Food Stamp Program: Treatment of Educational and Training Assistance

DEPARTMENT OF AGRICULTURE

7 CFR Parts 272 and 273

[Amendment No. 374]

RIN 0584-AB93

Food Stamp Program: Treatment of Educational and Training

Assistance

AGENCY: Food and Consumer Service, USDA.

ACTION: Final rule.

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SUMMARY: On November 1, 1993, the Department published a proposed rule

regarding the eligibility of students for the Food Stamp Program and

the treatment of educational and training assistance for food stamp

purposes. Public comments were solicited and considered. This rule

finalizes the provisions regarding educational and training assistance.

The provisions regarding student eligibility were published final in a

separate rule.

EFFECTIVE DATE: This rule is effective December 16, 1996.

FOR FURTHER INFORMATION CONTACT: Certification Policy Branch, Program

Development Division, Food Stamp Program, Food and Consumer Service,

USDA, 3101 Park Center Drive, Alexandria, Virginia 22302; telephone:

(703) 305-2520.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

This final rule has been determined to be significant and was

reviewed by the Office of Management and Budget under Executive Order

12866.

Executive Order 12372

The Food Stamp Program is listed in the Catalog of Federal Domestic

Assistance under No. 10.551. For the reasons set forth in the final

rule in 7 CFR Part 3015, Subpart V and related Notice (48 FR 29115,

June 24, 1983), this Program is excluded from the scope of Executive

Order 12372 which requires intergovernmental consultation with State

and local officials.

Regulatory Flexibility Act

This action has been reviewed with regard to the requirements of

the Regulatory Flexibility Act of 1980 (5 U.S.C. 601-612). The Under

Secretary for Food, Nutrition, and Consumer Services has certified that

this action does not have a significant economic impact on a

substantial number of small entities. State welfare agencies are

affected to the extent that they must implement the provisions

described in this action. Potentially eligible and currently

participating households are affected to the extent that they contain

members who are eligible students and who receive assistance excluded

from income and resources under this action. Some currently

participating student households could realize an increase in benefits

as a result of this action.

Executive Order 12778

This proposed rulemaking has been reviewed under Executive Order

12778, Civil Justice Reform. This rule is intended to have preemptive

effect with respect to any State or local laws, regulations or policies

which conflict with its provisions or which would otherwise impede its

full implementation. This rule is not intended to have retroactive

effective dates unless so specified in the ``Dates'' section of this

preamble. Prior to any judicial challenge to the provisions of this

rule or the application of its provisions all applicable administrative

procedures must be exhausted. In the Food Stamp Program the

administrative procedures are as follows: (1) for program benefit

recipients--state administrative procedures issued pursuant to 7 U.S.C.

2020(e)(1)) and 7 CFR 273.15; (2) for State agencies--administrative

procedures issued pursuant to 7 U.S.C. 2023 set out at 7 CFR 276.7 (for

rules related to non-quality control (QC) liabilities) or Part 283 (for

rules related to QC liabilities); (3) for program retailers and

wholesalers--administrative procedures issued pursuant to 7 U.S.C. 2023

set out at 7 CFR 278.8.

The Department received one comment concerning Executive Order

12778. One commenter said that administrative procedures do not have to

be exhausted before judicial challenge and that the Department should

correct this misstatement and avoid making such statements in future

rulemakings. While we believe that it would have been fully within the

Secretary's discretionary authority, as granted in section 4(c) of the

Food Stamp Act (7 U.S.C. Sec. 2013(c)), to establish an exhaustion

requirement, this matter has now been specifically addressed by

statute. Section 212(e) of the Federal Crop Insurance Reform and

Department of Agriculture Reorganization Act of 1994, P. L. 103-354,

requires persons to exhaust all administrative appeal procedures

established by the Secretary or required by law before the person may

bring an action in a court of competent jurisdiction against the

Secretary, the Department or an agency, office, officer, or employee of

the Department.

Paperwork Reduction Act

This rule does not contain reporting or recordkeeping requirements

subject

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to review by the Office of Management and Budget under the Paperwork

Reduction Act of 1995 (P.L. 104-13).

This rule removes 7 CFR 273.9(c)(10)(xi) which contains

verification requirements for educational assistance, and instructs

State agencies to follow the verification requirements already outlined

in 273.2(f).

This rule refers to but does not affect the current information

collection requirements for 7 CFR 273.2(f). State welfare agencies must

verify certain information which affects household eligibility and

benefits. Applicant households are required to provide the necessary

information to the State agency. The reporting and recordkeeping burden

associated with the application, certification, and continued

eligibility of food stamp applicants has been approved by the Office of

Management and Budget (OMB) under OMB No. 0584-0064. OMB approval

includes the burden associated with verification of information

provided on the food stamp application.

Background

On November 1, 1993, the Department proposed procedures to

implement amendments to the Food Stamp Act of 1977, as amended, (7

U.S.C. 2011 et seq.) (Food Stamp Act), as set forth in Sections 1715

and 1727 of Pub. L. 101-624, the Mickey Leland Memorial Domestic Hunger

Relief Act of 1990 (Mickey Leland Act), enacted November 28, 1990, and

Section 903 of Title IX of the Food, Agriculture, Conservation, and

Trade Act Amendments of 1991 (1991 Technical Amendments), enacted

December 13, 1991. Section 1715 of the Mickey Leland Act, as amended by

Section 903 of the 1991 Technical Amendments, establishes procedures

for determining an income exclusion for certain educational assistance

received by eligible student households. Section 1727 of the Mickey

Leland Act amended the Food Stamp Act to grant eligibility for

participation in the Food Stamp Program (Program) to certain college

students currently considered ineligible to participate.

Procedures were also proposed for implementing amendments to the

Higher Education Act of 1965 as set forth in Sections 471 and 1345 of

Pub. L. 102-325, the Higher Education Amendments of 1992, enacted July

23, 1992. Those sections prohibit certain Federal educational

assistance from being considered as income and resources for food stamp

purposes.

Lastly, procedures were proposed for implementing a provision of

Pub. L. 101-392, the Carl D. Perkins Vocational and Applied Technology

Education Act Amendments of 1990 (Perkins Act), enacted September 25,

1990, which prohibits counting certain educational assistance received

by students from a program funded by the Perkins Act as income or

resources when determining the eligibility and benefits of student

households.

The Department accepted comments on this rulemaking through January

2, 1994. Comments were received from eight State agencies, one public

interest group, and one advocate. The comments concerning educational

income are discussed below. Comments not related to the proposed

changes are not addressed.

The proposed rule contained provisions on student eligibility and

the treatment of educational and training assistance. This rule

finalizes only the provisions concerning educational and training

assistance. The provisions regarding student eligibility have been

finalized in a separate rule.

A full explanation of the provisions in this final rule was

contained in the preamble of the proposed rule (58 FR 58463). The

reader should refer to the preamble of that rule for a full

understanding of the provisions of this final rule.

Since the proposed rule was published, the Department has

undertaken a complete review of all the Food Stamp regulations in

response to the President's Regulatory Reform Initiative. The

Department has considered ways to reform the Program regulations in

order to remove overly prescriptive provisions, eliminate outdated and

redundant regulatory requirements and increase State flexibility.

Several of the decisions the Department has made on this final rule

have been made with the Regulatory Reform Initiative in mind and are

noted as such in the preamble.

Resources

Resource Exclusions

The November 1, 1993, regulation proposed to revise 7 CFR

273.8(e)(11)(xi) to conform to provisions in the Higher Education Act

and the Perkins Act. In the interim, 7 CFR 273.8(e)(11)(xi) has been

redesignated as 273.8(e)(11)(x). These two laws exclude resources for

student assistance funded in whole or in part under Title IV and Part E

of Title XIII of the Higher Education Act and the Perkins Act.

The Department received three comments concerning this provision.

Two supported it. One suggested that a definition of Part E of Title

XIII of the Higher Education Act be included in the preamble. Part E of

Title XIII of the Higher Education Act refers to the Tribal Development

Student Assistance Revolving Loan Program.

During the Regulatory Reform Initiative, the Department concluded

that it is not necessary to list all Federal statutes that exclude

resources as the list is constantly changing and is quickly outdated.

The Department routinely sends out policy memos updating the list of

Federal statutes which provide for such exclusions. The Department

believes that the regulations at 7 CFR 273.8(e)(11), which exclude

resources that are excluded for food stamp purposes by express

provision of Federal statute, provide adequate guidance. Therefore, the

Department is not adopting the proposed revisions. Instead, the

Department is removing 7 CFR 273.8(e)(11)(x), since it is obsolete, and

is instructing State agencies to abide by 7 CFR 273.8(e)(11) and policy

memos listing the Federal statutes which exclude resources for food

stamp purposes.

Earned Income

Work Study and Fellowships as Earned Income

The November 1, 1993, regulation proposed to add a new paragraph, 7

CFR 273.9(b)(1)(vi) and to make a conforming amendment to 7 CFR

273.9(b)(2)(iv) which would define income from work study or a

fellowship with a work requirement as earned income. As such, it would

be subject to the provisions of 7 CFR 273.9(d)(2), which provide for a

20 percent earned income deduction. The Department received three

comments, all in support of the provision.

It has come to the Department's attention that there are also

assistantships which have a work requirement, such as working as a lab

assistant or teacher's aide. To be consistent with the treatment of

income from work study and fellowships with a work requirement, the

Department is adopting the proposed change at 7 CFR 273.9(b)(1)(vi)

with a modification. It will now state that earned income includes

educational assistance which has a work requirement (such as work

study, an assistantship or fellowship with a work requirement) in

excess of the amount excluded under 7 CFR 273.9(c)(3). The Department

is making a conforming amendment at 7 CFR 273.9(b)(2)(iv), the

definition of unearned income, adding a more general phrase, ``other

than educational assistance with a work requirement,'' in order to

capture work study, fellowships

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and assistantships with a work requirement.

The November 1, 1993, rule proposed to include at 7 CFR 273.9(c)(3)

a provision that the 20 percent earned income deduction required by

paragraph (d)(2) of this section shall be applied to income from work

study and income from a fellowship with a work requirement after

allowable exclusions are made pursuant to paragraph (c)(3) of this

section. This is already covered by 7 CFR 273.9(b)(1)(vi), as amended

by this rule, and 7 CFR 273.9(d)(2). To include a similar provision at

7 CFR 273.9(c)(3) would be redundant. Therefore, the Department is not

adopting the proposed addition to 7 CFR 273.9(c)(3).

Allowable Expenses

Mandatory School Fees

The November 1, 1993, rule proposed to expand the definition of

mandatory school fees to include the costs of rental or purchase of

equipment, materials, and supplies related to the pursuit of the course

of study involved. Two commenters supported this change. This provision

is specifically provided for in the Mickey Leland Act. The provision is

being adopted as final at 7 CFR 273.9(c)(3).

Miscellaneous Personal and Normal Living Expenses

The November 1, 1993, rule proposed at 7 CFR 273.9(c)(3) to allow

an educational income exclusion based on earmarking or use for

miscellaneous personal expenses.

The proposed rule used the definition of miscellaneous personal

expenses as set forth in Section 5(d) of the Food Stamp Act: expenses

(other than normal living expenses) of the student incidental to

attending such school, institution or program. The Department

interpreted this definition of miscellaneous personal expenses as

meaning things such as subscriptions to educational publications or

dues for a professional association. The Department defined normal

living expenses as food, rent, board, clothes, laundry, haircuts and

personal hygiene items.

The Department received three comments regarding this proposal. In

general, the commenters were opposed to the revised definitions of

miscellaneous personal and normal living expenses. One commenter

suggested that all items other than room and board should be considered

miscellaneous personal expenses. Another commenter suggested that since

the Perkins Act defines miscellaneous personal expenses as ``other than

room and board'', at least for assistance provided under the Perkins

Act, miscellaneous personal expenses should be defined as such.

The Department believes that using the same definitions for

educational income received from various sources will simplify the

treatment of educational assistance. The Food Stamp Act offers the

Department some discretion in this area. Therefore, the Department has

decided to adopt one of the commenter's suggestions and revise its

definition of miscellaneous personal expenses and normal living

expenses. In this final rule at 7 CFR 273.9(c)(3), miscellaneous

personal expenses will include all personal expenses other than room

and board. Normal living expenses will include only room and board.

Handling of Normal Living Expenses

As mentioned above, normal living expenses, defined as room and

board, are not excludable. The November 1, 1993, rule proposed at 7 CFR

273.9(c)(3) that amounts earmarked as miscellaneous personal expenses

which were obviously intended for normal living expenses shall not be

excluded. It has come to the Department's attention that the grantor

often cannot delineate any further sums earmarked for miscellaneous

personal expenses. If delineation is not possible, the entire amount

earmarked for miscellaneous personal expenses is excludable. Therefore,

the Department is not adopting the proposed change. Instead the

Department is instructing States to refer to 273.9(c)(3), as revised by

this rule, and exclude all amounts earmarked for miscellaneous personal

expenses.

Dependent Care

The November 1, 1993, rule proposed at 7 CFR 273.9(c)(3) to allow

an exclusion from educational assistance for amounts earmarked or used

for dependent care. The Department received two comments in support of

this provision. It is being adopted final at 7 CFR 273.9(c)(3).

The rule also proposed to amend 7 CFR 273.10(d)(1)(i) to prohibit

amounts excluded from educational income for dependent care costs

pursuant to 7 CFR 273.9(c)(3) from also being deducted from income

under the current provision at 7 CFR 273.9(d)(4). Two commenters

supported this provision. It has come to the Department's attention

that there are expenses other than dependent care which should be

subject to the same restrictions. Therefore, this final rule amends 7

CFR 273.10(d)(1)(i), adding a more general phrase providing that any

expense, in whole or part, covered by educational income which has been

excluded pursuant to the provisions of 7 CFR 273.9(c)(3) shall not be

deductible.

One commenter suggested that the Department clarify that there is

no maximum amount of dependent care that can be excluded. The

Department intended that there should be no limit as to the amount of

dependent care expenses that may be excluded from educational

assistance based on earmarking. However, if a student pays more for

dependent care than is earmarked, the additional amount may be deducted

in accordance with 7 CFR 273.9(d)(4). This additional amount is then

subject to 7 CFR 273.9(d)(4) which provides for a maximum limit per

dependent. The final rule, at 7 CFR 273.9(c)(3), provides that

dependent care costs which exceed the amount excludable from income

shall be deducted from income in accordance with paragraph 7 CFR

273.9(d)(4) and be subject to a cap.

In the preamble of the proposed rule, the Department stated its

intention to include a provision that would prohibit amounts excluded

from educational assistance for dependent care from also being excluded

under the general reimbursement provision at 7 CFR 273.9(c)(5)(i)(C).

No comments opposed this provision. However, this provision was

inadvertently left out of the proposed regulation itself. Therefore,

this rule, at 7 CFR 273.9(c)(3) includes a provision stating that

amounts excluded for dependent care costs under the provisions of 7 CFR

273.9(c)(3) shall not be excluded under the general exclusion

provisions of paragraph 7 CFR 273.9(c)(5)(i)(C).

Exclusions From Income

Types of Schools

The November 1, 1993, rule proposed at 7 CFR 273.9(c)(3) two

additional types of educational programs which qualify a student for

income exclusions based on allowable educational expenses: (1)

vocational and technical schools, and (2) any program in which students

would receive a high school diploma or its equivalent.

The Department received three comments supporting the proposed

revision. Accordingly, the language is being adopted as final without

change at 7 CFR 273.9(c)(3).

In the preamble of the proposed rule, the Department stated its

intention to retain the definition of an institution of post-secondary

education. However, this definition was inadvertantly left out of the

the proposed regulations itself.

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Therefore, this final rule, at 7 CFR 273.9(c)(3), retains the

definition of post-secondary education currently in the regulations.

Order of Income Exclusions

The November 1, 1993, rule proposed to totally revise 7 CFR

273.9(c)(3) to include a three-part procedure for excluding educational

assistance. The first step was to totally exclude all educational

income excluded by other Federal laws. The second step was to exclude

allowable educational expenses based on earmarking. The third step was

to exclude allowable educational expenses the student could verify were

used for excludable expenses. If earned educational income such as work

study were involved, the expenses would be excluded from unearned

educational income first and the remainder of the expenses would be

excluded from earned educational income.

The Department received nine comments on this proposal. Three

supported the income exclusion process as written. Six opposed the

process for various reasons. For example, they found the process

unnecessarily complex, unjustifiably error-prone, and difficult to

automate. All six suggested alternative ways of determining the amount

of countable student assistance.

In light of the alternative processes suggested by the commenters

and within the context of the Regulatory Reform Initiative, the

Department has decided to give States the flexibility to design

procedures for excluding student assistance that are more appropriate

to their specific circumstances. Therefore, the Department is not

adopting the proposed provision on the process that States must follow

to exclude income, but is amending 7 CFR 273.9(c)(3) to include

provisions on what shall be excluded, as explained in further detail

below.

Amounts Excluded by Other Federal Laws

The November 1, 1993, rule proposed to amend 7 CFR 273.9(c)(3) to

include a provision that States shall first exclude all educational

income specifically excluded from consideration as income by other

Federal statutes. The regulations at 7 CFR 273.9(c)(10) already provide

for this. The Department has decided that to include a similar

provision in 7 CFR 273.9(c)(3) would be redundant. Therefore, the

Department is not adopting the proposed provision and is instead

instructing States to abide by 7 CFR 273.9(c)(10).

Amounts Earmarked for Allowable Expenses

The November 1, 1993, rule proposed to amend 7 CFR 273.9(c)(3) to

include a provision that after excluding amounts excluded by other

Federal law, States shall then exclude educational assistance

identified (earmarked) by the institution, program or other grantor for

the specific costs of tuition, mandatory school fees (including the

rental or purchase of any equipment, materials, and supplies related to

the pursuit of the course of study involved), books, supplies,

dependent care, transportation, and miscellaneous personal expenses

(other than normal living expenses).

The Department received two comments regarding earmarking, each

suggesting different ways States could determine what constitutes

earmarking. The comments illustrate that each institution, program or

grantor earmarks student assistance differently. Since the Food Stamp

Act does not specify how this assistance is to be earmarked, the

Department has decided to give States the flexibility to decide what

constitutes earmarking.

One commenter wanted to verify that the institution, school,

program, or grantor is able to earmark allowable expenses. It was

always the Department's intention that this be the case as it is

clearly stated in the Food Stamp Act that amounts identified by the

school, institution, program, or other grantor as allowable expenses

shall be excluded.

The Department received four comments disagreeing with the proposal

to allow multiple exclusions based on earmarking. For example, when a

student receives two grants earmarked for tuition costs, both amounts

earmarked for tuition shall be excluded, even though the total may be

greater than the amount of the tuition. However, Section 5(d) of the

Food Stamp Act, as amended, states that amounts made available as an

allowance (earmarked) for tuition, mandatory fees, books, supplies,

transportation and other miscellaneous personal expenses, must be

excluded regardless of whether or not the grants were actually used to

pay all or part of these expenses. The Department does not have the

discretion to adopt these comments.

The proposed provision to exclude earmarked amounts is being

adopted as final at 7 CFR 273.9(c)(3) with a modification. The

Department is not adopting the provision that states shall exclude

these amounts first.

Exclusions Based on Use

The November 1, 1993, rule proposed to allow an exclusion of

educational assistance if the student could show it was used for

allowable expenses, or if the amount used was in excess of earmarked

amounts. The Department received one comment disagreeing with the

proposal to allow an exclusion based on use if a grant has already been

earmarked for the same expense. However, the Food Stamp Act of 1977, as

amended, specifically states that an exclusion shall be granted for

allowable expenses to the extent that they do not exceed the amount

used for or made available for allowable expenses.

This final rule at 7 CFR 273.9(c)(3) states that amounts used for

the allowable expenses of tuition, mandatory fees (including the rental

or purchase of any equipment, materials, and supplies related to the

pursuit of the course of study involved), books, supplies, dependent

care, transportation, or miscellaneous personal expenses (other than

normal living expenses which are room and board) of the student

incidental to attending a school, institution or program shall be

excluded.

Additional Educational Assistance Issues

Income Averaging

The November 1, 1993, rule proposed in 7 CFR 273.9(c)(3) to include

a provision on income averaging. However, 7 CFR 273.10(c)(3)(iii)

already addresses income averaging. The Department has decided that it

is redundant to address income averaging in two places. Therefore, in

this final rule, this provision is incorporated into the educational

proration provision at 7 CFR 273.10(c)(3)(iii).

The November 1, 1993, rule proposed that the first month

educational income would be counted is the month in which it is

received, although it would still be prorated over the period it is

intended to cover. One State agency supported prorating the income over

the period it is intended to cover, but said that not counting it until

the student receives it would require additional reporting by the

student. The State agency suggested budgeting student income when it

has been approved rather than when it is received.

The Department disagrees with the recommendation of the commenter

because it would result in students having income counted before it is

received. However, the Department would like to avoid imposing

burdensome requirements on households or eligibility workers.

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Therefore, the Department has decided to amend 7 CFR 273.10(c)(3)(iii)

to give States the option of counting the income either in the month it

is received, or in the month the household anticipates receiving it or

receiving the first installment payment, although it would still be

prorated over the period it is intended to cover.

The November 1, 1993, rule also proposed at 7 CFR 273.9(c)(3) that

when work study income (earned educational income) is received monthly

and costs of attendance are incurred on a less frequent basis, the

State agency would anticipate the work study income for the appropriate

quarter, semester, or year; exclude the allowable costs; and prorate

the remainder over the quarter, semester, or year. One commenter

supported treating work study income the same way as unearned

educational assistance and prorating it over the period it is intended

to cover.

One commenter objected to this proposal because eligibility workers

are not in the position to anticipate anything beyond the amount

verified by the institution. This same commenter suggested that the

regulations should mandate the use of the verified amount.

The Department believes that, in the interest of consistency, work

study income should be treated the same way as unearned educational

income. States may count it in the month it is received, or count it

the month the household anticipates receiving it or receiving the first

installment payment, although it is still prorated over the period it

is intended to cover.

The final rule amends 7 CFR 273.(10)(c)(3)(iii) to provide that

earned and unearned educational income, after allowable exclusions,

shall be averaged over the period it is intended to cover. The first

month that educational income shall be counted is either the month in

which the income or the first installment payment is received, or the

month in which the income or first installment payment is anticipated

to be received, although it is still prorated over the period it is

intended to cover.

Loans

The November 1, 1993, rule proposed to revise 7 CFR 273.9(c)(4) so

that educational loans on which repayment is deferred shall be excluded

pursuant to the provisions of 7 CFR 273.9(c)(3) and that a loan on

which repayment must begin within 60 days after receipt would not be

considered a deferred repayment loan.

One commenter pointed out that this provision was not discussed in

the preamble. This provision was included in the proposed rule for

comment because it had previously come up as a policy inquiry.

Repayment for most types of Federal loans for education is deferred

until after the student graduates or until the student drops out of

school. On most non-deferred repayment loans, repayment must begin

within 60 days of receipt and is therefore, not excludable. The

Department is adopting the proposed provision with a modification at 7

CFR 273.9(c)(4). Reference to 7 CFR 273.9(c)(10)(xi) will no longer be

included because this final rule deletes this section.

Reimbursements

The November 1, 1993, rule proposed at 7 CFR 273.9(c)(5) that

educational assistance provided for normal living expenses could not be

excluded under the reimbursement provision and that all other

reimbursements or allowances for educational assistance would be

handled under the educational income exclusion section.

The Department realizes that it is not necessary to list each type

of educational assistance. Therefore, in this rule at 7 CFR

273.9(c)(5)(ii)(B), the list of educational income sources in the first

sentence has been removed and a general reference to educational

assistance has been added. Also, for the purpose of clarity, the

definition of normal living expenses (room and board) has been added.

Retrospective Budgeting

One commenter requested that the regulations allow State agencies

to retrospectively budget work study and fellowships as well as other

educational assistance. A rule titled ``Miscellaneous Provisions of the

Food, Agriculture, Conservation, and Trade Act Amendments of 1991 and

Earned Income Tax Credit Amendment'' published August 29, 1994, changed

the regulations to allow educational income (nonexcluded scholarships,

deferred educational loans, and other educational grants) to be

budgeted either prospectively or retrospectively. However, the

Department agrees that, in the interest of consistency, earned

educational income should be treated the same as unearned educational

income. Accordingly, this rule revises 7 CFR 273.21(f)(2)(iii) so that

earned and unearned educational income is required to be prorated over

the period it is intended to cover in accordance with 7 CFR

273.10(c)(3)(iii) and it shall be budgeted either prospectively or

retrospectively.

Verification

The November 1, 1993, rule proposed to include verification

requirements for student income at 7 CFR 273.9(c)(3). The Department

received six comments concerning this proposal. Two supported these

provisions. Three suggested different procedures for verifying student

income. One suggested the verification requirements be placed in one

section of the regulations. The Department agrees with this commenter.

Verification requirements are already outlined in 7 CFR 273.2(f). To

include separate verification requirements for student income would be

redundant. Therefore, the Department has decided not to adopt the

verification procedures as proposed. Instead, it is instructing States

to follow the verification requirements already outlined in 7 CFR

273.2(f).

Technical Changes

The reference to Section 1345(c) at 7 CFR 273.8 should have been

1343(c). The Department is correcting the reference in this rule.

Implementation

State welfare agencies have been instructed through agency

directive to implement the provisions of the following laws as of the

statutory effective dates without waiting for formal regulations: the

Higher Education Act Amendments of 1986, as amended in 1987, for the

1988-89 school year; the Perkins Act on July 1, 1991; the Mickey Leland

Act (as amended by the 1991 Technical Amendments to the Food Stamp Act)

on February 1, 1992, and the exclusions contained in the Higher

Education Act Amendments of 1992 for the Tribal Development Student

Assistance Revolving Loan Program on October 1, 1992, and for Title IV

and BIA student assistance on July 1, 1993.

One commenter asked if the Title IV and BIA exclusion applies to

school periods beginning after July 1, 1993, or to income received

after that date. It applies to income received for school periods

beginning on or after July 1, 1993. The law specifically provides that

the exclusion shall apply to award years beginning after July 1, 1993.

Pursuant to Public Law 104-121, the Contract with America

Advancement Act of 1996, this final rule is effective December 16,

1996; State agencies must implement it no later than March 1, 1997.

State agencies will be required to adjust the cases of ongoing

households at the next recertification, at household request, or when

the case is next

[[Page 54297]]

reviewed, whichever comes first. If implementation of the above Acts or

this rule is delayed, benefits shall be restored, as appropriate, in

accordance with the Food Stamp Act.

The preamble to the proposed rule provided that any variance

resulting from implementation of the provision of the subsequent final

rule would be excluded from error analysis for 90 days from the

specified implementation dates of such final rule.

One commenter pointed out that the grace period should be 120 days.

Section 13951 of the Mickey Leland Childhood Hunger Relief Act, P.L.

102-66, enacted August 10, 1993, excludes from the payment error rate

any errors resulting in the application of new procedures for 120 days

from date of publication. Accordingly, variances resulting form

implementation of the provisions of the final rule are excluded from

error analysis for 120 days from March 1, 1997.

List of Subjects

7 CFR Part 272

Alaska, Civil rights, Food stamps, Grant programs--social programs,

Reporting and recordkeeping requirements.

7 CFR Part 273

Administrative practice and procedures, Aliens, Claims, Food

stamps, Fraud, Grant programs--social programs, Penalties, Reporting

and recordkeeping requirements, Social Security, Students.

Accordingly, 7 CFR Parts 272 and 273 are amended as follows:

1. The authority citation for Parts 272 and 273 continues to read

as follows:

Authority: 7 U.S.C. 2011-2032.

PART 272--REQUIREMENTS FOR PARTICIPATING STATE AGENCIES

2. In Sec. 272.1, a new paragraph (g)(149) is added to read as

follows:

Sec. 272.1 General terms and conditions.

* * * * *

(g) Implementation. * * *

(149) Amendment No. 374. The Higher Education Act Amendments of

1986, as amended in 1987, were effective and required to be implemented

for the 1988-89 school year; the Perkins Act was effective and required

to be implemented on July 1, 1991; the Mickey Leland Act (as amended by

the 1991 Technical Amendments to the Food Stamp Act) was effective and

required to be implemented on February 1, 1992, and the exclusions

contained in the Higher Education Act Amendments of 1992 for the Tribal

Development Student Assistance Revolving Loan Program were effective

and required to be implemented on October 1, 1992, and for Title IV and

BIA student assistance on July 1, 1993. The provisions of Amendment No.

374 are effective December 16, 1996 and must be implemented by March 1,

1997. The current caseload shall be converted to these provisions at

the household's request, at the time of recertification, or when the

case is next reviewed, whichever occurs first. If implementation of the

acts referenced in this paragraph or this amendment is delayed,

benefits shall be restored, as appropriate, in accordance with the Food

Stamp Act. Any variance resulting from implementation of this amendment

shall be excluded from error analysis for 120 days from March 1, 1997.

PART 273--CERTIFICATION OF ELIGIBLE HOUSEHOLDS

3. In Sec. 273.8, paragraph (e)(11)(x) is removed.

4. In Sec. 273.9:

a. A new paragraph (b)(1)(vi) is added;

b. paragraph (b)(2)(iv) is amended by removing ``fellowships'' and

adding the phrase ``, other than educational assistance with a work

requirement,'' after the word ``like'';

c. paragraph (c)(3) is revised;

d. paragraph (c)(4) is amended by removing all text appearing after

the first sentence and adding two new sentences to the end of the

paragraph.

e. paragraph (c)(5)(i) is amended by removing paragraph

(c)(5)(i)(D) and redesignating paragraphs (c)(5)(i)(E), (c)(5)(i)(F)

and (c)(5)(i)(G) as paragraphs (c)(5)(i)(D), (c)(5)(i)(E) and

(c)(5)(i)(F), respectively;

f. paragraph (c)(5)(ii) is amended by revising paragraph

(c)(5)(ii)(B) and by removing paragraph (c)(5)(ii)(C);

g. paragraph (c)(10)(xi) is removed.

The revisions and additions read as follows:

Sec. 273.9 Income and deductions.

* * * * *

(b) Definition of income. * * *

(1) * * *

(vi) Educational assistance which has a work requirement (such as

work study, an assistantship or fellowship with a work requirement) in

excess of the amount excluded under Sec. 273.9(c)(3).

* * * * *

(c) Income exclusions. * * *

(3)(i) Educational assistance, including grants, scholarships,

fellowships, work study, educational loans on which payment is

deferred, veterans' educational benefits and the like.

(ii) To be excluded, educational assistance referred to in

paragraph (c)(3)(i) must be:

(A) Awarded to a household member enrolled at a:

(1) Recognized institution of post-secondary education (meaning any

public or private educational institution which normally requires a

high school diploma or equivalency certificate for enrollment or admits

persons who are beyond the age of compulsory school attendance in the

State in which the institution is located, provided that the

institution is legally authorized or recognized by the State to provide

an educational program beyond secondary education in the State or

provides a program of training to prepare students for gainful

employment, including correspondence schools at that level),

(2) School for the handicapped,

(3) Vocational education program,

(4) Vocational or technical school,

(5) Program that provides for obtaining a secondary school diploma

or the equivalent;

(B) Used for or identified (earmarked) by the institution, school,

program, or other grantor for the following allowable expenses:

(1) Tuition,

(2) Mandatory school fees, including the rental or purchase of any

equipment, material, and supplies related to the pursuit of the course

of study involved,

(3) Books,

(4) Supplies,

(5) Transportation,

(6) Miscellaneous personal expenses, other than normal living

expenses, of the student incidental to attending a school, institution

or program,

(7) Dependent care,

(8) Origination fees and insurance premiums on educational loans,

(9) Normal living expenses which are room and board are not

excludable.

(10) Amounts excluded for dependent care costs shall not also be

excluded under the general exclusion provisions of paragraph

Sec. 273.9(c)(5)(i)(C). Dependent care costs which exceed the amount

excludable from income shall be deducted from income in accordance with

paragraph Sec. 273.9(d)(4) and be subject to a cap.

(iii) Exclusions based on use pursuant to paragraph (c)(3)(ii)(B)

must be incurred or anticipated for the period the educational income

is intended to cover regardless of when the educational income is

actually received. If a student uses other income sources to pay for

allowable educational expenses in months before the educational income

is received, the

[[Page 54298]]

exclusions to cover the expenses shall be allowed when the educational

income is received. When the amounts used for allowable expense are

more than amounts earmarked by the institution, school, program or

other grantor, an exclusion shall be allowed for amounts used over the

earmarked amounts. Exclusions based on use shall be subtracted from

unearned educational income to the extent possible. If the unearned

educational income is not enough to cover the expense, the remainder of

the allowable expense shall be excluded from earned educational income.

(iv) An individual's total educational income exclusions granted

under the provisions of paragraph (c)(3)(i) through (c)(3)(iii) of this

section cannot exceed that individual's total educational income which

was subject to the provisions of paragraph (c)(3)(i) through

(c)(3)(iii) of this section.

(4) * * * Educational loans on which repayment is deferred shall be

excluded pursuant to the provisions of Sec. 273.9(c)(3)(i). A loan on

which repayment must begin within 60 days after receipt of the loan

shall not be considered a deferred repayment loan.

(5) * * *

(ii) * * *

(B) No portion of any educational assistance that is provided for

normal living expenses (room and board) shall be considered a

reimbursement excludable under this provision.

* * * * *

5. In Sec. 273.10, paragraph (c)(3)(iii) is revised and a new

sentence is added to the beginning of paragraph (d)(1)(i). The addition

and revision read as follows:

Sec. 273.10 Determining household eligibility and benefit levels.

* * * * *

(c) Determining income. * * *

(3) Income averaging. * * *

(iii) Earned and unearned educational income, after allowable

exclusions, shall be averaged over the period which it is intended to

cover. Income shall be counted either in the month it is received, or

in the month the household anticipates receiving it or receiving the

first installment payment, although it is still prorated over the

period it is intended to cover.

(d) Determining deductions. * * *

(1) Disallowed expenses.

(i) Any expense, in whole or part, covered by educational income

which has been excluded pursuant to the provisions of Sec. 273.9(c)(3)

shall not be deductible. * * *

* * * * *

6. In Sec. 273.21, the first sentence in paragraph (f)(2)(iii) is

revised to read as follows:

Sec. 273.21 Monthly Reporting and Retrospective Budgeting (MRRB).

* * * *

(f) Calculating allotments for households following the beginning

months. * * *

(2) Income and deductions. * * *

(iii) Earned and unearned educational income shall be prorated over

the period it is intended to cover in accordance with

Sec. 273.10(c)(3)(iii), and it shall be budgeted either prospectively

or retrospectively. * * *

* * * * *

Dated: September 26, 1996.

Ellen Haas,

Under Secretary for Food, Nutrition, and Consumer Services.

[FR Doc. 96-26070 Filed 10-16-96; 8:45 am]

BILLING CODE 3410-30-U