[Federal Register Volume 71, Number 153 (Wednesday, August 9, 2006)]
[Rules and Regulations]
[Pages 45666-45717]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-6696]
[[Page 45665]]
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Part III
Department of Education
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34 CFR Parts 600, 668, 673, et al.
Federal Student Aid Programs; Final Rule
Federal Register / Vol. 71, No. 153 / Wednesday, August 9, 2006 /
Rules and Regulations
[[Page 45666]]
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DEPARTMENT OF EDUCATION
34 CFR Parts 600, 668, 673, 674, 675, 676, 682 and 685
RIN 1840-AC87
Federal Student Aid Programs
AGENCY: Office of Postsecondary Education, Department of Education.
ACTION: Interim final regulations; request for comments.
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SUMMARY: The Secretary is amending the Federal Student Aid Program
regulations to implement the changes to the Higher Education Act of
1965, as amended (HEA), resulting from the Higher Education
Reconciliation Act of 2005 (HERA), Public Law No. 109-171, and other
recently enacted legislation. These interim final regulations reflect
the provisions of the HERA that affect students, borrowers and program
participants in the Federal student aid programs authorized under Title
IV of the HEA.
Interim final regulations for the two new Title IV grant programs
created by the HERA, the Academic Competitiveness Grant Program and the
National Science and Mathematics Access to Retain Talent (SMART) Grant
Program, are being published in a separate notice in the Federal
Register.
DATES: Effective date: These interim final regulations are effective
September 8, 2006.
Comment date: The Department must receive any comments on or before
September 8, 2006.
Information collection compliance date: Affected parties do not
have to comply with the information collection requirements in Sections
600.7, 600.10, 668.3, 668.8, 668.10, 668.22, 668.173, 673.5, 674.34,
682.102, 682.200, 682.207, 682.209, 682.210, 682.211, 682.215, 682.305,
682.401, 682.402, 682.404, 682.405, 682.406, 682.410, 682.415, 682.601,
682.604, 685.102, 685.204, 685.208, 685.215, 685.217 and 685.220 until
the Department publishes in the Federal Register the control numbers
assigned by the Office of Management and Budget (OMB) to these
information collection requirements. Publication of the control numbers
notifies the public that OMB has approved these information collection
requirements under the Paperwork Reduction Act of 1995.
ADDRESSES: Address all comments about these interim final regulations
to: Gail McLarnon, U.S. Department of Education, P.O. Box 33185,
Washington, DC 20033-3185.
If you prefer to deliver your comments by hand or by using a
courier service or commercial carrier, address your comments to: Gail
McLarnon, 1990 K Street, NW., room 8026, Washington, DC 20006-8542.
If you prefer to send your comments through the Internet, you may
address them to us at: [email protected]. Or you may send them to us
at the U.S. Government Web site: http://www.regulations.gov. You must
include the term ``HERA Interim Final Comments'' in the subject line of
your electronic message.
FOR FURTHER INFORMATION CONTACT: Ms. Gail McLarnon, U.S. Department of
Education, 1990 K Street, NW., 8th Floor, Washington, DC 20006.
Telephone: (202) 219-7048 or via the Internet at: [email protected].
If you use a telecommunications device for the deaf (TDD), you may
call the Federal Relay Service (FRS) at 1-800-877-8339.
Individuals with disabilities may obtain this document in an
alternative format (e.g., Braille, large print, audiotape, or computer
diskette) on request to the contact person listed under FOR FURTHER
INFORMATION CONTACT.
SUPPLEMENTARY INFORMATION: These interim final regulations reflect most
of the changes made to the HEA by the HERA, enacted as part of the
Deficit Reduction Act of 2005 (Pub. L. 109-171), as well as some
changes made by other recently enacted legislation. The changes made by
the HERA include:
An increase in certain FFEL and Direct Loan Program loan
limits,
A reduction of origination fees in the FFEL and Direct
Loan Programs,
The creation of a deferment for FFEL, Direct Loan and
Perkins Loan Program borrowers who serve on active duty military
service during times of war or national emergency, and a reduction of
subsidies paid to lenders,
Changes to the definition of an academic year for programs
measured in clock hours,
Changes and additions to provisions related to distance
education and direct assessment academic programs,
Modifications to the regulations on the eligibility for
Title IV, HEA program assistance for students with convictions for
drug-related offenses, specifying that a student or parent who has not
repaid fraudulently obtained Title IV, HEA program funds is ineligible
for additional Title IV, program assistance,
Changes to the requirements for the treatment of Title IV,
HEA program funds when a student withdraws, and
The re-institution of the previously expired FFEL and
Direct Loan disbursement flexibilities provided to institutions with
low cohort default rates. Effective February 8, 2006, institutions with
official cohort default rates of less than 10 percent for each of the
three most recent years do not need to comply with the ``30-day
disbursement delay'' requirement for first time, first year students
nor with the multiple disbursement requirements if the loan period is
one term or four months or less.
The HERA also modified several Title IV, HEA provisions that are
not addressed in these interim final regulations. The HERA made changes
to the rules governing Cost of Attendance calculations, the
determination of an applicant's dependency status, and the calculation
of an applicant's expected family contribution. In accordance with
section 478(a) of the HEA, the Secretary does not issue regulations in
this area.
The HERA also modified and made permanent the provisions of the
Taxpayer-Teacher Protection Act of 2004 (Pub. L. 108-409) which (1)
changed the calculation of special allowance payments for certain FFEL
Program loans made with proceeds of tax-exempt obligations and (2)
increased teacher loan forgiveness amounts for FFEL and Direct Loan
borrowers teaching in certain areas.
In addition to the changes mandated by the HERA, these interim
final regulations also incorporate the provisions of Pub. L. 107-139,
which changed the formula for calculating special allowance payments in
the FFEL Program for loans made on or after July 1, 2000 and set
interest rates for FFEL and Direct Loans first disbursed on or after
July 1, 2006 at fixed interest rates.
These interim final regulations also incorporate the statutory
changes made to the HEA by the Pell Grant Hurricane and Disaster Relief
Act (Pub. L. 109-66) and the Student Grant Hurricane and Disaster
Relief Act (Pub. L. 109-67). These laws authorize the Secretary to
waive the requirement that a student repay a Title IV, HEA grant if the
student withdrew from an institution because of a major disaster. The
Secretary initially exercised this waiver authority through publication
of Dear Colleague Letter GEN-05-17 on November 9, 2005.
These interim final regulations also incorporate the statutory
changes made to the HEA by The Emergency Supplemental Appropriations
Act for Defense, the Global War on Terror, and Hurricane Recovery, 2006
(Pub. L. 109-234). The Emergency Supplemental Appropriations Act
amended section 428C(b)(1)(A) of the HEA by repealing the single holder
rule with respect to
[[Page 45667]]
any FFEL Consolidation loan for which an application is received by an
eligible lender on or after June 15, 2006. This law also repealed
section 8009(a)(2) of the HERA and reinstated the current statutory
provisions under which a borrower may consolidate outstanding FFEL
Program loans into the Federal Direct Consolidation Loan Program.
Significant Regulations
We discuss substantive issues under the sections of the regulations
to which they pertain. Generally, we do not address regulatory changes
that are technical or otherwise minor in effect.
Distance Education (Sec. Sec. 600.2, 600.7, 600.51, 668.8 and 668.38)
Statute: Section 8020 of the HERA modified the institutional
eligibility requirements in section 102(a)(3) of the HEA that generally
make institutions offering more than 50 percent of their courses by
correspondence, or a combination of correspondence and
telecommunications, or enrolling 50 percent or more of their students
in correspondence courses, ineligible for Title IV, HEA program
assistance. The HERA also modified the student eligibility requirements
of section 484(l)(1) of the HEA, by removing telecommunications courses
from being considered as correspondence courses. Under the amended HEA,
courses offered by telecommunications that meet certain conditions are
no longer considered correspondence courses, and students enrolled in
telecommunications courses are no longer considered to be
correspondence students.
The HERA also modified section 481(b) of the HEA to reflect certain
restrictions on the eligibility of programs that are offered by
telecommunications. Consistent with prior law, the institution,
including its distance education programs, must hold current
accreditation from an accrediting agency recognized by the Secretary
that has the evaluation of distance education in its scope of
recognition. However, under the HERA, programs offered by foreign
institutions that include instruction delivered by telecommunication
are not eligible.
Current Regulations: The current regulations reflect the previous
statutory limitations on institutional and student eligibility based on
the percentage of correspondence courses offered by the institution and
the percentage of students enrolled in correspondence courses, and the
relation of telecommunications courses to correspondence courses.
New Regulations: We have amended the regulations in Sec. 600.2 by
removing from the definition of correspondence course the paragraph
that describes the conditions under which a telecommunications course
is considered a correspondence course and by revising the definition of
telecommunications course. The definition of telecommunications course
now specifies that a telecommunications course is one that uses one or
a combination of technologies to deliver instruction to students who
are separated from the instructor and to support regular and
substantive interaction between these students and the instructor,
either synchronously or asynchronously. We have amended the regulations
relating to institutional ineligibility in Sec. 600.7 to delete the
references to telecommunications courses from the provisions relating
to calculation of the percentage of correspondence courses offered by
an institution. We also amended student eligibility regulations in
Sec. 668.38 to provide that students who are enrolled in certificate
programs offered through telecommunications are no longer considered to
be correspondence students. This change applies to institutions
regardless of the percentage of degree programs offered by the
institution.
We have amended the eligible program regulations in Sec. 668.8 to
include programs that are offered in whole or in part through
telecommunications by domestic institutions and that are accredited by
an accrediting agency recognized by the Secretary for accreditation of
distance education. As in the past, the accrediting agency's scope of
recognition must include the accreditation of distance education.
Interpreting the HEA as amended by the HERA, we have also amended Sec.
668.8 and the regulations related to the eligibility of foreign schools
in Sec. 600.51 to specify that programs offered by foreign schools
through telecommunications or correspondence are not eligible programs.
Recognizing, however, that telecommunications technologies are
frequently used in conjunction with classroom instruction, we have
included a provision acknowledging that participating foreign schools
are free to use telecommunications technologies to supplement and
support instruction offered in the foreign classroom.
Reasons: The interim final regulations in Sec. 600.7 will now
reflect the statutory changes modifying the current institutional
eligibility requirements which provide that institutions offering more
than 50 percent of their courses via correspondence, or a combination
of correspondence and telecommunications, or enrolling 50 percent or
more of their students in correspondence courses are ineligible to
participate in Title IV, HEA programs. Under the HERA, courses offered
by telecommunications are no longer considered correspondence courses,
and students enrolled in telecommunications courses are no longer
considered to be correspondence students. As a result, otherwise
eligible institutions that offer over 50 percent of their courses by
telecommunications, or have 50 percent or more of their regular
students enrolled in telecommunications courses, are now eligible to
participate in the Title IV, HEA programs. The 50 percent limitations
continue to apply to correspondence courses and students.
Because of the different statutory treatment of telecommunications
and correspondence, we are changing the definition of
telecommunications course. We believe that it is critical to
differentiate between the two delivery modes. A definition of
telecommunications course that focused exclusively on technologies
could be erroneously interpreted to allow an institution to qualify for
full participation in Title IV, HEA programs upon introduction of minor
e-mail contact between students and a grader or instructional assistant
(who may or may not have subject matter expertise) into what is
essentially a correspondence course. Similarly, a course outline or
course notes posted to an Internet Web site might also meet the current
definition of a telecommunications course. Quality standards for
electronically-delivered education emphasize the importance of
interaction between the instructor and student. The amended definition
of a telecommunications course acknowledges the importance of
interactivity in electronically-delivered instruction and clearly
distinguishes telecommunications from correspondence.
The interim final regulations in Sec. 668.8 also reflect the
statutory changes to the requirements for an eligible program to
include programs offered in whole or in part through telecommunications
by domestic institutions with appropriate accreditation. Because the
HEA provides that telecommunications programs offered by foreign
schools are not eligible programs, and the HEA provides that foreign
schools are schools ``outside the United States,'' and since Congress
has not lifted the limitations
[[Page 45668]]
on the eligibility of foreign institutions that offer correspondence
study, we believe that Congress did not intend for correspondence
programs offered by foreign schools to be eligible programs. The
purpose of eligibility for foreign schools, which is to permit students
from the United States to experience life and education in foreign
countries, is not served through correspondence study.
Direct Assessment Programs (Sec. Sec. 600.2, 600.10, 600.21, 600.51,
668.8, and 668.10)
Statute: Section 8020 of the HERA adds a new type of eligible
program to section 481(b) of the HEA--an instructional program that
uses direct assessment of student learning, or recognizes the direct
assessment of student learning by others, in lieu of measuring student
learning in credit hours or clock hours. The assessment must be
consistent with the institution's or program's accreditation. The HERA
also provides that the Secretary will determine initially whether each
program for which an institution proposes to use direct assessment is
an eligible program.
Current Regulations: There are no current regulations that reflect
the use of direct assessment instead of credit hours or clock hours as
a measure of student learning.
New Regulations: We have amended the regulations in Sec. 600.2 to
include in the definition of educational program the statutory language
describing direct assessment programs.
In addition, we have amended the definition to provide that merely
giving credit for direct assessments does not constitute instruction.
We have also amended Sec. 668.8 to indicate that a direct assessment
program approved by the Secretary is considered an eligible program as
defined in Sec. 668.8.
These interim final regulations also include a new Sec. 668.10,
that provides a definition of the term direct assessment programs and
discusses how key Title IV, HEA program requirements apply to direct
assessment programs. The section also includes the information that an
institution must submit for the Secretary to make an eligibility
determination of a direct assessment program.
We have amended the regulations related to the eligibility of
foreign schools in Sec. 600.51 to specify that direct assessment
programs offered by foreign schools are not eligible programs. In
addition, we have amended Sec. Sec. 600.10(c)(2) and 600.21(a)(4) to
require that an institution must apply to the Secretary for approval
whenever it adds a direct assessment program.
Reasons: In amending the HEA to provide for the Title IV
eligibility of programs using direct assessment, Congress specifically
used the term ``instructional program'' to clarify what types of
programs would be eligible. Thus, the statute requires that the program
include ``instruction,'' as well as ``assessment.'' To meet this
requirement, programs that measure student learning by direct
assessment must provide some means for students to supplement their
existing knowledge to pass the assessments. An institution that is
merely conducting direct assessments of a student's knowledge and
skills, without providing any resources to fill those gaps, is not
providing instruction.
In new Sec. 668.10, we have adopted a definition of direct
assessment program that reflects common usage by assessment experts and
the accreditation community. In developing this definition, we
recognized that many of the key requirements of the Title IV, HEA
programs rely on both credit and clock hour measurements. By
definition, direct assessment programs do not use credit or clock hours
as a measure of student learning, but nothing in the HEA, as amended by
the HERA, exempts direct assessment programs from the other credit and
clock hour requirements. To apply the Title IV requirements to direct
assessment programs, it is necessary to determine the equivalent number
of credit or clock hours to the amount of student learning being
directly assessed.
Because many of the statutory requirements for Title IV, HEA
program eligibility are stated in terms of time and/or credit or clock
hours, we determined that the time-based requirements can and must be
applied to direct assessment programs to ensure that students receive
comparable amounts of Title IV, HEA program assistance for comparable
work. This approach ensures that while one student in a direct
assessment program may acquire the knowledge and skills necessary to
pass assessments more quickly than does another student, and, as a
result, may progress more quickly through the program, both students
would receive the same amount of Title IV, HEA program assistance for
the same payment period. However, the student who remained in
attendance for more payment periods to complete the program because he
or she entered the program with less knowledge or learned at a slower
rate, might receive more Title IV, HEA program assistance based on the
additional payment periods he or she attended. Likewise, students in
direct assessment programs should receive no more Title IV, HEA program
assistance in an academic year than would students in credit and clock
hour programs that are comparable in terms of student learning. We
applied this approach throughout these interim final regulations.
The statute requires an institution to apply to the Secretary to
have a direct assessment program determined to be an eligible program.
Section 668.10(b) specifies the information an institution must provide
in its application. We recognize that there is no single model for
direct assessment programs and therefore have provided that
institutions must provide detailed information about the approach they
are using. In addition, institutions must indicate equivalencies to
credit or clock hours in terms of instructional time, and to provide a
factual basis for the claim of equivalence. These equivalencies are
essential because, as mentioned previously, many applicable Title IV,
HEA program requirements use time and/or credit or clock hours.
We also considered that some students would have acquired skills
and knowledge prior to their enrollment in the direct assessment
program. Title IV, HEA program funds are provided to help cover the
student's cost of obtaining an education. Accordingly, Title IV, HEA
program funds should be used only for learning that occurs after a
student has enrolled in an educational program. Therefore, we have
amended the regulations to require institutions to provide information
in the application for approval of a direct assessment program about
how they assess a student's knowledge upon entering the program.
We recognized that institutions offering direct assessment programs
might use courses or learning materials developed by other entities,
such as training and professional development organizations and other
educational institutions, to assist students in preparing for the
assessments. We considered whether the use of outside resources could
be considered contracting out a portion of an educational program and
determined that it could be. Therefore, we included in the direct
assessment regulations a provision that exempts direct assessment
programs from the limitations of contracting for part of an educational
program.
We considered whether remedial courses using direct assessment of
student learning in lieu of credit or clock hours could be supported
with Title IV, HEA program funds.
We determined that remedial courses taken in preparation for
enrollment in a
[[Page 45669]]
direct assessment program could be paid for with Title IV, HEA program
funds only if they were offered in credit or clock hours. Our
conclusion is based on the fact that the HERA modified the definition
of eligible program to include direct assessment programs, but did not
change the fact that remedial coursework is not itself a program or
part of a program. We applied similar reasoning to instruction needed
for a professional credential or certification from a State that is
required for employment as a teacher in an elementary or secondary
school.
The HERA specifies that the assessment an institution uses in its
direct assessment program must be consistent with the accreditation of
the institution or program. Foreign schools are not accredited by
nationally recognized accrediting agencies recognized by the Department
and accordingly cannot meet this program eligibility requirement. In
the future, the Secretary may consider developing eligibility criteria
that are comparable to the accreditation requirement to permit direct
assessment programs offered by foreign schools to qualify for Title IV,
HEA program eligibility.
The discussion of regulatory alternatives considered in the
Regulatory Impact Analysis provides additional details on the factors
the Secretary considered in developing the direct assessment
regulations.
Academic Year (Sec. 668.3)
Statute: Section 8020 of the HERA amended the definition of
academic year in section 481(a) of the HEA. The revised definition
requires a minimum of 30 weeks of instructional time for a program that
measures its program length in credit hours or a minimum of 26 weeks of
instructional time for a program that measures its program length in
clock hours, rather than a minimum length of 30 weeks of instructional
time for both credit hour and clock-hour programs.
Current Regulations: The current regulations reflect the previous
statutory definition of an academic year requiring a minimum of 30
weeks of instructional time for all programs regardless of the way in
which the program was measured.
New Regulations: Section 668.3(a) of the regulations has been
amended to reflect the change in the statutory definition of an
academic year. In addition, we have modified the definition so that
academic year is no longer defined as a period beginning on the first
day and ending on the last day of classes.
Reasons: The regulations are modified to reflect the change made by
the HERA to the definition of an academic year. Because all programs
must define an academic year that conforms to the minimum requirements
even if the program itself is shorter than those minimum requirements,
we modified the definition so that an academic year is no longer
defined as a period of time that begins on the first day of classes and
ends on the last day of classes or examinations.
Treatment of Title IV Funds When a Student Withdraws (Sec. Sec.
668.22, 668.35, and 668.173)
Program Applicability
Statute: Section 8022 of the HERA amended section 484B(a)(3)(C)(i)
of the HEA to change the applicability of section 484B of the HEA
(commonly referred to as the Return of Title IV Funds requirements).
Under prior law, the Return of Title IV Funds rules applied to all
Title IV, HEA grant and loan assistance other than Federal Work Study
(FWS) funds. Under the HERA, the rules will now apply only to funds
from the Pell Grant, Federal Supplemental Educational Opportunity Grant
(FSEOG), FFEL, Direct Loan, and Perkins Loan programs, and to the new
Academic Competitiveness Grant (ACG) and National Science and
Mathematics Access to Retain Talent (SMART) Grant programs.
Current Regulations: Section 668.22(a)(1) provides that the Return
of Title IV Funds requirements apply to all Title IV, HEA grant and
loan assistance disbursed or that could have been disbursed to a
withdrawn student, not including FWS or the non-Federal share of FSEOG
awards if an institution meets its FSEOG matching share by the
individual recipient method or the aggregate method.
New Regulations: We have revised Sec. 668.22(a)(2) to reflect the
more limited applicability of the Return of Title IV Funds rules as
provided in the HERA. Under the revised regulations, an institution
must perform a Return of Title IV Funds calculation when a student who
withdraws was disbursed, or could have been disbursed, funds from the
following programs: Pell Grant, FSEOG, FFEL, Direct Loan, Perkins Loan,
ACG, or SMART Grant. The Return of Title IV Funds requirements do not
apply to funds from the Gaining Early Awareness and Readiness for
Undergraduate Program (GEAR UP), Student Support Services (SSS) or
Leveraging Educational Assistance Partnerships (LEAP) Programs. In
addition, the interim final regulations retain the exemption from the
Return of Title IV Funds rules for the non-Federal share of FSEOG
awards if an institution meets its FSEOG matching share by the
individual recipient method or the aggregate method.
Reasons: These changes are made to implement the provisions of the
HERA. The current regulatory exemption from the Return of Title IV
Funds requirements of the non-Federal share of FSEOG awards is retained
as these funds are not considered Federal funds and, therefore, are not
subject to the Federal Return of Title IV Funds requirements.
Post-Withdrawal Disbursement Counseling
Statute: Section 8022 of the HERA amended section 484B(a)(4) of the
HEA to require an institution to contact a borrower before making a
late disbursement or post-withdrawal disbursement of Title IV loan
funds. During this contact, the institution must confirm with the
borrower that the loan funds are still required by the student, or
parent in the case of a parent PLUS loan, and explain to the borrower
his or her obligation to repay the funds if disbursed. An institution
must document in the student's file the result of the contact and the
final determination made concerning the disbursement.
Current Regulations: Current Sec. 668.22(a)(4)(i)(B) requires an
institution to provide a student, or parent in the case of a parent
PLUS loan, an opportunity to cancel some or all of a loan disbursement
credited to the student's account by providing notice to the student or
parent when the institution credits the account with Direct Loan, FFEL,
or Federal Perkins Loan program funds. In addition, Sec.
668.22(a)(4)(ii) provides that an institution must offer any amount of
a post-withdrawal disbursement (loan and grant) that is not credited to
the student's account to the student, or parent in the case of a parent
PLUS loan, as a direct disbursement.
Current regulations do not require institutions to explain to
students, or parents for a parent PLUS loan, the obligation to repay
disbursed loan funds, nor do they specify the documentation an
institution must keep.
New Regulations: The existing regulations, as redesignated in Sec.
668.22(a)(5), have been modified as a result of the changes made by the
HERA.
While current regulations already require an institution to obtain
confirmation from a student, or parent
[[Page 45670]]
for a parent PLUS loan, before making a direct disbursement of loan or
grant funds from a post-withdrawal disbursement, the regulations have
been revised to make clear that an institution must now obtain this
confirmation before crediting a student's account with loan funds. As
in the past, an institution may credit a student's account with any
post-withdrawal disbursement of grant funds without confirmation from
the student.
Thus, the interim final regulations require an institution to
include in the written notification it must provide to a student, or
parent for a parent PLUS loan, notice of any post-withdrawal
disbursement of loan funds that it wishes to credit to the student's
account. As currently required for direct disbursements of a post-
withdrawal disbursement, the notice must identify the type and amount
of the loan funds the institution wishes to credit to the student's
account, and explain that a student, or parent for a parent PLUS loan,
may accept or decline all or a portion of the funds. The notice must
also make clear that a student, or parent for a parent PLUS loan, may
not receive as a direct disbursement loan funds that the institution
wishes to credit to the student's account unless the institution agrees
to do so. If the student, or parent for a parent PLUS loan, does not
wish to accept some or all of the loan funds that the institution
wishes to credit to the student's account, the institution must not
disburse those funds. As required by the HERA, institutions are now
required to explain to the student, or parent for a parent PLUS loan,
the obligation to repay any loan funds accepted as a post-withdrawal
disbursement.
The 14-day deadline (from the date the institution sent the
notification) for a student, or parent for a parent PLUS loan, to
accept some or all of a direct disbursement of a post-withdrawal
disbursement, now applies to confirmation of loan disbursements that an
institution wishes to credit to a student's account. The interim final
regulations permit an institution to establish a later deadline,
provided the later deadline applies to both confirmation of loan
disbursements to the student's account and to direct disbursements of a
post-withdrawal disbursement. In accordance with current regulations,
the institution's notice to the student, or parent for a parent PLUS
loan, must advise the student or parent of this deadline, making clear
that a late response to the notice is honored only at the institution's
discretion. Under the interim final regulations, an institution that
chooses to honor a late response must disburse all the funds accepted
by the student, or parent for a parent PLUS loan; for example, it
cannot credit loan funds to the student's account in accordance with
the student's request, but decline to disburse directly post-withdrawal
funds accepted by the student. As currently required when an
institution declines to honor a late response for direct disbursements
of a post-withdrawal disbursement, the interim final regulations
require an institution that declines to honor a late response accepting
loan funds to be credited to the student's account to inform the
student, or parent for a parent PLUS loan, in writing that it will not
be honoring the late response.
As with current regulatory requirements for making a direct
disbursement of a post-withdrawal disbursement, an institution must
make a disbursement by crediting a student's account with a post-
withdrawal disbursement of loan funds within 120 days of the date of
the institution's determination that the student withdrew, as that term
is defined in Sec. 668.22(l)(3).
Finally, new paragraph Sec. 668.22(a)(5)(iv) has been added to
codify the HERA requirement that an institution document in the
student's file the result of the contact and the final determination
made concerning a post-withdrawal disbursement of loan funds.
Reasons: These changes are made to implement the provisions of the
HERA. We have modified the current regulations that require
confirmation of any post-withdrawal disbursements made as a direct
disbursement to reflect the new statutory requirements.
A new regulatory provision requires the institution to make clear
in the written notice that a student, or parent for a parent PLUS loan,
may not receive as a direct disbursement loan funds that the
institution wishes to credit to the student's account, unless the
institution concurs. This reflects current requirements that permit an
institution to credit Title IV funds to a student's account before
disbursing any remaining amount to the student, or parent for a parent
PLUS loan.
The Secretary has made other changes to the regulations with the
goal of easing implementation of the new requirements. The Secretary
believes it should not be the institution's decision to determine that
it is acceptable for a student to incur debt and/or use up Title IV,
HEA program eligibility to cover a debt to the institution, but not to
cover non-institutional educational expenses. That decision must be
left to the student, or parent for a parent PLUS loan. Thus,
institutions are required to use the same deadline for responses for
both types of confirmations and, if the institution acts on a late
response, it must honor all the confirmations in the response.
In addition, the Secretary now permits an institution to establish
a deadline for confirmation responses beyond the 14-day minimum in
current regulations to ease institutional administrative burden. Some
institutions may desire to give all students and parents more time to
respond now that confirmation of disbursement is needed for crediting
the student's account with loan funds. Also, a later deadline may be
beneficial as a late confirmation response can now result in a student
owing a debt to the institution for unpaid charges on his or her
account.
Withdrawals From Clock Hour Programs
Statute: The HERA changed section 484B(d)(2) of the HEA, to provide
that only scheduled hours, not completed hours, will be used to
determine the percentage of the payment period or period of enrollment
completed by a student withdrawing from a clock hour program. Prior to
this change, the law provided that scheduled hours, rather than
completed hours, were used only if the hours completed by the student
were equal to a percentage, determined by the Secretary in regulations,
of the hours scheduled to be completed when the student withdrew.
The HERA made a conforming change to section 484B(a)(3)(B)(ii) to
make clear that a student withdrawing from a clock hour program earns
100 percent of his or her aid if the student's withdrawal date occurs
after the point when he or she was scheduled to complete 60 percent of
the scheduled hours in the payment period or period of enrollment.
Current Regulations: The current regulations in Sec.
668.22(f)(1)(ii) use actual hours to determine the percentage of the
period completed by a student withdrawing from a clock hour program,
unless the student's actual hours of attendance were at least 70
percent of the hours the student was scheduled to have completed at the
time they withdrew. If so, scheduled hours are used.
Section 668.22(e)(2)(ii)(B) of the current regulations provides
that a student earns 100 percent of his or her aid only if he or she
actually completed 60 percent or more of the hours in the payment
period or period of enrollment scheduled to be completed when he or she
withdrew.
[[Page 45671]]
New Regulations: Section 668.22(f)(1)(ii) has been amended to
reflect the statutory change to section 484B(d)(2) requiring the use of
scheduled clock hours in all calculations of earned Title IV, HEA
program funds for students who withdraw from clock-hour programs. That
is, for a student withdrawing from a clock-hour program, the
``percentage of the payment period or period of enrollment completed''
is determined by dividing the total number of clock hours comprising
the period into the number of clock hours scheduled to be completed as
of the student's withdrawal date. In addition, the regulations have
been amended to require that the scheduled clock hours used for a
student must be those established by the institution prior to the
student's beginning class date for the payment period or period of
enrollment, and must have been established in accordance with any
requirements of the State or the institution's accrediting agency.
These hours must be consistent with the published materials describing
the institution's programs. However, if an institution modified the
scheduled hours in a student's program prior to his or her withdrawal,
and in accordance with any State or accrediting agency requirements,
the new scheduled hours must be used.
New Sec. 668.22(e)(2)(ii)(B) implements the statutory change in
section 484B(a)(3)(B)(ii) by clarifying that a student withdrawing from
a clock-hour program earns 100 percent of his or her aid if the
student's withdrawal date is after the point when he or she was
scheduled to complete 60 percent of the scheduled hours in the payment
period or period of enrollment.
Reasons: These changes are made to implement the provisions of the
HERA. To limit the possibility of abuse of this rule, the regulations
provide that the scheduled hours used must be those that are part of a
schedule that was established prior to a student's withdrawal, and must
meet any applicable State or accrediting agency standards.
Grant Overpayment Requirements
Statute: Section 8022 of the HERA amended section 484B(b)(2)(C) of
the HEA to change the amount of a grant overpayment that must be repaid
by a student who withdraws from school. The amount of a grant
overpayment due from a student is limited to the amount by which the
original overpayment amount exceeds 50 percent of the total grant funds
received by the student for the payment period or period of enrollment.
In addition, the HERA amended the HEA to specify that a student does
not have to repay a grant overpayment of $50 or less for grant
overpayments resulting from the student's withdrawal.
Current Regulations: The current regulations in Sec.
668.22(h)(3)(ii) provide that a student is not required to repay 50
percent of the withdrawn student's original grant overpayment amount.
Under Sec. 668.35(e)(3), an otherwise eligible student maintains
eligibility and does not have to repay a Perkins Loan, FSEOG, or Pell
Grant overpayment of less than $25--resulting from withdrawal or
otherwise provided that the overpayment amount is not a remaining
balance nor a result of applying the overaward threshold for the
campus-based programs.
New Regulations: Revised Sec. 668.22(h)(3) reflects the new
statutory limitation on the amount of a grant overpayment that a
student is required to return. To illustrate the effect of the new law,
we provide the following example: A student who received $2,000 in
Title IV, HEA grant funds for a payment period withdraws from school.
The institution uses the Return of Title IV Funds calculation and
determines that the student has an original grant overpayment of
$1,200. Under current regulations, the student would owe $600 (50
percent of the original overpayment amount of $1,200). Under the
interim final regulations, the student owes $200 (the amount by which
the original overpayment amount ($1,200) exceeds half of the total
grant funds received, ($1,000) or $1,200-$1,000. In this same scenario,
if the student's grant overpayment was originally $800, under current
regulations the student owes $400 (50 percent of $800). Under the
interim final regulations, the student owes nothing because the
overpayment amount ($800) is less than half of the total grant funds
received ($1,000).
Section 668.22(h)(3) also reflects the statutory provision that a
student is not obligated to return a grant overpayment of $50 or less.
As a result, a grant overpayment of $50 or less will not make the
student ineligible to receive Title IV, HEA program assistance should
the student return to school. An institution is not required to attempt
recovery of that overpayment, report it to the Department's National
Student Loan Data System (NSLDS), or refer it to the Secretary.
Consistent with Sec. 668.35(e)(3), this new standard does not apply to
remaining grant overpayment balances; that is, a student must repay a
grant overpayment that has been reduced to $50 or less because of
payments made.
A conforming change is also being made to Sec. 668.35(e) to make
it clear that the overpayment threshold and eligibility requirements of
Sec. 668.35(e) do not apply to an overpayment resulting from the
application of the Return of Title IV Funds requirements. The less-
than-$25 threshold and eligibility requirements specified in Sec.
668.35(e)(3) continue to apply to all other overpayments.
Reasons: These changes are made to implement the provisions of the
HERA.
Waiver of Grant Overpayment for Students Affected by a Disaster
Statute: The Pell Grant Hurricane and Disaster Relief Act (Pub. L.
109-66) and the Student Grant Hurricane and Disaster Relief Act (Pub.
L. 109-67) amended section 484B(b)(2) of the HEA to permit the
Secretary to waive a student's Title IV grant repayment if the student
withdrew from an institution because of a major disaster.
Current Regulations: Current regulations do not address this issue.
New Regulations: New Sec. 668.22(h)(5) incorporates the statutory
changes. The interim final regulations provide that the Secretary may
waive grant overpayment amounts for individuals whose withdrawal ended
within the award year during which the designation of a major disaster
area occurred, or the subsequent award year. On November 9, 2005, the
Secretary exercised this waiver authority through publication of Dear
Colleague Letter GEN-05-17. It is important to note that this waiver
authority applies to a grant overpayment due from a student and not to
the required return of unearned funds to a grant program by an
institution.
Reasons: These changes are made to implement the provisions of the
Pell Grant Hurricane and Disaster Relief Act and the Student Grant
Hurricane and Disaster Relief Act. The interim final regulations apply
the waivers on an award year basis to reflect the fact that Pell and
FSEOG Grants are awarded on an award year basis.
Order of Return of Grant Funds
Statute: Section 484B(b)(3)(B) of the HEA requires that unearned
Title IV, HEA grant funds be returned to awards under subpart 1 of part
A of the HEA (for the Pell Grant Program) before they are returned to
awards under subpart 3 of part A of the HEA (for the FSEOG Program).
Under prior law, the Pell Grant program was the only program in subpart
1 of part A of the HEA. The HERA has added the ACG and the
[[Page 45672]]
National SMART Grant programs to subpart 1 of part A of the HEA. As a
result, unearned funds must be returned to the Pell Grant, ACG and
National SMART Grant programs before they are returned to the FSEOG
program. The statute does not require that unearned funds be returned
to one subpart 1 program before another.
Also, as noted previously, the HERA limited the application of the
Return of Title IV funds requirements to funds from the Pell Grant,
FSEOG, FFEL, Direct Loan, and Perkins Loan programs, as well as the new
ACG and National SMART Grant programs.
Current Regulations: Section 668.22(i)(2) currently requires an
institution or student to return unearned funds to the grant programs
in the following order: (1) The Federal Pell Grant Program; (2) the
FSEOG Program; (3) other Title IV, HEA grant or loan assistance
programs.
New Regulations: New Sec. 668.22(i)(2) reflects the addition of
the new ACG and National SMART Grant programs and requires that
unearned funds be returned to those programs before unearned funds are
returned to the FSEOG program. The interim final regulations also
specify an order of return for the three grant programs in subpart 1 of
part A of the HEA, requiring an institution or student to return
unearned funds to the subpart 1 grant programs in the following order:
(1) The Pell Grant Program; (2) the ACG Program, and (3) the National
SMART Grant Program. The interim final regulations no longer require an
institution to return funds to ``other Title IV, HEA grant or loan
assistance programs.''
Reasons: These changes are made to implement the provisions of the
HERA. The interim final regulations specify that an institution or
student return unearned funds to the Pell Grant Program before they are
returned to the ACG or National SMART Grant programs because this
approach is the most beneficial for students. Returning funds to the
Pell Grant Program ensures that the student's eligibility for a Pell
Grant is maintained, which is beneficial should the student return to
school within the same award year and again seek an ACG or National
SMART Grant.
Return of Funds Within 45 Days
Statute: Section 8022 of the HERA amended section 484B(b)(1) of the
HEA to add the requirement that an institution return unearned funds
for which it is responsible no later than 45 days from the
determination of a student's withdrawal.
Current Regulations: Section 668.22(j) of the current regulations
requires an institution to return the unearned funds for which it is
responsible as soon as possible, but no later than 30 days after the
date of the institution's determination that the student withdrew.
Section 668.173(b) establishes the specific criteria an institution
must meet to be in compliance with the 30-day deadline in Sec.
668.22(j).
New Regulations: The interim final regulations in Sec. 668.22(j)
incorporate the HERA provision by changing the maximum amount of time
an institution has to return the unearned funds for which it is
responsible from 30 days to 45 days. The interim final regulations
continue to specify that an institution must return those funds as soon
as possible.
We are also making conforming changes to Sec. 668.173(b) to extend
the deadlines specified in that regulation by 15 days. An institution
will be considered to have returned funds timely if the institution
does one of the following no later than 45 days (rather than the
current 30 days) after the date it determines that the student
withdrew: (1) Deposits or transfers the funds into the bank account it
is required to maintain; (2) initiates an electronic funds transfer
(EFT); (3) initiates an electronic transaction that informs the FFEL
lender to adjust the borrower's loan account for the amount returned;
or (4) issues a check. The institution is considered to have issued a
check timely if the institution's records show that the check was
issued no more than 45 days after the date the institution determined
that the student withdrew, or the date on the cancelled check shows
that the bank endorsed that check no more than 60 days (instead of the
current 45 days) after the date the institution determined that the
student withdrew.
Reasons: These changes are made to implement the provisions of the
HERA. The interim final regulations retain the requirement that an
institution return funds for which it is responsible as soon as
possible. The return of funds by an institution may result in a
decrease in the amount of a Title IV loan that the student must repay
and reduces that interest that accrues on the loan. In addition, the
sooner funds are returned, the sooner an otherwise eligible student may
regain eligibility for those funds should the student return to school
within the same academic period.
Student Eligibility--General and Student Debts Under the HEA and to the
U.S. (Sec. Sec. 668.32, 668.35, 674.39, 682.405, and 685.211)
Statute: Section 8021(a) of the HERA amended section 484(a) of the
HEA by adding a new student eligibility requirement. The new
requirement provides that students who have been convicted of, or have
pled nolo contendere or guilty to a crime involving fraud in obtaining
Title IV, HEA program assistance are not eligible for additional Title
IV assistance unless they have repaid the fraudulently obtained Title
IV, HEA program assistance funds to the Secretary or to the holder of a
loan made under the Title IV, HEA programs.
Current Regulations: Current regulations do not address the Title
IV eligibility of students who have obtained Title IV, HEA Program
assistance through fraud.
New Regulations: Sections 668.32 and 668.35 have been amended by
adding new paragraphs (m) and (i), respectively, to provide that a
student who has been convicted of or has pled nolo contendere or guilty
to a crime involving fraud in obtaining Title IV, HEA program
assistance is ineligible for additional assistance unless he or she has
repaid the fraudulently obtained Title IV, HEA program assistance funds
to the Secretary or to the holder of a loan made under the Title IV,
HEA programs. In addition, Sec. 682.401(b)(4) has been amended to
cross-reference the new Sec. 668.35(i).
Sections 674.39(a), 682.405(a)(1), and 685.211(f) have been amended
to specify that a Perkins, FFEL, or Direct Loan Program loan that was
fraudulently obtained, and for which the borrower has been convicted
of, or has pled nolo contendere or guilty to, a crime involving
fraudulently obtained Title IV, HEA program assistance, is not eligible
for rehabilitation.
Reasons: These regulations have been amended to reflect the changes
made by the HERA.
Conviction for Possession or Sale of Illegal Drugs (Sec. 668.40)
Statute: Section 8021(c) of the HERA amended section 484(r) of the
HEA to modify the requirements regarding the suspension of eligibility
for students convicted of drug-related offenses. As amended, the HEA
now provides that a student becomes ineligible for Title IV, HEA
program assistance only if the conviction for a Federal or State
offense involving the possession or sale of a controlled substance is
for conduct that occurred during a period of enrollment
[[Page 45673]]
for which the student was receiving Title IV, HEA program assistance.
The period of ineligibility and provisions for regaining eligibility
were not changed by the HERA.
Current Regulations: The current regulations reflect the previous
statutory requirements that provided that a student became ineligible
to receive Title IV, HEA program assistance if the student was
convicted of an offense involving the possession or sale of illegal
drugs without regard to when the offense occurred.
New Regulations: Section 668.40(a)(1) has been revised to reflect
the statutory change to section 484(r) of the HEA that limits the loss
of student eligibility to students convicted of drug-related offenses
to offenses that occurred during a period of enrollment for which the
student was receiving Title IV, HEA program assistance.
The revised student eligibility criterion applies to the 2006-2007
award year for the Pell Grant, ACG, National SMART Grant, and campus-
based programs and for periods of enrollment beginning on or after July
1, 2006 for the FFEL and Direct Loan Programs.
The period of ineligibility remains unchanged and is triggered by
the date of the conviction. The provisions for regaining eligibility
also remain unchanged.
Reasons: These regulations have been changed to reflect the changes
to the HEA made by the HERA.
Estimated Financial Assistance (Sec. Sec. 673.5, 673.6, 674.16,
675.26, 682.200 and 685.102)
Statute: Section 8019 of the HERA added two new grant programs by
creating a new HEA section 401A and modified the definition of Other
Financial Assistance in HEA section 480(j). The two new grant programs
are considered other financial assistance under section 480(j) of the
HEA. In changing the definition of Other Financial Assistance, the HERA
added a new section to the definition that states, ``Notwithstanding
paragraph (1) and section 472, assistance not received under this title
may be excluded from both estimated financial assistance and cost of
attendance, if that assistance is provided by a State and is designated
by such State to offset a specific component of the cost of attendance.
If that assistance is excluded from either estimated financial
assistance or cost of attendance, it shall be excluded from both.''
The Ronald W. Reagan National Defense Authorization Act for Fiscal
Year 2005 (Pub. L. 108-375) amended Title 10 of the United States Code
to add a new veterans' education benefit in chapter 1607. Veterans'
education benefits are considered other financial assistance under
section 480(j) of the HEA. These chapter 1607 benefits, which are known
as the Reserve Educational Assistance Program, benefit military
reservists called to active duty after September 11, 2001 and are
designated to pay for postsecondary education expenses.
Current Regulations: The current regulations do not include the two
new grant programs, the change in the definition of Other Financial
Assistance, or the added veterans' educational benefit in the
regulatory definitions of resources and estimated financial assistance.
New Regulations: We have amended Sec. Sec. 673.5, 682.200 and
685.102 to reflect the creation of the two new grant programs and the
new veterans' education benefit, as well as the modification of the
statutory definition of Other Financial Assistance. In addition, we
have made technical changes to clarify the existing regulatory
language, to standardize the definitions of resources and estimated
financial assistance used in Sec. Sec. 673.5(c), 673.6(a), 674.16(c),
675.26(a), 682.200(b) and 685.102(b), to adopt a single regulatory term
to describe other financial assistance, and to make conforming changes.
Historically, the campus-based General Provisions have used the
term resources rather than estimated financial assistance in reference
to the same components. However, the statute repeatedly uses the term
estimated financial assistance, and we believe it is necessary to use
this term in the interim final regulations. Accordingly, the interim
final regulations in Sec. Sec. 673.6(a)(1), 674.16(c), 675.26(a)(4)
and 676.16(b) have been amended to change the defined term resources to
the defined term estimated financial assistance.
We have also made some technical changes to the regulations. We
have modified the regulations to provide for the consistent use of
names for the different loan types for each of the loan programs. We
also clarified that the loans that can be used to replace the expected
family contribution (EFC) include non-federal, non-need-based loans
that come from private, state, or institutional sources. We have
revised the definition of estimated financial assistance in Sec. Sec.
682.200 and 685.102 of the FFEL and Direct Loan programs, respectively,
to reflect our longstanding policy that estimated financial assistance
includes ``Any educational benefits paid because of enrollment in a
postsecondary education institution, or to cover postsecondary
education expenses'' and by adding the same language to Sec. 673.5(c)
for the campus-based programs.
We added non-need-based employment as an exclusion to the
definition of estimated financial assistance in Sec. Sec. 682.200 and
685.102 of the FFEL and Direct Loan program regulations, respectively.
In Sec. 673.5 of the campus-based General Provisions, we made a
technical correction to clarify that fellowships and assistantships
must be counted as estimated financial assistance, except those
portions that are non-need-based employment. The current regulation
states that non-need-based employment is not considered estimated
financial assistance, but fellowships and assistantships may include
portions that are non-need-based employment, but are not labeled
separately as such. We made a technical change to Sec. 673.5 to
clarify the rules for the consideration of these fellowships and
assistantships.
We added to the definition of estimated financial assistance in
Sec. Sec. 682.200(b) and 685.102(b) two items that are in the same
definition under Sec. 673.5(c). Those two items are insurance programs
for the student's education and fellowships and assistantships, except
non-need-based employment portions of such awards. This inclusion
ensures the three sections have similar language.
Another technical change made for consistency was made in
Sec. Sec. 682.200(b) and 685.102(b) in which the word ``AmeriCorps''
was added parenthetically following each instance of national service
education awards or post-service benefits paid under title I of the
National and Community Service Act of 1990 because that is the term
used in Sec. 673.5(c).
Reasons: The regulations need to be changed to reflect the new
grant programs and the new veterans' educational benefits under 10
U.S.C. Chapter 1607. As a technical change, we have parenthetically
inserted the names of each of the chapters of eligible veterans'
education benefits listed to make it easier for the public to identify
these benefits. We also deleted the entries for programs that are
obsolete and updated the names of programs that have been changed. We
have also made technical changes to clarify the existing language and
standardize the definitions among the regulatory sections referencing
the definition of estimated financial assistance.
[[Page 45674]]
Military Deferment (Sec. Sec. 674.34, 682.210, and 685.204)
Statute: Section 8007 of the HERA amended sections 428, 455, 464
and 481 of the HEA to create a new deferment for borrowers who are
serving on active duty in the U.S. Armed Forces, or who are performing
qualifying National Guard duty, during a war or other military
operation or national emergency. The deferment is effective July 1,
2006, for loans for which the first disbursement is made on or after
July 1, 2001.
Current Regulations: The current deferment regulations do not
reflect this new deferment for military service. This new deferment is
different from the military service deferment available to Perkins
Loan, FFEL and Direct Loan Program borrowers who took out loans prior
to July 1, 1993.
New Regulations: Section 674.34 of the Perkins regulations, Sec.
682.210 of the FFEL regulations, and Sec. 685.204 of the Direct Loan
regulations have been amended to reflect the new military service
deferment created by the HERA. The interim final regulations specify
the types of active duty service and National Guard service that
qualifies a borrower for the deferment, and define active duty,
military operation, and national emergency for purposes of a military
deferment. The types of qualifying service and the definitions are
provided in the HERA.
A borrower may qualify for the military deferment if the first
disbursement of the borrower's Perkins, FFEL, or Direct Loan was made
on or after July 1, 2001. If the borrower has some loans disbursed
before July 1, 2001 and some loans disbursed on or after July 1, 2001,
the borrower may receive a military deferment for the loans disbursed
on or after July 1, 2001, but may not receive a military deferment on
the loans disbursed before July 1, 2001. The period of eligible
military service must have occurred after the borrower received the
loan. A borrower consolidating loans first disbursed on or after July
1, 2001, is eligible for the new deferment on the entire Consolidation
Loan only if all of the borrower's Title IV loans included in the
Consolidation Loan were first disbursed on or after July 1, 2001. The
HERA does not authorize a loan holder to refund payments made during a
period covered by a retroactive deferment.
Reasons: The regulations are amended to reflect changes made by the
HERA.
FFEL and Direct Loan Program Changes
Graduate and Professional Student Eligibility for PLUS Loans
(Sec. Sec. 668.2, 682.102, 682.201, 685.102, 685.200, and 685.201)
Statute: Section 8005 of the HERA amended section 428B of the HEA,
to provide that graduate and professional students are eligible for
PLUS Loans. In addition, section 8014 of the HERA added a new
eligibility requirement for PLUS Loan borrowers. Under this
requirement, a PLUS Loan borrower who has been convicted of, or pled
nolo contendere or guilty to, a crime involving fraud in obtaining
Title IV, HEA program funds must complete repayment of the fraudulently
obtained funds to be eligible to receive a PLUS loan.
Current Regulations: Under the current regulations, only parents of
eligible students are eligible for PLUS Loans.
New Regulations: The terms Federal Direct PLUS Program and Federal
PLUS Program are defined in Sec. Sec. 668.2 and 685.102 to include
graduate and professional students as eligible borrowers. Section
682.102 of the FFEL Program regulations and Sec. 685.201 of the Direct
Loan Program regulations have been amended to describe the application
process for graduate or professional students to obtain a PLUS loan.
Sections 682.201 of the FFEL Program regulations and 685.200 of the
Direct Loan Program regulations have been amended to specify that a
graduate or professional student PLUS borrower must meet the same
eligibility criteria as a student Stafford borrower. This includes the
new requirement in Sec. 668.32 that a student convicted of fraud in
obtaining Title IV, HEA program funds, or who has pled nolo contendere
or guilty to such a crime, must complete repayment of the fraudulently
obtained funds. In addition, the student PLUS borrower must have
received a determination of his or her annual loan maximum eligibility
under the Subsidized and Unsubsidized Stafford Loan program. A student
PLUS borrower, like a parent PLUS borrower, must not have an adverse
credit history to be eligible for a PLUS Loan.
We have also amended Sec. 682.201(c) to reflect that a parent
borrower convicted of fraud in obtaining Title IV, HEA program funds,
or who has pled nolo contendere or guilty to such a crime, must
complete repayment of the fraudulently obtained funds in order to be
eligible for a PLUS loan.
Reasons: The regulations are amended to reflect changes made by the
HERA.
Joint Consolidation Loans (Sec. Sec. 682.102, 682.201, and 685.220)
Statute: Section 8009 of the HERA amended section 428C(a)(3)(C) of
the HEA by eliminating the ability of a married couple to jointly
consolidate their eligible student loans.
Current Regulations: Current regulations permit a married couple to
consolidate their eligible student loans into a joint FFEL or Direct
Consolidation Loan.
New Regulations: Sections 682.102(d), 682.201(c)(2), 682.201(e),
and 685.220(d)(2) have been modified to eliminate the possibility of
joint consolidation of loans by a married couple for applications
received on or after July 1, 2006.
Reasons: These regulations are amended to reflect changes made by
the HERA.
Interest Rates (Sec. Sec. 682.202 and 685.202)
Statute: Public Law 107-139 amended section 427A of the HEA to
establish fixed interest rates for FFEL and Direct Stafford and PLUS
loans first disbursed on or after July 1, 2006, at 6.8 percent for
Stafford loans and 7.9 percent for PLUS loans. The HERA did not change
these interest rates for Stafford loans or Direct PLUS loans but did
increase the interest rate for PLUS loans made under the FFEL Program
to 8.5 percent. For FFEL and Direct Consolidation loans, the interest
rate remains a fixed rate, calculated at the time the consolidation
loan is made, as the weighted average of interest rates on the loans
consolidated, rounded up to the nearest higher \1/8\th of 1 percent,
not to exceed 8.5 percent.
Current regulations: Current regulations do not reflect the changed
interest rates on Stafford and PLUS loans made under the FFEL and
Direct Loan programs. Interest rates on FFEL and Direct Consolidation
loans are correctly reflected in the current regulations.
New regulations: Sections 682.202 and 685.202 of the FFEL and
Direct Loan program regulations, respectively, have been amended to
reflect a fixed interest rate of 6.8 percent for Stafford Loans first
disbursed on or after July 1, 2006. The regulations have also been
amended to reflect a fixed interest rate of 8.5 and 7.9 percent,
respectively, for FFEL and Direct PLUS loans first disbursed on or
after July 1, 2006.
Reasons: The regulations are amended to reflect changes made by
Public Law 107-139 and the HERA.
Origination Fees (Sec. Sec. 682.202 and 685.202)
Statute: Section 8008(c) of the HERA amended section 438(c)(2) of
the HEA to
[[Page 45675]]
reduce and eventually eliminate the 3 percent origination fee that is
paid by FFEL Program lenders and that the lenders may charge to FFEL
Stafford Loan borrowers. Section 8008(c) of the HERA also amended
section 455(b)(8)(A) of the HEA to reduce the 4 percent origination fee
that may be charged to Stafford Loan borrowers in the Direct Loan
Program. The 4 percent Direct Stafford Loan origination fee is
equivalent to the combined 3 percent FFEL Stafford Loan origination fee
plus the 1 percent insurance premium (now the Federal default fee) that
is authorized in the FFEL Program. Origination fees currently charged
to FFEL and Direct PLUS loan borrowers are not changed by the HERA.
FFEL and Direct Consolidation Loan borrowers are also not charged
origination fees.
Current Regulations: The current regulations authorize lenders in
the FFEL Program to charge borrowers an origination fee of up to 3
percent of the amount of a Stafford Loan and the Secretary to charge a
fee of up to 4 percent of the amount of a Direct Stafford Loan. Lenders
in the FFEL Program are required to pay the full amount of the
origination fee to the Secretary whether or not they charge the fee to
the borrower.
New regulations: The FFEL Program regulations have been amended in
Sec. 682.202(c) to reduce origination fees as follows: Beginning with
loans for which the first disbursement of principal is made on or after
July 1, 2006, and before July 1, 2007, the maximum origination fee that
a lender may charge a borrower will be 2 percent. The maximum
origination fee that may be charged to an FFEL Stafford loan borrower
drops to 1.5 percent on July 1, 2007, 1.0 percent on July 1, 2008, and
0.5 percent on July 1, 2009. The lender must pay the specified maximum
fee for each period to the Secretary whether or not it is charged to
the borrower. The fee will be eliminated as of July 1, 2010.
Section 685.202(c) of the Direct Loan Program regulations has been
amended to reduce origination fees as follows: Beginning with loans for
which the first disbursement of principal is made on or after February
8, 2006, and before July 1, 2007, the maximum origination fee that may
be charged to Direct Stafford Loan borrowers is 3 percent. The maximum
origination fee that may be charged drops to 2.5 percent on July 1,
2007, 2.0 percent on July 1, 2008, 1.5 percent on July 1, 2009, and 1.0
percent on July 1, 2010.
Reasons: The regulations are amended to reflect the changes made by
the HERA.
Loan Limits (Sec. Sec. 682.204 and 685.203)
Statute: Section 8005 of the HERA amended sections 425(a)(1)(A),
428(b)(1)(A), and 428H(d) of the HEA to increase loan limits for
certain Stafford Loan borrowers. The higher loan limits are effective
in the FFEL Program for loans certified on or after July 1, 2007, and,
in the Direct Loan Program, for loans originated on or after July 1,
2007. The HERA did not increase aggregate loan limits in either
program.
Current Regulations: Under the current regulations, the base
subsidized/unsubsidized combined annual loan limit for first-year
undergraduates is $2,625 and $3,500 for second year undergraduates. For
graduate or professional students, the additional unsubsidized annual
loan limit is $10,000. For students who have obtained a baccalaureate
degree and are enrolled in coursework necessary for enrollment in a
graduate or professional program, the additional unsubsidized annual
loan limit is $5,000. For students who have obtained a baccalaureate
degree, and are enrolled in coursework necessary for a professional
credential or certification from a State required for employment as a
teacher in an elementary school, the additional unsubsidized loan limit
is $5,000.
New Regulations: Under the interim final regulations, for FFEL
loans certified on or after July 1, 2007 and for Direct Loans
originated on or after July 1, 2007:
For first-year undergraduates, the base subsidized/
unsubsidized combined annual loan limit is $3,500;
For second year undergraduates, the base subsidized/
unsubsidized combined annual loan limit is $4,500;
For graduate or professional students, the additional
unsubsidized annual loan limit is $12,000;
For students who have obtained a baccalaureate degree and
are enrolled in coursework necessary for enrollment in a graduate or
professional program, the additional unsubsidized annual loan limit is
$7,000; and
For students who have obtained a baccalaureate degree, and
are enrolled in coursework necessary for a professional credential or
certification from a State required for employment as a teacher in an
elementary school, the additional unsubsidized loan limit is $7,000.
The HERA did not increase the base subsidized/unsubsidized combined
loan limits for third year and above undergraduate students and for
graduate students. The HERA also did not change the limits on the
additional amount of unsubsidized loans that are available to all
undergraduate students.
Reasons: These regulations are amended to reflect changes made by
the HERA.
Elimination of Option of Early Entrance Into Repayment (Sec. Sec.
682.209 and 685.220)
Statute: Section 8009 of the HERA amended sections 428(b)(7)(A),
428C(a)(3), and 428C(b)(5) to eliminate the ability of FFEL Stafford
Loan borrowers to request to enter repayment on their loans early.
Early conversion to repayment allows a borrower to consolidate FFEL
loans while still enrolled at least half-time.
Section 8009 of the HERA also amended sections 455(a), 455(d), and
455(g) of the HEA to require that Direct Consolidation Loans have the
same terms and conditions as FFEL Consolidation Loans. For both FFEL
Stafford Loan and Direct Stafford Loan borrowers, the repayment period
is now defined as the period beginning 6 months and one day after the
date the student ceases to carry at least one-half the normal full-time
academic workload, as determined by the institution.
Current Regulations: Section 682.209(a)(5) of the FFEL program
regulations permits FFEL Stafford Loan borrowers to request and be
granted a repayment schedule prior to the end of their grace period and
therefore enter repayment on their loans. Current Direct Loan
regulations in Sec. 685.220(d)(1)(ii)(A) permit borrowers in an in-
school period with loans made under both the FFEL program and the
Direct Loan program to obtain a Direct Consolidation loan. Also, under
Sec. 685.220(d)(1)(ii)(B), a borrower with FFEL loans only, in an in-
school period at a school participating in the Direct Loan program is
eligible to consolidate these loans into the Direct Loan program.
New Regulations: To implement the HERA, section 682.209(a)(5) of
the FFEL regulations has been removed. FFEL Stafford Loan borrowers may
no longer request to enter repayment early on their loans. Section
685.220(d)(1)(ii)(A) of the Direct Loan regulations has been removed so
that Direct Stafford Loan borrowers are no longer able to consolidate
while in an in-school status.
Reasons: The regulations were modified to reflect the changes made
by the HERA to the HEA.
Teacher Loan Forgiveness (Sec. Sec. 682.215 and 685.217)
Statute: Section 8013(c) of the HERA eliminated the previous
termination date of October 1, 2005, for the increased teacher loan
forgiveness
[[Page 45676]]
amounts of up to $17,500 for highly-qualified teachers in certain
specialties as originally provided under the Taxpayer-Teacher
Protection Act of 2004 (TTPA). In addition, the HERA established an
alternative method for teachers in private non-profit schools to
qualify for the same forgiveness benefits as ``highly qualified''
teachers in public schools.
Current Regulations: Sections 682.215 and 685.217 of the FFEL and
Direct Loan Program regulations, respectively, do not reflect the
eligibility requirements for teacher loan forgiveness established in
the TTPA, the increased loan forgiveness amount that are available for
certain teachers, or the alternative method for teachers in private,
non-profit schools to qualify for teacher loan forgiveness.
New Regulations: Sections 682.215 and 685.217 continue to reflect
the original eligibility requirements for teacher loan forgiveness, and
have been amended to reflect the eligibility requirements, and
increased forgiveness amounts, established by the TTPA and the HERA.
A borrower whose five, consecutive, complete years of qualifying
teaching service began before October 30, 2004 may qualify for up to
$5,000 of teacher loan forgiveness under the original eligibility
criteria for teacher loan forgiveness.
``Highly qualified'' teachers whose teaching service begins on or
after October 30, 2004 may qualify for forgiveness of up to:
$5,000 if the borrower taught full-time in an eligible
elementary or secondary school;
$17,500 if the borrower taught mathematics or science on a
full-time basis in an eligible secondary school;
$17,500 if the borrower taught as a special education
teacher on a full-time basis, the borrower's primary responsibility was
to provide special education to children with disabilities in either an
eligible elementary or secondary school, if the borrower's special
education training corresponded to the children's disabilities and the
borrower demonstrated knowledge and teaching skills in the content
areas of the elementary or secondary school curriculum that the
borrower is teaching.
Highly qualified teachers whose teaching service began before
October 30, 2004, may also qualify for $17,500 of loan forgiveness if
they meet the applicable eligibility requirements. To qualify for loan
forgiveness based on being a ``highly qualified'' teacher, the borrower
must have been a ``highly qualified'' teacher for each of the five
consecutive years of teaching service.
Teachers in private, non-profit schools who are exempt from State
certification requirements may qualify for the same forgiveness
benefits as ``highly qualified'' public school teachers, if the private
school teacher is otherwise eligible for teacher loan forgiveness and:
The private school teacher is permitted to and does
satisfy rigorous subject knowledge and skills tests by taking
competency tests in applicable grade levels and subject areas;
The competency tests taken by the private school teacher
are recognized by five or more States for the purposes of fulfilling
the highly qualified teacher requirements of the Elementary and
Secondary Education Act of 1965, as amended; and
The private school teacher achieves a score on each test
that equals or exceeds the average passing score for those five States.
Reasons: These regulations are amended to reflect changes made by
the TTPA and the HERA.
Loan Discharge for False Certification as a Result of Identity Theft
(Sec. Sec. 682.402 and 685.215)
Statute: Section 8012 of the HERA amended section 437(c) of the HEA
to authorize a discharge of a FFEL or Direct Loan Program loan if the
borrower's eligibility to borrow was falsely certified because the
borrower was a victim of the crime of identity theft. This change is
effective July 1, 2006.
Current Regulations: FFEL and Direct Loan Program regulations in
Sec. Sec. 682.402 and 685.215 do not explicitly authorize the
discharge of a FFEL or Direct Loan Program loan if the borrower's
eligibility was falsely certified because the borrower was the victim
of the crime of identity theft.
New Regulations: Sections 682.402 and 685.215 of the FFEL and
Direct Loan Program regulations, respectively, have been amended to
authorize a discharge of an FFEL or Direct Loan Program loan if the
borrower's eligibility to receive the loan was falsely certified
because the borrower was a victim of the crime of identity theft. The
interim final regulations provide that the borrower's obligation is
discharged if the borrower provides the holder of a loan, or the
Secretary in the case of a Direct Loan, a copy of a local, State, or
Federal court verdict or judgment that conclusively determines that the
individual who is the named borrower of the loan was the victim of the
crime of identity theft, and the borrower demonstrates that the loan in
question was made as a result of that identity theft. Discharge relief
is available to the victim of the proven crime of identity theft,
whether or not the prosecution was based on, or expressly referred to,
the loan in question. If the conviction or judgment did not expressly
reference that loan, the individual must provide authentic examples of
his or her other identification credentials, and an explanation of
facts that demonstrate that this criminal conduct resulted in the
school certifying that individual's eligibility to borrow, and, as a
result, in the loan being made.
In addition, because the statute authorizes discharge for
individuals who are victims of the crime of identity theft, the interim
final regulations provides relief only to individuals who did not
knowingly accept the benefit of the falsely-certified loan, and require
individuals who claim relief to certify that they did not, with
knowledge that the loan had been made, receive or accept the benefits
of the loan.
Where discharge relief is provided to an injured borrower, or where
a borrower receives FFEL benefits based on providing false or erroneous
information, the HEA and the current regulations generally require the
Secretary and the guarantor, as applicable, to pursue claims against
the responsible party. Approval of an identity theft discharge claim
will rest on a judicial determination that a named individual committed
the crime of identity theft and at very least a presentation by the
victim of a persuasive statement showing that the identified
perpetrator was responsible for the loan obligation. The Secretary
interprets the enforcement language in section 437 of the HEA to
include enforcement action against the identified perpetrator of the
identity theft.
By adding this discharge authority, the Secretary in no way
suggests that unless a crime of identity theft has been successfully
prosecuted, individuals are liable for a loan for which they did not
execute or authorize another to execute a promissory note, from which
they received no benefits, and which they have not ratified by later
conduct. To the contrary, a person is ordinarily not liable on an
instrument, such as a promissory note or check, unless that person
signed that instrument or authorized another to sign on his or her
behalf. Section 682.402(e)(1)(i)(B) of the FFEL Program regulations
provide that FFEL program benefits are payable to the holder of the
loan only where the lender obtained a legally-enforceable promissory
note to evidence the loan,
[[Page 45677]]
and Sec. 682.406(a)(1) provides that reinsurance may be received only
with respect to a claim on a legally-enforceable loan. Because a forged
promissory note is not an enforceable obligation of the named borrower,
FFEL Program benefits can not lawfully be claimed on a loan evidenced
by such a note, absent conduct by the individual named as borrower that
applicable law would regard as a ratification of knowing acceptance of
the loan by the individual.\1\ In Sec. 682.402(e)(1)(i)(B) of the FFEL
Program regulations that implement the discharge authority in section
437(c) of the HEA for false certification of eligibility to borrow, the
Secretary carved out a narrow exception to this rule to authorize both
discharge relief to individuals named as borrowers and reimbursement to
the loan holders if the loan application or promissory note had been
forged by the school. No regulation grants relief to those individuals
who demonstrate that their signatures were forged on the note, but who
cannot credibly assert that the forger was a person affiliated with the
school, because that relief is already available for those individuals
under the common law (and in many instances, State law) defense of
forgery. That defense has applied to FFEL Program loans as to any other
contracts, and therefore no regulations were needed, or are now needed,
to create relief from liability on a forged FFEL Program note.
---------------------------------------------------------------------------
\1\ The Department applied this same principle in DCL 93-L-156,
July 1993, with respect to FFEL Program loans disbursed by checks on
which the borrower's endorsement had been forged.
---------------------------------------------------------------------------
Moreover, the rights of the lender, and any subsequent holder, have
always been subject to the obligation of the lender to exercise due
diligence in making the loan in accordance with Sec. 682.206(a)(2). A
lender whose employee or agent either committed the crime of identity
theft of that individual, or knew at the time the loan was made of the
identity theft of that individual, has not relied in good faith on
representations made by the borrower or the school in the loan
application process, and is not held harmless under FFEL Program
regulations from the consequences of the making of a loan that is not
legally enforceable against the individual named as borrower. In this
instance, as with forged or unauthorized endorsements on disbursement
instruments or authorizations, the holders of the loan must refund to
the Secretary any FFEL Program benefits received on that loan.
Reasons: The regulations are amended to reflect changes made by the
HERA.
Loan Rehabilitation Agreement (Sec. Sec. 682.405 and 685.211)
Statute: Section 8014(h) of the HERA amended section 428F(a) of the
HEA to modify the requirements for a borrower to rehabilitate a
defaulted loan under the FFEL and Direct Loan Programs. Under the HERA,
a borrower will only need to make nine payments within 20 days of the
due date during a period of 10 consecutive months to rehabilitate a
defaulted loan(s). This change does not apply to the Federal Perkins
Loan Program.
Current Regulations: Current regulations require a defaulted FFEL
or Direct Loan borrower to make 12 consecutive monthly payments on the
defaulted loan to rehabilitate the loan.
New Regulations: Sections 682.405 and 685.211 of the FFEL and
Direct Loan Program regulations, respectively, have been amended to
provide that a borrower meets the requirements for rehabilitation if
that borrower makes at least nine of the ten payments required under a
monthly repayment, if each payment is received within 20 days of the
scheduled due date for that payment, and notwithstanding the 20-day
grace period otherwise applicable, if all nine of those payments are
received within a period of no more than 10 consecutive calendar months
that begins no earlier than the first scheduled due date of the nine
payments and ends no later than the scheduled due date in the tenth
month following that first due date. This change is effective on July
1, 2006. For a loan rehabilitation agreement that began prior to July
1, 2006, a guaranty agency may consider the borrower to have met the
new rehabilitation standard if at least one of the borrower's payments
is due to be made on or after July 1, 2006, even if that payment is
received prior to July 1, 2006, but within 20 days of the required due
date in July. The guaranty agency must treat all borrowers in this
situation equally. On defaulted loans held by the Department, we will
consider the borrower to have met the new rehabilitation standards if
the borrower makes payments as required under the existing agreement,
and at least one of the nine payments made by the borrower was due on
or after July 1, 2006, even if that specific payment was received prior
to July 1, 2006, but within 20 days of the July due date.
Reasons: These regulations are amended to reflect changes made by
the HERA.
FFEL Program Changes
Single Holder Rule (Sec. Sec. 682.102 and 682.201)
Statute: Section 7015 of The Emergency Supplemental Appropriations
Act for Defense, the Global War on Terror, and Hurricane Recovery, 2006
(Pub. L. 109-234) amended section 428C(b)(1)(A) of the HEA by repealing
the single holder rule with respect to any FFEL Consolidation Loan for
which an application is received by an eligible lender on or after June
15, 2006. The single holder rule required that a borrower with FFEL
loans held by a single lender could only consolidate his or her loans
with that lender.
Current Regulations: Sections 682.102(d) and 682.201(d) provide
that a borrower who is applying for a Consolidation Loan must certify
that the lender making the Consolidation Loan holds at least one
outstanding loan that is being consolidated unless the borrower has
multiple holders of FFEL Program loans, or the borrower's single loan
holder declines to make a Consolidation Loan, or declines to make one
with income-sensitive repayment terms.
New Regulations: Sections 682.102(d) and 682.201(d) have been
amended to remove these requirements.
Reasons: The interim final regulations are necessary to reflect the
changes made to the HEA by The Emergency Supplemental Appropriations
Act for Defense, the Global War on Terror, and Hurricane Recovery,
2006.
Federal Default Fee (Sec. Sec. 682.202, 682.401 and 682.419)
Statute: Effective for loans guaranteed on or after July 1, 2006,
section 8014 of the HERA amended section 428(b)(1)(H) of the HEA to
eliminate the optional 1 percent insurance premium fee that guaranty
agencies could charge to lenders and that lenders could charge to
borrowers and establishes a Federal default fee equal to 1 percent of
the principal amount of the loan. The default fee must be collected by
the guaranty agency and deposited into the Federal Fund held by a
guaranty agency under section 422A of the HEA. The default fee may be
deducted and collected by the lender from the proceeds of the loan and
paid to the guaranty agency or paid from other non-Federal sources. If
the fee is charged to the borrower, it must be deducted proportionally
from each disbursement of the loan proceeds.
A guaranty agency must ensure that the proceeds of the Federal
default fee will not be used for incentive payments
[[Page 45678]]
to lenders. The Secretary is prohibited from waiving these provisions
for guaranty agencies that have Voluntary Flexible Agreements under
section 428A of the HEA.
Current Regulations: Section Sec. 682.401(b)(10) of the current
regulations provides that a guaranty agency may charge the lender an
insurance premium equal to 1 percent of the principal balance of each
Stafford, SLS, or PLUS loan it guarantees. Under Sec. 682.202(d) of
the current regulations, a lender may pass the cost of the insurance
premium along to the borrower by deducting the amount of the premium
from the borrower's loan proceeds. Section 682.419(b) requires the
guaranty agency to deposit into its Federal Fund the total amount of
insurance premiums collected from lenders.
New Regulations: Section 682.401(b)(10) has been amended to reflect
that insurance premiums will no longer be charged on Stafford or PLUS
loans guaranteed on or after July 1, 2006. The regulations have been
amended to reflect the new requirement for a Federal default fee. In
accordance with the HERA, the interim final regulations require, for
loans guaranteed on or after July 1, 2006, that the guaranty agency
must collect, from the borrower or from any non-Federal source, a
Federal default fee equal to one percent of the principal amount of the
loan. The guaranty agency must deposit the proceeds of the default fee
into its Federal Fund and ensure that the proceeds of such fees are not
used for incentive payments to lenders. Section 682.202 has also been
amended to provide that a lender may pass the cost of the Federal
default fee along to the borrower. If the borrower is charged the
Federal default fee, the amount of the default fee must be deducted
proportionately from each disbursement of the loan. The lender or
guaranty agency may also use other non-Federal sources to pay the
default fee that must be deposited into the agency's Federal Fund.
Section 682.419, which regulates the guaranty agency Federal Fund,
has also been amended to require the guaranty agencies to deposit
Federal default fees into the Federal Fund and to use assets of the
Federal Fund as those assets relate to the Federal default fee only as
directed.
Reasons: The regulations are modified to reflect the change made by
the HERA.
Loan Disbursement Through an Escrow Agent (Sec. Sec. 682.207 and
682.408)
Statute: Section 8014(j) of the HERA amended section 428(i)(1) of
the HEA to reduce the amount of time before disbursement to the
borrower that a lender may transfer loan funds to an escrow agent.
Under the HERA, a lender may now transfer funds to the escrow agent no
more than 10 days prior to the date the funds are disbursed to the
borrower.
Current Regulations: The current regulations permit lenders to
transfer funds to an escrow agent no more than 21 days prior to the
date the funds are disbursed to the borrower.
New Regulations: The regulations in Sec. Sec. 682.207(b)(1)(iv)
and 682.408(c) have been amended to permit lenders to transfer funds to
an escrow agent no more than 10 days prior to the date the funds are
disbursed to the borrower.
Reasons: The regulations were modified to reflect the changes made
by the HERA to the HEA in reducing this time period.
Due Diligence in Disbursing a Loan (Sec. Sec. 682.207 and 682.604)
Statute: Section 8008 of the HERA amended section 428(b)(1)(N) of
the HEA to provide that, for U.S. students attending an eligible
foreign school, FFEL Stafford Program loans will be disbursed directly
to the borrower only if the foreign school requests this method. Prior
to the change, a disbursement could be made directly to a student
enrolled in a foreign school at the request of the student. No change
was made to the requirement that a disbursement be made directly to a
student enrolled in a study-abroad program that is approved for credit
by the student's home institution upon the request of the student.
However, for both borrowers enrolled at a foreign school and borrowers
enrolled in a study-abroad program, section 8008 of the HERA specifies
that a lender or guaranty agency must verify the borrower's enrollment
at the foreign school before making a disbursement of FFEL Stafford
funds directly to a borrower. Under section 428B of the HEA, a lender
may not make a disbursement of PLUS loan funds (including loan funds
for graduate and professional student PLUS borrowers) directly to the
borrower. These changes are effective for loans first disbursed on or
after July 1, 2006.
Current Regulations: The current regulations in Sec.
682.207(b)(1)(v)(C) and (D) provide that, for both students enrolled in
an eligible foreign school and students enrolled in a study-abroad
program, FFEL Program loans are disbursed directly to the borrower by
the lender only upon the request of the student. Section
682.207(b)(1)(v)(E) requires a lender to notify the foreign school when
the lender makes a disbursement directly to a student enrolled at the
foreign school.
New Regulations: Section 682.207 has been amended to reflect the
statutory change that provides that a lender may disburse FFEL Stafford
Loan funds directly to a U.S. student attending an eligible foreign
school only if the school requests this method. Without a request from
the school, lenders must disburse loan funds directly to an office of
the foreign school designated by the school to receive them. A foreign
school may make a single request to a lender to disburse all FFEL
Stafford Loans directly to eligible students who attend the foreign
school.
In addition, the interim final regulations incorporate the HERA
change that provides that a lender may not make a direct disbursement
to a borrower enrolled at a foreign school or in a study-abroad program
until the lender or guaranty agency verifies the borrower's enrollment
at the foreign school. A guaranty agency or lender must verify
enrollment before each disbursement, including second and subsequent
disbursements, of a Stafford loan. If the lender or guaranty agency has
verified a borrower's enrollment, the lender must honor the student's
or school's request, as appropriate, that a direct disbursement be
made. As foreign schools may not participate in the Direct Loan Program
and Direct Loan funds are disbursed to the borrower in a study-abroad
program directly by the school, these provisions are not applicable to
the Direct Loan Program.
In new paragraph 682.207(b)(2) we have listed the requirements a
lender or guaranty agency must follow to verify a student's enrollment
at a foreign school or enrollment in a study-abroad program. These
requirements are based on the guaranty agency program requirements in
Dear Colleague Letter (DCL) G-03-348 (August 2003). To verify
enrollment in a foreign school, a guaranty agency must confirm that the
foreign school the student is to attend is currently certified to
participate in the FFEL Program. To do this, the guaranty agency must
access the Department's Postsecondary Education Participants System
(PEPS) Database. As noted in DCL G-03-348, schools that have an
eligibility status of ``Eligible/Loan Deferment'' and a certification
status of ``Not Certified'' in the PEPS Database are eligible for FFEL
loan deferment purposes only. They are not certified to participate in
the FFEL programs and students attending those schools are not eligible
to receive FFEL program funds.
After confirming that a school is certified to participate in the
FFEL
[[Page 45679]]
Program, the lender or guaranty agency must contact the foreign school
by telephone or e-mail to verify the borrower's enrollment at the
school.
The interim final regulations have different standards for
verifying enrollment at a foreign school for a new student and for
verifying enrollment for a continuing student. For a new student, the
lender or guaranty agency must verify that the student has been
admitted to the foreign school. For a continuing student, the lender or
guaranty agency must verify that the student is still enrolled as
``enrolled'' is defined in 34 CFR 668.2. Specifically, the lender or
guaranty agency must confirm that the student is admitted/enrolled for
the period for which the loan is intended at the enrollment status for
which the loan was certified. Finally, the lender or guaranty agency
must document the student's file with information on the contact.
Similarly, for a student enrolled in a study-abroad program, the
lender or guaranty agency must contact the home institution by
telephone or e-mail to confirm the student's admission to the program,
for a new student, or continuing enrollment in the program, for a
continuing student, for the period for which the loan is intended at
the enrollment status for which the loan was certified.
Guaranty agencies and lenders must coordinate their activities to
ensure that the requirements for verifying the borrower's enrollment
are met before any disbursement may be made.
New paragraph Sec. 682.604(b) also incorporates the requirements
formerly found in Sec. 682.207(b)(1)(v)(E) for lender notification to
the foreign school when the lender makes a direct disbursement to a
student enrolled at a foreign school. The interim final regulations now
require lenders to notify the school when the lender makes a
disbursement directly to a student enrolled in a study-abroad program.
In the case of a student enrolled in a study-abroad program, the lender
must notify the home institution when the lender makes the disbursement
directly to the student. Section 682.604(b)(1) is amended to require
that, upon receipt of such a notice, a foreign school, or the home
institution for a student enrolled in a study-abroad program, must
immediately notify the lender if the student is no longer eligible to
receive the disbursement.
Reasons: These changes are made to implement the provisions of the
HERA. To ensure proper implementation of the statutory changes, the
interim final regulations include procedures issued in DCL G-03-348.
In the past, the Department's Office of the Inspector General and
the Government Accountability Office have found that FFEL funds have
been disbursed directly to students for attendance at foreign schools
that either did not exist, or that were not participating in the FFEL
Programs. To avoid this problem in the future, verification of a
student's enrollment at a foreign school must include confirmation of
the foreign school's certification to participate in the FFEL Programs,
as currently required by DCL G-03-348.
As a lender may still make an FFEL disbursement directly to a
student in a study-abroad program at the student's request, these
regulations require that the lender or guaranty agency confirm the
student's enrollment in a study-abroad program with the student's home
institution prior to any disbursement of funds.
Finally, for consistency in the verification of enrollment
procedures, we have extended the requirement that a lender notify a
foreign school when the lender makes a direct disbursement to a student
enrolled at the foreign school, to require the lender to notify the
home institution when it makes a direct disbursement to a student
enrolled in a study-abroad program. The change to Sec. 682.604(b)(1)
is made to make clear that an institution that is notified by the
lender of a disbursement directly to a borrower must inform the lender
if the student is no longer eligible. Under Sec. 682.610(c)(2), an
institution is already required to notify a guaranty agency or lender
if it discovers that a loan has been made to or on behalf of a student
who enrolled at that school, but who has ceased to be enrolled on at
least a half-time basis. However, Sec. 682.610(c) refers to the
submission of such information in terms of the submission of student
status confirmation reports (SSCRs). The new requirement makes clear
that all institutions, including those that now report data through the
Department's National Student Loan Data System instead of SSCRs, must
respond to a lender's notification of a direct disbursement if the
student is no longer eligible.
Forbearance (Sec. 682.211)
Statute: Section 8014(e) of the HERA amended section 428(c)(3) of
the HEA to require that lenders confirm any non-written forbearance
agreement by recording the terms of the agreement in the borrower's
file.
Current Regulations: The current regulations state that a lender
may grant forbearance if the lender and the borrower or endorser agree
to the terms of the forbearance and, unless the agreement was in
writing, the lender sends, within 30 days, a notice to the borrower or
endorser confirming the terms of the forbearance.
New Regulations: Section 682.211(b)(1) of the FFEL Program
regulations has been amended to require a lender to record the terms of
the forbearance in the borrower's file. This change is effective for
agreements entered into or renegotiated with a borrower on or after
July 1, 2006.
Reasons: The regulations are modified to reflect the change made by
the HERA.
Loans Disbursed Through an Escrow Agent (Sec. 682.300)
Statute: Section 8014(j) of the HERA amended section 428(a)(3)(A)
of the HEA to provide that a lender may first receive interest subsidy
payments on loans disbursed by an escrow agent on behalf of the lender
three days prior to the first day of the period of enrollment, or if
the loan is disbursed after the first day of the period of enrollment,
three days after disbursement.
Current Regulations: Current regulations do not include specific
rules for interest subsidy payments on loans disbursed by an escrow
agent.
New Regulations: Section 682.300(c)(3) has been amended to provide
for the payment of interest subsidies on loans disbursed through an
escrow agent no sooner than three days prior to the first day of the
period of enrollment or, if the loan is disbursed after the first day
of the period of enrollment, three days after disbursement.
Reasons: The regulations are modified to reflect the change made by
the HERA.
Special Allowance Rates for Loans First Disbursed on or After January
1, 2000 (Sec. 682.302)
Statute: Prior to enactment of the HERA, section 438(b)(2)(I)(v) of
the HEA provided that special allowance payments (SAPs) were not paid
to lenders for any PLUS loans that were first disbursed on or after
January 1, 2000, unless a calculation using the bond equivalent rates
of certain 3-month commercial paper (financial) plus a spread of 3.1
percent, exceeded 9.0 percent. This provision of the HEA has been
struck by the HERA effective April 1, 2006, for claims that accrued on
or after that date.
Current Regulations: Current regulations do not reflect the changes
made by the HERA.
New Regulations: Section 682.302(c) of the regulations has been
amended to reflect the changes made by the HERA
[[Page 45680]]
regarding special allowance to provide for a special allowance payment
on PLUS loans that were first disbursed on or after January 1, 2000
beginning with payments made after July 1, 2006. This change
acknowledges that lenders began earning special allowance payments
April 1, 2006.
Reasons: The regulations are modified to reflect the changes made
by the HERA.
Special Allowance Payments on Loans Funded by Tax-Exempt Obligations
(Sec. 682.302)
Statute: Effective on February 8, 2006, the HERA made the special
allowance payment provisions of the Taxpayer-Teacher Protection Act of
2004 (TTPA) permanent by eliminating its January 1, 2006 sunset
provisions. The TTPA provided that upon the occurrence of specified
events after September 30, 2004 and before January 1, 2006, the special
allowance paid on loans made or purchased with funds from particular
sources derived by the holder from tax-exempt obligations originally
issued prior to October 1, 1993, would revert to the usual rates paid
on other loans, instead of the otherwise applicable rate of not less
than 9.5 percent minus the applicable interest rate. This change
affected loans that had qualified for the minimum 9.5 percent special
allowance rate, but were:
1. Financed by a tax-exempt obligation that, after September 30,
2004, and before January 1, 2006, has matured or been refunded, retired
or defeased;
2. Refinanced after September 30, 2004, and before January 1, 2006,
with funds obtained from a source other than those described in section
438(b)(2)(B)(v)(I) of the HEA; or
3. Sold or transferred to any other holder after September 30,
2004, and before January 1, 2006.
The HERA eliminated the ending dates on these limitations. In
addition, the HERA added two provisions that prohibit a loan from
acquiring eligibility for the 9.5 percent minimum special allowance
rates under 438(b)(2)(B) of the HEA. These new provisions state that
special allowance is computed at the normal, rather than the 9.5
percent minimum return rate for any loan:
Made or purchased on or after February 8, 2006 (the date
of enactment of the HERA); or
Not earning on February 8, 2006 a quarterly rate of
special allowance determined under section 438(b)(2)(B)(i) or (ii) of
the HEA.
The HERA delays these new requirements for certain holders by
providing that they take effect later--substituting ``December 31,
2010,'' for February 8, 2006--for a holder that:
Was, as of February 8, 2006, and during the quarter for
which the special allowance is paid, a unit of State or local
government or a nonprofit private entity;
Was, as of February 8, 2006, and during such quarter, not
owned or controlled by, or under common ownership or control with, a
for-profit entity; and
Held, directly or through any subsidiary, affiliate, or
trustee, a total unpaid balance of principal equal to or less than $100
million on loans for which special allowances were paid under section
438(b)(2)(B) of the HEA in the most recent quarterly payment prior to
September 30, 2005.
Current Regulations: Current regulations in Sec. 682.302(c)(3)
provide that special allowance rates for loans that were made or
purchased with funds obtained by the holder from the issuance of tax-
exempt obligations originally issued prior to October 1, 1993, or from
other sources listed there that were derived from those bond proceeds,
receive a special allowance at a rate that is generally one-half of the
rate established for other loans, but not less than 9.5 percent minus
the applicable interest rate on such loans and, in Sec. 682.302(e),
that the issuer of such obligations receives special allowance payments
on these loans at the usual rate if the issuer retires the tax-exempt
obligation or defeases it by means of yield-restricted obligations.
Current regulations refer to obligations ``originally issued'' before
or after specified dates, but do not define that term, which derives
directly from section 438(b)(2)(B) of the HEA. Current regulations do
not incorporate the Department's interpretation of the term
``originally issued'' nor do they incorporate the Department's
longstanding interpretation of the statute and regulations as
applicable to the treatment of loans acquired from the tax-exempt
funding sources listed in the statute and in Sec. 682.302(c)(3)(i), if
the ``originally issued'' obligation is later refunded by a tax-exempt
refunding obligation.
New Regulations: Section 682.302(e) has been amended and new
paragraph Sec. 682.302(f) has been added to reflect the provisions of
the HERA and, as pertinent, of the TTPA as described above and the
Department's interpretation of terms found in current regulations as
necessary for the proper implementation of provisions added by the HERA
and TTPA. In addition, Sec. 682.302(c) has been amended to incorporate
the various statutory changes in special allowance rate calculations.
Reasons: The regulations are modified to reflect the changes made
by the HERA, and as necessary to reflect those changes, the changes
made by the TTPA and the interpretations by the Department of terms
found in current regulations affected by those enactments.
Interest Repayment From Lenders (Sec. 682.305)
Statute: Section 8006(b) of the HERA amended section
438(b)(2)(C)(v) of the HEA to require payment by the lender of excess
interest received by the lender when the applicable interest rate on a
loan for any quarter exceeds the special allowance support level for
the loan.
Under the HERA, excess interest is calculated each quarter by
subtracting the ``special allowance support level'' from the applicable
interest, multiplying the result by the average daily principal balance
of the loan (not including unearned interest added to principal) during
the quarter, and dividing by four.
Current Regulations: Current regulations do not provide for the
recapture of excess interest by the Secretary.
New Regulations: Section 682.305 of the regulations has been
amended by adding a new paragraph (d) that provides for the recovery of
excess interest from a lender in accordance with the provisions added
by the HERA.
Section 682.305(d) requires the payment by a lender of excess
interest when the applicable interest rate on a loan for any quarter
exceeds the special allowance support level for the loan. This
requirement applies to loans for which the first disbursement of
principal is made on or after April 1, 2006, but does not apply with
respect to any special allowance payment made under section 438 of the
HEA before April 1, 2006. The Secretary will collect the excess
interest from lenders quarterly.
The interim final regulations require that excess interest is
calculated each quarter by subtracting the special allowance support
level from the applicable interest rate, multiplying the result by the
average daily principal balance of the loan (not including unearned
interest added to principal) during the quarter and dividing by four.
For example, if the average daily principal balance of a loan was
$1,000, and the applicable interest rate and special allowance support
level were 6.8 percent and 5.8 percent, respectively, the excess
interest to be rebated would be: $1,000 x 1.0 percent/4 = $2.50.
[[Page 45681]]
Reasons: The regulations are modified to reflect the changes made
by the HERA.
Lender Insurance (Sec. 682.401)
Statute: Section 8014(a) of the HERA amended section 428(b)(1)(G)
of the HEA to require a guaranty agency to reduce the amount of
insurance to a lender to 97 percent of a loan's unpaid principal.
Current Regulations: Section 682.401(b)(14)(ii) of the FFEL Program
regulations provides that a guaranty agency insures 98 percent of a
loan's unpaid principal.
New Regulations: The regulations are amended by adding new
paragraph Sec. 682.401(b)(14)(iii) to require a guaranty agency to
insure 97 percent of the unpaid principal balance on loans first
disbursed on or after July 1, 2006.
Reasons: The regulations are modified to reflect the change made by
the HERA.
Default Collection (Sec. 682.401)
Statute: Section 8014(d) of the HERA amended section 428(c) of the
HEA to require each guaranty agency to ensure that consolidation loans
are not an excessive proportion of the agency's recoveries on defaulted
loans. In addition, under the HERA, if a borrower repays a defaulted
loan through a Federal Consolidation Loan on or after October 1, 2006,
a guaranty agency may not charge the borrower collection costs in an
amount in excess of 18.5 percent of the outstanding principal and
interest of the defaulted loan. Also on or after October 1, 2006, when
returning proceeds to the Secretary from the consolidation of a
defaulted loan, a guaranty agency that charged the borrower collection
costs must remit an amount that equals the lesser of the actual
collection costs charged or 8.5 percent of the outstanding principal
and interest of the loan. On or after October 1, 2009, when returning
proceeds to the Secretary from the consolidation of a defaulted loan
that is paid off with excess consolidation proceeds, a guaranty agency
must remit the entire collection cost charged. The HERA defines the
term excess consolidation proceeds to mean, for any Federal fiscal year
beginning on or after October 1, 2009, the amount of proceeds from the
consolidation of defaulted loans under the FFEL Program that exceed 45
percent of the agency's total collections on defaulted loans in that
Federal fiscal year.
Current Regulations: Current regulations in Sec. 682.401(b)(27)
allow a guaranty agency to charge collection costs in an amount not to
exceed 18.5 percent of the outstanding principal and interest of a
defaulted FFEL Program loan that is repaid by a Federal Consolidation
loan. When returning the proceeds from the consolidation of a defaulted
loan to the Secretary, a guaranty agency may retain only the actual
amount of collection costs charged to the borrower on the loan repaid
by the consolidation loan (which may not exceed 18.5 percent).
New Regulations: Section 682.401(b)(27) has been amended to reflect
the new statutory requirements regarding the consolidation of defaulted
FFEL loans and excess consolidation proceeds described above.
Reasons: The regulations are modified to reflect the changes made
by the HERA.
College Access Initiative (Sec. 682.401)
Statute: Section 8023 of the HERA amended section 485D of the HEA
to establish a new College Access Initiative. As part of the
Initiative, each guaranty agency must establish a plan to promote
access to postsecondary education. The HERA requires each guaranty
agency to provide the Secretary and the public with information on
access to a comprehensive listing of postsecondary education
opportunities, programs and publications available in the State or
States for which the agency is the designated guaranty agency. A
guaranty agency must also promote and publicize information for
students and traditionally underrepresented populations on how to plan,
prepare and pay for college. The guaranty agency must pay for these
activities from its Operating Fund or from remaining funds in
restricted accounts established pursuant to section 422(h)(4) of the
HEA. Finally, a guaranty agency must ensure that this information is
free and available in printed format by November 5, 2006.
Current Regulations: Current regulations do not provide for the
College Access Initiative.
New Regulations: Section 682.401 has been amended to reflect the
requirements of the College Access Initiative.
Reasons: The regulations are modified to reflect the changes made
by the HERA.
Reinsurance Claims From Guaranty Agencies--Exempt Claims (Sec.
682.404)
Statute: Section 8014(c) of the HERA amended section 428(c)(1) of
the HEA to provide that, for loans on which the first disbursement of
principal is made on or after July 1, 2006, a guaranty agency will
receive 100 percent insurance from the Department for exempt claims
under new section 428(c)(1)(G) of the HEA. The statute defines the term
exempt claims to mean claims with respect to loans for which it is
determined that the borrower (or student on whose behalf a parent has
borrowed), without the lender's or institution's knowledge at the time
the loan was made, provided false or erroneous information or took
actions that caused the borrower or the student to be ineligible for
all or a portion of the loan or for interest benefits on the loan. The
new statutory definition is the same definition used in Sec.
682.412(a).
Current Regulations: Current regulations have addressed exempt
claims in Sec. 682.412(a). Under prior regulations these claims were
paid the regular reinsurance percentage.
New Regulations: Section 682.404(a) has been amended to provide 100
percent reinsurance for exempt claims and to include the statutory
definition of exempt claims.
Reasons: The regulations are modified to reflect the changes made
by the HERA.
Submission of Reinsurance Claims for Payment by the Secretary (Sec.
682.406)
Statute: Section 8014(j) of the HERA amended section 428(c)(1) of
the HEA by reducing the amount of time a guaranty agency is allowed for
filing a reinsurance claim with the Department.
Current Regulations: The current regulations allow guaranty
agencies 45 days following the date it paid a lender's claim to file a
reinsurance claim with the Department.
New Regulations: The regulations in Sec. 682.406(a) have been
amended to allow guaranty agencies 30 days following the date a
lender's claim has been paid to file a reinsurance claim with the
Department.
Reasons: The regulations were modified to reflect the changes made
by the HERA to the HEA in reducing this time period.
Wage Garnishment (Sec. 682.410)
Statute: Section 8024 of the HERA amended section 488A(a)(1) of the
HEA to increase the amount of a borrower's disposable pay that can be
garnished from 10 percent to 15 percent effective July 1, 2006.
Current Regulations: Currently, the regulations allow a borrower's
disposable pay to be garnished at a rate of 10 percent.
New Regulations: Section 682.410(b)(9)(i)(A) has been amended to
allow a borrower's wages to be garnished in an amount that does not
exceed 15 percent of the borrower's disposable pay. If a guaranty
agency
[[Page 45682]]
decides to increase the withholding rate for a borrower already being
garnished at the lesser rate based on a garnishment proceeding pre-
dating July 1, 2006, the agency must notify the borrower that: (1) He
or she can obtain a hearing upon request if he or she objects to the
increased withholding amount on the basis of undue hardship; and (2) a
borrower who has new information not presented at the initial
garnishment hearing may request a reconsideration of the existence or
amount of the debt.
In general, a guaranty agency must follow the procedures in Sec.
682.410(b)(9) for sending notices to borrowers and employers and for
scheduling a hearing for a borrower who chooses to have one.
Reasons: The regulations were revised to reflect changes made by
the HERA.
Exceptional Performers (Sec. 682.415)
Statute: Section 8014 of the HERA amended section 428(I) of the HEA
to decrease from 100 percent to 99 percent the insurance percentage
paid to lenders or lender servicers who are designated as exceptional
performers.
Current Regulations: Section 682.415(a)(1) of the FFEL Program
regulations provides for reimbursement of 100 percent of the unpaid
principal and interest.
New Regulations: Section 682.415(a)(1) is amended to provide for
reimbursement to a loan holder of 99 percent of the unpaid principal
and interest for default claims submitted to a guaranty agency on or
after July 1, 2006.
Reasons: The regulations are modified to reflect the change made by
the HERA.
School as Lender (Sec. 682.601)
Statute: Section 8011 of the HERA amends section 435(d)(2) of the
HEA by replacing the existing school-as-lender requirements with a new
set of requirements. In addition, to be a school lender, a school must
have met the school-as-lender requirements as they existed on February
7, 2006 and must have made FFEL loans as a lender on or before April 1,
2006.
Current Regulations: Section 682.601 of the FFEL Program
regulations reflects the school-as-lender requirements as they existed
on February 7, 2006. The current regulations stipulate the requirements
for establishing loan denial by a commercial lender, and the
requirements for qualifying for a waiver of the 50 percent lending
limit.
New Regulations: Section 682.601 is amended by replacing the
existing school-as-lender requirements with the school-as-lender
requirements established by the HERA. Under the new regulations, a
school lender must have met the requirements in effect as of February
7, 2006, and must have made loans on or before April 1, 2006. In
addition, the school must not:
Be a home study school;
Make a loan to any undergraduate student;
Make a loan other than Federal Stafford loan to a graduate
or professional student; or
Make a loan to a borrower who is not enrolled at the
school.
The school must:
Employ at least one person whose full-time
responsibilities are limited to the administration of the programs of
financial aid for students attending that school;
Award any contract for financing, servicing, or
administration of FFEL loans on a competitive basis;
Offer loans with an origination fee and/or interest rate
that is less than the applicable statutory fee or rate for any loan
first disbursed on or after July 1, 2006;
Maintain a cohort default rate that is not greater than 10
percent;
Submit an annual lender compliance audit, in accordance
with the requirements of 34 CFR 682.305(c)(2), to the Department for
any fiscal year beginning on or after July 1, 2006, in which the school
engages in activities as an eligible lender; and
Use any special allowance payments, interest payments from
borrowers, interest subsidy payments from the Department, and any
proceeds from the sale or other disposition of loans (exclusive of
return of principal, any financing costs incurred by the school to
acquire funds to make the loans, and the cost of charging origination
fees or interest rates at less than the fees or rates authorized under
the HEA) for need-based grants. However, school lenders may use a
portion of these payments or proceeds for reasonable and direct
administrative expenses. Such expenses are those that are incurred by
the school that are directly related to the school's performance of an
administrative requirement in the FFEL Program, and do not include the
cost the school pays to obtain funding, the cost of paying Federal
default fees on behalf of borrowers, or the cost of providing
origination fees or interest rates at less than the fee or rate
authorized under the provisions of the Act.
Funds for need-based grants must supplement, not supplant,
non-federal funds the school would otherwise use for need-based grants.
Because schools may no longer make loans to undergraduate students,
the requirements for establishing loan denial from another lender and
for qualifying for a waiver of the 50 percent lending limit on making
loans to undergraduates have been removed from the regulations.
The HERA modified the existing requirements for audits of school
lenders. The new requirements will apply to audits of lending
activities for any fiscal year beginning on or after July 1, 2006. All
school lenders are required to submit a lender compliance audit without
regard to the amount of loans the lender makes or holds. The Department
will be issuing further guidelines for the lender compliance audits
that must be submitted by school lenders. School lenders subject to the
Single Audit Act, 31 U.S.C. 7502, will be required to include the
lending activities in the annual audit and to include information on
those activities in the audit report. Other school lenders will have to
arrange for a separate audit of their lending activities. School
lenders must submit audits for fiscal years beginning before July 1,
2006, in accordance with current requirements.
Reasons: The regulations include rules for determining how schools
may use the proceeds of loan making activities for need based grants
and reasonable and direct administrative costs. These rules reflect the
Secretary's interpretation of the new statutory language added by the
HERA.
Disbursement Exemptions for Foreign Schools (Sec. 682.604)
Statute: Section 8010 of the HERA amended sections 428G(a)(3),
(b)(1), and (e) of the HEA to end the exemption from the multiple
disbursement requirements for eligible foreign institutions.
Current Regulations: Section 682.604(c) of the FFEL Program
regulations reflects the previous statutory provision exempting
eligible foreign institutions from the multiple disbursement
requirements in section 428G of the HEA.
New Regulations: The regulations in Sec. 682.604(c) have been
amended to remove the exemption from the multiple disbursement
requirements for eligible foreign institutions.
Reasons: The regulations were modified to reflect the changes made
by the HERA to the HEA.
Direct Loan Program Changes
Repayment Plans (Sec. 685.208)
Statute: Section 8008(b) of the HERA amended section 455(d)(1) of
the HEA to provide the same repayment plans in the Direct Loan program
as in the FFEL program (except for income contingent repayment).
[[Page 45683]]
Current Regulations: Section 685.208 of the Direct Loan Program
regulations permits a Direct Loan borrower to choose between the
standard, extended, graduated, income contingent, and if appropriate,
an alternative repayment plan as determined by the Secretary.
Implementation of the HERA does not require any changes to the
standard, income contingent, or alternative repayment plan regulations.
Under the extended repayment plan, a borrower makes fixed monthly
payments over a period of time that varies with the total amount of the
borrower's loans. Under the graduated repayment plan a borrower makes
payments at two or more levels within a period of time determined by
the amount of the borrower's loans. The repayment schedule used for
these two repayment plans is as follows. If the total amount of the
borrower's Direct Loans is:
Less than $10,000, the borrower must repay the loans
within 12 years of entering repayment;
Greater than or equal to $10,000 but less than $20,000,
the borrower must repay the loans within 15 years of entering
repayment;
Greater than or equal to $20,000 but less than $40,000,
the borrower must repay the loans within 20 years of entering
repayment;
Greater than or equal to $40,000 but less than $60,000,
the borrower must repay the loans within 25 years of entering
repayment; and
Greater than or equal to $60,000, the borrower must repay
the loans within 30 years of entering repayment.
New Regulations: Section 685.208 has been modified to conform the
terms of the extended and graduated repayment plans offered in the
Direct Loan program to reflect the similar repayment plans available in
the FFEL Program. Under the graduated repayment plan a borrower is
required to repay a loan in full over a fixed period of time not to
exceed ten years. Borrowers with outstanding loans totaling more than
$30,000 that had no outstanding principal or interest balances on a
Direct Loan program loan as of October 7, 1998, or on the date the
borrower obtains a Direct Loan program loan after October 7, 1998, are
eligible for the extended repayment plan. Under this plan, borrowers
are required to repay either a fixed annual or graduated repayment
amount over a period of time not to exceed 25 years.
Changes were also made to the repayment plans available to Direct
Consolidation Loan borrowers to reflect the terms of the similar
repayment plans in the FFEL program. Under the revised regulations,
Direct Loan borrowers must repay their loans under the following
schedule. If the sum of the amount of the consolidation loan and the
unpaid balance on other student loans to the applicant:
Is less than $7,500, the borrower must repay the
consolidation loan in not more than 10 years;
Is equal to or greater than $7,500 but less than $10,000,
the borrower must repay the consolidation loan in not more than 12
years;
Is equal to or greater than $10,000 but less than $20,000,
the borrower must repay the consolidation loan in not more than 15
years;
Is equal to or greater than $20,000 but less than $40,000,
the borrower must repay the consolidation loan in not more than 20
years;
Is equal to or greater than $40,000 but less than $60,000,
the borrower must repay the consolidation loan in not more than 25
years; or
Is equal to or greater than $60,000, the borrower must
repay the consolidation loan in not more than 30 years.
Conforming amendments were also made to Sec. 685.220(2)(i)
regarding the repayment of Direct Consolidation loans.
Reasons: The regulations were modified to reflect the changes made
to the HEA by the HERA.
Eligibility of a FFEL Borrower for a Federal Direct Consolidation Loan
(Sec. Sec. 685.100 and 685.220)
Statute: Section 8009 of the HERA amended section 428C(a)(3)(B)(i)
of the HEA and added a provision providing limited eligibility for a
Direct Consolidation Loan to certain FFEL Consolidation Loan borrowers.
Current Regulations: The current regulations allow borrowers with
FFEL Consolidation Loans to obtain a Direct Consolidation Loan if they
are unable to obtain a FFEL Consolidation Loan with income-sensitive
repayment terms acceptable to the borrower.
New Regulations: The interim final regulations implement the HERA
and modify Sec. Sec. 685.100(c) and 685.220(d) to provide that a
borrower with a FFEL Consolidation Loan is eligible to receive a Direct
Consolidation Loan if the loan has been submitted to the guaranty
agency by the lender for default aversion, and the borrower wants to
consolidate the FFEL Consolidation Loan into the Direct Loan Program
for the purpose of obtaining an income contingent repayment plan.
Reasons: The regulations were modified to reflect changes made by
the HERA to the HEA.
Federal Direct Consolidation Loans (Sec. Sec. 685.102 and 685.220)
Statute: Section 8009 of the HERA amended section 455(a) of the HEA
to designate that Federal Direct Consolidation Loans have the same
terms, conditions, and benefits as FFEL Consolidation Loans, except as
otherwise provided in the HEA. Previously, the HEA did not require
Federal Direct Consolidation Loans to have the same terms and
conditions as FFEL Consolidation Loans.
Current Regulations: Under current regulations, the Federal Direct
Consolidation Loan Program does not have the same terms, conditions and
benefits as the FFEL Consolidation Loan Program.
New Regulations: To ensure that Direct Consolidation Loans and FFEL
Consolidation Loans have the same terms, conditions and benefits
(except as otherwise provided in the HEA), the definition of Federal
Direct Consolidation Loan Program in Sec. 685.102 has been revised.
The prior regulations established three types of Direct Consolidation
Loans. Under the interim final regulations, there is only a single
Direct Consolidation Loan, but it may include up to three separate
components representing subsidized, unsubsidized, and PLUS loans that
were repaid by the consolidation loan. This more accurately reflects
operational processes and is consistent with processes in the FFEL
Program. We have also revised the definition to reflect that effective
for consolidation applications received on or after July 1, 2006, a
borrower may not consolidate loans that are in an in-school status. In
addition, the regulations in Sec. 685.220 have been changed to
eliminate the provision that provided for an interest subsidy on Direct
Subsidized Consolidation Loans during in-school and grace periods.
Reasons: The regulations were revised to reflect changes made by
the HERA.
Borrowers Subject to a Judgment or Wage Garnishment (Sec. 685.220)
Statute: Section 8009 of the HERA amended section 455(a)(1), (2),
and (g) of the HEA to conform the program borrower eligibility
requirements and the terms of Federal Direct Consolidation loans to
those of FFEL Consolidation loans.
Current Regulations: Generally, the borrower eligibility
requirements for these two programs are similar. However, the Direct
Consolidation Loan program has allowed borrowers to obtain a Direct
Consolidation Loan while the borrower is in school. In addition, the
two programs have had
[[Page 45684]]
different rules for borrowers with loans on which a judgment has been
obtained. The regulations for both programs also provide for certain
situations in which a borrower may add loans to an existing
consolidation loan or obtain a subsequent Consolidation Loan.
New Regulations: Section 685.220(d) of the Federal Direct
Consolidation Loan regulations have been amended to reflect program
borrower eligibility requirements that have been in the FFEL Program
for loans on which a judgment has been obtained and for which wage
garnishment has been initiated.
Reasons: The regulations were modified to reflect the changes made
by the HERA.
Reconsolidation in the Direct Loan Program (Sec. 685.220)
Statute: Section 8009 of the HERA modified section 455(g) of the
HEA to require borrowers seeking a Direct Consolidation loan to meet
the same eligibility criteria as borrowers seeking a FFEL Consolidation
Loan. One of these criteria provides that an FFEL borrower's
eligibility to consolidate is terminated upon receipt of a FFEL
Consolidation loan, except that an individual who receives eligible
student loans after the date of receipt of the consolidation loan may
receive a subsequent consolidation loan.
Current Regulations: The current regulations permit Direct Loan
borrowers to reconsolidate a Direct Consolidation loan into a new
Direct Loan Consolidation loan without including any additional loans.
New Regulations: The regulations in Sec. 685.220 have been
modified by adding new paragraph (d)(2), which requires a Direct Loan
borrower seeking to include an existing Direct Consolidation loan in a
new Direct Consolidation loan to include at least one additional
eligible loan for consolidation.
Reasons: The regulations were modified to reflect the changes made
by the HERA to the HEA.
Executive Order 12866
Regulatory Impact Analysis
Under Executive Order 12866, the Secretary must determine whether
this regulatory action is ``significant'' and therefore subject to the
requirements of the Executive order and subject to review by the OMB.
Section 3(f) of Executive Order 12866 defines a ``significant
regulatory action'' as an action likely to result in a rule that may
(1) have an annual effect on the economy of $100 million or more, or
adversely affect a sector of the economy, productivity, competition,
jobs, the environment, public health or safety, or State, local or
tribal governments or communities in a material way (also referred to
as an ``economically significant'' rule); (2) create serious
inconsistency or otherwise interfere with an action taken or planned by
another agency; (3) materially alter the budgetary impacts of
entitlement grants, user fees, or loan programs or the rights and
obligations of recipients thereof; or (4) raise novel legal or policy
issues arising out of legal mandates, the President's priorities, or
the principles set forth in the Executive order.
Pursuant to the terms of the Executive order, it has been
determined this regulatory action will have an annual effect on the
economy of more than $100 million. Therefore, this action is
``economically significant'' and subject to OMB review under section
3(f)(1) of Executive Order 12866. The Secretary accordingly has
assessed the potential costs and benefits of this regulatory action and
has determined the benefits justify the costs.
Need for Federal Regulatory Action
These interim final regulations are needed to implement provisions
of the HERA that affect students, borrowers and program participants in
the Federal student aid programs authorized under Title IV of the HEA.
These interim final regulations also implement provisions of the
HERA that modify and make permanent the provisions of the Taxpayer-
Teacher Protection Act of 2004 (Pub. L. 108-409). This Act changed the
calculation of special allowance payments for certain FFEL Program
loans made with proceeds of tax-exempt obligations and increased
teacher loan forgiveness amounts for FFEL and Direct Loan borrowers
teaching in certain areas.
These interim final regulations are also needed to incorporate into
the regulations the provisions of Public Law 107-139, which changed the
formula for calculating special allowance payments in the FFEL Program
for loans made on or after July 1, 2000 and set interest rates for FFEL
and Direct Loans first disbursed on or after July 1, 2006 at fixed
interest rates.
These interim final regulations are also needed to implement the
statutory changes made to the HEA by the Pell Grant Hurricane and
Disaster Relief Act (Pub. L. 109-66) and the Student Grant Hurricane
and Disaster Relief Act (Pub. L. 109-67). These laws authorize the
Secretary to waive the requirement that a student repay a Title IV, HEA
grant if the student withdrew from an institution because of a major
disaster.
These interim final regulations also change the Department's
regulations to reflect changes made to the HEA by the Emergency
Supplemental Appropriations Act for Defense, the Global War on Terror,
and Hurricane Recovery, 2006 (Pub. L. 109-234). The Supplemental
Appropriations Act amended section 428C(b)(1)(A) of the HEA to
eliminate the single holder rule with respect to any FFEL Consolidation
Loan for which an application is received by an eligible lender on or
after June 15, 2006. This Act also repealed section 8009(a)(2) of the
HERA and added back to the HEA the previous statutory conditions under
which a borrower may consolidate outstanding FFEL Program loans into
the Federal Direct Consolidation Loan Program.
The Secretary has limited discretion in implementing most of the
HERA provisions. The majority of the changes included in these interim
final regulations simply modify the Department's regulations to reflect
statutory changes made by the HERA and the other laws mentioned
earlier. These statutory provisions are either already effective or
will be effective shortly.
The Secretary has exercised limited discretion in implementing the
HERA provisions in the following areas:
Direct Assessment: The HERA extends eligibility for Title
IV, HEA programs to instructional programs using or recognizing the use
by others of direct assessment of student learning;
Identity Theft: The HERA authorizes a discharge of a FFEL
or Direct Loan Program loan if the borrower's eligibility to borrow was
falsely certified because the borrower was a victim of the crime of
identity theft; and
Special Allowance Payments: The HERA modifies the
conditions under which a loan holder qualifies for special allowance
interest benefits related to PLUS loans the first disbursement of which
was made on or after January 1, 2000.
The following section addresses the alternatives that the Secretary
considered in implementing these discretionary portions of the HERA
provisions.
Regulatory Alternatives Considered
Direct Assessment Alternatives: In developing the direct assessment
regulations, the Secretary drew upon the Department's experience with
Western Governors University (WGU), the only institution currently
participating in the Title IV student financial assistance programs
that uses direct assessment, in lieu of credit or clock hours, as a
[[Page 45685]]
measure of student learning. WGU became an eligible institution by
participating in the Distance Education Demonstration Program.
The Secretary looked at how the Title IV student financial aid
rules had been applied in both the nonterm and non-standard term models
employed by WGU and identified basic principles on which to base the
regulations. One principle is that institutions that use direct
assessment would need to develop equivalencies in credit or clock hours
in terms of instructional time for the amount of student learning being
assessed. This was necessary because many applicable Title IV, HEA
program requirements use time and/or credit or clock hours to measure
things other than student learning. In addition, institutions would
have to define enrollment status, payment periods, and satisfactory
academic progress.
A second principle is tied to the statutory language that
characterizes direct assessment programs as instructional programs. The
Secretary determined that institutions must provide a means for
students to fill in the gaps in their knowledge and that Title IV, HEA
program funds should only be used to pay for learning that occurs while
the student is enrolled in the program.
The Secretary considered what should constitute ``instruction'' in
a direct assessment program. The word ``instruction'' is not
specifically defined in the Department's regulations and, in its
ordinary meaning the word connotes teaching. There are several other
ways, however, in which an institution might assist students to prepare
for assessments. The Secretary considered whether the definition of
instructional time in Sec. 668.8(b)(3), which is used for other types
of programs, could be used for direct assessment programs and
determined that the definition was not sufficiently broad to be used in
this context.
The Secretary recognized that institutions offering direct
assessment programs might use courses or learning materials developed
by other entities, such as training and professional development
organizations and other educational institutions, to assist students in
preparing for the assessments. The Secretary considered whether the use
of outside resources could be considered contracting out a portion of
an educational program and determined that it could be. Therefore, the
Secretary included in the direct assessment regulations a provision
that exempts direct assessment programs from the limitations on
contracting for part of an educational program.
Identity Theft Alternatives: Section 8012 of the HERA authorizes a
discharge of a FFEL or Direct Loan Program loan under section 437(c) of
the HEA if the eligibility of the borrower was falsely certified as a
result of the crime of identity theft. In developing regulations to
implement section 8012, we sought to reflect the statutory language
that requires the Department to discharge the borrower's responsibility
to repay the loan when a ``crime of identity theft'' has occurred. The
interim final regulations require that to receive a discharge on a
loan, an individual must provide the holder of the loan, a copy of a
local, State, or Federal court verdict or judgment that conclusively
determines that the individual who is the named borrower of the loan
was the victim of the crime of identity theft. We adopted this standard
as an inexpensive and reliable way to implement the new discharge
provision. If the perpetrator of an identity theft is never prosecuted,
and no judicial determination that a crime occurred is rendered, a
borrower can still be relieved of any responsibility to repay the loan
under the common law (and in many instances, State law) defense of
forgery. We stress this consideration in the preamble to the
regulations.
One alternative we considered was to authorize a discharge for
``identity theft'' based on representations from the individual, much
as is now done for closed school discharge relief, that the crime of
identity theft had been committed, and that the claimant was the victim
of that criminal act. We rejected this alternative as costly,
unworkable, and unnecessary to provide relief to the individuals who
may be victims of this crime. Under this alternative, the claimant and/
or the lender would be required to submit evidence needed to establish
whether conduct has occurred that would constitute the crime of
identity theft. That evidence may be voluminous, difficult to obtain,
and would likely include witness testimony. Amassing and transmitting
that evidence would be difficult and costly for lenders and claimants.
Furthermore, determining whether a crime has been committed requires
discerning the identity of the perpetrator and determining the state of
mind of that person. Neither the Department nor the guaranty agency is
authorized to determine whether that evidence shows that a crime has
been committed. That determination is routinely and reliably made
through the judicial process, which is designed to perform this
function. Moreover, there is no need to ignore the judicial process in
order to give relief to those individuals who did not in fact take out
the loans for which they are listed as borrowers. Under State statutes
and common law, individuals whose signatures have been forged on loan
documents are not liable for those debts. Individuals who show that
their signatures have been forged on loan documents, and that they
neither authorized nor received a loan made in their name, are not held
liable by the Department. For these reasons, we rejected the
alternative that would entail an extra-judicial proof of a crime.
Instead, we simply require the claimant to submit a copy of a judicial
verdict that identity theft was committed.
Special Allowance Payment Alternatives: The Department considered a
number of alternatives related to the effective date for implementation
of Section 8006 of the HERA, which eliminates the limitation that
special allowance payments on PLUS loans for which the first
disbursement was made on or after January 1, 2000, only be paid if the
formula for determining the borrower interest rate produces a rate that
exceeds the statutory maximum borrower rate of 9 percent.
The first alternative was to make this provision retroactive to
January 1, 2000, an approach that would result in substantial
additional special allowance payments to many PLUS loan holders.
Although this option was suggested by some members of the student loan
industry, the Department determined that this approach was inconsistent
with the statute.
Other alternatives considered reflected differing interpretations
of the provision's effective date. Section 8006 states that
``amendments made by this subsection shall not apply with respect to
any special allowance payment made under section 438 of the Higher
Education Act of 1965 (20 U.S.C. 1087-1) before April 1, 2006.'' Since
special allowance payments are made on a quarterly basis, the
Department had to determine whether the statute's intent was to remove
the limitation on PLUS special allowance payments for the quarter of
January-March 2006--the first quarter for which bills would be
submitted, verified, and paid after April 1, 2006 or for the quarter of
April-July 2006, the first full quarter after the HERA's enactment. The
Department estimated Federal costs would increase by $53 million if the
limitation was removed for the January-March quarter. This estimate was
based on data on special allowance rates and balances for the affected
quarter. After a careful
[[Page 45686]]
review of the statutory language, the Department determined that the
statute's likely intent was to remove the limitation for the January
March 2006 quarter, since this was the first quarter for which payments
would be made after April 1, 2006. The interim final regulations
reflect this determination.
Benefits
Given the breadth of these regulations, the discussion of benefits
and costs will be limited in most cases to provisions with an economic
impact of $100 million or more in any one year. By facilitating the
implementation of changes made in the HERA and other recent student
aid-related statutes, these interim final regulations will support the
provision of a broad range of student benefits. In general, these
benefits reduce the costs of higher education to students, increase the
amount of Federal student aid or increase the number of students
eligible for Federal student aid. The economic benefits of any specific
change are difficult to discern, as they have direct benefit to the
individual aid recipient and broader societal benefits resulting from
the economic impact and tax-paying potential of a well-educated
population. Research indicates that reductions in the cost of higher
education are correlated to increased student enrollment, retention,
and completion. The U.S. Census Bureau has found people with a
bachelor's degree realize as much as 75 percent higher lifetime
earnings than those whose education is limited to a high school degree.
(``The Big Payoff: Educational Attainment and Synthetic Estimates of
Work-Life Earnings,'' July 2002.)
Specific benefits provided to student borrowers in these interim
final regulations include increases in certain FFEL and Direct Loan
Program loan limits; reduced origination fees in the FFEL and Direct
Loan Programs; broadened eligibility for PLUS loans to include graduate
and professional students; expanded access to distance education
programs; permanently expanded loan forgiveness for highly qualified
math, science, and special education teachers at low-income schools;
and a new deferment for FFEL, Direct Loan and Perkins Loan Program
borrowers who serve on active duty military service during times of war
or national emergency. These benefits are projected to increase Federal
outlays by $5.2 billion for loans originated in FY 2006-2010. This
estimate was developed using projected interest rate, loan volume, and
borrower demographic data used in preparing the FY 2007 President's
Budget. Projected loan volume and borrower data are based on trend
analyses of actual program activity, primarily drawn from the National
Student Loan Data System (NSLDS) and other Department systems.
The expansion of distance education made possible by the
regulation's changes to the ``50 percent rule'' and the definition of
correspondence courses will allow institutions to more aggressively
pursue new communication technologies to provide students significantly
greater flexibility in the scheduling and location of academic
programs. The Department estimates this expanded flexibility will
increase the pool of students eligible for Federal student aid by
30,000 students a year in 2006 and 2007, of whom 17,000 per year will
be eligible to receive a Pell Grant. These additional Pell Grant
recipients will receive an estimated $196 million in Pell Grant aid
over 2006-2010. This estimate is based on a trend analysis of Pell
Grant program data and projections of institutional and program
eligibility for Federal student aid derived through the use of
accreditation data.
Lastly, the regulation's teacher loan forgiveness provisions offer
incentives to help address longstanding national and regional
elementary and secondary school staffing problems. Many studies (Boe,
Bobbitt, & Cook, 1997; Grissmer & Kirby, 1992; Murnane et al., 1991;
Rumberger, 1987; and extensive research prepared for the National
Commission on Mathematics and Science Teaching) have found math,
science, and special education to be fields with especially high
turnover and those predicted most likely to suffer shortages. More than
tripling the teacher loan forgiveness amount--from $5,000 to $17,500--
for qualifying teachers in these fields should offer a powerful
incentive for recruitment and retention, especially given the
additional eligibility requirement that recipients teach for five
consecutive years before receiving the benefit. The Department
estimates this expanded benefit will increase Federal loan subsidy
costs in the FFEL and Direct Loan programs by $825 million for loans
originated in 2007-2010. (The additional benefits were available for
loans made in 2006 as a result of the Taxpayer-Teacher Protection Act
of 2004, so for the purposes of this analysis benefits have only been
considered for 2007 and beyond.) This estimate was developed using
projected interest rate, loan volume, and borrower demographic data
used in preparing the FY 2007 President's Budget. Estimates of borrower
eligibility were based on program data--primarily from NSLDS--and
demographic information from the National Center for Education
Statistics' Schools and Staffing Survey.
In addition to implementing expanded borrower benefits, these
interim final regulations also implement a number of provisions
intended to improve the cost-effectiveness and efficiency of the FFEL
and Direct Loan programs, streamline program operations for
participating institutions, and standardize loan terms and conditions
across the two programs. These changes are estimated to reduce Federal
outlays by $7.0 billion for loans made in FY 2006-2010, freeing up
resources for other urgent requirements. This estimate was also
developed using projected interest rate, loan volume, and borrower
demographic data used in preparing the FY 2007 President's Budget.
Projected loan volume, guaranty agency and lender information, and
borrower data are based on trend analyses of actual program activity,
primarily drawn from the National Student Loan Data System (NSLDS) and
other Department systems.
Provisions intended to enhance loan program efficiency include a
number of changes intended to promote risk-sharing by FFEL participants
through reduced program subsidies, including: Restrictions on higher-
than-standard special allowance payments for loans funded through tax-
exempt securities; provisions under which the Department will recover
excess interest paid to loan holders when student interest payments
exceed the special allowance level set in statute; and a reduction in
loan holder's insurance against default from 98 percent to 97 percent
of a loan's principle and accrued interest. Given the broad
availability of FFEL program loans--over 4,000 lenders provided more
than $43 billion in new loans and an additional $53 billion in
consolidation loans in FY 2005--these changes are not expected to
reduce student and parent access to loan capital.
The student loan industry features high competition among loan
providers, using an array of interest rate discounts and other borrower
benefits to attract volume. The overwhelming majority of student loans
are sold by the originating lender in the secondary market. The impact
on individual lenders of HERA provisions reducing Federal subsidies are
inestimable; a substitution of subsidies for student interest rate cuts
may occur or the secondary market price of securitized loans may be
revalued. Given the high level of government guaranty on these loans,
as well as the guaranteed rate of return, continued access to loan
capital for all
[[Page 45687]]
borrowers should be assured. The impact on individual loan holders may
be mitigated by investment and tax considerations from their investment
portfolios as a whole. Higher borrower loan limits and standardized
repayment terms may increase long-term interest income to some loan
holders under these regulations.
Lastly, the interim final regulations include a number of
provisions intended to standardize terms and conditions and broaden
borrower choices, particularly for consolidation loans. These changes
include the repeal of the single holder rule, which limits the ability
of FFEL borrowers whose loans are held by a single holder to
consolidate with other lenders, and the standardization of graduated
and extended repayment plans--previously different for Direct Loans and
FFEL--on the FFEL model. The repeal of the single holder rule should
give all borrowers access to interest rate discounts and other benefits
available through the highly competitive consolidation loan market. The
standardization of repayment plan terms will eliminate a possible
source of confusion for borrowers and promote equity across the two
loan programs. These provisions also are expected to improve market
transparency and remove transaction barriers for loan borrowers,
improving market openness and efficiency for both borrowers and loan
providers.
Costs
These interim final regulations include a number of provisions that
will impose increased costs on some borrowers, such as an increase in
the loan interest rate for FFEL PLUS borrowers, the elimination of in-
school and joint consolidation loans, and the mandatory imposition of
the previously optional 1 percent guaranty agency default insurance
premium. (At the same time, these provisions will reduce the Federal
costs of these programs and, in the case of the guaranty fee, improve
the financial stability of guaranty agencies.) Prior to the HERA, these
provisions allowed loan providers or guaranty agencies to discriminate
among borrowers through the unequal distribution of borrower costs.
While some borrowers may lose unearned benefits through these statutory
and regulatory changes, market equitability and transparency are
improved.
These interim final regulations also authorize the Secretary to
waive a student's Title IV grant repayment if the student withdrew from
an institution of higher education because of a major disaster as
declared by the President in accordance with the Robert T. Stafford
Disaster Relief and Emergency Assistance Act. The Secretary will
exercise this waiver authority on a case-by-case basis after
determining that a major disaster has significantly affected recipients
of Title IV grant aid.
Because entities affected by these regulations already participate
in the Title IV, HEA programs, these lenders, guaranty agencies, and
schools must have already established systems and procedures in place
to meet program eligibility requirements. These regulations generally
involve discrete changes in specific parameters associated with
existing guidance--such as changes in origination fees, loan limits, or
reinsurance percentages--rather than wholly new requirements.
Accordingly, institutions wishing to continue to participate in the
student aid programs have already absorbed most of the administrative
costs related to implementing these interim final regulations. Marginal
costs over this baseline are primarily related to one-time system
changes that, while possibly significant in some cases, are an
unavoidable cost of continued program participation. The Department is
particularly interested in comments on possible administrative burdens
related to these system or process changes.
Assumptions, Limitations, and Data Sources
Because these interim final regulations largely restate statutory
requirements that would be self-implementing in the absence of
regulatory action, cost estimates provided above reflect a prestatutory
baseline in which the HERA and other statutory changes implemented in
this regulation do not exist. In general, these estimates should be
considered preliminary; they will be reevaluated in the final rule,
based on comments received and additional program data that may be
available at that time. Costs have been quantified for five years, as
over time this has been a typical period between reauthorizations of
the Higher Education Act.
In developing these estimates, a wide range of data sources were
used, including the National Student Loan Data System, operational and
financial data from Department of Education systems, and data from a
range of surveys conducted by the National Center for Education
Statistics such as the 2004 National Postsecondary Student Aid Survey,
the 1994 National Education Longitudinal Study, and the 1996 Beginning
Postsecondary Student Survey.
Elsewhere in this SUPPLEMENTARY INFORMATION section we identify and
explain burdens specifically associated with information collection
requirements. See the heading Paperwork Reduction Act of 1995.
Accounting Statement
As required by OMB Circular A-4 (available at http://www.Whitehouse.gov/omb/Circulars/a004/a-4.pdf), in Table 2 below, we
have prepared an accounting statement showing the classification of the
expenditures associated with the provisions of these interim final
regulations. This table provides our best estimate of the changes in
Federal student aid payments as a result of these interim final
regulations. Expenditures are classified as transfers to postsecondary
students; savings are classified as transfers from program participants
(lenders, guaranty agencies).
Table 2.--Accounting Statement: Classification of Estimated Expenditures
[In millions]
------------------------------------------------------------------------
Category Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers......... $976.
From Whom To Whom?..................... Federal Government To
Postsecondary Students;
Student Aid Program
Participants to Federal
Government.
------------------------------------------------------------------------
Waiver of Proposed Rulemaking
Under the Administrative Procedure Act (5 U.S.C. 553), the
Department is generally required to publish a notice of proposed
rulemaking and provide the public with an opportunity to comment on
proposed regulations prior to issuing a final rule. In addition, all
Department regulations for programs authorized
[[Page 45688]]
under title IV of the HEA are subject to the negotiated rulemaking
requirements of section 492 of the HEA.\2\ However, both the APA and
HEA provide for exemptions from these rulemaking requirements. The APA
provides that an agency is not required to conduct notice-and-comment
rulemaking when the agency for good cause finds that notice and comment
are impracticable, unnecessary or contrary to the public interest.
Similarly, section 492 of the HEA provides that the Secretary is not
required to conduct negotiated rulemaking for a title IV, HEA program
regulation if the Secretary determines that applying that requirement
is impracticable, unnecessary or contrary to the public interest within
the meaning of the HEA.
---------------------------------------------------------------------------
\2\ Section 492 provides specifically that any regulations
issued for the title IV, HEA programs shall be subject to negotiated
rulemaking to obtain the advice of and recommendations from
individuals and groups involved in the student financial assistance
programs.
---------------------------------------------------------------------------
Although these regulations are subject to the APA's notice-and-
comment and the HEA's negotiated rulemaking requirements, the Secretary
has determined that it is unnecessary and impracticable to either
conduct negotiated rulemaking or notice-and-comment rulemaking on these
regulations. Most of the changes made by the HERA were effective no
later than July 1, 2006. To ensure proper implementation of these
statutory changes, they need to be reflected in the Department's
regulations. Waiver of rulemaking under the impracticability exemption
in the APA and HEA is warranted because it would not be possible for
the Department to comply with the APA's and HEA's rulemaking mandates
and execute its statutory duties under the HERA.\3\
---------------------------------------------------------------------------
\3\ See Riverbend Farms, Inc. v. Madigan, 958 F.2d 1479, 1484,
n.2 (9th cir. 1992). The term ``impracticable'' has also been
described as meaning ``a situation in which the due and required
execution of the agency functions would be unavoidably prevented by
its undertaking rulemaking proceedings. Zhang v. Slattery, 55 F.3d
732, 746 (2d Cir. 1995) citing National Nutiritional Foods Ass'n v.
Kennedy, 572 F.2d 377, 385 (2d Cir. 1978) citing S. Rep. No. 752,
79th Cong., 1st Sess. (1945).
---------------------------------------------------------------------------
Even on an extremely expedited timeline, the Department could not
have feasibly conduct negotiated or notice-and-comment rulemaking and
then promulgated these regulations before the provisions of the HERA
became effective on July 1, 2006. Negotiated rulemaking requires the
Department to solicit nominations for negotiators to participate in the
negotiated rulemaking sessions, select a committee of negotiators,
conduct a series of negotiating sessions, publish a notice of proposed
rulemaking, review public comments, and issue final regulations.
Normally this process would take at least 12 months and possibly
longer. The Department cannot both implement the provisions in the HERA
and conduct negotiated or notice-and-comment rulemaking.
In addition, most of the changes included in these regulations
simply modify the Department's regulations to reflect statutory changes
made by the HERA. These statutory provisions are either already
effective or will be effective within a short period of time. The
Secretary does not have discretion in implementing these changes. Thus,
negotiated rulemaking and notice-and-comment rulemaking are
unnecessary.
Other changes in these regulations make technical corrections,
remove obsolete regulatory provisions or references or align related
regulatory provisions as required by the HERA and other laws. These
latter changes do not establish or affect substantive policy.
Negotiated rulemaking and notice-and-comment rulemaking on these
provisions is unnecessary.
Therefore, under 5 U.S.C. 553(b)(B), the Secretary has determined
that conducting notice-and-comment rulemaking is unnecessary and
impracticable. For the same reasons, the Secretary has determined,
under section 492(b)(2) of the Higher Education Act of 1965, as
amended, that these regulations should not be subject to negotiated
rulemaking.
These regulations are final and in effect as published, thirty days
after publication in the Federal Register. Although the Department is
adopting these regulations on an interim final basis, the Department
requests public comment on these regulations. After full consideration
of public comments, the Secretary will publish final regulations with
any necessary changes to be effective July 1, 2007.
As discussed above, all Department regulations for programs
authorized under the title IV, HEA programs are subject to the
negotiated rulemaking requirements of section 492 of the HEA. In
addition, section 482 of the HEA requires that any title IV regulations
that have not been published in final form by November 1 prior to the
start of an award year cannot become effective until the beginning of
the second award year following the November 1 date.
Therefore, the Secretary has determined that although it may be
feasible to conduct notice-and-comment rulemaking for the regulations
that would be effective July 1, 2007, it would be impracticable to
conduct negotiated rulemaking to implement the provisions of the HERA
contained in these interim final regulations.
Regulatory Flexibility Act Certification
The Secretary certifies that these regulations will not have a
significant economic impact on a substantial number of small entities.
Paperwork Reduction Act of 1995
Sections 600.7, 600.10, 668.3, 668.8, 668.10, 668.22, 668.173,
673.5, 674.34, 682.102, 682.200, 682.207, 682.209, 682.210, 682.211,
682.215, 682.305, 682.401, 682.402, 682.404, 682.405, 682.406, 682.410,
682.415, 682.601, 682.604, 685.102, 685.204, 685.208, 685.215, 685.217
and 685.220 contain information collection requirements. As required by
the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)), the Department
of Education is required to submit a copy of these sections to the
Office of Management and Budget (OMB) for its review. In many cases,
the burden associated with the above provisions is associated with
forms and applications currently approved for use under existing OMB
control numbers. The Department will revise the existing information
collection packages for the following sections: Sec. Sec. 674.34,
682.102, 682.210, 682.402, 685.204, and 685.220. The Department is
working with its major stakeholders to develop the forms and
applications necessary to implement these provisions and will submit
these revised packages for OMB review soon after publication of the
interim final regulations and solicit comment at that time.
The Department plans to submit a full information collection
package for OMB review to account for the burden associated with
Sec. Sec. 682.207 and 682.401 upon publication of these interim final
regulations. We invite comments on these information collection
sections at this time.
Lastly, the Department has increased the burden hours for the
existing OMB-approved collections associated with Sec. Sec. 682.215
and 685.217 to account for the increased burden. OMB approved this
burden increase on June 16, 2006.
Collection of Information: Institutional Eligibility Under the
Higher Education Act of 1965, as amended; Student Assistance General
Provisions; General Provisions for the Federal Perkins Loan Program;
Federal Work-Study Program; and Federal Supplemental Educational
Opportunity Grant Program; Federal Perkins Loan Program; Federal Family
Education Loan Program; and William D. Ford Federal Direct Loan
Program.
[[Page 45689]]
Sections 600.7 and 600.10--Modification of the 50 Percent Rules
The definition of ``telecommunications course'' is revised, and the
references to telecommunications courses pertaining to calculating the
percentage of correspondence courses offered by an institution are
deleted so that an otherwise eligible institution that offers over 50
percent of its courses by telecommunications is now eligible to
participate in the title IV, HEA programs. However, institutions that
offer over 50 percent of their courses through correspondence, and
foreign institutions that provide any of their programs by
telecommunications or correspondence, continue to be ineligible to
participate. There is no burden associated with the change in the
definition of telecommunications course.
Section 668.3--Academic Year
The definition of academic year is amended to reduce from 30 to 26
the number of weeks of instructional time for a program that measures
its length in clock hours. There is no burden associated with the
reduction in the number of weeks of instructional time.
Section 668.8--Eligible Program
An otherwise eligible program that is offered in whole or in part
through telecommunications is an eligible program for title IV, HEA
program purposes. The eligible telecommunications program must be
offered by an institution in the United States. The institution must
have been evaluated and determined to have the capability to
effectively deliver distance education programs by an accrediting
agency or association. The accrediting agencies are currently reviewing
telecommunications programs consistent with the scope of their
authority. Therefore there is no additional burden associated with this
provision.
Section 668.10--Direct Assessment Programs
The interim final regulations provide that ``direct assessment
programs'' are eligible programs for Title IV purposes. A direct
assessment program is an instruction program that, in lieu of credit
hours or clock hours as a measure of student learning, utilizes direct
assessment of student learning, or recognizes the direct assessment of
student learning by other measures. This assessment must be consistent
with the accreditation of the institution or program utilizing the
results of the assessment.
In the short-term, we expect no additional burden to be associated
with direct assessment programs. We are currently aware of only one
institution that utilizes such programs. Therefore, this section is not
subject to the Paperwork Reduction Act of 1995.
Sections 668.22 and 668.173--Treatment of Title IV Funds When a Student
Withdraws
Under these interim final regulations, the following provisions
apply to title IV, HEA program funds when a student withdraws:
The amount of a grant overpayment due from a student is
limited to the amount by which the original grant overpayment amount
exceeds half of the total title IV grant funds received by the student.
When the original amount of a student's title IV grant
overpayment amount is $50 or less, it is considered ``de minimis'' and
does not have to be repaid or reported.
An institution must contact a withdrawn student prior to
making a post-withdrawal disbursement of a title IV loan. The
institution must explain the obligation to repay the loan funds, if the
post-withdrawal disbursement is accepted by the borrower. If the
borrower's acceptance of the post-withdrawal disbursement is received
by the institution after the deadline date for the return of the
acceptance of the disbursement, and the institution chooses not to make
the post-withdrawal disbursement, the institution is required to notify
the borrower of the institution's action.
Only scheduled hours, not completed hours, are used to
determine the percentage of the period completed by a student
withdrawing from a clock hour program.
A student withdrawing from a clock hour program earns 100
percent of his or her aid if the student's withdrawal date occurs after
the point when he or she was scheduled to complete 60 percent of the
scheduled hours in the payment period or period of enrollment.
An institution must return unearned funds no later than 45
days after a student withdraws.
An institution may grant more than one leave of absence.
The return of title IV funds provisions no longer apply to
LEAP, SLEAP, GEAR UP and Student Support Services funds.
The burden associated with the requirement that an institution must
contact and counsel a withdrawn student before making a late
disbursement is offset by the requirements that simplify and facilitate
the return of title IV program funds. Consequently, these changes do
not increase burden.
Sections 673.5 and 682.200--Estimated Financial Assistance
Under the interim final regulations, the term ``resources'' is
changed to estimated financial assistance for the purposes of the
Federal Perkins Loan program, the Federal Work-Study program, and the
FSEOG program. The term estimated financial assistance has also been
modified to include the two new grant programs created by the HERA, and
the new chapter 1607 veterans education benefits established under the
Ronald W. Reagan National Defense Authorization Act for 2005. The
interim final regulations also make technical changes to help clarify
the existing regulatory language and to standardize the similar
definitions used in the Federal Perkins Loan program, the Federal Work-
Study programs, the FSEOG program, and the FFEL and Direct Loan
programs. There is no burden associated with these provisions.
Section 674.34, 682.210, and 685.204--Active Duty Military Deferments
A new military deferment is established for FFEL, Direct and
Perkins Loan Program borrowers who are serving on active duty, or are
performing qualifying National Guard duty during a war or other
military operation or national emergency. The addition of a new
deferment will increase the burden hours associated with two existing
OMB Control Numbers, 1845-0005--FFEL Deferment Requests and 1845-0011--
Direct Loan Program Deferment Request Forms. These forms will be
submitted for OMB review by November 2006. Until new forms are
approved, borrowers may submit documentation to the loan holder
demonstrating their eligibility for the new deferment.
Section 682.102--Obtaining and Repaying a Loan
Under the interim final regulations, this section is amended to
repeal the single holder rule and to add graduate and professional
students as eligible borrowers of a PLUS Loan. Repeal of the single
holder rule will allow borrowers to apply to any eligible lender when
consolidating their loans and will not increase or decrease the actual
burden associated with obtaining a Consolidation Loan. The burden
associated with the addition of the new graduate/professional PLUS
Program will be reflected in the collection of information under
modified OMB
[[Page 45690]]
Control Numbers 1845-0068--Federal Direct PLUS Loan Application and MPN
and Endorser Addendum and 1845-0069--Federal PLUS Loan Application and
MPN, endorser Addendum and School Certification. Borrowers may use
these temporary forms until revised forms are submitted for OMB review.
That submission will occur no later than October 2006.
Section 682.207--Due Diligence in Disbursing a Loan for Attendance at a
Foreign School
The Department currently has the paperwork requirements in this
section approved under OMB control number 1845-0020 which will be
modified to reflect the burden associated with this provision. For a
U.S. student attending an eligible foreign institution, FFEL program
funds may be disbursed directly to the student only if the institution
requests this method. For a student enrolled at a foreign institution,
and a student enrolled in a study-abroad program, the lender must
verify the student's enrollment at the foreign school before making a
direct disbursement of FFEL funds. These new requirements represent an
increased burden that will be reflected in OMB Control No. 1845-0020.
Section 682.209--Repayment of a Loan
An FFEL Stafford loan borrower may no longer request to enter
repayment early on her loans. There is no additional burden associated
with this provision.
Section 682.211--Forbearance
Under these interim final regulations, a lender must confirm any
non-written forbearance agreement by recording the terms of the
agreement in the borrower's file. There is no additional burden
associated with this provision as the current regulations already
permit this practice under OMB Control Number 1845-0020.
Section 682.215 and 685.217--Teacher Loan Forgiveness
Under these interim final regulations, increased teacher loan
forgiveness in the amount of $17,500 is made permanent for teachers in
certain specialties as originally authorized by the Taxpayer-Teacher
Protection Act (TTPA) of 2004. The regulations also provide that
teachers in private non-profit schools may qualify for the same
forgiveness benefits if they are ``highly qualified.'' The current
teacher loan forgiveness form, as currently approved by OMB under
Control Number 1845-0059, reflects all of the new teacher loan
forgiveness requirements of the TTPA with the exception of criteria for
teachers in a private non-profit school. The current form will be
revised to reflect the new criteria, but we expect no additional burden
because most applicants for forgiveness are employed in public
elementary and secondary schools, not private non-profit schools.
Section 682.305--Procedures for Payment of Interest and Special
Allowance
These interim final regulations require the repayment by a lender
of excess interest paid by the Department when the applicable interest
rate on a loan for any quarter exceeds the special allowance support
level for the loan. The Secretary will collect the excess interest from
lenders quarterly. This change represents no increase in burden. The
Secretary will make the calculation of excess interest owed by a
lender. The lender will pay excess interest to the Secretary under
existing processes.
Section 682.401--Basic Program Agreement
The HERA establishes a new College Access Initiative for guaranty
agencies to create and carry out a plan to promote access to
postsecondary education for each State. While most of the agencies and/
or other State government entities already offer this information, we
expect this requirement will affect the 35 existing guaranty agencies
by 100 hours each, creating a total burden of 3500 hours. The
Department will amend OMB Control Number 1845-0020--Federal Family
Education Loan Program Regulations to reflect this increase in burden
hours.
The following other provisions are being amended but will not
produce additional burden. The amount of lender insurance paid to
lenders as reimbursement for defaulted loans will decrease. This will
not require additional burden since it is merely a change in the
percentage used in the calculation of the payment to the lender. Each
guaranty agency must now establish procedures to ensure that
consolidation loans are not an excessive proportion of its recoveries
on defaulted loans. In addition, a guaranty agency must now remit to
the Secretary 8.5% of the collection costs it recovers from the
borrower or, if the amount of the proceeds from the consolidation of
defaulted loans exceeds 45 percent of the agency's total collections on
defaulted loans in that Federal fiscal year, all of the collection
costs recovered by payment from the consolidation loan. Remitting part
or all of the collection costs will not result in additional burden to
the guaranty agency since it is already calculated for other purposes.
The interim final regulations eliminate the current, optional 1 percent
insurance premium fee that guaranty agencies may charge the lender, and
replace it with a mandatory 1 percent Federal default fee deducted and
collected from the proceeds of the loan or from other non-federal
sources. This will not result in additional burden since the prior fee
calculation is eliminated and the new fee replaces it.
Sections 682.402 and 685.215--Identity Theft
Under these interim final regulations, the regulations have been
amended to authorize discharge of a FFEL or Direct Loan Program loan if
the borrower's eligibility was falsely certified because the borrower
was a victim of the crime of identity theft. The regulations provide
that the borrower's obligation is discharged if the borrower provides
the holder of a loan, or the Secretary in the case of a Direct Loan, a
copy of a local, State, or Federal court verdict or judgment that
conclusively determines that the individual who is the named borrower
was the victim of the crime of identity theft. If the judgment or
conviction did not expressly reference that loan, the individual must
provide authentic examples of his other identification credentials, and
an explanation of facts that demonstrate that this criminal conduct
resulted in the school certifying that individual's eligibility to
borrow, and, as a result, in the loan being made.
The additions do not change the burden hours associated with this
section of the regulations. The burden associated with the new
requirements will be accounted for under OMB Control Number 1845-0015--
FFEL, Direct Loan and Perkins Loan Discharge Applications. These forms
will be submitted for OMB review by December 2006. Until new forms are
approved, borrowers may submit documentation to the loan holder
demonstrating their eligibility for the discharge.
Section 682.404--Federal Reinsurance Agreement
Under these interim final regulations, for loans on which the first
disbursement of principal is made on or after July 1, 2006, a guaranty
agency will receive 100 percent reinsurance from the Department on
``exempt claims.'' The interim final regulation simply increases the
amount of reinsurance paid to guaranty agencies on these claims. This
provision does not increase burden because payment of these claims
[[Page 45691]]
is already part of the process under which the Secretary pays
reinsurance to the guaranty agencies.
Section 682.405--Rehabilitation of a Defaulted Loan
The regulations have been amended to require a FFEL borrower to
make 9 payments within 20 days of the due date during a period of 10
consecutive months to rehabilitate a defaulted loan. Previously, the
regulations required the borrower to make 12 consecutive on-time
monthly payments. The new requirement that the borrower make fewer
payments will not change the burden associated with the rehabilitation
of a defaulted FFEL loan. The requirements that a borrower must request
rehabilitation, and that a guaranty agency must attempt to secure a
lender to purchase the loan after it has been successfully
rehabilitated, remain unchanged.
Section 682.406--Conditions for Claim Payments From the Federal Fund
and Reinsurance Coverage
The amount of time a guaranty agency is allowed for filing a
reinsurance claim with the Department is reduced from 45 days to 30
days. However, the process under which the guaranty agency is required
to submit a reinsurance claim is unchanged. Consequently, there is no
change in burden.
Section 682.410--Fiscal, Administrative and Enforcement Procedures
The amount of a borrower's disposable pay that can be garnished is
increased from 10 to 15 percent effective July 1, 2006. There is no
burden associated with this change because it has no impact on the
manner in which any borrower's wages are currently garnished.
Section 682.415--Special Insurance and Reinsurance
The insurance percentage applicable to lenders or lenders servicers
who are designated as exceptional performers is decreased from 100
percent to 99 percent. There is no burden associated with this change.
All other factors of reimbursement remain the same.
Section 682.601--School-as-Lender
The current regulations are replaced with an expanded set of
requirements for participation as a school-as-lender. The primary
requirement to be designated a school-as-lender is that the institution
met the requirements in effect as of February 7, 2006, and made loans
on or before April 1, 2006. There is no additional burden for
institutions since the new requirements are based on data already
collected by the institution, reports that are already required, and/or
procedures of standard use at institutions.
Section 682.604--Processing Loan Proceeds and Counseling the Borrower
The exemption from the multiple disbursement requirements for
eligible foreign institutions is removed. Lenders and guaranty agencies
are now required to disburse the proceeds of a loan in two or more
installments, neither of which exceeds one-half of the loan. This
change will not increase burden. In the vast majority of cases, the
lender or guaranty agency is already required to disburse a loan in two
installments as a regular business practice under the requirements of
the HEA and the FFEL Program regulations.
Section 685.220--Consolidation
Under these interim final regulations, the borrower eligibility
requirements of the FFEL and Federal Direct Consolidation Loan programs
are harmonized to eliminate program differences and to reflect the
repeal of section 8009(a)(2) of the HERA, which restricted the
conditions under which a FFEL borrower could obtain a Federal
Consolidation Loan. The burden associated with the collection of
information will be reflected in the modified OMB Control Number 1845-
0036--FFEL Consolidation Loan Application and Promissory Note and OMB
Control Number 1845-0053--Federal Direct Consolidation Loan Program
Application Documents.
If you want to comment on the information collection requirements,
please send your comments to the Office of Information and Regulatory
Affairs, OMB, room 10235, New Executive Office Building, Washington, DC
20503; Attention: Desk Officer for U.S. Department of Education. You
may also send a copy of these comments to the Department representative
named in the FOR FURTHER INFORMATION CONTACT section of this preamble.
We consider your comments on these proposed collections of
information in--
Deciding whether the proposed collections are necessary
for the proper performance of our functions, including whether the
information will have practical use;
Evaluating the accuracy of our estimate of the burden of
the proposed collections, including the validity of our methodology and
assumptions;
Enhancing the quality, usefulness, and clarity of the
information we collect; and
Minimizing the burden on those who must respond. This
includes exploring the use of appropriate automated, electronic,
mechanical, or other technological collection techniques or other forms
of information technology; e.g., permitting electronic submission of
responses.
OMB is required to make a decision concerning the collection of
information contained in these interim final regulations between 30 and
60 days after publication of this document in the Federal Register.
Therefore, to ensure that OMB gives your comments full consideration,
it is important that OMB receives the comments within 30 days of
publication.
Assessment of Educational Impact
Based on our own review, we have determined that these interim
final regulations do not require transmission of information that any
other agency or authority of the United States gathers or makes
available.
Electronic Access to This Document
You may view this document, as well as all other Department of
Education documents published in the Federal Register, in text or Adobe
Portable Document Format (PDF) on the Internet at the following site:
http://www.ed.gov/news/Fedregister.
To use PDF you must have Adobe Acrobat Reader, which is available
free at this site. If you have questions about using PDF, call the U.S.
Government Printing Office (GPO), toll free, at 1-888-293-6498; or in
the Washington, DC, area at (202) 512-1530.
Note: The official version of this document is the document
published in the Federal Register. Free Internet access to the
official edition of the Federal Register and the Code of Federal
Regulations is available on GPO Access at: http://www.gpoaccess.gov/nara/index.html.
(Catalog of Federal Domestic Assistance Numbers: 84.032 Federal
Family Education Loan Program; 84.038 Federal Perkins Loan Program;
84.268 William D. Ford Federal Direct Loan Program)
List of Subjects
34 CFR Parts 600 and 668
Administrative practice and procedure, Colleges and universities,
Consumer protection, Education, Grant programs--education, Loan
programs--education, Reporting and recordkeeping requirements, Student
Aid, Vocational education.
34 CFR Parts 673, 675 and 676
Administrative practice and procedure, Colleges and universities,
Consumer protection, Education, Employment, Grant programs--education,
Loan programs--education,
[[Page 45692]]
Reporting and recordkeeping requirements, Student aid, Vocational
education.
34 CFR Parts 674, 682, and 685
Administrative Practice and Procedure, Colleges and universities,
Education, Loans program--education, Reporting and recordkeeping
requirements, Student aid, Vocational education.
Dated: August 1, 2006.
Margaret Spellings,
Secretary of Education.
0
For the reasons discussed in the preamble, the Secretary amends parts
600, 668, 673, 674, 675, 676, 682, and 685 of title 34 of the Code of
Federal Regulations as follows:
PART 600--INSTITUTIONAL ELIGIBILITY UNDER THE HIGHER EDUCATION ACT
OF 1965, AS AMENDED
0
1. The authority citation for part 600 continues to read as follows:
Authority: 20 U.S.C. 1001, 1002, 1003, 1088, 1091, 1094, 1099b,
and 1099(c), unless otherwise noted.
0
2. Section 600.2 is amended by:
0
A. In the definition of Correspondence course, removing paragraph (3)
and redesignating paragraph (4) as paragraph (3);
0
B. Adding a definition of Direct assessment program;
0
C. Revising the definitions of Educational program and
Telecommunications course.
The revisions and addition read as follows:
Sec. 600.2 Definitions.
* * * * *
Direct assessment program: A program as described in 34 CFR 668.10.
Educational program: (1) A legally authorized postsecondary program
of organized instruction or study that:
(i) Leads to an academic, professional, or vocational degree, or
certificate, or other recognized educational credential; and
(ii) May, in lieu of credit hours or clock hours as a measure of
student learning, utilize direct assessment of student learning, or
recognize the direct assessment of student learning by others, if such
assessment is consistent with the accreditation of the institution or
program utilizing the results of the assessment and with the provisions
of Sec. 668.10.
(2) The Secretary does not consider that an institution provides an
educational program if the institution does not provide instruction
itself (including a course of independent study) but merely gives
credit for one or more of the following: Instruction provided by other
institutions or schools; examinations or direct assessments provided by
agencies or organizations; or other accomplishments such as ``life
experience.''
* * *
Telecommunications course: A course offered principally through the
use of one or a combination of technologies including television,
audio, or computer transmission through open broadcast, closed circuit,
cable, microwave, or satellite; audio conferencing; computer
conferencing; or video cassettes or discs to deliver instruction to
students who are separated from the instructor and to support regular
and substantive interaction between these students and the instructor,
either synchronously or asynchronously. The term does not include a
course that is delivered using video cassettes or disc recordings
unless that course is delivered to students physically attending
classes at the institution providing the course during the same award
year. If the course does not qualify as a telecommunications course, it
is considered to be a correspondence course.
* * * * *
0
3. Section 600.7 is amended by:
0
A. Removing paragraph (b)(1).
0
B. Redesignating paragraphs (b)(2) and (b)(3) as paragraphs (b)(1) and
(b)(2), respectively;
0
C. Revising the heading of the newly redesignated paragraph (b)(1) to
read as set forth below;
0
D. In the newly redesignated paragraph (b)(2)(i), removing the words
``section 521(4)(C)'' and adding in their place the words ``section
3(3)(C)'' and adding at the end of the sentence the words ``of 1995.''
Sec. 600.7 Conditions of institutional ineligibility.
* * * * *
(b)* * *
(1) Calculating the number of correspondence courses. * * *
* * * * *
Sec. 600.10 [Amended]
0
4. Section 600.10(c)(2) is amended by adding the words ``except as
provided in 34 CFR 668.10'' after the words ``eligible program of that
institution''.
Sec. 600.21 [Amended]
0
5. Section 600.21(a)(4) is amended by adding at the beginning of the
paragraph, the words ``Except as provided in 34 CFR 668.10,''.
0
6. Section 600.51 is amended by adding a new paragraph (d) to read as
follows:
Sec. 600.51 Purpose and scope.
* * * * *
(d)(1) A program offered by a foreign school through any use of a
telecommunications course, correspondence course, or direct assessment
program is not an eligible program;
(2) Correspondence course has the meaning given in Sec. 600.2;
(3) Direct assessment program has the meaning given in Sec.
668.10(a)(1) of this chapter;
(4) Telecommunications course is a course offered through any one
or a combination of the technologies listed in the definition of
telecommunications course in Sec. 600.2, except that
telecommunications technologies may be used to supplement and support
instruction that is offered in a classroom located in the foreign
country where the students and instructor are physically present.
* * * * *
PART 668--STUDENT ASSISTANCE GENERAL PROVISIONS
0
7. The authority citation for part 668 continues to read as follows:
Authority: 20 U.S.C. 1001, 1002, 1003, 1085, 1091b, 1092, 1094,
1099c, and 1099c-1, unless otherwise noted.
0
8. Section 668.2(b) is amended by removing the word ``parent'' from the
definition of Federal Consolidation Loan Program and by revising the
definitions of Federal Direct PLUS Program and Federal PLUS program.
The authority citations for these definitions remain unchanged.
The revisions read as follows:
Sec. 668.2 General definitions.
* * * * *
(b) * * *
Federal Direct PLUS Program: A loan program authorized by title IV,
Part D of the HEA that is one of the components of the Direct Loan
Program. The Federal Direct PLUS Program provides loans to parents of
dependent students attending schools that participate in the Direct
Loan Program. The Federal Direct PLUS Program also provides loans to
graduate or professional students attending schools that participate in
the Direct Loan Program. The borrower is responsible for the interest
that accrues during any period.
* * * * *
Federal PLUS program: The loan program authorized by Title IV-B,
[[Page 45693]]
section 428B, of the HEA, that encourages the making of loans to
parents of undergraduate students. Before October 17, 1986, the PLUS
Program also provided for making loans to graduate, professional, and
independent undergraduate students. Before July 1, 1993, the PLUS
Program also provided for making loans to parents of dependent graduate
students. Beginning July 1, 2006, the PLUS Program provides for making
loans to graduate and professional students.
* * * * *
0
9. Section 668.3 is amended by revising paragraph (a) to read as
follows:
Sec. 668.3 Academic year.
(a) General. Except as provided in paragraph (c) of this section,
an academic year for a program of study must include--
(1)(i) For a program offered in credit hours, a minimum of 30 weeks
of instructional time; or
(ii) For a program offered in clock hours, a minimum of 26 weeks of
instructional time; and
(2) For an undergraduate educational program, an amount of
instructional time whereby a full-time student is expected to complete
at least--
(i) Twenty-four semester or trimester credit hours or 36 quarter
credit hours for a program measured in credit hours; or
(ii) 900 clock hours for a program measured in clock hours.
* * * * *
0
10. Section 668.8 is amended by adding new paragraphs (m) and (n) to
read as follows:
Sec. 668.8 Eligible program.
* * * * *
(m) An otherwise eligible program that is offered in whole or in
part through telecommunications is eligible for title IV, HEA program
purposes if the program is offered by an institution, other than a
foreign institution, that has been evaluated and is accredited for its
effective delivery of distance education programs by an accrediting
agency or association that--
(1) Is recognized by the Secretary under subpart 2 of part H of the
HEA; and
(2) Has accreditation of distance education within the scope of its
recognition.
(n) For title IV, HEA program purposes, the term eligible program
includes a direct assessment program approved by the Secretary under 34
CFR 668.10.
* * * * *
0
11. New Section 668.10 is added to read as follows:
Sec. 668.10 Direct assessment programs.
(a)(1) A direct assessment program is an instructional program
that, in lieu of credit hours or clock hours as a measure of student
learning, utilizes direct assessment of student learning, or recognizes
the direct assessment of student learning by others. The assessment
must be consistent with the accreditation of the institution or program
utilizing the results of the assessment.
(2) Direct assessment of student learning means a measure by the
institution of what a student knows and can do in terms of the body of
knowledge making up the educational program. These measures provide
evidence that a student has command of a specific subject, content
area, or skill or that the student demonstrates a specific quality such
as creativity, analysis or synthesis associated with the subject matter
of the program. Examples of direct measures include projects, papers,
examinations, presentations, performances, and portfolios.
(3) All regulatory requirements in this chapter that refer to
credit or clock hours as a measurement apply to direct assessment
programs. Because a direct assessment program does not utilize credit
or clock hours as a measure of student learning, an institution must
determine the number of credit or clock hours that the program (or
portion of the program, as applicable) is equivalent to in credit hours
or clock hours in order to demonstrate compliance with the regulatory
requirements in this chapter. The institution must provide a factual
basis satisfactory to the Secretary for its claim that the program is
equivalent to a specific number of credit or clock hours.
(i) An academic year in a direct assessment program is a period of
instructional time that consists of a minimum of 30 weeks of
instructional time during which, for an undergraduate educational
program, a full-time student is expected to complete the equivalent of
at least 24 semester or trimester credit hours, 36 quarter credit hours
or 900 clock hours.
(ii) A payment period in a direct assessment program for which
equivalence in credit hours has been established must be determined
under the requirements in Sec. 668.4(a) or (b), as applicable, using
the academic year determined in accordance with paragraph (a)(3)(i) of
this section (or the portion of that academic year comprising or
remaining in the program). A payment period in a direct assessment
program for which equivalence in clock hours has been established must
be determined under the requirements in Sec. 668.4(c), using the
academic year determined in accordance with paragraph (a)(3)(i) of this
section (or the portion of that academic year comprising or remaining
in the program).
(iii) A week of instructional time in a direct assessment program
is any seven-day period in which at least one day of educational
activity occurs. Educational activity in a direct assessment program
includes regularly scheduled learning sessions, faculty-guided
independent study, consultations with a faculty mentor, development of
an academic action plan addressed to competencies identified by the
institution, or, in combination with any of the foregoing, assessments.
It does not include credit for ``life experience''.
(iv) A full-time student in a direct assessment program is an
enrolled student who is carrying a full-time academic workload as
determined by the institution under a standard applicable to all
students enrolled in the program. However, for an undergraduate
student, the institution's minimum standard must equal or exceed the
minimum full-time requirements specified in the definition of full-time
student in Sec. 668.2 based on the credit or clock hour equivalency
established by the institution for the direct assessment program.
(v) A half-time student in a direct assessment program is an
enrolled student who is carrying half of the academic workload of a
full-time student in that program.
(vi) A three-quarter-time student in a direct assessment program is
an enrolled student who is carrying three-quarters of the academic
workload of a full-time student in that program.
(b) An institution that offers a direct assessment program must
apply to the Secretary to have that program determined to be an
eligible program for title IV, HEA program purposes. The institution's
application must provide information satisfactory to the Secretary that
includes--
(1) A description of the educational program, including the
educational credential offered (degree level or certificate) and the
field of study;
(2) A description of how the assessment of student learning is
done;
(3) A description of how the direct assessment program is
structured, including information about how and when the institution
determines on an individual basis what each student enrolled in the
program needs to learn;
(4) A description of how the institution assists students in
gaining the knowledge needed to pass the assessments;
[[Page 45694]]
(5) The number of semester or quarter credit hours, or clock hours,
that are equivalent to the amount of student learning being directly
assessed for the certificate or degree, as required by paragraph (b)(3)
of this section;
(6) The methodology the institution uses to determine the number of
credit or clock hours to which the program is equivalent;
(7) The methodology the institution uses to determine the number of
credit or clock hours to which the portion of a program an individual
student will need to complete is equivalent;
(8) Documentation from the institution's accrediting agency
indicating that the agency has evaluated the institution's offering of
direct assessment program(s) and has included the program(s) in the
institution's grant of accreditation;
(9) Documentation from the accrediting agency or relevant state
licensing body indicating agreement with the institution's claim of the
direct assessment program's equivalence in terms of credit or clock
hours; and
(10) Any other information the Secretary may require to determine
whether to approve the institution's application.
(c) To be an eligible program, a direct assessment program must
meet the requirements in Sec. 668.8 including, if applicable, minimum
program length and qualitative factors.
(d) Notwithstanding paragraphs (a) through (c) of this section, no
program offered by a foreign institution that involves direct
assessment will be considered to be an eligible program under Sec.
668.8.
(e) A direct assessment program may use learning resources (e.g.,
courses or portions of courses) that are provided by entities other
than the institution providing the direct assessment program without
regard to the limitations on contracting for part of an educational
program in Sec. 668.5(c)(3).
(f) Title IV, HEA program funds may be used only for learning that
results from instruction provided, or overseen, by the institution, not
for the portion of the program that the student has demonstrated
mastery of prior to enrollment in the program or tests of learning that
are not associated with educational activities overseen by the
institution.
(g) Title IV, HEA program eligibility with respect to direct
assessment programs is limited to direct assessment programs approved
by the Secretary. Title IV, HEA program funds may not be used for--
(1) the course of study described in Sec. 668.32(a)(1)(ii) and
(iii) if offered by direct assessment, or
(2) remedial coursework described in Sec. 668.20 offered by direct
assessment. However, remedial instruction that is offered in credit or
clock hours in conjunction with a direct assessment program is eligible
for title IV, HEA program funds.
(h) The Secretary's approval of a direct assessment program expires
on the date that the institution changes one or more aspects of the
program described in the institution's application submitted under
paragraph (b) of this section. To maintain program eligibility, the
institution must obtain prior approval from the Secretary through
reapplication under paragraph (b) of this section that sets forth the
revisions proposed.
Sec. 668.15 [Amended]
0
12. Section 668.15 is amended by:
0
A. In paragraph (d)(1)(i)(C) removing the parentheticals ``(j)(4)'' and
adding, in their place, the parenthetical ``(j)''.
0
B. In paragraph (d)(1)(ii)(B) removing the figure ``Sec. 668.22(h)''
and adding, in its place, the figure ``Sec. 668.22(i)''.
0
13. Section 668.22 is amended by:
0
A. Revising paragraph (a)(1).
0
B. Redesignating paragraphs (a)(2), (a)(3), and (a)(4) as paragraphs
(a)(3), (a)(4), and (a)(5), respectively.
0
C. Adding a new paragraph (a)(2).
0
D. In newly redesignated paragraph (a)(4) removing the parenthetical
``(a)(4)'' and adding, in its place, the parenthetical ``(a)(5)''.
0
E. Revising newly redesignated paragraph (a)(5).
0
F. Revising paragraph (e)(2).
0
G. Revising paragraph (f)(1)(ii).
0
H. In paragraph (h)(3) in the introductory text, adding the word
``parent'' after the words ``funds due to a''.
0
I. Revising paragraph (h)(3)(ii).
0
J. Adding a new paragraph (h)(5).
0
K. Revising paragraph (i)(2).
0
L. In paragraph (j)(1), removing the figure ``30'' and adding, in its
place, the figure ``45''.
The revisions and additions read as follows:
Sec. 668.22 Treatment of title IV funds when a student withdraws.
(a) General. (1) When a recipient of title IV grant or loan
assistance withdraws from an institution during a payment period or
period of enrollment in which the recipient began attendance, the
institution must determine the amount of title IV grant or loan
assistance that the student earned as of the student's withdrawal date
in accordance with paragraph (e) of this section.
(2) For purposes of this section, ``title IV grant or loan
assistance'' includes only assistance from the Federal Perkins Loan,
Direct Loan, FFEL, Federal Pell Grant, Academic Competitiveness Grant,
National SMART Grant, and FSEOG programs, not including the non-Federal
share of FSEOG awards if an institution meets its FSEOG matching share
by the individual recipient method or the aggregate method.
* * * * *
(5)(i) A post-withdrawal disbursement must be made from available
grant funds before available loan funds.
(ii)(A) If outstanding charges exist on the student's account, the
institution may credit the student's account up to the amount of
outstanding charges with all or a portion of any--
(1) Grant funds that make up the post-withdrawal disbursement in
accordance with Sec. 668.164(d)(1) and (d)(2); and
(2) Loan funds that make up the post-withdrawal disbursement in
accordance with Sec. 668.164(d)(1), (d)(2) and (d)(3) only after
obtaining confirmation from the student or parent, in the case of a
parent PLUS loan, that they still wish to have the loan funds disbursed
in accordance with paragraph (a)(5)(iii) of this section.
(B)(1) The institution must offer to disburse directly to a
student, or parent in the case of a parent PLUS loan, any amount of a
post-withdrawal disbursement that is not credited to the student's
account, or for which the institution is not required to obtain
confirmation to credit to the student's account, to the student, or the
parent in the case of a parent PLUS loan, in accordance with paragraph
(a)(5)(iii) of this section.
(2) The institution must make a direct disbursement of any grant or
loan funds that make up the post-withdrawal disbursement only after
obtaining the student's, or parent's in the case of a parent PLUS loan,
confirmation that they still wish to have the grant or loan funds
disbursed in accordance with paragraph (a)(5)(iii).
(iii)(A) The institution must provide within 30 days of the date of
the institution's determination that the student withdrew, as defined
in paragraph (l)(3) of this section, a written notification to the
student, or parent in the case of parent PLUS loan, that--
(1) Requests confirmation of any post-withdrawal disbursement of
loan funds that the institution wishes to credit to the student's
account in accordance with paragraph (a)(5)(ii)(A)(2),
[[Page 45695]]
identifying the type and amount of those loan funds and explaining that
a student, or parent in the case of a parent PLUS loan, may accept or
decline some or all of those funds;
(2) Requests confirmation of any post-withdrawal disbursement of
grant or loan funds that the student, or parent in the case of a parent
PLUS loan, can receive as a direct disbursement, identifying the type
and amount of these title IV funds and explaining that the student, or
parent in the case of a parent PLUS loan, may accept or decline some or
all of those funds;
(3.) Explains that a student, or parent in the case of a parent
PLUS loan, who does not confirm that a post-withdrawal disbursement of
loan funds may be credited to the student's account may not receive any
of those loan funds as a direct disbursement unless the institution
concurs;
(4) Explains the obligation of the student, or parent in the case
of a parent PLUS loan, to repay any loan funds he or she chooses to
have disbursed; and
(5) Advises the student, or parent in the case of a parent PLUS
loan, that no post-withdrawal disbursement will be made, unless the
institution chooses to make a post-withdrawal disbursement based on a
late response in accordance with paragraph (a)(5)(iii)(C) of this
section, if the student or parent in the case of a parent PLUS loan,
does not respond within 14 days of the date that the institution sent
the notification, or a later deadline set by the institution.
(B) The deadline for a student, or parent in the case of a parent
PLUS loan, to accept a post-withdrawal disbursement under paragraph
(a)(5)(iii)(A)(4) must be the same for both a confirmation of a direct
disbursement of the post-withdrawal disbursement and a confirmation of
a post-withdrawal disbursement of loan funds to be credited to the
student's account;
(C) If the student, or parent in the case of a parent PLUS loan,
submits a timely response that confirms that they wish to receive all
or a portion of a direct disbursement of the post-withdrawal
disbursement, or confirms that a post-withdrawal disbursement of loan
funds may be credited to the student's account, the institution must
disburse the funds in the manner specified by the student, or parent in
the case of a parent PLUS loan, within 120 days of the date of the
institution's determination that the student withdrew, as defined in
paragraph (l)(3) of this section.
(D) If a student, or parent in the case of a parent PLUS loan,
submits a late response to the institution's notice requesting
confirmation, the institution may make the post-withdrawal disbursement
as instructed by the student, or parent in the case of a parent PLUS
loan (provided the institution disburses all the funds accepted by the
student, or parent in the case of a parent PLUS loan), or decline to do
so.
(E) If a student, or parent in the case of a parent PLUS loan,
submits a late response to the institution and the institution does not
choose to make the post-withdrawal disbursement, the institution must
inform the student, or parent in the case of a parent PLUS loan,
electronically or in writing of the outcome of the post-withdrawal
disbursement request.
(F) If the student, or parent in the case of a parent PLUS loan,
does not respond to the institution's notice, no portion of the post-
withdrawal disbursement of loan funds that the institution wishes to
credit to the student's account, nor any portion that would be
disbursed directly to the student, or parent in the case of a parent
PLUS loan, may be disbursed.
(iv) An institution must document in the student's file the result
of any notification made in accordance with paragraph (a)(5)(iii) of
this section of the student's right to cancel all or a portion of loan
funds or of the student's right to accept or decline loan funds, and
the final determination made concerning the disbursement.
* * * * *
(e) * * *
(2) Percentage earned. The percentage of title IV grant or loan
assistance that has been earned by the student is--
(i) Equal to the percentage of the payment period or period of
enrollment that the student completed (as determined in accordance with
paragraph (f) of this section) as of the student's withdrawal date, if
this date occurs on or before--
(A) Completion of 60 percent of the payment period or period of
enrollment for a program that is measured in credit hours; or
(B) Sixty percent of the clock hours scheduled to be completed for
the payment period or period of enrollment for a program that is
measured in clock hours; or
(ii) 100 percent, if the student's withdrawal date occurs after--
(A) Completion of 60 percent of the payment period or period of
enrollment for a program that is measured in credit hours; or
(B) Sixty percent of the clock hours scheduled to be completed for
the payment period or period of enrollment for a program measured in
clock hours.
* * * * *
(f) * * *
(1) * * *
(ii)(A) In the case of a program that is measured in clock hours,
by dividing the total number of clock hours in the payment period or
period of enrollment into the number of clock hours scheduled to be
completed as of the student's withdrawal date.
(B) The scheduled clock hours used must be those established by the
institution prior to the student's beginning class date for the payment
period or period of enrollment and must be consistent with the
published materials describing the institution's programs, unless the
schedule was modified prior to the student's withdrawal.
(C) The schedule must have been established in accordance with
requirements of the accrediting agency and the State licensing agency,
if such standards exist.
* * * * *
(h) * * *
(3) * * *
(ii) Any title IV grant program as an overpayment of the grant;
however, a student is not required to return the following--
(A) The portion of a grant overpayment amount that is equal to or
less than 50 percent of the total grant assistance that was disbursed
(and that could have been disbursed, as defined in paragraph (l)(1) of
this section) to the student for the payment period or period of
enrollment.
(B) A grant overpayment amount, as determined after application of
paragraph (h)(3)(ii)(A) of this section, of 50 dollars or less that is
not a remaining balance.
* * * * *
(5) The Secretary may waive grant overpayment amounts that students
are required to return under this section if the withdrawals on which
the returns are based are withdrawals by students--
(i) Who were residing in, employed in, or attending an institution
of higher education that is located in an area in which the President
has declared that a major disaster exists, in accordance with section
401 of the Robert T. Stafford Disaster Relief and Emergency Assistance
Act (42 U.S.C. 5170);
(ii) Whose attendance was interrupted because of the impact of the
disaster on the student or institution; and
(iii) Whose withdrawal ended within the award year during which the
designation occurred or during the next succeeding award year.
* * * * *
(i) * * *
(2) Remaining funds. If unearned funds remain to be returned after
[[Page 45696]]
repayment of all outstanding loan amounts, the remaining excess must be
credited to any amount awarded for the payment period or period of
enrollment for which a return of funds is required in the following
order:
(i) Federal Pell Grants.
(ii) Academic Competitiveness Grants.
(iii) National SMART Grants.
(iv) FSEOG Program aid.
* * * * *
0
14. Section 668.32 is amended by:
0
A. In paragraph (k)(7), removing the word ``and'' after the punctuation
``;'' at the end of the paragraph.
0
B. In paragraph (l), removing the punctuation ``.'' at the end of the
paragraph and adding, in its place, the words ``; and''.
0
C. Adding a new paragraph (m).
The addition reads as follows:
Sec. 668.32 Student eligibility--general.
* * * * *
(m) In the case of a student who has been convicted of, or has pled
nolo contendere or guilty to, a crime involving fraud in obtaining
title IV, HEA program assistance, has completed the repayment of such
assistance to:
(1) The Secretary; or
(2) The holder, in the case of a title IV, HEA program loan.
* * * * *
0
15. Section 668.35 is amended by:
0
A. Revising the introductory text in paragraph (e).
0
B. In paragraph (h)(2)(ii), removing the punctuation ``.'' at the end
of the paragraph and adding, in its place, the words ``; and''.
0
C. Adding new paragraph (i).
The revisions and additions read as follows:
Sec. 668.35 Student debts under the HEA and to the U.S.
* * * * *
(e) Except as provided in 34 CFR 668.22(h), a student who receives
an overpayment under the Federal Perkins Loan Program, or under a title
IV, HEA grant program, may nevertheless be eligible to receive title
IV, HEA program assistance if--
* * * * *
(i) In the case of a student who has been convicted of, or has pled
nolo contendere or guilty to a crime involving fraud in obtaining title
IV, HEA program assistance, has completed the repayment of such
assistance to:
(1) The Secretary; or
(2) The holder, in the case of a title IV, HEA program loan.
* * * * *
0
16. Section 668.38 is amended by:
0
A. Removing paragraph (b)(3); and
0
B. Revising paragraphs (b)(1) and (b)(2).
The revisions read as follows:
Sec. 668.38 Enrollment in telecommunications and correspondence
courses.
* * * * *
(b) * * *
(1) For purposes of this section, a student enrolled in a
telecommunications course at an institution of higher education is not
enrolled in a correspondence course.
(2) For purposes of paragraph (b)(1) of this section, an
institution of higher education is one that is not an institute or
school described in section 3(3)(C) of the Carl D. Perkins Vocational
and Applied Technology Act of 1995.
* * * * *
0
17. Section 668.40(a)(1) is revised to read as follows:
Sec. 668.40 Conviction for possession or sale of illegal drugs.
(a)(1) A student is ineligible to receive title IV, HEA program
funds, for the period described in paragraph (b) of this section, if
the student has been convicted of an offense under any Federal or State
law involving the possession or sale of illegal drugs for conduct that
occurred during a period of enrollment for which the student was
receiving title IV, HEA program funds. However, the student may regain
eligibility before that time period expires under the conditions
described in paragraph (c) of this section.
* * * * *
Sec. 668.164 [Amended]
0
18. Section 668.164 is amended by, in paragraph (g)(3)(i), removing the
parentheticals ``(a)(4)'' and adding, in their place, the
parentheticals ``(a)(5)'' and removing the parentheticals ``(a)(3)''
and adding, in their place the parentheticals ``(a)(4)''.
0
19. Section 668.173 is amended by revising paragraph (b) to read as
follows:
Sec. 668.173 Refund reserve standards.
* * * * *
(b) Timely return of title IV, HEA program funds. In accordance
with procedures established by the Secretary or FFEL Program lender, an
institution returns unearned title IV, HEA program funds timely if--
(1) The institution deposits or transfers the funds into the bank
account it maintains under Sec. 668.163 no later than 45 days after
the date it determines that the student withdrew;
(2) The institution initiates an electronic funds transfer (EFT) no
later than 45 days after the date it determines that the student
withdrew;
(3) The institution initiates an electronic transaction, no later
than 45 days after the date it determines that the student withdrew,
that informs a FFEL lender to adjust the borrower's loan account for
the amount returned; or
(4) The institution issues a check no later than 45 days after the
date it determines that the student withdrew. An institution does not
satisfy this requirement if--
(i) The institution's records show that the check was issued more
than 45 days after the date the institution determined that the student
withdrew; or
(ii) The date on the cancelled check shows that the bank used by
the Secretary or FFEL Program lender endorsed that check more than 60
days after the date the institution determined that the student
withdrew.
* * * * *
PART 673--GENERAL PROVISIONS FOR THE FEDERAL PERKINS LOAN PROGRAM,
FEDERAL WORK-STUDY PROGRAM, AND FEDERAL SUPPLEMENTAL EDUCTIONAL
OPPORTUNITY GRANT PROGRAM
0
20. The authority citation for part 673 continues to read as follows:
Authority: 20 U.S.C. 421-429, 1070b-1070b-3, and 1087aa-1087ii;
42 U.S.C. 2751-2756b, unless otherwise noted.
0
21. Section 673.5 is amended by revising paragraphs (a), (b), (c) and
(d) to read as follows:
Sec. 673.5 Overaward.
(a) Overaward prohibited--(1) Federal Perkins Loan and FSEOG
Programs. An institution may only award or disburse a Federal Perkins
loan or an FSEOG to a student if that loan or the FSEOG, combined with
the other estimated financial assistance the student receives, does not
exceed the student's financial need.
(2) FWS Program. An institution may only award FWS employment to a
student if the award, combined with the other estimated financial
assistance the student receives, does not exceed the student's
financial need.
(b) Awarding and disbursement. (1) When awarding and disbursing a
Federal Perkins loan or an FSEOG or awarding FWS employment to a
student, the institution shall take into account those amounts of
estimated financial assistance it--
(i) Can reasonably anticipate at the time it awards Federal Perkins
Loan funds, an FSEOG, or FWS funds to the student;
(ii) Makes available to its students; or
[[Page 45697]]
(iii) Otherwise knows about.
(2) If a student receives amounts of estimated financial assistance
at any time during the award period that were not considered in
calculating the Federal Perkins Loan amount or the FWS or FSEOG award,
and the total amount of estimated financial assistance including the
loan, the FSEOG, or the prospective FWS wages exceeds the student's
need, the overaward is the amount that exceeds need.
(c) Estimated financial assistance. (1) Except as provided in
paragraphs (c)(2) and (c)(3) of this section, the Secretary considers
that ``estimated financial assistance'' includes, but is not limited
to, any--
(i) Funds a student is entitled to receive from a Federal Pell
Grant;
(ii) William D. Ford Federal Direct Loans;
(iii) Federal Family Education Loans;
(iv) Long-term need-based loans, including Federal Perkins loans;
(v) Grants, including FSEOGs, State grants, Academic
Competitiveness Grants, National SMART Grants, and ROTC subsistence
allowances;
(vi) Scholarships, including athletic scholarships and ROTC
scholarships;
(vii) Waivers of tuition and fees;
(viii) Fellowships or assistantships, except non-need-based
employment portions of such awards;
(ix) Veterans educational benefits paid under Chapters 30
(Montgomery GI Bill-Active Duty), 31 (Vocational Rehabilitation and
Employment Program), 32 (Veterans' Educational Assistance Program), and
35 (Dependents' Educational Assistance Program) of title 38 of the
United States Code, and Chapters 31 (National Call to Service), 1606
(Montgomery GI Bill-Selected Reserve), and 1607 (Reserve Educational
Assistance Program) of title 10 of the United States Code;
(x) National service education awards or post-service benefits paid
for the cost of attendance under title I of the National and Community
Service Act of 1990 (AmeriCorps);
(xi) Net earnings from need-based employment;
(xii) Insurance programs for the student's education; and
(xiii) Any educational benefits paid because of enrollment in a
postsecondary education institution, or to cover postsecondary
education expenses.
(2) The Secretary does not consider as estimated financial
assistance--
(i) Any portion of the estimated financial assistance described in
paragraph (c)(1) of this section that is included in the calculation of
the student's expected family contribution (EFC);
(ii) Earnings from non-need-based employment;
(iii) Those amounts used to replace EFC, including the amounts of
any unsubsidized Federal Stafford or Direct Loans, Federal PLUS or
Federal Direct PLUS Loans, and non-federal non-need-based loans,
including private, state-sponsored, and institutional loans. However,
if the sum of the loan amounts received that are being used to replace
the student's EFC actually exceed the EFC, the excess amount must be
treated as estimated financial assistance; and
(iv) Assistance not received under this part if that assistance is
designated to offset all or a portion of a specific component of the
cost of attendance and that amount is excluded from the cost of
attendance as well. If that assistance is excluded from either
estimated financial assistance or cost of attendance, that amount must
be excluded from both.
(3) The institution may also exclude as estimated financial
assistance any portion of a subsidized Federal Stafford or Direct Loan
that is equal to or less than the amount of a student's veterans
education benefits paid under Chapter 30 of title 38 of the United
States Code (Montgomery GI Bill--Active Duty) and national service
education awards or post service benefits paid for the cost of
attendance under title I of the National and Community Service Act of
1990 (AmeriCorps).
(d) Treatment of estimated financial assistance in excess of need--
General. An institution shall take the following steps if it learns
that a student has received additional amounts of estimated financial
assistance not included in the calculation of Federal Perkins Loan,
FWS, or FSEOG eligibility that would result in the student's total
amount of estimated financial assistance exceeding his or her financial
need by more than $300:
(1) The institution shall decide whether the student has increased
financial need that was unanticipated when it awarded financial aid to
the student. If the student demonstrates increased financial need and
the total amount of estimated financial assistance does not exceed this
increased need by more than $300, no further action is necessary.
(2) If the student's total amount of estimated financial assistance
still exceeds his or her need by more than $300, as recalculated
pursuant to paragraph (d)(1) of this section, the institution shall
cancel any undisbursed loan or grant (other than a Federal Pell Grant).
(3) Federal Perkins loan and FSEOG overpayment. If the student's
total amount of estimated financial assistance still exceeds his or her
need by more than $300, after the institution takes the steps required
in paragraphs (d)(1) and (2) of this section, the institution shall
consider the amount by which the estimated financial assistance amount
exceeds the student's financial need by more than $300 as an
overpayment.
* * * * *
0
22. Section 673.6 is amended by revising paragraph (a) to read as
follows:
Sec. 673.6 Coordination with BIA grants.
(a) Coordination of BIA grants with Federal Perkins loans, FWS
awards, or FSEOGs. To determine the amount of a Federal Perkins loan,
FWS compensation, or an FSEOG for a student who is also eligible for a
Bureau of Indian Affairs (BIA) education grant, an institution shall
prepare a package of student aid--
(1) From estimated financial assistance other than the BIA
education grant the student has received or is expected to receive; and
(2) That is consistent in type and amount with packages prepared
for students in similar circumstances who are not eligible for a BIA
education grant.
* * * * *
PART 674--FEDERAL PERKINS LOAN PROGRAM
0
23. The authority citation for part 674 continues to read as follows:
Authority: 20 U.S.C. 1087aa-1087hh and 20 U.S.C. 421-429, unless
otherwise noted.
Sec. 674.9 [Amended]
0
24. Section 674.9 is amended in paragraph (a) by removing the words
``34 CFR 668.32'' and adding, in its place, the words ``34 CFR part
668''.
0
25. Section 674.16 is amended by revising paragraph (c) to read as
follows:
Sec. 674.16 Making and disbursing loans.
* * * * *
(c) If a student incurs uneven costs or estimated financial
assistance amounts during an academic year and needs additional funds
in a particular payment period, the institution may disburse loan funds
to the student for those uneven costs.
* * * * *
0
26. Section 674.34 is amended by:
0
A. In paragraph (a), adding the words ``paragraphs (b), (c), (d), (e),
(f), and (g) of'' immediately after the words ``described in''.
0
B. Redesignating paragraphs (h) and (i) as paragraphs (i) and (j),
respectively.
0
C. Adding a new paragraph (h).
[[Page 45698]]
0
D. In newly redesignated paragraph (i), removing the word ``and''
immediately after the parenthetical ``(f)'', adding the words ``, and
(h)'' immediately after the parenthetical ``(g),'' and removing the
words ``paragraph (i)'' and adding, in their place, the words
``paragraph (j)''.
0
E. In newly redesignated paragraph (j), removing the word ``and''
immediately after the parenthetical ``(f)'', and adding the words ``,
and (h)'' immediately after the parenthetical ``(g)''.
0
F. The addition reads as follows:
Sec. 674.34 Deferment of repayment--Federal Perkins loans, NDSLs and
Defense loans.
* * * * *
(h)(1) The borrower need not pay principal and interest does not
accrue on a Federal Perkins Loan made on or after July 1, 2001, for any
period not to exceed 3 years during which the borrower is--
(i) Serving on active duty during a war or other military operation
or national emergency; or
(ii) Performing qualifying National Guard duty during a war or
other military operation or national emergency.
(2) Serving on active duty during a war or other military operation
or national emergency means service by an individual who is--
(i) A Reserve of an Armed Force ordered to active duty under 10
U.S.C. 12301(a), 12301(g), 12302, 12304, or 12306;
(ii) A retired member of an Armed Force ordered to active duty
under 10 U.S.C. 688 for service in connection with a war or other
military operation or national emergency, regardless of the location at
which such active duty service is performed; or
(iii) Any other member of an Armed Force on active duty in
connection with such emergency or subsequent actions or conditions who
has been assigned to a duty station at a location other than the
location at which the member is normally assigned.
(3) Qualifying National Guard duty during a war or other operation
or national emergency means service as a member of the National Guard
on full-time National Guard duty, as defined in 10 U.S.C. 101(d)(5),
under a call to active service authorized by the President or the
Secretary of Defense for a period of more than 30 consecutive days
under 32 U.S.C. 502(f) in connection with a war, other military
operation, or national emergency declared by the President and
supported by Federal funds.
(4) As used in this section--
(i) Active duty means active duty as defined in 10 U.S.C. 101(d)(1)
except that it does not include active duty for training or attendance
at a service school;
(ii) Military operation means a contingency operation as defined in
10 U.S.C. 101(a)(13); and
(iii) National emergency means the national emergency by reason of
certain terrorist attacks declared by the President on September 14,
2001, or subsequent national emergencies declared by the President by
reason of terrorist attacks.
(5) These provisions do not authorize the refunding of any payments
made by or on behalf of a borrower during a period for which the
borrower qualified for a military service deferment.
* * * * *
Sec. 674.39 [Amended]
0
27. Section 674.39 is amended in paragraph (a) by adding the words ``or
loans obtained by fraud for which the borrower has been convicted of,
or has pled nolo contendere or guilty to, a crime involving fraud in
obtaining title IV, HEA program assistance.'' after the word
``secured''.
PART 675--FEDERAL WORK STUDY PROGRAM
0
28. The authority citation for part 675 continues to read as follows:
Authority: 42 U.S.C. 2751-2756b, unless otherwise noted.
0
29. Section 675.26 is amended by revising paragraph (a)(4) to read as
follows:
Sec. 675.26 FWS Federal share limitations.
(a) * * *
(4) An institution may not use FWS funds to pay a student after he
or she has, in addition to other estimated financial assistance, earned
$300 or more over his or her financial need.
* * * * *
PART 676--FEDERAL SUPPLEMENTAL EDUCATIONAL OPPORTUNITY GRANT
PROGRAM
0
30. The authority citation for part 676 continues to read as follows:
Authority: 20 U.S.C. 1070b-1070b-3, unless otherwise noted.
0
31. Section 676.16 is amended by revising paragraph (b) to read as
follows:
Sec. 676.16 Payment of an FSEOG.
* * * * *
(b) If a student incurs uneven cost or estimated financial
assistance amounts during an academic year and needs additional funds
in a particular payment period, the institution may pay FSEOG funds to
the student for those uneven costs.
* * * * *
PART 682--FEDERAL FAMILY EDUCATION LOAN (FFEL) PROGRAM
0
32. The authority citation for part 682 continues to read as follows:
Authority: 20 U.S.C. 1071 to 1087-2, unless otherwise noted.
0
33. Section 682.100 is amended in paragraph (a)(3), by adding a
sentence to the end of the paragraph to read as follows:
Sec. 682.100 The Federal Family Education Loan program.
* * * * *
(3) * * * The PLUS Program also provides for making loans to
graduate and professional students on or after July 1, 2006.
* * * * *
0
34. Section 682.101 is amended in paragraph (c) by adding a sentence to
the end of the paragraph to read as follows:
Sec. 682.101 Participation in the FFEL programs.
* * * * *
(c) * * * The PLUS Program also provides for making loans to
graduate and professional students on or after July 1, 2006.
* * * * *
0
35. Section 682.102 is amended by:
0
A. In paragraph (a), by removing the words ``or contacting'' and
adding, in their place, the words ``and contacting''.
0
B. Revising paragraphs (c) and (d).
0
C. In paragraph (e)(1), in the third sentence removing the words ``The
borrower's obligation to repay a PLUS Loan'' and adding, in their
place, the words ``A parent borrower's obligation to repay a PLUS
loan''.
The revision reads as follows:
Sec. 682.102 Obtaining and repaying a loan.
* * * * *
(c) PLUS loan application. (1) For a parent to obtain a PLUS loan,
the parent completes an application and submits it to the school for
certification. After the school certifies the application, the
application is submitted to a participating lender. If the lender
decides to make the loan, the lender obtains a loan guarantee from a
guaranty agency or the Secretary. Prior to loan disbursement, the
parent completes a PLUS MPN, unless the parent has previously completed
a PLUS MPN that the lender may use for the new loan.
(2) For a graduate or professional student to obtain a PLUS loan,
the
[[Page 45699]]
student applies for a PLUS Loan by completing a Free Application for
Federal Student Aid (FAFSA) and contacting the school, lender or
guarantor. The school determines and certifies the student's
eligibility for the PLUS loan. After the school certifies the
application, the application is submitted to a participating lender. If
the lender decides to make the loan, the lender obtains a loan
guarantee from a guaranty agency or the Secretary. Prior to loan
disbursement, the student completes a PLUS MPN, unless the student has
previously completed a PLUS MPN that the lender may use for the new
loan.
(d) Consolidation loan application. Generally, to obtain a
Consolidation loan, a borrower completes an application and submits it
to a lender participating in the Consolidation Loan Program. If the
lender decides to make the loan, the lender obtains a loan guarantee
from a guaranty agency or the Secretary.
* * * * *
0
36. Section 682.200(b) is amended by revising the definition of
estimated financial assistance to read as follows:
Sec. 682.200 Definitions
* * * * *
(b) * * *
Estimated financial assistance. (1) The estimated amount of
assistance for a period of enrollment that a student (or a parent on
behalf of a student) will receive from Federal, State, institutional,
or other sources, such as, scholarships, grants, the net earnings from
need-based employment, or loans, including but not limited to--
(i) Except as provided in paragraph (2)(iii) of this definition,
national service education awards or post-service benefits under title
I of the National and Community Service Act of 1990 (AmeriCorps) and
veterans' educational benefits paid under chapters 30 (Montgomery GI
Bill--Active Duty), 31 (Vocational Rehabilitation and Employment
Program), 32 (Veterans' Educational Assistance Program, and 35
(Dependents' Educational Assistance Program) of title 38 of the United
States Code;
(ii) Educational benefits paid under Chapters 31 (National Call to
Service), 1606 (Montgomery GI Bill-Selected Reserve), and 1607 (Reserve
Educational Assistance Program) of Title 10 of the United States Code;
(iii) Reserve Officer Training Corps (ROTC) scholarships and
subsistence allowances awarded under Chapter 2 of Title 10 and Chapter
2 of Title 37 of the United States Code;
(iv) Benefits paid under Pub. L. 96-342, section 903: Educational
Assistance Pilot Program;
(v) Any educational benefits paid because of enrollment in a
postsecondary education institution, or to cover postsecondary
education expenses;
(vi) Fellowships or assistantships, except non-need-based
employment portions of such awards;
(vii) Insurance programs for the student's education; and
(viii) The estimated amount of other Federal student financial aid,
including but not limited to a Federal Pell Grant, Academic
Competitiveness Grant, National SMART Grant, campus-based aid, and the
gross amount (including fees) of subsidized and unsubsidized Federal
Stafford Loans or subsidized and unsubsidized Federal Direct Stafford/
Ford Loans, and Federal PLUS or Federal Direct PLUS Loans.
(2) Estimated financial assistance does not include--(i) Those
amounts used to replace the expected family contribution, including the
amounts of any unsubsidized Federal Stafford or Federal Direct
Stafford/Ford Loans, Federal PLUS or Federal Direct PLUS Loans, and
non-federal non-need-based loans, including private, state-sponsored,
and institutional loans. However, if the sum of the loan amounts
received that are being used to replace the student's EFC exceed the
EFC, the excess amount is treated as estimated financial assistance;
(ii) Federal Perkins loan and Federal Work-Study funds that the
student has declined;
(iii) For the purpose of determining eligibility for a subsidized
Stafford loan, veterans' educational benefits paid under chapter 30 of
title 38 of the United States Code (Montgomery GI Bill--Active Duty)
and national service education awards or post-service benefits under
title I of the National and Community Service Act of 1990 (AmeriCorps);
(iv) Any portion of the estimated financial assistance described in
paragraph (1) of this definition that is included in the calculation of
the student's expected family contribution (EFC);
(v) Non-need-based employment earnings; and
(vi) Assistance not received under this title, if that assistance
is designated to offset all or a portion of a specific amount of the
cost of attendance and that component is excluded from the cost of
attendance as well. If that assistance is excluded from either
estimated financial assistance or cost of attendance, it must be
excluded from both.
* * * * *
0
37. Section 682.201 is amended by:
0
A. In paragraph (a), revising the paragraph heading to read as set
forth below.
0
B. Removing paragraph (e).
0
C. Redesignating paragraphs (b), (c), and (d) as paragraphs (c), (d),
and (e), respectively.
0
D. Adding a new paragraph (b).
0
E. In newly redesignated paragraph (c), revising the paragraph heading
to read as set forth below and adding a new paragraph (c)(1)(viii).
0
F. In newly redesignated paragraph (d)(1)(i)(B), removing the word
``or''.
0
G. Adding new paragraph (d)(1)(i)(D).
0
H. In newly redesignated paragraph (d)(1)(ii), adding the word ``and''
after the punctuation ``;''.
0
I. In newly redesignated paragraph (d)(1)(iii), removing the words ``;
and'' and inserting, in their place, the punctuation ``.''.
0
J. In newly redesignated paragraph (d), removing paragraphs
(d)(1)(iv)(A) and (B).
0
K. Revising newly redesignated paragraph (d)(2).
0
L. In newly redesignated paragraph (e)(2), adding the words ``before
or'' immediately after the words ``eligible loan'' and removing the
word ``and''.
0
M. In newly redesignated paragraph (e)(3), removing the word ``only'',
removing the punctuation ``.'' and adding in its place the punctuation
``;'', and adding the word ``and'' immediately after the punctuation
``;''.
0
N. Adding a new paragraph (e)(4).
The additions read as follows:
Sec. 682.201 Eligible borrowers.
(a) Student Stafford borrower. * * *
* * * * *
(b) Student PLUS borrower. A graduate or professional student who
is enrolled or accepted for enrollment on at least a half-time basis at
a participating school is eligible to receive a PLUS Loan on or after
July 1, 2006, if the student--
(1) Meets the requirements for an eligible student under 34 CFR
668;
(2) Meets the requirements of paragraphs (a)(4), (a)(5), (a)(6),
(a)(7), (a)(8), and (a)(9) of this section, if applicable;
(3) Has received a determination of his or her annual loan maximum
eligibility under the Federal Subsidized and Unsubsidized Stafford Loan
Program; and
(4) Does not have an adverse credit history in accordance with
paragraphs (c)(2)(i) through (c)(2)(v) of this section,
[[Page 45700]]
or obtains an endorser who has been determined not to have an adverse
credit history, as provided for in paragraph (c)(1)(vii) of this
section.
* * * * *
(c) Parent PLUS borrower.
(1) * * *
(viii) Has completed repayment of any title IV, HEA program
assistance obtained by fraud, if the parent has been convicted of, or
has pled nolo contendere or guilty to, a crime involving fraud in
obtaining title IV, HEA program assistance.
* * * * *
(d) * * *
(1) * * *
(i) * * *
(D) Not in default status resulting from a claim filed under Sec.
682.412.
* * * * *
(2) A borrower may not consolidate a loan under this section for
which the borrower is wholly or partially responsible.
(e) * * *
(4) If the consolidation loan has been submitted to the guaranty
agency for default aversion, the borrower may obtain a subsequent
consolidation loan under the Federal Direct Consolidation Loan Program
for purposes of obtaining an income contingent repayment plan.
* * * * *
0
38. Section 682.202 is amended by:
0
A. In paragraph (a)(1)(viii), by adding after the words ``July 1,
1998,'' the words `` and prior to July 1, 2006,''.
0
B. Adding a new paragraph (a)(1)(ix).
0
C. In paragraph (a)(2)(vi)(A), adding after the words ``July 1, 2001,''
the words ``and prior to July 1, 2006,''.
0
D. Adding a new paragraph (a)(2)(vii).
0
E. Revising paragraph (c)(1).
0
F. Revising paragraph (d).
The revisions and additions read as follows:
Sec. 682.202 Permissible charges by lenders to borrowers.
(a) * * *
(1) * * *
(ix) For a Stafford loan for which the first disbursement is made
on or after July 1, 2006, the interest rate is 6.8 percent.
(2) * * *
(vii) For a PLUS loan first disbursed on or after July 1, 2006, the
interest rate is 8.5 percent.
* * * * *
(c) Fees for FFEL Program loans. (1)(i) For Stafford loans first
disbursed prior to July 1, 2006, a lender may charge a borrower an
origination fee not to exceed 3 percent of the principal amount of the
loan.
(ii) For Stafford loans first disbursed on or after July 1, 2006,
but before July 1, 2007, a lender may charge a borrower an origination
fee not to exceed 2 percent of the principal amount of the loan.
(iii) For Stafford loans first disbursed on or after July 1, 2007,
but before July 1, 2008, a lender may charge a borrower an origination
fee not to exceed 1.5 percent of the principal amount of the loan.
(iv) For Stafford loans first disbursed on or after July 1, 2008,
but before July 1, 2009, a lender may charge a borrower an origination
fee not to exceed 1 percent of the principal amount of the loan.
(v) For Stafford loans first disbursed on or after July 1, 2009,
but before July 1, 2010, a lender may charge a borrower an origination
fee not to exceed .5 percent of the principal amount of the loan.
(vi) For Stafford loans first disbursed on or after July 1, 2010, a
lender may not charge a borrower an origination fee.
(vii) Except as provided in paragraph (c)(2) of this section, a
lender must charge all borrowers the same origination fee.
* * * * *
(d) Insurance premium and Federal default fee.
(1) For loans guaranteed prior to July 1, 2006, a lender may charge
the borrower the amount of the insurance premium paid by the lender to
the guarantor (up to 1 percent of the principal amount of the loan) if
that charge is provided for in the promissory note.
(2) For loans guaranteed on or after July 1, 2006, other than an
SLS or PLUS loan refinanced under Sec. 682.209(e) or (f), a lender may
charge the borrower the amount of the Federal default fee paid by the
lender to the guarantor (up to 1 percent of the principal amount of the
loan) if that charge is provided for in the promissory note.
(3) If the borrower is charged the insurance premium or the Federal
default fee, the amount charged must be deducted proportionately from
each disbursement of the borrower's loan proceeds, if the loan is
disbursed in more than one installment.
(4) The lender shall refund the insurance premium or Federal
default fee paid by the borrower in accordance with the circumstances
and procedures applicable to the return of origination fees, as
described in paragraph (c)(7) of this section.
* * * * *
Sec. 682.204 [Amended]
0
39. Section 682.204 is amended by:
0
A. In paragraph (a)(1)(i), adding the words ``, or, for a loan
certified on or after July 1, 2007, $3,500,'' immediately after the
figure ``$2,625''.
0
B. In paragraph (a)(1)(ii), adding the words ``, or, for a loan
certified on or after July 1, 2007, $3,500,'' immediately after the
figure ``$2,625''.
0
C. In paragraph (a)(1)(iii), adding the words ``, or, for a loan
certified on or after July 1, 2007, $3,500'' immediately after the
figure ``$2,625''.
0
D. In paragraph (a)(2)(i), adding the words ``, or, for a loan
certified on or after July 1, 2007, $4,500,'' immediately after the
figure ``$3,500''.
0
E. In paragraph (a)(2)(ii), adding the words ``, or, for a loan
certified on or after July 1, 2007, $4,500,'' immediately after the
figure ``$3,500''.
0
F. In paragraph (d)(5), adding the words ``, or, for a loan certified
on or after July 1, 2007, $12,000.'' immediately after the figure
``$10,000''.
0
G. In paragraph (d)(6)(ii), adding the words ``, or, for a loan
certified on or after July 1, 2007, $7,000,'' immediately after the
figure ``$5,000''.
0
H. In paragraph (d)(6)(iii), adding the words ``, or, for a loan
certified on or after July 1, 2007, $7,000.'' immediately after the
figure ``$5,000''.
0
I. In paragraph (h), removing the words ``that parents may borrow on
behalf of each dependent student'' and adding, in their place, the
words ``that a parent or student may borrow''.
0
40. Section 682.205 is amended by revising paragraph (a)(2)(xix) to
read as follows:
Sec. 682.205 Disclosure requirements for lenders.
(a) * * *
(2) * * *
(xix) In the case of a Stafford or student PLUS loan, a statement
that the loan proceeds will be transmitted to the school for delivery
to the borrower;
* * * * *
0
41. Section 682.207 is amended by:
0
A. In paragraph (b)(1)(iv), removing the figure ``21'' and adding, in
its place, the figure ``10''.
0
B. Revising paragraph (b)(1)(v)(B), (C), and (D), and removing
paragraph (b)(1)(v)(E).
0
C. Redesignating paragraph (b)(2) as paragraph (b)(3).
0
D. Adding new paragraph (b)(2).
The revisions and addition read as follows:
Sec. 682.207 Due diligence in disbursing a loan.
(b) * * *
(1) * * *
(v) * * *
(B) In the case of a Federal PLUS loan --
(1) By electronic funds transfer or master check from the lender in
[[Page 45701]]
accordance with the disbursement schedule provided by the school to an
account maintained in accordance with Sec. 668.163 by the school as
trustee for the lender. A disbursement made by electronic funds
transfer or master check must be accompanied by a list of the names,
social security numbers, and loan amounts for the parent or student
borrowers who are receiving a portion of the disbursement and the names
and social security numbers of the students on whose behalf the parents
are borrowing parent PLUS loans.
(2) By a check from the lender that is made co-payable to the
institution and the parent borrower, for a parent PLUS loan, or student
borrower, for a student PLUS loan, directly to the institution of
higher education.
(C) In the case of a student enrolled in a study-abroad program
approved for credit at the home institution in which the student is
enrolled, if the student requests--
(1) A Stafford loan directly to the student only after verification
of the student's enrollment by the lender or guaranty agency; or
(2) To the home institution if the borrower provides a power-of-
attorney to an individual not affiliated with the institution to
endorse the check or complete an electronic funds transfer
authorization.
(D) In the case of a student enrolled in an eligible foreign
school, if the foreign school requests, a Stafford loan directly to the
student only after verification of the student's enrollment by the
lender or guaranty agency.
* * * * *
(2)(i) A lender or guaranty agency must verify a borrower's
enrollment at the foreign school, or a borrower's enrollment in a
study-abroad program, prior to each disbursement of Stafford loan funds
directly to a student by--
(A) For a student enrolled at a foreign school--
(1) The guaranty agency accessing the Department's Postsecondary
Education Participants System (PEPS) Database (or any successor system)
and confirming that the foreign school the student is to attend is
certified to participate in the FFEL program.
(2) For a new student, contacting the foreign school the student is
to attend by telephone or e-mail to verify the student's admission to
the foreign school for the period for which the loan is intended at the
enrollment status for which the loan was certified.
(3) For a continuing student, contacting the foreign school the
student is to attend by telephone or e-mail to verify that the student
is still enrolled at the foreign school for the period for which the
loan is intended at the enrollment status for which the loan was
certified.
(B) For a student enrolled in a study-abroad program, contacting
the home institution in which the student is enrolled by telephone or
e-mail to verify--
(1) For a new student, the student's admission to the study-abroad
program for the period for which the loan is intended at the enrollment
status for which the loan is certified.
(2) For a continuing student, that the student is still enrolled in
the study-abroad program for the period for which the loan is intended
at the enrollment status for which the loan is certified.
(ii) The lender or guaranty agency that is verifying enrollment at
the institution the student is to attend must maintain the following
information in the student's file:
(A) The name and telephone number of the school representative
contacted;
(B) The date of the contact;
(C) The enrollment period;
(D) Whether enrollment was verified at the enrollment status for
which the loan was certified; and
(E) Any other pertinent information received from the school.
(iii) Guaranty agencies and lenders must coordinate their
activities to ensure that the requirements of this paragraph are met
prior to making any direct disbursement to a student.
(iv) If a lender disburses a Stafford loan directly to the borrower
for attendance at an eligible foreign school, or to a borrower enrolled
in a study-abroad program approved for credit at the home institution,
as provided in paragraphs (b)(1)(v)(C)(1) and (b)(1)(v)(D)(1) of this
section, the lender must, at the time of disbursement, notify the
foreign school, for a borrower attending a foreign school, or the home
institution in which the student is enrolled, for a borrower enrolled
in a study-abroad program, of--
(A) The name and social security number of the student;
(B) The type of loan;
(C) The amount of the disbursement, including the amount of any
fees assessed the borrower;
(D) The date of the disbursement; and
(E) The name, address, telephone and fax number or electronic
address of the lender, servicer, or guaranty agency to which any
inquiries should be addressed.
* * * * *
Sec. 682.208 [Amended]
0
42. Section 682.208 is amended by:
0
A. In paragraph (c)(2), adding the words ``or a student PLUS loan
borrower'' immediately after the words ``Stafford loan borrower''.
0
B. In paragraph (d)(2), adding the words ``, as authorized and if
practicable,'' immediately after ``repayment schedule''.
0
C. In paragraph (f)(1) introductory text, adding the words ``has been
convicted of, or has pled nolo contendere or guilty to, a crime
involving fraud in obtaining title IV, HEA program assistance,''
immediately after the word ``borrowed,''.
Sec. 682.209 [Amended]
0
43. Section 682.209 is amended by:
0
A. In paragraph (a)(3)(i) introductory text, removing the words
``paragraphs (a)(4) and (5)'' and adding, in their place, the words
``paragraph (a)(4)''.
0
B. Removing paragraph (a)(5) and redesignating paragraphs (a)(6)
through (a)(9) as paragraphs (a)(5) through (a)(8), respectively.
0
C. In newly-redesignated paragraph (a)(6)(v), removing the
parentheticals ``(a)(7)(vi)'' and adding, in their place, the
parentheticals ``(a)(6)(vi)''.
0
D. In newly-redesignated paragraphs (a)(6)(vii)(A)(2) and
(a)(6)(viii)(A)(2), removing the parentheticals ``(a)(7)(i)'' and
adding, in their place, the parentheticals ``(a)(6)(i)''.
0
E. In newly-redesignated paragraph (a)(6)(viii)(E), removing the
parentheticals ``(a)(8)'' and adding, in their place, the
parentheticals ``(a)(7)''.
0
F. In newly-redesignated paragraph (a)(7)(i), removing the
parentheticals ``(a)(7)(ix)'' and adding, in their place, the
parentheticals ``(a)(6)(ix)''.
0
G. In newly-designated paragraph (a)(7)(i), removing the parentheticals
``(a)(8)(ii)'' and adding, in their place, the parentheticals
``(a)(7)(ii)''.
0
H. In paragraph (e)(2)(ii), removing the parentheticals ``(a)(8)(i)''
and adding, in their place, the parentheticals ``(a)(7)(i)''.
0
I. In paragraph (e)(3), adding the words ``or Federal default fee''
after the word ``premium''.
0
J. In paragraph (f)(2)(ii), removing the parentheticals ``(a)(8)(i)''
and adding, in their place, the parentheticals ``(a)(7)(i)''.
0
44. Section 682.210 is amended by adding a new paragraph (t) to read as
follows:
Sec. 682.210 Deferment.
* * * * *
(t) Military service deferments for loans for which the first
disbursement is made on or after July, 1, 2001--(1) A borrower who
receives an FFEL Program loan first disbursed on or after July 1,
[[Page 45702]]
2001, may receive a military service deferment for such loans for any
period not to exceed 3 years during which the borrower is--
(i) Serving on active duty during a war or other military operation
or national emergency; or
(ii) Performing qualifying National Guard duty during a war or
other military operation or national emergency.
(2) Serving on active duty during a war or other military operation
or national emergency means service by an individual who is--
(i) A Reserve of an Armed Force ordered to active duty under 10
U.S.C. 12301(a), 12301(g), 12302, 12304 or 12306;
(ii) A retired member of an Armed Force ordered to active duty
under 10 U.S.C. 688 for service in connection with a war or other
military operation or national emergency, regardless of the location at
which such active duty service is performed; or
(iii) Any other member of an Armed Force on active duty in
connection with such emergency or subsequent actions or conditions who
has been assigned to a duty station at a location other than the
location at which member is normally assigned.
(3) Qualifying National Guard duty during a war or other operation
or national emergency means service as a member of the National Guard
on full-time National Guard duty, as defined in 10 U.S.C. 101(d)(5),
under a call to active service authorized by the President or the
Secretary of Defense for a period of more than 30 consecutive days
under 32 U.S.C. 502(f) in connection with a war, other military
operation, or national emergency declared by the President and
supported by Federal funds.
(4) Payments made by or on behalf of a borrower during a period for
which the borrower qualified for a military service deferment are not
refunded.
(5) A borrower is eligible for a military service deferment on a
Federal Consolidation Loan only if the borrower meets the conditions
described in this section and all of the title IV loans included in the
Consolidation Loan were first disbursed on or after July 1, 2001.
(6) As used in this section--
(i) Active duty means active duty as defined in 10 U.S.C. 101(d)(1)
except that it does not include active duty for training or attendance
at a service school;
(ii) Military operation means a contingency operation as defined in
10 U.S.C. 101(a)(13); and
(iii) National emergency means the national emergency by reason of
certain terrorist attacks declared by the President on September 14,
2001, or subsequent national emergencies declared by the President by
reason of terrorist attacks.
* * * * *
0
45. Section 682.211 is amended by:
0
A. Revising paragraph (b)(1).
0
B. In paragraph (f)(6) adding the word ``parent'' immediately after the
words ``in the case of''.
The revisions read as follows:
Sec. 682.211 Forbearance
* * * * *
(b) * * *
(1) The lender and the borrower or endorser agree to the terms of
the forbearance and, unless the agreement was in writing, the lender
sends, within 30 days, a notice to the borrower or endorser confirming
the terms of the forbearance and records the terms of the forbearance
in the borrower's file; or
* * * * *
0
46. Section 682.215 is amended by:
0
A. Revising paragraph (a).
0
B. In paragraph (b), adding, in alphabetical order, a new definition
for Highly qualified.
0
C. Revising paragraph (c)(1)(iii).
0
D. Revising paragraph (c)(3).
0
E. Revising paragraph (c)(4).
0
F. Redesignating paragraphs (c)(5), (c)(6), (c)(7), (c)(8), and (c)(9)
as paragraphs (c)(7), (c)(8), (c)(9), (c)(10), and (c)(11),
respectively.
0
G. Adding a new paragraph (c)(5).
0
H. Adding a new paragraph (c)(6).
0
I. Removing the parentheticals ``(c)(5)'' and adding, in their place,
the parentheticals ``(c)(7)'' in newly redesignated paragraph (c)(8).
0
J. Revising paragraph (d)(1).
0
K. Revising paragraph (d)(2).
0
L. In paragraph (f)(3)(ii), removing the figure ``$5,000'' and adding,
in its place, the figure ``$17,500''.
0
M. In paragraph (f)(3)(ii), removing the parentheticals ``(c)(9)'' and
adding, in its place, the parentheticals ``(c)(11)''.
0
N. In paragraph (g), adding the words ``, or up to $17,500,''
immediately after the figure ``$5,000''.
The revisions and additions read as follows:
Sec. 682.215 Teacher loan forgiveness program.
(a) General. The teacher loan forgiveness program is intended to
encourage individuals to enter and continue in the teaching profession.
For new borrowers, the Secretary repays the amount specified in this
paragraph on the borrower's subsidized and unsubsidized Federal
Stafford Loans, Direct Subsidized Loans, Direct Unsubsidized Loans, and
in certain cases, Federal Consolidation Loans or Direct Consolidation
Loans. The forgiveness program is only available to a borrower who has
no outstanding loan balance under the FFEL Program or the Direct Loan
Program on October 1, 1998 or who has no outstanding loan balance on
the date he or she obtains a loan after October 1, 1998. The borrower
must have been employed as a full-time teacher for five consecutive
complete academic years, at least one of which was after the 1997-1998
academic year, in certain eligible elementary or secondary schools that
serve low-income families. All borrowers eligible for teacher loan
forgiveness may receive loan forgiveness of up to a combined total of
$5,000 on the borrower's eligible FFEL and Direct Loan Program loans.
If the borrower taught for five consecutive years as a highly qualified
mathematics or science teacher in an eligible secondary school or as a
special education teacher in an eligible elementary or secondary
school, the borrower may receive loan forgiveness of up to a combined
total of $17,500 on the borrower's eligible FFEL and Direct Loan
Program loans. The loan for which the borrower is seeking forgiveness
must have been made prior to the end of the borrower's fifth year of
qualifying teaching service.
* * * * *
(b) * * *
Highly qualified means highly qualified as defined in section 9101
of the Elementary and Secondary Education Act of 1965, as amended.
* * * * *
(c) * * *
(1) * * *
(iii) Is listed in the Annual Directory of Designated Low-Income
Schools for Teacher Cancellation Benefits. If this directory is not
available before May 1 of any year, the previous year's directory may
be used. The Secretary considers all elementary and secondary schools
operated by the Bureau of Indian Affairs (BIA) or operated on Indian
reservations by Indian tribal groups under contract with the BIA to
qualify as schools serving low-income students.
* * * * *
(3) In the case of a borrower whose five consecutive complete years
of qualifying teaching service began before October 30, 2004, the
borrower--
(i) May receive up to $5,000 of loan forgiveness if the borrower--
(A) Demonstrated knowledge and teaching skills in reading, writing,
[[Page 45703]]
mathematics, and other areas of the elementary school curriculum, as
certified by the chief administrative officer of the eligible
elementary school in which the borrower was employed; or
(B) Taught in a subject area that is relevant to the borrower's
academic major as certified by the chief administrative officer of the
eligible secondary school in which the borrower was employed.
(ii) May receive up to $17,500 of loan forgiveness if the
borrower--
(A) Taught mathematics or science on a full-time basis in an
eligible secondary school and was a highly qualified mathematics or
science teacher; or
(B) Taught as a special education teacher on a full-time basis to
children with disabilities in either an eligible elementary or
secondary school and was a highly qualified special education teacher
whose special education training corresponded to the children's
disabilities and who has demonstrated knowledge and teaching skills in
the content areas of the elementary or secondary school curriculum.
(4) In the case of a borrower whose five consecutive years of
qualifying teaching service began on or after October 30, 2004, the
borrower--
(i) May receive up to $5,000 of loan forgiveness if the borrower
taught full time in an eligible elementary or secondary school and was
a highly qualified elementary or secondary school teacher.
(ii) May receive up to $17,500 of loan forgiveness if the
borrower--
(A) Taught mathematics or science on a full-time basis in an
eligible secondary school and was a highly qualified mathematics or
science teacher; or
(B) Taught as a special education teacher on a full-time basis to
children with disabilities in either an eligible elementary or
secondary school and was a highly qualified special education teacher
whose special education training corresponded to the children's
disabilities and who has demonstrated knowledge and teaching skills in
the content areas of the elementary or secondary school curriculum.
(5) To qualify for loan forgiveness as a highly qualified teacher,
the teacher must have been a highly qualified teacher for all five
years of eligible teaching service.
(6) For teacher loan forgiveness applications received by the loan
holder on or after July 1, 2006, a teacher in a private, non-profit
elementary or secondary school who is exempt from State certification
requirements (unless otherwise applicable under State law) may qualify
for loan forgiveness under paragraphs (c)(3)(ii) or (c)(4) of this
section if--
(i) The private school teacher is permitted to and does satisfy
rigorous subject knowledge and skills tests by taking competency tests
in applicable grade levels and subject areas;
(ii) The competency tests are recognized by 5 or more States for
the purposes of fulfilling the highly qualified teacher requirements
under section 9101 of the Elementary and Secondary Education Act of
1965; and
(iii) The private school teacher achieves a score on each test that
equals or exceeds the average passing score for those 5 states.
* * * * *
(d) Forgiveness amount. (1) A qualified borrower is eligible for
forgiveness of up to $5,000, or up to $17,500 if the borrower meets the
requirements of paragraphs (c)(3)(ii) or (c)(4)(ii) of this section.
The forgiveness amount is deducted from the aggregate amount of the
borrower's subsidized or unsubsidized Federal Stafford or Federal
Consolidation Loan obligation that is outstanding after the borrower
completes his or her fifth consecutive complete academic year of
teaching as described in paragraph (c) of this section. Only the
outstanding portion of the consolidation loan that was used to repay an
eligible subsidized or unsubsidized Federal Stafford Loan, an eligible
Direct Subsidized Loan, or an eligible Direct Unsubsidized Loan
qualifies for loan forgiveness under this section.
(2) A borrower may not receive more than a total of $5,000, or
$17,500 if the borrower meets the requirements of paragraphs (c)(3)(ii)
or (c)(4)(ii) of this section, in loan forgiveness for outstanding
principal and accrued interest under both this section and under
section 34 CFR 685.217.
* * * * *
0
47. Section 682.300 is amended by:
0
A. In paragraph (c)(3)(i), removing the word ``or'' at the end of the
paragraph.
0
B. In paragraph (c)(3)(ii), removing the punctuation ``.'' and adding,
in its place, the words ``; or''.
0
C. Adding new paragraph (c)(3)(iii).
The addition reads as follows:
Sec. 682.300 Payment of interest benefits on Stafford and
Consolidation Loans.
* * * * *
(c) * * *
(3) * * *
(iii) In the case of a loan disbursed through an escrow agent, 3
days prior to the first day of the period of enrollment or, if the loan
is disbursed after the first day of the period of enrollment, 3 days
after disbursement.
* * * * *
0
48. Section 682.302 is amended by:
0
A. Revising paragraph (b)(1).
0
B. In paragraph (b)(2), adding the words ``or on or after January 1,
2000 for any period prior to April 1, 2006,'' after the words ``on or
after July 1, 1998''.
0
C. Revising paragraph (c).
0
D. Revising paragraph (e).
0
E. Adding a new paragraph (f).
The revisions and addition read as follows:
Sec. 682.302 Payment of special allowance on FFEL Loans.
* * * * *
(b) * * *
(1) Except for non-subsidized Federal Stafford loans disbursed on
or after October 1, 1981, for periods of enrollment beginning prior to
October 1, 1992, or as provided in paragraphs (b)(2), (b)(3), or (e)(1)
of this section, FFEL loans that otherwise meet program requirements
are eligible for special allowance payments.
* * * * *
(c) Rate. (1) Except as provided in paragraph (c)(2), (c)(3), or
(e) of this section, the special allowance rate for an eligible loan
during a 3-month period is calculated by--
(i) Determining the average of the bond equivalent rates of--
(A) The quotes of the 3-month commercial paper (financial) rates in
effect for each of the days in such quarter as reported by the Federal
Reserve in Publication H-15 (or its successor) for such 3-month period
for a loan for which the first disbursement is made on or after January
1, 2000; or
(B) The 91-day Treasury bills auctioned during the 3-month period
for a loan for which the first disbursement is made prior to January 1,
2000;
(ii) Subtracting the applicable interest rate for that loan;
(iii) Adding--
(A)(1) 2.34 percent to the resulting percentage for a Federal
Stafford loan for which the first disbursement is made on or after
January 1, 2000;
(2) 2.64 percent to the resulting percentage for a Federal PLUS
loan for which the first disbursement is made on or after January 1,
2000;
(3) 2.64 percent to the resulting percentage for a Federal
Consolidation Loan that was made based on an application received by
the lender on or after January 1, 2000;
(4) 1.74 percent to the resulting percentage for a Federal Stafford
loan for which the first disbursement is made on or after January 1,
2000 during the
[[Page 45704]]
borrower's in-school, grace, and authorized period of deferment;
(5) 2.8 percent to the resulting percentage for a Federal Stafford
loan for which the first disbursement is made on or after July 1, 1998
and prior to January 1, 2000;
(6) 2.2 percent to the resulting percentage for a Federal Stafford
loan for which the first disbursement is made on or after July 1, 1998
and prior to January 1, 2000, during the borrower's in-school, grace,
and authorized period of deferment;
(7) 2.5 percent to the resulting percentage for a Federal Stafford
loan for which the first disbursement is made on or after July 1, 1995
and prior to July 1, 1998 for interest that accrues during the
borrower's in-school, grace, and authorized period of deferment;
(B) 3.1 percent to the resulting percentage for--
(1) A Federal Stafford Loan made on or after October 1, 1992 and
prior to July 1, 1998, except as provided in paragraph
(c)(1)(iii)(A)(7) of this section;
(2) A Federal SLS Loan made on or after October 1, 1992;
(3) A Federal PLUS Loan made on or after October 1, 1992 and prior
to July 1, 1998;
(4) A Federal PLUS loan made on or after July 1, 1998 and prior to
October 1, 1998, except that no special allowance shall be paid during
any quarter unless the average of the 91-day Treasury bills auctioned
during that quarter, plus 3.1 percent, exceeds the rate determined
under Sec. 682.202(a)(2)(v);
(5) A Federal PLUS loan made on or after October 1, 1998 and prior
to January 1, 2000, except that no special allowance shall be paid
during any quarter unless the rate determined under Sec.
682.202(a)(2)(v) exceeds 9 percent;
(6) A Federal Consolidation Loan for which the application was
received by the lender prior to January 1, 2000, except that no special
allowance shall be paid during any quarter on a loan for which the
application was received on or after October 1, 1998 unless the average
of the bond equivalent rate of the 91-day Treasury bills auctioned
during that quarter, plus 3.1 percent, exceeds the rate determined
under Section 682.202(a)(4)(iv);
(C) 3.25 percent to the resulting percentage, for a loan made on or
after November 16, 1986, but prior to October 1, 1992;
(D) 3.25 percent to the resulting percentage, for a loan made on or
after October 17, 1986 but prior to November 16, 1986, for a period of
enrollment beginning on or after November 16, 1986;
(E) 3.5 percent to the resulting percentage, for a loan made prior
to October 17, 1986, or a loan described in paragraph (c)(2) of this
section; or
(F) 3.5 percent to the resulting percentage, for a loan made on or
after October 17, 1986 but prior to November 16, 1986, for a period of
enrollment beginning prior to November 16, 1986;
(iv) Rounding the result upward to the nearest one-eighth of 1
percent, for a loan made prior to October 1, 1981; and
(v) Dividing the resulting percentage by 4.
(2) The special allowance rate determined under paragraph
(c)(1)(iii)(E) of this section applies to loans made or purchased from
funds obtained from the issuance of an obligation of the--
(i) Maine Educational Loan Marketing Corporation to the Student
Loan Marketing Association pursuant to an agreement entered into on
January 31, 1984; or
(ii) South Carolina Student Loan Corporation to the South Carolina
National Bank pursuant to an agreement entered into on July 30, 1986.
(3)(i) Subject to paragraphs (c)(3)(iii), (c)(3)(iv), and (e) of
this section, the special allowance rate is that provided in paragraph
(c)(3)(ii) of this section for a loan made or guaranteed on or after
October 1, 1980 that was made or purchased with funds obtained by the
holder from--
(A) The proceeds of tax-exempt obligations originally issued prior
to October 1, 1993;
(B) Collections or payments by a guarantor on a loan that was made
or purchased with funds obtained by the holder from obligations
described in paragraph (c)(3)(i)(A) of this section;
(C) Interest benefits or special allowance payments on a loan that
was made or purchased with funds obtained by the holder from
obligations described in paragraph (c)(3)(i)(A) of this section;
(D) The sale of a loan that was made or purchased with funds
obtained by the holders from obligations described in paragraph
(c)(3)(i)(A) of this section; or
(E) The investment of the proceeds of obligations described in
paragraph (c)(3)(i)(A) of this section.
(ii) The special allowance rate for a loan described in paragraph
(c)(3)(i) is one-half of the rate calculated under paragraph (c)(1) of
this section, except that in applying paragraph (c)(1)(iii), 3.5
percent is substituted for the percentages specified therein.
(iii) The special allowance rate applicable to loans described in
paragraph (c)(3)(i) of this section that are made prior to October 1,
1992, may not be less than--
(A) 2.5 percent per year on eligible loans for which the applicable
interest rate is 7 percent;
(B) 1.5 percent per year on eligible loans for which the applicable
interest rate is 8 percent; or
(C) One-half of 1 percent per year on eligible loans for which the
applicable rate is 9 percent.
(iv) The special allowance rate applicable to loans described in
paragraph (c)(3)(i) of this section that are made on or after October
1, 1992, may not be less than 9.5 percent minus the applicable interest
rate.
(4) Loans made or purchased with funds obtained by the holder from
the issuance of tax-exempt obligations originally issued on or after
October 1, 1993, and loans made with funds derived from default
reimbursement collections, interest, or other income related to
eligible loans made or purchased with those tax-exempt funds, do not
qualify for the minimum special allowance rate specified in paragraph
(c)(3)(iii) or (iv) of this section, and are not subject to the 50
percent limitation on the maximum rate otherwise applicable to loans
made with tax-exempt funds.
(5) For purposes of paragraphs (c)(3) and (c)(4), a loan is
purchased with funds described in those paragraphs when the loan is
refinanced in consideration of those funds.
* * * * *
(e) Limits on special allowance payments on loans made or purchased
with funds derived from tax-exempt obligations.
(1) General. (i) The Secretary pays a special allowance on a loan
described in paragraph (c)(3) or (c)(4) of this section that is held by
or on behalf of an Authority only if the loan meets the requirements of
Sec. 682.800.
(ii) The Secretary pays a special allowance at the rate prescribed
in paragraph (c)(1) or (c)(3) of this section on a loan described in
paragraph (c)(3)(i) of this section that is held by or on behalf of an
Authority in accordance with paragraphs (e)(2) through (e)(5) of this
section, as applicable. References to ``loan'' or ``loans'' in
paragraphs (e)(2) through (e)(5) include only loans described in
paragraph (c)(3)(i).
(2) Effect of Refinancing on Special Allowance Payments. Except as
provided in paragraphs (e)(3) through (e)(5) of this section--
(i) The Secretary pays a special allowance at the rate prescribed
in paragraph (c)(3) of this section to an Authority that holds a legal
or equitable
[[Page 45705]]
interest in the loan that is pledged or otherwise transferred in
consideration of--
(A) Funds listed in paragraph (c)(3)(i) of this section;
(B) Proceeds of a tax-exempt refunding obligation that refinances a
debt that--
(1) Was first incurred pursuant to a tax-exempt obligation
originally issued prior to October 1, 1993;
(2) Has been financed continuously by tax-exempt obligation.
(ii) The Secretary pays a special allowance to an Authority that
holds a legal or equitable interest in the loan that is pledged or
otherwise transferred in consideration of funds other than those
specified in paragraph (e)(2)(i) of this section either--
(A) At the rate prescribed in paragraph (c)(1) of this section,
if--
(1) The prior tax-exempt obligation is retired; or
(2) The prior tax-exempt obligation is defeased by means of
obligations that the Authority certifies in writing to the Secretary
bears a yield that does not exceed the yield restrictions of section
148 of the Internal Revenue Code and the regulations thereunder, or
(B) At the rate prescribed in paragraph (c)(3) of this section.
(3) Loans affected by transactions or events after September 30,
2004. The Secretary pays a special allowance to an Authority at the
rate prescribed in paragraph (c)(1) of this section if, after September
30, 2004--
(i) The loan is refinanced with funds other than those listed in
paragraph (e)(2)(i) of this section;
(ii) The loan is sold or transferred to any other holder; or
(iii)(A) The loan is financed by a tax-exempt obligation included
in the sources in paragraph (e)(2)(i), and
(B) That obligation matures, is refunded, is defeased, or is
retired, whichever occurs earliest.
(4) Loans Affected by Transactions After February 7, 2006. Except
as provided in paragraph (e)(5) of this section, the Secretary pays a
special allowance at the rate prescribed in paragraph (c)(1) of this
section on any loan--
(i) That was made or purchased on or after February 8, 2006, or
(ii) That was not earning, on February 8, 2006, a quarterly rate of
special allowance determined under paragraph (c)(3) of this section.
(5) Loans affected by transactions after December 30, 2010. (i) The
Secretary pays a special allowance to a holder described in paragraph
(e)(5)(ii) of this section at the rate prescribed in paragraph (c)(3)
of this section only on a loan--
(A) That was made or purchased prior to December 31, 2010, or
(B) That was earning, before December 31, 2010, a quarterly rate of
special allowance determined under paragraph (c)(3) of this section.
(ii) A holder for purposes of this paragraph is an entity that--
(A) On February 8, 2006 and during the quarter for which special
allowance is determined under this paragraph--
(1) Is a unit of State or local government or a private nonprofit
entity, and
(2) Is not owned or controlled by, or under common ownership or
control by, a for-profit entity; and
(B) In the most recent quarterly special allowance payment prior to
September 30, 2005, held, directly or through any subsidiary,
affiliate, or trustee, a total unpaid balance of principal of
$100,000,000 or less for which special allowance was determined and
paid under paragraph (c)(3) of this section.
(f) As used in this section--
(1) A tax-exempt obligation is an obligation the income of which is
exempt from taxation under the Internal Revenue Code of 1986 (26
U.S.C.);
(2) An obligation is originally issued at the time that an
Authority issues the obligation to obtain funds to make loans or to
purchase loans that an Authority does not hold or have any interest in;
(3) A loan is refinanced when an Authority that has pledged the
loan as collateral for an obligation of that Authority retains an
interest in the loan, but causes the loan to be released from the lien
of that obligation and pledged as collateral for a different obligation
of that Authority.
(4) References to an Authority include a successor entity that may
not qualify as an Authority under Sec. 682.200(b).
* * * * *
0
49. Section 682.305 is amended by:
0
A. In paragraph (a)(3)(i)(A)(2), removing the punctuation ``.'' at the
end of the paragraph and adding, in its place, the words ``; and''.
0
B. Adding a new paragraph (a)(3)(i)(A)(3).
0
C. Revising paragraph (c)(1).
0
D. Adding a new paragraph (d).
The revisions and additions read as follows:
Sec. 682.305 Procedures for payment of interest benefits and special
allowance and collection of origination and loan fees.
(a) * * *
(3)(i)(A) * * *
(3) The amount of excess interest, as calculated in accordance with
paragraph (d) of this section.
* * * * *
(c) Independent audits. (1) A lender (other than a school lender)
originating or holding more than $5 million in FFEL loans during its
fiscal year, and a school lender under Sec. 682.601 that originates or
holds any FFEL loans during its fiscal year, must submit an independent
annual compliance audit for that year, conducted by a qualified
independent organization or person. The Secretary may, following
written notice, suspend the payment of interest benefits and special
allowance to a lender that does not submit its audit within the time
period prescribed in paragraph (c)(2) or this section.
* * * * *
(d) Recovery of excess interest paid by the Secretary.
(1) For any loan for which the first disbursement of principal is
made on or after April 1, 2006, the Secretary collects the amount of
excess interest paid to a lender on a quarterly basis when the
applicable interest rate on a loan for each quarter exceeds the special
allowance support level in paragraph (d)(2) of this section for the
loan. Excess interest is calculated and recovered each quarter by
subtracting the special allowance support level from the applicable
interest, multiplying the result by the average daily principal balance
of the loan (not including unearned interest added to principal) during
the quarter, and dividing by four.
(2) The term special allowance support level means a number
expressed as a percentage equal to the sum of--
(i) The average of the bond equivalent rates of the quotes of the
3-month commercial paper (financial) rates in effect for each of the
days in such quarter as reported by the Federal Reserve in Publication
H-15 (or its successor) for such 3-month period; plus
(ii) 2.34 percent for a Federal Stafford loan in repayment;
(iii) 1.74 percent for a Federal Stafford loan during the in-
school, grace, and deferment periods; or
(iv) 2.64 percent for a Federal PLUS or Consolidation Loan.
* * * * *
0
50. Section 682.401 is amended by:
0
A. In paragraph (b)(3)(i), removing the word ``SLS'' and inserting, in
its place, the words ``PLUS Loan''.
0
B. Amending the first sentence of paragraph (b)(4) by adding the words
``and Sec. 668.35(i) for a borrower who fraudulently obtained title
IV, HEA program assistance'' after the word ``obtained''.
0
C. In paragraph (b)(4)(iv), removing the figure ``six'' and inserting,
in its place, the figure ``three''.
[[Page 45706]]
0
D. In paragraph (b)(5)(ii) introductory text, by inserting the word
``parent'' before the word ``PLUS''.
0
E. Revising paragraphs (b)(10)(i), (ii), (iii), (iv), (v), (vi)
introductory text, (vi)(A), and (vi)(B) introductory text.
0
F. In paragraph (b)(14)(i), removing the word ``and''.
0
G. In paragraph (b)(14)(ii), removing the punctuation ``.'' and adding
the words ``and before July 1, 2006; and'' immediately after the date
``October 1, 1993''.
0
H. Adding a new paragraph (b)(14)(iii).
0
I. In paragraph (b)(19)(i)(F), by adding the words ``unpaid refunds,
identity theft'' after the word ``certification,''.
0
J. Revising paragraph (b)(27).
0
K. Adding a new paragraph (b)(29).
0
L. Adding a new paragraph (f).
The revisions and additions read as follows:
Sec. 682.401 Basic program agreement.
* * * * *
(b) * * *
(10) Insurance premiums and Federal default fees. (i) Except for a
Consolidation Loan or SLS or PLUS loans refinanced under Sec. 682.209
(e) or (f), a guaranty agency:
(A) May charge the lender an insurance premium for Stafford, SLS,
or PLUS loans it guarantees prior to July 1, 2006; and
(B) Must collect, either from the lender or by payment from any
other non-Federal source, a Federal default fee for any Stafford or
PLUS loans it guarantees on or after July 1, 2006, to be deposited into
the Federal Fund under Sec. 682.419.
(ii) The guaranty agency may not use the Federal default fee for
incentive payments to lenders, and may only use the insurance premium
or the Federal default fee for costs incurred in guaranteeing loans or
in the administration of the agency's loan guarantee program, as
specified in Sec. 682.410(a)(2) or Sec. 682.419(c).
(iii) If a lender charges the borrower an insurance premium or
Federal default fee, the lender must deduct the charge proportionately
from each disbursement of the borrower's loan proceeds.
(iv) The amount of the insurance premium or Federal default fee, as
applicable--
(A) May not exceed 3 percent of the principal balance for a loan
disbursed on or before June 30, 1994;
(B) May not exceed 1 percent of the principal balance for a loan
disbursed on or after July 1, 1994;
(C) Shall be 1 percent of the principal balance of a loan
guaranteed on or after July 1, 2006.
(v) If the circumstances specified in paragraph (vi) exist, the
guaranty agency shall refund to the lender any insurance premium or
Federal default fee paid by the lender.
(vi) The lender shall refund to the borrower by a credit against
the borrower's loan balance the insurance premium or Federal default
fee paid by the borrower on a loan under the following circumstances:
(A) The insurance premium or Federal default fee attributable to
each disbursement of a loan must be refunded if the loan check is
returned uncashed to the lender.
(B) The insurance premium or Federal default fee, or an appropriate
prorated amount of the premium or fee, must be refunded by application
to the borrower's loan balance if--
* * * * *
(14) * * *
(iii) Not more than 97 percent of the unpaid principal balance of
each loan guaranteed for loans first disbursed on or after July 1,
2006.
* * * * *
(27) Consolidation of defaulted FFEL loans.
(i) A guaranty agency may charge collection costs in an amount not
to exceed 18.5 percent of the outstanding principal and interest on a
defaulted FFEL Program loan that is paid off by a Federal Consolidation
loan.
(ii) Prior to October 1, 2006, when returning the proceeds from the
consolidation of a defaulted loan to the Secretary, a guaranty agency
may only retain the amount charged to the borrower pursuant to this
paragraph.
(iii) On or after October 1, 2006, when returning proceeds to the
Secretary from the consolidation of a defaulted loan, a guaranty agency
that charged the borrower collection costs must remit an amount that
equals the lesser of the actual collection costs charged or 8.5 percent
of the outstanding principal and interest of the loan.
(iv) On or after October 1, 2009, when returning proceeds to the
Secretary from the consolidation of a defaulted loan that is paid off
with excess consolidation proceeds as defined in paragraph
(b)(27)(ii)(D) of this section, a guaranty agency must remit the entire
amount of collection costs repaid through the consolidation loan
pursuant to paragraph (b)(27)(ii) of this section.
(v) The term excess consolidation proceeds means, for any Federal
fiscal year beginning on or after October 1, 2009, the amount of
Consolidation Loan proceeds received for defaulted loans under the FFEL
Program that exceed 45 percent of the agency's total collections on
defaulted loans in that Federal fiscal year.
* * * * *
(29) Plans to Reduce Consolidation of defaulted loans. A guaranty
agency shall establish and submit to the Secretary for approval,
procedures to ensure that consolidation loans are not an excessive
proportion of the guaranty agency's recoveries on defaulted loans.
* * * * *
(f) College Access Initiative. (1) A guaranty agency shall
establish a plan to promote access to postsecondary education by--
(i) Providing the Secretary and the public with information on
Internet web links and a comprehensive listing of postsecondary
education opportunities, programs, publications and other services
available in the State, or States for which the guaranty agency serves
as the designated guaranty agency;
(ii) Promoting and publicizing information for students and
traditionally underrepresented populations on college planning, career
preparation, and paying for college in coordination with other entities
that provide or distribute such information in the State, or States for
which the guaranty agency serves as the designated guaranty agency;
(2) The activities required by this section may be funded from the
guaranty agency's Operating Fund in accordance with Sec.
682.423(c)(1)(vii) or from funds remaining in restricted accounts
established pursuant to section 422(h)(4) of the HEA.
(3) The guaranty agency shall ensure that the information required
by this subsection is available to the public by November 5, 2006 and
is--
(i) Free of charge; and
(ii) Available in print.
* * * * *
0
51. Section 682.402 is amended by:
0
A. Amending paragraph (a)(4) by removing the words ``paragraphs
(e)(1)(ii)'' and, inserting in their place, the words ``paragraph
(e)(1)(ii) or (iii)''.
0
B. Revising paragraph (e)(1)(i) introductory text.
0
C. Adding a new paragraph (e)(1)(i)(C).
0
D. Adding a new paragraph (e)(1)(iii).
0
E. Redesignating paragraphs (e)(3)(v) and (e)(3)(vi) as paragraphs
(e)(3)(vi) and (e)(3)(vii), respectively.
0
F. Adding a new paragraph (e)(3)(v).
0
G. In the heading of paragraph (e)(7), adding the words ``that he or
she was a victim of the crime of identity theft'' after the word
``note.''
0
H. In paragraph (e)(7)(ii)(C)(2), removing the punctuation ``.'', and
adding, in its place, the words ``; and''.
[[Page 45707]]
0
I. In paragraph (e)(7)(ii), adding a new paragraph (e)(7)(ii)(D).
0
J. In the heading of the paragraph (e)(9), adding the words ``that he
or she was a victim of the crime of identity theft,'' after the word
``note,''.
0
K. In paragraph (e)(9)(ii)(B), removing the word ``and''.
0
L. In paragraph (e)(9)(ii)(C), removing the punctuation ``.'', and
adding, in its place, the words ``; and''.
0
M. In paragraph (e)(9)(ii), adding a new paragraph (e)(9)(ii)(D).
0
N. Redesignating paragraph (e)(14) as paragraph (e)(15).
0
O. Adding a new paragraph (e)(14).
The revisions and additions read as follows:
Sec. 682.402 Death, disability, closed school, false certification,
unpaid refunds, and bankruptcy payments.
* * * * *
(e) False certification by a school of a student's eligibility to
borrower and unauthorized disbursements.
(1) General. (i) The Secretary reimburses the holder of a loan
received by a borrower on or after January 1, 1986, and discharges a
current or former borrower's obligation with respect to the loan in
accordance with the provisions of paragraph (e) of this section, if the
borrower's (or the student for whom a parent received a PLUS loan)
eligibility to receive the loan was falsely certified by an eligible
school. On or after July 1, 2006, the Secretary reimburses the holder
of a loan, and discharges a borrower's obligation with respect to the
loan in accordance with the provisions of paragraph (e) of this
section, if the borrower's eligibility to receive the loan was falsely
certified as a result of a crime of identity theft. For purposes of a
false certification discharge, the term ``borrower'' includes all
endorsers on a loan. A student's or other individual's eligibility to
borrow shall be considered to have been falsely certified by the school
if the school--
* * * * *
(C) Certified the eligibility of an individual for an FFEL Program
loan as a result of the crime of identity theft committed against the
individual, as that crime is defined in Sec. 682.402(e)(14).
* * * * *
(iii) If a loan was made as a result of the crime of identity theft
that was committed by an employee or agent of the lender, or if at the
time the loan was made, an employee or agent of the lender knew of the
identity theft of the individual named as the borrower--
(A) The Secretary does pay reinsurance, and does not reimburse the
holder, for any amount disbursed on the loan; and
(B) Any amounts received by a holder as interest benefits and
special allowance payments with respect to the loan must be refunded to
the Secretary, as provided in paragraphs (e)(8)(ii)(B)(4) and
(e)(10)(ii)(D) of this section.
* * * * *
(3) * * *
(v) In the case of an individual who is requesting a discharge of a
loan because the individual's eligibility was falsely certified as a
result of a crime of identity theft committed against the individual--
(A) Certify that the individual did not sign the promissory note,
or that any other means of identification used to obtain the loan was
used without the authorization of the individual claiming relief;
(B) Certify that the individual did not receive or benefit from the
proceeds of the loan with knowledge that the loan had been made without
the authorization of the individual;
(C) Provide a copy of a local, State, or Federal court verdict or
judgment that conclusively determines that the individual who is named
as the borrower of the loan was the victim of a crime of identify
theft;
(D) If the judicial determination of the crime does not expressly
state that the loan was obtained as a result of the crime, provide--
(1) Authentic specimens of the signature of the individual, as
provided in paragraph (e)(3)(iii)(B), or other means of identification
of the individual, as applicable, corresponding to the means of
identification falsely used to obtain the loan; and
(2) A statement of facts that demonstrate, to the satisfaction of
the Secretary, that eligibility for the loan in question was falsely
certified as a result of the crime of identity theft committed against
that individual.
* * * * *
(7) * * *
(ii) * * *
(D) Within 30 days, demand payment in full from the perpetrator of
the identity theft committed against the individual, and if payment is
not received, pursue collection action thereafter against the
perpetrator.
* * * * *
(9) * * *
(ii) * * *
(D) Within 30 days, demand payment in full from the perpetrator of
the identity theft committed against the individual, and if payment is
not received, pursue collection action thereafter against the
perpetrator.
* * * * *
(14) Identity theft. (i) The unauthorized use of the identifying
information of another individual that is punishable under 18 U.S.C.
1028, 1029, or 1030, or substantially comparable State or local law.
(ii) Identifying information includes, but is not limited to--
(A) Name, Social Security number, date of birth, official State or
government issued driver's license or identification number, alien
registration number, government passport number, and employer or
taxpayer identification number;
(B) Unique biometric data, such as fingerprints, voiceprint, retina
or iris image, or unique physical representation;
(C) Unique electronic identification number, address, or routing
code; or
(D) Telecommunication identifying information or access device (as
defined in 18 U.S.C. 1029(e)).
* * * * *
0
52. Section 682.404 is amended by:
0
A. Redesignating paragraph (a)(1)(iii)(D) as paragraph (a)(1)(iii)(E).
0
B. Adding a new paragraph (a)(1)(iii)(D).
0
C. Adding a new paragraph (a)(2)(iii).
The additions read as follows:
Sec. 682.404 Federal reinsurance agreement.
(a) * * *
(1) * * *
(iii) * * *
(D) For loans that meet the definition of exempt claims in
paragraph (a)(2)(iii) of this section;
(2) * * *
(iii) Exempt claims means claims with respect to loans for which it
is determined that the borrower (or student on whose behalf a parent
has borrowed), without the lender's or the institution's knowledge at
the time the loan was made, provided false or erroneous information or
took actions that caused the borrower or the student to be ineligible
for all of a portion of the loan or for interest benefits on the loan.
* * * * *
0
53. Section 682.405 is amended by:
0
A. Revising paragraphs (a)(1) and (2).
0
B. Revising paragraph (b)(1).
0
C. Redesignating paragraphs (b)(2) and (b)(3) as paragraphs (b)(3) and
(b)(4), respectively.
0
D. In newly redesignated paragraph (b)(4), removing the words ``12
consecutive'' both times they appear and adding, in their place, the
figure ``9''.
0
E. Add new paragraph (b)(2).
The revisions read as follows:
Sec. 682.405 Loan rehabilitation agreement.
(a) General. (1) A guaranty agency that has a basic program
agreement must
[[Page 45708]]
enter into a loan rehabilitation agreement with the Secretary. The
guaranty agency must establish a loan rehabilitation program for all
borrowers with an enforceable promissory note for the purpose of
rehabilitating defaulted loans, except for loans for which a judgment
has been obtained, loans on which a default claim was filed under Sec.
682.412, and loans on which the borrower has been convicted of, or has
pled nolo contendere or guilty to, a crime involving fraud in obtaining
title IV, HEA program assistance, so that the loan may be purchased, if
practicable, by an eligible lender and removed from default status.
(2) A loan is considered to be rehabilitated only after--
(i) The borrower has made and the guaranty agency has received nine
of the ten payments required under a monthly repayment agreement.
(A) Each of which payments is--
(1) Made voluntarily;
(2) In the full amount required; and
(3) Received within 20 days of the due date for the payment, and
(B) All nine payments are received within a 10-month period that
begins with the month in which the first required due date falls and
ends with the ninth consecutive calendar month following that month,
and
(ii) The loan has been sold to an eligible lender.
(b) * * *
(1) A borrower may request rehabilitation of the borrower's
defaulted loan held by the guaranty agency. In order to be eligible for
rehabilitation of the loan, the borrower must voluntarily make at least
nine of the ten payments required under a monthly repayment agreement.
(i) Each of which payment is--
(A) Made voluntarily,
(B) In the full amount required, and
(C) Received within 20 days of the due date for the payment, and
(ii) All nine payments are received within a ten-month period that
begins with the month in which the first required due date falls and
ends with the ninth consecutive calendar month following that month.
(2) For the purposes of this section, payment in the full amount
required means payment of an amount that is reasonable and affordable,
based on the borrower's total financial circumstances, as agreed to by
the borrower and the agency. Voluntary payments are those made directly
by the borrower and do not include payments obtained by Federal offset,
garnishment, income or asset execution, or after a judgment has been
entered on a loan. A guaranty agency must attempt to secure a lender to
purchase the loan at the end of the 9- or 10-month payment period as
applicable.
Sec. 682.406 [Amended]
0
54. Section 682.406 is amended in paragraph (a)(9) by removing the
figure ``45'' and adding, in its place, the figure ``30''.
0
55. Section 682.408 is amended by revising paragraph (c) to read as
follows:
Sec. 682.408 Loan disbursement through an escrow agent.
* * * * *
(c) Transmittal of FFEL loan proceeds by an escrow agent. The
escrow agent shall transmit Stafford and PLUS loan proceeds received
from a lender under this section to a school in accordance with the
requirements of Sec. 682.207(b)(1)(ii) and (iv) not later than 10 days
after the agent receives the funds from the lender.
* * * * *
Sec. 682.410 [Amended]
0
56. Section 682.410 is amended by:
0
A. In paragraph (a)(1)(i), adding the words ``and Federal default
fees'' after the word ``premiums''.
0
B. In paragraph (a)(2)(vi), adding the words ``and Federal default
fees'' after the word ``premiums''.
0
C. In paragraph (b)(9)(i)(A), removing the figure ``10'' and adding, in
its place, the figure ``15''.
0
57. Section 682.415 is amended by revising paragraph (a)(1) to read as
follows:
Sec. 682.415 Special insurance and reinsurance rules.
(a)(1) A lender or lender servicer (as an agent for an eligible
lender) designated for exceptional performance under paragraph (b) of
this section shall receive reimbursement at the applicable rate under
paragraphs (a)(1)(i) or (a)(1)(ii) of this section on all claims
submitted for insurance during the 12-month period following the date
the lender or lender servicer and appropriate guaranty agencies receive
notification of the designation of the eligible lender or lender
servicer under paragraph (b) of this section. A guaranty agency or a
guaranty agency servicer (as an agent for a guaranty agency) designated
for exceptional performance under paragraph (c) of this section shall
receive the applicable reinsurance rate under section 428(c)(1) of the
Act on all claims submitted for payments by the guaranty agency or
guaranty agency servicer during the 12-month period following the date
the guaranty agency receives notification of its designation, or its
servicer's designation, under paragraph (c) of this section. A notice
of designation for exceptional performance under this section is deemed
to have been received by the lender, servicer, or guaranty agency no
later than 3 days after the date the notice is mailed, unless the
lender, servicer, or guaranty agency is able to prove otherwise. A
lender or lender servicer designated for exceptional performance shall
receive reimbursement at the rate of--
(i) 100 percent of the unpaid principal and interest for default
claims submitted to the guaranty agency for payment before July 1,
2006; and
(ii) 99 percent of the unpaid principal and interest for default
claims submitted to the guaranty agency for payment on or after July 1,
2006.
* * * * *
Sec. 682.419 [Amended]
0
58. Section 682.419 is amended by:
0
A. In paragraph (b)(2), adding the words ``or Federal default fees''
after the word ``premiums''.
0
B. In paragraph (c)(7), by adding the words ``or Federal default fees''
after the word ``premiums''.
0
59. Section 682.601 is revised to read as follows:
Sec. 682.601 Rules for a school that makes or originates loans.
(a) General. To make or originate loans under the FFEL program, a
school--
(1) Must employ at least one person whose full-time
responsibilities are limited to the administration of programs of
financial aid for students attending the school;
(2) Must not be a home study school;
(3) Must not--
(i) Make a loan to any undergraduate student;
(ii) Make a loan other than a Federal Stafford loan to a graduate
or professional student; or
(iii) Make a loan to a borrower who is not enrolled at that school;
(4) Must award any contract for financing, servicing, or
administration of FFEL loans on a competitive basis;
(5) Must offer loans that carry an origination fee or an interest
rate, or both, that are less than the fee or rate authorized under the
provisions of the Act;
(6) Must not have a cohort default rate, as calculated under
subpart M of 34 CFR part 668, greater than 10 percent;
(7) Must, for any fiscal year beginning on or after July 1, 2006 in
which the school engages in activities as an eligible lender, submit a
compliance audit conducted in accordance with the requirements of 34
CFR 682.305(c)(2);
[[Page 45709]]
(8) Must use any proceeds from special allowance payments and
interest payments from borrowers, interest subsidy payments, and any
proceeds from the sale or other disposition of loans (exclusive of
return of principal, any financing costs incurred by the school to
acquire funds to make the loans, and the cost of charging origination
fees or interest rates at less than the fees or rates authorized under
the HEA) for need-based grants which does not include providing
origination fees or interest rates at less than the fee or rate
authorized under the provisions of the Act; and
(9) Must have met the requirements to be an eligible lender as of
February 7, 2006, and must have made loans on or before April 1, 2006.
(b) An eligible school lender may use a portion of the proceeds
described in paragraph (a)(8) of this section for reasonable and direct
administrative expenses. Reasonable and direct administrative expenses
are those that are incurred by the school and are directly related to
the school's performance of actions required of the school under the
Act or the regulations in this part. Reasonable and direct
administrative expenses do not include financing and similar costs such
as costs paid by the school to obtain funding to make FFEL loans, the
cost of paying Federal default fees on behalf of borrowers, or the cost
of providing origination fees or interest rates at less than the fee or
rate authorized under the provisions of the Act.
(c) An eligible school lender must ensure that the proceeds
described in paragraph (a)(8) of this section are used to supplement,
and not to supplant, non-Federal funds that would otherwise be used for
need-based grant programs.
(Authority: 20 U.S.C. 1077, 1078-1, 1078-2, 1078-3, 1082, 1085)
Sec. 682.603 [Amended]
0
60. Section 682.603 is amended, in paragraph (h), by adding the word
``parent'' immediately after the words ``in the case of a''.
* * * * *
0
61. Section 682.604 is amended by:
0
A. In paragraph (c)(3) introductory text, adding the word ``parent''
immediately after the words ``in the case of''.
0
B. Revising paragraph (b)(1).
0
C. In paragraph (c)(2)(i), removing the words ``Sec.
682.207(b)(1)(v)(C)(1) and (D)(1)'' and adding, in their place, the
words ``Sec. 682.207(b)(1)(v)(C)(1) and (D)''.
0
D. In paragraphs (c)(5)(i) and (c)(10)(i)(B), adding the word ``or''
after the punctuation ``;''.
0
E. In paragraphs (c)(5)(ii) and (c)(10)(ii), removing the words ``;
or'' and adding, in their place, the punctuation ``.''.
0
F. Removing paragraphs (c)(5)(iii) and (c)(10)(iii).
0
G. In paragraph (h) introductory text, removing the words ``, or in the
case of a student attending a foreign school,''.
The revision reads as follows:
Sec. 682.604 Processing the borrower's loan proceeds and counseling
borrowers.
* * * * *
(b) Releasing loan proceeds. (1)(i) Except as provided in Sec.
682.207(b)(1)(v)(C)(1) and (D), the proceeds of a Stafford or PLUS loan
disbursed using electronic transfer of funds must be sent directly to
the school by the lender.
(ii) Upon notification by a lender under Sec. 682.207(b)(2)(iv)
that it has disbursed a loan directly to a borrower as provided under
Sec. 682.207(b)(1)(v)(C)(1) and (D), the institution must immediately
notify the lender if the student is no longer eligible to receive the
disbursement.
* * * * *
PART 685--WILLIAM D. FORD FEDERAL DIRECT LOAN PROGRAM
0
62. The authority citation for part 685 continues to read as follows:
Authority: 20 U.S.C. 1087a et seq., unless otherwise noted.
0
63. Section 685.100 is amended by:
0
A. In paragraph (a)(3), adding the words ``and to graduate or
professional students'' immediately after the words ``dependent
students.''
0
B. Revising paragraph (c)(2).
The revision reads as follows:
Sec. 685.100 The William D. Ford Federal Direct Loan Program.
* * * * *
(c) * * *
(2) A borrower with a loan made under the Federal Family Education
Loan Program who--
(i) Is not able to obtain a Federal Consolidation Loan;
(ii) Is not able to obtain a Federal Consolidation Loan with
income-sensitive repayment terms that are satisfactory to the borrower;
or
(iii) Has a Federal Consolidation Loan that has been submitted by
the lender to the guaranty agency for default aversion, and wishes to
consolidate the Federal Consolidation Loan into the Direct Loan Program
for the purpose of obtaining an income contingent repayment plan.
* * * * *
0
64. Section 685.101 is amended by revising paragraph (b) to read as
follows:
Sec. 685.101 Participation in the Direct Loan Program.
* * * * *
(b) An eligible undergraduate student who is enrolled at a school
participating in the Direct Loan Program may borrow under the Federal
Direct Stafford/Ford Loan and Federal Direct Unsubsidized Stafford/Ford
Loan Programs. An eligible graduate or professional student enrolled at
a school participating in the Direct Loan Program may borrow under the
Federal Direct Stafford/Ford Loan, Federal Direct Unsubsidized
Stafford/Ford Loan, and Federal Direct PLUS Programs. An eligible
parent of an eligible dependent student enrolled at a school
participating in the Direct Loan Program may borrow under the Federal
Direct PLUS Program.
* * * * *
0
65. Section 685.102(b) is amended by:
0
A. Revising the definition of estimated financial assistance.
0
B. Revising the definition of Federal Direct Consolidation Loan
Program.
0
C. Revising the definition of Federal Direct PLUS Program.
0
D. In paragraph (2) of the definition of Satisfactory repayment
arrangement, removing the reference to ``685.220(d)(1)(ii)(E)'' and
adding, in its place, a reference to ``685.220(d)(1)(ii)(C)''.
The revisions read as follows:
Sec. 685.102 Definitions.
* * * * *
(b) * * *
Estimated financial assistance. (1) The estimated amount of
assistance for a period of enrollment that a student (or a parent on
behalf of a student) will receive from Federal, State, institutional,
or other sources, such as scholarships, grants, net earnings from need-
based employment, or loans, including but not limited to--
(i) Except as provided in paragraph (2)(iv) of this definition,
veterans' educational benefits paid under chapters 30 (Montgomery GI
Bill--Active Duty), 31 (Vocational Rehabilitation and Employment
Program), 32 (Veterans' Educational Assistance Program), and 35
(Dependents' Educational Assistance Program) of title 38 of the United
States Code;
(ii) Educational benefits paid under chapters 31 (National Call to
Service), 1606 (Montgomery GI Bill--Selected Reserve), and 1607
(Reserve Educational Assistance Program) of title 10 of the United
States Code;
[[Page 45710]]
(iii) Reserve Officer Training Corps (ROTC) scholarships and
subsistence allowances awarded under chapter 2 of title 10 and chapter
2 of title 37 of the United States Code;
(iv) Benefits paid under Public Law 96-342, section 903:
Educational Assistance Pilot Program;
(v) Any educational benefits paid because of enrollment in a
postsecondary education institution, or to cover postsecondary
education expenses;
(vi) Fellowships or assistantships, except non-need-based
employment portions of such awards;
(vii) Insurance programs for the student's education;
(viii) The estimated amount of other Federal student financial aid,
including but not limited to a Federal Pell Grant, Academic
Competitiveness Grant, National SMART Grant, campus-based aid, and the
gross amount (including fees) of subsidized and unsubsidized Federal
Stafford Loans or subsidized and unsubsidized Direct Stafford Loans and
Federal PLUS or Direct PLUS Loans; and
(ix) Except as provided in paragraph (2)(iii) of this definition,
national service education awards or post-service benefits under title
I of the National and Community Service Act of 1990 (AmeriCorps).
(2) Estimated financial assistance does not include--
(i) Those amounts used to replace the expected family contribution
(EFC), including the amounts of any unsubsidized Federal Stafford Loans
or Direct Stafford Loans, Federal PLUS or Direct PLUS Loans, and non-
federal non-need-based loans, including private, state-sponsored, and
institutional loans. However, if the sum of the loan amounts received
that are being used to replace the student's EFC exceed the EFC, the
excess amount must be treated as estimated financial assistance;
(ii) Federal Perkins loan and Federal Work-Study funds that the
student has declined;
(iii) Non-need-based employment earnings;
(iv) For the purpose of determining eligibility for a Direct
Subsidized Loan, veterans' educational benefits paid under chapter 30
of title 38 of the United States Code (Montgomery GI Bill--Active Duty)
and national service education awards or post-service benefits under
title I of the National and Community Service Act of 1990 (AmeriCorps);
(v) Any portion of the estimated financial assistance described in
paragraph (1) of this definition that is included in the calculation of
the student's EFC; and
(vi) Assistance not received under this part if that assistance is
designated to offset all or a portion of a specific amount of the cost
of attendance and that component is excluded from the cost of
attendance as well. If that assistance is excluded from either
estimated financial assistance or cost of attendance, it must be
excluded from both.
* * * * *
Federal Direct Consolidation Loan Program: (1) A loan program
authorized by title IV, part D of the Act that provides loans to
borrowers who consolidate certain Federal educational loan(s), and one
of the components of the Direct Loan Program. Loans made under this
program are referred to as Direct Consolidation Loans.
(2) The term ``Direct Subsidized Consolidation Loan'' refers to the
portion of a Direct Consolidation Loan attributable to certain
subsidized title IV education loans that were repaid by the
consolidation loan. Interest is not charged to the borrower during
deferment periods, or, for a borrower whose consolidation application
was received before July 1, 2006, during in-school and grace periods.
(3) The term ``Direct Unsubsidized Consolidation Loan'' refers to
the portion of a Direct Consolidation Loan attributable to unsubsidized
title IV education loans, certain subsidized title IV education loans,
and certain other Federal education loans that were repaid by the
consolidation loan. The borrower is responsible for the interest that
accrues during any period.
(4) The term ``Direct PLUS Consolidation Loan'' refers to the
portion of a Direct Consolidation Loan attributable to Direct PLUS
Loans, Direct PLUS Consolidation Loans, Federal PLUS Loans, and Parent
Loans for Undergraduate Students that were repaid by the consolidation
loan. The borrower is responsible for the interest that accrues during
any period.
* * * * *
Federal Direct PLUS Program: A loan program authorized by title IV,
Part D of the Act that is one of the components of the Federal Direct
Loan Program. The Federal Direct PLUS Program provides loans to parents
of dependent students attending schools that participate in the Direct
Loan Program. The Federal Direct PLUS Program also provides loans to
graduate or professional students attending schools that participate in
the Direct Loan Program. The borrower is responsible for the interest
that accrues during any period. Loans made under this program are
referred to as Direct PLUS Loans.
* * * * *
0
66. Section 685.200 is amended by:
0
A. In paragraph (a), revising the paragraph heading to read as set
forth below.
0
B. Redesignating paragraphs (b), (c), and (d) as paragraphs (c), (d),
and (e), respectively.
0
C. Adding a new paragraph (b).
0
D. In newly redesignated paragraph (c), revising the paragraph heading
to read as set forth below and adding a new paragraph (c)(3).
0
E. In newly redesignated paragraph (c)(1)(vii)(B) introductory text,
removing the reference to ``(b)(1)(vii)(A)'' and adding, in its place,
a reference to ``(c)(1)(vii)(A)''.
0
F. In newly redesignated paragraph (c)(1)(vii)(C), removing the
reference to ``(b)(1)(vii)(A)'' adding, in its place, a reference to
``(c)(1)(vii)(A)''.
0
G. In newly redesignated paragraph (c)(2), removing the reference to
``(b)(1)'' and adding, in its place, a reference to ``(c)(1)''.
0
H. In newly redesignated paragraph (d), by removing the reference to
``685.220(d)(1)(ii)(F)'' and adding, in its place, a reference to
``685.220(d)(1)(ii)(D)''.
0
I. Revising newly redesignated paragraph (e).
The additions read as follows:
Sec. 685.200 Borrower eligibility.
(a) Student Direct Subsidized or Direct Unsubsidized borrower.
* * * * *
(b) Student PLUS borrower. (1) A graduate or professional student
is eligible to receive a Direct PLUS Loan originated on or after July
1, 2006, if the student meets the following requirements--
(i) The student is enrolled, or accepted for enrollment, on at
least a half-time basis in a school that participates in the Direct
Loan Program.
(ii) The student meets the requirements for an eligible student
under 34 CFR part 668.
(iii) The student meets the requirements of paragraphs (a)(1)(iv)
and (a)(1)(v) of this section, if applicable.
(iv) The student has received a determination of his or her annual
loan maximum eligibility under the Federal Direct Stafford/Ford Loan
Program and the Federal Direct Unsubsidized and Stafford/Ford Loan
Program; and
(v) The student does not have an adverse credit history in
accordance with paragraph (c)(1)(vii) of this section.
* * * * *
[[Page 45711]]
(c) Parent PLUS borrower.
* * * * *
(3) Has completed repayment of any title IV, HEA program assistance
obtained by fraud, if the parent has been convicted of, or has pled
nolo contendere or guilty to, a crime involving fraud in obtaining
title IV, HEA program assistance.
* * * * *
(e) Use of loan proceeds to replace expected family contribution.
The amount of a Direct Unsubsidized Loan, a Direct PLUS loan, or a non-
federal non-need based loan, including a private, state-sponsored, or
institution loan, obtained for a loan period may be used to replace the
expected family contribution for that loan period.
* * * * *
0
67. Section 685.201 is amended by revising paragraph (b) to read as
follows:
Sec. 685.201 Obtaining a loan.
* * * * *
(b) Application for a Direct PLUS Loan. (1) For a parent to obtain
a Direct PLUS Loan, the parent must complete the Direct PLUS MPN and
submit it to the school at which the student is enrolled.
(2) For a graduate or professional student to apply for a Direct
PLUS Loan, the student must complete a Free Application for Federal
Student Aid and submit it in accordance with instructions in the
application. The graduate or professional student must also complete
the PLUS MPN and submit it to the school.
(3) For either a parent or student PLUS borrower, as applicable,
the school must complete its portion of the PLUS MPN and submit it to
the Servicer, which makes a determination as to whether the parent or
graduate or professional student has an adverse credit history. Unless
a school's agreement with the Secretary specifies otherwise, the school
must perform the following functions: A school participating under
school origination option 2 must draw down funds and disburse the
funds. For a school participating under school origination option 1 or
standard origination, the Servicer initiates the drawdown of funds, and
the school disburses the funds.
* * * * *
0
68. Section 685.202 is amended by:
0
A. In the heading of paragraph (a)(1)(iii), adding the words ``and
before July 1, 2006'' immediately after the words ``July 1, 1998''.
0
B. Adding a new paragraph (a)(1)(iv).
0
C. In the heading of paragraph (a)(2)(ii), adding the words ``and
before July 1, 2006'' after the words ``July 1, 1998''.
0
D. Adding a new paragraph (a)(2)(iii).
0
E. In paragraph (b)(2), adding the words ``under the regulations that
were in effect for consolidation applications received before July 1,
2006'' after the words ``grace period''.
0
F. In paragraph (b)(3), removing the reference to ``685.208(g)(5)'' and
adding, in its place, a reference to ``85.208(l)(5)''.
0
G. In paragraph (b)(4), removing the reference to ``685.208(g)(5)'' and
adding, in its place, a reference to ``685.208(l)(5)''.
0
H. Revising paragraph (c)(1).
The revisions and additions read as follows:
Sec. 685.202 Charges for which Direct Loan Program borrowers are
responsible.
(a) * * *
(1) * * *
(iv) Loans first disbursed on or after July 1, 2006. The interest
rate is 6.8 percent.
(2) * * *
(iii) Loans first disbursed on or after July 1, 2006. The interest
rate is 7.9 percent.
(c) * * *
(1)(i) For a Direct Subsidized or Direct Unsubsidized loan first
disbursed prior to February 8, 2006, charges a borrower a loan fee not
to exceed 4 percent of the principal amount of the loan;
(ii) For a Direct Subsidized or Direct Unsubsidized loan first
disbursed on or after February 8, 2006, but before July 1, 2007,
charges a borrower a loan fee not to exceed 3 percent of the principal
amount of the loan;
(iii) For a Direct Subsidized or Direct Unsubsidized loan first
disbursed on or after July 1, 2007, but before July 1, 2008, charges a
borrower a loan fee not to exceed 2.5 percent of the principal amount
of the loan;
(iv) For a Direct Subsidized or Direct Unsubsidized loan first
disbursed on or after July 1, 2008, but before July 1, 2009, charges
the borrower a loan fee not to exceed 2 percent of the principal amount
of the loan;
(v) For a Direct Subsidized or Direct Unsubsidized loan first
disbursed on or after July 1, 2009, but before July 1, 2010, charges
the borrower a loan fee not to exceed 1.5 percent of the principal
amount of the loan;
(vi) For a Direct Subsidized or Direct Unsubsidized loan first
disbursed on or after July 1, 2010, charges the borrower a loan fee not
to exceed 1 percent of the principal amount of the loan; and
(vii) Charges a borrower a loan fee of four percent of the
principal amount of the loan on a Direct PLUS loan.
* * * * *
Sec. 685.203 [Amended]
0
69. Section 685.203 is amended by:
0
A. In paragraph (a)(1)(i), adding the words ``, or, for a loan
originated on or after July 1, 2007, $3,500,'' immediately after the
figure ``$2,625''.
0
B. In paragraph (a)(1)(ii), adding the words ``, or, for a loan
originated on or after July 1, 2007, $3,500,'' immediately after the
figure ``$2,625''.
0
C. In paragraph (a)(1)(iii), adding the words ``, or, for a loan
originated on or after July 1, 2007, $3,500'' immediately after the
figure ``$2,625''.
0
D. In paragraph (a)(2)(i), adding the words ``, or, for a loan
originated on or after July 1, 2007, $4,500,'' immediately after the
figure ``$3,500''.
0
E. In paragraph (a)(2)(ii), adding the words ``, or, for a loan
originated on or after July 1, 2007, $4,500,'' immediately after the
figure ``$3,500''.
0
F. In paragraph (c)(2)(v), adding the words ``, or, for a loan
originated on or after July 1, 2007, $12,000.'' immediately after the
figure ``$10,000''.
0
G. In paragraph (c)(2)(vi)(B), adding the words ``, or, for a loan
originated on or after July 1, 2007, $7,000,'' immediately after the
figure ``$5,000''.
0
H. In paragraph (c)(2)(vii), adding the words ``, or, for a loan
originated on or after July 1, 2007, $7,000.'' immediately after the
figure ``$5,000''.
0
I. In paragraph (f), adding the words ``, or that a graduate or
professional student may borrow,'' immediately after the words
``dependent student'' and removing the words ``that student'' and
adding, in their place, the words ``the student''.
0
J. In paragraph (g), adding the words ``, or that a graduate or
professional student may borrow,'' immediately after the words
``dependent student''.
0
70. Section 685.204 is amended by:
0
A. In paragraph (a)(1), removing the words ``paragraph (b)'' and
adding, in their place, the words ``paragraphs (b) and (e)''.
0
B. In paragraph (a)(2), removing the words ``paragraph (b)'' and
adding, in their place, the words ``paragraphs (b) and (e)''.
0
C. In paragraph (b), removing the parenthetical ``(e)'' and adding, in
its place, the parenthetical ``(f)''.
0
D. Redesignating paragraph (e) as paragraph (f).
0
E. In paragraph (d)(1), removing the words ``paragraph (b)'' and
adding, in their place, the words ``paragraphs (b) and (e)''.
0
F. Adding a new paragraph (e).
The addition reads as follows:
Sec. 685.204 Deferment.
* * * * *
[[Page 45712]]
(e)(1) A borrower who receives a Direct Loan Program loan first
disbursed on or after July 1, 2001, may receive a military service
deferment for such loan for any period not to exceed 3 years during
which the borrower is--
(i) Serving on active duty during a war or other military operation
or national emergency; or
(ii) Performing qualifying National Guard duty during a war or
other military operation or national emergency.
(2) Serving on active duty during a war or other military operation
or national emergency means service by an individual who is--
(i) A Reserve of an Armed Force ordered to active duty under 10
U.S.C. 12301(a), 12301(g), 12302, 12304, or 12306;
(ii) A retired member of an Armed Force ordered to active duty
under 10 U.S.C. 688 for service in connection with a war or other
military operation or national emergency, regardless of the location at
which such active duty service is performed; or
(iii) Any other member of an Armed Force on active duty in
connection with such emergency or subsequent actions or conditions who
has been assigned to a duty station at a location other than the
location at which the member is normally assigned.
(3) Qualifying National Guard duty during a war or other operation
or national emergency means service as a member of the National Guard
on full-time National Guard duty, as defined in 10 U.S.C. 101(d)(5)
under a call to active service authorized by the President or the
Secretary of Defense for a period of more than 30 consecutive days
under 32 U.S.C. 502(f) in connection with a war, other military
operation, or national emergency declared by the President and
supported by Federal funds.
(4) These provisions do not authorize the refunding of any payments
made by or on behalf of a borrower during a period for which the
borrower qualified for a military service deferment.
(5) A borrower is eligible for a military service deferment on a
Direct Consolidation Loan only if the borrower meets the conditions
described in this section and all of the title IV loans included in the
Consolidation Loan were first disbursed on or after July 1, 2001.
(6) As used in this section--
(i) Active duty means active duty as defined in 10 U.S.C. 101(d)(1)
except that it does not include active duty for training or attendance
at a service school;
(ii) Military operation means a contingency operation as defined in
10 U.S.C. 101(a)(13); and
(iii) National emergency means the national emergency by reason of
certain terrorist attacks declared by the President on September 14,
2001, or subsequent national emergencies declared by the President by
reason of terrorist attacks.
* * * * *
Sec. 685.205 [Amended]
0
71. Section 685.205 is amended in paragraph (b)(5) by adding the words
``obtained by a parent borrower'' after the words ``Direct PLUS Loan''.
0
72. Section 685.207 is amended by revising paragraphs (e)(2) and (3).
The revisions read as follows:
Sec. 685.207 Obligation to repay.
* * * * *
(e) * * *
(2) In the case of a borrower whose consolidation application was
received before July 1, 2006, a borrower who obtains a Direct
Subsidized Consolidation Loan during an in-school period will be
subject to the repayment provisions in paragraph (b) of this section.
(3) In the case of a borrower whose consolidation application was
received before July 1, 2006, a borrower who obtains a Direct
Unsubsidized Consolidation Loan during an in-school period will be
subject to the repayment provisions in paragraph (c) of this section.
* * * * *
0
73. Section 685.208 is revised to read as follows:
Sec. 685.208 Repayment plans.
(a) General. (1) Borrowers who entered repayment before July 1,
2006. (i) A borrower may repay a Direct Subsidized Loan, a Direct
Unsubsidized Loan, a Direct Subsidized Consolidation Loan, or a Direct
Unsubsidized Consolidation Loan under the standard repayment plan, the
extended repayment plan, the graduated repayment plan, or the income
contingent repayment plan, in accordance with paragraphs (b), (d), (f),
and (k) of this section, respectively.
(ii) A borrower may repay a Direct PLUS Loan or a Direct PLUS
Consolidation Loan under the standard repayment plan, the extended
repayment plan, or the graduated repayment plan, in accordance with
paragraphs (b), (d), and (f) of this section, respectively.
(2) Borrowers entering repayment on or after July 1, 2006. (i) A
borrower may repay a Direct Subsidized Loan or a Direct Unsubsidized
Loan under the standard repayment plan, the extended repayment plan,
the graduated repayment plan, or the income contingent repayment plan,
in accordance with paragraphs (b), (e), (g), and (k) of this section,
respectively.
(ii) A borrower may repay a Direct PLUS Loan under the standard
repayment plan, the extended repayment plan, or the graduated repayment
plan, in accordance with paragraphs (b), (e), and (g) of this section,
respectively.
(iii) A borrower may repay a Direct Consolidation Loan under the
standard repayment plan, the extended repayment plan, the graduated
repayment plan, or the income contingent repayment plan, in accordance
with paragraphs (c), (e), (h), and (k) of this section, respectively.
(3) The Secretary may provide an alternative repayment plan in
accordance with paragraph (l) of this section.
(4) All Direct Loans obtained by one borrower must be repaid
together under the same repayment plan, except that--
(i) A borrower of a Direct PLUS Loan may repay the Direct PLUS Loan
separately from other Direct Loans obtained by the borrower; and
(ii) A borrower of a Direct PLUS Consolidation Loan that entered
repayment before July 1, 2006 may repay the Direct PLUS Consolidation
Loan separately from other Direct Loans obtained by that borrower.
(5) The repayment period for any of the repayment plans described
in this section does not include periods of authorized deferment or
forbearance.
(b) Standard repayment plan for all Direct Subsidized Loan, Direct
Unsubsidized Loan, and Direct PLUS Loan borrowers, regardless of when
they entered repayment, and for Direct Consolidation Loan borrowers who
entered repayment before July 1, 2006. (1) Under this repayment plan, a
borrower must repay a loan in full within ten years from the date the
loan entered repayment by making fixed monthly payments.
(2) A borrower's payments under this repayment plan are at least
$50 per month, except that a borrower's final payment may be less than
$50.
(3) The number of payments or the fixed monthly repayment amount
may be adjusted to reflect changes in the variable interest rate
identified in Sec. 685.202(a).
(c) Standard repayment plan for Direct Consolidation Loan borrowers
entering repayment on or after July 1, 2006.
[[Page 45713]]
(1) Under this repayment plan, a borrower must repay a loan in full
by making fixed monthly payments over a repayment period that varies
with the total amount of the borrower's student loans, as described in
paragraph (j) of this section.
(2) A borrower's payments under this repayment plan are at least
$50 per month, except that a borrower's final payment may be less than
$50.
(d) Extended repayment plan for all Direct Loan borrowers who
entered repayment before July 1, 2006.
(1) Under this repayment plan, a borrower must repay a loan in full
by making fixed monthly payments within an extended period of time that
varies with the total amount of the borrower's loans, as described in
paragraph (i) of this section.
(2) A borrower makes fixed monthly payments of at least $50, except
that a borrower's final payment may be less than $50.
(3) The number of payments or the fixed monthly repayment amount
may be adjusted to reflect changes in the variable interest rate
identified in Sec. 685.202(a).
(e) Extended repayment plan for all Direct Loan borrowers entering
repayment on or after July 1, 2006.
(1) Under this repayment plan, a new borrower with more than
$30,000 in outstanding Direct Loans accumulated on or after October 7,
1998 must repay either a fixed annual or graduated repayment amount
over a period not to exceed 25 years from the date the loan entered
repayment. For this repayment plan, a new borrower is defined as an
individual who has no outstanding principal or interest balance on a
Direct Loan as of October 7, 1998, or on the date the borrower obtains
a Direct Loan on or after October 7, 1998.
(2) A borrower's payments under this plan are at least $50 per
month, and will be more if necessary to repay the loan within the
required time period.
(3) The number of payments or the monthly repayment amount may be
adjusted to reflect changes in the variable interest rate identified in
Sec. 685.202(a).
(f) Graduated repayment plan for all Direct Loan borrowers who
entered repayment before July 1, 2006.
(1) Under this repayment plan, a borrower must repay a loan in full
by making payments at two or more levels within a period of time that
varies with the total amount of the borrower's loans, as described in
paragraph (i) of this section.
(2) The number of payments or the monthly repayment amount may be
adjusted to reflect changes in the variable interest rate identified in
Sec. 685.202(a).
(3) No scheduled payment under this repayment plan may be less than
the amount of interest accrued on the loan between monthly payments,
less than 50 percent of the payment amount that would be required under
the standard repayment plan described in paragraph (b) of this section,
or more than 150 percent of the payment amount that would be required
under the standard repayment plan described in paragraph (b) of this
section.
(g) Graduated repayment plan for Direct Subsidized Loan, Direct
Unsubsidized Loan, and Direct PLUS Loan borrowers entering repayment on
or after July 1, 2006.
(1) Under this repayment plan, a borrower must repay a loan in full
by making payments at two or more levels over a period of time not to
exceed ten years from the date the loan entered repayment.
(2) The number of payments or the monthly repayment amount may be
adjusted to reflect changes in the variable interest rate identified in
Sec. 685.202(a).
(3) A borrower's payments under this repayment plan are at least
$50 per month, except that a borrower's final payment may be less than
$50. No single payment under this plan will be more than three times
greater than any other payment.
(h) Graduated repayment plan for Direct Consolidation Loan
borrowers entering repayment on or after July 1, 2006.
(1) Under this repayment plan, a borrower must repay a loan in full
by making monthly payments that gradually increase in stages over the
course of a repayment period that varies with the total amount of the
borrower's student loans, as described in paragraph (j) of this
section.
(2) A borrower's payments under this repayment plan are at least
$50 per month, except that a borrower's final payment may be less than
$50.
(i) Repayment period for the extended and graduated plans described
in paragraphs (d) and (f) of this section, respectively. Under these
repayment plans, if the total amount of the borrower's Direct Loans
is--
(1) Less than $10,000, the borrower must repay the loans within 12
years of entering repayment;
(2) Greater than or equal to $10,000 but less than $20,000, the
borrower must repay the loans within 15 years of entering repayment;
(3) Greater than or equal to $20,000 but less than $40,000, the
borrower must repay the loans within 20 years of entering repayment;
(4) Greater than or equal to $40,000 but less than $60,000, the
borrower must repay the loans within 25 years of entering repayment;
and
(5) Greater than or equal to $60,000, the borrower must repay the
loans within 30 years of entering repayment.
(j) Repayment period for the standard and graduated repayment plans
described in paragraphs (c) and (h) of this section, respectively.
Under these repayment plans, if the total amount of the Direct
Consolidation Loan and the borrower's other student loans, as defined
in Sec. 685.220(i), is--
(1) Less then $7,500, the borrower must repay the Consolidation
Loan within 10 years of entering repayment;
(2) Equal to or greater than $7,500 but less than $10,000, the
borrower must repay the Consolidation Loan within 12 years of entering
repayment;
(3) Equal to or greater than $10,000 but less than $20,000, the
borrower must repay the Consolidation Loan within 15 years of entering
repayment;
(4) Equal to or greater than $20,000 but less than $40,000, the
borrower must repay the Consolidation Loan within 20 years of entering
repayment;
(5) Equal to or greater than $40,000 but less than $60,000, the
borrower must repay the Consolidation Loan within 25 years of entering
repayment; and
(6) Equal to or greater than $60,000, the borrower must repay the
Consolidation Loan within 30 years of entering repayment.
(k) Income contingent repayment plan. (1) Under the income
contingent repayment plan, a borrower's monthly repayment amount is
generally based on the total amount of the borrower's Direct Loans,
family size, and Adjusted Gross Income (AGI) reported by the borrower
for the most recent year for which the Secretary has obtained income
information. The borrower's AGI includes the income of the borrower's
spouse. A borrower must make payments on a loan until the loan is
repaid in full or until the loan has been in repayment through the end
of the income contingent repayment period.
(2) The regulations in effect at the time a borrower enters
repayment and selects the income contingent repayment plan or changes
into the income contingent repayment plan from another plan govern the
method for determining the borrower's monthly repayment amount for all
of the borrower's Direct Loans, unless--
(i) The Secretary amends the regulations relating to a borrower's
[[Page 45714]]
monthly repayment amount under the income contingent repayment plan;
and
(ii) The borrower submits a written request that the amended
regulations apply to the repayment of the borrower's Direct Loans.
(3) Provisions governing the income contingent repayment plan are
in Sec. 685.209.
(l) Alternative repayment. (1) The Secretary may provide an
alternative repayment plan for a borrower who demonstrates to the
Secretary's satisfaction that the terms and conditions of the repayment
plans specified in paragraphs (b) through (h) of this section are not
adequate to accommodate the borrower's exceptional circumstances.
(2) The Secretary may require a borrower to provide evidence of the
borrower's exceptional circumstances before permitting the borrower to
repay a loan under an alternative repayment plan.
(3) If the Secretary agrees to permit a borrower to repay a loan
under an alternative repayment plan, the Secretary notifies the
borrower in writing of the terms of the plan. After the borrower
receives notification of the terms of the plan, the borrower may accept
the plan or choose another repayment plan.
(4) A borrower must repay a loan under an alternative repayment
plan within 30 years of the date the loan entered repayment, not
including periods of deferment and forbearance.
(5) If the amount of a borrower's monthly payment under an
alternative repayment plan is less than the accrued interest on the
loan, the unpaid interest is capitalized until the outstanding
principal amount is 10 percent greater than the original principal
amount. After the outstanding principal amount is 10 percent greater
than the original principal amount, interest continues to accrue but is
not capitalized. For purposes of this paragraph, the original principal
amount is the amount owed by the borrower when the borrower enters
repayment.
(Authority: 20 U.S.C. 1087a et seq.)
0
74. Section 685.209 is amended by revising paragraph (c)(4)(ii) to read
as follows:
Sec. 685.209 Income contingent repayment plan.
* * * * *
(c) * * *
(4) * * *
(ii)(A) The repayment period includes--
(1) Periods in which the borrower makes payments under the standard
repayment plan described in Sec. 685.208(b); and
(2) If the repayment period is not more than 12 years, periods in
which the borrower makes payments under the extended repayment plans
described in Sec. 685.208(d) and (e), or the standard repayment plan
described in Sec. 685.208(c).
(B) The repayment period does not include--
(1) Periods in which the borrower makes payments under the
graduated repayment plans described in Sec. 685.208(f), Sec.
685.208(g) and Sec. 685.208(h);
(2) Periods in which the borrower makes payments under an
alternative repayment plan;
(3) Periods of authorized deferment or forbearance; or
(4) Periods in which the borrower makes payments under the extended
repayment plans described in Sec. 685.208(d) and
(e) in which payments are based on a repayment period that is
longer than 12 years.
* * * * *
0
75. Section 685.211 is amended by:
0
A. Revising paragraph (d)(3)(ii).
0
B. In paragraph (e)(1) introductory text, adding the words ``, has been
convicted of, or has pled nolo contendere or guilty to, a crime
involving fraud in obtaining title IV, HEA program funds,'' after the
word ``information''.
0
C. In paragraph (f)(1), in the first sentence, removing the words
``twelve consecutive, on-time,'' and adding, in their place, the words
``nine voluntary,'' and adding the words ``within 20 days of the due
date during ten consecutive months'' after the word ``payments''.
0
D. Adding a new paragraph (f)(3).
The additions and revisions read as follows:
Sec. 685.211 Miscellaneous repayment provisions.
* * * * *
(d) * * *
(3) * * *
(ii) If a borrower defaults on a Direct Subsidized Loan, a Direct
Unsubsidized Loan, or a Direct Consolidation Loan, the Secretary may
designate the income contingent repayment plan for the borrower.
(f) * * *
(3) A Direct Loan obtained by fraud for which the borrower has been
convicted of, or has pled nolo contendere or guilty to, a crime
involving fraud in obtaining title IV, HEA program assistance may not
be rehabilitated.
* * * * *
Sec. 685.212 [Amended]
0
76. Section 685.212 is amended by:
0
A. In paragraph (a)(1), in the second parenthetical, adding the words
``obtained by a parent borrower'' after the words ``Direct PLUS loan''.
0
B. In paragraph (h), adding the words ``, or up to $17,500,'' after the
figure ``$5,000''.
0
77. Section 685.215 is amended by:
0
A. Adding a new paragraph (a)(1)(iv).
0
B. In paragraph (c) introductory text, in the last sentence, by
removing the parenthetical ``(5)'' and, in its place, adding the
parenthetical ``(6)''.
0
C. Redesignating paragraphs (c)(4), (c)(5), and (c)(6) as paragraphs
(c)(5), (c)(6), and (c)(7), respectively.
0
D. Adding a new paragraph (c)(4).
The additions read as follows:
Sec. 685.215 Discharge for false certification of student eligibility
or unauthorized payment.
(a) * * *
(1) * * *
(iv) Certified the individual's eligibility for a Direct Loan as a
result of the crime of identity theft committed against the individual,
as that crime is defined in Sec. 682.402(e)(14).
(c) * * *
(4) Identity theft. In the case of an individual whose eligibility
to borrow was falsely certified because he or she was a victim of the
crime of identity theft and is requesting a discharge, the individual
shall--
(i) Certify that the individual did not sign the promissory note,
or that any other means of identification used to obtain the loan was
used without the authorization of the individual claiming relief;
(ii) Certify that the individual did not receive or benefit from
the proceeds of the loan with knowledge that the loan had been made
without the authorization of the individual;
(iii) Provide a copy of a local, State, or Federal court verdict or
judgment that conclusively determines that the individual who is named
as the borrower of the loan was the victim of a crime of identity
theft; and
(iv) If the judicial determination of the crime does not expressly
state that the loan was obtained as a result of the crime of identity
theft, provide--
(A) Authentic specimens of the signature of the individual, as
provided in paragraph (c)(2)(ii), or of other means of identification
of the individual, as applicable, corresponding to the means of
identification falsely used to obtain the loan; and
(B) A statement of facts that demonstrate, to the satisfaction of
the Secretary, that eligibility for the loan in
[[Page 45715]]
question was falsely certified as a result of the crime of identity
theft committed against that individual.
* * * * *
0
78. Section 685.217 is amended by:
0
A. Revising paragraph (a).
0
B. In paragraph (b), adding, in alphabetical order, a new definition
for ``Highly qualified''.
0
C. Revising paragraph (c)(1)(iii).
0
D. Revising paragraph (c)(3).
0
E. Revising paragraph (c)(4).
0
F. Redesignating paragraphs (c)(5), (c)(6), (c)(7), (c)(8), and (c)(9)
as paragraphs (c)(7), (c)(8), (c)(9), (c)(10), and (c)(11),
respectively.
0
G. Adding a new paragraph (c)(5).
0
H. Adding a new paragraph (c)(6).
0
I. Removing the parentheticals ``(c)(5)'' and adding, in their place,
the parentheticals ``(c)(7)'' in redesignated paragraph (c)(8).
0
J. Revising paragraph (d)(1).
0
K. Revising paragraph (d)(2).
The revisions and additions read as follows:
Sec. 685.217 Teacher loan forgiveness program.
(a) General. The teacher loan forgiveness program is intended to
encourage individuals to enter and continue in the teaching profession.
For new borrowers, the Secretary repays the amount specified in this
paragraph on the borrower's subsidized and unsubsidized Federal
Stafford Loans, Direct Subsidized Loans, Direct Unsubsidized Loans, and
in certain cases, Federal Consolidation Loans or Direct Consolidation
Loans. The forgiveness program is only available to a borrower who has
no outstanding loan balance under the FFEL Program or the Direct Loan
Program on October 1, 1998 or who has no outstanding loan balance on
the date he or she obtains a loan after October 1, 1998. The borrower
must have been employed as a full-time teacher for five consecutive
complete academic years, at least one of which was after the 1997-1998
academic year, in certain eligible elementary or secondary schools that
serve low-income families. All borrowers eligible for teacher loan
forgiveness may receive loan forgiveness of up to a combined total of
$5,000 on the borrower's eligible FFEL and Direct Loan Program loans.
If the borrower taught for five consecutive years as a highly qualified
mathematics or science teacher in an eligible secondary school, or as a
highly qualified special education teacher in an eligible elementary or
secondary school, the borrower may receive loan forgiveness of up to a
combined total of $17,500 on the borrower's eligible FFEL and Direct
Loan Program loans. The loan for which the borrower is seeking
forgiveness must have been made prior to the end of the borrower's
fifth year of qualifying teaching service.
(b) * * *
Highly qualified means highly qualified as defined in section 9101
of the Elementary and Secondary Education Act of 1965, as amended.
* * * * *
(c) * * *
(1) * * *
(iii) Is listed in the Annual Directory of Designated Low-Income
Schools for Teacher Cancellation Benefits. If this directory is not
available before May 1 of any year, the previous year's directory may
be used. The Secretary considers all elementary and secondary schools
operated by the Bureau of Indian Affairs (BIA) or operated on Indian
reservations by Indian tribal groups under contract with the BIA to
qualify as schools serving low-income students.
* * * * *
(3) In the case of a borrower whose five consecutive complete years
of qualifying teaching service began before October 30, 2004, the
borrower--
(i) May receive up to $5,000 of loan forgiveness if the borrower--
(A) Demonstrated knowledge and teaching skills in reading, writing,
mathematics, and other areas of the elementary school curriculum, as
certified by the chief administrative officer of the eligible
elementary school in which the borrower was employed; or
(B) Taught in a subject area that is relevant to the borrower's
academic major as certified by the chief administrative officer of the
eligible secondary school in which the borrower was employed.
(ii) May receive up to $17,500 of loan forgiveness if the
borrower--
(A) Taught mathematics or science on a full-time basis in an
eligible secondary school and was a highly qualified mathematics or
science teacher; or
(B) Taught as a special education teacher on a full-time basis to
children with disabilities in either an eligible elementary or
secondary school and was a highly qualified special education teacher
whose special education training corresponded to the children's
disabilities and who has demonstrated knowledge and teaching skills in
the content areas of the elementary or secondary school curriculum.
(4) In the case of a borrower whose five consecutive years of
qualifying teaching service began on or after October 30, 2004, the
borrower--
(i) May receive up to $5,000 of loan forgiveness if the borrower
taught full time in an eligible elementary or secondary school and was
a highly qualified elementary or secondary school teacher.
(ii) May receive up to $17,500 of loan forgiveness if the
borrower--
(A) Taught mathematics or science on a full-time basis in an
eligible secondary school and was a highly qualified mathematics or
science teacher; or
(B) Taught as a special education teacher on a full-time basis to
children with disabilities in either an eligible elementary or
secondary school and was a highly qualified special education teacher
whose special education training corresponded to the children's
disabilities and who has demonstrated knowledge and teaching skills in
the content areas of the elementary or secondary school curriculum.
(5) To qualify for loan forgiveness as a highly qualified teacher,
the teacher must have been a highly qualified teacher for all five
years of eligible teaching service.
(6) For teacher loan forgiveness applications received by the
Secretary on or after July 1, 2006, a teacher in a private, non-profit
elementary or secondary school who is exempt from State certification
requirements unless otherwise applicable under State law may qualify
for loan forgiveness under paragraphs (c)(3)(ii) or (c)(4) of this
section if--
(i) The private school teacher is permitted to and does satisfy
rigorous subject knowledge and skills tests by taking competency tests
in applicable grade levels and subject areas;
(ii) The competency tests are recognized by 5 or more States for
the purposes of fulfilling the highly qualified teacher requirements
under section 9101 of the Elementary and Secondary Education Act of
1965; and
(iii) The private school teacher achieves a score on each test that
equals or exceeds the average passing score for those 5 states.
* * * * *
(d) Forgiveness amount. (1) A qualified borrower is eligible for
forgiveness of up to $5,000, or up to $17,500 if the borrower meets the
requirements of paragraphs (c)(3)(ii) or (c)(4)(ii) of this section.
The forgiveness amount is deducted from the aggregate amount of the
borrower's Direct Subsidized Loan or Direct Unsubsidized Loan or Direct
Consolidation Loan obligation that is outstanding after the borrower
completes his or her fifth consecutive complete academic year of
teaching as described in paragraph (c) of this section. Only the
outstanding portion of the Direct Consolidation Loan
[[Page 45716]]
that was used to repay an eligible subsidized or unsubsidized Federal
Stafford Loan, an eligible Direct Subsidized Loan, or an eligible
Direct Unsubsidized Loan qualifies for loan forgiveness under this
section.
(2) A borrower may not receive more than a total of $5,000, or
$17,500 if the borrower meets the requirements of paragraphs (c)(3)(ii)
or (c)(4)(ii) of this section, in loan forgiveness for outstanding
principal and accrued interest under both this section and under
section 34 CFR 682.215.
* * * * *
0
79. Section 685.220 is amended by:
0
A. In paragraph (a), revising the first sentence to read as set forth
below.
0
B. Revising paragraphs (c) and (d).
0
C. In paragraph (e), in the first sentence, removing the words ``or
borrowers'' and removing, in its entirety, the second sentence.
0
D. In paragraph (f)(1)(iii), removing the words ``and may impose
reasonable limits on collection costs paid to the holder''.
0
E. Revising paragraphs (h) and (i).
0
F. In paragraph (l) introductory text, adding the words ``in accordance
with the regulations that were in effect for consolidation applications
received prior to July 1, 2006'' after the word ``borrowers''.
The revisions read as follows:
Sec. 685.220 Consolidation.
(a) Direct Consolidation Loans. A borrower may consolidate
education loans made under certain Federal programs into a Direct
Consolidation Loan. * * *
* * * * *
(c) Subsidized, unsubsidized, and PLUS components of Direct
Consolidation Loans. (1) The portion of a Direct Consolidation Loan
attributable to the loans identified in paragraphs (b)(1) through (5)
of this section, and to Federal Consolidation Loans under paragraph
(b)(15) of this section if they are eligible for interest benefits
during a deferment period under Section 428C(b)(4)(C) of the Act, is
referred to as a Direct Subsidized Consolidation Loan.
(2) Except as provided in paragraph (c)(1) of this section, the
portion of a Direct Consolidation Loan attributable to the loans
identified in paragraphs (b)(6) through (8) and (b)(13) through (21) of
this section is referred to as a Direct Unsubsidized Consolidation
Loan.
(3) The portion of a Direct Consolidation Loan attributable to the
loans identified in paragraphs (b)(9) through (12) of this section is
referred to as a Direct PLUS Consolidation Loan.
(d) Eligibility for a Direct Consolidation Loan. (1) A borrower may
obtain a Direct Consolidation Loan if, at the time the borrower applies
for such a loan, the borrower meets the following requirements:
(i) The borrower either--
(A) Has an outstanding balance on a Direct Loan; or
(B) Has an outstanding balance on an FFEL loan and--
(1) The borrower is unable to obtain a FFEL consolidation loan;
(2) The borrower is unable to obtain a FFEL consolidation loan with
income-sensitive repayment terms acceptable to the borrower; or
(3) The borrower has an FFEL Consolidation Loan that has been
submitted to the guaranty agency by the lender for default aversion,
and the borrower wants to consolidate the FFEL Consolidation Loan into
the Direct Loan Program for the purpose of obtaining an income
contingent repayment plan.
(ii) On the loans being consolidated, the borrower is--
(A) In a six-month grace period;
(B) In a repayment period but not in default;
(C) In default but has made satisfactory repayment arrangements, as
defined in applicable program regulations, on the defaulted loan; or
(D) Except as provided in paragraph (d)(4) of this section, in
default but agrees to repay the consolidation loan under the income
contingent repayment plan described in Sec. 685.208(k) and signs the
consent form described in Sec. 685.209(d)(5).
(E) Not subject to a judgment secured through litigation, unless
the judgment has been vacated; or
(F) Not subject to an order for wage garnishment under section 488A
of the Act, unless the order has been lifted.
(iii) The borrower certifies that no other application to
consolidate any of the borrower's loans listed in paragraph (b) of this
section is pending with any other lender.
(iv) The borrower agrees to notify the Secretary of any change in
address.
(2) A borrower may not consolidate a Direct Consolidation Loan into
a new consolidation loan under this section or under Sec. 682.201(c)
unless at least one additional eligible loan is included in the
consolidation.
(3) Eligible loans received before or after the date a Direct
Consolidation Loan is made may be added to a subsequent Direct
Consolidation Loan.
(4) A borrower may not consolidate a defaulted Direct Consolidation
Loan.
* * * * *
(h) Repayment plans. A borrower may choose a repayment plan for a
Direct Consolidation Loan in accordance with Sec. 685.208, except that
a borrower who became eligible to consolidate a defaulted loan under
paragraph (d)(1)(ii)(D) of this section must repay the consolidation
loan under the income contingent repayment plan unless--
(1) The borrower was required to and did make a payment under the
income contingent repayment plan in each of the prior three (3) months;
or
(2) The borrower was not required to make payments but made three
reasonable and affordable payments in each of the prior three (3)
months; and
(3) The borrower makes and the Secretary approves a request to
change plans.
(i) Repayment period. (1) Except as noted in paragraph (i)(4) of
this section, the repayment period for a Direct Consolidation Loan
begins on the day the loan is disbursed.
(2)(i) Borrowers who entered repayment before July 1, 2006. The
Secretary determines the repayment period under Sec. 685.208(i) on the
basis of the outstanding balances on all of the borrower's loans that
are eligible for consolidation and the balances on other education
loans except as provided in paragraphs (i)(3)(i), (ii), and (iii) of
this section.
(ii) Borrowers entering repayment on or after July 1, 2006. The
Secretary determines the repayment period under Sec. 685.208(j) on the
basis of the outstanding balances on all of the borrower's loans that
are eligible for consolidation and the balances on other education
loans except as provided in paragraphs (i)(3)(i) and (ii) of this
section.
(3)(i) The total amount of outstanding balances on the other
education loans used to determine the repayment period under Sec. Sec.
685.208(i) and (j) may not exceed the amount of the Direct
Consolidation Loan.
(ii) The borrower may not be in default on the other education loan
unless the borrower has made satisfactory repayment arrangements with
the holder of the loan.
(iii) The lender of the other educational loan may not be an
individual.
(4) Borrowers whose consolidation application was received before
July 1, 2006. A Direct Consolidation Loan receives a grace period if it
includes a Direct Loan or FFEL Program loan for which the borrower is
in an in-school period at the time of consolidation. The repayment
period begins the day after the grace period ends.
* * * * *
[[Page 45717]]
0
80. Section 682.301 is amended by revising paragraph (b)(8)(ii) to read
as follows:
Sec. 685.301 Origination of a loan by a Direct Loan Program school.
* * * * *
(b) * * *
(8) * * *
(ii) Paragraphs (b)(8)(i)(A) and (B) of this section do not apply
to any loans originated by the school beginning 30 days after the date
the school receives notification from the Secretary of a cohort default
rate, calculated under subpart M of 34 CFR part 668, that causes the
school to no longer meet the qualifications outlined in paragraph (A)
or (B), as applicable.
* * * * *
0
81. Section 685.303 is amended by:
0
A. In paragraph (b)(2)(i), by adding the words ``obtained by a parent
borrower'' after the words ``PLUS loan''.
0
B. By revising paragraph (b)(4)(ii).
The revisions read as follows:
Sec. 685.303 Processing loan proceeds.
* * * * *
(b) * * *
(4) * * *
(ii) Paragraphs (b)(4)(i)(A) and (B) of this section do not apply
to any loans originated by the school beginning 30 days after the date
the school receives notification from the Secretary of a cohort default
rate, calculated under subpart M of 34 CFR part 668, that causes the
school to no longer meet the qualifications outlined in paragraph (A)
or (B), as applicable.
* * * * *
[FR Doc. 06-6696 Filed 8-8-06; 8:45 am]
BILLING CODE 4000-01-P