Maintained for Historical Purposes

This resource is being maintained for historical purposes only and is not currently applicable.

Summary: These regulations implement for the Department of Education the provisions for administrative wage garnishment in the Debt Collection Improvement Act of 1996 (DCIA).

Publication Date: February 2003
FRPart:

RegPartsAffected:

 

Page Numbers: 8141-8152

These regulations implement for the Department of Education the provisions for administrative wage garnishment in the Debt Collection Improvement Act of 1996 (DCIA).

Posted on 02-19-2003

Federal Register: February 19, 2003 (Volume 68, Number 33)]
[Rules and Regulations]
[Page 8141-8152]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19fe03-26]

 

[[Page 8142]]

-----------------------------------------------------------------------


Part IV


Department of Education

-----------------------------------------------------------------------

34 CFR Part 34

Administrative Wage Garnishment; Final Rule

[[Page 8142]]

-----------------------------------------------------------------------

DEPARTMENT OF EDUCATION


34 CFR Part 34

Administrative Wage Garnishment

AGENCY: Office of the Chief Financial Officer, Department of Education.

ACTION: Final regulations.

-----------------------------------------------------------------------

SUMMARY: These regulations implement for the Department of Education
the provisions for administrative wage garnishment in the Debt
Collection Improvement Act of 1996 (DCIA). The DCIA authorizes Federal
agencies to garnish administratively, that is, without court order, the
disposable pay of an individual who is not a Federal employee to
collect a delinquent nontax debt owed to the United States. These
regulations implement this authority for a debt owed to the United
States under a program administered by the Department of Education.

DATES: These regulations are effective March 21, 2003.

FOR FURTHER INFORMATION CONTACT: Marian E. Currie, U.S. Department of
Education, Union Center Plaza Room 41B4, 830 First Street NE,
Washington DC 20202, Telephone: (202) 377-3212 or via Internet:
marian.currie@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 April 12, 2002, the Secretary published
in the Federal Register a notice of proposed rulemaking (NPRM) (67 FR
18072) for implementation of the wage garnishment authority in the
DCIA. This document contains the final regulations for the rules that
were proposed in that NPRM. These final regulations contain a few
changes from the NPRM.

Analysis of Comments and Changes

In response to the NPRM, we received comments from two parties. An
analysis of the comments and of the changes in the regulations since
publication of the NPRM is published as an appendix at the end of these
final regulations.

Regulatory Flexibility Act Certification

The Secretary certifies that these regulations will not have a
significant economic impact on a substantial number of small entities.
Although a substantial number of small entities will be subject to
these regulations and to the certification requirement in these
regulations, as explained in the NPRM, the requirements will not have a
significant economic impact on these entities.

Paperwork Reduction Act of 1995

These regulations do not contain any information collection
requirements.

Assessment 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:
http://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 Number does not apply.)

List of Subjects in 34 CFR Part 34

Administrative practice and procedure, Claims, Debts, Garnishment
of wages, Hearing and appeal procedures, Salaries, Wages.

Dated: February 12, 2003.
Rod Paige,
Secretary of Education.

For the reasons discussed in the preamble, the Secretary amends
title 34 of the Code of Federal Regulations by adding a new part 34 to
read as follows:

PART 34-- ADMINISTRATIVE WAGE GARNISHMENT

Sec.
34.1 Purpose of this part.
34.2 Scope of this part.
34.3 Definitions.
34.4 Notice of proposed garnishment.
34.5 Contents of a notice of proposed garnishment.
34.6 Rights in connection with garnishment.
34.7 Consideration of objection to the rate or amount of
withholding.
34.8 Providing a hearing.
34.9 Conditions for an oral hearing.
34.10 Conditions for a paper hearing.
34.11 Timely request for a hearing.
34.12 Request for reconsideration.
34.13 Conduct of a hearing.
34.14 Burden of proof.
34.15 Consequences of failure to appear for an oral hearing.
34.16 Issuance of the hearing decision.
34.17 Content of decision.
34.18 Issuance of the wage garnishment order.
34.19 Amounts to be withheld under a garnishment order.
34.20 Amount to be withheld under multiple garnishment orders.
34.21 Employer certification.
34.22 Employer responsibilities.
34.23 Exclusions from garnishment.
34.24 Claim of financial hardship by debtor subject to garnishment.
34.25 Determination of financial hardship.
34.26 Ending garnishment.
34.27 Actions by employer prohibited by law.
34.28 Refunds of amounts collected in error.
34.29 Enforcement action against employer for noncompliance with
garnishment order.
34.30 Application of payments and accrual of interest.

Authority: 31 U.S.C. 3720D, unless otherwise noted.

Sec. 34.1 Purpose of this part.

This part establishes procedures the Department of Education uses
to collect money from a debtor's disposable pay by means of
administrative wage garnishment to satisfy delinquent debt owed to the
United States.

(Authority: 31 U.S.C. 3720D)

Sec. 34.2 Scope of this part.

(a) This part applies to collection of any financial obligation
owed to the United States that arises under a program we administer.
(b) This part applies notwithstanding any provision of State law.
(c) We may compromise or suspend collection by garnishment of a
debt in accordance with applicable law.
(d) We may use other debt collection remedies separately or in
conjunction with administrative wage garnishment to collect a debt.

[[Page 8143]]

(e) To collect by offset from the salary of a Federal employee, we
use the procedures in 34 CFR part 31, not those in this part.

(Authority: 31 U.S.C. 3720D)

Sec. 34.3 Definitions.

As used in this part, the following definitions apply:
Administrative debt means a debt that does not arise from an
individual's obligation to repay a loan or an overpayment of a grant
received under a student financial assistance program authorized under
Title IV of the Higher Education Act.
Business day means a day Monday through Friday, unless that day is
a Federal holiday.
Certificate of service means a certificate signed by an authorized
official of the U.S. Department of Education (the Department) that
indicates the nature of the document to which it pertains, the date we
mail the document, and to whom we are sending the document.
Day means calendar day. For purposes of computation, the last day
of a period will be included unless that day is a Saturday, a Sunday,
or a Federal legal holiday; in that case, the last day of the period is
the next business day after the end of the period.
Debt or claim means any amount of money, funds, or property that an
appropriate official of the Department has determined an individual
owes to the United States under a program we administer.
Debtor means an individual who owes a delinquent nontax debt to the
United States under a program we administer.
Disposable pay. This term--
(a)(1) Means that part of a debtor's compensation for personal
services, whether or not denominated as wages, from an employer that
remains after the deduction of health insurance premiums and any
amounts required by law to be withheld.
(2) For purposes of this part, ``amounts required by law to be
withheld'' include amounts for deductions such as social security taxes
and withholding taxes, but do not include any amount withheld under a
court order; and
(b) Includes, but is not limited to, salary, bonuses, commissions,
or vacation pay.
Employer. This term--
(a) Means a person or entity that employs the services of another
and that pays the latter's wages or salary;
(b) Includes, but is not limited to, State and local governments;
and
(c) Does not include an agency of the Federal Government.
Financial hardship means an inability to meet basic living expenses
for goods and services necessary for the survival of the debtor and his
or her spouse and dependents.
Garnishment means the process of withholding amounts from an
employee's disposable pay and paying those amounts to a creditor in
satisfaction of a withholding order.
We means the United States Department of Education.
Withholding order. (a) This term means any order for withholding or
garnishment of pay issued by this Department, another Federal agency, a
State or private non-profit guaranty agency, or a judicial or
administrative body.
(b) For purposes of this part, the terms ``wage garnishment order''
and ``garnishment order'' have the same meaning as ``withholding
order.''
You means the debtor.

(Authority: 31 U.S.C. 3720D)

Sec. 34.4 Notice of proposed garnishment.

(a) We may start proceedings to garnish your wages whenever we
determine that you are delinquent in paying a debt owed to the United
States under a program we administer.
(b) We start garnishment proceedings by sending you a written
notice of the proposed garnishment.
(c) At least 30 days before we start garnishment proceedings, we
mail the notice by first class mail to your last known address.
(d)(1) We keep a copy of a certificate of service indicating the
date of mailing of the notice.
(2) We may retain this certificate of service in electronic form.

(Authority: 31 U.S.C. 3720D)

Sec. 34.5 Contents of a notice of proposed garnishment.

In a notice of proposed garnishment, we inform you of--
(a) The nature and amount of the debt;
(b) Our intention to collect the debt through deductions from pay
until the debt and all accumulated interest, penalties, and collection
costs are paid in full; and
(c) An explanation of your rights, including those in Sec. 34.6,
and the time frame within which you may exercise your rights.

(Authority: 31 U.S.C. 3720D)

Sec. 34.6 Rights in connection with garnishment.

Before starting garnishment, we provide you the opportunity--
(a) To inspect and copy our records related to the debt;
(b) To enter into a written repayment agreement with us to repay
the debt under terms we consider acceptable;
(c) For a hearing in accordance with Sec. 34.8 concerning--
(1) The existence, amount, or current enforceability of the debt;
(2) The rate at which the garnishment order will require your
employer to withhold pay; and
(3) Whether you have been continuously employed less than 12 months
after you were involuntarily separated from employment.

(Authority: 31 U.S.C. 3720D)

Sec. 34.7 Consideration of objection to the rate or amount of
withholding.

(a) We consider objections to the rate or amount of withholding
only if the objection rests on a claim that withholding at the proposed
rate or amount would cause financial hardship to you and your
dependents.
(b) We do not provide a hearing on an objection to the rate or
amount of withholding if the rate or amount we propose to be withheld
does not exceed the rate or amount agreed to under a repayment
agreement reached within the preceding six months after a previous
notice of proposed garnishment.
(c) We do not consider an objection to the rate or amount of
withholding based on a claim that by virtue of 15 U.S.C. 1673, no
amount of wages are available for withholding by the employer.

(Authority: 31 U.S.C. 3720D)


Sec. 34.8 Providing a hearing.

(a) We provide a hearing if you submit a written request for a
hearing concerning the existence, amount, or enforceability of the debt
or the rate of wage withholding.
(b) At our option the hearing may be an oral hearing under Sec.
34.9 or a paper hearing under Sec. 34.10.

(Authority: 31 U.S.C. 3720D)

Sec. 34.9 Conditions for an oral hearing.

(a) We provide an oral hearing if you--
(1) Request an oral hearing; and
(2) Show in the request a good reason to believe that we cannot
resolve the issues in dispute by review of the documentary evidence, by
demonstrating that the validity of the claim turns on the credibility
or veracity of witness testimony.
(b) If we determine that an oral hearing is appropriate, we notify
you how to receive the oral hearing.
(c)(1) At your option, an oral hearing may be conducted either in-
person or by telephone conference.

[[Page 8144]]

(2) We provide an in-person oral hearing with regard to
administrative debts only in Washington D.C.
(3) We provide an in-person oral hearing with regard to debts based
on student loan or grant obligations only at our regional service
centers in Atlanta, Chicago, or San Francisco.
(4) You must bear all travel expenses you incur in connection with
an in-person hearing.
(5) We bear the cost of any telephone calls we place in order to
conduct an oral hearing by telephone.
(d)(1) To arrange the time and location of the oral hearing, we
ordinarily attempt to contact you first by telephone call to the number
you provided to us.
(2) If we are unable to contact you by telephone, we leave a
message directing you to contact us within 5 business days to arrange
the time and place of the hearing.
(3) If we can neither contact you directly nor leave a message with
you by telephone--
(i) We notify you in writing to contact us to arrange the time and
place of the hearing; or
(ii) We select a time and place for the hearing, and notify you in
writing of the time and place set for the hearing.
(e) We consider you to have withdrawn the request for an oral
hearing if--
(1) Within 15 days of the date of a written notice to contact us,
we receive no response to that notice; or
(2) Within five business days of the date of a telephone message to
contact us, we receive no response to that message.


(Authority: 31 U.S.C. 3720D)


Sec. 34.10 Conditions for a paper hearing.


We provide a paper hearing--
(a) If you request a paper hearing;
(b) If you requested an oral hearing, but we determine under Sec.
34.9(e) that you have withdrawn that request;
(c) If you fail to appear for a scheduled oral hearing, as provided
in Sec. 34.15; or
(d) If we deny a request for an oral hearing because we conclude
that, by a review of the written record, we can resolve the issues
raised by your objections.


(Authority: 31 U.S.C. 3720D)


Sec. 34.11 Timely request for a hearing.


(a) A hearing request is timely if--
(1) You mail the request to the office designated in the
garnishment notice and the request is postmarked not later than the
30th day following the date of the notice; or
(2) The designated office receives the request not later than the
30th day following the date of the garnishment notice.
(b) If we receive a timely written request from you for a hearing,
we will not issue a garnishment order before we--
(1) Provide the requested hearing; and
(2) Issue a written decision on the objections you raised.
(c) If your written request for a hearing is not timely--
(1) We provide you a hearing; and
(2) We do not delay issuance of a garnishment order unless--
(i) We determine from credible representations in the request that
the delay in filing the request for hearing was caused by factors over
which you had no control; or
(ii) We have other good reason to delay issuing a garnishment
order.
(d) If we do not complete a hearing within 60 days of an untimely
request, we suspend any garnishment order until we have issued a
decision.


(Authority: 31 U.S.C. 3720D)


Sec. 34.12 Request for reconsideration.


(a) If you have received a decision on an objection to garnishment
you may file a request for reconsideration of that decision.
(b) We do not suspend garnishment merely because you have filed a
request for reconsideration.
(c) We consider your request for reconsideration if we determine
that--
(1) You base your request on grounds of financial hardship, and
your financial circumstances, as shown by evidence submitted with the
request, have materially changed since we issued the decision so that
we should reduce the amount to be garnished under the order; or
(2)(i) You submitted with the request evidence that you did not
previously submit; and
(ii) This evidence demonstrates that we should reconsider your
objection to the existence, amount, or enforceability of the debt.
(d)(1) If we agree to reconsider the decision, we notify you.
(2)(i) We may reconsider based on the request and supporting
evidence you have presented with the request; or
(ii) We may offer you an opportunity for a hearing to present
evidence.


(Authority: 31 U.S.C. 3720D)


Sec. 34.13 Conduct of a hearing.


(a)(1) A hearing official conducts any hearing under this part.
(2) The hearing official may be any qualified employee of the
Department whom the Department designates to conduct the hearing.
(b)(1) The hearing official conducts any hearing as an informal
proceeding.
(2) A witness in an oral hearing must testify under oath or
affirmation.
(3) The hearing official maintains a summary record of any hearing.
(c) Before the hearing official considers evidence we obtain that
was not included in the debt records available for inspection when we
sent notice of proposed garnishment, we notify you that additional
evidence has become available, may be considered by the hearing
official, and is available for inspection or copying.
(d) The hearing official considers any objection you raise and
evidence you submit--
(1) In or with the request for a hearing;
(2) During an oral hearing;
(3) By the date that we consider, under Sec. 34.9(e), that a
request for an oral hearing has been withdrawn; or
(4) Within a period we set, ordinarily not to exceed seven business
days, after--
(i) We provide you access to our records regarding the debt, if you
requested access to records within 20 days after the date of the notice
under Sec. 34.4;
(ii) We notify you that we have obtained and intend to consider
additional evidence;
(iii) You request an extension of time in order to submit specific
relevant evidence that you identify to us in the request; or
(iv) We notify you that we deny your request for an oral hearing.


(Authority: 31 U.S.C. 3720D)


Sec. 34.14 Burden of proof.


(a)(1) We have the burden of proving the existence and amount of a
debt.
(2) We meet this burden by including in the record and making
available to the debtor on request records that show that--
(i) The debt exists in the amount stated in the garnishment notice;
and
(ii) The debt is currently delinquent.
(b) If you dispute the existence or amount of the debt, you must
prove by a preponderance of the credible evidence that--
(1) No debt exists;
(2) The amount we claim to be owed on the debt is incorrect, or
(3) You are not delinquent with respect to the debt.
(c)(1) If you object that the proposed garnishment rate would cause
financial hardship, you bear the burden of proving by a preponderance
of the credible evidence that withholding the


[[Page 8145]]


amount of wages proposed in the notice would leave you unable to meet
the basic living expenses of you and your dependents.
(2) The standards for proving financial hardship are those in Sec.
34.24.
(d)(1) If you object on the ground that applicable law bars us from
collecting the debt by garnishment at this time, you bear the burden of
proving the facts that would establish that claim.
(2) Examples of applicable law that may prevent collection by
garnishment include the automatic stay in bankruptcy (11 U.S.C.
362(a)), and the preclusion of garnishment action against a debtor who
was involuntarily separated from employment and has been reemployed for
less than a continuous period of 12 months (31 U.S.C. 3720D(b)(6)).
(e) The fact that applicable law may limit the amount that an
employer may withhold from your pay to less than the amount or rate we
state in the garnishment order does not bar us from issuing the order.


(Authority: 31 U.S.C. 3720D)


Sec. 34.15 Consequences of failure to appear for an oral hearing.


(a) If you do not appear for an in-person hearing you requested, or
you do not answer a telephone call convening a telephone hearing, at
the time set for the hearing, we consider you to have withdrawn your
request for an oral hearing.
(b) If you do not appear for an oral hearing but you demonstrate
that there was good cause for not appearing, we may reschedule the oral
hearing.
(c) If you do not appear for an oral hearing you requested and we
do not reschedule the hearing, we provide a paper hearing to review
your objections, based on the evidence in your file and any evidence
you have already provided.


(Authority: 31 U.S.C. 3720D)


Sec. 34.16 Issuance of the hearing decision.


(a) Date of decision. The hearing official issues a written opinion
stating his or her decision, as soon as practicable, but not later than
60 days after the date on which we received the request for hearing.
(b) If we do not provide you with a hearing and render a decision
within 60 days after we receive your request for a hearing--
(1) We do not issue a garnishment order until the hearing is held
and a decision rendered; or
(2) If we have already issued a garnishment order to your employer,
we suspend the garnishment order beginning on the 61st day after we
receive the hearing request until we provide a hearing and issue a
decision.


(Authority: 31 U.S.C. 3720D)


Sec. 34.17 Content of decision.


(a) The written decision is based on the evidence contained in the
hearing record. The decision includes--
(1) A description of the evidence considered by the hearing
official;
(2) The hearing official's findings, analysis, and conclusions
regarding objections raised to the existence or amount of the debt;
(3) The rate of wage withholding under the order, if you objected
that withholding the amount proposed in the garnishment notice would
cause an extreme financial hardship; and
(4) An explanation of your rights under this part for
reconsideration of the decision.
(b) The hearing official's decision is the final action of the
Secretary for the purposes of judicial review under the Administrative
Procedure Act (5 U.S.C. 701 et seq.).

(Authority: 31 U.S.C. 3720D)

Sec. 34.18 Issuance of the wage garnishment order.

(a)(1) If you fail to make a timely request for a hearing, we issue
a garnishment order to your employer within 30 days after the deadline
for timely requesting a hearing.
(2) If you make a timely request for a hearing, we issue a
withholding order within 30 days after the hearing official issues a
decision to proceed with garnishment.
(b)(1) The garnishment order we issue to your employer is signed by
an official of the Department designated by the Secretary.
(2) The designated official's signature may be a computer-generated
facsimile.
(c)(1) The garnishment order contains only the information we
consider necessary for your employer to comply with the order and for
us to ensure proper credit for payments received from your employer.
(2) The order includes your name, address, and social security
number, as well as instructions for withholding and information as to
where your employer must send the payments.
(d)(1) We keep a copy of a certificate of service indicating the
date of mailing of the order.
(2) We may create and maintain the certificate of service as an
electronic record.

(Authority: 31 U.S.C. 3720D)

Sec. 34.19 Amounts to be withheld under a garnishment order.

(a)(1) After an employer receives a garnishment order we issue, the
employer must deduct from all disposable pay of the debtor during each
pay period the amount directed in the garnishment order unless this
section or Sec. 34.20 requires a smaller amount to be withheld.
(2) The amount specified in the garnishment order does not apply if
other law, including this section, requires the employer to withhold a
smaller amount.
(b) The employer must comply with our garnishment order by
withholding the lesser of--
(1) The amount directed in the garnishment order; or--
(2) The amount specified in 15 U.S.C. 1673(a)(2) (Restriction on
Garnishment); that is, the amount by which a debtor's disposable pay
exceeds an amount equal to 30 times the minimum wage. (See 29 CFR
870.10.)

(Authority: 31 U.S.C. 3720D)

Sec. 34.20 Amount to be withheld under multiple garnishment orders.

If a debtor's pay is subject to several garnishment orders, the
employer must comply with our garnishment order as follows:
(a) Unless other Federal law requires a different priority, the
employer must pay us the amount calculated under Sec. 34.19(b) before
the employer complies with any later garnishment orders, except a
family support withholding order.
(b) If an employer is withholding from a debtor's pay based on a
garnishment order served on the employer before our order, or if a
withholding order for family support is served on an employer at any
time, the employer must comply with our garnishment order by
withholding an amount that is the smaller of--
(1) The amount calculated under Sec. 34.19(b); or
(2) An amount equal to 25 percent of the debtor's disposable pay
less the amount or amounts withheld under the garnishment order or
orders with priority over our order.
(c)(1) If a debtor owes more than one debt arising from a program
we administer, we may issue multiple garnishment orders.
(2) The total amount withheld from the debtor's pay for orders we
issue under paragraph (c)(1) of this section does not exceed the
amounts specified in the orders, the amount specified in Sec.
34.19(b)(2), or 15 percent of the debtor's disposable pay, whichever is
smallest.

[[Page 8146]]

(d) An employer may withhold and pay an amount greater than that
amount in paragraphs (b) and (c) of this section if the debtor gives
the employer written consent.

(Authority: 31 U.S.C. 3720D)

Sec. 34.21 Employer certification.

(a) Along with a garnishment order, we send to an employer a
certification in a form prescribed by the Secretary of the Treasury.
(b) The employer must complete and return the certification to us
within the time stated in the instructions for the form.
(c) The employer must include in the certification information
about the debtor's employment status, payment frequency, and disposable
pay available for withholding.

(Authority: 31 U.S.C. 3720D)

Sec. 34.22 Employer responsibilities.

(a)(1) Our garnishment order indicates a reasonable period of time
within which an employer must start withholding under the order.
(2) The employer must promptly pay to the Department all amounts
the employer withholds according to the order.
(b) The employer may follow its normal pay and disbursement cycles
in complying with the garnishment order.
(c) The employer must withhold the appropriate amount from the
debtor's wages for each pay period until the employer receives our
notification to discontinue wage garnishment.
(d) The employer must disregard any assignment or allotment by an
employee that would interfere with or prohibit the employer from
complying with our garnishment order, unless that assignment or
allotment was made for a family support judgment or order.

(Authority: 31 U.S.C. 3720D)

Sec. 34.23 Exclusions from garnishment.

(a) We do not garnish your wages if we have credible evidence that
you--
(1) Were involuntarily separated from employment; and
(2) Have not yet been reemployed continuously for at least 12
months.
(b) You have the burden of informing us of the circumstances
surrounding an involuntary separation from employment.

(Authority: 31 U.S.C. 3720D)

Sec. 34.24 Claim of financial hardship by debtor subject to
garnishment.

(a) You may object to a proposed garnishment on the ground that
withholding the amount or at the rate stated in the notice of
garnishment would cause financial hardship to you and your dependents.
(See Sec. 34.7)
(b) You may, at any time, object that the amount or the rate of
withholding which our order specifies your employer must withhold
causes financial hardship.
(c)(1) We consider an objection to an outstanding garnishment order
and provide you an opportunity for a hearing on your objection only
after the order has been outstanding for at least six months.
(2) We may provide a hearing in extraordinary circumstances earlier
than six months if you show in your request for review that your
financial circumstances have substantially changed after the notice of
proposed garnishment because of an event such as injury, divorce, or
catastrophic illness.
(d)(1) You bear the burden of proving a claim of financial hardship
by a preponderance of the credible evidence.
(2) You must prove by credible documentation--
(i) The amount of the costs incurred by you, your spouse, and any
dependents, for basic living expenses; and
(ii) The income available from any source to meet those expenses.
(e)(1) We consider your claim of financial hardship by comparing--
(i) The amounts that you prove are being incurred for basic living
expenses; against
(ii) The amounts spent for basic living expenses by families of the
same size and similar income to yours.
(2) We regard the standards published by the Internal Revenue
Service under 26 U.S.C. 7122(c)(2) (the ``National Standards'') as
establishing the average amounts spent for basic living expenses for
families of the same size as, and with family incomes comparable to,
your family.
(3) We accept as reasonable the amount that you prove you incur for
a type of basic living expense to the extent that the amount does not
exceed the amount spent for that expense by families of the same size
and similar income according to the National Standards.
(4) If you claim for any basic living expense an amount that
exceeds the amount in the National Standards, you must prove that the
amount you claim is reasonable and necessary.

(Authority: 31 U.S.C. 3720D)

Sec. 34.25 Determination of financial hardship.

(a)(1) If we conclude that garnishment at the amount or rate
proposed in a notice would cause you financial hardship, we reduce the
amount of the proposed garnishment to an amount that we determine will
allow you to meet proven basic living expenses.
(2) If a garnishment order is already in effect, we notify your
employer of any change in the amount the employer must withhold or the
rate of withholding under the order.
(b) If we determine that financial hardship would result from
garnishment based on a finding by a hearing official or under a
repayment agreement we reached with you, this determination is
effective for a period not longer than six months after the date of the
finding or agreement.
(c)(1) After the effective period referred to in paragraph (b) of
this section, we may require you to submit current information
regarding your family income and living expenses.
(2) If we conclude from a review of that evidence that we should
increase the rate of withholding or payment, we--
(i) Notify you; and
(ii) Provide you with an opportunity to contest the determination
and obtain a hearing on the objection under the procedures in Sec.
34.24.

(Authority: 31 U.S.C. 3720D)

Sec. 34.26 Ending garnishment.

(a)(1) A garnishment order we issue is effective until we rescind
the order.
(2) If an employer is unable to honor a garnishment order because
the amount available for garnishment is insufficient to pay any portion
of the amount stated in the order, the employer must--
(i) Notify us; and
(ii) Comply with the order when sufficient disposable pay is
available.
(b) After we have fully recovered the amounts owed by the debtor,
including interest, penalties, and collection costs, we send the
debtor's employer notification to stop wage withholding.

(Authority: 31 U.S.C. 3720D)

Sec. 34.27 Actions by employer prohibited by law.

An employer may not discharge, refuse to employ, or take
disciplinary action against a debtor due to the issuance of a
garnishment order under this part.

(Authority: 31 U.S.C. 3720D)

Sec. 34.28 Refunds of amounts collected in error.

(a) If a hearing official determines under Sec. Sec. 34.16 and
34.17 that a person does not owe the debt described in our notice or
that an administrative wage garnishment under this part was barred by
law at the time of the collection

[[Page 8147]]

action, we promptly refund any amount collected by means of this
garnishment.
(b) Unless required by Federal law or contract, we do not pay
interest on a refund.

(Authority: 31 U.S.C. 3720D)

Sec. 34.29 Enforcement action against employer for noncompliance with
garnishment order.

(a) If an employer fails to comply with Sec. 34.22 to withhold an
appropriate amount from wages owed and payable to an employee, we may
sue the employer for that amount.
(b)(1) We do not file suit under paragraph (a) of this section
before we terminate action to enforce the debt as a personal liability
of the debtor.
(2) However, the provision of paragraph (b)(1) of this section may
not apply if earlier filing of a suit is necessary to avoid expiration
of any applicable statute of limitations.
(c)(1) For purposes of this section, termination of an action to
enforce a debt occurs when we terminate collection action in accordance
with the FCCS, other applicable standards, or paragraph (c)(2) of this
section.
(2) We regard termination of the collection action to have occurred
if we have not received for one year any payments to satisfy the debt,
in whole or in part, from the particular debtor whose wages were
subject to garnishment.

(Authority: 31 U.S.C. 3720D)

Sec. 34.30 Application of payments and accrual of interest.

We apply payments received through a garnishment in the following
order--
(a) To costs incurred to collect the debt;
(b) To interest accrued on the debt at the rate established by--
(1) The terms of the obligation under which it arises; or
(2) Applicable law; and
(c) To outstanding principal of the debt.

(Authority: 31 U.S.C. 3720D)

Note: The following appendix will not appear in the Code of
Federal Regulations.

Appendix

Analysis of Comments and Changes

An analysis of the comments and of the changes in the
regulations since publication of the NPRM follows.
We discuss issues according to subject, under the sections of
the regulations to which they pertain.

Scope of Garnishment Authority; Collection of Student Loans (Sec. Sec.
34.1 and 34.2)

Comment: One commenter contended that the Department lacks legal
authority to use the garnishment power in the DCIA to collect
student loans, because the commenter views section 488A of the
Higher Education Act, 20 U.S.C. 1095a, as restricting the
Department's garnishment authority to ten percent of disposable pay.
Discussion: The commenter bases this contention not on the terms
of the DCIA, but on a rule of statutory construction that where two
statutes authorize an action, the more specific of the two sets the
limits to that authority. Section 488A of the HEA authorizes the
Secretary of Education and guaranty agencies to garnish up to ten
percent of debtor pay to collect student loans, while the DCIA
authorizes Federal agencies to garnish up to fifteen percent of
debtor pay. The commenter views the HEA as the more specific of the
two statutes, and contends that the HEA limits the Department's
garnishment power to the ten percent rate it authorizes. We disagree
that the HEA is the more specific of the two statutes; both statutes
apply to a distinctive category of entities. The HEA extended
garnishment authority to the Department and to some 36 separate
State and non-profit entities operating as guaranty agencies, and
empowers the latter group to collect both on their own behalf and on
behalf of the Federal government.\1\ The DCIA applies only to
Federal agencies, and applies exclusively to collection of debts
owed to the Federal Government.
---------------------------------------------------------------------------

\1\ Guarantors are authorized to collect ``the amount owed'' by
the defaulter, 20 U.S.C. 1095a(a), which includes that portion of
the loan debt not covered by Federal reinsurance, as well as that
portion of the recovery that the guarantor is authorized to retain.
20 U.S.C. 1078(c)(1), 1078(c)(6).
---------------------------------------------------------------------------

Even if the HEA were the more specific of the two authorities,
the rule that the more specific of two potentially applicable
statutes controls is merely one of several tools used to discern the
intent of Congress. Another way to determine the intent of Congress
when two potentially-applicable statutes adopt inconsistent terms is
to view the more recent of the two as embodying the current intent
of Congress. The 1996 DCIA is the more recent of the two statutes.
Thus, Congress' intent to allow garnishment at 15 percent supersedes
the HEA's more limited authority.
Looking to the more recent of two statutes to discern Congress'
intent is particularly apt because the DCIA garnishment provision is
both more recently enacted and part of a comprehensive scheme
inconsistent with the limits of the earlier HEA authority. The DCIA
supersedes the more limited authority in HEA section 488A because
the DCIA garnishment authority is an addition to a comprehensive
statutory scheme (31 U.S.C. 3701-3720E) for enforcement of Federal
debts, including student loan debts. That scheme includes, for
example, authority under 31 U.S.C. 3720A to collect Federal debt by
tax refund offset, and, under 31 U.S.C. 3711(g), to report
delinquent Federal debt to credit bureau. Thus, because Congress
intended this statutory scheme as in effect before the 1996 DCIA
amendments to apply to student loans, there is no reason to infer
that Congress did not intend the garnishment provision added by the
DCIA to this scheme in 1996 to apply to student loans as well.
Changes to the roles of specific Federal agencies made by the
DCIA show that Congress intended that the tools available under this
statutory scheme, including garnishment, be used to collect student
loans. For the first time, the DCIA required Federal agencies to
transfer collection responsibility for their delinquent debt to
Treasury, or to other Federal agencies which were designated ``debt
collection centers.'' The DCIA authorizes Treasury, as well as these
designated ``debt collection centers,'' to use all the collection
tools provided in the DCIA, including its garnishment provision, to
collect debts which they ``cross-service.'' Education has been
designated a debt collection center for student loans, thus, it is
illogical to infer any congressional intent to bar Education from
using the same DCIA garnishment authority to collect Federal student
loan debts that Treasury and other agencies are meant to use to
collect Federal debts.
Moreover, if Education had not been designated a debt collection
center, the DCIA would have required Education to transfer its
student loan debts to Treasury (or another agency designated as a
collection center) for cross-servicing. Treasury plainly has full
authority to use DCIA garnishment to collect any debts transferred
to it for servicing, including student loans from Education. Thus,
because Treasury or other Federal agencies would have power to
collect those very student loans at the 15 percent rate, it is
illogical to infer any congressional intent to restrict garnishment
to the lesser HEA level when those same loans are serviced by
Education itself.
The text of the DCIA itself shows that the absence of any
language excluding student loans from garnishment under 31 U.S.C.
3720D was no oversight. The DCIA expanded the scope of Federal
offsets by amending 31 U.S.C. 3716 to authorize offset by Treasury
against such Federal payments as Social Security benefits, 31 U.S.C.
3716(b)(3), but expressly excluded title IV HEA student assistance
payments from offset. 31 U.S.C. 3716(b)(1)(C). That express
exclusion of student aid from the DCIA offset provision, contrasted
against the absence of any reference to student loans in the DCIA
garnishment provision--a provision copied almost verbatim from HEA
section 488A--shows that Congress spoke clearly when it meant to
exclude student aid from the reach of the DCIA tools, and intended
no exclusion of student loans from the DCIA garnishment provision.
In addition to the language of the statute itself, the
legislative context of the garnishment provision shows that Congress
intended the Department to use this DCIA authority to collect
student loans. The subcommittee in which the provision originated
understood from testimony before it that the provision would
increase Education's authority to 15 percent to garnish

[[Page 8148]]

debtor wages to collect student loans.\2\ Subsequent oversight
action by that subcommittee \3\ and by the General Accounting Office
\4\ at the request of the subcommittee demonstrate the
subcommittee's expectation, and Education's intention, that
Education would implement the DCIA 15 percent wage garnishment
authority to collect student loans.
---------------------------------------------------------------------------

\2\ Hearing on H.R. 2234, the Debt Collection Improvement Act of
1995, before the Subcommittee on Government Management, Information
and Technology of the Committee on Government Reform and Oversight,
104th Cong., 1st Sess. on H.R. 2234, Sept. 8, 1995 at 70, 159, 253.
Moreover, the Congressional Budget Office estimated substantial
increased recoveries on defaulted loans from these DCIA proposals.
See 142 Cong. Rec. S1825 (Memorandum from John Righter, CBO, to
Patrick Windham, Sen. Committee on Commerce, Science, and
Transportation, regarding Preliminary scoring of the ``Debt
Collection Improvement Act of 1996,'' Chapter 2 of a proposed
amendment to H.R. 3019). As explained by cognizant staff, CBO based
its estimates on the understanding that Education would use fully
these DCIA tools, including garnishment, to collect defaulted
student loans.
\3\ Hearing on Federal Debt Collection Practices before the
Subcommittee on Government Management, Information and Technology of
the Committee on Government Reform and Oversight, 105th Cong., 1st
Sess., Nov. 12, 1997, at 90, 91.
\4\ General Accounting Office: Debt Collection Improvement Act
of 1996: Status of Selected Agencies' Implementation of
Administrative Wage Garnishment (GAO-02-313).
---------------------------------------------------------------------------

For these reasons, the Department considers unfounded the view
that the HEA garnishment authority precludes use of the DCIA
garnishment authority to collect student loans.
Changes: None.
Comment: One commenter objected that the explanation for the
Department's implementation of DCIA garnishment authority in these
regulations left confusion about whether current FFELP regulations,
which address garnishment under HEA section 488A by student loan
guarantors, will continue to apply to those guarantors, and invited
speculation about whether student loan guarantors would continue to
garnish to collect debts they held, and if so, whether the HEA,
rather than the DCIA, authorized them to do so.
Discussion: The statements made by the Department regarding its
intention to use DCIA garnishment authority make no suggestion that
the role and authority of student loan guarantors has changed. The
HEA expressly authorizes student loan guarantors to collect by
garnishment, and nothing in the DCIA expressly or implicitly
addresses the authority of guarantors to garnish. Regulations
adopted under the Federal Family Education Loan Program (FFELP) at
34 CFR 682.410(b)(9) to implement that authority for guarantors
expressly apply to action by FFELP loan guarantors to conduct
garnishment under HEA section 488A. Those regulations do not state
or imply that they apply to the Department, either when the
Department conducted garnishment under HEA section 488A or under any
other authority. Because the FFELP regulations in most instances
closely track the language of HEA section 488A, the Department, by
following the provisions of the statute itself, generally conformed
to those regulations. Because the DCIA garnishment provision mirrors
HEA section 488A, the Department's reasons for interpreting and
implementing several DCIA provisions apply with equal force to
identical terms of HEA section 488A, which the Department has
authority to interpret. That reasoning therefore helps clarify the
intent of identical language found in both statutes. Discussion of
the HEA in the explanation for this rule did not suggest that the
Department considered student loan guarantors to be authorized to
collect under the DCIA authority.
Changes: None.

Computation of Time and System Changes (Sec. 34.3)

Comment: A commenter objects that adopting definitions of
``day'' and ``business day'' may require modification of current
systems for mailings. As an example, the commenter stated that the
garnishment order cannot be issued until 30 days after the date of
the notice, and the proposed rule provides that if the last day of a
period is a Saturday, Sunday, or Federal holiday, the period runs to
the next business day. Thus, the rule would be violated if a
contractor were to mail a garnishment order exactly 30 days after
the date of the notice, if that 30th day fell on a Saturday or
Sunday.
Discussion: These rules adopt verbatim the definitions and
approach adopted by Treasury in its rule, which mirror rules almost
invariably applied in litigation. The only act we take under this
rule within a specified number of days after an event or deadline is
the issuance of the garnishment order; Sec. 34.4 states that we
provide notice of the proposed garnishment ``at least'' 30 days
before we begin garnishment, and Sec. 34.18(a)(1) provides that we
issue a garnishment order ``within 30 days after the deadline for
timely requesting a hearing'' or ``within 30 days after a
decision.'' The Department is responsible for ensuring that its
garnishment activities, and the actions of contractors as needed to
support those activities, conform to this rule. We therefore see no
basis for the complaint that the rule would require modification of
systems used to create and mail the notices and orders Education now
uses in its garnishment process.
Changes: None.

Rights in Connection With Garnishment (Sec. 34.6)

Comment: A commenter objected that the regulations do not
articulate specific defenses that may be available to the debtor as
grounds for objection to the proposed garnishment, and urged that
the rule should mandate use of a form request for hearing of the
kind now used by the Department for garnishment action to collect
student loans.
Discussion: The Department has used, and will continue to use
for collection of student loan debts, a form Request for Hearing
that lists potentially available grounds for objection. Because this
regulation applies to garnishment to collect any debts held by the
Department, the Department did not consider it necessary to adopt
any specific provisions applicable only to some debts. The
Department has no intention to change this procedure for student
loans. However, neither the statute, Treasury regulations, nor due
process requires use of a notice that lists potentially available
defenses. There is no need to include in these regulations
provisions that would imply that such a duty exists.
Changes: None.
Comment: A commenter urged that the regulations should
specifically require the Department to give notice that a debtor may
object to garnishment on the ground that the debtor was recently
reemployed after involuntary separation.
Discussion: The Department agrees that debtors may not be aware
that they may object on the grounds that the debtor has been
recently been reemployed after involuntary separation from
employment. The notice and the request for hearing now used by the
Department for HEA garnishment explain this option. Because this
objection applies regardless of the nature of the debt to be
collected, the Department agrees that the regulations should commit
to providing express notice of this option.
Changes: The regulations are modified in Sec. 34.6 to provide
that the pre-garnishment notice includes an explanation of the
availability of objection on the grounds of recent reemployment
after involuntary separation.
Comment: A commenter urged that the regulations should
specifically require notice to the debtor that limits on withholding
imposed by 15 U.S.C. 1671 et seq. may preclude actual withholding of
pay.
Discussion: Neither the Department, nor any other garnishing
creditor, can reliably determine whether, and for what period, 15
U.S.C. 1673 may bar an employer from honoring a particular
garnishment order. That statute imposes the duty on the employer to
honor its limits, because only the employer actually knows both the
amount of the debtor's disposable pay and the number, amount,
relative priority, and duration of all withholding orders that may
affect the debtor. The court or administrative body that issues a
garnishment order meets its duty under 15 U.S.C. 1673(c) by stating
in the garnishment order that the employer must pay no more than the
amount permitted by that statute. Standard Form 329B, the
garnishment order prescribed for Federal agencies by Treasury, thus
directs the employer to pay the lesser of the amount permitted under
15 U.S.C. 1673 or the amount determined by the agency (either 15
percent of disposable pay or a lesser amount).
Therefore, these regulations, consistent with Treasury
regulations, do not recognize as a valid defense to a garnishment
action a contention by the debtor that the proposed withholding
order, if honored by the employer, would result in withholding
amounts greater than those permitted by 15 U.S.C. 1673. Because this
statute provides no defense to the debtor in a proceeding under this
part, it does not affect the debtor's ability to respond in a
meaningful manner in the proposed garnishment. We note that neither
15 U.S.C. 1671 et seq., the garnishment statutes themselves (HEA
section 488A or 31

[[Page 8149]]

U.S.C. 3720D), nor Treasury regulations require the creditor who
intends to garnish to include in the notice or complaint initiating
collection action an explanation of the effect of 15 U.S.C. 1673.
There appears to be little value in including an explanation of this
statute in the notice, which is intended to explain the debtor's
rights in the garnishment proceeding.
Changes: None.
Comment: A commenter stated that the regulations lacked language
to mirror the assurance in the preamble that the Department provides
hearings even if the request for a hearing is not made timely, and
that the regulations should include this assurance.
Discussion: Section 34.8 requires the debtor to make any request
for a hearing in writing, regardless of the type of hearing sought.
Section 34.11(c)(1) expressly states that we provide a hearing even
if that written request for a hearing is untimely. That provision
contains the assurance that the commenter describes, and no
additional language is needed to ensure that right.
Changes: None.
Comment: A commenter stated that regulations should require that
the Department make available for inspection by the debtor prior to
the hearing any evidence on which the Department intends to rely to
establish the existence and amount of the debt.
Discussion: The proposed rule, in Sec. Sec. 34.5 and 34.6(a),
stated that the Department would explain in the pre-garnishment
notice that the debtor may inspect and copy records regarding the
debt, and in Sec. 34.14(a)(2) further provided that the Department
would, on request, make available to the debtor, as part of the
hearing process, the evidence which we believe establishes the
existence and amount of the debt. These provisions ensure that the
debtor has an opportunity to examine the evidence on which the
Department's claim rests, in a timely manner, that permits the
debtor effectively to respond with evidence and argument before a
decision is issued. No change is needed.
Changes: None.

Conditions for an Oral Hearing (Sec. 34.9)

Comment: A commenter objected to the requirement that the
objecting debtor who seeks an oral hearing must state reasons why
the objection cannot be satisfactorily reviewed based on the
records, including any material provided by the debtor. The
commenter objected that this requirement places an unfair burden on
borrowers, many of whom may be low-income or unsophisticated.
Discussion: By requiring the debtor to show that an oral hearing
is actually needed to resolve the disputed facts, the regulations
adopt the same approach used in judicial proceedings, the paradigm
of due process. Courts routinely dispose of defenses--including
those raised by pro se or unsophisticated defendants--through
summary judgment rulings, and that disposition meets constitutional
due process standards. The Department has limited resources
available to conduct oral hearings; published statistics show that
the Department received approximately 9000 requests for hearings in
its HEA garnishment actions in FY 2000. General Accounting Office:
Debt Collection Improvement Act of 1996: Status of Selected
Agencies' Implementation of Administrative Wage Garnishment (GAO-02-
313) p. 16. Limitations on resources do not warrant curtailing the
rights of debtors, but do militate in favor of the Department, like
Federal courts exercising summary judgment authority, avoiding
unnecessary hearings.
Consistent with Treasury regulations applicable to offset
proceedings, 31 CFR 901.3(e), and to DCIA garnishment actions, 31
CFR 285.11(e), the Department in these regulations simply requires
the debtor who seeks an oral hearing to show a good reason why we
cannot resolve the disputed issues by reviewing the debt records.
This is a common-sense standard that we have generously applied for
years in Federal offset proceedings. The Department sees no readily
articulated and sensible lesser standard, and no reason to commit in
these regulations to provide an oral hearing on request regardless
of the nature of the objection or the kind of evidence available.
Proposed Sec. 34.10(a) stated that a paper hearing would be
held upon request, but inadvertently omitted the word ``or'' before
stating that paper hearings would be provided if we conclude that we
can resolve the issues raised by an objection without an oral
hearing.
Changes: Section 34.10(a) of the proposed rule is revised to
state that we provide a paper hearing upon request by the debtor or
if an oral hearing was requested but we determine that we can
resolve the issues raised by the objection through a review of the
written record regarding the debt.
Comment: A commenter urged that, for in-person or telephone
hearings, the regulations be revised to state that the Department
must send a copy of the hearing file to the debtor prior to the
hearing.
Discussion: The Department has used, and will continue to use, a
pre-garnishment notice that encourages the debtor to request copies
of the records that pertain to the debt to be collected by
garnishment, and to do so before the hearing, and indeed before the
submission of the actual objection to the proposed garnishment. The
proposed rule in Sec. 34.5(c)(1) provides that the Department makes
these records available on request. If the debtor does not choose to
request and review these records, we see no need to incur the
expense of sending the records to the debtor.
Changes: None.

Conduct of Hearings (Sec. 34.13)

Comment: One commenter disagreed with the statement in the
preamble that contractors cannot rule on debtor objections. The
commenter considered the statement that this activity was an
inherently governmental function to imply that student loan
guarantors could not use independent hearing officials, including
administrative law judges and other parties, whom they retain by
contract.
Discussion: The Department intended no inference that student
loan guarantors could not use contracts to retain independent
hearing officials. HEA section 488A requires student loan guarantors
to appoint administrative law judges or to retain independent
hearing officials, not under the supervision or control of the
guarantor, to adjudicate debtor objections to the proposed
garnishment; that retainer agreement will obviously be embodied in a
contract with the hearing official. As Treasury stated in
promulgating controlling regulations, Federal agencies ``may not
contract out `inherently governmental functions,' . . . [but]
contractors can[ ] assist agencies'' by mailing notices, orders
authorized by the agency, receiving documents from debtors and
employers, and arranging repayment agreements approved by the
agency. 63 FR 25137. Unlike these supporting functions, adjudication
of debtor disputes to the compulsory taking of a portion of their
wages by garnishment is an inherently governmental function. The
Department therefore cannot use contractors to decide debtor
objections. The Department recognizes that the HEA requires
guarantors to use individuals, including administrative law judges,
who are independent of the guarantor to perform this adjudication
function. We fully agree that guarantors can arrange for these
services by contracts.
Changes: None.
Comment: One commenter agreed with the statement that only
qualified employees of the Department may conduct hearings, but
objected to the statement that the Department may use contracted
services to analyze debtor objections and propose appropriate
findings to those objections. The commenter requested that the
Department clarify that any findings proposed by contractors are not
final, and that Department hearing officials must exercise
independent judgment and provide independent rationales for
decisions. The commenter further urged that the regulations bar use
of employees of collection agencies or other agencies collecting
debts on behalf of the Department to analyze objections. The
commenter urged that contractors receive specific training on
borrower defenses and other critical hearing procedures.
Discussion: The Department agrees with the commenter that
Department contractors cannot conduct hearings or rule on objections
to garnishment, because those are inherently governmental functions.
As discussed earlier, HEA section 488A expressly requires guarantors
to use independent hearing officials not under the control of the
guarantor to judge debtor objections to garnishment. In contrast,
both HEA section 488A and 31 U.S.C. 3720D direct the Department
itself to provide a hearing and decide debtor objections. The
Department cannot, therefore, delegate this duty to a contractor.
This does not, however, preclude use of contractors to analyze
debtor objections and propose resolutions on those objections.
Department officials must therefore consider the objections
raised by each debtor, and must issue a decision on those
objections. Unless and until a Department official makes findings
and issues a decision, there is no ruling on a debtor's objections.

[[Page 8150]]

The Department agrees that contractors used to prepare
recommendations should be trained to properly analyze debtor
objections. However, because contractor analyses of those objections
are clearly no more than recommendations to Department staff and
have no binding effect whatever on the debtor, we see no need to
include language in the regulations to characterize contractor
analyses.
Debtors have the right, under these regulations, to avoid
garnishment by entering a voluntary repayment agreement. The
Department uses its collection contractors to negotiate repayment
terms with those debtors sent notice of garnishment who wish to
repay voluntarily. Collection contractors have a financial interest
in recovery, whether by garnishment or by voluntary payment, and the
Department does not use them to prepare recommended analysis for a
hearing on any objection, including hardship objections. These
regulations ensure a hearing by a designated Department official for
any debtor who does not agree to repay voluntarily and has requested
a hearing.
Changes: None.
Comment: A commenter opined that the regulations should adopt
guidelines and training procedures for any Department staff
designated to conduct hearings of debtor objections. The commenter
urged that the regulations should require the Department to provide
debtors a list of hearing officials available for review of their
objections so that they may object to those they consider
unqualified or biased.
Discussion: Any decision issued by the Department on debtor
objections to garnishment is subject to judicial review under
Administrative Procedure Act (APA). The Department has a strong
interest in seeing that Department staff who conduct hearings do so
in conformance with applicable substantive and procedural law.
Therefore, the Department sees little value in adding generalized
language to this part that would purport to govern its own internal
training procedures.
The commenter points to no administrative or judicial tribunal
that allows debtors to select the individual to hear their cases,
and shows no good reason to adopt that course in this part. The
commenter urged that this would permit a debtor to reject a
particular individual who the debtor considers biased against the
debtor. A debtor who objects to a hearing official as biased, can
object as part of the hearing process to that individual serving as
hearing official.\5\ Hearings under this part are not subject to 5
U.S.C. 556, which requires the agency to consider and include in the
administrative record its ruling on any objection to a proposed
hearing official. However, the Department must meet that test,
because it must consider and rule on any objection raised by the
debtor, including an objection that the hearing official is biased.
That determination, and any claim that a decision was the result of
bias by the hearing official, may be tested on judicial review.
---------------------------------------------------------------------------

\5\ Grounds for disqualification in proceedings under this part
would include those applicable to Federal court proceedings; as
pertinent here, Federal law requires disqualification of a judge in
a Federal court proceeding who has personal bias or prejudice
concerning a party, or personal knowledge of disputed evidentiary
facts. 28 U.S.C. 455(b)(1).
---------------------------------------------------------------------------

No Department hearing official benefits financially from the
outcome of a hearing, and Federal ethics rules prohibit a hearing
official from participating in a matter in which the individual has
a financial interest. 5 CFR 2635.402(a). The Department therefore
sees no need to add provisions to these regulations offering debtors
a choice of hearing officials as a remedy for speculation that some
Department official may harbor bias against a particular debtor.
Changes: None.

Content of Decision; Basis of Decision on Evidence Considered at
Hearing (Sec. 34.17)

Comment: A commenter stated that regulations should require that
hearing decisions be based only on evidence presented at the hearing
and should clearly state the grounds for denial of an objection.
Discussion. Section 34.17 of the proposed rule provided that the
decision would include the hearing official's conclusions and
reasoning for each objection presented. We agree that the decision
must rest on evidence presented in the hearing, but that hearing
process is informal and may extend beyond the actual oral hearing.
The regulations do not bar debtors from presenting in oral hearings
objections not raised in the request for hearing, and do not require
debtors who seek oral hearings to disclose all the evidence on which
they will rely to support an objection. Because new objections and
evidence first presented by the debtor during an oral hearing may
require the Department to obtain further evidence in order to
evaluate, the hearing official may leave the record open both for
the Department and for the debtor. We may need to obtain additional
evidence to respond to objections and evidence submitted by a debtor
in either an oral or paper hearing.
To ensure that evidence we may obtain after the notice is sent
is fairly considered in the hearing process, the debtor must have an
opportunity to examine and respond to that evidence before the
hearing official makes his or her decision. Therefore, if we intend
to consider evidence that was not included in our records of the
debt that were available for inspection prior to the hearing, the
hearing official will consider that evidence only after we notify
the debtor, make that evidence available to the debtor, and provide
a reasonable period for rebuttal evidence and argument by the
debtor.
The proposed regulations did not address the situation in which
the debtor learns after filing the request for hearing that specific
relevant evidence is available, and wishes to submit that evidence
and have it considered in the proceeding. We believe that the debtor
should have the opportunity to do so, if that evidence can be
promptly acquired and produced. To ensure that this opportunity does
not unduly delay completion of the hearing and issuance of the
decision, it is reasonable to expect the debtor to make a specific
request that the record be held open for consideration of such
evidence, and to describe in that request what the evidence is, and
why it is relevant.
The proposed regulations did not address situations in which a
debtor requests access to records, and then seeks to submit evidence
and objection based on a review of our records of the debt, or
seeks--but is denied--an oral hearing at which he or she would offer
evidence and objections. Department regulations for the Treasury
Offset Program assure a debtor who seeks access to Department debt
records with reasonable diligence--within 20 days of the date of the
notice of proposed offset--an extended deadline for presenting
evidence and argument opposing the offset. 34 CFR 30.33(d). A
similar assurance is appropriate in these proceedings. Finally, the
regulations can clarify that a debtor who intended to present
evidence and objection at an oral hearing should have an opportunity
to submit both in written form if that request for an oral hearing
is denied.
The time provided for submission of evidence and objections not
included in the request for hearing may vary depending on the
situation. We believe that this period should ordinarily be at least
seven business days, but could in particular circumstances be
shorter, or, as resources may permit, longer. In any event, the
particular deadline applicable in each situation should be
communicated to the debtor.
Changes: Section 34.17 is modified to provide that the decision
rests on evidence in the hearing record, and includes a description
of the evidence considered in making that decision. Section 34.13 is
modified to add a new paragraph (d) to state the instances in which
the hearing official will accept evidence and argument not included
in the request for hearing or presented during an oral hearing.
Section 34.13(d)(4)(i) provides that if the debtor requests access
to records within 20 days of the date of the notice, the debtor may
submit evidence and objection for a limited time after we provide
the requested records. Section 34.13(d)(4)(ii) and (c) provide that
if we obtain and intend to have considered in the hearing process
evidence that was not included in the records that were available
for inspection by the debtor when notice was sent, we first notify
the debtor regarding the new evidence, make this evidence available
to the debtor, and provide a reasonable period for rebuttal evidence
and argument. Section 34.13(d)(4)(iii) provides for a brief
extension of time, upon request, for a debtor to submit
specifically-identified evidence not previously presented, and to
raise an objection based on that evidence. Section 34.13(d)(4)(iv)
provides an opportunity to submit evidence and argument after a
request for an oral hearing is denied.
Comment: A commenter urged that the regulations require that
information about reconsideration and appeal rights be included in
the decision, and that this information be displayed in the decision
in large bold letters.
Discussion: The regulations now state that the garnishment
hearing decision is final agency action for purposes of the judicial
review under the APA. We have no administrative appeal procedures
for garnishment decisions, and therefore no administrative appeal
rights to explain in the

[[Page 8151]]

decision. We currently state in a garnishment decision that the
debtor may contest the ruling by filing suit in Federal district
court and we expect to continue to do so. These regulations do
create reconsideration rights, and we agree that the decision offers
a useful vehicle for presenting those rights to the debtor.
Changes: Section 34.17(a) is modified to provide that the
decision includes an explanation of reconsideration rights available
to the debtor.
Comment: A commenter believed that we should state that the
position taken in the proposed rule regarding the effect of a
failure to issue a decision within 60 days of an untimely request
for a hearing applies as well to garnishment action by guarantors
under the HEA.
Discussion: We stated in the preamble that the statutory
requirement that a hearing decision be issued within 60 days of the
debtor's request does no more than require the garnishing party to
suspend any outstanding garnishment order if a hearing decision is
not issued within 60 days of the debtor's request, but does not bar
resumption of garnishment, or, if an order has not been issued,
issuance of the order, after an adverse hearing decision is issued.
As explained there, this conclusion follows from well-established
case law addressing the effect of statutory deadlines on agency
action. United States v. James Daniel Good Real Property, 510 U.S.
43, 63 (1993); United States v. Montalvo-Murillo, 495 U.S. 711
(1990); Brock v. Pierce County, 476 U.S. 253 (1986). Pursuant to the
principle articulated in these rulings, failure by a guarantor to
meet the HEA 60-day decision requirement, like a failure to meet the
same duty under the DCIA addressed in these rules, does no more than
suspend the garnishor's right to issue or continue in effect an
existing garnishment order.
Changes: None

Financial Hardship; Reconsideration (Sec. Sec. 34.24, 34.25)

Comment: A commenter stated that provisions regarding the right
to claim financial hardship were inconsistent and should be
clarified to allow the debtor to raise hardship at any time.
Discussion: The regulations provide that the debtor may object
to garnishment on financial hardship grounds at any time, but that
the Department in general commits to provide a hearing on a hardship
objection no earlier than six months after we issue a garnishment
order. The Department recognizes that in some instances, financial
circumstances may change substantially within a relatively short
time, so that a debtor not faced with hardship at the time of the
notice or hearing may suffer financial setbacks before six months of
garnishment have been completed. The regulations therefore provide
that the Department will consider a hardship objection raised within
that six-month period if in the judgment of the Department, the
debtor shows in the request for review that his or her financial
circumstances have substantially worsened after the notice of
proposed garnishment on account of an event such as disability,
divorce, or catastrophic illness.
Section 34.7 of the proposed regulations stated that we provided
no hearing regarding objection to the rate or amount of withholding
on a new garnishment action if, within the past 12 months, we had
begun garnishment proceedings and determined in those proceedings an
appropriate withholding amount, either by decision or by terms of
voluntary agreement. This section applies to those circumstances in
which we start garnishment to collect a different debt than that
which we have already issued a garnishment order, or we start
garnishment action to enforce a debt after the debtor breached an
agreement to repay that debt after we had given notice of intent to
collect that debt by garnishment. In both voluntary repayment
agreements and hardship determinations, the Department typically
states that the determination is effective for a period of six
months, after which the debtor must demonstrate that he or she
cannot pay more than the installment amount agreed to or the
withholding rate determined to be appropriate. The 12-month period
in proposed Sec. 34.7(b) would have been inconsistent with this
practice and with the general commitment in proposed Sec.
34.24(c)(1) to consider a hardship objection within six months after
the garnishment took effect.
Changes. Section 34.7(b) is revised first to state that a
hearing is available to contest the amount or rate of a proposed
garnishment only if the rate or amount there proposed exceeds the
rate or amount we had agreed to within the preceding six months in
an agreement resolving a prior garnishment proposal. Second, the
same provision is revised to remove the restriction of hardship
objection where a hearing decision within the preceding 12 months
had set the withholding rate or amount.
Comment: A commenter objected that the grounds for hardship
should not be compared to the grounds for undue hardship discharge
of student loans in bankruptcy. The commenter disagrees that the
case law interpreting the undue hardship requirement provides useful
guidance, because a hardship determination under this rule is
binding for six months, while a bankruptcy hardship determination in
bankruptcy is permanent and takes into account the expected long-
term financial difficulties of the debtor.
Discussion: The commenter suggests that the degree of financial
hardship that merits a financial hardship under this rule differs
from, and is less than, the kind of financial hardship needed to
support a claim of undue hardship in bankruptcy. The observation is
accurate, because these regulations measure hardship using the
national standards, which compare the debtor's expenses to the
average amounts incurred by families of similar size and income,
while bankruptcy hardship analysis compares the debtor's expenses to
those needed to maintain what case law refers to as a ``minimal
standard of living.'' Brunner v. N.Y. Higher Educ. Serv. Corp., 831
F.2d 395, 396 (2nd Cir. 1987). The amounts spent for living expenses
by peers of the debtor will in many instances significantly exceed
those justifiable for a minimal standard of living.\6\
---------------------------------------------------------------------------

\6\ The Brunner test includes two other steps not relevant to
hardship claims in garnishment proceedings.
--------------------------------------------------------------------------

Under these regulations, the debtor bears the burden of proving
the necessity of any amounts claimed in excess of the average
amounts spent by his or her peers. The debtor may contend that
above-average expenses are needed for housing costs, retirement
savings, tuition for private schools, charitable contributions,
vehicles, utilities, and telephone charges which the debtor now
incurs. Bankruptcy courts routinely address these claims in
evaluating undue hardship claims; that case law can provide guidance
in considering whether a debtor carries his or her burden under
these regulations of proving that above-average expenses are
necessary.
Changes: None.
Comment: A commenter urged that the Department include with the
notice of proposed garnishment a separate form for debtors to use to
claim financial hardship, which would explain the grounds for a
hardship claim and how to obtain a hearing on the objection.
Discussion: The notice currently used by the Department, and
that which the Department intends to use for garnishment under these
regulations, explains the debtor's right to contest the proposed
garnishment on both substantive and hardship grounds. The Department
may modify the format of the notice as experience demonstrates that
particular changes are useful.
The Department currently sends financial statement forms to
those debtors who state on their request for hearing that they
intend to object on hardship grounds. The overwhelming majority of
objections to proposed garnishments that the Department now receives
are based on financial hardship. The Department agrees that a self-
explanatory form has proven very useful to encourage debtors to
present their financial circumstances in a way that makes analysis
of the objection by the Department easier, but sees no reason to
commit at this point in regulations to a particular form, or to a
particular method of providing that form to debtors.
Changes: None.
Comment: A commenter asked that we state that positions taken in
the proposed rule regarding the burden of proof of hardship and the
need to present that claim by completing a financial statement
disclosing the income and assets available to meet the needs of the
debtor and his or her family, apply to garnishment proceedings by
guaranty agencies under HEA section 488A.
Discussion. Because the debtor alone has evidence needed to
prove financial hardship, we believe that financial hardship is like
an affirmative defense to a claim, such as repayment. As a matter of
common sense and common law, the person who claims an affirmative
defense bears the burden of proving that defense by a preponderance
of the credible evidence. We provide a financial statement form for
debtors who claim hardship to complete, and we intend to

[[Page 8152]]

continue to do so. The rule itself does not bar consideration of
evidence presented in other forms.
Fair consideration of hardship claims depends on full and
accurate disclosure of the income and assets available to meet the
needs of the debtor and his or her family. Hearing officials should
reject as unsupported those hardship claims by debtors who fail to
disclose completely and--for written records hearings--in a form
that bears some indicia of trustworthiness, such as a statement or
affirmation that the disclosure is made under penalty of perjury.
Independent hearing officials conducting hearings under HEA
section 488A must rule in accordance with applicable law, including
Department program regulations.
FFELP regulations do not contain any provision that expressly
allocates the burden of proof of financial hardship. Section
34.21(d) does not bind either debtors whose loans are collected by
guarantors, or hearing officials used by the guarantors, but rests
on principles that courts generally apply to allocating the burden
of proof between litigants. Those principles, as well as common
sense, should persuade FFELP hearing officials to place on the
debtor the burden of proof and persuasion of a hardship claim.
As noted above, Sec. 34.21 does not require the debtor to use a
particular financial statement form to prove hardship in garnishment
proceedings under these regulations; a guarantor may adopt a rule
that requires debtors to use a particular form to prove hardship in
its garnishment proceedings.
Changes: None.
Comment: A commenter urged that we state that the National
Standards adopted by the Internal Revenue Service (IRS) also apply
to evaluation of hardship claims raised in garnishment proceedings
under the HEA.
Discussion: As discussed in response to other comments, these
rules apply only to debtors subject to Department garnishment action
under the DCIA, and these regulations do not bind debtors in
garnishment actions under the HEA by either the Department or
guarantors. However, we strongly believe that the Standards provide
unique and well-founded, empirically-based benchmarks of amounts
needed for basic living expenses. These regulations stipulate that
amounts spent up to these benchmarks are reasonable and necessary,
and create an explicit rebuttable presumption that amounts claimed
in excess of these benchmarks are not necessary.
Under both the HEA and the DCIA, as discussed in response to
other comments, the debtor bears the burden of proof and burden of
persuasion that particular expense amounts are necessary. In absence
of a FFELP regulation that expressly adopts the Standards, a hearing
official could conceivably accept an expense claim as necessary
based on the official's own judgment, even though the claimed amount
exceeded the Standards and the debtor presented no evidence to
support the need for that amount. We strongly believe that such a
judgment would not be well-founded. The Department believes that
hearing officials in HEA garnishment proceedings should accept the
Standards as persuasive evidence of the amounts reasonable and
necessary, and should require any debtor who claims larger amounts
are needed to support that contention by persuasive evidence. If
debtors in HEA garnishment proceedings are properly held to their
burden of proof, there should be little practical difference between
the presumption created in these regulations and the use of the
Standards as reliable empiric evidence of reasonableness.
Changes: None.

Amount Withheld Under Garnishment Order (Sec. 34.19)

Comment: A commenter objected to the proposal that the
Department might issue multiple garnishment orders under this rule
regarding a debtor who owes several debts to the Department. The
commenter believes that neither the DCIA nor the HEA allows multiple
garnishment orders, and believes that Congress intended to limit
garnishment to 10 percent of disposable pay.
Discussion: Treasury rules interpret the DCIA to allow a Federal
agency that holds several claims against a debtor to issue more than
one garnishment order to recover those claims. 31 CFR
285.11(i)(3)(iii). However, the comment is well taken that the total
amount that may be withheld pursuant to orders issued by a single
agency cannot exceed 15 percent of the debtor's disposable pay. 31
CFR 285.11(i)(2), (3)(iii).
Changes: The regulations are modified in Sec. 34.20(b) to state
that the aggregate amount that may be withheld by an employer
pursuant to one or more orders we issue may not exceed 15 percent of
the debtor's disposable pay.
Comment: A commenter urged that Sec. 34.19 be changed to state
that the amount required to be withheld by the employer be 15
percent of disposable pay, rather than the amount directed in the
garnishment order. The commenter believed this change to be needed
to make the employer and debtor both aware of their potential
liability if they do not enter into voluntary repayment of the debt.
The commenter also believed that the change to the proposed language
would help the employer validate that the amount demanded in the
order is accurate.
Discussion: Section 34.19 describes the amount that the employer
must withhold pursuant to the garnishment order. That order is sent
to the employer, not the debtor, and therefore has no effect on the
debtor's ability to repay voluntarily. The notice, on the other
hand, is sent to the debtor and warns of the potential garnishment
of 15 percent of disposable pay; the notice is intended to motivate
the debtor to repay voluntarily. If we determine that withholding at
that rate would cause hardship, but that withholding a smaller
amount would not do so, we must order the employer to withhold that
lesser amount. HEA section 488A similarly requires guarantors, and
the Department when garnishing under that HEA authority, to order
withholding of a lesser amount if the debtor proves that withholding
ten percent would cause hardship. In any case, the order must always
state clearly the amount to be withheld, whether as a percentage of
disposable pay or as a specific amount. The employer has no standing
to scrutinize or object to a garnishment order, and has no need to
be assured that the amount claimed is accurate. That duty lies with
the government or the guarantor; the employer is entitled to rely on
the garnishing creditor's representation that the debt is owed, and
no change is needed to facilitate a review that the employer need
not conduct.
Changes: None.
Comment: A commenter urged that we state that the position taken
in Sec. 34.24(c)(1) of the proposed rule, that we will consider or
reconsider an objection on hardship grounds only after an order has
been outstanding for six months, applies to garnishment action by
student loan guarantors under the HEA.
Discussion: These regulations allow the debtor to raise or renew
a hardship claim after an order has been outstanding for six months,
but also allow consideration of a hardship claim earlier if the
debtor demonstrates substantially worsened financial circumstances.
34 CFR 34.24(c)(2). This standard provides a reasonable balance
between the debtor's interest in having potentially changed
circumstances promptly evaluated and the government's need for
finality for its determinations. This regulation is a procedural
rule binding only in garnishment proceedings under this part. In the
absence of a comparable FFELP regulation, however, whether and when
a guarantor provides for reconsideration of a hardship claim remains
a case-by-case determination.
Changes: None.


[FR Doc. 03-3947 Filed 2-18-03; 8:45 am]

BILLING CODE 4000-01-P

Attachment

Last Modified: 02/18/2003