[Federal Register Volume 74, Number 140 (Thursday, July 23, 2009)]
[Proposed Rules]
[Pages 36556-36602]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-16952]
[[Page 36555]]
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Part II
Department of Education
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34 CFR Parts 674, 682, and 685
Federal Perkins Loan Program, Federal Family Education Loan Program,
and William D. Ford Federal Direct Loan Program; Proposed Rule
Federal Register / Vol. 74 , No. 140 / Thursday, July 23, 2009 /
Proposed Rules
[[Page 36556]]
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DEPARTMENT OF EDUCATION
[Docket ID ED-2009-OPE-0004]
34 CFR Parts 674, 682, and 685
RIN 1840-AC98
Federal Perkins Loan Program, Federal Family Education Loan
Program, and William D. Ford Federal Direct Loan Program
AGENCY: Office of Postsecondary Education, Department of Education.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Secretary proposes to amend the Federal Perkins Loan
(Perkins Loan) Program, Federal Family Education Loan (FFEL) Program,
and William D. Ford Federal Direct Loan (Direct Loan) Program
regulations. These proposed regulations are needed to implement
provisions of the Higher Education Act of 1965 (HEA), as amended by the
Higher Education Opportunity Act of 2008 (HEOA).
DATES: We must receive your comments on or before August 24, 2009.
ADDRESSES: Submit your comments through the Federal eRulemaking Portal
or via postal mail, commercial delivery, or hand delivery. We will not
accept comments by fax or by e-mail. Please submit your comments only
one time, in order to ensure that we do not receive duplicate copies.
In addition, please include the Docket ID at the top of your comments.
Federal eRulemaking Portal: Go to http://www.regulations.gov to submit your comments electronically. Information
on using Regulations.gov, including instructions for accessing agency
documents, submitting comments, and viewing the docket, is available on
the site under ``How To Use This Site.''
Postal Mail, Commercial Delivery, or Hand Delivery.
If you mail or deliver your comments about these proposed
regulations, address them to Pamela Moran, U.S. Department of
Education, 1990 K Street, NW., room 8033, Washington, DC 20006-8502.
Privacy Note: The Department's policy for comments received from
members of the public (including those comments submitted by mail,
commercial delivery, or hand delivery) is to make these submissions
available for public viewing in their entirety on the Federal
eRulemaking Portal at http://www.regulations.gov. Therefore,
commenters should be careful to include in their comments only
information that they wish to make publicly available on the
Internet.
FOR FURTHER INFORMATION CONTACT: Pamela Moran, U.S. Department of
Education, 1990 K Street, NW., Room 8033, Washington, DC 20006-8502.
Telephone: (202) 502-7732 or via the Internet at: [email protected].
If you use a telecommunications device for the deaf, call the
Federal Relay Service (FRS), toll free, at 1-800-877-8339.
Individuals with disabilities can obtain this document in an
accessible format (e.g., Braille, large print, audiotape, or computer
diskette) on request to the contact person listed under FOR FURTHER
INFORMATION CONTACT.
SUPPLEMENTARY INFORMATION:
Invitation to Comment
As outlined in the section of this notice entitled ``Negotiated
Rulemaking,'' significant public participation, through six public
hearings and three negotiated rulemaking sessions, has occurred in
developing this notice of proposed rulemaking (NPRM). In accordance
with the requirements of the Administrative Procedure Act, the
Department invites you to submit comments regarding these proposed
regulations on or before August 24, 2009. To ensure that your comments
have maximum effect in developing the final regulations, we urge you to
identify clearly the specific section or sections of the proposed
regulations that each of your comments addresses and to arrange your
comments in the same order as the proposed regulations.
We invite you to assist us in complying with the specific
requirements of Executive Order 12866, including its overall
requirements to assess both the costs and the benefits of the proposed
regulations and feasible alternatives, and to make a reasoned
determination that the benefits of these proposed regulations justify
their costs. Please let us know of any further opportunities we should
take to reduce potential costs or increase potential benefits while
preserving the effective and efficient administration of the programs.
As noted elsewhere in this NPRM, two of the Department's negotiated
rulemaking committees considered proposed revisions to 34 CFR 674.51,
Special Definitions, in Subpart D of the Federal Perkins Loan Program
regulations. Team I--Loans-Lender General Loan Issues, the negotiating
committee responsible for regulations involving issues related to
lender and general loan issues, negotiated the proposed definitions of
``substantial gainful activity'' and ``permanent and total
disability.'' Team II--Loans-School-based Loans Issues negotiated all
other changes in this section.
We have included all proposed changes to 34 CFR 674.51 in this NPRM
as well as in the NPRM that we are publishing as a result of the
negotiations of Team II--School-based Loans Issues. However, we ask
that when submitting your comments on the proposed changes to 34 CFR
674.51, you submit any comments on the proposed definitions of
``substantial gainful activity'' and ``total and permanent disability''
in the docket (Docket ID ED-2009-OPE-0004) for this NPRM. Comments on
all other provisions in this section should be submitted in the docket
(Docket ID ED-2009-OPE-0003) for the Team II--School-based Loans Issues
NPRM.
During and after the comment period, you may inspect all public
comments about these proposed regulations by accessing Regulations.gov.
You may also inspect the comments in person in Room 8033, 1990 K
Street, NW., Washington, DC between the hours of 8:30 a.m. and 4:00
p.m. Eastern Time, Monday through Friday of each week except Federal
holidays.
Assistance to Individuals With Disabilities in Reviewing the Rulemaking
Record
On request, we will supply an appropriate aid, such as a reader or
print magnifier, to an individual with a disability who needs
assistance to review the comments or other documents in the public
rulemaking record for these proposed regulations. If you want to
schedule an appointment for this type of aid, please contact the person
listed under FOR FURTHER INFORMATION CONTACT.
Negotiated Rulemaking
Section 492 of the HEA requires the Secretary, before publishing
any proposed regulations for programs authorized by title IV of the
HEA, to obtain public involvement in the development of the proposed
regulations. After obtaining advice and recommendations from the
public, including individuals and representatives of groups involved in
the Federal student assistance programs, the Secretary must subject the
proposed regulations to a negotiated rulemaking process. All proposed
regulations that the Department publishes on which the negotiators
reached consensus must conform to final agreements resulting from that
process unless the Secretary reopens the process or provides a written
explanation to the participants stating why the Secretary has decided
to depart from the agreements. Further
[[Page 36557]]
information on the negotiated rulemaking process can be found at:
http://www.ed.gov/policy/highered/leg/hea08/index.html.
On September 8, 2008, the Department published a notice in the
Federal Register (73 FR 51990) announcing our intent to establish
negotiated rulemaking committees to develop proposed regulations to (1)
implement the changes made to the HEA by the Higher Education
Opportunity Act of 2008 (HEOA, Pub. L. 110-315) that affected programs
authorized under title IV of the HEA, and (2) possibly address the
provision added to section 207(c) of the HEA by the HEOA regarding the
prohibition on a teacher preparation program from which the State has
withdrawn approval or terminated financial support from accepting or
enrolling any student who received title IV aid.
On December 31, 2008, the Department published a notice in the
Federal Register (73 FR 80314) announcing our intent to establish up to
five negotiated rulemaking committees to prepare proposed regulations.
The notice indicated that no requests from the public were received to
negotiate the provision added to section 207(c) of the HEA. The
Secretary determined it was not necessary to issue regulations in that
area and therefore did not submit that issue to a negotiated rulemaking
committee. The five committees that were established were: (1) A
committee on lender and general loan issues (Loans Team I); (2) a
committee on school-based loan issues (Loans Team II); (3) a committee
on accreditation; (4) a committee on discretionary grant programs; and
(5) a committee on general and non-loan programmatic issues. The notice
informed the public that, due to the large volume of changes made by
the HEOA that needed to be implemented through negotiated rulemaking,
not all provisions would be addressed during this round of committee
meetings. The notice requested nominations of individuals for
membership on the committees who could represent the interests
significantly affected by the proposed regulations and had demonstrated
expertise or experience in the relevant subjects under negotiation.
Loans Team I met in three sessions to develop proposed regulations:
Session 1, February 23-25, 2009; session 2, March 30-April 1, 2009; and
session 3, May 4-6, 2009. These proposed regulations relate to the
administration of the Federal student loan programs. This NPRM resulted
primarily from the work of Loans Team I and, in a couple of instances
where the subject matter of the proposed regulations overlapped, the
work of Loans Team II.\1\
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\1\ As discussed elsewhere in this preamble, Loans Team II was
responsible for negotiating the following provisions, which appear
in this NPRM: 34 CFR 674.51, definitions of the terms child with a
disability, community defender organizations, educational service
agency, faculty member at a Tribal College or University, Federal
public defender organization, firefighter, infant or toddler with a
disability, librarian with a master's degree, speech language
pathologist with a master's degree, and Tribal College or
University.
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The Department developed a list of proposed regulatory provisions
from advice and recommendations submitted by individuals and
organizations as testimony to the Department in a series of six public
hearings held on:
September 19, 2008, at the Texas Christian University, in
Fort Worth, Texas.
September 29, 2008, at the University of Rhode Island, in
Providence, Rhode Island.
October 2, 2008, at the Pepperdine University, in Malibu,
California.
October 6, 2008, at Johnson C. Smith University, in
Charlotte, North Carolina.
October 8, 2008, at the U.S. Department of Education, in
Washington, DC.
October 15, 2008, at Cuyahoga Community College, in
Warrensville Heights, Ohio.
In addition, the Department accepted written comments on possible
regulations submitted directly to the Department by interested parties
and organizations. A summary of all comments received orally and in
writing is posted as background material in the docket for this NPRM.
Transcripts of the regional meetings can be accessed at: http://www.ed.gov/policy/highered/leg/hea08/index.html. The Department also
identified issues for discussion and negotiation.
At its first meeting, the Loans Team I Committee reached agreement
on its protocols and proposed agenda. The agenda included the statutory
changes identified for the Committee's consideration. In addition, at
the second meeting of the Committee, the negotiators agreed by
consensus to add two additional agenda items affecting the
determination of eligibility and calculation of borrower payment
amounts under the income-based repayment plan in the FFEL and Direct
Loan programs that becomes available to borrowers on July 1, 2009.
The Loans Team I Committee members (and the organizations they
represented) included the following:
Representing students: Jonathan S. Sachs, primary, and
Adam Briones, alternate (U.S. Public Interest Research Group; United
States Student Association; University of Maryland Student Government
Association; The Greenlining Institute);
Representing legal assistance organizations that represent
students and borrowers: Deanne Loonin, primary, and Lauren Saunders,
alternate (National Consumer Law Center);
Representing 2-year public institutions: George Chin,
primary (American Association of State Colleges and Universities);
Representing 4-year public institutions: Carrie Steere-
Salazar, primary, and Kris Wright, alternate (Association of American
Medical Colleges; National Direct Loan Coalition);
Representing private, nonprofit institutions of higher
education: Heather McDonnell, primary, and Bonnie Lee Behm, alternate
(National Association of Student Financial Aid Administrators;
Pennsylvania Association of Student Financial Aid Administrators);
Representing private, for-profit institutions of higher
education: Thomas A. Babel, primary, and William Leach, alternate
(DeVry University; Career College Association);
Representing guaranty agencies: Mary Mowdy, primary, and
Dick George, alternate (Oklahoma State Regents for Higher Education;
National Council of Higher Education Loan Programs (NCHELP));
Representing for-profit lenders: Brenda Dillon, primary,
and Tom Levandowski, alternate (NCHELP; Consumer Bankers Association);
Representing not-for-profit lenders: Cheryl Hughes,
primary, and Scott Giles, alternate (NCHELP; Education Finance Council
(EFC));
Representing credit unions: Michael Kim, primary, and
Rhonda Summerbell, alternate (Coalition of the following credit unions:
University Federal Credit Union, USC Credit Union, UW Credit Union,
Navy Federal Credit Union, Notre Dame Federal Credit Union);
Representing lender servicers: Diane Freundel, primary,
and Wanda Hall, alternate (EFC; NCHELP; Student Loan Servicing
Alliance); and
Representing the U.S. Department of Education: Pam Moran.
The Committee's protocols provided that the committee would operate
by consensus, meaning there must be no dissent by any member in order
for the committee to be considered to have reached agreement. Under the
protocols, if the Committee reaches final consensus on all issues, the
Department will use the consensus-based language in the proposed
regulations and committee members and the
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organizations whom they represent will refrain from commenting
negatively on the package, except where provided for in the agreed upon
protocols.
During its meetings, the Loans Team I Committee reviewed and
discussed drafts of the proposed regulations. At the final meeting in
May 2009, the Committee reached consensus on the proposed regulations
in this document, with the exception of those definitions included in
34 CFR 674.51 that were negotiated by Loans Team II, as discussed
elsewhere in this notice.
In addition to the proposed regulations considered by Loans Team I,
this NPRM also includes some additional definitions that appear in 34
CFR 674.51 (Special Definitions). Only the definitions of ``substantial
gainful activity'' and ``total and permanent disability'' were included
in the proposed regulations agreed to by Loans Team I. The remaining
definitions in this section were added or amended as part of the
negotiations of Loans Team II, but are being included here to provide
context for the changes to this section.
Team I and Team II were advised that, to ensure transparency and
ease of use for public commenters, the Department would propose the
entirety of 34 CFR part 601 in a single NPRM. Given Team I's consensus,
which included consensus on the definitions of the terms lender and
private education loan in proposed Sec. 601.2 as well as the
requirements in Sec. 601.40, Team I members were advised that they may
not comment negatively on the provisions they negotiated
notwithstanding that they would appear in Team II's NPRM. Likewise,
Team II members were advised that, while they may not comment
negatively on the majority of proposed 34 CFR part 601 as a result of
their consensus agreement, they may comment on the definitions of
lender and private education loan as well as proposed Sec. 601.40.
With regard to the proposed changes to Sec. 674.51, the Department
determined that it would be helpful for the public to be able to view
all proposed changes to this special definitions section for the
Perkins Program in both Team I's NPRM and Team II's NPRM. Team I and
Team II were advised that the proposed changes to Sec. 674.51 would
appear in their entirety in both documents to provide context and
enhance understanding of both committees' proposed changes to this
section. Each team was advised by its respective Federal negotiator
that its consensus agreement did not apply to the definitions
negotiated by the other team and that any comments they may have on the
definitions negotiated by the other team should be submitted in
response to the NPRM published as a result of the other team's
negotiations.
More information on the work of Team I can be found at http://www.ed.gov/policy/highered/reg/hearulemaking/2009/loans-lender.html and
more information on the work of Team II can be found at http://www.ed.gov/policy/highered/reg/hearulemaking/2009/loans-school-based.
Summary of Proposed Changes
These proposed regulations would implement general and lender-based
loan provisions of the HEA, as amended by the HEOA, that include:
A revised definition of ``totally and permanently
disabled'' for purposes of discharging a borrower's title IV loans and
a revised disability discharge process;
Expansion of the conditions under which a borrower with
only FFEL loans may consolidate those loans into a Direct Consolidation
Loan;
Additional disclosures for FFEL and Direct consolidation
loan applicants, and a new requirement for FFEL Consolidation loan
lenders to notify borrowers who have applied for a Consolidation loan
that they may cancel the loan within a specified time period;
An additional method for granting in-school deferments on
FFEL or Direct Loan program loans, and a new notification requirement
for FFEL lenders when granting a borrower a deferment on an
unsubsidized loan;
New in-school deferment provisions for PLUS loan borrowers
and related changes to administrative forbearance provisions;
Clarification of PLUS loan interest capitalization
provisions;
A revised definition of ``partial financial hardship'' for
purposes of determining eligibility for the income-based repayment
(IBR) plan in the FFEL and Direct Loan programs, and revised
regulations for determining the IBR payment amount;
An expansion of the eligibility requirements for teacher
loan forgiveness in the FFEL and Direct Loan programs to allow
borrowers who perform qualifying teaching service at an eligible
educational service agency to receive forgiveness;
A revision of the regulations related to loan
rehabilitation to provide that a FFEL or Direct Loan borrower may
rehabilitate a defaulted loan only once;
Revisions to the regulations governing prohibited
inducements by guaranty agencies and lenders in the FFEL Program;
Revised and expanded disclosure requirements for FFEL
Program lenders at the time of or prior to loan disbursement and during
the loan repayment period;
An expansion of the information that must be provided to a
FFEL borrower when the transfer, sale, or assignment of the borrower's
loan results in a change in the identity of the party to whom payments
and communications must be sent;
Revised forbearance disclosure requirements related to
interest capitalization for FFEL lenders;
Revised regulations related to the audit requirements for
a FFEL school lender or an eligible lender trustee that originates FFEL
loans for a school or school-affiliated organization;
A new requirement for guaranty agencies to work with the
schools that they serve to develop and make available to students and
their families consumer education materials related to budgeting and
financial management;
A new requirement for guaranty agencies to make available
certain financial and economic education materials to borrowers who
have rehabilitated defaulted loans;
Revised consumer credit reporting requirements for
guaranty agencies and prior loan holders after a borrower has
rehabilitated a defaulted loan; and
Revised requirements related to the notifications that
guaranty agencies must send to borrowers with defaulted loans.
Significant Proposed Regulations
We group major issues according to subject, with appropriate
sections of the proposed regulations referenced in parentheses,
beginning with issues that apply to all three title IV loan programs,
followed by issues that apply to the FFEL and Direct Loan programs, and
then issues that apply only to the FFEL Program. We discuss substantive
issues under the sections of the proposed regulations to which they
pertain. Generally, we do not address proposed regulatory provisions
that are technical or otherwise minor in effect.
Total and Permanent Disability Loan Discharges
Definitions (Sec. Sec. 674.51 and 682.200(b))
Statute: Prior to the enactment of the HEOA, the HEA provided that
a Perkins Loan, FFEL, or Direct Loan could be discharged if the
borrower had a total and permanent disability as determined in
accordance with the regulations of the Secretary. The HEOA amended
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sections 437(a) and 464(c)(1)(F) of the HEA to provide for the
discharge of a borrower's title IV loans if the borrower becomes
totally and permanently disabled in accordance with the Secretary's
regulations, or if the borrower is unable to engage in any substantial
gainful activity by reason of any medically determinable physical or
mental impairment that can be expected to result in death, has lasted
for a continuous period of not less than 60 months, or can be expected
to last for a continuous period of not less than 60 months.
The HEOA further amended sections 437(a) and 464(c)(1)(F) of the
HEA by establishing a separate total and permanent disability standard
for certain veterans. Specifically, the HEA now provides that a
borrower who is a military veteran is considered totally and
permanently disabled for title IV loan discharge purposes if the
borrower provides documentation showing that he or she has been
determined by the Secretary of Veterans Affairs to be unemployable due
to a service-connected disability. A borrower who provides such
documentation is not required to present additional documentation for
purposes of establishing eligibility for loan discharge based on total
and permanent disability.
Current Regulations: The current regulations governing the Perkins,
FFEL, and Direct Loan programs define ``total and permanent
disability'' as the condition of an individual who is unable to work
and earn money because of an injury or illness that is expected to
continue indefinitely or result in death. Current regulations do not
define ``substantial gainful activity.''
Proposed Regulations: Proposed Sec. Sec. 674.51(aa) and 682.200(b)
would define total and permanent disability as the condition of an
individual who: (1) Is unable to engage in any substantial gainful
activity by reason of any medically determinable physical or mental
impairment that can be expected to result in death, has lasted for a
continuous period of not less than 60 months, or can be expected to
last for a continuous period of not less than 60 months; or (2) is a
veteran and who has been determined by the Secretary of Veterans
Affairs to be unemployable due to a service-connected disability.
The proposed regulations would also add a definition of substantial
gainful activity in Sec. Sec. 674.51(x) and 682.200(b). The proposed
definition would specify that substantial gainful activity means a
level of work performed for pay or profit that involves doing
significant physical or mental activities, or both.
Reasons: The proposed regulations reflect the new statutory
definition of totally and permanently disabled. Although the HEA
provides that a borrower may be considered totally and permanently
disabled either in accordance with the Secretary's regulations or under
the standards specified in sections 437(a) and 464(c)(1)(F) of the HEA
as described above, the Department has decided to use only the new
specific statutory substantial gainful activity standard. The
Department has decided not to add any additional regulatory standards.
Therefore, the proposed revised definition of total and permanent
disability reflects only the statutory total and permanent disability
standards that were added to the HEA by the HEOA.
The proposed definition of substantial gainful activity is based,
in part, on the definition of substantial gainful activity that the
Social Security Administration (SSA) uses in connection with
determining an individual's eligibility for Social Security disability
benefits. However, the Department's proposed definition relies solely
on a medical determination and, unlike SSA's definition, does not
require a physician to consider whether a borrower can earn more than a
specified amount. The Department does not believe that, for purposes of
the discharge, it is necessary for a physician to evaluate whether a
borrower is able to earn more than a specified amount each year.
Some of the non-Federal negotiators asked for clarification of the
reference to work performed ``for profit'' in the proposed definition
of substantial gainful activity. They expressed concerns that the term
``profit'' would include income from sources other than employment. The
Department explained that the reference to work performed for profit
was borrowed from the SSA's definition of substantial gainful activity
and is intended to cover self-employed individuals who are not paid by
an employer. The Department further noted that the proposed definition
of substantial gainful activity refers to ``work'' performed for pay or
profit. The term ``work performed for profit'' does not refer to income
from sources other than employment (including self employment) and non-
employment income will not be considered when determining whether a
borrower is capable of substantial gainful activity.
Discharge Process for Borrowers Other Than Certain Veterans (Sec. Sec.
674.61(b), 682.402(c)(2) Through (c)(7), and 685.213(b))
Statute: Sections 437(a)(1) and 464(k) of the HEA, as amended by
the HEOA, provide for the discharge of a borrower's title IV loans if
the borrower becomes totally and permanently disabled. Those provisions
also authorize the Secretary to promulgate regulations to reinstate a
borrower's obligation to repay a loan that was discharged due to
disability if, after the discharge, the borrower receives another title
IV loan or has earned income in excess of the poverty line, or under
other circumstances that the Secretary determines to be necessary.
Current Regulations: Under current regulations, a borrower applies
for a total and permanent disability discharge of a title IV loan by
submitting a completed loan discharge application that has been
certified by a physician to the borrower's loan holder. For Perkins
Loans, the loan holder is the Perkins school lender. For FFEL loans,
the holder is the lender or, if a default claim has been paid on the
loan, the guaranty agency. For Direct Loans and for Perkins or FFEL
loans that have been assigned to the Secretary, the loan holder is the
Department.
For a Perkins loan held by a school, if the loan holder determines
that the information provided on the discharge application supports the
conclusion that the borrower is totally and permanently disabled in
accordance with the current regulatory definition, the loan holder
assigns the loan to the Secretary.
For a FFEL loan that is held by a lender, if the lender determines
that the discharge application supports the conclusion that the
borrower is totally and permanently disabled, the lender files a
disability discharge claim with the guaranty agency. The guaranty
agency reviews the borrower's application, and if the guaranty agency
concurs with the lender's preliminary determination of discharge
eligibility, it pays the lender's discharge claim and assigns the loan
to the Secretary.
Once the loan has been assigned, the Secretary reviews the loan
discharge application and makes an initial determination of the
borrower's eligibility for discharge. For Direct Loans or for Perkins
or FFEL loans that were already held by the Secretary, the Secretary's
review is the initial review of the borrower's loan discharge
application.
If the Secretary concludes that the information on the discharge
application does not support the conclusion that the borrower is
eligible for a total and permanent disability discharge, the Secretary
notifies the borrower that the discharge request has been denied and
that the loan is due and payable to the Secretary under the
[[Page 36560]]
terms and conditions of the promissory note.
If the Secretary determines that the borrower appears to meet the
eligibility requirements for a total and permanent disability
discharge, the Secretary grants the borrower a conditional discharge
for a period of up to three years, beginning on the date the physician
certified the borrower's discharge application. During the conditional
discharge period, the borrower is not required to make any payments on
the loan and no interest accrues on the loan. The Secretary grants a
final discharge if, during and at the end of the conditional discharge
period, the borrower: (1) Does not receive a new title IV loan or a
Teacher Education Assistance for College and Higher Education (TEACH)
Grant; (2) does not have earnings from employment that exceed the
poverty line amount for a family of two; and (3) ensures that the full
amount of any title IV loan disbursement made after the physician's
certification date for a loan the borrower received prior to the
physician's certification date is returned to the holder within 120
days of the disbursement date. After granting a final discharge of a
loan, the Secretary returns to the sender any payments on the loan that
were received after the physician's certification date.
If at any time during or at the end of the conditional discharge
period the borrower fails to meet one of the requirements for a final
discharge, the Secretary ends the conditional discharge period and
resumes collection activity on the loan. The borrower is not charged
interest for the period during which the loan was conditionally
discharged.
Proposed Regulations: The proposed regulations would establish two
separate loan discharge processes, one for veterans who have been
determined by the Secretary of Veterans Affairs to be unemployable due
to a service-connected disability, and a different process (the general
discharge process) for borrowers who have been determined (as certified
by a physician) to be unable to engage in substantial gainful activity
due to a physical or mental impairment that can be expected to result
in death or that has lasted for a continuous period of not less than 60
months, or that can be expected to last for a continuous period of not
less than 60 months. The discharge process for veterans who have been
determined to be unemployable due to a service-connected disability is
discussed below under the heading ``Discharge Process for Veterans Who
Have Been Determined to be Unemployable Due to a Service-Connected
Disability.'' This section covers the general discharge process for
other borrowers.
The general discharge process included in these proposed
regulations is similar in some respects to the discharge process under
the current regulations. However, instead of using the current
conditional discharge process, the Secretary would discharge a
borrower's obligation to repay a loan after determining that the
borrower meets the discharge eligibility requirements. The Secretary
would then reinstate the borrower's obligation to repay the loan if the
borrower fails to meet certain requirements during a post-discharge
monitoring period.
Under the proposed regulations, a borrower who wishes to apply for
a total and permanent disability loan discharge would submit to his or
her loan holders a completed loan discharge application that has been
certified by a physician. The loan holder review process would be the
same as under the current regulations. If the loan holder and, if
applicable, the guaranty agency determine that the information provided
on the discharge application supports the conclusion that the borrower
is totally and permanently disabled in accordance with the regulatory
definition, the loan would be assigned to the Secretary, as under the
current regulations. The Secretary would then review the loan discharge
application and make a determination of the borrower's eligibility for
discharge. As under the current regulations, the Secretary's review
would be the initial review of the borrower's discharge application in
the case of a Direct Loan or a Perkins or FFEL loan that is already
held by the Secretary.
If the Secretary concludes that the information on the discharge
application does not support the conclusion that the borrower is
eligible for a total and permanent disability loan discharge, the
Secretary would notify the borrower that the discharge request has been
denied and that the loan is due and payable to the Secretary under the
terms and conditions of the promissory note.
Under the proposed regulations, if the Secretary determines that
the borrower meets the eligibility requirements for a total and
permanent disability discharge, the Secretary would grant a final
discharge and return to the sender any payments on the loan that were
received after the physician's certification date. At the same time,
the Secretary would notify the borrower that the borrower's obligation
to repay the loan will be reinstated if, within three years from the
discharge date, the borrower: (1) Receives a new title IV loan or TEACH
Grant; (2) has earnings from employment that exceed the poverty line
amount for a family of two; or (3) fails to ensure that the full amount
of any title IV loan or TEACH Grant disbursement made after the
discharge date for a loan or TEACH Grant the borrower received prior to
the discharge date is returned to the holder or to the Secretary, as
applicable, within 120 days of the disbursement date. If a borrower's
obligation to repay a loan is reinstated, the borrower is not charged
interest for the period from the discharge date to the date of the
reinstatement.
The proposed regulations would also provide that, if a borrower
received a title IV loan or TEACH Grant before the date the physician
certified the loan discharge application and a disbursement of that
loan or grant is made after the date of the physician's certification
but before the date the Secretary grants the discharge, the processing
of the borrower's loan discharge request will be suspended until the
borrower ensures that the full amount of the disbursement has been
returned to the loan holder or to the Secretary, as applicable.
Finally, the proposed regulations would provide that if a
borrower's obligation to repay a loan is reinstated after a total and
permanent disability discharge, the Secretary will notify the borrower
of the reinstatement. The notification will provide the borrower with
the reason or reasons for the reinstatement, an explanation that the
first loan payment following reinstatement will be due no earlier than
60 days after the date of the notification, and information on how the
borrower may contact the Department if the borrower has questions about
the reinstatement or believes that the obligation to repay the loan was
reinstated based on incorrect information.
Reasons: The proposed regulations reflect the statutory provisions
that authorize the Secretary to reinstate a borrower's obligation to
repay a previously discharged loan under certain conditions. Under the
proposed regulations, the general discharge process would, in many
respects, be similar to the discharge process under the current
regulations. The non-Federal negotiators were generally supportive of
this approach. The most significant difference between the proposed and
current regulations is that the current conditional discharge process
will be replaced by a process in which the Secretary discharges the
borrower's obligation to repay the loan after determining that the
borrower is totally
[[Page 36561]]
and permanently disabled, but reinstates the borrower's repayment
obligation if the borrower fails to meet certain requirements during a
3-year post-discharge monitoring period. The proposed 3-year post-
discharge monitoring period is consistent with the current 3-year
conditional discharge period, and the conditions that would result in
the reinstatement of a borrower's obligation to repay a previously
discharged loan are essentially the same as the conditions that, under
the current regulations, result in a conditionally discharged loan
being returned to repayment status.
The Department initially proposed a 5-year post-discharge
monitoring period and also proposed that upon the reinstatement of a
borrower's obligation to repay a previously discharged loan for failure
to meet one of the post-discharge requirements, the borrower would be
charged interest for the period from the date of discharge to the
reinstatement date. The non-Federal negotiators did not support these
proposals. Some negotiators questioned the basis for having a 5-year
post-discharge monitoring period, since under current regulations the
conditional discharge period is only three years. With regard to the
Department's initial proposal to charge interest from the discharge
date if a borrower's obligation to repay a discharged loan is
reinstated, the non-Federal negotiators noted that, under current
regulations, a borrower is not charged interest from the conditional
discharge date if a conditionally discharged loan is returned to
repayment status before the end of the conditional discharge period.
After further consideration of the non-Federal negotiators' concerns,
the Department revised the proposed regulations by changing the post-
discharge monitoring period from five years to three years, and by
removing the provision that would have required a borrower to pay
interest from the date of discharge if the borrower's repayment
obligation is reinstated.
The Department also initially proposed that one of the conditions
for reinstatement of a borrower's obligation to repay a previously
discharged loan would be if the borrower had annual earnings from
employment during the post-discharge monitoring period that exceeded
the poverty guideline amount for the borrower's family size. Current
regulations provide that a conditionally discharged loan is returned to
repayment status if the borrower has employment earnings during the
conditional discharge period that exceed the poverty guideline amount
for a family of two, regardless of the borrower's actual family size.
The Department believed that the proposed change to a standard based on
the borrower's actual family size would be more equitable, as it would
allow a borrower with a family size greater than two to have a higher
level of employment earnings during the post-discharge monitoring
period without being subject to reinstatement of the borrower's
repayment obligation on the discharged loan. However, some non-Federal
negotiators expressed concerns that the proposed change to an
employment earnings standard based on actual family size would be
confusing to borrowers, since a borrower's family size could change
during the post-discharge monitoring period. These non-Federal
negotiators believed that it would be preferable to maintain the
current standard based on a family size of two, so that a borrower
would not need to monitor changes in the employment earnings limit if
the borrower's family size increased or decreased during the post-
discharge monitoring period. The Department agreed.
The Department's initial proposed regulations did not include a
provision comparable to the provision in current regulations that
addresses the treatment of a title IV loan disbursement made during the
conditional discharge period for a loan the borrower received prior to
the physician's certification date. Under the current regulations, a
borrower is ineligible for a final discharge unless the borrower
ensures that such a disbursement is returned to the loan holder within
120 days of the disbursement date. The Department initially did not
include a similar provision in the proposed regulations because the
current regulatory provision is tied to the conditional discharge
period, which would be eliminated under the proposed regulations. Under
the proposed regulations, the post-discharge monitoring period begins
on a later date than the current conditional discharge period, and a
disbursement of a title IV loan received prior to the physician's
certification date is less likely to occur. However, some non-Federal
negotiators noted that this situation could still arise under the
proposed regulations and recommended that the proposed regulations be
revised to include a provision comparable to the provision in the
current regulations. The Department agreed. The proposed regulations
would provide that a borrower's obligation to repay a discharged loan
will not be reinstated if the borrower ensures that a title IV loan or
TEACH Grant disbursement made during the post-discharge monitoring
period for a loan or TEACH Grant received prior to the discharge date
is returned to the loan holder within 120 days of the disbursement
date. The proposed regulations would include TEACH Grant disbursements
in this provision because a condition for receiving a TEACH Grant is
that the student must agree to complete a teaching service obligation.
A student who accepts a TEACH Grant presumably would not be totally and
permanently disabled, as this condition would preclude the student from
completing the TEACH Grant service obligation.
The Committee also discussed the possible effect on a borrower's
discharge request of a disbursement being made during the period
between the physician's certification date and the discharge date for a
loan or TEACH Grant received prior to the physician's certification
date. This issue does not arise under the current regulations because
of the structure of the conditional discharge period. Based on these
discussions, the Department revised the proposed regulations to provide
that if a disbursement of a title IV loan or TEACH Grant is made during
the period between the physician's certification date and the discharge
date, the processing of the borrower's loan discharge request will be
suspended until the borrower ensures that the disbursement is returned
to the loan holder or the Secretary, as applicable.
Finally, some of the non-Federal negotiators expressed concern that
the Department's initial proposal did not explicitly provide that the
Secretary would notify a borrower who fails to meet one of the
eligibility requirements during the post-discharge monitoring period
that the borrower's obligation to repay the discharged loan has been
reinstated. The Department's regulations generally do not specifically
address the actions of the Department, but the non-Federal negotiators
strongly urged the Department to include such a provision in the
proposed regulations. These negotiators also requested that the
proposed regulations specify that the Secretary's notification of
reinstatement will tell borrowers the reason for the reinstatement and
provide the borrower with information on how to contact an appropriate
office or official if they have questions or believe that the
reinstatement was based on incorrect information. The Department agreed
to add to the proposed regulations a provision stating that the
Secretary will notify a borrower that his or her obligation to repay a
previously
[[Page 36562]]
discharged loan has been reinstated. The proposed regulations also
provide that the notification of reinstatement will include the reason
or reasons for the reinstatement, an explanation that the first payment
due date on the loan following reinstatement will be no earlier than 60
days after the date of the notification of reinstatement, and
information on how the borrower may contact the Department if he or she
has questions about the reinstatement or believes that the obligation
to repay the loan was reinstated based on incorrect information.
The Department also agreed to take steps to further improve its
notices to borrowers who have applied for or received disability
discharges under the proposed regulations to more clearly explain the
discharge process and the borrower's rights and responsibilities with
respect to that process. In particular, the Department intends to take
steps to develop a process to acknowledge receipt of a borrower's
submission of a request that the Department reconsider its
determination and to provide borrowers with information on the
Secretary's process for considering such requests and how the borrower
will be made aware of the Secretary's decision.
Discharge Process for Veterans Who Have Been Determined To Be
Unemployable Due to a Service-Connected Disability (Sec. Sec.
674.61(c), 682.402(c)(8), and 685.213(c))
Statute: The HEOA added sections 437(a)(2) and 464(c)(1)(F)(iv) to
the HEA to provide that a borrower who has been determined by the
Secretary of Veterans Affairs (VA) to be unemployable due to a service-
connected disability and who provides documentation of that
determination to the Secretary is to be considered totally and
permanently disabled for the purpose of discharging the borrower's
title IV loans. Section 437(a)(2) of the HEA further specifies that a
borrower who provides such documentation may not be required to present
additional documentation for the purpose of determining eligibility for
a total and permanent disability loan discharge.
Proposed Regulations: The proposed regulations would establish a
separate discharge application process for borrowers who provide
documentation showing that they have been determined by the VA to be
unemployable due to a service-connected disability. Under the proposed
regulations, the borrower would submit to the loan holder a loan
discharge application accompanied by documentation from the VA showing
that the borrower has been determined to be unemployable due to a
service-connected disability. The borrower would not be required to
have a physician certify the loan discharge application, and would not
be required to provide any additional documentation related to the
borrower's service-connected disability.
If the documentation from the VA does not indicate that the
borrower has been determined to be unemployable due to a service-
connected disability, the loan holder would deny the borrower's
discharge request. However, if the documentation indicates that the
borrower may be totally and permanently disabled under the general
definition of a total and permanent disability, the loan holder would
inform the borrower that he or she may reapply for a loan discharge
under the general procedures for a disability discharge.
If the documentation indicates that the VA has determined that a
Perkins Loan borrower is unemployable due to a service-connected
disability, the Perkins school loan holder would submit a copy of the
borrower's discharge application and supporting documentation to the
Secretary, and would notify the borrower that the discharge request has
been referred to the Secretary for a determination of eligibility. In
the case of a FFEL loan that is held by a lender, the lender would
refer the borrower's application to the guaranty agency and file a
disability discharge claim with the agency. If the guaranty agency
agrees that the VA documentation shows the borrower has been determined
to be unemployable due to a service-connected disability, the guaranty
agency would refer the borrower's application to the Secretary. In
contrast to the general discharge procedures, the borrower's loan would
not be assigned to the Secretary.
Under the proposed regulations, if the Secretary determines that
the borrower meets the total and permanent disability standard based on
a determination by the VA that the borrower is unemployable due to a
service-connected disability, the Secretary would notify the Perkins
Loan school or guaranty agency that the borrower is eligible for a
total and permanent disability loan discharge. The Perkins Loan school
would then discharge the borrower's loan and return to the sender any
payments on the loan that were received on or after the effective date
of the VA's determination that the borrower is unemployable due to a
service-connected disability. The guaranty agency would pay the
lender's disability discharge claim and notify the borrower that the
borrower's obligation to make any further payments on the loan has been
discharged. Upon receipt of the claim payment from the guaranty agency,
the lender would return any payments on the loan received on or after
the effective date of the VA's determination to the person who made the
payments. There would be no post-discharge monitoring period for a
borrower who receives a total and permanent disability discharge
through this process, and the borrower would not be subject to
reinstatement of his or her obligation to repay the discharged loan
based on post-discharge employment earnings or receipt of a new title
IV loan or TEACH Grant. The same discharge process would apply to
borrowers with Direct Loans or Perkins or FFEL loans that are held by
the Department.
If the Secretary determines, based on a review of the documentation
from the VA, that the borrower does not meet the standard for a
disability discharge, the Secretary would notify the Perkins Loan
school or guaranty agency of that decision, and collection on the loan
would resume.
Reasons: The proposed regulations are necessary to implement the
statutory total and permanent disability discharge standard for certain
veterans.
Borrower Eligibility for New Title IV Loans After a Prior Total and
Permanent Disability Discharge (Sec. Sec. 674.9(g), 682.201(a), and
685.200(a))
Statute: The HEA does not specify eligibility requirements for
borrowers who apply for a new title IV loan after a prior loan has been
discharged due to a total and permanent disability.
Current Regulations: Under the current regulations in the Perkins,
FFEL, and Direct Loan programs, a borrower whose prior title IV loan
was discharged due to a total and permanent disability must meet
certain requirements before receiving a new loan. Specifically, the
borrower must: (1) Provide a certification from a physician that the
borrower is able to engage in substantial gainful activity; and (2)
sign a statement acknowledging that any new loan the borrower receives
cannot be discharged in the future based on any present condition,
unless that condition substantially deteriorates. In addition, if a
borrower's prior loan is in a conditional discharge status, the
conditionally discharged loan must be returned to repayment status
before the borrower may receive a new loan.
Proposed Regulations: The proposed regulations would retain the
current requirement that, to receive a new title IV loan after a
disability discharge, a borrower would have to obtain a
[[Page 36563]]
certification from a physician that the borrower is able to engage in
substantial gainful activity, and acknowledge that the new loan may not
be discharged in the future based on any present condition unless the
condition substantially deteriorates. The proposed regulations would
also provide that if a borrower receives a new title IV loan within
three years of the date that a prior title IV loan or TEACH Grant
service obligation was discharged on the basis of the borrower's
disability, the borrower would be required to resume repayment on the
previously discharged loan or acknowledge that he or she is again
subject to the terms of the TEACH Grant agreement to serve before
receiving the new loan.
The current total and permanent disability discharge regulations
will continue to apply to any borrower whose loan discharge application
is received prior to the effective date of any final regulations
published as a result of this NPRM. Therefore, the proposed regulations
would retain the current provision that requires a loan in a
conditional discharge status to be returned to repayment status before
a borrower who received a conditional discharge may receive a new loan.
Reasons: The changes to the borrower eligibility regulations are
conforming changes that are needed to effectively implement the new
total and permanent disability loan discharge process.
Consolidation Loans (Sec. Sec. 682.201(e), 682.206(f) and 685.220(d))
Statute: The HEOA amended sections 428C(a)(3)(B)(i)(V) and
428C(b)(5) of the HEA to provide that FFEL loan borrowers may
consolidate their loans into a Direct Consolidation Loan for the
purpose of using the no interest accrual benefit for active duty
service members, which is only available in the Direct Loan Program.
This benefit provides that interest will not accrue on the Direct Loan
of an eligible military borrower for a period of not more than 60
months while the borrower is serving on active duty during a war or
other military operation or national emergency, or performing
qualifying National Guard duty during a war or other military operation
or national emergency, and is serving in an area of hostilities in
which service qualifies for special pay under section 310 of title 37
of the United States Code.
The HEOA also amended section 433 of the HEA by adding a separate
set of disclosures for Consolidation loan borrowers. At the time a
lender provides a Consolidation loan application to a prospective
borrower, it must provide specific information about Consolidation
loans. In particular, a lender must inform the borrower that by
applying for a Consolidation loan, the borrower is not obligated to
take the loan.
Current regulations: Section 682.201 of the regulations establishes
the eligibility requirements for borrowers seeking a FFEL Consolidation
loan. Section 685.220 of the current regulations establishes the
eligibility requirements for a borrower seeking a Direct Consolidation
Loan. Current regulations permit borrowers who have only FFEL loans to
consolidate those loans into a Direct Consolidation Loan to obtain an
income contingent repayment plan or to qualify for the Public Service
Loan Forgiveness Program. In addition, FFEL borrowers whose loans have
been submitted to the guaranty agency for default aversion assistance
may apply for a Direct Consolidation Loan.
Section 682.206(f) of the current regulations includes requirements
for lenders in the making of FFEL Consolidation loans. Those
requirements include the requirement that the lender obtain lender
verification certifications from the holders of the loans to be repaid
by the Consolidation loan.
Proposed regulations: The proposed regulations would amend
Sec. Sec. 682.201(e) and 685.220(d) to include an additional condition
under which a borrower with only FFEL loans may consolidate those loans
into a Direct Consolidation Loan. The proposed regulations would
provide that a borrower with only FFEL loans may consolidate into the
Direct Loan Program to use the no accrual of interest benefit for
active duty military service personnel.
The proposed regulations would also incorporate into the
regulations a statutory change made by the College Cost Reduction and
Access Act of 2007 (CCRAA) that is not currently reflected in the
Department's regulations. Specifically, the proposed regulations would
provide that a borrower may consolidate a FFEL Consolidation loan into
the Direct Loan Program without including another eligible loan in the
consolidation if the FFEL Consolidation loan is in default, or if the
borrower wishes to obtain an income-based repayment plan.
The proposed regulations would also modify section 682.206(f) to
incorporate a new requirement that is needed to fully implement Sec.
682.205(i)(7), which requires lenders to inform borrowers that, by
applying for the Consolidation loan, the borrower is not obligated to
agree to take the loan. Section 682.206(f) would be amended to include
a requirement that the lender provide a Consolidation loan borrower a
period of not less than 10 days, from the date the borrower is notified
by the lender that it is ready to make the Consolidation loan, to
cancel the loan. The proposed regulations would require the lender to
send the notice of the option to cancel the loan to the borrower before
making any payments to pay off a loan with the proceeds of a
Consolidation loan.
Reasons: The proposed changes to Sec. Sec. 682.201(e) and
685.220(d) are being made to implement statutory requirements. The
proposed change to Sec. 682.206(f) is being made to ensure that
borrowers are given an appropriate opportunity to cancel a
Consolidation loan for which they may have applied.
The HEOA instituted several new disclosure requirements for lenders
and established very specific disclosures requirements for lenders
making a Consolidation loan. In particular, the HEOA requires a lender
to inform a Consolidation loan applicant that applying for the loan
does not obligate the borrower to agree to take the loan. The
Department determined that it was important to ensure that borrowers
are given both a clear explanation of the process for canceling a
Consolidation loan and the time frame within which they may exercise
their right to cancel the loan. Therefore, the Department is proposing
language in Sec. 682.206(f) providing borrowers with a 10-day period,
before a Consolidation loan is made, during which the borrower could
reconsider the Consolidation loan and cancel the loan if appropriate.
There were a number of issues raised by the negotiators regarding
this provision. Some non-Federal negotiators expressed concern about
the Department's original proposal to provide a five-day period for a
borrower to cancel the loan with the lender. These non-Federal
negotiators did not think the initial proposal provided enough clarity
as to the date on which the five-day period would begin. One non-
Federal negotiator indicated that the consolidation process is highly
automated and if the servicer of the loans to be consolidated is also
the servicer or lender for the Consolidation loan, the loan process
could be completed in as little as 24-48 hours. The Department was
asked to provide an opportunity for a borrower to waive his or her
right to cancel the loan to allow the process to occur more quickly if
the borrower chose to do so.
During the negotiations, the Department described how the Direct
Loan Program currently provides borrowers an opportunity to affirm
their decision to take a Consolidation loan.
[[Page 36564]]
Based on the practice in the Direct Loan Program, the Department
proposed revised language establishing a timeframe for a borrower to
cancel a Consolidation loan that would be similar to the timeframe in
the Direct Loan Program, and that would be clear and understandable to
all participants. The language in proposed Sec. 682.206(f)(ii)
reflects the revised proposal.
The Department strongly believes that the HEA clearly intends that
a standard process should be established to provide a Consolidation
loan applicant with the opportunity to cancel the application for the
loan. The Department believes the proposed regulatory language reflects
an appropriate balance between allowing the borrower sufficient time to
make an informed determination about moving forward with the process
for a Consolidation loan while not unnecessarily delaying its
completion. The Department does not agree with the recommendation that
the regulations provide an opportunity for a borrower to waive the
right to cancel a Consolidation loan if the borrower wants the
consolidation process to occur more quickly. The Department believes
that the 10-day cancellation period provides appropriate protection to
the borrower. Accordingly, under the proposed regulations, the 10-day
cancellation period may not be waived by the borrower.
One non-Federal negotiator asked if the proposed cancellation
notification requirement would apply to a request by a borrower to add
loans to an existing Consolidation loan during a 180-day period as
permitted by the HEA. The negotiator was concerned that if the
requirement applied to requests to add loans to an existing
Consolidation loan, it could have a negative consequence to a borrower
if a loan was inadvertently left out of the consolidation process and
simply needed to be added. The Department agreed that once the loan is
made, the 10-day waiting period does not apply if the borrower adds
additional loans during the permitted 180-day period.
In-School Deferments, Interest Capitalization, and Administrative
Forbearance for PLUS Loans (Sec. Sec. 682.202(b), 682.210(v),
682.211(f), 685.202(b), 685.204(g), and 685.205(b))
Statute: Section 428B(d) of the HEA, as amended by the HEOA, adds
new in-school deferment provisions for PLUS loans first disbursed on or
after July 1, 2008. Specifically, the HEA provides that a parent PLUS
borrower may defer repayment of a PLUS loan first disbursed on or after
July 1, 2008 during the period while the student on whose behalf the
loan was obtained is enrolled at an eligible institution on at least a
half-time basis, and during the 6-month period that begins on the later
of the day after the student ceases to be enrolled on at least a half-
time basis or, if the parent borrower is also a student, the day after
the parent ceases to be enrolled on at least a half-time basis. A
graduate or professional student PLUS borrower may defer repayment of a
PLUS loan first disbursed on or after July 1, 2008 during the 6-month
period that begins on the day after the student ceases to be enrolled
at an eligible institution on at least a half-time basis.
The HEA does not address the capitalization of interest on a PLUS
loan that accrues during the period from the date of the first
disbursement until the date the repayment period begins.
Current Regulations: Current regulations do not address the
capitalization of interest on a PLUS loan that accrues from the date of
the first disbursement until the date the repayment period begins.
Proposed Regulations: The proposed regulations would revise
Sec. Sec. 682.210 and 685.204 to provide that, upon the request of the
borrower, a parent PLUS borrower must be granted a deferment on a PLUS
loan first disbursed on or after July 1, 2008, during the period when
the student on whose behalf the loan was obtained is enrolled on at
least a half-time basis at an eligible institution, and during the 6-
month period that begins on the later of the day after the student
ceases to be enrolled on at least a half-time basis or, if the parent
borrower is also a student, the day after the parent ceases to be
enrolled on at least a half-time basis.
For graduate and professional student PLUS borrowers, the proposed
regulations would provide that a borrower may be granted a deferment on
a PLUS loan first disbursed on or after July 1, 2008 during the 6-month
period that begins on the day after the student ceases to be enrolled
on at least a half-time basis at an eligible institution. If a lender
or the Secretary grants an in-school deferment on a student PLUS loan
based on information from the borrower's school about the borrower's
eligibility for a new loan, student status information from the school
or information from the National Student Loan Data System (NSLDS)
confirming the borrower's half-time enrollment status, the in-school
deferment period for a student PLUS loan first disbursed on or after
July 1, 2008 would include the 6-month period that begins on the day
after the student PLUS borrower ceases to be enrolled on at least a
half-time basis.
The proposed regulations would revise the interest capitalization
provisions in Sec. 682.202(b) to provide that a lender may capitalize
interest on a PLUS loan that has accrued from the date of the first
disbursement until the date the repayment period begins, and would make
a corresponding change in the Direct Loan Program regulations by
revising Sec. 685.202(b) to provide that the Secretary may capitalize
unpaid interest on a PLUS loan when the loan enters repayment.
Finally, the proposed regulations would add a new administrative
forbearance provision to Sec. 682.211(f) allowing a lender to grant a
forbearance, upon notice to the borrower, on a borrower's PLUS loans
first disbursed before July 1, 2008 to align repayment with a
borrower's PLUS loans first disbursed on or after July 1, 2008, or with
a borrower's Stafford Loans that are subject to a grace period. The
lender would be required to notify the borrower that he or she has the
option to cancel the forbearance and to continue paying on the loan. A
corresponding administrative forbearance provision would be added to
Sec. 685.205(b) in the Direct Loan Program regulations.
Reasons: The proposed PLUS loan deferment regulations implement
statutory provisions that were added to the HEA by the HEOA.
The Department is proposing to amend the current interest
capitalization provisions for PLUS loans to reflect current practice
with regard to capitalization of unpaid loan interest that accrues from
the date of the first disbursement until the date the loan enters
repayment.
The proposed new administrative forbearance provision reflects a
recommendation from one of the non-Federal negotiators. This negotiator
was concerned that PLUS loan borrowers, particularly student PLUS loan
borrowers, who have both PLUS loans first disbursed before July 1, 2008
and PLUS loans first disbursed on or after July 1, 2008 may believe
that all of their PLUS loans are eligible for the new 6-month post-
enrollment deferment period. However, this deferment is only available
on PLUS loans first disbursed on or after July 1, 2008. Because the 6-
month post-enrollment deferment for student PLUS loans first disbursed
on or after July 1, 2008 may be granted automatically as an extension
of the borrower's in-school deferment period, a student PLUS borrower
who also has pre-July 1, 2008 PLUS loans may not understand that the
loans first disbursed
[[Page 36565]]
before July 1, 2008 do not qualify for the post-enrollment deferment,
and the in-school deferment period on such loans will end when the
student ceases to be enrolled on at least a half-time basis. The non-
Federal negotiator asked the Department to consider amending the
regulations to provide for the alignment of repayment of a borrower's
PLUS loans first disbursed before July 1, 2008 with a borrower's PLUS
loans first disbursed on or after July 1, 2008, and with a borrower's
Stafford Loans that have a grace period, so that the borrower would
begin making payments on all of the loans at the same time. The
Department agreed.
Applicability of the Servicemembers Civil Relief Act (SCRA) to FFEL and
Direct Loan Program Loans (Sec. Sec. 682.202, 682.302, and 685.202)
Statute: The HEOA amended section 428(d) of the HEA to provide that
FFEL and Direct Loan program loans are subject to the provision in
section 207 of the Servicemembers Civil Relief Act (50 U.S.C. 527)
(SCRA) that limits the interest rate on a borrower's loan to six
percent during periods of active duty military service. The limitation
applies to loans incurred by the servicemember, or by the servicemember
and the servicemember's spouse jointly, before the servicemember
entered military service. Section 438 of the HEA was also amended to
specify that, for any FFEL program loan first disbursed on or after
July 1, 2008 that is subject to the six percent interest rate limit of
the SCRA, the interest rate used to calculate the lender's special
allowance payment is the rate that is determined in accordance with the
SCRA.
Proposed Regulations: The proposed regulations would revise
Sec. Sec. 682.202 and 685.202 to provide that, effective August 14,
2008, upon a loan holder's receipt of a written request from a borrower
and a copy of the borrower's military orders, the maximum interest rate
(as defined in 50 U.S.C. 527, App, section 207(d)) that may be charged
on FFEL or Direct Loan program loans made prior to the borrower
entering active duty status is six percent while the borrower is on
active duty status. The proposed regulations would also revise Sec.
682.302 of the FFEL regulations by adding a new paragraph (h) that
specifies that for FFEL loans first disbursed on or after July 1, 2008,
that are subject to the SCRA interest rate cap, a FFEL lender's special
allowance payment is calculated as it otherwise would be under program
requirements, except that the applicable interest rate used is six
percent.
Reasons: The proposed regulations are necessary to reflect
statutory requirements.
During the negotiations, the Department clarified that for
determining compliance with this provision, interest under the SCRA
includes service charges, renewal charges, fees, or any other charges
(except bona fide insurance) with respect to an obligation or
liability. The Department also noted that a lender is prohibited from
assessing a borrower who is subject to the SCRA interest rate cap an
additional charge after the borrower's period of active duty military
service that is equal to the difference between the otherwise
applicable interest rate on the FFEL loan and the six percent cap.
In response to questions from the negotiators, the Department also
clarified that the SCRA interest rate cap applies to the loan, not to
the borrower. As long as the debt was incurred before the borrower's
military service began, the interest rate cap applies to any joint
consolidation loan or other co-borrowed loan, and applies to a PLUS
loan made to a borrower with an endorser even if only one of the
individuals is performing active duty military service. For purposes of
this restriction, a loan is considered incurred by an endorser when the
Endorser Addendum to the PLUS Loan Master Promissory Note is signed,
and the requirement that the debt be incurred before military service
is based on that date. The debt-before-service date on a consolidation
loan is the date the consolidation loan was made as a new debt, not the
disbursement date of the loans repaid by the consolidation loan.
In-School Deferment (Sec. Sec. 682.210(a), 682.210(c)(1), and
685.204(b)(1))
Statute: Section 428(b)(1)(Y) of the HEA was amended by the HEOA to
include an additional method for granting an in-school deferment on a
FFEL or Direct Loan. A loan holder may grant an in-school deferment
based on the lender's confirmation of the borrower's half-time
enrollment status through the use of NSLDS, if the confirmation is
requested by the institution of higher education. A new provision was
also added to the HEA to require a lender, at the time the lender
grants a deferment to a borrower with an unsubsidized Stafford Loan, to
provide the borrower with information to assist the borrower in
understanding the impact of capitalization of interest on the
borrower's loan principal and on the total amount of interest to be
paid during the life of the loan.
Current Regulations: Section 682.210(c)(1) of the current FFEL
regulations specifies that a lender must grant an in-school deferment
when a borrower requests and submits supporting documentation for the
deferment or when the lender receives information from the school on a
borrower's eligibility for an in-school deferment in connection with
the borrower's receipt of a new loan, or when the lender receives
student status information, directly or indirectly, from the borrower's
school indicating the borrower's eligibility for the deferment. Section
685.204(b)(1) of the Direct Loan program regulations contains
comparable provisions.
Section 682.210(c)(2) of the FFEL regulations requires the lender,
when granting an in-school deferment on a FFEL program loan based on
information provided by the school, to notify the borrower that the
deferment has been granted and that the borrower has the option to pay
the accruing interest on an unsubsidized loan or to cancel the
deferment and continue paying on the loan. The lender is also required
to include in the notice an explanation of the consequences of those
options. Under Sec. 685.204(b)(1)(iii)(B) of the Direct Loan
regulations, the Secretary notifies the borrower after granting an in-
school deferment based on information provided by the school that the
borrower has the option to continue paying on the loan, and that if the
borrower elects to cancel the deferment, the borrower may pay the
principal and interest payments that were deferred. If the borrower
fails to do so, the Secretary applies a deferment and capitalizes the
interest that accrued during the period in which payments were not
made.
Proposed Regulations: The proposed regulations would revise
Sec. Sec. 682.210(c)(1) and 685.204(b)(1)(iii)(A) to reflect the
additional statutory method a lender or the Secretary may use to grant
an in-school deferment, based on confirmation of the borrower's half-
time enrollment status through the use of NSLDS if requested by the
borrower's school. The proposed regulations would also revise Sec.
682.210(a)(3) of the FFEL regulations to provide that if a borrower is
responsible for the interest on a loan during a deferment period, the
lender, at or before the time the deferment is granted, must notify the
borrower that he or she has the option to pay the accruing interest or
cancel the deferment and continue paying on the loan. The lender would
also be required to provide information, including an example, on the
impact on a borrower's
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loan debt of capitalization of accrued unpaid interest and on the total
amount of interest to be paid over the life of the loan. A similar
notification provision that applied only to the granting of in-school
deferments would be removed from Sec. 682.210(c)(2) of the FFEL
regulations. A comparable change would be made in Sec.
685.204(b)(1)(iii)(B) of the Direct Loan regulations to provide that
borrowers will be notified of their option to cancel a deferment and
continue paying on the loan and will be provided with information on
the impact of capitalization, including an example.
Reasons: The proposed changes are necessary to reflect the
statutory changes made by the HEOA that affect the process for granting
in-school deferments in the FFEL and Direct Loan programs and that
require that additional information be provided so that borrowers
better understand the impact of the capitalization of interest on the
total cost of the loan. At the request of the negotiators, the
Department clarified that the use of NSLDS, at the request of a
borrower's school, to confirm a borrower's enrollment status is an
additional method for granting in-school deferments and does not
replace other pre-existing methods. In-school deferments may continue
to be granted by a lender consistent with the requirements of Sec.
682.210(s)(1)(iii) and based on student status information provided
directly or indirectly by a school, including status information
reported to NSLDS, without a specific request from the school.
The Department also clarified that the information provided to
borrowers on the impact of capitalization of accruing unpaid interest
during deferment periods, including the example, may be general in
nature rather than borrower-specific. The Department also agreed with a
proposal from some non-Federal negotiators that it would be helpful to
borrowers to provide the required information on capitalization when
the borrower applies for the deferment, by including it in standardized
deferment forms, rather than only providing the information when the
borrower is granted the deferment.
Income-Based Repayment (IBR) Plan (Sec. Sec. 682.215 and 685.221)
Definition of Partial Financial Hardship (Sec. Sec. 682.215(a)(4) and
685.221(a)(4))
Statute: Section 493C(a)(3) of the HEA provides that a borrower has
a partial financial hardship, for the purpose of establishing
eligibility for the income-based repayment (IBR) plan, if the amount
due on all of the borrower's eligible FFEL and Direct Loans (as
calculated under a standard repayment plan based on a 10-year repayment
period) exceeds 15 percent of the difference between the borrower's
(and, if applicable, the borrower's spouse's) adjusted gross income
(AGI) and 150 percent of the poverty guideline for the borrower's
family size. If a married borrower files a separate Federal income tax
return, section 493C(d) of the HEA provides that only the borrower's
income and eligible student loan debt are used in determining the
amount of the borrower's payment under the IBR plan. An eligible loan
under section 493C(a)(3) is any loan made, insured, or guaranteed under
the FFEL and Direct Loan programs other than parent PLUS loans made
under the FFEL and Direct Loan programs and consolidation loans under
both programs that repaid parent PLUS loans.
Current Regulations: The current regulations reflect the statutory
definition of the term partial financial hardship and define the terms
``AGI,'' ``family size,'' and ``poverty guideline'' consistent with the
use of those terms in Sec. 682.210 for purposes of determining a
borrower's eligibility for an economic hardship deferment. AGI means
the income reported by the borrower to the Internal Revenue Service
(IRS). For a married borrower filing jointly, AGI includes both the
borrower's and spouse's income. If a married borrower files a separate
Federal tax return, AGI includes only the borrower's income. A
borrower's family size includes the borrower, the borrower's spouse and
the borrower's children (including unborn children who will be born
during the year the borrower certifies family size), if the children
receive more than half their support from the borrower for the year the
borrower certifies family size. Other individuals are included in
family size if, at the time the borrower certifies family size, those
other individuals live with the borrower and receive more than half
their support for the year the borrower certifies family size. Support
includes money, gifts, loans, housing, food, clothes, car, medical and
dental care, and payment of college costs. The poverty guideline is the
income categorized by State and family size in the poverty guidelines
published annually by the United States Department of Health and Human
Services pursuant to 42 U.S.C. 9902(2). If the borrower is not a
resident of a State identified in the poverty guidelines, the poverty
guideline to be used for the borrower is the poverty guideline (for the
relevant family size) used for the 48 contiguous States. The term
eligible loan reflects the statutory definition.
Proposed Regulations: The proposed regulations would specify that
the annual amount due on a borrower's eligible loans for purposes of
determining whether the borrower has a partial financial hardship is
the greater of the amount due on the eligible loans as calculated under
a standard repayment plan with a 10-year repayment period when the
borrower initially entered repayment on those loans, or the annual
amount due on those loans as calculated under a standard repayment plan
with a 10-year repayment period when the borrower elects the IBR plan.
The proposed regulations would also provide that when a married
borrower and his or her spouse file a joint tax return with the IRS and
both the borrower and the spouse have eligible loans, the joint AGI and
the total amount of the borrower's and spouse's eligible loans will be
used in determining whether each borrower has a partial financial
hardship.
Reasons: In the regulations governing the IBR Plan, the Department
provided that, when determining a borrower's partial financial hardship
for purposes of IBR, the loan holder should compare the annual amount
the borrower would pay on the borrower's eligible loans at the time the
borrower initially entered repayment on the total outstanding balance
of those loans, based on a standard repayment over a 10-year repayment
period, to the annual amount a borrower would pay under the provisions
of the IBR plan. During the negotiations, a non-Federal negotiator
pointed out that always using the annual amount the borrower would pay
based on the outstanding balance of the loans when the borrower
initially entered repayment disadvantages those borrowers whose
outstanding balance has increased from the date the borrower initially
entered repayment until the date the borrower requests IBR. This is
particularly true for borrowers who have experienced significant
difficulty repaying the loans, particularly unsubsidized loans, and who
have used deferments and forbearances to avoid delinquency, with the
result that their outstanding loan principal balance has increased due
to capitalized interest. The Department and the other negotiators
agreed that a borrower whose outstanding balance has increased rather
than decreased during the repayment period prior to the borrower's
request for IBR should be given the benefit of having partial financial
hardship determined based on the annual amount due, as calculated
[[Page 36567]]
under a standard repayment plan with a 10-year repayment period, on the
borrower's increased outstanding loan principal balance.
The Department also proposed a change related to how eligibility
for partial financial hardship is determined for married borrowers who
file a joint Federal tax return and who both have eligible loans. The
proposed change would ensure that if both borrowers qualify for IBR,
their combined payment amounts will not exceed the 15 percent threshold
under the IBR plan. The Department initially proposed the use of each
individual borrower's portion of the joint AGI and eligible loan amount
to determine eligibility for IBR. After additional discussion, however,
the Department and the negotiators agreed that this approach would
impose a significant burden on borrowers, who would be required to
submit additional documentation to identify their individual portion of
any joint income, and would also require the loan holder to determine
each borrower's eligibility using a manual (instead of an automated)
process. The Department and the negotiators agreed to adopt a
suggestion by one of the non-Federal negotiators to use the joint AGI
and the annual amount due on both the borrower's and the spouse's
eligible loans to determine eligibility for IBR and the partial
financial hardship payment amount. That payment amount would then be
adjusted based on the percentage of the combined total eligible loan
debt attributable to each individual borrower, with a further
adjustment if the borrower has multiple loan holders.
Income-Based Payment Amount (Sec. Sec. 682.215(b)(1) and
685.221(b)(2))
Statute: Under section 493C(b)(1) of the HEA, the monthly payment
amount for a borrower who has a partial financial hardship is
determined by calculating 15 percent of the amount obtained by
subtracting 150 percent of the poverty guideline amount for the
borrower's family size from the borrower's AGI, and then dividing this
amount by 12.
Current Regulations: Sections 682.215(b) and 685.221(b) provide
that if a borrower's eligible loans are held by more than one holder,
the loan holder must adjust the amount of a borrower's calculated
monthly payment. The borrower's adjusted monthly payment is determined
by multiplying the calculated monthly payment amount by the percentage
of the total outstanding principal amount of eligible loans that are
held by that holder.
Proposed Regulations: Under the proposed regulations, if a borrower
and a borrower's spouse both have eligible loans and filed a joint
Federal tax return, each borrower's percentage of the couple's total
eligible loan debt would be determined, and the calculated partial
financial hardship payment amount for each borrower would be adjusted
by multiplying the payment by the applicable borrower's percentage. As
with other borrowers, each borrower's adjusted payment amount would be
further adjusted if the borrower's loans are held by multiple holders.
In this case, the adjusted payment amount would be multiplied by the
percentage of the borrower's total outstanding principal amount of
eligible loans that are held by the loan holder.
Reasons: Without the proposed payment adjustment based on the
borrower's percentage of the combined eligible loan debt of the
borrower and his or her spouse that is used to calculate the partial
financial hardship of both borrowers, the borrower's monthly payment
amount could exceed the statutory maximum amount the borrower can be
required to pay.
FFEL and Direct Loan Program Teacher Loan Forgiveness (Sec. Sec.
682.216 and 685.217)
Statute: The HEOA amended the FFEL and Direct Loan teacher loan
forgiveness provisions in sections 428J and 460 of the HEA to specify
that an otherwise eligible borrower may qualify for teacher loan
forgiveness based on teaching service performed at a location operated
by an educational service agency if the educational service agency
meets the eligibility criteria that apply to elementary or secondary
schools for teacher loan forgiveness purposes. In the case of a teacher
who is employed by an educational service agency, the HEA provides that
the chief administrative officer of the educational service agency must
certify the borrower's qualifying teaching service.
The HEOA also amended the teacher loan forgiveness provisions to
prohibit a borrower from receiving double benefits for the same
teaching service. The HEA now prohibits a borrower from receiving loan
forgiveness under both the FFEL and Direct Loan teacher loan
forgiveness programs for the same qualifying teaching service. In
addition, a borrower may not receive loan forgiveness benefits for the
same teaching service under either the FFEL or Direct Loan teacher loan
forgiveness programs and the Direct Loan public service loan
forgiveness program (Sec. 685.219), subtitle D of title I of the
National and Community Service Act of 1990 (the AmeriCorps program), or
the Loan Forgiveness for Service in Areas of National Need program
authorized by section 428K of the HEA.
Current Regulations: Under current regulations, an otherwise
eligible FFEL or Direct Loan borrower may qualify for teacher loan
forgiveness only by performing qualifying teaching service in an
eligible elementary or secondary school that serves low-income
families. Borrowers who teach at a location operated by an educational
service agency are not eligible for loan forgiveness.
Current regulations prohibit a borrower from receiving loan
forgiveness for the same teaching service under either the FFEL or
Direct Loan teacher loan forgiveness programs and under subtitle D of
title I of the National and Community Service Act of 1990. A borrower
who has both FFEL and Direct Loan program loans may not receive more
than the maximum loan forgiveness amount on the borrower's combined
outstanding FFEL and Direct Loan balance, but is not otherwise
prohibited from receiving forgiveness under both the FFEL and Direct
Loan teacher loan forgiveness programs for the same qualifying teaching
service.
Proposed Regulations: The proposed regulations would allow a
borrower who otherwise meets the eligibility requirements for teacher
loan forgiveness to receive forgiveness based on teaching service
performed at one or more locations of an eligible educational service
agency that serves low-income families. A borrower could also qualify
based on teaching service performed at a combination of eligible
elementary or secondary schools and eligible educational service
agencies. To be considered eligible service for teacher loan
forgiveness purposes, an educational service agency would have to meet
the same eligibility requirements that apply to elementary and
secondary schools under current regulations. For a borrower employed at
an eligible educational service agency, the borrower's qualifying
teaching service would have to be certified by the chief administrative
officer of the educational service agency.
Under the proposed regulations, qualifying teaching service
performed at an eligible educational service agency could be counted
toward the required five consecutive complete years of full-time
teaching only if the consecutive five-year period includes qualifying
teaching service performed at an eligible educational service agency
after the 2007-2008 academic year.
The proposed regulations would define the term ``educational
service agency'' as a regional multiservice agency authorized by State
law to
[[Page 36568]]
develop, manage, and provide services or programs to local educational
agencies, as defined in section 9101 of the Elementary and Secondary
Education Act of 1965, as amended.
Finally, the proposed regulations would prohibit a borrower from
receiving loan forgiveness under both the FFEL and Direct Loan teacher
loan forgiveness programs for the same teaching service, or from
receiving loan forgiveness for the same teaching service under either
the FFEL or Direct Loan teacher loan forgiveness programs and: (1) The
Direct Loan public service loan forgiveness program in Sec. 685.219;
(2) subtitle D of title I of the National and Community Service Act of
1990; or (3) the Loan Forgiveness for Service in Areas of National Need
program authorized by section 428K of the HEA.
Reasons: The proposed changes reflect statutory requirements.
One of the non-Federal negotiators noted that some teachers do not
have a fixed location of employment but instead perform qualifying
teaching service at multiple eligible elementary or secondary schools,
or at multiple eligible educational service agencies. This negotiator
requested clarification that such ``traveling'' teachers, if otherwise
eligible, would qualify for loan forgiveness if they are not actually
employed by the individual schools or educational service agencies
where they teach. The Department agreed that such teachers, if
otherwise eligible, would qualify for teacher loan forgiveness. The
current and proposed regulations provide that a borrower's qualifying
teaching service must be performed ``in'' or ``at'' an eligible
elementary or secondary school or eligible educational service agency
and do not rely on the identity of the employer.
The Department's initial proposed regulations allowed qualifying
teaching service performed at an eligible educational service agency to
be counted toward a borrower's required five complete consecutive years
of teaching service only if the service was performed after August 14,
2008, the date of enactment of the HEOA. One of the non-Federal
negotiators argued that the amendments to the teacher loan forgiveness
provisions of the HEA were intended to apply retroactively to October
1, 1998, the date of enactment of the FFEL and Direct Loan teacher loan
forgiveness provisions. However, the Department does not agree with
this interpretation of the law. The Department noted that Congress has
specifically made other changes to the HEA retroactive, but chose not
to do so in this case. However, the Department agreed to revise the
proposed regulations to provide that the required five complete
consecutive years of teaching may include any combination of qualifying
teaching service at an eligible elementary or secondary school or at an
eligible educational service agency, but teaching at an educational
service agency may be counted toward the five years only if the
consecutive five-year period includes qualifying teaching at an
eligible educational service agency performed after the 2007-2008
academic year.
Eligibility for Rehabilitation of Defaulted FFEL and Direct Loans
(Sec. Sec. 682.405(a) and (b)(1)(iii) and 685.211(f))
Statute: Section 428F(a) of the HEA was amended by the HEOA to
prohibit a borrower from rehabilitating a defaulted loan more than
once.
Current Regulations: The regulations in Sec. Sec. 682.405 and
685.211 provide for the rehabilitation of defaulted FFEL and Direct
Loan program loans after a borrower makes nine voluntary, reasonable
and affordable payments to the guaranty agency holding the defaulted
loan, or to the Secretary in the case of a defaulted Direct Loan. After
the borrower meets the payment requirements to reestablish a successful
repayment pattern, a defaulted FFEL loan is rehabilitated upon resale
of the loan to an eligible FFEL lender, at which time the borrower
returns to normal repayment servicing. In the Direct Loan Program,
after the borrower meets the payment requirements, the loan is
transferred from a default collection status to a normal repayment
servicing status. Current regulations do not include a limit on the
number of times a borrower may rehabilitate a defaulted loan.
Proposed Regulations: The proposed regulations would amend
Sec. Sec. 682.405(a)(3) and 685.211(f)(3) to provide that for any loan
that is rehabilitated on or after August 14, 2008, the borrower may not
rehabilitate the loan again if the loan returns to a default status
following the rehabilitation.
The proposed regulations would also amend Sec. 682.405(b)(1)(iii)
to clarify that the guaranty agency and its agents must comply with the
requirements of that section when determining a borrower's ``reasonable
and affordable'' payment amount for loan rehabilitation purposes.
Reasons: The proposed regulations are necessary to reflect the
change in section 428F(a) of the HEA that prohibits a borrower from
rehabilitating a defaulted loan more than once, and to clarify that
guaranty agencies and their agents must comply with current regulatory
requirements for determining reasonable and affordable payments.
The Department's original proposed regulations specified only that
a borrower is prohibited from rehabilitating a defaulted loan more than
once. Several non-Federal negotiators expressed the view that the
Department's interpretation of the statutory effective date of August
14, 2008 for this provision should be included in the regulations or
discussed in the preamble to the proposed regulations. The non-Federal
negotiators also requested that the Department identify in the
regulations the triggering event that results in a borrower's inability
to rehabilitate the loan again. The Department agreed and revised the
proposed regulations to specify that the one-time limit on
rehabilitation applies only to a defaulted loan that was rehabilitated
on or after August 14, 2008. A borrower who rehabilitated a defaulted
loan before that date, and later defaults again on the loan, could
rehabilitate that loan again. However, if the borrower rehabilitates
the loan a second time, the loan would become subject to the limit. The
Department also revised the proposed regulations to specify that the
triggering event for the application of the one-time rehabilitation
limit on a loan is the borrower's return to a default status on that
previously rehabilitated loan.
Another non-Federal negotiator expressed concern about the process
for determining payment amounts for rehabilitation. The negotiator
stated that there was no consistent, standardized approach to
determining ``reasonable and affordable'' borrower payments for
purposes of loan rehabilitation across the guaranty agencies and their
agents. The negotiator stated that some agencies and agents demanded a
specified percentage or payment amount without apparent regard to the
borrower's financial circumstances, in violation of the HEA, and
expressed the view that this perhaps represented a program compliance
issue. The Department stated its belief that the requirements for
determining reasonable and affordable borrower payments were already
sufficiently detailed and explicit in Sec. 682.405(b)(1)(iii).
However, the Department agreed to revise the lead-in language to this
regulation to make it clear that a guaranty agency and all of its
agents are subject to the requirements of Sec. 682.405(b)(1)(iii) when
determining a borrower's reasonable and affordable payment amount for
purposes of loan rehabilitation. This clarifying change is intended to
ensure compliance with this requirement by a guaranty agency and all of
the agency's agents, particularly
[[Page 36569]]
collection agents that may be working with defaulted borrowers.
Guaranty Agency and Lender Prohibited Inducements (Sec. Sec.
682.200(b) and 682.401(e))
Statute: Section 435(d)(5) of the HEA provides that, after notice
and an opportunity for a hearing, the Secretary may disqualify a FFEL
lender from participation in the FFEL Program if it is determined that
the lender engaged in certain prohibited activities to secure
applicants for FFEL loans. These prohibited activities include
offering, directly or indirectly, points, premiums, payments, prizes,
stock or other securities, travel, entertainment expenses, tuition
payment or reimbursement, providing information technology at below-
market value, and providing additional financial aid funds to any
institution of higher education or its employees. Lenders are
prohibited from entering into any type of consulting arrangement or
other type of contract to provide services to a lender with an employee
who is employed in an institution's financial aid office or who
otherwise has responsibility over student loans or other student aid.
The HEA also prohibits lenders from performing any function for an
institution of higher education that is a required function for that
institution under title IV of the HEA, other than exit counseling.
Similarly, section 428(b)(3) of the HEA restricts guaranty agencies
from offering inducements or engaging in certain prohibited activities
to secure applicants for FFEL loans or to secure the designation as the
insurer of loans. Guaranty agencies are prohibited from offering,
directly or indirectly, premiums, payments, stock or other securities,
prizes, travel, entertainment expenses, tuition payments or
reimbursements to any institution of higher education or to any
employee of the institution to secure FFEL loan applications; or to
lenders or their agents or employees, or to an independent contractor
of any lender or guaranty agency to administer or market FFEL loans for
the purpose of securing the designation of insurer of the loans. In
addition, a guaranty agency may not conduct fraudulent or misleading
advertising concerning loan availability, terms or conditions and, like
lenders, guaranty agencies may not perform for an institution of higher
education any function the institution is required to perform under
title IV, other than exit counseling. The statute allows both lenders
and guarantors to provide technical assistance to an institution of
higher education comparable to the technical assistance provided by the
Department to schools participating in the Direct Loan Program.
Current Regulations: Prohibited activities by lenders and guaranty
agencies are specified in current regulations in Sec. Sec. 682.200(b)
and 682.401(e), respectively. These regulations were amended in 2007
and provide lists of prohibited and permissible activities by lenders
and guaranty agencies. The regulations governing the activities of
lenders and guaranty agencies are different, most specifically in the
area of training for schools (a guaranty agency may pay for travel and
lodging for school personnel to attend training programs). The current
regulations also permit guaranty agencies to pay school officials to
participate on governing boards or advisory committees.
Proposed Regulations: The proposed regulations would incorporate
all of the new prohibited and permitted activities for lenders and
guaranty agencies as specified in the HEA. Section 682.200(b)(5) of the
proposed regulations specifically addresses the prohibition on lenders
providing processing, referral or finder fees and expands the
prohibition of such payments to institutions, employees of the
institutions or to any other party, including a school-affiliated
organization or its employees, to secure FFEL loans. The payment of
stock, securities or tuition reimbursements is also a prohibited
inducement. The proposed regulations prohibit a lender from providing
compensation for service on a lender advisory board, commission or
other group to an employee who is employed in an institution's
financial aid office or to an institutional employee with
responsibility for student loans or other financial aid, but would
permit the lender to reimburse the employee for reasonable expenses
related to service on the board, commission or group. The proposed
regulations also specifically prohibit a lender from performing any
function for a school that is a requirement of the school except for
exit counseling.
Section 682.401(e) of the proposed regulations, which governs
guaranty agency prohibited inducements, generally mirrors the proposed
regulations for lenders. The proposed regulations would prohibit
guaranty agencies from performing any function required by a school
under title IV except for exit counseling. Guaranty agencies would be
prohibited from providing any payments of stock, securities or tuition
reimbursement to any institution of higher education or its employees
to secure applicants for FFEL loans, or to any lender, agent, or
independent contractor of any lender or guaranty agency to administer
or market FFEL loans for the purpose of securing designation as the
insurer of the loans. A guaranty agency would not be permitted to pay
travel and lodging costs of school employees to attend training
conducted by the agency. The proposed regulations would allow for the
reimbursement of reasonable expenses incurred by school employees to
participate in an agency's advisory committee or governing board
activity.
The proposed regulations would prohibit lenders or guaranty
agencies from providing staffing services to schools under any
conditions. Finally, the proposed regulations would revise the
provision that allows a lender or guaranty agency to provide assistance
to schools comparable to the assistance that the Secretary provides to
schools under the Direct Loan Program by clarifying that the assistance
to schools that may be provided is ``technical'' assistance comparable
to the technical assistance that the Secretary provides to Direct Loan
schools.
Reasons: The proposed changes to the prohibited inducement
regulations for both lenders and guaranty agencies reflect statutory
changes made by the HEOA.
During the negotiated rulemaking discussions, non-Federal
negotiators raised a concern about the prohibition on lenders and
guaranty agencies paying processing fees. Some negotiators asked the
Department to clarify the term ``processing fees.'' The negotiators
were concerned that a broad definition could include permissible
borrower benefits on FFEL loans. The Department clarified that, in this
context, processing fees do not include permissible borrower benefit
programs for student and parent borrowers that may be provided by
lenders and guarantors to reduce the cost of borrowing for students and
parents.
Another non-Federal negotiator raised a concern that standard
commercial practices may be affected by the prohibition on inducements
with regard to the payment of processing fees. The Department made it
clear that these regulations are not intended to thwart standard
business practices unless there is a quid-pro-quo under which a lender
pays the processing fees to secure loan applications or volume. The
Department believes that these proposed regulations appropriately
implement the statute and will not interfere with standard commercial
business practices.
Another negotiator raised a concern about what would be deemed
[[Page 36570]]
``reasonable'' with regard to the payment of reasonable costs in
association with lenders and guaranty agencies paying for items such as
meals or refreshments. The Department believes that the regulations are
clear in their intent and that the determination of reasonable costs
should be considered carefully by FFEL participants and viewed in light
of what was deemed by the negotiators the ``prudent person test.''
Disclosure Requirements for Lenders (Sec. 682.205)
Statute: Section 433 of the HEA requires lenders to provide
borrowers a series of informational disclosures throughout the life of
a loan. Specific types of disclosures are required based on the
borrower's status within the borrowing process, i.e., at or before
disbursement, at or before repayment, during repayment, during
delinquency, at a time the borrower may be having difficulty making
payments, and when the borrower considers taking out a Consolidation
loan. Lenders are required to make these required disclosures simple
and understandable for the borrower.
The information the lender must disclose to the borrower at or
before disbursement of the loan includes: Contact information for the
lender; the amount of any charges on the loan, including origination
fees and the Federal default fee; the interest rate on the loan; the
annual and aggregate maximum amount that may be borrowed, when
repayment is required and when interest must be paid, as well as the
borrower's right to prepay all or part of the loan at any time without
penalty; a statement summarizing the circumstances in which a borrower
may obtain a deferment or forbearance; and the options for and
requirements for forgiveness of the loan. For borrowers of unsubsidized
Stafford loans or borrowers of student PLUS loans, the lender must also
provide information about the borrower's right to pay the interest on
the loan while the borrower is in school and, if interest is not paid,
when and how often the lender will capitalize the interest. For parent
PLUS loan borrowers, the lender must provide information about how the
parent may defer payment on the loan while the student on whose behalf
the parent borrowed is in school at least half-time.
The disclosure information that the lender must provide to the
borrower at or before the borrower begins repayment includes: The
scheduled date repayment is to begin; the estimated balance, including
the amount of interest to be capitalized as of the date on which
repayment is to begin; the borrower's repayment schedule; special loan
repayment benefits offered on the loan, including those contingent on
repayment behavior; any limitations on a repayment benefit provided by
the lender; information on how a borrower may lose eligibility for the
repayment benefit and whether and how the borrower can regain
eligibility for the benefit; a description of how the borrower can
avoid or be removed from default; and any additional resources
available to the borrower to assist in loan repayment.
While the borrower is in repayment on the loan, the lender must
periodically provide additional disclosure information to the borrower.
The lender must provide the borrower with a bill or statement that
corresponds to each payment installment time period in which a payment
is due. That bill or statement must also include: The borrower's
original principal loan amount; the borrower's current balance, as of
the time of the bill or statement; the interest rate on the loan; the
aggregate amount the borrower has paid on the loan, including the
amount of interest and fees and the amount paid against the balance; a
description of any fees charged on the loan; the date by which the
borrower must make a payment to avoid additional fees; and a reminder
that the borrower has the option to change repayment plans as well as a
list of available repayment plans.
The HEA also requires lenders to make certain disclosures to
borrowers who are having difficulty making payments, including: A
description of the repayment plans available to the borrower and
information as to how the borrower may request a change in his or her
repayment plan; the requirements for obtaining forbearance including
any cost or fees associated with forbearance; and a description of the
options for the borrower to avoid default and any fees or costs
associated with each option.
If a borrower is 60 or more days delinquent in making payments, the
lender must provide the borrower with information including: The date
on which the loan will default if no payments are made; the minimum
payment the borrower must make to avoid default; a description of the
options available to the borrower to avoid default and any fees or
costs associated with each option; discharge options to which the
borrower may be entitled; and information about any additional
resources available to the borrower, including the Department's
Ombudsman's Office, to assist the borrower in loan repayment.
Finally, the HEA requires lenders to provide a separate disclosure
for borrowers applying for Consolidation loans. When a lender provides
a borrower with an application for a Consolidation loan, the lender
must disclose information about the loan including: Whether or not
consolidation will result in a loss of loan benefits for the borrower,
including loan forgiveness, cancellation, deferment or a reduced
interest rate; and if the borrower is consolidating a Perkins Loan,
that the borrower will lose interest free periods available on the
Perkins Loan while the borrower is enrolled in school at least half-
time, in the grace period or in deferment, and that the borrower will
lose cancellation benefits available in the Perkins Loan Program. The
lender must also provide the borrower with: A list of the Perkins Loan
cancellation benefits that would no longer, upon consolidation, be
available to the borrower; information about repayment plans available;
information about the borrower's option to prepay the Consolidation
loan or pay on a shorter repayment schedule; and a notice that applying
for the Consolidation loan does not obligate the borrower to agree to
take the loan.
Current Regulations: Section 682.205 of the current regulations
reflects the pre-HEOA requirements for lender disclosures. Lenders are
required to provide information to borrowers at or before the time of
loan disbursement, and at or prior to the beginning of repayment.
Information that must be disclosed at or prior to disbursement
includes: The lender's name and contact information; the principal
amount of the loan; the amount of charges to be collected by the
lender, including the origination fee and if those charges will be
deducted from the loan; the minimum and maximum number of years for
repayment; deferment options; collection costs; and the possible
effects of accepting the loan on the borrower's eligibility for other
aid. The regulations also require borrowers to be made aware that
information concerning the loan, including the date of disbursement and
the amount of the loan, will be reported to a national credit bureau.
Information that must be disclosed at or prior to repayment
includes: The scheduled date repayment is to begin; the estimated
balance on the loan, including estimated interest to be capitalized;
the interest rate on the loan; an explanation of fees that may accrue
or be charged during the repayment period; and an explanation of
special options the borrower may have for consolidating or refinancing
the loans and the terms of those options.
[[Page 36571]]
Proposed Regulations: Section 682.205 of the proposed regulations
would retain the current regulatory language as to required
disclosures, but would reorganize this section to accommodate the new
disclosure requirements added by the HEOA. The HEOA added additional
disclosures by lenders before disbursement and provided for new
requirements at differing points in the repayment cycle of the
borrower. The HEOA also added a separate set of disclosures
specifically for Consolidation loan borrowers.
The proposed regulations would incorporate the requirement for new
disclosures by the lender at or prior to disbursement of the loan. In
regard to unsubsidized loans, these disclosures must include: An
explanation that the borrower may pay accruing interest while in school
and, if the interest is not paid, when and how often it will be
capitalized; for parent PLUS borrowers, an explanation that the payment
may be deferred while the student on whose behalf the parent borrowed
is in school as well as, if the interest is capitalized, when and how
often it will be capitalized; information on forbearances; and a
description of loan forgiveness options and the requirements to receive
forgiveness.
The HEOA also changed the numerous references to ``credit bureaus''
to refer to ``consumer reporting agencies'' and the proposed
regulations reflect that change.
To incorporate the many new disclosures required during the
repayment period of a loan for a borrower, the proposed regulations
reorganize Sec. 682.205(c) to better separate and distinguish the
different disclosures.
Under proposed Sec. 682.205(c)(2), the lender must disclose to the
borrower: Information on any special loan repayment benefits available,
the requirements to maintain the benefit, and the impact on the
borrower's overall repayment; and any limitations associated with the
benefit and the circumstances that would cause the borrower to lose the
benefit, as well as how the borrower may be able to regain the benefit.
The lender must also provide a borrower with the list of repayment
plans available and remind the borrower that he or she may change plans
at least once a year. The borrower must be informed about how to avoid
default and, if the borrower is in default, how to get out of default.
The lender must also provide the borrower with information about
additional resources available to assist in loan repayment, including
nonprofit organizations, advocates and counselors, and the Department's
Ombudsman.
Proposed Sec. 682.205(c)(3) requires lenders to provide specific
repayment information to the borrower with a bill or statement that
corresponds to each payment installment time period in which a payment
is due. That information must include: The original principal amount of
the borrower's loan; the current balance as of the time of the bill or
statement; the interest rate on the loan; the interest paid by the
borrower since the last statement or bill; aggregate totals paid; and a
description of each fee the borrower has been charged for the most
recent period. The borrower must be told the date by which payments
must be made to avoid additional fees and the amount of that payment
and the fees. Finally, the lender must remind the borrower of the
option to change repayment plans and what plans are available with a
link to the Department's Web site for that repayment plan information.
Proposed Sec. 682.205(c)(4) adds a new section of required
disclosures for borrowers who contact the lender and inform the lender
that they are having difficulty making their required payments. Lenders
must inform these borrowers of the repayment plans available, the
requirements for forbearance and the options available to avoid default
as well as any fees or costs associated with those options.
Proposed Sec. 682.205(c)(5) adds a new section on the required
disclosures for borrowers who are 60-days delinquent on repayment of
their loans. Lenders must provide borrowers who are 60-days delinquent
with information regarding the date on which the loan will default if
no payment is made, the minimum payment to avoid default, and the
payment amount that would bring the loan to a current status or pay the
loan in full. Lenders must inform borrowers about: The options for
avoiding default, including deferments and forbearance; any costs
associated with those options; and any opportunity for loan discharge
the borrower may have. The notice required by Sec. 682.205(c)(5) must
be sent to the borrower within five days of the borrower becoming 60-
days delinquent, unless the lender has sent the notice within the
previous 120 days.
Reasons: The proposed regulations implement statutory requirements.
Negotiators discussed how these disclosures could best be managed
in a way that will be most beneficial to borrowers. Negotiators asked
if the information required under Sec. 682.205(c)(2)(xiii) needed to
be specific to the individual borrower's circumstances, or if the
information could be general and outline the options for any borrower
to avoid default or to bring a loan out of default. In discussions with
the negotiators, the Department agreed it would be permissible for this
information, i.e., how a borrower can avoid or remove a default status,
to be general, since other required disclosures will provide the
borrower with specific information pertaining to their individual
circumstances and account information.
Negotiators raised questions about the disclosures required in
Sec. 682.205(c)(2)(xiv) and what information would need to be
included. The Department believes that these disclosures should provide
borrowers with information about an additional set of tools that are
available to help them manage their student loan debt. In doing so,
lenders need to ensure that borrowers are aware of any appropriate Web
sites, organizations, and counseling services of which the lender is
aware and that can be of assistance to borrowers when managing the
repayment of their debt. The Department agreed to provide lenders a Web
link to its Ombudsman's Office. Lenders may provide borrowers seeking
to reach the Department's Ombudsman's Office with the following link:
http://www.ombudsman.ed.gov/.
Some non-Federal negotiators also asked for clarification of when a
lender must send the disclosure that is required at or prior to
repayment, in accordance with Sec. 685.205(c)(1), in the case of a
PLUS loan that immediately enters an in-school deferment status upon
the start of the repayment period. Specifically, the negotiators asked
if the lender should wait until the end of the in-school deferment
period (and any post-enrollment deferment period, if applicable) before
sending the disclosure, or if the lender would be required to send the
disclosure when the loan has been fully disbursed. The Department noted
that a PLUS loan enters the repayment period on the date that the final
disbursement of the loan is made. Therefore, the disclosure that is
required at or prior to repayment must be sent at or before the time of
the final loan disbursement rather than at the end of the deferment
period.
A non-Federal negotiator raised a concern about flexibility in the
distribution of the disclosures required in this section of the
regulations in light of the regulatory authority in 34 CFR 682.205(f)
that allows a lender to provide disclosures through written or
electronic means. The negotiator wanted to ensure that lenders may
provide the disclosures using the method best suited
[[Page 36572]]
to the borrower's repayment method. The negotiator asked the Department
to clarify that a lender would be able to provide the required
disclosures through secure e-mail or electronic links to the borrower's
account-specific information.
The Department is concerned that the purpose of the statute would
not be served if a lender simply provides a general electronic source
for a borrower to retrieve the required disclosure information. Lenders
may use appropriate electronic methods to provide the required
disclosure information directly to the borrower. For example, if the
lender sends an e-mail to the borrower containing the required general
disclosures as well as a secure link to allow the borrower to obtain
specific account information, the lender will have met the requirement.
However, if the lender receives information that the e-mail address
used is no longer valid or not the borrower's, the lender must take
appropriate action as it would in situations when a mailing address
used to communicate with the borrower is determined to be incorrect.
Similarly, a lender may mail the required general disclosures to a
borrower with information about a secure Web site for the borrower to
access specific personal account information. If no return mail or
evidence of a bad address is received by the lender, the lender may
assume the mail has been received. Thus, we are proposing to treat
these electronic disclosures similarly to mailed disclosures.
Many non-Federal negotiators assured the Department that the
required disclosure information, particularly the borrower-specific
account information, could be provided through secure means and could
provide confirmation that the borrower has accessed the information.
The Department is not requiring lenders to document that the borrower
has accessed the information, but would encourage lenders to do so to
help identify borrowers who may need additional contact.
The Department does not agree with the suggestion that it would be
sufficient for a lender to provide general instructions on a statement,
bill, coupon or other form (electronically or by mail) to a borrower
that directs the borrower to a particular Web site for disclosure
information. This approach would not fulfill the intent of the statute
or serve the borrower. The Department fully supports the appropriate
use of electronic communication with a borrower, but the Department
must also ensure the statute is properly implemented and that borrowers
are provided the required information in a manner that best serves both
statutory intent and the needs of the borrower.
Negotiators representing the student loan industry raised a concern
about the impact of the distribution of the disclosures required by
proposed Sec. 682.205(c)(3), those that are required during repayment,
on their current loan servicing systems. The Department expects that
the disclosures required by Sec. 682.205(c)(3) will be provided in
accordance with the lender's or servicer's current account
organizational practices. The disclosures may be provided by account or
by borrower. The Department understands that lenders and servicers have
developed systems to comply with disclosure requirements during
repayment and does not intend to require lenders and servicers to
unnecessarily alter those systems. Therefore, lenders and servicers may
make the disclosures pursuant to Sec. 682.205(c)(3) by loan, by
account, or by borrower.
Information to Borrowers Upon Transfer, Sale or Assignment of a FFEL
Program Loan (Sec. 682.208(e))
Statute: Section 428(b)(2)(F)(i) of the HEA was amended by the HEOA
to require that a borrower be provided with additional information when
the transfer, sale, or assignment of the borrower's FFEL loan results
in a change in the identity of the party to whom payments and
communications must be sent. The borrower must now be notified of the
effective date of the assignment or transfer of the loan, the date that
the current loan servicer will stop accepting the borrower's payments,
and the date the new loan servicer will begin accepting those payments.
Current Regulations: Current FFEL Program regulations require that
if the assignment of a FFEL Program loan results in a change in the
identity of the party to whom the borrower must send subsequent
payments, the assignor and the assignee of the loan must, within 45
days from the date the assignee acquires the legally enforceable right
to receive payment from the borrower on the assigned loan, provide the
borrower with a notice, either jointly or separately, that informs the
borrower of the assignment, the identity of the party to which the loan
is assigned, the name and address of the party to whom the borrower
must send subsequent payments or communications, and the telephone
numbers of both the assignor and assignee. If a separate notice is sent
by each party, each notice must indicate that a corresponding notice
will be sent by the other party. The current regulations define
assignment for this purpose to mean any kind of transfer of an interest
in the loan, including a pledge of such an interest as security. The
notification requirements apply if the borrower is in the grace period
or has entered repayment on the loan. The assignee, or the assignor on
the assignee's behalf, must also notify the guaranty agency of the
assignment, and the name, address, and telephone number of the assignee
within 45 days of the date the assignee acquires a legally enforceable
right to receive payment on the loan.
Proposed Regulations: The proposed regulations incorporate the
additional information specified in the HEA that must be provided to a
borrower if the assignment or transfer of ownership interest on a FFEL
Program loan results in a change in the identity of the party to whom
subsequent payments must be sent. The date on which the current
servicer will stop accepting payments is required only if that is
applicable.
Reasons: The proposed regulations reflect the HEOA changes to the
HEA. Notification of the date on which the current servicer will stop
accepting payments is not required if the servicer continues to accept
payments throughout the assignment process and forwards them on to the
assignee. Non-Federal negotiators with knowledge of loan servicing
practices indicated that loan servicers do not stop accepting borrower
payments during sales, transfers, and assignment.
Forbearance (Sec. 682.211)
Statute: Section 428(c)(3)(C) of the HEA outlines what disclosures
the lender must make to the borrower upon granting forbearance and
during a forbearance period. The HEA requires lenders to provide a
borrower with information regarding the impact that capitalizing
interest will have on the loan and the total balance to be repaid. It
requires lenders to provide additional disclosures to borrowers during
a forbearance period, including the amount of interest that will be
capitalized, the date on which capitalization will occur and the option
of the borrower to pay the interest that has accrued before the
interest is capitalized.
Current Regulations: Current Sec. 682.211(e) requires the lender
to contact a borrower at least once every six months during a period of
forbearance only when the forbearance involves the cessation of all
payments. The lender must provide the borrower with a reminder of the
obligation to repay the loan, the amount of principal and interest on
the loan, the fact that interest will continue to accrue and the
[[Page 36573]]
borrower's or endorser's option to cancel the forbearance at any time.
Proposed Regulations: Section 682.211(e) of the proposed
regulations would require the lender, at the time the borrower is
granted a forbearance, to give the borrower information about the
impact of capitalization of interest on the loan and the total amount
to be repaid over the life of the loan. The proposed regulations would
also require the lender to contact the borrower at least once every 180
days during any period of forbearance and to give the borrower or
endorser more specific information, in conjunction with that required
under previous regulations, as to the impact of forbearance on the
loan. This information includes the amount of interest that will be
capitalized and when that capitalization will take place and the option
of the borrower or endorser to pay the interest that has accrued before
it is capitalized.
Reasons: The proposed regulations implement statutory requirements.
Some negotiators asked the Department to clarify the new
forbearance disclosure requirement as they relate to administrative
forbearances. Some negotiators were concerned that lenders will not be
able to satisfy the disclosure requirements if an administrative
forbearance is granted to provide a borrower assistance with a
situation occurring in the past. The Department agreed with the other
negotiators that if an administrative forbearance is granted
retroactively, the lender need not go back in time to provide the
required information retroactively. Lenders must, however, contact the
borrower as required going forward from the date the lender applied the
forbearance.
Audit Requirement for a FFEL School Lender or an Eligible Lender
Trustee (ELT) That Originates FFEL Loans for a School or School-
Affiliated Organization (Sec. Sec. 682.305(c) and 682.601(a)(7))
Statute: The HEOA added section 435(d)(8) to the HEA which requires
any school that serves as a FFEL lender or any eligible lender that
serves as an Eligible Lender Trustee (ELT) for a school or school-
affiliated organization for the purpose of making FFEL loans to
complete and submit annually to the Secretary a compliance audit. The
compliance audit must determine that the school or lender: Used all
proceeds from special allowance payments, borrower interest payments,
interest subsidy payments received from the Department and any proceeds
from the sale or other disposition of the loans originated for need-
based grants; that no more than a reasonable portion of the proceeds
were used for direct administrative expenses; and that the need-based
grants made from the proceeds supplemented and did not supplant Federal
and non-Federal funds that would otherwise have been used by the school
for need-based grant programs.
Current Regulations: Section 682.305(c) of the FFEL Program
regulations requires all FFEL lenders that originate or hold at least
$5 million in FFEL loans during the lender's fiscal year to complete
and submit to the Department an independent annual compliance audit for
that year. The audit must be completed by a qualified, independent
organization or person. Section 682.601(a)(7) requires a school that
makes or originates FFEL loans, regardless of the dollar volume, to
submit an annual compliance audit to the Department. For a school that
is not a governmental entity or a nonprofit organization, the audit
must examine the school lender's compliance with the HEA and applicable
regulations, examine the school lender's financial management of its
FFEL Program activities, and be conducted in accordance with the
standards for audits issued by the United States Government
Accountability Office's Government Auditing Standard using the
procedures outlined in an audit guide produced by the Department's
Office of Inspector General. For a school lender that is a governmental
entity or a nonprofit organization, the audit must meet the same
standards as audits for other school lenders and be conducted in
accordance with chapter 75 of title 31 of the United States Code. In
addition, in years in which student financial aid is not audited as a
``Major Program,'' as defined under 31 U.S.C. 7501, the school's
lending activities, regardless of dollar amount, must be included in
the audit as a Major Program.
Proposed Regulations: The proposed regulations would revise Sec.
682.305(c) to require that a FFEL school lender, or a lender serving as
a trustee on behalf of a school or school-affiliated organization for
the purpose of originating loans, submit an annual compliance audit to
the Department regardless of the dollar volume of loans originated. The
proposed regulations also require that the audit be conducted by a
qualified, independent organization or person. A new proposed Sec.
682.305(c)(2)(vii) would govern the compliance audit of a school or
school-affiliated organization's lender trustee. The proposed
regulations require that the trustee's audit include a determination
that the school for whom the lender serves as trustee used all the
proceeds from special allowance payments, interest subsidies received
from the Department, and any proceeds from the sale or other
disposition of the loans originated through the lender for need-based
grants, and that those funds supplemented, but did not supplant, other
Federal or non-Federal funds otherwise available to the school to make
need-based grants to its students. The proposed regulations also
require that the audit must determine that no more than a reasonable
portion of the payments and proceeds from the loans were used for
direct administrative expenses in accordance with Sec. 682.601(b) of
the current regulations. These same requirements with regard to annual
compliance audit determinations were also added to the FFEL school
lender audit requirements in Sec. 682.601(a)(7) of the regulations.
Reasons: The proposed regulations reflect the HEOA changes made to
the HEA provisions governing the compliance audit of a FFEL school
lender or an eligible FFEL lender in its capacity as trustee for a
school or school-affiliated organization for the purpose of making FFEL
loans. The audit determination will ensure that funds received by a
school as a lender or through an ELT arrangement with an eligible FFEL
lender will be used to benefit students enrolled at the school as
intended by the HEA.
Consumer Education Information Provided by Guaranty Agencies (Sec.
682.401(g))
Statute: The HEOA added a new section 433A to the HEA that requires
a guaranty agency to work with the schools that it serves to develop
and make available high-quality educational materials and programs that
provide training for students and their families in budgeting and
financial management, including debt management and other aspects of
financial literacy, such as the cost of using high-interest loans to
pay for postsecondary education, and how budgeting and financial
management relate to the title IV student loan programs. The HEA
requires these programs and materials to be in formats that are simple
and understandable to students and their families, and specifies that
they must be provided before, during, and after a student's enrollment
at an institution of higher education. A guaranty agency's activities
under section 433A are considered default reduction activities for the
purposes of section 422 of the HEA.
A guaranty agency is not prohibited from using existing activities,
programs,
[[Page 36574]]
and materials to meet the requirements of section 433A, and may provide
programs or materials similar to the programs and materials required by
section 433A to schools that participate only in the Direct Loan
Program.
A lender or loan servicer may also provide outreach or financial
aid literacy information in accordance with the requirements of section
433A.
Proposed Regulations: The proposed regulations would reflect the
requirements of section 433A of the HEA as described above.
Reasons: The proposed changes are necessary to reflect a statutory
requirement.
Financial and Economic Literacy for Rehabilitated Borrowers (Sec.
682.405)
Statute: The HEOA amended section 428F of the HEA to require a
guaranty agency to make available financial and economic education
materials for a borrower who has rehabilitated a defaulted loan.
Proposed Regulations: The proposed regulations would revise Sec.
682.405, regarding loan rehabilitation agreements, by adding a
provision requiring guaranty agencies to make available financial and
economic education materials, including debt management information, to
any borrower who has rehabilitated a defaulted loan.
Reasons: The proposed change is necessary to implement a statutory
requirement. Some of the non-Federal negotiators requested
clarification of the methods by which a guaranty agency may make the
required information available to borrowers who have rehabilitated a
defaulted loan. One non-Federal negotiator representing students asked
for clarification that the required information must be provided to
individual borrowers who have rehabilitated defaulted loans, and not
simply made available on a guaranty agency's Web site or in other
general materials.
The Department confirmed that a guaranty agency must provide the
required financial and economic education materials to each individual
borrower who has rehabilitated a defaulted loan. A guaranty agency may
provide the required information to individual borrowers by mailing
written materials or through electronic means. The materials may
provide general financial and economic education information that would
be applicable to any borrower, including information on debt
management, and need not be specific to the individual borrower's
circumstances.
Consumer Credit Reporting Following Loan Rehabilitation (Sec.
682.405(b)(1)(iii) and (b)(3))
Statute: Section 428F(a)(1)(A) of the HEA was amended by the HEOA
to require that, upon sale of a rehabilitated loan to an eligible
lender, the guaranty agency or other holder of the loan must request
any consumer reporting agency to which the guaranty agency or holder
had reported the default of the loan to remove the record of default
from the borrower's credit history.
Current Regulations: Section 682.405(b)(3) of the FFEL regulations
states that the guaranty agency must report to all national credit
bureaus within 90 days of the date the loan was rehabilitated that the
loan is no longer in a default status and that the default is to be
removed from the borrower's credit history.
Proposed Regulations: The proposed regulations would require the
prior holder of the loan, in addition to the guaranty agency, to
request that a consumer reporting agency to which the default was
reported remove the default from the borrower's credit history. The
proposed regulations would also provide more detailed reporting
deadlines for the guaranty agency and the prior loan holder to request
removal of the report of the default from the borrower's credit
history, and would reduce the overall period for this activity from 90
to 75 days. Under the proposed regulations, the guaranty agency must,
within 45 days of the sale of the rehabilitated loan to an eligible
lender, request that the consumer reporting agency remove the record of
default from the borrower's credit history and notify the prior holder
of the loan rehabilitation. The proposed regulations would require the
prior holder of the loan, within 30 days of the guaranty agency's
notification of the loan's rehabilitation, to request that the consumer
reporting agency remove the loan holder's default claim record or its
equivalent from the borrower's credit history.
Reasons: The proposed regulations incorporate the HEOA changes to
the HEA provisions governing default rehabilitation-related reporting
to consumer reporting agencies. Establishing specific deadlines for a
guaranty agency's notice to the prior holder and for the guaranty
agency and loan holder to make their requests to consumer reporting
agencies will ensure that affected borrowers receive the primary loan
rehabilitation benefit in a timely and efficient manner.
The Department initially proposed reducing the overall timeframe
for reporting to the consumer reporting organizations from the current
90 days to 45 days without separate reporting deadlines for the
guaranty agency and loan holder. Several non-Federal negotiators
expressed concern that 45 days did not provide sufficient time for both
parties to report to consumer reporting agencies and noted that the
prior loan holder would not be aware that it was required to initiate
such a request unless it was informed by the guaranty agency of the
sale. These negotiators also recommended that separate deadlines be
established for the guaranty agency and the loan holder so that one
party's failure to meet the deadline would not result in a compliance
failure for both parties. A non-Federal negotiator familiar with
guaranty agency requirements also requested that the Department clarify
a guaranty agency's responsibilities when the prior loan holder that
reported the default was no longer in existence. The negotiators
discussed consumer credit reporting in greater detail, with the Federal
negotiator providing an overview of the process and information on the
Department's consumer credit reporting process for rehabilitated Direct
Loans. In both the FFEL and Direct Loan programs a record of the
default, or an equivalent reporting code, is reported by the loan
holder (in FFEL) or the Direct Loan servicer and by the guaranty agency
(in FFEL) or the Department's debt collection unit (in Direct Loans)
and that neither the Department nor a guaranty agency has the authority
to request deletion by the consumer reporting organization of another
creditor's reported ``trade line.'' If the loan holder that reported a
default insurance claim no longer exists, the borrower's recourse is to
directly request that the consumer reporting organization remove the
defunct loan holder's reported record of default or its equivalent from
the borrower's credit history. The Department expects guaranty agencies
to assist borrowers to the extent possible under these circumstances by
informing the borrower of the identity of the prior holder and of the
borrower's right to directly request removal of the default by the
consumer reporting agency. However, the Department understands that a
guaranty agency's ability to assist borrowers is limited in this area.
Notifications to Borrowers in Default and Definition of Nationwide
Consumer Reporting Agency (Sec. Sec. 682.410(b) and 682.200(b))
Statute: The HEOA amended section 428(k) of the HEA by adding a
requirement for guaranty agencies that
[[Page 36575]]
have received a default claim from a lender to provide the defaulted
borrower with at least two separate notices, using simple and
understandable terms, that explain, at a minimum, the borrower's
options for removing the loan from default, and the fees and conditions
associated with each option.
The HEOA also changed all current references to ``credit bureaus''
in the HEA to ``consumer reporting agencies.''
Current Regulations: Section 682.410(b)(5)(ii) requires a guaranty
agency, after it pays a default claim on a loan but before it reports
the default to a credit bureau or assesses collection costs against the
borrower, to provide the borrower, within a specified timeframe, with a
notice that advises the borrower of the actions that will be taken with
regard to the default claim and explains the borrower's rights in
connection with the claim. Section 682.410(b)(6) specifies the
collection efforts that a guaranty agency must take on a defaulted
loan.
Proposed Regulations: The proposed regulations would expand the
information that must be provided in the notice required under Sec.
682.410(b)(5)(ii) to include information on the options that are
available to the borrower to remove the loan from default, including an
explanation of the fees and conditions associated with each option. The
proposed regulations would also require a guaranty agency to provide
this same information to a defaulted borrower in a second notice that
the guaranty agency must send as part of its required collection
efforts on a defaulted loan under Sec. 682.410(b)(6). The second
notice would have to be sent within a reasonable time after the end of
the period during which the borrower may request an administrative
review as specified in Sec. 682.410(b)(5)(iv)(B) or, if the borrower
has requested an administrative review, within a reasonable time
following the conclusion of the administrative review.
The proposed regulations would also remove the definition of
National credit bureau from Sec. 682.200(b) and replace it with a
definition of Nationwide consumer reporting agency, and would replace
all references to ``credit bureau'' with ``consumer reporting agency''
throughout Sec. 682.410(b)(5) and (b)(6). The proposed regulations
would specify that a nationwide consumer reporting agency is a consumer
reporting agency as defined in 15 U.S.C. 1681a.
Reasons: The proposed changes in Sec. 682.410(b) reflect statutory
requirements. The proposed definition of nationwide consumer reporting
agency refers to the definition of this term in the Fair Credit
Reporting Act.
Executive Order 12866
Regulatory Impact Analysis
Under Executive Order 12866, the Secretary must determine whether
the regulatory action is ``significant'' and therefore subject to the
requirements of the Executive Order and subject to review by the 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 proposed regulatory action will not have an annual
effect on the economy of more than $100 million. Therefore, this action
is not ``economically significant'' and subject to OMB review under
section 3(f)(1) of Executive Order 12866. Notwithstanding this
determination, the Secretary has assessed the potential costs and
benefits of this regulatory action and has determined that the benefits
justify the costs.
Need for Federal Regulatory Action
These proposed regulations are needed to implement provisions of
the HEA, as amended by the HEOA, particularly related to changes
related to loan discharge, deferment, consolidation, rehabilitation,
and repayment plan provisions, and the addition of a new Part E to
title I of the HEA which establishes extensive new disclosure
requirements for lenders and institutions participating in Federal and
private student loan programs.
In general, these proposed regulations simply restate specific HEOA
requirements, in many cases using language drawn directly from the
statute. In the following areas, the Secretary has exercised limited
discretion in implementing the HEOA provisions through proposed
regulations:
Total and permanent disability discharges: The Secretary determined
that the monitoring period after a borrower receives a discharge due to
total and permanent disability would be three years; that interest
would not accrue during this period for loans that are ultimately
reinstated; that the employment earnings standard would be based on the
poverty guideline amount for a family of two; that, for student loan
and TEACH grant disbursements received during the monitoring period, a
borrower's obligation to repay a discharged loan will not be reinstated
if funds are returned to the holder within 120 days of the disbursement
date; and that the Secretary will provide certain information to a
borrower as part of a notification to the borrower that his or her
obligation to repay a previously discharged loan has been reinstated.
Opportunity to cancel a consolidation loan: The Secretary would
require lenders to provide a Consolidation loan borrower a period of
not less than 10 days, from the date the borrower is notified the
lender is ready to make the Consolidation loan, to cancel the loan.
PLUS loan deferment: The Secretary aligned the repayment of a
borrower's PLUS loans first disbursed before July 1, 2008, with a
borrower's PLUS loans first disbursed on or after July 1, 2008, and
with a borrower's Stafford Loans that have a grace period, so that the
borrower would begin making payments on all of the loans at the same
time.
Income-based repayment: The Secretary determined that a borrower
whose outstanding balance has increased rather than decreased
throughout the repayment period prior to the borrower's request for IBR
should be given the benefit of determining partial financial hardship
based on the borrower's increased outstanding loan principal balance.
The Secretary would require that, for married borrowers, joint AGI
and the annual amount due on both the borrower's and the spouse's
eligible loans be used to determine eligibility for IBR and the partial
financial hardship payment amount. That payment amount would then be
adjusted based on the percentage of the combined total eligible loan
debt attributable to each individual borrower, with a further
adjustment if the borrower has multiple loan holders.
Teacher loan forgiveness: The Secretary determined that the five
complete consecutive years of teaching required to qualify for loan
forgiveness may include any combination of qualifying teaching service
at an eligible
[[Page 36576]]
elementary or secondary school or at an eligible educational service
agency, but teaching at an educational service agency may be counted
toward the five years only if the consecutive five-year period includes
qualifying teaching at an eligible educational service agency performed
after the 2007-2008 academic year.
Forbearance: The Secretary determined that, if an administrative
forbearance is granted retroactively, the lender need not go back in
time to provide the required information retroactively. Lenders must,
however, contact the borrower as required going forward from the date
the lender applied the forbearance.
Consumer credit reporting after loan rehabilitation: The Secretary
determined that guaranty agencies must, within 45 days of the sale of
the rehabilitated loan to an eligible lender, request that the consumer
reporting agency remove the record of default from the borrower's
credit history and notify the prior holder of the loan rehabilitation.
The Secretary also determined that the prior holder of the loan, within
30 days of the guaranty agency's notification of the loan's
rehabilitation, must request that the consumer reporting agency remove
the loan holder's default claim record or its equivalent from the
borrower's credit history.
The following section addresses the alternatives that the Secretary
considered in implementing these discretionary portions of the HEOA
provisions. These alternatives are also discussed in more detail in the
Reasons sections of this preamble related to the specific regulatory
provisions.
Regulatory Alternatives Considered
Total and permanent disability discharges: The Department's initial
proposals included a 5-year post-discharge monitoring period and
interest charges for the period from the date of discharge to the
reinstatement date when a borrower's obligation to repay a previously
discharged loan is reinstated for failure to meet one of the post-
discharge requirements. Non-Federal negotiators did not support these
proposals, questioning the rationale for changing the current
policies--under which the conditional discharge period is three years
and interest is not charged for reinstated loans during the conditional
period--in the absence of a specific statutory requirement to do so.
After considering the negotiators' concerns, the Department revised the
proposed regulations by changing the post-discharge monitoring period
from five years to three years, and by removing the provision that
would have required a borrower to pay interest from the date of
discharge if the borrower's repayment obligation is reinstated.
Under the Department's initial proposal, a borrower's obligation to
repay a previously discharged loan would be reinstated if the
borrower's annual earnings from employment during the monitoring period
exceeded the poverty guideline amount for the borrower's family size.
Non-Federal negotiators raised concerns about this proposal, noting
that while the proposed approach could be seen as more equitable than
the current regulatory approach--under which the criteria for the
reinstatement of a loan is tied to poverty guideline amount for a
family of two, regardless of the borrower's actual family size--it also
could be confusing to borrowers, since a borrower's family size could
change during the post-discharge monitoring period. These negotiators
argued that the current standard based on a family size of two would be
preferable, as it would eliminate the need for borrowers to monitor
changes in the employment earnings limit during the post-discharge
monitoring period. The Department agreed.
Non-Federal negotiators also raised concerns about the treatment of
a title IV loan disbursement made during the post-discharge monitoring
period for a loan the borrower received prior to the physician's
certification date. The Department initially did address this issue in
the proposed regulations because the current regulatory provision,
under which a borrower is ineligible for a final discharge unless the
borrower ensures that such a disbursement is returned to the loan
holder within 120 days of the disbursement date, is tied to the
conditional discharge period, which would be eliminated under the
proposed regulations. After considering the concerns of the non-Federal
negotiators, the Department agreed to change the proposed regulations
to provide that a borrower's obligation to repay a discharged loan will
not be reinstated if the borrower ensures that a title IV loan or TEACH
Grant disbursement made during the post-discharge monitoring period for
a loan or TEACH Grant received prior to the discharge date is returned
to the loan holder within 120 days of the disbursement date. The
Department also agreed to revise the proposed regulations to provide
that if a disbursement of a title IV loan or TEACH Grant is made during
the period between the physician's certification date and the discharge
date, the processing of the borrower's loan discharge request will be
suspended until the borrower ensures the disbursement is returned to
the loan holder or the Secretary, as applicable.
Lastly, the Department's initial proposal did not explicitly
provide that the Secretary would notify a borrower who fails to meet
one of the eligibility requirements during the post-discharge
monitoring period that the borrower's obligation to repay the
discharged loan has been reinstated. In response to serious concerns
from non-Federal negotiators, the Department agreed to add a provision
to the proposed regulations stating the Secretary will notify a
borrower that his or her obligation to repay a previously discharged
loan has been reinstated, and that the notification of reinstatement
will explain why the obligation was reinstated, that the first payment
due date following reinstatement will be no earlier than 60 days after
the date of the notification of reinstatement, and how the borrower may
contact the Department if he or she has questions or believes the
obligation to repay was reinstated based on incorrect information.
Opportunity to cancel a consolidation loan: A number of non-Federal
negotiators raised concerns about the requirement that lenders provide
Consolidation loan borrowers an explicit period of time to cancel the
loan after the date the borrower is notified that the lender is ready
to make the Consolidation loan. These negotiators argued that the
Department's original proposal to provide a five-day period for a
borrower to cancel the loan with the lender lacked clarity and did not
fully recognize the highly automated consolidation process in which
some loans could be fully processed in as little as 24-48 hours. One
negotiator suggested that the Department provide borrowers with the
opportunity to expedite processing by waiving their right to cancel the
loan. After considering these concerns and suggestions, the Department
proposed revised language establishing a timeframe for a borrower to
cancel a Consolidation loan that would be similar to the operational
timeframe used in the Direct Loan Program, which would be clear and
understandable to all participants. This revised proposal is reflected
in the proposed regulations.
PLUS loan deferment: A non-Federal negotiator raised concerns that,
under the Department's original proposal, borrowers with PLUS loans
first disbursed before July 1, 2008, and PLUS loans first disbursed on
or after July 1,
[[Page 36577]]
2008, could erroneously believe that all their PLUS loans are eligible
for the new 6-month post-enrollment deferment period, which is actually
only available on PLUS loans first disbursed on or after July 1, 2008.
This negotiator suggested, and the Department agreed, that the proposed
regulations be revised to provide an administrative forbearance that
would allow a lender to align repayment of a borrower's PLUS loans
first disbursed before July 1, 2008 with a borrower's PLUS loans first
disbursed on or after July 1, 2008, and with a borrower's Stafford
Loans that have a grace period.
Income-based repayment: A non-Federal negotiator noted that
borrowers whose outstanding loan balance increased after they initially
entered repayment and before they request IBR would be disadvantaged
under the Department's original proposal to always base a borrower's
annual payment amount on the outstanding balance when the borrower
initially entered repayment. The negotiator argued that borrowers who
have had difficulty repaying the loan and who have taken advantage of
deferments and forbearances to avoid delinquency would be particularly
disadvantaged as their outstanding loan principal balance would have
increased due to capitalized interest. After considering these factors,
the Department agreed that, for a borrower whose outstanding balance
has increased during the repayment period prior to the borrower's
request for IBR, the determination of partial financial hardship should
be based on the borrower's increased outstanding loan principal
balance.
The Department also considered alternative approaches for
determining eligibility for partial financial hardship for married
borrowers who file a joint Federal tax return and who both have
eligible loans. The Department initially proposed using each individual
borrower's portion of the joint AGI and eligible loan amount to
determine eligibility for IBR. Following discussions with non-Federal
negotiators, the Department determined that this approach would impose
significant burdens both on borrowers, who would be required to submit
additional documentation to identify the individual portion of any
joint income, and loan holders, who would need to determine each
borrower's eligibility using a manual process (rather than automated
process). As an alternative, the Department agreed to adopt a non-
Federal negotiator's suggestion to determine eligibility for IBR using
married borrowers' joint AGI and the annual amount due on both the
borrower's and the spouse's eligible loans, with the payment amount
adjusted based on the percentage of the combined total eligible loan
debt attributable to each individual borrower and with a further
adjustment for borrowers with multiple loan holders.
The alternatives adopted would increase Federal costs for fiscal
years 2009 through 2019 related to the IBR program by an estimated $101
million compared with baseline estimated costs for the original
authorizing legislation. (These costs include the impact of the
proposed changes on loans made prior to FY 2009.) The Department does
not forecast any new borrowers will choose the IBR repayment schedule
beyond those assumed in the baseline because the alternatives adopted
were relatively minor and, therefore, not likely to change borrowers'
repayment choices. Projected costs were determined based on those
borrowers from the 1994 through 2019 cohorts already assumed to choose
the IBR repayment schedule. Estimates were derived using data from the
Department's Direct Loan servicing system on borrowers who have chosen
income-contingent repayment, merged with a statistically significant
sample of National Student Loan Data System data. Current Population
Survey data from the Census Bureau was used to project borrower
incomes. Estimated loan volume associated with borrowers affected by
the alternatives adopted is $93 billion over 1994 through 2019.
While the cost of these provisions would normally need to be
offset, the Department requested and the Office of Management and
Budget granted an exception to budget neutrality requirements. This
exception reflects the relatively small cost of the provisions and the
fact that in their absence borrowers would be harmed by having unduly
high payment amounts or being denied access to IBR entirely. This harm
would be most significant to married borrowers with significant student
loan debt, including those engaged in public service careers, which
often pay less than comparable jobs in the private sector.
Teacher loan forgiveness: The Department's initial proposal allowed
only qualifying teaching service performed at an eligible educational
service agency after August 14, 2008, the date of enactment of the
HEOA, to be counted toward a borrower's required five complete
consecutive years of teaching service. A non-Federal negotiator argued
that this approach was too restrictive, and that the HEOA's provisions
in this area were intended to apply retroactively to October 1, 1998,
the date of enactment of the original FFEL and Direct Loan teacher loan
forgiveness provisions. While the Department did not agree with this
interpretation of the HEOA, the proposed regulations were revised to
provide that the required five complete consecutive years of teaching
may include any combination of qualifying teaching service at an
eligible elementary or secondary school or at an eligible educational
service agency, provided the consecutive five-year period includes
qualifying teaching at an eligible educational service agency performed
after the 2007-2008 academic year.
Forbearance: Some non-Federal negotiators raised concerns that
lenders will not be able to satisfy disclosure requirements if an
administrative forbearance is granted to assist a borrower with a
situation occurring in the past. The Department, after discussions with
other negotiators, agreed that if an administrative forbearance is
granted retroactively, the lender need not go back in time to provide
the required information retroactively. The lender must, however,
contact the borrower as required going forward from the date the lender
applied the forbearance.
Consumer credit reporting after loan rehabilitation: The Department
initially proposed reducing the overall timeframe for both guaranty
agency and loan holder reporting to the consumer reporting
organizations from the current 90 days to 45 days. Non-Federal
negotiators argued that 45 days was not enough time for both parties to
report to consumer reporting agencies, noting that the prior loan
holder would be unaware of the requirement until informed by the
guaranty agency of the sale. These negotiators recommended separate
deadlines for the guaranty agency and the loan holder to ensure that
one party's failure to comply with the deadline would not result in a
compliance failure for both parties. After consideration of these
concerns, the Department agreed to an alternative approach that would
reduce the overall period for this activity from 90 to 75 days. Under
this alternative approach, the guaranty agency must, within 45 days of
the sale of the rehabilitated loan to an eligible lender, request that
the consumer reporting agency remove the record of default from the
borrower's credit history and notify the prior holder of the loan
rehabilitation. The proposed regulations would require the prior holder
of the loan, within 30 days of the guaranty agency's notification of
the loan's rehabilitation, to request that the consumer reporting
agency remove the loan holder's default claim record or
[[Page 36578]]
its equivalent from the borrower's credit history.
Benefits
Benefits provided in these proposed regulations include greater
transparency for borrowers participating in the Federal and private
student loan programs; clearer guidelines on acceptable behavior by and
relationships among institutions participating in the student loan
programs; improvements to the IBR plan, particularly for married
borrowers; a simpler process for obtaining loan discharges due to total
and permanent disability; and expanded eligibility for Teacher Loan
forgiveness benefits. It is difficult to quantify benefits related to
the new institutional and lender requirements, as there is little
specific data available on either the extent of improper or
questionable relationships between institutions and lenders prior to
the HEOA or of the harm such relationships actually caused for either
borrowers, institutions, or the Federal taxpayer. The extent these
relationships prevented borrowers from accessing the most favorable
loan terms, however, is likely to have changed in any case since recent
shifts in economic conditions and lender net revenues have greatly
reduced the availability of borrower benefits in the FFEL program. The
Department is interested in receiving comments or data that would
support a more rigorous analysis of the impact of these provisions.
These benefits all flow directly from statutory changes included in
the HEOA; they are not materially affected by discretionary choices
exercised by the Department in developing these regulations. As
discussed in greater detail under Net Budget Impacts, these proposed
provisions result in net costs to the government of $192.7 million over
2009-2013.
Costs
Many of the statutory provisions implemented though this NPRM will
require regulated entities to develop new disclosures and other
materials, as well as accompanying dissemination processes. Other
proposed regulations generally would require discrete changes in
specific parameters associated with existing guidance--such as changes
to the process for loan discharges, IBR, and various deferment and
forbearance benefits--rather than wholly new requirements. In total,
these changes are estimated to increase burden on entities
participating in the FFEL program by 1,313,964 hours. Of this increased
burden, 1,184,115 hours are associated with lenders, 110,360 hours with
guaranty agencies, and 7,200 hours with institutions. An additional
12,289 hours are associated with borrowers, generally reflecting the
time required to read new disclosures or submit required information.
The monetized cost of this additional burden, using loaded wage data
developed by the Bureau of Labor Statistics, is $24,334,225.
While there is additional burden associated with a range of
proposed provisions in this NPRM, nearly 95 percent of the burden hours
associated with this package result from six provisions, all with a
burden greater than 20,000 hours. In estimating the cost of these
provisions, the Department used wage information from the Bureau of
Labor Statistics. For lenders, institutions, and guaranty agencies, the
May 2009 total private non-agricultural average hourly earnings of
$18.54 was used as the hourly rate to monetize the burden of these
provisions. For borrowers, the first quarter 2009 median weekly
earnings for full-time wage and salary workers by age range were used.
This was weighted to reflect the age profile of the student loan
portfolio, with 50 percent of the portfolio assigned to the 20-to-24
age category and 50 percent to the 25-to-34 age category. Using median
weekly earnings of $472 for workers in the 20-to-24 age category and
$674 for workers in the 25-to-34 age category and assuming a 35-hour
work week, the Department calculated an hourly rate of $16.37 to use in
monetizing the burden on borrowers. The following discussion provides
additional detail on the impact of these provisions.
The greatest number of burden hours is associated with proposed
Sec. 682.205, which implements new statutory requirements for lenders
to disclose specified information to borrowers throughout the life-
cycle of the loan. These required disclosures include information about
a 10-day cancellation period for consolidation loans, the availability
of forbearance and its effects, discharge options, repayment plans, and
resources available to borrowers, among others. The Department
determined that the lenders will have increased burden due to the
additional disclosures for two groups of borrowers: Borrowers that are
having difficulty making payments, and borrowers that are 60-days
delinquent. There is no additional burden associated with the
disclosures that loan holders are already required to make to borrowers
prior to and during repayment. An estimated 4,692,126 borrowers fall
within these two categories with additional burden, and the burden of
developing and distributing the new disclosures is estimated to be .17
hours per borrower, for a total burden of 797,661 hours for this
provision. Using the lender rate of $18.54 per hour, the cost
associated with this provision is $14.8 million.
The next highest number of burden hours is associated with proposed
Sec. 682.211, which specifies lender disclosure requirements related
to forbearance and creates a new administrative forbearance to align
repayment of PLUS loans. Lenders must disclose the effect of interest
capitalization and the total to be repaid during the life of a loan
under this provision. An estimated 215,734 borrowers are affected by
this provision, and the hour burden on lenders is estimated to be .03
hours per borrower, for a total of 215,734 hours. Therefore, the cost
associated with this provision is approximately $4.0 million.
An estimated 90,286 burden hours are associated with Sec. 682.215
and Sec. 685.221, the provisions related to the definition of partial
financial hardship and the calculation of the borrower's payment under
income-based repayment plans. The change in the method of calculating
an income-based repayment will increase burden to loan holders by .08
hours per borrower. The number of borrowers expected to qualify for IBR
is 1,128,579, generating a total burden of 90,286. Using the lender
rate, the cost associated with this provision is $1.7 million.
Another provision that has an estimated burden greater than 20,000
hours is Sec. 682.206, which requires lenders to offer consolidation
borrowers a 10-day cancellation period. The burden of this provision
falls on borrowers, who have to read the disclosure about cancellations
and act if they want to pursue that option, and lenders, who have to
provide the disclosure about cancellation and delay loan processing to
allow cancellations. An estimated 10,032 FFEL consolidation borrowers
are affected by this provision, with an estimated burden of one hour
for a total of 10,032 hours. For lenders, the burden of providing
application disclosures to approximately 670,753 potential
consolidation loan applicants and information about cancellations to
approximately 11,147 consolidated borrowers, calculated at a rate of
.08 hours per borrower, totals 54,552 hours. Applying the appropriate
rates for borrowers and lenders, the total cost associated with this
provision is $1.2 million.
An estimated 58,793 burden hours are associated with Sec. 682.410,
the provision
[[Page 36579]]
requiring guaranty agencies to provide certain notifications to
borrowers who are in default. Guaranty agency default notices must
include information on the options that are available to the borrower
to remove the loan from default, including an explanation of the fees
and conditions associated with each option. Approximately 734,918
borrowers in default are affected by this provision, with a burden of
.08 hours per borrower. At the guaranty agency rate of $18.54 per hour,
the cost associated with this provision totals $1.1 million.
The final provision estimated to result in over 20,000 burden hours
is Sec. 682.405, which requires guaranty agencies to provide certain
information to borrowers who have rehabilitated defaulted loans.
Guaranty agencies are required to provide financial and economic
educational materials to borrowers who have rehabilitated loans. Given
an estimated 143,687 rehabilitated loans and an increase in burden of
.17 hours per loan, the burden hours associated with this provision
total 24,427. Applying the guaranty agency rate, the cost associated
with this provision totals $0.5 million.
The other provisions that increase burden and associated costs are
relatively minor, especially when looked at for an individual entity
rather than in total. In general, entities wishing to continue to
participate in the student aid programs have already absorbed most of
the administrative costs related to implementing these provisions.
Marginal costs over this baseline are primarily related to one-time
system changes that, while possibly significant for some entities, are
an unavoidable--and in most cases minor--cost of continued program
participation. Additional workload would normally be expected to result
in estimated costs associated with either the hiring of additional
employees or opportunity costs related to the reassignment of existing
staff from other activities.
Given the limited data available, the Department is interested in
comments and supporting information related to possible burden stemming
from the proposed regulations. In particular, we ask institutions to
provide detailed data on actual staffing and system costs associated
with implementing these proposed regulations; data on the
implementation of proposed regulations regarding the adoption and
distribution of required disclosures would be especially helpful.
Estimates included in this notice will be reevaluated based on any
information received during the public comment period.
Net Budget Impacts
HEOA provisions implemented by these regulations are estimated to
have a net budget impact of $34.7 million in 2009 and $192.7 million
over FY 2009-2013. (The estimated impact for 2009 does not include
$144.2 million in costs related to loans originated in prior fiscal
years.) Consistent with the requirements of the Credit Reform Act of
1990, budget cost estimates for the student loan programs reflect the
estimated net present value of all future non-administrative Federal
costs associated with a cohort of loans. (A cohort reflects all loans
originated in a given fiscal year.)
These estimates were developed using the Office of Management and
Budget's (OMB's) Credit Subsidy Calculator. (This calculator will also
be used for re-estimates of prior-year costs, which will be performed
each year beginning in FY 2009). The OMB calculator takes projected
future cash flows from the Department's student loan cost estimation
model and produces discounted subsidy rates reflecting the net present
value of all future Federal costs associated with awards made in a
given fiscal year. Values are calculated using a ``basket of zeros''
methodology under which each cash flow is discounted using the interest
rate of a zero-coupon Treasury bond with the same maturity as that cash
flow. To ensure comparability across programs, this methodology is
incorporated into the calculator and used government-wide to develop
estimates of the Federal cost of credit programs. Accordingly, the
Department believes it is the appropriate methodology to use in
developing estimates for these regulations. That said, however, in
developing the Accounting Statement included below, the Department
consulted with OMB on how to integrate our discounting methodology with
the discounting methodology traditionally used in developing regulatory
impact analyses.
Absent evidence on the impact of these regulations on student
behavior, budget cost estimates were based on behavior as reflected in
various Department data sets and longitudinal surveys listed under
Assumptions, Limitations, and Data Sources. Program cost estimates were
generated by running projected cash flows related to each provision
through the Department's student loan cost estimation model. Student
loan cost estimates are developed across five risk categories:
Proprietary schools, two-year schools, freshmen/sophomores at four-year
schools, juniors/seniors at four-year schools, and graduate students.
Risk categories have separate assumptions based on the historical
pattern of behavior--for example, the likelihood of default or the
likelihood to use statutory deferment or discharge benefits--of
borrowers in each category.
The budgetary impact of the proposed regulations is largely driven
by statutory changes involving teacher loan forgiveness, loan
discharges, and IBR. The Department estimates no budgetary impact for
other proposed regulations included in this NPRM; there is no data
indicating that the new requirements related to improper inducements
and additional loan disclosures will have any impact on the volume or
composition of Federal student loans.
Assumptions, Limitations, and Data Sources
Because these proposed regulations would largely restate statutory
requirements that would be self-implementing in the absence of
regulatory action, impact estimates provided in the preceding section
reflect a pre-statutory baseline in which the HEOA changes implemented
in these proposed regulations do not exist. Costs have been quantified
for five years. In general, these estimates should be considered
preliminary; they will be reevaluated in light of any comments or
information received by the Department prior to the publication of the
final regulations. The final regulations will incorporate this
information in a revised analysis.
In developing these estimates, a wide range of data sources was
used, including data from the NSLDS; operational and financial data
from Department 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. Data from other sources, such as the Census Bureau, were also
used. Data on administrative burden at participating schools, lenders,
guaranty agencies, and third-party servicers are extremely limited;
accordingly, as noted above, the Department is particularly interested
in comments in this area.
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.
[[Page 36580]]
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 proposed
regulations. This table provides our best estimate of the changes in
Federal student aid payments as a result of these proposed regulations.
Expenditures are classified as transfers from the Federal government to
student loan borrowers (for expanded loan discharges, teacher loan
forgiveness payments).
Table 2--Accounting Statement: Classification of Estimated Expenditures
[In millions]
------------------------------------------------------------------------
Category Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers......... $57.
From Whom To Whom?..................... Federal Government to Student
Loan Borrowers.
------------------------------------------------------------------------
Clarity of the Regulations
Executive Order 12866 and the Presidential memorandum ``Plain
Language in Government Writing'' require each agency to write
regulations that are easy to understand.
The Secretary invites comments on how to make these proposed
regulations easier to understand, including answers to questions such
as the following:
Are the requirements in the proposed regulations clearly
stated?
Do the proposed regulations contain technical terms or
other wording that interferes with their clarity?
Does the format of the proposed regulations (grouping and
order of sections, use of headings, paragraphing, etc.) aid or reduce
their clarity?
Would the proposed regulations be easier to understand if
we divided them into more (but shorter) sections? (A ``section'' is
preceded by the symbol ``Sec. '' and a numbered heading; for example,
Sec. 682.209 Repayment of a loan.)
Could the description of the proposed regulations in the
Supplementary Information section of this preamble be more helpful in
making the proposed regulations easier to understand? If so, how?
What else could we do to make the proposed regulations
easier to understand?
To send any comments that concern how the Department could make
these proposed regulations easier to understand, see the instructions
in the ADDRESSES section of this preamble.
Regulatory Flexibility Act Certification
The Secretary certifies that these proposed regulations would not
have a significant economic impact on a substantial number of small
entities. These proposed regulations would affect institutions of
higher education, lenders, and guaranty agencies that participate in
Title IV, HEA programs and individual students and loan borrowers. The
U.S. Small Business Administration Size Standards define institutions
and lenders as ``small entities'' if they are for-profit or nonprofit
institutions with total annual revenue below $5,000,000 or if they are
institutions controlled by small governmental jurisdictions, which are
comprised of cities, counties, towns, townships, villages, school
districts, or special districts, with a population of less than 50,000.
Based on data from the Integrated Postsecondary Education Data
System (IPEDS), roughly 1,200 institutions participating in the FFEL
program meet the definition of ``small entities.'' More than half of
these institutions are short-term, for-profit schools focusing on
vocational training. Other affected small institutions include small
community colleges and Tribally controlled schools. Burden on
institutions associated with these proposed regulations is associated
with audit requirements for schools serving as lenders. Institutions
meeting the definition of small entities are extremely unlikely to act
as lenders in the FFEL program. Accordingly, new requirements imposed
under the proposed regulations are not expected to impose significant
new costs on these institutions.
The Department believes few if any lenders participating in the
FFEL program have revenues of less than $5 million. FFEL program
activity is highly concentrated among the largest lenders; should an
extremely small number of lenders that meet the threshold participate
in the program, they likely are making loans as a service to current
clients rather than soliciting new business. This type of lender, with
a tangential relationship to Federal student loans, is extremely
unlikely to engage in the type of activities--inducements, etc.--
governed by these regulations. Accordingly, the Department has
determined that the regulations would not represent a significant
burden on small lenders.
Guaranty agencies are State and private nonprofit entities that act
as agents of the Federal government, and as such are not considered
``small entities'' under the Regulatory Flexibility Act. The impact of
the proposed regulations on individuals is not subject to the
Regulatory Flexibility Act.
The Secretary invites comments from small institutions and lenders
as to whether they believe the proposed changes would have a
significant economic impact on them and, if so, requests evidence to
support that belief.
Paperwork Reduction Act of 1995
Proposed 674.61, 682.202, 682.205, 682.206, 682.208, 682.210,
682.211, 682.216, 682.302, 682.305, 682.401, 682.402, 682.410, 682.601,
685.202, 685.204, 685.205, 685.213, and 685.217 contain information
collection requirements. Under the Paperwork Reduction Act of 1995 (44
U.S.C. 3507(d)), the Department of Education has submitted a copy of
these sections to the Office of Management and Budget (OMB) for its
review.
Sections 674.61, 682.402, and 685.213--Total and Permanent Disability
Loan Discharges
The proposed regulations would revise the loan discharge process
for borrowers seeking to have their title IV loans discharged based on
a total and permanent disability. The proposed changes to the loan
discharge process affect borrowers, loan holders (and their servicers),
and guaranty agencies.
The burden hour estimate associated with the current total and
permanent disability loan discharge provisions is reported under OMB
Control Number 1845-0065 (Discharge Application: Total and Permanent
Disability). The Department does not expect the proposed changes to
increase the burden for this collection. However, the Department will
need to revise the Discharge Application: Total and Permanent
Disability currently approved under 1845-0065 to reflect the final
regulations that will be published by November 1, 2009. The Department
will submit a revised form for clearance
[[Page 36581]]
after the final regulations have been published. The revised form will
not be needed until July 1, 2010, the effective date of the final
regulations.
Section 682.206--Consolidation Loans
The proposed regulations would revise Sec. 682.206(f) to
incorporate a new requirement that is needed to fully implement
proposed Sec. 682.205(i)(7), which requires lenders to inform
borrowers that, by applying for the Consolidation loan, the borrower is
not obligated to take the loan. Specifically, Sec. 682.206(f) would be
revised to include a requirement that the lender provide a
Consolidation loan borrower a period of not less than 10 days, from the
date the borrower is notified by the lender that it is ready to make
the Consolidation loan, to cancel the loan. The proposed regulations
would require the lender to send the notice of the option to cancel the
loan to the borrower before making any payments to pay off a loan with
the proceeds of a Consolidation loan.
We estimate that the proposed changes will increase burden for
borrowers by 10,032 hours and for loan holders (and their servicers) by
54,552 hours for a total increase in burden of 64,584 hours in OMB
Control Number 1845-0020.
Sections 682.210, 682.211, 685.204 and 685.205--In-School Deferments
and Administrative Forbearance for PLUS Loans
The proposed regulations would revise Sec. Sec. 682.210 and
685.204 to reflect statutory deferment provisions for FFEL and Direct
PLUS loan borrowers with loans first disbursed on or after July 1,
2008. Upon the request of the borrower, a parent PLUS borrower must be
granted a deferment on a PLUS loan first disbursed on or after July 1,
2008, during the period when the student on whose behalf the loan was
obtained is enrolled on at least a half-time basis at an eligible
institution, and during the 6-month period that begins on the later of
the day after the student ceases to be enrolled on at least a half-time
basis or, if the parent borrower is also a student, the day after the
parent ceases to be enrolled on at least a half-time basis.
For graduate and professional student PLUS borrowers, the proposed
regulations would provide that a borrower may be granted a deferment on
a PLUS loan first disbursed on or after July 1, 2008 during the 6-month
period that begins on the day after the student ceases to be enrolled
on at least a half-time basis at an eligible institution. If a lender
or the Secretary grants an in-school deferment on a student PLUS loan
based on information from the borrower's school about the borrower's
eligibility for a new loan, student status information from the school
or information from NSLDS confirming the borrower's half-time
enrollment status, the in-school deferment period for a student PLUS
loan first disbursed on or after July 1, 2008 would include the 6-month
period that begins on the day after the student PLUS borrower ceases to
be enrolled on at least a half-time basis.
The proposed regulations would also add a new administrative
forbearance provision to Sec. 682.211(f) allowing a lender to grant a
forbearance, upon notice to the borrower, on a borrower's PLUS loans
first disbursed before July 1, 2008 to align repayment of the loans
with a borrower's PLUS loans first disbursed on or after July 1, 2008,
or with a borrower's Stafford loans that are subject to a grace period.
The lender would be required to notify the borrower that he or she has
the option to cancel the forbearance and to continue paying on the
loan. A corresponding administrative forbearance provision would be
added to Sec. 685.205(b) in the Direct Loan Program regulations.
The proposed changes to Sec. Sec. 682.210 and 685.204 affect
borrowers and loan holders (and their servicers). The new deferment
provisions for certain PLUS borrowers are expected to increase the
number of borrowers who apply for deferments. Because these statutory
provisions could be implemented without regulations, the FFEL and
Direct Loan deferment request forms were previously revised to include
the new deferments for PLUS borrowers and have been approved under OMB
Control Numbers 1845-0005 (FFEL Program Deferment Request Forms) and
1845-0011 (Direct Loan Program Deferment Request Forms). The increased
burden associated with the proposed regulatory changes is reflected in
the burden estimates reported under those control numbers.
We estimate that the proposed regulations in Sec. 682.211(e)
related to administrative forbearances will increase burden for loan
holders by 14,440 hours in OMB Control Number 1845-0020.
Sections 682.215 and 685.221--Income-Based Repayment (IBR) Plan
The proposed regulations would revise the definition of partial
financial hardship in Sec. 682.215(a)(4) and 685.221(a)(4) to specify
that the annual amount due on a borrower's eligible loans for purposes
of determining whether the borrower has a partial financial hardship is
the greater of the amount due on the eligible loans when the borrower
initially entered repayment on those loans, or the amount due on those
loans when the borrower elects the IBR plan. The proposed regulations
would also provide that when a married borrower and his or her spouse
file a joint Federal tax return with the IRS and both the borrower and
the spouse have eligible loans, the joint AGI and the total amount of
the borrower's and spouse's eligible loans will be used in determining
whether each borrower has a partial financial hardship.
The proposed regulations would revise Sec. Sec.
682.215(b)(1)[hairsp]and 685.221[hairsp](b)(2) to provide that if a
borrower and a borrower's spouse both have eligible loans and filed a
joint Federal tax return, each borrower's percentage of the couple's
total eligible loan debt would be determined, and the calculated
partial financial hardship payment amount for each borrower would be
adjusted by multiplying the payment by the applicable borrower's
percentage. As with all other borrowers, each borrower's adjusted
payment amount would be further adjusted if the borrower's loans are
held by multiple holders.
We estimate that the proposed regulations will increase burden for
loan holders by 90,286 hours in OMB Control Number 1845-0020.
Sections 682.202, 682.302, and 685.202--Applicability of the
Servicemembers Civil Relief Act (SCRA) to FFEL and Direct Loan Program
Loans
The proposed regulations would revise Sec. Sec. 682.202 and
685.202 to provide that, effective August 14, 2008, upon a loan
holder's receipt of a written request from a borrower and a copy of the
borrower's military orders, the maximum interest rate (as defined in 50
U.S.C. 527, App, section 207(d)) that may be charged on FFEL or Direct
Loan program loans made prior to the borrower entering active duty
status is six percent while the borrower is on active duty status. The
proposed regulations would also revise Sec. 682.302 of the FFEL
regulations by adding a new paragraph (h) that specifies that, for FFEL
loans first disbursed on or after July 1, 2008, that are subject to the
SCRA interest rate cap, the FFEL lender's special allowance payment is
calculated as it otherwise would be under program requirements, except
that the applicable interest rate used is six percent.
We estimate that the proposed regulations will increase burden for
borrowers by 1,694 hours and for loan
[[Page 36582]]
holders by 542 hours in new OMB Control Number 1845-XXX1. We estimate
that the proposed regulations will increase burden for borrowers by 563
hours in new OMB Control Number 1845-XXX2.
Sections 682.210 and 685.204--In-School Deferment
The proposed regulations would revise Sec. 682.210(a)(3) of the
FFEL regulations to provide that if a borrower is responsible for the
interest on a loan during a deferment period, the lender, at or before
the time the deferment is granted, must notify the borrower that he or
she has the option to pay the accruing interest or cancel the deferment
and continue paying on the loan. The lender would also be required to
provide information, including an example, on the impact on a
borrower's loan debt of capitalization of accrued unpaid interest and
on the total amount of interest to be paid over the life of the loan. A
similar notification provision that applied only to the granting of in-
school deferments would be removed from Sec. 682.210(c)(2) of the FFEL
regulations. A comparable change would be made in Sec.
685.204(b)(1)(iii)(B) of the Direct Loan regulations to provide that
borrowers will be notified of their option to cancel a deferment and
continue paying on the loan and will be provided with information on
the impact of capitalization, including an example.
The proposed changes to Sec. Sec. 682.210 and 685.204 affect
borrowers and loan holders (and their servicers). The FFEL and Direct
Loan deferment request forms currently approved under OMB Control
Numbers 1845-0005 and 1845-0011 already include the information that a
loan holder must provide to a borrower at or before the time a
deferment is granted, as described above. Therefore, there is no
increase in burden associated with the proposed regulations.
Sections 682.216 and 685.217--FFEL and Direct Loan Program Teacher Loan
Forgiveness
The proposed regulations would allow a borrower who otherwise meets
the eligibility requirements for teacher loan forgiveness to receive
forgiveness based on teaching service performed at one or more eligible
elementary or secondary schools that serve low-income families, or one
or more eligible educational service agencies that serve low-income
families. A borrower could also qualify based on teaching service
performed at a combination of eligible elementary or secondary schools
and eligible educational service agencies. To be considered eligible
for teacher loan forgiveness purposes, an educational service agency
would have to meet the same eligibility requirements that apply to
elementary and secondary schools.
The proposed changes will increase the number of borrowers who are
eligible for teacher loan forgiveness, and will require a revision of
the FFEL and Direct Loan Program Teacher Loan Forgiveness Application
that is currently approved under OMB Control Number 1845-0059. The
Department will submit a change request for 1845-0059 (including an
adjustment to the burden hours associated with this collection) after
the final regulations have been published.
Section 682.205--Disclosure Requirements for Lenders
The proposed regulations would reorganize and expand Sec. 682.205
to reflect new disclosure requirements added by the HEOA. The HEOA
added additional disclosures by lenders before disbursement and
requires new disclosures at differing points in the borrower's
repayment cycle. The HEOA also added a separate set of disclosures
specifically for Consolidation loan borrowers.
We estimate that the proposed regulations will increase burden for
loan holders (and their servicers) by 797,661 hours in OMB Control
Number 1845-0020.
Section 682.208--Information to Borrowers Upon Transfer, Sale or
Assignment of a FFEL Program Loan
The proposed regulations incorporate three additional information
items specified in the HEA that must be provided to a borrower if the
assignment or transfer of an ownership interest in a FFEL program loan
results in a change in the identity of the party to whom subsequent
payments must be sent. The three additional data items are: (1) The
effective date of the assignment or transfer of the loan; (2) the date
on which the current loan servicer will cease accepting payments; and
(3) the date on which the new loan servicer will begin accepting
payments. The date on which the current servicer will stop accepting
payments is required only if that is applicable.
Loan holders are already required, under current regulations, to
provide certain information to a borrower if the assignment of a FFEL
Program loan results in a change in the identity of the party to whom
the borrower must send payments. The proposed regulations merely add
three additional items to the notice that a loan holder is already
required to provide. Therefore, the Department believes that the
proposed regulations will not significantly increase burden for loan
holders (and their servicers) in OMB Control Number 1845-0020.
Section 682.211--Forbearance
Section 682.211(e) of the proposed regulations would require the
lender, at the time the borrower is granted a forbearance, to give the
borrower information about the impact of capitalization of interest on
the loan and the total amount to be repaid over the life of the loan.
The proposed regulations would also require the lender to contact the
borrower at least once every 180 days during any period of forbearance
and to give the borrower or endorser more specific information, in
conjunction with that required under existing regulations, as to the
impact of forbearance on the loan. This information includes the amount
of interest that will be capitalized and when that capitalization will
take place and the option of the borrower or endorser to pay the
interest that has accrued before it is capitalized.
We estimate that the proposed regulations will increase burden for
loan holders (and their servicers) by 215,734 hours in OMB Control
Number 1845-0020.
Sections 682.305 and 682.601--Audit Requirements for a FFEL School
Lender or an Eligible Lender Trustee (ELT)
The proposed regulations would revise Sec. 682.305(c) to require
that a FFEL school lender, or a lender serving as a trustee on behalf
of a school or school-affiliated organization for the purpose of
originating loans, submit an annual compliance audit to the Department
regardless of the dollar volume of loans originated. The proposed
regulations also require that the audit be conducted by a qualified,
independent organization or person. A new proposed Sec.
682.305(c)(2)(vii) would govern the compliance audit of a school or
school-affiliated organization lender trustee. The proposed regulations
require that the trustee's audit include a determination that the
school for whom the lender serves as trustee used all the proceeds from
special allowance payments, interest subsidies received from the
Department, and any proceeds from the sale or other disposition of the
loans originated through the lender for need-based grants, and that
those funds supplemented, but did not supplant, other Federal or non-
Federal funds otherwise available to the school to make need-based
grants to its students. The proposed regulations also require that the
audit determine that no more
[[Page 36583]]
than a reasonable portion of the payments and proceeds from the loans
were used for direct administrative expenses in accordance with Sec.
682.601(b) of the current regulations. These same requirements with
regard to annual compliance audit determinations were also added to the
FFEL school lender audit requirements in Sec. 682.601(a)(7) of the
regulations.
We estimate that the proposed regulations will increase burden for
institutions by 7,200 hours and for loan holders (and their servicers)
by 10,900 hours for a total increase in burden of 18,100 hours in OMB
Control Number 1845-0020.
Section 682.401--Consumer Education Information Provided by Guaranty
Agencies
The proposed regulations require guaranty agencies to work with the
schools that it serves to develop and make available high-quality
educational materials and programs that provide training for students
and their families in budgeting and financial management, including
debt management and other aspects of financial literacy, such as the
cost of using high-interest loans to pay for postsecondary education,
and how budgeting and financial management relate to the title IV
student loan programs.
We estimate that the proposed regulations will increase burden for
institutions and guaranty agencies by 8,748 hours in OMB Control Number
1845-0020.
Section 682.405--Financial and Economic Literacy for Rehabilitated
Borrowers
The proposed regulations would revise Sec. 682.405, regarding loan
rehabilitation agreements, by adding a provision requiring guaranty
agencies to make available financial and economic education materials,
including debt management information, to any borrower who has
rehabilitated a defaulted loan.
We estimate that the proposed regulations will increase burden for
guaranty agencies by 24,427 hours in OMB Control Number 1845-0020.
Section 682.405--Consumer Credit Reporting Following Loan
Rehabilitation
If a borrower successfully rehabilitates a previously defaulted
loan, the proposed regulations would require the prior holder of the
loan, in addition to the guaranty agency, to request that a consumer
reporting agency to which the default was reported remove the default
from the borrower's credit history. The proposed regulations would also
provide more detailed reporting deadlines for the guaranty agency and
prior loan holder to request removal of the report of the default from
the borrower's credit history, and would reduce the overall period for
this activity from 90 to 75 days.
We estimate that the proposed regulations will increase burden for
guaranty agencies by 18,392 hours in OMB Control Number 1845-0020.
Section 682.410--Notifications to Borrowers in Default
The proposed regulations would expand the information that must be
provided in the notice required under Sec. 682.410(b)(5)(ii) to
include information on the options that are available to the borrower
to remove the loan from default, including an explanation of the fees
and conditions associated with each option. The proposed regulations
would also require a guaranty agency to provide this same information
to a defaulted borrower in a second notice that the guaranty agency
must send as part of its required collection efforts on a defaulted
loan under Sec. 682.410(b)(6). The second notice would have to be sent
within a reasonable time after the end of the period during which the
borrower may request an administrative review as specified in Sec.
682.410(b)(5)(iv)(B) or, if the borrower has requested an
administrative review, within a reasonable time following the
conclusion of the administrative review.
We estimate that the proposed regulations will increase burden for
guaranty agencies by 58,793 hours in OMB Control Number 1845-0020.
Consistent with the discussion above, the following chart describes
the sections of the proposed regulations involving information
collections, the information being collected, and the collections that
the Department will submit to the Office of Management and Budget for
approval and public comment under the Paperwork Reduction Act.
------------------------------------------------------------------------
Information
Regulatory section collection Collection
------------------------------------------------------------------------
674.61, 682.402, and 685.213....... The proposed OMB 1845-0065.
regulations The Discharge
would revise the Application:
loan discharge Total and
process for Permanent
borrowers Disability that
seeking to have is currently
their title IV approved under
loans discharged 1845-0065 will
based on total be revised to
and permanent reflect the
disability. final
Borrowers who regulations
apply for a that will be
total and published by
permanent November 1,
disability 2009. The
discharge must Department will
complete a submit a
discharge revised form
application that for clearance
collects the after the final
information regulations
needed to have been
determine their published. The
eligibility for revised form
discharge. will not be
needed until
July 1, 2010,
the effective
date of the
final
regulations.
682.206............................ Sec. 682.206(f) OMB 1845-0020.
would be amended
to include a
requirement that
the lender
provide a
Consolidation
loan borrower a
period of not
less than 10
days, from the
date the
borrower is
notified by the
lender that it
is ready to make
the
Consolidation
loan, to cancel
the loan.
682.210, 682.211, 685.204 and The proposed OMB 1845-0005,
685.205. regulations 1845-0011 and
implement new 1845-0020. The
deferment FFEL and Direct
provisions for Loan deferment
FFEL and Direct request forms
PLUS loan were previously
borrowers with revised to
loans first include the new
disbursed on or deferments for
after July 1, PLUS borrowers
2008 that were and have been
added to the HEA approved under
by the HEOA. A OMB Control
loan holder must Numbers 1845-
collect the 0005 (FFEL) and
information 1845-0011
needed to (Direct Loan).
determine that a
borrower is
eligible for a
deferment.
[[Page 36584]]
682.202, 682.302, and 685.202...... The proposed OMB 1845-XXX1
regulations and 1845-XXX2.
provide that, These will be
effective August new
14, 2008, upon a collections. A
loan holder's separate 60-day
receipt of a Federal
written request Register Notice
from a borrower will be
and a copy of published to
the borrower's solicit
military orders, comments.
the maximum
interest rate
that may be
charged on FFEL
or Direct Loan
program loans
made prior to
the borrower
entering active
duty status is
six percent
while the
borrower is on
active duty
status.
682.210 and 685.204................ The proposed OMB 1845-0005
regulations and 1845-0011.
would require a These
loan holder to collections
provide (FFEL and
information Direct Loan
about interest Program
capitalization deferment
to a borrower request forms)
prior to or at were previously
the time of revised to
granting a include the
deferment on an required
unsubsidized information
loan. about interest
capitalization
and have been
approved by
OMB.
682.215 and 685.221................ The proposed OMB 1845-0020.
regulations
would revise the
definition of
partial
financial
hardship for
purposes of
determining a
borrower's
eligibility for
the income-based
repayment plan
and would also
revise the
provisions
governing a loan
holder's
calculation of a
borrower's
income-based
payment amount.
682.216 and 685.217................ The proposed OMB 1845-0059.
regulations The proposed
would expand changes will
eligibility for require a
teacher loan revision of the
forgiveness to FFEL and Direct
allow a borrower Loan Program
who otherwise Teacher Loan
meets the loan Forgiveness
forgiveness Application
eligibility currently
requirements to approved under
receive OMB Control
forgiveness Number 1845-
based on 0059. The
teaching service Department will
performed at one submit a change
or more eligible request for
educational 1845-0059
service agencies (including an
that serve low- adjustment to
income families. the burden
hours
associated with
this
collection)
after the final
regulations
have been
published.
682.205............................ The proposed OMB 1845-0020.
regulations
implement new
statutory
requirements for
lenders to
disclosure
certain
information to
borrowers at
various points
during the
lifecycle of a
borrower's loan.
The proposed
regulations also
add new lender
disclosure
requirements for
consolidation
loan borrowers.
682.208............................ The proposed OMB 1845-0020.
regulations
incorporate
three additional
information
items that must
be provided to a
borrower if the
assignment or
transfer of an
ownership
interest in a
FFEL program
loan results in
a change in the
identity of the
party to whom
subsequent
payments must be
sent.
682.211............................ The proposed OMB 1845-0020.
regulations
would require
the lender, at
the time the
borrower is
granted a
forbearance, to
give the
borrower
information
about the impact
of
capitalization
of interest on
the loan and the
total to be
repaid over the
life of the loan.
682.305 and 682.601................ The proposed OMB 1845-0020.
regulations
would amend Sec.
682.305(c) to
require that a
FFEL school
lender, or a
lender serving
as a trustee on
behalf of a
school or school-
affiliated
organization for
the purpose of
originating
loans, submit an
annual
compliance audit
to the
Department
regardless of
the dollar
volume of loans
originated.
682.401............................ The proposed OMB 1845-0020.
regulations
require guaranty
agencies to work
with the schools
that it serves
to develop and
make available
high-quality
educational
materials and
programs to
provide training
for students and
their families
in budgeting and
financial
management,
including debt
management and
other aspects of
financial
literacy, such
as the cost of
using high-
interest loans
to pay for
postsecondary
education, and
how budgeting
and financial
management
relate to the
title IV student
loan programs.
682.405............................ The proposed OMB 1845-0020.
regulations
would require
guaranty
agencies to
provide certain
information to
borrowers who
have
rehabilitated
defaulted loans.
682.405............................ The proposed OMB 1845-0020.
regulations
would require
the prior holder
of a previously
defaulted loan,
in addition to
the guaranty
agency, to
request that
consumer
reporting
agencies remove
the record of
the default from
the borrower's
credit history
after the
borrower has
successfully
rehabilitated
the loan.
682.410............................ The proposed OMB 1845-0020.
regulations
require guaranty
agencies to
provide certain
additional
notifications to
borrowers who
are in default.
------------------------------------------------------------------------
[[Page 36585]]
If you want to comment on the proposed information collection
requirements, please send your comments to the Office of Information
and Regulatory Affairs, OMB, Attention: Desk Officer for U.S.
Department of Education. Send these comments by e-mail to [email protected] or by fax to (202) 395-6974. You may also send a
copy of these comments to the Department contact named in the ADDRESSES
section of this preamble.
We consider your comments on these proposed collections of
information in--
Deciding whether the proposed collections are necessary
for the proper performance of our functions, including whether the
information will have practical use;
Evaluating the accuracy of our estimate of the burden of
the proposed collections, including the validity of our methodology and
assumptions;
Enhancing the quality, usefulness, and clarity of the
information we collect; and
Minimizing the burden on those who must respond. This
includes exploring the use of appropriate automated, electronic,
mechanical, or other technological collection techniques or other forms
of information technology; e.g., permitting electronic submission of
responses.
OMB is required to make a decision concerning the collections of
information contained in these proposed regulations between 30 and 60
days after publication of this document in the Federal Register.
Therefore, to ensure that OMB gives your comments full consideration,
it is important that OMB receives the comments within 30 days of
publication. This does not affect the deadline for your comments to us
on the proposed regulations.
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 in 34 CFR 674, 682 and 685
Administrative practice and procedure, Colleges and universities,
Education, Loan programs--education, Reporting and recordkeeping
requirements, Student aid, Vocational education.
Dated: July 13, 2009.
Arne Duncan,
Secretary of Education.
For the reasons discussed in the preamble, the Secretary proposes
to amend 34 CFR chapter VI as follows:
PART 674--FEDERAL PERKINS LOAN PROGRAM
1. The authority citation for part 674 continues to read as
follows:
Authority: 20 U.S.C. 1087aa-1087hh and 20 U.S.C. 421-429 unless
otherwise noted.
2. Section 674.9 is amended by:
A. Revising paragraph (g).
B. In the introductory text of paragraph (h), removing the words
``based on'' and adding, in their place, the word ``after'', and adding
the words ``based on a discharge request received prior to July 1,
2010'' immediately after the word ``disabled''.
C. In paragraph (h)(1), removing the words ``paragraphs (h)(1) and
(h)(2)'' and adding, in their place, the words ``paragraphs (g)(1) and
(g)(2)''.
D. In paragraph (h)(2)(ii), removing the words ``, as described in
Sec. 674.61(b)(9)'' immediately after the word ``period''.
E. In the second sentence of paragraph (i), removing the words
``described in Sec. Sec. 674.61(b), 682.402(e), or 685.213(a)''
immediately after the word ``period''.
The revision reads as follows:
Sec. 674.9 Student eligibility.
* * * * *
(g) In the case of a borrower whose prior loan under title IV of
the Act was discharged after a final determination of total and
permanent disability--
(1) Obtains a certification from a physician that the borrower is
able to engage in substantial gainful activity;
(2) Signs a statement acknowledging that any new Federal Perkins
Loan the borrower receives cannot be discharged in the future on the
basis of any present impairment, unless that condition substantially
deteriorates; and
(3) If the borrower receives a new Federal Perkins Loan within
three years of the date that any previous title IV loan or TEACH Grant
service obligation was discharged due to a total and permanent
disability in accordance with Sec. 674.61(b)(3)(i), 34 CFR 682.402(c),
34 CFR 685.213, or 34 CFR 686.42(b) based on a discharge request
received on or after July 1, 2010, resumes repayment on the previously
discharged loan in accordance with Sec. 674.61(b)(5), 34 CFR
682.402(c)(5), or 34 CFR 685.213(b)(4), or acknowledges that he or she
is once again subject to the terms of the TEACH Grant agreement to
serve before receiving the new loan.
* * * * *
3. Section 674.51 is amended by:
A. Revising paragraph (d).
B. Redesignating paragraphs (e) through (s) as follows:
------------------------------------------------------------------------
Old paragraph New paragraph
------------------------------------------------------------------------
674.51(e).............................. 674.51(f)
674.51(f).............................. 674.51(h)
674.51(g).............................. 674.51(l)
674.51(h).............................. 674.51(m)
674.51(i).............................. 674.51(n)
674.51(j).............................. 674.51(p)
674.51(k).............................. 674.51(q)
674.51(l).............................. 674.51(r)
674.51(m).............................. 674.51(s)
674.51(n).............................. 674.51(t)
674.51(o).............................. 674.51(u)
674.51(p).............................. 674.51(w)
674.51(q).............................. 674.51(y)
674.51(r).............................. 674.51(z)
674.51(s).............................. 674.51(aa)
------------------------------------------------------------------------
C. Adding new paragraphs (e), (g), (i), (j), (k), (o), (v), (x),
and (bb).
D. In newly redesignated paragraph (f), removing the number
``672(2)'', and adding, in its place, the number ``632(4)''.
E. Revising newly redesignated paragraph (n).
F. In newly redesignated paragraph (t), by removing the number
``672(2)'', and adding, in its place, the number ``632''.
G. Revising newly redesignated paragraph (aa).
H. Revising the authority citation that appears at the end of the
section.
The revisions and additions read as follows:
Sec. 674.51 Special definitions.
* * * * *
(d) Child with a disability: A child or youth from ages 3 through
21, inclusive, who requires special education and related services
because he or she has one or more disabilities as defined in section
602(3) of the Individuals with Disabilities Education Act.
(e) Community defender organizations: A defender organization
established in accordance with section
[[Page 36586]]
3006A(g)(2)(B) of title 18, United States Code.
* * * * *
(g) Educational service agency: A regional public multi-service
agency authorized by State law to develop, manage, and provide services
or programs to local educational agencies as defined in section 9101 of
the Elementary and Secondary Education Act of 1965, as amended.
* * * * *
(i) Faculty member at a Tribal College or University: An educator
or tenured individual who is employed by a Tribal College or
University, as that term is defined in section 316 of the HEA, to
teach, research, or perform administrative functions. For purposes of
this definition an educator may be an instructor, lecturer, lab
faculty, assistant professor, associate professor, or full professor,
dean or academic department head.
(j) Federal public defender organization: A defender organization
established in accordance with section 3006A(g)(2)(A) of title 18,
United States Code.
(k) Firefighter: A firefighter is an individual who is employed by
a Federal, State, or local firefighting agency to extinguish
destructive fires; or provide firefighting related services such as--
(1) Providing community disaster support and, as a first responder,
providing emergency medical services;
(2) Conducting search and rescue; or
(3) Providing hazardous materials mitigation (HAZMAT).
* * * * *
(n) Infant or toddler with a disability: An infant or toddler from
birth to age 2, inclusive, who needs early intervention services for
specified reasons, as defined in section 632(5)(A) of the Individuals
with Disabilities Education Act.
(o) Librarian with a master's degree: A librarian with a master's
degree is an information professional trained in library or information
science who has obtained a postgraduate academic degree in library
science awarded after the completion of an academic program of up to
six years in duration, excluding a doctorate or professional degree.
* * * * *
(v) Speech language pathologist with a master's degree: An
individual who evaluates or treats disorders that affect a person's
speech, language, cognition, voice, swallowing and the rehabilitative
or corrective treatment of physical or cognitive deficits/disorders
resulting in difficulty with communication, swallowing, or both.
* * * * *
(x) Substantial gainful activity: A level of work performed for pay
or profit that involves doing significant physical or mental
activities, or a combination of both.
* * * * *
(aa) Total and permanent disability: The condition of an individual
who--
(1) Is unable to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment
that--
(i) Can be expected to result in death;
(ii) Has lasted for a continuous period of not less than 60 months;
or
(iii) Can be expected to last for a continuous period of not less
than 60 months; or
(2) Has been determined by the Secretary of Veterans Affairs to be
unemployable due to a service-connected disability.
(bb) Tribal College or University: An institution that--
(1) Qualifies for funding under the Tribally Controlled Colleges
and Universities Assistance Act of 1978 (25 U.S.C. 1801 et seq.) or the
Navajo Community College Assistance Act of 1978 (25 U.S.C. 640a note);
or
(2) Is cited in section 532 of the Equity in Education Land Grant
Status Act of 1994 (7 U.S.C. 301 note).
* * * * *
4. Section 674.61 is amended by:
A. Revising paragraph (b).
B. Redesignating paragraphs (c) and (d) as paragraphs (d) and (e),
respectively.
C. Adding a new paragraph (c).
The revision and addition read as follows:
Sec. 674.61 Discharge for death or disability.
* * * * *
(b) Total and permanent disability as defined in Sec.
674.51(aa)(1)--
(1) General. A borrower's Defense, NDSL, or Perkins loan is
discharged if the borrower becomes totally and permanently disabled, as
defined in Sec. 674.51(aa)(1), and satisfies the additional
eligibility requirements contained in this section.
(2) Discharge application process for borrowers who have a total
and permanent disability as defined in Sec. 674.51(aa)(1). (i) To
qualify for discharge of a Defense, NDSL, or Perkins loan based on a
total and permanent disability as defined in Sec. 674.51(aa)(1), a
borrower must submit a discharge application approved by the Secretary
to the institution that holds the loan.
(ii) The application must contain a certification by a physician,
who is a doctor of medicine or osteopathy legally authorized to
practice in a State, that the borrower is totally and permanently
disabled as defined in Sec. 674.51(aa)(1).
(iii) The borrower must submit the application to the institution
within 90 days of the date the physician certifies the application.
(iv) Upon receiving the borrower's complete application, the
institution must suspend collection activity on the loan and inform the
borrower that--
(A) The institution will review the application and assign the loan
to the Secretary for an eligibility determination if the institution
determines that the certification supports the conclusion that the
borrower is totally and permanently disabled, as defined in Sec.
674.51(aa)(1);
(B) The institution will resume collection on the loan if the
institution determines that the certification does not support the
conclusion that the borrower is totally and permanently disabled; and
(C) If the Secretary discharges the loan based on a determination
that the borrower is totally and permanently disabled, as defined in
Sec. 674.51(aa)(1), the Secretary will reinstate the borrower's
obligation to repay the loan if, within three years after the date the
Secretary granted the discharge, the borrower--
(1) Has annual earnings from employment that exceed 100 percent of
the poverty line for a family of two, as determined in accordance with
the Community Service Block Grant Act;
(2) Receives a new TEACH Grant or a new loan under the Perkins,
FFEL, or Direct Loan programs, except for an FFEL or Direct
Consolidation Loan that includes loans that were not discharged; or
(3) Fails to ensure that the full amount of any disbursement of a
Title IV loan or TEACH Grant received prior to the discharge date that
is made during the three-year period following the discharge date is
returned to the loan holder or to the Secretary, as applicable, within
120 days of the disbursement date.
(v) If, after reviewing the borrower's application, the institution
determines that the application is complete and supports the conclusion
that the borrower is totally and permanently disabled as defined in
Sec. 674.51(aa)(1), the institution must assign the loan to the
Secretary.
(vi) At the time the loan is assigned to the Secretary, the
institution must notify the borrower that the loan has been assigned to
the Secretary for determination of eligibility for a total and
permanent disability discharge and that no payments are due on the
loan.
[[Page 36587]]
(3) Secretary's eligibility determination. (i) If the Secretary
determines that the borrower is totally and permanently disabled as
defined in Sec. 674.51(aa)(1), the Secretary discharges the borrower's
obligation to make further payments on the loan and notifies the
borrower that the loan has been discharged. The notification to the
borrower explains the terms and conditions under which the borrower's
obligation to repay the loan will be reinstated, as specified in
paragraph (b)(5) of this section.
(ii) If the Secretary determines that the certification provided by
the borrower does not support the conclusion that the borrower is
totally and permanently disabled as defined in Sec. 674.51(aa)(1), the
Secretary notifies the borrower that the application for a disability
discharge has been denied, and that the loan is due and payable to the
Secretary under the terms of the promissory note.
(iii) The Secretary reserves the right to require the borrower to
submit additional medical evidence if the Secretary determines that the
borrower's application does not conclusively prove that the borrower is
totally and permanently disabled as defined in Sec. 674.51(aa)(1). As
part of the Secretary's review of the borrower's discharge application,
the Secretary may arrange for an additional review of the borrower's
condition by an independent physician at no expense to the borrower.
(4) Treatment of disbursements made during the period from the date
of the physician's certification until the date of discharge. If a
borrower received a Title IV loan or TEACH Grant prior to the date the
physician certified the borrower's discharge application and a
disbursement of that loan or grant is made during the period from the
date of the physician's certification until the date the Secretary
grants a discharge under this section, the processing of the borrower's
loan discharge request will be suspended until the borrower ensures
that the full amount of the disbursement has been returned to the loan
holder or to the Secretary, as applicable.
(5) Conditions for reinstatement of a loan after a total and
permanent disability discharge. (i) The Secretary reinstates a
borrower's obligation to repay a loan that was discharged in accordance
with paragraph (b)(3)(i) of this section if, within three years after
the date the Secretary granted the discharge, the borrower--
(A) Has annual earnings from employment that exceed 100 percent of
the poverty line for a family of two, as determined in accordance with
the Community Service Block Grant Act;
(B) Receives a new TEACH Grant or a new loan under the Perkins,
FFEL or Direct Loan programs, except for an FFEL or Direct
Consolidation Loan that includes loans that were not discharged; or
(C) Fails to ensure that the full amount of any disbursement of a
Title IV loan or TEACH Grant received prior to the discharge date that
is made during the three-year period following the discharge date is
returned to the loan holder or to the Secretary, as applicable, within
120 days of the disbursement date.
(ii) If a borrower's obligation to repay a loan is reinstated, the
Secretary--
(A) Notifies the borrower that the loan has been reinstated; and
(B) Does not require the borrower to pay interest on the loan for
the period from the date the loan was discharged until the date the
loan was reinstated.
(iii) The Secretary's notification under paragraph (b)(5)(ii)(A) of
this section will include--
(A) The reason or reasons for the reinstatement;
(B) An explanation that the first payment due date on the loan
following reinstatement will be no earlier than 60 days after the date
of the notification of reinstatement; and
(C) Information on how the borrower may contact the Secretary if
the borrower has questions about the reinstatement or believes that the
obligation to repay the loan was reinstated based on incorrect
information.
(6) Borrower's responsibilities after a total and permanent
disability discharge. During the three-year period described in
paragraph (b)(5)(i) of this section, the borrower or, if applicable,
the borrower's representative--
(i) Must promptly notify the Secretary of any changes in address or
phone number;
(ii) Must promptly notify the Secretary if the borrower's annual
earnings from employment exceed the amount specified in paragraph
(b)(5)(i)(A) of this section; and
(iii) Must provide the Secretary, upon request, with documentation
of the borrower's annual earnings from employment.
(7) Payments received after the physician's certification of total
and permanent disability. (i) If, after the date the physician
certifies the borrower's loan discharge application, the institution
receives any payments from or on behalf of the borrower on or
attributable to a loan that was assigned to the Secretary for
determination of eligibility for a total and permanent disability
discharge, the institution must forward those payments to the Secretary
for crediting to the borrower's account.
(ii) At the same time that the institution forwards the payment, it
must notify the borrower that there is no obligation to make payments
on the loan prior to the Secretary's determination of eligibility for a
total and permanent disability discharge, unless the Secretary directs
the borrower otherwise.
(iii) When the Secretary makes a determination to discharge the
loan, the Secretary returns any payments received on the loan after the
date the physician certified the borrower's loan discharge application
to the person who made the payments on the loan.
(c) Total and permanent disability discharges for veterans--(1)
General. A veteran's Defense, NDSL, or Perkins loan will be discharged
if the veteran is totally and permanently disabled, as defined in Sec.
674.51(aa)(2).
(2) Discharge application process for veterans who have a total and
permanent disability as defined in Sec. 674.51(aa)(2). (i) To qualify
for discharge of a Defense, NDSL, or Perkins loan based on a total and
permanent disability as defined in Sec. 674.51(aa)(2), a veteran must
submit a discharge application approved by the Secretary to the
institution that holds the loan.
(ii) With the application, the veteran must submit documentation
from the Department of Veterans Affairs showing that the Department of
Veterans Affairs has determined that the veteran is unemployable due to
a service-connected disability. The veteran will not be required to
provide any additional documentation related to the veteran's
disability.
(iii) Upon receiving the veteran's completed application and the
required documentation from the Department of Veterans Affairs, the
institution must suspend collection activity on the loan and inform the
veteran that--
(A) The institution will review the application and submit the
application and supporting documentation to the Secretary for an
eligibility determination if the documentation from the Department of
Veterans Affairs indicates that the veteran is totally and permanently
disabled as defined in Sec. 674.51(aa)(2);
(B) The institution will resume collection on the loan if the
documentation from the Department of Veterans Affairs does not indicate
that the veteran is totally and permanently disabled as defined in
Sec. 674.51(aa)(2); and
[[Page 36588]]
(C) If the documentation from the Department of Veterans Affairs
does not indicate that the veteran is totally and permanently disabled
as defined in Sec. 674.51(aa)(2), but the documentation indicates that
the veteran may be totally and permanently disabled as defined in Sec.
674.51(aa)(1), the veteran may reapply for a total and permanent
disability discharge in accordance with the procedures described in
Sec. 674.61(b).
(iv) If the documentation from the Department of Veterans Affairs
indicates that the veteran is totally and permanently disabled as
defined in Sec. 674.51(aa)(2), the institution must submit a copy of
the veteran's application and the documentation from the Department of
Veterans Affairs to the Secretary. At the time the application and
documentation are submitted to the Secretary, the institution must
notify the veteran that the veteran's discharge request has been
referred to the Secretary for determination of discharge eligibility
and that no payments are due on the loan.
(v) If the documentation from the Department of Veterans Affairs
does not indicate that the veteran is totally and permanently disabled
as defined in Sec. 674.51(aa)(2), the institution must resume
collection on the loan.
(4) Secretary's determination of eligibility. (i) If the Secretary
determines, based on a review of the documentation from the Department
of Veterans Affairs, that the veteran is totally and permanently
disabled as defined in Sec. 674.51(aa)(2), the Secretary notifies the
institution of this determination, and the institution must--
(A) Discharge the veteran's obligation to make further payments on
the loan; and
(B) Return to the person who made the payments on the loan any
payments received on or after the effective date of the determination
by the Department of Veterans Affairs that the veteran is unemployable
due to a service-connected disability.
(ii) If the Secretary determines, based on a review of the
documentation from the Department of Veterans Affairs, that the veteran
is not totally and permanently disabled as defined in Sec.
674.51(aa)(2), the Secretary notifies the institution of this
determination, and the institution must resume collection on the loan.
* * * * *
PART 682--FEDERAL FAMILY EDUCATION LOAN (FFEL) PROGRAM
5. The authority citation for part 682 continues to read as
follows:
Authority: 20 U.S.C. 1071-1087-2 unless otherwise noted.
6. Section 682.200(b) is amended by:
A. Revising paragraph (5) of the definition of ``Lender.''
B. Removing the definition of ``National credit bureau.''
C. Adding a definition of ``Nationwide consumer reporting agency.''
D. Adding a definition of ``Substantial gainful activity.''
E. Revising the definition of ``Totally and permanently disabled.''
The revisions and additions read as follows:
Sec. 682.200 Definitions.
* * * * *
(b) * * *
Lender. * * *
(5)(i) The term eligible lender does not include any lender that
the Secretary determines, after notice and opportunity for a hearing
before a designated Department official, has, directly or through an
agent or contractor--
(A) Except as provided in paragraph (5)(ii) of this definition,
offered, directly or indirectly, points, premiums, payments (including
payments for referrals, finder fees or processing fees), or other
inducements to any school, any employee of a school, or any other party
to secure applications for FFEL loans or to secure FFEL loan volume.
This includes but is not limited to--
(1) Payments or offerings of other benefits, including prizes or
additional financial aid funds, to a prospective borrower or to a
school or school employee in exchange for applying for or accepting a
FFEL loan from the lender;
(2) Payments or other benefits, including payments of stock or
other securities, tuition payments or reimbursements, to a school, a
school employee, any school-affiliated organization, or to any other
individual in exchange for FFEL loan applications, application
referrals, or a specified volume or dollar amount of loans made, or
placement on a school's list of recommended or suggested lenders;
(3) Payments or other benefits provided to a student at a school
who acts as the lender's representative to secure FFEL loan
applications from individual prospective borrowers, unless the student
is also employed by the lender for other purposes and discloses that
employment to school administrators and to prospective borrowers;
(4) Payments or other benefits to a loan solicitor or sales
representative of a lender who visits schools to solicit individual
prospective borrowers to apply for FFEL loans from the lender;
(5) Payment to another lender or any other party, including a
school, a school employee, or a school-affiliated organization or its
employees, of referral fees, finder fees or processing fees, except
those processing fees necessary to comply with Federal or State law;
(6) Compensation to an employee of a school's financial aid office
or other employee who has responsibilities with respect to student
loans or other financial aid provided by the school or compensation to
a school-affiliated organization or its employees, to serve on a
lender's advisory board, commission or other group established by the
lender, except that the lender may reimburse the employee for
reasonable expenses incurred in providing the service;
(7) Payment of conference or training registration, travel, and
lodging costs for an employee of a school or school-affiliated
organization;
(8) Payment of entertainment expenses, including expenses for
private hospitality suites, tickets to shows or sporting events, meals,
alcoholic beverages, and any lodging, rental, transportation, and other
gratuities related to lender-sponsored activities for employees of a
school or a school-affiliated organization;
(9) Philanthropic activities, including providing scholarships,
grants, restricted gifts, or financial contributions in exchange for
FFEL loan applications or application referrals, or a specified volume
or dollar amount of FFEL loans made, or placement on a school's list of
recommended or suggested lenders;
(10) Performance of, or payment to another third party to perform,
any school function required under title IV, except that the lender may
perform exit counseling as provided in Sec. 682.604(g), and may
provide services to participating foreign schools at the direction of
the Secretary, as a third-party servicer; and
(11) Any type of consulting arrangement or other contract with an
employee of a financial aid office at a school, or an employee of a
school who otherwise has responsibilities with respect to student loans
or other financial aid provided by the school under which the employee
would provide services to the lender.
(B) Conducted unsolicited mailings, by postal or electronic means,
of student loan application forms to students enrolled in secondary
schools or
[[Page 36589]]
postsecondary institutions or to family members of such students,
except to a student or borrower who previously has received a FFEL loan
from the lender;
(C) Offered, directly or indirectly, a FFEL loan to a prospective
borrower to induce the purchase of a policy of insurance or other
product or service by the borrower or other person; or
(D) Engaged in fraudulent or misleading advertising with respect to
its FFEL loan activities.
(ii) Notwithstanding paragraph (5)(i) of this definition, a lender,
in carrying out its role in the FFEL program and in attempting to
provide better service, may provide--
(A) Technical assistance to a school that is comparable to the
kinds of technical assistance provided to a school by the Secretary
under the Direct Loan program, as identified by the Secretary in a
public announcement, such as a notice in the Federal Register;
(B) Support of and participation in a school's or a guaranty
agency's student aid and financial literacy-related outreach
activities, excluding in-person entrance counseling, as long as the
name of the entity that developed and paid for any materials is
provided to the participants and the lender does not promote its
student loan or other products;
(C) Meals, refreshments, and receptions that are reasonable in cost
and scheduled in conjunction with training, meeting, or conference
events if those meals, refreshments, or receptions are open to all
training, meeting, or conference attendees;
(D) Toll-free telephone numbers for use by schools or others to
obtain information about FFEL loans and free data transmission service
for use by schools to electronically submit applicant loan processing
information or student status confirmation data;
(E) A reduced origination fee in accordance with Sec. 682.202(c);
(F) A reduced interest rate as provided under the Act;
(G) Payment of Federal default fees in accordance with the Act;
(H) Purchase of a loan made by another lender at a premium;
(I) Other benefits to a borrower under a repayment incentive
program that requires, at a minimum, one or more scheduled payments to
receive or retain the benefit or under a loan forgiveness program for
public service or other targeted purposes approved by the Secretary,
provided these benefits are not marketed to secure loan applications or
loan guarantees;
(J) Items of nominal value to schools, school-affiliated
organizations, and borrowers that are offered as a form of generalized
marketing or advertising, or to create good will; and
(K) Other services as identified and approved by the Secretary
through a public announcement, such as a notice in the Federal
Register.
(iii) For the purposes of this paragraph (5)--
(A) The term ``school-affiliated organization'' is defined in Sec.
682.200.
(B) The term ``applications'' includes the Free Application for
Federal Student Aid (FAFSA), FFEL loan master promissory notes, and
FFEL Consolidation loan application and promissory notes.
(C) The term ``other benefits'' includes, but is not limited to,
preferential rates for or access to the lender's other financial
products, information technology equipment, or non-loan processing or
non-financial aid-related computer software at below market rental or
purchase cost, and printing and distribution of college catalogs and
other materials at reduced or no cost.
* * * * *
Nationwide consumer reporting agency. A consumer reporting agency
as defined in 15 U.S.C. 1681a.
* * * * *
Substantial gainful activity. A level of work performed for pay or
profit that involves doing significant physical or mental activities,
or a combination of both.
* * * * *
Totally and permanently disabled. The condition of an individual
who--
(1) Is unable to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment
that--
(i) Can be expected to result in death;
(ii) Has lasted for a continuous period of not less than 60 months;
or
(iii) Can be expected to last for a continuous period of not less
than 60 months; or
(2) Has been determined by the Secretary of Veterans Affairs to be
unemployable due to a service-connected disability.
* * * * *
7. Section 682.201 is amended by:
A. In paragraph (a)(4)(i), removing the words ``legal costs, and
late charges'' and adding, in their place, the words ``court costs,
attorney fees, and late charges''.
B. In paragraph (a)(5), removing the words ``under Sec.
682.402(c)''.
C. Revising paragraph (a)(6)(iii).
D. In the introductory text of paragraph (a)(7), removing the words
``based on'' and adding, in their place, the word ``after'', and adding
the words ``based on a discharge request received prior to July 1,
2010'' immediately after the word ``disabled''.
E. In paragraph (a)(7)(ii)(B), removing the words ``, as described
in paragraph 682.402(c)(16)''.
F. In paragraph (e)(4), adding the words ``is in default or''
immediately after the first appearance of the words ``consolidation
loan'' and adding the words ``or an income-based repayment plan''
immediately after the words ``income contingent repayment plan''.
G. In paragraph (e)(5), adding the words ``, or the no accrual of
interest benefit for active duty service'' immediately after the words
``Public Service Loan Forgiveness Program''.
The revision reads as follows:
Sec. 682.201 Eligible borrowers.
(a) * * *
(6) * * *
(iii) If a borrower receives a new FFEL loan within three years of
the date that any previous title IV loan or TEACH Grant service
obligation was discharged due to a total and permanent disability in
accordance with Sec. 682.402(c)(3)(ii), 34 CFR 674.61(b)(3)(i), 34 CFR
685.213, or 34 CFR 686.42(b) based on a discharge request received on
or after July 1, 2010, resume repayment on the previously discharged
loan in accordance with Sec. 682.402(c)(5), 34 CFR 674.61(b)(5), or 34
CFR 685.213(b)(4), or acknowledge that he or she is once again subject
to the terms of the TEACH Grant agreement to serve before receiving the
new loan.
* * * * *
8. Section 682.202 is amended by:
A. In the introductory text of paragraph (a), adding the words
``and (a)(8)'' after the reference ``(a)(4)''.
B. Adding a new paragraph (a)(8).
C. In paragraph (b)(2)(i), adding the words ``or, for a PLUS loan,
for the period from the date the first disbursement was made to the
date the repayment period begins'' immediately before the semicolon.
The addition reads as follows:
Sec. 682.202 Permissible charges by lenders to borrowers.
* * * * *
(a) * * *
(8) Applicability of the Servicemembers Civil Relief Act (50 U.S.C.
527, App. sec. 207). Notwithstanding paragraphs (a)(1) through (a)(4)
of this section, effective August 14, 2008, upon the loan holder's
receipt of the borrower's written request and a copy of the borrower's
military orders, the maximum interest rate, as defined in 50 U.S.C.
527, App. section 207(d), on FFEL Program loans made
[[Page 36590]]
prior to the borrower entering active duty status is 6 percent while
the borrower is on active duty military service.
* * * * *
9. Section 682.205 is amended by:
A. In paragraph (a)(2)(vi), removing the words ``insurance
premium'' and adding, in their place, the words ``Federal default
fee'', and adding, immediately before the semicolon, the words ``or
paid by the lender''.
B. In paragraph (a)(2)(ix), removing the words ``a national credit
bureau'' and adding, in their place, the words ``each nationwide
consumer reporting agency''.
C. In paragraph (a)(2)(x), adding, immediately before the
semicolon, the words ``, and a description of the types of repayment
plans available''.
D. In paragraph (a)(2)(xvi), removing the words ``a national credit
bureau'' and adding, in their place, the words ``each nationwide
consumer reporting agency''.
E. In paragraph (a)(2)(xviii), removing the words ``in the making
or'' and adding, in their place, the words ``during repayment or in
the''; adding the words ``including any fees the borrower may be
charged'' immediately after the words ``the loan,''; and removing the
words ``; and'' at the end of the paragraph and adding, in their place,
the punctuation ``;''.
F. In paragraph (a)(2)(xx), removing the punctuation ``.'' at the
end of the paragraph and adding, in its place, the punctuation ``;''.
G. Adding new paragraphs (a)(2)(xxi), (a)(2)(xxii), (a)(2)(xxiii),
and (a)(2)(xxiv).
H. In paragraph (b), in the second sentence, adding the words ``,
and that the default will be reported to each nationwide consumer
reporting agency'' immediately after the word ``loan''.
I. In paragraph (c), in the heading, removing the words
``Disclosure of repayment'' and adding, in their place, the word
``Repayment''.
J. In paragraph (c)(1), adding the heading ``Disclosures at or
prior to repayment.'' immediately after the paragraph designation
``(1)''; removing the words ``Federal SLS'' and adding, in their place,
the words ``Federal PLUS''; and removing the words ``240 days'' and
adding, in their place, the words ``150 days''.
K. In paragraph (c)(2)(ii), adding the words ``, or a deferment
under Sec. 682.210(v), if applicable, is to end'' immediately after
the word ``begin'' at the end of the sentence.
L. In paragraph (c)(2)(iii), adding the words ``a deferment under
Sec. 682.210(v), if applicable, is to end,'' immediately after the
word ``begin''.
M. In paragraph (c)(2)(vi), adding the words ``based on the
repayment schedule selected by the borrower'' immediately after the
word ``payments''.
N. In paragraph (c)(2)(viii), adding the words ``if interest has
been paid, the amount of interest paid'' immediately after the words
``; and''.
O. In paragraph (c)(2)(ix), removing the punctuation ``.'' at the
end of the sentence and adding, in its place, the punctuation ``;''.
P. Adding new paragraphs (c)(2)(x), (c)(2)(xi), (c)(2)(xii),
(c)(2)(xiii) and (c)(2)(xiv).
Q. Adding new paragraphs (c)(3), (c)(4) and (c)(5).
R. In paragraph (d), adding the words ``Federal Unsubsidized
Stafford loan or a'' immediately after the words ``In the case of a''
at the beginning of the first sentence and removing the words ``the
student'' in the first sentence and adding, in their place, the words
``the borrower or student on whose behalf the loan is made''.
S. Adding new paragraph (i).
T. Adding new paragraph (j).
The additions read as follows:
Sec. 682.205 Disclosure requirements for lenders.
(a) * * *
(1) * * *
(2) * * *
(xxi) For unsubsidized Stafford or student PLUS borrowers, an
explanation that the borrower may pay the interest while in school and,
if the interest is not paid by the borrower while in school, when and
how often the interest will be capitalized;
(xxii) For parent PLUS borrowers, an explanation that the parent
may defer payment on the loan while the student on whose behalf the
parent borrowed is enrolled at least half-time and, if the parent does
not pay interest while the student is in school, when and how often
interest will be capitalized, and that the parent may be eligible for a
deferment on the loan if the parent is enrolled at least half-time;
(xxiii) A statement summarizing the circumstances in which a
borrower may obtain forbearance on the loan; and
(xxiv) A description of the options available for forgiveness of
the loan and the requirements to obtain that forgiveness.
* * * * *
(c) * * *
(2) * * *
(x) Information on any special loan repayment benefits offered on
the loan, including benefits that are contingent on repayment behavior,
and any other special loan repayment benefits for which the borrower
may be eligible that would reduce the amount or length of repayment;
and at the request of the borrower, an explanation of the effect of a
reduced interest rate on the borrower's total payoff amount and time
for repayment;
(xi) If the lender provides a repayment benefit, any limitations on
that benefit, any circumstances in which the borrower could lose that
benefit, and whether and how the borrower may regain eligibility for
the repayment benefit;
(xii) A description of all the repayment plans available to the
borrower and a statement that the borrower may change plans during the
repayment period at least annually;
(xiii) A description of the options available to the borrower to
avoid or be removed from default, as well as any fees associated with
those options; and
(xiv) Any additional resources, including nonprofit organizations,
advocates and counselors, including the Department of Education's
Student Loan Ombudsman, the lender is aware of where the borrower may
obtain additional advice and assistance on loan repayment.
(3) Required disclosures during repayment. In addition to the
disclosures required in paragraph (c)(1) of this section, the lender
must provide the borrower of an FFEL loan with a bill or statement that
corresponds to each payment installment time period in which a payment
is due that includes in simple and understandable terms--
(i) The original principal amount of the borrower's loan;
(ii) The borrower's current balance, as of the time of the bill or
statement;
(iii) The interest rate on the loan;
(iv) The total amount of interest for the preceding installment
paid by the borrower;
(v) The aggregate amount paid by the borrower on the loan, and
separately identifying the amount the borrower has paid in interest on
the loan, the amount of fees the borrower has paid on the loan, and the
amount paid against the balance in principal;
(vi) A description of each fee the borrower has been charged for
the most recent preceding installment time period;
(vii) The date by which a payment must be made to avoid additional
fees and the amount of that payment and the fees;
(viii) The lender's or servicer's address and toll-free telephone
number for repayment options, payments and billing error purposes; and
(ix) A reminder that the borrower may change repayment plans, a
list of all of the repayment plans that are available to
[[Page 36591]]
the borrower, a link to the Department of Education's Web site for
repayment plan information, and directions on how the borrower may
request a change in repayment plans from the lender.
(4) Required disclosures for borrowers having difficulty making
payments. The lender shall provide a borrower who has notified the
lender that he or she is having difficulty making payments with--
(i) A description of the repayment plans available to the borrower,
and how the borrower may request a change in repayment plan;
(ii) A description of the requirements for obtaining forbearance on
the loan and any costs associated with forbearance; and
(iii) A description of the options available to the borrower to
avoid default and any fees or costs associated with those options.
(5) Required disclosures for borrowers who are 60-days delinquent
in making payments on a loan. (i) The lender shall provide to a
borrower who is 60 days delinquent in making required payments a notice
of--
(A) The date on which the loan will default if no payment is made;
(B) The minimum payment the borrower must make, as of the date of
the notice, to avoid default, including the payment amount needed to
bring the loan current or payment in full;
(C) A description of the options available to the borrower to avoid
default, including deferment and forbearance and any fees and costs
associated with those options;
(D) Any options for discharging the loan that may be available to
the borrower; and
(E) Any additional resources, including nonprofit organizations,
advocates and counselors, including the Department of Education's
Student Loan Ombudsman, the lender is aware of where the borrower may
obtain additional advice and assistance on loan repayment.
(ii) The notice must be sent within five days of the date the
borrower becomes 60 days delinquent, unless the lender has sent such a
notice within the previous 120 days.
* * * * *
(i) Separate disclosure for Consolidation loans. At the time the
lender provides a Consolidation loan application to a prospective
borrower, it must disclose to the prospective borrower, in simple and
understandable terms--
(1) Whether consolidation will result in a loss of loan benefits,
including, but not limited to, loan forgiveness, cancellation,
deferment, or a reduced interest rate on FFEL or Direct Loans repaid
through consolidation;
(2) If a borrower is repaying a Federal Perkins Loan with the
Consolidation loan, that the borrower will lose--
(i) The interest-free periods available on the Perkins Loan while
the borrower is enrolled in-school at least half-time, in the grace
period, or in a deferment period; and
(ii) The cancellation benefits on the Perkins Loan. The lender must
provide to the borrower a list of the Perkins Loan cancellation
benefits that would not be available on the Consolidation loan.
(3) The repayment plans available to the borrower;
(4) The borrower's options to prepay the Consolidation loan, to pay
the loan on a shorter repayment schedule, and to change repayment
plans;
(5) That the borrower benefit programs for a Consolidation loan
vary among lenders;
(6) The consequences of default on the Consolidation loan; and
(7) That applying for the Consolidation loan does not obligate the
borrower to agree to take the Consolidation loan, and the process and
deadline by which the borrower may cancel the Consolidation loan.
(j) Disclosure procedures when a borrower's address is not
available. If a lender receives information indicating it does not know
the borrower's current address, the lender is excused from providing
disclosure information under this section unless it receives
communication indicating a valid borrower address before the 241st day
of delinquency, at which point the lender must resume providing the
installment bill or statement, and any other disclosure information
required under this section not previously provided.
10. Section 682.206 is amended by revising paragraph (f) to read as
follows:
Sec. 682.206 Due diligence in making a loan.
* * * * *
(f) Additional requirements for Consolidation loans. (1) Prior to
making any payments to pay off a loan with the proceeds of a
Consolidation loan, the lender shall--
(i) Obtain from the holder of each loan to be consolidated a
certification with respect to the loan held by the holder that--
(A) The loan is a legal, valid, and binding obligation of the
borrower;
(B) The loan was made and serviced in compliance with applicable
laws and regulations; and
(C) In the case of a FFEL loan, that the guarantee on the loan is
in full force and effect; and
(ii) Consistent with the requirements of Sec. 682.205(i)(7),
notify the borrower, upon receipt of all information necessary to make
the Consolidation loan, of the borrower's option to cancel the
Consolidation loan, and the deadline by which the borrower must notify
the lender that he or she wishes to cancel the loan. The lender must
allow the borrower no less than 10 days from the date of the notice to
cancel the loan.
(2) The Consolidation loan lender may rely in good faith on the
certification provided under paragraph (f)(1)(i) of this section by the
holder of a loan to be consolidated.
11. Section 682.208 is amended by:
A. In paragraph (e)(1) introductory text, adding the words ``or
transfer of ownership interest'' immediately after the word
``assignment''.
B. In paragraph (e)(1)(iii), removing the word ``and'' after the
semicolon.
C. In paragraph (e)(1)(iv), removing the punctuation ``.'' at the
end of the paragraph and adding, in its place, the punctuation ``;''.
D. Adding new paragraphs (e)(1)(v), (vi), and (vii).
The additions read as follows:
Sec. 682.208 Due diligence in servicing a loan.
* * * * *
(e) * * *
(1) * * *
(v) The effective date of the assignment or transfer of the loan;
(vi) The date, if applicable, on which the current loan servicer
will stop accepting payments; and
(vii) The date on which the new loan servicer will begin accepting
payments.
* * * * *
Sec. 682.209 [Amended]
12. Section 682.209 is amended in paragraph (a)(2)(v) by removing
the reference ``(a)(2)(ii)'' and adding, in its place, the reference
``(a)(2)(i)''.
13. Section 682.210 is amended by:
A. In paragraph (a)(1)(i), adding the words ``and paragraphs (s)
through (v)'' after the words ``paragraph (b)''.
B. Revising paragraph (a)(3).
C. In paragraph (c)(1)(ii), removing the word ``or'' at the end of
the paragraph.
D. In paragraph (c)(1)(iii), removing the punctuation ``.'' and
adding, in its place, ``; or'' at the end of the paragraph.
E. Adding a new paragraph (c)(1)(iv).
F. Revising paragraph (c)(2).
G. In paragraph (c)(3), removing the word ``SSCR'' and adding, in
its place, the words ``Student Status Confirmation Report''.
H. Adding a new paragraph (v).
The revisions and additions read as follows:
[[Page 36592]]
Sec. 682.210 Deferment.
(a) * * *
(3)(i) Interest accrues and is paid by--
(A) The Secretary during the deferment period for a subsidized
Stafford loan and for all or a portion of a Consolidation loan that
qualifies for interest benefits under Sec. 682.301; or
(B) The borrower during the deferment period and, as applicable,
the post-deferment grace period, on all other loans.
(ii) A borrower who is responsible for payment of interest during a
deferment period must be notified by the lender, at or before the time
the deferment is granted, that the borrower has the option to pay the
accruing interest or cancel the deferment and continue paying on the
loan. The lender must also provide information, including an example,
on the impact of capitalization of accrued, unpaid interest on loan
principal, and on the total amount of interest to be paid over the life
of the loan.
* * * * *
(c) * * *
(1) * * *
(iv) The lender confirms a borrower's half-time enrollment status
through the use of the National Student Loan Data System if requested
to do so by the school the borrower is attending.
(2) The lender must notify the borrower that a deferment has been
granted based on paragraphs (c)(1)(ii), (iii), or (iv) of this section
and that the borrower has the option to cancel the deferment and
continue paying on the loan.
* * * * *
(v) In-school deferments for PLUS loan borrowers with loans first
disbursed on or after July 1, 2008. (1)(i) A student PLUS borrower is
entitled to a deferment on a PLUS loan first disbursed on or after July
1, 2008 during the 6-month period that begins on the day after the
student ceases to be enrolled on at least a half-time basis at an
eligible institution.
(ii) If a lender grants an in-school deferment to a student PLUS
borrower based on Sec. 682.210(c)(1)(ii), (iii), or (iv), the
deferment period for a PLUS loan first disbursed on or after July 1,
2008 includes the 6-month post-enrollment period described in paragraph
(v)(1)(i) of this section. The notice required by Sec. 682.210(c)(2)
must inform the borrower that the in-school deferment on a PLUS loan
first disbursed on or after July 1, 2008 will end six months after the
day the borrower ceases to be enrolled on at least a half-time basis.
(2) Upon the request of the borrower, an eligible parent PLUS
borrower must be granted a deferment on a PLUS loan first disbursed on
or after July 1, 2008--
(i) During the period when the student on whose behalf the loan was
obtained is enrolled at an eligible institution on at least a half-time
basis; and
(ii) During the 6-month period that begins on the later of the day
after the student on whose behalf the loan was obtained ceases to be
enrolled on at least a half-time basis or, if the parent borrower is
also a student, the day after the parent borrower ceases to be enrolled
on at least a half-time basis.
14. Section 682.211 is amended by:
A. Revising paragraph (e).
B. In paragraph (f)(11), removing the word ``or'' at the end of the
paragraph.
C. In paragraph (f)(12), removing the punctuation ``.'' at the end
of the paragraph and adding, in its place, the punctuation ``;''.
D. In paragraph (f)(13), removing the punctuation ``.'' at the end
of the paragraph and adding, in its place, the punctuation ``;''.
E. In paragraph (f)(14), removing the punctuation ``.'' at the end
of the paragraph and adding, in its place, ``; or''.
F. Adding new paragraph (f)(15).
The revisions and additions read as follows:
Sec. 682.211 Forbearance.
* * * * *
(e)(1) At the time of granting a borrower or endorser a
forbearance, the lender must provide the borrower or endorser with
information to assist the borrower or endorser in understanding the
impact of capitalization of interest on the loan principal and total
interest to be paid over the life of the loan; and
(2) At least once every 180 days during the period of forbearance,
the lender must contact the borrower or endorser to inform the borrower
or endorser of--
(i) The outstanding obligation to repay;
(ii) The amount of the unpaid principal balance and any unpaid
interest that has accrued on the loan since the last notice provided to
the borrower or endorser under this paragraph;
(iii) The fact that interest will accrue on the loan for the full
term of the forbearance;
(iv) The amount of interest that will be capitalized, as of the
date of the notice, and the date capitalization will occur;
(v) The option of the borrower or endorser to pay the interest that
has accrued before the interest is capitalized; and
(vi) The borrower's or endorser's option to discontinue the
forbearance at any time.
(f) * * *
(15) For PLUS loans first disbursed before July 1, 2008, to align
repayment with a borrower's PLUS loans that were first disbursed on or
after July 1, 2008, or with Stafford Loans that are subject to a grace
period under Sec. 682.209(a)(3). The notice specified in paragraph (f)
introductory text must inform the borrower that the borrower has the
option to cancel the forbearance and continue paying on the loan.
* * * * *
15. Section 682.215 is amended by:
A. Revising paragraph (a)(4).
B. In paragraph (b)(1), removing the words ``Except as provided
under paragraph (b)(1)(i), (b)(1)(ii), and (b)(1)(iii) of this section,
the'' in the second sentence and adding, in their place, the word
``The''.
C. In paragraph (b)(1)(i), removing the word ``The'' at the
beginning of the paragraph and adding, in its place, the words ``Except
for borrowers provided for in paragraph (b)(1)(ii) of this section,
the''.
D. Redesignating paragraphs (b)(1)(ii) and (b)(1)(iii) as
paragraphs (b)(1)(iii) and (b)(1)(iv), respectively.
E. Adding a new paragraph (b)(1)(ii).
F. In newly redesignated paragraph (b)(1)(iii), removing the words
``or (b)(1)(i)'' and adding, in their place, the words ``, (b)(1)(i),
or (b)(1)(ii)''.
G. In newly redesignated paragraph (b)(1)(iv), removing the words
``or (b)(1)(i)'' and adding, in their place, the words ``, (b)(1)(i),
or (b)(1)(ii)''.
H. In paragraph (b)(2), removing the words ``(b)(1)(ii) and (iii)''
in the second sentence and adding, in their place, the words
``(b)(1)(iii) and (iv)''.
The revision and addition reads as follows:
Sec. 682.215 Income-based repayment plan.
(a) * * *
(4) Partial financial hardship means a circumstance in which--
(i) For an unmarried borrower or a married borrower who files an
individual Federal tax return, the annual amount due on all of the
borrower's eligible loans, as calculated under a standard repayment
plan based on a 10-year repayment period, using the greater of the
amount due at the time the borrower initially entered repayment or at
the time the borrower elects the income-based repayment plan, exceeds
15 percent of the difference between the borrower's AGI and 150 percent
of the poverty guideline for the borrower's family size; or
(ii) For a married borrower who files a joint Federal tax return
with his or her
[[Page 36593]]
spouse, the annual amount due on all of the borrower's eligible loans
and, if applicable, the spouse's eligible loans, as calculated under a
standard repayment plan based on a 10-year repayment period, using the
greater of the amount due at the time the loans initially entered
repayment or at the time the borrower or spouse elects the income-based
repayment plan, exceeds 15 percent of the difference between the
borrower's and spouse's AGI, and 150 percent of the poverty guideline
for the borrower's family size.
* * * * *
(b) * * *
(1) * * *
(ii) Both the borrower and the borrower's spouse have eligible
loans and filed a joint Federal tax return, in which case the loan
holder determines--
(A) Each borrower's percentage of the couple's total eligible loan
debt;
(B) The adjusted monthly payment for each borrower by multiplying
the calculated payment by the percentage determined in paragraph
(b)(1)(ii)(A) of this section; and
(C) If the borrower's loans are held by multiple holders, the
borrower's adjusted monthly payment by multiplying the payment
determined in paragraph (b)(1)(ii)(B) of this section by the percentage
of the total outstanding principal amount of eligible loans that are
held by the loan holder;
* * * * *
16. Section 682.216 is amended by:
A. Revising paragraph (a).
B. In paragraph (b), adding, in alphabetical order, a definition of
Educational service agency.
C. Revising the introductory text of paragraph (c)(1).
D. In paragraph (c)(1)(ii), adding the words ``or educational
service agency's'' immediately after the words ``the school's''.
E. In paragraph (c)(1)(iii), removing the words ``Bureau of Indian
Affairs (BIA)'' and adding, in their place, the words ``Bureau of
Indian Education (BIE)'', and removing the words ``the BIA'' and
adding, in their place, the words ``the BIE''.
F. In paragraph (c)(2), adding the words ``or educational service
agency'' immediately after the words ``If the school'' at the beginning
of the paragraph, and removing the words ``the school'' immediately
after the words ``teaching and''.
G. In paragraph (c)(3)(i)(A), removing the words ``in which'' and
adding, in their place, the words ``or educational service agency
where''.
H. In paragraph (c)(3)(i)(B), removing the words ``in which'' and
adding, in their place, the words ``or educational service agency
where''.
I. In paragraph (c)(3)(ii)(A), removing the word ``in'' and adding,
in its place, the word ``at'', and adding the words ``, or taught
mathematics or science to secondary school students on a full-time
basis at an eligible educational service agency,'' immediately after
the words ``secondary school''.
J. In paragraph (c)(3)(ii)(B), removing the word ``in'' the first
time it appears and adding, in its place, the word ``at'', and adding
the words ``or educational service agency'' immediately after the words
``secondary school'' the first time they appear.
K. Adding a new paragraph (c)(3)(iii).
L. In paragraph (c)(4)(i), removing the word ``in'' and adding, in
its place, the word ``at'', and adding the words ``or educational
service agency'' immediately after the words ``secondary school'' the
first time they appear.
M. In paragraph (c)(4)(ii)(A), removing the word ``in'' and adding,
in its place, the word ``at'', and adding the words ``, or taught
mathematics or science on a full-time basis to secondary school
students at an eligible educational service agency,'' immediately after
the words ``secondary school''.
N. In paragraph (c)(4)(ii)(B), removing the word ``in'' the first
time it appears and adding, in its place, the word ``at'', and by
adding the words ``or educational service agency'' immediately after
the words ``secondary school'' the first time they appear.
O. Adding a new paragraph (c)(4)(iii).
P. Revising paragraph (c)(9).
Q. Revising paragraph (c)(11).
The revisions and additions read as follows:
Sec. 682.216 Teacher loan forgiveness program.
(a) General. (1) 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.
(2) The borrower must have been employed at an eligible elementary
or secondary school that serves low-income families or by an
educational service agency that serves low-income families as a full-
time teacher for five consecutive complete academic years. For teaching
service performed at an eligible elementary or secondary school, at
least one of the academic years must have been after the 1997-1998
academic year. For teaching service performed by an employee of an
eligible educational service agency, at least one of the five
consecutive complete academic years must have been after the 2007-2008
academic year.
(3) 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.
(4) A 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 if the borrower was employed for five consecutive years--
(i) At an eligible secondary school as a highly qualified
mathematics or science teacher, or at an eligible educational service
agency as a highly qualified teacher of mathematics or science to
secondary school students; or
(ii) At an eligible elementary or secondary school or educational
service agency as a special education teacher.
(5) 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) * * *
Educational service agency means a regional public multiservice
agency authorized by State statute to develop, manage, and provide
services or programs to local educational agencies, as defined in
section 9101 of the Elementary and Secondary Education Act of 1965, as
amended.
* * * * *
(c) * * *
(1) A borrower who has been employed at an elementary or secondary
school or at an educational service agency as a full-time teacher for
five consecutive complete academic years may obtain loan forgiveness
under this program if the elementary or secondary school or educational
service agency-- * * *
(3) * * *
(iii) For teaching service performed by an employee of an eligible
educational service agency, at least one of the five consecutive
complete academic years must have been after the 2007-2008 academic
year.
(4) * * *
(iii) For teaching service performed by an employee of an eligible
educational
[[Page 36594]]
service agency, at least one of the five consecutive complete academic
years must have been the 2008-2009 academic year or a subsequent
academic year.
* * * * *
(9) A borrower who was employed as a teacher at more than one
qualifying school, at more than one qualifying educational service
agency, or at a combination of both during an academic year and
demonstrates that the combined teaching was the equivalent of full-
time, as supported by the certification of one or more of the chief
administrative officers of the schools or educational service agencies
involved, is considered to have completed one academic year of
qualifying teaching.
* * * * *
(11) A borrower may not receive loan forgiveness for the same
qualifying teaching service under this section if the borrower receives
a benefit for the same teaching service under--
(i) 34 CFR 685.217;
(ii) Subtitle D of title I of the National and Community Service
Act of 1990;
(iii) 34 CFR 685.219; or
(iv) Section 428K of the Act.
* * * * *
17. Section 682.302 is amended by adding a new paragraph (h) to
read as follows:
Sec. 682.302 Payment of special allowance on FFEL loans.
* * * * *
(h) Calculation of special allowance payments for loans subject to
the Servicemembers Civil Relief Act (50 U.S.C. 527, App. sec. 207). For
FFEL Program loans first disbursed on or after July 1, 2008 that are
subject to the interest rate limit under the Servicemembers Civil
Relief Act, special allowance is calculated in accordance with
paragraphs (c) and (f) of this section, except the applicable interest
rate for this purpose shall be 6 percent.
18. Section 682.305 is amended by:
A. Revising paragraph (c)(1).
B. In paragraph (c)(2)(v), removing the word ``and'' immediately
after the semicolon
C. In paragraph (c)(2)(vi), removing the punctuation ``.'' at the
end of the paragraph and adding, in its place, the words ``; and''.
D. Redesignating paragraph (c)(2)(vii) as paragraph (c)(3).
E. Adding a new paragraph (c)(2)(vii).
The revision and addition read as follows:
Sec. 682.305 Procedures for payment of interest benefits and special
allowance and collection of origination and loan fees.
* * * * *
(c) Independent audits. (1)(i) A lender originating or holding more
than $5 million in FFEL loans during its fiscal year must submit an
independent annual compliance audit for that year, conducted by a
qualified independent organization or person.
(ii) Notwithstanding the dollar volume of loans originated or held,
a school lender under Sec. 682.601 or a lender serving as trustee on
behalf of a school or a school-affiliated organization for the purpose
of originating loans must submit an independent annual compliance audit
for that year, conducted by a qualified independent organization or
person.
(iii) 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) of this section.
(2) * * *
(vii) With regard to a lender serving as a trustee for the purpose
of originating loans for a school or school-affiliated organization,
the audit must include a determination that--
(A) Except as provided in paragraph (c)(2)(vii)(B) of this section,
the school used all proceeds from special allowance payments, interest
subsidies received from the Department, and any proceeds from the sale
or other disposition of the loans originated through the lender for
need-based grant programs and that those funds supplemented, but did
not supplant, other Federal or non-Federal funds otherwise available to
be used to make need-based grants to its students; and
(B) The lender used no more than a reasonable portion of payments
and proceeds from the loans for direct administrative expenses in
accordance with Sec. 682.601(b), with all references to eligible
school lender understood to mean a lender in its capacity as trustee on
behalf of a school or school-affiliated organization for the purpose of
originating loans.
* * * * *
19. Section 682.401 is amended by:
A. In paragraph (e)(1)(i), adding the words ``stock or other
securities, tuition payment or reimbursement'' immediately after the
word ``payment''.
B. In paragraph (e)(1)(i)(D), adding the words ``travel or''
immediately after the words ``Payment of''.
C. Revising paragraph (e)(1)(i)(F).
D. In paragraph (e)(1)(iii)(C), removing the word ``and''
immediately after the semicolon.
E. In paragraph (e)(1)(iii)(D), removing the punctuation ``.'' at
the end of the paragraph and adding, in its place, the punctuation
``;''.
F. Adding new paragraphs (e)(1)(iii)(E), (F), and (G).
G. In paragraph (e)(1)(v), adding the words ``, terms or
conditions'' immediately after the word ``availability''.
H. In paragraph (e)(2)(i), removing the word ``Assistance'' at the
beginning of the paragraph and adding, in its place, the words
``Technical assistance'', and removing the words ``that provided'' and
adding, in their place, the words ``the technical assistance
provided''.
I. In paragraph (e)(2)(ii), adding the words ``and 433A''
immediately after the reference to ``422(h)(4)(B)''.
J. In paragraph (e)(2)(iii), removing the words ``initial and
exit'' and adding, in their place, the word ``entrance''.
K. Revising paragraph (e)(2)(vi).
L. In paragraph (e)(3)(iii), removing the words ``The terms'' and
adding, in their place, the words ``The term'', and removing the words
``computer hardware'' and adding, in their place, the words
``information technology equipment''.
M. Removing paragraph (e)(3)(v).
N. Adding a new paragraph (g).
The revision and additions read as follows:
Sec. 682.401 Basic Program Agreement.
* * * * *
(e) * * *
(1) * * *
(i) * * *
(F) Performance of, or payment to a third party to perform, any
school function required under title IV, except that the guaranty
agency may provide exit counseling as provided in Sec. 682.604(g), and
may provide services to participating foreign schools at the direction
of the Secretary, as a third-party servicer.
* * * * *
(iii) * * *
(E) Providing or reimbursing travel or entertainment expenses;
(F) Providing or reimbursing tuition payments or expenses; and
(G) Offering prizes, or providing payments of stocks or other
securities.
* * * * *
(g)(1) A guaranty agency must work with schools that participate in
its program to develop and make available high-quality educational
materials and programs that provide training to students and their
families in budgeting and financial management, including debt
management and other aspects of financial literacy, such as the cost of
using high-interest loans to pay for postsecondary education, and how
budgeting and financial management relate to the title IV student loan
programs.
[[Page 36595]]
(2) The materials and programs described in paragraph (g)(1) of
this section must be in formats that are simple and understandable to
students and their families, and must be made available to students and
their families by the guaranty agency before, during, and after a
student's enrollment at an institution of higher education.
(3) A guaranty agency may provide similar programs and materials to
an institution that participates only in the William D. Ford Federal
Direct Loan Program.
(4) A lender or loan servicer may also provide an institution with
outreach and financial literacy information consistent with the
requirements of paragraphs (g)(1) and (2) of this section.
20. Section 682.402 is amended by revising paragraph (c) to read as
follows:
Sec. 682.402 Death, disability, closed school, false certification,
unpaid refunds, and bankruptcy payments.
* * * * *
(c)(1) Total and permanent disability. (i) A borrower's loan is
discharged if the borrower becomes totally and permanently disabled, as
defined in Sec. 682.200(b), and satisfies the eligibility requirements
in this section.
(ii) For a borrower who becomes totally and permanently disabled as
described in paragraph (1) of the definition of that term in Sec.
682.200(b), the borrower's loan discharge application is processed in
accordance with paragraphs (c)(2) through (7) of this section.
(iii) For a veteran who is totally and permanently disabled as
described in paragraph (2) of the definition of that term in Sec.
682.200(b), the veteran's loan discharge application is processed in
accordance with paragraph (c)(8) of this section.
(2) Discharge application process for a borrower who is totally and
permanently disabled as described in paragraph (1) of the definition of
that term in Sec. 682.200(b). After being notified by the borrower or
the borrower's representative that the borrower claims to be totally
and permanently disabled, the lender promptly requests that the
borrower or the borrower's representative submit a discharge
application to the lender on a form approved by the Secretary. The
application must contain a certification by a physician, who is a
doctor of medicine or osteopathy legally authorized to practice in a
State, that the borrower is totally and permanently disabled as
described in paragraph (1) of the definition of that term in Sec.
682.200(b). The borrower must submit the application to the lender
within 90 days of the date the physician certifies the application. If
the lender and guaranty agency approve the discharge claim under the
procedures described in paragraph (c)(7) of this section, the guaranty
agency must assign the loan to the Secretary.
(3) Secretary's eligibility determination. (i) If, after reviewing
the borrower's application, the Secretary determines that the
certification provided by the borrower supports the conclusion that the
borrower is totally and permanently disabled, as described in paragraph
(1) of the definition of that term in Sec. 682.200(b), the borrower is
considered totally and permanently disabled as of the date the
physician certifies the borrower's application.
(ii) Upon making a determination that the borrower is totally and
permanently disabled as described in paragraph (1) of the definition of
that term in Sec. 682.200(b), the Secretary discharges the borrower's
obligation to make further payments on the loan and notifies the
borrower that the loan has been discharged. Any payments received after
the date the physician certified the borrower's loan discharge
application are returned to the person who made the payments on the
loan. The notification to the borrower explains the terms and
conditions under which the borrower's obligation to repay the loan will
be reinstated, as specified in paragraph (c)(5)(i) of this section.
(iii) If the Secretary determines that the certification provided
by the borrower does not support the conclusion that the borrower is
totally and permanently disabled as described in paragraph (1) of the
definition of that term in Sec. 682.200(b), the Secretary notifies the
borrower that the application for a disability discharge has been
denied and that the loan is due and payable to the Secretary under the
terms of the promissory note.
(iv) The Secretary reserves the right to require the borrower to
submit additional medical evidence if the Secretary determines that the
borrower's application does not conclusively prove that the borrower is
totally and permanently disabled as described in paragraph (1) of the
definition of that term in Sec. 682.200(b). As part of the Secretary's
review of the borrower's discharge application, the Secretary may
arrange for an additional review of the borrower's condition by an
independent physician at no expense to the borrower.
(4) Treatment of disbursements made during the period from the date
of the physician's certification until the date of discharge. If a
borrower received a Title IV loan or TEACH Grant prior to the date the
physician certified the borrower's discharge application and a
disbursement of that loan or grant is made during the period from the
date of the physician's certification until the date the Secretary
grants a discharge under this section, the processing of the borrower's
loan discharge request will be suspended until the borrower ensures
that the full amount of the disbursement has been returned to the loan
holder or to the Secretary, as applicable.
(5) Conditions for reinstatement of a loan after a total and
permanent disability discharge. (i) The Secretary reinstates the
borrower's obligation to repay a loan that was discharged in accordance
with paragraph (c)(3)(ii) of this section if, within three years after
the date the Secretary granted the discharge, the borrower--
(A) Has annual earnings from employment that exceed 100 percent of
the poverty line for a family of two, as determined in accordance with
the Community Service Block Grant Act;
(B) Receives a new TEACH Grant or a new loan under the Perkins,
FFEL, or Direct Loan programs, except for a FFEL or Direct
Consolidation Loan that includes loans that were not discharged; or
(C) Fails to ensure that the full amount of any disbursement of a
title IV loan or TEACH Grant received prior to the discharge date that
is made during the three-year period following the discharge date is
returned to the loan holder or to the Secretary, as applicable, within
120 days of the disbursement date.
(ii) If a borrower's obligation to repay a loan is reinstated, the
Secretary--
(A) Notifies the borrower that the loan has been reinstated; and
(B) Does not require the borrower to pay interest on the loan for
the period from the date the loan was discharged until the date the
loan was reinstated.
(iii) The Secretary's notification under paragraph (c)(5)(ii)(A) of
this section will include--
(A) The reason or reasons for the reinstatement;
(B) An explanation that the first payment due date on the loan
following reinstatement will be no earlier than 60 days after the date
of the notification of reinstatement; and
(C) Information on how the borrower may contact the Secretary if
the borrower has questions about the reinstatement or believes that the
obligation to repay the loan was reinstated based on incorrect
information.
(6) Borrower's responsibilities after a total and permanent
disability discharge. During the three-year period
[[Page 36596]]
described in paragraph (c)(5)(i) of this section, the borrower or, if
applicable, the borrower's representative must--
(i) Promptly notify the Secretary of any changes in address or
phone number;
(ii) Promptly notify the Secretary if the borrower's annual
earnings from employment exceed the amount specified in paragraph
(c)(5)(i)(A) of this section; and
(iii) Provide the Secretary, upon request, with documentation of
the borrower's annual earnings from employment.
(7) Lender and guaranty agency actions. (i) After being notified by
a borrower or a borrower's representative that the borrower claims to
be totally and permanently disabled, the lender must continue
collection activities until it receives either the certification of
total and permanent disability from a physician or a letter from a
physician stating that the certification has been requested and that
additional time is needed to determine if the borrower is totally and
permanently disabled as described in paragraph (1) of the definition of
that term in Sec. 682.200(b). Except as provided in paragraph
(c)(7)(iii) of this section, after receiving the physician's
certification or letter the lender may not attempt to collect from the
borrower or any endorser.
(ii) The lender must submit a disability claim to the guaranty
agency if the borrower submits a certification by a physician and the
lender makes a determination that the certification supports the
conclusion that the borrower is totally and permanently disabled as
described in paragraph (1) of the definition of that term in Sec.
682.200(b).
(iii) If the lender determines that a borrower who claims to be
totally and permanently disabled is not totally and permanently
disabled as described in paragraph (1) of the definition of that term
in Sec. 682.200(b), or if the lender does not receive the physician's
certification of total and permanent disability within 60 days of the
receipt of the physician's letter requesting additional time, as
described in paragraph (c)(7)(i) of this section, the lender must
resume collection of the loan and is deemed to have exercised
forbearance of payment of both principal and interest from the date
collection activity was suspended. The lender may capitalize, in
accordance with Sec. 682.202(b), any interest accrued and not paid
during that period.
(iv) The guaranty agency must pay a claim submitted by the lender
if the guaranty agency has reviewed the application and determined that
it is complete and that it supports the conclusion that the borrower is
totally and permanently disabled as described in paragraph (1) of the
definition of that term in Sec. 682.200(b).
(v) If the guaranty agency does not pay the disability claim, the
guaranty agency must return the claim to the lender with an explanation
of the basis for the agency's denial of the claim. Upon receipt of the
returned claim, the lender must notify the borrower that the
application for a disability discharge has been denied, provide the
basis for the denial, and inform the borrower that the lender will
resume collection on the loan. The lender is deemed to have exercised
forbearance of both principal and interest from the date collection
activity was suspended until the first payment due date. The lender may
capitalize, in accordance with Sec. 682.202(b), any interest accrued
and not paid during that period.
(vi) If the guaranty agency pays the disability claim, the lender
must notify the borrower that--
(A) The loan will be assigned to the Secretary for determination of
eligibility for a total and permanent disability discharge and that no
payments are due on the loan; and
(B) If the Secretary discharges the loan based on a determination
that the borrower is totally and permanently disabled as described in
paragraph (1) of the definition of that term in Sec. 682.200(b), the
Secretary will reinstate the borrower's obligation to repay the loan
if, within three years after the date the Secretary granted the
discharge, the borrower--
(1) Receives annual earnings from employment that exceed 100
percent of the poverty line for a family of two, as determined in
accordance with the Community Services Block Grant;
(2) Receives a new TEACH Grant or a new title IV loan, except for a
FFEL or Direct Consolidation Loan that includes loans that were not
discharged; or
(3) Fails to ensure that the full amount of any disbursement of a
title IV loan or TEACH Grant received prior to the discharge date that
is made during the three-year period following the discharge date is
returned to the loan holder or to the Secretary, as applicable, within
120 days of the disbursement date.
(vii) After receiving a claim payment from the guaranty agency, the
lender must forward to the guaranty agency any payments subsequently
received from or on behalf of the borrower.
(viii) The Secretary reimburses the guaranty agency for a
disability claim paid to the lender after the agency pays the claim to
the lender.
(ix) The guaranty agency must assign the loan to the Secretary
after the guaranty agency pays the disability claim.
(8) Discharge application process for veterans who are totally and
permanently disabled as described in paragraph (2) of the definition of
that term in Sec. 682.200(b)--(i) General. After being notified by the
veteran or the veteran's representative that the veteran claims to be
totally and permanently disabled, the lender promptly requests that the
veteran or the veteran's representative submit a discharge application
to the lender, on a form approved by the Secretary. The application
must be accompanied by documentation from the Department of Veterans
Affairs showing that the Department of Veterans Affairs has determined
that the veteran is unemployable due to a service-connected disability.
The veteran will not be required to provide any additional
documentation related to the veteran's disability.
(ii) Lender and guaranty agency actions. (A) After being notified
by a veteran or a veteran's representative that the veteran claims to
be totally and permanently disabled as described in paragraph (2) of
the definition of that term in Sec. 682.200(b), the lender must
continue collection activities until it receives the veteran's
completed loan discharge application with the required documentation
from the Department of Veterans Affairs, as described in paragraph
(8)(i) of this section. Except as provided in paragraph (c)(8)(ii)(C)
of this section, the lender will not attempt to collect from the
veteran or any endorser after receiving the veteran's discharge
application and documentation from the Department of Veterans Affairs.
(B) If the veteran submits a completed loan discharge application
and the required documentation from the Department of Veterans Affairs,
and the documentation indicates that the veteran is totally and
permanently disabled as described in paragraph (2) of the definition of
that term in Sec. 682.200(b), the lender must submit a disability
claim to the guaranty agency.
(C) If the documentation from the Department of Veterans Affairs
does not indicate that the veteran is totally and permanently disabled
as described in paragraph (2) of the definition of that term in Sec.
682.200(b), the lender--
(1) Must resume collection and is deemed to have exercised
forbearance of payment of both principal and interest from the date
collection activity was suspended. The lender may capitalize, in
accordance with Sec. 682.202(b), any
[[Page 36597]]
interest accrued and not paid during that period.
(2) Must inform the veteran that he or she may reapply for a total
and permanent disability discharge in accordance with the procedures
described in Sec. 682.402(c)(2) through (c)(7), if the documentation
from the Department of Veterans Affairs does not indicate that the
veteran is totally and permanently disabled as described in paragraph
(2) of the definition of that term in Sec. 682.200(b), but indicates
that the veteran may be totally and permanently disabled as described
in paragraph (1) of the definition of that term.
(D) If the documentation from the Department of Veterans Affairs
indicates that the borrower is totally and permanently disabled as
described in paragraph (2) of the definition of that term in Sec.
682.200(b), the guaranty agency must submit a copy of the veteran's
discharge application and supporting documentation to the Secretary,
and must notify the veteran that the veteran's loan discharge request
has been referred to the Secretary for a determination of discharge
eligibility.
(E) If the documentation from the Department of Veterans Affairs
does not indicate that the veteran is totally and permanently disabled
as described in paragraph (2) of the definition of that term in Sec.
682.200(b), the guaranty agency does not pay the disability claim and
must return the claim to the lender with an explanation of the basis
for the agency's denial of the claim. Upon receipt of the returned
claim, the lender must notify the veteran that the application for a
disability discharge has been denied, provide the basis for the denial,
and inform the veteran that the lender will resume collection on the
loan. The lender is deemed to have exercised forbearance of both
principal and interest from the date collection activity was suspended
until the first payment due date. The lender may capitalize, in
accordance with Sec. 682.202(b), any interest accrued and not paid
during that period.
(F) If the Secretary determines, based on a review of the
documentation from the Department of Veterans Affairs, that the veteran
is totally and permanently disabled as described in paragraph (2) of
the definition of that term in Sec. 682.200(b), the Secretary notifies
the guaranty agency that the veteran is eligible for a total and
permanent disability discharge. Upon notification by the Secretary that
the veteran is eligible for a discharge, the guaranty agency pays the
disability discharge claim and notifies the veteran that the veteran's
obligation to make any further payments on the loan has been
discharged. Upon receipt of the claim payment from the guaranty agency,
the lender returns to the person who made the payments on the loan any
payments received on or after the effective date of the determination
by the Department of Veterans Affairs that the veteran is unemployable
due to a service-connected disability.
(G) If the Secretary determines, based on a review of the
documentation from the Department of Veterans Affairs, that the veteran
is not totally and permanently disabled as described in paragraph (2)
of the definition of that term in Sec. 682.200(b), the Secretary
notifies the guaranty agency of this determination. Upon notification
by the Secretary that the veteran is not eligible for a discharge, the
guaranty agency and the lender must follow the procedures described in
paragraph (c)(8)(ii)(E) of this section.
(H) The Secretary reimburses the guaranty agency for a disability
claim paid to the lender after the agency pays the claim to the lender.
* * * * *
21. Section 682.405 is amended by:
A. In paragraph (a)(3), adding the sentence ``Effective for any
loan that is rehabilitated on or after August 14, 2008, the borrower
cannot rehabilitate the loan again if the loan returns to default
status following the rehabilitation.'' at the end of the paragraph.
B. In paragraph (b)(1)(iii), adding the words ``by the guaranty
agency or its agents'' immediately after the word ``affordable''.
C. Revising paragraph (b)(3).
D. Adding a new paragraph (c).
The revision and addition read as follows:
Sec. 682.405 Loan rehabilitation agreement.
* * * * *
(b) * * *
(3) (3) Upon the sale of a rehabilitated loan to an eligible
lender--
(i) The guaranty agency must, within 45 days of the sale--
(A) Provide notice to the prior holder of such sale, and
(B) Request that any consumer reporting agency to which the default
was reported remove the record of default from the borrower's credit
history.
(ii) The prior holder of the loan must, within 30 days of receiving
the notification from the guaranty agency, request that any consumer
reporting agency to which the default claim payment or other equivalent
record was reported remove such record from the borrower's credit
history.
* * * * *
(c) A guaranty agency must make available financial and economic
education materials, including debt management information, to any
borrower who has rehabilitated a defaulted loan in accordance with
paragraph (a)(2) of this section.
22. Section 682.410 is amended by:
A. In paragraph (b)(5), removing the heading ``Credit bureau
reports'' and adding, in its place, the heading ``Reports to consumer
reporting agencies''.
B. In paragraph (b)(5)(i), removing the words ``national credit
bureaus'' at the end of the paragraph and adding, in their place, the
words ``nationwide consumer reporting agencies''.
C. In paragraph (b)(5)(ii), removing the words ``credit bureau''
and adding, in their place, the words ``consumer reporting agency'',
and removing the reference ``(b)(6)(v)'' and adding, in its place, the
reference ``(b)(6)(ii)''.
D. In paragraph (b)(5)(iv)(A), removing the words ``credit
bureaus'' and adding, in their place, the words ``consumer reporting
agencies''.
E. In paragraph (b)(5)(vi)(F), removing the words ``national credit
bureaus'' and adding, in their place, the words ``nationwide consumer
reporting agencies''.
F. In paragraph (b)(5)(vi)(G), removing the words ``credit
bureaus'' and adding, in their place, the words ``consumer reporting
agencies''.
G. In paragraph (b)(5)(vi)(K), removing the word ``and'' at the end
of the paragraph.
H. In paragraph (b)(5)(vi)(L), removing the punctuation ``.'' at
the end of the paragraph and adding, in its place, the words ``; and''.
I. Adding a new paragraph (b)(5)(vi)(M).
J. Redesignating paragraph (b)(6)(ii) as paragraph (b)(6)(v).
K. Redesignating paragraph (b)(6)(iii) as paragraph (b)(6)(vi).
L. Redesignating paragraph (b)(6)(iv) as paragraph (b)(6)(vii).
M. Redesignating paragraph (b)(6)(v) as paragraph (b)(6)(ii).
N. Redesignating paragraph (b)(6)(vi) as paragraph (b)(6)(iii).
O. In newly redesignated paragraph (b)(6)(iii), removing the
reference ``(b)(6)(v)'' and adding, in its place, the reference
``(b)(6)(ii)'', and removing the words ``national credit bureaus (if
that is the case)'' and adding, in their place, the words ``nationwide
consumer reporting agencies''.
P. Adding a new paragraph (b)(6)(iv).
[[Page 36598]]
Q. In newly redesignated paragraph (b)(6)(vi), removing the
reference ``(b)(6)(iv)'' and adding, in its place, the reference
``(b)(6)(vii)''.
The additions read as follows:
Sec. 682.410 Fiscal, administrative, and enforcement requirements.
* * * * *
(b) * * *
(5) * * *
(vi) * * *
(M) Inform the borrower of the options that are available to the
borrower to remove the loan from default, including an explanation of
the fees and conditions associated with each option.
(vii) * * *
(6) * * *
(iv) The agency must send a notice informing the borrower of the
options that are available to remove the loan from default, including
an explanation of the fees and conditions associated with each option.
This notice must be sent within a reasonable time after the end of the
period for requesting an administrative review as specified in
paragraph (b)(5)(iv)(B) of this section or, if the borrower has
requested an administrative review, within a reasonable time following
the conclusion of the administrative review.
* * * * *
23. Section 682.601 is amended by adding a new paragraph
(a)(7)(iii) to read as follows:
Sec. 682.601 Rules for a school that makes or originates loans.
(a) * * *
(7) * * *
(iii) With regard to any school, the audit must include a
determination that--
(A) Except as provided in paragraphs (a)(8) and (b) of this
section, the school used all payments and proceeds from the loans for
need-based grant programs;
(B) The school met the requirements of paragraph (c) of this
section in making the need-based grants; and
(C) The school used no more than a reasonable portion of payments
and proceeds from the loans for direct administrative expenses.
* * * * *
PART 685--WILLIAM D. FORD FEDERAL DIRECT LOAN PROGRAM
24. The authority citation for part 685 continues to read as
follows:
Authority: 20 U.S.C. 1087a et seq., unless otherwise noted.
25. Section 685.200 is amended by:
A. In paragraph (a)(1)(iv)(A)(1), removing the word ``and'' at the
end of the paragraph.
B. In paragraph (a)(1)(iv)(A)(2), removing the punctuation ``.'' at
the end of the paragraph and adding, in its place, the words ``; and''.
C. Adding a new paragraph (a)(1)(iv)(A)(3).
D. Removing paragraph (a)(1)(iv)(B).
E. Redesignating paragraph (a)(1)(iv)(C) as paragraph
(a)(1)(iv)(B).
F. In newly redesignated paragraph (a)(1)(iv)(B), removing the
words ``based on'' and adding, in their place, the word ``after'', and
adding the words ``based on a discharge request received prior to July
1, 2010'' immediately after the word ``disabled''.
The addition reads as follows:
Sec. 685.200 Borrower eligibility.
(a) * * *
(1) * * *
(iv) * * *
(A) * * *
(3) If the borrower receives a new Direct Subsidized Loan or Direct
Unsubsidized Loan within three years of the date that any previous
title IV loan or TEACH Grant service obligation was discharged due to a
total and permanent disability in accordance with Sec. 685.213(b)(4),
34 CFR 674.61(b)(3)(i), 34 CFR 682.402(c), or 34 CFR 686.42(b) based on
a discharge request received on or after July 1, 2010, resumes
repayment on the previously discharged loan in accordance with Sec.
685.213(b)(3)(ii)(A), 34 CFR 674.61(b)(5), or 34 CFR 682.402(c)(5), or
acknowledges that he or she is once again subject to the terms of the
TEACH Grant agreement to serve before receiving the new loan.
* * * * *
26. Section 685.202 is amended by:
A. Adding a new paragraph (a)(4).
B. In paragraph (b)(2), removing the words ``the Secretary
capitalizes'' and adding, in their place, the words ``or for a Direct
PLUS Loan, the Secretary may capitalize''.
The addition reads as follows:
Sec. 685.202 Charges for which Direct Loan Program borrowers are
responsible.
(a) * * *
(4) Applicability of the Servicemembers Civil Relief Act (50 U.S.C.
527, App. sec. 207). Notwithstanding paragraphs (a)(1) through (3) of
this section, effective August 14, 2008, upon the Secretary's receipt
of a borrower's written request and a copy of the borrower's military
orders, the maximum interest rate, as defined in 50 U.S.C. 527, App.
section 207(d), on Direct Loan Program loans made prior to the borrower
entering active duty status is 6 percent while the borrower is on
active duty military service.
* * * * *
27. Section 685.204 is amended by:
A. In paragraph (b)(1)(iii)(A)(2), removing the word ``or'' at the
end of the paragraph.
B. In paragraph (b)(1)(iii)(A)(3), removing the punctuation ``.''
and adding, in its place, ``; or'' at the end of the paragraph.
C. Adding a new paragraph (b)(1)(iii)(A)(4).
D. Revising paragraph (b)(1)(iii)(B).
E. Redesignating paragraphs (g) and (h) as paragraphs (h) and (i),
respectively.
F. In newly redesignated paragraph (i)(3), removing the words
``paragraph (h)(2)'' each time they appear and adding, in their place,
the words ``paragraph (i)(2)''.
G. In newly redesignated paragraph (i)(4), removing the words
``paragraph (h)(2)'' and adding, in their place, the words ``paragraph
(i)(2)''.
H. Adding a new paragraph (g).
The revisions and additions read as follows:
Sec. 685.204 Deferment.
* * * * *
(b) * * *
(1)(i) * * *
(iii)(A) * * *
(4) The Secretary confirms a borrower's half-time enrollment status
through the use of the National Student Loan Data System if requested
to do so by the school the borrower is attending.
(B)(1) Upon notification by the Secretary that a deferment has been
granted based on paragraph (b)(1)(iii)(A)(2), (3), or (4) of this
section, the borrower has the option to cancel the deferment and
continue paying on the loan.
(2) If the borrower elects to cancel the deferment and continue
paying on the loan, the borrower has the option to make the principal
and interest payments that were deferred. If the borrower does not make
the payments, the Secretary applies a deferment for the period in which
payments were not made and capitalizes the interest. The Secretary will
provide information, including an example, to assist the borrower in
understanding the impact of capitalization of accrued, unpaid interest
on the borrower's loan principal and on the total amount of interest to
be paid over the life of the loan.
* * * * *
(g) In-school deferments for Direct PLUS Loan borrowers with loans
first disbursed on or after July 1, 2008. (1)(i) A student Direct PLUS
Loan borrower is
[[Page 36599]]
entitled to a deferment on a Direct PLUS Loan first disbursed on or
after July 1, 2008 during the 6-month period that begins on the day
after the student ceases to be enrolled on at least a half-time basis
at an eligible institution.
(ii) If the Secretary grants an in-school deferment to a student
Direct PLUS Loan borrower based on Sec. 682.204(b)(1)(iii)(A)(2), (3),
or (4), the deferment period for a Direct PLUS Loan first disbursed on
or after July 1, 2008 includes the 6-month post-enrollment period
described in paragraph (g)(1)(i) of this section.
(2) Upon the request of the borrower, an eligible parent Direct
PLUS Loan borrower will receive a deferment on a Direct PLUS Loan first
disbursed on or after July 1, 2008--
(i) During the period when the student on whose behalf the loan was
obtained is enrolled at an eligible institution on at least a half-time
basis; and
(ii) During the 6-month period that begins on the later of the day
after the student on whose behalf the loan was obtained ceases to be
enrolled on at least a half-time basis or, if the parent borrower is
also a student, the day after the parent borrower ceases to be enrolled
on at least a half-time basis.
* * * * *
28. Section 685.205 is amended by:
A. In paragraph (b)(8), removing the word ``or'' at the end of the
paragraph.
B. In paragraph (b)(9), removing the punctuation ``.'' at the end
of the paragraph and adding, in its place, ``; or''.
C. Adding a new paragraph (b)(10) to read as follows:
Sec. 685.205 Forbearance.
* * * * *
(b) * * *
(10) For Direct PLUS Loans first disbursed before July 1, 2008, to
align repayment with a borrower's Direct PLUS Loans that were first
disbursed on or after July 1, 2008, or with Direct Subsidized Loans or
Direct Unsubsidized Loans that have a grace period in accordance with
Sec. 685.207(b) or (c). The Secretary notifies the borrower that the
borrower has the option to cancel the forbearance and continue paying
on the loan.
* * * * *
29. Section 685.211 is amended by:
A. In paragraph (f)(1), removing the words ``credit bureau'' in the
third sentence and adding, in their place, the words ``consumer
reporting agency''.
B. Adding a new paragraph (f)(4).
The addition reads as follows:
Sec. 685.211 Miscellaneous repayment provisions.
* * * * *
(f) * * *
(4) Effective for any defaulted Direct Loan that is rehabilitated
on or after August 14, 2008, the borrower cannot rehabilitate the loan
again if the loan returns to default status following the
rehabilitation.
30. Section 685.213 is revised to read as follows:
Sec. 685.213 Total and permanent disability discharge.
(a) General. (1) A borrower's Direct Loan is discharged if the
borrower becomes totally and permanently disabled, as defined in 34 CFR
682.200(b), and satisfies the eligibility requirements in this section.
(2) For a borrower who becomes totally and permanently disabled as
described in paragraph (1) of the definition of that term in 34 CFR
682.200(b), the borrower's loan discharge application is processed in
accordance with paragraph (b) of this section.
(3) For veterans who are totally and permanently disabled as
described in paragraph (2) of the definition of that term in 34 CFR
682.200(b), the veteran's loan discharge application is processed in
accordance with paragraph (c) of this section.
(b) Discharge application process for a borrower who is totally and
permanently disabled as described in paragraph (1) of the definition of
that term in 34 CFR 682.200(b). (1) Borrower application for discharge.
To qualify for a discharge of a Direct Loan based on a total and
permanent disability, a borrower must submit a discharge application to
the Secretary on a form approved by the Secretary. The application must
contain a certification by a physician, who is a doctor of medicine or
osteopathy legally authorized to practice in a State, that the borrower
is totally and permanently disabled as described in paragraph (1) of
the definition of that term in 34 CFR 682.200(b). The borrower must
submit the application to the Secretary within 90 days of the date the
physician certifies the application. Upon receipt of the borrower's
application, the Secretary notifies the borrower that no payments are
due on the loan while the Secretary determines the borrower's
eligibility for discharge.
(2) Determination of eligibility. (i) If, after reviewing the
borrower's application, the Secretary determines that the certification
provided by the borrower supports the conclusion that the borrower
meets the criteria for a total and permanent disability discharge, as
described in paragraph (1) of the definition of that term in 34 CFR
682.200(b), the borrower is considered totally and permanently disabled
as of the date the physician certifies the borrower's application.
(ii) Upon making a determination that the borrower is totally and
permanently disabled, as described in paragraph (1) of the definition
of that term in 34 CFR 682.200(b), the Secretary discharges the
borrower's obligation to make any further payments on the loan,
notifies the borrower that the loan has been discharged, and returns to
the person who made the payments on the loan any payments received
after the date the physician certified the borrower's loan discharge
application. The notification to the borrower explains the terms and
conditions under which the borrower's obligation to repay the loan will
be reinstated, as specified in paragraph (b)(4)(i) of this section.
(iii) If the Secretary determines that the certification provided
by the borrower does not support the conclusion that the borrower is
totally and permanently disabled, as described in paragraph (1) of the
definition of that term in 34 CFR 682.200(b), the Secretary notifies
the borrower that the application for a disability discharge has been
denied, and that the loan is due and payable to the Secretary under the
terms of the promissory note.
(iv) The Secretary reserves the right to require the borrower to
submit additional medical evidence if the Secretary determines that the
borrower's application does not conclusively prove that the borrower is
totally and permanently disabled as described in paragraph (1) of the
definition of that term in 34 CFR 682.200(b). As part of the
Secretary's review of the borrower's discharge application, the
Secretary may arrange for an additional review of the borrower's
condition by an independent physician at no expense to the borrower.
(3) Treatment of disbursements made during the period from the date
of the physician's certification until the date of discharge. If a
borrower received a title IV loan or TEACH Grant prior to the date the
physician certified the borrower's discharge application and a
disbursement of that loan or grant is made during the period from the
date of the physician's certification until the date the Secretary
grants a discharge under this section, the processing of the borrower's
loan discharge request will be suspended until the borrower ensures
that the full amount of the disbursement has been returned to the loan
holder or to the Secretary, as applicable.
[[Page 36600]]
(4) Conditions for reinstatement of a loan after a total and
permanent disability discharge. (i) The Secretary reinstates a
borrower's obligation to repay a loan that was discharged in accordance
with paragraph (b)(2)(ii) of this section if, within three years after
the date the Secretary granted the discharge, the borrower--
(A) Has annual earnings from employment that exceed 100 percent of
the poverty line for a family of two, as determined in accordance with
the Community Service Block Grant Act;
(B) Receives a new TEACH Grant or a new loan under the Perkins,
FFEL or Direct Loan programs, except for a FFEL or Direct Consolidation
Loan that includes loans that were not discharged; or
(C) Fails to ensure that the full amount of any disbursement of a
title IV loan or TEACH Grant received prior to the discharge date that
is made during the three-year period following the discharge date is
returned to the loan holder or to the Secretary, as applicable, within
120 days of the disbursement date.
(ii) If the borrower's obligation to repay the loan is reinstated,
the Secretary--
(A) Notifies the borrower that the loan has been reinstated; and
(B) Does not require the borrower to pay interest on the loan for
the period from the date the loan was discharged until the date the
loan was reinstated.
(iii) The Secretary's notification under paragraph (b)(4)(ii)(A) of
this section will include--
(A) The reason or reasons for the reinstatement;
(B) An explanation that the first payment due date on the loan
following reinstatement will be no earlier than 60 days after the date
of the notification of reinstatement; and
(C) Information on how the borrower may contact the Secretary if
the borrower has questions about the reinstatement or believes that the
obligation to repay the loan was reinstated based on incorrect
information.
(5) Borrower's responsibilities after a total and permanent
disability discharge. During the three-year period described in
paragraph (b)(4)(i) of this section, the borrower or, if applicable,
the borrower's representative must--
(i) Promptly notify the Secretary of any changes in address or
phone number;
(ii) Promptly notify the Secretary if the borrower's annual
earnings from employment exceed the amount specified in paragraph
(b)(4)(i)(A) of this section; and
(iii) Provide the Secretary, upon request, with documentation of
the borrower's annual earnings from employment.
(c) Discharge application process for veterans who are totally and
permanently disabled as described in paragraph (2) of the definition of
that term in 34 CFR 682.200(b).
(1) Veteran's application for discharge. To qualify for a discharge
of a Direct Loan based on a total and permanent disability as described
in paragraph (2) of the definition of that term in 34 CFR 682.200(b), a
veteran must submit a discharge application to the Secretary on a form
approved by the Secretary. The application must be accompanied by
documentation from the Department of Veterans Affairs showing that the
Department of Veterans Affairs has determined that the veteran is
unemployable due to a service-connected disability. The Secretary does
not require the veteran to provide any additional documentation related
to the veteran's disability. Upon receipt of the veteran's application,
the Secretary notifies the veteran that no payments are due on the loan
while the Secretary determines the veteran's eligibility for discharge.
(2) Determination of eligibility. (i) If the Secretary determines,
based on a review of the documentation from the Department of Veterans
Affairs, that the veteran is totally and permanently disabled as
described in paragraph (2) of the definition of that term in Sec.
682.200(b), the Secretary discharges the veteran's obligation to make
any further payments on the loan and returns to the person who made the
payments on the loan any payments received on or after the effective
date of the determination by the Department of Veterans Affairs that
the veteran is unemployable due to a service-connected disability.
(ii)(A) If the Secretary determines, based on a review of the
documentation from the Department of Veterans Affairs, that the veteran
is not totally and permanently disabled as described in paragraph (2)
of the definition of that term in 34 CFR 682.200(b), the Secretary
notifies the veteran that the application for a disability discharge
has been denied, and that the loan is due and payable to the Secretary
under the terms of the promissory note.
(B) The Secretary notifies the veteran that he or she may reapply
for a total and permanent disability discharge in accordance with the
procedures described in paragraph (b) of this section if the
documentation from the Department of Veterans Affairs does not indicate
that the veteran is totally and permanently disabled as described in
paragraph (2) of the definition of that term in 34 CFR 682.200(b), but
indicates that the veteran may be totally and permanently disabled as
described in paragraph (1) of the definition of that term.
31. Section 685.217 is amended by:
A. Revising paragraph (a).
B. In paragraph (b), adding a definition of Educational service
agency.
C. Revising the introductory text of paragraph (c)(1).
D. In paragraph (c)(1)(ii), adding the words ``or educational
service agency's'' immediately after the words ``the school's''.
E. In paragraph (c)(1)(iii), removing the words ``Bureau of Indian
Affairs (BIA)'' and adding, in their place, the words ``Bureau of
Indian Education (BIE)'', and removing the words ``the BIA'' and
adding, in their place, the words ``the BIE''.
F. In paragraph (c)(2), adding the words ``or educational service
agency'' immediately after the words ``If the school'' at the beginning
of the paragraph, and removing the words ``the school failed'' and
adding, in their place, the word ``fails''.
G. In paragraph (c)(3)(i)(A), removing the words ``in which'' and
adding, in their place, the words ``or educational service agency
where''.
H. In paragraph (c)(3)(i)(B), removing the words ``in which'' and
adding, in their place, the words ``or educational service agency
where''.
I. In paragraph (c)(3)(ii)(A), removing the word ``in'' and adding,
in its place, the word ``at'', and adding the words ``, or taught
mathematics or science to secondary school students on a full-time
basis at an eligible educational service agency,'' immediately after
the words ``secondary school''.
J. In paragraph (c)(3)(ii)(B), removing the word ``in'' the first
time it appears and adding, in its place, the word ``at'', and adding
the words ``or educational service agency'' immediately after the words
``secondary school'' the first time they appear.
K. Adding a new paragraph (c)(3)(iii).
L. In paragraph (c)(4)(i), removing the word ``in'' and adding, in
its place, the word ``at'', and adding the words ``or educational
service agency'' immediately after the words ``secondary school'' the
first time they appear.
M. In paragraph (c)(4)(ii)(A), removing the word ``in'' and adding,
in its place, the word ``at'', and adding the words ``, or taught
mathematics or science on a full-time basis to secondary school
students at an eligible educational
[[Page 36601]]
service agency,'' immediately after the words ``secondary school''.
N. In paragraph (c)(4)(ii)(B), removing the word ``in'' the first
time it appears and adding, in its place, the word ``at'', and by
adding the words ``or educational service agency'' immediately after
the words ``secondary school'' the first time they appear.
O. Adding a new paragraph (c)(4)(iii).
P. Revising paragraph (c)(9).
Q. Revising paragraph (c)(11).
The revisions and additions read as follows:
Sec. 685.217 Teacher loan forgiveness program.
(a) General. (1) 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.
(2) The borrower must have been employed at an eligible elementary
or secondary school that serves low-income families or by an
educational service agency that serves low-income families as a full-
time teacher for five consecutive complete academic years. For teaching
service performed at an eligible elementary or secondary school, at
least one of the academic years must have been after the 1997-1998
academic year. For teaching service performed by an employee of an
eligible educational service agency, at least one of the five
consecutive complete academic years must have been after the 2007-2008
academic year.
(3) 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.
(4) A 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 if the borrower was employed for five consecutive years--
(i) At an eligible secondary school as a highly qualified
mathematics or science teacher, or at an eligible educational service
agency as a highly qualified teacher of mathematics or science to
secondary school students; or
(ii) At an eligible elementary or secondary school or educational
service agency as a highly qualified special education teacher.
(5) 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) * * *
Educational service agency means a regional public multiservice
agency authorized by State statute to develop, manage, and provide
services or programs to local educational agencies, as defined in
section 9101 of the Elementary and Secondary Education Act of 1965, as
amended.
* * * * *
(c) * * *
(1) A borrower who has been employed at an elementary or secondary
school or an educational service agency as a full-time teacher for five
consecutive complete academic years may obtain loan forgiveness under
this program if the elementary or secondary school or educational
service agency-- * * *
(3) * * *
(iii) For teaching service performed by an employee of an eligible
educational service agency, at least one of the five consecutive
complete academic years must have been after the 2007-2008 academic
year.
(4) * * *
(iii) For teaching service performed by an employee of an eligible
educational service agency, at least one of the five consecutive
complete academic years must have been after the 2007-2008 academic
year.
* * * * *
(9) A borrower who was employed as a teacher at more than one
qualifying school, at more than one qualifying educational service
agency, or at a combination of both during an academic year and
demonstrates that the combined teaching was the equivalent of full-
time, as supported by the certification of one or more of the chief
administrative officers of the schools or educational service agencies
involved, is considered to have completed one academic year of
qualifying teaching.
* * * * *
(11) A borrower may not receive loan forgiveness for the same
qualifying teaching service under this section if the borrower receives
a benefit for the same teaching service under--
(i) 34 CFR 682.216;
(ii) Subtitle D of title I of the National and Community Service
Act of 1990;
(iii) 34 CFR 685.219; or
(iv) Section 428K of the Act.
* * * * *
Sec. 685.220 [Amended]
32. Section 685.220 is amended by:
A. In paragraph (d)(1)(i)(B)(3), adding the words ``or the no
accrual of interest benefit for active duty service'' immediately after
the word ``Program''.
B. In paragraph (d)(1)(i)(B)(4), adding the words ``or an income-
based repayment plan'' immediately after the words ``income contingent
repayment plan''.
C. In paragraph (d)(1)(i)(B)(5), adding the words ``or the no
accrual of interest benefit for active duty service'' immediately after
the word ``Program''.
33. Section 685.221 is amended by:
A. Revising paragraph (a)(4).
B. In paragraph (b)(1), removing the words ``Except as provided
under paragraph (b)(2) of this section, the'' in the second sentence
and adding, in their place, the word ``The''.
C. In paragraph (b)(2)(i), removing the word ``The'' at the
beginning of the sentence and adding, in its place, the words ``Except
for borrowers provided for in paragraph (b)(2)(ii) of this section,
the''.
D. Redesignating paragraphs (b)(2)(ii) and (b)(2)(iii) as
paragraphs (b)(2)(iii) and (b)(2)(iv), respectively.
E. Adding a new paragraph (b)(2)(ii).
F. In newly redesignated paragraph (b)(2)(iii), removing the words
``or (b)(2)(i)'' and adding, in their place, the words ``, (b)(2)(i),
or (b)(2)(ii)''.
G. In newly redesignated paragraph (b)(2)(iv), removing the words
``or (b)(2)(i)'' and adding, in their place, the words ``, (b)(2)(i),
or (b)(2)(ii)''.
The revision and addition read as follows:
Sec. 685.221 Income-based repayment plan.
(a) * * *
(4) Partial financial hardship means a circumstance in which--
(i) For an unmarried borrower or a married borrower who files an
individual Federal tax return, the annual amount due on all of the
borrower's eligible loans, as calculated under a standard repayment
plan based on a 10-year repayment period, using the greater of the
amount due at the time the borrower initially entered repayment or at
the time the borrower elects the income-based repayment plan, exceeds
15 percent of the difference between the borrower's AGI and 150 percent
of the poverty guideline for the borrower's family size; or
(ii) For a married borrower who files a joint Federal tax return
with his or her spouse, the annual amount due on all of the borrower's
eligible loans and, if
[[Page 36602]]
applicable, the spouse's eligible loans, as calculated under a standard
repayment plan based on a 10-year repayment period, using the greater
of the amount due at the time the loans initially entered repayment or
at the time the borrower or spouse elects the income-based repayment
plan, exceeds 15 percent of the difference between the borrower's and
spouse's AGI, and 150 percent of the poverty guideline for the
borrower's family size.
(b) * * *
(2) * * *
(ii) Both the borrower and borrower's spouse have eligible loans
and filed a joint Federal tax return, in which case the Secretary
determines--
(A) Each borrower's percentage of the couple's total eligible loan
debt;
(B) The adjusted monthly payment for each borrower by multiplying
the calculated payment by the percentage determined in paragraph
(b)(2)(ii)(A) of this section; and
(C) If the borrower's loans are held by multiple holders, the
borrower's adjusted monthly Direct Loan payment by multiplying the
payment determined in paragraph (b)(2)(ii)(B) of this section by the
percentage of the outstanding principal amount of eligible loans that
are Direct Loans;
* * * * *
[FR Doc. E9-16952 Filed 7-22-09; 8:45 am]
BILLING CODE 4000-01-P