Federal Perkins Loan Program and Federal Family Education Loan Program

SUMMARY: In order to simplify the economic hardship deferment

application process for those Peace Corps volunteers who are ineligible

for deferment or cancellation of their federal student loans based

solely on service in the Peace Corps, the Secretary proposes to amend

the Federal Perkins Loan and Federal Family Education Loan (FFEL)

program regulations by adding criteria that will allow Peace Corps

volunteers to automatically qualify for economic hardship deferments

while they are serving in the Peace Corps. The proposed changes will

also apply to the William D. Ford Federal Direct Loan (Direct Loan)

Program.

The Secretary also proposes to amend the Federal Perkins Loan

Program regulations by eliminating provisions that require borrowers to

submit requests for loan deferments and postponements in writing. The

proposed changes will make the Federal Perkins Loan Program

requirements more consistent with the requirements that apply in the

FFEL and Direct Loan programs.

DATES: Comments must be received on or before October 30, 1998.

ADDRESSES: All comments concerning these proposed regulations should be

addressed to: Mr. Jon Utz, U.S. Department of Education, PO Box 23272,

Washington, DC 20026-3272, or to the following internet address:

[email protected]

You must include the term ``Peace Corps'' in the subject line of your

electronic message.

Comments that concern information collection requirements must be

sent to the Office of Management and Budget at the address listed in

the Paperwork Reduction Act section of this preamble. A copy of these

comments may also be sent to the Department representative named in

this section.

FOR FURTHER INFORMATION CONTACT:

1. For the Federal Perkins Loan Program: Ms. Sylvia Ross, U.S.

Department of Education, 600 Independence Avenue, SW, ROB-3, Room 3045,

Washington, DC 20026-3272, telephone 202-708-8242.

2. For the FFEL Program: Mr. George Harris, U.S. Department of

Education, 600 Independence Avenue, SW, ROB-3, Room 3045, Washington,

DC 20026-3272, telephone 202-708-8242.

3. For the Direct Loan Program: Mr. Jon Utz, Department of

Education, 600 Independence Avenue, SW, ROB-3, Room 3045, Washington,

DC 20026-3272, telephone 202-708-8242.

Individuals who use a telecommunications device for the deaf (TDD)

may call the Federal Information Relay Service (FIRS) at 1-800-877-8339

between 8 a.m. and 8 p.m., Eastern time, Monday through Friday.

Individuals with disabilities may obtain this document in an

alternate format (e.g., Braille, large print, audiotape, or computer

diskette) on request to the contact persons listed in the preceding

paragraph.

SUPPLEMENTARY INFORMATION:

Invitation to Comment

Interested persons are invited to submit comments and

recommendations regarding these proposed regulations.

To ensure that public comments have maximum effect in developing

the final regulations, the Department urges commenters to identify

clearly the specific section or sections of the proposed regulations

that each comment addresses and to arrange comments in the same order

as the proposed regulations.

All comments submitted in response to these proposed regulations

will be available for public inspection, during and after the comment

period, in Room 3045, Regional Office Building 3, 7th and D Streets,

SW, Washington, DC, between the hours of 8:30 a.m. and 4 p.m., Eastern

Time, Monday through Friday of each week except Federal holidays.

On request the Department supplies an appropriate aid, such as a

reader or print magnifier, to an individual with a disability who needs

assistance to review the comments or other documents in the public

rulemaking docket for these proposed regulations. An individual with a

disability who wants to schedule an appointment for this type of aid

may call (202) 205-8113 or (202) 260-9895. An individual who uses a TDD

may call the Federal Information Relay Service at 1-800-877-8339,

between 8 a.m. and 8 p.m., Eastern time, Monday through Friday.

To assist the Department in complying with the specific

requirements of Executive Order 12866 and its overall requirement of

reducing regulatory burden, the Secretary invites comments on whether

there may be further opportunities to reduce any regulatory burdens

found in these proposed regulations.

General

The Peace Corps has requested that the Secretary provide a less

burdensome means for borrowers who are not eligible for a statutory

loan deferment or cancellation based on Peace Corps service to apply

for economic hardship deferments of their federal student loans while

serving in the Peace Corps. The Secretary believes that the service

performed by Peace Corps volunteers is important to the national

interest, and is proposing to amend the economic hardship deferment

eligibility criteria in the federal student loan programs in response

to that request. The Secretary is also proposing changes that will make

the requirements for requesting a loan deferment or postponement in the

Federal Perkins Loan Program more consistent with the requirements that

apply in the FFEL and Direct Loan programs. A discussion of each

proposed change is provided below.

Sections 674.34 and 682.210 Deferment

In the Federal Perkins Loan Program, which includes National

Defense Student Loans (Defense Loans), National Direct Student Loans

(NDSLs), and Federal Perkins Loans, the vast majority of borrowers are

eligible for categorical deferments based on service as Peace Corps

volunteers. Specifically, all Defense Loan borrowers, borrowers with

NDSLs made before July 1, 1993, and all Federal Perkins Loan borrowers

may defer repayment while serving as Peace Corps volunteers. For

Federal Perkins Loan borrowers only, service as a Peace Corps volunteer

also qualifies a borrower for loan cancellation. In the FFEL and Direct

Loan programs, certain borrowers who received loans prior to July 1,

1993 are entitled by law to defer repayment of their loans while

serving as Peace Corps volunteers.

Borrowers who are ineligible for loan deferment or cancellation

based on service as Peace Corps volunteers are: (1) The small number of

borrowers who received NDSLs on or after July 1, 1993; (2) FFEL Program

borrowers who received loans first disbursed on or after July 1, 1993

and who, at the time they obtained those loans, had no outstanding

balance on any FFEL Program loan made before that date; and (3) Direct

Loan Program borrowers who, at the time they received their first

Direct Loans, had no outstanding balance on any FFEL Program loan made

before July 1, 1993. In all three loan programs, borrowers who wish to

defer repayment of their loans while serving as Peace Corps volunteers,

but

[[Page 49799]]

who are ineligible for a deferment or cancellation based on Peace Corps

service, may apply for deferments based on economic hardship.

The Peace Corps has brought to the Secretary's attention the fact

that Peace Corps volunteers who are ineligible for loan deferment or

cancellation based on Peace Corps service qualify for economic hardship

deferments in the federal student loan programs based on the low

monthly stipends that they receive. However, the Peace Corps believes

that the unique circumstances under which Peace Corps volunteers

serve--in foreign countries, often in inaccessible areas--make it

difficult for them to apply for economic hardship deferments in

accordance with the requirements imposed by current regulations.

Section 674.34(e) of the Federal Perkins Loan Program regulations

establishes the economic hardship deferment eligibility criteria for

borrowers with Federal Perkins Loans and NDSLs made on or after July 1,

1993. Section 682.210(s)(6) of the FFEL Program regulations establishes

the criteria by which a ``new borrower'' as defined under

Sec. 682.210(s) is eligible for an economic hardship deferment. In

accordance with Sec. 685.204(b)(3)(ii) of the Direct Loan Program

regulations, economic hardship deferment eligibility for all Direct

Loan borrowers is based on the standards set forth in the FFEL Program

regulations at Sec. 682.210(s)(6).

Under Sec. 674.34(e)(3) and Sec. 682.210(s)(6)(iii), borrowers are

eligible for an economic hardship deferment if they are working full-

time and earning a total monthly gross income that does not exceed the

greater of the minimum wage rate described in section 6 of the Fair

Labor Standards Act of 1938, or 100 percent of the poverty line for a

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

Community Service Block Grant Act. Peace Corps volunteers currently

receive monthly living stipends and other smaller allowances that vary

according to the country to which they are assigned. Based on an

analysis of data provided by the Peace Corps and current minimum wage

rate and poverty line amounts, the Secretary has determined that Peace

Corps volunteers meet the criteria for economic hardship deferment

under Sec. 674.34(e)(3) and Sec. 682.210(s)(6)(iii).

Federal Perkins Loan Program borrowers who apply for an economic

hardship deferment based on the income requirements specified in

Sec. 674.34(e)(3) are required by Sec. 674.34(e) to provide

documentation showing that they meet those requirements. In accordance

with Sec. 682.210(s)(6)(vii) of the FFEL Program regulations, FFEL and

Direct Loan borrowers who apply for an economic hardship deferment

under Sec. 682.210(s)(6)(iii) are required to submit evidence showing

the amount of their most recent total monthly gross income. In all

three loan programs, economic hardship deferments are limited to

periods of up to one year at a time that, collectively, do not exceed

three years. See Sec. 674.34(e), Sec. 674.38(d), and

Sec. 682.210(s)(6). The maximum three year limitation is mandated by

sections 428(b)(1)(M)(iii), 455(f)(2)(C), and 464(c)(2)(A)(iii) of the

Higher Education Act of 1965, as amended (the HEA). A borrower who

applies for a subsequent period of economic hardship deferment that

begins less than one year after a deferment granted under

Sec. 674.34(e)(3) or Sec. 682.210(s)(6)(iii) is required by

Sec. 674.34(e)(7) and Sec. 682.210(s)(6)(viii) to provide a copy of the

borrower's federal income tax return, if a tax return was filed within

eight months prior to the date of the deferment request.

Peace Corps volunteers generally do not have documentation of the

amount of their monthly stipend for living expenses prior to beginning

their volunteer service. Since Peace Corps volunteers serve overseas,

often in remote areas of underdeveloped countries, the current

requirement that borrowers submit documentation of their most recent

monthly gross income when applying for economic hardship deferments

presents significant logistical difficulties for many volunteers. For

the same reason, the provisions that limit individual economic hardship

deferments to periods of one year at a time are burdensome for Peace

Corps volunteers, who normally serve for a period of 27 months. Under

current regulatory requirements, they must reapply for an economic

hardship deferment each year, and must submit additional income

documentation with each deferment request.

The Secretary has the authority under Sec. 435(o) of the HEA to

establish criteria by which borrowers may qualify for economic hardship

deferments in the Federal Perkins Loan, FFEL, and Direct Loan programs.

Because Peace Corps volunteers meet current regulatory requirements for

economic hardship deferments based on the modest stipends that they

receive, and because of the unique circumstances under which they

serve, the Secretary believes that it is appropriate and in the

national interest to establish new criteria that will make it easier

for Peace Corps volunteers to apply for economic hardship deferments.

The new economic hardship criteria that the Secretary is proposing are

consistent with this provision of the HEA.

The proposed changes will allow Peace Corps volunteers who are

ineligible for deferment or cancellation based on Peace Corps service

to qualify for economic hardship deferments simply by providing

documentation showing that they will be serving as Peace Corps

volunteers. Since this documentation will be available to Peace Corps

volunteers at pre-service orientation sessions, they will be able to

apply for economic hardship deferments while still in the United

States. In addition, the Secretary is proposing to eliminate the one-

year-at-a-time restriction for economic hardship deferments based on

service as a Peace Corps volunteer. This will allow Peace Corps

volunteers who have not previously received economic hardship

deferments to defer repayment of their loans for up to three years, or

for their full term of service in the Peace Corps, whichever is less,

without having to reapply each year. Peace Corps volunteers who have

received previous economic hardship deferments may defer repayment of

their loans for up to their remaining period of eligibility under the

statutory three-year limitation, or for their full term of service,

whichever is less.

Section 674.38 (Deferment Procedures) and Sec. 674.39 (Postponement

of Loan Repayments in Anticipation of Cancellation--Loans Made

Before July 1, 1993)

The Secretary believes that, to the extent possible, the

requirements for requesting a deferment in the Federal Perkins Loan

Program, the FFEL Program, and the Direct Loan Program should be the

same. For this reason, the Secretary is proposing to amend Sec. 674.38

and Sec. 674.39 by revising paragraph (a)(1) in each section to

eliminate the requirement that a borrower request a deferment or

postponement of repayment of a loan in writing. The Secretary believes

that a telephone or electronic request to the institution from the

borrower is sufficient to initiate the deferment/postponement process.

The proposed changes reduce burden for both borrowers and institutions,

and make the Federal Perkins Program regulations more consistent with

the less restrictive regulations in the FFEL and Direct Loan programs.

[[Page 49800]]

Executive Order 12866

1. Potential Costs and Benefits

These proposed regulations have been reviewed in accordance with

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

assessed the potential costs and benefits of this regulatory action.

The potential costs associated with the proposed regulations are

those resulting from statutory requirements and those determined by the

Secretary as necessary for administering these programs effectively and

efficiently. Burdens specifically associated with information

collection requirements are identified and explained elsewhere in this

preamble under the heading Paperwork Reduction Act of 1995.

In assessing the potential costs and benefits--both quantitative

and qualitative--of these proposed regulations, the Secretary has

determined that the benefits of the proposed regulations justify the

costs.

2. Clarity of the Regulations

Executive Order 12866 requires each agency to write regulations

that are easy to understand.

The Secretary invites comments on how to make these regulations

easier to understand, including answers to questions such as the

following: (1) Are the requirements in the proposed regulations clearly

stated? (2) Do the regulations contain technical terms or other wording

that interferes with their clarity? (3) Does the format of the

regulations (grouping and order of sections, use of headings,

paragraphing, etc.) aid or reduce their clarity? Would the regulations

be easier to understand if they were divided into more (but shorter)

sections? (A ``section'' is preceded by the symbol ``Sec. '' and a

numbered heading; for example, Sec. 682.210 Deferment.) (4) Is the

description of the proposed regulations in the ``Supplementary

Information'' section of this preamble helpful in understanding the

proposed regulations? How could this description be more helpful in

making the proposed regulations easier to understand? (5) What else

could the Department do to make the regulations easier to understand?

A copy of any comments that concern how the Department could make

these proposed regulations easier to understand should be sent to Mr.

Stanley M. Cohen, Regulations Quality Officer, U.S. Department of

Education, 600 Independence Avenue, SW, Room 5121, FB-10B, Washington,

DC 20202-2241.

Regulatory Flexibility Act Certification

The Secretary certifies that these proposed regulations would not

have a significant economic impact on a substantial number of small

entities. The small entities affected by these proposed regulations are

small schools and loan holders that participate in the federal student

loan programs.

The changes proposed in this regulation would reduce administrative

burden on schools and loan holders by allowing them to process economic

hardship deferments for eligible Peace Corps volunteers for more than

one year at a time, and would provide schools participating in the

Federal Perkins Loan Program with greater flexibility in processing

deferment requests. Thus, the proposed regulations are not expected to

have an adverse economic impact on small entities.

The Secretary particularly invites comments on the effect that

these proposed regulations would have on small entities.

Paperwork Reduction Act of 1995

Sections 674.34 and 682.210 contain information collection

requirements. As required by the Paperwork Reduction Act of 1995 (44

U.S.C. 3507(d)), the Department of Education has submitted a copy of

these sections to the Office of Management and Budget (OMB) for its

review.

Collection of Information: Federal Perkins Loan Program, Federal

Family Education Loan Program, and William D. Ford Federal Direct Loan

Program--Economic Hardship Deferments.

There is no change to the current burden for this collection. The

respondents affected by the proposed regulations (Peace Corps

volunteers with federal student loans who are ineligible for loan

deferment or cancellation based on Peace Corps service) may currently

apply for economic hardship deferments in accordance with existing

regulatory requirements. The proposed changes to the economic hardship

deferment criteria are not expected to increase the number of

respondents or significantly reduce the amount of time needed to

respond. Although the documentation requirements for Peace Corps

volunteers who apply for economic hardship deferments in the three

federal student loan programs will be somewhat simplified, and Peace

Corps volunteers will be required to apply only once instead of

annually, the Secretary does not believe that the number of volunteers

with student loans who apply for economic hardship deferments is large

enough to significantly alter the total burden hours for this

collection.

Organizations and individuals desiring to submit comments on the

information collection requirements should direct them to the Office of

Information and Regulatory Affairs, OMB, Room 10235, New Executive

Office Building, Washington, DC, 20503; Attention: Desk Officer for

U.S. Department of Education.

The Department considers comments by the public on this proposed

collection of information in--

Evaluating whether the proposed collection of information

is necessary for the proper performance of the functions of the

Department, including whether the information will have practical use;

Evaluating the accuracy of the Department's estimate of

the burden of the proposed collection of information, including the

validity of the methodology and assumptions used;

Enhancing the quality, usefulness, and clarity of the

information to be collected; and

Minimizing the burden of the collection on those who are

to respond, including through the use of appropriate automated,

electronic, mechanical, or other technological collection techniques of

other forms of information technology; e.g., permitting electronic

submission of responses.

OMB is required to make a decision concerning collection of

information contained in these proposed regulations between 30 and 60

days after publication of this document in the Federal Register.

Therefore, a comment to OMB is best assured of having its full effect

if OMB receives it within 30 days of publication. This does not affect

the deadline for the public to comment to the Department on the

proposed regulations.

Intergovernmental Review

The Federal Perkins Loan, Federal Family Education Loan, and

William D. Ford Federal Direct Loan programs are not subject to the

requirements of Executive Order 12372 and the regulations in 34 CFR

part 79.

Assessment of Educational Impact

The Secretary particularly requests comments on whether the

proposed regulations in this document would require transmission of

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

agency or authority of the United States.

Electronic Access to This Document

Anyone may view this document, as well as all other Department of

Education documents published in the Federal Register, in text or

portable

[[Page 49801]]

document format (pdf) on the World Wide Web at either of the following

sites:

http://ocfo.ed.gov/fedreg.htm

http://www.ed.gov/news.html

To use the pdf you must have the Adobe Acrobat Reader Program with

Search, which is available free at either of the previous sites. If you

have questions about using the pdf, call the U.S. Government Printing

Office toll free at 1-888-293-6498.

Anyone may also view these documents in text copy only on an

electronic bulletin board of the Department. Telephone: (202) 219-1511

or, toll free, 1-800-222-4922. The documents are located under Option

G--Files/Announcements, Bulletins and Press Releases.

Note: The official version of this document is the document

published in the Federal Register.

List of Subjects in 34 CFR Parts 674 and 682

Administrative practice and procedure, Colleges and universities,

Loan programs--education, Reporting and recordkeeping requirements,

Student aid, Vocational education.

Dated: September 10, 1998.

Richard W. Riley,

Secretary of Education.

(Catalog of Federal Domestic Assistance Numbers: 84.032 Stafford

Loan Program; 84.032 PLUS Program; 84.032 Supplemental Loans for

Students Program; 84.038 Federal Perkins Loan Program; and 84.268

William D. Ford Federal Direct Loan Program)

The Secretary proposes to amend parts 674 and 682 of title 34 of

the Code of Federal Regulations as follows:

PART 674--FEDERAL PERKINS LOAN PROGRAM

1. 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.

2. Section 674.34 is amended by revising paragraphs (e) and (e)(2)

to read as follows:

Sec. 674.34 Deferment of repayment--Federal Perkins loans and Direct

Loans made on or after July 1, 1993.

* * * * *

(e) The borrower need not repay principal, and interest does not

accrue, for periods of up to one year at a time (except that a

deferment under paragraph (2)(ii) of this section may be granted for

longer than one year at a time) that, collectively, do not exceed 3

years, during which the borrower is suffering an economic hardship, if

the borrower provides documentation satisfactory to the institution

showing that the borrower--

* * * * *

(2) Is receiving payment--

(i) Under a federal or state public assistance program, such as Aid

to Families with Dependent Children, Supplemental Security Income, Food

Stamps, or state general public assistance; or

(ii) From the Peace Corps while serving as a Peace Corps volunteer;

* * * * *

3. Section 674.38 is amended by revising paragraphs (a)(1) and (d)

to read as follows:

Sec. 674.38 Deferment procedures.

(a)(1) As a condition for receiving a deferment, a borrower shall

request the deferment, and provide the institution with all information

and documents required by the institution by the date that the

institution establishes.

* * * * *

(d) Except for a deferment under paragraph (2)(ii) of section

674.34, the institution shall determine the continued eligibility of a

borrower for a deferment at least annually.

Sec. 674.39 [Amended]

4. Section 674.39, paragraph (a)(1), is amended by removing the

words ``in writing''.

PART 682--FEDERAL FAMILY EDUCATION LOAN PROGRAM

5. The authority citation for part 682 continues to read as

follows:

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

6. Section 682.210 is amended by revising paragraph (s)(6)

introductory text and (s)(6)(ii) to read as follows:

Sec. 682.210 Deferment.

* * * * *

(s) * * *

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

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

time (except that a deferment under paragraph (s)(6)(ii)(B) of this

section may be granted for longer than one year at a time) that,

collectively, do not exceed 3 years, if the borrower provides

documentation satisfactory to the lender showing that the borrower--

* * * * *

(ii) Is receiving payment--

(A) Under a federal or state public assistance program, such as Aid

to Families with Dependent Children, Supplemental Security Income, Food

Stamps, or state general public assistance; or

(B) From the Peace Corps while serving as a Peace Corps volunteer;

* * * * *

[FR Doc. 98-24866 Filed 9-16-98; 8:45 am]

BILLING CODE 4000-01-P