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

DEPARTMENT OF EDUCATION

34 CFR Parts 682 and 685

RIN 1845-AA00

Federal Family Education Loan Program and William D. Ford Federal

Direct Loan Program

AGENCY: Department of Education.

ACTION: Final regulations.

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SUMMARY: The Secretary amends the Federal Family Education Loan (FFEL)

Program regulations and the William D. Ford Federal Direct Loan (Direct

Loan) Program regulations. These final regulations are needed to

implement recently enacted changes to the Higher Education Act of 1965,

as amended (HEA) made by the Higher Education Amendments of 1998 (1998

Amendments). The final regulations deal with provisions of the 1998

Amendments that affect FFEL borrowers, schools, lenders, and guaranty

agencies and Direct Loan borrowers and schools. These final regulations

seek to improve the efficiency of Federal student aid programs, and, by

so doing, to improve their capacity to enhance opportunities for

postsecondary education.

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 HEA (20 U.S.C. 1089(c)(2)(A)), that

FFEL and Direct Loan program participants may, at their discretion,

choose to implement certain provisions of Secs. 682.102, 682.200,

682.202, 682.206, 682.401, 682.402, 682.406, 682.409, 682.414, 682.604,

682.610, 685.102, 685.201, 685.304, and 685.402 on or after November 1,

1999. For further information see ``Implementation Date of These

Regulations'' under the SUPPLEMENTARY INFORMATION section of this

preamble.

FOR FURTHER INFORMATION CONTACT: For the FFEL Program, Ms. Patsy

Beavan, or for the Direct Loan Program, Ms. Nicki Meoli, U.S.

Department of Education, 400 Maryland Avenue, SW., Room 3045, Regional

Office Building 3, Washington, DC 20202-5346. 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

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

diskette) on request to one of the contact persons listed in the

preceding paragraph.

SUPPLEMENTARY INFORMATION: These regulations implement certain changes

made to the HEA by the 1998 Amendments (Pub. L. 105-244) that affect

the FFEL and Direct Loan programs.

On August 10, 1999, the Secretary published a notice of proposed

rulemaking (NPRM) for the FFEL and Direct Loan programs in the Federal

Register (64 FR 43428). In the preamble to the NPRM, the Secretary

discussed on pages 43429 to 43438 the following proposed changes:

FFEL Program Changes

Amending Sec. 682.102(a) to require the use of the Free

Application for Federal Student Aid (FAFSA) as the application for FFEL

subsidized and unsubsidized Stafford loans beginning in academic year

1999-2000 and to reflect the use of a Master Promissory Note (MPN) that

would allow borrowers to receive, in addition to an initial loan,

additional loans for the same or subsequent periods.

Amending Sec. 682.200(b) to revise the definition of

``Lender'' to permit lenders to provide assistance to schools that is

comparable to the kinds of assistance provided by the Secretary under,

or in furtherance of, the Direct Loan Program.

Amending Sec. 682.201(c)(1)(i)(D) and (E) to prohibit a

borrower from receiving an FFEL Consolidation loan to repay a loan made

under the HEA on which the borrower is subject to a judgment secured

through litigation or to an administrative wage garnishment order.

Amending Sec. 682.201(c)(1)(iv)(B) to permit a borrower

who has multiple FFEL Program holders to apply to any eligible FFEL

lender for an FFEL Consolidation loan.

Amending Sec. 682.201(d)(2) to expand the universe of

loans that may be included in an FFEL Consolidation loan.

Amending Sec. 682.202(a) to include the interest rate

formulas that apply to subsidized Stafford, unsubsidized Stafford, and

PLUS loans that are first disbursed on or after October 1, 1998 and

before July 1, 2003 and interest rate formulas for Consolidation loans.

Amending Sec. 682.202(b) to reflect that a lender may add

accrued interest to the principal (capitalization) of an unsubsidized

Stafford loan only when the loan enters repayment, at the expiration of

a period of authorized deferment, at the expiration of a period of

authorized forbearance, and when the borrower defaults. This section

also provides that, for loans first disbursed on or after July 1, 2000,

periods of forbearance on both subsidized and unsubsidized Stafford

loans would be covered by the new capitalization rules.

Amending Sec. 682.202(c) to permit a lender to assess a

lower origination fee to a borrower demonstrating ``greater financial

need,'' as determined by the borrower's adjusted gross income and to

allow a lender to consider a borrower as demonstrating greater

financial need if--

The borrower's expected family contribution (EFC) used to

determine eligibility for the loan is equal to or less than the maximum

qualifying EFC for a Federal Pell Grant at the time the loan is

certified;

The borrower qualifies for a subsidized Stafford loan; or

The borrower qualifies according to a comparable

alternative standard approved by the Secretary.

Amending Sec. 682.206 to conform to changes made in

Sec. 682.603 related to loan certification of borrower eligibility by

the school and Sec. 682.401 related to the use of the MPN.

Amending Sec. 682.207 to require lenders to disburse loans

in a single installment (rather than in multiple installments as

generally required) if so directed by a school that meets the criteria

specified in Sec. 682.604.

Amending Sec. 682.209(a)(7)(ix) to require a lender to

offer new FFEL borrowers, including FFEL Consolidation loan borrowers,

whose total outstanding FFEL loans exceed $30,000, an extended

repayment plan with fixed or graduated repayment amounts to be paid

over a period not to exceed 25 years.

Amending Sec. 682.301(a)(3) to include the authority for

payment of interest subsidy during a period of authorized deferment on

the portion of an FFEL Consolidation loan that repaid a subsidized FFEL

or Direct Loan program loan.

Amending Sec. 682.402(h)(1)(iv) to provide that a lack of

evidence of a borrower's confirmation for subsequent loans made under

an MPN will not lead to a denial of claim payment to the lender unless

the loan is found to be unenforceable.

Amending Sec. 682.402(i)(1)(i) to reflect amendments to

the Bankruptcy Code that eliminated the seven-year repayment standard

for discharge of FFEL Program loans for bankruptcy petitions filed on

or after October 8, 1998 and establish undue hardship as the only

criteria for a bankruptcy discharge.

Amending Sec. 682.402(i)(1)(iv) to revise lender and

guaranty agency claim filing procedures related to loans for which

bankruptcy petitions are filed.

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Amending Sec. 682.414(a)(4) and (5) to require lenders to

maintain documentation of the confirmation processes the lender and the

school used for subsequent loans under an MPN and specify that a lender

or guaranty agency may, to accommodate the MPN process, retain a true

and exact copy of the promissory note rather than the original note.

Amending Sec. 682.603(b) to require a school to certify

only the loan amount for which the borrower is eligible and to provide

a disbursement schedule to the lender.

FFEL and Direct Loan Program Changes

Amending Secs. 682.200(b) and 685.102(b) to--

Reflect that the length of time a borrower is

delinquent before a default occurs on an FFEL or Direct Loan program

loan is 270 days for a loan repayable in monthly installments and 330

days for FFEL Program loans repayable less frequently than monthly;

Reflect that schools now are required to include

veterans' educational benefits paid under Chapter 30 of Title 38 of the

United States Code and national service education awards or post-

service benefits under Title I of the National and Community Service

Act of 1990 (Americorps) as estimated financial assistance for the

purpose of determining a borrower's eligibility for unsubsidized FFEL

and Direct Loan program loans; and

Define the term ``master promissory note'' (MPN) as a

promissory note under which a borrower may receive loans for a single

academic year or multiple academic years.

Amending Secs. 682.204 and 685.203 to modify the method

for calculating the reduced annual loan limits that apply to FFEL and

Direct Loan borrowers enrolled in programs of study or remaining

balances of programs of study that are less than an academic year in

length and to specify annual loan limits for non-degree preparatory and

teaching credential coursework.

Amending Secs. 682.207(e), 682.603(g), 682.604(c),

685.301(b) and 685.303(b) to reflect that an FFEL or Direct loan

program school is exempt from the multiple disbursement requirement for

single-term loans and the delayed delivery requirement if--

The school's FFEL cohort default rate, Direct Loan

Program cohort rate, or weighted average cohort rate is less than 10

percent for each of the three most recent fiscal years for which data

are available; or

The school is certifying or originating a loan to

cover the cost of attendance in a study abroad program and has an FFEL

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

average cohort rate of less than five percent for the single most

recent fiscal year for which data are available.

Amending Secs. 682.209(a)(6) and 685.207(b) and (c) to

exclude certain periods of service by a borrower in the Armed Forces

from the six-month grace period for FFEL and Direct Loan program

borrowers.

Amending Secs. 682.210(c) and 685.204(b) to reflect that

FFEL lenders and the Secretary may determine a borrower's eligibility

for an in-school deferment when--

The borrower submits a request for deferment along

with documentation verifying the borrower's eligibility for the

deferment to the borrower's FFEL lender, or the Secretary for a Direct

Loan;

The borrower's FFEL lender, or the Secretary for a

Direct Loan, receives either a newly completed loan certification or,

as part of the MPN process, information from the borrower's school

indicating that the borrower is eligible to receive a new loan; or

The borrower's FFEL lender, or the Secretary for a

Direct Loan, receives student status information from the borrower's

school, either directly or indirectly, indicating that the borrower is

enrolled on at least a half-time basis.

Amending Sec. 682.210(h) to permit borrowers who are

eligible for unemployment insurance benefits to submit evidence of

their eligibility for the benefits to their FFEL lender, or to the

Secretary for a Direct Loan (see Sec. 685.204(b)(2)), to qualify for

initial and subsequent periods of an unemployment deferment.

Amending Secs. 682.211(f)(9) and 685.205(b)(9) to permit

an FFEL lender, and the Secretary for a Direct Loan, to grant a

forbearance to a borrower for a period not to exceed 60 days after the

borrower requests a deferment, a forbearance, a change in repayment

plan, or a consolidation loan.

Amending Secs. 682.401(d) and 685.402 to state the

requirements that a school must meet to be authorized to use a single

MPN as the basis for multiple loans obtained by a borrower.

Amending Secs. 682.402, 685.212, and 685.215 to provide

for discharge of the amount of a borrower's FFEL or Direct Loan program

loan disbursed on or after January 1, 1986 that should have been

refunded by the borrower's school.

Amending Secs. 682.604(f) and (g) and 685.304(a) and (b)

to permit schools to use electronic means to provide initial counseling

and exit counseling to borrowers and to require two additional

counseling elements based on new statutory initiatives.

Amending Sec. 685.300 to provide schools the option to

participate in one or more of the loan programs (subsidized,

unsubsidized, and PLUS) under the FFEL and Direct Loan programs.

These final regulations contain several changes from the NPRM. We

fully explain these changes in the Analysis of Comments and Changes

elsewhere in this preamble.

Implementation Date of These Regulations

Section 482(c) of the HEA requires that regulations affecting

programs under Title IV of the HEA be published in final form by

November 1 prior to the start of the award year (which begins July 1)

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:

Secs. 682.102, 682.200, 682.206, 682.401, 682.402, 682.406,

682.409, 682.414, 682.604, 682.610, 685.102(b), 685.201(a), and

685.402(f)--Upon publication, the provisions in these regulations

related to the Master Promissory Note (MPN) may be implemented by

borrowers, schools, lenders, and guaranty agencies in the FFEL Program

and borrowers and schools in the Direct Loan Program at their

discretion. This means that participants in both the FFEL and Direct

Loan programs may begin using a single MPN as the basis for multiple

loans obtained by a borrower as long as they do so consistent with all

regulatory provisions and accompanying discussion related to use of the

MPN that are included in this final rule.

Section 682.200(b) Definition of Lender--Upon publication, these

regulations may be implemented by FFEL lenders at their discretion.

This means that FFEL lenders may provide assistance to schools

comparable to the kinds of assistance provided by the Secretary to

schools under, or in furtherance of, the Direct Loan Program.

Section 682.202(c)--Upon publication, these regulations may be

implemented by FFEL lenders at their discretion. This means that FFEL

lenders may assess a lower origination fee to a borrower demonstrating

``greater

[[Page 58940]]

financial need'' as provided in these regulations.

Section 682.604(f)(2)(i), 682.604(g)(2)(vii), 685.304(a)(3)(i), and

685.304(b)(4)(vii)--Upon publication, these regulations may be

implemented by FFEL and Direct Loan program schools at their

discretion. This means that schools may explain the use of an MPN

during initial counseling and review information on the availability of

the Department's Student Loan Ombudsman's office during exit

counseling.

Analysis of Comments and Changes

The regulations in this document were developed through the use of

negotiated rulemaking. Section 492 of the HEA requires that, before

publishing any proposed regulations to implement programs under Title

IV of the HEA, the Secretary obtain public involvement in the

development of the proposed regulations. After obtaining advice and

recommendations, the Secretary must conduct a negotiated rulemaking

process to develop the proposed regulations. All proposed regulations

must conform to agreements resulting from the negotiated rulemaking

process unless the Secretary reopens that process or explains any

departure from the agreements to the negotiated rulemaking

participants.

These regulations were published in proposed form on August 10,

1999 in conformance with the consensus of the negotiated rulemaking

committee. Under the committee's protocols, consensus meant that no

member of the committee dissented from the agreed-upon language. The

Secretary invited comments on the proposed regulations by September 15,

1999 and several comments were received. An analysis of the comments

and of the changes in the proposed regulations 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--and suggested changes the law does not authorize the

Secretary to make.

These final regulations address changes that are specific to the

FFEL Program and changes that are common to both the FFEL and Direct

Loan programs. The following analysis begins with comments and changes

that affect only the FFEL Program, followed by comments and changes

that affect both the FFEL and Direct Loan programs.

Federal Family Education Loan Program

Section 682.102--Consolidation Loan Application

Comment: Several commenters representing guaranty agencies,

lenders, and servicers recommended that we clarify Sec. 682.102(d) to

explain which holder(s) must be contacted for a Consolidation loan when

a married couple wants to jointly consolidate their loans. The

commenters suggested that the proposed language appears to require a

married couple seeking a joint Consolidation loan to contact all the

holders for one of the applicant's loans before being able to

consolidate if either or both applicants have multiple holders.

Discussion: We agree that this language needs to be revised to be

consistent with Sec. 682.201(c)(2)(ii). If each of the applicants has

only one holder, then only the holder for one of the applicants must be

contacted. If either or both applicants have multiple loan holders, the

applicants are permitted to submit the application to any lender

participating in the Consolidation Loan Program.

Change: We have revised Sec. 682.102(d) to clarify the application

requirements for married borrowers who want a joint Consolidation loan.

Section 682.200--Definitions

Lender-Prohibited Inducements

Comment: A commenter representing a guaranty agency suggested that

we clarify that the inducement provision applies only to originating

lenders.

Discussion: We do not believe that the inducement prohibition

applies only to originating lenders. The HEA clearly states that the

term ``eligible lender'' does not include any lender that offers,

directly or indirectly, points, premiums, payments or other

inducements, to any educational institution or individual in order to

secure applicants. The statute does not distinguish between originating

lenders and other loan holders.

Change: None.

Repayment Period

Comment: Some commenters recommended that we clarify that the 25-

year extended repayment schedule is available to PLUS loan borrowers.

Discussion: We agree with the commenters.

Change: We have revised the definition of ``Repayment period'' in

Sec. 682.200(b) to specifically reference PLUS loan borrowers.

Section 682.201--Eligible Borrowers

Consolidation Loans

Comment: Some commenters suggested that Sec. 682.201(c)(1) should

be restructured to clarify that loans subject to litigation or

administrative wage garnishment are eligible for inclusion in a

Consolidation loan (including during the 180-day period for adding

loans to a Consolidation loan) once the judgment or wage garnishment

order is vacated, even if the judgment or order is in place at the time

the borrower applies for the Consolidation loan. The commenters pointed

out that the restriction in section 428C(a)(3)(A)(ii) of the HEA need

not be read to apply to the prohibition against consolidating loans

which are subject to a judgment or wage garnishment order contained in

section 428C(a)(3)(A)(i) of the HEA. Instead, the restriction applies

only to defining an eligible borrower's status on the loans to be

consolidated. The commenters believe this clarification will ensure

that a borrower is not prevented from consolidating a loan which was

subject to a judgment or wage garnishment order at the time of

application, provided the order is vacated prior to consolidating the

loan and will also protect the federal fiscal interest by allowing the

guarantor to ensure that the borrower has completed the application

process before the guarantor cancels the judgment or garnishment order.

Discussion: We agree with the commenters that this change will

preserve a borrower's eligibility to consolidate while protecting the

federal fiscal interest. We agree with the commenters that it is

prudent for the holder to delay vacating a judgment or canceling a wage

garnishment order until after the borrower has completed the

consolidation process. We understand the commenters' concern that if a

borrower applies for a Consolidation loan and the holder vacates the

loan prior to the consolidation, the borrower may not follow through.

Change: We have revised Sec. 682.201(c)(1) to permit lenders to

consolidate loans based on the status of the loans at the time of

consolidation, not the time of application.

Comment: Some commenters stated that they believed that proposed

Sec. 682.201(d), that specifies when a borrower's eligibility to

receive a Consolidation loan terminates, conflicts with Sec. 682.201(e)

that specifies when a Consolidation loan borrower may consolidate an

existing Consolidation loan. The commenters believe it is unclear

whether the permission to consolidate a Consolidation loan in

[[Page 58941]]

paragraph (e) overrides paragraph (d)(1), which states that a

borrower's eligibility to obtain a new Consolidation loan is terminated

upon receipt of a Consolidation loan except where the borrower receives

a new loan after the date of the original consolidation. The commenters

also suggested that we clarify that a married couple may consolidate

their individual Consolidation loans into a single joint Consolidation

loan.

Discussion: As reflected in Sec. 682.201(e), a Consolidation loan

borrower may obtain a new Consolidation loan if the borrower

consolidates the outstanding Consolidation loan with at least one other

eligible loan. A borrower is not required to obtain a new loan in order

to consolidate. Also, as the commenters noted, a married couple may

consolidate their respective Consolidation loans into a single joint

Consolidation loan without either borrower being required to obtain a

new loan.

Change: We have restructured Sec. 682.201(d) and (e) to clarify the

circumstances under which borrowers may consolidate an outstanding

Consolidation loan to address the commenters' concerns.

Section 682.202--Permissible Charges by Lenders to Borrowers Interest

Rates

Comment: Several commenters recommended that

Sec. 682.202(a)(1)(vii) be revised to specify that the interest rate

formula included in this paragraph applies to a Stafford loan for which

the first disbursement was made on or after July 1, 1995 and prior to

July 1, 1998 without reference to the period of enrollment for which

the loan was made. The commenters pointed out that although Dear

Colleague Letter 93-L-161 (dated November 1993), which summarized the

interest rate change for the period July 1, 1995 and prior to July 1,

1998, included a reference to the period of enrollment for Stafford

loans made on or after July 1, 1995 (as well as for loans made on or

after July 1, 1998), subsequent guidance issued by the Department

(e.g., annual memoranda regarding applicable interest rates) did not

include this reference for the 1995-1998 period.

Discussion: We agree with the commenters.

Change: We have revised Sec. 682.202(a)(1)(vii) to delete reference

to a period of enrollment that includes or begins on or after July 1,

1995.

Comment: Several commenters suggested that Sec. 682.202(a)(3)(iii)

be revised to delete the reference in the SLS interest rate formula to

``the period of enrollment that began prior to July 1, 1994'' because

this paragraph applied to SLS loans made on or after October 1, 1992

through the cessation of the SLS Program on July 1, 1994. The

commenters pointed out that Dear Colleague Letter 93-L-161 (dated

November 1993), summarizing Public Law 103-66, specified that the

termination of the SLS program was effective for periods of enrollment

that began on or after July 1, 1994, without regard to the loan

disbursement date.

Discussion: We agree with the commenters.

Change: We have removed the technical change proposed in

Sec. 682.202(a)(3)(iii) in the NPRM referencing loans disbursed prior

to July 1, 1994.

Comment: In response to the Secretary's request for comments on how

to make these proposed regulations easier to understand, a major

association representing credit unions suggested that for clarity, we

provide an example to clarify the regulatory requirement to use

weighted average interest rates for Consolidation loans.

Discussion: The weighted average interest rate used for

Consolidation loans in both the FFEL and Direct Loan programs should be

calculated based on the interest rates that apply to the loans being

consolidated at the time the loan holders complete the verification

certificates. In making the calculation, it is important to note that

an interest rate that is lower than the repayment period rate applies

to most subsidized and unsubsidized Stafford loans in the FFEL and

Direct Loan programs during the in-school, grace, and deferment

periods. This affects the calculation of the weighted average interest

rate. If, for example, a loan is in a grace period at the time the loan

holder completes the verification certificate, the lower grace period

interest rate would be used in the calculation of the weighted average

interest rate on the Consolidation loan. Conversely, if the borrower

applies for a Consolidation loan after entering repayment on a loan,

the higher repayment interest rate of the loan being consolidated would

be used in calculating the weighted average interest rate on the

Consolidation loan.

The weighted average interest rate is a single interest rate that

is calculated by using the borrower's loan balances and the current

annual interest rate for each of the borrower's loans.

For example: A borrower has two subsidized Federal Stafford Loans,

one for $10,000 and the other for $5,000, both with an interest rate of

8.25 percent. The borrower also has a $3,500 unsubsidized Federal

Stafford Loan with an interest rate of 7.46 percent and a $3,000

Federal Perkins Loan with a 5.0 percent interest rate. The borrower

consolidates these loans.

The following steps outline one way to calculate the weighted

average interest rate:

1. Multiply the balance of each loan being consolidated by the

interest rate that applies to that loan at the time the verification

certificate is completed.

2. Add the calculated interest amounts for all loans being

consolidated ($1,648.60).

3. Add the loan balances for all loans being consolidated

($21,500).

4. Divide the sum of the calculated interest amounts by the sum of

the loan balance amounts (7.66%).

5. Round the quotient (the answer to Step 4) to the nearest higher

one-eighth of one percent (7.75%).

6. Compare the result in Step 5 to the 8.25% maximum interest rate

and determine which is lower. The lower of the two rates is the

borrower's fixed interest rate for the Consolidation loan.

The weighted average interest rate for the borrower in this example

is 7.75%.

Change: None.

Origination Fee

Comment: Several commenters pointed out that in

Sec. 682.202(c)(2)(i) the term ``minimum'' was incorrectly used rather

than ``maximum'' when referencing the criteria for charging a lower

origination fee to some borrowers.

Discussion: We agree with the commenters that the term ``minimum''

was inadvertently used and is not consistent with the language in the

preamble to the NPRM. To be eligible for a lower origination fee under

this provision, the borrower's EFC used to determine the eligibility

for the loan must be equal to or less than the maximum qualifying EFC

for a Federal Pell Grant at the time the loan is certified.

Change: We have revised Sec. 682.202(c)(2)(i) to replace

``minimum'' with ``maximum.''

Comment: Two commenters representing national lenders objected to

proposed Sec. 682.202(c)(4) that would provide that, for purposes of

determining whether a lender is charging all similarly situated

borrowers the same origination fee, all lenders under common ownership,

including ownership by a common holding company, constitute a single

lender. The commenters argued that this provision violates the plain

language of the HEA and conflicts with Congressional intent and settled

administrative policy underlying the Federal banking laws. They further

stated that this provision is

[[Page 58942]]

not needed to prevent manipulation of bank subsidiaries of bank holding

companies to circumvent the nondiscrimination provision. They stated

that it unfairly places subsidiaries of large bank holding companies at

a competitive disadvantage in specific geographic areas in which they

provide loans. The commenters also argued that the proposed regulations

will eliminate competition in the FFEL program, providing some state

secondary markets or primary lenders a stranglehold in certain states.

They contended that subsidiaries that previously have maintained

separate origination fee discount policies to compete in state or

regional markets would be required to apply one fee policy across the

country, leaving them no choice but to withdraw from certain markets.

One of the commenters noted that they had maintained a system-wide

policy for their subsidiaries which was geographically based, allowing

the particular subsidiary to establish its policy in its geographical

area and they recommended that the Secretary not disregard such

systems, particularly those that predate the enactment of the

nondiscrimination provision.

Discussion: In light of the commenters' concerns, we have

reconsidered the manner in which the proposed regulation would have

applied the origination fee non-discrimination provisions. We do not

believe that implementing this provision of the law to ensure greater

equality in the origination fees assessed to similarly situated FFEL

borrowers should have the unintended negative consequence of reducing

competition in the FFEL Program and limiting a borrower's choice of a

lender. We believe that another approach to applying the provision

could be used to prevent manipulation with intent to circumvent the law

while preserving lender choice, access, and competition. Therefore, we

have decided that a state-based rather than a nationwide approach to

applying the origination fee non-discrimination provision should be

used. We believe that a state-based approach to applying the provision

will prevent manipulation by lenders with the intent to circumvent the

law while preserving lender choice, access, and competition in the FFEL

Program. Moreover, we believe that a state-based application of the

requirements addresses the commenters' concerns that national and

multi-state lenders will be prevented from competing effectively and

may be forced to leave certain markets.

Change: Section 682.202(c) has been revised to clarify the

definition of lender to provide that any lending entity, including any

multi-state lending entity, that makes loans in a particular state,

must apply any policy of lower origination fees consistently to all

borrowers residing in that state or who attend school in that state.

Comment: One commenter recommended that we clarify the

documentation a lender should use to demonstrate the borrower's

``greater financial need'' for origination fee discount purposes.

Discussion: We believe that it is important to provide lenders with

flexibility in this area and therefore decline to regulate

documentation standards that a lender must use to determine greater

financial need.

Change: None

Section 682.206--Due Diligence in Making a Loan

Comment: Some commenters recommended that Sec. 682.206(a)(1) be

revised to clarify that the lender's responsibilities and obligations

in the loan making process with respect to having a borrower complete

and sign the promissory note applies only to a borrower with subsequent

loans (rather than ``multiple'' loans) made under a ``valid'' MPN.

Discussion: We agree with the commenters that the use of the term

``subsequent'' loans is more appropriate than using the term

``multiple'' loans. However, we believe it is unnecessary to specify

that the MPN is ``valid'' because a lender has no basis for relying on

an invalid or expired MPN for any reason.

Change: We have revised Sec. 682.206(a) by substituting

``subsequent'' for ``multiple.''

Section 682.209--Repayment of a Loan

Comment: Several commenters recommended that Sec. 682.209(a)(7)(ix)

be restructured to clarify that only those borrowers who first obtained

an FFEL Program loan on or after October 7, 1998 and with outstanding

debt totaling more than $30,000 qualify for the extended repayment

plan. The commenters suggested that, as proposed, the regulations do

not fully define the eligibility criteria for an extended repayment

plan.

Discussion: We agree with the commenters.

Change: We have revised Sec. 682.209(a)(7)(ix) to clearly provide

that, under an extended repayment schedule, a new borrower whose total

outstanding principal and interest in FFEL loans exceeds $30,000 may

repay the loan on a fixed annual or graduated repayment plan for a

period that may not exceed 25 years.

Comment: Several commenters suggested that Sec. 682.209(a)(8)(i)

and (ii), governing the period of time to repay a loan, be revised to

include reference to the 25-year extended repayment plan.

Discussion: We agree with the commenters.

Change: We have revised both paragraphs to provide for repayment of

25 years under an extended repayment plan.

Comment: Several commenters suggested that Sec. 682.209(h)(3)(ii)

be revised to clarify that defaulted Title IV loans on which

satisfactory repayment arrangements have not been made may not be taken

into consideration when determining the maximum repayment period on a

Consolidation loan.

Discussion: We believe that the regulations clearly state that only

a defaulted Title IV loan on which satisfactory repayment arrangements

have been made may be included for purposes of establishing the maximum

repayment period for a Consolidation loan. Otherwise, the regulations

specify that all defaulted loans, including non-Title IV loans, may not

be included in the determination of the maximum repayment period.

However, to clarify this point, we will specify in the regulations that

the balance used in making this determination may not include ``any

defaulted loans.''

Change: We have inserted the word ``any'' before ``defaulted

loans'' in Sec. 682.209(h)(3)(ii).

Section 682.210--Deferment

Comment: Several commenters noted that proposed Sec. 682.210(a)(3)

indicates that interest may be paid by the Secretary for all or a

portion of a qualifying Consolidation loan that meets the requirements

under Sec. 682.301 when the loan is made. These commenters recommended

that the reference to ``when the loan is made'' be deleted. The

commenters stated their belief that this phrase was carried over from

the existing provision which addresses Stafford loans only and could be

misunderstood as an indication that loans added within the 180-day

period following the date a Consolidation loan is made may not be

eligible for interest benefits.

Discussion: We agree with the commenters that the phrase ``when the

loan is made'' could be misunderstood to exclude from interest subsidy

loans added to a Consolidation loan within the 180-day period following

the date the Consolidation loan is made.

Change: We have revised Sec. 682.210(a)(3) by deleting the phrase

``when the loan is made.''

[[Page 58943]]

Comment: Some commenters stated that the parenthetical phrase

``(unless based on the dependent's status)'' following reference to the

PLUS program in Sec. 682.210(c)(5) is irrelevant and should be removed.

The commenters suggested this deletion is appropriate because borrowers

serving in a medical internship or residency program are prohibited by

law from receiving an in-school deferment, regardless of whether the

deferment is on the borrower's loan based on his or her own service, or

on a parent borrower's loan based on his or her dependent's service in

the internship or residency program.

Discussion: We disagree with the commenters. The parenthetical

exception relates to the eligibility of a parent PLUS borrower to defer

a PLUS loan based on their dependent son or daughter's attendance in

school. We have never interpreted the prohibition to apply to an

intern's or resident's eligibility to defer a parent PLUS loan based on

the intern's or resident's dependent's in-school status.

Change: None.

Section 682.301--Eligibility of Borrowers for Interest Benefits on

Stafford and Consolidation Loans

Comment: Several commenters suggested that Sec. 682.301(a)(3)(ii)

should be revised to clarify that to qualify for interest benefits, a

Consolidation loan made on or after August 10, 1993, but prior to

November 13, 1997, must have been comprised solely of subsidized loans.

The commenters believe that this provision might be misinterpreted to

include Consolidation loans that include but are not solely comprised

of subsidized Stafford loans.

Discussion: We do not agree that the term ``solely'' needs to be

added to provide clarity. However, we have determined that moving the

word ``only'' would clarify the regulations.

Change: We have revised Sec. 682.301(a)(3)(ii) to clarify that a

Consolidation loan borrower qualifies for interest benefits if the loan

application was received on or after August 10, 1993, but prior to

November 13, 1997 and if the loan consolidates only subsidized Stafford

loans.

Comment: Numerous commenters representing lenders, guaranty

agencies, servicers, and secondary markets recommended that

Sec. 682.301(a)(iii) be restructured to separately reflect the

statutory provision governing the eligibility of Consolidation loans

made on or after November 13, 1997 and on or after July 1, 2000 for

interest subsidies. The commenters indicated that conflicting guidance

has been disseminated since November 13, 1997 regarding the loan types

that may comprise the subsidized portion of a Consolidation loan for

interest subsidy purposes, specifically whether it includes all

subsidized FFEL loans or only subsidized Stafford loans. These

commenters suggest that the final regulations should clarify that

lenders are permitted to follow either of these two approaches for

loans made on or after November 13, 1997 and prior to July 1, 2000. The

commenters further recommended that the final regulations should

clarify that any regulatory provision authorizing use of either

approach may be implemented earlier than July 1, 2000.

Discussion: We understand that lenders may have received differing

guidance on the scope of the interest subsidy available to FFEL

Consolidation loan borrowers after the enactment of the Emergency

Student Loan Consolidation Act of 1997 (Pub. L. 105-78). However, we

have identified only a small subset of borrowers, specifically

subsidized Consolidation loan borrowers who include their Consolidation

loans in a subsequent Consolidation loan, as potentially affected by

the difference in guidance. The commenters did not present any evidence

that the differing guidance for this very small group of borrowers

represents a problem. We do not believe that this speculative small

problem necessitates making a change in the regulations. However, we

remind lenders that we are available to provide technical assistance on

a case-by-case basis should it be necessary.

Change: None.

Section 682.401--Basic Program Agreement

Comment: Several commenters recommended that Sec. 682.401(b)(5)(i)

be revised to remove reference to an ``application'' as it regards the

borrower's right to indicate a preferred lender and instead include a

reference to other information submitted during the loan origination

process. The commenters pointed out that there is not, under the MPN

process, a specific document entitled ``application.''

Discussion: We agree with the commenters. The item allowing the

borrower to indicate a preferred lender is now contained on the MPN.

Change: We have revised Sec. 682.401(b)(5)(i) to delete the word

``application'' and replace it with ``in other written or electronic

documentation submitted during the loan origination process.''

Comment: Several commenters recommended that

Sec. 682.401(b)(5)(ii)(D) be removed to eliminate the requirement that

the borrower provide information from the school demonstrating the

borrower's eligibility for the loan and providing the maximum loan

amount that the student may borrow. The commenters noted that this data

flow is inconsistent with changes made to the HEA by the 1998

Amendments.

Discussion: Although the HEA no longer requires the student to

provide, through the school, information on the student's eligibility

for the loan, the school must still provide the loan amount. We will

revise the regulations to reflect this change.

Change: We have revised Sec. 682.401(b)(5)(C) (formerly

Sec. 682.401(b)(5)(D)) to indicate that the borrower must provide to

the lender information from the school on the maximum amount that may

be borrowed by or on behalf of the student.

Section 682.406--Conditions of Reinsurance Coverage

Comment: One commenter representing a guaranty agency pointed out

that this section does not reference the reduced rebate fee on

Consolidation loans that was effective for Consolidation loans based on

applications received on or after October 1, 1998 through January 31,

1999. The commenter noted that the current regulations indicate that

the interest payment rebate fee of 1.05 percent applies to all

Consolidation loans disbursed on or after October 1, 1993. The 1998

Amendments reduced the fee to 0.62 percent for loans made on

applications received from October 1, 1998 through January 31, 1999.

Discussion: We agree with the commenter that the regulations should

reflect the reduced rebate fee that applied to Consolidation loans

based on applications received from October 1, 1998 through January 31,

1999.

Change: We have revised Sec. 682.406 to incorporate the reduced fee

of 0.62 percent on Consolidation loans for this period.

Section 682.414--Records, Reports, and Inspection Requirements for

Guaranty Agency Programs

Comment: Many commenters representing lenders, guaranty agencies,

servicers, and secondary markets recommended that the regulations be

changed to clearly state that returning a true and exact copy of the

original promissory note to the borrower has the same standing as the

original promissory note. The commenters suggested that the regulations

should be revised to indicate that the true and

[[Page 58944]]

exact copy shall be admissible as evidence in all state and federal

courts notwithstanding any provision of state law to the contrary. The

commenters further suggested that the regulations reflect that the

lender may send a notice to the borrower in place of the original MPN

when a loan made under an MPN is paid in full by or on behalf of the

borrower. The commenters stated that they believe that sending the

notice effectively preempts any state law requiring the lender to send

the borrower the original or a copy of the promissory note and

recommended that the Secretary provide an explanation of this position

in the final regulations to ensure that this preemption is fully

understood.

Discussion: Section 432(m)(1)(D) of the HEA, as added by the 1998

Amendments, specifically states that notwithstanding any other

provision of law, each loan made under an MPN shall be separately

enforceable in all Federal and State courts on the basis of an original

or copy of the MPN. Therefore, the statute itself has the effect of

preempting state law and it is not necessary for the Secretary to

regulate further in this area. The regulations also allow the lender to

send a notice to a borrower that informs the borrower that the loan is

paid in full. Indeed, this approach must be used with the MPN process,

which provides for the making of multiple loans with different

repayment dates and which may be held by different loan holders using a

single note.

Change: None.

FFEL and Direct Loan Programs

Sections 682.200 and 685.102--Definition of Estimated Financial

Assistance

Comment: One commenter representing a school stated that the

different treatment of veterans' educational benefits paid under

Chapter 30 of Title 38 of the United States Code and national service

education awards or post-service benefits under Title I of the National

and Community Service Act of 1990 (Americorps) in determining a

student's eligibility for subsidized FFEL and Direct Loan program loans

and in determining a student's eligibility for unsubsidized loans is

administratively burdensome to schools. To reduce the administrative

burden on schools, the commenter recommended that we treat all

resources the same way for all Title IV programs. Another commenter

representing FFEL guaranty agencies noted the discrepant treatment

between subsidized and unsubsidized loans as it applies to Americorps

benefits and encouraged the Secretary to pursue a legislative change

that would allow schools to exclude Americorps benefits when

determining a borrower's eligibility for unsubsidized, as well as

subsidized, FFEL and Direct Loan program loans.

Discussion: We realize that the different treatment of veterans'

educational benefits paid under Chapter 30 of Title 38 of the United

States Code and Americorps benefits in determining a student's

eligibility for subsidized FFEL and Direct Loan program loans and in

determining a student's eligibility for unsubsidized loans complicates

award packaging and may be administratively burdensome to schools.

However, this different treatment is required by Section 480(j) of the

HEA.

Change: None.

Comment: A commenter pointed out that there are two versions of the

Montgomery GI Bill--active duty and reserve--and suggested that it

would be helpful to clarify that Chapter 30 of Title 38 of the United

States Code is the active duty version.

Discussion: We agree with this suggestion.

Change: We have revised the definition of estimated financial

assistance in Secs. 682.200(b) and 685.102(b) to clarify that Chapter

30 of Title 38 of the United States Code is the active duty version of

the Montgomery GI Bill.

Sections 682.204 and 685.203--Loan Limits

Comment: One commenter representing a school suggested an

alternative method for determining prorated loan amounts instead of the

method proposed in the NPRM. The alternative method recommended by the

commenter included looking at the maximum annual loan limit, dividing

by the number of terms in the year, and then multiplying by the number

of terms during which the borrower was enrolled half time or more.

Another school commenter believed that the rationale for prorating

the loan amounts of graduating seniors in a program of undergraduate

education is unclear. This commenter noted that the statute indicates

that ``if such student is enrolled in a program of undergraduate

education which is less than one academic year,'' proration is

required. The commenter did not believe that a student who is in the

final term of a program of undergraduate education that is greater than

one academic year meets this criteria. This commenter also pointed out

that borrowers other than graduating seniors may be eligible to receive

up to the full applicable annual loan limit depending upon costs and

other financial assistance regardless of whether or not the borrower is

enrolled less than full-time or for one term only. The commenter

believes that the Department should be concerned about overborrowing

before the borrower reaches the final term if the rationale for

prorating the loan amounts of graduating seniors is to ensure that loan

amounts do not unnecessarily inflate debt levels.

Another commenter representing a school observed that the proposed

regulations do not provide for consistent treatment of loan proration

for programs or remainder of programs of less than an academic year.

The commenter believes the regulations contradict the language in the

1998 Amendments that specifically requires the use of semester,

trimester, quarter, or clock hours when prorating the loan limits for

programs or portions of programs that are less than a full academic

year. This commenter stated that the regulations should reflect the HEA

by prorating the total amount the student may borrow for a program of

study that is less than a full academic year in length or a portion of

a program that is less than a full academic year in length by using the

relationship of the program credit to that of a full academic year. The

commenter believes that this simplified proration should be used for

all years of undergraduate students applied to the appropriate full

academic year limits.

Discussion: Although we appreciate the suggestion of an alternative

method for loan proration, the loan proration requirements, including

the method of calculating prorated loan amounts, is statutory. As a

result, the regulations mirror the statute as closely as possible, and

alternative methods of calculation cannot be considered without

statutory change. The application of loan proration to borrowers in

their final term of their undergraduate programs is also statutory and

was retained by the 1998 Amendments. The approach to loan proration for

programs or portions of programs of less than an academic year

recommended by the final commenter would result in some students

receiving a full annual loan limit for a program that is less than an

academic year as that term is defined in statute. The 1998 Amendments

clarified that annual loan limits are authorized for an academic year

as that term is defined in section 481(a)(2) of the HEA. The definition

contains a minimum standard of instructional time and academic

coursework. A program that does not meet both of these statutory

standards for an academic year is clearly

[[Page 58945]]

less than an academic year, and students enrolled in such a program are

not eligible to receive a full annual loan amount. The strictly

proportional calculation recommended by the commenter would result in a

full annual loan amount for students in programs that meet the academic

coursework standard of the definition in section 481(a)(2) of the HEA,

but do not meet the standard for instructional time. We do not believe

that this result would be consistent with Congressional intent. A

proportional loan amount calculated as a ratio of the academic credit

to the academic year is used for remaining portions of programs of less

than an academic year. Under these circumstances, the borrower is

completing a program that is longer than an academic year and therefore

examining the remaining portion of the program against both standards

of the academic year is not applicable.

Change: None

Comment: Several commenters pointed out that Sec. 682.204 (a)(2) of

the proposed regulations addressed students enrolled in one-year

programs with less than a full academic year remaining, but did not

cover remaining balances of less than an academic year for other

programs.

Discussion: The commenters are correct that this section does not

address students enrolled in programs of study with less than a full

academic year remaining. Rather, it addressed only students in one-year

programs of study with less than an academic year remaining. We believe

that revising the regulations to include a provision for students in

remaining balances of programs, as the commenters suggest, will

satisfactorily address both groups of students.

Change: We have revised Secs. 682.204(d)(2) and 685.203(c)(2) to

provide for an additional unsubsidized annual Stafford loan amount for

students enrolled in programs of study with less than a full academic

year remaining to complete the program. We have deleted reference to a

one-year program with less than a full academic year remaining in

Secs. 682.204(d)(2) and 685.203(c)(2).

Sections 682.209 and 685.207--Grace Period for Military Service

Comment: Several commenters representing FFEL lenders, servicers,

and guaranty agencies pointed out that the preamble discussion in the

NPRM indicated that borrowers who qualified for the exclusion of

certain periods of service in the Armed Forces from the six-month grace

period would be required to re-enroll within 12 months of their return

from active duty service. While the commenters agreed that 12 months

may be a reasonable amount of time to re-enroll, they noted that the

requirement was not included in the proposed regulations and requested

that we not limit the period to 12 months in the final regulations. A

commenter representing a school supported our acknowledgement that some

borrowers may need more time than others to re-enroll in the next

available regular enrollment period and the proposal to restore the

full six-month grace period to borrowers whose loans were in the grace

period when the borrowers were called to active duty.

Discussion: The commenters are correct that the proposed

regulations did not include the requirement that the period necessary

for a borrower to resume enrollment at the next available regular

enrollment period when the borrower returns from active duty service be

limited to 12 months. As discussed in the preamble to the NPRM, the

time period in which a borrower needs to re-enroll in the ``next

available regular enrollment period'' after returning from active duty

service may need to be longer for some borrowers than others,

especially if the borrower is pursuing a non-traditional academic

program, and given the fact that the borrower may not re-enroll in the

same program when returning from active duty. The Secretary generally

believes that twelve months allows more than ample time for the

majority of borrowers to re-enroll and provides a reasonable limit

(within the three-year total exclusion limitation) on the amount of

time that may be excluded from a borrower's six-month grace period.

However, in keeping with the agreement reached during negotiated

rulemaking, the Secretary has not included this limitation in the

regulations.

Change: None.

Sections 682.210 and 685.204--Deferment

In-School Deferment

Comment: Commenters representing FFEL lenders and guaranty agencies

suggested that the rules regarding the end date for an in-school

deferment be removed from Sec. 682.210(a) because paragraph (a)

provides general information applicable to all deferments and should

not contain information specific to a particular deferment. The

commenters believed that information related to the in-school deferment

end date should be contained within the in-school deferment section in

Sec. 682.210(c)(3). The commenters also requested that we revise

Sec. 682.210(c)(3) to reflect that valid enrollment information may be

received by lenders using an electronic format rather than a form as

the proposed regulatory language suggests.

Discussion: We do not agree with the commenters that information

about the end date for an in-school deferment should be removed from

Sec. 682.210(a). We believe this information is correctly placed

because it is contained in a provision that outlines when authorized

deferment periods end. However, we agree that the process information

included in the proposed regulatory language would be better placed in

Sec. 682.210(c)(3). We also agree with the commenters that the proposed

regulatory language in Sec. 682.210(c)(3) should be revised to reflect

that valid enrollment information may be received by lenders

electronically.

Change: We have moved the in-school deferment process information

from Sec. 682.210(a)(6)(iv) to Sec. 682.210(c)(3). We also believe that

the revisions to Sec. 682.210(c)(3) accommodate the use of electronics

to provide valid enrollment information.

Comment: A commenter representing a guaranty agency requested

clarification that both FFEL lenders, and the Secretary for Direct

Loans, may process an in-school deferment based on student status

information that does not come directly from the borrower's school. The

commenter pointed out that the proposed regulatory language did not

make it clear that the student status information may be received

directly or indirectly from the school.

Discussion: As stated in the preamble to the NPRM, a borrower's

FFEL lender, or the Secretary for Direct Loans, may determine that a

borrower is eligible for an in-school deferment based upon student

status information received from the borrower's school, either directly

or indirectly, indicating that the borrower is enrolled on at least a

half-time basis. The lender or the Secretary could receive school-

provided information directly, through the SSCR process of the National

Student Loan Data System (NSLDS), or from a third-party servicer.

Regardless of whether the lender or the Secretary receives the student

status information directly or indirectly, the information must

originate with the school. We agree with the commenter that the

regulations should reflect the fact that student status information may

be received directly or indirectly from the school.

Change: We have revised Secs. 682.210(c)(1)(iii) and

685.204(b)(1)(iii)(A)(3) to reflect that student status information

received directly or indirectly from a school may

[[Page 58946]]

be used to determine a borrower's in-school deferment eligibility.

Comment: A commenter representing a school supported the proposal

to require notice to borrowers of their option while they are in school

to pay the interest that accrues on an unsubsidized loan during an in-

school deferment period or cancel the deferment entirely and pay on the

loan. The commenter requested that we also require that the notice

include information about the consequences of selecting those options--

in particular that paying accruing interest during the deferment or

paying on the loan rather than taking the deferment may result in lower

total payments over the life of the loan. Another commenter

representing a guaranty agency stated that the proposed regulatory

language did not provide sufficient guidance to lenders about how to

deal with what may appear to be due diligence gaps that may result from

a borrower electing to cancel an in-school deferment that was

automatically applied by the lender and then not making the required

payments on the loan. The commenter noted that during the negotiated

rulemaking sessions we stated that lenders were not allowed to apply an

administrative forbearance in these situations and requested that we

make this point more explicit in the regulations.

Discussion: We agree with the commenter that it would be helpful to

borrowers if information about the consequences of the options was

included in the notice sent to borrowers when an in-school deferment is

applied automatically. For example, the notice should explain to

borrowers that unpaid interest that accrues on their unsubsidized loans

will be capitalized at the end of the deferment period and inform them

that by paying the interest during the deferment period they may reduce

the total amount they pay over the life of the loan.

In response to the commenter who requested that we state more

explicitly how lenders should deal with possible due diligence gaps

that may result from a borrower electing to cancel an in-school

deferment that was automatically applied by the lender and then not

making the required payments on the loan, we defer to the agreement

reached by the negotiated rulemaking committee that we not regulate the

action lenders must take in this situation. As discussed during

negotiations, this decision seems appropriate given the infrequent

nature of these situations. We expect lenders to take actions

appropriate to the unique circumstances of each borrower's situation

and remind lenders that we are available to provide technical

assistance on a case-by-case basis should it be necessary.

Change: We have revised Sec. 682.210(c)(2) to reflect that the

notice a lender sends to a borrower when an in-school deferment is

applied automatically must include an explanation of the consequences

of the options presented to the borrower in the notice.

Unemployment Deferment

Comment: Several commenters responded to the Secretary's request

for comment as to whether the minimum documentation items for

determining a borrower's eligibility for an unemployment deferment

based on the borrower's eligibility for unemployment insurance benefits

should be included in the final regulations. Generally, commenters

representing FFEL lenders, servicers, and guaranty agencies did not

believe that minimum documentation requirements should be prescribed in

regulations and supported no change to the proposed regulations. One of

the commenters representing servicers stated that unless there is

evidence showing that all states include certain data elements on check

stubs or other types of documentation related to eligibility for

unemployment insurance benefits, the final regulations should not

include minimum documentation requirements. A commenter representing a

guaranty agency did, however, support prescribing minimum documentation

requirements in regulations provided that the requirements were

developed with community involvement. Another commenter representing

credit unions stated that the minimum documentation items discussed by

the negotiated rulemaking committee and presented in the preamble to

the NPRM appeared reasonable, but did not comment on whether the items

should be prescribed in regulations.

Discussion: In response to the overwhelming support for not

prescribing minimum documentation requirements in the regulations, we

have decided not to make changes in the final regulations. We are

basing this decision on the fact that a borrower must provide evidence

of his or her eligibility for unemployment insurance benefits to his or

her lender, or the Secretary for Direct Loans, in order to qualify for

an unemployment deferment based on eligibility for unemployment

insurance benefits. As agreed during negotiations, the evidence of a

borrower's eligibility for unemployment insurance benefits must prove

that the borrower is eligible to receive unemployment insurance

benefits for the period for which he or she is requesting an

unemployment deferment. We acknowledge that there are no uniform

documentation requirements for unemployment insurance benefits.

However, to fulfill the documentation requirement for the unemployment

deferment, we believe that, at a minimum, the documentation should

include the borrower's name, address, and social security number and

the effective dates of the borrower's eligibility to receive

unemployment insurance benefits.

Change: None.

Comment: Commenters representing FFEL lenders, servicers, and

guaranty agencies expressed their belief that the regulatory

requirement that the unemployment deferment end date be within six

months of the certification date should apply regardless of whether the

deferment is being granted as a result of the borrower submitting

evidence of his or her eligibility for unemployment insurance benefits

or as a result of the borrower submitting a written certification of

eligibility (i.e., a completed unemployment deferment request form).

Discussion: We agree with the commenters. However, we note that the

reference to ``certification date'' is not applicable if a deferment is

granted based on a borrower's submission of evidence of his or her

eligibility for unemployment insurance benefits. In this case, the

unemployment deferment end date would be within six months of the date

the borrower submits evidence of his or her eligibility for

unemployment insurance benefits.

Change: We have revised Sec. 682.210(h) to reflect that the

unemployment deferment end date provision applies to both methods by

which a borrower may qualify for an unemployment deferment.

Sections 682.211 and 685.205--Forbearance

Comment: Commenters representing FFEL lenders, servicers, and

guaranty agencies expressed their belief that the final regulations

should accurately and consistently reflect the elimination of the

requirement that forbearance terms be agreed to in writing. The

commenters pointed out that the requirement had been removed from

Sec. 682.211(b) but had not been removed from Sec. 682.211(c) of the

proposed regulations.

Discussion: The 1998 Amendments eliminated the requirement that the

borrower's request for forbearance be in writing; however, the 1998

Amendments did not eliminate the requirement that forbearance terms be

agreed to in writing. Section 428(c)(3)(A)(i) of the HEA continues to

[[Page 58947]]

require that forbearance terms be agreed to in writing. A forbearance

changes the repayment terms on the borrower's loan and therefore needs

to be agreed to in writing. The change we proposed to Sec. 682.211(b)

to remove the requirement that forbearance terms be agreed to in

writing is incorrect. Both Sec. 682.211(b) and Sec. 682.211(c) need to

accurately reflect that forbearance terms must be agreed to in writing.

The only reference in the regulations to a borrower's written request

for a forbearance, contained in Sec. 682.211(h), is being deleted from

the regulations.

Change: We have revised Secs. 682.211(b) and (c) to accurately and

consistently reflect that forbearance terms must be agreed to in

writing.

Sections 682.401 and 685.402--Master Promissory Note

Comment: A commenter representing a guaranty agency requested that

we change the proposed regulatory language in Sec. 682.401(b)(5) to

ensure that if a student or parent borrower does not indicate a choice

of lender on the promissory note or application a lender will not be

assigned automatically to the borrower. The commenter was concerned

that borrowers would not be entitled to choose their lenders.

Discussion: The FFEL promissory notes and applications have always

given the borrower the option to choose a lender. That option will not

be impacted by the implementation of the Master Promissory Note (MPN).

If a borrower does not provide a choice of lender on the promissory

note, a lender will not be assigned. The borrower must work with the

school to choose a lender. Section 432(m)(1)(B) of the HEA requires

that the borrower be permitted to choose his or her lender.

Change: None.

Comment: A commenter representing servicers in the FFEL Program

requested that we make a conforming change in Sec. 682.401(d)(3) to

reflect that under the MPN process guaranty agencies are no longer

bound to the use of a common application form.

Discussion: While it is true that an application form is no longer

required for Stafford loans in the FFEL Program, section 432(m)(1)(A)

of the HEA retains a reference to common application forms, as well as

including references to promissory notes and the MPN. We believe that

the regulations should retain reference to common application forms

because a common PLUS loan application remains in use until an approved

MPN for PLUS loans can be developed and a common Consolidation loan

application will be used indefinitely. By mirroring the statutory

language in the final regulations, we believe that all possible options

are covered.

Change: We have revised Sec. 682.401(d)(3) to more closely reflect

the statutory language that governs the forms guaranty agencies must

use.

Comment: A commenter representing a consumer organization expressed

the view that the proposed regulations related to the criteria a school

must meet to be authorized to use the multi-year feature of the MPN

were too broadly stated and suggested changes that included requiring

the Secretary's written authorization for multi-year use of the MPN by

a school. A commenter representing a two-year public institution wanted

to know what other criteria the Secretary would use to approve the use

of the MPN by schools other than four-year and graduate/professional

schools. Another commenter representing a credit union suggested that

this criteria should be the same as that used for four-year and

graduate/professional schools.

Discussion: We have carefully considered the suggested language

recommended by the commenter who believed that the proposed regulations

governing the criteria a school must meet to be authorized to use the

multi-year feature of the MPN are too broad and agree with a couple of

the commenter's proposed changes. Specifically, we agree with more

explicitly linking approval to use the multi-year feature of the MPN to

the required criteria listed in the regulations and reinforcing the

fact that the criteria are not all inclusive and will be applied, as

appropriate, for the type of institution. However, we do not agree with

the proposal to require the Secretary's written authorization for

multi-year use of the MPN by every school.

In response to the request for information about the criteria we

will use to approve the use of the MPN by schools other than four-year

and graduate/professional schools, we repeat our statement in the

preamble to the NPRM stating our intention to establish and announce

criteria and a process that we will use after publication of these

final regulations.

Change: We have revised Secs. 682.401(d)(4)(ii) to more

specifically link approval to use the multi-year feature of the MPN to

the required criteria and reinforce the fact that the listed criteria

are not all inclusive. The Direct Loan regulations already reflect

these policies and do not need to be changed.

Comment: A commenter representing a consumer organization requested

that we confirm that borrowers are entitled to assert a defense against

repayment of any one of the loans made under an MPN. This commenter

also expressed concern that the 10-year limit on the use of a single

MPN established in the proposed regulations is too long a period from a

consumer standpoint and requested that we change the maximum period to

five years. The commenter expressed the belief that the 10-year period

may serve the financial community well but does not serve young student

borrowers well because they are subject to making unwise decisions,

uneducated about how to cancel promissory notes, and potential targets

for fraud and abuse. The commenter believed that the minimal bother of

signing a new MPN after five years was far outweighed by the benefit of

ensuring better borrower control of the loan process and education

about the loan obligation.

Discussion: As the regulations specify, each loan made under an MPN

is enforceable in accordance with the terms of the MPN. Therefore, a

borrower would be entitled to assert a defense against repayment on

each loan made under the MPN, based on any act or omission of a school

attended by the student that would give rise to a cause of action

against the school under applicable state law.

In response to the commenter's concern about the fact that an MPN

may be valid for a period of up to 10 years, we agree with the

commenter that ensuring borrower control of the loan process and

understanding of the loan obligation are of utmost importance and that

lengthy gaps in time between obtaining loans under an MPN may not

always support these objectives. The Secretary is committed to

monitoring use of the MPN with regard to these concerns and to

evaluating options for changes to the 10-year MPN standard that is in

these final regulations.

Change: None.

Comment: A commenter representing servicers in the FFEL Program

requested that we change the proposed regulations to allow the 10-year

MPN period to be based on either the date the borrower signs the MPN or

the date the lender receives the MPN for processing if the borrower

fails to date the MPN.

Discussion: We do not agree with the commenter's proposed change

because we do not believe it is desirable for lenders or the Secretary

to accept a signed MPN that has not been dated by the borrower.

Acceptance of an MPN that has not been dated by the borrower may

negatively affect the borrower and possibly threaten the legal

enforceability of the MPN.

[[Page 58948]]

Change: None.

Comment: A commenter representing a guaranty agency noted that the

proposed MPN regulatory language indicated that we have begun

development of an MPN for PLUS loans and encouraged us to work with

FFEL Program participants to clarify provisions and maximize benefits

for borrowers. The commenter also asked if it is our intention to allow

a PLUS MPN to cover all loans that a parent borrower obtains on behalf

of all of that parent's dependent children or require a separate MPN

for loans made on behalf of each dependent child. Another commenter

representing a different guaranty agency requested that references to

parent borrowers in the provisions related to the MPN in the Direct

Loan Program regulations be removed until an MPN for PLUS loans is

approved.

Discussion: Development of an MPN for PLUS loans has begun. To

date, work groups have been involved in the initial tasks associated

with developing a PLUS MPN; however, as the development expands beyond

this stage, we intend that FFEL and Direct Loan program participants

and other interested parties will have input into the process. We

acknowledge that there are special operational considerations that need

to be taken into account with an MPN for PLUS loans. As we work with

program participants and others to develop the PLUS MPN, we will

address issues such as the applicability of the PLUS MPN to loans made

for one or more dependent children of a parent borrower. We believe

that it is appropriate to include reference to parent borrowers in the

regulations related to the MPN since approval of an MPN for PLUS loans

will occur in the near future.

Change: None.

Comment: Commenters representing two different guaranty agencies

requested changes in the proposed regulations that prescribe when an

FFEL or Direct Loan program school that is not authorized by the

Secretary for multi-year use of the MPN must obtain a new MPN from the

borrower. One commenter suggested that the FFEL provision indicates

that a borrower must complete a new promissory note for each academic

year. The other commenter wanted the Direct Loan provision to indicate

that a borrower must complete a new promissory note for each period of

enrollment.

Discussion: In the FFEL program, loans are made in accordance with

the period of enrollment certified by the school, and an MPN is defined

as a promissory note under which a borrower may receive loans for a

single period of enrollment or multiple periods of enrollment.

Therefore, at an FFEL Program school that is not authorized by the

Secretary for multi-year use of the MPN, a borrower must complete a new

promissory note for each period of enrollment. In the Direct Loan

Program, however, loan origination can be tracked to an academic year,

and an MPN is defined as a promissory note under which a borrower may

receive loans for a single academic year or multiple academic years.

Therefore, at a Direct Loan Program school that is not authorized by

the Secretary for multi-year use of the MPN, a borrower must complete a

new promissory note for each academic year. We believe that the

operational differences in the FFEL and Direct Loan programs

necessitate differences in the regulations in this area.

Change: None.

Comment: We received several comments related to the confirmation

process or processes that schools which are authorized to use a single

MPN as the basis for multiple loans obtained by a particular borrower

must develop and document along with the FFEL lender or the Secretary

to ensure that a borrower wants subsequent loans made under the MPN.

Commenters representing the legal services negotiators on the

negotiated rulemaking committee, a consumer organization, and a school

association expressed their strong opposition to authorizing the

implementation of confirmation processes that allow passive

notification with a negative option (i.e., the borrower must take the

initiative to reject a new loan under an MPN based on a notice) and

requested that we reconsider our approval of passive confirmation

processes. The commenters requested that we require confirmation

processes that mandate a positive act by the borrower that, at a

minimum, identifies the borrower as the initiator of the loan and

confirms the type and amount of the new loan, as well as the total

amount borrowed. The commenters suggested that properly implemented

electronic signatures and written signatures would be acceptable

confirmation methods. These commenters expressed their belief that

failure to affirmatively solicit a borrower's authorization before

originating new loans is an open invitation for abuse and counters the

collective goal of encouraging responsible borrowing by informed

students. The commenters stated that the technology necessary to

develop active confirmation processes that impose a minimal burden on

borrowers, schools, lenders, and the Secretary exists, and in some

cases (i.e.; PIN numbers), has been in use for 20 years. The commenters

also suggested that the legal enforceability of loans made using the

multi-year feature of the MPN without active confirmation processes may

be questioned in the future when courts will be faced with whether to

permit enforcing collection of loans that were neither actively

requested nor clearly and affirmatively confirmed by the borrower.

A commenter representing servicers in the FFEL Program requested

that we clarify that schools and lenders may utilize passive

confirmation (i.e., notification) until such time as the proper

processes and systems enhancements can be made by schools and lenders

to implement active confirmation processes. Another commenter

representing a school suggested that we practice restraint in the area

of confirmation. This commenter stated that requiring confirmation once

a year should be sufficient since borrowers always have the option of

canceling or returning all or a portion of a loan.

Discussion: We are aware that there are strong differing views

related to the implementation of the confirmation process required by

statute that schools and lenders or the Secretary must develop and

document to ensure that a borrower wants subsequent loans under an MPN.

We also acknowledge the concerns of the commenters representing

consumers regarding confirmation processes that do not require a

positive action by a borrower to obtain subsequent loans under the MPN.

While we do not agree necessarily that the legal enforceability of

loans made in connection with a confirmation process that does not

require a positive action by the borrower could be open to challenge,

it is the Secretary's goal to maintain and enhance a borrower's control

over the lending process in the MPN environment. To achieve this goal,

we would like to reiterate our intention to work with students,

schools, lenders, guaranty agencies, and other interested parties to

develop and implement confirmation processes that make use of the best

available technology in order to maintain and enhance borrower control

over the lending process, at the same time minimizing burden to schools

and lenders. While it is true that much of the technology needed to

develop enhanced borrower-control mechanisms exists today; lenders,

schools, servicers, and the Department need time to evaluate and

determine how best to integrate available technologies into the current

student loan delivery systems and procedures. Shortly after these final

[[Page 58949]]

regulations are published, we will begin discussions with the affected

parties to meet these goals.

At this time, lenders and schools may follow the guidance in the

Department's Dear Colleague Letters--GEN-98-25, November 1998 and GEN-

99-08, February 1999--in developing and documenting confirmation

processes. As technologies that enhance borrower control over the

lending process are developed or adapted for implementation, and

different methods of confirmation are tested, we will continue to issue

guidance regarding confirmation processes. Any guidelines will be

issued in accordance with applicable requirements of the Administrative

Procedure Act. As stated in the preamble to the NPRM, after evaluating

various confirmation processes, it is our ultimate plan to develop

regulations governing confirmation processes.

Change: None.

Sections 682.402 and 685.215--Unpaid Refund Discharge

Comment: One commenter representing a guaranty agency suggested

that the use of the term ``initial determination'' in the provision

that describes the additional documentation a borrower must provide

when requesting a review of a guaranty agency's determination on an

unpaid refund discharge request could be problematic if the borrower

appeals the guaranty agency's decision more than once. The commenter

believed that the wording of the proposed regulation could leave a

guaranty agency vulnerable to repeatedly having to examine the same

documentation submitted on second and subsequent appeals. The commenter

requested that we change the term ``initial determination'' to ``any

prior determination'' to clarify that in all cases a borrower may only

appeal a determination when the borrower has new documentation that was

not previously reviewed by the guaranty agency.

Discussion: We agree with the commenter.

Change: We have revised Sec. 682.402(l)(5)(vii)(A) to reflect that

a borrower may request a review of a guaranty agency's prior

determination on an unpaid refund discharge request only if the

borrower has additional documentation supporting the borrower's

eligibility that was not considered in any prior determination.

Comment: None.

Discussion: We have identified an inadvertent omission in the

provisions governing how a guaranty agency or the Secretary would

determine the amount eligible for discharge in cases in which

information showing the exact refund amount that was not made by the

school or the refund formula that should have been used by the school

to calculate a refund is not available. The guaranty agency or the

Secretary would use one of two surrogate formulas to calculate the

amount eligible for discharge depending on when the student failed to

attend, withdrew, or was terminated. In the proposed regulations, both

surrogate formulas neglected to take into account that, according to

refund policy, borrowers who completed 60 percent or more of the loan

period would not have been entitled to a refund and in turn would not

be eligible for an unpaid refund discharge.

Change: We have revised Secs. 682.402(o)(2) and 685.215(d)(2) to

correctly reflect in the surrogate formulas used to determine discharge

amounts that borrowers who completed 60 percent or more of the loan

period would not be eligible for an unpaid refund discharge.

Sections 682.603, 682.604, 685.301, and 685.303--Disbursement

Exemptions

Comment: Commenters representing FFEL guaranty agencies suggested

that we change the proposed regulations to reflect that a school must

cease to certify or originate loans based on authorized cohort default

rate related disbursement exemptions no later than 30 days after the

date the school receives notification that the school does not meet the

qualifications for the exemptions rather than 30 days after the date

the school is notified that it does not meet the qualifications for the

exemptions. The commenters believe that the phrase ``receives

notification'' is preferable to the phrase ``is notified'' because it

eliminates issues of timing.

Discussion: In either case, schools would have more than ample time

within which to comply with the provision. However, making the change

the commenters requested would be consistent with the regulations in

Sec. 668.17 governing cohort default rates and which use the date the

school receives the notification.

Change: We have revised Secs. 682.603(g), 685.301(b)(8)(ii), and

685.303(b)(4)(ii) to reflect that a school must cease to certify or

originate loans based on authorized cohort default rate related

disbursement exemptions no later than 30 days after the date the school

receives notification from the Secretary of an FFEL cohort default

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

causes the school to longer meet the qualifications for the exemptions.

Comment: One commenter representing a guaranty agency requested

that we clarify what we mean by the term ``study abroad program'' in

the provisions describing the disbursement exemptions that apply to

schools certifying or originating loans to cover a student's cost of

attendance in a study abroad program. Another commenter representing

FFEL servicers suggested that we change the term ``postsecondary home

school'' to ``home institution.'' The commenter stated that the term

``home school,'' even in conjunction with the term ``postsecondary,''

is misleading and suggested that we use the term ``home institution''

because it has a long established meaning for purposes of student

financial assistance in connection with approved study abroad programs

in Sec. 682.207(b)(1)(v)(C). A third commenter representing a higher

education association that promotes study abroad programs stated that

there is confusion over the applicability of the disbursement

exemptions for schools certifying or originating loans to cover the

cost of attendance in study abroad programs. Specifically, the

commenter requested that we clarify that schools certifying or

originating loans to cover the cost of attendance in study abroad

programs may qualify for disbursement exemptions under either of the

two cohort default rate criteria included in the proposed regulations.

Discussion: The disbursement exemption provisions govern all

participating schools that meet specific criteria. Included under these

provisions are schools certifying or originating loans to cover the

cost of attendance for students participating in study abroad programs.

As pointed out by one of the commenters, these schools have been

consistently referred to in regulations as ``home institutions.''

Students in study abroad programs complete a portion or portions of

their study in a country other than the United States.

The commenter representing a higher education association that

promotes study abroad programs is correct that a school that is a home

institution certifying or originating a loan to cover the cost of

attendance in a study abroad program may qualify for the multiple

disbursement and delayed disbursement or delivery exemptions based on

either of the two cohort default rate criteria included in the proposed

regulations. Under the multiple disbursement exemption, the school

would be eligible to disburse loan proceeds in one installment if--

[[Page 58950]]

The loan period is equal to or shorter than one semester,

one trimester, one quarter, or, for nonterm-based schools or schools

that use non-standard terms, four months; and

The school has an FFEL cohort default rate, Direct Loan

Program cohort rate, or weighted average cohort rate of less than 10

percent for each of the three most recent fiscal years for which data

are available.

Additionally, the school would be eligible to disburse loan proceeds in

one installment to cover the cost of attendance in a study abroad

program for a loan period of any length if the school has an FFEL

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

average cohort rate of less than 5 percent for the single most recent

fiscal year for which data are available. Under the exemption for

delayed delivery or for disbursement for first-year, first-time

borrowers, a school certifying or originating a loan to cover the cost

of attendance in a study abroad program may deliver or disburse loan

proceeds to first-year, first-time borrowers without a 30-day delay

if--

The school has an FFEL cohort default rate, Direct Loan

Program cohort rate, or weighted average cohort rate of less than 10

percent for each of the three most recent fiscal years for which data

are available; or

The school has an FFEL cohort default rate, Direct Loan

Program cohort rate, or weighted average cohort rate of less than 5

percent for the single most recent fiscal year for which data are

available.

Change: We have revised Secs. 682.604(c)(5), 682.604(c)(10),

685.301(b)(8)(i)(B), and 685.303(b)(4)(i)(B) to reflect consistent use

of the term ``home institution'' when referring to a school certifying

or originating a loan to cover a student's cost of attendance in a

study abroad program.

Comment: To be consistent with statutory language, commenters

representing guaranty agencies recommended that we replace the term

``loan period'' with the term ``enrollment period'' in the regulation

that specifies the conditions for an exemption to the multiple

disbursement requirement for schools with an FFEL cohort default rate,

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

less than 10 percent for each of the three most recent fiscal years for

which data are available. Another commenter representing a guaranty

agency suggested that we clarify in the same provision that the

reference to a loan period that is four months in length applies only

to non term-based schools.

Discussion: While the commenters are correct that statute uses the

term ``enrollment period,'' we have used the term ``loan period'' to be

consistent with the wording in the other provisions of the FFEL and

Direct Loan program regulations into which this provision has been

added and therefore, decline to make the commenters' suggested change.

We also note that the terms ``enrollment period'' and ``loan period''

are interchangeable.

We agree with the suggestion that we clarify that loan periods that

are four months or less in length apply in the case of non term-based

schools. We also note that this provision would apply to schools that

use non-standard terms.

Change: We have revised Secs. 682.604(c)(10)(i)(A) and

685.301(b)(8)(i)(A)(1) to reflect that loan periods that are four

months or less in length apply in the case of non term-based schools

and schools that use non-standard terms.

Sections 682.604 and 685.304--Counseling Borrowers

Comment: A commenter representing a guaranty agency requested that

the proposed regulations be changed to reflect that schools are not

required to conduct exit counseling with all student borrowers. The

commenter maintained that only student borrowers who have a loan or

loans entering repayment when the borrower ceases at least half-time

enrollment are required to complete exit counseling and that borrowers

who return to school but do not receive a new loan or loans are not

subject to required exit counseling. This same commenter also suggested

that the final regulations should allow a school to conduct exit

counseling by mail at the request of a student borrower. The commenter

believed that such a provision would accommodate student borrowers who

know in advance that they will not be able to fulfill the exit

counseling requirement.

Discussion: The commenter is correct in pointing out that there may

be student borrowers in a school's population who reenroll in school

after they have entered repayment on their subsidized and unsubsidized

loans, and who do not obtain new subsidized and unsubsidized loans.

While it's true that these student borrowers already have entered

repayment on their subsidized and unsubsidized loans, we believe that

it would be beneficial for most student borrowers in this position to

complete exit counseling again because they would receive up-to-date

repayment information and refresh their knowledge about options such as

forbearance, deferment, and consolidation. However, we acknowledge that

it may not be possible for schools to identify these student borrowers.

We believe that the regulations offer the flexibility to permit schools

that can identify these student borrowers and choose to require exit

counseling for these borrowers to do so.

We do not agree with the commenter's suggestion that schools should

be allowed to mail counseling materials to student borrowers at their

request. While we appreciate that attending an in-person exit

counseling session may be difficult for some student borrowers, we

believe that allowing them the option to forgo participating in exit

counseling conducted by their schools in person, by audiovisual

presentation, or by interactive electronic means conflicts with the

statute. The variety of authorized exit counseling methods provides

schools with the necessary flexibility to accommodate the specific

needs of their student population and meet the statutory requirements.

Further, an alternative to conducting exit counseling in person, by

audiovisual presentation, or by interactive electronic means is allowed

for two categories of student borrowers who generally may not be able

to complete exit counseling through one of the authorized methods.

Schools may mail written counseling materials to student borrowers who

are enrolled in a correspondence program or a study-abroad program

approved for credit at the home institution. Schools also may provide

exit counseling either through interactive electronic means or by

mailing written counseling materials to student borrowers who withdraw

without a school's knowledge or who fail to complete the exit

counseling.

Change: None.

Comment: We received several comments related to schools providing

exit counseling through interactive electronic means. One commenter

representing a school requested that we reexamine the requirement that

counseling through electronic means be interactive. The commenter

believed that this was a very high standard and expressed uncertainty

as to how electronically the school could ensure that the student

borrower did anything more than open the message. This same commenter

also requested that we explain what we mean by ``electronic receipt''

and questioned its necessity when a receipt is not required if a school

sends counseling materials via U.S. mail. Another commenter

representing a school recommended that student borrowers should have

some allowance for errors in the final evaluation of whether or not

they have successfully completed exit counseling

[[Page 58951]]

through interactive electronic means. A third commenter representing

another school suggested that we should provide web-based exit

counseling for FFEL and Direct Loan program borrowers that would be

linked to the NSLDS. In the commenter's proposal, student borrowers

would benefit by being presented with a more complete and accurate

picture of their total loan indebtedness and borrowers and schools

would benefit by being relieved of the burdens of completing,

collecting, and submitting the required personal data.

Discussion: As we discussed in the preamble to the NPRM, we

purposely did not prescribe specific electronic means by which schools

can provide initial and exit counseling to FFEL and Direct Loan program

borrowers. During negotiated rulemaking, committee members representing

schools pointed out that there were many different electronic means

that schools could use to provide counseling and that new and improved

electronic means are continually becoming available. At the same time,

the committee agreed that it was important to ensure that the quality

of the counseling that schools provide to student borrowers is enhanced

rather than diminished by advancing technology. For these reasons, the

proposed regulations specified that the electronic means a school uses

to provide initial and exit counseling must be interactive, which at a

minimum, requires a school to take reasonable steps to ensure that each

student borrower receives the counseling materials and participates in

and completes the counseling.

We believe that electronic counseling is equivalent to counseling

that a school conducts in person--it is not equivalent to mailing

written counseling materials, which is authorized as an alternative

only in specific situations. Therefore, we do not consider it

sufficient simply to ensure that the student borrower received and

``opened'' an electronic message that contained loan counseling

materials. At the same time, we do not want to dictate to schools how

they must design their electronic counseling so as to fulfill the

regulatory requirement that the counseling be interactive other than to

say that, by definition, the term ``interactive'' implies that feedback

is provided by the student borrower at some point or points during the

course of the counseling.

In response to the questions about electronic receipts, we would

like to clarify that any time a school conducts initial and exit

counseling by interactive electronic means, the school's documentation

that it fulfilled the initial and exit counseling requirements for each

student borrower must include proof that the borrower received the

materials. As stated in the preamble to the NPRM, this does not mean

that the school must receive a personal response from the student

borrower. Instead, the school can accept an automatic electronic

response acknowledging that the materials were received by the person

to whom they were addressed. These automatic electronic responses,

often called ``receipts,'' are a feature of most electronic mail

systems and are returned automatically to the sender when the recipient

receives the message. As discussed during negotiated rulemaking, it is

necessary to require proof that the student borrower received the

materials sent electronically because, unlike materials sent via U.S.

mail, there is no basic legal assumption that materials sent via

electronic mail are delivered to the person to whom the materials were

addressed.

We appreciate the interesting proposal for improving electronic

exit counseling submitted by one of the school commenters. As we work

to improve and integrate our systems, as well as service to our

customers, we will consider the commenter's proposal that we provide

web-based exit counseling for FFEL and Direct Loan program borrowers

that would be linked to NSLDS.

Change: None.

Executive Order 12866

We have reviewed these final regulations in accordance with

Executive Order 12866. Under the terms of this 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 to

be necessary for administering these programs effectively and

efficiently.

In assessing the potential costs and benefits--both quantitative

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

the benefits of the regulations would justify the costs.

We have also determined that this regulatory action would not

unduly interfere with State, local, and tribal governments in the

exercise of their governmental functions.

We summarized the potential costs and benefits of these final

regulations on pages 43438 and 43439 in the preamble to the NPRM.

Paperwork Reduction Act of 1995

The Paperwork Reduction Act of 1995 does not require you to respond

to a collection of information unless it displays a valid OMB control

number. We display the valid OMB control numbers assigned to the

collections of information in these final regulations at the end of the

affected sections of the regulations.

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 response to the NPRM and on our review, we have

determined that these final 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, D.C., 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, Federal

Family Education Loan Program, and 84.268, William D. Ford Federal

Direct Loan Program)

List of Subjects in 34 CFR Parts 682 and 685

Administrative practice and procedure, Colleges and universities,

Education, Loan programs-education, Reporting and recordkeeping

requirements, Student aid, Vocational education.

[[Page 58952]]

Richard W. Riley,

Secretary of Education.

For the reasons discussed in the preamble, the Secretary amends

title 34 of the Code of Federal Regulations by revising parts 682 and

685 as follows:

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

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

follows:

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

Sec. 682.100 [Amended]

2. Section 682.100 paragraph (a)(2) is amended by removing

``encourages'', and by adding, in its place, ``encouraged''; in

paragraph (a)(4) by removing ``other loans, including loans:,'', and by

adding, in its place, ``loans''; by removing ``and'' before

``Nursing''; and by adding ``including Loans for Disadvantaged Students

(LDS)'', after ``(HPSL)''.

3. Section 682.100 paragraph (b)(2)(C) is amended by removing the

semi-colon before ``as''.

4. Section 682.102 paragraph (a) is revised; paragraph (b) is

removed and reserved; paragraph (d) is revised; and the Office of

Management and Budget control number is revised to read as follows:

Sec. 682.102 Obtaining and repaying a loan.

(a) Stafford loan application. Generally, to obtain a Stafford loan

a student requests a loan by completing the Free Application for

Federal Student Aid (FAFSA), or contacting the school, lender or

guarantor. The school determines and certifies the student's

eligibility for the loan. Prior to loan disbursement, the lender

obtains a loan guarantee from a guaranty agency or the Secretary and

the student completes a promissory note, unless the student has

previously completed a Master Promissory Note (MPN) that the lender may

use for the new loan.

(b) [Reserved]

* * * * *

(d) Consolidation loan application. To obtain a Consolidation loan,

a borrower completes an application and submits it to the lender

holding the borrower's FFEL Program loan or loans. If the borrower has

multiple holders of FFEL Program loans, or if the borrower's single

loan holder declines to make a Consolidation loan, or declines to make

one with income-sensitive repayment terms, the borrower may submit the

application to any lender participating in the Consolidation Loan

Program. In the case of a married couple seeking a Consolidation loan,

if at least one of the applicants has multiple holders, the applicants

may submit the application to any lender participating in the

Consolidation Loan Program. If both applicants have a single holder,

only the holder for one of the applicants must be contacted for

consolidation. If a lender decides to make the loan, the lender obtains

a loan guarantee from a guaranty agency or the Secretary.

* * * * *

(Approved by the Office of Management and Budget under control

number 1845-0020)

Sec. 682.103 [Amended]

5. Section 682.103 paragraph (a) is amended by removing the first

use of the term ``programs''.

6. Section 682.200(b) is amended as follows:

A. By amending the definitions of Default by revising paragraphs

(1) and (2); Estimated financial assistance by revising paragraphs

(1)(i), (2)(i)(B) and (C), and (2)(ii) and by adding (2)(iii).

B. By revising the definition of Holder.

C. In the definition of ``Lender,'' by revising paragraph (5)(i)

and by renumbering the second paragraph (5) as paragraph (6).

D. By adding a new definition ``Master promissory note (MPN)'' in

alphabetical order.

E. In the definition of ``Repayment period,'' in paragraph (1), by

adding ``,or 25 years under an extended repayment schedule,'', after

``10 years''; in paragraph (2), by adding ``or 25 years under an

extended repayment schedule,'', after ``10 years''; in paragraph (4),

by adding ``, or 25 years under an extended repayment schedule'', after

``10 years''.

F. By adding the Office of Management and Budget control number.

Sec. 682.200 Definitions.

* * * * *

(b) * * *

Default.

* * * * *

(1) 270 days for a loan repayable in monthly installments; or

(2) 330 days for a loan repayable in less frequent installments.

* * * * *

Estimated financial assistance.

(1) * * *

(i) Except as provided in paragraph (2)(iii) of this definition,

national service education awards or post-service benefits under title

I of the National and Community Service Act of 1990 and veterans'

educational benefits paid under chapters 30, 31, 32, and 35 of title 38

of the United States Code;

* * * * *

(2) * * *

(i) * * *

(A) * * *

(B) PLUS loan amounts; and

(C) Private and state-sponsored loan programs;

(ii) Federal Perkins loan and Federal Work-Study funds that the

school determines the student has declined; and

(iii) For the purpose of determining eligibility for a subsidized

Stafford loan, veterans' educational benefits paid under chapter 30 of

title 38 of the United States Code (Montgomery GI Bill--Active Duty)

and national service education awards or post-service benefits under

title I of the National and Community Service Act of 1990.

* * * * *

Holder. An eligible lender owning an FFEL Program loan including a

Federal or State agency or an organization or corporation acting on

behalf of such an agency and acting as a conservator, liquidator, or

receiver of an eligible lender.

* * * * *

Lender.

* * * * *

(5) * * *

(i) Offered, directly or indirectly, points, premiums, payments, or

other inducements, to any school or other party to secure applicants

for FFEL loans, except that a lender is not prohibited from providing

assistance to schools comparable to the kinds of assistance provided by

the Secretary to schools under, or in furtherance of, the Federal

Direct Loan Program.

* * * * *

Master promissory note (MPN). A promissory note under which the

borrower may receive loans for a single period of enrollment or

multiple periods of enrollment.

* * * * *

(Approved by the Office of Management and Budget under control

number 1845-0020)

7. Section 682.201 is amended as follows:

A. By revising paragraph (a)(2).

B. By revising paragraph (c)(1); in paragraph (c)(2)(iii) by

removing ``(c)(1)(vi)'', and by adding in its place, ``(c)(1)(iv)'';

and by removing paragraphs (c)(3) and (c)(4).

C. By adding a new paragraph (d).

D. By adding a new paragraph (e).

Sec. 682.201 Eligible borrowers.

(a) * * *

(2) In the case of any student who seeks an unsubsidized Stafford

loan for

[[Page 58953]]

the cost of attendance at a school that participates in the Stafford

Loan Program, the student must--

(i) Receive a determination of need for a subsidized Stafford loan;

and

(ii) If the determination of need is in excess of $200, have made a

request to a lender for a subsidized Stafford loan;

* * * * *

(c) Consolidation program borrower. (1) An individual is eligible

to receive a Consolidation loan if the individual--

(i) On the loans being consolidated--

(A) Is, at the time of application for a Consolidation loan--

(1) In a grace period preceding repayment;

(2) In repayment status;

(3) In a default status and has either made satisfactory repayment

arrangements as defined in applicable program regulations or has agreed

to repay the consolidation loan under the income-sensitive repayment

plan described in Sec. 682.209(a)(7)(viii);

(B) Not subject to a judgment secured through litigation, unless

the judgment has been vacated; or

(C) Not subject to an order for wage garnishment under section 488A

of the Act, unless the order has been lifted;

(ii) Certifies that no other application for a Consolidation loan

is pending;

(iii) Agrees to notify the holder of any changes in address; and

(iv)(A) Certifies that the lender holds at least one outstanding

loan that is being consolidated; or

(B) Applies to any eligible consolidation lender if the borrower--

(1) Has multiple holders of FFEL loans; or

(2) Has been unable to receive from the holder of the borrower's

outstanding loans, a Consolidation loan or a Consolidation loan with

income-sensitive repayment.

* * * * *

(d) A borrower's eligibility to receive a Consolidation loan

terminates upon receipt of a Consolidation loan except that--

(1) Eligible loans received prior to the date a Consolidation loan

was made and loans received during the 180-day period following the

date a Consolidation loan was made, may be added to the Consolidation

loan based on the borrower's request received by the lender during the

180-day period after the date the Consolidation loan was made;

(2) A borrower who receives an eligible loan after the date a

Consolidation loan is made may receive a subsequent Consolidation loan;

and

(3) A Consolidation loan borrower may consolidate an existing

Consolidation loan only if the borrower has at least one other eligible

loan made before or after the existing Consolidation loan that will be

consolidated.

(e) In the case of a married couple, the loans of a spouse that are

to be included in a Consolidation loan are considered eligible loans

for the other spouse.

(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1082, and

1091)

8. Section 682.202 is amended as follows:

A. In paragraph (a)(1)(i) by removing ``If'' and by adding, in its

place, ``For loans made prior to July 1, 1994, if,''.

B. In paragraph (a)(1)(ii)(B) by adding ``and prior to July 1,

1994,'' after ``October 1, 1992''.

C. In paragraph (a)(1)(iii)(A) by removing ``evidencing the loan''.

D. In paragraph (a)(1)(iv) by adding ``but before December 20,

1993,'' after ``October 1, 1992''.

E. By adding new paragraphs (a)(1)(v) through (a)(1)(viii).

F. In paragraph (a)(2)(iii) introductory text, by adding ``and

prior to July 1, 1994,'' after ``October 1, 1992''.

G. By adding new paragraphs (a)(2)(iv) and (a)(2)(v).

H. In paragraph (a)(4) by adding ``(i)'' at the beginning of the

sentence before ``A Consolidation'', by adding ``made before July 1,

1994'' after ``loan'', by designating paragraph ``(i)'' as ``(A)'', by

designating paragraph ``(ii)'' as ``(B)'', by adding new paragraphs

(a)(4)(ii) through (a)(4)(v).

I. In paragraph (b)(1), by removing ``paragraph (b)(2) of''; and by

revising paragraph (b)(2).

J. In paragraph (b)(3) by removing ``, except that

capitalization'', and by adding in its place, ``. Capitalization''.

K. By removing paragraph (b)(5).

L. By redesignating paragraph (b)(4) as paragraph (b)(5); and by

adding a new paragraph (b)(4).

M. By revising the newly redesignated paragraph (b)(5).

N. By revising paragraphs (c)(1) and (c)(2).

O. By redesignating paragraphs (c)(3) through (c)(5) as paragraphs

(c)(5) through (c)(7); and by adding new paragraphs (c)(3) and (c)(4).

P. In redesignated paragraph (c)(5), by removing, ``an SLS or''.

Sec. 682.202 Permissible charges by lenders to borrowers.

(a) * * *

(1) * * *

(v) For a Stafford loan for which the first disbursement is made on

or after December 20, 1993 and prior to July 1, 1994, if the borrower,

on the date the promissory note is signed, has no outstanding balance

on a Stafford loan but has an outstanding balance of principal or

interest on a PLUS, SLS, or Consolidation loan, the interest rate is

the rate provided in paragraph (a)(1)(ii)(B) of this section.

(vi) For a Stafford loan for which the first disbursement is made

on or after July 1, 1994 and prior to July 1, 1995, for a period of

enrollment that includes or begins on or after July 1, 1994, the

interest rate is a variable rate, applicable to each July 1-June 30

period, that equals the lesser of--

(A) The bond equivalent rate of the 91-day Treasury bills auctioned

at the final auction prior to the June 1 immediately preceding the July

1-June 30 period, plus 3.10; or

(B) 8.25 percent.

(vii) For a Stafford loan for which the first disbursement is made

on or after July 1, 1995 and prior to July 1, 1998 the interest rate is

a variable rate applicable to each July 1-June 30 period, that equals

the lesser of--

(A) The bond equivalent rate of the 91-day Treasury bills auctioned

at the final auction prior to the June 1 immediately preceding the July

1-June 30 period, plus 2.5 percent during the in-school, grace and

deferment period and 3.10 percent during repayment; or

(B) 8.25 percent.

(viii) For a Stafford loan for which the first disbursement is made

on or after July 1, 1998, the interest rate is a variable rate,

applicable to each July 1-June 30 period, that equals the lesser of--

(A) The bond equivalent rate of the 91-day Treasury bills auctioned

at the final auction prior to the June 1 immediately preceding the July

1-June 30 period plus 1.7 percent during the in-school, grace and

deferment periods and 2.3 percent during repayment; or

(B) 8.25 percent.

* * * * *

(2) * * *

(iv) For a loan for which the first disbursement is made on or

after July 1, 1994 and prior to July 1, 1998, the interest rate is a

variable rate applicable to each July 1-June 30 period, that equals the

lesser of--

(A) The bond equivalent rate of the 52-week Treasury bills

auctioned at the final auction prior to the June 1 immediately

preceding the July 1-June 30 period, plus 3.10 percent; or

(B) 9 percent.

(v) For a loan for which the first disbursement is made on or after

July 1, 1998, the interest rate is a variable rate, applicable to each

July 1-June 30 period, that equals the lesser of--

[[Page 58954]]

(A) The bond equivalent rate of the 91-day Treasury bills auctioned

at the final auction prior to the June 1 immediately preceding the July

1-June 30 period, plus 3.10 percent; or

(B) 9 percent.

* * * * *

(4) * * *

(ii) A Consolidation loan made on or after July 1, 1994, for which

the loan application was received by the lender before November 13,

1997, bears interest at the rate that is equal to the weighted average

of interest rates on the loans consolidated, rounded upward to the

nearest whole percent.

(iii) For a Consolidation loan for which the loan application was

received by the lender on or after November 13, 1997 and before October

1, 1998, the interest rate for the portion of the loan that

consolidated loans other than HEAL loans is a variable rate, applicable

to each July 1-June 30 period, that equals the lesser of--

(A) The bond equivalent rate of the 91-day Treasury bills auctioned

at the final auction held prior to June 1 of each year plus 3.10

percent; or

(B) 8.25 percent.

(iv) For a Consolidation loan for which the application was

received by the lender on or after October 1, 1998, the interest rate

for the portion of the loan that consolidated loans other than HEAL

loans is a fixed rate that is the lesser of--

(A) The weighted average of interest rates on the loans

consolidated, rounded to the nearest higher one-eighth of one percent;

or

(B) 8.25 percent.

(v) For a Consolidation loan for which the application was received

by the lender on or after November 13, 1997, the annual interest rate

applicable to the portion of each consolidation loan that repaid HEAL

loans is a variable rate adjusted annually on July 1 and must be equal

to the average of the bond equivalent rates of the 91-day Treasury

bills auctioned for the quarter ending June 30, plus 3 percent. There

is no maximum rate on this portion of the loan.

* * * * *

(b) * * *

(2) Except as provided in paragraph (b)(4) of this section, a

lender may capitalize interest payable by the borrower that has

accrued--

(i) For the period from the date the first disbursement was made to

the beginning date of the in-school period;

(ii) For the in-school or grace periods, or for a period needed to

align repayment of an SLS with a Stafford loan, if capitalization is

expressly authorized by the promissory note (or with the written

consent of the borrower);

(iii) For a period of authorized deferment;

(iv) For a period of authorized forbearance; or

(v) For the period from the date the first installment payment was

due until it was made.

* * * * *

(4)(i) For unsubsidized Stafford loans disbursed on or after

October 7, 1998 and prior to July 1, 2000, the lender may capitalize

the unpaid interest that accrues on the loan according to the

requirements of section 428H(e)(2) of the Act.

(ii) For Stafford loans first disbursed on or after July 1, 2000,

the lender may capitalize the unpaid interest--

(A) When the loan enters repayment;

(B) At the expiration of a period of authorized deferment;

(C) At the expiration of a period of authorized forbearance; and

(D) When the borrower defaults.

(5) For any borrower in an in-school or grace period or the period

needed to align repayment, deferment, or forbearance status, during

which the Secretary does not pay interest benefits and for which the

borrower has agreed to make payments of interest, the lender may

capitalize past due interest provided that the lender has notified the

borrower that the borrower's failure to resolve any delinquency

constitutes the borrower's consent to capitalization of delinquent

interest and all interest that will accrue through the remainder of

that period.

(c) Fees for FFEL Program loans.

(1) A lender may charge a borrower an origination fee on a Stafford

loan not to exceed 3 percent of the principal amount of the loan.

Except as provided in paragraph (c)(2) of this section, a lender must

charge all borrowers the same origination fee.

(2)(i) A lender may charge a lower origination fee than the amount

specified in paragraph (c)(1) of this section to a borrower whose

expected family contribution (EFC), used to determine eligibility for

the loan, is equal to or less than the maximum qualifying EFC for a

Federal Pell Grant at the time the loan is certified or to a borrower

who qualifies for a subsidized Stafford loan. A lender must charge all

such borrowers the same origination fee.

(ii) With the approval of the Secretary, a lender may use a

standard comparable to that defined in paragraph (c)(2)(i) of this

section.

(3) If a lender charges a lower origination fee on unsubsidized

loans under paragraph (c)(1) or (c)(2) of this section, the lender must

charge the same fee on subsidized loans.

(4)(i) For purposes of this paragraph (c), a lender is defined as:

(A) All entities under common ownership, including ownership by a

common holding company, that make loans to borrowers in a particular

state; and

(B) Any beneficial owner of loans that provides funds to an

eligible lender trustee to make loans on the beneficial owner's behalf

in a particular state.

(ii) If a lender as defined in paragraph(c)(4)(i) charges a lower

origination fee to any borrower in a particular state under paragraphs

(c)(1) or (c)(2) of this section, the lender must charge all such

borrowers who reside in that state or attend school in that state the

same origination fee.

* * * * *

9. Section 682.204 is amended as follows:

A. By revising paragraphs (a), (b), (c), (d), and (e).

B. In paragraph (f)(2)(i) by adding ``the following'', after

``exceed''.

C. In paragraph (f)(2)(ii) by adding ``the following'' after

``exceed''.

D. In paragraph (f)(2)(ii)(B) by removing ``and'', and by adding,

in its place, ``or''.

E. In paragraph (j), by removing the first ``or'' before ``HEAL''.

Sec. 682.204 Maximum loan amounts.

(a) Stafford Loan Program annual limits. (1) In the case of an

undergraduate student who has not successfully completed the first year

of a program of undergraduate education, the total amount the student

may borrow for any academic year of study under the Stafford Loan

Program in combination with the Federal Direct Stafford/Ford Loan

Program may not exceed the following:

(i) $2,625 for a program of study of at least a full academic year

in length.

(ii) For a one-year program of study with less than a full academic

year remaining, the amount that is the same ratio to $2,625 as the--

[[Page 58955]]

[GRAPHIC] [TIFF OMITTED] TR01NO99.009

(iii) For a program of study that is less than a full academic year

in length, the amount that is the same ratio to $2,625 as the lesser of

the--

[GRAPHIC] [TIFF OMITTED] TR01NO99.010

(2) In the case of a student who has successfully completed the

first year of an undergraduate program but has not successfully

completed the second year of an undergraduate program, the total amount

the student may borrow for any academic year of study under the

Stafford Loan Program in combination with the Federal Direct Stafford/

Ford Loan Program may not exceed the following:

(i) $3,500 for a program whose length is at least a full academic

year in length.

(ii) For a program of study with less than a full academic year

remaining, an amount that is the same ratio to $3,500 as the--

[GRAPHIC] [TIFF OMITTED] TR01NO99.011

(3) In the case of an undergraduate student who has successfully

completed the first and second years of a program of study of

undergraduate education but has not successfully completed the

remainder of the program, the total amount the student may borrow for

any academic year of study under the Stafford Loan Program in

combination with the Federal Direct Stafford/Ford Loan Program may not

exceed the following:

(i) $5,500 for a program whose length is at least an academic year

in length.

(ii) For a program of study with less than a full academic year

remaining, an amount that is the same ratio to $5,500 as the--

[GRAPHIC] [TIFF OMITTED] TR01NO99.012

(4) In the case of a student who has an associate or baccalaureate

degree that is required for admission into a program and who is not a

graduate or professional student, the total amount the student may

borrow for any academic year of study may not exceed the amounts in

paragraph (a)(3) of this section.

(5) In the case of a graduate or professional student, the total

amount the student may borrow for any academic year of study under the

Stafford Loan Program, in combination with any amount borrowed under

the Federal Direct Stafford/Ford Loan Program, may not exceed $8,500.

(6) In the case of a student enrolled for no longer than one

consecutive 12-month period in a course of study necessary for

enrollment in a program leading to a degree or certificate, the total

amount the student may borrow for any academic year of study under the

Stafford Loan Program in combination with the Federal Direct Stafford/

Ford Loan Program may not exceed the following:

(i) $2,625 for coursework necessary for enrollment in an

undergraduate degree or certificate program.

(ii) $5,500 for coursework necessary for enrollment in a graduate

or professional degree or certificate program for a student who has

obtained a baccalaureate degree.

(7) In the case of a student who has obtained a baccalaureate

degree and is enrolled or accepted for enrollment in coursework

necessary for a professional credential or certification from a State

that is required for employment as a teacher in an elementary or

secondary school in that State, the total amount the student may borrow

for any academic year of study under the Stafford Loan Program in

combination with the Federal Direct Stafford/Ford Loan Program may not

exceed $5,500.

(b) Stafford Loan Program aggregate limits. The aggregate unpaid

principal amount of all Stafford Loan Program loans in combination with

loans received by the student under the Federal Direct Stafford/Ford

Loan Program, but excluding the amount of capitalized interest may not

exceed the following:

(1) $23,000 in the case of any student who has not successfully

completed a program of study at the undergraduate level.

(2) $65,500, in the case of a graduate or professional student,

including loans for undergraduate study.

(c) Unsubsidized Stafford Loan Program. (1) In the case of a

dependent undergraduate student, the total amount the student may

borrow for any period of study under the Unsubsidized Stafford Loan

Program in combination with the Federal Direct Unsubsidized Stafford/

Ford Loan Program is the same as the amount determined under paragraph

(a) of this section, less any amount received under the Stafford Loan

Program or the Federal Direct Stafford/Ford Loan Program.

(2) In the case of an independent undergraduate student, a graduate

or

[[Page 58956]]

professional student, or certain dependent undergraduate students, the

total amount the student may borrow for any period of enrollment under

the Unsubsidized Stafford Loan and Federal Direct Unsubsidized

Stafford/Ford Loan programs may not exceed the amounts determined under

paragraph (a) of this section less any amount received under the

Federal Stafford Loan Program or the Federal Direct Stafford/Ford Loan

Program, in combination with the amounts determined under paragraph (d)

of this section.

(d) Additional eligibility under the Unsubsidized Stafford Loan

Program. In addition to any amount borrowed under paragraphs (a) and

(c) of this section, an independent undergraduate student, graduate or

professional student, and certain dependent undergraduate students may

borrow additional amounts under the Unsubsidized Stafford Loan Program.

The additional amount that such a student may borrow under the

Unsubsidized Stafford Loan Program in combination with the Federal

Direct Unsubsidized Stafford/Ford Loan Program, in addition to the

amounts allowed under paragraphs (b) and (c) of this section for any

academic year of study--

(1) In the case of a student who has not successfully completed the

first year of a program of undergraduate education, may not exceed the

following:

(i) $4,000 for a program of study of at least a full academic year.

(ii) For a one-year program of study with less than a full academic

year remaining, the amount that is the same ratio to $4,000 as the--

[GRAPHIC] [TIFF OMITTED] TR01NO99.013

(iii) For a program of study that is less than a full academic year

in length, an amount that is the same ratio to $4,000 as the lesser

of--

[GRAPHIC] [TIFF OMITTED] TR01NO99.014

(2) In the case of a student who has completed the first year of a

program of undergraduate education but has not successfully completed

the second year of a program of undergraduate education may not exceed

the following:

(i) $4,000 for a program of study of at least a full academic year

in length.

(ii) For a program of study with less than a full academic year

remaining, an amount that is the same ratio to $4,000 as the--

[GRAPHIC] [TIFF OMITTED] TR01NO99.015

(3) In the case of a student who has successfully completed the

second year of a program of undergraduate education, but has not

completed the remainder of the program, may not exceed the following:

(i) $5,000 for a program of study of at least a full academic year.

(ii) For a program of study with less than a full academic year

remaining, an amount that is the same ratio to $5,000 as the--

[GRAPHIC] [TIFF OMITTED] TR01NO99.016

(4) In the case of a student who has an associate or baccalaureate

degree that is required for admission into a program and who is not a

graduate or professional student, the total amount the student may

borrow for any academic year of study may not exceed the amounts in

paragraph (d)(3) of this section.

(5) In the case of a graduate or professional student, may not

exceed $10,000.

(6) In the case of a student enrolled for no longer than one

consecutive 12-month period in a course of study necessary for

enrollment in a program leading to a degree or a certificate may not

exceed the following:

(i) $4,000 for coursework necessary for enrollment in an

undergraduate degree or certificate program.

(ii) $5,000 for coursework necessary for enrollment in a graduate

or professional degree or certificate program for a student who has

obtained a baccalaureate degree.

(iii) In the case of a student who has obtained a baccalaureate

degree and is enrolled or accepted for enrollment in a program

necessary for a professional credential or a certification from a State

that is required for employment as a teacher in an elementary or

secondary school in that State, $5,000.

(e) Combined Federal Stafford, SLS and Federal Unsubsidized

Stafford Loan Program aggregate limits. The aggregate unpaid principal

amount of Stafford Loans, Federal Direct Stafford/Ford Loans,

Unsubsidized Stafford Loans, Federal Direct Unsubsidized Stafford/Ford

Loans and SLS Loans, but

[[Page 58957]]

excluding the amount of capitalized interest, may not exceed the

following:

(1) $46,000 for an undergraduate student.

(2) $138,500 for a graduate or professional student.

* * * * *

10. Section 682.206 is amended as follows:

A. By revising paragraph (a)(1).

B. By removing ``on the application form or data electronically

transmitted to the lender'' in paragraph (c)(1).

C. By revising paragraph (c)(2).

D. By removing paragraph (c)(3).

E. By revising paragraph (d)(1).

F. By revising the Office of Management and Budget control number.

Sec. 682.206 Due diligence in making a loan.

(a) General. (1) Loan-making duties include determining the

borrower's loan amount, approving the borrower for a loan, explaining

to the borrower his or her rights and responsibilities under the loan,

and completing and having the borrower sign the promissory note (except

with respect to subsequent loans made under an MPN).

* * * * *

(c) * * *

(2) Except in the case of a Consolidation loan, in determining the

amount of the loan to be made, in no case may the loan amount exceed

the lesser of the amount the borrower requests, the amount certified by

the school under Sec. 682.603, or the loan limits under Sec. 682.204.

* * * * *

(d)(1) The lender must ensure that each loan is supported by an

executed legally-enforceable promissory note as proof of the borrower's

indebtedness.

* * * * *

(Approved by the Office of Management and Budget under control

number 1845-0020)

11. Section 682.207 is amended as follows:

A. In paragraph (b)(1)(v)(B)(3), by removing ``eligible

institution'', and by adding, in its place, ``institution of higher

education''.

B. By revising the introductory sentence in paragraph (c).

C. By removing paragraph (c)(5).

D. By redesignating paragraph (c)(4) as paragraph (d).

E. By redesignating paragraph (d) as paragraph (f).

F. By adding a new paragraph (e).

G. By revising the newly redesignated paragraph (f).

H. By revising the Office of Management and Budget control number.

Sec. 682.207 Due diligence in disbursing a loan.

* * * * *

(c) Except as provided in paragraph (e) of this section, a lender

must disburse any Stafford or PLUS loan in accordance with the

disbursement schedule provided by the school as follows:

* * * * *

(e) A lender must disburse the loan in one installment if the

school submits a schedule for disbursement of loan proceeds in one

installment as authorized by Sec. 682.604(c)(10).

(f)(1) A lender may disburse loan proceeds after the student has

ceased to be enrolled on at least a half-time basis only if--

(i) The school certified the borrower's loan eligibility before the

date the student became ineligible and the loan funds will be used to

pay educational costs that the school determines the student incurred

for the period in which the student was enrolled and eligible;

(ii) The student completed the first 30 days of his or her program

of study if the student was a first-year, first-time borrower as

described in Sec. 682.604(c)(5); and (iii) In the case of a second or

subsequent disbursement, the student graduated or successfully

completed the period of enrollment for which the loan was intended.

(2) The lender must give notice to the school that the loan

proceeds have been disbursed in accordance with paragraph (f)(1) of

this section at the time the lender sends the loan proceeds to the

school.

(Approved by the Office of Management and Budget under control

number 1845-0020)

12. Section 682.209 is amended as follows:

A. By revising paragraph (a)(4).

B. By redesignating paragraphs (a)(6), (a)(7), and (a)(8) as

paragraphs (a)(7), (a)(8), and (a)(9), respectively.

C. By adding a new paragraph (a)(6).

D. In the newly redesignated paragraph (a)(7)(i)(B), by removing

``Sec. 682.211(j)(5)'', and adding, in its place,

``Sec. 682.211(i)(5)''.

E. By revising the newly redesignated paragraph (a)(7)(iii).

F. In the newly redesignated paragraph (a)(7)(v), by removing

``(a)(6)(vi)'' and adding, in its place, ``(a)(7)(vi)''.

G. In newly redesignated paragraph (a)(7)(v)(A) by removing

``income-sensitive or a graduated repayment'', and adding, in its

place, ``income-sensitive, a graduated, or if applicable, an extended

repayment''.

H. In the newly redesignated paragraph (a)(7)(v)(B), by removing

``(a)(6)(viii)(C)'', and adding, in its place, ``(a)(7)(viii)(C)''.

I. In the newly redesignated paragraph (a)(7)(vii)(A)(2), by

removing, ``(a)(6)(i)'', and by adding, in its place, ``(a)(7)(i)''.

J. In newly redesignated paragraph (a)(7)(viii)(A)(2), and by

removing ``(a)(6)(i)'', and by adding, in its place, ``(a)(7)(i)''.

K. In newly redesignated paragraph (a)(7)(viii)(D), by removing

``Sec. Sec. 682.211(j)(5)'', and by adding, in its place,

``Sec. 682.211(i)(5)''.

L. In newly redesignated paragraph (a)(7)(viii)(E), by removing

``(a)(7)'', and by adding, in its place, ``(a)(8)''.

M. By redesignating paragraph (a)(7)(ix) as paragraph (a)(7)(xi).

N. By adding new paragraphs (a)(7)(ix) and (x).

O. In the newly redesignated paragraph (a)(8)(i), by removing

``(a)(7)(ii)'', and by adding, in its place ``(a)(8)(ii)''; by adding,

``and except as provided in paragraph (a)(7)(ix)'', after ``section,'';

by adding, ``or 25 years under an extended repayment plan'' after ``10

years,''.

P. In newly redesignated paragraph ``(a)(8)(ii)'', by removing

``and 15-year'', and by adding, in its place, ``15- and 25-year''.

Q. In the newly redesignated paragraph ``(a)(8)(iv)'', by removing

``(a)(7)(iii)'', and by adding, in its place, ``(a)(8)(iii)''.

R. By revising paragraph (c)(1)(i).

S. In paragraph (e)(2)(i), by adding, ``as appropriate'' after

``(3)(ii)''.

T. In paragraph (e)(2)(ii), by removing ``(a)(7)(i)'', and adding,

in its place, ``(a)(8)(i)''.

U. In paragraph (f)(2)(ii), by removing ``(a)(7)(i)'', and adding,

in its place, ``(a)(8)(i)''.

V. By removing paragraph (h)(3); by redesignating paragraphs

(h)(4), (h)(5), and (h)(6), as paragraphs (h)(3), (h)(4), and (h)(5),

respectively; by revising the newly redesignated paragraph (h)(3); and

by removing redesignated paragraph (h)(4)(ii) and redesignating

paragraph (h)(4)(iii) as paragraph (h)(4)(ii).

W. By revising the Office of Management and Budget control number.

Sec. 682.209 Repayment of a loan.

(a) * * *

(4) For a borrower of a Stafford loan who is a correspondence

student, the grace period specified in paragraph (a)(3)(i) of this

section begins on the earliest of--

(i) The day after the borrower completes the program;

(ii) The day after withdrawal as determined pursuant to 34 CFR

668.22; or

[[Page 58958]]

(iii) 60 days following the last day for completing the program as

established by the school.

* * * * *

(6) For purposes of establishing the beginning of the repayment

period for Stafford and SLS loans, the grace periods referenced in

paragraphs (a)(2)(iii) and (a)(3)(i) of this section exclude any period

during which a borrower who is a member of a reserve component of the

Armed Forces named in section 10101 of title 10, United States Code is

called or ordered to active duty for a period of more than 30 days. Any

single excluded period may not exceed three years and includes the time

necessary for the borrower to resume enrollment at the next available

regular enrollment period. Any Stafford or SLS borrower who is in a

grace period when called or ordered to active duty as specified in this

paragraph is entitled to a full grace period upon completion of the

excluded period.

(7) * * *

(iii) Not more than six months prior to the date that the

borrower's first payment is due, the lender must offer the borrower a

choice of a standard, income-sensitive, graduated, or, if applicable,

an extended repayment schedule.

* * * * *

(ix) Under an extended repayment schedule, a new borrower whose

total outstanding principal and interest in FFEL loans exceed $30,000

may repay the loan on a fixed annual repayment amount or a graduated

repayment amount for a period that may not exceed 25 years. For

purposes of this section, a ``new borrower'' is an individual who has

no outstanding principal or interest balance on an FFEL Program loan as

of October 7, 1998, or on the date he or she obtains an FFEL Program

loan after October 7, 1998.

(x) A borrower may request a change in the repayment schedule on a

loan. The lender must permit the borrower to change the repayment

schedule no less frequently than annually.

* * * * *

(c) Minimum annual payment. (1)(i) Subject to paragraph (c)(1)(ii)

of this section and except as otherwise provided by a graduated,

income-sensitive, or extended repayment plan selected by the borrower,

during each year of the repayment period, a borrower's total payments

to all holders of the borrower's FFEL Program loans must total at least

$600 or the unpaid balance of all loans, including interest, whichever

amount is less.

* * * * *

(h) * * *

(3) For the purpose of paragraph (h)(2) of this section, the unpaid

balance on other student loans--

(i) May not exceed the amount of the Consolidation loan; and

(ii) With the exception of the defaulted title IV loans on which

the borrower has made satisfactory repayment arrangements with the

holder of the loan, does not include the unpaid balance on any

defaulted loans.

* * * * *

(Approved by the Office of Management and Budget under control

number 1845-0020)

13. Section 682.210 is amended as follows:

A. By revising paragraphs (a)(3), (a)(4), and (a)(6)(iv); in

paragraph (a)(7) by removing ``180- or 240-day'' and adding, in its

place, ``270- or 330-day''.

B. In paragraph (b)(1)(i), by removing ``(c)(4)'' and adding, in

its place, ``(c)(5)''.

C. By revising paragraph (b)(4).

D. By revising the heading in paragraph (c); by revising paragraph

(c)(1); by redesignating paragraphs (c)(2) through (c)(4) as paragraphs

(c)(3) through (c)(5), respectively; and by adding a new paragraph

(c)(2).

E. By revising redesignated paragraph (c)(3).

F. In redesignated paragraph (c)(4) by removing, ``Stafford, SLS or

PLUS'' both times it appears and adding, in its place, ``FFEL'', by

removing ``the'', before ``certified'', and by adding, in its place,

``a'', and by removing ``a student'', and by adding, in its place, ``an

in-school''.

G. In redesignated paragraph (c)(5), by adding ``or a PLUS (unless

based on the dependent's status)'' after ``Stafford,''.

H. By revising paragraph (h).

I. In paragraph (s)(2), by removing the heading, ``Student

deferment'', and by adding, in its place, ``In-school deferment''.

J. By revising the Office of Management and Budget control number.

Sec. 682.210 Deferment.

(a) * * *

(3) Interest accrues and is paid by the borrower during the

deferment period and the post-deferment grace period, if applicable,

unless interest accrues and is paid by the Secretary for a Stafford

loan and for all or a portion of a qualifying Consolidation loan that

meets the requirements under Sec. 682.301.

(4) As a condition for receiving a deferment, except for purposes

of paragraphs (c)(1)(ii) and (iii) of this section, the borrower must

request the deferment, and provide the lender with all information and

documents required to establish eligibility for a specific type of

deferment.

* * * * *

(6) * * *

(iv) In the case of an in-school deferment, the student's

anticipated graduation date as certified by an authorized official of

the school; or

* * * * *

(b) * * *

(4) For a ``new borrower,'' as defined in paragraph (b)(7) of this

section, deferment is authorized during periods when the borrower is

engaged in at least half-time study at a school, unless the borrower is

not a national of the United States and is pursuing a course of study

at a school not located in a State.

* * * * *

(c) In-school deferment. (1) Except as provided in paragraph (c)(5)

of this section, the lender processes a deferment for full-time study

or half-time study at a school, when--

(i) The borrower submits a request and supporting documentation for

a deferment;

(ii) The lender receives information from the borrower's school

about the borrower's eligibility in connection with a new loan; or

(iii) The lender receives student status information from the

borrower's school, either directly or indirectly, indicating that the

borrower's enrollment status supports eligibility for a deferment.

(2) The lender must notify the borrower that a deferment has been

granted based on paragraph (c)(1)(ii) or (iii) of this section and that

the borrower has the option to pay interest that accrues on an

unsubsidized FFEL Program loan or to cancel the deferment and continue

paying on the loan. The lender must include in the notice an

explanation of the consequences of these options.

(3) The lender must consider a deferment granted on the basis of a

certified loan application or other information certified by the school

to cover the period lasting until the anticipated graduation date

appearing on the application, and as updated by notice or SSCR update

to the lender from the school or guaranty agency, unless and until it

receives notice that the borrower has ceased the level of study (i.e.,

full-time or half-time) required for the deferment.

* * * * *

(h) Unemployment deferment. (1) A borrower qualifies for an

unemployment deferment by providing evidence of eligibility for

unemployment benefits to the lender.

[[Page 58959]]

(2) A borrower also qualifies for an unemployment deferment by

providing to the lender a written certification--

(i) Describing the borrower's conscientious search for full-time

employment during the preceding six months, except in the case of the

initial period of unemployment, including, for each of at least six

attempts to secure employment to support the period covered by the

certification--

(A) The name of the employer contacted;

(B) The employer's address and phone number; and

(C) The name or title of the person contacted;

(ii) Setting forth the borrower's latest permanent home address

and, if applicable, the borrower's latest temporary address; and

(iii) Affirming that the borrower has registered with a public or

private employment agency, if one is within a 50-mile radius of the

borrower's permanent or temporary address, specifying the agency's name

and address and date of registration.

(3) For purposes of obtaining an unemployment deferment under

paragraph (h)(2) of this section, the following rules apply:

(i) A borrower may qualify for an unemployment deferment whether or

not the borrower has been previously employed.

(ii) An unemployment deferment is not justified if the borrower

refuses to seek or accept employment in kinds of positions or at salary

and responsibility levels for which the borrower feels overqualified by

virtue of education or previous experience.

(iii) Full-time employment involves at least 30 hours of work a

week and is expected to last at least three months.

(iv) A lender may accept, as an alternative to the certification of

employer contacts required under paragraph (h)(2)(i) of this section,

comparable documentation the borrower has used to meet the requirements

of the Unemployment Insurance Service, if it shows the same number of

contacts and contains the same information the borrower would be

required to provide under this section.

(4) A lender may not grant a deferment based on a single

certification under paragraph (h)(1) or (h)(2) of this section beyond

the date that is six months after the date the borrower provides

evidence of the borrower's eligibility for unemployment insurance

benefits under paragraph (h)(1) of this section or the date the

borrower provides the written certification under paragraph (h)(2) of

this section.

* * * * *

(Approved by the Office of Management and Budget under control

number 1845-0020)

14. Section 682.211 is amended as follows:

A. By revising paragraph (a)(4);

B. In paragraph (c) by adding, ``the terms of'' after ``writing

to''.

C. By adding a new paragraph (f)(9).

D. In paragraphs (h)(l) and (h)(2), by removing the word

``written''.

E. By removing paragraph (h)(2)(ii)(B) and designating paragraph

(h)(2)(ii)(C) as paragraph (h)(2)(ii)(B).

F. By removing paragraph (h)(3)(ii); by redesignating paragraph

(h)(3)(iii) as paragraph (h)(3)(ii); and in redesignated paragraph

(h)(3)(ii), by removing ``(h)(2)(ii)(C)'', and by adding, in its place

``(h)(2)(ii)(B)''.

G. By revising the Office of Management and Budget control number.

Sec. 682.211 Forbearance.

(a) * * *

(4) Except as provided in paragraph (f)(9) of this section, if

payments of interest are forborne, they may be capitalized as provided

in Sec. 682.202(b).

* * * * *

(f) * * *

(9) For a period not to exceed 60 days necessary for the lender to

collect and process documentation supporting the borrower's request for

a deferment, forbearance, change in repayment plan, or consolidation

loan. Interest that accrues during this period is not capitalized.

* * * * *

(Approved by the Office of Management and Budget under control

number 1845-0020)

15. Section 682.300 is amended by revising paragraph (a) to read as

follows:

Sec. 682.300 Payments of interest benefits on Stafford and

Consolidation loans.

(a) General. The Secretary pays a lender, on behalf of a borrower,

a portion of the interest on a subsidized Stafford loan and on all or a

portion of a qualifying Consolidation loan that meets the requirements

under Sec. 682.301. This payment is known as interest benefits.

* * * * *

16. Section 682.301 is amended as follows:

A. By revising paragraph (a)(3).

B. By removing paragraph (a)(4).

C. By revising paragraphs (b) and (c).

D. By revising the Office of Management and Budget control number.

Sec. 682.301 Eligibility of borrowers for interest benefits on

Stafford and Consolidation loans.

(a) * * *

(3) A Consolidation loan borrower qualifies for interest benefits

during authorized periods of deferment on the portion of the loan that

does not represent HEAL loans if the loan application was received by

the lender--

(i) On or after January 1, 1993 but prior to August 10, 1993;

(ii) On or after August 10, 1993, but prior to November 13, 1997 if

the loan consolidates only subsidized Stafford loans; and

(iii) On or after November 13, 1997, for the portion of the loan

that repaid subsidized FFEL loans and Direct Subsidized Loans.

(b) Application for interest benefits. To apply for interest

benefits on a Stafford loan, the student, or the school at the

direction of the student, must submit a statement to the lender

pursuant to Sec. 682.603. The student must qualify for interest

benefits if the eligible institution has determined and documented the

student's amount of need for a loan based on the student's estimated

cost of attendance, estimated financial assistance, and expected family

contribution as determined under part F of the Act.

(c) Use of loan proceeds to replace expected family contribution. A

borrower may use the amount of a PLUS, unsubsidized Stafford loan,

State sponsored loan, or private program loan obtained for a period of

enrollment to replace the expected family contribution for that period

of enrollment.

(Approved by the Office of Management and Budget under control

number 1845-0020)

* * * * *

17. Section 682.401 is amended as follows:

A. By revising paragraphs (b)(5)(i) and (ii).

B. In the heading in paragraph (b)(15), by removing ``Guarantee'',

and by adding, in its place, ``Guaranty''.

C. In paragraph (b)(24), by adding a comma after ``shall''.

D. By revising paragraph (d)(3).

E. By designating paragraphs (d)(4) and (d)(5) as paragraphs (d)(5)

and (d)(6), respectively.

F. By adding a new paragraph (d)(4).

G. By revising the Office of Management and Budget control number.

Sec. 682.401 Basic program agreement.

* * * * *

(b) * * *

(5) Borrower responsibilities. (i) The borrower must indicate his

or her

[[Page 58960]]

preferred lender on the promissory note or other written or electronic

documentation submitted during the loan origination process if he or

she has such a preference.

(ii) The borrower must give the lender, as part of the promissory

note or application process for a Stafford or PLUS loan--

(A) A statement, as described in 34 CFR part 668, that the loan

will be used for the cost of the student's attendance;

(B) A statement from the student authorizing the school to release

information relevant to the student's eligibility to borrow or to have

a parent borrow on the student's behalf (e.g., the student's enrollment

status, financial assistance, and employment records); and

(C) Information from the school providing the maximum amount that

may be borrowed by or on behalf of the student.

* * * * *

(d) * * *

(3) The guaranty agency must use common application forms,

promissory notes, Master Promissory Notes (MPN), and other common forms

approved by the Secretary.

(4)(i) The Secretary authorizes the use of the multi-year feature

of the MPN--

(A) For students and parents for attendance at four-year or

graduate/professional schools; and

(B) For students and parents for attendance at other institutions

meeting criteria or otherwise designated at the sole discretion of the

Secretary.

(ii) The Secretary may prohibit use of the multi-year feature of

the MPN at specific schools described under paragraph (4)(i) of this

section under circumstances including, but not limited to, the school

being subject to an emergency action or a limitation, suspension, or

termination action, or not meeting other performance criteria

determined by the Secretary.

(iii) A borrower attending a school for which the multi-year

feature of the MPN has not been authorized must complete a new

promissory note for each period of enrollment.

(iv) Each loan made under an MPN is enforceable in accordance with

the terms of the MPN and is eligible for claim payment based on a true

and exact copy of such MPN.

(v) A lender's ability to make additional loans under an MPN will

automatically expire upon the earliest of--

(A) The date the lender receives written notification from the

borrower requesting that the MPN no longer be used as the basis for

additional loans;

(B) Twelve months after the date the borrower signed the MPN if no

disbursements are issued by the lender under that MPN; or

(C) Ten years from the date the borrower signed the MPN or the date

the lender receives the MPN. However, if a portion of a loan is made on

or before 10 years from the signature date, remaining disbursements of

that loan may be made.

(vi) The lender and school must develop and document a confirmation

process in accordance with guidelines established by the Secretary for

loans made under the multi-year feature of the MPN.

* * * * *

(Approved by the Office of Management and Budget under control

number 1845-0020)

18. Section 682.402 is amended as follows:

A. By revising the section heading; by revising paragraph (a)(1);

in paragraph (a)(3), by adding ``and as provided in paragraph

(h)(1)(iv) of this section,'' before ``only''.

B. In paragraph (f)(1) by removing ``(f) through (m)'', and adding,

in its place, ``(h) through (k)''; by revising paragraph (f)(3); in

paragraph (f)(5)(i)(B) by adding ``before October 8, 1998'' after

``Code''.

C. By revising paragraphs (g)(1)(i) and (ii).

D. In paragraph (h)(1)(i), by removing ``paragraph (g)'', and

adding, in its place, ``paragraph (h)''; by adding a new paragraph

(h)(1)(iv).

E. By revising paragraph (i)(1); and by removing paragraph (i)(3)

in its entirety.

F. In paragraph (j)(1)(ii), by removing ``(B)''; and by revising

paragraph (j)(1)(iii).

G. By revising paragraph (k)(1)(i)(A).

H. By redesignating paragraphs (l) and (m) as paragraphs (r) and

(s); and by adding new paragraphs (l) through (q).

I. By revising the Office of Management and Budget control number.

Sec. 682.402 Death, disability, closed school, false certification,

unpaid refunds, and bankruptcy payments.

(a) General. (1) Rules governing the payment of claims based on

filing for relief in bankruptcy, and discharge of loans due to death,

total and permanent disability, attendance at a school that closes,

false certification by a school of a borrower's eligibility for a loan,

and unpaid refunds by a school are set forth in this section.

* * * * *

(f) * * *

(3) Determination of filing. The lender must determine that a

borrower has filed a petition for relief in bankruptcy on the basis of

receiving a notice of the first meeting of creditors or other proof of

filing provided by the debtor's attorney or the bankruptcy court.

* * * * *

(g) * * *

(1) * * *

(i) The original promissory note or a copy of the promissory note

certified by the lender as true and accurate.

(ii) The loan application, if a separate loan application was

provided to the lender.

* * * * *

(h) * * *

(1) * * *

(iv) In reviewing a claim under this section, the issue of

confirmation of subsequent loans under an MPN will not be reviewed and

a claim will not be denied based on the absence of any evidence

relating to confirmation in a particular loan file. However, if a court

rules that a loan is unenforceable solely because of the lack of

evidence of the confirmation process or processes, insurance benefits

must be repaid.

* * * * *

(i) Guaranty agency participation in bankruptcy proceedings--(1)

Undue hardship claims. (i) In response to a petition filed prior to

October 8, 1998 with regard to any bankruptcy proceeding by the

borrower for discharge under 11 U.S.C. 523(a)(8) on the grounds of

undue hardship, the guaranty agency must, on the basis of reasonably

available information, determine whether the first payment on the loan

was due more than 7 years (exclusive of any applicable suspension of

the repayment period) before the filing of that petition and, if so,

process the claim.

(ii) In all other cases, the guaranty agency must determine whether

repayment under either the current repayment schedule or any adjusted

schedule authorized under this part would impose an undue hardship on

the borrower and his or her dependents.

(iii) If the guaranty agency determines that repayment would not

constitute an undue hardship, the guaranty agency must then determine

whether the expected costs of opposing the discharge petition would

exceed one-third of the total amount owed on the loan, including

principal, interest, late charges, and collection costs.

(iv) The guaranty agency must use diligence and may assert any

defense consistent with its status under applicable law to avoid

discharge of the loan. Unless discharge would be more effectively

opposed by not taking the following actions, the agency must--

(A) Oppose the borrower's petition for a determination of

dischargeability; and

[[Page 58961]]

(B) If the borrower is in default on the loan, seek a judgment for

the amount owed on the loan.

(v) In opposing a petition for a determination of dischargeability

on the grounds of undue hardship, a guaranty agency may agree to

discharge of a portion of the amount owed on a loan if it reasonably

determines that the agreement is necessary in order to obtain a

judgment on the remainder of the loan.

* * * * *

(j) * * *

(1) * * *

(iii) The entry of an order granting discharge under chapter 12 or

13, or confirming a plan of arrangement under chapter 11, unless the

court determined that the loan is dischargeable under 11 U.S.C.

523(a)(8) on grounds of undue hardship.

* * * * *

(k) * * *

(1) * * *

(i) * * *

(A) A determination by the court that the loan is dischargeable

under 11 U.S.C. 523(a)(8) with respect to a proceeding initiated under

chapter 7 or chapter 11; or

* * * * *

(l) Unpaid refund discharge.

(1) Unpaid refunds in closed school situations. In the case of a

school that has closed, the Secretary reimburses the guarantor of a

loan and discharges a former or current borrower's (and any endorser's)

obligation to repay that portion of an FFEL Program loan (disbursed on

or after January 1, 1986) equal to the refund that should have been

made by the school under applicable Federal law and regulations,

including this section. Any accrued interest and other charges (late

charges, collection costs, origination fees, and insurance premiums)

associated with the unpaid refund are also discharged.

(2) Unpaid refunds in open school situations. In the case of a

school that is open, the guarantor discharges a former or current

borrower's (and any endorser's) obligation to repay that portion of an

FFEL loan (disbursed on or after January 1, 1986) equal to the amount

of the refund that should have been made by the school under applicable

Federal law and regulations, including this section, if--

(i) The borrower (or the student on whose behalf a parent borrowed)

has ceased to attend the school that owes the refund; and

(ii) The guarantor receives documentation regarding the refund and

the borrower and guarantor have been unable to resolve the unpaid

refund within 120 days from the date the borrower submits a complete

application in accordance with paragraph (l)(4) of this section. Any

accrue

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