Student Assistance General Provisions

SUMMARY: The Secretary amends the Student Assistance General Provisions

(General Provisions) regulations. The General Provisions regulations

govern elements common to all of the Federal Student Financial Aid

Programs authorized by Title IV of the Higher Education Act of 1965, as

amended (HEA) (hereafter Title IV Programs). These amendments modify

the Secretary's Federal Family Education Loan (FFEL) Program default

reduction initiative and implement default prevention measures in the

William D. Ford Federal Direct Loan (Direct Loan) Program. These

regulations also streamline the limitation, suspension, and termination

(L, S, and T) actions against an institution and prevent an institution

from evading the consequences of a high FFEL Program cohort default

rate, Direct Loan Program cohort rate, or weighted average cohort rate.

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

affected parties do not have to comply with the information collection

requirements in Sec. 668.17 until the Department of Education publishes

in the Federal Register the control number assigned by the Office of

Management and Budget (OMB) to these information collection

requirements. Publication of the control number notifies the public

that OMB has approved these collection requirements under the Paperwork

Reduction Act of 1995.

FOR FURTHER INFORMATION CONTACT: Mr. Douglas Laine, Program Specialist,

Direct Loan Policy Group, Policy Development Division, U.S. Department

of Education, 600 Independence Avenue, SW, room 3045, Regional Office

Building 3, Washington, DC 20202-5400, telephone: (202) 708-9406.

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 September 21, 1995, the Secretary

published a Notice of Proposed Rulemaking (NPRM) for part 668 in the

Federal Register (60 FR 49178). The NPRM included a discussion of the

major issues surrounding the proposed changes which will not be

repeated here. The following list summarizes those issues and

identifies the pages of the preamble to the NPRM on which a discussion

of those changes can be found:

The Secretary proposed to define a measurement similar to the FFEL

Program cohort default rate under the Direct Loan Program, a ``cohort

rate'' for Direct Loans, and to establish institutional eligibility

requirements, based on the repayment of Direct Loans by the

institution's former students, that are similar to those in the FFEL

Program (pages 49179-49181).

Further, the Secretary proposed that a Direct Loan institution with

an excessive Direct Loan Program cohort rate or weighted average cohort

rate be permitted to avoid a loss of participation by showing the

existence of exceptional mitigating circumstances (pages 49182-49184).

The Secretary proposed to modify the cohort default rate appeal

process and the exceptional mitigating circumstances under which an

institution may appeal its statutory loss of eligibility to participate

in the FFEL Program on the basis of its cohort default rate (page

49184).

Finally, the Secretary proposed to streamline the current L, S, and

T procedures and to limit the grounds on which a hearing officer may

decide when an L, S, and T action is unwarranted (pages 49182-49185).

The Secretary has combined in a separate new paragraph the

provisions that were contained in Sec. 668.17(d)(1) (iii) and (iv), (e)

(5) through (11), and (f) (5) through (10). These paragraphs

established an institution's FFEL Program cohort default rate, Direct

Loan Program cohort rate, and weighted average cohort rate,

respectively, when an institution changes status during a fiscal year.

A change of status occurs, for example, when an institution merges with

another institution or a branch of an institution joins a free-standing

institution. These provisions have been consolidated into a new

paragraph (g).

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.

Section 668.17 Default Reduction and Prevention Measures

Participation Rate Index Formula

A change has been made to the formula used to determine the

percentage of an institution's students who borrow under the FFEL or

Direct Loan programs for calculating the participation rate index under

Sec. 668.17(c)(1)(ii)(A). The proposed rules provided that an

institution would base the percentage of its students that borrow under

the FFEL or Direct Loan programs on the number of students enrolled at

least half-time at the institution.

The final rules have been changed to provide that an institution

must base the percentage of its students that borrow under the FFEL or

Direct Loan programs on the number of its ``regular students'' enrolled

at least half-time. A ``regular student'' is a student who is enrolled

or accepted for enrollment at an institution for the purpose of

obtaining a degree, certificate, or other recognized educational

credential offered by that institution. This definition is contained in

34 CFR 600.2.

Economically Disadvantaged Rate Formula

A change has been made to the formula used to determine the

percentage of an institution's students who come from economically

disadvantaged backgrounds under Sec. 668.17(c)(1)(ii)(B). The proposed

rules provided that the percentage of an institution's students coming

from economically disadvantaged backgrounds would be based on all of

the institution's students.

The final rules have been changed to provide that the percentage of

an institution's students that come from disadvantaged economic

backgrounds must be based on the institution's regular students.

Placement Rate Formula

A number of changes have been made to the formula used to calculate

an institution's placement rate under Sec. 668.17(c)(1)(ii)(B)(2). The

formula contained in the proposed rules considered a former student who

was initially enrolled full-time as successfully placed if, on the date

the institution submits the appeal, the former student:

(1) is employed, or had been employed for at least 13 weeks,

following his or her last day of attendance at the institution; or

(2) is enrolled or was enrolled for at least 13 weeks in a higher

level program at another institution for which the institution's

program provided substantial preparation.

The placement rate calculation has been revised to provide that:

(a) only former regular students who were initially enrolled at least

half-time be

[[Page 61761]]

considered in the placement rate; and (b) a student will be considered

as successfully placed by the institution if the former student:

(1) has been employed in an occupation for which the institution's

program provided training for at least 13 weeks within the 12-month

period after the date of the student's last day of attendance; or

(2) is employed in an occupation for which the institution's

program provided training on the day after 12 months following the date

of the student's last day of attendance.

The final regulations provide that a student who is still enrolled

in the institution on the day after 12 months after the date of the

student's last day of attendance and is making satisfactory academic

progress in the program in which he or she was initially scheduled to

complete is excluded from the cohort of students used to determine the

institution's placement rate. The proposed rules would have included

such students in the placement rate.

Further, under the final regulations, a student or former student

may not be considered successfully placed if the institution is the

student's or former student's employer.

Finally, the final regulations provide that, in calculating the

placement rate formula under Sec. 668.17(c)(2), a student who is

initially enrolled at least half-time, but less than full-time, will be

considered to be scheduled to complete his or her program during the

amount of time normally it would take that student to complete the

program based on his or her initial enrollment.

Completion Rate Formula

A change has been made to the formula used to calculate an

institution's completion rate under Sec. 668.17(c)(1)(ii)(B)(1). The

formula contained in the proposed rules would have based the

institution's completion rate on all initially enrolled full-time

students. The final rules have been amended to base the institution's

completion rate on all initially enrolled full-time regular students.

Submission of Appeal Information

A change has been made to Sec. 668.17(c)(1)(ii) to provide that an

appeal on the basis of exceptional mitigating circumstances must be

submitted to the Secretary in a format prescribed by the Secretary and

must include data elements requested by the Secretary. The proposed

rules identified specific detailed information an institution would

have to provide in an appeal. The Secretary has removed this detailed

information from the final regulations. Instead, the final regulations

provide that any information an institution submits regarding an appeal

must:

be submitted in a format prescribed by the Secretary, and

include information the Secretary has determined is

necessary to evaluate the appeal.

The Secretary expects that institutions will be provided with the

format in which the appeal must be submitted and the data elements that

must be included when the institution is notified of its cohort default

rate data in accordance with Sec. 668.17(i).

The information that the Secretary may require in an appeal may

include, but is not necessarily limited to, information relating to

student enrollment, loan periods, expected family contributions (EFC),

adjusted gross incomes, withdrawal dates, graduation dates, transfers,

job placement, employer information, job titles, and dates employed.

This information is the same information currently required of

institutions submitting appeals. Institutions will likely be familiar

with these data items since the Official Default Rate Guide (formerly

Enclosure B), which is provided to institutions along with their cohort

default rates, lists these data elements. The Secretary does not expect

these items to change substantially.

Section 668.17(c)(6) of the final regulations has been revised to

require the chief executive officer of an institution to certify, under

penalty of perjury, that the appeal information is true and correct.

Completion and Placement Rate Appeals

In Sec. 668.17(c)(1)(ii)(B), a change has been made to an

institution's right to appeal using the exceptional mitigating

circumstances appeal based on both the percentage of an institution's

students that come from disadvantaged economic backgrounds and the

institution's completion rate or placement rate. The proposed rules

limited the exceptional mitigating circumstance appeal that included

the completion rate to public and private nonprofit institutions, and

limited the exceptional mitigating circumstances appeal that included

the placement rate to proprietary institutions.

The final regulations have been revised to require degree-granting

proprietary institutions as well as public or private nonprofit degree-

granting institutions, to appeal using the completion rate component,

whereas nondegree-granting institutions, public, private nonprofit, or

proprietary, may only appeal based on the placement rate component.

Guaranty Agency Verification of Data

The final regulations have been changed in Sec. 668.17(c)(8) to

provide that an institution will not lose its eligibility to

participate in the FFEL or Direct Loan programs during the appeal

process if a guaranty agency does not respond in a timely manner to the

institution's timely request to verify data included in the

institution's FFEL Program cohort default rate that the institution

believes is inaccurate. The proposed rules had provided that an

institution would lose its eligibility to continue to participate in

the appeal process if it did not submit all of its appeal information

to the Secretary within 30 days following notification of the loss of

eligibility.

Section 668.17(c)(1) now requires an institution that appeals on

the basis of inaccurate data to inform the Secretary that it is

appealing on this basis at the same time it submits its request to

verify its FFEL Program cohort default rate data to the guaranty

agency. Further, an institution must provide its verified data to the

Secretary within five working days after it receives that data from the

guaranty agency.

Independent Audit of Appeals

The final regulations have been changed in Sec. 668.17(c)(7) to

provide that an institution choosing to appeal its loss of eligibility

on the basis of exceptional mitigating circumstances must provide a

statement from an independent auditor that verifies the information

included in the appeal within 60 days following the institution's

notification of the loss of eligibility. The proposed rules provided

that this information be submitted by the 30th day following

notification of the loss of eligibility. The final rules continue to

require that the rest of the appeal be submitted by that 30th day.

Further, the regulations have been amended to provide more specific

guidance concerning the methodology that must be used by an independent

auditor to determine if the information contained in the appeal is

correct.

Data Period

The final regulations have been changed in Sec. 668.17(c)(1)(ii)(B)

to clarify that the 12-month period used to determine the percentage of

the institution's student body that comes from disadvantaged economic

backgrounds must be the same 12-month period the institution uses to

determine its placement rate or completion rate. The proposed rules

were read to allow the institution the option to choose a different 12-

month

[[Page 61762]]

period for the placement rate or completion rate than the one used for

the percentage of the institution's student body that comes from

disadvantaged economic backgrounds.

Direct Loan Program Cohort Rate and Weighted Average Cohort Rate

The final regulations have been changed in Secs. 668.17(e)(1)(ii)

and 668.17(f)(1)(ii) to provide that a Direct Loan borrower who is in

the income-contingent repayment (ICR) plan on his or her loan and, for

270 days, had scheduled monthly payments that are less than $15 and

less than the interest that is accruing on the loan each month will be

included in an institution's Direct Loan Program cohort rate or

weighted average cohort rate. Under the proposed rules, such a borrower

would be included in the Direct Loan Program cohort rate or weighted

average cohort rate only if such conditions existed at the end of the

fiscal year following the fiscal year the borrower entered repayment on

the loan.

L, S, and T

The final regulations have been revised in Sec. 668.17(a)(5) so

that the Secretary will cease any L, S, and T action taken against an

institution solely on the basis of its FFEL Program cohort default

rate, Direct Loan Program cohort rate, or weighted average cohort rate

if the institution successfully appeals under the exceptional

mitigating circumstances. The proposed rules provided that the

Secretary would withdraw an L, S, and T action against an institution's

participation only in the FFEL Program if the institution successfully

appeals under exceptional mitigating circumstances.

The final regulations have been revised in Sec. 668.17(c)(1)(ii)(A)

to provide that an institution with an FFEL Program cohort default

rate, Direct Loan Program cohort rate, or weighted average cohort rate

that exceeds 40 percent will not be eligible to appeal a loss of

eligibility to participate in the FFEL or Direct Loan programs under

the participation rate index.

Analysis of Comments and Changes

In response to the Secretary's invitation in the NPRM, 150 parties

submitted comments on the proposed regulations. An analysis of the

comments and the changes follows. Major issues are grouped according to

subject, with references to the appropriate sections of the regulation.

Technical and other minor changes, and suggested changes the Secretary

is not legally authorized to make under the applicable statutory

authority, generally are not addressed.

General

Comments: Many commenters argued that the HEA requires that these

regulations be subject to a negotiated rulemaking process.

Discussion: The Secretary does not agree with the commenters.

Section 457 of the HEA requires the Secretary, to the extent

practicable, to promulgate regulations that implement the provisions of

Part D of the HEA (which authorizes the Direct Loan Program) through a

negotiated rulemaking process. Although these rules will affect Direct

Loan institutions, these regulations do not directly implement any

provisions contained in Part D of the HEA. The HEA does not require the

Secretary to institute a negotiated rulemaking process for every

regulation that has an affect on the Direct Loan Program. Moreover, the

HEA does not require negotiated rulemaking for amendments to existing

regulations. In any case, it was not practicable to conduct negotiated

rulemaking for these amendments.

Changes: None.

Comments: Many commenters believed that the comment period for this

proposed rule was too short, especially due to the fact that the

Secretary published six proposed rules during the same week. The

commenters indicated that it would be more appropriate for the

Secretary to provide a longer comment period to allow them to provide

more complete responses to the proposed rules.

Discussion: In the six sets of proposed rules mentioned above, the

Secretary proposed numerous improvements and necessary changes to the

Student Financial Assistance Programs. The ``Master Calendar''

provisions contained in section 482 of the HEA require that regulations

be published in final form by December 1 prior to the start of the

award year for which they will become effective. Because of the

importance of implementing these changes and improvements for the award

year beginning July 1, 1996, the Secretary established a comment period

that allows publication of these final regulations by December 1, 1995,

as required by the ``Master Calendar'' timeframe. The Secretary always

endeavors to provide as long a comment period as possible.

Changes: None.

Comment: A number of commenters representing proprietary

institutions questioned the Secretary's decision to distinguish between

non-degree-granting proprietary and public or private nonprofit

institutions for purposes of calculating Direct Loan Program cohort

rates and weighted average cohort rates. These commenters argued that

there was no basis for this distinction because proprietary

institutions offer the same programs as public institutions (such as

community colleges), which offer job training in a broader educational

context. These commenters criticized the proposal to include in the

cohort default rate calculation for proprietary non-degree granting

institutions, Direct Loans repaid through an ICR plan under which the

borrower makes payments less than $15 a month and that payment results

in negative amortization. Other commenters representing other types of

educational institutions supported the distinctions included in the

draft regulations.

Discussion: The Secretary believes it is appropriate to distinguish

between different types of institutions in calculating cohort default

rates. First, numerous reports by congressional committees (including

the Senate's Permanent Subcommittee on Investigations) and the General

Accounting Office, as well as the Department's own reviews of

individual institutions, have concluded that many proprietary

institutions (particularly non-degree-granting institutions) use

promises of job training and placement to entice students to enroll and

then the institutions fail to provide worthwhile services. Second,

those commenters who urged the Secretary not to distinguish between

different types of institutions are asking the Secretary to ignore the

overwhelming evidence that student loan default rates (and the

associated costs to students and taxpayers) are much higher in the

proprietary sector than in any other sector of higher education. For

example, among the institutions for whom cohort default rates were

calculated for Fiscal Year 1992 (which are the most recent final rates

available), 444 institutions were subject to loss of FFEL eligibility

for the first time based on default rates over 25 percent for the three

most recent fiscal years. Of those institutions, 396 (89 percent) were

proprietary institutions. Similarly, of the 205 institutions whose loss

of eligibility was extended based on excessive default rates, 186 (91

percent) were proprietary; and of the 376 institutions subject to

limitation, suspension or termination from participation in all Title

IV programs based on excessive default rates, 324 (86 percent) were

proprietary. Propreitary institutions represented 44 percent of all

institutions for whom

[[Page 61763]]

cohort default rates were calculated based on students and former

students entering repayment on FFEL Program loans in fiscal year 1992.

Further, the Fiscal Year 1992 data show that proprietary

institutions had default rates of 30.2 percent, twice the national

average for all institutions, and that public two-year institutions had

rates of 14.5 percent. These data do not support the commenters'

arguments that public institutions that offer vocational programs

similar to those offered by many proprietary institutions should be

treated the same as proprietaries for purposes of calculating Direct

Loan Program cohort rates or weighted average cohort rates.

In analyzing this information, the Secretary has concluded that

non-degree-granting proprietary institutions present a particular risk

to students and taxpayers. The Secretary believes that these

institutions would have a particular incentive to encourage their

student borrowers to request an ICR plan in an attempt to mask their

failure to provide worthwhile training, which results in employment

that only allows a borrower to make minimal loan payments while falling

further behind on the loan through negative amortization.

Changes: None.

Comments: Many commenters responded to the Secretary's invitation

to comment regarding whether the Secretary should implement measures to

prevent an institution from evading the proposed rule under which a

Direct Loan Program cohort rate and weighted average cohort rate are

calculated for non-degree-granting proprietary institutions using an

ICR component if such an institution switched to a nonprofit status.

The commenters felt that the current Internal Revenue Service

requirements to establish nonprofit status are sufficiently rigorous,

costly, and lengthy so as to prevent an institution from switching from

profit to nonprofit status to avoid the consequences of a high default

rate. Commenters argued that this type of decision would more likely be

made for business reasons rather than for the purpose of evading

regulatory requirements.

Discussion: The Secretary has carefully evaluated the comments

received on this issue and believes that further consideration is

warranted prior to implementing any regulatory or procedural changes

that would prevent an institution from switching from profit to

nonprofit status to avoid the consequences of a high default rate.

Changes: None.

Comments: Many commenters responded to the Secretary's request for

public comment regarding adding a measure to the default rate

definition for borrowers for whom payment has been deferred for an

extended period of time under the economic hardship or unemployment

deferments, or a forbearance. The commenters argued that including

borrowers whose payments had been deferred for an extended period of

time in the default rate definition results in ``punishing'' an

institution for informing students of their rights to defer or forbear

payments in certain circumstances. Further, some commenters argued that

the benefits to students of avoiding defaults through the use of

deferments and forbearance would outweigh the potential for abuse by

unscrupulous institutions that might try to artificially lower their

default rates.

Discussion: The Secretary agrees with the commenters that the use

of deferments and forbearances benefit students by preventing defaults.

The Secretary believes that this issue warrants further consideration

prior to implementing any changes. The Secretary will continue to

monitor the use of deferments and forbearances in both the Direct Loan

and FFEL Programs to determine if further action is needed.

Changes: None.

Comments: Many commenters suggested that if the Secretary was

planning to provide Direct Loan Program institutions with tools, such

as reports on delinquent borrowers, access to borrower information on a

toll-free servicing telephone number, and free loan counseling

materials for entrance and exit counseling, to help it reduce its

default rate, similar tools should be provided to the FFEL Program

institutions. The commenters stated that the Secretary has obligations

to help reduce default rates in the FFEL Program.

Discussion: The Secretary assures these commenters that he is

equally concerned about reducing defaults in both the FFEL and Direct

Loan programs and agrees that it is in the best interests of

institutions, borrowers, and taxpayers to help reduce the incidence of

student loan defaults by providing institutions with default prevention

tools. The HEA and the FFEL Program regulations provide FFEL

institutions with numerous tools to reduce their default rates. The

Secretary, guaranty agencies, and various institutional associations

have offered institutions training opportunities and information

designed to reduce FFEL Program cohort default rates. Direct Loan

institutions will be treated similarly. Some commenters suggested

specific measures that could be taken to assist institutions in

reducing defaults. The Secretary will carefully consider these

suggestions to enhance default prevention techniques in both the FFEL

and Direct Loan programs.

Changes: None.

Section 668.17(a)(1)

Comments: Many commenters were concerned that the language in

Sec. 668.17(a)(1) implies that an institution will not be notified of

its FFEL Program cohort default rate, Direct Loan Program cohort rate,

or weighted average cohort rate if that rate is equal to or less than

20 percent. The commenters suggested that all institutions should be

notified of their FFEL Program cohort default rates, Direct Loan

Program cohort rates, or weighted average cohort rates.

Discussion: The Secretary notes that this language is in current

regulations and was originally included in an NPRM published on

February 28, 1994 (59 FR 9526, 9572) and that no commenters raised

questions about this provision. The Secretary has traditionally

provided default rate notices to all institutions and all institutions

receive their default rate prior to publication under 34 CFR

668.17(j)(1) (ii) and (iii). However, it is most important that

institutions with rates over 20 percent receive notice of their final

rates since it is these institutions that may face sanctions based on

their rate. The Secretary originally provided that only institutions

with rates over 20 percent would be guaranteed to receive a notice

because of the possibility that future budget reductions would require

cuts in this area. The Secretary agrees with the commenters that,

whenever feasible, all institutions should be notified of their FFEL

Program cohort default rates, Direct Loan Program cohort rates, or

weighted average cohort rates. The Secretary plans to notify all

institutions of their rates.

Changes: None.

Section 668.17(a)(2)

Comments: Many commenters suggested that the Secretary should not

take L, S, and T action against an institution that is appealing its

loss of eligibility to participate in the FFEL or Direct Loan programs

under exceptional mitigating circumstances until a final decision is

made on the appeal. The commenters reasoned that it is unfair to

eliminate an institution from participating in all of the Title IV

programs before the institution has had a chance to prove to the

Secretary that exceptional mitigating circumstances

[[Page 61764]]

justify the institution's continued participation in the FFEL or Direct

Loan programs. Other institutions argued that it would be unfair to

take L, S, and T action against an institution before the institution

has had a chance to demonstrate to the Secretary that its rate is not

accurate and that a recalculated rate would be equal to or less than 40

percent.

Other commenters suggested that the Secretary should not initiate

an L, S, and T action against an institution that has few participants

in the FFEL or Direct Loan programs.

Discussion: First, the Secretary notes that the initiation of an L,

S, and T action is discretionary. The Secretary does not plan to

initiate such action against an institution unless the FFEL Program

cohort default rate, Direct Loan Program cohort rate, or weighted

average cohort rate on which the action is based is final. Moreover,

institutions are further protected since the hearing officer will find

that the action is not warranted if the rate is not final. The

Secretary believes that these provisions will ensure that an

institution will not be harmed from action taken against it on the

basis of a cohort default rate that is not final.

The Secretary does not agree with the commenters that an

institution should be exempt from L, S, and T action until an

institution's appeal under exceptional mitigating circumstances is

decided. However, the Secretary does agree with the commenters that if

an institution successfully appeals its loss of eligibility based on

its FFEL Program cohort default rate, Direct Loan Program cohort rate,

or weighted average cohort rate on the basis of exceptional mitigating

circumstances, any L, S, and T action taken solely on the basis of that

cohort rate should be withdrawn.

With respect to the commenter's concerns that an institution with

few participants in the FFEL and Direct Loan programs should be exempt

from L, S, and T action, the Secretary would like to assure the

commenters that he does not intend to take L, S, and T action against

an institution if that institution has less than five students

borrowing under the FFEL and Direct Loan programs.

Changes: The final regulations have been revised in

Sec. 668.17(a)(5) so that the Secretary will cease any L, S, and T

action taken against an institution solely on the basis of its FFEL

Program cohort default rate, Direct Loan Program cohort rate, or

weighted average cohort rate if the institution successfully appeals

under the exceptional mitigating circumstances.

Comments: Many commenters believed that the Secretary should take

L, S, and T action against an institution's participation in the Direct

Loan Program if that institution has FFEL Program cohort default rates

that are equal to or exceed 25 percent for three consecutive fiscal

years. The commenters believed that this change is needed for

comparability in the FFEL and Direct Loan programs, because the

Secretary is proposing to take L, S, and T action against an

institution's participation in the FFEL Program if it has a Direct Loan

Program cohort rate or weighted average cohort rate that equals or

exceeds 25 percent for three consecutive fiscal years.

Discussion: The Secretary does not agree with the commenters that a

change is needed for purposes of comparability between the FFEL and

Direct Loan programs. The statute provides the Secretary the authority

to establish institutional participation requirements for the Direct

Loan Program. Under the current Direct Loan Program regulations in 34

CFR 685.400, an institution is not eligible to continue to participate

in the Direct Loan Program if it has an FFEL Program cohort default

rate that equals or exceeds 25 percent for three consecutive fiscal

years. The Secretary does not have the authority to establish similar

institutional participation requirements for FFEL Program institutions.

Therefore, the Secretary believes that the regulations already address

the commenter's concerns.

Changes: None.

Section 668.17(c)

Comments: Many commenters suggested that the 30-day timeframe under

which an institution may appeal a loss of eligibility under inaccurate

data or exceptional mitigating circumstances be extended. The

commenters argued that 30 days did not provide enough time to compile

the data needed to support an appeal under exceptional mitigating

circumstances, nor did it provide a guaranty agency enough time to

verify any inaccurate data in the institution's rate. Many commenters

also suggested that the proposed requirement to have an appeal under

exceptional mitigating circumstances verified by an independent auditor

would not be possible within the 30-day timeframe.

Discussion: The 30-day timeframe to appeal under exceptional

mitigating circumstances or inaccurate data is mandated by section

435(a)(2) of the HEA. The Secretary does not have the authority to

extend this timeframe. The Secretary believes that an institution and a

guaranty agency should, in most cases, be able to comply with the 30-

day timeframe, particularly in light of the draft cohort default rate

review process.

However, the Secretary realizes that there may be exceptional cases

in which a guaranty agency fails to respond to an institution in a

timely manner. Therefore, the Secretary has decided to retain the

current regulations and permit an institution to continue to

participate in the FFEL Program during the appeal process when a

guaranty agency's failure to respond to an institution's timely request

results in the appeal being submitted later than 30-day deadline,

provided the institution notifies the Secretary that it is appealing

its FFEL Program cohort default rate data at the same time it requests

verification of its cohort default rate data from the relevant guaranty

agency(ies). An institution will be required to submit its verified

data to the Secretary within five working days from the date it

receives the verified data from such guaranty agency(ies).

Based on the comments received, the Secretary appreciates that an

institution may have difficulty obtaining an independent auditor's

verification of the information that must be submitted in the appeal

within the 30-day timeframe. However, the Secretary believes that this

verification is necessary. The Secretary has been persuaded that a 60-

day timeframe would be more appropriate for submission of the

independent auditor's verification. The institution must submit the

appeal data within 30 days; only the auditor's attestation may be

submitted after the 30-day deadline.

Changes: The final regulations have been amended in

Sec. 668.17(c)(8) to provide that an institution may continue to

participate in the FFEL Program if that institution fails to submit an

appeal based on inaccurate data by the 30-day deadline if that failure

is the result of a guaranty agency's failure to respond to the

institution's timely request for verification of its FFEL Program

cohort default rate data. The final regulations have also been amended

in Sec. 668.17(c)(7) to provide that the independent auditor's

verification of the information in the appeal must be submitted to the

Secretary within 60 days after the institution is notified that it will

lose its eligibility to participate in the FFEL or Direct Loan

programs.

Comments: Many commenters suggested that an independent auditor

should be able to verify the accuracy of the information submitted in

an exceptional mitigating circumstances appeal based on a sample. The

commenters indicated that this would

[[Page 61765]]

greatly assist them in meeting the appeal deadlines, as well as reduce

the cost of an appeal.

Discussion: The Secretary believes that the verification process

should be the same for all institutions. Further, the Secretary

believes that requiring an independent auditor's statement on

management's assertions in accordance with the Standards for

Attestation Engagement #3 would ensure consistency and allow a sample

as an acceptable means for an independent auditor to verify the

information submitted in an appeal based on exceptional mitigating

circumstances.

Changes: The final regulations have been amended in

Sec. 668.17(c)(7) to provide that an independent auditor must provide a

statement on management's assertions that the information contained in

the appeal is complete, accurate, and determined in accordance with the

requirements of Sec. 668.17. The examination level engagement must be

performed in accordance with the Statement on Standards for Attestation

Engagements #3. This authorizes an independent auditor to do whatever

testing of management's assertions that the auditor feels is necessary.

Sampling may be an acceptable technique for an auditor to use under

this situation.

Comments: Some commenters suggested that the chief executive

officer of an institution be required to certify under penalty of

perjury that the information submitted in an appeal is true and

correct.

Discussion: The Secretary agrees with the commenters. The Secretary

believes that this additional certification is appropriate to help

ensure that the information submitted in an appeal is correct. The

Secretary's experience in reviewing such appeals based on exceptional

mitigating circumstances has demonstrated that some institutions have

submitted false or erroneous information in their appeals.

Changes: The final regulations have been changed in

Sec. 668.17(c)(6) to provide that an institution's chief executive

officer must certify under penalty of perjury that the information

included in the appeal is true and correct.

Section 668.17(c)(1)(ii)(A)

Comments: Many commenters suggested that the institution's

participation rate index and the determination of the percent of

students coming from disadvantaged economic backgrounds should be

calculated based on the number of regular students at the institution

rather than all the students enrolled at the institution. The

commenters argued that, for purposes of the economically disadvantaged

rate, it would be difficult to determine if a student who was not a

regular student had an EFC of zero if that student did not apply for a

Pell Grant or if the student was not eligible for a Pell Grant.

Further, many of the commenters indicated that they do not maintain

data relating to students who are not regular students, therefore, it

would be difficult to provide data regarding such students in an

appeal.

Discussion: The Secretary is willing to accommodate the commenters'

concerns to the fullest extent possible and to minimize any burden

associated with preparing an exceptional mitigating circumstances

appeal when these changes do not undermine the integrity of the appeal

process. The Secretary understands that it may be problematic for some

institutions to obtain EFC data or other data relevant to an appeal for

a student who is not a regular student. The Secretary believes that

using data for regular students will provide an accurate assessment of

an institution's students with economically disadvantaged backgrounds.

Also, the Secretary believes that it is appropriate to base the

institution's participation rate index on the percentage of the

institution's students who are eligible for loans and who actually

borrow under the FFEL or Direct Loan programs. The Secretary agrees

that the inclusion of students who are not eligible for loans would not

contribute to a meaningful indicator of the percentage of an

institution's students who participate in the loan programs.

Changes: The Secretary has amended the formula in

Sec. 668.17(c)(1)(ii)(A) for the participation rate index to base the

index on regular students enrolled at least half-time at the

institution. The Secretary has also amended the formula in

Sec. 668.17(c)(1)(ii)(B) for determining the percent of an

institution's students that come from economically disadvantaged

backgrounds to be based on regular students at the institution.

Comments: Many commenters objected to the Secretary's statement in

the preamble of the proposed rule that only institutions with FFEL

Program cohort default rates, Direct Loan Program cohort rates, or

weighted average cohort rates equal to or less than 40 percent would be

eligible to appeal under the participation rate index. The commenters

argued that an institution with a high default rate but an extremely

low percentage of students that borrow under the FFEL or Direct Loan

programs was not abusing the loan programs. Commenters also argued that

the establishment of the participation rate index would only help

institutions with exceedingly low participation rates and, thus, would

help very few institutions. For example, one commenter pointed out that

an institution could have a 50 percent FFEL Program cohort default rate

if, over three consecutive fiscal years, only two borrowers entered

repayment and one of those borrowers defaulted.

Discussion: The Secretary does not agree with the commenters that

an institution with an FFEL Program cohort default rate, Direct Loan

Program cohort rate, or weighted average cohort rate, that exceeds 40

percent, but a participation rate index that is equal to or less than

0.0375 has such a low percentage of borrowers that it is likely the

institution is not abusing the loan programs. An institution with a

large number of students and a low student loan participation rate

could still have a significant number of defaulters if the

participation rate index were used without the 40 percent cap. For

example, an institution with 10,000 students could have a low

participation rate of 7 percent, which would equal 700 students. If 50

percent of these students defaulted in a given cohort that would

represent 350 students. This would result in a participation rate index

of 0.035. The Secretary considers this number of students to be

significant. Further, given that the lowest annual loan limit is

$2,625, 325 student defaults could represent hundreds of thousands of

dollars in loss to the Federal government and U.S. taxpayers. The

Secretary believes that it would represent an unreasonable risk to

students and Federal taxpayers to permit such an institution to remain

eligible to participate in the FFEL or Direct Loan programs.

Changes: The Secretary has added a provision to the final

regulations in Sec. 668.17(c)(1)(ii)(A) that prohibits an institution

from appealing a loss of eligibility to participate in the FFEL or

Direct Loan programs under the participation rate index criterion if

that institution has an FFEL Program cohort default rate, Direct Loan

Program cohort rate, or weighted average cohort rate, that exceeds 40

percent.

Section 668.17(c)(1)(ii)(B)

Comments: Many commenters argued that the 70 percent threshold of

an institution's students coming from disadvantaged economic

backgrounds is too high. Many commenters cited a study that

demonstrated that only 21.6 percent of postsecondary students received

Pell Grants. The commenters believed that due to such a low national

[[Page 61766]]

percentage of postsecondary students receiving Pell Grants, the 70

percent threshold would be too high for an institution to meet.

Many commenters also argued that the 70 percent completion rate

threshold component of an exceptional mitigating circumstances appeal

is too high. The commenters argued that it is inappropriate for the

Secretary to require institutions with longer programs to meet a

completion rate threshold that is required by the HEA for a program of

study that is less than 600 hours in length. The commenters pointed out

that institutions offering longer programs of study most likely would

not meet this standard.

Discussion: The Secretary does not agree with the commenters that

either of these thresholds is too high. The study referenced by the

commenters is based on the percentage of Pell Grant recipients across

all postsecondary institutions. This study does not appear to be

relevant to institutions that generally have high cohort default rates.

Based on the Secretary's experience in processing exceptional

mitigating circumstances appeals, many institutions will not have any

difficulty meeting this threshold. Almost every institution that has

applied under the exceptional mitigating circumstances provisions has

met the requirement that two-thirds of its students are economically

disadvantaged. Further, previous appeals show that the postsecondary

institutions most likely to have high FFEL Program cohort default rates

are institutions that have higher percentages of low-income students

than those institutions with low default rates. Because the Secretary's

experience in reviewing exceptional mitigating circumstances appeals

has proven that many institutions can meet this standard, the Secretary

does not believe that a 70 percent threshold is too high.

In regard to the completion rate threshold, the 70 percent

completion rate standard that a short-term program must meet in order

to participate in the FFEL Program is a minimum eligibility standard.

This standard is unrelated to the institution's FFEL Program cohort

default rate. The Secretary has chosen a 70 percent completion rate

threshold as a component of an exceptional mitigating circumstance

because he believes that an institution that has a high FFEL Program

cohort default rate, Direct Loan Program cohort rate, or weighted

average cohort rate must be able to demonstrate that it is properly

serving a large majority of its students, as evidenced by their

completion of their academic program, despite having consecutively high

default rates. The Secretary reminds the commenters that the purpose of

exceptional mitigating circumstances is to allow institutions to

continue to participate in the loan programs even though more than one

out of every four students who receive loans have defaulted and that

has occurred for at least three years. To protect both students and

taxpayers, only institutions that can truly demonstrate unusual

circumstances should be allowed to continue to participate in the loan

programs.

Changes: None.

Comments: A number of commenters suggested that the completion rate

component of the exceptional mitigating circumstances be revised to

mirror the proposed Student-Right-to-Know regulations regarding

completion rates. These commenters urged the Secretary to issue

regulations with as much consistency as possible.

Discussion: The Secretary is committed to reducing regulatory

burden and providing consistency in program requirements wherever

possible. The Secretary does not believe that using completion rates as

calculated under the Student-Right-to-Know provisions is appropriate at

this time for establishing exceptional mitigating circumstances for

institutions with high cohort default rates. This is because the

requirements of Student-Right-to-Know include certain statutory

exclusions, specific timeframes, and definitions of which students are

included in the calculation. Further, the Student-Right-to-Know

provisions offer institutions flexibility in determining their

completion rates, which are not appropriate for an institution that is

appealing its loss of eligibility due to high FFEL Program cohort

default rates, Direct Loan Program cohort rates, or weighted average

cohort rates.

Changes: None.

Comments: Many commenters suggested that the completion rate and

placement rate formulas be amended to include only students who were

regular students. The commenters agreed that an institution would be

unfairly penalized if its completion or placement rate included

students who initially enrolled in the institution without the

intention of obtaining a degree or certificate.

Discussion: After careful consideration of the many comments

received on this issue, the Secretary has determined that an

institution's completion or placement rate should not include students

who are not enrolled for the purpose of obtaining a degree or

certificate. The Secretary believes that an institution should not be

held responsible for the completion or placement of a student who did

not enroll in the institution with the intent to complete a degree or

certificate program.

Change: The completion rate and placement rate formulas in section

668.17(c)(1)(ii)(B) (1) and (2) have been changed. The final

regulations provide that the placement and completion rates will be

based on the percentage of an institution's students who initially

enrolled as regular students.

Comments: Many commenters suggested that the placement rate should

only include students who have actually completed their training at the

institution. These commenters do not think it is reasonable for an

institution to be responsible for the placement of students who do not

complete their educational programs. Other commenters suggested that

the Secretary should provide a five percent allowance in the placement

rate for former students at the institution who are not able to work

due to an injury or pregnancy.

Many commenters also suggested that the Secretary should change the

placement rate calculation to permit a student who has obtained

employment in an occupation for which the training is intended while

the student is still enrolled in the institution's program to be

considered successfully placed. The commenters indicated that this

often occurs with part-time students who work and go to school at the

same time. The commenters do not believe that it is fair to exclude

such a student from the placement rate calculation.

Discussion: The Secretary expects that a high percentage of an

institution's students will receive a job related to the training or

educational program undertaken at the institution. The formula under

which the placement rate is calculated provides that an institution

will meet this standard if only 50 percent of the institution's

students receive employment in an occupation that is related to the

training they receive. For an institution that is appealing a loss of

eligibility to participate in the FFEL or Direct Loan programs on the

basis that it places an exceptionally high percentage of its students,

the Secretary believes that a 50 percent placement rate is reasonable.

Further, the Secretary does not agree that only students who

complete their programs should be included in the placement rate

calculation. The Secretary believes that the placement rate formula as

written in the proposed rule does not need to provide any extra

allowance for an institution's former

[[Page 61767]]

students who do not complete the program or are unable to work.

However, the Secretary agrees with the commenters who suggested

that a student who obtains employment in an occupation related to the

training he or she is receiving while enrolled at the institution

should not be excluded from the former students an institution may

consider as successfully placed. The Secretary realizes that students

are often able to obtain employment in a field for which they are

receiving training while they are still enrolled. This provision was

included in the NPRM. However, an institution may not consider a

student as successfully placed if the institution is the student's or

former student's employer.

Changes: None.

Comments: None.

Discussion: In reviewing the comments received on the placement

rate calculation, the Secretary concluded that it is unnecessary to

include a student who transferred to a higher level program of study as

successfully placed. The Secretary believes that this is unnecessary

because the institutions that may appeal under this criteria will not

be offering programs that prepare its students for higher level

programs.

The Secretary further believes that in order to demonstrate the

effectiveness of the training an institution provides, with respect to

students obtaining employment, the Secretary has limited the timeframe

during which a student or former student must have received employment,

or have been employed for at least 13 weeks, in order to be considered

successfully placed. Under the proposed rules, a former student would

be considered as successfully placed if that student had been employed

for at least 13 weeks between his or her last date of attendance and

the date the institution submits the appeal, which could generally

occur at least two-years after the student left the institution.

Changes: The Secretary has removed from the final regulations a

provision contained in Sec. 668.17(c)(1)(ii)(B)(2) of the proposed rule

that provided that a former student of an institution may be considered

successfully placed if that former student transfers to a higher level

program at another institution. The final regulations provide that a

student or former student may be considered as successfully placed only

if the student or former student was employed in an occupation related

to the training for at least 13 weeks before, or was employed on, the

day after 12 months following the date of the student's last day of

attendance.

Comments: Many commenters also suggested that students enrolled

less than full-time should not be counted in the placement rate

calculation. The commenters suggested that students enrolled less than

full-time are less likely to complete their programs than full-time

students.

Discussion: The Secretary does not agree with the commenters that

students enrolled less than full-time should be excluded from the

institution's placement rate. The Secretary believes that the inclusion

of regular students who are enrolled on at least a half-time basis will

provide the most complete portrait of the success of an institution's

programs. The final regulations have been changed to provide that the

placement rate calculation will be based on an institution's regular

students who are initially enrolled on at least a half-time basis. This

change is addressed in a previous comment.

Changes: None

Comments: Many commenters suggested that the Secretary should

clarify in the regulations what constitutes a week of employment. The

commenters indicated that the requirement that a student be employed

for 13 weeks was too vague. The commenters wanted to know if there was

a minimum number of days or hours during the week a student must be

employed in order to constitute a week of employment.

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

Secretary's experience in working with institutions regarding the

placement rate element of an exceptional mitigating circumstances

appeal has shown that this issue has not been an area of confusion nor

have institutions needed clarification of this issue. Further, the

Secretary does not believe that it is necessary to define in

regulations what constitutes a week of employment.

Changes: None.

Comments: Many commenters objected to limiting the use of the

completion rate component of the exceptional mitigating circumstances

to public and private nonprofit institutions and limiting the use of

the placement rate component to proprietary institutions. Many

commenters indicated that it is more appropriate for a public

vocational institution to appeal a potential loss of eligibility to

participate in the FFEL or Direct Loan programs under the placement

rate component. The commenters indicated that because these

institutions provide training for their students to receive employment

in specific occupations, they would more likely be able to meet the

placement rate threshold.

Other commenters suggested that proprietary institutions of higher

education that offer associate or baccalaureate degrees should be able

to appeal under the exceptional mitigating circumstances criteria that

include the completion rate component. These commenters argued that it

is inappropriate to distinguish the educational programs at these

institutions from their public and private nonprofit institution

counterparts.

Many commenters suggested that an institution should be able to

appeal under any of the exceptional mitigating circumstances.

Discussion: The Secretary disagrees with the commenters that an

institution should be able to appeal under either the placement rate or

completion rate components of the exceptional mitigating circumstances.

The Secretary believes that it is appropriate for an institution to

appeal under a criterion that is designed to measure the performance of

its programs. The Secretary agrees with the commenters that the type of

program offered by an institution should determine whether that

institution should be able to appeal under the exceptional mitigating

circumstances appeal that includes the placement rate or completion

rate components. Placement rate is an appropriate measure for those

institutions that are non-degree-granting, whereas completion rate is a

more appropriate and relevant measure for institutions that offer

degrees.

Changes: The final regulations have been amended in

Sec. 668.17(c)(1)(ii)(B) to permit only a non-degree-granting

institution, whether it is a public, private nonprofit, or proprietary

institution, to appeal under the exceptional mitigating circumstances

criterion that includes the placement rate component. The final

regulations have also been amended to permit only a degree-granting

institution, regardless of whether it is a public, private nonprofit,

or proprietary institution, to appeal under the exceptional mitigating

circumstances criterion that includes the completion rate component.

Comments: Many commenters objected to some of the data elements

that must be submitted to substantiate the percentage of an

institution's students that come from disadvantaged economic

backgrounds. Many commenters believed that the addresses of such

students were not necessary.

Discussion: The Secretary is interested in minimizing the burden

associated with an appeal and is reexamining the data elements that

will be required in an appeal to ensure that

[[Page 61768]]

information is requested only if it is essential to the appeal and only

if it is not available to the Secretary in existing databases. The

Secretary will notify institutions of the specific information that

must be included in the appeal in the ``Pre-Publication Review

Booklet'' that is sent to institutions when the Secretary provides the

institution the opportunity to review its draft FFEL Program cohort

default rate data. This information will also be contained in the

``Official Cohort Default Rate Guide'' which is issued to an

institution when the Secretary provides notification of loss of

eligibility based on a final FFEL Program cohort default rate, Direct

Loan Program cohort rate, or weighted average cohort rate.

The Secretary expects to require institutions to submit

substantially the same information that is currently requested in the

Official Default Rate Guide.

Changes: The Secretary has removed from the regulations the

specific description of the information an institution must submit in

an appeal. These information submission requirements were contained in

the proposed rules in sections 668.17(c)(7) (ii) through (v). The

Secretary will inform an institution of the information that is

necessary to appeal a loss of eligibility when the Secretary provides

an institution the opportunity to verify its cohort default rate data

and when he notifies the institution of its final rate.

Section 668.17(d)

Comments: Many commenters suggested that the Secretary should amend

the date an SLS loan enters repayment. The commenters suggested that

the Secretary should establish in regulations, provisions that would

define when an SLS loan enters repayment if that loan is ``linked'' to

a Stafford loan.

Discussion: For purposes of calculating an FFEL Program cohort

default rate, Congress has mandated the parameters for establishing the

date an SLS loan enters repayment. Those parameters are also contained

in the regulations in section 668.17(d)(1)(ii)(D). Consistent with the

parameters established by Congress, the Secretary regularly provides

guaranty agencies and institutions with the rules for the application

of the definition of the date an SLS loan enters repayment for purposes

of an FFEL Program cohort default rate. Institutions are now apprised

of the rules at least twice annually through the ``Pre-Publication

Booklet'' for cohort default rates and the ``Official Cohort Default

Rate Guide.''

The Secretary has found the dissemination of the rules for the

application of the definition of the date an SLS loan enters repayment

through the ``Pre-Publication Booklet'' and the ``Official Cohort

Default Rate Guide'' provides sufficient notice to the institutions,

while simultaneously allowing the definition to be refined as needed

based on upon Congressional changes to the definition and changes in

the information collecting capacity of the Department. The Secretary

further believes that it is also appropriate to disseminate the rules

for linking SLS loans to Stafford loans through the ``Pre-Publication

Booklet'' and the ``Official Cohort Default Rate Guide.''

Changes: None

Sections 668.17(e)(1)(ii) and (f)(1)(ii)

Comments: Many commenters objected to the Secretary's inclusion in

a Direct Loan Program cohort rate or weighted average cohort rate a

loan that is in repayment under the ICR plan if the borrower's

scheduled payments on that loan are less than 15 dollars and that 15

dollar payment is less than the interest that is accruing on the loan

each month. The commenters argued that it is inappropriate to consider

a loan that is not even delinquent as in default for purposes of an

institution's Direct Loan Program cohort rate or weighted average

cohort rate. Many commenters pointed out that most of the borrowers

that choose ICR will be entry-level employees and will start out with

low incomes that may result in the borrower having scheduled payments

of 15 dollars or less, which may be less than the interest that is

accruing on the loans. The commenters suggested that this would

unfairly penalize institutions since ICR is a legitimate payment option

for all students and an institution cannot control a borrower's

selection of a repayment plan.

A commenter pointed out that, under the proposed rules, if a

borrower enters into ICR at the end of the fiscal year and that

borrower's monthly payment is 15 dollars and that payment is less than

the interest that is accruing on the loan, the borrower would be

included in the institution's Direct Loan Program cohort rate or

weighted average cohort rate. The commenter indicated that it would be

more appropriate to include such a borrower in an institution's rate if

that borrower was in ICR and had scheduled payments of less than $15

that are less than the interest accruing on the loan for 270 days; this

would more closely mirror a default.

Discussion: The Secretary appreciates the commenters' concerns that

many of the borrowers who choose ICR will be entry level employees and

will likely have low payments. However, the Secretary believes that

even entry level employees who have received a quality education or

training from an institution will be able to obtain employment that

will provide them with enough income to pay back at least the interest

that is accruing on their loans each month.

The Secretary also appreciates the commenters' concerns regarding

the inclusion of a loan in an institution's Direct Loan Program cohort

rate or weighted average cohort rate that may not even be delinquent.

However, the Secretary believes that this is an appropriate

performance-based measure to assess both a borrower's ability to repay

a student loan and an institution's quality of training. The Secretary

is concerned that, without such a measure, an institution could have a

low Direct Loan Program cohort rate or weighted average cohort rate

when a large proportion of its former students are making only minimal

or no payments on their loans. The Secretary is concerned that this is

a potential area for abuse in the Direct Loan Program and believes that

it is imperative to protect students and taxpayers from such abuse.

The Secretary agrees with the commenter that, to more closely

approximate a default, a borrower should have been, by the end of the

fiscal year following the fiscal year the loan entered repayment, for

at least 270 days, in repayment under the ICR plan with scheduled

payments that were less than 15 dollars per month and those payments

result in negative amortization.

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

loan that is in the ICR plan will not be included in a Direct Loan

Program cohort rate or weighted average cohort rate unless, for at

least 270 days, the scheduled monthly payments on that loan have been

$15 dollars or less and that payment is less than the monthly interest

accruing on the loan.

Section 668.17(f)

Comments: Many commenters did not understand how the proposed

weighted average cohort rate would be calculated when the institution

had a borrower enter repayment on both a Direct Loan and FFEL Program

loan in a fiscal year. The commenters believed that the Secretary

should clarify the formula.

Discussion: The weighted average cohort rate is determined by

comparing the number of borrowers, both FFEL and Direct Loan, who enter

repayment in a fiscal year against those borrowers who default before

the end of the following

[[Page 61769]]

fiscal year. Each borrower and each default is counted only once even

if a borrower has both FFEL and Direct Loan program loans entering

repayment in a fiscal year. This has been the Secretary's practice when

a borrower with multiple FFEL Program loans enters repayment on those

loans in a fiscal year. The Secretary does not believe that the

regulations need to be clarified in this area.

Changes: None.

Section 668.17(h)

Comments: Many commenters suggested that institutions should be

able to appeal their Direct Loan Program cohort rates or weighted

average cohort rates on the basis of improper servicing. The commenters

argued that the appeal criteria should be parallel to the FFEL Program.

In addition the commenters believed that a loan that is improperly

serviced should not be included in an institution's Direct Loan Program

cohort rate or weighted average cohort rate and that an institution

should be given a chance to verify that such a loan is not included in

its rate.

Discussion: In the FFEL Program, Congress chose to provide high

default rate institutions with an appeal from the loss of eligibility

to participate in that program based on loan servicing. That decision

was based, in large measure, on the existence of detailed Departmental

regulations governing loan servicing by lenders and a number of

instances in which large lenders failed to comply with those

requirements with a demonstrable effect on institutional default rates.

In the Direct Loan Program, those detailed servicing rules do not

exist; instead, loan servicing is controlled by contracts between the

Department and its contractors. Moreover, there is no history of abuse

in the Direct Loan Program and the Department's contractors do not have

the same incentive or opportunity to hide non-compliance as FFEL

Program lenders. Accordingly, the Secretary does not believe it is

appropriate or necessary to provide a loan servicing appeal for a

Direct Loan Program cohort rate or weighted average cohort rate.

Changes: None.

Section 668.90

Comments: Many commenters objected to the removal of an

institution's ability to demonstrate that it has diligently

administered the provisions contained in appendix D of the Student

Assistance General Provisions regulations as a defense to loss of

eligibility. The commenters argued that the measures contained in

appendix D have been proven effective in reducing defaults. Other

commenters suggested that the use of appendix D as the only defense to

an L, S, and T action provides a very powerful incentive to an

institution that has a high cohort default rate to take action to

reduce its default rate.

Discussion: The Secretary agrees with the commenters that the

measures contained in appendix D, if diligently implemented by an

institution, are effective in reducing the incidence of default.

However, many of the most effective measures in appendix D have become

specific regulatory requirements for most institutions. Moreover, the

Secretary's experience has shown that the reviews of claims of appendix

D compliance are very time-consuming and rarely helpful. In fact, the

Secretary believes that the removal of the use of appendix D as a

defense will provide a more powerful incentive for an institution to

try to keep its cohort default rate, Direct Loan Program cohort rate,

or weighted average cohort rate low.

Changes: None.

Executive Order 12866

These regulations have been reviewed in accordance with Executive

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

the potential costs and benefits of this regulatory action.

The potential costs associated with the 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.

In assessing the potential costs and benefits, both quantitative

and qualitative, 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, or 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.

Assessment of Educational Impact

In the NPRM published on 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.

Based on the response to the proposed rules and 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 of the United States.

List of Subjects in 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, Vocational education.

(Catalog of Federal Domestic Assistance Numbers: 84.007 Supplemental

Educational Opportunity Grant Program; 84.032 Stafford Loan Program;

84.032 PLUS Program; 84.032 Supplemental Loans for Students Program;

84.033 College Work-Study Program; 84.038 Perkins Loan Program;

84.063 Pell Grant Program; 84.069 State Student Incentive Grant

Program; and 84.226 Income Contingent Loan Program; 84.268, William

D. Ford Federal Direct Loan Program)

Dated: November 24, 1995.

Richard W. Riley,

Secretary of Education.

The Secretary amends part 668 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, and 1148,

unless otherwise noted.

2. Section 668.17 is amended by redesignating paragraphs (f), (g),

and (h) as paragraphs (h), (i) and (j) respectively, revising

paragraphs (a) through (e), and adding new paragraphs (f) and (g) to

read as follows:

Sec. 668.17 Default reduction and prevention measures.

(a) Default rates. (1) If the FFEL Program cohort default rate,

Direct Loan Program cohort rate, or if applicable, weighted average

cohort rate for an institution exceeds 20 percent for any fiscal year,

the Secretary notifies the institution of that rate.

(2) The Secretary may initiate a proceeding under subpart G of this

part to limit, suspend, or terminate the participation of an

institution in the Title IV, HEA programs, if the institution has an

FFEL Program cohort default rate, Direct Loan Program cohort rate, or a

weighted average cohort rate that exceeds 40 percent for any fiscal

year.

[[Page 61770]]

(3) Unless an institution is subject to loss of eligibility to

participate in the FFEL Program under paragraph (b)(1) of this section,

the Secretary initiates a proceeding under subpart G of this part to

limit, suspend, or terminate an institution's participation in the FFEL

Program if the institution, for each of the three most recent

consecutive fiscal years, has any combination of an FFEL Program cohort

default rate, a Direct Loan Program cohort rate, or weighted average

cohort rate that is equal to or greater than 25 percent.

(4) The Secretary may require an institution that meets the

criteria under paragraph (a)(2) of this section to submit to the

Secretary, within a timeframe determined by the Secretary, any

reasonable information to help the Secretary make a preliminary

determination as to what action should be taken against the

institution.

(5) The Secretary ceases any limitation, suspension, or termination

action against an institution under this paragraph if the institution

satisfactorily demonstrates to the Secretary that, pursuant to an

appeal that is complete and timely submitted under paragraph (c) of

this section, the institution meets one of the exceptional mitigating

circumstances under paragraph (c)(1)(ii)(B) of this section.

(b) End of participation. (1) Except as provided in paragraph

(b)(6) of this section, an institution's participation in the FFEL

Program ends 30 calendar days after the date the institution receives

notification from the Secretary that its FFEL Program cohort default

rate for each of the three most recent fiscal years for which the

Secretary has determined the institution's rate, is equal to or greater

than 25 percent.

(2) Except as provided in paragraph (b)(6) of this section, an

institution's participation in the Direct Loan Program ends 30 calendar

days after the date the institution receives notification from the

Secretary that for each of the three most recent fiscal years the

institution has any combination of an FFEL Program cohort default rate,

Direct Loan Program cohort rate, or weighted average cohort rate that

is equal to or greater than 25 percent.

(3) Except as provided in paragraph (b)(6) of this section, an

institution's participation in the FFEL Program or Direct Loan Program

ends under paragraph (b) (1) or (2) of this section respectively may

not participate in that program on or after the 30th calendar day after

the date it receives notification from the Secretary that its FFEL

Program cohort default rate, Direct Loan Program cohort rate, or, if

applicable, weighted average cohort rate exceeds the thresholds

specified in paragraph (b) (1) or (2) of this section and continuing--

(i) For the remainder of the fiscal year in which the Secretary

determines that the institution's participation has ended under

paragraph (b) (1) or (2) of this section; and

(ii) For the two subsequent fiscal years.

(4) An institution whose participation in the FFEL Program or

Direct Loan Program ends under paragraph (b) (1) or (2) of this section

may not participate in that program until the institution satisfies the

Secretary that the institution meets all requirements for participation

in the FFEL Program or Direct Loan Program and executes a new agreement

with the Secretary for participation in that program following the

period described in paragraph (b)(3) of this section.

(5) Until July 1, 1998, the provisions of paragraph (b) (1) or (2)

of this section and the provisions of 34 CFR 668.16(m) do not apply to

a historically black college or university within the meaning of

section 322(2) of the HEA, a tribally controlled community college

within the meaning of section 2(a)(4) of the Tribally Controlled

Community College Assistance Act of 1978, or a Navajo community college

under the Navajo Community College Act.

(6) An institution may, notwithstanding 34 CFR 668.26, continue to

participate in the FFEL Program or Direct Loan Program until the

Secretary issues a decision on the institution's appeal if the

Secretary receives an appeal that is complete, accurate, and timely in

accordance with paragraph (c) of this section.

(c) Appeal procedures. (1) An institution may appeal the loss of

participation in the FFEL Program or Direct Loan Program under

paragraph (b)(1) or (2) of this section by submitting an appeal in

writing to the Secretary by the 30th calendar day following the date

the institution receives notification of the end of participation. An

appeal or any portion of an appeal under this section will not be

accepted after the 30th calendar day following the date the institution

receives notification from the Secretary that it has lost its

eligibility to participate in the FFEL or Direct Loan programs, except

that an institution may submit an appeal under section (c)(1)(i) of

this section later than the 30th calendar day if the appeal is

submitted in accordance with paragraph (c)(8) and the information

required by paragraph (c)(7) may be submitted in accordance with that

paragraph. The appeal must include all information required by the

Secretary to substantiate the appeal and all information must be

submitted in a format prescribed by the Secretary. The additional 30-

day period specified in paragraph (c)(7) of this section is an

extension for the submission of the auditor's statement only and does

not affect the date by which the appeal data must be submitted. An

institution that is eligible for an extension under paragraph (c)(8) of

this section must submit all required data within five working days

following the agency's response to the institution's request for

verification of data. The institution may appeal on the grounds that--

(i)(A) The calculation of the institution's FFEL Program cohort

default rate, Direct Loan Program cohort rate, or, if applicable,

weighted average cohort rate, for any of the three fiscal years

relevant to the end of participation is not accurate; and

(B) A recalculation of the institution's FFEL Program cohort

default rate, Direct Loan Program cohort rate, or weighted average

cohort rate, with corrected data verified by the cognizant guaranty

agency or agencies for the FFEL Program loans, or the Secretary for

Direct Loan Program loans would produce an FFEL Program cohort default

rate, a Direct Loan Program cohort rate, or weighted average cohort

rate for any of those fiscal years that is below the threshold

percentage specified in paragraph (b) (1) or (2) of this section; or

(ii) The institution meets one of the following exceptional

mitigating circumstances:

(A) The institution has a participation rate index of 0.0375 or

less. The participation rate index is determined by multiplying the

institution's FFEL Program cohort default rate, Direct Loan Program

cohort rate or weighted average cohort rate, by the percentage of the

institution's regular students, as defined in 34 CFR 600.2, enrolled on

at least a half-time basis who received a loan made under either the

FFEL Program or Direct Loan Program for a 12-month period that has

ended during the six months immediately preceding the fiscal year for

which the cohort of borrowers used to calculate the institution's rate

is determined. An institution that has an FFEL Program cohort default

rate, Direct Loan Program cohort rate, or weighted average cohort rate

that exceeds 40 percent may not appeal its loss of eligibility under

paragraphs (b) (1) or (2) of this section on the basis of its

participation rate index.

(B) For a 12-month period that has ended during the six months

immediately preceding the fiscal year for which the cohort of borrowers

used to calculate the institution's rate is

[[Page 61771]]

determined, 70 percent or more of the institution's regular students,

as defined in 34 CFR 600.2, are individuals from disadvantaged economic

backgrounds, as established by documentary evidence submitted by the

institution. Such evidence must relate to either qualification by those

students for an expected family contribution (EFC) of zero for any

award year that generally coincides with the 12-month period, or

attribution to those students of an adjusted gross income of the

student and his or her parents or spouse, if applicable, reported for

any award year that generally coincides with the 12-month period, of

less than the poverty level, as determined under criteria established

by the Department of Health and Human Services; and,

(1) For a degree-granting institution, 70 percent or more of the

institution's regular students who were initially enrolled on a full-

time basis and were scheduled to complete their programs during the

same 12-month period the institution has chosen to determine the

percentage of its students that come from disadvantaged economic

backgrounds under paragraph (c)(1)(ii)(B) of this section, completed

the educational programs in which they were enrolled. This rate is

calculated by comparing the number of regular students who were

classified as full-time at their initial enrollment in the institution

and were originally scheduled, at the time of enrollment, to complete

their programs within the relevant 12-month period, with the number of

these students who received a degree from the institution; transferred

from the institution to a higher level educational program; or, at the

end of the 12-month period, remained enrolled and were making

satisfactory academic progress toward completion of their educational

programs; or

(2) For a non-degree-granting institution, the institution had a

placement rate of 50 percent or more with respect to its former regular

students who remained in the program beyond the point the students

would have received a 100 percent tuition refund from the institution.

A student or former student may not be considered successfully placed

if the institution is the student's or former student's employer. This

rate is based on those regular students who were initially enrolled on

at least a half-time basis and were originally scheduled, at the time

of enrollment, to complete their educational programs during the same

12-month period the institution has chosen to determine the percentage

of its students that come from disadvantaged economic backgrounds under

paragraph (c)(1)(ii)(B) of this section. This rate does not include

those students who are still enrolled and making satisfactory progress

in the educational programs in which they were originally enrolled on

the date following 12 months after the date of the student's last day

of attendance. This rate is calculated by determining the percentage of

all those former regular students who;

(i) are employed in an occupation for which the institution

provided training on the date following 12 months after the date of

their last day of attendance at the institution; or

(ii) were employed in an occupation for which the institution

provided training for at least 13 weeks before the date following 12

months after the date of their last day of attendance at the

institution.

(2) For purposes of the completion rate and placement rate

described in paragraph (c)(1)(ii)(B) (1) and (2) of this section, a

student is originally scheduled, at the time of enrollment, to complete

the educational program on the date when the student will have been

enrolled in the program for the amount of time normally required to

complete the program. The ``amount of time normally required to

complete the program'' for a student who is initially enrolled full-

time is the period of time specified in the institution's enrollment

contract, catalog, or other materials, for completion of the program by

a full-time student, or the period of time between the original date of

enrollment and the anticipated graduation date appearing on the

student's loan application, if any, whichever is less. The ``amount of

time normally required to complete the program'' for a student who is

initially enrolled less than full-time is the amount of time it would

take that student to complete the program if the student remained

enrolled at that level of enrollment.

(3) The Secretary issues a decision on the institution's appeal

within 45 calendar days after the institution submits a complete appeal

that addresses the applicable criteria in paragraph (c)(1) (i) or (ii)

of this section to the Secretary.

(4) The Secretary's decision is based on the consideration of

written material submitted by the institution. No oral hearing is

provided.

(5) The Secretary withdraws the notification of loss of

participation in the FFEL Program or Direct Loan Program sent to an

institution under paragraph (b) (1) or (2) of this section, if he

determines that the institution's appeal satisfies one of the

exceptional mitigating circumstances specified in paragraph (c)(1) (i)

or (ii) of this section.

(6) An institution must include in its appeal a certification,

under penalty of perjury, by the institution's chief executive officer

that all information provided by the institution in support of its

appeal is true and correct.

(7) An institution that appeals on the grounds that it meets the

exceptional mitigating circumstances criteria contained in paragraph

(c)(1)(ii) of this section must include in its appeal an opinion from

an independent auditor on management's assertions that the information

contained in the appeal is complete, accurate, and determined in

accordance with the requirements of this section. The examination level

engagement will be performed in accordance with Statement on Standards

for Attestation Engagements #3. This opinion must be received by the

Secretary within 60 days following the date the institution receives

notification of its loss of eligibility under paragraph (b) of this

section.

(8) An institution that appeals under paragraph (c)(1)(i) of this

section will not lose its eligibility to continue to participate during

the appeal process due to a guaranty agency's failure to comply with 34

CFR 682.401(b)(14) which requires the agency to respond to an

institution's request for verification of data within 15 working days,

provided the institution:

(i) requested such verification within 10 working days from the

date it received notification of its loss of eligibility under

paragraph (b) of this section; and

(ii) provided a copy of the request for verification of data to the

Secretary at the same time it requested such verification by the

relevant guaranty agency(ies).

(d) FFEL Program Cohort Default Rate. (1)(i) For purposes of the

FFEL Program, except as provided in paragraph (d)(1)(ii) of this

section, the term FFEL Program cohort default rate means--

(A) For any fiscal year in which 30 or more current and former

students at the institution enter repayment on Federal Stafford loans

or Federal SLS loans (or on the portion of a loan made under the

Federal Consolidation Loan Program or Direct Consolidation Loan Program

that is used to repay such loans) received for attendance at the

institution, the percentage of those current and former students who

enter repayment in that fiscal year on those loans who default before

the end of the following fiscal year; or

(B) For any fiscal year in which fewer than 30 of the institution's

current and

[[Page 61772]]

former students enter repayment on Federal Stafford loans or Federal

SLS loans (or on the portion of a loan made under the Federal

Consolidation Loan Program or Direct Consolidation Loan Program that is

used to repay such loans) received for attendance at the institution,

the percentage of those current and former students who entered

repayment on such loans in any of the three most recent fiscal years,

who default before the end of the fiscal year immediately following the

fiscal year in which they entered repayment.

(C) In determining the number of students who default before the

end of that following fiscal year, the Secretary includes only loans

for which the Secretary or a guaranty agency has paid claims for

insurance, and Direct Consolidation Loan Program loans that repaid FFEL

Program loans that entered default.

(ii)(A) In the case of a student who has attended and borrowed at

more than one institution, the student (and his or her subsequent

repayment or default) is attributed to each institution for attendance

at which the student received a loan that entered repayment in the

fiscal year.

(B) A loan on which a payment is made by the institution, its

owner, agent, contractor, employee, or any other affiliated entity or

individual, in order to avoid default by the borrower, is considered as

in default for purposes of this definition.

(C) Any loan that has been rehabilitated under section 428F of the

HEA before the end of that following fiscal year is not considered as

in default for purposes of this definition.

(D) For the purposes of this definition, an SLS loan made in

accordance with section 428A of the HEA (or a loan made under the

Federal Consolidation Loan Program or Direct Consolidation Loan

Program, a portion of which is used to repay a Federal SLS loan) shall

not be considered to enter repayment until after the borrower has

ceased to be enrolled in an educational program leading to a degree,

certificate, or other recognized educational credential at the

participating institution on at least a half-time basis (as determined

by the institution) and ceased to be in a period of forbearance or

deferment based on such enrollment. Each eligible lender of a loan made

under section 428A (or a loan made under the Federal Consolidation Loan

Program, a portion of which is used to repay a Federal SLS loan) of the

HEA shall provide the guaranty agency with the information necessary to

determine when the loan entered repayment for purposes of this

definition, and the guaranty agency shall provide that information to

the Secretary.

(2) Fiscal year means the period from and including October 1 of a

calendar year through and including September 30 of the following

calendar year.

(e) Direct Loan Program cohort rate. (1) For purposes of the Direct

Loan Program, except as provided in paragraph (e)(2) of this section,

the Secretary calculates Direct Loan Program cohort rates using the

following formulas:

(i) For public institutions, private nonprofit institutions, or

proprietary degree-granting institutions--

(A) For any fiscal year in which 30 or more current and former

students at the institution enter repayment on a Direct Loan Program

loan (or on the portion of a loan made under the Federal Direct

Consolidation Loan Program that is used to repay those loans) received

for attendance at the institution, the percentage of those current and

former students who enter repayment in that fiscal year on those loans

who are in default before the end of the following fiscal year; or

(B) For any fiscal year in which fewer than 30 of the institution's

current and former students enter repayment on a Direct Loan Program

loan (or on the portion of a loan made under the Federal Direct

Consolidation Loan Program that is used to repay those loans) received

for attendance at the institution, the percentage of those current and

former students who entered repayment on those loans in any of the

three most recent fiscal years, who are in default before the end of

the fiscal year immediately following the year in which they entered

repayment.

(ii) For proprietary non-degree-granting institutions--

(A) For any fiscal year in which 30 or more current and former

students at the institution enter repayment on a Direct Loan Program

loan (or on the portion of a loan made under the Federal Direct

Consolidation Loan Program that is used to repay those loans) received

for attendance at the institution, the percentage of those current and

former students who enter repayment in that fiscal year on those loans

who are in default before the end of the following fiscal year, or who,

before the end of that following fiscal year, have, for 270 days, been

in repayment under the income-contingent repayment plan with scheduled

payments that are less than 15 dollars per month and those payments

result in negative amortization; or

(B) For any fiscal year in which fewer than 30 of the institution's

current and former students enter repayment on a Direct Loan Program

loan (or on the portion of a loan made under the Federal Direct

Consolidation Loan Program that is used to repay those loans) received

for attendance at the institution, the percentage of those current and

former students who entered repayment on those loans in the three most

recent fiscal years, who are in default before the end of the fiscal

year immediately following the year in which they entered repayment, or

who, before the end of that following fiscal year, have for 270 days,

been in repayment under the income-contingent repayment plan with

scheduled payments that are less than 15 dollars per month and those

payments result in negative amortization.

(2)(i) In the case of a student who has attended and borrowed at

more than one institution, the student (and his or her subsequent

repayment or default) is attributed to each institution for attendance

at which the student received a loan that entered repayment in the

fiscal year.

(ii) A loan on which a payment is made by the institution, its

owner, agent, contractor, employee, or any other affiliated entity or

individual, in order to avoid default by the borrower, is considered as

in default for purposes of this definition.

(iii) Any loan on which the borrower has made 12 consecutive

monthly on-time payments under 34 CFR 685.211(e) before the end of that

following fiscal year is not considered as in default for purposes of

this definition.

(3) For purposes of an institution's Direct Loan cohort rate, a

Direct Loan Program loan is considered in default when the borrower's

or endorser's failure to make an installment payment when due has

persisted for 270 days.

(f)(1) Weighted average cohort rate. For purposes of an institution

that has former students entering repayment in a fiscal year on both

Direct Loan Program and FFEL Program loans, except as provided under

paragraph (f)(2) of this section, the Secretary calculates a weighted

average cohort rate using the following formulas:

(i) For public institutions, private nonprofit institutions, or

proprietary degree-granting institutions--

(A) For any fiscal year in which 30 or more current and former

students at the institution enter repayment on an FFEL Program or

Direct Loan Program loan (or on the portion of a loan made under the

Federal Consolidation Loan Program or Federal Direct Consolidation Loan

Program that is used to repay those loans) received for attendance at

the institution, the percentage of those current and former students

who enter

[[Page 61773]]

repayment in that fiscal year on those loans who are in default before

the end of the following fiscal year; and

(B) For any fiscal year in which fewer than 30 of the institution's

current and former students enter repayment on an FFEL Program or

Direct Loan Program loan (or on the portion of a loan made under the

Federal Consolidation Loan Program or Federal Direct Consolidation Loan

Program that is used to repay such loans) received for attendance at

the institution, the percentage of those current and former students

who entered repayment on such loans in the three most recent fiscal

years, who are in default before the end of the fiscal year immediately

following the year in which they entered repayment.

(ii) For proprietary non-degree-granting institutions--

(A) For any fiscal year in which 30 or more current and former

students at the institution enter repayment on an FFEL Program or

Direct Loan Program loan (or on the portion of a loan made under the

Federal Consolidation Loan or Federal Direct Consolidation Loan Program

that is used to repay those loans) received for attendance at the

institution, the percentage of those current and former students who

enter repayment in that fiscal year on such loans who are in default

before the end of the following fiscal year, or who, before the end of

that following fiscal year, have for 270 days: been in repayment under

the income-contingent repayment plan with scheduled payments that are

less than 15 dollars per month and those payments result in negative

amortization; or

(B) For any fiscal year in which fewer than 30 of the institution's

current and former students enter repayment on an FFEL Program or

Direct Loan Program loan (or on the portion of a loan made under the

Federal Consolidation Loan Program or Federal Direct Consolidation Loan

Program that is used to repay those loans) received for attendance at

the institution, the percentage of those current and former students

who entered repayment on those loans in any of the three most recent

fiscal years, who are in default before the end of the fiscal year

immediately following the year in which they entered repayment, or who,

before the end of that following fiscal year, have for 270 days: been

in repayment under the income-contingent repayment plan with scheduled

payments that are less than 15 dollars per month and those payments

result in negative amortization.

(2)(i) In the case of a student who has attended and borrowed at

more than one institution, the student (and his or her subsequent

repayment or default) is attributed to each institution for attendance

at which the student received a loan that entered repayment in the

fiscal year.

(ii) A loan on which a payment is made by the institution, its

owner, agent, contractor, employee, or any other affiliated entity or

individual, in order to avoid default by the borrower, is considered as

in default for purposes of this definition.

(iii) Any Direct Loan Program loan on which the borrower has made

12 consecutive monthly on-time payments under 34 CFR 685.211(e) or has

an FFEL Program loan that has been rehabilitated under section 428F of

the HEA before the end of that following fiscal year is not considered

as in default for purposes of this definition.

(3) For purposes of an institution's weighted average cohort rate,

a Direct Loan Program loan is considered in default when a borrower's

or endorser's failure to make an installment payment when due has

persisted for 270 days.

(g) Applicability of Rates to Institutions. (1)(i) An FFEL Program

cohort default rate, Direct Loan Program cohort rate, or weighted

average cohort rate of an institution applies to all locations of the

institution as the institution exists on the first day of the fiscal

year for which the rate is calculated.

(ii) An FFEL Program cohort default rate, Direct Loan Program

cohort rate, or weighted average cohort rate of an institution applies

to all locations of the institution from the date the institution is

notified of that rate until the institution is notified by the

Secretary that the rate no longer applies.

(2)(i) For an institution that changes its status from that of a

location of one institution to that of a free-standing institution, the

Secretary determines the FFEL Program cohort default rate, Direct Loan

Program cohort rate, or weighted average cohort rate, based on the

institution's status as of October 1 of the fiscal year for which the

rate is being calculated.

(ii) For an institution that changes its status from that of a

free-standing institution to that of a location of another institution,

the Secretary determines the FFEL Program cohort default rate, Direct

Loan Program cohort rate, or weighted average cohort rate, based on the

combined number of students who enter repayment during the applicable

fiscal year and the combined number of students who default during the

applicable fiscal years from both the former free-standing institution

and the other institution. This rate applies to the new, consolidated

institution and all of its current locations.

(iii) For free-standing institutions that merge to form a new,

consolidated institution, the Secretary determines the FFEL Program

cohort default rate, Direct Loan Program cohort rate, or weighted

average cohort rate based on the combined number of students who enter

repayment during the applicable fiscal year and the combined number of

students who default during the applicable fiscal years from all of the

institutions that are merging. This rate applies to the new

consolidated institution.

(iv) For a location of one institution that becomes a location of

another institution, the Secretary determines the FFEL Program cohort

default rate, Direct Loan Program cohort rate, or weighted average

cohort rate based on the combined number of students who enter

repayment during the applicable fiscal year and the number of students

who default during the applicable fiscal years from both of the

institutions in their entirety, not limited solely to the respective

locations.

3. Section 668.85 is amended by revising paragraph (b)(1)(ii) and

revising paragraph (b)(3) to read as follows:

Sec. 668.85 Suspension proceedings.

* * * * *

(b)(1) * * *

(ii)(A) Specifies the proposed effective date of the suspension,

which is at least 20 days after the date of mailing of the notice of

intent; or

(B) In the case of a suspension action taken due to the

institution's FFEL Program cohort default rate, Direct Loan Program

cohort rate, or, if applicable, weighted average cohort rate, the

proposed effective date of the suspension is no more than 30 days after

the date of the mailing of the notice of intent.

* * * * *

(3) If the institution or servicer requests a hearing by the time

specified in paragraph (b)(1)(iii) of this section, the designated

department official sets the date and place. The date is at least 15

days after the designated department official receives the request. In

the case of a hearing for an institution subject to suspension action

because of its FFEL Program cohort default rate, Direct Loan Program

cohort rate, or, if applicable, weighted average cohort rate, the

hearing is set no later than 20 days after the date the designated

department official receives the request. The suspension does not take

place until after the requested hearing is held.

* * * * *

[[Page 61774]]

4. Section 668.86 is amended by revising paragraph (b)(1)(ii) and

revising paragraph (b)(3) to read as follows:

Sec. 668.86 Limitation or termination proceedings.

* * * * *

(b)(1) * * *

(ii)(A) Specifies the proposed effective date of the limitation or

termination, which is at least 20 days after the date of mailing of the

notice of intent; or

(B) In the case of a limitation or termination action based on an

institution's FFEL Program cohort default rate, Direct Loan Program

cohort rate, or, if applicable, weighted average cohort rate, the

proposed effective date of the termination is no more than 30 days

after the date of the mailing of the notice of intent.

* * * * *

(3) If the institution or servicer requests a hearing by the time

specified in paragraph (b)(1)(iii) of this section, the designated

department official sets the date and place. The date is at least 15

days after the designated department official receives the request. In

the case of a hearing for an institution subject to limitation or

termination action because of its FFEL Program cohort default rate,

Direct Loan Program cohort rate, or, if applicable, weighted average

cohort rate, the hearing is set no later than 20 days after the date

the designated department official receives the request. The limitation

or termination does not take place until after the requested hearing is

held.

* * * * *

5. Section 668.90 is amended by adding a new paragraph

(a)(1)(iii)(D), and revising paragraph (a)(3)(iv) to read as follows:

Sec. 668.90 Initial and final decisions.

* * * * *

(a)(1) * * *

(iii) * * *

(D) For hearings regarding the limitation, suspension, or

termination of an institution based on an institution's FFEL Program

cohort default rate, Direct Loan Program cohort rate, or, if

applicable, weighted average cohort rate, the 30th day after the

conclusion of the hearing.

* * * * *

(3) * * *

(iv) In a limitation, suspension, or termination proceeding

commenced on the grounds described in Sec. 668.17(a) (2) and (3), if

the hearing official finds that an institution's FFEL Program cohort

default rate, Direct Loan Program cohort rate, or, if applicable,

weighted average cohort rate meets the conditions specified in

Sec. 668.17(a) (2) and (3) for initiation of limitation, suspension, or

termination proceedings, the hearing official also finds that the

sanction sought by the designated department official is warranted,

except that the hearing official finds that no sanction is warranted if

the institution presents clear and convincing evidence demonstrating

that the FFEL Program cohort default rate, Direct Loan Program cohort

rate, or weighted average cohort rate on which the proposed action is

based is not the final rate determined by the Department and that the

correct rate would result in the institution having an FFEL Program

cohort default rate, Direct Loan Program cohort rate, or weighted

average cohort rate that is beneath the thresholds that make the

institution subject to limitation, suspension, or termination action.

(Authority:) 20 U.S.C. 1082, 1085, 1094, 1099c.)

[FR Doc. 95-29206 Filed 11-30-95; 8:45 am]

BILLING CODE 4000-01-P