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FFEL Program

FR part
05
Attachments:

Publication Date: November 1, 2000
FRPart: 05

RegPartsAffected:

682.410
682.604
682.210
682.204
685.204

Page Numbers: 65615-65622

Summary: FFEL Program

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

[Rules and Regulations]

[Page 65615-65622]

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

[DOCID:fr01no00-20]

 

[[Page 65615]]

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Part V

 

 

 

 

Department of Education

 

 

 

 

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34 CFR Parts 682 and 685

 

 

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

Federal District Loan Program; Final Rule

 

[[Page 65616]]

 

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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, Department of Education.

ACTION: Final regulations.

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

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

Loan) Program regulations. These regulations are intended to reduce

administrative burden for program participants, provide benefits to

borrowers, and protect the taxpayers' interests.

DATES: Effective Date: These regulations are effective July 1, 2001.

Implementation Date: The Secretary has determined, in accordance

with section 482(c)(2)(A) of the HEA (20 U.S.C. 1089(c)(2)(A)), that

guaranty agencies may, at their discretion, choose to implement

Sec. 682.410(b)(6) on or after November 1, 2000.

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: The regulations in this document were

developed through the use of negotiated rulemaking. Section 492 of the

Higher Education Act of 1965, as amended (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.

On July 27, 2000 the Secretary published a notice of proposed

rulemaking (NPRM) for parts 682 and 685 in the Federal Register (65 FR

46316). In the preamble to the NPRM, the Secretary discussed on pages

46317-46320 the major proposed changes to the regulations. The

Secretary invited comments on the proposed regulations by September 11,

2000 and 16 parties submitted comments.

On August 10, 2000, the Secretary published another NPRM for parts

600, 668, 675, 682, 685, and 690 in the Federal Register (65 FR 49134).

In the preamble to that NPRM, the Secretary discussed on pages 49135-

49147 the major proposed changes to the regulations. The Secretary

invited comments on these proposed regulations by September 25, 2000,

and 33 parties submitted comments. To consolidate all of the provisions

for the FFEL and Direct Loan programs, these final regulations include

not only the provisions from the July 27, 2000 NPRM, but also the

amendments to parts 682 and 685 from the August 10, 2000 NPRM. We

strongly urge the reader to refer to the preambles from both of the

NPRMs for a full discussion of these regulations.

In addition to minor technical revisions, these regulations contain

a few significant changes from these two NPRMs that we fully explain in

the Analysis of Comments and Changes that follows. The only significant

comment we received concerning the changes to parts 682 and 685

proposed in the August 10, 2000 NPRM is reflected under our discussion

related to 682.604(b).

Analysis of Comments and Changes

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.

FFEL and Direct Loan Program Changes

Sections 682.210 and 685.204--Deferment

Comment: One commenter did not agree with the proposal to remove

the current provisions that prohibit the granting of an economic

hardship for a period beginning more than 6 months before the date the

lender receives the request and the supporting documentation. The

commenter agreed that supporting documentation for other deferments

(e.g., a military or disability deferment) frequently must be certified

and provided by other parties, but believed that documentation of a

borrower's income and debt for purposes of an economic hardship

deferment should be readily in the borrower's possession.

Discussion: While some forms of deferment documentation are more

readily accessible to borrowers than other forms of documentation, the

accessibility of documentation is not the primary reason why we have

decided to eliminate the 6-month limitation on the retroactive

application of a deferment. The primary rationale for eliminating this

limitation is that borrowers frequently are unaware that they may

qualify for a deferment until it is too late (because of the 6-month

limitation) to take full advantage of a deferment they are entitled to

receive. During the negotiated rulemaking sessions, representatives of

schools, borrower organizations and FFEL lenders and servicers all

indicated that this lack of awareness applies to all deferment

categories, including economic hardship deferments. Therefore, we

believe it is appropriate to eliminate the 6-month limit for that

deferment as well as the others.

Changes: None.

Comment: One commenter recommended that the removal of the 6-month

limitation on the application of a deferment be applied retroactively

to assist borrowers who otherwise would have been eligible for the

deferment, but who encountered loan problems because they did not

submit documentation to support their deferment in a timely manner.

Discussion: We believe that borrowers have been, and should

continue to be, responsible for providing deferment documentation to

loan holders on a timely basis. The removal of the 6-month limitation

on the retroactive application of deferments does not mean that the

rules for granting deferments that existed in the past should be

changed. In fact, we believe that applying these new rules to past

requests for deferments would create significant confusion and

complications for program participants without helping a significant

number of borrowers. Upon the effective date of these regulations (July

1, 2001), the removal of the 6-month limitation on the retroactive

application of a deferment will apply to any period of authorized

deferment that includes July 1, 2001 or a later date. For program

integrity reasons, a period of authorized deferment that does not

include July 1, 2001 or a later date, and that was subject to the 6-

month limit when the deferment was granted, may not be revised.

We want to stress that the documentation required to support an

application for a deferment with a begin

[[Page 65617]]

date more than 6 months prior to the date of the application must be

related to the date that the borrower claims he or she met the

requirements for the deferment. For example, if a borrower requests an

economic hardship deferment for a period that began two years prior to

the date of the request, the documentation and income must support the

borrower's qualification for that deferment at the start of that

period. If the supporting documentation does not support the beginning

date claimed by the borrower, but the lender determines that the

borrower met the conditions for the deferment sometime after that date,

a deferment may be granted retroactively only to the date the borrower

met the conditions for the deferment.

Changes: None.

Comment: One commenter was concerned that the removal of the 6-

month limitation on the retroactive application of a deferment would

weaken the incentive for borrowers to submit their deferment

documentation in a timely manner. The commenter envisioned situations

in which borrowers who had defaulted on their loans would provide

deferment documentation many months or even years after default. The

commenter believed that this could result in significant issues related

to loan repurchases, reapplication of payments, and credit bureau

reporting. To help retain an incentive for borrowers to provide their

deferment documentation timely, the commenter recommended a change to

the existing requirements of Sec. 682.210(a)(7) by removing the

sentence, ``The 270- or 330-day period required to establish default

does not run during the deferment and post-deferment grace periods.''

Discussion: We do not believe that the situation envisioned by the

commenter is likely to occur. Under 34 CFR 682.210(a)(8), a borrower

who has failed to make payments for 270 days and for whom the lender

has submitted a default claim may receive a deferment on a loan only if

he or she has made repayment arrangements acceptable to the lender.

After a lender's default claim is paid by a guaranty agency, the

borrower is ineligible for a deferment on the loan. Thus, unless there

was a mistake by the lender and the loan was not properly in default at

the time the claim was paid, the guaranty agency would not consider the

borrower's request for a deferment under the conditions outlined by the

commenter.

Changes: None.

Comment: One commenter believed that it was illogical to use old

income data from a borrower's most recently filed Federal income tax

return to determine if the borrower would qualify for a current or

future economic hardship deferment.

Discussion: Section 435(o)(1)(B) of the HEA refers to the

borrower's ``adjusted gross income'' as an income measurement to be

used to determine if a borrower would have an economic hardship in

repaying a loan. The term ``adjusted gross income'' is generally used

to refer to the amount reported on a Federal income tax return. In

light of the statutory use of this term, we believe that it is

appropriate to refer to the borrower's most recent Federal income tax

return as the source for this amount.

Changes: None.

Comment: One commenter thought it was confusing to have a

stipulation in Sec. 682.210(h)(2)(i) that an initial unemployment

period may not be granted more than 6 months prospectively. The

commenter believed that by specifying this requirement here, it was

unclear why a similar specific restriction was not mentioned for

subsequent periods of unemployment deferment.

Discussion: We agree that the clarity of the regulatory language

concerning an initial period of unemployment deferment could be

improved. For subsequent periods of unemployment, there already exists

a 6-month prospective limit on the granting of an unemployment

deferment in Sec. 682.210(h)(4).

Changes: We have revised Sec. 682.210(h)(2)(i) to clarify the

length of time that an initial period of unemployment deferment can be

granted.

Sections 682.402 and 685.214--False Certification Discharge

Comment: One commenter advocated a regulatory change in light of

the ruling of the U.S. Court of Appeals for the District of Columbia,

in Jordan v. Riley 194 F.3d 169 (D.C. Cir. 1999). In that ruling, the

court held that the employment attempt provisions in the false

certification discharge regulations of the FFEL and Direct Loan

programs were inconsistent with the HEA. Consequently, the commenter

believed that the regulations should be revised to require guaranty

agencies or the Department to review all applications for false

certification discharge that had been denied based on the borrower's

employment history. The commenter stated that such borrowers should not

be required to resubmit applications.

Discussion: The issue raised by the commenter does not relate to

these regulations, but is more appropriately addressed in other ways.

Accordingly, the regulations will not be revised, but we will work with

the Federal student loan community to determine how to make information

on this case generally available to the public.

Changes: None.

Comment: Several commenters noted that the ability-to-benefit

regulations in 34 CFR 668.32 were revised October 22, 1999, and became

effective July 1, 2000. The commenters noted that those regulations

should have been incorporated into the changes proposed for

Sec. 682.402(e)(13)(ii) in the July 27, 2000 NPRM.

Discussion: We agree.

Changes: The regulations have been revised accordingly.

FFEL Changes

Section 682.410--Fiscal, Administrative, and Enforcement Requirements

Comment: One commenter recommended that the notice a guaranty

agency is required to send to the borrower within 45 days after paying

a lender's default claim should advise the borrower that he or she can

contact the Department's Student Loan Ombudsman Office. The commenter

believed that this option should be emphasized instead of suggesting

that the borrower may wish to contact a lawyer. In the commenter's

opinion, most borrowers who contact lawyers regarding disputed student

loan repayment obligations incur unnecessary legal costs. Another

commenter argued that it would be inconsistent to require guaranty

agencies to advise borrowers that they may wish to contact a lawyer and

not have the same type of requirement apply to the Federal Perkins Loan

Program and the Direct Loan Program. The commenter believed that this

requirement would cause an increase in the number of frivolous lawsuits

and be detrimental to the interests of all parties, including borrowers

who contacted lawyers. The commenter recommended a deletion of this

requirement.

Discussion: Proposed Sec. 682.410(b)(6)(v) specifically requires

that the guaranty agency's notice to the borrower 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.'' This language was developed during negotiated

rulemaking by a group that included representatives of guaranty

agencies, collection contractors, and borrower and student

representatives. The Department accepted the language because it

[[Page 65618]]

encouraged borrowers to get help in understanding their legal rights.

We do not share the commenters' concerns that the addition of this

language will encourage unnecessary litigation. The proposed rule

specifically encourages borrowers to contact ``counselors or lawyers''

to get assistance. In some cases, a borrower may be helped by a debt

management or other counselor. In other cases, legal advice may be

needed. In any case, we believe that encouraging borrowers to get

assistance in understanding their legal rights and obligations may

contribute to resolving disputes between guaranty agencies and

borrowers.

We do not agree with the commenter's suggestion that we should add

a specific reference to the availability of the Department's Student

Loan Ombudsman Office in this notice. Current regulations require a

lender to notify the borrower of the availability of the Student Loan

Ombudsman's Office as part of the lender's collection activity on a

delinquent loan. In addition, under 34 CFR 682.410(b)(5)(vii), a

guaranty agency is required to provide information on the availability

of the Department's Student Loan Ombudsman Office if the borrower

appeals an adverse decision resulting from the agency's administrative

review of the borrower's loan obligation. We believe that these notices

provide borrowers with sufficient notice of the opportunity to contact

the Ombudsman's office. We do not believe that adding a reference to

the Ombudsman's Office in the notice sent by the guaranty agency to the

borrower under Sec. 682.410(b)(6)(v) would improve this process. In

fact, at this stage of the process it is most important for the

borrower to be in contact with the guaranty agency directly. While the

Ombudsman's Office may facilitate that communication in some cases, we

believe it is better to encourage borrowers and their representatives

to be directly in contact with the guaranty agency rather than to

contact the Ombudsman's office.

In regard to the commenter's suggestion that the statement

regarding the borrower's legal rights also be added to notices in the

Direct Loan and Perkins programs, we note that the notices sent to

borrowers in those programs are not the subject of these regulations.

However, in collecting Direct loans that are in default, we generally

follow the same or similar collection activities required of guaranty

agencies under Sec. 682.410(b). We will consider the commenter's

suggestion when we revise the Direct Loan collection notices and when

new regulations governing the Perkins Loan Program are developed.

Changes: None.

Comment: One commenter believed that the regulations should require

a guaranty agency to advise borrowers of their legal rights, as known

by the agency, and to disclose the number and types of court cases

involving borrowers, and the results of those cases. The commenter also

believed that the agency should be required to provide the names and

contact information for at least three attorneys located near the

borrower who have recently brought successful cases against the agency.

Discussion: We do not believe it is necessary or appropriate for

the guaranty agency to provide the borrower the information suggested

by the commenter. It would put the guaranty agency in the inappropriate

position of providing legal advice to a possibly adverse party.

Therefore, we have not accepted the commenter's suggestions.

Changes: None.

Comment: One commenter believed that the notice required to be sent

to the borrower in accordance with Sec. 682.410(b)(6)(vi) should be

sent within a specified number of days, rather than within ``a

reasonable time.''

Discussion: The regulations were revised to give guaranty agencies

greater flexibility in the collection of defaulted loans from

borrowers. We see no reason to undermine that goal by revising the

regulations to be more prescriptive in this area.

Changes: None.

Section 682.414--Records, Reports, and Inspection Requirements for

Guaranty Agency Programs

Comments: One commenter believed that the starting ``clock'' for

measuring the 3-year (or 5-year) record retention period should be tied

to the date loans are reported to us on the guaranty agency's quarterly

report, rather than from the dates provided in the regulations. The

commenter thought this would make it easier for a guaranty agency to

schedule its record destruction and facilitate the agency's retention

of records for longer time periods if needed.

Discussion: The effect of the commenter's recommendation would be

to expand the record retention period by requiring a guaranty agency to

retain loan records for the 3-year period following the date the loan

is repaid in full by the borrower, plus the additional period from the

actual paid-in-full date to the date the paid-in-full loan is reported

on the guaranty agency's next quarterly report. By setting minimum

retention periods, the regulations already permit a guaranty agency to

establish its record retention procedures consistent with its

administrative needs even if that means the records are retained longer

than the minimum period.

Changes: None.

Comment: One commenter recommended that the reduction in a guaranty

agency's record retention period from 5 years to 3 years should apply

to loans paid in full by any means, not just to loans repaid in full by

the borrower.

Discussion: A loan that is paid in full by the borrower generally

reflects the borrower's acknowledgment of his or her repayment

obligation. The borrower also typically has his or her own repayment

records. In contrast, in cases where parties other than the borrower

are involved in the repayment of loans (for example, a closed school

discharge claim), borrowers may have no direct involvement in or

knowledge of the actual payment mechanisms, and thus have no personal

repayment records. To protect borrower and taxpayer interests and

preserve program integrity, we believe the 5-year retention period

should be preserved in these types of cases.

Changes: None.

(The following discussion relates to regulations included in the

August 10, 2000 NPRM.)

Section 682.604(b)--Releasing Loan Proceeds

Comments: The commenters supported the proposal eliminating the

requirement that a school must determine a student's eligibility after

it receives loan proceeds from a lender. Under the proposed

regulations, a school may release loan proceeds to a student after it

determines that the student continuously has maintained eligibility

under the provisions in Sec. 682.201. However, several of the

commenters argued that the proposed language could be misinterpreted to

require that a school continuously verify the eligibility of the

student under those provisions and suggested that the language be

revised.

Discussion: We agree. For the purpose of determining whether a

school may release FFEL loan proceeds to a student, we wish to make

clear that the school does not have to continuously verify the

eligibility of the student. Rather, the school determines whether the

student has maintained continuous eligibility in accordance with the

provisions of Sec. 682.201 before it releases loan proceeds.

[[Page 65619]]

Changes: Section 682.604(b)(2)(i) is revised accordingly.

Paperwork Reduction Act of 1995

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

to a collection of information unless it displays a valid OMB control

number. Following OMB approval, we will display the valid OMB control

numbers assigned to the collections of information in these final

regulations at the end of the affected sections of the regulations.

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 to

be necessary for administering these programs effectively and

efficiently.

In assessing the potential costs and benefits--both quantitative

and qualitative--of these final regulations, we have determined that

the benefits of the regulations 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.

Summary of potential costs and benefits: We summarized the

potential costs and benefits of these final regulations in the preamble

to the July 27, 2000 NPRM on page 46319, and in the preamble to the

August, 10, 2000 NPRM on page 49147.

Assessment of Educational Impact

In the NPRMs, we requested comments on whether the proposed

regulations would require transmission of information that any other

agency or authority of the United States gathers or makes available.

Based on the response to the NPRMs and our own review, we have

determined that these final regulations do not require transmission of

information that any other agency or authority of the United States

gathers or makes available.

Electronic Access to This Document

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Note: The official version of this document is the document

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(Catalog of Federal Domestic Assistance Number 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 discussed in the preamble, the Secretary amends

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 682.201 is amended by revising paragraph (b)(1)(vii)(F)

to read as follows:

 

Sec. 682.201 Eligible borrowers.

* * * * *

(b) * * *

(1) * * *

(vii) * * *

(F) The lender must retain a record of its basis for determining

that extenuating circumstances existed. This record may include, but is

not limited to, an updated credit report, a statement from the creditor

that the borrower has made satisfactory arrangements to repay the debt,

or a satisfactory statement from the borrower explaining any

delinquencies with outstanding balances of less than $500.

* * * * *

3. Section 682.207 is amended by:

A. Revising paragraph (b)(1)(i)(B).

B. Revising paragraph (b)(1)(vi).

C. Revising paragraph (c)(3).

D. Removing ``(1)'' after the paragraph designation ``(f)'';

removing paragraph (f)(2); and redesignating paragraphs (f)(1)(i),

(f)(1)(ii), and (f)(1)(iii) as paragraphs (f)(1), (f)(2), and (f)(3),

respectively.

The amendments read as follows:

 

Sec. 682.207 Due diligence in disbursing a loan.

* * * * *

(b)(1) * * *

(i) * * *

(B) Must disburse a Stafford or PLUS loan in accordance with the

disbursement schedule provided by the school or any request made by the

school modifying that schedule.

* * * * *

(vi) Except as provided in paragraph (f) of this section, may not

disburse a second or subsequent disbursement of a Federal Stafford loan

to a student who has ceased to be enrolled; and

* * * * *

(c) * * *

(3) Disbursement must be made on a payment period basis in

accordance with the disbursement schedule provided by the school or any

request made by the school modifying that schedule.

* * * * *

4. 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. Removing the words ``in accordance with paragraph (s)(6)(vi) of

this section'' from paragraph (s)(6)(vii).

E. Revising paragraphs (s)(6)(iii), (iv), (v), (viii), (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

[[Page 65620]]

the preceding 6 months, except that a borrower requesting an initial

period of unemployment deferment is not required to describe his or her

search for full-time employment at the time the deferment is granted.

The initial period of unemployment deferment can be granted for a

period of unemployment beginning up to 6 months before the date the

holder receives the borrower's request and documentation for the

deferment, and can be granted for up to 6 months after that date. For a

continuation of an unemployment deferment following the initial period,

the borrower's written certification must include information showing

that the borrower made at least six diligent attempts to secure

employment to support the prior 6-month 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.

* * * * *

(viii) For an initial period of deferment granted under paragraphs

(s)(6)(iii) through (v) of this section, the lender must require the

borrower to submit evidence showing the amount of the borrower's

monthly income.

(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--

(A) Evidence showing the amount of the borrower's 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.

* * * * *

5. Section 682.402 is amended by:

A. Revising paragraph (e)(3) introductory text.

B. In paragraph (e)(3)(ii) introductory text, removing the words

``the school's''.

C. 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.

D. Removing paragraph (e)(3)(ii)(C).

E. Revising paragraph (e)(13)(ii)(A).

F. Revising paragraph (e)(13)(ii)(B) introductory text.

G. In paragraph (e)(13)(ii)(B)(2), removing the word ``or'' that

appears after the semi-colon.

H. In paragraph (e)(13)(ii)(C), removing the period and adding in

its place, ``; or''.

I. Adding a new paragraph (e)(13)(ii)(D).

J. Adding a new paragraph (e)(13)(ii)(E).

K. Adding a new paragraph (e)(13)(iv).

L. 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) * * *

(3) Borrower qualification for discharge. Except as provided in

paragraph (e)(14) of this section, to qualify for a discharge of a loan

under paragraph (e) of this section, the borrower must submit to the

holder of the loan a written request and a sworn statement. The

statement need not be notarized, but must be made by the borrower under

penalty of perjury, and, in the statement, the borrower must--

* * * * *

(13) * * *

(ii) * * *

(A) For periods of enrollment beginning prior to July 1, 1987, was

determined 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

through June 30, 2000--

(1) 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

(2) Enrolled in an eligible institution that participates in a

State process approved by the Secretary under subpart J of 34 CFR part

668.

(E) For periods of enrollment beginning on or after July 1, 2000--

(1) Met either of the conditions described in paragraph

(e)(13)(ii)(D) of this section; or

(2) Was home schooled and met the requirements of 34 CFR

668.32(e)(4).

* * * * *

(iv) Notwithstanding paragraphs (e)(13)(i) and (ii) of this

section, a student has the ability to benefit from the training offered

by the school if the student received a high school diploma or its

recognized equivalent prior to enrollment at the school.

(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.

* * * * *

6. Section 682.406 is amended by revising paragraph (a)(11) to read

as follows:

 

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

for reinsurance coverage.

(a) * * *

[[Page 65621]]

(11) The agency exercised due diligence in collection of the loan

in accordance with Sec. 682.410(b)(6).

* * * * *

7. 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 or 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.

* * * * *

8. 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 these minimum periods.

* * * * *

9. Section 682.604 is amended by:

A. Revising paragraph (b)(2)(i).

B. Revising paragraph (c)(6).

C. Revising paragraph (c)(7).

The amendments read as follows:

 

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

borrowers.

* * * * *

(b) * * *

(2)(i) Except in the case of a late disbursement under paragraph

(e) of this section or as provided in paragraph (b)(2)(iii) or (iv) of

this section, a school may release the proceeds of any disbursement of

a loan only to a student whom the school determines has maintained

continuous eligibility in accordance with the provisions of

Sec. 682.201 for the loan period certified by the school on the

student's loan application.

* * * * *

(c) * * *

(6) Unless the provision of Sec. 682.207(d) or the provisions of

paragraph (c)(7) of this section apply--

(i) If a loan period is more than one payment period, the school

must deliver loan proceeds at least once in each payment period; and

(ii) If a loan period is one payment period, the school must make

at least two deliveries of loan proceeds during that payment period.

The school may not make the second delivery until the calendar midpoint

between the first and last scheduled days of class of the loan period.

(7)(i) If a school measures academic progress in an educational

program in

[[Page 65622]]

credit hours and either does not use terms or does not use terms that

are substantially equal in length for a loan period, the school may not

deliver a second disbursement until the later of--

(A) The calendar midpoint between the first and last scheduled days

of class of the loan period; or

(B) The date, as determined by the school, that the student has

completed half of the academic coursework in the loan period.

(ii) For purposes of paragraph (c)(7) of this section, terms in a

loan period are substantially equal in length if no term in the loan

period is more than two weeks longer than any other term in that loan

period.

* * * * *

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

10. The authority citation for part 685 continues to read as

follows:

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

 

11. 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.

* * * * *

12. Section 685.301 is amended by revising paragraph (b)(5) to read

as follows:

 

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

* * * * *

(b) * * *

(5)(i) If a school measures academic progress in an educational

program in credit hours and either does not use terms or does not use

terms that are substantially equal in length for a loan period, the

school may not make a second disbursement until the later of--

(A) The calendar midpoint between the first and last scheduled days

of class of the loan period; or

(B) The date, as determined by the school, that the student has

completed half of the academic coursework in the loan period.

(ii) For purposes of this paragraph, terms in a loan period are

substantially equal in length if no term in the loan period is more

than two weeks longer than any other term in that loan period.

* * * * *

[FR Doc. 00-27738 Filed 10-31-00; 8:45 am]

BILLING CODE 4000-01-U

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Last Modified: 03/12/2001