Federal Perkins Loan Program and Federal Family Education Loan Program

SUMMARY: The Secretary amends the Federal Perkins Loan and Federal

Family Education Loan (FFEL) program regulations by adding criteria

that allow Peace Corps volunteers who are ineligible for deferment or

cancellation of their federal student loans based solely on Peace Corps

service to automatically qualify for economic hardship deferments while

they are serving in the Peace Corps. This change also applies to the

William D. Ford Federal Direct Loan (Direct Loan) Program in accordance

with Sec. 685.204(b)(3) of the Direct Loan Program regulations, which

references the standards set forth in Sec. 682.210(s) of the FFEL

Program regulations in establishing a Direct Loan borrower's

eligibility for an economic hardship deferment.

The Secretary also amends the Federal Perkins Loan Program

regulations to eliminate the provision that requires a borrower to

submit a request for a loan deferment, including a deferment in

anticipation of cancellation, in writing.

DATES: Effective Date: These regulations are effective July 1, 2000.

Implementation Date: The Secretary has determined, in accordance

with section 482(c)(2)(A) of the Higher Education Act of 1965, that

institutions that participate in the Federal Perkins Loan Program and

lenders and guaranty agencies that participate in the FFEL Programs

may, at their discretion, choose to implement the provisions of

Secs. 674.34, 674.38, and 682.210 as amended by these final

regulations, on or after October 25, 1999. For further information see

``Implementation Date of These Regulations'' under the SUPPLEMENTARY

INFORMATION section of this preamble.

FOR FURTHER INFORMATION CONTACT:

1. For the Federal Perkins Loan Program: Vanessa Freeman, U.S.

Department of Education, 400 Maryland Avenue, SW, ROB-3, Room 3045,

Washington, DC 20202-5447. Telephone: (202) 708-8242.

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

Education, 400 Maryland Avenue, SW, ROB-3, Room 3045, Washington, DC

20202-5447. Telephone: (202) 708-8242.

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

Education, 400 Maryland Avenue, SW, ROB-3, Room 3045, Washington, DC

20202-5447. Telephone: (202) 708-8242.

If you use a telecommunications device for the deaf (TDD), you may

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

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

paragraphs.

SUPPLEMENTARY INFORMATION: On September 17, 1998, the Secretary

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

Perkins Loan Program and FFEL Program regulations in the Federal

Register (63 FR 49798).

The NPRM included a discussion of the issues surrounding the

proposed changes that are not repeated here. The following changes were

proposed:

Amending Secs. 674.34(e)(2) and 682.210(s)(6)(ii) to add criteria

that allow borrowers to qualify automatically for economic hardship

deferments while they are serving in the Peace Corps.

Amending Secs. 674.38(d) and 682.210(s)(6) to allow borrowers to

receive economic hardship deferments for longer than a one-year period

for each request while serving as Peace Corps volunteers.

Amending Sec. 674.38(a) to eliminate the requirement that a

borrower must submit a deferment or postponement request in writing.

Implementation Date of These Regulations

Section 482(c) of the Higher Education Act of 1965, as amended (20

U.S.C. 1089(c)) requires that regulations affecting programs under

title IV of the Act be published in final form by November 1 prior to

the start of the award year in which they apply. However, that section

also permits the Secretary to designate any regulation as one that an

entity subject to the regulation may choose to implement earlier. If

the Secretary designates a regulation for early implementation, he may

specify when and under what conditions the entity may implement it.

Under this authority, the Secretary has designated the following

regulations for early implementation:

Sections 674.34, 674.38 and 682.210--In Dear Colleague letter GEN-

98-16, the Secretary provided interim procedures to be used by FFEL

loan holders and postsecondary institutions in granting economic

hardship deferments to Peace Corps volunteers until final regulations

were published. Institutions that participate in the Federal Perkins

Loans Program and guaranty agencies and lenders that participate in the

FFEL program may, now at their discretion, choose to implement the

provisions of Secs. 674.34, and 682.210 upon October 25, 1999.

Institutions that participate in the Federal Perkins Loan Program may

implement the provisions of Sec. 674.38 that eliminate the written

request for a deferment in the Perkins Loan Program upon October 25,

1999.

These final regulations contain changes from the NPRM that are

explained in the Analysis of Comments and Changes that follows.

Analysis of Comments and Changes

In response to the Secretary's invitation in the NPRM, 10 parties

submitted comments on the proposed regulations. An analysis of the

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

the NPRM follows.

We discuss substantive issues under the sections of the regulations

to which they pertain. Generally, we do not address technical and other

minor changes in the proposed regulations, and we do not respond to

comments suggesting changes that the Secretary is not authorized by law

to make.

General

Comments: All of the commenters who addressed the Secretary's

proposal to simplify the economic hardship deferment application

process for certain Peace Corps volunteers supported the proposed

changes.

Discussion: The Secretary appreciates the commenters' support for

the proposed changes and believes they will encourage and support Peace

Corps service.

Changes: None.

Sections 674.34 and 682.210 Deferment

Comments: Several commenters noted that the proposed placement of

the new provision in Secs. 674.34(e)(2) and 682.210(s)(6)(ii) appears

to require a borrower to provide evidence that he or she is receiving

payment from the Peace Corps rather than indicating clearly that the

information required to establish a borrower's eligibility for the

deferment is documentation from the Peace Corps that the borrower is

serving (or will serve) as a Peace Corps volunteer. The commenters

suggested that the regulatory language be revised to indicate that a

borrower must provide documentation showing that he or she

[[Page 57529]]

is serving or has agreed to serve as a Peace Corps volunteer.

Discussion: In the preamble to the NPRM and in Dear Colleague

letter GEN 98-16, we indicated that evidence of a borrower's

eligibility for an economic hardship deferment under the new provision

is provided by documentation from the Peace Corps showing that the

borrower will be or is serving as a Peace Corps volunteer. It was not

our intent to require a borrower to provide documentation that he or

she is actually receiving payments from the Peace Corps. However, we

agree with the commenters that the regulatory language proposed in the

NPRM could be misinterpreted.

Changes: The paragraph establishing Peace Corps service as a

criterion for receipt of an economic hardship deferment has been

removed from Secs. 674.34(e)(2) and 682.210(s)(6)(ii) and made a

separate paragraph in each part that clarifies that the borrower is not

required to provide evidence of receiving payment from the Peace Corps

to establish eligibility for the economic hardship deferment.

Comments: Several commenters felt that the proposed language

amending Sections 674.34(e) and 682.210(s)(6) did not define clearly

the intended deferment period as the borrower's term of service in the

Peace Corps, not to exceed the statutory maximum of three years. The

commenters noted that the proposed language stated only that an

economic hardship deferment under the new provision for Peace Corps

volunteers may be granted for longer than one year at a time. The

commenters suggested that the regulatory language be revised to

indicate that the deferment period covers a borrower's full term of

service in the Peace Corps or the borrower's remaining period of

economic hardship deferment eligibility, not to exceed the three-year

statutory maximum.

Discussion: As discussed in the preamble to the NPRM and in Dear

Colleague letter GEN-98-16, the deferment period for an economic

hardship deferment granted to Peace Corps volunteers under the new

provision is intended to be for the borrower's full term of service, up

to the statutory maximum of three years. We agree with the commenters

that the regulatory language proposed in the NPRM may not convey

clearly the intended deferment period.

Changes: Sections 674.34(e) and 682.210(s)(6) have been revised to

clarify that the period of an economic hardship deferment under the new

provision is the lesser of the borrower's full term of service in the

Peace Corps or the borrower's remaining period of economic hardship

deferment eligibility under the statutory three-year maximum.

Comments: Several commenters expressed concern that the Peace Corps

certification form the borrower receives from the Peace Corps at pre-

service orientation sessions, and that certifies that the borrower will

be serving as a Peace Corps volunteer, does not include the borrower's

dates of service. The commenters believe that without information on

the beginning and ending dates of the borrower's service, they will not

have sufficient documentation to process an economic hardship deferment

for the appropriate period of time. The commenters suggested that the

Peace Corps certification document that was attached to Dear Colleague

letter GEN-98-16 be revised to include the beginning and ending dates

of the borrower's service to make the form consistent with the

regulatory changes proposed in the NPRM.

Discussion: We agree that the documentation the Peace Corps

supplies to the borrower supporting the borrower's request for

deferment should include the beginning and ending dates of the

borrower's Peace Corps service. We also believe that the Peace Corps

certification form, which was originally developed to support only a

borrower's request for the categorical Peace Corps deferment, should be

revised to support both borrowers who apply for the categorical

deferment and those that apply for an economic hardship deferment based

on Peace Corps service.

Changes: The Peace Corp certification form has been revised to

include the borrower's dates of service and to make it suitable for use

as supporting documentation of Peace Corps service for both categories

of borrowers serving in the Peace Corps.

Comments: Two commenters noted that the proposed regulations would

permit borrowers to receive economic hardship deferments for their full

term of service in the Peace Corps without having to reapply each year.

These commenters expressed concern about the potential for fraud by

borrowers who do not complete their term of service and felt that a

system should be established to notify loan holders of a borrower's

continuation in or termination from Peace Corps service. One of the

commenters recommended that loan holders receive verification of a

borrower's continued service in the Peace Corps annually before

authorizing an extension of the borrower's deferment. The other

commenter was concerned particularly about potential for fraud by

borrowers who are eligible for loan cancellation in the Federal Perkins

Loan Program based on their service as Peace Corps volunteers, and

believed that borrowers should continue to be required to provide

documentation of both the beginning and termination dates of their

service.

Discussion: We appreciate the commenters' concerns regarding fraud

in the case of borrowers who terminate their Peace Corps service early.

However, we believe that requiring borrowers who receive economic

hardship deferments based on their Peace Corps service to provide

documentation annually to their loan holders essentially eliminates one

of major benefits provided by the proposal to Peace Corps volunteers.

Borrowers are clearly told, both on the deferment request forms used in

the FFEL and Direct Loan programs and on the revised Peace Corps

service certification form, that they must immediately notify their

loan holders if they leave the Peace Corps before the projected

termination date shown on their Peace Corps certification form. The new

economic hardship deferment provisions for Peace Corps volunteers do

not change this borrower responsibility.

We did not propose to eliminate the requirement that the loan

holder make an annual determination of a borrower's eligibility for a

categorical Peace Corp deferment in the FFEL and the Federal Direct

Loan Programs, or for a deferment or cancellation, or both, based on

Peace Corps service in the Federal Perkins Loan Program. We believe,

however, that the same benefits of a less burdensome deferment and

cancellation application process should be extended to all Peace Corps

volunteers.

Changes: Sections 674.38(d) and 682.210(k) are amended to authorize

a loan holder to grant a categorical deferment, including a deferment

in anticipation of cancellation in the Federal Perkins Loan Program,

for the borrower's full term of service in the Peace Corps, not to

exceed three years.

Section 674.38 Deferment Procedures

Comments: Many commenters supported our proposal to eliminate the

written request for deferment in the Federal Perkins Loan Program. The

commenters believe that telephone or electronic requests by the

borrower to the institution are an appropriate means for the borrower

to request a deferment. They also stated that uniformity among the

title IV loan program regulations, where possible, is beneficial for

both institutions and borrowers.

All of the commenters, however, expressed concern about the

disparities

[[Page 57530]]

that remain between the FFEL, Direct Loan, and Federal Perkins Loan

Programs with regard to the processing of in-school deferments. Several

commenters indicated that, in the FFEL and Direct Loan programs, a

lender may use a certified loan application, a form certified by the

borrower's school, or other data it receives from the Student Status

Confirmation Report (SSCR) or another third-party servicer verifying

the borrower's in-school status as sufficient documentation to initiate

and process an in-school deferment. In these instances, the student

borrower is not required to make a specific request for the deferment.

The commenters pointed out that under the regulations proposed by the

Secretary for the Federal Perkins Loan Program, borrowers would still

be required to contact the institution to request an in-school

deferment.

Discussion: We agree that consistency between the various title IV

student loan programs is an important goal. We also believe that the

use of technology to reduce administrative burden for institutions is

equally important. We further agree that the regulatory changes

proposed to facilitate the processing of in-school deferments in the

Federal Perkins Loan Program may not provide schools with enough

flexibility in the processing of those deferments.

After examining the applicability of the methods used in the FFEL

and Direct Loan Program to the Federal Perkins Loan Program, we have

decided that use of a certified loan application to initiate the in-

school deferment process is impractical because there is no separate

Federal Perkins Loan application to use for this process. However, we

believe that data verifying the borrower's in-school enrollment status,

either from a third-party servicer or from the school in which the

borrower is enrolled, is sufficient documentation for a school

participating in the Federal Perkins Loan Program to grant an in-school

deferment. To preserve the borrower's ability to participate in the

deferment process, we also believe that the institution should notify

the borrower when it grants a deferment in this manner to provide the

borrower with the option to decline the deferment and to continue

paying on the loan.

Changes: A provision has been added to Sec. 674.38(a) to allow an

institution to determine a borrower's eligibility and grant an in-

school deferment based on the institution's receipt of student

enrollment information from the school in which the borrower is

enrolled or from a third-party servicer. The institution must notify

the borrower that a deferment has been granted and provide the borrower

with the option to continue paying on the loan.

Section 674.39 Postponement of Loan Repayments in Anticipation of

Cancellation of Loans Made Before July 1, 1993.

Comments: Many commenters supported the Secretary's proposal to

eliminate the written request for postponement of repayment in

anticipation of cancellation for loans made under the Federal Perkins

Loan Program before July 1, 1993.

Discussion: The Secretary published a notice of proposed rulemaking

(NPRM) on July 29, 1999, in accordance with the Higher Education

Amendments of 1998 (Pub. L. 105-244), that extends a deferment in

anticipation of cancellation to all borrowers with a loan made under

the Federal Perkins Loan Program. Because the extension of a deferment

in anticipation of cancellation would eliminate the need for a

postponement, the NPRM proposed to eliminate Sec. 674.39 in its

entirety from the Federal Perkins Loan Program regulations.

Changes: Proposed amendatory language with respect to Sec. 674.39

has been eliminated from these final regulations.

Executive Order 12866

We have reviewed these final regulations in accordance with

Executive Order 12866. Under the terms of the order, we have assessed

the potential costs and benefits of this regulatory action.

The potential costs associated with the final regulations are those

resulting from statutory requirements and those we have determined are

necessary for administering these programs effectively and efficiently.

Burden specifically associated with information collection

requirements, if any, was identified and explained in the preamble to

the NPRM.

In assessing the potential costs and benefits, both quantitative

and qualitative, of these final regulations, we have determined that

the benefits of the regulations justify the costs.

The Secretary has also determined that this regulatory action does

not unduly interfere with State, local, and tribal governments in the

exercise of their governmental functions.

The potential costs and benefits of these final regulations were

discussed in the preamble to the NPRM (63 FR 49800).

Paperwork Reduction Act of 1995

These regulations do not contain any information collection

requirements.

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

In the NPRM, we requested comments on whether the proposed

regulations would require transmission of information that any other

agency or authority of the United States gathers or makes available.

Based on the responses to the NPRM and on our review, we have

determined that the regulations do not require transmission of

information that any other agency or authority of the United States

gathers or makes available.

Electronic Access to This Document

You may view this document in text or Adobe Portable Document

Format (PDF) on the Internet at the following sites:

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

http://www.ed.gov/legislation/HEA/rulemaking/

http://ifap.ed.gov/csb--html/fedlreg.htm

To use the PDF, you must have the Adobe Acrobat Reader Program with

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

you have questions about using the PDF, call the U.S. Government

Printing Office (GPO), toll free, at 1-888-293-6498; or in the

Washington, DC, area at (202) 512-1530.

Note: The official version of this document is the document

published in the Federal Register. Free Internet access to the

official edition of the Federal Register and the Code of Federal

Regulations is available on GPO Access at: http://

www.access.gpo.gov/nara/index.html.

(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)

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: October 19, 1999.

Richard W. Riley

Secretary of Education.

For the reasons stated in the preamble, the Secretary amends parts

674 and 682 of the Code of Federal Regulations as follows:

[[Page 57531]]

PART 674--FEDERAL PERKINS LOAN PROGRAM

1. The authority citation for part 674 continues to read as follows

by:

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

otherwise noted.

2. Section 674.34 is amended as follows by:

A. Revising paragraph (e) introductory text.

B. Redesignating paragraphs (e)(6), (e)(7), (e)(8), and (e)(9) as

(e)(7), (e)(8), (e)(9), and (e)(10), respectively.

C. Removing the word ``or'' at the end of paragraph(e)(4).

D. Removing the semicolon at the end of paragraph (e)(1), (e)(2),

and (e)(3) and adding, in its place, a period.

E. Adding a new paragraph (e)(6).

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 (e)(6) of this section may be granted for the

lesser of the borrower's full term of service in the Peace Corps or the

borrower's remaining period of economic hardship deferment eligibility)

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 is within any

of the categories described in paragraphs (e)(1) through (e)(6) of this

section.

* * * * *

(6) Is serving as a volunteer in the Peace Corps.

* * * * *

3. Section 674.38 is amended by redesignating paragraph (a)(2) as

paragraph (a)(3), adding new paragraph (a)(2), and by revising

paragraphs (a)(1) and (d) to read as follows:

Sec. 674.38 Deferment procedures.

(a)(1) Except as provided in paragraph (a)(2)of this section, a

borrower must request the deferment and provide the institution with

all information and documents required by the institution by the date

that the institution establishes.

(2) In the case of an in school deferment, the institution may

grant the deferment based on student enrollment information showing

that a borrower is enrolled as a regular student on at least a half-

time basis, if the institution notifies the borrower of the deferment

and of the borrower's option to cancel the deferment and continue

paying on the loan.

* * * * *

(d) The institution must determine the continued eligibility of a

borrower for a deferment at least annually, except that a borrower

engaged in service described in Secs. 674.34(e)(6), 674.35(c)(3),

674.36(c)(2), 674.37(c)(2), and Sec. 674.60(a)(1) must be granted a

deferment for the lesser of the borrower's full term of service in the

Peace Corps, or the borrower's remaining period of eligibility for a

deferment under Sec. 674.34(e), not to exceed 3 years.

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

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

follows:

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

5. Section 682.210 is amended by:

A. Redesignating paragraph (k) introductory text, following the

heading Peace Corps deferment., (k)(1), (k)(2), and (k)(3) as

paragraphs (k)(1),(k)(1)(i),(k)(1)(ii), and (k)(1)(iii), respectively.

B. Adding new paragraph (k)(2).

C. Revising paragraph (s)(6) introductory text.

D. Redesignating paragraphs (s)(6)(vi), (vii), (viii), (ix), and

(x) as paragraphs (s)(6)(vii), (viii), (ix), (x), and (xi),

respectively.

E. By removing ``; or'' at the end of paragraph (s)(6)(iv), and

adding, in its place, a period.

F. Removing the semicolon at the end of paragraphs (s)(6)(i),

(s)(6)(ii), and (s)(6)(iii), and adding, in its place a period.

G. Removing ``(s)(6)(ix)'' in newly redesignated paragraphs (s)(6)

(viii) and (ix) and by adding, its place, ``(s)(6)(x)''.

H. Adding a new paragraph (s)(6)(vi).

Sec. 682.210 Deferment

* * * * *

(k) * * *

(2) The lender must grant a deferment for the borrower's full term

of service in the Peace Corps, not to exceed three years.

* * * * *

(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 that, collectively, do not exceed 3 years (except that a borrower

who receives a deferment under paragraph (s)(6)(vi) of this section is

entitled to an economic hardship deferment for the lesser of the

borrower's full term of service in the Peace Corps or the borrower's

remaining period of economic hardship deferment eligibility under the

3-year maximum), if the borrower provides documentation satisfactory to

the lender showing that the borrower is within any of the categories

described in paragraphs (s)(6)(I) through (s)(6)(vi) of this section.

* * * * *

(vi) Is serving as a volunteer in the Peace Corps.

* * * * *

[FR Doc. 99-27728 Filed 10-22-99; 8:45 am]

BILLING CODE 4000-01-P