Federal Family Education Loan Program; Final Rule DEPARTMENT OF EDUCATION

SUMMARY: The Secretary amends the regulations governing the Federal

Family Education Loan (FFEL) Program. The FFEL Program consists of the

Federal Stafford, Federal Supplemental Loans for Students (SLS),

Federal PLUS, and the Federal Consolidation Loan programs. These

amendments are needed to implement changes made to the Higher Education

Act of 1965, as amended (HEA), by the Higher Education Amendments of

1992, and certain technical changes made by the Omnibus Budget

Reconciliation Act of 1993, the National and Community Service Trust

Act of 1993, and the Higher Education Technical Amendments of 1993. The

regulations amend the FFEL Program repayment, deferment, and

forbearance provisions, and enhance the ability of lenders and guaranty

agencies to service and collect FFEL Program loans.

EFFECTIVE DATE: Pursuant to section 482(c) of the Higher Education Act

of 1965, as amended (20 U.S.C. 1089(c)), these regulations take effect

July 1, 1995, with the exception of the information collection

requirements in Secs. 682.209, 682.210, and 682.211. The information

collection requirements in Secs. 682.209, 682.210, and 682.211 will

become effective on July 1, 1995, or after the information collection

requirements contained in those sections have been submitted by the

Department of Education and approved by the Office of Management and

Budget under the Paperwork Reduction Act of 1980, whichever is later. A

document announcing the effective date will be published in the Federal

Register.

During the period before July 1, 1995, the Secretary will provide

guidance to all FFEL Program participants to ensure effective and

uninterrupted administration of the FFEL Program, and to ensure that

eligible borrowers receive the benefits provided by the statutory

provisions reflected in these regulations.

FOR FURTHER INFORMATION CONTACT: George Harris, Senior Program

Specialist, Loans Branch, Division of Policy Development, Policy,

Training, and Analysis Service, U.S. Department of Education, 400

Maryland Avenue, SW. (room 4310, ROB-3), Washington, DC. 20202-5449.

Telephone: (202) 708-8242. Individuals who use a telecommunications

device for the deaf (TDD) may call the Federal Information Relay

Service (FIRS) at 1-800-877-8339 between 8 a.m. and 8 p.m., Eastern

time, Monday through Friday.

SUPPLEMENTARY INFORMATION: The Secretary is amending 34 CFR part 682 to

implement changes made to the HEA by the Higher Education Amendments of

1992 (Pub. L. 102-325), enacted July 23, 1992, and certain technical

changes made by the Omnibus Budget Reconciliation Act of 1993 (Pub. L.

103-66), enacted August 10, 1993, the National and Community Service

Trust Act of 1993 (Pub. L. 103-82), enacted September 21, 1993, and the

Higher Education Technical Amendments of 1993 (Pub. L. 103-208),

enacted December 20, 1993. These regulations seek to improve the

efficiency of federal student aid programs, and, by so doing, to

improve their capacity to enhance opportunities for postsecondary

education.

On March 24, 1994, the Secretary published a notice of proposed

rulemaking (NPRM) for part 682 in the Federal Register (59 FR 14070).

The NPRM included a discussion of the major issues surrounding the

proposed changes which will not be repeated here. The following list

summarizes those issues and identifies the pages of the preamble to the

NPRM on which a discussion of those issues may be found:

Amendment to Sec. 682.209 to provide income-sensitive

repayment schedules for borrowers (page 14071);

Amendment to Sec. 682.210 to provide economic hardship

deferments for borrowers (page 14072);

Amendments to Sec. 682.211 to provide mandatory and

administrative forbearances for borrowers (page 14072).

Substantive Revisions to the Notice of Proposed Rulemaking

Section 682.209 Repayment of a Loan

The Secretary has modified the requirement that a lender

grant a choice of repayment options to a borrower to specify that this

requirement applies only if the borrower responds to the lender's offer

within 45 days after the lender made the offer.

The Secretary has revised the borrower income

documentation requirements that apply if a borrower wants to repay a

loan under an income-sensitive repayment schedule. The modified

requirements apply only if a borrower reports income that would cause

the amount of his or her monthly payment to be insufficient to repay

the loan within the maximum 10-year repayment period.

The Secretary has deleted the provision that would have

required a lender to obtain a copy of a borrower's federal income tax

return if the borrower wants to repay a loan under an income-sensitive

repayment schedule.

The final regulations have been revised to require a

lender either to make adjustments to the amount of the borrower's

installment payments to reflect annual changes in the variable interest

rate on the borrower's loan or, if the lender declines to make such

adjustments, to grant the administrative forbearance described in

Sec. 682.211(j)(5)(i) so that the borrower can repay the loan within

the maximum repayment period.

The final regulations have been revised to require a

lender to grant the administrative forbearance described in

Sec. 682.211(j)(5)(ii) in cases where the effect of decreased

installment amounts paid under an income-sensitive repayment schedule

would result in the loan not being repaid within the maximum repayment

period.

Section 682.210 Deferment

The regulations have expanded the types of debts that can

be considered when determining a borrower's eligibility for an economic

hardship deferment. Section 682.210(s)(6) has been revised to include

any debt, whether in default or otherwise, owed by a borrower for a

postsecondary education loan obtained through a federal program in

determining the borrower's eligibility for an economic hardship

deferment.

The Secretary has modified the provision that would have

required a lender to obtain a copy of a borrower's federal income tax

return if the borrower requested an economic hardship deferment. This

requirement will now apply only if the borrower requests an additional

period of economic hardship deferment that begins less than one year

after the end of an economic hardship deferment, other than a deferment

based solely on the borrower's status as a public assistance recipient.

The Secretary has deleted the criterion that would have

permitted a borrower to receive an economic hardship deferment if the

borrower did not have monthly disposable income exceeding four times

the minimum wage or the poverty level for a family of two and the

borrower had monthly student loan payments of at least 20 percent of

the borrower's monthly disposable income. That criterion has been

replaced with one under which a borrower whose total monthly gross

income was not more than twice the minimum wage or the poverty level

for a family of two would qualify for an economic hardship deferment by

not having remaining total monthly gross income, from employment or

from other sources, that exceeds the greater of the minimum wage rate

or the poverty level for a family of two after deducting an amount

equal to what the borrower would owe for monthly payments on

postsecondary education loans obtained through a federal program.

In addition to the criterion discussed above, the

Secretary has added two other criteria under which a borrower may

establish eligibility for an economic hardship deferment: (1) by being

granted an economic hardship deferment under either the Federal Direct

Student Loan (FDSL) or Federal Perkins Loan programs for the period of

time for which the borrower has requested an economic hardship

deferment for his or her FFEL loan; or (2) by being eligible for a

payment under a federal or state public assistance program, such as Aid

to Families with Dependent Children, Supplemental Security Income, Food

Stamps, or state general public assistance.

Section 682.211 Forbearance

The regulations have been amended to add a provision to

require a lender to grant a forbearance to a borrower who serves in a

national service position for which the borrower receives a national

service educational award under Pub. L. 103-82, or to a borrower who is

eligible for forgiveness of a Federal Stafford Loan under the Federal

Stafford Loan Forgiveness Demonstration Program because of certain

public service under the terms of section 428J of the HEA, if that

program is funded.

The regulations have been amended to add a provision to

require a lender to grant a forbearance to a borrower who would be

eligible for a partial repayment of a loan under the Student Loan

Repayment Programs administered by the Department of Defense under 10

U.S.C. 2171.

The one-year forbearance period proposed in the NPRM to

cover the effect that variable interest rate changes may have on a

borrower's ability to repay the loan within 10 years under a fixed-

amount (now referred to as a standard repayment schedule) or graduated

repayment schedule has been lengthened to three years.

The three-year forbearance period proposed in the NPRM to

cover the effect that a borrower's decreased income may have on his or

her ability to repay the loan within 10 years under an income-sensitive

repayment schedule has been increased to five years.

The provision in the NPRM that would have required a

lender to obtain a copy of a borrower's federal income tax return if

the borrower requested a mandatory forbearance based on a high debt-to-

income ratio has been deleted.

Analysis of Comments and Changes

In response to the Secretary's invitation in the NPRM, 32 parties

submitted comments on the proposed regulations. An analysis of the

comments and of the changes made to the regulations as a result of

those comments follows.

Major issues are grouped according to subject, with references to

the appropriate sections of the regulations. Other substantive issues

are discussed under the section of the regulations to which they

pertain. Technical and other minor changes, and suggested changes the

Secretary is not legally authorized to make under the applicable

statutory authority, generally are not addressed.

Section 682.209 Repayment of a Loan

1. Comments: Some commenters noted that paragraph (a)(6)(i) of

Sec. 682.209 was not included in the NPRM, but needed to be updated to

reflect the new regulations for income-sensitive repayment schedules.

Discussion: The Secretary agrees with the commenters.

Changes: Section 682.209(a)(6)(i) has been revised to state that a

borrower's installment payment may increase or decrease during the

repayment period.

Section 682.209(a)(6)(iii)

2. Comments: Some commenters asked if a lender could establish a

repayment schedule for a borrower at the time the loan is made,

providing the borrower is permitted to choose another schedule, if

desired, six months before the first payment is due. If the borrower

does not notify the lender that he or she wishes a different type of

repayment schedule, the lender can assume that the borrower continues

to agree with the schedule established by the lender when the loan was

made.

Discussion: Section 428(b)(1)(E)(i) of the HEA prohibits a lender

from offering a choice of repayment schedules to a borrower more than

six months prior to the date on which the borrower's first payment is

due. A lender may not establish a repayment schedule for the borrower

when the loan is made (frequently several years before repayment is

due) and inform the borrower that the lender will presume that the

borrower is agreeable to that type of repayment schedule in the absence

of the borrower's later request for a different repayment schedule. The

Secretary believes that a borrower may not recall that he or she has

that option if the lender does not remind the borrower of it shortly

(three to six months) before the first payment is due.

Changes: None.

3. Comments: Some commenters asked if a lender would be required to

permit a borrower to repay multiple loans under several different

repayment schedules, if that was what the borrower wished.

Discussion: Section 432(l)(1) of the HEA directs the Secretary to

prescribe procedures to standardize servicing of FFEL Program loans. In

addition, section 485C of the HEA directs eligible lenders, to the

extent practicable, to treat all loans made under the same section of

the HEA as one loan and to send the borrower one bill for such loans.

The Secretary believes that the effective implementation of these

statutory provisions would be advanced by allowing a lender to require

a borrower to repay all loans held by the lender in accordance with a

single repayment schedule.

Changes: Section 682.209(a)(6)(ix) has been added to the final

regulations to permit a lender to require that all FFEL loans owed by a

borrower to the lender be combined and repaid under one repayment

schedule.

4. Comments: Some commenters asked if the requirement to offer a

choice of repayment schedules would apply in the case of a borrower who

received a loan on or after a date specified in the proposed

regulations, but who was already in repayment under a schedule

established by the lender.

Discussion: As required by section 428(b)(1)(E)(i) of the HEA, a

new borrower who receives a loan on or after July 1, 1993 must be

offered a choice of repayment schedules. If a borrower has entered the

repayment period on the loan, the lender must notify the borrower of

the new repayment options, and if a new option is selected, provide the

borrower with a new repayment schedule prior to the effective date of

these regulations (July 1, 1995).

Changes: None.

5. Comments: Some commenters requested clarification of what is

meant by a loan ``first disbursed on or after July 1, 1993.'' The

commenters asked if the requirement to offer a choice of repayment

schedules would apply if any disbursement of a loan was made on or

after that date.

Discussion: A lender is required to offer a choice of repayment

schedules to a new borrower whose initial disbursement of a loan is

made on or after July 1, 1993.

Changes: None.

6. Comments: Some commenters objected to the requirement that a

lender must offer a choice of a standard, graduated, or income-

sensitive repayment schedule to certain borrowers. The commenters

believed that section 428(b)(1)(E)(i) of the HEA permits a lender to

offer a borrower a choice of two repayment schedules: (1) a standard

schedule; or (2) a flexible repayment schedule (either graduated or

income-sensitive) chosen by the lender. The commenters stated their

view that there is little or no difference between a graduated

repayment schedule and an income-sensitive repayment schedule.

Therefore, the commenters contended, there would be no harm done if the

lender made the choice for the borrower.

Discussion: It appears that the rationale that the commenters have

based their recommendations upon does not acknowledge the fundamental

differences between graduated and income-sensitive repayment schedules:

a graduated schedule is a modified standard repayment schedule with

preset yearly payment amounts specified when the schedule is

established; an income-sensitive schedule establishes payment amounts

for one year at a time, subject to the borrower's income. The Secretary

believes that Congress intended that the dramatically different method

of repaying a loan under an income-sensitive repayment schedule would

be of great assistance to a borrower because the installment amounts

can be adjusted to reflect the borrower's ability to repay the loan.

Although lenders could have used income-sensitive repayment schedules

in the past, almost none of them chose to do so. As a result, if a

borrower was locked into a standard repayment schedule and was unable

to make scheduled payments or qualify for a deferment, a default was

inevitable if the lender declined to grant forbearance. Congress

therefore concluded, and the Secretary agrees, that a remedy to this

problem (in conjunction with mandatory forbearances and a new economic

hardship deferment) would be to permit the borrower to repay the loan

under an income-sensitive repayment schedule. The Secretary believes

that defaults will decrease if borrowers are given that option.

Changes: None.

7. Comments: Some commenters recommended that the regulations

specifically permit a borrower who has selected one type of repayment

option to later choose a different one. The commenters proposed that a

borrower be restricted to two changes during the repayment period. Some

commenters believed that the lender should be permitted to grant an

administrative forbearance to a borrower during the change, so that any

existing delinquency status on the loan can be waived before the new

repayment schedule commences.

Discussion: Section 428(b)(1)(E)(i) of the HEA neither prohibits a

lender from permitting a borrower to change his or her mind about a

chosen repayment schedule nor requires a lender to comply with a

borrower's request to change the repayment schedule. The Secretary

encourages lenders to revise repayment schedules in response to

borrower requests, if practicable, but does not believe that the

borrower's repayment of the loan needs to be interrupted while the

lender develops a new repayment schedule. The borrower simply continues

to pay under the existing schedule until the new one is in place.

Changes: None.

8. Comments: Some commenters recommended that the regulations

address a lender's obligation to offer a choice of repayment schedules

to a borrower if the lender received notification of the borrower's

withdrawal from school after the repayment period on the borrower's

loan had already begun, or if the notification was received less than

90 days before the repayment period on the loan was due to commence.

Discussion: The Secretary agrees with the commenters. The

Secretary's longstanding policy has been to require a lender to

establish a first payment due date that is not more than 75 days after

the date the lender received the notification that the borrower had

entered the repayment period. Section 428(b)(1)(E)(i) of the HEA

requires the lender to offer a choice of repayment schedules to a

borrower prior to the date that the borrower's first payment is due.

If, because of late notification, the lender does not have sufficient

time to establish an income-sensitive repayment schedule for the

borrower, the lender must convert the loan to a repayment status by

establishing a standard repayment schedule. After receiving the

required documentation from a borrower who wishes to repay his or her

loan through an income-sensitive repayment schedule, the lender must

follow the procedures prescribed in Sec. 682.209(a)(6)(viii).

Changes: Section 682.209(a)(6)(viii)(B) of the final regulations

has been revised to permit a lender to request income documentation

from a borrower for the purpose of estimating an income-sensitive

repayment schedule less than 90 days before the borrower's first

payment is due if the lender receives late notification that the

borrower has entered the repayment period.

Section 682.209(a)(6)(iv)

9. Comment: Some commenters recommended that the requirement that

each scheduled payment equal at least the interest that accrues during

the interval between payments should not apply to an income-sensitive

repayment schedule. The commenters believed that the income of some

borrowers would occasionally be so low that they could not afford to

pay the interest on their loans. The commenters believed that a more

realistic approach would be to recognize that a repayment schedule that

was truly sensitive to a borrower's income may result in scheduled

payments that are less than the interest that accrues. The commenters

recommended that the lender be permitted to schedule payments that are

less than the accruing interest, and capitalize any unpaid interest.

Discussion: With the exception of a loan made under the Federal

Consolidation Loan Program, the maximum repayment period that applies

to an FFEL Program loan is 10 years. Given this constraint, negative

amortization (in which payments are less than the interest that accrued

since the last payment) is not a workable option in the FFEL Program.

Some commenters may have believed that the FFEL repayment regulations

should mirror the regulations that will be promulgated for the Federal

Direct Student Loan (FDSL) Program's income contingent repayment plan.

Although the FFEL and FDSL programs will have comparable repayment

provisions in many respects, the 10-year repayment limit in the FFEL

Program does not exist in the income contingent repayment plan provided

in the FDSL Program under section 455(d)(1)(D) of the HEA. In addition,

unlike in the FFEL Program, negative amortization is specifically

permitted for FDSL loans under section 455(d)(1)(C) of the HEA.

The Secretary believes that if a borrower finds his or her

scheduled FFEL payment amount to be too difficult to maintain, even

though the borrower's scheduled payment represents accrued interest

only, the borrower's difficulties can be ameliorated through the use of

appropriate forbearances and deferments.

Changes: The final regulations have been revised to require a

lender to grant an administrative forbearance under Sec. 682.211(j)(5)

for up to 5 years of borrower payments where the effect of decreased

installment amounts under an income-sensitive repayment schedule would

cause the loan to be in repayment for more than 10 years.

Section 682.209(a)(6)(v)

10. Comments: Some commenters recommended that the regulations

include a time limit for the borrower to choose a repayment schedule

after being notified of the option to choose one.

Discussion: The Secretary agrees with the commenters.

Changes: The final regulations have been revised to require a

lender to grant the borrower's choice of repayment schedule only if the

borrower responds to the lender's offer within 45 days after the lender

makes the offer. As discussed in response to comment 7, a lender is

encouraged to agree to a borrower's request to revise an established

repayment schedule if this request is made after the 45-day period.

11. Comments: Some commenters were confused about the reference to

a borrower who did not ``qualify'' for a graduated repayment schedule

and asked what procedures a lender must follow to determine if a

borrower ``qualifies'' for a graduated repayment schedule.

Discussion: The Secretary agrees that the use of the word

``qualifies'' in the proposed regulation was confusing.

Changes: The final regulations have been revised to require the

lender to establish a standard repayment schedule for a borrower who

does not select an income-sensitive or graduated schedule, or who does

not provide the documentation required for an income-sensitive

schedule.

12. Comments: Some commenters recommended that the regulations

clarify a lender's obligation concerning the offer of an income-

sensitive repayment schedule to a co-maker of a loan.

Discussion: A co-maker of a loan is a borrower of a loan. Any

requirement that applies to a borrower also applies to a co-maker.

Changes: None.

13. Comments: Some commenters recommended that a lender be

permitted to establish either a graduated or a standard repayment

schedule if the borrower does not choose a repayment schedule, or does

not provide income documentation for an income-sensitive repayment

schedule.

Discussion: The Secretary believes that the interests of promoting

consistent treatment of borrowers and simplification of the FFEL

Program is best served if there is one standard repayment schedule that

applies in these situations. Therefore, a lender must establish a

standard repayment schedule if the borrower does not choose a repayment

schedule, or does not provide income documentation for an income-

sensitive repayment schedule. As discussed in response to comment 7, a

lender could agree to a borrower's later request to revise an

established repayment schedule.

Changes: The final regulations have been revised to require a

lender to establish a standard repayment schedule for a borrower who

does not select an income-sensitive repayment schedule or does not

provide the documentation required for an income-sensitive repayment

schedule.

Section 682.209(a)(6)(vi)

14. Comments: Some commenters recommended that a lender be allowed

to adjust the borrower's monthly payment amount owed under a standard

repayment schedule to reflect annual variable interest rate changes.

Discussion: The Secretary believes that such adjustments would be

beneficial to borrowers and that lenders should have the option of

adjusting annual variable interest payment amounts in much the same way

that lenders routinely adjust installment amounts for other variable

interest rate loans they make, e.g., adjustable rate mortgage loans.

Changes: Section 682.209(a)(6) of the final regulations has been

revised to provide a lender the option of making adjustments to the

amount of the borrower's installment payments to reflect annual changes

in the variable interest rate on the borrower's loan, or to grant the

administrative forbearance described in Sec. 682.211(j)(5)(i) for a

period of up to 3 years of payments in cases where the effect of a

variable interest rate on a standard or graduated repayment schedule

would result in a loan not being repaid within the maximum repayment

term.

Section 682.209(a)(6)(vii)

15. Comments: Some commenters believed that a lender should be

permitted to offer a graduated repayment schedule that establishes an

installment amount that exceeds three times the amount of any other

installment. The commenters believed that the income of a borrower

during the early years of repayment may be so low that a strict

adherence to the ``three times rule'' would not be helpful to the

borrower.

Discussion: The Secretary believes that the ``three times rule'' is

needed to prevent excessively large payment amounts that the borrower

may not be able to afford. If a borrower does not have sufficient

income to make scheduled payments that are scheduled within the

constraints of the ``three times rule'' and the lender's application of

the mandatory forbearance described in Sec. 682.211(j)(5)(ii), the

borrower could request assistance through deferments and other

forbearances that would normally be available.

Changes: None.

Section 682.209(a)(6)(viii)(A)

16. Comments: Some commenters believed that there should be an

absolute prohibition against any repayment schedule that establishes an

installment amount that exceeds three times the amount of any other

installment. The commenters were concerned that the Secretary's

encouragement to lenders to stay within the ``three times rule'' for

income-sensitive repayment schedules would be insufficient protection

for some borrowers who initially would be given artificially low

repayment schedules, only to experience significant payment increases

in later years.

Discussion: The Secretary has no reason to believe that lenders

would not have heeded his encouragement in the NPRM to attempt to stay

within the ``three times rule'' for income-sensitive repayment

schedules. However, in the interest of ensuring consistent and

equitable treatment of all borrowers, the Secretary agrees that the

``three times rule'' should apply to all types of repayment schedules.

The Secretary believes that if a borrower finds his or her scheduled

FFEL payment amount to be too difficult to maintain, the borrower's

difficulties can be ameliorated through the use of appropriate

forbearances and deferments.

Changes: The final regulations will retain the ``three times rule''

contained in Sec. 682.209(a)(6)(ii) of the current regulations for all

types of repayment schedules.

17. Comments: Some commenters believed that an income-sensitive

repayment schedule should be based on the borrower's family income,

rather than only on the borrower's income. The commenters believed that

a borrower whose spouse has substantial earnings should be expected to

repay a loan more quickly than a borrower who does not have access to

such resources. The commenters recommended that the regulations

specifically address the treatment of income received by a borrower's

spouse.

Discussion: The statutory provisions governing repayment of an FFEL

Program loan consistently rely on consideration of the borrower's

income. In contrast, in the FDSL Program, section 455(e) of the HEA

specifically authorizes consideration of family income. These

regulations reflect the statutory restrictions in the FFEL Program.

Changes: None.

18. Comments: Some commenters recommended that an income-sensitive

repayment schedule be based on a borrower's gross income, instead of

disposable income. The commenters believed that the term ``gross

income'' is more widely understood and more easily explained. Other

commenters believed exactly the opposite--that the term ``disposable

income'' would be easier to explain and more readily understood by

borrowers.

Discussion: The Secretary believes that the various opinions

presented by the commenters show a need for a simplified and easily

understood definition to be used to determine a borrower's income.

Changes: The final regulations have been revised to add the concept

of ``total monthly gross income.'' This term will mean the gross amount

of income received by the borrower from employment and from other

sources.

19. Comments: Some commenters recommended that the regulations

specify the minimum and maximum monthly payment amounts that the

Secretary would consider reasonable based on the borrower's income. For

example, some commenters suggested that an acceptable range for monthly

payments would be $10 to $20 for each $100 of monthly income.

Discussion: The minimum payment amount must be equal to at least

the interest that accrues during the interval between scheduled

payments. If the borrower finds that payment amount to be too difficult

to maintain, the borrower's difficulties may be ameliorated through the

use of forbearances and deferments. The maximum payment amount may not

exceed three times the amount of any other scheduled payment requested

from the borrower. The Secretary believes that the borrower and the

lender are the parties that can best establish a reasonable payment

amount that falls within these two extremes.

Changes: None.

20. Comments: Some commenters believed that, in addition to a

borrower's income, a lender should be required to take the borrower's

monthly living expenses into consideration when determining the amount

of the borrower's monthly repayment amount under an income-sensitive

repayment schedule. The commenters believed that a lender should be

required to subtract specified monthly living expenses, based on family

size, from the borrower's monthly income.

Discussion: The Secretary does not agree with the commenters. A

lender may take factors other than income into consideration when

establishing a borrower's payment amount, but the Secretary sees no

need to prescribe in the regulations what those factors should be. A

lender's discretion to consider such other factors is limited only by

the basic rule that the borrower's scheduled installment amount must

equal at least the interest accruing on the loan.

Changes: None.

21. Comments: Some commenters believed that an income-sensitive

repayment schedule should be limited to the borrower's initial three

years of repayment. The commenters believed that three years was an

adequate amount of time for a borrower to develop an ability to manage

his or her debt. Following this three-year period, the loan would be

repaid under a standard or a graduated repayment schedule.

Discussion: The HEA permits certain borrowers to repay their loans

through income-sensitive repayment schedules. The HEA does not restrict

the borrower's ability to select this option to only a certain number

of years of the borrower's total repayment period. The Secretary

recognizes, however, that a borrower who has had low monthly payments

scheduled for several years under an income-sensitive repayment

schedule would eventually reach a point where such low payments could

no longer be scheduled in accordance with the maximum 10-year repayment

period, even if the borrower received the maximum 5-year administrative

forbearance authorized under Sec. 682.211(j)(5)(ii). The Secretary

believes that lenders should counsel borrowers on the drawbacks of a

borrower's over-reliance on the ability to continue to have small

scheduled payments under an income-sensitive repayment plan. The

Secretary strongly encourages lenders to counsel borrowers that the

income-sensitive option should be considered a ``safety net'' for

borrowers who are truly in financial need, and that there are many

advantages in repaying loans more rapidly under a standard or graduated

repayment schedule.

Changes: None.

22. Comments: Some commenters recommended that the regulations be

revised to state that an income-sensitive repayment schedule is based

on a borrower's current income, rather than expected income. The

commenters believed it is more appropriate to require a borrower to

certify current income (which is known) than to expect a borrower to

certify an amount of income that is expected in the future.

Discussion: The commenters have overlooked the fact that a

borrower's future payments are based on the borrower's expected income

for the next 12 months. The borrower is not required to ``certify''

events that have not yet occurred, but is merely being asked to provide

recent documentation that could reasonably be used by the lender as a

guide to establish the appropriate installment amount for the borrower

to pay during the next 12 months.

Changes: None.

23. Comments: Some commenters stated that they understood that the

Secretary had agreed during the negotiated rulemaking process to permit

a 13-year repayment schedule to be established for a borrower who

chooses to repay a loan under an income-sensitive repayment schedule.

Other commenters recommended that the three-year forbearance period

authorized in Sec. 682.211(f)(10) be increased to five years.

Discussion: During the negotiated rulemaking sessions, the

Department made it clear that the Secretary had no authority to extend

the 10-year statutory length of the repayment schedule. However, the

Secretary agreed to the creation of a specific forbearance for

borrowers repaying their loans under an income-sensitive repayment

schedule. Periods of authorized forbearance are not included in the

repayment period. The Secretary agrees that a five-year forbearance

period would be more helpful to borrowers and lenders than the three-

year forbearance period that was proposed in the NPRM.

Changes: As discussed in response to comment 55, the final

regulations have been revised to relocate this forbearance from

Sec. 682.211(f)(10) to Sec. 682.211(j)(5)(ii) and to increase it to

five years.

Section 682.209(a)(6)(viii)(C)

24. Comments: Some commenters noted that section 428C(c)(4) of the

HEA mandates that repayment of a Consolidation Loan must begin within

60 days after the consolidating lender has repaid the loans selected by

the borrower for consolidation. The commenters did not believe that the

consolidating lender would have sufficient time to comply with the

provision in Sec. 682.209(a)(6)(viii)(C) for requesting, obtaining, and

evaluating the income documentation submitted by the borrower.

Discussion: The Secretary is not persuaded that a consolidating

lender will not have sufficient time for establishing a borrower's

income-sensitive repayment schedule. The Secretary notes that a lender

could gain additional time to accomplish this process by requesting the

borrower's income documentation at the time the borrower submits an

application for a Consolidation Loan.

Changes: None.

25. Comments: Some commenters believed that a lender should be

permitted to request documentation from a borrower more than 90 days

before the borrower's initial payment is due under an income-sensitive

repayment schedule. The commenters recommended 180 days, rather than 90

days.

Discussion: The Secretary believes that a timely request for

documentation is important, and should be made between 90 days and six

months before the borrower's first payment is due. The Secretary did

not intend for the 90-day restriction to be interpreted as a bar to a

lender's request for additional documentation from the borrower if the

lender believed it to be necessary. However, except in the case of a

late notification (see comment 8), the initial request must be made not

less than 90 days before the borrower's first payment is due.

Changes: None.

26. Comments: Some commenters objected to the requirement that a

borrower must submit documentation of income. The commenters believed

that the borrower should be permitted to self-certify his or her

income, and that the documentation requirements are burdensome and

conflict with the Paperwork Reduction Act of 1980. The commenters also

expressed their belief that there would be little incentive for a

borrower to misrepresent his or her income by providing inaccurate

income data because the cost savings to a borrower increase more

quickly as a loan is repaid. Some commenters suggested that borrowers

would have an incentive to correctly self-certify their income if the

Secretary enforced appropriate penalties against borrowers who

submitted false or incomplete information. Other commenters questioned

why self-certification of income is acceptable for the determination of

eligibility for federal student financial aid but is not acceptable for

purposes of establishing an income-sensitive repayment schedule. The

commenters suggested that the Secretary could ensure that borrowers

correctly self-certify their income by using verification techniques

similar to those that exist for determining eligibility for federal

student financial aid. Some commenters believed that a borrower's

federal income tax return from the previous year would have no

relevance in determining the appropriate amount of the borrower's

monthly repayment amount under an income-sensitive repayment schedule.

The commenters believed that the information on the tax return reflects

a financial status for the borrower that no longer exists. The

commenters recommended a deletion of this requirement.

Discussion: The Secretary disagrees with the presumption that a

borrower would have little incentive to misrepresent his or her income

by providing inaccurate income data. The Secretary has an obligation to

the taxpayers to ensure that their tax dollars are effectively spent.

The Secretary believes that some borrowers may be tempted to

misrepresent their income so that their scheduled monthly payment

amounts can be inappropriately low. As a consequence of earlier

payments that are inappropriately low, the borrower's future payments

may have to be much larger than the borrower could afford, thereby

increasing the risk of default and the exposure of the taxpayers to

increased default costs. Permitting a borrower to self-certify

incorrect income data would also cause the borrower's loan balance to

remain higher than it should for a longer time than it should. The

taxpayer would then be unfairly obligated to pay excessive amounts of

interest benefits (during deferments) and special allowance payments,

in addition to a larger default payment if the borrower defaults.

However, the Secretary has reconsidered the type of documentation

that should be provided by the borrower, and no longer believes it is

necessary to require the lender to obtain a copy of the borrower's

federal income tax return (although a lender could still require one if

the lender thought it was needed). The Secretary believes that evidence

of income is not needed if a borrower voluntarily reports an amount of

income that would result in monthly installment amounts that would be

projected to repay the loan within the maximum 10-year repayment

period. The Secretary also believes that the information on the tax

return may have little or no bearing on the borrower's current or

future financial situation, and would reflect only past income. A

lender could still require a tax return if the lender thought it was

needed to clarify questionable income documentation submitted by the

borrower. If the borrower later requested an additional period of

income-sensitive repayment, a lender may find the information on the

tax return more relevant because it contains information that the

lender can compare to the amount of recent income reported by the

borrower for purposes of establishing the appropriate amount of the

borrower's monthly payment.

The Secretary does not believe that the taxpayers should be

expected to incur the costs associated with permitting a borrower to

make very low monthly payments under an income-sensitive repayment

schedule simply on the strength of the borrower's undocumented

assertion that he or she has a very low income. The Secretary believes

that the public interest justifies the collection of minimal

documentation from a borrower who reports a very low income in order to

obtain the benefit of smaller scheduled monthly payments under an

income-sensitive repayment schedule. The documentation requirements

therefore comply with the provisions of the Paperwork Reduction Act of

1980. The Secretary believes the required documentation of income is

reasonable, easily obtainable by the borrower, and necessary to

maintain the integrity of the FFEL Program. A need for documentation of

a borrower's income exists for other purposes (for example,

documentation of income from a borrower who requests an economic

hardship deferment) and the Secretary believes that documentation also

should be provided by a borrower who requests very low payments under

an income-sensitive repayment schedule. It is the Secretary's belief

that FFEL lenders have sufficient experience and expertise in obtaining

and verifying borrower-supplied income documentation for other purposes

(such as for mortgage applications or car loans), and will be able to

do the same for their FFEL borrowers. The Secretary will, of course,

take appropriate action against individuals who provide fraudulent

information to obtain a federal benefit. The existing enforcement

powers available to the Secretary in this regard are sufficient, and no

new powers specifically created for the purpose of preventing potential

fraud by borrowers in this area are needed.

Changes: The final regulations have been revised to require a

borrower to present evidence of his or her income only if the borrower

reports an amount of income that would be so low that the scheduled

installment amounts would be insufficient to repay the loan within the

maximum 10-year repayment period permitted under the HEA. The final

regulations have deleted the requirement that the lender must require

the borrower to submit a copy of his or her federal income tax return

to be eligible for an income-sensitive repayment schedule.

Section 682.209(a)(6)(viii)(C)(1)

27. Comments: Some commenters recommended that the regulations

require a borrower to certify that he or she has reported all of his or

her monthly income to the lender. The commenters noted that the lender

would not know if the borrower had income other than what the borrower

divulged. The commenters also believed that a borrower who claimed to

have not filed a federal income tax return for the most recent year

should be required to certify the truthfulness of that claim.

Discussion: As discussed in response to comment 26, the requirement

to obtain a borrower's federal income tax return has been deleted. The

Secretary would not object if a lender required the certifications

suggested by the commenters, but does not believe they should be

mandated in the regulations. It is the Secretary's belief that the

lender, who may possess other information about the borrower, is the

most appropriate party to decide if the borrower should provide

verifying information or certifications. As further discussed in

response to comment 26, the Secretary believes that FFEL lenders have

sufficient experience and expertise in obtaining and verifying

borrower-supplied income documentation for other purposes (such as for

mortgage applications or car loans), and will be able to do the same

for their FFEL borrowers.

Changes: None.

28. Comments: Some commenters recommended the deletion of the

requirement that a borrower document his or her income ``from all

sources.'' The commenters believed that this requirement is ambiguous

and burdensome. The commenters also believed that most of the ``other

sources'' would be reluctant to provide documentation to the borrower.

Some commenters interpreted it to mean that the income received by a

borrower's spouse would be included in this determination.

Discussion: The point of a repayment schedule that is based on the

borrower's income is to determine the appropriate monthly installment

amount that the borrower can afford to pay. It would serve no purpose,

other than to establish an artificially low payment amount, if certain

types of income received by the borrower were excluded from this

consideration. As discussed in response to comment 17, for the purposes

of establishing a borrower's income-sensitive repayment schedule for an

FFEL loan (unlike under the FDSL Program), the HEA does not require the

consideration of a borrower's family income.

Changes: None.

Section 682.209(a)(6)(viii)(E)

29. Comments: Some commenters believed that a borrower's monthly

payment amount should not have to be adjusted following three

consecutive months of increased income if there would only be a few

months remaining before the borrower's next scheduled annual

adjustment. The commenters recommended that an adjustment be required

only if the increased income occurred during the first six months of

the borrower's current annual repayment schedule. Other commenters

recommended a complete deletion of the requirement that a borrower's

payment amount be adjusted following three consecutive months of

increased income. The commenters believed this requirement not only is

unduly burdensome for borrowers and lenders, particularly if the

borrower's income is seasonal, it is unnecessary because the next

annual adjustment would take the borrower's increased income into

consideration.

Discussion: The Secretary agrees with the commenters, and

encourages the lender and the borrower to establish realistic monthly

payment amounts that reflect the borrower's expected average monthly

income during the course of the year so as to anticipate periods of

increased seasonal income.

Changes: The requirements contained in paragraphs

682.209(a)(6)(viii) (E) and (F) of the proposed regulations have been

deleted from the final regulations.

Section 682.209(h)(4)

30. Comments: Some commenters believed that the regulations should

state that a defaulted loan that has been included in a Federal

Consolidation Loan is not considered to be in default. Other commenters

recommended that the regulations state that the only defaulted loans

that can be consolidated are loans made under the FFEL Program.

Discussion: A loan that is repaid through consolidation no longer

exists as a separate loan obligation for FFEL Program purposes. It is

therefore unnecessary to say that a non-existent loan obligation is not

a defaulted loan. The commenters' second recommendation conflicts with

the Secretary's policy of permitting a borrower to consolidate a

defaulted Title IV loan if the borrower has made satisfactory

arrangements to repay the loan. However, the Secretary agrees that a

clarification of the type of defaulted loans that may be consolidated

is needed in the regulations.

Changes: The final regulations have been revised to clarify that a

defaulted loan made under Title IV of the HEA may be consolidated if

the borrower has made satisfactory arrangements with the holder to

repay the loan.

Section 682.210 Deferment

31. Comments: Some commenters recommended that the regulations

state that deferments are loan-specific, and not borrower-specific.

Discussion: The Secretary's longstanding policy has been that

deferments are borrower-specific, with the sole exception of the

parental-leave deferment described in Sec. 682.210(o). That exception

has been created because a borrower may be pregnant or caring for a

newborn or newly adopted child more than once.

Changes: Section 682.210(a) of the final regulations has been

revised to clarify that deferments are borrower-specific, with the sole

exception of the parental-leave deferment described in Sec. 682.210(o).

32. Comments: Some commenters stated that it was impractical to

expect that both co-makers must meet the same deferment requirements to

qualify for a deferment. The commenters suggested that if the co-makers

individually qualified for different deferments, the co-makers should

be permitted to decide which of those deferments they would receive.

Discussion: The Secretary agrees with the commenters.

Changes: Section 682.210(a)(11) of the final regulations has been

revised to permit a co-maker to receive a deferment if both co-makers

are simultaneously eligible to receive the same, or different

deferments.

33. Comments: Some commenters believed that the way that the

regulations are written would cause people to conclude that a student

deferment was permitted only if the student was enrolled as a half-time

student, with no other enrollment status acceptable for deferment

eligibility. The commenters recommended that the regulations be revised

to state that the student's status had to be ``at least half-time.''

Discussion: The Secretary did not intend that the regulations be

interpreted in a manner that would deny a student deferment to a

borrower whose enrollment status was greater than half-time.

Changes: Section 682.210(s)(2) of the final regulations have been

revised to read ``at least half-time study.''

Section 682.210(s)(6)(i)

34. Comments: Some commenters recommended that a definition of

``working full-time'' be included in the regulations.

Discussion: The Secretary agrees with the commenters.

Changes: Section 682.210(s)(6)(vii) of the final regulations will

incorporate the definition of ``full-time employment'' that has been

used for the purposes of the unemployment deferment authorized under

Sec. 682.210(h)(4). For the purposes of an economic hardship deferment,

a borrower will be considered to be ``working full-time'' if the

borrower is expected to be employed for at least three consecutive

months at 30 hours per week.

35. Comments: Some commenters recommended that the regulations

should require the Secretary to publish the minimum wage rates and the

poverty levels for a family of two.

Discussion: The Secretary does not agree with the commenters. This

information is in the public domain and readily available to all

parties. It need not be reprocessed through the FFEL Program

regulations. Information concerning the minimum wage rate may be

obtained by calling the Wage and Hour Division of the U.S. Department

of Labor at (202) 219-7043. Annual updates of the poverty level for a

family of two are published in the Federal Register by the U.S.

Department of Health and Human Services. The most recent update was

published on February 10, 1994 (59 FR 6277). The 1994 poverty level for

a family of two in Alaska is $12,300; in Hawaii, $11,320; for all other

states and the District of Columbia, $9,840. Further information may be

obtained by calling the Office of the Assistant Secretary for Planning

and Evaluation, Department of Health and Human Services, (202) 690-

6141.

Changes: None.

Section 682.210(s)(6)(ii)

36. Comments: Some commenters recommended that an economic hardship

deferment be based on a borrower's gross income, instead of disposable

income. The commenters believed that the term ``gross income'' is more

widely understood and more easily explained.

Discussion: The discussion following comment 18 also applies to an

economic hardship deferment.

Changes: None.

37. Comments: Some commenters believed that any borrower who

receives public assistance should automatically qualify for an economic

hardship deferment.

Discussion: The Secretary agrees with the commenters. It is likely

that almost all borrowers who receive some form of public assistance

would be eligible for an economic hardship deferment. While there may

be a few borrowers on public assistance who effectively have access to

greater amounts of income than other borrowers, the Secretary believes

those excess amounts would be marginal and would not justify the need

to inconvenience the vast majority of borrowers who receive some form

of public assistance.

Changes: The final regulations have added a new paragraph

(s)(6)(ii) to Sec. 682.210. A borrower will automatically qualify for

an economic hardship deferment if the borrower provides documentation

to the lender showing that he or she is receiving payment under a

federal or state public assistance program, such as Aid to Families

with Dependent Children, Supplemental Security Income, Food Stamps, or

state general public assistance.

38. Comments: Some commenters believed there should be no income

cap for an economic hardship deferment. The commenters believed that a

debt-to-income ratio would be sufficient by itself. Other commenters

recommended a lower debt-to-income ratio than the 20 percent ratio that

was proposed in the NPRM. Some commenters pointed out that the proposed

regulations would deny a deferment to a borrower who was not working

full-time, but who had very low income (for example, $300 per month) if

the borrower's monthly student loan payments were less than 20 percent

of income (for example, $50). The commenters stated that the borrower

in this example is in a much more disadvantageous financial position

than another borrower who may have $3,000 per month in income and who

owes $600 (20 percent of income) in monthly student loan payments. The

commenters noted that the borrower in the second case would have much

more money available ($2,400) after loan payments had been made than

the first borrower, who would only have $250 available. However, the

borrower with less available money would not qualify for an economic

hardship deferment, while the borrower who had nearly ten times as much

available income, even after accounting for larger student loan debts,

would be considered in need of an economic hardship deferment,

including interest subsidies from the federal government on the

borrower's subsidized loans. The commenters believed that this type of

inequitable result was not intended by Congress.

Discussion: The Secretary agrees that the debt-to-income ratio that

was developed through the negotiated rulemaking process contained the

flaws noted by the commenters. Therefore, the Secretary has decided to

replace that criterion with other measures of a borrower's need for an

economic hardship deferment. A borrower may now receive an economic

hardship deferment by qualifying under any one of the following

criteria: (1) By being granted an economic hardship deferment under

either the FDSL or Federal Perkins Loan Programs for the period of time

for which the borrower has requested an economic hardship deferment for

his or her FFEL loan; (2) by being eligible for a payment under a

federal or state public assistance program, such as Aid to Families

with Dependent Children, Supplemental Security Income, Food Stamps, or

state general public assistance; (3) by working full-time and earning

an amount that does not exceed the greater of the minimum wage rate or

the poverty level for a family of two; or (4) if the borrower's total

monthly gross income was not more than twice the minimum wage or the

poverty level for a family of two, by not having remaining total

monthly gross income, from employment or from other sources, that

exceeds the greater of the minimum wage rate or the poverty level for a

family of two after deducting an amount equal to what the borrower

would owe for monthly payments on postsecondary education loans

obtained through a federal program.

The Secretary believes that the income limitation specified in the

additional eligibility criterion described in (4) above is a reasonable

amount that is consistent with the intent of Congress that an economic

hardship deferment should be restricted to only those borrowers who do

not have substantial incomes. Therefore, although a borrower could have

a total monthly gross income up to twice the greater of the minimum

wage rate or the poverty level for a family of two, the regulations

focus on the amount of such income that would be available to the

borrower after subtracting an amount that represents what the borrower

would have been expected to pay each month on federal postsecondary

education loan debts. If those projected monthly payments would cause a

borrower's remaining total monthly gross income to fall below a certain

level, then the borrower would be considered eligible to receive an

economic hardship deferment. Thus, borrowers with differing amounts of

total income or debts could have approximately the same amount of

remaining total monthly gross income after subtracting their projected

monthly federal postsecondary education loan payments. A borrower on a

standard or graduated repayment schedule who would not qualify under

this criterion because of insufficient debt could request an income-

sensitive repayment schedule or a Federal Consolidation Loan (or both)

that would reduce his or her monthly loan payments and minimize the

need for a deferment.

As an example of the criterion described in (4) above, if the

minimum wage/poverty level was $820 per month, a borrower who had total

monthly gross income of $1,000 and who had projected monthly payments

of $180 per month for federal postsecondary education loans would be

(if those payments were actually made) in approximately the same

financial situation as a borrower working full-time and not earning

more than the minimum wage/poverty level. Both borrowers would have

approximately $820 per month in total income, and would have the same

financial need for a deferment.

Changes: Section 682.210(s)(6) of the final regulations has been

revised to permit a borrower to receive an economic hardship deferment

if the borrower provides documentation to the lender showing that he or

she is on public assistance. In addition, because the same rules will

apply for determining a borrower's eligibility under the FDSL and

Federal Perkins loan programs, a borrower will be eligible to receive a

deferment on an FFEL loan for the same period of time that an economic

hardship deferment is granted on an FDSL or Federal Perkins loan. A

borrower also may be eligible if he or she is not receiving total

monthly gross income greater than twice the amounts specified in

section 435(o)(1)(A) of the HEA, and the borrower's remaining total

monthly gross income, after subtracting an amount equal to the

borrower's monthly payments owed on federal postsecondary education

loans, would not exceed the greater of the minimum wage rate or the

poverty level for a family of two.

39. Comments: Some commenters believed that a borrower whose income

fell below a specified floor should not be expected to make any loan

payment, regardless of the borrower's debt-to-income ratio. The

commenters then went on to propose the concept of ``sliding scales''

that would set the ratios at progressively higher levels as the

borrower's income increased, for example, a borrower whose monthly

income was $1,000 would have a 5 percent ratio, a borrower whose

monthly income was $1,500 would have a 10 percent ratio, a borrower

whose monthly income was $2,000 would have a 15 percent ratio, etc.

Other commenters recommended a similar plan: counting income that

exceeds a threshold amount and increasing the debt-to-income ratio to

25 or 30 percent of the amount by which the borrower's income exceeds

the threshold amount. The commenters believed that this would ensure

that low-income borrowers would qualify for a deferment, as well as

borrowers with higher incomes who also had large debts.

Discussion: While some of the aspects of the various

recommendations made by the commenters have merit, none of the

proposals have the overall fairness and simplicity inherent in the

criteria described in response to comments 37 and 38.

Changes: None.

40. Comments: Some commenters recommended that the regulations

state that a borrower is not required to be working full-time to

qualify for a deferment under Sec. 682.210(s)(6)(ii). The commenters

understood that full-time employment was required for a deferment under

Sec. 682.210(s)(6)(i), but were concerned that others may not notice

the absence of such a requirement in Sec. 682.210(s)(6)(ii) unless it

was specifically stated.

Discussion: The Secretary agrees that a clarification would be

helpful for some readers.

Changes: The final regulations will include a new paragraph

Sec. 682.210(s)(6)(ix) that will define total monthly gross income as

the gross amount of income received by the borrower from employment

(either full-time or part-time) and from other sources.

41. Comments: Some commenters believed there would be widespread

confusion if the Secretary did not specifically list all of the federal

programs through which borrowers could obtain loans for their

education.

Discussion: A list of all federal education loan programs would be

extensive, ever-changing, and would lead to errors in transmission to

and among program participants. It is the Secretary's understanding

that all federal postsecondary education loan programs are clearly

identified as such, and that the vast majority of those programs are

administered through the U.S. Department of Education and the U.S.

Department of Health and Human Services.

Changes: None.

42. Comments: Some commenters objected to the definition of debt

that can be considered when determining a borrower's eligibility for an

economic hardship deferment. The commenters believed that by limiting

eligible debt to only non-defaulted education loans obtained through a

federal program, many borrowers who owe education loans to non-federal

entities may be forced into default on their FFEL Program loans because

they cannot qualify for an economic hardship deferment. The commenters

recommended the inclusion of all education related debts owed by the

borrower, regardless of the source or default status.

Discussion: The Secretary agrees with the commenters that payments

due on a loan obtained through a federal postsecondary education loan

program should be included, even if the borrower is in default on that

loan. However, the Secretary does not believe that Congress intended to

indirectly subsidize non-federal loan programs (by making it easier for

borrowers to repay non-federal debts) by permitting borrowers to use

their non-federal debts as a means to qualify for deferments on their

federal debt.

Changes: The final regulations have been revised to permit any loan

debt (defaulted or otherwise) owed by the borrower for a postsecondary

education loan obtained through a federal educational loan program to

be considered when determining the borrower's eligibility for an

economic hardship deferment. To allow for the consistent and equitable

treatment of borrowers who have repayment obligations based on

different periods of repayment or different repayment options, the

Secretary believes that, for purposes of determining the projected

monthly payment amount that can be considered as a payment that would

have been owed during the deferment period, a federal postsecondary

education loan owed by a borrower should be treated as if it had been

scheduled to be repaid in 10 years from the date the borrower entered

repayment.

Section 682.210(s)(6)(ii)(B)

43. Comments: Some commenters objected to the requirement that a

borrower must submit documentation of income. The commenters believed

that the borrower should be permitted to self-certify his or her

income. The commenters believed that the documentation requirements are

burdensome, and conflict with the Paperwork Reduction Act of 1980. Some

commenters recommended a deletion of the requirement that a borrower

provide a copy of his or her federal income tax return. The commenters

believed that the income reported on the tax return would be of little

relevance in determining that a borrower was currently in need of a

deferment, because the tax return will be for a previous calendar year.

Other commenters believed it would be an invasion of the borrower's

privacy to require a copy of his or her federal income tax return.

Discussion: The Secretary has reconsidered the type of

documentation that should be provided by the borrower to qualify for an

economic hardship deferment, and no longer believes it is necessary to

require the lender to obtain a copy of the borrower's federal income

tax return unless the borrower wishes to receive the deferment for more

than one year. For the initial period of deferment, the information on

the tax return would have little or no bearing on the borrower's

current or future financial situation, and would reflect only past

income. A lender could still require a tax return if the lender thought

it was needed to clarify questionable income documentation submitted by

the borrower. If the borrower later requested an additional period of

deferment, the information on the tax return becomes more relevant

because it contains information that the lender can compare to the

amount of recent income reported by the borrower for purposes of

establishing eligibility for the additional period of deferment.

The Secretary does not believe that the taxpayers should be

expected to incur the substantial costs associated with providing an

economic hardship deferment to a borrower simply on the strength of the

borrower's undocumented assertion that he or she does not have enough

money to repay his or her loan. The Secretary believes that the public

interest justifies the collection of minimal documentation from a

borrower who requests a federal benefit such as an economic hardship

deferment. The documentation requirements therefore comply with the

provisions of the Paperwork Reduction Act of 1980. The Secretary

believes the required documentation of income is reasonable, easily

obtainable by the borrower, and necessary to maintain the integrity of

the FFEL Program. A need for documentation of a borrower's eligibility

status exists for all other deferments, (for example, documentation of

in-school status from a borrower who claims to be enrolled in school),

and the Secretary believes that some form of documentation also should

be provided by a borrower who requests a deferment because of an

economic hardship.

Changes: The final regulations have deleted the requirement that

the borrower must submit a copy of his or her federal income tax return

to be eligible for an initial period of deferment based on the

borrower's economic hardship. To qualify for a period of economic

hardship deferment that begins less than one year after the end of a

previous economic hardship deferment, other than one based solely on

the borrower's status as a recipient of public assistance, the lender

must require the borrower to submit a copy of the borrower's federal

income tax return if the borrower filed a tax return within eight

months prior to the date the deferment is requested. This requirement

does not apply if the borrower provides documentation to the lender

showing that he or she has been granted an economic hardship deferment

under either the FDSL or Federal Perkins Loan Programs for the period

of time for which the borrower has requested an economic hardship

deferment for his or her FFEL loan.

44. Comments: Some commenters believed that a borrower who requests

an economic hardship deferment from a lender should not be required to

provide documentation of the amount owed on loans held by that lender.

The commenters suggested that the regulations be revised to require the

borrower to provide such documentation only for loans owed to other

lenders.

Discussion: The Secretary agrees with the commenters.

Changes: The final regulations have clarified that the lender may

only require the borrower to provide documentation of federal

postsecondary educational debts owed to another entity.

Section 682.211 Forbearance

Section 682.211(a)(4)

45. Comments: Some commenters were opposed to the rule that

forbearance would apply only if both co-makers of a loan had their

ability to make scheduled repayments impaired.

Discussion: A co-maker is an individual who is responsible for

repaying a loan. If a co-maker's ability to make scheduled repayments

has not been impaired, he or she does not need a forbearance.

Changes: None.

46. Comments: Some commenters noted that the language in

Sec. 682.211(a)(4) is essentially the same as in Sec. 682.211(a)(3) of

the existing regulations. The commenters suggested that the existing

paragraph (a)(3) be deleted.

Discussion: The Secretary agrees with the commenters.

Changes: Section 682.211(a)(4) of the NPRM is redesignated as

Sec. 682.211(a)(3) in the final regulations.

47. Comments: Some commenters recommended that the regulations

include a provision to permit a lender to administratively convert a

forbearance previously granted for partial payment amounts to a

forbearance of the entire payment amount if the borrower fails to remit

the partial payments.

Discussion: The Secretary believes that the borrower's sense of

obligation to repay the loan would be undermined if the lender

administratively ignored the borrower's failure to make the loan

payments that the borrower had agreed to make. The Secretary reminds

the commenters that the borrower and the lender are expected to

communicate with each other, and a further reduction of payments could

be agreed to if the borrower experiences difficulty in making

previously promised payments.

Changes: None.

Section 682.211(f)

48. Comments: Some commenters recommended that all forbearances

authorized under Sec. 682.211(f) be classified as ``administrative

forbearances'' to reflect the common usage of that term by FFEL Program

participants.

Discussion: The Secretary has no objection to this terminology.

Changes: The introductory sentence for Sec. 682.211(f) has been

revised to read: ``A lender may grant administrative forbearance * *

*.''

49. Comments: Some commenters observed that some of the proposed

changes would permit forbearances prospectively (for example, during a

military mobilization), even if the borrower would not be delinquent

during such future periods. The commenters recommended that the

introductory sentence in Sec. 682.211(f), which currently refers only

to payments that are overdue, be revised accordingly.

Discussion: The Secretary agrees with the commenters.

Changes: In addition to the change discussed in comment 48, the

introductory sentence for Sec. 682.211(f) has been further revised to

read: ``A lender may grant administrative forbearance, upon notice to

the borrower or if applicable, the endorser, with respect to payments

of interest and principal that are overdue or that would be overdue.''

50. Comments: Some commenters recommended that the regulations

permit a lender to grant a forbearance to a borrower to cover the

period from the end of a deferment period to the date that the lender

processed a borrower's deferment request and documentation. The

commenters noted that borrowers frequently provide documentation of

their deferment eligibility after the deferment period expired. The

commenters believed it is important that the borrower not be considered

delinquent when he or she resumes repayment after deferment.

Discussion: The Secretary does not believe that the commenters'

proposal would promote the timely submission of deferment documentation

by a borrower or strengthen the borrower's awareness of his or her

obligation to repay the loan according to the repayment terms explained

in the borrower's promissory note and other loan documents. The

Secretary reminds the commenters that the borrower and the lender are

expected to communicate with each other, and a forbearance could be

agreed to if the borrower experienced difficulty in making overdue

payments.

Changes: None.

51. Comments: Some commenters recommended that the regulations

permit a lender to grant a forbearance to a borrower to cover the

period between the date that a lender agrees to repurchase a loan and

the date the lender resumes servicing the repurchased loan. The

commenters noted that borrowers are frequently confused about the

status of loans during repurchases, and lenders also have difficulty

determining when to resume the appropriate due diligence activities and

establishing an ``interest paid through'' date. The commenters believed

it is important that the borrower not be considered delinquent when he

or she resumes repayment after a repurchase.

Discussion: Lenders and guaranty agencies must comply with the

requirements in Sec. 682.208 that pertain to notifying a borrower when

there is an assignment of a loan. In addition, specific notification

requirements exist in cases of loans being repurchased under the loan

rehabilitation program, or if the borrower is determined to be

ineligible for a requested loan discharge under Sec. 682.402. The

Secretary has seen no evidence that lenders and guaranty agencies have

not clearly informed borrowers of the date of the next payment due, the

amount of the payment, and to who it should be sent. Without such

evidence of a problem, the Secretary does not agree that a change is

needed.

Changes: None.

52. Comments: Some commenters recommended that the regulations

permit a lender to grant a forbearance to a borrower to cover the

period between the date that a lender filed a claim and the date the

lender resumes servicing the loan if it is returned by the guarantor in

the event of the borrower's ineligibility for a loan discharge. The

commenters believed it is important that the borrower not be considered

delinquent when he or she resumes repayment after his or her request

for a loan discharge has been denied.

Discussion: These types of forbearances have been authorized for

many years in the discharge provisions of Sec. 682.402.

Changes: None.

53. Comments: Some commenters recommended that the regulations

permit a lender to grant a forbearance to a borrower during the time

that a lender is attempting to resolve a dispute with the borrower, or

during periods when the lender is awaiting forbearance or deferment

documentation from the borrower.

Discussion: If a borrower has a dispute with a lender, the dispute

does not negate the borrower's ongoing obligation to repay the loan, or

justify a lender's suspension of collection efforts. A borrower also

has an obligation to provide timely forbearance or deferment

documentation to the lender. The types of forbearances that were

recommended by the commenters would not provide incentives to lenders

and borrowers to promptly resolve disputes or establish eligibility for

deferments or forbearances. In fact, the Secretary believes they would

undermine those incentives.

Changes: None.

Section 682.211(f)(9)

54. Comments: Some commenters believed that one year was an

insufficient forbearance period to cover the effect that variable

interest rate changes may have on a standard or graduated repayment

schedule. Some commenters recommended a three-year period if interest

changes caused the extension of the maximum repayment term; others

recommended an unlimited extension.

Discussion: As discussed in response to comment 14, the final

regulations have been revised to provide a lender the option of making

adjustments to the amount of the borrower's installment payments to

reflect annual changes in the variable interest rate on the borrower's

loan, or to grant the administrative forbearance described in

Sec. 682.211(j)(5)(i) so that the borrower can repay the loan within

the maximum repayment period.

The Secretary agrees that a three-year forbearance period is

reasonable, but believes that an unlimited forbearance period would not

provide an incentive to a borrower to increase the amount of his or her

monthly payments.

Changes: The final regulations have been revised to relocate this

forbearance from Sec. 682.211(f)(9) to Sec. 682.211(j)(5)(i) and to

increase it to three years.

Section 682.211(f)(10)

55. Comments: Some commenters believed that three years was an

insufficient forbearance period to assist a borrower who had low income

during the course of an income-sensitive repayment schedule. Some

commenters recommended that this period be expanded to five years

beyond the maximum repayment term; others recommended ten years.

Discussion: The Secretary agrees that a five-year period is

reasonable, but believes that a 10-year forbearance period would not

provide an adequate incentive to a borrower to increase the amount of

his or her monthly payments.

Changes: The final regulations have been revised to relocate this

forbearance from Sec. 682.211(f)(10) to Sec. 682.211(j)(5)(ii) and to

increase it to five years.

Section 682.211(f) (9) and (10)

56. Comments: Some commenters asked how a lender would apply a

forbearance under this paragraph in light of the general rule in

Sec. 682.211(h) that prohibits a lender from requiring payments from a

borrower during any period of forbearance. The commenters believed that

the borrower should be required to make payments during the extension

period.

Discussion: For those cases where a forbearance would apply, the

Secretary agrees that a clarification is appropriate and the following

example may be helpful: If a borrower was repaying a loan under a 10-

year repayment schedule with standard payments that would not be

adjusted to reflect changes in the variable interest rate on the loan,

the loan could not be repaid within 10 years if the interest rate

increased during the repayment period. The lender would then be

required to schedule one or more extra months of borrower payments so

that the loan will be completely repaid. Those additional monthly

payments will be considered payments made under an administrative

forbearance.

Changes: Section 682.211(f)(9) has been relocated to

Sec. 682.211(j)(5)(i) and revised for clarity to read: ``The lender

shall grant a mandatory administrative forbearance to a borrower (or

endorser, if applicable) during a period when the borrower (or

endorser, if applicable) is making payments for a period of up to 3

years of payments in cases where the effect of a variable interest rate

on a standard or graduated repayment schedule would result in a loan

not being repaid within the maximum repayment term.'' Section

682.211(f)(10) has been relocated to Sec. 682.211(j)(5)(ii) and revised

for clarity to read: ``The lender shall grant a mandatory

administrative forbearance to a borrower (or endorser, if applicable)

during a period when the borrower (or endorser, if applicable) is

making payments for a period of up to 5 years of payments in cases

where the effect of decreased installment amounts paid under an income-

sensitive repayment schedule would result in the loan not being repaid

within the maximum repayment term.'' Section 682.211(h) has been

revised for clarity to read: ``In granting a forbearance under this

section, except for a forbearance under paragraph (j)(5), a lender

shall grant a temporary cessation of payments, unless the borrower

chooses another form of forbearance subject to paragraph (a)(1) of this

section.''

Section 682.211(i)(1)

57. Comments: Some commenters recommended that the Secretary define

what would constitute ``sufficient supporting documentation'' from a

borrower serving in a medical or dental internship or residency

program.

Discussion: The Secretary agrees with the commenters.

Changes: Section 682.211(i)(1) of the final regulations has been

amended by inserting ``as described in Sec. 682.210(n)'' after the

phrase ``sufficient supporting documentation.''

Section 682.211(i)(2)(i)

58. Comments: Some commenters objected to the restriction that only

Title IV loans be considered when determining the amount of a

borrower's debt under the mandatory forbearance provision. The

commenters believed it would be unfair to exclude education loans from

other sources, either private or public.

Discussion: The regulations were written in accordance with section

428(c)(3)(A)(i)(II) of the HEA, which refers to ``the borrower's debt

burden under this title * * *''

Changes: None.

Section 682.211(i)(2)(ii)

59. Comments: Some commenters believed that Congress did not intend

that the definition of income would include public assistance benefits,

food stamps, Aid to Families with Dependent Children, Social Security

benefits, etc. The commenters recommended that all public assistance

benefits be excluded.

Discussion: The Secretary believes that a true measure of a

borrower's actual need for a forbearance would consider all income

received by the borrower, no matter what the source. Therefore, the

Secretary believes that the concept of ``total monthly gross income''

as described in response to comment 18 also should apply in the case of

a forbearance based on the borrower's income.

Changes: The final regulations have been revised to add the concept

of ``total monthly gross income.'' This term will mean the gross amount

of income received by the borrower from employment and from other

sources.

60. Comments: Some commenters recommended that the regulations

incorporate the Secretary's policy of permitting a lender to grant a

forbearance to a borrower who would be eligible for a partial repayment

of his or her loan under the Student Loan Repayment Programs

administered by the Department of Defense under 10 U.S.C. 2171.

Discussion: The Secretary agrees with the commenters.

Changes: Section 682.211(i)(2)(ii)(C) has been added to the final

regulations to permit a lender to grant forbearances in increments of

one year for as long as a borrower is eligible to receive a partial

repayment of his or her loan under the Student Loan Repayment Programs

administered by the Department of Defense. The borrower must provide

documentation to his or her lender showing the beginning and ending

dates that the Department of Defense considers the borrower to be

eligible for such payments. The lender may then grant a forbearance to

the borrower in anticipation of receiving a payment on his or her

behalf from the Department of Defense.

61. Comments: Some commenters recommended that the regulations

include a provision for granting a forbearance to a borrower who served

in a national service position for which the borrower received a

national service educational award under Public Law 103-82. Other

commenters recommended that forbearances be permitted if the borrower

is engaged in certain public service under the terms of section 428J of

the HEA.

Discussion: The Secretary agrees with the commenters.

Changes: Section 682.211(i)(2)(ii) of the final regulations has

been added to require a lender to grant forbearances in increments of

one year for as long as a borrower is serving in a national service

position for which the borrower receives a national service educational

award under the National and Community Service Trust Act of 1993. A

lender shall also grant forbearances to a borrower who is eligible

under the Federal Stafford Loan Forgiveness Demonstration Program, if

that program is funded. Those forbearances shall be in increments of

one year, for as long as a borrower is performing the type of service

described in Sec. 682.215(b).

Section 682.211(i)(3)

62. Comments: Some commenters objected to the requirement that a

borrower must submit documentation of income to receive a mandatory

forbearance. The commenters believed that the borrower should be

permitted to self-certify his or her income. The commenters believed

that the documentation requirements are burdensome, and conflict with

the Paperwork Reduction Act of 1980. The commenters also expressed

their belief that because the cost savings to a borrower increase more

quickly as a loan is repaid, there would be little incentive for a

borrower to misrepresent his or her income by providing inaccurate

income data.

Discussion: The Secretary has reconsidered the type of

documentation that should be provided by the borrower who requests a

mandatory forbearance, and no longer believes it is necessary to

require the lender to obtain a copy of the borrower's federal income

tax return. The information on the tax return would have little or no

bearing on the borrower's current or future financial situation, and

would reflect only past income. A lender could still require a tax

return if the lender thought it was needed to clarify questionable

income documentation submitted by the borrower. If the borrower later

requested an additional period of mandatory forbearance, the lender may

find information on the tax return more relevant because it contains

information that the lender can compare to the amount of recent income

reported by the borrower for purposes of establishing eligibility for

the additional period of mandatory forbearance.

The Secretary does not believe that the taxpayers should be

expected to incur the increased costs resulting from the delayed

repayment of a loan on which payments have been forborne simply on the

strength of the borrower's undocumented assertion that he or she does

not have enough money to repay his or her loan. The Secretary believes

that the public interest justifies the collection of minimal

documentation of recent income and Title IV debt from a borrower who

requests the federal benefit of a mandatory forbearance that is based

on the borrower's income and Title IV debt. The documentation

requirements therefore comply with the provisions of the Paperwork

Reduction Act of 1980. The Secretary believes the required

documentation of income is reasonable, easily obtainable by the

borrower, and necessary to maintain the integrity of the FFEL Program.

A need for documentation of a borrower's eligibility status exists for

other forbearances, and the Secretary believes that some form of

documentation also should be provided by a borrower who requests a

mandatory forbearance because of a high debt-to-income ratio. It is the

Secretary's belief that FFEL lenders have sufficient experience and

expertise in obtaining and verifying borrower-supplied income

documentation for other purposes (such as for mortgage applications or

car loans), and will be able to do the same for their FFEL borrowers.

Changes: The final regulations have deleted the requirement that

the borrower must submit a copy of his or her federal income tax return

to be eligible for a mandatory forbearance based on the borrower's high

debt-to-income ratio.

63. Comments: Some commenters recommended that a mandatory

forbearance be based on a borrower's gross income, instead of

disposable income. The commenters believed that the term ``gross

income'' is more widely understood and more easily explained.

Discussion: The discussion following comment 18 also applies to a

mandatory forbearance.

Changes: None.

Section 682.211(j) Mandatory Administrative Forbearance

64. Comments: Some commenters recommended a deletion of all

references to an endorser.

Discussion: The only time that an endorser becomes obligated to

repay a loan is when the borrower fails to do so. Therefore, the

references to a borrower in the regulations are qualified by the

parenthetical phrase (or endorser, if applicable). The Secretary

believes that if an endorser has become obligated to repay a loan, then

the interests of the endorser and the taxpayers are served if

forbearances are available to the endorser.

Changes: None.

Section 682.211(j)(1)

65. Comments: Some commenters believed that the prohibition against

a lender requiring a borrower to provide documentation for a mandatory

administrative forbearance would be unworkable if a borrower claimed to

be subject to a military mobilization. The commenters noted that the

lender would not know if the borrower was subject to a military

mobilization unless documentation supporting that claim was provided to

the lender. The commenters recommended that a definition of ``military

mobilization'' be included in the regulations, and suggested that the

Secretary use the same rules that applied during Operations Desert

Shield and Desert Storm in 1990 and 1991.

Discussion: The Secretary agrees that documentation will be needed

to establish a borrower's eligibility for a mandatory administrative

forbearance that is based on the borrower's military status. The

Secretary also agrees that the definition of ``military mobilization''

that was suggested by the commenters is appropriate, and it will be

added to the final regulations.

Changes: The final regulations have been revised to define a

``military mobilization'' to mean a situation in which the Department

of Defense orders members of the National Guard or Reserves to active

duty under sections 672(a), 672(g), 673, 673b, 674, or 688 of title 10,

United States Code. This term will also include the assignment of other

members of the Armed Forces to duty stations at locations other than

the locations at which they were normally assigned, only if the

military mobilization involved the activation of the National Guard or

Reserves. Before granting an administrative forbearance, the lender

must obtain documentation of the borrower's military status (which may

be supplied by any party).

66. Comments: Some commenters believed that the regulatory

references to an ``automatic'' forbearance should be changed to

``administrative'' forbearance to reflect the term commonly used by

servicers and lenders.

Discussion: The Secretary agrees with the commenters.

Changes: The references to an ``automatic forbearance'' in

Sec. 682.211(j) have been replaced with ``administrative forbearance''

in the final regulations.

Section 682.211(j)(2)

67. Comments: Some commenters recommended that a guaranty agency,

rather than the Secretary, be permitted to notify a lender that

borrowers be granted mandatory administrative forbearances based on

local emergencies. The commenters believed that a guaranty agency would

frequently be able to know about local emergencies earlier than the

Secretary, and would be able to notify lenders more quickly than the

Secretary.

Discussion: Borrowers who reside in an area where a local emergency

occurs may owe loans to lenders who do not participate with the

guaranty agency in that state, or may owe loans directly to other

guaranty agencies. The Secretary believes it is important that all

holders of loans owed by borrowers affected by a local emergency

receive identical and accurate guidance concerning the treatment of

such borrowers and the dates of the emergency situation. The Secretary

believes that he can communicate that information to all loan holders

in the nation more effectively than could an individual guaranty

agency.

Changes: None.

68. Comments: Some commenters recommended that the regulations

permit a lender to grant a forbearance for a period of delinquency that

may have existed before a borrower is granted a forbearance because of

exceptional circumstances or disasters. The commenters believed it is

important that the borrower not be considered delinquent when he or she

resumes repayment after such forbearance periods.

Discussion: A borrower who has not made scheduled payments prior to

a natural disaster or some other exceptional circumstance is still

responsible for those delinquent payments. After the natural disaster/

exceptional circumstance forbearance ends, the borrower resumes the

delinquency status that existed before that forbearance was granted. As

previously discussed in response to comment 50, the borrower and the

lender are expected to communicate with each other, and a forbearance

could be agreed to if the borrower experienced difficulty in making

those overdue payments.

Changes: None.

Section 682.211(j)(2)(ii)

69. Comments: Some commenters were concerned that a lender would

have difficulty identifying borrowers in a ``geographical area'' if the

Secretary did not specify the precise locations commonly used by a

lender, such as postal zip codes, or telephone area codes.

Discussion: The Secretary will relay the description of the

``geographical area'' as it is described to him by the state, local, or

federal government officials responsible for making those

determinations. If those descriptions are designated according to

geographical areas other than postal zip codes, or telephone area

codes, the Secretary is confident that all lenders will be able to

convert the information into zip codes or area codes, or any other

geographical unit the lender uses.

Changes: None.

70. Comments: Some commenters were opposed to granting a

forbearance to all borrowers whose residence was located in a disaster

area. The commenters believed that not only would this requirement be

burdensome, it would result in forbearances being granted to many

borrowers who may have experienced no actual hardship from the

disaster.

Discussion: The Secretary believes that fairness to borrowers in

difficult situations would be in the best interests of the United

States. In trying to help all such borrowers, the Secretary is willing

to accept the possibility that others may receive unneeded

forbearances.

Changes: None.

Section 682.211(j)(3)

71. Comments: Some commenters noted that if the lender did not know

how long the exceptional conditions would exist for a forbearance under

this paragraph, the lender would be required to send two notices to a

borrower who had been granted a mandatory administrative forbearance:

one notice ``as soon as feasible, or by the date specified by the

Secretary'' and a later notice informing the borrower of the date that

regular payments would resume. The commenters questioned the usefulness

of granting forbearances for potentially brief periods of time, and of

being required to send two notices to a borrower during those brief

periods. The commenters recommended that the minimum period for a

mandatory administrative forbearance should be six months, unless the

borrower chooses a lesser period of time.

Discussion: The Secretary will authorize forbearance periods that

will be long enough to assist borrowers and minimize the administrative

burdens on the holders of their loans.

Changes: None.

Executive Order 12866

These regulations have been reviewed in accordance with Executive

Order 12866. Under the terms of the order the Secretary has assessed

the potential costs and benefits of this regulatory action.

The potential costs associated with the final regulations are those

resulting from statutory requirements and those determined by the

Secretary to be necessary for administering this program effectively

and efficiently. In assessing the potential costs and benefits--both

quantitative and qualitative--of these final regulations, the Secretary

has determined that the benefits of the final regulations justify the

costs.

The Secretary has also determined that this regulatory action does

not unduly interfere with State, local, and tribal governments in the

exercise of their governmental functions.

Assessment of Educational Impact

In the notice of proposed rulemaking, the Secretary requested

comments on whether the proposed regulations would require transmission

of information that is being gathered by, or is available from, any

other agency or authority of the United States.

Based on the response to the proposed rules and on its own review,

the Department has determined that the regulations in this document do

not require transmission of information that is being gathered by or is

available from any other agency or authority of the United States.

List of Subjects in 34 CFR Part 682

Administrative practice and procedure, Colleges and universities,

Education, Loan programs-education, Student aid, Vocational education.

(Catalog of Federal Domestic Assistance Numbers: 84.032 Federal

Family Education Loan Program)

Dated: June 23,1994.

Richard W. Riley,

Secretary of Education.

The Secretary amends part 682 of title 34 of the Code of Federal

Regulations as follows:

PART 682--FEDERAL FAMILY EDUCATION LOAN PROGRAM

1. The authority citation for part 682 continues to read as

follows:

Authority: 20 U.S.C. 1071 to 1087-2, unless otherwise noted.

2. Section 682.209 has been amended by revising paragraph

(a)(6)(i); by adding paragraphs (a)(6) (iii) through (ix); and by

revising paragraphs (a)(7)(ii) and (h)(4)(ii) to read as follows:

Sec. 682.209 Repayment of a loan.

(a) * * *

(6)(i) The repayment schedule may provide for substantially equal

installment payments or for installment payments that increase or

decrease in amount during the repayment period. If the loan has a

variable interest rate that changes annually, the lender may establish

a repayment schedule that--

(A) Provides for adjustments of the amount of the installment

payment to reflect annual changes in the variable interest rate; or

(B) Contains no provision for an adjustment of the amount of the

installment payment to reflect annual changes in the variable interest

rate, but requires the lender to grant a forbearance to the borrower

(or endorser, if applicable) for a period of up to 3 years of payments

in accordance with Sec. 682.211(j)(5) in cases where the effect of a

variable interest rate on a standard or graduated repayment schedule

would result in a loan not being repaid within the maximum repayment

term.

* * * * *

(iii) Not more than six months prior to the date that the

borrower's first payment is due, the lender shall offer a choice of a

standard, graduated, or income-sensitive repayment schedule to a new

borrower who receives a Stafford or SLS loan first disbursed on or

after July 1, 1993. For purposes of this section, a ``new borrower'' is

an individual who has no outstanding principal or interest balance on

an FFEL Program loan as of July 1, 1993 or on the date he or she

obtains a loan on or after July 1, 1993. This term also includes a

borrower who obtains a Federal Consolidation Loan on or after July 1,

1993 if the borrower has no other outstanding FFEL Program loan when

the Consolidation Loan is made. The lender shall also offer a choice of

repayment schedules to any individual whose Consolidation loan

application is received by the lender on or after January 1, 1993. The

Secretary encourages lenders to offer the choice of repayment schedules

to all other borrowers.

(iv) The repayment schedule must require that each payment equal at

least the interest that accrues during the interval between scheduled

payments.

(v) The lender shall require the borrower to repay the loan under a

standard repayment schedule described in paragraph (a)(6)(vi) of this

section if the borrower--

(A) Does not select an income-sensitive or a graduated repayment

schedule within 45 days after being notified by the lender to choose a

repayment schedule; or

(B) Chooses an income-sensitive repayment schedule, but does not

provide the documentation requested by the lender under paragraph

(a)(6)(viii)(C) of this section within the time period specified by the

lender.

(vi) Under a standard repayment schedule, the borrower is scheduled

to pay either--

(A) The same amount for each installment payment made during the

repayment period, except that the borrower's final payment may be

slightly more or less than the other payments; or

(B) An installment amount that will be adjusted to reflect annual

changes in the loan's variable interest rate.

(vii) Under a graduated repayment schedule--

(A) The amount of the borrower's installment payment is scheduled

to change (usually by increasing) during the course of the repayment

period; and

(B) An agreement as specified in paragraph (c)(1)(ii) of this

section is not required if the schedule provides for less than the

minimum annual payment amount specified in paragraph (c)(1)(i) of this

section.

(viii) Under an income-sensitive repayment schedule--

(A) The amount of the borrower's installment payment is adjusted

annually, based on the borrower's expected total monthly gross income

received by the borrower from employment and from other sources during

the course of the repayment period;

(B) In general, the lender shall request the borrower to inform the

lender of his or her income no earlier than 90 days prior to the due

date of the borrower's initial installment payment and subsequent

annual payment adjustment under an income-sensitive repayment schedule.

The income information must be sufficient for the lender to make a

reasonable determination of what the borrower's payment amount should

be. If the lender receives late notification that the borrower has

dropped below half-time enrollment status at a school, the lender may

request that income information earlier than 90 days prior to the due

date of the borrower's initial installment payment;

(C) If the borrower reports income to the lender that the lender

considers to be insufficient for establishing monthly installment

payments that would repay the loan within the maximum 10-year repayment

period, the lender shall require the borrower to submit evidence

showing the amount of the most recent total monthly gross income

received by the borrower from employment and from other sources

including, if applicable, pay statements from employers and

documentation of any income received by the borrower from other

parties;

(D) The lender shall grant a forbearance to the borrower (or

endorser, if applicable) for a period of up to 5 years of payments in

accordance with Sec. 682.211(j)(5) in cases where the effect of

decreased installment amounts paid under an income-sensitive repayment

schedule would result in a loan not being repaid within the maximum

repayment term; and

(E) The lender shall inform the borrower that the loan must be

repaid within the time limits specified under paragraph (a)(7) of this

section.

(ix) For purposes of this section, a lender may require that all

FFEL loans owed by a borrower to the lender be combined into one

account and repaid under one repayment schedule. In that event, the

word ``loan'' in this section shall mean all of the borrower's loans

that were combined by the lender into that account.

(7) * * *

(ii) If the borrower receives an authorized deferment or is granted

forbearance, as described in Sec. 682.210 or Sec. 682.211 respectively,

the periods of deferment or forbearance are excluded from

determinations of the 5-, 10-, and 15-year periods, and from the 12-,

15-, 20-, 25-, and 30-year periods for repayment of a Consolidation

loan pursuant to Sec. 682.208(h).

* * * * *

(h) * * *

(4) * * *

(ii) Does not include the unpaid balance on any loan not made under

Title IV of the HEA on which the borrower is in default, but may

include the unpaid balance on a defaulted loan made under Title IV of

the HEA if the borrower has made satisfactory repayment arrangements

with the holder to repay that loan.

* * * * *

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1079,

1082, 1085)

3. Section 682.210 has been amended by revising paragraph (a)(1);

by adding a new paragraph (a)(11); by revising paragraph (c)(4); and by

adding a new paragraph (s) to read as follows:

Sec. 682.210 Deferment.

(a) General. (1)(i) A borrower is entitled to have periodic

installment payments of principal deferred during authorized periods

after the beginning of the repayment period, pursuant to paragraph (b)

of this section.

(ii) With the exception of a deferment authorized under paragraph

(o) of this section, a borrower may continue to receive a specific type

of deferment that is limited to a maximum period of time only if the

total amount of time that the borrower has received the deferment does

not exceed the maximum time period allowed for the deferment.

* * * * *

(11) If two individuals are jointly liable for repayment of a PLUS

loan or a Consolidation loan, the lender shall grant a request for

deferment if both individuals simultaneously meet the requirements of

this section for receiving the same, or different deferments.

* * * * *

(c) * * *

(4) A borrower serving in a medical internship residency program,

except for an internship in dentistry, is prohibited from receiving or

continuing a deferment on a Stafford, SLS, or Consolidation loan under

paragraph (c) of this section.

* * * * *

(s) Deferments for new borrowers on or after July 1, 1993--

(1) General. A new borrower who receives an FFEL Program loan first

disbursed on or after July 1, 1993 is entitled to receive deferments

under paragraphs (s)(2) through (s)(6) of this section. For purposes of

this section, a ``new borrower'' is an individual who has no

outstanding principal or interest balance on an FFEL Program loan as of

July 1, 1993 or on the date he or she obtains a loan on or after July

1, 1993. This term also includes a borrower who obtains a Federal

Consolidation Loan on or after July 1, 1993 if the borrower has no

other outstanding FFEL Program loan when the Consolidation Loan was

made.

(2) Student deferment. An eligible borrower is entitled to a

deferment for at least half-time study in accordance with the rules

prescribed in Sec. 682.210(c), except that the borrower is not required

to obtain a Stafford or SLS loan for the period of enrollment covered

by the deferment.

(3) Graduate fellowship deferment. An eligible borrower is entitled

to a graduate fellowship deferment in accordance with the rules

prescribed in Sec. 682.210(d).

(4) Rehabilitation training program deferment. An eligible borrower

is entitled to a rehabilitation training program deferment in

accordance with the rules prescribed in Sec. 682.210(e).

(5) Unemployment deferment. An eligible borrower is entitled to an

unemployment deferment in accordance with the rules prescribed in

Sec. 682.210(h) for periods that, collectively, do not exceed 3 years.

(6) Economic hardship deferment. An eligible borrower is entitled

to an economic hardship deferment for periods of up to one year at a

time that, collectively, do not exceed 3 years, if the borrower

provides documentation satisfactory to the lender showing that the

borrower--

(i) Has been granted an economic hardship deferment under either

the FDSL or Federal Perkins Loan Programs for the period of time for

which the borrower has requested an economic hardship deferment for his

or her FFEL loan;

(ii) Is receiving payment under a federal or state public

assistance program, such as Aid to Families with Dependent Children,

Supplemental Security Income, Food Stamps, or state general public

assistance;

(iii) Is working full-time and earning a total monthly gross income

that does not exceed the greater of--

(A) The minimum wage rate described in section 6 of the Fair Labor

Standards Act of 1938; or

(B) An amount equal to 100 percent of the poverty line for a family

of two, as determined in accordance with section 673(2) of the

Community Service Block Grant Act; or

(iv) Is not receiving total monthly gross income that exceeds twice

the amount specified in paragraph (s)(6)(iii) of this section and,

after deducting an amount equal to the borrower's monthly payments on

federal postsecondary education loans, as determined under paragraph

(s)(6)(viii) of this section, the remaining amount of that income does

not exceed the amount specified in paragraph (s)(6)(iii) of this

section.

(v) For a deferment granted under paragraph (s)(6)(iv) of this

section, the lender shall require the borrower to submit at least the

following documentation to qualify for an initial period of deferment--

(A) Evidence showing the amount of the borrower's most recent total

monthly gross income, as defined in paragraph (s)(6)(ix) of this

section; and

(B) Evidence that would enable the lender to determine the amount

of the monthly payments that would have been owed by the borrower

during the deferment period to other entities for federal postsecondary

education loans in accordance with paragraph (s)(6)(viii) of this

section.

(vi) To qualify for a subsequent period of deferment that begins

less than one year after the end of a period of deferment under

paragraphs (s)(6)(iii) or (iv) of this section, the lender shall

require the borrower to submit a copy of the borrower's federal income

tax return if the borrower filed a tax return within eight months prior

to the date the deferment is requested.

(vii) For purposes of paragraph (s)(6)(iii) of this section, a

borrower is considered to be working full-time if the borrower is

expected to be employed for at least three consecutive months at 30

hours per week.

(viii) In determining a borrower's eligibility for an economic

hardship deferment under paragraph (s)(6) of this section, the lender

shall count only the monthly payment amount (or a proportional share if

the payments are due less frequently than monthly) that would have been

owed on a federal postsecondary education loan if the loan had been

scheduled to be repaid in 10 years from the date the borrower entered

repayment, regardless of the length of the borrower's actual repayment

schedule or the actual monthly payment amount (if any) that would be

owed during the period that the borrower requested an economic hardship

deferment.

(ix) For purposes of paragraph (s)(6) of this section, a borrower's

total monthly gross income shall be the gross amount of income received

by the borrower from employment (either full-time or part-time) and

from other sources.

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1082,

1085)

4. Section 682.211 has been amended by revising paragraph (a)(3);

by adding new paragraphs (f) (6) through (8); by revising paragraph

(h); and by adding new paragraphs (i) and (j) to read as follows:

Sec. 682.211 Forbearance.

(a) * * *

(3) If two individuals are jointly liable for repayment of a PLUS

loan or a Consolidation loan, the lender may grant forbearance on

repayment of the loan only if the ability of both individuals to make

scheduled payments has been impaired.

* * * * *

(f) A lender may grant administrative forbearance, upon notice to

the borrower or if applicable, the endorser, with respect to payments

of interest and principal that are overdue or that would be overdue--

* * * * *

(6) For a period not to exceed 60 days after the lender receives

reliable information indicating that the borrower (or student in the

case of a PLUS loan) has died, or the borrower has become totally and

permanently disabled, until the lender receives documentation of death

or total and permanent disability, pursuant to Sec. 682.402(b) or (c);

(7) For periods necessary for the Secretary or guaranty agency to

determine the borrower's eligibility for discharge of the loan because

of attendance at a closed school or false certification of loan

eligibility, pursuant to Sec. 682.402(d) or (e), or the borrower's or,

if applicable, endorser's bankruptcy, pursuant to Sec. 682.402(f); or

(8) For a period of delinquency at the time a loan is sold or

transferred, if the borrower or endorser is less than 60 days

delinquent on the loan at the time of sale or transfer.

* * * * *

(h) In granting a forbearance under this section, except for a

forbearance under paragraph (j)(5), a lender shall grant a temporary

cessation of payments, unless the borrower chooses another form of

forbearance subject to paragraph (a)(1) of this section.

(i) Mandatory forbearance. (1) Medical or dental interns or

residents. Upon receipt of a written request and sufficient supporting

documentation, as described in Sec. 682.210(n), from a borrower serving

in a medical or dental internship or residency program, a lender shall

grant forbearance to the borrower in yearly increments (or a lesser

period equal to the actual period during which the borrower is

eligible) if the borrower has exhausted his or her eligibility for a

deferment under Sec. 682.210(n), or the borrower's promissory note does

not provide for such a deferment--

(i) For the length of time remaining in the borrower's medical or

dental internship or residency that must be successfully completed

before the borrower may begin professional practice or service; or

(ii) For the length of time that the borrower is serving in a

medical or dental internship or residency program leading to a degree

or certificate awarded by an institution of higher education, a

hospital, or a health care facility that offers postgraduate training.

(2) Borrowers who are not medical or dental interns or residents,

and endorsers. Upon receipt of a written request and sufficient

supporting documentation from an endorser (if applicable), or from a

borrower (other than a borrower who is serving in a medical or dental

internship or residency described in paragraph (i)(1) of this section),

a lender shall grant forbearance--

(i) In increments up to one year, for periods that collectively do

not exceed three years, if--

(A) The borrower or endorser is currently obligated to make

payments on Title IV loans; and

(B) The amount of those payments each month (or a proportional

share if the payments are due less frequently than monthly) is

collectively equal to or greater than 20 percent of the borrower's or

endorser's total monthly income;

(ii) In yearly increments (or a lesser period equal to the actual

period during which the borrower is eligible) for as long as a

borrower--

(A) Is serving in a national service position for which the

borrower receives a national service educational award under the

National and Community Service Trust Act of 1993;

(B) Is eligible for loan forgiveness under the Federal Stafford

Loan Forgiveness Demonstration Program, if the program is funded, for

performing the type of service described in Sec. 682.215(b); or

(C) Is performing the type of service that would qualify the

borrower for a partial repayment of his or her loan under the Student

Loan Repayment Programs administered by the Department of Defense under

10 U.S.C. 2171.

(3) Documentation. (i) Before granting a forbearance to a borrower

or endorser under paragraph (i)(2)(i) of this section, the lender shall

require the borrower or endorser to submit at least the following

documentation:

(A) Evidence showing the amount of the most recent total monthly

gross income received by the borrower or endorser from employment and

from other sources; and

(B) Evidence showing the amount of the monthly payments owed by the

borrower or endorser to other entities for the most recent month for

the borrower's or endorser's Title IV loans.

(ii) Before granting a forbearance to a borrower or endorser under

paragraph (i)(2)(ii)(B) of this section, the lender shall require the

borrower or endorser to submit documentation showing the beginning and

ending dates that the borrower is expected to perform the type of

service described in Sec. 682.215(b).

(iii) Before granting a forbearance to a borrower or endorser

under paragraph (i)(2)(ii)(C) of this section, the lender shall require

the borrower or endorser to submit documentation showing the beginning

and ending dates that the Department of Defense considers the borrower

to be eligible for a partial repayment of his or her loan under the

Student Loan Repayment Programs.

(j) Mandatory administrative forbearance. (1) The lender shall

grant a mandatory administrative forbearance for the periods specified

in paragraph (j)(2) of this section until the lender is notified by the

Secretary or a guaranty agency that the forbearance period no longer

applies. The lender may not require a borrower who is eligible for a

forbearance under paragraph (j)(2)(ii) of this section to submit a

request or supporting documentation, but shall require a borrower (or

endorser, if applicable) who requests forbearance because of a military

mobilization to provide documentation showing that he or she is subject

to a military mobilization as described in paragraph (j)(4) of this

section.

(2) The lender is not required to notify the borrower (or endorser,

if applicable) at the time the forbearance is granted, but shall grant

a forbearance to a borrower or endorser during a period, and the 30

days following the period, when the lender is notified by the Secretary

that--

(i) Exceptional circumstances exist, such as a local or national

emergency or military mobilization; or

(ii) The geographical area in which the borrower or endorser

resides has been designated a disaster area by the president of the

United States or Mexico, the prime minister of Canada, or by a governor

of a state.

(3) As soon as feasible, or by the date specified by the

Secretary, the lender shall notify the borrower (or endorser, if

applicable) that the lender has granted a forbearance and the date that

payments should resume. The lender's notification shall state that the

borrower or endorser--

(i) May decline the forbearance and continue to be obligated to

make scheduled payments; or

(ii) Consents to making payments in accordance with the lender's

notification if the forbearance is not declined.

(4) For purposes of paragraph (j)(2)(i) of this section, the term

``military mobilization'' shall mean a situation in which the

Department of Defense orders members of the National Guard or Reserves

to active duty under sections 672(a), 672(g), 673, 673b, 674, or 688 of

title 10, United States Code. This term also includes the assignment of

other members of the Armed Forces to duty stations at locations other

than the locations at which they were normally assigned, only if the

military mobilization involved the activation of the National Guard or

Reserves.

(5) The lender shall grant a mandatory administrative forbearance

to a borrower (or endorser, if applicable) during a period when the

borrower (or endorser, if applicable) is making payments for a period

of--

(i) Up to 3 years of payments in cases where the effect of a

variable interest rate on a standard or graduated repayment schedule

would result in a loan not being repaid within the maximum repayment

term; or

(ii) Up to 5 years of payments in cases where the effect of

decreased installment amounts paid under an income-sensitive repayment

schedule would result in the loan not being repaid within the maximum

repayment term.

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1080,

1082)

[FR Doc. 94-15666 Filed 6-28-94; 8:45 am]

BILLING CODE 4000-01-P