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Federal Perkins Loan Program. (Comments Due September 11, 2000).

PublicationDate: 7/27/2000
RegPartsAffected: Citation : (R)675.1
PageNumbers: 46127-46131
Summary: Federal Perkins Loan Program. (Comments Due September 11, 2000).
CommentDueDate: 9/11/2000

This file contains this Federal Register in Portable Document Format (PDF). It can be viewed with version 3.0 or greater of the free Adobe Acrobat Reader software. Scroll down to see a text version of this document.]]


[Federal Register: July 27, 2000 (Volume 65, Number 145)]
[Proposed Rules]
[Page 46127-46131]
From the Federal Register Online via GPO Access []



34 CFR Part 674

RIN 1845-AA15

Federal Perkins Loan Program

AGENCY: Office of Postsecondary Education, Education.

ACTION: Notice of proposed rulemaking.


SUMMARY: The Secretary proposes to amend the Federal Perkins Loan
(Perkins Loan) Program regulations. These proposed regulations are
intended to improve collections in the Perkins Loan program by
providing greater flexibility in the process of assigning defaulted
Perkins loans to the Secretary for collection. They allow State
institutions participating in the Perkins program to invoke their right
to sovereign immunity in bankruptcy proceedings. In addition, these
proposed regulations clarify the maximum collection costs that may be
assessed a borrower who defaults on a rehabilitated defaulted loan.

DATES: We must receive your comments by September 11, 2000.

ADDRESSES: Address all comments concerning these proposed regulations
to Ms. Vanessa Freeman, U.S. Department of Education, P.O. Box 23272,
Washington, DC 20026-3272. If you prefer to send your comments through
the Internet, use the following address:
If you want to comment on the information collection requirements
you must send your comments to the Office of Management and Budget at
the address listed in the Paperwork Reduction Act section of this
preamble. You may also send a copy of these comments to the Department
representative named in this section.

FOR FURTHER INFORMATION CONTACT: Ms. Vanessa Freeman, Program Analyst,
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-
Individuals with disabilities may obtain this document in an
alternate format (e.g., Braille, large print, audiotape, or computer
diskette) on request to the contact person listed in the preceding


Invitation To Comment

We invite you to submit comments regarding these proposed
regulations. To ensure that your comments have maximum effect in
developing the final regulations, we urge you to identify clearly the
specific section or sections of the proposed regulations that each of
your comments addresses and to arrange your comments in the same order
as the proposed regulations.
We invite you to assist us in complying with the specific
requirements of Executive Order 12866 and its overall requirement of
reducing regulatory burden that might result from these proposed
regulations. Please let us know of any further opportunities we should
take to reduce potential costs or increase potential benefits while
preserving the effective and efficient administration of the program.
During and after the comment period, you may inspect all public
comments about these proposed regulations at the following address:
U.S. Department of Education, 7th and D Sts. SW., ROB #3, Rm 3045,
Washington, DC 20026-3272, between the hours of 8:30 a.m. and 4 p.m.,
Eastern time, Monday through Friday, of each week except Federal

Assistance to Individuals With Disabilities in Reviewing the
Rulemaking Record

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

Negotiated Rulemaking

Section 492 of the HEA requires that, before publishing any
proposed regulations for programs under Title IV of the HEA, the
Secretary obtain public involvement in the development of the proposed
regulations. After obtaining advice and recommendations, the Secretary
must conduct a negotiated rulemaking process to develop the proposed
regulations. All published proposed regulations must conform to
agreements resulting from the negotiated rulemaking process unless the
Secretary reopens the negotiated rulemaking process or provides a
written explanation to the participants in that process why the
Secretary has decided to depart from the agreements.
To obtain public involvement in the development of the proposed
regulations, we held listening sessions

[[Page 46128]]

in Washington, DC, Atlanta, Chicago, and San Francisco. Four half-day
sessions were held on September 13 and 14, 1999, in Washington, DC. In
addition, we held three regional sessions in Atlanta on September 17,
in Chicago on September 24, and in San Francisco on September 27, 1999.
The Office of Student Financial Assistance's Customer Service Task
Force also conducted listening sessions to obtain public involvement in
the development of our regulations.
We then published a notice in the Federal Register (64 FR 73458,
December 30, 1999) to announce our intention to establish two
negotiated rulemaking committees to draft proposed regulations
affecting Title IV of the HEA. The notice requested nominations for
participants from anyone who believed that his or her organization or
group should participate in this negotiated rulemaking process. The
notice announced that we would select participants for the process from
the nominees of those organizations or groups. The notice also
announced a tentative list of issues that each committee would
Once the two committees were established, they met to develop
proposed regulations over the course of several months, beginning in
February. The proposed regulations contained in this NPRM reflect the
final consensus of Negotiating Committee I (committee), which was made
up of the following members:

American Association of Collegiate Registrars and Admissions
American Association of Cosmetology Schools
American Association of State Colleges and Universities (in
coalition with American Association of Community Colleges)
American Council on Education
Career College Association
Coalition of Higher Education Assistance Organizations
Consumer Bankers Association
Education Finance Council
Education Loan Management Resources
Legal Services
National Association of College and University Business Officers
National Association of Independent Colleges and Universities
National Association of State Universities and Land-Grant Colleges
National Association of Student Financial Aid Administrators
National Association of Student Loan Administrators
National Council of Higher Education Loan Programs
National Direct Student Loan Coalition
Sallie Mae, Inc.
Student Loan Servicing Alliance
The College Fund/United Negro College Fund
United States Department of Education
United States Student Association
US Public Interest Research Group

As stated in the committee protocols, consensus means that there
must be no dissent by any member in order for the committee to be
considered to have reached agreement. Consensus was reached on all of
the proposed regulations in this document.

Significant Proposed Regulations

We discuss substantive issues under the sections of the proposed
regulations to which they pertain. Generally, we do not address
proposed regulatory provisions that are technical or otherwise minor in

Sections 674.13 Reimbursement to the Fund and 674.50 Assignment of
defaulted loans to the United States

Current regulations: Section 674.13 of the current regulations
requires an institution to reimburse its Federal Perkins Loan Fund
(Institution's Fund) for the amount of defaulted loans, including
administrative cost allowances previously claimed, for which the
institution failed to retain required documentation (e.g., the
promissory note and a record of advances) or failed to undertake due
diligence in collections. Section 674.50(c) of the current regulations
identifies the documentation required to be submitted by an institution
to assign a loan to the Secretary. Our rejection of an assignment
submission for incorrect or incomplete documentation or for an
evidenced lack of due diligence in collection of the loan may result in
a request that the institution reimburse its Institution's Fund.
Proposed regulations: We propose to amend these sections of the
regulations to encourage institutions to assign defaulted loans to us
by providing the Secretary discretion to accept defaulted loans for
assignment even if not all the documentation specified in 674.50(c) is
available or reveals imperfect collection. We also propose to provide
the Secretary with discretion to determine the circumstances under
which we will require reimbursement by the institution to its
Institution's Fund.
Reasons: The proposed change to these sections of the current
regulations from absolute requirements to Secretarial discretion
represents a compromise with the non-federal negotiators regarding
assignment of certain defaulted loans by institutions.
Our initial proposal to require loan assignment reflected our
concern over the approximately $350 million in defaulted Perkins loans
that are held by participating institutions and have been in default
for five or more years as reported by schools on their annual Fiscal
Operations Report. Our proposal would have required schools whose
Perkins Loan portfolio included a significant percentage of loans in
default for five or more years to assign to the Secretary those aged
loans with no recent payment activity.
We believe that, without additional significant efforts, this
national portfolio of aging defaulted loans will continue to grow and
may become less collectible over time. Left unaddressed, this situation
reduces funds available for future students and may undermine public
support for the Federal Perkins Loan Program. Institutions may have
exhausted available collection efforts and ceased collection on an
unknown number of these accounts. Because we have collection tools,
such as administrative wage garnishment, federal offset, and litigation
by the Department of Justice in federal court, that are not available
to institutions, we want to have these aged accounts assigned to the
Secretary for collection.
The non-federal negotiators representing institutions' interests
strenuously rejected the contention that all loans in default for five
or more years were inactive accounts and that collection efforts were
not continuing on those accounts. Although they agreed that we have
collection tools that are not available to institutions, they expressed
the belief that we should make these tools more accessible by
simplifying the existing voluntary assignment process or introducing a
referral process into the regulations rather than imposing mandatory
assignment. They indicated that the current voluntary assignment
process was underused because it was administratively burdensome and
put institutions at risk of reimbursing their Institution's Fund for
all loans not accepted for assignment. During the negotiations, there
was much discussion and review of a proposal submitted by the non-
federal negotiators for use of a referral and voluntary assignment
After carefully considering the proposal for a voluntary referral
process we declined to consider such an approach. Our experience with
similar Perkins Loan referral plans in the past convinced us that such
plans are administratively unworkable. They are difficult to manage,
hard to explain to borrowers, and present fiscal and legal obstacles
with regard to the return of payments received to the referring
Instead we proposed changes to the current voluntary assignment
regulations that would allow us to have

[[Page 46129]]

the opportunity to work with interested institutions and organizations
to develop a less burdensome and more flexible process before turning
to a mandatory assignment approach. Thus, these proposed regulations
give the Secretary discretion in the two areas (required reimbursement
and documentation requirements) that were problematic to some
We intend to develop, with the cooperation of participating Perkins
institutions, a simplified voluntary assignment process for aging
defaulted accounts. We will also monitor the use of this new process
over the reporting cycle following implementation of the regulations.
We expect institutions to actively review their portfolios and use the
new process to assign aged, nonpaying accounts to us and we anticipate
a significant reduction in the number and dollar value of these
accounts as a result. Should the streamlined voluntary assignment
process prove unsuccessful in reducing the number of these accounts, we
will consider alternatives, including reintroducing our original
regulatory proposal for mandatory assignment.

Section 674.39 Loan Rehabilitation

Current Regulations: Section 674.39(c) of the current regulations
specifies that if collection costs are assessed on a rehabilitated
defaulted Perkins loan, those collections costs may not exceed 24
percent of the unpaid principal and accrued interest on the loan as of
the date following application of the twelfth payment required to
rehabilitate the loan.
Proposed Regulations: We propose to amend this section of the
regulations by adding a provision that clarifies that the 24 percent
cap on collection costs that may be charged on a rehabilitated loan
does not apply if the borrower defaults again on the rehabilitated
Reasons: The cap of 24 percent on collection costs for borrowers
who successfully rehabilitate a defaulted Perkins loan is a benefit to
those borrowers, who in many cases were subject to a higher percentage
of collection costs prior to the rehabilitation. That benefit should no
longer apply on the loan, however, should the borrower once again
default on its repayment.

Section 674.49 Bankruptcy of Borrower

Current Regulations: Section 674.49(b) of the regulations currently
requires institutions to file a proof of claim in a bankruptcy
proceeding under Chapter 7 of the Bankruptcy Code unless the borrower
has no assets.
Proposed Regulations: We propose to amend this provision of the
regulations to allow an institution that is determined to be an agency
of a State to invoke in bankruptcy proceedings its right of sovereign
immunity under the 11th amendment to the Constitution of the United
Reasons: We are amending the regulations to codify the recognized
right of States and their agents to invoke their rights under the 11th
amendment to the Constitution and eliminate any conflict in existing
regulations that would suggest that a proof of claim must be filed in
all cases where this right might otherwise be invoked.

Executive Order 12866

1. Potential Costs and Benefits

Under Executive Order 12866, we have assessed the potential costs
and benefits of this regulatory action.
The potential costs associated with the proposed regulations are
those resulting from statutory requirements and those we have
determined as necessary for administering this program effectively and
The proposed regulations would expand borrower benefits by fixing
collection costs on rehabilitated loans not in default at 24 percent.
The proposed regulations provide additional flexibility in the
administration of the Perkins Loan Program by relaxing both the
documentation requirements for defaulted loans assigned to the
Secretary, and provisions regarding the institutional reimbursement to
their Fund for the costs of defaulted loans. The proposed regulations
also modify current regulations regarding the determination of
bankruptcy to make Federal requirements consistent with the States'
constitutional rights under the 11th Amendment. In assessing the
potential costs and benefits--both quantitative and qualitative--of
this regulatory action, we have determined that the benefits would
justify the costs.

2. Clarity of the Regulations

Executive Order 12866 and the President's Memorandum of June 1,
1998 on ``Plain Language in Government Writing'' require each agency to
write regulations that are easy to understand.
The Secretary invites comments on how to make these proposed
regulations easier to understand, including answers to questions such
as the following:
<bullet> Are the requirements in the proposed regulations clearly
<bullet> Do the proposed regulations contain technical terms or
other wording that interferes with their clarity?
<bullet> Does the format of the proposed regulations (grouping and
order of sections, use of headings, paragraphing etc.) aid or reduce
their clarity?
<bullet> Would the proposed regulations be easier to understand if
we divided them into more (but shorter) sections? (A ``section'' is
preceded by the symbol ``Sec. '' and a numbered heading; for example,
Sec. 674.39 Loan Rehabilitation.)
<bullet> Could the description of the proposed regulations in the
``Supplementary Information'' section of this preamble be more helpful
in making the proposed regulations easier to understand? If so, how?
<bullet> What else could we do to make the proposed regulations
easier to understand?
Send any comments that concern how the Department could make these
proposed regulations easier to understand to the person listed in the
ADDRESSES section of the preamble.

Regulatory Flexibility Act Certification

The Secretary certifies that these proposed regulations would not
have a significant economic impact on a substantial number of small
entities. These proposed regulations would affect institutions of
higher education that participate in title IV, HEA programs. The U.S.
Small Business Administration (SBA) Size Standards define institutions
as ``small entities'' if they are for-profit or nonprofit institutions
with total annual revenue below $5,000,000 or if they are institutions
controlled by governmental entities with populations below 50,000.
The parties affected by these proposed regulations are institutions
of higher education that participate in the Perkins Loan Program, and
individual Perkins Loan borrowers. Perkins Loan borrowers are not
considered small entities under the Regulatory and Flexibility Act. A
small percentage of the approximately 2,000 institutions participating
in the Perkins Loan program would meet the SBA definition of ``small
These proposed regulations would expand borrower benefits and
provide additional flexibility in the administration of the Perkins
Loan program to both large and small institutions without requiring
significant changes to institutional systems or operations. These
proposed regulations would not impose a significant economic impact on
a substantial number of small entities.

Paperwork Reduction Act of 1995

Sections 674.13, 674.39, 674.49, and 674.50 of these regulations
contain information collection requirements. Under the Paperwork
Reduction Act of 1995 (44 U.S.C. 3507(d)), the Department of Education
has submitted

[[Page 46130]]

a copy of these sections to the Office of Management and Budget (OMB)
for its review.

Collection of Information: Federal Perkins Loan Program

Section 674.13 Reimbursement to the Fund. The Department currently
has these regulations approved under OMB control number 1845-0019. This
provision allows institutions more flexibility in what the Department
requires when reimbursing their funds for defaulted student loans and
does not increase the burden hours for schools.
Section 674.39 Loan Rehabilitation. We are adding a provision to
include collection costs that may be charged in excess of 24 percent to
a rehabilitated loan in the event the rehabilitated loan defaults.
There are no burden hours associated with this proposed regulation.
Section 674.50 Assignment of defaulted loans to the United States.
This proposed regulation relaxes some of the documentation requirements
for institutions that assign defaulted student loans to the Department
of Education for collection. This proposed regulation does not increase
the burden hours for schools.
Section 674.49 Bankruptcy of borrower. The Department currently
has this section approved under OMB control number 1845-0023. This
regulation allows state institutions that participate in the Federal
Perkins Loans Program the authority to invoke sovereign immunity in
Bankruptcy proceedings under Chapter 7 or 13 of the Bankruptcy Code.
This proposed regulation resolves any ambiguity surrounding an
institution's authority to invoke its rights under the 11th Amendment.
This proposed regulation does not change information collection
contained in this section.
If you want to comment on the information collection requirements,
please send your comments to the Office of Information and Regulatory
Affairs, OMB, room 10235, New Executive Office Building, Washington, DC
20503; Attention: Desk Officer for U.S. Department of Education. You
may also send a copy of these comments to the Department representative
named in the ADDRESSES section of this preamble.
We consider your comments on these proposed collections of
information in--
<bullet> Deciding whether the proposed collections are necessary
for the proper performance of our functions, including whether the
information will have practical use;
<bullet> Evaluating the accuracy of our estimate of the burden of
the proposed collections, including the validity of our methodology and
<bullet> Enhancing the quality, usefulness, and clarity of the
information we collect; and
<bullet> Minimizing the burden on those who must respond. This
includes exploring the use of appropriate automated, electronic,
mechanical, or other technological collection techniques or other forms
of information technology; e.g., permitting electronic submission of
OMB is required to make a decision concerning the collections of
information contained in these proposed regulations between 30 and 60
days after publication of this document in the Federal Register.
Therefore, to ensure that OMB gives your comments full consideration,
it is important that OMB receives the comments within 30 days of
publication. This does not affect the deadline for your comments to us
on the proposed regulations.

Intergovernmental Review

This program is not subject to Executive Order 12372 and the
regulations in 34 CFR part 79.

Assessment of Educational Impact

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


Executive Order 13132 requires us to ensure meaningful and timely
input by State and local elected officials in the development of
regulatory policies that have federalism implications. ``Federalism
implications'' means substantial direct effects on the States, on the
relationship between the national government and the States, or on the
distribution of power and responsibilities among various levels of
government. The proposed regulations in Section 674.49 may have
federalism implications, as defined in Executive Order 13132. We
encourage State and local elected officials to review and provide
comments on these proposed regulations.

Electronic Access to This Document

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Format (PDF) on the Internet at the following sites:

To use the PDF you must have the Adobe Acrobat Reader Program with
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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://

(Catalog of Federal Domestic Assistance Number: 84.037 Federal
Perkins Loan Program)

List of Subjects in 34 CFR Part 674

Loan programs--education, Student aid, Reporting and recordkeeping

Dated: July 19, 2000.
Richard W. Riley,
Secretary of Education.

For the reasons discussed in the preamble, the Secretary proposes
to amend part 674 of title 34 of the Code of Federal Regulations as


1. The authority citation for part 674 continues to read as

Authority: 20 U.S.C. 1087aa-1087ii and 20 U.S.C. 421-429, unless
otherwise noted.

2. Section 674.13 is amended by revising paragraph (a) introductory
text to read as follows:

Sec. 674.13 Reimbursement to the Fund.

(a) The Secretary may require an institution to reimburse its Fund
in an amount equal to that portion of the outstanding balance of--
* * * * *
3. Section 674.39 is amended by revising paragraph (c) to read as

Sec. 674.39 Loan rehabilitation.

* * * * *
(c) Collection costs on a rehabilitated loan--
(1) If charged to the borrower, may not exceed 24 percent of the
unpaid principal and accrued interest as of the date following
application of the twelfth payment;
(2) That exceed the amounts specified in paragraph (c)(1) of this
section, may be charged to an institution's Fund until July 1, 2002 in
accordance with Sec. 674.47(e)(5); and
(3) Are not restricted to 24 percent in the event the rehabilitated
loan defaults.
* * * * *
4. Section 674.49 is amended by revising paragraph (b) to read as

[[Page 46131]]

Sec. 674.49 Bankruptcy of borrower.

* * * * *
(b) Proof of claim. The institution must file a proof of claim in
the bankruptcy proceeding unless--
(1) In the case of a proceeding under chapter 7 of the Bankruptcy
Code, the notice of meeting of creditors states that the borrower has
no assets, or
(2) In the case of a bankruptcy proceeding under either Chapter 7
or Chapter 13 of the Bankruptcy Code in which the repayment plan
proposes that the borrower repay less than the full amount owed on the
loan, the institution has an authoritative determination by an
appropriate State official that in the opinion of the state official,
the institution is an agency of the State and is, on that basis, under
applicable State law, immune from suit.
* * * * *
5. Section 674.50 is amended by revising paragraph (c) introductory
text to read as follows:

Sec. 674.50 Assignment of defaulted loans to the United States.

* * * * *
(c) The Secretary may require an institution to submit the
following documents for any loan it proposes to assign--
* * * * *
[FR Doc. 00-18952 Filed 7-26-00; 8:45 am]


Last Modified: 07/31/2000