Student Assistance General Provisions, Federal Perkins Loan Program, Federal Work-Study Programs, Federal Supplemental Educational Opportunity Grant Program, Federal Family Education Loan Programs, William D. Ford Federal Direct Loan Program, and Federal Pell Grant Program

[[Page 61796]]

DEPARTMENT OF EDUCATION

34 CFR Parts 668, 674, 675, 676, 682, 685, and 690

RIN 1840-AC20

Student Assistance General Provisions, Federal Perkins Loan

Program, Federal Work-Study Programs, Federal Supplemental Educational

Opportunity Grant Program, Federal Family Education Loan Programs,

William D. Ford Federal Direct Loan Program, and Federal Pell Grant

Program

AGENCY: Department of Education.

ACTION: Final regulations.

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SUMMARY: The Secretary amends the regulations governing the student

financial assistance programs authorized under title IV of the Higher

Education Act of 1965, as amended (title IV, HEA programs). These

programs include the campus-based programs (Federal Perkins Loan,

Federal Work-Study (FWS), and Federal Supplemental Educational

Opportunity Grant (FSEOG) programs), the Federal Family Education Loan

(FFEL) programs, the William D. Ford Federal Direct Loan (Direct Loan)

programs, the Federal Pell Grant Program, and the State Student

Incentive Grant (SSIG) program. These amendments, which eliminate

unnecessary regulations and improve the existing regulations, are part

of a planned series of regulatory reform and relief measures for the

title IV, HEA programs. The Secretary is making these changes in

response to the President's Regulatory Reform Initiative.

The title IV, HEA programs support the National Education Goals by

enhancing opportunities for postsecondary education. The National

Education Goals call for increasing the rate at which students graduate

from high school and pursue high quality postsecondary education, and

for supporting life-long learning.

EFFECTIVE DATE: These regulations take effect on July 1, 1996.

FOR FURTHER INFORMATION CONTACT: Harold McCullough or Rachael

Sternberg, U.S. Department of Education, 600 Independence Avenue SW.,

Regional Office Building 3, Room 3053, Washington, D.C. 20202, (202)

708-7888; or

1. For the Student Assistance General Provisions: Claude Denton,

Student Eligibility and Verification Section, General Provisions Branch

at (202) 708-7888;

2. For the Federal Perkins Loan Program: Sylvia R. Ross, Campus-

Based Loan Programs Section, Loans Branch at (202) 708-8242;

3. For the FWS and FSEOG programs: Kathy S. Gause, Campus-Based

Programs Section, Grants Branch at (202) 708-4690;

4. For the FFEL Programs: Ralph Madden, GSL Programs Section, Loans

Branch at (202) 708-8242;

5. For the Direct Loan Programs: Doug Laine, Direct Loan Policy

Group at (202) 708-9406; and

6. For the Federal Pell Grant Program: Mike Oliver, Pell and State

Grant Section, Grants Branch at (202) 708-4607. 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: On March 4, 1995, the President directed

every Federal agency to review its rules and procedures to reduce

regulatory and paperwork burden, and directed Federal agencies to

eliminate or revise those regulations that are outdated or otherwise in

need of reform. Responding to the President's Regulatory Reform

Initiative, the Secretary announced plans to eliminate or revise 93

percent of the Department's regulations. To launch the Department's

reinvention effort, the Secretary published a notice in the May 23,

1995 Federal Register (60 FR 27223-27226) eliminating more than 30

percent of the Department's regulations, primarily in areas not related

to student financial assistance.

The Secretary is conducting a page-by-page review of all student

financial assistance regulations to identify those that should be

eliminated or improved. The Secretary is also considering developing

proposals for statutory amendments to eliminate unnecessary

administrative burden.

As part of his response to the President's regulatory reinvention

initiative, on September 21, 1995 the Secretary published a Notice of

Proposed Rulemaking (NPRM) for parts 668, 674, 675, 676, 682, 685, and

690 in the Federal Register (60 FR 49114). The NPRM included a

discussion of the proposed changes that will not be repeated here. The

following list summarizes those changes and identifies the pages of the

preamble to the NPRM on which the discussion can be found.

Part 668--Student Assistance General Provisions

Subpart A--General

The Secretary proposed to remove and reserve Sec. 668.7 ``Student

Eligibility,'' and move the ``eligible student'' provisions to a

revised subpart C of 34 CFR 668 (page 49114).

Subpart B--Standards for Participation in Title IV, HEA Programs

The Secretary proposed to allow institutions to obtain information

from the National Student Loan Data System (NSLDS) that would otherwise

be found on a financial aid transcript, once the Secretary publishes a

notice in the Federal Register informing institutions that the NSLDS

can be used to satisfy this purpose (pages 49114-49115).

Subpart C--Student Eligibility

The Secretary proposed to expand the data match with the Social

Security Administration (SSA), starting in the 1996-97 award year, in

order to confirm claims of U.S. citizenship by applicants for title IV,

HEA program assistance on the Free Application for Federal Student Aid

(FAFSA) (page 49115).

The Secretary proposed to allow students to satisfy the requirement

of filing a Statement of Educational Purpose with the institution by

completing the FAFSA, which will include this statement starting with

the 1996-97 award year.The Secretary's proposal did not affect current

FFEL requirements with regard to this statement on loan applications

(page 49115).

The Secretary proposed to eliminate the model Statement of

Educational Purpose. A model statement would be duplicative because the

statement will appear on the FAFSA (page 49115). The Secretary proposed

to eliminate the Statement of Registration Status. A male student's

Selective Service registration status is now confirmed through a data

match with the Selective Service System. This data match eliminates the

need for the collection of a separate statement (page 49115).

The Secretary proposed to amend and reorganize the provisions under

which a student who owes a debt under the HEA or to the United States

may nevertheless be eligible to receive title IV, HEA program

assistance. The Secretary also proposed to conform the regulations to

existing statutory requirements pertaining to bankruptcy (pages 49115-

49116).

[[Page 61797]]

Subpart I--Immigration Status Confirmation

The Secretary proposed to amend Sec. 668.133(b) to remove the

requirements for requesting secondary confirmation from the Immigration

and Naturalization Service for a student if (1) the student presents

documents to his or her institution verifying his or her immigration

status that are identical to documents presented to that institution in

a previous year, (2) that institution determined the student to be an

eligible noncitizen using secondary confirmation of those same

documents in a previous award year, and (3) the institution does not

have conflicting information or reason to doubt the student's claim of

eligible noncitizen status (page 49116).

Subpart K--Cash Management

The Secretary proposed to amend Sec. 668.164(a)(2) to eliminate the

UCC-1 filing requirement for institutions that (1) disclose clearly in

the name of the account in which Federal funds are deposited that

Federal funds are maintained in that account, or (2) are backed by the

full faith and credit of a State (page 49116).

The Secretary proposed to modify Sec. 668.165(b)(1) to provide an

institution with as much flexibility as possible with respect to how it

notifies a student or parent borrower that FFEL or Direct Loan program

funds have been credited to the student's account. That flexibility

allows an institution to provide notification electronically or through

the use of telecommunication devices (page 49116).

The Secretary proposed to amend Sec. 668.165(b)(1) and (3) to

provide that under certain circumstances, and with the student's

permission, an institution may use current year title IV, HEA program

funds to pay for minor charges from a prior year (pages 49116-49117).

Parts 674, 675, and 676--Campus-Based Programs

The Secretary proposed to eliminate the duplicative definitions of

``full-time graduate or professional student'' and ``full-time

undergraduate student from Secs. 674.2(b), 675.2(b), and 676.2(b), as

applicable, and instead incorporate the definition of ``full-time

student'' set forth in Sec. 668.2(b) for all three of the campus-based

programs (page 49117).

The Secretary proposed to eliminate the provisions of

Secs. 674.17(a), 675.17, and 676.17 which provide that title IV, HEA

program funds are held in trust for the Secretary and intended student

beneficiaries and cannot be used or hypothecated for any other purpose,

because these very provisions are included in Sec. 668.161(b) of the

Student Assistance General Provisions regulations (page 49117).

The Secretary proposed to amend Secs. 674.19(e)(4)(v),

675.19(c)(3), and 676.19(c)(3) to allow institutions the additional

flexibility of using optical disk technology in complying with record

retention requirements (page 49117).

Part 674--Federal Perkins Loan Program

The Secretary proposed to amend the definition of ``making of a

loan'' under Sec. 674.2(b) by removing the reference to a borrower

signing for each advance of funds (page 49117).

The Secretary proposed to eliminate the requirement under

Sec. 674.16 that a student sign for each loan advance, and require

instead that the institution simply must obtain the borrower's

signature on a promissory note for each award year before it disburses

any loan funds under that promissory note for that award year (page

49117).

The Secretary proposed to amend Sec. 674.31(a) to indicate that the

Secretary will provide sample promissory notes to institutions, and

that institutions may add items to the sample notes so long as the new

items do not alter the substance of these sample notes (page 49117).

The Secretary proposed to amend Sec. 674.33(a)(2) by allowing

institutions to combine the last scheduled Federal Perkins loan payment

with the next-to-the-last payment if the last payment is $25 or less

(page 49117).

The Secretary proposed to amend Sec. 674.47(g) to allow an

institution to cease collection activity on a defaulted account with a

balance of less than $25, while continuing to require the institution

to consider the loan as in default for purposes of calculating its

cohort default rate. The Secretary further proposed to amend

Sec. 674.47 by adding a new paragraph (h) to allow institutions to

cease collection activity and write off loan accounts with a balance of

less than $1, including outstanding principal, accrued interest,

collection costs, and late fees (pages 49117-49118).

Part 675--Federal Work-Study Programs

Appendix B--Model Off-Campus Agreement

The Secretary proposed to eliminate this sample agreement as an

appendix to the FWS regulations. The Secretary will include a model

off-campus agreement in the Federal Student Financial Aid Handbook

(page 49118).

Parts 682 and 685--Federal Family Education Loan Program and Direct

Loan Program

The Secretary proposed to expand the pool of borrowers under

Secs. 682.201 and 685.200 of the Federal PLUS and Federal Direct PLUS

programs, respectively, to include the spouse of a student's parent if

that parent remarried (page 47118).

The Secretary proposed to eliminate Sec. 682.600 (a) through (c)

because they duplicate provisions in 34 CFR part 600 or 668. The

provisions of Sec. 682.600(d) that deal with foreign schools, however,

are necessary and the Secretary proposed to include those provisions in

a new section, Sec. 682.611 (page 49118).

The Secretary proposed to eliminate the provisions contained in

Sec. 682.602 that deal with students enrolled in correspondence

programs, because those students are not eligible to receive FFEL

program funds unless they are enrolled in a program that leads to an

associate, bachelor's, or graduate degree (page 49118).

Part 690--Federal Pell Grant Program

Subpart A--Scope, Purpose and General Definitions

The Secretary proposed to revise Sec. 690.7 by deleting paragraph

(a)(1) because the provisions contained in that paragraph duplicate

provisions in 34 CFR part 600 or 668 (page 49118).

Subpart G--Administration of Grants Payments

The Secretary proposed to eliminate the last sentence in

Secs. 690.71, 690.72, 690.73, and 690.74, respectively, because they

duplicate provisions contained in 34 CFR part 668 (page 49118).

The Secretary proposed to revise Sec. 690.83 by consolidating in

one paragraph the procedures that allow institutions to receive payment

or credit for Federal Pell Grants they previously disbursed if that

situation is disclosed by an initial audit or program review (page

49118).

Substantive Changes to the NPRM

The following discussion reflects substantive changes made to the

NPRM in the final regulations. The provisions are discussed in the

order in which they appear in the proposed rules.

Student Assistance General Provisions

Subpart C--Student Eligibility

The proposed subpart C is further reorganized to clarify the

difference between what the general provisions for student eligibility

are, and how each of

[[Page 61798]]

those elements of student eligibility are established.

Subpart I--Immigration-Status Confirmation

Section 668.133 Conditions Under Which an Institution Shall Require

Documentation and Request Secondary Confirmation

Currently, in the absence of a data match with the Immigration and

Naturalization Service (INS) confirming a student as an eligible

noncitizen, institutions are required to use the secondary confirmation

process to determine if a student is an eligible noncitizen in

accordance with section 484(a)(5) of the HEA. Secondary confirmation

requires institutions to mail requests for immigration status

information to the INS and to use INS responses (also by mail) in

determining the student's noncitizen eligibility. This determination

has been required for each award year that the student applies for

title IV, HEA assistance. The NPRM proposed to delete secondary

confirmation requirements, in most cases, if the student produces

immigration status documents that are identical to documents received

by the institution in a previous award year. In response to comments

received, this section is further revised to eliminate the need for the

student to produce immigration status documents in subsequent award

years if the documents previously submitted by the student remain

valid.

Subpart K--Cash Management

Section 668.163 Requesting Funds

The Secretary amends this section to require that for any request

for cash, an institution must identify the title IV, HEA program under

which it requests funds by its Catalog of Federal Domestic Assistance

(CFDA) number and the total amount of funds for each CFDA number

included in that request.

Section 668.164 Maintaining Funds

In response to public comment, this section is revised to exclude

all public institutions from the UCC-1 filing requirement.

Section 668.165 Disbursing Funds

In response to public comment, this section is revised to clarify

that if an institution provides an electronic notice to a student or

parent that title IV, HEA loan program funds were credited to the

student's account, it must request confirmation from the student or

parent of the receipt of that notice and maintain a record of that

confirmation. In addition, this section is revised to provide that an

institution may consider prior-year charges that do not exceed $100 to

be minor charges.

Federal Perkins Loan Program

Section 674.5 Definitions

The definition of ``satisfactory arrangements to repay the loan''

for purposes of the Federal Perkins Loan Program will be amended to

include those loans that are ``paid in full.'' This change allows an

institution to exclude a defaulted loan that has been paid in full from

the institution's cohort default rate.

Section 674.31 Promissory Note

The proposal to provide ``sample'' Federal Perkins loan promissory

notes to participating institutions has been removed. A national

promissory note will be maintained for the Federal Perkins Loan

Program. Institutions may make only nonsubstantive changes to these

notes.

Section 674.47 Costs Chargeable to the Fund

The September 21, 1995 NPRM offered a proposal to allow an

institution to cease collection activity on a defaulted account with a

balance of less than $25. In an effort to reduce administrative burden

on institutions that are handling defaulted accounts with balances

larger than $25, the cessation of collection activity provision has

been modified. Institutions will be allowed to cease collection

activity on a defaulted account with a balance of less than $200, if

all due diligence has been performed in attempting to collect the

defaulted account and there has not been any activity on the account

for at least four years.

Analysis of Comments and Changes

In response to the Secretary's invitation in the NPRM, 74 parties

submitted comments on the proposed reform and relief regulations. An

analysis of the comments and of the changes in the regulations since

publication of the NPRM follows. Major issues are discussed under the

section of the regulations to which they pertain. Technical and other

minor changes--and suggested changes the Secretary is not legally

authorized to make under applicable statutory authority--are not

addressed.

Comments and Responses

Regulatory Reform and Relief Effort

Comments: Numerous commenters indicated support for the Secretary's

efforts to eliminate unnecessary regulations and to improve the

existing regulations. However, some commenters stated that more needs

to be done to streamline the regulations for the title IV, HEA

programs.

Discussion: The Secretary is encouraged by the expression of

support from the public for the reform and relief regulation activities

that are part of the Department's reinvention effort. The Secretary

realizes that additional amendments to the regulations for the title

IV, HEA programs are possible. The amendments in this regulatory

package represent only one part of a planned series of regulatory

reform and relief amendments for the student financial assistance

regulations. The Secretary restates his plans to propose additional

reform and relief regulatory changes for the title IV, HEA programs in

the upcoming months.

Changes: None.

Part 668--Student Assistance General Provisions

Subpart B--Standards for Participation in Title IV, HEA Programs

Section 668.19 Financial Aid Transcript

Comments: Most commenters supported the Secretary's proposal to

allow use of the National Student Loan Data System (NSLDS) in lieu of

the financial aid transcript when the NSLDS becomes operational. A few

commenters were concerned about the accuracy of the NSLDS and urged the

Secretary to fully test the system before requiring its use and

suggested the National Student Loan Clearinghouse as an acceptable

alternative while the testing takes place. One commenter requested

sufficient notice before the NSLDS is placed into operation to allow

institutions with limited computer resources to obtain the necessary

equipment and expertise. One commenter questioned the frequency with

which the Secretary would require institutions to access the NSLDS, and

expressed concern that NSLDS inquiries would be required at the time of

each disbursement. Several commenters suggested that the terms ``loan

period or period of enrollment for which the loan is made'' be used in

lieu of ``award year'' as it pertains to FFEL and Direct Loans because

annual loan limits are not based on award years. They also suggested

that annual loan limits could be affected by loans made in the

preceding award year, and that the financial aid transcripts should

include this information. One commenter was concerned about obtaining

information from institutions that are unable to use, or fail to meet

requirements for providing information to, the NSLDS. One commenter

asked whether an

[[Page 61799]]

institution could assume, if the NSLDS contains no financial data on a

particular student, that the student did not receive aid from any

previously-attended institution, or if no data appears for a given

institution, that the student did not receive aid from that particular

institution. One commenter inquired as to whether the NSLDS will

provide data regarding the student's receipt of title IV, HEA

assistance at a closed institution, and whether the NSLDS will provide

notice that the institution is closed. One commenter expressed concern

that institutions would not be able to ascertain from the NSLDS that a

student transferred during the current award year. One commenter

questioned why paragraph (a)(3) continues to address the withholding or

limited disbursement of title IV, HEA assistance pending receipt of

financial aid transcripts, but does not address those issues for the

NSLDS, and whether the Secretary intends to provide for limited

disbursements in the event the NSLDS becomes temporarily inoperative.

The same commenter suggested that the Secretary provide regulatory

instructions with regard to how the institution should proceed when

NSLDS data conflicts with other information available to the

institution.

Discussion: With regard to the concerns expressed about the

accuracy of NSLDS data, the Secretary notes that the NSLDS underwent

extensive testing of its executable programs and support functions and

successfully passed those initial test reviews prior to becoming

operational in November, 1994. The National Student Loan Clearinghouse

would not be an acceptable alternative because it serves only a few of

the institutions currently participating in title IV, HEA programs, and

because it contains information pertaining to students who are not

title IV, HEA recipients in addition to those who are. The

Clearinghouse also does not include any financial aid history

information but only enrollment data.

With regard to the concern about limited computing resources at

some institutions, the Secretary specifically designed the NSLDS to

require minimal computer equipment. The NSLDS can be accessed using a

personal computer with 486 megahertz of processing power, eight

megabytes of random access memory, and 50 megabytes of hard disk

storage space. In addition, the NSLDS will be available as an

alternative to, not as a replacement for, the paper financial aid

transcript, so that institutions with insufficient computer equipment

can continue to use the paper financial aid transcript. An institution

receiving a paper financial aid transcript request will continue to be

required to complete and return it to the requesting institution, in

accordance with 34 CFR 668.19.

With regard to the comment concerning required frequency of access,

the Secretary has taken steps to include NSLDS financial aid history

information in the Student Aid Report/Institutional Student Information

Record (SAR/ISIR). The SAR/ISIR will, at a minimum, inform the

institution as to whether the student previously received title IV, HEA

financial aid. If there is no financial aid history, the institution

will not be required to obtain a financial aid transcript or access the

NSLDS since it can be assumed that the student either did not attend

another school or attended but did not receive any title IV aid. With

regard to the comments that suggested that the proposed financial aid

transcript does not provide the necessary information on FFEL loan

history to compute annual loan limits, the Secretary agrees with these

commenters' concerns and will reinstate provisions requiring inclusion

of ``period of enrollment'' or ``loan period'' and loans made in

preceding award years under the FFEL as well as the Direct Loan

programs. With regard to the concern about institutions who are unable

to use, or fail to meet requirements for providing information to, the

NSLDS, the Secretary assures the commenter that complete guidance to

institutions will be provided in using the NSLDS, and that compliance

with regular reporting requirements will be monitored and enforced.

With regard to closed institutions, the NSLDS contains the cumulative

loan history of title IV, HEA aid recipients, including aid awarded at

institutions that are closed at the time of inquiry. The NSLDS will

not, however, provide specific notification that any particular

institution has closed. With regard to the concern about whether

institutions will be able to determine from the NSLDS that a student

has transferred during the current award year, the Secretary assures

the commenter that the NSLDS will receive information on current year

awards from guaranty agencies, the Direct Loan servicers, and from

institutions. However, the Secretary notes that the flexible reporting

requirements of data providers does present a problem with so called

``mid-year transfers'' and is committed to keeping any burden related

to the accessing of financial aid history for such students to a

minimum. With regard to the applicability of the withholding and

limited disbursement provisions to the NSLDS, the Secretary believes

that the provisions of Sec. 668.19 are applicable only to the paper

financial aid transcript process. If the NSLDS becomes temporarily

inoperative, the paper financial aid transcript process could be used

and these provisions would apply. However, the Secretary believes that

any such ``downtime'' of the NSLDS would be brief and encourages

institutions to re-query the NSLDS as soon as it is available. If NSLDS

data conflicts with other information available to the institution, the

conflict must be resolved before any title IV, HEA disbursement can be

made.

Changes: Paragraph (c) is revised to provide that a financial aid

transcript must include the loan period covered by each loan made under

the FFEL and Direct Loan programs, and the loan history must also

include information concerning loans made in preceding award years.

Paragraph (a)(2)(ii) is revised to clarify that in a Federal Register

Notice, the Secretary will inform institutions both when, and under

what conditions, the NSLDS may be used.

Subpart C--Student Eligibility

Comments: Many commenters expressed support for the proposal to

move the student eligibility regulations to subpart C.

Discussion: The Secretary appreciates the favorable comments

received regarding the reorganization of the student eligibility

provisions. After further examination, the Secretary believes that

additional refinements are warranted to minimize any confusion that may

be caused by the proposed organization. In particular, the Secretary

believes that the basic requirements for establishing a student's

eligibility for title IV, HEA assistance (formerly Sec. 668.7(a))

should be clearly separated from requirements placed on institutions

(formerly Sec. 668.7(b)) for assessing the student's compliance with

these requirements.

Changes: The Secretary has made technical revisions that establish

a general student eligibility section, followed by sections addressing,

in detail, how each of the elements of student eligibility are

established.

Section 668.32 Student Eligibility--General (Section 668.33 in NPRM)

Compulsory School Attendance

Comments: Several commenters noted that the Secretary has removed

provisions requiring students to be above the age of compulsory school

attendance to be eligible for title IV, HEA assistance. One commenter

[[Page 61800]]

questioned the wisdom of allowing very young students to borrow these

funds. Another commenter expressed concern that the removal of these

provisions would increase the potential of abuse in the use of title

IV, HEA funds.

Discussion: In proposing this deletion of regulatory language, the

Secretary had no intention of removing the policy regarding compulsory

school attendance. Since the definitions of ``institution of higher

education'' in Sec. 600.4 and ``proprietary institution of higher

education'' in Sec. 600.5 include provisions containing this

requirement, the Secretary believes there is no reason to duplicate the

requirement in the student eligibility regulations.

Changes: None.

Statement of Educational Purpose

Comments: Most commenters supported the Secretary's proposal to

provide a Statement of Educational Purpose on the Free Application for

Student Aid (FAFSA) that satisfies Sec. 668.33(e) requirements for

filing the Statement of Educational Purpose. One commenter suggested

that the regulations specifically authorize use of the FAFSA in this

manner.

Discussion: The Secretary prefers to use non-specific regulatory

language to minimize the potential of redrafting regulations each time

the application delivery system changes.

Changes: None.

Section 668.33 Citizenship/Residency Requirements U.S. Citizenship

Match

Comments: Several commenters expressed support for the proposed

enhancement of the existing social security match to include matching

on U.S. citizenship data. They predicted that this enhancement would

improve the integrity of the title IV, HEA application process by

making it more difficult to avoid checking eligibility status with the

INS. Other commenters, however, expressed concern that the proposed

enhancement represents an additional unjustified burden caused by the

need to collect evidence of U.S. citizenship. These commenters

suggested that the Secretary should provide data to support the claim

that misreporting of U.S. citizenship is a significant problem. If

misreporting exists, one commenter questioned whether detection of a

few such cases justifies the additional burden that would be imposed on

the many applicants who complete this item truthfully. Another

commenter questioned the accuracy of the Social Security Administration

(SSA) data to be used for this matching program in light of information

received by the commenter that citizenship data has only been collected

by SSA since the early 1980's. Several commenters expressed concern

that a student's U.S. citizenship status that was not confirmed would

also prevent or delay that student from receiving confirmation of the

accuracy of the student's social security number, or that such

interference could also occur in reverse order.

Discussion: The Secretary disagrees with the comments portraying

the U.S. citizenship match as an unjustified burden. On September 9,

1994, the Department's Office of Inspector General issued an audit

report indicating that, during the 1992-1993 award year, 45,000 Federal

Pell Grant awards were made to students claiming U.S. citizenship on

their applications for federal student assistance who were not

confirmed as U.S. citizens by the Social Security Administration (SSA).

Since SSA records do not contain alien registration numbers, it is

virtually impossible to track the status of these 45,000 individuals to

determine whether they were naturalized citizens or eligible

noncitizens at the time they applied. However, if even only 10% of the

45,000 applications were completed by ineligible aliens, the savings

more than offset the expense of matching, and will provide additional

grant funds for eligible students. The Secretary disagrees with the

commenters who are concerned about additional burden being placed on

students who will be required to provide evidence of U.S. citizenship.

The vast majority of students will be confirmed by SSA as U.S.

citizens, and no further action will be required. Many noncitizens who

falsely claim U.S. citizenship will provide alien registration numbers,

and their applications will be processed using the INS data match in

the same manner as other noncitizen applications. Undocumented illegal

aliens will tend to drop out of the application process without burden

to the institution. For the most part, the Secretary believes that only

naturalized citizens who have not kept their records updated with SSA

are likely to be affected by this new requirement. With regard to the

commenter's concern that SSA has only collected citizenship data since

the early 1980's, the Secretary confirms this fact. However, SSA has

collected ``place of birth'' data for many years, and the match will

access both ``place of birth'' and ``citizenship'' data elements before

issuing match results. With regard to concerns about delays and other

impacts of U.S. citizenship matching on social security number

matching, the Secretary wishes to assure the commenter that there will

be no impact of one match on the other. Social security numbers and

U.S. citizenship status are generated from separate data fields within

the SSA data base, and will generate separate messages.

Changes: None.

Section 668.35 Student Debts Under the HEA and to the U.S. (Section

668.34 in NPRM)

Comments: One commenter suggested that the Secretary reverse the

order of proposed paragraphs (b)(2)(i) and (b)(2)(ii) to prevent the

possibility of a student making six consecutive monthly payments on a

defaulted loan before approaching a lender to make satisfactory

repayment arrangements. Another commenter noted that the definition of

``satisfactory repayment arrangement'' in Sec. 682.200 already provides

for six consecutive monthly payments, and that the language proposed in

paragraph (b)(2) could be interpreted as requiring twelve consecutive

monthly payments. One commenter suggested that proposed paragraph

(d)(1)(ii) be revised to include the phrase ``satisfactory to the

holder'' instead of ``satisfactory to the institution,'' which the

commenter believes is inappropriate for the FFEL and Direct Loan

programs. Several commenters urged the Secretary to reinstate

references in proposed paragraph (d)(2) to the specific title IV, HEA

programs for which overpayments are applicable, asserting that such a

correction would alleviate confusion concerning the relevance of

overpayments to the FFEL and William D. Ford Federal Direct Loan

programs.

Discussion: The Secretary agrees with the commenters' concerns with

regard to the order of proposed paragraphs (b)(2)(i) and (b)(2)(ii).

Although the phrase ``makes arrangements, satisfactory to the holder''

used in this paragraph is not identical to the phrases used in the

individual title IV, HEA loan programs, the Secretary emphasizes that

those specific provisions that govern how a defaulted borrower can

regain eligibility are found in the individual title IV, HEA loan

program regulations. The Secretary also agrees with the comment

suggesting that proposed paragraph (d)(1)(ii) be revised to require a

student who has received a grant or loan overpayment to make

arrangements, satisfactory to the holder of the overpayment debt, to

pay the overpayment. With regard to the comment requesting

reinstatement in proposed paragraph (d)(2) of the specific programs for

which overpayments are applicable, the Secretary agrees and has

[[Page 61801]]

included specific references to the Federal Perkins Loan Program to

eliminate any confusion.

Changes: The Secretary reverses the order of proposed paragraphs

(b)(2)(i) and (b)(2)(ii) and revises proposed paragraph (b)(2)(i) to

clarify that the six consecutive monthly payments are to be

incorporated as part of satisfactory arrangements to repay the loan

balance, and that those arrangements are to be made in accordance with

the individual title IV, HEA loan program. Proposed paragraph

(d)(1)(ii) is revised to clarify that a student who receives a grant or

Federal Perkins loan overpayment is to make arrangements, satisfactory

to the holder of the overpayment debt, to repay the overpayment.

Section 668.36 Social Security Number Verification (Section 668.33

NPRM)

Comments: One commenter supported the change to proposed

Sec. 668.33(d)(3)(iii) which clarifies that the student bears primary

responsibility for reporting corrected social security numbers to the

Secretary. In addition, the commenter also expressed support for the

change to proposed Sec. 668.33(d)(4), which relaxes the prohibition

from disbursing or certifying aid if the student fails to meet the

institution's deadline for submission of a correct social security

number. The commenter suggested that the Secretary provide similar

``waiver'' authority to institutions in regulations governing the other

data matches.

Discussion: As explained in the discussion regarding the selective

service match, the Secretary is amending regulatory sections governing

data matches to consistently implement provisions of the Computer

Matching and Privacy Protection Act of 1988. In particular, the revised

provisions will clarify the Secretary's policy with respect to the 30-

day due process standard and the setting of deadlines by institutions

for students submitting documents in order to contest match results.

Changes: Proposed paragraph (b)(2) is revised to provide that the

institution must give a student at least 30 days from the date the

institution is notified of the results of the data match, or until the

end of the award year, whichever is later, to produce evidence of an

accurate social security number.

Section 668.37 Selective Service Registration (Sections 668.33(b) and

668.36 in NPRM)

Statement of Registration Status

Comments: One commenter requested a clarification concerning

whether the Statement of Registration Status may be necessary if the

Selective Service data match does not confirm the student's status, or

if some other statement is required. Two commenters suggested that

proposed Sec. 668.33(b)(1) be corrected to remove the unintended

requirement that a student must provide evidence of exemption from the

selective service registration requirement when the student's output

document already confirms the student's exemption status. Another

commenter requested that the model Statement of Registration Status be

retained as an efficient way of collecting information concerning a

student's exemption from selective service registration.

Discussion: The Secretary envisions no circumstances in which the

Statement of Registration Status would continue to be required. If the

student's claim to have registered with Selective Service is not

confirmed by the Selective Service data match, the student bears

responsibility for submitting evidence to the institution that he

registered, or is exempt from registration. The institution may consult

the Federal Student Financial Aid Handbook to determine if this

evidence is valid, or it may require the student to obtain a Status

Information Letter from Selective Service to further clarify the

student's status. Instructions for interpreting Status Information

Letters are also available in the Handbook. Given the thorough

procedures in place for verifying evidence of registration or

exemption, the Secretary does not wish to retain vestiges of an earlier

system based primarily on self-certification, and would prefer to

completely eliminate the Statement of Registration Status. The

Secretary finds little validity to the commenter's concern that the

regulations would require students, confirmed as exempt from

registration requirements by the data match, to nevertheless provide

evidence of exemption. The data match is designed to automatically

screen out certain applicants who are clearly exempt from these

requirements. An output document containing a message attesting to the

applicant's exemption is quite sufficient to establish that ``the

student is not, or was not required to be, registered with Selective

Service,'' as provided in proposed Sec. 668.33(b)(2)(i).

Changes: None.

Selective Service Data Match

Comments: One commenter noted that the Secretary has changed

proposed paragraph (b)(2) with regard to the time period for providing

documentation of Selective Service registration status. As currently

worded, the student has 30 days from the date the institution is

notified of the results of the data match or the end of the award year,

whichever is later, to provide such documentation. The commenter noted

that this language differs from Sec. 668.33(b)(2), which does not

provide the ``end of the award year'' option.

Discussion: In practice, the ``end of the award year'' option is

not new. The institution can set its deadline for receiving

documentation of Selective Service registration status on any date, as

long as it allows the student the statutorily-required minimum of 30

days to produce the documents. By rephrasing the requirement in this

manner, the Secretary is clarifying that institutions need not impose

arbitrary deadlines that prevent the student from establishing

eligibility later in the award year and receiving title IV, HEA

assistance for that award year, if the institution's overall policy

would not normally set such deadlines for all students. The Secretary

is aware that the phrasing of this requirement is inconsistent among

the various regulatory provisions governing the data matches, and will

revise all applicable sections to resolve this inconsistency.

Changes: The Secretary is revising sections that govern data

matches to include the requirement that the student must provide

evidence of his or her eligibility, within 30 days from the date the

institution is notified of the results of the data match, or until the

end of the award year, whichever is later.

Subpart I--Immigration Status Confirmation

Section 668.133 Conditions Under Which an Institution Shall Require

Documentation and Request Secondary Confirmation

Comments: Many commenters supported the Secretary's proposal to

limit secondary confirmation requirements. Many also suggested that the

Secretary should take the additional step of waiving collection of

immigration status documents if the documents collected in a previous

award year remain valid.

Discussion: The Secretary agrees with commenters who questioned the

need for students to present immigration status documents in subsequent

award years if they had been confirmed as eligible noncitizens in a

previous award year. The Secretary cautions institutions, however, that

some eligible noncitizen statuses are subject to expiration and that

institutions should consult the student's file from that previous award

year to determine if the

[[Page 61802]]

student's immigration status remains valid.

Changes: Section 668.133(b) is revised to delete the provision

requiring a student to present evidence of immigration status in years

subsequent to an award year in which secondary confirmation with INS

was used to confirm the student's eligible noncitizen status.

Subpart K--Cash Management

Section 668.163 Requesting Funds

Comments: None. Proposed rulemaking waived under 5 U.S.C. 553

(b)(A).

Discussion: The Secretary amends Sec. 668.163, which describes the

procedures under which institutions request and receive title IV, HEA

program funds The amendment requires an institution to include in any

request for cash (1) the Catalog of Federal Domestic Assistance (CFDA)

number identifying the source of program funds, and (2) the amount of

funds for each CFDA number included in that request. Under current

practice, an institution reports its expenditure of title IV, HEA

funds, by program, on a quarterly basis. However, to monitor the

expenditure of Federal appropriations, the Department of the Treasury

and the Office of Management and Budget require the Department of

Education to report on a monthly basis the amount and source of program

funds provided to participating institutions. Obviously, the Secretary

cannot provide to Treasury and OMB an accurate and timely report of the

Department's use of appropriated funds, unless institutions identify

the title IV, HEA funds by program and amount when those funds are

requested.

The Secretary will use the information provided by this new report

format not only to give more timely reports of amounts provided to

institutions, but will consider whether this information can be used to

reduce the number of expenditure reports institutions would otherwise

be required to make. Moreover, this minor procedural change poses

almost no additional burden on institutions.

In accordance with this subpart and the procedures contained in the

Recipients Guide for the Department of Education Payment Management

System, under the advance payment method, an institution must first

determine its immediate disbursement needs before submitting a request

for cash; under the reimbursement payment method, an institution

requests funds for specific students whom the institution demonstrates

to the satisfaction of the Secretary are eligible to receive the

requested amount of program funds. In either case, the institution will

know both the program for which it seeks funds and the amount needed to

make disbursements to students. This change merely requires the

institution to disclose that information on a standardized form.

Changes: Section 668.163(a)(2) and (3) are amended to require that

in any request for cash, an institution must identify the title IV, HEA

program under which the institution requests funds by its appropriate

Catalog of Federal Domestic Assistance (CFDA) number and the total

amount of program funds for each CFDA number included in the request.

Section 668.164 Maintaining Funds

Comments Regarding UCC-1 Filings

Comments: Most of the commenters agreed with the proposal to

eliminate the UCC-1 filing requirement for institutions that are backed

by the full faith and credit of a State, and for bank accounts that do

not contain the phrase ``Federal funds'' in their name.

One commenter writing on behalf of business officers opined that

the term ``backed by the full faith and credit of the State'' is a poor

designator of institutional control, estimating that about one-half of

all public institutions would not meet this requirement due to the

diversity of governing arrangements for State-supported institutions.

According to the commenter, these State-supported institutions pose no

greater risk to Federal funds than other public institutions that

technically satisfy the proposed requirement. One other commenter

echoed these sentiments, adding that a UCC-1 filing is not appropriate

for government agencies. Another commenter expressed concern that many

State auditors and offices of general counsel are interpreting the

phrase ``backed by the full faith and credit of the State'' quite

literally and concluding that it does not apply to State schools. All

of these commenters recommend that the Secretary modify the proposed

requirement to exempt all public institutions from having to file UCC-1

statements.

One commenter writing on behalf of business officers stated that a

UCC-1 filing is unnecessary for any institution because institutions

are otherwise required to provide written notification to their bank of

the accounts that contain Federal funds.

Discussion: The commenters have convinced the Secretary that for

the purpose of protecting Federal funds, a UCC-1 filing is not

necessary for public institutions, regardless of whether these

institutions are backed by the full faith and credit of the State.

The Secretary disagrees with the commenter that written

notification to the bank in which the account is maintained provides

sufficient protection of Federal funds. The abuse cited by the

Secretary in the final regulations for the cash management regulations

(see, 59 FR 61724), that certain institutions have used or

misrepresented Federal funds to obtain a loan or secure credit, may

continue to occur where an institution seeks to obtain a loan or credit

from a bank other than the bank to which it provided written

notification. It is this situation where a UCC-1 filing provides an

additional safeguard because it serves to alert other banks or

potential creditors that the institution's account contains Federal

funds.

Changes: Section 668.164(a)(2) is revised to exempt all public

institutions from filing a UCC-1 statement.

Section 668.165 Disbursing Funds

Comments Regarding Electronic Notification of Student and Parent

Borrowers

Comments: Most commenters supported the proposal under which an

institution could notify a student or parent borrower that his or her

account was credited with Direct Loan or FFEL Program funds

electronically or through the use of telecommunications devices. Two

commenters contended that the ``return receipt'' requirement for

documenting notifications transmitted via electronic mail (e-mail), as

discussed in the preamble to the proposed rules, departs from and

exceeds the documentation requirements for written notifications

delivered by regular mail. The commenters saw no reason why a return

receipt should be required for e-mail transmissions when no

corresponding proof of delivery is required for notifications sent by

regular mail.

For the following reasons, one commenter writing on behalf of a

student legal services organization strongly urged the Secretary to

delete the proposed electronic notification provisions. First, the

commenter contended that electronic notification would allow schools

short on time or resources to cut corners on notice to students,

thereby diminishing a borrower's rights. At worst, it would open the

door to abuse by unscrupulous schools or individuals who want to

minimize borrower knowledge about his or her control over loan funds.

Given the increasing use of electronic funds

[[Page 61803]]

transfers (EFT), the commenter contended that students have lost their

key means of control over loan proceeds, i.e., their power to refuse to

endorse the loan check. Amplifying this point, the commenter asserted

that when the EFT process is used, timely, clear notice that the loan

proceeds have been credited to the student's account is the equivalent

of requesting a check endorsement--it triggers the student's ability to

refuse the loan in whole or part. Thus, the commenter concluded that

adequate, verifiable notice of receipt of loan proceeds has serious

legal and financial implications for borrowers. Moreover, the commenter

implied that adequate and verifiable notice is notably absent in the

proposed rules, despite the preamble explanation that the Secretary

expects schools to ``have a means of documenting that the student or

parent received this information.'' According to the commenter, the

reality is that schools will use, or purport to use, telephone or in-

person conversations as the means of notification and document that

notification with notes to a borrower's file. Armed with only notes of

such alleged contacts, the Secretary would be hard pressed to prove

violations of the disclosure rule. The commenter concluded by saying

the minimal requirement that schools notify a student in witting that

his or her account has been credited--implicit notice that the

borrower's legal liability for loan has begun--should not be abandoned.

Discussion: The Secretary disagrees that requiring a ``return

receipt'' for e-mail transmissions expands any documentation

requirements. In fact, the Secretary believes the opposite is true.

As a general rule, in the absence of any documentation specified by

the Secretary to satisfy a particular requirement, an institution must

be able to document that it satisfied that requirement. Thus, the

Secretary believes that the burden and cost of documenting that a

written notification was mailed to a student far exceed the burden and

cost of a receipted e-mail notification.

With regard to whether e-mail should be subject to a return receipt

requirement because there is no corresponding proof of delivery for

notices sent by regular mail, the Secretary notes that the courts have

developed a presumption that mail deposited with the U.S. Postal

Service is actually received (See, Cook v. Providence Hospital, 820

F.2d 176,n.3 (6th Cir. 1987); and McPartlin v. Commissioner, 653 F.2d

1185, 1191 (7th Cir. 1981)). The same presumption does not apply to e-

mail messages.

In response to the comment by student legal services, the Secretary

disagrees that the proposed change minimizes borrower rights. Rather,

in recognition of the less burdensome and more cost effective methods

afforded by electronic technologies, the Secretary sought only to

expand the means by which an institution may notify a student or

parent. That the notice may now be provided by additional, equivalent

means has no bearing on borrower rights.

The purpose of the notice, whether that notice is provided in

writing or electronically, is to remind students of their loan

obligation and to give students the opportunity to replace credited

loan proceeds with other funds thereby reducing their loan when an

institution return the loan proceeds. The Secretary wishes to make

clear that an institution cannot be compelled to return loan proceeds

that were properly disbursed or delivered to the student solely at the

request of a student.

On the other hand, the Secretary agrees that telephonic and in-

person conversations are not adequate and verifiable methods of

providing notice.

The Secretary did not propose that this requirement apply to

Federal Perkins Loan Program funds because under that program the

student had to sign for each loan advance. However, since the Secretary

has decided to eliminate this Federal Perkins Loan Program requirement,

this section is amended to provide that an institution must also notify

a borrower that his or her account was credited with Federal Perkins

loan funds.

Changes: Section 668.165(b)(1) is amended to clarify that an

electronic notice must be the equivalent of a written notice by

incorporating the NPRM preamble statement that if an institution

notifies a student or parent electronically, it must request a return

receipt and maintain a record of that receipt. In addition, the phrase

``by other means'' is removed to preclude the use of telephone or in-

person conversations as the sole means by which an institution may

notify a student. Also, this section is revised to include notification

to Federal Perkins Loan Program borrowers.

Comments Regarding Prior-Year Charges

Comments: Most of the commenters supported the proposal allowing an

institution, under limited circumstances and with a student's

permission, to use a student's current year title IV, HEA program funds

to pay for minor prior year charges. A few of these commenters, mostly

business officers, stated that the current prohibition on the payment

of prior-year charges has created difficulties for many students and

institutions, resulting in increased transaction costs. These

commenters believed that the proposed change will allow for smoother

processing of student accounts and expedite the registration process.

One commenter, writing on behalf of a higher education association,

suggested that a student be asked to approve a specific amount of funds

that an institution could use to pay for prior-year charges when the

institution obtains the student's permission. The commenter believed

that this would protect the student's need to have sufficient current

year funds to pay for living and other necessary expenses. Another

commenter suggested that after this provision is tested, some room for

refinement may become evident, such as whether it is necessary to

actually credit funds for current year charges before identifying that

funds will be left over to pay prior year balances. Still another

commenter questioned the role and authority of an aid officer in

determining whether the payment of ``minor prior-year charges'' would

hamper a student's ability to satisfy current year obligations,

particularly when the aid officer and the student are not in agreement

as to the amount of funds needed for current obligations.

While the majority of commenters appreciated that the Secretary did

not specify a dollar amount for minor prior-year charges, a few

commenters lamented this lack of specificity. One of these commenters

argued that the small dollar amount involved in most cases where this

provision would apply does not warrant the administrative burden

associated with obtaining a student's permission. Instead, the

commenter suggested that the Secretary define minor prior-year charges

as falling between $250 to $500 and not require written permission from

the student.

Two commenters argued that the cost and burden imposed by this

proposal on students and institutions is unwarranted since any

outstanding balance must be paid before a student is allowed to enroll

or continue at an institution. These commenters suggested that the

Secretary either simplify the process under which prior-year charges

may be paid or, notwithstanding the concerns expressed by the Secretary

in the NPRM, allow these charges to be paid without restriction.

One commenter writing on behalf of a student legal services

organization contended that schools should not be allowed to control

student credit

[[Page 61804]]

balances (particularly if those balances contain loan proceeds) in this

manner even with the student's permission. The commenter's contention

was based on the following reasons.

The commenter's first reason was based on the Secretary's failure

to specify a dollar amount of prior-year charges. As a result, the

commenter believed that fly-by-night schools, whose motivation is to

maximize profits rather than maintain credibility with the Department,

would take advantage of this provision. The commenter indicated that

while a university might define a ``minor charge'' as up to $10 in

library fines, a high-cost trade school could define it as several

hundred dollars of overpriced vocational equipment. The commenter

warned that the Secretary will be left to assess the reasonableness of

school practices in program reviews, i.e., after the fact and after the

student's loan proceeds have been used.

The commenter's second reason was that prior-year charges may have

been unpaid because they were contested by the student. The commenter

saw no valid reason to allow the school to determine the validity of

the charges and then use loan proceeds to cover them. The commenter

asserted that the fact that the borrower has to give permission for

these sorts of charges provides little comfort since the authorization

will probably be a generic, blanket authorization given at the

beginning of the term with a sheaf of other forms before specific

charges are ever incurred.

Further, the commenter noted that in order to accommodate this

change in the regulation, Sec. 668.165(b)(1) has also been amended to

delete the current generic bar on applying title IV, HEA program funds

``to any charges assessed the student in a prior award year or period

of enrollment.'' Thus, it appeared to the commenter that the proposed

rules open the door to using current year funds to pay for prior year

tuition, room, board, or other miscellaneous charges. For these

reasons, the commenter urged the Secretary to leave the regulation as

currently written.

Discussion: The Secretary offers the following guidance with

respect to the comments dealing with student authorizations. An

authorization must contain an explanation of the provisions regarding

the activities that an institution seeks to perform on behalf of a

student. This does not mean that the authorization must detail every

aspect pertaining to an activity. On the other hand, the Secretary does

not consider acceptable a blanket authorization which only identifies

the activities to be performed.

Regarding the comment that an institution must first credit a

student's account with title IV, HEA program funds before the

institution may use any balance that remains to pay for prior-year

charges, the Secretary notes that while this is technically correct, it

has broader implications. The proposed language ``provided that a

student has or will have a title IV, HEA program credit balance'' was

intended to extend the benefits of this provision to institutions that

draw down funds after a student starts classes. These institutions

would have the assurance that agreed-to prior-year charges will be

paid.

The Secretary has carefully considered the arguments made by

student legal services asking the Secretary to retract the proposed

prior-year charges provisions. The Secretary acknowledges that while it

may be possible for an unscrupulous school to benefit from an abuse of

these provisions, the Secretary notes that prior-year balances occur

mainly at established two- and four-year schools--such schools can not

be characterized as ``fly-by-night.''

In response to comment that the current prohibition on the payment

of prior-year charges has now created problems for students and

institutions, the Secretary reminds institutions that title IV, HEA

program funds have never been permitted to be used to pay prior-year

charges. However, it appears from these comments, and from comments

previously received on the cash management regulations, that some

institutions were either unaware of or ignored this prohibition. The

Secretary does not wish to admonish institutions that otherwise

administer the title IV, HEA programs properly, but believes that had

these institutions structured student billing and accounting systems

that identified and prevented the payment of prior-year charges with

current year funds, they would not now be experiencing difficulties

brought about by the policy change allowing for the payment of these

charges under limited circumstances.

Moreover, the Secretary cannot in these regulations make the

changes that would be necessary to allow institutions to use a

student's funds without restriction. To do so would require changes in

the statutory provisions that limit, without permission, the use of a

student's title IV, HEA program funds to specified allowable charges

and in the Secretary's longstanding interpretation of the precepts

underlying need analysis and award determinations. The proposal to

allow for the payment of prior-year charges under limited circumstances

is consistent with current law and, as a policy matter, was formulated

merely as an administrative convenience to students and institutions in

recognition of a problem that the Secretary believes should not occur

with regularity or involve large sums of money. The Secretary did not

intend to take sides in disputes between students and institutions

regarding the legitimacy of prior-year charges. In putting forth this

proposal, the Secretary was mindful of the need to protect student

rights while at the same time meeting the administrative needs of

institutions.

To this end, the Secretary will keep the general prohibition

against using a student's current year title IV, HEA program funds to

pay for prior-year charges. The Secretary will allow for payment of

minor prior-year charges as proposed, but with one modification. The

modification addresses the comments regarding whether a student may

authorize in advance a specific amount of funds to pay for prior-year

charges and whether the Secretary will establish a dollar amount for

these charges. The Secretary believes that it would be difficult to

determine in advance what the specific amount should be, and whether

the payment of that amount in a future period would create financial

problems for a student. Such a determination should be made in view of

the student's circumstances when the situation arises. However, an

institution may consider prior-year charges that do not exceed $100 to

be minor without making this determination and may obtain a student's

authorization in advance to pay for these charges should they occur.

Changes: Section 668.165(b)(1) is revised to reinstate the general

prohibition that a student's current year title IV, HEA program funds

may not be used to pay for prior-year charges. This section is also

amended by removing proposed paragraph (b)(3)(iv)(C) and adding a new

paragraph (e) that provides that an institution may use a student's

current year funds to pay for minor prior-year charges if the student's

current year institutional charges are satisfied and the institution

obtains the student's permission. In addition, an institution may

consider prior-year charges that do not exceed $100 to be minor. To pay

prior-year charges for amounts over $100, an institution must determine

if that payment would prevent the student from paying for his or her

educational expenses.

[[Page 61805]]

Campus-Based Programs

Sections 674.2, 675.2, and 676.2 Definitions

Comments: Two commenters expressed their support for the proposal

to delete the duplicative definitions of the terms ``full-time graduate

or professional student'' and ``full-time undergraduate student'' from

Sec. 674.2(b) and Sec. 675.2(b) and the term ``full-time undergraduate

student'' from Sec. 676.2(b). One commenter felt clarification was

needed in the ``full-time student'' definition in Sec. 668.2 of the

Student Assistance General Provisions regulations to distinguish a

full-time course load for undergraduate students from that of graduate/

professional students.

Discussion: The Secretary believes that the definition of ``full-

time student'' in the Student Assistance General Provisions regulations

adequately addresses the determination of a full-time course load for

both undergraduates and graduate/professional students. As stated in

Sec. 668.2, in the definition of a ``full-time student,'' ``* * *

academic workload (other than by correspondence) as determined by the

institution under a standard applicable to all students enrolled in a

particular educational program. The student's workload may include any

combination of courses, work, research, or special studies that the

institution considers sufficient to classify the student as a full-time

student.'' This part of the definition provides the institution with

the discretion to determine a full-time course load for all

classifications of students. The definition then proceeds to provide

minimum standards for an undergraduate student.

Changes: None.

Sections 674.17, 675.17, and 676.17 Federal Interest in Allocated

Funds

Comments: Several commenters supported the proposal to delete the

provisions in Sec. 674.17(a), Sec. 675.17, and 676.17 that provide that

Federal Perkins Loan, FWS, and FSEOG program funds are to be held in

trust for the intended students and the Secretary and cannot be used or

hypothecated for any other purpose. The commenters agreed that the

elimination of these sections reduces redundancy since this provision

is contained in the Student Assistance General Provisions regulations,

Sec. 668.161(b).

One commenter, while agreeing that regulations should not be

repetitive, pointed out that Sec. 668.161(b) of the General Provisions

regulations only excepts funds used for administrative expenses,

whereas Sec. 675.17 of the FWS Program regulations, includes other

allowable uses besides awards to students, such as use of funds for

establishment of a Job Location and Development (JLD) Program.

The commenter also observed that under the Federal Perkins Loan

Program regulations certain collection costs may also be charged to the

fund; these charges are outside of the administrative expense

allowance. The commenter further indicated that Sec. 674.17(a) also

reinforces the requirement that funds received by the institution

includes repayments on loans. The commenter suggested clarifying

Sec. 668.161(b) to include other uses of campus-based funds.

Discussion: Federal Perkins Loan Program. The Secretary does not

agree with the comment that Sec. 668.161(b) needs clarification if

Sec. 674.17(a) is deleted. Section Sec. 668.161(b) provides for uses of

title IV, HEA allocated funds. Once loans are made and students begin

making repayments, the repayments on these loans become part of the

Federal Perkins Loan Program Fund (Fund). Also the charges for certain

costs incurred in collecting a loan, when not paid by the borrower, are

to be made against the Fund. Uses of the Fund are provided for in other

sections of the Federal Perkins Loan Program regulations.

Federal Work-Study Program. The Secretary agrees with the commenter

that Sec. 668.161(b) excepts only funds used for administrative

expenses, whereas Sec. 675.17 allows funds allocated under the FWS

Program to also be used for establishment of a Job Location and

Development Program; and that if Sec. 675.17 is deleted,

Sec. 668.161(b) needs clarification.

Changes: The Secretary is amending the language of this provision

in Sec. 668.161(b) to incorporate the uses of allocated FWS funds for

certain activities under the Job Location and Development Program.

Sections 674.19, 675.19 and 676.19 Fiscal Procedures and Records

Comment: Several commenters commended the Secretary for the

proposal to allow institutions the additional flexibility of using

optical disk technology in complying with recordkeeping requirements.

The commenters viewed this as additional proof of the Department's goal

to simplify and modernize the regulations, and they commended the

Secretary on his recognition of the importance of paper reduction. One

of these commenters stated that this change will greatly enhance their

ability to comply with the regulations to maintain records while

utilizing their personnel and physical spaces more efficiently.

One commenter, while recognizing the benefit to schools in reducing

the paper they have to retain, expressed concern of the danger for

borrowers and the Department in having records that are more difficult

to read or use as proof in legal cases. This commenter pointed out the

fact that forgeries and alterations are not likely to be discernible

under these alternative formats. The commenter recommended against

allowing alternative forms of record retention for key Federal Perkins

loan documents, such as promissory notes.

Discussion: The Secretary appreciates the commenters' support for

new technology for the maintenance of records. However, the Secretary

recognizes that he needs to allow for future technologies that provide

an actual image of the original document. In response to the one

commenter who was concerned about alternative forms of record

retention, it has never been the Secretary's intention to allow

alternative means of recordkeeping for key documents. Section

674.19(e)(4)(i) of the Federal Perkins Loan Program regulations

provides that institutions must keep the original promissory notes and

repayment schedules in a locked, fireproof container. These provisions

remain and are not affected by the addition of the use of optical disk

technology for maintaining other records.

Changes: The Secretary is amending this provision to provide for

additional optical imaging technology.

Federal Perkins Loan Program

Section 674.2 Definitions

Comments: The commenters supported the Secretary's proposal to

redefine the term ``making of a loan.'' However, several commenters

requested that the Secretary clarify when a Federal Perkins loan is

made, because the date on which the student signs the promissory note

and the date on which the funds are disbursed may differ.

Discussion: In response to the commenters' clarification requests,

under the provisions of this regulation, the Secretary considers that a

Federal Perkins loan has been ``made'' when two events have occurred:

the borrower has signed the Federal Perkins loan promissory note and

the institution makes the first disbursement of loan funds to the

borrower under that note. This new definition represents a significant

departure from long-standing Federal Perkins Loan Program policy,

because under the old policy, each

[[Page 61806]]

disbursement of a Federal Perkins loan to a borrower was considered a

separate Federal Perkins loan.

Changes: The Secretary is modifying the definition of ``making of a

loan'' to state that a Federal Perkins loan is ``made'' when the

borrower has signed the promissory note and the first disbursement of

loan funds has occurred.

Section 674.16 Making and Disbursing Loans

Comments: Many commenters strongly supported the Secretary's

proposal to eliminate the requirement that a student sign for each loan

advance. Most commenters agreed that this was the single most important

proposal to reduce burden in the administration of the Federal Perkins

Loan Program. One commenter strongly objected to the elimination of the

requirement that a student sign for each loan advance. This commenter

stated that signing for each advance reinforced in the students' minds

the amounts they borrowed. This commenter was also concerned that,

without the borrower's signature authorizing each loan advance, the

institution may not be able to obtain a judgment or assign the loan

without incurring additional legal costs to prove that the student had

actually borrowed the total amount owed on the loan.

Discussion: The Secretary appreciates the support the community has

shown for this regulatory effort. The Secretary respects the

commenter's concern for the integrity of the Federal Perkins Loan

Program. However, the Secretary believes that the value of the

borrower's signing for each advance is outweighed by the burden this

requirement imposes on institutions and borrowers. On the other hand,

under the regulations, an institution may choose to continue to require

that the borrower sign for each advance. Moreover, the Secretary

disagrees with the commenter that the failure to obtain a signature for

each advance will preclude the institution from assigning the note or

obtaining a judgment against the borrower.

The Secretary notes that Sec. 668.165(b)(1) is being amended to

require an institution to notify a student that a disbursement of

Federal Perkins loan funds is being credited to the student's account.

Changes: None.

Section 674.31 Promissory Note

Comments: While many commenters supported the proposal to allow the

Secretary's promissory note under the Federal Perkins Loan Program to

be used as a sample note, thereby allowing institutions to add items to

the note as long as the substance of the note remains unchanged, many

also requested clarification of this provision. Commenters asked

whether changing the ``substance'' of the note meant changing the

format of the note. Several commenters asked the Secretary to define

``substance.'' Several commenters asked whether new items on the

promissory note that imposed additional requirements, penalties, or

benefits were acceptable to the Secretary, and if not, what was an

acceptable additional item. One commenter recommended that the

Secretary not make the proposed change. This commenter stated that

other federal loan programs use a national note that requires no

additions by the schools. This commenter felt strongly that the

language and provisions used in the Federal Perkins Loan Program

promissory notes should be consistent across the Program and urged the

Secretary to maintain Sec. 674.31 unchanged.

Discussion: The Secretary has reevaluated his proposal to amend

Sec. 674.31(a). The Secretary agrees with commenters that the proposed

change allowing institutions to make nonsubstantive additions to the

sample promissory notes is too vague. The Secretary believes that the

addition of provisions to the promissory note that would impose

additional requirements, penalties, or benefits constitutes a

substantive change to the note.

The Secretary agrees with the commenter who recommended that the

promissory note should remain a national note and with consistent

provisions. The Secretary is, therefore, requiring institutions to use

the promissory notes approved by the Secretary, rather than providing

``sample'' promissory notes. An institution may not change the text of

the promissory note or rearrange the order of the text. An institution

may make nonsubstantive changes, such as changing the size or style of

the type or requiring a student to include his or her driver's license

number.

Changes: The Secretary is changing Sec. 674.31(a) to provide that

institutions must use the promissory note provided by the Secretary and

that institutions may only make changes to the notes provided that are

nonsubstantive.

Section 674.33 Repayment

Comments: Commenters unanimously supported the Secretary's proposal

to combine the last scheduled Federal Perkins loan payment with the

next-to-last payment if the last payment is $25 or less, an increase

from $15. One commenter suggested that institutions be allowed to

combine the last scheduled payment with the next-to-last payment if the

last payment is $50 or less.

Discussion: The Secretary's purpose in amending Sec. 674.33 is to

remove administrative burden and to improve an institution's success in

collecting small loan balances. However, the Secretary does not wish to

overly burden student borrowers. The Secretary believes that combining

the last scheduled payment with the next-to-last payment if the last

payment is $50 or less may place a financial strain on student

borrowers, thereby compromising the borrower's ability to pay off his

or her loan.

Changes: None.

Section 674.47 Costs Chargeable to the Fund

Section 674.47 (g)

Comments: Of all the Federal Perkins Loan Program proposals in the

NPRM, the Secretary's proposals related to ceasing collection activity

generated the most comments. Most of these commenters made suggestions

on ways to amend this provision. One commenter felt that, rather than

ceasing collection activity, this provision should be modified to

permit the write-off of defaulted accounts with outstanding balances

between $5 and $25 after sending a first overdue notice. The commenter

further noted that the proposed rule would require institutions to

maintain accounts which would continue to accrue interest and would age

over the years. Thus, loans under $25 would eventually reach $25. At

that point the institution would have to perform due diligence on that

loan under subpart C. The commenter noted that as a result there is no

net gain to the institution in terms of administrative costs.

A commenter applauded the Secretary's attempt to provide relief for

institutions handling defaulted accounts with outstanding balances of

less than $25, but the commenter felt the regulations should reflect a

higher amount, i.e. $100 or less.

Discussion: The Secretary does not agree with the commenter's

suggestion to write off defaulted accounts with outstanding balances

between $5 and $25 because it is inappropriate to write off debts of

that amount. These are borrowers who are in default on a Federal loan.

The borrower owes these amounts and the failure to collect these funds

affects the future level of the Fund. However, the Secretary agrees

with other commenters' suggestions to

[[Page 61807]]

raise the level at which an institution can stop collection efforts on

a loan.

The Secretary agrees with the commenters that it may not be cost

effective for an institution to continue collection efforts on small

loan balances. Therefore, the Secretary will allow an institution to

cease collection activity on defaulted accounts with balances of

between $25 and $200, if the institution carried out the subpart C due

diligence requirements and the account has not had any activity for

four years. The Secretary chose a $200 threshold because $200 is the

level at which an institution must make an annual determination to

litigate a defaulted account.

If an institution chooses this option, these accounts may be

included in its cohort default rate, if applicable. The borrower will

still be in default and ineligible for further title IV, HEA program

funds.

The Secretary agrees with the commenter's point regarding an

institution's election to cease collection efforts on an account under

$25. Therefore, the institution will not have to exercise due diligence

required under subpart C, even though interest will continue to accrue

and may put the account over $25, if it documents that it ceased

collection activity when the account was under $25. However, the

institution would not be able to assign the account to the Secretary

and the borrower will remain responsible for repaying the account,

including accrued interest. In addition, the Secretary notes that these

accounts will still be included in the institution's cohort default

rate, if applicable, and the borrower is still in default and

ineligible for title IV, HEA program funds.

Changes: The Secretary has modified paragraph (g)(1) to reflect the

noted changes.

Comments: One commenter felt that there should be some way for an

institution to use its own funds to pay off larger balance accounts

with outstanding balances as high as $100. The commenter did not feel

it was cost effective to continue to track small amounts as defaults.

Discussion: An institution may pay off loan balances of its

borrowers. However, under section 462(h)(2)(D) of the HEA, any such

loans will be considered in default for purposes of calculating the

institution's cohort default rate.

Changes: None.

Comments: A few commenters wanted a further explanation from the

Secretary regarding proposed Sec. 674.47(g)(2). These commenters did

not understand how a loan which is not closed or paid-in-full could

reduce the assets of the Fund. One commenter felt that this proposal

would not only be counter-intuitive, since loans in this category would

remain as balances due, accruing interest and carrying penalties

associated with default, but would also create a new area of

administrative complexity for this new category of loans ``in limbo.''

These commenters indicated that this change would burden institutions

with additional costs in order to maintain this category of ``due'' but

``non-asset'' loans.

Discussion: The Secretary agrees with the commenters' points and

apologizes for any confusion this proposed provision might have caused.

It was the Secretary's intent to reduce burden in the administration of

the Federal Perkins Loan Program. It was not the Secretary's intent to

burden institutions with additional costs and a new systems design.

Because these accounts are still ``open,'' institutions must include

the amounts of these accounts as assets of the Fund when they choose to

cease collection activities of defaulted accounts. However, when an

institution writes off an account, in accordance with paragraph (h) of

this section, these accounts would not remain an asset of the Fund.

Changes: The Secretary is amending paragraph (g) to remove the

provision that would require an account on which the institution has

chosen to cease collection activity to no longer be considered as an

asset of the Fund.

Section 674.47(h)

Comments: While most commenters appreciated the Secretary's

proposal to allow institutions to write off loan accounts with balances

of less than $1.00, all commenters were unanimously opposed to the

proposed write-off amount. Commenters felt that $1.00 was too

stringent, that it was not cost effective in terms of real

administration and collection costs, and that it would not accomplish

the proposal's intended purpose: to provide relief to institutions in

the administration of the Federal Perkins Loan Program. Commenters

encouraged the Secretary to consider a higher amount, with the

commenters suggesting amounts ranging from $2 to $25. A few commenters

stated that the majority of their accounts with small remaining

balances were $5.00 or less, and that it would be clearly more

effective and efficient to raise the amount to $5.00.

Discussion: The commenters have convinced the Secretary that the

proposed $1 figure was too low. The Secretary has adopted the

commenters' suggestions that the amount be raised to $5. Once these

accounts have been written off, the account is considered as paid-in-

full. The account will no longer be considered as an asset to the Fund,

the account will not be counted in the institution's cohort default

rate, if applicable, and the promissory note will be returned to the

borrower marked as paid-in-full.

Changes: The Secretary is amending 674.47(h) to increase the write-

off threshold to $5.00. The Secretary is also amending paragraph (h) to

provide that an account that has been written off may not be considered

as an asset to the Fund.

Federal Work-Study Programs

Appendix B--Model Off-Campus Agreement

Comments: Four commenters supported the Secretary's proposal to

remove the model off-campus agreement from regulation and include the

agreement in the Federal Student Financial Aid Handbook. They felt that

the Handbook is a more appropriate document and that this will make the

sample agreement more easily accessible by aid administrators. One of

these commenters suggested that the Secretary also include a model

community service agreement in the Handbook.

Discussion: The off-campus agreement in Appendix B is a suggested

model for the development of a written agreement between an institution

of higher education and a federal, state, or local public agency or

private nonprofit organization which employs students participating in

the FWS Program. As stated in the model, institutions and agencies or

organizations may devise additional or substitute paragraphs that are

consistent with the statute or regulations and add any pertinent

information that orients the agreement towards community services.

Therefore, one sample off-campus agreement will be provided in the

Federal Student Financial Aid Handbook for use in the FWS Program.

Changes: None.

Federal Family Educational Loan Program, and Direct Loan Program

Sections 682.201 and 685.200 Eligible Borrowers

Comments: Many commenters supported the proposal in the FFEL and

Direct Loan Programs to allow a student's stepparent to borrow under

the PLUS and Federal Direct PLUS Programs.

One commenter suggested that a stepparent should remain eligible to

borrow on behalf of a stepchild if the

[[Page 61808]]

natural or adoptive parent to whom the stepparent is married, dies. The

commenter indicated that a situation may arise where, if the other

natural parent is still alive, the student will not become an

independent student. The commenter indicated that the student's

relationship with the surviving stepparent may be more akin to a

parental bond than is the student's relationship with the surviving

parent.

Another commenter suggested that the language of the regulations be

amended to provide that a stepparent would be eligible to borrow on

behalf of a stepchild if the stepparent's income was not used to

determine the expected family contribution (EFC) of the stepchild. The

commenter indicated that a parent could marry after the Free

Application for Federal Student Aid (FAFSA) had been filed. The

commenter believed that the new stepparent should be eligible to borrow

a PLUS loan on behalf of the student.

Discussion: The Secretary appreciates the mostly positive comments

he received on his proposal to allow stepparents to borrow under the

FFEL and Direct Loan PLUS programs. While the Secretary agrees that the

situation suggested by the commenter could, on rare occasions happen,

he points out that he would expect that, in most instances, the

financial aid officer would use professional judgement and make the

student independent, while perhaps assessing some amount of untaxed

income to the student as a result of support received from the

stepparent. In this instance the student would be considered eligible

for additional unsubsidized loans to replace whatever PLUS proceeds are

not available. For these reasons, the Secretary does not believe there

is need to make additional changes to the eligibility criteria for

stepparents to borrow under the title IV PLUS programs.

The Secretary acknowledges, as pointed out by the second commenter,

that the proposed language could have been interpreted to exclude

certain stepparents from participation in PLUS Loan Programs because

their income and assets were not taken into account when determining

the student's EFC. Such a condition could exist when the student did

not complete a FAFSA or in the case cited by the commenter when the

natural parent married after the FAFSA was filed. The Secretary will

change the eligibility requirement under which a stepparent may borrow

a PLUS loan to include the income and assets ``that would have been

taken into account'' rather than ``are taken into account'' when

determining the student's EFC.

Changes: Sections 682.201 and 685.200 are changed to allow a

stepparent to borrow under the FFEL and Direct Loan PLUS programs ``if

that spouse's income and assets would have been taken into account when

calculating a dependent student's expected family contribution.''

Section 682.600 Agreement Between an Eligible School and the Secretary

for Participation in the FFEL Programs

Comments: All commenters supported the proposal to eliminate the

provisions of Sec. 682.600 (a) through (c) and to include the

provisions that deal with foreign schools (Sec. 682.600(d)) in a new

Sec. 682.611. One commenter requested clarification of the Secretary's

intent to eliminate Sec. 682.600.

Discussion: The Secretary noted in the preamble of the NPRM (60 FR

49118) that the provisions of Sec. 682.600(a) through (c) are

unnecessary because they duplicate existing provisions found in 34 CFR

Part 600 (Institutional Eligibility Under the Higher Education Act of

1965, As Amended) and 34 CFR Part 668 (Student Assistance General

Provisions). The Secretary also noted that the provisions included in

Sec. 682.600(d) that deal with foreign schools are needed and would be

retained in a new section, Sec. 682.211.

Changes: None.

Section 682.602 Schedule Requirements for Courses of Study by

Correspondence

Comments: All commenters supported the proposal to eliminate the

provisions contained in Sec. 682.602.

Discussion: Commenters agreed with the Secretary that the

provisions of Sec. 682.602 are no longer needed since students enrolled

in correspondence programs are not eligible to receive FFEL Program

loans unless they are enrolled in a program that leads to an associate,

bachelor, or graduate degree.

Changes: None.

Federal Pell Grant Program

Comments: Various commenters expressed support for the proposed

changes to the Federal Pell Grant Program.

Discussion: The Secretary appreciates the commenters' support of

efforts to eliminate duplicative provisions from the regulations.

Changes: None.

Executive Order 12866

These regulations have been reviewed in accordance with Executive

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

the potential costs and benefits of the regulatory action.

The potential costs associated with the regulations are those

resulting from statutory requirements and those determined by the

Secretary to be necessary for administering the title IV, HEA programs

effectively and efficiently. Burdens specifically associated with

information collection requirements, if any, are identified and

explained elsewhere in the preamble under the heading Paperwork

Reduction Act of 1995.

In assessing the potential costs and benefits--both qualitative and

quantitative--of these 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

exercise of their governmental functions.

Summary of Potential Costs and Benefits

The potential costs and benefits of these final regulations are

discussed elsewhere in this preamble under the following heading:

Analysis of Comments and Changes.

Regulatory Flexibility Certification

The Secretary certifies that these regulations will not have a

significant economic impact on a substantial number of small entities.

Small entities affected by these regulations are small institutions of

higher education.

Waiver of Proposed Rulemaking

In accordance with section 431(b)(2)(A) of the General Education

provisions Act, 20 U.S.C. 1232(b)(2)(A), and the Administrative

Procedure Act, 5 U.S.C. 553, it is the practice of the Secretary to

offer interested parties the opportunity to comment on proposed rules

and regulations. However, the Secretary amends Sec. 668.163(a)(2) and

(3) as a final rule to revise the procedure for presenting cash

requests to the Department under the exemption from rulemaking

requirements in 5 U.S.C. 553(b)(A) for rules of agency procedure.

Assessment of Educational Impact

In the NPRM published September 21, 1995, the Secretary requested

comment 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.

[[Page 61809]]

Based on the response to the proposed rules 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

34 CFR Part 668

Administrative practice and procedure, Colleges and universities,

Consumer protection, Education, Grant programs-- education, Loan

programs--education, Reporting and recordkeeping requirements, Student

aid.

34 CFR Part 674

Loan programs--education, Student aid, Reporting and recordkeeping

requirements.

34 CFR Part 675

Loan programs--education, Student aid, Reporting and recordkeeping

requirements.

34 CFR Part 676

Loan programs--education, Student aid, Reporting and recordkeeping

requirements.

34 CFR Part 682

Administrative practice and procedure, Colleges and universities,

education, Loan programs--education, Reporting and recordkeeping

requirements, Student aid, Vocational education.

34 CFR Part 685

Administrative practice and procedure, Colleges and universities,

education, Loan programs--education, Reporting and recordkeeping

requirements, Student aid.

34 CFR Part 690

Grant programs--education, Reporting and recordkeeping

requirements, Student aid.

(Catalog of Federal Domestic Assistance Numbers: 84.007 Federal

Supplemental Educational Opportunity Grant Program; 84.032

Consolidation Program; 84.032 Federal Stafford Loan Program; 84.032

Federal PLUS Program; 84.032 Federal Supplemental Loans for Students

Program; 84.033 Federal Work-Study Program; 84.038 Federal Perkins

Loan Program; 84.063 Federal Pell Grant Program; 84.069 Federal

State Student Incentive Grant Program; 84.268 William D. Ford

Federal Direct Loan Program; and 84.272 National Early Intervention

Scholarship and Partnership Program.)

Dated: November 24, 1995.

Richard W. Riley,

Secretary of Education.

The Secretary amends parts 668, 674, 675, 676, 682, 685, and 690 of

title 34 of the Code of Federal Regulations as follows:

PART 668--STUDENT ASSISTANCE GENERAL PROVISIONS

1. The authority citation for part 668 continues to read as

follows:

Authority: 20 U.S.C. 1085, 1088, 1091, 1092, 1094, 1099c, and

1141, unless otherwise noted.

Sec. 668.2 [Amended]

2. In Sec. 668.2, paragraph (b) is amended by revising paragraph

(1) of the definition of ``Payment period'' and by adding a sentence to

the end of the definition of ``Federal Perkins Loan Program'' to read

as follows:

Sec. 668.2 General definitions.

* * * * *

Federal Perkins Loan Program: * * * Unless otherwise noted, as used

in this part, the Federal Perkins Loan Program includes the National

Direct Student Loan Program and the National Defense Student Loan

Program.

* * * * *

Payment period: (1) With respect to the Federal Pell Grant Program,

a payment period as defined in 34 CFR 690.3;

* * * * *

Sec. 668.7 [Removed and Reserved]

3. Section 668.7 is removed and reserved.

4. Section 668.19 is revised to read as follows:

Sec. 668.19 Financial aid transcript.

(a) (1) An institution shall determine whether a student who is

applying for assistance under any title IV, HEA program has previously

attended another eligible institution.

(2) Before a student who previously attended another eligible

institution may receive any title IV, HEA program assistance the

institution the student is, or will be, attending--

(i) Must request each eligible institution the student previously

attended to provide to it a financial aid transcript; or

(ii) May use information it obtains from the National Student Loan

Data System (NSLDS) to satisfy the requirements of paragraphs (a)(1)

and (a)(2)(i) of this section, after the Secretary informs institutions

through a Notice in the Federal Register that the NSLDS is available

for this purpose, and information on how the NSLDS can be used.

(3) Except as provided in paragraph (b)(5) of this section, if an

institution requests a financial aid transcript from any institution a

student previously attended, until the institution receives each

requested financial aid transcript; the institution--

(i) May withhold payment of Federal Pell Grant and campus-based

funds to the student;

(ii) May disburse Federal Pell Grant and campus-based funds to the

student for one payment period only;

(iii) May decline to certify the student's Federal Stafford Loan

application or the parent's Federal PLUS application under the FFEL

Program;

(iv) May decline to originate the student's Federal Direct Stafford

Loan or the parent's Federal Direct PLUS under the Direct Loan Program;

(v) May not deliver Federal Stafford or disburse Federal Direct

Stafford Loan proceeds to a student; and

(vi) May not deliver Federal PLUS or disburse Federal Direct PLUS

proceeds to a parent or student.

(4) (i) An institution may not hold Federal Stafford or Federal

PLUS loan proceeds under paragraph (b)(3) of this section for more than

45 days. If an institution does not receive all required financial aid

transcripts for a student within 45 days of the receipt of such

proceeds, the institution shall return the loan proceeds to the

appropriate lender.

(ii) An institution that certifies a Federal Stafford or Federal

PLUS loan application before receiving all required financial aid

transcripts shall return to the lender the appropriate amount of any

Federal Stafford or Federal PLUS proceeds if it receives a financial

aid transcript indicating that the student is not eligible for all, or

a part, of the loan proceeds.

(5) An institution may disburse title IV, HEA program funds to a

student without receiving a financial aid transcript from an eligible

institution the student previously attended if the institution the

student previously attended--

(i) Has closed, and information concerning the student's receipt of

title IV, HEA program assistance for attendance at that institution is

not available;

(ii) Is not located in a State; or

(iii) Provides the disbursing institution with the written

certification described in paragraph (b)(2)(ii) of this section.

(b) Upon request, each institution located in a State shall

promptly

[[Page 61810]]

provide to the institution that requested a financial aid transcript--

(1) All information in its possession concerning whether the

student in question attended institutions other than itself and the

requesting institution; and

(2) (i) A financial aid transcript for that student, if the student

received or benefitted from any title IV, HEA program assistance while

attending the institution; or

(ii) A written certification that--

(A) The student did not receive or benefit from any title IV, HEA

program assistance while attending the institution; or

(B) The transcript would cover only years for which the institution

no longer has records and is no longer required to keep records under

the applicable title IV, HEA program recordkeeping requirements.

(c) An institution must disclose on a financial aid transcript for

a student--

(1) The student's name and social security number;

(2) To the extent the institution is aware, whether the student is

in default on any title IV, HEA program loan;

(3) To the extent the institution is aware, whether the student

owes an overpayment on any title IV, HEA program grant or Federal

Perkins Loan;

(4) For the award year for which a financial aid transcript is

requested, the student's Scheduled Federal Pell Grant and the amount of

Pell Grant funds disbursed to the student;

(5) The aggregate amount of loans made to the student under each of

the title IV, HEA loan programs for attendance at the institution;

(6) For the award year in which a financial aid transcript is

requested, the total amount of Federal Perkins loan funds disbursed to

the student;

(7) Whether the student owed an outstanding balance on July 1, 1987

on either a National Direct Student Loan made for attendance at the

institution;

(8) Whether the student owed an outstanding balance on October 1,

1992 on either a Federal Perkins loan or a National Direct Student Loan

made for attendance at the institution; and

(9) The amount of, and period of enrollment for, the most current

loan made to the student under the FFEL, and Direct Loan programs for

attendance at the institution.

(d) (1) A financial aid transcript must be signed by an official

authorized by the institution to disclose information in connection

with title IV, HEA programs.

(2) An institution must base the information it includes on

financial aid transcripts on records it maintains under the title IV,

HEA programs recordkeeping requirements.

(Approved by the Office of Management and Budget under control

number 1840-0537)

(Authority: 20 U.S.C. 1091, 1094)

5. The heading for Sec. 668.21 is revised to read as follows:

Sec. 668.21 Treatment of Federal Perkins Loan, FSEOG, and Federal Pell

Grant program funds if the recipient withdraws, drops out, or is

expelled before his or her first day of class.

6. Section 668.22 is amended by removing paragraph (h)(1)(i) and

redesignating paragraphs (h)(1)(ii) through (xiii) as paragraphs

(h)(1)(i) through (xii), respectively; and by revising paragraph

(d)(1)(i) to read as follows:

Sec. 668.22 Institutional refunds and repayments.

* * * * *

(d) * * *

(1) * * *

(i) If a student withdraws, drops out, or is expelled from the

institution before the first day of classes for the period of

enrollment for which the student was charged, the institution must

follow the provisions under Sec. 668.21 for the treatment of Federal

Perkins Loan, FSEOG, and Federal Pell Grant Program funds, the

provisions under Sec. 682.604(d)(3) or (4) for the treatment of FFEL

Program funds, and the provisions under Sec. 685.303(b)(3) for the

treatment of Direct Loan Program funds, as appropriate;

* * * * *

7. Subpart C is revised to read as follows:

Subpart C--Student Eligibility

Sec.

668.31 Scope.

668.32 Student eligibility - general.

668.33 Citizenship and residency requirements.

668.34 Satisfactory progress.

668.35 Student debts under the HEA and to the U.S.

668.36 Social security number.

668.37 Selective Service registration.

668.38 Enrollment in telecommunications and correspondence courses.

668.39 Study abroad programs.

Subpart C--Student Eligibility

Sec. 668.31 Scope.

This subpart contains rules by which a student establishes

eligibility for assistance under the title IV, HEA programs. In order

to qualify as an eligible student, a student must meet all applicable

requirements in this subpart.

(Authority: 20 U.S.C. 1091)

Sec. 668.32 Student eligibility--general.

A student is eligible to receive title IV, HEA program assistance

if the student--

(a)(1) (i) Is a regular student enrolled, or accepted for

enrollment, in an eligible program at an eligible institution;

(ii) For purposes of the FFEL and Direct Loan programs, is enrolled

for no longer than one twelve-month period in a course of study

necessary for enrollment in an eligible program; or

(iii) For purposes of the Federal Perkins Loan, FWS, FFEL, and

Direct Loan programs, is enrolled or accepted for enrollment as at

least a half-time student at an eligible institution in a program

necessary for a professional credential or certification from a State

that is required for employment as a teacher in an elementary or

secondary school in that State;

(2) For purposes of the FFEL and Direct Loan programs, is at least

a half-time student;

(b) Is not enrolled in either an elementary or secondary school;

(c)(1) For purposes of the Federal Pell Grant, FSEOG, and SSIG

programs, does not have a baccalaureate or first professional degree;

and

(2)(i) For purposes of the Federal Perkins Loan, FFEL, and Direct

Loan programs, is not incarcerated; and

(ii) For purposes of the Federal Pell Grant program, is not

incarcerated in a Federal or State penal institution;

(d) Satisfies the citizenship and residency requirements contained

in Sec. 668.33 and subpart I of this part;

(e)(1) Has a high school diploma or its recognized equivalent;

(2) Has obtained within 12 months before the date the student

initially receives title IV, HEA program assistance, a passing score

specified by the Secretary on an independently administered test in

accordance with subpart J of this part; or

(3) Is enrolled in an eligible institution that participates in a

State ``process'' approved by the Secretary under subpart J of this

part;

(f) Maintains satisfactory progress in his or her course of study

according to the institution's published standards of satisfactory

progress that satisfy the provisions of Sec. 668.16(e), and, if

applicable, the provisions of Sec. 668.34;

(g) Except as provided in Sec. 668.35--

(1) Is not in default, and certifies that he or she is not in

default, on a loan made under any title IV, HEA loan program;

(2) Has not obtained loan amounts that exceed annual or aggregate

loan limits made under any title IV, HEA loan program;

(3) Does not have property subject to a judgment lien for a debt

owed to the United States; and

(4) Is not liable for a grant or Federal Perkins loan overpayment.

A student

[[Page 61811]]

receives a grant or Federal Perkins loan overpayment if the student

received grant or Federal Perkins loan payments that exceeded the

amount he or she was eligible to receive; or if the student withdraws,

that exceeded the amount he or she was entitled to receive for non-

institutional charges;

(h) Files a Statement of Educational Purpose in accordance with the

instructions of the Secretary, or in the case of a loan made under the

FFEL Program, with the lender;

(i) Has a correct social security number as determined under

Sec. 668.36, except that this requirement does not apply to students

who are residents of the Federated States of Micronesia, Republic of

the Marshall Islands, or the Republic of Palau;

(j) Satisfies the Selective Service registration requirements

contained in Sec. 668.37, and, if applicable, satisfies the

requirements of Sec. 668.38 and Sec. 668.39 involving enrollment in

telecommunication and correspondence courses and a study abroad

program, respectively; and

(k) Satisfies the program specific requirements contained in--

(1) 34 CFR 674.9 for the Federal Perkins Loan program;

(2) 34 CFR 675.9 for the FWS program;

(3) 34 CFR 676.9 for the FSEOG program;

(4) 34 CFR 682.201 for the FFEL programs;

(5) 34 CFR 685.200 for the Federal Direct Student Loan programs;

(6) 34 CFR 690.75 for the Federal Pell Grant program; and

(7) 34 CFR 692.40 for the SSIG program.

(Authority: 20 U.S.C. 1091, 28 U.S.C. 3201(e))

Sec. 668.33 Citizenship and residency requirements.

(a) Except as provided in paragraph (b) of this section, to be

eligible to receive title IV, HEA program assistance, a student must--

(1) Be a citizen or national of the United States; or

(2) Provide evidence from the U.S. Immigration and Naturalization

Service that he or she--

(i) Is a permanent resident of the United States; or

(ii) Is in the United States for other than a temporary purpose

with the intention of becoming a citizen or permanent resident;

(b) (1) A citizen of the Federated States of Micronesia, Republic

of the Marshall Islands, or the Republic of Palau is eligible to

receive funds under the FWS, FSEOG, and Federal Pell Grant programs if

the student attends an eligible institution in a State, or a public or

nonprofit private eligible institution of higher education in those

jurisdictions.

(2) A student who satisfies the requirements of paragraph (a) of

this section is eligible to receive funds under the FWS, FSEOG, and

Federal Pell Grant programs if the student attends a public or

nonprofit private eligible institution of higher education in the

Federated States of Micronesia, Republic of the Marshall Islands, or

the Republic of Palau.

(c) (1) If a student asserts that he or she is a citizen of the

United States on the Free Application for Federal Student Aid (FAFSA),

the Secretary attempts to confirm that assertion under a data match

with the Social Security Administration. If the Social Security

Administration confirms the student's citizenship, the Secretary

reports that confirmation to the institution and the student.

(2) If the Social Security Administration does not confirm the

student's citizenship assertion under the data match with the

Secretary, the student can establish U.S. citizenship by submitting

documentary evidence of that status to the institution. Before denying

title IV, HEA assistance to a student for failing to establish

citizenship, an institution must give a student at least 30 days notice

to produce evidence of U.S. citizenship.

(Authority: 20 U.S.C. 1091, 5 U.S.C. 552a)

Sec. 668.34 Satisfactory progress.

(a) If a student is enrolled in an program of study of more than

two academic years, to be eligible to receive title IV, HEA program

assistance after the second year, in addition to satisfying the

requirements contained in Sec. 668.32(f), the student must be making

satisfactory under the provisions of paragraphs (b), (c) and (d) of

this section.

(b) A student is making satisfactory progress if, at the end of the

second year, the student has a grade point average of at least a ``C''

or its equivalent, or has academic standing consistent with the

institution's requirements for graduation.

(c) An institution may find that a student is making satisfactory

progress even though the student does not satisfy the requirements in

paragraph (b) of this section, if the institution determines that the

student's failure to meet those requirements is based upon--

(1) The death of a relative of the student;

(2) An injury or illness of the student; or

(3) Other special circumstances.

(d) If a student is not making satisfactory progress at the end of

the second year, but at the end of a subsequent grading period comes

into compliance with the institution's requirements for graduation, the

institution may consider the student as making satisfactory progress

beginning with the next grading period.

(e) At a minimum, an institution must review a student's academic

progress at the end of each year.

(Authority: 20 U.S.C. 1091(d))

Sec. 668.35 Student debts under the HEA and to the U.S.

(a) A student who is in default on a loan made under a title IV,

HEA loan program may nevertheless be eligible to receive title IV, HEA

program assistance if the student--

(1) Repays the loan in full; or

(2) (i) Makes arrangements, that are satisfactory to the holder of

the loan and in accordance with the individual title IV, HEA loan

program regulations, to repay the loan balance; and

(ii) Makes at least six consecutive monthly payments under those

arrangements.

(b) A student who is not in default on a loan made under a title

IV, HEA loan program, but has inadvertently obtained loan funds under a

title IV, HEA loan program in an amount that exceeds the annual or

aggregate loan limits under that program, may nevertheless be eligible

to receive title IV, HEA program assistance if the student--

(1) Repays in full the excess loan amount; or

(2) Makes arrangements, satisfactory to the holder of the loan, to

repay that excess loan amount.

(c) A student who receives an overpayment under the Federal Perkins

Loan Program, or under a title IV, HEA grant program may nevertheless

be eligible to receive title IV, HEA program assistance if the

student--

(1) Pays the overpayment in full; or

(2) Makes arrangements, satisfactory to the holder of the

overpayment debt, to pay the overpayment.

(d) A student who has property subject to a judgement lien for a

debt owed to the United States may nevertheless be eligible to receive

title IV, HEA program assistance if the student-

(1) Pays the debt in full; or

(2) Makes arrangements, satisfactory to the United States, to pay

the debt.

(e) (1) A student is not liable for a Federal Pell Grant

overpayment received in an award year if the institution can eliminate

that overpayment by adjusting subsequent

[[Page 61812]]

Federal Pell Grant payments in that same award year.

(2) A student is not liable for a FSEOG or SSIG overpayment or

Federal Perkins loan overpayment received in an award year if the

institution can eliminate that overpayment by adjusting subsequent

title IV, HEA program (other than Federal Pell Grant) payments in that

same award year.

(f) A student who otherwise is in default on a loan made under a

title IV, HEA loan program, or who otherwise owes an overpayment on a

title IV, HEA program grant or Federal Perkins loan, is not considered

to be in default or owe an overpayment if the student--

(1) Obtains a judicial determination that the debt has been

discharged or is dischargeable in bankruptcy; or

(2) Demonstrates to the satisfaction of the holder of the debt

that--

(i) When the student filed the petition for bankruptcy relief, the

loan, or demand for the payment of the overpayment, had been

outstanding for the period required under 11 U.S.C. 523(a)(8)(A),

exclusive of applicable suspensions of the repayment period for either

debt of the kind defined in 34 CFR 682.402(m); and

(ii) The debt otherwise qualifies for discharge under applicable

bankruptcy law.

(Authority: 20 U.S.C. 1091 and 11 U.S.C. 523 and 525)

Sec. 668.36 Social security number.

(a) (1) Except for residents of the Federated States of Micronesia,

the Republic of the Marshall Islands, and the Republic of Palau, the

Secretary attempts to confirm the social security number a student

provides on the Free Application for Federal Student Aid (FAFSA) under

a data match with the Social Security Administration. If the Social

Security Administration confirms that number, the Secretary notifies

the institution and the student of that confirmation.

(2) If the student's verified social security number is the same

number as the one he or she provided on the FAFSA, and the institution

has no reason to believe that the verified social security number is

inaccurate, the institution may consider the number to be accurate.

(3) If the Social Security Administration does not verify the

student's social security number on the FAFSA, or the institution has

reason to believe that the verified social security number is

inaccurate, the student can provide evidence to the institution, such

as the student's social security card, indicating the accuracy of the

student's social security number. An institution must give a student at

least 30 days, or until the end of the award year, whichever is later,

to produce that evidence.

(4) An institution may not deny, reduce, delay, or terminate a

student's eligibility for assistance under the title IV, HEA programs

because verification of that student's social security number is

pending.

(b) (1) An institution may not disburse any title IV, HEA program

funds to a student until the institution is satisfied that the

student's reported social security number is accurate.

(2) The institution shall ensure that the Secretary is notified of

the student's accurate social security number if the student

demonstrates the accuracy of a social security number that is not the

number the student included on the FAFSA.

(c) If the Secretary determines that the social security number

provided to an institution by a student is incorrect, and that student

has not provided evidence under paragraph (a)(3) of this section

indicating the accuracy of the social security number, and a loan has

been guaranteed for the student under the FFEL program, the institution

shall notify and instruct the lender and guaranty agency making and

guaranteeing the loan, respectively, to cease further disbursements of

the loan, until the Secretary or the institution determines that the

social security number provided by the student is correct, but the

guaranty may not be voided or otherwise nullified before the date that

the lender and the guaranty agency receive the notice.

(d) Nothing in this section permits the Secretary to take any

compliance, disallowance, penalty or other regulatory action against--

(1) Any institution of higher education with respect to any error

in a social security number, unless the error was the result of fraud

on the part of the institution; or

(2) Any student with respect to any error in a social security

number, unless the error was the result of fraud on the part of the

student.

(Authority: 20 U.S.C. 1091)

Sec. 668.37 Selective Service registration.

(a) (1) To be eligible to receive title IV, HEA program funds, a

male student who is subject to registration with the Selective Service

must register with the Selective Service.

(2) A male student does not have to register with the Selective

Service if the student--

(i) Is below the age of 18, or was born before January 1, 1960;

(ii) Is enrolled in an officer procurement program the curriculum

of which has been approved by the Secretary of Defense at the following

institutions:

(A) The Citadel, Charleston, South Carolina;

(B) North Georgia College, Dahlonega, Georgia;

(C) Norwich University, Northfield, Vermont; or

(D) Virginia Military Institute, Lexington, Virginia; or

(iii) Is a commissioned officer of the Public Health Service and/or

a member of the Reserve of the Public Health Service who is on active

duty as provided in section 6(a)(2) of the Military Selective Service

Act.

(b) (1) When the Secretary processes a male student's FAFSA, the

Secretary determines whether the student is registered with the

Selective Service under a data match with the Selective Service.

(2) Under the data match, Selective Service reports to the

Secretary whether its records indicate that the student is registered,

and the Secretary reports the results of the data match to the student

and the institution the student is attending.

(c) (1) If the Selective Service does not confirm through the data

match, that the student is registered, the student can establish that

he--

(i) Is registered;

(ii) Is not, or was not required to be, registered;

(iii) Has registered since the submission of the FAFSA; or

(iv) Meets the conditions of paragraph (d) of this section.

(2) An institution must give a student at least 30 days, or until

the end of the award year, whichever is later, to provide evidence to

establish the condition described in paragraph (c)(1) of this section.

(d) An institution may determine that a student, who was required

to, but did not register with the Selective Service, is not ineligible

to receive title IV, HEA assistance for that reason, if the student can

demonstrate by submitting clear and unambiguous evidence to the

institution that--

(1) He was unable to present himself for registration for reasons

beyond his control such as hospitalization, incarceration, or

institutionalization; or

(2) He is over 26 and when he was between 18 and 26 and required to

register--

(i) He did not knowingly and willfully fail to register with the

Selective Service; or

(ii) He served as a member of one of the U.S. Armed Forces on

active duty

[[Page 61813]]

and received a DD Form 214, ``Certificate of Release or Discharge from

Active Duty,'' showing military service with other than the reserve

forces and National Guard.

(e) For purposes of paragraph (d)(2)(i) of this section, an

institution may consider that a student did not knowingly and willfully

fail to register with the Selective Service only if--

(1) The student submits to the institution an advisory opinion from

the Selective Service System that does not dispute the student's claim

that he did not knowingly and willfully fail to register; and

(2) The institution does not have uncontroverted evidence that the

student knowingly and willfully failed to register.

(f) (1) A student who is required to register with the Selective

Service and has been denied title IV, HEA program assistance because he

has not proven to the institution that he has registered with Selective

Service may seek a hearing from the Secretary by filing a request in

writing with the Secretary. The student must submit with that request--

(i) A statement that he is in compliance with registration

requirements;

(ii) A concise statement of the reasons why he has not been able to

prove that he is in compliance with those requirements; and

(iii) Copies of all material that he has already supplied to the

institution to verify his compliance.

(2) The Secretary provides an opportunity for a hearing to a

student who--

(i) Asserts that he is in compliance with registration

requirements; and

(ii) Files a written request for a hearing in accordance with

paragraph (f)(1) of this section within the award year for which he was

denied title IV, HEA program assistance or within 30 days following the

end of the payment period, whichever is later.

(3) An official designated by the Secretary shall conduct any

hearing held under paragraph (f)(2) of this section. The sole purpose

of this hearing is the determination of compliance with registration

requirements. At this hearing, the student retains the burden of

proving compliance, by credible evidence, with the requirements of the

Military Selective Service Act. The designated official shall not

consider challenges based on constitutional or other grounds to the

requirements that a student state and verify, if required, compliance

with registration requirements, or to those registration requirements

themselves.

(g) Any determination of compliance made under this section is

final unless reopened by the Secretary and revised on the basis of

additional evidence.

(h) Any determination of compliance made under this section is

binding only for purposes of determining eligibility for title IV, HEA

program assistance.

(Authority: 20 U.S.C. 1091 and 50 App. 462)

Sec. 668.38 Enrollment in telecommunications and correspondence

courses.

(a) If a student is enrolled in correspondence courses, the student

is eligible to receive title IV, HEA program assistance only if the

correspondence courses are part of a program that leads to an

associate, bachelor's, or graduate degree.

(b) (1) For purposes of this provision, the Secretary considers

that a student enrolled in a ``telecommunications course'' is enrolled

in a correspondence course unless the total number of telecommunication

and correspondence courses the institution provides is fewer than 50

percent of the courses the institution provides during an award year

and the student is enrolled in a program that leads to an associate,

bachelor's, or graduate degree.

(2) In making the determination required under paragraph (b)(1) of

this section, the institution shall use its latest complete award year,

and shall calculate the number of courses using the provisions

contained in 34 CFR 600.7(b)(2).

(Authority: 20 U.S.C. 1091)

Sec. 668.39 Study abroad programs.

A student enrolled in a program of study abroad is eligible to

receive title IV, HEA program assistance if--

(a) The student remains enrolled as a regular student in an

eligible program at an eligible institution during his or her program

of study abroad; and

(b) The eligible institution approves the program of study abroad

for academic credit. However, the study abroad program need not be

required as part of the student's eligible degree program.

(Authority: 20 U.S.C. 1091(o))

8. Section 668.133 is amended by revising paragraph (b) to read as

follows:

Sec. 668.133 Conditions under which an institution shall request

documentation and request secondary confirmation.

* * * * *

(b) Exclusions from secondary confirmation. (1) An institution may

not require the student to produce the documentation requested under

Sec. 668.33(a)(2) and may not request that INS perform secondary

confirmation, if the student--

(i) Demonstrates eligibility under the provisions of Sec. 668.33

(a)(1) or (b); or

(ii) Demonstrated eligibility under the provisions of

Sec. 668.33(a)(2) in a previous award year as a result of secondary

confirmation and the documents used to establish that eligibility have

not expired; and

(iii) The institution does not have conflicting documentation or

reason to believe that the student's claim of citizenship or

immigration status is incorrect.

* * * * *

(Approved by the Office of Management and Budget under control

number 1840-0650)

9. Section 668.161 is amended by revising paragraph (b) to read as

follows:

Sec. 668.161 Scope and purpose.

* * * * *

(b) Federal interest in title IV, HEA program funds. Except for

funds received by an institution for administrative expenses and for

funds used for the Job Location and Development Program, under the

Federal Work-Study Programs, funds received by an institution under the

title IV, HEA programs are held in trust for the intended student

beneficiaries and the Secretary. The institution, as a trustee of

Federal funds, may not use or hypothecate (i.e., use as collateral)

title IV, HEA program funds for any other purpose.

(Authority: 20 U.S.C. 1094)

* * * * *

10. Section 668.163 is amended by adding a new paragraph

(a)(2)(iii); and by revising paragraph (a)(3)(i)(A) to read as follows:

Sec. 668.163 Requesting funds.

* * * * *

(a) * * *

(2) * * *

(iii) In submitting a request for cash, an institution must

identify the title IV, HEA program under which the institution requests

funds by its appropriate Catalog of Federal Domestic Assistance (CFDA)

number and the total amount of program funds for each CFDA number

included in the request.

* * * * *

(3) * * *

(i) * * *

(A) Identify the students for whom the institution is seeking

reimbursement that will be included in the institution's request for

cash. The institution's request for cash must identify the title IV,

HEA program under which the institution seeks reimbursement by its

appropriate CFDA number and the total

[[Page 61814]]

amount of program funds for each CFDA number included in the request;

* * * * *

11. Section 668.164, paragraph (a)(2)(iii) is revised to read as

follows:

Sec. 668.164 Maintaining funds.

* * * * *

(a) * * *

(2) * * *

(iii) Except for public institutions, file with the appropriate

State or municipal government entity a UCC-1 statement disclosing that

the account contains Federal funds and maintain a copy of that

statement in its records.

* * * * *

(Approved by the Office of Management and Budget under control

number 1840-0697)

12. Section 668.165 is amended by revising paragraph (b)(1); and by

adding a new paragraph (e) to read as follows:

Sec. 668.165 Disbursing funds.

* * * * *

(b) Crediting a student's account at the institution (1) General.

An institution may disburse title IV, HEA program funds by crediting

the student's account at the institution. Except as provided in

paragraph (e) of this section, in crediting the student's account with

title IV, HEA program funds, the institution may use those funds only

to satisfy allowable charges described under paragraph (b)(3) of this

section for the current award year or period of enrollment. An

institution must notify expeditiously a student or parent borrower in

writing or by equivalent electronic means that the institution has

credited the student's account with Direct Loan, FFEL, or Federal

Perkins Loan program funds. If an institution notifies a student or

parent electronically, it must request the student or parent to confirm

the receipt of the notice and maintain a record of that confirmation.

* * * * *

(e) Prior-year charges. An institution may use a student's title

IV, HEA program funds to pay minor prior-year institutional charges

if--

(1) The student has, or will have, a title IV, HEA credit balance

as determined under paragraph (b)(2) of this section;

(2) The institution obtains the student's authorization to pay

these charges; and

(3) The prior-year charges do not exceed $100; or

(4) The payment of these charges does not, or will not, prevent the

student from paying his or her current-year education costs.

* * * * *

(Approved by the Office of Management and Budget under control

number 1840-0697)

PART 674--FEDERAL PERKINS LOAN PROGRAM

13. The authority citation for part 674 continues to read as

follows:

Authority: 20 U.S.C. 1087aa-1087ii and 20 U.S.C. 421-429, unless

otherwise noted.

Sec. 674.2 [Amended]

14. Section 674.2 paragraph (a) is amended by adding, in

alphabetical order, ``Full-time student''.

15. Section 674.2 paragraph (b) is amended by removing the

definitions of ``Full-time graduate or professional student'', ``Full-

time undergraduate student'', and ``Satisfactory arrangements to repay

the loan'' and by revising the definition of ``making of a loan'' to

read as follows:

Sec. 674.2 Definitions.

* * * * *

(b) * * *

Making of a loan: When the borrower signs the promissory note for

the award year and the institution makes the first disbursement of loan

funds under that promissory note for that award year.

* * * * *

16. Section 674.5 is amended by redesignating paragraph (e) as

paragraph (f), by adding new paragraph (e), and by revising

redesignated paragraph (f) to read as follows:

Sec. 674.5 Federal Perkins loan program cohort default rate and

penalties.

* * * * *

(e) Satisfactory arrangements to repay the loan. The Secretary

considers that the borrower has made satisfactory arrangements to repay

the loan when the borrower has--

(1) Paid the loan in full; or

(2) Executed a new written repayment agreement; and

(3) Made one payment each month for six consecutive months.

(f) Loan rehabilitation. (1) The Secretary considers that the

borrower has rehabilitated the loan when the borrower has--

(i) Paid the loan in full; or

(ii) Executed a new written repayment agreement; and

(iii) Made one payment each month for 12 consecutive months.

(2) Within 30 days of the date of the rehabilitation, the

institution shall report the rehabilitation to any national credit

bureau.

17. Section 674.16 is amended by revising paragraph (d) to read as

follows:

Sec. 674.16 Making and disbursing loans.

* * * * *

(d)(1) The institution shall disburse funds to a student or the

student's account in accordance with 34 CFR 668.165.

(2) The institution shall obtain the borrower's signature on a

promissory note for each award year before it disburses any loan funds

to the borrower under that note for that award year.

* * * * *

(Approved by the Office of Management and Budget under control

number 1840-0535)

Sec. 674.17 [Amended]

18. Section 674.17 is amended by removing paragraph (a) and by

redesignating paragraphs (b)(1) introductory text, (b)(1)(i),

(b)(1)(ii), (b)(1)(iii), (b)(2), (b)(3), (b)(4) introductory text,

(b)(4)(i), (b)(4)(ii), and (b)(5) as paragraphs (a) introductory text,

(a)(1), (a)(2), (a)(3), (b), (c), (d) introductory text, (d)(1),

(d)(2), and (e), respectively.

19. Section 674.19 is amended by revising paragraph (e)(4)(v) to

read as follows:

Sec. 674.19 Fiscal procedures and records.

* * * * *

(e) * * *

(4) * * *

(v) An institution may keep the records required in this section on

microforms, optical disk, other comparable imaging technology, or in

computer format. If an institution keeps its records in computer

format, it shall maintain, in either hard copy, microforms, optical

disk, or other comparable imaging technology, the source documents

supporting the computer input.

* * * * *

(Approved by the Office of Management and Budget under control

number 1840-0535)

20. Section 674.31 is amended by revising paragraph (a)(1) to read

as follows:

Sec. 674.31 Promissory note.

(a) Promissory note. (1) An institution may use only the promissory

note that the Secretary provides. The institution may make only

nonsubstantive changes, such as changes to the type style or font, or

the addition of items such as the borrower's driver's license number,

to this note.

* * * * *

(Approved by the Office of Management and Budget under control

number 1840-0535)

Sec. 674.33 [Amended]

21. Section 674.33 paragraph (a)(2) is amended by removing ``$15''

and adding in its place ``$25'', by redesignating the second paragraph

[[Page 61815]]

(d)(3) as paragraph (d)(6), by redesignating the second paragraph

(d)(4) as paragraph (d)(7), and by removing ``(d)(2)(i)'' in

redesignated paragraph (6) and adding in its place ``(d)(5)(i)''.

22. Section 674.34 paragraphs (e)(4) and (e)(6)(ii) are amended by

changing the reference to ``(e)(8)'' to read ``(e)(9)''; the

introductory text of paragraph (e)(6) is amended by adding ``or

(e)(5)'' after ``(e)(4)''; paragraph (e)(7) is amended by removing ``or

(4)'' and adding in its place ``(e)(4), or (e)(5)''; and by revising

paragraph (e)(5) to read as follows:

Sec. 674.34 Deferment of repayment--Federal Perkins loans and Direct

loans made on or after July 1, 1993.

* * * * *

(e) * * *

(5) 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 (3) of this section.

* * * * *

23. Section 674.47 is amended by revising paragraph (g) and by

adding a new paragraph (h) to read as follows:

Sec. 674.47 Costs chargeable to the fund.

* * * * *

(g) Cessation of collection activity of defaulted accounts. (1) An

institution may cease collection activity on a defaulted account with a

balance of less than $25, including outstanding principal, accrued

interest, collection costs, and late charges, if the borrower has been

billed for this balance in accordance with section 674.43(a).

(2) An institution may cease collection activity on a defaulted

account with a balance of less than $200, including outstanding

principal, accrued interest, collection costs, and late charges, if--

(i) The institution has carried out the due diligence procedures

described in subpart C of the part with regard to this account; and

(ii) For a period of at least 4 years, the borrower has not made a

payment on the account, converted the account to regular repayment

status, or applied for a deferment, postponement, or cancellation on

the account.

(h) Write-offs of accounts of less than $5. (1) Notwithstanding any

other provision in this subpart, an institution may write off an

account with a balance of less than $5, including outstanding

principal, accrued interest, collection costs, and late charges.

(2) An institution that writes off an account under this paragraph

may no longer include the amount of the account as an asset of the

Fund.

* * * * *

(Approved by the Office of Management and Budget under control

number 1840-0581)

PART 675--FEDERAL WORK-STUDY PROGRAMS

Subpart A--Federal Work-Study Program

24. The authority citation for part 675 continues to read as

follows:

Authority: 42 U.S.C. 2571-2756b, unless otherwise noted.

Sec. 675.2 [Amended]

25. Section 675.2, paragraph (a) is amended by adding in

alphabetical order, the term ``Full-time student''.

26. Section 675.2, paragraph (b) is amended by removing the

definitions of ``Full-time graduate or professional student'' and

``Full-time undergraduate student''.

Sec. 675.17 [Removed and Reserved]

27. Section 675.17 is removed and reserved.

28. Section 675.19 is amended by revising paragraph (c)(3) to read

as follows:

Sec. 675.19 Fiscal procedures and records.

* * * * *

(c) * * *

(3) An institution may keep the records required in this section on

microforms, optical disk, other comparable imaging technology, or in

computer format. If an institution keeps its records in computer

format, it shall maintain, in either hard copy, microforms, optical

disk, or other comparable imaging technology, the source documents

supporting the computer input.

* * * * *

(Approved by the Office of Management and Budget under control

number 1840-0535)

Appendix B to Part 675--[Removed]

29. Appendix B--Model Off-Campus Agreement is removed.

PART 676--FEDERAL SUPPLEMENTAL EDUCATIONAL OPPORTUNITY GRANT

PROGRAM

30. The authority citation for part 676 continues to read as

follows:

Authority: 20 U.S.C. 1070b-1070-3, unless otherwise noted.

Sec. 676.2 [Amended]

31. Section 676.2, paragraph (a) is amended by adding in

alphabetical order, the term ``Full-time student''.

32. Section 676.2, paragraph (b) is amended by removing the

definition of ``Full-time undergraduate student''.

Sec. 676.17 [Removed and Reserved]

33. Section 676.17 is removed and reserved.

34. Section 676.19 is amended by revising paragraph (c)(3) to read

as follows:

Sec. 676.19 Fiscal procedures and records.

* * * * *

(c) * * *

(3) An institution may keep the records required in this section on

microforms, optical disk, other comparable imaging technology, or in

computer format. If an institution keeps its records in computer

format, it shall maintain, in either hard copy, microforms, optical

disk, or other comparable imaging technology, the source documents

supporting the computer input.

* * * * *

(Approved by the Office of Management and Budget under control

number 1840-0535)

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

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

follows:

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

36. Section 682.201, paragraph (b) is amended by removing ``and''

at the end of paragraph (b)(6); redesignating paragraphs (b)(1) through

(b)(6) as paragraphs (b)(1)(i) through (b)(1)(vi), respectively; by

designating the undesignated introductory text following ``(b) Parent

borrower.'' as the introductory text of paragraph (b)(1); by

redesignating paragraphs (b)(7)(i) through (b)(7)(vi) as (b)(1)(vii)(A)

through (b)(1)(vii)(F), respectively, and paragraphs (b)(7)(iii)(A) and

(b)(7)(iii)(B) as (b)(1)(vii)(C)(1) and (b)(1)(vii)(C)(2),

respectively; by redesignating paragraph (b)(8) as paragraph

(b)(1)(viii) and removing the reference to ``(7)(iii)'' and adding, in

its place ``(b)(1)(vii)(C)''; and by adding a new paragraph (b)(2) to

read as follows:

Sec. 682.201 Eligible borrowers.

* * * * *

(b) * * *

(2) For purposes of paragraph (b)(1) of this section, a ``parent''

includes the individuals described in the definition of ``parent'' in

34 CFR 668.2 and the spouse of a parent who remarried, if that spouse's

income and assets would have been taken into account when calculating a

dependent student's expected family contribution.

[[Page 61816]]

Sec. 682.600 [Removed and Reserved]

37. Section 682.600 is removed and reserved.

Sec. 682.602 [Removed and Reserved]

38. Section 682.602 is removed and reserved.

39. A new Sec. 682.611 is added to Subpart F to read as follows:

Sec. 682.611 Foreign schools.

A foreign school is required to comply with the provisions of this

part, except to the extent that the Secretary states in this part or in

other official publications or documents that those schools need not

comply with those provisions.

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1082,

1088, and 1094)

PART 685--WILLIAM D. FORD FEDERAL DIRECT LOAN PROGRAM

40. The authority citation for part 685 continues to read as

follows:

Authority: 20 U.S.C. Sec. 1078a et seq., unless otherwise noted.

41. Section 685.200, paragraph (b) is amended by redesignating

paragraphs (b)(1) through (b)(6) as paragraphs (b)(1)(i) through

(b)(1)(vi), respectively; redesignating paragraph (b)(7) as

(b)(1)(vii), paragraphs (b)(7)(i) through (b)(7)(iii) as (b)(1)(vii)(A)

through (b)(1)(vii)(C), respectively, (b)(7)(i)(A) through (b)(7)(i)(C)

as (b)(1)(vii)(A)(1) through (b)(1)(vii)(A)(3), respectively, and

(b)(7)(ii)(A) and (b)(7)(ii)(B) as (b)(1)(vii)(B)(1) and

(b)(1)(vii)(B)(2), respectively; by designating the undesignated

introductory text following ``(b) Parent borrower.'' as the

introductory text of paragraph (b)(1); by removing the references to

``(b)(7)(i)'' in redesignated paragraphs (b)(1)(vii)(B) and

(b)(1)(vii)(C) and adding, in their place ``(b)(1)(vii)(A)''; and by

adding a new paragraph (b)(2) to read as follows:

Sec. 685.200 Borrower eligibility.

* * * * *

(b) * * *

(2) For purposes of paragraph (b)(1) of this section, a ``parent''

includes the individuals described in the definition of ``parent'' in

34 CFR 668.2 and the spouse of a parent who remarried, if that spouse's

income and assets would have been taken into account when calculating a

dependent student's expected family contribution.

* * * * *

PART 690--FEDERAL PELL GRANT PROGRAM

42. The authority citation for part 690 continues to read as

follows:

Authority: 20 U.S.C. Sec. 1070a, unless otherwise noted.

43. Section 690.2 is amended by removing the definition of

``Payment Voucher'' and by adding, in alphabetical order, the

definition of ``Payment Data'' to read as follows:

Sec. 690.2 Definitions.

* * * * *

(b) * * *

Payment Data: An electronic or magnetic record that is provided to

the Secretary by an institution showing a student's expected family

contribution, cost of attendance, enrollment status, and student

disbursement information.

Sec. 690.7 [Amended]

44. Section 690.7, paragraph (a)(1) is removed and paragraph (a)(2)

is redesignated as paragraph (a).

Sec. 690.71 [Amended]

45. Section 690.71 is amended by removing the second sentence.

Secs. 690.72, 690.73, 690.74 [Removed and Reserved]

46. Sections 690.72, 690.73, and 690.74 are removed and reserved.

47. Section 690.83 is amended by revising paragraphs (a) through

(d) to read as follows:

Sec. 690.83 Submission of reports.

(a) (1) An institution may receive either a payment from the

Secretary for an award to a Federal Pell Grant recipient, or a

corresponding reduction in the amount of Federal funds received in

advance for which it is accountable, if--

(i) The institution submits to the Secretary the student's Payment

Data for that award year in the manner and form prescribed in paragraph

(a)(2) of this section by September 30 following the end of the award

year in which the grant is made, or, if September 30 falls on a

weekend, on the first weekday following September 30; and

(ii) The Secretary accepts the student's Payment Data.

(2) The Secretary accepts a student's Payment Data that is

submitted in accordance with procedures established through publication

in the Federal Register, and that contain information the Secretary

considers to be accurate in light of other available information

including that previously provided by the student and the institution.

(3) An institution that does not comply with the requirements of

this paragraph may receive a payment or reduction in accountability

only as provided in paragraph (d) of this section.

(b) (1) An institution shall report to the Secretary any change in

enrollment status, cost of attendance, or other event or condition that

causes a change in the amount of a Federal Pell Grant for which a

student qualifies by submitting to the Secretary the student's Payment

Data that discloses the basis and result of the change in award for

each student. Through publication in the Federal Register, the

Secretary divides the award year into periods and establishes the

deadlines by which the institution shall report changes occurring

during each period. The institution shall submit the student's Payment

Data reporting a change to the Secretary by the end of that reporting

period that next follows the reporting period in which the change

occurred.

(2) An institution shall submit in accordance with deadline dates

established by the Secretary, through publication in the Federal

Register, other reports and information the Secretary requires in

connection with the funds advanced to it and shall comply with the

procedures the Secretary finds necessary to ensure that the reports are

correct.

(3) An institution that timely submits, and has accepted by the

Secretary, the Payment Data for a student in accordance with this

section shall report a reduction in the amount of a Federal Pell Grant

award that the student received when it determines that an overpayment

has occurred, unless that overpayment is one for which the institution

is not liable under Sec. 690.79(a).

(c) In accordance with 34 CFR 668.84 the Secretary may impose a

fine on the institution if the institution fails to comply with the

requirements specified in paragraphs (a) or (b) of this section.

(d) (1) Notwithstanding paragraphs (a) or (b) of this section, if

an institution demonstrates to the satisfaction of the Secretary that

the institution has provided Federal Pell Grants in accordance with

this part but has not received credit or payment for those grants, the

institution may receive payment or a reduction in accountability for

those grants in accordance with paragraphs (d)(4) and either (d)(2) or

(d)(3) of this section.

(2) The institution must demonstrate that it qualifies for a credit

or payment by means of a finding contained in an audit report of an

award year that was the first audit of that award year and that was

conducted after December 31, 1988 and timely submitted to the Secretary

under 34 CFR 668.23(c).

(3) An institution that timely submits the Payment Data for a

student in accordance with paragraph (a) of this section but does not

timely submit to the Secretary, or have accepted by the Secretary, the

Payment Data necessary

[[Page 61817]]

to document the full amount of the award to which the student is

entitled, may receive a payment or reduction in accountability in the

full amount of that award, if--

(i) A program review demonstrates to the satisfaction of the

Secretary that the student was eligible to receive an amount greater

than that reported in the student's Payment Data timely submitted to,

and accepted by the Secretary; and

(ii) The institution seeks an adjustment to reflect an underpayment

for that award that is at least $100.

(4) In determining whether the institution qualifies for a payment

or reduction in accountability, the Secretary takes into account any

liabilities of the institution arising from that audit or program

review or any other source. The Secretary collects those liabilities by

offset in accordance with 34 CFR part 30.

* * * * *

(Approved by the Office of Management and Budget under control

number 1840-0688)

[FR Doc. 95-29180 Filed 11-30-95; 8:45 am]

BILLING CODE 4000-01-P