Federal Family Education Loan Program; Proposed Rule

DEPARTMENT OF EDUCATION

34 CFR Part 682

RIN 1840-AC12

Federal Family Education Loan Program

AGENCY: Department of Education.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Secretary proposes to amend the regulations governing the

Federal Family Education Loan (FFEL) Program. The FFEL regulations

govern the Federal Stafford Loan Program, the Federal Supplemental

Loans for Students (Federal SLS) Program, the Federal PLUS Program, and

the Federal Consolidation Loan Program, collectively referred to as the

Federal Family Education Loan Program. The Federal Stafford Loan, the

Federal SLS, the Federal PLUS and the Federal Consolidation Loan

programs are hereinafter referred to as the Stafford, SLS, PLUS and

Consolidation Loan programs. These amendments are needed to conform the

FFEL Program regulations to reflect policy decisions made by the

Secretary during development of regulations for the Federal Direct

Student Loan Program, hereinafter referred to as the ``Direct Loan

Program.''

DATES: Comments must be received on or before November 7, 1994.

ADDRESSES: All comments concerning these proposed regulations should be

addressed to Pamela A. Moran, Chief, Loans Branch, Division of Policy

Development, Policy, Training, and Analysis Service, U.S. Department of

Education, 600 Independence Avenue, S.W. (room 4310, ROB-3),

Washington, DC 20202-5449.

A copy of any comments that concern information collection

requirements should also be sent to the Office of Management and Budget

at the address listed in the Paperwork Reduction Act section of this

preamble.

FOR FURTHER INFORMATION CONTACT: Barbara Bauman, Program Specialist,

Loans Branch, Division of Policy Development, Policy, Training, and

Analysis Service, U.S. Department of Education, 600 Independence

Avenue, S.W. (room 4310, ROB-3), Washington, DC 20202-5449. Telephone:

(202) 708-8242. Individuals who use a telecommunications device for the

deaf (TDD) may call the Federal Information Relay Service (FIRS) at 1-

800-877-8339 between 8 a.m. and 8 p.m., Eastern time, Monday through

Friday.

SUPPLEMENTARY INFORMATION:

Background

The Secretary is proposing to amend 34 CFR Part 682 of the

Department's regulations to reflect certain policy decisions made

during development of regulations for the Direct Loan Program.

As required by section 492(a) of the Higher Education Act of 1965,

as amended, (HEA) the Secretary convened a negotiated rulemaking

committee to develop proposed rules for the second and subsequent years

of the Direct Loan Program. During the negotiated rulemaking process,

the Department, at the request of the negotiators, agreed to make

changes in the FFEL Program to conform to policies and procedures

adopted in the Direct Loan Program, wherever possible, to provide a

consistent approach in both programs. In addition, some of these

changes are necessary to ensure that the terms, conditions and benefits

of FFEL Program loans and Direct Loans are the same, in accordance with

Section 455(a)(1) of the HEA. These proposed regulations reflect those

changes that would affect the FFEL Program. In addition, the Secretary

invites comments on other provisions of the FFEL Program regulations

that should be revised to conform with the Direct Loan Program

provisions. The proposed Direct Loan Program regulations were published

as a separate Notice of Proposed Rulemaking on August 18, 1994, 59 FR

42646.

This NPRM also proposes to delete certain regulatory provisions in

34 CFR Part 682 which duplicate or conflict with other regulations.

Specifically, the Secretary proposes to delete regulations governing

the determination of a student's withdrawal date and institutional

refund policies.

These regulations will improve the efficiency of the Federal

student aid programs and, by so doing, improve their capacity to

enhance opportunities for postsecondary education. Encouraging students

to graduate from high school and to pursue high quality postsecondary

education are important elements of the National Education Goals.

The student aid programs also enable both current and future

workers to have the opportunity to acquire both basic and

technologically advanced skills needed for today's and tomorrow's

workplace. They provide the financial means for an increasing number of

Americans to receive an education that will prepare them to think

critically, communicate effectively, and solve problems efficiently, as

called for in the National Education Goals.

Proposed Regulatory Changes

The Secretary proposes to amend the following sections of the

regulations to reflect changes needed to conform the FFEL Program to

the proposed regulations for the Direct Loan Program. Those changes not

related to the Direct Loan Program are otherwise noted.

Section 682.200 Definitions

Estimated cost of attendance--The Secretary proposes to delete this

definition from this section. This definition will be added as an

appendix to the Student Assistance General Provisions regulations at 34

CFR Part 668.

Estimated financial assistance--Language that was inadvertently

deleted from the FFEL Program final regulations published on June 28,

1994 (59 FR 33334) has been restored and slightly revised. This change

would make the regulations consistent with the current definition in

the Direct Loan Program NPRM and the definition previously included in

the December 18, 1992 FFEL regulations, with a minor revision to

reflect the 1993 statutory change that includes the amount of the

origination fee and the insurance premium in calculating the student's

cost of attendance.

Section 682.201 Eligible borrowers

Section 682.201(a)(4)(i)--The Secretary proposes to remove the

requirement that, to receive a new loan, a borrower must reaffirm any

FFEL loan amount that previously was canceled due to the borrower's

total and permanent disability.

Section 682.205 Disclosure requirements for lenders

Section 682.205(a)(2)(ix)--The Secretary proposes to amend the

regulations to require a lender to answer questions from borrowers

regarding the loan application process and provide information about

the terms and conditions for consolidating FFEL Program loans and the

types of loans that may be consolidated. The Secretary believes that

borrower access to this information is critical in light of the

expanded repayment options available to consolidation loan borrowers.

This proposed change is also consistent with the obligation assumed by

the Direct Loan servicer in the Direct Loan Program that, although not

specified in Direct Loan Program regulations, is assumed by the

servicer as part of its contract with the Department.

Section 682.207 Due Diligence in Disbursing a Loan

Section 682.207(d)(2)(iii)--With regard to late disbursements, the

Secretary proposes to permit a lender in certain circumstances to make

a late disbursement more than 60 days after the student ceases to be

enrolled at the school on at least a half-time basis, or after the end

of the period of enrollment, as applicable. However, a lender may make

a late disbursement within 30 days after the standard 60-day period

provided for in Sec. 682.207 only in documented exceptional

circumstances, such as a student's serious, unexpected illness, with

the prior approval of the guaranty agency. The Secretary has proposed a

comparable provision in the Direct Loan Program.

Section 682.402 Death, Disability, Closed School, False Certification,

and Bankruptcy Payments

Section 682.402(e)(13)(iii)--The NPRM proposes to simplify the

language of this provision to conform to the Direct Loan Program

proposed regulations.

Section 682.602 Schedule Requirements for Courses of Study by

Correspondence

Section 682.602(a)--The Secretary has modified the language in this

section to conform to the Direct Loan Program proposed regulations.

Section 682.604 Processing the Borrower's Loan Proceeds and Counseling

Borrowers

Section 682.604(d)(1)(ii)(B)--The Secretary proposes to modify the

requirement that the school, as a fiduciary for the benefit of the

student, must retain loan proceeds held at the student's request to

assist the student in budgeting, in a designated trust account.

Instead, the regulations propose to allow the school to maintain these

funds in a separately-designated subsidiary account under its general

bank account. The Secretary has proposed a comparable provision for the

Direct Loan Program.

Section 682.604(e)(4)--The Secretary proposes to allow a school no

more than 45 days after the school's receipt of a late disbursement of

loan proceeds to deliver those loan proceeds to the borrower.

Section 682.604(f)(1)--The Secretary proposes to change the

requirement for counseling first-time borrowers. A school will not be

required to administer initial counseling to a student who has already

borrowed under the FFEL or Direct Loan Program.

Section 682.605 Determining the Date of a Student's Withdrawal

Section 682.605--The Secretary proposes to revise this section to

clarify that a school must determine the date of a student's withdrawal

by following the procedures in 34 CFR 668.22(i). The Secretary proposes

to delete the provisions regarding leaves of absence. The Secretary's

regulations now provide in Sec. 668.22 that a student on a leave of

absence is considered to have withdrawn for purposes of the refund

calculation. Therefore, the Secretary believes that, for consistency,

such a student should be considered withdrawn for all purposes.

Section 682.606 Refund Policy

Section 682.606--The Secretary proposes to delete this section from

the FFEL regulations. A school is required to follow the procedures in

34 CFR 668.22 regarding refund policies for all of the Federal Title IV

Student Financial Assistance Programs.

Section 682.607 Payment of a Refund to a Lender

Section 682.607(c)--The Secretary proposes to revise the timely

payment requirement to require a school to pay a refund to the lender

within 30 days after the date the school determines that the student

has withdrawn under 34 CFR 668.22(i). This change is proposed in order

to conform to existing General Provisions Regulations.

Executive Order 12866

1. Assessment of Costs and Benefits.

These proposed regulations have been reviewed in accordance with

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

assessed the potential costs and benefits of this regulatory action.

The potential costs associated with the proposed regulations are

those resulting from statutory requirements and those determined by the

Secretary to be necessary for administering this program effectively

and efficiently. Burdens specifically associated with information

collection requirements, if any, are identified and explained elsewhere

in this preamble under the heading Paperwork Reduction Act of 1980.

In assessing the potential costs and benefits--both quantitative

and qualitative--of these proposed regulations, the Secretary has

determined that the benefits of the regulations justify the costs.

The Secretary has also determined that this regulatory action does

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

exercises of their governmental functions.

To assist the Department in complying with the specific

requirements of Executive Order 12866, the Secretary invites comment on

whether there may be further opportunities to reduce any potential

costs or increase potential benefits resulting from these proposed

regulations without impeding the effective and efficient administration

of the program.

2. Clarity of the regulations.

Executive Order 12866 requires each agency to write regulations

that are easy to understand.

The Secretary invites comments on how to make these proposed

regulations easier to understand, including answers to questions such

as the following: (1) Are the requirements in the proposed regulations

clearly stated? (2) Do the regulations contain technical terms or other

wording that interferes with their clarity? (3) Does the format of the

regulations (grouping and order of sections, use of headings,

paragraphing, etc.) aid or reduce their clarity? Would the regulations

be easier to understand if they were divided into more (but shorter)

sections? (A ``section'' is preceded by the symbol ``Sec. '' and a

numbered heading; for example, Sec. 682.200 Definitions.) (4) Is the

description of the regulations in the ``Supplementary Information''

section of this preamble helpful in understanding the regulations? How

could this description be more helpful in making the regulations easier

to understand? (5) What else could the Department do to make the

regulations easier to understand?

A copy of any comments that concern how the Department could make

these proposed regulations easier to understand should be sent to

Stanley M. Cohen, Regulations Quality Officer, U.S. Department of

Education, 600 Independence Avenue, S.W. (Room 5100, FB-10),

Washington, DC 20202-2241.

Regulatory Flexibility Act Certification

The Secretary certifies that these proposed regulations would not

have a significant economic impact on a substantial number of small

entities.

While the statute requires that the Secretary regulate certain

actions that must be taken by various program participants, these

requirements would not have a significant impact because they would not

impose excessive regulatory burdens or require unnecessary Federal

supervision. The regulations would impose minimal additional

requirements to protect the Federal fiscal interest, as well as the

interests of the borrowers under the programs.

Paperwork Reduction Act of 1980

Sections 682.205, 682.602, 682.604, and 682.605 contain information

collection requirements. As required by the Paperwork Reduction Act of

1980, the Department will submit a copy of these proposed regulations

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

3504(h))

Annual public reporting and recordkeeping burden is estimated to

result in a reduction of 50 hours per 500 respondents, including the

time for reviewing instructions, searching existing data sources,

gathering and maintaining the data needed, 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, room 10235, New Executive Office

Building, Washington, DC 20503; Attention: Daniel J. Chenok.

Invitation to Comment

Interested persons are invited to submit comments and

recommendations regarding these proposed regulations.

All comments submitted in response to these proposed regulations

will be available for public inspection, during and after the comment

period, in room 4310, Regional Office Building 3, 7th and D Streets,

SW., Washington, DC between the hours of 8:30 a.m. and 4 p.m., Monday

through Friday of each week except federal holidays.

Assessment of Educational Impact

The Secretary particularly requests comments on whether the

proposed regulations in this document would require transmission of

information that is being gathered by or is available from any other

agency or authority of the United States.

List of Subjects in 34 CFR Part 682

Administrative practice and procedure, Colleges and universities,

Education, Loan programs-education, Reporting and recordkeeping

requirements, Student aid, Vocational education.

(Catalog of Federal Domestic Assistance Number 84.032, Federal

Family Education Loan Program)

Dated: October 3, 1994.

Richard W. Riley,

Secretary of Education.

The Secretary proposes to amend Part 682 of Title 34 of the Code of

Federal Regulations as follows:

PART 682--FEDERAL FAMILY EDUCATION LOAN (FFEL) PROGRAM

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

follows:

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

2. Section 682.200, paragraph (b) is amended by removing the

definition of ``Estimated cost of attendance''; by amending the

definition of ``Estimated financial assistance'', which will be

effective July 1, 1995, by redesignating paragraph (1)(viii) as

paragraph (1)(ix), and adding a new paragraph (1)(viii) to read as

follows:

Sec. 682.200 Definitions.

* * * * *

(b) * *

Estimated financial assistance. (1) * * *

(viii) If the student is applying for a loan to cover expenses

incurred within the same enrollment period as that for which a prior

FFEL was received, the amount of Stafford, SLS, and PLUS loan proceeds

received by the borrower, including the amount of the origination fee

and insurance premium, that were included in computing the borrower's

estimated cost of attendance for the prior loan; and

* * * * *

3. Section 682.201 is amended by revising paragraph (a)(4)(i) and

paragraph (a)(5)(i) to read as follows:

Sec. 682.201 Eligible borrowers.

(a) * * *

(4)(i) Reaffirms any FFEL loan amount that previously was

discharged in bankruptcy or that was written off.

* * * * *

(5)(i) In the case of a borrower whose previous loan was cancelled

due to total and permanent disability, the student must--

(A) Obtain a certification from a physician that the borrower is

able to engage in substantial gainful activity; and

(B) Sign a statement acknowledging that the FFEL loan the borrower

receives cannot be cancelled in the future on the basis of any

impairment present when the new loan is made, unless that impairment

substantially deteriorates.

* * * * *

4. Section 682.205 is amended by revising paragraph (a)(2)(ix) to

read as follows:

Sec. 682.205 Disclosure requirements for lenders.

(a) * * *

(2) * * *

(ix) An explanation of any special options the borrower may have

for consolidating or refinancing the loan. The lender shall answer

questions regarding the process on applying for a consolidation loan

and provide information about the terms and conditions of consolidation

loans as well as the types of loans that may be consolidated.

* * * * *

5. Section 682.207 is amended by removing the period at the end of

paragraph (d)(2)(ii) and adding, in its place, ``;or''; and adding a

new paragraph (d)(2)(iii) to read as follows:

Sec. 682.207 Due diligence in disbursing a loan.

* * * * *

(d) * * *

(2) * * *

(iii) Within 90 days after the student ceases to be enrolled on at

least a half-time basis or after the expiration date of the period of

enrollment for which the loan was made, whichever is earlier, with the

prior approval of the guaranty agency, based on a borrower's documented

exceptional circumstances.

* * * * *

6. Section 682.402 is amended by revising paragraphs (e)(1)(i)(A),

(e)(13) heading, and (e)(13)(iii) to read as follows:

Sec. 682.402 Death, disability, closed school, false certification,

and bankruptcy payments.

* * * * *

(e) * * *

(1) * * *

(i) * * *

(A) Certified the student's eligibility for a FFEL Program loan on

the basis of ability to benefit from its training and the student did

not meet the applicable requirements described in 34 CFR Part 668 and

section 484(d) of the Act, as applicable and as described in paragraph

(e)(13) of this section; or

* * * * *

(13) Requirements for certifying a borrower's eligibility for a

loan.

* * * * *

(iii) Notwithstanding paragraphs (e)(13)(i) and (ii) of this

section, a student did not have the ability to benefit from training

offered by the school if--

(A) The school certified the eligibility of the student for a FFEL

Program loan; and

(B) At the time of certification, the student would not meet the

requirements for employment (in the student's State of residence) in

the occupation for which the training program supported by the loan was

intended because of a physical or mental condition, age, or criminal

record or other reason accepted by the Secretary.

* * * * *

7. Section 682.602 is amended by revising the section heading;

removing paragraph (c); redesignating paragraphs (a) and (b) as

paragraphs (b) and (c) respectively; and adding a new paragraph (a) to

read as follows:

Sec. 682.602 Schedule requirements for courses of study by

correspondence.

(a) This section provides guidance for schools that offer programs

of study by correspondence for the purpose of determining enrollment

status.

* * * * *

8. Section 682.604 is amended by revising the last sentence of

paragraph (d)(1)(ii)(B); by revising paragraph (e)(4) introductory

text; and by revising paragraph (f)(1) to read as follows:

Sec. 682.604 Processing the borrower's loan proceeds and counseling

borrowers.

* * * * *

(d) * * *

(1) * * *

(ii) * * *

(B) * * * The school shall maintain these funds in a separate

account established solely for the purpose of holding students' funds

and may not commingle them with other funds or use them for any other

purpose.

* * * * *

(e) * * *

(4) If the lender or guaranty agency has not informed the school

that it prohibits a late disbursement as permitted by

Sec. 682.207(d)(2)(i), and if the total amount of the disbursement and

all prior disbursements on the loan does not exceed that portion of the

student's documented educational costs for the period of enrollment

completed by the student before the earlier of the dates described in

paragraph (e)(1) of this section, the school shall deliver the

borrower's loan proceeds to the borrower not later than 45 days after

the school's receipt of the funds. If the total amount of the late

disbursement and all prior disbursements is greater than that portion

of the borrower's documented educational charges, the school shall--

* * * * *

(f) * * *

(1) Except in the case of a student enrolled in a correspondence

program or a study-abroad program approved for credit at the home

institution, a school shall conduct initial counseling with each

Stafford borrower either in person, by audiovisual presentation or by

computer assisted technology. In each case, the school shall conduct

this counseling prior to its release of the first disbursement of the

proceeds of the first Stafford loan made to the borrower for attendance

at the school, unless the borrower has received a prior Stafford, SLS

or Direct loan, and shall ensure that an individual with expertise in

the Title IV programs is reasonably available shortly after the

counseling to answer the borrower's questions regarding those programs.

In the case of a correspondence school or a student enrolled in a

study-abroad program that the school approves for credit, the school

shall provide the borrower with written counseling materials by mail

prior to releasing those proceeds.

* * * * *

9. Section 682.605 is revised to read as follows:

Sec. 682.605 Determining the date of a student's withdrawal.

(a) A school shall follow the procedures in 34 CFR 668.22(i) for

determining the student's date of withdrawal.

(b) The school shall use the date determined under 34 CFR 668.22(i)

for the purpose of reporting to the lender the date that the student

has withdrawn from the school and for determining when a refund must be

paid under 34 CFR 668.22.

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1082, 1094)

Sec. 682.606 [Removed]

10. Section 682.606 is removed and reserved.

11. Section 682.607 is amended by revising paragraph (c)(1) to read

as follows:

Sec. 682.607 Payment of a refund to a lender.

* * * * *

(c) * * *

(1) Within 30 days after the student's withdrawal as determined

under 34 CFR 668.22(i).

* * * * *

Appendix A [Removed and Reserved]

11. Appendix A to part 682 is removed and reserved.

[FR Doc. 94-24853 Filed 10-6-94; 8:45 am]

BILLING CODE 4000-01-P