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Final Rule: FFELP and Direct Loan Program Common Provisions

FR part
III
Attachments:
PublicationDate: 11/1/99
FRPart: III
RegPartsAffected: Citation : (R)682.100
PageNumbers: 58937-58972
Summary: Final Rule: FFELP and Direct Loan Program Common Provisions
CommentDueDate:

  
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[


[Federal Register: November 1, 1999 (Volume 64, Number 210)]
[Rules and Regulations]
[Page 58937-58972]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01no99-14]


[[Page 58937]]

_______________________________________________________________________

Part III





Department of Education





_______________________________________________________________________



34 CFR Parts 682 and 685



Federal Family Education Loan Program and William D. Ford Federal
Direct Loan Program; Final Rule


[[Page 58938]]


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DEPARTMENT OF EDUCATION

34 CFR Parts 682 and 685

RIN 1845-AA00


Federal Family Education Loan Program and William D. Ford Federal
Direct Loan Program

AGENCY: Department of Education.
ACTION: Final regulations.

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SUMMARY: The Secretary amends the Federal Family Education Loan (FFEL)
Program regulations and the William D. Ford Federal Direct Loan (Direct
Loan) Program regulations. These final regulations are needed to
implement recently enacted changes to the Higher Education Act of 1965,
as amended (HEA) made by the Higher Education Amendments of 1998 (1998
Amendments). The final regulations deal with provisions of the 1998
Amendments that affect FFEL borrowers, schools, lenders, and guaranty
agencies and Direct Loan borrowers and schools. These final regulations
seek to improve the efficiency of Federal student aid programs, and, by
so doing, to improve their capacity to enhance opportunities for
postsecondary education.

DATES: Effective Date: These regulations are effective July 1, 2000.

Implementation Date: The Secretary has determined, in accordance
with section 482(c)(2)(A) of the HEA (20 U.S.C. 1089(c)(2)(A)), that
FFEL and Direct Loan program participants may, at their discretion,
choose to implement certain provisions of Secs. 682.102, 682.200,
682.202, 682.206, 682.401, 682.402, 682.406, 682.409, 682.414, 682.604,
682.610, 685.102, 685.201, 685.304, and 685.402 on or after November 1,
1999. For further information see ``Implementation Date of These
Regulations'' under the SUPPLEMENTARY INFORMATION section of this
preamble.

FOR FURTHER INFORMATION CONTACT: For the FFEL Program, Ms. Patsy
Beavan, or for the Direct Loan Program, Ms. Nicki Meoli, U.S.
Department of Education, 400 Maryland Avenue, SW., Room 3045, Regional
Office Building 3, 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
alternative format (e.g., Braille, large print, audiotape, or computer
diskette) on request to one of the contact persons listed in the
preceding paragraph.

SUPPLEMENTARY INFORMATION: These regulations implement certain changes
made to the HEA by the 1998 Amendments (Pub. L. 105-244) that affect
the FFEL and Direct Loan programs.
On August 10, 1999, the Secretary published a notice of proposed
rulemaking (NPRM) for the FFEL and Direct Loan programs in the Federal
Register (64 FR 43428). In the preamble to the NPRM, the Secretary
discussed on pages 43429 to 43438 the following proposed changes:

FFEL Program Changes

Amending Sec. 682.102(a) to require the use of the Free
Application for Federal Student Aid (FAFSA) as the application for FFEL
subsidized and unsubsidized Stafford loans beginning in academic year
1999-2000 and to reflect the use of a Master Promissory Note (MPN) that
would allow borrowers to receive, in addition to an initial loan,
additional loans for the same or subsequent periods.
Amending Sec. 682.200(b) to revise the definition of
``Lender'' to permit lenders to provide assistance to schools that is
comparable to the kinds of assistance provided by the Secretary under,
or in furtherance of, the Direct Loan Program.
Amending Sec. 682.201(c)(1)(i)(D) and (E) to prohibit a
borrower from receiving an FFEL Consolidation loan to repay a loan made
under the HEA on which the borrower is subject to a judgment secured
through litigation or to an administrative wage garnishment order.
Amending Sec. 682.201(c)(1)(iv)(B) to permit a borrower
who has multiple FFEL Program holders to apply to any eligible FFEL
lender for an FFEL Consolidation loan.
Amending Sec. 682.201(d)(2) to expand the universe of
loans that may be included in an FFEL Consolidation loan.
Amending Sec. 682.202(a) to include the interest rate
formulas that apply to subsidized Stafford, unsubsidized Stafford, and
PLUS loans that are first disbursed on or after October 1, 1998 and
before July 1, 2003 and interest rate formulas for Consolidation loans.
Amending Sec. 682.202(b) to reflect that a lender may add
accrued interest to the principal (capitalization) of an unsubsidized
Stafford loan only when the loan enters repayment, at the expiration of
a period of authorized deferment, at the expiration of a period of
authorized forbearance, and when the borrower defaults. This section
also provides that, for loans first disbursed on or after July 1, 2000,
periods of forbearance on both subsidized and unsubsidized Stafford
loans would be covered by the new capitalization rules.
Amending Sec. 682.202(c) to permit a lender to assess a
lower origination fee to a borrower demonstrating ``greater financial
need,'' as determined by the borrower's adjusted gross income and to
allow a lender to consider a borrower as demonstrating greater
financial need if--
The borrower's expected family contribution (EFC) used to
determine eligibility for the loan is equal to or less than the maximum
qualifying EFC for a Federal Pell Grant at the time the loan is
certified;
The borrower qualifies for a subsidized Stafford loan; or
The borrower qualifies according to a comparable
alternative standard approved by the Secretary.
Amending Sec. 682.206 to conform to changes made in
Sec. 682.603 related to loan certification of borrower eligibility by
the school and Sec. 682.401 related to the use of the MPN.
Amending Sec. 682.207 to require lenders to disburse loans
in a single installment (rather than in multiple installments as
generally required) if so directed by a school that meets the criteria
specified in Sec. 682.604.
Amending Sec. 682.209(a)(7)(ix) to require a lender to
offer new FFEL borrowers, including FFEL Consolidation loan borrowers,
whose total outstanding FFEL loans exceed $30,000, an extended
repayment plan with fixed or graduated repayment amounts to be paid
over a period not to exceed 25 years.
Amending Sec. 682.301(a)(3) to include the authority for
payment of interest subsidy during a period of authorized deferment on
the portion of an FFEL Consolidation loan that repaid a subsidized FFEL
or Direct Loan program loan.
Amending Sec. 682.402(h)(1)(iv) to provide that a lack of
evidence of a borrower's confirmation for subsequent loans made under
an MPN will not lead to a denial of claim payment to the lender unless
the loan is found to be unenforceable.
Amending Sec. 682.402(i)(1)(i) to reflect amendments to
the Bankruptcy Code that eliminated the seven-year repayment standard
for discharge of FFEL Program loans for bankruptcy petitions filed on
or after October 8, 1998 and establish undue hardship as the only
criteria for a bankruptcy discharge.
Amending Sec. 682.402(i)(1)(iv) to revise lender and
guaranty agency claim filing procedures related to loans for which
bankruptcy petitions are filed.

[[Page 58939]]

Amending Sec. 682.414(a)(4) and (5) to require lenders to
maintain documentation of the confirmation processes the lender and the
school used for subsequent loans under an MPN and specify that a lender
or guaranty agency may, to accommodate the MPN process, retain a true
and exact copy of the promissory note rather than the original note.
Amending Sec. 682.603(b) to require a school to certify
only the loan amount for which the borrower is eligible and to provide
a disbursement schedule to the lender.

FFEL and Direct Loan Program Changes

Amending Secs. 682.200(b) and 685.102(b) to--
Reflect that the length of time a borrower is
delinquent before a default occurs on an FFEL or Direct Loan program
loan is 270 days for a loan repayable in monthly installments and 330
days for FFEL Program loans repayable less frequently than monthly;
Reflect that schools now are required to include
veterans' educational benefits paid under Chapter 30 of Title 38 of the
United States Code and national service education awards or post-
service benefits under Title I of the National and Community Service
Act of 1990 (Americorps) as estimated financial assistance for the
purpose of determining a borrower's eligibility for unsubsidized FFEL
and Direct Loan program loans; and
Define the term ``master promissory note'' (MPN) as a
promissory note under which a borrower may receive loans for a single
academic year or multiple academic years.
Amending Secs. 682.204 and 685.203 to modify the method
for calculating the reduced annual loan limits that apply to FFEL and
Direct Loan borrowers enrolled in programs of study or remaining
balances of programs of study that are less than an academic year in
length and to specify annual loan limits for non-degree preparatory and
teaching credential coursework.
Amending Secs. 682.207(e), 682.603(g), 682.604(c),
685.301(b) and 685.303(b) to reflect that an FFEL or Direct loan
program school is exempt from the multiple disbursement requirement for
single-term loans and the delayed delivery requirement if--
The school's FFEL cohort default rate, Direct Loan
Program cohort rate, or weighted average cohort rate is less than 10
percent for each of the three most recent fiscal years for which data
are available; or
The school is certifying or originating a loan to
cover the cost of attendance in a study abroad program and has an FFEL
cohort default rate, Direct Loan Program cohort rate, or weighted
average cohort rate of less than five percent for the single most
recent fiscal year for which data are available.
Amending Secs. 682.209(a)(6) and 685.207(b) and (c) to
exclude certain periods of service by a borrower in the Armed Forces
from the six-month grace period for FFEL and Direct Loan program
borrowers.
Amending Secs. 682.210(c) and 685.204(b) to reflect that
FFEL lenders and the Secretary may determine a borrower's eligibility
for an in-school deferment when--
The borrower submits a request for deferment along
with documentation verifying the borrower's eligibility for the
deferment to the borrower's FFEL lender, or the Secretary for a Direct
Loan;
The borrower's FFEL lender, or the Secretary for a
Direct Loan, receives either a newly completed loan certification or,
as part of the MPN process, information from the borrower's school
indicating that the borrower is eligible to receive a new loan; or
The borrower's FFEL lender, or the Secretary for a
Direct Loan, receives student status information from the borrower's
school, either directly or indirectly, indicating that the borrower is
enrolled on at least a half-time basis.
Amending Sec. 682.210(h) to permit borrowers who are
eligible for unemployment insurance benefits to submit evidence of
their eligibility for the benefits to their FFEL lender, or to the
Secretary for a Direct Loan (see Sec. 685.204(b)(2)), to qualify for
initial and subsequent periods of an unemployment deferment.
Amending Secs. 682.211(f)(9) and 685.205(b)(9) to permit
an FFEL lender, and the Secretary for a Direct Loan, to grant a
forbearance to a borrower for a period not to exceed 60 days after the
borrower requests a deferment, a forbearance, a change in repayment
plan, or a consolidation loan.
Amending Secs. 682.401(d) and 685.402 to state the
requirements that a school must meet to be authorized to use a single
MPN as the basis for multiple loans obtained by a borrower.
Amending Secs. 682.402, 685.212, and 685.215 to provide
for discharge of the amount of a borrower's FFEL or Direct Loan program
loan disbursed on or after January 1, 1986 that should have been
refunded by the borrower's school.
Amending Secs. 682.604(f) and (g) and 685.304(a) and (b)
to permit schools to use electronic means to provide initial counseling
and exit counseling to borrowers and to require two additional
counseling elements based on new statutory initiatives.
Amending Sec. 685.300 to provide schools the option to
participate in one or more of the loan programs (subsidized,
unsubsidized, and PLUS) under the FFEL and Direct Loan programs.
These final regulations contain several changes from the NPRM. We
fully explain these changes in the Analysis of Comments and Changes
elsewhere in this preamble.

Implementation Date of These Regulations

Section 482(c) of the HEA requires that regulations affecting
programs under Title IV of the HEA be published in final form by
November 1 prior to the start of the award year (which begins July 1)
in which they apply. However, that section also permits the Secretary
to designate any regulation as one that an entity subject to the
regulation may choose to implement earlier. If the Secretary designates
a regulation for early implementation, he may specify when and under
what conditions the entity may implement it. Under this authority, the
Secretary has designated the following regulations for early
implementation:
Secs. 682.102, 682.200, 682.206, 682.401, 682.402, 682.406,
682.409, 682.414, 682.604, 682.610, 685.102(b), 685.201(a), and
685.402(f)--Upon publication, the provisions in these regulations
related to the Master Promissory Note (MPN) may be implemented by
borrowers, schools, lenders, and guaranty agencies in the FFEL Program
and borrowers and schools in the Direct Loan Program at their
discretion. This means that participants in both the FFEL and Direct
Loan programs may begin using a single MPN as the basis for multiple
loans obtained by a borrower as long as they do so consistent with all
regulatory provisions and accompanying discussion related to use of the
MPN that are included in this final rule.
Section 682.200(b) Definition of Lender--Upon publication, these
regulations may be implemented by FFEL lenders at their discretion.
This means that FFEL lenders may provide assistance to schools
comparable to the kinds of assistance provided by the Secretary to
schools under, or in furtherance of, the Direct Loan Program.
Section 682.202(c)--Upon publication, these regulations may be
implemented by FFEL lenders at their discretion. This means that FFEL
lenders may assess a lower origination fee to a borrower demonstrating
``greater

[[Page 58940]]

financial need'' as provided in these regulations.
Section 682.604(f)(2)(i), 682.604(g)(2)(vii), 685.304(a)(3)(i), and
685.304(b)(4)(vii)--Upon publication, these regulations may be
implemented by FFEL and Direct Loan program schools at their
discretion. This means that schools may explain the use of an MPN
during initial counseling and review information on the availability of
the Department's Student Loan Ombudsman's office during exit
counseling.

Analysis of Comments and Changes

The regulations in this document were developed through the use of
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 proposed regulations
must conform to agreements resulting from the negotiated rulemaking
process unless the Secretary reopens that process or explains any
departure from the agreements to the negotiated rulemaking
participants.
These regulations were published in proposed form on August 10,
1999 in conformance with the consensus of the negotiated rulemaking
committee. Under the committee's protocols, consensus meant that no
member of the committee dissented from the agreed-upon language. The
Secretary invited comments on the proposed regulations by September 15,
1999 and several comments were received. An analysis of the comments
and of the changes in the proposed regulations follows.
We discuss substantive issues under the sections of the regulations
to which they pertain. Generally, we do not address technical and other
minor changes--and suggested changes the law does not authorize the
Secretary to make.
These final regulations address changes that are specific to the
FFEL Program and changes that are common to both the FFEL and Direct
Loan programs. The following analysis begins with comments and changes
that affect only the FFEL Program, followed by comments and changes
that affect both the FFEL and Direct Loan programs.

Federal Family Education Loan Program

Section 682.102--Consolidation Loan Application

Comment: Several commenters representing guaranty agencies,
lenders, and servicers recommended that we clarify Sec. 682.102(d) to
explain which holder(s) must be contacted for a Consolidation loan when
a married couple wants to jointly consolidate their loans. The
commenters suggested that the proposed language appears to require a
married couple seeking a joint Consolidation loan to contact all the
holders for one of the applicant's loans before being able to
consolidate if either or both applicants have multiple holders.
Discussion: We agree that this language needs to be revised to be
consistent with Sec. 682.201(c)(2)(ii). If each of the applicants has
only one holder, then only the holder for one of the applicants must be
contacted. If either or both applicants have multiple loan holders, the
applicants are permitted to submit the application to any lender
participating in the Consolidation Loan Program.
Change: We have revised Sec. 682.102(d) to clarify the application
requirements for married borrowers who want a joint Consolidation loan.

Section 682.200--Definitions

Lender-Prohibited Inducements

Comment: A commenter representing a guaranty agency suggested that
we clarify that the inducement provision applies only to originating
lenders.
Discussion: We do not believe that the inducement prohibition
applies only to originating lenders. The HEA clearly states that the
term ``eligible lender'' does not include any lender that offers,
directly or indirectly, points, premiums, payments or other
inducements, to any educational institution or individual in order to
secure applicants. The statute does not distinguish between originating
lenders and other loan holders.
Change: None.

Repayment Period

Comment: Some commenters recommended that we clarify that the 25-
year extended repayment schedule is available to PLUS loan borrowers.
Discussion: We agree with the commenters.
Change: We have revised the definition of ``Repayment period'' in
Sec. 682.200(b) to specifically reference PLUS loan borrowers.

Section 682.201--Eligible Borrowers

Consolidation Loans

Comment: Some commenters suggested that Sec. 682.201(c)(1) should
be restructured to clarify that loans subject to litigation or
administrative wage garnishment are eligible for inclusion in a
Consolidation loan (including during the 180-day period for adding
loans to a Consolidation loan) once the judgment or wage garnishment
order is vacated, even if the judgment or order is in place at the time
the borrower applies for the Consolidation loan. The commenters pointed
out that the restriction in section 428C(a)(3)(A)(ii) of the HEA need
not be read to apply to the prohibition against consolidating loans
which are subject to a judgment or wage garnishment order contained in
section 428C(a)(3)(A)(i) of the HEA. Instead, the restriction applies
only to defining an eligible borrower's status on the loans to be
consolidated. The commenters believe this clarification will ensure
that a borrower is not prevented from consolidating a loan which was
subject to a judgment or wage garnishment order at the time of
application, provided the order is vacated prior to consolidating the
loan and will also protect the federal fiscal interest by allowing the
guarantor to ensure that the borrower has completed the application
process before the guarantor cancels the judgment or garnishment order.
Discussion: We agree with the commenters that this change will
preserve a borrower's eligibility to consolidate while protecting the
federal fiscal interest. We agree with the commenters that it is
prudent for the holder to delay vacating a judgment or canceling a wage
garnishment order until after the borrower has completed the
consolidation process. We understand the commenters' concern that if a
borrower applies for a Consolidation loan and the holder vacates the
loan prior to the consolidation, the borrower may not follow through.
Change: We have revised Sec. 682.201(c)(1) to permit lenders to
consolidate loans based on the status of the loans at the time of
consolidation, not the time of application.
Comment: Some commenters stated that they believed that proposed
Sec. 682.201(d), that specifies when a borrower's eligibility to
receive a Consolidation loan terminates, conflicts with Sec. 682.201(e)
that specifies when a Consolidation loan borrower may consolidate an
existing Consolidation loan. The commenters believe it is unclear
whether the permission to consolidate a Consolidation loan in

[[Page 58941]]

paragraph (e) overrides paragraph (d)(1), which states that a
borrower's eligibility to obtain a new Consolidation loan is terminated
upon receipt of a Consolidation loan except where the borrower receives
a new loan after the date of the original consolidation. The commenters
also suggested that we clarify that a married couple may consolidate
their individual Consolidation loans into a single joint Consolidation
loan.
Discussion: As reflected in Sec. 682.201(e), a Consolidation loan
borrower may obtain a new Consolidation loan if the borrower
consolidates the outstanding Consolidation loan with at least one other
eligible loan. A borrower is not required to obtain a new loan in order
to consolidate. Also, as the commenters noted, a married couple may
consolidate their respective Consolidation loans into a single joint
Consolidation loan without either borrower being required to obtain a
new loan.
Change: We have restructured Sec. 682.201(d) and (e) to clarify the
circumstances under which borrowers may consolidate an outstanding
Consolidation loan to address the commenters' concerns.

Section 682.202--Permissible Charges by Lenders to Borrowers Interest
Rates

Comment: Several commenters recommended that
Sec. 682.202(a)(1)(vii) be revised to specify that the interest rate
formula included in this paragraph applies to a Stafford loan for which
the first disbursement was made on or after July 1, 1995 and prior to
July 1, 1998 without reference to the period of enrollment for which
the loan was made. The commenters pointed out that although Dear
Colleague Letter 93-L-161 (dated November 1993), which summarized the
interest rate change for the period July 1, 1995 and prior to July 1,
1998, included a reference to the period of enrollment for Stafford
loans made on or after July 1, 1995 (as well as for loans made on or
after July 1, 1998), subsequent guidance issued by the Department
(e.g., annual memoranda regarding applicable interest rates) did not
include this reference for the 1995-1998 period.
Discussion: We agree with the commenters.
Change: We have revised Sec. 682.202(a)(1)(vii) to delete reference
to a period of enrollment that includes or begins on or after July 1,
1995.
Comment: Several commenters suggested that Sec. 682.202(a)(3)(iii)
be revised to delete the reference in the SLS interest rate formula to
``the period of enrollment that began prior to July 1, 1994'' because
this paragraph applied to SLS loans made on or after October 1, 1992
through the cessation of the SLS Program on July 1, 1994. The
commenters pointed out that Dear Colleague Letter 93-L-161 (dated
November 1993), summarizing Public Law 103-66, specified that the
termination of the SLS program was effective for periods of enrollment
that began on or after July 1, 1994, without regard to the loan
disbursement date.
Discussion: We agree with the commenters.
Change: We have removed the technical change proposed in
Sec. 682.202(a)(3)(iii) in the NPRM referencing loans disbursed prior
to July 1, 1994.
Comment: In response to the Secretary's request for comments on how
to make these proposed regulations easier to understand, a major
association representing credit unions suggested that for clarity, we
provide an example to clarify the regulatory requirement to use
weighted average interest rates for Consolidation loans.
Discussion: The weighted average interest rate used for
Consolidation loans in both the FFEL and Direct Loan programs should be
calculated based on the interest rates that apply to the loans being
consolidated at the time the loan holders complete the verification
certificates. In making the calculation, it is important to note that
an interest rate that is lower than the repayment period rate applies
to most subsidized and unsubsidized Stafford loans in the FFEL and
Direct Loan programs during the in-school, grace, and deferment
periods. This affects the calculation of the weighted average interest
rate. If, for example, a loan is in a grace period at the time the loan
holder completes the verification certificate, the lower grace period
interest rate would be used in the calculation of the weighted average
interest rate on the Consolidation loan. Conversely, if the borrower
applies for a Consolidation loan after entering repayment on a loan,
the higher repayment interest rate of the loan being consolidated would
be used in calculating the weighted average interest rate on the
Consolidation loan.
The weighted average interest rate is a single interest rate that
is calculated by using the borrower's loan balances and the current
annual interest rate for each of the borrower's loans.
For example: A borrower has two subsidized Federal Stafford Loans,
one for $10,000 and the other for $5,000, both with an interest rate of
8.25 percent. The borrower also has a $3,500 unsubsidized Federal
Stafford Loan with an interest rate of 7.46 percent and a $3,000
Federal Perkins Loan with a 5.0 percent interest rate. The borrower
consolidates these loans.
The following steps outline one way to calculate the weighted
average interest rate:
1. Multiply the balance of each loan being consolidated by the
interest rate that applies to that loan at the time the verification
certificate is completed.
2. Add the calculated interest amounts for all loans being
consolidated ($1,648.60).
3. Add the loan balances for all loans being consolidated
($21,500).
4. Divide the sum of the calculated interest amounts by the sum of
the loan balance amounts (7.66%).
5. Round the quotient (the answer to Step 4) to the nearest higher
one-eighth of one percent (7.75%).
6. Compare the result in Step 5 to the 8.25% maximum interest rate
and determine which is lower. The lower of the two rates is the
borrower's fixed interest rate for the Consolidation loan.
The weighted average interest rate for the borrower in this example
is 7.75%.
Change: None.

Origination Fee

Comment: Several commenters pointed out that in
Sec. 682.202(c)(2)(i) the term ``minimum'' was incorrectly used rather
than ``maximum'' when referencing the criteria for charging a lower
origination fee to some borrowers.
Discussion: We agree with the commenters that the term ``minimum''
was inadvertently used and is not consistent with the language in the
preamble to the NPRM. To be eligible for a lower origination fee under
this provision, the borrower's EFC used to determine the eligibility
for the loan must be equal to or less than the maximum qualifying EFC
for a Federal Pell Grant at the time the loan is certified.
Change: We have revised Sec. 682.202(c)(2)(i) to replace
``minimum'' with ``maximum.''
Comment: Two commenters representing national lenders objected to
proposed Sec. 682.202(c)(4) that would provide that, for purposes of
determining whether a lender is charging all similarly situated
borrowers the same origination fee, all lenders under common ownership,
including ownership by a common holding company, constitute a single
lender. The commenters argued that this provision violates the plain
language of the HEA and conflicts with Congressional intent and settled
administrative policy underlying the Federal banking laws. They further
stated that this provision is

[[Page 58942]]

not needed to prevent manipulation of bank subsidiaries of bank holding
companies to circumvent the nondiscrimination provision. They stated
that it unfairly places subsidiaries of large bank holding companies at
a competitive disadvantage in specific geographic areas in which they
provide loans. The commenters also argued that the proposed regulations
will eliminate competition in the FFEL program, providing some state
secondary markets or primary lenders a stranglehold in certain states.
They contended that subsidiaries that previously have maintained
separate origination fee discount policies to compete in state or
regional markets would be required to apply one fee policy across the
country, leaving them no choice but to withdraw from certain markets.
One of the commenters noted that they had maintained a system-wide
policy for their subsidiaries which was geographically based, allowing
the particular subsidiary to establish its policy in its geographical
area and they recommended that the Secretary not disregard such
systems, particularly those that predate the enactment of the
nondiscrimination provision.
Discussion: In light of the commenters' concerns, we have
reconsidered the manner in which the proposed regulation would have
applied the origination fee non-discrimination provisions. We do not
believe that implementing this provision of the law to ensure greater
equality in the origination fees assessed to similarly situated FFEL
borrowers should have the unintended negative consequence of reducing
competition in the FFEL Program and limiting a borrower's choice of a
lender. We believe that another approach to applying the provision
could be used to prevent manipulation with intent to circumvent the law
while preserving lender choice, access, and competition. Therefore, we
have decided that a state-based rather than a nationwide approach to
applying the origination fee non-discrimination provision should be
used. We believe that a state-based approach to applying the provision
will prevent manipulation by lenders with the intent to circumvent the
law while preserving lender choice, access, and competition in the FFEL
Program. Moreover, we believe that a state-based application of the
requirements addresses the commenters' concerns that national and
multi-state lenders will be prevented from competing effectively and
may be forced to leave certain markets.
Change: Section 682.202(c) has been revised to clarify the
definition of lender to provide that any lending entity, including any
multi-state lending entity, that makes loans in a particular state,
must apply any policy of lower origination fees consistently to all
borrowers residing in that state or who attend school in that state.
Comment: One commenter recommended that we clarify the
documentation a lender should use to demonstrate the borrower's
``greater financial need'' for origination fee discount purposes.
Discussion: We believe that it is important to provide lenders with
flexibility in this area and therefore decline to regulate
documentation standards that a lender must use to determine greater
financial need.
Change: None

Section 682.206--Due Diligence in Making a Loan

Comment: Some commenters recommended that Sec. 682.206(a)(1) be
revised to clarify that the lender's responsibilities and obligations
in the loan making process with respect to having a borrower complete
and sign the promissory note applies only to a borrower with subsequent
loans (rather than ``multiple'' loans) made under a ``valid'' MPN.
Discussion: We agree with the commenters that the use of the term
``subsequent'' loans is more appropriate than using the term
``multiple'' loans. However, we believe it is unnecessary to specify
that the MPN is ``valid'' because a lender has no basis for relying on
an invalid or expired MPN for any reason.
Change: We have revised Sec. 682.206(a) by substituting
``subsequent'' for ``multiple.''

Section 682.209--Repayment of a Loan

Comment: Several commenters recommended that Sec. 682.209(a)(7)(ix)
be restructured to clarify that only those borrowers who first obtained
an FFEL Program loan on or after October 7, 1998 and with outstanding
debt totaling more than $30,000 qualify for the extended repayment
plan. The commenters suggested that, as proposed, the regulations do
not fully define the eligibility criteria for an extended repayment
plan.
Discussion: We agree with the commenters.
Change: We have revised Sec. 682.209(a)(7)(ix) to clearly provide
that, under an extended repayment schedule, a new borrower whose total
outstanding principal and interest in FFEL loans exceeds $30,000 may
repay the loan on a fixed annual or graduated repayment plan for a
period that may not exceed 25 years.
Comment: Several commenters suggested that Sec. 682.209(a)(8)(i)
and (ii), governing the period of time to repay a loan, be revised to
include reference to the 25-year extended repayment plan.
Discussion: We agree with the commenters.
Change: We have revised both paragraphs to provide for repayment of
25 years under an extended repayment plan.
Comment: Several commenters suggested that Sec. 682.209(h)(3)(ii)
be revised to clarify that defaulted Title IV loans on which
satisfactory repayment arrangements have not been made may not be taken
into consideration when determining the maximum repayment period on a
Consolidation loan.
Discussion: We believe that the regulations clearly state that only
a defaulted Title IV loan on which satisfactory repayment arrangements
have been made may be included for purposes of establishing the maximum
repayment period for a Consolidation loan. Otherwise, the regulations
specify that all defaulted loans, including non-Title IV loans, may not
be included in the determination of the maximum repayment period.
However, to clarify this point, we will specify in the regulations that
the balance used in making this determination may not include ``any
defaulted loans.''
Change: We have inserted the word ``any'' before ``defaulted
loans'' in Sec. 682.209(h)(3)(ii).

Section 682.210--Deferment

Comment: Several commenters noted that proposed Sec. 682.210(a)(3)
indicates that interest may be paid by the Secretary for all or a
portion of a qualifying Consolidation loan that meets the requirements
under Sec. 682.301 when the loan is made. These commenters recommended
that the reference to ``when the loan is made'' be deleted. The
commenters stated their belief that this phrase was carried over from
the existing provision which addresses Stafford loans only and could be
misunderstood as an indication that loans added within the 180-day
period following the date a Consolidation loan is made may not be
eligible for interest benefits.
Discussion: We agree with the commenters that the phrase ``when the
loan is made'' could be misunderstood to exclude from interest subsidy
loans added to a Consolidation loan within the 180-day period following
the date the Consolidation loan is made.
Change: We have revised Sec. 682.210(a)(3) by deleting the phrase
``when the loan is made.''

[[Page 58943]]

Comment: Some commenters stated that the parenthetical phrase
``(unless based on the dependent's status)'' following reference to the
PLUS program in Sec. 682.210(c)(5) is irrelevant and should be removed.
The commenters suggested this deletion is appropriate because borrowers
serving in a medical internship or residency program are prohibited by
law from receiving an in-school deferment, regardless of whether the
deferment is on the borrower's loan based on his or her own service, or
on a parent borrower's loan based on his or her dependent's service in
the internship or residency program.
Discussion: We disagree with the commenters. The parenthetical
exception relates to the eligibility of a parent PLUS borrower to defer
a PLUS loan based on their dependent son or daughter's attendance in
school. We have never interpreted the prohibition to apply to an
intern's or resident's eligibility to defer a parent PLUS loan based on
the intern's or resident's dependent's in-school status.
Change: None.

Section 682.301--Eligibility of Borrowers for Interest Benefits on
Stafford and Consolidation Loans

Comment: Several commenters suggested that Sec. 682.301(a)(3)(ii)
should be revised to clarify that to qualify for interest benefits, a
Consolidation loan made on or after August 10, 1993, but prior to
November 13, 1997, must have been comprised solely of subsidized loans.
The commenters believe that this provision might be misinterpreted to
include Consolidation loans that include but are not solely comprised
of subsidized Stafford loans.
Discussion: We do not agree that the term ``solely'' needs to be
added to provide clarity. However, we have determined that moving the
word ``only'' would clarify the regulations.
Change: We have revised Sec. 682.301(a)(3)(ii) to clarify that a
Consolidation loan borrower qualifies for interest benefits if the loan
application was received on or after August 10, 1993, but prior to
November 13, 1997 and if the loan consolidates only subsidized Stafford
loans.
Comment: Numerous commenters representing lenders, guaranty
agencies, servicers, and secondary markets recommended that
Sec. 682.301(a)(iii) be restructured to separately reflect the
statutory provision governing the eligibility of Consolidation loans
made on or after November 13, 1997 and on or after July 1, 2000 for
interest subsidies. The commenters indicated that conflicting guidance
has been disseminated since November 13, 1997 regarding the loan types
that may comprise the subsidized portion of a Consolidation loan for
interest subsidy purposes, specifically whether it includes all
subsidized FFEL loans or only subsidized Stafford loans. These
commenters suggest that the final regulations should clarify that
lenders are permitted to follow either of these two approaches for
loans made on or after November 13, 1997 and prior to July 1, 2000. The
commenters further recommended that the final regulations should
clarify that any regulatory provision authorizing use of either
approach may be implemented earlier than July 1, 2000.
Discussion: We understand that lenders may have received differing
guidance on the scope of the interest subsidy available to FFEL
Consolidation loan borrowers after the enactment of the Emergency
Student Loan Consolidation Act of 1997 (Pub. L. 105-78). However, we
have identified only a small subset of borrowers, specifically
subsidized Consolidation loan borrowers who include their Consolidation
loans in a subsequent Consolidation loan, as potentially affected by
the difference in guidance. The commenters did not present any evidence
that the differing guidance for this very small group of borrowers
represents a problem. We do not believe that this speculative small
problem necessitates making a change in the regulations. However, we
remind lenders that we are available to provide technical assistance on
a case-by-case basis should it be necessary.
Change: None.

Section 682.401--Basic Program Agreement

Comment: Several commenters recommended that Sec. 682.401(b)(5)(i)
be revised to remove reference to an ``application'' as it regards the
borrower's right to indicate a preferred lender and instead include a
reference to other information submitted during the loan origination
process. The commenters pointed out that there is not, under the MPN
process, a specific document entitled ``application.''
Discussion: We agree with the commenters. The item allowing the
borrower to indicate a preferred lender is now contained on the MPN.
Change: We have revised Sec. 682.401(b)(5)(i) to delete the word
``application'' and replace it with ``in other written or electronic
documentation submitted during the loan origination process.''
Comment: Several commenters recommended that
Sec. 682.401(b)(5)(ii)(D) be removed to eliminate the requirement that
the borrower provide information from the school demonstrating the
borrower's eligibility for the loan and providing the maximum loan
amount that the student may borrow. The commenters noted that this data
flow is inconsistent with changes made to the HEA by the 1998
Amendments.
Discussion: Although the HEA no longer requires the student to
provide, through the school, information on the student's eligibility
for the loan, the school must still provide the loan amount. We will
revise the regulations to reflect this change.
Change: We have revised Sec. 682.401(b)(5)(C) (formerly
Sec. 682.401(b)(5)(D)) to indicate that the borrower must provide to
the lender information from the school on the maximum amount that may
be borrowed by or on behalf of the student.

Section 682.406--Conditions of Reinsurance Coverage

Comment: One commenter representing a guaranty agency pointed out
that this section does not reference the reduced rebate fee on
Consolidation loans that was effective for Consolidation loans based on
applications received on or after October 1, 1998 through January 31,
1999. The commenter noted that the current regulations indicate that
the interest payment rebate fee of 1.05 percent applies to all
Consolidation loans disbursed on or after October 1, 1993. The 1998
Amendments reduced the fee to 0.62 percent for loans made on
applications received from October 1, 1998 through January 31, 1999.
Discussion: We agree with the commenter that the regulations should
reflect the reduced rebate fee that applied to Consolidation loans
based on applications received from October 1, 1998 through January 31,
1999.
Change: We have revised Sec. 682.406 to incorporate the reduced fee
of 0.62 percent on Consolidation loans for this period.

Section 682.414--Records, Reports, and Inspection Requirements for
Guaranty Agency Programs

Comment: Many commenters representing lenders, guaranty agencies,
servicers, and secondary markets recommended that the regulations be
changed to clearly state that returning a true and exact copy of the
original promissory note to the borrower has the same standing as the
original promissory note. The commenters suggested that the regulations
should be revised to indicate that the true and

[[Page 58944]]

exact copy shall be admissible as evidence in all state and federal
courts notwithstanding any provision of state law to the contrary. The
commenters further suggested that the regulations reflect that the
lender may send a notice to the borrower in place of the original MPN
when a loan made under an MPN is paid in full by or on behalf of the
borrower. The commenters stated that they believe that sending the
notice effectively preempts any state law requiring the lender to send
the borrower the original or a copy of the promissory note and
recommended that the Secretary provide an explanation of this position
in the final regulations to ensure that this preemption is fully
understood.
Discussion: Section 432(m)(1)(D) of the HEA, as added by the 1998
Amendments, specifically states that notwithstanding any other
provision of law, each loan made under an MPN shall be separately
enforceable in all Federal and State courts on the basis of an original
or copy of the MPN. Therefore, the statute itself has the effect of
preempting state law and it is not necessary for the Secretary to
regulate further in this area. The regulations also allow the lender to
send a notice to a borrower that informs the borrower that the loan is
paid in full. Indeed, this approach must be used with the MPN process,
which provides for the making of multiple loans with different
repayment dates and which may be held by different loan holders using a
single note.
Change: None.

FFEL and Direct Loan Programs

Sections 682.200 and 685.102--Definition of Estimated Financial
Assistance

Comment: One commenter representing a school stated that the
different treatment of veterans' educational benefits paid under
Chapter 30 of Title 38 of the United States Code and national service
education awards or post-service benefits under Title I of the National
and Community Service Act of 1990 (Americorps) in determining a
student's eligibility for subsidized FFEL and Direct Loan program loans
and in determining a student's eligibility for unsubsidized loans is
administratively burdensome to schools. To reduce the administrative
burden on schools, the commenter recommended that we treat all
resources the same way for all Title IV programs. Another commenter
representing FFEL guaranty agencies noted the discrepant treatment
between subsidized and unsubsidized loans as it applies to Americorps
benefits and encouraged the Secretary to pursue a legislative change
that would allow schools to exclude Americorps benefits when
determining a borrower's eligibility for unsubsidized, as well as
subsidized, FFEL and Direct Loan program loans.
Discussion: We realize that the different treatment of veterans'
educational benefits paid under Chapter 30 of Title 38 of the United
States Code and Americorps benefits in determining a student's
eligibility for subsidized FFEL and Direct Loan program loans and in
determining a student's eligibility for unsubsidized loans complicates
award packaging and may be administratively burdensome to schools.
However, this different treatment is required by Section 480(j) of the
HEA.
Change: None.
Comment: A commenter pointed out that there are two versions of the
Montgomery GI Bill--active duty and reserve--and suggested that it
would be helpful to clarify that Chapter 30 of Title 38 of the United
States Code is the active duty version.
Discussion: We agree with this suggestion.
Change: We have revised the definition of estimated financial
assistance in Secs. 682.200(b) and 685.102(b) to clarify that Chapter
30 of Title 38 of the United States Code is the active duty version of
the Montgomery GI Bill.

Sections 682.204 and 685.203--Loan Limits

Comment: One commenter representing a school suggested an
alternative method for determining prorated loan amounts instead of the
method proposed in the NPRM. The alternative method recommended by the
commenter included looking at the maximum annual loan limit, dividing
by the number of terms in the year, and then multiplying by the number
of terms during which the borrower was enrolled half time or more.
Another school commenter believed that the rationale for prorating
the loan amounts of graduating seniors in a program of undergraduate
education is unclear. This commenter noted that the statute indicates
that ``if such student is enrolled in a program of undergraduate
education which is less than one academic year,'' proration is
required. The commenter did not believe that a student who is in the
final term of a program of undergraduate education that is greater than
one academic year meets this criteria. This commenter also pointed out
that borrowers other than graduating seniors may be eligible to receive
up to the full applicable annual loan limit depending upon costs and
other financial assistance regardless of whether or not the borrower is
enrolled less than full-time or for one term only. The commenter
believes that the Department should be concerned about overborrowing
before the borrower reaches the final term if the rationale for
prorating the loan amounts of graduating seniors is to ensure that loan
amounts do not unnecessarily inflate debt levels.
Another commenter representing a school observed that the proposed
regulations do not provide for consistent treatment of loan proration
for programs or remainder of programs of less than an academic year.
The commenter believes the regulations contradict the language in the
1998 Amendments that specifically requires the use of semester,
trimester, quarter, or clock hours when prorating the loan limits for
programs or portions of programs that are less than a full academic
year. This commenter stated that the regulations should reflect the HEA
by prorating the total amount the student may borrow for a program of
study that is less than a full academic year in length or a portion of
a program that is less than a full academic year in length by using the
relationship of the program credit to that of a full academic year. The
commenter believes that this simplified proration should be used for
all years of undergraduate students applied to the appropriate full
academic year limits.
Discussion: Although we appreciate the suggestion of an alternative
method for loan proration, the loan proration requirements, including
the method of calculating prorated loan amounts, is statutory. As a
result, the regulations mirror the statute as closely as possible, and
alternative methods of calculation cannot be considered without
statutory change. The application of loan proration to borrowers in
their final term of their undergraduate programs is also statutory and
was retained by the 1998 Amendments. The approach to loan proration for
programs or portions of programs of less than an academic year
recommended by the final commenter would result in some students
receiving a full annual loan limit for a program that is less than an
academic year as that term is defined in statute. The 1998 Amendments
clarified that annual loan limits are authorized for an academic year
as that term is defined in section 481(a)(2) of the HEA. The definition
contains a minimum standard of instructional time and academic
coursework. A program that does not meet both of these statutory
standards for an academic year is clearly

[[Page 58945]]

less than an academic year, and students enrolled in such a program are
not eligible to receive a full annual loan amount. The strictly
proportional calculation recommended by the commenter would result in a
full annual loan amount for students in programs that meet the academic
coursework standard of the definition in section 481(a)(2) of the HEA,
but do not meet the standard for instructional time. We do not believe
that this result would be consistent with Congressional intent. A
proportional loan amount calculated as a ratio of the academic credit
to the academic year is used for remaining portions of programs of less
than an academic year. Under these circumstances, the borrower is
completing a program that is longer than an academic year and therefore
examining the remaining portion of the program against both standards
of the academic year is not applicable.
Change: None
Comment: Several commenters pointed out that Sec. 682.204 (a)(2) of
the proposed regulations addressed students enrolled in one-year
programs with less than a full academic year remaining, but did not
cover remaining balances of less than an academic year for other
programs.
Discussion: The commenters are correct that this section does not
address students enrolled in programs of study with less than a full
academic year remaining. Rather, it addressed only students in one-year
programs of study with less than an academic year remaining. We believe
that revising the regulations to include a provision for students in
remaining balances of programs, as the commenters suggest, will
satisfactorily address both groups of students.
Change: We have revised Secs. 682.204(d)(2) and 685.203(c)(2) to
provide for an additional unsubsidized annual Stafford loan amount for
students enrolled in programs of study with less than a full academic
year remaining to complete the program. We have deleted reference to a
one-year program with less than a full academic year remaining in
Secs. 682.204(d)(2) and 685.203(c)(2).

Sections 682.209 and 685.207--Grace Period for Military Service

Comment: Several commenters representing FFEL lenders, servicers,
and guaranty agencies pointed out that the preamble discussion in the
NPRM indicated that borrowers who qualified for the exclusion of
certain periods of service in the Armed Forces from the six-month grace
period would be required to re-enroll within 12 months of their return
from active duty service. While the commenters agreed that 12 months
may be a reasonable amount of time to re-enroll, they noted that the
requirement was not included in the proposed regulations and requested
that we not limit the period to 12 months in the final regulations. A
commenter representing a school supported our acknowledgement that some
borrowers may need more time than others to re-enroll in the next
available regular enrollment period and the proposal to restore the
full six-month grace period to borrowers whose loans were in the grace
period when the borrowers were called to active duty.
Discussion: The commenters are correct that the proposed
regulations did not include the requirement that the period necessary
for a borrower to resume enrollment at the next available regular
enrollment period when the borrower returns from active duty service be
limited to 12 months. As discussed in the preamble to the NPRM, the
time period in which a borrower needs to re-enroll in the ``next
available regular enrollment period'' after returning from active duty
service may need to be longer for some borrowers than others,
especially if the borrower is pursuing a non-traditional academic
program, and given the fact that the borrower may not re-enroll in the
same program when returning from active duty. The Secretary generally
believes that twelve months allows more than ample time for the
majority of borrowers to re-enroll and provides a reasonable limit
(within the three-year total exclusion limitation) on the amount of
time that may be excluded from a borrower's six-month grace period.
However, in keeping with the agreement reached during negotiated
rulemaking, the Secretary has not included this limitation in the
regulations.
Change: None.

Sections 682.210 and 685.204--Deferment

In-School Deferment

Comment: Commenters representing FFEL lenders and guaranty agencies
suggested that the rules regarding the end date for an in-school
deferment be removed from Sec. 682.210(a) because paragraph (a)
provides general information applicable to all deferments and should
not contain information specific to a particular deferment. The
commenters believed that information related to the in-school deferment
end date should be contained within the in-school deferment section in
Sec. 682.210(c)(3). The commenters also requested that we revise
Sec. 682.210(c)(3) to reflect that valid enrollment information may be
received by lenders using an electronic format rather than a form as
the proposed regulatory language suggests.
Discussion: We do not agree with the commenters that information
about the end date for an in-school deferment should be removed from
Sec. 682.210(a). We believe this information is correctly placed
because it is contained in a provision that outlines when authorized
deferment periods end. However, we agree that the process information
included in the proposed regulatory language would be better placed in
Sec. 682.210(c)(3). We also agree with the commenters that the proposed
regulatory language in Sec. 682.210(c)(3) should be revised to reflect
that valid enrollment information may be received by lenders
electronically.
Change: We have moved the in-school deferment process information
from Sec. 682.210(a)(6)(iv) to Sec. 682.210(c)(3). We also believe that
the revisions to Sec. 682.210(c)(3) accommodate the use of electronics
to provide valid enrollment information.
Comment: A commenter representing a guaranty agency requested
clarification that both FFEL lenders, and the Secretary for Direct
Loans, may process an in-school deferment based on student status
information that does not come directly from the borrower's school. The
commenter pointed out that the proposed regulatory language did not
make it clear that the student status information may be received
directly or indirectly from the school.
Discussion: As stated in the preamble to the NPRM, a borrower's
FFEL lender, or the Secretary for Direct Loans, may determine that a
borrower is eligible for an in-school deferment based upon student
status information received from the borrower's school, either directly
or indirectly, indicating that the borrower is enrolled on at least a
half-time basis. The lender or the Secretary could receive school-
provided information directly, through the SSCR process of the National
Student Loan Data System (NSLDS), or from a third-party servicer.
Regardless of whether the lender or the Secretary receives the student
status information directly or indirectly, the information must
originate with the school. We agree with the commenter that the
regulations should reflect the fact that student status information may
be received directly or indirectly from the school.
Change: We have revised Secs. 682.210(c)(1)(iii) and
685.204(b)(1)(iii)(A)(3) to reflect that student status information
received directly or indirectly from a school may

[[Page 58946]]

be used to determine a borrower's in-school deferment eligibility.
Comment: A commenter representing a school supported the proposal
to require notice to borrowers of their option while they are in school
to pay the interest that accrues on an unsubsidized loan during an in-
school deferment period or cancel the deferment entirely and pay on the
loan. The commenter requested that we also require that the notice
include information about the consequences of selecting those options--
in particular that paying accruing interest during the deferment or
paying on the loan rather than taking the deferment may result in lower
total payments over the life of the loan. Another commenter
representing a guaranty agency stated that the proposed regulatory
language did not provide sufficient guidance to lenders about how to
deal with what may appear to be due diligence gaps that may result from
a borrower electing to cancel an in-school deferment that was
automatically applied by the lender and then not making the required
payments on the loan. The commenter noted that during the negotiated
rulemaking sessions we stated that lenders were not allowed to apply an
administrative forbearance in these situations and requested that we
make this point more explicit in the regulations.
Discussion: We agree with the commenter that it would be helpful to
borrowers if information about the consequences of the options was
included in the notice sent to borrowers when an in-school deferment is
applied automatically. For example, the notice should explain to
borrowers that unpaid interest that accrues on their unsubsidized loans
will be capitalized at the end of the deferment period and inform them
that by paying the interest during the deferment period they may reduce
the total amount they pay over the life of the loan.
In response to the commenter who requested that we state more
explicitly how lenders should deal with possible due diligence gaps
that may result from a borrower electing to cancel an in-school
deferment that was automatically applied by the lender and then not
making the required payments on the loan, we defer to the agreement
reached by the negotiated rulemaking committee that we not regulate the
action lenders must take in this situation. As discussed during
negotiations, this decision seems appropriate given the infrequent
nature of these situations. We expect lenders to take actions
appropriate to the unique circumstances of each borrower's situation
and remind lenders that we are available to provide technical
assistance on a case-by-case basis should it be necessary.
Change: We have revised Sec. 682.210(c)(2) to reflect that the
notice a lender sends to a borrower when an in-school deferment is
applied automatically must include an explanation of the consequences
of the options presented to the borrower in the notice.

Unemployment Deferment

Comment: Several commenters responded to the Secretary's request
for comment as to whether the minimum documentation items for
determining a borrower's eligibility for an unemployment deferment
based on the borrower's eligibility for unemployment insurance benefits
should be included in the final regulations. Generally, commenters
representing FFEL lenders, servicers, and guaranty agencies did not
believe that minimum documentation requirements should be prescribed in
regulations and supported no change to the proposed regulations. One of
the commenters representing servicers stated that unless there is
evidence showing that all states include certain data elements on check
stubs or other types of documentation related to eligibility for
unemployment insurance benefits, the final regulations should not
include minimum documentation requirements. A commenter representing a
guaranty agency did, however, support prescribing minimum documentation
requirements in regulations provided that the requirements were
developed with community involvement. Another commenter representing
credit unions stated that the minimum documentation items discussed by
the negotiated rulemaking committee and presented in the preamble to
the NPRM appeared reasonable, but did not comment on whether the items
should be prescribed in regulations.
Discussion: In response to the overwhelming support for not
prescribing minimum documentation requirements in the regulations, we
have decided not to make changes in the final regulations. We are
basing this decision on the fact that a borrower must provide evidence
of his or her eligibility for unemployment insurance benefits to his or
her lender, or the Secretary for Direct Loans, in order to qualify for
an unemployment deferment based on eligibility for unemployment
insurance benefits. As agreed during negotiations, the evidence of a
borrower's eligibility for unemployment insurance benefits must prove
that the borrower is eligible to receive unemployment insurance
benefits for the period for which he or she is requesting an
unemployment deferment. We acknowledge that there are no uniform
documentation requirements for unemployment insurance benefits.
However, to fulfill the documentation requirement for the unemployment
deferment, we believe that, at a minimum, the documentation should
include the borrower's name, address, and social security number and
the effective dates of the borrower's eligibility to receive
unemployment insurance benefits.
Change: None.
Comment: Commenters representing FFEL lenders, servicers, and
guaranty agencies expressed their belief that the regulatory
requirement that the unemployment deferment end date be within six
months of the certification date should apply regardless of whether the
deferment is being granted as a result of the borrower submitting
evidence of his or her eligibility for unemployment insurance benefits
or as a result of the borrower submitting a written certification of
eligibility (i.e., a completed unemployment deferment request form).
Discussion: We agree with the commenters. However, we note that the
reference to ``certification date'' is not applicable if a deferment is
granted based on a borrower's submission of evidence of his or her
eligibility for unemployment insurance benefits. In this case, the
unemployment deferment end date would be within six months of the date
the borrower submits evidence of his or her eligibility for
unemployment insurance benefits.
Change: We have revised Sec. 682.210(h) to reflect that the
unemployment deferment end date provision applies to both methods by
which a borrower may qualify for an unemployment deferment.

Sections 682.211 and 685.205--Forbearance

Comment: Commenters representing FFEL lenders, servicers, and
guaranty agencies expressed their belief that the final regulations
should accurately and consistently reflect the elimination of the
requirement that forbearance terms be agreed to in writing. The
commenters pointed out that the requirement had been removed from
Sec. 682.211(b) but had not been removed from Sec. 682.211(c) of the
proposed regulations.
Discussion: The 1998 Amendments eliminated the requirement that the
borrower's request for forbearance be in writing; however, the 1998
Amendments did not eliminate the requirement that forbearance terms be
agreed to in writing. Section 428(c)(3)(A)(i) of the HEA continues to

[[Page 58947]]

require that forbearance terms be agreed to in writing. A forbearance
changes the repayment terms on the borrower's loan and therefore needs
to be agreed to in writing. The change we proposed to Sec. 682.211(b)
to remove the requirement that forbearance terms be agreed to in
writing is incorrect. Both Sec. 682.211(b) and Sec. 682.211(c) need to
accurately reflect that forbearance terms must be agreed to in writing.
The only reference in the regulations to a borrower's written request
for a forbearance, contained in Sec. 682.211(h), is being deleted from
the regulations.
Change: We have revised Secs. 682.211(b) and (c) to accurately and
consistently reflect that forbearance terms must be agreed to in
writing.

Sections 682.401 and 685.402--Master Promissory Note

Comment: A commenter representing a guaranty agency requested that
we change the proposed regulatory language in Sec. 682.401(b)(5) to
ensure that if a student or parent borrower does not indicate a choice
of lender on the promissory note or application a lender will not be
assigned automatically to the borrower. The commenter was concerned
that borrowers would not be entitled to choose their lenders.
Discussion: The FFEL promissory notes and applications have always
given the borrower the option to choose a lender. That option will not
be impacted by the implementation of the Master Promissory Note (MPN).
If a borrower does not provide a choice of lender on the promissory
note, a lender will not be assigned. The borrower must work with the
school to choose a lender. Section 432(m)(1)(B) of the HEA requires
that the borrower be permitted to choose his or her lender.
Change: None.
Comment: A commenter representing servicers in the FFEL Program
requested that we make a conforming change in Sec. 682.401(d)(3) to
reflect that under the MPN process guaranty agencies are no longer
bound to the use of a common application form.
Discussion: While it is true that an application form is no longer
required for Stafford loans in the FFEL Program, section 432(m)(1)(A)
of the HEA retains a reference to common application forms, as well as
including references to promissory notes and the MPN. We believe that
the regulations should retain reference to common application forms
because a common PLUS loan application remains in use until an approved
MPN for PLUS loans can be developed and a common Consolidation loan
application will be used indefinitely. By mirroring the statutory
language in the final regulations, we believe that all possible options
are covered.
Change: We have revised Sec. 682.401(d)(3) to more closely reflect
the statutory language that governs the forms guaranty agencies must
use.
Comment: A commenter representing a consumer organization expressed
the view that the proposed regulations related to the criteria a school
must meet to be authorized to use the multi-year feature of the MPN
were too broadly stated and suggested changes that included requiring
the Secretary's written authorization for multi-year use of the MPN by
a school. A commenter representing a two-year public institution wanted
to know what other criteria the Secretary would use to approve the use
of the MPN by schools other than four-year and graduate/professional
schools. Another commenter representing a credit union suggested that
this criteria should be the same as that used for four-year and
graduate/professional schools.
Discussion: We have carefully considered the suggested language
recommended by the commenter who believed that the proposed regulations
governing the criteria a school must meet to be authorized to use the
multi-year feature of the MPN are too broad and agree with a couple of
the commenter's proposed changes. Specifically, we agree with more
explicitly linking approval to use the multi-year feature of the MPN to
the required criteria listed in the regulations and reinforcing the
fact that the criteria are not all inclusive and will be applied, as
appropriate, for the type of institution. However, we do not agree with
the proposal to require the Secretary's written authorization for
multi-year use of the MPN by every school.
In response to the request for information about the criteria we
will use to approve the use of the MPN by schools other than four-year
and graduate/professional schools, we repeat our statement in the
preamble to the NPRM stating our intention to establish and announce
criteria and a process that we will use after publication of these
final regulations.
Change: We have revised Secs. 682.401(d)(4)(ii) to more
specifically link approval to use the multi-year feature of the MPN to
the required criteria and reinforce the fact that the listed criteria
are not all inclusive. The Direct Loan regulations already reflect
these policies and do not need to be changed.
Comment: A commenter representing a consumer organization requested
that we confirm that borrowers are entitled to assert a defense against
repayment of any one of the loans made under an MPN. This commenter
also expressed concern that the 10-year limit on the use of a single
MPN established in the proposed regulations is too long a period from a
consumer standpoint and requested that we change the maximum period to
five years. The commenter expressed the belief that the 10-year period
may serve the financial community well but does not serve young student
borrowers well because they are subject to making unwise decisions,
uneducated about how to cancel promissory notes, and potential targets
for fraud and abuse. The commenter believed that the minimal bother of
signing a new MPN after five years was far outweighed by the benefit of
ensuring better borrower control of the loan process and education
about the loan obligation.
Discussion: As the regulations specify, each loan made under an MPN
is enforceable in accordance with the terms of the MPN. Therefore, a
borrower would be entitled to assert a defense against repayment on
each loan made under the MPN, based on any act or omission of a school
attended by the student that would give rise to a cause of action
against the school under applicable state law.
In response to the commenter's concern about the fact that an MPN
may be valid for a period of up to 10 years, we agree with the
commenter that ensuring borrower control of the loan process and
understanding of the loan obligation are of utmost importance and that
lengthy gaps in time between obtaining loans under an MPN may not
always support these objectives. The Secretary is committed to
monitoring use of the MPN with regard to these concerns and to
evaluating options for changes to the 10-year MPN standard that is in
these final regulations.
Change: None.
Comment: A commenter representing servicers in the FFEL Program
requested that we change the proposed regulations to allow the 10-year
MPN period to be based on either the date the borrower signs the MPN or
the date the lender receives the MPN for processing if the borrower
fails to date the MPN.
Discussion: We do not agree with the commenter's proposed change
because we do not believe it is desirable for lenders or the Secretary
to accept a signed MPN that has not been dated by the borrower.
Acceptance of an MPN that has not been dated by the borrower may
negatively affect the borrower and possibly threaten the legal
enforceability of the MPN.

[[Page 58948]]

Change: None.
Comment: A commenter representing a guaranty agency noted that the
proposed MPN regulatory language indicated that we have begun
development of an MPN for PLUS loans and encouraged us to work with
FFEL Program participants to clarify provisions and maximize benefits
for borrowers. The commenter also asked if it is our intention to allow
a PLUS MPN to cover all loans that a parent borrower obtains on behalf
of all of that parent's dependent children or require a separate MPN
for loans made on behalf of each dependent child. Another commenter
representing a different guaranty agency requested that references to
parent borrowers in the provisions related to the MPN in the Direct
Loan Program regulations be removed until an MPN for PLUS loans is
approved.
Discussion: Development of an MPN for PLUS loans has begun. To
date, work groups have been involved in the initial tasks associated
with developing a PLUS MPN; however, as the development expands beyond
this stage, we intend that FFEL and Direct Loan program participants
and other interested parties will have input into the process. We
acknowledge that there are special operational considerations that need
to be taken into account with an MPN for PLUS loans. As we work with
program participants and others to develop the PLUS MPN, we will
address issues such as the applicability of the PLUS MPN to loans made
for one or more dependent children of a parent borrower. We believe
that it is appropriate to include reference to parent borrowers in the
regulations related to the MPN since approval of an MPN for PLUS loans
will occur in the near future.
Change: None.
Comment: Commenters representing two different guaranty agencies
requested changes in the proposed regulations that prescribe when an
FFEL or Direct Loan program school that is not authorized by the
Secretary for multi-year use of the MPN must obtain a new MPN from the
borrower. One commenter suggested that the FFEL provision indicates
that a borrower must complete a new promissory note for each academic
year. The other commenter wanted the Direct Loan provision to indicate
that a borrower must complete a new promissory note for each period of
enrollment.
Discussion: In the FFEL program, loans are made in accordance with
the period of enrollment certified by the school, and an MPN is defined
as a promissory note under which a borrower may receive loans for a
single period of enrollment or multiple periods of enrollment.
Therefore, at an FFEL Program school that is not authorized by the
Secretary for multi-year use of the MPN, a borrower must complete a new
promissory note for each period of enrollment. In the Direct Loan
Program, however, loan origination can be tracked to an academic year,
and an MPN is defined as a promissory note under which a borrower may
receive loans for a single academic year or multiple academic years.
Therefore, at a Direct Loan Program school that is not authorized by
the Secretary for multi-year use of the MPN, a borrower must complete a
new promissory note for each academic year. We believe that the
operational differences in the FFEL and Direct Loan programs
necessitate differences in the regulations in this area.
Change: None.
Comment: We received several comments related to the confirmation
process or processes that schools which are authorized to use a single
MPN as the basis for multiple loans obtained by a particular borrower
must develop and document along with the FFEL lender or the Secretary
to ensure that a borrower wants subsequent loans made under the MPN.
Commenters representing the legal services negotiators on the
negotiated rulemaking committee, a consumer organization, and a school
association expressed their strong opposition to authorizing the
implementation of confirmation processes that allow passive
notification with a negative option (i.e., the borrower must take the
initiative to reject a new loan under an MPN based on a notice) and
requested that we reconsider our approval of passive confirmation
processes. The commenters requested that we require confirmation
processes that mandate a positive act by the borrower that, at a
minimum, identifies the borrower as the initiator of the loan and
confirms the type and amount of the new loan, as well as the total
amount borrowed. The commenters suggested that properly implemented
electronic signatures and written signatures would be acceptable
confirmation methods. These commenters expressed their belief that
failure to affirmatively solicit a borrower's authorization before
originating new loans is an open invitation for abuse and counters the
collective goal of encouraging responsible borrowing by informed
students. The commenters stated that the technology necessary to
develop active confirmation processes that impose a minimal burden on
borrowers, schools, lenders, and the Secretary exists, and in some
cases (i.e.; PIN numbers), has been in use for 20 years. The commenters
also suggested that the legal enforceability of loans made using the
multi-year feature of the MPN without active confirmation processes may
be questioned in the future when courts will be faced with whether to
permit enforcing collection of loans that were neither actively
requested nor clearly and affirmatively confirmed by the borrower.
A commenter representing servicers in the FFEL Program requested
that we clarify that schools and lenders may utilize passive
confirmation (i.e., notification) until such time as the proper
processes and systems enhancements can be made by schools and lenders
to implement active confirmation processes. Another commenter
representing a school suggested that we practice restraint in the area
of confirmation. This commenter stated that requiring confirmation once
a year should be sufficient since borrowers always have the option of
canceling or returning all or a portion of a loan.
Discussion: We are aware that there are strong differing views
related to the implementation of the confirmation process required by
statute that schools and lenders or the Secretary must develop and
document to ensure that a borrower wants subsequent loans under an MPN.
We also acknowledge the concerns of the commenters representing
consumers regarding confirmation processes that do not require a
positive action by a borrower to obtain subsequent loans under the MPN.
While we do not agree necessarily that the legal enforceability of
loans made in connection with a confirmation process that does not
require a positive action by the borrower could be open to challenge,
it is the Secretary's goal to maintain and enhance a borrower's control
over the lending process in the MPN environment. To achieve this goal,
we would like to reiterate our intention to work with students,
schools, lenders, guaranty agencies, and other interested parties to
develop and implement confirmation processes that make use of the best
available technology in order to maintain and enhance borrower control
over the lending process, at the same time minimizing burden to schools
and lenders. While it is true that much of the technology needed to
develop enhanced borrower-control mechanisms exists today; lenders,
schools, servicers, and the Department need time to evaluate and
determine how best to integrate available technologies into the current
student loan delivery systems and procedures. Shortly after these final

[[Page 58949]]

regulations are published, we will begin discussions with the affected
parties to meet these goals.
At this time, lenders and schools may follow the guidance in the
Department's Dear Colleague Letters--GEN-98-25, November 1998 and GEN-
99-08, February 1999--in developing and documenting confirmation
processes. As technologies that enhance borrower control over the
lending process are developed or adapted for implementation, and
different methods of confirmation are tested, we will continue to issue
guidance regarding confirmation processes. Any guidelines will be
issued in accordance with applicable requirements of the Administrative
Procedure Act. As stated in the preamble to the NPRM, after evaluating
various confirmation processes, it is our ultimate plan to develop
regulations governing confirmation processes.
Change: None.

Sections 682.402 and 685.215--Unpaid Refund Discharge

Comment: One commenter representing a guaranty agency suggested
that the use of the term ``initial determination'' in the provision
that describes the additional documentation a borrower must provide
when requesting a review of a guaranty agency's determination on an
unpaid refund discharge request could be problematic if the borrower
appeals the guaranty agency's decision more than once. The commenter
believed that the wording of the proposed regulation could leave a
guaranty agency vulnerable to repeatedly having to examine the same
documentation submitted on second and subsequent appeals. The commenter
requested that we change the term ``initial determination'' to ``any
prior determination'' to clarify that in all cases a borrower may only
appeal a determination when the borrower has new documentation that was
not previously reviewed by the guaranty agency.
Discussion: We agree with the commenter.
Change: We have revised Sec. 682.402(l)(5)(vii)(A) to reflect that
a borrower may request a review of a guaranty agency's prior
determination on an unpaid refund discharge request only if the
borrower has additional documentation supporting the borrower's
eligibility that was not considered in any prior determination.
Comment: None.
Discussion: We have identified an inadvertent omission in the
provisions governing how a guaranty agency or the Secretary would
determine the amount eligible for discharge in cases in which
information showing the exact refund amount that was not made by the
school or the refund formula that should have been used by the school
to calculate a refund is not available. The guaranty agency or the
Secretary would use one of two surrogate formulas to calculate the
amount eligible for discharge depending on when the student failed to
attend, withdrew, or was terminated. In the proposed regulations, both
surrogate formulas neglected to take into account that, according to
refund policy, borrowers who completed 60 percent or more of the loan
period would not have been entitled to a refund and in turn would not
be eligible for an unpaid refund discharge.
Change: We have revised Secs. 682.402(o)(2) and 685.215(d)(2) to
correctly reflect in the surrogate formulas used to determine discharge
amounts that borrowers who completed 60 percent or more of the loan
period would not be eligible for an unpaid refund discharge.

Sections 682.603, 682.604, 685.301, and 685.303--Disbursement
Exemptions

Comment: Commenters representing FFEL guaranty agencies suggested
that we change the proposed regulations to reflect that a school must
cease to certify or originate loans based on authorized cohort default
rate related disbursement exemptions no later than 30 days after the
date the school receives notification that the school does not meet the
qualifications for the exemptions rather than 30 days after the date
the school is notified that it does not meet the qualifications for the
exemptions. The commenters believe that the phrase ``receives
notification'' is preferable to the phrase ``is notified'' because it
eliminates issues of timing.
Discussion: In either case, schools would have more than ample time
within which to comply with the provision. However, making the change
the commenters requested would be consistent with the regulations in
Sec. 668.17 governing cohort default rates and which use the date the
school receives the notification.
Change: We have revised Secs. 682.603(g), 685.301(b)(8)(ii), and
685.303(b)(4)(ii) to reflect that a school must cease to certify or
originate loans based on authorized cohort default rate related
disbursement exemptions no later than 30 days after the date the school
receives notification from the Secretary of an FFEL cohort default
rate, Direct Loan cohort rate, or weighted average cohort rate that
causes the school to longer meet the qualifications for the exemptions.
Comment: One commenter representing a guaranty agency requested
that we clarify what we mean by the term ``study abroad program'' in
the provisions describing the disbursement exemptions that apply to
schools certifying or originating loans to cover a student's cost of
attendance in a study abroad program. Another commenter representing
FFEL servicers suggested that we change the term ``postsecondary home
school'' to ``home institution.'' The commenter stated that the term
``home school,'' even in conjunction with the term ``postsecondary,''
is misleading and suggested that we use the term ``home institution''
because it has a long established meaning for purposes of student
financial assistance in connection with approved study abroad programs
in Sec. 682.207(b)(1)(v)(C). A third commenter representing a higher
education association that promotes study abroad programs stated that
there is confusion over the applicability of the disbursement
exemptions for schools certifying or originating loans to cover the
cost of attendance in study abroad programs. Specifically, the
commenter requested that we clarify that schools certifying or
originating loans to cover the cost of attendance in study abroad
programs may qualify for disbursement exemptions under either of the
two cohort default rate criteria included in the proposed regulations.
Discussion: The disbursement exemption provisions govern all
participating schools that meet specific criteria. Included under these
provisions are schools certifying or originating loans to cover the
cost of attendance for students participating in study abroad programs.
As pointed out by one of the commenters, these schools have been
consistently referred to in regulations as ``home institutions.''
Students in study abroad programs complete a portion or portions of
their study in a country other than the United States.
The commenter representing a higher education association that
promotes study abroad programs is correct that a school that is a home
institution certifying or originating a loan to cover the cost of
attendance in a study abroad program may qualify for the multiple
disbursement and delayed disbursement or delivery exemptions based on
either of the two cohort default rate criteria included in the proposed
regulations. Under the multiple disbursement exemption, the school
would be eligible to disburse loan proceeds in one installment if--

[[Page 58950]]

The loan period is equal to or shorter than one semester,
one trimester, one quarter, or, for nonterm-based schools or schools
that use non-standard terms, four months; and
The school has an FFEL cohort default rate, Direct Loan
Program cohort rate, or weighted average cohort rate of less than 10
percent for each of the three most recent fiscal years for which data
are available.

Additionally, the school would be eligible to disburse loan proceeds in
one installment to cover the cost of attendance in a study abroad
program for a loan period of any length if the school has an FFEL
cohort default rate, Direct Loan Program cohort rate, or weighted
average cohort rate of less than 5 percent for the single most recent
fiscal year for which data are available. Under the exemption for
delayed delivery or for disbursement for first-year, first-time
borrowers, a school certifying or originating a loan to cover the cost
of attendance in a study abroad program may deliver or disburse loan
proceeds to first-year, first-time borrowers without a 30-day delay
if--
The school has an FFEL cohort default rate, Direct Loan
Program cohort rate, or weighted average cohort rate of less than 10
percent for each of the three most recent fiscal years for which data
are available; or
The school has an FFEL cohort default rate, Direct Loan
Program cohort rate, or weighted average cohort rate of less than 5
percent for the single most recent fiscal year for which data are
available.
Change: We have revised Secs. 682.604(c)(5), 682.604(c)(10),
685.301(b)(8)(i)(B), and 685.303(b)(4)(i)(B) to reflect consistent use
of the term ``home institution'' when referring to a school certifying
or originating a loan to cover a student's cost of attendance in a
study abroad program.
Comment: To be consistent with statutory language, commenters
representing guaranty agencies recommended that we replace the term
``loan period'' with the term ``enrollment period'' in the regulation
that specifies the conditions for an exemption to the multiple
disbursement requirement for schools with an FFEL cohort default rate,
Direct Loan Program cohort rate, or weighted average cohort rate of
less than 10 percent for each of the three most recent fiscal years for
which data are available. Another commenter representing a guaranty
agency suggested that we clarify in the same provision that the
reference to a loan period that is four months in length applies only
to non term-based schools.
Discussion: While the commenters are correct that statute uses the
term ``enrollment period,'' we have used the term ``loan period'' to be
consistent with the wording in the other provisions of the FFEL and
Direct Loan program regulations into which this provision has been
added and therefore, decline to make the commenters' suggested change.
We also note that the terms ``enrollment period'' and ``loan period''
are interchangeable.
We agree with the suggestion that we clarify that loan periods that
are four months or less in length apply in the case of non term-based
schools. We also note that this provision would apply to schools that
use non-standard terms.
Change: We have revised Secs. 682.604(c)(10)(i)(A) and
685.301(b)(8)(i)(A)(1) to reflect that loan periods that are four
months or less in length apply in the case of non term-based schools
and schools that use non-standard terms.

Sections 682.604 and 685.304--Counseling Borrowers

Comment: A commenter representing a guaranty agency requested that
the proposed regulations be changed to reflect that schools are not
required to conduct exit counseling with all student borrowers. The
commenter maintained that only student borrowers who have a loan or
loans entering repayment when the borrower ceases at least half-time
enrollment are required to complete exit counseling and that borrowers
who return to school but do not receive a new loan or loans are not
subject to required exit counseling. This same commenter also suggested
that the final regulations should allow a school to conduct exit
counseling by mail at the request of a student borrower. The commenter
believed that such a provision would accommodate student borrowers who
know in advance that they will not be able to fulfill the exit
counseling requirement.
Discussion: The commenter is correct in pointing out that there may
be student borrowers in a school's population who reenroll in school
after they have entered repayment on their subsidized and unsubsidized
loans, and who do not obtain new subsidized and unsubsidized loans.
While it's true that these student borrowers already have entered
repayment on their subsidized and unsubsidized loans, we believe that
it would be beneficial for most student borrowers in this position to
complete exit counseling again because they would receive up-to-date
repayment information and refresh their knowledge about options such as
forbearance, deferment, and consolidation. However, we acknowledge that
it may not be possible for schools to identify these student borrowers.
We believe that the regulations offer the flexibility to permit schools
that can identify these student borrowers and choose to require exit
counseling for these borrowers to do so.
We do not agree with the commenter's suggestion that schools should
be allowed to mail counseling materials to student borrowers at their
request. While we appreciate that attending an in-person exit
counseling session may be difficult for some student borrowers, we
believe that allowing them the option to forgo participating in exit
counseling conducted by their schools in person, by audiovisual
presentation, or by interactive electronic means conflicts with the
statute. The variety of authorized exit counseling methods provides
schools with the necessary flexibility to accommodate the specific
needs of their student population and meet the statutory requirements.
Further, an alternative to conducting exit counseling in person, by
audiovisual presentation, or by interactive electronic means is allowed
for two categories of student borrowers who generally may not be able
to complete exit counseling through one of the authorized methods.
Schools may mail written counseling materials to student borrowers who
are enrolled in a correspondence program or a study-abroad program
approved for credit at the home institution. Schools also may provide
exit counseling either through interactive electronic means or by
mailing written counseling materials to student borrowers who withdraw
without a school's knowledge or who fail to complete the exit
counseling.
Change: None.
Comment: We received several comments related to schools providing
exit counseling through interactive electronic means. One commenter
representing a school requested that we reexamine the requirement that
counseling through electronic means be interactive. The commenter
believed that this was a very high standard and expressed uncertainty
as to how electronically the school could ensure that the student
borrower did anything more than open the message. This same commenter
also requested that we explain what we mean by ``electronic receipt''
and questioned its necessity when a receipt is not required if a school
sends counseling materials via U.S. mail. Another commenter
representing a school recommended that student borrowers should have
some allowance for errors in the final evaluation of whether or not
they have successfully completed exit counseling

[[Page 58951]]

through interactive electronic means. A third commenter representing
another school suggested that we should provide web-based exit
counseling for FFEL and Direct Loan program borrowers that would be
linked to the NSLDS. In the commenter's proposal, student borrowers
would benefit by being presented with a more complete and accurate
picture of their total loan indebtedness and borrowers and schools
would benefit by being relieved of the burdens of completing,
collecting, and submitting the required personal data.
Discussion: As we discussed in the preamble to the NPRM, we
purposely did not prescribe specific electronic means by which schools
can provide initial and exit counseling to FFEL and Direct Loan program
borrowers. During negotiated rulemaking, committee members representing
schools pointed out that there were many different electronic means
that schools could use to provide counseling and that new and improved
electronic means are continually becoming available. At the same time,
the committee agreed that it was important to ensure that the quality
of the counseling that schools provide to student borrowers is enhanced
rather than diminished by advancing technology. For these reasons, the
proposed regulations specified that the electronic means a school uses
to provide initial and exit counseling must be interactive, which at a
minimum, requires a school to take reasonable steps to ensure that each
student borrower receives the counseling materials and participates in
and completes the counseling.
We believe that electronic counseling is equivalent to counseling
that a school conducts in person--it is not equivalent to mailing
written counseling materials, which is authorized as an alternative
only in specific situations. Therefore, we do not consider it
sufficient simply to ensure that the student borrower received and
``opened'' an electronic message that contained loan counseling
materials. At the same time, we do not want to dictate to schools how
they must design their electronic counseling so as to fulfill the
regulatory requirement that the counseling be interactive other than to
say that, by definition, the term ``interactive'' implies that feedback
is provided by the student borrower at some point or points during the
course of the counseling.
In response to the questions about electronic receipts, we would
like to clarify that any time a school conducts initial and exit
counseling by interactive electronic means, the school's documentation
that it fulfilled the initial and exit counseling requirements for each
student borrower must include proof that the borrower received the
materials. As stated in the preamble to the NPRM, this does not mean
that the school must receive a personal response from the student
borrower. Instead, the school can accept an automatic electronic
response acknowledging that the materials were received by the person
to whom they were addressed. These automatic electronic responses,
often called ``receipts,'' are a feature of most electronic mail
systems and are returned automatically to the sender when the recipient
receives the message. As discussed during negotiated rulemaking, it is
necessary to require proof that the student borrower received the
materials sent electronically because, unlike materials sent via U.S.
mail, there is no basic legal assumption that materials sent via
electronic mail are delivered to the person to whom the materials were
addressed.
We appreciate the interesting proposal for improving electronic
exit counseling submitted by one of the school commenters. As we work
to improve and integrate our systems, as well as service to our
customers, we will consider the commenter's proposal that we provide
web-based exit counseling for FFEL and Direct Loan program borrowers
that would be linked to NSLDS.
Change: None.

Executive Order 12866

We have reviewed these final regulations in accordance with
Executive Order 12866. Under the terms of this order, we have assessed
the potential costs and benefits of this regulatory action.
The potential costs associated with the final regulations are those
resulting from statutory requirements and those we have determined to
be necessary for administering these programs effectively and
efficiently.
In assessing the potential costs and benefits--both quantitative
and qualitative--of these final regulations, we have determined that
the benefits of the regulations 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.
We summarized the potential costs and benefits of these final
regulations on pages 43438 and 43439 in the preamble to the NPRM.

Paperwork Reduction Act of 1995

The Paperwork Reduction Act of 1995 does not require you to respond
to a collection of information unless it displays a valid OMB control
number. We display the valid OMB control numbers assigned to the
collections of information in these final regulations at the end of the
affected sections of the regulations.

Assessment of Educational Impact

In the NPRM, we requested comments on whether the proposed
regulations would require transmission of information that any other
agency or authority of the United States gathers or makes available.
Based on the response to the NPRM and on our review, we have
determined that these final regulations do not 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 in text or Adobe Portable Document
Format (PDF) on the Internet at the following sites:

http://ocfo.ed.gov/fedreg.htm
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To use the PDF you must have the Adobe Acrobat Reader Program with
Search, which is available free at the first 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 Numbers: 84.032, Federal
Family Education Loan Program, and 84.268, William D. Ford Federal
Direct Loan Program)

List of Subjects in 34 CFR Parts 682 and 685

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


[[Page 58952]]


Richard W. Riley,
Secretary of Education.

For the reasons discussed in the preamble, the Secretary amends
title 34 of the Code of Federal Regulations by revising parts 682 and
685 as follows:

PART--682 FEDERAL FAMILY EDUCATION LOAN (FFEL) PROGRAM

1. The authority citation for part 682 continues to read as
follows:

Authority: 20 U.S.C. 1071 to 1087-2, unless otherwise noted.


Sec. 682.100 [Amended]

2. Section 682.100 paragraph (a)(2) is amended by removing
``encourages'', and by adding, in its place, ``encouraged''; in
paragraph (a)(4) by removing ``other loans, including loans:,'', and by
adding, in its place, ``loans''; by removing ``and'' before
``Nursing''; and by adding ``including Loans for Disadvantaged Students
(LDS)'', after ``(HPSL)''.
3. Section 682.100 paragraph (b)(2)(C) is amended by removing the
semi-colon before ``as''.
4. Section 682.102 paragraph (a) is revised; paragraph (b) is
removed and reserved; paragraph (d) is revised; and the Office of
Management and Budget control number is revised to read as follows:


Sec. 682.102 Obtaining and repaying a loan.

(a) Stafford loan application. Generally, to obtain a Stafford loan
a student requests a loan by completing the Free Application for
Federal Student Aid (FAFSA), or contacting the school, lender or
guarantor. The school determines and certifies the student's
eligibility for the loan. Prior to loan disbursement, the lender
obtains a loan guarantee from a guaranty agency or the Secretary and
the student completes a promissory note, unless the student has
previously completed a Master Promissory Note (MPN) that the lender may
use for the new loan.
(b) [Reserved]
* * * * *
(d) Consolidation loan application. To obtain a Consolidation loan,
a borrower completes an application and submits it to the lender
holding the borrower's FFEL Program loan or loans. If the borrower has
multiple holders of FFEL Program loans, or if the borrower's single
loan holder declines to make a Consolidation loan, or declines to make
one with income-sensitive repayment terms, the borrower may submit the
application to any lender participating in the Consolidation Loan
Program. In the case of a married couple seeking a Consolidation loan,
if at least one of the applicants has multiple holders, the applicants
may submit the application to any lender participating in the
Consolidation Loan Program. If both applicants have a single holder,
only the holder for one of the applicants must be contacted for
consolidation. If a lender decides to make the loan, the lender obtains
a loan guarantee from a guaranty agency or the Secretary.
* * * * *
(Approved by the Office of Management and Budget under control
number 1845-0020)


Sec. 682.103 [Amended]

5. Section 682.103 paragraph (a) is amended by removing the first
use of the term ``programs''.
6. Section 682.200(b) is amended as follows:
A. By amending the definitions of Default by revising paragraphs
(1) and (2); Estimated financial assistance by revising paragraphs
(1)(i), (2)(i)(B) and (C), and (2)(ii) and by adding (2)(iii).
B. By revising the definition of Holder.
C. In the definition of ``Lender,'' by revising paragraph (5)(i)
and by renumbering the second paragraph (5) as paragraph (6).
D. By adding a new definition ``Master promissory note (MPN)'' in
alphabetical order.
E. In the definition of ``Repayment period,'' in paragraph (1), by
adding ``,or 25 years under an extended repayment schedule,'', after
``10 years''; in paragraph (2), by adding ``or 25 years under an
extended repayment schedule,'', after ``10 years''; in paragraph (4),
by adding ``, or 25 years under an extended repayment schedule'', after
``10 years''.
F. By adding the Office of Management and Budget control number.


Sec. 682.200 Definitions.

* * * * *
(b) * * *
Default.
* * * * *
(1) 270 days for a loan repayable in monthly installments; or
(2) 330 days for a loan repayable in less frequent installments.
* * * * *
Estimated financial assistance.
(1) * * *
(i) Except as provided in paragraph (2)(iii) of this definition,
national service education awards or post-service benefits under title
I of the National and Community Service Act of 1990 and veterans'
educational benefits paid under chapters 30, 31, 32, and 35 of title 38
of the United States Code;
* * * * *
(2) * * *
(i) * * *
(A) * * *
(B) PLUS loan amounts; and
(C) Private and state-sponsored loan programs;
(ii) Federal Perkins loan and Federal Work-Study funds that the
school determines the student has declined; and
(iii) For the purpose of determining eligibility for a subsidized
Stafford loan, veterans' educational benefits paid under chapter 30 of
title 38 of the United States Code (Montgomery GI Bill--Active Duty)
and national service education awards or post-service benefits under
title I of the National and Community Service Act of 1990.
* * * * *
Holder. An eligible lender owning an FFEL Program loan including a
Federal or State agency or an organization or corporation acting on
behalf of such an agency and acting as a conservator, liquidator, or
receiver of an eligible lender.
* * * * *
Lender.
* * * * *
(5) * * *
(i) Offered, directly or indirectly, points, premiums, payments, or
other inducements, to any school or other party to secure applicants
for FFEL loans, except that a lender is not prohibited from providing
assistance to schools comparable to the kinds of assistance provided by
the Secretary to schools under, or in furtherance of, the Federal
Direct Loan Program.
* * * * *
Master promissory note (MPN). A promissory note under which the
borrower may receive loans for a single period of enrollment or
multiple periods of enrollment.
* * * * *
(Approved by the Office of Management and Budget under control
number 1845-0020)

7. Section 682.201 is amended as follows:
A. By revising paragraph (a)(2).
B. By revising paragraph (c)(1); in paragraph (c)(2)(iii) by
removing ``(c)(1)(vi)'', and by adding in its place, ``(c)(1)(iv)'';
and by removing paragraphs (c)(3) and (c)(4).
C. By adding a new paragraph (d).
D. By adding a new paragraph (e).


Sec. 682.201 Eligible borrowers.

(a) * * *
(2) In the case of any student who seeks an unsubsidized Stafford
loan for

[[Page 58953]]

the cost of attendance at a school that participates in the Stafford
Loan Program, the student must--
(i) Receive a determination of need for a subsidized Stafford loan;
and
(ii) If the determination of need is in excess of $200, have made a
request to a lender for a subsidized Stafford loan;
* * * * *
(c) Consolidation program borrower. (1) An individual is eligible
to receive a Consolidation loan if the individual--
(i) On the loans being consolidated--
(A) Is, at the time of application for a Consolidation loan--
(1) In a grace period preceding repayment;
(2) In repayment status;
(3) In a default status and has either made satisfactory repayment
arrangements as defined in applicable program regulations or has agreed
to repay the consolidation loan under the income-sensitive repayment
plan described in Sec. 682.209(a)(7)(viii);
(B) Not subject to a judgment secured through litigation, unless
the judgment has been vacated; or
(C) Not subject to an order for wage garnishment under section 488A
of the Act, unless the order has been lifted;
(ii) Certifies that no other application for a Consolidation loan
is pending;
(iii) Agrees to notify the holder of any changes in address; and
(iv)(A) Certifies that the lender holds at least one outstanding
loan that is being consolidated; or
(B) Applies to any eligible consolidation lender if the borrower--
(1) Has multiple holders of FFEL loans; or
(2) Has been unable to receive from the holder of the borrower's
outstanding loans, a Consolidation loan or a Consolidation loan with
income-sensitive repayment.
* * * * *
(d) A borrower's eligibility to receive a Consolidation loan
terminates upon receipt of a Consolidation loan except that--
(1) Eligible loans received prior to the date a Consolidation loan
was made and loans received during the 180-day period following the
date a Consolidation loan was made, may be added to the Consolidation
loan based on the borrower's request received by the lender during the
180-day period after the date the Consolidation loan was made;
(2) A borrower who receives an eligible loan after the date a
Consolidation loan is made may receive a subsequent Consolidation loan;
and
(3) A Consolidation loan borrower may consolidate an existing
Consolidation loan only if the borrower has at least one other eligible
loan made before or after the existing Consolidation loan that will be
consolidated.
(e) In the case of a married couple, the loans of a spouse that are
to be included in a Consolidation loan are considered eligible loans
for the other spouse.

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1082, and
1091)

8. Section 682.202 is amended as follows:
A. In paragraph (a)(1)(i) by removing ``If'' and by adding, in its
place, ``For loans made prior to July 1, 1994, if,''.
B. In paragraph (a)(1)(ii)(B) by adding ``and prior to July 1,
1994,'' after ``October 1, 1992''.
C. In paragraph (a)(1)(iii)(A) by removing ``evidencing the loan''.
D. In paragraph (a)(1)(iv) by adding ``but before December 20,
1993,'' after ``October 1, 1992''.
E. By adding new paragraphs (a)(1)(v) through (a)(1)(viii).
F. In paragraph (a)(2)(iii) introductory text, by adding ``and
prior to July 1, 1994,'' after ``October 1, 1992''.
G. By adding new paragraphs (a)(2)(iv) and (a)(2)(v).
H. In paragraph (a)(4) by adding ``(i)'' at the beginning of the
sentence before ``A Consolidation'', by adding ``made before July 1,
1994'' after ``loan'', by designating paragraph ``(i)'' as ``(A)'', by
designating paragraph ``(ii)'' as ``(B)'', by adding new paragraphs
(a)(4)(ii) through (a)(4)(v).
I. In paragraph (b)(1), by removing ``paragraph (b)(2) of''; and by
revising paragraph (b)(2).
J. In paragraph (b)(3) by removing ``, except that
capitalization'', and by adding in its place, ``. Capitalization''.
K. By removing paragraph (b)(5).
L. By redesignating paragraph (b)(4) as paragraph (b)(5); and by
adding a new paragraph (b)(4).
M. By revising the newly redesignated paragraph (b)(5).
N. By revising paragraphs (c)(1) and (c)(2).
O. By redesignating paragraphs (c)(3) through (c)(5) as paragraphs
(c)(5) through (c)(7); and by adding new paragraphs (c)(3) and (c)(4).
P. In redesignated paragraph (c)(5), by removing, ``an SLS or''.


Sec. 682.202 Permissible charges by lenders to borrowers.

(a) * * *
(1) * * *
(v) For a Stafford loan for which the first disbursement is made on
or after December 20, 1993 and prior to July 1, 1994, if the borrower,
on the date the promissory note is signed, has no outstanding balance
on a Stafford loan but has an outstanding balance of principal or
interest on a PLUS, SLS, or Consolidation loan, the interest rate is
the rate provided in paragraph (a)(1)(ii)(B) of this section.
(vi) For a Stafford loan for which the first disbursement is made
on or after July 1, 1994 and prior to July 1, 1995, for a period of
enrollment that includes or begins on or after July 1, 1994, the
interest rate is a variable rate, applicable to each July 1-June 30
period, that equals the lesser of--
(A) The bond equivalent rate of the 91-day Treasury bills auctioned
at the final auction prior to the June 1 immediately preceding the July
1-June 30 period, plus 3.10; or
(B) 8.25 percent.
(vii) For a Stafford loan for which the first disbursement is made
on or after July 1, 1995 and prior to July 1, 1998 the interest rate is
a variable rate applicable to each July 1-June 30 period, that equals
the lesser of--
(A) The bond equivalent rate of the 91-day Treasury bills auctioned
at the final auction prior to the June 1 immediately preceding the July
1-June 30 period, plus 2.5 percent during the in-school, grace and
deferment period and 3.10 percent during repayment; or
(B) 8.25 percent.
(viii) For a Stafford loan for which the first disbursement is made
on or after July 1, 1998, the interest rate is a variable rate,
applicable to each July 1-June 30 period, that equals the lesser of--
(A) The bond equivalent rate of the 91-day Treasury bills auctioned
at the final auction prior to the June 1 immediately preceding the July
1-June 30 period plus 1.7 percent during the in-school, grace and
deferment periods and 2.3 percent during repayment; or
(B) 8.25 percent.
* * * * *
(2) * * *
(iv) For a loan for which the first disbursement is made on or
after July 1, 1994 and prior to July 1, 1998, the interest rate is a
variable rate applicable to each July 1-June 30 period, that equals the
lesser of--
(A) The bond equivalent rate of the 52-week Treasury bills
auctioned at the final auction prior to the June 1 immediately
preceding the July 1-June 30 period, plus 3.10 percent; or
(B) 9 percent.
(v) For a loan for which the first disbursement is made on or after
July 1, 1998, the interest rate is a variable rate, applicable to each
July 1-June 30 period, that equals the lesser of--

[[Page 58954]]

(A) The bond equivalent rate of the 91-day Treasury bills auctioned
at the final auction prior to the June 1 immediately preceding the July
1-June 30 period, plus 3.10 percent; or
(B) 9 percent.
* * * * *
(4) * * *
(ii) A Consolidation loan made on or after July 1, 1994, for which
the loan application was received by the lender before November 13,
1997, bears interest at the rate that is equal to the weighted average
of interest rates on the loans consolidated, rounded upward to the
nearest whole percent.
(iii) For a Consolidation loan for which the loan application was
received by the lender on or after November 13, 1997 and before October
1, 1998, the interest rate for the portion of the loan that
consolidated loans other than HEAL loans is a variable rate, applicable
to each July 1-June 30 period, that equals the lesser of--
(A) The bond equivalent rate of the 91-day Treasury bills auctioned
at the final auction held prior to June 1 of each year plus 3.10
percent; or
(B) 8.25 percent.
(iv) For a Consolidation loan for which the application was
received by the lender on or after October 1, 1998, the interest rate
for the portion of the loan that consolidated loans other than HEAL
loans is a fixed rate that is the lesser of--
(A) The weighted average of interest rates on the loans
consolidated, rounded to the nearest higher one-eighth of one percent;
or
(B) 8.25 percent.
(v) For a Consolidation loan for which the application was received
by the lender on or after November 13, 1997, the annual interest rate
applicable to the portion of each consolidation loan that repaid HEAL
loans is a variable rate adjusted annually on July 1 and must be equal
to the average of the bond equivalent rates of the 91-day Treasury
bills auctioned for the quarter ending June 30, plus 3 percent. There
is no maximum rate on this portion of the loan.
* * * * *
(b) * * *
(2) Except as provided in paragraph (b)(4) of this section, a
lender may capitalize interest payable by the borrower that has
accrued--
(i) For the period from the date the first disbursement was made to
the beginning date of the in-school period;
(ii) For the in-school or grace periods, or for a period needed to
align repayment of an SLS with a Stafford loan, if capitalization is
expressly authorized by the promissory note (or with the written
consent of the borrower);
(iii) For a period of authorized deferment;
(iv) For a period of authorized forbearance; or
(v) For the period from the date the first installment payment was
due until it was made.
* * * * *
(4)(i) For unsubsidized Stafford loans disbursed on or after
October 7, 1998 and prior to July 1, 2000, the lender may capitalize
the unpaid interest that accrues on the loan according to the
requirements of section 428H(e)(2) of the Act.
(ii) For Stafford loans first disbursed on or after July 1, 2000,
the lender may capitalize the unpaid interest--
(A) When the loan enters repayment;
(B) At the expiration of a period of authorized deferment;
(C) At the expiration of a period of authorized forbearance; and
(D) When the borrower defaults.
(5) For any borrower in an in-school or grace period or the period
needed to align repayment, deferment, or forbearance status, during
which the Secretary does not pay interest benefits and for which the
borrower has agreed to make payments of interest, the lender may
capitalize past due interest provided that the lender has notified the
borrower that the borrower's failure to resolve any delinquency
constitutes the borrower's consent to capitalization of delinquent
interest and all interest that will accrue through the remainder of
that period.
(c) Fees for FFEL Program loans.
(1) A lender may charge a borrower an origination fee on a Stafford
loan not to exceed 3 percent of the principal amount of the loan.
Except as provided in paragraph (c)(2) of this section, a lender must
charge all borrowers the same origination fee.
(2)(i) A lender may charge a lower origination fee than the amount
specified in paragraph (c)(1) of this section to a borrower whose
expected family contribution (EFC), used to determine eligibility for
the loan, is equal to or less than the maximum qualifying EFC for a
Federal Pell Grant at the time the loan is certified or to a borrower
who qualifies for a subsidized Stafford loan. A lender must charge all
such borrowers the same origination fee.
(ii) With the approval of the Secretary, a lender may use a
standard comparable to that defined in paragraph (c)(2)(i) of this
section.
(3) If a lender charges a lower origination fee on unsubsidized
loans under paragraph (c)(1) or (c)(2) of this section, the lender must
charge the same fee on subsidized loans.
(4)(i) For purposes of this paragraph (c), a lender is defined as:
(A) All entities under common ownership, including ownership by a
common holding company, that make loans to borrowers in a particular
state; and
(B) Any beneficial owner of loans that provides funds to an
eligible lender trustee to make loans on the beneficial owner's behalf
in a particular state.
(ii) If a lender as defined in paragraph(c)(4)(i) charges a lower
origination fee to any borrower in a particular state under paragraphs
(c)(1) or (c)(2) of this section, the lender must charge all such
borrowers who reside in that state or attend school in that state the
same origination fee.
* * * * *
9. Section 682.204 is amended as follows:
A. By revising paragraphs (a), (b), (c), (d), and (e).
B. In paragraph (f)(2)(i) by adding ``the following'', after
``exceed''.
C. In paragraph (f)(2)(ii) by adding ``the following'' after
``exceed''.
D. In paragraph (f)(2)(ii)(B) by removing ``and'', and by adding,
in its place, ``or''.
E. In paragraph (j), by removing the first ``or'' before ``HEAL''.


Sec. 682.204 Maximum loan amounts.

(a) Stafford Loan Program annual limits. (1) In the case of an
undergraduate student who has not successfully completed the first year
of a program of undergraduate education, the total amount the student
may borrow for any academic year of study under the Stafford Loan
Program in combination with the Federal Direct Stafford/Ford Loan
Program may not exceed the following:
(i) $2,625 for a program of study of at least a full academic year
in length.
(ii) For a one-year program of study with less than a full academic
year remaining, the amount that is the same ratio to $2,625 as the--

[[Page 58955]]

[GRAPHIC] [TIFF OMITTED] TR01NO99.009


(iii) For a program of study that is less than a full academic year
in length, the amount that is the same ratio to $2,625 as the lesser of
the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.010

(2) In the case of a student who has successfully completed the
first year of an undergraduate program but has not successfully
completed the second year of an undergraduate program, the total amount
the student may borrow for any academic year of study under the
Stafford Loan Program in combination with the Federal Direct Stafford/
Ford Loan Program may not exceed the following:
(i) $3,500 for a program whose length is at least a full academic
year in length.
(ii) For a program of study with less than a full academic year
remaining, an amount that is the same ratio to $3,500 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.011

(3) In the case of an undergraduate student who has successfully
completed the first and second years of a program of study of
undergraduate education but has not successfully completed the
remainder of the program, the total amount the student may borrow for
any academic year of study under the Stafford Loan Program in
combination with the Federal Direct Stafford/Ford Loan Program may not
exceed the following:
(i) $5,500 for a program whose length is at least an academic year
in length.
(ii) For a program of study with less than a full academic year
remaining, an amount that is the same ratio to $5,500 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.012

(4) In the case of a student who has an associate or baccalaureate
degree that is required for admission into a program and who is not a
graduate or professional student, the total amount the student may
borrow for any academic year of study may not exceed the amounts in
paragraph (a)(3) of this section.
(5) In the case of a graduate or professional student, the total
amount the student may borrow for any academic year of study under the
Stafford Loan Program, in combination with any amount borrowed under
the Federal Direct Stafford/Ford Loan Program, may not exceed $8,500.
(6) In the case of a student enrolled for no longer than one
consecutive 12-month period in a course of study necessary for
enrollment in a program leading to a degree or certificate, the total
amount the student may borrow for any academic year of study under the
Stafford Loan Program in combination with the Federal Direct Stafford/
Ford Loan Program may not exceed the following:
(i) $2,625 for coursework necessary for enrollment in an
undergraduate degree or certificate program.
(ii) $5,500 for coursework necessary for enrollment in a graduate
or professional degree or certificate program for a student who has
obtained a baccalaureate degree.
(7) In the case of a student who has obtained a baccalaureate
degree and is enrolled or accepted for enrollment in coursework
necessary for a professional credential or certification from a State
that is required for employment as a teacher in an elementary or
secondary school in that State, the total amount the student may borrow
for any academic year of study under the Stafford Loan Program in
combination with the Federal Direct Stafford/Ford Loan Program may not
exceed $5,500.
(b) Stafford Loan Program aggregate limits. The aggregate unpaid
principal amount of all Stafford Loan Program loans in combination with
loans received by the student under the Federal Direct Stafford/Ford
Loan Program, but excluding the amount of capitalized interest may not
exceed the following:
(1) $23,000 in the case of any student who has not successfully
completed a program of study at the undergraduate level.
(2) $65,500, in the case of a graduate or professional student,
including loans for undergraduate study.
(c) Unsubsidized Stafford Loan Program. (1) In the case of a
dependent undergraduate student, the total amount the student may
borrow for any period of study under the Unsubsidized Stafford Loan
Program in combination with the Federal Direct Unsubsidized Stafford/
Ford Loan Program is the same as the amount determined under paragraph
(a) of this section, less any amount received under the Stafford Loan
Program or the Federal Direct Stafford/Ford Loan Program.
(2) In the case of an independent undergraduate student, a graduate
or

[[Page 58956]]

professional student, or certain dependent undergraduate students, the
total amount the student may borrow for any period of enrollment under
the Unsubsidized Stafford Loan and Federal Direct Unsubsidized
Stafford/Ford Loan programs may not exceed the amounts determined under
paragraph (a) of this section less any amount received under the
Federal Stafford Loan Program or the Federal Direct Stafford/Ford Loan
Program, in combination with the amounts determined under paragraph (d)
of this section.
(d) Additional eligibility under the Unsubsidized Stafford Loan
Program. In addition to any amount borrowed under paragraphs (a) and
(c) of this section, an independent undergraduate student, graduate or
professional student, and certain dependent undergraduate students may
borrow additional amounts under the Unsubsidized Stafford Loan Program.
The additional amount that such a student may borrow under the
Unsubsidized Stafford Loan Program in combination with the Federal
Direct Unsubsidized Stafford/Ford Loan Program, in addition to the
amounts allowed under paragraphs (b) and (c) of this section for any
academic year of study--
(1) In the case of a student who has not successfully completed the
first year of a program of undergraduate education, may not exceed the
following:
(i) $4,000 for a program of study of at least a full academic year.
(ii) For a one-year program of study with less than a full academic
year remaining, the amount that is the same ratio to $4,000 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.013

(iii) For a program of study that is less than a full academic year
in length, an amount that is the same ratio to $4,000 as the lesser
of--
[GRAPHIC] [TIFF OMITTED] TR01NO99.014

(2) In the case of a student who has completed the first year of a
program of undergraduate education but has not successfully completed
the second year of a program of undergraduate education may not exceed
the following:
(i) $4,000 for a program of study of at least a full academic year
in length.
(ii) For a program of study with less than a full academic year
remaining, an amount that is the same ratio to $4,000 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.015

(3) In the case of a student who has successfully completed the
second year of a program of undergraduate education, but has not
completed the remainder of the program, may not exceed the following:
(i) $5,000 for a program of study of at least a full academic year.
(ii) For a program of study with less than a full academic year
remaining, an amount that is the same ratio to $5,000 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.016

(4) In the case of a student who has an associate or baccalaureate
degree that is required for admission into a program and who is not a
graduate or professional student, the total amount the student may
borrow for any academic year of study may not exceed the amounts in
paragraph (d)(3) of this section.
(5) In the case of a graduate or professional student, may not
exceed $10,000.
(6) In the case of a student enrolled for no longer than one
consecutive 12-month period in a course of study necessary for
enrollment in a program leading to a degree or a certificate may not
exceed the following:
(i) $4,000 for coursework necessary for enrollment in an
undergraduate degree or certificate program.
(ii) $5,000 for coursework necessary for enrollment in a graduate
or professional degree or certificate program for a student who has
obtained a baccalaureate degree.
(iii) In the case of a student who has obtained a baccalaureate
degree and is enrolled or accepted for enrollment in a program
necessary for a professional credential or a certification from a State
that is required for employment as a teacher in an elementary or
secondary school in that State, $5,000.
(e) Combined Federal Stafford, SLS and Federal Unsubsidized
Stafford Loan Program aggregate limits. The aggregate unpaid principal
amount of Stafford Loans, Federal Direct Stafford/Ford Loans,
Unsubsidized Stafford Loans, Federal Direct Unsubsidized Stafford/Ford
Loans and SLS Loans, but

[[Page 58957]]

excluding the amount of capitalized interest, may not exceed the
following:
(1) $46,000 for an undergraduate student.
(2) $138,500 for a graduate or professional student.
* * * * *
10. Section 682.206 is amended as follows:
A. By revising paragraph (a)(1).
B. By removing ``on the application form or data electronically
transmitted to the lender'' in paragraph (c)(1).
C. By revising paragraph (c)(2).
D. By removing paragraph (c)(3).
E. By revising paragraph (d)(1).
F. By revising the Office of Management and Budget control number.


Sec. 682.206 Due diligence in making a loan.

(a) General. (1) Loan-making duties include determining the
borrower's loan amount, approving the borrower for a loan, explaining
to the borrower his or her rights and responsibilities under the loan,
and completing and having the borrower sign the promissory note (except
with respect to subsequent loans made under an MPN).
* * * * *
(c) * * *
(2) Except in the case of a Consolidation loan, in determining the
amount of the loan to be made, in no case may the loan amount exceed
the lesser of the amount the borrower requests, the amount certified by
the school under Sec. 682.603, or the loan limits under Sec. 682.204.
* * * * *
(d)(1) The lender must ensure that each loan is supported by an
executed legally-enforceable promissory note as proof of the borrower's
indebtedness.
* * * * *
(Approved by the Office of Management and Budget under control
number 1845-0020)

11. Section 682.207 is amended as follows:
A. In paragraph (b)(1)(v)(B)(3), by removing ``eligible
institution'', and by adding, in its place, ``institution of higher
education''.
B. By revising the introductory sentence in paragraph (c).
C. By removing paragraph (c)(5).
D. By redesignating paragraph (c)(4) as paragraph (d).
E. By redesignating paragraph (d) as paragraph (f).
F. By adding a new paragraph (e).
G. By revising the newly redesignated paragraph (f).
H. By revising the Office of Management and Budget control number.


Sec. 682.207 Due diligence in disbursing a loan.

* * * * *
(c) Except as provided in paragraph (e) of this section, a lender
must disburse any Stafford or PLUS loan in accordance with the
disbursement schedule provided by the school as follows:
* * * * *
(e) A lender must disburse the loan in one installment if the
school submits a schedule for disbursement of loan proceeds in one
installment as authorized by Sec. 682.604(c)(10).
(f)(1) A lender may disburse loan proceeds after the student has
ceased to be enrolled on at least a half-time basis only if--
(i) The school certified the borrower's loan eligibility before the
date the student became ineligible and the loan funds will be used to
pay educational costs that the school determines the student incurred
for the period in which the student was enrolled and eligible;
(ii) The student completed the first 30 days of his or her program
of study if the student was a first-year, first-time borrower as
described in Sec. 682.604(c)(5); and (iii) In the case of a second or
subsequent disbursement, the student graduated or successfully
completed the period of enrollment for which the loan was intended.
(2) The lender must give notice to the school that the loan
proceeds have been disbursed in accordance with paragraph (f)(1) of
this section at the time the lender sends the loan proceeds to the
school.

(Approved by the Office of Management and Budget under control
number 1845-0020)

12. Section 682.209 is amended as follows:
A. By revising paragraph (a)(4).
B. By redesignating paragraphs (a)(6), (a)(7), and (a)(8) as
paragraphs (a)(7), (a)(8), and (a)(9), respectively.
C. By adding a new paragraph (a)(6).
D. In the newly redesignated paragraph (a)(7)(i)(B), by removing
``Sec. 682.211(j)(5)'', and adding, in its place,
``Sec. 682.211(i)(5)''.
E. By revising the newly redesignated paragraph (a)(7)(iii).
F. In the newly redesignated paragraph (a)(7)(v), by removing
``(a)(6)(vi)'' and adding, in its place, ``(a)(7)(vi)''.
G. In newly redesignated paragraph (a)(7)(v)(A) by removing
``income-sensitive or a graduated repayment'', and adding, in its
place, ``income-sensitive, a graduated, or if applicable, an extended
repayment''.
H. In the newly redesignated paragraph (a)(7)(v)(B), by removing
``(a)(6)(viii)(C)'', and adding, in its place, ``(a)(7)(viii)(C)''.
I. In the newly redesignated paragraph (a)(7)(vii)(A)(2), by
removing, ``(a)(6)(i)'', and by adding, in its place, ``(a)(7)(i)''.
J. In newly redesignated paragraph (a)(7)(viii)(A)(2), and by
removing ``(a)(6)(i)'', and by adding, in its place, ``(a)(7)(i)''.
K. In newly redesignated paragraph (a)(7)(viii)(D), by removing
``Sec. Sec. 682.211(j)(5)'', and by adding, in its place,
``Sec. 682.211(i)(5)''.
L. In newly redesignated paragraph (a)(7)(viii)(E), by removing
``(a)(7)'', and by adding, in its place, ``(a)(8)''.
M. By redesignating paragraph (a)(7)(ix) as paragraph (a)(7)(xi).
N. By adding new paragraphs (a)(7)(ix) and (x).
O. In the newly redesignated paragraph (a)(8)(i), by removing
``(a)(7)(ii)'', and by adding, in its place ``(a)(8)(ii)''; by adding,
``and except as provided in paragraph (a)(7)(ix)'', after ``section,'';
by adding, ``or 25 years under an extended repayment plan'' after ``10
years,''.
P. In newly redesignated paragraph ``(a)(8)(ii)'', by removing
``and 15-year'', and by adding, in its place, ``15- and 25-year''.
Q. In the newly redesignated paragraph ``(a)(8)(iv)'', by removing
``(a)(7)(iii)'', and by adding, in its place, ``(a)(8)(iii)''.
R. By revising paragraph (c)(1)(i).
S. In paragraph (e)(2)(i), by adding, ``as appropriate'' after
``(3)(ii)''.
T. In paragraph (e)(2)(ii), by removing ``(a)(7)(i)'', and adding,
in its place, ``(a)(8)(i)''.
U. In paragraph (f)(2)(ii), by removing ``(a)(7)(i)'', and adding,
in its place, ``(a)(8)(i)''.
V. By removing paragraph (h)(3); by redesignating paragraphs
(h)(4), (h)(5), and (h)(6), as paragraphs (h)(3), (h)(4), and (h)(5),
respectively; by revising the newly redesignated paragraph (h)(3); and
by removing redesignated paragraph (h)(4)(ii) and redesignating
paragraph (h)(4)(iii) as paragraph (h)(4)(ii).
W. By revising the Office of Management and Budget control number.


Sec. 682.209 Repayment of a loan.

(a) * * *
(4) For a borrower of a Stafford loan who is a correspondence
student, the grace period specified in paragraph (a)(3)(i) of this
section begins on the earliest of--
(i) The day after the borrower completes the program;
(ii) The day after withdrawal as determined pursuant to 34 CFR
668.22; or

[[Page 58958]]

(iii) 60 days following the last day for completing the program as
established by the school.
* * * * *
(6) For purposes of establishing the beginning of the repayment
period for Stafford and SLS loans, the grace periods referenced in
paragraphs (a)(2)(iii) and (a)(3)(i) of this section exclude any period
during which a borrower who is a member of a reserve component of the
Armed Forces named in section 10101 of title 10, United States Code is
called or ordered to active duty for a period of more than 30 days. Any
single excluded period may not exceed three years and includes the time
necessary for the borrower to resume enrollment at the next available
regular enrollment period. Any Stafford or SLS borrower who is in a
grace period when called or ordered to active duty as specified in this
paragraph is entitled to a full grace period upon completion of the
excluded period.
(7) * * *
(iii) Not more than six months prior to the date that the
borrower's first payment is due, the lender must offer the borrower a
choice of a standard, income-sensitive, graduated, or, if applicable,
an extended repayment schedule.
* * * * *
(ix) Under an extended repayment schedule, a new borrower whose
total outstanding principal and interest in FFEL loans exceed $30,000
may repay the loan on a fixed annual repayment amount or a graduated
repayment amount for a period that may not exceed 25 years. For
purposes of this section, a ``new borrower'' is an individual who has
no outstanding principal or interest balance on an FFEL Program loan as
of October 7, 1998, or on the date he or she obtains an FFEL Program
loan after October 7, 1998.
(x) A borrower may request a change in the repayment schedule on a
loan. The lender must permit the borrower to change the repayment
schedule no less frequently than annually.
* * * * *
(c) Minimum annual payment. (1)(i) Subject to paragraph (c)(1)(ii)
of this section and except as otherwise provided by a graduated,
income-sensitive, or extended repayment plan selected by the borrower,
during each year of the repayment period, a borrower's total payments
to all holders of the borrower's FFEL Program loans must total at least
$600 or the unpaid balance of all loans, including interest, whichever
amount is less.
* * * * *
(h) * * *
(3) For the purpose of paragraph (h)(2) of this section, the unpaid
balance on other student loans--
(i) May not exceed the amount of the Consolidation loan; and
(ii) With the exception of the defaulted title IV loans on which
the borrower has made satisfactory repayment arrangements with the
holder of the loan, does not include the unpaid balance on any
defaulted loans.
* * * * *
(Approved by the Office of Management and Budget under control
number 1845-0020)

13. Section 682.210 is amended as follows:
A. By revising paragraphs (a)(3), (a)(4), and (a)(6)(iv); in
paragraph (a)(7) by removing ``180- or 240-day'' and adding, in its
place, ``270- or 330-day''.
B. In paragraph (b)(1)(i), by removing ``(c)(4)'' and adding, in
its place, ``(c)(5)''.
C. By revising paragraph (b)(4).
D. By revising the heading in paragraph (c); by revising paragraph
(c)(1); by redesignating paragraphs (c)(2) through (c)(4) as paragraphs
(c)(3) through (c)(5), respectively; and by adding a new paragraph
(c)(2).
E. By revising redesignated paragraph (c)(3).
F. In redesignated paragraph (c)(4) by removing, ``Stafford, SLS or
PLUS'' both times it appears and adding, in its place, ``FFEL'', by
removing ``the'', before ``certified'', and by adding, in its place,
``a'', and by removing ``a student'', and by adding, in its place, ``an
in-school''.
G. In redesignated paragraph (c)(5), by adding ``or a PLUS (unless
based on the dependent's status)'' after ``Stafford,''.
H. By revising paragraph (h).
I. In paragraph (s)(2), by removing the heading, ``Student
deferment'', and by adding, in its place, ``In-school deferment''.
J. By revising the Office of Management and Budget control number.


Sec. 682.210 Deferment.

(a) * * *
(3) Interest accrues and is paid by the borrower during the
deferment period and the post-deferment grace period, if applicable,
unless interest accrues and is paid by the Secretary for a Stafford
loan and for all or a portion of a qualifying Consolidation loan that
meets the requirements under Sec. 682.301.
(4) As a condition for receiving a deferment, except for purposes
of paragraphs (c)(1)(ii) and (iii) of this section, the borrower must
request the deferment, and provide the lender with all information and
documents required to establish eligibility for a specific type of
deferment.
* * * * *
(6) * * *
(iv) In the case of an in-school deferment, the student's
anticipated graduation date as certified by an authorized official of
the school; or
* * * * *
(b) * * *
(4) For a ``new borrower,'' as defined in paragraph (b)(7) of this
section, deferment is authorized during periods when the borrower is
engaged in at least half-time study at a school, unless the borrower is
not a national of the United States and is pursuing a course of study
at a school not located in a State.
* * * * *
(c) In-school deferment. (1) Except as provided in paragraph (c)(5)
of this section, the lender processes a deferment for full-time study
or half-time study at a school, when--
(i) The borrower submits a request and supporting documentation for
a deferment;
(ii) The lender receives information from the borrower's school
about the borrower's eligibility in connection with a new loan; or
(iii) The lender receives student status information from the
borrower's school, either directly or indirectly, indicating that the
borrower's enrollment status supports eligibility for a deferment.
(2) The lender must notify the borrower that a deferment has been
granted based on paragraph (c)(1)(ii) or (iii) of this section and that
the borrower has the option to pay interest that accrues on an
unsubsidized FFEL Program loan or to cancel the deferment and continue
paying on the loan. The lender must include in the notice an
explanation of the consequences of these options.
(3) The lender must consider a deferment granted on the basis of a
certified loan application or other information certified by the school
to cover the period lasting until the anticipated graduation date
appearing on the application, and as updated by notice or SSCR update
to the lender from the school or guaranty agency, unless and until it
receives notice that the borrower has ceased the level of study (i.e.,
full-time or half-time) required for the deferment.
* * * * *
(h) Unemployment deferment. (1) A borrower qualifies for an
unemployment deferment by providing evidence of eligibility for
unemployment benefits to the lender.

[[Page 58959]]

(2) A borrower also qualifies for an unemployment deferment by
providing to the lender a written certification--
(i) Describing the borrower's conscientious search for full-time
employment during the preceding six months, except in the case of the
initial period of unemployment, including, for each of at least six
attempts to secure employment to support the period covered by the
certification--
(A) The name of the employer contacted;
(B) The employer's address and phone number; and
(C) The name or title of the person contacted;
(ii) Setting forth the borrower's latest permanent home address
and, if applicable, the borrower's latest temporary address; and
(iii) Affirming that the borrower has registered with a public or
private employment agency, if one is within a 50-mile radius of the
borrower's permanent or temporary address, specifying the agency's name
and address and date of registration.
(3) For purposes of obtaining an unemployment deferment under
paragraph (h)(2) of this section, the following rules apply:
(i) A borrower may qualify for an unemployment deferment whether or
not the borrower has been previously employed.
(ii) An unemployment deferment is not justified if the borrower
refuses to seek or accept employment in kinds of positions or at salary
and responsibility levels for which the borrower feels overqualified by
virtue of education or previous experience.
(iii) Full-time employment involves at least 30 hours of work a
week and is expected to last at least three months.
(iv) A lender may accept, as an alternative to the certification of
employer contacts required under paragraph (h)(2)(i) of this section,
comparable documentation the borrower has used to meet the requirements
of the Unemployment Insurance Service, if it shows the same number of
contacts and contains the same information the borrower would be
required to provide under this section.
(4) A lender may not grant a deferment based on a single
certification under paragraph (h)(1) or (h)(2) of this section beyond
the date that is six months after the date the borrower provides
evidence of the borrower's eligibility for unemployment insurance
benefits under paragraph (h)(1) of this section or the date the
borrower provides the written certification under paragraph (h)(2) of
this section.
* * * * *
(Approved by the Office of Management and Budget under control
number 1845-0020)

14. Section 682.211 is amended as follows:
A. By revising paragraph (a)(4);
B. In paragraph (c) by adding, ``the terms of'' after ``writing
to''.
C. By adding a new paragraph (f)(9).
D. In paragraphs (h)(l) and (h)(2), by removing the word
``written''.
E. By removing paragraph (h)(2)(ii)(B) and designating paragraph
(h)(2)(ii)(C) as paragraph (h)(2)(ii)(B).
F. By removing paragraph (h)(3)(ii); by redesignating paragraph
(h)(3)(iii) as paragraph (h)(3)(ii); and in redesignated paragraph
(h)(3)(ii), by removing ``(h)(2)(ii)(C)'', and by adding, in its place
``(h)(2)(ii)(B)''.
G. By revising the Office of Management and Budget control number.


Sec. 682.211 Forbearance.

(a) * * *
(4) Except as provided in paragraph (f)(9) of this section, if
payments of interest are forborne, they may be capitalized as provided
in Sec. 682.202(b).
* * * * *
(f) * * *
(9) For a period not to exceed 60 days necessary for the lender to
collect and process documentation supporting the borrower's request for
a deferment, forbearance, change in repayment plan, or consolidation
loan. Interest that accrues during this period is not capitalized.
* * * * *
(Approved by the Office of Management and Budget under control
number 1845-0020)

15. Section 682.300 is amended by revising paragraph (a) to read as
follows:


Sec. 682.300 Payments of interest benefits on Stafford and
Consolidation loans.

(a) General. The Secretary pays a lender, on behalf of a borrower,
a portion of the interest on a subsidized Stafford loan and on all or a
portion of a qualifying Consolidation loan that meets the requirements
under Sec. 682.301. This payment is known as interest benefits.
* * * * *
16. Section 682.301 is amended as follows:
A. By revising paragraph (a)(3).
B. By removing paragraph (a)(4).
C. By revising paragraphs (b) and (c).
D. By revising the Office of Management and Budget control number.


Sec. 682.301 Eligibility of borrowers for interest benefits on
Stafford and Consolidation loans.

(a) * * *
(3) A Consolidation loan borrower qualifies for interest benefits
during authorized periods of deferment on the portion of the loan that
does not represent HEAL loans if the loan application was received by
the lender--
(i) On or after January 1, 1993 but prior to August 10, 1993;
(ii) On or after August 10, 1993, but prior to November 13, 1997 if
the loan consolidates only subsidized Stafford loans; and
(iii) On or after November 13, 1997, for the portion of the loan
that repaid subsidized FFEL loans and Direct Subsidized Loans.
(b) Application for interest benefits. To apply for interest
benefits on a Stafford loan, the student, or the school at the
direction of the student, must submit a statement to the lender
pursuant to Sec. 682.603. The student must qualify for interest
benefits if the eligible institution has determined and documented the
student's amount of need for a loan based on the student's estimated
cost of attendance, estimated financial assistance, and expected family
contribution as determined under part F of the Act.
(c) Use of loan proceeds to replace expected family contribution. A
borrower may use the amount of a PLUS, unsubsidized Stafford loan,
State sponsored loan, or private program loan obtained for a period of
enrollment to replace the expected family contribution for that period
of enrollment.

(Approved by the Office of Management and Budget under control
number 1845-0020)
* * * * *
17. Section 682.401 is amended as follows:
A. By revising paragraphs (b)(5)(i) and (ii).
B. In the heading in paragraph (b)(15), by removing ``Guarantee'',
and by adding, in its place, ``Guaranty''.
C. In paragraph (b)(24), by adding a comma after ``shall''.
D. By revising paragraph (d)(3).
E. By designating paragraphs (d)(4) and (d)(5) as paragraphs (d)(5)
and (d)(6), respectively.
F. By adding a new paragraph (d)(4).
G. By revising the Office of Management and Budget control number.


Sec. 682.401 Basic program agreement.

* * * * *
(b) * * *
(5) Borrower responsibilities. (i) The borrower must indicate his
or her

[[Page 58960]]

preferred lender on the promissory note or other written or electronic
documentation submitted during the loan origination process if he or
she has such a preference.
(ii) The borrower must give the lender, as part of the promissory
note or application process for a Stafford or PLUS loan--
(A) A statement, as described in 34 CFR part 668, that the loan
will be used for the cost of the student's attendance;
(B) A statement from the student authorizing the school to release
information relevant to the student's eligibility to borrow or to have
a parent borrow on the student's behalf (e.g., the student's enrollment
status, financial assistance, and employment records); and
(C) Information from the school providing the maximum amount that
may be borrowed by or on behalf of the student.
* * * * *
(d) * * *
(3) The guaranty agency must use common application forms,
promissory notes, Master Promissory Notes (MPN), and other common forms
approved by the Secretary.
(4)(i) The Secretary authorizes the use of the multi-year feature
of the MPN--
(A) For students and parents for attendance at four-year or
graduate/professional schools; and
(B) For students and parents for attendance at other institutions
meeting criteria or otherwise designated at the sole discretion of the
Secretary.
(ii) The Secretary may prohibit use of the multi-year feature of
the MPN at specific schools described under paragraph (4)(i) of this
section under circumstances including, but not limited to, the school
being subject to an emergency action or a limitation, suspension, or
termination action, or not meeting other performance criteria
determined by the Secretary.
(iii) A borrower attending a school for which the multi-year
feature of the MPN has not been authorized must complete a new
promissory note for each period of enrollment.
(iv) Each loan made under an MPN is enforceable in accordance with
the terms of the MPN and is eligible for claim payment based on a true
and exact copy of such MPN.
(v) A lender's ability to make additional loans under an MPN will
automatically expire upon the earliest of--
(A) The date the lender receives written notification from the
borrower requesting that the MPN no longer be used as the basis for
additional loans;
(B) Twelve months after the date the borrower signed the MPN if no
disbursements are issued by the lender under that MPN; or
(C) Ten years from the date the borrower signed the MPN or the date
the lender receives the MPN. However, if a portion of a loan is made on
or before 10 years from the signature date, remaining disbursements of
that loan may be made.
(vi) The lender and school must develop and document a confirmation
process in accordance with guidelines established by the Secretary for
loans made under the multi-year feature of the MPN.
* * * * *
(Approved by the Office of Management and Budget under control
number 1845-0020)

18. Section 682.402 is amended as follows:
A. By revising the section heading; by revising paragraph (a)(1);
in paragraph (a)(3), by adding ``and as provided in paragraph
(h)(1)(iv) of this section,'' before ``only''.
B. In paragraph (f)(1) by removing ``(f) through (m)'', and adding,
in its place, ``(h) through (k)''; by revising paragraph (f)(3); in
paragraph (f)(5)(i)(B) by adding ``before October 8, 1998'' after
``Code''.
C. By revising paragraphs (g)(1)(i) and (ii).
D. In paragraph (h)(1)(i), by removing ``paragraph (g)'', and
adding, in its place, ``paragraph (h)''; by adding a new paragraph
(h)(1)(iv).
E. By revising paragraph (i)(1); and by removing paragraph (i)(3)
in its entirety.
F. In paragraph (j)(1)(ii), by removing ``(B)''; and by revising
paragraph (j)(1)(iii).
G. By revising paragraph (k)(1)(i)(A).
H. By redesignating paragraphs (l) and (m) as paragraphs (r) and
(s); and by adding new paragraphs (l) through (q).
I. By revising the Office of Management and Budget control number.


Sec. 682.402 Death, disability, closed school, false certification,
unpaid refunds, and bankruptcy payments.

(a) General. (1) Rules governing the payment of claims based on
filing for relief in bankruptcy, and discharge of loans due to death,
total and permanent disability, attendance at a school that closes,
false certification by a school of a borrower's eligibility for a loan,
and unpaid refunds by a school are set forth in this section.
* * * * *
(f) * * *
(3) Determination of filing. The lender must determine that a
borrower has filed a petition for relief in bankruptcy on the basis of
receiving a notice of the first meeting of creditors or other proof of
filing provided by the debtor's attorney or the bankruptcy court.
* * * * *
(g) * * *
(1) * * *
(i) The original promissory note or a copy of the promissory note
certified by the lender as true and accurate.
(ii) The loan application, if a separate loan application was
provided to the lender.
* * * * *
(h) * * *
(1) * * *
(iv) In reviewing a claim under this section, the issue of
confirmation of subsequent loans under an MPN will not be reviewed and
a claim will not be denied based on the absence of any evidence
relating to confirmation in a particular loan file. However, if a court
rules that a loan is unenforceable solely because of the lack of
evidence of the confirmation process or processes, insurance benefits
must be repaid.
* * * * *
(i) Guaranty agency participation in bankruptcy proceedings--(1)
Undue hardship claims. (i) In response to a petition filed prior to
October 8, 1998 with regard to any bankruptcy proceeding by the
borrower for discharge under 11 U.S.C. 523(a)(8) on the grounds of
undue hardship, the guaranty agency must, on the basis of reasonably
available information, determine whether the first payment on the loan
was due more than 7 years (exclusive of any applicable suspension of
the repayment period) before the filing of that petition and, if so,
process the claim.
(ii) In all other cases, the guaranty agency must determine whether
repayment under either the current repayment schedule or any adjusted
schedule authorized under this part would impose an undue hardship on
the borrower and his or her dependents.
(iii) If the guaranty agency determines that repayment would not
constitute an undue hardship, the guaranty agency must then determine
whether the expected costs of opposing the discharge petition would
exceed one-third of the total amount owed on the loan, including
principal, interest, late charges, and collection costs.
(iv) The guaranty agency must use diligence and may assert any
defense consistent with its status under applicable law to avoid
discharge of the loan. Unless discharge would be more effectively
opposed by not taking the following actions, the agency must--
(A) Oppose the borrower's petition for a determination of
dischargeability; and

[[Page 58961]]

(B) If the borrower is in default on the loan, seek a judgment for
the amount owed on the loan.
(v) In opposing a petition for a determination of dischargeability
on the grounds of undue hardship, a guaranty agency may agree to
discharge of a portion of the amount owed on a loan if it reasonably
determines that the agreement is necessary in order to obtain a
judgment on the remainder of the loan.
* * * * *
(j) * * *
(1) * * *
(iii) The entry of an order granting discharge under chapter 12 or
13, or confirming a plan of arrangement under chapter 11, unless the
court determined that the loan is dischargeable under 11 U.S.C.
523(a)(8) on grounds of undue hardship.
* * * * *
(k) * * *
(1) * * *
(i) * * *
(A) A determination by the court that the loan is dischargeable
under 11 U.S.C. 523(a)(8) with respect to a proceeding initiated under
chapter 7 or chapter 11; or
* * * * *
(l) Unpaid refund discharge.
(1) Unpaid refunds in closed school situations. In the case of a
school that has closed, the Secretary reimburses the guarantor of a
loan and discharges a former or current borrower's (and any endorser's)
obligation to repay that portion of an FFEL Program loan (disbursed on
or after January 1, 1986) equal to the refund that should have been
made by the school under applicable Federal law and regulations,
including this section. Any accrued interest and other charges (late
charges, collection costs, origination fees, and insurance premiums)
associated with the unpaid refund are also discharged.
(2) Unpaid refunds in open school situations. In the case of a
school that is open, the guarantor discharges a former or current
borrower's (and any endorser's) obligation to repay that portion of an
FFEL loan (disbursed on or after January 1, 1986) equal to the amount
of the refund that should have been made by the school under applicable
Federal law and regulations, including this section, if--
(i) The borrower (or the student on whose behalf a parent borrowed)
has ceased to attend the school that owes the refund; and
(ii) The guarantor receives documentation regarding the refund and
the borrower and guarantor have been unable to resolve the unpaid
refund within 120 days from the date the borrower submits a complete
application in accordance with paragraph (l)(4) of this section. Any
accrued interest and other charges (late charges, collection costs,
origination fees, and insurance premiums) associated with the amount of
the unpaid refund amount are also discharged.
(3) Relief to borrower (and any endorser) following discharge. (i)
If a borrower receives a discharge of a portion of a loan under this
section, the borrower is reimbursed for any amounts paid in excess of
the remaining balance of the loan (including accrued interest, late
charges, collection costs, origination fees, and insurance premiums)
owed by the borrower at the time of discharge.
(ii) The holder of the loan reports the discharge of a portion of a
loan under this section to all credit reporting agencies to which the
holder of the loan previously reported the status of the loan.
(4) Borrower qualification for discharge. To receive a discharge of
a portion of a loan under this section, a borrower must submit a
written application to the holder or guaranty agency except as provided
in paragraph (l)(5)(iv) of this section. The application requests the
information required to calculate the amount of the discharge and
requires the borrower to sign a statement swearing to the accuracy of
the information in the application. The statement need not be notarized
but must be made by the borrower under penalty of perjury. In the
statement, the borrower must--
(i) State that the borrower (or the student on whose behalf a
parent borrowed)--
(A) Received the proceeds of a loan on or after January 1, 1986 to
attend a school;
(B) Did not attend, withdrew, or was terminated from the school
within a timeframe that entitled the borrower to a refund; and
(C) Did not receive the benefit of a refund to which the borrower
was entitled either from the school or from a third party, such as a
holder of a performance bond or a tuition recovery program.
(ii) State whether the borrower has any other application for
discharge pending for this loan; and
(iii) State that the borrower--
(A) Agrees to provide upon request by the Secretary or the
Secretary's designee other documentation reasonably available to the
borrower that demonstrates that the borrower meets the qualifications
for an unpaid refund discharge under this section; and
(B) Agrees to cooperate with the Secretary or the Secretary's
designee in enforcement actions in accordance with paragraph (e) of
this section and to transfer any right to recovery against a third
party to the Secretary in accordance with paragraph (d) of this
section.
(5) Unpaid refund discharge procedures. (i) Except for the
requirements of paragraph (l)(5)(iv) of this section related to an open
school, if the holder or guaranty agency learns that a school did not
pay a refund of loan proceeds owed under applicable law and
regulations, the holder or the guaranty agency sends the borrower a
discharge application and an explanation of the qualifications and
procedures for obtaining a discharge. The holder of the loan also
promptly suspends any efforts to collect from the borrower on any
affected loan.
(ii) If the borrower returns the application, specified in
paragraph (l)(4) of this section, the holder or the guaranty agency
must review the application to determine whether the application
appears to be complete. In the case of a loan held by a lender, once
the lender determines that the application appears complete, it must
provide the application and all pertinent information to the guaranty
agency including, if available, the borrower's last date of attendance.
If the borrower returns the application within 60 days, the lender must
extend the period during which efforts to collect on the affected loan
are suspended to the date the lender receives either a denial of the
request or the unpaid refund amount from the guaranty agency. At the
conclusion of the period during which the collection activity was
suspended, the lender may capitalize any interest accrued and not paid
during that period in accordance with Sec. 682.202(b).
(iii) If the borrower fails to return the application within 60
days, the holder of the loan resumes collection efforts and grants
forbearance of principal and interest for the period during which the
collection activity was suspended. The holder may capitalize any
interest accrued and not paid during that period in accordance with
Sec. 682.202(b).
(iv) The guaranty agency may, with the approval of the Secretary,
discharge a portion of a loan under this section without an application
if the guaranty agency determines, based on information in the guaranty
agency's possession, that the borrower qualifies for a discharge.
(v) If the holder of the loan or the guaranty agency determines
that the information contained in its files

[[Page 58962]]

conflicts with the information provided by the borrower, the guaranty
agency must use the most reliable information available to it to
determine eligibility for and the appropriate payment of the refund
amount.
(vi) If the holder of the loan is the guaranty agency and the
agency determines that the borrower qualifies for a discharge of an
unpaid refund, the guaranty agency must suspend any efforts to collect
on the affected loan and, within 30 days of its determination,
discharge the appropriate amount and inform the borrower of its
determination. Absent documentation of the exact amount of refund due
the borrower, the guaranty agency must calculate the amount of the
unpaid refund using the unpaid refund calculation defined in paragraph
(o) of this section.
(vii) If the guaranty agency determines that a borrower does not
qualify for an unpaid refund discharge, (or, if the holder is the
lender and is informed by the guarantor that the borrower does not
qualify for a discharge)--
(A) The agency must notify the borrower in writing of the reason
for the determination and of the borrower's right to request a review
of the agency's determination within 30 days of the borrower's
submission of additional documentation supporting the borrower's
eligibility that was not considered in any prior determination. During
the review period, collection activities must be suspended; and
(B) The holder must resume collection if the determination remains
unchanged and grant forbearance of principal and interest for the
period during which collection activity was suspended. The holder may
capitalize any interest accrued and not paid during the review period
in accordance with Sec. 682.202(b).
(viii) If the guaranty agency determines that a current or former
borrower at an open school may be eligible for a discharge under this
section, the guaranty agency must notify the lender and the school of
the unpaid refund allegation. The notice to the school must include all
pertinent facts available to the guaranty agency regarding the alleged
unpaid refund. The school must, no later than 60 days after receiving
the notice, provide the guaranty agency with documentation
demonstrating, to the satisfaction of the guarantor, that the alleged
unpaid refund was either paid or not required to be paid.
(ix) In the case of a school that does not make a refund or provide
sufficient documentation demonstrating the refund was either paid or
was not required, within 60 days of its receipt of the allegation
notice from the guaranty agency, relief is provided to the borrower
(and any endorser) if the guaranty agency determines the relief is
appropriate. The agency must forward documentation of the school's
failure to pay the unpaid refund to the Secretary.
(m) Unpaid refund discharge procedures for a loan held by a lender.
In the case of an unpaid refund discharge request, the lender must
provide the guaranty agency with documentation related to the
borrower's qualification for discharge as specified in paragraph (l)(4)
of this section.
(n) Payment of an unpaid refund discharge request by a guaranty
agency. (1) General. The guaranty agency must review an unpaid refund
discharge request promptly and must pay the lender the amount of loss
as defined in paragraphs (l)(1) and (l)(2) of this section, related to
the unpaid refund not later than 45 days after a properly filed request
is made.
(2) Determination of the unpaid refund discharge amount to the
lender. The amount of loss payable to a lender on an unpaid refund
includes that portion of an FFEL Program loan equal to the amount of
the refund required under applicable Federal law and regulations,
including this section, and including any accrued interest and other
charges (late charges, collection costs, origination fees, and
insurance premiums) associated with the unpaid refund.
(o)(1) Determination of amount eligible for discharge. The guaranty
agency determines the amount eligible for discharge based on
information showing the refund amount or by applying the appropriate
refund formula to information that the borrower provides or that is
otherwise available to the guaranty agency. For purposes of this
section, all unpaid refunds are considered to be attributed to loan
proceeds.
(2) If the information in paragraph (o)(1) of this section is not
available, the guaranty agency uses the following formulas to determine
the amount eligible for discharge:
(i) In the case of a student who fails to attend or whose
withdrawal or termination date is before October 7, 2000 and who
completes less than 60 percent of the loan period, the guaranty agency
discharges the lesser of the institutional charges unearned or the loan
amount. The guaranty agency determines the amount of the institutional
charges unearned by--
(A) Calculating the ratio of the amount of time in the loan period
after the student's last day of attendance to the actual length of the
loan period; and
(B) Multiplying the resulting factor by the institutional charges
assessed the student for the loan period.
(ii) In the case of a student who fails to attend or whose
withdrawal or termination date is on or after October 7, 2000 and who
completes less than 60 percent of the loan period, the guaranty agency
discharges the loan amount unearned. The guaranty agency determines the
loan amount unearned by--
(A) Calculating the ratio of the amount of time remaining in the
loan period after the student's last day of attendance to the actual
length of the loan period; and
(B) Multiplying the resulting factor by the total amount of title
IV grants and loans received by the student, or if unknown, the loan
amount.
(iii) In the case of a student who completes 60 percent or more of
the loan period, the guaranty agency does not discharge any amount
because a student who completes 60 percent or more of the loan period
is not entitled to a refund.
(p) Requests for reimbursement from the Secretary on loans held by
guaranty agencies. The Secretary reimburses the guaranty agency for its
losses on unpaid refund request payments to lenders or borrowers in an
amount that is equal to the amount specified in paragraph (n)(2) of
this section.
(q) Payments received after the guaranty agency's payment of an
unpaid refund request. (1) The holder must promptly return to the
sender any payment on a fully discharged loan, received after the
guaranty agency pays an unpaid refund request unless the sender is
required to pay (as in the case of a tuition recovery fund) in which
case, the payment amount must be forwarded to the Secretary. At the
same time that the holder returns the payment, it must notify the
borrower that there is no obligation to repay a loan fully discharged.
(2) If the holder has returned a payment to the borrower, or the
borrower's representative, with the notice described in paragraph
(q)(1) of this section, and the borrower (or representative) continues
to send payments to the holder, the holder must remit all of those
payments to the Secretary.
(3) If the loan has not been fully discharged, payments must be
applied to the remaining debt.
* * * * *
(Approved by the Office of Management and Budget under control
number 1845-0020)

19. Section 682.406 is amended by revising paragraph (a)(12); by
adding a

[[Page 58963]]

new paragraph (c); and by revising the Office of Management and Budget
control number to read as follows:


Sec. 682.406 Conditions of reinsurance coverage.

(a) * * *
(12) The agency and lender, if applicable, complied with all other
Federal requirements with respect to the loan including--
(i) Payment of origination fees;
(ii) For Consolidation loans disbursed on or after October 1, 1993,
and prior to October 1, 1998, payment on a monthly basis, of an
interest payment rebate fee calculated on an annual basis and equal to
1.05 percent of the unpaid principal and accrued interest on the loan;
(iii) For Consolidation loans for which the application was
received by the lender on or after October 1, 1998 and prior to
February 1, 1999, payment on a monthly basis, of an interest payment
rebate fee calculated on an annual basis and equal to 0.62 percent of
the unpaid principal and accrued interest on the loan;
(iv) For Consolidation loans disbursed on or after February 1,
1999, payment of an interest payment rebate fee in accordance with
paragraph (a)(12)(ii) of this section; and
(v) Compliance with all preclaims assistance requirements in
Sec. 682.404(a)(2)(ii).
* * * * *
(c) In evaluating a claim for insurance or reinsurance, the issue
of confirmation of subsequent loans under an MPN will not be reviewed
and a claim will not be denied based on the absence of any evidence
relating to confirmation in a particular loan file. However, if a court
rules that a loan is unenforceable solely because of the lack of
evidence of a confirmation process or processes, insurance and
reinsurance benefits must be repaid.

(Approved by the Office of Management and Budget under control
number 1845-0020)
* * * * *
20. Section 682.409 is amended as follows:
A. By revising paragraph (c)(2).
B. In paragraph (c)(4)(i) by adding ``original or a true and exact
copy of the'' after ``The''.
C. In paragraph (c)(4)(iv) by adding ``, if a separate application
was provided to the lender'', after ``application''.
D. In paragraph (c)(5) by removing ``certified'', and by removing
``if no originals exist''.
E. By revising the Office of Management and Budget control number.


Sec. 682.409 Mandatory assignment by guaranty agencies of defaulted
loans to the Secretary.

* * * * *
(c) * * *
(2) The guaranty agency must execute an assignment to the United
States of America of all right, title, and interest in the promissory
note or judgment evidencing a loan assigned under this section. If more
than one loan is made under an MPN, the assignment of the note only
applies to the loan or loans being assigned to the Secretary.
* * * * *
(Approved by the Office of Management and Budget under control
number 1845-0020)

21. Section 682.414 is amended as follows:
A. In paragraph (a)(4)(ii)(A) by adding ``if a separate application
was provided to the lender'' after ``application''.
B. In paragraph (a)(4)(ii)(B) by removing ``, including the
repayment instrument'' after ``note''.
C. In paragraph (a)(4)(ii)(J) by removing ``and'' at the end of
sentence.
D. By redesignating paragraph (a)(4)(ii)(K) as paragraph
(a)(4)(ii)(L).
E. By adding a new paragraph (a)(4)(ii)(K).
F. In paragraph (a)(5)(i) by removing ``(K)'', and adding, in its
place, ``(L)''.
G. By revising paragraph (a)(5)(ii).
H. By removing paragraph (a)(5)(iii).
I. By revising the Office of Management and Budget control number.


Sec. 682.414 Records, reports, and inspection requirements for
guaranty agency programs.

(a) * * *
(4) * * *
(ii) * * *
(K) Documentation of any MPN confirmation process or processes; and
* * * * *
(5) * * *
(ii) A lender or guaranty agency holding a promissory note must
retain the original or a true and exact copy of the promissory note
until the loan is paid in full or assigned to the Secretary. When a
loan is paid in full by the borrower, the lender or guaranty agency
must return either the original or a true and exact copy of the note to
the borrower or notify the borrower that the loan is paid in full, and
retain a copy for the prescribed period.
* * * * *
(Approved by the Office of Management and Budget under control
number 1845-0020)

22. Section 682.603 is amended as follows:
A. By revising paragraph (b).
B. By adding a new paragraph (c).
C. By redesignating paragraphs (g) and (h) as paragraphs (h) and
(i), respectively.
D. By adding a new paragraph (g).
E. By revising the Office of Management and Budget control number.


Sec. 682.603 Certification by a participating school in connection
with a loan application.

* * * * *
(b) The information to be provided by the school about the borrower
making application for the loan pertains to--
(1) The borrower's eligibility for a loan, as determined in
accordance with Sec. 682.201 and Sec. 682.204;
(2) For a subsidized Stafford loan, the student's eligibility for
interest benefits as determined in accordance with Sec. 682.301; and
(3) The schedule for disbursement of the loan proceeds, which must
reflect the delivery of the loan proceeds as set forth in
Sec. 682.604(c).
(c) Except as provided in paragraph (e) of this section, in
certifying a loan, a school must certify a loan for the lesser of the
borrower's request or the loan limits determined under Sec. 682.204.
* * * * *
(g) A school must cease certifying loans based on the exceptions in
Sec. 682.604(c)(5)(i) and (c)(5)(ii) and Sec. 682.604(c)(10)(i) and
(ii) that allow for the disbursement of loans in one installment and
exempt the school from delayed release of loan proceeds no later than
30 days after the date the school receives notification from the
Secretary of an FFEL cohort default rate, Direct Loan cohort rate, or
weighted average cohort rate that causes the school to no longer meet
the qualifications outlined in those paragraphs.
* * * * *
(Approved by the Office of Management and Budget under control
number 1845-0020)

23. Section 682.604 is amended as follows:
A. In paragraph (a)(3), by removing, ``, as provided in
Sec. 668.167'' at the end of the sentence.
B. In paragraph (c)(3), by adding, or ``MPN'', after ``loan
application''.
C. By revising paragraph (c)(5).
D. By revising the introductory text of paragraph (c)(6).
E. By adding a new paragraph (c)(10).
F. By revising paragraphs (f) and (g).
G. By revising the Office of Management and Budget control number.


Sec. 682.604 Processing the borrower's loan proceeds and counseling
borrowers.

* * * * *
(c) * * *

[[Page 58964]]

(5) A school may not release the first installment of a Stafford
loan for endorsement to a student who is enrolled in the first year of
an undergraduate program of study and who has not previously received a
Stafford, SLS, Direct Subsidized, or Direct Unsubsidized loan until 30
days after the first day of the student's program of study unless--
(i) The school in which the student is enrolled has an FFEL cohort
default rate, Direct Loan Program cohort rate, or weighted average
cohort rate of less than 10 percent for each of the three most recent
fiscal years for which data are available;
(ii) The school is an eligible home institution certifying a loan
to cover the student's cost of attendance in a study abroad program and
has an FFEL cohort rate, Direct Loan Program cohort rate, or weighted
average cohort rate of less than 5 percent for the single most recent
fiscal year for which data are available; or
(iii) The school is not in a State.
(6) Unless the provision of Sec. 682.207(d) applies--
* * * * *
(10) Notwithstanding the requirements of paragraphs (c)(6)-(c)(9)
of this section, a school is not required to deliver loan proceeds in
more than one installment if--
(i)(A) The student's loan period is not more than one semester, one
trimester, one quarter, or, for non term-based schools or schools with
non-standard terms, 4 months; and
(B) The school in which the student is enrolled has an FFEL cohort
default rate, Direct Loan Program cohort rate, or weighted average
cohort rate of less than 10 percent for each of the three most recent
fiscal years for which data are available;
(ii) The school is an eligible home institution certifying a loan
to cover the student's cost of attendance in a study abroad program and
has an FFEL cohort default rate, Direct Loan Program cohort rate, or
weighted average cohort rate of less than 5 percent for the single most
recent fiscal year for which data are available; or
(iii) The school is not in a State.
* * * * *
(f) Initial counseling. (1) A school must conduct initial
counseling with each Stafford loan borrower either in person, by
audiovisual presentation, or by interactive electronic means prior to
its release of the first disbursement, unless the student borrower has
received a prior Stafford, SLS, or Direct loan. A school must ensure
that an individual with expertise in the title IV programs is
reasonably available shortly after the counseling to answer the student
borrower's questions regarding those programs. As an alternative, in
the case of a student borrower enrolled in a correspondence program or
a student borrower enrolled in a study-abroad program that the home
institution approves for credit, the school may provide the counseling
through written materials, prior to releasing those loan proceeds.
(2) In conducting the initial counseling, the school must--
(i) Explain the use of a Master Promissory Note;
(ii) Emphasize to the student borrower the seriousness and
importance of the repayment obligation the student borrower is
assuming;
(iii) Describe in forceful terms the likely consequences of
default, including adverse credit reports and litigation; and
(iv) In the case of a student borrower of a Stafford loan (other
than a loan made or originated by the school), emphasize that the
student borrower is obligated to repay the full amount of the loan even
if the student borrower does not complete the program, is unable to
obtain employment upon completion, or is otherwise dissatisfied with or
does not receive the educational or other services that the student
borrower purchased from the school.
(3) Additional matters that the Secretary recommends that a school
include in the initial counseling session or materials are set forth in
appendix D to 34 CFR part 668.
(4) A school that conducts initial counseling through interactive
electronic means must take reasonable steps to ensure that each student
borrower receives the counseling materials, and participates in and
completes the initial counseling.
(5) A school must maintain documentation substantiating the
school's compliance with this section for each student borrower.
(g) Exit counseling. (1) A school must conduct exit counseling with
each Stafford loan borrower either in person, by audiovisual
presentation, or by interactive electronic means. In each case, the
school must conduct this counseling shortly before the student borrower
ceases at least half-time study at the school. As an alternative, in
the case of a student borrower enrolled in a correspondence program or
a study-abroad program that the home institution approves for credit,
the school may provide written counseling materials by mail within 30
days after the student borrower completes the program. If a student
borrower withdraws from school without the school's prior knowledge or
fails to complete an exit counseling session as required, the school
must provide exit counseling through either interactive electronic
means or by mailing written counseling materials to the student
borrower at the student borrower's last known address within 30 days
after learning that the student borrower has withdrawn from school or
failed to complete the exit counseling as required.
(2) In conducting the exit counseling, the school must--
(i) Inform the student borrower of the average anticipated monthly
repayment amount based on the student borrower's indebtedness or on the
average indebtedness of student borrowers who have obtained Stafford or
SLS loans for attendance at that school or in the student borrower's
program of study;
(ii) Review for the student borrower available repayment options
(e.g., loan consolidation, refinancing of SLS loans);
(iii) Suggest to the student borrower debt-management strategies
that the school determines would best assist repayment by the student
borrower;
(iv) Include the matters described in paragraph (f)(2) of this
section;
(v) Review with the student borrower the conditions under which the
student borrower may defer repayment or obtain a full or partial
cancellation of a loan;
(vi) Require the student borrower to provide corrections to the
institution's records concerning name, address, social security number,
references, and driver's license number, as well as the student
borrower's expected permanent address, the address of the student
borrower's next of kin, and the name and address of the student
borrower's expected employer, that will then be provided within 60 days
to the guaranty agency or agencies listed in the student borrower's
records; and
(vii) Review with the student borrower information on the
availability of the Student Loan Ombudsman's office.
(3) Additional matters that the Secretary recommends that a school
include in the exit counseling session or materials are set forth in
appendix D to 34 CFR part 668.
(4) A school that conducts exit counseling by electronic
interactive means must take reasonable steps to ensure that each
student borrower receives the counseling materials, and participates in
and completes the counseling.
(5) The school must maintain documentation substantiating the

[[Page 58965]]

school's compliance with this section for each student borrower.
* * * * *
(Approved by the Office of Management and Budget under control
number 1845-0020)

24. Section 682.610 is amended by revising paragraph (b) and the
Office of Management and Budget control number to read as follows:


Sec. 682.610 Administrative and fiscal requirements for participating
schools.

* * * * *
(b) Loan record requirements. In addition to records required by 34
CFR part 668, for each Stafford, SLS, or PLUS loan received by or on
behalf of its students, a school must maintain--
(1) A copy of the loan certification or data electronically
submitted to the lender, that includes the amount of the loan and the
period of enrollment for which the loan was intended;
(2) The cost of attendance, estimated financial assistance, and
estimated family contribution used to calculate the loan amount;
(3) For loans delivered to the school by check, the date the school
endorsed each loan check, if required;
(4) The date or dates of delivery of the loan proceeds by the
school to the student or to the parent borrower;
(5) For loans delivered by electronic funds transfer or master
check, a copy of the borrower's written authorization required under
Sec. 682.604(c)(3) to deliver the initial and subsequent disbursements
of each FFEL program loan; and
(6) Documentation of any MPN confirmation process or processes the
school may have used.
* * * * *
(Approved by the Office of Management and Budget under control
number 1845-0020)

25. Sections 682.205, 682.208, 682.214, 682.405, 682.410, 682.411,
682.507, 682.508, 682.511, 682.515, 682.601, 682.605, 682.711, 682.712,
682.713, 682.802, and 682.803 are amended by revising the Office of
Management and Budget control number to read ``1845-0020''.

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

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

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

27. Section 685.102 is amended in paragraph (b) as follows:
A. By revising the definitions of ``Default'' and ``Estimated
financial assistance.''
B. By adding after ``Loan fee'' a new definition of ``Master
promissory note (MPN).''


Sec. 685.102 Definitions.

* * * * *
(b) * * *
Default: The failure of a borrower and endorser, if any, to make an
installment payment when due, or to meet other terms of the promissory
note, if the Secretary finds it reasonable to conclude that the
borrower and endorser, if any, no longer intend to honor the obligation
to repay, provided that this failure persists for 270 days.
Estimated financial assistance: (1) The estimated amount of
assistance for a period of enrollment that a student (or a parent on
behalf of a student) will receive from Federal, State, institutional,
or other sources, such as scholarships, grants, financial need-based
employment, or loans, including but not limited to--
(i) Except as provided in paragraph (2)(iii) of this definition,
veterans' educational benefits paid under chapters 30, 31, 32, and 35
of title 38 of the United States Code;
(ii) Educational benefits paid under chapters 106 and 107 of title
10 of the United States Code (Selected Reserve Educational Assistance
Program);
(iii) Reserve Officer Training Corps (ROTC) scholarships and
subsistence allowances awarded under chapter 2 of title 10 and chapter
2 of title 37 of the United States Code;
(iv) Benefits paid under Public Law 97-376, section 156: Restored
Entitlement Program for Survivors (or Quayle benefits);
(v) Benefits paid under Public Law 96-342, section 903: Educational
Assistance Pilot Program;
(vi) Any educational benefits paid because of enrollment in a
postsecondary education institution;
(vii) The estimated amount of other Federal student financial aid,
including but not limited to a Federal Pell Grant, campus-based aid,
and the gross amount (including fees) of a Direct Subsidized, Direct
Unsubsidized, and Direct PLUS Loan; and
(viii) Except as provided in paragraph (2)(iii) of this definition,
national service education awards or post-service benefits under title
I of the National and Community Service Act of 1990.
(2) Estimated financial assistance does not include--
(i) Those amounts used to replace the expected family contribution,
including--
(A) Direct PLUS Loan amounts;
(B) Direct Unsubsidized Loan amounts; and (C) Non-Federal loan
amounts;
(ii) Federal Perkins loan and Federal Work-Study funds that the
student has declined; and
(iii) For the purpose of determining eligibility for a Direct
Subsidized Loan, veterans' educational benefits paid under chapter 30
of title 38 of the United States Code (Montgomery GI Bill--Active Duty)
and national service education awards or post-service benefits under
title I of the National and Community Service Act of 1990.
* * * * *
Master promissory note (MPN): A promissory note under which the
borrower may receive loans for a single academic year or multiple
academic years. Loans for multiple academic years may no longer be made
under an MPN after the earliest of--
(i) The date the Secretary or the school receives the borrower's
written notice that no further loans may be disbursed;
(ii) One year after the date of the borrower's first anticipated
disbursement if no disbursement is made during that twelve-month
period; or
(iii) Ten years after the date of the first anticipated
disbursement except that a remaining portion of a loan may be disbursed
after this date.
* * * * *
28. Section 685.201 is revised to read as follows:


Sec. 685.201 Obtaining a loan.

(a) Application for a Direct Subsidized Loan or a Direct
Unsubsidized Loan. (1) To obtain a Direct Subsidized Loan or a Direct
Unsubsidized Loan, a student must complete a Free Application for
Federal Student Aid and submit it in accordance with instructions in
the application.
(2) If the student is eligible for a Direct Subsidized Loan or a
Direct Unsubsidized Loan, the Secretary or the school in which the
student is enrolled must perform specific functions. Unless a school's
agreement with the Secretary specifies otherwise, the school must
perform the following functions:
(i) A school participating under school origination option 2 must
create a loan origination record, ensure that the loan is supported by
a completed Master Promissory Note (MPN), draw down funds, and disburse
the funds to the student.
(ii) A school participating under school origination option 1 must
create a loan origination record, ensure that the loan is supported by
a completed MPN, and transmit the record and MPN (if required) to the
Servicer. The Servicer initiates the drawdown of funds. The school must
disburse the funds to the student.
(iii) If the student is attending a school participating under
standard

[[Page 58966]]

origination, the school must create a loan origination record and
transmit the record to the alternative originator, which either
confirms that a completed MPN supports the loan or prepares an MPN and
sends it to the student. The Servicer receives the completed MPN from
the student (if required) and initiates the drawdown of funds. The
school must disburse the funds to the student.
(b) Application for a Direct PLUS Loan. To obtain a Direct PLUS
Loan, the parent must complete the application and promissory note and
submit it to the school at which the student is enrolled. The school
must complete its portion of the application and promissory note and
submit it to the Servicer, which makes a determination as to whether
the parent has an adverse credit history. Unless a school's agreement
with the Secretary specifies otherwise, the school must perform the
following functions: A school participating under school origination
option 2 must draw down funds and disburse the funds. For a school
participating under school origination option 1 or standard
origination, the Servicer initiates the drawdown of funds, and the
school disburses the funds.
(c) Application for a Direct Consolidation Loan
(1) To obtain a Direct Consolidation Loan, the applicant must
complete the application and promissory note and submit it to the
Servicer. The application and promissory note sets forth the terms and
conditions of the Direct Consolidation Loan and informs the applicant
how to contact the Servicer. The Servicer answers questions regarding
the process of applying for a Direct Consolidation Loan and provides
information about the terms and conditions of both Direct Consolidation
Loans and the types of loans that may be consolidated.
(2) Once the applicant has submitted the completed application and
promissory note to the Servicer, the Secretary makes the Direct
Consolidation Loan under the procedures specified in Sec. 685.216.


(Authority: 20 U.S.C. 1087a et seq., 1091a)

29. Section 685.203 is amended by revising paragraphs (a) and
(c)(2); and by revising the introductory text of paragraphs (d) and (e)
to read as follows:


Sec. 685.203 Loan limits.

(a) Direct Subsidized Loans. (1) In the case of an undergraduate
student who has not successfully completed the first year of a program
of undergraduate education, the total amount the student may borrow for
any academic year of study under the Federal Direct Stafford/Ford Loan
Program in combination with the Federal Stafford Loan Program may not
exceed the following:
(i) $2,625 for a program of study of at least a full academic year
in length.
(ii) For a one-year program of study with less than a full academic
year remaining, the amount that is the same ratio to $2,625 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.000

(iii) For a program of study that is less than a full academic year
in length, the amount that is the same ratio to $2,625 as the lesser of
the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.001

(2) In the case of an undergraduate student who has successfully
completed the first year of an undergraduate program but has not
successfully completed the second year of an undergraduate program, the
total amount the student may borrow for any academic year of study
under the Federal Direct Stafford/Ford Loan Program in combination with
the Federal Stafford Loan Program may not exceed the following:
(i) $3,500 for a program of study of at least a full academic year
in length.
(ii) For a program of study with less than a full academic year
remaining, an amount that is the same ratio to $3,500 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.002

(3) In the case of an undergraduate student who has successfully
completed the first and second years of a program of study of
undergraduate education but has not successfully completed the
remainder of the program, the total amount the student may borrow for
any academic year of study under the Federal Direct Stafford/Ford Loan
Program in combination with the Federal Stafford Loan Program may not
exceed the following:
(i) $5,500 for a program of study of at least an academic year in
length.
(ii) For a program of study with less than a full academic year
remaining, an amount that is the same ratio to $5,500 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.003


[[Page 58967]]


(4) In the case of a student who has an associate or baccalaureate
degree which is required for admission into a program and who is not a
graduate or professional student, the total amount the student may
borrow for any academic year of study may not exceed the amounts in
paragraph (a)(3) of this section.
(5) In the case of a graduate or professional student, the total
amount the student may borrow for any academic year of study under the
Federal Direct Stafford/Ford Loan Program in combination with the
Federal Stafford Loan Program may not exceed $8,500.
(6) In the case of a student enrolled for no longer than one
consecutive 12-month period in a course of study necessary for
enrollment in a program leading to a degree or a certificate, the total
amount the student may borrow for any academic year of study under the
Federal Direct Stafford/Ford Loan Program in combination with the
Federal Stafford Loan Program may not exceed the following:
(i) $2,625 for coursework necessary for enrollment in an
undergraduate degree or certificate program.
(ii) $5,500 for coursework necessary for enrollment in a graduate
or professional degree or certification program for a student who has
obtained a baccalaureate degree.
(7) In the case of a student who has obtained a baccalaureate
degree and is enrolled or accepted for enrollment in coursework
necessary for a professional credential or certification from a State
that is required for employment as a teacher in an elementary or
secondary school in that State, the total amount the student may borrow
for any academic year of study under the Federal Direct Stafford/Ford
Loan Program in combination with the Federal Stafford Loan Program may
not exceed $5,500.
* * * * *
(c) * * *
(2) The additional amount that a student described in paragraph
(c)(1)(i) of this section may borrow under the Federal Direct
Unsubsidized Stafford/Ford Loan Program and the Federal Unsubsidized
Stafford Loan Program for any academic year of study may not exceed the
following:
(i) In the case of a student who has not successfully completed the
first year of a program of undergraduate education--
(A) $4,000 for a program of study of at least a full academic year
in length.
(B) For a program of study with less than a full academic year
remaining, an amount that is the same ratio to $4,000 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.004

(C) For a one-year program of study with less than a full academic
year remaining, the amount that is the same ratio to $4,000 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.005

(D) For a program of study that is less than a full academic year
in length, an amount that is the same ratio to $4,000 as the lesser of
the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.006

(ii) In the case of a student who has completed the first year of a
program of undergraduate education but has not successfully completed
the second year of a program of undergraduate education--
(A) $4,000 for a program of study of at least a full academic year
in length.
(B) For a program of study with less than a full academic year
remaining, an amount that is the same ratio to $4,000 as the--
[GRAPHIC] [TIFF OMITTED] TR01NO99.007

(iii) In the case of a student who has successfully completed the
second year of a program of undergraduate education but has not
completed the remainder of the program of study--
(A) $5,000 for a program of study of at least a full academic year
in length.
(B) For a program of study with less than a full academic year
remaining, an amount that is the same ratio to $5,000 as the--

[[Page 58968]]

[GRAPHIC] [TIFF OMITTED] TR01NO99.008

(iv) In the case of a student who has an associate or baccalaureate
degree which is required for admission into a program and who is not a
graduate or professional student, the total amount the student may
borrow for any academic year of study may not exceed the amounts in
paragraph (c)(2)(iii) of this section.
(v) In the case of a graduate or professional student, $10,000.
(vi) In the case of a student enrolled for no longer than one
consecutive 12-month period in a course of study necessary for
enrollment in a program leading to a degree or a certificate--
(A) $4,000 for coursework necessary for enrollment in an
undergraduate degree or certificate program.
(B) $5,000 for coursework necessary for enrollment in a graduate or
professional degree or certification program for a student who has
obtained a baccalaureate degree.
(vii) In the case of a student who has obtained a baccalaureate
degree and is enrolled or accepted for enrollment in coursework
necessary for a professional credential or certification from a State
that is required for employment as a teacher in an elementary or
secondary school in that State, $5,000.
(d) Federal Direct Stafford/Ford Loan Program and Federal Stafford
Loan Program aggregate limits. The aggregate unpaid principal amount of
all Direct Subsidized Loans and Federal Stafford Loans made to a
student but excluding the amount of capitalized interest may not exceed
the following:
* * * * *
(e) Aggregate limits for unsubsidized loans. The total amount of
Direct Unsubsidized Loans, Federal Unsubsidized Stafford Loans, and
Federal SLS Loans but excluding the amount of capitalized interest may
not exceed the following:
* * * * *
30. Section 685.204 is amended by adding a new paragraph
(b)(1)(iii) and revising the Office of Management and Budget control
number to read as follows:


Sec. 685.204 Deferment.

* * * * *
(b) * * *
(1) * * *
(iii)(A) For the purpose of paragraph (b)(1)(i) of this section,
the Secretary processes a deferment when--
(1) The borrower submits a request to the Secretary along with
documentation verifying the borrower's eligibility;
(2) The Secretary receives information from the borrower's school
indicating that the borrower is eligible to receive a new loan; or
(3) The Secretary receives student status information from the
borrower's school, either directly or indirectly, indicating that the
borrower is enrolled on at least a half-time basis.
(B)(1) Upon notification by the Secretary that a deferment has been
granted based on paragraph (b)(1)(iii)(A)(2) or (3) of this section,
the borrower has the option to continue paying on the loan.
(2) If the borrower elects to cancel the deferment and continue
paying on the loan, the borrower has the option to make the principal
and interest payments that were deferred. If the borrower does not make
the payments, the Secretary applies a deferment for the period in which
payments were not made and capitalizes the interest.
* * * * *
(Approved by the Office of Management and Budget under control
number 1845-0021)

31. Section 685.205 is amended as follows:
A. By revising the introductory text of paragraph (a); by removing
the ``period'' at the end of paragraph (a)(2) and adding, in its place,
``;''; by revising paragraph (a)(4); and by removing paragraph (a)(5)
and redesignating paragraph (a)(6) as paragraph (a)(5).
B. By revising paragraph (b)(6); by removing ``or'' at the end of
paragraph (b)(7); by removing the ``period'' at the end of paragraph
(b)(8) and adding, in its place, ``; or''; and by adding a new
paragraph (b)(9).


Sec. 685.205 Forbearance.

(a) General. ``Forbearance'' means permitting the temporary
cessation of payments, allowing an extension of time for making
payments, or temporarily accepting smaller payments than previously
scheduled. The borrower has the option to choose the form of
forbearance. Except as provided in paragraph (b)(9) of this section, if
payments of interest are forborne, they are capitalized. The Secretary
grants forbearance if the borrower or endorser intends to repay the
loan but requests forbearance and provides sufficient documentation to
support this request, and--
* * * * *
(4) The borrower is serving in a national service position for
which the borrower is receiving a national service education award
under title I of the National and Community Service Act of 1990; or
* * * * *
(b) * * *
(6) Periods necessary for the Secretary to determine the borrower's
eligibility for discharge--
(i) Under Sec. 685.213;
(ii) Under Sec. 685.214;
(iii) Under Sec. 685.215; or
(iv) Due to the borrower's or endorser's (if applicable)
bankruptcy;
* * * * *
(9) A period of up to 60 days necessary for the Secretary to
collect and process documentation supporting the borrower's request for
a deferment, forbearance, change in repayment plan, or consolidation
loan. Interest that accrues during this period is not capitalized.
* * * * *
32. Section 685.207 is amended as follows:
A. By redesignating paragraph (b)(2)(ii) as paragraph (b)(2)(iii).
B. By adding a new paragraph (b)(2)(ii).
C. By revising the redesignated paragraph (b)(2)(iii).
D. By redesignating paragraph (c)(2)(ii) as paragraph (c)(2)(iii).
E. By adding a new paragraph (c)(2)(ii).


Sec. 685.207 Obligation to repay.

* * * * *
(b) * * *
(2) * * *
(ii)(A) Any borrower who is a member of a reserve component of the
Armed Forces named in section 10101 of title 10, United States Code and
is called or ordered to active duty for a period of more than 30 days
is entitled to have the active duty period excluded from the six-month
grace period. The excluded period includes the time necessary for the
borrower to resume enrollment at the next available regular enrollment
period. Any single excluded period may not exceed 3 years.
(B) Any borrower who is in a grace period when called or ordered to
active duty as specified in paragraph (b)(2)(ii)(A) of this section is
entitled to a full six-month grace period upon completion of the
excluded period.
(iii) During a grace period, the borrower is not required to make
any principal payments on a Direct Subsidized Loan.
* * * * *

[[Page 58969]]

(c) * * *
(2) * * *
(ii)(A) Any borrower who is a member of a reserve component of the
Armed Forces named in section 10101 of title 10, United States Code and
is called or ordered to active duty for a period of more than 30 days
is entitled to have the active duty period excluded from the six-month
grace period. The excluded period includes the time necessary for the
borrower to resume enrollment at the next available regular enrollment
period. Any single excluded period may not exceed 3 years.
(B) Any borrower who is in a grace period when called or ordered to
active duty as specified in paragraph (c)(2)(ii)(A) of this section is
entitled to a full six-month grace period upon completion of the
excluded period.
* * * * *
33. Section 685.212 is amended by revising paragraphs (d), (e),
(f), and (g); and by revising the Office of Management and Budget
control number to read as follows:


Sec. 685.212 Discharge of a loan obligation.

* * * * *
(d) Closed schools. If a borrower meets the requirements in
Sec. 685.213, the Secretary discharges the obligation of the borrower
and any endorser to make any further payments on the loan. In the case
of a Direct Consolidation Loan, the Secretary discharges the portion of
the consolidation loan equal to the amount of the discharge applicable
to any loan disbursed on or after January 1, 1986 that was included in
the consolidation loan.
(e) False certification and unauthorized disbursement. If a
borrower meets the requirements in Sec. 685.214, the Secretary
discharges the obligation of the borrower and any endorser to make any
further payments on the loan. In the case of a Direct Consolidation
Loan, the Secretary discharges the portion of the consolidation loan
equal to the amount of the discharge applicable to any loan disbursed
on or after January 1, 1986 that was included in the consolidation
loan.
(f) Unpaid refunds. If a borrower meets the requirements in
Sec. 685.215, the Secretary discharges the obligation of the borrower
and any endorser to make any further payments on the amount of the loan
equal to the unpaid refund and any accrued interest and other charges
associated with the unpaid refund. In the case of a Direct
Consolidation Loan, the Secretary discharges the portion of the
consolidation loan equal to the amount of the unpaid refund owed on any
loan disbursed on or after January 1, 1986 that was included in the
consolidation loan.
(g) Payments received after eligibility for discharge. (1) For the
discharge conditions in paragraphs (a)-(e) of this section. Upon
receipt of acceptable documentation and approval of the discharge
request, the Secretary returns to the sender, or, for a discharge based
on death, the borrower's estate, those payments received after the date
that the eligibility requirements for discharge were met but prior to
the date the discharge was approved. The Secretary also returns any
payments received after the date the discharge was approved.
(2) For the discharge condition in paragraph (f) of this section.
Upon receipt of acceptable documentation and approval of the discharge
request, the Secretary returns to the sender payments received in
excess of the amount owed on the loan after applying the unpaid refund.

(Approved by the Office of Management and Budget under control
number 1845-0021)

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

34. Section 685.215 is redesignated as Sec. 685.216, a new
Sec. 685.215 is added to read as follows:


Sec. 685.215 Unpaid refund discharge.

(a)(1) Unpaid refunds in closed school situations. In the case of a
school that has closed, the Secretary discharges a former or current
borrower's (and any endorser's) obligation to repay that portion of a
Direct Loan equal to the refund that should have been made by the
school under applicable law and regulations, including this section.
Any accrued interest and other charges associated with the unpaid
refund are also discharged.
(2) Unpaid refunds in open school situations.
(i) In the case of a school that is open, the Secretary discharges
a former or current borrower's (and any endorser's) obligation to repay
that portion of a Direct Loan equal to the refund that should have been
made by the school under applicable law and regulations, including this
section, if--
(A) The borrower (or the student on whose behalf a parent borrowed)
has ceased to attend the school that owes the refund;
(B) The borrower has been unable to resolve the unpaid refund with
the school; and
(C) The Secretary is unable to resolve the unpaid refund with the
school within 120 days from the date the borrower submits a complete
application in accordance with paragraph (c)(1) of this section
regarding the unpaid refund. Any accrued interest and other charges
associated with the unpaid refund are also discharged.
(ii) For the purpose of paragraph (a)(2)(i)(C) of this section,
within 60 days of the date notified by the Secretary, the school must
submit to the Secretary documentation demonstrating that the refund was
made by the school or that the refund was not required to be made by
the school.
(b) Relief to borrower following discharge. (1) If the borrower
receives a discharge of a portion of a loan under this section, the
borrower is reimbursed for any amounts paid in excess of the remaining
balance of the loan (including accrued interest and other charges) owed
by the borrower at the time of discharge.
(2) The Secretary reports the discharge of a portion of a loan
under this section to all credit reporting agencies to which the
Secretary previously reported the status of the loan.
(c) Borrower qualification for discharge. (1) Except as provided in
paragraph (c)(2) of this section, to receive a discharge of a portion
of a loan under this section, a borrower must submit a written
application to the Secretary. The application requests the information
required to calculate the amount of the discharge and requires the
borrower to sign a statement swearing to the accuracy of the
information in the application. The statement need not be notarized but
must be made by the borrower under penalty of perjury. In the
statement, the borrower must--
(i) State that the borrower (or the student on whose behalf a
parent borrowed)--
(A) Received the proceeds of a loan on or after January 1, 1986 to
attend a school;
(B) Did not attend, withdrew, or was terminated from the school
within a timeframe that entitled the borrower to a refund; and
(C) Did not receive the benefit of a refund to which the borrower
was entitled either from the school or from a third party, such as the
holder of a performance bond or a tuition recovery program;
(ii) State whether the borrower (or student) has any other
application for discharge pending for this loan; and
(iii) State that the borrower (or student)--
(A) Agrees to provide to the Secretary upon request other
documentation reasonably available to the borrower that demonstrates
that the borrower meets the qualifications for discharge under this
section; and

[[Page 58970]]

(B) Agrees to cooperate with the Secretary in enforcement actions
as described in Sec. 685.213(d) and to transfer any right to recovery
against a third party to the Secretary as described in Sec. 685.213(e).
(2) The Secretary may discharge a portion of a loan under this
section without an application if the Secretary determines, based on
information in the Secretary's possession, that the borrower qualifies
for a discharge.
(d) Determination of amount eligible for discharge.
(1) The Secretary determines the amount eligible for discharge
based on information showing the refund amount or by applying the
appropriate refund formula to information that the borrower provides or
that is otherwise available to the Secretary. For purposes of this
section, all unpaid refunds are considered to be attributed to loan
proceeds.
(2) If the information in paragraph (d)(1) of this section is not
available, the Secretary uses the following formulas to determine the
amount eligible for discharge:
(i) In the case of a student who fails to attend or whose
withdrawal or termination date is before October 7, 2000 and who
completes less than 60 percent of the loan period, the Secretary
discharges the lesser of the institutional charges unearned or the loan
amount. The Secretary determines the amount of the institutional
charges unearned by--
(A) Calculating the ratio of the amount of time remaining in the
loan period after the student's last day of attendance to the actual
length of the loan period; and
(B) Multiplying the resulting factor by the institutional charges
assessed the student for the loan period.
(ii) In the case of a student who fails to attend or whose
withdrawal or termination date is on or after October 7, 2000 and who
completes less than 60 percent of the loan period, the Secretary
discharges the loan amount unearned. The Secretary determines the loan
amount unearned by--
(A) Calculating the ratio of the amount of time remaining in the
loan period after the student's last day of attendance to the actual
length of the loan period; and
(B) Multiplying the resulting factor by the total amount of title
IV grants and loans received by the student, or, if unknown, the loan
amount.
(iii) In the case of a student who completes 60 percent or more of
the loan period, the Secretary does not discharge any amount because a
student who completes 60 percent or more of the loan period is not
entitled to a refund.
(e) Discharge procedures. (1) Except as provided in paragraph
(c)(2) of this section, if the Secretary learns that a school did not
make a refund of loan proceeds owed under applicable law and
regulations, the Secretary sends the borrower a discharge application
and an explanation of the qualifications and procedures for obtaining a
discharge. The Secretary also promptly suspends any efforts to collect
from the borrower on any affected loan. The Secretary may continue to
receive borrower payments.
(2) If a borrower who is sent a discharge application fails to
submit the application within 60 days of the Secretary's sending the
discharge application, the Secretary resumes collection and grants
forbearance of principal and interest for the period in which
collection activity was suspended. The Secretary may capitalize any
interest accrued and not paid during that period.
(3) If a borrower qualifies for a discharge, the Secretary notifies
the borrower in writing. The Secretary resumes collection and grants
forbearance of principal and interest on the portion of the loan not
discharged for the period in which collection activity was suspended.
The Secretary may capitalize any interest accrued and not paid during
that period.
(4) If a borrower does not qualify for a discharge, the Secretary
notifies the borrower in writing of the reasons for the determination.
The Secretary resumes collection and grants forbearance of principal
and interest for the period in which collection activity was suspended.
The Secretary may capitalize any interest accrued and not paid during
that period.

(Approved by the Office of Management and Budget under control
number 1845-0021)

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

35. The newly redesignated Sec. 685.216 is amended by revising
paragraphs (d), (g), (l)(1), (l)(2), and (l)(3); and by revising the
Office of Management and Budget control number to read as follows:


Sec. 685.216 Consolidation.

* * * * *
(d) * * *
(1) * * *
(ii) * * *
(E) In default but has made satisfactory repayment arrangements, as
defined in applicable program regulations, on the defaulted loan; or
* * * * *
(g) Interest rate. The interest rate on a Direct Subsidized
Consolidation Loan or a Direct Unsubsidized Consolidation Loan is the
rate established in Sec. 685.202(a)(3)(i). The interest rate on a
Direct PLUS Consolidation Loan is the rate established in
Sec. 685.202(a)(3)(ii).
* * * * *
(l) * * *
(1) Deferment. To obtain a deferment on a joint Direct
Consolidation Loan under Sec. 685.204, both borrowers must meet the
requirements of that section.
(2) Forbearance. To obtain forbearance on a joint Direct
Consolidation Loan under Sec. 685.205, both borrowers must meet the
requirements of that section.
(3) Discharge. (i) To obtain a discharge of a joint Direct
Consolidation Loan under Sec. 685.212, each borrower must meet the
requirements for one of the types of discharge described in that
section.
(ii) If a borrower meets the requirements for discharge under
Sec. 685.212(d), (e), or (f) on a loan that was consolidated into a
joint Direct Consolidation Loan and the borrower's spouse does not meet
the requirements for any type of discharge described in Sec. 685.212,
the Secretary discharges a portion of the consolidation loan equal to
the amount of the loan that would have been eligible for discharge
under the provisions of Sec. 685.212(d), (e), or (f) as applicable.

(Approved by the Office of Management and Budget under control
number 1845-0021)

36. Section 685.300 is amended by revising paragraph (a)(1)(ii) to
read as follows:


Sec. 685.300 Agreements between an eligible school and the Secretary
for participation in the Direct Loan Program.

(a) * * *
(1) * * *
(ii) Enter into a written program participation agreement with the
Secretary that identifies the loan program or programs in which the
school chooses to participate.
* * * * *
37. Section 685.301 is amended by revising paragraphs (b)(2),
(b)(3), (b)(8), and (c)(2); and by revising the Office of Management
and Budget control number to read as follows:


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

* * * * *
(b) * * *
(2) Unless paragraph (b)(5) or (6) of this section applies, an
institution must disburse the loan proceeds on a payment period basis
in accordance with 34 CFR 668.164(b).

[[Page 58971]]

(3) Unless paragraph (b)(4), (5), (6), or (8) of this section
applies--
* * * * *
(8)(i) A school is not required to make more than one disbursement
if--
(A)(1) The loan period is not more than one semester, one
trimester, one quarter, or, for non term-based schools or schools with
non-standard terms, 4 months; and
(2) The school has a Direct Loan Program cohort rate, FFEL cohort
default rate, or weighted average cohort rate of less than 10 percent
for each of the three most recent fiscal years for which data are
available;
(B) The school is an eligible home institution originating a loan
to cover the cost of attendance in a study abroad program and has a
Direct Loan Program cohort rate, FFEL cohort default rate, or weighted
average cohort rate of less than 5 percent for the single most recent
fiscal year for which data are available; or
(C) The school is not in a State.
(ii) Paragraphs (b)(8)(i)(A) and (B) of this section, which allow
the disbursement of loans in one installment, do not apply to any loans
originated by the school beginning 30 days after the date the school
receives notification from the Secretary of an FFEL cohort default
rate, Direct Loan cohort rate, or weighted average cohort rate that
causes the school to no longer meet the qualifications outlined in
those paragraphs.
* * * * *
(c) * * *
(2) A school that originates a loan must ensure that the loan is
supported by a completed promissory note as proof of the borrower's
indebtedness.
* * * * *
(Approved by the Office of Management and Budget under control
number 1845-0021)

38. Section 685.303 is amended by revising paragraph (b)(4) to read
as follows:


Sec. 685.303 Processing loan proceeds.

* * * * *
(b) * * *
(4)(i) If a student is enrolled in the first year of an
undergraduate program of study and has not previously received a
Federal Stafford, Federal Supplemental Loans for Students, Direct
Subsidized, or Direct Unsubsidized Loan, a school may not disburse the
proceeds of a Direct Subsidized or Direct Unsubsidized Loan until 30
days after the first day of the student's program of study unless--
(A) The school has a Direct Loan Program cohort rate, FFEL cohort
default rate, or weighted average cohort rate of less than 10 percent
for each of the three most recent fiscal years for which data are
available;
(B) The school is an eligible home institution originating a loan
to cover the cost of attendance in a study abroad program and has a
Direct Loan Program cohort rate, FFEL cohort default rate, or weighted
average cohort rate of less than 5 percent for the single most recent
fiscal year for which data are available; or
(C) The school is not in a State.
(ii) Paragraphs (b)(4)(i)(A) and (B) of this section do not apply
to any loans originated by the school beginning 30 days after the date
the school receives notification from the Secretary of an FFEL cohort
default rate, Direct Loan cohort rate, or weighted average cohort rate
that causes the school to no longer meet the qualifications outlined in
those paragraphs.
* * * * *
39. Section 685.304 is amended as follows:
A. By revising paragraphs (a)(1), (a)(2), and (a)(3) introductory
text; by redesignating paragraphs (a)(3)(i)-(iv) as paragraphs
(a)(3)(ii)-(v), respectively; by adding a new paragraph (a)(3)(i); by
revising newly redesignated paragraphs (a)(3)(ii), (iv), and (v); by
revising paragraphs (a)(5)(i) and (ii); and by adding new paragraphs
(a)(6) and (a)(7).
B. By redesignating paragraphs (b)(1)(ii), (b)(2) introductory
text, (b)(2)(i) through (vi); (b)(2)(vii), (b)(3), and (b)(4) as
paragraphs (b)(3), (b)(4) introductory text, (b)(4)(i) through (vi),
(b)(4)(viii), (b)(5), and (b)(7), respectively; by revising paragraph
(b)(1) and newly redesignated paragraphs (b)(3), (b)(4) introductory
text, (b)(4)(i) through (viii), and (b)(7); and by adding new
paragraphs (b)(2), (b)(4)(vii), and (b)(6).
C. By adding the Office of Management and Budget control number.


Sec. 685.304 Counseling borrowers.

(a) Initial counseling. (1) Except as provided in paragraph (a)(5)
of this section, a school must conduct initial counseling prior to
making the first disbursement of the proceeds of a Direct Subsidized or
Direct Unsubsidized Loan to a borrower unless the student borrower has
received a prior Direct Subsidized, Direct Unsubsidized, Federal
Stafford, Federal Unsubsidized Stafford, or Federal SLS Loan.
(2) The counseling must be in person, by audiovisual presentation,
or by interactive electronic means. In each case, the school must
ensure that an individual with knowledge of the title IV programs is
reasonably available shortly after the counseling to answer the student
borrower's questions. As an alternative, in the case of a student
borrower enrolled in a correspondence program or a study-abroad program
approved for credit at the home institution, the school may provide the
student borrower with written counseling materials prior to disbursing
the loan proceeds.
(3) In conducting the initial counseling, the school must--
(i) Explain the use of a Master Promissory Note;
(ii) Emphasize to the borrower the seriousness and importance of
the repayment obligation the student borrower is assuming;
* * * * *
(iv) Provide the student borrower with general information with
respect to the average indebtedness of student borrowers who have
obtained Direct Subsidized or Direct Unsubsidized Loans for attendance
at that school or in the student borrower's program of study;
(v) Inform the student borrower as to the average anticipated
monthly repayment for those student borrowers based on the average
indebtedness provided under paragraph (a)(3)(iv) of this section.
(5) * * *
(i) Ensure that each student borrower subject to initial counseling
under paragraph (a)(1) of this section is provided written counseling
materials that contain the information described in paragraph (a)(3) of
this section;
(ii) Be designed to target those student borrowers who are most
likely to default on their repayment obligations and provide them more
intensive counseling and support services; and
* * * * *
(6) A school that conducts initial counseling through interactive
electronic means must take reasonable steps to ensure that each student
borrower receives the counseling materials, and participates in and
completes initial counseling.
(7) The school must maintain documentation substantiating the
school's compliance with this section for each student borrower.
(b) Exit counseling. (1) A school must conduct exit counseling with
each Direct Subsidized or Direct Unsubsidized Loan borrower shortly
before the student borrower ceases at least half-time study at the
school.
(2) The counseling must be in person, by audiovisual presentation,
or by interactive electronic means. In each case, the school must
ensure that an individual with knowledge of the title

[[Page 58972]]

IV programs is reasonably available shortly after the counseling to
answer the student borrower's questions. As an alternative, in the case
of a student borrower enrolled in a correspondence program or a study-
abroad program approved for credit at the home institution, the school
may provide the student borrower with written counseling materials
within 30 days after the student borrower completes the program.
(3) If a student borrower withdraws from school without the
school's prior knowledge or fails to complete the exit counseling as
required, the school must provide exit counseling either through
interactive electronic means or by mailing written counseling materials
to the student borrower at the student borrower's last known address
within 30 days after the school learns that the student borrower has
withdrawn from school or failed to complete the exit counseling as
required.
(4) In conducting the exit counseling, the school must--
(i) Inform the student borrower of the average anticipated monthly
repayment amount based on the student borrower's indebtedness or on the
average indebtedness of student borrowers who have obtained Direct
Subsidized or Direct Unsubsidized Loans for attendance at that school
or in the student borrower's program of study;
(ii) Review for the student borrower available repayment options
including the standard repayment, extended repayment, graduated
repayment, and income contingent repayment plans, and loan
consolidation;
(iii) Provide options to the student borrower concerning those
debt-management strategies that the school determines would facilitate
repayment by the student borrower;
(iv) Explain to the student borrower how to contact the party
servicing the student borrower's Direct Loans;
(v) Meet the requirements described in paragraphs (a)(3)(ii) and
(iii) of this section;
(vi) Review with the student borrower the conditions under which
the student borrower may defer repayment or obtain a full or partial
cancellation of a loan;
(vii) Review with the student borrower information on the
availability of the Department's Student Loan Ombudsman's office; and
(viii) Require the student borrower to provide corrections to the
school's records concerning name, address, social security number,
references, and driver's license number and State of issuance, as well
as the student borrower's expected permanent address, the address of
the student borrower's next of kin, and the name and address of the
student borrower's expected employer (if known). The school must
provide this information to the Secretary within 60 days.
* * * * *
(6) A school that conducts exit counseling through interactive
electronic means must take reasonable steps to ensure that each student
borrower receives the counseling materials, and participates in and
completes exit counseling.
(7) The school must maintain documentation substantiating the
school's compliance with this section for each student borrower.
(Approved by the Office of Management and Budget under control number
1845-0021)
40. Section 685.402 is amended by adding a new paragraph (f) to
read as follows:


Sec. 685.402 Criteria for schools to originate loans.

* * * * *
(f) Determination of eligibility for multi-year use of the Master
Promissory Note. (1) A school must be authorized by the Secretary to
use a single Master Promissory Note (MPN) as the basis for all loans
borrowed by a student or parent borrower for attendance at that school.
A school that is not authorized by the Secretary for multi-year use of
the MPN must obtain a new MPN from a student or parent borrower for
each academic year.
(2) To be authorized for multi-year use of the MPN, a school must--
(i) Be a four-year or graduate/professional school, or other
institution meeting criteria or otherwise designated at the sole
discretion of the Secretary; and
(ii)(A) Not be subject to an emergency action or a proposed or
final limitation, suspension, or termination action under sections
428(b)(1)(T), 432(h), or 487(c) of the Act; and
(B) Meet other performance criteria determined by the Secretary.
(3) A school that is authorized by the Secretary for multi-year use
of the MPN must develop and document a confirmation process in
accordance with guidelines established by the Secretary for loans made
under the multi-year feature of the MPN.

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


Secs. 685.206, 685.209, 685.213, 685.214 and 685.302 [Amended]

41. Sections 685.206, 685.209, 685.213, 685.214, and 685.302 are
amended by revising the Office of Management and Budget control number
to read ``1845-0021''.

[FR Doc. 99-28170 Filed 10-29-99; 8:45 am]
BILLING CODE 4000-01-P




]

Last Modified: 11/03/1999