[Federal Register Volume 59, Number 123 (Tuesday, June 28, 1994)]
[Unknown Section]
[Page ]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-15519]
[Federal Register: June 28, 1994]
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Part II
Department of Education
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34 CFR Part 682
Federal Education Loan Program; Final Rule
DEPARTMENT OF EDUCATION
34 CFR Part 682
RIN 1840-AB97
Federal Family Education Loan Program
AGENCY: Department of Education.
ACTION: Final regulations.
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SUMMARY: The Secretary amends the regulations governing the Federal
Family Education Loan (FFEL) Program. The FFEL Program regulations
govern the Federal Stafford Loan Program, the Federal Supplemental
Loans for Students (Federal SLS) Program, the Federal PLUS Program, and
the Federal Consolidation Loan Program, collectively referred to as the
Federal Family Education Loan Program. The Federal Stafford Loan, the
Federal SLS, the Federal PLUS and the Federal Consolidation Loan
programs are hereinafter referred to as the Stafford, SLS, PLUS and
Consolidation Loan programs. The final regulations incorporate
statutory changes made to the Higher Education Act of 1965 (HEA) by the
Higher Education Amendments of 1992 (the 1992 Amendments), self-
implementing provisions of the Omnibus Budget Reconciliation Act of
1993 (OBRA), and the Higher Education Technical Amendments of 1993
(1993 Technical Amendments). Regulations needed to implement other OBRA
amendments and the 1993 Technical Amendments will be published
separately. The final regulations also reflect various policy
initiatives intended to improve program administration.
EFFECTIVE DATE: Pursuant to section 482(c) of the Higher Education Act
of 1965, as amended (20 U.S.C. 1089(c)), these regulations take effect
July 1, 1995, with the exception of Secs. 682.401, 682.405, and
682.409. These sections will become effective on July 1, 1995, or after
the information collection requirements contained in these sections
have been submitted by the Department of Education and approved by the
Office of Management and Budget under the Paperwork Reduction Act of
1980, whichever is later. A document announcing the effective date will
be published in the Federal Register.
FOR FURTHER INFORMATION CONTACT: Patricia Beavan, Senior Program
Specialist, Loans Branch, Division of Policy Development, Policy,
Training, and Analysis Service, U.S. Department of Education, 400
Maryland Avenue SW., (Room 4310, ROB-3), Washington, DC 20202-5449.
Telephone: (202) 708-8242. Individuals who use a telecommunications
device for the deaf (TDD) may call the Federal Information Relay
Service (FIRS) at 1-800-877-8339 between 8 a.m. and 8 p.m., Eastern
time, Monday through Friday.
SUPPLEMENTARY INFORMATION: The Stafford, SLS, and PLUS Loan programs
provide loans to eligible student or parent borrowers who might
otherwise be unable to finance the costs of postsecondary education.
The Consolidation Loan Program gives borrowers an opportunity to
consolidate loans made under the Stafford loan, Perkins (formerly
National Direct Student Loan), Auxiliary Loans to Assist Students (as
in effect before October 17, 1986), PLUS, SLS, Health Professions
Student Loan (HPSL), and the Higher Education Assistance Loan (HEAL)
programs.
On March 16, 1994, the Secretary published a notice of proposed
rulemaking (NPRM) for the FFEL program in the Federal Register (59 FR
12484). Those proposed regulations were developed in compliance with
section 492 of the 1992 Amendments (Pub. L. 102-325), mandating that
the regulations be submitted to a negotiated rulemaking process.
Regional meetings were held during September 1992 to obtain public
involvement in the development of the proposed regulations and a
negotiated rulemaking process was conducted during January and February
1993. The NPRM published on March 16, 1994 provided an indepth
discussion of those areas where the negotiators reached a consensus as
reflected in those regulations.
These regulations improve the efficiency of the Federal student aid
programs, and, by so doing, improve their capacity to enhance
opportunities for postsecondary education. Encouraging students to
graduate from high school and to pursue high quality postsecondary
education are important elements of the National Education Goals. The
student aid programs also enable current and future workers to have the
opportunity to acquire both basic and technologically advanced skills
needed for today's and tomorrow's workplace. They provide the financial
means for an increasing number of Americans to receive an education
that will prepare them to think critically, communicate effectively,
and solve problems efficiently, as called for in the National Education
Goals.
Substantive Revisions to the Notice of Proposed Rulemaking
Subpart B--General Provisions
Section 682.200 Definitions
The Secretary has revised the definition of ``disposable
income'' to exclude: (1) child support or alimony payments that are
made under a court order or in accordance with a written legally
enforceable agreement and (2) the amounts withheld under wage
garnishment.
The Secretary has revised the definition of ``estimated
financial assistance'' to exclude the amount of expected Federal
Perkins loan or Federal Work-study aid if the borrower did not apply
for those funds.
The Secretary has revised the definition of ``repayment
period'' as it applies to the SLS Program to reflect the borrower's
option to delay repayment for a period consistent with the grace period
in the Stafford Loan Program.
The Secretary has revised the definition of ``satisfactory
repayment arrangement'' to provide that for purposes of consolidating a
defaulted loan, the borrower will be required to make three consecutive
reasonable and affordable full monthly voluntary payments rather than
six as provided in the NPRM. The definition has been also revised to
specify that an on-time payment is one received by a guaranty agency or
its agent within 15 days of the scheduled due date.
Section 682.204 Maximum Loan Amounts
The Secretary has revised the regulations to reflect the
changes to the proration of loan amounts made by the 1993 Technical
Amendments (Pub. L. 103-208).
Section 682.207 Due Diligence in Disbursing a Loan
The Secretary has revised the regulations to permit
lenders to disburse loans proceeds by use of a ``master check'' for a
number of borrowers in addition to an individual check or Electronic
Funds Transfer for each borrower.
Subpart D--Administration of the Federal Family Education Loan Programs
by a Guaranty Agency
Section 682.401 Basic Program Agreement
The Secretary has revised the regulations to delete the
proposed regulations reflecting limitation of lender-of-last-resort
(LLR) services in light of the deletion of these requirements by OBRA
(Pub. L. 103-66).
Section 682.405 Loan Rehabilitation Agreement
The Secretary has revised the regulations to allow the
guaranty agency to determine if the sale of a loan to a lender is
practicable.
The Secretary has revised the regulations to require
guaranty agencies to inform borrowers of the consequences of loan
rehabilitation.
Section 682.409 Mandatory Assignment by Guaranty Agencies of Defaulted
Loans to the Secretary
The Secretary has revised the regulations to require the
immediate assignment to the Department of loans held by a guaranty
agency if the Secretary deems it necessary to protect the Federal
fiscal interest, which includes ensuring an orderly transition from the
FFEL program to the Federal Direct Student Loan (FDSL) Program and
requiring the collection of unpaid loans owed by Federal employees by
Federal salary offset.
Section 682.414 Records, Reports, and Inspection Requirements for
Guaranty Agency Programs
The Secretary has revised the regulations to require a
lender to maintain a copy of the report of the required annual
independent audit for not less than five years after the report is
issued.
Analysis of Comments and Changes
In response to the Secretary's invitation in the NPRM, 71 parties
submitted comments on the proposed regulations. An analysis of the
comments and the changes in the regulations since publication of the
NPRM follows. Substantive issues and significant technical changes are
discussed under the section of the regulations to which they pertain.
Numerous comments were received to the effect that the proposed
regulations did not reflect OBRA or the 1993 Technical Amendments
changes and suggested that the Secretary publish a revised notice of
proposed rulemaking (NPRM) indicating which sections were superseded by
subsequent changes in law. Other than those provisions that are self-
implementing and are reflected in this package, the Secretary will
issue regulations to implement most substantive provisions from OBRA
and the 1993 Technical Amendments in a separate rulemaking package.
The Secretary also notes that technical corrections to the
regulations governing the FFEL Program were published in the Federal
Register on May 17, 1994 (59 FR 25750). Some comments made on the NPRM
are addressed by those corrections.
Section 682.100 The Federal Family Education Loan Programs
Section 682.100(a)(2)
Comments: Several commenters suggested that the regulations be
revised to reflect the elimination of the SLS program by OBRA.
Discussion: As the commenters noted, OBRA amended the HEA to end
the SLS program effective July 1, 1994. However, the Secretary does not
agree with the commenters that references to that program should be
removed from these regulations. SLS loans will remain outstanding for
many years after the program ends and the regulations need to reflect
the requirements relating to those loans. However, the Secretary
revises the regulations to make reference to the SLS program as in
effect prior to July 1, 1994.
Changes: The regulations have been revised to refer to the SLS
Program as in effect prior to July 1, 1994.
Section 682.100(a)(4)
Comments: Commenters suggested that the Secretary delete the
reference to parent PLUS loans made on or after October 17, 1986
because the statutory use of this term was ended by the 1993 Technical
Amendments. The commenters also suggested that the reference to a
requirement that a borrower must consolidate at least $7500 in eligible
student loans in the Consolidation Loan Program be deleted to reflect
the elimination of this requirement by OBRA. The commenters noted that
this change needs to be reflected in other sections of the regulations.
Discussion: The Secretary agrees that it is appropriate to reflect
these statutory changes. The reference to parent PLUS loans made on or
after October 17, 1986 was deleted in the technical corrections
package.
Changes: The regulations have been revised to reflect the
commenters' recommendations.
Section 682.102 Obtaining and Repaying a Loan
Section 682.102(e)(1)
Comments: A commenter suggested that the regulations imply that all
FFEL debt is forgiven for borrowers in certain areas of teaching or
nursing professions or community service.
Discussion: The Secretary agrees that the regulations could be
interpreted to indicate that the borrower's entire obligation to repay
a debt may be forgiven for borrowers performing certain public service.
However, section 428J of the HEA only authorizes the Secretary to repay
limited portions of certain Federal Stafford loan obligations for
individuals who enter certain specified teaching and nursing
professions or perform certain other national and community service.
Moreover, the loan forgiveness program is a demonstration program which
is not currently funded.
Changes: The regulations have been revised to reflect the
limitation on loan forgiveness for public service. The Secretary notes
that regulations reflecting this loan forgiveness demonstration program
are being published separately.
Section 682.200 Definitions
Co-Maker
Comments: A commenter noted that there is an understanding
throughout the FFEL industry that the Department is considering
deleting references to ``co-maker'' and replacing that term with the
term ``endorser.''
Discussion: The terms ``endorser'' and ``co-maker'' are not
synonymous and reflect different legal obligations. The Secretary will
not be deleting the reference to co-maker, since it is a term used in
the Consolidation Loan Program. ``Endorser'' is the term used in the
Federal PLUS Program for borrowers with adverse credit.
Changes: None.
Disposable Income
Comments: Some commenters suggested that in the definition of
``disposable income'' the reference to ``any amounts required by law to
be withheld'' was unclear and recommended further clarification. The
commenters noted, for example, that child support payments would
qualify under this definition if the payments were made under a divorce
settlement rather than a court order. The commenters believed that the
Department should not treat borrowers who are subject to garnishment
for private debts more favorably than borrowers who are making payments
without the need for court intervention.
Discussion: The Secretary clarifies that the definition of
``disposable income'' is that part of a borrower's compensation from an
employer and other income from any source that remains after the
deduction of amounts required by law to be withheld or any child
support or alimony payments that are made under a court order or in
accordance with a legally enforceable written agreement. The Secretary
has also revised the definition to exclude payments made under a wage
garnishment order.
Changes: The definition of ``disposable income'' has been revised
to clarify those payments that may be deducted from the borrower's
compensation.
Estimated Financial Assistance
Comments: Some commenters expressed the same opinion raised during
the negotiations that requiring aid officers to certify the student's
estimated eligibility for the Federal Perkins loan or Federal Work-
Study program regardless of whether the student applies for the aid is
not reasonable. Some commenters believed that it is unjust to penalize
a student who declines campus-based awards and that it is inappropriate
to have the financial aid administrator determine what is an
``acceptable reason'' for declining aid.
Discussion: After further consideration of the commenter's views,
the Secretary agrees that financial aid officers should not be required
to certify estimated eligibility for other aid that the student does
not apply for or consider as estimated financial assistance aid offered
but declined by the student. The Secretary believes that students and
their families should have discretion in those areas not prescribed by
law and that aid administrators should not be placed in the position of
evaluating the merits of a student's reason for declining an award. The
Secretary notes that this position is consistent with Federal Direct
Student Loan (FDSL) Program.
Changes: The regulations have been revised to delete reference to
``whether or not the student applied'' under paragraph (1)(vii) and
paragraph (2) has been added to delete the reference to the declining
aid for an acceptable reason.
Nonsubsidized Stafford Loan
Comments: A commenter recommended that the definition be revised to
reflect that those loans are not eligible for special allowance under
Sec. 682.302. The commenter suggested that confusion exists between the
terms ``unsubsidized Stafford Loan'' and ``nonsubsidized Stafford
Loan'' and the revision would clarify the difference.
Discussion: The Secretary agrees with the commenter's concern that
the regulations need to reflect a clear distinction between the two
programs and has revised the regulations to clarify that a
nonsubsidized loan does not qualify for special allowance payments.
Changes: The regulations have been revised to reflect the comment.
Repayment Period
Comments: Some commenters stated that they understood that the
Secretary had agreed during the negotiated rulemaking process to permit
a 13-year repayment schedule to be established for a borrower who
chooses to repay a loan under an income-sensitive repayment schedule.
The commenters also suggested that the definition be revised to
incorporate the 10-year repayment requirement for variable rate
interest loans. The commenters suggested that the 10-year repayment
period be extended in the case of an Unsubsidized Stafford Loan.
The commenters also pointed out that during negotiated rulemaking,
the Department agreed that in the case of the PLUS and SLS loans with a
variable rate, the lender could use the rate at the time the loan
entered repayment for purposes of establishing the initial repayment
period.
Discussion: During the negotiations the Secretary repeatedly made
it clear that he had no authority to extend the 10-year repayment
period provided by statute. The Secretary did agree to authorize a
three-year forbearance period in the case of an income-sensitive
repayment schedule and agreed to allow forbearance for a period of up
to one year in the case of a variable interest rate loan or graduated
repayment schedule.
The Secretary noted that these extensions have the practical effect
of extending the repayment period to eleven or thirteen years. The
Secretary is developing final regulations to the NPRM published on
March 24, 1994 that addresses extending the period of forbearance in
cases where the repayment schedule causes the extension of the maximum
repayment term of the loan.
The Secretary agrees with the commenters that a lender should use
the variable interest rate at the time the loan entered repayment for
purposes of establishing the initial repayment period. If the repayment
schedule leads to balloon payments or increased payments, and the
borrower is unable to make those payments, the lender may grant
forbearance, which is excluded from the 10-year period.
Changes: None.
Comments: A few commenters suggested that the Secretary revise the
definition of repayment period to include a cross-reference to
Sec. 682.209(d), which requires that the calculation of the repayment
period on the loans included in a PLUS or SLS combined repayment
schedule be based on the date entered repayment of the most recent
included loan.
Discussion: The Secretary does not agree that there should be a
cross-reference to Sec. 682.209(d). The definition of repayment
reflects statutory requirements. The provisions in Sec. 682.209(d)
govern specific servicing adjustments necessary in a combined repayment
situation and do not modify the basic statutory definition.
Changes: None.
Comments: Some commenters suggested that the definition of
repayment period for SLS be revised to incorporate the borrower's
option to delay repayment for a period consistent with the grace period
in the Stafford Loan Program. The commenters noted that it should be
clear that the delay in the repayment of an SLS is not a period of
deferment or forbearance and, as such, special documentation is not
required. The commenters also suggested that, since Sec. 682.202(c)
permits capitalization during grace periods if provided for in the
promissory note (and the addendum and common applications provided for
this capitalization), the Secretary should clarify that the lender may
capitalize interest during this period.
Discussion: The Secretary agrees with the commenters.
Changes: The Secretary has revised the definition of repayment
period to reflect the borrower's option in the SLS program to delay
repayment for a period consistent with the grace period in the Stafford
Loan Program. This change is consistent with the change made in
Sec. 682.102(e)(3) by the technical corrections. The regulations have
also been revised to clarify that the lender may capitalize interest
during this period.
Satisfactory Repayment Arrangements
Comments: While a number of commenters supported a uniform standard
for determining ``satisfactory repayment arrangements'' for defaulted
borrowers, many commenters objected to the use of the proposed uniform
standard for all purposes, including reinstatement of Title IV
eligibility for defaulted borrowers, rehabilitation of defaulted
student loans, and consolidation of defaulted student loans. The
commenters believed that use of the proposed standardized definition to
qualify a borrower for rehabilitation and consolidation is not in the
FFEL Program's best interest. Although the commenters supported a
standard definition of the term ``satisfactory repayment
arrangements'', they did not view the proposed definition as adequate.
Commenters believed that it did not adequately recognize the increase
in payments once the loan has been rehabilitated or consolidated and
that it did not provide for more lenient treatment based on the
borrower's individual circumstances.
Discussion: The Secretary notes that for purposes of rehabilitation
and reinstatement of borrower eligibility, the statutory language does
not provide flexibility in establishing the number of payments to
regain eligibility or rehabilitate a defaulted loan. In regard to
Consolidation loans, the 1993 Technical Amendments amended section 428C
of the HEA to refer to ``arrangements satisfactory to the holder.'' The
Secretary does not believe that this language was intended to conflict
with the statutory requirement in section 432 of the HEA that common
procedures be established or the need to ensure that similarly situated
borrowers be treated fairly. In light of these considerations and the
other comments received on this provision, the Secretary has determined
that three consecutive monthly payments will be required for a borrower
to consolidate a defaulted loan. The Secretary believes the making of
three consecutive monthly payments would allow a borrower to initiate
loan consolidation and add the defaulted loan to the consolidation loan
within the 180-day provision provided under section 428C(a)(3)(b)(II)
of the HEA.
Changes: The definition has been revised to distinguish the monthly
payments required to establish eligibility for rehabilitating,
consolidating or reinstating a defaulted loan.
Comments: Some commenters suggested that defining ``on-time'' to be
making a payment within 15 days of the scheduled due date is a new
condition that could not have been anticipated by guarantors, servicers
and lenders making good faith efforts to program their systems to
handle loan rehabilitation. Some commenters suggested that ``on-time''
be revised to mean a payment made within the calendar month. Other
commenters suggested that ``on-time'' be revised to be a payment
received by the guaranty agency or its agent within 15 days. The
commenters suggested that a guaranty agency is aware of the date on
which payments are received. Using the term ``made'' could be
interpreted to mean the date on which the check was issued by the
borrower, or the post-mark date, etc.
Discussion: The Secretary believes that it is critically important
for borrowers who have previously defaulted and who are entering into
satisfactory repayment arrangements with a guaranty agency to establish
a pattern of monthly payments that are made timely. For this reason,
the Secretary does not agree that an ``on-time'' payment should be one
that is made anytime during the calendar month. The Secretary also
notes that the kind of latitude provided by a payment deadline that is
anytime within the calendar month will not be available to the borrower
if the loan is rehabilitated subsequently and is then serviced by a
lender or lender servicer. The Secretary also believes there is
sufficient time for guaranty agencies to reprogram their systems prior
to the July 1, 1995 effective date of these regulations. The Secretary
agrees with the commenters who suggest that the on-time standard should
be based on when payments are ``received'' rather than ``made'' because
a guaranty agency or its agency is aware of this date and the word
``made'' is open to several different interpretations.
Changes: The definition has been revised to read that an on-time
payment is one that is received by the guaranty agency or its agent
within 15 days of the scheduled due date.
Comments: Some commenters suggested that the addition of a
definition of ``reasonable and affordable'' would impact the collection
of defaulted loans. The commenters suggested that, based upon the
definition provided, each time a guaranty agency changed the monthly
payment amount the agency would have to go through the process of
determining what is reasonable and affordable. The commenters further
suggested that a guaranty agency's collection agents or attorneys will
also be subject to conducting the same review whenever they attempt to
reach a repayment arrangement.
Discussion: The Secretary believes that this definition will not
have an impact on the collection of defaulted loans. This provision
applies to voluntary payments the borrower is making after the borrower
specifically initiates voluntary payment to reinstate eligibility,
rehabilitate, or consolidate a defaulted loan. These requirements do
not relate to other routine changes the guaranty agency makes to
monthly payment amounts.
Changes: None.
Comments: Commenters suggested that borrowers, whose loans are non-
dischargeable and who have not filed a hardship petition, should be
allowed to have their Chapter 12 or 13 plan payments count toward
regaining eligibility for FFEL loans. The commenters suggested that
these borrowers are not attempting to have the loan discharged and, as
such, are making voluntary payments.
Discussion: The Secretary does not agree with the commenters. The
Secretary believes that if a defaulted loan has been included in a
bankruptcy petition, then payments received under a court mandated
bankruptcy plan are not voluntary payments as required for this
purpose.
Changes: None.
Write-Off
Comments: Some commenters expressed concern that the definition of
``write-off'' was unclear as to which applicable standards the
definition incorporates. Some commenters suggested that the
``applicable standards'' could be easily read to include the closed
school/false certification provision.
Discussion: During negotiations, the Secretary agreed with certain
negotiators that a uniform standard for ``write-off'' was desirable for
guaranty agencies to use in determining what constitutes a ``write-
off'' in determining whether a borrower has an adverse credit history.
The applicable standards referenced in the definition refers to the
Write-off and Compromise Procedures which the Department of Education
is now developing in consultation with the Department of Treasury, in
accordance with the Treasury financial manual and OMB A-129. The
Secretary does not consider a loan that has been discharged under
section 437(c) of the Act (language in the preamble incorrectly
referred to 437(b)) to be considered a write-off nor does the Secretary
intend to require borrowers to reaffirm those loans to receive
additional aid under the FFEL program.
Changes: None.
Section 682.201 Eligible Borrowers
Section 682.201(b)
Comments: A few commenters suggested that the term ``endorser'' as
used in the NPRM implies that an endorser on a PLUS loan application
must be the other parent of the student for whom the loan is made.
These commenters pointed out that the Secretary has issued policy
guidance for the FFEL Program that would permit a creditworthy
nonparent to be an endorser on the Federal PLUS application of a non-
creditworthy parent borrower and that this would be in keeping with the
provisions of the Federal Direct Loan Program.
Discussion: The Secretary does not believe that the term
``endorser'' suggests such a restriction and believes that it is
unnecessary to reflect this guidance in the regulations.
Changes: None.
Section 682.201(b)(7)
Comments: Several commenters expressed a concern that lenders be
permitted to exercise ``professional judgment'' in determining whether
to make a Federal PLUS loan in spite of an initial finding of adverse
credit. They stated that the lender should have the option of using
this ``professional judgment'' to document the existence of extenuating
circumstances. They specifically expressed concern that the NPRM, as
written, restricted valid documentation of extenuating circumstances to
a new credit report, a statement from the creditor, or a statement from
the borrower in the event of a debt less than $500.
Discussion: These commenters were addressing two different but
related issues in their comments. The first issue addresses lender
flexibility in determining whether to make a loan when the initial
credit report includes indicators of adverse credit. The second issue
relates to the documentation needed by a lender when making a
determination that extenuating circumstances exist and determining to
make the PLUS loan based on that determination. The NPRM, as written,
states in Sec. 682.201(b)(7)(iii) that ``Unless the lender determines
that extenuating circumstances existed, the lender must consider each
applicant to have an adverse credit history * * *.'' This provision
specifically gives the lender the flexibility to determine that some
cases involve extenuating circumstances that would provide a legitimate
criterion for PLUS loan approval. The NPRM further states that the
lender must retain documentation demonstrating its basis for
determining that extenuating circumstances existed and that the
documentation may include an updated credit report, a statement from
the creditor that the borrower has made satisfactory arrangements to
repay the debt, or a satisfactory statement from the borrower
explaining any delinquencies with outstanding balances of less than
$500. The use of the word ``may'' indicates that there could be other
documentation that the lender would deem sufficient to override the
adverse credit determination.
Changes: The Secretary has amended the language in
Sec. 682.201(b)(7)(vi) of the regulations to include the phrase ``but
is not limited to'' to the list of documentation to clarify that the
list is not all-inclusive.
Comments: Some commenters believed that the definition of adverse
credit is too restrictive. The commenters believed that allowing one
account that is 90 days past due to prohibit borrowing when the parent
may have ten other accounts that are current is not a true indication
of the borrower's payment history. The commenters recommended that the
credit history have no more than an average of 30-day delinquency on
all debts.
Discussion: The Department views the averaging of past-due accounts
to be more burdensome than the 90-day standard proposed in the
regulations. Further, it is unnecessary given the discretion available
to a lender to apply the extenuating circumstances criterion.
Changes: None.
Comments: Several commenters stated that lenders should be given
the right to restrict the amount a parent borrows if the parent does
not have the capacity to repay the loan. This is especially significant
since Congress removed the cap on PLUS loans.
Discussion: This issue was discussed in the preamble to the NPRM.
While the statute does not include the ability to repay a PLUS loan as
an eligibility criterion, a lender is not prohibited from maintaining a
lending policy that would examine parental ability to repay in
determining whether to make a loan. However, once the lender has
decided to make a loan, the lender has no authority to reduce the
statutory limit provided under the PLUS program.
Changes: None.
Comments: A few commenters expressed concern about confusion
resulting from slightly different wording in Dear Colleague Letter 93-
L-159, dated September 1993, and the NPRM regarding interpretation of
the wording in the proposed regulation that ``* * * the applicant is
considered 90 or more days delinquent on the repayment of a debt.'' The
DCL indicated that one criterion for having adverse credit is that the
applicant is considered 90 days or more delinquent on the repayment of
a debt ``on the day of the lender's examination of the credit report.''
This was interpreted by some commenters to mean that the lender must
extrapolate delinquency based on the date of the credit report and the
date on which the lender examined that report.
Discussion: It was the Secretary's intention in the Dear Colleague
Letter that the lender would consider the applicant as being 90 days or
more delinquent on the repayment of a debt only if the applicant was
reported 90 days delinquent on the credit report being reviewed. The
regulations are consistent with this approach.
Changes: None.
Comments: Commenters expressed concern that there was no timeframe
in the NPRM indicating that the credit bureau report used in
determining adverse credit history must be current and accurate and not
outdated.
Discussion: In an attempt to give the lender greater flexibility,
the Secretary had not included a reference to a specific timeframe for
the credit report in the regulations. However, in DCL 93-L-159 the
Department stated that the credit report must be secured within a
timeframe that would ensure the most accurate, current representation
of the borrower's credit history before the first day of the period of
enrollment for which the loan was intended.
Changes: Since the language in the DCL reflects the Secretary's
position on the timing of securing the credit report, that language has
been added to the final regulations.
Comments: One commenter indicated that the ``90 days or more
delinquent on any debt'' requirement did not make any allowance for
disputed debts with a credit bureau that is still investigating the
dispute. This same commenter also found the term ``default
determination'' too vague and undefined.
Discussion: The Secretary believes that the lender's option of
applying the extenuating circumstances criterion would permit the
lender, based on its examination of supporting documentation presented
by the borrower, to override a determination of adverse credit in the
case of a legitimately disputed debt that was not resolved at the time
of the credit report.
The commenter correctly pointed out that while default has been
defined for purposes of the FFEL Program, its definition could vary
with regard to other debts. It is specifically for this reason that the
Secretary has not attempted to define, for purposes of these
regulations, the term non-Title IV debt.
Changes: None.
Section 682.201(c)
Comments: Several commenters recommended that the Secretary amend
this section to reflect the changes made to the Consolidation Loan
Program by OBRA and 1993 Technical Amendments. The commenters
specifically noted that OBRA deleted the requirement that the borrower
must consolidate at least $7,500 in eligible student loans. The
commenters also noted that the 1993 Technical Amendments modified the
requirement that a defaulted borrower who has made satisfactory
repayment arrangements may be eligible to borrow under the
Consolidation Loan Program.
Discussion: The Secretary agrees that these regulations should
reflect the self-implementing statutory changes made to the
Consolidation Loan Program.
Changes: The regulations have been revised to incorporate the self-
implementing statutory changes.
Section 682.204 Maximum Loan Amounts
Comments: Many commenters recommended that the annual loan limits
be revised to include changes made to the proration requirements by the
1993 Technical Amendments.
Discussion: The Secretary agrees with the commenters that the
regulations should reflect the new proration requirements.
Changes: The regulations have been revised to incorporate the new
loan proration requirements. The Secretary has also revised
Sec. 682.603(f)(3) to reflect the formula to be used in certifying a
Stafford or SLS loan amounts subject to proration.
Comments: Some commenters recommended that the regulations should
reflect the loan limits for the Unsubsidized Stafford Loan Program.
Discussion: The Secretary agrees with the commenters.
Changes: Section 682.204 (c), (d) and (e) incorporates the loan
limits for the Unsubsidized Stafford Loan Program.
Section 682.207 Due Diligence in Disbursing a Loan
Section 682.207(b)(1)(v)(B)(1)
Comments: Some commenters suggested that the regulations be revised
to specifically allow for the delivery of a lump sum or master check
from a lender to a school that can be placed in an account of the
school, as with electronic funds transfer, and credited to an
individual student's account.
Discussion: The Secretary agrees that the regulations should allow
for delivery of loan proceeds by means of a lump sum check. This change
recognizes the acceptance by the Department of the ``master check''
concept as provided in earlier guidance.
Changes: The regulations have been revised to permit the
disbursement of loan proceeds by ``master check'' for a number of
borrowers in addition to an individual check for each borrower. The
definition of ``disbursement'' has also been revised to include the
transfer of loan proceeds by a master check that represents loan
amounts for more than one borrower.
Comments: A commenter suggested that the Secretary expand the
regulations to provide that a student enrolled in a foreign school have
the option of having the loan proceeds delivered to the student or to
the foreign school. The commenter suggested that the regulations apply
to students studying abroad for credit at the home school and appear to
exclude students enrolled in a foreign school who are not studying for
credit at the home school.
Discussion: The Secretary agrees with the commenter that the
proposed regulations did not provide students attending eligible
foreign schools the option of receiving the loan proceeds directly or
having the funds delivered to the school. The Secretary recognizes that
section 428(b)(1)(N) of the HEA specifically provides borrowers in this
circumstance this option.
Changes: Section 682.207(b)(1)(v)(D) has been added to provide the
option to borrowers attending an eligible foreign school but who are
not studying for credit at a home school to have their loan proceeds
delivered to them directly or sent to the school.
Section 682.300 Payments of Interest Benefits on Stafford and
Consolidation Loans
Section 682.300 (a)
Comments: Several commenters noted that proposed Sec. 682.300(a)
should be revised to specify that the Secretary pays interest on
subsidized Stafford loans.
Discussion: The Secretary agrees that this change is necessary to
prevent confusion.
Changes: The regulations have been revised to specify ``subsidized
Stafford'' loans.
Section 682.300(c)
Comments: Several commenters suggested that the use of the word
``disbursement'' as it relates to the limitations on interest paid to a
lender prior to disbursement of a loan should be restricted to its more
``traditional'' use, i.e., issuing of loan proceeds by the lender,
rather than interpreting it to mean ``delivery'' of loan proceeds to
the borrower by the school.
Discussion: As noted in the preamble to the NPRM of March 16, 1994
(59 FR 12489), the Department's interpretation of Congress' use of the
word ``disbursement'' in this context and its applicability to the
interest limitation provision were thoroughly discussed during
negotiated rulemaking. However, as a result of discussions with the
negotiators, the Department agreed to proposed regulatory language that
would achieve the statutory intent while developing a schedule for
lender billing of interest on the more easily documented disbursement
date. The term ``disbursed'' as it is used in Sec. 682.300(c) refers to
the traditional use for issuance of funds by the lender. The interest
limitation provisions are then applied depending on whether the loan
proceeds are disbursed by the lender before or after the first day of
the period of enrollment for which the loan is intended.
Changes: None.
Section 682.301 Eligibility of Borrowers for Interest Benefits on
Stafford and Consolidation Loans
Section 682.301(a)(3)
Comments: Several commenters noted that Sec. 682.301(a)(3),
regarding the eligibility of Consolidation loan borrowers for interest
benefits during authorized deferment periods, should be revised to
reflect OBRA.
Discussion: OBRA changed section 428C(b)(4)(C)(i) of the HEA to
limit interest subsidized deferments to Consolidation loan borrowers
who receive Consolidation loans that discharge only subsidized Stafford
loans. This change was effective for Consolidation loans made based on
applications received by the lender on or after August 10, 1993.
Changes: The regulations have been revised to reflect the changes
made by OBRA.
Section 682.401 Basic Program Agreement
Section 682.401(b)(4)
Section 682.401(b)(4)(i)(B)
Comments: Some commenters expressed concern that borrowers not be
subjected to unreasonable and onerous demands for documentation for
purposes of reinstatement of borrower eligibility. The commenters
suggested that borrowers be allowed to provide documentation over the
phone or by facsimile.
Discussion: The Secretary does not believe that an agency can
assess a borrower's total financial circumstances to determine a
reasonable and affordable payment amount without examining
documentation from the borrower. The Secretary does not believe that
the documentation requirements contained in the regulations are
onerous. The Secretary believes that submission of a monthly budget
statement on a guaranty agency prepared form and some proof of current
income are minimal requirements. The Secretary believes that a
statement of the unpaid balance of all of a borrower's FFEL loans is
necessary only if the guaranty agency does not already have this
information. The Secretary has no objection to the borrower submitting
this documentation via facsimile technology.
Changes: None.
Comments: Many commenters were strongly opposed to the reference to
the $50 payment in proposed Sec. 682.401(b)(4)(i)(B) in regard to the
requirement that the guaranty agency document the borrower's file if
the borrower's reasonable and affordable payment is determined to be
less than $50. The commenters believe that agencies are using the
reference to $50 to justify their denial of payments of less than $50.
Discussion: The Secretary expects a guaranty agency to make a
determination of what constitutes a ``reasonable and affordable''
payment amount on a case-by-case basis after examining financial
information from the defaulted borrower who requests reinstatement of
eligibility for federal student financial assistance. The proposed rule
clearly stated that $50 may not be the required minimum payment for a
borrower if the agency determines that a smaller payment amount is
appropriate based on its examination of the borrower's total financial
circumstances. An agency is prohibited from establishing $50 or any
other amount as a required minimum threshold payment amount in lieu of
the appropriate reasonable and affordable payment based on the
borrower's total financial these circumstances. The reference to $50 in
the regulations is intended by the Secretary to be a documentation
standard for guaranty agencies. A guaranty agency is required to
document its determination of a borrower's reasonable and affordable
payment only if the payment is less than $50.
Changes: The regulations have been revised to clearly provide that
a guaranty agency must not establish a minimum payment amount of $50 if
the agency determines that a smaller payment amount is reasonable and
affordable based on the borrower's total financial circumstances.
Comments: Some commenters expressed concern that consideration of a
spouse's income in the determination of reasonable and affordable
payments may be in violation of the Federal Equal Credit Opportunity
Act. The commenters noted that the spouse is not liable for the other
spouse's individual debt and, therefore, consideration of the secondary
spouse's income may not be considered in determining a monthly
reasonable and affordable payment. The commenter suggested that
clarification must also be made in this section that disclosure of
child support and/or alimony payments is voluntary, consistent with the
Federal Equal Credit Opportunity Act.
Discussion: The Secretary believes that, for a borrower with
dependents, examining only the borrower's income and expenses may not
reveal the borrower's true financial circumstances. The Equal Credit
Opportunity Act relates to the application for credit. The
determination of reasonable and affordable payments in connection with
reinstatement of eligibility, rehabilitation or meeting conditions for
consolidation does not relate to the application for credit. See 12 CFR
Part 202.
Changes: None.
Section 682.401(b)(6)(i)
Comments: Some commenters supported the regulations that provide a
guaranty agency the authority to establish reasonable criteria for an
institution to participate in the guaranty agency's program. However,
many other commenters strongly objected to this provision. The
objecting commenters suggested that in Sec. 682.401(b)(6)(i), the
Secretary allows a guaranty agency to determine that an institution
does not satisfy the standards of administrative capability and
financial stability standards as defined in 34 CFR Part 668 and
believed that the Secretary is making the guaranty agencies enforcers
of the set of administrative capability and financial responsibility
standards. The commenters believed that this structure is entirely
outside of the statute and clearly ignores the program integrity triad
as mandated under the new Part H (Program Integrity) of the HEA with a
particular role for each part of the Triad. The commenters suggested
that if the Triad is to be successful, the responsibilities contained
in the statute must be clearly set forth in regulations with no
vagaries concerning responsibility. The commenters noted that in the
General Provisions NPRM, the Secretary proposed to provisionally
certify an institution that does not currently meet the standards of
administrative capability but is expected to meet those standards in a
reasonable period of time. The commenters suggested that under the
March 16, 1994 NPRM, a guaranty agency could deny participation to
these institutions, including an institution with a cohort default rate
of 20% or greater. The commenters believed that it is the Secretary's
role to ensure that institutions meet appropriate standards of
administrative capability and financial responsibility and believed the
Secretary does so by certifying institutions. The commenters suggested
that if the institution has been certified, the guaranty agency should
be required to rely on that certification unless and until the
Secretary uses his authority to revoke that certification. The
commenters suggested that a guaranty agency provided this improper
delegation of authority may well have an incentive to retaliate against
certain institutions as a result of their filing of appeals of their
cohort default rates. The commenters suggested that appeals of cohort
default rates, especially appeals alleging servicing error, may
directly or indirectly challenge the integrity of the guaranty agency
and may have the economic effect of removing certain loans from being
eligible for federal reinsurance. The commenters further suggested that
because of the clear possibility of conflict of interest, it is
irrational to allow guaranty agencies to effectively terminate the
participation of institutions in Title IV programs. The commenters
asserted that in contrast to a State Postsecondary Review Entity
(SPRE), an accreditation agency or the Department, a guaranty agency is
not an impartial adjudicator of these issues.
Discussion: The Secretary understands that a guaranty agency is not
a member of the Program Integrity Triad authorized under Part H of the
HEA and that the Triad has imposed a new management structure on the
oversight of schools participating in the Title IV student assistance
programs. However, the Secretary believes that the statute continues to
provide a guaranty agency with oversight authority for schools applying
to or continuing to participate in its guaranteed loan program and
disagrees that the regulations provide an improper delegation beyond
the scope of statutory authority. Section 428(b)(1)(V) provides
authority for the guaranty agency to require a participation agreement
between the agency and the school as a condition for the agency
guaranteeing loans for students attending the school. As part of that
process, the Secretary believes that a guaranty agency must be
permitted to establish standards that are consistent with the standards
of administrative capability and financial responsibility contained in
34 CFR 668 for a school's participation in its guaranteed loan program.
The Secretary believes that a guaranty agency should be allowed to
protect itself from schools that abuse the FFEL program. Generally, a
guaranty agency must assume that a school that the Secretary has found
to be eligible is eligible. However, because the agency's examination
of a school for participation in its program may take place a
significant period of time after the Secretary's examination of the
school for certification, the Secretary understands that the agency may
uncover information relevant to the school's administrative capability
and financial responsibility that it wishes the Secretary to consider
before signing a participation agreement with the school. Subject to
the Secretary's agreement that such information indicates the school's
failure to meet the standards of administrative capability and
financial responsibility contained in 34 CFR 668, the agency may
decline to establish a participation agreement with the school. The
Secretary believes this authority provided to a guaranty agency does
not intrude upon the statutory responsibilities of other members of the
Triad. The Secretary also notes that the guaranty agencies have long
had responsibility for reviewing schools and have specific statutory
authority in section 428(b)(1)(T)(ii)(I) for limiting, suspending, or
terminating a school from the FFEL program. The Secretary believes that
these regulations are consistent with the agency's statutory authority
and longstanding Department policy and regulation. Additionally, the
Secretary does not believe that this regulatory authority would provide
an agency with the opportunity to retaliate against a school as a
result of a school's appeal of its cohort default rate. Such an appeal
presumes that a school already participates in the agency's program.
The statute authorizes an agency to initiate an emergency action,
limitation, suspension or termination (LST) of an eligible institution,
but provides that the action must be undertaken pursuant to criteria,
rules, or regulations issued under the student loan insurance program
which are substantially the same as regulations issued by the
Secretary. Further, an emergency action or LST is subject to review by
the Secretary. Therefore, the Secretary does not believe that the
guaranty agency can use its authority to retaliate against a school as
the commenter suggests.
Changes: The Secretary has revised Sec. 682.401(b)(6)(i)(F) of the
regulations to clarify that a guaranty agency's determination that a
school does not satisfy the standards of administrative capability and
financial responsibility defined in 34 CFR 668 is subject to the
agreement of the Secretary.
Section 682.401(b)(6)(ii)
Comments: A number of commenters objected to the provision that
gives a guaranty agency the authority to limit the total number of
loans or the volume of loans made to students attending a particular
school, or to otherwise establish appropriate limitations on the
school's participation in the agency's program where the agency has
determined that a school does not satisfy the financial responsibility
and administrative capability standards. The commenters suggested that
this inappropriately places responsibility for evaluating a school's
administrative and financial responsibility in the hands of the
guaranty agency. Some commenters objected to applying this provision to
schools that are renewing an application to continue to participate.
Some commenters suggested that allowing guaranty agencies to limit the
participation of schools that seek to renew participation gives
guaranty agencies an easy way to retaliate against institutions that
appeal their cohort default rates or take other actions that challenge
the guaranty agency.
Discussion: Section 428(b)(1)(T) of the HEA authorizes a guaranty
agency to limit the total number of loans or the volume of loans to
students attending a particular eligible institution during any
academic year. The Secretary notes that there must be a legitimate
basis for the agency to impose such a limitation. The Secretary expects
a guaranty agency to maintain evidence of the school's questionable
administrative capability.
Changes: None.
Section 682.401(b)(6)(iii)
Comments: The commenters suggested that if a guaranty agency
limits, suspends, or terminates (LST) the participation of a school
that the Secretary should not extend the LST to all locations of the
school until the Department determines that the guaranty agency in fact
followed proper procedures, correctly interpreted the law and
regulations, and gave all due process rights to the institution.
Discussion: Section 428(b)(1)(T)(ii)(I) provides authority to a
guaranty agency to limit, suspend, terminate (or take emergency action
against) a school based on the Secretary's regulations or regulations
of the guaranty agency that are substantially the same as regulations
issued by the Secretary. The statute further directs the Secretary to
apply the limitation, suspension, or termination proceeding to all
locations of those schools unless the Secretary finds, within 30 days
of the guaranty agency's notification to the Secretary of the action,
that the action did not comply with the statute and regulations. To
make this finding, the Secretary reviews the guaranty agency's actions
under section 428(b)(1)(T)(ii) of the HEA before extending the LST to
all locations.
Changes: None.
Section 682.401(b)(16)
Comments: A few commenters suggested that the regulations be
revised to permit assignment of partially disbursed loans if the
lending institution closes or is terminated and the assignment is
necessary to be certain that undisbursed funds are delivered to the
student.
Discussion: Section 428G(g) of the HEA allows for sale and
transfers only when a loan is fully disbursed unless the sale will not
change the party to whom payments are to be made and the first
disbursement has been made.
Changes: None.
Section 682.401(b)(24)
Section 682.401(b)(24)(iv)
Comments: A few commenters suggested that the regulations be
revised to provide that the guaranty agency provide schools that
request information under this paragraph an appropriate number for
borrower inquiries if the assignee of a loan uses a lender servicer,
rather than the number of the lender. The commenters pointed out that
many lenders use servicers to address loan inquiries. The commenters
suggested that these lenders do not staff their offices to address
borrower inquiries, or maintain on-line access to borrower information.
Inclusion of the assignee's number will flood these offices with calls,
frustrating the intent of providing the borrower with loan information.
Discussion: The Secretary agrees with the commenters.
Changes: The regulations have been revised to include reference to
another appropriate number for borrower inquiries if the assignee uses
a lender servicer.
Section 682.401(b)(25)
Comments: Some commenters suggested that the designation as
exceptional servicer or lender is a significant event in the business
of the servicer or lender. The commenters suggested that the parties
should be aware of the progress of their application. Another commenter
suggested that the period of time for the guaranty agency to provide
the Secretary with any information regarding an eligible lender or
servicer applying for designation for exceptional performance should be
increased to 60 days.
Discussion: The Secretary notes that these comments relate to
Sec. 682.415 of the regulations included in a Notice of Proposed
Rulemaking published on April 20, 1994. The commenters' concerns will
be addressed in that package.
Changes: Section 682.401(b)(25) has been removed.
Section 682.401(c)
Comments: A number of commenters suggested that the Secretary
delete the LLR provisions from the regulations since some of these
provisions have been repealed by OBRA. Other commenters suggested that
the regulations should be revised to address the issues and changes
made by OBRA.
Discussion: The Secretary recognizes that OBRA repealed the
provisions providing guaranty agencies the authority to deny LLR
services to students attending certain categories of schools and has
removed these provisions from the regulations. In addition, the
Secretary has reflected certain other changes made by OBRA in these
regulations.
Changes: The regulations have been revised to delete the provisions
allowing limitations of LLR services. The Secretary has also
incorporated some changes made by OBRA affecting LLR services. Section
682.401(c) of the regulations has been revised to incorporate the new
requirements that: (1) The guaranty agency must respond to a student
within 60 days after the student submits an original complete
application; and (2) prohibit the agency from requiring a borrower to
obtain more than two rejections from eligible lenders.
Section 682.401(c)(8)
Comments: A commenter suggested that the provision be revised to
reflect that during the appeal process, for schools that have been
notified that LLR services will not be provided to the school's
students, the guaranty agency must provide LLR services to students
attending the school until the date on which the guarantor is notified
rather than until the date the Secretary rejects the appeal. The
commenter noted that the guaranty agency should be protected for LLR
loans made in the brief period between the date that the Secretary
rejects the appeal and the date that the guaranty agency is aware of
the rejection and ceases origination activities. The commenter
suggested that the regulations as currently written would appear to
cause these ``interim'' loans to be uninsured.
Discussion: The Secretary notes that, with the removal of the
provisions eliminating LLR services, the school's appeal process is no
longer applicable. Therefore, the Secretary has deleted this provision
from the regulations.
Changes: Section 682.401(c)(8) has been deleted.
Section 682.405 Loan Rehabilitation
Comments: Several commenters suggested that a defaulted borrower be
afforded only one opportunity to benefit from an agency's loan
rehabilitation program. The commenters believe that a borrower who
defaults again subsequent to rehabilitation is not likely to be a good
candidate for loan rehabilitation.
Discussion: The Secretary points out that pursuant to section
428F(a)(1)(A) of the HEA, a borrower may request to have a defaulted
loan rehabilitated and after the borrower has made 12 consecutive
monthly payments, the guaranty agency must, if practicable, sell the
loan to an eligible lender. Once a borrower's loan is rehabilitated,
the borrower is no longer considered to be in default on the loan and
regains eligibility for all program benefits. Section 428F(b) of the
HEA allows a borrower with one or more defaulted loans to regain
eligibility for Title IV student financial assistance after the
borrower has made six consecutive monthly payments. The Secretary notes
that section 428F(b) was amended by the 1993 Technical Amendments to
specifically permit borrowers to receive this benefit only once.
However, no such limitation was placed on the benefits of
rehabilitation. In determining whether rehabilitation is practicable, a
guaranty agency should determine whether a borrower who has made 12
consecutive monthly payments is a good candidate for loan
rehabilitation. A borrower's previous experience in the loan
rehabilitation program may be a factor considered by the guaranty
agency in making this assessment.
Changes: None.
Section 682.405(a)(1)
Comments: Some commenters suggested the regulations should be
revised to allow guaranty agencies to consider whether the borrower is
a good candidate for loan rehabilitation. The commenters noted that the
Dear Colleague Letter (GEN 92-91 dated October 1992) provides that ``In
determining whether a sale is practicable, a guaranty agency should
determine whether a borrower * * * is a good candidate for loan
rehabilitation.'' The commenters believed that the guaranty agency
should have the discretion to deny borrowers access to its
rehabilitation program if it believes existing circumstances so
warrant. The commenters suggested, for example, if there is a judgment
against a borrower, the original terms of the promissory note may have
been altered, and the original note may be nonexistent. The commenters
believed that it is overly burdensome, if not illegal, to rehabilitate
a loan if a judgment has been issued against the borrower.
Discussion: The Secretary interprets section 428F of the HEA to
require that the rehabilitation program must be available to all
defaulted borrowers even if a guaranty agency has previously been able
to secure payment from the borrower only through involuntary means
(e.g., through a court-ordered judgment, Internal Revenue Service tax
offset, or wage garnishment). The Secretary expects guaranty agencies
to provide, on an unsolicited basis, information on the loan
rehabilitation program to all defaulted borrowers. However, the
Secretary does not expect that payments made on the loan through
involuntary means be counted toward the borrower's required 12
consecutive payments for rehabilitation. The Secretary believes that
the defaulted borrower must initiate a voluntary series of payments for
this purpose. The Secretary understands, however, that even after the
required voluntary series of monthly reasonable and affordable
payments, the rehabilitation of the loan through its purchase by a
lender may not be possible in all cases. The Department expects
guaranty agencies to work diligently to identify lenders willing to
purchase these loans, thereby rehabilitating them. However, section
428F(a)(2) of the HEA states that the guaranty agency shall sell the
loan, if practicable [emphasis added]. The Secretary believes that the
agency has the authority in working with its repurchasing lenders to
determine if some borrowers are not good candidates for loan
rehabilitation because they continue to represent a high risk of
default once the loan is purchased. In those instances, the borrower's
loan would remain with the guaranty agency and the borrower would
continue to make payments on the loan to the agency.
Changes: Section 682.405(a)(1) of the regulations has been revised
to allow the agency to determine if the sale of a loan to another
lender is practicable for the purposes of loan rehabilitation.
Comments: Some commenters suggested that a loan should be
considered rehabilitated at such point that the borrower has met the
criteria over which the borrower has control, i.e., when the twelve
payments have been made. The commenters believed that the sale of the
loan to an eligible lender is an unrelated administrative task.
Discussion: The Secretary disagrees with the commenters. The
Secretary notes that the loan is still in default as long as it is with
the guaranty agency, even after the required series of payments are
made and the borrower is not eligible for all benefits of the program
(e.g., deferment). The Secretary notes that section 428F(a) of the HEA
provides that only after the loan has been repurchased by the lender
has it been effectively rehabilitated.
Changes: None.
Comments: Some commenters suggested that the proposed regulations
should be clarified to state that the borrower who rehabilitates a loan
regains full eligibility for deferments and forbearances, even if the
borrower previously received a deferment.
Discussion: The Secretary disagrees with the commenters that the
borrower should regain full eligibility for deferments. The Secretary
notes longstanding Department policy that the deferments with which a
maximum period is associated apply to the borrower and not to
individual sets of loans and that the borrower will only qualify for
the balance of deferment eligibility.
Changes: Section 682.405(a)(3) of the regulations has been revised
to provide that once the loan is rehabilitated, the borrower regains
all benefits of the program, including any remaining deferment
eligibility the borrower may have under the law from the date of the
rehabilitation.
Section 682.405(b)(1)
Comments: Some commenters suggested that the regulations be revised
to define ``voluntary payments'' to include payments made on behalf of
the borrower.
Discussion: The Secretary believes that the borrower must make a
good faith effort in making the required consecutive monthly payments
to qualify for loan rehabilitation. The Secretary does not believe that
payments made by parents or other individuals on behalf of the borrower
for purposes of rehabilitating a defaulted loan constitutes a good
faith effort on the part of the borrower.
Changes: None.
Comments: Some commenters noted that the regulations suggested that
a borrower may qualify for loan rehabilitation even if the guaranty
agency has obtained a judgment against the borrower for the defaulted
loan. The commenters suggested that since the original promissory note
is surrendered to the court when there is a judgment on the loan, it
would become very difficult to initiate legal proceedings against a
rehabilitated borrower who again defaulted on the rehabilitated loan.
Discussion: The Secretary shares the concerns raised by the
commenters. However, the Secretary also believes that a borrower should
not lose the opportunity to rehabilitate a defaulted loan due solely to
a judgment. Accordingly, the Secretary has modified the regulations to
require a borrower who wishes to rehabilitate a loan on which a
judgment has been entered to sign a new promissory note prior to the
sale of the loan to an eligible lender. This approach is necessary to
make sale of the loan practicable.
Changes: The Secretary has amended Sec. 682.405(a) to add a new
paragraph (4) to require a borrower against whom the agency has a
judgment to enter into a new promissory note.
Section 682.405(b)(1)(i)(A)
Comments: Some commenters suggested that the regulations should
allow for the inclusion of utilities and work-related expenses in the
listing of necessary expenses for the purpose of determining a
reasonable and affordable payment.
Discussion: The Secretary agrees with the commenters.
Changes: The regulations have been revised to include utilities and
work-related expenses.
Section 682.405(b)(1)(i)(C)(1)
Comments: Some commenters suggested that the regulations should be
revised to clarify that the borrower's financial status should be
determined by reviewing the most current information available,
particularly the most recent U.S. income tax return for documentation
of the borrower's current income.
Discussion: The Secretary agrees with the commenters.
Changes: The regulations have been revised to provide that the
borrower must provide the most recent U.S. income tax return.
Section 682.405(b)(1)(i)(C)(3)
Comments: A few commenters recommended that the unpaid balances on
all FFEL Program loans be considered when determining the monthly loan
amount that is reasonable and affordable, not just defaulted FFEL
loans.
Discussion: The Secretary agrees with the commenters.
Changes: Section 682.405(b)(1)(i)(C)(3) of the regulations has been
revised to provide that a guaranty agency shall consider unpaid
balances on all FFEL Program loans held by other holders when making a
determination of what constitutes a ``reasonable and affordable''
payment for loan rehabilitation or reinstatement of Title IV
eligibility.
Section 682.405(b)(1)(i)(C)(iv)
Comments: Some commenters suggested that a guaranty agency should
not be required to provide the borrower with a written statement
because the borrower may interpret such a statement as a new
obligation. The commenters stated that if the loan is rehabilitated,
the lender purchasing the rehabilitated loan will be required to
disclose new terms. The commenters further stated that if the borrower
has a written statement from the guaranty agency, but not from the
lender, the borrower may be able to claim that he or she has no legal
obligation to abide by the terms established by the rehabilitating
lender.
Discussion: The Secretary did not intend to require the guaranty
agency to disclose new repayment terms on the rehabilitation loan. The
Secretary agrees that it would be more appropriate for the disclosure
to be done by the purchasing lender. Rather, the Secretary merely
intended the guaranty agency to provide written confirmation of the
agency's determination of the borrower's reasonable and affordable
payment amount, the number of consecutive monthly payments that must be
made to qualify for consideration for loan rehabilitation, any
deadlines attached to those payments, and any factors the agency will
consider in determining whether the repurchase of the borrower's loan
is practicable.
Changes: Section 682.405(b)(1)(iv) of the regulations has been
revised to require the guaranty agency to provide a written statement
confirming the borrower's reasonable and affordable payment amount and
other conditions surrounding the loan rehabilitation.
Comments: Some commenters suggested that the guaranty agencies be
required to inform borrowers who enter into a renewed eligibility plan
of the possibility of loan rehabilitation after 12 months. The
commenters suggested that by doing so borrowers can make informed
decisions about whether exercising the option after 12 payments is to
their advantage.
Discussion: The Secretary agrees with the commenters that a
guaranty agency should be required to inform a borrower when entering
into an agreement to reinstate loan eligibility of the possibility of
loan rehabilitation after an additional six monthly payment amounts and
the potential consequences of loan rehabilitation. The Secretary
believes that a borrower should be provided sufficient information
about the circumstances and potential consequences of loan
rehabilitation to have an understanding of what is expected before
making the required 12 monthly payments. Borrowers should be aware of,
for example, that a potential increase in loan payment amounts may be
necessary once the loan is repurchased by the lender if the reasonable
and affordable monthly payment amount paid to the guaranty agency will
not provide for the borrower to repay the loan within the 10-year
maximum repayment period. The Secretary agrees that providing this
information will place the borrower in a position to make an informed
decision of whether or not to exercise his or her option for loan
rehabilitation.
Changes: The regulations have been revised to provide that guaranty
agencies must inform borrowers of the consequences of loan
rehabilitation after 12 months. Additionally, a new paragraph has been
added as Sec. 682.401(b)(4)(iv) to require guaranty agencies to provide
information to defaulted borrowers who made the required series of
monthly payments to reinstate Title IV eligibility of the possibility
of loan rehabilitation.
Section 682.406(a)(14)
Comments: A few commenters recommended that the regulations be
revised to reflect the 1993 Technical Amendments change that provides
that the guaranty agencies certify that diligent attempts of skip-
tracing have been made by the lender under Sec. 682.411 before
receiving reinsurance payments.
Some commenters suggested that the regulations should indicate that
the guaranty agency assures the Secretary that diligent attempts have
been made by the lender and the guaranty agency under Sec. 682.411 to
locate the borrower through the use of reasonable skip-tracing
techniques.
Discussion: Section 428(c)(2)(G) of the HEA, as changed by the 1993
Technical Amendments, provides that the guaranty agency may not receive
reinsurance payments unless it certifies that diligent attempts have
been made to locate the borrower through the use of reasonable skip-
tracing techniques. As pointed out in the preamble to the proposed
regulations, the Secretary believes that it is primarily a lender
responsibility to locate the borrower through the use of skip-tracing
techniques. However, the Secretary intends that diligent attempts must
be made by either the lender or the agency to locate the borrower. The
language of the regulations is intended to insure that if the lender
does not perform the required skip-tracing, the guaranty agency will be
responsible for doing so.
Changes: Section 682.406(a)(14) of the regulations has been revised
by using the word ``certifies'' rather than ``assures''.
Section 682.407
Comments: A few commenters pointed out that the language in
Sec. 682.407(f) incorrectly references ED Form 1189 for adjusting
improperly paid administrative cost allowance payments.
Discussion: The Secretary agrees with the commenters.
Changes: The regulations have been revised to reflect that the
adjustment is to be made on the ED Form 1130.
Section 682.409 Mandatory Assignment by Guaranty Agencies of Defaulted
Loans to the Secretary
Comments: One commenter asked if it is the intent of the Secretary
to only benefit borrowers who move from the FFEL program to the Federal
Direct Student Loan (FDSL) Program under this provision.
Discussion: Although the Secretary is authorized to require FFEL
loans to be assigned to the Secretary to affect an orderly transition
from the FFEL to the Federal Direct Loan Program, one of the primary
reasons for loan assignment is that the guaranty agency has been unable
to collect on a defaulted loan it holds and the Secretary believes that
the Department can more effectively collect on the loan. Loans assigned
to the Department under the authority specified in section 682.409 are
all defaulted FFEL loans held by guaranty agencies. These loans do not
include non-defaulted FFEL loans which a borrower has requested to be
consolidated under the Federal Direct Loan Consolidation Program. Until
a defaulted FFEL borrower resolves his default status with the holder
of the loan, either the guaranty agency prior to the assignment or the
Department following assignment, the borrower is not eligible for any
benefits under the FFEL or Federal Direct Loan Program. As a result,
the Secretary does not believe that the mandatory assignment process
benefits particular defaulted borrowers over others.
Changes: None.
Comments: One commenter asked what guidelines the Secretary would
choose to have loans assigned. Specifically, the commenter was
concerned that loan assignment might cause a guaranty agency to
experience financial instability.
Discussion: To the extent that the financial stability of a
guaranty agency is in the Federal fiscal interest, the Secretary may
choose, on a case-by-case basis, not to require the assignment of loans
if the assignment will jeopardize the agency's financial stability.
Changes: None.
Comments: One commenter requested clarification on how mandatory
assignment of FFEL loans relates to an orderly transition from the FFEL
Program to the FDSL Program.
Discussion: As noted by the commenter, section 428(c)(8) of the HEA
provides that the Secretary will require an agency to assign loans if
the Federal fiscal interest so requires. In addition, the statute deems
the orderly transition to the FDSL Program to be in the Federal fiscal
interest. The proposed regulations did not clearly reflect the
Secretary's discretion in this area. Accordingly, the Secretary has
revised the regulations to reflect the Secretary's statutory
discretion. The Secretary believes that the assignment of FFEL loans
will not impede the orderly transition to the FDSL Program. If it
appears to the Secretary that the orderly transition to the FDSL
Program is either impeded or facilitated by mandatory assignment, the
Secretary will exercise his authority to modify the assignment
criteria.
It is also the view of the Secretary that it is in the Federal
fiscal interest for the Federal government to collect defaulted student
loans owed by Federal employees unless the guaranty agency has obtained
a judgment against the Federal employee to collect by wage garnishment
15 percent or more of disposable pay as defined in 34 CFR Part 31.
Changes: The regulations have been changed to reflect the
Secretary's discretion.
Comments: One commenter indicated support for the criteria for
performance standards established in this section for mandatory
assignment of certain loans to the Secretary by a guaranty agency. The
commenter said the language in this section represents the efforts of
the community and the Secretary's staff in developing an equitable
criteria for the assignment of loans and that the criteria outlined in
this section best protect the Federal fiscal interest.
Discussion: The Secretary agrees with the commenter.
Changes: None.
Comments: Two commenters asked if this section should be revised to
exclude those agencies that are determined to qualify for Exceptional
Performer status.
Discussion: Designation as an Exceptional Performer means that a
guaranty agency has shown a high level of compliance with the
provisions of 34 CFR 682.410. That section of the regulations focuses
on the default collection process, not the results of the process.
Section 682.409 establishes standards that focus on outcomes as
expressed in fiscal year loan type recovery rates. The Secretary
believes that the collection of defaulted FFEL loans is important and
should be governed by both process and outcome requirements. The
Secretary does not believe that excusing guaranty agencies from
complying with outcome requirements because they have complied (even to
a high degree) with process requirements would adequately protect the
Federal fiscal interest.
Changes: None.
Comments: A commenter asked if these provisions would force
guaranty agencies to evaluate their entire preclaim and default
collection operations, in order to achieve the highest recovery rate.
Discussion: The Secretary agrees that guaranty agencies need to
evaluate their default prevention and default collection operations.
These regulations represent the initial attempt by the Secretary, in
consultation with the guaranty agencies, to establish default
collection performance standards. The Secretary believes that it is in
the Department's and the guaranty agencies' best interest to establish
default prevention performance standards as soon as practicable.
Changes: None.
Comments: A commenter observed that guaranty agencies will be
required to monitor their operations constantly, indicating that it
will be more difficult for an agency to continue producing recoveries
over the 80 percent standard required by the regulations. The commenter
noted that once the Secretary imposes additional assignment
requirements on agencies that fall below the 80 percent standard, this
provision will automatically increase the average recovery rate on
which the 80 percent is based.
Discussion: The Secretary agrees that guaranty agencies will have
to constantly monitor their operations to satisfy these standards. The
Secretary also expects that the assignment process based on recovery
rate standards will result in the gradual, steady increase in the
average recovery rate.
Changes: None.
Comments: A commenter observed that this section does not require
the Department to load and begin collection on defaulted loans assigned
to it within a specified time period. Collection activity could cease
for months while an account is being processed. The commenter noted
that it is in the Department's best interest to ensure that this gap in
collection activities is minimized by providing specific time periods
to begin the collection of new accounts.
Discussion: The Secretary agrees that it is desirable to load
assigned accounts quickly so that gaps in collection activity are
minimized. While these regulations do not control this process, the
Secretary intends to loan assigned accounts as quickly as possible.
Changes: None.
Section 682.409(a)(2)(i)
Comments: A commenter observed that participation in the IRS offset
program is required by the Department and recommended that offset
collections be included in calculating the recovery rate standards. The
commenter believed that this will help assure guarantor participation
in the IRS offset program to the maximum extent possible.
Discussion: The Secretary agrees with the commenter. However, the
Secretary notes that the regulations do not reflect the requirement
that guaranty agencies participate in the Federal Income Tax Refund
Offset program. The Secretary has modified the regulations to reflect
this requirement.
Changes: Section 682.409(a)(2)(i) has been revised to reference
collections by Federal Income Tax Refund Offset.
Section 682.409(a)(3)(i)(B)
Comments: A few commenters suggested that the Secretary amend the
appeals process for failure to meet performance standards. They asked
that the Secretary either permit agencies that have a large number of
borrowers making ``reasonable and affordable'' payments as a result of
the borrowers' financial circumstances to appeal on that basis or that
these loans be excluded entirely from the calculation.
Discussion: The Secretary agrees with the commenters that the
regulations should be revised to encourage compliance with the
provisions in Sec. 682.401(b)(4) and Sec. 682.405 requiring guaranty
agencies to provide certain borrowers with ``reasonable and
affordable'' payment plans. However, the Secretary believes that
excluding loans with ``reasonable and affordable'' payment plans from
the calculation would place an unnecessary reporting burden on the
guaranty agencies, as well as increase the costs that would be incurred
by the Department associated with collecting and auditing the data. The
Department will provide a guaranty agency with the opportunity to
demonstrate how ``reasonable and affordable'' payment arrangements have
affected its recovery rate. The Department will make a determination on
an acceptable agency recovery rate on an agency-by-agency basis. The
agency will be required to identify all borrower accounts for which
required reasonable and affordable payment amounts have impacted the
agency's collection recovery rate. The Department will examine a sample
of these accounts to determine how this should be assessed in
determining the agency's recovery rate.
Changes: The Secretary has revised Sec. 682.409(a)(3)(i)(B) to
provide that the Federal interest will be served if the agency
demonstrates that its compliance with Sec. 682.401(b)(4) and
Sec. 682.405 has reduced substantially its fiscal year loan type
recovery rate or rates.
Section 682.409(a)(3)(i)(C)(2)
Comments: A commenter suggested that as the paragraph is not
describing a mathematical derivation, the word ``categorized'' is more
appropriate.
Discussion: The Secretary agrees with the commenter.
Changes: Section 682.409(a)(3)(i)(C)(2) has been revised to replace
``divided'' with ``categorized.''
Section 682.409(c)(1)
Comments: A few commenters asked if Sec. 682.409(c)(1) needs to
specify the manner, information, and documentation necessary for
mandatory assignment.
Discussion: The Secretary considered expanding Sec. 682.409(c)(1)
to incorporate the manual assignment and computer tape assignment
procedures that are transmitted to the guaranty agencies each year by
mail. However, the Secretary believes that this informal notification
process has worked particularly well over the last two years, in part
because it has been accomplished without the burden presented by the
regulatory process. He believes that the current procedures have
provided for a flexible process that has been responsive to changing
guaranty agency and Departmental needs. Therefore, the Secretary has
decided not to expand these regulations to include operational
procedures associated with mandatory assignment.
Changes: None.
Section 682.410 Fiscal, Administrative, and Enforcement Requirements
Section 682.410 General
Comments: A few commenters noted that on-going negotiated
rulemaking sessions are addressing matters covered in this section of
the regulations. The commenters suggested that it would be
inappropriate for final rules to be issued in light of the negotiations
underway. Commenters recommended that the Department should propose
regulations for issues related to this section later through an NPRM
and final rules process devoted solely to these issues.
Discussion: The Secretary notes that these regulations are directly
related to the 1992 Amendments and were developed under the negotiated
rulemaking sessions required by the 1992 Amendments. The provisions of
the 1992 Amendments that were not changed by OBRA are reflected in
these final regulations. The Secretary intends to propose rules to
implement the provisions of OBRA related to guaranty agency reserves
soon after the conclusion of current negotiated rulemaking sessions on
this subject. In addition, the Secretary intends to have final
regulations implementing both the 1992 Amendments and OBRA go into
effect at the same time on July 1, 1995.
Changes: None.
Section 682.410(a)(1)(vii)
Comments: Commenters recommended that funds collected by the
guaranty agency, included under Sec. 682.410(a)(1)(vii) as reserve fund
assets, should include only funds collected on FFELP loans held by that
agency or FFELP loans for which the agency paid a claim.
Discussion: The Secretary agrees that clarification is necessary.
Changes: The final regulations have been revised to clarify that
only funds collected on FFELP loans on which a claim has been paid are
included in Sec. 682.410(a)(1)(vii).
Section 682.410(a)(3)
Comments: Commenters objected to Sec. 682.410(a)(3), Special rule
for use of certain reserve fund assets, as redundant and confusing.
Discussion: The Secretary agrees that Sec. 682.410(a)(3) is
unnecessary.
Changes: The language in Sec. 682.410(a)(3) has been simplified and
merged into Sec. 682.410(a)(2).
Section 682.410(a)(6)
Comments: A commenter urged that the Secretary consider provisions
for further review and due process in connection with the requirements
of Sec. 682.410(a)(6), minimum reserve fund level.
Discussion: Section 682.410(a)(6) simply states the statutory
requirements for minimum reserve levels. This paragraph specifies no
action by the Department requiring review or due process.
Changes: None.
Section 682.410(a)(7)
Comments: A commenter suggested that the calculation of the
guaranty agency ``Reserve fund level'' include receivables from ED and
exclude payables to ED. The commenter argued that acknowledgment of
those amounts is essential for an accurate determination of a
guarantor's financial status.
Discussion: The Secretary is interested in determining the amount
of assets in a guaranty agency's reserve fund at a point in time. The
Secretary acknowledges that the reserve fund level as defined in this
paragraph does not accurately reflect the overall financial condition
of the guaranty agency. However, the Secretary also believes that
including receivables from ED and deducting payables to ED would also
not result in an accurate calculation of the agency's financial
condition since agencies have receivables from and payables to parties
other than ED. The Secretary agrees that if an agency's reserve fund
level, calculated in accordance with this section, is less than the
minimum specified in Sec. 682.410(a)(6), the guaranty agency will be
provided with the opportunity to submit information concerning its
accounts payable and accounts receivable in extenuation of its reserve
level.
Changes: None.
Section 682.410(a)(8)(ii)(B)
Comments: A commenter recommended removing loan guarantees
transferred to another agency pursuant to a plan of the Secretary in
response to the insolvency of the agency as an exclusion from loan
guarantees transferred to another agency in Sec. 682.410(a)(8)(ii)(B).
Discussion: The Secretary agrees that the reference to those loans
should be removed from Sec. 682.410(a)(8)(ii)(B) because it is
duplicative of 34 CFR 682.410(a)(8)(i)(B) which already provides for
this exclusion.
Changes: Section 682.410(a)(8)(ii)(B) has been revised to delete
the reference to loans transferred because of insolvency.
Section 682.410(a)(8)(ii)(E)
Comments: Some commenters recommended that all loans for which a
claim has been paid be subtracted from the total loans guaranteed in
calculating loans outstanding in Sec. 682.410(a)(8), definition of
amount of loans outstanding. One commenter recommended subtracting from
the amount of loans for which a claim has been paid only those loans
for which claims were paid at the direction of the Secretary.
Discussion: The proposed rule would have subtracted loans for which
claims are paid under Sec. 682.412(e) on ineligible loans, under
Sec. 682.509(a)(1) because of school closing, or at the direction of
the Secretary, from total loans for which a claim has been paid. The
Secretary agrees that loans for which claims have been paid are not
outstanding.
Changes: The regulations have been revised to remove the three
exclusions.
Section 682.410(a)(8)
Comments: A commenter recommended adding to Sec. 682.410(a)(8),
amount of loans outstanding, a new paragraph (iii) to subtract the
principal amount of loans not disbursed because the loan guarantee was
partially canceled.
Discussion: Reporting requirements for Form 1130 provide detailed
definitions for the items listed in Sec. 682.410(a)(8). Partially
canceled loans are one of the categories reported under cancelled loan
guarantees and are therefore included in Sec. 682.410(a)(8)(ii)(A).
Changes: None.
Section 682.414 Records, Reports, and Inspection Requirements for
Guaranty Agency Programs
Comments: A commenter recommended that Sec. 682.414(a)(3)(ii)(K) be
revised to explicitly require lenders to retain copies of audit reports
for not less than five years after the report is issued. While
Sec. 682.414(a)(3)(ii)(K) implies that audits are covered under this
section because they are reports, the commenter suggested that the
section be revised explicitly to require that the audit reports be kept
on file.
Discussion: The Secretary agrees with the commenter that the
regulations should explicitly require a lender to retain a copy of its
annual audit report for not less than five years after the report is
issued.
Changes: Section 682.414(a)(3) has been revised to incorporate the
commenter's recommendation.
Section 682.511 Due Diligence in Collecting a Loan
Comments: A few commenters suggested that the regulations be
revised to reflect that joint borrowers may cancel a loan even if they
do not simultaneously satisfy the same cancellation criterion but the
loan would otherwise be ``cancellable''. The commenters cited the
example of a loan with joint borrowers where one borrower becomes
totally, permanently disabled and the other files for bankruptcy (with
the loan subject to discharge), both conditions under which a borrower
would normally be able to cancel a loan.
Discussion: The Secretary clarifies that a lender may file a claim
for reimbursement based on the fact that, at the time of the request
for discharge, joint borrowers both have a condition under which a
borrower would qualify to cancel a loan.
Changes: The regulations have been revised to reflect that a claim
may be filed based on each borrower satisfying the criteria.
Section 682.603 Certification by a Participating School in Connection
With a Loan Application
Section 682.603(h)
Comments: Several commenters suggested that the wording of
Sec. 682.603(h) could be made clearer by substituting ``earlier than
the 24th day of the student's period of enrollment'' for ``earlier than
7 days prior to the 31st day of the student's period of enrollment.''
Discussion: Paragraph (h) of Sec. 682.603 is meant to achieve, in
the case of new borrowers subject to delayed delivery of loan proceeds,
the appropriate interest limitation Congress intended in Sec. 682.300
using a schedule based on the date of disbursement by the lender. The
Secretary agrees that the suggested rewording would more clearly state
that requirement.
Changes: A change has been made to reflect that a school may not
request the disbursement of loan proceeds for a first time borrower who
has not previously borrowed a Stafford or SLS loan earlier than the
24th day of the student's period of enrollment.
Section 682.604 Processing the Borrower's Loan Proceeds and Counseling
Borrowers
Section 682.604(c)(3)
Comments: Some commenters suggested that the Secretary revise the
language to codify the Department's earlier guidance that eliminates
the separate borrower authorization statement for those students who
provide the authorization for electronic fund transfer disbursement on
the common loan application.
Discussion: The Secretary agrees that this provision does not apply
in those instances where the borrower has provided a separate
authorization for electronic fund transfer via the common loan
application.
Changes: The regulations have been revised to provide that the
school fulfills this requirement if the borrower has authorized the
electronic fund transfer on the common loan application.
Section 682.604(g)(2)(vi)
Comments: A commenter recommended that the language be revised to
reflect that when a borrower has obtained loans from multiple
guarantors, that the institution provide the required updated
information to all guarantors listed in the borrower's file.
Discussion: The Secretary agrees that updated information should be
provided to the guaranty agency or agencies within the specified time.
Changes: The regulations have been revised to incorporate the
commenter's recommendation.
Section 682.604(h)
Comments: A few commenters suggested that the overaward tolerance
for the FFEL program be consistent with the $200 overaward allowed in
the campus-based programs. Some commenters suggested that the statutory
silence on the issue of tolerance does not constitute a prohibition.
Discussion: There is no statutory basis for providing a $200
tolerance in the treatment of an FFEL program overaward. Congress has
provided specific statutory tolerances in the campus-based overaward
provisions and for limited purposes in the FFEL program in section
428G(d) of the HEA. Given these precedents, if Congress had intended to
provide for a general tolerance it would have included it in the
statute.
Changes: None.
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 these 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.
Waiver of Proposed Rulemaking
In addition to the changes made to part 682 based on public comment
on the notice of proposed rulemaking, the Secretary has revised the
regulations to include technical changes made by certain legislation,
as stated above.
It is the practice of the Secretary to offer interested parties the
opportunity to comment on proposed regulations in accordance with
section 431(b)(2)(A) of the General Education Provisions Act (20 U.S.C.
1232(b)(2)(A)) and the Administrative Procedure Act, 5 U.S.C. 553.
However, since these changes merely reflect statutory changes in the
regulations and do not establish substantive policy changes, public
comment could have no effect. Therefore, the Secretary has determined,
pursuant to 5 U.S.C. 553(b)(B), that public comment on these amendments
to the regulations is unnecessary and contrary to the public interest.
Assessment of Educational Impact
In the notice of proposed regulations, the Secretary requested
comments on whether the proposed regulations in this document would
require transmission of information that is being gathered by or is
available from any other agency or authority of the United States.
Based on the response to the proposed rules and on its own review,
the Department has determined that the regulations in this document do
not require transmission of information that is being gathered by or is
available from any other agency or authority of the United States.
List of Subjects in 34 CFR Part 682
Administrative practice and procedure, Colleges and universities,
Education, Loan programs--education, Reporting and recordkeeping.
(Catalog of Federal Domestic Assistance Number 84.032, Federal
Family Education Loan Program)
Dated: May 25, 1994.
Richard W. Riley,
Secretary of Education.
The Secretary amends Part 682 of Title 34 of the Code of Federal
Regulations as follows:
PART 682--FEDERAL FAMILY EDUCATION LOAN PROGRAM
1. The authority citation for Part 682 continues to read as
follows:
Authority: 20 U.S.C. 1071 to 1087-2, unless otherwise noted.
2. Section 682.100 is amended by revising paragraphs (a)(2), (a)(3)
and (a)(4) to read as follows:
Sec. 682.100 The Federal Family Education Loan programs.
(a)* * *
(2) The Federal Supplemental Loans for Students (SLS) Program, as
in effect for periods of enrollment beginning prior to July 1, 1994,
which encourages making loans to graduate, professional, independent
undergraduate, and certain dependent undergraduate students.
(3) The Federal PLUS (PLUS) Program, which encourages making loans
to parents of dependent undergraduate students. Before October 17,
1986, the PLUS Program also provided for making loans to graduate,
professional, and independent undergraduate students. Before July 1,
1993, the PLUS Program also provided for making loans to parents of
dependent graduate students.
(4) The Federal Consolidation Loan (Consolidation) Program, which
encourages making loans to borrowers for the purpose of consolidating
their repayment obligations, with respect to loans received while they
were students, under the Federal Insured Student Loan (FISL), Stafford
loan, SLS, ALAS (as in effect before October 17, 1986), PLUS, and
Perkins Loan programs, the Health Professions Student Loan (HPSL)
Program authorized by subpart II of Part A of Title VII of the Public
Health Services Act, and Health Education Assistance Loans (HEAL)
authorized by Subpart I of Part A of Title VII of the Health Services
Act.
* * * * *
3. Section 682.101 is amended by revising paragraph (c) to read as
follows:
Sec. 682.101 Participation in the FFEL programs.
* * * * *
(c) Students who meet certain requirements, including enrollment at
a participating school, may borrow under the Stafford Loan and, prior
to July 1, 1994, the SLS program. Parents of eligible dependent
undergraduate students may borrow under the PLUS Program. Borrowers
with outstanding Stafford, SLS, FISL, Perkins, HPSL, HEAL, ALAS, or
PLUS loans or married couples each of whom have eligible loans under
these programs may borrow under the Consolidation Loan Program.
* * * * *
4. Section 682.102 is amended by adding a new sentence at the end
of the second sentence in paragraph (d); and by adding a new sentence
at the end of paragraph (e)(1) to read as follows:
Sec. 682.102 Obtaining and repaying a loan.
* * * * *
(d) Consolidation loan application. * * * In the case of a married
couple seeking a Consolidation loan, only the holders for one of the
applicants must be contacted for consolidation.* * *
(e) Repaying a loan. (1) * * * The borrower's obligation to repay a
PLUS loan is cancelled if the student, on whose behalf the parent
borrowed, dies. The borrower's obligation to repay all or a portion of
his or her loan may be cancelled if the borrower is unable to complete
his or her program of study because the school closed or the borrower's
eligibility to borrow was falsely certified by the school. The
obligation to repay all or a portion of a loan may be forgiven for
borrowers who enter certain areas of the teaching or nursing
professions or perform certain kinds of national or community service.
* * * * *
5. Section 682.200 is amended by redesignating paragraphs (a)(1)(i)
and (a)(1)(ii) as paragraphs (a)(1) and (a)(2) respectively; removing
``Eligible institution'' from redesignated paragraph (a)(2); revising
the definition of ``Co-maker'' in paragraph (b); revising the
definition of ``Disbursement'' in paragraph (b); revising paragraph (1)
of the definition of ``Estimated financial assistance''in paragraph
(b); adding a new sentence at the end of the definition of ``Grace
period'' in paragraph (b); revising paragraph (2), and redesignating
paragraphs (3) and (4) as paragraphs (4) and (5) respectively, and
adding a new paragraph 3, in the definition of ``Lender'' in paragraph
(b); revising the definitions of ``Repayment period'' and ``Stafford
Loan Program'' in paragraph (b); adding, in alphabetical order, new
definitions of ``Disposable income'', ``Nonsubsidized Stafford loan'',
``Satisfactory repayment arrangement'', ``Subsidized Stafford loan'',
``Unsubsidized Stafford loan'', and ``Write-off'' in paragraph (b) to
read as follows:
Sec. 682.200 Definitions.
* * * * *
Co-maker. One of two parents who are joint borrowers on a PLUS loan
or one of two individuals who are joint borrowers on a Consolidation
loan, each of whom are eligible and who are jointly and severally
liable for repayment of the loan.
Disbursement. The transfer of loan proceeds by a lender to a
borrower, a school, or an escrow agent by issuance of an individual
check, a master check that represents loan amounts for more than one
borrower, or by electronic funds transfer.
* * * * *
Disposable income. That part of a borrower's compensation from an
employer and other income from any source that remains after the
deduction of any amounts required by law to be withheld, or any child
support or alimony payments that are made under a court order or
legally enforceable written agreement. Amounts required by law to be
withheld include, but are not limited, to Federal and State taxes,
Social Security contributions, and wage garnishment payments.
* * * * *
Estimated financial assistance. (1) The estimated amount of
assistance that a student has been or will be awarded for a period of
enrollment, beginning on or after July 1, 1993, for which the loan is
sought, from Federal, State, institutional, or other scholarship,
grant, financial need-based employment, or loan programs, including but
not limited to--
(i) Veterans' educational benefits paid under Chapters 30, 31, 32,
and 35 of Title 38 of the United States Code;
(ii) Educational benefits paid under Chapters 106 and 107 of Title
10 of the United States Code (Selected Reserve Educational Assistance
Program);
(iii) Reserve Officer Training Corps (ROTC) scholarships and
subsistence allowances awarded under Chapter 2 of Title 10 and Chapter
2 of Title 37 of the United States Code;
(iv) Benefits paid under Pub. L. 97-376, section 156: Restored
Entitlement Program for Survivors (or Quayle benefits);
(v) Benefits paid under Pub. L. 96-342, section 903: Educational
Assistance Pilot Program;
(vi) Any educational benefits paid because of enrollment in a
postsecondary education institution;
(vii) The estimated amount of other Federal student financial aid,
including, but not limited to, a Stafford loan, Pell Grant and, to the
extent funding is available and according to the school's award
packaging policy, campus-based aid the student is expected to receive;
(viii) In the case of a PLUS loan, the estimated amount of other
Federal student financial aid, including but not limited to, a Stafford
loan, Pell Grant and campus-based aid that the student has been or will
be awarded.
(2) The estimated amount of assistance does not include--
(i) Those amounts used to replace the expected family contribution,
including--
(A) Nonsubsidized Stafford loan amounts for which interest benefits
are not payable;
(B) SLS and PLUS loan amounts; or
(C) Private and state-sponsored loan programs; and
(ii) Perkins loan and College Work-Study funds that the school
determines the student has declined.
* * * * *
Grace period. * * * For an SLS borrower who also has a Federal
Stafford loan on which the borrower has not yet entered repayment, the
grace period is an equivalent period after the borrower ceases to be
enrolled as at least a half-time student at an eligible institution.
* * * * *
Lender. * * *
(2) With respect to a National or State chartered bank, a mutual
savings bank, a savings and loan association, a stock savings bank, or
a credit union--
(i) The phrase ``subject to examination and supervision'' in
section 435(d) of the Act means ``subject to examination and
supervision in its capacity as a lender'';
(ii) The phrase ``does not have as its primary consumer credit
function the making or holding of loans made to students under this
part'' in section 435(d) of the Act means that the lender does not, or
in the case of a bank holding company, the company's wholly-owned
subsidiaries as a group do not at any time, hold FFEL Program loans
that total more than one-half of the lender's or subsidiaries' combined
consumer credit loan portfolio, including home mortgages held by the
lender or its subsidiaries.
(3) A bank that is subject to examination and supervision by an
agency of the United States, making student loans as a trustee, may be
an eligible lender if it makes loans under an express trust, operated
as a lender in the FFEL programs prior to January 1, 1975, and met the
requirements of this paragraph prior to July 23, 1992.
* * * * *
Nonsubsidized Stafford loan. A Stafford loan made prior to October
1, 1992 that does not qualify for interest benefits under
Sec. 682.301(b) or special allowance payments under Sec. 682.302.
* * * * *
Repayment period. (1) For a Stafford loan, the period beginning on
the date following the expiration of the grace period and ending no
later than 10 years from the date the first payment of principal is due
from the borrower, exclusive of any period of deferment or forbearance.
(2) For unsubsidized Stafford loans, the period that begins on the
day after the expiration of the applicable grace period that follows
after the student ceases to be enrolled on at least a half-time basis
and ending no later than 10 years from that date, exclusive of any
period of deferment or forbearance. However, payments of interest are
the responsibility of the borrower during the in-school and grace
period, but may be capitalized by the lender.
(3) For SLS loans, the period that begins on the date the loan is
disbursed, or if the loan is disbursed in more than one installment, on
the date the last disbursement is made and ending no later than 10
years from that date, exclusive of any period of deferment or
forbearance. The first payment of principal is due within 60 days after
the loan is fully disbursed unless a borrower who is also a Stafford
loan borrower but who, has not yet entered repayment on the Stafford
loan requests that commencement of repayment on the SLS loan be delayed
until the borrower's grace period on the Stafford loan expires.
Interest on the loan accrues and is due and payable from the date of
the first disbursement of the loan. The borrower is responsible for
paying interest on the loan during the grace period and periods of
deferment, but the interest may be capitalized by the lender.
(4) For Federal PLUS loans, the period that begins on the date the
loan is disbursed, or if the loan is disbursed in more than one
installment, on the date the last disbursement is made and ending no
later than 10 years from that date, exclusive of any period of
deferment or forbearance. Interest on the loan accrues and is due and
payable from the date of the first disbursement of the loan.
(5) For Federal Consolidation loans, the period that begins on the
date the loan is disbursed and ends no later than 10, 12, 15, 20, 25,
or 30 years from that date depending upon the sum of the amount of the
Consolidation loan, and the unpaid balance on other student loans,
exclusive of any period of deferment or forbearance.
Satisfactory repayment arrangement. (1) For purposes of regaining
eligibility under section 428F(b) of the HEA, the making of six (6)
consecutive voluntary full monthly payments on a defaulted loan.
(2) For purposes of consolidating a defaulted loan under 34 CFR
682.201(c)(iii)(C), the making of three (3) consecutive voluntary full
monthly payments on a defaulted loan.
(3) The required full monthly payment amount may not be more than
is reasonable and affordable based on the borrower's total financial
circumstances. Voluntary payments are those payments made directly by
the borrower, and do not include payments obtained by income tax off-
set, garnishment, or income or asset execution. On-time means a payment
received by the Secretary or a guaranty agency or its agent within 15
days of the scheduled due date.
* * * * *
Stafford Loan Program. The loan program authorized by Title IV-B of
the Act which encourages the making of subsidized and unsubsidized
loans to undergraduate, graduate, and professional students and is one
of the Federal Family Education Loan programs.
* * * * *
Subsidized Stafford loan. A loan authorized under section 428(b) of
the Act for borrowers who qualify for interest benefits under
Sec. 682.301(b).
* * * * *
Unsubsidized Stafford loan. A loan made after October 1, 1992,
authorized under section 428H of the Act for borrowers who do not
qualify for interest benefits under Sec. 682.301(b).
Write-off. Cessation of collection activity on a defaulted FFEL
loan due to a determination in accordance with applicable standards
that no further collection activity is warranted.
6. Section 682.201 is amended by revising paragraph (a)(2);
revising paragraphs (b) introductory text and (b)(1); removing ``and''
at the end of paragraph (b)(5); removing the period at the end of
paragraph (b)(6), and adding in its place, ``; and''; adding a new
paragraph (b)(7); and revising paragraph (c) to read as follows:
Sec. 682.201 Eligible borrowers.
(a) * * *
(2) In the case of any student who, for a period of enrollment that
begins prior to July 1, 1994, seeks an SLS loan for the cost of
attendance at a school that participates in the Stafford Loan Program,
the student must have--
(i) Received a determination of need for a subsidized Stafford
loan, and if determined to have need in excess of $200, have filed an
application with a lender for a subsidized Stafford loan;
(ii) Filed an application with a lender for an unsubsidized
Stafford loan up to the Stafford loan annual maximum unless the school
declines to certify such an application under section 428(a)(2)(F) of
the HEA; and
(iii) Received a certification of graduation from a school
providing secondary education or the recognized equivalent;
* * * * *
(b) Parent borrower. A parent borrower, is eligible to receive a
PLUS Program loan, other than a loan made under Sec. 682.209(e), if the
parent--
(1) Is borrowing to pay for the educational costs of a dependent
undergraduate student who meets the requirements for an eligible
student set forth in 34 CFR Part 668;
* * * * *
(7) (i) In the case of a Federal PLUS loan made on or after July 1,
1993, does not have an adverse credit history.
(ii) For purposes of this section, the lender must obtain a credit
report on each applicant from at least one national credit bureau. The
credit report must be secured within a timeframe that would ensure the
most accurate, current representation of the borrower's credit history
before the first day of the period of enrollment for which the loan is
intended.
(iii) Unless the lender determines that extenuating circumstances
existed, the lender must consider each applicant to have an adverse
credit history based on the credit report if--
(A) The applicant is considered 90 or more days delinquent on the
repayment of a debt;
(B) The applicant has been the subject of a default determination,
bankruptcy discharge, foreclosure, repossession, tax lien, wage
garnishment, or write-off of a Title IV debt, during the five years
preceding the date of the credit report.
(iv) Nothing in this paragraph precludes the lender from
establishing more restrictive credit standards to determine whether the
applicant has an adverse credit history.
(v) The absence of any credit history is not an indication that the
applicant has an adverse credit history and is not to be used as a
reason to deny a PLUS loan to that applicant.
(vi) The lender must retain documentation demonstrating its basis
for determining that extenuating circumstances existed. This
documentation may include, but is not limited to, an updated credit
report, a statement from the creditor that the borrower has made
satisfactory arrangements to repay the debt, or a satisfactory
statement from the borrower explaining any delinquencies with
outstanding balances of less than $500.
(c) Consolidation Program Borrower. (1) An individual is eligible
to receive a Consolidation loan if, at the time of application for a
Consolidation loan, the individual--
(i) For a Consolidation loan made on or after January 1, 1993 but
prior to July 1, 1994, has an outstanding indebtedness of not less than
$7,500 that are eligible for consolidation under Sec. 682.100;
(ii) Has ceased, or, in the case of a PLUS borrower, the dependent
student on whose behalf the parent is borrowing has ceased, at least
half-time enrollment at a school;
(iii) Is, on the loans being consolidated--
(A) In a grace period preceding repayment on the loans being
consolidated;
(B) Is in repayment status; or
(C) In a default status and has made satisfactory repayment
arrangements with the holder on a defaulted loan being consolidated;
(iv) Certifies that no other application for a Consolidation loan
is pending;
(v) Agrees to notify the holder of any changes in address; and
(vi) Certifies that the lender holds an outstanding loan of the
borrower that is being consolidated or that the borrower has
unsuccessfully sought a loan from the holders of the outstanding loans
and was unable to secure a Consolidation loan from the holder.
(2) A married couple is eligible to receive a Consolidation loan in
accordance with this section if each--
(i) Agrees to be held jointly and severally liable for the
repayment of the total amount of the Consolidation loan;
(ii) Agrees to repay the debt regardless of any change in marital
status; and
(iii) Meets the requirements of paragraph (c)(1) of this section,
and only one must have met the requirements of paragraph (c)(1)(vi) of
this section.
(3) To be eligible to receive a Consolidation loan, in the case of
a student, parent, or Consolidation loan borrower who is currently in
default on an FFEL Program loan, the borrower must have made
satisfactory repayment arrangements.
(4) A borrower's eligibility to receive a Consolidation loan
terminates upon receipt of a Consolidation loan except--
(i) With respect to student loans received after the date the
Consolidation loan is made; or
(ii) Eligible loans received prior to the date the Consolidation
loan was made can be added to the Consolidation loan during the 180-day
period after the making of the Consolidation loan.
7. Section 682.204 is revised to read as follows:
Sec. 682.204 Maximum loan amounts.
(a) Stafford Loan Program annual limits. (1) In the case of a
dependent undergraduate student who has not successfully completed the
first year of a program of undergraduate education, the total amount
the student may borrow for any academic year of study under the
Stafford Loan Program and the Direct Stafford Loan Program may not
exceed--
(i) $2,625 for a program whose length is at least a full academic
year in length;
(ii) $1,750 for a program whose length is at least two-thirds but
less than a full academic year in length; and
(iii) $875 for a program whose length is at least one-third but
less than two-thirds of an academic year length.
(2) In the case of a student who has successfully completed the
first year of an undergraduate program but has not successfully
completed the second year of an undergraduate program, the total amount
the student may borrow for any academic year of study under the
Stafford Loan Program may not exceed--
(i) $3,500 for a program whose length is at least a full academic
year in length; or
(ii) For a Stafford loan first disbursed on or after July 1, 1994
for a period of enrollment beginning on or after July 1, 1994, if the
student is enrolled in a program, with less than a full academic year
remaining, a prorated amount that bears the same ratio to $3,500 as the
remainder of the program measured in semester, trimester, quarter, or
clock hours bears to one academic year.
(3) In the case of a student who has successfully completed the
first and second year of a program of undergraduate education but has
not successfully completed the remainder of the program, the total
amount the student may borrow for academic year of study under the
Stafford Loan and Direct Stafford Loan Program may not exceed--
(i) $5,500 for a program whose length is at least an academic year
in length;
(ii) For a Stafford loan first disbursed on or after July 1, 1994
for a period of enrollment beginning on or after July 1, 1994, if the
student is enrolled in a program with less than a full academic year
remaining, a prorated amount that bears the same ratio to $5,500 as the
remainder of the program measured in semester, trimester, quarter, or
clock hours bears to one academic year.
(4) In the case of a student in a program who has an associate or
baccalaureate degree which is required for admission into the program,
the total amount the student may borrow for an academic year of study
may not exceed the amount in paragraph (a)(3)(i) of this section.
(5) In the case of a graduate or professional student, the total
amount the student may borrow for any academic year of study under the
Stafford Loan Program, in combination with any amount borrowed under
the Direct Stafford Loan Program, may not exceed $8,500.
(b) Stafford Loan Program aggregate limits. The aggregate unpaid
principal amount of all Stafford Loan Program and loans received under
the Direct Stafford Loan Program may not exceed--
(1) $23,000 in the case of any student who has not successfully
completed a program of study at the undergraduate level; and
(2) $65,000, in the case of a graduate or professional student,
including loans for undergraduate study.
(c) Unsubsidized Stafford Loan Program. In the case of a dependent
graduate student, the total amount the student may borrow for any
period of study for the Unsubsidized Stafford Loan Program and Direct
Unsubsidized Stafford Loan Program is the same as the amount determined
under paragraph (a) of this section, less any amount received under the
Stafford Loan Program.
(d) Additional eligibility under the Unsubsidized Stafford Loan
Program. In addition to any amount borrowed under paragraph (b) of this
section, an independent undergraduate student, graduate or professional
student, or certain dependent undergraduate students may borrow
additional amounts under the Unsubsidized Stafford Loan Program. The
additional amount that such a student may borrow under the Unsubsidized
Stafford Loan Program, in combination with Unsubsidized Stafford loans,
for any academic year of study--
(1) In the case of a student who has not successfully completed the
first and second year of a program of undergraduate education, may not
exceed--
(i) $4,000 for enrollment in a program whose length is at least a
full academic year in length;
(ii) $2,500 for enrollment in a program whose length is at least
two-thirds but less than a full academic year in length;
(iii) $1,500 for enrollment in a program whose length is at least
one-third but less than two-thirds of an academic year in length;
(2) In the case of a student who has successfully completed the
first and second year of an undergraduate program, but has not
completed the remainder of the program, may not exceed--
(i) $5,000 for enrollment in a program whose length is at least a
full academic year;
(ii) If the student is enrolled in a program with less than a full
academic year remaining, a prorated amount that bears the same ratio to
$5,000 as the remainder of the program measured in semester, trimester,
quarter, or clock hours bears to one academic year;
(3) In the case of a student in a program who has an associate or
baccalaureate degree which is required for admission into the program,
the total amount the student may borrow for an academic year under the
Unsubsidized Stafford Loan and Direct Unsubsidized Stafford Loan
Program may not exceed the amount in paragraph (d)(2)(i) of this
section; and
(4) In the case of a graduate or professional student, may not
exceed $10,000.
(e) Unsubsidized Stafford Loan Program aggregate limits. The total
unpaid principal amount of Stafford Loans, Direct Stafford Loans,
Unsubsidized Stafford Loans, Direct Unsubsidized Stafford Loans and SLS
Loans, may not exceed--
(1) $46,000 for an undergraduate student; and
(2) $138,500 for a graduate or professional student.
(f) SLS Program annual limit. (1) In the case of a loan for which
the first disbursement is made prior to July 1, 1993, the total amount
of all SLS loans that a student may borrow for any academic year may
not exceed $4,000 or, if the student is entering or is enrolled in a
program of undergraduate education that is less than one academic year
in length and the student's SLS loan application is certified pursuant
to Sec. 682.603 by the school on or after January 1, 1990--
(i) $2,500 for a student enrolled in a program whose length is at
least two-thirds of an academic year but less than a full academic year
in length;
(ii) $1,500 for a student enrolled in a program whose length is
less than two-thirds of an academic year in length; and
(iii) $0 for a student enrolled in a program whose length is less
than one-third of an academic year in length.
(2) In the case of a loan for which a first disbursement is made on
or after July 1, 1993, the total amount a student may borrow for an
academic year under the SLS program--
(i) In the case of a student who has not successfully completed the
first and second year of a program of undergraduate education, may not
exceed--
(A) $4,000 for enrollment in a program whose length is at least a
full academic year in length;
(B) $2,500 for enrollment in a program whose length is at least
two-thirds but less than a full academic year in length;
(C) $1,500 for enrollment in a program whose length is least one-
third but less than two-thirds of an academic year in length;
(ii) Except as provided in paragraph (f)(4) of this section, in the
case of a student who successfully completed the first and second year
of an undergraduate program, but has not completed the remainder of the
program, may not exceed--
(A) $5,000 for enrollment in a program whose length is at least a
full academic year;
(B) $3,325 for enrollment in a program whose length is at least
two-thirds of an academic year but less than a full academic year in
length; and
(C) $1,675 for enrollment in a program whose length is at least
one-third of an academic year but less than two-thirds of an academic
year; and
(iii) In the case of a graduate or professional student, may not
exceed $10,000.
(4) For a period of enrollment beginning after October 1, 1993, but
prior to July 1, 1994 for which the first disbursement is made prior to
July 1, 1994, in the case of a student who has successfully completed
the first and second years of a program but has not successfully
completed the remainder of a program of undergraduate education--
(i) $5,000; or
(ii) If the student is enrolled in a program, the remainder of
which is less than a full academic year, the maximum annual amount that
the study may receive may not exceed the amount that bears the same
ratio to the amount in paragraph (f)(4)(i) of this section as the
remainder measured in semester, trimester, quarter, or clock hours
bears to one academic year.
(g) SLS Program aggregate limit. The total unpaid principal amount
of SLS Program loans made to--
(1) An undergraduate student may not exceed--
(i) $20,000, for loans for which the first disbursement is made
prior to July 1, 1993; or
(ii) $23,000, for loans for which the first disbursement was made
on or after July 1, 1993; and
(2) A graduate student may not exceed--
(i) $20,000, for loans for which the first disbursement is made
prior to July 1, 1993; or
(ii) $73,000, for loans for which the first disbursement was made
on or after July 1, 1993 including loans for undergraduate study.
(h) PLUS Program annual limit. The total amount of all PLUS Program
loans that parents may borrow on behalf of each dependent student for
any academic year of study may borrow for enrollment in an eligible
program of study may not exceed the student's cost of education minus
other estimated financial assistance for that student.
(i) Minimum loan interval. The annual loan limits applicable to a
student apply to the length of the school's academic year.
(j) Treatment of Consolidation loans for purposes of determining
loan limits. The percentage of the outstanding balance on a
Consolidation loan counted against a borrower's aggregate loan limits
under the Stafford loan, Unsubsidized Stafford loan, Direct Stafford
loan, Direct Unsubsidized loan, SLS, PLUS, Perkins Loan, or HPSL
program must equal the percentage of the original amount of the
Consolidation loan attributable to loans made to the borrower under
that program.
(k) Maximum loan amounts. In no case may a Stafford, PLUS, or SLS
loan amount exceed the student's estimated cost of attendance for the
period of enrollment for which the loan is intended, less--
(1) The student's estimated financial assistance for that period;
and
(2) The borrower's expected family contribution for that period, in
the case of a Stafford loan that is eligible for interest benefits.
(l) In determining a Stafford loan amount in accordance with
Sec. 682.204 (a), (c) and (d), the school must use the definition of
academic year in 34 CFR 668.2.
8. Section 682.206 is amended by revising the introductory text in
paragraph (c)(2); and revising paragraph (e)(2) to read as follows:
Sec. 682.206 Due diligence in making a loan.
* * * * *
(c) * * *
(2) Except in the case of a Consolidation loan, in determining the
amount of the loan to be made, the lender must review the data on the
student's cost of attendance and estimated financial assistance that is
provided by the school. In no case may the loan amount exceed the
student's estimated cost of attendance less the sum of--
* * * * *
(e) * * *
(2) A Federal PLUS Program loan and Federal Consolidation Program
Loan may be made to two eligible borrowers who agree to be jointly and
severally liable for repayment of the loan as co-makers.
* * * * *
9. Section 682.207 is amended by revising paragraphs (b)(1)(v) (A)
and (B),and adding a new paragraph (b)(1)(v)(D) to read as follows:
Sec. 682.207 Due diligence in disbursing a loan.
* * * * *
(b)(1) * * *
(v) * * *
(A) Except as provided in paragraph (b)(1)(v) (C)(1) and (D) of
this section, directly to the school;
(B) In the case of a Federal PLUS loan--
(1) By electronic funds transfer or master check from the lender to
the eligible institution to a separate account maintained by the school
as trustee for the lender; or
(2) By a check from the lender that is made co-payable to the
institution and the parent borrower directly to the eligible
institution.
* * * * *
(D) In the case of a student enrolled in an eligible foreign
school, if the student requests--
(1) Directly to the student; or
(2) To the institution if the borrower provides a power-of-attorney
to an individual not affiliated with the institution to endorse the
check or complete an electronic funds transfer authorization.
* * * * *
10. Section 682.209 is amended by revising paragraph (c)(2) to read
as follows:
Sec. 682.209 Repayment of a loan.
* * * * *
(c) * * *
(2) The provisions of paragraphs (c)(1) (i) and (ii) of this
section may not result in an extension of the maximum repayment period
unless forbearance as described in Sec. 682.211, or deferment described
in Sec. 682.210, has been approved.
* * * * *
11. Section 682.300 is amended by revising the section heading;
revising paragraph (a); revising paragraph (b)(1)(i); and revising
paragraph (c) to read as follows:
Sec. 682.300 Payment of interest benefits on Stafford and
Consolidation loans.
(a) General. The Secretary pays a lender a portion of the interest
on a subsidized Stafford loan and, on a Consolidation loan that only
consolidated subsidized Stafford loans, on behalf of a borrower who
qualifies under Sec. 682.301. This payment is known as interest
benefits.
(b) * * *
(1) * * *
(i) During all periods prior to the beginning of the repayment
period, except as provided in paragraphs (b)(2) and (c) of this
section.
* * * * *
(c) Interest not covered. The Secretary does not pay--
(1) Interest for which the borrower is not otherwise liable;
(2) Interest paid on behalf of the borrower by a guaranty agency;
(3) Interest that accrues on the first disbursement of a loan for
any period that is earlier than--
(i) In the case of a subsidized Stafford loan disbursed by a check,
10 days prior to the first day of the period of enrollment for which
the loan is intended or, if the loan is disbursed after the first day
of the period of enrollment, 3 days after the disbursement date on the
check; or
(ii) In the case of a loan disbursed by electronic funds transfer,
3 days prior to the first day of the period of enrollment or, if the
loan is disbursed after the first day of the period of enrollment, 3
days after disbursement.
(4) In the case of a loan disbursed on or after October 1, 1992,
interest on a loan if--
(i) The disbursement check is returned uncashed to the lender or
the lender is notified that the disbursement made by electronic funds
transfer will not be released from the restricted account maintained by
the school; or
(ii) The check for the disbursement has not been negotiated before
the 120th day after the date of disbursement or the disbursement made
by electronic funds transfer has not been released from the restricted
account maintained by the school before that date.
* * * * *
12. Section 682.301 is amended by revising the section heading;
revising paragraph (a)(1); adding new paragraphs (a)(3) and (a)(4); and
revising paragraph (b) introductory text to read as follows:
Sec. 682.301 Eligibility of borrowers for interest benefits on
Stafford and Consolidation loans.
(a) * * *
(1) To qualify for benefits on a Stafford loan, a borrower must
demonstrate financial need in accordance with Part F of the Act.
* * * * *
(3) A Consolidation loan borrower qualifies for interest benefits
during authorized periods of deferment on the portion of the loan that
does not represent HEAL loans if the loan application was received by
the lender on or after January 1, 1993 but prior to August 10, 1993.
(4) A Consolidation loan borrower qualifies for interest benefits
only if the loan consolidates subsidized Stafford loans.
(b) Application for interest benefits. To apply for interest
benefits on a Stafford loan, the student, or the school at the
direction of the student, must submit a loan application to the lender.
The application must include a certification from the student's school
of the following information:
* * * * *
13. Section 682.302 is amended by revising paragraphs (b),
(c)(1)(iii), (c)(2) introductory text, (c)(3)(i) introductory text,
(c)(3)(ii) introductory text, and adding paragraph (c)(3)(iii) to read
as follows:
Sec. 682.302 Payment of special allowance on FFEL loans.
* * * * *
(b) Eligible loans. (1) Except for nonsubsidized Federal Stafford
loans disbursed on or after October 1, 1981, for periods of enrollment
beginning prior to October 1, 1992, or as provided in paragraph (b)(2)
or (e) of this section, FFEL loans that otherwise meet program
requirements are eligible for special allowance payments.
(2) For a loan made under the Federal SLS or Federal PLUS Program
on or after July 1, 1987 or under Sec. 682.209 (e) or (f), no special
allowance is paid for any period for which the interest rate determined
under Sec. 682.202(a)(2)(iv)(A) for that loan does not exceed--
(i) 12 percent in the case of a Federal SLS or PLUS loan made prior
to October 1, 1992;
(ii) 11 percent in the case of a Federal SLS loan made on or after
October 1, 1992; or
(iii) 10 percent in the case of a Federal PLUS loan made on or
after October 1, 1992.
(3) In the case of a subsidized Stafford loan disbursed on or after
October 1, 1992, the Secretary does not pay special allowance on a
disbursement if--
(i) The disbursement check is returned uncashed to the lender or
the lender is notified that the disbursement made by electronic funds
transfer will not be released from the restricted account maintained by
the school; or
(ii) The check for the disbursement has not been negotiated before
the 120th day after the date of disbursement or the disbursement made
by electronic funds transfer has not been released from the restricted
account maintained by the school before that date.
(c) * * *
(1) * * *
(iii) Adding--
(A) 3.1 percent to the resulting percentage for a loan made on or
after October 1, 1992;
(B) 3.25 percent to the resulting percentage, for a loan made on or
after November 16, 1986, but before October 1, 1992;
(C) 3.25 percent to the resulting percentage, for a loan made on or
after October 17, 1986 but before November 16, 1986, for a period of
enrollment beginning on or after November 16, 1986;
(D) 3.5 percent to the resulting percentage, for a loan made prior
to October 17, 1986, or a loan described in paragraph (c)(2) of this
section; or
(E) 3.5 percent to the resulting percentage, for a loan made on or
after October 17, 1986 but before November 16, 1986, for a period of
enrollment beginning prior to November 16, 1986;
* * * * *
(2) The special allowance rate determined under paragraph
(c)(1)(iii)(D) of this section applies to loans made or purchased from
funds obtained from the issuance of an obligation of the--
* * * * *
(3)(i) Subject to paragraphs (c)(3) (ii) and (iii) of this section,
the special allowance rate is one-half of the rate calculated under
paragraph (c)(1)(iii)(D) of this section for a loan made or guaranteed
on or after October 1, 1980 that was made or purchased with funds
obtained by the holder from--
* * * * *
(ii) The special allowance rate applicable to loans described in
paragraph (c)(3)(i) of this section that are made prior to October 1,
1992, may not be less than--
* * * * *
(iii) The special allowance rate applicable to loans described in
paragraph (c)(3)(i) of this section that are made on or after October
1, 1992, may not be less than 9\1/2\ percent minus the applicable
interest rate.
* * * * *
14. Section 682.400 is amended by revising paragraph (b)
introductory text; revising paragraph (b)(1)(i); and adding a new
paragraph (b)(4) to read as follows:
Sec. 682.400 Agreements between a guaranty agency and the Secretary.
* * * * *
(b) There are four agreements:
(1) * * *
(i) Borrowers whose Stafford and Consolidation loans that
consolidate only subsidized Stafford loans are guaranteed by the agency
may qualify for interest benefits that are paid to the lender on the
borrower's behalf;
* * * * *
(4) Loan Rehabilitation Agreement. A guaranty agency must have an
agreement for rehabilitating a loan for which the Secretary has made a
reinsurance payment under section 428(c)(1) of the Act.
* * * * *
15. Section 682.401 is amended by revising paragraphs (b)(1) and
(b)(2); redesignating paragraphs (b)(4) through (b)(24) as paragraphs
(b)(5) through (b)(25), respectively; adding a new paragraph (b)(4);
revising redesignated paragraph (b)(6); revising redesignated paragraph
(b)(14); revising redesignated paragraph (b)(16)(i) introductory text;
adding a new paragraph (b)(16)(iii); adding new paragraphs (b)(24);
revising paragraph (c); redesignating paragraphs (e)(2) and (e)(3) as
paragraphs (e)(3) and (e)(4) respectively; and adding a new paragraph
(e)(2) to read as follows:
Sec. 682.401 Basic program agreement.
* * * * *
(b) * * *
(1) Aggregate loan limits. The aggregate guaranteed unpaid
principal amount for all Stafford, SLS, PLUS loans made to a borrower
may not exceed the amounts set forth in Sec. 682.204 (b), (e), and (h).
(2) Annual loan limits. (i) The annual loan maximum amount for a
borrower that may be guaranteed for an academic year may not exceed the
amounts set forth in Sec. 682.204 (a), (c), (d), (f), and (g).
(ii) A guaranty agency may make the loan amounts authorized under
paragraph (b)(2)(i) of this section applicable for either--
(A) A period of not less than that attributable to the academic
year; or
(B) A period attributable to the academic year in which the student
earns the amount of credit in the student's program of study required
by the student's school as the amount necessary for the student to
advance in academic standing as normally measured on an academic year
basis (for example, from freshman to sophomore or, in the case of
schools using clock hours, completion of at least 900 clock hours.
(iii) The amount of a loan guaranteed may not exceed the amount set
forth in Sec. 682.204(i).
* * * * *
(4) Reinstatement of borrower eligibility. For a borrower's loans
held by a guaranty agency on which a reinsurance claim has been paid by
the Secretary, the guaranty agency must afford a defaulted borrower,
upon the borrower's request, renewed eligibility for Title IV
assistance once the borrower has made satisfactory repayment
arrangements as that term is defined in Sec. 682.200.
(i) For purposes of this section, the determination of reasonable
and affordable must--
(A) Include consideration of the borrower's and spouse's disposable
income and necessary expenses including, but not limited to, housing,
utilities, food, medical costs, dependent care costs, work-related
expenses and other Title IV repayment;
(B) Not be a required minimum payment amount, e.g. $50, if the
agency determines that a smaller amount is reasonable and affordable
based on the borrower's total financial circumstances. The agency must
include documentation in the borrower's file of the basis for the
determination, if the monthly reasonable and affordable payment
established under this section is less than $50.00 or the monthly
accrued interest on the loan, whichever is greater.
(C) Be based on the documentation provided by the borrower or other
sources including, but not limited to--
(1) Evidence of current income (e.g. proof of welfare benefits,
Social Security benefits, Supplemental Security Income, Workers'
Compensation, child support, veterans' benefits, two most recent pay
stubs, most recent copy of U.S. income tax return, State Department of
Labor reports);
(2) Evidence of current expenses (e.g. a copy of the borrower's
monthly household budget, on a form provided by the guaranty agency);
and
(3) A statement of the unpaid balance on all FFEL loans held by
other holders.
(ii) A borrower may request that the monthly payment amount be
adjusted due to a change in the borrower's total financial
circumstances upon providing the documentation specified in paragraph
(b)(4)(i)(C) of this section.
(iii) A guaranty agency must provide the borrower with a written
statement of the reasonable and affordable payment amount required for
the reinstatement of the borrower's eligibility for Title IV student
assistance, and provide the borrower with an opportunity to object to
those terms.
(iv) A guaranty agency must provide the borrower with written
information regarding the possibility of loan rehabilitation if the
borrower makes six additional reasonable and affordable monthly
payments after making payments to regain eligibility for Title IV
assistance and the consequences of loan rehabilitation.
* * * * *
(6) School eligibility. (i) General. A school that has a program
participation agreement in effect with the Secretary under Sec. 682.600
is eligible to participate in the program of the agency under
reasonable criteria established by the guaranty agency, and approved by
the Secretary, under paragraph (d)(2) of this section, except to the
extent that--
(A) The school's eligibility is limited, suspended, or terminated
by the Secretary under 34 CFR Part 668 or by the guaranty agency under
standards and procedures that are substantially the same as those in 34
CFR Part 668;
(B) The Secretary upholds the limitation, suspension, or
termination of a school by a guaranty agency and extends that sanction
to all guaranty agency programs under section 432(h)(3) of the Act or
Sec. 682.713;
(C) The school is ineligible under sections 428A(a)(2) or 435(a)(2)
of the Act;
(D) There is a State constitutional prohibition affecting the
school's eligibility;
(E) The school's programs consist of study solely by
correspondence;
(F) The agency determines, subject to the agreement of the
Secretary, that the school does not satisfy the standards of
administrative capability and financial responsibility as defined in 34
CFR Part 668;
(G) The school fails to make timely refunds to students as required
in Sec. 682.607(c);
(H) The school has not satisfied, within 30 days of issuance, a
final judgment obtained by a student seeking a refund;
(I) The school or an owner, director, or officer of the school is
found guilty or liable in any criminal, civil, or administrative
proceeding regarding the obtaining, maintenance, or disbursement of
State or Federal student grant, loan, or work assistance funds; or
(J) The school or an owner, director, or officer of the school has
unpaid financial liabilities involving the improper acquisition,
expenditure, or refund of State or Federal student financial assistance
funds.
(ii) Limitation by a guaranty agency of a school's participation.
For purposes of this paragraph, a school that is subject to limitation
of participation in the guaranty agency's program may be either a
school that is applying to participate in the agency's program for the
first time, or a school that is renewing its application to continue
participation in the agency's program. A guaranty agency may limit the
total number of loans or the volume of loans made to students attending
a particular school, or otherwise establish appropriate limitations on
the school's participation, if the agency makes a determination that
the school does not satisfy--
(A) The standards of financial responsibility defined in 34 CFR
668.5; or
(B) The standards of administrative capability defined in 34 CFR
668.16.
(iii) Limitation, suspension, or termination of school eligibility.
A guaranty agency may limit, suspend, or terminate the participation of
an eligible school. If a guaranty agency limits, suspends, or
terminates the participation of a school from the agency's program, the
Secretary applies that limitation, suspension, or termination to all
locations of the school.
(iv) Condition for guaranteeing loans for students attending a
school. The guaranty agency may require the school to execute a
participation agreement with the agency and to submit documentation
that establishes the school's eligibility to participate in the
agency's program.
* * * * *
(14) Guaranty agency verification of default data. A guaranty
agency must respond to an institution's written request for
verification of its default rate data for purposes of an appeal
pursuant to 34 CFR 668.15(g)(1)(i) within 15 working days of the date
the agency receives the institution's written request pursuant to 34
CFR 668.15(g)(7), and simultaneously provide a copy of that response to
the Secretary's designated Department official.
* * * * *
(16) * * *
(i) Except as provided in paragraph (b)(16)(iii) of this section,
the guaranty agency must allow a loan to be assigned only if the loan
is fully disbursed and is assigned to--
* * * * *
(iii) The guaranty agency must allow a loan to be assigned under
paragraph (b)(16)(i) of this section, following the first disbursement
of the loan if the assignment does not result in a change in the
identity of the party to whom payments must be made.
* * * * *
(24) Information on loan sales or transfers. The guaranty agency
must, upon the request of an eligible school, furnish to the school
last attended by the student, information with respect to the sale or
transfer of a borrower's loan prior to the beginning of the repayment
period, including--
(i) Notice of the assignment;
(ii) The identity of the assignee;
(iii) The name and address of the party by which contact may be
made with the holder concerning repayment of the loan; and
(iv) The telephone number of the assignee, or if the assignee uses
a lender servicer, another appropriate number for borrower inquiries.
* * * * *
(c)(1) Lender-of-last-resort. The guaranty agency must ensure that
it or an eligible lender described in section 435(d)(1)(D) of the Act
serves as a lender-of-last-resort in the State in which it is the
principal guaranty agency, as defined in Sec. 682.800(d).
(2) The lender-of-last-resort must make a subsidized Stafford loan
to any eligible student who satisfies the lender's eligibility
requirements and--
(i) Qualifies for interest benefits, pursuant to Sec. 682.301, for
a loan amount of at least $200; and
(ii) Has been otherwise unable after conscientious efforts to
obtain a loan from another eligible lender for the same period of
enrollment.
(3) The guaranty agency or an eligible lender described in section
435(d)(1)(D) of the Act may arrange for a loan required to be made
under paragraph (c)(1) of this section to be made by another eligible
lender.
(4) The guaranty agency must develop policies and operating
procedures for its lender-of-last-resort program that provide for the
accessibility of lender-of-last-resort loans. These policies and
procedures must be submitted to the Secretary for approval as required
under paragraph (d)(2) of this section. The policies and procedures for
the agency's lender-of-last-resort program must ensure that--
(i) The guaranty agency will serve eligible students attending any
eligible school;
(ii) The program establishes operating hours and methods of
application designed to facilitate application by students; and
(iii) Information about the availability of loans under the program
is made available to schools in the State;
(iv) Appropriate steps are taken to ensure that borrowers receiving
loans under the program are appropriately counseled on their loan
obligation;
(v) The guaranty agency will respond to a student within 60 days
after the student submits an original complete application; and
(vi) Borrowers are not required to obtain more than two objections
from eligible lenders prior to requesting assistance under the lender-
of-last-resort program.
* * * * *
(e) * * *
(2)(i) Offer, directly or indirectly, any premium, incentive
payment, or other inducement to any lender, or any person acting as an
agent, employee, or independent contractor of any lender or other
guaranty agency to administer or market FFEL loans, other than
unsubsidized Stafford loans or subsidized Stafford loans made under a
guaranty agency's lender-of-last-resort program, in an effort to secure
the guaranty agency as an insurer of FFEL loans. Examples of prohibited
inducements include, but are not limited to--
(A) Compensating lenders or their representatives for the purpose
of securing loan applications for guarantee;
(B) Performing functions normally performed by lenders without
appropriate compensation;
(C) Providing equipment or supplies to lenders at below market cost
or rental; or
(D) Offering to pay a lender, that does not hold loans guaranteed
by the agency, a fee for each application forwarded for the agency's
guarantee.
(ii) For the purposes of this section, the terms ``premium'',
``inducement'', and ``incentive'' do not include services directly
related to the enhancement of the administration of the FFEL Program
the guaranty agency generally provides to lenders that participate in
its program. However, the terms ``premium'', ``inducement'', and
``incentive'' do apply to other activities specifically intended to
secure a lender's participation in the agency's program.
* * * * *
16. A new Sec. 682.405 is added to read as follows:
Sec. 682.405 Loan rehabilitation agreement.
(a) General. (1) A guaranty agency that has a basic program
agreement must enter into a loan rehabilitation agreement with the
Secretary. The guaranty agency must establish a loan rehabilitation
program for all borrowers with an enforceable promissory note for the
purpose of rehabilitating defaulted loans so that the loan may be
purchased, if practicable, by an eligible lender and removed from
default status.
(2) A loan is considered to be rehabilitated only after the
borrower has made one voluntary reasonable and affordable full payment
each month and the payment is received by a guaranty agency or its
agent within 15 days of the scheduled due date for 12 consecutive
months in accordance with this section, and the loan has been sold to
an eligible lender.
(3) After the loan has been rehabilitated, the borrower regains all
benefits of the program, including any remaining deferment eligibility
under section 428(b)(1)(M) of the Act, from the date of the
rehabilitation.
(4) A borrower who wishes to rehabilitate a loan on which a
judgment has been entered must sign a new promissory note prior to the
sale of the loan to an eligible lender.
(b) Terms of agreement. In the loan rehabilitation agreement, the
guaranty agency agrees to ensure that its loan rehabilitation program
meets the following requirements at all times:
(1) A borrower may request the rehabilitation of the borrower's
defaulted FFEL loan held by the guaranty agency. The borrower must make
one voluntary full payment each month for 12 consecutive months to be
eligible to have the defaulted loans rehabilitated. For purposes of
this section, ``full payment'' means a reasonable and affordable
payment agreed to by the borrower and the agency. The required amount
of such monthly payment may be no more than is reasonable and
affordable based upon the borrower's total financial circumstances.
Voluntary payments are those made directly by the borrower regardless
of whether there is a judgment against the borrower, and do not include
payments obtained by income tax off-set, garnishment, or income or
asset execution. A guaranty agency must attempt to secure a lender to
purchase the loan at the end of the twelve-(12-)month payment period.
(i) For purposes of this section, the determination of reasonable
and affordable must--
(A) Include a consideration of the borrower's and spouse's
disposable income and reasonable and necessary expenses including, but
not limited to, housing, utilities, food, medical costs, work-related
expenses, dependent care costs and other Title IV repayment;
(B) Not be a required minimum payment amount, e.g. $50, if the
agency determines that a smaller amount is reasonable and affordable
based on the borrower's total financial circumstances. The agency must
include documentation in the borrower's file of the basis for the
determination if the monthly reasonable and affordable payment
established under this section is less than $50.00 or the monthly
accrued interest on the loan, whichever is greater. However, $50.00 may
not be the minimum payment for a borrower if the agency determines that
a smaller amount is reasonable and affordable; and
(C) Be based on the documentation provided by the borrower or other
sources including, but not be limited to--
(1) Evidence of current income (e.g., proof of welfare benefits,
Social Security benefits, child support, veterans' benefits,
Supplemental Security Income, Workmen's Compensation, two most recent
pay stubs, most recent copy of U.S. income tax return, State Department
of Labor reports);
(2) Evidence of current expenses (e.g., a copy of the borrower's
monthly household budget, on a form provided by the guaranty agency);
and
(3) A statement of the unpaid balance on all FFEL loans held by
other holders.
(ii) The agency must include any payment made under
Sec. 682.401(b)(4) in determining whether the 12 consecutive payments
required under paragraph (b)(1) of this section have been made.
(iii) A borrower may request that the monthly payment amount be
adjusted due to a change in the borrower's total financial
circumstances only upon providing the documentation specified in
paragraph (b)(1)(i)(C) of this section.
(iv) A guaranty agency must provide the borrower with a written
statement confirming the borrower's reasonable and affordable payment
amount, as determined by the agency, and explaining any other terms and
conditions applicable to the required series of payments that must be
made before a borrower's account can be considered for repurchase by an
eligible lender. The statement must inform borrowers of the
consequences of having their loans rehabilitated (e.g. credit clearing,
possibility of increased monthly payments). The statement must inform
the borrower of the amount of the collection costs to be added to the
unpaid principal at the time of the sale. The collection costs may not
exceed 18.5 percent of the unpaid principal and accrued interest at the
time of the sale.
(v) A guaranty agency must provide the borrower with an opportunity
to object to terms of the rehabilitation of the borrower's defaulted
loan.
(2) The guaranty agency must report to all national credit bureaus
within 90 days of the date the loan was rehabilitated that the loan is
no longer in a default status.
(3) An eligible lender purchasing a rehabilitated loan must
establish a repayment schedule that meets the same requirements that
are applicable to other FFEL Program loans made under the same loan
type and provides for the borrower to make monthly payments at least as
great as the average of the 12 consecutive monthly payments received by
the guaranty agency. For the purposes of the maximum loan repayment
period, the lender must treat the first payment made under the 12
consecutive payments as the first payment under the 10-year maximum.
(Authority: 20 U.S.C. 1078-6)
17. Section 682.406 is amended by removing ``and'' at the end of
paragraph (a)(12); removing the period at the end of paragraph (a)(13)
and adding in its place, ``; and'' and adding a new paragraph (a)(14)
to read as follows:
Sec. 682.406 Conditions of reinsurance coverage.
(a) * * *
(14) The guaranty agency certifies to the Secretary that diligent
attempts have been made by the lender and the guaranty agency under
Sec. 682.411(g) to locate the borrower through the use of reasonable
skip-tracing techniques.
* * * * *
18. Section 682.407 is amended by adding a new paragraph (e) to
read as follows:
Sec. 682.407 Administrative cost allowance for guaranty agencies.
* * * * *
(e) An administrative cost allowance improperly paid on a loan to a
guaranty agency must be deducted by the agency from the amount
reflected in the following quarter's ED form 1130 when it is submitted
to the Department for payment.
* * * * *
19. Section 682.409 is amended by revising paragraph (a); revising
paragraph (c)(1); and adding a new paragraph (c)(6) to read as follows:
Sec. 682.409 Mandatory assignment by guaranty agencies of defaulted
loans to the Secretary.
(a) (1) If the Secretary determines that action is necessary to
protect the Federal fiscal interest, the Secretary will direct a
guaranty agency to promptly assign to the Secretary any loan held by
the agency on which the agency has received payment under
Sec. 682.402(d), 682.402(i), or 682.404. An orderly transition from the
FFEL program to the Federal Direct Student Loan (FDSL) Program and the
collection of unpaid loans owed by Federal employees by Federal salary
offset are, among other things, deemed to be in the Federal fiscal
interest. Unless the Secretary notifies an agency, in writing, that
other loans must be assigned to the Secretary, an agency must assign
any loan that meets all of the following criteria as of April 15 of
each year:
(i) The unpaid principal balance is at least $100.
(ii) For each of the two fiscal years following the fiscal year in
which these regulations are effective, the loan, and any other loans
held by the agency for that borrower, have been held by the agency for
at least four years; for any subsequent fiscal year such loan must have
been held by the agency for at least five years.
(iii) A payment has not been received on the loan in the last year.
(iv) A judgment has not been entered on the loan against the
borrower.
(2) If the agency fails to meet a fiscal year recovery rate
standard under paragraph (a)(2)(ii) of this section for a loan type,
and the Secretary determines that additional assignments are necessary
to protect the Federal fiscal interest, the Secretary may require the
agency to assign in addition to those loans described in paragraph
(a)(1) of this section, loans in amounts needed to satisfy the
requirements of paragraph (a)(2)(iii) or (a)(3)(i) of this section.
(i) Calculation of fiscal year loan type recovery rate. A fiscal
year loan type recovery rate for an agency is determined by dividing
the amount collected on defaulted loans, including collections by
Federal Income Tax Refund Offset, for each loan program (i.e., the
Stafford, PLUS, SLS, and Consolidation loan programs) by the agency for
loans of that program (including payments received by the agency on
loans under Sec. 682.401(b)(4) and Sec. 682.409 and the amounts of any
loans purchased from the guaranty agency by an eligible lender) during
the most recent fiscal year for which data are available by the total
of principal and interest owed to an agency on defaulted loans for each
loan program at the beginning of the same fiscal year, less accounts
permanently assigned to the Secretary through the most recent fiscal
year.
(ii) Fiscal year loan type recovery rates standards. (A) If, in
each of the two fiscal years following the fiscal year in which these
regulations are effective, the fiscal year loan type recovery rate for
a loan program for an agency is below 80 percent of the average
recovery rate of all active guaranty agencies in each of the same two
fiscal years for that program type, and the Secretary determines that
additional assignments are necessary to protect the Federal fiscal
interest, the Secretary may require the agency to make additional
assignments in accordance with paragraph (a)(2)(iii) of this section.
(B) In any subsequent fiscal year the loan type recovery rate
standard for a loan program must be 90 percent of the average recovery
rate of all active guaranty agencies.
(iii) Non-achievement of loan type recovery rate standards.
(A) Unless the Secretary determines under paragraph (a)(2)(iv) of
this section that protection of the Federal fiscal interest requires
that a lesser amount be assigned, upon notice from the Secretary, an
agency with a fiscal year loan type recovery rate described in
paragraph (a)(2)(ii) of this section must promptly assign to the
Secretary a sufficient amount of defaulted loans, in addition to loans
to be assigned in accordance with paragraph (a)(1) of this section, to
cause the fiscal year loan type recovery rate of the agency that fiscal
year to equal or exceed the average rate of all agencies described in
paragraph (a)(2)(ii) of this section when recalculated to exclude from
the denominator of the agency's fiscal year loan type recovery rate the
amount of these additional loans.
(B) The Secretary, in consultation with the guaranty agency, may
require the amount of loans to be assigned under paragraph (a)(2) of
this section to include particular categories of loans that share
characteristics that make the performance of the agency fall below the
appropriate percentage of the loan type recovery rate as described in
paragraph (a)(2)(ii) of this section.
(iv) Calculation of loan type recovery rate standards. The
Secretary, within 30 days after the date for submission of the second
quarterly report from all agencies, makes available to all agencies a
mid-year report, showing the recovery rate for each agency and the
average recovery rate of all active guaranty agencies for each loan
type. In addition, the Secretary, within 120 days after the beginning
of each fiscal year, makes available a final report showing those rates
and the average rate for each loan type for the preceding fiscal year.
(3)(i) Determination that the protection of the Federal fiscal
interest requires assignments. Upon petition by an agency submitted
within 45 days of the notice required by paragraph (a)(2)(iii)(A) of
this section, the Secretary may determine that protection of the
Federal fiscal interest does not require assignment of all loans
described in paragraph (a)(1) of this section or of loans in the full
amount described in paragraph (a)(2)(iii) of this section only after
review of the agency's petition. In making this determination, the
Secretary considers all relevant information available to him
(including any information and documentation obtained by the Secretary
in reviews of the agency or submitted to the Secretary by the agency)
as follows:
(A) For each of the two fiscal years following the fiscal year in
which these regulations are effective, the Secretary considers
information presented by an agency with a fiscal year loan type
recovery rate above the average rate of all active agencies to
demonstrate that the protection of the Federal fiscal interest will be
served if any amounts of loans of the loan type required to be assigned
to the Secretary under paragraph (a)(1) of this section are retained by
that agency. For any subsequent fiscal year, the Secretary considers
information presented by an agency with a fiscal year recovery rate 10
percent above the average rate of all active agencies.
(B) The Secretary considers information presented by an agency that
is required to assign loans under paragraph (a)(2) of this section to
demonstrate that the protection of the Federal fiscal interest will be
served if the agency demonstrates that its compliance with
Sec. 682.401(b)(4) and Sec. 682.405 has reduced substantially its
fiscal year loan type recovery rate or rates or if the agency is not
required to assign amounts of loans that would otherwise have to be
assigned.
(C) The information provided by an agency pursuant to paragraphs
(a)(3)(i)(A) and (B) of this section may include, but is not limited to
the following:
(1) The fiscal year loan type recovery rate within such school
sectors as the Secretary may designate for the agency, and for all
agencies.
(2) The fiscal year loan type recovery rate for loans for the
agency and for all agencies categorized by age of the loans as the
Secretary may determine.
(3) The performance of the agency, and all agencies, in default
aversion.
(4) The agency's performance on judgment enforcement.
(5) The existence and use of any state or guaranty agency-specific
collection tools.
(6) The agency's level of compliance with Secs. 682.409 and
682.410(b)(6).
(7) Other factors that may affect loan repayment such as State or
regional unemployment and natural disasters.
(ii) Denial of an agency's petition. If the Secretary does not
accept the agency's petition, the Secretary provides, in writing, to
the agency the Secretary's reasons for concluding that the Federal
fiscal interest is best protected by requiring the assignment.
* * * * *
(c)(1) A guaranty agency must assign a loan to the Secretary under
this section at the time, in the manner, and with the information and
documentation that the Secretary requires. The agency must submit this
information and documentation in the form (including magnetic media)
and format specified by the Secretary.
* * * * *
(6) The Secretary may accept the assignment of a loan without all
of the documents listed in paragraph (c)(4) of this section. If
directed to do so, the agency must retain these documents for
submission to the Secretary at some future date.
* * * * *
20. Section 682.410 is amended by revising paragraphs (a)(1) and
(a)(2); and adding paragraphs (a)(6), (a)(7), and (a)(8) to read as
follows:
Sec. 682.410 Fiscal, administrative, and enforcement requirements.
(a) * * *
(1) Reserve fund assets. The guaranty agency must establish and
maintain a reserve fund to be used solely for the FFEL Program to which
the guaranty agency must credit--
(i) The total amount of insurance premiums collected;
(ii) Funds appropriated by a State for the agency's loan guaranty
program, including matching funds under section 422(a) of the Act;
(iii) Federal advances obtained under sections 422(a) and (c) of
the Act;
(iv) Federal payments for default, bankruptcy, death and
disability, closed schools and false certification claims;
(v) Supplemental preclaims assistance payments;
(vi) Administrative cost allowance payments received under
Sec. 682.407;
(vii) Funds collected by the guaranty agency on FFELP loans for
which the guaranty agency has paid claims;
(viii) Investment earnings on the reserve fund; and
(ix) Funds received by the guaranty agency from any other source
for the agency's loan guaranty program.
(2) Uses of reserve fund assets. A guaranty agency may only use the
assets of the reserve fund established under paragraph (a)(1) of this
section to pay--
(i) Insurance claims;
(ii) Operating costs, including payments necessary in administering
loan collections, preclaims assistance, monitoring enrollment and
repayment status and any other loan guaranty activities under this
part;
(iii) Lenders that participate in a loan referral service under
section 428(e) of the Act;
(iv) The Secretary's equitable share of collections;
(v) Federal advances and other funds owed to the Secretary;
(vi) Reinsurance fees;
(vii) Insurance premiums related to cancelled loans; and
(viii) Any other amounts authorized or directed by the Secretary.
* * * * *
(6) Minimum reserve fund level. The guaranty agency must maintain a
current minimum reserve level of not less than--
(i) .5 percent of the amount of loans outstanding, for the fiscal
year of the agency that begins in calendar year 1993;
(ii) .7 percent of the amount of loans outstanding, for the fiscal
year that begins in calendar year 1994;
(iii) .9 percent of the amount of loans outstanding, for the fiscal
year of the agency that begins in calendar year 1995; and
(iv) 1.1 percent of the amount of loans outstanding, for each
fiscal year of the agency that begins on or after January 1, 1996.
(7) For purposes of this section, reserve fund level means--
(i) The total of the reserve fund assets as defined in paragraph
(a)(1) of this section, minus
(ii) The total of the amount of the reserve fund assets used in
accordance with paragraphs (a)(2) and (a)(3) of this section.
(8) For purposes of this section, amount of loans outstanding
means--
(i) The sum of--
(A) The original principal amount of all loans guaranteed by the
agency; and
(B) The original principal amount of any loans on which the
guarantee was transferred to the agency from another guarantor,
excluding loan guarantees transferred to another agency pursuant to a
plan of the Secretary in response to the insolvency of the agency;
(ii) Minus the original principal amount of all loans on which--
(A) The loan guarantee was cancelled;
(B) The loan guarantee was transferred to another agency;
(C) Payment in full has been made by the borrower;
(D) Reinsurance coverage has been lost and cannot be regained; and
(E) The agency paid claims.
* * * * *
21. Section 682.414 is amended by revising paragraph (a)(3)(iii)
and adding a new paragraph (a)(3)(iv) to read as follows:
Sec. 682.414 Records, reports, and inspection requirements for
guaranty agency programs.
(a) * * *
(3) * * *
(iii) Except as provided in paragraph (a)(3)(iv) of this section, a
lender shall retain the records required for each loan for not less
than five years following the date the loan is repaid in full by the
borrower or the lender is reimbursed on a claim. However, in particular
cases, the Secretary or the guaranty agency may require the retention
of records beyond this minimum period.
(iv) A lender shall retain a copy of the audit report for not less
than five years after the report is issued.
* * * * *
21. Section 682.507 is amended by revising paragraph (a)(2) to read
as follows:
Sec. 682.507 Due diligence in collecting a loan.
(a) * * *
(2) If two borrowers are liable for repayment of a Federal PLUS or
Consolidation loan as co-makers, the lender must follow these
procedures with respect to both borrowers.
* * * * *
22. Section 682.511 is amending by revising paragraph (a)(2) to
read as follows:
Sec. 682.511 Procedures for filing a claim.
(a) * * *
(2) If a Federal PLUS loan was obtained by two eligible parents as
co-makers, or a Consolidation loan was obtained jointly by a married
couple, the reason for filing a claim must hold true for both
applicants, or each applicant must have satisfied a claimable criterion
at the time of the request for discharge of the loan.
* * * * *
23. Section 682.601 is amended by removing ``and'' at the end of
paragraph (a)(4); removing the period at the end of paragraph (a)(5)
and adding in its place, ``; and''; and adding new paragraphs (a)(6)
and (a)(7) to read as follows:
Sec. 682.601 Rules for a school that makes or originates loans.
(a) * * *
(6) The school's cohort default rate as calculated under
Sec. 668.17 may not exceed 15 percent; and
(7) Except for reasonable administrative expenses directly related
to the FFEL Program, the school must use payments received under
Sec. 682.300 and Sec. 682.302 for need-based grant programs for its
students.
* * * * *
24. Section 682.603 is amended by adding new paragraphs (f)(3) and
(h) to read as follows:
Sec. 682.603 Certification by a participating school in connection
with a loan application.
* * * * *
(f) * * *
(3) In certifying a Stafford or SLS loan amount in accordance with
Sec. 682.204--
(i) A program of study must be considered at least one full
academic year if--
(A) The number of weeks of instruction time is at least 30 weeks;
and
(B) The number of clock hours is at least 900, the number of
semester or trimester hours is at least 24, or the number of quarter
hours is at least 36.
(ii) A program of study must be considered two-thirds \2/3\ of an
academic year if--
(A) The number of weeks of instruction is at least 20 weeks; and
(B) The number of clock hours is at least 600, the number of
semester or trimester hours is at least 16, or the number of quarter
hours is at least 24.
(iii) A program of study must be considered one-third \1/3\ of an
academic year if--
(A) The number of weeks of instruction time is at least 10 weeks;
and
(B) The number of clock hours is at least 300, the number of
semester or trimester hours is at least 8, or the number of quarter
hours is at least 12.
* * * * *
(h) Pursuant to paragraph (b)(5) of this section, a school may not
request the disbursement of loan proceeds, for a borrower who is
enrolled in the first year of an undergraduate program of study and who
has not previously received a Stafford or SLS loan, earlier that the
24th day of the student's period of enrollment.
25. Section 682.604 is amended by revising paragraph (c)(3)
introductory text; removing paragraph (g)(2)(i); redesignating
paragraphs (g)(2)(ii) through (g)(2)(vi), as paragraphs (g)(2)(i)
through (g)(2)(v) respectively; removing ``and'' at the end of
redesignated (g)(2)(iv); revising redesignated paragraph (g)(2)(v);
adding a new paragraph (g)(2)(vi); revising the introductory text of
paragraph (h); and adding a new paragraph (i) to read as follows:
Sec. 682.604 Processing the borrower's loan proceeds and counseling
borrowers.
* * * * *
(c) * * *
(3) If the loan proceeds are disbursed by electronic funds transfer
to an account of the school on behalf of a borrower in accordance with
Sec. 682.207(b)(1)(ii)(B), the school must, unless authorization was
provided in the loan application, not more than 30 days prior to the
first day of classes of the period of enrollment for which the loan is
intended, obtain the student's, or in the case of a Federal PLUS loan,
the parent borrower's written authorization for the release of the
initial and any subsequent disbursement of each FFEL loan to be made,
and after the student has registered either--
* * * * *
(g) * * *
(2) * * *
(v) Review with the borrower the conditions under which the
borrower may defer repayment or obtain partial cancellation of a loan;
and
(vi) Require the borrower to provide corrections to the
institution's records concerning name, address, social security number,
references, and driver's license number, as well as the name and
address of the borrower's expected employer that will then be provided
within 60 days to the guaranty agency or agencies listed in the
borrower's records.
* * * * *
(h) Treatment of excess loan proceeds. Except as provided under
paragraph (i) of this section, or in the case of a student attending a
foreign school, if, before the delivery of any Stafford or SLS loan
disbursement, the school learns that the borrower will receive or has
received financial aid for the period of enrollment for which the loan
was made that exceeds the amount of assistance for which the student is
eligible, the school shall reduce or eliminate the overaward by
either--
* * * * *
(i) For purposes of paragraph (h) of this section, funds obtained
from any Federal College Work-Study employment that do not exceed the
borrower's financial need by more than $300 may not be considered as
excess loan proceeds.
[FR Doc. 94-15519 Filed 6-27-94; 8:45 am]
BILLING CODE 4000-01-P
