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The Secretary of Education proposes to amend the William D. Ford Federal Direct Loan (Direct Loan) Program regulations. The proposed regulations would apply to loans under the Federal Direct Stafford/Ford Loan (Direct Subsidized Loan) Program, the Federa

FR part
VIII
Attachments:
PublicationDate: 9/20/95
FRPart: VIII
RegPartsAffected:
PageNumbers: 48857-48861
Summary: The Secretary of Education proposes to amend the William D. Ford Federal Direct Loan (Direct Loan) Program regulations. The proposed regulations would apply to loans under the Federal Direct Stafford/Ford Loan (Direct Subsidized Loan) Program, the Federal Direct Unsubsidized Stafford/Ford Loan (Direct Unsubsidized Loan) Program, the Federal Direct PLUS Loan (Direct PLUS Loan) Program, and the Federal Direct Consolidation Loan (Direct Consolidation Loan) Program, collectively referred to as the Direct Loan Program. These proposed regulations would provide schools with more flexibility in performing origination functions, and clarify the date of loan origination. These proposed regulations also would set timelines for the submission of promissory notes, disbursement records, and origination records. Finally, the regulations being proposed would address the repayment plans available for the consolidation of a single Federal Family Education (FFEL) Loan Program loan into the Direct Loan Program.
CommentDueDate: 10/31/95

  
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[


[Federal Register: September 20, 1995 (Volume 60, Number 182)]
[Proposed Rules]
[Page 48857-48861]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr20se95-46]



[[Page 48857]]

_______________________________________________________________________

Part VIII





Department of Education





_______________________________________________________________________



34 CFR Part 685



William D. Ford Federal Direct Loan Program; Proposed Rule


[[Page 48858]]


DEPARTMENT OF EDUCATION

34 CFR Part 685

RIN 1840-AC22


William D. Ford Federal Direct Loan Program

AGENCY: Department of Education.

ACTION: Notice of proposed rulemaking.

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

SUMMARY: The Secretary of Education proposes to amend the William D.
Ford Federal Direct Loan (Direct Loan) Program regulations. The
proposed regulations would apply to loans under the Federal Direct
Stafford/Ford Loan (Direct Subsidized Loan) Program, the Federal Direct
Unsubsidized Stafford/Ford Loan (Direct Unsubsidized Loan) Program, the
Federal Direct PLUS Loan (Direct PLUS Loan) Program, and the Federal
Direct Consolidation Loan (Direct Consolidation Loan) Program,
collectively referred to as the Direct Loan Program. These proposed
regulations would provide schools with more flexibility in performing
origination functions, and clarify the date of loan origination. These
proposed regulations also would set timelines for the submission of
promissory notes, disbursement records, and origination records.
Finally, the regulations being proposed would address the repayment
plans available for the consolidation of a single Federal Family
Education (FFEL) Loan Program loan into the Direct Loan Program.

DATES: Comments on the proposed regulations must be received on or
before October 31, 1995.

ADDRESSES: All comments concerning these proposed regulations should be
addressed to Ms. Katrina Ingalls, U.S. Department of Education, P.O.
Box 23272, Washington, DC 20026-3272. Comments may also be sent via the
internet to: direct-loans@ed.gov.
To ensure that public comments have maximum effect in developing
the final regulations, the Department urges that each comment clearly
identify the specific section or sections of the regulations that the
comment addresses and that comments be in the same order as the
regulations.
Comments that concern information collection requirements must be
sent to the Office of Management and Budget at the address listed in
the Paperwork Reduction Act section of this preamble. A copy of those
comments may also be sent to the Department representative named in the
preceding paragraph.

FOR FURTHER INFORMATION CONTACT: Ms. Katrina Ingalls. 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:

Background

The Secretary proposes to amend the Direct Loan Program regulations
(34 CFR Part 685), to improve the program based on experience gained
during the first year of operation. These regulations propose
programmatic changes that the Secretary believes would improve services
to student and parent borrowers, increase institutional flexibility,
and enhance the Department's administrative and fiscal oversight
capabilities.
The Secretary proposes to revise the current definitions of school
origination option 1, school origination option 2, and standard
origination found in Sec. 685.102 to increase program flexibility for
schools and the Secretary. Under the proposed rules, with the approval
of the Secretary, schools would be permitted to customize the
origination process based on individual needs.
These proposed regulations would also clarify the date on which a
Direct Loan is originated. For schools originating under school
origination option 1 or option 2, the date of loan origination would be
the earlier of: The date the promissory note is printed or the date the
origination record is accepted by the Secretary. For a school that
participates under standard origination, the date of loan origination
would be the date the origination record is accepted by the Secretary.
Beginning with the 1996-1997 loan year, originating schools will be
able to generate a print date on the promissory note. This print date
on the promissory note is a new step intended to establish an
alternative method to document the loan origination date. This change
will increase program flexibility. If a school originates a loan and
prints the promissory note showing the print date and the student's
eligibility changes before the loan origination record is transmitted
to the Secretary, the school may make a disbursement to the borrower
following the late disbursement guidelines. This change promotes
flexibility in processing loans near the end of a student's period of
enrollment.
As a result of administering the program for one year, the
Secretary is convinced that services to borrowers would be
substantially improved by requiring the timely submission of certain
program data by schools to the Direct Loan Servicer. In particular, it
is imperative that borrowers receive disclosure information and loan
servicing information shortly after the loan is disbursed. Further,
Direct PLUS Loan borrowers enter repayment when the loan is fully
disbursed and the Department must receive disbursement information in a
timely manner in order to establish repayment terms. Therefore, in
these regulations, the Secretary proposes to require schools to submit
origination records, promissory notes, and disbursement records (both
initial and subsequent), to the Direct Loan Servicer no later than 30
days following the disbursement of a Direct Loan. Further, this change
would also serve to improve the Department's administrative and fiscal
oversight capabilities of the program.
While program experience now indicates that establishing firm
deadlines for the submission of origination records, promissory notes,
and disbursement records is necessary, the Secretary is sensitive to
the potential need for flexibility in this area. During the first year
of a school's participation in the Direct Loan Program, the school must
make changes to its administrative functions, implement new computer
systems, and become familiar with Direct Loan Program requirements. At
times, the transition to Direct Loans may seem complex to these
schools, particularly in the initial stages of the transition. The
Secretary assures schools that, during their first year of
participation in the Direct Loan Program, these obstacles will be
considered in determining the Secretary's position regarding an
institution's compliance with program regulations. However, the
proposed regulation to require schools to submit origination records,
promissory notes, and initial and subsequent disbursement records to
the Direct Loan Servicer no later than 30 days following the
disbursement of a Direct Loan is particularly critical at the end of
the Federal fiscal year (September 30th). To ensure program integrity
and facilitate audit review, the Secretary will require that all
documents for loans made during a fiscal year be submitted no later
than 30 days following the end of the Federal fiscal year.
The Secretary is proposing to revise the repayment plan regulations
to reflect the Secretary's current operational practice regarding the
repayment plans available to a FFEL Program loan borrower consolidating
only one FFEL Program loan into the Direct Loan Program. Under the
proposed regulations, borrowers who consolidate only one FFEL Program
loan into the

[[Page 48859]]
Direct Loan Program would be required to initially choose a repayment
plan other than the standard repayment plan.
The Secretary is considering establishing requirements for foreign
school participation in the Direct Loan Program. Due to the nature of
the Direct Loan Program, the Secretary believes that additional fiscal
oversight and administrative requirements may be warranted for foreign
schools. The Direct Loan Program is unique among the financial aid
programs with respect to its funds disbursement processes and
requirements. Because there is no authorized limit to the amount of
funds that schools may draw down in the Direct Loan Program, the
Department must rigorously oversee the funds disbursement process. To
prevent potential program abuse, the Secretary is committed to the
careful monitoring of the drawdown of funds to schools and then
disbursement to students. To minimize potential risks to borrowers and
taxpayers, the Secretary is considering additional school participation
requirements for those foreign schools interested in participating in
the Direct Loan Program. Therefore, the Secretary solicits comments and
supporting arguments on what, if any, additional standards should be
established for foreign schools that participate in the Direct Loan
Program. The Secretary invites comments and supporting arguments on the
potential financial risks, as well as benefits of admitting foreign
schools into the Direct Loan Program. Finally, the Secretary requests
comments and supporting statements concerning the potential losses or
benefits to students related to foreign school participation in the
Direct Loan Program.

Proposed Regulatory Changes

The following sections summarize the major changes in this notice
of proposed rulemaking:

Section 685.102 Definitions

School origination option 1, School origination option 2, and
Standard origination: The Secretary proposes to modify the definition
of the specific functions that a school must perform for school
origination option 1, school origination option 2 and standard
origination. While the functions for the three levels would generally
remain unchanged, in certain circumstances schools would have some
flexibility in selecting the functions they would perform. Any request
to modify the functions must be approved by the Secretary. Further, the
regulations would specify that the Secretary has the authority to
modify the functions a school performs to best meet the needs of the
program.

Section 685.201 Obtaining a Loan

Paragraphs (a)(2) and (b) of this section, which describe the
school's responsibility to perform certain functions to process a
Direct Loan, would be modified to provide the flexibility needed by
schools to allow them, with the concurrence of the Secretary, to tailor
the process to accommodate their individual needs.

Section 685.208 Repayment Plans

For purposes of consolidating one FFEL Program loan into a Federal
Direct Consolidation Loan, the Secretary proposes to modify the
available repayment plan options. Borrowers consolidating one FFEL
Program loan would not be permitted to initially choose the standard
repayment plan; however, they could choose the extended, graduated, or
income contingent repayment plan. This proposed change appears in
Sec. 685.208(a)(1) and (2), and Sec. 685.215(h)(2).

Section 685.210 Choice of Repayment Plans

In Sec. 685.210(a), a new paragraph would be added advising the
borrower that the Secretary will designate the extended repayment plan
if a FFEL Program loan borrower consolidating only one FFEL Program
loan into the Direct Loan Program does not select a repayment plan.

Section 685.215 Consolidation

The Secretary proposes that Sec. 685.215(h), which discusses
repayment plans available to borrowers of Direct Consolidation Loans,
be amended by adding a new paragraph. This new paragraph would provide
that, for purposes of consolidating only one FFEL Program loan into a
Federal Direct Consolidation Loan, borrowers may not initially choose
the standard repayment plan.

Section 685.301 Origination of a Loan by a Direct Loan Program School

The Secretary proposes to add a new paragraph to this section to
clarify the date of origination. A school may only originate a loan
while the student meets the borrower eligibility requirements. Through
the origination process, a school certifies a borrower's eligibility
for a loan, the loan amount, and anticipated disbursement dates. The
proposed rule provides that the date of loan origination would be the
earlier of the date that the school prints the promissory note or the
date that the origination record is accepted by the Secretary.
The Secretary also proposes to amend the regulations to require
schools to submit the promissory note, disbursement record (original
and subsequent), and origination record no later than 30 days of the
date of disbursement of loan funds. Requiring the timely submission of
program data would result in improved services to borrowers and would
also enhance the Department's administrative and fiscal oversight
capabilities.

Executive Order 12866

1. Assessment of Costs and Benefits
These proposed regulations have been reviewed in accordance with
Executive Order 12866. Under the terms of the order the Secretary has
assessed the potential costs and benefits of this proposed regulatory
action.
The potential costs associated with the proposed 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. Burdens specifically associated with
information collection requirements, if any, are explained elsewhere in
this preamble under the heading of Paperwork Reduction Act of 1995.
In assessing the potential costs and benefits--both quantitative
and qualitative--of these proposed regulations, the Secretary has
determined that the benefits of the proposed regulations justify the
costs.
The Secretary has also determined that this regulatory action does
not unduly interfere with State, local, and tribal governments in the
exercise of their governmental functions.
To assist the Department in complying with the specific
requirements of Executive Order 12866, the Secretary invites comment on
whether there may be further opportunities to reduce any potential
costs or increase potential benefits resulting from these proposed
regulations without impeding the effective and efficient administration
of the Title IV, HEA programs.
2. Clarity of the Regulations
Executive Order 12866 requires each agency to write regulations
that are easy to understand.
The Secretary invites comments on how to make these regulations
easier to understand, including answers to questions such as the
following: (1) Are the requirements in the regulations

[[Page 48860]]
clearly stated? (2) Do the regulations contain technical terms or other
wording that interferes with their clarity? (3) Does the format of the
regulations (grouping and order of sections, use of headings,
paragraphing, etc.) aid or reduce their clarity? Would the regulations
be easier to understand if they were divided into more (but shorter)
sections? (A ``section'' is preceded by the symbol ``Sec. '' and a
numbered heading; for example, Sec. 685.215 Consolidation.) (4) Is the
description of the proposed regulations in the ``Supplementary
Information'' section of this preamble helpful in the understanding of
the proposed regulations? How could this description be more helpful in
making the proposed regulations easier to understand? (5) What else
could the Department do to make the regulations easier to understand?
A copy of any comments that concern whether these proposed
regulations are easy to understand should also be sent to Stanley
Cohen, Regulations Quality Officer, U.S. Department of Education, 600
Independence Avenue, SW., (Room 5100 FB-10), Washington, DC 20202-2241.

Regulatory Flexibility Act Certification

The Secretary certifies that these proposed regulations would not
have a significant economic impact on a substantial number of small
entities. The small entities that would be affected by these
regulations are institutions of higher education. Certain reporting,
recordkeeping, and compliance requirements are imposed on schools by
the regulations. These requirements, however, would not have a
significant impact on these institutions and would not impose excessive
regulatory burdens or require unnecessary Federal supervision.

Paperwork Reduction Act of 1995

Section 685.301 contains an information collection requirement. As
required by the Paperwork Reduction Act of 1995, (44 U.S.C. 3507(d)),
the Department of Education has submitted a copy of this section to the
Office of Management and Budget (OMB) for its review.
Collection of information: Reporting loan origination and
disbursement records, and submitting promissory notes.
The Department collects information regarding Direct Loan Program
loan origination. These regulations require postsecondary institutions
participating in the Direct Loan Program to submit student and parent
loan origination records, promissory notes, and disbursement records to
the Secretary within 30 days of disbursement. Direct Loan Program loans
are usually made once each academic year to eligible parent and student
borrowers. Promissory notes and origination records are submitted once
for each loan; funds are disbursed in at least two installments. This
Loan origination information is needed to establish that a legally-
enforceable loan exists and to service and collect that loan.
Annual reporting burden for this collection of information is
estimated to average 0.3 burden hours for each of the projected
1,986,857 loans. The total annual reporting burden equals 59,606 hours.
Organizations and individuals desiring to submit comments on the
information collection requirements should direct them to the Office of
Information and Regulatory Affairs, OMB, Room 10235, New Executive
Office Building, Washington, DC 20503; Attention: Desk Officer for U.S.
Department of Education.
The Department considers comments by the public on this proposed
collection of information in--
<bullet> Evaluating whether the proposed collection of information
is necessary for the proper performance of the functions of the
Department, including whether the information will have practical use;
<bullet> Evaluating the accuracy of the Department's estimate of
the burden of the proposed collection of information, including the
validity of the methodology and assumptions used;
<bullet> Enhancing the quality, usefulness, and clarity of the
information to be collected; and
<bullet> Minimizing the burden of the collection of information on
those who are to respond, including through the use of appropriate
automated, electronic, mechanical, or other technological collection
techniques or other forms of information technology; e.g., permitting
electronic submission of responses.
OMB is required to make a decision concerning the collection of
information contained in these proposed regulations between 30 and 60
days after publication of this document in the Federal Register.
Therefore, a comment to OMB is best assured of having its full effect
if OMB receives it within 30 days of publication. This does not affect
the deadline for the public to comment to the Department on the
proposed regulations.

Invitation to Comment

Interested persons are invited to submit comments and
recommendations regarding these proposed regulations. All comments
submitted in response to these proposed regulations will be available
for public inspection, during and after the comment period, in room
3053, Regional Office Building 3, 7th and D Streets, SW., Washington,
DC, between the hours of 8:30 a.m. and 4 p.m., Monday through Friday of
each week except Federal holidays.

Assessment of Educational Impact

The Secretary requests comments on whether the proposed regulations
would require transmission of information that is being gathered by, or
is available from, any other agency or authority of the United States.

List of Subjects in 34 CFR Part 685

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

(Catalog of Federal Domestic Assistance Number: 84.268, William D.
Ford Federal Direct Loan Program)

Dated: September 13, 1995.
Richard W. Riley,
Secretary of Education.
The Secretary proposes to amend part 685 of title 34 of the Code of
Federal Regulations to read as follows:

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

1. The authority citation for part 685 continues to read as
follows:

Authority: 20 U.S.C. 1078a et seq., unless otherwise noted.

2. Section 685.102, paragraph (b) is amended by revising the
definitions of ``School origination option 1,'' ``School origination
option 2,'' and ``Standard origination.''


Sec. 685.102 Definitions.

* * * * *
(b) * * *
School origination option 1: In general, under this status the
school performs the following functions: creates a loan origination
record, transmits the record to the Servicer, prepares the promissory
note, obtains a completed and signed promissory note from a borrower,
transmits the promissory note to the Servicer, receives the funds
electronically, disburses a loan to a borrower, creates a disbursement
record, transmits the disbursement record to the Servicer, and
reconciles on a monthly basis. The Servicer initiates the drawdown of
funds for schools participating in school origination option 1. The
Secretary may

[[Page 48861]]
modify the functions performed by a particular school.
School origination option 2: In general, under this status the
school performs the following functions: creates a loan origination
record, transmits the record to the Servicer, prepares the promissory
note, obtains a completed and signed promissory note from a borrower,
transmits the promissory note to the Servicer, determines funding
needs, initiates the drawdown of funds, receives the funds
electronically, disburses a loan to a borrower, creates a disbursement
record, transmits the disbursement record to the Servicer, and
reconciles on a monthly basis. The Secretary may modify the functions
performed by a particular school.
* * * * *
Standard origination: In general, under this status the school
performs the following functions: creates a loan origination record,
transmits the record to the Secretary, receives funds electronically,
disburses funds, creates a disbursement record, transmits the
disbursement record to the Secretary, and reconciles on a monthly
basis. The Secretary prepares the promissory note, obtains a completed
and signed promissory note from a borrower, and initiates the drawdown
of funds for schools participating in standard origination. The
Secretary may modify the functions performed by a particular school.

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

3. Section 685.201 is amended by revising paragraph
(a)(2)introductory text, and paragraph (b) to read as follows:


Sec. 685.201 Obtaining a loan.

(a) * * *
(2) If the student is eligible for a Direct Subsidized Loan or a
Direct Unsubsidized Loan, the Secretary or the school in which the
student is enrolled shall perform specific functions. Unless a school's
agreement with the Secretary specifies otherwise, the school shall
perform the following functions:
* * * * *
(b) Application for a Direct PLUS Loan. To obtain a Direct PLUS
Loan, the parent shall complete the application and promissory note and
submit it to the school at which the student is enrolled. The school
shall complete its portion of the application and promissory note and
submit it to the Servicer, which makes a determination as to whether
the parent has an adverse credit history. Unless a school's agreement
with the Secretary specifies otherwise, the school shall perform the
following functions: A school participating under school origination
option 2 shall draw down funds and disburse the funds. For a school
participating under school origination option 1 or standard
origination, the Servicer initiates the drawdown of funds, and the
school disburses the funds.
* * * * *
(Authority: 20 U.S.C. 1087 a et seq., 1091a)

4. Section 685.208 is amended by revising paragraphs (a)(1) and
(a)(2) to read as follows:


Sec. 685.208 Repayment plans.

(a) General. (1) Except as provided in Sec. 685.215, a borrower may
repay a Direct Subsidized Loan, a Direct Unsubsidized Loan, a Direct
Subsidized Consolidation Loan, or a Direct Unsubsidized Consolidation
Loan under the standard repayment plan, the extended repayment plan,
the graduated repayment plan, or the income contingent repayment plan.
(2) Except as provided in Sec. 685.215, a borrower may repay a
Direct PLUS Loan or a Direct PLUS Consolidation Loan under the standard
repayment plan, the extended repayment plan, or the graduated repayment
plan.
* * * * *
(Authority: 20 U.S.C. 1087a et seq.)

5. Section 685.210 is amended by revising paragraph (a)(2) and by
adding a new paragraph (a)(3) to read as follows:


Sec. 685.210 Choice of repayment plan.

(a) * * *
(2) If a borrower does not select a repayment plan, the Secretary
designates the standard repayment plan described in Sec. 685.208(b) for
the borrower, unless the borrower is consolidating only one FFEL
Program loan.
(3) If a borrower consolidating only one FFEL Program loan into the
Direct Loan Program does not initially select a repayment plan offered
by the Secretary, the Secretary will designate the extended repayment
plan described in Sec. 685.208(c) for the borrower.
* * * * *
(Authority: 20 U.S.C. 1087a et seq.)

6. Section 685.215 is amended by revising paragraph (h)(1),
redesignating paragraph (h)(2) as paragraph (h)(3) and adding a new
paragraph (h)(2) to read as follows:


Sec. 685.215 Consolidation.

* * * * *
(h) * * *
(1) A borrower may not repay a Direct PLUS Consolidation Loan under
the income contingent repayment plan;
(2) A borrower consolidating only one FFEL Program loan into the
Direct Loan Program may not initially select the standard repayment
plan (described in Sec. 685.208(b).
* * * * *
7. Section 685.301 is amended by redesignating paragraphs (a)(5)
and (a)(6) as paragraph (a)(6)and (a)(7), respectively, adding a new
paragraph (a)(5) and by adding a new paragraph (d) to read as follows:


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

(a) * * *
(5) The date of loan origination is the earlier of--
(i) The date the promissory note is printed; or
(ii) The date the origination record is accepted by the Secretary.
* * * * *
(d) Reporting to the Secretary. (1) A school that originates a loan
must submit the promissory note, loan origination record, and initial
and subsequent disbursement record to the Secretary no later than 30
days following the date of disbursement. A school must submit the loan
origination record and disbursement record to the Secretary no later
than 30 days following the date of disbursement for each subsequent
disbursement.
(2) A school that participates under standard origination must
submit the initial and subsequent disbursement record to the Secretary
no later than 30 days following the date of disbursement. A school must
submit the disbursement record to the Secretary no later than 30 days
following the date of disbursement for each subsequent disbursement.

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

[FR Doc. 95-23300 Filed 9-19-95; 8:45 am]
BILLING CODE 4000-01-P



]

Last Modified: 06/28/1998