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Publication Date:
November 1, 2006
FRPart: III
Page Numbers: 64377-64400
Summary: Final regulations
for the two new Title IV grant programs created by the HERA, the Academic
Competitiveness Grant Program and the National Science and Mathematics
Access to Retain Talent (SMART) Grant Program, are being published in
a separate notice in the Federal Register.
Posted on 11-01-2006
[Federal Register: November 1, 2006 (Volume 71, Number 211)]
[Rules and Regulations]
[Page 64377-64400]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01no06-21]
[[Page 64377]]
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Part III
Department of Education
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34 CFR Parts 668,
673, 682 and 685
Federal Student
Aid Programs; Final Rule
[[Page 64378]]
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DEPARTMENT OF EDUCATION
34 CFR Parts 668,
673, 682 and 685
RIN 1840-AC87
Federal Student Aid Programs
AGENCY: Office of
Postsecondary Education, Department of Education.
ACTION: Final regulations.
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SUMMARY: The Secretary
is amending the Federal Student Aid Program regulations to implement the
changes to the Higher Education Act of 1965, as amended (HEA), resulting
from the Higher Education Reconciliation Act of 2005 (HERA), Pub. L. 109-171,
and other recently enacted legislation. These final regulations reflect
the provisions of the HERA that affect students, borrowers, postsecondary
educational institutions, lenders, and other program participants in the
Federal student aid programs authorized under Title IV of the HEA. Final
regulations for the two new Title IV grant programs created by the HERA,
the Academic Competitiveness Grant Program and the National Science and
Mathematics Access to Retain Talent (SMART) Grant Program, are being published
in a separate notice in the Federal Register.
DATES: Effective
Date: These final regulations are effective December 1, 2006.
FOR FURTHER INFORMATION
CONTACT: 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 at: Gail.McLarnon@ed.gov.
If you use a telecommunications device for the deaf (TDD), you may call
the Federal Relay Service (FRS) 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 9, 2006, the Secretary published in the Federal Register interim
final regulations with a request for comments (71 FR 45666) for the Federal
student financial assistance programs. The interim final regulations were
effective on September 8, 2006, and implemented most of the changes made
to the HEA by the HERA, enacted as part of the Deficit Reduction Act of
2005 (Pub. L. 109-171). The interim final regulations also implemented
changes made to the HEA by: The Taxpayer-Teacher Protection Act of 2004
(Pub. L. 108-409); certain provisions of Pub. L. 107-139; the Pell Grant
Hurricane and Disaster Relief Act (Pub. L. 109-66); the Student Grant
Hurricane and Disaster Relief Act (Pub. L. 109-67); and the Emergency
Supplemental Appropriations Act for Defense, the Global War on Terror,
and Hurricane Recovery, 2006 (Pub. L. 109-234). The August 9, 2006, interim
final regulations included a request for public comment. This document
contains a discussion of the comments we received and revisions to the
interim final regulations that we made as a result of these comments.
In the interim final regulations, we stated that changes to the final
regulations made after consideration of the public comments would be effective
July 1, 2007. After considering the comments we received, we have decided
not to make any substantive changes to the regulations. We have made some
technical and conforming changes that were identified during the public
comment period, but these technical changes are not subject to the delayed
effective date under section 482 of the HEA, and therefore become effective
30 days after publication of these final regulations.
Analysis of Comments
and Changes
The changes to the
interim final regulations included in this document were developed through
the analysis of comments received on the interim final regulations published
on August 9, 2006. We received 55 comments on the interim final regulations.
An analysis of the comments and of the changes in the regulations since
publication of the interim final regulations 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. We also do not respond to comments pertaining to issues that
were not within the scope of the interim final regulations.
Definition of Telecommunications
Course (Sec. 600.2)
Comments: A commenter
representing accrediting agencies believed that the reference to ``regular
and substantive interaction'' in the definition of telecommunications
course was inconsistent with Congress' intent to permit institutions maximum
flexibility in the development and application of curriculum, and placed
an undue burden on accrediting agencies.
Discussion: The Secretary does not agree. The regulations do not restrict
the curricula institutions may offer or the delivery modes they may use.
Instead, the regulations reflect the clear distinction in the HERA between
telecommunications courses and correspondence courses. This distinction
is necessary because the HERA eliminated the circumstances under which
telecommunications courses are considered correspondence courses, and
excluded telecommunications courses from
the ``50 percent rule'' limitations on institutional eligibility for Title
IV, HEA program assistance, while retaining them for correspondence courses.
Because of the changes made by the HERA, it is necessary to clarify the
regulatory definition to distinguish telecommunications courses from correspondence
courses. We have defined the term telecommunications course to conform
to the usage of that term by the higher education community. None of the
commenters proposed alternative language.
The revised definition of the term telecommunications course does not
impose any new requirements on accrediting agencies. Since 1998, section
496(n)(3) of the HEA has required the Secretary to specifically designate
whether recognized accrediting agencies have accreditation of distance
education within the scope of their recognition. Since 1994, accrediting
agencies have also been required under Sec. 602.22(a)(2)(iii) to provide
prior approval for an institution's addition of courses or programs that
represent a significant departure in the method of delivery from those
previously offered. The interim final regulations do not modify these
requirements, or add any new ones.
Changes: None.
Comments: While supporting our effort to draw a clear distinction between
telecommunications and correspondence courses, one commenter thought that
the language in the definition of telecommunications course was not specific
enough to determine how much interactivity was sufficient. The commenter
suggested that the definition be revised to include interaction among
students and that we clarify that ``regular'' interaction means ``not
trivial'' rather than ``at specific intervals.''
Discussion: The primary purpose of revising the definition of telecommunications
course was to draw a clear distinction between telecommunications and
correspondence courses. In drawing this distinction,
we wanted to avoid as much as possible dictating a particular teaching
method. The Secretary believes that requiring interaction among students,
as well as between students and the
instructor, would preclude certain teaching methods, such as self-paced
instruction. We disagree with the commenter on the meaning of ``regular''
interaction. We believe the phrase ``regular and substantive'' means that
the interaction should both take place at regular intervals and not be
trivial.
Changes: None.
Comments: Two commenters representing financial aid administrators supported
the change in the definition of the term telecommunications course but
asked whether instruction by video cassette or disc recording would be
considered to be telecommunications coursework.
Discussion: We believe that the definition of telecommunications course
adequately addresses the issue raised in the comments. The regulations
provide that instruction by video cassette or disc recording is telecommunications
coursework when the course involves the use of other telecommunications
technologies for regular and substantive interaction between students
and instructor, and when the course is offered onsite in the same award
year. Otherwise, the use of video cassettes or disc recording is considered
a correspondence course.
Changes: None.
Distance Education
(Sec. Sec. 600.2, 600.7, 600.51, 668.8 and 668.38)
Comments: One commenter
agreed that academic programs offered through any use of telecommunications
or correspondence by foreign schools should not be eligible for Title
IV, HEA program assistance. A few commenters did not believe that the
HERA intended to deny eligibility under the Federal Family Education Loan
(FFEL) Program to a student who physically attends a foreign school but
takes a portion of his or her program through telecommunications classes.
The commenters felt that it is unfair to bar from FFEL eligibility a student
who could fulfill a program requirement only through telecommunications
coursework because the class is not offered at the foreign school the
student attends. One commenter suggested that U.S. military personnel
deployed outside of the U.S. may need to take courses via telecommunications
instruction as part of their program of study. The commenters recommended
that the definition of an eligible program for a foreign school be modified
to permit the inclusion of telecommunications courses. Specifically, the
commenters suggested the definition be changed to include a program at
a foreign school that requires on-site attendance in traditional classroom
or lab settings in at least one class while permitting one or more additional
telecommunications classes, while excluding a program at a foreign school
that permits the student to attend courses solely via telecommunications
instruction. Alternatively, the commenters suggested that the effective
date of the regulations be changed to allow foreign schools to deliver
second and subsequent disbursements of pending loans on or after July
1, 2006 if the first disbursement was made prior to July 1, 2006.
Discussion: The final regulations reflect the statutory requirements for
an eligible program to include programs offered in whole or in part through
telecommunications instruction by institutions in the United States with
appropriate accreditation. The statute does not extend this eligibility
to foreign schools and the Secretary does not have the authority to do
so by regulation. In response to the comment regarding U.S. military personnel
located abroad, it is the Secretary's understanding that such students
do not usually attend foreign schools because they have access to programs
offered by domestic institutions. Lastly, the effective date is established
by the HERA and cannot be changed by regulation.
Changes: None.
Academic Year (Sec.
668.3)
Comments: One commenter
suggested that the Secretary change the definition of an academic year
so that institutions can use the same definition as they use for grade
level in the Stafford Loan Program.
Discussion: The definition of an academic year in Sec. 668.3 reflects
the statutory definition in section 481(a) of the HEA, and the Secretary
cannot change that definition.
Changes: None.
Direct Assessment
Programs (Sec. 668.10)
Comments: One commenter
agreed that direct assessment programs offered at foreign schools should
not be considered eligible for Title IV funding.
Discussion: The Secretary appreciates the commenter's support.
Changes: None.
Comments: One commenter representing several higher education associations,
and two commenters representing financial aid administrators, asked how
the Department will evaluate satisfactory academic progress for direct
assessment programs.
Discussion: Students enrolled in direct assessment programs who are receiving
Title IV HEA, program assistance must meet the same satisfactory academic
progress requirements as do students attending other types of programs.
However, since direct assessment programs may be designed in a variety
of ways, we will determine how we will evaluate institutional compliance
with satisfactory academic progress standards on a case-by-case basis
as part of the initial eligibility review.
Changes: None.
Comments: One commenter thought that Sec. 668.10(a)(3) was intended to
require an institution to develop a protocol for equating programs administered
under direct assessment rules with clock hours for credit hour measurements,
but that the text in the interim final regulations was unclear. The commenter
suggested some revised language.
Discussion: The commenter is correct about the intent of the regulations.
We agree that the commenter's proposed revised language is clearer than
the language in the interim final regulations.
Changes: We have revised Sec. 668.10(a)(3) for clarity, but without changing
the meaning.
Treatment of Title
IV Funds When a Student Withdraws (Sec. Sec. 668.22, 668.35, and 668.173)
Post-Withdrawal Disbursement
Counseling
Comments: Several commenters questioned why an institution must obtain
the student's confirmation to apply loan funds to the student's account,
but not to apply other Title IV program funds to that account. Several
commenters questioned why an institution must obtain confirmation that
a student wishes to receive grant funds as a direct disbursement. Commenters
noted that the HERA provision that changed the post-withdrawal disbursement
requirements addressed confirmation of receipt of loan funds, but not
grant funds.
Discussion: As in the past, Sec. 668.164(d)(1) and (d)(2) require an institution
to obtain a student's authorization (or a parent's authorization in the
case of a parent PLUS loan) to credit the student's account with any Title
IV, HEA funds for charges other than tuition, fees, and room and board
if the student contracts with the institution for other services.
An institution may
obtain such an authorization from a student or parent at any time. The
HERA added a new provision that goes beyond the pre-existing requirements
in Sec. 668.164(d)(1) and (d)(2) to require an institution to obtain confirmation
from a student (or a parent in the case of a parent PLUS Loan) before
making any post-withdrawal disbursement of loan funds. This confirmation
cannot be made until the need for the post-withdrawal disbursement has
been determined, i.e., after the student withdraws. This change ensures
that a student or a parent has an opportunity after the student's withdrawal
to decline all or a part of the loan, thus eliminating or reducing his
or her loan debt. The Secretary did not add a similar change to the regulations
for grant funds because she believes the requirements of Sec. 668.164(d)(1)
and (d)(2) are sufficient to control the application of grant funds to
a student's account. The requirement in Sec. 668.164(g)(3)(i) that an
institution obtain confirmation that a student wishes to receive a post-withdrawal
direct disbursement of grant funds is not new. Students are provided with
an opportunity to refuse direct disbursements of grant funds so that they
may preserve the amount of their grant eligibility if they return to school
within the award year.
Changes: None.
Comments: Several commenters felt that the interim final regulations did
not clearly explain how the requirements in Sec. 668.22 are applied in
concert with the regulations for making a late disbursement (Sec. 668.164(g)(3))
and for notifying a student, or parent (for a parent PLUS Loan), to provide
that student or parent an opportunity to cancel a loan when the institution
credits the student's account with FFEL, Direct Loan, or Perkins Loan
program funds (Sec. 668.165(a)(2)). Many commenters believed a conforming
amendment was needed to clarify whether Sec. 668.165(a)(2) applies in
the case of a post-withdrawal disbursement.
Discussion: The new confirmation requirements do not apply to late disbursements
made to students who did not withdraw. Section 668.164(g)(3)(i) requires
an institution to make any post-withdrawal disbursement due to a student
who withdraws during a payment period or period of enrollment in accordance
with the new post-withdrawal disbursement procedures. However, the new
post-withdrawal disbursement requirements do not apply to late disbursements
made to students who successfully complete the payment period or period
of enrollment (Sec. 668.164(g)(3)(ii)) or to students who do not withdraw,
but cease to be enrolled as at least half-time students (Sec. 668.164(g)(3)(iii)).
The commenters are correct that a conforming amendment to Sec. 668.165(a)(2)
is necessary. For students who withdraw and are due a post-withdrawal
disbursement, the new post-withdrawal disbursement procedures in Sec.
668.22 supersede the provisions in Sec. 668.165(a)(2) that require an
institution to notify a student or parent of loan funds that are credited
to a student's account. Because the new post-withdrawal disbursement procedures
require an institution to obtain a student's confirmation (or a parent's
confirmation in the case of a parent PLUS Loan), the institution does
not have to notify the student or parent again when the institution credits
the loan funds to the student's account after it receives the borrower's
confirmation. The notification requirement in Sec. 668.165(a)(2) still
applies in all other cases when an institution credits loan funds to a
student's account.
Changes: The Secretary has revised Sec. 668.165(a)(2) to make it clear
that an institution is not required to notify a student or parent of loan
funds that are credited to a student's account for students who withdraw
and are due a post-withdrawal disbursement.
Comments: Several commenters noted that requiring an institution to provide
notification of the outcome of a post-withdrawal disbursement request
``electronically or in writing'' is redundant, because ``in writing''
means through conventional mailing methods or electronically.
Discussion: The commenters are correct.
Changes: The reference to electronic notification has been removed from
Sec. 668.22(a)(5)(iii)(E).
Withdrawals From Clock Hour Programs
Comments: One commenter supported the new regulatory provisions governing
the Return of Title IV Funds in the case of clock hour programs. One commenter
felt that the regulations should allow an institution to determine the
percentage of aid earned by a student who withdraws and has completed
more clock hours than he or she was scheduled to complete by using the
completed hours, rather than the scheduled hours. The commenter noted
that this was consistent with the previous policy for students withdrawing
from clock-hour programs.
Discussion: Prior to the enactment of the HERA, either completed hours
or scheduled hours were used to determine earned aid for a student who
withdrew from a clock-hour program. However, the HERA changed the law
to allow the use of scheduled hours only.
Changes: None.
Grant Overpayment Requirements
Comments: One commenter suggested that the regulations be modified to
clarify that the provision that a student is not required to return an
original grant overpayment amount of $50 or less applies on a Title IV,
HEA program-by-program basis.
Discussion: The Secretary agrees with the commenter.
Changes: Section 668.22(h)(3)(ii)(B) has been revised to make it clear
that the provision that a student is not required to return an original
grant overpayment amount of $50 or less applies on a Title IV, HEA program-by-program
basis.
Comments: Several commenters asked the Department to raise to $50 the
$25 de minimis amount for overpayments in the Academic Competitiveness
Grant (ACG) and National SMART grant programs and other Title IV programs
to match the de minimis grant overpayment amount for students who withdraw,
which was raised to $50 by the HERA.
Discussion: The Secretary does not agree that the amounts should correspond.
The $25 de minimis standard used in the regulations is based upon the
Department's determination of the amount that is cost effective for the
Department to collect on outstanding balances owed to the Department.
We are able to successfully pursue collections of $25 or higher with Internal
Revenue Service (IRS) offsets and other methods.
Changes: None.
Waiver of Grant Overpayment for Students Affected by a Disaster
Comments: One commenter felt that the regulatory language applying the
waiver of grant overpayment for students affected by a disaster to students
``whose withdrawal ended within the award year during which the designation
occurred or during the next succeeding award year'' was unclear. The commenter
asked the Secretary to clarify that students remain eligible for the grant
overpayment waiver even if they do not return to the same institution
in the following year.
Discussion: An otherwise eligible student qualifies for the waiver if
he or she withdraws during the award year during which the major disaster
designation occurred or during the next succeeding award year, if the
student withdrew because of the major disaster.
Changes: Section 668.22(h)(5)(iii) has been revised to clarify that the
grant overpayment
waiver applies to students whose withdrawal due to a disaster occurred,
rather than ended, within the award year during which the designation
occurred or during the next succeeding award year.
Order of Return of Grant Funds
Comments: One commenter felt that the regulations should be changed to
make it clear that an institution will not have to return funds to both
the ACG and National SMART Grant programs for the same withdrawal.
Discussion: Because an institution may opt to use the period of enrollment,
rather than the payment period, to perform a Return of Title IV Funds
calculation for a student who withdraws from a non-standard term or non-term
program, it is possible, although highly unlikely, that both an ACG and
a National SMART Grant could be disbursed (or scheduled to be disbursed)
to a student for the same period. In such a case, funds from both the
ACG and National SMART Grant programs may need to be returned for the
same withdrawal.
Changes: None.
Return of Funds Within 45 Days
Comments: One commenter felt that the Secretary should extend the other
deadlines under Sec. 668.22 from 30 days to 45 days to correspond to the
extension of the maximum amount of time an institution has to return unearned
funds for which it is responsible.
The commenter felt this extension should also be applied to notifications
to students for post-withdrawal disbursements and notifications to students
of Title IV grant overpayments resulting from withdrawal. The commenter
asserted that a uniform deadline makes sense because the same Return of
Title IV Funds process leads up to all three requirements, and consistency
would help ensure compliance.
Discussion: Institutions have previously indicated that they needed an
extension of the former 30-day return deadline to provide additional time
to perform the administrative functions necessary to return the funds.
The actual calculation of earned funds is not time consuming. The Secretary
believes that providing institutions with over four weeks to enter information
from their records and calculate the amount to be returned is more than
sufficient. With regard to the request that the Secretary extend the 30-day
deadlines for notifications to students, the Secretary does not believe
it is in the best interest of students to extend these deadlines merely
for consistency's sake. The Secretary believes that the sooner an institution
attempts to contact these students, the more likely it is
that the institution will reach the students.
Changes: None.
Student Debts Under
the HEA and to the U.S. (Sec. 668.35)
Comments: Several
commenters suggested that Sec. 668.35(e)(3), which governs the amount
of an overpayment that renders a student ineligible for additional Title
IV, HEA program assistance, be changed from $25 to $50 to be consistent
with the new statutory requirement governing repayment of grant funds
under the return of Title IV aid provisions.
Discussion: The Secretary disagrees with the commenters. In 2002, we published
final regulations to make the treatment of overpayments consistent in
the Title IV, HEA programs, including incorporating the de minimis amount
concept that applied to grant overpayments under the return to Title IV
aid requirements. We decided to use the $25 deminimis standard for consistency
and simplicity, and because it is cost effective. We do not believe it
is appropriate to raise the minimis amount applicable to overpayments
when the Department has the tools and resources available to collect these
amounts. However, as a result of the change in the minimum amount of a
grant repayment for which a student is responsible under the return of
Title IV aid provisions from $25 to $50, we are amending Sec. 668.35(e)
to clarify that a student who owes a grant overpayment of $50 or less
that is not a remaining balance and is a result of the return of Title
IV aid calculation is eligible to receive additional Title IV, HEA program
assistance.
Changes: We have added a new paragraph (4) to Sec. 668.35(e) to clarify
that a student who owes a grant overpayment of $50 or less under the circumstances
explained above is eligible to receive additional Title IV, HEA program
assistance.
Estimated Financial
Assistance (Sec. Sec. 673.5, 682.200, and 685.102)
Comments: One commenter
suggested that we add benefits paid under Section 903 of Pub. L. 96-342
(Educational Assistance Pilot Program) that is currently in the definition
of estimated financial assistance in Sec. Sec. 682.200(b) and 685.102(b)
to the definition of estimated financial assistance in Sec. 673.5(c).
The commenter also suggested that we add language in Sec. 682.200(b)(1)(iv),
which includes in the definition of estimated financial assistance benefits
paid under the Veteran's Affairs Educational Assistance Pilot Program
and language from Sec. 685.102(b)(2)(ii), which excludes from estimated
financial assistance the amounts of Federal Perkins Loan and Federal Work-Study
funds that the student has declined. Another commenter requested that
the definition of estimated financial assistance in all three sections
be modified to exclude any alternative or private loans not certified
by the institution. This commenter suggested that only those loans that
the institution is aware the student is receiving should be included in
the definition of estimated financial assistance. An additional, similar
comment was received suggesting that language be added to the definitions
in all three sections to specifically state that only benefits that an
institution is aware of must be considered estimated financial assistance.
Discussion: Although the list of individual veterans' education benefits
in each of the three sections that define estimated financial assistance
is not all inclusive, the Secretary agrees with the first commenter that,
for consistency, benefits paid under section 903 of Pub. L. 96-342 (Educational
Assistance Pilot Program) should be included in Sec. 673.5(c). However,
it would be redundant to specifically exclude from the definition of estimated
financial assistance in Sec. 673.5(c) the amounts of Federal Perkins Loan
and Federal Work-Study funds that the student has declined. Section Sec.
673.5 defines the term estimated financial assistance for the purpose
of determining eligibility for campus-based funds. It would not make sense
to exclude campus-based funds declined by a student from the list of items
used to determine that student's eligibility for those campus-based funds.
If a student declines funds from a campus-based program, the amount of
those declined funds would not be used to determine eligibility for campus-based
funds. With respect to the proposal to define estimated financial assistance
as including only loans of which the institution is aware, we note that,
under the administrative capability guidelines in Sec. 668.16(b) and (f),
an institution must have a mechanism in place for obtaining and reviewing
all information it receives that has a bearing on a student's eligibility
for Title IV, HEA assistance. The institution must communicate this information
to the individual designated to administer the Title IV programs at the
institution. In light of this requirement, we believe that it is unlikely
that a student will be receiving
loans of which the institution is not aware.
Changes: The definition of estimated financial assistance in Sec. 673.5(c)(1)(ix)
has been revised to include benefits paid under section 903 of Pub. L.
96-342 (Educational Assistance Pilot Program). A technical change has
also been made to correct the reference in Sec. 685.102(b)(1)(ix) from
``paragraph (2)(iii)'' to ``paragraph (2)(iv)''.
Military Deferment
(Sec. Sec. 674.34, 682.210(t), 682.211(i) and 685.204)
Comments: One commenter
recommended that we extend eligibility for the new military deferment
established by the HERA to Perkins Loans disbursed before July 1, 2001
if the borrower received at least one Perkins Loan first disbursed on
or after July 1, 2001.
Discussion: Section 8007(f) of the HERA specifies that the military deferment
applies to loans ``for which the first disbursement is made on or after
July 1, 2001.'' The Secretary does not have the authority to extend eligibility
for the military deferment to loans for which the first disbursement was
made before July 1, 2001.
Changes: None.
Comments: Some commenters asked if a qualified borrower who experiences
multiple deployments could receive separate deferments for each of his
or her eligible Perkins, FFEL and Direct Loan program loans, as long as
each deferment period did not last longer than the three-year maximum.
Discussion: The three-year maximum for the military deferment applies
to each loan, not to the borrower. If a borrower receives a military deferment
on a loan for three years, or receives multiple military deferments on
a loan that add up to three years, that loan no longer qualifies for a
military deferment. If the borrower goes back to school, obtains more
Title IV loans, and then is called back to active duty, the new loans
would qualify for up to three years of military deferment. However, the
older loan that has already been in a military deferment for the three-year
maximum would not qualify for a military deferment.
Changes: None.
Comments: Several commenters recommended that we confirm that a lender
has the authority to grant a mandatory administrative forbearance, as
provided for in Sec. 682.211(i), on a borrower's pre-July 1, 2001 loans,
if the borrower qualifies for a military deferment on loans that were
first disbursed on or after July 1, 2001.
Discussion: FFEL lenders are required to grant mandatory administrative
forbearances when notified by the Secretary that exceptional circumstances
exist, such as a local or national emergency or a military mobilization.
Some borrowers may qualify for a military deferment on loans first disbursed
on or after July 1, 2001 and also may qualify for a mandatory administrative
forbearance on loans first disbursed before July 1, 2001. However, not
all borrowers who qualify for a military deferment necessarily qualify
for a mandatory administrative forbearance.
Changes: None.
Comments: Several commenters recommended that we change the name of the
prior military deferment that is available to borrowers with loans made
before July 1, 1993, to the ``Armed Forces deferment'', to avoid confusion
with the new military deferment enacted by the HERA.
Discussion: The FFEL and Direct Loan Public Service Deferment Request
forms do not use the term ``military deferment'' to refer to the pre-July
1, 1993 military deferment mentioned in the comments. Instead, these forms
refer to borrowers who are ``on active duty in the Armed Forces of the
United States.'' These forms are the primary source of information to
borrowers on the prior military deferment. Accordingly, we do not believe
that there will be any significant confusion among borrowers. Moreover,
we believe that re-naming the old military deferment in the regulations
serves no purpose.
Changes: None.
Perkins Loan Rehabilitation
(Sec. 674.39)
Comments: One commenter
questioned the statutory basis for denying a borrower who has been convicted
of, or has pled nolo contendere or guilty to, a crime involving fraud
in obtaining the Perkins Loan the opportunity to rehabilitate the defaulted
Perkins Loan. The commenter questioned the statutory basis for denying
loan rehabilitation to such borrowers. The commenter also contended that
institutions have no reasonable way of knowing whether a borrower has
been convicted of, or has pled nolo contendere or guilty to, a crime involving
fraud in obtaining a Perkins Loan.
Discussion: Section
8021(a) of the HERA provides that a student who has been convicted of,
or has pled nolo contendere or guilty to a crime involving fraud in obtaining
Title IV, HEA program assistance is not eligible for additional Title
IV assistance unless he or she has repaid the fraudulently obtained Title
IV aid. If a borrower were permitted to rehabilitate a fraudulently obtained
Perkins Loan under Sec. 674.39 of the Perkins Loan program regulations,
the borrower would regain eligibility for additional Title IV, HEA program
assistance without having repaid the fraudulently obtained loan in full,
as required by the HERA. We do not agree with the commenter's contention
that an institution will not know if a borrower was found guilty of fraud.
The institution would almost certainly be involved in any legal proceedings
relating to a Perkins Loan that was fraudulently obtained from that institution.
Changes: None.
Definition of Satisfactory
Repayment Arrangement (Sec. Sec. 682.200 and 685.102)
Comments: Several
commenters pointed out that the standard for an on-time payment for purposes
of rehabilitating a loan is now different from the standard for an on-time
payment for purposes of making satisfactory repayment arrangements on
a defaulted loan to regain Title IV, HEA program assistance eligibility.
Under the rehabilitation rules, an on-time payment is a payment made within
20 days of the due date. Under the satisfactory repayment arrangement
rules, an on-time payment is a payment made within 15 days of the due
date. Since some borrowers make satisfactory repayment arrangements and
attempt loan rehabilitation concurrently, the commenters recommended using
within 20 days of the due date as the on-time standard for both purposes.
Discussion: The making of six consecutive monthly payments under satisfactory
repayment arrangements restores Title IV, HEA program assistance eligibility
to a defaulted borrower. We believe that the standard for on-time payments
for purposes of regaining eligibility for Title IV, HEA program assistance
should be stricter than the standard for rehabilitation of a defaulted
loan. In addition, the on-time payment standard for borrowers who are
in a regular repayment status requires that the payments be made within
15 days of the due date. We do not believe that it is appropriate to provide
a longer period for on-time payments for borrowers who are in default
on their loans than for borrowers who are current on their loans. Borrowers
in default should be held to an on-time standard that is at least as strict
as the standard applied to current borrowers, not rewarded with extra
time to make a payment. Finally, we note that Congress did not apply the
20-day standard adopted for the loan rehabilitation program to borrowers
in other situations.
Changes: None.
Eligible Borrower
(Sec. Sec. 682.201 and 685.200)
Comments: Two commenters
recommended adding language to Sec. 682.201 and 685.200 to provide that
a student borrower is not eligible for Title IV, HEA program assistance
unless the borrower has repaid any Title IV, HEA program assistance obtained
by fraud, if the student has been convicted of, or has pled nolo contendere
or guilty to, a crime involving fraud in obtaining Title IV, HEA program
assistance. These commenters also recommended that we revise Sec. 682.201
to list the general eligibility requirements for all borrowers, and then
the requirements that are specific to each loan type. The commenters felt
that this approach would be more efficient and eliminate unnecessary redundancies.
Discussion: The interim final regulations in Sec. Sec. 668.32(m) and 668.35(i)
include the new eligibility provision that prohibits a student borrower
from obtaining Title IV, HEA program assistance unless the borrower has
repaid any Title IV, HEA program assistance obtained by fraud. Section
682.201(a) and (b) of the FFEL regulations stipulate that a Stafford Loan
borrower and a student PLUS borrower, respectively, must meet the eligibility
requirements in 34 CFR part 668 to qualify for a Stafford Loan. Similar
references to the eligibility requirements in 34 CFR part 668 are in Sec.
685.200(a)(1)(ii) and 685.200(b)(1)(ii) of the Direct Loan regulations.
We believe that it would be redundant to include the language regarding
the student eligibility requirements already outlined in part 668 in Sec.
682.201 and 685.200. We disagree with the suggestion that restructuring
Sec. 682.201 would be more efficient. In developing the interim final
regulations, we determined that the most efficient and easily understandable
way to incorporate the changes mandated by the HERA into Sec. 682.201
was to fit the changes into the existing structure of this section. We
believe that it is easier to identify changes that we have made to a section
if the overall structure of the section remains consistent with past versions
of that section. Although some redundancy is unavoidable with this approach,
we have reduced the redundancies through the use of cross-references.
Changes: None.
Comments: Several commenters noted that a student borrower may receive
a Federal Direct Subsidized Stafford/Ford Loan or a Federal Direct Unsubsidized
Stafford/Ford Loan and a FFEL Program Student PLUS Loan for the same period
of enrollment. These commenters recommended revising the PLUS loan student
eligibility requirements in both the FFEL and Direct Loan programs, to
stipulate that a graduate or professional student's annual loan maximum
eligibility for either a FFEL Stafford Loan or a Direct Stafford/Ford
Loan, as applicable, must be determined before awarding the student a
PLUS Loan.
Discussion: The Secretary has previously issued guidance stating that
a graduate or professional student's maximum annual Stafford Loan eligibility
must be determined before the student applies for a PLUS Loan, although
the student is not first required to borrower up to his or her maximum
annual Stafford Loan limit before receiving a PLUS Loan. If a school participates
in both the FFEL and Direct Loan programs, the school must determine the
borrower's maximum annual Stafford Loan eligibility under the program
the school is participating in for Stafford Loan purposes. We agree that
this guidance should be incorporated in the regulations.
Changes: We have revised Sec. Sec. 682.201(b)(3) and 685.200(b)(1)(iv)
to specify that a graduate or professional student's maximum annual Stafford
Loan eligibility under either the Direct Loan or FFEL program must be
determined before the student applies for a PLUS Loan.
Comments: Two commenters recommended that Sec. 682.201(d)(1) be revised
to stipulate that a borrower who obtained a loan by identity theft or
some other illegitimate means, or who obtained a loan for which he or
she was ineligible, may not consolidate that loan. In addition, these
commenters recommended that these borrowers not be permitted to consolidate
loans for which the borrower is eligible until the loans for which the
borrower was ineligible have been paid in full. Several commenters noted
that new Sec. 682.201(d)(2) states that a borrower may not consolidate
a loan for which the borrower is wholly or partially responsible. Because
our revision stipulating that a borrower who obtained a loan by identity
theft or some other illegitimate means, or who obtained a loan for which
he or she was ineligible, may not consolidate that loan was unclear, several
commenters asked if the word ``not'' was inadvertently dropped from this
section.
Discussion: Section 682.201(d)(2) of the interim final regulations should
have read, ``A borrower may not consolidate a loan under this section
for which the borrower is wholly or partially ineligible.'' This language
mirrors the existing provisions in Sec. 685.211(e)(4) of the Direct Loan
regulations. The revised Sec. 682.201(d)(2) precludes a borrower who obtained
a Title IV loan by identity theft, fraud, or some other illegitimate means
from consolidating the ineligible loan. However, we do not believe that
the HERA prohibits a borrower who has obtained loans for which the borrower
is ineligible from consolidating loans for which the borrower is eligible,
and we do not believe we have the authority to impose such a restriction
by regulation. We believe the revision to Sec. 682.201(d)(2) adequately
addresses commenters' concerns and that revising Sec. 682.201(d)(1) is
unnecessary.
Changes: We have replaced ``responsible'' with ``ineligible'' in Sec.
682.201(d)(2).
Eligibility for a
Direct Consolidation Loan (Sec. Sec. 682.201, 685.100 and 685.220)
Comments: Two commenters
recommended that we amend the FFEL and Direct Loan program regulations
to clarify that, in the case of a borrower who wishes to consolidate a
Federal Consolidation Loan that has been submitted for default aversion
into the Direct Loan Program, the borrower must be delinquent or in default
on the Federal Consolidation Loan at the time the borrower applies for
the Direct Consolidation Loan. The commenters believed that the current
regulatory language would allow a borrower to consolidate a Federal Consolidation
Loan on which the borrower is current on making payments into a Direct
Consolidation Loan, if the Federal Consolidation Loan had been submitted
for default aversion at some time in the past.
Discussion: We agree that Federal Consolidation Loans that are currently
delinquent or in default may be consolidated into a Direct Consolidation
Loan. However, we do not believe that it is necessary to amend the current
regulatory language in Sec. Sec. 682.201, 685.100 and 685.220 to state
this requirement more explicitly.
Changes: None.
Comments: Several commenters urged the Secretary to clarify that borrowers
with defaulted Federal Consolidation Loans are eligible to consolidate
into the Direct Loan Program, without including another eligible loan,
for the purpose of obtaining an income contingent repayment (ICR) plan.
Section 428C(a)(3)(B)(i)(IV) of the HEA provides this option for borrowers
with delinquent Federal Consolidation Loans that have been submitted to
the guaranty agency for default aversion. The commenters believed that
thisprovision
of the law, which was added by the HERA, was intended to provide the ICR
option to borrowers who are either seriously delinquent or in default
on their Federal Consolidation Loans. They also noted that the statutory
language does not distinguish between non-defaulted and defaulted borrowers,
and that any default claim filing would have been preceded by a default
aversion submission.
Discussion: The commenters are correct in reading the regulations implementing
the changes made to section 428C(a)(3)(B)(i)(IV) of the HEA to allow a
borrower to consolidate a single defaulted Federal Consolidation Loan
into the Direct Loan Program for the purpose of obtaining an ICR plan.
We believe that the regulatory language is sufficiently clear and that
it is not necessary to revise the
regulations to state this more explicitly. An otherwise eligible borrower
may also consolidate a single Federal Consolidation Loan into the Direct
Loan Program for the purpose of obtaining an income contingent repayment
plan if the borrower has filed an adversary complaint in a bankruptcy
proceeding seeking to have the Federal Consolidation Loan discharged,
regardless of whether that Federal Consolidation Loan is current, delinquent,
or in default. A borrower who is seeking to have a Federal Consolidation
Loan discharged in bankruptcy should be treated the same as a borrower
whose loan has been submitted for default aversion. A borrower who seeks
to have a loan discharged in bankruptcy is clearly stating his or her
intent not to repay the loan, but the bankruptcy filing precludes the
submission of a default aversion request. Offering the Direct Loan Program
ICR option to such a borrower provides an alternative to having the loan
discharged in bankruptcy.
Changes: None.
Permissible Charges
by Lenders to Borrowers (Sec. 682.202(a))
Commments: One commenter
urged the Department to develop and publish regulations to restrict a
lender's ability to charge an FFEL Program borrower an interest rate that
is less than the rate specified in the HEA and the program regulations.
The commenter believes that the regulations should require lenders to
charge all borrowers the same rate to stop lenders from using interest
rates to discriminate between institutions and borrowers based on inequitable
criteria or to eliminate competition in the student lending market.
Discussion: Section 427A(l) of the HEA provides that nothing shall prohibit
a lender from charging a borrower an interest rate less than the rate
specified in the statute. Accordingly, we do not have the statutory authority
to require lenders to charge all borrowers the same interest rate.
Changes: None.
Insurance Premium
and Federal Default Fees (Sec. Sec. 682.202(d)(2) and 682.401(b)(10))
Comments: One commenter
stated that the changes made to Sec. 682.202(d)(2) and 682.401(b)(10)
in the interim final regulations appear to eliminate the authority of
a lender or guaranty agency, under Sec. 682.209(f)(4), to charge a guarantee
fee to a borrower who is refinancing a fixed rate PLUS Loan or a Supplemental
Loans for Students (SLS) Loan made prior to July 1, 1987 under Sec. 682.209(f)(1).
The commenter believes that the HERA provisions that changed the optional
insurance premium to a mandatory Federal default fee did not remove a
lender's or guaranty agency's authority to charge a guarantee fee in these
cases.
Discussion: We agree that the HERA did not remove a lender's or guaranty
agency's authority to charge a guarantee fee if a borrower refinances
a fixed rate PLUS or SLS loan made prior to July 1, 1987. However, we
believe the existing language in Sec. 682.209(f)(4), which specifically
states that the refinancing lender may charge the borrower a guarantee
fee in these circumstances, already addresses this issue.
Changes: None.
Loan Disbursement
Through an Escrow Agent (Sec. Sec. 682.207(b)(1)(iv) and 682.408(c))
Comments: Many commenters
noted that the discussion in the preamble of the interim final regulations
related to the new 10-day deadline for a lender to pay funds to an escrow
agent for disbursement to a school differed from the regulatory language
and requested clarification. The commenters indicated that the preamble
stated that the transfer of loan funds must take place no earlier than
10 days prior to disbursement to the borrower, while the regulations indicated
that the 10 days referred to the transfer of the loan funds to the school
prior to the school's delivery of the funds to the borrower. A couple
of commenters indicated that an additional change was needed to Sec. 682.408(c)(2)
to reflect the reduction from 21 to 10 days for disbursement through an
escrow agent. Several commenters also recommended that Sec. 682.408(c)
be revised to provide that an escrow agent, as the lender's agent, could
disburse loan funds directly to a borrower in a study-abroad program at
the borrower's request.
Discussion: We agree with the commenters that there is a difference between
the discussions of the 10-day period in the preamble and in the interim
final regulations. The language in the interim final regulations that
states that the escrow agent shall transmit loan proceeds received from
a lender to a school not later than 10 days after the agent receives the
funds from the lender accurately reflects our policy on this issue. A
revision to Sec. 682.408(c)(2) reflecting the reduction from 21 to 10
days for disbursement through an escrow agent is unnecessary. Paragraph
(c)(2) of Sec. 682.408 was incorporated into new Sec. 682.408(c) in the
interim final regulations and the reduction from 21 to 10 days for disbursement
through an escrow agent is reflected in this new paragraph. We agree with
the commenters who recommended that Sec. 682.408(c) be revised to provide
that an escrow agent, as the lender's agent, could disburse loan funds
directly to a borrower in a study-abroad program at the borrower's request.
Changes: We have amended Sec. 682.408(c) to clarify that an escrow agent
may disburse Stafford Loan proceeds directly to a borrower who is attending
a study-abroad program and who requests a direct disbursement from the
lender.
Due Diligence in
Disbursing a Loan (Sec. Sec. 682.207 and 682.604)
Comments: Several
commenters disagreed with our determination that PLUS Loan funds cannot
be disbursed directly to a borrower enrolled in a study-abroad program
or at a foreign school. The commenters believed that the ``same terms
and conditions'' provision in section 428B(a)(2) of the HEA permits retention
of the prior policy allowing direct disbursement of PLUS Loan funds. The
commenters noted that, while the PLUS funds check must still be made co-payable
to the institution and the borrower under 428B(c)(2) of the HEA, disbursing
funds directly to a borrower to be endorsed and mailed to an institution
may assist borrowers in paying for expenses while traveling to a foreign
school.
Discussion: Section 428B(a)(2) of the HEA does not authorize the Secretary
to establish disbursement rules for PLUS Loans made to pay for attendance
at foreign institutions or for students enrolled in study-abroad programs
that are different
from the rules for other FFEL Loans for attendance at those institutions.
Changes: None.
Comments: One commenter suggested that the regulations in Sec. 682.207(b)(1)(v)(C)(1)
be revised to clarify that a lender or guaranty agency must verify a student's
enrollment with the home institution, rather than with the foreign school,
before making a direct disbursement to a student in a study-abroad program.
Discussion: The Secretary agrees with the commenters.
Changes: Section 682.207(b)(1)(v)(C)(1) has been revised to clarify that
a lender or guaranty agency may make a disbursement directly to a student
enrolled in a study-abroad program only after verification of the student's
enrollment with the home institution.
Comments: One commenter did not agree that a lender or guaranty agency
should be required to verify that a continuing student is still enrolled
at the enrollment status for which the loan was certified before making
a disbursement of Stafford Loan funds directly to a student at a foreign
school. The commenter noted that, although the preamble stated that the
verification requirements in the regulations are based on those in Dear
Colleague Letter (DCL) G-03-348, this requirement differs from that in
the DCL, which simply required verification that the student was accepted
for enrollment at the foreign school. The commenter felt that the institution
should be responsible for notifying the lender if the borrower's enrollment
status changed to less than half-time.
A couple of commenters did not believe that the regulations should limit
how a lender or guaranty agency may contact a foreign school or home institution
to verify enrollment. The commenters felt that other forms of contact,
in addition to contact by telephone or e-mail, such as facsimile, should
be acceptable. One commenter was concerned that the regulations do not
specify who
at a foreign school may authorize a disbursement to be sent directly to
a borrower. The commenter felt that this gap left the process open to
abuse.
Discussion: The intent of the statutory requirement is to require a confirmation
that a student who is attending or plans to attend a foreign school is
actually eligible to receive FFEL funds when those funds will not be sent
to the school, but will be disbursed irectly to a student. Therefore,
we believe it is appropriate to require a lender or guaranty agency to
confirm that a continuing student's enrollment (at least half-time) supports
eligibility for the loan disbursement. As the commenter noted, a change
in enrollment status would affect a student's eligibility for a loan only
if the student has dropped below half-time enrollment. Therefore, the
lender or guaranty agency need only confirm that the student is still
enrolled at least half-time. Because of concerns with timeliness and security,
the Secretary does not believe that all forms of contact are appropriate
for the verification of enrollment. However, the Secretary does agree
that contact by facsimile is acceptable.
The Secretary agrees that not just any individual at a foreign school
should be permitted to authorize a disbursement directly to a student.
In DCL GEN-06-11, the Department asked foreign schools to use the modified
institutional eligibility electronic application (EAPP) to enter the names
of the individuals who are authorized by the school to certify FFEL Loan
applications. The DCL noted that the Department expects guaranty agencies
or lenders to contact these individuals, whose names will be accessible
in the Department's Postsecondary Education Participants Systems (PEPS),
to verify enrollment. To the extent that a foreign school notifies a guaranty
agency or lender of other individuals who are authorized to provide this
information, the guaranty agency or lender must verify the information
with at least one of the persons entered by the school on the EAPP that
those officials are authorized to act on behalf of the institution in
administering the FFEL Program. To allow the Secretary the flexibility
to change this process in response to possible systems changes, the Secretary
does not believe that the procedures for this contact should be specified
in the
regulations. However, the Secretary has decided that the regulations should
require guaranty agencies and lenders to contact foreign schools in accordance
with any procedures specified by the Department.
Changes: Section 682.207(b)(2)(i) has been revised to permit a lender
or guaranty agency to contact a foreign school via facsimile to verify
a student's enrollment. In addition, Sec. 682.207(b)(2)(i)(A) has been
changed to require guaranty agencies and lenders to contact foreign schools
in accordance with any procedures specified by the Secretary.
Parental Leave and
Working Mother Deferments (Sec. Sec. 682.210(o) and (r) and 685.204(d)(2))
Comments: Many commenters
asked whether the deletion of section 428(b)(7)(A)(ii) from the HEA by
the HERA effectively eliminated the parental leave and working mother
deferments for borrowers with loans disbursed before July 1, 1993. The
commenters are concerned that these deferments will not be available to
an otherwise eligible borrower because the borrower must waive up to one
month of the borrower's grace period in order to meet the eligibility
criteria for the deferment.Discussion: The requirement that a borrower
waive at least one month of the grace period so the borrower may be certified
as having been enrolled at least half time within the six-month period
preceding the deferment start date in Sec. 682.210(o) applies only to
the parental leave deferment. Deferments are a term and condition of the
borrower's promissory note. The Congress, in making changes to the HEA
historically, has not eliminated deferments already granted to a borrower
as a term and condition of the borrower's loan, and it does not appear
that Congress intended to do so in this case. Accordingly, otherwise eligible
borrowers may continue to waive a month of the grace period, if necessary,
in order to qualify for the parental leave deferment.
Changes: None.
Forbearance (Sec.
682.211)
Comments: Several
commenters suggested that we eliminate Sec. 682.211(h)(3) of the FFEL
regulations because section 8014(e) of the HERA amended the HEA to remove
the requirement that the terms of a mandatory forbearance be in writing.
Discussion: While we agree that the HERA eliminated the requirement that
the terms of a mandatory forbearance agreement be in writing, we also
note that the HERA requires that the terms of a mandatory forbearance
agreed to by the lender and the borrower or endorser be documented by
a confirmation notice sent by the lender to the borrower/endorser and
by the lender recording the terms in the borrower's file. We believe that,
with the exception of administrative forbearances in Sec. 682.211(f),
the same procedures should apply to all the forbearances. The interim
final regulations amended Sec. 682.211(b)(1) to reflect the new forbearance
requirements. We believe that Sec. 682.211(h)(3) should also be changed
to reflect the new requirements that the lender send a notice to the borrower/endorser
and include a notation in the borrower's file confirming the forbearance
rather than simply eliminating the requirement for a written forbearance
agreement.
Changes: We have amended Sec. 682.211(h)(3) to reflect these changes.
Teacher Loan Forgiveness
(Sec. Sec. 682.215(c) and 685.217(c))
Comments: One commenter
noted that the use of the word ``either'' with regard to a borrower qualifying
for teacher loan forgiveness based on teaching special education in ``either
an eligible elementary or secondary school'' could be misinterpreted.
The commenter recommended removing the word ``either'' to make it clear
that a borrower could combine teaching service in an eligible elementary
school and an eligible secondary school to qualify for teacher loan forgiveness
as a highly qualified special education teacher.
Discussion: Use of the word ``either'' was not intended to imply that
service as a highly qualified special education teacher in an eligible
elementary school and service as a highly qualified special education
teacher in an eligible secondary school could not be combined to qualify
a borrower for teacher loan forgiveness.
Changes: We have removed the word ``either'' from Sec.682.215(c)(3)(ii)(B),
682.215(c)(4)(ii)(B), 685.217(c)(3)(ii)(B), and 685.217(c)(4)(ii)(B).
Payment of Special
Allowance on FFEL Loans (Sec. 682.302)
Comments: One commenter
asked us to clarify the effective date for the change made by the HERA
to the calculation of special allowance payments for PLUS Loans.
Discussion: As reflected in the interim final regulations, PLUS Loans
made after January 1, 2000 are no longer subject to the minimum 9 percent
trigger for special allowance payments. In accordance with the effective
date for the provision of the HERA that made this change, lenders will
be paid special allowance on these loans for activity beginning April
1, 2006, which will be reflected on billing reports submitted to the Department
after June 30, 2006.
Changes: None.
Comments: Some commenters, particularly from the FFEL industry, claimed
that the regulations are impermissibly retroactive. In particular, these
commenters claimed that the interim final regulations improperly applied
the statutory changes made by the Taxpayer-Teacher Protection Act of 2004
(TTPA), and the HERA, to periods before those statutes became effective.
The commenters pointed to the explanation of certain terms in Sec. 682.302(f)
as an example of the changes that they felt were being improperly applied
retroactively.
Discussion: The changes made to Sec. 682.302 are not retroactive. Prior
to the publication of the August 9 interim final regulations, the regulatory
provisions in Sec. 682.302 had not been updated since 1994, except for
a change to reflect the 1993 statutory amendment that eliminated the 9.5
percent minimum special allowance payment (SAP) rate on loans acquired
with funds from a tax-exempt obligation originally issued on or after
October 1, 1993. Thus, the prior regulations did not reflect guidance
issued by the Department since 1993 to interpret the HEA and the regulations
(DCL L-93-161 (November 1993), L-93-163 (December 1993), and L-96-186
(March 1996), FP-05-01 and FP-06-01) or the changes made to those requirements
by the TTPA or HERA. The regulations must reflect the rules for the special
allowance eligibility of both loans for which SAP at the 9.5 percent minimum
rate is now claimed and loans on which this rate may be claimed in the
future. The TTPA placed significant restrictions on the eligibility of
new loans for the 9.5 percent SAP, and the HERA significantly restricted
whether additional loans could acquire eligibility. However, the eligibility
of the great majority of loans on which a 9.5 percent SAP is now and will
be claimed depends on, or may be affected by, transactions such as various
refinancing transactions that occurred prior to the effective date of
either the TTPA or HERA. The prior regulations did not state the consequences
of some of those transactions, even though those consequences had been
well settled, under the Department's interpretations of the law in effect
when the transactions occurred. To clarify the requirements for 9.5 percent
SAP eligibility, the interim final regulations first incorporate these
interpretations, and then address changes made by the TTPA to the continued
eligibility of these loans for 9.5 percent SAP, and by the HERA as to
whether loans may acquire that eligibility.The interim final regulations
include in Sec. 682.302(f) an explanation of certain terms (refinance
and originally issued) that reflects Departmental interpretations and
usage of those terms historically. Based on that usage, it is reasonable
to conclude that the terms are already generally understood as explained
in the regulations.
The interim final regulations, as published on August 9, 2006, do no more
than provide loan holders (and other interested parties) an orderly statement
of the requirements for acquiring and continued eligibility for 9.5 percent
SAP for all cohorts of loans, both as in effect before the 2004 and 2006
amendments to the HEA, and under the 2004 and 2006 amendments to the HEA.
The interim final regulations did not create or change the terms, conditions,
and requirements for the eligibility for the 9.5 percent SAP from those
which already existed under applicable law. To the extent that loan holders
were in compliance with the requirements of: (1) The then-current regulations;
(2) applicable prior Department interpretations of those regulations and
the HEA; and (3) changes made by the TTPA and by the HERA, the billing
status of loans was not changed with the publication of the
interim final regulations.
Changes: None.
Comment: Several commenters claimed that Sec. 682.302(e)(2) and (3) improperly
requires that a loan acquired with pre-October 1, 1993 tax-exempt funding
be ``financed continuously'' by tax-exempt financing to retain eligibility
for SAP at the 9.5 percent minimum rate. Some believed that the interpretations
on which the Department relied in adopting the interim final regulations
had not been communicated to the public, or that the regulations went
beyond merely updating existing regulations to reflect longstanding policy.
Another commenter questioned whether the ``debt'' to which Sec. 682.302(e)(2)(i)(B)
refers to as having been ``refinanced'' is a student loan or a bond.
Discussion: The term ``financed continuously'', to which the comments
refer, appears only in Sec. 682.302(e)(2). Section 682.302(e)(2) describes
the special allowance rate applicable to any loan acquired with funds
from a source that makes the loan eligible for a SAP at the 9.5 percent
minimum rate that has been refinanced. All loans that are initially eligible
for a 9.5 percent SAP and have been refinanced can be divided into two
mutually exclusive groups. The first group includes only those loans that
have been refinanced exclusively and continuously from tax-exempt sources.
The second group includes all loans not in the first group. The phrase
``financed continuously'' is used to describe the first group, not to
exclude the second group from potential eligibility for SAP at the 9.5
percent minimum rate. The interim final regulations contained no provisions
that limit continued eligibility for SAP at the 9.5 percent minimum rate
only to loans in the first group--those loans continuously refinanced
from tax-exempt
sources. Some loans in the second group also retain that eligibility after
refinancing. The regulations add no condition on 9.5 percent SAP eligibility
that was not already contained in the statute or regulations.
The regulations accurately reflect Department interpretations of applicable
law that establish which SAP rate applied to loans refinanced using tax-exempt
sources. The Department has had numerous discussions with program participants
who have cited these interpretations and it is clear that the loan industry
has been aware of the Department's interpretation of these terms. The
regulations in
Sec. 682.302(e)(2)(i)(A) and (B) describe the first group of refinanced
loans--those continuously refinanced using tax-exempt sources--and state
that such loans qualify for a SAP at the 9.5 percent minimum return rate.
These regulations rest squarely on the Department's interpretation of
the HEA as articulated in previous guidance issued in DCL 93-L-161 (November
1993), p. 13; Dear Colleague Letter 93-L-163 (December 1993), p. 2. Under
the Department's interpretation of the regulations included in the DCLs,
loans that were eligible for the 9.5 percent SAP rate prior to a tax-exempt
refinancing remained eligible after that refinancing. Because refinancing
from tax-exempt sources does not alter eligibility of the loan for the
9.5 percent SAP rate, there is no need to distinguish between loans involved
in a single tax-exempt refinancing and those involved in a series of tax-exempt
refinancings. The regulations therefore include in this first group all
loans that have been associated only with a tax-exempt refinancing, without
regard to the number of those refinancings. The phrase ``financed continuously
by tax-exempt obligations,'' in Sec. 682.302(e)(2)(i)(B)(2) simply describes
loans associated exclusively with tax-exempt refinancing.The regulations
do not exclude from eligibility for the 9.5 percent SAP loans affected
by other refinancings. The Department's regulations
in Sec. 682.302(e)(2)(ii) describe loans refinanced from sources other
than qualified tax-exempt sources. This second group consists of two subgroups,
which are distinguished by the treatment of the tax-exempt obligation
affected by the refinancing. If the prior tax-exempt obligation is retired
or deceased, SAP is payable at the taxable rate.
This rule has been in effect since 1985. If the prior tax-exempt obligation
has not been retired or defeased, SAP remains payable at the 9.5 percent
minimum return rate as discussed in DCL 96-L-186 (March 1996). The regulations
use the words ``a loan is refinanced'' to describe the refinancing of
an individual student loan. The term ``refinance'' is commonly used as
well to refer to the refunding of an outstanding bond or other financial
obligation. The regulations in Sec. 682.302(e)(2)(i) use the phrase to
refer to a bond or other instrument issued to refund an existing bond
or other obligation of the issuer.
Changes: Section 682.302(e)(2) as revised in the interim final regulations
effectively explains the applicability of the SAP rates and so it is not
necessary for us to retain paragraph (c)(5) of Sec. 682.302. Therefore,
subparagraph (c)(5) is removed.
Comments: One commenter objected to the explanation in Sec. 682.302(f)(2)
that a bond is considered to be ``originally issued'' when issued to obtain
funds to make or acquire loans in which the Authority did not have an
interest. This explanation, the commenter noted, would exclude a tax-exempt
obligation issued to refund an existing taxable bond or to refinance loans
already held by the Authority. The provision would thus disqualify from
eligibility for the 9.5 percent SAP loans acquired with proceeds of those
obligations, even if they had been issued prior to October 1, 1993.
Discussion: The provision addressing the phrase ``originally issued''
is used to explain how the October 1, 1993, deadline affects at least
four different types of tax-exempt obligations: (a) Obligations used to
obtain funds to make loans or acquire loans from third parties; (b) obligations
that refund a pre-October 1, 1993, qualifying obligation or are part of
a series of such refunding issues; (c) obligations used to refund a taxable
obligation of the issuer; and (d) obligations used to obtain funds to
acquire loans that the Authority made or purchased using funds from either
a taxable obligation or a tax-exempt obligation issued on or after October
1, 1993, but not to refund that obligation. The language in Sec. 682.302(f)(2)
to which the commenter objects clearly applies to the ``new money'' issues,
described in paragraph (a) above. However, we agree with the commenter
that the language could be read to exclude from tax-exempt special allowance
treatment loans acquired with funds from tax-exempt obligations described
in paragraphs (c) and (d), even if the tax-exempt bond had been issued
before October 1, 1993. That result would be contrary to the position
taken in the 1985 regulations and contrary to our intent in using this
particular language.\1\ We also believe that the language should be revised
to make it clear that a tax-exempt refunding, or series of such refundings,
of a tax-exempt obligation does not change the SAP status of loans made
or purchased with funds obtained from the first such tax-exempt obligation
so refunded, as described in paragraph (b).
---------------------------------------------------------------------------
\1\ The term purchase
includes acquisition of an interest in a loan by means of a pledge of
the loan, and the 1985 regulations implicitly interpret the term purchase
as used in section 438 of the HEA to include acquisition of a loan by
pledge, not merely acquisition from another party.
---------------------------------------------------------------------------
Changes: The interim
final regulations were intended to state, and not change, existing law.
Accordingly, we have revised Sec. 682.302 to state, in new paragraph (f)(2)(i),
that an obligation the proceeds of which are used to make or purchase
loans, including by pledge as collateral for that obligation, is considered
to be originally issued on the date it is issued. The limitation that
loans are considered purchased only if the Authority has neither an existing
legal or equitable interest in the loan is removed. Second, the regulation
is revised to add a new paragraph (f)(2)(ii) to address specifically a
tax-exempt obligation that refunds, initially or in a series of such refundings,
a tax-exempt obligation the proceeds of which were used to make or purchase
loans (one described in paragraph (f)(2)(i)). Such a tax-exempt refunding
obligation is considered to be originally issued on the date on which
the initial tax-exempt obligation, described in paragraph (f)(2)(i), was
issued.
Basic Program Agreement
(Sec. 682.401)
Comments: One commenter
requested that we revise Sec. 682.401(b)(10)(iii) to clarify that a lender
is required to charge an insurance premium or Federal default fee.Discussion:
Sections 682.401(b)(10)(i)(A) and (B) clearly states, with the exception
of a Consolidation Loan or SLS or PLUS Loan refinanced under Sec. 682.209(e)
or (f), the requirements on the collection of insurance premiums and Federal
default fees by a guaranty agency. Further clarification is unnecessary.
Changes: None.
Comments: Several commenters requested that a change be made to Sec. 682.401(b)(14)
to reflect the payment to lenders of exempt, lender-of-last-resort, and
other claims that may be paid at 100 percent insurance.
Discussion: This section of the FFEL regulations outlines the basic program
agreement between the guaranty agency and the Secretary. Specifically,
Sec. 682.401(b)(14) outlines the guarantee liability
of the agency, which relates primarily to the payment of default claims.
Although other kinds of claims may be paid on a loan, we do not believe
that it would be appropriate to include these other claim types, none
of which can be reasonably anticipated at the time of guarantee, in Sec.
682.401(b)(14).
Changes: None.
Comments: Several commenters stated that the HERA revised section 428(c)(2)
of the HEA to require guarantors to establish procedures to ensure that
Consolidation Loans are not an excessive proportion of the guaranty agency's
recoveries on defaulted loans, but objected to the inclusion in Sec. 682.401(b)(29)
of the requirement that guarantors submit these procedures to the Secretary
for approval.
Discussion: We believe that if a guarantor is required by law to establish
procedures to ensure that Consolidation Loans are not an excessive portion
of the agency's recoveries on defaulted loans, then the Secretary has
a fiscal responsibility to review and approve such procedures. The requirement
to submit these procedures to the Secretary for approval is also authorized
by Sec. 682.401(d)(2).
Changes: None.
Identity Theft (Sec.
Sec. 682.402 and 685.215)
Comments: Many commenters
expressed concern regarding the provisions of the interim final regulations
that implement the HERA provisions relating to the discharge of an FFEL
or Direct Loan that was falsely certified as the result of the crime of
identity theft. Several commenters felt that a definition of identity
theft based on the adjudication of a crime is too narrow and burdensome
and that we should adopt the definition of identity theft used in the
Fair Credit Reporting Act (FCRA) and by the Federal Trade Commission (FTC).Many
commenters felt that tying a discharge of an FFEL or Direct Loan to a
determination by a Federal, State or local court that the crime of identity
theft had occurred, and requiring documentation of that fact, was unduly
restrictive. The commenters believed that requiring victims whose cases
are actually prosecuted to await the outcome of a judicial process for
relief fails to provide discharges and reimbursements in a timely fashion
and fails to offer victims of identity theft proper relief. Several commenters
asked for clarification on how a loan would be discharged under the common
law defense of forgery if a law enforcement agency does not pursue a perpetrator
of identity theft. Finally, the commenters requested that we immediately
adopt an explicit, reliable process that provides sufficient protection
to bona fide victims of identity theft and that we also track cases of
unresolved identity thefts within the Department.
Several commenters did not agree with the requirement that a lender and
guarantor demand payment on a discharged loan from the perpetrator and
pursue collection action if payment in full is not received. These commenters
urged the Department to allow guarantors either to subrogate loans discharged
based on identity theft to the Department or refer the loans to the appropriate
enforcement agencies for action. Several commenters stated that the provisions
related to identity theft would be better placed in a discrete section
of the regulations. They believe this approach would facilitate processing
and reporting, and ensure that lenders, guarantors, and other program
participants have access to comprehensive regulations in a single, identifiable
section.
Several commenters noted inconsistencies between the regulations and the
preamble with respect to identity theft. These commenters state that the
preamble erroneously suggested that the new regulations provide for reimbursement
to the loan holder only when perpetrator is affiliated with the school.
The commenters requested that preamble to the final regulations accurately
describe the identity theft provisions in this regard.
Discussion: The HERA amended the HEA to authorize a discharge of a FFEL
or Direct Loan Program loan if the borrower's eligibility was falsely
certified because the borrower was a victim of the ``crime'' of identity
theft. The HERA specifically provides for a loan discharge only when a
``crime'' of identity theft has occurred. For this reason, the interim
final regulations provide relief only to the victim of a proven crime
of identity theft. The purpose of the Fair and Accurate Credit Transactions
Act (FACT) (which amended the FCRA) and similar legislation and the FTC
rules is to enable individuals who believe that their identifying information
has been misappropriated to alert parties who might extend credit to the
thief based on that stolen identity information. The purpose of the identity
theft provision in the HEA is different--to relieve borrowers and lenders
from liability on loans that result from proven misuse of that information.
Thus, the FACT Act requires credit reporting agencies to post ``fraud
alerts'' on an individual's credit record to deter lenders from extending
credit to a thief who uses the stolen identity information, and to block
the reporting of any information on the record that the individual identifies
as resulting from that identity theft. 16 U.S.C. Sec. Sec. 1681c-1, 1681c-2.
There is little, if any, substantive difference between the FACT Act definition
of ``identity theft'' in 16 U.S.C. Sec. 1681a(q)(3) and the descriptive
definition used in the interim final regulations. Therefore, there is
no reason to use the specific FACT Act definition. The commenters' claim that the regulations are unduly restrictive is contrary
to American common law. As indicated in the preamble to the interim final
regulations, under generally applicable laws, individuals who do not apply
for loans, execute promissory notes for loans or knowingly accept the
benefits of loan disbursements are not liable to repay those loans, even
if their names were forged on the loan instrument. An individual who claims
that his or her signature was forged is not required to delay asserting
that claim until a criminal prosecution occurs and nothing in the Department's
regulations require such a delay. An individual who claims that his or
her signature was forged can assert that claim to oppose liability on
a loan and the holder of the loan must evaluate and accept or reject that
claim whether or not a criminal prosecution occurs.
The regulations require the guaranty agency, not the lender, to demand
payment from the perpetrator of the identity theft. Guaranty agencies
must ordinarily use due diligence to collect FFEL Program loans and the
perpetrator is liable for such a debt. In some instances, the Department
may choose to take assignment of the debt. However, the regulations do
not require a guaranty agency to take unusual or extraordinary steps to
collect this debt. The comment that the regulations regarding identity
theft discharge relief should be placed in a separate section does not
explain why such treatment would improve clarity of the procedure. The
provisions added in the interim final regulations implement a specific
discharge provision added by the HERA to the other discharge relief available
under section 437(c) of the HEA. The regulations are not intended to provide
general guidance on handling claims that loan applications or promissory
notes have been forged where the claim does not rest on a proven crime.
Because each provision for discharge relief under section 437(c) of the
HEA offers relief to borrowers or purported borrowers by payment to the
holder of the loan, it is logical to include procedures for handling claims
under the new discharge provision among the existing procedures for claims
for other kinds of discharge relief.
The comment suggesting that the Department adopt a process for tracking
what it refers to as unresolved identity thefts does not appear to be
practicable at this time. To the extent that this proposal is meant to
deter lenders from extending new credit based on new false applications
using the same individual's identity, the proposal duplicates the procedure
already required under the FACT Act. Lenders must obtain a credit report
in order to qualify an applicant for a PLUS Loan, and therefore, the alert
option available under the FACT Act can be expected to provide effective
prospective relief with respect to applications for PLUS Loans. Implementation
of a system that would prospectively protect alleged victims of identity
theft from misuse under all the student loan
programs requires participation and input from many participants in the
loan programs. Such a process may be both costly and complicated. The
Department is open to considering practical proposals in the future.Finally,
the commenter is correct that there are inconsistencies between the preamble
to the interim final regulations and the interim final regulations, themselves,
regarding reimbursement to the loan holder when the perpetrator of identity
theft is affiliated with a school. As noted in the preamble to the interim
final regulations, Sec. 682.402(e)(1)(i)(B) of the false certification
discharge provisions has, since 1994, made discharge relief, with the
accompanying reimbursement to the lender, available in instances in which
an individual's signature was forged on a promissory note or loan application
by the school. If the forgery is not committed by someone affiliated with
a school, the purported borrower would not ordinarily be legally liable
for the loan. However because the loan is not legally enforceable against
the borrower, the loan does not qualify for any FFEL payments from the
Department. The new identity theft provision in Sec. 682.402(e)(1)(i)(C)
allows the lender to be reimbursed when the loan was made by reason of
a crime of the theft of the identity of the purported borrower, without
regard to whether the thief was affiliated with a school. The final regulations
bar payment to the lender if the theft was committed by the lender or
an agent of the lender. The preamble to the interim final regulations
accurately stated these elements of the regulation. We will revise Sec.
682.402(e)(1)(iii)(A) to be consistent with the preamble discussion in
the interim final regulations.
While we believe that the interim final regulations are fully consistent
with the HEA and other laws, we are sympathetic to the concerns of the
commenters. We intend to include this issue on the agenda for a future
negotiated rulemaking to possibly consider other approaches.
Changes: Section 682.402(e)(1)(iii)(A) has been revised by adding the
word ``not'' before the words ``pay reinsurance''.
Rehabilitation of
Defaulted Loans (Sec. 682.405(a)(2)(i)(B))
Comments: Several
commenters stated that the regulations for rehabilitation of a defaulted
loan do not account for borrowers who make only sporadic payments before
beginning the required number of qualifying payments to rehabilitate the
loan. They also claimed that the regulations did not reflect the 20-day
grace period for a timely payment as provided in the statute.
Discussion: We believe the regulations accurately reflect the HEA and
Congressional intent. Borrowers must request, or in some fashion initiate,
loan rehabilitation so that the period during which the 9 qualifying payments
must be made is clear for both the guaranty agency and the borrower.Additionally,
a reasonable and affordable payment amount needs to be established, and
the consequences of loan rehabilitation, such as the addition of collection
costs to the rehabilitated loan amount, the post-rehabilitation payment
period and the likely increased payment amount, need to be explained to
the borrower. Although the borrower can now make 9 qualifying payments
over a 10 consecutive month period to rehabilitate a defaulted loan, a
borrower should not be encouraged to make late payments or to miss a monthly
payment as part of a loan rehabilitation agreement.
Changes: None.
Comments: One commenter noted that the original Sec. 682.405(b)(1)(ii)
through (v) had been removed from the interim final regulations and asked
if this was intentional.
Discussion: We thank the commenter for bringing this inadvertent drafting
error to our attention.
Changes: We have reinserted these paragraphs and renumbered them accordingly.
Special Insurance
and Reinsurance Rules (Sec. 682.415)
Comments: Some commenters
asked the Secretary to interpret the change in the HERA that reduced the
insurance percentage paid to lenders and lender servicers that have been
designated as ``exceptional performers'' not to apply to loans for which
the first disbursement was made before October 1, 1993. These commenters
noted that, prior to October 1, 1993, the HEA required guaranty agencies
to provide 100 percent insurance to lenders, but that rate was later reduced
to 98 and 97 percent. Until enactment of the HERA, however, lenders or
lender servicers who were designated as exceptional performers received
100 percent insurance on all claims. The HERA reduced the insurance for
exceptional performers to 99 percent. The commenters argue that the HERA
should not be interpreted to reduce the insurance on loans for which the
first disbursement was made before October 1, 1993 to 99 percent for exceptional
performers. The commenters also argue that to interpret the HERA to apply
to loans for which the first disbursement was made before October 1, 1993,
would violate the lenders' contractual and Constitutional rights.
Discussion: The Secretary does not agree with the commenters. The HERA
amended section 428I(b)(1) of the HEA to provide that a lender or lender
servicer designated for exceptional performance would receive 99 percent
insurance on ``all loans for which claims are submitted for payment by
that eligible lender or servicer for the one-year period'' for which the
lender or lender servicer has been designated. In making this change,
Congress eliminated all references to 100 percent insurance for exceptional
performers. Congress did not retain the 100 percent insurance for any
group of loans. Thus, there is no statutory basis for the Secretary to
authorize 100 percent insurance on any claims submitted by an exceptional
performer after the effective date of the HERA (July 1, 2006). The Secretary
also does not agree that this change violates any contractual or constitutional
rights of a lender. A lender chooses to apply for exceptional performer
status because of the benefits it provides to the lender. A lender is
not required to apply for such status or to retain such status after it
has been granted. Moreover, Congress can modify the terms of the exceptional
performer status or end it completely without any violation of a lender's
rights. In the HERA, Congress chose to reduce the insurance coverage on
loans held by exceptional performers that were made before October 1,
1993, apparently as a way of offsetting the overall costs of providing
higher insurance coverage to exceptional
performer lenders and lender servicers than to others. A lender or lender
servicer that has been designated as an exceptional performer can still
receive 100 percent insurance on loans disbursed prior to October 1, 1993
by relinquishing its exceptional performer status. By relinquishing its
exceptional performer status, however, it will be accepting a lower insurance
rate on all other claims.
Changes: None.
School as FFEL Lender
(Sec. 682.601(a) and (b))
Comments: Many commenters
asked that we clarify the regulations regarding a school lender's use
of proceeds from the sale or other disposition of loans for need-based
grants. These same commenters questioned the difference between the items
identified in the parenthetical phrase in Sec. 682.601(a)(8) and those
identified as not considered ``reasonable and direct administrative expenses''
in Sec. 682.601(b) and asked that these discrepancies be eliminated. One
commenter requested that we identify the mandated costs of reduced origination
fees and reduced interest rates as allowable, reasonable and direct administrative
expenses for school lenders. A couple of commenters asked for guidelines
on how a school lender should use loan proceeds for required need-based
grants in a manner that would supplement, but not supplant non-Federal
funds that would otherwise be used for need-based student grant programs.
The commenters also noted that no definition of need-based grant was provided
in the regulations. One of those same commenters also asked us to clarify
that a school operating as a FFEL school lender would not be prohibited
from providing assistance to its students, other than Stafford Loans,
from institutional sources. Another commenter stated that required need-based
grants from loan proceeds should be based on the school lender's actual
net loan proceeds from the prior year.
One commenter suggested that Sec. 682.601(a)(9) be revised to clarify
that the loans a school lender must make prior to April 1, 2006 be FFEL
program loans. Another commenter asked us to clarify whether a FFEL school
lender was required to conduct a separate independent audit of its lender
operation.
Discussion: In reviewing the regulatory provisions that address the use
of loan proceeds for need-based grants and allowable, reasonable and direct
administrative expenses, we agree that further clarification is appropriate.
We believe that certain FFEL school lender's mandated or required expenses
can be characterized as programmatic expenses, but not as direct administrative
expenses under the HEA. As a result, Sec. 682.601(b) specifies that reasonable
and direct administrative expenses do not include the costs associated
with securing financing, the cost of offering reduced origination fees
or reduced interest rates to borrowers, or the cost of offering reduced
Federal default fees to borrowers. However, we have decided to permit
a school lender to exclude the costs of other statutorily mandated or
necessary programmatic expenses from the calculation of ``proceeds from
the sale or other disposition of loans'' that must be used for need-based
grants. The parenthetical phrase in Sec. 682.601(a)(8) addresses this
xclusion. Certain optional costs, such as reduced Federal default fees,
are not covered by the exclusion from loan proceeds or as a reasonable
and direct administrative expense.
A school that is also a FFEL Program lender should be able to demonstrate
on an ongoing basis that there is no pattern or practice of reducing institutional
funds available for use as non-Federal need-based grants or scholarships
as a result of the availability of lender produced funds that must also
be used for need-based grants. An institution's continued commitment to
use institutional as well as school lending-produced proceeds for this
purpose will demonstrate that the school is supplementing, not supplanting,
institutional funds committed to need-based grants and scholarships. We
will not dictate a specific approach a school lender must use to determine
its budget for need-based grants from lending-produced proceeds. The lender
must be able to show clearly that all proceeds from the sources listed
in Sec. 682.601(a)(8), except for those authorized to be used for reasonable
and direct administrative expenses and other required programmatic costs
that can be netted from proceeds, are used for need-based grants. We understand
that award commitments are made in advance of the start of the school's
academic year and that this period does not generally correspond with
the school lender's fiscal year. Determining the pool of funds available
for need-based grants based on the school lender's immediately preceding
fiscal year's lending performance, with an additional factor for increased
proceeds based on increased loan volume, if applicable, would appear to
be a reasonable approach. ``Need,'' for purposes of need-based grants,
is documented need for Title IV, HEA program purposes. The provisions
governing FFEL school lenders do not prohibit the school from making other
forms of student financial assistance available to its students. As provided
in Sec. 682.601(a)(7) and discussed in the preamble of he interim final
regulations, a FFEL school lender must submit a compliance audit as a
lender in accordance with the requirements contained in Sec. 682.305(c)(2)
for any fiscal year in which the school engages in activities as an eligible
lender, beginning with the first fiscal year beginning on or after July
1, 2006. School lenders subject to the Single Audit Act, 31 U.S.C. 7502,
will be required under Sec. 682.601(a)(7) to include its FFEL Program
lending activities in the annual audit and to include information on those
activities in the audit report, whether or not the lending activities
or the student financial aid programs are considered a ``major program''
under the Single Audit Act. Other school lenders will have to arrange
for a separate audit of their lending activities using the Lender Audit
Guide available through the Department of Education's Office of Inspector
General. In making the changes to clarify the audit requirements, we determined
that Sec. 682.305(c)(2)(v) and (vi) included outdated references to other
Departmental regulations and audit requirements. We have corrected the
citations to the audit requirements for governmental entities in Sec.
682.305(c)(2)(v). We have also added nonprofit organizations to Sec. 682.305(c)(2)(v),
because amendments to the Single Audit Act apply the same requirements
to governmental entities and nonprofit organizations. We have removed
the separate discussion of audit requirements for nonprofit organizations
in Sec. 682.305(c)(2)(vi) and replaced it with a cross-reference to the
school lender audit requirements.
Changes: The requirement that school lenders have an annual audit in Sec.
682.601(a)(7) has been amended to clarify that, in addition, a school
lender subject to the Single Audit Act must in addition during years when
the student financial aid cluster, as defined in OMB Circular A-133 Compliance
Supplement, is not audited as a major program, also audit the school's
lending activities as a major program under the Single Audit Act. This
additional requirement is without regard to the amount of loans made.
We have also made technical corrections to Sec. 682.305(c)(2) as discussed
above. Section 682.601(a)(8) has been revised to remove the words ``which
does not include providing origination fees or interest rates at less
than the fee or rate authorized
under the provisions of the Act'' following the words ``need-based grants''
and before ``; and''. A technical change has also been made to Sec. 682.601(a)(9)
to reflect the requirement that an eligible school lender must have made
one or more FFEL program loans on or before April 1, 2006.
Processing Loan Proceeds
(Sec. Sec. 682.604 and 685.304)
Comments: Several
commenters recommended requiring entrance and exit counseling for graduate
or professional students who borrow PLUS Loans. The commenters noted that
a graduate or professional student PLUS borrower who has not also borrowed
a Stafford Loan would never have had the benefit of Stafford Loan entrance
or exit counseling. In addition, these commenters recommended that the
exit counseling clarify the different repayment rules for PLUS loans and
Stafford Loans. Two commenters suggested that graduate or professional
students with both Stafford Loans and PLUS Loans could be exempted from
the entrance counseling requirement for their PLUS Loans, because these
borrowers would have already received entrance and exit counseling on
their Stafford Loans.
Discussion: The HEA exempts PLUS Loan borrowers from exit counseling requirements.
Although the Secretary encourages institutions to provide exit counseling
to graduate and professional student PLUS Loan borrowers, the Secretary
does not have the authority to require such counseling by regulation.
With regard to entrance counseling, FFEL lenders are already required,
under Sec. 682.205, to provide extensive disclosure information to borrowers
before disbursing a loan. This disclosure information, which can be provided
through either the rights and responsibilities statement or a plain language
disclosure sent to the borrower, includes an explanation of when repayment
of the loan is required. Lenders are also required to provide a disclosure
to borrowers prior to the loan going into repayment. This disclosure must
include the borrower's repayment schedule, the due date of the first installment
payment, and the number, amount, and frequency of payments. For Direct
Loans, the Department provides essentially the same information to borrowers
that FFEL lenders provide under Sec. 682.205. We believe that these disclosures
are sufficient for the limited number of graduate or professional student
PLUS borrowers who have not received Stafford Loan entrance counseling.
Changes: None.
Comments: One commenter requested that PLUS Loans be covered in the overaward
language in Sec. 682.604(h) because graduate and professional students
are now eligible PLUS Loan borrowers.
Discussion: We agree with the commenter that the overaward language should
be amended to include student PLUS Loans.
Changes: Section 682.604(h) has been amended to reflect this change. We
have also made the same change in Sec. 685.303(e) of the Direct Loan Program
regulations.
Borrower Eligibility
(Sec. 685.200)
Comments: Several
commenters recommended that we revise Sec. 685.200(b)(1)(iv) to allow
a student Direct PLUS Loan applicant who is determined to have an adverse
credit history to receive a Direct PLUS Loan if the student obtains an
endorser who does not have an adverse credit history. The commenters noted
that the endorser option is available to student PLUS applicants in the
FFEL Program.
Discussion: We did not intend to deny student applicants for Direct PLUS
Loans the option of obtaining an endorser.
Changes: We have revised Sec. 685.200(b)(5) of the regulations to more
clearly reflect that a student Direct PLUS Loan applicant who is determined
to have an adverse credit history may receive a Direct PLUS Loan if he
or she obtains an endorser who does not have an adverse credit history,
or documents to the satisfaction of the Secretary that there are extenuating
circumstances.
Charges for Which
Direct Loan Borrowers Are Responsible (Sec. 685.202)
Comments: Several
commenters suggested that we revise Sec. 685.202(a)(3) to provide that
the portion of a Direct Consolidation Loan that is attributable to Health
Education Assistance Loan Program (HEAL) loans is subject to the same
interest rate provision that applies to Federal Consolidation Loans under
Sec. 682.202(a)(4)(v). The commenters noted that section 455(a)(1) of
the HEA, as amended by the HERA, requires Direct Consolidation Loans and
Federal Consolidation Loans to have the same terms, conditions, and benefits,
unless otherwise specified in Part D of the HEA.
Discussion: The HERA amended the HEA to require that Direct Consolidation
Loans have the same terms, conditions, and benefits as Federal Consolidation
Loans, unless otherwise specified in the law. However, in this case, there
is a specific interest rate provision for Direct Consolidation Loans in
section 455(b)(7)(C) of the HEA, and that provision does not specify a
different interest rate for the portion of a Direct Consolidation Loan
that is attributable to HEAL Loans. Therefore, Direct Consolidation Loans
are not subject to the provision that applies to Federal Consolidation
Loans under section 428C(d)(2) of the HEA.
Changes: None.
Repayment Plans (Sec.
685.208)
Comments: Several
commenters suggested that the HERA requires that the graduated and extended
repayment plans do not require a borrower to repay the minimum amount
allowed under statute. In addition, these commenters suggested that a
borrower's monthly payments under these repayment plans must be at least
the amount of interest and that we add a provision that would disallow
single graduated payments that exceed three times any other graduated
installment payment.
Discussion: We agree that the minimum annual repayment rules should not
apply to a graduated repayment plan. The HEA exempts graduated and income
sensitive repayment plans from the minimum annual repayment provisions.
The HEA does not exempt extended repayment plans from the minimum annual
payment requirement. In addition, the FFEL Program regulations state that
graduated and income sensitive repayment plans may have installments less
than the minimum. However, the FFEL Program regulations do not provide
for extended repayment plans to have installments less than the minimum
annual payment amount. The final regulations provide that the 10-year
graduated repayment plan and the extended repayment plan can have graduated
payments.
We do need to add to the regulations for the graduated repayment plan,
for borrowers entering repayment on or after July 1, 2006, a provision
that does not allow any single installment payment to be more than three
times the amount of any other payment. Although the HEA does not specifically
require that the payments must be at least the amount of interest, we
agree that the regulations
would be clearer by including a provision that monthly payments on all
Direct Loan Program repayment plans must be at least the amount of the
monthly accrued interest, except that the monthly payment amount under
the Income Contingent and Alternative repayment plans may be less than
the monthly accrued interest.
Changes: We have
revised Sec. 685.208(g)(3) and 685.208(h)(2) to provide that, under a
graduated repayment schedule, a borrower's payments may be less than $50
a month and any single installment payment may not be more than three
times the amount of any other installment payment. We have added a new
paragraph (a)(2)(iv) in Sec. 685.220 of the Direct Loan repayment regulations
to provide that monthly repayment plans, except Income Contingent and
Alternative repayment plans, must be at least the amount of the monthly
accrued interest.
Consolidation (Sec.
685.220)
Comments: Several
commenters recommended that we revise Sec. 685.220(c)(1) to clarify that,
if a Federal Consolidation Loan is consolidated into a Direct Consolidation
Loan, only the portion of the Federal Consolidation Loan that qualified
for an interest subsidy will be included in the subsidized portion of
the new Direct Consolidation Loan. The commenters noted that in many cases,
only a portion of a Federal Consolidation Loan qualifies for an interest
subsidy.
Discussion: We agree that the current regulatory language is unclear with
respect to the treatment of Federal Consolidation Loans that are included
in the subsidized portion of Direct Consolidation Loans.
Changes: We have revised Sec. 685.220(c)(1) to clarify that only the portion
of a Federal Consolidation Loan that qualified for an interest subsidy
will be included in the subsidized portion of a Direct Consolidation Loan.
Comments: Several commenters pointed out that Sec. 685.220(d)(1)(ii)(E)
and (F) prohibit a borrower from consolidating a loan that is subject
to a judgment or an order for wage garnishment unless the judgment has
been vacated or the wage garnishment order has been lifted at the time
the borrower applies for a Direct Consolidation Loan. In contrast, the
corresponding FFEL Program regulations in Sec. 682.201(c) provide that
a judgment or wage garnishment order must have been vacated or lifted
at the time a Federal Consolidation Loan is made. The commenters recommended
that we revise Sec. 685.220 to be consistent with the FFEL Program requirements
related to the consolidation of loans subject to a judgment or wage garnishment.
Discussion: We agree with the commenters that the Direct Loan Program
regulations should make it clear that the judgment and wage garnishment
eligibility requirements must be met at the time the Direct Consolidation
Loan is made rather than at the time of the borrower's application for
the loan.
Changes: We have revised Sec. 685.220(d) to clarify that the eligibility
requirements for consolidating a loan subject to a judgment or wage garnishment
must be met at the time a Direct Consolidation Loan is made.
Comments: To ensure that Direct Loan Program borrowers have the same options
for resolving a default as FFEL Program borrowers, some commenters recommended
that the Secretary clarify in the regulations that a borrower with a defaulted
Direct Consolidation Loan remains eligible for loan rehabilitation with
a repayment plan that provides for reasonable and affordable payments
such as those available under an income contingent repayment plan. Other
commenters recommended that the Secretary amend the Direct Loan Program
regulations to allow a borrower to consolidate a defaulted Direct Consolidation
Loan if the borrower first makes satisfactory repayment arrangements on
the defaulted loan and includes at least one additional eligible loan
in the
consolidation.
Discussion: There is nothing in the regulations that prohibits a borrower
with a defaulted Direct Consolidation Loan from entering into an agreement
to rehabilitate that loan under a repayment plan that provides for reasonable
and affordable payments. We agree that the Direct Loan Program regulations,
as currently written, might suggest that a borrower with a defaulted Direct
Consolidation Loan is ineligible to consolidate that loan into a new Direct
Consolidation Loan under any conditions. However, this was not our intent.
A borrower with a defaulted Direct Consolidation Loan may consolidate
that loan into a new Direct Consolidation Loan if the borrower includes
at least one additional eligible loan in the consolidation, and meets
the other eligibility requirements that apply to borrowers who wish to
consolidate a defaulted loan.
Changes: We have revised the regulations in Sec. 685.220(d)(1)(ii) to
clarify that a borrower may consolidate a defaulted Direct Consolidation
Loan if the borrower: (1) makes satisfactory repayment arrangements on
the defaulted loan or agrees to repay the new Direct Consolidation Loan
under the income contingent repayment plan; and (2) includes at least
one additional eligible loan in the consolidation.
Agreements Between
an Eligible School and the Secretary for Participation in the Direct Loan
Program (Sec. 685.300)
Comments: Several
commenters recommended that we amend the regulations to reflect the Department's
previous guidance that a school that awards Direct Subsidized Loans and
Direct Unsubsidized Loans to its graduate or professional students through
the Direct Loan Program may award PLUS Loans to its graduate or professional
students through the FFEL Program, and that a school may also award Direct
PLUS Loans to its graduate and professional students through the Direct
Loan Program and Subsidized and Unsubsidized Federal Stafford Loans through
the FFEL Program.
Discussion: We agree that the Department's prior guidance should be incorporated
in the regulations.
Changes: We have revised Sec. 685.300(b)(8) to clarify that a school may
award a PLUS Loan to a parent or to a graduate or professional student
through either the Direct Loan Program or the FFEL Program, and a Stafford
Loan through the other loan program to a dependent undergraduate or graduate
or professional student borrower for the same period of enrollment. However,
a school may not award the same type of loan (i.e., Stafford or PLUS)
from different loan programs
to the same student or parent borrower for the same period of enrollment.
Executive Order 12866
Regulatory Impact
Analysis
Under Executive
Order 12866, the Secretary must determine whether this regulatory action
is ``significant'' and therefore subject to the requirements of the Executive
order and subject to review by the OMB. Section 3(f) of Executive Order
12866 defines a ``significant regulatory action'' as an action likely
to result in a rule that may (1) have an annual effect on the economy
of $100 million or more, or adversely affect a sector of the economy,
productivity, competition, jobs, the environment, public health or safety,
or State, local or tribal governments or communities in a material way
(also referred to as an ``economically significant'' rule); (2) create
serious inconsistency or otherwise interfere with an action taken or planned
by another agency; (3) materially alter the budgetary impacts of entitlement
grants, user fees, or loan programs or the rights and obligations of recipients
thereof; or (4) raise novel legal or policy issues arising out of legal
mandates, the President's priorities, or the principles set forth in the
Executive order.
[[Page 64393]]
Pursuant to the
terms of the Executive order, it has been determined this regulatory action
will have an annual effect on the economy of more than $100 million. Therefore,
this action is ``economically significant'' and subject to OMB review
under section 3(f)(1) of Executive Order 12866. The Secretary accordingly
has assessed the potential costs and benefits of this regulatory action
and has determined the benefits justify the costs.
Need for Federal
Regulatory Action
These final regulations
are needed to implement recent amendments to the HEA that affect students,
borrowers and program participants in the Federal student aid programs
authorized under Title IV of the HEA.The Secretary has limited discretion
in implementing most of these provisions. The majority of the changes
included in these final regulations simply modify the Department's regulations
to reflect statutory changes made by the HERA and the other laws mentioned
earlier. These statutory provisions are either already effective or will
be effective shortly.
The Secretary has exercised limited discretion in implementing the
HERA provisions in the following areas: Direct Assessment: The HERA extends
eligibility for Title
IV, HEA programs to instructional programs using or recognizing the use
by others of direct assessment of student learning; Identity Theft: The
HERA authorizes a discharge of a FFEL or Direct Loan Program loan if the
borrower's eligibility to borrow was falsely certified because the borrower
was a victim of the crime of identity theft; and Special Allowance Payments:
The HERA modifies the conditions under which a loan holder qualifies for
special allowance interest benefits related to PLUS loans the first disbursement
of which was made on or after January 1, 2000. The following section addresses
the alternatives that the Secretary considered in implementing these discretionary
portions of the HERA provisions.
Regulatory Alternatives
Considered
Direct Assessment
Alternatives: In developing the direct assessment regulations, the Secretary
drew upon the Department's experience with Western Governors University
(WGU), the only institution currently participating in the Title IV student
financial assistance programs that uses direct assessment, in lieu of
credit or clock hours, as a measure of student learning. WGU became an
eligible institution by participating in the Distance Education Demonstration
Program. The Secretary looked at how the Title IV student financial aid
rules had been applied in both the nonterm and non-standard term models
employed by WGU and identified basic principles on which to base the regulations.
One principle is that institutions that use direct assessment would need
to develop equivalencies in credit or clock hours in terms of instructional
time for the amount of student learning being assessed. This was necessary
because many applicable Title IV, HEA program requirements use time and/or
credit or clock hours to measure things other than student learning. In
addition, institutions would have to define enrollment status, payment
periods, and satisfactory
academic progress. A second principle is tied to the statutory language
that characterizes direct assessment programs as instructional programs.
The Secretary determined that institutions must provide a means for students
to fill in the gaps in their knowledge and that Title IV, HEA program
funds should only be used to pay for learning that occurs while the student
is enrolled in the program. The Secretary considered what should constitute
``instruction'' in a direct assessment program. The word ``instruction''
is not specifically defined in the Department's regulations and, in its
ordinary meaning the word connotes teaching. There are several other ways,
however, in which an institution might assist students to prepare for
assessments. The Secretary considered whether the definition of instructional
time in Sec. 668.8(b)(3), which is used for other types of programs, could
be used for direct assessment programs and determined that the definition
was not sufficiently broad to be used in this context.
The Secretary recognized that institutions offering direct assessment
programs might use courses or learning materials developed by other entities,
such as training and professional development organizations and other
educational institutions, to assist students in preparing for the assessments.
The Secretary considered whether the use of outside resources could be
considered contracting out a portion of an educational program and determined
that it could be. Therefore, the Secretary included in the direct assessment
regulations a provision that exempts direct assessment programs from the
limitations on contracting for part of an educational program.Identity
Theft Alternatives: Section 8012 of the HERA authorizes a discharge of
a FFEL or Direct Loan Program loan under section 437(c) of the HEA if
the eligibility of the borrower was falsely certified as a result of the
crime of identity theft. In developing regulations to implement section
8012, we sought to reflect the statutory language that requires the Department
to discharge the borrower's responsibility to repay the loan when a ``crime
of identity theft'' has occurred. The final regulations require that to
receive a discharge on a loan, an individual must provide the holder of
the loan, a copy of a local, State, or Federal court verdict or judgment
that conclusively determines that the individual who is the named borrower
of the loan was the victim of the crime of identity theft. We adopted
this standard as an inexpensive and reliable way to implement the new
discharge provision. If the perpetrator of an identity theft is never
prosecuted, and no judicial determination that a crime occurred is rendered,
a borrower can still be relieved of any responsibility to repay the loan
under the common law (and in many instances, State law) defense of forgery.
We stressed this consideration in the preamble to the interim final regulations.One
alternative we considered was to authorize a discharge for ``identity
theft'' based on representations from the individual, much as is now done
for closed school discharge relief, that the crime of identity theft had
been committed, and that the claimant was the victim of that criminal
act. We rejected this alternative as costly, unworkable, and unnecessary
to provide relief to the individuals who may be victims of this crime.
Under this alternative, the claimant and/or the lender would be required
to submit evidence needed to establish whether conduct has occurred that
would constitute the crime of identity theft. That evidence may be voluminous,
difficult to obtain, and would likely include witness testimony. Amassing
and transmitting that evidence would be difficult and costly for lenders
and claimants.
Furthermore, determining whether a crime has been committed requires discerning
the identity of the perpetrator and determining the state of mind of that
person. Neither the Department nor the guaranty agency is authorized to
determine whether that evidence shows that a crime has been committed.
That determination is routinely and reliably made through the judicial
process, which is designed to perform this function. Moreover, there is
no need to ignore the judicial process in order to give relief to those
individuals who did not in fact take out the loans for which they are
listed as borrowers. Under State statutes and common law, individuals
whose signatures have been forged on loan documents are not liable for
those debts. Individuals who show that their signatures have been forged
on loan documents, and that they neither authorized nor received a loan
made in their name, are not held liable by the Department. For these reasons,
we rejected the alternative that would entail an extra-judicial proof
of a crime. Instead, we simply require the claimant to submit a copy of
a judicial verdict that identity theft was committed.
Special Allowance Payment Alternatives:
The Department considered a number of alternatives related to the effective
date for implementation of section 8006 of the HERA, which eliminates
the limitation that special allowance payments on PLUS Loans for which
the first disbursement was made on or after January 1, 2000, only be paid
if the formula for determining the borrower interest rate produces a rate
that exceeds the statutory maximum borrower rate of 9 percent.The first
alternative was to make this provision retroactive to January 1, 2000,
an approach that would result in substantial additional special allowance
payments to many PLUS Loan holders. Although this option was suggested
by some members of the student loan industry, the Department determined
that this approach was inconsistent with the statute.
Other alternatives considered reflected differing interpretations of the
provision's effective date. Section 8006 states that ``amendments made
by this subsection shall not apply with respect to any special allowance
payment made under section 438 of the Higher Education Act of 1965 (20
U.S.C. 1087-1) before April 1, 2006.'' Since special allowance payments
are made on a quarterly basis, the Department had to determine whether
the statute's intent was to remove the limitation on PLUS special allowance
payments for the quarter of January-March 2006--the first quarter for
which bills would be submitted, verified, and paid after April 1, 2006
or for the quarter of April-June 2006, the first full quarter after the
HERA's enactment. The Department estimated Federal costs would increase
by $53 million if the limitation was removed for the January-March quarter.
This estimate was based on data on special allowance rates and balances
for the affected quarter. After a careful review of the statutory language,
the Department determined that the statute's likely intent was to remove
the limitation for the January-March 2006 quarter, since this was the
first quarter for which payments would be made after April 1, 2006. The
final regulations reflect this determination.
Benefits
Given the breadth
of these regulations, the discussion of benefits and costs will be limited
in most cases to provisions with an economic impact of $100 million or
more in any one year. By facilitating the implementation of changes made
in the HERA and other recent student aid-related satutes, these final
regulations will support the provision of a broad range of student benefits.
In general, these benefits reduce the costs of higher education to students,
increase the amount of Federal student aid or increase the number of students
eligible for Federal student aid. The economic benefits of any specific
change are difficult to discern, as they have direct benefit to the individual
aid recipient and broader societal benefits resulting from the economic
impact and tax-paying potential of a well-educated population. Research
indicates that reductions in the cost of higher education are correlated
to increased student enrollment, retention, and completion. The U.S. Census
Bureau has found people with a bachelor's degree realize as much as 75
percent higher lifetime earnings than those whose education is limited
to a high school degree. (``The Big Payoff: Educational Attainment and
Synthetic Estimates of Work-Life Earnings,'' July 2002.) Specific benefits
provided to student borrowers in these final regulations include increases
in certain FFEL and Direct Loan Program loan limits; reduced origination
fees in the FFEL and Direct Loan Programs; broadened eligibility for PLUS
Loans to include graduate and professional students; expanded access to
distance education programs; permanently expanded loan forgiveness for
highly qualified math, science, and special education teachers at low-income
schools; and a new deferment for FFEL, Direct Loan and Perkins Loan Program
borrowers who serve on active duty military service during times of war
or national emergency. These benefits are projected to increase Federal
outlays by $5.2 billion for loans originated in FY 2006-2010. This estimate
was developed using projected interest rate, loan volume, and borrower
demographic data used in preparing the FY 2007 President's Budget. Projected
loan volume and borrower data are based on trend analyses of actual program
activity, primarily drawn from the National Student Loan Data System (NSLDS)
and other Department systems.
These estimates were derived from the Department's projections that show
that loan volume will increase an estimated $3.2 billion in award year
2007-2008 and $11.6 billion from fiscal year 2006-2010 as a result of
higher loan limits. Over the latter period, average loan amounts are estimated
to increase by $184 for Stafford Loans and $156 for Unsubsidized Stafford
Loans. The phased reduction of loan origination fees is estimated to reduce
fees by $5.6 billion on 70,000 loans over award years 2006-2010. The expansion
of distance education made possible by the changes to the ``50 percent
rule'' and the definition of correspondence courses will allow institutions
to more aggressively pursue new communication technologies to provide
students significantly greater flexibility in the scheduling and location
of academic programs. The Department estimates this expanded flexibility
will increase the pool of students eligible for Federal student aid by
30,000 students a year in 2006 and 2007, of whom 17,000 per year will
be eligible to receive a Pell Grant. With an average grant of $2,306,
these additional Pell Grant recipients will receive an estimated $196
million in Pell Grant aid over 2006-2010. This estimate is based on a
trend analysis of Pell Grant program data and projections of institutional
and program eligibility for Federal student aid derived through the use
of accreditation data. The Department included in these estimates that
additional students made eligible for student aid would borrow $441 million
in student loans
over 2006-2010.
The regulation's teacher loan forgiveness provisions offer incentives
to help address longstanding national and regional elementary and secondary
school staffing problems. Many studies (Boe, Bobbitt, & Cook, 1997;
Grissmer & Kirby, 1992; Murnane et al. , 1991; Rumberger, 1987) and
extensive research prepared for the National Commission on Mathematics
and Science Teaching) have found math, science, and special education
to be fields with especially high turnover and those predicted most likely
to suffer shortages. More than tripling the teacher loan forgiveness amount--from
$5,000 to $17,500--for qualifying teachers in these fields should offer
a powerful incentive for recruitment and retention, especially given the
additional eligibility requirement that recipients teach
for five consecutive years before receiving the benefit. The Department
estimates this expanded benefit will increase Federal loan subsidy costs
in the FFEL and Direct Loan programs by $825 million for loans originated
in 2007-2010. These estimates assume over 32,000 teachers will be eligible
for additional forgiveness amounts, increasing the average amount forgiven
for those borrowers by approximately $8,500, from $4,700 to $13,300. (The
additional benefits were available for loans made in 2006 as a result
of the Taxpayer-Teacher Protection Act of 2004, so for the purposes of
this analysis additional benefits have only been considered for 2007 and
beyond.) This estimate was developed using projected interest rate, loan
volume, and borrower demographic data used in preparing the FY 2007 President's
Budget. Estimates of borrower eligibility were based on program data--primarily
from NSLDS--demographic information from the National Center for Education
Statistics' Schools and Staffing Survey. Lastly, the Department's estimates
took into account the creation of a new deferment related to active-duty
military service during a war or national emergency is estimated to reduce
interest payments by an average of $1,500 for 21,000 borrowers.
In addition to implementing expanded borrower benefits, these final regulations
also implement a number of provisions intended to improve the cost-effectiveness
and efficiency of the FFEL and Direct Loan programs, streamline program
operations for participating institutions, and standardize loan terms
and conditions across the two programs. These changes are estimated to
reduce Federal outlays by $7.0 billion for loans made in FY 2006-2010,
freeing up resources for other urgent requirements. This estimate was
also developed using projected interest rate, loan volume, and borrower
demographic data used in preparing the lender information, and borrower
data are based on trend analyses of actual program activity, primarily
drawn from NSLDS and other
Department systems. Provisions intended to enhance loan program efficiency
include a number of changes intended to promote risk-sharing by FFEL participants
through reduced program subsidies, including: restrictions on higher-than-standard
special allowance payments for loans funded through tax-exempt securities;
provisions under which the Department will recover excess interest paid
to loan holders when student interest payments exceed the special allowance
level set in the statute; and a reduction in loan holder's insurance against
default from 98 percent to 97 percent of a loan's principle and accrued
interest. Given the broad availability of FFEL program loans--over 4,000
lenders provided more than $43 billion in new loans and an additional
$53 billion in
consolidation loans in FY 2005--these changes are not expected to reduce
student and parent access to loan capital. The student loan industry features
high competition among loan providers, using an array of interest rate
discounts and other borrower benefits to attract volume. The overwhelming
majority of student loans are sold by the originating lender in the secondary
market. The impact on individual lenders of HERA provisions reducing Federal
subsidies are inestimable; a substitution of subsidies for student interest
rate cuts may occur or the secondary market price of securitized loans
may be revalued. Given the high level of government guaranty on these
loans, as well as the guaranteed rate of return, continued access to loan
capital for all borrowers should be assured. The impact on individual
loan holders may be mitigated by investment and tax considerations from
their investment portfolios as a whole. Higher borrower loan limits and
standardized repayment terms may increase long-term interest income to
some loan holders under these regulations.
The estimates were derived from changes to limit the payment of higher-than-standard
special allowance on loans funded through tax-exempt securities, balances
eligible to receive the higher special allowance payments are estimated
to decrease from $15.5 billion in FY 2006 to $8.3 billion in FY 2010.
While the recovery of excess interest subsidies produced no estimated
savings under interest rate projections used for the FY 2007 President's
Budget, this policy does save significant amounts under the probabilistic
interest rate forecasting methodology used by the Congressional Budget
Office and adopted by the Administration for the FY 2007 Mid-Session Review.
These savings are not included in the estimate of total savings discussed
above, as this was developed prior to the Mid-Session Review. Reducing
lender insurance against default from 98 percent to 97 percent is estimated
to decrease Federal payments by $37.5 million over FYs 2006-2010.Lastly,
the final regulations include a number of provisions intended to standardize
terms and conditions and broaden borrower choices, particularly for consolidation
loans. These changes include
the repeal of the single holder rule, which limits the ability of FFEL
borrowers whose loans are held by a single holder to consolidate with
other lenders, and the standardization of graduated and extended repayment
plans--previously different for Direct Loans and FFEL--on the FFEL model.
The repeal of the single holder rule should give all borrowers access
to interest rate discounts and other benefits available through the highly
competitive consolidation loan market. The standardization of repayment
plan terms will eliminate a possible source of confusion for borrowers
and promote equity across the two loan programs. Under this provision,
the Department estimates more Direct Loan borrowers who wish to obtain
longer-than standard repayment plans will consolidate their loans. As
a result, the estimated percentage of Stafford Loan borrowers in standard
repayment will increase from 76 percent to 87 percent, while the percentage
in graduated and extended repayment will decrease from 23 percent to 11
percent.
These provisions also are expected to improve market transparency and
remove transaction barriers for loan borrowers, improving market openness
and efficiency for both borrowers and loan providers.
Costs
These final regulations
include a number of provisions that will impose increased costs on some
borrowers, such as an increase in the loan interest rate for FFEL PLUS
borrowers, the elimination of in-school and joint consolidation loans,
and the mandatory imposition of the previously optional 1 percent guaranty
agency default insurance premium. (At the same time, these provisions
will reduce the Federal costs of these programs and, in the case of the
guaranty fee, improve the financial stability of guaranty agencies. Only
14 of 35 agencies collected this fee in FY 2005; the mandatory imposition
of the fee is estimated to add $1.5 billion to the balance of agency Federal
Funds over 2006-2010.) Prior to the HERA, these provisions allowed loan
providers or guaranty agencies to discriminate among borrowers through
the unequal distribution of borrower costs. While some borrowers may lose
unearned benefits through these statutory and regulatory changes, market
equitability and transparency are improved. These final regulations also
authorize the Secretary to waive a student's Title IV grant repayment
if the student withdrew from an institution of higher education because
of a major disaster as declared
by the President in accordance with the Robert T. Stafford Disaster Relief
and Emergency Assistance Act. The Secretary will exercise this waiver
authority on a case-by-case basis after determining that a major disaster
has significantly affected recipients of Title IV grant aid.
TABLE 1.--ESTIMATED
PROGRAM PARTICIPATION - CHART OMITTED SEE PDF
The average awards
displayed in Table 1 are less than the statutory maximum awards due to
the cost of attendance limit on ACG and National SMART Grant awards. In
addition, average awards also reflect students who are eligible for an
ACG or National SMART Grant for less than the full award year. Figures
in Table 1 may not add due to rounding. Because these programs are title
IV, HEA programs and eligibility for these programs is linked to Federal
Pell Grant eligibility, participating institutions must already meet Federal
student aid institutional eligibility requirements. In addition, the delivery
system and many program operational requirements for the new programs
are patterned after those that institutions are already using for Federal
Pell Grants. Accordingly, institutions wishing to participate in the new
programs have already absorbed most of the administrative costs related
to implementing these final regulations. Marginal costs over this baseline
are primarily related to initial, and ongoing eligibility determinations
are minimal. Most data needed to make these determinations, such as student
citizenship, full-time status, major, and GPA, are generally already available
to institutions. In response to the public comment on the interim final
regulations, the Department has made changes in these final regulations.
The only significant change with economic impact is to permit students
to receive an ACG or National SMART Grant for a payment period during
which they are not receiving a Federal Pell Grant. This change will enable
32,000 more students to receive grants in 2006. It will also increase
the cost of the programs by $27 million in 2006 and by $145 million between
2006-2010. The Secretary requested comments on the regulatory impact analysis
in the interim final regulations, but received none.
Assumptions, Limitations,
and Data Sources
Because these final
regulations largely restate statutory requirements that would be self-implementing
in the absence of regulatory action, cost estimates provided above reflect
a pre-statutory baseline in which the HERA and other statutory changes
implemented in these regulations do not exist. Costs have been quantified
for five years, as over time this has been a typical period between reauthorizations
of the HEA. In developing these estimates, a wide range of data sources
were used, including the NSLDS, operational and financial data from Department
of Education systems, and data from a range of surveys conducted by the
National Center for Education Statistics such as the 2004 National Postsecondary
Student Aid Survey, the 1994 National Education Longitudinal Study, and
the 1996 Beginning Postsecondary Student Survey. Elsewhere in this SUPPLEMENTARY
INFORMATION section we identify and explain burdens specifically associated
with information collection requirements. See the heading Paperwork Reduction
Act of 1995.
Regulatory Alternatives Considered
In defining eligibility
requirements, particularly those related to rigorous secondary school
programs of study, these final regulations strike a balance between complete
State discretion, which could create
confusion and regional inequalities and result in overly generous criteria
that dramatically reduce award levels, and an overly prescriptive national
determination that would significantly alter the traditional State role
in determining secondary school curricula. More specifically, in considering
the definition of a rigorous secondary school program of study, the Secretary
considered a variety of combinations of coursework and other possible
measures. For example, at the time of the release of the President's fiscal
year 2007 budget, preliminary estimates assumed a rigorous program of
study would consist
of four English, three social science, three science, three mathematics,
and two foreign language courses. Under this scenario, an estimated 439,000
students would receive $400 million in ACG awards in 2006-2007--compared
with $340 million to 420,000 students under these final regulations. In
subsequently considering the recognition of rigorous secondary school
programs, the Secretary determined it would be more appropriate to include
as one option secondary school programs of study with specific coursework
requirements, such as, for mathematics, algebra I and a higher level course
such as algebra II, geometry, or data analysis and statistics, and for
science, at least two years with one year each of biology, chemistry or
physics, as well as an advanced or honors program. In addition, the Secretary
included students who complete secondary school programs and receive specified
scores on the Advanced Placement or International Baccalaureate examinations.
The latter provisions offer additional flexibility to individual students
attending private or home schools. This approach is consistent with the
programs' statutory purpose of creating incentives for certain student
behaviors. To achieve this purpose, the grant level must be large enough
to provide a meaningful incentive, yet at the same time, program flexibility
must be sufficient
to allow States and participating institution to recognize broad differences
in secondary school and higher education academic structures.
Elsewhere in this SUPPLEMENTARY INFORMATION section we identify and explain
burdens specifically associated with
information collection requirements. See the heading Paperwork
Reduction Act of 1995.
Accounting Statement
As required by OMB
Circular A-4 (available at http://www.Whitehouse.gov/omb/Circulars/a004/a-4.pdf),
in Table 2 below, we have
prepared an accounting statement showing the classification of the expenditures
associated with the provisions of these final regulations. This table
provides our best estimate of the changes in Federal student aid payments
as a result of these final regulations. Expenditures are classified as
transfers to postsecondary students; savings are classified as transfers
from program participants (lenders, guaranty agencies).
TABLE 2.--ACCOUNTING
STATEMENT: CLASSIFICATION OF ESTIMATED EXPENDITURES -SEE PDF FOR CHART
Paperwork Reduction
Act of 1995
We received one
comment on the Paperwork Reduction Act portion of the interim final regulations.
The commenter disagreed with the Paperwork Reduction Act information collection
burden analysis for the changes we made to Sec. 682.604. These changes
implemented section 8010 of the HERA to end the exemption from multiple
disbursement requirements for eligible foreign institutions. Our analysis
stated that, in the vast majority of cases, the lender or guaranty agency
is already required to disburse a FFEL Program Loan in two installments
as a regular business practice and that this change would produce no additional
burden for foreign schools.The commenter stated that, while the requirement
to disburse a loan in two installments is a regular business practice
at U.S. institutions, prior to publication of the interim final regulations,
it had not been true for foreign schools. The commenter stated that disbursing
a loan in two installments is a new burden for foreign schools and for
lenders and guaranty agencies that provide loans to their American students
enrolled in foreign schools. As a result of public comment, we have reconsidered
and recognized
the burden associated with the elimination of the exemption of single
disbursement of FFEL Loans to students attending foreign institutions.
While there is additional burden associated with making two disbursements
of a FFEL Loan for a student attending a foreign institution, the burden
is primarily at the institution in the processing of an additional disbursement.
Since the normal business process for a lender or guaranty agency includes
making multiple disbursements of FFEL Loans, there is no significant additional
burden to the lender or guaranty agency. These additional activities will
increase burden hours by 20,000. A Paperwork Reduction Act submission
for OMB Control Number 1845-0020, which covers the burden in Sec. 682.604,
has been submitted to OMB for approval.As noted in the interim final rules,
the Department has been working with its major stakeholders to develop
the forms and applications necessary to implement many of the provisions
of this rulemaking activity. The Department plans to separately publish
the required Federal Register notices for the collections of information
associated with the following sections: active duty military (Sec. Sec.
674.34, 682.210, and 685.204), obtaining and repaying a loan (Sec. 682.102),
identity theft (Sec. 682.402), and consolidation (Sec. 685.220).
OMB has already approved the increased burden for the information collection
requirements associated with the teacher loan forgiveness provisions (Sec.
Sec. 682.215 and 685.217) under OMB Control Number 1845-0059.
Assessment of Education
Impact
Based on our own
review, we have determined that these final regulations do not require
transmission of information that any other agency or authority of the
United States gathers or makes available.
Electronic Access
to This Document
You may view this
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List of Subjects
34 CFR Part 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 Part 673
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 682
and 685
Administrative practice
and procedure, Colleges and universities, Education, Loans program--education,
Reporting and recordkeeping requirements, Student aid, Vocational education.
Dated: October 25,
2006.
Margaret Spellings, Secretary of Education.
0
For the reasons discussed in the preamble, the Secretary amends parts
668, 673, 674, 682, and 685 of title 34 of the Code of Federal Regulations
as follows:
PART 668--STUDENT
ASSISTANCE GENERAL PROVISIONS
0
1. The authority citation for part 668 continues to read as follows:
Authority: 20 U.S.C.
1001, 1002, 1003, 1085, 1091b, 1092, 1094, 1099c, and 1099c-1, unless
otherwise noted.
Sec. 668.2 [Amended]
02. Section 668.2
is amended in paragraph (b) in the first sentence of the definition of
Federal PLUS program by adding the word ``dependent'' immediately after
the words ``encourages the making of loans to parents of''.
0
3. Section 668.10 is amended by revising paragraph (a)(3) introductory
text to read as follows:
Sec. 668.10 Direct
assessment programs.
(a) * * *
(3) All regulatory requirements in this chapter that refer to credit or
clock hours as a measurement apply to direct assessment programs. Because
a direct assessment program does not utilize credit or clock hours as
a measure of student learning, an institution must establish a methodology
to reasonably equate the direct assessment program (or the direct assessment
portion of any program, as applicable) to credit or clock hours for the
purpose of complying with applicable regulatory requirements. The institution
must provide a factual basis satisfactory to the Secretary for its claim
that the program or portion of the program is equivalent to a specific
number of credit or clock hours.
* * * * *
Sec. 668.22 [Amended]
0
4. Section 668.22 is amended by:
0
A. In paragraph (a)(5)(iii)(E), removing the words ``electronically
or''.
0
B. In paragraph (h)(3)(ii)(B), removing the word ``A'' and adding, in
its place, the words ``With respect to any grant program, a''.
0
C. In paragraph (h)(5)(iii), removing the word ``ended'' and adding, in
its place, the word ``occurred''.
0
5. Section 668.35 is amended by:
0
A. In paragraph (e)(2), removing the word ``or''.
0
B. In paragraph (e)(3), removing the punctuation ``.'' at the end of the
paragraph and adding, in its place, the words ``; or''.
0
C. Adding a new paragraph (e)(4).
The addition reads as follows:
Sec. 668.35 Student
debts under the HEA and to the U.S.
* * * * *
(e) * * *
(4) The overpayment is an amount that a student is not required to return
under the requirements of Sec. 668.22(h)(3)(ii)(B).
* * * * *
Sec. 668.164 [Amended]
0
6. Section 668.164 is amended in paragraph (g)(2)(i) by adding the word
``parent'' immediately before the word ``PLUS''.
0
7. Section 668.165 is amended by revising the introductory text of paragraph
(a)(2) to read as follows:
Sec. 668.165 Notices and authorizations.
(a) * * *
(2) Except in the case of a post-withdrawal disbursement made in accordance
with 34 CFR 668.22(a)(5), if an institution credits a student's account
at the institution with Direct Loan, FFEL, or Federal Perkins Loan Program
funds, the institution must notify the student, or parent of--
* * * * *
PART 673--GENERAL
PROVISIONS FOR THE FEDERAL PERKINS LOAN PROGRAM, FEDERAL WORK-STUDY PROGRAM,
AND FEDERAL SUPPLEMENTAL EDUCATIONAL OPPORTUNITY GRANT PROGRAM
0
8. 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.
Sec. 673.5 [Amended]
0
9. Section 673.5 is amended in paragraph (c)(1)(ix) by removing the word
``and'' immediately before the number ``1607'' and adding the words ``,
and Section 903 of Public Law 96-342 (Educational Assistance Pilot Program)''
at the end of the paragraph.
PART 682--FEDERAL
FAMILY EDUCATION LOAN (FFEL) PROGRAM
0
10. The authority citation for part 682 continues to read as follows:
Authority: 20 U.S.C.
1071 to 1087-2, unless otherwise noted.
Sec. 682.101 [Amended]
0
11. Section 682.101 is amended in paragraph (c) by removing the words
``, or married couples each of whom have eligible loans under these programs'',
in the third sentence.
Sec. 682.201 [Amended]
0
12. Section 682.201 is amended by:
0
A. In paragraph (b)(3), adding the words ``or under the Federal Direct
Subsidized Stafford/Ford Loan Program and Federal Direct Unsubsidized
Stafford/Ford Loan Program, as applicable'' immediately after the words
``Unsubsidized Stafford Loan Program''.
0
B. In paragraph (c)(1)(vii), removing the parentheticals ``(b)(2)(ii)''
and adding, in their place, the parentheticals ``(c)(2)(ii)''.
0
C. In paragraph (c)(3), removing the parentheticals ``(b)(1)'' and adding,
in their place, the parentheticals ``(c)(1)''.
0
D. In paragraph (d)(1)(i)(A)(3), removing the reference to ``Sec. 682.209(a)(7)(viii)''
and adding, in its place, a reference to ``Sec.
682.209(a)(6)(iii)''.
0
E. In paragraph (d)(2), removing the word ``responsible'' and adding,
in its place, the word ``ineligible''.
Sec. 682.204 [Amended]
0
13. Section 682.204 is amended by:
0
A. In paragraph (a)(1)(i), removing the word ``certified'' and adding,
in its place, the word ``disbursed''.
0
B. In paragraph (a)(1)(ii), removing the word ``certified'' and adding,
in its place, the word ``disbursed''.
[[Page 64398]]
0
C. In paragraph (a)(1)(iii), removing the word ``certified'' and adding,
in its place, the word ``disbursed''.
0
D. In paragraph (a)(2)(i), removing the word ``certified'' and adding,
in its place, the word ``disbursed''.
0
E. In paragraph (a)(2)(ii), removing the word ``certified'' and adding,
in its place, the word ``disbursed''.
0
F. In paragraph (d)(5), removing the word ``certified'' and adding, in
its place, the word ``disbursed''.
0
G. In paragraph (d)(6)(ii), removing the word ``certified'' and adding,
in its place, the word ``disbursed''.
0
H. In paragraph (d)(6)(iii), removing the word ``certified'' and adding,
in its place, the word ``disbursed''.
Sec. 682.206 [Amended]
0
14. Section 682.206 is amended in paragraph (e)(3) by adding the words
``, based on an application received prior to July 1, 2006,'' immediately
before the word ``may''.
0
15. Section 682.207 is amended by:
0
A. In paragraph (b)(1)(v)(C)(1), adding the words ``with the home institution''
after the words ``verification of the student's enrollment''.
0
B. Revising paragraph (b)(2)(i)(A)(2).
0
C. Revising paragraph (b)(2)(i)(A)(3).
0
D. In paragraph (b)(2)(i)(B), adding the word ``, facsimile'' after the
word ``telephone''.
0
E. In paragraph (b)(2)(iv) introductory text, removing the parentheticals
``(b)(1)(v)(D)(1)'' and adding, in their place, the parentheticals ``(b)(1)(v)(D)''.
The revisions read as follows:
Sec. 682.207
Due diligence in disbursing a loan.
(b) * * *
(2) * * *
(i) * * *
(A) * * *
* * * * *
(2) For a new student, contacting the foreign school the student is to
attend in accordance with procedures specified by the Secretary, by telephone,
e-mail or facsimile to verify the student's admission to the foreign school
for the period for which the loan is intended at the enrollment status
for which the loan was certified. (3) For a continuing student, contacting
the foreign school the student is to attend in accordance with procedures
specified by the Secretary, by telephone, e-mail or facsimile to verify
that the student is still enrolled at the foreign school for the period
for which the loan is intended at the enrollment status for which the
loan was certified.
* * * * *
Sec. 682.209 [Amended]
0
16. Section 682.209 is amended by:
0
A. In paragraph (a)(6)(v)(B), removing the parentheticals ``(a)(7)(viii)(C)''
and adding, in their place, the parentheticals ``(a)(6)(viii)(C)''.
0
B. In paragraph (a)(7)(iv), removing the parentheticals ``(a)(8)(iii)''
and adding, in their place, the parentheticals, ``(a)(7)(iii)''.
0
17. Section 682.211 is amended by:
0
A. In paragraph (f)(6), removing the words ``in the case of parent a PLUS
Loan'' and adding, in their place, the words ``on whose behalf a parent
has borrowed a PLUS Loan''.
0
B. Revising paragraph (h)(3).
The revision reads as follows:
Sec. 682.211 Forbearance.
* * * * *
(h) * * *
(3) Forbearance agreement. After the lender determines the borrower's
or endorser's eligibility, and the lender and the borrower or endorser
agree to the terms of the forbearance granted under this section, the
lender sends, within 30 days, a notice to the borrower or endorser confirming
the terms of the forbearance and records the terms of the forbearance
in the borrower's file.
* * * * *
Sec. 682.215 [Amended]
0
18. Section 682.215 is amended by:
0
A. In paragraph (c)(3)(ii)(B), removing the word ``either''.
0
B. In paragraph (c)(4)(ii)(B), removing the word ``either''.
0
19. Section 682.302 is amended by:
0
A. Revising paragraph (c)(1)(iii)(B)(4).
0
B. In paragraph (c)(1)(iii)(B)(5), removing the cross-reference ``Sec.
682.202(a)(2)(v)'' and adding, in its place, the cross-reference ``Sec.
682.202(a)(2)(v)(A)''.
0
C. Removing paragraph (c)(5).
0
D. Revising paragraph (f) introductory text.
0
E. Revising paragraph (f)(2).
The revision reads as follows:
Sec. 682.302 Payment
of Special Allowance on FFEL loans.
* * * * *
(c) * * *
(1) * * *
(iii) * * *
(B) * * *
(4) A Federal PLUS Loan made on or after July 1, 1998 and prior to October
1, 1998, except that no special allowance shall be paid any quarter unless
the rate determined under Sec. 682.202(a)(2)(v)(A) exceeds 9 percent;
(f) For purposes of this section--
* * * * *
(2) The date on which an obligation is considered to be ``originally issued''
is determined under Sec. 682.302(f)(2)(i) or (ii), as applicable.
(i) An obligation issued to obtain funds to make loans, or to purchase
a legal or equitable interest in loans, including by pledge as collateral
for that obligation, is considered to be originally issued on the date
issued.
(ii) A tax-exempt obligation that refunds, or is one of a series of tax-exempt
refundings with respect to a tax-exempt obligation described in Sec. 682.302(f)(2)(i),
is considered to be originally issued on the date on which the obligation
described in Sec. 682.302(f)(2)(i) was
issued.
* * * * *
0
20. Section 682.305 is amended by:
0
A. In paragraph (c)(2)(v), adding the words ``or a nonprofit organization''
after the words ``governmental entity'' and removing the words ``and 34
CFR, part 80, appendix G'' and adding in their place the words ``and 34
CFR Sec. Sec. 74.26 and 80.26, as applicable''.
0
B. Revising paragraph (c)(2)(vi).
0
C. In paragraph (d)(1), by adding the word ``rate'' immediately after
the word ``interest'' the third time it appears in the sentence.
The revisions read as follows:
Sec. 682.305 Procedures
for payment of interest benefits and special allowance and collection
of loan origination fees.
* * * * *
(c) * * *
(2) * * *
(vi) With regard to a school that makes or originates loans, the audit
requirements are in 34 CFR Sec. 682.601(a)(7).
* * * * *
Sec. 682.401 [Amended]
0
21. Section 682.401 is amended in paragraph (b)(27)(iv) by removing the
parentheticals ``(b)(27)(ii)(D)'' and adding, in their place, the parentheticals
``(b)(27)(v)''.
Sec. 682.402 [Amended]
0
22. Section 682.402 is amended by:
0
A. In paragraph (e), in the paragraph heading, removing the word ``borrower''
and adding, in its place, the word ``borrow''.
0
B. In paragraph (e)(1)(iii)(A), adding the word ``not'' immediately before
the word ``pay''.
0
23. Section 682.405 is amended by adding new paragraphs (b)(1)(iii) through
(vii) to read as follows:
Sec. 682.405 Loan
rehabilitation agreement.
* * * * *
(b) * * *
[[Page 64399]]
(1) * * *
(iii) For the purposes of this section, the determination of reasonable
and affordable must--(A) Include a consideration of the borrower's and
spouse's disposable income and reasonable and necessary expenses including,
but not limited to, housing, utilities, food, medical costs, work-related
expenses, dependent care costs and other Title IV repayment; (B) Not be
a required minimum payment amount, e.g. $50, if the agency determines
that a smaller amount is reasonable and affordable based on the borrower's
total financial circumstances. The agency must include documentation in
the borrower's file of the basis for the determination if the monthly
reasonable and affordable payment established under this section is less
than $50 or the monthly accrued interest on the loan, whichever is greater.
However, $50 may not be the minimum payment for a borrower if the agency
determines that a smaller amount is reasonable and affordable; and (C)
Be based on the documentation provided by the borrower or other sources
including, but not be limited to--
(1) Evidence of current income (e.g., proof of welfare benefits, Social
Security benefits, child support, veterans' benefits, Supplemental Security
Income, Workmen's Compensation, two most recent pay stubs, most recent
copy of U.S. income tax return, State Department of Labor reports);
(2) Evidence of current expenses (e.g., a copy of the borrower's monthly
household budget, on a form provided by the guaranty agency); and (3)
A statement of the unpaid balance on all FFEL loans held by other holders.
(iv) The agency must include any payment made under Sec. 682.401(b)(4)
in determining whether the nine out of ten payments required under paragraph
(b)(1) of this section have been made. (v) A borrower may request that
the monthly payment amount be adjusted due to a change in the borrower's
total financial circumstances only upon providing the documentation specified
in paragraph (b)(1)(iii)(C) of this section. (vi) A guaranty agency must
provide the borrower with a written statement confirming the borrower's
reasonable and affordable payment amount, as determined by the agency,
and explaining any other terms and conditions applicable to the required
series of payments that must be made before a borrower's account can be
considered for repurchase by an eligible lender. The statement must inform
borrowers of the effects of having their loans rehabilitated (e.g., credit
clearing, possibility of increased monthly payments). The statement must
inform the borrower of the amount of the collection costs to be added
to the unpaid principal at the time of the sale. The collection costs
may not exceed 18.5 percent of the unpaid principal and accrued interest
at the time of the sale. (vii) A guaranty agency must provide the borrower
with an opportunity to object to terms of the rehabilitation of the borrower's
defaulted loan.
* * * * *
Sec. 682.408 [Amended]
0
24. Section 682.408 is amended in paragraph (c) by adding, after the words
``Sec. 682.207(b)(1)(ii) and (iv)'', the phrase ``, or Stafford Loan proceeds
to a borrower in accordance with the requirements of Sec. 682.207(b)(1)(i)
and (ii),''.
0
25. Section 682.601 is amended by:
0
A. Revising paragraph (a)(7).
0
B. Revising paragraph (a)(8).
0
C. In paragraph (a)(9), adding the words ``one or more FFEL program''
before the word ``loans''.
The revisions read as follows:
Sec. 682.601 Rules
for a school that makes or originates loans.
(a) * * *
(7) Must, for any fiscal year beginning on or after July 1, 2006 in which
the school engages in activities as an eligible lender, submit an annual
compliance audit that satisfies the following requirements:
(i) With regard to a school that is a governmental entity or a nonprofit
organization, the audit must be conducted in accordance with Sec. 682.305(c)(2)(v)
and chapter 75 of title 31, United States Code, and in addition, during
years when the student financial aid cluster (as defined in Office of
Management and Budget Circular A-133, Appendix B, Compliance Supplement)
is not audited as a ``Major Program'' (as defined under 31 U.S.C. 7501)
must, without regard to the amount of loans made, include in such audit
the school's lending activities as a Major Program.
(ii) With regard to a school that is not a governmental entity or a nonprofit
organization, the audit must be conducted annually in accordance with
Sec. 682.305(c)(2)(i) through (iii);(8) Must use any proceeds from special
allowance payments and interest payments from borrowers, interest subsidy
payments, and any proceeds from the sale or other disposition of loans
(exclusive of
return of principal, any financing costs incurred by the school to acquire
funds to make the loans, and the cost of charging origination fees or
interest rates at less than the fees or rates authorized under the HEA)
for need-based grants; and
* * * * *
Sec. 682.604 [Amended]
0
26. Section 682.604 is amended in the introductory text to paragraph (h)
by removing the words ``or SLS'' and adding, in their place, ``, SLS or
PLUS''.
PART 685--WILLIAM
D. FORD FEDERAL DIRECT LOAN PROGRAM
0
27. The authority citation for part 685 continues to read as follows:
Authority: 20 U.S.C.
1087a et seq., unless otherwise noted.
Sec. 685.102 [Amended]
0
28. Section 685.102 is amended in the definition of Estimated Financial
Assistance in paragraph (b)(1)(ix) by removing the parentheticals ``(2)(iii)''
and adding, in their place, the parentheticals
``(2)(iv)''.
Sec. 685.200 [Amended]
0
29. Section 685.200(b) is amended by:
0
A. Removing the paragraph (b)(1) designation.
0
B. Redesignating paragraphs (b)(1)(i), (ii), (iii), (iv), and (v) as paragraphs
(b)(1), (2), (3), (4), and (5), respectively.
0
C. In newly redesignated paragraph (b)(4), removing the words ``and Stafford
Ford/Loan Program; and'' and adding, in their place, the words ``Stafford/Ford
Loan Program or under the Federal Subsidized and Unsubsidized Stafford
Loan Program, as applicable; and''.
0
D. In newly redesignated paragraph (b)(5), removing the words ``does not
have an adverse credit history in accordance with'' and adding, in their
place, the words ``meets the requirements of''.
Sec. 685.203 [Amended]
0
30. Section 685.203 is amended by:
0
A. In paragraph (a)(1)(i), removing the word ``originated'' and adding,
in its place, the word ``disbursed''.
0
B. In paragraph (a)(1)(ii), removing the word ``originated'' and adding,
in its place, the word ``disbursed''.
0
C. In paragraph (a)(1)(iii), removing the word ``originated'' and adding,
in its place, the word ``disbursed''.
0
D. In paragraph (a)(2)(i), removing the word ``originated'' and adding,
in its place, the word ``disbursed''.
0
E. In paragraph (a)(2)(ii), removing the word ``originated'' and adding,
in its place, the word ``disbursed''.
0
F. In paragraph (c)(2)(v), removing the word ``originated'' and adding,
in its place, the word ``disbursed''.
0
G. In paragraph (c)(2)(vi)(B), removing the word ``originated'' and adding,
in its place, the word ``disbursed''.
0
H. In paragraph (c)(2)(vii), removing the word ``originated'' and adding,
in its place, the word ``disbursed''.
0
31. Section 685.208 is amended as follows:
0
A. By adding a new paragraph (a)(2)(iv).
0
B. By revising paragraph (g)(3).
0
C. By revising paragraph (h)(2).
Sec. 685.208 Repayment
plans.
(a) * * *
(2) * * *
(iv) No scheduled payment may be less than the amount of interest accrued
on the loan between monthly payments, except under the income contingent
repayment plan or an alternative repayment plan.
(g) * * *
(3) A borrower's payments under this repayment plan may be less than $50
per month. No single payment under this plan will be more than three times
greater than any other payment.
(h) * * *
(2) A borrower's payments under this repayment plan may be less than $50
per month. No single payment under this plan will be more than three times
greater than any other payment.
* * * * *
Sec. 685.217 [Amended]
0
32. Section 685.217 is amended by:
0
A. In paragraph (c)(3)(ii)(B), removing the word ``either''.
0
B. In paragraph (c)(4)(ii)(B), removing the word ``either''.
0
33. Section 685.220 is amended by:
0
A. In paragraph (c)(1), removing the words ``and to'' immediately before
the words ``Federal Consolidation Loans'' and adding, in their place,
the words ``and attributable to the portion of'', and by removing the
words ``if they are'' and adding, in their place, the words ``that is''.
0
B. In paragraph (d)(1) introductory text, removing the words ``, at the
time the borrower applies for such a loan,''.
0
C. In paragraph (d)(1)(i) introductory text, removing the word ``The''
and adding, in its place, the words ``At the time the borrower applies
for a Direct Consolidation Loan, the''.
0
D. In paragraph (d)(1)(ii) introductory text, adding the words ``At the
time the borrower applies for the Direct Consolidation Loan,'' immediately
before the words ``on the loans being consolidated,''.
0
E. In paragraph (d)(1)(ii)(A), removing the words ``six-month''.
0
F. In paragraph (d)(1)(ii)(D), removing the words ``Except as provided
in paragraph (d)(4) of this section, in'' and adding, in their place,
the word ``In''.
0
G. Redesignating paragraphs (d)(1)(iii) and (d)(1)(iv) as paragraphs (d)(1)(iv)
and (d)(1)(v), respectively.
0
H. Adding a new paragraph (d)(1)(iii).
0
I. Removing paragraph (d)(4).
0
J. Redesignating paragraph (h)(1) as paragraph (h)(1)(i).
0
K. Redesignating paragraph (h)(2) as paragraph (h)(1)(ii).
0
L. Redesignating paragraph (h)(3) as paragraph (h)(2).
The addition reads as follows:
Sec. 685.220 Consolidation.
* * * * *
(d) * * *
(1) * * *
(iii) On the loans being consolidated, the borrower is--(A) Not subject
to a judgment secured through litigation, unless the judgment has been
vacated; or(B) Not subject to an order for wage garnishment under section
488A of the Act, unless the order has been lifted.
* * * * *
0
34. Section 685.300 is amended by revising paragraph (b)(8) to read as
follows:
Sec. 685.300 Agreements
between and eligible school and the Secretary for participation in the
Direct Loan Program.
* * * * *
(b) * * *
(8) Provide that eligible students at the school and their parents may
participate in the programs under part B of the Act at the discretion
of the Secretary for the period during which the school participates in
the Direct Loan Program under part D of the Act, except that--(i) A student
may not receive a Direct Subsidized Loan and/or a Direct Unsubsidized
Loan under part D of the Act and a subsidized and/or unsubsidized Federal
Stafford Loan under part B of the Act for the same period of enrollment;
(ii) A graduate or professional student or a parent borrowing for the
same dependent student may not receive a Direct PLUS Loan under part D
of the Act and a Federal PLUS Loan under part B of the Act for the same
period of enrollment;
* * * * *
Sec. 685.303 [Amended]
0
35. Section 685.303(e) introductory text is amended by removing the words
``or Direct Unsubsidized Loan'' and adding, in their place, the words
``, Direct Unsubsidized, or Direct PLUS Loan''.
* * * * *
[FR Doc. E6-18183 Filed 10-31-06; 8:45 am]
BILLING CODE 4000-01-P
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