Federal Family Education Loan Program; Final Rule

RIN 1840-AC12

Federal Family Education Loan Program

AGENCY: Department of Education.

ACTION: Final Regulations.

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SUMMARY: The Secretary amends 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 with policy decisions made by the Secretary

during development of regulations for the William D. Ford Federal

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

Program.''

EFFECTIVE DATE: These regulations take effect on July 1, 1995. However,

affected parties do not have to comply with the information collection

requirements in Secs. 682.205, 682.602, 682.604, and 682.605 until the

Department of Education publishes in the Federal Register the control

numbers assigned by the Office of Management and Budget to these

information collection requirements. Publication of the control numbers

notifies the public that OMB has approved these information collection

requirements under the Paperwork Reduction Act of 1980. Section

682.210(s)(6)(iv) incorporates the self-implementing change made to the

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

America's Schools Act of 1994, enacted October 20, 1994. Consistent

with the effective date of that statutory change,

Sec. 682.210(s)(6)(iv) applies to all economic hardship deferment

requests submitted by eligible borrowers on or after that date.

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 amending 34 CFR Part 682 of the Department's

regulations to reflect certain policy decisions made during development

of regulations for the Direct Loan Program. The Secretary 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 terms, conditions and benefits of

FFEL Program loans and Direct Loans are the same, to the extent

required, in accordance with section 455(a)(1) of the HEA. These

regulations reflect those changes that affect the FFEL Program.

These regulations also delete certain regulatory provisions in 34

CFR Part 682 which duplicate or conflict with other regulations.

Specifically, the Secretary has deleted regulations governing the

determination of a student's withdrawal date and institutional refund

policies. These topics are now addressed in 34 CFR Part 668.

Additionally, these regulations implement changes made to the FFEL

Program by the Improving America's Schools Act of 1994 (IASA), enacted

October 20, 1994, and the Bankruptcy Reform Act of 1994, enacted

October 22, 1994. The changes made by IASA to the economic hardship

deferment provisions of section 435(o) of the HEA and changes made to

the Bankruptcy Code affecting borrower eligibility are self-

implementing. The incorporation of these provisions into the FFEL

regulations requires only minor modifications to those regulations.

On October 7, 1994, the Secretary published a notice of proposed

rulemaking (NPRM) for Part 682 in the Federal Register (59 FR 51346).

The NPRM included a discussion of the major issues surrounding the

proposed changes, and the discussion will not be repeated here. The

following list summarizes those issues and identifies the pages of the

preamble to the NPRM on which a discussion of those issues may be

found:

Borrower eligibility with regard to past loan cancellation due

to the borrower's total and permanent disability (page 51346);

Disclosure requirements for lenders (page 51346);

Late disbursement of loan proceeds under documented

exceptional circumstances (page 51347);

Processing of borrower's loan proceeds and counseling

borrowers (page 51347);

Determining the date of a student's withdrawal (page 51347);

Refund policy (page 51347);

Payment of a refund to a lender (page 51347).

Substantive Revisions to the Notice of Proposed Rulemaking

Section 682.100 The Federal Family Education Loan programs

The IASA provides that a Nursing Student Loan Program loan

authorized by subpart II of Part B of title VIII of the Public Health

Service Act may now be consolidated in a Federal Consolidation Loan.

Section 682.201 Eligible Borrowers

The Secretary has revised this section of the final

regulations to reflect a change in the Bankruptcy Reform Act of 1994

that necessitates the deletion of the provision that required

reaffirmation of a FFEL loan that had been discharged in bankruptcy as

a prerequisite to further eligibility to participate in the FFEL

Program.

Section 682.210 Deferment.

The final regulations incorporate the change made by IASA

that would permit a borrower to receive an economic hardship deferment

if the borrower is working full-time and has a Federal educational debt

burden that equals or exceeds 20 percent of the borrower's total

monthly gross income, providing the borrower's income minus such burden

is less than 220 percent of the minimum wage or the poverty level for a

family of two.

Section 682.605 Determining the Date of a Student's Withdrawal

The Secretary's interim final regulations (59 FR 22348,

April 29, 1994) governing leaves of absence is being changed in 34 CFR

668.22. The Secretary has decided to allow institutions to treat a

student on an approved leave of absence as enrolled for purposes of

determining a refund calculation and for purposes of terminating a

title IV borrower's in-school status. Further discussion regarding this

change may be found in the discussion of 34 CFR 668.22 of the General

Provisions regulations.

Analysis of Comments and Changes

In response to the Secretary's invitation in the NPRM, 22 parties

submitted comments on the proposed regulations. An analysis of the

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

those comments follows.

Major issues are grouped according to subject. Technical and other

minor changes, and suggested changes the Secretary is not legally

authorized to make under the applicable statutory authority, are not

addressed.

General

Comments: A number of commenters suggested changes to the FFEL

Program regulations that were not included in the NPRM. Some of the

commenters suggested that additional changes were necessary to conform

the FFEL Program with the regulations governing the Direct Loan

Program. For example, some commenters suggested that the Secretary

should incorporate in the Direct Loan regulations the various

requirements in the FFEL regulations regarding requirements for

deferments. Other commenters recommended that the Secretary modify the

Direct Loan regulations to require the Secretary to comply with certain

specific time deadlines, like those in the FFEL regulations. Finally,

other commenters suggested that the Secretary include specific loan

servicing and collection requirements in the Direct Loan regulations

like those applicable to lenders and guaranty agencies in FFEL. Some

commenters also objected to the changes made to sections 682.605 and

682.606.

Discussion: The Secretary has carefully considered all of the

comments that suggested changes to other FFEL regulations that were not

addressed in the NPRM. The Secretary believes that some of the

suggestions for streamlining the FFEL regulations have merit, but the

implications of those changes need to be more fully evaluated by the

Department before any further changes are proposed.

Many of the commenters indicated that they believe that the

Secretary is required to make the regulations and processes in the

Direct Loan Program strictly conform to the FFEL regulations, and

suggested that changes are required to the FFEL Program to ensure that

goal is achieved. The Secretary does not share the commenters' belief.

Many of the FFEL regulations identified by the commenters establish

conditions for the lender or guaranty agency to receive payments under

the FFEL program. The documentation and other requirements included in

these regulations have been developed over the years based on the

Secretary's experience in administering the program. The Secretary has

found that, without specific requirements, FFEL Program participants

did not adequately ensure that loans were properly serviced or claims

properly paid. These requirements are not applicable to the Direct Loan

Program. The Secretary is not required to issue regulations that are

intended to regulate internal agency processes and that do not affect

the substantive or procedural rights of program participants.

Therefore, the Secretary has not modified the FFEL regulations to

delete the requirements addressed by the commenters.

Finally, the Secretary notes that the comments regarding sections

682.605 and 682.606 are more appropriately addressed to 34 CFR 668.22

and are being addressed in the discussion of 34 CFR 668.22 of the

General Provisions regulations.

Commenters generally agreed with the Secretary's changes in the

following areas:

Sec. 682.200--Cost of attendance

Sec. 682.207--Due diligence in disbursing a loan

Sec. 682.602--Schedule requirements for courses of study by

correspondence

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

counseling borrowers

Sec. 682.606--Refund policy

Section 682.200 Definitions

Estimated Financial Assistance

Comments: One commenter suggested that paragraph (2)(i) be revised

to exclude an Unsubsidized Stafford loan in the amounts used to replace

the expected family contribution. Commenters pointed out that the

proposed change in the definition of estimated financial assistance is

not comparable to the definition in the Direct Loan regulations.

Commenters were also confused about the purpose of the change, and

whether other forms of student assistance need to be considered if a

student is applying for a loan to cover expenses incurred within the

same enrollment period as that for which a prior loan was received.

Discussion: The purpose of the change to this section in the NPRM

was to clarify that the gross amount of all loans received for an

enrollment period, including the amount of origination fees and

insurance premiums, be considered in calculating the student's

estimated financial assistance. The Secretary understands the

confusion, and agrees that the language in the FFEL Program NPRM

differs from the language in the Direct Loan NPRM. The Secretary

believes that the proposed change should be deleted from both

regulations because it is redundant with other paragraphs of the

definition of estimated financial assistance. Instead, the Secretary

has revised this section in both these final regulations and in the

final Direct Loan Program regulations to simplify and clarify the

definition of estimated financial assistance. Finally, the Secretary

agrees with the comment that Unsubsidized Stafford Loans used to

replace the expected family contribution should be excluded.

Changes: The Secretary has revised the introductory paragraph of

the definition to eliminate the need for a separate paragraph about

PLUS; revised paragraph (vii) to clarify that the gross amount of

loans, including PLUS, should be considered as financial assistance;

deleted paragraph (viii) regarding PLUS loans and deleted proposed new

paragraph (viii). Paragraph (2)(i) of the regulations has been revised

to exclude an Unsubsidized Stafford loan in the amounts used to replace

the expected family contribution.

Section 682.201 Eligible borrowers

Section 682.201(a)(4)

Comments: Many commenters strongly supported the proposal to

eliminate the requirement that, to receive a new loan, a borrower must

reaffirm any FFEL loan amount that previously was cancelled due to the

borrower's total and permanent disability. A few commenters did not

agree that this provision should be eliminated and suggested that

previous experience has shown this to be an area of abuse. The

commenters believed that, since the debt was canceled because the

borrower no longer had the means to repay the debt, it is reasonable to

expect a borrower who is now able to attend school (and presumably able

to obtain gainful employment considering the borrower is requesting a

new loan) to be in a position to be able to repay his or her previously

canceled debt. One commenter expressed concern about the language

requiring a borrower whose previous loan was canceled due to total and

permanent disability to obtain a certification from a physician that

the borrower is able to engage in ``substantial gainful activity.'' The

commenter noted that ``substantial gainful activity'' is a term that

could be defined in many different ways. The commenter suggested that

the Secretary define this term further. The commenter further suggested

that doctors may not be the individuals best qualified to determine

whether an individual is capable of ``substantial gainful activity.''

The commenter suggested that, for this purpose, a ``substantial gainful

activity'' determination should also be acceptable if performed by a

certified occupational therapist, rehabilitation specialist, or other

qualified individual. A number of commenters also suggested that the

regulations should clarify if, in the event the borrower is unable to

obtain the proper certifications required under 34 CFR 682.201(a)(5),

the borrower can regain eligibility by reaffirming the prior debt. The

commenters believe that this option would provide students with

increased educational opportunities. Some commenters suggested that 34

CFR 682.201(a)(5)(ii) of the December 18, 1992 regulations be deleted,

as this provision was incorporated in paragraph (a)(5)(i)(B).

Many commenters suggested that the regulations be revised to

reflect the Bankruptcy Reform Act of 1994 enacted October 22, 1994.

Discussion: While the Secretary is not requiring individuals to

reaffirm a previously canceled debt due to a determination of permanent

and total disability as a condition for receiving a new FFEL loan, the

Secretary would not discourage any borrower from arranging to repay a

previously canceled debt, if the borrower chose to do so.

The Secretary generally believes that the phrase ``substantial

gainful activity'' describes a situation in which a borrower is

sufficiently physically recovered to be capable of attending school,

successfully completing a program of study, and securing employment in

order to repay the new loan the borrower is seeking. However, the

Secretary will consider further whether a specific program definition

of ``substantial gainful activity'' is required and may address this

issue in future regulations.

The Secretary declines to allow an individual other than a

physician to provide the certification for this purpose. The Secretary

notes that section 682.402(c)(2) of the FFEL regulations requires that

a borrower's claim for total and permanent disability for purposes of

the discharge be documented by a ``certification by a physician who is

a doctor of medicine or osteopathy and legally authorized to practice

in a State.'' The Secretary believes that the same level of medical

professional should certify to such a borrower's ability to now engage

in ``substantial gainful activity.''

The Secretary does not agree with the commenters who believe that

borrowers unable to obtain certification of their condition be allowed

to borrow again by simply reaffirming the debt as this does not protect

the Secretary from a possible subsequent default.

The Secretary agrees with the commenter who recommended that the

final regulations should reflect the changes provided in the Bankruptcy

Reform Act of 1994. Section 525 of the Bankruptcy Act, as amended,

prohibits denial of a loan or loan guarantee based on a bankruptcy

discharge but does not prohibit consideration of that fact in

determining the future creditworthiness of a loan applicant.

Accordingly, the Secretary notes that a bankruptcy discharge may be

evidence of an adverse credit history for a PLUS borrower.

Changes: The regulations have been revised to remove the

requirement that a borrower reaffirm any FFEL loan previously

discharged in bankruptcy as a condition for receiving a new FFEL loan.

Comments: A number of commenters suggested that the regulations be

revised to clarify that the amount of the reaffirmation in the event of

a write-off includes any outstanding accrued interest and collection

charges. The commenters specifically suggested that the regulation

address the treatment of accrued interest between write-off and

reaffirmation.

Discussion: The Secretary agrees that the amount a borrower is

required to reaffirm in a write-off situation should be clarified by

specifying how accrued interest on the amount of the loan written-off

should be handled. The Secretary also believes that confusion exists in

the student aid community as to what the term ``write-off'' means in

this context. The Secretary wishes to clarify that a ``write-off'' in

this context is a situation in which the guaranty agency or the

Secretary ceases all collection activity on a borrower's defaulted

account after an extended period of unsuccessful collection. This total

cessation of collection activity does not relieve the defaulted

borrower of the obligation, and interest continues to accrue on the

amount on which collection activities cease. These amounts are

``written-off'' from an accounting standpoint only, in order to more

accurately reflect a guaranty agency's or the Department of Education's

accounts receivable. If such a borrower seeks further Title IV student

assistance, the borrower must reaffirm an amount that represents

outstanding principal and all interest that has accrued as of the date

of reaffirmation. In addition, the borrower must make satisfactory

repayment arrangements on the reaffirmed defaulted debt.

Change: The Secretary has revised section 682.201(a)(4)(i) to

require a borrower who has defaulted on a loan on which a guaranty

agency or the Secretary has ceased collection activity to reaffirm an

amount that includes all principal and interest that has accrued on

that amount up to the date of reaffirmation.

Section 682.201(a)(6)

Comments: Some commenters noted that both the FFEL and Direct Loan

Program regulations provide that a student who is seeking a loan, but

does not have a certificate of graduation from a secondary school or

the equivalent, may be eligible if he or she has passed an

independently administered examination approved by the Secretary. The

commenters suggested that the FFEL regulations should be consistent

with the Direct Loan regulations and allow a student to obtain

eligibility through a determination that he or she has the ability to

benefit from the program in accordance with a State process approved by

the Secretary.

Discussion: The Secretary agrees with the commenters that there

should be consistency among the programs.

Change: The regulations have been revised to reference the Student

Financial Assistance General Provisisons regulations, 34 CFR Part

668.7(b), which govern student eligibility for all title IV programs.

The same change has been made to the Direct Loan Program regulations.

Section 682.201(b)(7)

Comments: Many commenters suggested that the regulations should be

revised to permit a PLUS borrower who has been determined to have an

adverse credit history to receive a loan by securing an endorser who

does not have an adverse credit history. The commenters suggest that

this treatment would be consistent with the Direct Loan Program.

Discussion: The Secretary agrees with the commenters that the

treatment of a PLUS borrower who has been determined to have an adverse

credit history should be consistent for the FFEL and Direct Loan

Programs.

Change: The regulations have been revised to permit a PLUS borrower

who has been determined to have an adverse credit history to receive a

loan by securing an endorser who does not have an adverse credit

history. The Secretary expects lenders in exercising this option to

ensure that the endorser has the ability to repay the debt if the

borrower does not do so.

Section 682.205 Disclosure Requirements for Lenders

Comments: Some commenters argued that the Secretary's proposed

regulations to require lenders to respond to borrower inquiries

regarding the loan application process and the terms and conditions of

the Federal Consolidation Loan are unnecessary because lenders and

servicers are already required to respond to borrower inquiries within

a 30-day period under section 682.208(c). The commenters also noted

that this requirement would duplicate information that must be

disclosed to a borrower under section 682.205(c)(2)(vii) at or prior to

the beginning of the borrower's repayment period. Other commenters

supported the proposal that these kinds of disclosures be provided, but

felt that they were misplaced and that they should be incorporated as a

new provision in section 682.208. One commenter supported the

disclosures but stated the scope of information to be provided was too

limited. The commenter recommended that the provision be revised to

specify that the information must cover the application process, terms

and conditions of consolidation benefits and potential negative effects

of loan consolidation, deferments available, interest rates, the

difference between the FFEL and Direct Loan Consolidation programs, and

the differences between loan consolidation and loan rehabilitation.

Discussion: The Secretary disagrees that the proposed disclosure

requirements duplicate existing requirements in sections 682.208(c) and

682.205(c)(2). The 30-day requirement in Sec. 682.208(c) relates to

inquiries received on a loan during servicing, long after the

obligation has been incurred by the borrower. Similarly, disclosures

under Sec. 682.205(c)(2) just prior to the beginning of repayment are

made too late in the process to be useful to the borrower in making an

informed decision on whether to consolidate loans and to assist them

with the application process. After further consideration, the

Secretary has decided that, for the same reason, the disclosure

requirement which governs disclosures made before or at the time of

disbursement of the loan is equally misplaced in Sec. 682.205(a) of the

regulations. The Secretary now believes that, to serve its intended

purpose, such information and counseling must be provided in advance of

or as part of the consolidation application process. The Secretary does

not believe it is necessary to regulate in this area.

Changes: The Secretary has deleted the provision under

Sec. 682.205(a)(2)(ix) that requires lenders to respond to borrower

inquires regarding the Consolidation Loan application process and to

provide information on consolidation loan terms and conditions. The

Secretary will, instead, work with the student aid community to ensure

that the Consolidation Loan application materials and procedures

related to their processing will provide the scope of information

necessary for a borrower to make an informed decision about loan

consolidation.

Section 682.207 Due Diligence in Disbursing a Loan

Comments: A few commenters suggested that the Secretary expand the

30 days to 60 days beyond the standard 60-day period to make late

disbursements.

Discussion: The Secretary believes that 30 days beyond the standard

60-day period provides ample time to make late disbursements in

exceptional circumstances under the FFEL Program.

Change: None.

Section 682.402(a)(2)

Comments: Some commenters compared the loan discharge provisions in

the Direct Loan NPRM of August 18, 1994 with those found in the FFEL

regulations and concluded that the Direct Loan NPRM regulations provide

a greater discharge benefit for married borrowers with a joint Direct

Consolidation Loan than the FFEL regulations for similar married

borrowers with an FFEL Consolidation Loan. The commenters believed that

the exception proposed in 34 CFR 685.215(l)(3)(ii) (Direct Loan NPRM)

should be added to the FFEL regulations.

Discussion: This addition is unnecessary. Section 682.402(a)(2)

does not prohibit a portion of an FFEL Consolidation Loan to be

discharged if the borrower qualifies for a closed school or false

certification discharge on a loan that was consolidated.

Sec. 682.402(h)(2)(v) further provides that a payment received as a

result of a discharge of a loan that has been consolidated will reduce

the Consolidation loan.

Change: None.

Section 682.402(c)(3)

Comments: Some commenters compared Sec. 685.212(f) of the Direct

Loan NPRM to Sec. 682.402(c)(3) of the FFEL regulations which govern

payments received from or on behalf of a borrower after the date the

lender or servicer is notified of a borrower's claim of total

disability, and stated that they believed there was an inconsistency

between the two programs. The commenters recommended that the FFEL

regulations be amended to conform with the Direct Loan regulations.

Discussion: The Secretary believes that there is no substantial

difference between the language in the two program regulations on this

issue. He believes that the language differences are not significant.

Change: None.

Section 682.402(d)(1)(i)

Comment: Some commenters noted that Sec. 685.213(c)(1)(ii) of the

Direct Loan NPRM permits an extension of the 90-day withdrawal period

applicable to closed school loan discharges if exceptional

circumstances existed. The commenters recommended that the FFEL

regulations be amended to provide for similar extensions.

Discussion: Section 682.402(d)(1)(i) already provides the extension

suggested by the commenters.

Change: None.

Section 682.402(e)

Comments: Some commenters considered the false certification

discharge provisions in the FFEL regulations to be more restrictive

than those contained in the Direct Loan NPRM. The commenters did not

specify the precise areas that they believed represented the Direct

Loan Program's more liberal interpretation of what constitutes false

certification.

Discussion: Other than minor technical language differences to

reflect the operational differences between the FFEL and Direct Loan

Programs, the standard for both sets of false certification regulations

is identical.

Change: None.

Section 682.402(e)(1)(ii)

Comments: Some commenters noted that Sec. 685.214(a)(2) of the

Direct Loan NPRM was essentially the same as Sec. 682.402(e)(1)(ii) of

the FFEL regulations, except that the last sentence of

Sec. 682.402(e)(1)(ii) did not appear in the Direct Loan NPRM

regulations. Some commenters recommended that the sentence be added to

the Direct Loan final regulations; other commenters recommended that it

be deleted from the FFEL final regulations.

Discussion: The FFEL regulatory provision that is the subject of

this comment states that the Secretary does not reimburse the lender

with respect to any amount disbursed by means of a check bearing an

unauthorized endorsement unless the school also executed the

application or promissory note for that loan for the named borrower

without that individual's consent. In other words, in the FFEL program,

a lender is responsible for the authenticity of the borrower's

endorsement on the lender's check, unless the lender cannot reasonably

be held responsible because the school had earlier forged the

borrower's signature on the loan application or promissory note. In

that event, the lender would have no valid signature on file to compare

with the endorsement on the check. In the Direct Loan Program, the

Secretary is the lender. Thus, it would not be logical for the Direct

Loan Program final regulations to state that the Secretary will not, in

effect, insure himself for losses resulting from this type of

unauthorized endorsement.

Change: None.

Section 682.402(e)(13)(iii)(B)

Comments: Some commenters believed that this paragraph should be

deleted. The commenters reasoned that since a school is not required to

obtain records of a student's mental or physical condition or criminal

record prior to certifying a loan application, the school should not

potentially be liable for ``falsely certifying'' a loan application if

the student was later unable to obtain employment because of those

factors.

Discussion: This paragraph provides essential consumer protection

to borrowers. The Secretary expects that a school will not certify a

loan application for a borrower if it knows that the student has a

mental, physical, or criminal status that would prohibit the student

from obtaining employment in the occupation for which the school's

training was intended. The commenters may be assured that if the school

could not reasonably be expected to be aware of such a disqualifying

status of the student, the Secretary will not consider the school

liable in any respect if the borrower later qualifies for a false

certification loan discharge based on a disqualifying status unknown to

the school.

Change: None.

Section 682.604 Processing the borrower's loan proceeds and counseling

borrowers

Section 682.604(d)(1)(ii)(B)

Comments: Many commenters noted that the proposed regulations

modify the current requirement that the school maintain loan proceeds

at the request of the student in a designated ``trust'' account but

still require that they be maintained in a ``separate'' account. The

commenters noted that this was the case in both the FFEL NPRM and the

Direct Loan NPRM and conflicts with discussion of this provision in the

preamble to the FFEL NPRM. The commenters support the proposal as

described in the preamble and suggest that there is no reason for a

school to maintain a separate account for these funds as long as the

funds are properly accounted for through subsidiary ledgers.

The commenters suggested that if the account must be separate, the

final FFEL regulations should be revised to include the language used

in the preamble of the December 18, 1992 FFEL regulations which stated

that a school was permitted to deposit these funds in an interest-

bearing account and retain any interest earned on the account for

administrative expenses related to administering the account and the

title IV programs.

Discussion: The Secretary understands the issue raised by the

commenters. This issue is being addressed in the cash management

regulation. Therefore, the Secretary is deleting this provision.

Change: Section 682.604(d)(1)(ii)(B) has been removed from the

regulations. The provision regarding this issue is included in the

Department's cash management regulations in 34 CFR 668.164(e) that are

being published simultaneously with this regulation.

Section 682.604(f)(1)

Comments: Many commenters supported the current initial counseling

requirements for first-time borrowers and the technology permitted to

be used to provide the counseling. However, many of these commenters

also believe that FFEL participating schools should be allowed the same

opportunity, based on specified standards of performance, to devise

alternative counseling approaches similar to those proposed in the

Direct Loan NPRM. These commenters stated that schools participating in

either loan program should have the option of not counseling or

performing counseling only with selected groups of borrowers. Some

commenters recommended that the Secretary allow FFEL schools who

participate in the Institutional Quality Assurance Program (IQAP) to

adopt an alternative counseling plan.

Discussion: The Secretary supports the concept of allowing an FFEL

participating school to implement an alternative approach to initial

counseling based on specified performance standards. However, the

Secretary does not believe he has enough data at the current time to

identify either the performance standards or benchmarks to be used to

identify which schools should be permitted to implement alternative

counseling procedures. The Secretary will continue to consider the way

performance standards can be used for alternative counseling, as well

as how alternative counseling might be implemented as part of the IQAP

program.

Change: None.

Section 682.607 Payment of a Refund to a Lender

Section 682.607(c)(1)

Comments: Many commenters objected to reducing the timeframe that a

school has to pay an FFELP refund to the lender from the currently

permissible 60 days to 30 days. They stated that many schools'

financial operations are conducted through either a State's treasury or

a central administrative office, making 30 days an insufficient amount

of time to generate a refund check to the lender.

Discussion: Based on the number of commenters who expressed

concerns that 30 days does not allow most schools enough time to make a

refund to a lender, the Secretary has decided to retain the provision

that allows schools 60 days to make a refund to a lender.

Change: This section has been revised to require a school to make a

refund to the lender within 60 days after the student's withdrawal date

has been determined under 34 CFR 682.22.

Waiver of Proposed Rulemaking

In addition to the changes made to part 682 based on public comment

on the notice of proposed rulemaking, the Secretary has revised the

regulations to include changes made by the Improving America's School

Act of 1994 (Pub. L. 103-382), enacted subsequent to publication of the

notice of proposed rulemaking.

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

opportunity to comment on proposed regulations in accordance with the

Administrative Procedure Act, 5 U.S.C. 553. However, since these

changes merely incorporate statutory changes into the regulations,

public comment could have no effect. Therefore, the Secretary has

determined pursuant to 5 U.S.C. 553(b)(B) that public comment on the

regulations is unnecessary and contrary to the public interest.

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 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.

Assessment of Educational Impact

In the NPRM, the Secretary requested comments on whether the

proposed regulations would require transmission of information that is

being gathered by, or is available from, any other agency or authority

of the United States.

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

the Department has determined that the regulations in this document do

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

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

List of Subjects in 34 CFR Part 682

Administrative practice and procedure, Colleges and universities,

Education, Loan programs--education, Reporting and recordkeeping

requirements, Student aid, Vocational education.

Dated: November 22, 1994.

Richard W. Riley,

Secretary of Education.

(Catalog of Federal Domestic Assistance Number 84.032, Federal

Family Education Loan Program)

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 682.100, paragraph (a)(4) is amended to read as follows:

Sec. 682.100 The Federal Family Education Loan programs.

(a) * * *

(4) The Federal Consolidation Loan Program (Consolidation Loan

Program), which encourages making loans to borrowers for the purpose of

consolidating their repayment obligations, with respect to loans

received while they were students, under the Federal Insured Student

Loan (FISL), Stafford loan, SLS, ALAS (as in effect before October 17,

1986), PLUS, and Perkins Loan programs, the Health Professions Student

Loan (HPSL) Program authorized by subpart II of part A of Title VII of

the Public Health Services Act, Health Education Assistance Loans

(HEAL) authorized by subpart I of Part A of Title VII of the Health

Services Act, and Nursing Student Loan Program loans authorized by

subpart II of part B of title VIII of the Public Health Service Act.

* * * * *

3. Section 682.101, paragraph (c) is revised to read as follows:

Sec. 682.101 Participation in the FFEL programs.

* * * * *

(c) Students who meet certain requirements, including enrollment at

a participating school, may borrow under the Stafford Loan and, prior

to July 1, 1994, the SLS program. Parents of eligible dependent

undergraduate students may borrow under the PLUS Program. Borrowers

with outstanding Stafford, SLS, FISL, Perkins, HPSL, HEAL, ALAS, PLUS,

or Nursing Student Loan Program loans, or married couples each of whom

have eligible loans under these programs may borrow under the

Consolidation Loan Program.

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

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

definition of ``Estimated financial assistance'', by revising

introductory paragraph (1), paragraph (1)(vii), removing (1)(viii) and

revising paragraph (2)(i)(A) to read as follows:

Sec. 682.200 Definitions.

* * * * *

(b) * * *

Estimated financial assistance. (1) The estimated amount of

assistance for a period of enrollment that a student (or a parent on

behalf of a student) will receive from Federal, State, institutional,

or other sources, such as, scholarships, grants, financial need-based

employment, or loans, including but not limited to--* * *

(vii) The estimated amount of other Federal student financial aid,

including but not limited to a Federal Pell Grant, campus-based aid,

and the gross amount (including fees) of a Federal Stafford,

Unsubsidized Stafford and Federal PLUS loan.

* * * * *

(2)(i) * * *

(A) Unsubsidized and nonsubsidized Stafford loan amounts for which

interest benefits are not payable.

* * * * *

5. Section 682.201 is amended by revising paragraph (a)(4)(i),

paragraph (a)(5)(i), paragraph (a)(6), and adding a new paragraph

(b)(8) to read as follows:

Sec. 682.201 Eligible borrowers.

(a) * * *

(4)(i) Reaffirms any FFEL loan amount on which there has been a

total cessation of collection activity, including all principal and

interest that has accrued on that amount up to the date of

reaffirmation.

* * * * *

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

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 canceled in the future on the basis of any

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

substantially deteriorates;

* * * * *

(6) In the case of any student who seeks a loan but does not have a

certificate of graduation from a school providing secondary education

or the recognized equivalent of such a certificate, the student meets

the requirements under 34 CFR Part 668.7(b).

* * * * *

(b) * * *

(8) Obtains an endorser who has been determined not to have an

adverse credit history as provided in paragraph (7)(iii) of this

section.

6. 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.

* * * * *

7. Section 682.210 has been amended by revising paragraph (s)(6) to

read as follows:

Sec. 682.210 Deferment.

* * * * *

(s) * * *

(6) Economic hardship deferment. An eligible borrower is entitled

to an economic hardship deferment for periods of up to one year at a

time that, collectively, do not exceed 3 years, if the borrower

provides documentation satisfactory to the lender showing that the

borrower--

(i) Has been granted an economic hardship deferment under either

the Direct Loan or Federal Perkins Loan Programs for the period of time

for which the borrower has requested an economic hardship deferment for

his or her FFEL loan;

(ii) Is receiving payment under a Federal or State public

assistance program, such as Aid to Families with Dependent Children,

Supplemental Security Income, Food Stamps, or State general public

assistance;

(iii) Is working full-time and earning a total monthly gross income

that does not exceed the greater of--

(A) The minimum wage rate described in section 6 of the Fair Labor

Standards Act of 1938; or

(B) An amount equal to 100 percent of the poverty line for a family

of two, as determined in accordance with section 673(2) of the

Community Service Block Grant Act;

(iv) Is working full-time and has a Federal education debt burden

that equals or exceeds 20 percent of the borrower's total monthly gross

income, and the borrower's income minus such burden is less than 220

percent of the amount calculated under paragraph (s)(6)(iii) of this

section; or

(v) Is not working full-time and has a total monthly gross income

that does not exceed twice the amount calculated under paragraph

(s)(6)(iii) of this section and, after deducting an amount equal to the

borrower's Federal education debt burden, as determined under paragraph

(s)(6)(vi) of this section, the remaining amount of that income does

not exceed the amount specified in paragraph (s)(6)(iii) of this

section.

(vi) In determining a borrower's Federal education debt burden for

purposes of an economic hardship deferment under paragraphs (s)(6)(iv)

through (v) of this section, the lender shall count only the monthly

payment amount (or a proportional share if the payments are due less

frequently than monthly) that would have been owed on a Federal

postsecondary education loan if the loan had been scheduled to be

repaid in 10 years from the date the borrower entered repayment,

regardless of the length of the borrower's actual repayment schedule or

the actual monthly payment amount (if any) that would be owed during

the period that the borrower requested an economic hardship deferment.

The lender shall require the borrower to provide evidence that would

enable the lender to determine the amount of the monthly payments that

would have been owed by the borrower during the deferment period to

other entities for Federal postsecondary education loans in accordance

with paragraph (s)(6)(vi) of this section.

(vii) For an initial period of deferment granted under paragraphs

(s)(6)(iii) through (v) of this section, the lender shall require the

borrower to submit evidence showing the amount of the borrower's most

recent total monthly gross income, as defined in paragraph (s)(6)(ix)

of this section.

(viii) To qualify for a subsequent period of deferment that begins

less than one year after the end of a period of deferment under

paragraphs (s)(6)(iii) through (v) of this section, the lender shall

require the borrower to submit evidence showing the amount of the

borrower's most recent total monthly gross income, as defined in

paragraph (s)(6)(ix) of this section, and a copy of the borrower's

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

eight months prior to the date the deferment is requested.

(ix) For purposes of paragraph (s)(6) of this section, a borrower's

total monthly gross income shall be the gross amount of income received

by the borrower from employment (either full-time or part-time) and

from other sources.

(x) For purposes of paragraph (s)(6) of this section, a borrower is

considered to be working full-time if the borrower is expected to be

employed for at least three consecutive months at 30 hours per week.

8. 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.

* * * * *

9. 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.

* * * * *

10. Section 682.604 is amended by removing and reserving 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.

* * * * *

(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.

* * * * *

11. 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)

12. Section 682.606 is removed and reserved.

13. 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 60 days after the student's withdrawal as determined

under 34 CFR 668.22(i).

* * * * *

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

Appendix A [Removed and Reserved]

[FR Doc. 94-29262 Filed 11-28-94; 8:45 am]

BILLING CODE 4000-01-P