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The Secretary proposes to amend the Student Assistance General Provisions (General Provisions) regulations. The General Provisions regulations govern elements common to all the Federal Student Financial Aid programs authorized by Title IV of the Higher E

FR part
XIV
Attachments:
PublicationDate: 9/21/95
FRPart: XIV
RegPartsAffected:
PageNumbers: 49177-49191
Summary: The Secretary proposes to amend the Student Assistance General Provisions (General Provisions) regulations. The General Provisions regulations govern elements common to all 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 would 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 would streamline the Secretary's ability to take limitation, suspension, and termination (L,S, and T) action against an institution and would 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: 10/31/95

  
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[


[Federal Register: September 21, 1995 (Volume 60, Number 183)]
[Proposed Rules ]
[Page 49177-49191]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21se95-47]



[[Page 49177]]

_______________________________________________________________________

Part XIV





Department of Education





_______________________________________________________________________



34 CFR Part 668



Student Assistance General Provisions; Proposed Rule


[[Page 49178]]


DEPARTMENT OF EDUCATION

34 CFR Part 668

RIN 1840-AC17


Student Assistance General Provisions

AGENCY: Department of Education.

ACTION: Notice of proposed rulemaking.

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

SUMMARY: The Secretary proposes to amend the Student Assistance General
Provisions (General Provisions) regulations. The General Provisions
regulations govern elements common to all 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
would 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 would streamline the Secretary's ability to
take limitation, suspension, and termination (L,S, and T) action
against an institution and would 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.

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

ADDRESSES: All comments concerning these proposed regulations should be
addressed to Mr. Douglas Laine, Program Specialist, Direct Loan Policy
Group, Policy Development Division, U.S. Department of Education, P.O.
Box 23272, Washington, DC 20026-3272. Comments may also be sent through
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: 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:

Background

The Secretary is proposing to revise 34 CFR part 668 to enhance the
Secretary's FFEL Program default reduction initiative and provide
additional default prevention measures in the Direct Loan Program. The
Secretary first published regulations to begin the FFEL Program default
reduction initiative on June 5, 1989. This gave the Department the
authority to take action to limit, suspend or terminate an
institution's participation in the Title IV programs based on a high
FFEL Program cohort default rate. The June 5, 1989 regulations provided
that the Department may take L, S, and T action against an institution
if it has an FFEL Program cohort default rate that exceeds 40 percent.
On July 19, 1991, the Secretary further expanded the default
reduction initiative to reflect new legislation that made an
institution ineligible to participate in the FFEL Program if that
institution had a high FFEL Program cohort default rate for three
consecutive years, unless the institution could demonstrate to the
Secretary that exceptional mitigating circumstances would make the loss
of eligibility inequitable. Currently, under that legislation, an
institution is subject to the loss of eligibility if it has an FFEL
Program cohort default rate that equals or exceeds 25 percent for three
consecutive fiscal years. Under the exceptional mitigating
circumstances criteria in the Department's regulations, an institution
may appeal this loss of eligibility if it can demonstrate to the
satisfaction of the Secretary that it has a completion and placement
rate of at least 66.6 percent, and either less than 15 percent of its
students borrow under the FFEL Program or at least 66.6 percent of its
students come from economically disadvantaged backgrounds.
The Direct Loan Program was authorized by the Omnibus Budget
Reconciliation Act of 1993 (Pub. L. 103-66) with the first loans made
in July 1994. When the Direct Loan Program was authorized, the statute
mandating the calculation of FFEL Program cohort default rates was not
revised to include Direct Loan Program loans. Moreover, the statute
authorizing the Direct Loan Program does not specifically require the
Secretary to calculate a similar rate for institutions that participate
in the Direct Loan Program or contain a specific provision under which
an institution would lose its eligibility to participate in the Direct
Loan Program based on a default rate. The Secretary has determined,
however, that it is appropriate to establish a measurement similar to
the FFEL cohort default rate in the Direct Loan Program. Therefore, the
Secretary is proposing in regulations 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 similar
institutional eligibility requirements based on the repayment of Direct
Loans by the institution's former students. The Secretary is proposing
this change because FFEL Program cohort default rates have been a
useful measure of institutional performance and have provided the
Secretary an effective means to reduce defaults by removing high
default institutions from participation in the FFEL Program. The
potential loss of eligibility to participate in the FFEL Program based
on high FFEL Program cohort default rates provides a powerful incentive
for institutions to keep their FFEL Program cohort default rates low.
This has resulted in increased protection for students and taxpayers,
and has improved the integrity of the FFEL Program.
As in the FFEL Program, the Secretary proposes that exceptional
mitigating circumstances be taken into consideration in determining
whether an institution may continue to participate in the Direct Loan
Program on the basis of its cohort rate. Further, the Secretary is
proposing to modify the regulations for the FFEL Program to simplify
the cohort default rate appeal process and to establish fair and
reasonable measures for exceptional mitigating circumstances, while
reducing the substantial burden on institutions and the Department that
exists under the current regulations. Exceptional mitigating
circumstances under the Direct Loan and FFEL Programs would be the
same.
Finally, to make the L, S, and T process more effective, the
Secretary is proposing to streamline the current L, S, and T procedures
and to limit the grounds on which the institution may appeal when the
L, S, or T action is warranted by high default rates. The current L, S,
and T procedures are exceedingly lengthy and have not effectively
protected students and Federal taxpayers from institutions

[[Page 49179]]
whose high FFEL Program cohort default rates are evidence of abuse of
the Title IV programs. Additionally, the Secretary is proposing to
prescribe timeframes that would reduce the amount of time an L, S, and
T action would take to complete. Finally, the Secretary is proposing to
remove the ``Appendix D defense'' which contains measures for an
institution to follow to help the institution to reduce its cohort
default rate. The Secretary believes that the measures included in the
Appendix D defense, while effective for helping an institution reduce
its default rate, do not support the continuation of a high FFEL
Program cohort default rate institution's participation in the Title IV
programs. The Secretary is proposing that the only means by which an
institution may successfully appeal an L, S, and T action against its
participation in the Title IV programs is to demonstrate to the hearing
officer that its FFEL Program cohort default rate, Direct Loan Program
cohort rate, or if applicable, weighted average cohort rate, is
inaccurate, and that a correct recalculation of the rate would result
in the institution having a rate that is beneath the thresholds that
make the institution subject to L, S, and T action.

Proposed Regulatory Changes

Due to the complex nature of these proposed regulations, a chart is
provided in each major section of the preamble that provides an
overview of the proposed changes.

Section 668.17 Default Reduction and Prevention Measures

L, S, and T Authority. The proposed regulations would provide the
Secretary with the authority to take L, S, and T action against an
institution if it has an FFEL Program cohort default rate, a Direct
Loan Program cohort rate, or, if applicable, a weighted average cohort
rate that is greater than 40 percent for a fiscal year. The Secretary
is proposing this 40 percent threshold to make his authority to take L,
S, and T action against an institution participating in the Direct Loan
Program comparable with such authority under the FFEL Program.
The proposed regulations would also provide the Secretary with the
authority to take L, S, and T action against an institution's
participation in the FFEL Program if it has any combination of an FFEL
Program cohort default rate, Direct Loan Program cohort rate, or, if
applicable, a weighted average cohort rate that equals or exceeds 25
percent for three consecutive fiscal years. Having a combination of
these rates for three consecutive fiscal years is analogous to having
FFEL Program cohort default rates that exceed the thresholds for three
consecutive years. The Secretary is proposing this measure to prevent
an institution that would not be eligible to participate in the Direct
Loan Program based on consecutively high Direct Loan Program cohort
rates or weighted average cohort rates from participating in the FFEL
Program. The Secretary believes that this action is consistent with the
statutory requirement that institutions with consecutively high default
rates lose their eligibility to participate in the FFEL Program.

Action Taken Against Schools by Type of Rate
----------------------------------------------------------------------------------------------------------------
Type of rate Direct loan program schools FFEL program schools
----------------------------------------------------------------------------------------------------------------
40+ percent FFEL Program cohort default rate, L, S, and T for Title IV..... L, S, and T for Title IV.
Direct Loan Program cohort rate, or weighted
average cohort rate for one year.
25 percent or greater Direct Loan Program cohort Loss of eligibility for L, S, and T for FFEL Program.
rate for three consecutive years. Direct Loan Program.
25 percent or greater weighted average cohort rate Loss of eligibility for L, S, and T for FFEL Program.
for three consecutive years. Direct Loan Program.
----------------------------------------------------------------------------------------------------------------

Direct Loan Program cohort rate and weighted average cohort rate.
The Secretary proposes to calculate a Direct Loan Program cohort rate
or weighted average cohort rate to use as a measure to determine if an
institution should remain eligible to participate in the Direct Loan
Program. The Secretary is proposing to use different formulas to
calculate these rates for different sectors of institutions.
For a public institution, private nonprofit institution, or degree-
granting proprietary institution, the Secretary proposes to calculate a
Direct Loan Program cohort rate or weighted average cohort rate based
on the number of an institution's current and former students who enter
repayment on a Direct Loan in a fiscal year and who, by the end of the
following fiscal year, are in default on those loans. This is the same
formula the Secretary is required by section 435(a) of the HEA to use
to calculate cohort default rates under the FFEL Program.
For non-degree-granting proprietary institutions, the Secretary is
proposing to calculate Direct Loan Program cohort rates or weighted
average cohort rates based on the percentage of students who enter
repayment in a fiscal year and who, by the end of the following fiscal
year, are either in default or are in repayment under the income
contingent repayment (ICR) plan, and have scheduled monthly payments
that are less than $15 per month, and that payment is less than the
interest that is accruing on the loan (i.e., in negative amortization).
If there are both FFEL Program and Direct Loan Program loans
entering repayment in the institution's cohort, the Secretary will
calculate a weighted average cohort rate for the institution. As in the
FFEL Program, the Secretary will base the Direct Loan Program cohort
rate or weighted average cohort rate on borrowers, not loans. For
example, if a student enters repayment on both FFEL Program and Direct
Loan Program loans so as to be in the same cohort, the student will be
counted only once in the calculation used to calculate the rate.
However, an institution will continue to have an FFEL Program cohort
default rate as long as it has former students entering repayment on
FFEL Program loans. Such an institution will continue to be subject to
loss of eligibility to participate in the FFEL Program or be subject to
L, S, and T action based on its FFEL Program cohort default rate.
A ``weighted average'' cohort rate is calculated by taking the
percentage of students who entered repayment on FFEL Program and Direct
Loan Program loans in a fiscal year received for attendance at the
institution (or on the portion of a loan made under the Federal Direct
Consolidation Loan or Federal Consolidation Loan Programs that is used
to repay those loans), who are in default before the end of the fiscal
year immediately following the year in which they entered repayment,
and, for non-degree-granting institutions, are in repayment under the
income contingent

[[Page 49180]]
repayment plan at the end of that following fiscal year and have
scheduled payments that are less than $15 per month and that payment
results in negative amortization.

Borrowers Included in Types of Rates
----------------------------------------------------------------------------------------------------------------
Type of institution Type of rate Defaulted borrowers ICR component
----------------------------------------------------------------------------------------------------------------
Public, private-nonprofit, and FFEL Program Cohort Default Rate. Yes................. No.
degree-granting proprietary
institutions.
Direct Loan Program Cohort Rate.. Yes................. No.
Weighted Average Cohort Rate..... Yes................. No.
Non-Degree-Granting Proprietary FFEL Program Cohort Default Rate. Yes................. No.
Institutions.
Direct Loan Program Cohort Rate.. Yes................. Yes.
Weighted Average Cohort Rate..... Yes................. Yes.
----------------------------------------------------------------------------------------------------------------

If an institution has less than 30 former students entering
repayment in a fiscal year on Direct Loan and FFEL Program loans
received at that institution, the Secretary will calculate the
institution's Direct Loan Program cohort rate or weighted average
cohort rate for that fiscal year based on the institution's former
students who enter repayment on their Direct Loans or FFEL Program
loans over the three most recent fiscal years.
A loan will be considered in default for purposes of a Direct Loan
Program cohort rate or weighted average cohort rate for all
institutions if a borrower or endorser has failed to make an
installment payment when due provided that this failure has persisted
for 270 days. The Secretary has chosen 270 days because this closely
approximates the date a default claim is paid under the FFEL Program.
The date a default claim is paid by a guaranty agency is used as the
date the loan defaults for FFEL Program cohort default rates. A loan
will not be considered in default if, after going into default, the
borrower has made 12 consecutive on-time monthly payments under 34 CFR
685.211(e) on the loan before the end of the fiscal year following the
fiscal year the loan entered repayment.
The Secretary has chosen to include a minimum payment component in
defining the Direct Loan Program cohort rate and weighted average
cohort rate for non-degree-granting proprietary institutions for
several reasons. The Secretary believes that this is an appropriate
performance-based measure to assess a borrower's ability to repay a
student loan and the 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 its former students are only making minimal payments on their
loans. The Secretary believes that this measure is needed to prevent an
institution from effectively avoiding the effects of its failure to
provide appropriate training by encouraging its students to repay their
loans under the ICR plan. Under the ICR plan, a borrower with a low
income may have scheduled monthly payments that are very low or zero.
The $15 payment rate was chosen because it is the approximate amount a
borrower would have to pay if his or her income is at the poverty level
as determined by the Department of Health and Human Services. The
Secretary believes that if a sufficient proportion of borrower incomes
is so low that the scheduled monthly payments for those borrowers under
the ICR program are less than $15 per month and those payment amounts
result in negative amortization, this is generally evidence that the
institution has not provided those borrowers with the education or
training needed to obtain gainful employment that can provide the
borrowers with sufficient incomes to repay the student loans incurred
to attend the institution. The Secretary believes that such loans would
likely go into default if the ICR plan were not available. The negative
amortization factor was included with the $15 dollar payment in order
to exclude from the default calculation borrowers with incomes much
higher than the poverty level who have small debts. The Secretary is
proposing to use the minimum payment rate for non-degree-granting
proprietary institutions because these institutions are in business to
provide students with education or training needed to secure
employment. A borrower's repayment schedule under the ICR plan will
directly reflect the value of the education or training provided by the
institution in the marketplace. Further, the former student borrowers
of non-degree-granting proprietary institutions are at the highest risk
of default among all the sectors of institutions and the Secretary
believes that for this reason, the use of the ICR plan by former
students of these institutions be closely monitored.
The Secretary invites public comment regarding the use of the
minimum payment under the ICR plan that may be used for the Direct Loan
Program cohort rate for certain sectors of institutions. In addition,
the Secretary is interested in knowing if the public believes the
Secretary should implement measures to prevent an institution from
evading the proposed rules under which a Direct Loan Program cohort
rate and weighted average cohort rate are calculated for non-degree-
granting proprietary institutions if such an institution switched to a
non-profit status. The Secretary is also interested in receiving public
comment regarding other possible measures that may be used to determine
if an institution should be able to continue to participate in the
Direct Loan Program or FFEL Program. The Secretary is especially
interested in public comment on the following possible alternative
measures to determine if an institution should continue to participate
in the Direct Loan Program: (1) A percentage of Direct Loan borrowers
paying under the ICR plan whose scheduled payments are less than the
amount of interest that accrues monthly on their loans, i.e., in
negative amortization, and (2) a percentage of the institution's former
students who are making payments under the ICR plan whose income is
less than a certain amount, such as $15,000 (because income is a major
factor in calculating monthly payments under the ICR plan).
The Secretary is also interested in public comment regarding a
measure for borrowers for whom payment has been deferred for an
extended period of time under the economic hardship or

[[Page 49181]]
unemployment deferment or forbearance. The Secretary is considering
using such a measurement to trigger L, S, and T action against an
institution participating in the FFEL and Direct Loan programs if a
high percentage of its former students have forborne repayment on their
loans or have deferred repayment on their loans for an extended period
of time because of unemployment or economic hardship. Similar to the
Secretary's concern that institutions may attempt to evade the
consequences of a high Direct Loan Program cohort rate or weighted
average cohort rate by encouraging students to use the ICR plan, the
Secretary is concerned that institutions are evading the consequences
of a high FFEL Program cohort default rate by encouraging and assisting
a high percentage of their former students to obtain deferments or
forbearance solely for the purpose of keeping their loans out of
default until the period the Department uses to calculate FFEL Program
cohort default rate has elapsed. Because a deferment or forbearance
generally lasts for one year, an institution generally needs to assist
a former student to obtain only one deferment or forbearance to ensure
that the former student does not default during the period the
Department uses to calculate the FFEL Program cohort default rate.
Finally, the Secretary specifically requests comment regarding how a
borrower who has a scheduled ICR payment of less than $15 and who would
qualify for the economic hardship deferment should be treated in the
Direct Loan Program cohort rate or weighted average cohort rate
calculation.
Loss of eligibility to continue to participate in the Direct Loan
Program. An institution with any combination of an FFEL Program cohort
default rate, a Direct Loan Program cohort rate, or a weighted average
cohort rate calculated by the Secretary that is equal to or greater
than 25 percent for three consecutive fiscal years would cease to be
eligible to participate in the Direct Loan Program beginning 30 days
from the date it receives notification of the loss of eligibility
unless it can demonstrate to the satisfaction of the Secretary that
exceptional mitigating circumstances would make the loss of eligibility
inequitable. The Secretary will place such an institution on
reimbursement until the 30th day following the institution's receipt of
the notification of the loss of eligibility or, if the institution
appeals, until the appeal is decided. Once the institution's appeal is
decided, the Secretary will take the institution off reimbursement only
if the appeal is successful. If the appeal is denied, the institution
will not be eligible to participate in the Direct Loan Program for the
remainder of the current fiscal year plus the following two fiscal
years.

Eligibility Status of Institutions With High Rates
----------------------------------------------------------------------------------------------------------------
Type of rate Direct loan program FFEL program
----------------------------------------------------------------------------------------------------------------
25 percent or greater FFEL Program cohort default Loss of eligibility for Loss of eligibility for the
rate for three consecutive years. Direct Loan Program. FFEL Program.
25 percent or greater Direct Loan Program cohort Loss of eligibility for L,S, and T for FFEL Program
rate for three consecutive years. Direct Loan Program. only.
25 percent or greater weighted average cohort rate Loss of eligibility for L,S, and T for FFEL Program
for three consecutive years. Direct Loan Program. only.
----------------------------------------------------------------------------------------------------------------

The Secretary has chosen to eliminate institutions from the Direct
Loan Program based on high cohort rates for several reasons. First, the
Secretary believes it is imperative that institutions that would have
high FFEL Program cohort default rates not be able to evade the
consequences of that rate by participating in the Direct Loan Program,
which currently has no default rate definition. Second, the Secretary
is firmly committed to protecting students and Federal taxpayers from
unscrupulous institutions that participate heavily in the loan programs
but do not provide quality educational services to their students. The
sanctions the Secretary is authorized to impose under the HEA and
regulations on institutions that participate in the FFEL Program have
proven to be a successful way to protect students, the Federal
taxpayer, and the integrity of the loan programs. Therefore, the
Secretary is proposing these regulations to provide him with the
authority to take similar actions against institutions that have a high
percentage of students that do not repay their Direct Loan Program
loans.
The Secretary does not have the authority to amend or add to the
definition of the FFEL Program cohort default rate because that
definition is specifically mandated in statute. The Secretary is,
therefore, prohibited from adding to the FFEL Program cohort default
rate a component that measures a minimum payment amount. The Secretary
also does not have the authority to immediately terminate an
institution's eligibility to participate 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 years. This means
that an institution could have an FFEL Program cohort default rate of
25 percent or more for two years and a Direct Loan Program cohort rate
of 25 percent for one year and remain eligible for the FFEL Program
after it has lost its eligibility to participate in the Direct Loan
Program. In this case, the Secretary will take L, S, and T action
against the institution's participation in the FFEL Program.
Under these proposed rules, if an institution's former students
enter repayment under both the FFEL Program and the Direct Loan Program
in a fiscal year, the Secretary would calculate a weighted average
cohort rate to determine if an institution would lose its eligibility
to participate in the Direct Loan Program. The Secretary will continue
to use only FFEL Program loans to calculate an FFEL Program cohort
default rate for that institution which will trigger a statutory loss
of eligibility to participate in the FFEL Program. True equity between
the Direct Loan and FFEL programs on this issue would require a
statutory change that gives the Secretary authority to establish, in
regulations, institutional eligibility requirements for the FFEL
Program similar to the statutory authority for the Direct Loan Program,
thus allowing him to move quickly to terminate any institution's
participation in the FFEL Program when that institution's FFEL Program
cohort default rate, Direct Loan cohort rate, or weighted average
cohort rate warrants an action. The loss of eligibility provision in
section 435 (a) of the HEA does not authorize the Secretary to make an
institution ineligible to participate in the FFEL Program if it has
Direct Loan Program cohort rates or weighted average cohort rates that
exceed 25 percent for three consecutive years. However, under these
regulations, the

[[Page 49182]]
Secretary will consider excessive Direct Loan Program cohort rates or
weighted average cohort rates as a basis to take L, S, and T action
against an institution's participation in the FFEL Program.
In addition to establishing this strict eligibility requirement
under the Direct Loan Program, the Secretary will provide Direct Loan
institutions with certain tools to help manage and reduce their Direct
Loan Program cohort default rates. While the Secretary believes that
the repayment plans available under the Direct Loan Program, coupled
with the frequent borrower contact maintained by the Department's loan
servicing efforts, will result in fewer defaults than in the FFEL
Program, the Secretary is committed to developing, and making available
to institutions, tools that will enable them to work effectively with
borrowers to prevent defaults. These tools will include reports on
delinquent borrowers, access to borrower information on the toll-free
servicing telephone number, and free loan counseling materials for use
during both entrance and exit interviews with borrowers. The Secretary
invites public comment on the types and frequency of assistance that
institutions need to help prevent Direct Loan defaults.
Exceptional Mitigating Circumstances. The Secretary proposes to
modify the exceptional mitigating circumstances and the appeal process
under which an institution may appeal the statutory loss of its
eligibility to participate in the FFEL Program and the proposed loss of
its eligibility to participate in the Direct Loan Program. Exceptional
mitigating circumstances would be the same for both the Direct Loan and
FFEL Programs. The Secretary believes that the current standards for
exceptional mitigating circumstances are burdensome on an institution
and administratively difficult for the Department to administer. For
these reasons, the Secretary is proposing to change the exceptional
mitigating circumstances and require that any appeal based on an
exceptional mitigating circumstance be verified by an independent
auditor prior to its submission to the Secretary. Under the proposed
rules, any of the following criteria may be used as exceptional
mitigating circumstances:

Exceptional Mitigating Circumstances

1. Participation Rate Index equal to or less than 0.0375 (Rate
times percentage of students participating in the FFEL or Direct Loan
programs)
2. 70 percent or greater completion rate and 70 percent or more
students come from economically disadvantaged backgrounds, for public
or private-nonprofit institutions.
3. 50 percent or greater placement rate and 70 percent or more
students come from economically disadvantaged backgrounds, for
proprietary institutions.
<bullet> Participation rate index: The participation rate index is
a new criterion based on an institution's FFEL Program cohort default
rate, Direct Loan Program cohort rate, or weighted average cohort rate
and the percent of an institution's students who were enrolled on at
least a half-time basis that borrow under the FFEL or Direct Loan
programs. This rate would be calculated by multiplying the
institution's FFEL Program cohort default rate, Direct Loan Program
cohort rate, or, if applicable, its weighted average cohort rate by the
percent of the institution's students who were enrolled on at least a
half-time basis that borrowed under that loan program during a 12-month
period that ended during the six months immediately preceding the
fiscal year used to determine the cohort of borrowers for the
institution's rate. If this product is equal to or less than 0.0375,
the institution would meet an exceptional mitigating circumstance. The
Secretary has chosen 0.0375 as the participation rate index standard
because, under the current mitigating circumstances, a borrower
participation rate of 15 percent or less is acceptable as part of one
of the exceptional mitigating circumstances. A cohort default rate of
25 percent for three consecutive years was the minimum rate that would
trigger loss of eligibility. The Secretary has formulated the 0.0375
participation rate index criterion based on these percentages;
0.25 x 0.15=0.0375. Therefore the Secretary is proposing to use 0.0375
as the index.
For example, under this formula, an institution with an FFEL
Program cohort default rate of 28 percent and a student borrower
participation rate of 13 percent would be able to continue to
participate in the FFEL program because 0.28 x 0.13=0.0364, which is
less than 0.0375. The participation rate index criterion may be used by
any institution that has an FFEL Program cohort default rate, Direct
Loan Program cohort rate, or, if applicable, a weighted average cohort
rate of less than 40 percent for the most recent fiscal year. In order
to appeal under this criterion, an institution would only need to
submit to the Secretary a statement certifying the number of its
students who were enrolled on at least a half-time basis during a 12-
month period that has ended during the six months immediately preceding
the fiscal year used to determine the cohort of borrowers for the
institution's borrower participation rate, and the number of those
students that borrowed under the FFEL Program or Direct Loan Program,
along with identifying information for those borrowers so they may be
verified by the Secretary. In particular, the institution would need to
provide the Secretary with the name, address, and social security
number of each of those students. This will help the Department to
verify this information through the National Student Loan Data System.
<bullet> Economically disadvantaged background rate and completion
or placement rate: This exceptional mitigating circumstance criterion
is derived from the current criteria which use completion rates,
placement rates and the percent of the institution's students from
economically disadvantaged backgrounds. Under this proposed rule, an
institution would meet this exceptional mitigating circumstance if it
can demonstrate that 70 percent or more of its student population, over
a 12-month period that ended during the six months immediately
preceding the fiscal year used to determine the cohort of borrowers for
the institution's FFEL Program cohort default rate, Direct Loan Program
cohort rate, or weighted average cohort rate, came from an economically
disadvantaged background, and either:
(1) For a public or private nonprofit institution, 70 percent of
its students who were enrolled on at least a half-time basis, and were
originally scheduled to complete their programs during a 12-month
period that has ended during the six months immediately preceding the
fiscal year used to determine the cohort of borrowers in the
institution's rate, have completed their programs; or
(2) For a proprietary institution, 50 percent of its students
originally scheduled to complete the programs during a 12-month period
that has ended during the six months immediately preceding the fiscal
year used to determine the cohort of borrowers used to calculate the
institution's rate are currently employed, or were employed for at
least 13 weeks, in an occupation related to the training they received,
or are enrolled in a higher level educational program at another
institution, or were enrolled such an institution for at least 13
weeks, for which the appealing institution's educational program
provided substantial preparation.
For purposes of the completion rate and placement rate, a student
is originally scheduled, at the time of

[[Page 49183]]
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'' 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 date of enrollment and the anticipated
graduation date appearing on the student's loan application, if any,
whichever is less.
For purposes of the completion rate, a student is considered to
have completed the program if the student received a degree,
certificate, or other recognized educational credential from the
institution, transferred to a higher level educational program at
another institution, or remained enrolled and was making satisfactory
academic progress toward completion of the educational program.
The Secretary has chosen a 50 percent placement rate based on the
completion rate and placement rate standards that are used to determine
if certain programs are eligible for purposes of the FFEL Program. See
section 481(e) of the HEA. This section mandates that such a program
have a verified completion rate of at least 70 percent and a verified
placement rate of 70 percent. The 50 percent threshold is derived from
these two percentages. If an institution has a 70 percent completion
rate and 70 percent of those students obtain employment in a relevant
occupation, the institution will have a 49 percent placement rate under
the proposed placement rate. The Secretary has chosen 50 percent
because he believes an institution should exceed this threshold to be
considered under an exceptional mitigating circumstance.
For purposes of the placement rate, a former student is considered
placed if the student is employed or had been employed for at least 13
weeks following his or her last day of attendance at the institution,
or enrolled in a higher level educational program at another
institution for which the appealing institution's educational program
provided substantial preparation.
The Secretary is proposing to remove the 15 percent or less student
loan borrower rate as well as the 66.6 percent completion rate and 66.6
placement rate as an exceptional mitigating circumstance. In place of
the loan borrower rate, the Secretary is proposing to add the
participation rate index criterion because he believes that, when an
institution has such a small percent of its students borrow under the
Direct Loan or FFEL Programs, borrower behavior may not reflect the
quality of education at the institution. An appeal under this criterion
is limited to institutions that have a Direct Loan Program cohort rate,
an FFEL Program cohort default rate, or, if applicable, a weighted
average cohort rate, that is less than 40 percent for a fiscal year.
When more than 40 percent of all students at an institution are not
repaying their loans, even if this percentage is based on a small
proportion of the student body, the Secretary considers the institution
to represent a significant financial risk for the taxpayers. Further,
the Secretary believes that future student borrowers at the institution
should be protected from the risks associated with borrowing Federal
loans to pay for attending the institution.
Under the current exceptional mitigating circumstances, an
institution can appeal if it has a completion rate of 66.6 percent or
more, a placement rate of 66.6 percent or more, and if 66.6 percent or
more of its students came from an economically disadvantaged
background. The proposed regulations would make an appeal less
burdensome to institutions because it would examine the completion,
placement, and economically disadvantaged rates of the institution's
former students over a shorter period of time. These modifications will
also make the students who are included in the completion, placement
and economically disadvantaged rates more representative of the
borrowers included in the cohort used to determine the institution's
FFEL Program cohort default rate, Direct Loan Program cohort rate, or
weighted average cohort rate. Although the formula used for calculating
the completion rate and student population from economically
disadvantaged backgrounds is essentially the same, the institution
would only need to review students who attended the institution (or for
the completion rate, those students who were scheduled to complete
their programs), during the 12-month period that preceded the fiscal
year used to determine the cohort for the institution's FFEL Program
cohort default rate, Direct Loan Program cohort rate, or weighted
average cohort rate. The current regulations require an institution to
review students over a 24-month period.
The Secretary is also proposing to modify the placement rate
criterion for appeals to make it available only to proprietary
institutions of higher education. The proposed placement rate will be
measured by using the percent of the institution's former students who
were scheduled to complete their programs, during a 12-month period
that ended during the six months immediately preceding the fiscal year
used to determine the cohort of borrowers for the institution's FFEL
Program cohort default rate, Direct Loan Program cohort rate, or
weighted average cohort rate, who either received a job in an
occupation related to the training they received for at least 13 weeks
or transferred to a higher level educational program. The current
regulations base the placement rate on only those students who complete
their educational programs in a recent 24-month period chosen by the
institution. The Secretary has decided to use the students who were
scheduled to graduate during the 12-month period preceding the fiscal
year in which the cohort is determined for the institution's rate
because it will be more representative of the former students in that
cohort. The Secretary also believes that the calculation of a
completion rate in this fashion is more equitable for proprietary
institutions because students receiving training to obtain employment
in a particular field may gain such employment before they complete
their programs.
The Secretary is also proposing to revise the appeal procedures to
make them easier for the institutions as well as the Department to
manage while maintaining program integrity to ensure speedy resolution
of appeals. Under the current appeal process, to remain eligible to
participate in the FFEL Program during an appeal process, an
institution is required to notify the Secretary within seven days
following its receipt of its notification of the loss of eligibility
that it intends to appeal the loss. The institution must then submit
all the required information to support its appeal within 30 calendar
days following the notification of loss of eligibility. The Secretary
is proposing to remove from the regulations the requirement that the
institution notify the Secretary in writing within the seven days that
it intends to appeal in order to remain eligible during the appeal.
The Secretary is also proposing to remove the requirement that an
institution notify the Secretary that it has requested verification of
its FFEL Program cohort default rate data from the relevant guaranty
agencies. Under the proposed regulations, an institution would remain
eligible to participate in the FFEL Program or Direct Loan Program
during the appeal if it submits a complete and accurate appeal, under
the guidelines for exceptional mitigating

[[Page 49184]]
circumstances or inaccurate data, within 30 days from the date it is
notified by the Secretary that it is no longer eligible to participate
in the FFEL Program or Direct Loan Program.
Under the current regulations, if an institution requests
verification of the data used to determine its cohort default rate from
a guaranty agency, the institution remains eligible to participate in
the FFEL Program until the guaranty agency verifies the data. Under the
proposed rules, an institution would not remain eligible to participate
beyond the 30-day period if the Secretary has not received the verified
data by the 30th day following the notification of loss of eligibility.
The Secretary believes that the new procedures for issuance and review
of draft FFEL Program cohort default rates, that allow an institution
to review the draft rates for error prior to the issuance of the
official rates, will significantly improve the accuracy of the official
FFEL Program cohort default rate. The Secretary will provide Direct
Loan Program institutions with Direct Loan Program cohort rates, or if
applicable, weighted average cohort rates, a similar opportunity to
review the data used to determine those rates to ensure that they are
accurate before the rates are made official. An institution should be
able to resolve any additional discrepancies it believes exist in the
FFEL Program cohort default rate, Direct Loan cohort rate, or weighted
average cohort rate within 30 days.

Exceptional Mitigating Circumstances Appeal Process

<bullet> Institution receives notice that its participation in the
FFEL or Direct Loan program will end in 30 days unless the institution
appeals.
<bullet> The institution must submit a complete written appeal
within 30 days after receiving the notice of loss of eligibility. An
appeal will not be accepted after the 30th day.
<bullet> The Secretary issues a final decision on the institution's
appeal within 45 days after receiving the appeal.
<bullet> No oral hearing is provided.

Subpart G--Fine, Limitation, Suspension, and Termination Proceedings

The proposed rules would provide the Secretary with the authority
to take L, S, and T action against an institution that has a Direct
Loan Program cohort rate or weighted average cohort rate that is
greater than 40 percent for a fiscal year. The Secretary believes that
such an authority is needed to protect students and taxpayers from
abuse of the Direct Loan Program. The Secretary has chosen a 40 percent
Direct Loan Program cohort rate to parallel the 40 percent default rate
threshold that triggers L, S, and T action against an institution that
participates in the FFEL Program under 34 CFR 668.17(a)(1). Further,
under the proposed rules, the Secretary could initiate an L, S, or T
action against an institution's participation in the FFEL Program if it
has a combination of an FFEL Program cohort default rate, Direct Loan
Program cohort rate, or, if applicable, weighted average cohort rate
that equals or exceeds 25 percent for three consecutive years. For
example, an L, S, and T action could be taken against the institution
if it has an FFEL Program cohort default rate that equals or exceeds 25
percent for one fiscal year, and a weighted average cohort rate for
each of the two following fiscal years that equals or exceeds 25
percent. Such an institution is not subject to statutory loss of
eligibility to participate in the FFEL Program. The Secretary is
proposing this provision to prevent an institution that has lost its
eligibility to participate in the Direct Loan Program, or attempts to
evade a potential loss of eligibility to participate in the Direct Loan
Program, from participating in the FFEL Program. The Secretary believes
that such an institution presents an unreasonable risk to students and
the Federal taxpayer. Under the proposed rules, the Secretary will
cease any L, S, and T action against an institution's participation in
the FFEL Program if that institution successfully appeals its loss of
eligibility to participate in the Direct Loan Program under exceptional
mitigating circumstances.
The Secretary is also proposing to revise the procedures and
appeals for an L, S, and T action he may initiate when an institution
has an FFEL Program cohort default rate, Direct Loan Program cohort
rate, or, if applicable, a weighted average cohort rate above 40
percent for a fiscal year or a combination of an FFEL Program cohort
default rate, Direct Loan Program cohort rate or weighted average
cohort rate that equals or exceeds 25 percent for three consecutive
fiscal years. Under these revised procedures, an institution would have
30 days to notify the designated department official that it intends to
appeal the L, S, or T; otherwise the action would become effective on
the 31st day. If the institution intends to appeal, it may request a
hearing or it may send written material to the designated department
official within 30 days after it receives notice of the Secretary's
intent to initiate L, S, or T action. If a hearing is requested, the
hearing officer must schedule a hearing within 15 days of the date the
institution notifies the designated department official that it
requests the hearing.
The designated department official or the hearing officer may only
consider the accuracy of the institution's FFEL Program cohort default
rate, Direct Loan Program cohort rate, or, if applicable, the weighted
average cohort rate to determine if the L, S, or T action should be
upheld or dismissed. In light of the extensive process for determining
default rates, the institution will have the burden of proving that the
calculation of the rate was wrong. The Secretary believes it is
appropriate to presume that the rates are accurate unless the
institution can present clear and convincing evidence that the rate
identified in the notice of intent is not final (i.e., the default rate
appeal is pending) or does not accurately reflect the final rate
determined by the Department. The designated department official or the
hearing officer shall issue a final determination to uphold or dismiss
the L, S, or T action within 30 days after the date the written
material is received by the designated department official or the date
the hearing is concluded, whichever is later.
In addition to streamlining the L, S, and T process, the Secretary
is proposing to eliminate Appendix D as a defense from L, S, and T
action. Appendix D was created to protect institutions from the
consequences of L, S, and T action while they took action to reduce
their FFEL Program cohort default rates. The Secretary believes that
institutions have had ample time to exercise the measures provided in
this section to reduce their FFEL Program cohort default rates and keep
them low. The Secretary does not believe that the implementation of
default reduction measures by an institution justifies the continued
participation of a high default institution in the Title IV programs.
However, the Secretary encourages institutions to continue to implement
these measures to keep their default rates low.

Streamlined L, S, and T Procedures

<bullet> Institution receives notice stating that the L, S, or T
action will be effective in 30 days unless the institution requests a
hearing.
<bullet> Institution must request the hearing prior to the
effective date.
<bullet> The hearing will be scheduled within 15-20 days after the
request is received.

[[Page 49185]]

<bullet> The institution may appeal the proposed action only on the
basis of the accuracy of the rate.
<bullet> The L, S, and T action is effective 30 days after the
hearing if the hearing officer decides the action is warranted.

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 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. 668.17 Default Reduction and Prevention Measures) (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, D.C. 20202.

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. Certain reporting, recordkeeping, and compliance requirements
are imposed on institutions by the regulations. These requirements,
however, would not have a significant impact because the regulations
would not impose excessive regulatory burdens or require unnecessary
Federal supervision.

Paperwork Reduction Act of 1995

Section 668.17 contains information collection requirements. As
required by the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)),
the Department of Education has submitted a copy of this section to the
Office of Management and Budget (OMB) for its review.
Collection of Information: Exceptional Mitigating Circumstances
Appeals
The Student Assistance General Provisions regulations codify the
procedures and the exceptional mitigating circumstances criteria under
which an institution may appeal a loss of eligibility to participate in
the FFEL Program or Direct Loan Program. The information to be
collected may include one of the following: (1) For the participation
rate index, the number of an institution's students enrolled on at
least a half-time basis who enrolled in the appealing institution
during a 12-month period and the number of those students who borrowed
under the FFEL and Direct Loan programs during that 12-month period and
the name, address and social security number of those students; (2) for
the completion rate, the number of an institution's students who were
scheduled to complete their programs in a 12-month period and the name,
address and social security number and, if applicable, the name of the
institution and program to which the student transferred, for each of
those students who actually completed; (3) for the placement rate, the
number of students who were scheduled to complete their programs during
a 12-month period and the name, address, social security number, job
title, dates during which the student was employed, and the employer's
name and address for all those students who obtained employment in an
occupation related to the education or training received. The
Department needs and uses the information to determine whether the
institution may continue to participate in the FFEL or Direct Loan
programs.
All information is to be collected and reported only once and only
if the institution has a FFEL Program cohort default rate, Direct Loan
Program cohort rate or weighted average cohort rate that equals or
exceeds 25 percent for three consecutive fiscal years. Annual public
reporting and recordkeeping burden contained in the collection of
information proposed in these regulations is estimated to be 80 hours
per response for 200 respondents (total annual reporting and
recordkeeping burden equals 16,000 hours) including the time for
reviewing instructions, searching existing data sources, gathering and
maintaining the data needed, completing and reviewing collection of
information, and submitting materials.
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

[[Page 49186]]
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
3045, 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 particularly requests comments on whether the
proposed regulations in this document would require transmission of
information that is being gathered by or is available from any other
agency or authority of the United States.

List of Subjects in 34 CFR Part 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.

Dated: September 14, 1995.
Richard W. Riley,
Secretary of 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)

The Secretary proposes to amend 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 (g), (h) and (i) respectively, and revising
paragraphs (a) through (f) 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--
(i) For an institution whose former students enter repayment only
on FFEL Program loans in a fiscal year, the FFEL Program cohort default
rate for that institution exceeds 40 percent for that fiscal year;
(ii) For an institution whose former students enter repayment only
on Direct Loan Program loans in a fiscal year, the Direct Loan Program
cohort rate for that institution exceeds 40 percent for that fiscal
year; or
(iii) For an institution that has both FFEL Program and Direct Loan
Program loans entering repayment in the same fiscal year, the weighted
average cohort rate for that institution exceeds 40 percent for that
fiscal year.
(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 three consecutive fiscal years, has a
combination of--
(i) An FFEL Program cohort default rate that is equal to or greater
than 25 percent if only FFEL loans enter repayment in that cohort;
(ii) A Direct Loan Program cohort rate that is equal to or greater
than 25 percent if only Direct Loan Program loans enter repayment in
that cohort; or
(iii) A weighted average cohort rate that is equal to or greater
than 25 percent if both FFEL Program and Direct Loan Program loans
enter repayment in that cohort.
(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 will cease any limitation, suspension, or
termination action against an institution under paragraph (a)(3) of
this section if the institution satisfactorily demonstrates to the
Secretary that, pursuant to a timely submitted appeal under paragraph
(b)(6) of this section, the institution meets one of the exceptional
mitigating circumstances under paragraph (c)(1)(ii) 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 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 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--
(i) An FFEL Program cohort default rate that is equal to or greater
than 25 percent if only FFEL Program loans enter repayment in that
cohort;
(ii) A Direct Loan Program cohort rate that is equal to or greater
than 25 percent if only Direct Loan Program loans enter repayment in
that cohort; or
(iii) A weighted average cohort rate that is equal to or greater
than 25 percent if both FFEL Program and Direct Loan Program loans
enter repayment in that cohort.
(3) Except as provided in paragraph (b)(6) of this section, an
institution whose 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 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

[[Page 49187]]
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 Sec. 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 Sec. 668.26, continue to
participate in the FFEL Program or Direct Loan Program, 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 that must be received by the 30th calendar day
following the date the institution receives notification of the end of
participation. 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, if applicable, weighted average cohort rate, by the
percentage of the institution's students who were 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.
(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 determined, 70 percent or
more of the institution's students who are enrolled on at least a half-
time basis 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.
(1) For a public or private nonprofit institution, 70 percent or
more of the institution's students who were initially enrolled on a
full-time basis, and were scheduled to complete their programs during 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, completed the
educational programs in which they were enrolled. This rate is
calculated by comparing the number of 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, certificate, or other recognized
educational credential from the institution; transferred from the
institution to a higher level educational program at another
institution for which the prior program provided substantial
preparation; 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 proprietary institution, the institution had a placement
rate of 50 percent or more with respect to its former students who were
enrolled in a program to receive a degree, certificate, or other
recognized educational credential from the institution, and who
remained in the program beyond the point the students would have
received a 100 percent tuition refund from the institution. This rate
is based on those students who were scheduled to complete their
educational programs during the 12-month period ending prior to the
fiscal year for which the cohort for the institution's rate is
determined. This rate is calculated by determining the percentage of
all those students who, based on evidence submitted by the institution,
are, on the date the institution submits the appeal, employed, or had
been employed for at least 13 weeks following their last day of
attendance at the institution, in the occupation for which the
institution provided training, or are enrolled, or had been enrolled
for at least 13 weeks following receipt of the credential from the
institution, in a higher level educational program at another
institution for which the prior educational program provided
substantial preparation.
(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'' 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.
(3) The Secretary issues a decision on the institution's appeal
within 45 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

[[Page 49188]]
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 grounds
specified in paragraph (c)(1)(i) or (ii) of this section.
(6) An institution must include in its appeal a certification 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 the following
information:
(i) A written statement from an independent auditor that the
information contained in the appeal is complete, accurate and
determined in accordance with the requirements of this section;
(ii) For purposes of the participation index under paragraph
(c)(1)(ii)(A) of this section--
(A) A statement indicating the number of students who were enrolled
on at least a half-time basis at the institution in the relevant 12-
month period; and

(B) The name, address, and social security number of each of the
institution's current and former students who received Federal
Stafford, Federal SLS, or Direct Loan Program loans during that 12-
month period.
(iii) For purposes of the institution's percentage of students
coming from disadvantaged economic backgrounds under paragraph
(c)(1)(ii)(B) of this section:
(A) The number of students who were enrolled on at least a half-
time basis at the institution in the relevant 12-month period; and
(B)(1) If EFC is used to determine if a student comes from an
economically disadvantaged background, the name, address, and social
security number, of each student with an EFC of zero, for an award year
that, in whole or part, coincides with the relevant 12-month period,
who was enrolled on at least a half-time basis at the institution in
the relevant 12-month period; or
(2) If poverty level income as determined by the Department of
Health and Human Services is used to measure an economically
disadvantaged background, the name, address, and social security number
of each student with an adjusted gross income, or attribution to that
student of an adjusted gross income of that student and his or her
parents or spouse, if applicable, reported for the most recent calendar
year that is less than the poverty level, and documentation of that
income.
(iv) For purposes of the completion rate under paragraph
(c)(1)(ii)(B)(1) of this section--
(A) The number of students who were initially enrolled on a full-
time basis at the institution and were scheduled to complete their
programs in the relevant 12-month period;
(B) For each of those former students who received a degree,
certificate, or other recognized educational credential from the
institution, the student's name, address, and social security number;
(C) For each of those former students who transferred to a higher
level educational program at another institution, the name, address,
social security number of the student, and the name and address of the
institution to which the student transferred and the name of the higher
level program; and
(D) For each of those students who remained enrolled and was making
satisfactory academic progress toward completion of the educational
program, the student's name, address, and social security number.
(v) For purposes of the placement rate under paragraph
(c)(1)(ii)(B)(2) of this section--
(A) The number of students who were scheduled to receive a degree,
certificate, or other recognized educational credential at the
institution during the relevant 12 month period who remained enrolled
beyond the point in the program in which he or she would receive a 100
percent tuition refund from the institution;
(B) For each of those former students who is employed or had been
employed for at least 13 weeks following his or her last day of
attendance at the institution, the student's name, address, and social
security number, the employer's name and address, the student's job
title, and the dates the student was so employed; and
(C) For each of those former students who enrolled in a higher
level educational program at another institution for which the
appealing institution's educational program provided substantial
preparation, the former student's name, address, and social security
number, the subsequent institution's name and address, the name of the
educational program, and the dates the former student was so enrolled.
(d) Definitions. The following definitions apply to this section
and Sec. 668.90:
(1)(i) For purposes of the FFEL Program, except as provided in
paragraph (e)(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 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 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 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 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.
(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, a portion of which is used to repay
a Federal SLS loan) shall not be considered to enter repayment

[[Page 49189]]
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.
(iii)(A) An FFEL Program cohort default 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.
(B) An FFEL Program cohort default 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.
(iv)(A) 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 based on the
institution's status as of October 1 of the fiscal year for which an
FFEL Program cohort default rate is being calculated.
(B) 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 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 FFEL Program cohort default rate
applies to the new, consolidated institution and all of its current
locations.
(C) For free-standing institutions that merge to form a new,
consolidated institution, the Secretary determines the FFEL Program
cohort default 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 FFEL Program cohort default rate
applies to the new consolidated institution.
(D) For a location of one institution that becomes a location of
another institution, the Secretary determines the FFEL Program cohort
default 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.
(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)(1) Direct Loan Program cohort rate. For purposes of the Direct
Loan Program, 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 are
in repayment under the income-contingent repayment plan at the end of
that following fiscal year whose scheduled payments are less than 15
dollars per month and that payment results 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
are in repayment under the income contingent repayment plan at the end
of that following fiscal year and whose scheduled payments are less
than 15 dollars per month and that payment results in negative
amortization.
(2) 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.
(3) 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.
(4) 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.
(5) A Direct Loan Program 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.
(6) A Direct Loan Program 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.
(7) 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 Direct Loan Program cohort rate based on the
institution's status as of October 1 of the fiscal year for which the
rate is being calculated.
(8) 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 Direct Loan Program cohort rate based on the
combined

[[Page 49190]]
number of students who enter repayment during the applicable fiscal
year from both the former free-standing institution and the other
institution. This Direct Loan Program cohort rate applies to the new,
consolidated institution and all of its current locations.
(9) For free-standing institutions that merge to form a new,
consolidated institution, the Secretary determines the Direct Loan
Program cohort rate based on the combined number of students who enter
repayment during the applicable fiscal year from all of the
institutions that are merging. This Direct Loan Program cohort rate
applies to the new consolidated institution.
(10) For a location of one institution that becomes a location of
another institution, the Secretary determines the Direct Loan Program
cohort rate based on the combined number of students who enter
repayment during the applicable fiscal year from both of the
institutions in their entirety, not limited solely to the respective
locations.
(11) Fiscal year means the period from and including October 1 of a
calendar year through and including September 30 of the following
calendar year.
(12) 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, 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 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 are in repayment under
the income-contingent repayment plan at the end of that following
fiscal year and whose scheduled payments are less than 15 dollars per
month and that payment results 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 are
in repayment under the income contingent repayment plan at the end of
that following fiscal year whose scheduled payments are less than 15
dollars per month and that payment results in negative amortization.
(2) 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.
(3) 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.
(4) 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.
(5) A 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.
(6) A 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.
(7) 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 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.
(8) 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 weighted average cohort rate based on the
combined number of students who enter repayment during the applicable
fiscal year from both the former free-standing institution and the
other institution. This weighted average cohort rate applies to the
new, consolidated institution and all of its current locations.
(9) For free-standing institutions that merge to form a new,
consolidated institution, the Secretary determines the weighted average
cohort rate based on the combined number of students who enter
repayment during the applicable fiscal year from all of the
institutions that are merging. This weighted average cohort rate
applies to the new consolidated institution.
(10) For a location of one institution that becomes a location of
another institution, the Secretary determines the weighted average
cohort rate based on the combined number of students who enter
repayment during the applicable fiscal year from both of the
institutions in their entirety, not limited solely to the respective
locations.
(11) Fiscal year means the period from and including October 1 of a
calendar year through and including September 30 of the following
calendar year.
(12) For purposes of an institution's weighted average cohort rate
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.

[[Page 49191]]

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.
* * * * *
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)(1), 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)(1) 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 its FFEL Program cohort
default rate, Direct Loan Program cohort rate, or weighted average
cohort rate is not final or does not accurately reflect 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. 95-23470 Filed 9-20-95; 8:45 am]
BILLING CODE 4000-01-P



]

Last Modified: 06/28/1998