Final; Federal Student Aid Programs

Page Numbers: 67047-67083Final; Federal Student Aid Programs [Federal Register: November 1, 2002 (Volume 67, Number 212)]
[Rules and Regulations]
[Page 67047-67083]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01no02-26]
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Part III

Department of Education

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34 CFR Parts 600, 668, et al.Federal Student Aid Programs; Final Rule

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DEPARTMENT OF EDUCATION

34 CFR Parts 600, 668, 673, 674, 675, 682, 685, 690, and 694

RIN 1845-AA23

Federal Student Aid Programs

AGENCY: Office of Postsecondary Education, Department of Education.

ACTION: Final regulations.

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SUMMARY: The Secretary amends the Institutional Eligibility Under the
Higher Education Act of 1965, as Amended; Student Assistance General
Provisions; General Provisions for the Federal Perkins Loan Program,
Federal Work-Study Program, and Federal Supplemental Educational
Opportunity Grant Program; Federal Perkins Loan (Perkins Loan) Program;
Federal Work-Study (FWS) Programs; Federal Family Education Loan (FFEL)
Program; William D. Ford Federal Direct Loan (Direct Loan) Program;
Federal Pell Grant Program; and Gaining Early Awareness and Readiness
for Undergraduate Programs (GEAR UP) regulations. The Secretary is
amending these regulations to reduce administrative burden for program
participants, and to provide them with greater flexibility to serve
students and borrowers.DATES: Effective Date: Except for the amendment to section 694.10,
these regulations are effective July 1, 2003. The amendment to section
694.10 becomes effective December 2, 2002.
Implementation Date: The Secretary has determined, in accordance
with section 482(c)(2)(A) of the Higher Education Act of 1965, as
amended (HEA) (20 U.S.C. 1089(c)(2)(A)), that institutions, lenders,
guaranty agencies, and state grant agencies that administer Title IV,
HEA programs may, at their discretion, choose to implement all of the
provisions of these final rules on or after November 1, 2002. For
further information, see ``Implementation Date of These Regulations''
under the SUPPLEMENTARY INFORMATION section of this preamble.

FOR FURTHER INFORMATION CONTACT: For provisions related to the Title IV
loan programs (Perkins Loan Program, FFEL Program, and Direct Loan
Program): Ms. Gail McLarnon, U.S. Department of Education, 1990 K
Street, NW, (8th Floor) Washington, DC 20006, Telephone: (202) 219-7048
or via the Internet: Gail.McLarnon@ed.gov.
For other provisions: Ms. Wendy Macias, U.S. Department of
Education, 1990 K Street, NW, (8th Floor), Washington, DC, 20006,
Telephone: (202) 502-7526 or via the Internet: Wendy.Macias@ed.gov.
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: On August 6, 2002, and August 8, 2002, the
Secretary published in the Federal Register two separate notices of
proposed rulemaking (NPRMs) (67 FR 51036 and 67 FR 51718, respectively)
for the Federal student assistance programs authorized by Title IV of
the HEA. This document contains the final regulations for the rules
that were proposed in both of these NPRMs.
The August 6, 2002 NPRM included proposed rules for the Student
Assistance General Provisions, Perkins Loan Program, FFEL Program, and
Direct Loan Program regulations.
In the preamble to the August 6, 2002 NPRM, the Secretary discussed
on pages 51037 through 51046 the major changes proposed to improve the
Federal student assistance programs. These included the following:
[sbull] Amending Sec. 668.35 to state the conditions under which a
borrower who is subject to a judgment obtained on a Title IV loan may
regain eligibility for additional Title IV student financial
assistance. [page 51037]
[sbull] Amending Sec. Sec. 674.39, 682.405, and 685.211 to exclude
from rehabilitation defaulted Perkins Loan, FFEL, and Direct Loan
program loans on which a judgment has been obtained. [page 51037]
[sbull] Amending Sec. Sec. 674.19, 682.402, and 682.414 to clarify
the record retention requirements for promissory notes under the
Perkins Loan and FFEL programs. [page 51038]
[sbull] Amending Sec. Sec. 674.34, 682.210, and, by reference,
685.204, to modify the way loan holders in the Perkins Loan, FFEL, and
Direct Loan programs calculate Federal postsecondary educational loan
debt for purposes of determining a borrower's eligibility for an
economic hardship deferment. [page 51039]
[sbull] Amending Sec. Sec. 674.42, 682.604, and 685.304 to clarify
that entities other than the institution may provide initial and exit
loan counseling on the institution's behalf and to provide consistency
in the information that must be disclosed to borrowers. [page 51039]
[sbull] Amending Sec. Sec. 682.204 and 685.203 to clarify loan
limits for separate stand-alone programs in the FFEL and Direct Loan
programs. [page 51039]
[sbull] Amending Sec. 682.210 and, by reference, Sec. 685.204 to
make it easier for borrowers in the FFEL and Direct Loan programs to
certify eligibility for an unemployment deferment. [page 51040]
[sbull] Amending Sec. Sec. 682.402, 685.212, and 685.220 to expand
the instances where FFEL and Direct Loan program borrowers can have a
portion of a consolidation loan discharged. [page 51040]
[sbull] Amending Sec. Sec. 674.2 and 674.16 to provide for the use
of a Master Promissory Note (MPN) in the Perkins Loan Program. [page
51041]
[sbull] Amending Sec. Sec. 674.9 and 674.47 to modify the low-
balance write-off options for institutions that participate in the
Perkins Loan Program. [page 51042]
[sbull] Amending Sec. 674.17 to clarify that when an institution
participating in the Perkins Loan Program closes, or otherwise leaves
the program, that institution must assign its outstanding loans to the
Secretary and liquidate its Perkins Loan fund according to the
Secretary's instructions. [page 51042]
[sbull] Amending Sec. Sec. 674.33 and 674.42 to clarify the
conditions under which an institution must coordinate minimum repayment
options when a Perkins Loan borrower has received loans from more than
one institution. [page 51042]
[sbull] Amending Sec. 674.42 to provide flexibility to
institutions that participate in the Perkins Loan Program in providing
copies of promissory notes to borrowers. [page 51042]
[sbull] Amending Sec. 674.43 to provide institutions increased
flexibility in assessing late fees in the Perkins Loan Program. [page
51043]
[sbull] Amending Sec. 674.45 to clarify when an institution that
participates in the Perkins Loan Program must report a defaulted
account to a national credit bureau. [page 51043]
[sbull] Amending Sec. 674.46 to simplify the requirements for an
institution that participates in the Perkins Loan Program to determine
if it should initiate litigation against a defaulted borrower. [page
51043]
[sbull] Amending Sec. 674.50 to provide consistency within the
regulations for the assignment to the Secretary of Perkins loans. [page
51043]
[sbull] Amending Sec. 682.200 to revise the definition of lender
to clarify the treatment of loans held by trustee lenders. [page 51044]
[sbull] Amending Sec. 682.209 to allow an FFEL lender to establish
a borrower's first payment due date up to 60 days after the borrower
enters repayment, to provide increased flexibility to FFEL[[Page 67049]]
lenders when they receive updates to a borrower's enrollment status
from an institution, and to provide a simplified method for a borrower
in the FFEL Program to ask a lender to increase the length of the
repayment period. [page 51044]
[sbull] Amending Sec. 682.211 to simplify the process by which a
lender and a borrower in the FFEL Program may agree to a discretionary
forbearance. [page 51044]
[sbull] Amending Sec. 682.402 to clarify that a State guaranty
agency is not required to file a proof of claim in a bankruptcy filing
and may instruct lenders not to file a proof of claim if filing a proof
of claim would waive the State's sovereign immunity. [page 51045]
[sbull] Amending Sec. 682.402 to provide that a guaranty agency
may take up to 90 days to review a total and permanent disability
discharge claim under the FFEL Program. [page 51045]
[sbull] Amending Sec. Sec. 668.183 and 668.193 to revise, for
purposes of calculating an institution's cohort default rate, the
definition of a defaulted loan. [page 51045]
[sbull] Amending Sec. 685.102 to modify the provisions governing
the expiration of a Master Promissory Note in the Direct Loan Program.
[page 51046]
The August 8, 2002 NPRM included proposed rules for the
Institutional Eligibility Under the Higher Education Act of 1965, as
Amended; Student Assistance General Provisions; General Provisions for
the Federal Perkins Loan Program, Federal Work-Study Program, and
Federal Supplemental Educational Opportunity Grant Program; FWS
Programs; FFEL Program; Direct Loan Program; Federal Pell Grant
Program; and GEAR UP regulations.
In the preamble to the August 8, 2002 NPRM, the Secretary discussed
on pages 51720 through 51733 the major changes proposed to improve the
Federal student assistance programs. These included the following:
[sbull] Amending Sec. 600.8 to reflect that the statutory
provision that a branch campus must be in existence for two years
before seeking to be designated as a main campus applies only to
proprietary institutions of higher education and postsecondary
vocational institutions. [page 51720]
[sbull] Amending Sec. Sec. 600.21, 600.31, and 668.174 to provide
clarification and additional flexibility to the change of ownership
provisions by expanding the definition of family members and broadening
the transactions that are not considered to be a change of ownership.
[page 51720]
[sbull] Amending Sec. Sec. 668.2, 668.3, and 668.8 to remove the
so-called ``12-hour'' rule that defined a week of instructional time
for credit hour nonterm and nonstandard term educational programs.
[page 51720]
[sbull] Amending Sec. Sec. 668.4, 682.603, 685.301, and 690.75 to
revise the definition of payment period for credit hour nonterm
educational programs and to clarify the definition of a payment period
when a student withdraws and then returns to school. [page 51721]
[sbull] Amending Sec. 668.14 to clarify the statutory program
participation agreement provision concerning incentive payment
restrictions. [page 51722]
[sbull] Amending Sec. 668.22 to clarify when an institution is
considered to be one that is required to take attendance for purposes
of determining a student's last date of attendance. [page 51725]
[sbull] Amending Sec. 668.22 to simplify the definition of a leave
of absence and to allow for multiple leaves of absence not to exceed
180 days in any 12-month period. [page 51726]
[sbull] Amending Sec. Sec. 668.35, 673.5, and 690.79 to provide
consistent requirements for handling Title IV overpayments, including a
provision under which, in most cases, a student who owes an overpayment
of a Title IV grant or loan of less than $25 does not lose eligibility
for additional Title IV aid. [page 51726]
[sbull] Amending Sec. Sec. 668.32 and 668.151 to eliminate the
provision that limits the duration of a passing score on an approved
ability-to-benefit (ATB) test to 12 months before a student initially
receives Title IV aid. [page 51728]
[sbull] Amending Sec. 668.164 to clarify when an institution is
required to make a late disbursement and to provide increased
flexibility for an institution to make a late disbursement to a
student. [page 51728]
[sbull] Amending Sec. 668.165 to eliminate the requirement that an
institution must confirm the receipt of a notice sent electronically to
a student or parent. [page 51730]
[sbull] Amending Sec. Sec. 668.171 and 668.173 to establish clear
requirements for returning unearned Title IV program funds and the
conditions under which an institution must submit a letter of credit if
it does not return those funds in a timely manner. [page 51730]
[sbull] Amending Sec. Sec. 675.2 and 675.21 to provide greater
flexibility for the employment of FWS students by proprietary
institutions. [page 51731]
[sbull] Amending Sec. 694.10 to remove language in the GEAR UP
regulations related to the packaging of GEAR UP scholarships by
institutions. [page 51732]
We strongly encourage the reader to refer to the preambles of both
the August 6, 2002, and August 8, 2002, NPRMs for a full discussion of
the topics proposed in those NPRMs and finalized in this document.
These final regulations contain a few changes from the NPRMs. We
fully explain these changes in the Analysis of Comments and Changes
elsewhere in this preamble.Implementation Date of These Regulations Section
482(c) of the HEA requires that regulations affecting
programs under Title IV of the HEA be published in final form by
November 1 prior to the start of the award year (July 1) to which they
apply. However, that section also permits the Secretary to designate
any regulation as one that an entity subject to the regulation may
choose to implement earlier and the conditions under which the entity
may implement the provisions early. Note: Section 482 does not apply to the
GEAR UP program (34 CFR
part 694). In response to our request in the NPRMs for suggestions on which
provisions the Secretary should designate for early implementation,
most of the commenters supported making all of the provisions available
for early implementation at the discretion of the regulated entity.
Therefore, consistent with the intent of this regulatory effort to
reduce burden and to provide greater flexibility, the Secretary is
using the authority granted him under section 482(c) to designate all
of the regulations subject to that section included in this document
for early implementation at the discretion of each institution, lender,
guaranty agency, or state agency, as appropriate.
In accordance with the authority provided by section 482(c) of the
HEA, the Secretary has determined that for some provisions, there are
conditions that must be met in order for an institution, lender,
guaranty agency, or state agency, as appropriate, to implement those
provisions early. The conditions are--
Provision: Sections 674.34 and 682.210 that modify the formula used
by Title IV loan holders when calculating a borrower's eligibility for
an economic hardship deferment.
Condition: Until the Secretary has announced the approval of
revised deferment forms, loan holders must provide alternative methods
by which borrowers provide them with the loan detail information needed
to perform the calculation using the modified formula.[[Page 67050]] Provision:
Section 682.210 that modifies the information that a
borrower must provide to a loan holder when requesting an unemployment
deferment.
Condition: Until the Secretary has announced the approval of a
revised deferment form, loan holders must provide alternative methods
by which borrowers certify their eligibility for an unemployment
deferment under the revised rules.
Provision: Sections 674.2 and 674.16 that provide for a Master
Promissory Note (MPN) in the Federal Perkins Loan Program.
Condition: Implementation cannot occur until the Secretary has
announced the approval of the Perkins MPN.
Provision: Section 668.22 that clarifies when an institution is
considered to be one that is required to take attendance.
Condition: An institution must apply these provisions to all
students who withdraw on or after the institution's implementation of
these regulations.
Provision: Section 668.22 that provides increased flexibility in
the granting of leaves of absence under the Return of Title IV Funds
regulations.
Condition: An institution must apply these provisions to all
students who are granted a leave of absence on or after the
institution's implementation of these regulations.Analysis of Comments and Changes
The regulations in this document were developed through the use of
negotiated rulemaking. Section 492 of the HEA requires that, before
publishing any proposed regulations to implement programs under Title
IV of the HEA, the Secretary obtain public involvement in the
development of the proposed regulations. After obtaining advice and
recommendations, the Secretary must conduct a negotiated rulemaking
process to develop the proposed regulations. All proposed regulations
must conform to agreements resulting from the negotiated rulemaking
process unless the Secretary reopens that process or explains any
departure from the agreements to the negotiated rulemaking
participants.
These regulations were published in proposed form on August 6,
2002, and on August 8, 2002, following the completion of the negotiated
rulemaking process. The Secretary invited comments on the proposed
regulations by October 7 for both NPRMs. We received 32 comments on the
August 6, 2002 NPRM and 55 comments on the August 8, 2002 NPRM. In
addition to their general support of our efforts to simplify the
regulations and to reduce regulatory burden on students, borrowers,
institutions, lenders, and guaranty agencies, the overwhelming majority
of the commenters on both NPRMs also expressed support for the
individual proposals included in the NPRMs.
We also received several comments on changes in the negotiated
rulemaking process. Most of the commenters expressed appreciation to
the Department of Education (Department) for the new scope and
structure of the negotiated rulemaking process. Some commenters,
however, felt that the Department should have included representatives
of certain other organizations in the negotiations, but did not
question the constituencies identified. Other commenters expressed the
view that the Department should have excluded--and should exclude from
future negotiations--individuals or groups that failed to negotiate in
good faith and blocked consensus. We note that all organizations had an
opportunity to submit institutional nominees and to form coalitions
within the constituency groups identified and all nominations were
carefully considered to achieve a balanced product. In creating the
negotiating committees, the Department encouraged nominations of
individuals from coalitions of individuals and organizations
representing the constituencies. Moreover, the Department encouraged
nominations of individuals who are actively involved in administering
the Federal student financial assistance programs or whose interests
are significantly affected by the regulations. We, and most of the
commenters, believe that the Department was successful in assuring that
individuals directly involved in administering the Federal student
financial assistance programs appropriately represented the
constituencies. In structuring future negotiations, however, the
Department will take the comments received into consideration.
An analysis of the comments and of the changes in the regulations
since publication of the NPRMs follows. We group major issues according
to subject, with appropriate sections of the regulations referenced in
parentheses. Generally, we do not address technical and other minor
changes--and suggested changes the law does not authorize the Secretary
to make.Change of Ownership (Sections 600.21, 600.31, and 668.174) Comments:
One commenter requested that the preamble discussion
clarify that a transfer by an owner to a family member does not require
the family member acquiring the institution to have previously worked
there.
Discussion: The commenter is correct that the exception does not
require a family member of the owner to have worked at the institution.
Changes: None.Definition of Academic Year--``12-Hour Rule'' (Sections 668.2, 668.3,
and 668.8) Comments: Most of the comments we received supported the proposed
change that would eliminate the so-called ``12-hour'' rule for
determining a week of instructional time for credit hour nonterm and
nonstandard term educational programs. Most commenters were very
supportive of the proposal to use a single standard for all educational
programs by extending the current ``one-day'' rule used for term-based
and clock hour programs to credit hour nonterm and nonstandard term
programs. One commenter specifically noted that the 12-hour rule acted
as an impediment to increasing access to higher education. Others noted
that the 12-hour rule was at odds with the educational advantages that
flexible program calendars and formats, including web-based programs,
provide to working adults. Two commenters noted that the Web-based
Education Commission, chartered by the Higher Education Amendments of
1998, called for the elimination of the 12-hour rule. Another commenter
noted that the House of Representatives' Committee on Education and the
Workforce called the 12-hour rule ``outdated and obsolete.'' Finally, a
commenter, in support of the proposed change, agreed that the 12-hour
rule sometimes results in disparities in the amount of Title IV, HEA
program funding that students receive for the same amount of academic
credit.
Discussion: We appreciate the commenters' support.
Changes: None.
Comments: A number of commenters expressed concern with the
proposal or requested that we not proceed with this change to the
regulations. None of these commenters suggested alternatives or
modifications to the proposal that was included in the NPRM.
Several commenters suggested that the issue should await the
reauthorization of the HEA, so that Congress could consider it in
conjunction with other issues related to distance and other
nontraditional modes of instruction. One commenter noted that an
independent study of the use of the credit hour in postsecondary
education was being undertaken and that the results of that study could
help inform Congress on this and related issues. One commenter
specifically[[Page 67051]]stated that Congress should address issues of cost
of attendance and
disbursement schedules for students enrolled in nontraditional
programs.
Discussion: We created the one-day rule and the 12-hour rule to
implement the statutory condition that an academic year consist of at
least 30 weeks of instructional time. We believe that the 12-hour rule
had many unintended consequences and believe that one single standard
is preferable for the reasons we stated in the preamble to the August
8, 2002 NPRM. Since the original establishment of the rule was a
regulatory action, we believe that it does not require any legislative
action. Therefore, we see no need to wait for Congress to deal with
this issue in the next reauthorization of the HEA. This change will
allow Title IV, HEA program eligibility to be determined on the same
basis regardless of how a student's academic program is structured.
Thus it provides for consistent and equitable treatment for individuals
seeking a postsecondary education. We note that nothing prevents
Congress from taking further action on this or any other issue.
Finally, we do not see the change to the one-day rule from the 12-hour
rule as having any effect on how Congress should address issues of cost
of attendance and disbursements in nontraditional programs.
Changes: None.
Comments: One commenter suggested that changing from the 12-hour
rule to the one-day rule would add a new category of eligible programs,
and therefore a new group of eligible students who would compete with
students in more traditional programs for scarce Title IV grant
funding.
Discussion: We disagree with the commenter. Programs that
previously were covered by the 12-hour rule were eligible to
participate in the Title IV, HEA programs. Therefore, we do not believe
that this change will result in an increased number of students
receiving Title IV assistance. Under the one-day rule, students
enrolled in those programs would be able to receive the same amount of
assistance that students in term-based programs currently do.
Changes: None.
Comments: A few commenters disagreed with the proposal to eliminate
the 12-hour rule, based upon their view that, while not perfect, the
requirement that a nonterm or nonstandard term academic program include
at least 12 hours of instruction per week provides some assurance that
the program provides sufficient educational content to make the
student's and taxpayer's investment worthwhile. One commenter
questioned whether educational quality can be measured by time,
particularly given new technological delivery systems. However, the
commenter felt that it would be inappropriate to eliminate the 12-hour
rule at this time because matters of educational quantity/quality need
further study. One commenter, representing several consumer law
advocacy organizations, opposed the elimination of the 12-hour rule,
suggesting that it currently provides a quantitative method to measure
the quality of an academic program. The commenter also stated that the
proposed change would encourage some institutions to reduce program
content without a commensurate reduction in tuition and other charges.
Discussion: We disagree with the commenter that the 12-hour rule
provided any assurance that institutions would provide a minimum
quantity of education to warrant support under the Title IV, HEA
programs. Hours of regularly scheduled instruction are not the
exclusive measure of the quantity of education provided in a
postsecondary educational program. For example, in certain educational
programs, research papers and projects may make up a considerable
portion of that program, and the work associated with carrying out
those papers and projects would not be considered as instructional
hours under the 12-hour rule or the one-day rule. We believe that the
one-day rule is adequate for programs offered in traditional terms and
have no evidence to suggest that it is inadequate for programs offered
in nonstandard terms and nonterms.
The 12-hour rule was established to measure educational quantity,
not educational quality. It was established to implement the statutory
requirement that an academic year for Title IV, HEA program purposes
had to contain at least 30 weeks of instructional time, which in turn
was enacted for the purpose of determining how much Title IV, HEA
program funds a student could receive. As we noted in the preamble to
the August 8, 2002 NPRM, we believe that there are adequate safeguards
in place to ensure program integrity, such as the changes to the
definition of a payment period made by this final rule, the clock-hour/
credit-hour conversion regulations, and program monitoring by
accrediting agencies. Finally, we are aware of no evidence that the
proposed change would encourage some institutions to reduce program
content.
Changes: None.
Comments: One commenter suggested that our statement in the
preamble to the August 8, 2002 NPRM that the clock-hour/credit-hour
conversion regulations provide adequate safeguards is questionable
since those requirements do not apply to programs that are two years or
longer in length and lead to a degree. The commenter stated the belief
that the existence of what was perceived to be ``low-content degree
programs'' offered by for-profit institutions demonstrates that the
clock-hour/credit-hour conversion is not as valuable as we had stated.
Discussion: We disagree with the commenter because, based upon our
experience with the clock/credit hour conversion controversy, the
problems that needed to be addressed were found in short-term
vocational programs, not in associate and higher degree programs.
Moreover, we have no evidence that any institutions have reduced
educational content in educational programs that lead to associate and
higher degrees.
Changes: None.
Comments: A commenter representing accrediting agencies asked for
clarification as to whether the change from the 12-hour rule to the
one-day rule will impose any additional responsibilities on those
agencies or on the process by which the Secretary recognizes
accrediting agencies.
Discussion: No additional regulatory requirements are being placed
on accrediting agencies as a result of this change.
Changes: None.
Comments: Two commenters requested specific clarification as to
what exactly constituted a day of instruction. One of those commenters
asked how much time during each day must actually be spent on
instruction. The other commenter asked specifically how one day would
be counted for a program offered on-line. That same commenter suggested
that we make it clear that the one-day rule did not have to be met on a
week-by-week basis, but could be met on average. That is, the requisite
number of days must be met over the course of the program.
Discussion: We do not believe it is appropriate for the Department
to limit institutional flexibility by establishing a rigid definition
of how many hours of instructional time must be included in order for a
day to be considered a day of instruction. We agree with the commenter
who suggested that the measure should be whether the institution can
demonstrate that the activities that make up a day of instruction are
reasonable in both content and time. We also will rely upon the
determination of the relevant accrediting agency in this regard.
We disagree with the commenter who suggested that the one-day rule
did not[[Page 67052]]require one day each week but could be met by the program having an
average of one day per week over the course of the program. The basis
for the one-day rule is the requirement contained in section 481 of the
HEA that states that an academic year must contain at least 30 weeks of
instructional time. The one-day rule simply defines a week of
instructional time as one that includes at least one day of instruction
or examinations. The regulations make it clear that a week is a
consecutive seven-day period. Therefore, a week in which there is not
at least one day of instruction or examination cannot be counted as one
of the 30 weeks of instructional time required by the statute. In order
for a program to meet the 30 weeks of instructional time requirement,
it must include at least 30 separate weeks in which at least one day of
instruction or examination occurs.
Changes: None.Payment Periods (Sections 668.4, 682.603, 685.301, and 690.75)
Comments: One commenter was uncertain whether the proposal to
require a payment period to be made up of both the requisite number
(usually half) of credit hours in an academic year or program, and the
requisite number (usually half) of weeks in the academic year or
program was to be applied to both credit-hour programs with terms and
credit-hour programs without terms.
Discussion: The proposal applies only to credit-hour programs
without terms.
Changes: None.
Comments: A number of commenters supported the Department's
proposal that students who withdraw from an institution during a
payment period and then return within 180 days to the same program
remain in the same payment period. But one commenter wondered what
would happen when the student returns, and thus the resumption of the
payment period, was in a different award year. The commenter suggested
that, if some of the funds for the payment period were to be paid from
a different (new) award year, they should be a percentage of the aid
that would have been scheduled for that payment period in the new award
year, equal to the percentage of the original payment period amount
that was not disbursed or returned from the initial period of
attendance.
Discussion: A student who was originally enrolled in a payment
period that began, and was scheduled to end, in one award year could
return after the end of that award year (June 30). However, the intent
of these regulations is that such a student is considered, upon his or
her return, to be in the same payment period. Therefore, any Title IV
program funds that will be disbursed to the student should be paid from
the original award year regardless of whether the resumption of the
payment period is in a new award year. Generally, the original payment
for the payment period would have come from the earlier award year and
any new disbursements would be from that same year. Of course, if the
original payment period had been a crossover payment period (one that
was originally scheduled to begin in one award year and end in the
following award year) and the institution had paid (or planned to pay)
the student from the second award year, then the resumption of the
payment period and any required disbursements would remain in the
second award year.
Finally, even if the student's absence and subsequent return causes
more than six months of the recalculated payment period to fall into
the second award year, we will still consider that the institution's
original decision to place the payment period in the first award year
remains valid based on the fact that, at the time of that original
choice, less than six months of the payment period was scheduled to
fall into the second award year.
Changes: None.
Comments: With regard to the student's withdrawal and subsequent
return (within 180 days) to the same program, one commenter asked
whether, if aid had not been disbursed during the original enrollment,
credits earned for the entire payment period, both those enrolled in
before the withdrawal and those enrolled in after the return, could be
included in determining payment eligibility.
Discussion: The regulation addressing the situation in which a
student withdraws from a program and then returns to that program
within 180 days applies only to clock-hour programs and credit-hour
programs without terms. For those programs, the regulations define a
payment period in a way that generally requires the clock-hours or
credit-hours in one payment period to be completed before the next
payment period begins. Further, students in those payment periods are
generally paid for one-half of the program or academic year, as
appropriate, at a time. Thus, regardless of whether the student had
already been paid for a certain number of clock- or credit-hours before
the student's withdrawal, upon the student's subsequent return to the
same program within 180 days, the institution would not be adding hours
to the payment period, but would simply be keeping the student in the
same payment period (consisting of the same number of clock- or credit-
hours) he or she was in before withdrawing. Then, upon completion of
the hours (and weeks for a credit-hour without terms program) in that
payment period, the student would advance to the next payment period.
Changes: None.
Comments: A number of commenters asked how a Return of Title IV
Funds calculation would be performed if a student withdrew from a
program during a payment period and returned to that program within 180
days, and then withdrew a second time during that same payment period.
Discussion: When a student withdraws (the first time) without
completing the payment period, a Return of Title IV Funds calculation
is performed. If the student returns to the program within 180 days of
his or her initial withdrawal, the student is put back into the same
payment period he or she withdrew from, and any Title IV funds that the
student or institution returned to the Title IV programs or to a lender
for that payment period as a result of the earlier withdrawal are
restored to the student. If the student then withdraws from the
institution again during that same payment period, a new Return of
Title IV Funds calculation, based on the second withdrawal date, would
be performed using the full payment period and the full amount of Title
IV aid for the payment period.
Changes: None.
Comments: One commenter raised general questions about the way
payment periods are determined for programs that measure progress in
credit hours but do not use terms. The commenter suggested that there
should not be any rigid rules for such programs, but that the
institution should have flexibility in determining the length and
timing of a student's payment period based upon the program length and
a student's enrollment pattern.
Discussion: The changes proposed in the August 8, 2002 NPRM and
finalized in this document do not address the entire concept of payment
periods, but instead only relate to two issues: (1) For nonterm credit
hour programs, requiring a payment period to include, in addition to
half the number of credits in the academic year, program, or remainder
of the program, also half the number of weeks in that period, and (2)
guidance on the treatment for a student who withdraws from a clock-hour
or credit-hour nonterm program, and then returns to school.
Therefore, since a more comprehensive review of payment[[Page 67053]]periods
was not included in either the negotiated rulemaking process
that led to the August 8, 2002 NPRM or in the proposal presented in the
NPRM, we do not believe that it would be appropriate to make additional
changes to the payment period regulations at this time.
Changes: None.
Comments: One commenter asked whether an institution should remove
costs for the period that the student was out of school in those cases
where the student withdrew from an institution and returned within 180
days, and was worried that if that were done the student might not
qualify for the original loan amount once he returned to the
institution.
Discussion: The cost of attendance would be the costs associated
with the original period before the student withdrew. Once the student
has withdrawn and then returned to the same program within a 180-day
period, the regulation states that the student remains in the same
payment period. The cost of attendance for such a student returning to
the same program within 180 days must reflect the original educational
costs associated with the payment period from which the student
withdrew.
Changes: None.
Comments: One commenter suggested that if a student withdraws but
returns to the institution during the period in which the institution
is required to return funds under the Return of Title IV Funds
calculation, the institution would not have to return any funds or
notify the lender of the enrollment change. In essence, the student
would be retroactively granted a leave of absence.
Discussion: If a student returns to the institution before the
Title IV funds are returned, the institution is not required to return
the funds. However, Sec. 668.22(j) requires an institution to return
unearned funds for which it is responsible as soon as possible, but no
later than 30 days after the date of the institution's determination
that the student withdrew. Therefore, an institution is expected to
begin the Return of Title IV Funds process immediately upon its
determination that a student has withdrawn.
Changes: None.
Comments: One commenter stated that it was his understanding that
students who withdraw and return after 180 days, or transfer to new
programs within any timeframe, have their payment periods restarted,
and that this meant that these students would not have to complete the
credits that they were already paid for before they could receive
additional student aid payments.
Discussion: The regulation addresses the determination of payment
periods for students who have withdrawn and either returned to the same
program after 180 days, or returned to another program within any
timeframe. The regulation specifies that students who have withdrawn
and either returned to the same program after 180 days, or returned to
another program within any timeframe start a new payment period.
However, a student's eligibility for additional Title IV funds may be
subject to a variety of limitations associated with the aid the student
received during the most recent period of attendance. For example, in
the Federal Pell Grant Program, a student may never receive more than
the student's scheduled annual award. In the FFEL Program, there are
limitations imposed by annual loan limits, the existence of crossover
loan periods, and overlapping award years.
Changes: None.
Comments: A couple of commenters asked for further clarification of
the payment period provisions as they relate to the Return of Title IV
Funds provisions and various Title IV program provisions.
Discussion: We will provide additional clarification on the
applicability of these changes through appropriate Department
publications after publication of these final regulations.
Changes: None.Program Participation Agreement (Section 668.14) Comments: The
vast majority of commenters supported the proposal
that came out of the negotiated rulemaking sessions to establish safe
harbors that institutions could use to avoid the statutory prohibition
against making incentive payments to recruiters and other covered
personnel.
Discussion: None.
Changes: None.
Comments: Some commenters opposed any change to the current
regulations dealing with incentive compensation. They believed that the
proposed regulations were not authorized under section 487(a)(20) of
the HEA, were ambiguous, and were burdensome to institutions.
Discussion: We disagree with the commenters. With regard to the
first point, we believe that the regulations lawfully implement section
487(a)(20) of the HEA. As indicated in the preamble to the proposed
regulations, the Congress recognized that if given a strictly literal
interpretation, section 487(a)(20) of the HEA could be interpreted to
cover almost every compensation arrangement involving a student's
ultimate admission to a postsecondary institution. As a result, when
enacting section 487(a)(20) of the HEA in 1992, the conference report
resolving the different House and Senate versions of the Higher
Education Amendments of 1992 indicated that the statutory words
``directly'' and ``indirectly'' in section 487(a)(20) of the HEA did
not imply that institutions could not base salaries or salary increases
on merit. Thus, Congress recognized that the scope of section
487(a)(20) of the HEA had limits, even though that section precluded
incentive payments based directly or indirectly on success in securing
enrollments.
Consistent with this clarification of legislative intent, we based
the proposed safe harbors on a ``purposive reading'' of section
487(a)(20) of the HEA. This purposive reading is based upon our view
that Congress enacted this provision with the purpose of preventing an
institution from providing incentives to its staff to enroll
unqualified students.
In viewing the scope of section 487(a)(20) of the HEA through this
purposive reading, we determined that various payment arrangements
constituted legitimate business practices that did not support the
enrollment of unqualified students and therefore did not fall within
the scope of section 487(a)(20) of the HEA. Making these determinations
is within the scope of the Secretary's authority of interpreting the
statutory provisions he is charged with administering.
With regard to the commenters' other two points, we agree with the
vast majority of commenters that, rather than being ambiguous, the safe
harbors clarify the current law for most institutions by setting forth
specific payment arrangements that an institution may carry out that
have been determined not to violate the incentive compensation
prohibition in section 487(a)(20) of the HEA. Moreover, no burden is
placed upon an institution that uses a payment arrangement set forth in
one of the safe harbors.
Changes: None.
Comments: The commenters who felt that the regulations were not
authorized under section 487(a)(20) of the HEA also felt that any
change to the current regulations would allow unscrupulous institutions
to engage in the kinds of improper recruiting activities that gave rise
to section 487(a)(20) of the HEA. They also felt that there was no
demonstrated need for any change to the current regulations covering
the[[Page 67054]]incentive compensation prohibition, and that any change should be made
through legislation during the next HEA reauthorization.
Discussion: We believe that the primary purpose of the regulatory
safe harbors is to provide guidance to institutions so they may adopt
compensation arrangements that do not run afoul of the incentive
compensation prohibition contained in section 487(a)(20) of the HEA.
The safe harbors are based on comments we received from institutions
during the FED UP initiative that requested that we provide clearer and
more detailed guidance regarding this topic, suggestions by
negotiators, and numerous questions we have received from institutions
during the last eight years. We believe that institutions need this
guidance now, and therefore it is neither necessary nor desirable to
wait to make changes legislatively during the next HEA reauthorization.
Finally, we do not agree with the commenters that the safe harbors
will allow unscrupulous institutions to engage in the kinds of improper
recruiting activities that took place during the 1980s and early 1990s.
As the commenters noted, during that period, institutions would recruit
ability-to-benefit students who were not qualified to enroll in their
institutions and keep the Title IV, HEA program funds those students
received. That result is no longer possible today.
The incentive compensation prohibition is only one of the remedies
that Congress has enacted to preclude such results. First, most of
those unscrupulous institutions were terminated from participating in
the Title IV, HEA programs because of their high cohort default rates.
Second, there is a strengthened ability-to-benefit process that walls
off institutions from the process and has higher standards of judging a
student's ability-to-benefit. Third, if an institution enrolls
unqualified students who then drop out, the institution may only keep
Title IV, HEA program funds that the student has earned and must return
unearned funds under the Return of Title IV Funds rules set forth in
Sec. 668.22. Fourth, under the default rate termination provisions,
the institution would put its continuing eligibility to participate in
the Title IV loan programs in jeopardy if their unqualified students
fail to repay their loans. Finally, an institution could have its
eligibility terminated if it misrepresents its programs to students.
Changes: None.
Comments: A commenter asked about the interrelationship between the
various safe harbors.
Discussion: The 12 safe harbors are divided into two categories.
The first category relates to whether a particular compensation payment
is an incentive payment. The first safe harbor addresses this category
by describing the conditions under which an institution may pay
compensation without that compensation being considered an incentive
payment.
The second category relates to the conditions under which an
institution may make an incentive payment to an individual or entity
that could be construed as based upon securing enrollments. The
remaining 11 safe harbors address this category by describing the
conditions under which such a payment may be made. These 11 safe
harbors reflect our view that the individuals and activities described
in a safe harbor are not covered by the statutory prohibition.
With regard to the latter 11 safe harbors, if an incentive payment
arrangement falls within any one safe harbor, that payment arrangement
is not covered by the statutory prohibition.
Changes: None.
Comments: Several commenters suggested that the Secretary include
additional safe harbors in the final regulations and provided examples
of safe harbors that they would like to see added.
Discussion: We proposed 12 safe harbors based upon the suggestions
of the negotiators and questions we received regarding the incentive
compensation prohibition. We intended that these safe harbors be clear
and uncomplicated. As a result, we believe that institutions can use
these safe harbors as a workable framework to determine if their
payment arrangements violate the incentive compensation prohibition.
Changes: None.
Comments: A commenter suggested that we discuss the penalties that
apply if an institution violates the incentive compensation
prohibition.
Discussion: We believe that a discussion of the penalties for
violating the incentive compensation prohibition are outside the scope
of this exercise in developing final regulations for the provision.
Changes: None.
Comments: A commenter indicated that the safe harbors should
specifically indicate that an institution could pay an incentive
payment to a person or entity that was in the safe harbor.
Discussion: The last 11 safe harbors describe situations under
which an institution can make an incentive payment to an individual or
entity based upon success in securing enrollments. Therefore, it is not
necessary to include that statement in each safe harbor. For this very
reason, as noted below, we will eliminate the restriction in the last
sentence in the ``clerical pre-enrollment'' safe harbor, Sec.
668.14(b)(22)(ii)(F).
Changes: See discussion under Pre-Enrollment Activities.Adjustments to Employee
Compensation (Section 668.14(b)(22)(ii)(A)) Comments: Many commenters approved
of our determination set forth
in the first safe harbor that fixed compensation could include up to
two adjustments in a twelve-month period as long as no adjustment is
based solely on success in securing enrollments. Some commenters
believed that two adjustments were too many; that two adjustments
during a 12-month period was a loophole that institutions could use to
bundle their bonuses and pay them as a salary adjustment.
Discussion: We believe that defining fixed compensation to include
up to two pay adjustments during a 12-month period is not inconsistent
with standard business practice, particularly as this safe harbor
includes pay adjustments to an individual for any reason, including
promotions.
Changes: None.
Comments: Almost all commenters approved our determination that one
cost of living increase that is paid to all or substantially all
employees would not count as one of the two allowable adjustments. One
commenter asked the effect of an employer policy that withheld cost-of-
living increases to poorly performing employees. Another pointed out
that employers treat full-time employees differently from part-time
employees, and suggested that cost of living increases that are paid to
all or substantially all full-time employees not count as an adjustment
in the safe harbor.
Discussion: We believe that if an employer has a written policy
that indicates that cost of living increases are denied to poorly
performing employees, that policy would not disqualify cost of living
increases from being treated in the manner described in this safe
harbor unless such a written policy has the effect of no longer
applying the cost of living increase to ``all or substantially all''
employees, and other relevant factors reveal the increase to be tied to
student recruitment and not within any of the prescribed safe harbors.
We agree with the commenters that employers often treat full-time
employees differently from part-time employees, and therefore agree
with the[[Page 67055]]commenters' suggestion that cost-of-living increases that are given to
all or substantially all of an institution's full-time employees would
not be considered a compensation adjustment.
Changes: Section 668.14(b)(22)(ii)(A) is changed to reflect that
cost of living increases that are given to all or substantially all of
an institution's full-time employees will not be considered a
compensation adjustment.
Comments: Many commenters noted that salary adjustments could not
be based solely on the number of students recruited, admitted,
enrolled, or awarded financial aid, and asked whether the term
``solely'' was being used in its dictionary definition. If it was not,
the commenters suggested a definition.
Discussion: In this safe harbor, the word ``solely'' is being used
in its dictionary definition.
Changes: None.
Comments: Commenters raised a series of questions concerning
various aspects of fixed compensation, including how overtime should be
treated, how employee benefits should be treated, and the effect under
this safe harbor if some of an institution's employees are unionized
and others are not.
Discussion: With regard to overtime and benefits, if the basic
compensation of an employee would not be an incentive payment, neither
would overtime pay required under the Federal Labor Standards Act.
Generally, the fact that some of an institution's employees are
unionized and others are not should have no bearing on this safe
harbor.
Changes: None.
Comments: One commenter asked about activities that recruiters
could perform that would not be considered recruitment.
Discussion: There are a myriad of non-recruitment activities that a
recruiter may engage in on a day-to-day basis, but we do not believe
that it is practical nor necessary to provide an exhaustive list for
purposes of this discussion.
Changes: None.Enrollment in Programs That Are Not Eligible for Title IV, HEA
Assistance (Section 668.14(b)(22)(ii)(B)) Comments: Some commenters objected to this safe harbor, because
they believed that the Secretary had no authority to establish it
because section 487(a)(20) of the HEA does not cover incentive payments
to enroll students in educational programs that are not eligible
programs under the Title IV, HEA programs. Another commenter objected
to the safe harbor because it would encourage institutions to promote
private loans.
Discussion: We disagree with the commenters. The safe harbor is
authorized, as well as appropriate, because it informs institutions of
the scope of the coverage of the incentive compensation prohibition of
section 487(a)(20) of the HEA. Moreover, we believe that this safe
harbor will have no bearing on whether institutions promote private
loan programs to students attending ineligible programs.
Changes: None.Contracts With Employers (Section 668.14(b)(22)(ii)(C)) Comments:
Most commenters supported this safe harbor. The
commenters recognized that the underlying rationale for the safe harbor
was that an employer should have a significant stake in the education
being offered its employees under a contract with an institution that
uses a recruiter who receives an incentive payment. However, several
commenters objected to the conditions that employers under this safe
harbor had to satisfy. In particular, they objected to the conditions
that an employer had to pay at least 50 percent of the tuition and fees
charged its employees, and that recruiters have no contact with the
employees. Some commenters recommended that these conditions be
eliminated; that the employer/employee relationship itself provided a
sufficient stake in the education being offered. Some commenters
indicated that the percentage of tuition and fees that an employer had
to pay should be a smaller percentage, while others indicated that the
employer's stake in the education being offered could be demonstrated
by other criteria. One commenter noted that literally no one could
satisfy this safe harbor because a recruiter had to contact an employee
in order to negotiate the contract. Another commenter recommended that
Title IV, HEA program funds could not be used to pay the portion of the
tuition and fees not paid by the employer.
Discussion: This safe harbor represents that, in general, business-
to-business marketing of employer-provided education is not covered by
the incentive compensation prohibition. However, not all business-to-
business transactions are paid in the same manner, such as the
straightforward payment by a company to an institution to educate its
employees. This safe harbor deals with an iteration of that scheme; the
payment of employees' tuition and fee charges by the employer under a
contract arranged by an institution's recruiter who is paid an
incentive.
In this safe harbor, the Secretary believes that the 50 percent
requirement is a simple, straightforward standard to assure that an
employer has a significant financial stake in the outcome of the
education provided to its employees. This standard was supported by a
majority of the negotiators. Therefore, we disagree with the commenters
who suggested that this safe harbor be changed to allow an employer to
pay less than 50 percent of its employees' tuition and fee charges.
With regard to the alternatives suggested by commenters, we believe
that they are too complicated for a safe harbor. With regard to
recruiter contact with employees, the contact that is prohibited does
not include the contact necessary to obtain the contract.
Changes: None.Profit-Sharing or Bonus Payments (Section 668.14(b)(22)(ii)(D))
Comments: Most commenters supported this safe harbor. However, one
commenter objected to it because the commenter considered that the safe
harbor could be manipulated. Several commenters pointed out that the
safe harbor allowed a profit sharing plan to be limited to employees in
an ``organizational level'' at an institution rather than the
institution as a whole, and asked whether an organizational level in a
multi-school institution could be one of the institutions. Other
commenters suggested that the definition of ``profit'' be defined as
``total profit resulting when total costs are subtracted from total
revenue at the institution.'' One commenter noted that while the
regulatory safe harbor required that profit sharing or bonus payments
be provided to all or substantially all of an institution's full-time
employees, the preamble indicated that such payments had to be
substantially the same amount, or based upon the same percentage of
salary. The commenter recommended that the preamble requirement be
eliminated as unnecessary. Moreover, if this condition is to be
retained, the commenter proposed that percentage increases, like dollar
increases, should also be substantially the same to all covered
employees.
Discussion: We do not agree with the commenter who indicated that
this safe harbor could be manipulated to provide incentive payments to
recruiters under the guise of profit sharing because the payments must
be made to all or substantially all of the full-time employees at one
or more organizational level at the institution. In response to[[Page 67056]]comments
relating to organizational level, we believe an
``organizational level'' at a multi-school institution would be one of
the institutions.
We do not believe that it is necessary to define the term
``profit'' in this safe harbor as it is a commonly used business term
that needs no explanation.
With regard to the last comment, we agree that a safe harbor should
be in the regulation itself rather than in the preamble. Contrary to
the commenter's suggestion, we believe that the safe harbor for bonuses
and profit sharing should require that the payments to employees be
substantially the same amount or the same percentage of salary. We do
not, however, see the need to allow percentage increases to be
substantially the same. We believe that this safe harbor already
provides significant flexibility particularly since institutions can
provide different percentages of compensation based on employees'
organizational levels.
Changes: Section 668.14(b)(22)(ii)(D) is changed to reflect that
the safe harbor only applies if the profit sharing or bonus payment is
substantially the same amount or the same percentage of salary or
wages.Compensation Based Upon Completion of Program (Section
668.14(b)(22)(ii)(E)) Comments: Most commenters supported this safe harbor. However,
several objected to it on the grounds that completion of an educational
program is not a valid measure when the quality of an institution's
programs is poor. One commenter, quoting from our preamble statement of
April 24, 1994, when the current regulation was published, objected to
the use of retention as a safe harbor, and also objected to the one-
year retention period as too short.
Discussion: As previously indicated, we believe that the purpose of
the incentive compensation prohibition is to prevent institutions from
enrolling unqualified students. We note that other legislative and
regulatory requirements are designed to weed out institutions with poor
quality programs. We agree with most of the commenters that a student
who successfully completes an educational program in which he or she
was enrolled means, for this purpose, that the student was qualified to
attend the institution.
With regard to retention, we believe that the successful completion
of 24 semester or trimester credit hours, 36 quarter credit hours, or
900 clock hours of instruction also means that the student was
qualified to enroll at the institution. Moreover, as a general matter,
retention and completion of programs by students is a positive result
that should be encouraged.
Changes: None.
Comments: Several commenters requested that the measure of whether
a student completes one year of a program should be time rather than
credits earned. One commenter asked whether all the required credits or
hours had to be earned at the institution, or could they include
transfer credits, life experience credit, or credits earned through
tests. Another commenter asked whether the student had to earn one
academic year of credit within the institution's satisfactory progress
standard, and another asked whether the 30 weeks of instructional time
element of the definition of an ``academic year'' was included in this
safe harbor. A commenter indicated that the safe harbor should indicate
that retention for one year is a minimum requirement and institutions
are free to establish longer periods. Finally, one commenter asked
whether a recruiter could get paid a bonus for each year the student
successfully completes, so that the recruiter can theoretically receive
four years of bonuses for a student enrolled in a four-year program.
Discussion: We believe that the appropriate method of measuring
whether a student completes one academic year is by determining that
the student has earned one academic year of credit rather than by not
dropping out during a 12-month period. Therefore, we do not agree with
the commenters' suggestions to substitute time for credits earned. To
answer the questions raised by the other commenters: All the credits
have to be earned at the institution as a result of taking courses at
that institution; we have not applied the 30 weeks of instructional
time element of the definition of an ``academic year'' to this safe
harbor. Thus, this safe harbor applies when a student earns, for
example, 24 semester credits no matter how short or long a time that
takes.
We agree with the commenter that the one-year retention condition
requirement is a minimum. Finally, if an institution so chooses, it may
pay a recruiter a bonus for each academic year a student completes and
not be in violation.
Changes: Section 668.14(b)(22)(ii)(E) is changed to reflect that
the one academic year's worth of credit or hours must be earned at the
institution.Pre-Enrollment Activities (Section 668.14(b)(22)(ii)(F)) Comments:
Most commenters supported this safe harbor. Some
commenters objected to the requirement that the pre-enrollment activity
had to be clerical in nature, with some noting that the clerical
requirement was not in the proposed safe harbor itself, but was in the
preamble discussion of the safe harbor. Some commenters concluded that
the safe harbor described an individual rather than an activity, and
based upon that interpretation, the commenters were concerned that
recruiters could not be paid a bonus based upon their performance of
pre-enrollment activities.
Some commenters requested that the list of pre-enrollment
activities be expanded, and other commenters objected to the
characterization that soliciting students for interviews is a
recruitment activity rather than a pre-enrollment activity. Other
commenters asked whether institutions could purchase leads to potential
students for a flat fee from a third party under this safe harbor.
Discussion: We believe that one of the most important criterion for
inclusion in this safe harbor is the clerical nature of the pre-
enrollment activities that are being performed. Limiting pre-enrollment
activities to rote clerical activities helps to draw the line between
recruiting and pre-enrollment activity. Therefore, we will incorporate
this requirement into the regulations.
We disagree with the characterization that this safe harbor
describes an individual rather than an activity. However, by the very
job description, a recruiter's job is to recruit. Therefore, as a
practical matter, it would be very difficult for an institution to
document that it was paying a bonus based upon enrollments to a
recruiter solely for clerical pre-enrollment activities.
We are not going to expand the list of acceptable clerical pre-
enrollment activities because no list will be all-inclusive, and we
believe that institutions can determine whether activities qualify as
clerical pre-enrollment activities based upon the current examples.
Contrary to the commenter's conclusion, we believe that soliciting
students for interviews is a core recruiting activity. Finally,
although we believe that buying leads from third parties for a flat fee
is not a clerical pre-enrollment activity under this safe harbor, we
believe that the activity is not covered under the incentive
compensation prohibition. Buying leads from third parties for a flat
fee is not providing a commission, bonus, or other incentive payment
based directly or indirectly on success in securing enrollments.
Changes: Section 668.14(b)(22)(ii)(F) is changed to add the
requirement that pre-enrollment activities must be clerical in nature,
and, for the reasons[[Page 67057]]stated earlier in connection with the general comments, we are deleting
the requirement that compensation is not based upon the number of
people actually enrolled.Managerial and Supervisory Employees (Section 668.14(b)(22)(ii)(G))
Comments: One commenter objected to this safe harbor because the
commenter believed that managers of recruiters and other covered
persons should not be covered by the incentive compensation
prohibition, and therefore should be included in this safe harbor.
Other commenters objected to the preamble discussion of this safe
harbor, where we indicated that an individual's occasional direct
contact with students in the recruiting process would not turn that
individual into a recruiter, because it would not necessarily be easy
to determine whether an individual's involvement was occasional.
Discussion: As indicated in the preamble to the proposed
regulations, we believe that direct supervisors of recruiters and other
covered persons should be excluded from this safe harbor because their
actions have a direct and immediate effect on the recruiters and other
covered persons.
Changes: None.Token Gifts (Section 668.14(b)(22)(ii)(H)) Comments: One commenter
appreciated the increase in the cost of
token gifts allowed under this safe harbor, indicating that it would
eliminate concerns at many institutions.
Discussion: None.
Changes: None.Profit Distributions (Section 668.14(b)(22)(ii)(I)) Comments:
One commenter objected to this safe harbor because some
institutions could treat revenue as profits.
Discussion: We disagree with the commenter because institutions
participating in the Title IV, HEA programs must submit compliance
audits and financial statement audits, and such audits would uncover
this practice.
Changes: None.Internet-Based Activities (Section 668.14(b)(22)(ii)(J)) Comments:
Almost all commenters supported this safe harbor. One
commenter agreed that the Internet is a communications medium much like
the U.S. mail and direct mail solicitations. The commenter noted,
however, that compensation arrangements between institutions and direct
mail servicers are typically not based upon enrollments, and therefore
suggested that the Internet safe harbor exclude compensation
arrangements that are based upon enrollments.
Discussion: We disagree with the commenter. We believe that the use
of the Internet is outside the scope of the incentive compensation
prohibition, and, as indicated earlier, the point of the last 11 safe
harbors is that they describe situations that would not violate the
incentive compensation prohibition to make incentive payments to
recruiters and other covered individuals based on enrollments. However,
to highlight that the Internet is frequently used to refer prospective
students to institutions, we are including that activity in the safe
harbor.
Changes: Section 668.14(b)(22)(ii)(J) is changed to add referring
prospective students to the institution as a described safe harbor.
Payments to Third Parties for Non-Recruitment Activities (Section
668.14(b)(22)(ii)(K)) Comments: One commenter requested that we clarify that recruiting
activities do not include advertising or marketing.
Discussion: We agree with the commenter that if an institution pays
a third party for marketing and advertising, those contracted services
are not considered recruiting.
Changes: None.Payments to Third Parties for Recruitment Activities (Section
668.14(b)(22)(ii)(L)) Comments: Several commenters specifically indicated their support
for this safe harbor. Several others objected to it because they
believed that it violated the spirit of the incentive compensation
prohibition as well as the literal language of that provision.
Discussion: With regard to the reasons given by the commenters who
objected to the safe harbor, as we stated in the preamble to the August
8, 2002 NPRM, we believe that Congress did not intend to limit an
institution's ability to contract with outside entities for
recruitment, admissions, enrollment, or financial aid services if the
outside entity adheres to the same limitations that apply to
institutions. Payments made by an institution to a third party would
not violate the incentive payment restrictions as long as the
individuals performing any activities related to recruitment,
admissions, enrollment, or financial aid were compensated in a way that
would otherwise be permissible under the standards in this section for
covered employees of the institution.
Changes: None.Institutions Required To Take Attendance (Section 668.22
Comments: One commenter did not believe that an institution that is
required to take attendance by an outside entity for a limited time for
census purposes should automatically qualify as an institution that is
required to take attendance for purposes of the Return of Title IV
Funds calculation. The commenter indicated that census records may not
be appropriate for determining a student's withdrawal date. As such,
the commenter suggested that the length of a limited period of census
taking does not matter. Rather, if the institution's policy does not
result in a student being withdrawn as a result of the census data, the
institution should not be considered one that is required to take
attendance for the census period.
The commenter asked for clarification regarding the procedures that
must be followed after the end of the period of required attendance
taking.
Discussion: Census taking was merely an example of a reason why an
institution might be required to take attendance by an outside entity
for a limited period of time. As stated in the preamble to the August
8, 2002 NPRM, if the outside entity determines that the institution is
required to take attendance for any period, for any purpose, including
census purposes, then the institution is considered to be one that is
required to take attendance for that period of time. We would like to
emphasize that the change to the regulations related to determining
whether an institution is one that is required to take attendance,
specifically revises Sec. 668.22(b)(3)(i) to state that it is such an
institution only if the outside entity has determined that the
institution is required to take attendance. Thus, if an outside entity
that imposes census taking requirements does not consider its
requirements to require an institution to take attendance continuously
for the limited period of time, the institution would be considered an
institution that is not required to take attendance for that period for
Title IV purposes. The exception that the preamble addressed was that
even if the outside entity considers a one-day census activity to be
required attendance taking, we would not consider the institution to be
one that is required to take attendance.
Unless an institution demonstrates that a withdrawn student who is
not in attendance at the end of a limited period of required attendance
taking attended after the limited period, the student's[[Page 67058]]
withdrawal date would be determined according to the requirements for
an institution that is required to take attendance. That is, the
student's withdrawal date would be the last date of academic attendance
as determined by the institution from its attendance records. If the
institution demonstrates that the student attended past the end of the
limited period, the student's withdrawal date is determined in
accordance with the requirements for an institution that is not
required to take attendance. So, for a student who has attended past
the limited period and unofficially withdrew, the student's withdrawal
date is the midpoint of the payment period or period of enrollment.
Consistent with the policy for documenting a student's last date of
attendance at an academically-related activity, an institution is not
required to take attendance to demonstrate a student's attendance past
the end of the limited period of attendance taking.
Changes: None.Leaves of Absence (Section 668.22)
Comments: One commenter requested that we repeat the discussion in
the August 8, 2002 NPRM on allowing multiple leaves of absence as long
as the sum of the leaves does not exceed 180 days within any 12-month
period and the requirement that an institution must require the student
to submit a written reason for his or her request for an approved leave
of absence.
Discussion: The commenter is correct that the proposed change does
mean that an institution can approve more than one leave of absence for
a student as long as the total of all leaves for that student does not
exceed 180 days in a 12-month period. The commenter is also correct
that the new regulations require the student to submit a written reason
for the request for the leave of absence. We refer the reader to the
more extensive discussion on these matters that was included in the
August 8, 2002 NPRM beginning on page 51726.
Changes: None.
Comments: One commenter agreed with our position that a student
should be able to return to an institution from an approved leave of
absence and repeat coursework as long as there are no additional
institutional charges.
Discussion: We clarified in the NPRM that a student may resume his
or her academic program at a point earlier than the point where the
academic program was suspended temporarily through an approved leave of
absence. Under this guidance, both the student and the institution
enjoy greater flexibility to deal with student academic needs. However,
since the regulations provide that an institution may not impose
additional charges when the approved leave of absence ends and the
student resumes his or her program of study, a student who returns for
the purpose of repeating prior coursework may not be assessed
additional charges by the institution.
Changes: None.
Comments: One commenter noted that, especially for nonterm
programs, there are a variety of reasons (most frequently scheduling
problems) that prevent students from simply restarting their coursework
at the same place they stopped. Particularly if the nonterm program
offers its course in a series of modules, a returning student might
choose to re-enter into a different course in a different module within
the same program. The commenter suggested that students in nonterm
programs be exempt from the requirement that, after returning from an
approved leave of absence, they must return to the same point in the
coursework that they were at the time the leave of absence began.
Discussion: Currently, Sec. 668.22(d)(1)(viii) requires that when
a student returns from a leave of absence, the student must be
permitted to complete the coursework he or she began prior to the leave
of absence. This is because the concept of an approved leave of absence
is that the payment period in which the student was originally enrolled
in has been temporarily suspended due to the leave of absence. Upon the
student's return, the student simply resumes or continues the same
payment period and coursework and is not eligible for additional Title
IV program assistance until the payment period has been completed.
For term-based programs, where the payment period is the term, a
student returning from a leave of absence must complete the term in
order to complete the payment period and be eligible to receive a
second or subsequent disbursement. In addition, as noted earlier, upon
return from a leave of absence the student cannot be assessed any
additional charges. Therefore, we think it very unlikely that a student
enrolled in a term-based program could ever participate in the leave of
absence process included as part of the Return of Title IV Funds
requirements.
However, for nonterm-based programs, the regulations in Sec.
668.4, as finalized by this document, provide that the payment period
is the period of time it takes a student to complete both half the
number of credits and half the number of weeks of the academic year,
program or remainder of the program, as appropriate. For clock-hour
programs, the payment period is the period of time it takes a student
to complete half the number of clock hours in the program. Therefore,
whether the student returns to the point in the same course as when the
leave of absence began, or the student starts in a new course within
the program (without additional institutional charges), once half the
required credits are earned and half the number of weeks are completed
or, for a clock-hour program, half the number of clock hours are
completed, the student has completed the payment period for which the
student was previously paid Title IV funds. If otherwise eligible, the
student may receive a second or subsequent disbursement of Title IV
program funds. Thus, we agree with the commenter that flexibility in
this area could be provided to students and institutions when the
program is offered on a nonterm basis.
Changes: Section 668.22(d)(1)(vii) is revised to provide that for a
clock-hour program or a nonterm credit-hour program, the student need
not complete the exact same coursework he or she began prior to the
leave.
Comments: One commenter suggested that we modify the proposed rule
to allow an institution to offer the student a full tuition credit
towards the course the student chooses to re-enter as a mechanism to
comply with the requirement that the institution not assess the student
any additional charges upon return from an approved leave of absence.
Discussion: As we understand the commenter's suggestion, we do not
see a need to modify the regulations. We believe that the commenter's
proposal would meet the requirement that a student returning from an
approved leave of absence not be assessed any additional institutional
charges for completing the payment period.
Changes: None.Expiration of Ability To Benefit Tests (Sections 668.32 and 668.151)
Comments: While there was general support for the removal of the
12-month limitation on the acceptability of an ability to benefit (ATB)
passing score, one commenter expressed concern about the exception that
``home-schooled'' students are not required to have passed the GED or
an ATB test before becoming eligible for Title IV, HEA program
assistance.
Discussion: We appreciate the support for the elimination of the
12-month limitation of ATB passing scores. Section 484(d)(3) of the HEA
provides that, as an alternative to a high school diploma, a student
who has completed a secondary school education in a home[[Page 67059]]
school setting that is treated as a home school or private school under
State law meets the applicable standard to be eligible for Title IV,
HEA program assistance without the need for such a student to have
passed the GED or an ATB test.
Changes: None.Overpayments (Sections 668.35, 673.5, and 690.79)
Comments: One commenter indicated that the de minimis standard of
less than $25 for student original overpayment amounts is too low and
should be increased to at least $100. Further, the commenter stated
that excluding from the application of the de minimis standard
situations in which the amount owed by the student was the result of an
original overpayment amount that was paid down to less than $25, or was
the result of the application of the $300 campus-based overaward
threshold, makes the regulation too complicated for efficient program
administration.
Discussion: The less than $25 de minimis standard used in the
regulations is based upon an amount that is cost effective for the
Department to collect. We are able to successfully pursue collections
of $25 or higher with Internal Revenue Service (IRS) offsets, as well
as with other methods. As to the second comment, the regulations
exclude two instances in which the de minimis amount provisions do not
apply. In the case where the original overpayment amount was $25 or
more, but has been reduced to less than $25, the student is still
responsible for fully paying that remaining balance. Without this
exclusion, students would be encouraged not to pay the last $24.99 of
their overpayment. In the other case, a student is responsible for
paying the balance of the overpayment, even if it is less than $25,
when the overpayment is a result of applying the $300 campus-based
overaward threshold to an FSEOG or Federal Perkins Loan overaward.
Without this second exclusion, we would be creating a new campus-based
overaward threshold of $324.99. There is no basis in the statute for
changing the campus-based overaward threshold beyond $300.
Changes: None.
Comments: One commenter recommended that, in addition to applying
the less than $25 de minimis amount to original overpayments owed by a
student, the regulations provide the same treatment to an institution
when it is liable for an overpayment. That is, the commenter suggested
that an institution not be required to return an original overpayment
that is less than $25. The commenter believed that the requirement for
an institution to return small amounts is administratively burdensome
to the institution and is not cost effective.
Discussion: The purpose of having the less than $25 de minimis
amount for student original overpayments is to allow needy students to
continue to be eligible for Title IV aid when their overpayment
obligation is a small amount. The overpayment amounts that an
institution owes do not impact a student's eligibility. However, the
regulatory change that we are making for student original overpayment
amounts that are less than $25 provides for a consistent application
across the Title IV programs, reduces the burden on needy students, and
reduces the burden for institutions in the recording and collection of
a small student debt.
Changes: None.
Comments: One commenter suggested that the language in the
regulations requiring the institution to provide written notice of an
FSEOG or Federal Pell Grant overpayment to the student be clarified.
The commenter suggested that the regulations state that an institution
is not required to send the written notice if the institution pays the
overpayment on the student's behalf from its own funds, because there
is no reason for the student to register a formal objection to an
overpayment determination with the institution.
Discussion: The written notice requirement for overpayments does
not apply unless the student owes an overpayment that is outstanding.
If the institution already paid the overpayment on the student's behalf
from its own funds, the institution would not have to send the written
notice to the student because there is no overpayment to collect.
Changes: None.Rehabilitation of Defaulted Loans (Sections 668.35, 674.39, 682.405,
and 685.211) Comments: One commenter objected to the addition of language in
Sec. 668.35(b) that allows a Perkins Loan borrower against whom a
judgment has been obtained to regain eligibility for further Title IV
student aid by making satisfactory repayment arrangements. The
commenter noted that seeking a judgment against a defaulted Perkins
Loan borrower is a last resort that involves considerable time and
money and that a judgment is pursued only after a Perkins institution
has exhausted all other means of collecting the defaulted loan. The
commenter stated that extending further Title IV student financial
assistance to such a borrower is against the taxpayers' best interests
and that the only option that should be offered to a defaulted borrower
against whom a judgment has been obtained is to pay the judgment amount
in full.
Discussion: The proposal to allow a borrower who is subject to a
judgment to regain eligibility for Title IV program assistance reflects
the concerns expressed by the negotiators that, under the original
proposal presented to the negotiators, borrowers subject to a judgment
would not only be excluded from the benefits of rehabilitation, but
would also be unable to regain eligibility for Title IV aid. The
negotiators felt that denying access to additional student financial
assistance to a borrower who makes an agreement with the loan holder to
repay the loan was excessively harsh and had the potential to
effectively prohibit the borrower from furthering his or her education,
securing employment, and being better able to repay student loan
obligations.
The new regulations in Sec. 668.35(b) provide institutions and
guarantors with significant flexibility to recover judgment debts by
allowing the loan holder to determine the conditions that the judgment
debtor must satisfy to regain eligibility for additional Title IV aid.
For example, if, in a particular case, payment in full is the only
repayment arrangement that is satisfactory to the holder, then a
borrower who is subject to a judgment must pay the loan in full.
Alternatively, should the holder agree to repayment arrangements with
the judgment debtor, the holder is free to determine the number and
amount of payments necessary to restore eligibility for further Title
IV aid, as long as those arrangements include the borrower making at
least six consecutive monthly payments.
Changes: None.
Comments: Some commenters noted that proposed language in Sec.
682.405(b)(1), which defines ``voluntary'' payments for the purpose of
loan rehabilitation, excluded payments made ``after a judgment has been
entered on a loan.'' (The commenters incorrectly believed that this
proposed change was the basis for excluding judgment borrowers from
rehabilitation.) The commenters further noted that the proposed
regulations in Sec. 668.35(b) provided that a borrower who is subject
to a judgment may reestablish Title IV eligibility if the borrower pays
the debt in full or makes at least six payments under arrangements
satisfactory to the judgment holder, but that the proposed regulation
did not require that such payments be ``voluntary.'' Lastly, the[[Page 67060]]
commenters noted that the FFEL Program definition of ``satisfactory
repayment arrangements'' in Sec. 682.200(b) defines the term
``voluntary payments'' differently than it is defined in Sec.
682.405(b)(1) of the FFEL Program regulations. While the commenters
supported the proposed language in Sec. 668.35(b) to provide a
mechanism for judgment borrowers to regain Title IV eligibility, the
commenters believed the interplay between this provision and the
provisions within the FFEL Program regulations requiring differing
``voluntary'' payments is confusing and that clarification was needed.
Several commenters representing institutions that participate in
the Perkins Loan Program also noted that proposed Sec. 668.35(b) is
inconsistent with Sec. 674.9(j) of the Perkins Loan Program
regulations, in that the Perkins regulations require a defaulted
Perkins Loan borrower subject to a judgment to make ``voluntary''
payments to reestablish eligibility for a Federal Perkins Loan.
(Sections 674.9(j)(1) and (2) define ``voluntary'' payments as
``payments made directly by the borrower, including payments made over
and above payments made pursuant to a judgment * * * and do not include
payments obtained pursuant to a judgment.'') In contrast, the
commenters noted that proposed Sec. 668.35(b) did not require that
payments to reestablish Title IV eligibility be voluntary.
The commenters suggested that we revise the FFEL regulations
defining ``satisfactory repayment arrangement'' to clarify that a
borrower against whom a judgment has been obtained can reestablish
Title IV eligibility under Sec. 668.35(b). With regard to the Perkins
Loan program, the commenters suggested that we either revise proposed
Sec. 668.35(b) to reference the Perkins Loan program definition of
``satisfactory repayment arrangement'' or remove the reference to
``voluntary'' payments in Sec. 674.9 for the purpose of regaining
eligibility for a Perkins Loan.
Discussion: We disagree with the commenters' assumption that the
basis for excluding borrowers subject to a judgment from loan
rehabilitation is that payments on a judgment are not considered
``voluntary.'' The preamble of the August 6, 2002 NPRM, beginning at 67
FR 51036, has a full discussion of the reasons we proposed to exclude
borrowers subject to a judgment from the opportunity for loan
rehabilitation. We agree with the commenters, however, that the
interplay of provisions defining ``voluntary'' in the Perkins Loan and
the FFEL program regulations and their relationship with proposed Sec.
668.35(b) is confusing.
We believe that the best resolution is to modify proposed Sec.
668.35(b) to add the word ``voluntary,'' with a definition, to the
description of the monthly payments that a borrower who is subject to a
judgment must make before regaining eligibility for additional Title IV
aid. We believe that the definition of ``voluntary payments,'' in the
definition of ``satisfactory repayment arrangement'' in Sec.
682.200(b) of the FFEL Program regulations is the most appropriate
definition to use. Accordingly, we will define ``voluntary'' in Sec.
668.35(b) as ``payments made directly by the borrower, not including
payments obtained by Federal offset, garnishment, or income or asset
execution.'' We would emphasize that a payment on a judgment is
considered a ``voluntary'' payment under this definition if the
borrower who is subject to the judgment makes a payment directly to the
judgment holder and that there is no requirement that the payment be
over and above the payment required on the judgment.
We also believe that the definition of ``voluntary'' in Sec.
674.9(j)(1) and (2) and in the Direct Loan Program definition of
``satisfactory repayment arrangement'' in Sec. 685.102(b) should be
changed to reflect the definition of ``voluntary'' in Sec. 682.200(b).
Changes: We have added the requirement that payments made pursuant
to Sec. 668.35(b) must be voluntary payments, along with a definition
of ``voluntary.'' We have also amended the definition of ``voluntary''
in Sec. Sec. 674.9(j) and 685.102(b) to reflect the definition of
``voluntary'' in current Sec. 682.200(b).
Comments: Several commenters requested that we revise the rules
governing a guaranty agency's basic program agreement with the
Secretary in Sec. 682.401(b)(4), as they relate to reinstatement of
borrower eligibility, to add a reference to proposed language in Sec.
668.35(b) that allows a borrower who is subject to a judgment to
reestablish eligibility for Title IV, HEA program assistance. The
commenters believed that since loan rehabilitation would no longer be
an option for a borrower with a loan on which a judgment has been
obtained, a clarifying change was needed to exempt these borrowers from
the FFEL Program rules governing reinstatement of borrower eligibility.
Discussion: We agree that the addition of a reference in Sec.
682.401(b)(4), stating that reinstatement of Title IV eligibility for a
borrower with a defaulted loan on which a judgment has been obtained is
governed by Sec. 668.35(b), would add clarity.
Changes: We have made the suggested change to Sec. 682.401(b)(4).
Comments: Several commenters supported the proposed regulations
that excluded from rehabilitation defaulted Title IV loans on which a
judgment has been obtained.
Discussion: None.
Changes: None.
Comments: One commenter stated that rehabilitation of loans subject
to a judgment has served as a beneficial and successful tool to
encourage borrowers to repay their loans and objected to the proposed
changes that excluded from rehabilitation defaulted loans on which a
judgment has been obtained. The commenter stated that many borrowers
default at an early age without realizing the serious and long-lasting
consequences of their failure to repay their loan and that eliminating
the option of rehabilitation denies borrowers subject to a judgment the
ability to improve their credit history.
Discussion: The negotiators reached consensus that the effort and
expense associated with rehabilitating loans subject to a judgment
outweighed the value of rehabilitation of judgment debts as a
collection tool. However, as we pointed out in the August 6, 2002,
NPRM, while the new regulations exclude a loan on which a judgment has
been obtained from rehabilitation, a loan holder may, at its option,
enter into an agreement with such a borrower to offer some of the
benefits of rehabilitation while maximizing recovery of the debt.
Moreover, we also proposed new language in Sec. 668.35(b) to ensure
that a borrower subject to a judgment may reestablish eligibility for
further Title IV, HEA program assistance.
Changes: None.
Comments: Several commenters requested that we revise Sec.
682.405(b)(1) to specify that the definition of the term voluntary in
that section applies only to loan rehabilitation. The commenters felt
that we introduced ambiguity with regard to the meaning of voluntary
payments by placing language in the August 6, 2002 NPRM preamble
describing proposed changes to Sec. 682.405(b)(1) in the same
paragraph as language describing reinstatement of Title IV eligibility.
The commenters also suggested revising this paragraph to exclude
payments obtained by state offset from the definition of voluntary
payments for the purpose of loan rehabilitation.
Discussion: Although we regret any confusion that resulted from the
placement of preamble language[[Page 67061]]describing proposed changes
to Sec. 682.405(b)(1) in the same
paragraph as language describing reinstatement of Title IV eligibility,
we do not see the need for a clarification that the term voluntary, as
defined in Sec. 682.405(b)(1), applies only to that section. The
proposed language, by its placement within Sec. 682.405, makes it
clear that the definition of voluntary applies only to that section. We
also disagree with the suggestion to revise this paragraph to add that
payments made by state offset are excluded from the definition of
voluntary payments for the purposes of loan rehabilitation because
making such a change is more than a technical change to the regulations
and was not subject to negotiated rulemaking.
Changes: None.
Comments: One commenter felt strongly that the regulations should
specifically state that judgment holders may enter into an agreement
with the judgment debtor that would allow the holder to provide many of
the same benefits offered under loan rehabilitation programs. The
commenter asked if the proposed addition of language in Sec.
668.35(b), which allows a judgment borrower the opportunity to
reestablish Title IV eligibility by making repayment arrangements that
are satisfactory to the holder of the debt, gives the holder of a
judgment the authority to enter into agreements with judgment borrowers
that would provide borrowers with some of the benefits of
rehabilitation.
Discussion: In many cases, the terms of a court judgment make the
entire obligation due and payable in full immediately, and any payment
arrangements that arise between the parties to satisfy the judgment is
solely by agreement between the debtor and the judgment holder. We do
not see the need to specify in regulation the authority already held by
a judgment holder to enter into such agreements with a judgment debtor.
The new regulations in Sec. 668.35(b) simply extend to a borrower
who is subject to a judgment the opportunity to reestablish eligibility
for Title IV student financial assistance. As stated earlier, the
negotiators were concerned that borrowers who were subject to a
judgment would no longer be entitled to rehabilitate their loans and
would be left without any recourse if the borrower wished to return to
school and needed additional financial aid. We note that a borrower who
is subject to a judgment will reestablish Title IV eligibility as part
of an agreement between the debtor and judgment holder, if the holder
chooses to enter into such an agreement. However, the authority to
enter into such an agreement stems from the nature of the judgment
debt, not from this regulatory provision.
Changes: None.
Comments: Several commenters asked us to clarify what types of
benefits a holder can provide to a borrower with a Title IV loan that
is subject to a judgment pursuant to an agreement outside of the
holder's loan rehabilitation program. The commenters were concerned
that loan holders would not have the authority to offer removal of the
borrower's negative credit history under such an agreement under the
Fair Credit Reporting Act and loan program credit bureau reporting
regulations. Several commenters wanted us to address the status of a
loan on which a judgment has been obtained, both from the standpoint of
the borrower and the judgment holder, once the borrower has reached an
agreement with the judgment holder. One commenter asked us to clarify
how long a borrower has to repay the loan and what interest rate would
apply in cases when the borrower signs a new note under an arrangement
between the borrower and the judgment holder.
Discussion: The holder of a Title IV loan that is subject to a
judgment has the option, but is not required, to enter into an
agreement with the borrower in which the holder agrees to offer some
benefits. We expect any agreement between a borrower subject to a
judgment and the judgment holder to require the debtor to make at least
six consecutive, voluntary monthly payments, the minimum standard
contained in Sec. 668.35(b) for a judgment borrower to reestablish
Title IV eligibility. A judgment holder is also free to require other,
more stringent repayment arrangements it considers appropriate. The
benefits the judgment holder may offer the borrower as part of an
agreement to resolve a judgment include the return of Title IV
eligibility and removal of a borrower's negative credit history.
Alternatively, the holder may offer to vacate the judgment and allow
the borrower to sign a new promissory note after the borrower complies
with the conditions of the agreement. However, it is up to the holder
of the judgment to consider any legal and practical restrictions on its
ability to offer the borrower certain benefits, such as credit report
changes.
In accordance with general legal principles and our longstanding
policy, a judgment debt on a Title IV loan is considered a Title IV
loan obligation. An agreement between a loan holder and a borrower to
resolve a judgment does not change the character of the debt.
Accordingly, if the holder vacates the judgment as part of such an
agreement, the borrower's rights and responsibilities would be those of
a defaulted Title IV borrower and would include the opportunity to
enter into a formal regulatory rehabilitation agreement with the loan
holder. The holder would be subject to the requirements and benefits
associated with holding a defaulted Title IV loan. The interest rate
and repayment options would be those available under the original
promissory note.
Changes: None.
Comments: One commenter stated that the regulations addressing
rehabilitation of loans, although now revised to exclude loans reduced
to judgment, still may imply that the Secretary considers defaulted
borrowers to be able to seek rehabilitation even after the Secretary
has referred a loan to the Department of Justice for collection
litigation. The commenter considered this implication unfounded as a
matter of law, contrary to the interests of the loan programs and the
Federal government, and urged the Secretary to clarify the proposed
regulations to specify that neither the statute nor the regulations
allow borrowers to rehabilitate loans that have been referred to the
Department of Justice for litigation.
Discussion: We believe that the HEA and the Federal Claims
Collection Standards adequately address this concern and that a
regulatory change is unnecessary. A rehabilitation agreement is a form
of repayment arrangement; after a Federal agency has referred a debt
owed the agency to the Department of Justice for litigation, the
Federal Claims Collection Standards provide that the Department of
Justice has ``exclusive jurisdiction'' over the debt, and the agency is
no longer authorized to determine repayment terms for that debt (31 CFR
904.1(b)). Moreover, sections 432(a)(2) and 468(3) of the HEA state
explicitly that the Secretary's broad power to enforce Title IV HEA
loans remains subject to the full authority of the Attorney General to
conduct litigation to collect those loans. The HEA both directs the
institution, the guarantor, or the Secretary to offer the borrower in
default an opportunity for rehabilitation of the loan, and directs that
the Secretary's authority to arrange repayment terms ends where
responsibility for enforcement of the debt passes to the Department of
Justice. The Secretary therefore interprets the HEA itself to limit the
defaulted borrower's ability to seek rehabilitation of a Title IV loan
only to the period during which the loan is held by the Secretary. The
option to rehabilitate a[[Page 67062]]defaulted loan therefore lapses once the
debt is referred to the
Department of Justice.
Changes: None.
Comments: Two commenters recommended that borrowers subject to a
judgment, who have begun the rehabilitation process but not completed
the payment stream before final regulations are effective, be permitted
to complete the rehabilitation process.
Discussion: If a holder has agreed to allow a judgment borrower to
attempt rehabilitation of his or her loan prior to the effective date
of these final regulations, we expect the loan holder to honor such an
agreement. However, if the judgment borrower misses any of the required
payments, the holder is not required to allow the borrower another
attempt at rehabilitation.
Changes: None.
Comments: One commenter asked if the holder of an institutional
loan subject to a judgment has the option to enter into an agreement
with the borrower and offer to remove the borrower's negative credit
history under the proposed regulations.
Discussion: The terms and conditions of non-Federal loans are not
subject to the regulations that apply to the Title IV loan programs.
Changes: None.Late Disbursements (Section 668.164) Comments: Several commenters
objected to the proposal that an
institution would be required to obtain the Secretary's approval in
order to make late disbursements more than 120 days after the student
was no longer eligible. Most of these commenters believed that we
should continue the current practice of allowing guaranty agencies to
approve late disbursements of FFEL Program funds. Two commenters stated
that deciding to make a late disbursement was similar to professional
judgment and argued that institutions should be permitted to make these
disbursements without obtaining our approval.
Discussion: While we appreciate the willingness of guaranty
agencies to approve requests for late disbursements that are not made
within the 120-day timeframe, we continue to believe that we should
review and approve such disbursement requests. These rules (and
previous late disbursement rules) provide an exception to the general
rule that a student must be enrolled and eligible to receive Title IV
student aid. If a disbursement is not made while a student is enrolled
and eligible, an institution now has, regardless of the reason and
without any approval, 120 days to make that disbursement. Beyond that,
from both a policy and operations perspective, we need to be aware of
the frequency and circumstances under which this exception is used. In
addition, we believe it is more efficient, and more equitable to
students and institutions, to direct all late disbursement requests
requiring approval (those after the 120-day timeframe) to one party for
review, particularly for requests that deal with funds from more than
one Title IV program. To facilitate the process, before the effective
date for these regulations, the Department plans to establish a process
by which institutions will submit their request. In its request, an
institution will provide the name of the student (or parent in the case
of a PLUS loan), the type and amount of Title IV aid to be disbursed,
and a description of the circumstances that resulted in the
disbursement not being made, including why the disbursement was not
made and was not the fault of the student or parent. After we review
the request, we will promptly inform the institution of our decision or
if necessary, request additional information. If the request is
approved, the institution can, consistent with the requirements of the
funding source (i.e., FFEL lender or guaranty agency) make the late
disbursement. We expect the institution to maintain documentation of
its request and the Department's response to that request.
Changes: None.
Comments: One commenter did not agree with the proposal that an
institution would be required to offer a late disbursement to a student
who had completed a payment period or period of enrollment. The
commenter contended that in many such cases the student would not owe
the institution any money or would not be likely to have other
remaining costs, thereby eliminating the need for the late
disbursement. For this reason, the commenter was concerned that
requiring an institution to make a late disbursement of a loan would
needlessly increase a student's debt. Instead, the commenter suggested
that an institution should have sole discretion in determining whether
a late disbursement was necessary.
Discussion: As we explained in the August 8, 2002 NPRM, because the
student earned the funds for the period completed, it is up to the
student, not the institution, to decide whether he or she needs the
funds. Consequently, an institution must offer the late disbursement to
the student and must make that disbursement if the student accepts the
offer. If an institution believes a late disbursement is not needed or
is concerned that a late disbursement of a loan may increase the risk
of default, we encourage the institution to advise the student about
how the disbursement may affect his or her eligibility for additional
Title IV aid and caution the student about loan debt. An institution
may do this in the offer it makes to the student.
Changes: None.
Comments: Many commenters supported the proposal eliminating the
requirement that, for a student to qualify for late disbursement, an
institution must have a valid SAR/ISIR for that student on or before
the date the student became ineligible.
Discussion: We appreciate the support for a proposal that makes it
easier for a student to qualify for a late disbursement and easier for
an institution to document that the student qualified. However, as we
noted in the NPRM, an institution must still have a valid SAR/ISIR to
make a late disbursement of a Federal Pell Grant. In this regard, two
changes are necessary.
Changes: Two conforming changes are necessary. First, we have made
a conforming change to 668.22(a)(4)(ii)(B) to increase from 90 to 120
days the amount of time within which an institution must disburse a
post-withdrawal disbursement. Second, we have made a conforming change
to Sec. 690.61(b) to exempt a student, who now otherwise qualifies for
a late disbursement, from the requirement that the student submit a
valid SAR/ISIR to the institution while the student is enrolled (the
student now qualifies, in part, when the Department processes a SAR/
ISIR with a valid EFC). As a result of this conforming change, the
deadline date for receiving a valid SAR/ISIR in Sec. 690.61(b)(2) no
longer applies to a late disbursement of a Federal Pell Grant. Rather,
the deadline date provisions for receiving a valid SAR/ISIR for the
purpose of making a late disbursement of a Federal Pell Grant are now
included as part of Sec. 668.164(g)(4).Notices and Authorizations (Section 668.165)
Comments: Many commenters supported the proposed change that would
eliminate the requirement that an institution confirm receipt by a
student of a notice sent electronically that Title IV loan funds were
credited to a student's account.
Discussion: We are appreciative of the commenters' support.
Changes: None.[[Page 67063]]Timely Return of Funds (Sections 668.171 and 668.173)
Comments: Two commenters opposed the proposal under which an
institution would have to return unearned Title IV program funds no
later than 30 days after the institution determines that a student
withdrew. The commenters stated that the process of determining which
students unofficially withdrew, and the subsequent calculation of the
amount of unearned funds, often takes longer than the 30-day period
allowed for returning the funds.
Discussion: We did not propose any changes to the 30-day timeframe
for returning unearned Title IV program funds, as currently provided in
Sec. 668.22. The proposed changes focused solely on establishing clear
requirements for returning unearned Title IV funds within the existing
30-day timeframe and the consequences if that timeframe is not met.
Consequently, we decline to accept the commenters' proposal.
Changes: None.
Comments: A few commenters objected to the 45-day proposal for
returning unearned funds by check, arguing it would be unreasonable to
hold an institution responsible for the time it takes the Secretary or
an FFEL Program lender to cash a check. One of these commenters
believed that we should not impose any requirements along these lines,
unless there is a deliberate pattern of delaying the return of unearned
funds.
Discussion: The Department or an FFEL lender (or its agent) will
usually receive a check mailed by an institution within three to five
days. Within the next day or two, that check is endorsed by the bank
used by the Department or lender, resulting in a typical timeframe of
four to seven days. Even if this process takes twice as long, an
institution would still satisfy the requirements that unearned funds
were returned in a timely manner (an institution must issue the check
no later than 30 days after it determines the student withdrew, and the
check must have been endorsed by the bank used by the Department or
lender no later than 45 days after that date). Moreover, the
regulations provide that if an institution can show that something
unusual happened that delayed the delivery or receipt of a particular
check, we will not hold the institution responsible.
Changes: None.
Comments: One commenter stated that the date on the back of the
check is not necessarily the date it was received by an FFEL lender. To
clarify the rule, the commenter suggested that we define the clearance
date as the date the check clears the lender's or Department's bank
account.
Discussion: In proposing this provision, we intended to describe
the first date that appears on a cancelled check. In this regard, the
Federal Reserve banking regulations under 12 CFR part 229, appendix D,
require a depository bank (in this case, the bank used by the
Department or FFEL lender) to evidence that it received a check by
endorsing that check. Under those regulations, the bank's endorsement
must include the routing number, the name of the bank, and the
endorsement date. We agree to revise the regulations to clarify that
the endorsement date is the date used to determine whether an
institution returned unearned funds by check in a timely manner.
Changes: Section 668.173(b)(4)(ii) is revised to provide that if a
check is used to return unearned funds, it must be endorsed by the bank
used by the Department or FFEL Program lender no later than 45 days
after the institution's determination that a student withdrew.
Comments: One commenter suggested another method of returning
unearned funds. In cases where an institution needs Title IV program
funds to make disbursements to additional eligible students, the
institution should be permitted to use unearned funds of withdrawn
students to make those disbursements instead of depositing or
transferring those funds into the institution's Federal account.
Discussion: An institution that maintains a separate Federal bank
account must deposit to that account, or transfer from its operating
account to its Federal account, the amount of unearned program funds,
as determined under Sec. 668.22. The date the institution makes that
deposit or transfer is the date used to determine whether the
institution returned the funds within the 30-day timeframe permitted in
the regulations. After that, the institution can use the unearned funds
to make disbursements to other eligible students, provided those funds
were originally received from the Department or from an FFEL lender
under a process that allows the institution to use the unearned funds
for this purpose.
However, unless the Department requires an institution to use a
separate account, the institution may use its operating account for
Title IV purposes. In this case, the institution must designate that
account as its Federal bank account, as required under Sec.
668.163(a), and have an auditable system of records showing that the
funds have been allocated properly and returned in a timely manner.
Absent a clear audit trail, the Department can require the institution
to begin maintaining Title IV funds in a separate bank account.
Moreover, the institution has a fiduciary responsibility to
segregate Federal funds from all other funds and to ensure that Federal
funds are used only for the benefit of eligible students. Absent a
separate Federal bank account, the institution must ensure that its
accounting records clearly reflect that it segregates Federal funds.
Under no circumstances may the institution use Federal funds for any
other purpose, such as paying operating expenses, collateralizing or
otherwise securing a loan, or earning interest or generating revenue in
a manner that risks the loss of Federal funds or subjects Federal funds
to liens or other attachments (such as would be the case with certain
overnight investment arrangements or sweeps). Clearly, carrying out
these fiduciary duties limits the ways the institution can otherwise
manage cash in its operating account, simply because that account
contains Federal funds.
In any event, we consider an institution that maintains (co-
mingles) Federal Title IV, HEA program funds and general operating
funds in the same bank account to satisfy the requirement under Sec.
668.173(b)(1) that it return unearned funds on a timely basis if (1)
the institution maintains subsidiary ledgers of each type of funds co-
mingled in that account that clearly show how and when those funds were
used and reconciled to its general ledger, (2) the subsidiary ledgers
for each Federal program provide a detailed audit trail on a student-
by-student basis that reconciles to the amount of Federal Title IV, HEA
program funds received and disbursed by the institution, and (3) the
institution updates the relevant subsidiary ledger accounts in its
general ledger no later than 30 days after it determines that the
student withdrew. More specifically, the return of an unearned funds
transaction should be recorded as a debit to the Federal program fund
subsidiary ledger account and credit to the institution's operating
fund subsidiary ledger account. The date of the return is the date this
transaction is posted to the institution's general ledger.
Changes: None.
Comments: One commenter felt that the letter of credit trigger
should be changed from a finding that an institution has not returned
unearned funds for ``10 percent or more'' of the sampled students, to a
finding that an institution has not returned unearned funds for ``more
than 10 percent'' of the sampled students. The commenter noted that a
``more than 10 percent''[[Page 67064]]trigger would be consistent with the
Department's Program Review Guide
and the Department's School Site Review Guide for Guaranty Agencies,
which use a trigger of ``greater than 10 percent'' as an indication of
a possible significant problem.
Discussion: We agree that the triggers should be consistent.
Changes: Section 668.173(d)(3)(iv) has been changed to require a
letter of credit upon a finding that an institution has not returned
unearned funds for more than 10 percent of the sampled students.Federal Perkins
Loan--Master Promissory Note (Sections 674.2 and
674.16) Comments: Many commenters supported the proposal to adopt a Master
Promissory Note (MPN) in the Federal Perkins Loan Program. These
commenters believe that the MPN will simplify the loan process by
eliminating the need for institutions to prepare, and students to sign,
a promissory note each award year. They also stated that uniformity
across the Title IV loan program regulations, where possible, is
beneficial for institutions and borrowers.
One commenter representing several institutions participating in
the Perkins Loan Program expressed concern about setting conditions
under which an MPN would automatically expire. The commenter stated
that there is no apparent reason for establishing arbitrary timeframes
by which an MPN will automatically expire since participating
institutions do not need to coordinate with a third party. The
commenter believed that these timeframes would diminish the
streamlining benefits of the MPN in the Perkins Loan Program and create
additional burden on institutions because they would be required to
ensure that funds are not advanced against an expired MPN.
Discussion: We appreciate the overwhelming support for an MPN in
the Perkins Loan Program and agree with those commenters that
consistency across the Title IV loan programs is beneficial to both
institutions and borrowers. We disagree with the commenter who objected
to the time limits on the use of an MPN. Because a Perkins Loan
borrower will be signing the MPN only once, we believe it is necessary
to have time limits on the use of the MPN to achieve an appropriate
balance between consumer protection and simplification of the loan
process. Further, we are not aware of any public or private loan
program that has open-ended promissory notes. In addition, the
expiration date provisions are consistent with the expiration date
provisions for FFEL and Direct Loan MPNs, and ensure that borrowers
across all three Title IV loan programs are treated consistently. We do
not believe that these time limits diminish the benefit of an MPN or
cause any additional workload for institutions.
Changes: None.Federal Perkins Loan--Write-Offs (Sections 674.9 and 674.47)
Comments: Several commenters supported the proposed regulations in
Sec. 674.47(g) and (h) to allow institutions to write off accounts of
less than $25, or less than $50, if the borrower has been billed for at
least two years. These commenters also supported the provisions that
would make it clear that a borrower whose balance has been written off
is relieved of all repayment obligations. One commenter representing
several Perkins Loan institutions recommended modifying the proposed
language under Sec. 674.47(h)(1)(ii) that would permit institutions to
write off an account with a balance of less than $50 if the borrower
has been billed for this balance for at least two years. The commenter
recommended that the language be modified so that institutions would
not be required, given the minimal amount owed, to keep accounts with
balances of less than $50 open for two years before being able to write
off these accounts. The commenter pointed out that institutions that
outsource the servicing of their loans could pay nearly 50 percent of
the value of the loan in servicing costs alone over that two-year
period.
Discussion: We appreciate the commenters' support for the increased
write-off authority. However, we disagree with the commenter who
recommended modifying the proposed language in Sec. 674.47(h) so that
institutions would not be required to bill the borrower for two years
before writing off accounts with balances of less than $50. We believe
that the proposed language ensures program integrity and financing. The
proposed language balances the need to maintain program integrity by
attempting to make the institution's Perkins revolving fund whole with
the need to provide institutions greater flexibility in servicing their
Perkins loan portfolio. The failure to collect on these funds could
affect the future level of the Perkins Loan Fund and the availability
of loans for future borrowers. Institutions that outsource the
servicing of their loans could possibly reduce servicing costs
associated with these loans by recalling these accounts and performing
the required collection action on their own. As stated in the preamble
to the August 6, 2002 NPRM, we also believe that the changes approved
by the negotiating committee will reduce costs and administrative
burden on Perkins Loan institutions.
Changes: None.Retention of Promissory Notes (Sections 674.19, 682.402, and 682.414)
Comments: Some commenters indicated that it would be simpler to
state in Sec. 682.414(a)(5)(ii) that an electronically signed
promissory note must be stored ``electronically and it must be
retrievable in a coherent format'' rather than using a cross-reference
to 34 CFR 668.24(d)(3)(i) through (iv).
Discussion: We agree that it would be simpler if FFEL Program
requirements were stated directly in the FFEL regulations to the extent
practicable. Additionally, after reviewing the provisions in Sec.
668.24(d)(3)(i)-(iv), we do not believe that they clearly address the
maintenance of electronically signed documents.
Changes: We have revised Sec. 682.414(a)(5)(ii) to replace the
cross-reference with the language recommended by the commenters. For
consistency, a comparable change also has been made in the Federal
Perkins Loan regulations at 34 CFR 674.19(e)(4)(ii).Initial and Exit Counseling
(Sections 674.42, 682.604, and 685.304) Comments: One commenter representing several institutions
participating in the Perkins Loan Program noted that the proposed
regulations in Sec. 674.42(b) did not use the term ``institution''
consistently throughout the section. Instead, both the terms
``institution'' and ``school'' were used in the section.
Discussion: We appreciate the commenter pointing out that the term
``institution'' was not used consistently in Sec. 674.42(b) and agree
that the section should be revised accordingly.
Changes: We have revised Sec. 674.42(b) by changing references to
``school'' to ``institution'' or ``the institution'' as appropriate.
Comments: One commenter representing financial aid administrators
noted that the proposed language in Sec. Sec. 682.605(f)(2)(v) and
685.304(a)(3)(iv) did not offer the option of basing the sample monthly
repayment amounts that must be provided to FFEL and Direct Loan
borrowers as part of initial counseling on the average indebtedness of
borrowers with FFEL or Direct Loan[[Page 67065]]program loans for attendance
in the borrower's program of study at the
institution. The commenter believed that since this option is available
under the corresponding exit counseling provisions it should also be
available under the initial counseling provisions. The commenter noted
that some institutions that have graduate programs or short-term
programs may want to exercise the option of providing sample monthly
repayment amounts based on a borrower's program of study and that
adding the option would not impose an additional regulatory requirement
on institutions because it would not be mandatory.
Discussion: We agree with the commenter that it is important to
offer in initial counseling the option of basing sample monthly
repayment amounts on the average indebtedness of borrowers with FFEL or
Direct Loan program loans for attendance in the borrower's program of
study at the institution. The final regulations reflect that this
option is available to institutions and to parties that provide initial
counseling for institutions.
In reviewing the preamble to the August 6, 2002 NPRM and the
proposed regulations, we discovered that our preamble discussion of the
new requirement that sample monthly repayment amounts be provided to
borrowers as part of initial counseling was inaccurate. Specifically,
the preamble to the August 6, 2002 NPRM stated that this was a new exit
counseling requirement under the FFEL Program. However, the proposed
regulations reflected a new initial counseling requirement under the
FFEL Program. We would like to take this opportunity to accurately
explain the change.
The proposed regulations did not include any changes to the current
exit counseling provisions in the Perkins, FFEL, and Direct Loan
programs that require borrowers to be informed of average anticipated
monthly repayment amounts. As part of exit counseling, Perkins, FFEL,
and Direct Loan borrowers must be informed of the average anticipated
monthly repayment amount based either on the borrower's indebtedness or
on the average indebtedness of other borrowers who have obtained
Perkins, FFEL, or Direct Loan program loans for attendance at the
borrower's institution or in the borrower's program of study at the
institution.
The proposed regulations did add to the FFEL Program's initial
counseling regulations a provision requiring that sample monthly
repayment amounts be provided to borrowers. The proposed regulations
also modified an already existing repayment-related provision in the
Direct Loan Program initial counseling regulations to mirror the new
FFEL Program provision. As a result, the new initial counseling
regulations require that FFEL and Direct Loan borrowers be informed of
sample monthly repayment amounts. In both programs, the sample monthly
repayment amounts may be based either on a range of student levels of
indebtedness or on the average indebtedness of other borrowers.
Changes: We have changed Sec. Sec. 682.604(f)(2)(v) and
685.304(a)(3)(iv) to reflect that sample monthly repayment amounts may
be based on the average indebtedness of borrowers with FFEL or Direct
Loan program loans for attendance in the borrower's program of study at
the institution.
Comments: One commenter representing an institution expressed
opposition to the provision in the proposed FFEL and Direct Loan
program exit counseling regulations that requires a borrower to
provide, as part of exit counseling updated personal information, as
well as information about the borrower's expected permanent address,
the address of the borrower's next of kin, and the name and address of
the borrower's expected employer. The commenter stated that the
regulations should not place on an institution (or a party that
provides exit counseling for an institution) the burden of requiring a
borrower to provide this information. Specifically, the commenter noted
that some of the information may not be known to a borrower at the time
exit counseling occurs and would make it difficult for an institution
to enforce this requirement. The commenter requested that we revise the
proposed regulations to state that exit counseling must ``request''
rather than ``require'' that a borrower provide the specified
information.
Discussion: The exit counseling provision to which the commenter
referred has been longstanding in the Perkins, FFEL, and Direct Loan
programs and is based on section 485(b)(2) of the HEA. We are not aware
of any problems in this area and decline to accept the commenter's
suggested change to the regulatory language. However, we would like to
assure the commenter that neither the statute nor the regulations
requires a borrower to provide information that is not known to the
borrower at the time exit counseling occurs.
Changes: None.
Comments: None.
Discussion: In reviewing the new requirement that exit counseling
provide Perkins, FFEL, and Direct Loan borrowers with information about
the availability of the Department's National Student Loan Data System
(NSLDS), we realized that there may be questions about the information
that is expected to be provided to borrowers. As agreed during
negotiated rulemaking, it is important for borrowers to be informed
that they may access NSLDS to review information about all of their
Title IV loans. To achieve this goal, borrowers must be informed of the
existence of NSLDS and of the fact that information about their Title
IV loans is stored in NSLDS. We do not want to be prescriptive in this
area. However, we believe it would be helpful to provide borrowers with
the address for the NSLDS Web site and the toll-free phone number that
borrowers may call if they do not have Internet access. The address for
the NSLDS Web site is http://www.nslds.ed.gov/. The toll-free phone
number that borrowers may call is 1-800-4-FED-AID.
Changes: None.Perkins Loan--Credit Bureau Reporting (Section 674.45)
Comments: One commenter representing several Perkins Loan
institutions agreed with the goal of clarifying when a borrower's
default status is to be reported to a national credit bureau, but
believed that the proposed change does not achieve that result. The
commenter recommended modifying the proposed language in Sec.
674.45(a)(1) to clarify that an institution must report the account as
in default, ``if the institution has not already done so'' since such
reporting typically occurs in advance of the collection procedures
being initiated. The commenter further recommended removing the words
``before beginning collection procedures'' from Sec. 674.43(f) to
provide additional clarification.
Discussion: We do not agree with the commenter's suggested changes
to the proposed language because we believe that such a change would
give the false impression that reporting default status information to
a national credit bureau for the first time is appropriate when done
before beginning collection procedures. Institutions are required by
the HEA to report to credit bureaus beginning when the loan is
disbursed and to report information concerning the repayment and
collection of any loan as soon as that loan is more than 30 days past
due.
Changes: None.[[Page 67066]]Perkins Loan--Litigation (Section 674.46)
Comments: Several commenters supported the proposal to increase
from $200 to $500 the amount that the Perkins Loan institution must use
to determine if it must litigate. However, a few commenters pointed out
that it was not cost effective to litigate accounts of $500 or less and
recommended that the minimum dollar amount be increased to $1000. One
commenter urged the Secretary to remove the two-year timeframe for
reviewing accounts for litigation and eliminate the minimum dollar
threshold because the institution is in the best position to make the
assessment as to whether it is cost effective to litigate. This
commenter pointed out that due to the institutional investment in the
Perkins Loan Program and the inherent interest in recovering these
funds, the Secretary should take every opportunity to eliminate
unnecessary regulations that result in greater expense but do not yield
greater debt recovery. The commenter felt that the proposed regulations
requiring a two-year review and increasing the minimum threshold amount
to $500 was a step in the right direction, but was not enough.
Discussion: We appreciate the support from most of the commenters.
However, we do not accept the recommendations for changes made by some
of the commenters. The preamble language contained in the NPRM
accurately describes the basis on which a consensus was reached on this
issue by the negotiators. As indicated in the preamble language, the
decision to increase the litigation threshold amount from $200 to $500
was based upon average Perkins loan balance data and our view that the
majority of these accounts should remain subject to litigation. In
addition, we continue to believe that requiring a review once every two
years ensures that these overdue accounts will remain subject to
litigation. Failure to litigate on these overdue accounts in a
relatively timely manner could result in the reduction of an
institution's revolving fund, thereby decreasing the number of loans
awarded to needy students.
Changes: None.Federal Work-Study at For-Profit Institutions (Sections 675.2 and
675.21) Comments: One commenter requested clarification on one of the
revisions made to the definition of ``student services.'' One of the
examples added to the definition of student services was assisting
instructors in curriculum-related activities. The commenter recommended
that the language in the regulation or the preamble clarify that this
means that a student may be employed under the FWS Program as a
teaching assistant.
Discussion: The amended definition of ``student services'' added
more examples of acceptable jobs in which a proprietary institution may
employ students on campus to work for the institution itself. The
example of assisting instructors in curriculum-related activities was
added to highlight that an FWS student is considered to be providing a
student service when he or she is assisting an instructor in the lab or
in other work that is related to the instructor's official academic
duties at the proprietary institution. This change does allow a student
to serve as a teaching assistant. However, an FWS student may not be
hired to be an instructor at a proprietary institution, while remaining
a FWS student.
Changes: None.
Comments: One commenter requested clarification on whether services
provided to the institution's former students meets the definition of
student services. The commenter stated that FWS students should be able
to be employed in areas such as job placement and default management
services in which the services are available to former students as well
as to current students.
Discussion: Student services are those services that provide a
benefit, either directly or indirectly, to students. Students are
persons enrolled or accepted for enrollment at the institution. An FWS
student whose job is to provide services only to the institution's
former students would not be considered to be providing a student
service because the service is not for currently enrolled students.
However, if a student's FWS job involved providing services to both
current students and to former students, the job would be considered
one that provides student services. As an example, an FWS student is
employed in the job placement office providing assistance in finding
potential employers and helping prepare resumes for current students as
well as for alumni of the institution. Because the FWS student is
providing these services to current students, the fact that he or she
is also helping alumni does not mean that the FWS student is not
providing a student service. On the other hand, if an institution has a
default management counselor job in which the employee assists only
former students of the institution, the requirement that the job be one
that provides student services would not be met because the service is
not being provided to currently enrolled students.
Changes: None.FFEL and Direct Loan--Loan Limits (Sections 682.204 and 685.203)
Comments: One commenter stated that he did not understand what
types of abuses the new loan limit regulations are intended to address.
However, the commenter felt strongly that if a program requires a
student to complete two years of prerequisite coursework in order to be
admitted, then the student should be considered a third-year student
upon admission to that program.
Discussion: As we explained in the preamble to the proposed
regulations, the new regulations clarify that an institution may not
link separate, stand-alone programs to allow students to qualify for
higher annual loan limits than they would otherwise be eligible to
receive based on the length of the program. As an example, we noted
that an institution may not allow students in one-year program ``B'' to
borrow at the second-year loan level based on the fact that they were
required to have previously completed one-year program ``A'' as a
prerequisite for admission to program ``B''. Since program ``B'' is
only one academic year in length, students enrolled in that program are
restricted to first-year annual loan limits.
We remind the commenter that the new regulations do not affect the
existing provisions in Sec. Sec. 682.204 and 685.203, which allow
undergraduate borrowers who enroll in programs that require prior
completion of an associate or baccalaureate degree to borrow at the
higher annual loan limits for third-year undergraduates. In addition,
as we noted in the preamble to the proposed regulations, the new
regulations do not restrict an institution from determining a student's
grade level based on the number of hours earned at another institution
that are applicable to the student's program at the new institution.
Changes: None.
Comments: One commenter requested that the loan limit regulations
be revised to clearly state that second-year annual loan limits apply
when prorating a loan for a student who is enrolled in the final period
of study of a program that is more than one academic year in length,
but less than two academic years in length. The commenter further
recommended that the final regulations clarify the role of the
Secretary's ``Eligibility and Certification Approval Report'' (ECAR) in
determining whether a program is longer than one academic year in
length for annual loan limit[[Page 67067]]purposes. The commenter noted that
there has been some confusion as to
whether first- or second-year annual loan limits apply for the final
portion of programs that are longer than one academic year, but shorter
than two academic years, because the section of the ECAR that
identifies the highest educational program offered by an institution
categorizes these programs as ``one year'' programs. The commenter
believed that second-year annual loan limits should apply after a
student has completed the first academic year of such a program,
regardless of how the program is classified on the ECAR.
Discussion: The commenter is correct in understanding that a
student who has completed the first academic year of a program that is
more than one academic year in length, but less than two academic years
in length, may receive a prorated loan at the second-year level for the
final portion of the program. As noted below, the current regulations
clearly support the understanding of the commenter. The proposed
changes do not affect these provisions.
The current annual loan limit regulations in the FFEL and Direct
Loan programs provide for second-year annual loan limits in the
situation described by the commenter. Sections 682.204(a)(2)(ii),
682.204(d)(2)(ii), 685.203(a)(2)(ii), and 685.203(c)(2)(ii)(B) specify
a prorated annual loan limit at the second-year undergraduate level for
students who have completed the first year of study of a program and
are in a remaining portion of the program that is less than one
academic year in length. While the ECAR contains the information that
forms the basis of an institution's approval to participate in the
Title IV, HEA programs, including the highest level of program offered,
annual loan limits are not strictly determined by the ECAR, but rather
on the actual length of the academic program.
Changes: None.FFEL--Unemployment Deferment (Sections 682.210 and by reference
685.204) Comments: Some commenters recommended that the unemployment
deferment regulations be revised in Sec. 682.210(h)(3)(iv) to state
that a borrower is not required to ``certify'' his or her search for
full-time employment. The commenters noted that Sec. 682.210(h)(2)
uses the term ``certify'' rather than ``describe'' and believed these
two regulatory provisions should use the same terminology.
Discussion: We agree that a borrower requesting a period of initial
deferment is not required to describe his or her search for full-time
employment at the time the deferment is granted. After examining the
regulations, however, we have determined that the effect of recent
regulatory changes and the proposed changes to this section of the
regulations has caused the entire first sentence of Sec.
682.210(h)(3)(iv), in which the commenter requested the change, to be
duplicative and unnecessary.
Changes: We have deleted the first sentence of proposed Sec.
682.210(h)(3)(iv) from these final regulations.
Comments: One commenter believed that it is no longer appropriate
to require a ``written certification'' in Sec. 682.210(h)(4) because
Sec. 682.210(h)(2) permits an alternative equivalent as approved by
the Secretary. The commenter recommended that the word ``written'' be
deleted from Sec. 682.210(h)(4).
Discussion: The commenter's rationale for the deletion appears to
be based on the presumption that the alternative equivalent form of
borrower certification approved by the Secretary would not be in
writing, therefore the requirement for a written certification in Sec.
682.210(h)(4) should be modified accordingly. However, the regulatory
provision permits both requirements to exist simultaneously independent
of each other; a written certification and another that applies to an
equivalent form of borrower certification approved by the Secretary.
Even if the Secretary were to approve an equivalent that would not need
to be in writing, that does not mean that the other requirement for a
written certification needs to be undone. We believe it is clearer to
amend Sec. 682.210(h)(4) to reflect an alternate approved form of
certification.
Changes: We have amended Sec. 682.210(h)(4) to include reference
to an approved equivalent.FFEL and Direct Loan--Consolidation Loan Benefits (Sections 682.402,
685.212, and 685.220) Comments: One commenter representing a guaranty agency recommended
that the new provisions in Sec. Sec. 682.402, 685.212, and 685.220
related to discharges of consolidation loans apply only to
consolidation loans made on or after July 1, 2003. The commenter
believed that they should not apply to consolidation loans made before
July 1, 2003, since it would be very difficult for program participants
to identify previous underlying loans that might qualify for discharge
under the new regulations.
The commenter also asked how a lender would file a claim when only
one of the borrowers of a joint consolidation loan qualifies for a loan
discharge under the new provisions. The commenter suggested that such
claims should be handled in a manner similar to the procedures for
unpaid refund discharge claims.
Finally, the commenter asked how a guaranty agency would assign a
portion of a joint consolidation loan to the Secretary--and who would
hold the promissory note--when a preliminary determination has been
made that one of the borrowers is totally and permanently disabled. The
commenter recommended that the entire joint consolidation loan be
assigned to the Secretary, instead of ``splitting'' the loan and
assigning only the potentially dischargeable portion.
Discussion: As we explained in the preamble to the August 6, 2002
NPRM, we suggested the changes related to consolidation loan discharges
because we believed that borrowers should be permitted to receive
discharges that they would have qualified for if they had not
consolidated their loans. We did not intend to provide the new benefits
only to borrowers who receive consolidation loans in the future.
Moreover, there was never any suggestion made during the negotiated
rulemaking that discharge eligibility should be limited based on the
date the consolidation loan was made, or the date the discharge
condition was met. Accordingly, a consolidation loan borrower may
qualify for a discharge under the new provisions regardless of when the
consolidation loan was made or when the discharge condition was met,
provided that the borrower still has an outstanding balance on the
consolidation loan at the time of the borrower's discharge request.
However, a borrower who would have qualified for a discharge of a
consolidation loan under the new regulations may not apply for a
discharge of a loan that has already been paid in full.
We would also like to note that we do not plan to attempt, nor do
we expect guaranty agencies to attempt, to identify borrowers who were
not eligible to receive loan discharges in the past, but who might
qualify under the new regulations. However, we will work with
interested parties to determine how to make information about the new
consolidation loan benefits available to the public.
With regard to filing claims when only one of the borrowers of a
joint consolidation loan qualifies for loan discharge under the new
provisions, the procedures would be the same as the procedures for
filing claims when a joint consolidation loan is partially discharged
under current regulations[[Page 67068]]due to school closure, false certification, or unpaid refund.
The assignment of joint consolidation loans to the Secretary when
one of the borrowers may qualify for a total and permanent disability
discharge involves operational issues that are not regulated. We will
work with lenders, servicers and guaranty agencies to address the
issues raised by the commenter.
Changes: None.
Comments: None.
Discussion: We have determined that the language in the proposed
regulations on loan discharge for consolidation loans did not clearly
reflect our intentions. In the case of a discharge of a consolidation
loan based on the death of the student for whom the parent had obtained
a PLUS loan that was included in the consolidation loan, or the death
or total and permanent disability of one of the borrowers of a joint
consolidation loan, the borrower or the borrower's estate should
receive the same discharge benefit that they would have received if the
loan(s) had not been consolidated. Current loan discharge regulations
in both the FFEL and Direct Loan programs provide that any payments
received after the date of a borrower's (or dependent student's) death
or after the date that a borrower became totally and permanently
disabled are returned to the borrower or the borrower's estate. In the
case of a consolidation loan, loan holders should return payments to
the borrower or the borrower's estate only if there is no remaining
balance on the consolidation loan after the discharge. Otherwise,
payments received after the date the discharge condition was met should
be reapplied to reduce the remaining outstanding balance of the
consolidation loan. Payments received after the date the discharge
condition was met should be reflected in the discharge amount,
regardless of how that amount is determined. However, the proposed
regulatory language might have suggested that the amount discharged is
limited to the applicable portion of the current outstanding balance of
the loan, and does not include a refund or reapplication of payments
received after the date that the borrower met the eligibility
requirements for the discharge.
Changes: We have revised Sec. Sec. 682.402(a)(2), 685.212(a)(3),
685.220(l)(3)(i), and 685.220(l)(3)(ii) to reflect that the amount
discharged is an amount equal to the applicable portion of the
outstanding balance of the consolidation loan as of the date that the
borrower met the eligibility requirements for the discharge.
Comments: Several commenters recommended that we add language to
Sec. 682.402(a)(2) clarifying that in the case of a joint
consolidation loan that is partially discharged due to the death or
total and permanent disability of one of the borrowers, neither that
borrower nor that borrower's estate is any longer jointly and severally
liable for repayment of the remaining portion of the consolidation
loan. One commenter proposed the addition of similar language, but also
recommended that the information in Sec. 682.402(a)(2) related to the
discharge amount be removed from that paragraph and placed in Sec.
682.402(h), which covers the payment of discharge claims by a guaranty
agency. That commenter recommended that Sec. 682.402(a)(2) be revised
to include only general discharge information.
Discussion: In the case of discharges involving the death of one of
the borrowers of a joint consolidation loan, the suggested additional
language is unnecessary. A borrower's joint and several liability for
repayment of the balance of the joint consolidation loan ends upon the
borrower's death, and an existing provision in Sec. 682.402(b)(4)
prohibits lenders from attempting to collect on a loan from the
borrower's estate or from any endorser after making a determination
that the borrower has died. The same policy applies in the Direct Loan
Program.
The commenters are not correct in assuming that a total and
permanent disability discharge of a portion of a joint consolidation
loan eliminates joint and several liability for the remaining balance
of the loan for either of the borrowers. In the case of a partial
discharge of a joint consolidation loan for a reason other than the
death of one of the borrowers, both borrowers remain jointly and
severally liable for the remaining balance of the loan. For example,
under current regulations, a joint consolidation loan may be partially
discharged if one of the borrowers meets the eligibility requirements
for discharge based on school closure, false certification, or an
unpaid refund. However, both borrowers on the joint consolidation loan
are still jointly and severally liable for the amount of the loan that
remains after the discharge has been granted. Under the new
regulations, this will also be true if a joint consolidation loan is
partially discharged based on the total and permanent disability of one
of the borrowers. That is, each borrower will remain jointly and
severally liable for repayment of the remaining portion of the
consolidation loan.
With regard to the suggestion that information on the discharge
amount be moved from Sec. 682.402(a)(2) to Sec. 682.402(h), we
understand the rationale for the commenter's recommendation. However,
we believe that this information is presented more clearly and
concisely in Sec. 682.402(a)(2).
Changes: None.
Comments: Several commenters suggested that we restore language
that was deleted from redesignated Sec. 682.402(a)(3) in the proposed
regulations. Specifically, they proposed that the words ``or a
Consolidation loan was obtained by a married couple,'' be restored
after the word ``co-makers''. The commenters believed that the deleted
language ensures that when only one of the borrowers of a co-made PLUS
loan or joint consolidation loan meets the requirements for loan
discharge based on death, total and permanent disability, or
bankruptcy, the other borrower remains obligated to repay the portion
of the loan that is not discharged.
One commenter made a similar recommendation for revising
redesignated Sec. 682.402(a)(3) to specifically state that if one of
the borrowers of a co-made PLUS loan or one of the borrowers of a joint
consolidation loan dies or becomes totally and permanently disabled,
the other borrower remains obligated to repay the remaining balance of
the loan. The commenter further noted that the proposed regulations did
not address bankruptcy situations, and recommended additional language
for redesignated Sec. 682.402(a)(3) specifying that if the loan
obligation of one of the borrowers of a co-made PLUS loan or joint
consolidation loan is stayed by a bankruptcy filing or discharged in
bankruptcy, but the other borrower's obligation is not stayed or
discharged, the other borrower remains obligated to repay the remaining
balance of the loan.
Discussion: The commenters suggest that the new loan discharge
provisions apply to both joint consolidation loans and PLUS loans
obtained jointly by two parents as co-makers. That is incorrect. The
proposed regulations that resulted from the negotiated rulemaking
sessions apply only to joint consolidation loans, not to co-made PLUS
loans.
Restoring the language that was deleted from redesignated Sec.
682.402(a)(3) would not have the effect of ensuring that the other
borrower is responsible for repaying the remaining portion of a
partially discharged joint consolidation loan, as suggested by the
commenters. In the current regulations, Sec. 682.402(a)(2)
(redesignated Sec. 682.402(a)(3)) prohibits partial discharges of both
joint consolidation loans and PLUS loans obtained by two parents as co-
makers if one of the two[[Page 67069]]borrowers dies or becomes totally and permanently disabled, has
collection of his or her loan obligation stayed by a bankruptcy filing,
or has that obligation discharged in bankruptcy, but the other borrower
does not qualify for any type of discharge. In such cases, current
regulations provide that the other borrower is responsible for repaying
the entire loan. The new regulations provide for the partial discharge
of a joint consolidation loan--but not a PLUS loan obtained by two
parents as co-makers--if one of the borrowers dies or becomes totally
and permanently disabled. To allow for this new provision, it was
necessary to remove the reference to joint consolidation loans from
redesignated Sec. 682.402(a)(3). If the language of the current
regulations were restored, there would be a conflict with the new
provisions related to discharges of joint consolidation loans.
We do not believe that it is necessary to explicitly state in the
regulations that when a joint consolidation loan is partially
discharged as a result of the death of one of the borrowers, the other
borrower remains responsible for repaying the outstanding balance of
the loan. We also do not believe that it is necessary to state in the
regulations that, as explained elsewhere in this preamble, each
borrower of a joint consolidation loan remains jointly and severally
liable for repayment of the remaining balance of the loan if the loan
is partially discharged based on the total and permanent disability of
one of the borrowers.
The new provisions related to the discharge of joint consolidation
loans do not specifically address the discharge of joint consolidation
loans due to bankruptcy, since our regulations do not determine whether
one or both of the borrowers of a joint consolidation loan is relieved
of any repayment obligation as the result of a bankruptcy filing. Such
determinations are made by a bankruptcy court in accordance with the
Bankruptcy Code.
Changes: None.
Comments: Several commenters recommended that, based on the new
regulations which allow partial discharges of joint consolidation loans
based on the death or total and permanent disability of one of the
borrowers, we make a conforming change to Sec. 682.402(k)(2)(iii) by
eliminating language that provides, in the case of claims for
reimbursement on joint consolidation loans, for the Secretary to
reimburse a guaranty agency only if each of the co-makers of the loan
has died or become totally and permanently disabled. Some commenters
also suggested additional technical changes to this paragraph to
reflect the fact that under the current total and permanent disability
discharge regulations, a guaranty agency does not make the
determination that a borrower is totally and permanently disabled.
Discussion: We agree that most of the changes suggested by the
commenters are appropriate. However, the commenters' proposed
conforming change to Sec. 682.402(k)(2)(iii) would retain current
language specifying that in the case of a bankruptcy claim, both co-
makers of a joint consolidation loan must file a petition for relief in
bankruptcy in order for a guaranty agency to be reimbursed. As
explained elsewhere in this preamble, the new provisions for the
discharge of joint consolidation loan do not address bankruptcy, since
our regulations do not determine whether a borrower who has filed for
bankruptcy is relieved of the obligation to repay a loan. For the same
reason, we do not believe that it is appropriate for Sec.
682.402(k)(2)(iii) to specify that both co-makers of a joint
consolidation loan must file for bankruptcy.
Changes: We have revised Sec. 682.402(k)(2)(iii) by removing
language that provides for reimbursement by the Secretary only if each
of the co-makers of a joint consolidation loan has died or become
totally and permanently disabled. We have also removed the reference to
determination of a borrower's total and permanent disability by the
guaranty agency.
Comments: One commenter objected to the proposed changes related to
consolidation loan discharges in Sec. Sec. 685.212(a)(3) and
685.220(l)(3) on the basis that comparable provisions were not proposed
for the FFEL Program. The commenter believed that the proposed changes
would give an unfair advantage to Direct Loan borrowers, and felt that
the new consolidation loan discharge benefits should be made available
to FFEL Program borrowers as well.
Discussion: We disagree with the commenter. The August 6, 2002 NPRM
included proposed changes in Sec. Sec. 682.402(a)(2) and 682.402(b)(6)
of the FFEL Program regulations that provide the same benefits as the
proposed changes in Sec. 685.212(a)(3) and 685.220(l)(3) of the Direct
Loan Program regulations.
Changes: None.Direct Loans--Expiration of Master Promissory Note (Section 685.102) Comments: None.
Discussion: In reviewing the proposed regulations, we realized that
the Direct Loan MPN expiration date provision based on a borrower
providing written notice that no further loans may be made under an MPN
was not stated correctly. Instead of referring to a written notice that
no further loans may be ``made,'' the proposed regulations referred to
a written notice that no further loans may be ``disbursed.'' To be
technically correct, the regulations need to refer to a written notice
that no further loans may be made.
Changes: We have revised Sec. 685.102(b)(3)(i) in the definition
of Master Promissory Note (MPN) to refer to a written notice that no
further loans may be made.GEAR UP Program (Section 694.10)
Comments: One commenter requested clarification on whether GEAR UP
funds may be used to replace a student's expected family contribution
(EFC).
Discussion: Section 404E(c) of the HEA provides that a GEAR UP
scholarship ``* * * shall not be considered for purpose of awarding
Federal grant assistance under this title, except that in no case shall
the total amount of student financial assistance awarded to a student
under this title exceed such student's total cost of attendance.''
Thus, a GEAR UP scholarship can be awarded without considering the
student's EFC as long as the total Title IV aid, including the GEAR UP
scholarship, does not exceed the student's cost of attendance. Also,
when awarding other Title IV grants, a GEAR UP scholarship is not to be
considered. The combination of these two provisions means, in effect,
that a GEAR UP scholarship may be used to replace EFC for Title IV
grants, including FSEOG. However, when awarding FWS, Federal Perkins
Loans, and subsidized FFEL or Direct Loans to a student who is
receiving a GEAR UP scholarship, GEAR UP funds may not be used to
replace the EFC.
Changes: None.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.[[Page 67070]]
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 August 6, 2002, NPRM (67 FR 51046)
and in the preamble to the August 8, 2002, NPRM (67 FR 51733).
Paperwork Reduction Act of 1995 We received no comments on the Paperwork Reduction Act portion of
the rule. 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. OMB has approved the information collection request and
assigned the following numbers to the collections of information in
these final regulations:Section 600.21 1845-0012
Section 600.31 1845-0012
Section 668.22 1845-0022
Section 668.165 1845-0038
Section 668.173 1845-0022
Section 668.183 1845-0022
Section 668.193 1845-0022
Section 673.5 1845-0019
Section 674.16 1845-0019
Section 674.19 1845-0019
Section 674.33 1845-0019
Section 674.34 1845-0019
Section 674.39 1845-0023
Section 674.42 1845-0023
Section 674.43 1845-0023
Section 674.45 1845-0023
Section 674.47 1845-0023
Section 674.50 1845-0019
Section 682.200 1845-0020
Section 682.209 1845-0020
Section 682.210 1845-0020
Section 682.211 1845-0020
Section 682.402 1845-0020
Section 682.405 1845-0020
Section 682.414 1845-0020
Section 682.604 1845-0020
Section 685.212 1845-0021
Section 685.220 1845-0021
Section 685.304 1845-0021Assessment of Educational Impact In the
NPRM we requested comments on whether the proposed
regulations would require transmission of information that any other
agency or authority of the United States gathers or makes available.
Based on the response to the NPRM and on our review, we have
determined that these final regulations do not require transmission of
information that any other agency or authority of the United States
gathers or makes available.Electronic Access to This Document You may
view this document, as well as all other Department of
Education documents published in the Federal Register, in text or Adobe
Portable Document Format (PDF) on the Internet at the following site:
http://www.ed.gov/legislation/FedRegister.
To use PDF you must have Adobe Acrobat Reader, which is available
free at this site. If you have questions about using PDF, call the U.S.
Government Printing Office (GPO), toll free, at 1-888-293-6498; or in
the Washington, DC, area at (202) 512-1530.
You may also view this document in PDF at the following
site:ifap.ed.gov. Note: The official version of this document is the document
published in the Federal Register. Free Internet access to the
official edition of the Federal Register and the Code of Federal
Regulations is available on GPO Access at: http://www.access.gpo.gov/nara/index.html.
(Catalog of Federal Domestic Assistance Numbers: 84.007 Federal
Supplemental Educational Opportunity Grant Program; 84.032 Federal
Family Education Loan Program; 84.033 Federal Work-Study Program;
84.038 Federal Perkins Loan Program; 84.063 Federal Pell Grant
Program; and 84.268 William D. Ford Federal Direct Loan Program)
List of Subjects34 CFR Parts 600 and 668 Administrative practice and procedure, Colleges and universities,
Consumer protection, Education, Grant programs-education, Loan
programs--education, Reporting and recordkeeping requirements, Student
aid, Vocational education.34 CFR Parts 673 and 675 Administrative practice and procedure, Colleges and universities,
Consumer protection, Education, Employment, Grant programs--education,
Loan programs--education, Reporting and recordkeeping requirements,
Student aid, Vocational education.34 CFR Parts 674, 682, and 685 Administrative
Practice and Procedure, Colleges and universities,
Education, Loans program--education, Reporting and recordkeeping
requirements, Student aid, Vocational education.34 CFR Part 690 Grant programs--education,
Reporting and recordkeeping
requirements, Student aid.34 CFR Part 694 Colleges and universities, Elementary and secondary education,
Grant programs--education, Reporting and recordkeeping requirements,
Student aid. Dated: October 23, 2002.
Rod Paige,
Secretary of Education. For the reasons discussed in the preamble, the Secretary amends
parts 600, 668, 673, 674, 675, 682, 685, 690, and 694 of title 34 of
the Code of Federal Regulations as follows:
PART 600--INSTITUTIONAL ELIGIBILITY UNDER THE HIGHER EDUCATION ACT
OF 1965, AS AMENDED 1. The authority citation for part 600 is revised to read as
follows: Authority: 20 U.S.C. 1001, 1002, 1003, 1088, 1091, 1094, 1099b,
and 1099c, unless otherwise noted.
Sec. 600.8 [Amended] 2. Section 600.8 is amended by adding ``proprietary institution of
higher education or a postsecondary vocational'' after ``eligible''. 3. Section 600.21 is amended:
A. By revising paragraph (f);
B. By revising the Office of Management and Budget control number.
The revisions read as follows:
Sec. 600.21 Updating application information.* * * * *
(f) Definition. A family member includes a person's--
(1) Parent or stepparent, sibling or step-sibling, spouse, child or
stepchild, or grandchild or step-grandchild;
(2) Spouse's parent or stepparent, sibling or step-sibling, child
or stepchild, or grandchild or step-grandchild;
(3) Child's spouse; and
(4) Sibling's spouse.(Approved by the Office of Management and Budget under control
number 1845-0012)
4. Section 600.31 is amended:
A. By revising paragraph (e);
B. By revising the Office of Management and Budget control number.
The revisions read as follows:
Sec. 600.31 Change in ownership resulting in a change in control for
private nonprofit, private for-profit and public institutions.* * * * *
(e) Excluded transactions. A change in ownership and control
reported under Sec. 600.21 and otherwise subject to this section does
not include a transfer of ownership and control of all or part of an
owner's equity or partnership interest in an institution, the[[Page 67071]]
institution's parent corporation, or other legal entity that has signed
the institution's Program Participation Agreement--
(1) From an owner to a ``family member'' of that owner as defined
in Sec. 600.21(f); or
(2) Upon the retirement or death of the owner, to a person with an
ownership interest in the institution who has been involved in
management of the institution for at least two years preceding the
transfer and who has established and retained the ownership interest
for at least two years prior to the transfer.
(Approved by the Office of Management and Budget under control
number 1845-0012)PART 668--STUDENT ASSISTANCE GENERAL PROVISIONS 5.
The authority citation for part 668 continues to read as
follows: Authority: 20 U.S.C. 1001, 1002, 1003, 1085, 1091, 1091b, 1092,
1094, 1099c, and 1099c-1, unless otherwise noted.
Sec. 668.2 [Amended] 6. Section 668.2(b) is amended by removing the definition of
``Academic year''. 7. Section 668.3 is revised to read as follows:
Sec. 668.3 Academic year. (a) General. Except as provided in paragraph (c) of this section,
an academic year is a period that begins on the first day of classes
and ends on the last day of classes or examinations during which--
(1) An institution provides a minimum of 30 weeks of instructional
time; and
(2) For an undergraduate educational program, a full-time student
is expected to complete at least--
(i) Twenty-four semester or trimester credit hours or 36 quarter
credit hours for a program measured in credit hours; or
(ii) 900 clock hours for a program measured in clock hours.
(b) Definitions. For purposes of paragraph (a) of this section--
(1) A week is a consecutive seven-day period;
(2) A week of instructional time is any week in which at least one
day of regularly scheduled instruction or examinations occurs or, after
the last scheduled day of classes for a term or payment period, at
least one day of study for final examinations occurs; and
(3) Instructional time does not include any vacation periods,
homework, or periods of orientation or counseling.
(c) Reduction in the length of an academic year.
(1) Upon the written request of an institution, the Secretary may
approve, for good cause, an academic year of 26 through 29 weeks of
instructional time for educational programs offered by the institution
if the institution offers a two-year program leading to an associate
degree or a four-year program leading to a baccalaureate degree.
(2) An institution's written request must--
(i) Identify each educational program for which the institution
requests a reduction, and the requested number of weeks of
instructional time for that program;
(ii) Demonstrate good cause for the requested reductions; and
(iii) Include any other information that the Secretary may require
to determine whether to grant the request.
(3)(i) The Secretary approves the request of an eligible
institution for a reduction in the length of its academic year if the
institution has demonstrated good cause for granting the request and
the institution's accrediting agency and State licensing agency have
approved the request.
(ii) If the Secretary approves the request, the approval terminates
when the institution's program participation agreement expires. The
institution may request an extension of that approval as part of the
recertification process.(Approved by the Office of Management and Budget under control
number 1845-0022)(Authority: 20 U.S.C. 1088) 8. Section 668.4 is revised to read as follows:
Sec. 668.4 Payment period. (a) Payment periods for an eligible program that measures progress
in credit hours and has academic terms. For a student enrolled in an
eligible program that measures progress in credit hours and has
academic terms, the payment period is the academic term.
(b) Payment periods for an eligible program that measures progress
in credit hours and does not have academic terms. (1) For a student
enrolled in an eligible program that is one academic year or less in
length--
(i) The first payment period is the period of time in which the
student completes half the number of credit hours in the program and
half the number of weeks in the program; and
(ii) The second payment period is the period of time in which the
student completes the program.
(2) For a student enrolled in an eligible program that is more than
one academic year in length--
(i) For the first academic year and any subsequent full academic
year--
(A) The first payment period is the period of time in which the
student completes half the number of credit hours in the academic year
and half the number of weeks in the academic year; and
(B) The second payment period is the period of time in which the
student completes the academic year.
(ii) For any remaining portion of an eligible program that is more
than one-half an academic year but less than a full academic year in
length--
(A) The first payment period is the period of time in which the
student completes half the number of credit hours in the remaining
portion of the program and half the number of weeks remaining in the
program; and
(B) The second payment period is the period of time in which the
student completes the remainder of the program.
(iii) For any remaining portion of an eligible program that is not
more than half an academic year, the payment period is the remainder of
the program.
(3) For purposes of paragraphs (b)(1) and (b)(2) of this section,
if an institution is unable to determine when a student has completed
half of the credit hours in a program, academic year, or remainder of a
program; the student is considered to begin the second payment period
of the program, academic year, or remainder of a program at the later
of--
(i) The date, as determined by the institution, on which the
student has completed half of the academic coursework in the program,
academic year, or remainder of the program; or
(ii) The calendar midpoint between the first and last scheduled
days of class of the program, academic year, or remainder of the
program.
(c) Payment periods for an eligible program that measures progress
in clock hours. (1) For a student enrolled in an eligible program that
is one academic year or less in length--
(i) The first payment period is the period of time in which the
student completes half the number of clock hours in the program; and
(ii) The second payment period is the period of time in which the
student completes the program.
(2) For a student enrolled in an eligible program that is more than
one academic year in length--
(i) For the first academic year and any subsequent full academic
year--
(A) The first payment period is the period of time in which the
student completes half the number of clock hours in the academic year;
and[[Page 67072]] (B) The second payment period is the period of time in which the
student completes the academic year.
(ii) For any remaining portion of an eligible program that is more
than one-half an academic year but less than a full academic year in
length--
(A) The first payment period is the period of time in which the
student completes half the number of clock hours in the remaining
portion of the program; and
(B) The second payment period is the period of time in which the
student completes the remainder of the program.
(iii) For any remaining portion of an eligible program that is not
more than one half of an academic year, the payment period is the
remainder of the program.
(d) Number of payment periods. Notwithstanding paragraphs (b) and
(c) of this section, an institution may choose to have more than two
payment periods. If an institution so chooses, the regulations in
paragraphs (b) and (c) of this section are modified to reflect the
increased number of payment periods. For example, if an institution
chooses to have three payment periods in an academic year in a program
that measures progress in credit hours but does not have academic
terms, each payment period must correspond to one-third of the academic
year measured in both credit hours and weeks of instruction.
(e) Re-entry within 180 days. If a student withdraws from a program
described in paragraph (b) or (c) of this section during a payment
period and then reenters the same program within 180 days, the student
remains in that same payment period when he or she returns and, subject
to conditions established by the Secretary or by the FFEL lender or
guaranty agency, is eligible to receive any title IV, HEA program funds
for which he or she was eligible prior to withdrawal, including funds
that were returned by the institution or student under the provisions
of Sec. 668.22.
(f) Re-entry after 180 days or transfer. (1) Subject to the
conditions of paragraph (f)(2) of this section, an institution
calculates new payment periods for the remainder of a student's program
based on paragraphs (b) through (d) of this section, for a student who
withdraws from a program described in paragraph (b) or (c) of this
section, and--
(i) Reenters that program after 180 days,
(ii) Transfers into another program at the same institution within
any time period, or
(iii) Transfers into a program at another institution within any
time period.
(2) For a student described in paragraph (f)(1) of this section--
(i) For the purpose of calculating payment periods only, the length
of the program is the number of credit hours and the number of weeks,
or the number of clock hours, that the student has remaining in the
program he or she enters or reenters; and
(ii) If the remaining hours, and weeks if applicable, constitute
one-half of an academic year or less, the remaining hours constitute
one payment period.(Authority: 20 U.S.C. 1070 et seq.) 9. Section 668.8 is amended by:
A. Revising paragraph (b)(3).
B. Removing paragraph (b)(4).
The revision reads as follows:
Sec. 668.8 Eligible program.* * * * *
(b) * * *
(3)(i) The Secretary considers that an institution provides one
week of instructional time in an academic program during any week the
institution provides at least one day of regularly scheduled
instruction or examinations, or, after the last scheduled day of
classes for a term or a payment period, at least one day of study for
final examinations.
(ii) Instructional time does not include any vacation periods,
homework, or periods of orientation or counseling.
* * * * * 10. Section 668.14(b)(22) is revised to read as follows:
Sec. 668.14 Program participation agreement.* * * * *
(b) * * *
(22)(i) It will not provide any commission, bonus, or other
incentive payment based directly or indirectly upon success in securing
enrollments or financial aid to any person or entity engaged in any
student recruiting or admission activities or in making decisions
regarding the awarding of title IV, HEA program funds, except that this
limitation does not apply to the recruitment of foreign students
residing in foreign countries who are not eligible to receive title IV,
HEA program funds.
(ii) Activities and arrangements that an institution may carry out
without violating the provisions of paragraph (b)(22)(i) of this
section include, but are not limited to:
(A) The payment of fixed compensation, such as a fixed annual
salary or a fixed hourly wage, as long as that compensation is not
adjusted up or down more than twice during any twelve month period, and
any adjustment is not based solely on the number of students recruited,
admitted, enrolled, or awarded financial aid. For this purpose, an
increase in fixed compensation resulting from a cost of living increase
that is paid to all or substantially all full-time employees is not
considered an adjustment.
(B) Compensation to recruiters based upon their recruitment of
students who enroll only in programs that are not eligible for title
IV, HEA program funds.
(C) Compensation to recruiters who arrange contracts between the
institution and an employer under which the employer's employees enroll
in the institution, and the employer pays, directly or by
reimbursement, 50 percent or more of the tuition and fees charged to
its employees; provided that the compensation is not based upon the
number of employees who enroll in the institution, or the revenue they
generate, and the recruiters have no contact with the employees.
(D) Compensation paid as part of a profit-sharing or bonus plan, as
long as those payments are substantially the same amount or the same
percentage of salary or wages, and made to all or substantially all of
the institution's full-time professional and administrative staff. Such
payments can be limited to all, or substantially all of the full-time
employees at one or more organizational level at the institution,
except that an organizational level may not consist predominantly of
recruiters, admissions staff, or financial aid staff.
(E) Compensation that is based upon students successfully
completing their educational programs, or one academic year of their
educational programs, whichever is shorter. For this purpose,
successful completion of an academic year means that the student has
earned at least 24 semester or trimester credit hours or 36 quarter
credit hours, or has successfully completed at least 900 clock hours of
instruction at the institution.
(F) Compensation paid to employees who perform clerical ``pre-
enrollment'' activities, such as answering telephone calls, referring
inquiries, or distributing institutional materials.
(G) Compensation to managerial or supervisory employees who do not
directly manage or supervise employees who are directly involved in
recruiting or admissions activities, or the awarding of title IV, HEA
program funds.
(H) The awarding of token gifts to the institution's students or
alumni, provided that the gifts are not in the form of money, no more
than one gift is provided annually to an individual, and[[Page 67073]]the cost
of the gift is not more than $100.
(I) Profit distributions proportionately based upon an individual's
ownership interest in the institution.
(J) Compensation paid for Internet-based recruitment and admission
activities that provide information about the institution to
prospective students, refer prospective students to the institution, or
permit prospective students to apply for admission on-line.
(K) Payments to third parties, including tuition sharing
arrangements, that deliver various services to the institution,
provided that none of the services involve recruiting or admission
activities, or the awarding of title IV, HEA program funds.
(L) Payments to third parties, including tuition sharing
arrangements, that deliver various services to the institution, even if
one of the services involves recruiting or admission activities or the
awarding of title IV, HEA program funds, provided that the individuals
performing the recruitment or admission activities, or the awarding of
title IV, HEA program funds, are not compensated in a manner that would
be impermissible under paragraph (b)(22) of this section.
* * * * * 11. Section 668.22 is amended by:
A. In paragraph (a)(3), removing ``Sec. 668.164(g)(2)'' and
adding, in its place, ``Sec. 668.164(g)''.
B. In paragraph (a)(4)(ii)(B), removing ``90'' and adding, in its
place, ``120''.
C. Revising paragraph (b)(3)(i).
D. Revising paragraph (d)(1)(vi).
E. Removing paragraph (d)(1)(vii).
F. Redesignating paragraphs (d)(1)(viii) and (d)(1)(ix) as
paragraphs (d)(1)(vii) and (d)(1)(viii), respectively, and revising the
newly designated paragraph (d)(1)(vii).
G. Removing paragraph (d)(2).
H. Redesignating paragraphs (d)(3) and (d)(4) as paragraphs (d)(2)
and (d)(3), respectively.
I. Removing ``on'' and adding, in its place, ``at'' in newly
redesignated paragraph (d)(2).
J. Removing ``are'' and adding, in its place, ``is'' in newly
redesignated paragraph (d)(3)(i).
K. Adding ``, that includes the reason for the request,'' after
``request'' in the first sentence in newly redesignated paragraph
(d)(3)(iii)(B).
L. Adding ``The timeframe for returning funds is further described
in Sec. 668.173(b).'' at the end of paragraph (j)(1).
The revisions and additions read as follows:
Sec. 668.22 Treatment of title IV funds when a student withdraws.* * * * *
(b) * * *
(3)(i) An institution is required to take attendance if an outside
entity (such as the institution's accrediting agency or a State agency)
has a requirement, as determined by the entity, that the institution
take attendance.
* * * * *
(d) * * *
(1) * * *
(vi) The number of days in the approved leave of absence, when
added to the number of days in all other approved leaves of absence,
does not exceed 180 days in any 12-month period;
(vii) Except for a clock hour or nonterm credit hour program, upon
the student's return from the leave of absence, the student is
permitted to complete the coursework he or she began prior to the leave
of absence; and
* * * * *
Sec. 668.32 [Amended] 12. Section 668.32(e)(2) is amended by removing ``within 12 months
before the date the student initially receives title IV, HEA program
assistance,''. 13. Section 668.35 is amended:
A. In paragraph (a)(2), by adding new introductory text.
B. By redesignating paragraphs (b), (c), (d), (e), and (f) as
paragraphs (d), (e), (f), (g), and (h) respectively.
C. By adding new paragraphs (b) and (c).
D. By revising newly redesignated paragraph (e).
The revision and additions read as follows:
Sec. 668.35 Student debts under the HEA and to the U.S. (a) * * *
(2) Except as limited by paragraph (c) of this section--
* * * * *
(b) A student who is subject to a judgment for failure to repay a
loan made under a title IV, HEA loan program may nevertheless be
eligible to receive title IV, HEA program assistance if the student--
(1) Repays the debt in full; or
(2) Except as limited by paragraph (c) of this section--
(i) Makes repayment arrangements that are satisfactory to the
holder of the debt; and
(ii) Makes at least six consecutive, voluntary monthly payments
under those arrangements. Voluntary payments are those payments made
directly by the borrower, and do not include payments obtained by
Federal offset, garnishment, or income or asset execution.
(c) A student who reestablishes eligibility under either paragraph
(a)(2) of this section or paragraph (b)(2) of this section may not
reestablish eligibility again under either of those paragraphs.
* * * * *
(e) A student who receives an overpayment under the Federal Perkins
Loan Program, or under a title IV, HEA grant program may nevertheless
be eligible to receive title IV, HEA program assistance if--
(1) The student pays the overpayment in full;
(2) The student makes arrangements satisfactory to the holder of
the overpayment debt to pay the overpayment; or
(3) The overpayment amount is less than $25 and is neither a
remaining balance nor a result of the application of the overaward
threshold in 34 CFR 673.5(d).
* * * * *
Sec. 668.151 [Amended] 14. Section 668.151(a)(2) is amended by adding the words ``it
received from an approved test publisher or assessment center'' after
``an approved test''. 15. Section 668.164(g) is revised to read as follows:
Sec. 668.164 Disbursing funds.* * * * *
(g) Late disbursements. (1) Ineligible student. For purposes of
this paragraph, an otherwise eligible student becomes ineligible to
receive title IV, HEA program funds on the date that--
(i) For a loan under the FFEL and Direct Loan programs, the student
is no longer enrolled at the institution as at least a half-time
student for the period of enrollment for which the loan was intended;
or
(ii) For an award under the Federal Pell Grant, FSEOG, and Federal
Perkins Loan programs, the student is no longer enrolled at the
institution for the award year.
(2) Conditions for a late disbursement. Except as limited under
paragraph (g)(4) of this section, a student who becomes ineligible (or
the student's parent in the case of a PLUS loan) qualifies for a late
disbursement if, before the date the student became ineligible--
(i) Except in the case of a PLUS loan, the Secretary processed a
SAR or ISIR with an official expected family contribution; and
(ii) (A) For a loan under the FFEL or Direct Loan programs, the
institution certified or originated the loan; or[[Page 67074]] (B) For an award
under the Federal Perkins Loan or FSEOG programs,
the institution made that award to the student.
(3) Making a late disbursement. Provided that the conditions
described in paragraph (g)(2) of this section are satisfied--
(i) If the student withdrew from the institution during a payment
period or period of enrollment, the institution must make any post-
withdrawal disbursement required under Sec. 668.22(a)(3) in accordance
with the provisions of Sec. 668.22(a)(4);
(ii) If the student successfully completed the payment period or
period of enrollment, the institution must provide the student (or
parent) the opportunity to receive the amount of title IV, HEA program
funds that the student (or parent) was eligible to receive while the
student was enrolled at the institution. For a late disbursement in
this circumstance, the institution may credit the student's account to
pay for current and allowable charges as described in paragraph (d) of
this section, but must pay or offer any remaining amount to the student
or parent; or
(iii) If the student did not withdraw but ceased to be enrolled as
at least a half-time student, the institution may make the late
disbursement of a loan under the FFEL or Direct Loan programs to pay
for educational costs that the institution determines the student
incurred for the period in which the student was eligible.
(4) Limitations. (i) Generally, an institution may not make a late
disbursement later than 120 days after the date of the institution's
determination that the student withdrew, as provided under Sec.
668.22, or, for a student who did not withdraw, 120 days after the date
the student otherwise became ineligible. On an exception basis, and
with the approval of the Secretary, an institution may make a late
disbursement after the applicable 120-day period, if the reason the
late disbursement was not made within the 120-day period was not the
fault of the student.
(ii) An institution may not make a second or subsequent late
disbursement of a loan under the FFEL or Direct Loan programs unless
the student successfully completed the period of enrollment for which
the loan was intended.
(iii) An institution may not make a late disbursement of a loan
under the FFEL or Direct Loan programs if the student was a first-year,
first-time borrower unless the student completed the first 30 days of
his or her program of study. This limitation does not apply if the
institution is exempt from the 30-day delayed disbursement requirements
under Sec. 682.604(c)(5)(i), (ii), or (iii) or Sec.
685.303(b)(4)(i)(A), (B), or (C) of this chapter.
(iv) An institution may not make a late disbursement of a Federal
Pell Grant unless it received a valid SAR or a valid ISIR for the
student by the deadline date established by the Secretary in a notice
published in the Federal Register. 16. Section 668.165 is amended:
A. By revising paragraph (a)(3);
B. By revising the Office of Management and Budget control number.
The revisions read as follows:
Sec. 668.165 Notices and authorizations. (a) * * *
(3) The institution must send the notice described in paragraph
(a)(2) of this section in writing no earlier than 30 days before, and
no later than 30 days after, crediting the student's account at the
institution.
* * * * *(Approved by the Office of Management and Budget under control
number 1845-0038)
Sec. 668.171 [Amended] 17. Section 668.171(b) is amended by:
A. Removing ``refunds'' and adding, in its place, ``returns of
unearned title IV HEA program funds'' in paragraph (b)(2).
B. Removing ``and the payment of post-withdrawal disbursements
under Sec. 668.22'' in paragraph (b)(4)(i). 18. Section 668.173 is amended by:
A. Revising paragraphs (a) through (c).
B. Redesignating paragraph (d) as paragraph (f).
C. Adding new paragraphs (d) and (e).
D. Adding an Office of Management and Budget control number.
The revisions and additions read as follows:
Sec. 668.173 Refund reserve standards. (a) General. The Secretary considers that an institution has
sufficient cash reserves, as required under Sec. 668.171(b)(2), if the
institution--
(1) Satisfies the requirements for a public institution under Sec.
668.171(c)(1);
(2) Is located in a State that has a tuition recovery fund approved
by the Secretary and the institution contributes to that fund; or
(3) Returns, in a timely manner as described in paragraph (b) of
this section, unearned title IV, HEA program funds that it is
responsible for returning under the provisions of Sec. 668.22 for a
student that withdrew from the institution.
(b) Timely return of title IV, HEA program funds. In accordance
with procedures established by the Secretary or FFEL Program lender, an
institution returns unearned title IV, HEA funds timely if--
(1) The institution deposits or transfers the funds into the bank
account it maintains under Sec. 668.163 no later than 30 days after
the date it determines that the student withdrew;
(2) The institution initiates an electronic funds transfer (EFT) no
later than 30 days after the date it determines that the student
withdrew;
(3) The institution initiates an electronic transaction, no later
than 30 days after the date it determines that the student withdrew,
that informs an FFEL lender to adjust the borrower's loan account for
the amount returned; or
(4) The institution issues a check no later than 30 days after the
date it determines that the student withdrew. However, the Secretary
considers that the institution did not satisfy this requirement if--
(i) The institution's records show that the check was issued more
than 30 days after the date the institution determined that the student
withdrew; or
(ii) The date on the cancelled check shows that the bank used by
the Secretary or FFEL Program lender endorsed that check more than 45
days after the date the institution determined that the student
withdrew.
(c) Compliance thresholds. (1) An institution does not comply with
the reserve standard under Sec. 668.173(a)(3) if, in a compliance
audit conducted under Sec. 668.23, an audit conducted by the Office of
the Inspector General, or a program review conducted by the Department
or guaranty agency, the auditor or reviewer finds--
(i) In the sample of student records audited or reviewed that the
institution did not return unearned title IV, HEA program funds within
the timeframes described in paragraph (b) of this section for 5% or
more of the students in the sample. (For purposes of determining this
percentage, the sample includes only students for whom the institution
was required to return unearned funds during its most recently
completed fiscal year.); or
(ii) A material weakness or reportable condition in the
institution's report on internal controls relating to the return of
unearned title IV, HEA program funds.
(2) The Secretary does not consider an institution to be out of
compliance with the reserve standard under Sec. 668.173(a)(3) if the
institution is cited in any audit or review report because it did not
return unearned funds in a timely manner for one or two students,[[Page 67075]]
or for less than 5% of the students in the sample referred to in
paragraph (c)(1)(i) of this section.
(d) Letter of credit. (1) Except as provided under paragraph (e)(1)
of this section, an institution that can satisfy the reserve standard
only under paragraph (a)(3) of this section, must submit an irrevocable
letter of credit acceptable and payable to the Secretary if a finding
in an audit or review shows that the institution exceeded the
compliance thresholds in paragraph (c) of this section for either of
its two most recently completed fiscal years.
(2) The amount of the letter of credit required under paragraph
(d)(1) of this section is 25 percent of the total amount of unearned
title IV, HEA program funds that the institution was required to return
under Sec. 668.22 during the institution's most recently completed
fiscal year.
(3) An institution that is subject to paragraph (d)(1) of this
section must submit to the Secretary a letter of credit no later than
30 days after the earlier of the date that--
(i) The institution is required to submit its compliance audit;
(ii) The Office of the Inspector General issues a final audit
report;
(iii) The designated department official issues a final program
review determination;
(iv) The Department issues a preliminary program review report or
draft audit report, or a guaranty agency issues a preliminary report
showing that the institution did not return unearned funds for more
than 10% of the sampled students; or
(v) The Secretary sends a written notice to the institution
requesting the letter of credit that explains why the institution has
failed to return unearned funds in a timely manner.
(e) Exceptions. With regard to the letter of credit described in
paragraph (d) of this section--
(1) An institution does not have to submit the letter of credit if
the amount calculated under paragraph (d)(2) of this section is less
than $5,000 and the institution can demonstrate that it has cash
reserves of at least $5,000 available at all times.
(2) An institution may delay submitting the letter of credit and
request the Secretary to reconsider a finding made in its most recent
audit or review report that it failed to return unearned title IV, HEA
program funds in a timely manner if--
(i)(A) The institution submits documents showing that the unearned
title IV, HEA program funds were not returned in a timely manner solely
because of exceptional circumstances beyond the institution's control
and that the institution would not have exceeded the compliance
thresholds under paragraph (c)(1) of this section had it not been for
these exceptional circumstances; or
(B) The institution submits documents showing that it did not fail
to make timely refunds as provided under paragraphs (b) and (c) of this
section; and
(ii) The institution's request, along with the documents described
in paragraph (e)(2)(i) of this section, is submitted to the Secretary
no later than the date it would otherwise be required to submit a
letter of credit under paragraph (d)(3).
(3) If the Secretary denies the institution's request under
paragraph (e)(2) of this section, the Secretary notifies the
institution of the date it must submit the letter of credit.
* * * * *(Approved by the Office of Management and Budget under control
number 1845-0022)
19. Section 668.174(c)(4) is revised to read as follows:
Sec. 668.174 Past performance.* * * * *
(c) * * *
(4) ``Family member'' is defined in Sec. 600.21(f) of this
chapter.
Sec. 668.183 [Amended] 20. Section 668.183(c)(1) is amended as follows:
A. In paragraph (c)(1)(ii), by adding ``or'' after the semi-colon.
B. By removing paragraph (c)(1)(iii).
C. By redesignating paragraph (c)(1)(iv) as paragraph (c)(1)(iii).
Sec. 668.193 [Amended] 21. Section 668.193 is amended:
A. In paragraph (d)(1), by removing the last sentence.
B. By removing paragraph (f)(3).PART 673--GENERAL PROVISIONS FOR
THE FEDERAL PERKINS LOAN PROGRAM,
FEDERAL WORK-STUDY PROGRAM, AND FEDERAL SUPPLEMENTAL EDUCATIONAL
OPPORTUNITY GRANT PROGRAM 22. The authority citation for part 673 continues to read as
follows: Authority: 20 U.S.C. 421-429, 1070b-1070b-3, and 1087aa-1087ii;
42 U.S.C. 2751-2756b, unless otherwise noted.
23. Section 673.5(f) is revised to read as follows:
Sec. 673.5 Overaward.* * * * *
(f) Liability for and recovery of Federal Perkins loans and FSEOG
overpayments. (1) Except as provided in paragraphs (f)(2) and (f)(3) of
this section, a student is liable for any Federal Perkins loan or FSEOG
overpayment made to him or her. An FSEOG overpayment for purposes of
this paragraph does not include the non-Federal share of an FSEOG award
if an institution meets its FSEOG matching share by the individual
recipient method or the aggregate method.
(2) The institution is liable for a Federal Perkins loan or FSEOG
overpayment if the overpayment occurred because the institution failed
to follow the procedures in this part or 34 CFR parts 668, 674, or 676.
The institution shall restore an amount equal to the overpayment and
any administrative cost allowance claimed on that amount to its loan
fund for a Federal Perkins loan overpayment or to its FSEOG account for
an FSEOG overpayment.
(3) A student is not liable for, and the institution is not
required to attempt recovery of, a Federal Perkins loan or FSEOG
overpayment, nor is the institution required to refer an FSEOG
overpayment to the Secretary, if the overpayment--
(i) Is less than $25; and
(ii) Is neither a remaining balance nor a result of the application
of the overaward threshold in paragraph (d) of this section.
(4)(i) Except as provided in paragraph (f)(3) of this section, if
an institution makes a Federal Perkins loan or FSEOG overpayment for
which it is not liable, it shall promptly send a written notice to the
student requesting repayment of the overpayment amount. The notice must
state that failure to make that repayment, or to make arrangements
satisfactory to the holder of the overpayment debt to pay the
overpayment, makes the student ineligible for further title IV, HEA
program funds until final resolution of the overpayment.
(ii) If a student objects to the institution's Federal Perkins loan
or FSEOG overpayment determination on the grounds that it is erroneous,
the institution shall consider any information provided by the student
and determine whether the objection is warranted.
(5) Except as provided in paragraph (f)(3) of this section, if a
student fails to repay an FSEOG overpayment or make arrangements
satisfactory to the holder of the overpayment debt to repay the FSEOG
overpayment after the institution has taken the action required by
paragraph (f)(4) of this section, the institution must refer the FSEOG
overpayment to the Secretary for[[Page 67076]]collection purposes in accordance with procedures required by the
Secretary. After referring the FSEOG overpayment to the Secretary under
this section, the institution need make no further effort to recover
the overpayment.PART 674--FEDERAL PERKINS LOAN PROGRAM 24.
The authority citation for part 674 continues to read as
follows: Authority: 20 U.S.C. 1087aa-1087hh and 20 U.S.C. 421-429, unless
otherwise noted.
25. Section 674.2(b) is amended:
A. By revising the definition of ``Making of a loan''.
B. By adding, in alphabetical order, a new definition of ``Master
Promissory Note (MPN)''.
The revision and addition read as follows:
Sec. 674.2 Definitions.* * * * *
(b) * * *
Making of a loan: When the institution makes the first disbursement
of a loan to a student for an award year.
Master Promissory Note (MPN): A promissory note under which the
borrower may receive loans for a single award year or multiple award
years.
* * * * * 26. Section 674.9 is amended:
A. By removing paragraph (g).
B. By redesignating paragraphs (h), (i), (j), (k) and (l) as
paragraphs (g), (h), (i), (j) and (k), respectively.
C. In newly redesignated paragraph (g)(3), by removing ``(h)(1) and
(h)(2)'' and adding, in its place, ``(g)(1) and (g)(2)''; and by
removing the period at the end of the last sentence and adding, in its
place, a ``; and''.
D. By revising newly redesignated paragraph (j).
The revision reads as follows:
Sec. 674.9 Student eligibility.* * * * *
(j) In the case of a borrower who is in default on a Federal
Perkins Loan, NDSL or Defense loan, satisfies one of the conditions
contained in Sec. 674.5(c)(3)(i) or (ii) except that--
(1) For purposes of this section, voluntary payments made by the
borrower under paragraph (i) of this section are those payments made
directly by the borrower; and
(2) Voluntary payments do not include payments obtained by Federal
offset, garnishment, or income or asset execution.
* * * * * 27. Section 674.16 is amended:
A. By revising paragraph (d)(2).
B. By adding a new paragraph (d)(3).
The revision and addition read as follows:
Sec. 674.16 Making and disbursing loans.* * * * *
(d) * * *
(2) The institution shall ensure that each loan is supported by a
legally enforceable promissory note as proof of the borrower's
indebtedness.
(3) If the institution uses a Master Promissory Note (MPN), the
institution's ability to make additional loans based on that MPN will
automatically expire upon the earliest of--
(i) The date the institution receives written notification from the
borrower requesting that the MPN no longer be used as the basis for
additional loans;
(ii) Twelve months after the date the borrower signed the MPN if no
disbursements are made by the institution under that MPN; or
(iii) Ten years from the date the borrower signed the MPN or the
date the institution receives the MPN, except that a remaining portion
of a loan may be disbursed after this date.
* * * * *
Sec. 674.17 [Amended] 28. Section 674.17 is amended:
A. In paragraph (a), by removing in the introductory text ``one or
more of''.
B. By removing paragraph (a)(2).
C. By redesignating paragraph (a)(3) as paragraph (a)(2).
D. In newly redesignated paragraph (a)(2), by removing ``transfer''
and adding, in its place, ``assignment''; and by removing ``Department
of Education'' and adding, in its place, ``United States''.
E. In paragraph (b), by removing ``transfers'' and adding, in its
place, ``assigns''.
F. By removing paragraphs (c), (d), and (e). 29. Section 674.19(e)(4) is revised to read as follows:
Sec. 674.19 Fiscal procedures and records.* * * * *
(e) * * *
(4) Manner of retention of promissory notes and repayment
schedules. An institution shall keep the original promissory notes and
repayment schedules until the loans are satisfied. If required to
release original documents in order to enforce the loan, the
institution must retain certified true copies of those documents.
(i) An institution shall keep the original paper promissory note or
original paper Master Promissory Note (MPN) and repayment schedules in
a locked, fireproof container.
(ii) If a promissory note was signed electronically, the
institution must store it electronically and the promissory note must
be retrievable in a coherent format.
(iii) After the loan obligation is satisfied, the institution shall
return the original or a true and exact copy of the note marked ``paid
in full'' to the borrower, or otherwise notify the borrower in writing
that the loan is paid in full, and retain a copy for the prescribed
period.
(iv) An institution shall maintain separately its records
pertaining to cancellations of Defense, NDSL, and Federal Perkins
Loans.
(v) Only authorized personnel may have access to the loan
documents. 30. Section 674.33(b) is amended:
A. By revising the introductory text following the heading in
paragraph (b)(2).
B. By revising the text following the heading of paragraph (b)(3).
The revisions read as follows:
Sec. 674.33 Repayment.* * * * *
(b) * * *
(2) * * * If a borrower has received loans from more than one
institution and has notified the institution that he or she wants the
minimum monthly payment determination to be based on payments due to
other institutions, the following rules apply:
* * * * *
(3) * * * If the borrower has notified the institution that he or
she wants the minimum monthly payment determination to be based on
payments due to other institutions, and if the total monthly repayment
is less than $30 and the monthly repayment on a Defense loan is less
than $15 a month, the amount attributed to the Defense loan may not
exceed $15 a month.
* * * * * 31. Section 674.34 is amended:
A. In paragraph (e)(4), by removing ``(e)(9)'' and adding, in its
place, ``(e)(10)''.
B. In paragraph (e)(5), by adding ``as determined under paragraph
(e)(10) of this section'' after the first occurrence of ``burden''.
C. By revising paragraph (e)(10).
The revision reads as follows:
Sec. 674.34 Deferment of repayment--Federal Perkins loans, NDSLs and
Defense loans.* * * * *
(e) * * *
(10) In determining a borrower's Federal education debt burden
under paragraphs (e)(4) and (e)(5) of this section, the institution
shall--
(i) If the Federal postsecondary education loan is scheduled to be
repaid[[Page 67077]]in 10 years or less, use the actual monthly payment amount (or a
proportional share if the payments are due less frequently than
monthly); or
(ii) If the Federal postsecondary education loan is scheduled to be
repaid in more than 10 years, use a monthly payment amount (or a
proportional share if the payments are due less frequently than
monthly) that would have been due on the loan if the loan had been
scheduled to be repaid in 10 years.
* * * * *
Sec. 674.39 [Amended] 32. Section 674.39(a) is amended:
A. In the first sentence of the introductory text in paragraph (a),
by adding ``, except for loans for which a judgment has been secured''
after ``part''.
B. In paragraph (a)(2), by removing ``; and'' and adding, in its
place, a period.
C. By removing paragraph (a)(3). 33. Section 674.42 is amended:
A. By revising paragraph (a)(10).
B. By adding a new paragraph (a)(11).
C. By revising paragraph (b)(1) and the introductory text in
paragraph (b)(2).
D. In paragraph (b)(2)(i), by removing ``that school'' and adding,
in its place, ``the institution''.
E. By revising paragraph (b)(2)(iii).
F. In paragraph (b)(2)(v), by removing ``in forceful terms''.
G. In paragraph (b)(2)(vi), by removing ``school'' and adding, in
its place, ``institution''.
H. In paragraph (b)(2)(vii), by removing ``with'' and adding, in
its place, ``for''.
I. In paragraph (b)(2)(viii), by removing ``corrections to the
institution's records'' and adding, in its place, ``current
information''; and by removing ``and'' following the semi-colon.
J. In paragraph (b)(2)(ix), by removing ``with'' and adding, in its
place, ``for''; and by removing the period and adding, in its place,
``; and''.
K. By adding a new paragraph (b)(2)(x).
L. By removing paragraph (b)(3).
M. By redesignating paragraphs (b)(4) and (b)(5) as paragraphs
(b)(3) and (b)(4), respectively.
N. By revising newly redesignated paragraph (b)(3).
O. In newly redesignated paragraph (b)(4), by removing ``school's''
and adding, in its place, ``institution's''.
The revisions and additions read as follows:
Sec. 674.42 Contact with the borrower. (a) * * *
(10) The contact information of a party who, upon request of the
borrower, will provide the borrower with a copy of his or her signed
promissory note.
(11) An explanation that if a borrower is required to make minimum
monthly repayments, and the borrower has received loans from more than
one institution, the borrower must notify the institution if he or she
wants the minimum monthly payment determination to be based on payments
due to other institutions.
(b) * * * (1) An institution must ensure that exit counseling is
conducted with each borrower either in person, by audiovisual
presentation, or by interactive electronic means. The institution must
ensure that exit counseling is conducted shortly before the borrower
ceases at least half-time study at the institution. As an alternative,
in the case of a student enrolled in a correspondence program or a
study-abroad program that the institution approves for credit, the
borrower may be provided with written counseling material by mail
within 30 days after the borrower completes the program. If a borrower
withdraws from the institution without the institution's prior
knowledge or fails to complete an exit counseling session as required,
the institution must ensure that exit counseling is provided through
either interactive electronic means or by mailing counseling materials
to the borrower at the borrower's last known address within 30 days
after learning that the borrower has withdrawn from the institution or
failed to complete exit counseling as required.
(2) The exit counseling must--
* * * * *
(iii) Suggest to the borrower debt-management strategies that would
facilitate repayment;
* * * * *
(x) Inform the borrower of the availability of title IV loan
information in the National Student Loan Data System (NSLDS).
(3) If exit counseling is conducted through interactive electronic
means, the institution must take reasonable steps to ensure that each
student borrower receives the counseling materials, and participates in
and completes the exit counseling.
* * * * *
Sec. 674.43 [Amended] 34. Section 674.43(b)(2) is amended in the introductory text by
removing ``shall'' and adding, in its place, ``may''.
Sec. 674.45 [Amended] 35. Section 674.45(a)(1) is amended by removing ``defaulted
account'' and adding, in its place, ``account as being in default''.
Sec. 674.46 [Amended] 36. Section 674.46(a) is amended as follows:
A. In the introductory text of paragraph (a)(1), by removing
``annually'' and adding, in its place, ``once every two years''.
B. In paragraph (a)(1)(i), by removing ``$200'' and adding, in its
place, ``$500''. 37. Section 674.47 is amended:
A. By removing paragraph (g)(1).
B. By redesignating paragraphs (g)(2), (g)(2)(i), and (g)(2)(ii) as
paragraph (g) introductory text, paragraph (g)(1), and paragraph (g)(2)
respectively.
C. In newly redesignated paragraph (g)(1), by removing the last
``the'' and adding, in its place, ``this''.
D. In the paragraph (h) heading, by removing ``of less than $5''.
E. By revising paragraph (h)(1).
F. By adding a new paragraph (h)(3).
The revision and addition read as follows:
Sec. 674.47 Costs chargeable to the Fund.* * * * *
(h) * * *
(1) Notwithstanding any other provision of this subpart, an
institution may write off an account, including outstanding principal,
accrued interest, collection costs, and late charges, with a balance
of--
(i) Less than $25; or
(ii) Less than $50 if, for a period of at least 2 years, the
borrower has been billed for this balance in accordance with Sec.
674.43(a).
* * * * *
(3) When the institution writes off an account, the borrower is
relieved of all repayment obligations.
Sec. 674.50 [Amended] 38. Section 674.50 is amended:
A. In paragraph (e)(2)(ii), by adding ``or'' after the semicolon.
B. In paragraph (e)(3), by deleting ``; or'' at the end of the
paragraph and adding, in its place, a period.
C. By removing paragraph (e)(4).
D. In paragraph (g)(2), by adding ``Secretary may require the''
after ``The''; and by removing ``shall'' and adding, in its place,
``to''.PART 675--FEDERAL WORK-STUDY PROGRAMS 39. The authority citation for part 675 continues to read as
follows: Authority: 42 U.S.C. 2751-2756b, unless otherwise noted.
[[Page 67078]] 40. Section 675.2(b) is amended by revising the definition of
``Student services'' to read as follows:
Sec. 675.2 Definitions.* * * * *
(b) * * *
Student services: Services that are offered to students that may
include, but are not limited to, financial aid, library, peer guidance
counseling, job placement, assisting an instructor with curriculum-
related activities, security, and social, health, and tutorial
services. Student services do not have to be direct or involve personal
interaction with students. For purposes of this definition, facility
maintenance, cleaning, purchasing, and public relations are never
considered student services.
* * * * * 41. Section 675.21(b)(2)(i) is revised to read as follows:
Sec. 675.21 Institutional employment.* * * * *
(b) * * *
(2) * * *
(i) Involve the provision of student services as defined in Sec.
675.2(b) that are directly related to the work-study student's training
or education;
* * * * *PART 682--FEDERAL FAMILY EDUCATION LOAN (FFEL) PROGRAM 42.
The authority citation for part 682 continues to read as
follows: Authority: 20 U.S.C. 1071 to 1087-2, unless otherwise noted.
43. Section 682.200(b) is amended:
A. By adding a sentence at the end of paragraph (2)(ii) of the
definition of ``Lender'' to read as follows: ``For purposes of this
paragraph, loans held in trust by a trustee lender are not considered
part of the trustee lender's consumer credit function.''
B. In the definition of ``Master promissory note (MPN)'', by
changing ``Master promissory note (MPN)'' to ``Master Promissory Note
(MPN)''. 44. Section 682.204 is amended:
A. By adding new paragraphs (a)(8), (a)(9), (d)(7), and (d)(8).
B. In paragraph (l) by removing ``34 CFR 668.2'' and adding, in its
place, ``34 CFR 668.3''.
The additions read as follows:
Sec. 682.204 Maximum loan amounts. (a) * * *
(8) Except as provided in paragraph (a)(4) of this section, an
undergraduate student who is enrolled in a program that is one academic
year or less in length may not borrow an amount for any academic year
of study that exceeds the amounts in paragraph (a)(1) of this section.
(9) Except as provided in paragraph (a)(4) of this section--
(i) An undergraduate student who is enrolled in a program that is
more than one academic year in length and who has not successfully
completed the first year of that program may not borrow an amount for
any academic year of study that exceeds the amounts in paragraph (a)(1)
of this section.
(ii) An undergraduate student who is enrolled in a program that is
more than one academic year in length and who has successfully
completed the first year of that program, but has not successfully
completed the second year of the program, may not borrow an amount for
any academic year of study that exceeds the amounts in paragraph (a)(2)
of this section.
* * * * *
(d) * * *
(7) Except as provided in paragraph (d)(4) of this section, an
undergraduate student who is enrolled in a program that is one academic
year or less in length may not borrow an amount for any academic year
of study that exceeds the amounts in paragraph (d)(1) of this section.
(8) Except as provided in paragraph (d)(4) of this section--
(i) An undergraduate student who is enrolled in a program that is
more than one academic year in length and who has not successfully
completed the first year of that program may not borrow an amount for
any academic year of study that exceeds the amounts in paragraph (d)(1)
of this section.
(ii) An undergraduate student who is enrolled in a program that is
more than one academic year in length and who has successfully
completed the first year of that program, but has not successfully
completed the second year of the program, may not borrow an amount for
any academic year of study that exceeds the amounts in paragraph (d)(2)
of this section.
* * * * * 45. Section 682.209(a) is amended by:
A. Removing the number ``45'' each time it appears in paragraphs
(a)(3)(ii)(A), (a)(3)(ii)(B), and (a)(3)(ii)(C) and adding, in its
place, the number ``60''.
B. Adding a new paragraph (a)(3)(iii).
C. Revising the last sentence in paragraph (a)(8)(iv).
The revisions and addition read as follows:
Sec. 682.209 Repayment of a loan. (a) * * *
(3) * * *
(iii) When determining the date that the student was no longer
enrolled on at least a half-time basis, the lender must use a new date
it receives from a school, unless the lender has already disclosed
repayment terms to the borrower and the new date is within the same
month and year as the most recent date reported to the lender.
* * * * *
(8) * * *
(iv) * * * Subject to paragraph (a)(8)(iii) of this section, a
borrower who makes such a request may notify the lender at any time to
extend the repayment period to a minimum of 5 years.
* * * * * 46. Section 682.210 is amended by revising paragraphs (h)(2),
(h)(3)(iv), (h)(4), (s)(6)(vii), and (s)(6)(ix) to read as follows:
Sec. 682.210 Deferment.* * * * *
(h) * * *
(2) A borrower also qualifies for an unemployment deferment by
providing to the lender a written certification, or an equivalent as
approved by the Secretary, that--
(i) The borrower has registered with a public or private employment
agency, if one is available to the borrower within a 50-mile radius of
the borrower's current address; and
(ii) For all requests beyond the initial request, the borrower has
made at least six diligent attempts during the preceding 6-month period
to secure full-time employment.
(3) * * *
(iv) The initial period of unemployment deferment may be granted
for a period of unemployment beginning up to 6 months before the date
the lender receives the borrower's request, and may be granted for up
to 6 months after that date.
(4) A lender may not grant an unemployment deferment beyond the
date that is 6 months after the date the borrower provides evidence of
the borrower's eligibility for unemployment insurance benefits under
paragraph (h)(1) of this section or the date the borrower provides the
written certification, or an approved equivalent, under paragraph
(h)(2) of this section.
* * * * *
(s) * * *
(6) * * *
(vii) In determining a borrower's Federal education debt burden for
purposes of an economic hardship deferment under paragraphs (s)(6)(iv)
and (v) of this section, the lender shall--[[Page 67079]] (A) If the Federal
postsecondary education loan is scheduled to be
repaid in 10 years or less, use the actual monthly payment amount (or a
proportional share if the payments are due less frequently than
monthly);
(B) If the Federal postsecondary education loan is scheduled to be
repaid in more than 10 years, use a monthly payment amount (or a
proportional share if the payments are due less frequently than
monthly) that would have been due on the loan if the loan had been
scheduled to be repaid in 10 years; and
(C) Require the borrower to provide evidence that would enable the
lender to determine the amount of the monthly payments that would have
been owed by the borrower during the deferment period.
* * * * *
(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 the amount of the
borrower's monthly income or a copy of the borrower's most recently
filed Federal income tax return.
* * * * * 47. Section 682.211 is amended by:
A. Revising paragraphs (b), (c), and (e).
B. Amending the introductory text of paragraph (f) by adding the
words ``or would be due'' after the word ``overdue''.
C. Amending paragraph (f)(2) by removing the reference to paragraph
``(f)(10)'' and adding, in its place, ``(f)(11)''.
D. Revising paragraph (f)(11).
E. Redesignating paragraph (h)(3) as paragraph (h)(4).
F. Adding a new paragraph (h)(3).
The revisions and addition read as follows:
Sec. 682.211 Forbearance.* * * * *
(b) A lender may grant forbearance if--
(1) The lender and the borrower or endorser agree to the terms of
the forbearance and, unless the agreement was in writing, the lender
sends, within 30 days, a notice to the borrower or endorser confirming
the terms of the forbearance; or
(2) In the case of forbearance of interest during a period of
deferment, if the lender informs the borrower at the time the deferment
is granted that interest payments are to be forborne.
(c) A lender may grant forbearance for a period of up to one year
at a time if both the borrower or endorser and an authorized official
of the lender agree to the terms of the forbearance. If the lender and
the borrower or endorser agree to the terms orally, the lender must
notify the borrower or endorser of the terms within 30 days of that
agreement.
* * * * *
(e) Except in the case of forbearance of interest payments during a
deferment period, if a forbearance involves the postponement of all
payments, the lender must contact the borrower or endorser at least
once every six months during the period of forbearance to inform the
borrower or endorser of--
(1) The outstanding obligation to repay;
(2) The amount of the unpaid principal balance and any unpaid
interest that has accrued on the loan;
(3) The fact that interest will accrue on the loan for the full
term of the forbearance; and
(4) The borrower's or endorser's option to discontinue the
forbearance at any time.
(f) * * *
(11) For a period not to exceed 3 months when the lender determines
that a borrower's ability to make payments has been adversely affected
by a natural disaster, a local or national emergency as declared by the
appropriate government agency, or a military mobilization.
* * * * *
(h) * * *
(3) Written agreement. The terms of the forbearance must be agreed
to in writing--
(i) By the lender and the borrower for a forbearance under
paragraphs (h)(1) or (h)(2)(ii)(A) of this section; or
(ii) By the lender and the borrower or endorser for a forbearance
under paragraph (h)(2)(i) of this section.
* * * * *
Sec. 682.401 [Amended] 48. Section 682.401 is amended by adding a sentence after the
heading of paragraph (b)(4) to read as follows: ``Except as provided in
Sec. 668.35(b) for a borrower with a defaulted loan on which a
judgment has been obtained, reinstatement of Title IV eligibility for a
borrower with a defaulted loan must be in accordance with this
paragraph (b)(4).'' 49. Section 682.402 is amended by:
A. Redesignating paragraphs (a)(2) through (a)(4) as paragraphs
(a)(3) through (a)(5), respectively.
B. Adding a new paragraph (a)(2).
C. Amending newly redesignated paragraph (a)(3) by removing the
words ``or a Consolidation loan was obtained by a married couple,''.
D. Amending newly redesignated paragraph (a)(5)(iii) by removing
the reference to paragraph ``(a)(4)(i) or (ii)'' and adding, in its
place, ``(a)(5)(i) or (ii)''.
E. Adding a new paragraph (b)(6).
F. Revising paragraph (f)(4).
G. Revising paragraph (g)(1)(i).
H. Revising paragraph (h)(1)(i).
I. Revising paragraph (h)(3)(iii).
J. Revising paragraph (k)(2)(iii).
The revisions and additions read as follows:
Sec. 682.402 Death, disability, closed school, false certification,
unpaid refunds, and bankruptcy payments. (a) * * *
(2) If a Consolidation loan was obtained jointly by a married
couple, the amount of the Consolidation loan that is discharged if one
of the borrowers dies or becomes totally and permanently disabled is
equal to the portion of the outstanding balance of the Consolidation
loan, as of the date the borrower died or became totally and
permanently disabled, attributable to any of that borrower's loans that
would have been eligible for discharge.
* * * * *
(b) * * *
(6) In the case of a Federal Consolidation Loan that includes a
Federal PLUS or Direct PLUS loan borrowed for a dependent who has died,
the obligation of the borrower or any endorser to make any further
payments on the portion of the outstanding balance of the Consolidation
Loan attributable to the Federal PLUS or Direct PLUS loan is discharged
as of the date of the dependent's death.
* * * * *
(f) * * *
(4) Proof of claim. (i) Except as provided in paragraph (f)(4)(ii)
of this section, the holder of the loan shall file a proof of claim
with the bankruptcy court within--
(A) 30 days after the holder receives a notice of first meeting of
creditors unless, in the case of a proceeding under chapter 7, the
notice states that the borrower has no assets; or
(B) 30 days after the holder receives a notice from the court
stating that a chapter 7 no-asset case has been converted to an asset
case.
(ii) A guaranty agency that is a state guaranty agency, and on that
basis may assert immunity from suit in bankruptcy court, and that does
not assign any loans affected by a bankruptcy filing to another
guaranty agency--
(A) Is not required to file a proof of claim on a loan already held
by the guaranty agency; and[[Page 67080]] (B) May direct lenders not to file
proofs of claim on loans
guaranteed by that agency.
* * * * *
(g) * * *
(1) * * *
(i) The original or a true and exact copy of the promissory note.
* * * * *
(h) * * *
(1) * * *
(i) The guaranty agency shall review a death, disability,
bankruptcy, closed school, or false certification claim promptly and
shall pay the lender on an approved claim the amount of loss in
accordance with paragraphs (h)(2) and (h)(3) of this section--
(A) Not later than 45 days after the claim was filed by the lender
for death and bankruptcy claims; and
(B) Not later than 90 days after the claim was filed by the lender
for disability, closed school, or false certification claims.
* * * * *
(3) * * *
(iii) During the period required by the guaranty agency to approve
the claim and to authorize payment or to return the claim to the lender
for additional documentation not to exceed--
(A) 45 days for death or bankruptcy claims; or
(B) 90 days for disability, closed school, or false certification
claims.
* * * * *
(k) * * *
(2) * * *
(iii) In the case of a Consolidation loan, the borrower (or one of
the co-makers) has died, is determined to be totally and permanently
disabled under Sec. 682.402(c), or has filed the petition for relief
in bankruptcy within the maximum repayment period described in Sec.
682.209(h)(2), exclusive of periods of deferment or periods of
forbearance granted by the lender that extended the maximum repayment
period;
* * * * * 50. Section 682.405 is amended by:
A. Adding the words ``, except for loans for which a judgment has
been obtained,'' after ``defaulted loans'' in paragraph (a)(1).
B. Removing paragraph (a)(4).
C. Revising the fifth sentence in paragraph (b)(1).
The revision reads as follows:
Sec. 682.405 Loan rehabilitation agreement.* * * * *
(b) * * *
(1) * * * Voluntary payments are those made directly by the
borrower, and do not include payments obtained by Federal offset,
garnishment, income or asset execution, or after a judgment has been
entered on a loan. * * *
* * * * * 51. Section 682.414 is amended by revising paragraph (a)(5)(ii) to
read as follows:
Sec. 682.414 Records, reports, and inspection requirements for
guaranty agency programs. (a) * * *
(5) * * *
(ii) If a promissory note was signed electronically, the guaranty
agency or lender must store it electronically and it must be
retrievable in a coherent format.
* * * * *
Sec. 682.603 [Amended] 52. Sections 682.603(f)(1)(ii)(B) and (f)(2)(i) are amended by
removing ``34 CFR 668.2'' and adding, in its place, ``34 CFR 668.3''. 53. Section
682.604 is amended by:
A. Revising paragraph (f)(1).
B. Revising the introductory text of paragraph (f)(2).
C. Revising paragraph (f)(2)(iii).
D. In paragraph (f)(2)(iv), removing the period and adding, in its
place, ``; and''.
E. Adding a new paragraph (f)(2)(v).
F. Revising paragraph (f)(3).
G. Revising paragraph (g)(1).
H. Revising paragraph (g)(2).
I. Revising paragraph (g)(3).
The revisions and addition read as follows:
Sec. 682.604 Processing the borrower's loan proceeds and counseling
borrowers.* * * * *
(f) * * *
(1) A school must ensure that initial counseling is conducted with
each Stafford loan borrower either in person, by audiovisual
presentation, or by interactive electronic means prior to its release
of the first disbursement, unless the student borrower has received a
prior Federal Stafford, Federal SLS, or Direct subsidized or
unsubsidized loan. A school must ensure that an individual with
expertise in the title IV programs is reasonably available shortly
after the counseling to answer the student borrower's questions
regarding those programs. As an alternative, in the case of a student
borrower enrolled in a correspondence program or a student borrower
enrolled in a study-abroad program that the home institution approves
for credit, the counseling may be provided through written materials,
prior to releasing those loan proceeds.
(2) The initial counseling must--
* * * * *
(iii) Describe the likely consequences of default, including
adverse credit reports, Federal offset, and litigation;
* * * * *
(v) Inform the student borrower of sample monthly repayment amounts
based on a range of student levels of indebtedness or on the average
indebtedness of Stafford loan borrowers at the same school or in the
same program of study at the same school.
(3) If initial counseling is conducted through interactive
electronic means, the school must take reasonable steps to ensure that
each student borrower receives the counseling materials, and
participates in and completes the initial counseling.
* * * * *
(g) * * *
(1) A school must ensure that exit counseling is conducted with
each Stafford loan borrower either in person, by audiovisual
presentation, or by interactive electronic means. In each case, the
school must ensure that this counseling is conducted shortly before the
student borrower ceases at least half-time study at the school, and
that an individual with expertise in the title IV programs is
reasonably available shortly after the counseling to answer the student
borrower's questions. As an alternative, in the case of a student
borrower enrolled in a correspondence program or a study-abroad program
that the home institution approves for credit, written counseling
materials may be provided by mail within 30 days after the student
borrower completes the program. If a student borrower withdraws from
school without the school's prior knowledge or fails to complete an
exit counseling session as required, the school must ensure that exit
counseling is provided through either interactive electronic means or
by mailing written counseling materials to the student borrower at the
student borrower's last known address within 30 days after learning
that the student borrower has withdrawn from school or failed to
complete the exit counseling as required.
(2) The exit counseling must--
(i) Inform the student borrower of the average anticipated monthly
repayment amount based on the student borrower's indebtedness or on the
average indebtedness of student borrowers who have obtained Stafford or
SLS loans for attendance at the same school or in the same program of
study at the same school;
(ii) Review for the student borrower available repayment options,
including standard, graduated, extended, and[[Page 67081]]income-sensitive repayment
plans and loan consolidation;
(iii) Suggest to the student borrower debt-management strategies
that would facilitate repayment;
(iv) Include the matters described in paragraph (f)(2) of this
section;
(v) Review for the student borrower the conditions under which the
student borrower may defer or forbear repayment or obtain a full or
partial discharge of a loan;
(vi) Require the student borrower to provide current information
concerning name, address, social security number, references, and
driver's license number and State of issuance, as well as the student
borrower's expected permanent address, the address of the student
borrower's next of kin, and the name and address of the student
borrower's expected employer (if known). The school must ensure that
this information is provided to the guaranty agency or agencies listed
in the student borrower's records within 60 days after the student
borrower provides the information;
(vii) Review for the student borrower information on the
availability of the Student Loan Ombudsman's office; and
(viii) Inform the student borrower of the availability of title IV
loan information in the National Student Loan Data System (NSLDS).
(3) If exit counseling is conducted by electronic interactive
means, the school must take reasonable steps to ensure that each
student borrower receives the counseling materials, and participates in
and completes the counseling.
* * * * *PART 685--WILLIAM D. FORD FEDERAL DIRECT LOAN PROGRAM 54. The authority
citation for part 685 continues to read as
follows: Authority: 20 U.S.C. 1087a et seq., unless otherwise noted. 55. Section 685.102(b) is amended:
A. By revising the definition of ``Master promissory note (MPN)''.
B. In the second sentence of paragraph (3) in the definition of
``Satisfactory repayment arrangement'', by removing ``, regardless of
whether there is a judgment against the borrower,''; and by removing
``income tax'' and adding, in its place, ``Federal''.
The revision reads as follows:
Sec. 685.102 Definitions.* * * * *
(b) * * *
Master Promissory Note (MPN): (1) A promissory note under which the
borrower may receive loans for a single academic year or multiple
academic years.
(2) For MPNs processed by the Secretary before July 1, 2003, loans
may no longer be made under an MPN after the earliest of--
(i) The date the Secretary or the school receives the borrower's
written notice that no further loans may be disbursed;
(ii) One year after the date of the borrower's first anticipated
disbursement if no disbursement is made during that twelve-month
period; or
(iii) Ten years after the date of the first anticipated
disbursement, except that a remaining portion of a loan may be
disbursed after this date.
(3) For MPNs processed by the Secretary on or after July 1, 2003,
loans may no longer be made under an MPN after the earliest of--
(i) The date the Secretary or the school receives the borrower's
written notice that no further loans may be made;
(ii) One year after the date the borrower signed the MPN or the
date the Secretary receives the MPN, if no disbursements are made under
that MPN; or
(iii) Ten years after the date the borrower signed the MPN or the
date the Secretary receives the MPN, except that a remaining portion of
a loan may be disbursed after this date.
* * * * * 56. Section 685.203 is amended:
A. By adding new paragraphs (a)(8) and (a)(9).
B. By adding new paragraphs (c)(2)(viii) and (c)(2)(ix).
C. By adding in paragraph (h) ``, as defined in 34 CFR 668.3''
after ``year''.
The additions read as follows:
Sec. 685.203 Loan limits. (a) * * *
(8) Except as provided in paragraph (a)(4) of this section, an
undergraduate student who is enrolled in a program that is one academic
year or less in length may not borrow an amount for any academic year
of study that exceeds the amounts in paragraph (a)(1) of this section.
(9) Except as provided in paragraph (a)(4) of this section--
(i) An undergraduate student who is enrolled in a program that is
more than one academic year in length and who has not successfully
completed the first year of that program may not borrow an amount for
any academic year of study that exceeds the amounts in paragraph (a)(1)
of this section.
(ii) An undergraduate student who is enrolled in a program that is
more than one academic year in length and who has successfully
completed the first year of that program, but has not successfully
completed the second year of the program, may not borrow an amount for
any academic year of study that exceeds the amounts in paragraph (a)(2)
of this section.
* * * * *
(c) * * *
(2) * * *
(viii) Except as provided in paragraph (c)(2)(iv) of this section,
an undergraduate student who is enrolled in a program that is one
academic year or less in length may not borrow an amount for any
academic year of study that exceeds the amounts in paragraph (c)(2)(i)
of this section.
(ix) Except as provided in paragraph (c)(2)(iv) of this section--
(A) An undergraduate student who is enrolled in a program that is
more than one academic year in length and who has not successfully
completed the first year of that program may not borrow an amount for
any academic year of study that exceeds the amounts in paragraph
(c)(2)(i) of this section.
(B) An undergraduate student who is enrolled in a program that is
more than one academic year in length and who has successfully
completed the first year of that program, but has not successfully
completed the second year of the program, may not borrow an amount for
any academic year of study that exceeds the amounts in paragraph
(c)(2)(ii) of this section.
* * * * * 57. Section 685.211(f) is revised to read as follows:
Sec. 685.211 Miscellaneous repayment provisions.* * * * *
(f) Rehabilitation of defaulted loans. (1) A defaulted Direct Loan,
except for a loan on which a judgment has been obtained, is
rehabilitated if the borrower makes 12 consecutive, on-time,
reasonable, and affordable monthly payments. The amount of such a
payment is determined on the basis of the borrower's total financial
circumstances. If a defaulted loan is rehabilitated, the Secretary
instructs any credit bureau to which the default was reported to remove
the default from the borrower's credit history.
(2) A defaulted Direct Loan on which a judgment has been obtained
may not be rehabilitated. 58. Section 685.212 is amended by adding a new paragraph (a)(3) to
read as follows:
Sec. 685.212 Discharge of a loan obligation. (a) * * *[[Page 67082]] (3) In
the case of a Direct PLUS Consolidation Loan that repaid a
Direct PLUS Loan or a Federal PLUS Loan obtained on behalf of a student
who dies, the Secretary discharges an amount equal to the portion of
the outstanding balance of the consolidation loan, as of the date of
the student's death, attributable to that Direct PLUS Loan or Federal
PLUS Loan.
* * * * * 59. Section 685.220(l)(3) is revised to read as follows:
Sec. 685.220 Consolidation.* * * * *
(l) * * *
(3) Discharge. (i) If a borrower dies and the Secretary receives
the documentation described in Sec. 685.212(a), the Secretary
discharges an amount equal to the portion of the outstanding balance of
the consolidation loan, as of the date of the borrower's death,
attributable to any of that borrower's loans that were repaid by the
consolidation loan.
(ii) If a borrower meets the requirements for total and permanent
disability discharge under Sec. 685.212(b), the Secretary discharges
an amount equal to the portion of the outstanding balance of the
consolidation loan, as of the date the borrower became totally and
permanently disabled, attributable to any of that borrower's loans that
were repaid by the consolidation loan.
(iii) If a borrower meets the requirements for discharge under
Sec. 685.212(d), (e), or (f) on a loan that was consolidated into a
joint Direct Consolidation Loan, the Secretary discharges the portion
of the consolidation loan equal to the amount of the loan that would be
eligible for discharge under the provisions of Sec. 685.212(d), (e),
or (f) as applicable, and that was repaid by the consolidation loan.
(iv) If a borrower meets the requirements for loan forgiveness
under Sec. 685.212(h) on a loan that was consolidated into a joint
Direct Consolidation Loan, the Secretary repays the portion of the
outstanding balance of the consolidation loan attributable to the loan
that would be eligible for forgiveness under the provisions of Sec.
685.212(h), and that was repaid by the consolidation loan.
Sec. 685.301 [Amended] 60. Sections 685.301(a)(9)(i)(B)(2) and (a)(9)(ii)(A) are amended
by removing ``34 CFR 668.2'' and adding, in its place, ``34 CFR
668.3''. 61. Section 685.304 is amended:
A. By revising paragraphs (a)(1), (a)(2), (a)(3), and (a)(5).
B. In paragraph (b)(1), by removing ``conduct'' and adding, in its
place, ``ensure that''; by adding ``is conducted'' after
``counseling''; and by adding ``Loan'' after ``Subsidized''.
C. In paragraph (b)(2), by adding, in the first sentence, ``exit''
after ``The''; by removing, in the second sentence, ``knowledge of''
and adding, in its place, ``expertise in''; by removing, in the last
sentence, ``the school may provide''; and by adding, in the last
sentence, ``may be provided'' after the second occurrence of
``borrower''.
D. In paragraph (b)(3), by removing ``school must provide''; and by
adding ``must be provided'' after the second occurrence of
``counseling''.
E. By revising paragraph (b)(4).
F. By revising paragraph (b)(5).
G. By redesignating paragraph (b)(6) as paragraph (b)(7).
H. By adding a new paragraph (b)(6).
The revisions and addition read as follows:
Sec. 685.304 Counseling borrowers. (a) * * * (1) Except as provided in paragraph (a)(4) of this
section, a school must ensure that initial counseling is conducted with
each Direct Subsidized Loan or Direct Unsubsidized Loan student
borrower prior to making the first disbursement of the proceeds of a
loan to a student borrower unless the student borrower has received a
prior Direct Subsidized, Direct Unsubsidized, Federal Stafford, or
Federal SLS Loan.
(2) The initial counseling must be in person, by audiovisual
presentation, or by interactive electronic means. In each case, the
school must ensure that an individual with expertise in the title IV
programs is reasonably available shortly after the counseling to answer
the student borrower's questions. As an alternative, in the case of a
student borrower enrolled in a correspondence program or a study-abroad
program approved for credit at the home institution, the student
borrower may be provided with written counseling materials before the
loan proceeds are disbursed.
(3) The initial counseling must--
(i) Explain the use of a Master Promissory Note (MPN);
(ii) Emphasize to the borrower the seriousness and importance of
the repayment obligation the student borrower is assuming;
(iii) Describe the likely consequences of default, including
adverse credit reports, garnishment of wages, Federal offset, and
litigation;
(iv) Inform the student borrower of sample monthly repayment
amounts based on a range of student levels of indebtedness or on the
average indebtedness of Direct Subsidized Loan and Direct Unsubsidized
Loan borrowers at the same school or in the same program of study at
the same school; and
(v) Emphasize that the student borrower is obligated to repay the
full amount of the loan even if the student borrower does not complete
the program, is unable to obtain employment upon completion, or is
otherwise dissatisfied with or does not receive the educational or
other services that the student borrower purchased from the school.
* * * * *
(5) If initial counseling is conducted through interactive
electronic means, a school must take reasonable steps to ensure that
each student borrower receives the counseling materials, and
participates in and completes the initial counseling.
* * * * *
(b) * * *
(4) The exit counseling must--
(i) Inform the student borrower of the average anticipated monthly
repayment amount based on the student borrower's indebtedness or on the
average indebtedness of Direct Subsidized Loan and Direct Unsubsidized
Loan borrowers at the same school or in the same program of study at
the same school;
(ii) Review for the student borrower available repayment options
including the standard repayment, extended repayment, graduated
repayment, and income contingent repayment plans, and loan
consolidation;
(iii) Suggest to the student borrower debt-management strategies
that would facilitate repayment;
(iv) Explain to the student borrower how to contact the party
servicing the student borrower's Direct Loans;
(v) Meet the requirements described in paragraphs (a)(3)(i), (ii),
(iii), and (v) of this section;
(vi) Review for the student borrower the conditions under which the
student borrower may defer or forbear repayment or obtain a full or
partial discharge of a loan;
(vii) Review for the student borrower information on the
availability of the Department's Student Loan Ombudsman's office;
(viii) Inform the student borrower of the availability of title IV
loan information in the National Student Loan Data System (NSLDS); and
(ix) Require the student borrower to provide current information
concerning name, address, social security number, references, and
driver's license number and State of issuance, as well as the[[Page 67083]]
student borrower's expected permanent address, the address of the
student borrower's next of kin, and the name and address of the student
borrower's expected employer (if known).
(5) The school must ensure that the information required in
paragraph (b)(4)(ix) of this section is provided to the Secretary
within 60 days after the student borrower provides the information.
(6) If exit counseling is conducted through interactive electronic
means, a school must take reasonable steps to ensure that each student
borrower receives the counseling materials, and participates in and
completes the exit counseling.
* * * * *PART 690--FEDERAL PELL GRANT PROGRAM 62. The authority citation for
part 690 continues to read as
follows: Authority: 20 U.S.C. 1070a, unless otherwise noted.
Sec. 690.61 [Amended] 63. In paragraph (b) by removing ``34 CFR 668.60,'' and adding, in
its place, ``the verification provisions of Sec. 668.60 and the late
disbursement provisions of Sec. 668.164(g) of this chapter,''. 64. Section 690.75(a) is revised to read as follows:
Sec. 690.75 Determination of eligibility for payment. (a) For each payment period, an institution may pay a Federal Pell
Grant to an eligible student only after it determines that the
student--
(1) Qualifies as an eligible student under 34 CFR Part 668, Subpart
C;
(2) Is enrolled in an eligible program as an undergraduate student;
and
(3) If enrolled in a credit hour program without terms or a clock
hour program, has completed the payment period as defined in Sec.
668.4 for which he or she has been paid a Federal Pell Grant.
* * * * * 65. Section 690.79 is revised to read as follows:
Sec. 690.79 Liability for and recovery of Federal Pell Grant
overpayments. (a)(1) Except as provided in paragraphs (a)(2) and (a)(3) of this
section, a student is liable for any Federal Pell Grant overpayment
made to him or her.
(2) The institution is liable for a Federal Pell Grant overpayment
if the overpayment occurred because the institution failed to follow
the procedures set forth in this part or 34 CFR Part 668. The
institution must restore an amount equal to the overpayment to its
Federal Pell Grant account.
(3) A student is not liable for, and the institution is not
required to attempt recovery of or refer to the Secretary, a Federal
Pell Grant overpayment if the amount of the overpayment is less than
$25 and is not a remaining balance.
(b)(1) Except as provided in paragraph (a)(3) of this section, if
an institution makes a Federal Pell Grant overpayment for which it is
not liable, it must promptly send a written notice to the student
requesting repayment of the overpayment amount. The notice must state
that failure to make that repayment, or to make arrangements
satisfactory to the holder of the overpayment debt to repay the
overpayment, makes the student ineligible for further title IV, HEA
program funds until final resolution of the Federal Pell Grant
overpayment.
(2) If a student objects to the institution's Federal Pell Grant
overpayment determination on the grounds that it is erroneous, the
institution must consider any information provided by the student and
determine whether the objection is warranted.
(c) Except as provided in paragraph (a)(3) of this section, if the
student fails to repay a Federal Pell Grant overpayment or make
arrangements satisfactory to the holder of the overpayment debt to
repay the Federal Pell Grant overpayment, after the institution has
taken the action required by paragraph (b) of this section, the
institution must refer the overpayment to the Secretary for collection
purposes in accordance with procedures required by the Secretary. After
referring the Federal Pell Grant overpayment to the Secretary under
this section, the institution need make no further efforts to recover
the overpayment.(Authority: 20 U.S.C. 1070a)PART 694--GAINING EARLY AWARENESS
AND READINESS FOR UNDERGRADUATE
PROGRAMS (GEAR UP) 66. The authority citation for part 694 continues to read as
follows: Authority: 20 U.S.C. 1070a-21 to 1070a-28.
67. Section 694.10(e) is revised to read as follows:
Sec. 694.10 What are the requirements for awards under the program's
scholarship component under section 404E of the HEA?* * * * *
(e) Other grant assistance. A GEAR UP scholarship may not be
considered in the determination of a student's eligibility for other
grant assistance provided under title IV of the HEA.[FR Doc. 02-27627 Filed 10-31-02; 8:45 am]
BILLING CODE 4000-01-P

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