Student Assistance General Provisions

SUMMARY: The Secretary amends the Student Assistance General Provisions

regulations, 34 CFR Part 668, to implement an amendment made to the

General Education Provisions Act (GEPA) by the Improving America's

Schools Act of 1994 (IASA). That amendment decreased from five years to

three years the length of time that a recipient of federal funds is

required to maintain records. In addition, the Secretary is

consolidating and clarifying existing records retention rules, and

reducing administrative burden on institutions.

DATES: Effective Date: These regulations take effect July 1, 1997.

However, affected parties do not have to comply with the information

collection requirements in Sec. 668.24 until the Department of

Education publishes in the Federal Register the control numbers

assigned by the Office of Management and Budget (OMB) to these

information collection requirements. Publication of the control numbers

notifies the public that OMB has approved these information collection

requirements under the Paperwork Reduction Act of 1995.

FOR FURTHER INFORMATION CONTACT: Paula Husselmann or Kenneth Smith,

U.S. Department of Education, 600 Independence Avenue, SW, ROB-3, Room

3045, Washington, DC 20202-5346. The telephone number for Paula

Husselmann is (202)708-4902. The telephone number for Kenneth Smith is

(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 13, 1996, the Secretary

published a notice of proposed rulemaking (NPRM) for the Student

Assistance General Provisions (Part 668) in the Federal Register (61 FR

48564-48569). The NPRM included a discussion of the major issues

surrounding the proposed changes that 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:

Section 668.24 Record Retention and Examinations

The Secretary proposed to reduce from five years to three years the

length of time that a recipient of title IV, HEA program funds must

maintain records. (page 48564)

The Secretary proposed that the recordkeeping period should be the

same for all programs, to the extent possible. The Secretary proposed

as a general rule that, other than records relating to student loans,

an institution must keep records relating to its administration of a

title IV, HEA program for an award year for three years after the end

of that award year. (page 48564)

The Secretary proposed the following requirements for certain types

of records that do not fit within the general rule. With regard to

records relating to student loans under the FFEL Program and the

William D. Ford Federal Direct Loan (Direct Loan) Program, the

Secretary proposed that an institution keep those records for three

years after the end of the award year in which the student borrower

last attended the institution. (page 48564)

The Secretary proposed that an institution keep loan records

relating to the repayment of Federal Perkins Loans in accordance with

the regulations governing that program, 34 CFR 674.19. (page 48564)

The Secretary proposed that an institution keep the Fiscal

Operations Report and Application to Participate in the Federal Perkins

Loan, Federal Supplemental Educational Opportunity Grant (FSEOG), and

Federal Work-Study (FWS) Programs (FISAP) and the records supporting

information contained in a FISAP, including income grid information,

for three years after the end of the award year in which the FISAP was

submitted. (page 48564)

The Secretary proposed to accommodate new technology by allowing an

institution to satisfy its recordkeeping requirements under various

electronic formats. The Secretary proposed that all record information,

except those records required to be retained in electronic format, be

retrievable in a coherent hard copy or in other media format acceptable

to the Secretary. (pages 48564-48565)

The Secretary proposed that an institution make its records readily

available for review at an institutional location designated by the

Secretary. (page 48565)

Analysis of Comments and Changes

In response to the Secretary's invitation in the NPRM, thirty-three

parties submitted comments on the proposed regulations. The Secretary

notes that many of the commenters are groups representing significant

numbers of people and entities. Therefore, when the Secretary refers to

a commenter, the Secretary is, in most cases, referring to groups of

individuals or entities.

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

since publication of the NPRM is published as an appendix to these

final regulations. Substantive issues are discussed under the section

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

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

to make under the applicable statutory authority--generally are not

addressed.

Assessment of Educational Impact

In the notice of proposed rulemaking, the Secretary requested

comments on whether the proposed regulations would require transmission

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

agency or authority of the United States.

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

the Department has determined that the regulations in this document do

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

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

issue is further discussed in the Appendix to these regulations, under

the analysis of comments and changes for Sec. 668.24, ``General''

comments, and for Sec. 682.414(a)(3).

List of Subjects

34 CFR Part 668

Administrative practice and procedure, Colleges and universities,

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

programs--education, Reporting and recordkeeping requirements, Student

aid.

34 CFR Part 674

Loan programs--education, Reporting and recordkeeping requirements,

Student aid.

34 CFR Part 675

Colleges and universities, Employment, Grant programs--education,

Reporting and recordkeeping requirements, Student aid.

34 CFR Part 676

Grant programs--education, Reporting and recordkeeping

requirements, Student aid.

[[Page 60491]]

34 CFR Parts 682 and 685

Administrative practice and procedure, Colleges and universities,

Loan programs--education, Reporting and recordkeeping requirements,

Student aid, Vocational education.

34 CFR Part 690

Colleges and universities, Education of disadvantaged, Grant

programs--education, Reporting and recordkeeping requirements, Student

aid, Vocational education.

(Catalog of Federal Domestic Assistance Numbers: 84.007 Federal

Supplemental Educational Opportunity Grant Program; 84.032 Federal

Stafford Loan Program; 84.032 Federal PLUS Program; 84.032 Federal

Supplemental Loans for Students Programs; 84.033 Federal Work-Study

Program; 84.038 Federal Perkins Loan Program 84.063 Federal Pell

Grant Program; 84.069 State Student Incentive Grant Program; 84.268

Federal Direct Student Loan Program; and 84.272 National Early

Intervention Scholarship and Partnership Program. Catalog of Federal

Domestic Assistance Number for the Presidential Access Scholarship

Program has not been assigned.)

Dated: November 20, 1996.

Richard W. Riley,

Secretary of Education.

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

Title 34 of the Code of Federal Regulations as follows:

PART 668--STUDENT ASSISTANCE GENERAL PROVISIONS

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

follows:

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

1141, unless otherwise noted.

2. Section 668.24 is revised to read as follows:

Sec. 668.24 Record retention and examinations.

(a) Program records. An institution shall establish and maintain,

on a current basis, any application for title IV, HEA program funds and

program records that document--

(1) Its eligibility to participate in the title IV, HEA programs;

(2) The eligibility of its educational programs for title IV, HEA

program funds;

(3) Its administration of the title IV, HEA programs in accordance

with all applicable requirements;

(4) Its financial responsibility, as specified in this part;

(5) Information included in any application for title IV, HEA

program funds; and

(6) Its disbursement and delivery of title IV, HEA program funds.

(b) Fiscal records. (1) An institution shall account for the

receipt and expenditure of title IV, HEA program funds in accordance

with generally accepted accounting principles.

(2) An institution shall establish and maintain on a current

basis--

(i) Financial records that reflect each HEA, title IV program

transaction; and

(ii) General ledger control accounts and related subsidiary

accounts that identify each title IV, HEA program transaction and

separate those transactions from all other institutional financial

activity.

(c) Required records. (1) The records that an institution must

maintain in order to comply with the provisions of this section include

but are not limited to--

(i) The Student Aid Report (SAR) or Institutional Student

Information Record (ISIR) used to determine eligibility for title IV,

HEA program funds;

(ii) Application data submitted to the Secretary, lender, or

guaranty agency by the institution on behalf of the student or parent;

(iii) Documentation of each student's or parent borrower's

eligibility for title IV, HEA program funds;

(iv) Documentation relating to each student's or parent borrower's

receipt of title IV, HEA program funds, including but not limited to

documentation of--

(A) The amount of the grant, loan, or FWS award; its payment

period; its loan period, if appropriate; and the calculations used to

determine the amount of the grant, loan, or FWS award;

(B) The date and amount of each disbursement or delivery of grant

or loan funds, and the date and amount of each payment of FWS wages;

(C) The amount, date, and basis of the institution's calculation of

any refunds or overpayments due to or on behalf of the student; and

(D) The payment of any refund or overpayment to the title IV, HEA

program fund, a lender, or the Secretary, as appropriate;

(v) Documentation of and information collected at any initial or

exit loan counseling required by applicable program regulations;

(vi) Reports and forms used by the institution in its participation

in a title IV, HEA program, and any records needed to verify data that

appear in those reports and forms; and

(vii) Documentation supporting the institution's calculations of

its completion or graduation rates under Secs. 668.46 and 668.49.

(2) In addition to the records required under this part--

(i) Participants in the Federal Perkins Loan Program shall follow

procedures established in 34 CFR 674.19 for documentation of repayment

history for that program;

(ii) Participants in the FWS Program shall follow procedures

established in 34 CFR 675.19 for documentation of work, earnings, and

payroll transactions for that program; and

(iii) Participants in the FFEL Program shall follow procedures

established in 34 CFR 682.610 for documentation of additional loan

record requirements for that program.

(d) General. (1) An institution shall maintain required records in

a systematically organized manner.

(2) An institution shall make its records readily available for

review by the Secretary or the Secretary's authorized representative at

an institutional location designated by the Secretary or the

Secretary's authorized representative.

(3) An institution may keep required records in hard copy or in

microform, computer file, optical disk, CD-ROM, or other media formats,

provided that--

(i) Except for the records described in paragraph (d)(3)(ii) of

this section, all record information must be retrievable in a coherent

hard copy format or in other media formats acceptable to the Secretary;

(ii) An institution shall maintain the Student Aid Report (SAR) or

Institutional Student Information Record (ISIR) used to determine

eligibility for title IV, HEA program funds in the format in which it

was received by the institution, except that the SAR may be maintained

in an imaged media format;

(iii) Any imaged media format used to maintain required records

must be capable of reproducing an accurate, legible, and complete copy

of the original document, and, when printed, this copy must be

approximately the same size as the original document;

(iv) Any document that contains a signature, seal, certification,

or any other image or mark required to validate the authenticity of its

information must be maintained in its original hard copy or in an

imaged media format; and

(v) Participants in the Federal Perkins Loan Program shall follow

procedures established in 34 CFR 674.19 for maintaining the original

promissory notes and repayment schedules for that program.

(4) If an institution closes, stops providing educational programs,

is terminated or suspended from the title IV, HEA programs, or

undergoes a change of ownership that results in a

[[Page 60492]]

change of control as described in 34 CFR 600.31, it shall provide for--

(i) The retention of required records; and

(ii) Access to those records, for inspection and copying, by the

Secretary or the Secretary's authorized representative, and, for a

school participating in the FFEL Program, the appropriate guaranty

agency.

(e) Record retention. Unless otherwise directed by the Secretary--

(1) An institution shall keep records relating to its administration of

the Federal Perkins Loan, FWS, FSEOG, or Federal Pell Grant Program for

three years after the end of the award year for which the aid was

awarded and disbursed under those programs, provided that an

institution shall keep--

(i) The Fiscal Operations Report and Application to Participate in

the Federal Perkins Loan, FSEOG, and FWS Programs (FISAP), and any

records necessary to support the data contained in the FISAP, including

``income grid information,'' for three years after the end of the award

year in which the FISAP is submitted; and

(ii) Repayment records for a Federal Perkins loan, including

records relating to cancellation and deferment requests, in accordance

with the provisions of 34 CFR 674.19;

(2)(i) An institution shall keep records relating to a student or

parent borrower's eligibility and participation in the FFEL or Direct

Loan Program for three years after the end of the award year in which

the student last attended the institution; and

(ii) An institution shall keep all other records relating to its

participation in the FFEL or Direct Loan Program, including records of

any other reports or forms, for three years after the end of the award

year in which the records are submitted; and

(3) An institution shall keep all records involved in any loan,

claim, or expenditure questioned by a title IV, HEA program audit,

program review, investigation, or other review until the later of--

(i) The resolution of that questioned loan, claim, or expenditure;

or

(ii) The end of the retention period applicable to the record.

(f) Examination of records. (1) An institution that participates in

any title IV, HEA program and the institution's third-party servicer,

if any, shall cooperate with an independent auditor, the Secretary, the

Department of Education's Inspector General, the Comptroller General of

the United States, or their authorized representatives, a guaranty

agency in whose program the institution participates, and the

institution's accrediting agency, in the conduct of audits,

investigations, program reviews, or other reviews authorized by law.

(2) The institution and servicer must cooperate by--

(i) Providing timely access, for examination and copying, to

requested records, including but not limited to computerized records

and records reflecting transactions with any financial institution with

which the institution or servicer deposits or has deposited any title

IV, HEA program funds, and to any pertinent books, documents, papers,

or computer programs; and

(ii) Providing reasonable access to personnel associated with the

institution's or servicer's administration of the title IV, HEA

programs for the purpose of obtaining relevant information.

(3) The Secretary considers that an institution or servicer has

failed to provide reasonable access to personnel under paragraph

(f)(2)(ii) of this section if the institution or servicer--

(i) Refuses to allow those personnel to supply all relevant

information;

(ii) Permits interviews with those personnel only if the

institution's or servicer's management is present; or

(iii) Permits interviews with those personnel only if the

interviews are tape recorded by the institution or servicer.

(4) Upon request of the Secretary, or a lender or guaranty agency

in the case of a borrower under the FFEL Program, an institution or

servicer promptly shall provide the requester with any information the

institution or servicer has respecting the last known address, full

name, telephone number, enrollment information, employer, and employer

address of a recipient of title IV funds who attends or attended the

institution.

(Authority: 20 U.S.C. 1070a, 1070b, 1078, 1078-1, 1078-2, 1078-3,

1082, 1087, 1087a et seq., 1087cc, 1087hh, 1088, 1094, 1099c, 1141,

1232f; 42 U.S.C. 2753; and section 4 of Pub. L. 95-452, 92 Stat.

1101-1109)

Sec. 668.25 [Amended]

3. Section 668.25(c)(4)(i) is amended by removing

``Sec. 668.23(h)'' and adding, in its place, ``Sec. 668.24''.

Sec. 668.26 [Amended]

4. Section 668.26(b)(3) is amended by removing the word ``five''

and adding, in its place, the word ``three''.

PART 674--FEDERAL PERKINS LOAN PROGRAM

5. The authority citation for Part 674 continues to read as

follows:

Authority: 20 U.S.C. 1087aa-1087ii and 20 U.S.C. 421-429, unless

otherwise noted.

6. Section 674.19 is amended by revising paragraph (d); removing

paragraph (e)(4)(v) and redesignating paragraph (e)(4)(vi) as paragraph

(e)(4)(v); and revising paragraphs (e)(1) and (e)(3), and the heading

of paragraph (e)(4) to read as follows:

Sec. 674.19 Fiscal procedures and records.

* * * * *

(d) Records and reporting. (1) An institution shall establish and

maintain program and fiscal records that are reconciled at least

monthly.

(2) Each year an institution shall submit a Fiscal Operations

Report plus other information the Secretary requires. The institution

shall insure that the information reported is accurate and shall submit

it on the form and at the time specified by the Secretary.

(e) * * *

(1) Records. An institution shall follow the record retention and

examination provisions in this part and in 34 CFR 668.24.

* * * * *

(3) Period of retention of repayment records. An institution shall

retain repayment records, including cancellation and deferment

requests, for at least three years from the date on which a loan is

assigned to the Department of Education, canceled, or repaid.

(4) Manner of retention of promissory notes and repayment

schedules.

* * * * *

PART 675--FEDERAL WORK-STUDY PROGRAMS

7. The authority citation for Part 675 continues to read as

follows:

Authority: 42 U.S.C. 2571-2756b, unless otherwise noted.

8. Section 675.19 is amended by removing paragraphs (b)(2)(v)

through (b)(2)(vii), (b)(4), (b)(5), and (c); adding the word ``and''

at the end of paragraph (b)(2)(iii); removing the semicolon at the end

of paragraph (b)(2)(iv), and adding, in its place, a period; and

revising paragraph (b)(1) to read as follows:

Sec. 675.19 Fiscal procedures and records.

* * * * *

(b) * * *

(1) An institution shall follow the record retention and

examination provisions in this part and in 34 CFR 668.24.

* * * * *

[[Page 60493]]

PART 676--FEDERAL SUPPLEMENTAL EDUCATIONAL OPPORTUNITY GRANT

PROGRAM

9. The authority citation for Part 676 continues to read as

follows:

Authority: 20 U.S.C. 1070b-1070b-3, unless otherwise noted.

10. Section 676.19 is amended by removing paragraph (c); and

revising paragraph (b) to read as follows:

Sec. 676.19 Fiscal procedures and records.

* * * * *

(b) Records and reporting. (1) An institution shall follow the

record retention and examination provisions in this part and in 34 CFR

668.24.

(2) An institution shall establish and maintain program and fiscal

records that are reconciled at least monthly.

(3) Each year an institution shall submit a Fiscal Operations

Report plus other information the Secretary requires. The institution

shall insure that the information reported is accurate and shall submit

it on the form and at the time specified by the Secretary.

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

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

follows:

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

12. Section 682.414 is amended by revising paragraph (a)(2);

redesignating paragraphs (a)(3) and (a)(4) as paragraphs (a)(4) and

(a)(5), respectively; adding a new paragraph (a)(3); removing the

citation ``(a)(3)(iv)'' in redesignated paragraph (a)(4)(iii), and

adding, in its place, ``(a)(4)(iv)''; adding the words ``required under

Sec. 682.305(c)'' after the words ``audit report'' in redesignated

paragraph (a)(4)(iv); removing ``paragraphs (a)(3)(ii)(C)-(K) of this

section on microfilm, optical disk, or other machine readable format''

in redesignated paragraph (a)(5)(i), and adding, in its place,

``paragraphs (a)(4)(ii)(C)-(K) of this section in accordance with 34

CFR 668.24(d)(3) (i) through (iv)''; removing paragraph (c)

introductory text; removing paragraphs (c)(1) and (c)(2); adding a new

paragraph (c)(1); redesignating paragraph (c)(3) as (c)(2); removing

``Sec. 682.401(b) (19) and (20)'' in redesignated paragraph (c)(2), and

adding in its place, ``Sec. 682.401(b) (21) and (22)'' to read as

follows:

Sec. 682.414 Records, reports, and inspection requirements for

guaranty agency programs.

(a) * * *

(2) The guaranty agency shall retain records for each loan for at

least five years after the loan is paid in full or has been determined

to be uncollectible in accordance with the agency's write-off

procedures. However, in particular cases the Secretary may require the

retention of records beyond this minimum period. For the purpose of

this section, the term ``paid in full'' includes loans paid by the

Secretary due to the borrower's death (or student's death in the case

of a PLUS loan), the borrower's permanent and total disability or

bankruptcy, the discharge of the borrower's loan obligation because of

attendance at a closed school, or because the student's eligibility to

borrow had been falsely certified by the school.

(3) A guaranty agency shall retain a copy of the audit report

required under Sec. 682.410(b) for not less than five years after the

report is issued.

* * * * *

(c) Inspection requirements. (1) For purposes of examination of

records, references to an institution in 34 CFR 668.24(f) (1) through

(3) shall mean a guaranty agency or its agent.

* * * * *

13. Section 682.610 is amended by revising paragraphs (a) and (b);

removing the word ``or'' at the end of paragraph (c)(2)(ii); removing

the period at the end of paragraph (c)(2)(iii), and adding, in its

place, ``; or''; redesignating paragraph (f)(2) as paragraph

(c)(2)(iv); removing the words ``the school'' the first time they

appear in redesignated paragraph (c)(2)(iv), and adding, in their

place, ``it''; removing the words ``the school shall notify the holder

of the loan within 30 days thereafter, either directly or through the

guaranty agency'' in redesignated paragraph (c)(2)(iv); and removing

paragraphs (d), (e), and (f) to read as follows:

Sec. 682.610 Administrative and fiscal requirements for participating

schools.

(a) General. Each school shall--

(1) Establish and maintain proper administrative and fiscal

procedures and all necessary records as set forth in the regulations in

this part and in 34 CFR part 668;

(2) Follow the record retention and examination provisions in this

part and in 34 CFR 668.24; and

(3) Submit all reports required by this part and 34 CFR part 668 to

the Secretary.

(b) Loan record requirements. In addition to records required by 34

CFR part 668, for each Stafford, SLS, or PLUS loan received by or on

behalf of its students, a school shall maintain a copy of the loan

application or data electronically submitted to the lender, that

includes--

(1) The name of the lender;

(2) The address of the lender;

(3) The amount of the loan and the period of enrollment for which

the loan was intended;

(4) For loans delivered to the school by check, the date the school

endorsed each loan check, if required;

(5) The date or dates of delivery of the loan proceeds by the

school to the student or to the parent borrower; and

(6) For loans delivered by electronic funds transfer or master

check, a copy of the borrower's written authorization required under

Sec. 682.604(c)(3) to deliver the initial and subsequent disbursements

of each FFEL program loan.

* * * * *

PART 685--WILLIAM D. FORD FEDERAL DIRECT LOAN PROGRAM

14. The authority citation for Part 685 continues to read as

follows:

Authority: 20 U.S.C. 1087a et seq., unless otherwise noted.

15. Section 685.309 is amended by revising paragraphs (a)(1), (c),

and (d); removing paragraphs (e), (f), and (g); redesignating

paragraphs (h), (i), and (j) as paragraphs (e), (f), and (g),

respectively to read as follows:

Sec. 685.309 Administrative and fiscal control and fund accounting

requirements for schools participating in the Direct Loan Program.

(a) * * *

(1) Establish and maintain proper administrative and fiscal

procedures and all necessary records as set forth in this part and in

34 CFR part 668; and

* * * * *

(c) Record retention requirements. An institution shall follow the

record retention and examination requirements in this part and in 34

CFR 668.24.

(d) Accounting requirements. A school shall follow accounting

requirements in 34 CFR 668.24(b).

* * * * *

PART 690--FEDERAL PELL GRANT PROGRAM

16. The authority citation for Part 690 continues to read as

follows:

Authority: 20 U.S.C. 1070a, unless otherwise noted.

17. Section 690.81 is amended by revising paragraph (a) to read as

follows:

Sec. 690.81 Fiscal control and fund accounting procedures.

(a) An institution shall follow provisions for maintaining general

fiscal

[[Page 60494]]

records in this part and in 34 CFR 668.24(b).

* * * * *

18. Section 690.82 is revised to read as follows:

Sec. 690.82 Maintenance and retention of records.

(a) An institution shall follow the record retention and

examination provisions in this part and in 34 CFR 668.24.

(b) For any disputed expenditures in any award year for which the

institution cannot provide records, the Secretary determines the final

authorized level of expenditures.

(Approved by the Office of Management and Budget under control

number 1840-0681)

(Authority: 20 U.S.C. 1070a, 1232f)

Appendix--Analysis of Comments and Changes

(Note: This Appendix will not be codified in the Code of Federal

Regulations.)

Section 668.24 Record retention and examinations--General

Comments: Most of the commenters applauded the Secretary for his

efforts to reduce the record retention requirements for institutions.

The commenters encouraged the Secretary to continue to examine

regulations for standardization among provisions, and to maintain the

dual goals of data and program integrity and burden reduction.

Organizations representing institutions and other participants in the

title IV, HEA programs expressed their gratitude for the reduction in

the amount of time that a recipient of federal funds must maintain

records, and for the Secretary's efforts to consolidate and clarify

existing record retention rules.

Two commenters indicated that the reduced time period should be

accompanied by a reduction in the number of records that institutions

are required to retain. The commenters encouraged the Secretary to

review the data available in the Department's various databases,

identify duplication of data collection, and seek to transfer data

maintenance from institutions to the Department in an effort to reduce

administrative burden on institutions.

Some commenters preferred that records be retained longer than

three years and asked the Secretary to encourage institutions to retain

records for a longer period. The commenters believe that the National

Student Loan Data System and other technological initiatives will

facilitate the retention of records for an indefinite period of time.

Some commenters approved of the inclusion of a more comprehensive list

of records in the SFA Handbook; one commenter recommended that the

Secretary also include the list in the Audit Guide, Compliance Audits

(Attestation Engagements) of Federal Student Financial Assistance

Programs at Participating Institutions.

Discussion: The Secretary appreciates the commenters' responses and

will continue to evaluate regulations for burden reduction. The

Secretary agrees that a more comprehensive list of records should be

included in the Audit Guide. The Secretary does not agree that an

institution does not have to maintain records that it has provided to

ED databases because institutions are responsible for maintaining the

records necessary to show their compliance with applicable statutes and

regulations and their expenditure of title IV, HEA program funds.

Changes: None.

Section 668.24(a) Program Records

Comments: One commenter recommended that paragraph (a)(5) of this

section be removed. The commenter explained that the application

information requirement is provided for in the introductory language of

paragraph (a) and is, therefore, redundant under (a)(5).

Discussion: The Secretary does not agree that paragraph (a)(5)

repeats the introductory language of paragraph (a). The introductory

language refers to the application itself, while paragraph (a)(5)

refers to program records that document the information included in an

application.

Changes: None.

Section 668.24(c) Required Records

Comments: A few commenters recommended that proof of high school

diploma, GED, or documentation of ``ability-to-benefit'' be added to

the list of required records under this paragraph. A number of

commenters expressed concern over the use of the term ``disbursement''

in paragraph (c)(1)(iv)(B) because of the difference between its use

for the FFEL Program and its use for other title IV, HEA programs. (In

the FFEL Program, lenders ``disburse'' loan proceeds to a borrower's

institution and the institution ``delivers'' those proceeds to the

borrower.) One commenter recommended that this provision list various

documents currently included in Sec. 682.610 of the FFELP regulations.

A few commenters recommended that the Secretary incorporate a reference

to the Direct Loan Program regulations. One commenter recommended that

the Secretary establish a future effective date for implementation of

these regulations.

Discussion: Records documenting that a student has a high school

diploma, GED, or the ability-to-benefit are covered in paragraph

(c)(1)(iii), student eligibility records. The Secretary believes that

it is not necessary to list them separately in this section.

The Secretary agrees with the commenters that the reference to

disbursement should be expanded to include FFEL proceeds that are

delivered to students and parents. The Secretary did not add the

recommended FFELP items to the list of documentation because that would

not be in keeping with the intent of these regulations to simplify and

consolidate provisions. The Secretary did not reference the Direct Loan

Program in this provision because there is no comparable provision

under the Direct Loan Program. With respect to the effective date,

these regulations will take effect July 1, 1997.

Changes: The Secretary has revised Sec. 668.24(c)(1)(iv)(B) to

include delivery of FFELP loan proceeds.

Section 668.24(d) General Requirements

Comments: One commenter requested clarification concerning the

retention of records in a systematically organized manner. The

commenter requested assurance that the Secretary is simply restating

current policy and is not attempting to tell institutions how to keep

files.

Discussion: The Secretary is simply restating current requirements

and current policy. The Secretary is not attempting to tell

institutions how to keep files to comply with this requirement.

Changes: None.

Comments: Many commenters addressed the proposal that an

institution maintain an electronic record in the format in which it was

originally received or transmitted. The commenters overwhelmingly

objected to the proposal, indicating that it was expensive,

duplicative, time-consuming, and inconsistent with technological

innovation. The commenters suggested that it should be sufficient for

institutions to reproduce, on request, the data contained in the

records of each title IV transaction that it has sent or received

electronically.

Some commenters recommended that the Secretary add lenders and

guarantors specifically to Sec. 668.24(d)(4) for access to records.

Discussion: The Secretary agrees with the points made by the

commenters with respect to maintaining electronically transmitted

records in the original format. However, the Secretary

[[Page 60495]]

believes that the Student Aid Report (SAR) or Institutional Student

Information Record (ISIR) used to determine eligibility for title IV,

HEA program funds should be retained by the institution in the format

in which it was received because, for program review purposes and audit

purposes, it is essential that these basic eligibility records be

available in a consistent, comprehensive, and verifiable format.

Because the SAR is a hard copy document, for the purposes of these

regulations it must be maintained in either its original hard copy

format or in an imaged format. The ISIR, an electronic record, must be

available in its original format, either as it was supplied by the

Department to the institution on a magnetic tape or cartridge or as it

was archived using EDExpress software supplied to the institution. This

enables the Secretary's representative to access the ISIR

electronically, to discriminate among data and to authenticate the

record. The information contained on the ISIR can be cross-checked or

verified against applicant information supplied by the student at the

central processor.

The Secretary does not believe that retention of an ISIR is

burdensome because by using EDExpress the institution maintains the

record during the applicable award year, and, after the award year has

ended, the institution has the ability, again using EDExpress, to

archive the data to a disk or other computer format. An institution

that receives ISIR's on magnetic tapes or cartridges can simply make a

copy of the file received from the Secretary.

The Secretary agrees to include guarantors in the provision

governing access to title IV, HEA records when an institution closes or

ceases providing educational programs. The Secretary does not agree to

include lenders in this provision. Lenders do not have the enforcement

and monitoring responsibilities which would necessitate their

inclusion.

Changes: Proposed Sec. 668.24(d)(3)(ii) has been changed to require

only that the SAR or ISIR used to determine eligibility for title IV,

HEA funds be retained in the format in which it was received, under the

conditions described above. In addition, guarantors have been added to

the access provision.

Comments: Several respondents commented on the issue of imaging

documents. Several commenters asked the Secretary to remind

institutions that an institution is not required to retain an original

or imaged copy of a FFELP or Direct Loan Program promissory note, and

that a photocopy or electronic record of data elements sent to the

lender or the Secretary is permitted under existing regulations. A few

commenters requested clarification of the storage requirement for

Perkins Loan promissory notes, and student aid records in general, vis-

a-vis imaging requirements. One commenter encouraged the Secretary to

require the maintenance of hard copy of promissory notes only if imaged

copies of promissory notes have not served the Secretary well in court.

Discussion: The commenters are correct that institutions are not

required to maintain an original or imaged copy of a promissory note

for FFELP or Direct Loan Program loans. The institution may maintain

the information needed to recreate the promissory note data in an

alternate format. However, the commenters should note that the formats

available to institutions for this retention are not restricted to the

commenter's list.

With respect to a Perkins promissory note, an institution may image

the note for administrative purposes, but retention of the original

promissory note is necessary for legal purposes. An institution should

refer to Sec. 674.19 of the Federal Perkins Loan regulations for

further guidance. The imaging provision applies to all other student

aid records.

Changes: None.

Section 668.24(e) Record Retention

Comments: Generally speaking, the commenters strongly supported the

reduction in the length of record retention. However, the commenters

differed in their approach to records for the loan programs. Some

commenters were concerned about the difference in retention

requirements among the title IV loan programs. Some commenters

recommended a longer retention period for Federal Perkins Loans, while

other commenters recommended a shorter retention period; e.g. three

years from the academic year in which the loan was made. A few

commenters suggested that the requirements be the same for all loan

programs; for example, bringing the Federal Perkins Loan Program into

alignment with the FFEL and Direct Loan Programs, and requiring the

retention of records until three years from the student's last day of

attendance.

Other commenters objected to the proposed loan retention record

requirements and requested that the Secretary remind institutions that

loan records may be retained longer than the regulations require,

particularly records related to loan proceeds disbursed by electronic

fund transfer (EFT). These commenters noted that the shorter period may

cause problems. For example, since a lender or guaranty agency may not

be aware of problems with a loan until repayment begins, institutions

may need to retain records to respond to borrower defenses, and records

may be needed to appeal a cohort default rate.

Some commenters contended that the FFELP and Direct Loan

requirements essentially nullify the reduction in retention

requirements because most institutions purge all records for a student

at one time. The commenters indicated that if a student obtained title

IV, HEA program grant funds, the record retention requirements for the

loan programs would in effect become the record retention requirement

for the grant programs because of the interrelation of all the title

IV, HEA programs.

One commenter recommended that only the data that the institution

used to process a loan application be retained. For example, the

institution would retain only the actual expected family contribution

(EFC) and estimated financial assistance (EFA); it would not have to

retain supporting documentation. One commenter recommended that the

Secretary encourage institutions to retain records for a longer period

for undergraduate students who are enrolled in extended programs.

Discussion: The Secretary carefully considered the various

recommendations by the commenters. While the Secretary would prefer to

have uniform requirements among all the title IV, HEA programs, the

nature of the FFEL and Direct Loan Programs require a different

treatment because problems may arise with regard to a loan many years

after the student received the loan. The separate timeframe helps

protect students from improper claims for repayment on loans by

allowing them access to institutional enrollment, eligibility, and

disbursement records; helps protect institutions against claims and

liabilities; and provides additional substantiation to the validity of

a loan when that loan is challenged.

With respect to the longer retention period for loans records

negating the shorter period required for other title IV, HEA programs,

this is not a change. This difference in requirements is unavoidable

given the interrelationship of the title IV, HEA programs.

The Secretary also reminds institutions that records may always be

retained longer than required by regulation.

Changes: None.

[[Page 60496]]

Comments: With regard to the retention of FISAP records for the

campus-based programs, commenters requested that the Secretary change

the retention requirement from three years after the end of the award

year in which the institution submits the FISAP to three years after

the year for which data are reported. Some commenters viewed the

proposed regulations as an increase rather than a decrease in retention

time from existing regulations.

Discussion: In the current regulations, institutions are required

to maintain the FISAP and the records supporting it for five years

after the FISAP's submission. Therefore, under the existing

regulations, assuming that an institution submitted its FISAP in

October, 1996, to request funds for the 1997-98 award year and to

report expenditures for the 1995-96 award year, the institution would

have to keep the FISAP and FISAP information until October, 2001.

While reducing the record retention period from five year to three

years, the Secretary also determined to standardize the period for

which institutions have to keep records and that standard period, to

the extent possible, runs from the end of an award year. However,

because institutions in a FISAP request funds in one award year, for

expenditure in the following award year, based on events in the

preceding award year, several alternative were possible to align the

FISAP and FISAP records to this standard.

The revised legal standard for keeping records requires an

institution to keep records for three years after the activity for

which funds are used. Thus, for example, when an institution submitted

a FISAP in October, 1996, for funds to be expended in award year 1997-

98, the Secretary could have proposed that the institution keep FISAP

and FISAP records until three years after the award year in which the

requested funds were used, i.e. June 30, 2001. However, consistent with

the purpose of reducing the record retention period, the Secretary has

chosen to require institutions to keep FISAP and FISAP records for

three years after the end of the award year in which the funds were

requested, i.e. June 30, 2000 in this example.

The commenters' suggestion that the record period begin after the

end of the award year on which the funds were based, i.e. June 30,

1999, three years after June 30, 1996, would amount to only a one-year

retention period for the year in which requested funds were expended,

and two years and nine months from the date the FISAP was submitted.

Moreover, that suggestion would allow the Department only one year

after the year in which funds were expended to review whether the

institution's income grid information supported the amount the

institution received and expended. The Secretary believes that such a

short period is inappropriate and unacceptable.

The recommendation that a common date be established for all

records created during an award year is available to institutions at

their option. An institutions is free to establish its own common date

for purging records as long as all minimum regulatory requirements are

met.

Changes: None.

Section 668.24(f) Examination of Records

Comments: Some commenters asked the Secretary to provide for a

review by guarantors whether or not the institution participates in the

FFEL Program when the review occurs. A few commenters asked the

Secretary to include a borrower's phone number and enrollment

information in the list of information that an institution must provide

to a requestor. A few commenters asked the Secretary to include

language to clarify that third party servicers must comply with these

regulations. One commenter recommended that instead of providing timely

access to the Secretary or his representative, the institution should

promptly provide that access.

Discussion: The Secretary would encourage an institution that no

longer participates in a guaranty agency's program under the FFEL

program to cooperate with a review by that guaranty agency, but since

the institution no longer participates in the program, the Secretary

will not impose this requirement.

Third-party servicers are specifically subject to the provisions of

paragraph (f). The requirements contained in paragraphs (a) through (e)

apply to participating institutions, and institutions are responsible

for complying with those requirements, regardless of whether they use a

third-party servicer. It is the responsibility of the institution to

make sure that its third-party servicer satisfies all the regulatory

requirements contained in paragraphs (a) through (e) because it will

suffer the consequence for the servicer's failure to comply.

The Secretary agrees with the suggestion of the commenters

regarding the provision of additional information. Finally, the

Secretary believes that the term ``timely access'' is sufficient to

ensure promptness and has, therefore, not changed the regulation to

accommodate this recommendation.

Changes: Section 668.24(f)(4) has been changed to include

information about a borrower's telephone number and enrollment status.

Section 682.414 Records, Reports, and Inspection Requirements for

Guaranty Agency Programs

Comments: Many commenters noted that while the record retention

requirement for institutions was reduced from five to three years, FFEL

Program lenders and guaranty agencies must continue to maintain their

records for five years under paragraph (a)(2). Commenters stated that a

three-year period is sufficient for enforceability, and asked that

record retention requirements for lenders and guaranty agencies be the

same as those for institutions.

One commenter believed that an inconsistency exists between this

NPRM and an FFEL program NPRM that was published in the Federal

Register on September 19, 1996 (61 FR 49382). The commenter noted that

in the September 19, 1996, NPRM, the Secretary considers guaranty

agencies to be trustees of the federal government and fiduciaries,

because they receive and process federal funds, but that for the

purposes of these regulations, guaranty agencies are not considered

recipients of program funds.

Other commenters stated that they understood that the amended GEPA

provisions did not apply to guaranty agencies and lenders. However they

indicated that the five-year record retention requirement imposed on

lenders and guaranty agencies was not statutorily required and

therefore the Secretary could reduce that period by regulation. Many of

the commenters who suggested a reduction in the record retention

requirements for lenders and guaranty agencies suggested that this

reduction be issued in a separate NPRM.

Discussion: The GEPA provision, 20 U.S.C. Sec. 1232f(a), applies

only to entities that receive federal funds through a grant, loan, or

similar process and hold federal funds for a period of time. Lenders

and guaranty agencies receive contractually required payments and funds

to which GEPA does not apply. Moreover, as a fiduciary, a guaranty

agency is held to a very strict standard of accountability and would be

well advised to maintain records for a long period. On the other hand,

the fact that the Secretary considers that a guaranty agency a

fiduciary does not make the guaranty agency a recipient of federal

funds under GEPA.

The records of lenders and guaranty agencies are critical in

enforcing the loan obligations of the borrower and for determining

institutional eligibility

[[Page 60497]]

under the FFEL Program. For example, a three-year limit on keeping

records would not provide adequate documentation for cohort default

rate servicing appeals, on which ED and institutions rely.

The Secretary remains committed to reducing burden and intends to

continue exploring effective ways of reducing the recordkeeping burden

of guaranty agencies and lenders. Though the requested change from five

years to three years of record retention is not made in these final

regulations, the Secretary will consider this suggestion along with

other options for reducing burden, and will propose any resulting

changes to regulations in a separate NPRM.

Changes: None.

Comments: Many commenters asked for clarification of the provision

that ``in particular cases the Secretary may require the retention of

records beyond this minimum period.'' They questioned the purpose of

this provision, asked for clarification or examples of the specific

records that are intended, and also asked that the requirement either

be clarified or dropped.

Several commenters noted that Sec. 682.414(a)(4)(iii) provides a

requirement for lenders similar to that in Sec. 682.414(a)(2) and asked

that it be either clarified with examples or removed.

Discussion: Any record may be subject to this provision. For the

most part, the purpose of this requirement is the same as that for

Sec. 668.24(e)(3). It provides an additional retention period for

records involved in an audit, review, or investigation. It may also be

applied on a case-by-case basis, when the Secretary considers such an

extension necessary.

The requirement at Sec. 682.414(a)(2) was added as a technical

correction, to conform requirements for guaranty agencies to those of

lenders. As several commenters noted, this requirement exists in

previous regulations for lenders, and is included in these regulations

as Sec. 682.414(a)(4)(iii).

Changes: None.

Comments: Many commenters noted that the citation given in

paragraph (a)(3), ``Sec. 682.305(c),'' is a reference to a lender

audit, not to an audit of a guaranty agency. As the lender audits are

not available to the guaranty agencies, the commenters recommended

changing the citation to ``Sec. 682.410(b).''

Several commenters noted that if the citation were not an error,

they objected to its requirement. One commenter felt that this

requirement was unnecessary, as the audit report is provided to the

Secretary, and asked that the requirement be removed.

Discussion: The technical correction recommended is correct. As for

the commenter's feeling that the requirement to retain this information

caused unnecessary duplication, the Secretary does not agree. The

guaranty agency or lender is responsible for maintaining records

necessary to show its compliance with applicable statute and

regulations.

Changes: The cross-reference in Sec. 682.414(a)(3) to ``Sec.

682.305(c)'' is changed to Sec. 682.410(b).

Comments: One commenter asked that Sec. 682.414(a)(5)(i) be revised

to permit all loan records to be stored in electronic or imaged

formats. The commenter noted that this would be consistent with the

requirements for institutions in Sec. 668.24(d), and would recognize

advancements in technology.

Discussion: The records in question are the loan application and

the signed promissory note, including the repayment instrument. These

original, hard copy documents must be maintained in order to protect

the enforceability of the loan. Allowing these documents to be stored

in formats other than hard copy would not be consistent with the

requirements for other programs. This requirement for FFEL is

comparable to that for Federal Perkins Loans (see Sec. 674.19(e)(4))

and to the requirements for maintenance of Direct Loan Program

promissory notes by the Direct Loan Servicing Center. However, the

Secretary is continuing to monitor Courts' acceptance of other forms

and may make changes in this area in the future.

Changes: None.

Comments: Many commenters noted the provision in

Sec. 682.414(a)(5)(ii) that a lender or guaranty agency shall either

return the original note to the borrower or notify the borrower under

an alternate procedure that is acceptable under State law that the loan

is paid in full. The commenters asked that the Secretary preempt State

law in this instance and state that lenders and guaranty agencies shall

inform borrowers that their loans are paid in full through a written

notice. Commenters reasoned that this would protect the federal fiscal

interest from an enforceability standpoint and would standardize the

process.

One commenter asked that this paragraph be revised to allow lenders

to choose between the two options, and noted a risk of returning

promissory notes, that they might be returned in error, thus damaging

the enforceability of the loan, and that promissory notes for one or

more loans might be especially prone to this.

Discussion: The Secretary is merely moving this rule, not changing

its substance. The Secretary believes that the current rule remains

appropriate.

Changes: None.

Section 682.610 Administrative and Fiscal Requirements for

Participating Schools

Section 682.610(a) General

Comments: One commenter recommended that ``school'' in the

introduction to this paragraph be changed to ``institution,'' for

consistency.

Discussion: The word ``school'' is used in 34 CFR 682 to

distinguish between schools and other participants that could be

considered ``institutions'' (for example, a lender is a financial

institution). The use of the word ``school'' in this paragraph creates

no inconsistency.

Changes: None.

Section 682.610(b) Loan Record Requirements

Comments: Many commenters noted that PLUS loans are not included in

paragraph (b)(4), and believe that they have been omitted

unintentionally. The commenters ask that PLUS loans be included in this

paragraph, and that other provisions of Sec. 682.610(b)(4) be modified

to reflect that change.

Discussion: The Secretary agrees with the commenters.

Changes: Section 682.610(b) is revised to include PLUS loans.

Comments: Many commenters requested that ``master check'' be added

to language in Sec. 682.610(b)(6), which was designated as

Sec. 682.610(b)(4)(iii) in the NPRM, in order to codify the inclusion

of master check records for record retention purposes. One commenter

noted that the citation ``Sec. 682.604(c)(3)'' applies to both EFT and

master check.

[[Page 60498]]

Discussion: The Secretary agrees with the commenters.

Changes: Section 682.610(b)(6) has been amended to include master

checks.

Comments: Many commenters noted that Sec. 682.610(b)(9)(iv), as

designated in current regulations, remains unchanged in these

regulations, and request that ``master check'' be added to this

paragraph in order to codify the inclusion of master check records for

record retention.

Discussion: The commenters are in error. All of Sec. 682.610(b) is

replaced by new language in these final regulations; Sec. 682.610(b)(9)

has become Sec. 682.610(b)(6), which has been discussed earlier.

Changes: None.

[FR Doc. 96-30117 Filed 11-26-96; 8:45 am]

BILLING CODE 4000-01-P