Loan Forgiveness

FR part

1101200006.pdf

Publication Date: November 1, 2000 FRPart: 06
RegPartsAffected:	682.211 682.215 682.205 685.212

Page Numbers: 65623-65630

Summary: Loan Forgiveness

[Federal Register: November 1, 2000 (Volume 65, Number 212)]

[Rules and Regulations]

[Page 65623-65630]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr01no00-21]

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Part VI

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; Final Rule

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DEPARTMENT OF EDUCATION

34 CFR Parts 682 and 685

RIN 1845-AA11

Federal Family Education Loan Program and William D. Ford Federal

Direct Loan Program

AGENCY: Office of Postsecondary Education, Department of Education.

ACTION: Final regulations.

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SUMMARY: The Secretary amends the Federal Family Education Loan (FFEL)

Program and the William D. Ford Federal Direct Loan (Direct Loan)

Program regulations. These final regulations implement changes made to

the Higher Education Act of 1965, as amended, (HEA) by the Higher

Education Amendments of 1998 (1998 Amendments). The final regulations

implement the teacher loan forgiveness programs in the FFEL and Direct

Loan programs that were included in the 1998 Amendments. In addition,

these final regulations make conforming changes for both the FFEL

Program and the Direct Loan Program, as well as unrelated technical

amendments to the Direct Loan Program regulations.

DATES: These regulations are effective July 1, 2001.

FOR FURTHER INFORMATION CONTACT: For the FFEL Program, Ms. Beth

Grebeldinger, or for the Direct Loan Program, Mr. Don Watson, 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

alternate 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, 2000, the Secretary published a notice of proposed

rulemaking (NPRM) for the FFEL and Direct Loan programs in the Federal

In the preamble to the NPRM, on pages 49125 to 49127, the Secretary

discussed the proposed regulations that would implement the teacher

loan forgiveness program in the FFEL and Direct Loan programs. These

include the following:

Amending Secs. 682.211(h)(2) and (3), 682.215(e), 685.205(a)(5),

and 685.205(b)(6) to allow some borrowers to request forbearance while

performing qualifying teaching service, and during the submission and

processing of their applications for teacher loan forgiveness.

Amending Secs. 682.215(a), 685.212(h), and 685.217(a) to reflect

sections 428J and 460 of the HEA, which established teacher loan

forgiveness programs for certain borrowers in the FFEL Direct Loan

programs.

Amending Secs. 682.215(b) and 685.217(b) to provide specific

definitions for the terms ``academic year'', ``elementary school'',

``full-time'', ``secondary school'', and ``teacher'' for purposes of

the teacher loan forgiveness program.

Amending Secs. 682.215(c) and 685.217(c) to provide that to qualify

for the teacher loan forgiveness program a borrower must have been

employed full-time for five consecutive complete years in a low-income

elementary or secondary school that has been listed in a designated

Department directory.

Amending Secs. 682.215(d) and 685.217(d) to provide that $5,000 is

the maximum amount that may be forgiven for an individual teacher under

these programs.

Amending Secs. 682.215(f) and 685.217(e) to explain the application

process for both the borrower and the loan holder.

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.

These regulations were published in proposed form on August 10,

2000, following completion of the negotiated rulemaking process. The

Secretary invited comments on the proposed regulations by September 25,

2000. In response to the Secretary's invitation in the NPRM, 10 parties

submitted comments on the proposed regulations. An analysis of the

comments and of the changes in the regulations since publication of the

NPRM 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.

Section 682.215(a)--General

Comment: One commenter requested additional information regarding

the regulatory requirement that the loan for which the borrower is

requesting forgiveness must have been made prior to the end of the

fifth year of qualifying teaching service.

Discussion: The regulations require that the loan for which

forgiveness is sought must have been made prior to the end of the five-

year qualifying teaching service. This requirement was included to be

consistent with the stated intent of the statute that the teacher loan

forgiveness programs encourage individuals to enter and continue in the

teaching profession. We believe that there needs to be a safeguard

against the possibility that a borrower, who after meeting the teaching

requirements of the forgiveness program, quits teaching, returns to

school to train for another profession and then asks to have $5,000 in

loans for the new training forgiven based on that earlier teaching. To

avoid this situation, the regulations require that loans for which

forgiveness is being sought must have been made prior to the end of the

qualifying five-year teaching service.

Changes: None.

Comment: Four commenters recommended modifying Sec. 682.215(a) to

clarify that $5,000 is the total amount for all loans that a borrower

may be eligible to have forgiven, not a per program amount.

Discussion: We agree that the regulations would be clearer with the

recommended change.

Change: We have revised the language in both Sec. 682.215(a) and

Sec. 685.217(a) to state that the combined total forgiveness limit is

$5,000 for loans in the FFEL or Direct Loan programs.

Section 682.215(c)--Borrower Eligibility

Comment: Four commenters stated that they believed that the

discussion in the preamble to the NPRM, regarding when the borrower's

qualifying teaching at the school begins, seemed contradictory to the

statute and the proposed regulations and requested clarification.

Discussion: To clarify, if the school at which a borrower is

performing qualifying teaching is not a designated eligible low-income

school when the borrower begins the teaching service, but becomes such

a school while the borrower is performing qualifying

[[Page 65625]]

teaching, the required five years begins from the point that the school

gains the designated eligible low-income school status. Any years of

teaching prior to that designation do not apply to the five complete,

consecutive years required for forgiveness. On the other hand, if an

eligible, designated school loses its designation while the borrower is

teaching there, any continuous subsequent years of qualified teaching

service at that same school may be included in the five-year

requirement.

Change: None.

Comment: Three commenters suggested specifically including criteria

to Sec. 682.215(c)(3) and (4) to make special education teachers

eligible for the loan forgiveness based solely on their role as a

special education teacher.

Discussion: The regulations that the commenters wish to revise are

based directly on the statute and the requested change is not supported

by the statutory language. Special education teaching is not one of the

specific criteria included in the statute, but the teacher may qualify

for the loan forgiveness program if the qualifying teaching otherwise

meets the statutory requirements. The regulations do specifically

include special education teachers in the definition of a teacher, so

if a special education teacher met the other criteria in paragraphs

(c)(3) or (c)(4), he or she could be eligible for teacher loan

forgiveness.

Change: None.

Comment: One commenter suggested that the regulations provide

certification criteria for school officials to follow to ensure

consistent, objective and fair determinations of a teacher's

eligibility to participate in the loan forgiveness program.

Discussion: We do not see a need for such regulatory guidance. The

statute requires that the chief administrative officer of the school

determine that a borrower has met the criteria outlined in the statute

and the regulations. We believe that the criteria are sufficiently

clear and that school administrators will be able to provide the needed

certifications. Our experience with the certifications used in the

Federal Perkins Loan Program, while based on slightly different

eligibility criteria, has shown that school administrators can apply

the required standards without prescriptive regulatory guidance.

Change: None.

Comment: One commenter indicated that Sec. 682.215(c)(5) did not

address ``gaps'' that may occur between the end of an accepted

condition that would not constitute a ``break'' in the consecutive

complete years of teaching required by the law and the resumption of

qualified teaching. This commenter requested that these regulations

allow borrowers to delay their return to qualifying teaching service to

the beginning of the next academic year if necessary, as was done in

connection with the special grace period for borrowers returning from

active duty military service.

Discussion: We agree that due to the scheduling of academic years,

it may be impossible for a teacher to resume teaching immediately at

the conclusion of one of the exempted conditions. Such ``gap'' periods

should not penalize a borrower who met an exempted condition.

Change: We have made a change in Secs. 682.215(c)(6) and

685.217(c)(6) to ensure that these gaps are not treated as a break in

qualifying service.

Comment: One commenter suggested an expansion of conditions that

would not constitute a break in the consecutive, complete qualifying

teaching service. The commenter argued that there are other conditions

over which the teacher has no control. Among the conditions suggested

were: periods of protracted labor disputes, natural disasters or

emergencies, and funding shortfalls.

Discussion: While we acknowledge that these conditions are events

over which the teacher may have no control, it was not our intent to

address every possible event that could disrupt the school year. We

believe that if the events listed by the commenter occur, the school or

school district would extend the academic year or declare that the

academic year has been completed early. Either of these results would

qualify the year as a complete academic year for purposes of teacher

loan forgiveness.

Change: None.

Comment: One commenter suggested that the school's certifying chief

administrative official should have greater flexibility in determining

the relationship of the studies the borrower undertakes in returning to

postsecondary education while taking a break in their qualifying

teaching if the borrower returns to qualifying teaching.

Discussion: We believe that it is appropriate to require that the

teacher undertake education that is ``directly related'' to the

performance of the service that the statute wants to support. We do not

think it would be appropriate to allow the borrower to engage in

postsecondary education that is unrelated to the performance of the

qualifying service and still receive the loan forgiveness.

Change: None.

Sections 682.215(d) and 685.217(d)--Forgiveness Amount

Comment: Three commenters suggested changing the regulations to

clarify that a borrower with a consolidation loan qualifies for loan

forgiveness only if the consolidation loan is outstanding and the

forgiveness amount relates to a qualifying loan (a subsidized or

unsubsidized loan made under the FFEL Program or the Direct Loan

Program) that was repaid by the Consolidation Loan.

Discussion: We agree that the regulations need to be clarified to

describe the relationship between the consolidation loan and the

underlying loans for purposes of the loan forgiveness.

Change: We have changed Secs. 682.215(d)(1) and 685.217(d)(1) to

clarify how loan forgiveness affects consolidation loans.

Comment: Three commenters suggested clarifying that the forgiveness

amount total of $5,000 includes both outstanding principal and accrued

interest.

Discussion: We agree that this change would clarify the

regulations.

Change: We have made the suggested change to Secs. 682.215(d)(2)

and 685.217(d)(2) to clarify that the forgiveness amount limit of

$5,000 applies to both outstanding principal and accrued interest.

Comment: Four commenters suggested revising Sec. 682.215(d)(3) to

clarify that payments received from a borrower or on behalf of a

borrower would not be refunded as directed in the statute.

Discussion: Proposed Secs. 682.215(d)(3) and 685.217(d)(3) reflect

the statutory provision that payments received from a borrower are not

refunded if the borrower qualifies for loan forgiveness. However, the

statutory provision also applies to payments made on behalf of the

borrower and we agree with the commenters that the regulations should

make it clear that payments made on the borrower's behalf also will not

be refunded.

Change: We have modified Secs. 682.215(d)(3) and 685.217(d)(3) to

clarify that payments made on a borrower's behalf are not returned if

the borrower qualifies for loan forgiveness.

Section 682.215(e)--Authorized Forbearance During Qualifying Teaching

Service and Discharge Processing

Comment: Two commenters questioned the interchangeable use of

``holder'' and ``lender'' in the FFEL proposed regulations. They argued

that

[[Page 65626]]

this practice creates consistency and accuracy problems.

Discussion: We agree that it is important to use the terms

``lender'' and ``holder'' carefully since the term ``holder'' includes

parties who are not included in the definition of a lender.

Change: Throughout these regulations we will use the term

``holder'' since the obligations placed on the loan holders in the

teacher loan forgiveness program do not just apply to lenders but to

all loan holders.

Comment: Four commenters proposed using the term ``must'' in

Sec. 682.215(e)(1), as well as redesignating paragraphs. These changes

would require a loan holder to provide an annual forbearance to a

borrower for certain qualified periods without a request from the

borrower. The commenters noted that a borrower is not required to

request a forbearance in connection with other loan cancellation

opportunities such as the unpaid refund, false certification, and

closed school discharges.

Discussion: The commenter incorrectly assumes that the regulations

do not require the loan holder to grant a forbearance to a borrower who

may qualify for the teacher loan forgiveness program. Section

682.215(e)(1) includes a cross-reference to the mandatory forbearance

section of the FFEL regulations. Therefore, the use of ``must'' is not

necessary. We also do not agree with the commenter's suggestion that a

borrower should not have to request the forbearance. This mandatory

forbearance requires an annual request from the borrower, in part to

allow the loan holder to ensure that the borrower still meets the

qualifications for the discharge. The request also allows the borrower

to certify his or her intent to satisfy the five-year teaching

requirement. In addition, since the $5,000 discharge will not, for many

borrowers, extinguish their entire debt, a borrower may determine that

it is better to make payments for a period of time and not request the

forbearance. The requirement for an annual request gives the borrower

an opportunity to consider his or her options. As to the commenter's

statement that other loan cancellation programs do not require a

borrower request, we note that those loan cancellations are based on

situations relating to the loan that would be reflected in records that

are otherwise available to the holder. The borrower's qualification for

a teacher loan forgiveness and the related forbearance would not be

reflected in other information available to the loan holder.

Change: None.

Comment: Some commenters also suggested that lenders only be

required to review the borrower's balance at the time the initial

forbearance request is submitted instead of multiple times throughout

the qualifying five-year teaching period.

Discussion: As noted earlier, these regulations permit the borrower

to request a forbearance for each year of the qualifying service. As

discussed in the preamble to the NPRM, this mandatory forbearance was

added to ensure that borrowers with a low balance loan who qualify for

loan forgiveness would not lose the maximum benefit by continuing to

make monthly payments. The annual request allows the lender to

determine if capitalized interest will create an outstanding balance

for the borrower at the end of the five-year period. It also provides

an opportunity for the lender to counsel the borrower regarding the

effects of capitalized interest and to advise the borrower of any

balance that may remain outstanding at the conclusion of the qualifying

teaching period.

Change: None.

Section 682.215(f)--Application and processing

Comment: Three commenters suggested adding an additional cross-

reference to Sec. 682.215(f)(2)(i) to include all references to

certifying officials. Another commenter suggested revising the language

of Sec. 682.215(f)(2)(i) to make it clear that the application may

include the certifications of the borrower and the appropriate chief

administrative official or officials.

Discussion: With respect to the comment about adding a cross-

reference, we believe that removing all cross-references is the better

approach to address the commenters' concerns. We agree with the

commenter who expressed concern that the proposed rule implied that

there would be multiple application and certification forms.

Change: Section 682.215(f)(2)(i) has been modified by removing the

cross-references and broadening the language regarding the application

to address the commenters' concerns.

Comment: Three commenters recommended adding to the regulations a

provision allowing late filing by a lender of the request for payment

with the guaranty agency. One commenter suggested that for late filings

the lender would be responsible for repaying the Secretary all interest

and special allowance for the late period.

Discussion: We agree and thank the commenters for pointing out this

oversight.

Change: A new paragraph (iii) has been added to Sec. 682.215(f)(2)

to address the comments.

Comment: One commenter suggested clarifying that forgiveness

payments should first be applied to unsubsidized and then to subsidized

Federal Consolidation loans.

Discussion: The FFEL Program does not distinguish between

subsidized and unsubsidized Federal Consolidation Loans. Thus, this

change will not be made.

Change: None

Comment: One commenter requested an addition to the regulations to

allow a guaranty agency that holds a defaulted loan that is eligible

for this forgiveness to be able to recover from the Department the

complement of the reinsurance percentage paid on the applicable loan

amount. The commenter noted that this change would be consistent with

the treatment provided in other loan discharge situations.

Discussion: Since a defaulted loan for which the borrower has made

satisfactory arrangement may be eligible for discharge under these

programs, we agree with the commenter.

Change: We have added a new paragraph (g) to Sec. 682.215 to

reflect this correction.

Executive Order 12866

We have reviewed these final regulations in accordance with

Executive Order 12866. Under the terms of the 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 as

necessary for administering these programs effectively and efficiently.

Elsewhere in this SUPPLEMENTARY INFORMATION section, we identify and

explain any burdens specifically associated with information collection

requirements.

In assessing the potential costs and benefits--both quantitative

and qualitative--of this regulatory action, we have determined that the

benefits would justify the costs.

We have also determined that this regulatory action does 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 in the preamble to the NPRM (65 FR 49127).

Paperwork Reduction Act of 1995

The Paperwork Reduction Act of 1995 does not require you to respond

to a

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collection of information unless it displays a valid OMB control

number. We display the valid OMB control number assigned to the

collection of the information in these final regulations at the end of

the affected section of the regulations.

Assessment of Educational Impact

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.

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(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.

Dated: October 24, 2000.

Richard W. Riley,

Secretary of Education.

For the reasons stated 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.

2. Section 682.211 is amended as follows:

A. In paragraph (h)(2)(ii)(B), by removing the period at the end

and adding in its place, ``; or''.

B. By adding a new paragraph (h)(2)(ii)(C).

C. By adding a new paragraph (h)(3)(iii).

The additions and revisions read as follows:

Sec. 682.211 Forbearance.

* * * * *

(h) * * *

(2) * * *

(ii) * * *

borrower for loan forgiveness and associated forbearance under the

requirements of the teacher loan forgiveness program in Sec. 682.215.

* * * * *

(3) * * *

(iii) Before granting a forbearance to a borrower under paragraph

(h)(2)(ii)(C) of this section, the lender must require the borrower

to--

(A) Submit documentation for the period of the annual forbearance

request showing the beginning and anticipated ending dates that the

borrower is expected to perform, for that year, the type of service

described in Sec. 682.215(c); and

(B) Certify the borrower's intent to satisfy the requirements of

Sec. 682.215(c).

(Approved by the Office of Management and Budget under control

number 1845-0020)

* * * * *

3. A new Sec. 682.215 is added to read as follows:

Sec. 682.215 Teacher loan forgiveness program.

(a) General. The teacher loan forgiveness program is intended to

encourage individuals to enter and continue in the teaching profession.

For new borrowers, the Secretary repays up to a combined total of

$5,000 of subsidized and unsubsidized Federal Stafford Loans, Direct

Subsidized Loans, Direct Unsubsidized Loans, and in certain cases,

Federal Consolidation Loans or Direct Consolidation Loans. The

forgiveness program is only available to a borrower who has no

outstanding loan balance under the FFEL Program or the Direct Loan

Program on October 1, 1998 or who has no outstanding loan balance on

the date he or she obtains a loan after October 1, 1998. In addition,

the borrower must have been employed as a full-time teacher for five

consecutive complete academic years, at least one of which was after

the 1997-1998 academic year, in certain eligible elementary or

secondary schools that serve low-income families. The loan for which

forgiveness is sought must have been made prior to the end of the

borrower's fifth year of qualifying teaching service.

(b) Definitions. The following definitions apply to this section:

Academic year means one complete school year at the same school, or

two complete and consecutive half years at different schools, or two

complete and consecutive half years from different school years at

either the same school or different schools. Half years exclude summer

sessions and generally fall within a twelve-month period. For schools

that have a year-round program of instruction, nine months is

considered an academic year.

Elementary school means a public or nonprofit private school that

provides elementary education as determined by State law or the

Secretary if that school is not in a State.

Full-time means the standard used by a State in defining full-time

employment as a teacher. For a borrower teaching in more than one

school, the determination of full-time is based on the combination of

all qualifying employment.

Secondary school means a public or nonprofit private school that

provides secondary education as determined by State law or the

Secretary if the school is not in a State.

Teacher means a person who provides direct classroom teaching or

classroom-type teaching in a non-classroom setting, including Special

Education teachers.

forgiveness under this program if he or she has been employed as a

full-time teacher for five consecutive complete academic years, at

least one of which was after the 1997-1998 academic year, in an

elementary or secondary school that--

(i) Is in a school district that qualifies for funds under title I

of the Elementary and Secondary Education Act of 1965, as amended;

(ii) Has been selected by the Secretary based on a determination

that more than 30 percent of the school's total enrollment is made up

of children who qualify for services provided under title I; and

(iii) Is listed in the Annual Directory of Designated Low-Income

Schools for Teacher Cancellation Benefits. If this directory is not

available before May 1 of any year, the previous year's directory may

be used.

(2) If the school at which the borrower is employed meets the

requirements specified in paragraph (c)(1) of this

[[Page 65628]]

section for at least one year of the borrower's five consecutive

complete academic years of teaching and the school fails to meet those

requirements in subsequent years, those subsequent years of teaching

qualify for purposes of this section for that borrower.

(3) A borrower who is employed as an elementary school teacher must

demonstrate knowledge and teaching skills in reading, writing,

mathematics, and other areas of the elementary school curriculum, as

certified by the chief administrative officer of the school in which

the borrower was employed.

(4) A borrower who is employed as a secondary school teacher must

teach in a subject area that is relevant to the borrower's academic

major as certified by the chief administrative officer of the school in

which the borrower was employed.

(5) The academic year may be counted as one of the borrower's five

consecutive complete academic years if the borrower completes at least

one-half of the academic year and the borrower's employer considers the

borrower to have fulfilled his or her contract requirements for the

academic year for the purposes of salary increases, tenure, and

retirement if the borrower is unable to complete an academic year due

to--

(i) A return to postsecondary education, on at least a half-time

basis, that is directly related to the performance of the service

described in this section;

(ii) A condition that is covered under the Family and Medical Leave

Act of 1993 (FMLA) (19 U.S.C. 2654); or

(iii) A call or order to active duty status for more than 30 days

as a member of a reserve component of the Armed Forces named in section

10101 of title 10, United States Code.

(6) A borrower's period of postsecondary education, qualifying FMLA

condition, or military active duty as described in paragraph (c)(5) of

this section, including the time necessary for the borrower to resume

qualifying teaching no later than the beginning of the next regularly

scheduled academic year, does not constitute a break in the required

five consecutive years of qualifying teaching service.

(7) A borrower who taught in more than one qualifying school during

an academic year and demonstrates that the combined teaching was the

equivalent of full-time, as supported by the certification of one or

more of the chief administrative officers of the schools involved, is

considered to have completed one academic year of qualifying teaching.

(8) A borrower is not eligible for teacher loan forgiveness on a

defaulted loan unless the borrower has made satisfactory repayment

arrangements to re-establish title IV eligibility, as defined in

Sec. 682.200.

(9) A borrower may not receive loan forgiveness for qualifying

teaching service under this section if the borrower receives a benefit

for the same teaching service under subtitle D of title I of the

National and Community Service Act of 1990.

(d) Forgiveness amount. (1) A qualified borrower is eligible for

forgiveness of up to $5,000 of the aggregate amount of a borrower's

subsidized or unsubsidized Federal Stafford or Federal Consolidation

Loan obligation that is outstanding after the borrower completes his or

her fifth consecutive complete academic year of teaching as described

in paragraph (c) of this section. Only the outstanding portion of the

consolidation loan that was used to repay an eligible subsidized or

unsubsidized Federal Stafford loan, an eligible Direct Subsidized Loan,

or an eligible Direct Unsubsidized Loan qualifies for loan forgiveness

under this section.

(2) A borrower may not receive more than a total of $5,000 in loan

forgiveness for outstanding principal and accrued interest under both

this section and under section 34 CFR 685.217.

(3) The holder does not refund payments that were received from or

on behalf of a borrower who qualifies for loan forgiveness under this

section.

(e) Authorized forbearance during qualifying teaching service and

discharge processing. (1) At the borrower's request, a holder grants a

forbearance--

(i) Under Sec. 682.211(h)(2)(ii)(C) and (h)(3)(iii), in annual

increments for each of the years of qualifying teaching service, if the

holder believes, at the time of each annual request, that the expected

cancellation amount will satisfy the anticipated remaining outstanding

balance on the loan at the time of the expected cancellation;

(ii) For a period not to exceed 60 days while the holder is

awaiting a completed teacher loan forgiveness application from the

borrower; and

(iii) For the period beginning on the date the holder receives a

completed loan forgiveness application to the date the holder receives

either a denial of the request or the loan discharge amount from the

guaranty agency, in accordance with paragraph (f) of this section.

(2) At the conclusion of a forbearance authorized under paragraph

(e)(1) of this section, the holder must resume collection activities

and may capitalize any interest accrued and not paid during the

forbearance period in accordance with Sec. 682.202(b).

(3) Nothing in paragraph (e) of this section restricts holders from

offering other forbearance options to borrowers who do not meet the

requirements of paragraph (e)(1)(i) of this section.

(f) Application and processing. (1) A borrower, after completing

the qualifying teaching service, requests loan forgiveness from the

holder of the loan on a form approved by the Secretary.

(2)(i) The holder must file a request for payment with the guaranty

agency on a teacher forgiveness discharge no later than 60 days after

the receipt, from the borrower, of a completed teacher loan forgiveness

application.

(ii) When filing a request for payment on a teacher forgiveness

discharge, the holder must provide the guaranty agency with the

completed loan forgiveness application submitted by the borrower and

any required supporting documentation.

(iii) If the holder files a request for payment later than 60 days

after the receipt of the completed teacher loan forgiveness application

form, interest that accrued on the loan after the expiration of the 60-

day filing period is ineligible for reimbursement by the Secretary, and

the holder must repay all interest and special allowance received on

the loan for periods after the expiration of the 60-day filing period.

The holder cannot collect from the borrower any interest that is not

paid by the Secretary under this paragraph.

(3)(i) Within 45 days of receiving the holder's request for

payment, the guaranty agency must determine if the borrower meets the

eligibility requirements for loan forgiveness under this section and

must notify the holder of its determination of the borrower's

eligibility for loan forgiveness under this section.

(ii) If the guaranty agency approves the discharge, it must, within

the same 45-day period, pay the holder the amount of the discharge, up

to $5,000, subject to paragraphs (c)(9), (d)(1) and (d)(2) of this

section.

(4) After being notified by the guaranty agency of its

determination of the eligibility of the borrower for the discharge, the

holder must, within 30 days, inform the borrower of the determination.

If the discharge is approved, the holder must also provide the borrower

with information regarding any new repayment terms of remaining loan

balances.

(5) Unless otherwise instructed by the borrower, the holder must

apply the proceeds of the teacher forgiveness discharge first to any

outstanding

[[Page 65629]]

unsubsidized Federal Stafford loan balances, next to any outstanding

subsidized Federal Stafford loan balances, then to any eligible

outstanding Federal Consolidation loan balances.

(g) Claims for reimbursement from the Secretary on loans held by

guaranty agencies. In the case of a teacher loan forgiveness discharge

applied to a defaulted loan held by the guaranty agency, the Secretary

pays the guaranty agency a percentage of the amount discharged that is

equal to the complement of the reinsurance percentage paid on the loan.

The payment of up to $5,000 may also include interest that accrues on

the discharged amount during the period from the date on which the

guaranty agency received payment from the Secretary on a default claim

to the date on which the guaranty agency determines that the borrower

is eligible for the teacher loan forgiveness discharge. (Approved by

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

(Authority: 20 U.S.C. 1078-10)

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

4. The authority citation for Part 685 continues to read as

follows:

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

Sec. 685.102 [Amended]

5. Section 685.102(b) is amended in paragraph (2) of the definition

of ``Satisfactory repayment arrangement'' by removing the reference to

``34 CFR 685.215(d)(1)(ii)(E)'' and adding, in its place, ``34 CFR

685.220(d)(1)(ii)(E)''.

Sec. 685.200 [Amended]

6. Section 685.200 is amended by:

A. Removing from paragraph (a)(1)(v) ``34 CFR 668.7(b)'' and

adding, in its place, ``34 CFR 668.32(e)(2) or (3)''.

B. Removing from paragraph (b)(1)(iv) ``34 CFR 668.7'' and adding,

in its place ``34 CFR 668.32(g)''.

C. Removing from paragraph (c) ``Sec. 685.215(d)(1)(ii)(F)'' and

adding, in its place, ``685.220(d)(1)(ii)(F)''.

Sec. 685.201 [Amended]

7. Section 685.201(c)(2) is amended by removing the reference to

``Sec. 685.216'' and by adding, in its place ``Sec. 685.220''.

8. Section 685.205 is amended by:

A. Redesignating paragraph (a)(5) as (a)(6).

B. Adding a new paragraph (a)(5).

C. Removing from paragraph (b)(6)(i) the reference to

``Sec. 685.213'' and adding, in its place, ``Sec. 685.214''.

D. Removing from paragraph (b)(6)(ii) the reference to

``Sec. 685.214'' and adding, in its place, ``Sec. 685.215''.

E. Removing from paragraph (b)(6)(iii) the reference to

``Sec. 685.215; or'' and adding, in its place, ``Sec. 685.216;''.

F. By redesignating paragraph (b)(6)(iv), as paragraph (b)(6)(v).

G. By adding a new paragraph (b)(6)(iv).

The additions read as follows:

Sec. 685.205 Forbearance.

(a) * * *

(5) The borrower--

(i) Is performing the type of service that would qualify the

borrower for loan forgiveness under the requirements of the teacher

loan forgiveness program in Sec. 685.217; and

(ii) Is required, by the Secretary, before a forbearance is granted

under Sec. 685.205(a)(5)(i) to--

(A) Submit documentation for the period of the annual forbearance

request showing the beginning and ending dates that the borrower is

expected to perform, for that year, the type of service described in

Sec. 685.217(c); and

(B) Certify the borrower's intent to satisfy the requirements of

Sec. 685.217(c).

* * * * *

(b) * * *

(6) * * *

(iv) Under Sec. 685.217; or

(Approved by the Office of Management and Budget under control

number 1845-0021)

* * * * *

Sec. 685.210 [Amended]

9. Section 685.210(b)(2)(ii) is amended by removing the reference

to ``Sec. 685.209(d)(2)'' and by adding, in its place

``Sec. 685.209(c)(4)''.

Sec. 685.211 [Amended]

10. Section 685.211(e)(4) is amended by removing the reference to

``Sec. 685.215'' and by adding, in its place, ``Sec. 685.220''.

11. Section 685.212 is amended by:

A. Removing from paragraph (d) the reference to ``Sec. 685.213''

and adding, in its place, ``Sec. 685.214''.

B. Removing from paragraph (e) the reference to ``Sec. 685.214''

and adding, in its place, ``Sec. 685.215''.

C. Removing from paragraph (f) the reference to ``Sec. 685.215''

and adding, in its place, ``Sec. 685.216''.

D. By adding a new paragraph (h).

The addition reads as follows:

Sec. 685.212 Discharge of a loan obligation.

* * * * *

(h) Teacher loan forgiveness program. If a new borrower meets the

requirements in Sec. 685.217, the Secretary repays up to $5,000 of the

borrower's Direct Subsidized Loans, Direct Unsubsidized Loans, and, in

certain cases, Direct Consolidation Loans.

Secs. 685.214, 685.215, 685.216 [Redesignated as Secs. 685.215,

685.216, and 685.220]

12. Sections 685.214, 685.215, and 685.216 are redesignated as

Secs. 685.215, 685.216, and 685.220, respectively.

Sec. 685.213 [Redesignated as Sec. 685.214, Sec. 685.213 Reserved]

13. Section 685.213 is redesignated as Sec. 685.214, and

Sec. 685.213 is reserved.

Sec. 685.215 [Amended]

14. In Sec. 685.215, paragraph (c)(5)(ii) is amended by removing

the references to ``Sec. 685.213(d)'' and ``Sec. 685.213(e)'' and

adding, in their place, ``Sec. 685.214(d)'' and ``Sec. 685.214(e)'',

respectively.

Sec. 685.216 [Amended]

15. In Sec. 685.216, paragraph (c)(1)(iii)(B) is amended by

removing the references to ``Sec. 685.213(d)'' and ``Sec. 685.213(e)''

and adding, in their place, ``Sec. 685.214(d)'' and

``Sec. 685.214(e)'', respectively.

16. A new Sec. 685.217 is added to read as follows:

Sec. 685.217 Teacher loan forgiveness program.

(a) General. The teacher loan forgiveness program is intended to

encourage individuals to enter and continue in the teaching profession.

For new borrowers, the Secretary will repay up to a combined total of

$5,000 of subsidized and unsubsidized Federal Stafford Loans, Direct

Subsidized Loans, Direct Unsubsidized Loans, and, in certain cases,

Federal Consolidation Loans or Direct Consolidation Loans. The

forgiveness program is only available to a borrower who has no

outstanding loan balance under the FFEL Program or the Direct Loan

Program on October 1, 1998 or who has no outstanding loan balance on

the date he or she obtains a loan after October l, 1998. In addition,

the borrower must have been employed as a full-time teacher for five

consecutive complete academic years, at least one of which was after

the 1997-1998 academic year, in certain eligible elementary or

secondary schools that serve low-income families. The loan for which

the borrower is seeking forgiveness must have been made prior to the

end of the fifth year of qualifying teaching service.

(b) Definitions. The following definitions apply to this section:

[[Page 65630]]

Academic year means one complete school year at the same school, or

two complete and consecutive half years at different schools, or two

complete and consecutive half years from different school years at

either the same school or different schools. Half years exclude summer

sessions and generally fall within a twelve-month period. For schools

that have a year-round program of instruction, a minimum of nine months

is considered an academic year.