[Federal Register Volume 59, Number 229 (Wednesday, November 30, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-29261]
[[Page Unknown]]
[Federal Register: November 30, 1994]
_______________________________________________________________________
Part III
Department of Education
_______________________________________________________________________
34 CFR Part 674, et al.
Federal Perkins Loan Program, Federal Work-Study Programs, and Federal
Supplemental Educational Opportunity Grant Program; Final Rule
DEPARTMENT OF EDUCATION
34 CFR Parts 674, 675, and 676
RIN 1840 AB71
Federal Perkins Loan Program, Federal Work-Study Programs, and
Federal Supplemental Educational Opportunity Grant Program
AGENCY: Department of Education.
ACTION: Final regulations.
-----------------------------------------------------------------------
SUMMARY: The Secretary amends the regulations governing the campus-
based programs (Federal Perkins Loan, Federal Work-Study (FWS), and
Federal Supplemental Educational Opportunity Grant (FSEOG) programs).
These amendments are needed to implement changes made to the Higher
Education Act of 1965, as amended (HEA). These regulations also seek to
improve the efficiency of the campus-based programs, to reduce the
administrative burden for institutions where possible, and to enhance
opportunities for postsecondary education.
EFFECTIVE DATE: These regulations take effect on July 1, 1995 and apply
to the 1995-96 and subsequent award years. However, affected parties do
not have to comply with the information collection requirements in
Sec. 674.34(e) until the Department of Education publishes in the
Federal Register the control number assigned by the Office of
Management and Budget (OMB) to these information collection
requirements. Publication of the control numbers notifies the public
that OMB has approved these information collection requirements under
the Paperwork Reduction Act of 1980.
FOR FURTHER INFORMATION CONTACT:
1. For the Federal Perkins Loan Program: Sylvia R. Ross, U.S.
Department of Education, 600 Independence Avenue, S.W., (Regional
Office Building 3, Room 4018), Washington, DC 20202-5447. Telephone:
(202) 708-8242; or
2. For the FWS and FSEOG Programs: Kathy S. Gause, U.S. Department
of Education, 600 Independence Avenue, S.W., (Regional Office Building
3, Room 4018), Washington, DC 20202-5447. Telephone: (202) 708-4690.
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: These amendments revise the existing campus-
based program regulations. The campus-based programs are authorized as
follows: Federal Perkins Loan--20 U.S.C. 1087aa-1087hh and 20 U.S.C.
421-429; FWS--42 U.S.C. 2751-2756b; FSEOG--20 U.S.C. 1070b-1070b-3.
These regulations implement the provisions of the National and
Community Service Act of 1990 (Pub. L. 101-610), enacted November 16,
1990, the Crime Control Act of 1990 (Pub. L. 101-647), enacted November
29, 1990, the Higher Education Amendments of 1992 (Pub. L. 102-325),
enacted July 23, 1992 (Amendments), the Higher Education Technical
Amendments of 1993 (Pub. L. 103-208), enacted December 20, 1993
(Technical Amendments), the Improving America's Schools Act of 1994
(Pub. L. 103-382), enacted October 20, 1994, and the Bankruptcy Reform
Act of 1994 (Pub. L. 103-394), enacted October 22, 1994.
On June 22, 1994, the Secretary published a notice of proposed
rulemaking (NPRM) in the Federal Register (59 FR 32264-32287). The NPRM
included a discussion of major issues surrounding the proposed changes
that 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 can be found.
Campus-Based Programs
The Secretary proposed to amend the definition of ``undergraduate
student'' to remove the restriction that did not allow an undergraduate
student to receive Federal Perkins Loan or FWS assistance if he or she
has already earned a baccalaureate or first professional degree. The
proposal provided that a student is not ineligible for assistance under
the Federal Perkins Loan or FWS programs because he or she has
previously received a baccalaureate or professional degree (page
32264).
The Secretary proposed to amend the allocation and reallocation
procedures for the campus-based programs to provide that if an
institution returns more than 10 percent of its Federal Perkins Loan,
FWS, or FSEOG allocation for an award year, the institution will have
its allocation for the next fiscal year for that program reduced by the
dollar amount returned (pages 32264-32265).
The Secretary proposed to amend the criteria for selection of
students for campus-based assistance to ensure that independent
students and students attending an institution on a less-than-full-time
basis would be equitably provided financial assistance (page 32265).
The Secretary proposed to amend the overaward threshold provisions
for the campus-based programs (page 32265).
To reduce burden for both the student and the institution, the
Secretary proposed to allow an institution to disburse funds under the
Federal Perkins Loan and FSEOG programs to a student when he or she is
no longer enrolled if the assistance was awarded while the student was
still an eligible student (page 32265).
Federal Perkins Loan Program
The Secretary proposed to remove the definitions of ``Default
rate'', ``Defaulted principal amount outstanding'', and ``Matured
loans'', and add the definitions of ``Disposable income'', ``Enter
repayment'', ``Making of a loan'', and ``Satisfactory arrangements to
repay the loan'' (pages 32265-32266).
The Secretary proposed to amend the reallocation formula for the
Federal Perkins Loan Program, and to establish an appeals process by
which the anticipated collections requirement may be waived for
institutions with ``low default rates'' (page 32266).
The Secretary proposed to add a new section to the regulations to
establish the Federal Perkins Loan cohort default rate and penalties
for an institution with a high cohort default rate for the 1994-95
award year and subsequent award years (page 32266).
The Secretary proposed to add a new section to the regulations to
describe the measures that institutions with high default rates must
use to establish a default reduction plan (page 32266).
The Secretary proposed establishment of the Expanded Lending Option
as necessary to implement statutory provisions under the Amendments and
the Technical Amendments (page 32266).
The Secretary proposed to amend the Program Participation Agreement
to implement the increase in the capital contribution requirements as
required by the Amendments, and to include new reporting requirements
containing information for determining an institution's cohort default
rate (pages 32266-32267).
The Secretary proposed to amend the student eligibility
requirements to implement statutory provisions under the Amendments
(page 32267).
The Secretary proposed to amend the maximum loan limits to reflect
statutory changes (page 32267).
The Secretary proposed to remove all references to the term
``endorser'' to reflect the statutory change that provides that all
Federal Perkins Loans are to be made without security or endorsement
(page 32267).
The Secretary proposed to incorporate the new statutory requirement
that an institution report loan disbursements to a national credit
bureau (page 32267).
In accordance with statutory changes, the Secretary proposed to
provide for the transfer of up to 25 percent of an institution's
Federal Capital Contribution (FCC) allotment for an award year to
either or both the FSEOG and FWS programs (page 32267).
The Secretary proposed to delete the promissory note from the
existing regulations and to provide the note in a ``Dear Colleague''
letter. In addition, the Secretary proposed to delete the defense of
infancy provision (page 32267).
In accordance with statutory changes, the Secretary proposed to
allow an institution to increase the minimum monthly repayment amount
to $40. In addition, the Secretary proposed to establish forbearance of
principal and interest where circumstances warrant it, and to authorize
an institution to compromise on the repayment of a loan (page 32267).
The Secretary proposed to revise the regulations to reflect
statutory changes in the deferment provisions (pages 32267-32268).
The Secretary proposed to amend the regulations to incorporate new
statutory loan disclosure requirements that must be met during a
borrower's exit interview (page 32268).
To reduce burden for both the borrower and the institution, the
Secretary proposed to allow a borrower to elect to repay his loan by
means of the electronic transfer of funds from the borrower's bank
account (page 32268).
To reduce institutional burden, the Secretary proposed to eliminate
skip-tracing as a required due diligence step (page 32268).
In accordance with statutory changes, the Secretary proposed to
revise loan collection and litigation procedures to require
institutions to report defaulted loans to any one of the credit bureaus
with which the Secretary has an agreement. In addition, the Secretary
proposed to amend the regulations to reflect the elimination of the
statute of limitations on litigating to recover amounts owed on
defaulted accounts (page 32268).
In accordance with statutory changes, the Secretary proposed to
eliminate the 50-percent limitation on the number of Title 1 schools in
a State that meet the eligibility criteria and provided that teaching
in any Title 1 school that meets the eligibility criteria now qualifies
a borrower for a loan cancellation. This change will increase the
opportunities for receiving loan cancellations and encourage more
teachers to teach in low-income schools (pages 32268-32269).
The Secretary proposed to expand the loan cancellation employment
provisions (page 32269).
The Secretary proposed to amend the definition of permanent and
total disability to include the inability of the borrower to attend an
institution because of an impairment that is expected to continue
indefinitely or result in death (page 32269).
Federal Work-Study Programs
In accordance with statutory amendments and consistent with the
Secretary's desire to promote community service activities, the
Secretary proposed to amend the purpose of the FWS program to include
an encouragement to students receiving program assistance to
participate in community service activities (page 32269).
The Secretary proposed to add a new definition of ``low-income
individual'' for purposes of community services (page 32269).
The Secretary proposed to amend the program participation agreement
to include assurances that (1) employment under the program may be used
to support programs for supportive services to students with
disabilities, and (2) institutions will inform all eligible students of
the opportunity to perform community service and will consult with
local nonprofit, governmental, and community-based organizations to
identify community service opportunities. In identifying community
service opportunities, the Secretary expects institutions to consult
with their students (page 32269).
In accordance with statutory changes, the Secretary proposed to
amend several provisions governing use of FWS funds. First,
institutions participating in the Work-Colleges program would be
allowed to use FWS funds for meeting costs of the Work-Colleges
program. Second, the institutional administrative expense allowance for
work-study for community service learning would be eliminated. Third,
the amount of an institution's allocation under the FWS programs that
may be transferred to the FSEOG program would be increased from 10
percent to 25 percent. Fourth, an institution would have additional
carry-back authority to pay students who work during the summer. Fifth,
an institution would be required to use 5 percent of the total FWS
Federal funds granted to the institution to compensate students
employed in community service activities for the 1994-95 award year and
subsequent award years (page 32269).
In accordance with statutory changes, the Secretary proposed to
provide that a student employed by a proprietary institution and
performing community services is no longer also required to be
furnishing student services (pages 32269-32270).
In accordance with statutory changes, the Secretary proposed to
increase the Federal share of FWS compensation paid to a student
employed other than by a for-profit organization to 75 percent (page
32270).
As a result of statutory changes the Secretary proposed to remove
the ``Community Service-Learning Program'' from the regulations (page
32270).
Job Location and Development (JLD) Program
The Secretary proposed to combine the regular JLD program to expand
off-campus job opportunities and the ``Community Services'' JLD program
to locate and develop community services jobs for students into one
program. The Secretary further proposed to expand the statement of
purpose for the JLD program to include the encouragement of
participation in community service activities. The Secretary also
proposed to allow an institution to use the lesser of $50,000 or 10
percent of its FWS allocation to establish or expand a JLD program
(page 32270).
The Secretary, in accordance with amended section 446(a) of the
HEA, proposed to eliminate the authority for institutions to enter into
agreements with nonprofit organizations and limit institutions to
working with other institutions for the purpose of developing jobs
(page 32270).
Work-Colleges Program
In accordance with the Amendments, the Secretary proposed to add
the new ``Work-Colleges program'' to the regulations (page 32270).
Federal Supplemental Educational Opportunity Grant Program
The Secretary proposed to amend the allocation and reallocation
provisions for unexpended FSEOG funds (page 32270-32271).
The Secretary proposed to eliminate an institution's authority to
transfer FSEOG funds to the FWS program as necessary to implement
statutory provisions (page 32271).
The Secretary proposed to increase the maximum FSEOG award that an
institution may award a student per academic year from $4,000 to $4,400
for a student studying abroad (page 32271).
The Secretary proposed that the Federal share of FSEOG awards will
not exceed 75 percent effective for award years beginning on or after
July 1, 1993 as necessary to implement statutory changes (page 32271).
Substantive Changes to the NPRM
The following discussion describes the significant changes since
publication of the NPRM and the manner in which certain critical
provisions will be initially implemented. They are discussed in the
order in which they appear in the text of the regulations. The changes
that apply to more than one program are described first followed by
descriptions of changes that pertain to only a specific program.
Student Assistance General Provisions
Section 668.57 Acceptable Documentation
In the June 22, 1994 NPRM, the Secretary proposed to amend
Sec. 668.57(c) to require the signature of one parent instead of both
parents when verifying the number of family household members enrolled
in postsecondary institutions for a dependent applicant. If only one
parent's income is considered in the title IV, HEA aid awarding
process, that is the parent who must sign. Otherwise, either parent may
sign. This burden reduction provision will be addressed in the Student
Assistance General Provisions final regulations governing verification
of all title IV programs which will provide that either parent may
sign, regardless of which parent's income is reported.
Federal Perkins Loan, FWS, and FSEOG Programs
Sections 674.10, 675.10, and 676.10 Selection of Students
In the June 22, 1994 NPRM the Secretary proposed to amend
Secs. 674.10, 675.10, and 676.10 to state that if an institution's
FSEOG allocation, FWS grant, or Federal Perkins Loan FCC is directly or
indirectly based in part on the financial need of less-than-full-time
or independent students and if the need of all of these students
exceeds 5 percent of the total need of all students at an institution,
then at least 5 percent of that allotment for FSEOG, 5 percent of that
grant for FWS, or 5 percent of the dollar amount of the loans made
under the Federal Perkins Loan program must be made available to these
students. The Department previously had stated in various documents
that ``make available'' meant that an institution was required to
actually ``expend'' the dollars for these students. In response to the
public comments and as part of his efforts to reduce regulatory burden,
the Secretary is revising the final regulations to provide that the
institution must ``offer'' the funds to less-than-full-time and
independent students. The institution is not required to have actually
disbursed the title IV funds to less-than-full-time and independent
students.
Sections 674.14, 675.14, and 676.14 Overaward
A financial aid administrator may not award or disburse aid from a
campus-based program if that aid, when combined with all other
resources, would exceed the student's need. If the student receives
additional resources at any time during the award year that were not
considered in determining the student's eligibility for aid, and these
resources combined with the expected financial aid will exceed the
student's need, the amount in excess of the student's need is
considered an overaward. Statutory provisions under the Amendments
provided for a $300 overaward threshold for FWS. In the June 22, 1994
NPRM, the Secretary proposed that, if a student has FWS, a $300
overaward threshold for the three campus-based programs would be in
effect; however, if a student only has an FSEOG or Federal Perkins
Loan, the current $200 overaward threshold would be the limit. In
response to the public comments and as part of his efforts to reduce
regulatory burden, the Secretary is providing a uniform $300 overaward
threshold for all the campus-based programs regardless of whether the
student has been awarded FWS funds.
Federal Perkins Loan Program
Section 674.33 Repayment
Section 674.34 Deferment of Repayment
In the June 22, 1994 NPRM, the Secretary made proposals for the
implementation of the statutory provisions governing forbearance of a
borrower's repayment of a Federal Perkins loan and the deferment of
repayment due to economic hardship reasons. The provisions contained in
the NPRM paralleled the same provisions in the FFEL Program, as
detailed in the FFEL Program NPRM, published on March 24, 1994. In
response to the comments received on the FFEL Program NPRM, the
Secretary made significant changes to the forbearance and economic
hardship provisions in the final FFEL Program regulation, published on
June 29, 1994. Those same changes have been made to the forbearance and
economic hardship provisions in the Federal Perkins Loan program, as
part of the Secretary's ongoing effort to reduce the institutional
burden of administering the title IV student aid programs. These
changes include the revisions to the definition of ``full-time
employment'' for purposes of granting an economic hardship deferment.
In accordance with amendments to the HEA made by the Improving
America's Schools Act of 1994 (Pub. L. 103-382), the Secretary is
revising the final regulations to include a new criterion under which a
borrower may qualify for deferment of repayment due to economic
hardship reasons.
Section 674.52 Cancellation Procedures
In accordance with amendments to the HEA made by the National and
Community Service Act of 1990 (Pub.L. 101-610), the Secretary is
revising the final regulations to include the provision that a borrower
may not receive a benefit under subtitle D of title I of the National
and Community Service Act of 1990 and a cancellation benefit under the
Federal Perkins Loan program.
Federal Work-Study Program
Section 675.2 Definitions
Statutory provisions for community service under the Amendments
provide that community service is designed to improve the quality of
life for community residents, particularly low-income individuals. In
the June 22, 1994 NPRM, the Secretary proposed to add a new definition
of ``low-income individual'' for purposes of community service. In
response to public comment and as part of the Secretary's efforts to
reduce regulatory burden, the Secretary is not defining ``low-income
individual'' in these regulations.
Work-Colleges Program
Sections 675.41-675.50
Section 448(f) of the HEA contains a separate authorization of
appropriations for the Work-Colleges program. Therefore, a new
Sec. 675.42--Allocation and Reallocation, has been added to the
regulations and all other sections of the Work-Colleges program
regulations have been redesignated. Sections 675.46 and 675.47 contain
paperwork requirements, and have been redesignated as Sec. 675.47 and
Sec. 675.48.
Analysis of Comments and Changes
In response to the Secretary's invitation in the NPRM, 58 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. 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 applicable statutory
authority--are not addressed.
Comments and Responses
Sections 674.4, 675.4, and 676.4 Allocation and Reallocation
Comments: Three commenters suggested that the Secretary permit an
institution, under certain circumstances, to appeal an allocation
reduction because it returned more than 10 percent of its previous
year's allocation. These commenters suggested that the Secretary allow
an appeal during occurrences of natural disasters or situations in
which enrollments are reduced because students are called to service in
areas of hostility, such as the military mobilizations for ``Operation
Desert Storm.''
Discussion: The Secretary believes that this provision of the
proposed regulations adequately addresses situations in which these
provisions may be waived. As stated in the preamble to the NPRM, the
Secretary may waive these provisions in such circumstances as a natural
disaster. Additionally, to assist institutions in their recovery from
the effects of disasters, or to provide relief to students who have
been called to military service in areas of hostility, the Secretary
provides enforcement relief from regulatory requirements and provides
guidance through ``Dear Colleague'' letters issued at the time of the
natural disaster or the declaration of an area of hostility.
Changes: None.
Comments: One commenter stated that a literal interpretation of a
reduction in an institution's allocation for the next fiscal year would
require reductions in two award years. This commenter suggested that
the term ``fiscal year'' be replaced by ``award year'' to make the
provision easier to understand while still being in line with
congressional intent.
Discussion: The Secretary agrees with the commenter that the use of
the term ``fiscal year'' in this context is confusing.
Changes: The language of this provision is changed to incorporate
the concept of an ``award year'' allocation rather than ``fiscal
year.''
Section 674.10, 675.10, and 676.10 Selection of Students
Comments: Several commenters noted that while sections 413C(d),
443(b)(3), and 464(b)(2) of the HEA require most institutions to ``make
available'' to less-than-full-time and independent students at least 5
percent of the FWS allotment, 5 percent of the FSEOG allotment, and 5
percent of the dollar amount of the loans made under the Federal
Perkins Loan program, the NPRM did not define the term ``make
available.'' These commenters were concerned that while most students
would accept FSEOG as part of their award packages because it is grant
money, institutions have no control over whether students will accept
Federal Perkins loans or work to earn FWS funds. They believe that it
would be very difficult for some institutions to meet this requirement
if independent and part-time students have to accept, or even earn, 5
percent of the FWS allocation. One commenter stated that most students
attending less-than-full-time are doing so because they are already
working and therefore those students are not interested in FWS. The
majority of the commenters suggested that the Secretary should
interpret the statute in its use of the term ``make available'' to mean
``offer'' FWS, FSEOG, and Federal Perkins loans to students rather than
``disburse'' these funds.
One commenter noted that the wording between the FWS section and
the FSEOG section is slightly different and recommended that it be
consistent.
Discussion: The Secretary agrees that in some circumstances it may
be difficult for an institution to actually disburse to less-than-full-
time and independent students at least 5 percent of its FWS allotment,
5 percent of its FSEOG allotment, or 5 percent of the dollar amount of
the loans made under the Federal Perkins Loan program. Therefore, to
accommodate these circumstances and prevent a burden on institutions to
be responsible for what financial aid a student accepts, in
interpreting amended sections 413C(d), 443(b)(3), and 464(b)(2) of the
HEA, the Secretary considers the words ``make available'' to mean that
the institutions must ``offer'' to less-than-full-time and independent
students at least 5 percent of its FWS allotment, 5 percent of its
FSEOG allotment, or 5 percent of the dollar amount of the loans made
under the Federal Perkins Loan program if the need of all of these
students exceeds 5 percent of the total need of all students at an
institution.
Changes: The wording of this provision in the campus-based sections
is changed to reflect that institutions must ``offer'' these campus-
based funds to less-than-full-time and independent students. Also, the
wording was revised for consistency among the campus-based programs.
Sections 674.14, 675.14 and 676.14 Overaward
Comments: There were a number of comments on these sections, all in
favor of the statutory provision that allows a student employed in the
FWS program to earn up to $300 for need-based employment in excess of
his or her financial need before employment in the FWS program must be
discontinued.
Several commenters recommended that the Secretary provide a uniform
overaward threshold of $300 for all recipients of campus-based aid to
simplify the overaward calculation process and reduce administrative
costs.
One commenter suggested that the proposed wording of these
provisions is slightly ambiguous and subject to different
interpretations. The commenter believed that the application of a
uniform overaward threshold to all campus-based aid recipients will
avoid any potential confusion.
Discussion: The Secretary has reevaluated his proposal in the June
22, 1994 NPRM. The statutory purpose of the FWS provision is to prevent
aid administrators from being administratively burdened by having to
make adjustments to financial aid packages when small amounts of
overawards occur. The Secretary believes that the use of a uniform
campus-based overaward threshold will further reduce the administrative
burden for institutions without cost implications to the campus-based
programs.
It is important to note that these provisions do not allow an
institution to make campus-based awards in excess of the amount of the
student's need. Although a threshold is allowed subsequent to the
packaging of campus-based aid, the threshold does not allow an
institution deliberately to award campus-based aid that, in combination
with other resources, exceeds the student's financial need.
Changes: The Secretary has provided a uniform $300 overaward
threshold for all recipients of campus-based aid.
Federal Perkins Loan Program
Section 674.2 Definitions
Comments: While most commenters believed that the new definition of
``disposable income'' was necessary in order to be consistent with the
FFEL Program and to establish eligibility for an economic hardship
deferment or forbearance of payments, others believed the definition
was unclear and needed further clarification. Commenters were
particularly concerned that alimony payments, child support payments,
wage garnishment, and other similar items be considered deductions
``required by law to be withheld.''
Discussion: The term ``disposable income'' was defined in the NPRM
as part of the proposed rules for the forbearance and the economic
hardship deferment provisions. Forbearance and economic hardship are
provisions common to all title IV loan programs, including the Federal
Perkins Loan program, and the Secretary made the identical proposal for
these two provisions in the FFEL Program NPRM, published on March 24,
1994. The Secretary received a number of comments on the proposed
definition of ``disposable income'' in the FFEL Program NPRM and, as a
result, decided that ``total monthly gross income'' was a term more
easily understood than ``disposable income.'' Consequently, the
Secretary replaced ``disposable income'' with ``total monthly gross
income'' in the final FFEL Program regulation. For a complete
discussion of the reasons for making this change, see comment number 18
on page 33584 of the Federal Register published on June 29, 1994.
As part of the Department's effort to simplify the regulations and
reduce burden at the institution, provisions that are common to both
the Federal Perkins Loan program and the FFEL Program will have the
same regulatory provisions, to the extent practicable. Therefore, in
this final rule, the proposed rules for the Federal Perkins Loan
program have been modified to reflect the forbearance and economic
hardship provisions contained in the final FFEL Program regulation,
published on June 29, 1994.
Changes: The definition of ``disposable income'' is removed and
replaced by the definition of ``total monthly gross income.''
Comments: Several commenters believed that the definition of
``making of a loan'' needed to be expanded and clarified. Some
commenters stated that the Secretary should define when a disbursement
has been made to the borrower as part of the definition of ``making of
a loan.'' The commenters believed that without this clarification there
would be inconsistencies among institutions and additional tracking
mechanisms would be required.
Discussion: The issue of when funds are considered to be disbursed
applies to all of the title IV programs, not just to the Federal
Perkins Loan program. The Secretary is aware that the current title IV
disbursement policies are applied inconsistently by institutions and is
preparing to issue final regulations on this and other ``cash
management'' issues by December 1, 1994. The Secretary is making
conforming changes to the Federal Perkins Loan program regulations in
the ``cash management'' regulations to be issued by December 1, 1994.
Changes: None.
Comments: Several commenters believed that the Secretary should
define when a promissory note should be signed by the borrower as part
of the definition of ``making of a loan.'' These commenters believed
that Federal Perkins Loan borrowers should be able to sign the
promissory note once, at the beginning of the academic year in which
the award is made, and not each time a disbursement is made to the
borrower.
Discussion: The Secretary is sensitive to the commenters' concerns
and will evaluate situations in which an institution could require an
annual signature on the promissory note. The Secretary is especially
interested in evaluating the possibility of making this option
available to those institutions that have demonstrated a high
performance level and that have met the stricter cohort default rate
requirements adopted for the Federal Perkins Loan program. The
Secretary would like to note that an annual signature on the promissory
note would necessitate the elimination of the ``open-ended'' Federal
Perkins Loan promissory note. The ``open-ended'' promissory note,
currently available only in the Federal Perkins Loan program,
significantly reduces burden at the institution, by allowing an
institution to make loans on the same promissory note for as long as
the statutory provisions remain the same. Allowing only a ``closed-
ended'' promissory note, as is done in the FFEL and FDSL programs,
would result in a major increase in the number of promissory notes an
institution would be required to maintain.
Changes: None.
Comments: A number of commenters felt strongly that the term
``satisfactory arrangements to repay the loan'' should be defined in
terms of the impact on the borrower and the institution. Commenters
believed that the requirement of 6 months of consecutive payments in
this definition is too stringent, particularly when this definition is
used to determine when to exclude loans from the cohort default rate
calculation. Because of the window of time in the cohort default rate
tracking period, one commenter believed it would be more equitable to
consider the fact that the institution was able to establish a new
repayment plan with the borrower as meeting the criteria for
satisfactory arrangements to repay the loans. Other commenters
suggested a minimum of three consecutive monthly payments as the basis
for excluding the loan from the cohort default rate. These commenters
further stated that institutions do not have enough time to locate and
contact the delinquent borrower, obtain the written agreement, and have
6 months of payments made prior to June 30. One commenter suggested
that once the new written repayment agreement has been signed and all
payments due by June 30 have been properly made by the borrower,
institutions should be allowed to exclude that account from their
cohort default rate.
Discussion: While the Secretary is sensitive to the concerns of the
commenters, the Secretary does not agree that six consecutive months of
payment is too stringent. In order to reduce the administrative burden
at the institution, the Secretary is seeking ways to make the Federal
Perkins Loan program consistent with the other title IV loan programs.
Including six consecutive monthly payments in the definition of
satisfactory arrangements to repay the loan is consistent with
provisions in these programs.
Changes: None
Section 674.5 Cohort Default Rate and Penalties
Comments: Several commenters stated that while the definition of
``loan rehabilitation'' in Sec. 674.5(e)(1) has limited benefit to the
school in reducing a school's cohort default rate, it will be a benefit
to the borrower whose loan is no longer considered to be in default.
These commenters noted that a loan rehabilitated because the borrower
has made 12 consecutive monthly payments is not removed from the
school's cohort default rate. The commenters recommended that the
definition be revised to allow for lump sum payments or up to a three-
month payment plan. One commenter also invited the Secretary's
consideration of allowing a quarterly repayment option and a reduction
in the minimum payments required to consider the loan rehabilitated.
Discussion: While the Secretary is sensitive to the concerns of the
commenters, the Secretary does not agree that the definition of a
rehabilitated loan is too restrictive. Rehabilitating a loan gets the
borrower out of default. Consequently, the borrower must establish a
significant repayment history. Again, in order to reduce administrative
burden at the institution, the provision is parallel to similar
provisions in the FFEL and FDSL programs.
Changes: None.
Comments: Several commenters were concerned that the credit bureau
reporting requirement for rehabilitated defaulted loans in
Sec. 674.5(e)(2) was unclear. One commenter recommended including in
the definition a requirement to report to the national credit bureau
the date of the last payment, the unpaid principal balance, amount past
due and date and amount of the last payment. Some commenters
recommended that the phrase ``no longer in default'' should be
clarified to mean that the record is not deleted from the borrower's
credit history, when in fact it is only reported as a status change.
One commenter also stated that the impact of ``rehabilitated and no
longer in default'' affects the future disbursement of title IV aid and
that the Secretary should not force the credit bureau to use unique,
special definitions.
Discussion: The Secretary understands the concerns of these
commenters and agrees that the requirements of this provision are
unclear. In drafting the provision the Secretary intended that
institutions report to one of the national credit bureaus the change in
status of the defaulted loans. The Secretary did not intend that the
default be eliminated from the credit bureau records. A default on any
loan is an important component of an individual's credit history and
credit bureaus are required to maintain such information on an
individual's account for 7 years. The Secretary is concerned that a
borrower who has made such a serious attempt to take care of his or her
defaulted loan have as up-to-date and accurate record at the credit
bureau as possible. Therefore, the status of the loan should be
accurate on the credit bureau record. In response to the suggestion
that additional data be provided to the credit bureau, the Secretary
does not want to increase the burden at the institution by imposing
additional reporting requirements on the institution. However, it
should be noted that these national credit bureaus have standards that
have been established by Associated Credit Bureaus (ACB), the
industry's trade group. The Department has no regulatory authority over
these bureaus' standards. Some of these national credit bureaus might
require more than the Department requires, such as follow-up reporting
of the borrower's declining balance as it is paid down or paid off.
Further, some of their procedures are specifically for credit bureau
purposes and more closely in line with common U.S. business practice
than with Federal regulations. For example, business practice considers
a customer's account to be current up to 30 days past the due date of
an invoice; whereas in the Federal Perkins Loan program, a borrower is
considered to be in default when he or she fails to make an installment
payment when due.
Changes: The language of this provision is changed to require an
institution to report to a national credit bureau that a defaulted loan
has been rehabilitated, rather than that a rehabilitated loan is no
longer in default.
Section 674.6 Default Reduction Plan
Comments: One commenter argued that the Federal Perkins Loan
program operates differently from the FFEL Program, and there is no
statutory requirement that requires the Federal Perkins Loan program
default reduction plan to parallel that of the FFEL Program. The
commenter believed that institutions would have to install costly and
burdensome tracking mechanisms in order to implement this provision.
Discussion: The Secretary agrees with the commenter that there is
no statutory requirement that mandates similar default reduction plans
for the Federal Perkins Loan Program and the FFEL Program. However, in
the interest of minimizing increases to burden at the institution, it
is the Secretary's intent to mirror similar provisions that have
existed in other title IV programs for a number of years, such as the
FFEL Program. The default reduction plan, as outlined in these
provisions, has been in effect in the FFEL Program for many years and,
thus, has been thoroughly tested. Since most institutions are already
participating in the FFEL Program, the Secretary does not believe that
this provision increases burden; rather, he believes it streamlines and
improves the delivery of student aid. The Secretary reminds commenters
that there is no requirement for a high default institution to
implement this specific plan. Each institution has the option of
developing its own plan, subject to approval by the Secretary.
Changes: None.
Comments: A few commenters suggested that the Secretary not include
a provision in the default reduction plan that would require first-time
borrowers to endorse their check and to ``pick up'' any remaining
proceeds at the institution. Instead, because many institutions have
Federal Perkins loan disbursement systems that do not involve the
issuance of a check, they recommended that the borrower's loan amount
be credited directly to his or her student account and that any
remaining proceeds also be credited to his or her student account, with
one commenter recommending that the borrower be notified as to how he
or she will receive his or her funds and that the loan funds will be
disbursed 30 days after enrollment. One commenter objected to the
requirement that the disbursement to a first-time borrower be delayed
until 30 days after enrollment.
Discussion: The Secretary is sympathetic to the concerns of these
commenters but does not agree with the comments to remove the delayed
disbursement provision from the default reduction plan. The Secretary
reminds the commenters that the purpose of the default reduction plan
is to help institutions that have large numbers of their Federal
Perkins loan borrowers in default to set up procedures and mechanisms
to help keep their borrowers out of default. One aspect of keeping a
borrower out of default is to require a face-to-face contact in order
to finalize the processing of loan proceeds. This will help ensure that
the borrower understands that he or she is receiving a loan and ensures
to the institution that the borrower is really enrolling. In addition,
delayed disbursement of loan proceeds ensures that the borrower is
actually enrolled and continuing his or her studies before disbursing a
loan, thus avoiding the situation in which a borrower drops out with a
large debt that the borrower cannot repay.
Changes: None.
Comments: One commenter was particularly concerned about the
intrusive nature of some of the requirements of the default reduction
plan. This commenter felt that the ability to benefit provisions in the
general provisions regulations should be sufficient to ensure that
students ``have a reasonable expectation of succeeding in their
programs of study.'' This commenter wonders whether institutions with
``open door'' admissions policies would be required to revise these
policies, and what an institution is to do if admissions policies are
set by a Board of Trustees. This commenter also asserts that there is
no evidence that monthly reviews of in-school status will improve an
institution's default rate.
Discussion: In general, the Secretary does not agree with this
commenter. The ability-to-benefit provisions in the Student Assistance
General Provisions affords some protection but not all the needed
protection. When an institution has a high cohort default rate, one of
the first places to look for the cause is to look at who is being
admitted to the institution and into what program of study. Students
should not be admitted if there is not a reasonable expectation of
success. Moreover, it seems only logical that another procedure to
follow for eliminating a potential cause of a high cohort default rate
is to follow up on enrollment status to ensure that a student is still
enrolled and, if not enrolled, to provide exit counselling to the
student as soon as possible. The Secretary reminds the commenter that
these provisions have been in effect in the FFEL Program for several
years and have not had the intrusive effect on admissions policies or
the burden of the increased reviews of enrollment status that the
commenter fears.
Changes: None.
Section 674.7 Expanded Lending Option
Comments: One commenter stated that the phrase ``in any academic
year'' as it relates to aggregate loan limits is confusing and should
be deleted if it suggests that a student who does not borrow in his or
her first year can borrow $8,000 in his or her second year.
Discussion: The Secretary agrees.
Changes: This provision is revised to clarify the distinction
between annual and aggregate loan limits.
Section 674.9 Student Eligibility
Comments: While several commenters supported the requirement to
``reaffirm'' a Federal Perkins loan debt previously canceled due to
total and permanent disability, discharge in bankruptcy, or write-off,
some of these commenters believed the term ``reaffirmation'' was a
legal term requiring the reopening of the bankruptcy case, and the
borrower should ``agree'' rather than ``reaffirm'' to repay any loan
discharged in bankruptcy.
Discussion: ``Reaffirmation,'' as it relates to this provision,
would be the borrower's signature on a new repayment agreement.
However, the Secretary has removed the provision in proposed section
674.9(g) that would have required the reaffirmation of Federal Perkins,
Direct, or Defense loan amounts that had been discharged in bankruptcy
as a prerequisite to further eligibility for additional Federal Perkins
Loans. This phrase has been omitted from the final rules because it is
no longer permissible by operation of law pursuant to the Bankruptcy
Reform Act of 1994, P.L. 103-394.
Section 313 of the Bankruptcy Reform Act of 1994 added a new
subsection (c) to 11 U.S.C. Section 525, to provide that the Department
and other governmental units may no longer deny a loan, loan guarantee,
or loan insurance to a person solely because that person has filed for
or received a discharge in bankruptcy, has had a student loan
discharged in bankruptcy, or has not paid a student loan that has been
judicially determined to be dischargeable in bankruptcy. The Secretary
interprets this provision to mean that once a debtor has filed for
bankruptcy relief, or had a Federal Perkins Loan, or other student
loan, discharged or determined to be dischargeable by a Bankruptcy
Court, the bankruptcy may be considered as evidence of an adverse
credit history but cannot be the basis for denial of future
participation in the Federal Perkins Loan, or other student loan
programs. Conforming changes will be made to 34 CFR 668.7(e).
Section 674.9(e) of the current regulations states that a student's
failure to meet payment obligations on a previous loan, including a
loan discharged in bankruptcy, is evidence that the student is
unwilling to repay the loan. Because the Secretary is concerned that
section 674.9(e) might be used to deny a student's eligibility for a
Federal Perkins Loan based solely on the student's having had a prior
loan discharged in bankruptcy, the Secretary is removing the phrase
regarding a bankruptcy discharge from the regulations. However, schools
may continue to consider the student's post-bankruptcy credit history
in determining willingness to repay the loan.
Changes: The Secretary is deleting the requirement that a borrower
must reaffirm a loan discharged in bankruptcy before regaining
eligibility for further title IV loans. Also, the Secretary is removing
the phrase regarding a bankruptcy discharge from the ``willingness to
repay'' provision.
Comments: Another commenter objected to the provision that disabled
individuals should have to reaffirm past loans to reestablish
eligibility. The commenter believed that disabled individuals should be
judged solely on a ``snapshot'' of their present condition and
circumstances; requiring reaffirmation would place yet another obstacle
in the way of disabled individuals who wish to further their education.
The commenter went further to say he thought this requirement would
violate the spirit of the Americans With Disabilities Act.
Discussion: The Secretary is sensitive to this commenter's
concerns. The Secretary, as part of the Department's ongoing effort to
reduce the administrative burden in the loan programs, will no longer
require reaffirmation of a title IV loan as a student eligibility
requirement for a borrower whose loan was canceled due to permanent and
total disability. However, a borrower who has had a loan canceled for
this reason will still be required to obtain a physician's statement
attesting that his or her condition has improved, and agree that any
new loans may not be canceled for this reason, unless the condition
substantially deteriorates.
Changes: The Secretary is eliminating the requirement that a
borrower reaffirm a Federal Perkins loan canceled due to total and
permanent disability in order for the borrower to be eligible for
further Federal Perkins loans.
Section 674.16 Making and Disbursing Loans
Comments: Several commenters objected to the requirement that the
borrower must sign for each advance of funds on the promissory note.
Instead, the commenters felt that the borrower should sign for the
advance of funds on the promissory note at the beginning of each
academic year.
Discussion: Due to the legally binding nature of the promissory
note and the potential for loan defaults requiring the enforcement of
loans in court, the Secretary will continue to require the borrower to
sign for each advance of funds for the Federal Perkins Loan program.
The Secretary asks the commenters to refer to the previous discussion
of this issue in response to the comments on the definition of ``making
of a loan'' in Sec. 674.2.
Changes: None.
Comments: One commenter supported the study abroad provisions, but
three commenters felt clarification was needed to indicate that a
borrower may sign his or her note in advance, but not be required to
sign for each loan disbursement while enrolled in a study abroad
program. One commenter suggested deleting this provision.
Discussion: The Secretary intended that this provision allow an
institution the option of obtaining from a borrower enrolled in a study
abroad program his or her signature on the promissory note in advance
for each disbursement of a Federal Perkins. The Secretary made this
exception as part of his ongoing effort to reduce administrative burden
at the institution. The Secretary does not agree that the regulations
are unclear or that clarification is needed regarding loan
disbursements made to borrowers who are studying abroad. As stated in
the proposed language, ``* * * the borrower may not be required to sign
for any advance of funds made while the borrower is studying abroad if
obtaining the borrower's signature would pose an undue hardship on the
institution.''
Changes: None.
Comments: One commenter pointed out that small institutions are
having difficulty reporting small volumes of loans to a national credit
bureau, because these credit bureaus do not want to deal with small
volumes. This commenter suggested that the Department demand procedures
for reporting small volumes as part of any agreement between the
Department and the national credit bureaus.
Discussion: The Secretary will look into what administrative steps
he can take to address this situation. In the interim, small schools
may want to consider joining together and report their loans
cooperatively.
Changes: None.
Section 674.18 Use of funds
Comments: One commenter stated that Sec. 674.18 should reference
the allowable transfer by an institution participating in the Work-
Colleges program of any portion of its FCC allocation for an award year
to the Work-Colleges program. Another commenter indicated that the
proposed Sec. 674.18(c) provided for the new transfer of up to 25
percent of the FCC allocation for the FWS program or FSEOG program, or
both. However, the commenter believed that the section should include
the type of restrictions that appear in Sec. 675.18(f) of the FWS
regulations.
Discussion: The Secretary agrees that for clarity and consistency,
the regulations should note all the transfers allowed and the
restrictions on those transfers of funds.
Changes: The Secretary is including in the Federal Perkins Loan
program under Sec. 674.18 the authority for participating institutions
to transfer FCC funds to the Work-Colleges program and the restrictions
on the FCC funds transferred to other programs.
Section 674.19 Fiscal Procedures and Records
Comments: A few commenters felt that the provision of the proposed
rule that describes the types of records to be included in the
repayment history of the borrower should include ``copies of computer
records.''
Discussion: The Secretary does not agree with the commenters. The
current regulations already provide, in Sec. 674.19(e)(4)(v), that an
institution may keep its records in computer format, which would
include the computer records held by an institution's servicer. Source
documents supporting records in computer format must also be
maintained. The Secretary recognizes the predominance of computer
servicing, but, in order for computer records to substitute for hard
copies of these records, the Secretary would need to develop
specifications, for example, regarding electronic signatures, which he
is not doing at this time. Because of the need to enforce Federal
Perkins loans through the judicial system, the Secretary requires the
hard copy supporting documentation.
Changes: None.
Section 674.31 Promissory Note
Comments: One commenter objected to the proposal that institutions
be required to use the promissory note developed by the Secretary with
no changes, saying that the proposal was in direct violation of the
statute. Many commenters supported the provision but felt that some
discretion should be retained with the format of the promissory note,
as long as they retain the text provided by the Department. Another
commenter recommended including language in this provision that would
clarify that ``stated options'' (such as the minimum repayment) are not
considered modifications for the purposes of this subsection. One of
these commenters pointed out that it could use an NCR form by putting
the signatures on the front of the form with all the text on the back,
thereby allowing the borrower to pull one copy off the back for his or
her records. Another of these commenters wondered whether the
institution could still add the provision telling borrowers that their
academic transcript would be withheld in the event of a default.
Discussion: The promissory note is a key document in any legal
action and serves as a permanent record for reaffirmation of any loans
and, therefore, must remain as developed by the Secretary. Optional
elements, such as the minimum monthly repayments, have been provided
for institutions to use at their own discretion and will continue to be
provided as options in the text of the promissory note. As such, the
Secretary does not need to provide regulatory language to support the
continuation of the optional language. The Secretary intends the text
of the Department's Federal Perkins loan promissory note to remain
unchanged. The ``text'' includes the order of the provisions and the
placement of the signatures. These may not be changed. The current
regulations have provided that the note approved by the Secretary may
not have substantive changes made to it. Withholding the official
academic transcript is in violation of the Family Educational Rights
and Privacy Act (FERPA), regardless of whether the borrower has signed
such a provision in his or her promissory note. Such a provision may
not be included in the promissory note. The institution may change only
the format of the note, e.g., the type, style, and paper size.
Changes: None.
Section 674.33 Repayment
Comments: Many commenters supported the forbearance provision.
Several commenters felt that the proposed wording in section
674.33(d)(2) indicates that the minimum period of forbearance is 12
months and should be modified to read ``at intervals of up to 12
months.'' One commenter requested clarification of ``disposable
income'' and ``poverty line.'' Another commenter suggested additional
documentation to the Federal tax return for the purposes of documenting
``disposable income.'' Another commenter felt this provision should
make reference to the national service award.
Discussion: For a discussion of these issues as they relate to
making provisions in the Federal Perkins Loan program comparable to
similar provisions in the FFEL Program, the Secretary asks the
commenters to refer to the discussion of the definition of ``disposable
income'' under Sec. 674.2. The ``poverty line'' is determined in
accordance with section 673(2) of the Community Service Block Grant
Act, and information on the poverty line may be obtained by calling the
Office of the Assistant Secretary for Planning and Evaluation,
Department of Health and Human Services, (202) 690-6141. The Secretary
does not have the statutory authority to extend forbearance to
borrowers serving in National Community Service jobs. However, the
Secretary strongly encourages institutions to use their discretion,
allowed under these regulatory provisions, to grant forbearance to
borrowers serving in National Community Service jobs.
Changes: The forbearance provision is amended to match the final
FFEL Program regulatory provisions for forbearance, where appropriate.
Section 674.34 Deferment of Repayment
Comments: Many commenters disagreed with the Secretary's proposal
that if an institution no longer qualifies as an institution of higher
education, the borrower's deferment ends on the date the institution
ceases to qualify. The commenters argued that the borrower's
eligibility should not be affected by circumstances that are beyond the
borrower's control. The unanticipated cessation of a deferment would
also pose an undue hardship on the borrower. One commenter suggested
that to expect a borrower or an institution and its third party
servicer to monitor another institution's qualification as an
institution of higher education throughout the borrower's deferment
period would be unduly burdensome for the institution and the servicer.
One commenter agreed that borrowers who attend institutions that do
not qualify as institutions of higher education should not receive
deferments; however, this requirement should be eased for borrowers who
begin an academic year at an eligible institution that subsequently
loses its eligibility sometime during that academic year. The
commenters suggested that, at a minimum, the borrowers should be
granted a continuation of their deferment to the end of the academic
year in which they are enrolled. A few commenters suggested that a
borrower should continue to be eligible for a deferment for the
remainder of the deferment period.
Discussion: While the Secretary understands these concerns, the
Secretary does not agree with the commenters. The statute is clear that
a student must be attending an institution of higher education (IHE).
The Secretary feels that very few borrowers would be in the situation
in which an initially-eligible IHE would lose its eligibility. However,
the Secretary is not requiring the deferment-granting institution to
closely monitor this situation. Rather, in order to not unduly increase
burden at the institution, the Secretary requires that if the
deferment-granting institution becomes aware that an institution is no
longer an IHE, the borrower's deferment must be terminated. This
borrower then qualifies for a 6-month post-deferment grace period,
which effectively reduces the impact on the borrowers.
Changes: None.
Comments: One commenter was concerned that dental residents would
be ineligible for a ``student'' deferment because medical interns and
residents are no longer eligible for deferments. This commenter noted
that dental residents often receive little or no stipends, and a
significant number pay tuition. This commenter suggested that
Sec. 674.34(b)(2) be changed to include dental residents as eligible
borrowers for a ``student'' deferment, as has been done in the FFEL and
FDSL programs regulations.
Discussion: The Secretary agrees with the commenters.
Changes: A change has been made to include dental residents as
eligible for a ``student'' deferment.
Comments: One commenter recommended that the Secretary include in
this section the same hardship deferment provisions as are included in
redesignated Sec. 674.35(i), Sec. 674.36(e), and Sec. 674.37(e). The
commenter believes that this would provide the opportunity for
institutions to maintain their maximum flexibility in working with
borrowers.
Discussion: The Secretary feels that any benefits that accrued to
borrowers under the ``old'' hardship deferment are now available under
forbearance. Also, there is no statutory authorization for such a
deferment in the Federal Perkins Loan program.
Changes: None.
Comments: One commenter recommended that the regulations include a
definition for the minimum period during which a borrower must be
enrolled in school in order to qualify for the 6-month post-deferment
grace period after ceasing to be enrolled. This commenter suggested
that the borrower be required to complete the enrollment period.
Discussion: The Secretary is quite interested in this issue and
understands that there is a wide variety of interpretations of the
applicability of the 6-month post-deferment grace period. As the
Secretary understands it, institutions are granting the 6-month post-
deferment grace period in one of four ways: (1) granting a 6-month
post-deferment grace period regardless of the period of time the
borrower is enrolled, even if it is only for one day; (2) granting a 6-
month post-deferment grace period (and also a ``student'' deferment)
only after the enrollment records are finalized, usually 5 or 6 weeks
into the term; (3) granting the 6-month post-deferment grace period
only if the borrower is enrolled longer than the borrower's repayment
billing period; or (4) requiring the borrower to complete the
enrollment period.
The statute requires granting the post-deferment grace period for
``any period'' the borrower qualifies for a deferment, and a borrower
qualifies for a ``student'' deferment for ``any period'' of enrollment
as at least a half-time student. Therefore, any institution that is
granting post-deferment grace periods under the first condition is in
compliance with the Federal Perkins Loan program regulations. All other
institutions need to modify the procedures used for determining
eligibility for post-deferment grace periods and also student
deferments. While the statute allows an institution much discretion in
administering the Federal Perkins Loan program, the granting of
deferments and post-deferment grace periods to qualified non-defaulted
borrowers and the granting of cancellation benefits to qualified
borrowers are not at the institution's discretion. These provisions are
an entitlement to the borrower once the borrower has provided a written
request and acceptable documentation to the institution. The Secretary
expects to revisit this issue, should the Secretary find that there is
widespread abuse by borrowers of this benefit.
Changes: None.
Comments: A few commenters suggested that the language in
Sec. 674.34 should read ``interest should not accrue'' instead of
``interest does not accrue'' for consistency with other sections.
Discussion: The Secretary does not agree. Each provision in the
current regulations governing the 6-month post-deferment grace period
contains the language, ``interest does not accrue.''
Changes: None.
Section 674.38 Deferment Procedures
Comments: Several commenters felt the proposal to require defaulted
borrowers to make ``satisfactory arrangements'' to repay the loan as
one of the conditions to be met in order to be granted a deferment
would be unfair to the borrowers and impossible to accomplish in many
cases because a borrower is in ``default'' the first day a payment is
missed. Several commenters felt the provisions in the current
regulations should be maintained.
Discussion: The Secretary agrees that implementation of this
provision as written in the proposed rule is unfair to borrowers and
agrees that the current regulatory provision should be maintained. The
Secretary reminds the commenters that Sec. 674.37(a)(2) provides the
option to an institution to declare a borrower in default if the
borrower fails to supply a deferment request and documentation. The
fact that a borrower is in ``default'' the first day after a payment is
missed is more significant for the cohort default rate calculation. The
borrower still has the opportunity to respond to the demand letters
before being reported to a national credit bureau, for example, even
though this borrower would be counted as a default for purposes of the
cohort default rate calculation.
Changes: The Secretary is withdrawing the proposed language in
favor of the current language of Sec. 674.37(b).
Section 674.39 Postponement of Loan Repayment
Comments: A few commenters felt that postponement of loan repayment
in anticipation of cancellation should reflect loans made before ``July
23, 1992'' not before ``July 1, 1992.''
Discussion: There is a typographical error in this section. The
date should be ``July 1, 1993.'' The Secretary has included this date
to provide for those borrowers who are eligible for cancellation
benefits but are not eligible for the new deferment provisions
(borrowers whose loans were made on or after July 23, 1992, but before
July 1, 1993).
Changes: The Secretary will change this section to reflect ``July
1, 1993.''
Section 674.43(a)(3) Billing Procedures
Comments: While several commenters supported the Secretary's
proposal to amend section 674.43 to allow a borrower to elect to repay
his or her Federal Perkins loan by means of the electronic transfer of
funds from the borrower's bank account, they felt the Secretary should
modify this proposal even further to allow for annual notification to
the borrower regardless of the repayment frequency. These commenters
felt that this requirement was too burdensome.
Discussion: The Secretary agrees. Using the electronic method of
repaying a loan is quite similar to the coupons system, and no
statement of account is required under this system. However, the
borrower has the remaining coupons to demonstrate the amount still due
on the loan. This does not exist under the electronic system, and the
borrower needs to be kept apprised of the status of his or her account.
This statement of account needs to be no more frequent than annually.
As part of the Secretary's effort to be mindful of the burden imposed
by regulations on the institution, the Secretary is reducing burden in
this provision by requiring only an annual statement of account.
Changes: The Secretary is amending this provision to allow for an
annual statement of account.
Section 674.45 Collection Procedures
Comments: While a few commenters strongly supported the provision
in this section that preempts state collection laws as they relate to
allowing a collection agency to collect a Federal Perkins loan if the
collection agency is not physically located in the state, they also
recommended that the Secretary apply similar language to billing
procedures, Sec. 674.43.
Discussion: The Secretary is not aware of any state law that
prohibits a collection agency from billing a borrower if that
collection agency does not have residence in that particular state.
Moreover, the Secretary has not been informed of any problem with a
state that is prohibiting the billing of borrowers in this
circumstance. Until such time as a problem develops, the Secretary sees
no reason to add this provision.
Changes: None.
Section 674.47 Costs Chargeable to the Fund
Comments: There were a number of comments on this section, and they
all recommended that institutions should be allowed to write-off non-
defaulted small balances, in amounts of less than $25. The commenters
felt that collecting on small balance loans is not cost-effective and
this change would ease the paperwork and administrative burdens.
Discussion: While it has been a longstanding policy, and, more
recently, a regulatory provision, at the Department to allow
institutions to write off defaulted accounts with balances of less than
$25.00, it is not the policy to allow, nor do the current regulations
allow, the write-off of non-defaulted loans, regardless of the size of
the balance. This issue cannot be addressed in this final regulation,
because the Secretary is required to provide the public an opportunity
to make proposals and to provide comments in this area. However, the
Secretary is sensitive to the issue raised by these commenters and will
revisit this issue at a later date.
Changes: The Secretary is making a minor modification to the
language of this provision to incorporate the word ``defaulted.''
Section 674.51 Special Definitions
Comments: A large number of commenters objected to the definition
of medical technician, because it excluded physical therapists, who are
an integral component in providing health care services. One commenter
also suggested that the Secretary provide the institutions with job
titles for positions that qualify such as medical technicians.
Discussion: The Secretary regrets any confusion that this section
might have caused the commenters. The NPRM used the term ``allied
health professional'' which became confused with the American Medical
Association's Twenty-Eight Allied Health Careers. These twenty-eight
careers are those areas in which the American Medical Association (AMA)
accredits programs and only comprise a small proportion of ``allied
health professions.'' ``Allied health professional'' is a generic term
used to designate a large group of health-related personnel who assist,
facilitate, or complement the work of physicians and other specialists
in the health care system. ``Allied health professionals'' range from
therapists and counselors to health care assistants. The Secretary
intends ``allied health professional'' to be interpreted in its generic
sense. The Secretary's intent was to include those health care
professionals who might be working full-time except that the employment
takes the form of part-time employment at more than one facility as
well as those health care professionals who might be providing health
care services in an environment that would not qualify as a health care
facility (such as a school), or who might be working in a private
facility. The Secretary believes that Congress did not intend to
exclude any qualified nurses or medical technicians, as long as they
are working full-time and providing health care services. The Secretary
will not provide a list of ``allied health professions'' because the
list of professions is too lengthy and does not remain static. The
Secretary provides further clarification of issues such as this in the
Student Financial Aid Handbook.
Changes: The Secretary is revising sections 674.51(i), 674.51(m),
674.52(b), and 674.56(a) for clarity to ensure that all qualifying
nurses and medical technicians will receive cancellation benefits.
Federal Work-Study Programs
Section 675.2 Definitions
Low-Income Individual
Comments: Four commenters responded to the Secretary's proposal to
define ``low-income individual'' for the purpose of community service
under the FWS program. The commenters wanted either clarification or
elimination of the definition.
One commenter acknowledged that the Secretary had been asked to
clarify the meaning of low-income clientele in reference to individuals
served through a community service program; however, the commenter
believed that the proposed language adds another layer of eligibility
to FWS program administration. This commenter also believed that the
proposed definition of ``low-income individual'' unduly encumbers the
FWS community service concept and strongly suggested that a much more
simplified approach be considered.
Another commenter suggested that efforts to increase participation
in community service activities through the FWS program might be
hampered if institutions were required to verify the income levels of
clientele served by various community organizations.
Discussion: The Secretary has taken these comments under
consideration and has determined that at this time there is no need to
burden institutions with a formal definition of ``low-income
individual'' for purposes of providing community service under the FWS
program. There is no requirement under the statute that a particular
number or proportion of the individuals must be low-income persons.
However, the Secretary reminds institutions of the statutory emphasis
placed on the human, educational, environmental, and public safety
needs of low-income individuals.
Changes: The Secretary has deleted this definition from the final
regulations for the FWS program.
Community Services
Comments: One commenter requested that more clarity be provided on
whether the service has to be ``direct'' under the community service
component of the FWS program. Several commenters were concerned that
the Secretary's interpretation of the meaning of providing community
service as being ``hands-on'' or ``direct contact'' will do a great
disservice to student workers by eliminating many behind-the-scene
jobs. In general, commenters believed that a successful community
services agency requires all types of jobs to operate efficiently and
that clerical jobs serve an important function in any organization.
Discussion: The Secretary did not propose in the NPRM a change to
the definition of ``community services.'' The Secretary reminds the
commenters that the current definition of ``community services'' in
Sec. 675.2 does not require that the service provided by the FWS
student must be ``direct'' to be considered community service. The job
duties must include providing services that are designed to improve the
quality of life for community residents or solve particular problems
related to their needs. In determining whether the service is community
service, the institution must always consider whether the service
provided by the FWS student primarily benefits the community as opposed
to the agency or institution.
The Secretary at this time is leaving flexibility to the
institutions in determining what jobs provide service to the community.
This approach is adopted to minimize the burden on institutions in
administering the community service component of the FWS program.
The Secretary encourages institutions to develop jobs that instill
a sense of social responsibility in the students and touch the lives of
community residents in a meaningful and lasting way. The Secretary
believes that the best way to provide ``community services'' is for the
students' jobs to put them in ``direct'' contact where possible with
the recipients of the services or involve some type of ``hands on''
service in the community. However, the Secretary does not intend to
indicate that certain activities are more important than others or that
only jobs that have ``direct'' contact with community members are
acceptable. For example, an FWS student working for a ``meals on
wheels'' program for the elderly may prepare those meals without any
``direct'' contact with the community recipients, yet the service is
very important in meeting the needs of the elderly.
Changes: None.
Section 675.4 Allocation and Reallocation
Comments: Three commenters discussed the proposal required by
section 442(e) of the HEA that only an institution that uses at least
10 percent of its total amount of FWS Federal funds granted to
compensate students employed in community service are eligible for
reallocated FWS funds and that all the reallocated FWS funds must be
used for community service. One of these commenters suggested that the
Secretary should clarify this proposal in the regulations. The other
two commenters expressed the concern that the provision that requires
institutions to have a fair-share shortfall in order to receive these
reallocated supplemental FWS funds presents a disincentive to
institutions, with no shortfall, to strive for the 10 percent figure.
The commenters suggested that the Secretary consider an alternative
to the current process of awarding unexpended funds. They would like to
see the fair-share requirement changed to consider also those
institutions that meet or exceed the 10 percent rule, but do not have a
shortfall. In addition, one of these commenters further noted that the
use of the reallocated funds should not be restricted to community
service wages. Instead, since the institution had already done 100
percent above the requirement, it should be allowed to use reallocated
funds in any FWS program or for administrative costs.
Discussion: Under current FWS regulations in Sec. 675.4, the
Secretary allocates and reallocates funds to institutions participating
in the FWS program in accordance with section 442 of the HEA.
Therefore, this provision will not be codified in the regulations.
Under section 442 of the HEA, the Secretary reallocates funds on a pro
rata basis, i.e., the amount of an institution's fair-share shortfall
as a percentage of the fair-share shortfalls of all participating
institutions with an unmet FWS request. The Secretary continues to
believe this position to be the most equitable formula for awarding
unexpended funds. The statutory provision that mandates this new rule
for receipt of unexpended FWS funds, section 442(e)(1) of the HEA,
provides that these funds will only go to institutions that expend at
least 10 percent of their total amount of FWS funds (initial and
supplemental) to employ students in community service jobs, and that
the reallocated FWS funds must also be used only for that purpose.
Congress amended this section to encourage students to participate in
community service activities.
Changes: None.
Section 675.8 Program Participation Agreement
Comments: Several commenters believed that the jobs performed by an
institution's FWS students that provide support services solely to the
institution's own students with disabilities should be counted toward
meeting the community service requirements under the FWS program. Many
commenters believed that not to do this would cause an undue hardship
for the institution. One commenter questioned why under the FWS program
it is permissible to develop programs that support services to an
institution's own students with disabilities yet under the community
service component this is not allowed. Two commenters asked for
consistency between the program participation agreement and the
community service definition concerning the meaning of support services
to students with disabilities.
Discussion: Section 441(c) of the HEA under the definition of
community service states that an institution may include as part of its
community service component support services to students with
disabilities. Section 443(b)(9) of the HEA requires institutions under
the program participation agreement to assure that employment under the
FWS program may be used to support programs for supportive services to
students with disabilities.
The Secretary believes the intention of the community service
requirement in the statute is for an institution's FWS students to work
with elementary and secondary school students as well as students
attending other postsecondary institutions, and provide services to the
disabled, and not just for an institution to provide services solely to
its own students with disabilities. As allowed by section 443(b)(9) of
the HEA, an institution may use FWS funds to provide support services
to its own institutional students with disabilities. However, to be
providing community service in accordance with section 441(c) of the
HEA, the FWS students providing the service must be providing the
service to students with disabilities in the community. The fact that
the FWS students also provide the services to the institution's own
students with disabilities would not necessarily prevent the job from
being considered community service.
Changes: The definition of ``community services'' in Sec. 675.2 has
been revised to emphasize that the support services must be provided to
students other than an institution's own students to satisfy the
community service component of the FWS program. No changes have been
made to Sec. 675.8.
Section 675.18 Use of Funds
Community Service Waiver
Comments: Section 443(b)(2)(A) of the HEA provides that for the
1994-95 award year and succeeding award years, an institution shall use
at least 5 percent of the total amount of FWS Federal funds granted to
such institution to compensate students employed in community service,
except that the Secretary may waive this requirement if the Secretary
determines that enforcing it would cause hardship for students at an
institution.
In the NPRM, the Secretary requested comments regarding the
conditions under which the Secretary should grant waivers of this
provision. Some commenters believed that means and costs of
transportation are major issues the Secretary needs to consider in
granting a waiver. The commenters believed that students from low-
income backgrounds do not have cars, and some institutions are located
in areas that have no public transportation. One commenter believed
that there are many institutions located in rural areas and that
community service jobs may not be accessible. Some commenters believed
it would be a hardship on institutions that could only locate community
service jobs with agencies that could not afford to pay a portion of
the non-Federal share. Other commenters wanted the Department to
regulate the criteria that the Secretary would use to determine this
waiver. One commenter expressed concern for the safety of students
providing community service in some locations. This same commenter
noted that performance of community service might conflict with student
class schedules. One commenter believed that private technical
universities have very few degree programs offered that are geared
toward community service and that placements in this area are somewhat
rare.
Discussion: Section 443(b)(2)(A) of the amended HEA mandates that
at least 5 percent of an institution's total amount of Federal FWS
funds granted must be used to compensate students employed in community
service jobs, unless the Secretary waives the requirement.
Based on public comment, the Secretary does not foresee many
instances in which a waiver would be granted. However, to allow
flexibility to consider factors that are valid reasons for a waiver,
the Secretary is not specifying the specific circumstances that would
receive a waiver. The fact that it may be difficult for the institution
to comply with this provision is not a basis for granting a waiver. The
Secretary will consider providing more specific regulatory guidance on
this issue as he gains more experience in processing these kinds of
waiver requests.
Changes: The language in Sec. 675.18(h) has been revised to
emphasize that to receive a waiver, an institution must demonstrate
that the 5 percent requirement would cause a hardship for students at
the institution.
Administrative Cost Allowance
Comments: Two commenters requested that the additional
Administrative Cost Allowance (ACA) available for the expired Community
Service Learning program be continued for the community service
component under the FWS program. These commenters believed that the
regular campus-based ACA provided institutions was already fully
utilized and the additional expenses incurred for the new community
service mandate will have to be absorbed by the institutions. One
commenter believed that the statute should be interpreted to allow use
of up to 10 percent of the entire campus-based ACA for the purpose of
paying the costs for community service, but no more than the portion of
the ACA attributable to the FWS program. The commenter wanted the
flexibility to be given to the institutions in using the ACA at no
additional cost to the Federal government.
Discussion: The Amendments changed sections 447 and 489(a) of the
HEA to eliminate the special ACA for work-study for community service
learning. In accordance with the requirements of the HEA, the Secretary
removed the special ACA from Sec. 675.18(b)(5). However, the Amendments
did amend section 447 of the HEA to permit an institution to use up to
10 percent of the funds available for the institution's regular campus-
based ACA and attributable to the institution's FWS program
expenditures to cover expenses incurred for its program of community
service. The Secretary, in accordance with the requirements of the HEA,
further amended Sec. 675.18(b)(5) to provide an institution with this
authority.
Changes: None.
Subpart C--Work-Colleges Program
Authorization of Appropriations
Comments: One commenter suggested that under the Work-Colleges
subpart of the regulations the Department should provide for the
allocation and reallocation of funds as it does under Sec. 675.4 of the
FWS program regulations even though no funds are appropriated.
Discussion: The Secretary will implement the allocation and
reallocation process for the Work-Colleges program based on the
institutions' requests. The funds will be allocated and reallocated
based on each institution's approved request for Federal funds for the
Work-Colleges program as a percent of the total of such approved
requests for all applicant institutions.
Changes: This section is amended to add an allocation and
reallocation process.
Executive Order 12866
These final regulations have been reviewed in accordance with
Executive Order 12866. Under the terms of the order the Secretary has
assessed the potential costs and benefits of this regulatory action.
The potential costs associated with the final regulations are those
resulting from statutory requirements and those determined by the
Secretary to be necessary for administering this program effectively
and efficiently. Burdens specifically associated with information
collection requirements were identified and explained in the NPRM.
In assessing the potential costs and benefits--both quantitative
and qualitative--of these regulations, the Secretary has determined
that the benefits of the regulations justify the costs.
The Secretary has also determined that this regulatory action does
not unduly interfere with State, local, and tribal governments in the
exercise of their governmental functions.
Paperwork Reduction Act of 1980
Section 674.34(e) contains information collection requirements. As
required by the Paperwork Reduction Act of 1980, the U.S. Department of
Education will submit a copy of this section to the Office of
Management and Budget (OMB) for its review.
Waiver of Proposed Rulemaking
In addition to the changes made to these regulations based on
public comment on the notice of proposed rulemaking, the Secretary has
revised the regulations to include changes made by the Improving
America's Schools Act of 1994 (Pub. L. 103-382), and the Bankruptcy
Reform Act of 1994 (Pub. L. 103-394), enacted subsequent to publication
of the notice of proposed rulemaking.
It is the practice of the Secretary to offer interested parties the
opportunity to comment on proposed regulations in accordance with the
Administrative Procedure Act, 5 U.S.C. 553. However, since these
changes merely incorporate statutory changes into the regulations,
public comment could have no effect. Therefore, the Secretary has
determined pursuant to 5 U.S.C. 5532(b)(B) that public comment on the
regulations is unnecessary and contrary to the public interest.
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
34 CFR Part 674
Loan programs--education, Student aid, Reporting and recordkeeping
requirements.
34 CFR Part 675
Loan programs--education, Student aid, Reporting and recordkeeping
requirements.
34 CFR Part 676
Loan programs--education, Student aid, Reporting and recordkeeping
requirements.
(Catalog of Federal Domestic Assistance Numbers: 84.007 Federal
Supplemental Educational Opportunity Grant Program; 84.033 Federal
Work-Study Program; and 84.038 Federal Perkins Loan Program)
Dated: November 21, 1994.
Richard W. Riley,
Secretary of Education.
The Secretary amends parts 674, 675, and 676 of title 34 of the
Code of Federal Regulations as follows:
PART 674--FEDERAL PERKINS LOAN PROGRAM
1. The authority citation for part 674 continues to read as
follows:
Authority: 20 U.S.C. 1087aa-1087ii and 20 U.S.C. 421-429, unless
otherwise noted.
2. Section 674.2(b) is amended by removing the definitions of
Default rate, Defaulted principal amount outstanding, and Matured
loans; by revising the definition of Undergraduate student; and by
adding, in alphabetical order, the definitions of Enter repayment,
Making of a loan, National credit bureau, Satisfactory arrangements to
repay the loan, Total monthly gross income and Undergraduate student to
read as follows:
Sec. 674.2 Definitions.
* * * * *
(b) * * *
Enter repayment: The day following the expiration of the initial
grace period or the day the borrower waives the initial grace period.
This date does not change if a forbearance, deferment, or cancellation
is granted after the borrower enters repayment.
* * * * *
Making of a loan: When the borrower signs for an advance of loan
funds and those funds are disbursed.
* * * * *
National credit bureau: Any one of the national credit bureaus with
which the Secretary has an agreement.
* * * * *
Satisfactory arrangements to repay the loan: The establishment of a
new written repayment agreement and the making of one payment each
month for six consecutive months.
* * * * *
Total monthly gross income: The gross amount of income received by
the borrower from employment (either full-time or part-time) and from
other sources.
Undergraduate student: A student enrolled at an institution of
higher education who is in an undergraduate course of study which
usually does not exceed four academic years, or is enrolled in a four
to five academic year program designed to lead to a first degree. A
student enrolled in a program of any other length is considered an
undergraduate student for only the first four academic years of that
program.
* * * * *
3. Section 674.4 is amended by revising paragraph (b) and by adding
new paragraphs (e) and (f) to read as follows:
Sec. 674.4 Allocation and reallocation.
* * * * *
(b) The Secretary reallocates Federal capital contributions to
institutions participating in the Federal Perkins Loan program by--
(1) Reallocating 80 percent of the total funds available in
accordance with section 462(j) of the HEA; and
(2) Reallocating 20 percent of the total funds available in a
manner that best carries out the purposes of the Federal Perkins Loan
program.
* * * * *
(e) Unexpended funds. (1) If an institution returns more than 10
percent of its allocation for an award year, the Secretary will reduce
the institution's allocation for the second succeeding award year by
the dollar amount returned.
(2) The Secretary may waive the provision of paragraph (e)(1) of
this section for a specific institution if the Secretary finds that
enforcement would be contrary to the interests of the program.
(3) The Secretary considers enforcement of paragraph (e)(1) of this
section to be contrary to the interest of the program only if the
institution returned more than 10 percent of its allocation due to
circumstances beyond the institution's control that are not expected to
recur.
(f) Anticipated collections. (1) For the purposes of calculating an
institution's share of any excess allocation, an institution's
anticipated collections are equal to the amount that was collected
during the second year preceding the beginning of the award period
multiplied by 1.21.
(2) The Secretary may waive the provision of paragraph (f)(1) of
this section for any institution that has a cohort default rate that
does not exceed 7.5 percent.
4. A new Sec. 674.5 is added to read as follows:
Sec. 674.5 Federal Perkins Loan program cohort default rate and
penalties.
(a) Default penalty. If an institution's cohort default rate meets
the following levels, a default penalty is imposed on the institution
as follows:
(1) If the institution's cohort default rate equals or exceeds 15
percent, the institution must establish a default reduction plan in
accordance with Sec. 674.6.
(2) If the institution's cohort default rate equals or exceeds 20
percent, but is less than 25 percent, the institution's FCC is reduced
by 10 percent.
(3) If the institution's cohort default rate equals or exceeds 25
percent, but is less than 30 percent, the institution's FCC is reduced
by 30 percent.
(4) If the institution's cohort default rate equals or exceeds 30
percent, the institution's FCC is reduced to zero.
(b) Cohort default rate. (1) The term ``cohort default rate''
means, for any award year in which 30 or more current and former
students at the institution enter repayment on a loan received for
attendance at the institution, the percentage of those current and
former students who enter repayment in that award year on the loans
received for attendance at that institution who default before the end
of the following award year.
(2) In determining the number of students who default before the
end of the following award year, the Secretary excludes any loans that,
due to improper servicing or collection, would result in an inaccurate
or incomplete calculation of the cohort default rate.
(3) For any award year in which less than 30 current and former
students at the institution enter repayment on a loan received for
attendance at the institution, the ``cohort default rate'' means the
percentage of those current and former students who entered repayment
on loans received for attendance at that institution in any of the
three most recent award years and who defaulted on those loans before
the end of the award year immediately following the year in which they
entered repayment.
(c) Defaulted loans to be included in the cohort default rate. For
purposes of calculating the cohort default rate under paragraph (b) of
this section--
(1) A borrower must be included only if the borrower's default has
persisted for at least--
(i) 240 consecutive days for loans repayable in monthly
installments; or
(ii) 270 consecutive days for loans repayable in quarterly
installments;
(2) A loan is considered to be in default if a payment is made by
the institution of higher education, its owner, agency, contractor,
employee, or any other entity or individual affiliated with the
institution, in order to avoid default by the borrower;
(3)(i) Any loan that is in default, but on which the borrower has
made satisfactory arrangements to repay the loan, or any loan that has
been rehabilitated before the end of the following award year is not
considered to be in default for purposes of the cohort default rate
calculation; and
(ii) In the case of a student who has attended and borrowed at more
than one institution, the student and his or her subsequent repayment
or default are attributed to the institution for attendance at which
the student received the loan that entered repayment in the award year;
and
(4) Improper servicing or collection means the failure of the
institution to comply with subpart C of this part.
(d) Locations of the institution. (1) A cohort default rate of an
institution applies to all locations of the institution as it exists on
the first day of the award year for which the rate is calculated.
(2) A cohort default rate of an institution applies to all
locations of the institution from the date the institution is notified
of that rate until the institution is notified by the Secretary that
the rate no longer applies.
(3) For an institution that changes status from a location of one
institution to a free-standing institution, the Secretary determines
the cohort default rate based on the institution's status as of July 1
of the award year for which a cohort default rate is being calculated.
(4)(i) For an institution that changes status from a free-standing
institution to a location of another institution, the Secretary
determines the cohort default rate based on the combined number of
students who enter repayment during the applicable award year and the
combined number of students who default during the applicable award
years from both the former free-standing institution and the other
institution. This cohort default rate applies to the new consolidated
institution and all of its current locations.
(ii) For free-standing institutions that merge, the Secretary
determines the cohort default rate based on the combined number of
students who enter repayment during the applicable award year and the
combined number of students who default during the applicable award
years from both of the institutions that are merging. This cohort
default rate applies to the new, consolidated institution.
(iii) For an institution that changes status from a location of one
institution to a location of another institution, the Secretary
determines the cohort default rate based on the combined number of
students who enter repayment during the applicable award year and the
number of students who default during the applicable award years from
both of the institutions in their entirety, not limited solely to the
respective locations.
(5) For an institution that has a change in ownership that results
in a change in control, the Secretary determines the cohort default
rate based on the combined number of students who enter repayment
during the applicable award year and the combined number of students
who default during the applicable award years from the institution
under both the old and new control.
(e) Loan rehabilitation. (1) A loan is considered rehabilitated
only after the borrower has executed a new written repayment agreement
and has made one payment each month for 12 consecutive months.
(2) Within 30 days of the date of the rehabilitation, the
institution shall report the rehabilitation to the same national credit
bureau to which it originally reported this defaulted loan.
(Authority: 20 U.S.C. 1087bb)
5. A new Sec. 674.6 is added to read as follows:
Sec. 674.6 Default reduction plan.
(a) General. An institution with a cohort default rate that equals
or exceeds 15 percent shall establish and implement a plan designed to
reduce defaults by its students in the future. The institution shall
submit to the Secretary by December 31 of the calendar year in which
the cohort default rate was calculated--
(1) A written description of the default reduction plan;
(2) A statement indicating that the institution agrees to comply
with the required measures in paragraph (b) of this section; or
(3) For an institution that is participating in the Federal Family
Education Loan Program and has in place a default reduction plan for
that program, a statement indicating that the institution agrees to
apply that plan to the Federal Perkins Loan program.
(b) Required measures. The default reduction plan required under
this section must include a description of the measures to be taken by
the institution to reduce defaults. The institution shall explain how
it plans to implement the following measures:
(1) Revise admission policies and screening practices, consistent
with applicable State law, to ensure that students enrolled in the
institution, especially those who are not high school graduates or
those who are in need of substantial remedial work, have a reasonable
expectation of succeeding in their programs of study.
(2) Improve the availability and effectiveness of academic
counseling and other support services to decrease withdrawal rates,
including--
(i) Providing academic counseling and other support services to
students on a regular basis, at a time and location that is convenient
for the students involved;
(ii) Publicizing the availability of the academic counseling and
other support services;
(iii) Establishing procedures to identify academically high-risk
students and schedule those students for immediate counseling services;
and
(iv) Maintaining records identifying those students who receive
academic counseling.
(3) Attempt to reduce its withdrawal rate by conforming with that
accrediting agency's standards of satisfactory progress and with those
described in 34 CFR 668.14, and improving its curricula, facilities,
materials, equipment, qualifications and size of faculty, and other
aspects of its educational program in consultation with its academic
accrediting agency.
(4) Increase the frequency of reviews of in-school status of
borrowers to ensure the institution's prompt recognition of instances
in which borrowers withdraw without notice to the institution. Reviews
must be conducted each month.
(5) Expand its job placement program for its students by--
(i) (A) Increasing contacts with local employers, counseling
students in job search skills, and
(B) Exploring with local employers the feasibility of establishing
internship and cooperative education programs;
(ii) Attempting to improve its job placement rate and licensing
examination pass rate by improving its curricula, facilities,
materials, equipment, qualifications and size of faculty, and other
aspects of its educational program in consultation with the cognizant
accrediting body; and
(iii) Establishing a liaison for job information and placement
assistance with the local office of the United States Employment
Service and the Private Industry Council supported by the U.S.
Department of Labor.
(6) Remind the borrower of the importance of the repayment
obligation and of the consequences of default and update the
institution's records regarding the borrower's employer and employer's
address as part of the contacts with the borrower under Sec. 674.42(b).
(7) Obtain from the borrower at the time of a borrower's admission
to the institution information regarding references and family members
beyond those provided on the loan application to provide the
institution or its agent with a variety of ways to locate a borrower
who later relocates without notifying the institution.
(8) Explain to a prospective student that the student's
dissatisfaction with, or nonreceipt of, the educational services being
offered by the institution does not excuse the borrower from repayment
of any Federal Perkins Loan.
(9) Use a written test and intensive additional counseling for
those borrowers who fail the test to ensure the borrower's
comprehension of the terms and conditions of the loan including those
described in Secs. 674.16 and 674.42(a) as part of the initial loan
counseling and the exit interview.
(10) During the exit interview provided to a Federal Perkins Loan
borrower--
(i) Explain the use by institutions of outside contractors to
service and collect loans;
(ii) Provide general information on budgeting of living expenses
and other aspects of personal financial management; and
(iii) Provide guidance on the preparation of correspondence to the
borrower's institution or agent and completion of deferment and
cancellation forms.
(11) Use available audio-visual materials such as videos and films
to enhance the effectiveness of the initial and exit counseling.
(12) Conduct an annual comprehensive self-evaluation of its
administration of the title IV programs to identify institutional
practices that should be modified to reduce defaults, and then
implement those modifications.
(13) Delay loan disbursements to first-time borrowers for 30 days
after enrollment.
(14) Require first-time borrowers to endorse their loan check at
the institution and to pick up at the institution any loan proceeds
remaining after deduction of institutional charges.
(Approved by the Office of Management and Budget under control
number 1840-0535)
(Authority: 20 U.S.C. 1087bb)
6. A new Sec. 674.7 is added to read as follows:
Sec. 674.7 Expanded lending option (ELO).
(a) To participate in the expanded lending option in any award
year, an eligible institution shall enter into a special ELO
participation agreement with the Secretary. The agreement provides that
the institution shall--
(1) Deposit ICC equal to 100 percent of the FCC described in
Sec. 674.8(a)(1) for that award year into the Fund;
(2) Maintain a cohort default rate that is equal to or less than 15
percent; and
(3) Have participated in the Federal Perkins Loan program for at
least two years.
(b) The maximum annual amount of Federal Perkins Loans and Direct
Loans an eligible student who attends an institution that participates
in the ELO may borrow in any academic year is--
(1) $4,000 for a student who has not successfully completed a
program of undergraduate education; and
(2) $6,000 for a graduate or professional student.
(c) The aggregate maximum amount of Federal Perkins and Direct
Loans an eligible student who attends an institution that participates
in the ELO may borrow is--
(1) $8,000 for a student who has not successfully completed two
years of a program leading to a bachelor's degree;
(2) $20,000 for a student who has successfully completed two years
of a program leading to a bachelor's degree but who has not received
the degree; and
(3) $40,000 for a graduate or professional student.
(d) The maximum annual amounts described in paragraph (b) of this
section and the aggregate maximum amounts described in paragraph (c) of
this section may be exceeded by 20 percent if the student is engaged in
a program of study abroad that is approved for credit by the home
institution at which the student is enrolled and that has reasonable
costs in excess of the home institution's cost of attendance.
(e) For each student, the maximum annual amounts described in
paragraphs (b) and (d) of this section and the aggregate maximum
amounts listed in paragraphs (c) and (d) of this section include any
amount borrowed previously by that student under title IV, part E of
the HEA at any institution, including any amounts that may have been
repaid to the Fund at any institution.
(f) The institution shall deposit into its Fund an amount required
under paragraph (a)(1) of this section whether or not the institution
makes loans in the amount authorized under paragraphs (b) and (c) of
this section.
(Authority: 20 U.S.C. 1087cc, 1087dd)
7. Section 674.8 is amended by revising paragraph (a)(2); by
redesignating paragraphs (a)(3) through (a)(6) as paragraphs (a)(4)
through (a)(7) respectively; by adding a new paragraph (a)(3); by
revising paragraph (c); and by republishing the OMB control number to
read as follows:
Sec. 674.8 Program participation agreement.
* * * * *
(a) * * *
(2) Except as provided in paragraph (a)(1) of Sec. 674.7--
(i) ICC equal to at least three-seventeenths of the FCC described
in paragraph (a)(1) of this section in award year 1993-94; and
(ii) ICC equal to at least one-third of the FCC described in
paragraph (a)(1) of this section in award year 1994-95 and succeeding
award years;
(3) ICC equal to the amount of FCC described in paragraph (a)(1) of
Sec. 674.7 for an institution that has been granted permission by the
Secretary to participate in the ELO under the Federal Perkins Loan
program;
* * * * *
(c) The institution shall submit an annual report to the Secretary
containing information that determines its cohort default rate that
includes--
(1) For institutions in which 30 or more of its current or former
students first entered repayment in an award year--
(i) The total number of borrowers who first entered repayment in
the award year; and
(ii) The number of those borrowers in default by the end of the
following award year; or
(2) For institutions in which less than 30 of its current or former
students entered repayment in an award year--
(i) The total number of borrowers who first entered repayment in
any of the three most recent award years; and
(ii) The number of those borrowers in default before the end of the
award year immediately following the year in which they entered
repayment.
* * * * *
(Approved by the Office of Management and Budget under control
number 1840-0535)
8. Section 674.9 is amended by revising paragraph (b); by removing
the word ``and'' after the semicolon in paragraph (d)(2); by removing
the phrase ``, including a loan discharged in bankruptcy,'' from
paragraph (e); by removing the period at the end of paragraph (e) and
adding, in its place, a semicolon; and by adding new paragraphs (f),
(g), (h), and (i) to read as follows:
Sec. 674.9 Student eligibility.
* * * * *
(b) Is enrolled or accepted for enrollment as an undergraduate,
graduate, or professional student at the institution, whether or not
engaged in a program of study abroad approved for credit by the home
institution;
* * * * *
(f) Provides to the institution a driver's license number, if any,
at the time of application for the loan;
(g) Reaffirms any Federal Perkins, Direct, or Defense loan amount
that previously was written off (if the amount of the write-off
exceeded $25); and
(h)(1) In the case of a borrower whose previous loan was canceled
due to total and permanent disability, obtains a certification from a
physician that the borrower's condition has improved and that the
borrower is able to engage in substantial gainful activity; and
(2) Signs a statement acknowledging that any new Federal Perkins or
Direct loan the borrower received cannot be canceled in the future on
the basis of any present impairment, unless that condition
substantially deteriorates.
(i) For purposes of this section, reaffirmation means the
acknowledgment of the loan by the borrower in a legally binding manner.
The acknowledgement may include, but is not limited to, the borrower--
(1) Signing a new promissory note or new repayment agreement; or
(2) Making a payment on the loan.
(Authority: 20 U.S.C. 1087aa, 1087dd, and 1091)
9. Section 674.10 is amended by revising paragraph (b); and by
republishing the OMB control number to read as follows:
Sec. 674.10 Selection of students for loans.
* * * * *
(b) If an institution's allocation of FCC is directly or indirectly
based in part on the financial need demonstrated by students attending
the institution as less-than-full-time or independent students, and if
the total financial need of those students exceeds 5 percent of the
total financial need of all students at the institution, the
institution shall offer to those students at least 5 percent of the
dollar amount of those loans made under this part.
* * * * *
(Approved by the Office of Management and Budget under control
number 1840-0535)
10. Section 674.12 is revised to read as follows:
Sec. 674.12 Loan maximums.
(a) The maximum annual amount of Federal Perkins Loans and Direct
Loans an eligible student who attends an institution that does not
participate in the ELO may borrow in any academic year is--
(1) $3,000 for a student who has not successfully completed a
program of undergraduate education; and
(2) $5,000 for a graduate or professional student.
(b) The aggregate maximum amount of Federal Perkins Loans and
Direct Loans an eligible student who attends an institution that does
not participate in the ELO may borrow is--
(1) $15,000 for a student who has not successfully completed a
program of undergraduate education; and
(2) $30,000 for a graduate or professional student.
(c) The maximum annual amounts described in paragraph (a) of this
section and the aggregate maximum amounts described in paragraph (b) of
this section may be exceeded by 20 percent if the student is engaged in
a program of study abroad that is approved for credit by the home
institution at which the student is enrolled and that has reasonable
costs in excess of the home institution's cost of attendance.
(d) For each student, the maximum annual amounts described in
paragraphs (a) and (c) of this section and the aggregate maximum
amounts described in paragraphs (b) and (c) of this section, include
any amounts borrowed previously by the student under title IV, part E
of the HEA at any institution, including any amounts that may have been
repaid to the Fund at any institution.
(Authority: 20 U.S.C. 1087dd)
Sec. 674.13 [Amended]
11. Section 674.13 is amended by removing the words ``or endorser''
after the word ``borrower'' in paragraph (b)(1)(ii).
12. Section 674.14 is amended by removing the words ``Guaranteed
Student Loans'' and adding, in its place, the words ``Federal Family
Education Loan'' in paragraph (b)(1)(ii); by removing the words ``and
need-based ICLs'' after the words ``Direct Loans'' in paragraph
(b)(1)(x); by adding the words ``or Federal'' before the word ``PLUS'',
by removing the comma after the words ``PLUS loan'', and by removing
the words ``or non-need-based ICL'' before the word ``as'' in paragraph
(b)(3); and by revising paragraphs (c) introductory text, (c)(1),
(c)(2), and (c)(3) to read as follows:
Sec. 674.14 Overaward.
* * * * *
(c) Treatment of resources in excess of need. An institution shall
take the following steps if it learns that a student has received
additional resources not included in the calculation of Direct or
Federal Perkins Loan eligibility that would result in the student's
total resources exceeding his or her financial need by more than $300:
(1) The institution shall decide whether the student has increased
financial need that was unanticipated when it awarded financial aid to
the student. If the student demonstrates increased financial need and
the total resources do not exceed this increased need by more than
$300, no further action is necessary.
(2) If no increased need is demonstrated, or the student's total
resources still exceed his or her need by more than $300, as
recalculated pursuant to paragraph (c)(1) of this section, the
institution shall cancel any undisbursed loan or grant (other than a
Federal Pell Grant).
(3) If the student's total resources still exceed his or her need
by more than $300, after the institution takes the steps required in
paragraphs (c)(1) and (2) of this section, the institution shall
consider the amount by which the resources exceed the student's
financial need by more than $300 as an overpayment.
* * * * *
13. Section 674.16 is amended by revising paragraph (a)(1)(ii); by
revising paragraph (a)(1)(x); by revising paragraph (d); by
redesignating paragraphs (g) and (h) as paragraphs (h) and (i)
respectively; by adding a new paragraph (g); by adding the word
``Federal'' before the words ``Perkins Loan program'' in redesignated
paragraph (h); by adding a new paragraph (j); and by republishing the
OMB control number to read as follows:
Sec. 674.16 Making and disbursing loans.
(a)(1)* * *
(ii) The principal amount of the loan and a statement that the
institution will report the amount of the loan to a national credit
bureau at least annually.
* * * * *
(x) A definition of default and the consequences to the borrower,
including a statement that the institution may report the default to a
national credit bureau.
* * * * *
(d)(1) The institution may advance the loan proceeds to the
borrower directly by check or by crediting his or her account with the
institution. The institution shall notify the student of the amount he
or she can expect to receive and of how and when that amount will be
paid. In either case, the borrower must sign for each advance of funds
on the promissory note, except as provided in paragraph (d)(2) of this
section.
(2)(i) In the case of a borrower enrolled in a study-abroad program
approved for credit by the home institution in which the borrower is
enrolled, the borrower may not be required to sign for any advance of
funds made while the borrower is studying abroad if obtaining the
borrower's signature would pose an undue hardship on the institution.
(ii) The institution shall properly document the reason for not
obtaining the borrower's signature.
* * * * *
(g)(1) An institution may disburse Federal Perkins Loan funds in
accordance with paragraphs (g)(2) and (3) of this section after the
student has ceased to be enrolled.
(2) A disbursement described in paragraph (g)(1) of this section
may be made--
(i) Only if the loan is awarded to the student while he or she is
still an eligible student; and
(ii) Only if the loan funds are used to cover documented
educational costs to the student that are normally included in a
borrower's cost of attendance under section 472 of the HEA for the
payment period for which the loan was intended and the student was
actually enrolled.
(3) The institution shall document in the student's file the reason
for the late disbursement.
* * * * *
(j) An institution shall report to any one national credit bureau--
(1) The amount of each disbursement;
(2) The date the disbursement was made; and
(3) Information as specified in section 430A of the Act.
* * * * *
(Approved by the Office of Management and Budget under control
number 1840-0535)
14. Section 674.18 is amended by adding a new paragraph (c) to read
as follows:
Sec. 674.18 Use of funds.
* * * * *
(c) Transfer of funds. (1) An institution may transfer up to 25
percent of the sum of its initial and supplemental Federal Perkins Loan
allocations for an award year to the Federal Work-Study program or
Federal Supplemental Educational Opportunity Grant program, or to both.
(2) An institution may transfer up to the total of the sum of its
initial and supplemental Federal Perkins Loan allocations for an award
year to the Work-Colleges program.
(3) An institution shall use transferred funds according to the
requirements of the program to which they are transferred.
(4) An institution shall report any transferred funds on the Fiscal
Operations Report required under Sec. 674.19(d).
(5) An institution shall transfer back to the Federal Perkins Loan
program any funds unexpended at the end of the award year that it
transferred to the FWS program, the FSEOG program, or the Work-Colleges
program from the Federal Perkins Loan program.
* * * * *
15. Section 674.19 is amended by revising paragraph (e)(2)(ii) to
read as follows:
Sec. 674.19 Fiscal procedures and records.
* * * * *
(e) * * *
(2) * * *
(ii) The history must also show the date, nature, and result of
each contact with the borrower in the collection of an overdue loan.
The institution shall include in the repayment history copies of all
correspondence to or from the borrower, except bills, routine overdue
notices, and routine form letters.
* * * * *
16. Section 674.31 is amended by removing paragraph (a)(2); by
redesignating paragraph (a)(3) as paragraph (a)(2); by revising
redesignated paragraph (a)(2)(ii)(A); by adding a new paragraph
(a)(2)(iii); by revising paragraphs (b)(6) and (b)(10); and by
republishing the OMB control number to read as follows:
Sec. 674.31 Promissory note.
(a) * * *
(2) * * *
(ii) * * *
(A) The note requires the signature of the borrower on each page;
or
* * * * *
(iii) The promissory note must state the exact amount of the
minimum monthly repayment amount if the institution chooses the option
under Sec. 674.33(b).
(b) * * *
(6) Security and endorsement. The promissory note must state that
the loan shall be made without security and endorsement.
* * * * *
(10) Disclosure of information. The promissory note must state
that--
(i) The institution shall disclose to any one national credit
bureau the amount of the loan made to the borrower, along with other
relevant information;
(ii) If the borrower defaults on the loan, the institution shall
disclose that the borrower has defaulted on the loan, along with other
relevant information, to the same national credit bureau to which it
originally reported the loan; and
(iii) If the borrower defaults on the loan and the loan is assigned
to the Secretary for collection, the Secretary may disclose to a
national credit bureau that the borrower has defaulted on the loan,
along with other relevant information.
* * * * *
(Approved by the Office of Management and Budget under control
number 1840-0535)
17. Section 674.33 is amended by redesignating paragraph (a)(3) as
paragraph (a)(4); by adding a new paragraph (a)(3); by revising
paragraph (b); by revising paragraph (c)(1); and by adding new
paragraphs (d) and (e) to read as follows:
Sec. 674.33 Repayment.
(a) * * *
(3) If the installment payment for all loans made to a borrower by
an institution is not a multiple of $5, the institution may round that
payment to the next highest dollar amount that is a multiple of $5.
* * * * *
(b) Minimum monthly repayment--(1) Minimum monthly repayment
option. (i) An institution may require a borrower to pay a minimum
monthly repayment if--
(A) The promissory note includes a minimum monthly repayment
provision specifying the amount of the minimum monthly repayment; and
(B) The monthly repayment of principal and interest for a 10-year
repayment period is less than the minimum monthly repayment; or
(ii) An institution may require a borrower to pay a minimum monthly
repayment if the borrower has received loans with different interest
rates at the same institution and the total monthly repayment would
otherwise be less than the minimum monthly repayment.
(2) Minimum monthly repayment of loans from more than one
institution. If a borrower has received loans from more than one
institution, the following rules apply:
(i) If the total of the monthly repayments is equal to at least the
minimum monthly repayment, no institution may exercise a minimum
monthly repayment option.
(ii) If only one institution exercises the minimum monthly
repayment option when the monthly repayment would otherwise be less
than the minimum repayment option, that institution receives the
difference between the minimum monthly repayment and the repayment owed
to the other institution.
(iii) If each institution exercises the minimum repayment option,
the minimum monthly repayment must be divided among the institutions in
proportion to the amount of principal advanced by each institution.
(3) Minimum monthly repayment of both Defense and Direct or Federal
Perkins loans from one or more institutions. If the total monthly
repayment is less than $30 and the monthly repayment on a Defense loan
is less than $15 a month, the amount attributed to the Defense loan may
not exceed $15 a month.
(4) Minimum monthly repayment of loans with differing grace periods
and deferments. If the borrower has received loans with different grace
periods and deferments, the institution shall treat each note
separately, and the borrower shall pay the applicable minimum monthly
payment for a loan that is not in the grace or deferment period.
(5) Hardship. The institution may reduce the borrower's scheduled
repayments for a period of not more than one year at a time if--
(i) It determines that the borrower is unable to make the scheduled
repayments due to hardship (see Sec. 674.33(c)); and
(ii) The borrower's scheduled repayment is the minimum monthly
repayment described in paragraph (b) of this section.
(6) Minimum monthly repayment rates. For the purposes of this
section, the minimum monthly repayment rate is--
(i) $15 for a Defense loan;
(ii) $30 for a Federal Perkins loan made before October 1, 1992, or
for a Federal Perkins loan made on or after October 1, 1992, to a
borrower who, on the date the loan is made, has an outstanding balance
of principal or interest owing on any loan made under this part; or
(iii) $40 for a Federal Perkins loan made on or after October 1,
1992, to a borrower who, on the date the loan is made, has no
outstanding balance of principal or interest owing on any loan made
under this part.
(7) The institution shall determine the minimum repayment amount
under paragraph (b) of this section for loans with repayment
installment intervals greater than one month by multiplying the amounts
in paragraph (b) of this section by the number of months in the
installment interval.
(c) Extension of repayment period--(1) Hardship. The institution
may extend a borrower's repayment period due to prolonged illness or
unemployment.
* * * * *
(d) Forbearance. (1) Forbearance means the temporary cessation of
payments, allowing an extension of time for making payments, or
temporarily accepting smaller payments than previously were scheduled.
(2) Upon receipt of a written request and supporting documentation,
the institution shall grant the borrower forbearance of principal and,
unless otherwise indicated by the borrower, interest renewable at
intervals of up to 12 months for periods that collectively do not
exceed three years.
(3) The terms of forbearance must be agreed upon, in writing, by
the borrower and the institution.
(4) In granting a forbearance under this section, an institution
shall grant a temporary cessation of payments, unless the borrower
chooses another form of forbearance subject to paragraph (d)(1) of this
section.
(5) An institution shall grant forbearance if--
(i) The amount of the payments the borrower is obligated to make on
title IV loans each month (or a proportional share if the payments are
due less frequently than monthly) is collectively equal to or greater
than 20 percent of the borrower's total monthly gross income;
(ii) The institution determines that the borrower should qualify
for the forbearance due to poor health or for other acceptable reasons;
or
(iii) The Secretary authorizes a period of forbearance due to a
national military mobilization or other national emergency.
(3) Before granting a forbearance to a borrower under paragraph
(d)(2)(i) of this section, the institution shall require the borrower
to submit at least the following documentation:
(i) Evidence showing the amount of the most recent total monthly
gross income received by the borrower; and
(ii) Evidence showing the amount of the monthly payments owed by
the borrower for the most recent month for the borrower's title IV
loans.
(4) Interest accrues during any period of forbearance.
(e) Compromise of repayment. (1) An institution may compromise on
the repayment of a defaulted loan if--
(i) The institution has fully complied with all due diligence
requirements specified in subpart C of this part; and
(ii) The student borrower pays in a single lump-sum payment--
(A) 90 percent of the outstanding principal balance on the loan
under this part;
(B) The interest due on the loan; and
(C) Any collection fees due on the loan.
(2) The Federal share of the compromise repayment must bear the
same relation to the institution's share of the compromise repayment as
the Federal capital contribution to the institution's loan Fund under
this part bears to the institution's capital contribution to the Fund.
* * * * *
Secs. 674.34 through 674.39 [Redesignated as Secs. 674.35 through
674.40]
18. Sections 674.34 through 674.39 are redesignated as Secs. 674.35
through 674.40 respectively and a new Sec. 674.34 is added to read as
follows:
Sec. 674.34 Deferment of repayment--Federal Perkins loans and Direct
loans made on or after July 1, 1993.
(a) The borrower may defer making scheduled installment repayment
on a Federal Perkins loan or a Direct loan made on or after July 1,
1993, during the periods described in this section.
(b)(1) The borrower need not repay principal, and interest does not
accrue, during a period after the commencement or resumption of the
repayment period on a loan, when the borrower is--
(i) Enrolled and in attendance as a regular student in at least a
half-time course of study at an eligible institution;
(ii) Enrolled and in attendance as a regular student in a course of
study that is part of a graduate fellowship program approved by the
Secretary;
(iii) Engaged in graduate or post-graduate fellowship-supported
study (such as a Fulbright grant) outside the United States; or
(iv) Enrolled in a course of study that is part of a rehabilitation
training program for disabled individuals approved by the Secretary as
described in paragraph (g) of this section.
(2) No borrower is eligible for a deferment under paragraph (b)(1)
of this section while serving in a medical internship or residency
program, except for a residency program in dentistry.
(3) The institution of higher education at which the borrower is
enrolled does not need to be participating in the Federal Perkins Loan
program for the borrower to qualify for a deferment.
(4) If a borrower is attending an institution of higher education
as at least a half-time regular student for a full academic year and
intends to enroll as at least a half-time regular student in the next
academic year, the borrower is entitled to a deferment for 12 months.
(5) If an institution no longer qualifies as an institution of
higher education, the borrower's deferment ends on the date the
institution ceases to qualify.
(c)(1) The borrower of a Federal Perkins loan need not repay
principal, and interest does not accrue, for any period during which
the borrower is engaged in service described in Secs. 674.53, 674.54,
674.56, 674.57, 674.58, 674.59, and 674.60.
(2) The borrower of a Direct loan need not repay principal, and
interest does not accrue, for any period during which the borrower is
engaged in service described in Secs. 674.53, 674.54, 674.56, 674.57,
674.58, and 674.59.
(d) The borrower need not repay principal, and interest does not
accrue, for any period not to exceed 3 years during which the borrower
is seeking and unable to find full-time employment.
(e) The borrower need not repay principal, and interest does not
accrue, for any period not to exceed 3 years during which the borrower
is suffering an economic hardship. To qualify for this deferment, the
borrower must provide documentation satisfactory to the institution
showing that the borrower--
(1) Has been granted an economic hardship deferment under either
the FDSL or FFEL programs for the period of time for which the borrower
has requested an economic hardship deferment for his or her Federal
Perkins loan;
(2) Is receiving payment under a federal or state public assistance
program, such as Aid to Families with Dependent Children, Supplemental
Security Income, Food Stamps, or state general public assistance;
(3) Is working full-time and earning a total monthly gross income
that does not exceed the greater of--
(i) The monthly earnings of an individual earning the minimum wage
described in section 6 of the Fair Labor Standards Act of 1938; or
(ii) An amount equal to 100 percent of the poverty line for a
family of two, as determined in accordance with section 673(2) of the
Community Service Block Grant Act;
(4) Is not receiving total monthly gross income that exceeds twice
the amount specified in paragraph (e)(3) of this section and, after
deducting an amount equal to the borrower's monthly payments on federal
postsecondary education loans, as determined under paragraph (e)(8) of
this section, the remaining amount of that income does not exceed the
amount specified in paragraph (e)(3) of this section; or
(5) Is working full-time and has a Federal educational debt burden
that equals or exceeds 20 percent of the borrower's adjusted gross
income and the difference between the borrower's adjusted gross income
minus such burden is less than 220 percent of the greater of--
(i) The annual earnings of an individual earning the minimum wage
under section 6 of the Fair Labor Standards Act of 1938; or
(ii) the income official poverty line (as defined by the Office of
Management and Budget, and revised annually in accordance with section
673(2) of the Community Services Block Grant Act) applicable to a
family of two.
(6) For a deferment granted under paragraph (e)(4) of this section,
the institution shall require the borrower to submit at least the
following documentation to qualify for an initial period of deferment--
(i) Evidence showing the amount of the borrower's most recent total
monthly gross income, as defined in section 674.2; and
(ii) Evidence that would enable the institution to determine the
amount of the monthly payments that would have been owed by the
borrower during the deferment period to other entities for federal
postsecondary education loans in accordance with paragraph (e)(8) of
this section.
(7) To qualify for a subsequent period of deferment that begins
less than one year after the end of a period of deferment under
paragraphs (e) (3) or (4) of this section, the institution shall
require the borrower to submit a copy of the borrower's federal income
tax return if the borrower filed a tax return within eight months prior
to the date the deferment is requested.
(8) For purposes of paragraphs (e)(3) and (e)(5) of this section, a
borrower is considered to be working full-time if the borrower is
expected to be employed for at least three consecutive months at 30
hours per week.
(9) In determining a borrower's eligibility for an economic
hardship deferment under paragraph (e) of this section, the institution
shall count only the monthly payment amount (or a proportional share if
the payments are due less frequently than monthly) that would have been
owed on a federal postsecondary education loan if the loan had been
scheduled to be repaid in 10 years from the date the borrower entered
repayment, regardless of the length of the borrower's actual repayment
schedule or the actual monthly payment amount (if any) that would be
owed during the period that the borrower requested an economic hardship
deferment.
(f) To qualify for a deferment for study as part of a graduate
fellowship program pursuant to paragraph (b)(1)(ii) of this section, a
borrower must provide the institution certification that the borrower
has been accepted for or is engaged in full-time study in the
institution's graduate fellowship program.
(g) To qualify for a deferment for study in a rehabilitation
training program, pursuant to paragraph (b)(1)(iv) of this section, the
borrower must be receiving, or be scheduled to receive, services under
a program designed to rehabilitate disabled individuals and must
provide the institution with the following documentation:
(1) A certification from the rehabilitation agency that the
borrower is either receiving or scheduled to receive rehabilitation
training services from the agency.
(2) A certification from the rehabilitation agency that the
rehabilitation program--
(i) Is licensed, approved, certified, or otherwise recognized by
one of the following entities as providing rehabilitation training to
disabled individuals--
(A) A State agency with responsibility for vocational
rehabilitation programs;
(B) A State agency with responsibility for drug abuse treatment
programs;
(C) A State agency with responsibility for mental health services
programs;
(D) A State agency with responsibility for alcohol abuse treatment
programs; or
(E) The Department of Veterans Affairs; and
(ii) Provides or will provide the borrower with rehabilitation
services under a written plan that--
(A) Is individualized to meet the borrower's needs;
(B) Specifies the date on which the services to the borrower are
expected to end; and
(C) Is structured in a way that requires a substantial commitment
by the borrower to his or her rehabilitation. The Secretary considers a
substantial commitment by the borrower to be a commitment of time and
effort that would normally prevent an individual from engaging in full-
time employment either because of the number of hours that must be
devoted to rehabilitation or because of the nature of the
rehabilitation.
(h) The institution may not include the deferment periods described
in paragraphs (b), (c), (d), (e), (f) and (g) of this section when
determining the 10-year repayment period.
(i) The borrower need not pay principal and interest does not
accrue until six months after completion of any period during which the
borrower is in deferment under paragraphs (b), (c), (d), (e), (f), and
(g) of this section.
(Authority: 20 U.S.C. 1087dd)
19. Redesignated Sec. 674.35 is amended by revising the heading of
the section; by revising paragraph (a); by adding the word ``Federal''
before the words ``Perkins Loan'' in paragraph (b)(2); by revising
paragraph (c)(5)(iii); and by republishing the OMB control number to
read as follows:
Sec. 674.35 Deferment of repayment--Federal Perkins loans made before
July 1, 1993.
(a) The borrower may defer repayment on a Federal Perkins Loan made
before July 1, 1993, during the periods described in this section.
* * * * *
(c) * * *
(5) * * *
(iii) The borrower does not receive compensation that exceeds the
rate prescribed under section 6 of the Fair Labor Standards Act of 1938
(the Federal minimum wage), except that the tax-exempt organization may
provide health, retirement, and other fringe benefits to the volunteer
that are substantially equivalent to the benefits offered to other
employees of the organization.
(Approved by the Office of Management and Budget under control
number 1940-0535)
* * * * *
20. Redesignated Sec. 674.36 is amended by revising the heading of
the section; by revising paragraph (a); by adding the word ``Federal''
before the words ``Perkins Loan program'' in paragraph (b)(2); and by
revising paragraph (c)(4)(iii) to read as follows:
Sec. 674.36 Deferment of repayment--Direct loans made on or after
October 1, 1980, but before July 1, 1993.
(a) The borrower may defer repayment on a Direct Loan made on or
after October 1, 1980, but before July 1, 1993, during the periods
described in this section.
* * * * *
(c) * * *
(4) * * *
(iii) The borrower does not receive compensation that exceeds the
rate prescribed under section 6 of the Fair Labor Standards Act of 1938
(the Federal minimum wage), except that the tax-exempt organization may
provide health, retirement, and other fringe benefits to the volunteer
that are substantially equivalent to the benefits offered to other
employees of the organization.
* * * * *
21. Redesignated Sec. 674.38 is amended by adding a new paragraph
(d) to read as follows:
Sec. 674.38 Deferment procedures.
* * * * *
(d) The institution shall determine the continued eligibility of a
borrower for a deferment at least annually.
22. Redesignated Sec. 674.39 is amended by adding the word
``Federal'' before the word ``Perkins'' in paragraph (b) and by
revising the heading of the section to read as follows:
Sec. 674.39 Postponement of loan repayments in anticipation of
cancellation--loans made before July 1, 1993.
* * * * *
Sec. 674.41 [Amended]
23. Section 674.41 is amended by removing the words ``or any
endorser'' after the words ``the borrower'' in paragraph (a)(2); by
removing paragraph (b); and by redesignating paragraph (c) as (b).
24. Section 674.42 is amended by revising paragraph (a)(1)(ii); by
redesignating paragraphs (a)(3) and (a)(4) as paragraphs (a)(4) and
(a)(5) respectively; by adding a new paragraph (a)(3); and by
republishing the OMB control number to read as follows:
Sec. 674.42 Contact with the borrower.
(a) * * *
(1) * * *
(ii) The borrower's rights to forbearance, deferment, cancellation,
or postponement of repayment and the procedures for filing for those
benefits.
* * * * *
(3) The institution shall require the borrower to provide to the
institution, during the exit interview--
(i) The borrower's expected permanent address after leaving the
institution, regardless of the reason for leaving;
(ii) The name and address of the borrower's expected employer after
leaving the institution;
(iii) The name and address of the borrower's next of kin; and
(iv) Any corrections in the institution's records relating to the
borrower's name, address, social security number, personal references,
and driver's license number.
* * * * *
(Approved under the Office of Management and Budget under control
number 1840-0581)
25. Section 674.43 is amended by adding a new paragraph (a)(3) to
read as follows:
Sec. 674.43 Billing procedures.
(a) * * *
(3) Notwithstanding paragraph (a)(2)(ii) of this section, if the
borrower elects to make payment by means of an electronic transfer of
funds from the borrower's bank account, the institution shall send to
the borrower an annual statement of account.
* * * * *
26. Section 674.44 is amended by revising paragraph (a)(3) and by
revising paragraph (d)(1) to read as follows:
Sec. 674.44 Address searches.
(a) * * *
(3) If, after following the procedures in paragraph (a) of this
section, an institution is still unable to locate a borrower, the
institution may use the Internal Revenue Service skip-tracing service.
* * * * *
(d) * * *
(1) The loan is recovered through litigation;
* * * * *
27. Section 674.45 is amended by revising paragraph (a)(1); by
revising paragraph (b); by revising paragraph (d); by adding a new
paragraph (g); and by republishing the OMB control number to read as
follows:
Sec. 674.45 Collection procedures.
(a) * * *
(1) Report the defaulted account to any one national credit bureau;
and
* * * * *
(b) An institution shall report to the same national credit bureau
to which it originally reported the default, according to the reporting
procedures of the national credit bureau, any changes in account status
and shall respond within one month of its receipt to any inquiry from
any credit bureau regarding the information reported on the loan
amount.
* * * * *
(d) If the institution is unable to place the loan in repayment as
described in paragraph (c)(1) of this section after following the
procedures in paragraphs (a), (b), and (c) of this section, the
institution shall continue to make annual attempts to collect from the
borrower until--
(1) The loan is recovered through litigation;
(2) The account is assigned to the United States; or
(3) The account is written off under Sec. 674.47(g).
* * * * *
(g) Preemption of State law. The provisions of this section preempt
any State law, including State statutes, regulations, or rules, that
would conflict with or hinder satisfaction of the requirements or
frustrate the purposes of this section.
* * * * *
(Approved by the Office of Management and Budget under control
number 1840-0581)
28. Section 674.46 is amended by revising paragraph (a)(1)
introductory text to read as follows:
Sec. 674.46 Litigation procedures.
(a)(1) If the collection efforts described in Sec. 674.45 do not
result in the repayment of a loan, the institution shall determine at
least annually whether--
* * * * *
29. Section 674.47(g) is amended by revising paragraph (g) to read
as follows:
Sec. 674.47 Costs Chargeable to the Fund.
* * * * *
(g) Write-offs of defaulted accounts. (1) An institution may write
off a defaulted account with a balance of less than $25.00, including
outstanding principal, accrued interest, collection costs, and late
charges.
(2) An institution that writes off a defaulted account under this
paragraph may no longer include the amount of the account as an asset
of the Fund.
30. Section 674.48 is amended by revising paragraph (c)(4)(iii); by
revising paragraph (d)(1)(iii); and by republishing the OMB control
number to read as follows:
Sec. 674.48 Use of contractors to perform billing and collection or
other program activities.
* * * * *
(c) * * *
(4) * * *
(iii) Deposits those funds received directly from the borrower
immediately in an institutional trust account that must be an interest-
bearing account if those funds will be held for longer than 45 days;
and
* * * * *
(d) * * *
(1) * * *
(iii) Deposits those funds received directly from the borrower
immediately in an institutional trust account that must be an interest-
bearing account if those funds will be held for longer than 45 days,
after deducting its fees if authorized to do so by the institution; and
* * * * *
(Approved by the Office of Management and Budget under control
number 1840-0581)
31. Section 674.49 is amended by revising paragraph (a); by
removing paragraph (g); by redesignating paragraph (h) as paragraph
(g); by removing redesignated paragraph (g)(3); by revising
redesignated paragraph (g)(1) introductory text; and by republishing
the OMB control number to read as follows:
Sec. 674.49 Bankruptcy of borrower.
(a) General. If an institution receives notice that a borrower has
filed a petition for relief in bankruptcy, usually by receiving a
notice of meeting of creditors, the institution and its agents shall
immediately suspend any collection efforts outside the bankruptcy
proceeding against the borrower.
* * * * *
(g) Termination of collection and write-off. (1) An institution
shall terminate all collection action and write off a loan if it
receives--
* * * * *
(Approved by the Office of Management and Budget under control
number 1840-0581)
32. Section 674.50 is amended by revising paragraph (c)(10), and
the OMB control number to read as follows:
Sec. 674.50 Assignment of defaulted loans to the United States.
* * * * *
(c) * * *
(10) Documentation that the institution has complied with all of
the due diligence requirements described in paragraph (a)(1) of this
section if the institution has a cohort default rate that is equal to
or greater than 20 percent as of June 30 of the second year preceding
the submission period.
* * * * *
(Approved by the Office of Management and Budget under control
number 1840-0535)
33. Section 674.51 is amended by revising paragraph (c); by
redesignating paragraphs (g), (h), and (i) as paragraphs (o), (p), and
(q) respectively; by redesignating paragraph (f) as paragraph (j); by
redesignating paragraphs (d) and (e) as paragraphs (f) and (g)
respectively; by revising redesignated paragraphs (q)(3)(i), (ii),
(iii), and (iv); and by adding new paragraphs (d), (e), (h), (i), (k),
(l), (m), (n), (q)(3)(v) and (r) to read as follows:
Sec. 674.51 Special definitions.
* * * * *
(c) Title I Children: Children of ages 5 through 17 who are counted
under section 1124(c)(1) of the Elementary and Secondary Education Act
of 1965, as amended.
(d) Children and youth with disabilities: Children and youth from
ages 3 through 21, inclusive, who require special education and related
services because they have disabilities as defined in section 602(a)(1)
of the Individuals with Disabilities Education Act.
(e) Early intervention services: Those services defined in section
672(2) of the Individuals with Disabilities Education Act that are
provided to infants and toddlers with disabilities.
* * * * *
(h) High-risk children: Individuals under the age of 21 who are
low-income or at risk of abuse or neglect, have been abused or
neglected, have serious emotional, mental, or behavioral disturbances,
reside in placements outside their homes, or are involved in the
juvenile justice system.
(i) Infants and toddlers with disabilities: Infants and toddlers
from birth to age 2, inclusive, who need early intervention services
for specified reasons, as defined in section 672(1) of the Individuals
with Disabilities Education Act.
* * * * *
(k) Low-income communities: Communities in which there is a high
concentration of children eligible to be counted under title I of the
Elementary and Secondary Education Act of 1965, as amended.
(l) Medical technician: An allied health professional (working in
fields such as therapy, dental hygiene, medical technology, or
nutrition) who is certified, registered, or licensed by the appropriate
State agency in the State in which he or she provides health care
services. An allied health professional is someone who assists,
facilitates, or complements the work of physicians and other
specialists in the health care system.
(m) Nurse: A licensed practical nurse, a registered nurse, or other
individual who is licensed by the appropriate State agency to provide
nursing services.
(n) Qualified professional provider of early intervention services:
A provider of services as defined in section 672(2) of the Individuals
with Disabilities Education Act.
* * * * *
(q) * * *
(3) * * *
(i) Speech and language pathology and audiology;
(ii) Physical therapy;
(iii) Occupational therapy;
(iv) Psychological and counseling services; or
(v) Recreational therapy.
(r) Teaching in a field of expertise: The majority of classes
taught are in the borrower's field of expertise.
* * * * *
34. Section 674.52 is amended by adding a heading to paragraph (b);
by redesignating paragraph (b)(1) as (b)(1)(i); by adding new paragraph
(b)(1)(ii); by adding a heading to paragraph (c); by revising paragraph
(d); and by adding new paragraph (e) to read as follows:
Sec. 674.52 Cancellation procedures.
* * * * *
(b) Part-time employment. (l)(i) * * *
(ii) An institution may refuse a request for cancellation based on
a claim of simultaneous employment as a nurse or medical technician in
two or more facilities if it cannot determine easily from the
documentation supplied by the borrower that the combined employment is
full-time. However, it shall grant the cancellation if one facility
official certifies that a nurse or medical technician worked full-time
for a full year.
(c) Cancellation of a defaulted loan. (1) * * *
* * * * *
(d) Concurrent deferment period. (1) For loans made prior to July
1, 1993, the Secretary considers a borrower's loan deferment under
Secs. 674.35, 674.36, and 674.37 to run concurrently with any period
for which a cancellation for military, Peace Corps, or ACTION program
service is granted.
(2) For loans made on or after July 1, 1993, the Secretary
considers a borrower's loan deferment under Sec. 674.34 to run
concurrently with any period for which a cancellation under
Secs. 674.53, 674.56, or 674.57 is granted.
(e) National community service. No borrower who has received a
benefit under subtitle D of title I of the National and Community
Service Act of 1990 may receive a cancellation under this subpart.
Secs. 674.53 and 674.54 [Redesignated as Secs. 674.54 and 674.55]
Secs. 674.55 through 674.60 [Redesignated as Secs. 674.58 through
674.63]
35. Sections 674.55 through 674.60 are redesignated as Secs. 674.58
through 674.63 respectively; Secs. 674.53 and 674.54 are redesignated
as Secs. 674.54 and 674.55 respectively; and a new Sec. 674.53 is added
to read as follows:
Sec. 674.53 Teacher cancellation--Federal Perkins loans and Direct
loans made on or after July 23, 1992.
(a) Cancellation for full-time teaching in an elementary or
secondary school serving low-income students. (1) An institution shall
cancel up to 100 percent of the outstanding loan balance on a Federal
Perkins loan or a Direct loan made on or after July 23, 1992, for full-
time teaching in a public or other nonprofit elementary or secondary
school that--
(i) Is in a school district that qualified for funds, in that year,
under title I of the Elementary and Secondary Education Act of 1965, as
amended; and
(ii) Has been selected by the Secretary based on a determination
that more than 30 percent of the school's total enrollment is made up
of title I children.
(2) For each academic year, the Secretary notifies participating
institutions of the schools selected under paragraph (a) of this
section.
(3) (i) The Secretary selects schools under paragraph (a)(1) of
this section based on a ranking by the State education agency.
(ii) The State education agency shall base its ranking of the
schools on objective standards and methods. These standards must take
into account the numbers and percentages of title I children attending
those schools.
(iii) For each academic year, the Secretary notifies participating
institutions of the schools selected under paragraph (a) of this
section.
(4) The Secretary considers all elementary and secondary schools
operated by the Bureau of Indian Affairs (BIA) or operated on Indian
reservations by Indian tribal groups under contract with BIA to qualify
as schools serving low-income students.
(5) A teacher, who performs service in a school that meets the
requirement of paragraph (a)(1) of this section in any year and in a
subsequent year fails to meet these requirements, may continue to teach
in that school and will be eligible for loan cancellation pursuant to
paragraph (a) of this section in subsequent years.
(6) If a list of eligible institutions in which a teacher performs
services under paragraph (a)(1) of this section is not available before
May 1 of any year, the Secretary may use the list for the year
preceding the year for which the determination is made to make the
service determination.
(b) Cancellation for full-time teaching in special education. An
institution shall cancel up to 100 percent of the outstanding balance
on a borrower's Federal Perkins loan or Direct loan made on or after
July 23, 1992, for the borrower's service as a full-time special
education teacher of infants, toddlers, children, or youth with
disabilities, in a public or other nonprofit elementary or secondary
school system.
(c) Cancellation for full-time teaching in fields of expertise. An
institution shall cancel up to 100 percent of the outstanding balance
on a borrower's Federal Perkins loan or Direct loan made on or after
July 23, 1992, for full-time teaching in mathematics, science, foreign
languages, bilingual education, or any other field of expertise where
the State education agency determines that there is a shortage of
qualified teachers.
(d) Cancellation rates. (1) To qualify for cancellation under
paragraph (a), (b), or (c) of this section, a borrower shall teach
full-time for a complete academic year or its equivalent.
(2) Cancellation rates are--
(i) 15 percent of the original principal loan amount plus the
interest on the unpaid balance accruing during the year of qualifying
service, for each of the first and second years of full-time teaching;
(ii) 20 percent of the original principal loan amount, plus the
interest on the unpaid balance accruing during the year of qualifying
service, for each of the third and fourth years of full-time teaching;
and
(iii) 30 percent of the original principal loan amount, plus the
interest on the unpaid balance accruing during the year of qualifying
service, for the fifth year of full-time teaching.
(e) Teaching in a school system. The Secretary considers a borrower
to be teaching in a public or other nonprofit elementary or secondary
school system only if the borrower is directly employed by the school
system.
(f) Teaching children and adults. A borrower who teaches both
adults and children qualifies for cancellation for this service only if
a majority of the students whom the borrower teaches are children.
(Authority: 20 U.S.C 1087ee)
36. Redesignated Sec. 674.54 is amended by revising the heading of
the section; by revising paragraph (a)(1); by removing paragraph
(a)(2); by redesignating paragraphs (a)(3) and (a)(4) as paragraphs
(a)(2) and (a)(3) respectively; by removing the term ``Chapter 1'' and
adding in its place ``title I'' in redesignated paragraph (a)(2); by
adding new paragraphs (a)(4) and (a)(5); by revising paragraph (b)(1);
and by revising the authority citation to read as follows:
Sec. 674.54 Teacher cancellation--Federal Perkins loans and Direct
loans made before July 23, 1992.
(a) Cancellation for full-time teaching in an elementary or
secondary school serving low-income students. (1) An institution shall
cancel up to 100 percent of the outstanding loan balance on a Federal
Perkins loan or a Direct loan made before July 23, 1992, for full-time
teaching in a public or other nonprofit elementary or secondary school
that--
(i) Is in a school district that qualifies for funds, in that year,
under title I of the Elementary and Secondary Education Act of 1965, as
amended; and
(ii) Has been selected by the Secretary based on a determination
that more than 30 percent of the school's total enrollment is made up
of title I children.
* * * * *
(4) A teacher, who performs service in a school that meets the
requirement of paragraph (a)(1) of this section in any year and in a
subsequent year fails to meet these requirements, may continue to teach
in that school and will be eligible for loan cancellation pursuant to
paragraph (a) of this section, in subsequent years.
(5) If a list of eligible institutions in which a teacher performs
services under paragraph (a)(1) of this section is not available before
May 1 of any year, the Secretary may use the list for the year
preceding the year for which the determination is made to make the
service determination.
(b) Cancellation for full-time teaching of the handicapped. (1) An
institution shall cancel up to 100 percent of the outstanding balance
on a borrower's Federal Perkins loan or Direct loan made before July
23, 1992, for full-time teaching of handicapped children in a public or
other nonprofit elementary or secondary school system.
* * * * *
(Authority: 20 U.S.C. 1087ee)
37. Redesignated section 674.55 is amended by revising paragraph
(b)(1)(i); by removing paragraph (b)(2); by redesignating paragraphs
(b)(3), (b)(4), (b)(5), and (b)(6) as paragraphs (b)(2), (b)(3),
(b)(4), and (b)(5), respectively; and by removing the term ``Chapter
1'' and adding in its place ``title I'' in redesignated paragraph
(b)(2)(ii) to read as follows:
(b) * * *
(1) * * *
(i) Is in a school district that qualifies for funds in that year
under title I of the Elementary and Secondary Education Act of 1965, as
amended; and
* * * * *
38. A new Sec. 674.56 is added to read as follows:
Sec. 674.56 Employment cancellation--Federal Perkins loans and Direct
loans made on or after July 23, 1992.
(a) Cancellation for full-time employment as a nurse or medical
technician. An institution shall cancel up to 100 percent of the
outstanding balance on a borrower's Federal Perkins or Direct loan made
on or after July 23, 1992, for full-time employment as a nurse or
medical technician providing health care services.
(b) Cancellation for full-time employment in a public or private
nonprofit child or family service agency. An institution shall cancel
up to 100 percent of the outstanding balance on a borrower's Federal
Perkins loan or Direct loan made on or after July 23, 1992, for service
as a full-time employee in a public or private nonprofit child or
family service agency who is providing, or supervising the provision
of, services to high-risk children who are from low-income communities
and the families of such children.
(c) Cancellation for service as a qualified professional provider
of early intervention services. An institution shall cancel up to 100
percent of the outstanding balance on a borrower's Federal Perkins loan
or Direct loan made on or after July 23, 1992, for the borrower's
service as a full-time qualified professional provider of early
intervention services in a public or other nonprofit program under
public supervision by the lead agency as authorized in section
676(b)(9) of the Individuals With Disabilities Education Act.
(d) Cancellation rates. (1) To qualify for cancellation under
paragraphs (a), (b), and (c) of this section, a borrower must work
full-time for 12 consecutive months.
(2) Cancellation rates are--
(i) 15 percent of the original principal loan amount plus the
interest on the unpaid balance accruing during the year of qualifying
service, for each of the first and second years of full-time
employment;
(ii) 20 percent of the original principal loan amount plus the
interest on the unpaid balance accruing during the year of qualifying
service, for each of the third and fourth years of full-time
employment; and
(iii) 30 percent of the original principal loan amount plus the
interest on the unpaid balance accruing during the year of qualifying
service, for the fifth year of full-time employment.
(Authority: 20 U.S.C. 1087ee)
39. A new Sec. 674.57 is added to read as follows:
Sec. 674.57 Cancellation for law enforcement or corrections officer
service--Federal Perkins loans and Direct loans for loans made on or
after November 29, 1990.
(a)(1) An institution shall cancel up to 100 percent of the
outstanding balance on a borrower's Federal Perkins loan or Direct loan
made on or after November 29, 1990, for full-time service as a law
enforcement or corrections officer for an eligible employing agency.
(2) An eligible employing agency is an agency--
(i) That is a local, State, or Federal law enforcement or
corrections agency;
(ii) That is public-funded; and
(iii) The principal activities of which pertain to crime
prevention, control, or reduction or the enforcement of the criminal
law.
(3) Agencies that are primarily responsible for enforcement of
civil, regulatory, or administrative laws are ineligible employing
agencies.
(4) A borrower qualifies for cancellation under this section only
if the borrower is--
(i) A sworn law enforcement or corrections officer; or
(ii) A person whose principal responsibilities are unique to the
criminal justice system.
(5) To qualify for a cancellation under this section, the
borrower's service must be essential in the performance of the eligible
employing agency's primary mission.
(6) The agency must be able to document the employee's functions.
(7) A borrower whose principal official responsibilities are
administrative or supportive does not qualify for cancellation under
this section.
(b)(1) To qualify for cancellation under paragraph (a) of this
section, a borrower shall work full-time for 12 consecutive months.
(2) Cancellation rates are--
(i) 15 percent of the original principal loan amount plus the
interest on the unpaid balance accruing during the year of qualifying
service, for each of the first and second years of full-time
employment;
(ii) 20 percent of the original principal loan amount plus the
interest on the unpaid balance accruing during the year of qualifying
service, for each of the third and fourth years of full-time
employment; and
(iii) 30 percent of the original principal loan amount plus the
interest on the unpaid balance accruing during the year of qualifying
service, for the fifth year of full-time employment.
(Authority: 20 U.S.C. 465)
40. Redesignated Sec. 674.58 is amended by adding the word
``Federal'' before the words ``Perkins loan'' in paragraph (a)
introductory text.
41. Redesignated Sec. 674.61 is amended by revising paragraph
(b)(2) to read as follows:
Sec. 674.61 Cancellation for death or disability.
* * * * *
(b) * * *
(2) Permanent and total disability is the inability to work and
earn money or to attend an institution because of an impairment that is
expected to continue indefinitely or result in death.
* * * * *
42. Redesignated Sec. 674.63 is amended by revising paragraphs
(a)(1) and (b) to read as follows:
Sec. 674.63 Reimbursement to institutions for loan cancellation.
(a) Reimbursement for Defense loan cancellation. (1) The Secretary
pays an institution each award year its share of the principal and
interest canceled under Secs. 674.55 and 674.59(a).
* * * * *
(b) Reimbursement for Direct and Federal Perkins loan cancellation.
The Secretary pays an institution each award year the principal and
interest canceled from its student loan fund under Secs. 674.53,
674.54, 674.56, 674.57, 674.58, 674.59(b), and 674.60. The institution
shall deposit this amount in its Fund.
* * * * *
Appendices A through D [Removed]
43. Appendix A to Part 674--Promissory Note--Perkins Loan is
removed.
44. Appendix B to Part 674--Promissory Note--Direct Loan is
removed.
45. Appendix C to Part 674--Promissory Note--Perkins Loan--Less
Than Half-Time Student Borrower is removed.
46. Appendix D to Part 674--Promissory Note--Direct Loan--Less Than
Half-Time Student Borrower is removed.
47. In 34 CFR part 674 add the word ``Federal'' before the word
``Perkins'' in the following places:
Sec. 674.1 [Amended]
(a) Section 674.1 (a) and (b)(1).
Sec. 674.2 [Amended]
(b) Section 674.2(a) (two times) and in the definitions of
``Fund'', ``Initial grace period'', and ``Student loan'' in paragraph
(b).
Sec. 674.3 [Amended]
(c) Section 674.3 (a) and (b).
Sec. 674.4 [Amended]
(d) Section 674.4(a).
Sec. 674.8 [Amended]
(e) Section 674.8 introductory text.
Sec. 674.9 [Amended]
(f) Section 674.9 introductory text.
Sec. 674.14 [Amended]
(g) Section 674.14 (a)(1), (a)(2) introductory text, (b)(1)(x).
Sec. 674.17 [Amended]
(h) Section 674.17 (a) and (b)(1) introductory text.
Sec. 674.18 [Amended]
(i) Section 674.18 (a), (b)(1) (two times), (b)(2)(i), (b)(3), and
(b)(4).
Sec. 674.19 [Amended]
(j) Section 674.19 (a)(1), (a)(3)(i), (b) heading, (b)(1)
introductory text, (b)(1)(ii), (b)(3), (b)(4) introductory text,
(d)(4), and (e)(4)(iv).
Sec. 674.20 [Amended]
(k) Section 674.20(b).
Sec. 674.31 [Amended]
(l) Section 674.31 (b)(2)(i)(B), (b)(5)(ii)(A), and (b)(7)(ii).
Sec. 674.42 [Amended]
(m) Section 674.42(b)(1)(i).
Sec. 674.46 [Amended]
(n) Section 674.46(a)(1)(i).
Sec. 674.2 [Amended]
48. In Sec. 674.2(a), remove the term ``College Work-Study (CWS)
Program'' and add the term ``Federal Work-Study (FWS) Program'' in
alphabetical order.
49. In 34 CFR part 674, remove the term ``CWS'' and add, in its
place, the term ``FWS'' in the following places:
Sec. 674.18 [Amended]
(a) Section 674.18 (b)(2)(i), (b)(3), and (b)(4).
Sec. 674.19 [Amended]
(b) Section 674.19(d)(4).
Sec. 674.2 [Amended]
50. In Sec. 674.2(a), remove the term ``Supplemental Educational
Opportunity Grant (SEOG) Program'' and add the term ``Federal
Supplemental Educational Opportunity Grant (FSEOG) Program'' in
alphabetical order.
51. In 34 CFR part 674, remove the term ``SEOG'' and add, in its
place, the term ``FSEOG'' in the following places:
Sec. 674.18 [Amended]
(a) Section 674.18 (b)(2)(i) and (b)(4).
Sec. 674.19 [Amended]
(b) Section 674.19(d)(4).
Sec. 674.14 [Amended]
52. In 34 CFR part 674, remove the term ``SEOGs'' and add, in its
place, the term ``FSEOGs'' in Sec. 674.14(b)(1)(iv).
Sec. 674.2 [Amended]
53. In Sec. 674.2(a), remove the term ``Guaranteed Student Loan
(GSL) Program'' and add the term ``Federal Family Education Loan (FFEL)
programs'' in alphabetical order.
Sec. 674.2 [Amended]
54. In Sec. 674.2(a), remove the term ``Pell Grant'' and add the
term ``Federal Pell Grant'' in alphabetical order.
55. In 34 CFR part 674, add the term ``Federal'' before the term
``Pell Grant'' in the following places:
Sec. 674.9 [Amended]
(a) Section 674.9 (d)(1) and (d)(2).
Sec. 674.14 [Amended]
(b) Section 674.14(b)(1)(i) (two times).
Sec. 674.15 [Amended]
(c) Section 674.15(c)(2).
Sec. 674.2 [Amended]
56. In Sec. 674.2(a), remove the term ``Income Contingent Loan
(ICL) Program''.
Sec. 674.2 [Amended]
57. In Sec. 674.2(a), remove the terms ``PLUS Program'' and ``SLS
Program'' and add the terms ``Federal PLUS Program'' and ``Federal SLS
Program'' in alphabetical order.
Sec. 674.14 [Amended]
58. In Sec. 674.14(b)(3), add the term ``Federal'' before the term
``Supplemental Loan for Students (SLS)''.
PART 675--FEDERAL WORK-STUDY PROGRAMS
1. The authority citation for part 675 continues to read as
follows:
Authority: 42 U.S.C. 2571-2756b, unless otherwise noted.
2. The title of part 675 is revised to read as follows:
3. The heading for subpart A is amended by removing the term
``College Work-Study Program'' and adding, in its place, the term
``Federal Work-Study Program''.
4. Section 675.1 is amended by revising paragraph (a) to read as
follows:
Sec. 675.1 Purpose and identification of common provisions.
(a) The Federal Work-Study (FWS) program provides part-time
employment to students attending institutions of higher education who
need the earnings to help meet their costs of postsecondary education
and encourages students receiving FWS assistance to participate in
community service activities.
* * * * *
5. Section 675.2, paragraph (b) is amended by revising the
definitions of Community services and Undergraduate student to read as
follows:
Sec. 675.2 Definitions.
* * * * *
(b) * * *
Community services: Services which are identified by an institution
of higher education, through formal or informal consultation with local
nonprofit, governmental, and community-based organizations, as designed
to improve the quality of life for community residents, particularly
low-income individuals, or to solve particular problems related to
their needs. These services include--
(1) Such fields as health care, child care, literacy training,
education (including tutorial services), welfare, social services,
transportation, housing and neighborhood improvement, public safety,
crime prevention and control, recreation, rural development, and
community improvement;
(2) Work in service opportunities or youth corps as defined in
section 101 of the National and Community Service Act of 1990, and
service in the agencies, institutions and activities designated in
section 124(a) of that Act;
(3) Support services to students (other than an institution's own
students) with disabilities; and
(4) Activities in which a student serves as a mentor for such
purposes as--
(i) Tutoring;
(ii) Supporting educational and recreational activities; and
(iii) Counseling, including career counseling.
* * * * *
Undergraduate student: A student enrolled at an institution of
higher education who is in an undergraduate course of study which
usually does not exceed four academic years, or is enrolled in a four
to five academic year program designed to lead to a first degree. A
student enrolled in a program of any other length is considered an
undergraduate student for only the first four academic years of that
program.
6. Section 675.4 is amended by revising the introductory text of
paragraph (d) and adding new paragraph (e) to read as follows:
Sec. 675.4 Allocation and reallocation.
* * * * *
(d) Authority to expend funds. Except as specifically provided in
Sec. 675.18, paragraphs (c), (d), and (g), an institution may not use
funds allocated or reallocated for an award year--
* * * * *
(e) Unexpended funds. (1) If an institution returns more than 10
percent of its allocation for an award year, the Secretary will reduce
the institution's allocation for the second succeeding award year by
the dollar amount returned.
(2) The Secretary may waive the provision of paragraph (e)(1) of
this section for a specific institution if the Secretary finds that
enforcement would be contrary to the interests of the program.
(3) The Secretary considers enforcement of paragraph (e)(1) of this
section to be contrary to the interest of the program only if the
institution returns more than 10 percent of its allocation due to
circumstances beyond the institution's control that are not expected to
recur.
7. Section 675.8 is amended by removing the word ``and'' after
paragraph (d); by removing the period after paragraph (e) and adding,
in its place, a semicolon; and adding new paragraphs (f) and (g) to
read as follows:
Sec. 675.8 Program participation agreement.
* * * * *
(f) Assure that employment under this part may be used to support
programs for supportive services to students with disabilities; and
(g) Inform all eligible students of the opportunity to perform
community services and consult with local nonprofit, governmental, and
community-based organizations to identify those opportunities.
* * * * *
8. Section 675.10 is amended by revising the heading of the
section; by revising paragraph (c); and by revising the OMB control
number to read as follows:
Sec. 675.10 Selection of students for FWS employment.
* * * * *
(c) Part-time and independent students. If an institution's
allocation of FWS funds is directly or indirectly based in part on the
financial need demonstrated by students attending the institution as
less-than-full-time or independent students, and if the total financial
need of those students exceeds 5 percent of the total financial need of
all students at the institution, the institution shall offer to those
students at least 5 percent of its allocation under this part.
* * * * *
(Approved by the Office of Management and Budget under control
number 1840-0535)
9. Section 675.14 is amended by removing the words ``Guaranteed
Students Loans'' and adding, in its place, the words ``Federal Family
Education Loan'' in paragraph (b)(1)(ii); by removing the words ``and
need-based ICLs'' after the words ``Direct Loans'' in paragraph
(b)(1)(x); by adding the words ``or Federal'' before the word ``PLUS'',
by removing the comma after the words ``PLUS loan'', and by removing
the words ``or non-need-based ICL'' before the word ``as'' in paragraph
(b)(3); by removing the dollar figure ``$200'' and adding, in its
place, the dollar figure ``$300'' in paragraphs (c) introductory text,
(c)(1), and (c)(2); and by revising paragraph (d)(2) to read as
follows:
Sec. 675.14 Overaward.
* * * * *
(d) * * *
(2) Notwithstanding the provisions of paragraph (d)(1) of this
section, an institution may provide additional FWS funding to a student
whose need has been met until that student's cumulative earnings from
all need-based employment occurring subsequent to the time his or her
financial need has been met exceed $300.
* * * * *
10. Section 675.18 is amended by redesignating paragraphs (a)(3)
and (a)(4) as paragraphs (a)(4) and (a)(5) respectively; by removing
paragraph (f)(4); by adding a new paragraph (a)(3); by revising
paragraphs (b)(3), (b)(5), and (f)(1); and by adding new paragraphs (g)
and (h) to read as follows:
Sec. 675.18 Use of funds.
(a) * * *
(3) Meeting the cost of a Work-Colleges program under subpart C;
* * * * *
(b) * * *
(3) However, the institution shall not include, when calculating
the allowance in paragraph (b)(1) of this section, the amount of loans
made under the Federal Perkins Loan program it assigns to the Secretary
under section 463(a)(6) of the HEA.
* * * * *
(5) An institution may use up to 10 percent of the allowance in
paragraph (b) of this section, that is attributable to the
institution's expenditures under the FWS program, to pay the
administrative costs of conducting its program of community service.
These costs may include the costs of--
(i) Developing mechanisms to assure the academic quality of a
student's experience;
(ii) Assuring student access to educational resources, expertise,
and supervision necessary to achieve community service objectives; and
(iii) Collaborating with public and private nonprofit agencies and
programs assisted under the National and Community Service Act of 1990,
in the planning, development, and administration of these programs.
* * * * *
(f) Transfer funds to FSEOG. (1) Beginning with the 1993-94 award
year, an institution may transfer up to 25 percent of the sum of its
initial and supplemental FWS allocations for an award year to its FSEOG
program.
* * * * *
(g) Carry back funds for summer employment. An institution may
carry back and expend in the previous award year any portion of its
initial and supplemental FWS allocations for the current award year to
pay student wages earned on or after May 15 of the previous award year
but prior to the beginning of the current award year.
(h) Community service. (1) For the 1994-95 award year and
subsequent award years, an institution shall use at least 5 percent of
the sum of its initial and supplemental FWS allocations for an award
year to compensate students employed in community service activities.
(2) An institution may request in writing from the Secretary a
waiver of the requirement in paragraph (h)(1) of this section. The
Secretary approves a waiver only if the Secretary determines that an
institution has demonstrated that enforcing the requirement in
paragraph (h)(1) of this section would cause a hardship for students at
the institution.
11. Section 675.21 is amended by revising paragraph (b) to read as
follows:
Sec. 675.21 Institutional employment.
* * * * *
(b) A proprietary institution may employ a student to work for the
institution, but only in jobs that--
(1) Are in community services as defined in Sec. 675.2; or
(2) Are on campus and that--
(i) Involve the provision of student services as defined in
Sec. 675.2
(ii) To the maximum extent possible, complement and reinforce the
educational program or vocational goals of the student; and
(iii) Do not involve the solicitation of potential students to
enroll at the proprietary institution.
12. Section 675.26 is amended by revising paragraphs (a)(1), (2),
and (3) to read as follows:
Sec. 675.26 FWS Federal share limitations.
(a)(1) The Federal share of FWS compensation paid to a student
employed other than by a private for-profit organization, as described
in Sec. 675.23, may not exceed 75 percent for the 1993-94 award year
and subsequent award years unless the Secretary approves a higher share
under paragraph (d) of this section.
(2) The Federal share of the compensation paid to a student
employed by a private for-profit organization may not exceed 50
percent.
(3) An institution may not use FWS funds to pay a student after he
or she has, in addition to other resources, earned $300 or more over
his or her financial need.
* * * * *
Sec. 675.28 [Removed]
13. Section 675.28 is removed.
14. The heading for subpart B is amended by removing the ``s'' from
the word ``Programs''.
15. Section 675.31 is revised to read as follows:
Sec. 675.31 Purpose.
The purpose of the Job Location and Development program is to
expand off-campus job opportunities for students who are enrolled in
eligible institutions of higher education and want jobs, regardless of
their financial need, and to encourage students to participate in
community service activities.
(Authority: 42 U.S.C. 2756)
16. Section 675.32 is revised to read as follows:
Sec. 675.32 Program description.
An institution may expend up to the lesser of $50,000 or 10 percent
of its FWS allocation and reallocation for an award year to establish
or expand a program under which the institution, separately or in
combination with other eligible institutions, locates and develops
jobs, including community service jobs, for currently enrolled
students.
(Authority: 42 U.S.C. 2756)
17. Section 675.34 is amended by revising the heading of the
section; by revising paragraph (a); by revising paragraph (c); and by
republishing the OMB control number to read as follows:
Sec. 675.34 Multi-institutional job location and development programs.
(a) An institution participating in the FWS program may enter into
a written agreement to establish and operate job location programs for
its students with other participating institutions.
* * * * *
(c) Each institution shall retain responsibility for the proper
disbursement of the Federal funds it contributes under an agreement
with other eligible institutions.
* * * * *
(Approved by the Office of Management and Budget under control
number 1840-0535)
18. Section 675.35 is amended by adding the word ``in'' before the
word ``accordance'' in paragraph (b)(1); by revising paragraphs
(b)(3)(i) and (b)(3)(v); and by republishing the OMB control number to
read as follows:
Sec. 675.35 Agreement.
* * * * *
(b) * * *
(3) * * *
(i) The institution will not use program funds to locate and
develop jobs at an eligible institution;
* * * * *
(v) If the institution uses Federal funds to contract with another
institution, suitable performance standards will be part of that
contract.
* * * * *
(Approved by the Office of Management and Budget under control
number 1840-0535)
19. A new subpart C is added to part 675 to read as follows:
* * * * *
Subpart C--Work-Colleges Program
Sec.
675.41 Special definitions.
675.42 Allocation and reallocation.
675.43 Purpose.
675.44 Program description.
675.45 Allowable costs, Federal share, and institutional share.
675.46 Unallowable costs.
675.47 Multi-institutional work-colleges arrangements.
675.48 Agreement.
675.49 Procedures and records.
675.50 Termination and suspension.
* * * * *
Subpart C--Work-Colleges Program
Sec. 675.41 Special definitions.
The following definitions apply to this subpart:
(a) Work-college: The term ``work-college'' means an eligible
institution that--
(1) Is a public or private nonprofit institution with a commitment
to community service;
(2) Has operated a comprehensive work-learning program for at least
two years;
(3) Requires--
(i) All resident students who reside on campus to participate in a
comprehensive work-learning program; and
(ii) The provision of services as an integral part of the
institution's educational program and as part of the institution's
educational philosophy; and
(4) Provides students participating in the comprehensive work-
learning program with the opportunity to contribute to their education
and to the welfare of the community as a whole.
(b) Comprehensive student work-learning program: A student work/
service program that--
(1) Is an integral and stated part of the institution's educational
philosophy and program;
(2) Requires participation of all resident students for enrollment,
participation, and graduation;
(3) Includes learning objectives, evaluation, and a record of work
performance as part of the student's college record;
(4) Provides programmatic leadership by college personnel at levels
comparable to traditional academic programs;
(5) Recognizes the educational role of work-learning supervisors;
and
(6) Includes consequences for nonperformance or failure in the
work-learning program similar to the consequences for failure in the
regular academic program.
(Authority: 42 U.S.C. 2756b)
Sec. 675.42 Allocation and reallocation.
The Secretary allocates and reallocates funds based on each
institution's approved request for Federal funds for the Work-Colleges
program as a percent of the total of such approved requests for all
applicant institutions.
(Authority: 42 U.S.C. 2756b)
Sec. 675.43 Purpose.
The purpose of the Work-Colleges program is to recognize,
encourage, and promote the use of comprehensive work-learning programs
as a valuable educational approach when it is an integral part of the
institution's educational program and a part of a financial plan that
decreases reliance on grants and loans and to encourage students to
participate in community service activities.
(Authority: 42 U.S.C. 2756b)
Sec. 675.44 Program description.
(a) An institution that satisfies the definition of ``work-
college'' in Sec. 675.41(a) and wishes to participate in the Work-
Colleges program must apply to the Secretary at the time and in the
manner prescribed by the Secretary.
(b) An institution may expend funds separately, or in combination
with other eligible institutions, to provide work-learning
opportunities for currently enrolled students.
(c) For any given award year, Federal funds allocated and
reallocated for that award year under sections 442 and 462 of the HEA
may be transferred for the purpose of carrying out the Work-Colleges
program to provide flexibility in strengthening the self-help-through-
work element in financial aid packaging.
(Authority: 42 U.S.C. 2756b)
Sec. 675.45 Allowable costs, Federal share, and institutional share.
(a) Allowable costs. An institution participating in the Work-
Colleges program may use its allocated and reallocated program funds to
carry out the following activities:
(1) Support the educational costs of qualified students through
self-help payments or credits provided under the work-learning program
within the limits of part F of title IV of the HEA.
(2) Promote the work-learning-service experience as a tool of
postsecondary education, financial self-help, and community service-
learning opportunities.
(3) Carry out activities in sections 443 or 446 of the HEA.
(4) Administer, develop, and assess comprehensive work-learning
programs including--
(i) Community-based work-learning alternatives that expand
opportunities for community service and career-related work; and
(ii) Alternatives that develop sound citizenship, encourage student
persistence, and make optimum use of assistance under the Work-Colleges
program in education and student development.
(b) Federal share of allowable costs. An institution, in addition
to the funds allocated and reallocated for this program, may use
transferred funds provided under its Federal Perkins Loan or its FWS
program to pay allowable costs.
(c) Institutional share of allowable costs. An institution must
match Federal funds made available for this program on a dollar-for-
dollar basis from non-Federal sources. The institution shall keep
records documenting the amount and source of its share.
(Authority: 42 U.S.C. 2756b)
Sec. 675.46 Unallowable costs.
An institution participating in the Work-Colleges program may not
use its allocated and reallocated program funds and transferred funds
provided under its Federal Perkins Loan or its FWS program to pay costs
related to the purchase, construction, or alteration of physical
facilities or indirect administrative costs.
(Authority: 42 U.S.C. 2756b)
Sec. 675.47 Multi-institutional work-colleges arrangements.
(a) An institution participating in the Work-Colleges program may
enter into a written agreement with another participating institution
to promote the work-learning-service experience.
(b) The agreement described in paragraph (a) of this section must--
(1) Designate the administrator of the program; and
(2) Specify the terms, conditions, and performance standards of the
program.
(c) Each institution shall retain responsibility for the proper
disbursement of the Federal funds it contributes under an agreement
with other eligible institutions.
(Approved by the Office of Management and Budget under control
number 1840-0535)
(Authority: 42 U.S.C. 2756b)
Sec. 675.48 Agreement.
To participate in the Work-Colleges program, an institution shall
enter into an agreement with the Secretary. The agreement provides
that, among other things, the institution shall--
(a) Assure that it will comply with all the appropriate provisions
of the HEA and the appropriate provisions of the regulations;
(b) Assure that it satisfies the definition of ``work-college'' in
Sec. 675.41(a);
(c) Assure that it will match the Federal funds according to the
requirements in Sec. 675.45(c); and
(d) Assure that it will use funds only to carry out the activities
in Sec. 675.45(a).
(Approved by the Office of Management and Budget under control
number 1840-0535)
(Authority: 42 U.S.C. 2756b)
Sec. 675.49 Procedures and records.
In administering a Work-Colleges program under this subpart, an
institution shall comply with the applicable provisions of this part
675.
(Authority: 42 U.S.C. 2756b)
Sec. 675.50 Termination and suspension.
Procedures for termination and suspension under this subpart are
governed by applicable provisions found in 34 CFR part 668, subpart G
of the Student Assistance General Provisions regulations.
(Authority: 42 U.S.C. 2756b)
Sec. 675.4 [Amended]
20. In 34 CFR part 675 remove the term ``College Work-Study''
before the word ``program'' and add, in its place, the term ``FWS'' in
Sec. 675.4(a).
21. In 34 CFR part 675 remove the term ``CWS'' and add, in its
place, the term ``FWS'' in the following places:
Sec. 675.3 [Amended]
(a) Section 675.3(a) and (b).
Sec. 675.4 [Amended]
(b) Section 675.4(d)(1) (two times).
Sec. 675.8 [Amended]
(c) Section 675.8 introductory text, (b), (c), and (e).
Sec. 675.9 [Amended]
(d) Section 675.9 introductory text.
Sec. 675.10 [Amended]
(e) Section 675.10(a).
Sec. 675.14 [Amended]
(f) Section 675.14 (a)(1), (a)(2) introductory text, (a)(2)(i),
(a)(3), (c) introductory text, and (d)(1) (three times).
Sec. 675.15 [Amended]
(g) Section 675.15(a) introductory text.
Sec. 675.16 [Amended]
(h) Section 675.16(a)(3), (a)(4), (b)(1), (b)(2), and (b)(3).
Sec. 675.17 [Amended]
(i) Section 675.17.
Sec. 675.18 [Amended]
(j) Section 675.18(a) introductory text, (a)(1), redesignated
(a)(5), (b)(1), (b)(2)(i), (b)(4), (c)(1) and (2), and (d).
Sec. 675.19 [Amended]
(k) Section 675.19(a)(1), (a)(3)(i) introductory text, (a)(3)(ii),
and (b)(4) (two times).
Sec. 675.20 [Amended]
(l) Section 675.20(a) heading and introductory text, (b)(1), (c)
heading, and (c)(2) introductory text.
Sec. 675.22 [Amended]
(m) Section 675.22(b) heading.
Sec. 675.23 [Amended]
(n) Section 675.23(a) (two times), and (b)(2)(ii).
Sec. 675.24 [Amended]
(o) Section 675.24 heading, (a)(1), and (b).
Sec. 675.25 [Amended]
(p) Section 675.25(a)(1) and (2), and (b).
Sec. 675.26 [Amended]
(q) Section 675.26 heading and (d)(2)(ii).
Sec. 675.27 [Amended]
(r) Section 675.27(a)(1) (two times), (a)(3), and (b).
Sec. 675.33 [Amended]
(s) Section 675.33(b).
Sec. 675.35 [Amended]
(t) Section 675.35(a).
Sec. 675.37 [Amended]
(u) Section 675.37(a).
Sec. 675.14 [Amended]
22. In 34 CFR part 675 remove the term ``SEOGs'' and add, in its
place, the term ``FSEOGs'' in Sec. 675.14(b)(1)(iv).
23. In 34 CFR part 675 remove the term ``SEOG'' and add, in its
place, the term ``FSEOG'' in the following places:
Sec. 675.18 [Amended]
(a) Section 675.18 redesignated (a)(5), (b)(2)(i), and (b)(4).
Sec. 675.19 [Amended]
(b) Section 675.19(b)(4).
Sec. 675.2 [Amended]
24. In Sec. 675.2, paragraph (a) is amended by removing the term
``Supplemental Educational Opportunity Grant (SEOG) program'' and
adding, the term ``Federal Supplemental Educational Opportunity Grant
(FSEOG) program'' in alphabetical order.
Appendix B to Part 675 [Amended]
25. Appendix B to 34 CFR part 675 is amended by removing the term
``College Work-Study program'' and adding, in its place, ``Federal
Work-Study program'', and removing the term ``CWS'' and adding, in its
place, the term ``FWS'' each place these terms appear.
Sec. 675.2 [Amended]
26. In Sec. 675.2(a) remove the term ``Perkins Loan Program'', and
add the term ``Federal Perkins Loan Program'' in alphabetical order.
27. In 34 CFR part 675 add the word ``Federal'' before the word
``Perkins'' in the following places:
Sec. 675.14 [Amended]
(a) Section 675.14(b)(1)(x).
Sec. 675.18 [Amended]
(b) Section 675.18(b)(2)(i) and (b)(4).
Sec. 675.19 [Amended]
(c) Section 675.19(b)(4).
Sec. 675.2 [Amended]
28. In Sec. 675.2(a) remove the term ``Pell Grant Program'' and add
the term ``Federal Pell Grant Program'' in alphabetical order.
29. In 34 CFR part 675 add the word ``Federal'' before the word
``Pell'' in the following places:
Sec. 675.14 [Amended]
(a) Section 675.14(b)(1)(i) (two times) and (c)(2).
Sec. 675.15 [Amended]
(b) Section 675.15(c)(2).
Sec. 675.18 [Amended]
(c) Section 675.18(b)(4).
Sec. 675.2 [Amended]
30. In Sec. 675.2(a) remove the term ``Guaranteed Student Loan
(GSL) Program'' and add the term ``Federal Family Education Loan (FFEL)
programs'' in alphabetical order.
Sec. 675.2 [Amended]
31. In Sec. 675.2(a) remove the term ``Income Contingent Loan
Program''.
Sec. 675.2 [Amended]
32. In Sec. 675.2(a) add the term ``Federal'' before the terms
``PLUS Program'' and ``SLS Program''.
Sec. 675.14 [Amended]
33. In Sec. 675.14(b)(3) add the term ``Federal'' before the term
``Supplemental Loan for Students (SLS)''.
Sec. 675.17 [Amended]
34. In Sec. 675.17 remove the term ``Programs'' after the term
``Development'' and add the term ``Program''.
PART 676--FEDERAL SUPPLEMENTAL EDUCATIONAL OPPORTUNITY GRANT
PROGRAM
1. The authority citation for part 676 continues to read as
follows:
Authority: 20 U.S.C. 1070b-1070b-3, unless otherwise noted.
Sec. 676.1 [Amended]
2. Section 676.1 is amended by removing the term ``Supplemental
Educational Opportunity Grant (SEOG) Program'' and replacing it with
the term ``Federal Supplemental Educational Opportunity Grant (FSEOG)
program'' in paragraph (a).
3. Section 676.4 is amended by redesignating paragraphs (b), (c),
and (d) as paragraphs (c), (d), and (e) respectively; by adding the
words ``Except as specifically provided in Sec. 676.16(f), an'' before
the word ``institution'' in the introductory text of redesignated
paragraph (e); revising paragraph (a); and by adding new paragraphs (b)
and (f) to read as follows:
Sec. 676.4 Allocation and reallocation.
(a) The Secretary allocates funds to institutions participating in
the FSEOG program in accordance with section 413D of the HEA.
(b) The Secretary reallocates funds to institutions participating
in the FSEOG program in a manner that best carries out the purposes of
the FSEOG program.
* * * * *
(f) Unexpended funds. (1) If an institution returns more than 10
percent of its allocation for an award year, the Secretary will reduce
the institution's allocation for the second succeeding award year by
the dollar amount returned.
(2) The Secretary may waive the provision of paragraph (f)(1) of
this section for a specific institution if the Secretary finds that
enforcement would be contrary to the interests of the program.
(3) The Secretary considers enforcement of paragraph (f)(1) of this
section to be contrary to the interest of the program only if the
institution returned more than 10 percent of its allocation due to
circumstances beyond the institution's control that are not expected to
recur.
* * * * *
4. Section 676.10 is amended by revising paragraph (b) to read as
follows:
Sec. 676.10 Selection of students for FSEOG awards.
* * * * *
(b) Part-time and independent students. If an institution's
allocation of FSEOG funds is directly or indirectly based in part on
the financial need demonstrated by students attending the institution
as less-than-full-time or independent students, and if the total
financial need of those students exceeds 5 percent of the total
financial need of all students at the institution, the institution
shall offer to those students at least 5 percent of its allocation
under this part.
* * * * *
5. Section 676.14 is amended by removing the words ``Guaranteed
Student Loans'' and adding, in its place, the words ``Federal Family
Education Loan'' in paragraph (b)(1)(ii); by removing the words ``and
need-based ICLs'' after the words ``Direct Loans'' in paragraph
(b)(1)(x); by adding the words ``or Federal'' before the word ``PLUS'',
by removing the comma after the words ``PLUS loan'', and by removing
the words ``or non-need-based ICL'' before the word ``as'' in paragraph
(b)(3); by revising paragraph (c); and by republishing the OMB control
number to read as follows:
Sec. 676.14 Overaward.
* * * * *
(c) Treatment of resources in excess of need. An institution shall
take the following steps when it learns that a student has received
additional resources not included in the calculation of FSEOG
eligibility that would result in the student's total resources
exceeding his or her financial need by more than $300:
(1) The institution shall decide whether the student has increased
financial need that was unanticipated when it awarded financial aid to
the student. If the student demonstrates increased financial need and
the total resources do not exceed this increased need by more than
$300, no further action is necessary.
(2) If no increased need is demonstrated, or the student's total
resources still exceed his or her need by more than $300, as
recalculated pursuant to paragraph (c)(1) of this section, the
institution shall cancel any undisbursed loan or grant (other than a
Federal Pell Grant).
(3) If the student's total resources still exceed his or her need
by more than $300, after the institution takes the steps required in
paragraphs (c)(1) and (2) of this section, the institution shall
consider the amount by which the resources exceed the student's
financial need by more than $300 as an overpayment.
* * * * *
(Approved by the Office of Management and Budget under control 1840-
0535)
6. Section 676.16 is amended by redesignating paragraphs (f) and
(g) as paragraphs (g) and (h) respectively; by adding a new paragraph
(f); and by republishing the OMB control number to read as follows:
Sec. 676.16 Payment of an FSEOG.
* * * * *
(f)(1) An institution may disburse FSEOG funds after the student
has ceased to be enrolled in accordance with paragraphs (f)(2) and (3)
of this section.
(2) A disbursement described in paragraph (f)(1) of this section
may be made--
(i) Only if the FSEOG is awarded to the student while he or she is
still an eligible student; and
(ii) Only if the FSEOG funds is used to cover documented
educational costs to the student that are normally included in a
student's cost of attendance under section 472 of the HEA for the
payment period for which the FSEOG was intended and the student was
actually enrolled.
(3) The institution shall document in the student's file the reason
for the late disbursement.
* * * * *
(Approved by the Office of Management and Budget under control
number 1840-0535)
7. Section 676.18 is amended by removing paragraph (a)(3); by
adding the word ``and'' after the semicolon in paragraph (a)(1); by
removing the word ``and'' after the semicolon in paragraph (a)(2); by
removing the semicolon in paragraph (a)(2) and adding, in its place, a
period; and by revising paragraph (c) to read as follows:
Sec. 676.18 Use of funds.
* * * * *
(c) Transfer back of funds to FWS. An institution shall transfer
back to the FWS program any funds unexpended at the end of the award
year that it transferred to the FSEOG program from the FWS program.
* * * * *
8. Section 676.20 is amended by revising paragraph (a) and by
adding a new paragraph (c) to read as follows:
Sec. 676.20 Minimum and maximum FSEOG award.
(a) An institution may award an FSEOG for an academic year in an
amount it determines a student needs to continue his or her studies.
However, except as provided in paragraph (c) of this section, an FSEOG
may not be awarded for a full academic year that is--
(1) Less than $100; or
(2) More than $4,000.
* * * * *
(c) The maximum amount of the FSEOG may be increased from $4,000 to
as much as $4,400 for a student participating in a program of study
abroad that is approved for credit by the home institution, if
reasonable costs for the study abroad program exceed the cost of
attendance at the home institution.
* * * * *
9. Section 676.21 is amended by removing the words ``Beginning with
the 1989-90 award year'', by removing the comma before the words ``the
Secretary'', and by capitalizing the letter ``t'' in the word ``the''
before the word ``Secretary'' in paragraph (b) introductory text and by
revising paragraph (a) to read as follows:
Sec. 676.21 FSEOG Federal share limitations.
(a) Except as provided in paragraph (b) of this section, for the
1993-94 award year and subsequent award years, the Federal share of the
FSEOG awards made by an institution may not exceed 75 percent of the
amount of FSEOG awards made by that institution.
* * * * *
10. In 34 CFR part 676 remove the term ``SEOG'' and add, in its
place, the term ``FSEOG'' in the following places:
Sec. 676.3 [Amended]
(a) Section 676.3(a) and (b).
Sec. 676.4 [Amended]
(b) Section 676.4 redesignated (e)(1).
Sec. 676.8 [Amended]
(c) Section 676.8 introductory text and (b).
Sec. 676.9 [Amended]
(d) Section 676.9 introductory text.
Sec. 676.10 [Amended]
(e) Section 676.10 heading, (a)(1), and (a)(2) (three times).
Sec. 676.14 [Amended]
(f) Section 676.14(a)(1) (two times), (a)(2) introductory text,
(a)(2)(i), (a)(3) (two times), and (d)(1) and (2).
Sec. 676.15 [Amended]
(g) Section 676.15(a) introductory text.
Sec. 676.16 [Amended]
(h) Section 676.16 heading, paragraph (a)(1), (a)(2) (three times),
(b), (d)(1), (e)(1) introductory text, redesignated paragraphs (g) and
(h).
Sec. 676.17 [Amended]
(i) Section 676.17.
Sec. 676.18 [Amended]
(j) Section 676.18(a) introductory text, (b)(1), (b)(2)(i), and
(b)(4).
Sec. 676.19 [Amended]
(k) Section 676.19(a)(1), (a)(2)(i) introductory text and (ii), and
(b)(3).
Sec. 676.20 [Amended]
(l) Section 676.20 heading and (b).
Sec. 676.21 [Amended]
(m) Section 676.21 heading, (b)(2), and (c).
11. In 34 CFR part 676 remove the term ``SEOGs'' and add, in its
place, the term ``FSEOGs'' in the following places:
Sec. 676.14 [Amended]
(a) Section 676.14 (b)(1)(iv).
Sec. 676.21 [Amended]
(b) Section 676.21(b) introductory text.
Sec. 676.2 [Amended]
12. In Sec. 676.2(a) remove the term ``Perkins Loan Program'' and
add the term ``Federal Perkins Loan Program'' in alphabetical order.
13. In 34 CFR part 676 add the term ``Federal'' before the term
``Perkins'' in the following places:
Sec. 676.14 [Amended]
(a) Section 676.14(b)(1)(x).
Sec. 676.18 [Amended]
(b) Section 676.18(b)(2)(i), (b)(3), and (b)(4).
Sec. 676.19 [Amended]
(c) Section 676.19(b)(3).
Sec. 676.2 [Amended]
14. In Sec. 676.2(a) remove the term ``Pell Grant Program'' and add
the term ``Federal Pell Grant Program'' in alphabetical order.
15. In 34 CFR part 676 add the term ``Federal'' before the term
``Pell'' in the following places:
Sec. 676.10 [Amended]
(a) Section 676.10(a)(1) and (2).
Sec. 676.14 [Amended]
(b) Section 676.14(b)(1)(i).
Sec. 676.15 [Amended]
(c) Section 676.15(c)(2).
Sec. 676.18 [Amended]
(d) Section 676.18(b)(4).
16. In 34 CFR part 676 remove the ``CWS'' and add, in its place,
``FWS'' in the following places:
Sec. 676.18 [Amended]
(a) Section 676.18(b)(2)(i), (b)(3), and (b)(4).
Sec. 676.19 [Amended]
(b) Section 676.19(b)(3).
Sec. 676.2 [Amended]
17. In Sec. 676.2(a) remove the term ``College Work-Study (CWS)
Program'' and add the term ``Federal Work-Study (FWS) Program'' in
alphabetical order.
18. In Sec. 676.2(a) remove the term ``Guaranteed Student Loan
(GSL) Program'' and add the term ``Federal Family Education Loan (FFEL)
programs'' in alphabetical order.
19. In Sec. 676.2(a) remove the term ``Income Contingent Loan
Program''.
20. In Sec. 676.2(a) remove the terms ``PLUS Program'' and ``SLS
Program'' and add the terms ``Federal PLUS Program'' and ``Federal SLS
Program'' in alphabetical order.
Sec. 676.14 [Amended]
21. In Sec. 676.14(b)(3) add the word ``Federal'' before the term
``Supplemental Loan for Students (SLS)''.
[FR Doc. 94-29261 Filed 11-29-94; 8:45 am]
BILLING CODE 4000-01-P
