[Federal Register Volume 60, Number 231 (Friday, December 1, 1995)]
[Rules and Regulations]
[Pages 61750-61757]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-29179]
[[Page 61749]]
_______________________________________________________________________
Part III
Department of Education
_______________________________________________________________________
34 CFR Part 682
Federal Family Education Loan Program; Final Rule
Federal Register / Vol. 60, No. 231 / Friday, December 1, 1995 /
Rules and Regulations
[[Page 61750]]
DEPARTMENT OF EDUCATION
34 CFR Part 682
RIN 1840-AC21
Federal Family Education Loan Program
AGENCY: Department of Education.
ACTION: Final regulations.
-----------------------------------------------------------------------
SUMMARY: The Secretary amends the regulations governing the Federal
Family Education Loan (FFEL) Program. The FFEL regulations govern the
Federal Stafford Loan Program, the Federal Supplemental Loans for
Students (Federal SLS) Program, the Federal PLUS Program, and the
Federal Consolidation Loan Program, collectively referred to as the
Federal Family Education Loan Program. The Federal Stafford Loan, the
Federal SLS, the Federal PLUS and the Federal Consolidation Loan
programs are hereinafter referred to as the Stafford, SLS, PLUS and
Consolidation Loan programs. The Secretary is making changes to the
FFEL Program regulations to conform the FFEL program regulations with
regulations and policies in effect in the William D. Ford Federal
Direct Student Loan Program, hereinafter referred to as the Direct Loan
Program.
EFFECTIVE DATE: These regulations take effect on July 1, 1996. However,
affected parties do not have to comply with the information collection
requirements in sections 682.207, 682.209, 682.210, 682.211, 682.401,
682.412, 682.603, 682.604, and 682.605 until after the information
collection requirements contained in these sections have been approved
by the Office of Management and Budget under the Paperwork Reduction
Act of 1995.
FOR FURTHER INFORMATION CONTACT: Patricia Newcombe, FFELP Policy
Section Chief, or Barbara Bauman, FFELP Program Specialist, Loans
Branch, Policy Development Division, Policy, Training, and Analysis
Service, U.S. Department of Education, 600 Independence Avenue, S.W.
(room 3053, ROB-3), Washington, DC 20202-5449. Telephone: (202) 708-
8242. Individuals who use a telecommunications device for the deaf
(TDD) may call the Federal Information Relay Service (FIRS) at 1-800-
877-8339 between 8 a.m. and 8 p.m., Eastern time, Monday through
Friday.
SUPPLEMENTARY INFORMATION:
Background
The Secretary is amending 34 CFR Part 682 of the Department's
regulations to adopt certain policies and procedures that have been
used in the Direct Loan Program.
On September 21, 1995, the Secretary published a Notice of Proposed
Rulemaking (NPRM) in the Federal Register (60 FR 49130) proposing
changes to the FFEL regulations to conform with certain regulations and
policies in the Direct Loan program, wherever possible, to provide a
consistent approach in both programs. Many of the proposed changes
included in the NPRM were identified by commenters in response to an
earlier NPRM, published on October 7, 1994, also intended to conform
the two loan programs, but were outside the scope of the proposals in
that NPRM. In the final regulations published on November 29, 1994, the
Secretary promised to evaluate the merits and implications of these
additional proposals and include some of them in future regulations.
These final regulations reflect many of those proposals. These
regulations contain clarifying changes to certain existing provisions
of the FFEL program regulations.
The NPRM published for Part 682 in the Federal Register on
September 21, 1995 (59 FR 49130-49131) included a discussion of the
major issues surrounding the proposed changes, and the discussion will
not be repeated here. The following list summarizes those issues and
identifies the pages of the preamble to the NPRM on which a discussion
of those issues may be found:
Clarification of the definition of satisfactory repayment
arrangements for a borrower to renew eligibility for Title IV student
financial assistance (page 49130);
Borrower eligibility for a FFEL Consolidation loan for a
borrower in default status (page 49130);
Codification of the existing FFEL policy to allow a loan
to be disbursed in a single installment under certain circumstances
(page 49130);
Clarification of late disbursement provisions under
documented exceptional circumstances in sections 682.207(d)(2)(iii) and
682.604(e)(3) through amendments to those provisions (page 49130);
Lender application of borrower loan payments and treatment
of prepayments (page 49130);
Clarification of deferment eligibility for a borrower in
default status (page 49131);
Extension of administrative forbearance to a borrower who
ends an authorized deferment period in delinquent status (page 49131);
Treatment of loan insurance premiums when a school refunds
a loan or a portion thereof to a lender on behalf of a borrower (page
49131);
Treatment of payments received after loan discharge (page
49131);
Minor changes to provisions governing school loan
certification (page 49131); and
Technical changes to conform provisions governing a
school's determination of a borrower's withdrawal with the refund
provisions of section 668.22(j) (page 49131).
Substantive Revisions to the Notice of Proposed Rulemaking
Section 682.207 Due Diligence in Disbursing a Loan
The final regulations reflect an additional provision that allows a
single installment containing more than one loan disbursement to be
made prior to the midpoint of the loan period if the date of the
scheduled disbursement coincides with the beginning of the next
scheduled term for which the school has requested a disbursement as
provided for under law.
Section 682.209 Payment Application and Prepayment
The final regulations allow a lender to use a statement included in
the borrower's monthly billing statement or coupon book, in lieu of a
separate notice, to inform a borrower who submits full payments in
excess of the scheduled payment amount (without instructions to the
lender) regarding how those payments will be credited to the borrower's
account and how that crediting affects the borrower's next scheduled
due date for payment.
Section 682.211 Forbearance
The Secretary has changed the regulations to authorize lenders to
grant administrative forbearance to borrowers to cover any period of
delinquency that may exist after the close of a period of mandatory
forbearance, in addition to the close of an authorized deferment
period.
Section 682.607 Payment of a Refund to a Lender
The final regulations include a change to section 682.607(c)(1) to
clarify the interaction between sections 682.605 and 682.607 and
668.22(j) of the General Provisions regulations.
Analysis of Comments and Changes
In response to the Secretary's invitation in the NPRM, 40 parties
submitted comments on the proposed regulations. An analysis of the
comments and of the changes in the regulations since publication of the
NPRM follows.
[[Page 61751]]
Substantive issues are discussed under the section of the
regulations to which they pertain. Technical and other minor changes--
and suggested changes the Secretary is not legally authorized to make
under the applicable statutory authority--are generally not addressed.
General
Comments: Similar to the comments received in response to the
October 7, 1994 NPRM to conform the FFEL and Direct Loan programs, some
commenters suggested changes to the FFEL program regulations that were
not included in the NPRM. Some of the changes had nothing to do with
conforming the two loan programs. For example, one commenter suggested
that the Secretary revise the provisions in section 682.411(c) to
change the time frame within which a lender must send the first notice
of delinquency to a borrower. Some of the commenters repeated the
suggestions made in response to the October 7, 1994 NPRM to conform the
Direct Loan program regulations to the FFEL program regulations by
incorporating into the Direct Loan regulations the various requirements
in the FFEL regulations for documenting deferment and forbearance
eligibility, tracking deferments with statutory time maximums, and
backdating the start of deferment eligibility. Additionally, these
commenters recommended that FFEL regulations be revised to provide an
extended repayment option to FFEL borrowers, and to eliminate the
regulatory requirement in section 682.209(a)(6)(ii) that if a borrower
chooses a graduated or income-sensitive repayment schedule, the lender
may not provide the borrower with a repayment schedule that contains
any single installment that is more than three times greater than any
other installment.
Discussion: The Secretary does not believe that he currently has
the statutory authority to provide through regulations additional
repayment options for FFEL borrowers. Because of the constraints
presented by the statutory 10-year maximum time frame for repayment of
most FFEL program loans, the Secretary also does not believe that it is
advisable from a consumer protection standpoint to delete the provision
that restricts a lender's ability to establish a repayment schedule
that would provide for payments that are three times or more what the
borrower's normally scheduled payment would be. The Secretary does not
believe that an FFEL borrower is well served by establishing a
graduated or income-sensitive repayment schedule that provides low
payments initially only to lead to balloon payments that the borrower
is unable to meet later in the repayment period despite the use of
authorized forbearance. The Secretary also wishes to reiterate what he
said in the November 29, 1994 final regulations in response to
commenters who indicated that they believed the Secretary is required
to make the regulations and processes in the Direct Loan program
strictly conform to the FFEL regulations. The Secretary continues to
disagree with these commenters. There is no legal requirement that the
Secretary issue regulations to regulate internal agency processes in
the Direct Loan Program. The Department continues to assure FFEL
program participants that policies and procedures in the administration
of the Direct Loan program are consistent with FFEL regulatory
requirements to the extent practicable. Moreover, the Secretary is
committed to continuing to examine areas that affect substantive or
procedural rights of program participants that may require additional
regulations to ensure conformity between the programs. In regard to the
proposal to change the time frame for a lender to send the first notice
of delinquency to a borrower, the Secretary does not consider this
recommendation appropriate for this regulations package because it has
nothing to do with conformity between the FFEL and Direct Loan
programs. However, the Secretary will consider this proposal for future
regulations.
Section 682.200 Definitions
Comments: Most commenters agreed with the Secretary's decision to
clarify that a borrower may make satisfactory repayment arrangements on
a defaulted FFEL debt for purposes of regaining Title IV eligibility
only once. A couple of commenters urged the Secretary to allow a lender
to make documented exceptions to this requirement. Many commenters
recommended that the Secretary retain the terms ``consecutive'' and
``voluntary'' in current regulations to describe the series of full
monthly payments a borrower must make to regain eligibility. The
commenters believe it is necessary to clarify that a borrower cannot
regain eligibility through a lump sum payment and that payments secured
through involuntary means, such as wage garnishment or litigation, do
not count as one of the six required payments. Several commenters also
wanted the Secretary to clarify that the restriction on a borrower in
default status regaining Title IV eligibility only once did not apply
to that borrower's ability to make payments sufficient to move out of
default status on a loan.
Discussion: The Secretary agrees with the commenters that retaining
the terms ``consecutive'' and ``voluntary'' to describe the full
payments that must be made by the borrower to regain eligibility for
Title IV student assistance is essential for the reasons suggested by
the commenters. These terms were dropped from the NPRM proposal
inadvertently. The Secretary does not agree with the recommendation
that the regulations should be revised to authorize lenders to allow a
borrower to renew eligibility more than one time under certain
circumstances. This one-time restriction is statutory. The Secretary
wishes to clarify that this one-time restriction on regaining
eligibility in no way restricts the same borrower from bringing a loan
out of default status more than once.
Changes: A change has been made. The terms ``consecutive'' and
``voluntary'' have been reinserted into the definition to modify the
consecutive full payments that must be made by the borrower to regain
eligibility.
Section 682.201 Eligible Borrowers
Comments: Many commenters did not support the proposal to allow a
borrower to include a defaulted loan in an FFEL Consolidation loan
simply by agreeing to repay the Consolidation loan under an income-
sensitive repayment plan rather than by making the currently required
series of three consecutive payments on the defaulted loan. The
commenters also felt strongly that the similar borrower option that
exists in the Direct Loan program should be deleted from regulations.
These commenters believe that such a borrower should be required to
make actual payments on the defaulted loan to demonstrate an intent and
ability to repay the loan before the borrower is granted an additional
extension of federal credit in the form of a Consolidation Loan and,
possibly, additional Title IV student assistance to return to school.
These commenters also believe that this policy encourages the ``gaming
of the [student loan] system'' by allowing a borrower who has already
defaulted on one or more loans to avoid making any payments on any
Title IV student loan debt for a considerable period of time if the
borrower returns to school. One of these commenters pointed out that if
such a borrower cannot afford to make the three ``reasonable and
affordable'' payments on the defaulted debt, they would be equally
unable and unlikely to make scheduled payments on the Consolidation
loan. A couple of other commenters recommended that the regulations be
revised to retain the three
[[Page 61752]]
payment requirement, with the lender authorized to waive the
requirement based on documented exceptional circumstances if the
borrower demonstrates a willingness and ability to repay the
Consolidation loan. Some commenters supported the provision as proposed
in order to maintain parity between the FFEL and Direct Loan programs,
but some of those commenters questioned how the holder of the loan
would know or be able to verify that a borrower has agreed to repay the
loan under an income-sensitive repayment plan.
Discussion: The Secretary acknowledges the commenters' concerns
regarding providing this option to borrowers already in default on an
FFEL program loan. However, the Secretary believes that a significant
number of borrowers in the past have defaulted because they could not
afford to make required loan payments. When a borrower consolidates a
defaulted loan or loans under an income-sensitive repayment plan (or,
in the Direct Loan program, under an income-contingent repayment plan)
the amount the borrower will be required to repay will be one the
borrower can afford. The Secretary believes that an income-sensitive
payment amount coupled with the extended repayment period generally
available in the FFEL Consolidation loan program, significantly lessens
the risk that the borrower will default again. The Secretary also does
not believe that three consecutive monthly ``reasonable and
affordable'' payments from the borrower, which could be as low, for
example, as $2 per month, necessarily is a more significant indicator
of whether a borrower will default on the new Consolidation loan. It is
correct that borrowers paying off defaulted loans through loan
consolidation regain immediate eligibility for additional Title IV
student assistance and perhaps represent a slightly greater risk of
default on an even larger debt load. However, this risk was created
when Congress amended the HEA to allow borrowers to repay defaulted
loans through a Consolidation loan. The Secretary's decision to allow
defaulted borrowers to receive a Consolidation loan by agreeing to
repay the loan through an income-sensitive repayment arrangement does
not significantly increase that risk, and in fact, is likely to reduce
defaults. The Secretary believes that borrowers consolidating their
defaulted loans and regaining eligibility for Title IV student
assistance in order to obtain additional education or training are
worth the risk if this second chance leads to gainful employment that
will ultimately translate into greater returns to the FFEL program and
the federal taxpayers.
Mindful of the unease with which many in the student aid community
view this conforming change in FFEL regulations, the Secretary is
committed to monitoring the repayment records of these borrowers
through the use of the National Student Loan Data System over the next
few years. If the repayment patterns of such borrowers in the FFEL and
Direct Loan programs reach an unacceptable level of repeat defaults by
these borrowers, the Secretary will reconsider this policy in the FFEL
and Direct Loan programs.
With regard to the question about how a loan holder asked to
provide a certification to the consolidating lender is to know or
verify that the borrower has agreed to an income-sensitive repayment
plan option, the Secretary notes that it is the obligation of the
consolidating lender to determine if the borrower qualifies for the
consolidation loan. The consolidating lender will have to determine
whether the borrower has chosen an income-sensitive repayment plan or
needs to make the required monthly payments to the holder of the
defaulted loan. The Secretary also wishes to remind those commenters
who expressed concern about this approach that lenders in the FFEL
program always have the option not to make an FFEL Consolidation loan.
Changes: None.
Section 682.207 Due Diligence in Disbursing a Loan
Section 682.207(c)(4)
Comments: All of the commenters agreed with the proposal to codify
into the FFEL regulations the existing policy that allows a lender to
include more than one disbursement of a multiply-disbursed loan in the
same installment scheduled to be sent to the school if the midpoint of
the loan period has expired when the first disbursement is scheduled to
be made. Several commenters, however, asked that the provision be
revised to reflect the exception provided in the law for term-based
schools that allows a second or subsequent disbursement to be made
prior to the mid-point of the loan period if that is necessary to
coincide with the school's next scheduled term. The commenters pointed
out that the proposed rule would prevent a term-based school from
receiving two disbursements in a single installment if the start of the
next scheduled term was before the mid-point of the loan period.
Another commenter asked that the phrase ``for which the loan was made''
be inserted after the phrase ``loan period'' to clarify what the
midpoint is based on.
Discussion: The Secretary agrees with the commenters that these
revisions to the proposed provision are warranted.
Changes: Section 682.207(c)(4) has been revised to provide that
such a single installment can be made on the earlier of the mid-point
of the loan period for which the loan was made or the beginning of the
school's next scheduled term.
Section 682.207(d)(4)
Comments: All the commenters endorsed the clarifying changes made
to the late disbursement provisions in section 682.207(d)(4) and
corresponding changes made in section 682.604. One commenter suggested
an additional change to section 682.207(d)(2)(iii) to clarify that a
lender is not required to wait for notification from the school but may
presume that exceptional circumstances exist when making a disbursement
from the 61st day through the 90th day after the date the student
ceased enrollment on at least a half-time basis or the expiration date
of the period of enrollment for which the loan was intended. Upon
receipt of the disbursement, the school would be required to determine
and document in the student's file that exceptional circumstances
existed and deliver the loan proceeds or return the disbursement to the
lender.
Discussion: The Secretary agrees that this further clarification is
useful. The Secretary believes these procedures for lender and school
handling of a late disbursement during this period will be simple and
efficient for both the lender and school.
Changes: Section 682.207(d)(2)(iii) has been revised to reflect the
respective lender and school responsibilities and processes for
handling late disbursements during the last 30 days of the 90-day
period during which late disbursements may be made.
Section 682.209(b) Payment Application and Prepayment
Comments: One commenter recommended an additional change to section
682.209(b)(1) to clarify that a lender has the option to apply any
payment to late charges, collection costs, outstanding interest, and
outstanding principal in whatever order the lender chooses. The
commenter believes that the provision, as currently written, requires
application of payments first to late charges and collection costs,
then to outstanding interest, and finally to outstanding
[[Page 61753]]
principal. Most commenters supported the reduction (from three to one)
in section 682.209(b)(2)(ii) of the number of full excess payments a
lender must receive before the lender, absent instructions from the
borrower, is authorized to interpret the borrower's intent on the
handling of the prepayment and to apply them to future installment
payments on the loan. Some commenters, however, objected to changing
what had been a lender option in the handling of prepayments submitted
without borrower instructions to a requirement that the lender treat
them as intended for future installments. These commenters believe that
the lender is in the best position to review the borrower's repayment
pattern and to determine the borrower's intentions in making multiple
payments. Several commenters also noted that they interpreted the
prepayment provision of (b)(2)(ii) to apply to multiple partial
payments made by the borrower that the lender accumulates as well as
additional full payments. Other commenters recommended clarifying that
a lender's determination of whether a prepayment amount equals one or
more full scheduled payments should be made only after late charges and
collection costs have been paid. These same commenters also requested
that an additional sentence be added to (b)(2)(ii) to clarify that the
required notice to the borrower that the borrower's due date has been
advanced did not apply to borrowers making prepayments while they are
in an in-school, grace, deferment, or forbearance period because they
do not have a scheduled due date to which a future payment would be
applied. Many commenters disagreed strongly with the requirement in
(b)(2)(ii) that a lender provide the borrower with a notice informing
the borrower that the payments have been applied to future installments
and reminding the borrower of the repayment obligation and the next
scheduled due date. The commenters believe that this requirement is
overly prescriptive and burdensome to lenders and that it is
unnecessary to routinely notify the borrower that the due date has been
advanced. They also believe that a separate notification of this nature
outside the normal billing process is confusing to borrowers,
especially if the lender is generating them routinely to a borrower who
continues to submit additional full payments without instructions for
their handling. Many of these commenters recommended that a lender be
provided the alternative of providing this information through the use
of the billing statement or coupon book rather than providing a
separate notification after the funds have been applied as the
regulation proposes. They indicated that borrower coupon books and
billing statements are already being used to provide this kind of
information.
Discussion: The Secretary disagrees with the one commenter that
recommended that the payment application instruction in (b)(1) should
be modified to clarify that a lender may apply payments in any order to
late charges, collection costs, outstanding accrued interest and
principal. The language on payment application was modified, at the
request of lenders, in the FFEL regulations published on December 18,
1992 to clarify that a lender had the option to apply payments or
prepayments to outstanding late charges, collection costs, and
outstanding accrued interest before applying the remainder to
principal. The Secretary believes that the provision as currently
written provides lenders with the necessary flexibility in applying
payments and is consistent with how the Secretary is applying payments
in the Direct Loan Program.
The Secretary also disagrees that the treatment of additional full
payments submitted without instructions from the borrower for their
handling (e.g., multiple payment coupons enclosed with the check, a
written note on the billing statement or other written instructions, or
oral instructions to the lender documented in the borrower's file)
should be at the option of the lender. The Secretary now believes that,
absent the borrower's instruction, the most responsible approach to
handling additional full payments, and the likely intent of the
borrower in the majority of cases, is to apply that amount to future
installment payments on the loan and to advance the borrower's next
scheduled due date. In many instances, this approach will protect a
borrower who has submitted a large prepayment to cover a period when he
or she will not be available to make the normally scheduled payments
from entering a delinquent status. Mandating this treatment of such
prepayments by lenders also provides for a consistent, standardized
approach for all borrowers and is consistent with the Secretary's
treatment of additional full payments submitted without borrower
instructions in the Direct Loan program. The Secretary also wishes to
clarify that some commenters' interpretation that the provisions in
(b)(2)(ii) apply to accumulated partial payments received over time
from the borrower without instructions is incorrect. The Secretary
believes that a lender should only interpret that the borrower's
intent, absent instructions, is to apply the excess payments to future
installments if the prepayment amount submitted is at least one
additional full payment. The Secretary does not believe that this is
generally the borrower's intent when a borrower submits small
additional amounts in excess of the scheduled payment amount. The
Secretary expects these partial payment amounts, unless a lender
receives specific instructions from the borrower directing the lender
to accumulate them and eventually apply them to a future installment,
to be applied to outstanding principal (unless the borrower has
outstanding late or collection charges or outstanding accrued interest
to which the lender wishes to apply the partial payment before applying
the remainder to principal, as provided for under (b)(1) of this
section) with no advancement of the borrower's next scheduled due date.
The Secretary agrees that the determination of whether the excess
payment amount is sufficient to require the handling specified in
(b)(2)(ii) should be made after any late or collection charges and
outstanding interest are taken care of but does not believe that this
needs to be clarified in the regulations. The Secretary has made it
clear that the payment application provisions in (b)(1) apply to all
payments, including prepayments, so the Secretary believes any further
clarification in the regulations is unnecessary. The Secretary agrees
with the many commenters who recommended that the Secretary allow the
use of payment coupons and billing statements as alternatives to the
borrower notification required in (b)(2)(ii), provided the borrower is
effectively notified of the lender's handling of the excess payment
amounts and the advancement of the borrower's next scheduled due date.
The Secretary also agrees that notification of the advancement of the
payment due date is inappropriate for borrowers who make prepayments
without instructions during in-school, grace, deferment, and
forbearance periods when no payments are due.
Changes: The regulations have been revised in section
682.209(b)(2)(ii) to allow a lender to use a billing statement or a
payment coupon book to provide information to the borrower on how the
lender will treat additional full payment amounts if the borrower
submits one or more additional payments without instructions to the
lender as to their handling. The Secretary believes that a
[[Page 61754]]
prominent standard statement on each billing statement or in the
payment coupon book informing the borrower that the lender will apply
the payments to future installments and will advance the borrower's
next scheduled payment due date consistent with the number of
additional full payments received is comparable to the separate
notification the lender may send after receipt of such additional
payments. A sentence has also been added to this provision to clarify
that information related to advancing the borrower's scheduled payment
due date need not be provided if the borrower makes the prepayment
during an in-school, grace, deferment, or forbearance period.
Section 682.210 Deferment
Comments: Many commenters objected to the proposed clarifying
language that would restrict a defaulted borrower's eligibility for
deferment, as a result of arrangements made with the holder of the
loan, to the period up to the lender's filing of a default claim with
the guaranty agency. Many of these commenters felt strongly that a
lender should have the maximum flexibility in working with a borrower,
at least up until the default claim is paid by the guaranty agency, to
avert the claim payment, the point at which the borrower is subject to
adverse consequences of the default and the default becomes a cost to
the federal government. These commenters felt this more restrictive
language would severely hamper supplemental preclaims assistance
efforts of guaranty agencies that take place during this period. A
couple of these commenters recommended that the clarifying language be
revised to allow a lender to retrieve a loan from a guaranty agency
even after default claim payment if satisfactory arrangements can be
made with the borrower. One commenter recommended that the provision be
revised to provide that a borrower is not eligible for deferment after
default unless the borrower's eligibility for the deferment began prior
to the default or, if that is not the case, unless the borrower makes
satisfactory repayment arrangements with the lender prior to guaranty
agency payment of the default claim. Another commenter recommended that
language be included in this provision that clarifies that a lender's
granting of a deferment after the filing of the default claim is at the
lender's discretion. Several commenters recommended eliminating the
word ``repayment'' from the phrase ``satisfactory repayment
arrangements'' in order to clarify that the payment arrangements made
with the holder for the purposes of this provision need only be
acceptable to the holder, as opposed to meeting the statutory
requirement for a borrower who is in default to regain eligibility for
additional Title IV student assistance. Another commenter recommended
that the Secretary retain the current regulatory language because the
commenter interprets the provision as allowing a borrower in default to
be entitled to a deferment if satisfactory repayment arrangements are
made with the holder, regardless of whether the holder is a lender, a
guaranty agency, or the Secretary.
Discussion: The Secretary believes that clarification of this
provision is necessary because, as currently written, it suggests that
a borrower who has defaulted on the repayment of a loan and whose loan
is held by a guaranty agency or the Secretary can become eligible for
deferment of repayment on that loan by making satisfactory repayment
arrangements as that term is defined for regaining eligibility for
Title IV student assistance. This has never been the Secretary's
interpretation of the law with regard to deferment eligibility. The HEA
excludes defaulted borrowers from certain program benefits, a major one
of these being deferments. However, through this regulatory provision,
lenders have always had the ability, at their option, to make payment
arrangements with a borrower even after 180 days of delinquency in
order to avert a default claim. After a guaranty agency has paid a
claim, however, a borrower can regain eligibility for deferment on that
loan only through loan rehabilitation or lender repurchase of that
loan. A borrower who makes satisfactory repayment arrangements with a
guaranty agency to regain eligibility for Title IV student assistance,
as provided for under section 428F(b) of the HEA, does not regain
deferment eligibility on that defaulted loan that remains with the
agency. Borrowers are expected to continue to make payments on that
loan after the six required payments necessary to regain eligibility,
but guaranty agencies are strongly encouraged to provide forbearance to
such borrowers on the loan during the borrower's in-school period. Only
if the loan is successfully rehabilitated or a lender repurchase is
arranged does the borrower regain deferment eligibility. After
consideration of the comments, the Secretary has decided that lenders
and guaranty agencies should be allowed to work with defaulted
borrowers to avert default claim payment through the granting of
deferments and other administrative methods provided in the FFEL
program until the guaranty agency pays the claim. This provides
borrowers with ample opportunity to avert the consequences of default.
The Secretary does not believe this provision should apply after
default claim payment unless the lender determines the default claim
was filed in error and recalls the loan from the agency. At the point a
default claim is paid, Federal taxpayer funds have been used to repay
the borrower's debt and the guaranty agency has lost the use of that
money for other program purposes. The Secretary agrees that the phrase
``satisfactory repayment arrangements'' needs to be modified to avoid
any misinterpretation of what is required for purposes of this
provision. The term satisfactory repayment arrangements, as currently
defined, is intended to apply only to the requirements a defaulted
borrower must meet to regain Title IV eligibility. For purposes of this
provision, the arrangements must only be acceptable to the lender and
are left to the lender and borrower to work out. The Secretary also
agrees that a lender's acceptance of payments or granting of deferments
or forbearance as part of satisfactory arrangements to avert a default
claim payment at the post-180 or post-240 day stage of delinquency are
strongly encouraged, but optional on the part of the lender.
Changes: A change has been made. This provision of the regulations
has been revised to provide for deferment eligibility of a defaulted
borrower up to the payment of a default claim on the loan if the lender
agrees to make payment arrangements with the borrower. The phrase
``satisfactory repayment arrangements'' has been revised to read
``payment arrangements acceptable to the lender.''
Section 682.211 Forbearance
Comments: All commenters agreed with the Secretary's proposal to
allow lenders to apply an administrative forbearance in situations when
a borrower ends a period of deferment in a delinquent status. Many
commenters also recommended that the provision be expanded to include
those borrowers ending a period of mandatory forbearance in a
delinquent status. Another commenter recommended the addition of the
phrase ``until the next due date is established in accordance with
section 682.209(a)(3)(ii)(B)'' at the end of the provision.
Discussion: The Secretary agrees with the commenters.
Changes: A change has been made to include borrowers who have ended
a period of mandatory forbearance in a delinquent status and the
recommended
[[Page 61755]]
phrase related to next payment due date has been added.
Section 682.401(b)(10)(vi)(B) Basic Program Agreement
Comments: Several commenters requested clarification as to whether
the amount of the insurance premium to be returned was to be
proportional in instances where a school refunds a portion of a loan
that is less than a full disbursement to a lender, and the lender must
refund the insurance premium to the borrower. Many commenters requested
that the phrase ``a portion of the loan'' be replaced with the phrase
``full disbursement of the loan'' to reflect the fact that the
Secretary was maintaining his existing policy that such a refund is
necessary only if at least a full disbursement of the loan is returned.
Another commenter requested that the regulations be revised to be
consistent with the Direct Loan program by requiring that the refund of
the insurance premium be applied to the borrower's loan balance rather
than be refunded to the borrower. Other commenters suggested that the
phrase ``within 120 days of disbursement'' be inserted to clarify the
timeframe during which the refund of the insurance premium must be
done.
Discussion: The Secretary clarifies that the lender should pro-rate
the insurance premium fee. The Secretary also agrees that the refunds
of the insurance premium should be refunded through application to the
borrower's account, not a cash refund to the borrower. The Secretary
does not agree that reference to ``within 120 days of disbursement''
should be inserted in section 682.401(b)(10)(vi)(B)(1) because the
Secretary believes that the timing of the school's refund to the lender
on behalf of the student should not prevent the borrower from receiving
the benefit of the refund of the insurance premium.
Changes: The regulations have been revised to reflect that a
proportional amount of the insurance premium should be refunded if the
refund is less than the amount of a loan disbursement and that a refund
for this purpose is an application against the borrower's loan account
by the lender.
Section 682.402 (l)(1) Death, Disability, Closed School, False
Certification and Bankruptcy Discharge
Comments: Many commenters agreed with the concept of the proposed
regulations but requested that the regulations be revised to clarify
that all payments should be returned to the sender, as is the case in
the Direct Loan program, and that any notification of no further
obligation to repay a loan discharged in bankruptcy or loan cancelled
due to the borrower's total and permanent disability should be sent to
the borrower. Many comments also recommended that the regulations be
revised to provide that the lender return payments received only after
the guaranty agency has paid the claim. The commenters were concerned
that until the agency has reviewed and made a determination on the
lender's claim, it is risky to refund payments.
Discussion: The Secretary agrees with the commenters that lenders
and guaranty agencies should return payments on all discharged loans to
the sender consistent with the handling of discharges in the Direct
Loan program. However, the notification that there is no further
obligation to repay the loan should always be directed to the borrower.
The Secretary also agrees that payments received on discharged loans
should not be returned until the discharge claim is paid by the
guaranty agency.
Changes: The regulations have been revised to reflect the
commenters' recommendations.
Section 682.412(c) Consequences of the Failure of a Borrower or
Student To Establish Eligibility
Comments: Most commenters supported the Secretary's clarification
to allow a borrower 30 days from the date a final demand letter is
mailed by the lender to repay a loan amount that the borrower was
ineligible to receive. One commenter disagreed with the proposal,
stating that in a large agency it may be impossible to verify the date
the letter is mailed unless the borrower retains the envelope with the
post office cancellation stamp on it.
Discussion: The Secretary notes that lenders and guaranty agencies
are currently required to maintain records establishing the dates
certain collection notices are mailed (as required by 34 CFR
682.410(b)(1)(vi) and 682.411). Therefore, the Secretary believes that
lenders will be able to determine when a letter is mailed for this
purpose. The Secretary is concerned by the commenter's claim that large
agencies are not tracking these dates and will evaluate whether reviews
of lender operations in this area are necessary.
Changes: None.
Section 682.603 Certification by a Participating School in Connection
With a Loan Application
Comments: All commenters agreed with the Secretary's proposal that
in loan proration situations where a student is enrolled in a program
of study with less than a full academic year remaining, the school will
not be required to recalculate the amount of the loan if the number of
hours for which an eligible student is enrolled changes after the
school certifies the loan. One commenter suggested the insertion of the
phrase ``or the student in the case of a PLUS loan'' in section
682.603(g) of the regulations because the commenter was concerned that
in the case of the PLUS loan, the school would likely assess the
dependent student any fee since they would be unable to assess the
parent borrower.
Discussion: The Secretary agrees with the minor technical
correction to section 682.603(g).
Change: The phrase recommended by the commenter has been inserted
in section 682.603(g).
Section 682.605 Determining the Date of a Student's Withdrawal
Comments: All the commenters agreed with the Secretary's proposal
to reinsert into the regulations the guidance on determining the date
of a student's withdrawal in the case of a summer period of
nonenrollment (``summer break'') that had been inadvertently deleted
from the regulations. One commenter suggested the provision be revised
to reference the fact that the summer break could include summer terms
during which the school offers classes, but most students are generally
not required to attend. One commenter recommended that the ``summer
break'' approach be extended to other periods of nonenrollment during
the regular academic year. Several commenters also pointed out that an
earlier revision of the regulations in section 682.607(c), governing
the school's timeframe for making a refund to a lender for a student
who has withdrawn, could create, in the case of unofficial withdrawals,
unintended potential liability for schools. The commenters recommended
that the 60 days for a timely refund be based on the date the school
determines that a student has unofficially withdrawn as it was
formerly, not the date of withdrawal, which may have taken place weeks,
if not months, before the school determines the student has dropped
out. The commenters also suggested that section 682.607(c)(1) also be
revised to clarify what constitutes timely payment to the lender under
the ``summer break'' language of section 682.605.
Discussion: The Secretary does not agree that the approach to
determining student withdrawal following a period of summer
nonenrollment should be more broadly applied to other periods of
nonenrollment during the academic
[[Page 61756]]
year. Since this information is used to convert a borrower to repayment
in a timely manner, the Secretary believes it is not generally
appropriate, except in connection with a summer period, to delay the
school's determination of student withdrawal. The Secretary agrees that
the summer period of nonenrollment can include summer terms during
which the school offers classes, but most students are generally not
expected to attend. The Secretary also agrees that the technical
changes to section 682.607(c)(1) are needed for successful coordination
between section 668.22(j) of the General Provisions regulations and
sections 682.605 and .607 of the FFEL program regulations.
Change: None.
Assessment of Educational Impact
In the NPRM, the Secretary requested comments on whether the
proposed regulations would require transmission of information that is
being gathered by or is available from any other agency or authority of
the United States.
Based on the response to the proposed rules and on its own review,
the Department has determined that the regulations in this document do
not require transmission of information that is being gathered by or is
available from any other agency or authority of the United States.
List of Subjects in 34 CFR Part 682
Administrative practice and procedure, Colleges and universities,
Education, Loan programs--education, Reporting and recordkeeping
requirements, Student aid, Vocational education.
(Catalog of Federal Domestic Assistance Number 84.032, Federal
Family Education Loan Program)
Dated: November 24, 1995.
Richard W. Riley,
Secretary of Education.
The Secretary amends Part 682 of Title 34 of the Code of Federal
Regulations as follows:
PART 682--FEDERAL FAMILY EDUCATION LOAN (FFEL) PROGRAM
1. The authority citation for Part 682 continues to read as
follows:
Authority: 20 U.S.C. 1071 to 1087-2, unless otherwise noted.
Sec. 682.200 [Amended]
2. Section 682.200, paragraph (b) is amended by revising the
definition of ``Satisfactory repayment arrangement'' by adding at the
end of the paragraph (1), ``A borrower may only obtain the benefit of
this paragraph with respect to renewed eligibility once.'' and by
removing in paragraph (2) the reference to ``34 CFR
682.201(c)(iii)(C)'' and adding, in its place, ``34 CFR
682.201(c)(1)(iii)(C).''
3. Section 682.201 is amended by revising paragraph (c)(1)(iii)(C)
to read as follows:
Sec. 682.201 Eligible borrowers.
* * * * *
(c) * * *
(1) * * *
(iii) * * *
(C) In a default status and has either made satisfactory repayment
arrangements as defined in section 682.200(b)(2) or has agreed to repay
the consolidation loan under the income-sensitive repayment plan
described in Sec. 682.209(a)(6)(viii).
* * * * *
4. Section 682.207 is amended by revising paragraph (c)
introductory text; adding a new paragraph (c)(4) and revising
paragraphs (d)(1) and (d)(2)(iii) to read as follows:
Sec. 682.207 Due diligence in disbursing a loan.
* * * * *
(c) A lender shall disburse any Stafford or PLUS loan as follows:
* * * * *
(4) If the first disbursement of a loan is scheduled to be made on
the date of the second scheduled disbursement, the loan may be
disbursed in a single installment. This date may be on the earlier of--
(i) The midpoint of the loan period for which the loan was made; or
(ii) A date which coincides with the beginning of the next
scheduled term as provided for in the exception clause of paragraph
(c)(3) of this section.
(d)(1) A lender may disburse loan proceeds after the student has
ceased to be enrolled on at least a half-time basis or after the
expiration date of the period of enrollment for which the loan was
intended, in accordance with paragraphs (d) (2) and (3) of this
section.
(2) * * *
(iii) In exceptional circumstances within 30 days after the period
described in paragraph (d)(2)(ii) of this section. Between the 61st and
up through the 90th day, a lender may presume that exceptional
circumstances exist and make the disbursement. The school shall review
the borrower's circumstances and either determine that exceptional
circumstances exist or return the loan proceeds to the lender. The
school shall document the exceptional circumstances in the student's
file.
* * * * *
5. Section 682.209 is amended by revising paragraph (b) to read as
follows:
Sec. 682.209 Repayment of a loan.
* * * * *
(b) Payment application and prepayment. (1) The lender may credit
the entire payment amount first to any late charges accrued or
collection costs and then to any outstanding interest and then to
outstanding principal.
(2)(i) The borrower may prepay the whole or any part of a loan at
any time without penalty.
(ii) If the prepayment amount equals or exceeds the monthly payment
amount under the repayment schedule established for the loan, the
lender shall apply the prepayment to future installments by advancing
the next payment due date, unless the borrower requests otherwise. The
lender must either inform the borrower in advance using a prominent
statement in the borrower coupon book or billing statement that any
additional full payment amounts submitted without instructions to the
lender as to their handling will be applied to future scheduled
payments with the borrower's next scheduled payment due date advanced
consistent with the number of additional payments received, or provide
a notification to the borrower after the payments are received
informing the borrower that the payments have been so applied and the
date of the borrower's next scheduled payment due date. Information
related to next scheduled payment due date need not be provided to
borrower's making such prepayments while in an in-school, grace,
deferment, or forbearance period when payments are not due.
* * * * *
6. Section 682.210 is amended by revising paragraph (a)(8) to read
as follows:
Sec. 682.210 Deferment.
(a) * * *
(8) A borrower whose loan is in default is not eligible for a
deferment, unless the borrower has made payment arrangements acceptable
to the lender prior to the payment of a default claim by a guaranty
agency.
* * * * *
7. Section 682.211 is amended by adding a new paragraph (f)(9) to
read as follows:
Sec. 682.211 Forbearance.
* * * * *
(f) * * *
(9) For a period of delinquency that may remain after a borrower
ends a period of deferment or mandatory
[[Page 61757]]
forbearance until the next due date is established in accordance with
Sec. 682.209(a)(3)(ii)(B).
* * * * *
8. Section 682.401(b)(10)(vi)(B), is revised to read as follows:
Sec. 682.401 Basic program agreement.
* * * * *
(b) * * *
(10) * * *
(vi) * * *
(B) The premium or an appropriate prorated amount of the premium
must be refunded by application to the borrower's account if--
(1) The loan or a portion of a loan is returned by the school to
the lender;
(2) Within 120 days of disbursement, the loan is repaid in full;
(3) Within 120 days of disbursement, the loan check has not been
negotiated; or
(4) Within 120 days of disbursement, the loan proceeds disbursed by
electronic funds transfer or master check in accordance with
Sec. 682.207(b)(1)(ii) (B) and (C) have not been released from the
restricted account maintained by the school.
* * * * *
9. Section 682.402 is amended by revising paragraph (c)(3) and by
revising paragraphs (l)(1) and (l)(2) as set forth below; by amending
paragraph (l)(3) by replacing the reference to ``(l)(2)'' with
``(l)(1).''
Sec. 682.402 Death, disability, closed school, false certification,
and bankruptcy payments.
* * * * *
(c) * * *
(3) After being notified that the guaranty agency has paid a
disability discharge claim, the lender shall return to the sender any
payments received by the lender after the date that the borrower became
totally and permanently disabled as certified by the physician. At the
same time that the lender returns the payment, it shall notify the
borrower that there is no obligation to repay a loan discharged on the
basis of disability.
* * * * *
(l) * * *
(1) If the guaranty agency receives any payments from or on behalf
of the borrower on or attributable to a loan that has been discharged
in bankruptcy on which the Secretary previously paid a bankruptcy
claim, the guaranty agency shall return 100 percent of these payments
to the sender. The guaranty agency shall promptly return, to the
sender, any payment on a cancelled or discharged loan made by the
sender and received after the Secretary pays a closed school or false
certification claim. At the same time that the agency returns the
payment, it shall notify the borrower that there is no obligation to
repay a loan discharged on the basis of death, disability, bankruptcy,
false certification, or closing of the school.
(2) The guaranty agency shall remit to the Secretary all payments
received from a tuition recovery fund, performance bond, or other third
party with respect to a loan on which the Secretary previously paid a
closed school or false certification claim.
* * * * *
10. Section 682.412 is amended by revising paragraph (c) to read as
follows:
Sec. 682.412 Consequences of the failure of a borrower or student to
establish eligibility.
* * * * *
(c) In the final demand letter transmitted under paragraph (a) of
this section, the lender shall demand that within 30 days from the date
the letter is mailed the borrower repay in full any principal amount
for which the borrower is ineligible and any accrued interest,
including interest and all special allowance paid by the Secretary.
* * * * *
11. Section 682.603 is amended by adding a new paragraph (f)(4) and
by revising paragraph (g) to read as follows:
Sec. 682.603 Certification by a participating school in connection
with a loan application.
* * * * *
(f) * * *
(4) In prorating a loan amount for a student enrolled in a program
of study with less than a full academic year remaining, the school need
not recalculate the amount of the loan if the number of hours for which
an eligible student is enrolled changes after the school certifies the
loan.
(g) A school may not assess the borrower, or the student in the
case of a PLUS loan, a fee for the completion or certification of any
FFEL Program form or information or for providing any information
necessary for a student or parent to receive a loan under part B of the
Act or any benefits associated with such a loan.
12. Section 682.604 is amended by removing paragraph (e)(3),
redesignating paragraph (e)(4) as paragraph (e)(3), in redesignated
paragraph (e)(3), in the introductory text, remove ``the lender or
guaranty agency has not informed the school that it prohibits a late
disbursement as permitted by Sec. 682.207(d)(2)(i), and if''.
13. Section 682.605 is revised to read as follows:
Sec. 682.605 Determining the date of a student's withdrawal.
(a) Except in the case of a student who does not return for the
next scheduled term following a summer break, which includes any summer
term(s) in which classes are offered but students are not generally
required to attend, a school shall follow the procedures in 34 CFR
668.22(j) for determining the student's date of withdrawal. In the case
of a student who does not return from a summer break, the school must
follow the procedures in 34 CFR 668.22(j) except that the school shall
determine the student's withdrawal date no later than 30 days after the
first day of the next scheduled term.
(b) The school shall use the withdrawal date determined under 34
CFR 668.22(j) for the purpose of reporting to the lender the date that
the student has withdrawn from the school.
(c) For the purpose of a school's reporting to a lender, a
student's withdrawal date is the month, day and year of the withdrawal
date.
* * * * *
14. Section 682.607(c) is revised to read as follows:
Sec. 682.607 Payment of a refund to a lender.
* * * * *
(c) Timely payment. A school shall pay a refund that is due--
(1) Within 60 days of the date that the student officially
withdraws, is expelled, or the institution determines that a student
has unofficially withdrawn, as determined in accordance with 34 CFR
668.22(j) and Sec. 682.605.
(2) In the case of a student who does not return to school at the
expiration of an approved leave of absence under 34 CFR 668.22(j),
within 30 days of the earlier of the date of expiration of the leave of
absence or the date the student notifies the institution that the
student will not be returning to the institution after the expiration
of an approved leave of absence.
* * * * *
[FR Doc. 95-29179 Filed 11-30-95; 8:45 am]
BILLING CODE 4000-01-P
