, Direct Loan Program cohort rates, or
weighted average cohort rates equal to or less than 40 percent would be
eligible to appeal under the participation rate index. The commenters
argued that an institution with a high default rate but an extremely
low percentage of students that borrow under the FFEL or Direct Loan
programs was not abusing the loan programs. Commenters also argued that
the establishment of the participation rate index would only help
institutions with exceedingly low participation rates and, thus, would
help very few institutions. For example, one commenter pointed out that
an institution could have a 50 percent FFEL Program cohort default rate
if, over three consecutive fiscal years, only two borrowers entered
repayment and one of those borrowers defaulted.
Discussion: The Secretary does not agree with the commenters that
an institution with an FFEL Program cohort default rate, Direct Loan
Program cohort rate, or weighted average cohort rate, that exceeds 40
percent, but a participation rate index that is equal to or less than
0.0375 has such a low percentage of borrowers that it is likely the
institution is not abusing the loan programs. An institution with a
large number of students and a low student loan participation rate
could still have a significant number of defaulters if the
participation rate index were used without the 40 percent cap. For
example, an institution with 10,000 students could have a low
participation rate of 7 percent, which would equal 700 students. If 50
percent of these students defaulted in a given cohort that would
represent 350 students. This would result in a participation rate index
of 0.035. The Secretary considers this number of students to be
significant. Further, given that the lowest annual loan limit is
$2,625, 325 student defaults could represent hundreds of thousands of
dollars in loss to the Federal government and U.S. taxpayers. The
Secretary believes that it would represent an unreasonable risk to
students and Federal taxpayers to permit such an institution to remain
eligible to participate in the FFEL or Direct Loan programs.
Changes: The Secretary has added a provision to the final
regulations in Sec. 668.17(c)(1)(ii)(A) that prohibits an institution
from appealing a loss of eligibility to participate in the FFEL or
Direct Loan programs under the participation rate index criterion if
that institution has an FFEL Program cohort default rate, Direct Loan
Program cohort rate, or weighted average cohort rate, that exceeds 40
percent.

Section 668.17(c)(1)(ii)(B)

Comments: Many commenters argued that the 70 percent threshold of
an institution's students coming from disadvantaged economic
backgrounds is too high. Many commenters cited a study that
demonstrated that only 21.6 percent of postsecondary students received
Pell Grants. The commenters believed that due to such a low national

[[Page 61766]]
percentage of postsecondary students receiving Pell Grants, the 70
percent threshold would be too high for an institution to meet.
Many commenters also argued that the 70 percent completion rate
threshold component of an exceptional mitigating circumstances appeal
is too high. The commenters argued that it is inappropriate for the
Secretary to require institutions with longer programs to meet a
completion rate threshold that is required by the HEA for a program of
study that is less than 600 hours in length. The commenters pointed out
that institutions offering longer programs of study most likely would
not meet this standard.
Discussion: The Secretary does not agree with the commenters that
either of these thresholds is too high. The study referenced by the
commenters is based on the percentage of Pell Grant recipients across
all postsecondary institutions. This study does not appear to be
relevant to institutions that generally have high cohort default rates.
Based on the Secretary's experience in processing exceptional
mitigating circumstances appeals, many institutions will not have any
difficulty meeting this threshold. Almost every institution that has
applied under the exceptional mitigating circumstances provisions has
met the requirement that two-thirds of its students are economically
disadvantaged. Further, previous appeals show that the postsecondary
institutions most likely to have high FFEL Program cohort default rates
are institutions that have higher percentages of low-income students
than those institutions with low default rates. Because the Secretary's
experience in reviewing exceptional mitigating circumstances appeals
has proven that many institutions can meet this standard, the Secretary
does not believe that a 70 percent threshold is too high.
In regard to the completion rate threshold, the 70 percent
completion rate standard that a short-term program must meet in order
to participate in the FFEL Program is a minimum eligibility standard.
This standard is unrelated to the institution's FFEL Program cohort
default rate. The Secretary has chosen a 70 percent completion rate
threshold as a component of an exceptional mitigating circumstance
because he believes that an institution that has a high FFEL Program
cohort default rate, Direct Loan Program cohort rate, or weighted
average cohort rate must be able to demonstrate that it is properly
serving a large majority of its students, as evidenced by their
completion of their academic program, despite having consecutively high
default rates. The Secretary reminds the commenters that the purpose of
exceptional mitigating circumstances is to allow institutions to
continue to participate in the loan programs even though more than one
out of every four students who receive loans have defaulted and that
has occurred for at least three years. To protect both students and
taxpayers, only institutions that can truly demonstrate unusual
circumstances should be allowed to continue to participate in the loan
programs.
Changes: None.
Comments: A number of commenters suggested that the completion rate
component of the exceptional mitigating circumstances be revised to
mirror the proposed Student-Right-to-Know regulations regarding
completion rates. These commenters urged the Secretary to issue
regulations with as much consistency as possible.
Discussion: The Secretary is committed to reducing regulatory
burden and providing consistency in program requirements wherever
possible. The Secretary does not believe that using completion rates as
calculated under the Student-Right-to-Know provisions is appropriate at
this time for establishing exceptional mitigating circumstances for
institutions with high cohort default rates. This is because the
requirements of Student-Right-to-Know include certain statutory
exclusions, specific timeframes, and definitions of which students are
included in the calculation. Further, the Student-Right-to-Know
provisions offer institutions flexibility in determining their
completion rates, which are not appropriate for an institution that is
appealing its loss of eligibility due to high FFEL Program cohort
default rates, Direct Loan Program cohort rates, or weighted average
cohort rates.
Changes: None.
Comments: Many commenters suggested that the completion rate and
placement rate formulas be amended to include only students who were
regular students. The commenters agreed that an institution would be
unfairly penalized if its completion or placement rate included
students who initially enrolled in the institution without the
intention of obtaining a degree or certificate.
Discussion: After careful consideration of the many comments
received on this issue, the Secretary has determined that an
institution's completion or placement rate should not include students
who are not enrolled for the purpose of obtaining a degree or
certificate. The Secretary believes that an institution should not be
held responsible for the completion or placement of a student who did
not enroll in the institution with the intent to complete a degree or
certificate program.
Change: The completion rate and placement rate formulas in section
668.17(c)(1)(ii)(B) (1) and (2) have been changed. The final
regulations provide that the placement and completion rates will be
based on the percentage of an institution's students who initially
enrolled as regular students.
Comments: Many commenters suggested that the placement rate should
only include students who have actually completed their training at the
institution. These commenters do not think it is reasonable for an
institution to be responsible for the placement of students who do not
complete their educational programs. Other commenters suggested that
the Secretary should provide a five percent allowance in the placement
rate for former students at the institution who are not able to work
due to an injury or pregnancy.
Many commenters also suggested that the Secretary should change the
placement rate calculation to permit a student who has obtained
employment in an occupation for which the training is intended while
the student is still enrolled in the institution's program to be
considered successfully placed. The commenters indicated that this
often occurs with part-time students who work and go to school at the
same time. The commenters do not believe that it is fair to exclude
such a student from the placement rate calculation.
Discussion: The Secretary expects that a high percentage of an
institution's students will receive a job related to the training or
educational program undertaken at the institution. The formula under
which the placement rate is calculated provides that an institution
will meet this standard if only 50 percent of the institution's
students receive employment in an occupation that is related to the
training they receive. For an institution that is appealing a loss of
eligibility to participate in the FFEL or Direct Loan programs on the
basis that it places an exceptionally high percentage of its students,
the Secretary believes that a 50 percent placement rate is reasonable.
Further, the Secretary does not agree that only students who
complete their programs should be included in the placement rate
calculation. The Secretary believes that the placement rate formula as
written in the proposed rule does not need to provide any extra
allowance for an institution's former

[[Page 61767]]
students who do not complete the program or are unable to work.
However, the Secretary agrees with the commenters who suggested
that a student who obtains employment in an occupation related to the
training he or she is receiving while enrolled at the institution
should not be excluded from the former students an institution may
consider as successfully placed. The Secretary realizes that students
are often able to obtain employment in a field for which they are
receiving training while they are still enrolled. This provision was
included in the NPRM. However, an institution may not consider a
student as successfully placed if the institution is the student's or
former student's employer.
Changes: None.
Comments: None.
Discussion: In reviewing the comments received on the placement
rate calculation, the Secretary concluded that it is unnecessary to
include a student who transferred to a higher level program of study as
successfully placed. The Secretary believes that this is unnecessary
because the institutions that may appeal under this criteria will not
be offering programs that prepare its students for higher level
programs.
The Secretary further believes that in order to demonstrate the
effectiveness of the training an institution provides, with respect to
students obtaining employment, the Secretary has limited the timeframe
during which a student or former student must have received employment,
or have been employed for at least 13 weeks, in order to be considered
successfully placed. Under the proposed rules, a former student would
be considered as successfully placed if that student had been employed
for at least 13 weeks between his or her last date of attendance and
the date the institution submits the appeal, which could generally
occur at least two-years after the student left the institution.
Changes: The Secretary has removed from the final regulations a
provision contained in Sec. 668.17(c)(1)(ii)(B)(2) of the proposed rule
that provided that a former student of an institution may be considered
successfully placed if that former student transfers to a higher level
program at another institution. The final regulations provide that a
student or former student may be considered as successfully placed only
if the student or former student was employed in an occupation related
to the training for at least 13 weeks before, or was employed on, the
day after 12 months following the date of the student's last day of
attendance.
Comments: Many commenters also suggested that students enrolled
less than full-time should not be counted in the placement rate
calculation. The commenters suggested that students enrolled less than
full-time are less likely to complete their programs than full-time
students.
Discussion: The Secretary does not agree with the commenters that
students enrolled less than full-time should be excluded from the
institution's placement rate. The Secretary believes that the inclusion
of regular students who are enrolled on at least a half-time basis will
provide the most complete portrait of the success of an institution's
programs. The final regulations have been changed to provide that the
placement rate calculation will be based on an institution's regular
students who are initially enrolled on at least a half-time basis. This
change is addressed in a previous comment.
Changes: None
Comments: Many commenters suggested that the Secretary should
clarify in the regulations what constitutes a week of employment. The
commenters indicated that the requirement that a student be employed
for 13 weeks was too vague. The commenters wanted to know if there was
a minimum number of days or hours during the week a student must be
employed in order to constitute a week of employment.
Discussion: The Secretary does not agree with the commenters. The
Secretary's experience in working with institutions regarding the
placement rate element of an exceptional mitigating circumstances
appeal has shown that this issue has not been an area of confusion nor
have institutions needed clarification of this issue. Further, the
Secretary does not believe that it is necessary to define in
regulations what constitutes a week of employment.
Changes: None.
Comments: Many commenters objected to limiting the use of the
completion rate component of the exceptional mitigating circumstances
to public and private nonprofit institutions and limiting the use of
the placement rate component to proprietary institutions. Many
commenters indicated that it is more appropriate for a public
vocational institution to appeal a potential loss of eligibility to
participate in the FFEL or Direct Loan programs under the placement
rate component. The commenters indicated that because these
institutions provide training for their students to receive employment
in specific occupations, they would more likely be able to meet the
placement rate threshold.
Other commenters suggested that proprietary institutions of higher
education that offer associate or baccalaureate degrees should be able
to appeal under the exceptional mitigating circumstances criteria that
include the completion rate component. These commenters argued that it
is inappropriate to distinguish the educational programs at these
institutions from their public and private nonprofit institution
counterparts.
Many commenters suggested that an institution should be able to
appeal under any of the exceptional mitigating circumstances.
Discussion: The Secretary disagrees with the commenters that an
institution should be able to appeal under either the placement rate or
completion rate components of the exceptional mitigating circumstances.
The Secretary believes that it is appropriate for an institution to
appeal under a criterion that is designed to measure the performance of
its programs. The Secretary agrees with the commenters that the type of
program offered by an institution should determine whether that
institution should be able to appeal under the exceptional mitigating
circumstances appeal that includes the placement rate or completion
rate components. Placement rate is an appropriate measure for those
institutions that are non-degree-granting, whereas completion rate is a
more appropriate and relevant measure for institutions that offer
degrees.
Changes: The final regulations have been amended in
Sec. 668.17(c)(1)(ii)(B) to permit only a non-degree-granting
institution, whether it is a public, private nonprofit, or proprietary
institution, to appeal under the exceptional mitigating circumstances
criterion that includes the placement rate component. The final
regulations have also been amended to permit only a degree-granting
institution, regardless of whether it is a public, private nonprofit,
or proprietary institution, to appeal under the exceptional mitigating
circumstances criterion that includes the completion rate component.
Comments: Many commenters objected to some of the data elements
that must be submitted to substantiate the percentage of an
institution's students that come from disadvantaged economic
backgrounds. Many commenters believed that the addresses of such
students were not necessary.
Discussion: The Secretary is interested in minimizing the burden
associated with an appeal and is reexamining the data elements that
will be required in an appeal to ensure that

[[Page 61768]]
information is requested only if it is essential to the appeal and only
if it is not available to the Secretary in existing databases. The
Secretary will notify institutions of the specific information that
must be included in the appeal in the ``Pre-Publication Review
Booklet'' that is sent to institutions when the Secretary provides the
institution the opportunity to review its draft FFEL Program cohort
default rate data. This information will also be contained in the
``Official Cohort Default Rate Guide'' which is issued to an
institution when the Secretary provides notification of loss of
eligibility based on a final FFEL Program cohort default rate, Direct
Loan Program cohort rate, or weighted average cohort rate.
The Secretary expects to require institutions to submit
substantially the same information that is currently requested in the
Official Default Rate Guide.
Changes: The Secretary has removed from the regulations the
specific description of the information an institution must submit in
an appeal. These information submission requirements were contained in
the proposed rules in sections 668.17(c)(7) (ii) through (v). The
Secretary will inform an institution of the information that is
necessary to appeal a loss of eligibility when the Secretary provides
an institution the opportunity to verify its cohort default rate data
and when he notifies the institution of its final rate.

Section 668.17(d)

Comments: Many commenters suggested that the Secretary should amend
the date an SLS loan enters repayment. The commenters suggested that
the Secretary should establish in regulations, provisions that would
define when an SLS loan enters repayment if that loan is ``linked'' to
a Stafford loan.
Discussion: For purposes of calculating an FFEL Program cohort
default rate, Congress has mandated the parameters for establishing the
date an SLS loan enters repayment. Those parameters are also contained
in the regulations in section 668.17(d)(1)(ii)(D). Consistent with the
parameters established by Congress, the Secretary regularly provides
guaranty agencies and institutions with the rules for the application
of the definition of the date an SLS loan enters repayment for purposes
of an FFEL Program cohort default rate. Institutions are now apprised
of the rules at least twice annually through the ``Pre-Publication
Booklet'' for cohort default rates and the ``Official Cohort Default
Rate Guide.''
The Secretary has found the dissemination of the rules for the
application of the definition of the date an SLS loan enters repayment
through the ``Pre-Publication Booklet'' and the ``Official Cohort
Default Rate Guide'' provides sufficient notice to the institutions,
while simultaneously allowing the definition to be refined as needed
based on upon Congressional changes to the definition and changes in
the information collecting capacity of the Department. The Secretary
further believes that it is also appropriate to disseminate the rules
for linking SLS loans to Stafford loans through the ``Pre-Publication
Booklet'' and the ``Official Cohort Default Rate Guide.''
Changes: None

Sections 668.17(e)(1)(ii) and (f)(1)(ii)

Comments: Many commenters objected to the Secretary's inclusion in
a Direct Loan Program cohort rate or weighted average cohort rate a
loan that is in repayment under the ICR plan if the borrower's
scheduled payments on that loan are less than 15 dollars and that 15
dollar payment is less than the interest that is accruing on the loan
each month. The commenters argued that it is inappropriate to consider
a loan that is not even delinquent as in default for purposes of an
institution's Direct Loan Program cohort rate or weighted average
cohort rate. Many commenters pointed out that most of the borrowers
that choose ICR will be entry-level employees and will start out with
low incomes that may result in the borrower having scheduled payments
of 15 dollars or less, which may be less than the interest that is
accruing on the loans. The commenters suggested that this would
unfairly penalize institutions since ICR is a legitimate payment option
for all students and an institution cannot control a borrower's
selection of a repayment plan.
A commenter pointed out that, under the proposed rules, if a
borrower enters into ICR at the end of the fiscal year and that
borrower's monthly payment is 15 dollars and that payment is less than
the interest that is accruing on the loan, the borrower would be
included in the institution's Direct Loan Program cohort rate or
weighted average cohort rate. The commenter indicated that it would be
more appropriate to include such a borrower in an institution's rate if
that borrower was in ICR and had scheduled payments of less than $15
that are less than the interest accruing on the loan for 270 days; this
would more closely mirror a default.
Discussion: The Secretary appreciates the commenters' concerns that
many of the borrowers who choose ICR will be entry level employees and
will likely have low payments. However, the Secretary believes that
even entry level employees who have received a quality education or
training from an institution will be able to obtain employment that
will provide them with enough income to pay back at least the interest
that is accruing on their loans each month.
The Secretary also appreciates the commenters' concerns regarding
the inclusion of a loan in an institution's Direct Loan Program cohort
rate or weighted average cohort rate that may not even be delinquent.
However, the Secretary believes that this is an appropriate
performance-based measure to assess both a borrower's ability to repay
a student loan and an institution's quality of training. The Secretary
is concerned that, without such a measure, an institution could have a
low Direct Loan Program cohort rate or weighted average cohort rate
when a large proportion of its former students are making only minimal
or no payments on their loans. The Secretary is concerned that this is
a potential area for abuse in the Direct Loan Program and believes that
it is imperative to protect students and taxpayers from such abuse.
The Secretary agrees with the commenter that, to more closely
approximate a default, a borrower should have been, by the end of the
fiscal year following the fiscal year the loan entered repayment, for
at least 270 days, in repayment under the ICR plan with scheduled
payments that were less than 15 dollars per month and those payments
result in negative amortization.
Changes: The final regulations have been revised to provide that a
loan that is in the ICR plan will not be included in a Direct Loan
Program cohort rate or weighted average cohort rate unless, for at
least 270 days, the scheduled monthly payments on that loan have been
$15 dollars or less and that payment is less than the monthly interest
accruing on the loan.

Section 668.17(f)

Comments: Many commenters did not understand how the proposed
weighted average cohort rate would be calculated when the institution
had a borrower enter repayment on both a Direct Loan and FFEL Program
loan in a fiscal year. The commenters believed that the Secretary
should clarify the formula.
Discussion: The weighted average cohort rate is determined by
comparing the number of borrowers, both FFEL and Direct Loan, who enter
repayment in a fiscal year against those borrowers who default before
the end of the following

[[Page 61769]]
fiscal year. Each borrower and each default is counted only once even
if a borrower has both FFEL and Direct Loan program loans entering
repayment in a fiscal year. This has been the Secretary's practice when
a borrower with multiple FFEL Program loans enters repayment on those
loans in a fiscal year. The Secretary does not believe that the
regulations need to be clarified in this area.
Changes: None.

Section 668.17(h)

Comments: Many commenters suggested that institutions should be
able to appeal their Direct Loan Program cohort rates or weighted
average cohort rates on the basis of improper servicing. The commenters
argued that the appeal criteria should be parallel to the FFEL Program.
In addition the commenters believed that a loan that is improperly
serviced should not be included in an institution's Direct Loan Program
cohort rate or weighted average cohort rate and that an institution
should be given a chance to verify that such a loan is not included in
its rate.
Discussion: In the FFEL Program, Congress chose to provide high
default rate institutions with an appeal from the loss of eligibility
to participate in that program based on loan servicing. That decision
was based, in large measure, on the existence of detailed Departmental
regulations governing loan servicing by lenders and a number of
instances in which large lenders failed to comply with those
requirements with a demonstrable effect on institutional default rates.
In the Direct Loan Program, those detailed servicing rules do not
exist; instead, loan servicing is controlled by contracts between the
Department and its contractors. Moreover, there is no history of abuse
in the Direct Loan Program and the Department's contractors do not have
the same incentive or opportunity to hide non-compliance as FFEL
Program lenders. Accordingly, the Secretary does not believe it is
appropriate or necessary to provide a loan servicing appeal for a
Direct Loan Program cohort rate or weighted average cohort rate.
Changes: None.

Section 668.90

Comments: Many commenters objected to the removal of an
institution's ability to demonstrate that it has diligently
administered the provisions contained in appendix D of the Student
Assistance General Provisions regulations as a defense to loss of
eligibility. The commenters argued that the measures contained in
appendix D have been proven effective in reducing defaults. Other
commenters suggested that the use of appendix D as the only defense to
an L, S, and T action provides a very powerful incentive to an
institution that has a high cohort default rate to take action to
reduce its default rate.
Discussion: The Secretary agrees with the commenters that the
measures contained in appendix D, if diligently implemented by an
institution, are effective in reducing the incidence of default.
However, many of the most effective measures in appendix D have become
specific regulatory requirements for most institutions. Moreover, the
Secretary's experience has shown that the reviews of claims of appendix
D compliance are very time-consuming and rarely helpful. In fact, the
Secretary believes that the removal of the use of appendix D as a
defense will provide a more powerful incentive for an institution to
try to keep its cohort default rate, Direct Loan Program cohort rate,
or weighted average cohort rate low.
Changes: None.

Executive Order 12866

These 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 regulations are those
resulting from statutory requirements and those determined by the
Secretary to be necessary for administering the title IV, HEA programs
effectively and efficiently.
In assessing the potential costs and benefits, both quantitative
and qualitative, 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, or tribal governments in the
exercise of their governmental functions.

Summary of Potential Costs and Benefits

The potential costs and benefits of these final regulations are
discussed elsewhere in this preamble under the following heading:
Analysis of Comments and Changes.

Assessment of Educational Impact

In the NPRM published on September 21, 1995, the Secretary
requested comment 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.
Based on the response to the proposed rules and its own review, the
Department has determined that the regulations in this document do not
require transmission of information that is being gathered by or is
available from any other agency of the United States.

List of Subjects in 34 CFR Part 668

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

(Catalog of Federal Domestic Assistance Numbers: 84.007 Supplemental
Educational Opportunity Grant Program; 84.032 Stafford Loan Program;
84.032 PLUS Program; 84.032 Supplemental Loans for Students Program;
84.033 College Work-Study Program; 84.038 Perkins Loan Program;
84.063 Pell Grant Program; 84.069 State Student Incentive Grant
Program; and 84.226 Income Contingent Loan Program; 84.268, William
D. Ford Federal Direct Loan Program)

Dated: November 24, 1995.
Richard W. Riley,
Secretary of Education.

The Secretary amends part 668 of title 34 of the Code of Federal
Regulations as follows:

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, 1094, and 1148,
unless otherwise noted.

2. Section 668.17 is amended by redesignating paragraphs (f), (g),
and (h) as paragraphs (h), (i) and (j) respectively, revising
paragraphs (a) through (e), and adding new paragraphs (f) and (g) to
read as follows:


Sec. 668.17 Default reduction and prevention measures.

(a) Default rates. (1) If the FFEL Program cohort default rate,
Direct Loan Program cohort rate, or if applicable, weighted average
cohort rate for an institution exceeds 20 percent for any fiscal year,
the Secretary notifies the institution of that rate.
(2) The Secretary may initiate a proceeding under subpart G of this
part to limit, suspend, or terminate the participation of an
institution in the Title IV, HEA programs, if the institution has an
FFEL Program cohort default rate, Direct Loan Program cohort rate, or a
weighted average cohort rate that exceeds 40 percent for any fiscal
year.

[[Page 61770]]

(3) Unless an institution is subject to loss of eligibility to
participate in the FFEL Program under paragraph (b)(1) of this section,
the Secretary initiates a proceeding under subpart G of this part to
limit, suspend, or terminate an institution's participation in the FFEL
Program if the institution, for each of the three most recent
consecutive fiscal years, has any combination of an FFEL Program cohort
default rate, a Direct Loan Program cohort rate, or weighted average
cohort rate that is equal to or greater than 25 percent.
(4) The Secretary may require an institution that meets the
criteria under paragraph (a)(2) of this section to submit to the
Secretary, within a timeframe determined by the Secretary, any
reasonable information to help the Secretary make a preliminary
determination as to what action should be taken against the
institution.
(5) The Secretary ceases any limitation, suspension, or termination
action against an institution under this paragraph if the institution
satisfactorily demonstrates to the Secretary that, pursuant to an
appeal that is complete and timely submitted under paragraph (c) of
this section, the institution meets one of the exceptional mitigating
circumstances under paragraph (c)(1)(ii)(B) of this section.
(b) End of participation. (1) Except as provided in paragraph
(b)(6) of this section, an institution's participation in the FFEL
Program ends 30 calendar days after the date the institution receives
notification from the Secretary that its FFEL Program cohort default
rate for each of the three most recent fiscal years for which the
Secretary has determined the institution's rate, is equal to or greater
than 25 percent.
(2) Except as provided in paragraph (b)(6) of this section, an
institution's participation in the Direct Loan Program ends 30 calendar
days after the date the institution receives notification from the
Secretary that for each of the three most recent fiscal years the
institution has any combination of an FFEL Program cohort default rate,
Direct Loan Program cohort rate, or weighted average cohort rate that
is equal to or greater than 25 percent.
(3) Except as provided in paragraph (b)(6) of this section, an
institution's participation in the FFEL Program or Direct Loan Program
ends under paragraph (b) (1) or (2) of this section respectively may
not participate in that program on or after the 30th calendar day after
the date it receives notification from the Secretary that its FFEL
Program cohort default rate, Direct Loan Program cohort rate, or, if
applicable, weighted average cohort rate exceeds the thresholds
specified in paragraph (b) (1) or (2) of this section and continuing--
(i) For the remainder of the fiscal year in which the Secretary
determines that the institution's participation has ended under
paragraph (b) (1) or (2) of this section; and
(ii) For the two subsequent fiscal years.
(4) An institution whose participation in the FFEL Program or
Direct Loan Program ends under paragraph (b) (1) or (2) of this section
may not participate in that program until the institution satisfies the
Secretary that the institution meets all requirements for participation
in the FFEL Program or Direct Loan Program and executes a new agreement
with the Secretary for participation in that program following the
period described in paragraph (b)(3) of this section.
(5) Until July 1, 1998, the provisions of paragraph (b) (1) or (2)
of this section and the provisions of 34 CFR 668.16(m) do not apply to
a historically black college or university within the meaning of
section 322(2) of the HEA, a tribally controlled community college
within the meaning of section 2(a)(4) of the Tribally Controlled
Community College Assistance Act of 1978, or a Navajo community college
under the Navajo Community College Act.
(6) An institution may, notwithstanding 34 CFR 668.26, continue to
participate in the FFEL Program or Direct Loan Program until the
Secretary issues a decision on the institution's appeal if the
Secretary receives an appeal that is complete, accurate, and timely in
accordance with paragraph (c) of this section.
(c) Appeal procedures. (1) An institution may appeal the loss of
participation in the FFEL Program or Direct Loan Program under
paragraph (b)(1) or (2) of this section by submitting an appeal in
writing to the Secretary by the 30th calendar day following the date
the institution receives notification of the end of participation. An
appeal or any portion of an appeal under this section will not be
accepted after the 30th calendar day following the date the institution
receives notification from the Secretary that it has lost its
eligibility to participate in the FFEL or Direct Loan programs, except
that an institution may submit an appeal under section (c)(1)(i) of
this section later than the 30th calendar day if the appeal is
submitted in accordance with paragraph (c)(8) and the information
required by paragraph (c)(7) may be submitted in accordance with that
paragraph. The appeal must include all information required by the
Secretary to substantiate the appeal and all information must be
submitted in a format prescribed by the Secretary. The additional 30-
day period specified in paragraph (c)(7) of this section is an
extension for the submission of the auditor's statement only and does
not affect the date by which the appeal data must be submitted. An
institution that is eligible for an extension under paragraph (c)(8) of
this section must submit all required data within five working days
following the agency's response to the institution's request for
verification of data. The institution may appeal on the grounds that--
(i)(A) The calculation of the institution's FFEL Program cohort
default rate, Direct Loan Program cohort rate, or, if applicable,
weighted average cohort rate, for any of the three fiscal years
relevant to the end of participation is not accurate; and
(B) A recalculation of the institution's FFEL Program cohort
default rate, Direct Loan Program cohort rate, or weighted average
cohort rate, with corrected data verified by the cognizant guaranty
agency or agencies for the FFEL Program loans, or the Secretary for
Direct Loan Program loans would produce an FFEL Program cohort default
rate, a Direct Loan Program cohort rate, or weighted average cohort
rate for any of those fiscal years that is below the threshold
percentage specified in paragraph (b) (1) or (2) of this section; or
(ii) The institution meets one of the following exceptional
mitigating circumstances:
(A) The institution has a participation rate index of 0.0375 or
less. The participation rate index is determined by multiplying the
institution's FFEL Program cohort default rate, Direct Loan Program
cohort rate or weighted average cohort rate, by the percentage of the
institution's regular students, as defined in 34 CFR 600.2, enrolled on
at least a half-time basis who received a loan made under either the
FFEL Program or Direct Loan Program for a 12-month period that has
ended during the six months immediately preceding the fiscal year for
which the cohort of borrowers used to calculate the institution's rate
is determined. An institution that has an FFEL Program cohort default
rate, Direct Loan Program cohort rate, or weighted average cohort rate
that exceeds 40 percent may not appeal its loss of eligibility under
paragraphs (b) (1) or (2) of this section on the basis of its
participation rate index.
(B) For a 12-month period that has ended during the six months
immediately preceding the fiscal year for which the cohort of borrowers
used to calculate the institution's rate is

[[Page 61771]]
determined, 70 percent or more of the institution's regular students,
as defined in 34 CFR 600.2, are individuals from disadvantaged economic
backgrounds, as established by documentary evidence submitted by the
institution. Such evidence must relate to either qualification by those
students for an expected family contribution (EFC) of zero for any
award year that generally coincides with the 12-month period, or
attribution to those students of an adjusted gross income of the
student and his or her parents or spouse, if applicable, reported for
any award year that generally coincides with the 12-month period, of
less than the poverty level, as determined under criteria established
by the Department of Health and Human Services; and,
(1) For a degree-granting institution, 70 percent or more of the
institution's regular students who were initially enrolled on a full-
time basis and were scheduled to complete their programs during the
same 12-month period the institution has chosen to determine the
percentage of its students that come from disadvantaged economic
backgrounds under paragraph (c)(1)(ii)(B) of this section, completed
the educational programs in which they were enrolled. This rate is
calculated by comparing the number of regular students who were
classified as full-time at their initial enrollment in the institution
and were originally scheduled, at the time of enrollment, to complete
their programs within the relevant 12-month period, with the number of
these students who received a degree from the institution; transferred
from the institution to a higher level educational program; or, at the
end of the 12-month period, remained enrolled and were making
satisfactory academic progress toward completion of their educational
programs; or
(2) For a non-degree-granting institution, the institution had a
placement rate of 50 percent or more with respect to its former regular
students who remained in the program beyond the point the students
would have received a 100 percent tuition refund from the institution.
A student or former student may not be considered successfully placed
if the institution is the student's or former student's employer. This
rate is based on those regular students who were initially enrolled on
at least a half-time basis and were originally scheduled, at the time
of enrollment, to complete their educational programs during the same
12-month period the institution has chosen to determine the percentage
of its students that come from disadvantaged economic backgrounds under
paragraph (c)(1)(ii)(B) of this section. This rate does not include
those students who are still enrolled and making satisfactory progress
in the educational programs in which they were originally enrolled on
the date following 12 months after the date of the student's last day
of attendance. This rate is calculated by determining the percentage of
all those former regular students who;
(i) are employed in an occupation for which the institution
provided training on the date following 12 months after the date of
their last day of attendance at the institution; or
(ii) were employed in an occupation for which the institution
provided training for at least 13 weeks before the date following 12
months after the date of their last day of attendance at the
institution.
(2) For purposes of the completion rate and placement rate
described in paragraph (c)(1)(ii)(B) (1) and (2) of this section, a
student is originally scheduled, at the time of enrollment, to complete
the educational program on the date when the student will have been
enrolled in the program for the amount of time normally required to
complete the program. The ``amount of time normally required to
complete the program'' for a student who is initially enrolled full-
time is the period of time specified in the institution's enrollment
contract, catalog, or other materials, for completion of the program by
a full-time student, or the period of time between the original date of
enrollment and the anticipated graduation date appearing on the
student's loan application, if any, whichever is less. The ``amount of
time normally required to complete the program'' for a student who is
initially enrolled less than full-time is the amount of time it would
take that student to complete the program if the student remained
enrolled at that level of enrollment.
(3) The Secretary issues a decision on the institution's appeal
within 45 calendar days after the institution submits a complete appeal
that addresses the applicable criteria in paragraph (c)(1) (i) or (ii)
of this section to the Secretary.
(4) The Secretary's decision is based on the consideration of
written material submitted by the institution. No oral hearing is
provided.
(5) The Secretary withdraws the notification of loss of
participation in the FFEL Program or Direct Loan Program sent to an
institution under paragraph (b) (1) or (2) of this section, if he
determines that the institution's appeal satisfies one of the
exceptional mitigating circumstances specified in paragraph (c)(1) (i)
or (ii) of this section.
(6) An institution must include in its appeal a certification,
under penalty of perjury, by the institution's chief executive officer
that all information provided by the institution in support of its
appeal is true and correct.
(7) An institution that appeals on the grounds that it meets the
exceptional mitigating circumstances criteria contained in paragraph
(c)(1)(ii) of this section must include in its appeal an opinion from
an independent auditor on management's assertions that the information
contained in the appeal is complete, accurate, and determined in
accordance with the requirements of this section. The examination level
engagement will be performed in accordance with Statement on Standards
for Attestation Engagements #3. This opinion must be received by the
Secretary within 60 days following the date the institution receives
notification of its loss of eligibility under paragraph (b) of this
section.
(8) An institution that appeals under paragraph (c)(1)(i) of this
section will not lose its eligibility to continue to participate during
the appeal process due to a guaranty agency's failure to comply with 34
CFR 682.401(b)(14) which requires the agency to respond to an
institution's request for verification of data within 15 working days,
provided the institution:
(i) requested such verification within 10 working days from the
date it received notification of its loss of eligibility under
paragraph (b) of this section; and
(ii) provided a copy of the request for verification of data to the
Secretary at the same time it requested such verification by the
relevant guaranty agency(ies).
(d) FFEL Program Cohort Default Rate. (1)(i) For purposes of the
FFEL Program, except as provided in paragraph (d)(1)(ii) of this
section, the term FFEL Program cohort default rate means--
(A) For any fiscal year in which 30 or more current and former
students at the institution enter repayment on Federal Stafford loans
or Federal SLS loans (or on the portion of a loan made under the
Federal Consolidation Loan Program or Direct Consolidation Loan Program
that is used to repay such loans) received for attendance at the
institution, the percentage of those current and former students who
enter repayment in that fiscal year on those loans who default before
the end of the following fiscal year; or
(B) For any fiscal year in which fewer than 30 of the institution's
current and

[[Page 61772]]
former students enter repayment on Federal Stafford loans or Federal
SLS loans (or on the portion of a loan made under the Federal
Consolidation Loan Program or Direct Consolidation Loan Program that is
used to repay such loans) received for attendance at the institution,
the percentage of those current and former students who entered
repayment on such loans in any of the three most recent fiscal years,
who default before the end of the fiscal year immediately following the
fiscal year in which they entered repayment.
(C) In determining the number of students who default before the
end of that following fiscal year, the Secretary includes only loans
for which the Secretary or a guaranty agency has paid claims for
insurance, and Direct Consolidation Loan Program loans that repaid FFEL
Program loans that entered default.
(ii)(A) In the case of a student who has attended and borrowed at
more than one institution, the student (and his or her subsequent
repayment or default) is attributed to each institution for attendance
at which the student received a loan that entered repayment in the
fiscal year.
(B) A loan on which a payment is made by the institution, its
owner, agent, contractor, employee, or any other affiliated entity or
individual, in order to avoid default by the borrower, is considered as
in default for purposes of this definition.
(C) Any loan that has been rehabilitated under section 428F of the
HEA before the end of that following fiscal year is not considered as
in default for purposes of this definition.
(D) For the purposes of this definition, an SLS loan made in
accordance with section 428A of the HEA (or a loan made under the
Federal Consolidation Loan Program or Direct Consolidation Loan
Program, a portion of which is used to repay a Federal SLS loan) shall
not be considered to enter repayment until after the borrower has
ceased to be enrolled in an educational program leading to a degree,
certificate, or other recognized educational credential at the
participating institution on at least a half-time basis (as determined
by the institution) and ceased to be in a period of forbearance or
deferment based on such enrollment. Each eligible lender of a loan made
under section 428A (or a loan made under the Federal Consolidation Loan
Program, a portion of which is used to repay a Federal SLS loan) of the
HEA shall provide the guaranty agency with the information necessary to
determine when the loan entered repayment for purposes of this
definition, and the guaranty agency shall provide that information to
the Secretary.
(2) Fiscal year means the period from and including October 1 of a
calendar year through and including September 30 of the following
calendar year.
(e) Direct Loan Program cohort rate. (1) For purposes of the Direct
Loan Program, except as provided in paragraph (e)(2) of this section,
the Secretary calculates Direct Loan Program cohort rates using the
following formulas:
(i) For public institutions, private nonprofit institutions, or
proprietary degree-granting institutions--
(A) For any fiscal year in which 30 or more current and former
students at the institution enter repayment on a Direct Loan Program
loan (or on the portion of a loan made under the Federal Direct
Consolidation Loan Program that is used to repay those loans) received
for attendance at the institution, the percentage of those current and
former students who enter repayment in that fiscal year on those loans
who are in default before the end of the following fiscal year; or
(B) For any fiscal year in which fewer than 30 of the institution's
current and former students enter repayment on a Direct Loan Program
loan (or on the portion of a loan made under the Federal Direct
Consolidation Loan Program that is used to repay those loans) received
for attendance at the institution, the percentage of those current and
former students who entered repayment on those loans in any of the
three most recent fiscal years, who are in default before the end of
the fiscal year immediately following the year in which they entered
repayment.
(ii) For proprietary non-degree-granting institutions--
(A) For any fiscal year in which 30 or more current and former
students at the institution enter repayment on a Direct Loan Program
loan (or on the portion of a loan made under the Federal Direct
Consolidation Loan Program that is used to repay those loans) received
for attendance at the institution, the percentage of those current and
former students who enter repayment in that fiscal year on those loans
who are in default before the end of the following fiscal year, or who,
before the end of that following fiscal year, have, for 270 days, been
in repayment under the income-contingent repayment plan with scheduled
payments that are less than 15 dollars per month and those payments
result in negative amortization; or
(B) For any fiscal year in which fewer than 30 of the institution's
current and former students enter repayment on a Direct Loan Program
loan (or on the portion of a loan made under the Federal Direct
Consolidation Loan Program that is used to repay those loans) received
for attendance at the institution, the percentage of those current and
former students who entered repayment on those loans in the three most
recent fiscal years, who are in default before the end of the fiscal
year immediately following the year in which they entered repayment, or
who, before the end of that following fiscal year, have for 270 days,
been in repayment under the income-contingent repayment plan with
scheduled payments that are less than 15 dollars per month and those
payments result in negative amortization.
(2)(i) In the case of a student who has attended and borrowed at
more than one institution, the student (and his or her subsequent
repayment or default) is attributed to each institution for attendance
at which the student received a loan that entered repayment in the
fiscal year.
(ii) A loan on which a payment is made by the institution, its
owner, agent, contractor, employee, or any other affiliated entity or
individual, in order to avoid default by the borrower, is considered as
in default for purposes of this definition.
(iii) Any loan on which the borrower has made 12 consecutive
monthly on-time payments under 34 CFR 685.211(e) before the end of that
following fiscal year is not considered as in default for purposes of
this definition.
(3) For purposes of an institution's Direct Loan cohort rate, a
Direct Loan Program loan is considered in default when the borrower's
or endorser's failure to make an installment payment when due has
persisted for 270 days.
(f)(1) Weighted average cohort rate. For purposes of an institution
that has former students entering repayment in a fiscal year on both
Direct Loan Program and FFEL Program loans, except as provided under
paragraph (f)(2) of this section, the Secretary calculates a weighted
average cohort rate using the following formulas:
(i) For public institutions, private nonprofit institutions, or
proprietary degree-granting institutions--
(A) For any fiscal year in which 30 or more current and former
students at the institution enter repayment on an FFEL Program or
Direct Loan Program loan (or on the portion of a loan made under the
Federal Consolidation Loan Program or Federal Direct Consolidation Loan
Program that is used to repay those loans) received for attendance at
the institution, the percentage of those current and former students
who enter

[[Page 61773]]
repayment in that fiscal year on those loans who are in default before
the end of the following fiscal year; and
(B) For any fiscal year in which fewer than 30 of the institution's
current and former students enter repayment on an FFEL Program or
Direct Loan Program loan (or on the portion of a loan made under the
Federal Consolidation Loan Program or Federal Direct Consolidation Loan
Program that is used to repay such loans) received for attendance at
the institution, the percentage of those current and former students
who entered repayment on such loans in the three most recent fiscal
years, who are in default before the end of the fiscal year immediately
following the year in which they entered repayment.
(ii) For proprietary non-degree-granting institutions--
(A) For any fiscal year in which 30 or more current and former
students at the institution enter repayment on an FFEL Program or
Direct Loan Program loan (or on the portion of a loan made under the
Federal Consolidation Loan or Federal Direct Consolidation Loan Program
that is used to repay those loans) received for attendance at the
institution, the percentage of those current and former students who
enter repayment in that fiscal year on such loans who are in default
before the end of the following fiscal year, or who, before the end of
that following fiscal year, have for 270 days: been in repayment under
the income-contingent repayment plan with scheduled payments that are
less than 15 dollars per month and those payments result in negative
amortization; or
(B) For any fiscal year in which fewer than 30 of the institution's
current and former students enter repayment on an FFEL Program or
Direct Loan Program loan (or on the portion of a loan made under the
Federal Consolidation Loan Program or Federal Direct Consolidation Loan
Program that is used to repay those loans) received for attendance at
the institution, the percentage of those current and former students
who entered repayment on those loans in any of the three most recent
fiscal years, who are in default before the end of the fiscal year
immediately following the year in which they entered repayment, or who,
before the end of that following fiscal year, have for 270 days: been
in repayment under the income-contingent repayment plan with scheduled
payments that are less than 15 dollars per month and those payments
result in negative amortization.
(2)(i) In the case of a student who has attended and borrowed at
more than one institution, the student (and his or her subsequent
repayment or default) is attributed to each institution for attendance
at which the student received a loan that entered repayment in the
fiscal year.
(ii) A loan on which a payment is made by the institution, its
owner, agent, contractor, employee, or any other affiliated entity or
individual, in order to avoid default by the borrower, is considered as
in default for purposes of this definition.
(iii) Any Direct Loan Program loan on which the borrower has made
12 consecutive monthly on-time payments under 34 CFR 685.211(e) or has
an FFEL Program loan that has been rehabilitated under section 428F of
the HEA before the end of that following fiscal year is not considered
as in default for purposes of this definition.
(3) For purposes of an institution's weighted average cohort rate,
a Direct Loan Program loan is considered in default when a borrower's
or endorser's failure to make an installment payment when due has
persisted for 270 days.
(g) Applicability of Rates to Institutions. (1)(i) An FFEL Program
cohort default rate, Direct Loan Program cohort rate, or weighted
average cohort rate of an institution applies to all locations of the
institution as the institution exists on the first day of the fiscal
year for which the rate is calculated.
(ii) An FFEL Program cohort default rate, Direct Loan Program
cohort rate, or weighted average cohort rate of an institution applies
to all locations of the institution from the date the institution is
notified of that rate until the institution is notified by the
Secretary that the rate no longer applies.
(2)(i) For an institution that changes its status from that of a
location of one institution to that of a free-standing institution, the
Secretary determines the FFEL Program cohort default rate, Direct Loan
Program cohort rate, or weighted average cohort rate, based on the
institution's status as of October 1 of the fiscal year for which the
rate is being calculated.
(ii) For an institution that changes its status from that of a
free-standing institution to that of a location of another institution,
the Secretary determines the FFEL Program cohort default rate, Direct
Loan Program cohort rate, or weighted average cohort rate, based on the
combined number of students who enter repayment during the applicable
fiscal year and the combined number of students who default during the
applicable fiscal years from both the former free-standing institution
and the other institution. This rate applies to the new, consolidated
institution and all of its current locations.
(iii) For free-standing institutions that merge to form a new,
consolidated institution, the Secretary determines the FFEL Program
cohort default rate, Direct Loan Program cohort rate, or weighted
average cohort rate based on the combined number of students who enter
repayment during the applicable fiscal year and the combined number of
students who default during the applicable fiscal years from all of the
institutions that are merging. This rate applies to the new
consolidated institution.
(iv) For a location of one institution that becomes a location of
another institution, the Secretary determines the FFEL Program cohort
default rate, Direct Loan Program cohort rate, or weighted average
cohort rate based on the combined number of students who enter
repayment during the applicable fiscal year and the number of students
who default during the applicable fiscal years from both of the
institutions in their entirety, not limited solely to the respective
locations.
3. Section 668.85 is amended by revising paragraph (b)(1)(ii) and
revising paragraph (b)(3) to read as follows:


Sec. 668.85 Suspension proceedings.

* * * * *
(b)(1) * * *
(ii)(A) Specifies the proposed effective date of the suspension,
which is at least 20 days after the date of mailing of the notice of
intent; or
(B) In the case of a suspension action taken due to the
institution's FFEL Program cohort default rate, Direct Loan Program
cohort rate, or, if applicable, weighted average cohort rate, the
proposed effective date of the suspension is no more than 30 days after
the date of the mailing of the notice of intent.
* * * * *
(3) If the institution or servicer requests a hearing by the time
specified in paragraph (b)(1)(iii) of this section, the designated
department official sets the date and place. The date is at least 15
days after the designated department official receives the request. In
the case of a hearing for an institution subject to suspension action
because of its FFEL Program cohort default rate, Direct Loan Program
cohort rate, or, if applicable, weighted average cohort rate, the
hearing is set no later than 20 days after the date the designated
department official receives the request. The suspension does not take
place until after the requested hearing is held.
* * * * *

[[Page 61774]]

4. Section 668.86 is amended by revising paragraph (b)(1)(ii) and
revising paragraph (b)(3) to read as follows:


Sec. 668.86 Limitation or termination proceedings.

* * * * *
(b)(1) * * *
(ii)(A) Specifies the proposed effective date of the limitation or
termination, which is at least 20 days after the date of mailing of the
notice of intent; or
(B) In the case of a limitation or termination action based on an
institution's FFEL Program cohort default rate, Direct Loan Program
cohort rate, or, if applicable, weighted average cohort rate, the
proposed effective date of the termination is no more than 30 days
after the date of the mailing of the notice of intent.
* * * * *
(3) If the institution or servicer requests a hearing by the time
specified in paragraph (b)(1)(iii) of this section, the designated
department official sets the date and place. The date is at least 15
days after the designated department official receives the request. In
the case of a hearing for an institution subject to limitation or
termination action because of its FFEL Program cohort default rate,
Direct Loan Program cohort rate, or, if applicable, weighted average
cohort rate, the hearing is set no later than 20 days after the date
the designated department official receives the request. The limitation
or termination does not take place until after the requested hearing is
held.
* * * * *
5. Section 668.90 is amended by adding a new paragraph
(a)(1)(iii)(D), and revising paragraph (a)(3)(iv) to read as follows:


Sec. 668.90 Initial and final decisions.

* * * * *
(a)(1) * * *
(iii) * * *
(D) For hearings regarding the limitation, suspension, or
termination of an institution based on an institution's FFEL Program
cohort default rate, Direct Loan Program cohort rate, or, if
applicable, weighted average cohort rate, the 30th day after the
conclusion of the hearing.
* * * * *
(3) * * *
(iv) In a limitation, suspension, or termination proceeding
commenced on the grounds described in Sec. 668.17(a) (2) and (3), if
the hearing official finds that an institution's FFEL Program cohort
default rate, Direct Loan Program cohort rate, or, if applicable,
weighted average cohort rate meets the conditions specified in
Sec. 668.17(a) (2) and (3) for initiation of limitation, suspension, or
termination proceedings, the hearing official also finds that the
sanction sought by the designated department official is warranted,
except that the hearing official finds that no sanction is warranted if
the institution presents clear and convincing evidence demonstrating
that the FFEL Program cohort default rate, Direct Loan Program cohort
rate, or weighted average cohort rate on which the proposed action is
based is not the final rate determined by the Department and that the
correct rate would result in the institution having an FFEL Program
cohort default rate, Direct Loan Program cohort rate, or weighted
average cohort rate that is beneath the thresholds that make the
institution subject to limitation, suspension, or termination action.

(Authority:) 20 U.S.C. 1082, 1085, 1094, 1099c.)

[FR Doc. 95-29206 Filed 11-30-95; 8:45 am]
BILLING CODE 4000-01-P



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Last Modified: 06/28/1998