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Proposed Rule: Direct Loan Program Interest Rates and Origination Fees

FR part
IV
Attachments:
PublicationDate: 6/16/99
FRPart: IV
RegPartsAffected:
PageNumbers: 32357-32362
Summary: Proposed Rule: Direct Loan Program Interest Rates and Origination Fees
CommentDueDate: 7/30/99

  
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[Federal Register: June 16, 1999 (Volume 64, Number 115)]
[Proposed Rules]
[Page 32357-32362]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr16jn99-25]


[[Page 32357]]

_______________________________________________________________________

Part IV





Department of Education





_______________________________________________________________________



34 CFR Part 685



William D. Ford Federal Direct Loan Program; Proposed Rule


[[Page 32358]]



DEPARTMENT OF EDUCATION

34 CFR Part 685

RIN 1840-AC68


William D. Ford Federal Direct Loan Program

AGENCY: Department of Education.

ACTION: Notice of proposed rulemaking.

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

SUMMARY: The Secretary proposes to amend the regulations governing the
William D. Ford Federal Direct Loan (Direct Loan) Program. These
amendments are a result of recently enacted changes to the Higher
Education Act of 1965 (HEA) made by the Higher Education Amendments of
1998 (1998 Amendments). The proposed regulations would amend the
current regulations to: remove references to the phase-in of the Direct
Loan Program, update the loan interest rate formulas, and reflect the
Secretary's authority to charge reduced loan fees on Direct Subsidized
and Direct Unsubsidized Loans and to charge reduced interest rates to
encourage on-time loan repayment.

DATES: We must receive your comments on or before July 30, 1999.

ADDRESSES: Address all comments about these proposed regulations to Ms.
Nicki Meoli, U.S. Department of Education, P.O. Box 23272, Washington,
DC 20026-3272. If you prefer to send your comments through the
Internet, use the following address: dlnprm@ed.gov

FOR FURTHER INFORMATION CONTACT: Ms. Nicki Meoli, U.S. Department of
Education, 400 Maryland Avenue, SW., ROB-3, Room 3045, Washington, DC
20202-5346. Telephone: (202) 708-8242. If you use a telecommunications
device for the deaf (TDD), you may call the Federal Information Relay
Service (FIRS) at 1-800-877-8339.
Individuals with disabilities may obtain this document in an
alternate format (e.g., Braille, large print, audiotape, or computer
diskette) on request to the contact person listed in the preceding
paragraph.

SUPPLEMENTARY INFORMATION:

Invitation To Comment

We invite you to submit comments regarding these proposed
regulations. To ensure that your comments have maximum effect in
developing the final regulations, we urge you to identify clearly the
specific section or sections of the proposed regulations that each of
your comments addresses and to arrange your comments in the same order
as the proposed regulations.
We invite you to assist us in complying with the specific
requirements of Executive Order 12866 and its overall requirement of
reducing regulatory burden that might result from these proposed
regulations. Please let us know of any further opportunities we should
take to reduce potential costs or increase potential benefits while
preserving the effective and efficient administration of the program.
During and after the comment period, you may inspect all public
comments about these proposed regulations in Room 3045, Regional Office
Building 3, 7th and D Streets, SW., Washington, DC, between the hours
of 8:30 a.m. and 4:00 p.m., Eastern time, Monday through Friday of each
week except Federal holidays.

Assistance to Individuals With Disabilities in Reviewing the
Rulemaking Record

On request, we will supply an appropriate aid, such as a reader or
print magnifier, to an individual with a disability who needs
assistance to review the comments or other documents in the public
rulemaking docket for these proposed regulations. If you want to
schedule an appointment for this type of aid, you may call (202) 205-
8113 or (202) 260-9895. If you use a TDD, you may call the FIRS at 1-
800-877-8339.

General

Background

On October 7, 1998, President Clinton signed into law the 1998
Amendments (Pub. L. 105-244) that amended the HEA. Among the many
important provisions of the new law was the reauthorization of the
Title IV Student Financial Assistance Programs. The 1998 Amendments
also contained a number of changes to the Title IV programs. This
notice of proposed rulemaking (NPRM) addresses changes that affect the
Direct Loan Program.

Negotiated Rulemaking

Section 492 of the HEA requires that, before publishing any
proposed regulations to implement programs under Title IV of the HEA,
the Secretary obtain public involvement in the development of the
proposed regulations. After obtaining advice and recommendations, the
Secretary must conduct a negotiated rulemaking process to develop the
proposed regulations. All published proposed regulations must conform
to agreements resulting from the negotiated rulemaking process unless
the Secretary reopens the negotiated rulemaking process or provides a
written explanation to the participants in that process why the
Secretary has decided to depart from the agreements.
To obtain public involvement in the development of the proposed
regulations, we published a notice in the Federal Register (63 FR
59922, November 6, 1998) requesting advice and recommendations from
interested parties concerning what regulations were necessary to
implement Title IV of the HEA. We also invited advice and
recommendations concerning which regulated issues should be subjected
to a negotiated rulemaking process. We further requested advice and
recommendations concerning ways to prioritize the numerous issues in
Title IV, in order to meet statutory deadlines. Additionally, we
requested advice and recommendations concerning how to conduct the
negotiated rulemaking process, given the time available and the number
of regulations that needed to be developed.
In addition to soliciting written comments, we held three public
hearings and several informal meetings to give interested parties an
opportunity to share advice and recommendations with the Department.
The hearings were held in Washington, DC, Chicago, and Los Angeles, and
we posted transcripts of those hearings to the Department's Information
for Financial Aid Professionals' website (http://www.ifap.ed.gov).
We then published a second notice in the Federal Register (63 FR
71206, December 23, 1998) to announce the Department's intention to
establish four negotiated rulemaking committees to draft proposed
regulations implementing Title IV of the HEA. The notice announced the
organizations or groups believed to represent the interests that should
participate in the negotiated rulemaking process and announced that the
Department would select participants for the process from nominees of
those organizations or groups. We requested nominations for additional
participants from anyone who believed that the organizations or groups
listed did not adequately represent the list of interests outlined in
section 492 of the HEA. Once the four committees were established, each
negotiating committee met to develop proposed regulations, for several
days each month, from January through May.
The proposed regulations contained in this NPRM reflect the final
consensus of the negotiating committee, which was made up of the
following members:

American Association of Community Colleges.
American Association of Cosmetology Schools.

[[Page 32359]]

American Association of State Colleges and Universities.
American Council on Education.
Career College Association.
Coalition of Associations of Schools of the Health Professions.
Coalition of Higher Education Assistance Organizations.
Consumer Bankers Association.
Education Finance Council.
Education Loan Management Resources.
Legal Services Counsel (a coalition).
National Association of College and University Business Officers.
National Association of Equal Opportunity in Higher Education.
National Association of Graduate/Professional Students.
National Association of Independent Colleges and Universities.
National Association of State Student Grant and Aid Programs.
National Association of State Universities and Land-Grant Colleges.
National Association of Student Financial Aid Administrators.
National Association of Student Loan Administrators.
National Council of Higher Education Loan Programs.
National Direct Student Loan Coalition.
Sallie Mae, Inc.
Student Loan Servicing Alliance.
The College Board.
The College Fund/United Negro College Fund.
United States Department of Education.
United States Student Association.
U.S. Public Interest Research Group.
Under committee protocols, consensus meant that there was no
dissent by any member of the committee. Thus, the proposed regulations
in this document have been agreed to by each of the organizations and
groups listed as members of the committee.

Proposed Regulatory Changes

Section 685.202

Interest Rates and Loan Fees

Interest Rates

The proposed regulations would implement changes to section 455(b)
of the HEA that affect the interest rates charged on Direct Loan
Program loans.
The interest rate formulas that apply to Direct Subsidized, Direct
Unsubsidized, and Direct PLUS Loans that are first disbursed on or
after October 1, 1998 and before July 1, 2003 are as follows:

----------------------------------------------------------------------------------------------------------------
But will not
For During The interest rate is exceed
(percent)
----------------------------------------------------------------------------------------------------------------
Direct Subsidized, Direct Repayment................... 91-day Treasury bill rate + 8.25
Unsubsidized. 2.3.
In-School Grace Deferment... 91-day Treasury bill rate + 8.25
1.7.
Direct PLUS......................... All Periods................. 91-day Treasury bill rate + 9
3.1.
----------------------------------------------------------------------------------------------------------------

The interest rate formulas that apply to Direct Consolidation Loans
that are first disbursed on or after July 1, 1998 are as follows:

----------------------------------------------------------------------------------------------------------------
The interest rate on the The interest rate on the
For a direct consolidation loan During student loan portions is PLUS loan portion is
----------------------------------------------------------------------------------------------------------------
Application received before 10/1/ Repayment................ 91-day Treasury bill 91-day Treasury bill
98 and first disbursement on or rate + 2.3 (Will not rate + 3.1 (Will not
after 7/1/98. exceed 8.25%). exceed 9%).
In-School Grace Deferment 91-day Treasury bill 91-day Treasury bill
rate + 1.7 (Will not rate + 3.1 (Will not
exceed 8.25%). exceed 9%).
Application received between 10/1/ All Periods.............. 91-day Treasury bill 91-day Treasury bill
98 and 1/31/99. rate + 2.3 (Will not rate + 2.3 (Will not
exceed 8.25%). exceed 8.25%).
Application received on or after All Periods.............. Weighted average of Weighted average of
2/1/99 and before 7/1/2003. interest rates on loans interest rates on loans
being consolidated, being consolidated,
rounded to nearest rounded to nearest
higher one-eighth of higher one-eighth of
one percent (Will not one percent (Will not
exceed 8.25%). exceed 8.25%).
----------------------------------------------------------------------------------------------------------------

Loan Fees

The Secretary proposes to amend Sec. 685.202(c) to clarify that the
Secretary charges a loan fee on a Direct Subsidized or Direct
Unsubsidized Loan not to exceed four percent of the principal amount of
the loan. The Secretary interprets the 1998 Amendments as authorizing
him to charge a reduced loan fee to all Direct Subsidized and Direct
Unsubsidized Loan borrowers and to provide a reduction for borrowers
demonstrating greater financial need. This authority is consistent with
the authority provided to lenders in the FFEL Program under section
438(c)(2) of the HEA. The Secretary notes that the authority to charge
a reduced fee in both the FFEL Program and the Direct Loan Program does
not apply to PLUS loans in either program.
While the negotiators reached consensus on all of the proposed
regulations included in this NPRM, some negotiators expressed a belief
that the HEA requires the Secretary to charge a loan fee equal to four
percent of the principal amount of the loan on a Direct Subsidized or
Direct Unsubsidized Loan. As discussed below, however, the Secretary
and some other negotiators believe that the Secretary does have the
authority to charge reduced loan fees.
FFEL Program lenders are required to pay the Secretary a loan
origination fee equal to three percent on all Stafford loans. Prior to
enactment of the 1998 Amendments, on Unsubsidized Stafford Loans
lenders were required to pass on the fee to the borrower, but lenders
were not required to pass on the fee to Subsidized Stafford Loan
borrowers. In addition, prior to enactment of the 1998 Amendments,
there were no statutory or regulatory provisions controlling a lender's
decision to offer a reduced loan origination fee. The 1998 Amendments
now establish conditions under which a lender may charge reduced loan
origination fees to some or all Stafford loan borrowers, thus making
the lower fee a term or condition of the loan. In addition to the
lender origination fee, guaranty agencies are authorized to charge a
one-percent guarantee fee to borrowers. Similarly, prior to enactment
of the 1998 Amendments, the Direct Loan Program charged a loan fee
equivalent to the amount of the loan origination fee and the guarantee
fee charged to FFEL Stafford Loan

[[Page 32360]]

borrowers. Generally, these practices resulted in consistent treatment
of borrowers. However, depending on which loans they received and
whether their particular lender or guaranty agency chose to offer them
a reduced fee on their loan, some FFEL Stafford Loan borrowers paid
lower fees.
To promote consistent benefits to borrowers, the 1998 Amendments,
for the first time, established certain standards that must be met in
order for lenders to reduce loan origination fees in the FFEL Program.
The HEA now requires lenders to provide reduced loan origination fees
to all borrowers or to borrowers who demonstrate a greater financial
need. Proposed regulations implementing these standards were agreed to
during the negotiations and will be published shortly. With these
standards, all similarly situated borrowers with loans from a specific
lender will be treated equally.
Nothing in the 1998 Amendments or its legislative history indicate
that Congress intended to deny the benefits of reduced loan fees to
borrowers in the Direct Loan Program. In fact, Congress retained the
provision that borrowers in the Direct Loan Program should receive the
same terms, conditions, and benefits on their loans as borrowers of
similar loans in the FFEL Program unless specifically provided for
otherwise. The Secretary believes that the 1998 Amendments created a
new statutory basis for borrowers to insist on equal treatment from
their lender on loan fees, including a lower fee if the lender chooses
to offer a lower loan fee to at least some borrowers. The Secretary
does not believe that Congress affirmatively intended to deny this
benefit to Direct Loan borrowers. Accordingly, the Secretary believes
that the HEA permits him to charge reduced loan fees to borrowers in
the Direct Loan Program.
In accordance with 5 U.S.C. 553(b)(A), this preamble announces the
Secretary's interpretative rule that he can charge reduced loan fees in
the Direct Loan Program consistent with the lenders' authority to do so
in the FFEL Program. The provision contained in this NPRM is consistent
with the Secretary's interpretative rule. The Secretary will consider
the public comments received on this proposed provision and determine
whether any changes should be reflected in the final rule.

Section 685.211

Repayment Incentives
The proposed regulations would implement a change to section 455(b)
of the HEA, which authorizes the Secretary to charge borrowers reduced
interest rates to encourage on-time loan repayment. The repayment
incentives that the Secretary offers to Direct Loan borrowers must be
cost-neutral and in the best financial interests of the federal
government.
The proposed regulations provide the Secretary with the flexibility
needed to offer additional or different repayment incentives in
response to changes in economic conditions or to the Direct Loan
Program statute. As written, the language mirrors the authority of
lenders and guaranty agencies in the FFEL Program to offer benefits to
borrowers.
Shortly, the Secretary will charge a reduced interest rate to those
borrowers repaying by means of automated account debiting. Borrowers
repaying via automated debiting of their personal checking, savings, or
other type of account at a financial institution will receive a
reduction in the interest being charged on their Direct Loans. The
Secretary has determined that the reduced interest charge will be cost-
neutral and has so advised the Office of Management and Budget, which
is now conducting its own review consistent with section 455(b) of the
HEA.

Sections 685.400 and 685.401

School Participation Requirements
The proposed regulations would implement changes to section 453(b)
of the HEA by deleting all references to the phase-in of the Direct
Loan Program and the transition from the FFEL Program to the Direct
Loan Program. The proposed regulations move the school selection
provisions to Sec. 685.400 and remove Sec. 685.401 from the Direct Loan
Program regulations.

Executive Order 12866

1. Potential Costs and Benefits

Under Executive Order 12866, we have assessed the potential costs
and benefits of this regulatory action.
The potential costs associated with the proposed regulations are
those resulting from statutory requirements and those we have
determined as necessary for administering this program effectively and
efficiently.
In assessing the potential costs and benefits--both quantitative
and qualitative--of this regulatory action, we have determined that the
benefits would justify the costs.
We have also determined that this regulatory action would not
unduly interfere with State, local, and tribal governments in the
exercise of their governmental functions.
Summary of Potential Costs and Benefits
Proposals implementing the statutory change in borrower interest
rates have been estimated to increase costs to the Federal Government
by $147 million over five years. Costs increase under this change
because interest rates charged to Direct Loan borrowers--and
corresponding repayments to the Federal Government--are reduced. The
change represents a significant economic benefit to Direct Loan
borrowers.
There are no Federal costs associated with the proposed regulations
allowing the Secretary to offer reduced borrower interest rates as
incentives to encourage on-time repayment. The HEA requires that any
such incentives be cost-neutral. The Secretary intends to use this
authority to charge a reduced interest rate to borrowers repaying by
means of automated account debiting; this reduction will be structured
to ensure its cost-neutrality.

2. Clarity of the Regulations

Executive Order 12866 and the President's Memorandum of June 1,
1998 on ``Plain Language in Government Writing'' require each agency to
write regulations that are easy to understand.
The Secretary invites comments on how to make these proposed
regulations easier to understand, including answers to questions such
as the following:
<bullet> Are the requirements in the proposed regulations clearly
stated?
<bullet> Do the proposed regulations contain technical terms or
other wording that interferes with their clarity?
<bullet> Does the format of the proposed regulations (grouping and
order of sections, use of headings, paragraphing, etc.) aid or reduce
their clarity?
<bullet> Would the proposed regulations be easier to understand if
we divided them into more (but shorter) sections? (A ``section'' is
preceded by the symbol ``Sec. '' and a numbered heading; for example,
Sec. 685.211 Miscellaneous repayment provisions.)
<bullet> Could the description of the proposed regulations in the
SUPPLEMENTARY INFORMATION section of this preamble be more helpful in
making the proposed regulations easier to understand? If so, how?
<bullet> What else could we do to make the proposed regulations
easier to understand?
Send any comments that concern how the Department could make these
proposed regulations easier to understand to the person listed in the
ADDRESSES section of the preamble.

[[Page 32361]]

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. None of the parties affected by these proposed regulations--
individual Direct Loan borrowers--would be considered small entities
for the purposes of the Regulatory Flexibility Act.

Paperwork Reduction Act of 1995

These proposed regulations do not contain any information
collection requirements.

Assessment of Educational Impact

The Secretary particularly requests comments on whether these
proposed regulations would require transmission of information that any
other agency or authority of the United States gathers or makes
available.

Electronic Access to This Document

You may view this document, as well as other Department of
Education documents published in the Federal Register, in text or Adobe
Portable Document Format (PDF) on the Internet at either of the
following sites:

http://ocfo.ed.gov/fedreg.htm
http://www.ed.gov/news.html

To use the PDF you must have the Adobe Acrobat Reader Program with
Search, which is available free at either of the previous sites. If you
have questions about using the PDF, call the U.S. Government Printing
Office (GPO) toll free at 1-888-293-6498; or in the Washington, D.C.
area, at (202) 512-1530.

Note: The official version of this document is the document
published in the Federal Register. Free Internet access to the
official edition of the Federal Register and the Code of Federal
Regulations is available on GPO Access at: http://
www.access.gpo.gov/nara/index.html

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

List of Subjects in 34 CFR Part 685

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

Dated: June 10, 1999.
Richard W. Riley,
Secretary of Education.
For the reasons stated in the preamble, the Secretary proposes to
amend title 34 of the Code of Federal Regulations by revising Part 685
to read as follows:

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

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

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

2. Section 685.202 is amended by revising paragraphs (a) and (c)(1)
to read as follows:


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

(a) Interest--(1) Interest rate for Direct Subsidized Loans and
Direct Unsubsidized Loans. (i) Loans first disbursed before July 1,
1995. During all periods, the interest rate during any twelve-month
period beginning on July 1 and ending on June 30 is determined on the
June 1 immediately preceding that period. The interest rate is equal to
the bond equivalent rate of 91-day Treasury bills auctioned at the
final auction held prior to that June 1 plus 3.1 percentage points, but
does not exceed 8.25 percent.
(ii) Loans first disbursed on or after July 1, 1995 and before July
1, 1998.
(A) During the in-school, grace, and deferment periods. The
interest rate during any twelve-month period beginning on July 1 and
ending on June 30 is determined on the June 1 immediately preceding
that period. The interest rate is equal to the bond equivalent rate of
91-day Treasury bills auctioned at the final auction held prior to that
June 1 plus 2.5 percentage points, but does not exceed 8.25 percent.
(B) During all other periods. The interest rate during any twelve-
month period beginning on July 1 and ending on June 30 is determined on
the June 1 immediately preceding that period. The interest rate is
equal to the bond equivalent rate of 91-day Treasury bills auctioned at
the final auction held prior to that June 1 plus 3.1 percentage points,
but does not exceed 8.25 percent.
(iii) Loans first disbursed on or after July 1, 1998.
(A) During the in-school, grace, and deferment periods. The
interest rate during any twelve-month period beginning on July 1 and
ending on June 30 is determined on the June 1 immediately preceding
that period. The interest rate is equal to the bond equivalent rate of
91-day Treasury bills auctioned at the final auction held prior to that
June 1 plus 1.7 percentage points, but does not exceed 8.25 percent.
(B) During all other periods. The interest rate during any twelve-
month period beginning on July 1 and ending on June 30 is determined on
the June 1 immediately preceding that period. The interest rate is
equal to the bond equivalent rate of 91-day Treasury bills auctioned at
the final auction held prior to that June 1 plus 2.3 percentage points,
but does not exceed 8.25 percent.
(2) Interest rate for Direct PLUS Loans. (i) Loans first disbursed
before July 1, 1998. During all periods, the interest rate during any
twelve-month period beginning on July 1 and ending on June 30 is
determined on the June 1 preceding that period. The interest rate is
equal to the bond equivalent rate of 52-week Treasury bills auctioned
at the final auction held prior to that June 1 plus 3.1 percentage
points, but does not exceed 9 percent.
(ii) Loans first disbursed on or after July 1, 1998. During all
periods, the interest rate during any twelve-month period beginning on
July 1 and ending on June 30 is determined on the June 1 preceding that
period. The interest rate is equal to the bond equivalent rate of 91-
day Treasury bills auctioned at the final auction held prior to that
June 1 plus 3.1 percentage points, but does not exceed 9 percent.
(3) Interest rate for Direct Consolidation Loans.
(i) Interest rate for Direct Subsidized Consolidation Loans and
Direct Unsubsidized Consolidation Loans.
(A) Loans first disbursed before July 1, 1995. The interest rate is
the rate established for Direct Subsidized Loans and Direct
Unsubsidized Loans in paragraph (a)(1)(i) of this section.
(B) Loans first disbursed on or after July 1, 1995 and before July
1, 1998. The interest rate is the rate established for Direct
Subsidized Loans and Direct Unsubsidized Loans in paragraph (a)(1)(ii)
of this section.
(C) Loans for which the consolidation application is received by
the Secretary before October 1, 1998 and for which the first
disbursement is made on or after July 1, 1998. The interest rate is the
rate established for Direct Subsidized Loans and Direct Unsubsidized
Loans in paragraph (a)(1)(iii) of this section.
(D) Loans for which the consolidation application is received by
the Secretary on or after October 1, 1998 and before February 1, 1999.
During all periods, the interest rate during any twelve-month period
beginning on July 1 and ending on June 30 is determined on the June 1
immediately preceding that period. The interest rate is equal to the
bond equivalent rate of 91-day Treasury bills auctioned at the final
auction held prior to that June 1 plus 2.3 percentage points, but does
not exceed 8.25 percent.

[[Page 32362]]

(E) Loans for which the consolidation application is received by
the Secretary on or after February 1, 1999. During all periods, the
interest rate is based on the weighted average of the interest rates on
the loans being consolidated, rounded to the nearest higher one-eighth
of one percent, but does not exceed 8.25 percent.
(ii) Interest rate for Direct PLUS Consolidation Loans.
(A) Loans first disbursed before July 1, 1998. The interest rate is
the rate established for Direct PLUS Loans in paragraph (a)(2)(i) of
this section.
(B) Loans for which the consolidation application is received by
the Secretary before October 1, 1998 and for which the first
disbursement is made on or after July 1, 1998. The interest rate is the
rate established for Direct PLUS Loans in paragraph (a)(2)(ii) of this
section.
(C) Loans for which the consolidation application is received by
the Secretary on or after October 1, 1998 and before February 1, 1999.
During all periods, the interest rate during any twelve-month period
beginning on July 1 and ending on June 30 is determined on the June 1
immediately preceding that period. The interest rate is equal to the
bond equivalent rate of 91-day Treasury bills auctioned at the final
auction held prior to that June 1 plus 2.3 percentage points, but does
not exceed 8.25 percent.
(D) Loans for which the consolidation application is received by
the Secretary on or after February 1, 1999. During all periods, the
interest rate is based on the weighted average of the interest rates on
the loans being consolidated, rounded to the nearest higher one-eighth
of one percent, but does not exceed 8.25 percent.
(4) Interest rate reductions. The Secretary may reduce the interest
rate on a Direct Loan as provided in Sec. 685.211(b).
* * * * *
(c) * * *
(1)(i) Charges a borrower a loan fee not to exceed four percent of
the principal amount of the loan on a Direct Subsidized or Direct
Unsubsidized Loan; or
(ii) Charges a borrower a loan fee of four percent of the principal
amount of the loan on a Direct PLUS Loan.
* * * * *
3. Section 685.211 is amended by redesignating paragraphs (b), (c),
(d), and (e) as paragraphs (c), (d), (e), and (f), respectively; by
adding a new paragraph (b); by revising the first sentence of newly
redesignated paragraph (e)(2); and by revising newly redesignated
paragraph (e)(3) to read as follows:


Sec. 685.211 Miscellaneous repayment provisions.

* * * * *
(b) Repayment incentives. To encourage on-time repayment, the
Secretary may reduce the interest rate for a borrower who repays a loan
under a system or on a schedule that meets requirements specified by
the Secretary.
* * * * *
(e) * * *
(2) If the Secretary makes the determination described in paragraph
(e)(1) of this section, the Secretary sends an ineligible borrower a
demand letter that requires the borrower to repay some or all of a
loan, as appropriate. * * *
(3) If a borrower fails to comply with the demand letter described
in paragraph (e)(2) of this section, the borrower is in default on the
entire loan.
* * * * *
4. Section 685.400 is amended by adding a new paragraph (d) to read
as follows:


Sec. 685.400 School participation requirements.

* * * * *
(d) The Secretary selects schools to participate in the Direct Loan
Program from among those that apply to participate and meet the
requirements in paragraphs (a)(1), (b), and (c) of this section.


Sec. 685.401 [Removed and Reserved]

5. Section 685.401 is removed and reserved.

[FR Doc. 99-15278 Filed 6-15-99; 8:45 am]
BILLING CODE 4000-01-P




Last Modified: 07/01/1999