Institutions and Lender Requirements Relating to Education Loans, Student Assistance General Provisions, Federal Perkins Loan Program, Federal Family Education Loan Program, and William D. Ford Federal Direct Loan Program

DEPARTMENT OF EDUCATION

[Docket ID ED-2009-OPE-0003]

34 CFR Parts 601, 668, 674, 682, and 685

RIN 1840-AC95

Institutions and Lender Requirements Relating to Education Loans, Student Assistance General Provisions, Federal Perkins Loan Program, Federal Family Education Loan Program, and William D. Ford Federal Direct Loan Program

AGENCY:

Office of Postsecondary Education, Department of Education.

ACTION:

Final regulations.

SUMMARY:

The Secretary establishes new regulations regarding Institutions and Lender Requirements Relating to Education Loans, to implement requirements relating to education loans that were added to the Higher Education Act of 1965, as amended (HEA) by the Higher Education Opportunity Act of 2008 (HEOA). The Secretary also amends the regulations for Student Assistance General Provisions, the Federal Perkins Loan (Perkins Loan) Program, the Federal Family Education Loan (FFEL) Program, and the William D. Ford Federal Direct Loan (Direct Loan) Program to implement certain provisions of the HEA that involve school-based loan issues and that were affected by the statutory changes made to the HEA by the HEOA.

DATES:

Effective Date:

These regulations are effective July 1, 2010.

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 institutions, lenders, guaranty agencies, or servicers may, at their discretion, choose to implement the following new and amended provisions(as appropriate):

Sections 601.11(a), (b), and (c), which describe the private education loan disclosures.

Section 601.12 describing the use of institution and lender name.

Section 601.21 describing the content of the code of conduct.

Section 601.40(a), which requires certain lender disclosures to borrowers.

Section 668.16(d)(2), which requires institutions to report on reimbursements received for certain service on advisory boards.

Section 668.42(a)(4), which requires institutions to describe for prospective and enrolled students the terms and conditions of the loans students receive under the FFEL, Direct Loan, and Perkins Loan programs.

Section 674.12(a) and (b), which increases undergraduate and graduate student annual and aggregate loan maximums in the Perkins Loan Program.

Section 674.33(d), which eliminates the requirement that a borrower make a “written” request in order to obtain a forbearance on his or her Perkins Loan, and that the institution confirm the terms of the forbearance by notice to the borrower and record the terms in the borrower's file.

Section 674.39(a)(2), which changes the number of consecutive on-time, monthly payments a borrower must make to successfully rehabilitate a defaulted Perkins Loan from 12 to 9.

Sections 674.42(b), 682.604(g), and 685.304(b), which modify the exit counseling provisions.

Sections 674.53, 674.57, 674.58, and 674.59, which expand the existing cancellation provisions for certain teachers, Head Start employees, law enforcement employees, and military personnel.

Sections 682.604 and 685.304, which modify the entrance counseling provisions.

For further information,

see

the section entitled

Implementation Date of These Regulations

in the

SUPPLEMENTARY INFORMATION

section of this preamble.

FOR FURTHER INFORMATION CONTACT:

For information related to Part 601—Institution and Lender Requirements Relating to Education Loans, Gail McLarnon or Brian Smith. Telephone: (202) 219-7048 or (202) 502-7551 or via the Internet at:

Gail.McLarnon@ed.gov

or

Brian.Smith@ed.gov.

For information related to Program Participation Agreements and Standards of Administrative Capability, Marty Guthrie. Telephone: (202) 219-7031 or via the Internet at:

Marty.Guthrie@ed.gov.

For information related to Exit and Entrance Counseling, Brian Smith. Telephone: (202) 502-7551 or via the Internet at

Brian.Smith@ed.gov.

For information related to Cohort Default Rates, John Kolotos. Telephone: (202) 502-7762 or via the Internet at

John.Kolotos@ed.gov.

For information related to Perkins Loan Program Cancellation Provisions, Vanessa Freeman. Telephone: (202) 502-7523 or via the Internet at

Vanessa.Freeman@ed.gov.

If you use a telecommunications device for the deaf, call the Federal Relay Service (FRS), toll free, at 1-800-877-8339.

Individuals with disabilities can obtain this document in an accessible format (

e.g.,

braille, large print, audiotape, or computer diskette) on request to one of the contact persons listed under

FOR FURTHER INFORMATION CONTACT

.

SUPPLEMENTARY INFORMATION:

On July 28, the Secretary published a notice of proposed rulemaking (NPRM) for the Institutions and Lender Requirements Relating to Education Loans, the Student Assistance General Provisions, and for the Perkins Loan, FFEL and Direct Loan Programs in the

Federal Register

(74 FR 37432).

In the preamble to the NPRM, the Secretary discussed on pages 37434 through 37457 the major regulations proposed in that document to implement the provisions of the HEOA, including the following:

• Amending §§ 668.181, 668.184, 668.185, 668.186, 668.187, 668.188, 668.190, 668.191, 668.192, 668.193, 668.196, 668.198, and adding new §§ 668.200, 668.201, 668.202, 668.203, 668.204, 668.205, 668.206, 668.207, 668.209, 668.210, 668.211, 668.212, 668.213, 668.214, 668.215, 668.216, and 668.217 to reflect an increase in the period used to calculate the cohort default rate (CDR) from 2 to 3 years effective for CDRs calculated for fiscal year 2009 and subsequent years, the requirement that an institution whose CDR is greater than or equal to 30 percent for any fiscal year establish a default prevention plan, and an increase from 25 to 30 percent in the threshold default that would render an institution ineligible to participate in the Pell, FFEL, and Direct Loan Programs (

see

section 435(a) and (m) of the HEA);

• Amending §§ 674.42(b), 682.604(g), and 685.304(b) to reflect the expansion of exit counseling requirements in the title IV, HEA loan programs (

see

section 485(b)(1)(A) of the HEA);

• Amending §§ 682.604 and 685.304 to reflect the expansion of entrance counseling requirements in the FFEL and Direct Loan Programs (

see

section 485(l) of the HEA);

• Amending § 668.14 to add to the conditions an institution must agree to in its program participation agreement with the Secretary of Education (the agreement between the institution and the Department that enables the institution to participate in the loan programs under Title IV of the HEA). These conditions include: (1) A requirement that an institution develop, publish, administer and enforce a code of conduct with respect to its FFEL Program activities (

see

section 487(a)(25) of the HEA); (2) a requirement that an institution compile, maintain and make available to students

and their families a list of its preferred lenders if it enters into any preferred lender arrangement (

see

section 487(a)(27) of the HEA); and (3) a requirement that an institution, upon the request of an applicant of a private education loan, provide the applicant with the private education loan certification form developed by the Secretary (

see

section 487(a)(28) of the HEA);

• Adding new §§ 601.2, 601.11, and 601.30 to reflect the requirements for education loan borrower disclosures by institutions of higher education, and institution affiliated organizations, including definitions (

see

sections 151 through 155, 487(a) and 487(h) of the HEA);

• Adding a new § 601.10 to add the borrower disclosures by covered institutions and institution-affiliated organizations that participate in a preferred lender arrangement (

see

section 153(c) of the HEA);

• Adding a new § 601.20 to add the reporting requirements for covered institutions and institution-affiliated organizations (

see

section 153(c)(2) of the HEA);

• Adding a new § 668.42 to add information dissemination requirements for prospective and enrolled students regarding the terms and conditions of title IV, HEA loans (

see

section 485(a) of the HEA);

• Adding a new § 668.16(d)(2) to reflect the disclosure to the Secretary of any reimbursements made to employees of an institution of higher education for service on advisory boards (

see

section 485(m) of the HEA); and

• Amending §§ 674.51, 674.53, 674.56, 674.57, 674.58, 674.59, and 674.61 to reflect the expansion of cancellation benefits for Perkins Loan borrowers, including cancellation benefits for teachers in an educational service agency; staff members in a pre-kindergarten or childcare program; attorneys employed in a Federal Public Defender Organization or Community Defender Organization; fire fighters, faculty members of a Tribal College or University, librarians with a master's degree employed in an elementary or secondary school or in a public library that serves one or more schools eligible for funding under title I of the Elementary and Secondary Education Act of 1965, as amended; and speech pathologists with a master's degree who work exclusively with title I-eligible schools (

see

section 465(a) of the HEA).

In addition to these changes, we have made a number of minor technical corrections and conforming changes. Changes that are statutory or that involve only minor technical corrections are generally not discussed in the

Analysis of Comments and Changes

section.

Waiver of Proposed Rulemaking for Additional Conforming Changes

These final regulations incorporate certain statutory changes made to the HEA by the HEOA that were not included on Team II's negotiating agenda. These changes are:

• Amending §§ 674.12(a) and (b) to increase undergraduate and graduate student annual and aggregate loan maximums in the Perkins Loan Program.

• Amending §§ 674.33(d) to eliminate the requirement that a borrower make a “written” request in order to obtain a forbearance on his or her Perkins Loan.

• Amending §§ 674.39(a) and (b) to change the number of consecutive on-time, monthly payments a borrower must make to successfully rehabilitate a defaulted Perkins Loan from 12 to 9.

Because these amendments implement changes to the HEA that were not negotiated, we do not discuss them in the

Analysis of Comments and Changes

section.

Under the Administrative Procedure Act (5 U.S.C. 553), the Department is generally required to publish a notice of proposed rulemaking and provide the public with an opportunity to comment on proposed regulations prior to issuing final regulations. In addition, all Department regulations for programs authorized under Title IV of the HEA are subject to the negotiated rulemaking requirements of section 492 of the HEA. However, both the APA and HEA provide for exemptions from these rulemaking requirements. The APA provides that an agency is not required to conduct notice-and-comment rulemaking when the agency for good cause finds that notice and comment are impracticable, unnecessary or contrary to the public interest. Similarly, section 492 of the HEA provides that the Secretary is not required to conduct negotiated rulemaking for Title IV, HEA program regulations if the Secretary determines that applying that requirement is impracticable, unnecessary or contrary to the public interest within the meaning of the HEA.

Although the regulations implementing the HEOA are subject to the APA's notice-and-comment and the HEA's negotiated rulemaking requirements, the Secretary determined that it was unnecessary to conduct negotiated rulemaking or notice-and-comment rulemaking on the changes needed in §§ 674.12, 674.33 and 674.39. These amendments simply modify the Department's regulations to reflect statutory changes made by the HEOA to paragraphs (a), (e), and (h) of section 464 of the HEA and these changes are already effective. The Secretary does not have discretion in whether or how to implement these changes. Accordingly, negotiated rulemaking and notice-and-comment rulemaking are unnecessary.

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 (July 1) to 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 and the conditions under which the entity may implement the provisions early.

Consistent with the intent of this regulatory effort to strengthen and improve the administration of the title IV, HEA programs, the Secretary is using the authority granted him under section 482(c) of the HEA to designate the following new and amended provisions for early implementation, at the discretion of each institution, lender, guaranty agency, or servicer, as appropriate: §§ 601.11(a), (b), and (c), 601.12, 601.21, 601.40(a), 668.16(d)(2), 668.42(a)(4), 674.12(a) and (b), 674.33(d), 674.39(a)(2), 674.42(b), 674.53, 674.57, 674.58, 674.59, 682.604, and 685.304.

Analysis of Comments and Changes

Except as noted earlier in this document regarding the limited regulations implementing provisions of the HEOA, 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 must 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 July 28, 2009, 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 August 27, 2009. More than 25 parties submitted comments, a number of which were substantially similar. An analysis of the comments and the changes in the regulations since publication of the NPRM follows.

We group major issues according to subject, with appropriate sections of the regulations referenced in parentheses. We discuss other substantive issues under the sections of the regulations to which they pertain. Generally, we do not address minor, non-substantive changes, recommended changes that the law does not authorize the Secretary to make, or comments pertaining to operational processes. We also do not address comments pertaining to issues that were not within the scope of the NPRM.

PART 601—INSTITUTION AND LENDER REQUIREMENTS RELATING TO EDUCATION LOANS

Subpart A—General

Definitions (§ 601.2)

Comment:

Several commenters recommended that we modify the definition of the term

preferred lender arrangement

in proposed § 601.2(b), based on final regulations published in the

Federal Register

by the Federal Reserve Board on August 14, 2009 (74 FR 41194). The Official Staff Interpretations included with the Federal Reserve's final regulations state that a lender is only required to comply with the preferred lender arrangement disclosure requirements in 12 CFR 226.48(f) if the lender is aware that it is a party to a preferred lender arrangement (74 FR 41236). In the commenters' view, this acknowledgement by the Federal Reserve Board that a lender may be in a preferred lender arrangement without realizing it means that a preferred lender arrangement does not exist unless both parties are aware of the arrangement. These commenters recommended that we revise our proposed definition of

preferred lender arrangement

to specify that a preferred lender arrangement can only arise when both the lender and the school are aware of the arrangement. These commenters argued that this change in the definition would align our regulations with the Official Staff Interpretations included with the Federal Reserve's final regulations.

Discussion:

We disagree that there is a conflict between our definition of

preferred lender arrangement

and the statement in the Official Staff Interpretations included with the Federal Reserve's final regulations that a lender is only required to comply with the preferred lender arrangement disclosure requirements in 12 CFR 226.48(f) if the lender is aware that it is a party to a preferred lender arrangement.

The issue of whether a preferred lender arrangement exists if a lender is not aware that it is a party to the arrangement came up frequently during the negotiated rulemaking process. As we stated during negotiated rulemaking and in the preamble to the NPRM, a preferred lender arrangement exists if a lender provides or issues education loans to students (or the families of students) attending a covered institution and the covered institution or an institution-affiliated organization recommends, promotes, or endorses the education loan products of the lender. If both of these conditions are met, a preferred lender arrangement exists, whether or not the covered institution and the lender have entered into a formal agreement.

We agree with the Federal Reserve Board that it is possible for a lender to make loans to students at a covered institution and not be aware that the covered institution recommends, promotes, or endorses the education loan products of the lender. We do not view the Federal Reserve Board's position to be, however, that a preferred lender arrangement does not exist if the lender is not aware of the preferred lender arrangement. The Federal Reserve Board acknowledges that the arrangement exists, but states that the lender is not required to comply with the preferred lender arrangement disclosure requirements in 12 CFR 226.48(f) unless the lender is aware that it is a party to a preferred lender arrangement.

Changes:

None.

Comment:

Paragraph (3) of the definition of

preferred lender arrangement

specifies that a preferred lender arrangement does not exist with regard to private education loans made by a covered institution to its own students, if the private education loans meet the requirements in paragraphs (3)(i), (3)(ii), (3)(iii) and (3)(iv) of the

preferred lender arrangement

definition in proposed § 601.2(b). One commenter recommended that private education loans made by a foundation created to support a covered institution also should be exempted, if the loans meet the other criteria stipulated in the definition. The commenter defined “foundations” to include non-profit endowments, foundations, or other entities that are created to support a covered institution and its students. The commenter stated that these foundations are not lenders or lending institutions in the traditional sense, but they often make loans to students at covered institutions, funded by donor-directed contributions and other assets of the foundation.

This commenter also recommended that we amend paragraph (3)(iii) of the definition of

preferred lender arrangement

in proposed § 601.2(b) to exempt loans made through State aid programs available to in-state students. The commenter noted that such State aid loan programs may have a service requirement, resulting in no monetary payback if the borrower meets the service obligations.

Discussion:

We agree with the comment relating to foundations, and note that the lead-in language to the definition of the term

preferred lender arrangement

in proposed § 601.2(b) refers to both covered institutions and institution-affiliated organizations. We believe that the exceptions specified in paragraph (3) of the

preferred lender arrangement

definition apply to private education loans provided or issued by institution-affiliated organizations, as well as private education loans provided or issued by covered institutions. The definition of the term

institution-affiliated organization

includes foundations and other entities of the type the commenter included under its definition of the term “foundations”.

We also agree with the recommendation to include loans made to students from State-funded financial aid programs among the exceptions for Public Health Service Loans in paragraph (3)(iii) of the

preferred lender arrangement

definition in § 601.2(b), if the terms and conditions of the loans include a loan forgiveness option for public service. However, we have not limited this exemption to State-funded financial aid programs for in-state students, as the commenter suggested. We believe that these types of State-funded loans should be exempt from the

preferred lender arrangement

definition regardless of whether the loans are limited to in-state students.

Changes:

We have revised paragraphs (3) and (3)(i) of the definition of the term

preferred lender arrangement

in § 601.2(b) to reference institution-affiliated organizations (not only covered institutions). We also have revised paragraph (3)(iv) of the definition to refer to State-funded financial aid programs.

Comment:

One commenter requested clarification of the provision in the definition of

preferred lender

arrangement

that states that an arrangement or agreement does not exist if the private education loan provided or issued to a student attending a covered institution is made by the covered institution using its own funds. The commenter referred to language in the preamble of the NPRM stating that an institution would not be considered to be using its own funds if it borrowed money from a lender to make a private education loan to a student and then sold the loan to that lender shortly after making the loan, in effect acting as a pass-through for the lender's funds. While sharing the Department's concern that an institution may become a pass-through for a lender if the institution sells a private education loan back to the lender from which the institution received the initial funding, the commenter also worried that limitations placed on selling private education loans made by a covered institution would prevent schools from raising capital to make additional institutional loans. The commenter asked if an institution would be permitted to sell a private education loan to a different or unaffiliated lender that was not the source of the funds used to make the loan and still be considered to be using its own funds.

Discussion:

The Department remains concerned about situations where a covered institution obtains funds from a lender to make private education loans to its students and then sells the loans back to that lender, or another unaffiliated lender, shortly after making the loan. As stated in the preamble to the NPRM, we believe that the covered institution is merely acting as a pass-through for the lender's funds in these situations. Exempting loans made under these conditions from the preferred lender arrangement requirements would create a loophole that covered institutions could use to avoid the preferred lender requirements. The Department also continues to believe that these arrangements may be deceptive to borrowers who believe they are receiving a private education loan from the covered institution only to find that, very shortly after the loan is made, the actual loan holder is another entity entirely.

The Department recognizes, however, that borrowing money or using a business line of credit from a lender is a common form of financing that enables a covered institution to meet its working capital needs and operating expenses. Rather than focus on the use of a line of credit or borrowed funds in defining an institution's own funds, the Department believes that it is more helpful to consider the totality of the circumstances around the extension of private education loans by a covered institution and what happens to these loans over a period of time. In that vein, the Department will consider a covered institution that makes a private education loan to be using its own funds if the loan is made using funds that include, but are not necessarily limited to, tuition and fee revenue, investment income, endowment funds, borrowed money or a line of credit, and the covered institution does not sell or collateralize the private education loan for two years from the date the loan is fully disbursed, nor does the covered institution engage in an arrangement tying the sale of a private education loan to a lender after the two year period has elapsed.

Changes:

None.

Comment:

The definition of

private education loan

in proposed § 601.2(b) corresponds to the definition of

private education loan

in section 140 of the Truth in Lending Act (TILA) (15 U.S.C. 1631). The definition of

private education loan

in 12 CFR 226.46(b)(5) of the Federal Reserve's final regulations is also based on the definition in section 140 of the TILA. However, through regulations, the Federal Reserve has interpreted the statutory term private education loan to include certain exemptions. Under 12 CFR 226.46(b)(5), an extension of credit provided by a covered educational institution is not a private education loan if the extension of credit is for a term of 90 days or less, or if the term of the extension of credit is one year or less and an interest rate will not be applied to the credit balance.

Several commenters recommended that we revise the definition of

private education loan

in § 601.2(b) by including these exemptions. One commenter noted that applying the private education loan disclosures to such short-term extensions of credit would not provide meaningful disclosures to students. Requiring such disclosure for short-term extensions of credit could lead schools to stop providing such extensions of credit, making it more difficult for students to benefit from the flexible payment options offered by these extensions of credit.

Discussion:

We agree with the commenters. We also note that the Federal Reserve Board's interpretation of the definition of

private education loan,

as reflected in 12 CFR 226.46(b)(5), renders the proposed exception for loans made under an institutional payment plan in paragraph (3)(iv) of the definition of

preferred lender arrangement

in proposed § 601.2(b) superfluous.

Changes:

We have revised the definition of

private education loan

in § 601.2(b) to exclude extensions of credit that meet the criteria specified by the Federal Reserve Board in 12 CFR 226.46(b)(5). We also have removed the reference to institutional payment plans in subparagraph (3)(iv) of the definition of

preferred lender arrangement.

Subpart B—Loan Information To Be Disclosed by Covered Institutions and Institution-Affiliated Organizations

Preferred Lender Arrangement Disclosures (§ 601.10)

Comment:

One commenter recommended that we modify proposed § 601.10(a)(1)(i), which requires a covered institution in a preferred lender arrangement to disclose the maximum amount of title IV grant and loan aid available to students in the informational materials that discuss education loans that the covered institution makes available. The commenter recommended that instead of referring to title IV grant aid that the regulations specify Pell Grant aid. The commenter also recommended that the regulations include a statement that the title IV information only address title IV aid available to students attending the school. The commenter stated that it would be misleading to students to mandate disclosure of information about all title IV grant and loan programs, since not all schools participate in all of the title IV grant and loan programs.

Discussion:

The information required to be disclosed to students by covered institutions and institution-affiliated organizations is specified in section 152(a)(1)(i)(I) of the HEA. This section specifically refers to grant and loan aid under title IV of the HEA, not just Pell Grant aid. Limiting the information provided to Pell Grant aid would not be consistent with the HEA.

We agree with the commenter that the information provided in these materials should be specific to the covered institution. However, we do not agree that a change to § 601.10(a)(1)(i) is necessary. In our view, § 601.10(a)(1)(i), taken in context with the other regulatory provisions in § 601.10, clearly refers to title IV information specific to the covered institution.

The information specified in § 601.10(a)(1)(i) must be included in information materials that are provided to current or prospective students of the covered institution and must describe or discuss financial aid opportunities available to students (

see

§ 601.10(b)). This information must be provided in a manner that allows a student to take the information into account before

selecting a lender or applying for an education loan (

see

§ 601.10(c)(2)).

The information provided under this section is intended to help students make informed decisions when applying for student financial aid. Providing a student with information on title IV financial aid programs not available at the covered institution could be misleading to the student. In addition, for prospective students who have not made a final decision on which school to attend, we believe it would be more helpful for the student to be able to easily compare the title IV financial aid opportunities available at the different schools the student is considering.

Changes:

None.

Comment:

The preamble to the NPRM makes a reference to

Dear Colleague Letter GEN-08-06

(DCL GEN-08-06), which discusses the use of preferred lender lists in the FFEL Program. DCL GEN-08-06, which is available at

http://www.ifap.ed.gov/dpcletters/GEN0806.html,

states that a neutral, comprehensive list of lenders that have made loans to students at a school within a set period of time, such as three to five years, and that provides a clear statement that a borrower can choose to use any FFEL lender, is not considered a preferred lender list. DCL GEN-08-06 also states that the school may not provide any additional information about the lender on the list.

Commenters asked whether the guidance in DCL GEN-08-06 applies to a list of lenders who have made private education loans at a covered institution, as well as to a list of FFEL lenders.

Discussion:

The guidance in DCL GEN-08-06 applies to a list of lenders who have made private education loans at a covered institution, as well as a list of FFEL lenders. During the negotiated rulemaking sessions, we stated that the list of lenders could also include a comparison of terms and conditions offered by the lenders on the loans being offered.

As noted in the NPRM, if a covered institution includes certain lenders on the list and leaves other lenders off the list, the Department views the covered institution as recommending, promoting, or endorsing the lenders on the list over the lenders that it has chosen to leave off the list regardless of whether the covered institution includes a disclaimer on the list, asserting that the covered institution does not recommend, promote, or endorse the lenders on its list. Unless the list is a neutral, comprehensive list of lenders who lent to students at the school, the list serves to recommend, promote, or endorse the lenders on the list, despite whatever disclaimers the school may attach to the list.

Changes:

None.

Comment:

One commenter noted that many institutions are no longer providing students and their families with a preferred lender list for private education loans. Instead, many institutions are referring borrowers to Web sites developed by third party entities that contain neutral lists of private education lenders and the loan products they offer. The commenter requested that the Department clarify its position on the use of these private education lender lists by institutions of higher education in helping students and their families explore their higher education financing options.

Discussion:

The Department does not consider an institution that refers its students to a third party entity that maintains a comprehensive, neutral listing of private education lenders to be participating in a preferred lender arrangement as long as the institution ensures that the listing is broad in scope, does not endorse or recommend any of the lenders on the list and the lenders on the list do not pay the third party entity to be placed on the list or pay the third party entity a fee based on any loan volume generated. However, if an institution retains a third party entity to develop a customized lender list for the institution to provide to its students as a resource, either through a Request for Information or some other process, the Department does consider the institution to be participating in, and subject to the requirements of, a preferred lender arrangement under part 601.

Changes:

None.

Comment:

One commenter asked us to clarify whether a covered institution could be required to comply with the preferred lender arrangement disclosures if the covered institution does not have a preferred lender list. The commenter wanted to know if there are instances in which an institution would be considered to be recommending, promoting, or endorsing an education loan product in the absence of a preferred lender list. The commenter expressed concern that a covered institution might not realize that it is in a preferred lender arrangement, and therefore fail to comply with the preferred lender arrangement requirements.

Discussion:

Any action that a covered institution takes to recommend, promote, or endorse the education loan products of a lender that provides or issues education loans to students attending the covered institution triggers the preferred lender arrangement requirements. The actions a covered institution may take to recommend, promote, or endorse the education loan products of a lender are not limited to including the lender on a preferred lender list.

If a covered institution is unsure whether it is in a preferred lender arrangement with a lender, the covered institution should review its policies and practices with regard to that lender. We do not believe that a covered institution would have difficulty determining whether or not the covered institution is recommending, promoting, or endorsing a lender's loan products, or whether or not the covered institution is complying with DCL GEN-08-06.

Moreover, the program participation agreement requirements in § 668.14(b)(28) require an institution that participates in a preferred lender arrangement to annually publish a list of lenders with which it has preferred lender arrangements. To comply with this requirement, an institution must routinely determine whether it is in a preferred lender arrangement with any lender that provides education loans to the institution's students.

Changes:

None.

Private Education Loan Disclosures and Self-Certification Form (§ 601.11)

Comment:

Several commenters stated that the requirement for a self-certification form should be confined to direct-to-consumer private education loans and that the self-certification form should not be required if an institution is already certifying the borrower's cost of attendance, estimated financial assistance, enrollment status and academic progress directly to the private education lender. These commenters stated that requiring an institution to provide an enrolled or admitted student applicant of a private education loan with the self-certification form and the information necessary to complete the form, in addition to the school certification to the private education lender, would delay the delivery of loan funds to students and families, result in conflicting information if the borrower changed the information on the form, and create a duplicative and unnecessary administrative burden on institutions.

Another commenter asked the Department to provide relief from the self-certification form requirements when:

• The borrower is an international student (non-citizen) and not eligible for title IV aid;

• The borrower has been determined not eligible for title IV aid; or

• The borrower has already received all of the title IV funds for which she is eligible.

This commenter further suggested that the Department exempt an institution of higher education that makes private education loans to its students from the requirement that it provide an applicant for the institutional loan with the self-certification form or, alternatively, to allow the institution to provide clarification to the prospective borrower on his or her eligibility for title IV aid.

Discussion:

The Department understands that requiring an institution to provide the private self-certification form, and making available the information needed to complete the form, represents an increase in burden and may, in some cases, create duplicative processes. However, the statutory language in section 128(e)(3) of the TILA and sections 155 and 487(a)(28)(A) of the HEA is clear: The TILA requires private education lenders to obtain the self-certification form from all borrowers of private education loans, as that term is defined in the TILA, without exception. The HEA requires the form, and the information required to complete it, to be made available to the applicant by the relevant institution of higher education, in written or electronic form, upon request of the applicant, without exceptions, and conditions an institution's participation in any title IV, HEA program, on compliance with this requirement.

The Department, in negotiating rules implementing this provision in §§ 601.11(d) and 668.14(b)(29)(i), clarified that the institution must provide the form only to an enrolled or admitted student. We believe this clarification will help minimize the potential burden of this requirement.

Moreover, the Federal Reserve Board, in implementing section 128(e)(3) of the TILA provided some flexibility to private education lenders in obtaining the form that has an impact on an institution's responsibilities. The Federal Reserve Board, in 12 CFR 226.48, provides three ways for a private education lender to obtain the self-certification form: (1) The lender may receive the form directly from the consumer; (2) the lender may receive the form from the consumer through the institution of higher education; or (3) the lender may provide the form, and the information the consumer will require to complete the form, directly to the consumer.

While all three of these options require the institution to provide the form, and the information required to complete the form, to either the private loan applicant or the private education lender, the Department believes that options 2 and 3 may be less burdensome on the institution, especially if the institution has an existing relationship with the lender.

Although the Federal Reserve has built some flexibility into the process of obtaining the self-certification form for the lender, the Department emphasizes that an institution is not required to provide the form, or the information needed to complete the form, to anyone other than the borrower in order to comply with §§ 601.11(d) and 668.14(b)(29)(i). An institution may provide the form to the lender at its option.

Changes:

None.

Subpart C—Responsibilities of Covered Institutions and Institution-Affiliated Organizations

Code of Conduct (§ 601.21)

Comment:

The code of conduct provisions in § 601.21(c)(2)(i) prohibit employees of the financial aid office of a covered institution from soliciting or accepting gifts from a lender, guarantor, or loan servicer. However, as specified in § 601.21(c)(2)(iii)(D), entrance and exit counseling services provided to borrowers do not qualify as a gift, as long as the covered institution's staff are in control of the counseling and the counseling does not promote the products or services of a specific lender. One commenter recommended that the Department clarify the meaning of “in control” with respect to the counseling, and in a manner that minimizes the potential for conflicts of interest, particularly with regard to opportunities for lenders to build awareness of their brand through the counseling. This commenter also recommended that we modify § 601.21(c)(2)(iii)(D) to explicitly prohibit lender-provided personnel from providing the counseling, except in emergency situations as specified in § 601.21(c)(6)(iii)(D).

Discussion:

The code of conduct requirements in § 601.21 track very closely the code of conduct requirements in section 487(e)(1) through 487(e)(7) of the HEA. The statutory provisions and corresponding provision in § 601.21(c)(6)(iii)(D) specifically allow a lender to provide entrance and exit counseling “services to borrowers.” We believe that it would be inconsistent with the statute to prohibit lender-provided personnel from providing these services. However, as the commenter points out, the covered institution's staff must be in control of the counseling.

To remain in control of the counseling, the covered institution has to review and approve the content of the counseling and provide oversight over how the counseling is conducted. Ultimately, the covered institution is responsible for the entrance and exit counseling that its borrowers receive. We believe this oversight by the covered institution will mitigate against lenders using the counseling to promote their products.

Changes:

None.

Comment:

One commenter believed that proposed § 601.21(c)(5)(i) goes beyond Congressional intent and may reduce the availability of private education loans to certain students. This section prohibits a covered institution from accepting any offer from a lender for funds to be used for private education loans, if the offer is made in exchange for the covered institution's providing concessions or promises to provide the lender a specified number of loans, a specified loan volume, or a preferred lender arrangement for FFEL loans or private education loans. The commenter noted that section 487(e)(5)(A)(i) of the HEA limits this provision to FFEL Loans. The commenter recommended that we remove the reference to private education loans from § 601.21(c)(5)(i)(A).

Discussion:

The code of conduct requirements specified in section 487(e) of the HEA are from the section of the HEA that describes program participation agreements for institutions that participate in the title IV programs. Section 487(a)(25)(A)(ii) of the HEA specifies that the code of conduct shall, “at a minimum,” include the provisions described in section 487(e) of the HEA. Section 153(c)(3)(A) of the HEA requires covered institutions and institution-affiliated organizations that participate in preferred lender arrangements to comply with the code of conduct requirements in section 487(a)(25) of the HEA. Because covered institutions do not necessarily participate in the title IV programs, and preferred lender arrangements may relate to private non-title IV education loans as well as title IV education loans, we continue to believe that it is necessary to include private education loans in § 601.21(c)(5)(i)(A).

Changes:

None.

Comment:

The code of conduct provisions prohibit a covered institution from requesting or accepting any assistance with call center staffing or financial aid office staffing from a lender. However, § 601.21(c)(6)(ii) specifies that a covered institution may request or accept educational

counseling materials, financial literacy materials, or debt management materials from a lender, provided that the materials identify any lender that assisted in preparing or providing the materials. One commenter believed that the requirement to identify the lender on the materials could result in direct or indirect promotional opportunities for the lender. The commenter recommended that we prescribe the text and format of the language that identifies the lender on the materials. The commenter also recommended that we require the language identifying the lender to clearly state that the borrower is not expected or required to use the lender's products and has the right to obtain loans from a lender of the borrower's choice.

Discussion:

We believe that it would be overly prescriptive for the Department to mandate the specific language and formatting used to identify the lender or lenders who developed the materials.

Changes:

None.

Comment:

While the code of conduct provisions generally prohibit a covered institution from requesting or accepting staffing assistance from a lender, § 601.21(c)(6)(iii) provides an exception for staffing assistance provided on a short-term, non-recurring basis to assist the covered institution with financial aid-related functions during emergencies.

One commenter stated that this provision conflicts with the prohibited inducement provisions in the Team I NPRM, published in the

Federal Register

on July 23, 2009 (74 FR 36556). Specifically, the commenter stated that § 682.200(b)(5)(i)(A)(

10

) prohibits lenders from offering to perform any function required under title IV for a school, other than exit counseling.

Discussion:

Section 682.200(b)(5)(i)(A)(

10

) does not prohibit a lender from providing these services to a school in all circumstances. The prohibition only applies if a lender provides the services “to secure applications for FFEL loans or to secure FFEL loan volume” (

see

§ 682.200(b)(5)(i)(A)). The Department assumes the necessary intent if we take action against a lender for providing such prohibited inducements, but the lender may demonstrate to the Department that such intent was not present, and there was no quid pro quo between the school and the lender. As long as there is no evidence that the lender was providing the services to increase the number or volume of loans, there would not be a prohibited inducement. Therefore, the provisions in § 682.200(b)(5)(i)(A)(

10

) and § 601.21(c)(6)(iii) do not conflict.

Changes:

None.

Subpart E—Lender Responsibilities

Disclosure and Reporting Requirements for Lenders (§ 601.21)

Comment:

One commenter noted that § 601.40(c) requires FFEL lenders to annually certify to the Secretary their compliance with the HEA if they are in a preferred lender arrangement with any school. The commenter noted that a lender could be in a preferred lender arrangement without being aware of it, and suggested that the requirement in § 601.40(c) only apply to lenders that know they are in a preferred lender arrangement.

Discussion:

If a lender is providing or issuing education loans to students attending a covered institution, it is incumbent on the lender to determine whether or not the lender and the covered institution are in a preferred lender arrangement. Being unaware of its obligation to comply with the preferred lender arrangement requirements does not exempt a lender from its obligation to comply with the requirements.

Given the extensive reporting and disclosure requirements specified in part 601, we believe that it is extremely unlikely that a lender will be unaware when it is in a preferred lender arrangement with a covered institution.

Specifically, covered institutions are required to provide detailed information on private education loans offered pursuant to a preferred lender arrangement, as well as information on why the covered institution participates in a preferred lender arrangement with the lenders on its preferred lender list. The preferred lender list must disclose the method and criteria used by the covered institution to select lenders for inclusion on the list. Covered institutions are likely to contact lenders to determine if the lender meets the selection criteria established by the covered institution.

If the covered institution has not directly contacted the lender to obtain the information needed for its various disclosures and reports, a lender can quickly and easily determine whether it is in a preferred lender arrangement by accessing the covered institution's Web site. A covered institution that participates in a preferred lender arrangement must post on its Web site information on private education loans offered through the preferred lender arrangement, pursuant to § 601.10(a)(2)(i). The covered institution must also submit an annual report to the Department, which includes a detailed explanation of why the covered institution participates in the preferred lender arrangement. The covered institution must make the annual report available to the public, pursuant to § 601.20(b).

If a lender reviews all of this information and still cannot determine whether or not it is in a preferred lender arrangement with a covered institution, the lender can always contact the covered institution directly.

Enforcement actions taken by the Department against a lender for failing to comply with the preferred lender arrangement requirements will take into account the extent of the efforts made by the lender to determine whether it was in a preferred lender arrangement.

Changes:

None.

Comment:

Proposed § 601.40(d) requires lenders in a preferred lender arrangement to annually provide to the institution or institution-affiliated organization, and to the Secretary, information regarding the FFEL loans the lender will provide to students and families pursuant to the preferred lender arrangement for the next award year. One commenter recommended that a FFEL lender with a preferred lender arrangement with a covered institution or an institution-affiliated organization relating to FFEL loans must annually, or upon the request of the institution, provide such information as required.

Discussion:

Proposed § 601.40(d) is consistent with the statutory requirements in section 153(b) of the HEA. Because the commenter provided no explanation or justification for the requested change, we have no basis for making the requested change.

Changes:

None.

Code of Conduct (§ 668.14(b)(27))

Comment:

One commenter requested that the Department clarify the applicability of the code of conduct requirements. The commenter asked under what circumstances § 601.21(a) applies and under what circumstances § 668.14(b)(27) applies.

Discussion:

The HEOA added requirements for an institutional code of conduct in both section 153(c)(3) and section 487(a)(25) of the HEA. These changes are reflected in §§ 601.21(a) and 668.14(b)(27), respectively. The code of conduct requirements in § 601.21(a) apply to covered institutions and institution-affiliated organizations that have a preferred lender arrangement. A covered institution is any institution that receives Federal funding, including institutions that do not participate in the Title IV programs. The regulations in § 668.14(b)(27) require all institutions

to develop a code of conduct as a condition of program participation in any of the Title IV, HEA loan program.

Changes:

None.

Private Education Loan Certification (§ 668.14(b)(29))

Comment:

Several commenters noted that Congress enacted technical amendments to the HEA that changed the data that must be included on the private loan self-certification form. The commenters requested that corresponding changes be made to § 668.14(b)(29).

Discussion:

The Higher Education Technical Corrections (Pub. L. 111-39) made technical amendments to the HEA that changed the information on the private loan self-certification form that an institution must provide to any enrolled student who requests it. Public Law 111-39 added a requirement to report amounts of estimated financial assistance used to replace the expected family contribution and removed the requirement to report the expected family contribution.

Changes:

We revised § 668.14(b)(29) to reflect the changes made by Public Law 111-39 to the information to be reported to students on the private loan self-certification form.

Disclosures of Reimbursement for Service on Advisory Boards (§ 668.16(d)(2))

Comment:

One commenter urged the Department to amend § 668.16(d)(2) by expanding the requirement to report to the Secretary any reasonable expenses paid or provided under section 140(d) of the TILA to all institutional officials with authority or influence on the selection of lenders.

Discussion:

The HEOA amended section 485(m) of the HEA by adding, as a condition of participation in any title IV, HEA program, the requirement that the institution must annually report to the Secretary on any reasonable reimbursements paid or provided by a private education lender or group of lenders to any individual who is employed in the financial aid office of the institution or who otherwise has responsibilities with respect to education loans or other financial aid of the institution. The institution must report the amount of reasonable expenses paid or reimbursed, the name of the individual to whom the expenses were paid or provided, the dates of the activity for which the expenses were paid or provided, and must provide a brief description of the activity for which the expenses were paid or provided. While we believe that individuals who assist in or influence the selection of lenders would be included in the language as proposed, we agree that the recommended change is appropriate to highlight the HEOA's goal of transparency and accountability.

Changes:

We have amended § 668.16(d)(2) to specifically reference, as an example of individuals who have responsibilities with respect to education loans, individuals with responsibilities for the selection of lenders.

Cohort Default Rates

Comment:

A few commenters asked the Department to clarify the circumstances under which an institution's published cohort default rate would be recalculated as a result of an average rates appeal.

Discussion:

Regarding the provision for publicly correcting rates as a result of average rate appeals, we note that average rate appeals under §§ 668.196(a)(1)(i) and 668.215(a)(1)(i) do not involve new rates, so the provision for correction is inapplicable. Average rate appeals under §§ 668.196(a)(1)(ii) and 668.215(a)(1)(ii) do not involve new rates either, but instead are a comparison of the average rate with the draft rate, as corrected by any timely adjustment, challenge or appeal. The regulations continue to provide that draft rates will be kept confidential. As a result, in the case of an average rates appeal, there is no corrected rate available for the Department to publish.

Changes:

We have removed from §§ 668.196(c) and 668.215(c) the language stating that we will electronically correct the rate that is publicly released following a successful average rates appeal.

Comment:

None.

Discussion:

As part of our intradepartmental review of the cohort default rate regulations affected by the NPRM, we realized that proposed § 668.202(c) and current § 668.183(c), which identify the conditions and timeframes relating to when a borrower is considered to be in default on a loan, do not explicitly address uninsured loans held by the Department under the Ensuring Continued Access to Student Loans Act of 2008 (ECASLA)(Pub. L. 110-227). As explained more fully in a notice published in the

Federal Register

on July 1, 2008 (73 FR 37422), under the ECASLA, the Secretary has authority to purchase, or enter into forward commitments to purchase, FFELP loans. Loans that the Department holds under this authority are not insured. The Department is responsible for servicing these uninsured FFELP loans.

The Department's CDR regulations need to identify when these uninsured FFELP loans that the Department holds are considered in default for CDR purposes. The date of default for CDR purposes for other FFELP loans is defined under § 668.183(c)(1)(i) and new § 668.202(c)(1)(i) as the date a claim for insurance is paid. Because the uninsured FFELP loans are indistinguishable from Direct Loan Program loans for CDR purposes, we have revised §§ 668.183(c) and 668.202(c) to follow the approach used in § 668.183(c)(1)(ii), concerning the date of default of Direct Loan Program loans, for defining the date of default of uninsured FFELP loans held by the Department.

Changes:

We have revised §§ 668.183(c) and 668.202(c) to clarify that FFELP loans held by the Department under ECASLA are treated in the same way as Direct Loans with respect to determining when a borrower defaults.

Special Definitions (§ 674.51(b))

Comment:

One commenter asked if there is a list of institutions that may be used as a reference when determining a borrower's eligibility for cancellation based on service as a full-time faculty member of a Tribal College or University, as that term is defined in section 316 of the HEA.

Discussion:

The HEOA amended section 465(a)(2) of the HEA by adding a new public service cancellation category for borrowers in the Federal Perkins Loan program who are performing qualifying service as a full-time faculty member at a Tribal College or University, as that term is defined in section 316 of the HEA. We amended § 674.51(b) to reflect this change.

The Department provides a list of Tribal Colleges and Universities on its Web site at

http://www.ed.gov/about/inits/list/whtc/edlite-tclist.html#MN

. This list can be used as a resource when establishing a borrower's eligibility for cancellation under this provision.

Changes:

None.

Teacher Cancellation (§ 674.53(e))

Comment:

One commenter noted that proposed § 674.53(e) stated that a borrower is eligible for cancellation of a Perkins loan if she is a teacher in a designated public or other non-profit low-income elementary or secondary school or an educational service agency and the borrower is directly employed by the school system. The commenter further noted that, in the case of a borrower who is teaching in an educational service agency, the borrower may be working for many

school districts. The commenter asked the Department to clarify if a borrower in this situation would qualify for cancellation benefits under this provision.

Discussion:

The HEOA amended section 465(a)(2)(A) of the HEA to expand cancellation benefits to a Perkins Loan borrower who is a teacher employed by an educational service agency, or who is a full-time special education teacher, including a teacher of infants, toddlers, children, or youth with disabilities, who is working in a system administered by an educational service agency. We amended § 674.53(a) to reflect this statutory change.

With regard to a borrower who is employed by an educational service agency, we consider the borrower to be employed by the school system and to qualify for cancellation benefits regardless of the number of school districts in which the borrower works. A more detailed discussion of educational service agencies is contained in the Department's final regulations implementing the lender and guaranty agency provisions (RIN 1840-AC98) [Docket ID ED-2009-OPE—0004].

Changes:

None.

Cancellation for Law Enforcement or Corrections Officer Service (§ 674.57)

Comment:

One commenter asked the Department to clarify how to determine if Community Defender Organizations and Federal Public Defender Organizations are established in accordance with section 3006A(g)(2)(B) and 3006A(g)(2)(A) of the Criminal Justice Act, respectively, when establishing a borrower's eligibility for cancellation based on her service as a full-time attorney employed in a defender organization.

Discussion:

The HEOA amended section 465(a)(2)(F) of the HEA to extend cancellation benefits to borrowers who are employed full-time as an attorney in Federal Public Defender Organizations or Community Defender Organizations established in accordance with section 3006A(g)(2) of the Criminal Justice Act. We amended § 674.57 of the Perkins Loan Program regulations to reflect this change.

Pursuant to the Criminal Justice Act, the Office of Defender Services of the Administrative Office of the U.S. Courts provides information on its Web site that lists these Community Defender and Federal Public Defender Organizations. The Directory can be found at the following address:

http://www.fd.org/pdf_lib/defenderdir8_17_09.pdf

.

This Directory is updated daily. Although this is not a Web site that is administered by the Department of Education, the directory provided on this site may assist in determining a borrower's eligibility for cancellation under this provision. Additional guidance on this cancellation benefit will be provided in the Department's Federal Student Aid Handbook.

Changes:

None.

Cancellation for Military Service (§ 674.59)

Comment:

One commenter asked the Department to clarify the percentage rate of cancellation for a borrower in her third year of qualifying military service under the newly authorized military service cancellation rates if the borrower had previously received two years of cancellation at the previously authorized cancellation rate of 12

1/2

percent.

Discussion:

The HEOA amended section 465(a)(3)(A) of the HEA to allow borrowers who are serving in areas of hostility to receive a cancellation of up to 100 percent of the loan for each full year of qualifying active duty service effective on August 14, 2008, in the following increments: 15 percent for the first and second years of service; 20 percent for the third and fourth years of service; and 30 percent for the fifth year of service. Previously, the percentage of a loan canceled for qualifying military service could not exceed a total of 50 percent of the loan at a rate of 12

1/2

percent per year. We amended § 674.59 to reflect these changes.

To clarify, a borrower who has received a military service cancellation for two years under the previously authorized cancellation rate of 12.5 percent, and who now qualifies for a third year of military service under the new cancellation rates, would qualify at the third-year 20 percent cancellation rate for the third year of eligible military service.

Changes:

None.

Entrance Counseling

Counseling Borrowers (§§ 682.604 and 685.304)

Comment:

One commenter recommended that the Department add disclosures to the entrance counseling provisions alerting students to some of the negative aspects of private student loans and the availability of parent PLUS loans. The commenter also recommended that the Department provide guidance to schools about the format, presentation, and timing of the information so that it is more useful to borrowers.

Discussion:

We believe that the Truth-in-Lending Act disclosures private education lenders are required to provide to borrowers of a private education loan, which include a disclosure about the availability of Federal student aid, adequately address the information a borrower needs to know before borrowing a private education loan.

Changes:

None.

Exit Counseling

Counseling Borrowers (§§ 674.42(b), 682.604(g) and 685.304(b))

Comment:

One commenter encouraged the Department to add information about the eligibility criteria for the Income-Based Repayment and Public Service Loan Forgiveness Programs to exit counseling provisions.

Discussion:

The exit counseling provisions in §§ 682.604(g)(2)(ii) and 685.304(b)(4)(ii) require that the features of all the available repayment plans be reviewed for the borrower. The exit counseling provisions in §§ 682.604(g)(2)(viii)(A) and 685.304(b)(4)(ix)(A) require that a general description of the terms and conditions under which a borrower may obtain full or partial forgiveness or discharge of a loan be reviewed for the borrower. The Department considers the eligibility criteria for an income-based repayment plan and for public service loan forgiveness to be covered under these requirements.

Changes:

None.

Executive Order 12866

1.

Regulatory Impact Analysis

Under Executive Order 12866, the Secretary must determine whether the regulatory action is “significant” and therefore subject to the requirements of the Executive Order and subject to review by the OMB. Section 3(f) of Executive Order 12866 defines a “significant regulatory action” as an action likely to result in a rule that may (1) have an annual effect on the economy of $100 million or more, or adversely affect a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local or Tribal governments or communities in a material way (also referred to as an “economically significant” rule); (2) create serious inconsistency or otherwise interfere with an action taken or planned by another agency; (3) materially alter the budgetary impacts of entitlement grants, user fees, or loan programs or the rights and obligations of recipients thereof; or (4) raise novel legal or policy issues arising out of legal mandates, the

President's priorities, or the principles set forth in the Executive order.

Pursuant to the terms of the Executive order, it has been determined that this regulatory action will not have an annual effect on the economy of more than $100 million. Therefore, this action is not “economically significant” and subject to OMB review under section 3(f)(1) of Executive Order 12866. Notwithstanding this determination, the Secretary has assessed the potential costs and benefits of this regulatory action and has determined that the benefits justify the costs.

Need for Federal Regulatory Action

As discussed in the NPRM, these regulations are needed to implement provisions of the HEA, as amended by the HEOA, particularly related to the new part E to the HEA,

Lender and Institution Requirements Relating to Education Loans,

which establishes extensive new disclosure requirements for lenders and institutions participating in Federal and private student loan programs. These regulations also implement significant changes made by the HEOA to provisions related to institutional cohort default rates and Perkins Loan cancellations.

Regulatory Alternatives Considered

Regulatory alternatives were considered as part of the rulemaking process. These alternatives were reviewed in detail in the preamble to the NPRM under both the

Regulatory Impact Analysis

and the

Reasons

sections accompanying the discussion to each proposed regulatory provision. To the extent that they were addressed in response to comments received on the NPRM, alternatives are also considered elsewhere in this preamble to the final regulations under the

Discussions

sections related to each provision. No comments were received related to the

Regulatory Impact Analysis

discussion of these alternatives.

As discussed in the

Analysis of Comments and Changes

section of this preamble, these final regulations restate specific HEOA requirements, in many cases using language drawn directly from the statute, language for which consensus was reached through negotiated rulemaking, and minor revisions in response to public comments. In most cases, these revisions were technical in nature and intended to address drafting issues or to provide additional clarity. None of these changes result in revisions to cost estimates prepared for and discussed in the

Regulatory Impact Analysis

of the NPRM.

Benefits

As discussed in the NPRM, benefits provided in these regulations include greater transparency for borrowers participating in the Federal and private student loan programs, clearer guidelines on acceptable behavior by and relationships among institutions participating in the student loan programs, and expanded eligibility for Perkins Loan cancellation benefits. It is difficult to quantify benefits related to the new institutional and lender requirements, as there is little specific data available on either the extent of improper or questionable relationships between institutions and lenders prior to the enactment of the HEOA or of the harm such relationships actually caused for borrowers, institutions, or the Federal taxpayer. In the NPRM, the Department requested comments or data that would support a more rigorous analysis of the impact of these provisions. No comments or additional data were received.

Benefits under these regulations flow directly from statutory changes included in the HEOA; they are not materially affected by discretionary choices exercised by the Department in developing these regulations, or by changes made in response to comments on the NPRM. As noted in the

Regulatory Impact Analysis

in the NPRM, these proposed provisions result in net costs to the Federal Government of $71.953 million over 2009-2013.

Costs

As discussed extensively in the

Regulatory Impact Analysis

of the NPRM, many of the statutory provisions implemented though these regulations will require regulated entities to develop new disclosures and other materials, as well as accompanying dissemination processes. In total, these changes are estimated to increase burden on entities or individuals participating in the student loan programs by 4,636,495 hours. Of this increased burden, 292 hours are associated with lenders and 1,195,769 hours with institutions. An additional 3,440,434 hours—or 74.2 percent of the total burden associated with the proposed regulations—are associated with borrowers. The monetized cost of this additional burden, using loaded wage data developed by the Bureau of Labor Statistics, is $78.5 million, of which $56.3 million is associated with borrowers and $22.2 million with schools. Lender costs are de minimus because of the small number of hours associated with those entities.

Given the limited availability of data underlying these burden estimates, in the NPRM the Department requested comments and supporting information for use in developing more robust estimates. In particular, we asked institutions to provide detailed data on actual staffing and system costs associated with implementing these regulations. No comments or additional data were provided.

Net Budget Impacts

HEOA provisions implemented by these regulations are estimated to have a net budget impact of $12.408 million in 2009 and $71.953 million over FY 2009-2013. Consistent with the requirements of the Credit Reform Act of 1990, budget cost estimates for the student loan programs reflect the estimated net present value of all future non-administrative Federal costs associated with a cohort of loans. (A cohort reflects all loans originated in a given fiscal year.)

The budgetary impact of these regulations is largely driven by changes to Perkins loan cancellations for military service. The Department estimates no budgetary impact for other provisions included in these regulations. There is no data indicating that the extensive new requirements for disclosures and codes of conduct for student loan program participants will have any impact on the volume or composition of Federal student loans.

Assumptions, Limitations, and Data sources

As noted in the NPRM, because these regulations largely restate statutory requirements that would be self-implementing in the absence of regulatory action, impact estimates provided in the preceding section reflect a pre-statutory baseline in which the HEOA changes implemented in these regulations do not exist. Costs have been quantified for five years. In developing these estimates, a wide range of data sources were used, including data from the National Student Loan Data System; operational and financial data from Department of Education systems, including especially the Fiscal Operations Report and Application to Participate (FISAP); and data from a range of surveys conducted by the National Center for Education Statistics such as the 2004 National Postsecondary Student Aid Survey, the 1994 National Education Longitudinal Study, and the 1996 Beginning Postsecondary Student Survey. Data from other sources, such as the U.S. Census Bureau, were also used. Elsewhere in this

SUPPLEMENTARY

INFORMATION

section we identify and explain burdens specifically associated with information collection requirements.

See

the heading

Paperwork Reduction Act of 1995.

Accounting Statement

In Table 2 below, we have prepared an accounting statement showing the classification of the expenditures associated with the provisions of these regulations. This table provides our best estimate of the changes in Federal student aid payments as a result of these regulations. Expenditures are classified as transfers from the Federal government to student loan borrowers (for expanded Perkins loan cancellations).

Table 2—Accounting Statement: Classification of Estimated Expenditures

[In millions]

Category

Transfers

Annualized Monetized Transfers

$90.731.

From Whom To Whom?

Federal Government To Student Loan Borrowers.

Regulatory Flexibility Act Certification

The Secretary certifies that these regulations will not have a significant economic impact on a substantial number of small entities. These regulations will affect institutions of higher education, lenders, and guaranty agencies that participate in Title IV, HEA programs and individual students and loan borrowers. The U.S. Small Business Administration Size Standards define institutions and lenders as “small entities” if they are for-profit or nonprofit institutions with total annual revenue below $5,000,000 or if they are institutions controlled by small governmental jurisdictions, which are comprised of cities, counties, towns, townships, villages, school districts, or special districts, with a population of less than 50,000.

As discussed in more detail in the

Regulatory Flexibility Act

section of the NPRM, data from the Integrated Postsecondary Education Data System (IPEDS) indicate that roughly 1,200 institutions participating in the FFEL program meet the definition of “small entities.” More than half of these institutions are short-term, for-profit schools focusing on vocational training. Other affected small institutions include small community colleges and Tribally controlled schools. Burden on institutions associated with these regulations is largely associated with the requirements to provide students with new disclosures related to preferred lender lists, private loan TILA requirements, and other new borrower rights and responsibilities. In many cases, these requirements only require one-time changes to existing entrance and exit counseling materials and should not represent significant new burden. (The Department estimates these changes generally require three hours or less to implement.) For other requirements, such as those affecting schools choosing to maintain a preferred lender list, the Department is providing model disclosure forms, the adoption of which should minimize institutional burden. In addition, the regulations allow schools to avoid the burdens associated with maintaining preferred lender lists with at least three lenders by simply providing students with a list of all lenders who have provided loans at the schools in the past. Accordingly, the Department believes the new requirements reflected in these regulations do not impose significant new costs on these institutions.

The Department believes few if any lenders participating in the FFEL program have revenues of less than $5 million. FFEL program activity is highly concentrated among the largest lenders; should an extremely small number of lenders that meet the threshold participate in the program, they likely are making loans as a service to current clients rather than soliciting new business. This type of lender, with a tangential relationship to Federal and private student loans, is highly unlikely to incur significant new compliance costs as a result of these regulations. Accordingly, the Department has determined that these regulations do not represent a significant burden on small lenders.

Guaranty agencies are State and private nonprofit entities that act as agents of the Federal government, and as such are not considered “small entities” under the Regulatory Flexibility Act. The impact of the regulations on individuals is not subject to the Regulatory Flexibility Act.

In the NPRM, the Secretary invited comments from small institutions and lenders as to whether they believe the proposed changes would have a significant economic impact on them and requested evidence to support that belief. No comments were received.

Paperwork Reduction Act of 1995

Final §§ 601.10, 601.11, 601.20, 601.21, 601.30, 601.40, 668.16, 668.181, 668.186, 668.190, 668.191, 668.200, 668.202, 668.209, 668.210, 668.211, 668.212, 668.213, 668.214, 668.217, 674.42, 674.53, 674.57, 674.58, 674.56, 674.59, 682.604, and 685.304 contain information collection requirements. Under the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)), the Department of Education has submitted a copy of these sections to the Office of Management and Budget (OMB) for its review.

Section 601.10—Preferred Lender Arrangement Disclosures

Final § 601.10(a) requires that a covered institution, or an institution-affiliated organization of a covered institution, that participates in a preferred lender arrangement disclose the maximum amount of Federal grant and loan aid under Title IV of the HEA available to students; the information identified on the model disclosure form developed by the Secretary for each type of education loan that is offered pursuant to a preferred lender arrangement; and a statement that the institution is required to process the documents required to obtain a loan under the FFEL Program from any eligible lender the student selects.

Final § 601.10(a)(2) requires a covered institution, or an institution-affiliated organization of a covered institution, to provide the disclosures required under section 128(e)(11) of the Truth in Lending Act (TILA) for each type of private education loan offered pursuant to a preferred lender arrangement.

Final § 601.10(c) requires a covered institution and institution-affiliated organization that participate in a preferred lender arrangement to provide the disclosure of the maximum amount of Federal grant and loan aid available to students, the information identified on a model disclosure form developed by the Department, as well as a statement indicating to students and parents that the institution is required to process the documents required to obtain a FFEL loan from any eligible lender the student selects. This information needs to be provided to students attending the covered institution, or the families of such students, as applicable. The information needs to be provided annually and in a manner that allows for the students or their families to take the information into account before selecting a lender or applying for an education loan.

Final § 601.10(d) requires that if a covered institution compiles, maintains, and makes available a preferred lender list, the institution must clearly and fully disclose on the preferred lender list why the institution participates in a preferred lender arrangement with each lender on the preferred lender list, particularly with respect to terms and

conditions or provisions favorable to the borrower; and that the students attending the institution, or the families of such students, do not have to borrow from a lender on the preferred lender list.

Final § 601.10(d)(1)(ii) requires that the preferred lender list must specifically indicate, for each listed lender, whether the lender is or is not an affiliate of another lender on the preferred lender list; and if a lender is an affiliate of another lender on the preferred lender list, must describe the details of such affiliation.

Final § 601.10(d)(2) requires the covered institution to ensure, through the use of the list of lender affiliates provided by the Secretary, that there are not less than three FFEL lenders that are not affiliates of each other included on the preferred lender list and, if the institution recommends, promotes, or endorses private education loans, that there are not less than two lenders of private education loans that are not affiliates of each other included on the preferred lender list.

Final § 601.10(d)(3) requires that the preferred lender list prominently disclose the method and criteria used by the institution in selecting lenders with which to participate in preferred lender arrangements to ensure that such lenders are selected on the basis of the best interests of the borrowers. These criteria include payment of origination or other fees on behalf of the borrower; highly competitive interest rates, or other terms and conditions or provisions of Title IV, HEA program loans or private education loans; high-quality servicing; or additional benefits beyond the standard terms and conditions or provisions for such loans.

Final § 601.10(d)(4)(ii) requires that the covered institution exercise a duty of care and a duty of loyalty to compile the preferred lender list without prejudice and for the sole benefit of the students attending the institution, or the families of such students.

Final § 601.10(d)(5) requires a covered institution to not deny or otherwise impede the borrower's choice of a lender or cause unnecessary delay in certification of a Title IV loan for those borrowers who choose a lender that is not included on the preferred lender list.

These final regulations represent an increase in burden. The affected entities under the final regulations are borrowers, and institutions and their institutionally-affiliated organizations. We estimate that the burden for borrowers will increase by 323,103 hours and the burden for institutions and institutionally-affiliated organizations will increase by 12,078 hours, respectively, and we will include the total burden of 335,181 hours in OMB Control Number 1845-XXXA.

Section 601.11—Private Education Loan Disclosures and Self-Certification Form

Final § 601.11(a) requires a covered institution, or an institution-affiliated organization of a covered institution, to provide to a prospective borrower private education loan disclosures. The private education loan disclosures need to provide the prospective borrower with the information required under section 128(e)(1) of the TILA; and need to inform the prospective borrower that he or she may qualify for loans or other assistance under Title IV of the HEA; and that the terms and conditions of Title IV, HEA program loans may be more favorable than the provisions of private education loans.

Final § 601.11(c) requires the covered institution or institution-affiliated organization to ensure that information regarding private education loans is presented in such a manner as to be distinct from information regarding Title IV, HEA program loans.

Final § 601.11(d) requires that, upon an enrolled or admitted student applicant's request for a private education loan self-certification form, an institution must provide to the applicant, in written or electronic form, the self-certification form for private education loans developed by the Secretary to satisfy the requirements of section 128(e)(3) of the TILA. The institution also needs to provide the information required to complete the form, if the institution possesses that information.

These final regulations represent an increase in burden. The entities affected under these regulations are borrowers, and institutions and institutionally-affiliated organizations. We estimate that burden to borrowers will increase by 833,400 hours and the burden to institutions and institutionally-affiliated organizations respectively will increase by 1,107,115 hours and we will include the total burden of 1,940,515 hours in OMB Control Number 1845-XXXA.

Section 601.20—Annual Report Due From Covered Institutions and Institution-Affiliated Organizations

Final § 601.20(a) requires a covered institution, and an institution-affiliated organization, that participates in a preferred lender arrangement to prepare and submit to the Secretary an annual report, by a date determined by the Secretary. The annual report includes, for each lender that participates in a preferred lender arrangement with the covered institution or organization, the information about preferred lenders arrangements that must also be described for students and parents; and a detailed explanation of why the covered institution or institution-affiliated organization participates in a preferred lender arrangement with the lender. The explanation needs to include an explanation of why the terms, conditions, and provisions of each type of education loan provided pursuant to the preferred lender arrangement are beneficial for students attending the institution, or the families of such students, as applicable.

Final § 601.20(b) requires a covered institution or institution affiliated organization to ensure that the annual report is made available to the public and provided to students attending or planning to attend the covered institution and the families of such students.

These final regulations represent an increase in burden. The affected entities under the final regulations are institutions and institutionally-affiliated organizations. We estimate that burden for institutions and institutionally-affiliated organizations will increase by 336 hours in OMB Control Number 1845-XXXA.

Section 601.21—Code of Conduct

Final § 601.21 requires a covered institution that participates in a preferred lender arrangement to develop a code of conduct with respect to FFEL Program loans and private education loans with which the institution's agents must comply to prohibit a conflict of interest with the responsibilities of an agent of an institution with respect to FFEL Program loans and private education loans.

Final § 601.21(a)(2)(ii) and (iii) requires the institution to publish the code of conduct prominently on the institution's Web site; and administer and enforce the code by, at a minimum, requiring that all of the institution's agents with responsibilities with respect to FFEL Program loans or private education loans be annually informed of the provisions of the code of conduct.

Final § 601.21(b)(1) and (b)(2) requires any institution-affiliated organization of a covered institution that participates in a preferred lender arrangement to comply with the code of conduct developed and published by the covered institution and, if the institution-affiliated organization has a Web site, publish the code of conduct prominently on the Web site.

Under final § 601.21(b)(3), the institution-affiliated organization is

required to administer and enforce the code of conduct by, at a minimum, requiring that all of the institution-affiliated organization's agents with responsibilities with respect to FFEL Program loans or private education loans be annually informed of the provisions of the code of conduct.

The code of conduct applies to agents of an institution who are employees of the financial aid office of the institution or who have responsibilities with respect to FFEL Program loans or private education loans.

Final § 601.21(c) prescribes the minimum requirements of a covered institution's code of conduct. An institution's code of conduct must prohibit: revenue-sharing arrangements with any lender; soliciting or accepting gifts from a lender, guarantor, or servicer; accepting any fee, payment, or other financial benefit as compensation for any type of consulting or any contractual relationship with a lender; assigning a first-time borrower's loan to a particular lender or refusing to certify, or delaying certification of, any loan based on a borrower's selection of a particular lender; requesting offers of funds for private education loans, including opportunity pool loans, from a lender in exchange for providing the lender with a specified number or loan volume of FFEL Program loans or private education loans or a preferred lender arrangement; requesting or accepting staffing assistance from a lender; and receipt of compensation for serving on an advisory board, commission, or group established by a lender, guarantor, or group of lenders or guarantors.

Final § 601.21(c)(6) provides exceptions to the ban on staffing assistance, such as staffing assistance related to professional development or training; providing educational counseling materials; or providing short-term, nonrecurring staffing assistance during disasters or emergencies.

These final regulations represent an increase in burden. The affected entities under these regulations are institutions and institutionally-affiliated organizations. We estimate that burden for institutions and institutionally-affiliated organizations, respectively, will increase to 4,697 in OMB Control Number 1845-XXXA.

Section 601.30—Duties of Institutions Participating in the William D. Ford Direct Loan Program

Final § 601.30 requires a covered institution participating in the William D. Ford Direct Loan Program to make the information identified in a model disclosure form developed by the Secretary available to students attending or planning to attend the institution, or the families of such students. If the institution provides information regarding a private education loan to a prospective borrower, the institution must concurrently provide the borrower with the information identified on the model disclosure form.

Final § 601.30(b) allows a covered institution to use a comparable form designed by the institution to provide this information, instead of the model disclosure form.

These final regulations represent an increase in burden. The affected entities under the regulations are borrowers, and institutions and their institutionally-affiliated organizations. We estimate that burden to borrowers will increase by 56,671 hours and 1,353 hours for institutions and institutionally-affiliated organizations, respectively, and we will include the total burden of 58,024 hours in OMB Control Number 1845-XXXB.

Section 601.40—Lender Responsibilities

Final § 601.40(a) requires FFEL lenders to provide FFEL borrowers the disclosures required under current § 682.205(a) and (b). A lender offering private education loans is required to comply with the disclosures required under section 128(e) of the TILA for each type of private loan.

Final § 601.40(b) sets forth the information the lenders will have to provide to the Secretary on an annual basis regarding any reasonable expenses paid or provided to any agent of a covered institution who is employed in the financial aid office or has responsibilities with respect to education loans or other financial aid of the institution for service by the employee on an advisory board, commission or group established by a lender or a group of lenders. This information also needs to be reported for expenses paid or provided to any agent of an institution-affiliated organization involved in recommending, promoting or endorsing education loans. Lenders are required to report the amount of the expenses paid and the specific instances for which it was paid; the names of the agents to whom expenses were paid; and the date and description of each activity for which expenses were paid. This section of the regulations also requires the lender to submit a certification of compliance to the Secretary.

Final § 601.40(c) requires any FFEL lender participating in one or more preferred lender arrangements to annually certify to the Secretary its compliance with the HEA. Lenders required to file an audit under § 682.305(c) will be required to include the certification as part of the audit. A lender that is not required to submit an audit will need to provide the certification separately.

Final § 601.40(d) requires FFEL lenders with a preferred lender arrangement with a covered institution or an institution-affiliated organization to annually provide to the institution, institution-affiliated organization and the Secretary information regarding the FFEL loans the lender will provide to students and families pursuant to the preferred lender arrangement for the next award year. The information will be prescribed by the Secretary, after consultation with the Federal Reserve.

These final regulations represent an increase in burden. The affected entities under the regulations are borrowers and lenders. The estimated burden hours in the NPRM were inaccurate, and the correct estimates follow. We estimate that burden to borrowers will increase by 293,357 hours and that burden for lenders will increase by 623,675 hours and we will include the total burden of 917,032 in OMB Control Number 1845-XXXA.

Sections 668.181, 668.200, and 668.202—Three Year Cohort Default Rates

The final regulations reflected in new subpart N of part 668 incorporate the three-year cohort default method under final § 668.202. With regard to the transition period for use of the current cohort default rate method, final §§ 668.181 and 668.200(b) specify that the Department will issue annually two sets of draft and official cohort default rates for fiscal years 2009, 2010, and 2011.

These final regulations describe the purpose of the 3-year rate and explain the calculation and application of the 3-year cohort default rate. As a result, the statement of purpose of this subpart and the description of how the Department will calculate and apply the 3-year cohort default rate will not impact the burden in OMB 1845-0022.

Section 668.16—Administrative Capabilities and Cohort Default Rate Appeals

Final § 668.16(m)(1)(ii) applies the current rules for administrative capability based on two-year cohort default rates during the transition period. Thereafter, a school will be administratively capable if two of its three most recent three-year rates are less than 30 percent. Under final § 668.16(m)(2), the current rules for provisional certification based on two

year cohort default rates of 25 percent or more but less than 40 percent continues to apply during the transition period. Thereafter, an institution whose three year default rates are 30 percent or more, but less than 40 percent, for two years would not be provisionally certified based solely on its default rates under the following circumstances:

(1) The institution files timely a request for adjustment or appeal from the second such rate under final §§ 668.209 (Uncorrected data adjustments), 668.210 (New data adjustments), or 668.212 (Loan servicing appeals) and the request or appeal is pending or succeeds in reducing the institution's three-year rate below 30 percent.

(2) The institution files timely an appeal under final § 668.213 (Economically disadvantaged appeals) from the second such rate and the appeal is pending or successful. Final § 668.213 provides that the two rates of 30 percent or more must be successive to permit the appeal.

(3) The institution files a timely participation rate index appeal under final § 668.214 and the appeal is pending or successful.

(4) The institution had 30 or fewer borrowers in the three most recent cohorts of borrowers used to calculate the institution's rates.

(5) A three year rate that would otherwise potentially subject the institution to provisional certification was calculated as an average rate.

To avoid provisional certification by invoking exceptions (1), (2) or (3), the institution is required to file a request for adjustment or appeal in response to a notice from the Department that the institution's second three-year cohort default rate, or second successive three-year default rate for an economically disadvantaged appeal, is 30 percent or more, but less than 40 percent.

Under final § 668.214, a participation rate index appeal is taken from a loss of eligibility, or potential placement on provisional certification, based on three-year cohort default rates if the participation rate index for any of the excessive rates was .0625 or less. The appeal is taken within 30 days of receiving the notice of loss of eligibility with the most recent excessive official rate.

In addition, under final § 668.204(c)(1)(iii), an institution is allowed to challenge a potential placement on provisional certification because its three-year cohort default rates for two of the most recent three years would be 30 percent or more, but less than 40 percent, even though the second such rate was available only as a draft rate, if its participation rate index was equal to or less than 0.0625 for either its draft rate, or its most recent official rate equaling or exceeding 30 percent but less than 40 percent. The challenge is taken following notice to the school of its draft rate.

The final changes in § 668.16 apply the current rules on administrative capability during the transition period. We estimate that these regulations will not impact burden in OMB 1845-0022.

Sections 668.186, 668.190, 668.191, 668.209, 668.210, 668.211, and 668.212—Electronic Processes

Final § 668.186 eliminates the need to request a loan record detail report by providing that the report will be sent electronically to the institution as part of a package notifying the institution of its official cohort default rate. The institution will have five business days, from the transmission date of the package as posted on the Department's Web site, to report any problem with receiving that transmission. If the institution reports a problem within the five-day period, and the Department agrees that the institution did not cause the problem, we will extend the adjustment, challenge, and appeal deadlines and timeframes to account for retransmitting the package after the problem is resolved. If no problems are reported by the institution, the timeframe associated with filing or requesting the adjustment, challenge, or appeal begins on the sixth day following the transmission date of the package that is posted on the Department's Web site. The timeframes for the adjustments, challenges, and appeals are reflected in final §§ 668.190(b) and 668.191(b).

The subpart M, part 668 provisions reflected in § 668.186, and the provisions for adjustments, challenges, and appeals in the related sections in subpart M of part 668 are also reflected in the following parallel provisions in subpart N, part 668: §§ 668.209, 668.210, 668.211, and 668.212.

These final regulations represent a decrease in burden. The affected entities under these regulations are institutions. We estimate that burden will decrease by 725 hours for institutions and this decrease in burden will be reflected in OMB Control Number 1845-0022.

Sections 682.604 and 685.304—Entrance Counseling

Final § 682.604(f)(3) requires that institutions provide initial counseling for Stafford and graduate or professional student PLUS Loan borrowers. Comprehensive information on the terms and conditions of the loan and on the responsibilities of the borrower with respect to the loan needs to be provided. Under the final regulations, this information may be provided to the borrower during an entrance counseling session conducted in person; on a separate written form provided to the borrower that the borrower signs and returns to the school; or online or by interactive electronic means, with the borrower acknowledging receipt of the information.

Final § 682.604(f)(4) requires a school that conducts initial counseling online or through interactive electronic means to take reasonable steps to ensure that each student borrower receives the counseling materials and participates in and completes the initial counseling, which may include completion of any interactive program that tests the borrower's understanding of the terms and conditions of the borrower's loans.

Final § 682.604(f)(6) requires that initial counseling for Stafford Loan borrowers: explain the use of a Master Promissory Note; emphasize to the student borrower the seriousness and importance of the repayment obligation the student borrower is assuming; describe the likely consequences of default, including adverse credit reports, delinquent debt collection procedures under Federal law, and litigation; in the case of a student borrower (other than a loan made or originated by the school), emphasize that the student borrower is obligated to repay the full amount of the loan even if the student borrower does not complete the program, does not complete the program within the regular time for program completion, is unable to obtain employment upon completion, or is otherwise dissatisfied with or does not receive the educational or other services that the student borrower purchased from the school; inform the student borrower of sample monthly repayment amounts based on a range of student levels of indebtedness of Stafford loan borrowers, or student borrowers with Stafford and PLUS loans, depending on the types of loans the borrower has obtained—or the average indebtedness of other borrowers in the same program at the same school as the borrower; to the extent practicable, explain the effect of accepting the loan to be disbursed on the eligibility of the borrower for other forms of student financial assistance; provide information on how interest accrues and is capitalized during periods when the interest is not paid by either the borrower or the Secretary; inform the borrower of the option to pay the interest on an unsubsidized Stafford Loan while the borrower is in school;

explain the definition of half-time enrollment at the school, during regular terms and summer school, if applicable, and the consequences of not maintaining half-time enrollment; explain the importance of contacting the appropriate offices at the school if the borrower withdraws prior to completing the borrower's program of study so that the school can provide exit counseling, including information regarding the borrower's repayment options and loan consolidation; provide information on NSLDS and how the borrower can access the borrower's records; and provide the name of and contact information for the individual the borrower may contact if the borrower has any questions about the borrower's rights and responsibilities or the terms and conditions of the loan.

Final § 682.604(f)(7) requires that initial counseling for graduate or professional student PLUS Loan borrowers must: Inform the student borrower of sample monthly repayment amounts based on a range of student levels of indebtedness of graduate or professional student PLUS loan borrowers, or student borrowers with Stafford and PLUS loans, depending on the types of loans the borrower has obtained or the average indebtedness of other borrowers in the same program at the same school as the borrower; inform the borrower of the option to pay interest on a PLUS Loan while the borrower is in school; for a graduate or professional student PLUS Loan borrower who has received a prior FFEL Stafford, or Direct Subsidized or Unsubsidized loan, provide the information, specified in § 682.603(d)(1)(i) through (d)(1)(iii), that compares Stafford and PLUS Loan interest rates, interest accrual periods, and repayment period begin dates; and for a graduate or professional student PLUS Loan borrower who has not received a prior FFEL Stafford, or Direct Subsidized or Unsubsidized loan, provide the Stafford Loan initial counseling information specified in proposed § 682.604(f)(6)(i) through (f)(6)(xii).

Corresponding initial counseling requirements for Direct Subsidized, Direct Unsubsidized, and Direct PLUS loan borrowers are included in § 685.304(a)(1) through (a)(9) of the Direct Loan regulations.

These final regulations represent an increase in burden. The affected entities under the final regulations are borrowers and institutions. We estimate that burden in OMB 1845-0020 will increase by 475,152 hours for borrowers and 12,582 hours for institutions; and we estimate that burden in OMB 1845-0021 will increase by 217,900 hours for borrowers and 12,582 hours for institutions for a total of 487,734 hours which will be reflected in OMB Control Number 1845-0020 and a total of 230,482 hours in OMB Control Number 1845-0021.

Sections 674.42, 682.604 and 685.304—Exit Counseling

Final §§ 674.42(b), 682.604(g) and 685.304(b) continue to require a school to ensure that exit counseling is conducted with each Perkins, FFEL Stafford, and Direct Subsidized and Unsubsidized Loan borrower. In addition, schools are required to provide exit counseling to graduate or professional student FFEL PLUS Loan borrowers and graduate or professional student Direct PLUS Loan borrowers.

Under final §§ 674.42(b)(1), 682.604(g)(1) and 685.304(b)(2) and (b)(3), schools continue to be required to conduct exit counseling either in person, by audiovisual presentation, or by interactive electronic means. In each case, the school is required to ensure that the exit counseling is conducted shortly before the student borrower ceases at least half-time study at the school, and that an individual with expertise in the Title IV programs is reasonably available shortly after the counseling to answer the student borrower's questions. The alternative approach for student borrowers enrolled in a correspondence program or a study-abroad program that the home institution approves for credit is maintained in the new regulations. The current regulatory procedures for student borrowers who withdraw from school without the school's prior knowledge or fail to complete an exit counseling session as required also are maintained in these regulations.

Final §§ 674.42(b)(3), 682.604(g)(3) and 685.304(b)(6) continue to require that if exit counseling is conducted by electronic interactive means, the school must take reasonable steps to ensure that each student borrower receives the counseling materials, participates in and completes the counseling. Final §§ 674.42(b)(4), 682.604(g)(4) and 685.304(b)(7) retain the requirement that schools maintain documentation substantiating the school's compliance with this section for each student borrower.

Final §§ 674.42(b)(2), 682.604(g)(2) and 685.304(b)(4) also require exit counseling for Perkins, FFEL, and Direct Loan student borrowers to: Review for the student borrower information on the availability of the Student Loan Ombudsman's office; inform the student borrower of the availability of Title IV loan information in the National Student Loan Data System (NSLDS) and how NSLDS can be used to obtain Title IV loan status information; and provide a general description of the types of tax benefits that may be available to borrowers.

Additionally, final §§ 682.604(g)(2)(ii) and 685.304(b)(4)(ii) require exit counseling for FFEL and Direct Loan student borrowers to review the available FFEL and Direct Loan repayment plan options, including standard, graduated, extended, income sensitive and income-based repayment plans, including a description of the different features of each plan and sample information showing the average anticipated monthly payments, and the difference in interest paid and total payments under each plan. The exit counseling also needs to inform FFEL and Direct Loan borrowers of their option to change repayment plans.

For Direct Loan borrowers, final § 685.304(b)(4)(vi) retains the requirement that schools explain to the student borrower how to contact the party servicing the Direct Loan.

These final regulations represent an increase in burden. The affected entities under the final regulations are borrowers and institutions. We estimate that burden will increase by 432,388 hours for borrowers and 12,582 hours for institutions for a total of 444,970 hours which will be reflected in OMB Control Number 1845-0020. We estimate that burden will increase by 213,542 hours for borrowers and 12,582 hours for institutions for a total of 226,124 hours which will be reflected in OMB Control Number 1845-0021. We estimate that burden will increase by 214,022 hours for borrowers and 5,940 hours for institutions for a total of 219,962 hours which will be reflected in OMB Control Number 1845-0023.

Sections 674.53, 674.57, and 674.58—Expansion of Teacher, Head Start, and Law Enforcement Cancellation Categories

These final regulations extend the new cancellation categories to current Federal Perkins Loan borrowers with outstanding balances on loans already in repayment and all new borrowers who perform eligible service that includes August 14, 2008, or begins on or after that date, regardless of whether information on the expanded cancellation categories appears on the borrower's promissory note.

Final § 674.53 provides that a teacher who is employed by an educational service agency, or a full-time special education teacher, including teachers of infants, toddlers, children, or youth

with disabilities, who is working in a system administered by an educational service agency, is eligible for cancellation benefits.

Final § 674.57 is amended so that the cancellation provisions for law enforcement or correction officers include borrowers who are employed full-time as an attorney in Federal Public Defender Organizations or Community Defender Organizations.

Final § 674.58 of the Head Start cancellation provisions is amended by expanding cancellation benefits to include borrowers who are performing qualifying service as full-time staff members in a pre-kindergarten or childcare program that is licensed or regulated by the State.

For purposes of determining a borrower's eligibility for cancellation benefits, final § 674.58(c)(1) and (2) define the terms “pre-kindergarten program” and “childcare program.” A pre-kindergarten program is defined as a State-funded program that serves children from birth through age six and addresses the children's cognitive (including language, early literacy, and early mathematics), social, emotional, and physical development. A

childcare program

is defined as a program that is licensed and regulated by the State and provides child care services for fewer than 24 hours per day per child, unless care in excess of 24 consecutive hours is needed due to the nature of the parents' work.

Final § 674.58 also amends the Head Start cancellation provisions by renaming the regulatory section “Cancellation for service in an early childhood education program” to reflect the fact that the expansion of cancellation benefits available to borrowers under this provision are no longer limited to service in early childhood education programs authorized by the Head Start Act.

These final regulations represent an increase in burden. The affected entities under the final regulations are borrowers and institutions. We estimate that burden as a result of the final changes in § 674.53 will increase by 2,290 hours for borrowers and 1,145 hours for institutions for a total of 3,435 hours which will be reflected in OMB Control Numbers 1845-XXXC. We estimate that burden as a result of the final changes in § 674.57 will increase by 385 hours for borrowers and 193 hours for institutions for a total of 578 hours which will be reflected in OMB Control Number 1845-XXXC. We estimate that burden as a result of the final changes in § 674.58 will increase by 2,648 hours for borrowers and 1,325 hours for institutions for a total of 3,973 hours which will be reflected in OMB Control Number 1845-XXXC.

Section 674.56—Addition of New Public Service Cancellation Categories

Final § 674.56 adds new public service cancellation categories for borrowers in the Federal Perkins Loan program who are performing qualifying service as: full-time faculty members at a Tribal College or University; full-time fire fighters who serve a local, State, or Federal fire department or fire district; librarians with a master's degree in library science who are employed in an elementary or secondary school that qualifies for Title I funding, or in a public library that serves a geographic area that includes one or more Title I-eligible schools; or full-time speech-language pathologists with a master's degree who are working exclusively with Title I-eligible schools.

These final regulations extend the new cancellation categories to current Federal Perkins Loan borrowers with outstanding balances on loans already in repayment and all new borrowers who perform eligible service that includes August 14, 2008, or begins on or after that date, regardless of whether information on the expanded cancellation categories appears on the borrower's promissory note.

These final regulations represent an increase in burden. The affected entities under the final regulations are borrowers and institutions. We estimate that burden will increase by 3,436 hours for borrowers and 1,718 hours for institutions for a total of 5,154 hours which will be reflected in OMB Control Number 1845-XXXC.

Section 674.59—Military Service Cancellation

Final § 674.59 amends the cancellation rate for each year of qualifying service for the military service cancellation. Borrowers who are serving in areas of hostility are now eligible to receive a cancellation of up to 100 percent of the loan for each full year of active duty service that includes August 14, 2008, or begins on or after that date in the following increments: 15 percent for the first and second years of service; 20 percent for the third and fourth years of service; and, 30 percent for the fifth year of service.

These final regulations represent an increase in burden. The affected entities under the final regulations are borrowers and institutions. We estimate that burden will increase by 20,532 hours for borrowers and 10,266 hours for institutions for a total of 30,798 hours which will be reflected in OMB Control Number 1845-XXXC.

Consistent with the discussion in the preceding paragraphs, the following chart describes the sections of the final regulations involving information collections, the information collected, and the collections that the Department submitted to the Office of Management and Budget for approval and public comment under the Paperwork and Reduction Act.

Regulatory section

Information section

Collection

601.10

Final § 601.10(a) requires that a covered institution, or an institution-affiliated organization of a covered institution, that participates in a preferred lender arrangement disclose the information identified on the model disclosure form developed by the Secretary and its preferred lender list

OMB 1845-XXXA. This is a new collection. A separate 60-day

Federal Register

notice will be published to solicit comments on the form. There will be an increase in burden of 335,181 hours.

601.11

Final § 601.11(a) requires a covered institution, or an institution-affiliated organization of a covered institution, to provide to a prospective borrower private education loan disclosures consistent with section 128(e)(1) of the TILA; to provide a student who requests a private education loan a self-certification form; to inform the prospective borrower that he or she may qualify for loans or other assistance under Title IV of the HEA; and to inform the prospective borrower that the terms and conditions of Title IV, HEA program loans may be more favorable than the provisions of private education loans

OMB 1845-XXXA. This is a new collection. A separate 60-day

Federal Register

notice will be published to solicit comments on the form. There will be an increase in burden of 1,940,515 hours.

601.20

Final § 601.20(a) requires a covered institution, and an institution-affiliated organization that participates in a preferred lender arrangement to prepare and submit to the Secretary an annual report

OMB 1845-XXXA. This is a new collection. A separate 60-day

Federal Register

notice will be published to solicit comments. There will be an increase in burden of 336 hours.

601.21

Final § 601.21 requires a covered institution that participates in a preferred lender arrangement to develop a code of conduct with respect to FFEL Program loans and private education loans with which the institution's agents must comply to prohibit a conflict of interest with the responsibilities of an agent of an institution with respect to FFEL Program loans and private education loans

OMB 1845-XXXA. This is a new collection. A separate 60-day

Federal Register

notice will be published to solicit comments. There will be an increase in burden of 4,697 hours.

601.30

Final § 601.30 requires a covered institution participating in the William D. Ford Direct Loan Program to make the information identified in a model disclosure form developed by the Secretary available to students attending or planning to attend the institution, or the families of such students. If the institution provides information regarding a private education loan to a prospective borrower, the institution must concurrently provide the borrower with the information identified on the model disclosure form

OMB 1845-XXXB. This is a new collection. A separate 60-day

Federal Register

notice will be published to solicit comments. There will be an increase in burden of 58,024 hours.

601.40

Final § 601.40 sets forth the information the lenders must provide to the Secretary on an annual basis regarding any reasonable expenses paid or provided to any agent of a covered institution who is employed in the financial aid office or has responsibilities with respect to education loans or other financial aid of the institution for service by the employee on an advisory board, commission or group established by a lender or a group of lenders

OMB 1845-XXXA. This is a new collection. A separate 60-day

Federal Register

notice will be published to solicit comments. There will be an increase in burden of 917,032 hours.

668.181, 668.200, & 668.202

Final §§ 668.181, 668.200, and 668.202 provides a new proposed subpart N, part 668 to incorporate the three-year method under § 668.202. With regard to the transition period, final §§ 668.181 and 668.200(b) specifies that the Department will issue annually two sets of draft and official cohort default rates for fiscal years 2009, 2010, and 2011. As a result, the statement of purpose of this subpart and the description of how the Department will calculate and apply the 3-year cohort default rate will not impact the burden in OMB 1845-0022

OMB 1845-0022. No change in burden.

668.16

Final § 668.16(m) requires institutions to have the new three-year cohort default rate, and incorporates the transition rules and the basis for appeals for that cohort default rate. The final changes in § 668.16 apply the current rules on administrative capability during the transition period. We estimate that these regulations will not impact burden in OMB 1845-0022

OMB 1845-0022. No change in burden.

668.186, 668.190, 668.191, 668.209, 668.210, 668.211, and 668.212

These final regulations eliminate the need to request a loan record detail report from the Department; instead an electronic loan report will be sent to each institution

OMB 1845-0022. There will be a decrease in burden of 725 hours.

682.604 & 685.304

Final §§ 682.604 and 685.304 requires that institutions provide initial counseling for Stafford and graduate or professional student PLUS Loan borrowers

OMB 1845-0020. There will be an increase in burden of 487,734 hours. OMB 1845-0021. There will be an increase in burden of 230,482 hours.

674.42, 682.604, and 685.304

Final §§ 674.42, 682.604 and 685.304 continues to require a school to ensure that exit counseling is conducted with each Perkins, FFEL Stafford, and Direct Subsidized and Unsubsidized Loan borrower. In addition, schools are required to provide exit counseling to graduate or professional student FFEL PLUS Loan borrowers and graduate or professional student Direct PLUS Loan borrowers

OMB 1845-0020. There will be an increase in burden of 457,552 hours. OMB 1845-0021. There will be an increase in burden of 226,124 hours. OMB 1845-0023. There will be an increase in burden of 219,962 hours.

674.53, 674.57, and 674.58

Final §§ 674.53, 674.57, and 674.58 extends the new cancellation categories to current Federal Perkins Loan borrowers with outstanding balances on loans already in repayment and all new borrowers who perform eligible service that includes August 14, 2008, or begins on or after that date, regardless of whether information on the expanded the cancellation categories appears on the borrower's promissory note

OMB 1845-XXXC. This is a new collection. A separate 60-day

Federal Register

notice will be published to solicit comments. There will be an increase in burden of 7,986 hours.

674.56

Final § 674.56 adds new public service cancellation categories for borrowers in the Federal Perkins Loan program who are performing qualifying service as: full-time faculty members at a Tribal College or University; full-time fire fighters who serve a local, State, or Federal fire department or fire district; librarians with a master's degree in library science who are employed in an elementary or secondary school that qualifies for Title I funding, or in a public library that serves a geographic area that includes one or more Title I-eligible schools; or full-time speech-language pathologists with a master's degree who are working exclusively with Title I-eligible schools

OMB 1845-XXXC. This is a new collection. A separate 60-day

Federal Register

notice will be published to solicit comments. There will be an increase in burden of 5,154 hours.

674.59

Final § 674.59 amends the cancellation rate for each year of qualifying service for the military service cancellation. Borrowers who are serving in areas of hostility are now eligible to receive a cancellation of up to 100 percent of the loan for each full year of active duty service that includes August 14, 2008, or begins on or after that date in the following increments: 15 percent for the first and second years; 20 percent for the third and fourth years of service; and, 30 percent for the fifth year of service

OMB 1845-XXXC. This is a new collection. A separate 60-day

Federal Register

notice will be published to solicit comments. There will be an increase in burden of 30,798 hours.

Assessment of Educational Impact

In accordance with section 411 of the General Education Provisions Act, 20 U.S.C. 1221e-4, and based on our own 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, as well as all other Department of Education documents published in the

Federal Register

, in text or Adobe Portable Document Format (PDF) on the Internet at the following site:

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

To use PDF you must have Adobe Acrobat Reader, which is available free at this site. If you have questions about using PDF, call the U.S. Government Printing Office (GPO), toll free, at 1-888-293-6498; or in the Washington, DC, area at (202) 512-1530.

Note:

The official version of this document is the document published in the

Federal Register

. Free Internet access to the official edition of the

Federal Register

and the Code of Federal Regulations is available on GPO Access at:

http://www.gpoaccess.gov/nara/index.html.

(Catalog of Federal Domestic Assistance Numbers: 84.032 Federal Family Education Loan Program; 84.038 Federal Perkins Loan Program; 84.268 William D. Ford Federal Direct Loan Program.)

List of Subjects

34 CFR Part 601

Administrative practice and procedure, Colleges and universities, Consumer protection, Education, Loan programs—education, Reporting and recordkeeping requirements, Student aid.

34 CFR Part 668

Administrative practice and procedure, Colleges and universities, Consumer protection, Education, Grant programs—education, Loan programs—education, Reporting and recordkeeping requirements, Student aid, Vocational education.

34 CFR Parts 674, 682 and 685

Administrative practice and procedure, Colleges and universities, Education, Loan programs—education, Reporting and recordkeeping requirements, Student aid, Vocational education.

Dated: October 14, 2009.

Arne Duncan,

Secretary of Education.

For the reasons discussed in the preamble, the Secretary amends chapter VI of title 34 of the Code of Federal Regulations as follows:

1. Add part 601 to read as follows:

PART 601—INSTITUTION AND LENDER REQUIREMENTS RELATING TO EDUCATION LOANS

Subpart A—General

Sec.

601.1

Scope.

601.2

Definitions.

Subpart B—Loan Information To Be Disclosed by Covered Institutions and Institution-Affiliated Organizations

Sec.

601.10

Preferred lender arrangement disclosures.

601.11

Private education loan disclosures and self-certification form.

601.12

Use of institution and lender name.

Subpart C—Responsibilities of Covered Institutions and Institution-Affiliated Organizations

Sec.

601.20

Annual report.

601.21

Code of conduct.

Subpart D—Loan Information To Be Disclosed by Institutions Participating in the William D. Ford Direct Loan Program

Sec.

601.30

Duties of institutions.

Subpart E—Lender Responsibilities

Sec.

601.40

Disclosure and reporting requirements for lenders.

Authority:

20 U.S.C. 1019-1019d, 1021, 1094(a) and (h).

Subpart A—General

§ 601.1

Scope.

This part establishes disclosure and reporting requirements for covered institutions, institution-affiliated organizations, and lenders that provide, issue, recommend, promote, endorse, or provide information relating to education loans. Education loans include loans authorized by the Higher Education Act of 1965, as amended (HEA) and private education loans.

Authority:

20 U.S.C. 1019-1019d, 1021, 1094(a)(25) and (e).

§ 601.2

Definitions.

(a) The definitions of the following terms used in this part are set forth in the regulations for Institutional Eligibility under the Higher Education Act of 1965, as amended, 34 CFR part 600:

Federal Family Education Loan (FFEL) Program

Secretary

Title IV, HEA program

(b) The following definitions also apply to this part:

Agent:

An officer or employee of a covered institution or an institution-affiliated organization.

Covered institution:

Any institution of higher education, proprietary institution of higher education, postsecondary vocational institution, or institution outside the United States, as these terms are defined in 34 CFR part 600, that receives any Federal funding or assistance.

Education loan:

Except when used as part of the term “private education loan”,

(1) Any loan made, insured, or guaranteed under the Federal Family Education Loan (FFEL) Program;

(2) Any loan made under the William D. Ford Federal Direct Loan Program; or

(3) A private education loan.

Institution-affiliated organization:

(1) Any organization that—

(i) Is directly or indirectly related to a covered institution; and

(ii) Is engaged in the practice of recommending, promoting, or endorsing education loans for students attending such covered institution or the families of such students.

(2) An institution-affiliated organization—

(i) May include an alumni organization, athletic organization, foundation, or social, academic, or professional organization, of a covered institution; and

(ii) Does not include any lender with respect to any education loan secured, made, or extended by such lender.

Lender:

(1) An eligible lender in the Federal Family Education Loan (FFEL) Program, as defined in 34 CFR 682.200(b);

(2) The Department in the Direct Loan program;

(3) In the case of a private educational loan, a private education lender as defined in section 140 of the Truth in Lending Act; and

(4) Any other person engaged in the business of securing, making, or extending education loans on behalf of the lender.

Officer:

A director or trustee of a covered institution or institution-affiliated organization, if such individual is treated as an employee of such covered institution or institution-affiliated organization, respectively.

Preferred lender arrangement:

(1) An arrangement or agreement between a lender and a covered institution or an institution-affiliated organization of such covered institution—

(i) Under which a lender provides or otherwise issues education loans to the students attending such covered institution or the families of such students; and

(ii) That relates to such covered institution or such institution-affiliated organization recommending, promoting, or endorsing the education loan products of the lender.

(2) A preferred lender arrangement does not include—

(i) Arrangements or agreements with respect to loans made under the William D. Ford Federal Direct Loan Program; or

(ii) Arrangements or agreements with respect to loans that originate through the PLUS Loan auction pilot program under section 499(b) of the HEA.

(3) For purpose of this definition, an arrangement or agreement does not exist if the private education loan provided or issued to a student attending a covered institution is made by the covered institution or by an institution-affiliated organization of the covered institution, and the private education loan is—

(i) Funded by the covered institution's or institution-affiliated organization's own funds;

(ii) Funded by donor-directed contributions;

(iii) Made under title VII or title VIII of the Public Service Health Act; or

(iv) Made under a State-funded financial aid program, if the terms and conditions of the loan include a loan forgiveness option for public service.

Private education loan:

As the term is defined in 12 CFR 226.46(b)(5), a loan provided by a private educational lender that is not a title IV loan and that is issued expressly for postsecondary education expenses to a borrower, regardless of whether the loan is provided through the educational institution that the student attends or directly to the borrower from the private educational lender. A private education loan does not include—

(1) An extension of credit under an open end consumer credit plan, a reverse mortgage transaction, a residential mortgage transaction, or any other loan that is secured by real property or a dwelling; or

(2) An extension of credit in which the educational institution is the lender if—

(i) The term of the extension of credit is 90 days or less; or

(ii) An interest rate will not be applied to the credit balance and the term of the extension of credit is one year or less, even if the credit is payable in more than four installments.

Authority:

20 U.S.C. 1019.

Subpart B—Loan Information To Be Disclosed by Covered Institutions and Institution-Affiliated Organizations

§ 601.10

Preferred lender arrangement disclosures.

(a) A covered institution, or an institution-affiliated organization of such covered institution, that participates in a preferred lender arrangement must disclose—

(1) On such covered institution's or institution-affiliated organization's Web site and in all informational materials described in paragraph (b) of this section that describe or discuss education loans—

(i) The maximum amount of Federal grant and loan aid under title IV of the HEA available to students, in an easy to understand format;

(ii) The information identified on a model disclosure form developed by the Secretary pursuant to section 153(a)(2)(B) of the HEA, for each type of education loan that is offered pursuant to a preferred lender arrangement of the institution or institution-affiliated organization to students of the institution or the families of such students; and

(iii) A statement that such institution is required to process the documents required to obtain a loan under the Federal Family Education Loan (FFEL) Program from any eligible lender the student selects; and

(2) On such covered institution's or institution-affiliated organization's Web site and in all informational materials described in paragraph (b) of this section that describe or discuss private education loans—

(i) In the case of a covered institution, the information that the Board of Governors of the Federal Reserve System requires to be disclosed under

section 128(e)(11) of the Truth in Lending Act (15 U.S.C. 1638(e)(11)), for each type of private education loan offered pursuant to a preferred lender arrangement of the institution to students of the institution or the families of such students; and

(ii) In the case of an institution-affiliated organization of a covered institution, the information the Board of Governors of the Federal Reserve System requires to be disclosed under section 128(e)(1) of the Truth in Lending Act (15 U.S.C. 1638(e)(1)), for each type of private education loan offered pursuant to a preferred lender arrangement of the organization to students of such institution or the families of such students.

(b) The informational materials described in paragraphs (a)(1) and (a)(2) of this section are publications, mailings, or electronic messages or materials that—

(1) Are distributed to prospective or current students of a covered institution and families of such students; and

(2) Describe or discuss the financial aid opportunities available to students at an institution of higher education.

(c)(1) Each covered institution and each institution-affiliated organization that participates in a preferred lender arrangement must provide the information described in paragraph (a)(1)(ii) of this section, and the information described in paragraphs (a)(2)(i) and (a)(2)(ii) of this section, respectively, for each type of education loan offered pursuant to the preferred lender arrangement.

(2) The information identified in paragraph (c)(1) of this section must be provided to students attending the covered institution, or the families of such students, as applicable, annually and must be provided in a manner that allows for the students or their families to take such information into account before selecting a lender or applying for an education loan.

(d) If a covered institution compiles, maintains, and makes available a preferred lender list as required under § 668.14(b)(28), the institution must—

(1) Clearly and fully disclose on such preferred lender list—

(i) Not less than the information required to be disclosed under section 153(a)(2)(A) of the HEA;

(ii) Why the institution participates in a preferred lender arrangement with each lender on the preferred lender list, particularly with respect to terms and conditions or provisions favorable to the borrower; and

(iii) That the students attending the institution, or the families of such students, do not have to borrow from a lender on the preferred lender list;

(2) Ensure, through the use of the list of lender affiliates provided by the Secretary under section 487(h)(2) of the HEA, that—

(i) There are not less than three FFEL lenders that are not affiliates of each other included on the preferred lender list and, if the institution recommends, promotes, or endorses private education loans, there are not less than two lenders of private education loans that are not affiliates of each other included on the preferred lender list; and

(ii) The preferred lender list under paragraph (d) of this section—

(A) Specifically indicates, for each listed lender, whether the lender is or is not an affiliate of each other lender on the preferred lender list; and

(B) If a lender is an affiliate of another lender on the preferred lender list, describes the details of such affiliation;

(3) Prominently disclose the method and criteria used by the institution in selecting lenders with which to participate in preferred lender arrangements to ensure that such lenders are selected on the basis of the best interests of the borrowers, including—

(i) Payment of origination or other fees on behalf of the borrower;

(ii) Highly competitive interest rates, or other terms and conditions or provisions of Title IV, HEA program loans or private education loans;

(iii) High-quality servicing for such loans; or

(iv) Additional benefits beyond the standard terms and conditions or provisions for such loans;

(4) Exercise a duty of care and a duty of loyalty to compile the preferred lender list under paragraph (d) of this section without prejudice and for the sole benefit of the students attending the institution, or the families of such students; and

(5) Not deny or otherwise impede the borrower's choice of a lender or cause unnecessary delay in loan certification under title IV of the HEA for those borrowers who choose a lender that is not included on the preferred lender list.

(Approved by the Office of Management and Budget under control number 1845-XXXA)

Authority:

20 U.S.C. 1019a(a)(1)(A) and 1019b(c).

§ 601.11

Private education loan disclosures and self-certification form.

(a) A covered institution, or an institution-affiliated organization of such covered institution, that provides information regarding a private education loan from a lender to a prospective borrower must provide private education loan disclosures to the prospective borrower, regardless of whether the covered institution or institution-affiliated organization participates in a preferred lender arrangement.

(b) The private education loan disclosures must—

(1) Provide the prospective borrower with the information the Board of Governors of the Federal Reserve System requires to be disclosed under section 128(e)(1) of the Truth in Lending Act (15 U.S.C. 1638(e)(1)) for such loan;

(2) Inform the prospective borrower that—

(i) The prospective borrower may qualify for loans or other assistance under title IV of the HEA; and

(ii) The terms and conditions of Title IV, HEA program loans may be more favorable than the provisions of private education loans.

(c) The covered institution or institution-affiliated organization must ensure that information regarding private education loans is presented in such a manner as to be distinct from information regarding Title IV, HEA program loans.

(d) Upon an enrolled or admitted student applicant's request for a private education loan self-certification form, an institution must provide to the applicant, in written or electronic form—

(1) The self-certification form for private education loans developed by the Secretary in consultation with the Board of Governors of the Federal Reserve System, to satisfy the requirements of section 128(e)(3) of the Truth in Lending Act (15 U.S.C. 1638(e)(3)); and

(2) The information required to complete the form, to the extent the institution possesses such information as specified in 34 CFR 668.14(b)(29).

(Approved by the Office of Management and Budget under control number 1845-XXXA)

Authority:

20 U.S.C. 1019a(a)(1)(B) and 1019d.

§ 601.12

Use of institution and lender name.

A covered institution, or an institution-affiliated organization of such covered institution, that participates in a preferred lender arrangement with a lender regarding private education loans must—

(a) Not agree to the lender's use of the name, emblem, mascot, or logo of such institution or organization, or other words, pictures, or symbols readily identified with such institution or organization, in the marketing of private education loans to students attending

such institution in any way that implies that the loan is offered or made by such institution or organization instead of the lender; and

(b) Ensure that the name of the lender is displayed in all information and documentation related to the private education loans described in this section.

Authority:

20 U.S.C. 1019a(a)(2)-(a)(3).

Subpart C—Responsibilities of Covered Institutions and Institution-Affiliated Organizations

§ 601.20

Annual report.

Each covered institution, and each institution-affiliated organization of such covered institution, that participates in a preferred lender arrangement, must—

(a) Prepare and submit to the Secretary an annual report, by a date determined by the Secretary, that includes, for each lender that participates in a preferred lender arrangement with such covered institution or organization—

(1) The information described in § 601.10(c); and

(2) A detailed explanation of why such covered institution or institution-affiliated organization participates in a preferred lender arrangement with the lender, including why the terms, conditions, and provisions of each type of education loan provided pursuant to the preferred lender arrangement are beneficial for students attending such institution, or the families of such students, as applicable; and

(b) Ensure that the report required under this section is made available to the public and provided to students attending or planning to attend such covered institution and the families of such students.

(Approved by the Office of Management and Budget under control number 1845-XXXA)

Authority:

20 U.S.C. 1019b(c)(2).

§ 601.21

Code of conduct.

(a)(1) A covered institution that participates in a preferred lender arrangement must comply with the code of conduct requirements described in this section.

(2) The covered institution must—

(i) Develop a code of conduct with respect to FFEL Program loans and private education loans with which the institution's agents must comply. The code of conduct must—

(A) Prohibit a conflict of interest with the responsibilities of an agent of an institution with respect to FFEL Program loans and private education loans; and

(B) At a minimum, include the provisions specified in paragraph (c) of this section;

(ii) Publish such code of conduct prominently on the institution's Web site; and

(iii) Administer and enforce such code by, at a minimum, requiring that all of the institution's agents with responsibilities with respect to FFEL Program loans or private education loans be annually informed of the provisions of the code of conduct.

(b) Any institution-affiliated organization of a covered institution that participates in a preferred lender arrangement must—

(1) Comply with the code of conduct developed and published by such covered institution under paragraph (a)(1) of this section;

(2) If such institution-affiliated organization has a Web site, publish such code of conduct prominently on the Web site; and

(3) Administer and enforce such code of conduct by, at a minimum, requiring that all of such institution-affiliated organization's agents with responsibilities with respect to FFEL Program loans or private education loans be annually informed of the provisions of such code of conduct.

(c) A covered institution's code of conduct must prohibit—

(1) Revenue-sharing arrangements with any lender. The institution must not enter into any revenue-sharing arrangement with any lender. For purposes of this paragraph, the term

revenue-sharing arrangement

means an arrangement between a covered institution and a lender under which—

(i) A lender provides or issues a FFEL Program loan or private education loan to students attending the institution or to the families of such students; and

(ii) The institution recommends the lender or the loan products of the lender and in exchange, the lender pays a fee or provides other material benefits, including revenue or profit sharing, to the institution, an agent;

(2)(i) Employees of the financial aid office receiving gifts from a lender, a guarantor, or a loan servicer. Agents who are employed in the financial aid office of the institution or who otherwise have responsibilities with respect to FFEL Program loans or private education loans, must not solicit or accept any gift from a lender, guarantor, or servicer of FFEL Program loans or private education loans;

(ii) For purposes of paragraph (c) of this section, the term

gift

means any gratuity, favor, discount, entertainment, hospitality, loan, or other item having a monetary value of more than a de minimus amount. The term includes a gift of services, transportation, lodging, or meals, whether provided in kind, by purchase of a ticket, payment in advance, or reimbursement after the expense has been incurred;

(iii) The term

gift

does not include any of the following:

(A) Standard material, activities, or programs on issues related to a loan, default aversion, default prevention, or financial literacy, such as a brochure, a workshop, or training.

(B) Food, refreshments, training, or informational material furnished to an agent as an integral part of a training session that is designed to improve the service of a lender, guarantor, or servicer of FFEL Program loans or private education loans to the institution, if such training contributes to the professional development of the agent.

(C) Favorable terms, conditions, and borrower benefits on a FFEL Program loan or private education loan provided to a student employed by the institution if such terms, conditions, or benefits are comparable to those provided to all students of the institution.

(D) Entrance and exit counseling services provided to borrowers to meet the institution's responsibilities for entrance and exit counseling as required by §§ 682.604(f) and 682.604(g), as long as the institution's staff are in control of the counseling (whether in person or via electronic capabilities) and such counseling does not promote the products or services of any specific lender.

(E) Philanthropic contributions to an institution from a lender, servicer, or guarantor of FFEL Program loans or private education loans that are unrelated to FFEL Program loans or private education loans or any contribution from any lender, servicer, or guarantor, that is not made in exchange for any advantage related to FFEL Program loans or private education loans.

(F) State education grants, scholarships, or financial aid funds administered by or on behalf of a State; and

(iv) For purposes of paragraph (c) of this section, a gift to a family member of an agent, or to any other individual based on that individual's relationship with the agent, is considered a gift to the agent if—

(A) The gift is given with the knowledge and acquiescence of the agent; and

(B) The agent has reason to believe the gift was given because of the official position of the agent;

(3) Consulting or other contracting arrangements. An agent who is employed in the financial aid office of the institution or who otherwise has responsibilities with respect to FFEL Program loans or private education loans must not accept from any lender or affiliate of any lender any fee, payment, or other financial benefit (including the opportunity to purchase stock) as compensation for any type of consulting arrangement or other contract to provide services to a lender or on behalf of a lender relating to FFEL Program loans or private education loans. Nothing in paragraph (c)(3) of this section will be construed as prohibiting—

(i) An agent who is not employed in the institution's financial aid office and who does not otherwise have responsibilities with respect to FFEL Program loans or private education loans from performing paid or unpaid service on a board of directors of a lender, guarantor, or servicer of education loans;

(ii) An agent who is not employed in the institution's financial aid office but who has responsibility with respect to FFEL Program loans or private education loans from performing paid or unpaid service on a board of directors of a lender, guarantor, or servicer of FFEL Program loans or private education loans, if the institution has a written conflict of interest policy that clearly sets forth that agents must recuse themselves from participating in any decision of the board regarding FFEL Program loans or private education loans at the institution; or

(iii) An officer, employee, or contractor of a lender, guarantor, or servicer of FFEL Program loans or private education loans from serving on a board of directors, or serving as a trustee, of an institution, if the institution has a written conflict of interest policy that the board member or trustee must recuse themselves from any decision regarding FFEL Program loans or private education loans at the institution;

(4) Directing borrowers to particular lenders or delaying loan certifications. The institution must not—

(i) For any first-time borrower, assign, through award packaging or other methods, the borrower's loan to a particular lender; or

(ii) Refuse to certify, or delay certification of, any loan based on the borrower's selection of a particular lender or guaranty agency;

(5)(i) Offers of funds for private loans. The institution must not request or accept from any lender any offer of funds to be used for private education loans, including funds for an opportunity pool loan, to students in exchange for the institution providing concessions or promises regarding providing the lender with—

(A) A specified number of FFEL Program loans or private education loans;

(B) A specified loan volume of such loans; or

(C) A preferred lender arrangement for such loans.

(ii) For purposes of paragraph (c) of this section, the term

opportunity pool loan

means a private education loan made by a lender to a student attending the institution or the family member of such a student that involves a payment, directly or indirectly, by such institution of points, premiums, additional interest, or financial support to such lender for the purpose of such lender extending credit to the student or the family;

(6) Staffing assistance. The institution must not request or accept from any lender any assistance with call center staffing or financial aid office staffing, except that nothing in this paragraph will be construed to prohibit the institution from requesting or accepting assistance from a lender related to—

(i) Professional development training for financial aid administrators;

(ii) Providing educational counseling materials, financial literacy materials, or debt management materials to borrowers, provided that such materials disclose to borrowers the identification of any lender that assisted in preparing or providing such materials; or

(iii) Staffing services on a short-term, nonrecurring basis to assist the institution with financial aid-related functions during emergencies, including State-declared or Federally declared natural disasters, Federally declared national disasters, and other localized disasters and emergencies identified by the Secretary; and

(7) Advisory board compensation. Any employee who is employed in the financial aid office of the institution, or who otherwise has responsibilities with respect to FFEL Program loans or private education loans or other student financial aid of the institution, and who serves on an advisory board, commission, or group established by a lender, guarantor, or group of lenders or guarantors, must not receive anything of value from the lender, guarantor, or group of lenders or guarantors, except that the employee may be reimbursed for reasonable expenses, as that term is defined in § 668.16(d)(2)(ii), incurred in serving on such advisory board, commission, or group.

(Approved by the Office of Management and Budget under control number 1845-XXXA)

Authority:

20 U.S.C. 1019b(c)(2)), 1094(a)(25) and (e).

Subpart D—Loan Information to be Disclosed by Institutions Participating in the William D. Ford Direct Loan Program

§ 601.30

Duties of institutions.

(a) Each covered institution participating in the William D. Ford Direct Loan Program under part D of title IV of the HEA must—

(1) Make the information identified in a model disclosure form developed by the Secretary pursuant to section 154(a) of the HEA available to students attending or planning to attend the institution, or the families of such students, as applicable; and

(2) If the institution provides information regarding a private education loan to a prospective borrower, concurrently provide such borrower with the information identified on the model disclosure form that the Secretary provides to the institution under section 154(a) of the HEA.

(b) In providing the information required under paragraph (a) of this section, a covered institution may use a comparable form designed by the institution instead of the model disclosure form.

(Approved by the Office of Management and Budget under control number 1845-XXXB)

Authority:

20 U.S.C. 1019c(b).

Subpart E—Lender Responsibilities

§ 601.40

Disclosure and reporting requirements for lenders.

(a)

Disclosures to borrowers.

(1) A lender must, at or prior to disbursement of a FFEL loan, provide the borrower, in writing (including through electronic means), in clear and understandable terms, the disclosures required in § 682.205(a) and (b).

(2) A lender must, for each of its private education loans, comply with the disclosure requirements under section 128(e) of the Truth in Lending Act (15 U.S.C. 1638(e)).

(b)

Reports to the Secretary.

Each FFEL lender must report annually to the Secretary—

(1) Any reasonable expenses paid or provided to any agent of a covered institution who is employed in the financial aid office or has other responsibilities with respect to education loans or other student financial aid of the institution for service on a lender advisory board, commission or group established by a lender or group of lenders; or

(2) Any similar expenses paid or provided to any agent of an institution-affiliated organization who is involved in recommending, promoting, or endorsing education loans.

(3) The report required by this paragraph must include—

(i) The amount of expenses paid or provided for each specific instance in which the lender provided expenses;

(ii) The name of any agent described in paragraph (b)(1) of this section to whom the expenses were paid or provided;

(iii) The dates of the activity for which the expenses were paid or provided; and

(iv) A brief description of the activity for which the expenses were paid or provided.

(c)

Lender certification of compliance.

(1) Any FFEL lender participating in one or more preferred lender arrangements must annually certify to the Secretary its compliance with the Higher Education Act of 1965, as amended; and

(2) If the lender is required to submit an audit under 34 CFR 682.305(c), the lender's compliance with the requirements under this section must be reported on and attested to annually by the lender's auditor.

(3) A lender may comply with the certification requirements of this section if the certifications are provided as part of the annual audit required by 34 CFR 682.305(c).

(4) A lender who is not required to submit an audit must submit the required certification at such time and in such manner as directed by the Secretary.

(d)

Annual lender report to covered institutions.

A FFEL lender with a preferred lender arrangement with a covered institution or an institution-affiliated organization relating to FFEL loans must annually, on a date prescribed by the Secretary, provide to the covered institution or the institution-affiliated organization and to the Secretary, such information required by the Secretary in relation to the FFEL loans the lender plans to offer pursuant to that preferred lender arrangement for the next award year.

(Approved by the Office of Management and Budget under control number 1845-XXXA)

Authority:

20 U.S.C. 1019a(b) and 1019b(b).

PART 668—STUDENT ASSISTANCE GENERAL PROVISIONS

2. The authority citation for part 668 continues to read as follows:

Authority:

20 U.S.C. 1001, 1002, 1003, 1070g, 1085, 1088, 1091, 1092, 1094, 1099c, and 1099c-1, unless otherwise noted.

3. Section 668.14 is amended by adding new paragraphs (b)(27), (b)(28) and (b)(29) as follows:

§ 668.14

Program participation agreement.

(b) * * *

(27) In the case of an institution participating in a Title IV, HEA loan program, the institution—

(i) Will develop, publish, administer, and enforce a code of conduct with respect to loans made, insured or guaranteed under the Title IV, HEA loan programs in accordance with 34 CFR 601.21; and

(ii) Must inform its officers, employees, and agents with responsibilities with respect to loans made, insured or guaranteed under the Title IV, HEA loan programs annually of the provisions of the code required under paragraph (b)(27) of this section;

(28) For any year in which the institution has a preferred lender arrangement (as defined in 34 CFR 601.2(b)), it will at least annually compile, maintain, and make available for students attending the institution, and the families of such students, a list in print or other medium, of the specific lenders for loans made, insured, or guaranteed under title IV of the HEA or private education loans that the institution recommends, promotes, or endorses in accordance with such preferred lender arrangement. In making such a list, the institution must comply with the requirements in 34 CFR 682.212(h) and 34 CFR 601.10;

(29)(i) It will, upon the request of an enrolled or admitted student who is an applicant for a private education loan (as defined in 34 CFR 601.2(b)), provide to the applicant the self-certification form required under 34 CFR 601.11(d) and the information required to complete the form, to the extent the institution possesses such information, including—

(A) The applicant's cost of attendance at the institution, as determined by the institution under part F of title IV of the HEA;

(B) The applicant's estimated financial assistance, including amounts of financial assistance used to replace the expected family contribution as determined by the institution in accordance with title IV, for students who have completed the Free Application for Federal Student Aid; and

(C) The difference between the amounts under paragraphs (b)(29)(i)(A) and (29)(i)(B) of this section, as applicable.

(ii) It will, upon the request of the applicant, discuss with the applicant the availability of Federal, State, and institutional student financial aid;

4. Section 668.16 is amended by:

A. Revising paragraph (d).

B. Revising paragraph (m).

C. Revising the authority citation that appears at the end of the section.

The revisions read as follows:

§ 668.16

Standards of administrative capability.

(d)(1) Establishes and maintains records required under this part and the individual Title IV, HEA program regulations; and

(2)(i) Reports annually to the Secretary on any reasonable reimbursements paid or provided by a private education lender or group of lenders as described under section 140(d) of the Truth in Lending Act (15 U.S.C. 1631(d)) to any employee who is employed in the financial aid office of the institution or who otherwise has responsibilities with re

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