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Summary: General Provisions NPRM

FR part
II
Publication Date: August 8, 2007
FRPart: II

Page Numbers: 44619-44653

Summary: General Provisions NPRM

Posted on 08-08-2007


[Federal Register: August 8, 2007 (Volume 72, Number 152)]
[Proposed Rules]
[Page 44619-44653]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08au07-28]


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Part II

Department of Education

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34 CFR Parts 668, 674, et al.

Federal Student Aid Programs; Proposed Rule


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DEPARTMENT OF EDUCATION

34 CFR Parts 668, 674, 676, 682, 685, 690, and 691

[Docket ID ED-2007-OPE-0134]
RIN 1840-AC91


Federal Student Aid Programs

AGENCY: Office of Postsecondary Education, Department of Education.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Secretary proposes to amend the regulations on Student
Assistance General Provisions; Federal Perkins Loan (Perkins Loan)
Program; Federal Supplemental Educational Opportunity Grant (FSEOG)
Program; Federal Family Education Loan (FFEL) Program; William D. Ford
Federal Direct Loan (Direct Loan) Program; Federal Pell Grant (Pell
Grant) Program; and Academic Competitiveness Grant (ACG) and National
Science and Mathematics Access to Retain Talent Grant (National SMART
Grant) Programs. The proposed regulations would reduce administrative
burden for program participants, provide benefits to students and
borrowers, and protect taxpayers' interests.

DATES: We must receive your comments on or before September 7, 2007.

ADDRESSES: Submit your comments through the Federal eRulemaking Portal
or via postal mail, commercial delivery, or hand delivery. We will not
accept comments by fax or by e-mail. Please submit your comments only
one time, in order to ensure that we do not receive duplicate copies.
In addition, please include the Docket ID at the top of your comments.
Federal eRulemaking Portal: Go to http://www.regulations.gov.
Under ``Search Documents'' go to ``Optional Step
2'' and select ``Department of Education'' from the ``Federal
Department or Agency'' drop-down menu, then click ``Submit.'' In the
Docket ID column, select ED-2007-OPE-0134 to add or view public
comments and to view supporting and related materials available
electronically. Information on using Regulations.gov, including
instructions for submitting comments, accessing documents, and viewing
the docket after the close of the comment period, is available through
the site's ``User Tips'' link.

Postal Mail, Commercial Delivery, or Hand Delivery. If you
mail or deliver your comments about these proposed regulations, address
them to Michelle Belton, U.S. Department of Education, 1990 K Street,
NW., room 8037, Washington, DC 20006-8502.
Privacy Note: The Department's policy for comments received from
members of the public (including those comments submitted by mail,
commercial delivery, or hand delivery) is to make these submissions
available for public viewing on the Federal eRulemaking Portal at
http://www.regulations.gov. All submissions will be posted to the
Federal eRulemaking Portal without change, including personal
identifiers and contact information.

FOR FURTHER INFORMATION CONTACT: For information related to General
definitions and Defining Independent Study for Direct Assessment
Programs, Michelle Belton. Telephone: (202) 502-7821 or via Internet:
michelle.belton@ed.gov.

For information related to Payment periods, Treatment of Title IV
grant and loan funds if a recipient does not begin attendance, Post-
withdrawal disbursements of grant funds directly to a student, and
Annual loan limit progression, Wendy Macias. Telephone: (202) 502-7526
or via Internet: wendy.macias@ed.gov.
For information related to all Cash Management issues and Single
disbursement provision for Perkins Loan and the FSEOG, John Kolotos.
Telephone: (202) 502-7762 or via Internet: john.kolotos@ed.gov.
For information related to Minimum period for certifying a loan,
and Pell Grant calculations, Brian Kerrigan. Telephone: (202) 219-7058
or via Internet: brian.kerrigan@ed.gov.
If you use a telecommunications device for the deaf, you may call
the Federal Relay Service 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 first contact person listed under FOR
FURTHER INFORMATION CONTACT.

SUPPLEMENTARY INFORMATION:

Invitation To Comment

As outlined in the section of this notice entitled ``Negotiated
Rulemaking,'' significant public participation, through four public
hearings and three negotiated rulemaking sessions, has occurred in
developing this NPRM. Therefore, in accordance with the requirements of
the Administrative Procedure Act, the Department invites you to submit
comments regarding these proposed regulations within 30 days. To ensure
that your comments have maximum effect in developing the final
regulations, we urge you to identify clearly the specific section or
sections of the proposed regulations that each of your comments
addresses and to arrange your comments in the same order as the
proposed regulations.
We invite you to assist us in complying with the specific
requirements of Executive Order 12866 and its overall requirement of
reducing regulatory burden that might result from these proposed
regulations. Please let us know of any further opportunities we should
take to reduce potential costs or increase potential benefits while
preserving the effective and efficient administration of the programs.
During and after the comment period, you may inspect all public
comments about these proposed regulations by accessing Regulations.gov.
You may also inspect the comments, in person, in room 8037, 1990 K
Street, NW., Washington, DC, between the hours of 8:30 a.m. and 4:00
p.m., Eastern time, Monday through Friday of each week except Federal
holidays.

Assistance to Individuals With Disabilities in Reviewing the Rulemaking Record

On request, we will supply an appropriate aid, such as a reader or
print magnifier, to an individual with a disability who needs
assistance to review the comments or other documents in the public
rulemaking record for these proposed regulations. If you want to
schedule an appointment for this type of aid, please contact the first
person listed under FOR FURTHER INFORMATION CONTACT.

Negotiated Rulemaking

Section 492 of the Higher Education Act of 1965, as amended (HEA),
requires the Secretary, before publishing any proposed regulations for
programs authorized by Title IV of the HEA, to obtain involvement in
the development of the proposed regulations. After obtaining advice and
recommendations from individuals and representatives of groups involved
in the Federal student financial assistance programs, the Secretary
must subject the proposed regulations to a negotiated rulemaking
process. All proposed regulations that the Department publishes must
conform to final agreements resulting from that process unless the
Secretary reopens the process or provides a written explanation to the
participants stating why the Secretary has decided to depart from the
agreements. Further information on the negotiated rulemaking process
can be found at:

[[Page 44621]]

http://www.ed.gov/policy/highered/reg/hearulemaking/2007/nr.html.

On August 18, 2006, the Department published a notice in the
Federal Register (71 FR 47756) announcing our intent to establish up to
four negotiated rulemaking committees to prepare proposed regulations.
One committee would focus on issues related to the ACG and National
SMART Grant programs. A second committee would address issues related
to the Federal student loan programs. A third committee would address
programmatic, institutional eligibility, and general provisions issues.
Lastly, a fourth committee would address accreditation. The notice
requested nominations of individuals for membership on the committees
who could represent the interests of key stakeholder constituencies on
each committee. The four committees met to develop proposed regulations
over the course of several months, beginning in December 2006. This
notice of proposed rulemaking (NPRM) proposes regulations relating to
the programmatic, institutional eligibility, and general provisions
issues that were discussed by the third committee mentioned in this
paragraph (the Committee or the General Provisions Committee).
The Department developed a list of proposed regulatory changes from
advice and recommendations submitted by individuals and organizations
in testimony submitted to the Department in a series of four public
hearings held on:
September 19, 2006, at the University of California-
Berkeley in Berkeley, California.
October 5, 2006, at the Loyola University in Chicago,
Illinois.
November 2, 2006, at the Royal Pacific Hotel Conference
Center in Orlando, Florida.
November 8, 2006, at the U.S. Department of Education in
Washington, DC.
In addition, the Department accepted written comments on possible
regulatory changes submitted directly to the Department by interested
parties and organizations. A summary of all comments received orally
and in writing is posted as background material in the docket.
Transcripts of the regional meetings can be accessed at http://www.ed.gov/policy/highered/reg/hearulemaking/2007/hearings.html.
Staff
within the Department also identified issues for discussion and
negotiation.

At its first meeting, the General Provisions Committee reached
agreement on its protocols and proposed agenda. These protocols
provided that the non-Federal negotiators would not represent the
interests of stakeholder constituencies, but would instead participate
in the negotiated rulemaking process based on each Committee member's
experience and expertise in the Title IV, HEA programs.
The following members made up the General Provisions Committee:
Rebecca Thompson and Justin Klander (alternate), United
States Student Association and Minnesota State College Student
Association, respectively.
Elaine Neely-Eacona and Susan Little (alternate), Kaplan
Higher Education and University of Georgia, respectively.
David Glezerman and Anne Gross (alternate), Temple
University and National Association of College and University Business
Officers, respectively.
Stephen Sussman and Maureen R. Budetti (alternate), Barry
University and National Association of Independent Colleges and
Universities, respectively.
Linda Michalowski and Carol Mowbray (alternate),
California Community Colleges and Northern Virginia Community College,
respectively.
Kay Noah Stroud and Beverly Young (alternate), Appalachian
State University and California State University, respectively.
Stacey Ludwig and Paula Luff (alternate), Western
Governors University and DePaul University, respectively.
Steven Dill, Robert Collins (alternate), and Nancy Broff
(alternate), Lincoln Education Services, Inc., Apollo Group, Inc., and
Career College Association, respectively.
Mary Ann Welch, representing National Association of State
Student Grant and Aid Programs.
Starlith Chiquita Carter and Ray Testa (alternate),
National Accrediting Commission of Cosmetology Arts and Sciences and
National Motion Member Schools/Regis, respectively.
Lloyd Robertson, representing Chase EdFinance.
Brian Kerrigan, representing U.S. Department of Education.
During the later two meetings, the General Provisions Committee
reviewed and discussed drafts of proposed regulations. At the final
meeting in April 2007, the General Provisions Committee reached
consensus on all of the proposed regulations in this document. More
information on the work of this Committee can be found at: http://www.ed.gov/policy/highered/reg/hearulemaking/2007/hearings.html.


Significant Proposed Regulations

We discuss substantive issues under the sections of the proposed
regulations to which they pertain. Generally, we do not address
proposed regulatory provisions that are technical or otherwise minor in
effect.

General Definitions (Sec. 668.2)

Statute: The HEA does not include these definitions.
Current Regulations: Current Sec. 668.2 contains definitions that
are relevant to all of the Title IV, HEA Federal financial aid
programs. However, separate definitions for full-time student, graduate
or professional student, half-time student, three-quarter time student,
and undergraduate student exist in other sections of the program
regulations. Currently there is no definition for first professional
degree.
Proposed Regulations: The proposed regulations would harmonize and
consolidate in Sec. 668.2 definitions for the terms, full-time
student, graduate or professional student, half-time student, three-
quarter time student, and undergraduate student.
The definition of first professional degree would be based on the
definition currently used by the National Center for Educational
Statistics (NCES). Under this definition a first professional degree
would be limited to degree programs that require a level of
professional skill beyond that normally required for a bachelor's
degree as well as a professional license.
The definition of full-time student in Sec. 668.2(b) does not
adequately address students in a nonstandard term program. The proposed
regulation adds the calculation that the Pell Grant Program uses to
determine whether or not such students are eligible to receive a full-
time award. It also adds language to clarify the Department's position
concerning the status of students in correspondence programs.
The proposed regulations would move the definitions of half-time
student and three-quarter time student from Sec. 690.2(c), in the
current Pell Grant regulations, to Sec. 668.2(b). As a result, a half-
time student and three-quarter time student would be defined as a
student who is carrying a work load that is at least half or three-
quarters, respectively, of the minimum full-time student definition
contained in the regulations, rather than at least half or three-
quarters, respectively, of the full-time student definition established
by the institution, as it is currently defined for Title IV, HEA
program loans and direct assessment programs.
The proposed regulations would move the definition of graduate or

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professional student from Sec. 674.2(b), in the current Perkins Loan
Program regulations, to Sec. 668.2 and rearrange the definition to
highlight the Department's policy that graduate or professional
students may not receive aid from undergraduate programs, such as the
Pell Grant Program, while also receiving graduate or professional level
aid.
The proposed definition of undergraduate student incorporates
requirements from the definitions of undergraduate student currently in
different program regulations. It also defines students in
postbacculaureate teacher certification programs as undergraduates for
purposes of the Pell Grant Program.
Upon consolidation in Sec. 668.2(b), these definitions would be
removed from the individual program regulations.
Reasons: Prior to this negotiated rulemaking, there were six
definitions for half-time student, four definitions of undergraduate
student, and three definitions of graduate or professional student. To
eliminate this redundancy and avoid confusion, the proposed regulations
consolidate these definitions in one section of the regulations.
As part of the rulemaking discussions, the Department also
recommended changing the full-time student definition for clock hour
programs by raising the required number of hours per week from 24 to 30
(this is the mathematical equivalent of 900 hours divided by 30 weeks).
The Department later modified its proposal to have the clock hours per
week for a full-time student be related to the weeks of instructional
time associated with the academic year. For example, where 30 clock
hours per week would be associated with a 30-week academic year, 35
clock hours per week would be associated with a 26-week academic year.
Some non-Federal negotiators objected, arguing that the proposal would
significantly increase the clock hour requirements, particularly for
half-time students attending evening classes. They noted that the
current requirements have been in effect for over 30 years without
incident or concern. The Department withdrew its proposal.

Payment Periods (Sec. Sec. 668.4, 668.22, 668.164, 682.200, 682.604, 685.301)

Payment Periods and Disbursements of Title IV Grant and Loan Funds
Statute: Section 428G(a) of the HEA requires that the interval
between the first and second installment of FFEL (and, by extension,
Direct Loan) payments not be less than one-half of the period of
enrollment, except in the case of programs offered in semesters,
quarters, or a similar division of the period of enrollment.
Current Regulations: Current regulations in Sec. 668.4 define
payment periods for Title IV, HEA program funds for three types of
academic programs: (1) Programs that measure progress in credit hours
and have academic terms; (2) programs that measure progress in credit
hours and do not have terms; and (3) programs that measure progress in
clock hours. Also, Sec. 668.164 requires an institution to disburse
Title IV, HEA program funds, except for Federal Work Study (FWS) funds,
on a payment period basis. Accordingly, Pell Grant, ACG, National SMART
Grant, FSEOG, Perkins Loan and some FFEL and Direct Loan funds are
disbursed by the payment period. However, Sec. Sec. 682.604(c) and
685.301(b) contain provisions that require an institution to disburse
FFEL and Direct Loan funds on a different basis for (1) nonstandard
term credit hour programs with terms that are not substantially equal
in length, (2) nonterm credit hour programs, and (3) clock hour
programs. A chart that illustrates the current disbursement
requirements is published as Appendix A to the preamble--Current
Disbursement Requirements.
Specifically, for a standard term (semester, trimester, or quarter)
credit hour program or a nonstandard term credit hour program (with or
without terms that are substantially equal in length), Sec. 668.4(a)
defines payment periods to be the terms. Title IV grant and loan funds
are disbursed to students in these programs by the payment period--the
term--except for nonstandard term credit hour programs with terms that
are not substantially equal in length. For those programs, Sec. Sec.
682.604(c)(7) and 685.301(b)(5) require an institution to make the
second disbursement of FFEL and Direct Loan funds, respectively, at the
later of (1) the calendar midpoint of the loan period, or (2) the date
the student has completed half of the coursework in the loan period.
For a nonterm credit hour program, under Sec. 668.4(b) payment
periods are considered to be completed when the student has completed
half of the number of credit hours and half of the number of weeks of
instructional time in the academic year or program, as appropriate.
Title IV grant and loan funds are disbursed to students in these
programs by the payment period (i.e., a second disbursement is made
when the first payment period is complete), except for FFEL and Direct
Loan funds. When paying FFEL and Direct Loan funds to a student in a
nonterm credit hour program, an institution may not make a second
disbursement until the later of (1) the calendar midpoint of the loan
period, or (2) the date that the student has completed half of the
academic coursework in the loan period (Sec. Sec. 682.604(c)(7) and
685.301(b)(5)). Section 668.4(b)(3) provides that, if an institution is
unable to determine when a student in a nonterm credit hour program has
completed half of the credit hours in a program, academic year, or
remainder of a program in order to determine when a student begins a
new payment period, the student is considered to begin the second
payment period at the later of the date, as determined by the
institution, when the student has completed half of the academic
coursework in the program, academic year, or remainder of a program, or
the calendar midpoint of the program, academic year, or remainder of a
program.
For a clock hour program, Sec. 668.4(c) defines the payment period
as the point when a student has completed half of the clock hours in
the academic year or program, as appropriate. Again, Title IV grant and
loan funds are disbursed to students in these programs by the payment
period, except for FFEL and Direct Loan funds. When paying FFEL and
Direct Loan funds to a student in a clock hour program, an institution
may not make a second disbursement until the later of (1) the calendar
midpoint of the loan period, or (2) the date that the student has
completed half of the clock hours in the loan period (Sec. Sec.
682.604(c)(8) and 685.301(b)(6)). Section 668.164(b)(3) contains
requirements that address when an institution may count excused
absences as completed clock hours for purposes of determining
completion of a payment period.
Currently, for the remainder of a program equal to or less than
one-half of an academic year for clock hour programs and nonterm credit
hour programs, the remainder of the program is the payment period
(Sec. 668.4(b)(2)(iii) and (c)(2)(iii)).
The regulations contain a few exceptions to these disbursement
regulations. Section 668.4(d) allows an institution to choose to have
more than the defined two payment periods for nonterm credit hour
programs and clock hour programs. In addition, the FFEL and Direct Loan
regulations in Sec. Sec. 682.604(c)(6)(ii) and 685.301(b)(3)(ii)
require that, for a loan period that is one payment period, the loan
funds must be paid in two installments, the second not being delivered
until the calendar midpoint of the loan period, unless the institution
is exempt under the cohort
default rate exception in Sec. 682.604(c)(10) or Sec. 685.301(b)(8).
In addition, FSEOG, Pell Grant, ACG, and National SMART Grant
regulations permit an institution to pay the grant funds for the
payment period in installments to best meet the student's needs
(Sec. Sec. 676.16(a)(3), 690.76, and 691.76).
Proposed Regulations: By making a number of changes to the payment
period definitions and disbursement requirements, these proposed
regulations would, with a few exceptions, align disbursements for all
Title IV grant and loan programs. A chart that illustrates the proposed
disbursement requirements is published as Appendix B to the preamble--
Proposed Disbursement Requirements.
Section 668.164(b) would now specify that an institution must
disburse all Title IV grant and loan funds on a payment period basis,
and would require, generally, that an institution disburse all Title IV
grant and loan funds once each payment period. As a result, FFEL and
Direct Loan funds would now be disbursed using the payment period
definitions in Sec. 668.4 for all types of programs.
To facilitate this change, several changes to the payment period
definitions in Sec. 668.4 would be necessary. First, the proposed
regulations would divide nonstandard term credit hour programs into two
categories. Nonstandard term credit hour programs with terms that are
substantially equal in length would, along with standard term programs,
continue to use the academic term as the payment period for both Title
IV grant and loan funds.
Payment periods for nonstandard term credit hour programs with
terms that are not substantially equal in length would be addressed in
new Sec. 668.4(b). The proposed regulations would specify two sets of
payment periods for these programs: one for Title IV grant and Perkins
Loan funds, and one for FFEL and Direct Loan funds. The payment periods
for Title IV grant and Perkins Loan funds would be the academic term,
as in current regulations. The proposed FFEL/Direct Loan payment
periods are based on the current FFEL/Direct Loan disbursement
requirements found in Sec. Sec. 682.604(c)(7) and 685.301(b)(5).
However, an institution would not be permitted to make a second
disbursement until a student had successfully completed half of the
coursework and half of the weeks of instructional time rather than
making that disbursement at the later of the calendar midpoint, or the
student's completion of half of the coursework. The definition of terms
that are substantially equal in length (if no term in the program is
more than two weeks of instructional time longer than any other term in
the program) would be moved from Sec. Sec. 682.604(c)(7)(ii) and
685.301(b)(5)(ii) to new Sec. 668.4(h)(1).
The second change to Sec. 668.4 would add a time component to the
definition of payment periods for clock hour programs so that, in
addition to requiring a student to complete half of the clock hours,
the proposed regulations would require that a student complete half of
the weeks of instructional time before a second disbursement may be
made. As a result of this change and the change requiring FFEL and
Direct Loan funds to be disbursed on a payment period basis, proposed
Sec. 668.4(c) would require that all Title IV grant and loan funds,
including FFEL and Direct Loan funds, for students in nonterm credit
hour and clock hour programs be disbursed when the student successfully
completes half of the weeks of instructional time and half of the
credit hours/clock hours in the academic year/program. The added time
component (for clock hour programs) would be new for second
disbursements of Title IV grant and Perkins Loan fund disbursements,
and second disbursements of FFEL and Direct Loan funds would no longer
be disbursed at the later of the calendar midpoint of the loan period,
or the student's successful completion of half of the coursework/clock
hours for nonterm credit hour and clock hour programs, respectively.
In addition, the proposed regulations would remove current Sec.
668.4(d) so that an institution would no longer be permitted to choose
to have more than the defined two payment periods for nonterm credit
hour programs and clock hour programs. The proposed regulations would
require that, for example, an institution with a clock hour program of
900 hours, must disburse funds using two 450-hour payment periods, not
three 300-hour payment periods. The requirements that address when an
institution may count excused absences as completed clock hours for
purposes of determining completion of a payment period would be moved
from Sec. 668.164(b)(3) to new Sec. 668.4(e).
Originally, the Department suggested changing the payment period
definition for a remainder of a program equal to or less than one-half
of an academic year for clock hour programs, nonterm credit hour
programs, and nonstandard term credit hour programs with terms that are
not substantially equal in length. Rather than treating the entire
remainder of a program as the payment period, the Department suggested
dividing the remainder into two payment periods to be consistent with
how the HEA requires that FFEL and Direct Loan funds be disbursed. Some
non-Federal negotiators felt that such a change would not be in the
best interest of students who currently benefit from receiving the
entire Title IV grant or Perkins Loan amount for the payment period up
front. Ultimately, the Committee agreed to continue to define the
payment period for a remainder of a program equal to or less than one-
half of an academic year to be the remainder of the program for
nonstandard term credit hour programs with terms that are not
substantially equal in length, nonterm credit hour programs, and clock
hour programs (see proposed Sec. Sec. 668.4(b)(2)(ii) and
668.4(c)(2)(iii)).
Disbursements of FFEL and Direct Loan funds for these payment
periods would still have to be made in two installments. The
regulations in Sec. Sec. 682.604(c)(6)(ii) and 685.301(b)(3)(ii) would
continue to require that, for a loan period that is one payment period,
the loan funds must be paid in two installments, unless the institution
is exempt under the cohort default rate exception in Sec.
682.604(c)(10) or Sec. 685.301(b)(8). However, instead of requiring
that the institution not deliver a second installment until the
calendar midpoint of the loan period, these proposed regulations would
require an institution to wait until the student has successfully
completed half of the number of credit hours or clock hours, as
appropriate, and half of the number of weeks of instructional time in
the payment period.
Section 668.164(b) would include cross-references to this FFEL/
Direct Loan exception to the requirement that an institution disburse
Title IV grant and loan funds once each payment period. In addition,
Sec. 668.164(b) would include cross-references to the other existing
exceptions to these regulations, whereby an institution is permitted to
disburse a student's FSEOG, Pell Grant, ACG, and National SMART Grant
for the payment period in installments to best meet the student's needs
(Sec. Sec. 676.16(a)(3), 690.76, and 691.76).
Changes would be made to the definitions of payment periods for
nonterm credit hour programs, clock hour programs and, with respect to
the FFEL/Direct Loan payment periods definition, for nonstandard term
credit hour programs with terms that are not substantially equal in
length, to require that a student successfully complete half of the
credit hours or clock hours, as appropriate, to progress to the next

[[Page 44624]]

payment period. This same change would also be made to the requirement
that, for a loan period that is one payment period, the loan funds must
be paid in two installments; and the second installment may not be
delivered until the student has successfully completed half of the
number of credit hours or clock hours, as appropriate, and half of the
number of weeks of instructional time in the payment period.
Successfully completes would be defined in Sec. 668.4(h)(2) to
have occurred when the institution considers the student to have passed
the coursework associated with those hours.
Another change to the payment period definitions in Sec. 668.4
would extend to clock hour programs the provision that addresses how to
identify the end of a payment period when an institution is unable to
determine when a student in a nonterm credit hour program has completed
half of the credit hours in a program, academic year, or remainder of a
program. In addition, the measure of time used to make the
determination would be changed from the calendar midpoint to completion
of half of the weeks of instructional time. Thus, under new Sec.
668.4(c)(3), if an institution is unable to determine when a student in
a nonterm credit hour program or a clock hour program has completed
half of the hours in a program, academic year, or remainder of a
program in order to determine when a student begins a new payment
period, the student is considered to begin the second payment period at
the later of (1) the date, as determined by the institution, when the
student has completed half of the academic coursework in the program,
academic year, or remainder of a program, or (2) the date, as
determined by the institution, when the student has completed half of
the number of weeks of instructional time in the program, academic
year, or remainder of the program.
Finally, a new paragraph (d) would be added to Sec. 668.4 to make
clear that, when an institution qualifies for the cohort default rate
exemption in Sec. 682.604(c)(10) or Sec. 685.301(b)(8) for a
nonstandard term credit hour program, a nonterm credit hour program, or
a clock hour program, the payment period for purposes of FFEL or Direct
Loan funds is the loan period for those portions of the program to
which the cohort default rate exemption applies. For example, if the
loan period for a nonterm credit hour program is three months in length
and the institution meets the cohort default rate exemption, that
three-month loan period is the payment period and only one disbursement
of the loan is required for that period.
Reasons: The Department seeks to align disbursements for all Title
IV grant and loan programs to the extent possible. Inconsistent
requirements for disbursing Title IV grant and loan funds for certain
types of programs can result in a student receiving the second or
subsequent disbursements of his or her grant funds or Perkins Loan
funds at a different point in time than second disbursements of his or
her FFEL or Direct Loan funds. Changes to the regulations that would
achieve greater consistency in the timing of the disbursements of Title
IV grant and loan funds are proposed to reduce this burden and
confusion for institutions and students. These proposed changes
include--(1) Modifying Sec. 668.164(b) to specify that an institution
must disburse all Title IV grant and loan funds on a payment period
basis; (2) requiring, generally, that an institution disburse all Title
IV grant and loan funds once each payment period; (3) adding a time
component to the payment period definitions for clock hour programs to
make the disbursements of Title IV grant and Perkins Loan funds conform
with the disbursements of FFEL and Direct Loan funds, which must, by
law, include a time component; (4) using weeks of instructional time as
the time component for determining all Title IV grant and loan
disbursements; (5) removing the institutional option to have more than
two payment periods for nonterm credit hour programs and clock hour
programs; and (6) extending to clock hour programs the provision that
addresses how to identify the end of a payment period when an
institution is unable to determine when a student in a nonterm credit
hour program has completed half of the credit hours in a program,
academic year, or remainder of a program.
Where these proposed regulations would deviate from this alignment,
they would do so for the reasons that follow.
Traditionally, for credit hour term based programs, including
nonstandard term credit hour programs with terms that are not
substantially equal in length, the payment periods have been the terms.
Because, under section 428G(a) of the HEA, disbursements of FFEL funds
(and, by extension, Direct Loan funds) for these programs must be
disbursed in two equal installments for the period of enrollment, Title
IV grant and loan disbursements have not always aligned. To align them
in all cases, Title IV grant and Perkins Loan funds would have to be
disbursed on the same basis as FFEL and Direct Loan funds. However, the
Committee agreed that inconsistency was acceptable in this case because
of the benefit students receive from receiving Title IV grant and
Perkins Loan funds more frequently. For this same reason, the Committee
ultimately decided to define payment periods for the remainder of a
program less than half of an academic year to be the remainder of the
program for nonterm credit hour programs, clock hour programs, and, for
FFEL and Direct Loan funds, nonstandard term credit hour programs with
terms that are not substantially equal in length. Terms that are
substantially equal in length would continue to be defined as they were
in the FFEL and Direct Loan regulations.
To continue to allow an institution some flexibility to meet a
student's individual circumstances, no change would be made to the
FSEOG, Pell Grant, ACG, and National SMART Grant regulations that
permit an institution to pay the grant amount for the payment period at
such times and in such installments in each payment period as the
institution determines will best meet the student's needs. So,
although, an institution with a 900 clock hour program that currently
has three 300 clock hour payment periods would be required to change to
two 450 clock hour payment periods, the institution could choose to pay
FSEOG, Pell Grant, ACG, or National SMART Grant funds in, for example,
two installments each payment period if it determines that apportioning
those funds best meets the student's needs.
New paragraph (d) would be added to Sec. 668.4 to reflect the
statutory provisions that affect disbursements for institutions that
qualify for the cohort default rate exemption in Sec. 682.604(c)(1) or
Sec. 685.301(b)(8) for a nonstandard term credit hour program, a
nonterm credit hour program, or a clock hour program.
The proposed regulations would incorporate the Department's
longstanding policy that a student must successfully complete half of
the clock hours or credit hours, as appropriate, to progress to the
next payment period for clock hour programs, for nonterm credit hour
programs, and, under the FFEL/Direct Loan payment periods definition,
for nonstandard term credit hour programs with terms that are not
substantially equal in length. So that these requirements would be
consistently applied by institutions, some non-Federal negotiators
asked, and the Committee agreed, to add a definition of successfully
completes to the proposed regulations. The proposed regulations base
the definition on when the institution considers the student to

[[Page 44625]]

have passed the coursework associated with those hours, rather than
requiring a passing grade, because not all institutions assign grades
to completed coursework.
Transferring to a New Program at the Same Institution
Statute: The HEA does not specifically address the issue of payment
period requirements for students transferring to a new program at the
same institution.
Current Regulations: The payment period regulations in Sec.
668.4(f) require an institution to calculate new payment periods for
students who re-enter a program after 180 days or transfer to a new
program at a different institution or the same institution at any time.
Proposed Regulations: The payment period requirements for students
who re-enter a program after 180 days or transfer to a new program
would be amended to add in new Sec. 668.4(g)(3) guidance currently
found in the Federal Student Aid (FSA) Handbook available at: http://ifap.ed.gov/IFAPWebApp/currentSFAHandbooksPag.jsp.

The proposed
regulations would permit an institution to consider a student who
transfers into another program at the same institution to remain in the
same payment period if four conditions are met: (1) The student is
continuously enrolled at the institution; (2) the coursework in the
payment period the student is transferring out of is substantially
similar to the coursework the student will be taking upon beginning the
new program; (3) the payment periods are substantially equal in length
in weeks of instructional time and credit hours or clock hours, as
applicable; and (4) there are little or no changes to the charges to
the student for the payment period.
Reasons: The Committee made this change to address situations where
a student's transfer to a new program at the same institution results
in very little change to the student's academic circumstance--for
example, a change that is really nothing more than a change in majors.
The Committee believes that when this occurs it is appropriate to spare
the institution the burden of withdrawing a student, performing a
Return of Title IV Funds calculation to determine how much of the
student's Title IV grant or loan funds he or she has earned,
potentially returning Title IV grant or loan funds, and awarding Title
IV, HEA program funds for the new payment period(s).
Disbursements of FFEL and Direct Loan Funds to Less Than Full-Time
Students
Statute: Section 428G(a) of the HEA requires that the interval
between the first and second installment of FFEL funds (and, by
extension, Direct Loan funds) may not be less than one-half of the
period of enrollment, except in the case of programs offered in
semesters, quarters, or a similar division of the period of enrollment.
Current Regulations: Current disbursement requirements in
Sec. Sec. 682.604(c)(6), (7), and (8) and 685.301(b)(3), (5), and (6)
use calendar time as the time component for determining when second
disbursements of FFEL and Direct Loan funds are made to students in
nonstandard term credit hour programs with terms that are not
substantially equal in length, nonterm credit hour programs, and clock
hour programs. In addition, Sec. Sec. 682.200(b) and 685.102(b)
require that a period of enrollment coincide with a bona fide academic
term for which institutional charges are generally assessed, including
a semester, trimester, quarter, or length of the student's program or
academic year.

As a result of the use of calendar time as the time component,
second disbursements of FFEL and Direct Loan funds for less than full-
time students in nonstandard term credit hour programs with terms that
are not substantially equal in length, nonterm credit hour programs,
and clock hour programs may be made at the midpoint of the period of
enrollment in calendar time, even if the student has not completed half
of the hours in the period of enrollment. That is, a less than full-
time student in one of these programs may receive the annual loan limit
for the period of enrollment regardless of his or her enrollment
status. However, the student is not eligible for another loan until he
or she has completed all the credit hours or clock hours, as
applicable, and the weeks in the period of enrollment.
Proposed Regulations: The proposed use of weeks of instructional
time, rather than calendar time, as the time component for
disbursements of Title IV grant and loan funds (see the discussion of
this change under ``Payment periods and disbursements of Title IV grant
and loan funds''), would affect significantly the timing of second
disbursements to less than full-time students in nonterm credit hour
programs, clock hour programs, and, for the FFEL/Direct Loan payment
periods definition, for nonstandard term credit hour programs with
terms that are not substantially equal in length.
Instead of receiving the second disbursement at the calendar
midpoint of the period of enrollment (the academic year or program, as
applicable), the student would receive the second disbursement after he
or she completes half of the credit hours or clock hours, as
applicable, and half of the weeks of instructional time in the payment
period. An example of the effects of this change is published as
Appendix C to the preamble--Title IV disbursements--Less-than-full-time
enrollment. The example shows that, under current requirements, the
student would receive the second loan disbursement at the calendar
midpoint of the period of enrollment (the academic year). Under the
proposed change, the student would receive the second disbursement
after completion of half of the credit hours and half of the weeks of
instructional time in the academic year. Because the student in the
example is a half-time student, this would not occur until the student
has successfully completed 24 credit hours and 30 weeks of
instructional time.
A conforming change would be made to the definition of period of
enrollment in Sec. Sec. 682.200(b) and 685.102(b) to specify that a
period of enrollment is measured in weeks of instructional time. By
definition an academic year is measured in weeks of instructional time,
so no change would be necessary to that example of a period of
enrollment.

Reasons: Under the current approach, the period of time between a
less than full-time student's first and second disbursement of an FFEL
or Direct Loan would be relatively short compared to the period of time
between the point when the student receives all of his or her first
loan and when the student is eligible for a second loan. The Committee
proposes that the disbursement of FFEL and Direct Loan funds be in line
with our general approach that a student's award is paid in
approximately equal increments over the course of the student's
program--like the disbursement requirements for Perkins Loan and Title
IV grant funds--as we believe it is more fiscally responsible and
equitable between programs.
Return of Title IV Funds Calculated on a Payment Period Basis
Statute: Section 484B of the HEA provides that earned Title IV
grant and loan funds for a student who withdraws from an institution
may be calculated on a payment period or period of enrollment basis.
Current Regulations: Section 668.22(e)(5) provides that, for

[[Page 44626]]

students who withdraw from a nonstandard term credit hour program, nonterm
credit hour, or clock hour program, an institution has the choice of
calculating earned Title IV aid on either a payment period basis, as
that term is defined in Sec. 668.4, or on a period of enrollment
basis. When an institution is not disbursing all types of Title IV, HEA
program assistance for these programs by the same payment period
(either because the regulations prohibit it or because the institution
chooses to disburse this way), and it uses the payment period for a
Return of Title IV Funds calculation, it must attribute any aid that
should be associated with the payment period used, but that is not
disbursed on that payment period, to the payment period used. Section
668.4(d) allows an institution to choose to have more than the defined
two payment periods for nonterm credit hour programs and clock hour
programs.
Proposed Regulations: As noted under ``Payment periods and
disbursements of Title IV grant and loan funds'' these proposed
regulations would remove current Sec. 668.4(d) so that an institution
would no longer be able to choose to have more than the defined two
payment periods for nonterm credit hour programs and clock hour
programs. As a result, payment periods for nonterm credit hour programs
and clock hour programs would always be the same for all Title IV grant
and loan programs.
For nonstandard term credit hour programs with terms that are not
substantially equal in length, the proposed regulations would specify
two sets of payment periods: One for Title IV grant and Perkins Loan
funds, and one for FFEL and Direct Loan funds (again, see the
discussion under ``Payment periods and disbursements of Title IV grant
and loan funds''). As only one payment period may be used for
determining earned Title IV grant and loan funds for a student who
withdraws, the institution would have to choose, or the regulations
could provide, which payment period to use. Changes to Sec.
668.22(e)(5) would require an institution to always use the payment
period during which the student withdrew that ends later, for Return of
Title IV Funds calculations for a credit hour program that is measured
in nonstandard terms that are not substantially equal in length, when
the student receives aid under both payment period definitions. Aid
that is disbursed for the payment periods that overlap the payment
period that ends later would have to be attributed to the payment
period that ends later.
An example of this change is published as Appendix D to the
preamble--Return of Title IV Funds--Payment periods for nonstandard
term credit hour programs with terms not substantially equal in length.
The student in this example withdrew on the 50th day after the start of
classes. The student's FFEL/Direct Loan funds were disbursed for the
first FFEL/Direct Loan payment period--i.e., the first half of the
academic year. The student's Pell Grant funds were disbursed for the
first Pell Grant payment period--i.e., the first term, which is 10
weeks in length. The FFEL/Direct Loan payment period is the payment
period during which the student withdrew that ends later, so that is
the payment period that the institution would be required to use for
the Return of Title IV Funds calculation under these proposed
regulations. The first two Pell Grant payment periods overlap with the
first FFEL/Direct Loan payment period, so aid that was disbursed or
could have been disbursed for those two payment periods would be
attributed to the first FFEL/Direct Loan payment period. All of the
first Pell Grant payment period falls within the first FFEL/Direct Loan
payment period, so all of the Pell Grant funds that were disbursed for
the first payment period would be included in the calculation. The
second Pell Grant payment period of six weeks overlaps with the first
FFEL/Direct Loan payment period for five of those weeks. To determine
the amount of Pell Grant funds that could have been disbursed that are
attributable to the five weeks, the institution would take the full
amount of Pell Grant funds that could have been disbursed for the
second Pell Grant payment period, and multiply it by five-sixths.
If a student who withdraws from a nonstandard term credit hour
program with terms that are not substantially equal in length is
disbursed aid or could have been disbursed aid using only one of the
two payment period definitions, that is the payment period that would
be used for the calculation of earned aid, and no attribution of funds
would be necessary.
Reasons: To simplify the Return of Title IV Funds calculation and
ease administrative burden, we believe that institutions should use
consistent FFEL/Direct Loan and Title IV grant/Perkins Loan payment
periods to the extent permitted under the law and regulations. Removing
the provision that allows an institution to choose to have more than
the defined two payment periods for nonterm credit hour programs and
clock hour programs would result in the use of the same payment period
definition for Title IV grant and Perkins Loan funds and FFEL/Direct
Loan funds for nonterm credit hour programs and clock hour programs.
Because the payment periods would coincide for nonterm credit hour
programs and clock hour programs, the calculation of a Return of Title
IV Funds would be less burdensome as an institution would not have to
attribute any Title IV, HEA program funds.
In the one case where an institution would not be allowed to use
consistent disbursement periods, i.e., for a credit hour program that
is measured in nonstandard terms that are not substantially equal in
length (see the discussion under ``Payment periods and disbursements of
Title IV grant and loan funds''), the Department originally suggested
that Sec. 668.22 be changed to require an institution to select and
consistently use either the Title IV grants/Perkins loan payment period
or the FFEL/Direct Loan payment period for the Return of Title IV Funds
calculations and attribute to that payment period the aid that was
disbursed or could have been disbursed for the overlapping payment
periods. However, under this proposal, if the payment period that ended
sooner is used and funds for the overlapping payment period that ended
later had already been disbursed, an institution would have to return
immediately the amount of Title IV funds attributed to a period beyond
the payment period being used. Using the example in Appendix D to the
preamble--Return of Title IV Funds--Payment periods for nonstandard
term credit hour programs with terms not substantially equal in length,
if the institution chose to use the Pell Grant payment period during
which the student withdrew for the Return of Title IV Funds
calculation, the funds from the FFEL/Direct Loan payment period, which
ends five weeks after the Pell Grant payment period, would have to be
attributed. To determine the amount of FFEL/Direct Loan funds
attributable to the Pell Grant payment period, the institution would
multiply the full amount of the FFEL/Direct Loan disbursement by ten-
fifteenths (two-thirds). The remaining amount of the disbursed FFEL/
Direct Loan would be attributed to the second Pell Grant payment
period. Because the second Pell Grant payment period is after the
period used in the Return of Title IV Funds calculation, all funds
attributed to that period would have to be returned.
Such a result would raise issues such as how soon the institution
would have to return those funds, would the institution be required to
return any amount disbursed directly to the

[[Page 44627]]

student, or would the institution be required to help collect those
funds from the student. As a result, the Department subsequently
suggested requiring an institution to always use the payment period
that ends later for Return of Title IV Funds calculations for a credit
hour program that is measured in nonstandard terms that are not
substantially equal in length. This was considered a simpler approach
that would still treat students in an equitable manner. The Committee
agreed with this approach.

Defining Independent Study for Direct Assessment Programs (Sec. 668.10)

Statute: The HEA does not include a definition of independent study.

Current Regulations: The current regulations mention independent
study, but the term is not defined.
Proposed Regulations: The proposed regulations would define
independent study as a course of study with predefined objectives where
a student works with a faculty member to decide how those objectives
will be met. In this context, the student and faculty member must agree
on what the student will do, how the student's work will be evaluated,
and the relative timeframe for completing the required work. In
addition, the course of study would need to include regular and
substantive interaction between the student and faculty member to
assure that the student is progressing within the course or program.
This definition would apply only to direct assessment programs.
Reasons: Under Sec. 668.10(a)(3)(iii) the term independent study
is specifically identified as an educational activity in a direct
assessment program, but that term is not currently defined in the
regulations. The proposed regulations address this omission.
The Department initially proposed a definition of independent study
that would apply not only to direct assessment programs but to other
courses and programs offered by institutions under other pedagogical
methods. Several non-Federal negotiators were concerned about the last
sentence in the proposed definition that would require ``a student to
interact with a faculty member on a regular and substantive basis to
assure progress with the course or program.'' The negotiators opined
that it should be the sole responsibility of an institution to
establish the level and frequency of the interaction between a student
and a faculty member, and not left to the Department or another
compliance entity to determine later that the interaction was
inadequate. The Committee agreed to narrow the scope of the definition
so that it would apply only to direct assessment programs.
The phrase ``regular and substantive interaction,'' which is also
used in the definition of telecommunications course in Sec. 600.2, is
not meant to dictate a particular teaching method. Rather, it is meant
to establish a general requirement that interaction about academic
issues between students and faculty members take place at regular
intervals.

Treatment of Title IV Grant and Loan Funds if a Recipient Does Not
Begin Attendance (Sec. Sec. 668.21, 682.604, and 685.303)

Statute: The HEA does not specifically address the issue of the
treatment of Title IV grant and loan funds if a recipient does not
begin attendance at an institution.
Current regulations: Section 668.21 prescribes the general
regulations for the treatment of funds disbursed to a student who
leaves the institution before beginning class. These regulations apply
to all the Title IV program funds except for FFEL, Direct Loan, and FWS
funds. Under these requirements, an institution must return any Perkins
Loan, FSEOG, Pell Grant, ACG, and National SMART Grant funds that were
disbursed to a student before the student begins attendance, even if
those funds were disbursed directly to the student. There is no
existing timeframe for returning these Title IV funds. A student is
considered not to have begun attendance if the institution is unable to
document the student's attendance at any class.
The treatment of FFEL and Direct Loan funds when a student leaves
the institution before beginning class is addressed in Sec. Sec.
682.604(d)(3) and (4) and 685.303(b)(3), respectively. An institution
must return any loan proceeds credited to the student's account, as
well as the amount paid to the institution by or on behalf of the
student, not to exceed the total amount of loan funds disbursed. If any
FFEL funds have been disbursed to the institution but have not been
delivered to the student, the institution must return those funds in
accordance with the Title IV cash management requirements in Sec.
668.167.
Proposed regulations: Section 668.21 would be changed to
consolidate all the requirements addressing the treatment of Title IV
funds (except FWS) when a student does not begin attendance in a
payment period or period of enrollment by moving the requirements for
FFEL and Direct Loan funds from Sec. Sec. 682.604 and 685.303,
respectively, to Sec. 668.21. As under current regulations, an
institution would be required to return any Perkins Loan, FSEOG, Pell
Grant, ACG, and National SMART Grant funds that are disbursed to a
student for a payment period or period of enrollment before the student
begins attendance, even if those funds were disbursed directly to the
student.
The regulations for FFEL and Direct Loan funds would mirror
existing requirements whereby, in addition to being required to return
the amount of FFEL and Direct Loan funds credited to the student's
account, an institution would be responsible for returning the amount
paid to the institution by or on behalf of the student, not to exceed
the total amount of loan funds disbursed. Also in accordance with
current requirements, an institution would not be responsible for
returning any FFEL and Direct Loan funds that are disbursed directly to
a student before the student begins attendance, other than as noted
above. The proposed regulations would specify that an institution must
notify the lender or Secretary, as appropriate, of amounts disbursed
directly to the student that are outstanding, so that the lender or
Secretary can issue a 30-day demand letter to the student as required
under current regulations. Institutions would not be responsible for
returning loan funds that are disbursed directly to the student by the
lender for a student in a study-abroad program or for a student
attending a foreign school.
A new requirement would be added to require an institution to
return FFEL or Direct Loan funds that it disbursed directly to a
student if the institution knew that the student would not begin
attendance prior to disbursing the funds directly to the student. This
would apply, for example, if a student notified the institution that he
or she would not be attending or if the institution expelled the
student prior to directly disbursing the funds.
The proposed regulations would require an institution to return
those funds as soon as possible, but no later than 30 days after the
date that the institution becomes aware that the student will not
attend or has not begun attendance. The proposed regulations would
specify when a return is considered to have been made in a timely
manner. Specifically, the regulations would provide that an institution
returns funds when it-- (1) Deposits or transfers the funds into the
bank account it maintains for Federal funds; (2) initiates an
electronic funds transfer (EFT) to transfer the funds; (3) initiates an
electronic transaction that instructs an FFEL lender to adjust a
borrower's loan for the amount of the ``returned funds;'' or (4) issues
a check.

[[Page 44628]]

However, if a check is used to return funds, the proposed regulations
would also require that (1) the institution's records show that the
check was issued no more than 30 days after the date it became aware
that the student will not attend or has not begun attendance; or (2)
the check must be received by an FFEL lender or the Secretary no later
than 45 days after the institution became aware that the student will
not attend or has not begun attendance.
The regulations would make clear that, as with the current
requirements in Sec. 668.21, these provisions apply if an institution
is unable to document the student's attendance at any class. Finally,
Sec. 682.604 has been changed to clarify how to handle FFEL funds that
an institution has delivered, versus those that were disbursed to the
institution, but were not delivered by the institution.
Reasons: The current FFEL and Direct Loan regulations for the
treatment of Title IV funds when a student does not begin attendance
are complex and contain numerous cross references, making them hard to
follow. By consolidating the FFEL and Direct Loan regulations with
those of the other Title IV programs in this area, as well as rewriting
the FFEL and Direct Loan regulations, we hope to achieve greater
consistency and clarity.
The Department originally suggested changing the FFEL and Direct
Loan requirements to mirror those applicable to Title IV grant and
Perkins Loan funds. That is, an institution would be responsible for
returning any FFEL and Direct Loan funds that were disbursed to a
student before the student began attendance, even if the institution
had disbursed the funds directly to the student. Some non-Federal
negotiators felt, and the Department agreed, that such a change would
cause institutions to reduce their potential liability by refusing to
disburse FFEL and Direct Loan funds prior to the start of classes,
thereby denying funds needed by students to begin classes. As a result,
the Committee agreed to language that would reflect the current
regulations for the treatment of FFEL and Direct Loan funds when a
student does not begin attendance, with one addition. The Committee
agreed that an institution should be liable for any FFEL and Direct
Loan funds that the institution disbursed to a student if the
institution knew that the student would not be beginning attendance
because the institution should have known not to make the disbursement.
The establishment of a 30-day timeframe for the return of funds for
which an institution is responsible would ensure that institutions
return Title IV funds in a timely manner. Some negotiators felt that
the timeframe should be consistent with the 45-day timeframe for the
return of funds by an institution in accordance with the ``Return of
Title IV Funds'' requirement in Sec. 668.22, which prescribes the
requirements for returning Title IV grant and loan funds when a student
withdraws during a payment period or period of enrollment. The
Department stated that it does not believe the additional 15 days is
necessary because, unlike the Return of Title IV Funds requirements, no
calculation is required to determine the amount of funds an institution
must return.
The timely return requirements are the same as those currently
found in Sec. 668.173 and were added to provide consistency with the
requirements applicable to returns made in accordance with the Return
of Title IV Funds requirements in Sec. 668.22 for students who
withdraw during a payment period or period of enrollment.

Post-Withdrawal Disbursements of Grant Funds Directly to a Student (Sec. 668.22)

Statute: Section 484B(a)(4) of the HEA requires an institution to
contact a borrower before making a post-withdrawal disbursement of
Title IV loan funds to a student who has withdrawn, including post-
withdrawal disbursements that would be disbursed directly to the
student. No such statutory requirement exists for Title IV grant funds.
Current regulations: Under Sec. 668.22(a)(5), prior to making any
disbursement of Title IV loan funds, an institution is required to
notify and obtain the withdrawn student's (or parent's, for a parent
PLUS loan) permission to make that disbursement regardless of whether
the funds are credited to the student's account or disbursed directly
to the student or parent, for a parent PLUS loan. For Title IV grant
funds that make up a post-withdrawal disbursement, Sec. 668.22(a)(5)
requires an institution to notify and obtain the student's permission
prior to making any disbursement directly to the student. An
institution is not required to obtain the student's permission prior to
crediting Title IV grant funds to the student's account.
In accordance with Sec. 668.22(a)(5)(iii)(C), if an institution
receives confirmation from the student, or parent for a PLUS loan, that
he or she wants the Title IV loan funds credited to the student's
account or paid directly to the student or parent, the institution must
make the post-withdrawal disbursement within 120 days of the date that
it determined that the student withdrew.
Proposed regulations: Under proposed Sec. 668.22, an institution
would no longer be required to notify and obtain the student's
permission prior to making a direct disbursement of any Title IV grant
funds that make up a post-withdrawal disbursement. An institution would
be required to make a direct disbursement of Title IV grant funds that
make up a post-withdrawal disbursement as soon as possible, but no
later than 30 days after the date of the institution's determination
that the student withdrew (as defined in current Sec. 668.22(l)(3)).
A corresponding change would make clear that, after receiving
confirmation from a student, or parent in the case of a PLUS loan, that
he or she wants a post-withdrawal disbursement of Title IV loan funds
credited to his or her account, or disbursed directly, an institution
must make the post-withdrawal disbursement as soon as possible, but no
later than 120 days after the date of the institution's determination
that the student withdrew (as defined in current Sec. 668.22(l)(3)).
Reasons: Non-Federal negotiators felt, and we agreed, that
permission was not necessary to disburse Title IV grant funds directly
to a student as potentially harmful consequences to the student do not
exist, as may be the case when a student who withdraws incurs a loan
debt. We believe that 30 days from the date that the institution
determines that a student withdrew is an appropriate amount of time for
an institution to make a direct disbursement of a post-withdrawal
disbursement of grant funds. Although an institution has 45 days to
return any unearned Title IV funds for which it is responsible when a
student withdraws, the administrative functions that institutions have
indicated they must perform with such a return do not apply to the
direct disbursement of funds to a student. Therefore, the timeframe for
making a direct disbursement need not be as long.
Although the non-Federal negotiators agreed that it is implied that
required institutional actions must be done as soon as possible, the
Committee agreed that it was beneficial to specify this in the
regulations. Prompt action is more likely to ensure that contact will
be made with a student who is no longer in attendance at the institution.

Cash Management--Recovery of Unclaimed Title IV Funds (Sec. 668.161)

Statute: Under section 487(a) of the HEA, when an institution enters into a
program participation agreement with the Secretary the institution
agrees, in part, to use the funds it receives under any Title IV, HEA
program (and any interest or other earnings on those funds) solely for
the purpose of that program.
Current Regulations: An institution's fiduciary responsibilities
for using funds it receives under the Title IV, HEA programs are
currently described in Sec. Sec. 668.14(b)(1) and 668.161(b). The
regulations provide that Title IV, HEA program funds are held in trust
for the intended student beneficiary, the Secretary, FFEL lender, or
guaranty agency and cannot be used for any other purpose.
Proposed Regulations: The proposed regulations would incorporate in
Sec. 668.164 timeframes for returning Title IV, HEA program funds that
an institution attempts to disburse directly to a student or parent,
but the student or parent does not receive or negotiate those funds.
If an institution issues a check but the check is not cashed or is
returned as undeliverable to the institution, the proposed regulations
would require the institution to send the funds back to the Secretary
or FFEL lender no later than 240 days after the date the check was
issued.
In cases where an institution attempts to disburse the funds by
issuing a check or initiating an EFT to the student's or parent's bank
account, and the check or EFT is returned as undeliverable, the
proposal would allow the institution to make subsequent attempts to
disburse the funds as long as those attempts are made within 45 days of
the date the check or EFT were returned. If the institution makes a
subsequent attempt by issuing a check, and that check is not cashed or
is returned as undeliverable, the institution would be required to send
the funds back to the Department or lender no later than 240 days after
the date it initially attempted to disburse the funds.
In addition, the proposed regulations would make clear that Title
IV, HEA program funds never escheat to a State, regardless of any State
law.

Reasons: These proposed regulations would establish for the first
time in regulations timeframes for returning unclaimed or undeliverable
funds for two reasons. First, as a program integrity matter the
Department believes that Title IV, HEA program funds should not remain
outstanding for long periods, which increases the risk the funds will
be used for other purposes or that the funds would escheat to the
State. Second, the Department believes it increases the likelihood that
a student will receive the benefit of the funds in a more timely
manner; either a concerted effort is made by an institution to disburse
the funds (particularly for funds that are returned undeliverable) or
the funds are returned more quickly to a lender or the Department to
reduce the student's loan balance.
Originally the Department proposed a 180-day timeframe for
returning funds. The non-Federal negotiators noted that this timeframe
would be difficult to meet since many checks are valid for 180 days.
Instead, they suggested timeframes ranging from 210 days to one year or
more (the 210-day timeframe would accommodate a typical 180-day check
and allow for one monthly bank reconciliation to see if the check was
still outstanding). The Department agreed that more time was needed and
subsequently proposed a maximum 240-day timeframe. The Committee agreed
to this timeframe.

With regard to a check or EFT that is returned as undeliverable,
the Department originally proposed that an institution could make one
more attempt. This proposal was later modified to allow as many
attempts as an institution wanted to make as long as it made those
attempts promptly (within 45 days after the date the check or EFT is
returned).

Cash Management--Minor Prior-Year Charges (Sec. 668.164)

Statute: Under Part E--Need Analysis of the HEA (particularly
sections 471 through 473), a student's need for most Title IV, HEA
program funds is determined by subtracting the expected family
contribution (EFC) and other estimated financial assistance from the
student's cost of attendance. The cost of attendance is based on
current year educational expenses. The EFC is the amount that can
reasonably be contributed toward meeting the student's educational
expenses for the academic year for which a need determination is made.
Current Regulations: Under Sec. 668.164(d)(2), an institution may
use a student's current year Title IV, HEA program funds to pay for
minor prior-award year charges if the charges are less than $100, or
the charges are $100 or more and the payment of those charges does not
prevent the student from paying his or her current educational costs.
In either case, the institution must first obtain the student's
permission.

Proposed Regulations: The proposal would amend the regulations in
three ways. First, the amount of prior-year charges that could be paid
with current year funds would increase to not more than $200. Second,
an institution would not have to obtain the student's permission to pay
for prior-year charges for tuition and fees, or room or board. Finally,
the provision allowing an institution to pay for prior-year charges of
$100 or more (now more than $200) would be removed.
Reasons: The non-Federal negotiators recommended revising these
regulations. They argued that the $100 prior-year threshold,
established approximately 10 years ago, should be increased to account
for inflation. In addition, they questioned the need to obtain a
student's permission to pay for prior-year tuition and fees, or room or
board charges since the regulations allow an institution to pay these
charges for the current year without getting the student's permission.
The Department agreed. However, the Department proposed to limit the
payment of prior-year charges to truly minor charges (i.e., those of
not more than $200) to avoid potential conflicts with the statutory
intent that current year awards are used for current year educational
expenses. The Committee agreed to this $200 limitation.

Cash Management--Electronic Disbursements of Title IV Funds (Sec. Sec.
668.164(c) and 668.165(b)(i))

Statute: The HEA does not address the issue of electronic
disbursement of Title IV funds.
Current Regulations: The current regulations in Sec. 668.164(c)
provide that an institution issues a check on the date it releases or
mails the check to a student, or on the date it notifies a student that
the check is available for immediate pickup. The regulations also allow
an institution to make a direct payment to a student by initiating an
EFT to the student's bank account or by paying the student in cash. If
an institution wishes to make an EFT, it must obtain the student's
authorization under Sec. 668.165(b)(1)(i).
Proposed Regulations: The proposed regulations would modify the
provisions for issuing a check and add new provisions expanding the use
of EFTs to bank accounts that underlie stored-value cards and other
transaction devices. In addition, Sec. 668.165(b) would be amended to
remove the requirement that an institution obtain a student's
authorization to make an EFT payment and add a provision allowing an
institution to issue a stored-value card or similar device.
The proposed regulations would require an institution to identify
in its notice to a student the specific location at the institution
where the student can

[[Page 44630]]

pick up his or her check. A student would have 21 days to pick up the
check, after which the institution would have to mail the check to the
student, initiate an EFT to the student's bank account, or return the
funds to the appropriate Title IV, HEA program account.
With regard to bank accounts, an institution may not require or
rely on a student to open an account. In cases where the institution
opens a bank account on behalf of a student, establishes a process the
student follows to open a bank account, or similarly assists the
student in opening the account, the institution would need to satisfy
the following provisions:
1. It must obtain written consent from the student to open the bank
account.
2. It must inform the student of the terms and conditions of
accepting and using the account.
3. It must not make any claims against the funds in the account
unless it obtains the student's permission or the institution is
correcting an error in transferring funds in accordance with banking
protocols.
4. It must ensure that the student does not incur any costs in
opening the account or initially receiving any type of automated teller
machine (ATM) card, stored-value card, or other similar device that is
used to access funds in the account.
5. It must ensure that the student has convenient access to a
branch office of the bank or ATMs of the bank in which the account was
opened (or ATMs of another bank) so that the student does not incur any
cost in making cash withdrawals.
6. It must ensure that the debit card, stored-value card, ATM card,
or other device can be widely used (the institution may not limit the
use of the card or device to particular vendors).
7. It must not market or portray the account, card, or device as a
credit card or subsequently convert it to a credit card.
As used in the context of these proposed regulations, ``bank
account'' means a Federal Deposit Insurance Corporation (FDIC) insured
account such as a checking or savings account, or a similar account
that underlies a stored-value card or other transaction device.
Also, the proposed regulations would amend the provision under
which an institution (with the student's permission) holds credit
balance funds for a student by providing that the institution may issue
a stored-value card or other similar device that enables the student to
access those funds.
Reasons: The Department proposes the changes to issuing a check in
response to situations where an institution notifies a student that a
check is available for immediate pickup, but there is no check.
Instead, the student is directed to take other actions to get his or
her credit balance, and in some cases does not receive the credit
balance until those actions are completed. We wish to make clear that
under the current or proposed regulations, a student is not required to
take any actions to obtain his her credit balance. It is the sole
responsibility of the institution to pay, or make available, any Title
IV credit balance within the 14-day regulatory timeframes.
To address this situation, the Department initially proposed to the
non-Federal negotiators that a check is issued on the date it is
mailed, or handed over, to the student. The non-Federal negotiators
argued that this approach was too limiting and would unnecessarily
force institutions to mail checks to students who intended to pick up
their checks or to students who did not update their mailing address. A
compromise was reached under which the check pickup provision would be
maintained, but if the student did not pick up the check within 21 days
the institution would have to immediately disburse the credit balance
funds some other way or return the funds.
With regard to expanding the use of EFTs for making direct payments
to students, the proposal generally mirrors the guidance published in
the Department's Dear Colleague Letter GEN-05-16 of October 17, 2005,
questions and answers 18 through 21, by identifying certain provisions
that an institution must satisfy when it makes an EFT to a student's
bank account. The Dear Colleague Letter is available at http://ifap.ed.gov/dpcletters/GEN0516.html.
However, under the proposal these
provisions would apply only to an institution that is purposefully and
actively involved in opening bank accounts for or on behalf of
students, or facilitating the opening of such bank accounts, including
accounts underlying transaction devices. An institution that merely
recommends a bank where a student might open an account, or simply
invites banks to its campus to present their services to students and
where students can open bank accounts, would not be subject to these
provisions.

Finally, in response to questions from the non-Federal negotiators
relating to school-issued smart cards, or similar transaction devices,
the proposal would allow the use of such cards where an institution
already has the student's permission to hold Title IV credit balance
funds on his or her behalf.

Cash Management--Late Disbursements (Sec. 668.164(g))

Statute: The HEA does not specifically address the issue of late
disbursements.
Current Regulations: Section 668.164(g) allows a student who is no
longer eligible to receive Title IV, HEA program funds to qualify for
those funds if certain conditions are satisfied. If a student
qualifies, an institution has 120 days from the date the student
becomes ineligible to disburse the funds to the student. In cases where
the institution does not disburse the funds within the 120-day period,
and the reason the funds were not disbursed was not the student's
fault, the institution may request approval from the Secretary to
disburse the funds.

Proposed Regulations: The proposed regulations would extend from
120 to 180 days the period within which an institution would be allowed
to make a late disbursement, but would eliminate an institution's
ability to request funds after that period expires.
Reasons: We believe the current provision allowing an institution
to request a late disbursement after 120 days is not always in keeping
with the institution's fiduciary responsibilities to (1) promptly
identify students who should have but did not receive their funds
either while they were eligible or within four months after they ceased
to be eligible, and (2) make disbursements to students in a timely
manner. However, we recognize that in some cases, despite the best
efforts of an institution, more time may be needed to resolve a
complicated situation before a disbursement can be made.
The Department initially proposed to maintain the current 120-day
late disbursement period but eliminate any subsequent requests. Some
non-Federal negotiators argued that the post 120-day late disbursement
provision benefited students who did everything they were asked to do
and should be maintained in its current form or as part of some type of
appeal procedure. Other non-Federal negotiators believed that the 120-
day period afforded institutions adequate time to make late
disbursements. If the disbursements were not made, the negotiators
stated that the institution should assume responsibility and use its
own funds to make the disbursements. In the end, an agreement was
reached providing 180 days to make a late disbursement.

[[Page 44631]]

Loan Cancellation Notice and Affirmative Confirmation of a Loan (Sec. 668.165(a))

Statute: Section 432(m)(1)(D)(i) of the HEA provides that a master
promissory note (MPN) must allow eligible borrowers to receive initial
and subsequent loans through a student confirmation process approved by
the Secretary.
Current Regulations: Section 682.401(d)(4)(vi) requires an
institution and a lender to develop and document a confirmation process
in accordance with guidelines established by the Secretary for loans
made under the multi-year feature of an MPN. The guidelines allow an
institution to use either an active or passive confirmation process.
In addition, the regulations in Sec. 668.165(a)(2) provide that an
institution must notify a student whenever it credits a student's
account with funds from a Title IV, HEA program loan. The institution
must send the notice no earlier than 30 days before, and no later than
30 days after, it credits the student's account. A student then has 14
days to inform the institution if he or she wishes to cancel all or a
portion of the loan or loan disbursement. If the institution receives a
cancellation request within this 14-day period, it must comply with the
student's request and cancel the loan, return the loan proceeds, or do
both.

Proposed Regulations: These proposed regulations would condition
the loan cancellation provisions in Sec. 668.165 on whether an
institution obtains affirmative (active) confirmation from a student
that he or she wants a loan.
If the institution obtains affirmative confirmation, then it would
continue to comply with the current loan cancellation provisions.
If the institution does not obtain affirmative confirmation, it
would be required to notify the student no earlier than 30 days before,
but no later than seven days after, it credits the student's account
with loan funds. Moreover, the institution would be required to give
the student 30 days (instead of the current 14 days) to cancel all or a
portion of the loan or loan disbursement.
The proposed regulations would define affirmative confirmation as a
process under which an institution obtains written confirmation of the
types and amounts of Title IV, HEA program loans that a student wants
for an award year before the institution credits the student's account
with those loan funds. Also, the proposed regulations would clarify
that, if an institution received a loan cancellation request, it would
not have to return loan proceeds that the institution disbursed
directly to a student or parent.
Reasons: Under the current loan certification or origination
processes, other than for the initial loan under an MPN, a student can
continue to receive subsequent loans without doing anything. We believe
that the process for obtaining a loan should, as an added consumer
protection, provide the student with more control over the types and
amounts of loans he or she wants.
For this reason, we initially proposed that as part of the process
for notifying a student of the amounts and types of loans he or she was
eligible to receive for an award year, or through another process, the
institution would obtain affirmative confirmation from the student for
those loans. Some of the non-Federal negotiators noted that there are
already several disclosures made to students regarding their loans and
opined that affirmative confirmation was either not needed or that any
marginal benefit would be outweighed by the cost and complexity of
implementing it. Other non-Federal negotiators stated that their
institutions currently use an affirmative confirmation process.
In lieu of affirmative confirmation we then proposed to modify the
loan cancellation provisions by (1) requiring an institution to notify
a student no later than the date that loan funds were credited to his
or her account (instead of up to 30 days after that), and (2) giving
the student more time (30 days instead of 14) to cancel all or a
portion of the loan. Some of the non-Federal negotiators countered by
suggesting that the Department give institutions a choice between doing
affirmative confirmation or complying with the expanded loan
cancellation regulations. We agreed to provide this choice.

Cash Management--Excess Cash (Sec. 668.166)

Statute: The HEA does not specifically address the issue of excess cash.

Current Regulations: Under Sec. 668.166, excess cash is defined as
any amount of Title IV, HEA program funds (except for Perkins Loan
funds) an institution receives from the Secretary that is not disbursed
to students or parents by the end of the third business day following
the date the institution received those funds.
An institution is allowed to maintain excess cash for seven days
under two tolerance options. Under the first option, the institution
may maintain excess cash for an amount up to one percent of the total
amount of funds it drew down in the previous year. Under the second
option, the institution may maintain excess cash for an amount up to
three percent of its prior-year drawdowns, if the funds are drawn down
during a period of peak enrollment.
In instances where the Secretary finds that an institution
maintains excess cash for an amount or time period greater than that
allowed under the tolerance options, the regulations prescribe the
method used to calculate a liability for maintaining those funds and
provide that the Secretary may initiate a proceeding to fine, limit,
suspend, or terminate the institution's participation in the Title IV,
HEA programs.
Proposed Regulations: The proposed regulations would expand the
definition of excess cash to include Title IV, HEA program funds
received from the Secretary that are deposited or transferred into the
institution's Federal bank account as a result of an award
cancellation, adjustment, or recovery.
Also, the proposed regulations would eliminate the three percent
excess cash tolerance option and simplify the provisions addressing the
consequences for maintaining excess cash.
Reasons: The proposed regulations clarify that any Title IV, HEA
program funds that an institution has and does not use to make
disbursements to students within three business days are considered
excess cash.

We initially proposed to eliminate both tolerance options in view
of the progress the Department and institutions have made over the last
10 years in moving more and more to a student-level reporting and
authorization process, and the timeliness and predictability of
transferring funds electronically. Some of the non-Federal negotiators
objected, arguing that some tolerance is still needed. We agreed to
keep the one percent tolerance option.
With regard to the consequences for maintaining excess cash, we
believe the current regulations are unnecessarily complex in specifying
the method used to calculate an interest liability. In addition, the
provision alerting institutions that the Secretary may initiate an
adverse action for maintaining excess cash is redundant, since the
Secretary may take an adverse action for any finding, depending on the
gravity and materiality of the violation. Instead, and perhaps more
likely, we note that the Secretary may place an institution on cash
monitoring or reimbursement.

[[Page 44632]]

Single Disbursement for Perkins and FSEOG Awards (Sec. Sec. 674.16 and 676.16)

Statute: The HEA does not specifically address single disbursements
for Perkins and FSEOG awards.
Current Regulations: Under Sec. Sec. 674.16(g) and 676.16(e), an
institution may make a single disbursement of a Perkins Loan or FSEOG
award if the total amount of that award for an academic year is less than $501.

Proposed Regulations: We propose to eliminate these single disbursement provisions.

Reasons: These regulations are no longer needed--they were
published in 1978 in response to administrative burdens and costs
associated with paying students small amounts each payment period by
check and maintaining manual accounting records.

Minimum Period for Certifying a Loan (Sec. Sec. 682.603 and 685.301)

Statute: The HEA does not specifically address the issue of the
minimum period for certifying a loan.
Current Regulations: The current regulations indicate the minimum
period of enrollment for which a school may certify (for an FFEL loan)
or originate (for a Direct Loan Program loan) a loan. The minimum
period is based on whether the program (1) measures academic progress
in credit hours and uses a semester, trimester, or quarter credit hour
system, or (2) measures progress in credit hours but does not use a
semester, trimester, or quarter credit hour system or measures progress
in clock hours. For the first category, the school may certify or
originate a loan for a single term. For the second category, the school
may certify or originate a loan for the lesser of the length of the
program or the academic year.
Proposed Regulations: The proposed regulations make several
changes. First, with respect to allowing a school to make a loan for a
single term, the proposals in Sec. Sec. 682.603(f)(1)(i) and
685.301(a)(9)(i) treat terms that are substantially equal in length
with no term less than nine weeks in length in the same way that
semesters, trimesters, or quarters are treated. Terms are considered
substantially equal in length if no term is more than two weeks longer
than any other term. Second, with respect to programs that measure
progress in credit hours but do not use a semester, trimester, or
quarter system and do not have terms that are substantially equal in
length with no term less than nine weeks in length, or measure progress
in clock hours, the proposal clarifies that the school may certify a
loan for the remaining portion of the program. Third, the proposal
indicates that, under certain specified conditions, a school may
certify or originate a loan for the remaining portion of the program or
academic year for a transfer student. This would be allowed at a school
that measures academic progress in credit hours but does not have terms
that are substantially equal in length with no term less than nine
weeks in length, or at a school that measures progress in clock hours,
where there would be overlapping loan periods for the student at the
two schools involved. The loan at the new school could not exceed the
remaining balance of the student's annual loan limit, taking into
consideration the amount of loan proceeds that the student had received
at the prior school. Fourth, the proposal indicates that, under certain
specified conditions, a school may certify or originate a loan for the
remaining portion of the academic year for a student who completes a
degree program at a school and then immediately begins a new degree
program at the same school. This would be allowed at a school that
measures academic progress in credit hours but does not use a semester,
trimester, or quarter system and does not have terms that are
substantially equal in length with no term less than nine weeks in
length, where the loan to complete the student's first degree program
had been for less than an academic year. The second loan may not exceed
the remaining balance of the student's annual loan limit at the loan
level associated with the new program. For example, if a student in his
or her third year at such a school received $1,500 for less than an
academic year to complete his or her associate's degree program, and
then immediately enrolled in a bachelor's degree program at the same
school, the school could certify or originate a loan for $4,000 for the
remainder of the academic year ($5,500 - $1,500 = $4,000). Once that
period of time (the remainder of the academic year) is completed, the
school could certify or originate a new loan for the next full academic
year.
Reasons: The Department proposed in Sec. Sec. 682.603(f)(1)(i) and
685.301(a)(9)(i) to treat terms that are substantially equal in length
with no term less than nine weeks in length in the same way as
semesters, trimesters, or quarters for purposes of allowing schools to
make a full loan for a single term. A quarter often is as short as 10
weeks long in a three-quarter, 30-week academic year. If a school were
to have three substantially equal terms (i.e., no term more than two
weeks longer than any other term) in a 30-week academic year, it would
have to have three terms of nine weeks, 10 weeks, and 11 weeks. Such
terms would be substantially similar to quarters. Therefore, the
Department believes that the school should be allowed to make a full
loan for such a single term in the same way that it can for a single
quarter. However, several negotiators, while agreeing that there should
be a minimum number of weeks associated with this concept, suggested
that the minimum should be eight weeks for programs that had four
eight-week terms in a 32-week academic year. After some discussion, the
Committee agreed to the original Departmental proposal to consider nine
weeks to be the minimum length for such a term to be a period for which
a full loan could be made.
Another topic addressed by the Committee was the minimum period of
time for which a loan may be certified or originated for transfer
students. Currently transfer students in a program that measures
academic progress in credit hours but does not use a semester,
trimester, or quarter system or measures progress in clock hours are
allowed to borrow only the remaining balance of their loan amounts when
they have already had a loan for an academic year (or a program of less
than an academic year) made to them at a previous school where the loan
period at the previous school overlaps the loan period at the school
the students transfer into. Since the minimum period of time for which
a school can certify a loan is the lesser of the program (or remaining
portion of the program) or the academic year, transfer students with
one academic year or more remaining in their program often are eligible
to borrow only a small amount of money (the remaining balance) for a
period of time associated with the first full academic year (usually 30
weeks) remaining in their program.
One non-Federal negotiator believed that this was unfair, and
suggested that transfer students in these types of programs should be
allowed to obtain loans for the remaining portion of the program or
academic year, instead of for the whole program or academic year when
the prior school certified or originated a loan for a period of
enrollment that overlaps the period of enrollment at the new school.
That negotiator and other non-Federal negotiators argued that this
should be the case because the new school is only certifying or
originating a loan for the remaining balance of the students' annual
loan amount, not for the entire

[[Page 44633]]

annual loan limit. After discussion of this topic, the Committee agreed
with this position.
Another non-Federal negotiator pointed out that often when students
complete a degree program at a school that measures academic progress
in credit hours but does not use a semester, trimester, or quarter
system, and then immediately start another degree program, they are
allowed to borrow only the remaining balance of their annual loan
amount for the first academic year of their second degree program. This
occurs when the last loan made to complete the first degree program had
been for less than an academic year. Since the minimum period of time
for which a school can certify a loan is the lesser of the program (or
remaining portion of the program) or the academic year, students
finishing one degree program and starting a second degree program in
the situation noted above are eligible to borrow only a small amount of
money (the remaining balance) for a period of time associated with the
first full academic year (usually 30 weeks) of their second degree
program.
Therefore, the Committee agreed that, for these students in these
types of programs, where the school certified or originated a loan for
less than an academic year for the completion of one degree program, it
should be allowed to certify or originate a loan for the beginning of
the second degree program for the remaining portion of the academic
year, instead of for the whole academic year.

Annual Loan Limit Progression (Sec. Sec. 682.603 and 685.301)

Statute: A student must complete an academic year to progress to
the next FFEL or Direct Loan annual loan limit. Section 428(b)(1)(A) of
the HEA authorizes insurance on a subsidized Stafford loan for any
academic year. Unsubsidized Stafford loans, at the increased loan
limits for such loans, are subject to the academic year limits in
section 428(b)(1) of the HEA. Section 481(a)(2) of the HEA requires an
academic year to be (1) a 26-week minimum period of instructional time
for clock hour programs and a 30-week minimum period of instructional
time for credit hour programs, unless the Secretary authorizes a
reduced period of not less than 26 weeks as specified in regulations;
and (2) for an undergraduate program, at least 24 semester or trimester
credit hours, 36 quarter credit hours, or 900 clock hours.
Current regulations: None.
Proposed regulations: Under current policy, for a standard term
based program, a student progresses to the next annual loan limit if he
or she completes an academic year in calendar time. So, once the
calendar time period associated with all of the terms in the academic
year has elapsed, a student gains eligibility for a new annual loan
limit. For nonstandard term credit hour, nonterm credit hour, and clock
hour programs, a student does not progress to the next loan limit until
he or she completes an academic year in both time and hours. The
proposed regulations would incorporate this policy with one change. As
in a standard term based program, a student would progress to the next
loan limit if he or she completes an academic year in calendar time in
a nonstandard term credit hour program if the terms in that program are
substantially equal in length and are at least nine weeks in length.
Reasons: The Department seeks to incorporate in regulations current
policy regarding progression to the next annual loan limit to provide
for greater clarity of the requirements. The change to apply the policy
applicable to standard term credit hour programs to nonstandard term
credit hour programs if the terms in those programs are substantially
equal in length and are at least nine weeks in length would provide
consistency with final regulations published in the Federal Register on
November 1, 2000 (65 FR 65616), whereby the Department applied the
disbursement requirements for standard term-based programs to credit
hour programs measured in nonstandard terms that are substantially
equal in length. The Committee agreed that the inclusion of these
changes was desirable.

Calculation of a Pell Grant (Sec. Sec. 690.63 and 690.66)

Statute: Section 401(e) of the HEA indicates that the Secretary
will promulgate regulations to ensure that an eligible student is paid
a Pell Grant for each academic year in the amount for which that
student is eligible.
Current Regulations: The current regulations provide institutions
with a number of formulas for calculating a Pell Grant on a payment
period basis depending on the academic calendar of the program that is
being taken. Section 690.63(a)(1) indicates which formulas can be used
for programs using standard terms with at least 30 weeks of
instructional time, and provides the specific criteria that must be
used to determine whether a program falls under that category. The
section limits programs in that category to traditional semester,
trimester, or quarter credit hour programs. Section 690.63(b), (c), and
(d) provides the formulas that are used for programs that use credit
hours and academic terms. Section 690.63(e) provides the formula for
programs using clock hours or credit hours without terms. And Sec.
690.66 provides formulas for correspondence study programs.
Proposed Regulations: The proposed regulations make several
changes. First, the proposed regulations in Sec. 690.63(a)(1) place
semester, trimester, and quarter programs that have terms for different
cohorts of students that start periodically (e.g., each month) in the
same category as the traditional semester, trimester, or quarter
programs and, thus, allow institutions with those types of programs to
use the same formulas for those programs as are used for the
traditional term programs. Second, the proposed regulations in Sec.
690.63(e) would modify the calculation for programs using clock hours
or credit hours without terms. The resulting calculation would
determine the percentage of the academic year that would be used to
determine the award amount for the payment period, considering both the
hours and the weeks of instructional time in the payment period. The
calculations would call for the student's scheduled award (the amount a
full-time student would get for a full academic year) to be multiplied
by the lesser of two fractions that represent (1) the credit or clock
hours in the payment period divided by the credit or clock hours in the
academic year, and (2) the weeks of instructional time in the payment
period divided by the weeks of instructional time in the academic year.
Third, the proposed regulations in Sec. 690.66(a) make a similar
modification to the calculation for correspondence study programs
without terms.
Reasons: The formula most often used for traditional semester,
trimester, or quarter credit hour programs is specified in current
Sec. 690.63(b). These programs also have the option of using the
formula specified in current Sec. 690.63(d). Under the formula in
Sec. 690.63(b), a student's Pell Grant is calculated for a payment
period (a term). The formula provides for a determination of the
student's enrollment status for the term and use of the Payment
Schedule or Disbursement Schedule associated with that enrollment
status to determine the annual amount that the student would get at
that enrollment status. The annual amount is then divided by the number
of terms associated with the program's academic year. For example, for
a full-time student in the fall semester in a traditional semester
program, the

[[Page 44634]]

formula calls for the Scheduled Award (the amount a full-time student
would get for a full academic year) to be divided by two (the number of
semesters associated with the academic year for that program). Or, for
a half-time student in the fall quarter in a traditional quarter
program, the formula calls for the annual amount from the half-time
Disbursement Schedule to be divided by three (the number of quarters
associated with the academic year for that program). Traditional term-
based programs are allowed to use this formula if they meet the
criteria in current Sec. 690.63(a)(1).
Under the proposed change to Sec. 690.63(a)(1), traditional
programs would continue to be allowed to use this formula. However,
several non-Federal negotiators suggested that, because certain other
programs (i.e., those that start their semesters, trimesters, or
quarters on a periodic (e.g., monthly) basis for different cohorts of
students) are substantially similar in nature to traditional semester,
trimester, or quarter programs, they also should be allowed to use this
formula. These negotiators suggested that this issue be added to the
negotiated rulemaking agenda, and the Committee agreed to do so. After
discussion of this issue, the Committee members agreed that, if these
programs meet the criteria applicable to them in proposed Sec.
690.63(a)(1), they should be allowed to use the same formulas that
traditional semester, trimester, or quarter programs are allowed to
use.
The formula used for programs using credit hours without terms or
clock hours is specified in current Sec. 690.63(e). It is used for
such programs regardless of the program length and it generally works
well when applied to programs that are an academic year or more in
length; however, a non-Federal negotiator pointed out that, for certain
short programs (less than an academic year in length), application of
the formula results in the student qualifying for less of an award than
might be deemed appropriate based on the length of the program. For
example, a student with a Scheduled Pell Grant Award of $4050,
generally receives $4050 for a program that is one academic year in
length (e.g., a program of 900 clock hours scheduled to be taken over a
30-week period). Such a student might expect to receive two-thirds of
that Scheduled Award ($2700) for a shorter program that is two-thirds
as long, e.g., a program of 600 clock hours scheduled to be taken over
a 20-week period. However, currently such a student would receive only
four-ninths of the Scheduled Award ($1800) instead of two-thirds of the
Scheduled Award ($2700) for such a program. Therefore, the non-Federal
negotiator suggested that this issue be added to the agenda, and the
Committee agreed to do so.
During negotiations, it was noted that the above result occurs
because of the way the current formula addresses the fact that an
academic year is measured in both (credit or clock) hours and weeks of
instructional time. Consider, for example, the 600-hour, 20-week
program mentioned above. Even though the program is less than an
academic year long, it must have a defined academic year, and we will
assume here that its defined academic year is 900 clock hours and 30
weeks of instructional time. Because the definition of academic year
includes hours and weeks, the Pell Grant formula calls for a reduction
based on both factors when the program is less than an academic year in
both hours and weeks. In this example, the first part of the
calculation reduces the full Scheduled Award of $4050 to two-thirds of
that amount ($2700) to address the fact that the program consists of
only 20 weeks; and then it reduces that figure ($2700) by another two-
thirds to account for the fact that the program is only 600 hours. Note
that the calculations are actually performed on a payment period basis
and, while the numbers here show the result for the whole program, the
program would actually be divided into two payment periods, and two
separate calculations--each for one-third of the program--would
actually be done.
In response, the Department proposed an alternative calculation.
This alternative continues to address the fact that an academic year is
defined by both (credit or clock) hours and weeks of instructional
time. However, the proposed calculation multiplies the student's
Scheduled Award by only one of the two fractions that address
reductions in program length and hours (the lesser of the two where the
fractions are not the same), instead of multiplying the Scheduled Award
by the two fractions sequentially. Note that while one of the two
fractions used in the proposed regulations is slightly different than
one of the two fractions in the current regulations, the two fractions
in both the proposed and the current regulations basically attempt to
account for (1) the weeks of instructional time for which the student
is being paid compared to the weeks of instructional time in the
academic year, and (2) the credit or clock hours for which the student
is being paid compared to the credit or clock hours in the academic
year. The first fraction in the current regulations was primarily
designed to address course compression--that is, for example, to the
extent that a one academic year program (in terms of credit or clock
hours) was scheduled to be completed in fewer weeks of instructional
time than was a similar program taken over the full 30 weeks in the
defined academic year, the student's award was going to be reduced.
However, to the extent that there would be a full complement of credit
or clock hours in the program compared to the credit or clock hours in
the academic year, the second fraction would not result in a further
reduction. While this formula generally worked as intended for longer
programs that were compressed, it ended up penalizing students in
shorter programs that had not been compressed, because there would
still be two reductions for those students instead of one. The first
one occurred because there were fewer weeks of instructional time (even
though the course had not been compressed) in the program compared to
the weeks of instructional time in a full academic year, and the second
one occurred because there were fewer credit or clock hours in the
program compared to the credit or clock hours in a full academic year.
Using the lesser of the two fractions (where they are not the same)
to determine the amount for which the student qualifies results in the
student's award being reduced by the greater amount when there could be
a reduction in the award to account for (1) the program having fewer
hours, and (2) the program having fewer weeks of instructional time. By
using the lesser of the two fractions, the proposed regulations would
continue to address both of these measures. However, because a student
enrolling in a shorter program will attend school for fewer weeks
compared to the time the student would have attended for enrollment in
a longer program (other factors such as enrollment status being equal),
having sequential reductions for both of those measures reduces the
student's award twice for what is really only one reason, i.e., the
program is just a shorter program. Therefore, to ensure that a
student's award is not subject to such a double reduction, only the
greater of the two possible reductions comes into play when those
reductions would not be the same. The Committee agreed with this
alternative approach proposed by the Department.
Because the formula used for correspondence study programs without
terms is similar to the formula used for programs using clock hours or
credit hours without terms, the Department also proposed in Sec.
690.66(a) to make a

[[Page 44635]]

similar modification to the calculation for correspondence study
programs without terms. Part of that modification would remove the
requirement that the institution prepare a written schedule for
submission of lessons that reflects a workload of at least 12 hours of
preparation per week to determine the length of the correspondence
program, as that information is no longer needed in the new
calculation. The Committee agreed to this proposal.
The Committee agreed that if the proposed changes related to
calculating payments for a payment period were adopted for the Pell
Grant Program, comparable changes should be adopted for the ACG and
National SMART Grant programs. Therefore, proposed changes in Sec.
691.63 that track the proposed changes in Sec. 690.63 are also being
published in this NPRM.
The following appendices will not appear in the Code of Federal
Regulations:
BILLING CODE 4000-01-P

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BILLING CODE 4000-01-C

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Executive Order 12866

1. Regulatory Impact Analysis

Under Executive Order 12866, the Secretary must determine whether
the regulatory action is ``significant'' and therefore subject to the
requirements of the Executive Order and subject to review by the Office
of Management and Budget (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.
Pursuant to the terms of the Executive Order, we determined that
this proposed regulatory action will not have an annual effect on the
economy of more than $100 million. Therefore, this action is not
``economically significant'' and subject to OMB review under section
3(f)(1) of Executive Order 12866. In accordance with the Executive
order, the Secretary has assessed the potential costs and benefits of
this regulatory action and has determined that the benefits justify the
costs.
Need for Federal Regulatory Action
These proposed regulations address a broad range of issues
affecting students, borrowers, schools, lenders, guaranty agencies,
secondary market participants, and third-party servicers participating
in the Pell Grant, FSEOG, FWS, ACG, National SMART Grant, FFEL, Direct
Loan, or Perkins Loan programs. Prior to the start of negotiated
rulemaking, a list of proposed regulatory changes was developed from
advice and recommendations by interested parties and organizations
submitted through testimony at public hearings and written comments
submitted directly to the Department of Education in Washington, DC.
Staff within the Office of Postsecondary Education also identified
issues for discussion and negotiation.
Regulatory Alternatives Considered
A broad range of alternatives to the proposed regulations was
considered as part of the negotiated rulemaking process. These
alternatives are reviewed in detail under the Reasons sections
accompanying the discussion of each proposed provision. In assessing
the budgetary impact of these alternatives, the Department considered
the effect of possible changes on the size or timing of Federal student
aid disbursements. In all cases, the alternatives considered-which
generally dealt with the consolidation or clarification of existing
definitions, procedures, or processes to simplify program
administration-did not have a measurable effect on Federal costs.
Benefits
Many of the proposed regulations merely consolidate current
regulations, codify the Department's guidance, or make relatively minor
changes intended to establish consistent definitions or streamline
program operations across the various Federal student aid programs; in
the absence of data to the contrary, the Department believes the
additional clarity and enhanced efficiency resulting from these changes
represent benefits with little or no countervailing costs or additional
burden. This belief is strongly supported by the fact that the
Committee reached consensus on the proposed regulations. Nonetheless,
the Department is interested in comments on possible administrative
burdens related to the proposed regulations.
Benefits provided in these regulations include the clarification or
consolidation of regulations or definitions involving enrollment
statuses, independent study for direct assessment programs, cash
management rules, disbursement and payment periods, return of Title IV
aid, and the calculation of Pell Grant awards.
Costs
Because entities affected by these regulations already participate
in the Title IV, HEA programs, these lenders, guaranty agencies, and
schools must already have established systems and procedures in place
to meet program eligibility requirements. All the proposed regulations
involve discrete changes in specific parameters associated with
existing guidance and regulations rather than entirely new
requirements. Accordingly, entities wishing to continue to participate
in the Federal student aid programs have already absorbed most of the
administrative costs related to implementing these proposed
regulations. Marginal costs over this baseline are primarily related to
one-time system changes that, while possibly significant in some cases,
are an unavoidable cost of continued program participation. The
Department is particularly interested in comments on possible
administrative burdens related to these system or process changes.
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 1 below, we
have prepared an accounting statement showing the classification of the
expenditures associated with the provisions of these proposed
regulations. This table provides our best estimate of the changes in
Federal student aid payments as a result of these proposed regulations.

(SEE PDF FOR Table 1.--Accounting Statement: Classification of Estimated Savings)

2. Clarity of the Regulations

Executive Order 12866 and the Presidential memorandum on ``Plain
Language in Government Writing'' require each agency to write
regulations that are easy to understand.
The Secretary invites comments on how to make these proposed
regulations easier to understand, including answers to questions such
as the following:
Are the requirements in the proposed regulations clearly
stated?
Do the proposed regulations contain technical terms or
other wording that interferes with their clarity?
Does the format of the proposed regulations (grouping and
order of sections, use of headings, paragraphing, etc.) aid or reduce
their clarity?
Would the proposed regulations be easier to understand if
we divided them into more (but shorter) sections? (A ``section'' is
preceded by the symbol ``Sec. '' and a numbered heading; for example,
Sec. 682.209 Repayment of a loan.)
Could the description of the proposed regulations in the

[[Page 44641]]

``Supplementary Information'' section of this preamble be more helpful
in making the proposed regulations easier to understand? If so, how?
What else could we do to make the proposed regulations
easier to understand?
To send any comments that concern how the Department could make
these proposed regulations easier to understand, see the instructions
in the ADDRESSES section of this preamble.

Regulatory Flexibility Act Certification

The Secretary certifies that these proposed regulations would not
have a significant economic impact on a substantial number of small
entities. These proposed regulations would affect institutions of
higher education, lenders, and guaranty agencies that participate in
Title IV, HEA programs, individual students, and loan borrowers. The
U.S. Small Business Administration (SBA) Size Standards define these
institutions as ``small entities'' if they are for-profit or nonprofit
institutions with total annual revenue below $5,000,000 or if they are
institutions controlled by governmental entities with populations below
50,000. Guaranty agencies are State and private nonprofit entities that
act as agents of the Federal government, and as such are not considered
``small entities'' under the Regulatory Flexibility Act. Individuals
are also not defined as ``small entities'' under the Regulatory
Flexibility Act.
A significant percentage of the schools and lenders participating
in the Federal student loan programs meet the definition of ``small
entities.'' While these schools and lenders fall within the SBA size
guidelines, the proposed regulations would not impose significant new
costs on these entities.
The Secretary invites comments from small institutions and lenders
participating in the Federal student loan programs as to whether they
believe the proposed changes would have a significant economic impact
on them and, if so, requests evidence to support that belief.

Paperwork Reduction Act of 1995

Sections 668.4, 668.10, 668.21, 668.22, 668.164, 668.165, 674.16,
676.16, 682.200, 682.603, 682.604, 685.301, and 685.303, contain
information collection requirements. Under the Paperwork Reduction Act
of 1995 (44 U.S.C. 3507(d)), the Department has submitted a copy of
these sections to OMB for its review.
Collection of Information: Student Assistance General Provisions;
Perkins Loan Program; FSEOG Program; FFEL Program; and the Direct Loan
Program.

Sections 668.4, 668.22, 668.164, 682.200, 682.604, 685.301--Payment
Periods and Disbursements of Title IV Grant and Loan Funds

By making a number of changes to the payment period definitions and
disbursement requirements, these proposed regulations would, with few
exceptions, align disbursements for all Title IV grant and loan
programs.
Inconsistent requirements for disbursing Title IV grant and loan
funds for certain types of programs can result in a student receiving
second or subsequent disbursements of his or her grant funds or Perkins
Loan funds at a different point in time than second disbursements of
his or her FFEL or Direct Loan funds. Changes to the regulations that
would achieve greater consistency in the timing of the disbursements of
Title IV grant and loan funds are proposed to reduce this burden and
confusion for institutions and students.
These proposed changes include--(1) Specifying that an institution
must disburse all Title IV grant and loan funds on a payment period
basis; (2) requiring, generally, that an institution disburse all Title
IV grant and loan funds once each payment period; (3) adding a time
component to the payment period definitions for clock hour programs to
make the disbursements of Title IV grant and Perkins Loan funds conform
with the disbursements of FFEL and Direct Loan funds, which must, by
law, include a time component; (4) using weeks of instructional time as
the time component for determining all Title IV grant and loan
disbursements; (5) removing the institutional option to have more than
two payment periods for nonterm credit hour programs and clock hour
programs; and (6) extending to clock hour programs the provision that
addresses how to identify the end of a payment period when an
institution is unable to determine whether a student in a nonterm
credit hour program has completed half of the credit hours in a
program, academic year, or remainder of a program.
We estimate that the proposed changes will decrease burden for
individuals and schools. We estimate that the proposed changes will
decrease burden for individuals and institutions by 3,599 hours and
14,397 hours, respectively. Thus, we estimate that these proposed
regulations will reduce burden by 17,996 hours in OMB Control Number
1845-0022.

Section 668.10--Defining Independent Study for Direct Assessment
Programs

These proposed regulations would add a definition of independent
study for direct assessment programs. The new definition would identify
the conditions that must exist for a student in a direct assessment
program who is taking all or a portion of that program through
independent study to be eligible for Title IV, HEA program assistance.
For example, students who are engaged in independent study would be
expected to have regular and substantive interaction with their
professor to assure progress within the course or program.
In the short-term, we expect no additional burden to be associated
with direct assessment programs. We are currently aware of only one
institution that utilizes such programs. Therefore, this section is not
subject to the Paperwork Reduction Act of 1995.

Sections 668.21, 682.604, and 685.303--Treatment of Title IV Grant and
Loan Funds if a Recipient Does Not Begin Attendance

The proposed regulations would consolidate requirements for
returning any Perkins Loan, FSEOG, Pell Grant, ACG, National SMART
Grant, and FFEL and Direct Loan funds under Sec. 668.21, and eliminate
these requirements from Sec. Sec. 682.604(d)(3) and (4) and
685.303(b)(3). The proposed regulations would hold the institution
responsible for returning FFEL and Direct Loan funds disbursed or paid
directly to the student, if the institution knew the student would not
attend before the funds were disbursed and establishes a timeframe
within which the FFEL and Direct Loan funds must be returned. Finally,
the proposed regulations clarify the meaning of ``delivered'' vs.
``disbursed'' FFEL and Direct Loan funds.
The proposed changes do not increase burden for institutions,
lenders, or guaranty agencies.

Section 668.22--Post-Withdrawal Disbursements of Grant Funds Directly
to a Student

The proposed regulations would eliminate the current requirement
that an institution notify a student who has withdrawn from school and
obtain the student's permission before making a post-withdrawal
disbursement of Title IV grant funds directly to the student. In
addition, the proposed regulations would require the institution to
make a post-withdrawal disbursement of such grant funds to the student
within 30 days of the date the institution

[[Page 44642]]

determines that the student withdrew. The proposed changes to the
requirements for direct disbursement of post-withdrawal grant proceeds
would reduce burden to the institutions by eliminating a notification
and confirmation process. The reduction in burden will be reflected in
OMB 1845-0022.
For loan funds instead of grant funds, a change is proposed for
making a post-withdrawal disbursement of Title IV loan proceeds which,
although retaining the borrower notice and confirmation process in the
current regulations, requires the disbursement ``as soon as possible,''
but no later than 120 days after determination of the student's
withdrawal. Adding the language ``as soon as possible'' to the current
120-day limit for disbursement of post-withdrawal Title IV loan
proceeds will have no affect on paperwork burden.
We estimate that the proposed changes will decrease burden for
individuals and institutions by 201 hours and 302 hours, respectively.
Thus, we estimate that this proposed regulation will reduce burden by
503 hours as reflected in OMB Control Number 1845-0022.

Sections 668.164(c) and 668.165(b)(1)(i)--Electronic Disbursements of
Title IV Funds

The proposed regulations would modify current authorization and
notification requirements related to making direct payments to a
student. The proposed regulations would allow an institution to pay a
student directly through expanded electronic funds transfer methods
such as debit cards, stored-value cards, ATM cards or other transaction
devices. We estimate that the proposed changes will decrease the burden
for institutions through the ability to use expanded electronic
processes for making direct payments.
We estimate that the proposed changes will decrease burden for
institutions by 254,475 hours as reflected in OMB Control Number 1845-
0038.

Section 668.165(a)--Loan Cancellation Notice and Affirmative
Confirmation of a Loan

The proposed regulations would provide institutions the choice
between active and passive confirmation of a loan. In addition, the
proposed regulations would codify existing practice that an institution
is not responsible for returning loans that it disbursed directly to a
student. If an institution chooses active confirmation, the process is
unchanged from current requirements. If an institution chooses passive
confirmation of a loan, the proposed regulations change the timeframes
for notice to the student, but do not substantially change the content
of such notice. Therefore, we estimate that there will be no change in
the burden.

Sections 682.603 and 685.301--Minimum Period for Certifying a Loan

The proposed regulations would clarify existing requirements for
certifying FFEL and Direct Loans in certain situations. We believe
there will be no overall change in the burden.

Sections 682.603 and 685.301--Annual Loan Limit Progression

The proposed regulations would incorporate into Sec. Sec. 682.603
and 685.301 the Department's longstanding policy that provides that (1)
for standard term, credit hour programs, a student regains eligibility
for a new annual loan limit after the calendar period associated with
the academic year has elapsed, and (2) for nonstandard term credit
hour, nonterm credit hour, and all clock hour programs, a student
regains eligibility for a new annual loan limit only after completing
both the credit or clock hours and the weeks of instructional time in
the academic year.
In addition, the proposed regulations would apply the policy for
standard term, credit hour programs to nonstandard term credit hour
programs with terms that are substantially equal in length and that are
at least nine weeks in length regains. That is, a student enrolled in a
nonstandard term, credit hour program with terms that are substantially
equal in length and that are at least nine weeks in length would regain
eligibility for a new annual loan limit when the calendar time
associated with the academic year has elapsed. This proposed change
would be consistent with final regulations published in the Federal
Register on November 1, 2000 (65 FR 65616), which applied the same
disbursement requirements to credit hour programs with standard terms
and credit hour programs with nonstandard terms that are substantially
equal in length. The proposed changes for Sec. Sec. 682.603 and
685.301 have no effect on the burden for institutions, as they simply
incorporate existing policy into the regulations. This existing burden
has been approved by OMB under OMB 1845-0020.

Section 674.16 and 676.16--Single Disbursement for Perkins Loan and
FSEOG Awards

The proposed regulations eliminate an exception in the regulations
that allows an institution to make a single disbursement of a Perkins
Loan or FSEOG award if the total amount of that loan or award for an
academic year is less than $501. Eliminating the exception merely
harmonizes the disbursement requirements for these programs and has no
impact on burden.
Consistent with the discussion above, the following chart describes
the sections of the proposed regulations involving information
collections, the information being collected, and the collections the
Department will submit to the Office of Management and Budget for
approval and public comment under the Paperwork Reduction Act.

------------------------------------------------------------------------
Regulatory section Information collection Collection
------------------------------------------------------------------------
Sec. 668.4, 668.22, 668.164, This proposed OMB 1845-0022
682.200, 682.604, 685.301. regulation will, with few exceptions, align
disbursements for all Title IV grant and loan programs.

Sec. 668.22................. This proposed OMB 1845-0022
regulation will eliminate the current requirement that an
institution notify a student who has withdrawn from school,
and receive confirmation from the student, before making a post-
withdrawal disbursement of Title IV grant funds directly to the student.

Sec. 668.164 and This proposed OMB 1845-0038 688.165. regulation provides
authority for an institution to pay Title IV credit balances through
electronic funds transfer, debit card, stored-value card, ATM card or other
device.
------------------------------------------------------------------------

If you want to comment on the proposed information collection
requirements, please send your comments to the Office of Information
and Regulatory Affairs, OMB, Attention: Desk Officer for U.S.
Department of
Education. Send these comments by e-mail to OIRA_DOCKET@omb.eop.gov or
by fax to (202) 395-6974. Commenters need only submit comments via one
submission medium. You may also send a copy of these comments to the
Department contact named in the ADDRESSES section of this preamble. We
consider your comments on these proposed collections of information
in--
Deciding whether the proposed collections are necessary
for the proper performance of our functions, including whether the
information will have practical use;
Evaluating the accuracy of our estimate of the burden of
the proposed collections, including the validity of our methodology and
assumptions;
Enhancing the quality, usefulness, and clarity of the
information we collect; and
Minimizing the burden on those who must respond. This
includes exploring the use of appropriate automated, electronic,
mechanical, or other technological collection techniques or other forms
of information technology; e.g., permitting electronic submission of
responses.
OMB is required to make a decision concerning the collections of
information contained in these proposed regulations between 30 and 60
days after publication of this document in the Federal Register.
Therefore, to ensure that OMB gives your comments full consideration,
it is important that OMB receives the comments within 30 days of
publication. This does not affect the deadline for your comments to us
on the proposed regulations.

Intergovernmental Review

These programs are not subject to Executive Order 12372 and the
regulations in 34 CFR part 79.

Assessment of Educational Impact

The Secretary particularly requests comments on whether these
proposed regulations would require transmission of information that any
other agency or authority of the United States gathers or makes
available.

Electronic Access to This Document

You may view this document, as well as all other Department of
Education documents published in the Federal Register, in text or Adobe
Portable Document Format (PDF) on the Internet at the following site:
http://www.ed.gov/news/fedregister.

To use PDF you must have Adobe Acrobat Reader, which is available
free at this site. If you have questions about using PDF, call the U.S.
Government Printing Office (GPO), toll free, at 1-888-293-6498; or in
the Washington, DC, area at (202) 512-1530.

Note: The official version of this document is the document
published in the Federal Register. Free Internet access to the
official edition of the Federal Register and the Code of Federal
Regulations is available on GPO Access at: http://www.gpoaccess.gov/nara/index.html.


(Catalog of Federal Domestic Assistance Numbers: 84.007 Federal
Supplemental Educational Opportunity Grant Program; 84.032 Federal
Family Education Loan Program; 84.037 Federal Perkins Loan Program;
84.063 Federal Pell Grant Program; 84.268 William D. Ford Federal
Direct Loan Program; 84.375 Academic Competitiveness Grants; and
84.376 SMART Grants)

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 Parts 674 and 676

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.

34 CFR Parts 690 and 691

Colleges and universities, Elementary and secondary education,
Grant programs--education, Student aid.

Dated: August 2, 2007.
Margaret Spellings,
Secretary of Education.
For the reasons discussed in the preamble, the Secretary proposes
to amend parts 668, 674, 676, 682, 685, 690, and 691 of title 34 of the
Code of Federal Regulations as follows:

PART 668--STUDENT ASSISTANCE GENERAL PROVISIONS

1. The authority citation for part 668 continues to read as follows:

Authority: 20 U.S.C. 1001, 1002, 1003, 1085, 1088, 1091, 1092,
1094, 1099c, and 1099c-1, unless otherwise noted.

2. Section 668.2(b) is amended by adding, in alphabetical order,
the definitions First professional degree, Graduate or professional
student, Half-time student, Three-quarter time student, and
Undergraduate student, and revising the definition of Full-time student
to read as follows:


Sec. 668.2 General definitions.

* * * * *
(b) * * *
First professional degree: A degree that signifies both completion
of the academic requirements for beginning practice in a given
profession and a level of professional skill beyond that normally
required for a bachelor's degree. Professional licensure is also
generally required. Examples of a first professional degree include but
are not limited to Pharmacy (Pharm.D.), Dentistry (D.D.S. or D.M.D.),
Veterinary Medicine (D.V.M.), Chiropractic (D.C. or D.C.M.), Law
(L.L.B. or J.D.), Medicine (M.D.), Optometry (O.D.), Osteopathic
Medicine (D.O.), Podiatry (D.P.M., D.P., or Pod.D.), and Theology
(M.Div., or M.H.L.).

(Authority: 20 U.S.C. 1082 and 1088)

Full-time student: An enrolled student who is carrying a full-time
academic workload as determined by the institution under a standard
applicable to all students enrolled in a particular educational
program. The student's workload may include any combination of courses,
work, research, or special studies that the institution considers
sufficient to classify the student as a full-time student. However, for
an undergraduate student, an institution's minimum standard must equal
or exceed one of the following minimum requirements:
(1) For a program that measures progress in credit hours and uses
standard terms (semesters, trimesters, or quarters), 12 semester hours
or 12 quarter hours per academic term.
(2) For a program that measures progress in credit hours and does
not use terms, 24 semester hours or 36 quarter hours over the weeks of
instructional time in the academic year, or the prorated equivalent if
the program is less than one academic year.
(3) For a program that measures progress in credit hours and uses
nonstandard terms (terms other than semesters, trimesters or quarters)
the number of credits determined by--
(i) Dividing the number of weeks of instructional time in the term
by the number of weeks of instructional time in the program's academic
year; and
(ii) Multiplying the fraction determined under paragraph (b)(3)(i) of

[[Page 44644]]

this definition by the number of credit hours in the program's academic year.
(4) For a program that measures progress in clock hours, 24 clock
hours per week.
(5) A series of courses or seminars that equals 12 semester hours
or 12 quarter hours in a maximum of 18 weeks.
(6) The work portion of a cooperative education program in which
the amount of work performed is equivalent to the academic workload of
a full-time student.
(7) For correspondence coursework, a full-time courseload must be--
(i) Commensurate with the full-time definitions listed in
paragraphs (1) through (6) of this definition; and
(ii) At least one-half of the coursework must be made up of non-
correspondence coursework that meets one-half of the institution's
requirement for full-time students.

(Authority: 20 U.S.C. 1082 and 1088)

Graduate or professional student: A student who--
(1) Is not receiving title IV aid as an undergraduate student for
the same period of enrollment;
(2) Is enrolled in a program or course above the baccalaureate
level at an institution of higher education, or is enrolled in a
program leading to a first professional degree; and
(3) Has completed the equivalent of at least three academic years
of full-time study at an institution of higher education, either prior
to entrance into the program or as part of the program itself.

(Authority: 20 U.S.C. 1082 and 1088)

Half-time student: (1) Except as provided in paragraph (2) of this
definition, an enrolled student who is carrying a half-time academic
work load, as determined by the institution, that amounts to at least
half of the work load of the applicable minimum requirement outlined in
the definition of a full-time student.
(2) A student enrolled solely in a program of study by
correspondence who is carrying a work load of at least 12 hours of work
per week, or is earning at least six credit hours per semester,
trimester, or quarter. However, regardless of the work, no student
enrolled solely in correspondence study is considered more than a half-
time student.

(Authority: 20 U.S.C. 1082 and 1088)

* * * * *
Three-quarter time student: An enrolled student who is carrying a
three-quarter-time academic work load, as determined by the
institution, that amounts to at least three quarters of the work of the
applicable minimum requirement outlined in the definition of a full-
time student.

(Authority: 20 U.S.C. 1082 and 1088)

* * * * *
Undergraduate student: (1) A student who is enrolled in an
undergraduate course of study that usually does not exceed four
academic years, or is enrolled in a longer program designed to lead to
a first degree at the baccalaureate level. For purposes of 34 CFR
690.6(c)(5) students who have completed a baccalaureate program of
study and who are subsequently completing a State-required teacher
certification program are treated as undergraduates.
(2) In addition to meeting the definition in paragraph (1) of this
definition, a student is only considered an undergraduate for purposes
of the Federal Supplemental Educational Opportunity Grant (FSEOG)
Program, the Federal Pell Grant Program, the Academic Competitiveness
Grant (ACG) Program, and National Science and Mathematics Access to
Retain Talent (SMART) Grant Program if the student has not yet earned a
baccalaureate or first professional degree. However, for purposes of 34
CFR 690.6(c)(5) students who have completed a baccalaureate program of
study and who are subsequently completing a State-required teacher
certification program are treated as undergraduates.
(3) For purposes of dual degree programs that allow individuals to
complete a bachelor's degree and either a graduate or first
professional degree within the same program, a student is considered an
undergraduate student for at least the first three academic years of
that program.

(Authority: 20 U.S.C. 1082 and 1088)

* * * * *
3. Section 668.4 is revised to read as follows:


Sec. 668.4 Payment period.

(a) Payment periods for an eligible program that measures progress
in credit hours and uses standard terms or nonstandard terms that are
substantially equal in length. For a student enrolled in an eligible
program that measures progress in credit hours and uses standard terms
(semesters, trimesters, or quarters), or for a student enrolled in an
eligible program that measures progress in credit hours and uses
nonstandard terms that are substantially equal in length, the payment
period is the academic term.
(b) Payment periods for an eligible program that measures progress
in credit hours and uses nonstandard terms that are not substantially
equal in length. For a student enrolled in an eligible program that
measures progress in credit hours and uses nonstandard terms that are
not substantially equal in length--
(1) For Pell Grant, ACG, National SMART Grant, FSEOG, and Perkins
Loan program funds, the payment period is the academic term;
(2) For FFEL and Direct Loan program funds--
(i) For a student enrolled in an eligible program that is one
academic year or less in length--
(A) The first payment period is the period of time in which the
student successfully completes half of the number of credit hours in
the program and half of the number of weeks of instructional time in
the program; and
(B) The second payment period is the period of time in which the
student successfully completes the program; and
(ii) For a student enrolled in an eligible program that is more
than one academic year in length--
(A) For the first academic year and any subsequent full academic
year--
(1) The first payment period is the period of time in which the
student successfully completes half of the number of credit hours in
the academic year and half of the number of weeks of instructional time
in the academic year; and
(2) The second payment period is the period of time in which the
student successfully completes the academic year;
(B) For any remaining portion of an eligible program that is more
than half an academic year but less than a full academic year in
length--
(1) The first payment period is the period of time in which the
student successfully completes half of the number of credit hours in
the remaining portion of the program and half of the number of weeks of
instructional time remaining in the program; and
(2) The second payment period is the period of time in which the
student successfully completes the remainder of the program; and
(C) For any remaining portion of an eligible program that is not
more than half an academic year, the payment period is the remainder of
the program.
(c) Payment periods for an eligible program that measures progress
in credit hours and does not have academic terms or for a program that
measures progress in clock hours.

[[Page 44645]]

(1) For a student enrolled in an eligible program that is one
academic year or less in length--
(i) The first payment period is the period of time in which the
student successfully completes half of the number of credit hours or
clock hours, as applicable, in the program and half of the number of
weeks of instructional time in the program; and
(ii) The second payment period is the period of time in which the
student successfully completes the program or the remainder of the
program.
(2) For a student enrolled in an eligible program that is more than
one academic year in length--
(i) For the first academic year and any subsequent full academic
year--
(A) The first payment period is the period of time in which the
student successfully completes half of the number of credit hours or
clock hours, as applicable, in the academic year and half of the number
of weeks of instructional time in the academic year; and
(B) The second payment period is the period of time in which the
student successfully completes the academic year;
(ii) For any remaining portion of an eligible program that is more
than half an academic year but less than a full academic year in
length--
(A) The first payment period is the period of time in which the
student successfully completes half of the number of credit hours or
clock hours, as applicable, in the remaining portion of the program and
half of the number of weeks of instructional time remaining in the
program; and
(B) The second payment period is the period of time in which the
student successfully completes the remainder of the program; and
(iii) For any remaining portion of an eligible program that is not
more than half an academic year, the payment period is the remainder of
the program.
(3) For purposes of paragraphs (c)(1) and (c)(2) of this section,
if an institution is unable to determine when a student has
successfully completed half of the credit hours or clock hours in a
program, academic year, or remainder of a program, the student is
considered to begin the second payment period of the program, academic
year, or remainder of a program at the later of the date, as determined
by the institution, on which the student has successfully completed--
(i) Half of the academic coursework in the program, academic year,
or remainder of the program; or
(ii) Half of the number of weeks of instructional time in the
program, academic year, or remainder of the program.
(d) Application of the cohort default rate exemption.
Notwithstanding paragraphs (a), (b), and (c) of this section, if 34 CFR
682.604(c)(10) or 34 CFR 685.301(b)(8) applies to an eligible program
that measures progress in credit hours and uses nonstandard terms, an
eligible program that measures progress in credit hours and does not
have academic terms, or an eligible program that measures progress in
clock hours, the payment period for purposes of FFEL and Direct Loan
funds is the loan period for those portions of the program to which 34
CFR 682.604(c)(10) or 34 CFR 685.301(b)(8) applies.
(e) Excused absences. For purposes of this section, in determining
whether a student successfully completes the clock hours in a payment
period, an institution may include clock hours for which the student
has an excused absence (i.e., an absence that a student does not have
to make up) if--
(1) The institution has a written policy that permits excused
absences; and
(2) The number of excused absences under the written policy for
purposes of paragraph (e) of this section does not exceed the lesser
of--
(i) The policy on excused absences of the institution's accrediting
agency or, if the institution has more than one accrediting agency, the
agency designated under 34 CFR 600.11(b);
(ii) The policy on excused absences of any State agency that
licenses the institution or otherwise legally authorizes the
institution to operate in the State; or
(iii) Ten percent of the clock hours in the payment period.
(f) Re-entry within 180 days. If a student withdraws from a program
described in paragraph (c) of this section during a payment period and
then reenters the same program within 180 days, the student remains in
that same payment period when he or she returns and, subject to
conditions established by the Secretary or by the FFEL lender or
guaranty agency, is eligible to receive any title IV, HEA program funds
for which he or she was eligible prior to withdrawal, including funds
that were returned by the institution or student under the provisions
of Sec. 668.22.
(g) Re-entry after 180 days or transfer. (1) Except as provided in
paragraph (g)(3) of this section, and subject to the conditions of
paragraph (g)(2) of this section, an institution calculates new payment
periods for the remainder of a student's program based on paragraph (c)
of this section, for a student who withdraws from a program described
in paragraph (c) of this section, and--
(i) Reenters that program after 180 days;
(ii) Transfers into another program at the same institution within
any time period; or
(iii) Transfers into a program at another institution within any
time period.
(2) For a student described in paragraph (g)(1) of this section--
(i) For the purpose of calculating payment periods only, the length
of the program is the number of credit hours and the number of weeks of
instructional time, or the number of clock hours and the number of
weeks of instructional time, that the student has remaining in the
program he or she enters or reenters; and
(ii) If the remaining hours and weeks constitute half of an
academic year or less, the remaining hours constitute one payment
period.
(3) Notwithstanding the provisions of paragraph (g)(1) of this
section, an institution may consider a student who transfers into
another program at the same institution to remain in the same payment
period if--
(i) The student is continuously enrolled at the institution;
(ii) The coursework in the payment period the student is
transferring out of is substantially similar to the coursework the
student will be taking when he or she first transfers into the new
program;
(iii) The payment periods are substantially equal in length in
weeks of instructional time and credit hours or clock hours, as
applicable; and
(iv) There are little or no changes in institutional charges
associated with the payment period to the student.
(h) Definitions. For purposes of this section--
(1) Terms are substantially equal in length if no term in the
program is more than two weeks of instructional time longer than any
other term in that program; and
(2) A student successfully completes credit hours or clock hours if
the institution considers the student to have passed the coursework
associated with those hours.

(Authority: 20 U.S.C. 1070 et seq.)

4. Section 668.10 is amended by:
A. In paragraph (a)(3)(ii), removing the word ``or'' immediately
after the figure ``668.4(a)'' and adding, in its place, the punctuation
``,'', and by adding the words ``, or (c),'' immediately after the
parenthetical ``(b)''.
B. Revising paragraph (a)(3)(iii).
C. Removing paragraphs (a)(3)(v) and (3)(vi).

[[Page 44646]]

The revision reads as follows:


Sec. 668.10 Direct Assessment Programs.

(a) * * *
(3) * * *
(iii) A week of instructional time in a direct assessment program
is any seven-day period in which at least one day of educational
activity occurs. Educational activity in a direct assessment program
includes regularly scheduled learning sessions, faculty-guided
independent study, consultations with a faculty mentor, development of
an academic action plan addressed to the competencies identified by the
institution, or, in combination with any of the foregoing, assessments.
It does not include credit for life experience. For purposes of direct
assessment programs, independent study occurs when a student follows a
course of study with predefined objectives but works with a faculty
member to decide how the student is going to meet those objectives. The
student and faculty member agree on what the student will do (e.g.,
required readings, research, and work products), how the student's work
will be evaluated, and on what the relative timeframe for completion of
the work will be. The student must interact with the faculty member on
a regular and substantive basis to assure progress within the course or
program.
* * * * *
5. Section 668.21 is revised to read as follows:


Sec. 668.21 Treatment of title IV grant and loan funds if the
recipient does not begin attendance at the institution.

(a) If a student does not begin attendance in a payment period or
period of enrollment, the institution must--
(1) Return all title IV, HEA program funds that were credited to
the student's account at the institution or disbursed directly to the
student for that payment period or period of enrollment, for Federal
Perkins Loan, FSEOG, Federal Pell Grant, ACG, and National SMART Grant
program funds; and
(2) For FFEL and Direct Loan funds--
(i)(A) Return all FFEL and Direct Loan funds that were credited to
the student's account at the institution for that payment period or
period of enrollment; and
(B) Return the amount of payments made directly by or on behalf of
the student to the institution for that payment period or period of
enrollment, up to the total amount of the loan funds disbursed;
(ii) For remaining amounts of FFEL or Direct Loan funds disbursed
directly to the student for that payment period or period of
enrollment, the institution is not responsible for returning the funds,
but must immediately notify the lender or the Secretary, as
appropriate, when it becomes aware that the student will not or has not
begun attendance so that the lender or Secretary will issue a final
demand letter to the borrower in accordance with 34 CFR 682.412 or 34
CFR 685.211, as appropriate; and
(iii) Notwithstanding paragraph (a)(2)(ii) of this section, if an
institution knew that a student would not begin attendance prior to
disbursing FFEL or Direct Loan funds directly to the student for that
payment period or period of enrollment (e.g., the student notified the
institution that he or she would not attend, or the institution
expelled the student), the institution must return those funds.
(b) The institution must return those funds for which it is
responsible under paragraph (a) of this section to the respective title
IV, HEA program as soon as possible, but no later than 30 days after
the date that the institution becomes aware that the student will not
or has not begun attendance.
(c) For purposes of this section, the Secretary considers that a
student has not begun attendance in a payment period or period of
enrollment if the institution is unable to document the student's
attendance at any class during the payment period or period of
enrollment.
(d) In accordance with procedures established by the Secretary or
FFEL Program lender, an institution returns title IV, HEA funds timely
if--
(1) The institution deposits or transfers the funds into the bank
account it maintains under Sec. 668.163 no later than 30 days after
the date that the institution becomes aware that the student will not
or has not begun attendance;
(2) The institution initiates an electronic funds transfer (EFT) no
later than 30 days after the date that the institution becomes aware
that the student will not or has not begun attendance;
(3) The institution initiates an electronic transaction, no later
than 30 days after the date that the institution becomes aware that the
student will not or has not begun attendance, that informs an FFEL
lender to adjust the borrower's loan account for the amount returned;
or
(4) The institution issues a check no later than 30 days after the
date that the institution becomes aware that the student will not or
has not begun attendance. An institution does not satisfy this
requirement if--
(i) The institution's records show that the check was issued more
than 30 days after the date that the institution becomes aware that the
student will not or has not begun attendance; or
(ii) The date on the cancelled check shows that the bank used by
the Secretary or FFEL Program lender endorsed that check more than 45
days after the date that the institution becomes aware that the student
will not or has not begun attendance.

(Authority: 20 U.S.C. 1094)

6. Section 668.22 is amended by:
A. Revising paragraph (a)(5).
B. Adding paragraph (e)(5)(iii).
The revision and addition read as follows:


Sec. 668.22 Treatment of title IV funds when a student withdraws.

(a) * * *
(5)(i) A post-withdrawal disbursement must be made from available
grant funds before available loan funds.
(ii)(A) If outstanding charges exist on the student's account, the
institution may credit the student's account up to the amount of
outstanding charges with all or a portion of any--
(1) Grant funds that make up the post-withdrawal disbursement in
accordance with Sec. 668.164(d)(1) and (d)(2); and
(2) Loan funds that make up the post-withdrawal disbursement in
accordance with Sec. 668.164(d)(1), (d)(2), and (d)(3) only after
obtaining confirmation from the student or parent, in the case of a
parent PLUS loan, that they still wish to have the loan funds disbursed
in accordance with paragraph (a)(5)(iii) of this section.
(B)(1) The institution must disburse directly to a student any
amount of a post-withdrawal disbursement of grant funds that is not
credited to the student's account. The institution must make the
disbursement as soon as possible, but no later than 30 days after the
date of the institution's determination that the student withdrew, as
defined in paragraph (l)(3) of this section.
(2) The institution must offer to disburse directly to a student,
or parent in the case of a parent PLUS loan, any amount of a post-
withdrawal disbursement of loan funds that is not credited to the
student's account, in accordance with paragraph (a)(5)(iii) of this
section.
(3) The institution must make a direct disbursement of any loan
funds that make up the post-withdrawal disbursement only after
obtaining the student's, or parent's in the case of a parent PLUS loan,
confirmation that the student or parent still wishes to have

[[Page 44647]]

the loan funds disbursed in accordance with paragraph (a)(5)(iii) of
this section.
(iii)(A) The institution must provide within 30 days of the date of
the institution's determination that the student withdrew, as defined
in paragraph (l)(3) of this section, a written notification to the
student, or parent in the case of parent PLUS loan, that--
(1) Requests confirmation of any post-withdrawal disbursement of
loan funds that the institution wishes to credit to the student's
account in accordance with paragraph (a)(5)(ii)(A)(2) of this section,
identifying the type and amount of those loan funds and explaining that
a student, or parent in the case of a parent PLUS loan, may accept or
decline some or all of those funds;
(2) Requests confirmation of any post-withdrawal disbursement of
loan funds that the student, or parent in the case of a parent PLUS
loan, can receive as a direct disbursement, identifying the type and
amount of these title IV funds and explaining that the student, or
parent in the case of a parent PLUS loan, may accept or decline some or
all of those funds;
(3) Explains that a student, or parent in the case of a parent PLUS
loan, who does not confirm that a post-withdrawal disbursement of loan
funds may be credited to the student's account may not receive any of
those loan funds as a direct disbursement unless the institution
concurs;
(4) Explains the obligation of the student, or parent in the case
of a parent PLUS loan, to repay any loan funds he or she chooses to
have disbursed; and
(5) Advises the student, or parent in the case of a parent PLUS
loan, that no post-withdrawal disbursement of loan funds will be made,
unless the institution chooses to make a post-withdrawal disbursement
based on a late response in accordance with paragraph (a)(5)(iii)(C) of
this section, if the student or parent in the case of a parent PLUS
loan, does not respond within 14 days of the date that the institution
sent the notification, or a later deadline set by the institution.
(B) The deadline for a student, or parent in the case of a parent
PLUS loan, to accept a post-withdrawal disbursement under paragraph
(a)(5)(iii)(A) of this section must be the same for both a confirmation
of a direct disbursement of the post-withdrawal disbursement of loan
funds and a confirmation of a post-withdrawal disbursement of loan
funds to be credited to the student's account.
(C) If the student, or parent in the case of a parent PLUS loan,
submits a timely response that confirms that they wish to receive all
or a portion of a direct disbursement of the post-withdrawal
disbursement of loan funds, or confirms that a post-withdrawal
disbursement of loan funds may be credited to the student's account,
the institution must disburse the funds in the manner specified by the
student, or parent in the case of a parent PLUS loan, as soon as
possible, but no later than 120 days after the date of the
institution's determination that the student withdrew, as defined in
paragraph (l)(3) of this section.
(D) If a student, or parent in the case of a parent PLUS loan,
submits a late response to the institution's notice requesting
confirmation, the institution may make the post-withdrawal disbursement
of loan funds as instructed by the student, or parent in the case of a
parent PLUS loan (provided the institution disburses all the funds
accepted by the student, or parent in the case of a parent PLUS loan),
or decline to do so.
(E) If a student, or parent in the case of a parent PLUS loan,
submits a late response to the institution and the institution does not
choose to make the post-withdrawal disbursement of loan funds, the
institution must inform the student, or parent in the case of a parent
PLUS loan, in writing of the outcome of the post-withdrawal
disbursement request.
(F) If the student, or parent in the case of a parent PLUS loan,
does not respond to the institution's notice, no portion of the post-
withdrawal disbursement of loan funds that the institution wishes to
credit to the student's account, nor any portion of loan funds that
would be disbursed directly to the student, or parent in the case of a
parent PLUS loan, may be disbursed.
(iv) An institution must document in the student's file the result
of any notification made in accordance with paragraph (a)(5)(iii) of
this section of the student's right to cancel all or a portion of loan
funds or of the student's right to accept or decline loan funds, and
the final determination made concerning the disbursement.
* * * * *
(e) * * *
(5) * * *
(iii) For a program that measures progress in credit hours and uses
nonstandard terms that are not substantially equal in length, if the
institution uses the payment period to determine the treatment of title
IV grant or loan funds for a category of students found in paragraph
(e)(5)(ii)(B) of this section, the institution must--
(A)(1) For students in the category who are disbursed or could have
been disbursed aid using both the payment period definition in Sec.
668.4(b)(1) and the payment period definition in Sec. 668.4(b)(2), use
the payment period during which the student withdrew that ends later;
and
(2) If in the payment period that ends later there are funds that
have been or could have been disbursed from overlapping payment
periods, the institution must include in the return calculation any
funds that can be attributed to the payment period that ends later; and
(B) For students in the category who are disbursed or could have
been disbursed aid using only the payment period definition in Sec.
668.4(b)(1) or the payment period definition in Sec. 668.4(b)(2), use
the payment period definition for which title IV, HEA program funds
were disbursed for a student's calculation under this section.
* * * * *
7. Section 668.161 is amended by revising paragraph (b) to read as
follows:


Sec. 668.161 Scope and purpose.

* * * * *
(b) Federal interest in title IV, HEA program funds. Except for
funds received by an institution for administrative expenses and for
funds used for the Job Location and Development Program under the FWS
Programs, funds received by an institution under the title IV, HEA
programs are held in trust for the intended student beneficiaries, the
Secretary, or lender or a guaranty agency under the FFEL programs. The
institution, as a trustee of Federal funds, may not use or hypothecate
(i.e., use as collateral) title IV, HEA program funds for any other
purpose.
8. Section 668.164 is amended by:
A. Revising paragraphs (b), (c), and (d).
B. Revising paragraph (g)(4)(i).
C. Adding a new paragraph (h).
The revisions and addition read as follows:


Sec. 668.164 Disbursing funds.

* * * * *
(b) Disbursements by payment period. (1) Except as provided in
paragraph (b)(2) of this section, an institution must disburse title
IV, HEA program funds on a payment period basis. An institution must
disburse title IV, HEA program funds once each payment period unless--
(i) For FFEL and Direct Loan funds, 34 CFR 682.604(c)(6)(ii) or 34
CFR 685.301(b)(3) applies; or
(ii) For FSEOG, Federal Pell Grant, ACG, and National SMART Grant
funds, an institution chooses to make more

[[Page 44648]]

than one disbursement in each payment period in accordance with 34 CFR
676.16(a)(3), 34 CFR 690.76, or 34 CFR 691.76, as applicable.
(2) The provisions of paragraph (b)(1) of this section do not apply
to the disbursement of FWS Program funds.
(3) Except as provided in paragraph (g) of this section, an
institution may disburse title IV, HEA program funds to a student or
parent for a payment period only if the student is enrolled for classes
for that payment period and is eligible to receive those funds.
(c) Direct payments. (1) An institution pays a student or parent
directly by--
(i) Releasing to the student or parent a check provided by a lender
to the institution under the FFEL Program;
(ii) Issuing a check payable to and requiring the endorsement of
the student or parent. An institution issues a check on the date that
it--
(A) Mails the check to the student or parent; or
(B) Notifies the student that the check is available for immediate
pickup at a specified location at the institution. The institution may
hold the check for up to 21 days after the date it notifies the
student. If the student does not pick up the check within this 21-day
period, the institution must immediately mail the check to the student
or parent, initiate an EFT to the student's or parent's bank account,
or return the funds to the appropriate title IV, HEA program;
(iii) Initiating an electronic funds transfer (EFT) to a bank
account designated by the student's or parent; or
(iv) Dispensing cash for which the institution obtains a signed
receipt from the student or parent.
(2) For purposes of this section, ``bank account'' means an FDIC
insured account such as a checking or savings account, or a similar
account that underlies a stored-value card or other transaction device.
(3) An institution may request, but not require or rely on, the
student or parent to open a bank account. If the institution opens a
bank account on behalf of a student or parent, establishes a process
the student or parent follows to open a bank account, or similarly
assists the student or parent in opening a bank account, the
institution must--
(i) Obtain in writing affirmative consent from the student or
parent to open that account;
(ii) Before the account is opened, inform the student or parent of
the terms and conditions associated with accepting and using the
account;
(iii) Not make any claims against the funds in the account without
the written permission of the student or parent, except for correcting
an error in transferring the funds in accordance with banking
protocols;
(iv) Ensure that the student or parent does not incur any cost in
opening the account or initially receiving any type of debit card,
stored-value card, other type of automated teller machine (ATM) card,
or similar transaction device that is used to access the funds in that
account;
(v) Ensure that the student has convenient access to a branch
office of the bank or ATMs of the bank in which the account was opened
(or ATMs of an affiliated bank), so that the student does not incur any
cost in making cash withdrawals from that office or ATMs;
(vi) Ensure that the debit, stored-value or ATM card, or other
device can be widely used, e.g., the institution may not limit the use
of the card or device to particular vendors; and
(vii) Not market or portray the account, card, or device as a
credit card or credit instrument, or subsequently convert the account,
card, or device to a credit card or credit instrument.
(d) Crediting a student's account at the institution. An
institution may use title IV, HEA program funds to credit a student's
account at the institution to satisfy--
(1) Current year charges for--
(i) Tuition and fees;
(ii) Board, if the student contracts with the institution for
board;
(iii) Room, if the student contracts with the institution for room;
and
(iv) If the institution obtains the student's or parent's
authorization under Sec. 668.165(b), other educationally related
charges incurred by the student at the institution; and
(2) Prior award year charges for a total of not more than $200
for--
(i) Tuition and fees, room, or board; and
(ii) If the institution obtains the student's or parent's
authorization under Sec. 668.165(b), other educationally related
charges incurred by the student at the institution.
* * * * *
(g) * * *
(4) * * *
(i) An institution may not make a late disbursement later than 180
days after the date of the institution's determination that the student
withdrew, as provided in Sec. 668.22, or for a student who did not
withdraw, 180 days after the date the student otherwise becomes
ineligible.
* * * * *
(h)(1) Notwithstanding any State law (such as a law that allows
funds to escheat to the State), an institution must return to the
Secretary, lender, or guaranty agency, as applicable, any title IV, HEA
program funds that it attempts to disburse directly to a student or
parent but the student or parent does not receive or negotiate those
funds.
(2) If a disbursement is made by check and the check is not cashed,
an institution must return those funds no later than 240 days of the
initial attempt to disburse them.
(i) If a check is returned to the institution, or an EFT is
rejected, the institution may, as long as it does so within 45 days of
the funds being returned to the institution, make additional attempts
to disburse the funds. If the institution has not made another attempt
to disburse those funds, they must be returned to the Secretary,
lender, or guaranty agency, as applicable, before the 45 day period
ends.
(ii) All attempts to disburse the funds must end and the
institution must return those funds to the Secretary, lender, or
guaranty agency, as applicable, by the end of the 240-day period.
9. Section 668.165 is amended by:
A. Revising paragraph (a).
B. Revising paragraph (b)(1).
The revisions read as follows:


Sec. 668.165 Notices and authorizations.

(a) Notices. (1) Before an institution disburses title IV, HEA
program funds for any award year, the institution must notify a student
of the amount of funds that the student or his or her parent can expect
to receive under each title IV, HEA program, and how and when those
funds will be disbursed. If those funds include Direct Loan or FFEL
Program funds, the notice must indicate which funds are from subsidized
loans and which are from unsubsidized loans.
(2) Except in the case of a post-withdrawal disbursement made in
accordance with Sec. 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--
(i) The anticipated date and amount of the disbursement;
(ii) The student's right or parent's right to cancel all or a
portion of that loan or loan disbursement and have the loan proceeds
returned to the holder of that loan. However, if the institution
releases a check provided by a lender under the FFEL Program, the
institution is not required to provide this information; and
(iii) The procedures and time by which the student or parent must
notify the institution that he or she wishes to cancel the loan or loan
disbursement.

[[Page 44649]]

(3) The institution must provide the notice described in paragraph
(a)(2) of this section in writing--
(i) No earlier than 30 days before, and no later than 30 days
after, crediting the student's account at the institution, if the
institution obtains affirmative confirmation from the student under
paragraph (a)(6)(i) of this section; or
(ii) No earlier than 30 days before, and no later than seven days
after, crediting the student account at the institution, if the
institution does not obtain affirmative confirmation from the student
under paragraph (a)(6)(i) of this section.
(4)(i) A student or parent must inform the institution if he or she
wishes to cancel all or a portion of a loan or loan disbursement.
(ii) The institution must return the loan proceeds, cancel the
loan, or do both, in accordance with program regulations provided that
the institution receives a loan cancellation request--
(A) The later of the first day of a payment period or 14 days after
the date it notifies the student or parent of his or her right to
cancel all or a portion of a loan, if the institution obtains
affirmative confirmation from the student under paragraph (a)(6)(i) of
this section; or
(B) Within 30 days of the date the institution notifies the student
or parent of his or her right to cancel all or a portion of a loan, if
the institution does not obtain affirmative confirmation from the
student under paragraph (a)(6)(i) of this section.
(iii) If a student or parent requests a loan cancellation after the
period set forth in paragraph (a)(4)(ii)(A) or (B) of this section, the
institution may return the loan proceeds, cancel the loan, or do both,
in accordance with program regulations.
(5) An institution must inform the student or parent in writing
regarding the outcome of any cancellation request.
(6) For purposes of this section--
(i) Affirmative confirmation is a process under which an
institution obtains written confirmation of the types and amounts of
title IV, HEA program loans that a student wants for an award year
before the institution credits the student's account with those loan
funds; and
(ii) An institution is not required to return any loan proceeds
that it disbursed directly to a student or parent.
(b) * * *
(1) If an institution obtains written authorization from a student
or parent, as applicable, the institution may--
(i) Use the student's or parent's title IV, HEA program funds to
pay for charges described in Sec. 668.164(d)(2) that are included in
that authorization; and
(ii) Except if prohibited by the Secretary under the reimbursement
or cash monitoring payment method, hold on behalf of the student or
parent any title IV, HEA program, funds that would otherwise be paid
directly to the student or parent under Sec. 668.164(e). Under this
provision, the institution may issue a stored-value card or other
similar device that allows the student or parent to access those funds
at his or her discretion to pay for educationally related expenses.
* * * * *
10. Section 668.166 is revised to read as follows:


Sec. 668.166 Excess cash.

(a) General. (1) The Secretary considers excess cash to be any
amount of title IV, HEA program funds, other than Federal Perkins Loan
Program funds, that an institution does not disburse to students or
parents by the end of the third business day following the date the
institution--
(i) Received those funds from the Secretary; or
(ii) Deposited or transferred to its Federal account previously
disbursed title IV, HEA program funds received from the Secretary, such
as those resulting from award adjustments, recoveries, or
cancellations.
(2) The provisions of this section do not apply to the title IV,
HEA program funds that an institution receives from the Secretary under
the just-in-time payment method.
(b) Excess cash tolerances. An institution may maintain for up to
seven days an amount of excess cash that does not exceed one percent of
the total amount of funds the institution drew down in the prior award
year. The institution must return immediately to the Secretary any
amount of excess cash over the one-percent tolerance and any amount
remaining in its account after the seven-day tolerance period.
(c) Consequences for maintaining excess cash. Upon a finding than
an institution maintains excess cash for any amount or timeframe over
that allowed in the tolerance provisions in paragraph (b) of this
section, the actions the Secretary may take include, but are not
limited to--
(1) Requiring the institution to reimburse the Secretary for the
costs the Secretary incurred in providing that excess cash to the
institution; and
(2) Providing funds to the institution under the reimbursement
payment method or cash monitoring payment method described in Sec.
668.163(d) and (e), respectively.

(Authority: 20 U.S.C. 1094)

PART 674--FEDERAL PERKINS LOAN PROGRAM

11. The authority citation for part 674 continues to read as
follows:

Authority: 20 U.S.C. 1087aa-1087hh and 20 U.S.C. 421-429 unless
otherwise noted.


Sec. 674.2 [Amended]

12. Section 674.2 is amended by:
A. In paragraph (a), adding to its list, in alphabetical order, the
terms Graduate or professional student, Half-time student, and
Undergraduate student.
B. In paragraph (b), removing the definitions for Graduate or
professional student, Half-time graduate or professional student, Half-
time Undergraduate student, and Undergraduate student.


Sec. 674.16 [Amended]

13. Section 674.16 is amended by removing paragraph (g) and
redesignating paragraphs (h) and (i) as paragraphs (g) and (h),
respectively.

PART 676--FEDERAL SUPPLEMENTAL EDUCATIONAL OPPORTUNITY GRANT
PROGRAM

14. The authority citation for part 676 continues to read as
follows:

Authority: 20 U.S.C. 1070b-1070b-3, unless otherwise noted.


Sec. 676.2 [Amended]

15. Section 676.2 is amended by:
A. In paragraph (a), adding to its list, in alphabetical order, the
term Undergraduate student.
B. In paragraph (b), removing the definition for Undergraduate
student.


Sec. 676.16 [Amended]

16. Section 676.16 is amended by removing paragraph (e) and
redesignating paragraph (f) as paragraph (e).

PART 682--FEDERAL FAMILY EDUCATION LOAN (FFEL) PROGRAM

17. The authority citation for part 682 continues to read as
follows:

Authority: 20 U.S.C. 1071 to 1087-2, unless otherwise noted.

18. Section 682.200 is amended by:
A. In paragraph (a)(1), adding to its list, in alphabetical order,
the terms Graduate and professional student, Half-time student, and
Undergraduate student.
B. In paragraph (b), removing the definitions for Graduate or
professional student, Half-time student, and Undergraduate student and
revising the definition of Period of Enrollment.

[[Page 44650]]

The revision reads as follows:


Sec. 682.200 Definitions.

* * * * *
(b) * * *
Period of enrollment. The period for which a Stafford, SLS, or PLUS
loan is intended. The period of enrollment must coincide with a bona
fide academic term established by the school for which institutional
charges are generally assessed (e.g., semester, trimester, or quarter
in weeks of instructional time, length of the student's program in
weeks of instructional time or academic year). The period of enrollment
is also referred to as the loan period.
* * * * *


Sec. 682.207 [Amended]

19. Section 682.207(e) is amended by removing the parenthetical
``(10)'' and adding, in its place, the parenthetical ``(8)''.


Sec. 682.208 [Amended]

20. Section 682.208(f)(1)(iii)(A) is amended by removing the figure
``Sec. 682.604(d)(4)'' and adding, in its place, the figure ``34 CFR
668.21(a)(2)(ii)''.
21. Section 682.603 is amended by:
A. Revising paragraph (f)(1).
B. Redesignating paragraphs (g), (h), and (i) as paragraphs (h),
(i), and (j), respectively.
C. Adding a new paragraph (g).
D. In the introductory text of newly redesignated paragraph (h)(1)
and the text of newly redesignated paragraph (h)(2), removing the
parenthetical ``(10)'' and adding, in its place, the parenthetical
``(8)''.
The revision and addition read as follows:


Sec. 682.603 Certification by a participating school in connection
with a loan application.

* * * * *
(f)(1)(i) The minimum period of enrollment for which a school may
certify a loan application is--
(A) At a school that measures academic progress in credit hours and
uses a semester, trimester, or quarter system, or has terms that are
substantially equal in length with no term less than nine weeks in
length, a single term (e.g., a semester or quarter); or
(B) Except as provided in paragraphs (f)(1)(ii) or (iii) of this
section, at a school that measures academic progress in clock hours, or
measures academic progress in credit hours but does not use a semester,
trimester, or quarter system and does not have terms that are
substantially equal in length with no term less than nine weeks in
length, the lesser of--
(1) The length of the student's program (or the remaining portion
of that program if the student has less than the full program
remaining) at the school; or
(2) The academic year as defined by the school in accordance with
34 CFR 668.3.
(ii) For a student who transfers into a school with credit or clock
hours from another school, and the prior school certified or originated
a loan for a period of enrollment that overlaps the period of
enrollment at the new school, the new school may certify a loan for the
remaining portion of the program or academic year. In this case the
school may certify a loan for an amount that does not exceed the
remaining balance of the student's annual loan limit.
(iii) For a student who completes a degree program at a school,
where the student's last loan to complete that program had been for
less than an academic year, and the student then begins a new degree
program at the same school, the school may certify a loan for the
remainder of the academic year. In this case the school may certify a
loan for an amount that does not exceed the remaining balance of the
student's annual loan limit at the loan level associated with the new
program.
* * * * *
(g)(1) If a school measures academic progress in an educational
program in credit hours and uses either standard terms (semesters,
trimesters, or quarters) or nonstandard terms that are substantially
equal in length, and each term is at least nine weeks of instructional
time in length, a student is considered to have completed an academic
year and progresses to the next annual loan limit when the academic
year calendar period has elapsed.
(2) If a school measures academic progress in an educational
program in nonstandard terms that are not substantially equal in length
or each term is not at least nine weeks of instructional time in
length, or in credit hours and does not have academic terms, a student
is considered to have completed an academic year and progresses to the
next annual loan limit at the later of--
(i) The student's completion of the weeks of instructional time in
the student's academic year; or
(ii) The date, as determined by the school, that the student has
successfully completed the academic coursework in the student's
academic year.
(3) If a school measures academic progress in an educational
program in clock hours, a student is considered to have completed an
academic year and progresses to the next annual loan limit at the later
of--
(i) The student's completion of the weeks of instructional time in
the student's academic year; or
(ii) The date, as determined by the school, that the student has
successfully completed the clock hours in the student's academic year.
(4) For purposes of paragraphs (g)(1) and (g)(2) of this section,
terms in a loan period are substantially equal in length if no term in
the loan period is more than two weeks of instructional time longer
than any other term in that loan period.
* * * * *
22. Section 682.604 is amended by:
A. Revising paragraph (c)(6).
B. Removing paragraphs (c)(7) and (c)(8).
C. Redesignating paragraphs (c)(9), (c)(10), and (c)(11) as
paragraphs (c)(7), (c)(8), and (c)(9), respectively.
D. In newly redesignated paragraph (c)(9), removing the
parenthetical ``(g)'' and adding, in its place, the parenthetical
``(h)''.
E. Revising paragraph (d)(3).
F. Removing paragraph (d)(4).
The revisions read as follows:


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

* * * * *
(c) * * *
(6) Unless the provision of Sec. 682.207(d) applies--
(i) If a loan period is more than one payment period, the school
must deliver loan proceeds at least once in each payment period; and
(ii) If a loan period is one payment period, the school must make
at least two deliveries of loan proceeds during that payment period.
The school may not make the second delivery until the student
successfully completes half of the number of credit hours or clock
hours and half of the number of weeks of instructional time in the
payment period.
* * * * *
(d) * * *
(3) If a student does not begin attendance in the period of
enrollment--
(i) Disbursed loan proceeds must be handled in accordance with 34
CFR 668.21; and
(ii) Undelivered loan funds held by the school must be handled in
accordance with 34 CFR 668.167.
* * * * *

[[Page 44651]]

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

23. The authority citation for part 685 continues to read as
follows:

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

24. Section 685.102 is amended by:
A. In paragraph (a)(1), adding to its list, in alphabetical order,
the terms Full-time student, Graduate or professional student, Half-
time student, and Undergraduate student.
B. In paragraph (a)(3), removing from its list, the terms Full-time
student, Graduate or professional student, and Undergraduate student.
C. In paragraph (b), removing the definition of Half-time student
and revising the definition of Period of enrollment.
The revision reads as follows:


Sec. 685.102 Definitions.

* * * * *
(b) * * *
Period of enrollment: The period for which a Direct Subsidized,
Direct Unsubsidized, or Direct PLUS Loan is intended. The period of
enrollment must coincide with one or more academic terms established by
the school (such as semester, trimester, quarter in weeks of
instructional time; academic year; and length of the program of study
in weeks of instructional time), for which institutional charges are
generally assessed. The period of enrollment is also referred to in
this part as the loan period.
* * * * *
25. Section 685.301 is amended by:
A. Redesignating paragraph (a)(9)(ii) as paragraph (a)(9)(iv).
B. Revising paragraph (a)(9)(i).
C. Adding new paragraphs (a)(9)(ii) and (iii).
D. Revising paragraphs (b)(2) and (b)(3).
E. Removing paragraphs (b)(5) and (b)(6).
F. Redesignating paragraphs (b)(7) and (b)(8) as paragraphs (b)(5)
and (b)(6), respectively.
G. Redesignating paragraphs (c) and (d) as paragraphs (d) and (e),
respectively.
H. Adding a new paragraph (c).
The revisions and additions read as follows:


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

(a) * * *
(9)(i) The minimum period of enrollment for which a school may
originate a Direct Loan application is--
(A) At a school that measures academic progress in credit hours and
uses a semester, trimester, or quarter system, or has terms that are
substantially equal in length with no term less than nine weeks in
length, a single academic term (e.g., a semester or quarter); or
(B) Except as provided in paragraph (a)(9)(ii) or (iii) of this
section, at a school that measures academic progress in clock hours, or
measures academic progress in credit hours but does not use a semester,
trimester, or quarter system and does not have terms that are
substantially equal in length with no term less than nine weeks in
length, the lesser of--
(1) The length of the student's program (or the remaining portion
of that program if the student has less than the full program
remaining) at the school; or
(2) The academic year as defined by the school in accordance with
34 CFR 668.3.
(ii) For a student who transfers into a school with credit or clock
hours from another school, and the prior school originated or certified
a loan for a period of enrollment that overlaps the period of
enrollment at the new school, the new school may originate a loan for
the remaining portion of the program or academic year. In this case the
school may originate a loan for an amount that does not exceed the
remaining balance of the student's annual loan limit.
(iii) For a student who completes a degree program at a school,
where the student's last loan to complete that program had been for
less than an academic year, and the student then begins a new degree
program at the same school, the school may originate a loan for the
remainder of the academic year. In this case the school may originate a
loan for an amount that does not exceed the remaining balance of the
student's annual loan limit at the loan level associated with the new
program.
* * * * *
(b) * * *
(2) An institution must disburse the loan proceeds on a payment
period basis in accordance with 34 CFR 668.164(b).
(3) Unless paragraphs (b)(4) or (b)(8) of this section applies--
(i) If a loan period is more than one payment period, the school
must disburse loan proceeds at least once in each payment period; and
(ii) If a loan period is one payment period, the school must make
at least two payments during that payment period. The school may not
make the second payment until the student successfully completes half
of the number of credit hours or clock hours and half of the number of
weeks of instructional time in the payment period.
* * * * *
(c) Annual loan limit progression based on completion of an
academic year. (1) If a school measures academic progress in an
educational program in credit hours and uses either standard terms
(semesters, trimesters, or quarters) or nonstandard terms that are
substantially equal in length, and each term is at least nine weeks of
instructional time in length, a student is considered to have completed
an academic year and progresses to the next annual loan limit when the
academic year calendar period has elapsed.
(2) If a school measures academic progress in an educational
program in nonstandard terms that are not substantially equal in length
or each term is not at least nine weeks of instructional time in
length, or in credit hours and does not have academic terms, a student
is considered to have completed an academic year and progresses to the
next annual loan limit at the later of--
(i) The student's completion of the weeks of instructional time in
the student's academic year; or
(ii) The date, as determined by the school, that the student has
successfully completed the academic coursework in the student's
academic year.
(3) If a school measures academic progress in an educational
program in clock hours, a student is considered to have completed an
academic year and progresses to the next annual loan limit at the later
of--
(i) The student's completion of the weeks of instructional time in
the student's academic year; or
(ii) The date, as determined by the school, that the student has
successfully completed the clock hours in the student's academic year.
(4) For purposes of paragraphs (c)(1) and (c)(2) of this section,
terms in a loan period are substantially equal in length if no term in
the loan period is more than two weeks of instructional time longer
than any other term in that loan period.
* * * * *
26. Section 685.303 is amended by revising paragraph (b)(3) to read
as follows:


Sec. 685.303 Processing loan proceeds.

* * * * *
(b) * * *
(3) If a student does not begin attendance in the period of
enrollment, disbursed loan proceeds must be

[[Page 44652]]

handled in accordance with 34 CFR 668.21.
* * * * *

PART 690--FEDERAL PELL GRANT PROGRAM

27. The authority citation for part 690 continues to read as
follows:

Authority: 20 U.S.C. 1070a, unless otherwise noted.


Sec. 690.2 [Amended]

28. Section 690.2 is amended by:
A. In paragraph (b), adding to its list, in alphabetical order, the
terms Half-time student, Three-quarter-time student, and Undergraduate
student.
B. In paragraph (c), removing the definitions for Half-time
student, Less-than-half-time student, Three-quarter-time student, and
Undergraduate student.
29. Section 690.63 is amended by revising paragraphs (a)(1) and (e)
to read as follows:


Sec. 690.63 Calculation of a Federal Pell Grant for a payment period.

(a)(1) Programs using standard terms with at least 30 weeks of
instructional time. A student's Federal Pell Grant for a payment period
is calculated under paragraphs (b) or (d) of this section if--
(i) The student is enrolled in an eligible program that--
(A) Measures progress in credit hours;
(B) Is offered in semesters, trimesters, or quarters; and
(C) Requires the student to enroll for at least 12 credit hours in
each term in the award year to qualify as a full-time student; and
(ii) The program uses an academic calendar that provides at least
30 weeks of instructional time in--
(A) Two semesters or trimesters in the fall through the following
spring, or three quarters in the fall, winter, and spring, none of
which overlaps any other term (including a summer term) in the program;
or
(B) Any two semesters or trimesters, or any three quarters where--
(1) The institution starts its terms for different cohorts of
students on a periodic basis (e.g., monthly);
(2) The program is offered exclusively in semesters, trimesters, or
quarters; and
(3) Students are not allowed to be enrolled simultaneously in
overlapping terms and must stay with the cohort in which they start
unless they withdraw from a term (or skip a term) and re-enroll in a
subsequent term.
* * * * *
(e) Programs using credit hours without terms or clock hours. The
Federal Pell Grant for a payment period for a student in a program
using credit hours without terms or using clock hours is calculated
by--
(1) Determining the student's Scheduled Federal Pell Grant using
the Payment Schedule; and
(2) Multiplying the amount determined under paragraph (e)(1) of
this section by the lesser of--

(i)


[GRAPHIC] [TIFF OMITTED] TP08AU07.000


; or

(ii)


[GRAPHIC] [TIFF OMITTED] TP08AU07.001

* * * * *
30. Section 690.66 is amended by revising paragraph (a) to read as
follows:


Sec. 690.66 Correspondence study.

(a) An institution calculates the Federal Pell Grant for a payment
period for a student in a program of study offered by correspondence
courses without terms, but not including any residential component,
by--
(1) Determining the student's annual award using the half-time
Disbursement Schedule; and
(2) Multiplying the annual award determined from the Disbursement
Schedule for a half-time student by the lesser of--

(i)


[GRAPHIC] [TIFF OMITTED] TP08AU07.002


; or

[[Page 44653]]

(ii)


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* * * * *

PART 691--ACADEMIC COMPETITIVENESS GRANT (ACG) AND NATIONAL SCIENCE
AND MATHEMATICS ACCESS TO RETAIN TALENT GRANT (NATIONAL SMART
GRANT) PROGRAMS

31. The authority citation for part 691 continues to read as
follows:

Authority: 20 U.S.C. 1070a-1, unless otherwise noted.


Sec. 691.2 [Amended]

32. Section 691.2 is amended by:
A. In paragraph (b), adding to its list, in alphabetical order, the
term Undergraduate student.

B. In paragraph (d), removing the definition for Undergraduate student.


Sec. 691.8 [Amended]

33. Section 691.8 is amended by removing paragraph (c).
34. Section 691.63 is amended by revising paragraphs (a)(1) and (e)
to read as follows:


Sec. 691.63 Calculation of a grant for a payment period.

(a)(1) Programs using standard terms with at least 30 weeks of
instructional time. A student's grant for a payment period is
calculated under paragraphs (b) or (d) of this section if --
(i) The student is enrolled in an eligible program that--
(A) Measures progress in credit hours;
(B) Is offered in semesters, trimesters, or quarters; and
(C) Requires the student to enroll for at least 12 credit hours in
each term in the award year to qualify as a full-time student; and
(ii) The program uses an academic calendar that provides at least
30 weeks of instructional time in--
(A) Two semesters or trimesters in the fall through the following
spring, or three quarters in the fall, winter, and spring, none of
which overlaps any other term (including a summer term) in the program;
or
(B) Any two semesters or trimesters, or any three quarters where--
(1) The institution starts its terms for different cohorts of
students on a periodic basis (e.g., monthly);
(2) The program is offered exclusively in semesters, trimesters, or
quarters; and
(3) Students are not allowed to be enrolled simultaneously in
overlapping terms and must stay with the cohort in which they start
unless they withdraw from a term (or skip a term) and re-enroll in a
subsequent term.
* * * * *
(e) Programs using credit hours without terms or clock hours. The
grant for a payment period for a student in a program using credit
hours without terms or using clock hours is calculated by--
(1) Determining that the student is attending at least full-time;
(2) Determining the student's ACG or National SMART Grant Scheduled
Award; and
(3) Multiplying the ACG or National SMART Grant amount determined
under paragraph (e)(2) of this section by the lesser of--

(i)

[GRAPHIC] [TIFF OMITTED] TP08AU07.004

; or

(ii)

[GRAPHIC] [TIFF OMITTED] TP08AU07.005

* * * * *
[FR Doc. E7-15314 Filed 8-7-07; 8:45 am]

BILLING CODE 4000-01-P

Last Modified: 08/07/2007