[Federal Register Volume 65, Number 212 (Wednesday, November 1, 2000)]
[Rules and Regulations]
[Pages 65678-65695]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-27891]
[[Page 65677]]
-----------------------------------------------------------------------
Part X
Department of Education
-----------------------------------------------------------------------
34 CFR Parts 674, 682, and 685
Federal Perkins Loan Program, Federal Family Education Loan Program,
and William D. Ford Federal Direct Loan Program; Final Regulations
Federal Register / Vol. 65, No. 212 / Wednesday, November 1, 2000 /
Rules and Regulations
[[Page 65678]]
-----------------------------------------------------------------------
DEPARTMENT OF EDUCATION
34 CFR Parts 674, 682, and 685
RIN 1845-AA12
Federal Perkins Loan Program, Federal Family Education Loan
Program, and William D. Ford Federal Direct Loan Program
AGENCY: Office of Postsecondary Education, Department of Education.
ACTION: Final regulations.
-----------------------------------------------------------------------
SUMMARY: The Secretary amends the regulations governing the Federal
Perkins (Perkins) Loan Program, Federal Family Education Loan (FFEL)
Program, and William D. Ford Federal Direct Loan (Direct Loan) Program
to strengthen and improve the processes for granting loan discharges
based on a borrower's death or total and permanent disability.
DATES: Effective July 1, 2002, except the following provisions of these
regulations are effective July 1, 2001: Secs. 674.9(h)(3), 674.51(s),
674.61(a), 682.200(b), the redesignations of Sec. 682.201(a)(5)-(a)(7),
682.201(a)(6)(iii), 682.402(b)(2) and (3), 682.402(g)(1)(iii),
685.200(a)(1)(iv)(A) and (B), and 685.212(a).
For additional information see the discussion of effective dates
under the Analysis of Comments and Changes section that follows.
FOR FURTHER INFORMATION CONTACT: For the FFEL and Perkins Loan
Programs, Mr. Brian Smith, or for the Direct Loan Program, Mr. Jon Utz;
U.S. Department of Education, 400 Maryland Avenue, SW., Room 3045,
Regional Office Building No. 3, Washington, DC 20202-5345. Telephone:
(202) 708-8242. If you use a telecommunications device for the deaf
(TDD), you may call the Federal Information Relay Service (FIRS) at 1-
800-877-8339.
Individuals with disabilities may obtain this document in an
alternative format (e.g., Braille, large print, audiotape, or computer
diskette) on request to the contact persons listed under FOR FURTHER
INFORMATION CONTACT.
SUPPLEMENTARY INFORMATION: On August 2, 2000, the Secretary published a
notice of proposed rulemaking (NPRM) for the Perkins, FFEL, and Direct
Loan programs in the Federal Register (65 FR 47634). In the preamble to
the NPRM, the Secretary discussed the following major proposed changes:
Amending Secs. 674.61, 682.402, and 685.212 to require that an
original or certified copy of a death certificate be provided to
support a discharge of a loan based on death, although other
documentation may be accepted under unusual circumstances (page 47636).
Amending Secs. 674.51, 682.200, and 685.102 to revise the
definition of ``totally and permanently disabled'' (page 47636).
Amending Secs. 674.61(b)(3)(ii), 682.402(c)(2)(ii), and
685.213(b)(2) to allow disability discharges to be granted based on
documentation from the Social Security Administration (SSA) in lieu of
a physician's certification of total and permanent disability.
Amending Secs. 674.61(b)(3)-(6), 682.402(c)(2)-(12), and 685.213(b)
to change the process for considering applications for a disability
discharge on a student loan by placing loans in a conditional discharge
status for up to three years, before granting a final discharge. We
proposed requiring FFEL and Perkins loans to be assigned to us after a
determination by the loan holder or guaranty agency that the borrower
meets the criteria for a total and permanent disability discharge
(pages 47637-47638).
Amending Secs. 674.61(b)(1), (6), and (7), 682.402(c)(1), (12), and
(13), and 685.213(a)(1) and (d) to establish the rules for granting a
borrower a conditional discharge if the borrower appears to meet the
requirements for a total and permanent disability discharge. When a
loan is in a conditional discharge status, collection activity on the
loan is suspended for up to three years from the date of the onset of
the disability.
Amending Secs. 674.61(b)(2), (8) and (9), 682.402(c)(14) and (15),
and 685.213(a)(2) and (c) to discharge the loan if the borrower
continues to meet the disability discharge criteria at the end of the
three-year conditional discharge period.
If the borrower does not the disability discharge criteria
collection activity resumes, but the borrower is not obligated to pay
interest that has accrued on the loan during the conditional discharge
period (page 47638).
Amending Secs. 674.61(b)(11) and (12), 682.402(r)(2) and (3), and
685.212(g)(2) to require that payments received by a Perkins Loan
school, FFEL lender or guaranty agency on a loan that has been assigned
to us prior to a final determination of eligibility for a disability
discharge must be sent to us. We will apply those payments to the loan.
If the loan is ultimately discharged, the payments will be returned to
the sender (page 47639).
Amending Secs. 674.9, 682.201, and 685.200 to allow a borrower
whose loan is in a conditional disability discharge period to be
eligible for additional title IV loans if a physician or the SSA
certifies that the borrower is able to engage in substantial gainful
activity; the borrower acknowledges that neither the conditionally
discharged loan nor the new loan can be discharged on the basis of the
borrower's current disability unless that disability substantially
deteriorates; and collection activity resumes on the conditionally
discharged loan (page 47639).
These final regulations contain changes from the NPRM that are
explained in the Analysis of Comments and Changes that follows.
Analysis of Comments and Changes
The regulations in this document were developed through the use of
negotiated rulemaking. Section 492 of the Higher Education Act requires
that, before publishing any proposed regulations to implement programs
under title IV of the Act, the Secretary obtain public involvement in
the development of the proposed regulations. After obtaining advice and
recommendations, the Secretary must conduct a negotiated rulemaking
process to develop the proposed regulations.
These regulations were published in proposed form on August 2,
2000. The negotiated rulemaking committee was unable to reach consensus
on the proposed regulations. The Secretary invited comments on the
proposed regulations by September 18, 2000. In response to the
Secretary's invitation in the NPRM, 46 parties submitted comments on
the proposed regulations. An analysis of the comments and of the
changes in the regulations since publication of the NPRM follows.
We discuss substantive issues under the sections of the regulations
to which they pertain. Generally, we do not address technical and other
minor changes--and suggested changes the law does not authorize the
Secretary to make.
Effective Date
Comment: Many commenters responded to our request for comments on
whether a later effective date should be considered for these
regulations. Most commenters supported an effective date of July 1,
2001 for the death discharge provisions, but generally recommended a
delay in the effective date for the total and permanent disability
discharge provisions until July 1, 2002 or 90 days after the issuance
of a revised discharge application form and implementation guide to the
new discharge procedures, whichever is later.
[[Page 65679]]
Discussion: We agree that the operational changes needed to
implement some of the conditional discharge provisions of the
regulations support a delay in the effective date of those provisions.
We must develop a system for monitoring borrowers' earnings during the
conditional discharge period, revise the assignment process for
guaranty agencies and develop a comparable assignment process for the
Perkins Loan Program. We must also retain and train an organization
that will handle initial and final discharge determinations for the
Secretary. We may also have to retain a loan servicer to handle pre-
default disability assignments that must be converted back to
repayment. We will need to revise the current total and permanent
disability discharge request form to reflect the new process and to
allow for its use in the Perkins Loan Program. Procedural guidance will
need to be developed and distributed to schools, lenders, and guaranty
agencies.
Change: As suggested by some of the commenters, the provisions that
govern death discharges, Secs. 674.61(a), 682.402(b),
682.402(g)(1)(iii), and 685.212(a), will become effective on July 1,
2001. We will also implement the revised definition of ``totally and
permanently disabled'' in Secs. 674.51(s) and 682.200(b) on July 1,
2001.
Even though we will delay the implementation of the conditional
discharge until July 1, 2002, we have decided that for any loan that is
discharged due to total and permanent disability on or after July 1,
2001 through June 30, 2002, the borrower must reaffirm that loan if the
borrower receives a new title IV loan within three years from the date
that the borrower became totally and permanently disabled as certified
by the physician. These provisions, Secs. 674.9(h)(3),
682.201(a)(6)(iii), and 685.200(a)(1)(iv)(A) and (B) will become
effective on July 1, 2001.
All other changes related to implementing the new processes for
granting total and permanent disability discharges will become
effective on July 1, 2002.
Sections 674.61, 682.402, and 685.212 Death Discharge
Comment: In response to the requirement in the proposed regulations
that an ``original'' or ``certified'' copy of the death certificate be
submitted to support a request for a discharge based on death, two
commenters indicated that the terms ``original'' or ``certified'' may
be defined differently in different States. One of the commenters
recommended that the regulation be revised to indicate that a death
discharge must be based on an ``official death certificate as defined
by the State in which the borrower died.'' The other commenter
suggested that the regulations specify what is required for a copy of a
death certificate to be considered ``certified.''
Discussion: We believe the term ``original'' is self-explanatory.
We also believe it is implicit in the term ``certified'' that the
governmental entity issuing the death certificate defines what
constitutes a ``certified'' copy of the original.
Change: None.
Comment: Several commenters suggested that in lieu of requiring
each of a borrower's loan holders to obtain an original or certified
copy of the death certificate, the regulations should allow a loan
holder to discharge a borrower's loan if the National Student Loan Data
System (NSLDS) indicates that one of the borrower's other title IV
loans has been discharged due to death. The commenters felt that if one
of the borrower's loan holders obtained the necessary documentation to
establish that the borrower had died and reported this information to
NSLDS, this should be sufficient to discharge the borrower's other
title IV loans. One commenter suggested that NSLDS should be modified
to indicate whether a death discharge was based on a death certificate
or alternative documentation. The commenter argued that, with this
information, a loan holder could choose to seek independent
corroboration of the borrower's death if a loan had been cancelled
based on alternative documentation. The commenters believed that this
approach would reduce burden on the families of deceased borrowers.
One commenter proposed an alternative approach whereby a loan
holder would be required to notify the Secretary upon learning of a
borrower's death and the Secretary would assume the responsibility of
obtaining confirmation.
Discussion: As discussed in the preamble to the NPRM (65 FR 47634,
47636), the changes to this regulation are based in part on the
findings of a report issued by the Department of Education's Office of
Inspector General (OIG) in June 1999. That report concluded, among
other things, that death discharges were being granted without reliable
supporting documentation. In light of the OIG's findings with regard to
fraudulent death discharge claims, we believe it is important to
require each of a borrower's loan holders to independently obtain the
required documentation of a borrower's death. We note that this is the
current requirement and this regulation will not increase any burden on
the borrower or loan holder. However, we appreciate the commenters'
suggestions and will consider whether to explore ways in which NSLDS
might be used in the future to improve the processing of death
discharge applications. With regard to the suggestion that the
Secretary should obtain the necessary documentation of a borrower's
death, we believe that--as is the case with other types of loan
discharges--documentation of a borrower's eligibility for discharge
should remain the responsibility of the loan holder.
Change: None.
Comment: Two commenters felt that the problems identified by the
OIG were not significant enough to warrant requiring an original or
certified copy of the death certificate in all but exceptional
circumstances. One of the commenters noted that while his institution
generally requests an official copy of the death certificate, it would
be preferable to retain the current option of using an alternative
proof of death that is acceptable under State law. Another commenter
felt that the proposed requirements would place an undue burden on
families, on the grounds that certified copies of death certificates
can be difficult and expensive to obtain. The commenter did not believe
that allowing alternative documentation in ``exceptional
circumstances'' would reduce burden for the majority of families of
deceased borrowers. The commenter recommended keeping the current
documentation requirements, but encouraging loan holders to more
closely inspect documents for fraud.
Two commenters noted that obtaining an original or certified copy
of the death certificate may not be the only official means of
confirming an individual's death. One of the commenters reported that
some State social service agencies are beginning to put public records
on their websites, and suggested that loan holders should be allowed to
approve death discharges if they can obtain electronic verification of
an individual's death directly from an official source.
One commenter recommended that Sec. 682.402(b)(2) be revised to
provide that a guaranty agency must maintain documentation of death
discharges based on alternative documentation ``as required in
Sec. 682.414(a).'' The commenter believed that this change would
clarify that documentation of exceptional circumstances must be
maintained within the borrower's record as is the case with all other
claim documentation.
[[Page 65680]]
Discussion: We do not agree with the commenters' view that the
problems identified by the OIG are not significant enough to warrant
changing the requirements for documentation of death. Even a small
number of improperly granted death discharges represents a serious
problem and undermines program integrity. We believe that the most
appropriate response to the OIG's findings is to require loan holders
to obtain proof of a borrower's death in the form of an original or
certified copy of the death certificate. In the vast majority of cases,
obtaining an original or certified copy of the death certificate is not
unduly burdensome or costly. In addition, such documentation is
generally required by insurance companies and other parties in order to
pay benefits and close accounts.
We are interested in the commenters' suggestions regarding the
possibility of using electronic records and we will consider whether to
explore these other means for obtaining official proof of death that
could potentially be used in the future.
Finally, we do not believe it is necessary to cross-reference the
general record keeping requirements in Sec. 682.414.
Change: None.
Comment: Several commenters recommended that loan holders not be
limited to obtaining acceptable documentation of death only from the
borrower's representative or parent, since a loan holder may obtain a
death certificate directly from an official source.
Discussion: We agree with the commenters. However, we emphasize
that the loan holder must still obtain an original or certified copy of
the death certificate and may not simply contact an official source for
verification of a borrower's death.
Change: We have revised Sec. 682.402(b)(2) and Sec. 685.212(a)(1)
and (2) to eliminate the suggestion that a parent or representative
must provide the necessary documentation of the borrower's death. No
changes are needed in the Perkins Loan Program regulations.
Comment: Many commenters recommended that we reconsider the
proposed requirement that only the chief executive officer (CEO) of the
guaranty agency or chief financial officer (CFO) of the institution
would be authorized to approve a death discharge application that is
based on documentation other than the original or a certified copy of a
death certificate. The commenters felt that the proposed requirement
was overly restrictive, and could result in delays in the processing of
discharges. Many of the commenters believed that it would be more
appropriate to allow the CEO or CFO to designate another official of
the organization who would be authorized to approve alternative
documentation of a borrower's death.
Discussion: As explained in the preamble to the proposed
regulation, the requirement that a senior official of the guaranty
agency or institution approve the use of alternative documentation is
intended to ensure that such documentation is used only rarely, and in
exceptional circumstances. We believe that allowing the CEO or CFO to
designate another official who could approve alternative documentation
would be contrary to the intent of the regulations. Since very few
death discharges should be approved based on such alternative
documentation, we believe the restrictions will not adversely affect
the processing of death discharges.
Change: None.
Comment: One commenter suggested that the proposed Direct Loan
regulations appear to allow the use of alternative documentation of
death on a broader basis than would be permitted in the Perkins and
FFEL programs. The commenters noted that Sec. 674.61(a) and
Sec. 682.402(b)(2) state that discharges based on alternative
documentation of death may be approved only ``under exceptional
circumstances and on a case-by-case basis,'' while the corresponding
section of the Direct Loan Program regulations, Sec. 685.212(a)(2),
does not contain the same restrictive language. The commenter
recommended that the Direct Loan regulations be revised to include the
same language as the Perkins and FFEL program regulations.
Discussion: We did not intend to establish a less restrictive
requirement for the Direct Loan Program and agree with the commenter's
recommendation.
Change: We have revised Sec. 685.212(a)(2) to indicate that the
Secretary will approve discharges in the Direct Loan Program based on
alternative documentation only in exceptional circumstances and on a
case-by-case basis.
Comment: Several commenters recommended that Sec. 682.402(b)(3) of
the proposed regulation be revised to provide that the lender must
suspend collection activity against the borrower ``and any endorser''
after receiving reliable information indicating that the borrower has
died. The commenters noted that this would be consistent with the
corresponding provision for total and permanent disability discharges
in Sec. 682.402(c)(3).
Discussion: We agree with the commenters.
Change: We have revised Sec. 682.402(b)(3) to authorize suspension
of collection activities against an endorser under these circumstances.
Sections 674.51, 682.200, and 685.102 Definitions
Comment: Many commenters supported the removal of the criteria ``or
attend school'' from the definition of totally and permanently
disabled. However, one commenter expressed concerns about a borrower's
eligibility to receive loans after the end of the three-year
conditional discharge period. The commenter noted that the borrower
might later be unable to repay those loans because of a pre-existing
medical condition that prevents the borrower from working.
Discussion: We thank the commenters for their support. In response
to the commenter's concerns about a borrower being unable to repay
loans received after the end of the three-year conditional discharge
period because of a pre-existing medical condition that prevents the
borrower from working, we note that a borrower who seeks a new loan
after the final discharge of a previous loan at the end of the three-
year conditional discharge period will continue to be subject to the
same requirements that apply under the current regulations. That is,
the borrower must provide a certification from a physician that the
borrower is able to engage in substantial gainful activity, and must
acknowledge in writing that the new loan cannot be discharged based on
a pre-existing condition unless that condition has substantially
deteriorated.
Change: None.
Comment: One commenter questioned the rationale for removing
``attend school'' from the definition of ``totally and permanently
disabled,'' and recommended that the current definition be retained.
The commenter believed that the purpose of attending school is to
receive training that will later lead to gainful employment and the
ability to repay a student loan.
Discussion: As explained in the preamble to the NPRM, the
requirement that an individual must be unable to attend school was
removed from the definition of totally and permanently disabled because
of our belief that given medical and technological advances, it is no
longer meaningful to use ability to attend school as an indicator of
total and permanent disability. In addition, the prohibition against
attending school
[[Page 65681]]
could have the unintended consequence of discouraging disabled
individuals from pursuing further education or training.
Change: None.
Comment: Three commenters felt that the proposed definition of
``totally and permanently disabled,'' which provides that a borrower
must be ``unable to work and earn money,'' is not consistent with the
proposed discharge eligibility criteria, which allow a borrower to
receive earnings from work and still qualify for loan discharge. The
commenters believed that this difference would be confusing to
borrowers, and suggested that the definition of ``totally and
permanently disabled'' be revised to indicate that a borrower must
either be unable to work or, if able to work, that the borrower's
earnings could not exceed 100 percent of the poverty line for a family
of two during the conditional discharge period.
Discussion: We do not agree that the definition of ``totally and
permanently disabled'' conflicts with the discharge eligibility
criteria. To qualify for a conditional discharge due to total and
permanent disability, a borrower must provide a certification from a
physician indicating that, in the physician's best professional
judgment, the borrower is unable to work and earn money because of an
illness or injury that is expected to continue indefinitely or result
in death. However, advances in medical treatment may result in an
improvement in the borrower's condition that could not be predicted at
the time of the physician's certification. In addition, changes in
employment conditions may allow a borrower to return to work despite
his or her condition. We do not wish to discourage disabled individuals
from attempting employment. Accordingly, the regulations do not
disqualify borrowers who have minimal earnings during the conditional
discharge period.
On the other hand, we do not believe it is appropriate to revise
the definition of ``totally and permanently disabled,'' to include an
earnings limit. First of all, such an addition would be inconsistent
with the rest of the definition which refers to a borrower who cannot
work and earn money. Second, as a practical matter, it would
significantly complicate the process for determining if the borrower is
disabled by requiring the borrower to submit income information as well
as the doctor's certification as part of the initial application.
Sections 674.61, 682.402, 685.212 and 685.213 Total and Permanent
Disability Discharge
Comment: Many commenters argued that the Inspector General's report
discussed in the preamble to the NPRM (``Improving the Process for
Forgiving Student Loans'') does not provide compelling evidence that
substantive changes are required to the process for granting total and
permanent disability discharges. One commenter disagreed with this
view, and stated that the findings of the Inspector General's report
are cause for concern and legitimate reasons for the Department to take
action.
The commenters who stated the view that the findings in the OIG's
report do not justify the changes proposed in the NPRM suggested that
we conduct a comprehensive examination of the specific accounts
supporting the findings in the OIG's report before making changes to
the existing process for granting total and permanent disability
discharges. They believe that such an examination is necessary to
establish the reason for the exceptions, to identify possible
vulnerabilities in the system for granting disability discharges, and
to allow us to design a tailored solution to address the problem.
Discussion: The OIG clearly found evidence of inappropriate
disability discharges being awarded in the FFEL program. The OIG's
conclusion that 81 individuals earned more than $50,000 in 1997 after
receiving a disability discharge between July 1, 1994 and December 31,
1996 cannot be ignored. The OIG also reported that 6,800 new loans
totaling almost $20 million were awarded to borrowers who returned to
school after having loans totaling nearly $11.5 million discharged.
These findings indicate a significant problem that warrants the
proposed changes.
Change: None.
Comment: Many commenters criticized the proposed regulations on the
grounds that our approach to reforming the disability discharge
procedures would adversely impact all eligible borrowers, rather than
focusing on those borrowers who are later determined to be ineligible
for a final discharge.
Several commenters objected to the proposed change because they
believe it would cause undue hardship to borrowers. They contend that
the complexity of the proposed disability discharge procedures would
create unnecessary anxiety and confusion for disabled borrowers,
particularly those afflicted with severe mental or emotional
impairments.
One commenter raised concerns about the effect the proposed change
would have on potential borrowers who might think twice about obtaining
student loans for their future educational needs. The commenter
believed that the conditional discharge approach may potentially
discourage a person from pursuing higher education for fear of an
inability to repay his or her loans due to medical difficulties.
Discussion: As noted in the OIG report, the discharge of student
loans based on a total and permanent disability can provide a
significant benefit to the borrower. At the same time, the disability
discharge reflects a governmental decision to forgive thousands of
dollars in debt. Disability discharges thus represent a significant
cost to federal taxpayers. In these circumstances, it is clearly
appropriate to have stringent criteria for discharging a loan. While
the conditional discharge period may be a slight inconvenience for some
borrowers, it helps to ensure that total and permanent disability
discharges are only granted to borrowers whose disabilities are truly
``permanent.''
We disagree with the commenters' assumption that the three-year
conditional discharge period will create undue anxiety for borrowers.
Borrowers will be informed up front of the criteria they must meet to
qualify for a disability discharge. Borrowers who continue to meet the
eligibility criteria will receive a final discharge at the close of the
conditional period. Moreover, borrowers suffer no negative consequences
during the conditional discharge period. No collection activity or
adverse credit reporting occurs during the conditional discharge
period. If a borrower's situation changes during this period, we
believe the borrower should be expected to repay the student loan.
However, even if collection activity resumes on the loan, the borrower
is not obligated to pay any interest that accrued during the
conditional discharge period.
We disagree with the claim by one of the commenters that the
conditional discharge approach will be particularly harmful to
borrowers with severe mental or emotional impairments. As we noted in
the preamble to the NPRM (65 FR at 47635), we are not aware of any
other major federal program that provides disability benefits based on
a one-time review of an individual's condition, and we did not receive
any comments suggesting otherwise. The adoption of the policies
reflected in this regulation will make the processes for discharges of
student loans more comparable to that of other federal
[[Page 65682]]
programs to which the borrower may also be applying for benefits.
We strongly disagree with the commenter who suggested that the new
regulations would somehow discourage borrowers from taking out student
loans to further their education. Most borrowers, even those with some
pre-existing condition, recognize the value of postsecondary education
and appreciate the opportunity and access to education that student
loans provide them. We do not share the commenter's apparent belief
that a borrower will be dissuaded from pursuing an education based on
the standard for a disability discharge.
Change: None.
Comment: Several commenters objected to the proposed change because
they believe it will result in undue administrative burden on
institutions and guaranty agencies. One commenter claimed that the
proposed approach will not work and will result in genuinely disabled
borrowers not receiving discharges to which they are entitled. The
commenter also believed that the new process will require guaranty
agencies and the Department to meet impossible demands for vastly
increased staffing and medical and vocational expertise.
Several commenters also claimed that implementation of the proposed
regulations would result in considerable expense for taxpayers and loan
administrators, and questioned whether the benefits of the regulations
justify the expense.
Discussion: We agree that there are many operational details that
will need to be addressed before the regulations can be implemented
(see the prior discussion on effective date). However, we do not
believe that the regulations will create undue administrative burden on
loan holders and guaranty agencies. For these participants, there will
be little change from the current process of reviewing discharge
requests, except that their decision to grant a total and permanent
disability discharge will not be final and they will assign the loans
to us.
In regard to the commenters' claim that the costs of the new
process will exceed the benefits, our analysis does not support this
claim. Moreover, even a small percentage of borrowers who were
ineligible for loan discharge calls the integrity of the loan discharge
process into question and may threaten public support for the title IV
student loan programs.
Change: None.
Comment: Overall, the commenters claimed that the proposed rule
will be difficult to comprehend, difficult to administer, difficult to
explain to students, and that setting up new bureaucratic systems is
not the answer. However, two commenters agreed in general with the key
provisions of the proposed regulations.
Many commenters recommended that we withdraw the proposed
regulations.
A couple of commenters stated that the proposed regulations are
unnecessary because it is feasible to identify abusers by cross-
referencing tax information with discharge information and to reverse a
discharge granted to an ineligible borrower.
Some commenters questioned whether we have the legal authority to
impose a conditional discharge on borrowers, since a conditional
discharge is not specifically mentioned in the statute.
Discussion: The proposed regulations were discussed during an
extensive negotiated rulemaking process and were subject to the
opportunity for public comment. The comments we received and which are
discussed in this preamble have raised a number of issues. We have
responded to those issues in this document and, where appropriate, have
made changes to the regulations. We believe that this final regulation
creates a workable process that will result in fair treatment for
borrowers and taxpayers.
We also disagree with the commenters who suggested that the
regulations are unnecessary because we already have the ability to
revoke discharges. Generally, a final agency decision cannot be changed
based on events occurring after the decision. Accordingly, we believe
that it is unlikely that loan discharges for borrowers who met the
eligibility criteria could be easily reinstated and legally enforced at
a later date.
Change: None.
Comment: Several commenters recommended that we develop an
operational guide for the new policy and allow interested organizations
to review the guide. They believe that such a major change in policy
will require careful coordination between the various entities that
administer the title IV student loan programs and that operational
details must be carefully considered and documented.
Discussion: We agree with the commenters and intend to work with
representatives of schools, lenders, servicers, guarantors and
borrowers to develop appropriate written guidance to implement the
regulations.
Change: None.
Comment: Several commenters offered alternative solutions to those
proposed in the NPRM. Some recommended that we reconsider the proposal
made by the non-federal negotiators during the negotiated rulemaking
process. Under that proposal, a borrower would receive a disability
discharge after consideration of the initial application. However, the
borrower would also be notified that if certain events occur (receipt
of an additional title IV loan or significant earnings) during a
specified time period following the discharge, the discharge would be
revoked.
One commenter pointed out that reinstatement of loans in cases
where a borrower has requested another title IV loan subsequent to a
disability discharge has been a workable element of the title IV
program in the past. In addition, the Department has routinely
reinstated nonconditionally discharged loans in cases where the
determination of discharge eligibility was based on incorrect or
changing information, as is often the case with closed school
revisions.
One commenter recommended that we rely on State or Federal
agencies, such as the Social Security Administration, that are
specifically charged by law with making disability determinations. The
commenter believes that these agencies are far more capable of making
fair, uniform, and reliable disability determinations than loan holders
or guaranty agencies. The commenter believes that placing disability
discharge determinations in the hands of a knowledgeable third party is
the best way to ensure the integrity and fairness of all such
determinations.
One commenter recommended that we turn over verified fraudulent
disability claims to the U.S. Attorney's Office for possible
prosecution. The commenter believes that if it became known that the
Department vigorously pursues fraud, it would deter physicians from
falsely certifying disability request forms.
One commenter recommended that we require lenders to offer credit
insurance to student loan borrowers at reasonable rates. This insurance
would repay the full loan in cases of authentic total and permanent
disability that can be quickly and fairly verified. Borrowers who
accept the credit insurance could be given reduced interest points as
an incentive.
Another commenter suggested that Perkins Loan holders be allowed to
continue to make disability determinations, which would be reviewed as
part of the annual audit. In cases where the auditors question the
holder's judgment, we would disallow the discharge, and the loan holder
[[Page 65683]]
would be required to reimburse the Perkins loan fund. The commenter
believed that this approach would eliminate approvals based on
insufficient evidence.
Two commenters recommended that we reinstate the deferment for
temporary total disability. By doing so, borrowers would receive the
relief they need, and lenders and schools would have the ability to
determine, based on the physicians' certification, if the disability is
total and permanent at the end of an appropriate period of time. Loan
holders could also monitor the status of the borrower during the
deferment period for signs of substantial gainful employment.
Discussion: Although we have reinstated discharged loans in the
past due to fraud or based on inaccurate information submitted by the
borrower, inappropriate disability discharges are not necessarily
fraudulent. The new regulations recognize that a borrower's medical
condition is not static and could improve after the borrower received a
disability discharge. Similarly, changes in employment technologies and
opportunities could allow a disabled individual to return to work. We
do not believe that it is appropriate to discharge the obligation to
repay thousands of dollars of loans based on a one-time review of the
borrower's medical condition. The commenters did not cite any other
disability benefit program that relies on such a limited amount of
evidence to support the disability determination.
We have explored the option of relying on determinations by other
agencies, such as the Social Security Administration (SSA). We have
found that most of these agencies have disability criteria that are
less stringent than ours because they provide disability payments or
benefits based on the borrower's continuing disability. If an
individual's condition improves, the agency stops providing the
benefits. We believe that with a discharge--a one-time cancellation of
a borrower's obligation to repay a debt of thousands of dollars--there
is a need to use a higher standard. As a result, we have decided
against using SSA disability determinations. See ``Use of Social
Security Disability Documentation'' for a further discussion of this
issue.
We also do not believe that reviews of disability determinations
with annual audits would be practical. Auditors do not have the
expertise to make judgments about a holder's determination in
disability cases. We believe that the centralized process provided in
the regulations provides for a more consistent review of disability
discharge approvals.
We believe that the commenter's suggestion that we require lenders
to offer credit insurance would only increase costs to all student loan
borrowers and would not address the problem of providing the discharge
to ineligible borrowers. Moreover, this proposal and the proposal to
reinstate the temporary total disability deferment for all borrowers,
would require statutory changes.
Change: None.
Sections 674.61(b)(3)(ii), 682.402(c)(2)(ii), and 685.213(b)(2)
Use of Social Security Administration Disability Documentation
Comment: Many commenters expressed concern that the proposed
regulations did not provide specific guidelines on the type of SSA
documentation that a borrower could provide as an alternative to a
physician's certification. The commenters suggested that the lack of
guidelines on what type of documentation is acceptable would result in
significant borrower confusion and increase the administrative burden
for loan holders in this process. The commenters strongly recommended
that the final regulations include explicit and clearly defined
guidelines for determining the type of SSA documentation that could be
used as an alternative to a physician's certification. Many of the
commenters stated that if it was not possible to incorporate such
guidelines in the final regulations, all references to the use of SSA
documentation should be removed.
One commenter supported the concept of using SSA documentation as
an alternative to a physician's certification only if it were allowed
to be used in all cases. The commenter felt that, if it were not
allowed in all cases, it would be too difficult to explain to borrowers
when SSA documentation would be acceptable, and when it would not.
One commenter believed that using SSA documentation to establish
that a borrower is totally and permanently disabled would be the most
sensible approach, and expressed hopes that we would be able to
implement this approach. Another commenter noted that the ability to
accept a SSA disability determination as an alternative to a
physician's certification would reduce administrative burden. However,
the commenter has seen SSA disability documentation and was concerned
that the SSA's eligibility requirements are not as stringent as the
current requirements for discharging student loans based on total and
permanent disability.
One commenter, representing organizations that specialize in
consumer issues, believed that the language of the preamble to the
proposed regulations might suggest to some readers that any disability
determination from the SSA would be sufficient to establish a
borrower's eligibility for a total and permanent disability discharge
of a title IV loan. However, the commenter believed that our intent is
to allow the use of SSA documentation only for individuals whom the SSA
has placed in the highest of three continuing disability review
categories, ``medical improvement not expected.'' The commenter felt
that this approach would benefit very few borrowers, since the
``medical improvement not expected'' category consists of individuals
with serious conditions that are usually progressive and possibly fatal
and who would probably have no trouble obtaining a physician's
certification for a discharge. The commenter believed that we should go
further and use the SSA's continuing disability review categories, as a
basis for determining which borrower's discharges to review for
possible revocation within a limited time period. The commenter felt
that borrowers should be able to submit documentation of any SSA
disability benefits award as sufficient evidence to warrant a
disability discharge.
Discussion: We agree with the many commenters who felt that the
lack of specific guidelines on acceptable SSA documentation could cause
confusion for borrowers and loan holders. As explained in the preamble
to the proposed regulations, the standard that an individual must meet
to qualify for SSA disability benefits is not the same as the total and
permanent disability standard that applies in the title IV loan
programs. Many individuals who receive disability benefits from the SSA
would not be considered totally and permanently disabled under the
title IV definition. For this reason, we concluded that it would not be
appropriate to accept SSA documentation as an alternative to a
physician's certification in all cases.
In the preamble to the NPRM we indicated that we would work with
SSA to determine whether there is documentation that the SSA provides
to some individuals that would be comparable to a physician's
certification that a borrower is totally and permanently disabled
according to our definition. After extensive discussion and
examination, however, we have determined that there is no
[[Page 65684]]
documentation currently issued by SSA that would effectively establish
that a borrower is totally and permanently disabled under the title IV
standard.
Change: We have revised the regulations by removing all references
to the use of SSA documentation as an alternative to a physician's
certification.
Sections 674.61(b)(3)-(6), 682.402(C)(2)-(12), and 685.213(b)
Initial Determination of Total and Permanent Disability
Comment: One commenter questioned the ability of loan holders and
guaranty agencies to make medical determinations regarding a borrower's
disability status. The commenter expressed the view that it is not
possible, even for a medically trained reviewer, to determine, merely
by reading a physician's certification, whether a borrower is disabled.
Another commenter questioned whether we would be able to make valid
determinations of a borrower's disability without having full access to
the borrower's entire medical history. The commenter also expressed
concern that our disability determinations under the new process will
be arbitrary and inconsistent.
Discussion: The regulations do not change the role of loan holders
and guarantors in reviewing the basis for a borrower's disability
discharge claims. Loan holders have always had the authority to request
additional information or retain medical advice in evaluating
disability discharge requests. We believe that the added step of
assigning approved disability discharge claims to us for a second
review will ensure a comprehensive evaluation of the disability
request. We plan to request any additional information and expertise
necessary to ensure such a review.
We believe that the new procedures will improve the consistency of
decisions on disability discharge claims. Under the new process, we
will be able to develop standards and procedures for reviewing such
claims and to communicate those standards to the loan holders and
guaranty agencies.
Change: None.
Comment: One commenter recommended identifying specific medical
records that a borrower must provide to support a disability claim. The
commenter stated that, in many cases, physicians charge for providing
copies of records and letters, and a specific list of documents would
prevent a borrower from incurring extra costs by obtaining unnecessary
records.
Discussion: We believe loan holders should not be restricted as to
the type of additional medical documentation they can request in order
to make a disability determination. We believe that the types of
documentation required may differ depending on the circumstances and
that it is neither possible nor useful to attempt to provide such a
list.
Change: None.
Comment: A large number of commenters approved of our proposal that
we assume responsibility for servicing loans after the loan holder or
guarantor has assigned to us a loan on which the loan holder or
guarantor has approved a disability discharge claim. These commenters
agreed that once the loan is assigned to us for determination of
eligibility for a conditional discharge, regardless of the
determination made, the loan should remain with us.
Discussion: We appreciate the commenters' support for this
provision of the regulations.
Change: None.
Comment: One commenter felt that disabled borrowers with multiple
loans should not be forced to submit separate disability discharge
claims to each loan holder. This commenter pointed out that, for other
title IV loan discharges, there exists a cross-program documentation
policy that allows the appropriate program participant to discharge a
loan based on the comparable discharge of another title IV loan. The
commenter suggested that we should adopt a similar policy and authorize
schools and guaranty agencies to discharge a borrower's loan without
requiring additional documentation if another of the same borrower's
loans has been discharged due to a disability.
Discussion: In some instances the eligibility for discharge relies
in part on when the individual loan was made and on the borrower's
condition at that time. Therefore, we believe that the preliminary
determination of whether a borrower qualifies for a disability
discharge should be made by the holder of the loan (Secretary, school,
lender, guaranty agency).
Change: None.
Comment: One commenter requested clarification on the status of a
loan that is delinquent or in default at the time it is placed into a
conditional discharge status. The regulations state that the borrower
is not considered delinquent or in default on the loan during the
conditional discharge period.
Discussion: We agree that the regulatory language should be
clarified. During the conditional discharge period, the loan retains
the status that it was in at the time the conditional discharge was
granted. If a loan was current at the time of the conditional
discharge, it will remain current and not be considered delinquent or
in default during the conditional discharge period. If the loan was
delinquent or in default at the time the conditional discharge was
granted, it will remain delinquent or in default during the conditional
discharge period.
Change: We have revised Secs. 674.61(b)(7)(ii), 682.402(c)(14)(ii),
and 685.213(d)(2) to clarify that a borrower is not considered
delinquent on a loan during the conditional discharge period, unless
the loan was delinquent or in default at the time of the conditional
discharge.
Comment: One commenter recommended that we explain the process that
a guarantor must follow if the guarantor is the holder of the loan at
the time the borrower requests a total and permanent discharge.
Discussion: The process is the same as described in the
regulations, except that the borrower applies directly to the guaranty
agency for the discharge, rather than to the lender. We do not believe
it is necessary to specifically describe this process in the
regulations.
Change: None.
Comment: Several commenters suggested that we work with the student
loan community to develop a standardized application form and
physician's certification for total and permanent disability
discharges. Commenters believed that a standardized form would reduce
confusion for physicians and loan holders. One commenter recommended
that the standardized form include a specific definition of ``permanent
and total disability'' to clarify any ambiguity or misconceptions a
physician might have.
Discussion: We agree with the commenters and will work with the
student aid community to develop revised total and permanent disability
forms. We are interested in the suggestion that a single standardized
discharge application form be developed for use in all three of the
title IV student loan programs.
Change: None.
Comment: One commenter recommended that during the time required
for the medical reviews of the disability claim, borrowers should be
granted an automatic forbearance on payments. This would eliminate the
need to require return of payments made on the loan after the onset of
the disability at the end of the conditional discharge period.
Discussion: The regulations provide for a suspension of payments
after the borrower submits the physician's certification, or the letter
from a physician requesting additional time to
[[Page 65685]]
make a certification. We believe that this will serve the same purpose
as a forbearance.
Change: None.
Comment: Several commenters recommended that Secs. 674.61(b)(5) and
682.402(c)(11), be revised by replacing ``due and payable'' with ``due
and payable to the Secretary'' to clearly advise the borrower that,
despite the disability denial, the Secretary retains ownership of the
loan.
One commenter proposed additional language: ``The notice must
identify the address where payments are to be sent.''
Discussion: We do not believe that it is necessary to include this
level of operational detail in the regulation.
Changes: None
Comment: Several commenters recommended that Secs. 674.61(b)(4) and
682.402(c)(8) be revised to make the Department responsible for
informing the borrower of the borrower's rights and responsibilities,
as well as who the borrower should contact in the future.
Discussion: We disagree. The first notification to a borrower that
his or her loan has been assigned to us comes from the lender for FFEL
or from the school for Perkins. At that point, the borrower will want
to know the next steps for being granted a disability discharge. We
believe that the lender or school that already has been in contact with
the borrower concerning the discharge request should provide specific,
detailed information about the disability discharge process with the
notification of assignment.
Change: None.
Comment: Several commenters recommended that we revise
Sec. 682.402(c)(3) to provide for a 60-day suspension of collection
activities upon notification by the borrower that the borrower claims
to be totally and permanently disabled, or upon receipt of a
physician's letter to request additional time to determine if the
borrower is totally and permanently disabled.
Discussion: The regulations provide for a suspension of collection
activity after receipt of the physician's certification or letter. We
do not believe that there should be a suspension of collection activity
for the period when the borrower is obtaining the documentation needed
to support the claim of a total and permanent disability. However, if
the lender believes that the borrower's circumstances warrant a period
of forbearance, while the borrower is obtaining supporting
documentation, the lender is free to grant such a forbearance.
Change: None.
Comment: Several commenters recommended that we revise
Secs. 682.402(c)(4)(i) and (ii) and 682.402(c)(6)(i) and (ii) to say
that the lender or guaranty agency has determined that the
documentation ``appears'' to support the borrower's claim. The
commenters suggested that this language is needed because, while the
lender or guaranty agency may believe, based on its own expertise and
review criteria, that the documentation supports a discharge, we will
make the actual determination to grant the conditional discharge.
Discussion: We disagree with this recommendation. Loan holders and
guarantors are required to thoroughly review the applications and make
determinations of eligibility for disability discharges based upon the
application and any supporting medical documentation. Adding the word
``appears'' undercuts the sense that lenders and guaranty agencies are
responsible for making appropriate decisions.
Change: None.
Comment: Several commenters recommended that in Sec. 682.402(c)(5)
we replace ``* * * from the date the lender received the physician's
letter requesting additional time * * *'' with ``* * * from the date
collection activity was suspended * * *'' These commenters suggested
that this language was needed to cover all situations in which
collection may have been suspended, not just for situations in which a
physician has requested additional time.
Discussion: We agree with the commenters.
Change: We have revised Sec. 682.405(c)(5) to specify that the
forbearance period begins from the date collection activity was
suspended.
Comment: Several commenters requested that we add a sentence to
Sec. 682.402(c)(7) authorizing the lender to grant forbearance for the
period during which collection activities were not performed in cases
when the guaranty agency does not pay a disability claim and returns
the claim to the lender.
Discussion: We agree with the commenters' recommendation.
Change: We have revised Sec. 682.402(c)(7) to authorize forbearance
as requested in the comments.
Comment: Several commenters recommended that we revise
Sec. 682.402(c)(10) as follows: ``The guaranty agency must assign the
loan to the Secretary after the guaranty agency pays the disability
claim. Upon assignment of a loan to the Secretary under this section,
the Secretary assumes all obligations, responsibilities, and
liabilities associated with that loan.'' The commenter suggested that
this language should replace the cross-reference to Sec. 682.409 in the
proposed regulation, which addresses subrogation rules that are not
applicable to disability discharges. The commenter recommended that
assignment of a loan for determination of eligibility for a conditional
discharge should occur immediately after claim payment to the lender by
the guaranty agency rather than waiting for the payment of reinsurance
so that we may immediately evaluate the borrower's request for a
disability discharge.
Discussion: We agree that the assignment of these accounts should
take place immediately after the agency's determination and notice to
the borrower. However, we do not agree that the regulations need to
specify the Secretary's responsibilities in this process.
Change: We have revised Sec. 682.409(c)(10), which we have
renumbered as Sec. 682.409(c)(11), to direct the guaranty agency to
assign disability accounts to us immediately following the agency's
payment of a lender's claim.
Comment: Several commenters requested that we add a sentence to
Sec. 682.402(c)(12) specifying the contents of the notice the Secretary
sends to the borrower. Paragraphs (c)(12) and (c)(16) both provide
guidance regarding the Secretary's notification to a borrower. They
recommended that we merge the information in (c)(16) with the
information in (c)(12) to more clearly state in one paragraph the
information provided when the borrower is notified that the loan is
conditionally discharged.
Discussion: We agree with this change.
Change: We have revised Sec. 682.402(c)(12), which we have
renumbered as Sec. 682.409(c)(13), in accordance with the commenter's
suggestion.
Comment: One commenter representing doctors of podiatric medicine
noted that the SSA recently amended its regulations by adding licensed
podiatrists as acceptable medical sources for establishing medical
impairments of the foot, or foot and ankle. Given this development, the
commenter requested that we change the definition of ``totally and
permanently disabled'' to allow doctors of podiatric medicine, within
their scope of practice as defined by State law, to certify that a
borrower is totally and permanently disabled for the purpose of a loan
discharge.
[[Page 65686]]
Discussion: Our long-standing policy has been that the only
physicians authorized to certify that a borrower is totally and
permanently disabled for the purpose of a loan discharge are doctors of
medicine or osteopathy. In light of the other significant changes we
are making to the process for evaluating requests for discharges on
total and permanent disability we are not willing, at this time, to
consider an expansion of the categories of medical professionals who
can certify a borrower's request for a discharge. However, we will
monitor the types of disabilities that lead to requests for a discharge
and may decide to revise the regulations to increase the categories of
medical professionals in the future. Of course, a doctor of podiatric
medicine who meets State law requirements as a doctor of medicine may
certify the borrower's application.
Change: None.
Sections 674.61(b)(1), (b)(6), and (b)(7), 682.402(c)(1), (c)(12),
and (c)(13), and 685.213(a)(1) and (d) Conditional Discharge
Comment: Many commenters recommended that we revise
Secs. 674.61(b)(1), 674.61(b)(6), 682.402(c)(1)(i) by using the term,
``from the date the physician determined the borrower to be totally and
permanently disabled'' instead of ``onset of the disability.'' The
commenters pointed out that the onset date of the disability is not the
date on which the discharge is based, rather it is the date the
physician determines the borrower is totally and permanently disabled.
In many cases, the onset of the disability could occur many years in
the past. Therefore, the begin date of the conditional period should be
clarified as the date the borrower became totally and permanently
disabled.
Discussion: We agree that the three-year conditional discharge
period should begin on the date the borrower became totally and
permanently disabled as certified by a physician. However, the language
suggested by the commenters could be interpreted to mean that the
conditional discharge period begins on the date of the doctor's
certification. We have revised the regulations to clarify that the
conditional discharge period begins on the date that the borrower
became totally and permanently disabled.
Change: We have revised the language as stated.
Comment: Several commenters recommended that we reduce the length
of the conditional period from three years to two years. Another
commenter suggested that the three years is too short. Another
suggested that we conduct additional research to determine if three
years is an appropriate length of time. One commenter requested that we
clarify whether our use of the term ``up to three years'' means that we
would grant conditional discharges for shorter periods.
Discussion: We believe that three years is an appropriate length of
time for the conditional discharge period. The term ``up to three
years'' is intended to make it clear that we can terminate a
conditional discharge at any time, if we become aware that a borrower
no longer meets the eligibility criteria for a discharge. We do not
intend to grant conditional discharges for shorter time periods than
three years.
Change: None.
Comment: One commenter noted that if the total and permanent
disability onset date is more than three years prior to the disability
review, the borrower would have already exhausted the conditional
discharge period and our final determination on the borrower's
discharge application would be based on data with regard to the
borrower's income in the past. The commenter suggested that we change
the regulations to reflect this fact.
Discussion: The conditional discharge period begins on the date the
borrower became totally and permanently disabled. The commenter is
correct in noting that in some cases three years could have already
elapsed before a borrower applies for a disability discharge. In those
cases, determination of eligibility for a final discharge would be
based on data from the prior three years and would be made immediately
upon assignment of the account to us.
Change: The regulations have been changed to clarify that some or
all of the three-year conditional period could occur before the initial
determination of eligibility for discharge.
Sections 674.61(b)(2), (8), and (9), 682.402(c)(14) and (15), and
685.213(a)(2) and (c) Final Determination of Total and Permanent
Disability
Comment: Some commenters argued that a borrower should be able to
have annual earnings above the poverty line for a family of two without
losing eligibility for a final disability discharge. These commenters
argued that the income limit is too low, and is not a fair measure of a
borrower's eligibility for a disability discharge. One commenter
suggested using 150 percent of the poverty line. Other commenters felt
that the poverty line was an adequate measurement.
Discussion: We disagree that the maximum earnings level in the
proposed regulations is too low. By definition, a borrower who is
totally and permanently disabled is unable to work and earn money. The
regulations allow a borrower to work and earn a modest amount so that
borrowers are not discouraged from attempting to return to work during
the conditional discharge period. We believe that any earnings above a
very modest amount indicate that a borrower is able to work and earn
money, and should disqualify the borrower from receiving a final
discharge of his or her loan.
Change: None.
Comment: Several commenters objected to the provision in the
regulations that denies a borrower a final discharge if the borrower
takes out a title IV loan during the conditional discharge period. They
felt this was unfair, because a borrower who returns to school without
taking out additional title IV loans would continue to qualify for a
final discharge.
Discussion: A borrower whose loan has been conditionally discharged
due to total and permanent disability cannot receive another title IV
loan unless a physician certifies that the borrower is capable of
substantial gainful activity. A borrower who is capable of substantial
gainful activity is able to work and earn money. In addition, a
borrower who takes out a new loan agrees to pay it back, which means
that the borrower expects to have earnings. We believe that such a
borrower does not qualify for a discharge.
Change: None.
Comment: Several commenters had concerns about how we will verify a
borrower's income for purposes of determining the borrower's ultimate
qualification for a discharge. One commenter pointed out that commonly
used measuring devices such as tax returns and W-2 forms measure income
on a calendar-year basis. This commenter noted that using calendar year
income may put a borrower claiming disability at the beginning of the
year at a disadvantage compared to a borrower claiming disability at
the end of the year. Several commenters recommended that we not use
calendar year income to measure a borrower's earnings. Instead, they
recommended that we use income over a 12-month period.
Some commenters recommended that we measure income on a calendar-
year basis because attempting to measure income over a period not in
common usage might lead to a lack of clarity and consistency.
[[Page 65687]]
Discussion: We agree that the income measurement should be based on
three 12-month periods starting on the date the borrower became totally
and permanently disabled. However, we do not agree that the term
``annual income'' in the regulation limits us to measuring income on a
calendar-year basis.
Change: None.
Comment: One commenter recommended that we require borrowers to
notify us if the borrower earns money above the income limits after a
final disability discharge has been granted. The commenter noted that
advances in medical technology may ease a disability previously deemed
total and permanent.
Discussion: As with the current regulations, a borrower is not
obligated to make payments on a discharged loan, even if the borrower's
medical status improves. We believe that the three-year conditional
discharge period is an adequate length of time to determine if a
borrower's medical condition will improve sufficiently to no longer
meet the criteria for a total and permanent disability discharge. Once
the borrower meets all of the criteria for a final discharge of his or
her loan, the borrower should not be required to continue reporting on
his or her status to us.
Change: None.
Comment: Several commenters recommended that we revise
Sec. 682.402(c)(1)(ii)(B) to provide an exception for consolidation
loans. The commenters believe that a borrower who consolidates loans
that have not been conditionally discharged should not be precluded
from having the conditionally discharged loans discharged at the end of
the conditional discharge period.
Discussion: We agree, as long as the borrower is not including a
conditionally discharged loan in the consolidation loan.
Change: We have revised Secs. 674.61(b)(2)(ii),
682.402(c)(1)(ii)(B), and 685.213(c)(2) to provide an exception for
consolidation loans. We have also clarified that a borrower may not
consolidate a loan while it is in a conditional discharge period.
Comment: One commenter recommended that we add a new paragraph to
Sec. 682.402(c)(1)(ii) stating that a borrower is not considered
disabled if the borrower was ``otherwise determined not to be totally
and permanently disabled'' by the Secretary. The commenter cites
language in the preamble to the proposed regulations indicating that
the Secretary might refuse a final discharge based on other criteria
not specified in the regulations.
Discussion: The language in the preamble was intended to account
for incidents of fraud, and was not meant to suggest that we would deny
the discharge of a loan based on criteria other than what is specified
in the regulations. However, it is not necessary to restate in this
section of the regulations our authority to revoke a discharge due to
fraud.
Change: None.
Comment: Several commenters recommended that we revise
Sec. 682.402(c)(1)(iii) as follows: ``Except as provided in paragraph
(c)(1)(iv)(A) of this section, a borrower is not considered totally and
permanently disabled based on a condition that existed at the time the
loan was made unless the borrower's condition substantially
deteriorated * * *'' The revision is consistent with proposed
regulations in which the borrower's disability date is compared to the
date the loan is made, rather than the date the borrower applied for
the loan.
Discussion: We agree with the commenters' recommendation.
Changes: We have revised Sec. 682.402(c)(1)(iii) in accordance with
the commenters' recommendation. We have also made corresponding changes
in Sec. 685.213(a)(4) of the Direct Loan regulations. There is no need
to make a change to the Perkins regulations.
Sections 674.61(b)(11) and (12), 682.402(r)(2) and (3),
685.212(g)(2) Payments Received After the Onset of the Disabling
Condition
Comments: Several commenters recommended that we revise
Secs. 674.61(b)(12) and 682.402(r)(3) by deleting ``100 percent of''
and replacing ``* * * any payments received, directly or indirectly,
from or on behalf of the borrower'' with ``* * * any payments received
on the loan after the date the borrower became totally and permanently
disabled.'' The commenters believed that this language clarified that
when the final discharge is granted, only those payments made after the
date the borrower became totally and permanently disabled should be
returned.
Discussion: We agree.
Changes: We have revised Secs. 674.61(b)(12) and 682.402(r)(3) in
accordance with the commenter's suggestion.
Comment: Several commenters recommended that we revise
Sec. 674.61(b)(1) by adding the following sentence: ``The institution
shall not refund a repayment made during a period for which the
borrower qualified for a total and permanent disability discharge
unless the borrower made a payment due to an institutional error.''
These commenters recommend that only those payments made after the date
the institution approved the preliminary disability discharge should be
returned after the final discharge is granted.
Discussion: In many cases a borrower will make payments between the
time he or she became totally and permanently disabled, and the time
the conditional discharge was granted. Borrowers do not always apply
for a discharge immediately after becoming totally and permanently
disabled. It would be unfair to penalize a borrower for keeping current
on his or her payments prior to applying for a discharge. We also
believe the handling of payments received from disabled borrowers
should be consistent across the three title IV student loan programs.
Changes: None.
Comment: Several commenters recommended that we revise
Secs. 674.61(b)(11) and 682.402(r)(2) by deleting the language which
requires the institution or the guaranty agency to notify the borrower
that there is no obligation to make payments on the loan while it is
conditionally discharged. These commenters pointed out that the
institution or guaranty agency will not know the borrower's loan status
after the loan has been assigned to us. Without this information, the
institution's notification to the borrower may be confusing or
inaccurate. The notification could be contradictory if we had removed
the loan from a conditional discharge status and placed it into
repayment.
Discussion: Both Secs. 674.61(b)(11) (which has been renumbered
Sec. 674.61(b)(10)) and 682.402(r)(2) specify that the notice must tell
borrowers not to make payments ``unless the Secretary directs the
borrower otherwise.'' We believe that loan holders and GAs should make
it clear in their notices that we may instruct the borrower to resume
making payments.
Change: None.
Comment: Several commenters recommended that we revise
Secs. 674.61(b)(12) and 682.402(r)(3) by replacing ``sender'' with
``borrower'' or ``borrower's representative.'' They noted that it is
not easy to determine who may have sent a payment on an account,
especially up to three years after the fact. The sender may be a lender
or GA that is forwarding the payment to us. Lenders and GAs may be
required to process a payment received from a borrower and forward
their own cashier's check to us to create an audit trail of payments
received.
[[Page 65688]]
Discussion: Other provisions of the regulations refer to ``sender''
not ``borrower.'' The regulations retain the word ``sender'' to
maintain consistency.
Change: None.
Comment: Several commenters objected to the provisions in
Secs. 674.61(b)(12) and 682.402(r)(3) which provide for keeping
payments for a three-year period. They recommend refunding payments
made by the borrower after the onset of the disability at the time of
our determination of the borrower's eligibility for conditional
discharge, not at the end of the conditional discharge period three
years later.
Discussion: Until the discharge is finalized, collection activity
may resume on the loan. As a result, we feel that it sends the wrong
signal to borrowers to return payments prior to the final discharge. In
order to avoid prematurely giving borrowers the impression that their
loan has been discharged, we will wait until the final discharge before
refunding payments.
Change: None.
Comment: Several commenters recommended revising
Sec. 682.402(c)(13)(i) to read ``Is not required to make payments on
the loan.'' The paragraph states that a borrower is not required to
make payments from the date the Secretary makes the conditional
discharge determination. However, the suspension of collection
activities actually begins earlier (upon receipt of the documentation
identified in Sec. 682.402(c)(3)).
Discussion: We agree that the language in Sec. 682.402(c)(13)(i) is
unnecessary and possibly confusing.
Change: We have revised Sec. 682.402(c)(13)(i) (which has been
renumbered as Sec. 682.402(c)(14)(i)) to clarify that payments need not
be made from the date of suspension of collection activities.
Comment: Several commenters recommend revising Sec. 682.402(c) by
adding a new paragraph (c)(9) as follows: ``After receiving a claim
payment from the guaranty agency, the lender shall forward to the
guaranty agency any payments subsequently received from or on behalf of
the borrower.'' The commenters noted that paragraph (c) does not
address the disposition of borrower payments received by the lender
after the date of total and permanent disability.
Discussion: We agree.
Change: We have revised Sec. 682.402(c) in accordance with the
commenter's suggestion.
Sections 674.9, 682.201, and 685.200 Borrower Eligibility for Title
IV Loans
Comment: Section 682.201(a)(5) provides that a borrower who has a
loan in a conditional discharge status is not eligible to receive a new
title IV loan until the suspension of collection activity has been
lifted on the conditionally discharged loan. Many commenters suggested
that this requirement would cause unnecessary delays in loan
processing, since a school, lender, or guaranty agency generally may
not know if collection activity has resumed on a conditionally
discharged loan. The commenters suggested that resumption of collection
activity should be included in the regulations only as a consequence of
receiving a new loan during the conditional discharge period, rather
than as a condition of eligibility for a new loan. Other commenters
recommended that Sec. 682.201(a)(5) be replaced by a new provision
requiring, as a condition of eligibility for a new loan, that a
borrower sign a statement acknowledging that collection activity will
resume on any conditionally discharged loan.
Discussion: A borrower who receives a new title IV loan while a
previous loan is in a conditional discharge period is no longer
considered to be totally and permanently disabled, and therefore is
responsible for repaying the conditionally discharged loan. To
emphasize the importance of this repayment obligation, we believe that
collection activity must resume on a conditionally discharged loan
before the borrower receives a new loan, as opposed to simply having
the borrower acknowledge that collection activity will resume. The
means by which a school, lender, or guaranty agency will know that
collection activity has resumed is an operational issue that will be
addressed as we implement the new regulations.
While we do not agree that Sec. 682.201(a)(5) should be removed, we
do support the commenters' suggestion that a borrower be required to
acknowledge in writing that collection activity will resume on any
conditionally discharged loan.
Change: Sections 674.9(i), 682.201(a)(7), and 685.200(a)(1)(iv)(C)
have been amended to include a provision requiring a borrower to sign a
statement acknowledging that he or she understands that collection
activity will resume on a conditionally discharged loan if the borrower
applies for a new loan.
Sections 674.5, 674.9, 674.51, and 674.61 Federal Perkins Loan
Program
Comment: Several commenters stated that defaulted borrowers whose
Perkins loans have been conditionally discharged should not be included
in the institution's cohort default rate for Perkins Loans. They
recommended that we amend Sec. 674.5(c)(3)(ii) by adding the following
subsection: ``(E) Assigned to and conditionally discharge by the
Secretary in accordance with Section 674.61(b).''
Discussion: We agree with the commenters.
Change: Section 674.5(c)(3)(ii) has been revised to specify that
defaulted Perkins Loans assigned to and conditionally discharged by the
Secretary are excluded from an institution's Perkins Loan cohort
default rate.
Comment: Several commenters recommended that for the Perkins Loan
Program we use the term ``cancelled'' rather than discharged in
Sec. 674.61(b)(1). Under the current Perkins Loan regulations, a
borrower's loan may be ``cancelled'' due to his or her disability and
the commenters preferred to retain this language. The commenters argued
that the amount of the discharge is recorded as a cancellation on the
institution's general ledger and on the FISAP, and that a change in the
term would require institutions to make changes to their accounting
records and may cause confusion on the FISAP.
Discussion: As reflected in these regulations, the standard for and
treatment of loans made to borrowers who become totally and permanently
disabled is consistent across the Perkins Loan, FFEL and Direct Loan
programs. To avoid confusion among borrowers and others, we believe
that the language across all of the title IV loan programs should be
consistent. The term ``discharge'' is more widely used and we will use
that term for all three programs. We will revise the FISAP to reflect
the change in terminology as soon as practicable. We do not believe
that this change in terminology should cause any significant changes in
a school's accounting records since the effect of the discharge does
not change.
Change: None.
Comment: Several commenters recommended that the proposed
regulations not apply to the Perkins Loan Program because the OIG's
report was based on a review of FFEL program loans and there is no
evidence of similar abuse in the Perkins Loan Program. The commenters
noted that schools participating in the Perkins Loan Program already
have a powerful
[[Page 65689]]
financial incentive to prevent inappropriate disability discharges.
Unlike lenders and GAs in FFEL, schools which make Perkins Loans are
not reimbursed for loans cancelled due to total and permanent
disability.
One commenter reported that currently even the largest colleges and
universities receive only a handful of disability claims a year and
that the Perkins Loan Program has not experienced the same increase in
disability claims as the FFEL program in recent years.
Another commenter indicated that they, in fact, expect the number
of applicants for disability discharges in the Perkins Loan Program to
increase under the new rule. The commenter believes that borrowers will
dispute school denial of discharges and force schools to assign the
account to the Department.
Many commenters from schools in the Perkins Loan Program also
expressed concern that the proposed regulations will compromise their
ability to interact with disabled students and their families in a
flexible manner.
Discussion: We believe that since many students receive assistance
from both the Perkins Loan and either FFEL or Direct Loans and the same
disabled borrower is likely to apply for discharge of all of his or her
loans, the problems uncovered in the FFEL program are likely to exist
in the Perkins and Direct Loan Programs. We also believe that since the
Perkins Loan Program use the same definition of totally and permanently
disabled and the same disability discharge process as the FFEL and
Direct Loan Programs, any changes to the process must apply to the
Perkins Loan Program to ensure that borrowers in all of the title IV
loan programs are treated fairly.
We disagree with the commenter who speculated that the regulations
will increase the number of Perkins Loan disability discharges. Schools
will still have the responsibility to review disability discharge
requests and the supporting documentation and will have the same
financial incentives to prevent inappropriate disability discharges.
Except for the assignment requirement, the regulations will not require
any changes to a school's current process for reviewing and approving
or denying disability discharge requests. Therefore, we do not believe
that the regulations will prevent schools from interacting with
students in a flexible manner.
Change: None.
Comment: Several commenters had raised issues relating to the
assignment process for Perkins Loans on which a borrower requests a
discharge. Several commenters noted that the requirement in
Sec. 674.61(b)(3) that a Perkins loan approved for a disability
discharge be assigned to us conflicts with the current assignment
regulations in Sec. 674.50, which allow an institution to submit only a
defaulted loan for assignment. They also pointed out that
Sec. 674.50(e)(4) provides that the Secretary will not accept
assignment of a loan where the borrower ``has filed for or been granted
cancellation due to permanent and total disability.''
Some commenters agreed with our proposal to require a school to
assign Perkins loans to us after it approves the borrower's disability
claim. Other commenters argued that the loan should stay with the
institution. One commenter recommended that we reimburse the
institution for the loan. Another suggested that we return the loan to
the institution if we deny the disability claim.
Other commenters were concerned that a loan assigned to us would be
subject to an initial review and could be rejected. They recommended
that Sec. 674.61(b)(3) be revised to require the school to ``* * *
automatically and irrevocably assign the loan to the Secretary * * *''
Several commenters recommended that the assignment process for
these loans should be simplified. The current assignment process is
voluntary. They argued that it is not appropriate to require mandatory
assignment of accounts on which the borrower has requested a disability
discharge. They recommended that a special assignment process be
developed for disability discharges.
Discussion: We agree that the reference to Sec. 674.50 mentioned by
the commenters is inaccurate. We do not agree with the suggestion that
the addition of the phrase ``automatically and irrevocably'' to
Sec. 674.61(b)(3) is necessary but plan to work with the schools that
participate in the Perkins Loan Program to develop a simplified
assignment process for disability accounts.
Change: We have removed the reference to Sec. 674.50.
Executive Order 12866
We have reviewed these final regulations in accordance with
Executive Order 12866. Under the terms of the order we have assessed
the potential costs and benefits of this regulatory action.
The potential costs associated with the final regulations are those
resulting from statutory requirements and those we have determined to
be necessary for administering these programs effectively and
efficiently. Elsewhere in this SUPPLEMENTARY INFORMATION section, we
identify and explain any burdens specifically associated with
information collection requirements. See the heading Paperwork
Reduction Act of 1995.
In assessing the potential costs and benefits--both quantitative
and qualitative--of these final regulations, we have determined that
the benefits of the regulations justify the costs.
We have also determined that this regulatory action does not unduly
interfere with State, local, and tribal governments in the exercise of
their governmental functions.
We summarized the potential costs and benefits of these final
regulations in the preamble to the NPRM (65 FR 47639). Based on the
expectation that all provisions would be effective July 1, 2001, we
estimated a savings of $72 million over FY 2001-2005 as a result of
borrowers who would have received a discharge losing eligibility during
the three-year conditional period. The final regulations include a one-
year delay in implementing the conditional discharge provisions for
total and permanent disability. Therefore, under the final regulations
the Department estimates a revised savings of $59 million over FY 2001-
2005.
Paperwork Reduction Act of 1995
The Paperwork Reduction Act of 1995 does not require you to respond
to a collection of information unless it displays a valid OMB control
number. We display the valid OMB control numbers assigned to the
collections of information in these final regulations at the end of the
affected sections of the regulations.
Assessment of Educational Impact
In the NPRM we requested comments on whether the proposed
regulations would require transmission of information that any other
agency or authority of the United States gathers or makes available.
Based on the response to the NPRM and our review, we have
determined that these final regulations do not require transmission of
information that any other agency or authority of the United States
gathers or makes available.
Electronic Access to This Document
You may view this document, as well as all other Department of
Education documents published in the Federal Register, in text or Adobe
Portable Document Format (PDF) on the Internet at either of the
following sites:
[[Page 65690]]
http://ocfco.ed.gov.fedreg.htm
http://www.ed.gov/news.html
To use PDF you must have Adobe Acrobat Reader, which is available
free at either of the previous sites. 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.access.gpo.gov/nara/index.html
(Catalog of Federal Domestic Assistance Numbers: 84.032 Federal
Family education Loan Program; 84.037 Federal Perkins Loan Program;
and 84.268 William D. Ford Federal Direct Loan Program)
List of Subjects in 34 CFR Part 674, 682, and 685
Administrative practice and procedure, Colleges and universities,
Education, Loan programs-education, Reporting and recordkeeping
requirements, Student aid, Vocational education.
Dated: October 25, 2000.
Richard W. Riley,
Secretary of Education.
For the reasons discussed in the preamble, the Secretary amends
parts 674, 682, and 685 of Title 34 of the Code of Federal Regulations
as follows:
PART 674--FEDERAL PERKINS LOAN PROGRAM
1. The authority citation for part 674 continues to read as
follows:
Authority: 20 U.S.C. 1087aa-1087ii and 20 U.S.C. 421-429, unless
otherwise noted.
2. Section 674.5 is amended by removing ``or'' at the end of
paragraph (c)(3)(i)(D); removing the period at the end of paragraph
(c)(3)(i)(E) and adding, in its place ``; or'' and adding a new
paragraph (c)(3)(ii)(F) to read as follows:
Sec. 674.5 Federal Perkins Loan Program cohort default rate and
penalties.
* * * * *
(c) * * *
(3) * * *
(ii) * * *
(F) Assigned to the Secretary in accordance with Sec. 674.61(b).
3. Section 674.9 is amended by:
A. Removing the period at the end of paragraph (h)(2) and adding in
its place ``; and'.
B. Adding a new paragraph (h)(3).
C. Redesignating paragraphs (i) and (j) as paragraphs (k) and (l),
respectively.
D. Adding a new paragraph (i).
E. Adding a new paragraph (j).
The additions and revisions read as follows:
Sec. 674.9 Student eligibility.
* * * * *
(h)(3) In the case of a borrower whose previous loan under title IV
of the HEA was discharged due to a total and permanent disability on or
after July 1, 2001 and before July 1, 2002, meets the requirements of
(h)(1) and (h)(2) of this section. If the borrower receives another
loan within three years from the date the borrower became totally and
permanently disabled, as certified by the physician, the borrower must
reaffirm the previously discharged loan.
(i) In the case of a borrower whose previous loan under title IV of
the HEA was conditionally discharged based on an initial determination
that the borrower was totally and permanently disabled, the borrower
must--
(1) Comply with the requirements of paragraphs (h)(1) and (h)(2) of
this section; and
(2) Sign a statement acknowledging that--
(i) The loan that has been conditionally discharged prior to a
final determination of total and permanent disability cannot be
discharged in the future on the basis of any impairment present when
the borrower applied for a total and permanent disability discharge or
when a new loan is made, unless that impairment substantially
deteriorates; and
(ii) Collection activity will resume on any loan in a conditional
discharge period, as described in Sec. 674.61(b)(9).
(j) Does not have any loans under title IV of the HEA on which
collection activity has been suspended based on a conditional
determination that the borrower was totally and permanently disabled.
If a borrower applies for a loan under title IV of the HEA during the
conditional discharge period described in Secs. 674.61(b), 682.402(c),
or 685.213(a), the suspension of collection activity must be ended
before the borrower becomes eligible to receive any additional loans.
* * * * *
3. Section 674.51 is amended by adding a new paragraph (s) to read
as follows:
Sec. 674.51 Special definitions.
* * * * *
(s) Total and permanent disability: The condition of an individual
who is unable to work and earn money because of an injury or illness
that is expected to continue indefinitely or result in death.
* * * * *
4. Section 674.61 is amended by:
A. Revising the section heading.
B. Revising paragraph (a).
C. Revising paragraph (b).
The revisions read as follows:
Sec. 674.61 Discharge for death or disability.
(a) Death. An institution must discharge the unpaid balance of a
borrower's Defense, NDSL, or Perkins loan, including interest, if the
borrower dies. The institution must discharge the loan on the basis of
an original or certified copy of the death certificate. Under
exceptional circumstances and on a case-by-case basis, the chief
financial officer of the institution may approve a discharge based upon
other reliable documentation supporting the discharge request.
(b) Total and permanent disability. (1) If the Secretary has made
an initial determination that the borrower is totally and permanently
disabled, as defined in Sec. 674.51(s), the loan is conditionally
discharged for up to three years from the date that the borrower became
totally and permanently disabled, as certified by a physician. The
Secretary suspends collection activity on the loan from the date of the
initial determination of total and permanent disability until the end
of the three-year conditional period. If the borrower satisfies the
criteria for a total and permanent disability discharge during and at
the end of the conditional discharge period, the balance of the loan is
discharged at the end of the conditional discharge period and any
payments received after the date the borrower became totally and
permanently disabled as certified under Sec. 674.61(b)(3) are returned
to the sender.
(2) A borrower satisfies the criteria for a discharge of a loan
based on a total and permanent disability if, during and at the end of
the three-year conditional discharge period described in paragraph
(b)(1) of this section--
(i) The borrower's annual earnings from employment do not exceed
100 percent of the poverty line for a family of two, as determined in
accordance with the Community Service Block Grant Act; and
(ii) The borrower does not receive a new loan under the Perkins,
FFEL or Direct Loan programs, except for a FFEL or Direct Consolidation
Loan that does not include any loans that are in a conditional
discharge status.
(3) If a borrower becomes totally and permanently disabled after
receiving a Defense, NDSL, or Perkins loan, the institution must assign
the loan to the Secretary if the borrower submits a certification by a
physician and the institution reviewed the application and
[[Page 65691]]
determined that it is complete and that it supports the conclusion that
the borrower has a total and permanent disability as defined in
Sec. 674.51(s).
(4) At the time the loan is assigned to the Secretary the
institution must notify the borrower that the loan has been assigned to
the Secretary for determination of eligibility for a total and
permanent disability discharge.
(5) If the Secretary determines that the certification provided by
the borrower does not support the conclusion that the borrower meets
the criteria for a total and permanent disability discharge, the
Secretary notifies the borrower that the application for a disability
discharge has been denied, and that the loan is due and payable under
the terms of the promissory note.
(6) If the Secretary makes an initial determination that the
borrower is totally and permanently disabled, the Secretary notifies
the borrower that the loan will be in a conditional discharge status
for a period of up to three years after the date the borrower became
totally and permanently disabled as certified under Sec. 674.61(b)(3).
This notification identifies the conditions of the conditional
discharge period specified in paragraphs (b)(6) through (b)(9) of this
section and specifies that all or part of the three-year period may
predate the Secretary's initial determination.
(7) During the conditional discharge period, the borrower--
(i) Is not required to make any payments on the loan;
(ii) Is not considered past due or in default on the loan, unless
the loan was past due or in default at the time the conditional
discharge was granted;
(iii) Must promptly notify the Secretary of any changes in address
or phone number;
(iv) Must promptly notify the Secretary if the borrower's annual
earnings from employment exceed the amount specified in paragraph
(b)(2)(i) of this section; and
(v) Must provide the Secretary, upon request, with additional
documentation or information related to the borrower's eligibility for
discharge under this section.
(8) If, during and at the end of the conditional discharge period,
the borrower continues to satisfy the eligibility criteria for a total
and permanent disability discharge, as described in paragraph (b)(2) of
this section, the balance of the loan is discharged.
(9) If, at any time during or at the end of the three-year
conditional discharge period, the borrower does not continue to meet
the eligibility requirements for total and permanent disability
discharge, the Secretary resumes collection activity on the loan. The
Secretary does not require the borrower to pay any interest that
accrued on the loan from the date of the initial determination
described in paragraph (b)(6) of this section through the end of the
conditional discharge period.
(10) If the institution receives any payments from or on behalf of
the borrower on or attributable to a loan that has been assigned to the
Secretary for determination of eligibility for a total and permanent
disability discharge, the institution must forward those payments to
the Secretary for crediting to the borrower's account. At the same time
that the institution forwards the payment, it must notify the borrower
that there is no obligation to make payments on the loan while it is
conditionally discharged prior to a final determination of eligibility
for a total and permanent disability discharge, unless the Secretary
directs the borrower otherwise.
(11) When the Secretary makes a final determination to discharge
the loan, the Secretary returns to the sender any payments received on
the loan after the date the borrower became totally and permanently
disabled.
* * * * *
PART 682--FEDERAL FAMILY EDUCATION LOAN (FFEL) PROGRAM
5. The authority citation for part 682 continues to read as
follows:
Authority: 20 U.S.C. 1071 to 1087-2, unless otherwise noted.
6. In Sec. 682.200(b) the definition of ``Totally and permanently
disabled'' is revised to read as follows:
Sec. 682.200 Definitions.
* * * * *
(b) * * *
Totally and permanently disabled. The condition of an individual
who is unable to work and earn money because of an injury or illness
that is expected to continue indefinitely or result in death.
* * * * *
7. Section 682.201 is amended by:
A. Redesignating paragraphs (a)(5), (a)(6), and (a)(7) as
paragraphs (a)(6), (a)(8), and (a)(9), respectively.
B. Adding a new paragraph (a)(5).
C. Adding a new paragraph (a)(6)(iii).
D. Revising redesignated paragraph (a)(6) introductory text and
(a)(6)(i) and (ii).
E. Adding a new paragraph (a)(7).
The additions and revisions read as follows:
Sec. 682.201 Eligible borrowers.
(a) * * *
(5) The suspension of collection activity has been lifted from any
loan on which collection activity had been suspended based on a
conditional determination that the borrower was totally and permanently
disabled under Sec. 682.402(c).
(6) In the case of a borrower whose prior loan under title IV of
the Act was discharged after a final determination of total and
permanent disability, the student must--
(i) Obtain certification from a physician that the borrower is able
to engage in substantial gainful activity;
(ii) Sign a statement acknowledging that the FFEL loan the borrower
receives cannot be discharged in the future on the basis of any
impairment present when the new loan is made, unless that impairment
substantially deteriorates; and
(iii) In the case of a borrower whose previous loan under title IV
of the Act was discharged due to a total and permanent disability on or
after July 1, 2001 and before July 1, 2002, meets the requirements of
paragraphs (a)(6)(i) and (a)(6)(ii) of this section. If the borrower
receives another loan within three years from the date that the
borrower became totally and permanently disabled, as certified by the
physician, the borrower must reaffirm the previously discharged loan.
(7) In the case of a borrower whose prior loan under title IV of
the HEA was conditionally discharged based on an initial determination
that the borrower was totally and permanently disabled, the borrower
must--
(i) Comply with the requirements of paragraphs (a)(6)(i) and
(a)(6)(ii) of this section; and
(ii) Sign a statement acknowledging that--
(A) The loan that has been conditionally discharged prior to a
final determination of total and permanent disability cannot be
discharged in the future on the basis of any impairment present when
the borrower applied for a total and permanent disability discharge or
when the new loan is made unless that impairment substantially
deteriorates; and
(B) Collection activity will resume on any loans in a conditional
discharge period, as described in paragraph 682.402(c)(16).
* * * * *
8. Section 682.402 is amended by:
A. Revising paragraph (b)(2).
B. Revising paragraph (b)(3).
C. Revising paragraph (c)(1)(i).
[[Page 65692]]
D. Redesignating paragraphs (c)(1)(ii) and (c)(1)(iii) as
paragraphs (c)(1)(iii) and (c)(1)(iv), respectively.
E. Adding a new paragraph (c)(1)(ii).
F. Revising redesignated paragraph (c)(1)(iii).
G. Amending redesignated paragraph (c)(1)(iv)(A) by removing the
reference to paragraphs ``(c)(1)(i) and (ii)'' and adding, in its
place, ``(c)(1)(i) through (iii)''.
H. Amending redesignated paragraph (c)(1)(iv)(B) by removing the
reference to paragraph ``(c)(1)(iii)(A)'' and adding, in its place,
``(c)(1)(iv)(A)''.
I. Amending redesignated paragraph (c)(1)(iv)(B) by removing the
reference to paragraphs ``(c)(1)(i) and (ii)'' and adding, in its
place, ``(c)(1)(i) through (iii)''.
J. Amending redesignated paragraph (c)(1)(iv)(C) by removing the
reference to paragraph ``(c)(1)(iii)(A)'' and adding, in its place,
``(c)(1)(iv)(A)''.
K. Revising paragraph (c)(2).
L. Revising paragraph (c)(3).
M. Redesignating paragraph (c)(4) as paragraph (c)(5).
N. Adding a new paragraph (c)(4).
O. Revising redesignated paragraph (c)(5).
P. Adding new paragraphs (c)(6) through (c)(16).
Q. Revising paragraph (g)(1)(iii).
R. Revising paragraph (k)(5)(i).
S. Redesignating paragraph (k)(5)(ii) as paragraph (k)(5)(iii).
T. Adding a new paragraph (k)(5)(ii).
U. Revising paragraph (r)(1).
V. Redesignating paragraphs (r)(2) and (r)(3) as paragraphs (r)(4)
and (r)(5), respectively.
W. Adding a new paragraph (r)(2).
X. Adding a new paragraph (r)(3).
Y. Revising redesignated paragraph (r)(5).
The additions and revisions read as follows:
Sec. 682.402 Death, disability, closed school, false certification,
unpaid refunds, and bankruptcy payments.
* * * * *
(b) * * *
(2) A discharge of a loan based on the death of the borrower (or
student in the case of a PLUS loan) must be based on an original or
certified copy of the death certificate. Under exceptional
circumstances and on a case-by-case basis, the chief executive officer
of the guaranty agency may approve a discharge based upon other
reliable documentation supporting the discharge request.
(3) After receiving reliable information indicating that the
borrower (or student) has died, the lender must suspend any collection
activity against the borrower and any endorser for up to 60 days and
promptly request the documentation described in paragraph (b)(2) of
this section. If additional time is required to obtain the
documentation, the period of suspension of collection activity may be
extended up to an additional 60 days. If the lender is not able to
obtain an original or certified copy of the death certificate or other
documentation acceptable to the guaranty agency, under the provisions
of paragraph (b)(2) of this section, during the period of suspension,
the lender must resume collection activity from the point that it had
been discontinued. The lender is deemed to have exercised forbearance
as to repayment of the loan during the period when collection activity
was suspended.
* * * * *
(c) * * *
(1)(i) If the Secretary has made an initial determination that the
borrower is totally and permanently disabled, as defined in
Sec. 682.200(b), the loan is conditionally discharged for up to three
years from the date that the borrower became totally and permanently
disabled, as certified by a physician. The Secretary suspends
collection activity on the loan from the date of the initial
determination of total and permanent disability until the end of the
conditional period. If the borrower satisfies the criteria for a total
and permanent disability discharge during and at the end of the
conditional discharge period, the balance of the loan is discharged at
the end of the conditional discharge period and any payments received
after the date the borrower became totally and permanently disabled as
certified under Sec. 682.402(c)(2), are returned to the sender.
(ii) A borrower satisfies the criteria for a discharge of a loan
based on a total and permanent disability if, during and at the end of
the three-year period described in paragraph (c)(1)(i) of this
section--
(A) The borrower's annual earnings from employment do not exceed
100 percent of the poverty line for a family of two, as determined in
accordance with the Community Service Block Grant Act; and
(B) The borrower does not receive a new loan under the Perkins,
FFEL, or Direct Loan programs, except for a FFEL or Direct
Consolidation loan that does not include any loans that are in a
conditional discharge status.
(iii) Except as provided in paragraph (c)(1)(iv)(A) of this
section, a borrower is not considered totally and permanently disabled
based on a condition that existed at the time the loan was made unless
the borrower's condition substantially deteriorated.
* * * * *
(2) After being notified by the borrower or the borrower's
representative that the borrower claims to be totally and permanently
disabled, the lender promptly requests that the borrower or the
borrower's representative submit, on a form approved by the Secretary,
a certification by a physician, who is a doctor of medicine or
osteopathy and legally authorized to practice in a State, that the
borrower is totally and permanently disabled as defined in
Sec. 682.200(b).
(3) The lender must continue collection activities until it
receives either the certification of total and permanent disability
from a physician or a letter from a physician stating that the
certification has been requested and that additional time is needed to
determine if the borrower is totally and permanently disabled. Except
as provided in paragraph (c)(5) or (c)(7) of this section, after
receiving the physician's certification or letter the lender may not
attempt to collect from the borrower or any endorser.
(4) The lender must submit a disability claim to the guaranty
agency if the borrower submits a certification by a physician and the
lender makes a determination that the certification supports the
conclusion that the borrower meets the criteria for a total and
permanent disability discharge, as defined in Sec. 682.200(b).
(5) If the lender determines that a borrower who claims to be
totally and permanently disabled is not totally and permanently
disabled, or if the lender does not receive the physician's
certification of total and permanent disability within 60 days of the
receipt of the physician's letter requesting additional time, as
described in paragraph (c)(3) of this section, the lender must resume
collection and is deemed to have exercised forbearance of payment of
both principal and interest from the date collection activity was
suspended. The lender may capitalize, in accordance with
Sec. 682.202(b), any interest accrued and not paid during that period.
(6) The guaranty agency must pay a claim submitted by the lender if
the guaranty agency has reviewed the application and determined that it
is complete and that it supports the conclusion that the borrower meets
the criteria for a total and permanent disability discharge, as defined
in Sec. 682.200(b).
[[Page 65693]]
(7) If the guaranty agency does not pay the disability claim, the
guaranty agency must return the claim to the lender with an explanation
of the basis for the agency's denial of the claim. Upon receipt of the
returned claim, the lender must notify the borrower that the
application for a disability discharge has been denied, provide the
basis for the denial, and inform the borrower that the lender will
resume collection on the loan. The lender is deemed to have exercised
forbearance of both principal and interest from the date collection
activity was suspended until the first payment due date. The lender may
capitalize, in accordance with Sec. 682.202(b), any interest accrued
and not paid during that period.
(8) If the guaranty agency pays the disability claim, the lender
must notify the borrower that the loan will be assigned to the
Secretary for determination of eligibility for a total and permanent
disability discharge.
(9) After receiving a claim payment from the guaranty agency, the
lender must forward to the guaranty agency any payments subsequently
received from or on behalf of the borrower.
(10) The Secretary reimburses the guaranty agency for a disability
claim paid to the lender after the agency pays the claim to the lender.
(11) The guaranty agency must assign the loan to the Secretary
after the guaranty agency pays the disability claim.
(12) If the Secretary determines that the certification and
information provided by the borrower do not support the conclusion that
the borrower meets the criteria for a total and permanent disability
discharge, the Secretary notifies the borrower that the application for
a disability discharge has been denied, and that the loan is due and
payable under the terms of the promissory note.
(13) If the Secretary makes an initial determination that the
borrower is totally and permanently disabled, the Secretary notifies
the borrower that the loan is conditionally discharged and that the
conditional discharge period will last for up to three years after the
date the borrower became totally and permanently disabled as certified
under Sec. 682.402(c)(2). The notification identifies the conditions of
the conditional discharge period specified in paragraphs (c)(13)
through (c)(16) of this section and specifies that all or part of the
three-year period may predate the Secretary's initial determination.
(14) During the conditional discharge period, the borrower--
(i) Is not required to make any payments on the loan;
(ii) Is not considered delinquent or in default on the loan, unless
the borrower was delinquent or in default at the time the conditional
discharge was granted;
(iii) Must promptly notify the Secretary of any changes in address
or phone number;
(iv) Must promptly notify the Secretary if the borrower's annual
earnings from employment exceed the amount specified in paragraph
(c)(1)(ii)(A) of this section; and
(v) Must provide the Secretary, upon request, with additional
documentation or information related to the borrower's eligibility for
discharge under this section.
(15) If, during and at the end of the conditional discharge period,
the borrower continues to satisfy the eligibility criteria for a total
and permanent disability discharge, as described in
Sec. 682.402(c)(1)(ii), the balance of the loan is discharged.
(16) If, at any time during the three-year conditional discharge
period, the borrower does not continue to meet the eligibility
requirements for a total and permanent disability discharge, the
Secretary resumes collection activity on the loan. The Secretary does
not require the borrower to pay any interest that accrued on the loan
from the date of the initial determination described in paragraph
(c)(13) of this section through the end of the conditional discharge
period.
* * * * *
(g) * * *
(1) * * *
(iii) In the case of a death claim, an original or certified death
certificate, or other documentation supporting the discharge request
that formed the basis for the determination of death.
* * * * *
(k) * * *
(5) * * *
(i) For death or bankruptcy claims, the shorter of 60 days or the
period from the date the guaranty agency determines that the borrower
(or the student for whom a parent obtained a PLUS loan, or each of the
co-makers of a PLUS loan) dies, or filed a petition for relief in
bankruptcy until the Secretary authorizes payment;
(ii) For disability claims, the shorter of 60 days or the period
from the date the guaranty agency makes a preliminary determination
that the borrower became totally and permanently disabled until the
Secretary authorizes payment; or
* * * * *
(r)(1) If the guaranty agency receives any payments from or on
behalf of the borrower on or attributable to a loan that as been
discharged in bankruptcy on which the Secretary previously paid a
bankruptcy claim, the guaranty agency must return 100 percent of these
payments to the sender. The guaranty agency must promptly return, to
the sender, any payment on a cancelled or discharged loan made by the
sender and received after the Secretary pays a closed school or false
certification claim. At the same time that the agency returns the
payment, it must notify the borrower that there is no obligation to
repay a loan discharged on the basis of death, bankruptcy, false
certification, or closing of the school.
(2) If the guaranty agency receives any payments from or on behalf
of the borrower on or attributable to a loan that has been assigned to
the Secretary for determination of eligibility for a total and
permanent disability discharge, the guaranty agency must forward those
payments to the Secretary for crediting to the borrower's account. At
the same time that the agency forwards the payments, it must notify the
borrower that there is no obligation to make payments on the loan while
it is conditionally discharged prior to a final determination of
eligibility for a total and permanent disability discharge, unless the
Secretary directs the borrower otherwise.
(3) When the Secretary makes a final determination to discharge the
loan, the Secretary returns to the sender any payments received on the
loan after the date the borrower became totally and permanently
disabled.
* * * * *
(5) If the guaranty agency has returned a payment to the borrower,
or the borrower's representative, with the notice described in
paragraphs (r)(1) or (r)(2) of this section, and the borrower (or
representative) continues to send payments to the guaranty agency, the
agency must remit all of those payments to the Secretary.
* * * * *
PART 685--WILLIAM D. FORD FEDERAL DIRECT LOAN PROGRAM
9. The authority citation for part 685 continues to read as
follows:
Authority: 20 U.S.C. 1087a et seq., unless otherwise noted.
10. Section 685.200 is amended as follows:
A. By revising paragraphs (a)(1)(iv)(A) and (B).
B. By adding new paragraph (a)(1)(iv)(C).
The revised and added text reads as follows:
[[Page 65694]]
Sec. 685.200 Borrower eligibility.
(a)(1) * * *
(iv)(A) In the case of a borrower whose prior loan under title IV
of the Act was discharged after a final determination of total and
permanent disability, the borrower--
(1) Obtains a certification from a physician that the borrower is
able to engage in substantial gainful activity; and
(2) Signs a statement acknowledging that the Direct Loan the
borrower receives cannot be discharged in the future on the basis of
any impairment present when the borrower applied for a total and
permanent disability discharge or when the new loan is made, unless
that impairment substantially deteriorates.
(B) In the case of a borrower whose prior loan under title IV of
the Act was discharged on or after July 1, 2001 and before July 1, 2002
after a final determination of total and permanent disability, the
borrower--
(1) Complies with the requirements of paragraph (a)(1)(iv)(A) of
this section; and
(2) If the borrower receives another loan within three years from
the date that the borrower became totally and permanently disabled, as
certified by the physician, reaffirms the previously discharged loan.
For the purposes of this paragraph, reaffirmation means the
acknowledgement of the loan by the borrower in a legally binding
manner. The acknowledgement may include, but is not limited to, the
borrower signing a new promissory note that includes the same terms and
conditions as the original note signed by the borrower, making a
payment on the loan, or signing a repayment agreement.
(C) In the case of a borrower whose prior loan under title IV of
the Act was conditionally discharged based on an initial determination
that the borrower was totally and permanently disabled--
(1) The suspension of collection activity on the prior loan has
been lifted;
(2) The borrower complies with the requirement in paragraph
(a)(1)(iv)(A)(1) of this section;
(3) The borrower signs a statement acknowledging that neither the
prior loan nor the Direct Loan that the borrower receives may be
discharged in the future on the basis of any impairment present when
the borrower applied for a total and permanent disability discharge or
when the new loan is made, unless that impairment substantially
deteriorates; and
(4) The borrower signs a statement acknowledging that the
suspension of collection activity on the prior loan will be lifted.
* * * * *
11. Section 685.212 is amended as follows:
A. By revising paragraph (a).
B. By revising paragraph (b).
C. By revising paragraph (g)(1).
D. By redesignating paragraph (g)(2) as (g)(3).
E. By adding a new paragraph (g)(2).
The additions and revisions read as follows:
Sec. 685.212 Discharge of a loan obligation.
(a) Death. (1) If a borrower (or the student on whose behalf a
parent borrowed a Direct PLUS Loan) dies, the Secretary discharges the
obligation of the borrower and any endorser to make any further
payments on the loan based on an original or certified copy of the
borrower's (or student's in the case of a Direct PLUS loan) death
certificate.
(2) If an original or certified copy of the death certificate is
not available, the Secretary discharges the loan only based on other
reliable documentation that establishes, to the Secretary's
satisfaction, that the borrower (or student) has died. The Secretary
discharges a loan based on documentation other than an original or
certified copy of the death certificate only under exceptional
circumstances and on a case-by-case basis.
(b) Total and permanent disability. If a borrower meets the
requirements in Sec. 685.213(c), the Secretary discharges the
obligation of the borrower and any endorser to make any further
payments on the loan.
* * * * *
(g) * * *
(1) For the discharge conditions in paragraphs (a), (c), (d), and
(e) of this section. Upon receipt of acceptable documentation and
approval of the discharge request, the Secretary returns to the sender,
or, for a discharge based on death, the borrower's estate, any payments
received after the date that the eligibility requirements for discharge
were met.
(2) For the discharge condition in paragraph (b) of this section.
Upon making a final determination of eligibility for discharge based on
total and permanent disability, the Secretary returns to the sender any
payments received after the date the borrower became totally and
permanently disabled, as certified under Sec. 685.213(b).
* * * * *
12. A new Sec. 685.213 is added to read as follows:
Sec. 685.213 Total and permanent disability discharge.
(a) General. (1) If the Secretary makes an initial determination
that a borrower is totally and permanently disabled, the Secretary--
(i) Notifies the borrower that the loan will be in a conditional
discharge status for up to three years from the date that the borrower
became totally and permanently disabled, as certified under 685.213(b).
The Secretary also notifies the borrower of the conditions of the
conditional discharge period, and that all or part of the three-year
conditional discharge period may predate the Secretary's initial
determination.
(ii) Suspends any efforts to collect on the loan from the date of
the initial determination described in paragraph (a)(1) of this section
until the end of the conditional discharge period.
(2) If the borrower continues to meet the eligibility requirements
for total and permanent disability discharge during and at the end of
the three-year conditional discharge period, the Secretary--
(i) Discharges the obligation of the borrower and any endorser to
make any further payments on the loan at the end of that period; and
(ii) Returns to the borrower any payments received after the date
the borrower became totally and permanently disabled, as certified
under Sec. 685.213(b).
(3) If the borrower does not continue to meet the eligibility
requirements for a total and permanent disability discharge at any time
during or at the end of the three-year conditional discharge period,
the Secretary resumes collection activity on the loan. The Secretary
does not require the borrower to pay any interest that accrued on the
loan from the date of the initial determination described in paragraph
(a)(1) of this section through the end of the conditional discharge
period.
(4) Except as provided in paragraph (e)(1) of this section, a
borrower is not considered totally and permanently disabled based on a
condition that existed at the time the loan was made, unless the
borrower's condition substantially deteriorated after the loan was made
so as to render the borrower totally and permanently disabled.
(b) Initial determination of total and permanent disability. The
Secretary makes an initial determination that a borrower is totally and
permanently disabled if the borrower (or the borrower's representative)
provides the Secretary with a certification (on a form approved by the
Secretary) by a physician who is a doctor of medicine or osteopathy and
legally authorized to
[[Page 65695]]
practice in a State that the borrower is totally and permanently
disabled as defined in 34 CFR 682.200(b).
(c) Eligibility requirements for total and permanent disability
discharge. A borrower meets the eligibility requirements for total and
permanent disability discharge if, during and at the end of the three-
year conditional discharge period described in paragraph (a)(1) of this
section--
(1) The borrower's annual earnings from employment do not exceed
100 percent of the poverty line for a family of two, as determined in
accordance with the Community Service Block Grant Act; and (2) The
borrower does not receive a new loan under the Perkins, FFEL, or Direct
Loan programs, except for a FFEL or Direct consolidation loan that does
not include any loans that are in a conditional discharge status.
(d) Conditional discharge period. During the conditional discharge
period described in paragraph (a)(1) of this section, the borrower--
(1) Is not required to make any payments of principal or interest
on the loan beginning on the date the Secretary makes an initial
determination that the borrower is totally and permanently disabled;
(2) Is not considered to be delinquent or in default on the loan,
unless the loan was delinquent or in default at the time the
conditional discharge was granted;
(3) Must promptly notify the Secretary of any changes in the
borrower's address or telephone number;
(4) Must promptly notify the Secretary if the borrower's annual
earnings from employment exceed the amount specified in paragraph
(c)(1) of this section; and
(5) Must provide the Secretary, upon request, with additional
documentation or information related to the borrower's eligibility for
discharge under this section.
(e) Provisions for discharge of Direct Consolidation Loans. (1) For
a Direct Consolidation Loan, a borrower is considered totally and
permanently disabled if he or she would be considered totally and
permanently disabled under the provisions of this section for all of
the loans that were included in the Direct Consolidation Loan if those
loans had not been consolidated.
(2) For the purposes of discharging a loan under paragraph (e)(1)
of this section, the provisions of this section apply to each loan
included in the Direct Consolidation Loan, even if the loan is not a
Direct Loan Program loan.
(3) If requested, a borrower seeking to discharge a loan obligation
under paragraph (e)(1) of this section must provide the Secretary with
the disbursement dates of the underlying loans.
(Authority: 20 U.S.C. 1087a et seq.)
[FR Doc. 00-27891 Filed 10-31-00; 8:45 am]
BILLING CODE 4000-01-P