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Guaranty Agency and Other FFEL Issues. (Comments Due September 11, 2000).

FR part
V
Attachments:
PublicationDate: 7/27/2000
FRPart: V
RegPartsAffected: Citation : (R)691.61
PageNumbers: 46315-46322
Summary: Guaranty Agency and Other FFEL Issues. (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 46315-46322]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27jy00-34]


[[Page 46315]]

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Part V





Department of Education





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34 CFR Parts 682 and 685



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


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DEPARTMENT OF EDUCATION

34 CFR Parts 682 and 685

RIN 1845-AA16


Federal Family Education Loan (FFEL) Program and William D. Ford
Federal Direct Loan Program

AGENCY: Office of Postsecondary Education, Education.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Secretary proposes to amend the Federal Family Education
Loan (FFEL) Program regulations and the William D. Ford Federal Direct
Loan (Direct Loan) Program regulations. The Secretary is amending these
regulations to reduce administrative burden for program participants,
provide benefits to borrowers, and protect the taxpayers' interests.

DATES: We must receive your comments on or before September 11, 2000.

ADDRESSES: Address all comments about these proposed regulations to Ms.
Pamela A. Moran, 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: ffelnprm@ed.gov.
You must include the term ``Team 1 FFEL'' in the subject line of
your electronic message.
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: For the FFEL Program, Mr. George
Harris, or for the Direct Loan Program, Mr. Jon Utz; U.S. Department of
Education, 400 Maryland Avenue, SW., room 3045, ROB-3, Washington, DC
20202-5449. 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 the contact person listed under FOR FURTHER
INFORMATION CONTACT.

SUPPLEMENTARY INFORMATION:

Invitation To Comment

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

Assistance to Individuals With Disabilities in Reviewing the
Rulemaking Record

On request, we will supply an appropriate aid, such as a reader or
print magnifier, to an individual with a disability who needs
assistance to review the comments or other documents in the public
rulemaking record 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 Higher Education Act of 1965, as amended (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 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
negotiate.
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:

<bullet> American Association of Collegiate Registrars and
Admissions Officers
<bullet> American Association of Cosmetology Schools
<bullet> American Association of State Colleges and Universities (in
coalition with American Association of Community Colleges)
<bullet> American Council on Education
<bullet> Career College Association
<bullet> Coalition of Higher Education Assistance Organizations
<bullet> Consumer Bankers Association
<bullet> Education Finance Council
<bullet> Education Loan Management Resources
<bullet> Legal Services
<bullet> National Association of College and University Business
Officers
<bullet> National Association of Independent Colleges and
Universities
<bullet> National Association of State Universities and Land-Grant
Colleges
<bullet> National Association of Student Financial Aid
Administrators
<bullet> National Association of Student Loan Administrators
<bullet> National Council of Higher Education Loan Programs
<bullet> National Direct Student Loan Coalition

[[Page 46317]]

<bullet> Sallie Mae, Inc.
<bullet> Student Loan Servicing Alliance
<bullet> The College Fund/United Negro College Fund
<bullet> United States Department of Education
<bullet> United States Student Association
<bullet> 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
effect. The proposed regulations address changes that are specific to
the FFEL Program and changes that are common to both the FFEL and
Direct Loan programs.

FFEL and Direct Loan Program Changes

Sections 682.210 and 685.204--Deferment

Current Regulations: In the FFEL and Direct Loan programs, the
current regulations and policy provide that, except in the case of an
in-school deferment, a deferment may not be granted for a period
beginning more than 6 months before the date the lender (or the
Department on a Direct Loan) receives the request and the documentation
required for the deferment.
For a borrower who requests an unemployment deferment on the basis
of providing documentation of employer contacts, current regulations
require the name of the employer contacted, the employer's address and
telephone number, and the name or title of the person contacted.
Proposed Regulations: Proposed Sec. 682.210(a)(5) would remove the
6-month limitation from all deferment categories except for the
unemployment deferment. No change to the Direct Loan regulations is
needed because the explicit 6-month limitation is not included in the
Direct Loan regulations and only applies to Direct Loans through a
cross-reference to the FFEL deferment regulations.
The proposed regulations would also modify the requirement that
loan holders obtain specific documentation of employment contact from
borrowers who request an unemployment deferment. These requirements
only apply to borrowers who request continuations of their deferments
based on their attempts to get employment, and not to borrowers who
apply for an initial period of unemployment deferment or to those
borrowers who qualify based on their eligibility for unemployment
benefits. These changes will allow loan holders to accept alternative
documentation that provides sufficient information to support a
borrower's claim that he or she is seeking employment as required. No
change to the Direct Loan regulations is needed because the explicit
unemployment deferment rules are not included in the Direct Loan
regulations. Instead, unemployment deferments in the Direct Loan
Program are granted using the same provisions that exist in the FFEL
unemployment deferment regulations.
Reasons: On October 29, 1999 (64 FR 58622), the Department
eliminated the 6-month limitation for retroactive application of a
deferment for the in-school deferment only. During this year's
negotiated rulemaking, the committee agreed to make the deferment rules
more consistent for borrowers and for the parties that administer the
FFEL Program by removing the 6-month limitation from all other
deferment categories except the unemployment deferment.
The 6-month limitation on retroactively granting deferments was
intended, in part, to motivate borrowers to make timely deferment
requests and provide the necessary deferment documentation. However,
the committee concluded that the limitation does not serve that
purpose. Instead, the limitation causes confusion and complexity for
borrowers. Moreover, the limitation reduces the usefulness of
deferments for borrowers who are delinquent on payments and are trying
to avoid default. The 6-month limitation means that the application of
a deferment to which the borrower is entitled might still leave the
borrower significantly delinquent. We hope the elimination of this
limitation will allow loan holders to better assist borrowers to avoid
default.
The committee considered removing the 6-month limitation on
retroactive application of the unemployment deferment but decided not
to do so. Under the current regulations, (including the rule that the
deferment may not begin earlier than 6 months before the date the
lender receives the borrower's deferment request) a borrower can be
granted an initial period of unemployment deferment without documenting
a search for full-time employment. This provision, unique to the
unemployment deferment for borrowers who do not qualify based on their
eligibility for unemployment benefits, is based on the understanding
that borrowers may not immediately begin a job search on the date they
become unemployed. However, it means that, unlike in other cases, the
borrower is able to get a deferment without proving that he or she
meets all the conditions for the deferment.
In light of this situation, the committee decided to retain the 6-
month retroactive limit for an unemployment deferment that was granted
based on an ongoing search for employment. The Secretary believes the
integrity of the FFEL and Direct Loan programs would be jeopardized if
there was no retroactive limit for granting this kind of unemployment
deferment.
Several of the non-federal negotiators also proposed to modify the
types of documentation required from a borrower to show that he or she
had conducted a diligent search for employment. The committee discussed
situations in which job announcements do not specify some or most of
the information required under current regulations, such as the name of
the employer, or the name and title of the person to be contacted. In
response to these concerns, the committee agreed to propose regulations
that include less prescriptive language so that borrowers could provide
various forms of employment contact documentation acceptable to the
loan holder.

Sections 682.210(s)(6) and 685.204(b)(3)--Economic Hardship Deferment

Statute: Section 435(o)(1) of the HEA uses the borrower's
``adjusted gross income'' as the income measurement to determine if a
borrower would have an economic hardship in repaying a loan, but also
authorizes the Department to establish additional criteria.
Current Regulations: Current regulations only refer to the
borrower's total monthly gross income in identifying the income that is
used when determining a borrower's eligibility for an economic hardship
deferment.
Proposed Regulations: The committee agreed that the regulations
should be modified to incorporate the adjusted gross income standard
included in the HEA. Accordingly, in these proposed regulations,
Sec. 682.210(s)(6) would be revised so that a borrower could qualify
for an economic hardship deferment based on either his or her monthly
gross income from all sources, or a monthly amount calculated as one-
twelfth of the borrower's adjusted gross income, as recorded on the
borrower's most

[[Page 46318]]

recently filed Federal income tax return. No change to the Direct Loan
regulations is needed because the Direct Loan regulations implement the
statutory requirements through a cross-reference to the FFEL economic
hardship deferment regulations.
Reasons: The committee noted that section 435(o)(1)(B) of the HEA
used ``adjusted gross income'' when referring to a borrower's income.
It was agreed that the regulations should add the statutory standard to
the regulations while retaining the existing regulatory standard to
provide greater flexibility for any borrower to document his or her
income. The committee believed that some borrowers found it difficult
to document their total monthly income from all sources, as is required
under current Sec. 682.210(s)(6)(x). The committee believed that a
borrower should be given the option of using the adjusted gross income
amount from the borrower's most recent Federal income tax return as a
simplified way to demonstrate that he or she qualifies for an economic
hardship deferment.

Sections 682.402 and 685.214--False Certification Discharge

Current Regulations: The FFEL and Direct Loan regulations on false
certification discharges have the same rules with respect to a
discharge based on an improper determination of the student's ability-
to-benefit (ATB). Under those rules, if a valid ATB determination was
not made, the borrower can qualify for a false certification loan
discharge if the student is unable to obtain employment in the
occupation for which the training was intended, or if the student finds
a job only after receiving training that was not provided by the school
that certified the borrower's loan application. Current regulations in
both programs require borrowers who want a false certification
discharge to file an application for the discharge.
Proposed Regulations: With regard to a false certification
discharge based upon an ATB issue, all requirements related to a
student's employment after leaving school are being removed from the
FFEL and Direct Loan regulations. In addition, for both programs, the
proposed rules would permit an ATB false certification discharge to be
granted without an application if it is determined that the borrower
qualifies based on information in the possession of the Secretary or
guaranty agency.
Reasons: On November 16, 1999, the U.S. Court of Appeals for the
District of Columbia, in Jordan v. Riley (99-5024), ruled invalid the
employment attempt provisions in the false certification discharge
regulations. The Court of Appeals found that section 437(c) of the HEA
does not authorize us to include criteria in the regulations that
attempt to measure whether, despite any deficient ATB certification,
the student nevertheless had the ability to benefit from the training
offered by the school. The Court concluded that a student's post-
training employment experience is irrelevant to the truth or falsity of
the certification. Rather, the Court ruled that the HEA only authorizes
us to determine whether the school properly tested the student and the
student passed the test. We have decided to extend the Court's ruling
to all borrowers, not just those covered by the Court's ruling. Thus,
we will no longer consider the student's employment or employment
attempts in resolving false certification discharge claims.
We (or a guaranty agency) occasionally learn of information that
strongly suggests that all borrowers in a certain category would likely
qualify for a false certification discharge. For example, we might
determine that all students at a specific school during a certain time
period had incorrect ATB determinations. In the interest of assisting
those borrowers, (many of whom may be unaware of the possibility of
receiving a loan discharge), the committee decided that it would be
appropriate to discharge those loans without an individual discharge
request from each borrower. On October 29, 1999 (64 FR 58622), we
issued regulations that authorized the granting of closed school loan
discharges in certain cases without individual requests from each
borrower. These proposed regulations would extend that approach to
false certification discharges.
During the negotiations, the committee agreed that a borrower
should be able to receive a false certification discharge based on an
invalid ATB determination, even if the school was not directly involved
in the invalid testing or other determination of the student's ATB
because the invalid testing was done by an independent test
administrator. Although we believed that this was consistent with the
current regulations, to avoid potential confusion, we agreed to remove
the words ``the school's'' in the reference to invalid testing of a
student's ATB in Sec. 682.402(e)(3)(ii) and Sec. 685.214(c)(1). The
committee agreed that the regulatory language that would remain after
that deletion was sufficient to apply to all invalid ATB determinations
made, regardless of who made them.

FFEL Changes

Section 682.410--Fiscal, Administrative, and Enforcement Requirements

Current Regulations: In collecting on defaulted loans, a guaranty
agency currently must follow the regulatory requirements contained in
Sec. 682.410(b). Those regulations state, with a great amount of
specificity, precisely when certain collection activities must occur in
collecting a defaulted loan. They also restrict a guaranty agency's use
of litigation in collecting defaulted loans. The collection rules in
current Sec. 682.410(b) were developed when guaranty agencies used
Federal money to pay for their collection activities and were designed
to require certain collection activities while ensuring the proper use
of Federal funds.
Proposed Regulations: We would generally no longer require a
guaranty agency to perform routine collection activities (collection
letters and telephone calls) within the specific time periods,
prescribed in the current regulations. The guaranty agency could
develop its own collection strategy, as long as, for a non-paying
borrower, the guaranty agency performed at least one activity every 180
days to collect the debt, locate the borrower (if necessary), or
determine if the borrower has the means to repay the debt. The proposed
regulations would also eliminate the general prohibition against a
guaranty agency suing borrowers who owe defaulted loans. The proposed
regulations would permit a guaranty agency to file a civil suit against
a borrower to compel repayment if the borrower had no garnishable wages
or the guaranty agency determined that the borrower had sufficient
attachable assets or non-garnishable income that could be used to repay
the debt, and the use of litigation would be more effective in
collection of the debt.
The proposed regulations would require a guaranty agency to
undertake a small number of required activities and borrower
notifications that the committee believed would protect borrowers and
comply with other applicable laws. The proposed regulations would
require that, within 45 days after paying a lender's default claim, the
guaranty agency must send a notice advising the borrower that a default
claim has been paid and that the borrower has an opportunity to enter
into a repayment agreement with the guaranty agency and to request an
administrative review of the status of the debt. In addition, the
guaranty agency must notify the borrower that he or she may have
certain legal rights in

[[Page 46319]]

the collection of debts, and that the borrower may wish to contact a
counselor or lawyer regarding those rights. The guaranty agency must
also warn the borrower that it may: (1) Report the default to credit
bureaus (if it does so, the guaranty agency must notify the borrower of
that action and that the borrower's credit rating may thereby have been
damaged); (2) assess collection costs against the borrower; (3)
administratively garnish the borrower's wages; (4) file a civil suit to
compel repayment; (5) offset the borrower's State and Federal income
tax refunds and other payments made by the Federal Government to the
borrower; (6) assign the loan to the Secretary in accordance with
Sec. 682.409; and (7) take other lawful collection means to collect the
debt, at the discretion of the guaranty agency.
Reasons: As a result of changes made to the HEA in 1998, a guaranty
agency now pays for collection activities on defaulted loans with money
in its ``Operating Fund,'' which is the property of the guaranty
agency. Thus, guaranty agencies now have strong financial incentives to
collect defaults in a cost effective manner. A guaranty agency that is
an effective collector of defaulted loans will be financially better
off than one that is an ineffective collector. The committee believed
that these financial incentives eliminate the need for the prescriptive
collection activities found in the current regulations (other than the
borrower protection provisions discussed under ``proposed
regulations''). The current sequence of required phone calls and
letters, and the general restrictions against litigation, served a
purpose when guaranty agencies funded their collection efforts with
Federal Reserve Fund money. The new financing structure for guaranty
agencies created by the 1998 Amendments to the HEA reduced the need for
those prescriptive regulations.
Guaranty agencies have frequently expressed the view that they
could do a better job in collecting defaults if they were free to
develop their own collection strategies unhindered by the current
default due diligence rules. The proposed regulations would give the
agencies that flexibility.

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

Current Regulations: Guaranty agencies generally are required to
maintain records for 5 years after a loan has been paid in full or
determined to be uncollectible.
Proposed Regulations: The length of time a guaranty agency must
retain required loan records for loans paid in full by the borrower
would be reduced from 5 years to 3 years from the date the loan is
repaid in full by the borrower. For all other loans for which a
guaranty agency receives payment in full from any other source (for
example, payoff of a loan by a consolidation loan), or for those loans
that are not paid in full, the 5-year retention period would continue
to be in effect. In particular cases, we could require a guaranty
agency to retain records beyond the 3-year or 5-year minimum periods.
Reasons: On October 29, 1999 (64 FR 58622), we issued regulations
that generally reduced record retention requirements for lenders in the
FFEL Program from 5 years to 3 years from the date the loan is repaid
in full by the borrower. Several non-federal negotiators involved in
this year's negotiated rulemaking session proposed a similar reduction
in guaranty agency record retention requirements for defaulted loans
paid in full by borrowers as a result of guaranty agency collection
efforts. The committee generally agreed that reducing the record
retention period to 3 years in these limited cases would not diminish
program integrity and borrower protections, and would greatly reduce
the costs of maintaining records for this portion of the guaranty
agency's portfolio.

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 these programs effectively
and efficiently. Elsewhere in this SUPPLEMENTARY INFORMATION section we
identify and explain burdens specifically associated with information
collection requirements. See the heading Paperwork Reduction Act of
1995.
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.

Summary of Potential Costs and Benefits

These proposed regulations benefit borrowers and institutions by
simplifying and providing additional flexibility in administering loan
deferments. The proposed regulations also provide additional
flexibility by permitting false certification discharges without an
application for qualified borrowers on the basis of information
possessed by the guaranty agency or the Secretary. Further flexibility
is provided to guaranty agencies by proposed changes that simplify
collection requirements by making them less prescriptive, and reduce
the required retention of records from 5 years to 3 years for loans
fully repaid by borrowers.

2. Clarity of the Regulations

Executive Order 12866 and the President's Memorandum of June 1,
1998 on ``Plain Language in Government Writing'' require each agency to
write regulations that are easy to understand.
The Secretary invites comments on how to make these proposed
regulations easier to understand, including answers to questions such
as the following:
<bullet> Are the requirements in the proposed regulations clearly
stated?
<bullet> Do the proposed regulations contain technical terms or
other wording that interferes with their clarity?
<bullet> Does the format of the proposed regulations (grouping and
order of sections, use of headings, paragraphing, etc.) aid or reduce
their clarity?
<bullet> Would the proposed regulations be easier to understand if
we divided them into more (but shorter) sections? (A ``section'' is
preceded by the symbol ``Sec. '' and a numbered heading; for example,
Sec. 682.210 Deferment.)
<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 guaranty agencies and
lenders that participate in the FFEL Program, as well as individual
FFEL and Direct Loan borrowers. The U.S. Small Business Administration
Size Standards define institutions as ``small entities'' if they are
for-profit or nonprofit institutions with total annual revenue below

[[Page 46320]]

$5,000,000 or if they are institutions controlled by governmental
entities with populations below 50,000.
The 36 guaranty agencies are State and private nonprofit entities
that act as agents of the Federal government, and as such are not
considered ``small entities'' for this purpose. Individual FFEL and
Direct Loan borrowers also are not considered ``small entities'' under
the Regulatory and Flexibility Act. A number of the over 4,000 lenders
participating in the FFEL Program meet the definition of ``small
entities.'' The Secretary has determined that the proposed regulations
will not have a significant economic impact on these lenders.
The Secretary invites comments on this determination, and welcomes
proposals on any significant alternatives that would satisfy the same
legal and policy objectives of these proposals while minimizing the
economic impact on small entities.

Paperwork Reduction Act of 1995

Sections 682.210, 682.402, 682.414, 685.204, and 685.214 contain
information collection requirements. Under the Paperwork Reduction Act
of 1995 (44 U.S.C. 3507(d)), the Department of Education has submitted
a copy of these sections to the Office of Management and Budget (OMB)
for its review.
Collection of Information: Federal Family Education Loan Program
and William D. Ford Federal Direct Loan Program. Deferment
documentation requirements.
These proposed regulations would affect the potential ability of
borrowers to qualify for an economic hardship deferment. A borrower
could qualify for an economic hardship deferment based on one-twelfth
of the borrower's adjusted gross income, as recorded on the borrower's
most recently filed Federal income tax return, instead of the
borrower's total monthly gross income as under current regulations. The
total burden hour reduction (based on approximately 6 minutes per
application) is not expected to be substantial because of the small
number of borrowers who would choose this option.
Collection of Information: Federal Family Education Loan Program
and William D. Ford Federal Direct Loan Program. False certification
discharge of a borrower's loan obligation without an application form.
These proposed regulations would affect the potential loan
discharge for borrowers if the Secretary or the guaranty agency, with
the Secretary's permission, determines that a borrower qualifies for a
discharge based on information in the Secretary's or guaranty agency's
possession. In these cases, the borrower would not need to submit a
false certification loan discharge application to receive a discharge.
Included in this category would be FFEL borrowers who have received
false certification discharges of their Federal Direct Loans based on
the same qualifying conditions, and Direct Loan borrowers who have
received the same discharges of their FFEL loans. The total burden hour
reduction (based on approximately 30 minutes per application) is not
expected to be substantial because of the small number of borrowers who
would not be required to submit a false certification loan discharge
application.
Collection of Information: Reduction in the length of time a
guaranty agency must retain loan records.
These proposed regulations would affect all FFEL guaranty agencies
by reducing the length of time a guaranty agency must retain required
loan records for loans paid in full by the borrower from 5 years to 3
years from the date the loan is repaid in full by the borrower. For all
other loans for which the guaranty agency receives payment in full from
any other source (for example, payoff of a loan by a consolidation
loan), or for those loans that are not paid in full, the 5-year
retention period will continue to be in effect, except that in
particular cases, the Secretary may require the retention of records
beyond the 3-year or 5-year minimum periods. The total burden hour
reduction is not expected to be substantial because most of the burden
in record retention is associated with the initial assembling and
transfer of records to a retention system.
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
assumptions;
<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
responses.
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

The FFEL Program and the William D. Ford Federal Direct Loan
Program are 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
available.

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.

(Catalog of Federal Domestic Assistance Number 84.032 Federal Family
Education Loan Program)

List of Subjects in 34 CFR Parts 682 and 685

Administrative practice and procedure, Colleges and universities,

[[Page 46321]]

Education, Loan programs--education, Reporting and recordkeeping
requirements, Student aid, Vocational education.

Dated: July 19, 2000.
Richard W. Riley,
Secretary of Education.
For the reasons discussed in the preamble, the Secretary proposes
to amend parts 682 and 685 of Title 34 of the Code of Federal
Regulations 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.

2. Section 682.210 is amended by:
A. Revising paragraph (a)(5).
B. Revising paragraph (h)(2)(i).
C. Removing the words ``of up to one year at a time'' from
paragraph (s)(6) introductory text.
D. Revising paragraphs (s)(6)(iii), (iv), (v), (ix), and (x).
The revisions read as follows:


Sec. 682.210 Deferment.

(a) * * *
(5) An authorized deferment period begins on the date that the
holder determines is the date that the condition entitling the borrower
to the deferment first existed, except that an initial unemployment
deferment as described in paragraph (h)(2) of this section cannot begin
more than 6 months before the date the holder receives a request and
documentation required for the deferment.
* * * * *
(h) * * *
(2) * * *
(i) Describing the borrower's diligent search for full-time
employment during the preceding 6 months, except that a borrower
requesting an initial period of unemployment deferment, which may not
exceed 6 months prospectively, is not required to describe his or her
search for full-time employment. To continue an unemployment deferment,
the borrower's written certification must include information showing
that the borrower made at least six diligent attempts to secure
employment to support the period covered by the certification. This
information could be the name of the employer contacted and the
employer's address and telephone number, or other information
acceptable to the holder showing that the borrower made six diligent
attempts to obtain full-time employment;
* * * * *
(s) * * *
(6) * * *
* * * * *
(iii) Is working full-time and has a monthly income that does not
exceed the greater of (as calculated on a monthly basis)--
(A) The minimum wage rate described in section 6 of the Fair Labor
Standards Act of 1938; or
(B) An amount equal to 100 percent of the poverty line for a family
of two, as determined in accordance with section 673(2) of the
Community Services Block Grant Act.
(iv) Is working full-time and has a Federal education debt burden
that equals or exceeds 20 percent of the borrower's monthly income, and
that income, minus the borrower's Federal education debt burden, is
less than 220 percent of the amount described in paragraph (s)(6)(iii)
of this section.
(v) Is not working full-time and has a monthly income that--
(A) Does not exceed twice the amount described in paragraph
(s)(6)(iii) of this section; and
(B) After deducting an amount equal to the borrower's Federal
education debt burden, the remaining amount of the borrower's income
does not exceed the amount described in paragraph (s)(6)(iii) of this
section.
* * * * *
(ix) To qualify for a subsequent period of deferment that begins
less than one year after the end of a period of deferment under
paragraphs (s)(6)(iii) through (v) of this section, the lender must
require the borrower to submit evidence showing--
(A) The amount of the borrower's most recent monthly income or a
copy of the borrower's most recently filed Federal income tax return;
and
(B) For periods of deferment under paragraphs (s)(6)(iv) and (v) of
this section, evidence that would enable the lender to determine the
amount of the monthly payments to all other entities for Federal
postsecondary education loans that would have been owed by the borrower
during the deferment period.
(x) For purposes of paragraph (s)(6) of this section, a borrower's
monthly income is the gross amount of income received by the borrower
from employment and from other sources, or one-twelfth of the
borrower's adjusted gross income, as recorded on the borrower's most
recently filed Federal income tax return.
* * * * *
3. Section 682.402 is amended by:
A. In paragraph (e)(3)(ii), removing the words ``the school's''.
B. In paragraph (e)(3)(ii)(A) adding the word ``and'' after the
semicolon, and in paragraph (e)(3)(ii)(B), removing the word ``and''
after the semi-colon.
C. Removing paragraph (e)(3)(ii)(C).
D. Revising paragraph (e)(13)(ii)(A).
E. Revising paragraph (e)(13)(ii)(B) introductory text.
F. In paragraph (e)(13)(ii)(B)(2), removing the word ``or'' that
appears after the semi-colon.
G. In paragraph (e)(13)(ii)(C), removing the period and adding in
its place, ``; or''.
H. Adding a new paragraph (e)(13)(ii)(D).
I. Adding a new paragraph (e)(14).
The additions and revisions read as follows:


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

* * * * *
(e) * * *
(13) * * *
(ii) * * *
(A) For periods of enrollment beginning prior to July 1, 1987, was
determined by the school to have the ability to benefit from the
school's training in accordance with the requirements of 34 CFR 668.6,
as in existence at the time the determination was made;
(B) For periods of enrollment beginning between July 1, 1987 and
June 30, 1996, achieved a passing grade on a test--
* * * * *
(D) For periods of enrollment beginning on or after July 1, 1996--
(1) Has a high school diploma or its recognized equivalent;
(2) Has obtained within 12 months before the date the student
initially receives title IV, HEA program assistance, a passing score
specified by the Secretary on an independently administered test in
accordance with subpart J of 34 CFR part 668; or
(3) Is enrolled in an eligible institution that participates in a
State process approved by the Secretary under subpart J of 34 CFR part
668.
* * * * *
(14) Discharge without an application. A borrower's obligation to
repay all or a portion of an FFEL Program loan may be discharged
without an application from the borrower if the Secretary, or the
guaranty agency with the Secretary's permission, determines that the
borrower qualifies for a discharge based on information in the
Secretary or guaranty agency's possession.
* * * * *
4. Section 682.406 is amended by revising paragraph (a)(11) to read
as follows:

[[Page 46322]]

Sec. 682.406 Conditions for claim payments from the Federal Fund and
for reinsurance coverage.

(a) * * *
(11) The agency exercised due diligence in collection of the loan
in accordance with Sec. 682.410(b)(6).
* * * * *
5. Section 682.410 is amended by:
A. Amending paragraph (b)(5)(i) introductory text by removing the
reference to paragraph ``(b)(6)(iii)'' and adding in its place
``(b)(6)(v)''.
B. Amending paragraph (b)(5)(ii) introductory text by removing the
reference to paragraph ``(b)(6)(ii)'' and adding in its place
``(b)(6)(v)''.
C. Revising paragraph (b)(6).
D. Removing paragraph (b)(7).
E. Redesignating paragraphs (b)(8) through (b)(11) as paragraphs
(b)(7) through (b)(10), respectively.
F. Amending redesignated paragraph (b)(7)(ii) by removing the
reference to paragraph ``(b)(8)(i)'' and adding in its place
``(b)(7)(i)''.
G. Amending redesignated paragraph (b)(7)(ii)(D) by removing the
reference to paragraph ``(b)(6)(i)'' and adding in its place
``(b)(6)''.
H. Amending redesignated paragraph (b)(8) by removing the reference
to paragraphs ``(b)(2), (5), (6), and (7)'' and adding in its place
``(b)(2), (5), and (6)''.
I. Amending redesignated paragraph (b)(9)(i)(E) by removing the
references to paragraphs ``(b)(10)(i)(D)'' and ``(b)(10)(i)(J)'' and
adding in their place ``(b)(9)(i)(D)'' and ``(b)(9)(i)(J)'',
respectively.
J. Amending redesignated paragraph (b)(9)(i)(F) by removing the
reference to paragraph ``(b)(10)(i)(H)'' and adding in its place
``(b)(9)(i)(H)''.
K. Amending redesignated paragraph (b)(9)(i)(I) by removing the
reference to paragraph ``(b)(10)(i)(H)'' and adding in its place
``(b)(9)(i)(H)''.
L. Amending redesignated paragraph (b)(9)(i)(K) by removing both
references to paragraph ``(b)(10)(i)(B)'' and adding in their place
``(b)(9)(i)(B)''.
M. Amending redesignated paragraph (b)(9)(i)(L) by removing both
references to paragraph ``(b)(10)(i)(B)'' and adding in their place
``(b)(9)(i)(B)''.
N. Amending redesignated paragraph (b)(10)(ii) by removing the
reference to ``Sec. 682.410(b)(11)(i)'' and adding in its place
``Sec. 682.410(b)(10)(i)''.
The revisions read as follows:


Sec. 682.410 Fiscal, administrative, and enforcement requirements.

* * * * *
(b) * * *
(6) Collection efforts on defaulted loans.
(i) A guaranty agency must engage in reasonable and documented
collection activities on a loan on which it pays a default claim filed
by a lender. For a non-paying borrower, the agency must perform at
least one activity every 180 days to collect the debt, locate the
borrower (if necessary), or determine if the borrower has the means to
repay the debt.
(ii) A guaranty agency must attempt an annual Federal offset
against all eligible borrowers. If an agency initiates proceedings to
offset a borrower's State and Federal income tax refunds and other
payments made by the Federal Government to the borrower, it may not
initiate those proceedings sooner than 60 days after sending the notice
described in paragraph (b)(5)(ii)(A) of this section.
(iii) A guaranty agency must initiate administrative wage
garnishment proceedings against all eligible borrowers, except as
provided in paragraph (b)(6)(iv) of this section, by following the
procedures described in paragraph (b)(9) of this section.
(iv) A guaranty agency may file a civil suit against a borrower to
compel repayment only if the borrower has no wages that can be
garnished under paragraph (b)(9) of this section, or the agency
determines that the borrower has sufficient attachable assets or income
that is not subject to administrative wage garnishment that can be used
to repay the debt, and the use of litigation would be more effective in
collection of the debt.
(v) Within 45 days after paying a lender's default claim, the
agency must send a notice to the borrower that contains the information
described in paragraph (b)(5)(ii) of this section. During this time
period, the agency also must notify the borrower, either in the notice
containing the information described in paragraph (b)(5)(ii) of this
section, or in a separate notice, that if he or she does not make
repayment arrangements acceptable to the agency, the agency will
promptly initiate procedures to collect the debt. The agency's
notification to the borrower must state that the agency may
administratively garnish the borrower's wages, file a civil suit to
compel repayment, offset the borrower's State and Federal income tax
refunds and other payments made by the Federal Government to the
borrower, assign the loan to the Secretary in accordance with
Sec. 682.409, and take other lawful collection means to collect the
debt, at the discretion of the agency. The agency's notification must
include a statement that borrowers may have certain legal rights in the
collection of debts, and that borrowers may wish to contact counselors
or lawyers regarding those rights.
(vi) Within a reasonable time after all of the information
described in paragraph (b)(6)(v) of this section has been sent, the
agency must send at least one notice informing the borrower that the
default has been reported to all national credit bureaus (if that is
the case) and that the borrower's credit rating may thereby have been
damaged.
* * * * *
6. Section 682.414 is amended by revising paragraph (a)(2) to read
as follows:


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

(a) * * *
(2) A guaranty agency must retain the records required for each
loan for not less than 3 years following the date the loan is repaid in
full by the borrower, or for not less than 5 years following the date
the agency receives payment in full from any other source. However, in
particular cases, the Secretary may require the retention of records
beyond this minimum period.
* * * * *

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

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

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

8. Section 685.214 is amended by:
A. Removing the words ``the school's'' in paragraph (c)(1).
B. Adding the word ``and'' after the semicolon at the end of
paragraph (c)(1)(i).
C. Removing ``; and'' at the end of paragraph (c)(1)(ii) and
adding, in its place, a period.
D. Removing paragraph (c)(1)(iii).
E. Adding a new paragraph (c)(6).
The revisions read as follows:


Sec. 685.214 Discharge for false certification of student eligibility
or unauthorized payment.

* * * * *
(c) * * *
(6) Discharge without an application. The Secretary may discharge a
loan under this section without an application from the borrower if the
Secretary determines, based on information in the Secretary's
possession, that the borrower qualifies for a discharge.
* * * * *
[FR Doc. 00-18953 Filed 7-26-00; 8:45 am]
BILLING CODE 4000-01-U

]

Last Modified: 07/31/2000