Proposed Rule: Postsecondary Education: Federal Perkins Loan, Federal Family Education Loan, and William D. Ford Federal Direct Loan Programs

Tuesday,
June 12, 2007
Part II
Department of
Education
34 CFR Parts 674, 682, and 685
Federal Perkins Loan Program, Federal
Family Education Loan Program, and
William D. Ford Federal Direct Loan
Program; Proposed Rule
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32410 Federal Register / Vol. 72, No. 112 / Tuesday, June 12, 2007 / Proposed Rules
DEPARTMENT OF EDUCATION posted to the Federal eRulemaking Portal person listed under FOR FURTHER
without change, including personal INFORMATION CONTACT.
34 CFR Parts 674, 682, and 685 identifiers and contact information.
Negotiated Rulemaking
[Docket ID ED–2007-OPE–0133] FOR FURTHER INFORMATION CONTACT: Ms.
Gail McLarnon, U.S. Department of Section 492 of the Higher Education
RIN 1840-AC89
Education, 1990 K Street, NW., Act of 1965, as amended (HEA) requires
Federal Perkins Loan Program, Federal Washington, DC 20006–8542. the Secretary, before publishing any
Family Education Loan Program, and Telephone: (202) 219–7048 or via the proposed regulations for programs
William D. Ford Federal Direct Loan Internet: gail.mclarnon@ed.gov. authorized by Title IV of the HEA, to
Program If you use a telecommunications obtain public involvement in the
device for the deaf (TDD), you may call development of the proposed
AGENCY: Office of Postsecondary the Federal Relay Service (FRS) at 1– regulations. After obtaining advice and
Education, Department of Education. 800–877–8339. recommendations from individuals and
ACTION: Notice of proposed rulemaking. Individuals with disabilities may representatives of groups involved in
obtain this document in an alternative the Federal student financial assistance
SUMMARY: The Secretary proposes to format (e.g., Braille, large print, programs, the Secretary must subject the
amend the Federal Perkins Loan audiotape, or computer diskette) on proposed regulations to a negotiated
(Perkins Loan) Program, Federal Family request to the contact person listed rulemaking process. The proposed
Education Loan (FFEL) Program, and under FOR FURTHER INFORMATION regulations that the Department
William D. Ford Federal Direct Loan CONTACT. publishes must conform to agreements
(Direct Loan) Program regulations. The resulting from that process unless the
Secretary is amending these regulations SUPPLEMENTARY INFORMATION:
Secretary reopens the process or
to strengthen and improve the Invitation To Comment provides a written explanation to the
administration of the loan programs participants in that process stating why
authorized under Title IV of the Higher We invite you to submit comments
the Secretary has decided to depart from
Education Act of 1965, as amended. regarding these proposed regulations.
the agreements. Further information on
DATES: We must receive your comments To ensure that your comments have
the negotiated rulemaking process can
on or before August 13, 2007. maximum effect in developing the final
be found at: http://www.ed.gov/policy/
regulations, we urge you to identify
ADDRESSES: Submit your comments highered/reg/hearulemaking/2007/
clearly the specific section or sections of
through the Federal eRulemaking Portal nr.html.
the proposed regulations that each of
or via postal mail, commercial delivery, On August 18, 2006, the Department
your comments addresses and to arrange
or hand delivery. We will not accept published a notice in the Federal
your comments in the same order as the
comments by fax or by e-mail. Please Register (71 FR 47756) announcing our
proposed regulations.
submit your comments only one time, in intent to establish up to four negotiated
We invite you to assist us in
order to ensure that we do not receive rulemaking committees to prepare
complying with the specific
duplicate copies. In addition, please proposed regulations. One committee
requirements of Executive Order 12866
include the Docket ID at the top of your would focus on issues related to the
and its overall requirement of reducing
comments. Academic Competitiveness Grant and
regulatory burden that might result from
• Federal eRulemaking Portal: Go to National Science and Mathematics
these proposed regulations. Please let us
http://www.regulations.gov, select Access to Retain Talent (SMART) Grant
know of any further opportunities we
‘‘Department of Education’’ from the programs. A second committee would
should take to reduce potential costs or
agency drop-down menu, then click address issues related to the Federal
increase potential benefits while
‘‘Submit.’’ In the Docket ID column, student loan programs. A third
preserving the effective and efficient
select ED–2007-OPE–0133 to add or committee would address
administration of the programs.
view public comments and to view programmatic, institutional eligibility,
supporting and related materials During and after the comment period,
you may inspect all public comments and general provisions issues. Lastly, a
available electronically. Information on fourth committee would address
using Regulations.gov, including about these proposed regulations by
accessing Regulations.gov. You may also accreditation. The notice requested
instructions for submitting comments, nominations of individuals for
accessing documents, and viewing the inspect the comments, in person, in
room 8026, 1990 K Street, NW., membership on the committees who
docket after the close of the comment could represent the interests of key
period, is available through the site’s Washington, DC, between the hours of
8:30 a.m. and 4 p.m., Eastern time, stakeholder constituencies on each
‘‘User Tips’’ link. committee. The four committees met to
• Postal Mail, Commercial Delivery, Monday through Friday of each week
except Federal holidays. develop proposed regulations over the
or Hand Delivery. If you mail or deliver course of several months, beginning in
your comments about these proposed Assistance to Individuals With December 2006. This NPRM proposes
regulations, address them to Ms. Gail Disabilities in Reviewing the regulations relating to the student loan
McLarnon, U.S. Department of Rulemaking Record programs that were discussed by the
Education, 1990 K Street, NW., room second committee mentioned in this
8026, Washington, DC 20006–8542. On request, we will supply an
paragraph (the ‘‘Loans Committee’’).
appropriate aid, such as a reader or

Privacy Note: The Department’s policy for print magnifier, to an individual with a The Department developed a list of
comments received from members of the disability who needs assistance to proposed regulatory changes from
public (including those comments submitted
by mail, commercial delivery, or hand
review the comments or other advice and recommendations submitted
delivery) is to make these submissions documents in the public rulemaking by individuals and organizations in
available for public viewing on the Federal record for these proposed regulations. If testimony submitted to the Department
eRulemaking Portal at http:// you want to schedule an appointment in a series of four public hearings held
www.regulations.gov. All submissions will be for this type of aid, please contact the on:
Federal Register / Vol. 72, No. 112 / Tuesday, June 12, 2007 / Proposed Rules 32411
• September 19, 2006, at the • Shari Crittendon, United Negro This discussion is followed by
University of California-Berkeley in College Fund, and William ‘‘Buddy’’ separate discussions of proposed
Berkeley, California. Blakey (alternate), William A. Blakey & changes that affect only one of the three
• October 5, 2006, at the Loyola Associates, PLLC. programs. Generally, we do not address
University in Chicago, Illinois. • Scott Giles, Vermont Student proposed regulatory provisions that are
• November 2, 2006, at the Royal Assistance Corporation, and Rachael technical or otherwise minor in effect.
Pacific Hotel Conference Center in Lohman (alternate), Pennsylvania
Orlando, Florida. Simplification of Deferment Process
Higher Education Assistance Agency.
• November 8, 2006, at the U.S. • Tom Levandowski, Wachovia (§§ 674.38, 682.210, 682.210, 682.210,
Department of Education in Corporation, and Lee Woods (alternate), and 685.204)
Washington, DC. Chase Education Finance. Statute: Sections 428(b)(1)(M),
In addition, the Department received • Phil Van Horn, Wyoming Student 455(f)(2), and 464(c)(2)(A) of the HEA
written comments on possible Loan Corporation, and Robert L. Zier authorize deferments for borrowers in
regulatory changes submitted directly to (alternate), Indiana Secondary Market the FFEL, Direct Loan, and Perkins Loan
the Department by interested parties for Education Loans. programs under certain circumstances.
and organizations. All regional meetings • Robert Sommer, Sallie Mae, and A FFEL, Direct Loan, or Perkins Loan
and a summary of all comments Wanda Hall (alternate), EdFinancial borrower may receive a deferment
received orally and in writing are posted Services. during a period when the borrower is:
as background material in the docket • Richard George, Great Lakes Higher Enrolled at least half-time in an
and can also be accessed at http:// Education Guaranty Corporation, and institution of higher education; enrolled
www.ed.gov/policy/highered/reg/ Gene Hutchins (alternate), New Jersey in an approved graduate fellowship
hearulemaking/2007/hearings.html. Higher Education Student Assistance program; enrolled in an approved
Staff within the Department also Authority. rehabilitation training program; seeking
identified issues for discussion and • Eileen O’Leary, Stonehill College, and unable to find full-time
negotiation. Lastly, because The Third and Christine McGuire (alternate), employment; performing qualifying
Higher Education Extension Act of Boston University. active duty military service; or
2006, (Pub. L. 109–292), made changes • Alisa Abadinsky, University of experiencing an economic hardship.
to the law governing eligible lender Illinois at Chicago, and Karen Fooks Current Regulations: Currently, a
trustee relationships as of September 30, (alternate), University of Florida. borrower who has loans held by one or
2006, the Department added this issue • Dan Madzelan, U.S. Department of more lenders must apply separately to
to the Loans Committee agenda. Education. each lender for a deferment in
At its first meeting in December, 2006, Ellen Frishberg of Johns Hopkins accordance with §§ 674.38, 682.210, and
the Loans Committee reached agreement University resigned from the Committee 685.204 of the Department’s regulations.
on its protocols and proposed agenda. after the third negotiated rulemaking Each lender is required to review the
These protocols provided that the non- session. borrower’s deferment request, and make
Federal negotiators would not represent During its meetings, the Loans its own determination of the borrower’s
the interests of stakeholder Committee reviewed and discussed eligibility for the deferment. There is an
constituencies, but would instead drafts of proposed regulations. It did not exception to this requirement for in-
participate in the negotiated rulemaking reach consensus on the proposed school deferments. Under
process based on each Committee regulations in this NPRM. More §§ 674.38(a)(2) and 682.210(c)(1), a
member’s experience and expertise in information on the work of this Perkins institution or a FFEL lender
the Title IV, HEA loan programs. committee can be found at: http:// may grant an in-school deferment based
The members of the Loans Committee www.ed.gov/policy/highered/reg/ on information from the borrower’s
were: hearulemaking/2007/loans.html. school, or student status information
• Jennifer Pae, United States Students These regulations were further refined from another source. The Secretary also
Association, and Luke Swarthout by the Task Force on Student Loans. has this option in the Direct Loan
(alternate), State PIRG (Public Interest The Secretary created this task force on Program under § 685.204(b)(1)(iii)(A)(3).
Research Groups) Higher Education April 24, 2007, to review issues within When an in-school deferment is granted
Project; the student loan industry. The task force using this procedure, the institution,
• Deanne Loonin and Alys Cohen was comprised of representatives from lender or Secretary must notify the
(alternate) of the National Consumer several offices within the Department, borrower that the deferment has been
Law Center. including the Office of Postsecondary granted, and provide the borrower an
• Darrel Hammon, Laramie Education, Office of Federal Student opportunity to decline the deferment.
Community College, and Kenneth Aid, Office of the General Counsel, Proposed Regulations: The proposed
Whitehurst (alternate), North Carolina Office of Budget Service, Office of regulations in § 682.210(s)(1)(iii) would
Community Colleges. Planning, Evaluation, and Policy allow FFEL lenders to grant graduate
• Pamela W. Fowler, University of Development, and Office of Inspector fellowship deferments, rehabilitation
Michigan, Patricia McClurg (alternate), General. The task force submitted its training program deferments,
University of Wyoming, and Sara recommendations regarding these unemployment deferments, military
Bauder (alternate), University of regulations to the Secretary on May 9, service deferments, and economic
Maryland. 2007. hardship deferments based on
• Elizabeth Hicks, Massachusetts
information that another FFEL lender or

Institute of Technology, and Ellen Significant Proposed Regulations the Department has granted the
Frishberg (alternate), Johns Hopkins The following discussion of the borrower a deferment for the same
University. proposed regulations begins with reason and the same time period. The
• Jeff Arthur, ECPI College of changes that affect more than one of the proposed regulations in § 685.204(g)(2)
Technology, Robert Collins (alternate), title IV student loan programs—the would also permit the Department to
Apollo Group, and Nancy Broff Perkins Loan Program, the FFEL grant a deferment on a Direct Loan
(alternate), Career College Association. Program, or the Direct Loan Program. based on deferment information from a
FFEL Program lender. The proposed borrower who first received a Title IV, Accurate and Complete Copy of a Death
regulations in § 674.38(a)(2) would HEA loan prior to July 1, 1993. Certificate (§§ 674.61, 682.402, and
permit schools in the Perkins Loan However, the Department decided 685.212)
Program to grant deferments based on that the pre-July 1, 1993 deferments are Statute: Sections 437(a) and (d) of the
information from another Perkins Loan more complex and have more detailed HEA provide for the discharge of a FFEL
holder, FFEL lender, or the Department. qualifications than the current loan if the borrower, or a dependent on
Under the proposed regulations in deferments. In addition, the older whose behalf a parent has borrowed,
§§ 674.38(a)(3), 682.210(s)(1)(iv) and deferments are not the same for all types dies. This provision also applies to
685.204(g)(3), Title IV, HEA loan of loans. A borrower could qualify for a Direct Loans under section 455(a)(1) of
holders will be able to rely in good faith deferment on some of their loans but not the HEA. Section 464(c)(1)(F) provides
on the deferment eligibility others. The post-July 1, 1993 deferments for the discharge of a Perkins Loan if the
determinations of other lenders, are relatively uniform across the Title borrower dies.
including the Department. However, if a IV, HEA loan programs and across loan Current Regulations: Current
loan holder has evidence indicating that types. In light of these differences, the regulations in §§ 674.61(a), 682.402(b),
the borrower does not qualify for a Department decided that the new policy and 685.212(a) state that if a Perkins,
deferment, the loan holder may not should apply only to the deferments FFEL, or Direct Loan borrower dies, or
grant a deferment based on another available on current loans.
holder’s determination of deferment if the student for whom a FFEL or Direct
Some negotiators asked that the PLUS Loan was borrowed dies, the
eligibility. regulations include protection for
In addition, the proposed regulations borrower’s loan will be discharged
lenders that grant a deferment in error based on an original or certified copy of
in §§ 674.38(a)(6), 682.210(i)(1) and based on another lender’s determination
(t)(7), and 685.204(g)(5) would allow a the death certificate. Under exceptional
of deferment eligibility. In response, the circumstances, and on a case-by-case
borrower’s representative to apply for a Department is proposing to add
military service deferment on behalf of basis, a discharge due to the death of the
language to §§ 674.38(a)(3), borrower may be granted without an
the borrower. This change would apply
682.210(s)(1)(iv) and 685.204(g)(3) original or certified copy of the death
to both the Armed Forces deferment
stating that loan holders may rely in certificate.
available for loans made before July 1,
good faith on the deferment Proposed Regulations: The Secretary
1993 and the current military service
determination of another holder, but proposes to amend §§ 674.61(a),
deferment.
Reasons: The non-Federal negotiators may not knowingly grant an ineligible 682.402(b), and 685.212(a) to allow the
recommended adding provisions to borrower a deferment if the loan holder use of an accurate and complete
§ 682.210 of the regulations to allow has information indicating that the photocopy of the original or certified
FFEL lenders to grant deferments based borrower is not eligible. copy of the borrower’s death certificate,
on deferments granted by other lenders. Some negotiators proposed that loan in addition to the original or certified
They noted that this is allowable for in- holders be allowed to grant a deferment copy of the death certificate, to support
school deferments and asked to extend unilaterally, without any contact from the discharge of a Title IV loan due to
this authority to other deferments. the borrower. The Department did not death.
Under this proposal, the FFEL lender accept this proposal because, although a Reasons: The Secretary believes that
would determine borrower eligibility for borrower may qualify for a deferment on allowing the use of an accurate and
the deferment by contacting the other all of his or her loans, the borrower may complete photocopy of the death
lender or by checking the Department’s not necessarily want a deferment on all certificate will decrease the burden for
National Student Loan Data System of his or her loans. Under the simplified survivors of the deceased and for loan
(NSLDS). The Department agreed to process, the borrower would not have to holders processing death discharges. We
consider this addition to the regulations. submit a deferment application to each have also learned that, in some states,
In addition, the Department agreed with lender, but would still have to request there are restrictions and additional
the negotiators to allow Perkins Loan the deferment, in writing, electronically costs related to getting an additional
schools to grant deferments based on a or verbally. original or certified copy of the original
borrower’s FFEL or Direct Loan Some negotiators requested a change death certificate to provide to loan
deferment eligibility as reflected in the to the regulations that would allow a holders. Under the proposed
proposed changes to § 674.38(a). request for a military service deferment regulations, the lender may accept an
However, since eligibility and to be submitted by a representative of accurate and complete photocopy of the
documentation requirements for some the borrower as well as the borrower. death certificate. The Secretary chose
Perkins Loan deferments are different They noted that borrowers who qualify not to allow the use of a fax or
from corresponding deferment for these deferments may not be in a electronic version of the certificate
requirements in the FFEL and Direct position to easily apply for them. The because documents in those formats are
Loan programs, these proposed Department agreed that a special more vulnerable to alteration.
regulations would not allow FFEL provision for these borrowers is Under the proposed regulations a
lenders, or the Department for Direct warranted. The Department is proposing lender may rely on an ‘‘accurate and
Loans, to grant deferments based on a to amend the regulations in complete photocopy’’ of the original or
borrower receiving a deferment on his §§ 674.38(a)(6), 682.210(i)(5) and (t)(7), certified copy of the death certificate to
or her Perkins Loan. and 685.204(g)(5) to allow a borrower’s grant a discharge due to the death of the
The proposed regulations limit this representative to apply for a military borrower. The intent of the proposed
simplified deferment process to service deferment or an Armed Forces change is not to require an individual to
deferments that are available to a deferment on the borrower’s behalf. provide an original or certified copy of
borrower who received a Title IV, HEA The Department notes that granting a the death certificate to the lender for the
loan on or after July 1, 1993. The deferment under this simplified process lender to photocopy, but rather to allow
negotiators suggested that the new is optional for lenders. A lender is not a lender to accept a photocopy of the
regulations should also apply to required to use this process when original or certified copy of the death
deferments that were available to a reviewing deferment requests. certificate as an accurate and complete
copy of the original or certified copy, defined in §§ 674.51. To establish the disability discharge regulations for
unless there is evidence that the copy is eligibility for the discharge, a borrower the Perkins Loan, FFEL, and Direct Loan
not an accurate and complete copy of cannot have worked or earned money or programs, §§ 674.61(b), 682.402(c) and
the original or certified copy. received a Title IV loan at any time after 685.213, respectively, to clarify the
Although other data sources such as the date of the borrower’s total and eligibility requirements for a final total
NSLDS, the Social Security permanent disability. The loan holder and permanent disability discharge and
Administration’s Death Master File, and reviews the application, and upon better describe the discharge process.
documents such as a police report or making an initial determination that the The Department is not changing the
court documents could possibly be used borrower meets the definition and definition of total and permanent
as a basis for discharging a loan due to requirements for a total and permanent disability in § 674.51 or the definition or
death, the Department declined to disability discharge, notifies the totally and permanently disabled in
expand the documentation requirements borrower that the loan has been § 682.200.
in order to guard against fraud and assigned to the Department and that no The proposed regulations would: (1)
abuse in the discharge process. payments are due to the lender. Under Add a new requirement in
While the Department believes that it § 685.213 of the current regulations, the §§ 674.61(b)(2)(i), 682.402(c)(2)(i) and
is difficult to alter an original or Department is responsible for reviewing 685.213(b)(1) that the borrower submit a
certified copy of an original death disability discharge applications discharge application to the loan holder
certificate because these documents are submitted by Direct Loan borrowers. within 90 days of the date the physician
generally notarized or contain raised, Upon assignment of the Perkins or certifies the borrower’s application; (2)
government stamps validating the FFEL Loan or receipt of a Direct Loan define the date of the borrower’s total
document’s authenticity, we discharge application, the Department and permanent disability as the date the
nonetheless solicit public comment on reviews the application. If the borrower physician certifies the borrower’s
whether the use of a photocopy of an meets the eligibility requirements for a disability on the discharge application
original or certified copy of an original discharge, the Department notifies the form in §§ 674.61(b)(3)(ii),
death certificate could lead to fraud and borrower that the loan has been placed 682.402(c)(3)(ii), and 685.213(c)(2); (3)
abuse in the death discharge process. in a three-year conditional discharge require a prospective three year
Specifically, we are interested in status and that no payments are due conditional discharge period to
comments that identify how such fraud during that period. During the three- establish eligibility for a total and
is likely to occur and ways to address year conditional discharge period, the permanent disability discharge
this issue. borrower’s income from employment beginning on the date the Secretary
Total and Permanent Disability cannot exceed the poverty line for a makes an initial determination that the
Discharge (§§ 674.61, 682.402, and family of two for any 12-month period, borrower is totally and permanently
685.213) and the borrower cannot take out any disabled, in §§ 674.61(b)(3)(iii),
additional Title IV loans. Under current 682.402(c)(3)(iii) and 685.213(c)(3); and
Statute: Sections 437(a), 464(c)(1)(F), regulations, in some cases, the three- (4) provide that upon making a final
and 455(a)(1) of the HEA provide for a year conditional period will already determination of the borrower’s total
discharge of a borrower’s FFEL, Perkins, have elapsed if the borrower’s total and and permanent disability, the Secretary
or Direct Loan Program loan, permanent disability date is more than returns those payments made on the
respectively, if the borrower becomes three years prior to the date the loan after the date the physician
totally and permanently disabled. A borrower applies for a discharge. In completed and certified the borrower’s
total and permanent disability is such cases, a final discharge decision is discharge on the loan discharge
determined in accordance with made immediately upon assignment of application in §§ 674.61(b)(5),
regulations of the Secretary. the account to the Department without 682.402(c)(4)(iii), 685.213(d)(3)(ii).
Current Regulations: Sections any current income verification, as long Reasons: The Department is
674.61(b), 682.402(c), and 685.213 of the as the borrower is otherwise eligible. proposing to restructure the Perkins
Perkins, FFEL, and Direct Loan Program Otherwise, if, at the end of the three- Loan, FFEL, and Direct Loan total
regulations, respectively, authorize the year conditional discharge period, the permanent disability discharge
discharge of a loan if the borrower borrower still meets the discharge regulations in §§ 674.61(b), 682.402(c)
becomes totally and permanently requirements, the Department makes a and 685.213, respectively, to clarify the
disabled. Section 674.51 of the Perkins final determination of eligibility and eligibility requirements and to better
Loan Program regulations defines total discharges the loan. Under current explain the application and eligibility
and permanent disability, and § 682.200 regulations, any payments received by process. Several negotiators argued that
defines totally and permanently the loan holder or the institution after the process and eligibility requirements
disabled, for the purposes of the FFEL the date the loan is assigned to the as currently written are difficult for
and Direct Loan Programs, as the Secretary or during the three-year borrowers to understand. For example,
condition of an individual who is conditional discharge period are non-Federal negotiators noted that the
unable to work and earn money because forwarded to the Department for current regulations establish a different
of an injury or illness that is expected crediting to the borrower’s account. standard for eligibility for the period
to continue indefinitely or result in When the Department makes a final between the date of the physician’s
death. determination to discharge the loan, the certification and the Secretary’s initial
Under current regulations in payments received on the loan after the determination of eligibility in
§§ 674.61(b), 682.402(c), and 685.213, a date the loan was assigned to the comparison to the three-year
Perkins, FFEL or Direct Loan borrower Department are returned. If the borrower conditional discharge period. The
submits a discharge application to the does not meet the eligibility Department proposes to address these
loan holder. The application must requirements during the three-year concerns by clearly listing the
include a physician’s certification that conditional discharge period, collection continuing eligibility requirements in
the borrower is totally and permanently activity resumes on the loan. § 674.61(b)(2)(iii) of the Perkins Loan
disabled as defined in § 682.200 or has Proposed Regulations: These Program regulations, § 682.402(c)(3) of
a total and permanent disability as proposed regulations would restructure the FFEL program regulations, and
§ 685.213(b)(2) of the Direct Loan discharge and a final discharge is made application, since that process requires
program regulations and by requiring immediately upon assignment of the the physician to review the borrower’s
loan holders to disclose these eligibility account to the Department. This result condition at that time rather than
requirements to borrowers. Some non- is inconsistent with the original intent speculate as to the borrower’s condition
Federal negotiators also noted that even of the Department’s regulations, which in the past.
though collection activity is suspended was to conform the discharge NSLDS Reporting Requirements
after the borrower submits a discharge requirements to other Federal programs (§§ 674.16, 682.208, 682.401, and
application, some borrowers continued that only provide Federal benefits based 682.414)
to make payments on their loan because on a disability after monitoring the
they were not aware of the suspension applicant’s condition. Further, there Statute: Section 485B(e) of the HEA
of collection activity. The Department is have been instances when borrowers provides for the Secretary to prescribe
proposing to amend the regulations to have received otherwise disqualifying by regulation standards and procedures
require loan holders to inform Title IV loans and earnings in excess of that require all lenders and guaranty
borrowers that no further payments on allowable levels after the date of agencies to report information to the
the loan are due once the discharge application but also after the date of the NSLDS on all aspects of Title IV loans
application is sent to the Secretary for borrower’s retroactive final discharge. in uniform formats in order to permit
her initial eligibility determination. Under current regulations, the Secretary the direct comparison of data submitted
The proposed regulations in grants a final discharge in these by individual lenders, servicers, and
§§ 674.61(b)(2)(i), 684.402(c)(2)(i) and circumstances. Some non-Federal guaranty agencies.
685.213(b)(1) would require borrowers negotiators did not agree with the Current Regulations: The current
to submit the completed application for Department’s proposal that the Perkins Loan Program and FFEL
a total and permanent disability Program regulations do not reflect
borrower’s disability date should be the
discharge to the loan holder within 90 NSLDS reporting requirements. Under
date the physician certifies that the
days of the date the physician certifies § 682.401(b)(20), guaranty agencies are
borrower is disabled on the discharge
the application. This requirement would required to monitor student enrollment
application form.
help ensure that the Secretary has status of a FFEL Program borrower, or
Lastly, the Department is proposing a student on whose behalf a parent has
accurate and timely information on
changes to §§ 674.61(b)(5), borrowed, and report to the current
which to base her determination.
682.402(c)(4)(iii), and 685.213(d)(3)(ii) holder of the loan within 60 days any
Limiting the time period will also help
borrowers avoid the possibility that they to provide that the Secretary, upon changes in the student’s enrollment
might inadvertently take an action that making a final determination of the status that triggers the beginning of the
would disqualify them for a final borrower’s total and permanent borrower’s grace period or the beginning
discharge. The Department initially disability, will return payments made or resumption of the borrower’s
proposed a 30-day application on the loan after the date the physician immediate obligation to make scheduled
submission requirement, but the completed and certified the borrower’s payments.
Department was persuaded by the non- total and permanent disability on the Current § 682.414(b)(4) requires
Federal negotiators that 90 days would loan discharge application. The non- guaranty agencies to report information
provide a more appropriate standard for Federal negotiators did not agree with consisting of extracts from computer
borrowers. the Department’s position and stated databases and supplied in the medium
Under the proposed regulations in that if a borrower successfully and the format prescribed in the
§§ 674.61(b)(3)(ii), 682.402(c)(3)(ii), and completed a three-year prospective Stafford and SLS, and PLUS Loan Tape
685.213(c)(2) if the Secretary makes an discharge period, the borrower should Dump Procedures. The tape dumps,
initial determination that the borrower receive a refund of prior payments made which are now obsolete, contained loan
qualifies for a discharge, the date of on the loan. The Department is status information on guaranty agency
disability is the date the physician proposing this change because it loans.
certifies the borrower’s disability on the believes that not counting any loans or Proposed Regulations: The Secretary
form. The proposed regulations also income received prior to the date the proposes in § 674.16(j) of the Perkins
provide for a three-year prospective physician certifies the borrower’s Loan regulations, and § 682.208(i) and
conditional discharge period to disability on the application and § 682.414(b)(4) of the FFEL regulations
establish eligibility for a total and returning payments made by the to require institutions, lenders, and
permanent disability discharge. The borrower or on the borrower’s behalf guaranty agencies to report enrollment
conditional discharge period begins on back to the date of disability provided and loan status information, or any
the date that the Secretary makes her by a physician would create two onset other Title IV-loan-related data required
initial determination that the borrower dates and create program integrity by the Secretary, to the Secretary by a
is totally and permanently disabled. issues in the administration of the total deadline established by the Secretary.
Thus, the receipt of any Title IV, HEA and permanent disability discharge The proposed changes to
loans, including consolidation loans, or process. In addition, in administering § 682.401(b)(20) require a guaranty
income by the borrower before the date the discharge process, the Department agency to report enrollment and loan
the physician certified the application has found that, in many cases, certifying status information on a FFEL Program
form would not disqualify the borrower physicians have to rely solely on the borrower or student to the current
from receiving a final discharge. individual’s statements in determining a holder of any loan within 30 days of any
However, the borrower would have to date of disability onset. In these changes to the student’s enrollment
meet the disability requirements for a situations, there may not be a strong status.
three-year prospective period. medical basis for using that date as a Reasons: The proposed changes to
The Department is proposing these date for establishing eligibility for §§ 674.16(j), 682.208(i) and
changes because currently, in some Federal benefits. In light of this history, 682.414(b)(4) would provide for the
cases, the three-year conditional the Department believes that the best establishment by the Secretary of
discharge period has already elapsed date to use as the eligibility date is the NSLDS reporting timeframes to improve
before the borrower applies for a date the physician certified the the timeliness and availability of
information important to administering carry out the purposes of the FFEL possession of an original, electronically
the student loan programs. The Program, including regulations to signed MPN that has been assigned to
Secretary also believes that the establish minimum standards with the Department.
Department will be able to implement respect to sound management and Reasons: MPNs are used in all of the
other proposed regulatory changes, such accountability in the FFEL Program. Title IV, HEA Loan programs. MPNs,
as simplification of the deferment Current Regulations: Currently the which can be used for up to a 10-year
granting process, more easily and more regulations for the Perkins Loan period, have no loan amount or loan
efficiently if timely and accurate program and the FFEL Program do not period on the face of the note and can
information is more readily available in include any requirements for be signed electronically. The
NSLDS. institutions and lenders to create and Department is amending §§ 674.19 and
Some non-Federal negotiators maintain a record of their electronic 674.50 of the Perkins Loan Program
requested that the proposed regulations signature process for promissory notes regulations and §§ 682.409 and 682.414
require the Secretary to consult with and MPNs. of the FFEL Program regulations to
program participants before determining Proposed Regulations: The proposed support the Department’s efforts to
the ‘‘deadline dates established by the changes in § 674.19(e)(2) and (3) would enforce electronically-signed
Secretary’’. The Department declined to require an institution to create and promissory notes that are assigned to
make this change to the proposed maintain a certification regarding the the Department. These requirements
regulations, but noted that there are creation and maintenance of any will help ensure that the Department
other opportunities for program electronically signed Perkins Loan has the evidence to enforce the loan in
participants to be involved in promissory note or MPN in accordance cases in which a factual dispute or a
discussions about NSLDS reporting with documentation requirements in legal challenge is raised in connection
requirements and that it was proposed § 674.50. Proposed changes to with the validity of the borrower’s
unnecessary to require it in regulations. § 674.19(e)(4)(ii) and § 682.414(a)(5)(iv) electronic signature and the MPN. In
The Department is required to consult would require an institution or the order to preserve the integrity of the
with the community under section holder of a FFEL loan, respectively, to Perkins and FFEL programs as well as
432(e) of the HEA and will continue to retain an original of an electronically the Federal fiscal interest, the
discuss the issues and concerns of Title signed Perkins Loan or FFEL Program Department believes it is essential that
IV, HEA program participants related to MPN for 3 years after all loans on the an institution or lender be able to
NSLDS reporting through established MPN are satisfied. Under the proposed guarantee the authenticity of a
workgroups and conference calls. changes in § 674.50(c)(12) and borrower’s signature on loans assigned
Several negotiators noted that the § 682.414(a)(6), an institution, for and collected by the Department.
Department’s proposed reduction of the assigned Perkins loans, or a guaranty During the regulatory negotiations,
timeframe for a guaranty agency to agency and lender, for assigned FFEL the Department originally proposed to
report enrollment status to a lender from loans, would be required to cooperate require in § 682.406(a) that a lender
60 days to 30 days might be disruptive with the Secretary, upon request, in all submit a certification regarding the
and require systems changes for the matters necessary to enforce an assigned creation and maintenance of the
various participants in the Title IV loan loan that was electronically signed. This electronic MPN or promissory note,
programs. A negotiator requested a cooperation would include providing including the lender’s authentication
longer time frame of at least 45 days. testimony to ensure the admission of and signature process, to the guaranty
The Department acknowledges that the electronic records in legal proceedings agency as part of the default claim
change to 30 days will have some and providing the Secretary with the process. The certification would have
impact on the guaranty agencies’ and certification regarding the creation and then been submitted to the Department
lenders’ systems. However, the maintenance of electronically signed when the guaranty agency assigned a
Department is concerned that a promissory notes. The proposed FFEL loan under the mandatory
timeframe of 45 days or longer will changes in §§ 674.50(c)(12)(iii) and assignment provisions in § 682.409(c).
mean that the information in the NSLDS 682.414(a)(6)(iii) also would require the The Department also originally
is quickly out-of-date. The Department institution, or the guaranty agency and proposed to amend § 682.414(a)(ii) to
invites further comment and discussion lender, respectively, to respond within require a guaranty agency to maintain a
on this timeframe and on any associated 10 business days, to any request by the certification regarding the creation and
costs through this NPRM. Also, under Secretary for any record, affidavit, maintenance of the lender’s electronic
the master calendar requirements certification or other evidence needed to MPN for each loan held by the agency.
contained in the HEA, if the Department resolve any factual dispute in With respect to the Perkins Loan
finalizes these proposed regulations on connection with an electronically Program, the Department originally
or before November 1, 2007, this signed promissory note that has been proposed similar new requirements that
provision will be effective on July 1, assigned to the Department. Lastly, an institution maintain a certification
2008, which will provide sufficient time proposed changes in §§ 674.50(c)(12)(iv) regarding the creation and maintenance
for system reprogramming. and 682.414(a)(6)(iv) would require that of the MPN in § 674.19(d) and provide
an institution, or guaranty agency and the certification to the Department,
Certification of Electronic Signatures on lender, respectively, ensure that all upon request, when assigning the loan
Master Promissory Notes (MPNs) parties entitled to access have full and in accordance with § 674.50(c).
Assigned to the Department (§§ 674.19, complete access to the electronic Many non-Federal negotiators
674.50, 682.409, and 682.414)
records associated with an assigned believed that the Department’s original

Statute: Section 467(a) of the HEA Perkins or FFEL MPN, until all loans proposal was too burdensome.
authorizes the Secretary to collect made on the MPN are satisfied. Some non-Federal negotiators
assigned Perkins Loans under such Proposed changes to submitted a counter-proposal to the
terms and conditions as the Secretary § 682.409(c)(4)(viii) of the FFEL Program Department that proposed placing the
may prescribe. Section 432(a) of the regulations would require the guaranty burden of creating and maintaining a
HEA authorizes the Secretary to agency to provide the Secretary with the certification of a lender’s electronic
prescribe regulations as necessary to name and location of the entity in signature process on the lender that
created the original electronic MPN. The Department realizes that these canceled, repaid, or otherwise satisfied.
This counter-proposal was intended to proposed regulations for electronically Proposed § 674.50(c)(11) would require
be consistent with the lenders’ current signed documents may have an impact an institution to submit disbursement
practices. The non-Federal negotiators on the operations of lenders, guaranty records on an assigned Perkins loan
from lending organizations reaffirmed agencies and institutions. The upon the Secretary’s request. The
that lenders will be in possession of and Department particularly invites proposed changes in § 682.409(c)(4)(vii)
would deliver whatever the Department comments on possible changes to these would require a guaranty agency to
needs to enforce an electronically regulations to reduce that impact while submit the record of the lender’s
signed promissory note or MPN, ensuring the Department’s ability to disbursement of loan funds to the
including expert testimony in court enforce loans. school for delivery to the borrower
cases. when assigning a FFEL Loan to the
Record Retention Requirements on
The Department returned to the final Department.
Master Promissory Notes (MPNs) Reasons: The proposed changes to
session of negotiations with revised Assigned to the Department (§§ 674.19,
proposed regulations in § 682.414(a)(6) §§ 674.19(e) and 674.50(c) of the Perkins
674.50, 682.406, and 682.409) Loan Program regulations that require
based on the counter-proposal
Statute: Section 443(a) of the General the retention of MPN disbursement
submitted by some of the non-Federal
Education Provisions Act (GEPA), 20 records by an institution and
negotiators. The non-Federal negotiators
U.S. 1232f(a), provides that recipients of submission of such records, if requested
expressed their support for this Federal funds under any applicable by the Secretary, on Perkins Loans
proposal, but questioned many of the program must retain records of the assigned to the Department would
details. In particular, some non-Federal amount and distribution of Federal support enforcement and collection on
negotiators believed that it was funds to facilitate effective audits of the the MPN. These regulatory changes
redundant for the certification of a loan use of those funds. The GEPA generally would also facilitate the process of
holder’s electronic signature process to applies to institutions that participate in proving that a borrower benefited from
include a requirement that the lender the Title IV, HEA programs. the proceeds of the loan, if the borrower
document its borrower authentication Current Regulations: Current challenges the validity of the loan. The
process. However, the Department requirements related to the retention of proposed addition of
considers this requirement a vital part of loan disbursement records by § 682.409(c)(4)(vii), requiring a guaranty
the certification. Several non-Federal institutions are in § 668.24(c)(1)(iv) and agency to submit a record of the lender’s
negotiators noted that the Perkins Loan (e)(1) and require institutions to retain disbursement records upon assigning an
Program regulations in §§ 674.19(d) and disbursement records, unless otherwise FFEL loan to the Department, would
674.50(c) did not contain the same directed by the Secretary, for three years accomplish the same enforcement goals.
detailed requirements as § 682.414(a)(6) after the end of the award year for The Department’s original proposal
regarding the contents of the which the aid was awarded and related to the retention of disbursement
certification. These proposed disbursed. Section 674.50(c) does not records in support of enforcement of
regulations include the same standards currently include disbursement records FFEL loans assigned to the Department
in both programs. Several non-Federal as part of the documentation the presented during the negotiations was
negotiators thought that the provisions Secretary may require an institution to different than the changes proposed
in § 674.50(c)(12)(iii) and submit when assigning a Perkins Loan here. The Department originally
§ 682.414(a)(6)(iii) that require to the Department. proposed to require schools to report to
institutions, lenders and guaranty Section 682.414(a)(4)(ii) and (iii) the lender the date and amount of each
agencies to respond to requests for requires a guaranty agency to ensure disbursement of FFEL loan funds to a
information from the Department within that a lender retains a record of each borrower’s account no later than 30 days
10 business days would be too difficult disbursement of loan proceeds to a after delivery of the disbursement to the
to meet and asked the Department to use borrower for not less than three years borrower. Under the Department’s
another standard. The Department following the date the loan is repaid in original proposal, lenders also would
notes, however, that 10 business days is full by the borrower, or for not less than have been required to provide the
a significant period of time and that it five years following the date the lender record of a school’s delivery of loan
is vital that the Department receive the receives payment in full from any other disbursements to a FFEL borrower as a
information as quickly as possible when source. Section 682.414(a)(4)(iii) also condition for a guaranty agency to make
a borrower is contesting the validity of provides that, in particular cases, the a claim payment and receive
a debt. Lastly, several non-Federal Secretary or the guaranty agency may reinsurance coverage. Lastly, the
negotiators expressed concern about the require the retention of records beyond Department originally proposed to
requirement to retain an original this minimum period. However, require that the guaranty agency, upon
electronically signed MPN for at least 7 S682.409(c)(4) does not currently assignment of a FFEL loan to the
years after all the loans made on the require a guaranty agency to submit a Department, submit a record of the
MPN have been satisfied. In issuing this record of the lender’s disbursements school’s delivery of loan disbursements
NPRM, the Department has, after when assigning a loan to the to the borrower.
considering these concerns, decided to Department. The Department’s original proposal
require that schools and lenders retain Proposed Regulations: The proposed for the retention of MPN disbursement
the original, electronically signed MPN changes in § 674.19(e)(2)(i) and (e)(3)(i) records on assigned Perkins Loans is
for at least 3 years after all the loans would require an institution that reflected in these proposed regulations.
made on the MPN have been satisfied. participates in the Perkins Loan Some non-Federal negotiators
This record retention standard is needed Program to retain records showing the expressed concern about the burden
to accommodate borrower challenges to date and amount of each disbursement associated with reporting and retaining
an administrative wage garnishment or of each loan made under an MPN. The voluminous amounts of disbursement
federal offset action taken by the institution also would be required to data when only a limited amount of the
Department to collect on assigned FFEL retain disbursement records for each data would actually be needed by the
loans. loan made on an MPN until the loan is Department to enforce an assigned
Perkins or FFEL loan. Some non-Federal Loan Counseling for Graduate or to account for graduate and professional
negotiators expressed concern that the Professional Student PLUS Loan student PLUS borrowers.
new requirements could affect the Borrowers (§§ 682.603, 682.604(f), Several negotiators pointed out that
payment of insurance and reinsurance 682.604(g), 685.301, 685.304(a), and exit counseling is often more beneficial
claims in the FFEL program. Some of 685.304(b)) to student borrowers than entrance
the non-Federal negotiators asserted that Statute: Under section 428B(a)(1) of counseling, as exit counseling occurs at
lenders, guaranty agencies, and schools the HEA, a graduate or professional the time the loan is nearing repayment,
could supply needed disbursement student may borrow a PLUS Loan. and students are more focused on
records to the Department without However, section 485(b)(1)(A) of the repaying the loan at that point.
adding new regulations. Several non- HEA specifically excludes PLUS Loan However, the statute specifically
Federal negotiators suggested that the borrowers from the groups of borrowers exempts PLUS borrowers from exit
Department use existing data systems, for which exit counseling must be counseling requirements. Although the
such as the NSLDS, to collect provided. The HEA does not address Department encourages schools to
disbursement information, rather than entrance counseling requirements for provide exit counseling to graduate and
requiring new record retention Stafford and PLUS Loan borrowers. professional student PLUS borrowers,
procedures. Current Regulations: The current the Department cannot require schools
The Department carefully considered regulations in §§ 682.604(f) and (g) and to provide such counseling.
the concerns of these non-Federal 685.304(a) and (b) require entrance and One negotiator suggested that the
negotiators, and returned to the last exit counseling for Stafford Loan Department require a school’s Stafford
session of negotiations with the borrowers, but not for graduate or Loan exit counseling include
proposed changes to the regulations on professional student PLUS Loan information related to the PLUS Loan if
retention of disbursement records that borrowers. a Stafford Loan borrower also had a
are reflected in this NPRM. The Proposed Regulations: Proposed PLUS Loan. The Department
Department decided that requiring the § 682.604(f)(2) would require entrance determined that, in those cases, the exit
collection, retention, and submission of counseling for graduate or professional counseling requirements for Stafford
a school-based record documenting each student PLUS Loan borrowers. The Loan borrowers could be modified to
disbursement of a FFEL loan might be proposed entrance counseling include information on PLUS Loans.
too burdensome in light of the relatively requirements for student PLUS Loan Accordingly, that requirement is
few occasions that require the use of borrowers would vary, depending on included in §§ 682.604(g)(2) and
such records. The Department decided whether the borrower has received a 685.304(b)(4) of the proposed
to continue to use the lender Stafford Loan prior to receipt of the regulations.
documentation of disbursements PLUS Loan. The Department and the other
currently provided to the Department in Proposed § 682.604(g) would also negotiators agreed that borrowers who
the FFEL assignment process. The modify the exit counseling requirements are eligible for both Stafford Loans and
Department is proposing to codify this for Stafford Loan borrowers. If the PLUS Loans should be given
practice in § 682.409(c)(4)(vii). borrower has received a combination of information on the relative merits of
However, the Department intends to Stafford Loans and PLUS Loans, the each loan type, and be given an
monitor this process carefully and will institution must provide average opportunity to obtain a Stafford Loan
require a guaranty agency or lender to anticipated monthly repayment amount prior to the borrower’s receipt of a PLUS
return reinsurance, interest benefits and information based on the combination Loan. Therefore, the Department is
special allowance for any loan of different loan types the borrower has proposing to require in §§ 682.603(d)
determined to be unenforceable due to received in accordance with proposed and 685.301(a) that the school provide
the absence of disbursement records in § 682.604(g)(2)(i). a comparison of the terms and
accordance with § 682.406(a)(13). If the In addition, the proposed regulations conditions of a PLUS Loan and a
disbursement documentation is not in § 682.603(d) would require Stafford Loan prior to the graduate or
available or reliable, the Department institutions, as part of the process for professional student’s receipt of a PLUS
reserves its authority to reexamine this certifying a FFEL Program Loan, to Loan, so the borrower has the
issue in the future. notify graduate or professional students opportunity to make the best decision in
For institutions that participate in the who are applying for a PLUS Loan of terms of which loan to accept.
Perkins Loan program, the Department their eligibility for a Stafford Loan. The Several negotiators felt that the
is proposing new provisions requiring proposed regulations require Department’s initial proposal was too
the retention of school-based institutions to provide a comparison of vague, and asked for more specificity
disbursement records because the the terms and conditions of a PLUS regarding which terms and conditions
institution is the lender in the Perkins Loan and Stafford Loan, and ensure that should be highlighted for these
Loan Program. Moreover, because MPNs prospective PLUS borrowers have an borrowers. In response, the Department
have been in use in the Perkins Loan opportunity to request a Stafford Loan. has added more specificity to
Program for approximately three years, The proposed regulations in §§ 682.603(d)(1) and 685.301(a)(3) of the
institutions have retained all §§ 685.301(a)(3), 685.304(a)(2), and proposed regulations.
disbursement records on Perkins MPNs 685.304(b)(4) would include comparable With regard to entrance counseling
under current record retention changes to the Direct Loan Program requirements for borrowers who have
requirements in § 668.24. The only new regulations with respect to graduate or both Stafford and PLUS Loans, one
requirement for Perkins institutions will professional student borrowers of Direct negotiator asked if the proposed
be that these disbursement records must PLUS Loans. regulations would preclude a school
be retained for at least three years after Reasons: The committee agreed that from providing both Stafford and PLUS
a Perkins Loan is satisfied and that these with the newly authorized availability Loan entrance counseling at the same
disbursement records be submitted to of PLUS Loans to graduate and time. The Department responded that
the Department on an assigned Perkins professional students, there is a need to the proposed regulations would not
MPN, if requested by the Secretary. revise the loan counseling requirements preclude this practice.
One negotiator pointed out that many remainder of the program would be these uncollected loans present an
graduate or professional student PLUS eliminated. The negotiators noted that unreasonable risk of loss to the United
borrowers will have already received the proposed changes would not States.
Stafford Loans as undergraduates, and increase the amount of borrowing by The Department has collection tools,
therefore will have already received students. In other words, annual loan such as Federal benefit offsets, that are
Stafford Loan entrance counseling. limits would still be controlled by the not available to the Perkins institutions.
Since the entrance counseling institution’s academic year in those The Department has encouraged schools
information for both loan types is instances where the academic year and to voluntarily assign these old defaulted
similar, this negotiator felt that it would loan period both exceed 12 months. loans, so that the Department may
be redundant to offer PLUS Loan The Secretary agrees with these employ these tools to collect on these
entrance counseling to a borrower who negotiators that it would benefit the loans. As part of this effort, the
was already received Stafford Loan students and the FFEL and Direct Loan Department, in recent years,
entrance counseling. Other negotiators, Programs to remove the 12 month rule significantly streamlined the voluntary
however, argued that since the terms from the regulations. assignment process for Perkins Loans.
and conditions of the loans are different, Despite these efforts, the numbers and
Mandatory Assignment of Defaulted
additional counseling should be amounts of older defaulted Perkins
Perkins Loans. (§§ 674.8 and 674.50)
required. In light of this discussion, the Loans held by schools continues to
Department is proposing to modify the Statute: To participate in the Perkins grow.
entrance counseling requirements in Loan Program, an institution of higher To address this problem, the
§§ 682.604(f)(2) and 685.304(a)(2) to education enters into a Program Department proposes modifying the
require that different sets of information Participation Agreement (PPA) with the regulations governing the PPA to
be provided to graduate or professional Secretary under section 463 of the HEA. provide for mandatory assignment of
student PLUS borrowers who have The HEA enumerates several provisions older defaulted loans, at the request of
already received Stafford Loans, and of the PPA. Section 463(a)(9) of the HEA the Secretary. One of the negotiators
graduate or professional student PLUS allows for the addition of provisions to recommended, as an alternative to the
borrowers who have not received the PPA, agreed to by the institution and proposed regulations, that the
Stafford Loans. the Secretary, that may be necessary to Department adopt a referral process,
protect the United States from under which a school could refer a loan
Maximum Loan Period (§§ 682.401, unreasonable risk of loss. to the Department. The Department
682.603, and 685.301) Current Regulations: The regulations would collect on the loan and return the
Statute: The HEA does not address governing the required contents of the proceeds to the school, minus collection
the issue of maximum loan periods PPA are in § 674.8 of the Perkins Loan charges. Other negotiators proposed that
specifically. Program regulations. Under § 674.8(d), if the Department required mandatory
Current Regulations: Current the PPA includes a provision that the assignment of loans, the funds collected
regulations in § 682.401(b)(2)(ii)(C), school may voluntarily assign a from those Perkins Loans should be re-
§ 682.603(f)(2)(i), and defaulted Perkins Loan to the allocated to Perkins schools.
§ 685.301(a)(9)(ii)(A) provide that the Department if the school decides not to The Department did not accept these
loan period for a title IV, HEA program service or collect the loan or the loan is proposals. The Department previously
loan may not exceed 12 months. in default despite the school’s due used a referral program with very
Proposed Regulations: Proposed diligence in collecting the loan. limited success. In addition, there is no
§§ 682.401(b)(2)(ii)(A), 682.603(g)(2)(i), Proposed Regulations: The proposed system in place for re-allocation of net
and 685.301(a)(10)(ii)(A) would regulations in § 674.8(d)(3) would Department collections to Perkins
eliminate the maximum 12-month loan provide that the PPA also include a institutions. Accordingly, the
period for annual loan limits in the provision under which the Department Department does not believe these
FFEL and Direct Loan programs and the could require assignment of a Perkins proposals are in the Federal fiscal
12 month period of loan guarantee in Loan if the outstanding principal interest.
the FFEL Program. balance of the loan is $100 or more, the One negotiator pointed out that the
Reasons: The Secretary believes loan has been in default for seven or current assignment regulations require a
eliminating the 12 month limit on loan more years, and a payment has not been Social Security Number for all assigned
periods would give schools, lenders and received on the loan in the preceding 12 loans. This negotiator noted that, in the
students greater flexibility when months. The proposed regulations early years of the program, schools were
rescheduling disbursements. This provide an exception to the mandatory not required to collect the Social
proposed change would allow assignment requirement if payments Security Numbers of Perkins Loan
institutions to certify a single loan for were not due on the loan in the borrowers. The negotiator feared that
students in shorter non-term or preceding 12 months because the loan schools would be penalized if they were
nonstandard term programs and to was in an authorized deferment or required to assign loans, only to have
provide greater flexibility in forbearance period. Under proposed the assignments rejected for lack of a
rescheduling disbursements for students § 674.50(e)(1) the Secretary would Social Security Number. The
who drop out and return within the accept the assignment of a Perkins Loan Department has addressed this concern
permitted 180-day period. without the borrower’s Social Security in the proposed regulations by
This issue was added to the Number if the Secretary has exercised exempting mandatorily assigned Perkins
rulemaking agenda at the request of her mandatory assignment authority Loans from the requirement that the
some non-Federal negotiators. One under § 674.8(d)(3). institution provide a Social Security
proponent of the change noted that, on Reasons: The Department’s records Number for all assigned loans.
average, 17 percent of students have an show that institutions are holding more The Department initially proposed
academic program longer than a 12- than $400 million in uncollected mandatory assignment of defaulted
month period, and by eliminating the Perkins Loans that have been in default Perkins Loans if the outstanding balance
maximum length of a loan period, the for 5 years or more. Since Perkins Loans of the loan is $50 or more and the loan
need to certify another loan to cover the are comprised largely of Federal funds, has been in default for 5 years.
Negotiators offered a counter-proposal, the principal, interest, and late charges involved in collecting on a Perkins
requiring assignment if the account to collected plus court costs. The proposed Loan.
be assigned is more than $1,000 in regulations specify that these caps on Some negotiators offered a counter-
outstanding principal, and the borrower collection costs go into effect for proposal that included a sliding scale
has not made a payment on the loan in collection agency placements made on for the cap on collection costs: For first
10 years, excluding authorized periods or after July 1, 2008. collection efforts, 33 percent of the
of deferment and forbearance, and Reasons: The lack of a cap on unpaid balance; for second collection
excluding loans for which the school collection costs in the Perkins Loan efforts, 40 percent of the unpaid
has obtained a judgment. Program has led to abuse, with some balance; for loans that have been
The Department did not accept the institutions charging collection costs of litigated, 50 percent plus court costs; for
counter-proposal because excluding all 60 percent or more. During the borrowers living abroad, 50 percent of
deferment and forbearance periods from negotiations, the Department initially the unpaid balance.
the 10 years would push the loans proposed capping Perkins Loan Program The Department and other negotiators
eligible for mandatory assignment collection costs at 24 percent, to match believe that a 50 percent cap is too high.
significantly beyond 10 years in default. the limit already in place for Perkins However, the Department’s proposed
The Department believes that the loans that have been rehabilitated. regulations do reflect an increase from
proposed criteria would effectively rule Several negotiators contended that this the original proposal in light of the
out mandatory assignment of many of cap was too low. They pointed out that arguments and factors noted during the
the loans that would most benefit from Perkins Loans are often low-balance negotiations.
the Department’s collection activities. loans, but that they require the same Child or Family Service Cancellation
However, the Department has efforts to collect as higher-balance loans. (§ 674.56)
modified its original proposal. In This can lead to increased collection
particular, the Department’s proposed costs in the Perkins Loan Program. Statute: Under section 465(a)(2)(I) of
regulations would require a loan to be These negotiators also noted that most the HEA, a Perkins Loan borrower may
assigned if the account balance is $100 collection agencies charge on a qualify for cancellation of the loan if the
or more and it has been in default for contingency fee basis and that a borrower is a full-time employee of a
at least 7 years. The revised proposal percentage of the amount collected from public or private nonprofit child or
generally approximates the mandatory the borrower goes to the collection family service agency who is providing,
assignment requirements in the FFEL agency. One negotiator asserted that a or supervising the provision of, services
Program. 24 percent collection cap would limit to high-risk children who are from low-
the amount that could be charged to the income communities, and the families
Reasonable Collection Costs (§ 674.45) of such children.
borrower to 19.3 percent, to allow for
Statute: Section 464A(b)(1) of the the collection agency to retain its fee, Current Regulations: The current
HEA provides for assessing against a and to still make the Perkins Fund regulations for the child or family
borrower reasonable collection costs on whole by recovering and returning to service discharge in § 674.56(b) reflect
a defaulted Title IV loan. The HEA does the Fund the entire amount owed by the the statutory language, without
not define ‘‘reasonable collection costs’’ borrower. providing additional details on the
for purposes of the Perkins Loan The negotiators also pointed out that eligibility criteria for a child or family
Program. collection agency fees are market driven service cancellation.
Current Regulations: Section and competitive and that placing a cap Proposed Regulations: The proposed
674.45(e) requires a school to assess on collection costs would increase the regulations in § 674.56(b) expand on the
collection costs against a borrower, collection costs that would have to be current regulations and specify that, to
based on either the actual costs incurred absorbed by the Fund. This would have qualify for a child or family service
for those collection actions, or an the effect of reducing the amount of cancellation, a borrower who is a full-
average of the costs incurred for similar Perkins Loans available to future time, non-supervisory employee of a
actions taken to collect loans in similar borrowers. child or family service agency must be
stages of delinquency. The current These negotiators also pointed out providing services directly and
regulations do not cap collection costs that litigation is required under certain exclusively to high-risk children from
that may be charged to the borrower, circumstances in the Perkins Loan low-income communities. In addition,
except, as described in § 674.39, in the program. If schools must litigate to stay the proposed regulations specify that if
case of a loan that has been successfully in compliance with the Perkins Loan the employee provides services to the
rehabilitated. Section 674.39(c)(1) caps regulations, but can only assess families of high-risk children from low-
collection costs on rehabilitated loans at collection costs of 24 percent, this income communities, the services
24 percent, unless the borrower defaults would deplete the Perkins Fund. provided to the children’s families must
on the rehabilitated loan. However, Another negotiator argued that it be secondary to the services provided to
§ 674.47(e) establishes caps on the would not be profitable for collection the high-risk children from low-income
amount of unpaid collection costs that agencies to provide services to smaller communities.
a school may charge to its Perkins Fund. schools under the proposed collection Reasons: On October 20, 2005, the
Proposed Regulations: The proposed costs cap. This negotiator also Department published Dear Colleague
regulations in § 674.45(e)(3) would limit contended that a low cap would reduce Letter (DCL) GEN–05–15, which
the amount of collection costs a school the effectiveness of the collection clarified the Department’s long-standing
may assess against a Perkins Loan agencies. policy with regard to the eligibility
borrower to 30 percent of the total of the The Department asked negotiators to criteria for a child or family service
principal, interest, and late charges propose alternatives to the proposed 24 cancellation. The DCL specifies that a
collected for first collection efforts; 40 percent cap on collection costs. One full-time, non-supervisory employee of
percent of the total of the principal, negotiator stated that any cap on a public or private child or family
interest, and late charges collected for collection costs in the Perkins Loan service agency must be providing
second collection efforts; and, in cases Program would be unreasonable, services directly and exclusively to
of litigation, 40 percent of the total of because there are so many variables high-risk children from low-income
communities to qualify for a child or guaranty agency is prohibited from: applications guaranteed by the agency.
family service cancellation. As noted in Offering, directly or indirectly, The current regulations also recognize
the DCL, many employees of a child or premiums, payments, or other the administrative and oversight
family service agency who do not work inducements to any educational functions of the guaranty agency by
directly with high-risk children from institution or its employees to secure specifically excluding certain activities
low-income communities may provide FFEL loan applicants; or offering to a from the description of prohibited
services that indirectly benefit such lender or its employees, agents, or inducements. The regulations also
children. Congress did not intend such independent contractors, any premiums, prohibit guaranty agencies from sending
borrowers to qualify for child or family incentive payments, or other unsolicited mailings to students in
service cancellations, unless the inducements to administer or market postsecondary and secondary schools
borrower is in a supervisory position, loans and secure designation as the and their parents unless the individual
and is supervising staff members who guarantor or insurer of loans, (except for had borrowed previously using the
work directly with high-risk children Unsubsidized Stafford loans and lender- agency’s loan guarantee and conducting
from low-income communities. The of-last-resort loans). The guaranty fraudulent or misleading advertising
NPRM would incorporate this guidance agency is also prohibited from concerning loan availability.
into the regulations in proposed conducting unsolicited mailings of Proposed Regulations: The proposed
§ 674.56(b). student loan applications to students or regulations would incorporate, with
their parents unless the agency has some modifications, current interpretive
Prohibited Inducements (§§ 682.200 and and clarifying guidance on prohibited
682.401) previously guaranteed a FFEL Loan for
the student or parent, and from inducements and activities provided to
Statute: Section 435(d)(5) of the HEA conducting fraudulent or misleading lenders and guaranty agencies by the
provides that, after notice and an advertising related to loan availability. Department over the years since the
opportunity for a hearing, the Secretary A guaranty agency is not prohibited provisions were added to the HEA. This
may disqualify from participation in the from providing assistance to schools guidance was contained in various DCLs
FFEL Program any FFEL lender that that is comparable to the kinds of issued by the Department and in
provides inducements or engages in assistance the Department provides to responses to private letter inquiries from
other prohibited activity to secure FFEL schools through the Direct Loan program participants. The most
loan applications or sell other products. Program. comprehensive DCL on this subject was
Those prohibited inducements and issued in February 1989 (No. 89–L–129).
activities include: Offering, directly or Current Regulations: Prohibited The proposed regulations for both
indirectly, points, premiums, payments, inducements and other impermissible lenders and guaranty agencies adopt the
or other inducements to any educational activities by lenders are contained in the format of that DCL to include a non-
institution or individual to secure FFEL definition of lender in 34 CFR exhaustive list of examples of
loan applications; conducting § 682.200(b). The regulations mirror the prohibited inducements and activities,
unsolicited mailings of student loan statutory provisions except to clarify and an exhaustive list of permissible
applications to individuals who have that: (1) Assistance provided to schools activities. Under these proposed
not borrowed previously from the that is comparable to that provided by regulations, certain activities are
lender; offering FFEL loans to a the Secretary is limited to the kinds of identified as permissible, because the
prospective borrower to induce the assistance provided to schools under or Department believes those activities are
borrower to purchase an insurance in furtherance of the Direct Loan necessary for the lender or guaranty
policy or other product; or engaging in program; (2) unsolicited mailing of agency to fulfill its role in the
fraudulent or misleading advertising. A student loan application forms includes administration of the FFEL Program.
lender is not prohibited from providing applications sent to the student and the Consistent with the Department’s
assistance to schools that is comparable student’s parents; and (3) the longstanding policy in this area, the
to the kinds of assistance that the prohibition against fraudulent and scope of permissible activities by
Department provides to schools through misleading advertising refers to guaranty agencies is broader than that
the Direct Loan Program. In order to advertising related to the lender’s FFEL for lenders in recognition of their
avoid confusion regarding the types of program activities. The comparable administrative, training, outreach, and
assistance a lender may provide to regulations for guaranty agencies are in oversight roles in the FFEL program.
schools, the Department will identify 34 CFR 682.401(e), which specifies that Under paragraph (5)(i) of the
and publish a list of services provided a guaranty agency may not offer, definition of lender in § 682.200(b) of
to schools through the Direct Loan directly or indirectly, any premium, the proposed regulations, lenders would
Program on or before publication of payment, or other inducement to an be prohibited from offering, directly or
final regulations. The most recent employee or student of a school, or any indirectly, any points, premiums,
description of the kinds of assistance entity or individual affiliated with a payments, or other benefits to any
the Department provides to schools in school, to secure FFEL Loan applicants. school or other party to secure FFEL
the Direct Loan Program was published The regulations provide examples of loan applications or loan volume. The
in a Notice of Proposed Rulemaking on prohibited inducements of lenders by a proposed regulations would add a
August 10, 1999 (64 FR 43428, 43429– guaranty agency and include: definition of a school-affiliated
43430) and can be accessed at: http:// Compensating lenders or their organization to § 682.200, to include
www.ed.gov/legislation/FedRegister/ representatives to secure loan alumni organizations, foundations,
proprule/1999-3/081099a.html. applications for guarantee by the athletic organizations, and social,

Similarly, section 428(b)(3) of the agency; performing functions that a academic, and professional
HEA restricts guaranty agencies from lender would otherwise perform organizations. Prohibited payments and
offering inducements or engaging in without appropriate compensation; other benefits to prospective borrowers
other prohibited activities to secure providing equipment or supplies to would include prizes or additional
applicants for FFEL loans or to secure lenders at below market cost or rental; financial aid funds. The proposed
the designation of the guaranty agency and offering to pay a lender not holding regulations would also provide other
as the insurer of particular loans. A loans guaranteed by the agency a fee for examples of ‘‘other benefits’’ to a school
that would be prohibited, including: holder at a premium. In addition, the organizations. The proposed regulations
Access to a lender’s other financial proposed regulations would permit a would prohibit a guaranty agency from
products, computer hardware, and lender to participate in a school’s or undertaking philanthropic activities,
payment of the cost of printing and guaranty agency’s student financial aid including providing scholarships,
distribution of college catalogs and and financial literacy outreach grants, restricted gifts, or financial
other materials at less than market rate activities, as long as the lender does not contributions in exchange for FFEL loan
or at no cost. promote its student loan or other applications or application referrals, a
The proposed regulations would services to the recipients or attendees specified volume or dollar amount of
prohibit a lender from undertaking and there is full disclosure of any lender FFEL loans using the agency’s loan
philanthropic activities, such as sponsorship, including the development guarantee, or the placement of a lender
providing grants, scholarships, and printing of any materials. The that uses the agency’s loan guarantee on
restricted gifts, or financial proposed regulations would allow a a school’s list of recommended or
contributions to secure loan lender to provide a toll-free telephone suggested lenders. The proposed
applications, loan volume, or placement number and free data transmission regulations would also prohibit a
on a school’s preferred lender list. services to schools that participate in guaranty agency from providing staffing
Lenders would also be prohibited from the FFEL program with the lender and services to a school, including as a
making payments or providing other to the school’s borrowers and third-party servicer, other than on a
benefits to a student at a school, or to prospective borrowers for the purpose of short-term, non-recurring emergency
a loan solicitor or sales representative communications on FFEL Loans. The basis to assist the school with financial
who visits campuses, in exchange for proposed regulations would permit a aid-related functions. The proposed
loan applications secured from lender to continue to offer repayment regulations would also prohibit a
individual prospective borrowers. The incentive programs to borrowers under guaranty agency from assessing
proposed regulations would prohibit which the borrower receives or retains additional costs or denying benefits to a
lenders from paying conference or a benefit, such as a reduced interest rate school or lender that would otherwise
training registration, transportation and or forgiveness of a certain amount of be provided by the agency because the
lodging costs for employees of schools loan principal in exchange for the school or lender declined to agree to
and school-affiliated organizations. The borrower making one or more scheduled participate in the agency’s program or
proposed regulations would further payments. The proposed regulations declined or failed to provide a certain
prohibit a lender’s payment of any would also permit a lender to sponsor volume of loan applications or loan
entertainment expenses related to meals, refreshments, and receptions to volume for the agency’s loan guarantee.
lender-sponsored functions and school officials or employees that are
activities for school and school- Unlike the proposed regulations for
reasonable in cost and that are participating lenders, the proposed
affiliated organization employees. scheduled in conjunction with meeting
Lenders would also be prohibited from regulations would allow a guaranty
or conference events if those functions agency to provide meals and
providing staffing services to a school as are open to all meeting or conference
a third-party servicer or otherwise to refreshments that are reasonable in cost
attendees. The proposed regulations and provided in connection with
assist a school with financial aid related would also permit a lender to provide
functions, on more than a short-term, guaranteed agency-provided training for
schools, school-affiliated organizations school and lender program participants
non-recurring emergency basis. The and borrowers items of nominal value
proposed regulations would also modify and for elementary, secondary, and
that constitute a form of generalized postsecondary school personnel and in
prior program guidance by prohibiting
marketing or are intended to create good conjunction with other workshops and
all payments of loan application referral
will. forums customarily used by the
or processing fees between lenders,
(whether or not the lender receiving the Section 682.401 of the proposed guaranty agency to fulfill its
payment participates in the FFEL regulations, which governs guaranty responsibilities under the HEA. The
Program), or between lenders and any agency prohibited inducements and proposed regulations also would permit
other entity. The proposed regulations permitted activities, would generally a guaranty agency to pay travel and
would not revise the current regulations mirror the proposed regulations for lodging costs that are reasonable as to
governing the prohibition on lenders lenders. The proposed regulations cost, location and duration, to facilitate
conducting unsolicited mailings, would prohibit a guaranty agency from attendance of school staff in training
offering FFEL Loans to induce a providing a school with prizes or programs and facility service tours that
borrower to purchase a life insurance additional financial aid funds under any school staff would otherwise be unable
policy or other product or service Title IV, State or private program based to attend. Guaranty agencies would also
offered by the lender, and engaging in on the school’s voluntary or coerced be permitted to pay reasonable costs for
fraudulent or misleading advertising. agreement to participate in the guaranty school officials to participate on an
The proposed regulations would agency’s program or to provide a agency’s governing board, a standing
permit a lender to undertake activities specified volume of loans, using the official advisory committee, or in
that are specifically permitted by the agency’s loan guarantee. The proposed support of other official activities of an
HEA. These activities include: regulations would prohibit the payment agency in accordance with proposed
Providing assistance to a school, as of entertainment expenses, including § 682.401(e)(2)(iv). The proposed
identified by the Secretary, that is expenses for private hospitality suites, regulations also reflect the guaranty
comparable to the assistance provided tickets to shows or sporting events, agency’s ability under the HEA to pay
by the Department to a school in the meals, alcoholic beverages, and any Federal default fees on loans that would
Direct Loan Program; offering reduced lodging, rental, transportation or other otherwise be paid by the borrowers and
borrower loan origination fees; offering gratuities related to any activity to undertake default aversion activities
reduced borrower interest rates; paying sponsored by the guaranty agency or a approved by the Secretary with certain
Federal default fees that would lender participating in the agency’s guaranty agency funds. There are no
otherwise be paid by the borrower; and program, for school employees or proposed changes to the current
purchasing loans from another loan employees of school-affiliated regulations governing a guaranty
agency’s direct or indirect payment of with respect to the loan. Section between schools and financial
incentives or other inducements to 682.209(k) of the proposed regulations institutions, and recommended that any
lenders to secure the agency as an would expand the protections provided regulations listing prohibited and
insurer of the lender’s FFEL loans, or by the FTC’s Holder Rule by essentially permissible activities be based on a
relating to the prohibitions against the incorporating it into the regulations, limited interpretation of the applicable
unsolicited mailing or distribution of applying it to all loans made under the statutory language. Another negotiator
unsolicited loan applications to FFEL Program and specifying that it suggested that the regulations could
students in secondary or postsecondary applies if the lender making the loan have a ‘‘chilling effect’’ on school and
schools and their parents and against offered or provided an improper lender relationships. A couple of
fraudulent and misleading advertising inducement to the school or any other negotiators argued that the intent of the
concerning loan availability. party in connection with the making of statutory prohibition of lender and
The proposed regulations would also the loan. guaranty agency inducements was not to
clarify and strengthen the Department’s Reasons: The Department believes curtail competition for market share, but
authority to enforce the rules related to that more explicit regulatory to prevent unnecessary borrowing that
improper inducements. There are three requirements governing prohibited would not have occurred if not for the
proposed changes in this area. First, the incentive payments and other incentive, and that given the current
proposed regulations would amend inducements by lenders and guaranty FFEL annual loan limits and the cost of
§§ 682.413(h), 682.705(c), and agencies are needed to ensure FFEL education, borrowers were borrowing
682.706(d) to provide that, in any formal Program integrity, reassure borrowers due to high levels of unmet need rather
action against a lender or guaranty and taxpayers of that integrity, and than any incentives being provided. One
agency based on a violation of the enhance the Secretary’s enforcement negotiator argued that inducements to
prohibited inducement provisions, once authority in this area. Current borrowers were a problem only if the
the Department’s deciding official finds regulations are primarily limited to inducement resulted in harm to the
that the lender or guaranty agency restating the statutory language individual or raised credibility issues
provided or offered the payments or currently in the HEA. The Department’s about the loan process.
activities specified in the definition of interpretive and policy guidance in this Other negotiators expressed the view
lender in § 682.200 or § 682.401, the area over the years has been issued in that, because of improper inducements,
Secretary will apply a ‘‘rebuttable DCLs and in responses to private letter borrowers were actively being ‘‘steered’’
presumption’’ that the activities or inquiries from program participants. by schools to particular lenders and
payments were undertaken or made by The most comprehensive guidance on argued that the credibility of the loan
the lender or guaranty agency to secure this subject was published as DCL 89– process was an issue that the
FFEL Loan applications or FFEL loan L–129/S–55/G–157 in February 1989. Department needed to address. One
volume. The lender or guaranty agency The most recent guidance on prohibited negotiator contended that inducements
will have a full opportunity to show that school and lender relationships was to borrowers created unequal terms to
the activity or payment was made for published as DCL 95–G–278/L–178/S– borrowers in the FFEL Program and
reasons unrelated to securing loan 73 in March 1995. The Department appeared to operate as ‘‘redlining’’
applications or loan volume. believes that this guidance, and the because the inducements were often
Another proposed change in this area general requirements of the law, may no based on school loan volume, the
would add a new § 682.406(d) to specify longer be generally known and volume of large dollar loans, or a
that a guaranty agency may not make a understood by lenders and other school’s cohort default rate.
claim payment from its Federal Fund to participants that have entered the FFEL A couple of negotiators recommended
a lender or request a reinsurance industry in the last few years. Moreover, that, rather than attempting to identify
payment from the Department on a loan the FFEL Program has changed an exhaustive list of inducements, the
if the lender offered or provided an significantly since this prior guidance regulations should simply provide
improper inducement, as defined in the was issued. In recent years, the illustrative examples of acceptable
definition of lender in § 682.200(b), to a increased competition among FFEL relationships between schools and
school or other party in connection with lenders, particularly in the FFEL lenders, so that future program
the making of the loan. This change Consolidation Loan Program, has developments would not necessarily
would reflect the Department’s long- resulted in a number of lenders offering require a change to the regulations.
standing policy that a loan made in a variety of benefits to borrowers, Negotiators with expertise in guaranty
violation of the prohibited inducement schools, and school-affiliated agency operations asked the Department
provisions is not eligible for federal organizations. There has also been a to make it clear that school involvement
subsidy payments. rapid growth in private alternative loans in, and guaranty agency financial
The final change in the area of marketed by many of the same lenders support of, guaranty agency advisory
enforcement related to inducements participating in the FFEL Program. committee activities would continue to
would clarify and expand the Special relationships between schools be permissible because of the
borrower’s legal rights. Since 1994, the and lenders have developed, importance of those activities to FFEL
promissory notes and MPNs used in the jeopardizing a borrower’s right to Program administration. One of these
FFEL Program have included a choose a FFEL lender and undermining negotiators also recommended that the
description of the borrower’s rights the student financial aid administrator’s list of permissible activities for guaranty
under the Federal Trade Commission’s role as an impartial and informed agencies be expanded to permit
(FTC’s) Holder Rule as it applies to resource for students and parents additional training and outreach
FFEL loans. Under the FTC’s Holder working to fund postsecondary activities to avert defaults authorized
Rule, if a loan is made by a for-profit education. under the HEA. Another of these
school, or the borrower is referred to the During the negotiated rulemaking negotiators asked that the regulations
lender by a for-profit school, any lender discussions, several negotiators make a clear distinction between
holding the borrower’s loans is subject expressed concern about the impact that contractual, third-party servicer
to all claims and defenses that the the proposed regulations might have on agreements between a guaranty agency
borrower could assert against the school the numerous business arrangements and school that are paid at the market
rate, and the limited emergency employment; and prohibit philanthropic regulations, is enhancing the borrower’s
assistance offered by lenders and giving by lenders and guaranty agencies choice of lender and providing for the
guaranty agencies to schools at no cost in exchange for application referrals, or disclosure of appropriate information.
or at less than a market rate. This same a specific volume or dollar amount of The Department believes that the
negotiator asked the Department to loans made, or placement on a school’s proposed regulations provide clear and
clarify that a guaranty agency or list of recommended or suggested detailed examples of prohibited
school’s compliance with state lenders. The proposal would also have inducements and improper activities
administered programs or requirements incorporated into the regulations based on previously published guidance
did not present an inducement-related selected paragraphs from the with some modifications to reflect
conflict. Department’s DCL 89–L–129/S–55/G– changes that have occurred in the FFEL
A couple of negotiators recommended 157, February 1989. program. The proposed regulations
that the Department clarify the nature of A couple of negotiators voiced would retain the Department’s long-
the emergency situation under which a concern about the impact of the standing policy distinction between
lender or guaranty agency could offer proposed treatment of philanthropic permissible activities by lenders and
assistance to a school in fulfilling its giving by lenders on general guaranty agencies in recognition of their
financial aid functions at little or no philanthropic activities supporting different roles in the FFEL program. The
cost. The negotiators noted that the postsecondary institutions by financial Department has not, however,
definition of an ‘‘emergency’’ is institutions. authorized lenders or guaranty agencies
subjective, and should not excuse a Several negotiators objected to the to provide staff assistance to schools
school from complying with the Department’s proposal to include except in an emergency, which must be
requirement that it be administratively enforcement-related provisions in the short-term and nonrecurring. As noted
capable to participate in the Title IV proposed regulations. One negotiator earlier, one negotiator asked the
programs, which includes retaining stated that the ‘‘rebuttable presumption’’ Department to provide a specific
sufficient, trained staff during peak language was problematic because the exemption from the inducement
processing periods. They recommended statutory language governing prohibited restrictions for State-established
that the Department specify that an inducements requires a demonstration programs or requirements. However,
‘‘emergency’’ cannot be an annual or that the inducement was provided in such an exemption is not authorized
recurring event. The Department exchange for loans or loan volume. The under the HEA. The prohibition on
specifically solicits comments on same negotiator stated that enforcement improper inducements in sections
whether an ‘‘emergency’’ should be would be better enhanced by clear 428(b)(3) and 435(d)(5)(A) of the HEA
limited to a State- or Federally-declared regulations that define terms and applies to State guaranty agencies,
natural or national disaster that affects explain permissible and impermissible lenders, and institutions, as well as to
a school or whether an ‘‘emergency’’ activities. Several negotiators also all other participants in the FFEL
should encompass broader objected to the inclusion of the FTC program. Based on these current
circumstances. Holder Rule provision into the proposed statutory provisions, the Department
Several negotiators with expertise in regulations. One negotiator argued that recently sent letters to two State
lender and guaranty agency operations these proposed regulations converted guaranty agencies noting that State
submitted counter-proposals to the what was a lender eligibility issue into authorized programs those agencies
Department’s proposed regulatory a borrower right and put lenders at risk administer could create an improper
language. These alternative proposals simply by being on a school’s preferred inducement, because those programs
would have significantly expanded the lender list. The negotiator also stated potentially provide benefits to
lists of permissible activities for lenders that it would lead to nuisance litigation institutions that participate in the State
and guaranty agencies. The Department by borrowers. The negotiators guaranty agency’s guarantee program
did not accept these counter-proposals questioned why an inducement and deny benefits to institutions that
because they would have allowed infraction by a lender should lead to a participate in other guaranty agencies’
activities and payments that the loss of reinsurance and questioned the programs. The proposed regulations
Department believes are not basis of the proposed provision that would reflect the continued prohibition
appropriately performed by lenders and denied claim payment to a lender and of such programs in proposed section
guaranty agencies. These alternative reinsurance to the guaranty agency if it 682.410(e)(1)(i)(B) and (e)(1)(ii).
proposals would: Permit lenders to pay was determined that the loan was made The proposed regulations would
for meals and refreshments, lodging, based on an impermissible inducement. adopt a modified version of the
and transportation costs for employees The Department believes that the Department’s prior policy, under which
of schools and school-affiliated proposed regulations adequately ‘‘reasonable’’ application referral fees
organizations equivalent to those implement the statutory requirements in can be paid to a nonparticipating lender
permitted to be paid by guaranty the HEA’s prohibited inducement or to another participating FFEL lender
agencies; incorporate into the provisions and does not believe it will by prohibiting all such payments to a
regulations the detailed listing of affect unrelated contracts or agreements lender or any other entity. The
comparable services provided by the between postsecondary institutions and Department believes that there is no
Department to Direct Loan schools that financial institutions or general longer a need for payment of such fees
was published in a Notice of Proposed philanthropic giving by financial in the current FFEL market and that
Rulemaking on August 10, 1999 (64 FR institutions. Some negotiators believed lender payment of such fees to school-
43428, 43429–43430); permit lenders to that borrowers are being inappropriately affiliated organizations and other
pay reasonable loan application steered to various lenders through the unaffiliated parties are a significant
‘‘referral’’ fees to unaffiliated parties in use of inducements provided by lenders problem in the FFEL Program. In
addition to other lenders; expand to schools and that these activities, if addition, in an attempt to avoid the
permissible borrower repayment left unchecked, deny borrowers their prohibition on inducements, lenders
incentive programs to include loan choice of lender and undermine the have tried to classify fees that are based
forgiveness benefits for academic credibility of the FFEL Program. The on success in securing loan applications
achievement and certain kinds of Secretary, through these proposed or the size and characteristics of loans
disbursed as ‘‘referral’’ or ‘‘marketing’’ lender or guaranty agency. As the prohibit a FFEL lender from entering
fees. Compensation or fees based on the Department pointed out during the into a new ELT relationship with a
number of applications or the volume of negotiated rulemaking discussion, school or a school-affiliated
loans made or disbursed are improper, violations of the prohibited inducement organization after September 30, 2006.
regardless of label, under the provisions are difficult for the ELT relationships in existence prior to
Department’s current and prior policy Department to enforce. It is virtually that date would be allowed to continue
and would continue to be improper impossible for the Department to prove with certain restrictions. The proposed
under these proposed regulations. the relationship between the parties regulations would also implement the
Lenders are free, as they have been when the documentation is under the HEA Extension Act by creating a new
historically, to continue to contract for control of the two parties and the section (formerly reserved § 682.602)
general marketing services, provided Department cannot issue subpoenas to that applies the same limits imposed on
those services are not compensated compel testimony. To enforce these FFEL school lenders by the Higher
based on the number of applications, or provisions more effectively, the Education Reconciliation Act (HERA)
the volume of loans made or disbursed. Department must be able to identify a (Pub. L. 109–171) to school and school-
The proposed regulations do not connection between certain activities affiliated ELT arrangements entered into
incorporate the list of services the and loans. The Department believes that after January 1, 2007. Lastly, proposed
Department provides to Direct Loan the adoption and use of a rebuttable § 682.200 would define the term school-
schools that was published in the presumption will improve the affiliated organization as any
August 10, 1999 notice of proposed Department’s ability to enforce the organization that is directly or indirectly
rulemaking as was requested by some of prohibition on improper inducements related to a school and includes, but is
the negotiators. As the Department while protecting the appropriate due not limited to alumni organizations,
made clear during the negotiated process rights of lenders and guaranty foundations, athletic organizations, and
rulemaking discussions, the Department agencies. social, academic, and professional
would not want to limit itself or the The Department’s proposal to include organizations.
lending community by codifying a list violations of the prohibited inducement Reasons: We are proposing to amend
of services that cannot be easily updated provisions in § 682.406 as a condition of the definition of lender in § 682.200 and
and therefore the proposed regulations reinsurance codifies the Department’s add new § 682.602 to reflect the changes
allow the use of other forms of public existing policy and practice when it made to section 435(d)(2) of the HEA by
announcement. documents violations of the prohibited the HEA Extension Act. Because the
The proposed regulations also would inducement provisions. HEA Extension Act did not define
not expand the list of permissible lender Finally, the Department believes that ‘‘school-affiliated organization,’’ but
repayment incentive programs that are the proposed change to expand the included these organizations in
based strictly on a borrower establishing protections provided by the FTC’s imposing limits on ELT arrangements,
a successful payment pattern in the Holder Rule by including a form of that we developed and are proposing to add
repayment of a loan to include ‘‘loan rule in the proposed regulations will a definition of this term to § 682.200 to
forgiveness’’ based on academic allow borrowers to assert any legal add clarity to the regulations. During the
achievement or employment in a rights they may have if they have been negotiated rulemaking, several non-
particular field. The Department harmed in a situation in which the Federal negotiators expressed concern
believes that repayment incentive lender has offered or provided an about the phrase ‘‘directly or indirectly
programs do not represent a prohibited improper inducement. Moreover, by related to a school’’ in the definition of
inducement if they are conditioned on applying the FTC’s Holder Rule to all school-affiliated organization. They felt
the borrower’s timely repayment of the loans, irrespective of the type of school that we should qualify this phrase to
loan and borrower receipt of the benefit attended by the borrower, the proposed make it clear that the definition applies
is not coincidental to the loan regulations will ensure that all FFEL only to organizations that are under the
origination process. The Department borrowers have the same legal rights. common control and ownership of a
believes that the forms of loan school. The Department disagreed with
forgiveness described by some of the Eligible Lender Trustees (ELTs)
this suggestion, because many
negotiators would be an inducement (§§ 682.200 and 682.602)
organizations such as alumni and social
offered by lenders to market FFEL loans. Statute: The Third Higher Education organizations are clearly school-
Finally, the Department believes that Extension Act of 2006 (HEA Extension affiliated but may not be under the
the addition of the enforcement Act) (Pub. L. 109–292) amended the control and ownership of a school.
provisions is necessary to clarify and definition of lender in section 435(d)(2)
strengthen the Department’s authority to of the HEA to prohibit new ELT Frequency of Capitalization (§ 682.202)
enforce the regulations related to the use relationships and restrict existing ELT Statute: Section 428C(b)(4)(C)(ii)(III)
of improper inducements. The proposed relationships by imposing limits on of the HEA provides for the
regulations will result in more effective school or school-affiliated organizations capitalization of interest on
and fair enforcement of these that make or originate loans through an Consolidation Loans.
restrictions. In response to the ELT in the FFEL Program. Current Regulations: Under current
negotiators’ concerns about the Current Regulations: The definition of § 682.202(b)(3), a lender may capitalize
placement of the rebuttable lender currently in § 682.200 does not unpaid interest as frequently as every
presumption provision outside the reflect these new restrictions on ELT quarter. Capitalization is also permitted
formal administrative penalty process, relationships in the FFEL Program. The when repayment is required to begin or
the Department revised the proposed current regulations also do not contain resume.
regulations to incorporate that provision a definition of school-affiliated Proposed Regulations: Under
into the regulations that govern formal organizations. proposed § 682.202, the frequency of
administrative proceedings and to Proposed Regulations: The changes in capitalization on Federal Consolidation
clarify that the rebuttable presumption proposed § 682.200 implement the HEA Loans would be limited to quarterly,
applies only when the Secretary takes a Extension Act by amending the except that a lender could only
formal administrative action against a definition of lender in § 682.200 to capitalize unpaid interest that accrues
during an in-school deferment at the the lender investigates a borrower’s Reporting Act and stop credit bureau
expiration of the deferment. These claim that he or she is the victim of reporting on delinquent loans while the
proposed regulations would be identity theft. The proposed regulations lender investigates an alleged identity
consistent with the current practice in in § 682.211 would allow a lender to theft without violating the FFEL
the Direct Loan Program. grant a 120-day administrative Program regulations.
Reasons: The proposed regulations forbearance to a borrower upon the
would align the FFEL Program with the Preferred Lender Lists (§§ 682.212 and
lender’s receipt of a valid identity theft
Direct Loan Program. Capitalization 682.401)
report as defined under the Fair Credit
would take place when the borrower Reporting Act (15 U.S.C. 1681a) or Statute: Section 432(m) of the HEA
changes status at the end of a period of notification from a credit bureau of an requires the Secretary, in consultation
authorized in-school deferment. allegation of identity theft while the with guaranty agencies, lenders, and
This change was proposed by non- lender determines the enforceability of other organizations involved in student
Federal negotiators to protect borrowers the loan. Under the proposed changes in financial assistance to develop common
that previously consolidated their loans §§ 682.208 and 682.211, the lender application forms and promissory notes,
while in an in-school status to lock in could no longer collect interest and or MPNs for use in the FFEL Program.
low interest rates. Statutory provisions, special allowance payments on the loan These forms must be formatted to
subsequently repealed by the HERA, if the lender determines that the loan is require the applicant to clearly indicate
allowed in-school FFEL borrowers to unenforceable. The proposed a choice of lender. Under Section
request an early conversion to regulations would allow the lender a 479A(c) of the HEA, schools are
repayment status. Unlike Direct Loan three-year period, however, to submit a authorized to refuse to certify, on a case-
borrowers, FFEL borrowers were not claim if, within that time period, the by-case basis, a statement that permits a
able to consolidate their loans while lender receives from the borrower a student to receive a loan. The reason for
they were in an in-school status. By local, State, or Federal court verdict of the school’s refusal must be
converting to repayment status, these judgment conclusively proving that the documented and provided to the
borrowers could consolidate their loans. borrower was the victim of the crime of student in writing. In exercising this
Consolidation Loans received by these identity. The proposed regulations in authority, a school may not discriminate
borrowers were then immediately §§ 682.300 and 682.302 would clarify against any borrower.
placed into in-school deferments. The that the Secretary terminates the Current Regulations: Many schools
proposed regulations would limit when payment of interest benefits and special provide lists of preferred or
the interest on these loans could be allowance on eligible FFEL Program recommended lenders to students and
capitalized. Loans consistent with the changes we prospective borrowers. There are no
are proposing in § 682.208. Lastly, current regulations that govern a
Loan Discharge for False Certification as school’s use of such lists. Current
a Result of Identity Theft (§§ 682.208, proposed regulations in § 682.411
would specify that the HEA does not § 682.603(e) authorizes a school to
682.211, 682.300, 682.302 and 682.411) refuse to certify a borrower’s eligibility
preempt provisions of the Fair Credit
Statute: Section 437(c) of the HEA Reporting Act that provide for the for a FFEL Loan but specifies that, in
authorizes a discharge of a FFEL Loan suspension of credit bureau reporting exercising that authority, a school must
or a Direct Loan if the borrower’s and collection on a loan after the lender not engage in any pattern or practice
eligibility to borrow was falsely certified receives a valid identity theft report or that would result in denial of a
because the borrower was a victim of notification from a credit bureau. borrower’s access to loans on the basis
the crime of identity theft. Reasons: Interim final regulations of certain factors including the
Current Regulations: Section 682.402 published on August 9, 2006 (71 FR borrower’s choice of a particular lender
of the FFEL Program regulations and 64377) and final regulations published or guaranty agency.
§ 685.215 of the Direct Loan Program on November 1, 2006 (71 FR 45665) Proposed Regulations: Section
regulations authorize a discharge of a implemented changes made to the HEA 682.212(h)(1) of the proposed
loan if the borrower’s eligibility to by the HERA to authorize a discharge of regulations specifies the requirements
borrow the loan was falsely certified a FFEL or Direct Loan Program loan if that a school must meet if it chooses to
because the borrower was the victim of the borrower’s eligibility to borrow was provide a list of recommended or
the crime of identity theft. Section falsely certified because the borrower preferred FFEL lenders for use by the
682.402 requires that, before the was a victim of the crime of identity school’s students and their parents, and
borrower’s obligation is discharged, the theft. Although some of the negotiators prohibits the use of a preferred lender
borrower must provide the loan holder had concerns with these earlier list to deny or otherwise impede the
a copy of a local, State, or Federal court regulations, the Department believes borrower’s choice of lender. Section
verdict or judgment that conclusively that the current regulations properly 682.212(h)(1)(ii) of the proposed
determines that the individual who is reflect the statutory provision and regulations would require a school
named as the borrower of the loan was therefore did not propose any changes. using a preferred lender list to include
the victim of the crime of identity theft. Some non-Federal negotiators asked on the list at least three lenders that are
A Direct Loan borrower must provide the Department to add regulations that not affiliated with each other. Section
the Secretary the same documentation would allow loan holders to take actions 682.212(h)(1)(iii) of the proposed
to establish eligibility for the discharge. required by other Federal laws when regulations would also prohibit a school
Proposed Regulations: The proposed they receive an allegation that a loan from including lenders on the list that
regulations do not include any changes was certified due to a crime of identity have offered, or been solicited by the
to the eligibility requirements with theft. The Department agreed. The school to offer, financial or other
which a borrower must comply to proposed regulations in §§ 682.208 and benefits to the school in exchange for
obtain a loan discharge as a result of the 682.211 would allow for the suspension placement on the list. The proposed
crime of identity theft. However, the of credit bureau reporting and collection regulations further provide, in
proposed regulations § 682.208 would activity, respectively. The proposed § 682.212(h)(2)(iii), that if a school has
allow a lender to suspend credit bureau regulations in § 682.411 would allow listed a lender on its preferred lender
reporting on a loan for 120 days while lenders to comply with the Fair Credit list and the lender offers specific
borrower benefits (such as lower fees or administrative burden for schools and a lender’s offer of prohibited
interest rates) to the school’s borrowers, borrowers and the processing time inducements that took the form of direct
the school must ensure that the lender necessary to secure a student loan. payments or other benefits to the school,
provides the same benefits to all Increased competition among FFEL its students, or its employees rather than
borrowers at the school. Section lenders has also led to a proliferation of the result of the school’s effort to
682.212(h)(2) of the proposed student loan borrower benefits, such as research and analyze the various lender
regulations would also require the reduced interest rates and fees. Given offerings to its students. In 1995, the
school to disclose to prospective the growing complexity surrounding the Department reminded schools of the
borrowers, as part of the list, the method FFEL program, students and parents prohibited inducement provisions in the
and criteria the school used to select have been relying extensively on law and the sanctions attached to them,
any lender that it recommends or financial aid administrators as a source and warned schools against such
suggests, to provide comparative of assistance to identify lenders that activities with both FFEL school lenders
information to prospective borrowers offer the best service and benefits to and non-school FFEL lenders (DCL 95–
about interest rates and other benefits borrowers. The use of preferred lender G–278). Despite these actions, the
offered by the lenders, and to include a lists and other consumer information Department’s Office of Inspector
prominent statement, in any related to the student loan process has General reported to the Secretary in
information related to its list of lenders, played a useful role in assisting August 2003 that these relationships
advising prospective borrowers that financial aid officers in dealing with the were becoming an increasing problem in
they are not required to use one of the large volume of requests for information the FFEL program, and recommended
school’s recommended or suggested and assistance. that the Secretary provide additional
lenders. Section 682.212(h)(2)(v) of the There is increasing evidence, guidance to both schools and lenders.
proposed regulations would also however, that the preferred lender lists The continuing and growing concern
prohibit a school from assigning, maintained by many schools do not about these relationships led the
through award packaging or other represent the result of unbiased research Secretary to decide to address preferred
methods, a lender to first-time by the school to identify the lenders lender lists as part of this rulemaking
borrowers and from delaying providing the best combination of process.
certification of a borrower’s loan service and benefits to borrowers. There These proposed regulations are
eligibility to a lender because that has also been increasing evidence that similar to the proposals submitted by
particular lender is not on the school’s some schools have been restricting the the Department to the negotiating
preferred lender list. The proposed ability of borrowers to choose the lender committee during the negotiated
regulations would also revise of their FFEL Program loan. The rulemaking process. Some negotiators
§ 682.603(e) to further clarify that a Department has identified instances in questioned the need to regulate in this
school may never refuse or delay which a school selected the lender for area, stating that it would be highly
certification of a borrower’s loan the borrower as part of the financial aid intrusive and advising the Department
eligibility because of the borrower’s award packaging process, provided that it would be better to address the use
choice of lender. borrowers with an electronic link to of preferred lender lists through training
Reasons: The Department believes only one lender after recommending a and enforcement as part of school
that it is necessary at this time to loan as part of the award package, reviews and audits. Another negotiator
establish rules to govern a school’s identified only one lender as their recommended that any proposed
optional use of a preferred lender list to preferred lender in their published regulations on this topic be limited to
preserve a borrower’s right to choose a financial aid information, or, if the schools that used a preferred lender list
FFEL lender. These proposed school was an authorized FFEL Program to actively impede a borrower’s choice
regulations will help ensure that such lender, directed the aid administrator to of lender. Some negotiators thought that
lists are a source of useful, unbiased use the school as the only lender. Some the Secretary should consider
consumer information that can assist other schools have significantly delayed prohibiting the use of preferred lender
students and their parents in choosing or declined to provide the necessary lists entirely while other negotiators
a FFEL lender from the over 3,000 loan eligibility certification to a lender endorsed the continued use of preferred
lenders that participate in the FFEL for a student or parent borrower because lender lists as a helpful tool for both
Program. the lender was not on the school’s schools and prospective borrowers.
The Department has not previously preferred list or did not participate in Several negotiators expressed the view
regulated or restricted the use of lists of the electronic processing system that the that regulations in this area would be
preferred or recommended lenders. school used. When these situations were administratively burdensome and could
With student loan defaults a national identified, and in response to student result in schools discontinuing the use
concern in the early 1990s, some and parent complaints, the Department of such lists. Some negotiators
schools began recommending to has investigated and addressed them on expressed concern that if schools
borrowers that they use lenders that the a case-by-case basis, and reminded the discontinued using a preferred lender
school believed provided high-quality school of its legal responsibilities. Over list, students would be subject to
customer service in loan origination and the last three years, the Department has increased direct marketing from student
servicing, with the goal of preventing also used Department-sponsored loan lenders, which they viewed as
loan delinquency and default and its meetings and other conferences to counterproductive to the goal of
negative consequences for borrowers highlight inappropriate and, in some educating students and parents about
and schools. With the significant growth cases, illegal practices related to the use the student loan process.
of loan volume in recent years, and of preferred lender lists. Unfortunately, Some negotiators stated that the
increased competition among FFEL many of these practices have continued, Department’s proposed requirement of a
lenders, the focus of school selection of despite the Department’s efforts. minimum number of three lenders on
preferred lenders has shifted. Lenders Recent Department investigations any list was arbitrary. A couple of those
began offering web-based and have shown that, in some cases, a negotiators expressed concern that some
proprietary applications and electronic school’s selection of a preferred or schools, particularly small schools,
data transmission to reduce the recommended lender was the result of would have difficulty complying with
the requirement because only one lenders must not be affiliated with each (1) Have an annual effect on the
lender was willing to make FFEL loans other. The Department expects a school economy of $100 million or more, or
to students at the schools. A group of to collect and retain a statement adversely affect a sector of the economy,
negotiators submitted a counter- certifying to this fact, upon which the productivity, competition, jobs, the
proposal to exempt schools from the school can rely, from each of the lenders environment, public health or safety, or
requirement that a preferred lender list they propose to include on their list. State, local or tribal governments or
include at least three lenders if the The Department is not proposing any communities in a material way (also
school: Had less than 500 borrowers exemption to the minimum of three referred to as an ‘‘economically
entering repayment in a given year; had lenders. The Department also believes significant’’ rule); (2) create serious
issued a request for proposal to lenders that the disclosure of supporting inconsistency or otherwise interfere
to which there were at least three information and data with the list is the with an action taken or planned by
responses; recommended a certain most efficient and effective method to another agency; (3) materially alter the
lender in accordance with State law; or ensure that borrowers make informed budgetary impacts of entitlement grants,
was a Historically Black College or consumer decisions. The Department user fees, or loan programs or the rights
University or a Tribally-controlled understands that providing comparative and obligations of recipients thereof; or
College or University. One other interest rate and benefit information, in (4) raise novel legal or policy issues
negotiator strongly recommended that addition to describing the method and arising out of legal mandates, the
the Department require schools to criteria used to select lenders for the President’s priorities, or the principles
provide information about their list, will involve additional efforts for set forth in the Executive order.
business dealings with each of the schools in preparing and providing a Pursuant to the terms of the Executive
lenders on the preferred lender list. preferred lender list. To assist schools order, it has been determined this
However, several school-based with this effort, the Department is proposed regulatory action will not have
negotiators stated that such a developing a model format that a school an annual effect on the economy of
requirement was administratively may use to present this information. The more than $100 million. Therefore, this
unfeasible and would not be helpful to Department will be sharing a draft of the action is not ‘‘economically significant’’
students because there were generally model format with representatives of and subject to OMB review under
many business arrangements between school, lending and guaranty agency section 3(f)(1) of Executive Order 12866.
schools and financial institutions that communities as well as students and In accordance with the Executive order,
were not related to the school’s parents to solicit their thoughts and the Secretary has assessed the potential
participation in the FFEL Loan Program suggestions. The draft model format will costs and benefits of this regulatory
and over which student financial aid then be revised and submitted for action and has determined that the
personnel have no control. These same clearance to the Office of Management benefits justify the costs.
negotiators also objected to the and Budget (OMB) as required by the Need for Federal Regulatory Action
Department’s proposal that, in addition Paperwork Reduction Act of 1995. This These proposed regulations address a
to disclosing the method and criteria clearance process will afford additional broad range of issues affecting students,
used by the school to choose the lenders opportunities for public comment on borrowers, schools, lenders, guaranty
on the school’s preferred lender list, the the draft model format. The Department agencies, secondary markets and third-
school be required to provide plans to submit a model format form to party servicers participating in the
comparative information on the interest OMB for its review when these FFEL, Direct Loan, and Perkins Loan
rates and other borrower benefits offered proposed regulations are published in programs. Prior to the start of negotiated
by those lenders. The school-based final form. rulemaking, through a notice in the
negotiators stated that this requirement The Department also agrees that
Federal Register and four regional
would represent a significant schools should not be discouraged from
hearings, the Department solicited
administrative burden and that schools negotiating with lenders for the best
testimony and written comments from
could not ensure the accuracy of the possible interest rates and borrower
interested parties to identify those areas
information on borrower-benefit benefits for their borrowers. As a result,
of the Title IV regulations that they felt
offerings. Many negotiators objected to the proposed regulations, while
needed to be revised. Areas identified
the Department’s proposed prohibition continuing to prohibit a school’s
during this process that are addressed
against a school soliciting borrower solicitation of payments and other
by these proposed regulations include:
benefits from a lender in exchange for benefits from a lender for the school or • Duplication of effort for loan
the lender’s placement on the school’s its employees in exchange for the holders and borrowers in the deferment
preferred lender list. These negotiators lender’s placement on the school’s list, granting process. The Department has
argued that one of a school’s primary would not prohibit a school from proposed changes that allow Title IV
reasons for providing a list of lenders soliciting lenders for borrower benefits loan holders to grant a deferment under
was to identify lenders offering the best in exchange for placement on the a simplified process.
interest rates and borrower benefits school’s list. • Difficulty experienced by members
possible for the school’s borrowers, and Executive Order 12866 of the armed forces when applying for
believed that a school’s efforts to a Title IV loan deferment. The
negotiate better benefits for their Regulatory Impact Analysis Department has proposed changes that
borrowers should not be restricted. Under Executive Order 12866, the allow a borrower’s representative to
The Department’s proposed Secretary must determine whether the apply for an armed forces or military
regulations would require that any regulatory action is ‘‘significant’’ and service deferment on behalf of the
school list of recommended lenders therefore subject to the requirements of borrower.
contain at least three lenders to provide the Executive Order and subject to • Confusion regarding the eligibility
borrower choice. To further ensure that review by the OMB. Section 3(f) of requirements that a Title IV loan
the listed lenders provide an actual Executive Order 12866 defines a borrower must meet to qualify for a total
choice for a borrower, the proposed ‘‘significant regulatory action’’ as an and permanent disability loan
regulations provide that the three action likely to result in a rule that may discharge. The Department has
proposed changes to clarify these Lastly, regulations were required to The student loan industry features
requirements. implement The HEA Extension Act, high competition among loan providers,
• Lack of entrance and exit which made changes to eligible lender using an array of interest rate discounts
counseling for graduate and professional trustee relationships as discussed and other borrower benefits to attract
PLUS Loan borrowers. The Department earlier. volume. By increasing the amount of
has proposed changes that require information available to borrowers and
entrance counseling and modified exit Regulatory Alternatives Considered
clarifying permissible relationships
counseling. A broad range of alternatives to the between lenders and schools, the
• Costs associated with capitalization proposed regulations was considered as proposed provisions are expected to
on Federal Consolidation Loans for part of the negotiated rule-making improve market transparency and
borrowers who consolidated while in an process. These alternatives are reviewed remove transaction barriers for loan
in-school status. The Department has in detail elsewhere in this preamble borrowers, improving market openness
proposed changes to limit the frequency under the Reasons sections and efficiency for both borrowers and
of capitalization on such loans. accompanying the discussion of each loan providers.
Based on its experience in proposed regulatory provision. The proposed regulations generally
administering the HEA, Title IV loan prohibit lenders and guaranty agencies
Benefits
programs, staff with the Department also from regularly providing schools with
identified several issues for discussion Many of the proposed regulations
codify existing sub-regulatory guidance personnel and other support services for
and negotiation, including: loan application and other processing
• Risk to the Federal fiscal interest or make relatively minor changes
intended to establish consistent activities. The provision of these
associated with the total and permanent
definitions or streamline program services appears to have been a
disability discharge on a Title IV loan.
operations across the three Federal relatively standard practice in some
The Department has proposed changes
student loan programs. The Department institutional sectors. To the extent
to require a prospective three-year
believes the additional clarity and schools must now pay for this activity
conditional discharge so that the
enhanced efficiency resulting from these themselves, the regulations do not
applicant’s condition can be monitored
changes represent benefits with little or increase costs but rather shift costs from
before the borrower receives a Federal
no countervailing costs or additional lenders to schools. The Department is
benefit.
• Enforcement issues and risk to the burden. interested in comments related to any
Federal fiscal interest associated with Benefits provided in these regulations potential burden associated with this
electronically-signed MPNs that have include: The clarification of rules on provision. The HEA and implementing
been assigned to the Department. The preferred lender lists and prohibited regulations currently require schools to
Department has proposed changes that inducements; simplification of the maintain the administrative capability
require loan holders to maintain a process for granting deferments; changes to operate Title IV programs. The
certification regarding the creation and to the process of granting loan proposed regulations are consistent with
maintenance of any electronically- discharges that reduce burden for loan this requirement by prohibiting lenders
signed promissory notes and that holders, protect borrowers from and guaranty agencies from providing
require loan holders to provide unnecessary collection activities, and schools with personnel and other
disbursement records should the simplify the application process; limits support services and activities in
Secretary need the records to enforce an on the frequency with which FFEL exchange for loan applications.
assigned Title IV loan. lenders can capitalize interest on Simplification of Deferment Process:
• Excessive collection costs charged Consolidation Loans; limits on the In general, current regulations require
to defaulted Perkins Loan borrowers. amount of collection costs charged to each lender to determine a borrower’s
The Department has proposed changes defaulted Perkins Loan borrowers; and qualification for a deferment and require
that cap collection costs in the Perkins the mandatory assignment to the a borrower to initiate the application for
Loan Program. Department of longstanding defaulted a military service deferment. The
• Unreasonable risk of loss to the Perkins Loan with limited recent proposed regulation allows a lender to
United States associated with the more collection activity. Of these proposed use the determination of deferment
than $400 million in uncollected provisions, only the mandatory eligibility made by another eligible
Perkins Loans that have been in default assignment of defaulted Perkins Loans lender and allows a borrower’s
for 5 years or more. The Department has has a substantial economic impact- representative to apply for a military
proposed changes that provide for although the single-year impact is less service deferment. In both instances, no
mandatory assignment of older, than the $100 million threshold. additional costs are incurred. In the
defaulted Perkins loans at the request of Preferred Lender and Prohibited deferment-granting process, a lender
the Secretary. Inducements: The proposed regulations must still make a determination, but
• Program integrity issues associated include a number of provisions affecting responsibility may be shifted among
with prohibited incentive payments and the use of preferred lender lists and individual lenders. In cases in which a
other inducements by lenders and lender inducements. The use of loan is transferred to a different lender
guaranty agencies. The Department has preferred lender lists by schools is in the middle of a deferment period, the
proposed changes that explicitly completely optional; while the new loan holder will not need to make
identify prohibited inducements and Department encourages maximum a separate initial determination of
allowable activities. disclosure of loan information to eligibility. Similarly, under the

• Abuse associated with the use of borrowers, a school can avoid the proposed regulations, a single
lists of preferred or recommended minimal costs associated with the individual will still submit an
lenders. The Department has proposed disclosures required by the proposed application for military service
changes that ensure such lists are a regulations by simply opting not to have deferment; the proposal merely allows
source of useful, unbiased consumer a preferred lender list. Accordingly, individuals dispatched on active duty to
information that can assist students and there are no mandated costs for these designate a representative to submit
their parents in choosing a FFEL lender. proposals. their application.
Changes to Loan Discharge than $400 million in uncollected loans approximately 10 years as borrowers
Provisions: The proposed regulations that have been in default for 5 years or repay their loans. This level of
streamline and simplify the process for more. Since Perkins Loans are made collection is unlikely as these borrowers
applying for death and disability loan with a combination of Federal and have been out of repayment for many
discharges and ensures regulations are institutional funds, these uncollected years. This amount was reduced by $3
internally consistent and in compliance loans present an unreasonable risk of million to reflect the Department’s
with other statutes, including the Fair loss to the United States. standard collections costs. Accordingly,
Credit Reporting Act. Under current The Department believes its use of the Department estimates the proposed
regulations, applicants must submit an collection tools such as Federal offset regulation will increase net collections
original or certified copy of the death will substantially improve the recovery and reduce Federal costs by $15 million.
certificate in order to receive a loan rate on these older loans, as Perkins
institutions lack access to these tools. Costs
discharge; the proposed regulation
would allow the use of an accurate and Accordingly, the Department has long Because entities affected by these
complete photocopy of the original or encouraged voluntary assignment of regulations already participate in the
certified copy of the death certificate. these longstanding non-performing Title IV, HEA programs, these lenders,
The workload to the applicant is defaulted loans. Despite this guaranty agencies, and schools must
unchanged and no additional costs are encouragement, and notwithstanding already have systems and procedures in
incurred. The proposed regulations for substantial simplification of the place to meet program eligibility
the total and permanent disability voluntary assignment process, the requirements. These regulations
discharges also standardize definitions number and outstanding balance of generally would require discrete
and dates for the conditional discharge older, defaulted Perkins Loans have changes in specific parameters
period and require additional disclosure continued to increase. associated with existing guidance—such
of information to borrowers. The Perkins Loans are made from a capital as the provision of entrance counseling,
proposed regulations require lenders to fund held by schools, which generally the retention of records, or the
notify borrowers that additional includes 75 percent Federal funds and submission of data to NSLDS—rather
payments are not required after the date 25 percent institutional matching funds. than wholly new requirements.
a discharge application has been As discussed below, the proposed Accordingly, entities wishing to
submitted. As a lender must already regulations, once implemented, could continue to participate in the student
submit the application to the Secretary, increase collections on defaulted loans aid programs have already absorbed
the cost of electronically notifying the by $15 million over the next 10 years. most of the administrative costs related
borrower of the repayment requirement Under the assignment process, 100 to implementing these proposed
is negligible. Note: The proposed percent of these collections become regulations. Marginal costs over this
regulations do not change the Federal revenue. In the absence of the baseline are primarily related to one-
borrower’s repayment responsibility and regulations, given the age of the loans time system changes that, while
do not affect the cash flows of the loan and the inability of the schools to possibly significant in some cases, are
program. collect, the Department assumes there an unavoidable cost of continued
Reasonable Collection Costs on would be no Federal or institutional program participation. In assessing the
Defaulted Perkins Loans: The HEA and revenue. The proposed regulations potential impact of these proposed
implementing regulations specify and therefore would have minimal economic regulations, the Department recognizes
limit the level of collection costs on impact on schools. The impact on that certain provisions—primarily the
defaulted loans payable by a borrower borrowers is that the increased use of mandatory assignment of Perkins Loans
in the FFEL and Direct Loan programs; Federal tools will require borrowers to and the addition of entrance counseling
similar restrictions do not exist for the fulfill their obligation to repay their for graduate and professional PLUS
Perkins Loan Program. There have been loans. Loan borrowers—will result in
several reports that some schools assess To estimate the impact of this additional workload for staff at some
excessive collection costs to defaulted proposed change, the Department used institutions of higher education. (This
borrowers. The Department does not a statistically representative sample additional workload is discussed in
have data to support or deny this from records in NSLDS to identify more detail under the Paperwork
assertion and is interested in any outstanding Perkins Loans that have Reduction Act of 1995 section of this
comments or data on this issue. In the been in default for at least 7 years and preamble.) Additional workload would
absence of data, the Department for which the outstanding balance has normally be expected to result in
assumes there is no measurable not decreased in at least 12 months. The estimated costs associated with either
difference between the collection cost Department identified $23 million in the hiring of additional employees or
rate charged borrowers in the overall outstanding Perkins Loans that meet opportunity costs related to the
Perkins Loans program and that of the these criteria and so would be subject to reassignment of existing staff from other
other Federal student loan programs. mandatory assignment. This portfolio activities. In this case, however, these
Given this assumption, the regulations increases approximately $1 million costs are not incurred because other
are estimated to have no measurable annually under current regulations. provisions in the proposed
economic impact. Historically, using the credit reform regulations—primarily changes
Mandatory Assignment of Certain discounting method in which future involving the maximum length of loan
Defaulted Perkins Loans: As discussed collections are discounted to reflect a period—result in offsetting workload
elsewhere in this preamble, the current year cost, the Department reductions that greatly outweigh the
proposed regulations would require collects approximately 80 percent of estimated additional burden. The
institutions to assign to the Department outstanding principal on loans held in- Department estimates annual net burden
any Perkins Loans that have been in house. If the $23 million of assignable for institutions of higher education
default for 7 or more years and have not Perkins Loans produced the same related to the Title IV student loan
had any collection activity for at least 12 collection level, government revenues programs will decrease by 180,000
months. Department data indicate that would increase, on a discounted basis, hours as a result of the proposed
Perkins Loan institutions hold more by $18 million over the next regulations. While regulations related to
mandatory assignment result in a net Department is particularly interested in making the proposed regulations easier
increase in burden under the Perkins comments in this area. to understand? If so, how?
Loan Program, schools participating in Elsewhere in this SUPPLEMENTARY • What else could we do to make the
the Perkins Loan Program also typically INFORMATION section we identify and proposed regulations easier to
participate in either the FFEL or Direct explain burdens specifically associated understand?
Loan Program, both of which have net with information collection
requirements. See the heading To send any comments that concern
burden reductions that outweigh the
Paperwork Reduction Act of 1995. how the Department could make these
increase under the Perkins Loan
proposed regulations easier to
Program. In addition, the estimated Accounting Statement understand, see the instructions in the
annual burden for Perkins Loan Program
As required by OMB Circular A–4 ADDRESSES section of this preamble.
participants will drop dramatically after
the first year, during which institutions (available at http:// Regulatory Flexibility Act Certification
will need to assign all outstanding loans www.Whitehouse.gov/omb/Circulars/
that currently meet the requirements for a004/a-4.pdf), in Table 1 below, we The Secretary certifies that these
mandatory assignment. In subsequent have prepared an accounting statement proposed regulations would not have a
years, the number of loans assigned will showing the classification of the significant economic impact on a
be limited to those that newly meet the expenditures associated with the substantial number of small entities.
requirements. provisions of these proposed These proposed regulations would affect
regulations. This table provides our best institutions of higher education,
The Department is particularly
estimate of the changes in Federal lenders, and guaranty agencies that
interested in comments on possible
student aid payments as a result of these participate in Title IV, HEA programs
administrative burdens related to the
proposed regulations. Savings are and individual students and loan
proposed regulations. In a number of
classified as transfers from program borrowers. The U.S. Small Business
areas, such as certification of electronic
participants (borrowers in default). Administration Size Standards define
signatures, preferred lenders, and
these institutions as ‘‘small entities’’ if
prohibited inducements, non-Federal
negotiators raised concerns about TABLE 1.—ACCOUNTING STATEMENT: they are for-profit or nonprofit
possible administrative burden CLASSIFICATION OF ESTIMATED SAV- institutions with total annual revenue
INGS below $5,000,000 or if they are
associated with provisions included in
institutions controlled by governmental
these proposed regulations. Given the [In millions]
entities with populations below 50,000.
limited data available, however, the
Guaranty agencies are State and private
Department is particularly interested in Category Transfers
nonprofit entities that act as agents of
comments and supporting information
Annualized Monetized $15. the Federal government, and as such are
related to possible burden stemming
Transfers. not considered ‘‘small entities’’ under
from the proposed regulations.
From Whom To Defaulted Perkins the Regulatory Flexibility Act.
Estimates included in this notice will be Whom? Loan Borrowers to Individuals are also not defined as
reevaluated based on any information Federal Govern- ‘‘small entities’’ under the Regulatory
received during the public comment ment. Flexibility Act.
period.
A significant percentage of the lenders
Assumptions, Limitations, and Data Clarity of the Regulations
and schools participating in the Federal
Sources Executive Order 12866 and the student loan programs meet the
Presidential memorandum ‘‘Plain definition of ‘‘small entities.’’ While
Estimates provided above reflect a
Language in Government Writing’’ these lenders and schools fall within the
baseline in which the proposed changes
require each agency to write regulations SBA size guidelines, the proposed
implemented in these regulations do not
that are easy to understand. regulations do not impose significant
exist. In general, these estimates should
The Secretary invites comments on new costs on these entities.
be considered preliminary; they will be
how to make these proposed regulations
reevaluated in light of any comments or The Secretary invites comments from
easier to understand, including answers
information received by the Department small institutions and lenders as to
to questions such as the following:
prior to the publication of the final • Are the requirements in the whether they believe the proposed
regulations. The final regulations will proposed regulations clearly stated? changes would have a significant
incorporate this information in a more • Do the proposed regulations contain economic impact on them and, if so,
robust analysis. technical terms or other wording that requests evidence to support that belief.
In developing these estimates, a wide interferes with their clarity? Paperwork Reduction Act of 1995
range of data sources were used, • Does the format of the proposed
including NSLDS data, operational and regulations (grouping and order of Proposed §§ 674.8, 674.16, 674.19,
financial data from Department of sections, use of headings, paragraphing, 674.38, 674.45, 674.50, 674.61, 682.200,
Education systems, and data from a etc.) aid or reduce their clarity? 682.208, 682.210, 682.211, 682.401,
range of surveys conducted by the • Would the proposed regulations be 682.402, 682.406, 682.409, 682.411,
National Center for Education Statistics easier to understand if we divided them 682.414, 682.602, 682.603, 682.604,
such as the 2004 National into more (but shorter) sections? (A 682.610, 685.204, 685.212, 685.213,
Postsecondary Student Aid Survey, the ‘‘section’’ is preceded by the symbol 685.215, 685.301, 685.304 contain
1994 National Education Longitudinal ‘‘§ ’’ and a numbered heading; for information collection requirements.
Study, and the 1996 Beginning example, § 682.209 Repayment of a Under the Paperwork Reduction Act of
Postsecondary Student Survey. Data on loan.) 1995 (44 U.S.C. 3507(d)), the
administrative burden at participating • Could the description of the Department of Education has submitted
schools, lenders, guaranty agencies, and proposed regulations in the a copy of these sections to the Office of
third-party servicers are extremely SUPPLEMENTARY INFORMATION section of Management and Budget (OMB) for its
limited; accordingly, as noted above, the this preamble be more helpful in review.
Collection of Information: Perkins and reviewing documentation that regulations implementing these
Loan Program, FFEL Program, and supports a loan discharge based on the provisions will be effective July 1, 2008.
Direct Loan Program. death of the borrower. We estimate that A revised Total and Permanent
the proposed changes will decrease Disability Discharge Form associated
Sections 674.38, 682.210, and 685.204—
burden for borrowers’ survivors and with OMB Control Number 1845–0065
Deferment
loan holders (and their servicers) by will be submitted for OMB review by
The proposed regulations in §§ 674.38 3,410 hours and 2,273 hours, January 31, 2008 thereby ensuring that
and 682.210 would allow FFEL lenders respectively. Thus, we estimate a total a newly-approved form will be available
and schools that participate in the burden reduction of 5,683 hours. The for a borrower’s use by the time final
Perkins Loan Program to grant graduate proposed changes will be reflected in regulations are effective.
fellowship deferments, rehabilitation OMB Control Numbers 1845–0019,
training program deferments, Sections 674.16, 682.208, 682.401 and
1845–0020 and 1845–0021.
unemployment deferments, economic 682.414—NSLDS Reporting
hardship deferments and military Sections 674.61, 682.402, and 685.213— Requirements
service deferments based on information Total and Permanent Disability The proposed changes to §§ 674.16,
from another FFEL loan holder or from Discharge 682.208, 682.401 and 682.414 require
the Department. The proposed The proposed regulations restructure schools, lenders, and guaranty agencies
regulations in § 685.204 would permit §§ 674.61, 682.402 and 685.213 to to report enrollment and loan status
the Department to grant a deferment on clarify the regulatory requirements for information, or any other data required
a Direct Loan based on information from the total and permanent disability by the Secretary, to NSLDS by a
a FFEL loan holder. Finally, the discharge process. The proposed deadline established by the Secretary.
proposed regulations would allow a changes require a borrower to complete Requiring these entities to report
representative of the borrower to apply a prospective conditional discharge information to NSLDS on a deadline
for a military deferment on a Perkins, period of three years from the date that established by the Secretary codifies
FFEL or Direct Loan on behalf of the the Secretary makes an initial existing Departmental practice and we
borrower. The proposed regulations determination that a borrower is totally believe that it will not result in an
would affect borrowers seeking a and permanently disabled in order to increase or decrease in burden; however
deferment and loan holders and qualify for the total and permanent we invite comments on this issue.
servicers. This proposed change disability discharge on his or her The proposed changes in § 682.401
represents a decrease in burden because Perkins, FFEL or Direct Loan. Lastly, the that require a guaranty agency to report
borrowers with more than one loan proposed changes explicitly state that, a borrower’s enrollment status to the
would no longer be required to gather in order to qualify for a discharge, the current holder of a loan within 30 days,
and supply documentation to each loan borrower must meet the definition of instead of the existing 60-day
holder in order to establish eligibility total and permanent disability under the timeframe, do not represent an increase
for a deferment. Conversely, loan Perkins Loan or Direct Loan regulations in burden. Under current practice, 33 of
holders would be able to rely on the or the definition of totally and the 35 existing guaranty agencies
determination of eligibility by another permanently disabled under the FFEL participate in a free service provided by
holder based on that holder’s receipt regulations and receive no further Title the National Student Clearinghouse
and review of required documentation IV loans from the date the physician Total Enrollment Reporting Process
from the borrower. We estimate that the certifies the borrower’s total and (TERP). TERP already provides
proposed changes will decrease burden permanent disability on the discharge enrollment information to lenders and
for borrowers and loan holders (and application. The proposed regulatory lender servicers on behalf of the
their servicers) by 9,383 hours and 1,042 changes would affect Title IV borrowers guaranty agency within a 30-day period.
hours, respectively. Thus, we estimate a seeking a total and permanent disability The remaining two guaranty agencies
total burden reduction of 10,425 hours loan discharge, loan holders (and their are expected to enroll with TERP by the
in OMB Control Numbers 1845–0019, servicers), and guaranty agencies. end of the year.
1845–0020, and 1845–0021. The proposed changes would not
constitute an increase in burden for Sections 674.19, 674.50, and 682.414—
The proposed change allowing a
borrowers because the application Certification of Electronic Signature on
borrower’s representative to apply for a
process and the eligibility requirements Title IV Loan Program Master
military deferment on behalf of the
have not changed. The proposed Promissory Notes (MPNs) Assigned to
borrower does not represent a change in
changes would also not constitute an the Department
burden. The deferment application and
eligibility determination process would increase in burden for loan holders and The proposed changes to §§ 674.19,
remain the same. guaranty agencies because these entities 674.50 and 682.414 support the
are not responsible for monitoring the Department’s efforts to enforce
Sections 674.61, 682.402 and 685.212— borrower’s status during the prospective defaulted Perkins Loan or FFEL MPNs
Loan Discharge for Death conditional discharge period or for that are assigned to the Department by
The proposed regulations would making a final determination of the requiring that schools, lenders and
allow the use of an accurate and borrower’s eligibility for discharge. guarantors create, maintain, and provide
complete copy of the original or Changes to the Permanent and Total to the Secretary, upon request, an
certified copy of the death certificate, in Disability Loan Discharge Application affidavit or certification regarding the
addition to the original or a certified Form would need to be made, however, creation and maintenance of electronic
copy, to support the discharge of a to state that the conditional discharge MPNs or promissory notes, including
borrower’s or parent borrower’s Title IV period would be prospective from the the authentication and signature
loan. This proposed change represents a date of the physician’s certification of process. The proposed changes in
decrease in burden for the survivor of the borrower’s disability on the form. §§ 674.19 and 682.414 would also
the borrower and the loan holder (or its The Total and Permanent Disability require schools and the holder of the
servicer) because each party will now Discharge Application currently in use original electronically signed FFEL
have increased flexibility in gathering will expire on May 5, 2008. Final MPN to retain an original of an
electronically signed MPN, and records for three years after the loan is proposing changes in §§ 682.300 and
associated loan records, for three years satisfied is new. The requirement that 682.302 to specify that the payment of
after all the loans made on the MPN are an institution submit disbursement interest and special allowance on
satisfied. The proposed changes in records, upon request, as part of the eligible FFEL Program Loans must cease
§§ 674.50 and 682.414 would also assignment process, is also new. We on the date the lender determines the
require schools, lenders and guarantors estimate that the proposed changes will loan is legally unenforceable based on
to provide any record, affidavit or increase burden by a total of 22 hours the receipt of an identity theft report.
certification requested by the Secretary annually. The increase in burden as a Lastly, we are proposing changes in
to resolve any factual dispute involving result of the proposed changes will be § 682.411 to permit a lender to take
an electronically signed promissory note reflected in OMB Control Number 1845– steps in accordance with the Fair Credit
assigned to the Department, including 0019. Reporting Act when the lender receives
testimony, if appropriate, to ensure The proposed changes in § 682.409 notice of an alleged identity theft. The
admission of electronic loan records in would require a guaranty agency to proposed changes affect borrowers,
litigation or legal proceedings to enforce submit a record of the lender’s lenders and guarantors.
a loan. The proposed changes would disbursement of Stafford and PLUS loan The proposed changes are burden
affect schools that participate in the funds to the school for delivery to the neutral. The Department’s Inspector
Perkins Loan Program and FFEL lenders borrower for each loan assigned to the General has confirmed that very few
and guarantors. Department. (FFEL lenders are already Title IV student loans are falsely
The proposed changes represent an required to retain disbursement records certified as the result of the crime of
increase in burden for schools and FFEL under § 682.414(a)(4)(ii)). The proposed identity theft. The burden associated
lenders and guarantors by requiring the changes in § 682.409 would also require with the suspension of credit bureau
development of certifications regarding a guaranty agency to provide to the reporting and the application of a 120-
the creation and maintenance of the Secretary the name and location of the day administrative forbearance by the
records associated with electronically entity in possession of originals of lender while investigating an alleged
signed MPNs. The proposed changes electronically signed MPNs that have identity theft would be negligible given
represent a further increase in burden been assigned to the Department. In that so few loans are affected and the
by requiring that schools and lenders reviewing the proposed changes to time-period under which these
retain an original electronically signed § 682.409, we reexamined the existing requirements are waived is so short.
MPN or promissory note for three years burden reflected in OMB Control
Sections 682.603, 682.604, 685.301, and
after all the loans on the MPN are Number 1845–0020 and noted that no
685.304—Entrance Counseling for
satisfied, even after the loans are burden is currently associated with the
Graduate/Professional PLUS Borrowers
assigned to the Department. We estimate FFEL mandatory assignment process.
that the proposed changes will increase The Department has determined that the The proposed changes to §§ 682.603
burden for schools, FFEL lenders, and FFEL mandatory assignment process and 685.301 would require institutions,
guarantors by 2 hours, 322 hours, and required under § 682.409 represents as part of the process for certifying a
36 hours, respectively, based on the 2,380 burden hours for each guaranty FFEL Loan or originating a Direct Loan,
total number of Perkins and FFEL loans agency for a total annual burden of to notify Graduate/Professional PLUS
referred for litigation for the 2006–2007 83,333 hours, which will be reflected in Loan student borrowers who are eligible
period. Thus we estimate the total OMB Control Number 1845–0020. The for Stafford Loans of their eligibility for
annual burden increase to be 360 hours. proposed changes, which codify a Stafford Loan and of the terms and
The increase as a result in the proposed existing assignment procedures, are conditions of a Stafford Loan that are
changes will be reflected in OMB included in these burden hour more beneficial to a borrower than the
Control Numbers 1845–0019 and 1845– calculations. terms and conditions of a PLUS loan,
0020. and to give borrowers an opportunity to
Sections 682.208, 682.211, 682.300, request a Stafford Loan at that time. The
Sections 674.19, 674.50, and 682.409— 682.302, 682.402, 682.411, and proposed changes in §§ 682.604 and
Retention of Disbursement Records 685.215—Identity Theft 685.304 would also establish a separate
Supporting MPNs Interim final regulations published in entrance counseling requirement for
The proposed changes to §§ 674.19 August 2006 and final regulations Graduate/Professional PLUS student
and 674.50 would require institutions published in November 2006 provided borrowers. We estimate that the
that participate in the Perkins Loan for a discharge of a FFEL or Direct Loan proposed changes will increase burden
program to retain disbursement records Program loan if the borrower’s eligibility on an annual basis by an additional
for each loan made to a borrower on a to borrow was falsely certified because 79,992 hours for individual borrowers
MPN until all the loans on the MPN are the borrower was a victim of the crime and by 2,719 hours for institutions of
satisfied. The proposed changes in of identity theft. We have decided higher education, which will be
§ 674.50 would also require an against making changes to the reflected in OMB Control Number 1845–
institution to submit disbursement regulations as published but are 0020.
records, upon request, for each loan proposing regulations to provide lenders
made to a borrower on a MPN that has with relief from certain due diligence Sections 682.401, 682.603, and
been assigned to the Department should requirements on a loan when identity 685.301—Maximum Length of a Loan
the Department need the records to theft is alleged. Period
enforce the loan. The proposed changes We are proposing changes in The proposed changes in §§ 682.401,
represent an increase in burden for § 682.208 and § 682.211 to allow lenders 682.603, and 685.301 would eliminate
schools that participate in the Perkins to temporarily suspend credit bureau the maximum 12-month loan period for
Loan Program. Although Perkins Loan reporting and to grant a 120-day annual loan limits in the FFEL and
institutions are currently required to administrative forbearance, respectively, Direct Loan Programs and the 12-month
retain disbursement records for three on a loan certified as a result of alleged period of loan guarantee in the FFEL
years under 34 CFR § 668.24, the identity theft while the lender program to allow institutions to certify
requirement to retain the disbursement investigates the situation. We are a single loan for students in shorter non-
term or nonstandard term programs. The servicers) annually by a total of 95,393 reflected under a new OMB Control
proposed changes would also provide hours. The increased burden associated Number upon publication of the NPRM.
greater flexibility in scheduling with these proposed changes will be To assist schools with this effort, the
disbursements for students who drop reflected in OMB Control Number 1845– Department is developing a model
out and return within the permitted 0019. format that a school may use to present
180-day period. The proposed changes this information. The Department will
Sections 682.200 and 682.602—Eligible be sharing a draft of the model format
affect schools and lenders.
The proposed changes represent a Lender Trustee with representatives of school, lending
decrease in burden because schools and The proposed changes implement the and guaranty agency communities as
lenders will be able to certify and HEA Extension Act by amending the well as students and parents to solicit
disburse one loan, as opposed to two definition of lender to prohibit a FFEL their thoughts and suggestions. The
loans, when programs are longer than 12 lender from entering into an eligible draft model format will then be revised
months. We estimate a decrease of lender trustee (ELT) relationship with a and submitted for clearance to OMB as
burden on schools and lenders by school or a school-affiliated required by the Paperwork Reduction
358,375 hours for each group for an organization as of September 30, 2006, Act of 1995. This clearance process will
annual total reduction of 716,750 hours. but allowing current relationships to afford additional opportunities for
As a result of these proposed changes, continue. The proposed changes also public comment on the draft model
the decrease in burden will be reflected add a new definition of school-affiliated format. The Department is not
in OMB Control Numbers 1845–0020 organization, and add a new § 682.602 requesting comments on this form at
and 1845–0021. to apply most of the same restrictions this point, but will publish a separate
that are imposed on FFEL school notice in the Federal Register, with a
Sections 674.45—Reasonable Collection lenders by the HERA to school and 60-day request for public comment, to
Costs in the Perkins Loan Program school-affiliated ELT arrangements as of do so and will submit the form for OMB
The proposed changes in § 674.45 January 1, 2007. The entities affected by approval when these proposed
would limit the collection costs an these proposed changes are lenders, regulations are published in final form.
institution may assess against a Perkins ELTs, schools and school-affiliated The proposed changes in § 682.603
Loan borrower to 30 percent of the total organizations. provide that a school must certify
of the outstanding principal, interest, The proposed changes impose limits Stafford and PLUS loans expeditiously
and late charges on the loan collected and prohibit certain arrangements regardless of the lender chosen by the
for first collection efforts, 40 percent for between schools and school-affiliated borrower, that a school cannot assign a
second and subsequent collection organizations and eligible lender lender to a first-time borrower, and that
efforts, and 40 percent plus court costs trustees. The affected entities under the a school may not engage in practices
for collection efforts resulting from proposed regulations are schools and that deny a borrower access to FFEL
litigation. The changes affect school-affiliated organizations. We loans based on the borrower’s selection
institutions that participate in the estimate that burden will increase by of a lender or guaranty agency. These
Perkins Loan Program and collection 57,000 hours and 86,000 hours for proposed changes do not change the
agencies. schools and school-affiliated certification process or the data
The changes do not represent a organizations, respectively, and we will collection requirements associated with
change in burden. Collection practices include this burden in OMB control the certification process.
and procedures would not change; only number 1845–0020.
Sections 682.200, 682.209, 682.401, and
the amount assessed against a defaulted Sections 682.212 and 682.603— 682.406—Prohibited Inducements
borrower would change. Therefore, Preferred Lender
there is no additional burden associated The proposed changes to §§ 682.200
with this provision. The proposed regulations in § 682.212 and 682.401 provide lists of prohibited
would require that any school’s list of activities in which lenders and guaranty
Sections 674.8 and 674.50—Mandatory recommended lenders contain at least agencies may not engage to secure loan
Assignment of Defaulted Perkins Loans three unaffiliated lenders to provide applications or loan volume in the FFEL
The proposed changes to §§ 674.8 and borrower choice. The Department Program. The proposed regulations
674.50 would provide the Department expects a school to collect and retain a would also include lists of permissible
with the authority to require assignment statement certifying to this fact, upon activities in which lenders and guaranty
of a Perkins Loan if the outstanding which the school can rely, from each of agencies may engage as part of their
principal balance on the loan is $100 or the lenders they propose to include on roles as administrators of the FFEL
more, the loan has been in default for their list. The proposed regulations also program. The entities affected by these
seven or more years, and a payment has require the disclosure of supporting changes are lenders and guaranty
not been received on the loan in the past information and data with the list as the agencies. The inclusion of a detailed list
12 months. Institutions that participate most efficient and effective method to of prohibited and permissible activities
in the Perkins Loan Program (and their ensure that borrowers make informed in §§ 682.200 and 682.401 largely
servicers) would be affected by these consumer decisions. The provision of codifies long-standing Department
changes. comparative interest rate and benefit guidance and does not represent an
The proposed change allowing the information, in addition to describing increase in burden.
Department to require the assignment of the method and criteria used to select The proposed changes in § 682.209
certain defaulted Perkins Loans lenders for the list, will involve would allow a borrower to assert any
represents an increase in burden additional efforts for schools in defense available under applicable State
because institutions would be required preparing and providing a preferred law against repayment of the loan if the
to prepare and submit for assignment to lender list. We estimate that burden will lender making the loan offered or
the Department loans that might not increase by 141,625 hours for provided an improper inducement to
otherwise have been assigned. We institutions of higher education. The the borrower’s school. The entities
estimate that the proposed changes will increased burden associated with the affected by the proposed changes are
increase burden on schools (and their proposed changes in § 682.212 will be borrowers, institutions, lenders, and
guaranty agencies. The proposed change The proposed changes in § 682.406 claim filing process would remain
does not represent a change in burden. provide that a guaranty agency may not unchanged.
This borrower defense against make a claim payment on a loan if the Consistent with the discussion above,
repayment is currently available to lender offered or provided an improper the following chart describes the
borrowers of FFEL Loans who attend a inducement to the school, a borrower, or sections of the proposed regulations
proprietary school. The proposed any other individual or entity. The involving information collections, the
change extending this entitlement to entities affected by the proposed
FFEL Loan borrowers who attend other information being collected, and the
changes are lenders and guaranty collections the Department will submit
types of schools is a codification of the agencies. The proposed change does not
rights extended to such borrowers under to the Office of Management and Budget
represent a change in burden. The forms for approval and public comment under
State laws. Therefore, there is no burden
and procedures associated with the the Paperwork Reduction Act.
associated with this change.
Regulatory section Information collection Collection
§§ 674.38, 682.210 and This proposed regulation allows a loan holder to grant OMB 1845–0019, 1845–0020 and 1845–0021.
685.204. deferments based upon information from another
holder, rather than requiring the borrower to resubmit
deferment documentation to each holder separately.
§§ 674.61, 682.402 and Allows for the use of an accurate and complete copy of OMB 1845–0019, 1845–0020 and 1845–0021.
685.212. the original or certified copy of a borrower’s original
or certified copy of the death certificate to support the
discharge of a Title IV loan.
§§ 674.61, 682.402 and A revised Total and Permanent Disability Discharge OMB 1845–0065.
685.213. Form will be submitted to OMB for review by January
31, 2008 for review and approval prior to the effec-
tive date of July 1, 2008.
§§ 674.19, 674.50, and Requires that schools, lenders and guarantors create, OMB 1845–0019 and 1845–0020.
682.414. maintain, and provide an affidavit or certification,
upon request, regarding the creation and mainte-
nance of electronic MPNs or promissory notes, in-
cluding the authentication and signature process.
§§ 674.19 and 674.50 .......... Requires Perkins loan participating schools to retain OMB 1845–0019.
MPNs until all the loans on the MPN are satisfied.
§§ 682.603, 682.604, Requires Entrance Counseling for all Grad PLUS loans OMB 1845–0020 and 1845–0021
685.301 and 685.304.
§§ 682.401, 682.603 and Eliminates the maximum loan timeframe of 12 months. OMB 1845–0020 and 1845–0021.
685.301.
§§ 674.8 and 674.50 ............ Requires the mandatory assignment of Perkins loans OMB 1845–0019.
when the outstanding principal balance on the loan is
$100 or more, the loan has been in default 7 or more
years, and a payment has not been received in the
past 12 months.
§§ 682.200 and 682.602 ...... Imposes the same rules for FFEL school lenders by OMB 1845–0020.
HERA to school and school-affiliated organization ar-
rangements.
682.212 ................................ Requires institutions that use a preferred lenders list to OMB 1845–XXXX This will be a new collection. A sep-
provide information on the method and criteria used arate 60-day Federal Register notice will be pub-
to select the lenders on the list. lished to solicit comment on this form once it is de-
veloped.
If you want to comment on the whether the information will have proposed regulations between 30 and 60
proposed information collection practical use; days after publication of this document
requirements, please send your • Evaluating the accuracy of our in the Federal Register. Therefore, to
comments to the Office of Information estimate of the burden of the proposed ensure that OMB gives your comments
and Regulatory Affairs, OMB, Attention: collections, including the validity of our full consideration, it is important that
Desk Officer for the U.S. Department of methodology and assumptions; OMB receives the comments within 30
Education. Send these comments by e- • Enhancing the quality, usefulness, days of publication. This does not affect
mail to OIRA_DOCKET@omb.eop.gov or and clarity of the information we the deadline for your comments to us on
by fax to (202) 395–6974. Commenters collect; and the proposed regulations.
need only submit comments via one • Minimizing the burden on those
who must respond. This includes Intergovernmental Review
submission medium. You may also send
a copy of these comments to the exploring the use of appropriate These programs are not subject to
Department contact named in the automated, electronic, mechanical, or Executive Order 12372 and the
ADDRESSES section of this preamble. other technological collection regulations in 34 CFR part 79.
techniques or other forms of information
We consider your comments on these technology; e.g., permitting electronic Assessment of Educational Impact
proposed collections of information in— submission of responses. The Secretary particularly requests
• Deciding whether the proposed OMB is required to make a decision comments on whether these proposed
collections are necessary for the proper concerning the collections of regulations would require transmission
performance of our functions, including information contained in these of information that any other agency or
authority of the United States gathers or (3) The institution shall, at the request using an MPN for at least three years
makes available. of the Secretary, assign its rights to a from the date the loan is canceled,
loan to the United States without repaid, or otherwise satisfied.
Electronic Access to This Document
recompense if— (ii) An institution shall retain
You may view this document, as well (i) The amount of outstanding repayment records, including
as all other Department of Education principal is $100.00 or more; cancellation and deferment requests for
documents published in the Federal (ii) The loan has been in default, as at least three years from the date on
Register, in text or Adobe Portable defined in § 674.5(c)(1), for seven or which a loan is assigned to the
Document Format (PDF) on the Internet more years; and Secretary, canceled or repaid.
at the following site: (iii) A payment has not been received (4) * * *
http://www.ed.gov/news/fedregister. on the loan in the preceding twelve (ii) If a promissory note was signed
To use PDF you must have Adobe months, unless payments were not due electronically, the institution must store
Acrobat Reader, which is available free because the loan was in a period of it electronically and the promissory note
at this site. If you have questions about authorized forbearance or deferment. must be retrievable in a coherent format.
using PDF, call the U.S. Government * * * * * An original electronically signed MPN
Printing Office (GPO), toll free, at 1– 3. Section 674.16 is amended by must be retained by the institution for
888–293–6498; or in the Washington, adding new paragraph (j) to read as 3 years after all the loans made on the
DC, area at (202) 512–1530. follows: MPN are satisfied.
You may also view this document in * * * * *
PDF format at the following site: http:// § 674.16 Making and disbursing loans.
5. Section 674.38 is amended by:
www.ifap.ed.gov. * * * * * A. In paragraph (a)(1), removing the
Note: The official version of this document (j) The institution must report words ‘‘(a)(2)’’ and adding, in their
is the document published in the Federal enrollment and loan status information, place, the words ‘‘(a)(5)’’.
Register. Free Internet access to the official or any Title IV loan-related information B. Redesignating paragraphs (a)(2) and
edition of the Federal Register and the Code required by the Secretary, to the (a)(3) as paragraphs (a)(5) and (a)(7),
of Federal Regulations is available on GPO Secretary by the deadline date
Access at: http://www.gpoaccess.gov/nara/ respectively.
established by the Secretary. C. Adding new paragraphs (a)(2),
index.html.
* * * * * (a)(3), (a)(4), and (a)(6).
(Catalog of Federal Domestic Assistance 4. Section 674.19 is amended by: The additions read as follows:
Number: 84.032 Federal Family Education A. Redesignating paragraphs (e)(2)(i)
Loan Program; 84.037 Federal Perkins Loan and (ii) as paragraphs (e)(2)(iii) and (iv). § 674.38 Deferment procedures.
Program; and 84.268 William D. Ford Federal B. Adding new paragraphs (e)(2)(i) (a) * * *
Direct Loan Program) and (ii). (2) After receiving a borrower’s
List of Subjects in 34 CFR Parts 674, C. Revising paragraph (e)(3). written or verbal request, an institution
682 and 685 D. In paragraph (e)(4)(i), removing the may grant a deferment under
words ‘‘Master Promissory Note (MPN)’’ §§ 674.34(b)(1)(ii), 674.34(b)(1)(iii),
Administrative practice and and adding, in their place, the word 674.34(b)(1)(iv), 674.34(d), 674.34(e),
procedure, Colleges and universities, ‘‘MPN’’. and 674.34(h) if the institution is able to
Education, Loan programs—education, E. Revising paragraph (e)(4)(ii). confirm that the borrower has received
Reporting and recordkeeping The addition and revisions read as a deferment on another Perkins Loan, a
requirements, Student aid, Vocational follows: FFEL Loan, or a Direct Loan for the
education. same reason and the same time period.
Dated: May 31, 2007. § 674.19 Fiscal procedures and records. The institution may grant the deferment
Margaret Spellings, * * * * * based on information from the other
Secretary of Education. (e) * * * Perkins Loan holder, the FFEL Loan
For the reasons discussed in the (2) * * * holder or the Secretary or from an
preamble, the Secretary proposes to (i) An institution shall retain a record authoritative electronic database
amend parts 674, 682, and 685 of title of disbursements for each loan made to maintained or authorized by the
34 of the Code of Federal Regulations as a borrower on a Master Promissory Note Secretary that supports eligibility for the
follows: (MPN). This record must show the date deferment for the same reason and the
and amount of each disbursement. same time period.
PART 674—FEDERAL PERKINS LOAN (ii) For any loan signed electronically, (3) An institution may rely in good
PROGRAM an institution must maintain an affidavit faith on the information it receives
or certification regarding the creation under paragraph (a)(2) of this section
1. The authority citation for part 674 and maintenance of the institution’s when determining a borrower’s
continues to read as follows: electronic MPN or promissory note, eligibility for a deferment unless the
Authority: 20 U.S.C. 1087aa–1087hh and including the institution’s institution, as of the date of the
20 U.S.C. 421–429, unless otherwise noted. authentication and signature process in determination, has information
2. Section 674.8 is amended by: accordance with the requirements of indicating that the borrower does not
A. In paragraph (d)(1), removing the § 674.50(c)(12). qualify for the deferment. An institution
words ‘‘; or’’ and adding in their place * * * * * must resolve any discrepant information
the punctuation ‘‘.’’. (3) Period of retention of before granting a deferment under
B. Adding a new paragraph (d)(3). disbursement records, electronic paragraph (a)(2) of this section.
The addition reads as follows: authentication and signature records, (4) An institution that grants a
and repayment records. (i) An deferment under paragraph (a)(2) of this
§ 674.8 Program participation agreement. institution shall retain disbursement section must notify the borrower that
* * * * * and electronic authentication and the deferment has been granted and that
(d) * * * signature records for each loan made the borrower has the option to cancel
the deferment and continue to make the Secretary in all activities necessary 8. Section 674.56 is amended by
payments on the loan. to enforce the loan or loans. Such revising paragraph (b)(1) to read as
* * * * * institution must provide— follows:
(6) In the case of a military service (A) An affidavit or certification
regarding the creation and maintenance § 674.56 Employment cancellation—
deferment under §§ 674.34(h) and Federal Perkins loan, NDSL, and Defense
674.35(c)(1), a borrower’s representative of the electronic records of the loan or
loan.
may request the deferment on behalf of loans in a form appropriate to ensure
admissibility of the loan records in a * * * * *
the borrower. An institution that grants (b) * * *
a military service deferment based on a legal proceeding. This certification may
be executed in a single record for (1) An institution must cancel up to
request from a borrower’s representative 100 percent of the outstanding balance
must notify the borrower that the multiple loans provided that this record
is reliably associated with the specific on a borrower’s Federal Perkins loan or
deferment has been granted and that the NDSL made on or after July 23, 1992, for
borrower has the option to cancel the loans to which it pertains; and
(B) Testimony by an authorized service as a full-time employee in a
deferment and continue to make public or private nonprofit child or
payments on the loan. The institution official or employee of the institution, if
necessary, to ensure admission of the family service agency who is providing
may also notify the borrower’s services directly and exclusively to
representative of the outcome of the electronic records of the loan or loans in
the litigation or legal proceeding to high-risk children who are from low-
deferment request. income communities and the families of
enforce the loan or loans.
* * * * * (ii) The certification in paragraph these children, or who is supervising
6. Section 674.45 is amended by: (c)(12)(i)(A) of this section must the provision of services to high-risk
A. Redesignating paragraph (e)(3) as include, if requested by the Secretary— children who are from low-income
paragraph (e)(4). (A) A description of the steps communities and the families of these
B. Adding new paragraph (e)(3). followed by a borrower to execute the children. To qualify for a child or family
The addition reads as follows: service cancellation, a non-supervisory
promissory note (such as a flowchart);
§ 674.45 Collection procedures. (B) A copy of each screen as it would employee of a child or family service
* * * * * have appeared to the borrower of the agency must be providing services only
(e) * * * loan or loans the Secretary is enforcing to high-risk children from low-income
(3) For loans placed with a collection when that borrower signed the note communities and the families of these
firm on or after July 1, 2008, reasonable electronically; children. The employee must work
collection costs charged to the borrower (C) A description of the field edits and directly with the high-risk children from
may not exceed— other security measures used to ensure low-income communities, and the
(i) For first collection efforts, 30 integrity of the data submitted to the services provided to the children’s
percent of the amount of principal, originator electronically; families must be secondary to the
interest, and late charges collected; (D) A description of how the executed services provided to the children.
(ii) For second and subsequent promissory note has been preserved to * * * * *
collection efforts, 40 percent of the ensure that it has not been altered after 9. Section 674.61 is amended by:
amount of principal, interest, and late it was executed; A. Revising the second sentence in
charges collected; and (E) Documentation supporting the paragraph (a).
(iii) For collection efforts resulting institution’s authentication and B. Revising paragraphs (b), (c), and
from litigation, 40 percent of the amount electronic signature process; and (d).
(F) All other documentary and The revisions read as follows:
of principal, interest, and late charges
technical evidence requested by the
collected plus court costs.
Secretary to support the validity or the § 674.61 Discharge for death or disability.
* * * * * authenticity of the electronically signed (a) * * * The institution must
7. Section 674.50 is amended by: promissory note. discharge the loan on the basis of an
A. Adding new paragraphs (c)(11) and (iii) The Secretary may request a original or certified copy of the death
(12). record, affidavit, certification or
B. In paragraph (e)(1), adding the certificate, or an accurate and complete
evidence under paragraph (a)(6) of this photocopy of the original or certified
words ‘‘, unless the loan is submitted for section as needed to resolve any factual
assignment under paragraph 674.8(d)(3) copy of the death certificate. * * *
dispute involving a loan that has been (b) Total and permanent disability—
of this section’’ immediately after the assigned to the Secretary, including, but (1) General. A borrower’s Defense,
word ‘‘borrower’’. not limited to, a factual dispute raised
The additions read as follows: NDSL, or Perkins loan is discharged if
in connection with litigation or any the borrower becomes totally and
§ 674.50 Assignment of defaulted loans to other legal proceeding, or as needed in permanently disabled, as defined in
the United States. connection with loans assigned to the § 674.51(s), and satisfies the additional
* * * * * Secretary that are included in a Title IV eligibility requirements contained in
(c) * * * program audit sample, or for other this section.
(11) A record of disbursements for similar purposes. The institution must (2) Discharge application process. (i)
each loan made to a borrower on an respond to any request from the To qualify for discharge of a Defense,
MPN that shows the date and amount of Secretary within 10 business days. NDSL, or Perkins loan based on a total
(iv) As long as any loan made to a
each disbursement. and permanent disability, a borrower

(12)(i) Upon the Secretary’s request borrower under an MPN created by an must submit a discharge application
with respect to a particular loan or loans institution is not satisfied, the approved by the Secretary to the
assigned to the Secretary and evidenced institution is responsible for ensuring institution that holds the loan. The
by an electronically signed promissory that all parties entitled to access have application must contain a certification
note, the institution that created the full and complete access to the by a physician, who is a doctor of
original electronically signed electronic loan record. medicine or osteopathy legally
promissory note must cooperate with * * * * * authorized to practice in a State, that the
borrower is totally and permanently on the date the Secretary makes the (iii) If, at any time during or at the end
disabled as defined in § 674.51(s). The initial determination that the borrower of the three-year conditional discharge
borrower must submit the application to is totally and permanently disabled. The period, the Secretary determines that
the institution within 90 days of the notification to the borrower identifies the borrower does not continue to meet
date the physician certifies the the conditions of the conditional the eligibility requirements for a total
application. discharge period specified in paragraph and permanent disability discharge, the
(ii) If, after reviewing the borrower’s (b)(4)(i) of this section. Secretary ends the conditional discharge
application, the institution determines (iv) If the Secretary determines that period and resumes collection activity
that the application is complete and the certification provided by the on the loan. The Secretary does not
supports the conclusion that the borrower does not support the require the borrower to pay any interest
borrower is totally and permanently conclusion that the borrower meets the that accrued on the loan from the date
disabled, the institution must suspend criteria for a total and permanent of the Secretary’s initial eligibility
collection activities and assign the loan disability discharge, the Secretary determination described in paragraph
to the Secretary. notifies the borrower that the (b)(3) of this section through the end of
(iii) At the time the loan is assigned application for a disability discharge has the conditional discharge period.
to the Secretary, the institution must been denied, and that the loan is due (5) Payments received after the
notify the borrower that— and payable under the terms of the physician’s certification of total and
(A) The loan has been assigned to the promissory note. permanent disability. (i) If, after the date
Secretary for determination of eligibility (4) Eligibility requirements for a total the physician completes and certifies
for a total and permanent disability and permanent disability discharge. (i) the borrower’s loan discharge
discharge and that no payments are due A borrower meets the eligibility criteria application, the institution receives any
on the loan; and for a discharge of a loan based on a total payments from or on behalf of the
(B) In order to remain eligible for the and permanent disability if, during and borrower on or attributable to a loan that
discharge from the date the physician at the end of the three-year conditional was assigned to the Secretary for
completes and certifies the borrower’s discharge period— determination of eligibility for a total
total and permanent disability on the and permanent disability discharge, the
(A) The borrower’s annual earnings
application until the date the Secretary institution must forward those
from employment do not exceed 100
makes an initial eligibility payments to the Secretary for crediting
percent of the poverty line for a family
determination— to the borrower’s account.
of two, as determined in accordance
(1) The borrower cannot work and (ii) At the same time that the
with the Community Service Block
earn money or receive any new title IV institution forwards the payment, it
Grant Act;
loans; and must notify the borrower that there is no
(2) The borrower must, on any loan (B) The borrower does not receive a
new loan under the Perkins, FFEL or obligation to make payments on the loan
received prior to the date the physician while it is conditionally discharged
completed and certified the application, Direct Loan programs, except for a FFEL
or Direct Consolidation Loan that does prior to a final determination of
ensure that the full amount of any title eligibility for a total and permanent
IV loan disbursement made to the not include any loans that are in a
conditional discharge status; and disability discharge, unless the
borrower on or after the date the Secretary directs the borrower
physician completed and certified the (C) The borrower ensures, on any loan
received prior to the date the physician otherwise.
application is returned to the holder (iii) When the Secretary makes a final
within 120 days of the disbursement completed and certified the application,
that the full amount of any title IV loan determination to discharge the loan, the
date. Secretary returns any payments received
(3) Secretary’s initial eligibility disbursement made on or after the date
of the Secretary’s initial eligibility on the loan after the date the physician
determination. (i) The borrower must completed and certified the borrower’s
continue to meet the conditions in determination is returned to the holder
within 120 days of the disbursement loan discharge application.
paragraph (b)(2)(iii)(B) of this section (c) No Federal reimbursement. No
from the date the physician completes date.
(ii) During the conditional discharge Federal reimbursement is made to an
and certifies the borrower’s total and institution for cancellation of loans due
permanent disability on the application period, the borrower or, if applicable,
the borrower’s representative— to death or disability.
until the date the Secretary makes an (d) Retroactive. Discharge for death
initial determination of the borrower’s (A) Is not required to make any
applies retroactively to all Defense,
eligibility in accordance with paragraph payments on the loan;
NDSL, and Perkins loans.
(b)(3)(ii) of this section. (B) Is not considered past due or in
default on the loan, unless the loan was * * * * *
(ii) If the Secretary determines that
the certification provided by the past due or in default at the time the PART 682—FEDERAL FAMILY
borrower supports the conclusion that conditional discharge was granted; EDUCATION LOAN (FFEL) PROGRAM
the borrower meets the criteria for a (C) Must promptly notify the
total and permanent disability Secretary of any changes in address or 10. The authority citation for part 682
discharge, the borrower is considered phone number; continues to read as follows:
totally and permanently disabled as of (D) Must promptly notify the Authority: 20 U.S.C. 1071 to 1087–2 unless
the date the physician completes and Secretary if the borrower’s annual otherwise noted.
certifies the borrower’s application. earnings from employment exceed the 11. Section 682.200(b) is amended by:
(iii) Upon making an initial amount specified in paragraph A. Amending the definition of Lender
determination that the borrower is (b)(4)(i)(A) of this section; and by revising paragraph (5) and adding
totally and permanently disabled as (E) Must provide the Secretary, upon paragraph (7).
defined in § 674.51(s), the Secretary request, with additional documentation B. Adding a definition of School-
notifies the borrower that the loan will or information related to the borrower’s affiliated organization.
be in a conditional discharge status for eligibility for a discharge under this The revisions and additions read as
a period of up to three years, beginning section. follows:
§ 682.200 Definitions. assist a school with financial aid-related generalized marketing or advertising, or
(b) * * * functions. to create good will.
Lender. * * * (B) Conducted unsolicited mailings to (iii) For the purposes of paragraph (5)
(5)(i) The term eligible lender does not a student or a student’s parents of FFEL of this definition—
include any lender that the Secretary loan application forms, except to a (A) The term ‘‘school-affiliated
determines, after notice and opportunity student who previously has received a organization’’ is defined in section
for a hearing before a designated FFEL loan from the lender or to a 682.200.
Department official, has, directly or student’s parent who previously has (B) The term ‘‘applications’’ includes
through an agent or contractor— received a FFEL loan from the lender; the Free Application for Federal Student
(A) Except as provided in paragraph (C) Offered, directly or indirectly, a Aid (FAFSA), FFEL loan master
(5)(ii) of this definition, offered, directly FFEL loan to a prospective borrower to promissory notes, and FFEL
or indirectly, points, premiums, induce the purchase of a policy of consolidation loan application and
payments, or other inducements to any insurance or other product or service by promissory notes.
school or other party to secure the borrower or other person; or (C) The term ‘‘other benefits’’
applications for FFEL loans or to secure (D) Engaged in fraudulent or includes, but is not limited to,
FFEL loan volume. This includes but is misleading advertising with respect to preferential rates for or access to the
not limited to— its FFEL loan activities. lender’s other financial products,
(1) Payments or offerings of other (ii) Notwithstanding paragraph (5)(i) computer hardware or non-loan
benefits, including prizes or additional of this definition, a lender, in carrying processing or non-financial aid-related
financial aid funds, to a prospective out its role in the FFEL program and in computer software at below market
borrower in exchange for applying for or attempting to provide better service, rental or purchase cost, and printing
accepting a FFEL loan from the lender; may provide— and distribution of college catalogs and
(2) Payments or other benefits to a (A) Assistance to a school that is other materials at reduced or no cost.
school, any school-affiliated comparable to the kinds of assistance * * * * *
organization or to any individual in provided to a school by the Secretary (7) An eligible lender may not make
exchange for FFEL loan applications, or under the Direct Loan program, as or hold a loan as trustee for a school, or
application referrals, or a specified identified by the Secretary in a public for a school-affiliated organization as
volume or dollar amount of loans made, announcement, such as a notice in the defined in this section, unless on or
or placement on a school’s list of Federal Register; before September 30, 2006—
recommended or suggested lenders; (B) Support of and participation in a (i) The eligible lender was serving as
(3) Payments or other benefits trustee for the school or school-affiliated
school’s or a guaranty agency’s student
provided to a student at a school who organization under a contract entered
aid and financial literacy-related
acts as the lender’s representative to into and continuing in effect as of that
outreach activities, as long as the name
secure FFEL loan applications from date; and
of the entity that developed and paid for
individual prospective borrowers; (ii) The eligible lender held at least
(4) Payments or other benefits to a any materials is provided to the
participants and the lender does not one loan in trust on behalf of the school
loan solicitor or sales representative of or school-affiliated organization on that
a lender who visits schools to solicit promote its student loan or other
products; date.
individual prospective borrowers to (8) Effective January 1, 2007, and for
apply for FFEL loans from the lender; (C) Meals, refreshments, and
loans first disbursed on or after that date
(5) Payment of referral or processing receptions that are reasonable in cost
under a trustee arrangement, an eligible
fees to another lender or any other and scheduled in conjunction with
lender operating as a trustee under a
party; training, meeting, or conference events
contract entered into on or before
(6) Payment of conference or training if those meals, refreshments, or
September 30, 2006, and which
registration, transportation, and lodging receptions are open to all training,
continues in effect with a school or a
costs for an employee of a school or meeting, or conference attendees;
school-affiliated organization, must
school-affiliated organization; (D) Toll-free telephone numbers for
comply with the requirements of
(7) Payment of entertainment use by schools or others to obtain
§ 682.601(a)(3), (a)(5), and (a)(7). * * *
expenses, including expenses for private information about FFEL loans and free
School-affiliated organization. A
hospitality suites, tickets to shows or data transmission service for use by
school-affiliated organization is any
sporting events, meals, alcoholic schools to electronically submit
organization that is directly or indirectly
beverages, and any lodging, rental, applicant loan processing information
related to a school and includes, but is
transportation, and other gratuities or student status confirmation data;
not limited to, alumni organizations,
related to lender-sponsored activities for (E) A reduced origination fee in foundations, athletic organizations, and
employees of a school or a school- accordance with § 682.202(c); social, academic, and professional
affiliated organization; (F) A reduced interest rate as organizations.
(8) Undertaking philanthropic provided under the Act;
(G) Payment of Federal default fees in * * * * *
activities, including providing
accordance with the Act; 12. Section 682.202 is amended by:
scholarships, grants, restricted gifts, or A. In paragraph (b)(2) introductory
financial contributions in exchange for (H) Purchase of a loan made by
text, adding the words, ‘‘and (b)(5)’’
FFEL loan applications or application another lender at a premium;
immediately after the words ‘‘(b)(4)’’.
referrals, or a specified volume or dollar (I) Other benefits to a borrower under B. Redesignating paragraph (b)(5) as
amount of FFEL loans made, or a repayment incentive program that paragraph (b)(6).
placement on a school’s list of requires, at a minimum, one or more C. Adding a new paragraph (b)(5).
recommended or suggested lenders; and scheduled payments to receive or retain The addition reads as follows:
(9) Staffing services to a school as a the benefit; and
third-party servicer or otherwise on (J) Items of nominal value to schools, § 682.202 Permissible charges by lenders
more than a short-term, emergency school-affiliated organizations, and to borrowers.
basis, and which is non-recurring, to borrowers that are offered as a form of * * * * *
(b) * * * § 682.209 Repayment of a loan. the other FFEL loan holder or the
(5) For Consolidation loans, the * * * * * Secretary or from an authoritative
lender may capitalize interest as (k) Any lender holding a loan is electronic database maintained or
provided in paragraphs (b)(2) and (b)(3) subject to all claims and defenses that authorized by the Secretary that
of this section, except that the lender the borrower could assert against the supports eligibility for the deferment for
may capitalize the unpaid interest for a school with respect to that loan if— the same reason and the same time
period of authorized in-school (1) The loan was made by the school period.
deferment only at the expiration of the or a school-affiliated organization; (iv) A lender may rely in good faith
deferment. (2) The lender who made the loan on the information it receives under
* * * * * provided an improper inducement, as paragraph (s)(1)(iii) of this section when
13. Section 682.208 is amended by: defined in paragraph (5)(i) of the determining a borrower’s eligibility for
A. Revising paragraph (a). definition of Lender in § 682.200(b), to a deferment unless the lender, as of the
B. Adding new paragraphs (b)(3) and the school or any other party in date of the determination, has
(b)(4). connection with the making of the loan; information indicating that the borrower
C. Adding a new paragraph (i). (3) The school refers borrowers to the does not qualify for the deferment. A
The revisions and addition read as lender; or lender must resolve any discrepant
follows: (4) The school is affiliated with the information before granting a deferment
§ 682.208 Due diligence in servicing a lender by common control, contract, or under paragraph (s)(1)(iii) of this
loan. business arrangement. section.
(a) The loan servicing process * * * * * (v) A lender that grants a deferment
includes reporting to national credit 15. Section 682.210 is amended by: under paragraph (s)(1)(iii) of this section
bureaus, responding to borrower A. In paragraph (i)(1), adding the must notify the borrower that the
inquiries, establishing the terms of words, ‘‘or a borrower’s representative’’ deferment has been granted and that the
repayment, and reporting a borrower’s immediately following the words ‘‘a borrower has the option to pay interest
enrollment and loan status information. borrower’’. that accrues on an unsubsidized FFEL
B. Adding new paragraph (i)(5). loan or to cancel the deferment and
* * * * *
(b) * * * C. In paragraph (s)(1), by continue to make payments on the loan.
(3) Upon receipt of a valid identity redesignating the text following the * * * * *
theft report as defined in section heading as paragraph designation (t) * * *
603(q)(4) of the Fair Credit Reporting (s)(1)(i). (7) To receive a military service
Act (15 U.S.C. 1681a) or notification D. Adding new paragraphs (s)(1)(ii), deferment, the borrower, or the
from a credit bureau that information (s)(1)(iii), (s)(1)(iv), (s)(1)(v), (t)(7), and borrower’s representative, must request
furnished by the lender is a result of an (t)(8). the deferment and provide the lender
alleged identity theft as defined in The additions read as follows: with all information and documents
§ 682.402(e)(14), an eligible lender shall required to establish eligibility for the
§ 682.210 Deferment. deferment, except that a lender may
suspend credit bureau reporting for a
period not to exceed 120 days while the * * * * * grant a borrower a military service
lender determines the enforceability of (i) * * * deferment under the procedures
a loan. (5) A lender that grants a military specified in paragraphs (s)(1)(iii)
(i) If the lender determines that a loan service deferment based on a request through (s)(1)(v) of this section.
does not qualify for a discharge under from a borrower’s representative must (8) A lender that grants a military
§ 682.402(e)(1)(i)(C), but is nonetheless notify the borrower that the deferment service deferment based on a request
unenforceable, the lender must— has been granted and that the borrower from a borrower’s representative must
(A) Notify the credit bureau of its has the option to cancel the deferment notify the borrower that the deferment
determination; and and continue to make payments on the has been granted and that the borrower
(B) Comply with §§ 682.300(b)(2)(ix) loan. The lender may also notify the has the option to cancel the deferment
and 682.302(d)(1)(viii). borrower’s representative of the and continue to make payments on the
(ii) [Reserved] outcome of the deferment request. loan. The lender may also notify the
(4) If, within 3 years of the lender’s * * * * * borrower’s representative of the
receipt of an identity theft report, the (s) * * * outcome of the deferment request.
lender receives from the borrower (1) * * * * * * * *
evidence specified in § 682.402(e)(3)(v), (ii) As a condition for receiving a 16. Section 682.211 is amended by:
the lender may submit a claim and deferment, except for purposes of A. Redesignating paragraphs (f)(6),
receive interest subsidy and special paragraph (s)(2) of this section, the (f)(7), (f)(8), (f)(9), (f)(10), (f)(11) as
allowance payments that would have borrower must request the deferment paragraphs (f)(7), (f)(8), (f)(9), (f)(10),
accrued on the loan. and provide the lender with all (f)(11), and (f)(12), respectively.
* * * * * information and documents required to B. Adding new paragraph (f)(6).
(i) A lender shall report enrollment establish eligibility for the deferment. The addition reads as follows:
and loan status information, or any Title (iii) After receiving a borrower’s
IV loan-related data required by the written or verbal request, a lender may § 682.211 Forbearance.
Secretary, to the guaranty agency or to
grant a deferment under paragraphs * * * * *

the Secretary, as applicable, by the (s)(3) through (s)(6) of this section if the (f)(1) * * *
deadline date established by the lender is able to confirm that the (6) Upon receipt of a valid identity
Secretary. borrower has received a deferment on theft report as defined in section
* * * * * another FFEL loan or on a Direct Loan 603(q)(4) of the Fair Credit Reporting
14. Section 682.209 is amended by for the same reason and the same time Act (15 U.S.C. 1681a) or notification
adding new paragraph (k) to read as period. The lender may grant the from a credit bureau that information
follows: deferment based on information from furnished by the lender is a result of an
alleged identity theft as defined in (vi) Not cause unnecessary A. In paragraph (b)(2)(ii)(A), removing
§ 682.402(e)(14), for a period not to certification delays for borrowers who the punctuation ‘‘;’’ at the end of the
exceed 120 days necessary for the use a lender that has not been paragraph and adding, in its place, the
lender to determine the enforceability of recommended or suggested by the words ‘‘, as defined in 34 CFR 668.3;
a loan. If the lender determines that the school. or’’.
loan does not qualify for discharge (3) For the purposes of paragraph (h) B. Revising paragraph (b)(2)(ii)(B).
under § 682.402(e)(1)(i)(C), but is of this section, a lender is affiliated with C. Removing paragraph (b)(2)(ii)(C).
nonetheless unenforceable, the lender another lender if— D. In paragraph (b)(20) introductory
must comply with §§ 682.300(b)(2)(ix) (i) The lenders are under the text, removing the number ‘‘60’’ and
and 682.302(d)(1)(viii). ownership or control of the same entity adding, in its place, the number ‘‘30’’.
* * * * * or individuals; E. Revising paragraph (e).
17. Section 682.212 is amended by: (ii) The lenders are wholly or partly The revisions read as follows:
A. In paragraph (c) introductory text, owned subsidiaries of the same parent § 682.401 Basic program agreement.
removing the words ‘‘the Student Loan company;
(iii) The directors, trustees, or general * * * * *
Marketing Association,’’. (b) * * *
B. In paragraph (d), removing the partners (or individuals exercising
(2) * * *
words ‘‘the Student Loan Marketing similar functions) of one of the lenders
(ii) * * *
Association or’’. constitute a majority of the persons (B) A period attributable to the
C. Adding new paragraph (h). holding similar positions with the other academic year that is not less than the
The addition reads as follows: lender; or period specified in paragraph
(iv) One of the lenders is making
§ 682.212 Prohibited transactions. (b)(2)(ii)(A) of this section, in which the
loans on its own behalf and is also
* * * * * student earns the amount of credit in
holding loans as a trustee lender for
(h)(1) A school may, at its option, the student’s program of study required
another entity.
make available a list of recommended or by the student’s school as the amount
* * * * * necessary for the student to advance in
suggested lenders, in print or any other 18. Section 682.300 is amended by:
medium or form, for use by the school’s academic standing as normally
A. In paragraph (b)(2)(vii), removing measured on an academic year basis (for
students or their parents, provided such the word ‘‘or’’ at the end of the
list— example, from freshman to sophomore
paragraph. or, in the case of schools using clock
(i) Is not used to deny or otherwise B. In paragraph (b)(2)(viii), removing
impede a borrower’s choice of lender; hours, completion of at least 900 clock
the punctuation ‘‘.’’ at the end of the hours).
(ii) Does not contain fewer than three paragraph and adding, in its place, ‘‘;
lenders that are not affiliated with each or’’. * * * * *
other and that will make loans to C. Adding new paragraph (b)(2)(ix). (e) Prohibited activities. (1) A
borrowers or students attending the The addition reads as follows: guaranty agency may not, directly or
school; and through an agent or contractor—
(iii) Does not include lenders that § 682.300 Payment of interest benefits on (i) Except as provided in paragraph
have offered, or have been solicited by Stafford and Consolidation loans. (e)(2) of this section, offer directly or
the school to offer, financial or other * * * * * indirectly from any fund or assets
benefits to the school in exchange for (b) * * * available to the guaranty agency, any
inclusion on the list or any promise that (2) * * * premium, payment, or other
a certain number of loan applications (ix) The date on which the lender inducement to any prospective borrower
will be sent to the lender by the school determines the loan is legally of a FFEL loan, or to a school or school-
or its students. unenforceable based on the receipt of an affiliated organization or an employee of
(2) A school that provides or makes identity theft report under a school or school-affiliated
available a list of recommended or § 682.208(b)(3). organization, to secure applications for
suggested lenders must— * * * * * FFEL loans. This includes, but is not
(i) Disclose to prospective borrowers, 19. Section 682.302 is amended by— limited to—
as part of the list, the method and A. In paragraph (d)(1)(vi)(B), (A) Payments or offerings of other
criteria used by the school in selecting removing the word ‘‘or’’ at the end of benefits, including prizes or additional
any lender that it recommends or the paragraph. financial aid funds, to a prospective
suggests; B. In paragraph (d)(1)(vii), by borrower in exchange for processing a
(ii) Provide comparative information removing the punctuation ‘‘.’’ and loan using the agency’s loan guarantee;
to prospective borrowers about interest adding, in its place, ‘‘; or’’. (B) Payments or other benefits,
rates and other benefits offered by the C. Adding new paragraph (d)(1)(viii). including prizes or additional financial
lenders; The addition reads as follows: aid funds under any title IV or State or
(iii) Ensure that any benefits offered to private program, to a school or school-
borrowers by the lenders are the same § 682.302 Payment of special allowance on affiliated organization based on the
for all borrowers at the school; FFEL loans. school’s or organization’s voluntary or
(iv) Include a prominent statement in * * * * * coerced agreement to use the guaranty
any information related to its list of (d) * * * agency for processing loans, or a
(1) * * *
lenders, advising prospective borrowers specified volume of loans, using the

that they are not required to use one of (viii) The date on which the lender agency’s loan guarantee;
the school’s recommended or suggested determines the loan is legally (C) Payments or other benefits to a
lenders; unenforceable based on the receipt of an school or any school-affiliated
(v) For first-time borrowers, not identity theft report under organization, or to any individual in
assign, through award packaging or § 682.208(b)(3). exchange for FFEL loan applications or
other methods, a borrower’s loan to a * * * * * application referrals, a specified volume
particular lender; and 20. Section 682.401 is amended by: or dollar amount of FFEL loans, or the
placement of a lender that uses the (D) Offering to pay a lender that does (i) The term ‘‘school-affiliated
agency’s loan guarantee on a school’s not hold loans guaranteed by the agency organization’’ is defined in § 682.200.
list of recommended or suggested a fee for each application forwarded for (ii) The term ‘‘applications’’ includes
lenders; the agency’s guarantee. the FAFSA, FFEL loan master
(D) Payment of entertainment (iv) Mail or otherwise distribute promissory notes, and FFEL
expenses, including expenses for private unsolicited loan applications to consolidation loan application and
hospitality suites, tickets to shows or students enrolled in a secondary school promissory notes.
sporting events, meals, alcoholic or a postsecondary institution, or to (iii) The terms ‘‘other benefits’’
beverages, and any lodging, rental, parents of those students, unless the includes, but is not limited to,
transportation or other gratuities related potential borrower has previously preferential rates for or access to a
to any activity sponsored by the received loans insured by the guaranty guaranty agency’s products and
guaranty agency or a lender agency. services, computer hardware or non-
participating in the agency’s program, (v) Conduct fraudulent or misleading loan processing or non-financial aid
for school employees or employees of advertising concerning loan availability. related computer software at below
school-affiliated organizations; (2) Notwithstanding paragraphs market rental or purchase cost, and the
(E) Undertaking philanthropic (e)(1)(i), (ii), and (iii) of this section, a printing and distribution of college
activities, including providing guaranty agency is not prohibited from catalogs and other non-counseling or
scholarships, grants, restricted gifts, or providing— non-student financial aid-related
financial contributions in exchange for (i) Assistance to a school that is materials at reduced or not costs.
FFEL loan applications or application comparable to that provided by the (iv) The terms premium, incentive
referrals, a specified volume or dollar Secretary to a school under the Direct payment, and other inducement do not
amount of FFEL loans using the Loan Program, as identified by the include services directly related to the
agency’s loan guarantee, or the Secretary in a public announcement, enhancement of the administration of
placement of a lender that uses the such as a notice in the Federal Register; the FFEL Program the guaranty agency
agency’s loan guarantee on a school’s (ii) Default aversion activities generally provides to lenders that
list of recommended or suggested approved by the Secretary under section participate in its program. However, the
lenders; and 422(h)(4)(B) of the Act; terms premium, incentive payment, and
(F) Staffing services to a school as a (iii) Meals and refreshments that are inducement do apply to other activities
third-party sevicer or otherwise on more reasonable in cost and provided in specifically intended to secure a
than a short-term, emergency basis, connection with guaranty agency lender’s participation in the agency’s
which is non-recurring, to assist the provided training of program program.
institution with financial aid-related participants and elementary, secondary, * * * * *
functions. and postsecondary school personnel 21. Section 682.402 is amended by:
(ii) Assess additional costs or deny and with workshops and forums A. Revising the first sentence in
benefits otherwise provided to schools customarily used by the agency to fulfill paragraph (b)(2).
and lenders participating in the agency’s its responsibilities under the Act; B. Revising the third sentence in
program on the basis of the lender’s or (iv) Meals, refreshments and paragraph (b)(3).
school’s failure to agree to participate in receptions that are scheduled in C. Revising paragraph (c).
the agency’s program, or to provide a conjunction with training, meeting, or D. In paragraph (e)(2)(iv), adding the
specified volume of loan applications or conference events if those meals, words ‘‘or inaccurate’’ immediately after
loan volume to the agency’s program or refreshments, or receptions are open to the word ‘‘adverse’’.
to place a lender that uses the agency’s all training, meeting, or conference The revisions read as follows:
loan guarantee on a school’s list of attendees; § 682.402 Death, disability, closed school,
recommended or suggested lenders. (v) Travel and lodging costs that are false certification, unpaid refunds, and
(iii) Offer, directly or indirectly, any reasonable as to cost, location, and bankruptcy payments.
premium, incentive payment, or other duration to facilitate the attendance of * * * * *
inducement to any lender, or any person school staff in training or service facility (b) * * *
acting as an agent, employee, or tours that they would otherwise not be (2) A discharge of a loan based on the
independent contractor of any lender or able to undertake, or to participate in death of the borrower (or student in the
other guaranty agency to administer or the activities of an agency’s governing case of a PLUS loan) must be based on
market FFEL loans, other than board, a standing official advisory an original or certified copy of the death
unsubsidized Stafford loans or committee, or in support of other certificate, or an accurate and complete
subsidized Stafford loans made under a official activities of the agency; photocopy of the original or certified
guaranty agency’s lender-of-last-resort (vi) Toll-free telephone numbers for copy of the death certificate. * * *
program, in an effort to secure the use by schools or others to obtain (3) * * * If the lender is not able to
guaranty agency as an insurer of FFEL information about FFEL loans and free obtain an original or certified copy of
loans. Examples of prohibited data transmission services for use by the death certificate, or an accurate and
inducements include, but are not schools to electronically submit complete photocopy of the original or
limited to— applicant loan processing information certified copy of the death certificate or
(A) Compensating lenders or their or student status confirmation data; other documentation acceptable to the
representatives for the purpose of (vii) Payment of Federal default fees guaranty agency, under the provisions
securing loan applications for guarantee; in accordance with the Act; and of paragraph (b)(2) of this section,
(B) Performing functions normally (viii) Items of nominal value to during the period of suspension, the
performed by lenders without schools, school-affiliated organizations, lender must resume collection activity
appropriate compensation; and borrowers that are offered as a form from the point that it had been
(C) Providing equipment or supplies of generalized marketing or advertising, discontinued. * * *
to lenders at below market cost or or to create good will. (c)(1) Total and permanent disability.
rental; and (3) For the purposes of this section— A borrower’s loan is discharged if the
borrower becomes totally and conditional discharge period begins on disability discharge during and at the
permanently disabled, as defined in the date the Secretary makes the initial end of the conditional discharge period,
§ 682.200(b), and satisfies the additional determination that the borrower is the balance of the loan is discharged at
eligibility requirements contained in totally and permanently disabled, as the end of the conditional discharge
this section. defined in § 682.200(b). period and any payments received after
(2) Discharge application process. (iv) If the Secretary determines that the physician completed and certified
After being notified by the borrower or the certification and information the borrower’s loan discharge
the borrower’s representative that the provided by the borrower do not application are returned.
borrower claims to be totally and support the conclusion that the (iv) If, at any time during the three-
permanently disabled, the lender borrower meets the criteria for a total year conditional discharge period, the
promptly requests that the borrower or and permanent disability discharge in borrower does not continue to meet the
the borrower’s representative submit, on paragraph (c)(4)(i) of this section, the eligibility criteria for a total and
a form approved by the Secretary, a Secretary notifies the borrower that the permanent disability discharge, the
certification by a physician, who is a application for a disability discharge has Secretary ends the conditional discharge
doctor of medicine or osteopathy legally been denied, and that the loan is due period and resumes collection activity
authorized to practice in a State, that the and payable to the Secretary under the on the loan. The Secretary does not
borrower is totally and permanently terms of the promissory note. require the borrower to pay any interest
disabled as defined in § 682.200(b). The (4) Eligibility requirements for total that accrued on the loan from the date
borrower must submit the application to and permanent disability discharge. (i) of the initial determination described in
the lender within 90 days of the date the A borrower meets the eligibility criteria paragraph (c)(3)(ii) of this section
physician certifies the application. If the for a discharge of a loan based on total through the end of the conditional
lender and guaranty agency approve the and permanent disability if, during and discharge period.
discharge claim, under the procedures at the end of the three-year conditional (5) Lender and guaranty agency
in paragraph (c)(5) of this section, the discharge period— responsibilities. (i) After being notified
guaranty agency must assign the loan to (A) The borrower’s annual earnings by a borrower or a borrower’s
the Secretary. from employment do not exceed 100 representative that the borrower claims
(3) Secretary’s initial eligibility percent of the poverty line for a family to be totally and permanently disabled,
determination. (i) During the period of two, as determined in accordance the lender must continue collection
from the date the physician completes with the Community Service Block activities until it receives either the
and certifies the borrower’s total and Grant Act; certification of total and permanent
permanent disability on the application (B) The borrower does not receive a disability from a physician or a letter
until the Secretary makes an initial new loan under the Perkins, FFEL, or
determination of the borrower’s from a physician stating that the
Direct Loan programs, except for a FFEL certification has been requested and that
eligibility in accordance with paragraph or Direct Consolidation Loan that does
(c)(3)(ii) of this section— additional time is needed to determine
not include any loans that are in a if the borrower is totally and
(A) The borrower cannot work and conditional discharge status; and
earn money or receive any new title IV permanently disabled, as defined in
(C) The borrower ensures, on any loan § 682.200(b). Except as provided in
loans; and received prior to the date the physician
(B) The borrower must, on any loan paragraph (c)(5)(iii) of this section, after
completed and certified the application, receiving the physician’s certification or
received prior to the date the physician that the full amount of any title IV loan
completed and certified the application, letter the lender may not attempt to
disbursement made on or after the date collect from the borrower or any
ensure that the full amount of any title of the Secretary’s initial eligibility
IV loan disbursement made to the endorser.
determination is returned to the holder
borrower on or after the date the (ii) The lender must submit a
within 120 days of the disbursement
physician completed and certified the disability claim to the guaranty agency
date.
application is returned to the holder (ii) During the conditional discharge if the borrower submits a certification
within 120 days of the disbursement period, the borrower or, if applicable, by a physician and the lender makes a
date. the borrower’s representative— determination that the certification
(ii) If the Secretary determines that (A) Is not required to make any supports the conclusion that the
the certification provided by the payments on the loan; borrower meets the criteria for a total
borrower supports the conclusion that (B) Is not considered delinquent or in and permanent disability discharge, as
the borrower meets the criteria for a default on the loan, unless the borrower specified in paragraph (c)(4)(i) of this
total and permanent disability was delinquent or in default at the time section.
discharge, as defined in § 682.200(b), the conditional discharge was granted; (iii) If the lender determines that a
the borrower is considered totally and (C) Must promptly notify the borrower who claims to be totally and
permanently disabled as of the date the Secretary of any changes in address or permanently disabled is not totally and
physician completes and certifies the phone number; permanently disabled, as defined in
borrower’s application. (D) Must promptly notify the § 682.200(b), or if the lender does not
(iii) Upon making an initial Secretary if the borrower’s annual receive the physician’s certification of
determination that the borrower is earnings from employment exceed the total and permanent disability within 60
totally and permanently disabled as amount specified in paragraph days of the receipt of the physician’s
defined in § 682.200(b), the Secretary (c)(4)(i)(A) of this section; and letter requesting additional time, as
suspends collection activity and notifies (E) Must provide the Secretary, upon described in paragraph (c)(3) of this
the borrower that the loan will be in a request, with additional documentation section, the lender must resume
conditional discharge status for a period or information related to the borrower’s collection and is deemed to have
of up to three years. This notification eligibility for discharge under this exercised forbearance of payment of
identifies the conditions of the section. both principal and interest from the date
conditional discharge specified in (iii) If the borrower satisfies the collection activity was suspended. The
paragraph (c)(4)(i) of this section. The criteria for a total and permanent lender may capitalize, in accordance
with § 682.202(b), any interest accrued 22. Section 682.406 is amended by § 682.413 Remedial actions.
and not paid during that period. adding new paragraph (d) to read as * * * * *
(iv) The guaranty agency must pay a follows: (h) In any action to require repayment
claim submitted by the lender if the of funds or to withhold funds from a
guaranty agency has reviewed the § 682.406 Conditions for claim payments
from the Federal Fund and for reinsurance guaranty agency, or to limit, suspend, or
application and determined that it is coverage. terminate a guaranty agency based on a
complete and that it supports the violation of § 682.401(e), if the Secretary
conclusion that the borrower meets the * * * * *
finds that the guaranty agency provided
criteria for a total and permanent (d) A guaranty agency may not make
or offered the payments or activities
disability discharge, as specified in a claim payment from the Federal Fund
listed in § 682.401(e)(1), the Secretary
paragraph (c)(4)(i) of this section. or receive a reinsurance payment on a
applies a rebuttable presumption that
(v) If the guaranty agency does not loan if the lender offered or provided an
the payments or activities were offered
pay the disability claim, the guaranty improper inducement as defined in
or provided to secure applications for
agency must return the claim to the paragraph (5)(i) of the definition of
FFEL loans or to secure FFEL loan
lender with an explanation of the basis lender in § 682.200(b).
volume. To reverse the presumption, the
for the agency’s denial of the claim. 23. Section 682.409 is amended by guaranty agency must present evidence
Upon receipt of the returned claim, the adding new paragraphs (c)(4)(vii) and that the activities or payments were
lender must notify the borrower that the (viii). provided for a reason unrelated to
application for a disability discharge has The additions read as follows: securing applications for FFEL loans or
been denied, provide the basis for the § 682.409 Mandatory assignment by securing FFEL loan volume.
denial, and inform the borrower that the guaranty agencies of defaulted loans to the * * * * *
lender will resume collection on the Secretary. 26. Section 682.414 is amended by:
loan. The lender is deemed to have * * * * * A. Adding new paragraph (a)(5)(iv).
exercised forbearance of both principal (c) * * * B. Adding new paragraph (a)(6).
and interest from the date collection C. Revising paragraph (b)(4).
(4) * * *
activity was suspended until the first
(vii) The record of the lender’s The additions and revisions read as
payment due date. The lender may
disbursement of Stafford and PLUS loan follows:
capitalize, in accordance with
§ 682.202(b), any interest accrued and funds to the school for delivery to the
§ 682.414 Records, reports, and inspection
not paid during that period. borrower. requirements for guaranty agency
(vi) If the guaranty agency pays the (viii) If the MPN or promissory note programs.
disability claim, the lender must notify was signed electronically, the name and
(a) * * *
the borrower that— location of the entity in possession of
(5) * * *
(A) The loan will be assigned to the the original electronic MPN or
(iv) If a lender made a loan based on
Secretary for determination of eligibility promissory note.
an electronically signed MPN, the
for a total and permanent disability * * * * * holder of the original electronically
discharge and that no payments are due 24. Section 682.411 is amended by signed MPN must retain that original
on the loan; and revising paragraph (o) as follows: MPN for at least 3 years after all the
(B) To remain eligible for the loans made on the MPN have been
§ 682.411 Lender due diligence in
discharge from the date the physician collecting guaranty agency loans. satisfied.
completes and certifies the borrower’s (6)(i) Upon the Secretary’s request
total and permanent disability on the * * * * *
with respect to a particular loan or loans
application until the Secretary makes an (o) Preemption. The provisions of this
assigned to the Secretary and evidenced
initial eligibility determination, the section—
by an electronically signed promissory
borrower— (1) Preempt any State law, including
note, the guaranty agency and the lender
(1) Cannot work and earn money or State statutes, regulations, or rules, that
that created the original electronically
receive any new title IV loans; and would conflict with or hinder
signed promissory note must cooperate
(2) Must ensure that the full amount satisfaction of the requirements or
with the Secretary in all activities
of any title IV loan disbursement made frustrate the purposes of this section;
necessary to enforce the loan or loans.
to the borrower on or after the date the and
The guaranty agency or lender must
physician completed and certified the (2) Do not preempt provisions of the provide—
application is returned to the holder Fair Credit Reporting Act that provide (A) An affidavit or certification
within 120 days of the disbursement relief to a borrower while the lender regarding the creation and maintenance
date. determines the legal enforceability of a of the electronic records of the loan or
(vii) After receiving a claim payment loan when the lender receives a valid loans in a form appropriate to ensure
from the guaranty agency, the lender identity theft report or notification from admissibility of the loan records in a
must forward to the guaranty agency a credit bureau that information legal proceeding. This certification may
any payments subsequently received furnished is a result of an alleged be executed in a single record for
from or on behalf of the borrower. identity theft as defined in multiple loans provided that this record
(viii) The Secretary reimburses the § 682.402(e)(14). is reliably associated with the specific
guaranty agency for a disability claim * * * * *
loans to which it pertains; and

paid to the lender after the agency pays 25. Section 682.413 is amended by: (B) Testimony by an authorized
the claim to the lender. A. Adding new paragraph (h). official or employee of the guaranty
(ix) The guaranty agency must assign B. In the Note at the end of the agency or lender, if necessary to ensure
the loan to the Secretary after the section, removing the word ‘‘Note’’ and admission of the electronic records of
guaranty agency pays the disability adding, in its place, the words ‘‘Note to the loan or loans in the litigation or
claim. Section 682.413’’. legal proceeding to enforce the loan or
* * * * * The addition reads as follows: loans.
(ii) The certification described in eligible lender to serve as trustee for the J. In newly redesignated paragraph
paragraph (a)(6)(i) of this section must school or school-affiliated organization (g)(2)(i), removing the words ‘‘, not to
include, if requested by the Secretary— unless— exceed 12 months,’’.
(A) A description of the steps (1) The school or school-affiliated The addition and revision read as
followed by a borrower to execute the organization originated and continues or follows:
promissory note (such as a flow chart); renews a contract made on or before
(B) A copy of each screen as it would September 30, 2006 with the eligible § 682.603 Certification by a participating
have appeared to the borrower of the school in connection with a loan
lender; and
loan or loans the Secretary is enforcing application.
(2) The eligible lender held at least
when the borrower signed the note one loan in trust on behalf of the school * * * * *
electronically; or school-affiliated organization on (d) Before certifying a PLUS loan
(C) A description of the field edits and September 30, 2006. application for a graduate or
other security measures used to ensure (b) Effective January 1, 2007, and for professional student borrower, the
integrity of the data submitted to the loans first disbursed on or after that date school must determine the borrower’s
originator electronically; under a lender trustee arrangement that eligibility for a Stafford loan. If the
(D) A description of how the executed continues in effect after September 30, borrower is eligible for a Stafford loan
promissory note has been preserved to 2006— but has not requested the maximum
ensure that is has not been altered after (1) A school in a trustee arrangement Stafford loan amount for which the
it was executed; or affiliated with an organization borrower is eligible, the school must—
(E) Documentation supporting the involved in a trustee arrangement to (1) Notify the graduate or professional
lender’s authentication and electronic originate loans must comply with the student borrower of the maximum
signature process; and requirements of § 682.601(a), except for Stafford loan amount that he or she is
(F) All other documentary and paragraphs (a)(3), (a)(4), (a)(7), and (a)(9) eligible to receive and provide the
technical evidence requested by the of that section; and borrower with a comparison of—
Secretary to support the validity or the (i) The maximum interest rate for a
(2) A school-affiliated organization
authenticity of the electronically signed Stafford loan and the maximum interest
involved in a trustee arrangement to
promissory note. rate for a PLUS loan;
make loans must comply with the
(iii) The Secretary may request a (ii) Periods when interest accrues on
requirements of § 682.601(a)(5) and
record, affidavit, certification or a Stafford loan and periods when
(a)(8).
evidence under paragraph (a)(6) of this interest accrues on a PLUS loan; and
section as needed to resolve any factual (Authority: 20 U.S.C. 1082, 1085)
(iii) The point at which a Stafford
dispute involving a loan that has been 28. Section 682.603 is amended by: loan enters repayment and the point at
assigned to the Secretary including, but A. In paragraph (a), at the end of the which a PLUS loan enters repayment;
not limited to, a factual dispute raised last sentence, removing the words ‘‘on and
in connection with litigation or any the application by the student’’ and
other legal proceeding, or as needed in (2) Give the graduate or professional
adding, in their place, the words ‘‘by the student borrower the opportunity to
connection with loans assigned to the borrower and, in the case of a parent
Secretary that are included in a Title IV request the maximum Stafford loan
borrower of a PLUS loan, the student amount for which the borrower is
program audit sample, or for other and the parent borrower’’.
similar purposes. The guaranty agency eligible.
B. In paragraph (b) introductory text,
must respond to any request from the * * * * *
removing the words ‘‘making
Secretary within 10 business days. application for the loan’’. (f) In certifying loans, a school—
(iv) As long as any loan made to a C. In paragraph (c), removing the (1) May not refuse to certify, or delay
borrower under a MPN created by the reference ‘‘paragraph (e) of this section’’ certification, of a Stafford or PLUS loan
lender is not satisfied, the holder of the and adding in its place, the reference based on the borrower’s selection of a
original electronically signed ‘‘paragraph (f) of this section’’. particular lender or guaranty agency;
promissory note is responsible for D. Redesignating paragraphs (d), (e), (2) May not, for first-time borrowers,
ensuring that all parties entitled to (f), (g), (h), and (i) as paragraphs (e), (f), assign through award packaging or other
access to the electronic loan record, (g), (h), (i), and (j), respectively. methods, a borrower’s loan to a
including the guaranty agency and the E. Adding a new paragraph (d). particular lender;
Secretary, have full and complete access F. In the introductory language in (3) May refuse to certify a Stafford or
to the electronic loan record. newly redesignated paragraph (e), PLUS loan or may reduce the borrower’s
(b) * * * determination of need for the loan if the
removing the words ‘‘ application, or
(4) A report to the Secretary of the reason for that action is documented
combination of loan applications,’’ and
borrower’s enrollment and loan status and provided to the borrower in writing,
adding, in their place, the words ‘‘, or
information, or any Title IV loan-related provided that—
a combination of loans,’’.
data required by the Secretary, by the (i) The determination is made on a
deadline date established by the G. In newly redesignated paragraph
(e)(2) introductory text, adding the case-by-case basis; and
Secretary.
words ‘‘for the period of enrollment’’ (ii) The documentation supporting the
* * * * * after the word ‘‘attendance’’. determination is retained in the
27. Section 682.602 is added to read student’s file; and
H. In newly redesignated paragraph

as follows: (e)(2)(ii), adding the word ‘‘Subsidized’’ (4) May not, under paragraph (f)(1),
§ 682.602 Rules for a school or school- immediately before the word ‘‘Stafford’’ (2), and (3) of this section, engage in any
affiliated organization that makes or and removing the words ‘‘that is eligible pattern or practice that results in a
originates loans through an eligible lender for interest benefits’’ immediately after denial of a borrower’s access to FFEL
trustee. the word ‘‘loan’’. loans because of the borrower’s race,
(a) A school or school-affiliated I. Revising newly redesignated sex, color, religion, national origin, age,
organization may not contract with an paragraph (f). handicapped status, income, or
selection of a particular lender or (iii) For a graduate or professional payments or activities were offered or
guaranty agency. student who has not received a prior provided to secure applications for
* * * * * Federal Stafford, or Direct subsidized or FFEL loans. To reverse the presumption,
29. Section 682.604 is amended by: unsubsidized loan, provide the the lender must present evidence that
A. Revising paragraph (f)(1). information specified in paragraph the activities or payments were
B. Redesignating paragraphs (f)(2), (f)(5)(i) through (f)(5)(iv) of this section. provided for a reason unrelated to
(f)(3), and (f)(4) as paragraphs (f)(5), (3) Initial counseling must be securing applications for FFEL loans or
(f)(6), and (f)(7), respectively. conducted either in person, by securing FFEL loan volume.
C. Adding new paragraphs (f)(2), audiovisual presentation, or by * * * * *
(f)(3), and (f)(4). interactive electronic means.
D. Revising newly redesignated (4) A school must ensure that an PART 685—WILLIAM D. FORD
paragraph (f)(5) introductory text. individual with expertise in the title IV FEDERAL DIRECT LOAN PROGRAM
E. In newly redesignated paragraph programs is reasonably available shortly
(f)(5)(iv), removing the words, ‘‘of a after the counseling to answer the 32. The authority citation for part 685
Stafford loan’’. student borrower’s questions regarding continues to read as follows:
F. In newly redesignated paragraph those programs. As an alternative, prior Authority: 20 U.S.C. 1087a et. seq., unless
(f)(5)(v), adding the words ‘‘, or student to releasing the proceeds of a loan in the otherwise noted.
borrowers with Stafford and PLUS case of a student borrower enrolled in 33. Section 685.204 is amended by:
loans, depending on the types of loans a correspondence program or a student A. In paragraph (b)(1)(iii)(A)
the borrower has obtained,’’ borrower enrolled in a study-abroad introductory text, removing the words
immediately after the words ‘‘Stafford program that the home institution ‘‘(b)(1)(i)’’ and adding, in their place, the
loan borrowers’’. approves for credit, the counseling may words ‘‘(b)(1)(i)(A)’’.
G. In paragraph (g)(2)(i), removing the be provided through written materials. B. In paragraph (d)(1), removing the
words ‘‘Stafford or SLS loans’’ and (5) Initial counseling for Stafford Loan word ‘‘the’’ and adding, in its place, the
adding, in their place, ‘‘Stafford loans, borrowers must— word ‘‘The’’.
or student borrowers who have obtained * * * * * C. In paragraph (d)(2), removing the
Stafford and PLUS loans, depending on 30. Section 682.705 is amended by word ‘‘the’’ and adding, in its place, the
the types of loans the student borrower adding new paragraph (c) to read as word ‘‘The’’.
has obtained,’’. follows: D. Adding new paragraph (g).
The revision and additions read as The addition reads as follows:
follows: § 682.705 Suspension proceedings.
§ 685.204 Deferments.
* * * * *
§ 682.604 Processing the borrower’s loan (c) In any action to suspend a lender * * * * *
proceeds and counseling borrowers. (g)(1) To receive a deferment, except
based on a violation of the prohibitions
* * * * * in section 435(d)(5) of the Act, if the as provided under paragraph (b)(1)(i)(A)
(f) Initial counseling. (1) A school Secretary, the designated Department of this section, the borrower must
must ensure that initial counseling is official, or hearing official finds that the request the deferment and provide the
conducted with each Stafford Loan lender provided or offered the payments Secretary with all information and
borrower prior to its release of the first or activities listed in paragraph (5)(i) of documents required to establish
disbursement unless the student the definition of lender in § 682.200(b), eligibility for the deferment. In the case
borrower has received a prior Federal the Secretary or the official applies a of a deferment granted under paragraph
Stafford, Federal SLS, or Direct rebuttable presumption that the (e)(1) of this section, a borrower’s
subsidized or unsubsidized loan. payments or activities were offered or representative may request the
(2) A school must ensure that initial provided to secure applications for deferment and provide the required
counseling is conducted with each FFEL loans or to secure FFEL loan information and documents on behalf of
graduate or professional student PLUS volume. To reverse the presumption, the the borrower.
loan borrower prior to its release of the lender must present evidence that the (2) After receiving a borrower’s
first disbursement, unless the student activities or payments were provided for written or verbal request, the Secretary
has received a prior Federal PLUS loan a reason unrelated to securing may grant a deferment under paragraphs
or Direct PLUS loan. The initial applications for FFEL loans or securing (b)(1)(i)(B), (b)(1)(i)(C), (b)(2)(i), (b)(3)(i),
counseling must— FFEL loan volume. and (e)(1) of this section if the Secretary
(i) Inform the student borrower of 31. Section 682.706 is amended by confirms that the borrower has received
sample monthly repayment amounts adding new paragraph (d) to read as a deferment on a Perkins or FFEL Loan
based on a range of student levels of follows: for the same reason and the same time
indebtedness or on the average period.
indebtedness of graduate or professional § 682.706 Limitation or termination (3) The Secretary relies in good faith
student PLUS loan borrowers, or proceedings. on the information obtained under
student borrowers with Stafford and * * * * * paragraph (g)(2) of this section when
PLUS loans, depending on the types of (d) In any action to limit or terminate determining a borrower’s eligibility for
loans the borrower has obtained, at the a lender’s eligibility based on a violation a deferment, unless the Secretary, as of
same school or in the same program of of the prohibitions in section 435(d)(5) the date of determination, has
study at the same school; of the Act, if the Secretary, the information indicating that the borrower
(ii) For a graduate or professional designated Department official or does not qualify for the deferment. The
student who has received a prior hearing official finds that the lender Secretary resolves any discrepant
Federal Stafford, or Direct subsidized or provided or offered the payments or information before granting a deferment
unsubsidized loan, provide the activities listed in paragraph (5)(i) of the under paragraph (g)(2) of this section.
information specified in paragraph definition of Lender in § 682.200(b), the (4) If the Secretary grants a deferment
(d)(1)(i) through (d)(1)(iii) of this Secretary or the official applies a under paragraph (g)(2) of this section,
section; and rebuttable presumption that the the Secretary notifies the borrower that
the deferment has been granted and that physician, who is a doctor of medicine (4) If the Secretary determines that the
the borrower has the option to cancel or osteopathy legally authorized to certification provided by the borrower
the deferment and continue to make practice in a State, that the borrower is does not support the conclusion that the
payments on the loan. totally and permanently disabled as borrower meets the criteria for a total
(5) If the Secretary grants a military defined in § 682.200(b). The and permanent disability discharge, the
service deferment based on a request certification must be on a form Secretary notifies the borrower that the
from a borrower’s representative, the approved by the Secretary. The application for a disability discharge has
Secretary notifies the borrower that the borrower must submit the application to been denied, and that the loan is due
deferment has been granted and that the the Secretary within 90 days of the date and payable under the terms of the
borrower has the option to cancel the the physician certifies the application. promissory note.
deferment and continue to make (2) Upon receipt of the borrower’s (d) Eligibility requirements for total
payments on the loan. The Secretary application, the Secretary notifies the and permanent disability. (1) A
may also notify the borrower’s borrower that— borrower meets the eligibility
representative of the outcome of the (i) No payments are due on the loan; requirements for a total and permanent
deferment request. and disability discharge if, during and at the
* * * * * (ii) The borrower, in order to remain end of the three-year conditional
34. Section 685.212 is amended by eligible for the discharge from the date discharge period—
revising paragraph (a)(1) and (2) to read the physician completes and certifies (A) The borrower’s annual earnings
as follows: the borrower’s total and permanent from employment do not exceed 100
disability on the application until the percent of the poverty line for a family
§ 685.212 Discharge of a loan obligation. date the Secretary makes an initial of two, as determined in accordance
(a) * * * (1) If a borrower (or a eligibility determination— with the Community Service Block
student on whose behalf a parent (A) Cannot work and earn money or
Grant Act;
borrowed a Direct PLUS Loan) dies, the receive any new title IV loans; and
(B) Must, on any loan received prior (B) The borrower does not receive a
Secretary discharges the obligation of
to the date the physician completed and new loan under the Perkins, FFEL or
the borrower and any endorser to make
certified the application, ensure that the Direct Loan programs, except for a FFEL
any further payments on the loan based
full amount of any title IV loan or Direct Consolidation Loan that does
on an original or certified copy of the
disbursement made to the borrower on not include any loans that are in a
borrower’s (or student’s in the case of a
or after the date the physician conditional discharge status; and
Direct PLUS loan obtained by a parent
completed and certified the application (C) The borrower ensures, on any loan
borrower) death certificate, or an
is returned to the holder within 120 received prior to the date the physician
accurate and complete photocopy of the
days of the disbursement date. completed and certified the application,
original or certified copy of the
(c) Initial determination of eligibility. that the full amount of any title IV loan
borrower’s (or student’s in the case of a
(1) The borrower must continue to meet disbursement made on or after the date
Direct PLUS loan obtained by a parent
the conditions in paragraph (b)(2)(ii) of of the Secretary’s initial eligibility
borrower) death certificate.
(2) If an original or certified copy of this section from the date the physician determination is returned to the holder
the death certificate, or an accurate and completes and certifies the borrower’s within 120 days of the disbursement
complete photocopy of the original or total and permanent disability on the date.
certified copy of the death certificate is application until the Secretary makes an (2) During the conditional discharge
not available, the Secretary discharges initial determination of the borrower’s period, the borrower or, if applicable,
the loan only if other reliable eligibility in accordance with paragraph the borrower’s representative—
documentation establishes, to the (c)(2) of this section. (A) Is not required to make any
Secretary’s satisfaction, that the (2) If, after reviewing the borrower’s payments on the loan;
borrower (or student) has died. The application, the Secretary determines (B) Is not considered past due or in
Secretary discharges a loan based on that the certification provided by the default on the loan, unless the loan was
documentation other than an original or borrower supports the conclusion that past due or in default at the time the
certified copy of the death certificate, or the borrower meets the criteria for a conditional discharge was granted;
an accurate and complete photocopy of total and permanent disability (C) Must promptly notify the
the original or certified copy of the discharge, the borrower is considered Secretary of any changes in address or
death certificate only under exceptional totally and permanently disabled as of phone number;
circumstances and on a case-by-case the date the physician completes and (D) Must promptly notify the
basis. certifies the borrower’s application. Secretary if the borrower’s annual
(3) The Secretary suspends collection earnings from employment exceed the
* * * * *
35. Section 685.213 is revised to read activity and notifies the borrower that amount specified in paragraph (d)(1)(A)
as follows: the loan will be in a conditional of this section; and
discharge status for a period of up to (E) Must provide the Secretary, upon
§ 685.213 Total and permanent disability. three years upon making an initial request, with additional documentation
(a) General. A borrower’s Direct Loan determination that the borrower is or information related to the borrower’s
is discharged if the borrower becomes totally and permanently disabled, as eligibility for a discharge under this
totally and permanently disabled, as defined in § 682.200(b). This section.
defined in § 682.200(b), and satisfies the notification identifies the conditions of (3) If the borrower continues to meet
additional eligibility requirements the conditional discharge period the eligibility requirements for a total
contained in this section. specified in paragraph (d)(1) of this and permanent disability discharge
(b) Discharge application process. (1) section. The conditional discharge during and at the end of the three-year
To qualify for a discharge of a Direct period begins on the date the Secretary conditional discharge period, the
Loan based on a total and permanent makes the initial determination that the Secretary—
disability, a borrower must submit to borrower is totally and permanently (i) Discharges the obligation of the
the Secretary a certification by a disabled. borrower and any endorser to make any
further payments on the loan at the end Unsubsidized Loan and the maximum H. In paragraph (b)(4)(i), removing the
of that period; and interest rate for a Direct PLUS Loan; words ‘‘Direct Subsidized Loan and
(ii) Returns any payments received (B) Periods when interest accrues on Direct Unsubsidized Loan borrowers’’
after the date the physician completed a Direct Subsidized Loan and a Direct and adding, in their place, the words
and certified the borrower’s loan Unsubsidized Loan, and periods when ‘‘student borrowers who have obtained
discharge application. interest accrues on a Direct PLUS Loan; Direct Subsidized Loans and Direct
(4) If, at any time during or at the end and Unsubsidized Loans, or student
of the three-year conditional discharge (C) The point at which a Direct borrowers who have obtained Direct
period, the borrower does not continue Subsidized Loan and a Direct Subsidized, Direct Unsubsidized, and
to meet the eligibility requirements for Unsubsidized Loan enters repayment, Direct PLUS Loans, depending on the
a total and permanent disability and the point at which a Direct PLUS types of loans the student borrower has
discharge, the Secretary resumes Loan enters repayment; and obtained, for attendance’’.
collection activity on the loan. The (ii) Give the graduate or professional The addition reads as follows:
Secretary does not require the borrower student borrower the opportunity to
to pay any interest that accrued on the request the maximum Direct Subsidized § 685.304 Counseling borrowers.
loan from the date of the Secretary’s or Direct Unsubsidized Loan amount for (a) * * *
initial determination described in which the borrower is eligible.
paragraph (c)(2) of this section through (2) Except as provided in paragraph
the end of the conditional discharge * * * * * (a)(5) of this section, a school must
period. (10) * * * ensure that initial counseling is
(ii) * * * conducted with each graduate or
* * * * * (A) Generally an academic year, as professional student Direct PLUS Loan
36. Section 685.301 is amended by:
A. In paragraph (a)(1), removing the defined by the school in accordance borrower prior to making the first
words ‘‘in the application by the with 34 CFR 668.3, except that the disbursement of the loan unless the
student’’ and adding, in their place, the school may use a longer period of time student borrower has received a prior
words, ‘‘by the borrower and, in the case corresponding to the period to which Direct PLUS Loan or Federal PLUS
of a parent PLUS loan borrower, the the school applies the annual loan Loan. The initial counseling must—
student and the parent borrower.’’ limits under § 685.203; or (i) Inform the student borrower of
B. Redesignating paragraphs (a)(3), * * * * * sample monthly repayment amounts
(a)(4), (a)(5), (a)(6), (a)(7), (a)(8), and 37. Section 685.304 is amended by: based on a range of student levels or
(a)(9) as (a)(4), (a)(5), (a)(6), (a)(7), (a)(8), A. In paragraph (a)(1) removing the indebtedness or on the average
(a)(9), and (a)(10), respectively. words ‘‘(a)(4)’’ and adding, in their indebtedness of graduate or professional
C. Adding new paragraph (a)(3). place, the words ‘‘(a)(5)’’. student PLUS loan borrowers, or
D. Revising newly redesignated B. Redesignating paragraphs (a)(2), student borrowers with Direct PLUS
paragraph (a)(10)(ii)(A). (a)(3), (a)(4), (a)(5), and (a)(6) as Loans and Direct Subsidized Loans or
The addition and revisions read as paragraphs (a)(3), (a)(4), (a)(5), (a)(6), Direct Unsubsidized Loans, depending
follows: and (a)(7), respectively. on the types of loans the borrower has
§ 685.301 Determining eligibility and loan C. Adding a new paragraph (a)(2). obtained, at the same school or in the
amount. D. Revising newly redesignated same program of study at the same
(a) * * * paragraph (a)(4) introductory text. school;
(3) Before originating a Direct PLUS E. In newly redesignated paragraph (ii) For a graduate or professional
Loan for a graduate or professional (a)(4)(iv) removing the words ‘‘Direct student who has received a prior
student borrower, the school must Unsubsidized Loan borrowers’’ and Federal Stafford, or Direct Subsidized or
determine the borrower’s eligibility for adding, in their place, the words ‘‘Direct Unsubsidized Loan provide the
a Direct Subsidized and a Direct Unsubsidized Loan borrowers, or information specified in paragraph
Unsubsidized Loan. If the borrower is student borrowers with Direct (a)(3)(i) of this section; and
eligible for a Direct Subsidized or Direct Subsidized, Direct Unsubsidized, and (iii) For a graduate or professional
Unsubsidized Loan but has not Direct PLUS Loans, depending on the student who has not received a prior
requested the maximum Direct types of loans the borrower has Federal Stafford, or Direct Subsidized or
Subsidized or Direct Unsubsidized Loan obtained,’’. Direct Unsubsidized Loan, provide the
amount for which the borrower is F. In newly redesignated paragraph information specified in paragraph
eligible, the school must— (a)(5) introductory text, removing the (a)(4)(i) through (a)(4)(iv) of this section.
(i) Notify the graduate or professional words ‘‘(a)(1)–(3)’’ and adding, in their
* * * * *
student borrower of the maximum place, the words ‘‘(a)(1) through (4)’’.
G. In newly redesignated paragraph (4) Initial counseling for Direct
Direct Subsidized or Direct
(a)(5)(i), removing the words ‘‘(a)(1)’’ Subsidized Loan and Direct
Unsubsidized Loan amount that he or
and adding, in their place, the words Unsubsidized Loan borrowers must—
she is eligible to receive and provide the
borrower with a comparison of— ‘‘(a)(1) or (a)(2)’’, and removing the * * * * *
(A) The maximum interest rate for a words ‘‘(a)(3)’’ and adding in their place [FR Doc. E7–10826 Filed 6–11–07; 8:45 am]
Direct Subsidized Loan and a Direct the words ‘‘(a)(4)’’. BILLING CODE 4000–01–P

Proposed Rule: Postsecondary Education: Federal Perkins Loan, Federal Family Education Loan, and William D. Ford Federal Direct Loan Programs

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Proposed Rule: Postsecondary Education: Federal Perkins Loan, Federal Family Education Loan, and William D. Ford Federal Direct Loan Programs

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Tuesday,

June 12, 2007

appropriate aid, such as a reader or

information that another FFEL lender or

records associated with an assigned believed that the Department’s original

proprule/1999-3/081099a.html. applications for guarantee by the athletic organizations, and social,

allowable activities. disclosure of loan information to eligibility. Similarly, under the

Regulatory section Information collection Collection

each disbursement. and permanent disability, a borrower

grant a deferment under paragraphs * * * * *

lenders, advising prospective borrowers specified volume of loans, using the

loans to which it pertains; and

H. In newly redesignated paragraph

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