Federal Direct Student Loan Program; Final Rule

SUMMARY: The Secretary of Education issues standards, criteria, and

procedures governing the repayment and consolidation of loans under the

Federal Direct Student Loan (Direct Loan) Program in the academic year

beginning July 1, 1994.

These standards, criteria, and procedures apply to loans under the

Federal Direct Stafford Loans Program, the Federal Direct Unsubsidized

Stafford Loans Program, and the Federal Direct PLUS Program,

collectively referred to as the Direct Loan Program.

EFFECTIVE DATE: July 1, 1994, with the exception of Secs. 685.209,

685.213, 685.214, and 685.215. These sections will become effective

after the information collection requirements contained in those

sections have been submitted by the Department of Education to, and

approved by, the Office of Management and Budget under the Paperwork

Reduction Act of 1980. If you want to know the effective date of these

sections, call or write the Department of Education contact person. A

document announcing the effective date will be published in the Federal

Register.

FOR FURTHER INFORMATION CONTACT: Lynn Mahaffie, U.S. Department of

Education, 400 Maryland Avenue, SW., (Room 4060, ROB-3), Washington, DC

20202-5162. Telephone: (202) 708-9069. 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 Student Loan Reform Act of 1993, enacted

on August 10, 1993, established the Direct Loan Program under the

Higher Education Act of 1965, as amended (HEA). See Subtitle A of the

Omnibus Budget Reconciliation Act of 1993 (Pub. L. 103-66). Under the

Direct Loan Program, loan capital is provided directly to student and

parent borrowers by the Federal Government rather than through private

lenders. Borrowers under the Direct Loan Program are provided a range

of repayment options, including an income contingent repayment plan.

The HEA directs the Secretary to consult with members of the higher

education community and to publish a notice of standards, criteria, and

procedures for the program's first year in lieu of issuing regulations

using the Department's usual procedures. The Secretary's

representatives have consulted with representatives of students,

colleges, universities, proprietary schools, and educational

associations, as well as representatives of the financial aid

community, in developing this notice. In particular, the Secretary's

representatives have had extensive consultations with the other members

of the Direct Student Loan Regulations Negotiated Rulemaking Advisory

Committee established to develop proposed regulations for the second

and subsequent years of the program. See the Secretary's announcement

of his intention to establish this Committee at 58 FR 68619 (December

28, 1993).

This notice establishes the policies and procedures necessary to

govern repayment of loans under the Direct Loan Program and to

establish standards and procedures relating to Federal Direct

Consolidation Loans for the 1994-1995 academic year.

I. Background

On September 10, 1993, the Secretary published a notice in the

Federal Register (58 FR 47816) soliciting applications from schools for

participation in the Direct Loan Program. Over 1,100 schools responded

to that invitation. On December 28, 1993, the Secretary selected 104

schools, representing approximately five percent (5%) of the total

Federal Family Education Loan (FFEL) Program loan volume, to

participate in the Direct Loan Program for the academic year beginning

July 1, 1994 (58 FR 68690). On January 4, 1994, the Secretary published

a notice containing most of the standards, criteria, and procedures

needed for the first-year implementation of the Direct Loan Program (59

FR 472). Cross-references in the repayment and consolidation provisions

of this notice are to sections of 34 CFR Part 685 that were included in

the rules published on January 4, 1994.

The repayment and consolidation rules in this notice complete the

provisions needed for the first year of the program. These rules are

applicable for the period beginning July 1, 1994, and ending June 30,

1995. As required by statute, program regulations for the Direct Loan

Program in future years are being developed through the use of a

negotiated rulemaking process to the extent practicable.

II. Summary of Contents

Section 685.204 Deferment

This section contains revisions to paragraphs (b) and (c) that

clarify the deferment requirements for all Direct Loan borrowers. In

addition, a new paragraph (d) states the deferment requirements for

certain Direct Consolidation Loan borrowers.

Section 685.207 Obligation to Repay

This section contains provisions relating to a borrower's

obligation to repay a Direct Loan that generally parallel provisions

applicable to the FFEL program. On the basis of consultations with

members of the higher education community, the Secretary has included

clarifying provisions concerning (1) the collection costs for which a

borrower is responsible (in paragraph (a)); (2) the borrower's

obligations upon re-enrolling in school after a loan has entered

repayment (in paragraph (b)(1)); and (3) the date on which a grace

period begins for a borrower who withdraws from a correspondence

program (in paragraph (d)).

Section 685.208 Repayment Plans

This section contains descriptions of the various repayment plans

required to be made available to Direct Loan borrowers by section

455(d)(1) of the HEA. To simplify the administration of the program,

paragraph (a)(4) requires that all Direct Loans obtained by a borrower

be repaid together under the same repayment plan. The sole exception to

this requirement is that Direct PLUS loans, which are the only loans

that may not be repaid under the income contingent repayment plan, may

be repaid separately.

The features of the standard repayment plan that is comparable to

the standard repayment plan under the FFEL program are described in

paragraph (b). Generally, a borrower must repay the loan by making

fixed monthly payments for ten years. Under the extended repayment plan

described in paragraph (c), a borrower must repay the loan by making

fixed monthly payments within an extended period of time of 12 to

thirty years that varies with the borrower's debt level. The repayment

period under this plan is the same as the period for repayment of a

consolidation loan under the FFEL program.

Under the graduated repayment plan described in paragraph (d), a

borrower must repay the loan by making monthly payments at two or more

levels within the same period of time as the period applicable under

the extended repayment plan. The Secretary believes that this approach

offers flexibility and at the same time enables a borrower to assess

the relative benefits of various repayment plans with ease. As a result

of consultation with members of the higher education community, this

section provides that the Secretary may adjust the monthly payment

amount under the standard, extended, and graduated repayment plans to

reflect changes in the variable interest rate identified in

Sec. 685.202(a).

The income contingent repayment plan is summarized in paragraph (f)

and described in detail in Sec. 685.209 and Appendix B. Under this

plan, a borrower may choose to repay Direct Loans in one of two ways

described in Sec. 685.209. A borrower's monthly repayment amount

generally varies with the Adjusted Gross Income (AGI) reported by the

borrower, the amount of the borrower's Direct Loan debt, and family

size. Specific provisions in Sec. 685.209 apply in the case of a

married couple who wish to repay their Direct Loans jointly. Payments

under the income contingent repayment plan increase progressively with

debt to discourage excessive borrowing and to ensure that most

borrowers repay their loans within the 25-year period allowed by the

statute. The borrower is not required to repay any amount that remains

outstanding at the end of the repayment period.

The Secretary intends to review periodically the method for

calculating monthly repayment amounts under the income contingent

repayment plan. However, if the Secretary amends the regulations

governing that method, the regulations in effect when a borrower's

first Direct Loan enters repayment determine the monthly repayment

amount for all the borrower's Direct Loans unless the borrower requests

otherwise.

The alternative repayment plan provisions in paragraph (g)

implement the Secretary's statutory authority to provide an alternative

plan, on a case-by-case basis, to a borrower who can demonstrate that

none of the other available plans can accommodate the borrower's

exceptional circumstances.

Section 685.209 Income Contingent Repayment Plan

This section contains provisions governing the two options

available for repayment of Direct Loans under the income contingent

repayment plan (ICRP). The ICRP is designed to be attractive to a broad

range of borrowers. The plan provides reasonable monthly repayment

amounts for borrowers with varying amounts of debt and income and

ensures that most borrowers repay their loans in a reasonable amount of

time. The plan also addresses excessive borrowing through a payback

rate that rises as debt increases. Examples of the calculation of

monthly repayment amounts under both options are included in Appendix B

to the regulations.

Option 1. Calculation of the monthly payment under Option 1 of the

ICRP is described in paragraph (b). In general, the borrower's annual

repayment obligation is the borrower's AGI multiplied by a ``payback

rate'' that is based on the borrower's debt. The monthly payment is the

annual repayment obligation divided by 12, minus an adjustment for

family size. The ``payback rate'' varies from four to 15 percent,

calculated as described in paragraph (b)(2). The family size adjustment

is seven dollars per dependent for up to five dependents. If the

calculated monthly payment is less than $25, the borrower is not

required to make a payment. When a borrower is not required to make a

payment, the principal amount is unchanged and interest on the

principal accrues and may be capitalized.

Option 2. Calculation of the monthly payment under Option 2 of the

ICRP is described in paragraph (c). In general, under this option, a

borrower's monthly payment is the same as under Option 1 except that no

payment exceeds the monthly amount the borrower would repay over 12

years using standard amortization. If a borrower chooses this option:

(1) The borrower's payments do not exceed the 12-year standard

amortization amount regardless of the borrower's income; (2) the

borrower's repayment period may be extended beyond the repayment period

under Option 1 (but not beyond the 25-year maximum repayment period

described in Sec. 685.209(d)(2)(i); and (3) interest accrues throughout

the repayment period and is capitalized until the limitation on

capitalization of interest is reached.

Joint repayment by married borrowers. This section includes

provisions for joint repayment of Direct Loans by married borrowers. A

step-by-step calculation of a combined amount is included as Example 2

in Appendix B.

Repayment period. Provisions governing the repayment period under

the ICRP are contained in paragraph (d)(2). The maximum period is 25

years, excluding periods of authorized deferment and forbearance under

Secs. 685.204 and 685.205, respectively, and periods in which the

borrower made payments under another repayment plan. The Secretary

believes the exclusion of repayment periods under other plans is needed

to prevent abuses through which a borrower might be able to avoid

repaying a portion of the loan by shifting from one plan to another as

the borrower's income changed.

If a borrower repays more than one loan under the ICRP and the

loans enter repayment at different times, a separate repayment period

for each loan begins when the loan enters repayment. This approach

ensures that no loan will be repaid under the ICRP for more than 25

years. If loans enter repayment at the same time, a single repayment

period applies.

To encourage borrowers to begin repaying their loans and to limit

negative amortization at the beginning of the repayment period, a

borrower must make monthly payments of accrued interest until the

Secretary calculates the borrower's monthly payment on the basis of the

borrower's income. A borrower who is unable to make monthly payments of

accrued interest or qualify for a deferment under Sec. 685.204 may

request forbearance under Sec. 685.205.

Limit on capitalization of interest. The Secretary believes a limit

on the amount of interest that is added to principal (the

capitalization of interest) is desirable to prevent an excessive

increase in a borrower's debt burden when the borrower's income is

insufficient to cover accruing interest. Paragraph (d)(3) permits

capitalization of unpaid interest until the outstanding principal

amount increases to one and one-half times the original principal

amount. Thereafter, unpaid interest accrues but is not capitalized.

Consent to disclosure of tax return information. In order to repay

a Direct Loan under the ICRP, a borrower must consent, on a form

provided by the Secretary, to the disclosure of certain tax return

information by the Internal Revenue Service to agents of the Secretary

for purposes of calculating a monthly repayment amount and servicing

and collecting a loan. The information subject to disclosure is

taxpayer identity information as defined in 26 U.S.C. 6103(b)(6)

(including such information as name, address, and social security

number), tax filing status, and AGI. Paragraph (d)(5) describes the

procedures for providing written consent and requires that consent be

provided for a period of five years. If a borrower selects the ICRP but

fails to provide or renew consent, or withdraws consent without

selecting a different repayment plan, the Secretary designates the ten-

year standard repayment plan for the borrower.

Section 685.210 Choice of Repayment Plan

This section governs a borrower's initial selection of a repayment

plan and the borrower's ability to change plans thereafter. Before a

Direct Loan enters repayment, the Secretary sends the borrower a

description of the available repayment plans and requests the borrower

to select one. If the borrower does not select a plan within 45 days,

the Secretary designates the standard repayment plan for the borrower.

To accommodate the many changes in life circumstances that a

borrower may experience over the life of a loan, the Secretary has

placed no limit on the number of times a borrower may change plans,

other than limits on a borrower who is repaying a defaulted loan under

the ICRP. Such a borrower must demonstrate a consistent pattern of

repayment and obtain the Secretary's approval before changing repayment

plans. Under Sec. 685.209(a)(2), a borrower may change options under

the ICRP no more frequently than once a year.

A borrower may change to the ICRP at any time, but may not change

to any other plan if that plan has a maximum repayment period of less

than the period the loan has already been in repayment. For example, a

borrower who makes payments for 12 years under the extended repayment

plan may not change to the standard repayment plan, which has a ten-

year repayment period. The repayment period under the new plan is

calculated from the date the loan initially entered repayment, except

in the case of the ICRP (see Sec. 685.209(d)(2)). Thus, if a borrower

who repays a loan under the extended repayment plan for three years and

then changes to the standard repayment plan, the borrower has seven

more years to repay the loan.

Section 685.211 Miscellaneous Repayment Provisions

This section governs an assortment of topics relating to the

repayment of Direct Loans. Paragraph (a) permits a borrower to prepay

all or part of a loan at any time and states how a prepayment is

applied in the absence of a contrary request from the borrower.

Paragraph (b) states how the Secretary applies a refund due to a

borrower from a school. Paragraph (c) describes the effects of a

borrower's default on a Direct Loan. Paragraph (d) sets out the

standards by which the Secretary determines that a borrower is

ineligible for some or all of a Direct Loan and describes how the

Secretary seeks repayment of the loan.

Section 685.212 Discharge of a Loan Obligation

This section provides for the Secretary's discharge of the

obligation of a borrower and any endorser to repay a loan if (1) the

borrower (or the student on whose behalf a parent borrowed) has died;

(2) the borrower has become totally and permanently disabled, as

described in paragraph (b); (3) the borrower's obligation to repay is

discharged in bankruptcy; (4) the borrower meets the criteria in

Sec. 685.213, relating to closed schools; or (5) the borrower meets the

criteria in Sec. 685.214, relating to false certification or

unauthorized disbursement.

Section 685.213 Closed School Discharge

This section provides for the discharge of the obligation of a

borrower and any endorser to repay a loan if the borrower (or student

on whose behalf the parent borrowed) did not complete the program of

study for which the loan was made because the school closed. The

provisions of this section are modeled on provisions for the FFEL

program published on April 29, 1994, in order to provide borrowers with

comparable protection under both programs (see 59 FR 22462). The

qualifications for discharge under this section are set out in

paragraphs (c) through (e). Among other requirements, a borrower must

cooperate with the Secretary in any judicial or administrative

proceeding to recover for amounts discharged or to take related

enforcement action, and must transfer any rights to a loan refund to

the Secretary. The discharge procedures used by the Secretary are

described in paragraph (f).

Section 685.214 Discharge for False Certification of Student

Eligibility or Unauthorized Disbursement

This section provides for the discharge of the obligation of a

borrower and any endorser to repay a loan if (1) a school falsely

certifies the loan eligibility of the borrower (or the student on whose

behalf a parent borrowed), or (2) the school endorsed the borrower's

loan check or signed the borrower's authorization for electronic funds

transfer without authorization. The provisions of this section are

modeled on provisions for the FFEL program published on April 29, 1994,

in order to provide borrowers with comparable protection under both

programs (see 59 FR 22462). Additional actions that the Secretary may

take against unscrupulous schools are described in the preamble to that

document.

The qualifications for discharge under this section are set out in

paragraph (c) and include the requirements in Sec. 685.213 relating to

cooperation with the Secretary in enforcement actions and transfers to

the Secretary of any rights to a loan refund. The discharge procedures

used by the Secretary are described in paragraph (d).

Section 685.215 Consolidation

This section contains provisions governing the consolidation of

certain Federal education loans into Federal Direct Consolidation

Loans.

Eligible loans. The types of loans that may be consolidated under

this section are listed in paragraph (b) and include all loans made

under the Federal Family Education Loan (FFEL) Program, the Direct Loan

Program, and the National Direct Student Loan Program, as well as

certain loans made under the Public Health Service Act. The Secretary

has included consolidation loans made under the FFEL program to permit

all FFEL borrowers to participate in the income contingent repayment

plan that is available only under the Direct Loan Program.

Types of Federal Direct Consolidation Loans. There are three types

of Federal Direct Consolidation Loans--subsidized, PLUS, and

unsubsidized consolidation loans. The loans that may be consolidated

into each type of consolidation loan are listed in paragraph (c).

Subsidized consolidation loans allow borrowers to continue to be free

of the obligation to pay interest during authorized periods of

deferment. PLUS consolidation loans are available for all loans made to

parents on behalf of students. Unsubsidized consolidation loans are

available for all other eligible types of loans.

Borrower eligibility. The eligibility requirements that a borrower

must meet to obtain a Federal Direct Consolidation Loan are stated in

paragraph (d). Direct Loan borrowers and any FFEL borrower who is

unable to obtain an FFEL consolidation loan or an FFEL consolidation

loan with income sensitive repayment terms acceptable to the borrower

may consolidate their loans under the Direct Loan Program if they meet

the other requirements of paragraph (d). With the exception of

provisions taken from statute concerning the FFEL loans that may be

consolidated into a Direct Loan, most of the requirements parallel

requirements for the FFEL program.

The Secretary has included provisions that prevent consolidation by

(1) a borrower who is in default, unless the borrower has made

satisfactory arrangements to repay the defaulted loan or agrees to

repay the consolidation loan under the ICRP; and (2) a PLUS loan

borrower with an adverse credit history at the time of consolidation,

unless the borrower obtains an endorser or provides evidence of

extenuating circumstances. Married borrowers may consolidate their

loans jointly if they agree to be held jointly and severally liable on

the consolidation loan and meet the other requirements of paragraph

(d)(2).

Loan application and origination. A single application for one or

more consolidation loans is permitted under paragraph (e). That

paragraph also permits a borrower to add eligible loans upon request

within 180 days after the date of the consolidation loan's origination.

Provisions in paragraph (f) that govern origination of consolidation

loans are taken from the FFEL program.

Interest rates. The Secretary has decided to apply to Federal

Direct Consolidation Loans the same variable interest rates that apply

to other Direct Loans. The Secretary believes these rates will be

beneficial to most borrowers.

Repayment and refunds. As provided in paragraph (h), a borrower may

repay a Federal Direct Consolidation Loan under any of the Direct Loan

repayment plans, except that certain restrictions apply to defaulted

borrowers, and the ICRP is not available to a PLUS consolidation loan

borrower. The Secretary has included the exception for PLUS borrowers

to provide consistency with the statutory prohibition against repayment

of Direct Loans by parents under the ICRP. The provisions of paragraph

(i) and (j), relating to repayment periods and repayment schedules,

respectively, are taken from the FFEL program, as are provisions in

paragraph (k), relating to a lender's obligations upon receiving a

refund from a school on a loan that has been consolidated.

Joint consolidation loans. If two married borrowers obtain a joint

consolidation loan, special provisions apply under paragraph (l). This

paragraph provides that both borrowers must meet the requirements of

the applicable section in order to obtain a deferment under

Sec. 685.204 or forbearance under Sec. 685.205. To obtain a discharge

under Sec. 685.212, each spouse must qualify for one of the types of

discharge described in that section. The Secretary discharges a portion

of the loan if one spouse meets the requirements of Sec. 685.212 (d) or

(e).

III. Executive Order 12866

The contents of this notice 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 the standards, criteria,

and procedures in this notice.

The potential costs associated with the contents of this notice 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 standards, criteria, and

procedures, the Secretary has determined that the benefits of these

standards, criteria, and procedures justify the costs.

The Secretary has also determined that the contents of this notice

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

the exercise of their governmental functions.

The contents of this notice are consistent with the requirements of

the HEA and promote the President's priorities.

IV. Paperwork Reduction Act of 1980

Sections 685.209, 685.213, 685.214, and 685.215 contain information

collection requirements. As required by the Paperwork Reduction Act of

1980, the Department of Education will submit a copy of this notice to

the Office of Management and Budget for its review (44 U.S.C. 3504(h)).

This notice affects borrowers of Federal student loans authorized

by title IV of the HEA and schools that administer the Direct Loan

Program. The annual public reporting burden for the required collection

of information is estimated to be 12,029 hours (an average of 59

minutes for each of the estimated 12,350 individuals who provide

information regarding eligibility for a Federal Direct Consolidation

Loan or income contingent repayment) including the time for reviewing

instructions, searching existing data sources, gathering and

maintaining the data needed, and completing and reviewing the

collection of information.

Organizations and individuals desiring to submit comments on the

information collection requirements should direct them to the Office of

Information and Regulatory Affairs, Office of Management and Budget,

Room 3002, New Executive Office Building, Washington, DC 20503;

Attention: Dan Chenok.

V. Waiver of Rulemaking

It is the practice of the Secretary to offer interested parties an

opportunity to comment on proposed regulations. However, Pub. L. 103-66

requires that the Secretary publish a notice in lieu of regulations for

the first year of the Direct Loan Program and exempts the contents of

the notice from the rulemaking requirements of section 431 of the

General Education Provisions Act. In developing this notice, the

Secretary's representatives have consulted extensively with the other

members of the Direct Student Loan Regulations Negotiated Rulemaking

Advisory Committee established to develop proposed regulations for the

second and subsequent years of the program, as well as other members of

the higher education community. The statutory timeframe for the

implementation of the program does not permit the solicitation of

further public comment. A public comment period, while helpful, would

seriously delay the provision of necessary guidance for the operation

of the Direct Loan Program. Therefore, the Secretary finds that

solicitation of public comments would be impracticable and contrary to

the public interest under 5 U.S.C. 553(b)(B).

List of Subjects in 34 CFR Part 685

Administrative practice or procedure, Colleges and universities,

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

(Catalog of Federal Domestic Assistance Number 84.268, Federal

Direct Student Loan Program)

Dated: June 28, 1994.

Richard W. Riley,

Secretary of Education.

The Secretary amends Part 685 of Title 34 of the Code of Federal

Regulations as follows:

PART 685--STANDARDS, CRITERIA, AND PROCEDURES FOR THE DIRECT LOAN

PROGRAM

1. The authority citation continues to read as follows:

Authority: 20 U.S.C. 1087a et seq.

2. Section 685.204 is amended by revising paragraphs (b) and (c)

and adding a new paragraph (d) to read as follows:

Sec. 685.204 Deferment

* * * * *

(b) Except as provided in paragraph (d) of this section, a Direct

Loan borrower is eligible for a deferment during any period during

which the borrower meets any of the following requirements:

(1)(i) The borrower--

(A) Is carrying at least one-half the normal full-time work load

for the course of study that the borrower is pursuing, as determined by

the eligible school the borrower is attending;

(B) Is pursuing a course of study pursuant to a graduate fellowship

program approved by the Secretary; or

(C) Is pursuing a rehabilitation training program, approved by the

Secretary, for individuals with disabilities; and

(ii) The borrower is not serving in a medical internship or

residency program, except for a residency program in dentistry.

(2) The borrower is seeking and unable to find full-time

employment.

(3)(i) The borrower has experienced or will experience an economic

hardship.

(ii) For purposes of paragraph (b)(3)(i) of this section, the

Secretary determines whether a borrower is eligible for a deferment due

to an economic hardship using the standards and procedures set forth in

34 CFR 682.210(s)(6) with references to the lender understood to mean

the Secretary.

(c) No deferment under paragraphs (b)(2) or (3) of this section may

exceed three years.

(d) If, at the time of consolidation, a Direct Consolidation Loan

borrower has an outstanding balance on an FFEL Program loan that was

made prior to July 1, 1993, the borrower is eligible for a deferment

during--

(1) The periods described in paragraph (b) of this section; and

(2) The periods described in 34 CFR 682.210(b), including those

periods that apply to a ``new borrower'' as that term is defined in 34

CFR 682.210(b)(7).

(Authority: 20 U.S.C. 1087a et seq.)

3. Sections 685.207 through 685.215 are added to Subpart B to read

as follows:

Sec. 685.207 Obligation to repay.

(a) Obligation of repayment in general. (1) A borrower is obligated

to repay the full amount of a Direct Loan, including the principal

balance, fees, any collection costs charged under Sec. 685.202(e), and

any interest not subsidized by the Secretary, unless the borrower is

relieved of the obligation to repay as provided in this part.

(2) The borrower's repayment of a Direct Loan may also be subject

to the deferment provisions in Sec. 685.204, the forbearance provisions

in Sec. 685.205, and the discharge provisions in Sec. 685.212.

(b) Federal Direct Stafford Loan repayment. (1) During the period

in which a borrower is enrolled at an eligible school on at least a

half-time basis, the borrower is in an ``in-school'' period and is not

required to make payments on a Federal Direct Stafford Loan unless--

(i) The loan entered repayment before the in-school period began;

and

(ii) The borrower has not been granted a deferment under

Sec. 685.204(a)(1).

(2)(i) When a borrower ceases to be enrolled at an eligible school

on at least a half-time basis, a six-month grace period begins, unless

the grace period has been previously exhausted.

(ii) During a grace period, the borrower is not required to make

payments on a Federal Direct Stafford Loan.

(3) A borrower is not obligated to pay interest on a Federal Direct

Stafford Loan for in-school or grace periods if the borrower is not

required to make payments on the loan during those periods.

(4) The repayment period for a Federal Direct Stafford Loan begins

when the six-month grace period ends. A borrower is obligated to repay

the loan under paragraph (a) of this section during the repayment

period.

(c) Federal Direct Unsubsidized Stafford Loan repayment. (1) During

the period in which a borrower is enrolled at an eligible school on at

least a half-time basis, the borrower is in an ``in-school'' period and

is not required to make payments of principal on a Federal Direct

Unsubsidized Stafford Loan unless--

(i) The loan entered repayment before the in-school period began;

and

(ii) The borrower has not been granted a deferment under

Sec. 685.204(a)(2).

(2) (i) When a borrower ceases to be enrolled at an eligible school

on at least a half-time basis, a six-month grace period begins, unless

the grace period has been previously exhausted.

(ii) During a grace period, the borrower is not required to make

any principal payments on a Federal Direct Unsubsidized Stafford Loan.

(3) A borrower is responsible for the interest that accrues on a

Federal Direct Unsubsidized Stafford Loan during in-school and grace

periods. Interest that accrues may be capitalized or paid by the

borrower.

(4) The repayment period for a Federal Direct Unsubsidized Stafford

Loan begins when the six-month grace period ends. A borrower is

obligated to repay the loan under paragraph (a) of this section during

the repayment period.

(d) Determining the date on which the grace period begins for

students in correspondence programs. The grace period for students

enrolled in correspondence programs begins on the student's withdrawal

date as determined under Sec. 685.304(b)(3).

(e) Federal Direct PLUS Loan repayment. The repayment period for a

Federal Direct PLUS Loan begins on the day after the loan is fully

disbursed. Interest begins to accrue on the date the first installment

is disbursed. A borrower is obligated to repay the loan under paragraph

(a) of this section during the repayment period.

(f) Federal Direct Consolidation Loan repayment. The repayment

period for a Federal Direct Consolidation Loan begins on the day after

the loan is made. The borrower is obligated to repay the loan under

paragraph (a) of this section during the repayment period.

(Authority: 20 U.S.C. 1087a et seq.)

Sec. 685.208 Repayment plans.

(a) General. (1) A borrower may repay a Federal Direct Stafford

Loan, a Federal Direct Unsubsidized Stafford Loan, a Federal Direct

Subsidized Consolidation Loan, or a Federal Direct Unsubsidized

Consolidation Loan under the standard repayment plan, the extended

repayment plan, the graduated repayment plan, or the income contingent

repayment plan.

(2) A borrower may repay a Federal Direct PLUS Loan or a Federal

Direct PLUS Consolidation Loan under the standard repayment plan, the

extended repayment plan, or the graduated repayment plan.

(3) The Secretary may provide an alternative repayment plan in

accordance with paragraph (g) of this section.

(4) All Direct Loans obtained by one borrower must be repaid

together under the same repayment plan, except that a borrower of a

Federal Direct PLUS Loan or a Federal Direct PLUS Consolidation Loan

may repay the Federal Direct PLUS Loan or the Federal Direct PLUS

Consolidation Loan separately from other Direct Loans obtained by that

borrower.

(b) Standard repayment plan. (1) Under the standard repayment plan,

a borrower shall repay a loan in full within ten years from the date

the loan entered repayment by making fixed monthly payments.

(2) Periods of authorized deferment or forbearance are not included

in the ten-year repayment period.

(3) A borrower's payments under the standard repayment plan are at

least $50 per month, except that a borrower's final payment may be less

than $50.

(4) The fixed monthly repayment amount may be adjusted to reflect

changes in the variable interest rate identified in Sec. 685.202(a).

(c) Extended repayment plan. (1) Under the extended repayment plan,

a borrower shall repay a loan in full by making fixed monthly payments

within an extended period of time that varies with the total amount of

the borrower's loans, as described in paragraph (e) of this section.

(2) Periods of deferment and forbearance are not included in the

number of years of repayment.

(3) A borrower makes fixed monthly payments of at least $50, except

that a borrower's final payment may be less than $50.

(4) The fixed monthly repayment amount may be adjusted to reflect

changes in the variable interest rate identified in Sec. 685.202(a).

(d) Graduated repayment plan. (1) Under the graduated repayment

plan, a borrower shall repay a loan in full by making payments at two

or more levels within a period of time that varies with the total

amount of the borrower's loans, as described in paragraph (e) of this

section.

(2) The monthly repayment amount may be adjusted to reflect changes

in the variable interest rate identified in Sec. 685.202(a).

(3) No scheduled payment under the graduated repayment plan may be

less than the amount of interest accrued on the loan between monthly

payments, less than 50% of the payment amount that would be required

under the standard repayment plan, or more than 150% of the payment

amount that would be required under the standard repayment plan.

(e) Repayment period for the extended and graduated plans. Under

the extended and graduated repayment plans, if the total amount of the

borrower's Direct Loans is--

(1) Less than $10,000, the borrower shall repay the loans within 12

years of entering repayment;

(2) Greater than or equal to $10,000 but less than $20,000, the

borrower shall repay the loans within 15 years of entering repayment;

(3) Greater than or equal to $20,000 but less than $40,000, the

borrower shall repay the loans within 20 years of entering repayment;

(4) Greater than or equal to $40,000 but less than $60,000, the

borrower shall repay the loans within 25 years of entering repayment;

and

(5) Greater than or equal to $60,000, the borrower shall repay the

loans within 30 years of entering repayment.

(f) Income contingent repayment plan. (1) Under the income

contingent repayment plan, a borrower's monthly repayment amount is

generally based on the total amount of the borrower's (and, in some

circumstances, the borrower's spouse's) Direct Loans, family size, and

Adjusted Gross Income (AGI) reported by the borrower for the most

recent year for which the Secretary has obtained income information. In

the case of a married borrower who files a joint Federal income tax

return and is not repaying loans jointly with a spouse under

Sec. 685.209(a)(3), the borrower's AGI includes the income of the

borrower's spouse. A borrower shall make payments on a loan until the

loan is repaid in full or until the loan has been in repayment through

the end of the income contingent repayment period.

(2) The regulations in effect at the time a borrower's first Direct

Loan enters repayment govern the method for determining the borrower's

monthly repayment amount for all of the borrower's Direct Loans,

unless--

(i) The Secretary amends the regulations relating to a borrower's

monthly repayment amount under the income contingent repayment plan;

and

(ii) The borrower submits a written request that the amended

regulations apply to the repayment of the borrower's Direct Loans.

(3) Provisions governing the income contingent repayment plan are

set out in Sec. 685.209.

(g) Alternative repayment. (1) The Secretary may provide an

alternative repayment plan for a borrower who demonstrates to the

Secretary's satisfaction that the terms and conditions of the repayment

plans specified in paragraphs (b) through (f) of this section are not

adequate to accommodate the borrower's exceptional circumstances.

(2) The Secretary may require a borrower to provide evidence of the

borrower's exceptional circumstances before permitting the borrower to

repay a loan under an alternative repayment plan.

(3) If the Secretary agrees to permit a borrower to repay a loan

under an alternative repayment plan, the Secretary notifies the

borrower in writing of the terms of the plan. After the borrower

receives notification of the terms of the plan, the borrower may accept

the plan or choose another repayment plan.

(4) If a borrower's payment under the alternative repayment plan is

less than the accrued interest on the loan, the unpaid interest is

added to the principal balance of the loan.

(Authority: 20 U.S.C. 1087a et seq.)

Sec. 685.209 Income contingent repayment plan.

(a)(1) Under the income contingent repayment plan described in

Sec. 685.208(f), a borrower may choose to repay Direct Loans in one of

two ways. The borrower's options are described in paragraphs (b) and

(c) of this section.

(2) A borrower may change options under the income contingent

repayment plan by notifying the Secretary in writing. However, a

borrower may change options no more frequently than once a year. The

Secretary annually provides the borrower with estimates of monthly

payment amounts under each option.

(3) The Secretary may determine that special circumstances, such as

a loss of employment by the borrower or the borrower's spouse, warrant

an adjustment to the borrower's repayment obligations.

(4) Married borrowers may repay their loans jointly if they meet

the following requirements:

(i) Each spouse is repaying a Direct Loan under the same option of

the income contingent repayment plan.

(ii) The spouses filed a joint Federal income tax return for the

most recent year for which the Secretary has obtained income

information.

(iii) The spouses submit a written request that includes their

names and social security numbers to the Secretary.

(5) Examples of the calculation of the monthly repayment amounts

under both options of the income contingent repayment plan are included

in Appendix B to this part.

(b) Option 1. (1) General. (i) In general, under Option 1, a

borrower shall make monthly payments calculated using a percentage of

the borrower's Adjusted Gross Income (AGI) called the ``payback rate.''

The payback rate is based upon the total amount of the borrower's

Direct Loans, as described under paragraph (b)(2) of this section. The

minimum payback rate is four percent, and the maximum rate is 15

percent.

(ii) If a borrower provides documentation acceptable to the

Secretary that the borrower has one or more dependents other than the

borrower's spouse, the Secretary subtracts from the borrower's monthly

payment a family size adjustment of seven dollars per dependent for up

to five dependents.

(iii) A borrower's monthly payment is equal to the borrower's AGI

multiplied by the payback rate, divided by 12 months, minus the family

size adjustment amount. However, if the monthly repayment amount is

less than $25, the borrower is not required to make a payment.

(2) Payback rate. (i) A borrower's payback rate is based upon the

borrower's Direct Loan debt when the borrower's first loan enters

repayment and does not change unless the borrower obtains another

Direct Loan or the borrower and the borrower's spouse obtain approval

to repay their loans jointly under paragraph (a)(4) of this section. If

the borrower obtains another Direct Loan, a new payback rate for all of

the borrower's Direct Loans is calculated on the basis of the combined

amounts of the loans when they entered repayment.

(ii) If the total amount of a borrower's Direct Loans is less than

or equal to $1,000, the payback rate is four percent. If the total

amount of a borrower's Direct Loans is greater than $1,000, the payback

rate is four percent plus an additional percent that begins at zero and

increases at a rate of 0.2 percent for each additional $1,000 borrowed

up to a maximum payback rate of 15 percent.

(iii) More specifically, if the total amount of a borrower's Direct

Loans is greater than $1,000, the payback rate is the lesser of 0.15 or

the following: 0.04 + (debt-1,000) (0.000002).

(3) Exception for certain married borrowers. The combined monthly

payment amount for married borrowers who repay their loans jointly

under paragraph (a)(4) of this section is the total of the individual

monthly payment amounts for each borrower calculated under paragraph

(b)(1)(iii) of this section. The amount of a borrower's individual

monthly payment amount is applied to that borrower's debt. The payback

rate for each borrower is calculated separately on the basis of the

amount of the borrower's Direct Loans. For purposes of this paragraph,

the Secretary assumes that the AGI for each borrower is proportionate

to the relative size of the borrower's individual debt and subtracts

one half of the applicable family size adjustment from each borrower's

monthly payment amount. If the combined monthly repayment amount is

less than $25, the borrowers are not required to make a payment.

(c) Option 2. (1) General. (i) In general, under Option 2, a

borrower shall make monthly payments as calculated under Option 1,

except that no monthly payment exceeds the amount the borrower would

repay over 12 years using standard amortization. The Secretary

calculates the 12-year standard amortization amount on the basis of the

interest rate in effect when the borrower chooses Option 2. The amount

a borrower would repay over 12 years using standard amortization is

determined without any family size adjustment or minimum monthly

repayment amount.

(ii) More specifically, if a borrower chooses Option 2 under the

income contingent repayment plan--

(A) The borrower's payments do not exceed the 12-year standard

amortization amount regardless of the borrower's income;

(B) The borrower's repayment period may be extended beyond the

repayment period under Option 1 (but not beyond the 25-year maximum

period described in Sec. 685.209(d)(2)(i)); and

(C) Interest accrues throughout the repayment period and is

capitalized until the limitation on capitalization of interest in

paragraph (d)(3) of this section is reached.

(iii) Exception for certain married borrowers. The combined monthly

payment amount for married borrowers who repay their loans jointly

under paragraph (a)(4) of this section is the total of the individual

monthly payment amounts for each borrower calculated under paragraph

(b)(1)(iii) of this section, unless the combined amount exceeds the 12-

year standard amortization amount. If the combined amount exceeds the

12-year standard amortization amount, the couple pays the 12-year

standard amortization amount, and the amount applied to each borrower's

debt is determined by calculating the 12-year standard amortization

amount for that borrower's debt.

(d) Other features of the income contingent repayment plan. (1)

Alternative documentation of income. If a borrower's AGI is not

available or if, in the Secretary's opinion, the borrower's reported

AGI does not reasonably reflect the borrower's current income, the

Secretary may use other documentation of income provided by the

borrower to calculate the borrower's monthly repayment amount.

(2) Repayment period. (i) The maximum repayment period under the

income contingent repayment plan is 25 years.

(ii) The repayment period does not include periods in which the

borrower makes payments under the standard, extended, graduated, or

alternative repayment plan or periods of authorized deferment or

forbearance.

(iii) If a borrower repays more than one loan under the income

contingent repayment plan, a separate repayment period for each loan

begins when that loan enters repayment.

(iv) If a borrower has not repaid a loan in full at the end of the

25-year repayment period under the income contingent repayment plan,

the Secretary cancels the unpaid portion of the loan.

(v) At the beginning of the repayment period, a borrower shall make

monthly payments of the amount of interest that accrues on the

borrower's Direct Loans until the Secretary calculates the borrower's

monthly repayment amount on the basis of the borrower's income.

(3) Limitation on capitalization of interest. If the amount of a

borrower's monthly payment is less than the accrued interest, the

unpaid interest is capitalized until the outstanding principal amount

increases to one and one-half times the original principal amount.

After the outstanding principal amount reaches one and one-half times

the original amount, interest continues to accrue but is not

capitalized.

(4) Notification of terms and conditions. When a borrower selects

or is required by the Secretary to repay a loan under the income

contingent repayment plan, the Secretary notifies the borrower of the

terms and conditions of the plan, including--

(i) That the Internal Revenue Service will disclose certain tax

return information to the Secretary or the Secretary's agents; and

(ii) That if the borrower believes that special circumstances

warrant an adjustment to the borrower's repayment obligations, as

described in Sec. 685.209(a)(3), the borrower may contact the Secretary

and obtain the Secretary's determination as to whether an adjustment is

appropriate.

(5) Consent to disclosure of tax return information. (i) A borrower

shall provide written consent to the disclosure of certain tax return

information by the Internal Revenue Service (IRS) to agents of the

Secretary for purposes of calculating a monthly repayment amount and

servicing and collecting a loan under the income contingent repayment

plan. The borrower shall provide consent by signing a consent form,

developed consistent with 26 CFR 301.6103(c)-1 and provided to the

borrower by the Secretary, and shall return the signed form to the

Secretary.

(ii) The borrower shall consent to disclosure of the borrower's

taxpayer identity information as defined in 26 U.S.C. 6103(b)(6), tax

filing status, and AGI.

(iii) The borrower shall provide consent for a period of five years

from the date the borrower signs the consent form. The Secretary

provides the borrower a new consent form before that period expires.

The IRS does not disclose tax return information after the IRS has

processed a borrower's withdrawal of consent.

(iv) The Secretary designates the standard repayment plan for a

borrower who selects the income contingent repayment plan but--

(A) Fails to provide the required written consent;

(B) Fails to renew written consent upon the expiration of the five-

year period for consent; or

(C) Withdraws consent and does not select another repayment plan.

(v) If a borrower defaults and the Secretary designates the income

contingent repayment plan for the borrower but the borrower fails to

provide the required written consent, the Secretary consults with the

borrower prior to establishing a repayment plan for the borrower.

(Authority: 20 U.S.C. 1087a et seq.)

Sec. 685.210 Choice of repayment plan.

(a) Initial selection of a repayment plan. (1) Before a Direct Loan

enters into repayment, the Secretary provides the borrower a

description of the available repayment plans and requests the borrower

to select one. A borrower may select a repayment plan before the loan

enters repayment by notifying the Secretary of the borrower's selection

in writing.

(2) If a borrower does not select a repayment plan within 45 days

after the Secretary provides the borrower with a description of

available repayment plans, the Secretary designates the standard

repayment plan described in Sec. 685.208(b) for the borrower.

(b) Changing repayment plans. (1) A borrower may change repayment

plans at any time after the loan has entered repayment by notifying the

Secretary in writing. However, a borrower who is repaying a defaulted

loan under the income contingent repayment plan under

Sec. 685.211(c)(3)(ii) may not change to another repayment plan

unless--

(i) The borrower was required to and did make a payment under the

income contingent repayment plan in each of the prior six months; and

(ii) The borrower makes and the Secretary approves a request to

change plans.

(2) (i) A borrower may not change to a repayment plan that has a

maximum repayment period of less than the number of years the loan has

already been in repayment, except that a borrower may change to the

income contingent repayment plan at any time.

(ii) If a borrower changes plans, the repayment period is the

period provided for under the borrower's new repayment plan, calculated

from the date the loan initially entered repayment. However, if a

borrower changes to the income contingent repayment plan, the repayment

period is calculated as described in Sec. 685.209(d)(2).

(Authority: 20 U.S.C. 1087a et seq.)

Sec. 685.211 Miscellaneous repayment provisions.

(a) Payment application and prepayment. (1) The Secretary applies

any payment first to any accrued charges and collection costs, then to

any outstanding interest, and then to outstanding principal.

(2) A borrower may prepay all or part of a loan at any time without

penalty. If a borrower pays any amount in excess of the amount due, the

excess amount is a prepayment.

(3) If a prepayment equals or exceeds the monthly repayment amount

under the borrower's repayment plan, the Secretary--

(i) Applies the prepaid amount according to paragraph (a)(1) of

this section;

(ii) Advances the due date of the next payment unless the borrower

requests otherwise; and

(iii) Notifies the borrower of any revised due date for the next

payment.

(4) If a prepayment is less than the monthly repayment amount, the

Secretary applies the prepayment according to paragraph (a)(1) of this

section.

(b) Refunds from schools. The Secretary applies any refund due to a

borrower that the Secretary receives from a school under Sec. 668.22 to

the borrower's outstanding principal.

(c) Default. (1) Acceleration. If a borrower defaults on a Direct

Loan, the entire unpaid balance and accrued interest are immediately

due and payable.

(2) Collection charges. If a borrower defaults on a Direct Loan,

the Secretary assesses collection charges in accordance with

Sec. 685.202(e).

(3) Collection of a defaulted loan. (i) The Secretary may take any

action authorized by law to collect a defaulted Direct Loan including,

but not limited to, filing a lawsuit against the borrower, reporting

the default to national credit bureaus, requesting the Internal Revenue

Service to offset the borrower's Federal income tax refund, and

garnishing the borrower's wages.

(ii) If a borrower defaults on a Federal Direct Stafford Loan, a

Federal Direct Unsubsidized Stafford Loan, a Federal Direct

Unsubsidized Consolidation Loan or a Federal Direct Subsidized

Consolidation Loan, the Secretary may designate the income contingent

repayment plan for the borrower.

(d) Ineligible borrowers. (1) The Secretary determines that a

borrower is ineligible if, at the time the loan was made and without

the school's or the Secretary's knowledge, the borrower (or the student

on whose behalf a parent borrowed) provided false or erroneous

information or took actions that caused the borrower or student--

(i) To receive a loan for which the borrower is wholly or partially

ineligible;

(ii) To receive interest benefits for which the borrower was

ineligible; or

(iii) To receive loan proceeds for a period of enrollment for which

the borrower was not eligible.

(2) If the Secretary makes the determination described in paragraph

(d)(1) of this section, the Secretary sends an ineligible borrower a

demand letter that requires the borrower to repay some or all of a

loan, as appropriate. The demand letter requires that within 30 days of

the borrower's receipt of the letter, the borrower repay any principal

amount for which the borrower is ineligible and any accrued interest,

including interest subsidized by the Secretary, through the previous

quarter.

(3) If a borrower fails to comply with the demand letter described

in paragraph (d)(2) of this section, the borrower is in default.

(4) A borrower may not consolidate a loan under Sec. 685.215 for

which the borrower is wholly or partially ineligible.

(Authority: 20 U.S.C. 1087a et seq.)

Sec. 685.212 Discharge of a loan obligation.

(a) Death. If the Secretary receives acceptable documentation that

a borrower (or the student on whose behalf a parent borrowed) has died,

the Secretary discharges the obligation of the borrower and any

endorser to make any further payments on the loan.

(b) Total and permanent disability. If the Secretary receives

acceptable documentation that a borrower has become totally and

permanently disabled, the Secretary discharges the obligation of the

borrower and any endorser to make any further payments on the loan. A

borrower is not considered totally and permanently disabled based on a

condition that existed at the time the borrower applied for the loan

unless the borrower's condition substantially deteriorated after the

loan was made so as to render the borrower totally and permanently

disabled.

(c) Bankruptcy. If a borrower's obligation to repay a loan is

discharged in bankruptcy, the Secretary does not require the borrower

or any endorser to make any further payments on the loan.

(d) Closed schools. If a borrower meets the requirements in

Sec. 685.213, the Secretary discharges the obligation of the borrower

and any endorser to make any further payments on the loan.

(e) False certification and unauthorized disbursement. If a

borrower meets the requirements in Sec. 685.214, the Secretary

discharges the obligation of the borrower and any endorser to make any

further payments on the loan.

(f) Payments received after eligibility for discharge. The

Secretary returns to the sender or, for a discharge based on death, the

borrower's estate, those payments received after the requirements for

discharge have been met.

(g) Loan forgiveness demonstration program. If funds are

appropriated for the loan forgiveness demonstration program authorized

by section 428J of the Act, the Secretary follows the procedures and

applies the standards in 34 CFR 682.215 for borrowers under the Direct

Loan Program.

(Authority: 20 U.S.C. 1087a et seq.)

Sec. 685.213 Closed school discharge.

(a) General. (1) The Secretary discharges the borrower's (and any

endorser's) obligation to repay a Direct Loan in accordance with the

provisions of this section if the borrower (or the student on whose

behalf a parent borrowed) did not complete the program of study for

which the loan was made because the school at which the borrower (or

student) was enrolled closed, as described in paragraph (c) of this

section.

(2) For purposes of this section--

(i) A school's closure date is the date that the school ceases to

provide educational instruction in all programs, as determined by the

Secretary; and

(ii) ``School'' means a school's main campus or any location or

branch of the main campus.

(b) Relief pursuant to discharge. (1) Discharge under this section

relieves the borrower of any past or present obligation to repay the

loan and any accrued charges or collection costs with respect to the

loan.

(2) The discharge of a loan under this section qualifies the

borrower for reimbursement of amounts paid voluntarily or through

enforced collection on the loan.

(3) The Secretary does not regard a borrower who has defaulted on a

loan discharged under this section as in default on the loan after

discharge, and such a borrower is eligible to receive assistance under

programs authorized by title IV of the Act.

(4) The Secretary reports the discharge of a loan under this

section to all credit reporting agencies to which the Secretary

previously reported the status of the loan.

(c) Borrower qualification for discharge. In order to qualify for

discharge of a loan under this section, a borrower shall submit to the

Secretary a written request and sworn statement, and the factual

assertions in the statement must be true. The statement need not be

notarized but must be made by the borrower under penalty of perjury. In

the statement, the borrower shall--

(1) State that the borrower (or the student on whose behalf a

parent borrowed)--

(i) Received the proceeds of a loan to attend a school;

(ii) Did not complete the program of study at that school because

the school closed while the student was enrolled, or the student

withdrew from the school not more than 90 days before the school closed

(or longer in exceptional circumstances); and

(iii) Did not complete the program of study through a teach-out at

another school or by transferring academic credits or hours earned at

the closed school to another school;

(2) State whether the borrower (or student) has made a claim with

respect to the school's closing with any third party, such as the

holder of a performance bond or a tuition recovery program, and, if so,

the amount of any payment received by the borrower (or student) or

credited to the borrower's loan obligation; and

(3) State that the borrower (or student)--

(i) Agrees to provide to the Secretary upon request other

documentation reasonably available to the borrower that demonstrates

that the borrower meets the qualifications for discharge under this

section; and

(ii) Agrees to cooperate with the Secretary in enforcement actions

in accordance with paragraph (d) of this section and to transfer any

right to recovery against a third party to the Secretary in accordance

with paragraph (e) of this section.

(d) Cooperation by borrower in enforcement actions. (1) In order to

obtain a discharge under this section, a borrower shall cooperate with

the Secretary in any judicial or administrative proceeding brought by

the Secretary to recover for amounts discharged or to take other

enforcement action with respect to the conduct on which the discharge

was based. At the request of the Secretary and upon the Secretary's

tendering to the borrower the fees and costs that are customarily

provided in litigation to reimburse witnesses, the borrower shall--

(i) Provide testimony regarding any representation made by the

borrower to support a request for discharge;

(ii) Produce any documents reasonably available to the borrower

with respect to those representations; and

(iii) If required by the Secretary, provide a sworn statement

regarding those documents and representations.

(2) The Secretary denies the request for a discharge or revokes the

discharge of a borrower who--

(i) Fails to provide the testimony, documents, or a sworn statement

required under paragraph (d)(1) of this section; or

(ii) Provides testimony, documents, or a sworn statement that does

not support the material representations made by the borrower to obtain

the discharge.

(e) Transfer to the Secretary of borrower's right of recovery

against third parties. (1) Upon discharge under this section, the

borrower is deemed to have assigned to and relinquished in favor of the

Secretary any right to a loan refund (up to the amount discharged) that

the borrower (or student) may have by contract or applicable law with

respect to the loan or the enrollment agreement for the program for

which the loan was received, against the school, its principals, its

affiliates and their successors, its sureties, and any private fund,

including the portion of a public fund that represents funds received

from a private party.

(2) The provisions of this section apply notwithstanding any

provision of State law that would otherwise restrict transfer of those

rights by the borrower (or student), limit or prevent a transferee from

exercising those rights, or establish procedures or a scheme of

distribution that would prejudice the Secretary's ability to recover on

those rights.

(3) Nothing in this section limits or forecloses the borrower's (or

student's) right to pursue legal and equitable relief regarding

disputes arising from matters unrelated to the discharged Direct Loan.

(f) Discharge procedures. (1) After confirming the date of a

school's closure, the Secretary identifies any Direct Loan borrower (or

student on whose behalf a parent borrowed) who appears to have been

enrolled at the school on the school closure date or to have withdrawn

not more than 90 days prior to the closure date.

(2) If the borrower's current address is known, the Secretary mails

the borrower a discharge application and an explanation of the

qualifications and procedures for obtaining a discharge. The Secretary

also promptly suspends any efforts to collect from the borrower on any

affected loan. The Secretary may continue to receive borrower payments.

(3) If the borrower's current address is unknown, the Secretary

attempts to locate the borrower and determines the borrower's potential

eligibility for a discharge under this section by consulting with

representatives of the closed school, the school's licensing agency,

the school's accrediting agency, and other appropriate parties. If the

Secretary learns the new address of a borrower, the Secretary mails to

the borrower a discharge application and explanation and suspends

collection, as described in paragraph (f)(2) of this section.

(4) If a borrower fails to submit the written request and sworn

statement described in paragraph (c) of this section within 60 days of

the Secretary's mailing the discharge application, the Secretary

resumes collection and grants forbearance of principal and interest for

the period in which collection activity was suspended. The Secretary

may capitalize any interest accrued and not paid during that period.

(5) If the Secretary determines that a borrower who requests a

discharge meets the qualifications for a discharge, the Secretary

notifies the borrower in writing of that determination.

(6) If the Secretary determines that a borrower who requests a

discharge does not meet the qualifications for a discharge, the

Secretary notifies that borrower in writing of that determination and

the reasons for the determination.

(Authority: 20 U.S.C. 1087a et seq.)

Sec. 685.214 Discharge for false certification of student eligibility

or unauthorized payment.

(a) (1) False certification. The Secretary discharges a borrower's

( and any endorser's) obligation to repay a Direct Loan in accordance

with the provisions of this section if a school falsely certifies the

eligibility of the borrower (or the student on whose behalf a parent

borrowed) to receive the loan. The Secretary considers a student's

eligibility to borrow to have been falsely certified by the school if

the school--

(i) Admitted the student on the basis of ability to benefit from

its training and the student did not meet the requirements for

admission described in 34 CFR Part 668 and section 484(d) of the Act,

as applicable; or

(ii) Signed the borrower's name on the loan application or

promissory note without the borrower's authorization.

(2) Unauthorized payment. The Secretary discharges a borrower's

(and any endorser's) obligation to repay a Direct Loan if the school,

without the borrower's authorization, endorsed the borrower's loan

check or signed the borrower's authorization for electronic funds

transfer, unless the proceeds of the loan were delivered to the student

or applied to charges owed by the student to the school.

(b) Relief pursuant to discharge. (1) Discharge for false

certification under paragraph (a)(1) of this section relieves the

borrower of any past or present obligation to repay the loan and any

accrued charges and collection costs with respect to the loan.

(2) Discharge for unauthorized payment under paragraph (a)(2) of

this section relieves the borrower of the obligation to repay the

amount of the payment discharged.

(3) The discharge under this section qualifies the borrower for

reimbursement of amounts paid voluntarily or through enforced

collection on the discharged loan or payment.

(4) The Secretary does not regard a borrower who has defaulted on a

loan discharged under this section as in default on the loan after

discharge, and such a borrower is eligible to receive assistance under

programs authorized by title IV of the Act.

(5) The Secretary reports the discharge under this section to all

credit reporting agencies to which the Secretary previously reported

the status of the loan.

(c) Borrower qualification for discharge. In order to qualify for

discharge under this section, the borrower shall submit to the

Secretary a written request and a sworn statement, and the factual

assertions in the statement must be true. The statement need not be

notarized but must be made by the borrower under penalty of perjury. In

the statement, the borrower shall meet the following requirements:

(1) Ability to benefit. In the case of a borrower requesting a

discharge based on the school's defective testing of the student's

ability to benefit, the borrower shall state that the borrower (or the

student on whose behalf a parent borrowed)--

(i) Received a disbursement of a loan to attend a school;

(ii) Received a Direct Loan at that school on the basis of an

ability to benefit from the school's training and did not meet the

eligibility requirements described in 34 CFR Part 668 and section

484(d) of the Act, as applicable; and

(iii) Either--

(A) Withdrew from the school and did not find employment in the

occupation for which the training program was intended; or

(B) Completed the training program for which the loan was made,

attempted to obtain employment in the occupation for which the program

was intended, and was not able to find employment in that occupation or

obtained employment in that occupation only after receiving additional

training that was not provided by the school that certified the loan.

(2) Unauthorized loan. In the case of a borrower requesting a

discharge because the school signed the borrower's name on the loan

application or promissory note without the borrower's authorization,

the borrower shall--

(i) State that he or she did not sign the document in question or

authorize the school to do so; and

(ii) Provide five different specimens of his or her signature, two

of which must be within one year before or after the date of the

contested signature.

(3) Unauthorized payment. In the case of a borrower requesting a

discharge because the school, without the borrower's authorization,

endorsed the borrower's loan check or signed the borrower's

authorization for electronic funds transfer, the borrower shall--

(i) State that he or she did not endorse the loan check or sign the

authorization for electronic funds transfer or authorize the school to

do so;

(ii) Provide five different specimens of his or her signature, two

of which must be within one year before or after the date of the

contested signature;

(iii) State that the proceeds of the contested disbursement were

not delivered to the student or applied to charges owed by the student

to the school.

(4) Claim to third party. The borrower shall state whether the

borrower (or student) has made a claim with respect to the school's

false certification or unauthorized payment with any third party, such

as the holder of a performance bond or a tuition recovery program, and,

if so, the amount of any payment received by the borrower (or student)

or credited to the borrower's loan obligation.

(5) State that the borrower (or student)--

(i) Agrees to provide to the Secretary upon request other

documentation reasonably available to the borrower that demonstrates

that the borrower meets the qualifications for discharge under this

section; and

(ii) Agrees to cooperate with the Secretary in enforcement actions

as described in Sec. 685.213(d) and to transfer any right to recovery

against a third party to the Secretary as described in Sec. 685.213(e).

(d) Discharge procedures. (1) If the Secretary determines that a

borrower's Direct Loan may be eligible for a discharge under this

section, the Secretary mails the borrower a disclosure application and

an explanation of the qualifications and procedures for obtaining a

discharge. The Secretary also promptly suspends any efforts to collect

from the borrower on any affected loan. The Secretary may continue to

receive borrower payments.

(2) If the borrower fails to submit the written request and sworn

statement described in paragraph (c) of this section within 60 days of

the Secretary's mailing the disclosure application, the Secretary

resumes collection and grants forbearance of principal and interest for

the period in which collection activity was suspended. The Secretary

may capitalize any interest accrued and not paid during that period.

(3) If the borrower submits the written request and sworn statement

described in paragraph (c) of the section, the Secretary determines

whether to grant a request for discharge under this section by

reviewing the request and sworn statement in light of information

available from the Secretary's records and from other sources,

including guaranty agencies, State authorities, and cognizant

accrediting associations.

(4) If the Secretary determines that the borrower meets the

applicable requirements for a discharge under paragraph (c) of this

section, the Secretary notifies the borrower in writing of that

determination.

(5) If the Secretary determines that the borrower does not qualify

for a discharge, the Secretary notifies the borrower in writing of that

determination and the reasons for the determination.

(Authority: 20 U.S.C. 1087a et seq.)

Sec. 685.215 Consolidation

(a) Federal Direct Consolidation Loans. A borrower may consolidate

one or more education loans made under certain Federal programs into

one or more Federal Direct Consolidation Loans. Loans consolidated into

a Federal Direct Consolidation Loan are discharged when the Federal

Direct Consolidation Loan is originated.

(b) Loans eligible for consolidation. The following loans may be

consolidated into a Federal Direct Consolidation Loan:

(1) Federal Stafford Loans.

(2) Guaranteed Student Loans.

(3) Federal Insured Student Loans (FISL).

(4) Federal Direct Stafford Loans.

(5) Federal Direct Subsidized Consolidation Loans.

(6) Federal Perkins Loans.

(7) National Direct Student Loans (NDSL).

(8) National Defense Student Loans (NDSL).

(9) Federal PLUS Loans.

(10) Parent Loans for Undergraduate Students (PLUS).

(11) Federal Direct PLUS Loans.

(12) Federal Direct PLUS Consolidation Loans.

(13) Federal Unsubsidized Stafford Loans.

(14) Federal Supplemental Loans for Students (SLS).

(15) Federal Consolidation Loans.

(16) Federal Direct Unsubsidized Stafford Loans.

(17) Federal Direct Unsubsidized Consolidation Loans.

(18) Auxiliary Loans to Assist Students (ALAS).

(19) Health Professions Student Loans (HPSL).

(20) Health Education Assistance Loans (HEAL).

(21) Other loans made under subpart II of part A of title VII of

the Public Health Service Act.

(c) Types of Federal Direct Consolidation Loans. (1) The loans

identified in paragraphs (b) (1) through (8) may be consolidated into a

Federal Direct Subsidized Consolidation Loan.

(2) The loans identified in paragraphs (b) (9) through (12) may be

consolidated into a Federal Direct PLUS Consolidation Loan.

(3) The loans identified in paragraphs (b) (13) through (21) may be

consolidated into a Federal Direct Unsubsidized Consolidation Loan.

(d) Eligibility for a Federal Direct Consolidation Loan. (1) A

borrower may obtain a Federal Direct Consolidation Loan if, at the time

the borrower applies for such a loan, the borrower meets the following

requirements:

(i) The borrower either--

(A) Has an outstanding balance on a Direct Loan; or

(B) Has an outstanding balance on an FFEL loan and asserts either--

(1) That the borrower is unable to obtain an FFEL consolidation

loan; or

(2) That the borrower is unable to obtain an FFEL consolidation

loan with income-sensitive repayment terms acceptable to the borrower

and is eligible for the income contingent repayment plan under the

Direct Loan Program.

(ii) On the loans being consolidated, the borrower is--

(A) In a six-month grace period;

(B) In a repayment period but not in default;

(C) In default but has made satisfactory arrangements to repay the

defaulted loan; or

(D) In default but agrees to repay the consolidation loan under the

income contingent repayment plan described in Sec. 685.208(f) and signs

the consent form described in Sec. 685.209(b)(5).

(iii) The borrower certifies that no other application to

consolidate any of the borrower's loans listed in paragraph (b) of this

section is pending with any other lender.

(iv) The borrower agrees to notify the Secretary of any change in

address.

(v) In the case of a Federal Direct PLUS Consolidation Loan--

(A) The borrower may not have an adverse credit history as defined

in Sec. 685.200(b)(7)(ii); or

(B) If the borrower has such an adverse credit history, the

borrower shall obtain an endorser for the consolidation loan who does

not have an adverse credit history or provide documentation

satisfactory to the Secretary that extenuating circumstances relating

to the borrower's credit history exist.

(2) Two married borrowers may consolidate their loans together if

they meet the following requirements:

(i) At least one spouse meets the requirements of paragraph

(d)(1)(i) of this section.

(ii) Both spouses meet the requirements of paragraphs (d)(2) (ii)

through (v) of this section.

(iii) Each spouse agrees to be held jointly and severally liable

for the repayment of the total amount of the consolidation loan and to

repay the loan regardless of any change in marital status.

(e) Application for a Federal Direct Consolidation Loan. To obtain

a Federal Direct Consolidation Loan, a borrower or borrowers shall

submit a completed application to the Secretary. A single application

may be used for one or more consolidation loans. A borrower may add

eligible loans to a Federal Direct Consolidation Loan by submitting a

request to the Secretary within 180 days after the date on which the

Federal Direct Consolidation Loan is originated.

(f) Origination of a consolidation loan. (1) If the Secretary

approves an application for a consolidation loan, the Secretary pays to

each holder of a loan selected for consolidation an amount equal to the

unpaid balance, accrued interest, fees, and collection costs due on the

loan.

(2) Upon receipt of the proceeds of a Federal Direct Consolidation

Loan, the holder of a consolidated loan shall promptly apply the

proceeds to fully discharge the borrower's obligation on the

consolidated loan. The holder of a consolidated loan must return to the

borrower the promissory note marked ``paid-in-full.''

(3) The principal balance of a Federal Direct Consolidation Loan is

equal to the sum of the amounts paid to the holders of the consolidated

loans.

(4) If the amount paid by the Secretary to the holder of a

consolidated loan exceeds the amount needed to discharge the borrower's

obligation on the loan, the holder of the consolidated loan shall

promptly refund the excess amount to the Secretary to be credited

against the outstanding balance of the Federal Direct Consolidation

Loan.

(5) If the amount paid by the Secretary to the holder of the

consolidated loan is insufficient to discharge the borrower's

obligation on the loan, the lender shall notify the Secretary in

writing of the remaining amount due on the loans. The Secretary

promptly pays the remaining amount due.

(g) Interest rate. The interest rate on a Federal Direct Subsidized

Consolidation Loan or a Federal Direct Unsubsidized Consolidation Loan

is the rate established for a Federal Direct Stafford Loan under

Sec. 685.202(a)(1). The interest rate on a Federal Direct PLUS

Consolidation Loan is the rate established for a Federal Direct PLUS

Loan under Sec. 685.202(a)(2).

(h) Repayment plans. A borrower may repay a Federal Direct

Consolidation Loan under any of the repayment plans described in

Sec. 685.208, except that--

(1) A borrower may not repay a Federal Direct PLUS Consolidation

Loan under the income contingent repayment plan; and

(2) A borrower who became eligible to consolidate a defaulted loan

under paragraph (d)(1)(ii)(D) of this section shall repay the

consolidation loan under the income contingent repayment plan unless--

(i) The borrower was required to and did make a payment under the

income contingent repayment plan in each of the prior six months; and

(ii) The borrower makes and the Secretary approves a request to

change plans.

(i) Repayment period. (1) The repayment period for a Federal Direct

Consolidation Loan begins on the day after the loan is disbursed.

(2) Under the extended or graduated repayment plan, the Secretary

determines the repayment period under Sec. 685.208(e) on the basis of

the outstanding balances on all of the borrower's loans that are

eligible for consolidation and the balances on other education loans

except as provided in paragraph (i)(3) of this section.

(3) (i) The total amount of outstanding balances on the other

education loans used to determine the repayment period under the

graduated or extended repayment plan may not exceed the amount of the

Federal Direct Consolidation Loan.

(ii) The borrower may not be in default on the other education loan

unless the borrower has made satisfactory repayment arrangements with

the holder of the loan.

(iii) The lender of the other educational loan may not be an

individual.

(j) Repayment schedule. (1) The Secretary provides a borrower of a

Federal Direct Consolidation Loan a repayment schedule before the

borrower's first payment is due. The repayment schedule identifies the

borrower's monthly repayment amount under the repayment plan selected.

(2) If a borrower adds an eligible loan to the consolidation loan

under paragraph (d)(2) of this section, the Secretary makes appropriate

adjustments to the borrower's monthly repayment amount and repayment

period.

(k) Refunds received from schools. If a lender receives a refund

from a school on a loan that has been consolidated into a Federal

Direct Consolidation Loan, the lender shall--

(1) Transmit the refund and an explanation of the source of the

refund to the Secretary within 30 days of receipt; and

(2) Inform the borrower in writing that the lender has received the

refund and transmitted it to the Secretary.

(l) Special provisions for joint consolidation loans. The

provisions of paragraphs (l)(1) through (3) of this section apply to a

Federal Direct Consolidation Loan obtained by two married borrowers.

(1) Deferment. To obtain a deferment on a joint Federal Direct

Consolidation Loan under Sec. 685.204, both borrowers shall meet the

requirements of that section.

(2) Forbearance. To obtain forbearance on a joint Federal Direct

Consolidation Loan under Sec. 685.205, both borrowers shall meet the

requirements of that section.

(3) Discharge. (i) To obtain a discharge of a joint Federal Direct

Consolidation Loan under Sec. 685.212, each borrower shall meet the

requirements for one of the types of discharge described in that

section.

(ii) If a borrower meets the requirements for discharge under

Sec. 685.212 (d) or (e) on a loan that was consolidated into a joint

Federal Direct Consolidation Loan and the borrower's spouse does not

meet the requirements for any type of discharge described in

Sec. 685.212, the Secretary discharges a portion of the consolidation

loan equal to the amount of the loan that would have been eligible for

discharge under the provisions of Sec. 685.212 (d) or (e), as

applicable.

(Authority: 20 U.S.C. 1078-8, 1087a et seq.)

4. A new Appendix B is added to part 685 to read as follows:

Appendix B--Income Contingent Repayment Examples of the Calculation

of Monthly Repayment Amounts

Example 1. A single borrower with $12,500 of Direct Loans and an

Adjusted Gross Income (AGI) of $25,000.

Step 1: Under either Option 1 or Option 2, calculate the payback

rate. Because the borrower's debt is greater than $1,000, the

payback rate is calculated on the basis of the formula in

Sec. 685.209(b)(2)(iii), as follows:

Subtract $1,000 from the total amount of the borrower's

Direct Loans: ($12,500-$1,000=$11,500).

Multiply the result by 0.000002:

$11,500 x 0.000002=0.023).

Add the result to 0.04: (0.04+0.023=0.063).

The result is the payback rate.

Step 2: Compare the calculated payback rate (0.063) to the

maximum payback rate (0.15). Because the calculated rate is less

than the maximum rate, the borrower's payback rate is 0.063.

Step 3: Calculate the annual repayment amount by multiplying the

borrower's AGI by the payback rate: ($25,000 x 0.063=$1,575).

Step 4: Calculate the monthly repayment amount by dividing the

annual repayment amount by 12 months: ($1,57512=$131.25).

Step 5: Compare the calculated monthly repayment amount

($131.25) to the $25 minimum repayment amount. Because the

calculated amount is greater than the minimum amount, the borrower's

monthly repayment amount is $131.25 under Option 1.

Step 6: If the borrower has chosen Option 2, compare the monthly

repayment amount under Option 1 ($131.25) to the amount the borrower

would repay under a 12-year standard amortization. The Secretary

calculates the 12-year standard amortization amount using the

interest rate in effect when the borrower chose Option 2. If the

interest rate was seven percent, the 12-year standard amortization

amount is approximately $10.28 for every $1,000 of debt. In this

example, the 12-year standard amortization amount is approximately

$128.50 ($10.28 x 12.5). Because the monthly payment calculated

under Option 1 ($131.25) exceeds the 12-year standard amortization

amount ($128.50), the borrower's monthly repayment amount is $128.50

under Option 2.

Example 2: Married borrowers with a combined Adjusted Gross

Income (AGI) of $30,000. The husband has $5,000 of Direct Loans. The

wife has $15,000 of Direct Loans. The couple has two dependents.

Step 1: Under either Option 1 or Option 2, calculate the

husband's payback rate. Because his debt is greater than $1,000, the

payback rate is calculated on the basis of the formula in

Sec. 685.209(b)(2)(iii) as follows:

Subtract $1,000 from the amount of the husband's loans:

($5,000-$1,000=$4,000).

Multiply the result by 0.000002:

($4,000 x 0.000002=0.008).

Add the result to 0.04: (0.04+0.008=0.048).

The result is the husband's payback rate.

Step 2: Compare the husband's calculated payback rate (0.048) to

the maximum payback rate (0.15). Because the calculated rate is less

than the maximum rate, the husband's payback rate is 0.048.

Step 3: Calculate the husband's assumed AGI by multiplying the

couple's total AGI ($30,000) by the amount of the husband's loans

($5,000), divided by the total amount of the couple's debt

($20,000): ($30,000 x $5,000$20,000=$7,500).

Step 4: Calculate the husband's annual repayment amount by

multiplying the husband's assumed AGI ($7,500) by his payback rate

(0.048): ($7,500 x 0.048=$360).

Step 5: Divide the annual repayment amount by 12 months:

($36012=$30).

Step 6: Calculate the couple's total family size adjustment

amount by multiplying the number of dependents (2) by $7:

(2 x $7=$14).

Step 7: Calculate the couple's individual family size adjustment

amounts by dividing the total family size adjustment ($14) by 2:

($142=$7).

Step 8: Calculate the husband's monthly repayment amount by

subtracting his family size adjustment amount ($7) from the amount

calculated in Step 5 ($30): ($30-$7=$23).

Step 9: Calculate the wife's payback rate. Because her debt is

greater than $1,000, the payback rate is calculated on the basis of

the formula in Sec. 685.209(b)(2)(iii) as follows:

Subtract $1,000 from the amount of the wife's loans:

($15,000-$1,000=$14,000).

Multiply the result by 0.000002:

($14,000 x 0.000002=0.028).

Add the result to 0.04: (0.04+0.028=0.068).

The result is the wife's payback rate.

Step 10: Compare the wife's calculated payback rate (0.068) to

the maximum payback rate (0.15). Because the calculated rate is less

than the maximum rate, the wife's payback rate is 0.068.

Step 11: Calculate the wife's assumed AGI by multiplying the

couple's total AGI ($30,000) by the amount of the wife's loans

($15,000), divided by the total amount of the couple's debt

($20,000): ($30,000 x $15,000$20,000=$22,500).

Step 12: Calculate the wife's annual repayment amount by

multiplying the wife's assumed AGI ($22,500) by her payback rate

(0.068): ($22,500 x 0.068=$1,530).

Step 13: Divide the annual repayment amount by 12 months:

($1,53012=$127.50).

Step 14: Calculate the wife's monthly repayment amount by

subtracting her family size adjustment amount calculated in Step 7

($7) from the amount calculated in Step 13 ($127.50):

($127.50-$7=$120.50).

Step 15: Calculate the couple's combined monthly repayment

amount by adding the husband's monthly repayment amount calculated

in Step 8 ($23) and the wife's monthly repayment amount calculated

in Step 14 ($120.50): ($23+$120.50=$143.50).

Step 16: Compare the couple's combined monthly repayment amount

($143.50) to the $25 minimum repayment amount. Because the

calculated amount is greater than the minimum amount, the couple's

combined monthly repayment amount is $143.50 under Option 1.

Step 17: If the couple has chosen Option 2, compare the combined

monthly repayment amount under Option 1 ($143.50) to the amount the

couple would repay under a 12-year standard amortization. The

Secretary calculates the 12-year standard amortization amount using

the interest rate in effect when the couple chose Option 2. If the

interest rate was seven percent, the 12-year standard amortization

amount is approximately $10.28 for every $1,000 of debt. In this

example, the 12-year standard amortization amount is approximately

$205.60 ($10.28 x 20). Because the monthly payment calculated under

Option 1 ($143.50) does not exceed the 12-year standard amortization

amount ($205.60), the couple's combined monthly repayment amount is

$143.50 under Option 2.

Table--Income Contingent Repayment Plan

Note: This table will not appear in the Code of Federal

Regulations.

BILLING CODE 4000-01-P

TR01JY94.082

[FR Doc. 94-16107 Filed 6-30-94; 8:45 am]

BILLING CODE 4000-01-C

_______________________________________________________________________

Part X

Department of Housing and Urban Development

_______________________________________________________________________

Office of the Assistant for Housing-Federal Housing Commissioner

_______________________________________________________________________

24 CFR Part 3280

Interpretative Bulletin for Manufactured Home Construction and Safety

Standards and Notice of Waiver of Certain Requirements; Rule

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of the Assistant Secretary for Housing-Federal Housing

Commissioner

24 CFR Part 3280

[Docket No. R-94-1632; FR-3380-N-06]

Interpretative Bulletin for Manufactured Home Construction and

Safety Standards and Notice of Waiver of Certain Requirements

AGENCY: Office of the Assistant Secretary for Housing-Federal Housing

Commissioner, HUD.

ACTION: Notice of interpretative bulletin and waiver.

-----------------------------------------------------------------------

SUMMARY: HUD published a final rule amending the Federal Manufactured

Home Construction and Safety Standards (FMHCSS) on January 14, 1994 (59

FR 2456) to improve the resistance of manufactured homes to wind forces

in areas prone to hurricanes. An Interpretative Bulletin was issued on

April 15, 1994 and published in the Federal Register on April 21, 1994

to clarify some aspects of the new standards that have been the subject

of questions from the industry and the public. This Interpretative

Bulletin addresses certain additional questions and announces the

issuance of a waiver, pursuant to 24 CFR 3280.1(b), relating to certain

exterior wall cladding.

DATES: Issued June 24, 1994.

FOR FURTHER INFORMATION CONTACT: David C. Nimmer, Director, Office of

Manufactured Housing and Regulatory Functions, Department of Housing

and Urban Development, 451 Seventh Street SW., Attn: Mailroom B-133,

Washington, DC 20410-8000. Telephones: (voice) (202) 755-7410; (TDD)

(202) 708-4594. (These are not toll-free numbers.)

SUPPLEMENTARY INFORMATION: Accordingly, the following Interpretative

Bulletin, which includes the Secretary's determination that it should

not be subject to notice-and-comment, has been issued by the

Department.

Interpretative Bulletin to the Standards

Manufactured Home Construction and Safety Standards

24 CFR Part 3280

Under Section 604 of the National Manufactured Housing Construction

and Safety Standards Act of 1974, 42 U.S.C. 5403, the Secretary of the

U.S. Department of Housing and Urban Development (``HUD'') is

authorized to issue, amend and revoke by order appropriate Federal

manufactured home construction and safety standards. On January 14,

1994 (59 FR 2456), HUD published certain changes to the Federal

Manufactured Home Construction and Safety Standards for high wind

areas. The effective date of the wind standards is July 13, 1994.

Since the publication of this rule, the Department received a

number of questions asking for clarification of certain provisions.

Those who requested the clarifications urged the Department to provide

a timely response so that industry designers can move forward to revise

plans and specifications well ahead of the effective date.

HUD recognized that it was imperative to respond to these requests

for clarification as soon as possible to assist Primary Inspection

Agencies (``PIAs''), manufacturers and State Administrative Agencies in

understanding the changes to the manufactured housing standards in

advance of the effective date. Therefore, on April 21, 1994, the

Department published a series of technical interpretations of the rule

in the Federal Register [59 FR 19072].

In that Interpretative Bulletin, the Department indicated that it

may issue further Interpretative Bulletins to provide further

assistance in the implementation of these new standards. Since the

publication of those interpretations, additional requests for

clarification of both rules have been received.

In addition, certain questions were raised about 24 CFR

3280.305(c)(1)(ii)(B) and Footnote 8 to the ``Table of Design Wind

Pressures.'' The questions related to the requirement that exterior

wall cladding materials be fastened at 6'' on center (``o.c.'') as

provided in Footnote 8. The Department has been advised that the

impracticability of such a fastening requirement may have a significant

negative effect on the manufacturers of certain siding traditionally

used in manufactured housing. The use of these specific requirements

was not intended to prohibit the utilization of any material, piece of

equipment, or system which cannot meet the precise specifications.

24 CFR 3280.1(b) of the Manufactured Home Construction and Safety

Standards provides that where any material, piece of equipment, or

system which does not meet precise specifications set out in the

standard is shown, to the satisfaction of the Secretary, to meet the

level of performance of a material, piece of equipment or system which

meets the precise specifications, the Secretary may waive the

specifications set out in the standard for that material, piece of

equipment, or system. The Secretary, in granting such a waiver, may set

out any limitations or other requirements with respect to how the

material, piece of equipment, or system must be used, including any

tests of the material, piece of equipment, or system which the

Secretary determines must be carried out before it can be used.

Accordingly, this Interpretative Bulletin, in accordance with 24

CFR 3280.1(b), also announces the waiver of certain requirements of 24

CFR 3280.305(c)(1)(ii)(B) and Footnote 8 to the ``Table of Design Wind

Pressures'' applicable to permeable exterior wall cladding materials

which cannot be secured at the 6'' o.c. fastening pattern. This

Interpretative Bulletin, however, sets out limitations and other

requirements with respect to how the waiver applies.

Due to the need for expeditious resolution of the issue relating to

air permeable exterior wall cladding materials and the need for

expeditious resolution and clarification of other issues related to the

wind rule, and since these clarifications do not establish a change in

the position or policy of the Department but merely involved technical

matters, the Secretary deems it not to be in the public interest to

issue the announcement of the waiver or the clarifications for public

comment in the Federal Register or to otherwise treat this

Interpretative Bulletin as rulemaking. The Department is providing this

guidance to manufacturers and PIAs so that they can proceed immediately

with the redesign of their homes.

I. Waiver of Certain Requirements of 24 CFR 3280.305(c)(1)(ii)(B) and

Footnote 8 to the ``Table of Design Wind Pressures'' Relating to

Permeable Exterior Wall Cladding Materials Which Cannot Be Secured at

the 6'' o.c. Fastening Pattern

The Secretary, through his duly authorized designee, finds that it

may be impracticable for certain exterior cladding materials to be

fastened at 6'' o.c. as provided in Footnote 8 of 24 CFR

3280.305(c)(1)(ii)(B). Accordingly, the Secretary hereby grants waiver

of certain requirements of 24 CFR 3280.305(c)(1)(ii)(B) and Footnote 8

to the ``Table of Design Wind Pressures'' applicable to permeable

exterior wall cladding materials which cannot be secured at the

required fastening pattern. Because this waiver has been issued, the

requirements of 24 CFR 3280.305(c)(1)(ii)(B) and Footnote 8 to the

``Table of Design Wind Pressures,'' to which the waiver relates, may be

met either by meeting the specifications set out in the standard or by

meeting the following requirements:

Air permeable exterior wall cladding materials which cannot be

secured at the 6'' o.c. fastening pattern due to the materials'

configuration, such as vinyl lap siding, may be alternatively evaluated

by testing for the design pressures specified in the ``Table of Design

Wind Pressures,'' provided that the following requirements are met:

1. The air permeable siding is intermittently secured through

structural rated wall sheathing at least \3/8\'' thick at a maximum

spacing of 16'' o.c. to the wall framing;

2. The \3/8\'' structural rated wall sheathing is secured to wall

framing members (plates, studs, jamb studs, headers) at 6'' o.c. except

that for vertical wall and jamb studs, the 6'' o.c. orientation is in

the vertical direction;

3. The wall framing members are installed at a maximum spacing no

greater than 16'' o.c.;

4. The exterior cladding materials are fastened in accordance with

the manufacturer's installation instructions; and

5. For vinyl siding, the siding and fastening strip (nailing hem)

is at least .035'' in thickness.

Such tests must be conducted in accordance with 24 CFR 3280.401(b)

and demonstrate the adequacy of the design to resist the negative

design pressures in the ``Table of Design Wind Pressures'' for wall

corners and other areas. The entire exterior wall construction and

fastenings including the exterior wall cladding (siding), \3/8\''

minimum structural rated sheathing, and wall framing members must be

tested for the full negative design pressures specified by the ``Table

of Design Wind Pressures.''

While the above requirement does not meet precise specifications

set out in 24 CFR 3280.305(c)(1)(ii)(b) and Footnote 8 to the ``Table

of Design Wind Pressures,'' the Secretary, through his duly authorized

designee, is satisfied that compliance with this requirement will meet

the level of performance sought in 24 CFR 3280.305(c)(1)(ii)(b) and

Footnote 8 to the ``Table of Design Wind Pressures.''

II. Additional Clarifications of the Wind Standards

The requested clarifications of the Manufactured Home Construction

and Safety Standards have been organized into questions and answers.

Questions: 1. 24 CFR 3280.304--Will the Department accept the

application of a 1.6 load duration factor as permitted in the 91 NDS

for wind loads in designing connections which use staples?

Answer: No. However, as indicated in our response to Question 6 in

the previous Interpretative Bulletin published in the Federal Register

on April 21, 1994 [59 FR 19075], a 1.33 factor may be used in

accordance with UM-25d. No additional test data or adequate technical

substantiation has been provided which changes our prior clarification

on this subject.

2. 24 CFR 3280.304 and 3280.306(f)(2)--Does the 1.6 load duration

factor permitted by the NDS also apply to the design of interior

partitions?

Answer: Yes. 24 CFR 3280.305(f)(2) as amended in the Federal

Register on October 25, 1993 [59 FR 54975] indicates that a 1.33 factor

may be used to increase the allowable design stress. The 1.6 factor

which is permitted under the 1991 National Design Specification for

Wood Products would also be acceptable for interior partition members.

3. 24 CFR 3280.305(c)(1)(i)-(a) Can the dead load of the whole

roof/ceiling assembly including the trusses be subtracted from the

design roof uplift loads to obtain a net uplift for test/design

purposes?

(b) If so, can all of the actual dead loads be used including eave

portions?

Answer: (a) Yes, the dead load may be deducted for homes designed

to be located in high wind areas (Wind Zones II and III). However, the

roof/ceiling dead load (including trusses) cannot be deducted from the

``net'' uplift load for homes designed for Wind Zone I.

(b) Yes, except for Wind Zone I as indicated in the response to 3.

(a) above.

4. 24 CFR 3280.305(c)(1)(ii)-(a) Do the design prints, calculations

and test reports, etc., relating to shear walls, diaphragms, ridge

beams, fastenings and its components and cladding material (roof

trusses, wall studs, exterior sheathing, roofing siding material

exterior glazing, etc.) need to be sealed (stamped) and/or signed by a

registered Professional Engineer or Architect?

(b) Can a Professional Engineer on the staff of a DAPIA, witness

component tests in the capacity of a listing agency [24 CFR

3280.2(a)(14), and 24 CFR 3282.360], provide the professional

certification required, and accept the certified design for clients it

serves as a DAPIA without violating the conflict of interest provisions

of 24 CFR 3282.359 of the Manufactured Housing Procedural and

Enforcement Regulations?

Answer: (a) All of the cited documents are required to be certified

by a Professional Engineer or Architect. If a Professional Engineer or

Architect elects not to seal and/or sign each document, there must be

an up-to-date record in the package (e.g. an index or list of all

documents) which the Professional Engineer or Architect has prepared

and sealed.

(b) Yes, provided a different Professional Engineer on the staff of

the DAPIA who did not witness the tests and certify the design accepts

the listing for any manufacturer clients it serves as a DAPIA.

5. 24 CFR 3280.305(c)(1)(ii)-(a) Do skylights need to be designed

for the same wind design pressure as the roof system? What pressures

would apply?

(b) Do the skylights need to be protected similar to exterior

windows and sliding glass doors of homes designed to be in Wind Zones

II and III?

Answer: (a) Skylights need to be designed to resist the same design

pressures as ``Exterior roof coverings, sheathings, and fastenings''

indicated in the ``Table of Design Wind Pressures''. The location of

the skylight in the roof would determine the specific design pressure

requirements. However, it is not necessary to complete certification of

skylights to the higher wind pressures until January 17, 1995.

(b) The Department believes that the subject needs further

examination before a final judgment is made. The Department will issue

further guidance on this question in the future.

6. 24 CFR 3280.305(c)(1)(ii)(a)--Can the wind design pressures for

Wind Zones II and III be based in part on ASCE 7-88 and in part on the

``Table of Design Wind Pressures''?

Answer: No. The two alternatives cannot be mixed. One of the two

methods must be used to completely design the manufactured home

structure and each of its wind resisting parts for the design wind

pressures designated by ASCE 7-88 or the ``Table''.

7. 24 CFR 3280.305(c)(1)(ii)(a)--What specific design wind

pressures are required to be used for homes designed for high wind

areas with roof slopes less than 10 degrees or greater than 30 degrees?

Answer: The design criteria are those for Overturning, Sliding and

Anchoring, Main Wind Force Resisting Systems, and Components and

Cladding identified in Chapter 6., ``Wind Loads'' of ASCE 7-88.

8. 24 CFR 3280.305(c)(1)(ii)(b)--Additional questions regarding

Footnote 8 in the ``Table of Design Wind Pressures'':

(a) Can air permeable exterior wall cladding materials which cannot

be secured at the 6'' o.c. fastening pattern due to their configuration

be alternatively evaluated by testing for the design pressures

specified in the ``Table''?

(b) If the answer to (a) is yes, can a pressure reduction factor be

applied in testing certain air permeable exterior cladding materials,

such as vinyl lap siding, for the design pressures specified by the

``Table''?

(c) Do the fastening requirements for structural rated sheathing to

wall framing members in Footnote 8 of the Table of Design Pressures

indicated in our response to Question 17, in the previous

Interpretative Bulletin [59 FR 19076], also apply when the material is

both a structural sheathing and an exterior covering material?

(d) Can exterior cladding materials, such as vertical steel siding,

which are directly secured to wall framing members without a \3/8\''

rated structural sheathing be evaluated by testing for the design

pressures specified in the Table?

Answer: (a) Yes, provided that there is compliance with the

requirements of the waiver announced above.

(b) No.

(c) Yes, provided fasteners for any combined \3/8\'' minimum

structural rated sheathing and exterior covering material are installed

at 6'' o.c. from the sheathing to wall framing members (plates, studs,

jamb studs, headers). For vertical wall and jamb studs the orientation

of 6'' o.c. is in the vertical direction.

(d) Yes, provided the exterior covering and its fastenings are

capable of resisting the full positive and negative design pressures

specified in the ``Table'' for wall corners and other areas when tested

in accordance with 24 CFR 3280.401(b) of the Standards.

9. 24 CFR 3280.305(c)(1)(ii)(b)--What uplift loads are required to

be used when evaluating the field connection of ridge beams of multi-

module homes?

Answer: For designs which are prepared in accordance with the

``Table of Design Wind Pressures'', the pressures indicated for the

entry ``Ridge Beams and Other Main Roof Support Beams'' are to be used

to design the connections (-30 PSF Wind Zone II, -36 PSF Wind Zone

III).

10. 24 CFR 3280.305(c)(1)(ii)(b)--Do the higher uplift loads

indicated in the Table within 3'-0'' from the ridge and sidewall need

to be applied to roof trusses in conjunction with the normal uplift

loads when uplift tested/evaluated?

Answer: No. However, trusses are required to be doubled within 3'-

0'' from each end of the roof and all roof trusses are to be capable of

resisting the design pressures indicated in the Table (-39 PSF for Wind

Zone II; -47 PSF for Wind Zone III).

11. 24 CFR 3280.305(c)(1)(ii)(b)--(a) Do manufactured home

sidewalls including header assemblies in high wind areas need to be

calculated/tested for combined horizontal and uplift wind forces?

(b) If yes, what uplift pressures should be applied?

(c) If testing is used to substantiate a manufacturer's design, do

the wall assemblies need to be tested under the combined loading

conditions?

(d) Can the sidewalls be tested for the horizontal wind load only

and calculated for the tensile load independently using accepted

engineering design practices?

(e) If sidewalls are tested, can wall stud requirements for

openings be evaluated separately by calculations using accepted

engineering practices?

(f) Is there a minimum number of wall studs which are required to

be utilized in tested assemblies?

(g) Would any testing procedure employed that applies combined

loading to a sidewall test assembly require HUD approval in accordance

with 24 CFR 3280.303(g)?

Answer: (a) Yes.

(b) For sidewall studs not located at openings, the design uplift

pressure is -39 PSF for Wind Zone II and -47 PSF for Wind Zone III. For

headers and studs at openings, the uplift design pressure is -30 PSF

for Wind Zone II and -36 PSF for Wind Zone III.

(c) Yes.

(d) No.

(e) Yes.

(f) There is no minimum quantity of wall studs which must be

utilized in a test assembly for a sidewall. However, there needs to be

an adequate number of wall studs in the assembly to measure all wind

load effects and the influence of repetitive framing members in

resisting the combined lateral and uplift design wind pressures.

(g) No. The requirement for obtaining HUD approval of testing

procedures pursuant to 24 CFR 3280.303(g) is not effective until

October 25, 1994. However, manufacturers and DAPIAs are encouraged to

submit proposed testing protocols to the Department for review and

evaluation prior to the effective date.

12. For homes with end gables, does the 3'-0'' measurement for

doubling of roof trusses start at the extreme end of the gable or at

the endwall?

Answer: All trusses within 3'-0'' of the extreme end of the gable

are to be doubled.

13. 24 CFR 3280.306(a)--In designing anchoring or foundation

systems, can the dead load of the complete home be deducted to

determine the net overturning wind design forces?

Answer: Yes, the dead load of the entire structure may be used to

resist wind loading effects in all Wind Zones.

14. 24 CFR 3280.305(c)(1)(ii)(b)--If a roof truss forms or contains

an eave at the sidewall, does the overhang or projection have to meet

the higher eave load requirements in the ``Table of Design Pressures''

for Wind Zones II (-51 PSF) and III (-62 PSF)?

Answer: Yes.

15. 24 CFR 3280.305(c)(1)(ii)(b)-(a) Does Footnote 6 of the ``Table

of Design Pressures'' require complete cementing of the underlayment of

asphalt roofing shingles to a \3/8\'' structural rated roof sheathing

or is the cement to be applied to all edges, ends, and end laps of the

underlayment and other areas indicated in the Asphalt Roofing

Manufacturers Association (ARMA) Residential Roofing Manual, Chapter 7,

for low slope applications?

(b) If the cement application is limited to edges, ends and end

laps of the underlayment, is a 6'' minimum wide strip of asphalt cement

acceptable for those areas and a 3'' minimum wide strip of asphalt

cement acceptable for top laps?

Answer: (a) The application of cement for the underlayment need

only be applied to edges, ends and end laps of the underlayment. This

is in addition to cementing required for the starter strip, eave

flashing, and locations 24'' from the inside of the exterior wall as

indicated in the ARMA Residential Roofing Manual, Chapter 7, for low

slope applications.

(b) Yes.

16. 24 CFR 3280.402(c)(2)--Please confirm if the roof trusses

required to be uplift tested for high wind areas shall be tested in the

inverted position and loads applied to the bottom chords of the roof

trusses?

Answer: Roof trusses may be tested for uplift loads either in an

inverted or upright position. The Department is in the process of

examining research and engineering analysis to determine the proper

protocol for testing trusses. Further guidance will be issued on this

subject in the future.

17. Questions regarding the effective date of the new wind safety

standards as related to the Department's statement in the

Interpretative Bulletin published in the Federal Register on April 21,

1994: ``Every home entering the first stage of production as of July

13, 1994 must comply with the new wind safety provisions.'' (59 FR

19075).

(a) Does this mean that every home entering the first stage of

production before July 13, 1994 may still comply with the current wind

standards?

(b) Please clarify that the first stage of production for an

individual manufacturing plant is identified in the approved quality

control manual for that facility?

(c) Can manufacturers produce homes to the new wind standards

earlier than the effective date of July 13, 1994?

Answer: (a) Homes that enter the first stage before July 13, 1994

may not necessarily be built to the current standards. Based on our

review of the National Manufactured Housing Construction and Safety

Standards Act of 1974 (``Act'') and the Manufactured Home Procedural

and Enforcement Regulations (``Regulations''), all homes that are

labeled on or after the effective date of the new standards would be

required to comply with those standards. Pursuant to 24 CFR 3280.8(c),

and 24 CFR 3282.362(c)(2)(i)(c), the label is the certification by the

manufacturer that the home ``is constructed in conformance with the

Federal manufactured home construction and safety standards in effect

on the date of manufacture.''

The ``Date of Manufacture'' is the date on which the label is

affixed to the manufactured home. The label is to be affixed only at

the end of the last stage of production of the manufactured home.

Consequently, a manufacturer labeling a home on or after the effective

date of the new standards must comply with those standards or be in

violation of Section 610(a)(4) of the Act, 42 U.S.C. 5409(a)(4), even

if the home entered the first stage of production before the effective

date. The Department recognizes that, in one respect, the Regulations

are not clear. Because of this lack of clarity, the Department, in this

instance only, will take no action to enforce this requirement if it

can be shown that homes entered the normal first stage of production

before July 13, 1994. In the future, however, the Department will

expect compliance with the standards that are in effect on the date the

home is labeled.

(b) The Regulations, under 24 CFR 3282.203(c), require the DAPIA to

approve the quality assurance manual which includes, among other

information, ``a station-by-station description of the manufacturing

process.'' Therefore, the normal first station in the production

process as identified in the quality control manual would be ``the

first stage of production.''

(c) Yes, provided the manufacturer is completely capable of meeting

all requirements of the new standards, uses the new data plate and

includes a copy of the new wind zone map with each home so produced. In

addition, the Department urges manufacturers to use the time before the

effective date of the standards to prepare for producing homes to the

new standards so that production will continue without interruption.

This includes preparing designs, seeking approval for the designs

ordering any necessary materials, testing, etc. For homes that are

built to the current standards but sold after July 13, 1994 to be sited

in an area designated as Zone II or Zone III in the new rule, the

Department recommends that the consumer be informed: (1) That the home

has been built to previous standards which have since been amended; and

(2) that these new wind standards have been enacted to increase the

safety of manufactured homes in high-wind areas.

Authority: 42 U.S.C. 5403 and 42 U.S.C. 3535(d).

Dated: June 24, 1994.

James E. Schoenberger,

Associate General Deputy Assistant Secretary for Housing-Federal

Housing Commissioner.

[FR Doc. 94-16073 Filed 6-30-94; 8:45 am]

BILLING CODE 4210-27-P