[Federal Register Volume 74, Number 143 (Tuesday, July 28, 2009)]
[Proposed Rules]
[Pages 37432-37494]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-17119]
[[Page 37431]]
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Part IV
Department of Education
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34 CFR Parts 601, 668, 674, 682, and 685
Institutions and Lender Requirements Relating to Education Loans,
Student Assistance General Provisions, Federal Perkins Loan Program,
Federal Family Education Loan Program, and William D. Ford Federal
Direct Loan Program; Proposed Rule
Federal Register / Vol. 74, No. 143 / Tuesday, July 28, 2009 /
Proposed Rules
[[Page 37432]]
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DEPARTMENT OF EDUCATION
[Docket ID ED-2009-OPE-0003]
34 CFR Parts 601, 668, 674, 682, and 685
RIN 1840-AC95
Institutions and Lender Requirements Relating to Education Loans,
Student Assistance General Provisions, 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 establish new regulations in 34 CFR
part 601, Institutions and Lender Requirements Relating to Education
Loans, to implement requirements relating to education loans that were
added to the Higher Education Act of 1965, as amended (HEA) by the
Higher Education Opportunity Act of 2008 (HEOA). The Secretary also
proposes to amend the regulations for Student Assistance General
Provisions in part 668, the Federal Perkins Loan (Perkins Loan) Program
in part 674, the Federal Family Education Loan (FFEL) Program in part
682, and the William D. Ford Federal Direct Loan (Direct Loan) Program
in part 685 to implement certain provisions of the HEA that involve
school-based loan issues and that were affected by the statutory
changes made to the HEA by the HEOA.
DATES: We must receive your comments on or before August 27, 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 Brian Smith, 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: Marty Guthrie, U.S. Department of
Education, 1990 K Street, NW., Room 8042, Washington, DC 20006-8502.
Telephone: (202) 219-7031 or via the Internet at: [email protected],
or Gail McLarnon, U.S. Department of Education, 1990 K Street, NW.,
room 8026, Washington, DC 20006-8502. Telephone: (202) 219-7048 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 one of the contact persons 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 27, 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 part 674 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 notice of proposed rulemaking that we are publishing
as a result of the negotiations of Team I--Loans--Lender General Loan
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 the
Team I notice of proposed rulemaking. Comments on all other provisions
in this section should be submitted in the docket (Docket ID ED-2009-
OPE-0003) for this NPRM.
In addition, in this NPRM we have included a proposed change to
Sec. 668.184(a)(1). As amended by the HEOA, section 498(k) of the HEA
states that an institution that conducts a teach-out under certain
circumstances is not responsible for any liabilities of the closed
institution. As a result of this statutory change, the Department
intends to propose, in a separate notice of proposed rulemaking (Docket
ID ED-2009-OPE-0005, an amendment to 34 CFR 600.32(d) to provide that
the default rate of an institution that establishes an additional
location at the site of a closed institution for which it conducted a
teach-out would not be affected in any way by the closed institution's
cohort default rate. In light of this statutory change and our intended
amendment to 34 CFR 600.32(d), the Department also proposes to amend
Sec. 668.184(a)(1) to cross-reference 34 CFR 600.32(d) and to include
a similar cross-reference to 34 CFR 600.32(d) in new Sec.
668.203(a)(1). We have included the proposed amendment to Sec.
668.184(a)(1) and proposed Sec. 668.203(a)(1) in this NPRM
[[Page 37433]]
to enable the public to view all changes to these sections in context.
These proposed changes will also be included and discussed in a
separate notice of proposed rulemaking based on the negotiations of the
negotiating rulemaking committee responsible for regulatory issues
involving Title IV general provisions. Accordingly, we ask that when
submitting any comments on the proposed changes to Sec. Sec. 600.32(d)
or the proposed cross-references to that section in Sec. Sec.
668.184(a)(1) and 668.203(a)(1), you submit any comments in the docket
for that notice of proposed rulemaking (Docket ID ED-2009-OPE-0005).
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 8031, 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 one of the
persons 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 financial 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
information on the negotiated rulemaking process can be found at:
http://www.ed.gov/policy/highered/leg/hea08/index.html.
On December 31, 2008, the Department published a notice in the
Federal Register (73 FR 80314) announcing our intent to establish five
negotiated rulemaking committees to prepare proposed regulations. One
committee would focus on issues related to lender and general loan
issues (Team I--Loans--Lender General Loan Issues). A second committee
would focus on school-based loan issues (Team II--Loans--School-based
Loan Issues). A third committee would focus on accreditation (Team
III--Accreditation). A fourth committee would focus on discretionary
grants (Team IV--Discretionary Grants). A fifth committee would focus
on general and non-loan programmatic issues (Team V--General and Non-
Loan Programmatic Issues). The notice requested nominations of
individuals for membership on the committees who could represent the
interests of key stakeholder constituencies on each committee.
Team II--Loans--School-based Loan Issues (Team II) met to develop
proposed regulations during the months of March 2009, April 2009, and
May 2009. This NPRM resulted primarily from the work of Team II and, in
a couple of instances where the subject matter of the proposed
regulations overlapped, the work of Team I--Loans--Lender General Loan
Issues (Team I).\1\ This NPRM proposes regulations relating to the
administration of the Federal student loan programs.
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\1\ As discussed elsewhere in this preamble, Team I--Loans--
Lender General Loan Issues was responsible for negotiating the
following provisions, which appear in this NPRM: 34 CFR 601.2
(definitions of the terms lender and private education loan), 34 CFR
601.40 (Disclosure and reporting requirements for lenders), and 34
CFR 674.51 (definitions of the terms substantial gainful activity
and total and permanent disability).
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The Department developed a list of proposed regulatory provisions
based on the provisions contained in the HEOA and 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 Texas Christian University in Fort
Worth, Texas;
September 29, 2008, at the University of Rhode Island, in
Providence, Rhode Island;
October 2, 2008, at 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; and
October 15, 2008, at Cuyahoga Community College, in
Cleveland, Ohio.
In addition, the Department accepted written comments on possible
regulatory provisions 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.
Staff within the Department also identified issues for discussion
and negotiation.
At its first meeting, Team II reached agreement on its protocols.
These protocols provided that for each community of interest identified
as having interests that were significantly affected by the subject
matter of the negotiations, the non-Federal negotiators would represent
the organizations listed after their names in the protocols in the
negotiated rulemaking process.
Team II included the following members:
Angela Peoples, United States Student Association, and
Rich Williams (alternate), State Public Interest Research Groups
representing students.
Richard Heath, Anne Arundel Community College, and Pat
Hurley (alternate), Glendale Community College representing 2-year
public institutions.
Roberta Johnson, Iowa State University, and Mr. Kim
Jenerette (alternate), University of South Carolina-Upstate
representing 4-year public institutions.
Elizabeth Hicks, Columbia University, and Nancy Hoover
(alternate), Denison University representing private, nonprofit
institutions.
Mary Dorrell, Career Education Corporation, and Nancy
Broff (alternate), Dickstein Shapiro LLP representing private, for-
profit institutions.
Thelma Ross, Lincoln University, and Helga Greenfield
(alternate), Spelman College representing minority-serving
institutions.
Justin Draeger, National Association of Student Financial
Aid Administrators, and Charles ``Buddy'' Mayfield (alternate),
Missouri Valley College representing financial aid administrators.
Virginia Layton, Miami University, and Anne Gross
(alternate), National Association of College and University
[[Page 37434]]
Business Officers representing business officers.
Mary Lyn Hammer, Champion College Solutions, and James B.
Parker (alternate), Panhandle Plains Student Loan Center representing
institutional and loan servicers.
Scot Williams, EdFund/CSAC, and Jacqueline Fairbairn
(alternate), Great Lakes Higher Education Guaranty Corp. representing
guaranty agencies.
Jackie Ito-Woo, University of California, and Beth Stack
(alternate), University of Pittsburgh representing institutions
participating in the Perkins Loan Program.
J.D. LaRock, Massachusetts Office of Higher Education
representing States.
Gail McLarnon, U.S. Department of Education representing
the Federal Government.
These protocols also provided that, unless agreed to otherwise,
consensus on all of the amendments in the proposed regulations had to
be achieved for consensus to be reached on the entire NPRM. Consensus
means that there must be no dissent by any member.
During the meetings, Team II reviewed and discussed drafts of
proposed regulations. At the final meeting in May 2009, Team II reached
consensus on all of the proposed regulations in this document except:
The proposed definitions of the terms lender and private
education loan in 34 CFR 601.2 (Definitions).
The proposed requirements in 34 CFR 601.40 (Disclosure and
reporting requirements for lenders).
The proposed definitions of the terms substantial gainful
employment and total and permanent disability in 34 CFR 674.51 (Special
Definitions).
These proposed regulatory provisions were assigned to Team I for
negotiated rulemaking purposes because the substance of the provisions
fell within the purview of Team I's expertise. Team I reached consensus
on all of its proposed regulations, including the provisions identified
in this paragraph, in its final meeting in May 2009.
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 34 CFR 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 notice of proposed rulemaking
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 notice of proposed rulemaking
published as a result of the other team's negotiations.
More information on the work of Team II can be found at http://www.ed.gov/policy/highered/reg/hearulemaking/2009/loans-school-based.html and more information on the work of Team I can be found at
http://www.ed.gov/policy/highered/reg/hearulemaking/2009/loans-lender.html.
Summary of Proposed Changes
These proposed regulations would implement the school-based loan
provisions of the HEA, as amended by the HEOA. These provisions
include:
An increase in the period used to calculate the cohort
default rate (CDR) from 2 to 3 years effective for CDRs calculated for
fiscal year 2009 and subsequent years, the requirement that an
institution whose CDR is greater than or equal to 30 percent for any
fiscal year establish a default prevention plan, and an increase from
25 to 30 percent in the threshold default that would render an
institution ineligible to participate in the Pell, FFEL, and Direct
Loan Programs (see section 435(a) and (m) of the HEA);
An expansion of exit counseling requirements in the title
IV, HEA loan programs (see section 485(b)(1)(A) of the HEA);
An expansion of entrance counseling requirements in the
FFEL and Direct Loan Programs (see section 485(l) of the HEA);
Additions to the conditions an institution must agree to
in its program participation agreement with the Secretary of Education
(the agreement between the institution and the Department that enables
the institution to participate in the loan programs under Title IV of
the HEA). These conditions include: (1) A requirement that an
institution develop, publish, administer and enforce a code of conduct
with respect to its FFEL Program activities (see section 487(a)(25) of
the HEA); (2) a requirement that an institution compile, maintain and
make available to students and their families a list of its preferred
lenders if it enters into any preferred lender arrangement (see section
487(a)(27) of the HEA); and (3) a requirement that an institution, upon
the request of an applicant of a private education loan, provide the
applicant with the private education loan certification form developed
by the Secretary (see section 487(a)(28) of the HEA);
The addition of education loan borrower disclosures by
institutions of higher education, and institution-affiliated
organizations, including definitions (see sections 151 through 155,
487(a) and 487(h) of the HEA);
The addition of borrower disclosures by covered
institutions and institution-affiliated organizations that participate
in a preferred lender arrangement (see section 153(c) of the HEA);
The addition of reporting requirements for covered
institutions and institution-affiliated organizations (see section
153(c)(2) of the HEA);
Dissemination of information to prospective and enrolled
students regarding the terms and conditions of title IV, HEA loans (see
section 485(a) of the HEA);
Disclosure to the Secretary of any reimbursements made to
employees of an institution of higher education for service on advisory
boards (see section 485(m) of the HEA); and
An expansion of cancellation benefits for Perkins Loan
borrowers, including cancellation benefits for teachers in an
educational service agency; staff members in a pre-kindergarten or
childcare program; attorneys employed in a Federal Public Defender
Organization or community Defender Organization; fire fighters, faculty
members of a Tribal College or University, librarians with a master's
degree employed in an elementary or secondary school or in a public
library that serves one or more schools eligible for funding under
title I of the Elementary and Secondary Education Act of 1965, as
amended; and speech pathologists with a master's degree who
[[Page 37435]]
work exclusively with title I-eligible schools (see section 465(a) of
the HEA).
Significant Proposed Regulations
We discuss substantive issues under the sections of the regulations
to which they pertain. Generally, we do not address regulatory changes
that are technical or otherwise minor in effect.
Part 601--Institution and Lender Requirements Relating to Education
Loans
Subpart A--General
Scope (Sec. 601.1)
Statute: Sections 120 and 1021(b) of the HEOA added a new part E to
title I of the HEA, titled Lender and Institution Requirements Relating
to Education Loans. Part E, consisting of new sections 151 through 155,
requires significant new disclosures to borrowers of education loans
and related institutional and lender reporting to the Department. The
required borrower disclosures apply to both Title IV student loans and
private education loans, and are required of institutions of higher
education, institution-affiliated organizations, and lenders.
Current Regulations: None.
Proposed Regulations: We propose to add a new part 601 to title 34
of the Code of Federal Regulations to implement the statutory
provisions of sections 151 through 155 of the HEA. Proposed Sec. 601.1
would briefly summarize the content of the new part 601.
Reasons: Proposed Sec. 601.1 would be added to implement part E of
title I of the HEA, which was added by the HEOA.
Definitions (Sec. 601.2)
Statute: Section 120 of the HEOA added section 151 to the HEA.
Section 151 of the HEA sets forth the definitions for terms used in
part E of title I of the HEA. These terms include covered institution,
education loan, institution-affiliated organization, preferred lender
arrangement, and private education loan.
The term covered institution is defined as an institution of higher
education, as defined in section 102 of the HEA, that receives any
Federal funding or assistance. Thus, the term covered institution
includes any institution of higher education that receives any type of
Federal funding or assistance, not just any institution of higher
education that receives Title IV, HEA funding or assistance.
The term institution-affiliated organization is defined as any
organization directly or indirectly related to a covered institution,
including alumni organizations, foundations, or social organizations,
that recommends, promotes, or endorses education loans for students
attending the covered institution.
The term education loan is defined as a FFEL Loan, a Direct Loan,
or a private education loan. Section 151(9) of the HEA defines the term
private education loan as that term is defined in section 140 of the
Truth in Lending Act (TILA) (15 U.S.C. 1631). Under this definition, a
private education loan is a non-Title IV loan provided by a private
educational lender to a borrower expressly for postsecondary
educational expenses, and that is not an extension of credit under an
open-end consumer credit plan, or secured by real property or a
dwelling.
The term preferred lender arrangement is defined as an arrangement
or agreement between a lender and a covered institution or an
institution-affiliated organization, under which the lender provides or
otherwise issues education loans to the covered institution's students
or their families, and that relates to the covered institution or
institution-affiliated organization recommending, promoting, or
endorsing the lender's education loan products. The term preferred
lender arrangement does not include arrangements or agreements with
respect to Direct Loan Program loans or loans that originate through
the PLUS Loan auction pilot program, authorized under section 499(b) of
the HEA.
Section 151 of the HEA also provides definitions for the terms
agent, eligible lender, lender, and officer as those terms are used in
title I, part E of the HEA.
Section 151(4) of the HEA states that the term eligible lender has
the same meaning as provided in section 435(d) of the HEA. The term
lender is defined in section 151(6) of the HEA as an eligible lender
for Federal Family Education Loan (FFEL) Program loans, the Department
of Education for William D. Ford Direct Loans, and a private
educational lender as that term is defined in section 140 of the TILA
(15 U.S.C. 1631) for private education loans. The term lender includes
any other person engaged in the business of securing, making, or
extending educational loans on behalf of the lender.
The term agent is defined as an officer or employee of a covered
institution or an institution-affiliated organization. The definition
of the term officer includes a director or trustee of a covered
institution or institution-affiliated organization, if such individual
is treated as an employee of the covered institution or the
institution-affiliated organization.
Current Regulations: None.
Proposed Regulations: Proposed Sec. 601.2(b) would set forth the
definitions for the terms described in the preceding Statute section
that apply to new part 601. With one exception, the regulatory
definitions do not make substantive changes to the corresponding
statutory definitions.
The one exception is for the term preferred lender arrangement. The
definition for preferred lender arrangement in proposed Sec. 601.2(b)
would track the statutory definition in section 151(8) of the HEA,
except that it would specify that an arrangement or agreement does not
exist for private education loans that a covered institution makes to
its own students, as long as the private education loan is funded by
the covered institution's own funds; is funded by donor-directed
contributions; is made under title VII or title VIII of the Public
Service Health Act; or is made under an institutional payment plan of
the covered institution.
Reasons: The proposed regulations in Sec. 601.2(b) were negotiated
by two teams during the negotiated rulemaking process. Team I, which
covered general and lender loan issues, negotiated the definitions for
the terms eligible lender, lender, and private education loan. Team II,
which covered school-based loan issues, negotiated the remaining
definitions.
The statutory definitions for the terms that would be used in part
601 are detailed and specific. Therefore, except as noted for the
definition of preferred lender arrangement, the Department has declined
to expand on the statutory definitions in the regulations.
The proposed regulations negotiated by Team I reflect the statutory
definitions for the terms lender and private education loan. The
definition of lender, as reflected in the proposed regulations, would
simply provide a cross reference to the definition of that term in
current Sec. 682.200(b). The definition of private education loan
would mirror the definition provided for private education loan in
section 140 of the TILA (15 U.S.C. 1631). Use of this TILA definition
is required by section 151(9) of the HEA.
The Team I non-Federal negotiators raised some concern over the
cross references in our proposed regulations to the requirements in the
TILA. Specifically, there was discussion about the regulations
implementing the TILA, which will not be published in final form before
the conclusion of the negotiation process for these regulations. The
Department made clear
[[Page 37436]]
that, in terms of the definition of private education loan, section
151(9) of the HEA requires the Department to use the TILA definition.
Under this requirement, the Department has no authority to negotiate
that definition for purposes of these proposed regulations.
For Team II, discussions regarding the proposed definitions focused
on two terms: Agent and preferred lender arrangement.
The meaning of the term agent came up as part of the discussion
around the code of conduct requirements in proposed Sec. 601.21. This
discussion is summarized in the code of conduct section of the
preamble.
The meaning of the term preferred lender arrangement came up
frequently during the negotiated rulemaking sessions, and is discussed
in the following paragraphs.
Several of the Team II non-Federal negotiators argued that a
preferred lender arrangement can exist only if there is a written or
verbal agreement between a lender and a covered institution or
institution-affiliated organization. One of the non-Federal negotiators
submitted an alternative definition for preferred lender arrangement
that would have built this written or verbal agreement requirement into
the definition, only allowing exceptions to this requirement in cases
when a course of conduct evidencing intention by the parties to create
an arrangement exists.
The Department declined to adopt this proposed alternative
definition because the statutory definition of preferred lender
arrangement does not address how the arrangement comes about, nor does
it specify that a written or verbal agreement must exist. Instead,
section 151(8) of the HEA provides that two conditions must be met for
a preferred lender arrangement to exist between a lender and a covered
institution or an institution-affiliated organization. These conditions
are that--
(1) A lender provides or issues education loans to students, or the
families of such students, attending a covered institution; and
(2) The covered institution or an institution-affiliated
organization recommends, promotes, or endorses the education loan
products of the lender.
If both of those conditions are met, a preferred lender arrangement
exists, whether or not the covered institution and the lender entered
into a formal agreement.
Several non-Federal negotiators asked whether the Department viewed
institutional loans--that is, loans made directly by a covered
institution to its own students--as being covered by the term preferred
lender arrangement. These non-Federal negotiators identified several
preferred lender arrangement requirements in section 487(e) of the HEA
(and proposed Sec. 601.21) that they believed would be impossible or
impractical for a covered institution to comply with if the preferred
lender arrangement requirements applied to institutional loans (i.e.,
loans made directly by a covered institution to its own students). For
example, non-Federal negotiators noted that a school, in its capacity
as a lender, could be prohibited from paying its own employees. They
argued that, if we applied the code of conduct requirement that a
lender not provide gifts to employees of a covered institution's
financial aid office to a covered institution that makes loans directly
to their students (and, therefore, falls within the definition of
``lender''), these covered institutions would be prohibited from paying
the employees in its financial aid office.
To avoid this unintended consequence, some of the Team II non-
Federal negotiators recommended that the Department exempt
institutional loans from the definition of private education loan. As
noted earlier in this preamble, the definition of the term private
education loan is established by the TILA and any regulations the
Federal Reserve issues in connection with this statutory definition.
The Department has no authority to alter the statutory definition of
private education loan.
Furthermore, we do not agree that the Federal Reserve should
interpret, through its regulations implementing TILA, that the term
private education loan does not include institutional loans. If the
Federal Reserve did so, such loans would not only be exempt from the
preferred lender arrangement requirements in part E, title I of the
HEA, and proposed 34 CFR part 601, but they would also be exempt from
certain TILA requirements that the Department believes provide
beneficial protections to student borrowers (such as requiring private
educational lenders to inform a potential private education loan
borrower that the borrower may qualify for title IV, HEA student
financial assistance in addition to or in lieu of the private education
loan, as required under section 128(e)(1)(M) of the TILA).
Recognizing that the Department cannot modify the definition of
private education loan, non-Federal negotiators asked that
institutional loans, and other Federal Loans, be excluded from the
definition of preferred lender arrangement. As an alternative, if that
approach could not be accepted, several non-Federal negotiators offered
a proposal in which certain types of institutional loans, with certain
types of terms and conditions, would be exempt from some or all of the
requirements governing loans made pursuant to a preferred lender
arrangement.
After considering the proposals from the non-Federal negotiators,
the Department declined to adopt this approach. The term preferred
lender arrangement defines a relationship between two parties regarding
loans offered to student borrowers and their families. Nothing in the
statutory definition of the term suggests that the relationship is
contingent on the terms and conditions of the loans being provided. The
relationship is defined by the actions of the two parties--that is, the
lender provides or issues education loans and the covered institution
or institution-affiliated organization recommends, promotes or endorses
the education loan products of the lender.
The Department believes that these actions must be taken by at
least two separate parties for a preferred lender arrangement to exist.
The definition of the term preferred lender arrangement refers to ``an
arrangement or agreement between a lender and a covered institution or
institution-affiliated organization.'' Implicit in the definition is
the understanding that the lender and the covered institution are not
one and the same entity.
The Department responded to the non-Federal negotiators by
proposing to expand the regulatory definition for preferred lender
arrangement in proposed Sec. 601.2(b) by specifying that such an
arrangement does not exist for a private education loan made by a
covered institution to the covered institution's students.
The proposed definition for preferred lender arrangement also would
clarify that a preferred lender arrangement does would not exist for a
private education loan made by a covered institution to the covered
institution's students, but only if the covered institution made the
loan using its own funds.
Some non-Federal negotiators requested clarification of the phrase
``own funds'' as used in the proposed definition of preferred lender
arrangement. For example, they presented a scenario in which a lender
provides funds to a covered institution, the covered institution uses
the funds to make loans to its students, and then the covered
institution sells the loans to the lender (possibly immediately after
the loan is made). These non-Federal negotiators requested that funds
[[Page 37437]]
provided under these conditions be considered the covered institution's
``own funds'' for purposes of the proposed definition of preferred
lender arrangement. The Department strongly disagreed with this
suggestion. In the current context, the Department does not consider
funds obtained by covered institutions under this or similar scenarios
in which loans are sold shortly after they are made to be the covered
institution's ``own funds'' because the covered institution is merely
acting as a pass-through for the lender's funds in these cases. The
Department believes that exempting loans made under these conditions
from the preferred lender arrangement requirements would open the door
to abuse, potentially creating a loophole that covered institutions
might use to evade the preferred lender arrangement requirements. The
Department has long been concerned about this type of arrangement
involving schools which are lenders in the FFEL Program but which use
funds provided by FFEL lenders to make the loans and then immediately
sell the loans. The Department believes that such arrangements could be
a loophole for institutions to avoid the limitation on improper
inducements in the FFEL Program. Moreover, these arrangements may be
deceptive to students who believe they are making an arrangement with
the institution but are quickly dealing with a different lender. The
Department does not want to repeat those problems in the area of
preferred lender arrangements. As the Department's negotiator
emphasized to the negotiated rulemaking committee, the Department
intends for the proposed definition of preferred lender arrangement to
be applied in such a manner as to avoid the masking of the true source
of loan funds.
Team II's discussions concerning the definition of the term
preferred lender arrangement also focused on the requirements
surrounding preferred lender lists under section 487(h)of the HEA (and
proposed Sec. 668.14(b)(28)). Proposed Sec. 668.14 of the program
participation agreement regulations, which would implement changes made
to section 487(h) of the HEA by section 493(c) of the HEOA, would
specify that for any year in which an institution has a preferred
lender arrangement, the institution must compile, maintain, and make
available for students attending the institution, and their families, a
preferred lender list. The non-Federal negotiators asked for
clarification from the Department regarding what constitutes a
preferred lender list.
The Department referred non-Federal negotiators to Dear Colleague
Letter GEN-08-06 \2\ in which we stated that if a school provides to
its students a neutral, comprehensive list of lenders who have made
loans to students at the covered institution within a set period of
time, such as three to five years, and the school provides a clear
statement on the list that a borrower can choose to use any FFEL
lender, not just the lenders identified on the list, the list is not a
preferred lender list.
---------------------------------------------------------------------------
\2\ GEN-08-06 was issued by the Department on May 9, 2008, and
can be accessed on http://www.ifap.ed.gov/dpcletters/GEN0806.html.
---------------------------------------------------------------------------
The Department also clarified for the non-Federal negotiators that
if a covered institution provides a list of lenders to students, and
the list includes some lenders who lend to students at the school but
not others, the Department views the covered institution as inherently
showing a preference for the lenders it includes on the list. In this
case, therefore, the covered institution would be considered to have
created a preferred lender list.
If a covered institution includes certain lenders on the list and
leaves other lenders off the list, the Department views the covered
institution as recommending, promoting, or endorsing the lenders on the
list over the lenders that it has chosen to leave off the list
regardless of whether the covered institution includes a disclaimer on
the list, asserting that the covered institution does not recommend,
promote, or endorse the lenders on its list. Unless the list is a
neutral, comprehensive list of lenders who lent to students at the
school, the list serves to recommend, promote, or endorse the lenders
on the list, despite whatever disclaimers the school may attach to the
list.
Subpart B--Loan Information To Be Disclosed by Covered Institutions and
Institution-Affiliated Organizations
Preferred Lender Arrangement Disclosures (Sec. 601.10)
Statute: Section 152(a)(1)(A)(i) of the HEA, as amended by section
120 of the HEOA, requires a covered institution or an institution-
affiliated organization with a preferred lender arrangement to provide
on its Web site and in all informational materials including
publications, mailings, electronic messages, or materials that are
distributed to current or prospective students and that describe or
discuss education loans, the following disclosures:
The maximum amount of Title IV grant and loan aid
available to students in an easy to understand format.
Information on the model disclosure form for each FFEL
loan offered pursuant to a preferred lender arrangement, to be
determined by the Department of Education in coordination with the
Board of Governors of the Federal Reserve System.
A statement that the institution is required to process
documents necessary to obtain a FFEL loan from any eligible lender the
student selects.
Section 152(a)(1)(A)(ii) of the HEA also requires a covered
institution or institution-affiliated organization's Web site or other
information materials, including publications, electronic messages or
materials, that describe or discuss private education loans made to
students or the families of such students pursuant to a preferred
lender arrangement to provide the disclosures specified in the TILA. A
covered institution must provide the information required by section
128(e)(11) of the TILA and an institution-affiliated organization must
provide the information required by section 128(e)(1) of the TILA.
Section 493(c) of the HEOA amended section 487 of the HEA by adding
a new subsection (h). Section 487(h)(1)(A) of the HEA requires that if
a covered institution compiles, maintains, and makes available a
preferred lender list, the institution must clearly and fully disclose
on the preferred lender list (a) at least the information required to
be disclosed under Section 153(a)(2)(A) of the HEA; (b) why the
institution participates in a preferred lender arrangement with each
lender on the preferred lender list, particularly with respect to terms
and conditions or provisions favorable to the borrower; and (c) that
the students attending the institution, or the families of such
students, do not have to borrow from a lender on the preferred lender
list.
Section 487(h)(1)(B) of the HEA requires covered institutions to
ensure, through the use of the list of lender affiliates provided by
the Secretary under Section 487(h)(2) of the HEA, that there are not
less than three FFEL lenders that are not affiliates of each other
included on the preferred lender list and, for institutions that
recommend, promote, or endorse private education loans, that there are
not less than two lenders of private education loans that are not
affiliates of each other included on the preferred lender list.
The preferred lender list must specifically indicate, for each
listed
[[Page 37438]]
lender, whether the lender is or is not an affiliate of another lender
on the preferred lender list; and if a lender is an affiliate of
another lender on the preferred lender list, must describe the details
of such affiliation.
Section 487(h)(1)(C) of the HEA requires institutions to
prominently disclose the method and criteria used by the institution in
selecting lenders with which to participate in preferred lender
arrangements to ensure that such lenders are selected on the basis of
the best interests of the borrowers. These criteria include payment of
origination or other fees on behalf of the borrower; highly competitive
interest rates, or other terms and conditions or provisions of Title
IV, HEA program loans or private education loans; high-quality
servicing; or additional benefits beyond the standard terms and
conditions or provisions for such loans.
Section 487(h)(1)(D) of the HEA requires institutions to exercise a
duty of care and a duty of loyalty to compile the preferred lender list
without prejudice and for the sole benefit of the students attending
the institution, or the families of such students.
Section 487(h)(1)(E) of the HEA requires institutions to not deny
or otherwise impede the borrower's choice of a lender or cause
unnecessary delay in certification of a Title IV loan for those
borrowers who choose a lender that is not included on the preferred
lender list.
Current Regulations: None.
Proposed Regulations: Under proposed Sec. 601.10(a)(1), a covered
institution, or an institution-affiliated organization of a covered
institution, that participates in a preferred lender arrangement would
be required to disclose to students the maximum amount of Federal grant
and loan aid available under Title IV of the HEA; the information
identified on the model disclosure form developed by the Secretary for
each type of education loan that is offered pursuant to a preferred
lender arrangement; and a statement that the institution is required to
process the documents required to obtain a loan under the FFEL Program
from any eligible lender the student selects.
Consistent with section 152(a)(1)(A)(ii) of the HEA, proposed Sec.
601.10(a) would require that these disclosures be provided on the
covered institution's or institution-affiliated organization's Web site
and in all informational materials such as publications, mailings, or
electronic messages or materials that are distributed to prospective or
current students of a covered institution and families of such students
and that describe or discuss the financial aid opportunities available
to students at an institution of higher education.
Proposed Sec. 601.10(a)(2)(i) would require a covered institution
to provide the disclosures required under section 128(e)(11) of the
TILA for each type of private education loan offered pursuant to a
preferred lender arrangement. For an institution-affiliated
organization, proposed Sec. 601.10(a)(2)(ii) would require the
institution-affiliated organization to provide the disclosures required
under section 128(e)(1) of TILA for each type of private education loan
offered pursuant to a preferred lender arrangement.
Proposed Sec. 601.10(c) would require covered institutions and
institution-affiliated organizations that participate in a preferred
lender arrangement to provide the information described in proposed
Sec. 601.10(a)(1)(ii), and the information described in proposed
Sec. Sec. 601.10(a)(2)(i) and (a)(2)(ii), respectively, for each type
of education loan offered pursuant to the preferred lender arrangement.
Covered institutions and institution-affiliated organizations would be
required to provide this information to students attending the covered
institution, or the families of such students, as applicable. The
information would be provided annually and must be provided in a manner
that allows for the students or their families to take the information
into account before selecting a lender or applying for an education
loan.
Consistent with new section 487(h)(1)(A) of the HEA, proposed Sec.
601.10(d) would require that if a covered institution compiles,
maintains, and makes available a preferred lender list, the covered
institution clearly and fully disclose on the preferred lender list (a)
at least the information required to be disclosed under section
153(a)(2)(A) of the HEA; (b) why the institution participates in a
preferred lender arrangement with each lender on the preferred lender
list, particularly with respect to terms and conditions or provisions
favorable to the borrower; and (c) that the students attending the
institution, or the families of such students, do not have to borrow
from a lender on the preferred lender list.
Proposed Sec. 601.10(d)(2) would track the statutory requirement
reflected in section 487(h)(1)(B)(i) of the HEA, which requires the
covered institution to ensure, through the use of the list of lender
affiliates provided by the Secretary under section 487(h)(2) of the
HEA, that there are not less than three FFEL lenders that are not
affiliates of each other included on the preferred lender list and, if
the institution recommends, promotes, or endorses private education
loans, that there are not less than two lenders of private education
loans that are not affiliates of each other included on the preferred
lender list.
Proposed Sec. 601.10(d)(2) would incorporate the statutory
requirements in section 487(h)(1)(B)(ii) of the HEA that the preferred
lender list (a) specifically indicate, for each listed lender, whether
the lender is or is not an affiliate of another lender on the preferred
lender list, and (b) if a lender is an affiliate of another lender on
the preferred lender list, must describe the details of such
affiliation.
Proposed Sec. 601.10(d)(3) would incorporate the requirement in
section 487(h)(1)(C) of the HEA that requires the preferred lender list
to prominently disclose the method and criteria used by the institution
in selecting lenders with which to participate in preferred lender
arrangements to ensure that such lenders are selected on the basis of
the best interests of the borrowers.
Under proposed Sec. 601.10(d)(4) and consistent with section
487(h)(1)(D) of the HEA, covered institutions would be required to
exercise a duty of care and a duty of loyalty to compile the preferred
lender list without prejudice and for the sole benefit of the students
attending the institution, or the families of such students. Proposed
Sec. 601.10(d)(5) would incorporate the requirement from section
487(h)(1)(E) of the HEA that requires a covered institution to not deny
or otherwise impede the borrower's choice of a lender or cause
unnecessary delay in certification of a Title IV loan for those
borrowers who choose a lender that is not included on the preferred
lender list.
Reasons: Proposed Sec. 601.10 would be included in new part 601 in
order to implement the provisions relating to preferred lender
arrangement disclosures in new part E, title I of the HEA.
Some non-Federal negotiators expressed a concern regarding proposed
Sec. 601.10(a)(1)(iii), which would require a covered institution that
participates in a preferred lender arrangement to include a statement
on its Web site and other informational materials that the covered
institution is required to process loan documents from any eligible
FFEL Program lender. The non-Federal negotiators pointed out that a
Direct Loan school could have a preferred lender arrangement with a
private education lender (and, therefore, be covered by the
requirements in proposed Sec. 601.10), but that most Direct
[[Page 37439]]
Loan schools do not also participate in the FFEL program, and would not
be able to process FFEL loans.
The Department responded that the requirement in proposed Sec.
601.10(a)(1)(iii) is not applicable to Direct Loan-only schools, and
such schools would not be required to provide this statement on their
Web sites or other informational materials.
The non-Federal negotiators asked for clarification regarding the
information that a covered institution is required to provide on the
informational materials referenced in proposed Sec. 601.10(b)(1). The
informational materials are publications, mailings, or electronic
materials that the covered institution makes available to prospective
and current students and their families. The non-Federal negotiators
asked whether a brochure would be required to provide all of the
information specified in proposed Sec. 601.10(a), or whether the
brochure could provide a link to an institutional Web site with the
required information.
The non-Federal negotiators were particularly concerned about
``first touch'' information provided to prospective students, which is
intended to provide basic information regarding the institution, and
might briefly summarize financial aid opportunities at the school. The
non-Federal negotiators were concerned that including the detailed
student loan information required by proposed Sec. 601.10(a) in such
``first touch'' materials would be overwhelming to potential students.
The non-Federal negotiators also pointed out that information
provided in print publications can quickly become outdated, whereas
information provided on a Web site can be updated easily, on an as-
needed basis.
The Department responded that a link to a Web site that contains
information that meets the requirements in proposed Sec. 601.10(a)
would be sufficient for printed materials provided to potential
borrowers, as long as the printed materials provide the potential
borrower with information for a point of contact at the school where
the potential borrower can obtain the information in printed form.
Non-Federal negotiators expressed concerns about proposed Sec.
601.10(c)(2), which would require a covered institution to ``provide''
certain information to students in a manner that allows the students to
take that information into account before selecting a lender or
applying for an education loan. The non-Federal negotiators requested
the Department to change this requirement from ``provide'' to ``make
available.''
The Department declined to make this requested change. The purpose
of the requirement to provide the described information is to give
students current information on education loans available at the school
before the student selects a lender or applies for an education loan.
The term ``make available'' is more passive than the term ``provide.''
The Department expects schools to be more proactive in providing this
information to borrowers than the phrase ``make available'' implies.
However, the Department recognizes that, regardless of how proactive a
school may be, the school cannot guaranty that every student attending
the school will receive the information. A school that makes reasonable
efforts to give this information to its students at the appropriate
time in the award year would be in compliance with proposed Sec.
601.10(c)(2), even if not all students at the school actually receive
the information.
Non-Federal negotiators asked if the requirements for a preferred
lender list specified in proposed Sec. 601.10(d) would apply to a
neutral, comprehensive list of lenders who lent at the school, as
discussed earlier in the preamble discussion regarding proposed Sec.
601.2 (Definitions). The Department responded that a neutral,
comprehensive list of lenders that have provided loans to students at a
covered institution is not a preferred lender list under the HEA or
these proposed regulations. If the covered institution has not made a
judgment regarding which lenders to include on the list, it is not
using the list to identify the lenders it prefers its students to use.
A comprehensive, neutral list of lenders is not a preferred lender list
and is not covered by the requirements in proposed Sec. 601.10(c).
Private Education Loan Disclosures and Self-Certification Form (Sec.
601.11)
Statute: Section 152(a)(1)(B) of the HEA, which was added by
section 120 of the HEOA, requires a covered institution, or an
institution-affiliated organization, that provides information
regarding a private education loan from a lender to a prospective
borrower, regardless of whether the covered institution or institution-
affiliated organization participates in a preferred lender arrangement,
to provide the following disclosures:
The information required by section 128(e)(1) of the TILA.
Information on the availability of Title IV loans or other
assistance.
That the terms and conditions of Title IV loans or
assistance may be more beneficial than the terms and conditions of
private education loans.
Section 153(c)(1)(B) of the HEA, which also was added by section
120 of the HEOA, requires covered institutions and institution-
affiliated organizations to provide the information described in the
previous paragraphs in a manner that allows students or their families
to take that information into account before selecting a lender or
applying for an education loan.
Section 152(a)(1)(B)(iii) of the HEA specifies that the information
regarding private education loans must be presented in a manner that is
distinct from information regarding Title IV, HEA program loans.
Covered institutions or institution-affiliated organizations must
provide these disclosures whether or not they have a preferred lender
arrangement with the lender.
Section 155(a) of the HEA, as amended by section 1021(b) of the
HEOA, requires the Department, in consultation with the Board of
Governors of the Federal Reserve System, to develop a self-
certification form for private education loans. The form must be
provided to an applicant for a private education loan by an institution
of higher education at the request of the applicant. In addition, the
institution of higher education is required to provide to the applicant
the information needed to complete the form, if the institution of
higher education has that information. Under section 155(a)(4) of the
HEA, information required to complete the self-certification form
includes the applicant's cost of attendance at the institution, the
applicant's expected family contribution, and the applicant's estimated
financial assistance.
Current Regulations: None.
Proposed Regulations: Proposed Sec. 601.11(a) would provide that a
covered institution, or an institution-affiliated organization of a
covered institution, that provides information regarding a private
education loan from a lender to a prospective borrower must provide
private education loan disclosures to the prospective borrower. These
disclosures would need to be provided regardless of whether the covered
institution or institution-affiliated organization participates in a
preferred lender arrangement.
The private education loan disclosures required under proposed
Sec. 601.11(b)(1) and (b)(2) would need to provide the prospective
borrower with the information required under section 128(e)(1) of the
TILA; and would need
[[Page 37440]]
to inform the prospective borrower that he or she may qualify for loans
or other assistance under title IV of the HEA; and that the terms and
conditions of Title IV, HEA program loans may be more favorable than
the provisions of private education loans.
Under proposed Sec. 601.11(c), the covered institution or
institution-affiliated organization would need to ensure that
information regarding private education loans is presented in such a
manner as to be distinct from information regarding Title IV, HEA
program loans.
Proposed Sec. 601.11(d) would require that, upon an enrolled or
admitted student applicant's request for a private education loan self-
certification form, an institution must provide to the applicant, in
written or electronic form, the self-certification form for private
education loans developed by the Secretary to satisfy the requirements
of section 128(e)(3) of the TILA. The institution would also be
required to provide the information necessary to complete the form, if
the institution possesses that information.
Reasons: The Department would include proposed Sec. 601.11 in new
part 601 to implement the HEOA provisions relating to private education
loan disclosures and the self-certification form the Department is
required to develop pursuant to section 155(a) of the HEA.
Non-Federal negotiators questioned the value of requiring a school
to provide an applicant with the private education loan self-
certification form in cases where the applicant is applying for a
private education loan made by the covered institution. Non-Federal
negotiators asserted that in these cases the covered institution would
simply be providing the private education loan self-certification form
to itself.
In the Department's view, the purpose of the private education loan
self-certification form is to provide disclosure information to the
borrower, not to the lender. In cases where the covered institution is
also the lender, the Department believes that the borrower should still
receive and complete the private education loan self-certification form
before obtaining the institutional loan.
In addition, the TILA requires private education lenders to obtain
the completed private education loan self-certification form from a
borrower before it makes a private education loan. In that regard, the
Department advised the non-Federal negotiators that submitting public
comment on the Federal Reserve's TILA proposed regulations may be an
appropriate forum for addressing this issue.
Further discussion of the private education loan self-certification
form is provided under the program participation agreement section of
this preamble.
Use of Institution and Lender Name (Sec. 601.12)
Statute: Section 152(a)(2) of the HEA, added by section 120 of the
HEOA, prohibits a covered institution or an institution-affiliated
organization from allowing a lender with which it has a preferred
lender arrangement to use the name, emblem, mascot, logo, or other
identifiable symbol of the covered institution or institution-
affiliated organization to market private education loans to students.
Section 152(a)(3) of the HEA, added by section 120 of the HEOA,
requires a covered institution or an institution-affiliated
organization to ensure that the name of a lender with which it has a
preferred lender arrangement is displayed in all information and
documentation related to private education loans offered by the lender.
Current Regulations: None.
Proposed Regulations: Under proposed Sec. 601.12(a), a covered
institution, or an institution-affiliated organization of a covered
institution, that participates in a preferred lender arrangement
regarding private education loans would be prohibited from agreeing to
the lender's use of the name, emblem, mascot, or logo of the
institution or organization, or other words, pictures, or symbols
readily identified with the institution or organization, in the
marketing of private education loans to students attending the
institution in any way that implies that the loan is offered or made by
the institution or organization instead of the lender.
Proposed Sec. 601.12(b) also would require covered institutions or
institution-affiliated organizations that participate in preferred
lender arrangements regarding private education loans to ensure that
the name of the lender is displayed in all information and
documentation related to the private education loans.
Reasons: We propose to include proposed Sec. 601.12 in new part
601 to implement the provisions relating to the use of institution and
lender name in section 152 of the HEA.
During the negotiated rulemaking process, non-Federal negotiators
expressed concern about the use of the term ``ensure'' in proposed
Sec. 601.12(b). The non-Federal negotiators argued that covered
institutions have no direct control over lenders with which they have
preferred lender arrangements, particularly if there is no formal
agreement between the covered institution and the lender. Therefore,
argued the non-Federal negotiators, a covered institution cannot ensure
that the lender displays its name in all information and documentation
relating to the lender's private education loans.
The Department understands that a covered institution cannot
control a lender with which it has a preferred lender arrangement.
However, we believe that a covered institution does have leverage over
such lenders, and can use that leverage to require the lender to
display the lender's own name on information or documentation about
private education loans provided by the lender. If a lender refuses to
display its own name on private education loan marketing materials that
the lender provides to students at the covered institution, and the
covered institution cannot convince the lender to do so, the covered
institution always has the option to end the preferred lender
arrangement with the lender and remove the lender from its preferred
lender list.
Non-Federal negotiators asked whether a credit union that shares
its name with the name of a covered institution would be prohibited
under proposed Sec. 601.12(a) from using its own name in its marketing
materials regarding private education loans. The Department responded
that if the name of the covered institution is part of the name of the
credit union, the prohibition against allowing the lender to use the
institution's name would not apply. In these cases, the credit union is
using its own name, not the institution's name.
This interpretation is consistent with the Manager's Report for the
Higher Education Opportunity Act, which states that ``the Conferees
understand that some credit unions share the names of the institutions
of higher education whose communities they serve. Nothing in [section
140 of the TILA] is intended to prohibit a credit union whose name
includes the name of a covered educational institution from using its
own name in marketing its private education loans'' (Joint Explanatory
Statement of the Committee of Conference, p. 198).
Subpart C--Responsibilities of Covered Institutions and Institution-
Affiliated Organizations
Annual Report (Sec. 601.20)
Statute: Section 153(c)(2)(A)(i) of the HEA, added by section 120
of the HEOA, requires a covered institution
[[Page 37441]]
and an institution-affiliated organization that has a preferred lender
arrangement to submit to the Department of Education an annual report
that provides the information described in section 153(c)(1)(A)(i) and
(ii) of the HEA. This is the same information required under section
152(a)(1)(A)(i) and (a)(1)(A)(ii) of the HEA, and discussed earlier in
the preamble discussion for proposed subpart B of part 601.
Section 153(c)(2)(A)(ii) of the HEA, added by section 120 of the
HEOA, requires that the annual report include a detailed explanation of
why the covered institution or institution-affiliated organization
entered into a preferred lender arrangement with each lender. The
explanation must explain how the terms, conditions, and provisions of
each type of education loan provided pursuant to the preferred lender
arrangement are beneficial to students attending the covered
institution.
Section 153(c)(2)(B) of the HEA requires the covered institution
and institution-affiliated organization to ensure that the annual
report is made available to the public, and is provided to students
attending or planning to attend the covered institution.
Current Regulations: None.
Proposed Regulations: Proposed Sec. 601.20(a) would require a
covered institution and an institution-affiliated organization that
participates in a preferred lender arrangement to prepare and submit to
the Secretary an annual report, by a date determined by the Secretary.
The annual report would include, for each lender that participates in a
preferred lender arrangement with the covered institution or
organization, the information described in proposed Sec. 601.10(c);
and a detailed explanation of why the covered institution or
institution-affiliated organization participates in a preferred lender
arrangement with the lender. Under the proposed regulations, this
explanation would need to include an explanation of why the terms,
conditions, and provisions of each type of education loan provided
pursuant to the preferred lender arrangement are beneficial for
students attending the institution, or the families of such students,
as applicable.
Proposed Sec. 601.20(b) would require a covered institution or
institution-affiliated organization to ensure that the annual report is
made available to the public and provided to students attending or
planning to attend the covered institution and the families of such
students.
Reasons: Proposed Sec. 601.20 would implement the annual report
requirements governing covered institutions and institution-affiliated
organizations that have a preferred lender arrangement in section
153(c) of the HEA.
There was significant discussion among the negotiators regarding
the timing and content of the annual report required under 153(c)(2) of
the HEA. Non-Federal negotiators believed it would be reasonable for
the annual report to be due by July 1st each year. However, negotiators
decided that determining the due date for the annual report is an
operational issue, not a regulatory issue. For this reason, the
Department does not propose to specify a due date for the annual report
in the regulations.
The non-Federal negotiators also pointed out that in the course of
a year, lenders on a preferred lender list can change. Some lenders
might drop off the list, or new lenders might be added. The negotiators
agreed that the annual report would have most utility for the
Department and for potential borrowers if it identified the lenders on
the covered institution's preferred lender list at the time the report
is submitted to the Department, providing a snapshot of the lenders on
its preferred lender list at that time. The Department agreed that
covered institutions would not be required to update the annual report
during the year as lenders are added or dropped from the preferred
lender list. The Department believed that a yearly snapshot would
provide it with adequate information to monitor the preferred lender
activities of covered institutions.
Code of Conduct (Sec. 601.21)
Statute: Section 153(c)(3)(A) of the HEA, added by Section 120 of
the HEOA, requires a covered institution and an institution-affiliated
organization that has a preferred lender arrangement to comply with the
code of conduct requirements in section 487(a)(25)(A) through (C) of
the HEA.
Section 153(c)(3)(B) of the HEA requires an institution-affiliated
organization of a covered institution to comply with the code of
conduct developed and published by the covered institution; publish the
code of conduct prominently on its Web site, if it has one; and
administer and enforce the code of conduct. At a minimum, the
institution-affiliated organization must require that all of the
organization's agents with responsibilities with respect to education
loans are annually informed of the provisions of the code of conduct.
In accordance with section 487(e)(1) through (e)(7) of the HEA, as
amended by section 493(c) of the HEOA, the code of conduct must ban
revenue-sharing arrangements; gifts; consulting or other contracting
arrangements; directing borrowers to particular lenders or delaying
loan certification; offers of funds for private loans, including
opportunity pool loans; staffing assistance; and advisory board
compensation, as these terms are defined and further explained in
section 487(e) of the HEA.
Current Regulations: None.
Proposed Regulations: A covered institution that participates in a
preferred lender arrangement would be required to comply with the code
of conduct requirements described in proposed Sec. 601.21. Under this
section, the covered institution would be required to develop a code of
conduct with respect to FFEL Program loans and private education loans
with which the institution's agents must comply.
Proposed Sec. 601.21(a)(2)(i) would require the code of conduct to
prohibit a conflict of interest with the responsibilities of an agent
of an institution with respect to FFEL Program loans and private
education loans and, at a minimum, include the provisions specified in
the following paragraphs. Under proposed Sec. 601.21(a)(2)(ii) and
(iii), the institution would be required to publish the code of conduct
prominently on the institution's Web site and administer and enforce
the code by, at a minimum, requiring that all of the institution's
agents with responsibilities with respect to FFEL Program loans or
private education loans be annually informed of the provisions of the
code of conduct.
Proposed Sec. 601.21(b)(1) and (b)(2) would require any
institution-affiliated organization of a covered institution that
participates in a preferred lender arrangement to comply with the code
of conduct developed and published by the covered institution and, if
the institution-affiliated organization has a Web site, publish the
code of conduct prominently on the Web site.
Under proposed Sec. 601.21(b)(3), the institution-affiliated
organization would be required to administer and enforce the code of
conduct by, at a minimum, requiring that all of the institution-
affiliated organization's agents with responsibilities with respect to
FFEL Program loans or private education loans be annually informed of
the provisions of the code of conduct.
Proposed Sec. 601.21(c) would prescribe the minimum requirements
of a covered institution's code of conduct. Under this section, an
institution's code of conduct would be required to prohibit--
[[Page 37442]]
Revenue-sharing arrangements with any lender;
Soliciting or accepting gifts from a lender, guarantor, or
servicer;
Accepting any fee, payment, or other financial benefit as
compensation for any type of consulting or any contractual relationship
with a lender;
Assigning a first-time borrower's loan to a particular
lender or refusing to certify, or delaying certification of, any loan
based on a borrower's selection of a particular lender;
Requesting offers of funds for private education loans,
including opportunity pool loans, from a lender in exchange for
providing the lender with a specified number or loan volume of FFEL
Program loans or private education loans or a preferred lender
arrangement;
Requesting or accepting staffing assistance from a lender;
and
Receipt of compensation for serving on an advisory board,
commission, or group established by a lender, guarantor, or group of
lenders or guarantors.
Proposed Sec. 601.21(c)(6) would incorporate language from section
487(e)(6) of the HEA and set forth exceptions to the ban on staffing
assistance, such as staffing assistance related to professional
development or training; providing educational counseling materials, or
short-term, nonrecurring staffing assistance during disasters or
emergencies.
In addition, the proposed regulations would include the statutory
definitions provided for the terms revenue-sharing arrangement, gift,
and opportunity pool loan.
Proposed Sec. 601.21(c)(1) would incorporate the definition of the
term revenue-sharing arrangement from section 487(e)(1)(B)of the HEA:
An arrangement between a covered institution and FFEL lender or a
private education loan lender in which the lender pays a fee or
provides material benefits in exchange for the covered institution
recommending the lender or its loan products to students attending the
institution or to the families of such students.
Proposed Sec. 601.21(c)(2)(ii) would incorporate the definition of
the term gift from section 487(e)(2)(B)of the HEA: As any gratuity,
favor, discount, entertainment, hospitality, loan or other item with a
monetary value of more than a de minimus amount, including gifts of
services, transportation, lodging or meals. Proposed Sec.
601.21(c)(2)(iii)(A) through (F) would identify the items of monetary
value that are excluded from the definition of gift.
Proposed Sec. 601.21(c)(5)(ii) would incorporate the definition of
the term opportunity pool loan from section 487(e)(5)(B)of the HEA: As
a private education loan made by a lender to a student, or a family
member of a student, attending the institution that involves a payment,
directly or indirectly, by the institution of points, premiums,
additional interest, or financial support to the lender for the purpose
of the lender extending credit to the student or the student's family.
Reasons: Proposed Sec. 601.21(c) would be included in new part 601
to implement the code of conduct provisions added to section 487(e) of
the HEA.
Numerous questions and concerns relating to the code of conduct
were discussed during the negotiated rulemaking sessions. For example,
non-Federal negotiators asked if the prohibition against revenue-
sharing arrangements would apply to a servicer collecting student loans
on behalf a school. The Department responded that this is a standard
service provided by loan servicers, and that it does not view this
service as a revenue-sharing arrangement that is prohibited under
section 487(e)(1) of the HEA.
Non-Federal negotiators pointed out that, in some cases, if a
borrower selects a lender that the covered institution does not
normally do business with, there could be delays in processing the
borrower's student loans due to compatibility issues with the computer
programs used by the lender and covered institution. These delays would
not be due to the school deliberately attempting to impede the
borrower's choice of lender, but simply due to processing complications
that may occur when a school is working with an unfamiliar lender. The
Department agrees that processing delays may occur if a borrower
selects a lender with which the school is unaccustomed to doing
business. We expect the covered institution to do everything it can to
minimize such delays, but it is the Department's view that reasonable
delays in situations such as these would not be considered to be a
violation of the code of conduct. That said, the Department also points
out that the requirement in the code of conduct refers to certifying a
loan, not other aspects of processing a loan. Because certification of
a loan is an internal school process, we do not believe that choice of
a lender would normally affect a school's ability to certify a loan in
a timely manner.
Non-Federal negotiators asked about proposed Sec.
601.21(c)(4)(ii), which states that a borrower may choose a particular
lender or guaranty agency. The non-Federal negotiators asked about the
reference to guaranty agencies, pointing out that the guaranty agency
that guarantees a borrower's loan depends on the borrower's choice of
lender. They argued that this provision does not make sense because a
borrower does not have the ability to select from among different
guaranty agencies, except to the extent that a borrower does have the
ability to select from among different lenders. The Department
clarified that guaranty agencies are included in this proposed
provision because they can serve as lenders-of-last-resort. When a
borrower is using a guaranty agency as a lender-of-last-resort, the
borrower can choose among different guaranty agencies.
Non-Federal negotiators asked about proposed Sec.
601.21(c)(2)(iii)(C), which would exclude from the definition of the
term gift, favorable terms, conditions, and borrower benefits on a loan
provided to students employed at a covered institution, if the terms,
conditions, or benefits are comparable to those provided to all
students at the institution. The non-Federal negotiators asked the
Department to clarify whether the reference to ``all students'' at the
institution meant the general student population, or if it meant other
similarly situated students. The intent of proposed Sec.
601.21(c)(2)(iii)(C) is to allow student employees of a covered
institution's financial aid office to receive favorable terms,
conditions, or benefits on a student loan, as long as those favorable
terms, conditions, and benefits are comparable to the benefits other
students at the school receive. In recognition of the fact that a
lender may offer favorable terms, conditions and borrower benefits to
certain types of students at an institution--such as students at a
particular grade level or in a particular program of study--we believe
that it would be acceptable for a school to use benefits offered to
similarly situated students as a benchmark, rather than benefits
available to all students at the institution.
Non-Federal negotiators asked if recourse loans qualify as
opportunity pool loans, as defined in proposed Sec. 0601.21(c)(5)(ii).
Recourse loan arrangements are arrangements between schools and
lenders, in which the school provides funds to a lender to offset the
risk of the lender providing loans to students at the school who have a
high risk of default. As discussed earlier in this preamble, an
opportunity pool loan is defined in section 487(e)(5)(B) of the HEA as
a private education loan that involves a payment,
[[Page 37443]]
either directly or indirectly, from an institution to the lender for
the purpose of the lender offering a loan to a borrower at the school.
Because the Department sees no real distinction between the meaning of
the terms opportunity pool loan and recourse loan, we believe that
recourse loans would be covered by the requirements in proposed Sec.
601.21(c)(5)(i). However, the Department notes that proposed Sec.
601.21(c)(5)(i) would not prohibit opportunity pool loans or recourse
loans in all cases. It would only prohibit such loans if the funds for
the opportunity pool loan or recourse loan are provided in exchange for
concessions or promises regarding providing the lender with a specified
number or loan volume of FFEL or private education loans, or a
preferred lender arrangement for FFEL or private education loans.
Consistent with section 487(e)(7) of the HEA, proposed Sec.
601.21(c)(7) would prohibit compensation from a lender, guarantor, or
group of lenders or guarantors for service on an advisory board
established by such group. This provision would, however, allow for
reimbursement for reasonable expenses incurred for serving on such an
advisory board. The non-Federal negotiators asked that we clarify the
meaning of the term reasonable expenses for this purpose. We agreed
that such clarification would be useful, and added a cross-reference to
Sec. 668.16(d)(2)(ii) in proposed Sec. 601.21(c)(7). For further
discussion of this topic, see the preamble discussion under ``Standards
of administrative capability.''
Non-Federal negotiators asked if the code of conduct covers
employees of a covered institution who work on the back end of the
student loan process, such as employees who work on default prevention
with lenders. In general, it is the view of the Department that the
code of conduct regulations apply to agents of a covered institution
who are employed in the financial aid office of a covered institution,
or who otherwise have responsibilities with respect to FFEL program
loans or private education loans. Nothing in the HEA, as amended by the
HEOA or these proposed regulations would exempt agents of a covered
institution who are involved in the back end of the student loan
process. We believe that employees working at this stage of the process
have responsibilities with regard to student loans and, therefore, are
covered by the code of conduct.
Non-Federal negotiators noted that the term agent is defined as an
officer or an employee in section 151(1) of the HEA (and proposed Sec.
601.2(b)) and asked whether there is a distinction between the meaning
of agents of a covered institution and officers or employees of a
covered institution.
The Department agreed that, when coupled with the terms ``officer''
and ``employee'', the term agent is redundant. The Department also
agreed that use of all three terms in the code of conduct section of
the regulations could potentially be confusing, given that use of all
three terms implies that the term agent is intended to include
individuals who are not officers or employees of a covered institution,
but have some other connection to the covered institution. To avoid
this confusion, the Department agreed to remove the terms ``officer''
and ``employee'' from those sections of the code of conduct regulations
where the term agent is sufficient.
Further discussion of the code of conduct requirements is provided
in the program participation agreement section of this preamble.
Duties of Institutions Participating in the William D. Ford Direct Loan
Program (Sec. 601.30)
Statute: Section 154(a) of the HEA, as amended by section 120 of
the HEOA, requires a school participating in the William D. Ford Direct
Loan Program (Direct Loan Program) to provide the information on a
Direct Loan model disclosure form developed by the Department to
students attending or planning to attend the school, or to their
families. If the Direct Loan school provides information regarding a
private education loan to a prospective borrower, it must provide the
information from the Direct Loan model disclosure form at the same
time.
The Direct Loan school may use the Direct Loan model disclosure
form for this purpose, or may use a comparable form designed by the
school.
Current Regulations: None.
Proposed Regulations: Under proposed Sec. 601.30(a), a covered
institution participating in the Direct Loan Program would be required
to make the information identified in a model disclosure form developed
by the Secretary available to students attending or planning to attend
the institution, or the families of such students. If the institution
provides information regarding a private education loan to a
prospective borrower, the institution would concurrently provide the
borrower with the information identified on the model disclosure form.
Proposed Sec. 601.30(b) would allow a covered institution to use a
comparable form designed by the institution to provide this
information, instead of the model disclosure form.
Reasons: We would include proposed Sec. 601.30(b) in new part 601
to implement the requirements in section 154(a) of the HEA.
Subpart E--Lender Responsibilities
Statute: Section 152 of the HEA requires lenders to disclose
certain information to borrowers of a FFEL or Federal Direct Loan.
These disclosures include the information described in section 433(a)
and (c) of the HEA. In addition, for each lender's private education
loans, the lender must comply with the disclosure requirements of
section 128(e) of the TILA.
Section 152 of the HEA also requires lenders to report certain
information about its FFEL Program preferred lender arrangements to the
Secretary. This report must include information about expenses paid or
provided by the lender to any agent of a covered institution employed
in the financial aid office of that institution or who otherwise has
responsibility with respect to education loan or other financial aid of
the institution for service by that employee on an advisory board,
commission or group established by a lender or group of lenders. The
lender must also report this information for expenses paid or provided
to any agent of an institution-affiliated organization involved in
recommending, promoting or endorsing education loans.
Section 153 of the HEA also requires FFEL lenders that participate
in one or more preferred lender arrangements, to certify annually to
the Secretary, that they are in compliance with the requirements of the
HEA. If the lender submits an audit under section 428(b)(1)(U)(iii) of
the HEA, the auditor may provide this certification as part of that
audit. If the lender is not required to submit an audit, it must
provide the certification separately.
Section 153 of the HEA requires lenders to provide an annual report
to covered institutions or a covered institution's affiliated
organization and to the Secretary, disclosing certain information about
its loans. The Secretary, in consultation with the Federal Reserve will
determine the information to be disclosed. The information will have to
address each type of FFEL loan the lender plans to offer pursuant to
the preferred lender arrangement to the students or families of
students attending that institution for the next award year.
Current Regulations: None.
Proposed Regulations: Proposed Sec. 601.40(a) would require FFEL
lenders to provide FFEL borrowers the disclosures required under
current
[[Page 37444]]
Sec. 682.205(a) and (b). Proposed Sec. 601.40(a) would require that a
lender offering private education loans comply with the disclosures
required under section 128(e) of TILA for each type of private loan.
Proposed Sec. 601.40(b) would set forth the information the
lenders will have to provide to the Secretary on an annual basis
regarding any reasonable expenses paid or provided to any agent of a
covered institution who is employed in the financial aid office or has
responsibilities with respect to education loans or other financial aid
of the institution for service by the employee on an advisory board,
commission or group established by a lender or a group of lenders.
Under proposed Sec. 601.40(b), lenders would be required to report
this information for expenses paid or provided to any agent of an
institution-affiliated organization involved in recommending, promoting
or endorsing education loans. Lenders would be required to report the
amount of the expenses paid and the specific instances for which it was
paid; the names of the agent to whom expenses were paid; and the date
and description of each activity for which expenses were paid.
Proposed Sec. 601.40(c) would also require the lender to submit a
certification of compliance to the Secretary.
Proposed Sec. 601.40(c) would require any FFEL lender
participating in one or more preferred lender arrangements to annually
certify to the Secretary its compliance with the HEA. Under this
proposed provision, lenders required to file an audit under Sec.
682.305(c) would need to include the certification as part of the audit
and lenders that are not required to submit an audit would be required
to provide the certification separately.
Proposed Sec. 601.40(d) would require FFEL lenders with a
preferred lender arrangement with a covered institution or an
institution-affiliated organization to annually provide to the
institution, institution-affiliated organization, and the Secretary
information regarding the FFEL loans the lender will provide to
students and families pursuant to the preferred lender arrangement for
the next award year. The information that would be provided will be
prescribed by the Secretary, after consultation with the Federal
Reserve, pursuant to section 153(a)(2)(A)(i) of the HEA.
Reasons: These regulations are provided to implement statutory
requirements.
During the negotiations, some negotiators raised a question as to
the lender certification requirements proposed as part of Sec. 601.40.
In particular, a negotiator asked the Department to clarify the
application of the certification requirements to holders of FFEL
Program loans who make private education loans. The Department
explained that the certification requirements apply to any lender who
holds FFEL loans and has a preferred lender arrangement that relates to
FFEL loans or to private education loans. A lender who holds FFEL
Program loans and has a preferred lender arrangement relating to
private education loans has to provide the required certifications even
if the lender is not actively making new FFEL loans and does not have a
preferred lender arrangement for FFEL loans.
Under section 152(b)(2) of the HEA, a FFEL loan holder that has a
preferred lender arrangement for FFEL or private education loans has to
annually certify that it is in compliance with the HEA, whether or not
the lender is actively making FFEL Program loans. A lender that is
required to have an independent financial and compliance audit can
provide the certification through that process. The HEA requires a
lender to provide two specific certifications about its private
education loans: (1) A certification that it is in compliance with the
disclosure requirements under section 128(e) of the Truth in Lending
Act (reflected in section 152(b)(1)(A)(ii) of the HEA); and (2) that it
has provided the required annual report to the Secretary on any
reasonable expenses paid or provided to any agent of a covered
institution who is employed in the institution's financial aid office
or who otherwise has responsibilities with respect to education loans
or other financial aid of the institution and any similar expenses paid
or provided to any agent of an institution-affiliated organization who
is involved in the practice of recommending, promoting or endorsing
education loans (see section 152(b)(1)(B) of the HEA). The specific
requirements for these certifications will be addressed in audit guides
issued by the Department.
Program Participation Agreement (Sec. 668.14)
Statute: Section 493(e) of the HEOA amended section 487(a)(25) of
the HEA by adding to the program participation agreement (PPA)
requirements a requirement that an institution participating in a Title
IV loan program develop, publish, administer, and enforce a code of
conduct that prohibits a conflict of interest with the responsibilities
of an officer, employee or agent of the institution with respect to any
Title IV loan and that contains, at a minimum, the provisions described
in section 487(e) of the HEA. Under section 487(a)(25)(B) and (C), the
institution must publish the code of conduct prominently on its Web
site and annually inform its officers, employees, and agents with
responsibilities for loans made, insured, or guaranteed under Title IV
loan programs of the provisions of the code of conduct.
Current Regulations: The Department's current regulations governing
PPA requirements appear in Sec. 668.14.
Proposed Regulations: Consistent with section 487(a)(25) of the
HEA, we propose to amend Sec. 668.14 (Program participation agreement)
by adding a new paragraph (b)(27) that would reflect the requirement
that institutions agree, as part of their PPA, to develop, publish,
administer, and enforce a code of conduct with respect to loans made,
insured, or guaranteed under Title IV loan programs.
Reason: We propose to add paragraph (b)(27) to Sec. 668.14 in
order to implement the new statutory requirement in section 487(a)(25)
of the HEA.
Statute: Section 493(a)(1)(A) of the HEOA amended section
487(a)(28)(A) of the HEA by adding to the PPA requirements a
requirement that an institution will, at the request of an applicant
for a private education loan, provide the applicant with the self-
certification form required under section 128(e)(3) of the TILA (15
U.S.C. 1638(e)(3)). This section also requires the institution to
provide the applicant with the specific information needed to complete
the form, to the extent that the institution possesses the information.
Section 487(a)(28)(B) of the HEA states that the term ``private
education loan'' has the meaning given to the term in section 140(a)(7)
of the TILA. That statute defines ``private education loan'' as a loan
provided by a private educational lender that is not made, insured, or
guaranteed under Title IV of the HEA and is issued expressly for
postsecondary educational expenses to a borrower. It does not include
an extension of credit under an open end consumer credit plan, a
reverse mortgage transaction, a residential mortgage transaction, or
any other loan secured by real property or a dwelling.
Under section 155(a)(4) of the HEA, the information to be supplied
to the applicant by the institution (if available) includes cost of
attendance and resource information regarding the applicant.
Current Regulations: The Department's current regulations governing
PPA requirements appear in Sec. 668.14.
[[Page 37445]]
Proposed Regulations: Proposed Sec. 668.14(b)(29) would
incorporate the requirement for an institution participating in the
Title IV, HEA programs to agree as part of its PPA to provide, upon
request, an enrolled or admitted applicant for a private education loan
with the self-certification form and the information to complete it, to
the extent the institution possesses that information.
In addition, proposed Sec. 668.14(b)(29)(ii) would require the
institution, at the request of the applicant for a private education
loan, to discuss with the applicant the Federal, State, and
institutional student aid that may be available.
Reasons: This section implements the new statutory requirement in
section 487(a)(25) of the HEA that an institution provide a private
education loan applicant with a self-certification form, and the
information required to complete the form to the extent the institution
possesses such information, in order to participate in the Title IV,
HEA programs.
The non-Federal negotiators engaged in considerable discussion
about the information items to be supplied to the applicant for a
private education loan. Negotiators were concerned about several
aspects, including how an institution should provide the information to
an applicant, how an applicant might use the information provided by
the institution, and how the institution could ensure that an applicant
would complete the self-certification form accurately using the
information the institution supplies. In addition, non-Federal
negotiators were concerned about whether the self-certification
information would need to be updated if the institution received
additional information after initially providing the self-certification
information to the applicant.
The Department explained during negotiations that it is bound by
the specific items and processes required in the HEA. We believe that
the intent of the self-certification form is to prevent over-borrowing
and provide for a more educated private education loan consumer by
ensuring the provision of disclosures, through the institution,
regarding the availability of Federal student aid, information on the
cost of attendance, expected family contribution and the applicant's
estimated financial assistance so that the applicant will be aware of
the amount that must be borrowed to cover any gaps before consummating
a private education loan. New section 487(a)(28) of the HEA requires
that the institution provide the form and the required information to
the applicant. As we discussed during negotiations, an institution may
post the self-certification form on its Web site for the applicant to
download or it may provide the self-certification form directly through
its financial aid or other designated office. While the Department
believes that contact between the institution and the applicant is an
essential component of this process, once the form and information has
been disseminated to the applicant, nothing in the HEA or the proposed
regulations require institutions to track the status of private
education loans. A non-Federal negotiator asked whether updates to the
information provided to the applicant would be needed if the applicant
subsequently filed or updated an application. The Department responded
that when an institution is asked for the self-certification form and
the required information, it should supply the form and information
available to the institution at that time. There is no requirement to
update it.
In response to concerns about the potential for fraudulent use of
the self-certification form, the negotiating committee agreed to
specify in the proposed regulations that the required self-
certification form and information that must be provided to an
applicant for a private education loan must be provided only to an
applicant who is ``enrolled or admitted'' to the institution rather
than to any student who requests the information. The non-Federal
negotiators believed that this modification would minimize the
possibility that a student who is not enrolled or admitted to the
institution may request the form and the requisite information--which,
if the student has not completed a Free Application for Federal Student
Aid (FAFSA), may be limited to the cost of attendance only--and receive
a private education loan for which the student is not eligible.
The committee also agreed to add a provision to the proposed
regulations requiring an institution to discuss the availability of
Federal, State, and institutional aid with the applicant, at the
request of the applicant. The addition of this requirement (reflected
in proposed Sec. 668.14(b)(29)(ii)) addressed the concerns of several
non-Federal negotiators who wanted to assure that an applicant for a
private education loan could receive as much information as possible
regarding available aid options.
The Department agrees that it is important to call attention to the
availability of other more favorable types of aid and believes that the
addition of the requirement in Sec. 668.14(b)(29)(ii) will support
this purpose. A request by the applicant for a private education loan
will initiate the discussion about other aid options, permit the
financial aid administrator to counsel the applicant about such
options, and offer the applicant the opportunity to ask any questions
he or she may have about the aid options or how to apply for the aid.
Statute: The HEOA amended section 487(h) of the HEA by adding a new
paragraph (27) to require any institution that enters into a preferred
lender arrangement to agree, as a condition of program participation
under the PPA, to compile, maintain, and make available to students and
their families a list of the specific lenders for loans made under a
Title IV program and for private education loans the institution
recommends or promotes in accordance with its lender arrangement. New
section 487(h)(27) of the HEA also requires that the institution must,
at least annually, compile and make the list available in print or
other medium.
Current Regulations: While current Sec. 668.14(b) does not include
any information related to preferred lender arrangements, current Sec.
682.212(h) contains, consistent with our authority under sections
432(m)(1)(B)(ii) and 479A(c) of the HEA, the Department's restrictions
on the development and content of a preferred lender list.
Proposed Regulations: Proposed Sec. 668.14(b)(28) would add the
requirements reflected in section 487(h)(27) of the HEA to the
Department's regulations governing the PPA requirements. In conjunction
with this proposed addition, we also propose to amend Sec. 682.212(h)
to remove information about the preferred lender list restrictions and
instead provide a cross-reference to the requirements in proposed Sec.
602.10. We propose to include the preferred lender list requirements in
new Sec. 602.10, rather than part 682, because, under section
152(a)(1)(A) of the HEA, as amended by the HEOA, all covered
institutions (as defined in section 151(2) of the HEA) that have
preferred lender arrangements must comply with these requirements. Part
682 only covers the FFEL program.
Reasons: Proposed Sec. 668.14(b)(28) would implement the new
statutory requirements any institution that has established a preferred
lender arrangement must meet in order to participate in the Title IV,
HEA programs. Please refer to the preamble discussions regarding
proposed Sec. Sec. 601.2 and 601.10 for more information on the
definition of a preferred lender arrangement and the requirements
[[Page 37446]]
associated with such an arrangement and preferred lender lists.
Standards of Administrative Capability (Sec. 668.16)
Statute: The HEOA amended section 485(m) of the HEA by adding a
requirement that an institution participating in any Title IV program
must report annually to the Secretary, any reasonable reimbursements
paid or provided by a private educational lender or group of such
lenders for service on an advisory board, commission, or group
established by such lenders.
Under section 485(m) of the HEA, the reports must include, among
other items, the amount for each specific instance of reasonable
expenses paid or provided and a brief description of the activity for
which the expenses were paid or provided.
Current Regulations: None.
Proposed Regulations: We propose to amend Sec. 668.16 (Standards
of administrative capability) to incorporate the requirement from
section 485(m) of the HEA that institutions participating in the Title
IV, HEA Program report annually to the Secretary any reasonable
expenses paid or provided to any employee of the financial aid office,
or any employee who otherwise has responsibilities with respect to
education loans or other financial aid at the institution, for service
on an advisory board, commission, or group established by a private
educational lender or group of lenders. Consistent with section
485(m)(1)(A) through (D) of the HEA, the information to be reported
pursuant to proposed Sec. 668.16(d)(2)(i) would consist of: (1) The
amount for each specific instance of reasonable expenses paid or
provided; (2) The name of the individual to whom the expenses were paid
or provided; (3) The dates of the activity for which the expenses were
paid or provided; and (4) A brief description of the activity for which
the expenses were paid or provided.
Under proposed Sec. 668.16(d)(2)(ii), expenses would be considered
``reasonable'' if the expenses meet the standards of and are paid in
accordance with an applicable State government reimbursement policy or,
if no applicable State policy exists, in accordance with applicable
Federal cost principles. In addition, for purposes of determining
whether expenses are ``reasonable'' under this provision, the
applicable policy would need to be consistently applied to an
institution's employees being reimbursed.
Reasons: Proposed Sec. 668.16(d)(2)(i) would implement the changes
made to section 485(m) of the HEA by the HEOA. We propose to include
the requirements from section 485(m) of the HEA in current Sec.
668.16, because this section identifies standards of administrative
capability applicable to all institutions that participate in any Title
IV program and includes similar requirements not specified in the PPA.
Proposed Sec. 668.16(d)(2)(ii) would clarify how to determine
whether expenses are ``reasonable expenses'' under section 485(m) of
the HEA and proposed Sec. 668.16(d)(2)(i). Many negotiators asked for
clarification about what constitutes a ``reasonable'' expense. While
the Department declined to define the term ``reasonable,'' the
Department developed language loosely modeled after the language
included in Sec. 682.418(b)(10). The language reflected in proposed
Sec. 668.16(d)(2)(ii) describes reasonable expenses as those paid in
accordance with an applicable State government reimbursement policy or
with applicable Federal cost principles. Federal cost principles would
include those contained in the Office of Management and Budget (OMB)
circulars A-21 and A-122.
We propose to tie ``reasonable expenses'' to State policies or the
applicable Federal cost principles because we envision that a public
institution generally would use the State government reimbursement
policy of the State in which the institution is located and that a
private institution generally would use the applicable Federal cost
principles contained in either OMB Circular A-21 or Circular A-122.
In addition, we understand that there may be circumstances under
which a private institution receives funding from a State and may
therefore use the State government reimbursement policy. In such cases,
private schools may choose whether to use a State policy or the Federal
cost principles. Proposed Sec. 668.16(d)(2)(ii) would not specify
which policy or principles must be used, but rather would provide
institutions with some flexibility as long as the policy or principle
is consistently applied to an institution's employees.
The non-Federal negotiators also had concerns regarding how an
institution is to determine the correct amount to report for each
expense. The Department believes that an institution can rely on
information provided by a third party (in this case, the lender or
lenders) in reporting the amount of reasonable expenses.
Lastly, non-Federal negotiators requested clarification on whether
an annual report must be filed with the Secretary if no employee has
received reimbursements. After the required form is developed, the
Department will provide clarification on this issue through the Federal
Register notice that announces and describes the reporting process.
Financial Assistance Information (Sec. 668.42)
Statute: The HEOA amended section 485(a)(1)(M) of the HEA by adding
a requirement that institutions that participate in the Title IV
programs describe--for prospective and enrolled students--the terms and
conditions of the loans students receive under the FFEL, Direct Loan
and Perkins Loan programs.
The HEOA removed from section 485(a)(1)(M) of the HEA the
requirement that institutions provide information about the terms and
conditions under which FFEL and Perkins Loans could be deferred or
partially cancelled for service under the Peace Corps Act or the
Domestic Volunteer Service Act.
Current Regulations: Current Sec. 668.42(a)(1) requires that an
institution provide a description of all student financial assistance
programs to prospective and enrolled students.
For students receiving financial assistance, current Sec.
668.42(c)(4) requires an institution to provide specific information
about any loan received by the student as part of the aid package.
Proposed Regulations: Proposed Sec. 668.42(a)(4) would require
institutions to describe for prospective and enrolled students the
terms and conditions of loans students receive under the FFEL, Direct
Loan, and Perkins Loan programs in addition to a general description of
the programs.
The proposed regulations also would remove the requirement,
reflected in current Sec. 668.42(c)(7), to describe the terms and
conditions under which FFEL and Perkins Loans could be deferred for
service under the Peace Corps Act or the Domestic Volunteer Service
Act.
Reason: We propose to amend Sec. 668.42 to incorporate the
expanded information dissemination requirement for prospective and
enrolled students reflected in the new statutory language and to remove
the description of the Peace Corps Act and Domestic Volunteer Service
Act deferments and partial cancellations in accordance with changes
made to section 485(a)(1)(M) of the HEA by the HEOA.
[[Page 37447]]
Cohort Default Rates
Three-Year Cohort Default Rate (Sec. Sec. 668.200 Through 668.217)
Statute: The HEOA amended section 435(m) of the HEA by increasing
the period used to calculate the cohort default rate from two to three
years. Under the new three-year method, the cohort default rate is the
percentage of borrowers who default on their FFEL or Direct Loans
before the end of the second fiscal year (instead of the first fiscal
year) following the fiscal year in which the borrowers entered
repayment. The three-year method is effective for cohort default rates
calculated for fiscal year 2009 and subsequent years. However, section
436(e)(2) of the HEA provides for a transition period during which
sanctions will continue to be imposed based on the two-year cohort
default rates until rates based on the three-year method are calculated
for three consecutive years.
Current Regulations: Current Sec. 668.183 under subpart M of part
668 provides for a two-year cohort default rate. The two-year rate is
the percentage of borrowers who default on their loans by the end of
the fiscal year following the year those borrowers entered repayment.
Proposed Regulations: We propose to add a new subpart N to part 668
to provide for regulations for calculating the three-year cohort
default rate. Proposed Sec. 668.202 would describe the four steps that
the Department follows to calculate and apply the three-year cohort
default rate for a fiscal year. With regard to the transition period,
proposed Sec. Sec. 668.181 and 668.200(b) would specify that the
Department will issue annually two sets of draft and official cohort
default rates for fiscal years 2009, 2010, and 2011. For each of these
years, an institution would receive one set of draft and official rates
under proposed subpart N and another set under subpart M, and could
take administrative appeals as outlined in those subparts from the two-
year rates, the three-year rates, or both. For consistency with the
HEOA's transition provision, proposed Sec. 668.206(a)(1) would specify
that institutions would not lose eligibility based on one three-year
rate of 40 percent or higher until the Department's issuance of
official three-year rates for the fiscal year 2011 cohort (i.e., in
2014).
Reasons: Proposed subpart N would include the three-year
calculation as well as all of the statutory and regulatory changes
relating to the three-year default rates. In most other respects, the
provisions in proposed subpart N would parallel the two-year provisions
in current subpart M. We believe that having two subparts for the two
cohort default rates provides the best solution for dealing with the
transition period during which some provisions from both subparts would
apply. After the transition period, an institution would rely solely on
the provisions in subpart N because the Department would no longer be
calculating or issuing two-year cohort default rates.
Institutional Eligibility and Appeals (Sec. 668.16(m))
Statute: For three-year cohort default rates, issued beginning in
fiscal year 2012 with the three-year rate for fiscal year 2009, section
435(a)(2)(B) of the HEA imposes a threshold default rate of 30 percent
(an increase from the 25 percent rate applicable to the two-year
default rates under the transition provision in section 436(e)(2) of
the HEOA). Under section 435(a)(2)(B) of the HEA, an institution may
lose its eligibility to participate in the Pell Grant, FFEL, and Direct
Loan programs if its three-year default rate is equal to or greater
than 30 percent for three consecutive years. However, section 435(a)(3)
of the HEA allows an institution whose three-year default rate is 30
percent or more for two consecutive years to file an appeal
demonstrating exceptional mitigating circumstances as described in
section 435(a)(5) of the HEA (this appeal is referred to as the
``economically disadvantaged'' appeal in the regulations). The
institution must file the appeal no later than 30 days after it
receives a notice from the Department regarding its second successive
three-year default rate that exceeds the 30 percent threshold. If the
Department determines that the institution satisfies the requirements
specified for the appeal, the Department will not place the institution
on provisional certification based solely on its default rate.
In addition, the HEOA increased the participation rate index, as
reflected in section 435(a)(8) of the HEA, from 0.0375 to 0.0625. Under
this section, an institution may avoid sanctions based on three
consecutive years of three-year default rates that are 30 percent or
higher if its participation rate index for any of the three years is
equal to or lower than 0.0625.
Current Regulations: Under current Sec. Sec. 668.16(m) and
668.187, an institution is subject to loss of eligibility if its three
most recent cohort default rates are 25 percent but less than 40
percent, or if its most recent cohort default rate is 40 percent or
more, and it is subject to provisional certification if any of its
three most recent two-year cohort default rates are 25 percent or more.
The threshold for a participation rate index appeal under current Sec.
668.195(a)(2) is 0.0375.
Proposed Regulations: Proposed Sec. 668.16(m)(1)(ii) would apply
the current rules for administrative capability based on two-year
cohort default rates during the transition period. Thereafter, a school
would be administratively capable if two of its three most recent
three-year rates are less than 30 percent. Under proposed Sec.
668.16(m)(2), the current rules for provisional certification based on
two-year cohort default rates of 25 percent or more but less than 40
percent would continue to apply during the transition period.
Thereafter, an institution whose three-year default rates are 30
percent or more, but less than 40 percent, for two years would not be
provisionally certified based solely on its default rates under the
following circumstances:
(1) The institution files timely a request for adjustment or appeal
from the second such rate under proposed Sec. Sec. 668.209
(Uncorrected data adjustments), 668.210 (New data adjustments), or
668.212 (Loan servicing appeals) and the request or appeal is pending
or succeeds in reducing the institution's three-year rate below 30
percent.
(2) The institution files timely an appeal under proposed Sec.
668.213 (Economically disadvantaged appeals) from the second such rate
and the appeal is pending or successful. Proposed Sec. 668.213
provides that the two rates of 30 percent or more must be successive to
permit the appeal.
(3) The institution files a timely participation rate index appeal
under Sec. 668.214 and the appeal is pending or successful.
(4) The institution had 30 or fewer borrowers in the three most
recent cohorts of borrowers used to calculate the institution's rates.
(5) A three-year rate that would otherwise potentially subject the
institution to provisional certification was calculated as an average
rate.
To avoid provisional certification by invoking exceptions (1), (2)
or (3), the institution would file a request for adjustment or appeal
in response to a notice from the Department that the institution's
second three-year cohort default rate, or second successive three-year
default rate for an economically disadvantaged appeal, is 30 percent or
more, but less than 40 percent.
Under proposed Sec. 668.214, a participation rate index appeal
could be taken from a loss of eligibility, or
[[Page 37448]]
potential placement on provisional certification, based on three-year
cohort default rates if the participation rate index for any of the
excessive rates was .0625 or less. The appeal would be taken within 30
days of receiving the most recent excessive official rate.
In addition, under proposed Sec. 668.204(c)(1)(iii), an
institution would be allowed to challenge a potential placement on
provisional certification because its three-year cohort default rates
for two of the most recent three years would be 30 percent or more, but
less than 40 percent, even though the second such rate was available
only as a draft rate, if its participation rate index was equal to or
less than 0.0625 for either its draft rate, or its most recent official
rate equaling or exceeding 30 percent but less than 40 percent. The
challenge would be taken following notice to the school of its draft
rate.
Reasons: The proposed amendments to Sec. 668.16(m) would
incorporate into the Department's cohort default rate regulations the
statutory requirements relating to appeals for extenuating
circumstances and raising the ceiling for the participation rate index
appeal.
The proposed regulations would also allow data appeals to ensure
that schools are not provisionally certified based on incorrect data.
In addition, the Department proposes to exempt from provisional
certification based solely on cohort default rates any school that has
thirty or fewer borrowers included in its most recent three cohort
default rates, or had its excessive rates calculated by the ``average
rates'' method, or that qualifies for a successful participation rate
challenge or appeal. The Department believes that two relatively high
cohort default rates that are average rates, or that pertain to very
small schools, or to schools that certify loans for only a very small
portion of their enrollment, are not necessarily indicative of a lack
of administrative capability necessitating provisional certification.
Default Prevention Plans (Sec. 668.217)
Statute: Section 435(a)(7) of the HEA requires an institution whose
3-year cohort default rate for a fiscal year is 30 percent or more to
establish a default prevention task force to prepare a default
prevention plan to (1) identify the factors causing the institution's
rate to be 30 percent or more, (2) establish measurable objectives and
steps to improve its default rate, and (3) specify actions that can be
taken to improve student loan repayment, including counseling regarding
loan repayment options. The institution must submit the plan to the
Department, and, after reviewing the plan, the Department offers
technical assistance to the institution to help improve the default
rate.
In cases where the institution's default rate is 30 percent or more
for two consecutive fiscal years, the institution's default prevention
task force must review and revise its plan. The institution must send
the revised plan to the Department, and, after reviewing the plan, we
may require the institution to take actions that promote student loan
repayment.
Current Regulations: The Department's current regulations do not
address default prevention plans. However, current Appendix B to
subpart M provides guidance to an institution on strategies it may
employ or measures it may use in developing a default management plan.
Proposed Regulations: Proposed Sec. 668.217 would incorporate the
statutory requirements from section 435(a)(7) of the HEA, and would
apply to all 3-year rates published, beginning with the 3-year rate to
be published in 2012, that would cover borrowers who entered repayment
in FY 2009. The guidance in current Appendix B to subpart M would be
slightly modified and reorganized and included as Appendix A to new
subpart N.
Reasons: The statute provides flexibility to an institution to
develop a default prevention plan pertinent to its circumstances, and
the Department does not wish to specify in regulations what the
institution may or may not include in its default prevention plan. The
Department already has the authority, under the statutory provisions
for reviewing the plan, to require institutions to take actions on a
case by case basis. For this reason, the Department elected not to
specify detailed requirements for the default prevention plan.
Electronic Processes (Sec. Sec. 668.186, 668.190(b), 668.191(b),
668.209, 668.210, 668.211, and 668.212)
Statute: Section 435(a)(2) of the HEA requires the Department to
provide institutions that are subject to loss of eligibility based on
cohort default rates with an opportunity to appeal within 30 days of
their receipt of notice of the impending loss of eligibility.
Current Regulations: Under current Sec. 668.186(c), an institution
whose cohort default rate is less than 10 percent receives a copy of a
loan record detail report that lists the loans included in its default
rate calculation only on request. If the institution is requesting an
adjustment to, or appealing, its default rate under current subpart M,
and does not have a copy of its loan record detail report, current
Sec. 668.190(b)(1) (Uncorrected data adjustments), Sec. 668.191(b)
(New data adjustments), Sec. 668.192(b)(1) (Erroneous data appeals)
and Sec. 668.193(c) (Loan servicing appeals) require the institution
to request the report within 15 days after it receives notice from the
Department of its official cohort default rate.
Proposed Regulations: Proposed Sec. 668.186 would eliminate the
need to request a loan record detail report, and the associated 15-day
deadline, by providing that the report will be sent electronically to
the institution as part of a package notifying the institution of its
official cohort default rate. The institution would have five business
days, from the transmission date of the package as posted on the
Department's Web site, to report any problem with receiving that
transmission. If the institution reports a problem within the five-day
period, and the Department agrees that the institution did not cause
the problem, the Department would extend the adjustment, challenge, and
appeal deadlines and timeframes to account for retransmitting the
package after the problem is resolved. If no problems are reported by
the institution, the timeframe associated with filing or requesting the
adjustment, challenge, or appeal would begin on the sixth day following
the transmission date of the package that is posted on the Department's
Web site. The timeframes for the adjustments, challenges, and appeals,
and eliminating the fifteen-day deadlines for requesting the loan
record detail reports are reflected in Sec. Sec. 668.190(b),
668.191(b), 668.192(b), and 668.193(c).
The provisions in proposed Sec. 668.186 regarding electronic
delivery of the loan detail report, and the proposed elimination, from
subpart M provisions regarding adjustments, challenges and appeals, of
the fifteen-day deadline for requesting a copy of the report, would
also be reflected in the following parallel provisions in subpart N:
Sec. Sec. 668.209, 668.210, 668.211, and 668.212.
Reasons: These proposed changes merely update the regulations to
reflect the shift from paper to electronic processes, as established by
a notice published in the Federal Register on February 25, 2003 (68 FR
8746).
Conforming Changes
Statute: Section 428G(a)(4) and (b)(3) of the HEA provide that
beginning October 1, 2011, an institution whose cohort default rate for
each of the three most recent fiscal years is less than 15
[[Page 37449]]
percent (1) may disburse a FFEL loan in one installment for a period of
enrollment that is no longer than one semester, trimester, quarter, or
4 months; and (2) does not have to delay for 30 days disbursing a FFEL
loan to a first year, first time borrower. These disbursement
provisions currently apply only to an institution whose default rate is
less than 10 percent. The HEOA added section 428G(a)(4) and (b)(3) to
the HEA and, in doing so, substituted the 15 percent default rate for
the 10 percent rate beginning on October 1, 2011.
Current regulations: The FFEL regulations in Sec. 682.604(c)(5)
and (c)(8), and the corresponding Direct Loan regulations in Sec. Sec.
685.301(b)(6) and 685.303(b)(4), make the HEA's disbursement benefits
available only to institutions whose cohort default rate is less than
10 percent.
Proposed regulations: We propose to amend Sec. 668.604(c)(5) and
(c)(8), 668.301(b)(6), and 685.303(b)(4) to use the new 15 percent
default threshold for FFEL and Direct Loans first disbursed on or after
October 1, 2011. These proposed amendments would provide the
disbursement benefits to an institution whose default rate, as
calculated under either subpart M or subpart N, was less than 15
percent.
Reasons: Because the Department will issue cohort default rates for
fiscal years 2009, 2010, and 2011 under both subpart M and subpart N,
we believe it is reasonable to allow an institution to use the default
rates under either subpart for its three most recent fiscal years to
qualify for the disbursement benefits. For this reason, we have drafted
proposed Sec. 668.604(c)(5) and (c)(8), 668.301(b)(6), and
685.303(b)(4) to permit institutions to use either default rate.
Statute: As amended by the HEOA, sections 487(f) and 498(k) of the
HEA provide, in part, that an institution that conducts a teach-out at
a site of a closed institution may have that site approved as an
additional location if--
(1) The closed institution ceased operations as a result of an
emergency action or other action initiated by the Department to limit,
suspend, or terminate the institution's participation in the Title IV,
HEA programs; and
(2) The closed institution submitted a teach-out plan that was
approved by its accrediting agency.
Under section 498(k) of the HEA, as amended, an institution that
conducts a teach-out under these circumstances is not responsible for
any liabilities of the closed institution.
Current Regulations: Current Sec. 668.184 describes how cohort
default rates are calculated or determined for institutions that
undergo a change in status. A change in status occurs whenever an
institution acquires or merges with another institution, acquires a
branch or location of another institution, or whenever a branch or
location of an institution becomes a separate institution. For these
cases, current Sec. 668.184 describes how the default rate of the
merged or acquired institution is blended with or used to determine the
institution's default rate before and after the change in status.
Proposed Regulations: In a separate notice of proposed rulemaking
and consistent with sections 487(f) and 498(k) of the HEA, the
Department intends to propose to amend 34 CFR 600.32(d) to provide that
the default rate of an institution that establishes an additional
location at the site of a closed institution for which it conducted a
teach-out would not be affected in any way by the closed institution's
cohort default rate. In light of the statutory changes and our intended
amendment to 34 CFR 600.32(d), we propose to amend Sec. Sec.
668.184(a)(1) and 668.203(a)(1) to cross-reference 34 CFR 600.32(d).
Reasons: In keeping with the statutory intent to encourage an
institution to conduct a teach-out of a closed institution, we view the
cohort default rate of a closed institution as a non-monetary liability
that could dissuade an institution from conducting the teach-out if its
cohort default rate would be adversely affected by the closed
institution's cohort default rate. For this reason, we believe that it
is appropriate to ensure that the default rate of an institution that
establishes an additional location at the site of a closed institution
for which it conducted a teach-out would not be affected in any way by
the closed institution's cohort default rate.
Entrance Counseling
Counseling Borrowers (Sec. Sec. 682.604 and 685.304)
Statute: Section 488(g) of the HEOA modified the entrance
counseling that institutions are required to provide to first-time
borrowers of FFEL or Direct Loan Program loans at or prior to the first
disbursement of such loans. The HEOA added these requirements to new
section 485(l) of the HEA. Prior to the enactment of the HEOA, the
Department's entrance counseling requirements were purely regulatory.
Section 485(l) of the HEA modifies and expands on the Department's
current regulatory entrance counseling requirements in Sec. Sec.
682.604 and 685.304.
Under section 485(l) of the HEA, entrance counseling may be
conducted during an in-person session, provided to a borrower in a
separate notice that the borrower signs and returns to the institution,
or provided to a borrower online or by interactive electronic means,
with the borrower acknowledging receipt of the information.
The entrance counseling required under section 485(l) of the HEA
must include the following information:
To the extent practicable, the effect of accepting the
loan to be disbursed on the eligibility of the borrower for other forms
of student aid;
An explanation of the use of the master promissory note;
Information on how interest accrues and is capitalized
during periods when the interest is not paid by the borrower or the
Secretary;
For Unsubsidized Stafford Loans or PLUS Loans made under
the FFEL or Direct Loan programs, the option of the borrower to pay the
interest while in school;
The definition of half-time enrollment at the institution,
during regular terms and summer school, and the consequences of not
maintaining half-time enrollment;
An explanation of the importance of contacting the appropriate
offices at the institution if the borrower withdraws prior to
completing the program of study so the institution can provide exit
counseling, including information regarding the borrower's repayment
options and loan consolidation;
Examples of monthly repayment amounts based on a range of
level of indebtedness of borrowers of Stafford Loans and, as
appropriate, graduate borrowers of Stafford or PLUS loans, or the
average cumulative indebtedness of other borrowers in the same programs
as the borrower at the same institution;
The obligation of the borrower to repay the full amount of
the loan, regardless of whether the borrower completes the program in
which the borrower is enrolled within the regular time for completion;
The likely consequences of default on the loan, including
adverse credit reports, delinquent debt collection procedures under
Federal law, and litigation;
Information on the National Student Loan Data System
(NSLDS) and how the borrower may access his or her records; and
The name and contact information of the individual a
borrower can contact with questions regarding the borrower's rights and
responsibilities or the terms and conditions of the loan.
[[Page 37450]]
When providing entrance counseling, institutions are encouraged to
use interactive programs to test the borrower's understanding of the
terms and conditions of their student loans.
Current Regulations: For the FFEL Program, current Sec. 682.604(f)
requires a school to conduct initial counseling with each Stafford Loan
borrower prior to its release of the first disbursement, unless the
borrower has received a prior Stafford, SLS, or Direct Subsidized or
Unsubsidized loan. Current Sec. Sec. 682.604(f)(1) and 682.604(f)(5)
describe what must be included in the initial counseling for Stafford
Loan borrowers (e.g., an explanation of the use of a Master Promissory
Note; the seriousness and importance of the repayment obligation the
student borrower is assuming; and the likely consequences of default,
including adverse credit reports, Federal offset, and litigation).
Current Sec. 682.604(f)(2) requires a school to ensure that
initial counseling is conducted with each graduate or professional
student PLUS loan borrower prior to its release of the first
disbursement of the PLUS Loan, unless the student has received a prior
FFEL PLUS loan or Direct PLUS loan. Current Sec. 682.604(f)(2) also
specifies what must be included in the initial counseling for graduate
or professional student PLUS Loan borrowers (e.g., sample monthly
repayment amounts based on a range of student levels of indebtedness or
on the average indebtedness of graduate or professional student PLUS
loan borrowers, or student borrowers with Stafford and PLUS loans,
depending on the types of loans the borrower has obtained, at the same
school or in the same program of study at the same school).
For both Stafford and PLUS loan borrowers, current Sec.
682.604(f)(3) requires schools to conduct initial counseling either in
person, by audiovisual presentation, or by interactive electronic
means. Under current Sec. 682.604(f)(6), if initial counseling is
conducted through interactive electronic means, the school must take
reasonable steps to ensure that each student borrower receives the
counseling materials and participates in and completes the initial
counseling.
Current Sec. 682.604(f)(4) requires a school to ensure that an
individual with expertise in the Title IV programs is reasonably
available shortly after the counseling to answer the student borrower's
questions regarding those programs. As an alternative, prior to
releasing the proceeds of a loan in the case of a student borrower
enrolled in a correspondence program or a student borrower enrolled in
a study-abroad program that the home institution approves for credit,
the counseling may be provided through written materials.
Current Sec. 682.604(f)(7) requires a school to maintain
documentation substantiating the school's compliance with the entrance
counseling requirements for each student borrower.
For the Direct Loan program, current Sec. 685.304(a) requires
schools to ensure that initial counseling is conducted with each Direct
Subsidized Loan or Direct Unsubsidized Loan student borrower prior to
making the first disbursement of the proceeds of a loan to a student
borrower unless the student borrower has received a prior Direct
Subsidized, Direct Unsubsidized, FFEL Stafford, or Federal SLS Loan.
Current Sec. 685.304(b) requires schools to conduct initial
counseling with each graduate or professional student Direct PLUS Loan
borrower prior to making the first disbursement of the loan unless the
student borrower has received a prior Direct PLUS Loan or FFEL PLUS
Loan.
The entrance counseling requirements specified in current
Sec. Sec. 685.304(a) and 685.304(b) of the Direct Loan Program
regulations correspond to the entrance counseling requirements in the
FFEL program, except that, as provided for in current Sec.
685.304(a)(5), a Direct Loan school may adopt an alternative approach
for initial counseling as part of the school's quality assurance plan.
Proposed Regulations: The Department has restructured and modified
Sec. 682.604(f) of the FFEL regulations to align the regulations with
section 485(l) of the HEA. Under proposed Sec. 682.604(f)(3), initial
counseling for Stafford and graduate or professional student PLUS Loan
borrowers must provide comprehensive information on the terms and
conditions of the loan and on the responsibilities of the borrower with
respect to the loan. This information would be provided to the borrower
during an entrance counseling session conducted in person; on a
separate written form provided to the borrower that the borrower signs
and returns to the school; or online or by interactive electronic
means, with the borrower acknowledging receipt of the information.
Proposed Sec. 682.604(f)(4) would largely mirror current Sec.
682.604(f)(6) by requiring a school that conducts initial counseling
online or through interactive electronic means to take reasonable steps
to ensure that each student borrower receives the counseling materials
and participates in and completes the initial counseling. Consistent
with new section 485(l)(1)(B) of the HEA, proposed Sec. 682.604(f)(4)
would also provide that such reasonable steps may include completion of
any interactive program that tests the borrower's understanding of the
terms and conditions of the borrower's loans.
Proposed Sec. 682.604(f)(5), which provides that a school must
ensure that an individual with expertise in the Title IV programs is
reasonably available shortly after the counseling to answer questions
regarding those programs, would mirror current Sec. 682.604(f)(4).
The content of the initial counseling, which appears in current
Sec. 682.604(f)(1) and 682.604(f)(5), would be included, with
modifications aligning the regulatory language with new section 485(l)
of the HEA, in proposed Sec. 682.604(f)(6) (for Stafford Loan
borrowers) and Sec. 682.604(f)(7) (for graduate and professional
student PLUS Loan borrowers). Under proposed Sec. 682.604(f)(6),
initial counseling for Stafford Loan borrowers must--
Explain the use of a Master Promissory Note;
Emphasize to the student borrower the seriousness and
importance of the repayment obligation the student borrower is
assuming;
Describe the likely consequences of default, including
adverse credit reports, delinquent debt collection procedures under
Federal law, and litigation;
In the case of a student borrower (for other than a loan
made or originated by the school), emphasize that the student borrower
is obligated to repay the full amount of the loan even if the student
borrower does not complete the program, does not complete the program
within the regular time for program completion, is unable to obtain
employment upon completion, or is otherwise dissatisfied with or does
not receive the educational or other services that the student borrower
purchased from the school;
Inform the student borrower of sample monthly repayment
amounts based on a range of student levels of indebtedness of Stafford
loan borrowers, or student borrowers with Stafford and PLUS loans,
depending on the types of loans the borrower has obtained; or the
average indebtedness of other borrowers in the same program at the same
school as the borrower;
To the extent practicable, explain the effect of accepting
the loan to be disbursed on the eligibility of the borrower for other
forms of student financial assistance;
Provide information on how interest accrues and is
capitalized during periods when the interest is not
[[Page 37451]]
paid by either the borrower or the Secretary;
Inform the borrower of the option to pay the interest on
an unsubsidized Stafford Loan while the borrower is in school;
Explain the definition of half-time enrollment at the
school, during regular terms and summer school, if applicable, and the
consequences of not maintaining half-time enrollment;
Explain the importance of contacting the appropriate
offices at the school if the borrower withdraws prior to completing the
borrower's program of study so that the school can provide exit
counseling, including information regarding the borrower's repayment
options and loan consolidation;
Provide information on NSLDS and how the borrower can
access the borrower's records; and
Provide the name of and contact information for the
individual the borrower may contact if the borrower has any questions
about the borrower's rights and responsibilities or the terms and
conditions of the loan.
Under proposed Sec. 682.604(f)(7), initial counseling for graduate
or professional student PLUS Loan borrowers must--
Inform the student borrower of sample monthly repayment
amounts based on a range of student levels of indebtedness of graduate
or professional student PLUS loan borrowers, or student borrowers with
Stafford and PLUS loans, depending on the types of loans the borrower
has obtained; or the average indebtedness of other borrowers in the
same program at the same school as the borrower;
Inform the borrower of the option to pay interest on a
PLUS Loan while the borrower is in school;
For a graduate or professional student PLUS Loan borrower
who has received a prior FFEL Stafford or Direct Subsidized or
Unsubsidized loan, provide the information, specified in Sec.
682.603(d)(1)(i) through Sec. 682.603(d)(1)(iii), that compares
Stafford and PLUS Loan interest rates, interest accrual periods, and
repayment period begin dates; and
For a graduate or professional student PLUS Loan borrower
who has not received a prior FFEL Stafford, or Direct Subsidized or
Unsubsidized loan, provide the Stafford Loan initial counseling
information specified in proposed Sec. 682.604(f)(6)(i) through Sec.
682.604(f)(6)(xii).
Corresponding initial counseling requirements for Direct
Subsidized, Direct Unsubsidized, and Direct PLUS loan borrowers are
included in proposed Sec. 685.304(a)(1) through Sec. 685.304(a)(9) of
the Direct Loan regulations.
Reasons: These proposed amendments to Sec. Sec. 682.694(f) and
685.304(a) are intended to implement the changes made to section 485(l)
of the HEA. The HEOA incorporated into the HEA many of the entrance
counseling requirements already reflected in current Sec. Sec.
682.694(f) and 685.304(a) and also added several new requirements. In
cases where the statutory language in the HEA is similar to current
regulatory language, the Department modified the current regulations to
track more closely the new statutory language. In cases where no
current regulatory requirements exist, we propose to incorporate--with
a few minor changes--the statutory language regarding the requirements
into our regulations. To this end, the proposed regulations closely
follow the language of section 485(l) of the HEA. For this reason, only
a few issues generated extensive discussion during the negotiated
rulemaking sessions.
Initially, the Department proposed language that would allow
schools to provide entrance counseling ``online by interactive
electronic means.'' The non-Federal negotiators pointed out that the
term ``online'' does not necessarily mean the same thing as
``interactive.'' The Department agreed with the non-Federal
negotiators, and changed the wording of the proposed regulations to
read ``online or through interactive electronic means.''
The draft language initially proposed by the Department for Sec.
682.604(f)(6)(v)(B) of the Stafford Loan entrance counseling
requirements would have given schools the option to provide information
on the ``average cumulative indebtedness of other borrowers in the same
program at the same school as the borrower'' during Stafford Loan
entrance counseling. The Department proposed similar language in
proposed Sec. 682.604(f)(7)(i)(B) for PLUS Loan entrance counseling.
When presented with this draft language, the non-Federal negotiators
expressed concern that requiring the provision of ``cumulative''
indebtedness information could be misleading, especially in the case of
graduate or professional student PLUS Loan borrowers, whose level of
undergraduate indebtedness could vary significantly by the time the
student enters a graduate or professional program.
The Department agreed that the information on indebtedness provided
to students would be more useful if it were limited to the average
indebtedness incurred by the borrowers while they are in the program of
study. For this reason, we agreed not to include the word
``cumulative'' in proposed Sec. Sec. 682.604(f)(6)(v)(B) and
682.604(f)(7)(i)(B), and to make corresponding changes in proposed
Sec. Sec. 685.304(a)(6)(v)(B) and 685.304(a)(7)(i)(B) of the Direct
Loan regulations.
Some non-Federal negotiators raised questions about the scope of
proposed Sec. 682.604(f)(6)(iv), which would require schools to inform
borrowers that the borrower is responsible for repaying the loan, even
if the borrower does not complete the program within the regular time
for completion. The negotiators questioned how this requirement would
affect requests for in-school deferments for borrowers who are
attending less than full time. The Department responded that this
requirement is unrelated to a borrower's eligibility for an in-school
deferment and that it merely would require that borrowers be informed
that they are still obligated to repay the loan, even if it takes them
a longer time to complete the program than is normally expected (as
might be the case with a borrower attending less than full time).
Exit Counseling
Counseling Borrowers (Sec. Sec. 674.42(b), 682.604(g) and 685.304(b))
Statute: Section 488(b) of the HEOA modified section 485(b)(1)(A)
of the HEA to require each eligible institution, through financial aid
offices or otherwise, to conduct exit counseling for borrowers
receiving loans made, insured or guaranteed under the FFEL Program
(except for Consolidation Loans or Federal PLUS loans made to parent
borrowers) or loans made under the Direct Loan Program (other than
Federal Direct Consolidation Loans or Federal Direct PLUS loans made to
parent borrowers) or made under the Perkins Loan Program prior to the
completion of the borrower's course of study or the borrower's
departure from the institution. Many of the exit counseling
requirements in section 485(b)(1)(A) of the HEA are similar to the exit
counseling requirements in current 34 CFR Sec. Sec. 674.42(b),
682.604(g), and 685.304(b).
Section 485(b)(1)(A) of the HEA, as amended by the HEOA, requires
exit counseling to include:
Information on repayment plans, including a description of
the different features of each plan and samples showing average
anticipated monthly payments with the difference in interest paid and
total payments shown with each plan.
[[Page 37452]]
Debt management strategies to assist the borrower in
repaying the debt.
Options the borrower has to prepay each loan or pay each
loan on a shorter schedule or to change repayment plans.
Information on loan forgiveness and cancellation
provisions and the conditions under which the borrower may obtain full
or partial forgiveness or cancellation of principal and interest.
Information on forbearance provisions and a general
description of terms and conditions under which the borrower may defer
repayment of principal or interest or be granted forbearance.
Information on the consequences of default on a loan,
including adverse credit reports and delinquent debt collection
procedures under Federal law and litigation.
Information with respect to Consolidation Loans to
discharge FFEL, Direct Loan, and Perkins Loan program loans, which
includes--
(1) The effects of the consolidation on total interest to be paid,
fees, and length of repayment;
(2) The effect on a borrower's underlying loan benefits, which
includes grace periods, loan forgiveness, cancellation and deferment;
(3) The option the borrower has to prepay the loan or to change
repayment plans; and
(4) That borrower benefit programs may vary depending on the
lender.
A general description of the types of tax benefits that
might be available to borrowers.
Information on how a borrower can use NSLDS to get
information on the status of his or her loans.
Current Regulations: Under current Sec. Sec. 674.42(b),
682.604(g), and 685.304(b), schools must ensure that exit counseling is
conducted with Perkins, FFEL Stafford, and Direct Subsidized and
Unsubsidized Loan borrowers. These regulations provide that (a) the
exit counseling must be conducted with each borrower either in person,
by audiovisual presentation, or by interactive electronic means; (b)
exit counseling must be conducted shortly before the student borrower
ceases at least half-time study at the school; and (c) an individual
with expertise in the Title IV programs is reasonably available shortly
after the counseling to answer the student borrower's questions.
Current Sec. Sec. 674.42(b)(1), 682.604(g)(1), and 685.304(b)(2) also
provide that, in the case of a student borrower enrolled in a
correspondence program or a study-abroad program that the home
institution approves for credit, written counseling materials may be
provided by mail within 30 days after the student borrower completes
the program. Under Sec. Sec. 674.42(b)(1), 682.604(g)(1), and
685.304(b)(3), if a student borrower withdraws from school without the
school's prior knowledge or fails to complete an exit counseling
session as required, the school must ensure that exit counseling is
provided through either interactive electronic means or by mailing
written counseling materials to the student borrower at the student
borrower's last known address within 30 days after learning that the
student borrower has withdrawn from school or failed to complete the
exit counseling as required.
If exit counseling is conducted by electronic interactive means,
under current Sec. Sec. 674.42(b)(3), 682.604(g)(3), and
685.304(b)(6), the school must take reasonable steps to ensure that
each Perkins, FFEL Stafford and Direct Subsidized and Unsubsidized Loan
student borrower receives the counseling materials, and participates in
and completes the counseling.
Under current Sec. Sec. 674.42(b)(4), 682.604(g)(4), and
685.304(b)(7), the school must maintain documentation substantiating
the school's compliance with the exit counseling requirements for each
Perkins, FFEL Stafford, and Direct Subsidized and Unsubsidized Loan
student borrower.
As specified in current Sec. Sec. 674.42(b)(2), 682.604(g)(2), and
685.304(b)(4), the exit counseling for Perkins, FFEL Stafford, and
Direct Subsidized and Unsubsidized Loan borrowers must--
Inform the student borrower of the average anticipated
monthly repayment amount based on the student borrower's indebtedness
or on the average indebtedness of student borrowers who have obtained
the same types of Title IV loans the student borrower has obtained for
attendance at the same school or in the same program of study at the
same school;
Review loan consolidation for the student borrower;
Suggest to the student borrower debt-management strategies
that would facilitate repayment;
Include the entrance counseling topics described in the
FFEL regulations in Sec. 682.604(f)(2)(i) (use of the Master
Promissory Note), Sec. 682.604(f)(2)(ii) (seriousness of the repayment
obligation), Sec. 682.604(f)(2)(iii) (consequences of default), and
Sec. 682.604(f)(2)(iv) (obligation to repay despite the failure of a
borrower to complete the program);
Review for the student borrower the conditions under which
the student borrower may defer or forbear repayment or obtain a full or
partial forgiveness, discharge or cancellation of a loan;
Require the student borrower to provide current
information concerning name, address, social security number,
references, and driver's license number and State of issuance, as well
as the student borrower's expected permanent address, the address of
the student borrower's next of kin, and the name and address of the
student borrower's expected employer (if known);
Review for the student borrower information on the
availability of the Student Loan Ombudsman's office; and
Inform the student borrower of the availability of Title
IV loan information in the National Student Loan Data System (NSLDS).
In addition, current Sec. 685.304(b)(4)(iv) of the Direct
Subsidized and Unsubsidized Loan regulations requires that exit
counseling for a Direct Subsidized and Unsubsidized Loan borrower must
explain to the borrower how to contact the party servicing the
borrower's Direct Loan. For FFEL Stafford and Direct Subsidized and
Unsubsidized Loan borrowers, the exit counseling must review available
repayment plan options (see current Sec. Sec. 682.604(g)(2)(ii) and
685.304(b)(4)(ii)) and explain the use of the Master Promissory Note
(see current Sec. Sec. 682.604(g)(2)(iv) and 685.304(b)(4)(v)).
Proposed Regulations: Because the HEA incorporated the majority of
the exit counseling requirements from the Department's current
regulations, proposed Sec. 674.42(b) (Perkins Loan exit counseling),
Sec. 682.604(g) (FFEL Stafford Loan exit counseling), and Sec.
685.304(b) (Direct Subsidized and Unsubsidized Loan exit counseling)
would continue to include the substantive requirements from current
Sec. Sec. 674.42(b), 682.604(g) and 685.304(b). The major proposed
changes would be as follows:
Exit Counseling for Perkins Loan Borrowers (Sec. 674.42(b))
The addition of Sec. 674.42(b)(2)(ii), which would
require that exit counseling explain the options the borrower has to
prepay each loan and pay each loan on a shorter schedule.
The redesignation of current Sec. 674.42(b)(2)(ii) as
proposed Sec. 674.42(b)(2)(iii) and revision of the section to focus
on reviewing for the borrower the option to consolidate a Federal
Perkins Loan and the consequences of doing so.
The addition of a new Sec. 674.42(b)(2)(v), which would
require that exit counseling explain the use of a master promissory
note.
[[Page 37453]]
The redesignation of current Sec. 674.42(b)(2)(v) as
proposed Sec. 674.42(b)(2)(vii) and revision of the section to
include, in the required description of the likely consequences of
default, delinquent debt collection procedures under Federal law.
The redesignation of current Sec. 674.42(b)(2)(vi) as
proposed Sec. 674.42(b)(2)(viii) and revision of the section to
include, as part of Perkins Loan exit counseling, information about the
borrower's obligation to repay the full amount of the loan even if the
borrower has not completed the program within the regular time for
completion.
The redesignation of current Sec. 674.42(b)(2)(vii) as
proposed Sec. 674.42(b)(2)(ix) and revision of the section to require
that exit counseling provide a general description of the terms and
conditions under which a borrower may obtain full or partial
forgiveness or cancellation of principal and interest, defer repayment
of principal or interest, or be granted an extension of the repayment
period or a forbearance on a Title IV loan; and a copy, either in print
or by electronic means, of the information the Secretary makes
available pursuant to section 485(d)of the HEA.
The addition of language in proposed Sec.
674.42(b)(2)(xi) (current Sec. 674.42(b)(2)(viii)) to clarify that
exit counseling must not only inform the student borrower of the
availability of information in the National Student Loan Data System
(NSLDS), but also how the NSLDS can be used to obtain title IV loan
status information.
The addition of new Sec. 674.42(b)(2)(xii), which would
require exit counseling to include a general description of the types
of tax benefits that may be available to borrowers.
Exit Counseling for FFEL Stafford Loan Borrowers (Sec. 682.604(g))
The revision of current Sec. 682.604(g)(2)(i) to include
borrowers who have only obtained PLUS Loans, in addition to borrowers
who have obtained both PLUS and Stafford Loans.
The revision of current Sec. 682.604(g)(2)(ii) to
include, as part of the review of borrower repayment plans, a
description of the different features of each repayment plan and sample
information showing the average anticipated monthly payments, and the
difference in interest paid under each plan.
The addition of a new Sec. 682.604(g)(2)(iii), which
would require that exit counseling explain the options the borrower has
to prepay each loan, pay each loan on a shorter schedule, and change
repayment plans.
The addition of a new 682.604(g)(2)(iv), which would
require exit counseling to provide information on the effects of loan
consolidation.
The redesignation of current Sec. 682.604(g)(2)(iii) as
Sec. 682.604(g)(2)(v), and the revision of the section to require that
exit counseling ``include'' debt-management strategies rather than
``suggest'' debt-management strategies.
The redesignation of current Sec. 682.604(g)(2)(iv) as
Sec. 682.604(g)(2)(vi), with no other changes except to update the
cross-references.
The addition of new Sec. 682.604(g)(2)(vii) to describe
the likely consequences of default, including the delinquent debt
collection procedures under Federal law and litigation.
The redesignation of current Sec. 682.604(g)(2)(v) as
Sec. 682.604(g)(2)(viii), and revision of the section to require that
exit counseling provide a general description of the terms and
conditions under which a borrower may obtain full or partial
forgiveness or cancellation of principal and interest, defer repayment
of principal or interest, or be granted an extension of the repayment
period or a forbearance on a title IV loan; and a copy, either in print
or by electronic means, of the information the Secretary makes
available pursuant to section 485(d)of the HEA.
The redesignation of current Sec. 682.604(g)(2)(vi) as
Sec. 682.604(g)(2)(ix), with no other revisions.
The redesignation of current Sec. 682.604(g)(2)(vii) as
Sec. 682.604(g)(2)(x), with no other revisions.
The redesignation of current Sec. 682.604(g)(2)(viii) as
Sec. 682.604(g)(2)(xi), and the addition of language to clarify that
exit counseling must not only inform the student borrower of the
availability of information in the National Student Loan Data System
(NSLDS), but also how the NSLDS can be used to obtain title IV loan
status information.
The addition of new Sec. 682.604(g)(2)(xii), which would
require exit counseling to include a general description of the types
of tax benefits that may be available to borrowers.
Exit Counseling for Direct Subsidized and Unsubsidized Loan Borrowers
(Sec. 685.304(b))
The revision of current Sec. 685.304(b)(4)(i) to include
borrowers who have only obtained PLUS Loans, in addition to borrowers
who have obtained both PLUS and Stafford Loans.
The revision of current Sec. 685.304(b)(4)(ii) to
include, as part of the review of borrower repayment plans, a
description of the different features of each repayment plan and sample
information showing the average anticipated monthly payments, and the
difference in interest paid under each plan.
The addition of a new Sec. 685.304(b)(4)(iii), which
would require that exit counseling explain the options the borrower has
to prepay each loan, pay each loan on a shorter schedule, and change
repayment plans.
The addition of a new Sec. 685.304(b)(4)(iv), which would
require exit counseling to provide information on the effects of loan
consolidation.
The redesignation of current Sec. 685.304(b)(4)(iii) as
Sec. 685.304(b)(4)(v), and the revision of the section to require that
exit counseling ``include'' debt-management strategies rather than
``suggest'' debt-management strategies.
The redesignation of current Sec. 685.304(b)(4)(iv) as
Sec. 685.304(b)(4)(vi), with no other changes.
The redesignation of current Sec. 685.304(b)(4)(v) as
Sec. 685.304(b)(4)(vii), with no other changes except to update the
cross-references.
The addition of new Sec. 685.304(b)(4)(viii) to describe
the likely consequences of default, delinquent debt collection
procedures under Federal law and litigation.
The redesignation of current Sec. 685.304(b)(4)(vii) as
Sec. 685.304(b)(4)(ix) and revision of the section to require that
exit counseling provide a general description of the terms and
conditions under which a borrower may obtain full or partial
forgiveness or cancellation of principal and interest, defer repayment
of principal or interest, or be granted an extension of the repayment
period or a forbearance on a title IV loan; and a copy, either in print
or by electronic means, of the information the Secretary makes
available pursuant to section 485(d) of the HEA.
The redesignation of current Sec. 685.304(b)(4)(vii) as
Sec. 685.304(b)(4)(x), with no other revisions.
The redesignation of current Sec. 685.304(b)(4)(viii) as
Sec. 685.304(b)(4)(xi) and the addition of language to clarify that
exit counseling must not only inform the student borrower of the
availability of information in the National Student Loan Data System
(NSLDS), but also how the NSLDS can be used to obtain title IV loan
status information.
The addition of new Sec. 685.304(b)(4)(xii), which would
require exit counseling to include a general description of the types
of tax benefits that may be available to borrowers.
[[Page 37454]]
The redesignation of current Sec. 685.304(b)(4)(ix) as
Sec. 685.304(b)(4)(xiii), with no other revisions.
Reasons: These proposed amendments to Sec. Sec. 674.42(b),
682.604(g), and 685.304(b) are intended to align the Department's exit
counseling requirements for its Perkins Loan, FFEL Stafford, and Direct
Subsidized and Unsubsidized Loan programs with the exit counseling
requirements added to section 485(b)(1)(A) of the HEA by section 488(b)
of the HEOA.
For the most part, we were able to simply incorporate the statutory
language from section 485(b)(1)(A) of the HEA into our current
regulations. One exception includes the requirement that exit
counseling include reviewing with the borrower different repayment plan
options. Perkins Loan borrowers, unlike FFEL Stafford and Direct
Subsidized and Unsubsidized Loan borrowers, do not have the option to
choose among different repayment plans. For this reason, we did not
include this requirement in the Perkins Loan regulations.
In addition to implementing the statutory changes made by the HEOA,
we also propose to amend the Perkins Loan exit counseling requirements
to include explaining the use of a Master Promissory Note (MPN). The
MPN has been in use for the Perkins Loan program since August 2003, and
the Department believes it is appropriate to require schools to explain
the use of the MPN as part of Perkins Loan exit counseling, just as we
do for FFEL and Direct Loan exit counseling.
Several questions and concerns relating to the exit counseling
requirements in the proposed regulations were discussed at the
negotiated rulemaking sessions.
Although explaining the use of the Master Promissory Note (MPN)
during exit counseling has been a long-standing requirement in the FFEL
Stafford and Direct Subsidized and Unsubsidized Loan programs, non-
Federal negotiators questioned the value of explaining how the MPN
works during exit counseling, at a time when the borrower has already
received his or her student loans and is about to leave the school. The
Department responded that an MPN may be used for up to ten years after
a borrower initially signs it. Therefore, we believe that it would be
helpful to remind the borrower--during exit counseling--that the
borrower may continue to use the MPN to borrow Title IV loans if the
borrower returns to school before the 10-year period expires.
Non-Federal negotiators asked the Department to clarify the meaning
of the term ``delinquent debt collection procedures under Federal
law.'' The Department responded that these procedures refer to debt
collection procedures under the Fair Debt Collection Act. During this
discussion, the Department also noted that the exit counseling session
would be an appropriate time for schools to advise FFEL Stafford and
Perkins Loan borrowers that defaulted FFEL Stafford and Perkins Loans
may be assigned to the Department of Education. In cases where the
Department accepts the loan assignment, borrowers who have defaulted on
these loans are subject to Federal income tax offset.
Non-Federal negotiators also asked if providing borrowers with the
information relating to forbearance, deferment, forgiveness, discharge
and cancellation that appears on the borrower's MPN would be sufficient
to meet the requirement of providing a description of the terms and
conditions for obtaining these benefits under proposed Sec. Sec.
674.42(b)(2)(ix)(A), 682.604(g)(2)(viii)(A), and 685.304(b)(4)(ix)(A).
The Department responded that the information relating to these
benefits available on the MPNs is necessarily limited. For this reason,
we expect schools to provide more detailed and comprehensive
information on these benefits during exit counseling.
Non-Federal negotiators asked about the information relating to
Consolidation Loans that schools are required to provide, particularly
with regard to changing repayment plans. Non-Federal negotiators
pointed out that the Perkins Loan Program does not have different
repayment plans, and that Perkins borrowers do not have this option.
The Department clarified that the reference to changing repayment plans
in proposed Sec. 674.42(b)(2)(iii)(C) refers to the Consolidation
Loan, not the Perkins Loan. If a borrower consolidates his or her
Perkins Loan into a FFEL or Direct Consolidation Loan, the terms and
conditions of the Perkins Loan are replaced by the terms and conditions
of the Consolidation Loan. Borrowers with Consolidation Loans have the
option to change repayment plans on the Consolidation Loan.
Special Definitions (Sec. 674.51)
Statute: The HEOA amended section 465(a) of the HEA by expanding
the existing teacher, Head Start, and law enforcement cancellation
categories to include:
A teacher in a designated low-income elementary or
secondary school who is employed by, or working in a school operated
by, an educational service agency (see new section 465(a)(2)(A) of the
HEA).
Full-time special education teacher, including teachers of
infants, toddlers, children, or youth with disabilities, in a public or
other nonprofit elementary or secondary school system administered by
an educational service agency (see new section 465(a)(2)(C) of the
HEA).
Full-time staff members in a pre-kindergarten or childcare
program that is licensed or regulated by the State (see new section
465(a)(2)(B) of the HEA).
Full-time attorneys employed in Federal Public Defender
Organizations or Community Defender Organizations, established in
accordance with section 3006A(g)(2) of title 18, U.S.C. (see new
section 465(a)(2)(F) of the HEA).
Section 465(a) of the HEA also was amended to allow for
cancellation benefits for the following additional categories of
borrowers:
Full-time fire fighters with a local, State, or Federal
fire department or fire district (see new section 465(a)(2)(J) of the
HEA).
Full-time faculty members at a Tribal College or
University, as defined in section 316 of the HEA (see new section
465(a)(2)(K) of the HEA).
Librarians with a master's degree in library science who
are employed in an elementary or secondary school that qualifies for
funding under title I of the Elementary and Secondary Education Act of
1965, as amended, or in a public library that serves a geographic area
that includes one or more Title I schools (see new section 465(a)(2)(L)
of the HEA).
Full-time speech-language pathologists with a master's
degree who are working exclusively with Title I eligible schools (see
new section 465(a)(2)(M) of the HEA).
Current regulations: Current Sec. 674.51 contains the definitions
of key terms in the Federal Perkins Loan program regulations.
Proposed regulations: With the statutory expansion of the
categories of borrowers eligible for cancellation benefits under the
Perkins program, it is necessary to make several amendments to Sec.
674.51.
For purposes of determining cancellation benefits under Sec.
674.53 (Teacher cancellation--Federal Perkins, NDSL and Defense loans),
we propose to define the term education service agency as a regional
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 (see proposed Sec. 674.51(g)).
[[Page 37455]]
For purposes of determining cancellation benefits under Sec.
674.57 (Cancellation for law enforcement or corrections officer
service--Federal Perkins, NDSL and Defense loans), the Secretary
proposes to define the term Community Defender Organizations as
defender organizations established in accordance with section
3006A(g)(2)(B) of title 18, United States Code (see proposed Sec.
674.51(e)), and the term Federal Public Defender Organization as
defender organizations established in accordance with section
3006A(g)(2)(A) of title 18, United States Code (see proposed Sec.
674.51(j)).
For purposes of implementing the cancellation benefits for full-
time faculty members at a Tribal College or University, full-time
firefighters, librarians with a master's degree, and full-time speech
pathologists with a master's degree under Sec. 674.56 (employment
cancellation--Federal Perkins, NDSL and Defense loans), the Secretary
proposes to add the following definitions to Sec. 674.51:
A faculty member at a Tribal College or University is 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 (see proposed Sec. 674.51(i)).
A Tribal College or University is an institution that 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 is
cited in section 532 of the Equity in Education Land Grant Status Act
of 1994 (7 U.S.C. 301 note) (see proposed Sec. 674.51(bb)).
A firefighter is an individual who is employed by a Federal, State,
or local firefighting agency to extinguish destructive fires or
provides firefighting related services such as (a) providing community
disaster support and, as a first responder, emergency medical services;
(b) conducting search and rescue; or (c) providing hazardous material
mitigation (HAZMAT) (see proposed Sec. 674.51(k)).
A librarian with a master's degree is an information professional
trained in library or information science who has obtained a
postgraduate academic degree awarded after the completion of an
academic program in library science of up to six years in duration,
excluding a doctorate or professional degree (see proposed Sec.
674.51(o)).
A speech language pathologist with a master's degree is an
individual who evaluates or treat 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 and has
obtained a postgraduate academic degree awarded after the completion of
an academic program of up to six years in duration, excluding a
doctorate or professional degree.
Finally, as noted earlier in this preamble, Team I, the negotiating
committee responsible for regulations involving issues related to
lender and general loan issues, negotiated proposed definitions for the
terms substantial gainful activity and total and permanent disability,
as those terms are used in the Perkins Loan Program regulations. In
proposed Sec. 674.51(x), the term substantial gainful activity is
defined as a level of work performed for pay or profit that involves
doing significant physical or mental activities, or a combination of
both. Proposed Sec. 674.51(aa) would define total and permanent
disability as the condition of an individual who (a) 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 (b) has been determined by the Secretary of Veteran
Affairs to be unemployable due to a service-connected disability. In
addition to incorporating new definitions to implement the expanded
cancellation benefits provided by the HEOA, we propose to update a few
of the longstanding definitions in Sec. 674.51 that are based on the
Individuals with Disabilities Education Act (IDEA), which was
reauthorized in 2004. Specifically, we propose to replace the current
definition of the term children and youth with disabilities with the
definition of the term child with a disability and the definition of
the term infants and toddlers with disabilities with the definition of
the term infant or toddler with a disability. These proposed
definitions align with the definitions of these terms in the IDEA.
Reasons: We propose to revise Sec. 674.51 to incorporate the
definitions of key terms that are used in section 465(a) of the HEA, as
amended by the HEOA. Definitions of the terms Community Defender
Organizations, education service agency, Federal Public Defender
Organization, and Tribal College or University would be based on the
statutory language referencing their definitions in the HEA.
The Department developed definitions for the terms faculty member
at a Tribal College or University, firefighter, librarian with a
master's degree, and speech language pathologist with a master's degree
by considering the generally accepted meaning of these terms as well as
the discussion of these terms during the negotiated rulemaking
sessions. During the sessions, there was much discussion about how
broad these definitions should be. The general consensus was that the
definitions should be written to incorporate as many eligible borrowers
as possible for the expanded cancellation benefits. The proposed
definitions reflect the consensus of Team II.
Expansion of Teacher, Head Start, and Law Enforcement Cancellation
Categories (Sec. Sec. 674.53, 674.57, 674.58)
Statute: Effective August 14, 2008, section 465 of the HEOA
expanded the existing teacher, Head Start, and law enforcement
cancellation provisions in section 465(a) of the HEA.
The cancellation for borrowers who teach in a designated low-income
elementary or secondary school authorized by section 465(a)(2)(A) of
the HEA has been expanded to include borrowers who are employed by an
educational service agency as that term is defined section 481(f) of
the HEA. The cancellation for full-time staff members in a Head Start
preschool program authorized by section 465(a)(2)(B) of the HEA has
been expanded to include borrowers who are full-time staff members in a
pre-kindergarten or childcare program that is licensed or regulated by
the State. The cancellation authorized by section 465(a)(2)(C) of the
HEA for borrowers who are full-time special education teachers,
including teachers of infants, toddlers, children, or youth with
disabilities in a public or other nonprofit elementary or secondary
school system, has been expanded to include borrowers who are special
education teachers in a system administered by an educational service
agency. Lastly, the cancellation for full-time local, State, or Federal
law enforcement or corrections officers authorized by section
465(a)(2)(F) of the HEA has been expanded to include full-time
attorneys employed in Federal Public Defender Organizations or
Community Defender Organizations established in accordance with section
[[Page 37456]]
3006A(g)(2) of title 18 of the United States Code.
Effective August 14, 2008, an institution must cancel up to 100
percent of the outstanding balance of a borrower's NDSL, Defense, or
Federal Perkins loan for eligible service performed in each of these
expanded cancellation categories.
Current Regulations: Current Sec. 674.53 of the Perkins Loan
Program regulations requires an institution to cancel up to 100 percent
of the outstanding balance on a Perkins Loan for borrowers who perform
eligible service as a:
Full-time teacher in a designated elementary or secondary
school serving low-income families;
Full-time special education teacher (including teaching
children with disabilities in a public or other nonprofit elementary or
secondary school);
Full-time teacher of math, science, foreign languages,
bilingual, or other fields designated as teacher shortage areas.
Current Sec. 674.57 requires an institution to cancel up to 100
percent of the outstanding balance of a Perkins Loan for borrowers who
perform eligible service as a full-time local, State, or Federal law
enforcement or corrections officer and who are employed by an eligible
employing agency. Lastly, current Sec. 674.58 requires an institution
to cancel up to 100 percent of the outstanding balance of a Perkins
Loan for borrowers who perform eligible service as a full-time staff
member in the educational component of a Head Start program.
Proposed regulations: The proposed changes to Sec. Sec. 674.53,
674.57, 674.58 would extend the new cancellation categories to current
Federal Perkins Loan borrowers with outstanding balances on loans
already in repayment and all new borrowers who perform eligible service
that includes August 14, 2008, or begins on or after that date,
regardless of whether information on the expanded cancellation
categories appears on the borrower's promissory note.
Under proposed Sec. 674.53, a teacher who is employed by an
educational service agency, or a full-time special education teacher,
including teachers of infants, toddlers, children, or youth with
disabilities, who is working in a system administered by an educational
service agency, is eligible for cancellation benefits.
We propose to amend the cancellation provisions for law enforcement
or correction officer regulations in Sec. 674.57 to include borrowers
who are employed full-time as an attorney in Federal Public Defender
Organizations or Community Defender Organizations established in
accordance with section 3006A(g)(2) of title 18, United States Code.
The HEA provides for cancellation benefits for public defenders that
work in these community defender organizations and Federal courts only.
State public defenders (unless they are employed by one of the
specified organizations) are not eligible for cancellation benefits
under this provision.
Consistent with section 465(a)(2)(B) of the HEA, the Secretary
proposes to amend current Sec. 674.58 of the Head Start cancellation
provisions by expanding cancellation benefits to include borrowers who
are performing qualifying service as full-time staff members in a pre-
kindergarten or childcare program that is licensed or regulated by the
State. We propose to change the heading of Sec. 674.51 to Cancellation
for service in an early childhood education program to reflect the fact
that the expansion of cancellation benefits available to borrowers
under this provision are no longer limited to service in early
childhood education programs authorized by the Head Start Act. We also
propose to add ``pre-kindergarten or child care program'' to the
definition of ``full-time staff member'' in Sec. 674.58.
We propose to add definitions of the terms pre-kindergarten program
and child care program to Sec. 674.58(c). A pre-kindergarten program
would be defined as a State-funded program that serves children from
birth through age six and addresses the children's cognitive (including
language, early literacy, and early mathematics), social, emotional,
and physical development (see proposed Sec. 674.58(c)(2)). A child
care program would be defined as a program that is licensed and
regulated by the State and provides child care services for fewer than
24 hours per day per child, unless care in excess of 24 consecutive
hours is needed due to the nature of the parents' work (see proposed
Sec. 674.58(c)(3)).
Reasons: We are proposing to make changes to Sec. Sec. 674.53,
674.57, and 674.58 to ensure that the Department's regulations reflect
the expansion of benefits that are now available for borrowers in the
Federal Perkins Loan program as a result of the enactment of the HEOA.
It is important to note that in order to be consistent with Team
I's development of the proposed regulations for the teacher loan
forgiveness program contained in the Federal Family Education Loan
(FFEL) and William D. Federal Direct Loan (Direct Loan) programs, the
Department proposed regulatory language to allow borrowers in the
Perkins Loans program to receive credit for a full year of
cancellation, as long as the eligible service crossed over the
enactment date of August 14, 2008. The non-Federal negotiators agreed
with this proposal as it will ensure equitable treatment of borrowers
in all three loan programs.
Addition of New Public Service Cancellation Categories (Sec. 674.56)
Statute: Section 465 of the HEOA amended section 465(a)(2) of the
HEA by adding the following new public service cancellation categories
for borrowers in the Federal Perkins Loan program who are performing
qualifying service:
Full-time faculty members at a Tribal College or
University, as that term is defined in section 316 of the HEA.
Full-time fire fighters who serve a local, State, or
Federal fire department or fire district.
Librarians with a master's degree in library science who
are employed in an elementary or secondary school that qualifies for
Title I funding, or in a public library that serves a geographic area
that includes one or more Title I-eligible schools.
Full-time speech-language pathologists with a master's
degree who are working exclusively with Title I-eligible schools.
Current Regulations: None.
Proposed regulations: The Secretary proposes to amend Sec. 674.56
to incorporate the new public service employment cancellations for
borrowers in the Federal Perkins Loan program who are performing
qualifying service as full-time faculty members at a Tribal College or
University, full-time fire fighters who serve a local, State, or
Federal fire department or fire district, librarians with a master's
degree in library science, and full-time speech-language pathologists
with a master's degree.
Under proposed Sec. 674.56, current borrowers with outstanding
balances on loans already in repayment and all new borrowers who
perform eligible service that includes August 14, 2008, or begins on or
after that date, in these new cancellation categories, would qualify
for cancellation, regardless of whether the cancellation category
appears on the borrower's promissory note.
Reasons: The Secretary proposes to amend Sec. 674.56 (Employment
cancellation--Federal Perkins, NDSL and Defense loans) to incorporate
the new public service employment
[[Page 37457]]
cancellations reflected in amended section 465(a) of the HEA.
Military Service Cancellation (Sec. 674.59)
Statute: Section 465 of the HEOA amended section 465(a)(3)(A) of
the HEA to eliminate the provision that limited cancellation for
eligible military service to 50 percent of a borrower's outstanding
balance on his or her Perkins Loan.
Current regulations: Current Sec. 674.59 provides that Federal
Perkins Loan borrowers who are serving in areas of hostility are
eligible for cancellation of up to 50 percent of their outstanding
balance, in increments of 12 percent a year for each full year of
active duty service, if the borrower is serving in an area of imminent
danger that qualifies for special pay under section 310 of title 37 of
the United States Code.
Proposed regulations: Proposed Sec. 674.59 would amend the
cancellation rate for each year of qualifying service for the military
service cancellation. Specifically, borrowers who are serving in areas
of hostility are now eligible to receive a cancellation of up to 100
percent of the loan for each full year of active duty service that
includes August 14, 2008, or begins on or after that date in the
following increments: 15 percent for the first and second years of
service; 20 percent for the third and fourth years of service; and, 30
percent for the fifth year of service.
Reasons: The changes in the military service cancellation
provisions implement the new statutory changes in the Federal Perkins
Loan program as a result of the HEOA.
Executive Order 12866
1. Regulatory Impact Analysis
Under Executive Order 12866, the Secretary must determine whether
the regulatory action is ``significant'' and therefore subject to the
requirements of the Executive Order and subject to review by the 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 the new part E
to the HEA, Lender and Institution Requirements Relating to Education
Loans, which establishes extensive new disclosure requirements for
lenders and institutions participating in Federal and private student
loan programs. These regulations also implement significant changes
made by the HEOA to provisions related to institutional cohort default
rates and Perkins Loan cancellations.
In general, these 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:
Preferred lender arrangement: In defining a preferred lender
arrangement, the Secretary determined that such an arrangement does not
exist for private education loans that a covered institution makes to
its own students, as long as the private education loan is funded by
the covered institution's own funds; is funded by donor-directed
contributions; is made under title VII or title VIII of the Public
Service Health Act; or is made under an institutional repayment plan of
the covered institution.
Disclosures from schools with preferred lender lists: In response
to concerns from a number of non-Federal negotiators, the Secretary
considered whether to require institutions to ``provide'' students and
parents with the required materials or, as suggested by the non-Federal
negotiators, ``make available'' the required materials. As discussed
elsewhere in this preamble, the Secretary determined that a requirement
to provide the materials was more appropriate.
Private loan self-certification forms: The Secretary determined
that private education loan borrowers should be required to fill out
self-certification forms even if the lender is their institution.
Definition of ``gift'': In defining the term gift for the purposes
of institutional codes of conduct, section 487(e)(2)(B)(ii) of the HEA
excluded favorable terms, conditions, and borrower benefits on a loan
provided to students employed at a covered institution, if the terms,
conditions, or benefits are comparable to those provided to all
students at the institution. As discussed more fully in the code of
conduct discussion in this preamble, the Secretary determined that
``all students'' refers to all students employed at the covered
institution, rather than to the general student population at that
institution.
Self-certification forms: The Secretary determined that self-
certification forms and information must only be provided to an
applicant for a private education loan who is ``enrolled or admitted''
to an institution rather than to any student who requests the
information. The Secretary also included a provision to the proposed
regulations to require an institution to discuss the availability of
Federal, State, and institutional aid with an applicant for a private
loan at the request of the applicant.
Cohort Default Rate: As discussed further in the discussion
surrounding cohort default rates in this preamble, the Secretary
determined that the default rate of an institution that establishes an
additional location at the site of a closed institution for which it
conducted a teach-out would not be affected in any way by the closed
institution's cohort default rate.
Perkins loan cancellations: Following discussions with the non-
Federal negotiators, the Secretary proposed to define a number of key
terms used for purposes of determining cancellation benefits in the
Perkins Loan Program (see proposed Sec. 674.51). It was determined
that additional clarity was needed for some of the terms used in the
HEA in order for the Department to implement the Perkins Loan
cancellation provisions of the HEA. Some of the key terms proposed to
be defined in these regulations include firefighter, faculty member at
a Tribal College or University, librarian with a master's degree, and
speech language pathologist with a master's degree. The other
definitions provided in proposed Sec. 674.51 incorporate the language
from the HEA.
[[Page 37458]]
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
Preferred lender arrangement: Several non-Federal negotiators
argued that preferred lender arrangements can exist only in cases where
a written or verbal agreement exists between a lender and a covered
institution or institution-affiliated organization. One non-Federal
negotiator submitted an alternative definition for preferred lender
arrangement that would have built this requirement into the definition,
except in cases where conduct by the parties indicates an intention to
create a preferred lender arrangement. The Department declined to adopt
this alternative definition, arguing that the statutory definition of
preferred lender arrangement does not address how the arrangement comes
about, nor does the definition specify that a written or verbal
agreement must exist.
Several non-Federal negotiators proposed to exempt loans made
directly by a covered institution to its own students from falling
under the term preferred lender arrangement, arguing that under those
circumstances covered institutions would find it impossible or
impractical to comply with a number of the regulatory requirements that
flow from having a preferred lender arrangement. For example, non-
Federal negotiators noted that a school, in its capacity as a lender,
could be prohibited from paying its own employees, in its capacity as a
covered institution, under the code of conduct requirement that
prohibits a lender from providing gifts to employees of a covered
institution's financial aid office.
After considering proposals from non-Federal negotiators, the
Department determined that a preferred lender arrangement requires the
participation of at least two separate parties. Accordingly, the
Department agreed to clarify in the regulatory definition for preferred
lender arrangement that a preferred lender arrangement does not exist
for a private education loan made by a covered institution to the
covered institution's own students provided that the loan is paid for
by the institution's own funds, funded by donor-directed contributions,
made under title VII or title VIII of the Public Service Health Act, or
made under an institutional payment plan of the covered institution.
Disclosures from schools with preferred lender lists: Non-Federal
negotiators raised concerns about the proposed requirement, reflected
in proposed Sec. 601.10 that covered institutions ``provide'' certain
information to students before those students select a lender or apply
for an education loan. These negotiators asked that the requirement be
changed from ``provide'' to ``make available.'' The Department declined
to make this change, arguing that the term ``make available'' is more
passive than the term ``provide,'' and as such is inconsistent with the
intent of the requirement. While schools are expected to be proactive
in providing information to potential borrowers, the Department did
acknowledge that schools cannot ensure every student receives the
required information, and that schools making reasonable efforts to
give this information to its students at the appropriate time in the
award year would be considered to have complied with the requirement.
Private loan self-certification forms: Non-Federal negotiators
questioned the value of requiring schools to provide applicants with a
private education loan self-certification form in cases where the
applicant is applying for a private education loan made by the covered
institution. These negotiators argued that there was no reason for the
covered institution to provide the form to itself. The Department
determined that, because the self-certification form is intended to
disclose information to the borrower, not to the lender, borrowers
should still receive and complete the form before obtaining an
institutional loan.
Definition of ``gift'': Non-Federal negotiators raised concerns
about proposed language excluding from the definition of the term gift,
favorable terms, conditions, and borrower benefits on a loan provided
to students employed at a covered institution, if the terms,
conditions, or benefits are comparable to those provided to all
students at the institution. These negotiators asked whether ``all
students'' at the institution meant the general student population or
only other students employed at the institution. After considering the
intent of the statutory requirement underlying the proposed regulation
and recognizing that lenders may offer preferable terms and conditions
to student employees at the school as a matter of course, the
Department determined that it is acceptable to use benefits offered to
all student employees as a benchmark, rather than the benefits the
students in the general population receive.
Self-certification forms: A number of negotiators raised concerns
about the potential for fraudulent use of the self-certification form.
In response, it was suggested that the required self-certification form
and information only must be provided to an applicant who is ``enrolled
or admitted'' to the institution rather than to any student who
requests the information. The Department agreed to adopt this approach,
which non-Federal negotiators agreed would minimize the chances a
student who is not enrolled or admitted to the institution would use
the form and information to obtain a private education loan for which
the student is not eligible.
Several non-Federal negotiators requested that an applicant for a
private education loan receive as much information as possible
regarding available aid options. Accordingly, the Department agreed to
add a provision to proposed Sec. 668.14(29)(ii) that would require an
institution to discuss the availability of Federal, State, and
institutional aid with the applicant, at the request of the applicant.
The Department and the non-Federal negotiators agreed that this would
result in financial aid administrators counseling the applicant and
providing students with an opportunity to ask questions about aid
options or how to apply for aid.
Cohort Default Rate: The Department and non-Federal negotiators
considered the best way to support the clear statutory intent of the
HEA to encourage institutions to conduct teach-outs of closed
institutions. Discussions indicated that a requirement to include a
closed school's cohort default rate in its own rate could dissuade an
institution from conducting the teach-out. Accordingly, the Department
determined that the cohort default rate of an institution that
establishes an additional location at the site of a closed institution
for which it conducted a teach-out would not be affected in any way by
the closed institution's cohort default rate.
Perkins loan cancellations: The Department proposed to define a
number of terms, such as faculty member at a Tribal College or
University, firefighter, librarian with a master's degree, and speech
language pathologist with a master's degree in proposed Sec. 674.51.
The Department included definitions for these terms after considering
the generally accepted meaning of the terms as well as the discussion
of these terms during the negotiated rulemaking sessions. In addition,
to be consistent with proposed regulations developed for the teacher
[[Page 37459]]
loan forgiveness program contained in the FFEL and Direct Loan
programs, the Secretary determined that borrowers in the Perkins Loans
program should receive credit for a full year of cancellation, as long
as the eligible service crossed over the enactment date of August 14,
2008.
Benefits
Benefits provided in these 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, and expanded eligibility for Perkins Loan cancellation
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 borrowers,
institutions, or the Federal taxpayer. The Department is interested in
receiving comments or data that would support a more rigorous analysis
of the impact of these provisions.
The Department estimates that expanded eligibility for Perkins Loan
cancellations would benefit approximately 33,000 borrowers annually.
This estimate is based on an analysis of data from a number of sources,
including primarily Baccalaureate and Beyond 1993/2003, to project the
number of Perkins Loan borrowers in each profession among those
included in the newly expanded cancellation categories. Specific
estimates by category are shown in the following table.
Perkins Loan Borrowers Eligible for Expanded Cancellations Annual By
Occupation
------------------------------------------------------------------------
Estimated
Occupation number of
borrowers
------------------------------------------------------------------------
ESA Teachers........................................... 20,000
Childcare workers...................................... 5,296
Firefighters........................................... 3,240
Speech pathologists.................................... 2,968
Law enforcement........................................ 770
Librarians............................................. 640
Tribal college faculty................................. 24
----------------
Total.............................................. 32,938
------------------------------------------------------------------------
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 proposed regulations.
As discussed in greater detail under Net Budget Impacts, these proposed
provisions result in net costs to the government of $71.953 million
over 2009-2013.
Costs
Many of the statutory provisions implemented through this NPRM will
require regulated entities to develop new disclosures and other
materials, as well as accompanying dissemination processes. In total,
these changes are estimated to increase burden on entities or
individuals participating in the student loan programs by 4,636,495
hours. Of this increased burden, 292 hours are associated with lenders
and 1,195,769 hours with institutions. An additional 3,440,434 hours--
or 74.2 percent of the total burden associated with the proposed
regulations--are associated with borrowers. The monetized cost of this
additional burden, using loaded wage data developed by the Bureau of
Labor Statistics, is $78.5 million. 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 were used. This was
weighted to reflect the age profile of the student loan portfolio, with
half at the $472 per week of the 20 to 24 age bracket and half at the
$674 per week of the 25 to 34 year old bracket. This resulted in a
$16.37 hourly wage rate to use in monetizing the burden on borrowers.
While there is additional burden associated with a range of
proposed provisions in this NPRM, as noted earlier in this preamble
nearly three-quarters of this burden is associated with individual
borrowers. For most provisions, this estimated burden assumes nearly 3
million borrowers will devote very small amounts of time--often as
little as five minutes--to review additional disclosures added to
existing documents or processes such as entrance and exit counseling.
In the case of private loan borrowers, the Department estimates roughly
3.3 million borrowers will devote fifteen minutes to reviewing new
Truth in Lending Act disclosures required under the proposed
regulations.
For provisions affecting entities other than borrowers, 92.6
percent of the burden hours associated with this package--or 1,107,115
hours--result from new requirements for institutions involving the
distribution of private education loans. The following discussion
provides additional detail on the impact of this provision.
The proposed regulations require a covered institution, or an
institution-affiliated organization of a covered institution, to
provide loan disclosures to a prospective borrower private education.
These disclosures must provide the prospective borrower with the
information required under section 128(e)(1) of the TILA; and must
inform the prospective borrower that he or she may qualify for loans or
other assistance under Title IV of the HEA; and that the terms and
conditions of Title IV, HEA program loans may be more favorable than
the provisions of private education loans. The information regarding
private education loans must be presented in such a manner as to be
distinct from information regarding Title IV, HEA program loans.
The proposed regulations require that, upon an enrolled or admitted
student applicant's request for a private education loan self-
certification form, an institution must provide to the applicant, in
written or electronic form, the self-certification form for private
education loans developed by the Secretary to satisfy the requirements
of Section 128(e)(3) of the TILA. The institution must also provide the
information required to complete the form, if the institution possesses
that information.
In assessing burden associated with these new requirements, the
Department estimated 6,264 covered institutions (and their
institutionally-affiliated organizations) must comply with these
proposed disclosure regulations to be. Of these, we estimate 1,757
covered institutions and their institutionally- affiliated
organizations will be providing private education loans and therefore
adopting TILA compliant disclosures for all private education loans
they offer. The burden for the implementation of the TILA compliant
disclosures is estimated to be 4 hours per institution. We estimate
3,333,600 borrowers of private education loans and that the average
amount of burden to provide the TILA disclosures to be .25 hour per
loan, for a total burden of 7,028 hours.
The Department will issue a self-certification form for adoption by
all covered institutions. We estimate that on average, there will be 3
hours of additional burden per institution for the adoption and
implementation of the Department's self-certification. Additionally, we
estimate that 3,333,600 borrowers will receive this new self-
[[Page 37460]]
certification form in their pursuit of a private education loan. We
estimate the burden to the institution to provide each self-
certification form to be .33 hours per form, for a total burden of
1,100,008 hours.
The other provisions that increase burden and associated costs are
relatively minor, especially when looked at for an individual entity
rather than in total. To a large extent, the cost of many of these
requirements can be avoided if institutions choose not to maintain a
preferred lender arrangement. Given that there is little data
indicating that the absence of such an agreement imposes a significant
cost on institutions or their students--particularly given the
alternative of simply listing all lenders who have provided loans to an
institution, the Department expects few institutions to enter into
these arrangements. Other proposed regulations generally would require
discrete changes in specific parameters associated with existing
requirements--such as changes to entrance and exit counseling, cohort
default rates, and Perkins Loan cancellations--rather than wholly new
requirements. Accordingly, entities wishing to continue to participate
in the student aid programs have already absorbed most of the
administrative costs related to implementing these proposed
regulations. Marginal costs over this baseline are primarily related to
one-time system changes that, while possibly significant in some cases,
are an unavoidable cost of continued program participation. In
assessing the potential impact of these proposed regulations, the
Department recognizes that certain provisions are likely to increase
workload for some program participants. In general, the Department
estimates that it would take institutions 3 hours to implement each of
these minor provisions. (This additional workload is discussed in more
detail under the Paperwork Reduction Act of 1995 section of this
preamble.) 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 private education loans 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 proposed regulations are
estimated to have a net budget impact of $12.408 million in 2009 and
$71.953 million over FY 2009-2013. 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 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 proposed regulations. That said, however, in
developing the following Accounting Statement, 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 proposed 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 Department estimates no budgetary impact for most of the
proposed regulations included in this NPRM. There is no data indicating
that the extensive new requirements for disclosures and codes of
conduct for student loan program participants will have any impact on
the volume or composition of Federal student loans. Similarly, changes
to the cohort default rate calculation are not estimated to affect
Federal costs, as students are typically assumed to resume their
education at another school in the event the school they are attending
loses eligibility to participate in the student loan program. In
addition, changes to the calculation formula are not estimated to have
a significant effect on the number of schools that lose eligibility, as
the impact of adding a third year to the calculation is expected to be
offset by the higher threshold.
The Department's analysis indicates that approximately 3 percent of
schools will be affected by the change to a 3-year cohort default rate
calculation. In an analysis of 4,241 schools, 83 with 2-year cohort
default rates below 25 were estimated to have 3-year cohort default
rates above 30. A total of 133 schools with a 2-year CDR under 25 are
estimated to have a 3-year CDR between 25 and 30, demonstrating that
the effect of changing to the calculation period is offset by the
increased threshold. The small number of schools involved and the
ability of students to pursue their education at other institutions
means that this change is not expected to affect aggregate loan volumes
or Federal costs.
Perkins Loan Cancellations. The Department estimates the Perkins
Loan cancellation provisions in these proposed regulations would
increase the Federal costs by $71.953 million over FY 2009-2013. This
estimate reflects the cost of additional cancellation benefits for the
newly eligible borrowers discussed elsewhere in this analysis, under
Benefits.
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
[[Page 37461]]
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 were
used, including data from the National Student Loan Data System;
operational and financial data from Department of Education systems,
including especially the Fiscal Operations Report and Application to
Participate (FISAP); 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 U.S. 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 earlier in this discussion, the
Department is particularly interested in receiving 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.
Accounting Statement
As required by OMB Circular A-4 (available at http://www.Whitehouse.gov/omb/Circulars/a004/a-4.pdf), in Table 2, 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 Perkins loan cancellations).
Table 2--Accounting Statement: Classification of Estimated Expenditures
[In millions]
----------------------------------------------------------------------------------------------------------------
Category Transfers
----------------------------------------------------------------------------------------------------------------
Annualized Monetized Transfers........ $90.731.
From Whom to Whom?.................... Federal Government to Student Loan Borrowers.
----------------------------------------------------------------------------------------------------------------
2. Clarity of the Regulations
Executive Order 12866 and the Presidential memorandum on ``Plain
Language in Government Writing'' require each agency to write
regulations that are easy to understand.
The Secretary invites comments on how to make these proposed
regulations easier to understand, including answers to questions such
as the following:
Are the requirements in the proposed regulations clearly
stated?
Do the proposed regulations contain technical terms or
other wording that interferes with their clarity?
Does the format of the proposed regulations (grouping and
order of sections, use of headings, paragraphing, etc.) aid or reduce
their clarity?
Would the proposed regulations be easier to understand if
we divided them into more (but shorter) sections? (A ``section'' is
preceded by the symbol ``Sec. '' and a numbered heading; for example,
Sec. 601.30.)
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 largely
associated with the requirements to provide students with new
disclosures related to preferred lender lists, private loan TILA
requirements, and other new borrower rights and responsibilities. In
many cases, these requirements only require one-time changes to
existing entrance and exit counseling materials and should not
represent significant new burden. (The Department estimates these
changes generally require three hours or less to implement.) For other
requirements, such as those affecting schools choosing to maintain a
preferred lender list, the Department is providing model disclosure
forms the adoption of which should minimize institutional burden. In
addition, FFEL schools meeting the definition of small entities
generally have difficulty accessing multiple lenders--during the
negotiated rule-making process, representatives of these schools noted
that a requirement to include even three lenders on a preferred lender
list would represent a major problem for them. The proposed regulation,
however, allows these schools to avoid the burdens associated with
maintaining such a list by simply providing students with all lenders
who have provided loans at the schools in the past. This would
effectively accomplish the same thing as the schools' previous
preferred lender list without adding significant new burden. To assess
overall burden imposed on schools meeting the definition of small
entities, the Department developed a
[[Page 37462]]
methodology using IPEDS data and the percentage of borrowers attending
these institutions. Using this methodology, the Department estimates
the proposed regulations will increase total burden hours for these
schools by 37,723, or roughly 32 hours per institution. (Monetized
using salary data from the Bureau of Labor Statistics, this burden is
$699,384 and $593, respectively.) Based on these estimates, the
Department believes the proposed new requirements do not 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 and private student loans, is
highly unlikely to incur significant new compliance costs as a result
of the proposed regulation. Accordingly, the Department has determined
that the proposed regulations do 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. In particular, we are interested in detailed
information on actual staff and systems costs related to implementing
new disclosure requirements, particularly related to private loans.
Paperwork Reduction Act of 1995
Proposed Sec. Sec. 601.10, 601.11, 601.20, 601.21, 601.30, 601.40,
668.16, 668.181, 668.186, 668.190, 668.191, 668.200, 668.202, 668.209,
668.210, 668.211, 668.212, 668.213, 668.214, 668.217, 674.42, 674.53,
674.57, 674.58, 674.56, 674.59, 682.604, and 685.304 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.
Section 601.10--Preferred Lender Arrangement Disclosures
Proposed Sec. 601.10(a) would require that a covered institution,
or an institution-affiliated organization of a covered institution,
that participates in a preferred lender arrangement disclose the
maximum amount of Federal grant and loan aid under Title IV of the HEA
available to students; the information identified on the model
disclosure form developed by the Secretary for each type of education
loan that is offered pursuant to a preferred lender arrangement; and a
statement that the institution is required to process the documents
required to obtain a loan under the FFEL Program from any eligible
lender the student selects.
Proposed Sec. 601.10(a)(2) would require a covered institution, or
an institution-affiliated organization of a covered institution to
provide the disclosures required under section 128(e)(11) of the TILA
for each type of private education loan offered pursuant to a preferred
lender arrangement.
Proposed Sec. 601.10(c) would require a covered institution and
institution-affiliated organization that participates in a preferred
lender arrangement to provide the disclosure of the maximum amount of
Federal grant and loan aid available to students, the information
identified on a model disclosure form developed by the Department, as
well as a statement indicating to students and parents that the
institution is required to process the documents required to obtain a
FFEL loan from any eligible lender the student selects. This
information would need to be provided to students attending the covered
institution, or the families of such students, as applicable. The
information would need to be provided annually and in a manner that
allows for the students or their families to take the information into
account before selecting a lender or applying for an education loan.
Proposed Sec. 601.10(d) would require that if a covered
institution compiles, maintains, and makes available a preferred lender
list, the institution must clearly and fully disclose on the preferred
lender list why the institution participates in a preferred lender
arrangement with each lender on the preferred lender list, particularly
with respect to terms and conditions or provisions favorable to the
borrower; and that the students attending the institution, or the
families of such students, do not have to borrow from a lender on the
preferred lender list.
Proposed Sec. 601.10(d)(2) would require the covered institution
to ensure, through the use of the list of lender affiliates provided by
the Secretary, that there are not less than three FFEL lenders that are
not affiliates of each other included on the preferred lender list and,
if the institution recommends, promotes, or endorses private education
loans, that there are not less than two lenders of private education
loans that are not affiliates of each other included on the preferred
lender list.
Proposed Sec. 601.10(d)(1)(ii) would require that the preferred
lender list must specifically indicate, for each listed lender, whether
the lender is or is not an affiliate of another lender on the preferred
lender list; and if a lender is an affiliate of another lender on the
preferred lender list, must describe the details of such affiliation.
Proposed Sec. 601.10(d)(3) would require that the preferred lender
list prominently disclose the method and criteria used by the
institution in selecting lenders with which to participate in preferred
lender arrangements to ensure that such lenders are selected on the
basis of the best interests of the borrowers. These criteria would
include payment of origination or other fees on behalf of the borrower;
highly competitive interest rates, or other terms and conditions or
provisions of Title IV, HEA program loans or private education loans;
high-quality servicing; or additional benefits beyond the standard
terms and conditions or provisions for such loans.
Proposed Sec. 601.10(d)(4)(ii) would require that the covered
institution exercise a duty of care and a duty of loyalty to compile
the preferred lender list without prejudice and for the sole benefit of
the students attending the institution, or the families of such
students.
Proposed Sec. 601.10(d)(5) would require a covered institution to
not deny or otherwise impede the borrower's choice of a lender or cause
unnecessary delay in certification of a Title IV loan for those
borrowers who choose a lender that is not included on the preferred
lender list.
These proposed regulations would represent an increase in burden.
The affected entities under the proposed regulations are borrowers, and
institutions and their institutionally-affiliated organizations. We
estimate that the burden for borrowers would increase by 323,103 hours
and the burden for institutions and institutionally-affiliated
organizations would increase by 12,078 hours, respectively, and we will
include the total burden of 335,181 hours in OMB Control Number 1845-
XXXA.
[[Page 37463]]
Section 601.11--Private Education Loan Disclosures and Self-
Certification Form
Proposed Sec. 601.11(a) would require a covered institution, or an
institution-affiliated organization of a covered institution, to
provide to a prospective borrower private education loan disclosures.
The private education loan disclosures required would need to provide
the prospective borrower with the information required under section
128(e)(1) of the TILA; and would need to inform the prospective
borrower that he or she may qualify for loans or other assistance under
Title IV of the HEA; and that the terms and conditions of Title IV, HEA
program loans may be more favorable than the provisions of private
education loans.
Proposed Sec. 601.11(c) would require the covered institution or
institution-affiliated organization to ensure that information
regarding private education loans is presented in such a manner as to
be distinct from information regarding Title IV, HEA program loans.
Proposed Sec. 601.11(d) would require that, upon an enrolled or
admitted student applicant's request for a private education loan self-
certification form, an institution must provide to the applicant, in
written or electronic form, the self-certification form for private
education loans developed by the Secretary to satisfy the requirements
of section 128(e)(3) of the TILA. The institution also would need to
provide the information required to complete the form, if the
institution possesses that information.
These proposed regulations would represent an increase in burden.
The affected entities under the proposed regulations are borrowers, and
institutions and institutionally-affiliated organizations. We estimate
that burden to borrowers would increase by 833,400 hours and the burden
to institutions and institutionally-affiliated organizations,
respectively would increase by 1,107,115 hours and we will include the
total burden of 1,940,515 hours in OMB Control Number 1845-XXXA.
Section 601.20--Annual Report Due From Covered Institutions and
Institution-Affiliated Organizations
Proposed Sec. 601.20(a) would require a covered institution, and
an institution-affiliated organization, that participates in a
preferred lender arrangement to prepare and submit to the Secretary an
annual report, by a date determined by the Secretary. The annual report
would include, for each lender that participates in a preferred lender
arrangement with the covered institution or organization, the
information about preferred lenders arrangements that must also be
described for students and parents; and a detailed explanation of why
the covered institution or institution-affiliated organization
participates in a preferred lender arrangement with the lender. The
explanation would need to include an explanation of why the terms,
conditions, and provisions of each type of education loan provided
pursuant to the preferred lender arrangement are beneficial for
students attending the institution, or the families of such students,
as applicable.
Proposed Sec. 601.20(b) would require a covered institution or
institution affiliated organization to ensure that the annual report is
made available to the public and provided to students attending or
planning to attend the covered institution and the families of such
students.
These proposed regulations would represent an increase in burden.
The affected entities under the proposed regulations are institutions
and institutionally-affiliated organizations. We estimate that burden
for institutions and institutionally-affiliated organizations would
increase by 336 hours in OMB Control Number 1845-XXXA.
Section 601.21--Code of Conduct
Proposed Sec. 601.21 would require a covered institution that
participates in a preferred lender arrangement to develop a code of
conduct with respect to FFEL Program loans and private education loans
with which the institution's agents must comply to prohibit a conflict
of interest with the responsibilities of an agent of an institution
with respect to FFEL Program loans and private education loans.
Proposed Sec. 601.21(a)(2)(ii) and (iii) would require the
institution to publish the code of conduct prominently on the
institution's Web site; and administer and enforce the code by, at a
minimum, requiring that all of the institution's agents with
responsibilities with respect to FFEL Program loans or private
education loans be annually informed of the provisions of the code of
conduct.
Proposed Sec. 601.21(b)(1) and (b)(2) would require any
institution-affiliated organization of a covered institution that
participates in a preferred lender arrangement to comply with the code
of conduct developed and published by the covered institution and, if
the institution-affiliated organization has a Web site, publish the
code of conduct prominently on the Web site.
Under proposed Sec. 601.21(b)(3), the institution-affiliated
organization would be required to administer and enforce the code of
conduct by, at a minimum, requiring that all of the institution-
affiliated organization's agents with responsibilities with respect to
FFEL Program loans or private education loans be annually informed of
the provisions of the code of conduct.
The code of conduct would apply to agents of an institution who are
employees of the financial aid office of the institution or who have
responsibilities with respect to FFEL Program loans or private
education loans.
Proposed Sec. 601.21(c) would prescribe the minimum requirements
of a covered institution's code of conduct. An institution's code of
conduct must prohibit: Revenue-sharing arrangements with any lender;
soliciting or accepting gifts from a lender, guarantor, or servicer;
accepting any fee, payment, or other financial benefit as compensation
for any type of consulting or any contractual relationship with a
lender; assigning a first-time borrower's loan to a particular lender
or refusing to certify, or delaying certification of, any loan based on
a borrower's selection of a particular lender; requesting offers of
funds for private education loans, including opportunity pool loans,
from a lender in exchange for providing the lender with a specified
number or loan volume of FFEL Program loans or private education loans
or a preferred lender arrangement; requesting or accepting staffing
assistance from a lender; and receipt of compensation for serving on an
advisory board, commission, or group established by a lender,
guarantor, or group of lenders or guarantors.
Proposed 601.21(c)(6) would provide exceptions to the ban on
staffing assistance, such as staffing assistance related to
professional development or training; providing educational counseling
materials; or providing short-term, nonrecurring staffing assistance
during disasters or emergencies.
These proposed regulations represent an increase in burden. The
affected entities under the proposed regulations are institutions and
institutionally-affiliated organizations. We estimate that burden for
institutions and institutionally-affiliated organizations,
respectively, would increase to 4,697 in OMB Control Number 1845-XXXA.
Section 601.30--Duties of Institutions Participating in the William D.
Ford Direct Loan Program
Proposed Sec. 601.30 would require a covered institution
participating in the William D. Ford Direct Loan Program to make the
information identified in a
[[Page 37464]]
model disclosure form developed by the Secretary available to students
attending or planning to attend the institution, or the families of
such students. If the institution provides information regarding a
private education loan to a prospective borrower, the institution must
concurrently provide the borrower with the information identified on
the model disclosure form.
Proposed Sec. 601.30(b) would allow a covered institution to use a
comparable form designed by the institution to provide this
information, instead of the model disclosure form.
These proposed regulations represent an increase in burden. The
affected entities under the proposed regulations are borrowers, and
institutions and their institutionally-affiliated organizations. We
estimate that burden to borrowers would increase by 56,671 hours and
1,353 hours for institutions and institutionally-affiliated
organizations, respectively, and we will include the total burden of
58,024 hours in OMB Control Number 1845-XXXB.
Section 601.40--Lender Responsibilities
Proposed Sec. 601.40(a) would require FFEL lenders to provide FFEL
borrowers the disclosures required under current Sec. 682.205(a) and
(b). A lender offering private education loans would be required to
comply with the disclosures required under section 128(e) of the TILA
for each type of private loan.
Proposed Sec. 601.40(b) would set forth the information the
lenders will have to provide to the Secretary on an annual basis
regarding any reasonable expenses paid or provided to any agent of a
covered institution who is employed in the financial aid office or has
responsibilities with respect to education loans or other financial aid
of the institution for service by the employee on an advisory board,
commission or group established by a lender or a group of lenders. This
information also would need to be reported for expenses paid or
provided to any agent of an institution-affiliated organization
involved in recommending, promoting or endorsing education loans.
Lenders would be required to report the amount of the expenses paid and
the specific instances for which it was paid; the names of the agents
to whom expenses were paid; and the date and description of each
activity for which expenses were paid. This section of the regulations
would also require the lender to submit a certification of compliance
to the Secretary.
Proposed Sec. 601.40(c) would require any FFEL lender
participating in one or more preferred lender arrangements to annually
certify to the Secretary its compliance with the HEA. Lenders required
to file an audit under Sec. 682.305(c) would be required to include
the certification as part of the audit. A lender that is not required
to submit an audit would need to provide the certification separately.
Proposed Sec. 601.40(d) would require FFEL lenders with a
preferred lender arrangement with a covered institution or an
institution-affiliated organization to annually provide to the
institution, institution-affiliated organization and the Secretary
information regarding the FFEL loans the lender will provide to
students and families pursuant to the preferred lender arrangement for
the next award year. The information will be prescribed by the
Secretary, after consultation with the Federal Reserve.
These proposed regulations represent an increase in burden. The
affected entities under the proposed regulations are borrowers and
lenders. We estimate that burden to borrowers would increase by 632,383
hours and that burden for lenders would increase by 292 hours in OMB
Control Number 1845-XXXA.
Sections 668.181, 668.200, and 668.202--Three-Year Cohort Default Rates
The proposed regulations reflected in new proposed subpart N of
part 668 would incorporate the three-year cohort default method under
proposed Sec. 668.202. With regard to the transition period for use of
the current cohort default rate method, proposed Sec. Sec. 668.181 and
668.200(b) would specify that the Department will issue annually two
sets of draft and official cohort default rates for fiscal years 2009,
2010, and 2011.
These proposed regulations describe the purpose of the 3-year rate
and explain the calculation and application of the 3-year cohort
default rate. As a result, the statement of purpose of this subpart and
the description of how the Department will calculate and apply the 3-
year cohort default rate will not impact the burden in OMB 1845-0022.
Section 668.16--Administrative Capabilities and Cohort Default Rate
Appeals
Proposed Sec. 668.16(m)(1)(ii) would apply the current rules for
administrative capability based on two-year cohort default rates during
the transition period. Thereafter, a school would be administratively
capable if two of its three most recent three-year rates are less than
30 percent. Under proposed Sec. 668.16(m)(2), the current rules for
provisional certification based on two year cohort default rates of 25
percent or more but less than 40 percent would continue to apply during
the transition period. Thereafter, an institution whose three year
default rates are 30 percent or more, but less than 40 percent, for two
years would not be provisionally certified based solely on its default
rates under the following circumstances:
(1) The institution files timely a request for adjustment or appeal
from the second such rate under proposed Sec. Sec. 668.209
(Uncorrected data adjustments), 668.210 (New data adjustments), or
668.212 (Loan servicing appeals) and the request or appeal is pending
or succeeds in reducing the institution's three-year rate below 30
percent.
(2) The institution files timely an appeal under proposed Sec.
668.213 (Economically disadvantaged appeals) from the second such rate
and the appeal is pending or successful. proposed Sec. 668.213 would
provide that the two rates of 30 percent or more must be successive to
permit the appeal.
(3) The institution files a timely participation rate index appeal
under proposed Sec. 668.214 and the appeal is pending or successful.
(4) The institution had 30 or fewer borrowers in the three most
recent cohorts of borrowers used to calculate the institution's rates.
(5) A three-year rate that would otherwise potentially subject the
institution to provisional certification was calculated as an average
rate.
To avoid provisional certification by invoking exceptions (1), (2)
or (3), the institution would be required to file a request for
adjustment or appeal in response to a notice from the Department that
the institution's second three-year cohort default rate, or second
successive three-year default rate for an economically disadvantaged
appeal, is 30 percent or more, but less than 40 percent.
Under proposed Sec. 668.214, a participation rate index appeal
could be taken from a loss of eligibility, or potential placement on
provisional certification, based on three-year cohort default rates if
the participation rate index for any of the excessive rates was .0625
or less. The appeal would be taken within 30 days of receiving the
notice of loss of eligibility with the most recent excessive official
rate.
In addition, under proposed Sec. 668.204(c)(1)(iii), an
institution would be allowed to challenge a potential placement on
provisional certification because its three-year cohort default rates
for two of the most recent three years would be 30 percent or more, but
[[Page 37465]]
less than 40 percent, even though the second such rate was available
only as a draft rate, if its participation rate index was equal to or
less than 0.0625 for either its draft rate, or its most recent official
rate equaling or exceeding 30 percent but less than 40 percent. The
challenge would be taken following notice to the school of its draft
rate.
The proposed changes in Sec. 668.16 apply the current rules on
administrative capability during the transition period. We estimate
that the proposed regulations will not impact burden in OMB 1845-0022.
Section 668.186, 668.190, 668.191, 668.209, 668.210, 668.211, and
668.212--Electronic Processes
Proposed Sec. 668.186 would eliminate the need to request a loan
record detail report by providing that the report will be sent
electronically to the institution as part of a package notifying the
institution of its official cohort default rate. The institution would
have five business days, from the transmission date of the package as
posted on the Department's Web site, to report any problem with
receiving that transmission. If the institution reports a problem
within the five-day period, and the Department agrees that the
institution did not cause the problem, we will extend the adjustment,
challenge, and appeal deadlines and timeframes to account for
retransmitting the package after the problem is resolved. If no
problems are reported by the institution, the timeframe associated with
filing or requesting the adjustment, challenge, or appeal begins on the
sixth day following the transmission date of the package that is posted
on the Department's Web site. The timeframes for the adjustments,
challenges, and appeals are reflected in proposed Sec. Sec. 668.190(b)
and 668.191(b).
The subpart M, part 668 provisions reflected in Sec. 668.186, and
the provisions for adjustments, challenges, and appeals in the related
sections in subpart M of part 668 would also be reflected in the
following parallel provisions in subpart N, part 668: Sec. Sec.
668.209, 668.210, 668.211, and 668.212.
These proposed regulations represent a decrease in burden. The
affected entities under these proposed regulations are institutions. We
estimate that burden would decrease by -725 hours for institutions
which would be reflected in OMB Control Number 1845-0022.
Sections 682.604 and 685.304--Entrance Counseling
Proposed Sec. 682.604(f)(3) would require that institutions
provide initial counseling for Stafford and graduate or professional
student PLUS Loan borrowers. Comprehensive information on the terms and
conditions of the loan and on the responsibilities of the borrower with
respect to the loan would need to be provided. Under this proposed
regulation, this information may be provided to the borrower during an
entrance counseling session conducted in person; on a separate written
form provided to the borrower that the borrower signs and returns to
the school; or online or by interactive electronic means, with the
borrower acknowledging receipt of the information.
Proposed Sec. 682.604(f)(4) would require a school that conducts
initial counseling online or through interactive electronic means to
take reasonable steps to ensure that each student borrower receives the
counseling materials and participates in and completes the initial
counseling, which may include completion of any interactive program
that tests the borrower's understanding of the terms and conditions of
the borrower's loans.
Proposed Sec. 682.604(f)(6) would require that initial counseling
for Stafford Loan borrowers: Explain the use of a Master Promissory
Note; emphasize to the student borrower the seriousness and importance
of the repayment obligation the student borrower is assuming; describe
the likely consequences of default, including adverse credit reports,
delinquent debt collection procedures under Federal law, and
litigation; in the case of a student borrower (other than a loan made
or originated by the school), emphasize that the student borrower is
obligated to repay the full amount of the loan even if the student
borrower does not complete the program, does not complete the program
within the regular time for program completion, is unable to obtain
employment upon completion, or is otherwise dissatisfied with or does
not receive the educational or other services that the student borrower
purchased from the school; inform the student borrower of sample
monthly repayment amounts based on a range of student levels of
indebtedness of Stafford loan borrowers, or student borrowers with
Stafford and PLUS loans, depending on the types of loans the borrower
has obtained--or the average indebtedness of other borrowers in the
same program at the same school as the borrower; to the extent
practicable, explain the effect of accepting the loan to be disbursed
on the eligibility of the borrower for other forms of student financial
assistance; provide information on how interest accrues and is
capitalized during periods when the interest is not paid by either the
borrower or the Secretary; inform the borrower of the option to pay the
interest on an unsubsidized Stafford Loan while the borrower is in
school; explain the definition of half-time enrollment at the school,
during regular terms and summer school, if applicable, and the
consequences of not maintaining half-time enrollment; explain the
importance of contacting the appropriate offices at the school if the
borrower withdraws prior to completing the borrower's program of study
so that the school can provide exit counseling, including information
regarding the borrower's repayment options and loan consolidation;
provide information on NSLDS and how the borrower can access the
borrower's records; and provide the name of and contact information for
the individual the borrower may contact if the borrower has any
questions about the borrower's rights and responsibilities or the terms
and conditions of the loan.
Proposed Sec. 682.604(f)(7) would require that initial counseling
for graduate or professional student PLUS Loan borrowers must: Inform
the student borrower of sample monthly repayment amounts based on a
range of student levels of indebtedness of graduate or professional
student PLUS loan borrowers, or student borrowers with Stafford and
PLUS loans, depending on the types of loans the borrower has obtained
or the average indebtedness of other borrowers in the same program at
the same school as the borrower; inform the borrower of the option to
pay interest on a PLUS Loan while the borrower is in school; for a
graduate or professional student PLUS Loan borrower who has received a
prior FFEL Stafford, or Direct Subsidized or Unsubsidized loan, provide
the information, specified in Sec. 682.603(d)(1)(i) through
(d)(1)(iii), that compares Stafford and PLUS Loan interest rates,
interest accrual periods, and repayment period begin dates; and for a
graduate or professional student PLUS Loan borrower who has not
received a prior FFEL Stafford, or Direct Subsidized or Unsubsidized
loan, provide the Stafford Loan initial counseling information
specified in proposed Sec. 682.604(f)(6)(i) through (f)(6)(xii).
Corresponding initial counseling requirements for Direct
Subsidized, Direct Unsubsidized, and Direct PLUS
[[Page 37466]]
loan borrowers are proposed in Sec. 685.304(a)(1) through (a)(9) of
the Direct Loan regulations.
These proposed regulations would represent an increase in burden.
The affected entities under the proposed regulations are borrowers and
institutions. We estimate that burden in OMB 1845-0020 would increase
by 475,152 hours for borrowers and 12,582 hours for institutions; and
we estimate that burden in OMB 1845-0021 would increase by 217,900
hours for borrowers and 12,582 hours for institutions for a total of
487,735 hours which would be reflected in OMB Control Number 1845-0020
and a total of 230,482 hours in OMB Control Number 1845-0021.
Sections 674.42, 682.604 and 685.304--Exit Counseling
Proposed Sec. Sec. 674.42(b), 682.604(g) and 685.304(b) would
continue to require a school to ensure that exit counseling is
conducted with each Perkins, FFEL Stafford, and Direct Subsidized and
Unsubsidized Loan borrower. In addition, schools would be required to
provide exit counseling to graduate or professional student FFEL PLUS
Loan borrowers and graduate or professional student Direct PLUS Loan
borrowers.
Under proposed Sec. Sec. 674.42(b)(1), 682.604(g)(1) and
685.304(b)(2) and (b)(3), schools would continue to be required to
conduct exit counseling either in person, by audiovisual presentation,
or by interactive electronic means. In each case, the school would be
required to ensure that the exit counseling is conducted shortly before
the student borrower ceases at least half-time study at the school, and
that an individual with expertise in the Title IV programs is
reasonably available shortly after the counseling to answer the student
borrower's questions. The alternative approach for student borrowers
enrolled in a correspondence program or a study-abroad program that the
home institution approves for credit would be maintained in the
proposed new regulations. The current regulatory procedures for student
borrowers who withdraw from school without the school's prior knowledge
or fail to complete an exit counseling session as required also would
be maintained in the proposed new regulations.
Proposed Sec. Sec. 674.42(b)(3), 682.604(g)(3) and 685.304(b)(6)
would continue to require that if exit counseling is conducted by
electronic interactive means, the school must take reasonable steps to
ensure that each student borrower receives the counseling materials,
and participates in and completes the counseling. Proposed Sec. Sec.
674.42(b)(4), 682.604(g)(4) and 685.304(b)(7) would retain the
requirement that schools maintain documentation substantiating the
school's compliance with this section for each student borrower.
Proposed Sec. Sec. 674.42(b)(2), 682.604(g)(2) and 685.304(b)(4)
also would require exit counseling for Perkins, FFEL, and Direct Loan
student borrowers to: Review for the student borrower information on
the availability of the Student Loan Ombudsman's office; inform the
student borrower of the availability of Title IV loan information in
the National Student Loan Data System (NSLDS) and how NSLDS can be used
to obtain Title IV loan status information; and provide a general
description of the types of tax benefits that may be available to
borrowers.
Additionally, proposed Sec. Sec. 682.604(g)(2)(ii) and
685.304(b)(4)(ii) would require the exit counseling for FFEL and Direct
Loan student borrowers to review the available FFEL and Direct Loan
repayment plan options, including standard, graduated, extended, income
sensitive and income-based repayment plans, including a description of
the different features of each plan and sample information showing the
average anticipated monthly payments, and the difference in interest
paid and total payments under each plan. The exit counseling also would
need to inform FFEL and Direct Loan borrowers of their option to change
repayment plans.
For Direct Loan borrowers, proposed Sec. 685.304(b)(4)(vi) would
retain the requirement that schools explain to the student borrower how
to contact the party servicing the Direct Loan.
These proposed regulations represent an increase in burden. The
affected entities under the proposed regulations are borrowers and
institutions. We estimate that burden would increase by 444,970 hours
for borrowers and 12,582 hours for institutions for a total of 457,552
hours which would be reflected in OMB Control Number 1845-0020. We
estimate that burden would increase by 213,542 hours for borrowers and
12,582 hours for institutions for a total of 226,124 hours which would
be reflected in OMB Control Number 1845-0021. We estimate that burden
would increase by 214,022 hours for borrowers and 5,940 hours for
institutions for a total of 219,962 hours which would be reflected in
OMB Control Number 1845.0023.
Sections 674.53, 674.57, and 674.58--Expansion of Teacher, Head Start,
and Law Enforcement Cancellation Categories
These proposed regulations would extend the new cancellation
categories to current Federal Perkins Loan borrowers with outstanding
balances on loans already in repayment and all new borrowers who
perform eligible service that includes August 14, 2008, or begins on or
after that date, regardless of whether information on the expanded
cancellation categories appears on the borrower's promissory note.
Proposed Sec. 674.53 would provide that a teacher who is employed
by an educational service agency, or a full-time special education
teacher, including teachers of infants, toddlers, children, or youth
with disabilities, who is working in a system administered by an
educational service agency, is eligible for cancellation benefits.
Proposed Sec. 674.57 would be amended such that the cancellation
provisions for law enforcement or correction officer would include
borrowers who are employed full-time as an attorney in Federal Public
Defender Organizations or Community Defender Organizations.
Proposed Sec. 674.58 of the Head Start cancellation provisions
would be amended by expanding cancellation benefits to include
borrowers who are performing qualifying service as full-time staff
members in a pre-kindergarten or childcare program that is licensed or
regulated by the State.
For purposes of determining a borrower's eligibility for
cancellation benefits, proposed Sec. 674.58(c)(1) and (2) would define
the terms ``pre-kindergarten program'' and ``childcare program.'' A
pre-kindergarten program would be defined as a State-funded program
that serves children from birth through age six and addresses the
children's cognitive (including language, early literacy, and early
mathematics), social, emotional, and physical development. A childcare
program would be defined as a program that is licensed and regulated by
the State and provides child care services for fewer than 24 hours per
day per child, unless care in excess of 24 consecutive hours is needed
due to the nature of the parents' work.
Proposed Sec. 674.58 also would amend the Head Start cancellation
provisions by renaming the regulation ``Cancellation for service in an
early childhood education program'' to reflect the fact that the
expansion of cancellation benefits available to borrowers under this
provision are no longer limited to service in early childhood education
programs authorized by the Head Start Act.
These proposed regulations represent an increase in burden. The
affected entities under the proposed regulations are borrowers and
institutions. We estimate that burden as a result of the
[[Page 37467]]
proposed changes in Sec. 674.53 would increase by 2,290 hours for
borrowers and 1,145 hours for institutions for a total of 3,435 hours
which would be reflected in OMB Control Numbers 1845-XXXC. We estimate
that burden as a result of the proposed changes in Sec. 674.57 would
increase by 385 hours for borrowers and 193 hours for institutions for
a total of 578 hours which would be reflected in OMB Control Number
1845-XXXC. We estimate that burden as a result of the proposed changes
in Sec. 674.58 would increase by 2,648 hours for borrowers and 1,325
hours for institutions for a total of 3,973 hours which would be
reflected in OMB Control Number 1845-XXXC.
Section 674.56--Addition of New Public Service Cancellation Categories
Proposed Sec. 674.56 would add new public service cancellation
categories for borrowers in the Federal Perkins Loan program who are
performing qualifying service as: Full-time faculty members at a Tribal
College or University; full-time fire fighters who serve a local,
State, or Federal fire department or fire district; librarians with a
master's degree in library science who are employed in an elementary or
secondary school that qualifies for Title I funding, or in a public
library that serves a geographic area that includes one or more Title
I-eligible schools; or full-time speech-language pathologists with a
master's degree who are working exclusively with Title I-eligible
schools.
Under these proposed regulations, current borrowers with
outstanding balances on loans already in repayment and all new
borrowers who perform eligible service that includes August 14, 2008,
or begins on or after that date, in these new cancellation categories,
would qualify for cancellation, regardless of whether the cancellation
category appears on the borrower's promissory note.
These proposed regulations represent an increase in burden. The
affected entities under the proposed regulations are borrowers and
institutions. We estimate that burden would increase by 3,436 hours for
borrowers and 1,718 hours for institutions for a total of 5,154 hours
which would be reflected in OMB Control Number 1845-XXXC.
Section 674.59--Military Service Cancellation
Proposed Sec. 674.59 would amend the cancellation rate for each
year of qualifying service for the military service cancellation.
Borrowers who are serving in areas of hostility are now eligible to
receive a cancellation of up to 100 percent of the loan for each full
year of active duty service that includes August 14, 2008, or begins on
or after that date in the following increments: 15 percent for the
first and second years of service; 20 percent for the third and fourth
years of service; and, 30 percent for the fifth year of service.
These proposed regulations represent an increase in burden. The
affected entities under the proposed regulations are borrowers and
institutions. We estimate that burden would increase by 20,532 hours
for borrowers and 10,266 hours for institutions for a total of 30,798
hours which would be reflected in OMB Control Number 1845-XXXC.
Consistent with the discussion in the preceding paragraphs, 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 and Reduction Act.
------------------------------------------------------------------------
Regulatory section Information section Collection
------------------------------------------------------------------------
601.10........................ Proposed Sec. OMB 1845-XXXA. This
601.10(a) would will be new
require that a collection. A
covered separate 60-day
institution, or an Federal Register
institution- notice will be
affiliated published to
organization of a solicit comments
covered on the form.
institution, that
participates in a
preferred lender
arrangement
disclose the
information
identified on the
model disclosure
form developed by
the Secretary and
its preferred
lender list.
601.11........................ Proposed Sec. OMB 1845-XXXA. This
601.11(a) would will be new
require a covered collection. A
institution, or an separate 60-day
institution- Federal Register
affiliated notice will be
organization of a published to
covered solicit comments
institution, to on the form.
provide to a
prospective
borrower private
education loan
disclosures
consistent with
section 128(e)(1)
of the TILA; to
provide a student
who requests a
private education
loan a self-
certification
form; and to
inform the
prospective
borrower that he
or she may qualify
for loans or other
assistance under
Title IV of the
HEA; and to inform
the prospective
borrower that the
terms and
conditions of
Title IV, HEA
program loans may
be more favorable
than the
provisions of
private education
loans.
601.20........................ Proposed Sec. OMB 1845-XXXA. This
601.20(a) would will be new
require a covered collection. A
institution, and separate 60-day
an institution- Federal Register
affiliated notice will be
organization that published to
participates in a solicit comments.
preferred lender
arrangement to
prepare and submit
to the Secretary
an annual report.
601.21........................ Proposed Sec. OMB 1845-XXXA. This
601.21 would will be new
require a covered collection. A
institution that separate 60-day
participates in a Federal Register
preferred lender notice will be
arrangement to published to
develop a code of solicit comments.
conduct with
respect to FFEL
Program loans and
private education
loans with which
the institution's
agents must comply
to prohibit a
conflict of
interest with the
responsibilities
of an agent of an
institution with
respect to FFEL
Program loans and
private education
loans.
[[Page 37468]]
601.30........................ Proposed Sec. OMB 1845-XXXB. This
601.30 would will be new
require a covered collection. A
institution separate 60-day
participating in Federal Register
the William D. notice will be
Ford Direct Loan published to
Program to make solicit comments.
the information
identified in a
model disclosure
form developed by
the Secretary
available to
students attending
or planning to
attend the
institution, or
the families of
such students. If
the institution
provides
information
regarding a
private education
loan to a
prospective
borrower, the
institution must
concurrently
provide the
borrower with the
information
identified on the
model disclosure
form.
601.40........................ Proposed Sec. OMB 1845-XXXA. This
601.40 would set will be new
forth the collection. A
information the separate 60-day
lenders will have Federal Register
to provide to the notice will be
Secretary on an published to
annual basis solicit comments.
regarding any
reasonable
expenses paid or
provided to any
agent of a covered
institution who is
employed in the
financial aid
office or has
responsibilities
with respect to
education loans or
other financial
aid of the
institution for
service by the
employee on an
advisory board,
commission or
group established
by a lender or a
group of lenders.
668.181, 668.200, & 668.202... Proposed Sec. Sec. OMB 1845-0022.
668.181, No change in
668.200, and burden.
668.202 would
provide a new
proposed subpart
N, part 668 to
incorporate the
three-year method
under Sec.
668.202. With
regard to the
transition period,
proposed Sec.
Sec. 668.181 and
668.200(b) would
specify that the
Department will
issue annually two
sets of draft and
official cohort
default rates for
fiscal years 2009,
2010, and 2011. As
a result, the
statement of
purpose of this
subpart and the
description of how
the Department
will calculate and
apply the 3-year
cohort default
rate will not
impact the burden
in OMB 1845-0022.
668.16........................ Proposed Sec. OMB 1845-0022.
668.16(m) would No change in
require burden.
institutions to
have the new three-
year cohort
default rate, and
would incorporate
the transition
rules and the
basis for appeals
for that cohort
default rate. The
proposed changes
in Sec. 668.16
apply the current
rules on
administrative
capability during
the transition
period. We
estimate that the
proposed
regulations will
not impact burden
in OMB 1845-0022.
668.186, 668.190, 668.191, These proposed OMB 1845-0022.
668.209, 668.210, 668.211, regulations would
and 668.212. eliminate the need
to request a loan
record detail
report from the
Department;
instead an
electronic loan
report would be
sent to each
institution.
682.604 & 685.304............. Proposed Sec. Sec. OMB 1845-0020 and
682.604 and 1845-0021.
685.304 would
require that
institutions
provide initial
counseling for
Stafford and
graduate or
professional
student PLUS Loan
borrowers.
674.42, 682.604, and 685.304.. Proposed Sec. Sec. OMB 1845-0020, 1845-
674.42, 682.604 0021, and 1845-
and 685.304 would 0023.
continue to
require a school
to ensure that
exit counseling is
conducted with
each Perkins, FFEL
Stafford, and
Direct Subsidized
and Unsubsidized
Loan borrower. In
addition, schools
would be required
to provide exit
counseling to
graduate or
professional
student FFEL PLUS
Loan borrowers and
graduate or
professional
student Direct
PLUS Loan
borrowers.
674.53, 674.57, and 674.58.... Proposed Sec. Sec. OMB 1845-XXXC. This
674.53, 674.57, will be new
and 674.58 would collection. A
extend the new separate 60-day
cancellation Federal Register
categories to notice will be
current Federal published to
Perkins Loan solicit comments.
borrowers with
outstanding
balances on loans
already in
repayment and all
new borrowers who
perform eligible
service that
includes August
14, 2008, or
begins on or after
that date,
regardless of
whether
information on the
expanded
cancellation
categories appears
on the borrower's
promissory note.
[[Page 37469]]
674.56........................ Proposed Sec. OMB 1845-XXXC. This
674.56 would add will be new
new public service collection. A
cancellation separate 60-day
categories for Federal Register
borrowers in the notice will be
Federal Perkins published to
Loan program who solicit comments.
are performing
qualifying service
as: Full-time
faculty members at
a Tribal College
or University;
full-time fire
fighters who serve
a local, State, or
Federal fire
department or fire
district;
librarians with a
master's degree in
library science
who are employed
in an elementary
or secondary
school that
qualifies for
Title I funding,
or in a public
library that
serves a
geographic area
that includes one
or more Title I-
eligible schools;
or full-time
speech-language
pathologists with
a master's degree
who are working
exclusively with
Title I-eligible
schools.
674.59........................ Proposed Sec. OMB 1845-XXXC. This
674.59 would amend will be new
the cancellation collection. A
rate for each year separate 60-day
of qualifying Federal Register
service for the notice will be
military service published to
cancellation. solicit comments.
Borrowers who are
serving in areas
of hostility are
now eligible to
receive a
cancellation of up
to 100 percent of
the loan for each
full year of
active duty
service that
includes August
14, 2008, or
begins on or after
that date in the
following
increments: 15
percent for the
first and second
years; 20 percent
for the third and
fourth years of
service; and 30
percent for the
fifth year of
service.
------------------------------------------------------------------------
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.
Intergovernmental Review
These programs are not subject to Executive Order 12372 and the
regulations in 34 CFR part 79.
Assessment of Educational Impact
In accordance with section 411 of the General Education Provisions
Act, 20 U.S.C. 1221e-4, the Secretary particularly requests comments on
whether these proposed regulations would require transmission of
information that any other agency or authority of the United States
gathers or makes available.
Electronic Access to This Document
You may view this document, as well as all other Department of
Education documents published in the Federal Register, in text or Adobe
Portable Document Format (PDF) on the Internet at the following site:
http://www.ed.gov/news/fedregister.
To use PDF you must have Adobe Acrobat Reader, which is available
free at this site. If you have questions about using PDF, call the U.S.
Government Printing Office (GPO), toll free, at 1-888-293-6498; or in
the Washington, DC, area at (202) 512-1530.
Note: The official version of this document is the document
published in the Federal Register. Free Internet access to the
official edition of the Federal Register and the Code of Federal
Regulations is available on GPO Access at: http://www.gpoaccess.gov/nara/index.html.
(Catalog of Federal Domestic Assistance Numbers: 84.032 Federal
Family Education Loan Program; 84.038 Federal Perkins Loan Program;
84.268 William D. Ford Federal Direct Loan Program.)
List of Subjects
34 CFR Part 601
Administrative practice and procedure, Colleges and universities,
Consumer protection, Education, Loan programs--education, Reporting and
recordkeeping requirements, Student aid.
34 CFR Part 668
Administrative practice and procedure, Colleges and universities,
Consumer protection, Education, Grant programs--education, Loan
programs--education, Reporting and recordkeeping requirements, Student
aid, Vocational education.
34 CFR Parts 674, 682 and 685
Administrative practice and procedure, Colleges and universities,
Education, Loan programs--education, Reporting and recordkeeping
requirements, Student aid, Vocational education.
Dated: July 14, 2009.
Arne Duncan,
Secretary of Education.
For the reasons discussed in the preamble, the Secretary proposes
to amend chapter VI of title 34 of the Code of Federal Regulations as
follows:
1. Add part 601 to read as follows:
PART 601--INSTITUTION AND LENDER REQUIREMENTS RELATING TO EDUCATION
LOANS
Subpart A--General
Sec.
[[Page 37470]]
601.1 Scope.
601.2 Definitions.
Subpart B--Loan Information To Be Disclosed by Covered Institutions and
Institution-Affiliated Organizations
601.10 Preferred lender arrangement disclosures.
601.11 Private education loan disclosures and self-certification
form.
601.12 Use of institution and lender name.
Subpart C--Responsibilities of Covered Institutions and Institution-
Affiliated Organizations
601.20 Annual report.
601.21 Code of conduct.
Subpart D--Loan Information To Be Disclosed by Institutions
Participating in the William D. Ford Direct Loan Program
601.30 Duties of institutions.
Subpart E--Lender Responsibilities
601.40 Disclosure and reporting requirements for lenders.
Authority: 20 U.S.C. 1019-1019d, 1021, 1094(a) and (h).
Subpart A--General
Sec. 601.1 Scope.
This part establishes disclosure and reporting requirements for
covered institutions, institution-affiliated organizations, and lenders
that provide, issue, recommend, promote, endorse, or provide
information relating to education loans. Education loans include loans
authorized by the Higher Education Act of 1965, as amended (HEA) and
private education loans.
(Authority: 20 U.S.C. 1019-1019d, 1021, 1094(a)(25) and (e))
Sec. 601.2 Definitions.
(a) The definitions of the following terms used in this part are
set forth in the regulations for Institutional Eligibility under the
Higher Education Act of 1965, as amended, 34 CFR part 600:
Federal Family Education Loan (FFEL) Program
Secretary
Title IV, HEA program
(b) The following definitions also apply to this part:
Agent: An officer or employee of a covered institution or an
institution-affiliated organization.
Covered institution: Any institution of higher education,
proprietary institution of higher education, postsecondary vocational
institution, or institution outside the United States, as these terms
are defined in 34 CFR part 600, that receives any Federal funding or
assistance.
Education loan: Except when used as part of the term ``private
education loan'',
(1) Any loan made, insured, or guaranteed under the Federal Family
Education Loan (FFEL) Program;
(2) Any loan made under the William D. Ford Federal Direct Loan
Program; or
(3) A private education loan.
Institution-affiliated organization: (1) Any organization that--
(i) Is directly or indirectly related to a covered institution; and
(ii) Is engaged in the practice of recommending, promoting, or
endorsing education loans for students attending such covered
institution or the families of such students.
(2) An institution-affiliated organization--
(i) May include an alumni organization, athletic organization,
foundation, or social, academic, or professional organization, of a
covered institution; and
(ii) Does not include any lender with respect to any education loan
secured, made, or extended by such lender.
Lender: (1) An eligible lender in the Federal Family Education Loan
(FFEL) Program, as defined in 34 CFR 682.200(b);
(2) The Department in the Direct Loan program;
(3) In the case of a private educational loan, a private education
lender as defined in section 140 of the Truth in Lending Act; and
(4) Any other person engaged in the business of securing, making,
or extending education loans on behalf of the lender.
Officer: A director or trustee of a covered institution or
institution-affiliated organization, if such individual is treated as
an employee of such covered institution or institution-affiliated
organization, respectively.
Preferred lender arrangement: (1) An arrangement or agreement
between a lender and a covered institution or an institution-affiliated
organization of such covered institution--
(i) Under which a lender provides or otherwise issues education
loans to the students attending such covered institution or the
families of such students; and
(ii) That relates to such covered institution or such institution-
affiliated organization recommending, promoting, or endorsing the
education loan products of the lender.
(2) A preferred lender arrangement does not include--
(i) Arrangements or agreements with respect to loans made under the
William D. Ford Federal Direct Loan Program; or
(ii) Arrangements or agreements with respect to loans that
originate through the PLUS Loan auction pilot program under section
499(b) of the HEA.
(3) For purpose of this definition, an arrangement or agreement
does not exist if the private education loan provided or issued to a
student attending a covered institution is made by the covered
institution, and the private education loan is--
(i) Funded by the covered institution's own funds;
(ii) Funded by donor-directed contributions;
(iii) Made under title VII or title VIII of the Public Service
Health Act; or
(iv) Made under an institutional payment plan of the covered
institution.
Private education loan: As the term is defined in section 140 of
the Truth in Lending Act, a loan provided by a private educational
lender that is not a title IV loan and that is issued expressly for
postsecondary education expenses to a borrower, regardless of whether
the loan is provided through the educational institution that the
student attends or directly to the borrower from the private
educational lender. A private education loan does not include an
extension of credit under an open end consumer credit plan, a reverse
mortgage transaction, a residential mortgage transaction, or any other
loan that is secured by real property or a dwelling.
(Authority: 20 U.S.C. 1019)
Subpart B--Loan Information To Be Disclosed by Covered Institutions
and Institution-Affiliated Organizations
Sec. 601.10 Preferred lender arrangement disclosures.
(a) A covered institution, or an institution-affiliated
organization of such covered institution, that participates in a
preferred lender arrangement must disclose--
(1) On such covered institution's or institution-affiliated
organization's Web site and in all informational materials described in
paragraph (b) of this section that describe or discuss education
loans--
(i) The maximum amount of Federal grant and loan aid under title IV
of the HEA available to students, in an easy to understand format;
(ii) The information identified on a model disclosure form
developed by the Secretary pursuant to section 153(a)(2)(B) of the HEA,
for each type of education loan that is offered pursuant to a preferred
lender arrangement of the institution or institution-affiliated
organization to students of the institution or the families of such
students; and
(iii) A statement that such institution is required to process the
documents required to obtain a loan under the
[[Page 37471]]
Federal Family Education Loan (FFEL) Program from any eligible lender
the student selects; and
(2) On such covered institution's or institution-affiliated
organization's Web site and in all informational materials described in
paragraph (b) of this section that describe or discuss private
education loans--
(i) In the case of a covered institution, the information that the
Board of Governors of the Federal Reserve System requires to be
disclosed under section 128(e)(11) of the Truth in Lending Act (15
U.S.C. 1638(e)(11)), for each type of private education loan offered
pursuant to a preferred lender arrangement of the institution to
students of the institution or the families of such students; and
(ii) In the case of an institution-affiliated organization of a
covered institution, the information the Board of Governors of the
Federal Reserve System requires to be disclosed under section 128(e)(1)
of the Truth in Lending Act (15 U.S.C. 1638(e)(1)), for each type of
private education loan offered pursuant to a preferred lender
arrangement of the organization to students of such institution or the
families of such students.
(b) The informational materials described in paragraphs (a)(1) and
(a)(2) of this section are publications, mailings, or electronic
messages or materials that--
(1) Are distributed to prospective or current students of a covered
institution and families of such students; and
(2) Describe or discuss the financial aid opportunities available
to students at an institution of higher education.
(c)(1) Each covered institution and each institution-affiliated
organization that participates in a preferred lender arrangement must
provide the information described in paragraph (a)(1)(ii) of this
section, and the information described in paragraphs (a)(2)(i) and
(a)(2)(ii) of this section, respectively, for each type of education
loan offered pursuant to the preferred lender arrangement.
(2) The information identified in paragraph (c)(1) of this section
must be provided to students attending the covered institution, or the
families of such students, as applicable, annually and must be provided
in a manner that allows for the students or their families to take such
information into account before selecting a lender or applying for an
education loan.
(d) If a covered institution compiles, maintains, and makes
available a preferred lender list as required under Sec.
668.14(b)(28), the institution must--
(1) Clearly and fully disclose on such preferred lender list--
(i) Not less than the information required to be disclosed under
section 153(a)(2)(A) of the HEA;
(ii) Why the institution participates in a preferred lender
arrangement with each lender on the preferred lender list, particularly
with respect to terms and conditions or provisions favorable to the
borrower; and
(iii) That the students attending the institution, or the families
of such students, do not have to borrow from a lender on the preferred
lender list;
(2) Ensure, through the use of the list of lender affiliates
provided by the Secretary under section 487(h)(2) of the HEA, that--
(i) There are not less than three FFEL lenders that are not
affiliates of each other included on the preferred lender list and, if
the institution recommends, promotes, or endorses private education
loans, there are not less than two lenders of private education loans
that are not affiliates of each other included on the preferred lender
list; and
(ii) The preferred lender list under paragraph (d) of this
section--
(A) Specifically indicates, for each listed lender, whether the
lender is or is not an affiliate of each other lender on the preferred
lender list; and
(B) If a lender is an affiliate of another lender on the preferred
lender list, describes the details of such affiliation;
(3) Prominently disclose the method and criteria used by the
institution in selecting lenders with which to participate in preferred
lender arrangements to ensure that such lenders are selected on the
basis of the best interests of the borrowers, including--
(i) Payment of origination or other fees on behalf of the borrower;
(ii) Highly competitive interest rates, or other terms and
conditions or provisions of Title IV, HEA program loans or private
education loans;
(iii) High-quality servicing for such loans; or
(iv) Additional benefits beyond the standard terms and conditions
or provisions for such loans;
(4) Exercise a duty of care and a duty of loyalty to compile the
preferred lender list under paragraph (d) of this section without
prejudice and for the sole benefit of the students attending the
institution, or the families of such students; and
(5) Not deny or otherwise impede the borrower's choice of a lender
or cause unnecessary delay in loan certification under title IV of the
HEA for those borrowers who choose a lender that is not included on the
preferred lender list.
(Approved by the Office of Management and Budget under control
number 1845-XXXA)
(Authority: 20 U.S.C. 1019a(a)(1)(A) and 1019b(c))
Sec. 601.11 Private education loan disclosures and self-certification
form.
(a) A covered institution, or an institution-affiliated
organization of such covered institution, that provides information
regarding a private education loan from a lender to a prospective
borrower must provide private education loan disclosures to the
prospective borrower, regardless of whether the covered institution or
institution-affiliated organization participates in a preferred lender
arrangement.
(b) The private education loan disclosures must--
(1) Provide the prospective borrower with the information the Board
of Governors of the Federal Reserve System requires to be disclosed
under section 128(e)(1) of the Truth in Lending Act (15 U.S.C.
1638(e)(1)) for such loan;
(2) Inform the prospective borrower that--
(i) The prospective borrower may qualify for loans or other
assistance under title IV of the HEA; and
(ii) The terms and conditions of Title IV, HEA program loans may be
more favorable than the provisions of private education loans.
(c) The covered institution or institution-affiliated organization
must ensure that information regarding private education loans is
presented in such a manner as to be distinct from information regarding
Title IV, HEA program loans.
(d) Upon an enrolled or admitted student applicant's request for a
private education loan self-certification form, an institution must
provide to the applicant, in written or electronic form--
(1) The self-certification form for private education loans
developed by the Secretary in consultation with the Board of Governors
of the Federal Reserve System, to satisfy the requirements of section
128(e)(3) of the Truth in Lending Act (15 U.S.C. 1638(e)(3)); and
(2) The information required to complete the form, to the extent
the institution possesses such information as specified in 34 CFR
668.14(b)(29).
(Approved by the Office of Management and Budget under control
number 1845-XXXA)
(Authority: 20 U.S.C. 1019a(a)(1)(B) and 1019d)
[[Page 37472]]
Sec. 601.12 Use of institution and lender name.
A covered institution, or an institution-affiliated organization of
such covered institution, that participates in a preferred lender
arrangement with a lender regarding private education loans must--
(a) Not agree to the lender's use of the name, emblem, mascot, or
logo of such institution or organization, or other words, pictures, or
symbols readily identified with such institution or organization, in
the marketing of private education loans to students attending such
institution in any way that implies that the loan is offered or made by
such institution or organization instead of the lender; and
(b) Ensure that the name of the lender is displayed in all
information and documentation related to the private education loans
described in this section.
(Authority: 20 U.S.C. 1019a(a)(2)-(a)(3))
Subpart C--Responsibilities of Covered Institutions and
Institution-Affiliated Organizations
Sec. 601.20 Annual report.
Each covered institution, and each institution-affiliated
organization of such covered institution, that participates in a
preferred lender arrangement, must--
(a) Prepare and submit to the Secretary an annual report, by a date
determined by the Secretary, that includes, for each lender that
participates in a preferred lender arrangement with such covered
institution or organization--
(1) The information described in Sec. 601.10(c); and
(2) A detailed explanation of why such covered institution or
institution-affiliated organization participates in a preferred lender
arrangement with the lender, including why the terms, conditions, and
provisions of each type of education loan provided pursuant to the
preferred lender arrangement are beneficial for students attending such
institution, or the families of such students, as applicable; and
(b) Ensure that the report required under this section is made
available to the public and provided to students attending or planning
to attend such covered institution and the families of such students.
(Approved by the Office of Management and Budget under control
number 1845-XXXA)
(Authority: 20 U.S.C. 1019b(c)(2))
Sec. 601.21 Code of conduct.
(a)(1) A covered institution that participates in a preferred
lender arrangement must comply with the code of conduct requirements
described in this section.
(2) The covered institution must--
(i) Develop a code of conduct with respect to FFEL Program loans
and private education loans with which the institution's agents must
comply. The code of conduct must--
(A) Prohibit a conflict of interest with the responsibilities of an
agent of an institution with respect to FFEL Program loans and private
education loans; and
(B) At a minimum, include the provisions specified in paragraph (c)
of this section;
(ii) Publish such code of conduct prominently on the institution's
Web site; and
(iii) Administer and enforce such code by, at a minimum, requiring
that all of the institution's agents with responsibilities with respect
to FFEL Program loans or private education loans be annually informed
of the provisions of the code of conduct.
(b) Any institution-affiliated organization of a covered
institution that participates in a preferred lender arrangement must--
(1) Comply with the code of conduct developed and published by such
covered institution under paragraph (a)(1) of this section;
(2) If such institution-affiliated organization has a Web site,
publish such code of conduct prominently on the Web site; and
(3) Administer and enforce such code of conduct by, at a minimum,
requiring that all of such institution-affiliated organization's agents
with responsibilities with respect to FFEL Program loans or private
education loans be annually informed of the provisions of such code of
conduct.
(c) A covered institution's code of conduct must prohibit--
(1) Revenue-sharing arrangements with any lender. The institution
must not enter into any revenue-sharing arrangement with any lender.
For purposes of this paragraph, the term revenue-sharing arrangement
means an arrangement between a covered institution and a lender under
which--
(i) A lender provides or issues a FFEL Program loan or private
education loan to students attending the institution or to the families
of such students; and
(ii) The institution recommends the lender or the loan products of
the lender and in exchange, the lender pays a fee or provides other
material benefits, including revenue or profit sharing, to the
institution, an agent;
(2)(i) Employees of the financial aid office receiving gifts from a
lender, a guarantor, or a loan servicer. Agents who are employed in the
financial aid office of the institution or who otherwise have
responsibilities with respect to FFEL Program loans or private
education loans, must not solicit or accept any gift from a lender,
guarantor, or servicer of FFEL Program loans or private education
loans;
(ii) For purposes of paragraph (c) of this section, the term gift
means any gratuity, favor, discount, entertainment, hospitality, loan,
or other item having a monetary value of more than a de minimus amount.
The term includes a gift of services, transportation, lodging, or
meals, whether provided in kind, by purchase of a ticket, payment in
advance, or reimbursement after the expense has been incurred;
(iii) The term gift does not include any of the following:
(A) Standard material, activities, or programs on issues related to
a loan, default aversion, default prevention, or financial literacy,
such as a brochure, a workshop, or training.
(B) Food, refreshments, training, or informational material
furnished to an agent as an integral part of a training session that is
designed to improve the service of a lender, guarantor, or servicer of
FFEL Program loans or private education loans to the institution, if
such training contributes to the professional development of the agent.
(C) Favorable terms, conditions, and borrower benefits on a FFEL
Program loan or private education loan provided to a student employed
by the institution if such terms, conditions, or benefits are
comparable to those provided to all students of the institution.
(D) Entrance and exit counseling services provided to borrowers to
meet the institution's responsibilities for entrance and exit
counseling as required by Sec. Sec. 682.604(f) and 682.604(g), as long
as the institution's staff are in control of the counseling (whether in
person or via electronic capabilities) and such counseling does not
promote the products or services of any specific lender.
(E) Philanthropic contributions to an institution from a lender,
servicer, or guarantor of FFEL Program loans or private education loans
that are unrelated to FFEL Program loans or private education loans or
any contribution from any lender, servicer, or guarantor, that is not
made in exchange for any advantage related to
[[Page 37473]]
FFEL Program loans or private education loans.
(F) State education grants, scholarships, or financial aid funds
administered by or on behalf of a State; and
(iv) For purposes of paragraph (c) of this section, a gift to a
family member of an agent, or to any other individual based on that
individual's relationship with the agent, is considered a gift to the
agent if--
(A) The gift is given with the knowledge and acquiescence of the
agent; and
(B) The agent has reason to believe the gift was given because of
the official position of the agent;
(3) Consulting or other contracting arrangements. An agent who is
employed in the financial aid office of the institution or who
otherwise has responsibilities with respect to FFEL Program loans or
private education loans must not accept from any lender or affiliate of
any lender any fee, payment, or other financial benefit (including the
opportunity to purchase stock) as compensation for any type of
consulting arrangement or other contract to provide services to a
lender or on behalf of a lender relating to FFEL Program loans or
private education loans. Nothing in paragraph (c)(3) of this section
will be construed as prohibiting--
(i) An agent who is not employed in the institution's financial aid
office and who does not otherwise have responsibilities with respect to
FFEL Program loans or private education loans from performing paid or
unpaid service on a board of directors of a lender, guarantor, or
servicer of education loans;
(ii) An agent who is not employed in the institution's financial
aid office but who has responsibility with respect to FFEL Program
loans or private education loans from performing paid or unpaid service
on a board of directors of a lender, guarantor, or servicer of FFEL
Program loans or private education loans, if the institution has a
written conflict of interest policy that clearly sets forth that agents
must recuse themselves from participating in any decision of the board
regarding FFEL Program loans or private education loans at the
institution; or
(iii) An officer, employee, or contractor of a lender, guarantor,
or servicer of FFEL Program loans or private education loans from
serving on a board of directors, or serving as a trustee, of an
institution, if the institution has a written conflict of interest
policy that the board member or trustee must recuse themselves from any
decision regarding FFEL Program loans or private education loans at the
institution;
(4) Directing borrowers to particular lenders or delaying loan
certifications. The institution must not--
(i) For any first-time borrower, assign, through award packaging or
other methods, the borrower's loan to a particular lender; or
(ii) Refuse to certify, or delay certification of, any loan based
on the borrower's selection of a particular lender or guaranty agency;
(5)(i) Offers of funds for private loans. The institution must not
request or accept from any lender any offer of funds to be used for
private education loans, including funds for an opportunity pool loan,
to students in exchange for the institution providing concessions or
promises regarding providing the lender with--
(A) A specified number of FFEL Program loans or private education
loans;
(B) A specified loan volume of such loans; or
(C) A preferred lender arrangement for such loans.
(ii) For purposes of paragraph (c) of this section, the term
opportunity pool loan means a private education loan made by a lender
to a student attending the institution or the family member of such a
student that involves a payment, directly or indirectly, by such
institution of points, premiums, additional interest, or financial
support to such lender for the purpose of such lender extending credit
to the student or the family;
(6) Staffing assistance. The institution must not request or accept
from any lender any assistance with call center staffing or financial
aid office staffing, except that nothing in this paragraph will be
construed to prohibit the institution from requesting or accepting
assistance from a lender related to--
(i) Professional development training for financial aid
administrators;
(ii) Providing educational counseling materials, financial literacy
materials, or debt management materials to borrowers, provided that
such materials disclose to borrowers the identification of any lender
that assisted in preparing or providing such materials; or
(iii) Staffing services on a short-term, nonrecurring basis to
assist the institution with financial aid-related functions during
emergencies, including State-declared or federally declared natural
disasters, federally declared national disasters, and other localized
disasters and emergencies identified by the Secretary; and
(7) Advisory board compensation. Any employee who is employed in
the financial aid office of the institution, or who otherwise has
responsibilities with respect to FFEL Program loans or private
education loans or other student financial aid of the institution, and
who serves on an advisory board, commission, or group established by a
lender, guarantor, or group of lenders or guarantors, must not receive
anything of value from the lender, guarantor, or group of lenders or
guarantors, except that the employee may be reimbursed for reasonable
expenses, as that term is defined in Sec. 668.16(d)(2)(ii), incurred
in serving on such advisory board, commission, or group.
(Approved by the Office of Management and Budget under control
number 1845-XXXA)
(Authority: 20 U.S.C. 1019b(c)(2)), 1094(a)(25) and (e))
Subpart D--Loan Information To Be Disclosed by Institutions
Participating in the William D. Ford Direct Loan Program
Sec. 601.30 Duties of institutions.
(a) Each covered institution participating in the William D. Ford
Direct Loan Program under part D of title IV of the HEA must--
(1) Make the information identified in a model disclosure form
developed by the Secretary pursuant to section 154(a) of the HEA
available to students attending or planning to attend the institution,
or the families of such students, as applicable; and
(2) If the institution provides information regarding a private
education loan to a prospective borrower, concurrently provide such
borrower with the information identified on the model disclosure form
that the Secretary provides to the institution under section 154(a) of
the HEA.
(b) In providing the information required under paragraph (a) of
this section, a covered institution may use a comparable form designed
by the institution instead of the model disclosure form.
(Approved by the Office of Management and Budget under control
number 1845-XXXB)
(Authority: 20 U.S.C. 1019c(b)).
Subpart E--Lender Responsibilities
Sec. 601.40 Disclosure and reporting requirements for lenders.
(a) Disclosures to borrowers. (1) A lender must, at or prior to
disbursement of a FFEL loan, provide the borrower, in writing
(including through electronic means), in clear and understandable
[[Page 37474]]
terms, the disclosures required in Sec. 682.205(a) and (b).
(2) A lender must, for each of its private education loans, comply
with the disclosure requirements under section 128(e) of the Truth in
Lending Act (15 U.S.C. 1638(e)).
(b) Reports to the Secretary. Each FFEL lender must report annually
to the Secretary--
(1) Any reasonable expenses paid or provided to any agent of a
covered institution who is employed in the financial aid office or has
other responsibilities with respect to education loans or other student
financial aid of the institution for service on a lender advisory
board, commission or group established by a lender or group of lenders;
or
(2) Any similar expenses paid or provided to any agent of an
institution-affiliated organization who is involved in recommending,
promoting, or endorsing education loans.
(3) The report required by this paragraph must include--
(i) The amount of expenses paid or provided for each specific
instance in which the lender provided expenses;
(ii) The name of any agent described in paragraph (b)(1) of this
section to whom the expenses were paid or provided;
(iii) The dates of the activity for which the expenses were paid or
provided; and
(iv) A brief description of the activity for which the expenses
were paid or provided.
(c) Lender certification of compliance. (1) Any FFEL lender
participating in one or more preferred lender arrangements must
annually certify to the Secretary its compliance with the Higher
Education Act of 1965, as amended; and
(2) If the lender is required to submit an audit under 34 CFR
682.305(c), the lender's compliance with the requirements under this
section must be reported on and attested to annually by the lender's
auditor.
(3) A lender may comply with the certification requirements of this
section if the certifications are provided as part of the annual audit
required by 34 CFR 682.305(c).
(4) A lender who is not required to submit an audit must submit the
required certification at such time and in such manner as directed by
the Secretary.
(d) Annual lender report to covered institutions. A FFEL lender
with a preferred lender arrangement with a covered institution or an
institution-affiliated organization relating to FFEL loans must
annually, on a date prescribed by the Secretary, provide to the covered
institution or the institution-affiliated organization and to the
Secretary, such information required by the Secretary in relation to
the FFEL loans the lender plans to offer pursuant to that preferred
lender arrangement for the next award year.
(Approved by the Office of Management and Budget under control
number 1845-XXXA)
(Authority: 20 U.S.C. 1019a(b) and 1019b(b))
PART 668--STUDENT ASSISTANCE GENERAL PROVISIONS
2. The authority citation for part 668 continues to read as
follows:
Authority: 20 U.S.C. 1001, 1002, 1003, 1070g, 1085, 1088, 1091,
1092, 1094, 1099c, and 1099c-1, unless otherwise noted.
3. Section 668.14 is amended by adding new paragraphs (b)(27),
(b)(28) and (b)(29) as follows:
Sec. 668.14 Program participation agreement.
* * * * *
(b) * * *
(27) In the case of an institution participating in a Title IV, HEA
loan program, the institution--
(i) Will develop, publish, administer, and enforce a code of
conduct with respect to loans made, insured or guaranteed under the
Title IV, HEA loan programs in accordance with 34 CFR 601.21; and
(ii) Must inform its officers, employees, and agents with
responsibilities with respect to loans made, insured or guaranteed
under the Title IV, HEA loan programs annually of the provisions of the
code required under paragraph (b)(27) of this section;
(28) For any year in which the institution has a preferred lender
arrangement (as defined in 34 CFR 601.2(b)), it will at least annually
compile, maintain, and make available for students attending the
institution, and the families of such students, a list in print or
other medium, of the specific lenders for loans made, insured, or
guaranteed under title IV of the HEA or private education loans that
the institution recommends, promotes, or endorses in accordance with
such preferred lender arrangement. In making such a list, the
institution must comply with the requirements in 34 CFR 682.212(h) and
34 CFR 601.10;
(29)(i) It will, upon the request of an enrolled or admitted
student who is an applicant for a private education loan (as defined in
34 CFR 601.2(b)), provide to the applicant the self-certification form
required under 34 CFR 601.11(d) and the information required to
complete the form, to the extent the institution possesses such
information, including--
(A) The applicant's cost of attendance at the institution, as
determined by the institution under part F of title IV of the HEA;
(B) The applicant's expected family contribution, for students who
have completed the Free Application for Federal Student Aid;
(C) The applicant's estimated financial assistance, as determined
by the institution in accordance with 34 CFR 682.200;
(D) The difference between the amounts under paragraphs
(b)(29)(i)(A) and (29)(i)(C) of this section, as applicable; and
(E) The sum of the amounts under paragraphs (b)(29)(i)(B) and
(b)(29)(i)(D) of this section, as applicable.
(ii) It will, upon the request of the applicant, discuss with the
applicant the availability of Federal, State, and institutional student
financial aid;
* * * * *
4. Section 668.16 is amended by:
A. Revising paragraph (d).
B. Revising paragraph (m).
C. Revising the authority citation that appears at the end of the
section.
The revisions read as follows:
Sec. 668.16 Standards of administrative capability.
* * * * *
(d)(1) Establishes and maintains records required under this part
and the individual Title IV, HEA program regulations; and
(2)(i) Reports annually to the Secretary on any reasonable
reimbursements paid or provided by a private education lender or group
of lenders as described under section 140(d) of the Truth in Lending
Act (15 U.S.C. 1631(d)) to any employee who is employed in the
financial aid office of the institution or who otherwise has
responsibilities with respect to education loans or other financial aid
of the institution, including--
(A) The amount for each specific instance of reasonable expenses
paid or provided;
(B) The name of the financial aid official, other employee, or
agent to whom the expenses were paid or provided;
(C) The dates of the activity for which the expenses were paid or
provided; and
(D) A brief description of the activity for which the expenses were
paid or provided.
(ii) Expenses are considered to be reasonable if the expenses--
(A) Meet the standards of and are paid in accordance with a State
government reimbursement policy applicable to the entity; or
[[Page 37475]]
(B) Meet the standards of and are paid in accordance with the
applicable Federal cost principles for reimbursement, if no State
policy that is applicable to the entity exists.
(iii) The policy must be consistently applied to an institution's
employees reimbursed under this paragraph;
* * * * *
(m)(1) Has a cohort default rate--
(i) That is less than 25 percent for each of the three most recent
fiscal years during which rates have been issued, to the extent those
rates are calculated under subpart M of this part;
(ii) On or after 2014, that is less than 30 percent for at least
two of the three most recent fiscal years during which the Secretary
has issued rates for the institution under subpart N of this part; and
(iii) As defined in 34 CFR 674.5, on loans made under the Federal
Perkins Loan Program to students for attendance at that institution
that does not exceed 15 percent.
(2)(i) However, if the Secretary determines that an institution's
administrative capability is impaired solely because the institution
fails to comply with paragraph (m)(1) of this section, and the
institution is not subject to a loss of eligibility under Sec. Sec.
668.187(a) or 668.206(a), the Secretary allows the institution to
continue to participate in the Title IV, HEA programs. In such a case,
the Secretary may provisionally certify the institution in accordance
with Sec. 668.13(c) except as provided in paragraphs (m)(2)(ii),
(m)(2)(iii), (m)(2)(iv), and (m)(2)(v) of this section.
(ii) An institution that fails to meet the standard of
administrative capability under paragraph (m)(1)(ii) based on two
cohort default rates that are greater than or equal to 30 percent but
less than 40 percent is not placed on provisional certification under
paragraph (m)(2)(i) of this section--
(A) If it has timely filed a request for adjustment or appeal under
Sec. Sec. 668.209, 668.210, or 668.212 with respect to the second such
rate, and the request for adjustment or appeal is either pending or
succeeds in reducing the rate below 30 percent; or
(B) If it has timely filed an appeal under Sec. Sec. 668.213 or
668.214 after receiving the second such rate, and the appeal is either
pending or successful.
(iii) The institution may appeal the loss of full participation in
a Title IV, HEA program under paragraph (m)(2)(i) of this section by
submitting an erroneous data appeal in writing to the Secretary in
accordance with and on the grounds specified in Sec. Sec. 668.192 or
668.211 as applicable;
(iv) If you have 30 or fewer borrowers in the three most recent
cohorts of borrowers used to calculate your cohort default rate under
subpart N of this part, we not provisionally certify you solely based
on cohort default rates;
(v) If a rate that would otherwise potentially subject you to
provisional certification under paragraph (m)(1)(ii) and (m)(2)(i) of
this section is calculated as an average rate, we will not
provisionally certify you solely based on cohort default rates;
* * * * *
(Authority: 20 U.S.C. 1082, 1085, 1092, 1094, and 1099c)
5. Section 668.42 is amended by:
A. In paragraph (a)(1), removing the word ``student's'' and adding,
in its place, the word ``students''.
B. In paragraph (a), adding a new paragraph (4).
C. In paragraph (c) introductory text, removing the word ``shall''
and adding, in its place, the word ``must''.
D. In paragraph (c)(5), adding the word ``and'' after the
punctuation ``;''.
E. In paragraph (c)(6), removing the words ``The institution shall
provide and collect exit counseling information'' and adding, in their
place, the words ``The exit counseling the institution provides and
collects''.
F. In paragraph (c)(6), removing the punctuation and word ``; and''
and adding, in their place, the punctuation ``.''.
G. In paragraph (c), removing paragraph (7).
The addition reads as follows:
Sec. 668.42 Financial assistance information.
(a) * * *
(4) The institution must describe the terms and conditions of the
loans students receive under the Federal Family Education Loan Program,
the William D. Ford Federal Direct Student Loan Program, and the
Federal Perkins Loan Program.
* * * * *
6. Revise the subpart heading of subpart M to read as follows:
Subpart M--Two Year Cohort Default Rates
7. Section 668.181 is revised to read as follows:
Sec. 668.181 Purpose of this subpart.
(a) General. Your cohort default rate is a measure we use to
determine your eligibility to participate in various Title IV, HEA
programs. We may also use it for determining your eligibility for
exemptions, such as those for certain disbursement requirements under
the FFEL and Direct Loan Programs. This subpart applies solely to
cohorts, as defined in Sec. Sec. 668.182(a) and 668.183(b), for fiscal
years through 2011. For these cohorts, this subpart describes how
cohort default rates are calculated, some of the consequences of cohort
default rates, and how you may request changes to your cohort default
rates or appeal their consequences. Under this subpart, you submit a
``challenge'' after you receive your draft cohort default rate, and you
request an ``adjustment'' or ``appeal'' after your official cohort
default rate is published.
(b) Cohort Default Rates. Notwithstanding anything to the contrary
in this subpart, we will issue annually two sets of draft and official
cohort default rates for fiscal years 2009, 2010, and 2011. For each of
these years, you will receive one set of draft and official cohort
default rates under this subpart and another set of draft and official
cohort default rates under subpart N of this part.
(Approved by the Office of Management and Budget under control
number 1845-0022)
(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)
Sec. 668.184 [Amended]
8. Section 668.184(a)(1) is amended by removing the word ``If'' and
adding, in its place, the words ``Except as provided under 34 CFR
600.32(d), if''.
9. Section 668.185(a)(3) is revised to read as follows:
Sec. 668.185 Draft cohort default rates and your ability to challenge
before official cohort default rates are issued.
(a) * * *
(3) Your draft cohort default rate and the loan record detail
report are not considered public information and may not be otherwise
voluntarily released to the public by a data manager.
* * * * *
10. Section 668.186 is revised to read as follows:
Sec. 668.186 Notice of your official cohort default rate.
(a) We electronically notify you of your cohort default rate after
we calculate it, by sending you an eCDR notification package to the
destination point you designate. After we send our notice to you, we
publish a list of cohort default rates calculated under this subpart
for all institutions.
(b) If you have one or more borrowers entering repayment or are
subject to sanctions, or if the Department believes you will have an
official cohort default rate calculated as an average rate, you will
receive a loan record detail report as part of your eCDR notification
package.
[[Page 37476]]
(c) You have five business days, from the transmission date for
eCDR notification packages as posted on the Department's Web site, to
report any problem with receipt of the electronic transmission of your
eCDR notification package.
(d) Except as provided in paragraph (e) of this section, timelines
for submitting challenges, adjustments, and appeals begin on the sixth
business day following the transmission date for eCDR notification
packages that is posted on the Department's Web site.
(e) If you timely report a problem with the receipt of the
electronic transmission of your eCDR notification package under
paragraph (c) of this section and the Department agrees that the
problem with transmission was not caused by you, the Department will
extend the challenge, appeal and adjustment deadlines and timeframes to
account for a retransmission of your eCDR notification package after
the technical problem is resolved.
(Approved by the Office of Management and Budget under control
number 1845-0022)
(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)
11. Section 668.187 is revised to read as follows:
Sec. 668.187 Consequences of cohort default rates on your ability to
participate in Title IV, HEA programs.
(a) End of participation. (1) Except as provided in paragraph (e)
of this section, you lose your eligibility to participate in the FFEL
and Direct Loan programs 30 days after you receive our notice that your
most recent cohort default rate is greater than 40 percent.
(2) Except as provided in paragraphs (d) and (e) of this section,
you lose your eligibility to participate in the FFEL, Direct Loan, and
Federal Pell Grant programs 30 days after you receive our notice that
your three most recent cohort default rates are each 25 percent or
greater.
(b) Length of period of ineligibility. Your loss of eligibility
under this section continues--
(1) For the remainder of the fiscal year in which we notify you
that you are subject to a loss of eligibility; and
(2) For the next 2 fiscal years.
(c) Using a cohort default rate more than once. The use of a cohort
default rate as a basis for a loss of eligibility under this section
does not preclude its use as a basis for--
(1) Any concurrent or subsequent loss of eligibility under this
section; or
(2) Any other action by us.
(d) Continuing participation in Pell. If you are subject to a loss
of eligibility under paragraph (a)(2) of this section, based on three
cohort default rates of 25 percent or greater, you may continue to
participate in the Federal Pell Grant Program if we determine that
you--
(1) Were ineligible to participate in the FFEL and Direct Loan
programs before October 7, 1998, and your eligibility was not
reinstated;
(2) Requested in writing, before October 7, 1998, to withdraw your
participation in the FFEL and Direct Loan programs, and you were not
later reinstated; or
(3) Have not certified an FFELP loan or originated a Direct Loan
Program loan on or after July 7, 1998.
(e) Requests for adjustments and appeals. (1) A loss of eligibility
under this section does not take effect while your request for
adjustment or appeal, as listed in Sec. 668.189(a), is pending,
provided your request for adjustment or appeal is complete, timely,
accurate, and in the required format.
(2) Eligibility continued under paragraph (e)(1) of this section
ends if we determine that none of the requests for adjustments and
appeals you have submitted qualify you for continued eligibility under
Sec. 668.189. Loss of eligibility takes effect on the date that you
receive notice of our determination on your last pending request for
adjustment or appeal.
(3) You do not lose eligibility under this section if we determine
that your request for adjustment or appeal meets all requirements of
this subpart and qualifies you for continued eligibility under Sec.
668.189.
(4) To avoid liabilities you might otherwise incur under paragraph
(g) of this section, you may choose to suspend your participation in
the FFEL and Direct Loan programs during the adjustment or appeal
process.
(f) Liabilities during the adjustment or appeal process. If you
continued to participate in the FFEL or Direct Loan Program under
paragraph (d)(1) of this section, and we determine that none of your
requests for adjustments or appeals qualify you for continued
eligibility--
(1) For any FFEL or Direct Loan Program loan that you certified and
delivered or originated and disbursed more than 30 days after you
received the notice of your cohort default rate, we estimate the amount
of interest, special allowance, reinsurance, and any related or similar
payments we make or are obligated to make on those loans;
(2) We exclude from this estimate any amount attributable to funds
that you delivered or disbursed more than 45 days after you submitted
your completed appeal to us;
(3) We notify you of the estimated amount; and
(4) Within 45 days after you receive our notice of the estimated
amount, you must pay us that amount, unless--
(i) You file an appeal under the procedures established in subpart
H of this part (for the purposes of subpart H of this part, our notice
of the estimate is considered to be a final program review
determination); or
(ii) We permit a longer repayment period.
(g) Regaining eligibility. If you lose your eligibility to
participate in a program under this section, you may not participate in
that program until--
(1) The period described in paragraph (b) of this section has
ended;
(2) You pay any amount owed to us under this section or are meeting
that obligation under an agreement acceptable to us;
(3) You submit a new application for participation in the program;
(4) We determine that you meet all of the participation
requirements in effect at the time of your application; and
(5) You and we enter into a new program participation agreement.
(Approved by the Office of Management and Budget under control
number 1845-0022)
(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)
12. In Sec. 668.188, the introductory text in paragraph (a) is
revised to read as follows:
Sec. 668.188 Preventing evasion of the consequences of cohort
default rates.
(a) General. You are subject to a loss of eligibility that has
already been imposed against another institution as a result of cohort
default rates if--
* * * * *
13. Section 668.190 is revised to read as follows:
Sec. 668.190 Uncorrected data adjustments.
(a) Eligibility. You may request an uncorrected data adjustment for
your most recent cohort of borrowers, used to calculate your most
recent official cohort default rate, if in response to your challenge
under Sec. 668.185(b), a data manager agreed correctly to change the
data, but the changes are not reflected in your official cohort default
rate.
(b) Deadlines for requesting an uncorrected data adjustment. You
must send us a request for an uncorrected data adjustment, including
all supporting documentation, within 30 days after you receive your
loan record detail report from us.
(c) Determination. We recalculate your cohort default rate, based
on the
[[Page 37477]]
corrected data, and electronically correct the rate that is publicly
released, if we determine that--
(1) In response to your challenge under Sec. 668.185(b), a data
manager agreed to change the data;
(2) The changes described in paragraph (c)(1) of this section are
not reflected in your official cohort default rate; and
(3) We agree that the data are incorrect.
(Approved by the Office of Management and Budget under control
number 1845-0022)
(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)
14. Section 668.191 is revised to read as follows:
Sec. 668.191 New data adjustments.
(a) Eligibility. You may request a new data adjustment for your
most recent cohort of borrowers, used to calculate your most recent
official cohort default rate, if--
(1) A comparison of the loan record detail reports that we provide
to you for the draft and official cohort default rates shows that the
data have been newly included, excluded, or otherwise changed; and
(2) You identify errors in the data described in paragraph (a)(1)
of this section that are confirmed by the data manager.
(b) Deadlines for requesting a new data adjustment. (1) You must
send to the relevant data manager, or data managers, and us a request
for a new data adjustment, including all supporting documentation,
within 15 days after you receive your loan record detail report from
us.
(2) Within 20 days after receiving your request for a new data
adjustment, the data manager must send you and us a response that--
(i) Addresses each of your allegations of error; and
(ii) Includes the documentation used to support the data manager's
position.
(3) Within 15 days after receiving a guaranty agency's notice that
we hold an FFELP loan about which you are inquiring, you must send us
your request for a new data adjustment for that loan. We respond to
your request as set forth under paragraph (b)(3) of this section.
(4) Within 15 days after receiving incomplete or illegible records
or data from a data manager, you must send a request for replacement
records or clarification of data to the data manager and us.
(5) Within 20 days after receiving your request for replacement
records or clarification of data, the data manager must--
(i) Replace the missing or illegible records;
(ii) Provide clarifying information; or
(iii) Notify you and us that no clarifying information or
additional or improved records are available.
(6) You must send us your completed request for a new data
adjustment, including all supporting documentation--
(i) Within 30 days after you receive the final data manager's
response to your request or requests; or
(ii) If you are also filing an erroneous data appeal or a loan
servicing appeal, by the latest of the filing dates required in
paragraph (b)(7)(i) of this section or in Sec. 668.192(b)(6)(i) or
Sec. 668.193(c)(10)(i).
(c) Determination. If we determine that incorrect data were used to
calculate your cohort default rate, we recalculate your cohort default
rate based on the correct data and electronically correct the rate that
is publicly released.
(Approved by the Office of Management and Budget under control
number 1845-0022)
(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)
15. Section 668.192(c) is revised to read as follows:
Sec. 668.192 Erroneous data appeals.
* * * * *
(c) Determination. If we determine that incorrect data were used to
calculate your cohort default rate, we recalculate your cohort default
rate based on the correct data and electronically correct the rate that
is publicly released.
* * * * *
16. Section 668.193(f)(2) is revised to read as follows:
Sec. 668.193 Loan servicing appeals.
* * * * *
(2) Based on our determination, we use a statistically valid
methodology to exclude the corresponding percentage of borrowers from
both the numerator and denominator of the calculation of your cohort
default rate, and electronically correct the rate that is publicly
released.
* * * * *
17. Section 668.196(c) is revised to read as follows:
Sec. 668.196 Average rates appeals.
* * * * *
(c) Determination. You do not lose eligibility under Sec. 668.187
if we determine that you meet the requirements for an average rates
appeal. In such a case, we electronically correct the rate that is
publicly released.
* * * * *
Sec. 668.198 [Removed]
18. Section 668.198 is removed.
19. Part 668, subpart M, is amended by:
A. Removing appendix A.
B. Redesignating appendix B as appendix A.
20. Part 668 is amended by adding new subpart N to read as follows:
Subpart N--Cohort Default Rates
Sec.
668.200 Purpose of this subpart.
668.201 Definitions of terms used in this subpart.
668.202 Calculating and applying cohort default rates.
668.203 Determining cohort default rates for institutions that have
undergone a change in status.
668.204 Draft cohort default rates and your ability to challenge
before official cohort default rates are issued.
668.205 Notice of your official cohort default rate.
668.206 Consequences of cohort default rates on your ability to
participate in Title IV, HEA programs.
668.207 Preventing evasion of the consequences of cohort default
rates.
668.208 General requirements for adjusting official cohort default
rates and for appealing their consequences.
668.209 Uncorrected data adjustments.
668.210 New data adjustments.
668.211 Erroneous data appeals.
668.212 Loan servicing appeals.
668.213 Economically disadvantaged appeals.
668.214 Participation rate index appeals.
668.215 Average rates appeals.
668.216 Thirty-or-fewer borrowers appeals.
668.217 Default prevention plans.
Appendix A to Subpart N of Part 668--Sample Default Prevention Plan
Subpart N--Cohort Default Rates
Sec. 668.200 Purpose of this subpart.
(a) General. Your cohort default rate is a measure we use to
determine your eligibility to participate in various Title IV, HEA
programs. We may also use it for determining your eligibility for
exemptions, such as those for certain disbursement requirements under
the FFEL and Direct Loan Programs. This subpart applies solely to
cohorts, as defined in Sec. Sec. 668.201(a) and 668.202(b), for fiscal
years 2009 and later. For these cohorts, this subpart describes how
cohort default rates are calculated, some of the consequences of cohort
default rates, and how you may request changes to your cohort default
rates or appeal their consequences. Under this subpart, you submit a
``challenge'' after you receive your draft cohort default rate, and you
request an ``adjustment'' or ``appeal'' after your official cohort
default rate is published.
(b) Cohort Default Rates. Notwithstanding anything to the
[[Page 37478]]
contrary in this subpart, we will issue annually two sets of draft and
official cohort default rates for fiscal years 2009, 2010, and 2011.
For each of these years, you will receive one set of draft and official
cohort default rates under this subpart and another set of draft and
official cohort default rates under subpart M of this part.
(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)
Sec. 668.201 Definitions of terms used in this subpart.
We use the following definitions in this subpart:
(a) Cohort. Your cohort is a group of borrowers used to determine
your cohort default rate. The method for identifying the borrowers in a
cohort is provided in Sec. 668.202(b).
(b) Data manager. (1) For FFELP loans held by a guaranty agency or
lender, the guaranty agency is the data manager.
(2) For FFELP loans that we hold, we are the data manager.
(3) For Direct Loan Program loans, the Direct Loan Servicer, as
defined in 34 CFR 685.102, is the data manager.
(c) Days. In this subpart, ``days'' means calendar days.
(d) Default. A borrower is considered to be in default for cohort
default rate purposes under the rules in Sec. 668.202(c).
(e) Draft cohort default rate. Your draft cohort default rate is a
rate we issue, for your review, before we issue your official cohort
default rate. A draft cohort default rate is used only for the purposes
described in Sec. 668.204.
(f) Entering repayment. (1) Except as provided in paragraphs (f)(2)
and (f)(3) of this section, loans are considered to enter repayment on
the dates described in 34 CFR 682.200 (under the definition of
``repayment period'') and in 34 CFR 685.207.
(2) A Federal SLS loan is considered to enter repayment--
(i) At the same time the borrower's Federal Stafford loan enters
repayment, if the borrower received the Federal SLS loan and the
Federal Stafford loan during the same period of continuous enrollment;
or
(ii) In all other cases, on the day after the student ceases to be
enrolled at an institution on at least a half-time basis in an
educational program leading to a degree, certificate, or other
recognized educational credential.
(3) For the purposes of this subpart, a loan is considered to enter
repayment on the date that a borrower repays it in full, if the loan is
paid in full before the loan enters repayment under paragraphs (f)(1)
or (f)(2) of this section.
(g) Fiscal year. A fiscal year begins on October 1 and ends on the
following September 30. A fiscal year is identified by the calendar
year in which it ends.
(h) Loan record detail report. The loan record detail report is a
report that we produce. It contains the data used to calculate your
draft or official cohort default rate.
(i) Official cohort default rate. Your official cohort default rate
is the cohort default rate that we publish for you under Sec. 668.205.
Cohort default rates calculated under this subpart are not related in
any way to cohort default rates that are calculated for the Federal
Perkins Loan Program.
(j) We. We are the Department, the Secretary, or the Secretary's
designee.
(k) You. You are an institution.
(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)
Sec. 668.202 Calculating and applying cohort default rates.
(a) General. This section describes the four steps that we follow
to calculate and apply your cohort default rate for a fiscal year:
(1) First, under paragraph (b) of this section, we identify the
borrowers in your cohort for the fiscal year. If the total number of
borrowers in that cohort is fewer than 30, we also identify the
borrowers in your cohorts for the 2 most recent prior fiscal years.
(2) Second, under paragraph (c) of this section, we identify the
borrowers in the cohort (or cohorts) who are considered to be in
default by the end of the second fiscal year following the fiscal year
those borrowers entered repayment. If more than one cohort will be used
to calculate your cohort default rate, we identify defaulted borrowers
separately for each cohort.
(3) Third, under paragraph (d) of this section, we calculate your
cohort default rate.
(4) Fourth, we apply your cohort default rate to all of your
locations--
(i) As you exist on the date you receive the notice of your
official cohort default rate; and
(ii) From the date on which you receive the notice of your official
cohort default rate until you receive our notice that the cohort
default rate no longer applies.
(b) Identify the borrowers in a cohort. (1) Except as provided in
paragraph (b)(3) of this section, your cohort for a fiscal year
consists of all of your current and former students who, during that
fiscal year, entered repayment on any Federal Stafford loan, Federal
SLS loan, Direct Subsidized loan, or Direct Unsubsidized loan that they
received to attend your institution, or on the portion of a loan made
under the Federal Consolidation Loan Program or the Federal Direct
Consolidation Loan Program (as defined in 34 CFR 685.102) that is used
to repay those loans.
(2) A borrower may be included in more than one of your cohorts and
may be included in the cohorts of more than one institution in the same
fiscal year.
(3) A TEACH Grant that has been converted to a Federal Direct
Unsubsidized Loan is not considered for the purpose of calculating and
applying cohort default rates.
(c) Identify the borrowers in a cohort who are in default. (1)
Except as provided in paragraph (c)(2) of this section, a borrower in a
cohort for a fiscal year is considered to be in default if, before the
end of the second fiscal year following the fiscal year the borrower
entered repayment--
(i) The borrower defaults on any FFELP loan that was used to
include the borrower in the cohort or on any Federal Consolidation Loan
Program loan that repaid a loan that was used to include the borrower
in the cohort (however, a borrower is not considered to be in default
unless a claim for insurance has been paid on the loan by a guaranty
agency or by us);
(ii) The borrower fails to make an installment payment, when due,
on any Direct Loan Program loan that was used to include the borrower
in the cohort or on any Federal Direct Consolidation Loan Program loan
that repaid a loan that was used to include the borrower in the cohort,
and the borrower's failure persists for 360 days (or for 270 days, if
the borrower's first day of delinquency was before October 7, 1998); or
(iii) You or your owner, agent, contractor, employee, or any other
affiliated entity or individual make a payment to prevent a borrower's
default on a loan that is used to include the borrower in that cohort.
(2) A borrower is not considered to be in default based on a loan
that is, before the end of the second fiscal year following the fiscal
year in which it entered repayment--
(i) Rehabilitated under 34 CFR 682.405 or 34 CFR 685.211(e); or
(ii) Repurchased by a lender because the claim for insurance was
submitted or paid in error.
(d) Calculate the cohort default rate. Except as provided in Sec.
668.203, if there are--
(1)(i) Thirty or more borrowers in your cohort for a fiscal year,
your cohort default rate is the percentage that is calculated by--
(ii) Dividing the number of borrowers in the cohort who are in
default, as determined under paragraph (c) of this
[[Page 37479]]
section by the number of borrowers in the cohort, as determined under
paragraph (b) of this section.
(2)(i) Fewer than 30 borrowers in your cohort for a fiscal year,
your cohort default rate is the percentage that is calculated by--
(ii) Dividing the total number of borrowers in that cohort and in
the two most recent prior cohorts who are in default, as determined for
each cohort under paragraph (c) of this section by the total number of
borrowers in that cohort and the two most recent prior cohorts, as
determined for each cohort under paragraph (b) of this section.
(Authority: 20 U.S.C. 1070g, 1082, 1085, 1094, 1099c)
Sec. 668.203 Determining cohort default rates for institutions that
have undergone a change in status.
(a) General. (1) Except as provided under 34 CFR 600.32(d), if you
undergo a change in status identified in this section, your cohort
default rate is determined under this section.
(2) In determining cohort default rates under this section, the
date of a merger, acquisition, or other change in status is the date
the change occurs.
(3) A change in status may affect your eligibility to participate
in Title IV, HEA programs under Sec. 668.206 or Sec. 668.207.
(4) If another institution's cohort default rate is applicable to
you under this section, you may challenge, request an adjustment, or
submit an appeal for the cohort default rate under the same
requirements that would be applicable to the other institution under
Sec. Sec. 668.204 and 668.208.
(b) Acquisition or merger of institutions. If your institution
acquires, or was created by the merger of, one or more institutions
that participated independently in the Title IV, HEA programs
immediately before the acquisition or merger--
(1) For the cohort default rates published before the date of the
acquisition or merger, your cohort default rates are the same as those
of your predecessor that had the highest total number of borrowers
entering repayment in the two most recent cohorts used to calculate
those cohort default rates; and
(2) Beginning with the first cohort default rate published after
the date of the acquisition or merger, your cohort default rates are
determined by including the applicable borrowers from each institution
involved in the acquisition or merger in the calculation under Sec.
668.202.
(c) Acquisition of branches or locations. If you acquire a branch
or a location from another institution participating in the Title IV,
HEA programs--
(1) The cohort default rates published for you before the date of
the change apply to you and to the newly acquired branch or location;
(2) Beginning with the first cohort default rate published after
the date of the change, your cohort default rates for the next 3 fiscal
years are determined by including the applicable borrowers from your
institution and the other institution (including all of its locations)
in the calculation under Sec. 668.202;
(3) After the period described in paragraph (c)(2) of this section,
your cohort default rates do not include borrowers from the other
institution in the calculation under Sec. 668.202; and
(4) At all times, the cohort default rate for the institution from
which you acquired the branch or location is not affected by this
change in status.
(d) Branches or locations becoming institutions. If you are a
branch or location of an institution that is participating in the Title
IV, HEA programs, and you become a separate, new institution for the
purposes of participating in those programs--
(1) The cohort default rates published before the date of the
change for your former parent institution are also applicable to you;
(2) Beginning with the first cohort default rate published after
the date of the change, your cohort default rates for the next 3 fiscal
years are determined by including the applicable borrowers from your
institution and your former parent institution (including all of its
locations) in the calculation under Sec. 668.202; and
(3) After the period described in paragraph (d)(2) of this section,
your cohort default rates do not include borrowers from your former
parent institution in the calculation under Sec. 668.202.
(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)
Sec. 668.204 Draft cohort default rates and your ability to challenge
before official cohort default rates are issued.
(a) General. (1) We notify you of your draft cohort default rate
before your official cohort default rate is calculated. Our notice
includes the loan record detail report for the draft cohort default
rate.
(2) Regardless of the number of borrowers included in your cohort,
your draft cohort default rate is always calculated using data for that
fiscal year alone, using the method described in Sec. 668.202(d)(1).
(3) Your draft cohort default rate and the loan record detail
report are not considered public information and may not be otherwise
voluntarily released to the public by a data manager.
(4) Any challenge you submit under this section and any response
provided by a data manager must be in a format acceptable to us. This
acceptable format is described in the ``Cohort Default Rate Guide''
that we provide to you. If your challenge does not comply with the
requirements in the ``Cohort Default Rate Guide,'' we may deny your
challenge.
(b) Incorrect data challenges. (1) You may challenge the accuracy
of the data included on the loan record detail report by sending a
challenge to the relevant data manager, or data managers, within 45
days after you receive the data. Your challenge must include--
(i) A description of the information in the loan record detail
report that you believe is incorrect; and
(ii) Documentation that supports your contention that the data are
incorrect.
(2) Within 30 days after receiving your challenge, the data manager
must send you and us a response that--
(i) Addresses each of your allegations of error; and
(ii) Includes the documentation that supports the data manager's
position.
(3) If your data manager concludes that draft data in the loan
record detail report are incorrect, and we agree, we use the corrected
data to calculate your cohort default rate.
(4) If you fail to challenge the accuracy of data under this
section, you cannot contest the accuracy of those data in an
uncorrected data adjustment, under Sec. 668.209, or in an erroneous
data appeal, under Sec. 668.211.
(c) Participation rate index challenges. (1)(i) You may challenge
an anticipated loss of eligibility under Sec. 668.206(a)(1), based on
one cohort default rate over 40 percent, if your participation rate
index for that cohort's fiscal year is equal to or less than 0.06015.
(ii) You may challenge an anticipated loss of eligibility under
Sec. 668.206(a)(2), based on three cohort default rates of 30 percent
or greater, if your participation rate index is equal to or less than
0.0625 for any of those three cohorts' fiscal years.
(iii) You may challenge a potential placement on provisional
certification under Sec. 668.16(m)(2)(i), based on two cohort default
rates that fail to satisfy the standard of administrative capability in
Sec. 668.16(m)(1)(ii), if your participation rate index is equal to or
less than 0.0625 for either of the two cohorts' fiscal years.
(2) For a participation rate index challenge, your participation
rate index
[[Page 37480]]
is calculated as described in Sec. 668.214(b), except that--
(i) The draft cohort default rate is considered to be your most
recent cohort default rate; and
(ii) If the cohort used to calculate your draft cohort default rate
included fewer than 30 borrowers, you may calculate your participation
rate index for that fiscal year using either your most recent draft
cohort default rate or the average rate that would be calculated for
that fiscal year, using the method described in Sec. 668.202(d)(2).
(3) You must send your participation rate index challenge,
including all supporting documentation, to us within 45 days after you
receive your draft cohort default rate.
(4) We notify you of our determination on your participation rate
index challenge before your official cohort default rate is published.
(5) If we determine that you qualify for continued eligibility or
full certification based on your participation rate index challenge,
you will not lose eligibility under Sec. 668.206 or be placed on
provisional certification under Sec. 668.16(m)(2)(i) when your next
official cohort default rate is published. A successful challenge that
is based on your draft cohort default rate does not excuse you from any
other loss of eligibility or placement on provisional certification.
However, if your successful challenge under paragraph (c)(1)(ii) or
(c)(1)(iii) of this section is based on a prior, official cohort
default rate, and not on your draft cohort default rate, we also excuse
you from any subsequent loss of eligibility, under Sec. 668.206(a)(2)
or placement on provisional certification, under Sec. 668.16(m)(2)(i),
that would be based on that official cohort default rate.
(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)
Sec. 668.205 Notice of your official cohort default rate.
(a) We electronically notify you of your cohort default rate after
we calculate it, by sending you an eCDR notification package to the
destination point you designate. After we send our notice to you, we
publish a list of cohort default rates for all institutions.
(b) If you had one or more borrowers entering repayment in the
fiscal year for which the rate is calculated, or are subject to
sanctions, or if the Department believes you will have an official
cohort default rate calculated as an average rate, you will receive a
loan record detail report as part of your eCDR notification package.
(c) You have five business days, from the transmission date for
eCDR notification packages as posted on the Department's Web site, to
report any problem with receipt of the electronic transmission of your
eCDR notification package.
(d) Except as provided in paragraph (e) of this section, timelines
for submitting challenges, adjustments, and appeals begin on the sixth
business day following the announced transmission date.
(e) If you timely report a problem with transmission of your eCDR
notification package under paragraph (c) of this section and the
Department agrees that the problem with transmission was not caused by
you, the Department will extend the challenge, appeal and adjustment
deadlines and timeframes to account for a retransmission of your eCDR
notification package after the technical problem is resolved.
(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)
Sec. 668.206 Consequences of cohort default rates on your ability to
participate in Title IV, HEA programs.
(a) End of participation. (1) Except as provided in paragraph (e)
of this section, you lose your eligibility to participate in the FFEL
and Direct Loan programs 30 days after you receive our notice that your
most recent cohort default rate for fiscal year 2011 or later is
greater than 40 percent.
(2) Except as provided in paragraphs (d) and (e) of this section,
you lose your eligibility to participate in the FFEL, Direct Loan, and
Federal Pell Grant programs 30 days after you receive our notice that
your three most recent cohort default rates are each 30 percent or
greater.
(b) Length of period of ineligibility. Your loss of eligibility
under this section continues--
(1) For the remainder of the fiscal year in which we notify you
that you are subject to a loss of eligibility; and
(2) For the next 2 fiscal years.
(c) Using a cohort default rate more than once. The use of a cohort
default rate as a basis for a loss of eligibility under this section
does not preclude its use as a basis for--
(1) Any concurrent or subsequent loss of eligibility under this
section; or
(2) Any other action by us.
(d) Continuing participation in Pell. If you are subject to a loss
of eligibility under paragraph (a)(2) of this section, based on three
cohort default rates of 30 percent or greater, you may continue to
participate in the Federal Pell Grant Program if we determine that
you--
(1) Were ineligible to participate in the FFEL and Direct Loan
programs before October 7, 1998, and your eligibility was not
reinstated;
(2) Requested in writing, before October 7, 1998, to withdraw your
participation in the FFEL and Direct Loan programs, and you were not
later reinstated; or
(3) Have not certified an FFELP loan or originated a Direct Loan
Program loan on or after July 7, 1998.
(e) Requests for adjustments and appeals. (1) A loss of eligibility
under this section does not take effect while your request for
adjustment or appeal, as listed in Sec. 668.208(a), is pending,
provided your request for adjustment or appeal is complete, timely,
accurate, and in the required format.
(2) Eligibility continued under paragraph (e)(1) of this section
ends if we determine that none of the requests for adjustments and
appeals you have submitted qualify you for continued eligibility under
Sec. 668.208. Loss of eligibility takes effect on the date that you
receive notice of our determination on your last pending request for
adjustment or appeal.
(3) You do not lose eligibility under this section if we determine
that your request for adjustment or appeal meets all requirements of
this subpart and qualifies you for continued eligibility under Sec.
668.208.
(4) To avoid liabilities you might otherwise incur under paragraph
(f) of this section, you may choose to suspend your participation in
the FFEL and Direct Loan programs during the adjustment or appeal
process.
(f) Liabilities during the adjustment or appeal process. If you
continued to participate in the FFEL or Direct Loan Program under
paragraph (e)(1) of this section, and we determine that none of your
requests for adjustments or appeals qualify you for continued
eligibility--
(1) For any FFEL or Direct Loan Program loan that you certified and
delivered or originated and disbursed more than 30 days after you
received the notice of your cohort default rate, we estimate the amount
of interest, special allowance, reinsurance, and any related or similar
payments we make or are obligated to make on those loans;
(2) We exclude from this estimate any amount attributable to funds
that you delivered or disbursed more than 45 days after you submitted
your completed appeal to us;
(3) We notify you of the estimated amount; and
(4) Within 45 days after you receive our notice of the estimated
amount, you must pay us that amount, unless--
(i) You file an appeal under the procedures established in subpart
H of this part (for the purposes of subpart H
[[Page 37481]]
of this part, our notice of the estimate is considered to be a final
program review determination); or
(ii) We permit a longer repayment period.
(g) Regaining eligibility. If you lose your eligibility to
participate in a program under this section, you may not participate in
that program until--
(1) The period described in paragraph (b) of this section has
ended;
(2) You pay any amount owed to us under this section or are meeting
that obligation under an agreement acceptable to us;
(3) You submit a new application for participation in the program;
(4) We determine that you meet all of the participation
requirements in effect at the time of your application; and
(5) You and we enter into a new program participation agreement.
(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)
Sec. 668.207 Preventing evasion of the consequences of cohort default
rates.
(a) General. You are subject to a loss of eligibility that has
already been imposed against another institution as a result of cohort
default rates if--
(1) You and the ineligible institution are both parties to a
transaction that results in a change of ownership, a change in control,
a merger, a consolidation, an acquisition, a change of name, a change
of address, any change that results in a location becoming a
freestanding institution, a purchase or sale, a transfer of assets, an
assignment, a change of identification number, a contract for services,
an addition or closure of one or more locations or branches or
educational programs, or any other change in whole or in part in
institutional structure or identity;
(2) Following the change described in paragraph (a)(1) of this
section, you offer an educational program at substantially the same
address at which the ineligible institution had offered an educational
program before the change; and
(3) There is a commonality of ownership or management between you
and the ineligible institution, as the ineligible institution existed
before the change.
(b) Commonality of ownership or management. For the purposes of
this section, a commonality of ownership or management exists if, at
each institution, the same person (as defined in 34 CFR 600.31) or
members of that person's family, directly or indirectly--
(1) Holds or held a managerial role; or
(2) Has or had the ability to affect substantially the
institution's actions, within the meaning of 34 CFR 600.21.
(c) Teach-outs. Notwithstanding paragraph (b)(1) of this section, a
commonality of management does not exist if you are conducting a teach-
out under a teach-out agreement as defined in 34 CFR 602.3 and
administered in accordance with 34 CFR 602.24(c), and--
(1)(i) Within 60 days after the change described in this section,
you send us the names of the managers for each facility undergoing the
teach-out as it existed before the change and for each facility as it
exists after you believe that the commonality of management has ended;
and
(ii) We determine that the commonality of management, as described
in paragraph (b)(1) of this section, has ended; or
(2)(i) Within 30 days after you receive our notice that we have
denied your submission under paragraph (c)(1)(i) of this section, you
make the management changes we request and send us a list of the names
of the managers for each facility undergoing the teach-out as it exists
after you make those changes; and
(ii) We determine that the commonality of management, as described
in paragraph (b)(1) of this section, has ended.
(d) Initial determination. We encourage you to contact us before
undergoing a change described in this section. If you write to us,
providing the information we request, we will provide a written initial
determination of the anticipated change's effect on your eligibility.
(e) Notice of accountability. (1) We notify you in writing if, in
response to your notice or application filed under 34 CFR 600.20 or
600.21, we determine that you are subject to a loss of eligibility,
under paragraph (a) of this section, that has been imposed against
another institution.
(2) Our notice also advises you of the scope and duration of your
loss of eligibility. The loss of eligibility applies to all of your
locations from the date you receive our notice until the expiration of
the period of ineligibility applicable to the other institution.
(3) If you are subject to a loss of eligibility under this section
that has already been imposed against another institution, you may only
request an adjustment or submit an appeal for the loss of eligibility
under the same requirements that would be applicable to the other
institution under Sec. 668.208.
(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)
Sec. 668.208 General requirements for adjusting official cohort
default rates and for appealing their consequences.
(a) Remaining eligible. You do not lose eligibility under Sec.
668.206 if--
(1) We recalculate your cohort default rate, and it is below the
percentage threshold for the loss of eligibility as the result of--
(i) An uncorrected data adjustment submitted under this section and
Sec. 668.209;
(ii) A new data adjustment submitted under this section and Sec.
668.210;
(iii) An erroneous data appeal submitted under this section and
Sec. 668.211; or
(iv) A loan servicing appeal submitted under this section and Sec.
668.212; or
(2) You meet the requirements for--
(i) An economically disadvantaged appeal submitted under this
section and Sec. 668.213;
(ii) A participation rate index appeal submitted under this section
and Sec. 668.214;
(iii) An average rates appeal submitted under this section and
Sec. 668.215; or
(iv) A thirty-or-fewer borrowers appeal submitted under this
section and Sec. 668.216.
(b) Limitations on your ability to dispute your cohort default
rate. (1) You may not dispute the calculation of a cohort default rate
except as described in this subpart or in Sec. 668.16(m)(2).
(2) You may not request an adjustment or appeal a cohort default
rate, under Sec. 668.209, Sec. 668.210, Sec. 668.211, or Sec.
668.212, more than once.
(3) You may not request an adjustment or appeal a cohort default
rate, under Sec. 668.209, Sec. 668.210, Sec. 668.211, or Sec.
668.212, if you previously lost your eligibility to participate in a
Title IV, HEA program, under Sec. 668.206, or were placed on
provisional certification under Sec. 668.16(m)(2)(i), based entirely
or partially on that cohort default rate.
(c) Content and format of requests for adjustments and appeals. We
may deny your request for adjustment or appeal if it does not meet the
following requirements:
(1) All appeals, notices, requests, independent auditor's opinions,
management's written assertions, and other correspondence that you are
required to send under this subpart must be complete, timely, accurate,
and in a format acceptable to us. This acceptable format is described
in the ``Cohort Default Rate Guide'' that we provide to you.
(2) Your completed request for adjustment or appeal must include--
[[Page 37482]]
(i) All of the information necessary to substantiate your request
for adjustment or appeal; and
(ii) A certification by your chief executive officer, under penalty
of perjury, that all the information you provide is true and correct.
(d) Our copies of your correspondence. Whenever you are required by
this subpart to correspond with a party other than us, you must send us
a copy of your correspondence within the same time deadlines. However,
you are not required to send us copies of documents that you received
from us originally.
(e) Requirements for data managers' responses. (1) Except as
otherwise provided in this subpart, if this subpart requires a data
manager to correspond with any party other than us, the data manager
must send us a copy of the correspondence within the same time
deadlines.
(2) If a data manager sends us correspondence under this subpart
that is not in a format acceptable to us, we may require the data
manager to revise that correspondence's format, and we may prescribe a
format for that data manager's subsequent correspondence with us.
(f) Our decision on your request for adjustment or appeal. (1) We
determine whether your request for an adjustment or appeal is in
compliance with this subpart.
(2) In making our decision for an adjustment, under Sec. 668.209
or Sec. 668.210, or an appeal, under Sec. 668.211 or Sec. 668.212--
(i) We presume that the information provided to you by a data
manager is correct unless you provide substantial evidence that shows
the information is not correct; and
(ii) If we determine that a data manager did not provide the
necessary clarifying information or legible records in meeting the
requirements of this subpart, we presume that the evidence that you
provide to us is correct unless it is contradicted or otherwise proven
to be incorrect by information we maintain.
(3) Our decision is based on the materials you submit under this
subpart. We do not provide an oral hearing.
(4) We notify you of our decision--
(i) If you request an adjustment or appeal because you are subject
to a loss of eligibility under Sec. 668.206 or potential placement on
provisional certification under Sec. 668.16(m)(2)(i) or file an
economically disadvantaged appeal under Sec. 668.213(a)(2), within 45
days after we receive your completed request for an adjustment or
appeal; or
(ii) In all other cases, except for appeals submitted under Sec.
668.211(a) following placement on provisional certification, before we
notify you of your next official cohort default rate.
(5) You may not seek judicial review of our determination of a
cohort default rate until we issue our decision on all pending requests
for adjustments or appeals for that cohort default rate.
(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)
Sec. 668.209 Uncorrected data adjustments.
(a) Eligibility. You may request an uncorrected data adjustment for
your most recent cohort of borrowers, used to calculate your most
recent official cohort default rate, if in response to your challenge
under Sec. 668.204(b), a data manager agreed correctly to change the
data, but the changes are not reflected in your official cohort default
rate.
(b) Deadlines for requesting an uncorrected data adjustment. You
must send us a request for an uncorrected data adjustment, including
all supporting documentation, within 30 days after you receive your
loan record detail report from us.
(c) Determination. We recalculate your cohort default rate, based
on the corrected data, and electronically correct the rate that is
publicly released if we determine that--
(1) In response to your challenge under Sec. 668.204(b), a data
manager agreed to change the data;
(2) The changes described in paragraph (c)(1) of this section are
not reflected in your official cohort default rate; and
(3) We agree that the data are incorrect.
(Approved by the Office of Management and Budget under control
number 1845-0022)
(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)
Sec. 668.210 New data adjustments.
(a) Eligibility. You may request a new data adjustment for your
most recent cohort of borrowers, used to calculate your most recent
official cohort default rate, if--
(1) A comparison of the loan record detail reports that we provide
to you for the draft and official cohort default rates shows that the
data have been newly included, excluded, or otherwise changed; and
(2) You identify errors in the data described in paragraph (a)(1)
of this section that are confirmed by the data manager.
(b) Deadlines for requesting a new data adjustment. (1) You must
send to the relevant data manager, or data managers, and us a request
for a new data adjustment, including all supporting documentation,
within 15 days after you receive your loan record detail report from
us.
(2) Within 20 days after receiving your request for a new data
adjustment, the data manager must send you and us a response that--
(i) Addresses each of your allegations of error; and
(ii) Includes the documentation used to support the data manager's
position.
(3) Within 15 days after receiving a guaranty agency's notice that
we hold an FFELP loan about which you are inquiring, you must send us
your request for a new data adjustment for that loan. We respond to
your request as set forth under paragraph (b)(2) of this section.
(4) Within 15 days after receiving incomplete or illegible records
or data from a data manager, you must send a request for replacement
records or clarification of data to the data manager and us.
(5) Within 20 days after receiving your request for replacement
records or clarification of data, the data manager must--
(i) Replace the missing or illegible records;
(ii) Provide clarifying information; or
(iii) Notify you and us that no clarifying information or
additional or improved records are available.
(6) You must send us your completed request for a new data
adjustment, including all supporting documentation--
(i) Within 30 days after you receive the final data manager's
response to your request or requests; or
(ii) If you are also filing an erroneous data appeal or a loan
servicing appeal, by the latest of the filing dates required in
paragraph (b)(7)(i) of this section or in Sec. 668.211(b)(6)(i) or
Sec. 668.212(c)(10)(i).
(c) Determination. If we determine that incorrect data were used to
calculate your cohort default rate, we recalculate your cohort default
rate based on the correct data and make electronic corrections to the
rate that is publicly released.
(Approved by the Office of Management and Budget under control
number 1845-0022)
(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)
Sec. 668.211 Erroneous data appeals.
(a) Eligibility. Except as provided in Sec. 668.208(b), you may
appeal the calculation of a cohort default rate upon which a loss of
eligibility, under
[[Page 37483]]
Sec. 668.206, or provisional certification, under Sec. 668.16(m), is
based if--
(1) You dispute the accuracy of data that you previously challenged
on the basis of incorrect data, under Sec. 668.204(b); or
(2) A comparison of the loan record detail reports that we provide
to you for the draft and official cohort default rates shows that the
data have been newly included, excluded, or otherwise changed, and you
dispute the accuracy of that data.
(b) Deadlines for submitting an appeal. (1) You must send a request
for verification of data errors to the relevant data manager, or data
managers, and to us within 15 days after you receive the notice of your
loss of eligibility or provisional certification. Your request must
include a description of the information in the cohort default rate
data that you believe is incorrect and all supporting documentation
that demonstrates the error.
(2) Within 20 days after receiving your request for verification of
data errors, the data manager must send you and us a response that--
(i) Addresses each of your allegations of error; and
(ii) Includes the documentation used to support the data manager's
position.
(3) Within 15 days after receiving a guaranty agency's notice that
we hold an FFELP loan about which you are inquiring, you must send us
your request for verification of that loan's data errors. Your request
must include a description of the information in the cohort default
rate data that you believe is incorrect and all supporting
documentation that demonstrates the error. We respond to your request
as set forth under paragraph (b)(2) of this section.
(4) Within 15 days after receiving incomplete or illegible records
or data, you must send a request for replacement records or
clarification of data to the data manager and us.
(5) Within 20 days after receiving your request for replacement
records or clarification of data, the data manager must--
(i) Replace the missing or illegible records;
(ii) Provide clarifying information; or
(iii) Notify you and us that no clarifying information or
additional or improved records are available.
(6) You must send your completed appeal to us, including all
supporting documentation--
(i) Within 30 days after you receive the final data manager's
response to your request; or
(ii) If you are also requesting a new data adjustment or filing a
loan servicing appeal, by the latest of the filing dates required in
paragraph (b)(6)(i) of this section or in Sec. 668.210(b)(6)(i) or
Sec. 668.212(c)(10)(i).
(c) Determination. If we determine that incorrect data were used to
calculate your cohort default rate, we recalculate your cohort default
rate based on the correct data and electronically correct the rate that
is publicly released.
(Approved by the Office of Management and Budget under control
number 1845-0022)
(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)
Sec. 668.212 Loan servicing appeals.
(a) Eligibility. Except as provided in Sec. 668.208(b), you may
appeal, on the basis of improper loan servicing or collection, the
calculation of--
(1) Your most recent cohort default rate; or
(2) Any cohort default rate upon which a loss of eligibility under
Sec. 668.206 is based.
(b) Improper loan servicing. For the purposes of this section, a
default is considered to have been due to improper loan servicing or
collection only if the borrower did not make a payment on the loan and
you prove that the FFEL Program lender or the Direct Loan Servicer, as
defined in 34 CFR 685.102, failed to perform one or more of the
following activities, if that activity applies to the loan:
(1) Send at least one letter (other than the final demand letter)
urging the borrower to make payments on the loan.
(2) Attempt at least one phone call to the borrower.
(3) Send a final demand letter to the borrower.
(4) For a Direct Loan Program loan only, document that skip tracing
was performed if the Direct Loan Servicer determined that it did not
have the borrower's current address.
(5) For an FFELP loan only--
(i) Submit a request for preclaims or default aversion assistance
to the guaranty agency; and
(ii) Submit a certification or other documentation that skip
tracing was performed to the guaranty agency.
(c) Deadlines for submitting an appeal. (1) If the loan record
detail report was not included with your official cohort default rate
notice, you must request it within 15 days after you receive the notice
of your official cohort default rate.
(2) You must send a request for loan servicing records to the
relevant data manager, or data managers, and to us within 15 days after
you receive your loan record detail report from us. If the data manager
is a guaranty agency, your request must include a copy of the loan
record detail report.
(3) Within 20 days after receiving your request for loan servicing
records, the data manager must--
(i) Send you and us a list of the borrowers in your representative
sample, as described in paragraph (d) of this section (the list must be
in social security number order, and it must include the number of
defaulted loans included in the cohort for each listed borrower);
(ii) Send you and us a description of how your representative
sample was chosen; and
(iii) Either send you copies of the loan servicing records for the
borrowers in your representative sample and send us a copy of its cover
letter indicating that the records were sent, or send you and us a
notice of the amount of its fee for providing copies of the loan
servicing records.
(4) The data manager may charge you a reasonable fee for providing
copies of loan servicing records, but it may not charge more than $10
per borrower file. If a data manager charges a fee, it is not required
to send the documents to you until it receives your payment of the fee.
(5) If the data manager charges a fee for providing copies of loan
servicing records, you must send payment in full to the data manager
within 15 days after you receive the notice of the fee.
(6) If the data manager charges a fee for providing copies of loan
servicing records, and--
(i) You pay the fee in full and on time, the data manager must send
you, within 20 days after it receives your payment, a copy of all loan
servicing records for each loan in your representative sample (the
copies are provided to you in hard copy format unless the data manager
and you agree that another format may be used), and it must send us a
copy of its cover letter indicating that the records were sent; or
(ii) You do not pay the fee in full and on time, the data manager
must notify you and us of your failure to pay the fee and that you have
waived your right to challenge the calculation of your cohort default
rate based on the data manager's records. We accept that determination
unless you prove that it is incorrect.
(7) Within 15 days after receiving a guaranty agency's notice that
we hold an FFELP loan about which you are inquiring, you must send us
your request for the loan servicing records for that loan. We respond
to your request under paragraph (c)(3) of this section.
(8) Within 15 days after receiving incomplete or illegible records,
you
[[Page 37484]]
must send a request for replacement records to the data manager and us.
(9) Within 20 days after receiving your request for replacement
records, the data manager must either--
(i) Replace the missing or illegible records; or
(ii) Notify you and us that no additional or improved copies are
available.
(10) You must send your appeal to us, including all supporting
documentation--
(i) Within 30 days after you receive the final data manager's
response to your request for loan servicing records; or
(ii) If you are also requesting a new data adjustment or filing an
erroneous data appeal, by the latest of the filing dates required in
paragraph (c)(10)(i) of this section or in Sec. 668.210(b)(6)(i) or
Sec. 668.211(b)(6)(i).
(d) Representative sample of records. (1) To select a
representative sample of records, the data manager first identifies all
of the borrowers for whom it is responsible and who had loans that were
considered to be in default in the calculation of the cohort default
rate you are appealing.
(2) From the group of borrowers identified under paragraph (d)(1)
of this section, the data manager identifies a sample that is large
enough to derive an estimate, acceptable at a 95 percent confidence
level with a plus or minus 5 percent confidence interval, for use in
determining the number of borrowers who should be excluded from the
calculation of the cohort default rate due to improper loan servicing
or collection.
(e) Loan servicing records. Loan servicing records are the
collection and payment history records--
(1) Provided to the guaranty agency by the lender and used by the
guaranty agency in determining whether to pay a claim on a defaulted
loan; or
(2) Maintained by our Direct Loan Servicer that are used in
determining your cohort default rate.
(f) Determination. (1) We determine the number of loans, included
in your representative sample of loan servicing records, that defaulted
due to improper loan servicing or collection, as described in paragraph
(b) of this section.
(2) Based on our determination, we use a statistically valid
methodology to exclude the corresponding percentage of borrowers from
both the numerator and denominator of the calculation of your cohort
default rate, and electronically correct the rate that is publicly
released.
(Approved by the Office of Management and Budget under control
number 1845-0022)
(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)
Sec. 668.213 Economically disadvantaged appeals.
(a) General. As provided in this section you may appeal--
(1) A notice of a loss of eligibility under Sec. 668.206; or
(2) A notice of a second successive official cohort default rate
calculated under this subpart that is equal to or greater than 30
percent but less than or equal to 40 percent, potentially subjecting
you to provisional certification under Sec. 668.16(m)(2)(i).
(b) Eligibility. You may appeal under this section if an
independent auditor's opinion certifies that your low income rate is
two-thirds or more and--
(1) You offer an associate, baccalaureate, graduate, or
professional degree, and your completion rate is 70 percent or more; or
(2) You do not offer an associate, baccalaureate, graduate, or
professional degree, and your placement rate is 44 percent or more.
(c) Low income rate. (1) Your low income rate is the percentage of
your students, as described in paragraph (c)(2) of this section, who--
(i) For an award year that overlaps the 12-month period selected
under paragraph (c)(2) of this section, have an expected family
contribution, as defined in 34 CFR 690.2, that is equal to or less than
the largest expected family contribution that would allow a student to
receive one-half of the maximum Federal Pell Grant award, regardless of
the student's enrollment status or cost of attendance; or
(ii) For a calendar year that overlaps the 12-month period selected
under paragraph (c)(2) of this section, have an adjusted gross income
that, when added to the adjusted gross income of the student's parents
(if the student is a dependent student) or spouse (if the student is a
married independent student), is less than the amount listed in the
Department of Health and Human Services poverty guidelines for the size
of the student's family unit.
(2) The students who are used to determine your low income rate
include only students who were enrolled on at least a half-time basis
in an eligible program at your institution during any part of a 12-
month period that ended during the 6 months immediately preceding the
cohort's fiscal year.
(d) Completion rate. (1) Your completion rate is the percentage of
your students, as described in paragraph (d)(2) of this section, who--
(i) Completed the educational programs in which they were enrolled;
(ii) Transferred from your institution to a higher level
educational program;
(iii) Remained enrolled and are making satisfactory progress toward
completion of their educational programs at the end of the same 12-
month period used to calculate the low income rate; or
(iv) Entered active duty in the Armed Forces of the United States
within 1 year after their last date of attendance at your institution.
(2) The students who are used to determine your completion rate
include only regular students who were--
(i) Initially enrolled on a full-time basis in an eligible program;
and
(ii) Originally scheduled to complete their programs during the
same 12-month period used to calculate the low income rate.
(e) Placement rate. (1) Except as provided in paragraph (e)(2) of
this section, your placement rate is the percentage of your students,
as described in paragraphs (e)(3) and (e)(4) of this section, who--
(i) Are employed, in an occupation for which you provided training,
on the date following 1 year after their last date of attendance at
your institution;
(ii) Were employed for at least 13 weeks, in an occupation for
which you provided training, between the date they enrolled at your
institution and the first date that is more than a year after their
last date of attendance at your institution; or
(iii) Entered active duty in the Armed Forces of the United States
within 1 year after their last date of attendance at your institution.
(2) For the purposes of this section, a former student is not
considered to have been employed based on any employment by your
institution.
(3) The students who are used to determine your placement rate
include only former students who--
(i) Were initially enrolled in an eligible program on at least a
half-time basis;
(ii) Were originally scheduled, at the time of enrollment, to
complete their educational programs during the same 12-month period
used to calculate the low income rate; and
(iii) Remained in the program beyond the point at which a student
would have received a 100 percent tuition refund from you.
(4) A student is not included in the calculation of your placement
rate if that student, on the date that is 1 year after the student's
originally scheduled completion date, remains enrolled in the same
program and is making satisfactory progress.
(f) Scheduled to complete. In calculating a completion or placement
[[Page 37485]]
rate under this section, the date on which a student is originally
scheduled to complete a program is based on--
(1) For a student who is initially enrolled full-time, the amount
of time specified in your enrollment contract, catalog, or other
materials for completion of the program by a full-time student; or
(2) For a student who is initially enrolled less than full-time,
the amount of time that it would take the student to complete the
program if the student remained at that level of enrollment throughout
the program.
(g) Deadline for submitting an appeal. (1) Within 30 days after you
receive the notice of your loss of eligibility, you must send us your
management's written assertion, as described in the Cohort Default Rate
Guide.
(2) Within 60 days after you receive the notice of your loss of
eligibility, you must send us the independent auditor's opinion
described in paragraph (h) of this section.
(h) Independent auditor's opinion. (1) The independent auditor's
opinion must state whether your management's written assertion, as you
provided it to the auditor and to us, meets the requirements for an
economically disadvantaged appeal and is fairly stated in all material
respects.
(2) The engagement that forms the basis of the independent
auditor's opinion must be an examination-level compliance attestation
engagement performed in accordance with--
(i) The American Institute of Certified Public Accountants' (AICPA)
Statement on Standards for Attestation Engagements, Compliance
Attestation (AICPA, Professional Standards, vol. 1, AT sec. 500), as
amended (these standards may be obtained by calling the AICPA's order
department, at 1-888-777-7077); and
(ii) Government Auditing Standards issued by the Comptroller
General of the United States.
(i) Determination. You do not lose eligibility under Sec. 668.206,
and we do not provisionally certify you under Sec. 668.16(m)(2)(i),
if--
(1) Your independent auditor's opinion agrees that you meet the
requirements for an economically disadvantaged appeal; and
(2) We determine that the independent auditor's opinion and your
management's written assertion--
(i) Meet the requirements for an economically disadvantaged appeal;
and
(ii) Are not contradicted or otherwise proven to be incorrect by
information we maintain, to an extent that would render the independent
auditor's opinion unacceptable.
(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)
Sec. 668.214 Participation rate index appeals.
(a) Eligibility. (1) You may appeal a notice of a loss of
eligibility under Sec. 668.206(a)(1), based on one cohort default rate
over 40 percent, if your participation rate index for that cohort's
fiscal year is equal to or less than 0.06015.
(2) You may appeal a notice of a loss of eligibility under Sec.
668.206(a)(2), based on three cohort default rates of 30 percent or
greater, if your participation rate index is equal to or less than
0.0625 for any of those three cohorts' fiscal years.
(3) You may appeal potential placement on provisional certification
under Sec. 668.16(m)(2)(i) based on two cohort default rates that fail
to satisfy the standard of administrative capability in Sec.
668.16(m)(1)(ii) if your participation rate index is equal to or less
than 0.0625 for either of the two cohorts' fiscal years.
(b) Calculating your participation rate index. (1) Except as
provided in paragraph (b)(2) of this section, your participation rate
index for a fiscal year is determined by multiplying your cohort
default rate for that fiscal year by the percentage that is derived by
dividing--
(i) The number of students who received an FFELP or a Direct Loan
Program loan to attend your institution during a period of enrollment,
as defined in 34 CFR 682.200 or 685.102, that overlaps any part of a
12-month period that ended during the 6 months immediately preceding
the cohort's fiscal year, by
(ii) The number of regular students who were enrolled at your
institution on at least a half-time basis during any part of the same
12-month period.
(2) If your cohort default rate for a fiscal year is calculated as
an average rate under Sec. 668.202(d)(2), you may calculate your
participation rate index for that fiscal year using either that average
rate or the cohort default rate that would be calculated for the fiscal
year alone using the method described in Sec. 668.202(d)(1).
(c) Deadline for submitting an appeal. You must send us your appeal
under this section, including all supporting documentation, within 30
days after you receive--
(1) Notice of your loss of eligibility; or
(2) Notice of a second cohort default rate that equals or exceeds
30 percent but is less than 40 percent and that, in combination with an
earlier rate, potentially subjects you to provisional certification
under Sec. 668.16(m)(2)(i).
(d) Determination. (1) You do not lose eligibility under Sec.
668.206 and we do not place you on provisional certification, if we
determine that you meet the requirements for a participation rate index
appeal.
(2) If we determine that your participation rate index for a fiscal
year is equal to or less than 0.06015 or 0.0625, under paragraph (d)(1)
of this section, we also excuse you from any subsequent loss of
eligibility under Sec. 668.206(a)(2) or placement on provisional
certification under Sec. 668.16(m)(2)(i) that would be based on the
official cohort default rate for that fiscal year.
(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)
Sec. 668.215 Average rates appeals.
(a) Eligibility. (1) You may appeal a notice of a loss of
eligibility under Sec. 668.206(a)(1), based on one cohort default rate
over 40 percent, if that cohort default rate is calculated as an
average rate under Sec. 668.202(d)(2).
(2) You may appeal a notice of a loss of eligibility under Sec.
668.206(a)(2), based on three cohort default rates of 30 percent or
greater, if at least two of those cohort default rates--
(i) Are calculated as average rates under Sec. 668.202(d)(2); and
(ii) Would be less than 30 percent if calculated for the fiscal
year alone using the method described in Sec. 668.202(d)(1).
(b) Deadline for submitting an appeal. (1) Before notifying you of
your official cohort default rate, we make an initial determination
about whether you qualify for an average rates appeal. If we determine
that you qualify, we notify you of that determination at the same time
that we notify you of your official cohort default rate.
(2) If you disagree with our initial determination, you must send
us your average rates appeal, including all supporting documentation,
within 30 days after you receive the notice of your loss of
eligibility.
(c) Determination. You do not lose eligibility under Sec. 668.206
if we determine that you meet the requirements for an average rates
appeal. In such a case, we electronically correct the rate that is
publicly released.
(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)
Sec. 668.216 Thirty-or-fewer borrowers appeals.
(a) Eligibility. You may appeal a notice of a loss of eligibility
under Sec. 668.206 if 30 or fewer borrowers, in total, are included in
the 3 most recent cohorts of borrowers used to calculate your cohort
default rates.
[[Page 37486]]
(b) Deadline for submitting an appeal. (1) Before notifying you of
your official cohort default rate, we make an initial determination
about whether you qualify for a thirty-or-fewer borrowers appeal. If we
determine that you qualify, we notify you of that determination at the
same time that we notify you of your official cohort default rate.
(2) If you disagree with our initial determination, you must send
us your thirty-or-fewer borrowers appeal, including all supporting
documentation, within 30 days after you receive the notice of your loss
of eligibility.
(c) Determination. You do not lose eligibility under Sec. 668.206
if we determine that you meet the requirements for a thirty-or-fewer
borrowers appeal.
(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)
Sec. 668.217 Default prevention plans.
(a) First year. (1) If your cohort default rate is equal to or
greater than 30 percent you must establish a default prevention task
force that prepares a plan to--
(i) Identify the factors causing your cohort default rate to exceed
the threshold;
(ii) Establish measurable objectives and the steps you will take to
improve your cohort default rate;
(iii) Specify the actions you will take to improve student loan
repayment, including counseling students on repayment options; and
(iv) Submit your default prevention plan to us.
(2) We will review your default prevention plan and offer technical
assistance intended to improve student loan repayment.
(b) Second year. (1) If your cohort default rate is equal to or
greater than 30 percent for two consecutive fiscal years, you must
revise your default prevention plan and submit it to us for review.
(2) We may require you to revise your default prevention plan or
specify actions you need to take to improve student loan repayment.
(Authority: 20 U.S.C. 1082, 1085, 1094, 1099c)
Appendix A to Subpart N of Part 668--Sample Default Prevention Plan
This appendix is provided as a sample plan for those
institutions developing a default prevention plan in accordance with
Sec. 668.199(a)(1). It describes some measures you may find helpful
in reducing the number of students that default on federally funded
loans. These are not the only measures you could implement when
developing a default prevention plan.
I. Core Default Reduction Strategies
1. Establish your default prevention team by engaging your chief
executive officer and relevant senior executive officials and
enlisting the support of representatives from offices other than the
financial aid office. Consider including individuals and
organizations independent of your institution that have experience
in preventing title IV loan defaults.
2. Consider your history, resources, dollars in default, and
targets for default reduction to determine which activities will
result in the most benefit to you and your students.
3. Define evaluation methods and establish a data collection
system for measuring and verifying relevant default prevention
statistics, including a statistical analysis of the borrowers who
default on their loans.
4. Identify and allocate the personnel, administrative, and
financial resources appropriate to implement the default prevention
plan.
5. Establish annual targets for reductions in your rate.
6. Establish a process to ensure the accuracy of your rate.
II. Additional Default Reduction Strategies
1. Enhance the borrower's understanding of his or her loan
repayment responsibilities through counseling and debt management
activities.
2. Enhance the enrollment retention and academic persistence of
borrowers through counseling and academic assistance.
3. Maintain contact with the borrower after he or she leaves
your institution by using activities such as skip tracing to locate
the borrower.
4. Track the borrower's delinquency status by obtaining reports
from data managers and FFEL Program lenders.
5. Enhance student loan repayments through counseling the
borrower on loan repayment options and facilitating contact between
the borrower and the data manager or FFEL Program lender.
6. Assist a borrower who is experiencing difficulty in finding
employment through career counseling, job placement assistance, and
facilitating unemployment deferments.
7. Identify and implement alternative financial aid award
policies and develop alternative financial resources that will
reduce the need for student borrowing in the first 2 years of
academic study.
III. Statistics for Measuring Progress
1. The number of students enrolled at your institution during
each fiscal year.
2. The average amount borrowed by a student each fiscal year.
3. The number of borrowers scheduled to enter repayment each
fiscal year.
4. The number of enrolled borrowers who received default
prevention counseling services each fiscal year.
5. The average number of contacts that you or your agent had
with a borrower who was in deferment or forbearance or in repayment
status during each fiscal year.
6. The number of borrowers at least 60 days delinquent each
fiscal year.
7. The number of borrowers who defaulted in each fiscal year.
8. The type, frequency, and results of activities performed in
accordance with the default prevention plan.
PART 674--FEDERAL PERKINS LOAN PROGRAM
21. The authority citation for part 674 is revised to read as
follows:
Authority: 20 U.S.C. 1070g, 1087aa-1087hh, unless otherwise
noted.
22. Section 674.42 is amended by revising paragraph (b) to read as
follows:
Sec. 674.42 Contact with the borrower.
* * * * *
(b) Exit interview. (1) An institution must ensure that exit
counseling is conducted with each borrower either in person, by
audiovisual presentation, or by interactive electronic means. The
institution must ensure that exit counseling is conducted shortly
before the borrower ceases at least half-time study at the institution.
As an alternative, in the case of a student enrolled in a
correspondence program or a study-abroad program that the institution
approves for credit, the borrower may be provided with written
counseling material by mail within 30 days after the borrower completes
the program. If a borrower withdraws from the institution without the
institution's prior knowledge or fails to complete an exit counseling
session as required, the institution must ensure that exit counseling
is provided through either interactive electronic means or by mailing
counseling materials to the borrower at the borrower's last known
address within 30 days after learning that the borrower has withdrawn
from the institution or failed to complete exit counseling as required.
(2) The exit counseling must--
(i) Inform the student as to the average anticipated monthly
repayment amount based on the student's indebtedness or on the average
indebtedness of students who have obtained Perkins loans for attendance
at the institution or in the borrower's program of study;
(ii) Explain to the borrower the options to prepay each loan and
pay each loan on a shorter schedule;
(iii) Review for the borrower the option to consolidate a Federal
Perkins Loan, including the consequences of consolidating a Perkins
Loan. Information on the consequences of loan consolidation must
include, at a minimum--
(A) The effects of consolidation on total interest to be paid, fees
to be paid, and length of repayment;
(B) The effects of consolidation on a borrower's underlying loan
benefits, including grace periods, loan
[[Page 37487]]
forgiveness, cancellation, and deferment opportunities;
(C) The options of the borrower to prepay the loan or to change
repayment plans; and
(D) That borrower benefit programs may vary among different
lenders;
(iv) Include debt-management strategies that are designed to
facilitate repayment;
(v) Explain the use of a Master Promissory Note;
(vi) Emphasize to the borrower the seriousness and importance of
the repayment obligation the borrower is assuming;
(vii) Describe the likely consequences of default, including
adverse credit reports, delinquent debt collection procedures under
Federal law, and litigation;
(viii) Emphasize that the borrower is obligated to repay the full
amount of the loan even if the borrower has not completed the program,
has not completed the program within the regular time for program
completion, is unable to obtain employment upon completion, or is
otherwise dissatisfied with or did not receive educational or other
services that the borrower purchased from the institution;
(ix) Provide--
(A) A general description of the terms and conditions under which a
borrower may obtain full or partial forgiveness or cancellation of
principal and interest, defer repayment of principal or interest, or be
granted an extension of the repayment period or a forbearance on a
title IV loan; and
(B) A copy, either in print or by electronic means, of the
information the Secretary makes available pursuant to section 485(d) of
the HEA;
(x) Require the borrower to provide current information concerning
name, address, social security number, references, and driver's license
number, the borrower's expected permanent address, the address of the
borrower's next of kin, as well as the name and address of the
borrower's expected employer;
(xi) Review for the borrower information on the availability of the
Student Loan Ombudsman's office;
(xii) Inform the borrower of the availability of title IV loan
information in the National Student Loan Data System (NSLDS) and how
NSLDS can be used to obtain title IV loan status information; and
(xiii) A general description of the types of tax benefits that may
be available to borrowers.
(3) If exit counseling is conducted through interactive electronic
means, the institution must take reasonable steps to ensure that each
student borrower receives the counseling materials, and participates in
and completes the exit counseling.
(4) The institution must maintain documentation substantiating the
institution's compliance with this section for each borrower.
* * * * *
23. 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 designated 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 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, 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 need 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 and has
obtained a postgraduate academic degree awarded after the completion of
an academic program of up to six years in duration, excluding a
doctorate or professional degree.
(x) Substantial gainful activity: A level of work performed for pay
or profit that involves doing significant physical
[[Page 37488]]
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).
* * * * *
24. Section 674.53 is amended by:
A. Adding new paragraph (a)(1)(iii).
B. Revising paragraphs (a)(2)(i) and (a)(2)(ii).
C. Revising paragraph (a)(3).
D. Revising paragraphs (a)(4)(i) and (a)(4)(ii).
E. Removing paragraph (a)(4)(iii).
F. Revising paragraph (a)(6).
G. Adding new paragraph (b)(3).
H. In paragraph (d)(1), removing the word ``shall'' and adding, in
its place, the word ``must''.
I. Revising paragraph (e).
The revisions and additions read as follows:
Sec. 674.53 Teacher cancellation--Federal Perkins, NDSL and Defense
loans.
* * * * *
(a) * * *
(1) * * *
(iii) An institution must cancel up to 100 percent of the
outstanding balance of a Federal Perkins, NDSL, or Defense loan for
teaching service that includes August 14, 2008, or begins on or after
that date, at an educational service agency.
* * * * *
(2) * * *
(i) Is in a school district that qualified for funds, in that year,
under part A of title I of the Elementary and Secondary Education Act
of 1965, as amended; and
(ii) Has been selected by the Secretary based on a determination
that more than 30 percent of the school's or educational service
agency's total enrollment is made up of title I children.
(3) For each academic year, the Secretary notifies participating
institutions of the schools and educational service agencies selected
under paragraph (a) of this section.
(4)(i) The Secretary selects schools and educational service
agencies under paragraph (a)(1) of this section based on a ranking by
the State education agency.
(ii) The State education agency must base its ranking of the
schools and educational service agencies on objective standards and
methods. These standards must take into account the numbers and
percentages of title I children attending those schools and educational
service agencies.
* * * * *
(6) A teacher, who performs service in a school or educational
service agency that meets the requirement of paragraph (a)(1) of this
section in any year and in a subsequent year fails to meet these
requirements, may continue to teach in that school or educational
service agency and will be eligible for loan cancellation pursuant to
paragraph (a) of this section in subsequent years.
* * * * *
(b) * * *
(3) An institution must cancel up to 100 percent of the outstanding
balance on a borrower's Federal Perkins, NDSL, or Defense loan for a
borrower's service that includes August 14, 2008, or begins on or after
that date, as a full-time special education teacher of infants,
toddlers, children, or youth with disabilities, in an educational
service agency.
* * * * *
(e) Teaching in a school system. The Secretary considers a borrower
to be teaching in a public or other nonprofit elementary or secondary
school system or an educational service agency only if the borrower is
directly employed by the school system.
* * * * *
25. Section 674.56 is amended by:
A. Revising paragraph (c)(1).
B. Redesignating paragraph (d) as paragraph (h).
C. Adding paragraphs (d), (e), (f), and (g), respectively.
C. Revising newly redesignated paragraph (h).
The revisions and additions read as follows:
Sec. 674.56 Employment cancellation--Federal Perkins, NDSL, and
Defense loans.
* * * * *
(c) * * * (1) An institution must cancel up to 100 percent of the
outstanding balance on a borrower's Federal Perkins or NDSL made on or
after July 23, 1992, for the borrower's service as a full-time
qualified professional provider of early intervention services in a
public or other nonprofit program under public supervision by the lead
agency as authorized in section 632 of the Individuals with
Disabilities Education Act.
* * * * *
(d) Cancellation for full-time employment as a firefighter to a
local, State, or Federal fire department or fire district. An
institution must cancel up to 100 percent of the outstanding balance on
a borrower's Federal Perkins, NDSL, or Defense loan for service that
includes August 14, 2008, or begins on or after that date, as a full-
time firefighter.
(e) Cancellation for full-time employment as a faculty member at a
Tribal College or University. An institution must cancel up to 100
percent of the outstanding balance on a borrower's Federal Perkins,
NDSL, or Defense loan for service that includes August 14, 2008, or
begins on or after that date, as a full-time faculty member at a Tribal
College or University.
(f) Cancellation for full-time employment as a librarian with a
master's degree. (1) An institution must cancel up to 100 percent of
the outstanding balance on a borrower's Federal Perkins Loan, NDSL, or
Defense loan for service that includes August 14, 2008, or begins on or
after that date, as a full-time librarian, provided that the
individual--
(i) Is a librarian with a master's degree; and
(ii) Is employed in an elementary school or secondary school that
is eligible for assistance under part A of title I of the Elementary
and Secondary Education Act of 1965, as amended; or
(iii) Is employed by a public library that serves a geographic area
that contains one or more schools eligible for assistance under part A
of title I of the Elementary and Secondary Education Act of 1965, as
amended.
(2) For the purposes of paragraph (f) of this section, the term
geographic area is defined as the area served by the local school
district.
(g) Cancellation for full-time employment as a speech pathologist
with a master's degree. An institution must cancel up to 100 percent of
the outstanding balance on a borrower's Federal Perkins Loan, NDSL, or
Defense loan for full-time employment that includes August 14, 2008, or
begins on or after that date, as a speech pathologist
[[Page 37489]]
with a master's degree who is working exclusively with schools eligible
for funds under part A of title I of the Elementary and Secondary
Education Act of 1965, as amended.
(h) Cancellation rates. (1) To qualify for cancellation under
paragraphs (a), (b), (c), (d), (e), (f), and (g) of this section, a
borrower must work full-time for 12 consecutive months.
* * * * *
26. Section 674.57 is revised to read as follows:
Sec. 674.57 Cancellation for law enforcement or corrections officer
service--Federal Perkins, NDSL, and Defense loans.
(a)(1) An institution must cancel up to 100 percent of the
outstanding balance on a borrower's Federal Perkins or NDSL made on or
after November 29, 1990, for full-time service as a law enforcement or
corrections officer for an eligible employing agency.
(2) An institution must cancel up to 100 percent of the outstanding
loan balance on a Federal Perkins, NDSL, or Defense loan made prior to
November 29, 1990, for law enforcement or correction officer service
performed on or after October 7, 1998, if the cancellation benefits
provided under this section are not included in the terms of the
borrower's promissory note.
(3) An eligible employing agency is an agency--
(i) That is a local, State, or Federal law enforcement or
corrections agency;
(ii) That is public-funded; and
(iii) The principal activities of which pertain to crime
prevention, control, or reduction or the enforcement of the criminal
law.
(4) Agencies that are primarily responsible for enforcement of
civil, regulatory, or administrative laws are ineligible employing
agencies.
(5) A borrower qualifies for cancellation under this section only
if the borrower is--
(i) A sworn law enforcement or corrections officer; or
(ii) A person whose principal responsibilities are unique to the
criminal justice system.
(6) To qualify for a cancellation under this section, the
borrower's service must be essential in the performance of the eligible
employing agency's primary mission.
(7) The agency must be able to document the employee's functions.
(8) A borrower whose principal official responsibilities are
administrative or supportive does not qualify for cancellation under
this section.
(b) An institution must cancel up to 100 percent of the outstanding
balance of a borrower's Federal Perkins, NDSL, or Defense loan for
service that includes August 14, 2008, or begins on or after that date,
as a full-time attorney employed in Federal public defender
organizations or community defender organizations, established in
accordance with section 3006A(g)(2) of title 18, U.S.C.
(c)(1) To qualify for cancellation under paragraph (a) of this
section, a borrower must work full-time for 12 consecutive months.
(2) Cancellation rates are--
(i) 15 percent of the original principal loan amount plus the
interest on the unpaid balance accruing during the year of qualifying
service, for each of the first and second years of full-time
employment;
(ii) 20 percent of the original principal loan amount plus the
interest on the unpaid balance accruing during the year of qualifying
service, for each of the third and fourth years of full-time
employment; and
(iii) 30 percent of the original principal loan amount plus the
interest on the unpaid balance accruing during the year of qualifying
service, for the fifth year of full-time employment.
(Authority: 20 U.S.C. 1087ee)
27. Section 674.58 is amended by:
A. Revising the section heading.
B. Redesignating paragraphs (a)(3) and (a)(4) as paragraphs (a)(4)
and (a)(5), respectively.
C. Adding new paragraph (a)(3).
D. Revising newly redesignated paragraph (a)(4).
E. Revising newly redesignated paragraph (a)(5).
F. Redesignating paragraph (c)(2) as paragraph (c)(4).
G. Adding new paragraphs (c)(2) and (c)(3).
H. Revising newly redesignated paragraph (c)(4).
The revisions and additions read as follows:
Sec. 674.58 Cancellation for service in an early childhood education
program.
* * * * *
(a) * * *
(3) An institution must cancel up to 100 percent of the outstanding
balance of a borrower's NDSL, Defense, or Federal Perkins loan for
service that includes August 14, 2008, or begins on or after that date,
as a full-time staff member of a pre-kindergarten or childcare program
that is licensed or regulated by the State.
(4) The Head Start, pre-kindergarten or child care program in which
the borrower serves must operate for a complete academic year, or its
equivalent.
(5) In order to qualify for cancellation, the borrower's salary may
not exceed the salary of a comparable employee working in the local
educational agency of the area served by the local Head Start, pre-
kindergarten or child care program.
* * * * *
(c) * * *
(2) A pre-kindergarten program is a State-funded program that
serves children from birth through age six and addresses the children's
cognitive (including language, early literacy, and early mathematics),
social, emotional, and physical development.
(3) A child care program is a program that is licensed and
regulated by the State and provides child care services for fewer than
24 hours per day per child, unless care in excess of 24 consecutive
hours is needed due to the nature of the parents' work.
(4) ``Full-time staff member'' is a person regularly employed in a
full-time professional capacity to carry out the educational part of a
Head Start, pre-kindergarten or child care program.
* * * * *
28. Section 674.59 is amended by:
a. Revising the section heading.
b. Removing in paragraph (a)(1) the word ``shall'' and adding, in
its place, the word ``must''.
c. Revising paragraph (b)(1).
d. Adding new paragraph (c).
e. Redesignating paragraph (b)(3) as paragraph (d).
f. Revising the authority citation that appears at the end of the
section.
The addition and revisions read as follows:
Sec. 674.59 Cancellation for military service.
* * * * *
(b) * * * (1) An institution must cancel up to 50 percent of the
outstanding balance on an NDSL or Perkins loan for active duty service
that ended before August 14, 2008, as a member of the U.S. Army, Navy,
Air Force, Marine Corps, or Coast Guard in an area of hostilities that
qualifies for special pay under section 310 of title 37 of the United
States Code.
* * * * *
(c)(1) An institution must cancel up to 100 percent of the
outstanding balance on a borrower's Federal Perkins or NDSL loan for a
borrower's full year of active duty service that includes August 14,
2008, or begins on or after that date, as a member of the U.S. Army,
Navy, Air Force, Marine Corps, or Coast Guard in an area of hostilities
that qualifies for special pay under section 310 of title 37 of the
United States Code.
(2) The cancellation rate is 15 percent for the first and second
year of
[[Page 37490]]
qualifying service, 20 percent for the third and fourth year of
qualifying service, and 30 percent for the fifth year of qualifying
service.
* * * * *
(Authority: 20 U.S.C. 1087ee)
Sec. 674.61 [Amended]
29. Section 674.61 is amended by removing the citation ``Sec.
674.51(s)'' each time it appears and adding, in its place, the citation
``Sec. 674.51(aa)''.
PART 682--FEDERAL FAMILY EDUCATION LOAN (FFEL) PROGRAM
30. The authority citation for part 682 is revised to read as
follows:
Authority: 20 U.S.C. 1070g, 1071 to 1087-2, unless otherwise
noted.
31. Paragraph (h) of Sec. 682.212 is revised to read as follows:
Sec. 682.212 Prohibited transactions.
* * * * *
(h) A school may, at its option, make available a list of
recommended or suggested lenders, in print or any other medium or form,
for use by the school's students or their parents provided that such
list complies with the requirements in 34 CFR 601.10 and 668.14(a)(28).
* * * * *
32. Section 682.604 is amended by revising paragraphs (c)(5),
(c)(8), (f), and (g) to read as follows:
Sec. 682.604 Processing the borrower's loan proceeds and counseling
borrowers.
* * * * *
(c) * * *
(5) A school may not release the first installment of a Stafford
loan for endorsement to a student who is enrolled in the first year of
an undergraduate program of study and who has not previously received a
Stafford, SLS, Direct Subsidized, or Direct Unsubsidized loan until 30
days after the first day of the student's program of study unless--
(i) Except as provided in paragraph (c)(5)(ii) of this section, the
school in which the student is enrolled has a cohort default rate,
calculated under subpart M of 34 CFR part 668, of less than 10 percent
for each of the three most recent fiscal years for which data are
available; or
(ii) For loans first disbursed on or after October 1, 2011, the
school in which the student is enrolled has a cohort default rate,
calculated under either subpart M or subpart N of 34 CFR part 668 of
less than 15 percent for each of the three most recent fiscal years for
which data are available; or
(iii) The school is an eligible home institution certifying a loan
to cover the student's cost of attendance in a study abroad program and
has a cohort default rate, calculated under either subpart M or subpart
N of 34 CFR part 668, of less than 5 percent for the single most recent
fiscal year for which data are available.
* * * * *
(8) Notwithstanding the requirements of paragraphs (c)(6) through
(c)(9) of this section, a school is not required to deliver loan
proceeds in more than one installment if--
(i)(A) The student's loan period is not more than one semester, one
trimester, one quarter, or, for non term-based schools or schools with
non-standard terms, 4 months; and
(B)(1) Except as provided in paragraph (c)(8)(i)(B)(2) of this
section, the school in which the student is enrolled has a cohort
default rate, calculated under subpart M of 34 CFR part 668, of less
than 10 percent for each of the three most recent fiscal years for
which data are available; or
(2) For loan disbursements made on or after October 1, 2011, the
school in which the student is enrolled has a cohort default rate,
calculated under either subpart M or subpart N of 34 CFR part 668 of
less than 15 percent for each of the three most recent fiscal years for
which data are available; or
(ii) The school is an eligible home institution certifying a loan
to cover the student's cost of attendance in a study abroad program and
has a cohort default rate, calculated under subpart M or subpart N of
34 CFR part 668, of less than 5 percent for the single most recent
fiscal year for which data are available.
* * * * *
(f) Initial counseling. (1) A school must ensure that initial
counseling is conducted with each Stafford loan borrower prior to its
release of the first disbursement, unless the student borrower has
received a prior Federal Stafford, Federal SLS, or Direct subsidized or
unsubsidized loan.
(2) A school must ensure that initial counseling is conducted with
each graduate or professional student PLUS loan borrower prior to its
release of the first disbursement, unless the student has received a
prior Federal PLUS loan or Direct PLUS loan.
(3) Initial counseling for Stafford and graduate or professional
student PLUS Loan borrowers must provide comprehensive information on
the terms and conditions of the loan and on the responsibilities of the
borrower with respect to the loan. This information may be provided to
the borrower--
(i) During an entrance counseling session conducted in person;
(ii) On a separate written form provided to the borrower that the
borrower signs and returns to the school; or
(iii) Online or by interactive electronic means, with the borrower
acknowledging receipt of the information.
(4) If initial counseling is conducted online or through
interactive electronic means, the school must take reasonable steps to
ensure that each student borrower receives the counseling materials,
and participates in and completes the initial counseling, which may
include completion of any interactive program that tests the borrower's
understanding of the terms and conditions of the borrower's loans.
(5) A school must ensure that an individual with expertise in the
title IV programs is reasonably available shortly after the counseling
to answer the student borrower's questions regarding those programs. As
an alternative, prior to releasing the proceeds of a loan, in the case
of a student borrower enrolled in a correspondence program or a student
borrower enrolled in a study-abroad program that the home institution
approves for credit, the counseling may be provided through written
materials.
(6) Initial counseling for Stafford Loan borrowers must--
(i) Explain the use of a Master Promissory Note;
(ii) Emphasize to the student borrower the seriousness and
importance of the repayment obligation the student borrower is
assuming;
(iii) Describe the likely consequences of default, including
adverse credit reports, delinquent debt collection procedures under
Federal law, and litigation;
(iv) In the case of a student borrower (other than a loan made or
originated by the school), emphasize that the student borrower is
obligated to repay the full amount of the loan even if the student
borrower does not complete the program, does not complete the program
within the regular time for program completion, is unable to obtain
employment upon completion, or is otherwise dissatisfied with or does
not receive the educational or other services that the student borrower
purchased from the school;
(v) Inform the student borrower of sample monthly repayment amounts
based on--
(A) A range of student levels of indebtedness of Stafford loan
borrowers, or student borrowers with Stafford and PLUS loans, depending
on the types of loans the borrower has obtained; or
[[Page 37491]]
(B) The average indebtedness of other borrowers in the same program
at the same school as the borrower;
(vi) To the extent practicable, explain the effect of accepting the
loan to be disbursed on the eligibility of the borrower for other forms
of student financial assistance;
(vii) Provide information on how interest accrues and is
capitalized during periods when the interest is not paid by either the
borrower or the Secretary;
(viii) Inform the borrower of the option to pay the interest on an
unsubsidized Stafford Loan while the borrower is in school;
(ix) Explain the definition of half-time enrollment at the school,
during regular terms and summer school, if applicable, and the
consequences of not maintaining half-time enrollment;
(x) Explain the importance of contacting the appropriate offices at
the school if the borrower withdraws prior to completing the borrower's
program of study so that the school can provide exit counseling,
including information regarding the borrower's repayment options and
loan consolidation;
(xi) Provide information on the National Student Loan Data System
and how the borrower can access the borrower's records; and
(xii) Provide the name of and contact information for the
individual the borrower may contact if the borrower has any questions
about the borrower's rights and responsibilities or the terms and
conditions of the loan.
(7) Initial counseling for graduate or professional student PLUS
Loan borrowers must--
(i) Inform the student borrower of sample monthly repayment amounts
based on--
(A) A range of student levels of indebtedness of graduate or
professional student PLUS loan borrowers, or student borrowers with
Stafford and PLUS loans, depending on the types of loans the borrower
has obtained; or
(B) The average indebtedness of other borrowers in the same program
at the same school as the borrower;
(ii) Inform the borrower of the option to pay interest on a PLUS
Loan while the borrower is in school;
(iii) For a graduate or professional student PLUS Loan borrower who
has received a prior FFEL Stafford, or Direct subsidized or
unsubsidized loan, provide the information specified in Sec.
682.603(d)(1)(i) through Sec. 682.603(d)(1)(iii); and
(iv) For a graduate or professional student PLUS Loan borrower who
has not received a prior FFEL Stafford, or Direct subsidized or
unsubsidized loan, provide the information specified in paragraph
(f)(6)(i) through (f)(6)(xii) of this section.
(8) A school must maintain documentation substantiating the
school's compliance with this section for each student borrower.
(g) Exit counseling. (1) A school must ensure that exit counseling
is conducted with each Stafford loan borrower and graduate or
professional student PLUS Loan borrower either in person, by
audiovisual presentation, or by interactive electronic means. In each
case, the school must ensure that this counseling is conducted shortly
before the student borrower ceases at least half-time study at the
school, and that an individual with expertise in the title IV programs
is reasonably available shortly after the counseling to answer the
student borrower's questions. As an alternative, in the case of a
student borrower enrolled in a correspondence program or a study-abroad
program that the home institution approves for credit, written
counseling materials may be provided by mail within 30 days after the
student borrower completes the program. If a student borrower withdraws
from school without the school's prior knowledge or fails to complete
an exit counseling session as required, the school must ensure that
exit counseling is provided through either interactive electronic means
or by mailing written counseling materials to the student borrower at
the student borrower's last known address within 30 days after learning
that the student borrower has withdrawn from school or failed to
complete the exit counseling as required.
(2) The exit counseling must--
(i) Inform the student borrower of the average anticipated monthly
repayment amount based on the student borrower's indebtedness or on the
average indebtedness of student borrowers who have obtained Stafford
loans, PLUS Loans, or student borrowers who have obtained both Stafford
and PLUS loans, depending on the types of loans the student borrower
has obtained, for attendance at the same school or in the same program
of study at the same school;
(ii) Review for the student borrower available repayment plan
options, including standard, graduated, extended, income sensitive and
income-based repayment plans, including a description of the different
features of each plan and sample information showing the average
anticipated monthly payments, and the difference in interest paid and
total payments under each plan;
(iii) Explain to the borrower the options to prepay each loan, to
pay each loan on a shorter schedule, and to change repayment plans;
(iv) Provide information on the effects of loan consolidation
including, at a minimum--
(A) The effects of consolidation on total interest to be paid, fees
to be paid, and length of repayment;
(B) The effects of consolidation on a borrower's underlying loan
benefits, including grace periods, loan forgiveness, cancellation, and
deferment opportunities;
(C) The options of the borrower to prepay the loan and to change
repayment plans; and
(D) That borrower benefit programs may vary among different
lenders;
(v) Include debt-management strategies that are designed to
facilitate repayment;
(vi) Include the matters described in paragraph (f)(6)(i),
(f)(6)(ii), and (f)(6)(iv) of this section;
(vii) Describe the likely consequences of default, including
adverse credit reports, delinquent debt collection procedures under
Federal law, and litigation;
(viii) Provide--
(A) A general description of the terms and conditions under which a
borrower may obtain full or partial forgiveness or discharge of
principal and interest, defer repayment of principal or interest, or be
granted forbearance on a title IV loan, including forgiveness benefits
or discharge benefits available to a FFEL borrower who consolidates his
or her loan into the Direct Loan program; and
(B) A copy, either in print or by electronic means, of the
information the Secretary makes available pursuant to section 485(d) of
the HEA;
(ix) Require the student borrower to provide current information
concerning name, address, social security number, references, and
driver's license number and State of issuance, as well as the student
borrower's expected permanent address, the address of the student
borrower's next of kin, and the name and address of the student
borrower's expected employer (if known). The school must ensure that
this information is provided to the guaranty agency or agencies listed
in the student borrower's records within 60 days after the student
borrower provides the information;
(x) Review for the student borrower information on the availability
of the Student Loan Ombudsman's office;
(xi) Inform the student borrower of the availability of title IV
loan information in the National Student Loan Data System (NSLDS) and
how
[[Page 37492]]
NSLDS can be used to obtain title IV loan status information; and
(xii) A general description of the types of tax benefits that may
be available to borrowers.
(3) If exit counseling is conducted by electronic interactive
means, the school must take reasonable steps to ensure that each
student borrower receives the counseling materials, and participates in
and completes the counseling.
(4) The school must maintain documentation substantiating the
school's compliance with this section for each student borrower.
* * * * *
PART 685--WILLIAM D. FORD FEDERAL DIRECT LOAN PROGRAM
33. The authority citation for part 685 continues to read as
follows:
Authority: 20 U.S.C. 1070g, 1087a, et seq., unless otherwise
noted.
34. Section 685.301(b)(6) is amended by:
A. Revising paragraph (b)(6)(i).
B. In paragraph (b)(6)(ii), removing the reference to ``Paragraphs
(b)(8)(i)(A) and (B) of this section'' and adding, in its place, a
reference to ``Paragraphs (b)(6)(i)(A) and (B) of this section''.
C. In paragraph (b)(6)(ii), adding the words ``or subpart N'' after
the words ``under subpart M''.
D. In paragraph (b)(6)(iii), removing the reference to ``Paragraph
(b)(8)(i)(B) of this section'' and adding, in its place, a reference to
``Paragraph (b)(6)(i)(B) of this section''.
E. In paragraph (b)(6)(iii), adding the words ``or subpart N''
after the words ``under subpart M''.
The revision reads as follows:
Sec. 685.301 Origination of a loan by a Direct Loan Program school.
* * * * *
(b) * * *
(6)(i) A school is not required to make more than one disbursement
if--
(A)(1) The loan period is not more than one semester, one
trimester, one quarter, or, for non term-based schools or schools with
non-standard terms, 4 months; and
(2)(i) Except as provided in paragraph (b)(6)(i)(A)(2)(ii) of this
section, the school has a cohort default rate, calculated under subpart
M of 34 CFR part 668 of less than 10 percent for each of the three most
recent fiscal years for which data are available;
(ii) For loan disbursements made on or after October 1, 2011, the
school in which the student is enrolled has a cohort default rate,
calculated under either subpart M or subpart N of 34 CFR part 668 of
less than 15 percent for each of the three most recent fiscal years,
for which data are available.
(B) The school is an eligible home institution originating a loan
to cover the cost of attendance in a study abroad program and has a
cohort default rate, calculated under subpart M or subpart N of 34 part
668, of less than 5 percent for the single most recent fiscal year for
which data are available; or
(C) The school is not in a State.
* * * * *
35. Section 685.303(b)(4) is amended by:
A. Revising paragraph (b)(4)(i)(A).
B. In paragraph (b)(4)(ii), adding the words ``or subpart N'' after
the words ``under subpart M''.
C. In paragraph (b)(4)(iii), removing the words ``Subpart M'' and
adding in their place the words ``subpart M or subpart N''.
The revision reads as follows:
Sec. 685.303 Processing loan proceeds.
* * * * *
(b) * * *
(4) * * *
(i) * * *
(A)(1) Except as provided in paragraph (b)(4)(i)(A)(2) of this
section, the school has a cohort default rate, calculated under subpart
M of 34 CFR part 668, or weighted average cohort rate of less than 10
percent for each of the three most recent fiscal years for which data
are available; or
(2) For loans first disbursed on or after October 1, 2011, the
school in which the student is enrolled has a cohort default rate,
calculated under either subpart M or N of 34 CFR part 668 of less than
15 percent for each of the three most recent fiscal years for which
data are available;
* * * * *
36. Section 685.304 is revised to read as follows:
Sec. 685.304 Counseling borrowers.
(a) Initial counseling. (1) Except as provided in paragraph (a)(8)
of this section, a school must ensure that initial counseling is
conducted with each Direct Subsidized Loan or Direct Unsubsidized Loan
student borrower prior to making the first disbursement of the proceeds
of a loan to a student borrower unless the student borrower has
received a prior Direct Subsidized, Direct Unsubsidized, Federal
Stafford, or Federal SLS Loan.
(2) Except as provided in paragraph (a)(8) of this section, a
school must ensure that initial counseling is conducted with each
graduate or professional student Direct PLUS Loan borrower prior to
making the first disbursement of the loan unless the student borrower
has received a prior Direct PLUS Loan or Federal PLUS Loan.
(3) Initial counseling for Direct Subsidized Loan, Direct
Unsubsidized Loan, and graduate or professional student Direct PLUS
Loan borrowers must provide the borrower with comprehensive information
on the terms and conditions of the loan and on the responsibilities of
the borrower with respect to the loan. This information may be provided
to the borrower--
(i) During an entrance counseling session, conducted in person;
(ii) On a separate written form provided to the borrower that the
borrower signs and returns to the school; or
(iii) Online or by interactive electronic means, with the borrower
acknowledging receipt of the information.
(4) If initial counseling is conducted online or through
interactive electronic means, the school must take reasonable steps to
ensure that each student borrower receives the counseling materials,
and participates in and completes the initial counseling, which may
include completion of any interactive program that tests the borrower's
understanding of the terms and conditions of the borrower's loans.
(5) A school must ensure that an individual with expertise in the
title IV programs is reasonably available shortly after the counseling
to answer the student borrower's questions. As an alternative, in the
case of a student borrower enrolled in a correspondence program or a
study-abroad program approved for credit at the home institution, the
student borrower may be provided with written counseling materials
before the loan proceeds are disbursed.
(6) Initial counseling for Direct Subsidized Loan and Direct
Unsubsidized Loan borrowers must--
(i) Explain the use of a Master Promissory Note (MPN);
(ii) Emphasize to the borrower the seriousness and importance of
the repayment obligation the student borrower is assuming;
(iii) Describe the likely consequences of default, including
adverse credit reports, delinquent debt collection procedures under
Federal law, and litigation;
(iv) Emphasize that the student borrower is obligated to repay the
full amount of the loan even if the student borrower does not complete
the program, does not complete the program within the regular time for
program completion, is unable to obtain employment upon completion, or
is otherwise dissatisfied with or does not
[[Page 37493]]
receive the educational or other services that the student borrower
purchased from the school;
(v) Inform the student borrower of sample monthly repayment amounts
based on--
(A) A range of student levels of indebtedness of Direct Subsidized
Loan and Direct Unsubsidized Loan borrowers, or student borrowers with
Direct Subsidized, Direct Unsubsidized, and Direct PLUS Loans depending
on the types of loans the borrower has obtained; or
(B) The average indebtedness of other borrowers in the same program
at the same school as the borrower;
(vi) To the extent practicable, explain the effect of accepting the
loan to be disbursed on the eligibility of the borrower for other forms
of student financial assistance;
(vii) Provide information on how interest accrues and is
capitalized during periods when the interest is not paid by either the
borrower or the Secretary;
(viii) Inform the borrower of the option to pay the interest on a
Direct Unsubsidized Loan while the borrower is in school;
(ix) Explain the definition of half-time enrollment at the school,
during regular terms and summer school, if applicable, and the
consequences of not maintaining half-time enrollment;
(x) Explain the importance of contacting the appropriate offices at
the school if the borrower withdraws prior to completing the borrower's
program of study so that the school can provide exit counseling,
including information regarding the borrower's repayment options and
loan consolidation;
(xi) Provide information on the National Student Loan Data System
and how the borrower can access the borrower's records; and
(xii) Provide the name of and contact information for the
individual the borrower may contact if the borrower has any questions
about the borrower's rights and responsibilities or the terms and
conditions of the loan.
(7) Initial counseling for graduate or professional student Direct
PLUS Loan borrowers must--
(i) Inform the student borrower of sample monthly repayment amounts
based on--
(A) A range of student levels or indebtedness of graduate or
professional student PLUS loan borrowers, or student borrowers with
Direct PLUS Loans and Direct Subsidized Loans or Direct Unsubsidized
Loans, depending on the types of loans the borrower has obtained; or
(B) The average indebtedness of other borrowers in the same program
at the same school;
(ii) Inform the borrower of the option to pay interest on a PLUS
Loan while the borrower is in school;
(iii) For a graduate or professional student PLUS Loan borrower who
has received a prior FFEL Stafford, or Direct Subsidized or
Unsubsidized Loan, provide the information specified in Sec.
685.301(a)(3)(i)(A) through Sec. 685.301(a)(3)(i)(C); and
(iv) For a graduate or professional student PLUS Loan borrower who
has not received a prior FFEL Stafford, or Direct Subsidized or Direct
Unsubsidized Loan, provide the information specified in paragraph
(a)(6)(i) through paragraph (a)(6)(xii) of this section.
(8) A school may adopt an alternative approach for initial
counseling as part of the school's quality assurance plan described in
Sec. 685.300(b)(9). If a school adopts an alternative approach, it is
not required to meet the requirements of paragraphs (a)(1) through
(a)(7) of this section unless the Secretary determines that the
alternative approach is not adequate for the school. The alternative
approach must--
(i) Ensure that each student borrower subject to initial counseling
under paragraph (a)(1) or (a)(2) of this section is provided written
counseling materials that contain the information described in
paragraphs (a)(6)(i) through (a)(6)(v) of this section;
(ii) Be designed to target those student borrowers who are most
likely to default on their repayment obligations and provide them more
intensive counseling and support services; and
(iii) Include performance measures that demonstrate the
effectiveness of the school's alternative approach. These performance
measures must include objective outcomes, such as levels of borrowing,
default rates, and withdrawal rates.
(9) The school must maintain documentation substantiating the
school's compliance with this section for each student borrower.
(b) Exit counseling. (1) A school must ensure that exit counseling
is conducted with each Direct Subsidized Loan or Direct Unsubsidized
Loan borrower and graduate or professional student Direct PLUS Loan
borrower shortly before the student borrower ceases at least half-time
study at the school.
(2) The exit counseling must be in person, by audiovisual
presentation, or by interactive electronic means. In each case, the
school must ensure that an individual with expertise in the title IV
programs is reasonably available shortly after the counseling to answer
the student borrower's questions. As an alternative, in the case of a
student borrower enrolled in a correspondence program or a study-abroad
program approved for credit at the home institution, the student
borrower may be provided with written counseling materials within 30
days after the student borrower completes the program.
(3) If a student borrower withdraws from school without the
school's prior knowledge or fails to complete the exit counseling as
required, exit counseling must be provided either through interactive
electronic means or by mailing written counseling materials to the
student borrower at the student borrower's last known address within 30
days after the school learns that the student borrower has withdrawn
from school or failed to complete the exit counseling as required.
(4) The exit counseling must--
(i) Inform the student borrower of the average anticipated monthly
repayment amount based on the student borrower's indebtedness or on the
average indebtedness of student borrowers who have obtained Direct
Subsidized Loans and Direct Unsubsidized Loans, student borrowers who
have obtained only Direct PLUS Loans, or student borrowers who have
obtained Direct Subsidized, Direct Unsubsidized, and Direct PLUS Loans,
depending on the types of loans the student borrower has obtained, for
attendance at the same school or in the same program of study at the
same school;
(ii) Review for the student borrower available repayment plan
options including the standard repayment, extended repayment, graduated
repayment, income contingent repayment plans, and income-based
repayment plans, including a description of the different features of
each plan and sample information showing the average anticipated
monthly payments, and the difference in interest paid and total
payments under each plan;
(iii) Explain to the borrower the options to prepay each loan, to
pay each loan on a shorter schedule, and to change repayment plans;
(iv) Provide information on the effects of loan consolidation
including, at a minimum--
(A) The effects of consolidation on total interest to be paid, fees
to be paid, and length of repayment;
(B) The effects of consolidation on a borrower's underlying loan
benefits, including grace periods, loan forgiveness, cancellation, and
deferment opportunities;
[[Page 37494]]
(C) The options of the borrower to prepay the loan and to change
repayment plans; and
(D) That borrower benefit programs may vary among different
lenders;
(v) Include debt-management strategies that are designed to
facilitate repayment;
(vi) Explain to the student borrower how to contact the party
servicing the student borrower's Direct Loans;
(vii) Meet the requirements described in paragraphs (a)(6)(i),
(a)(6)(ii), and (a)(6)(iv) of this section;
(viii) Describe the likely consequences of default, including
adverse credit reports, delinquent debt collection procedures under
Federal law, and litigation;
(ix) Provide--
(A) A general description of the terms and conditions under which a
borrower may obtain full or partial forgiveness or discharge of
principal and interest, defer repayment of principal or interest, or be
granted forbearance on a title IV loan; and
(B) A copy, either in print or by electronic means, of the
information the Secretary makes available pursuant to section 485(d) of
the HEA;
(x) Review for the student borrower information on the availability
of the Department's Student Loan Ombudsman's office;
(xi) Inform the student borrower of the availability of title IV
loan information in the National Student Loan Data System (NSLDS) and
how NSLDS can be used to obtain title IV loan status information;
(xii) A general description of the types of tax benefits that may
be available to borrowers; and
(xiii) Require the student borrower to provide current information
concerning name, address, social security number, references, and
driver's license number and State of issuance, as well as the student
borrower's expected permanent address, the address of the student
borrower's next of kin, and the name and address of the student
borrower's expected employer (if known).
(5) The school must ensure that the information required in
paragraph (b)(4)(xiii) of this section is provided to the Secretary
within 60 days after the student borrower provides the information.
(6) If exit counseling is conducted through interactive electronic
means, a school must take reasonable steps to ensure that each student
borrower receives the counseling materials, and participates in and
completes the exit counseling.
(7) The school must maintain documentation substantiating the
school's compliance with this section for each student borrower.
(Approved by the Office of Management and Budget under control
number 1845-0021)
(Authority: 20 U.S.C. 1087a et seq.)
[FR Doc. E9-17119 Filed 7-27-09; 8:45 am]
BILLING CODE 4000-01-P