[Federal Register Volume 59, Number 124 (Wednesday, June 29, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-15666]
[[Page Unknown]]
[Federal Register: June 29, 1994]
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Part II
Department of Education
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34 CFR Part 682
Federal Family Education Loan Program; Final Rule
DEPARTMENT OF EDUCATION
34 CFR Part 682
RIN 1840-AB99
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 consists of the
Federal Stafford, Federal Supplemental Loans for Students (SLS),
Federal PLUS, and the Federal Consolidation Loan programs. These
amendments are needed to implement changes made to the Higher Education
Act of 1965, as amended (HEA), by the Higher Education Amendments of
1992, and certain technical changes made by the Omnibus Budget
Reconciliation Act of 1993, the National and Community Service Trust
Act of 1993, and the Higher Education Technical Amendments of 1993. The
regulations amend the FFEL Program repayment, deferment, and
forbearance provisions, and enhance the ability of lenders and guaranty
agencies to service and collect FFEL Program loans.
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 the information collection
requirements in Secs. 682.209, 682.210, and 682.211. The information
collection requirements in Secs. 682.209, 682.210, and 682.211 will
become effective on July 1, 1995, or after the information collection
requirements contained in those 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.
During the period before July 1, 1995, the Secretary will provide
guidance to all FFEL Program participants to ensure effective and
uninterrupted administration of the FFEL Program, and to ensure that
eligible borrowers receive the benefits provided by the statutory
provisions reflected in these regulations.
FOR FURTHER INFORMATION CONTACT: George Harris, 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 Secretary is amending 34 CFR part 682 to
implement changes made to the HEA by the Higher Education Amendments of
1992 (Pub. L. 102-325), enacted July 23, 1992, and certain technical
changes made by the Omnibus Budget Reconciliation Act of 1993 (Pub. L.
103-66), enacted August 10, 1993, the National and Community Service
Trust Act of 1993 (Pub. L. 103-82), enacted September 21, 1993, and the
Higher Education Technical Amendments of 1993 (Pub. L. 103-208),
enacted December 20, 1993. These regulations seek to improve the
efficiency of federal student aid programs, and, by so doing, to
improve their capacity to enhance opportunities for postsecondary
education.
On March 24, 1994, the Secretary published a notice of proposed
rulemaking (NPRM) for part 682 in the Federal Register (59 FR 14070).
The NPRM included a discussion of the major issues surrounding the
proposed changes which will not be repeated here. The following list
summarizes those issues and identifies the pages of the preamble to the
NPRM on which a discussion of those issues may be found:
Amendment to Sec. 682.209 to provide income-sensitive
repayment schedules for borrowers (page 14071);
Amendment to Sec. 682.210 to provide economic hardship
deferments for borrowers (page 14072);
Amendments to Sec. 682.211 to provide mandatory and
administrative forbearances for borrowers (page 14072).
Substantive Revisions to the Notice of Proposed Rulemaking
Section 682.209 Repayment of a Loan
The Secretary has modified the requirement that a lender
grant a choice of repayment options to a borrower to specify that this
requirement applies only if the borrower responds to the lender's offer
within 45 days after the lender made the offer.
The Secretary has revised the borrower income
documentation requirements that apply if a borrower wants to repay a
loan under an income-sensitive repayment schedule. The modified
requirements apply only if a borrower reports income that would cause
the amount of his or her monthly payment to be insufficient to repay
the loan within the maximum 10-year repayment period.
The Secretary has deleted the provision that would have
required a lender to obtain a copy of a borrower's federal income tax
return if the borrower wants to repay a loan under an income-sensitive
repayment schedule.
The final regulations have been revised to require a
lender either to make adjustments to the amount of the borrower's
installment payments to reflect annual changes in the variable interest
rate on the borrower's loan or, if the lender declines to make such
adjustments, to grant the administrative forbearance described in
Sec. 682.211(j)(5)(i) so that the borrower can repay the loan within
the maximum repayment period.
The final regulations have been revised to require a
lender to grant the administrative forbearance described in
Sec. 682.211(j)(5)(ii) in cases where the effect of decreased
installment amounts paid under an income-sensitive repayment schedule
would result in the loan not being repaid within the maximum repayment
period.
Section 682.210 Deferment
The regulations have expanded the types of debts that can
be considered when determining a borrower's eligibility for an economic
hardship deferment. Section 682.210(s)(6) has been revised to include
any debt, whether in default or otherwise, owed by a borrower for a
postsecondary education loan obtained through a federal program in
determining the borrower's eligibility for an economic hardship
deferment.
The Secretary has modified the provision that would have
required a lender to obtain a copy of a borrower's federal income tax
return if the borrower requested an economic hardship deferment. This
requirement will now apply only if the borrower requests an additional
period of economic hardship deferment that begins less than one year
after the end of an economic hardship deferment, other than a deferment
based solely on the borrower's status as a public assistance recipient.
The Secretary has deleted the criterion that would have
permitted a borrower to receive an economic hardship deferment if the
borrower did not have monthly disposable income exceeding four times
the minimum wage or the poverty level for a family of two and the
borrower had monthly student loan payments of at least 20 percent of
the borrower's monthly disposable income. That criterion has been
replaced with one under which a borrower whose total monthly gross
income was not more than twice the minimum wage or the poverty level
for a family of two would qualify for an economic hardship deferment by
not having remaining total monthly gross income, from employment or
from other sources, that exceeds the greater of the minimum wage rate
or the poverty level for a family of two after deducting an amount
equal to what the borrower would owe for monthly payments on
postsecondary education loans obtained through a federal program.
In addition to the criterion discussed above, the
Secretary has added two other criteria under which a borrower may
establish eligibility for an economic hardship deferment: (1) by being
granted an economic hardship deferment under either the Federal Direct
Student Loan (FDSL) or Federal Perkins Loan programs for the period of
time for which the borrower has requested an economic hardship
deferment for his or her FFEL loan; or (2) by being eligible for a
payment under a federal or state public assistance program, such as Aid
to Families with Dependent Children, Supplemental Security Income, Food
Stamps, or state general public assistance.
Section 682.211 Forbearance
The regulations have been amended to add a provision to
require a lender to grant a forbearance to a borrower who serves in a
national service position for which the borrower receives a national
service educational award under Pub. L. 103-82, or to a borrower who is
eligible for forgiveness of a Federal Stafford Loan under the Federal
Stafford Loan Forgiveness Demonstration Program because of certain
public service under the terms of section 428J of the HEA, if that
program is funded.
The regulations have been amended to add a provision to
require a lender to grant a forbearance to a borrower who would be
eligible for a partial repayment of a loan under the Student Loan
Repayment Programs administered by the Department of Defense under 10
U.S.C. 2171.
The one-year forbearance period proposed in the NPRM to
cover the effect that variable interest rate changes may have on a
borrower's ability to repay the loan within 10 years under a fixed-
amount (now referred to as a standard repayment schedule) or graduated
repayment schedule has been lengthened to three years.
The three-year forbearance period proposed in the NPRM to
cover the effect that a borrower's decreased income may have on his or
her ability to repay the loan within 10 years under an income-sensitive
repayment schedule has been increased to five years.
The provision in the NPRM that would have required a
lender to obtain a copy of a borrower's federal income tax return if
the borrower requested a mandatory forbearance based on a high debt-to-
income ratio has been deleted.
Analysis of Comments and Changes
In response to the Secretary's invitation in the NPRM, 32 parties
submitted comments on the proposed regulations. An analysis of the
comments and of the changes made to the regulations as a result of
those comments follows.
Major issues are grouped according to subject, with references to
the appropriate sections of the regulations. Other substantive issues
are discussed under the section of the regulations to which they
pertain. Technical and other minor changes, and suggested changes the
Secretary is not legally authorized to make under the applicable
statutory authority, generally are not addressed.
Section 682.209 Repayment of a Loan
1. Comments: Some commenters noted that paragraph (a)(6)(i) of
Sec. 682.209 was not included in the NPRM, but needed to be updated to
reflect the new regulations for income-sensitive repayment schedules.
Discussion: The Secretary agrees with the commenters.
Changes: Section 682.209(a)(6)(i) has been revised to state that a
borrower's installment payment may increase or decrease during the
repayment period.
Section 682.209(a)(6)(iii)
2. Comments: Some commenters asked if a lender could establish a
repayment schedule for a borrower at the time the loan is made,
providing the borrower is permitted to choose another schedule, if
desired, six months before the first payment is due. If the borrower
does not notify the lender that he or she wishes a different type of
repayment schedule, the lender can assume that the borrower continues
to agree with the schedule established by the lender when the loan was
made.
Discussion: Section 428(b)(1)(E)(i) of the HEA prohibits a lender
from offering a choice of repayment schedules to a borrower more than
six months prior to the date on which the borrower's first payment is
due. A lender may not establish a repayment schedule for the borrower
when the loan is made (frequently several years before repayment is
due) and inform the borrower that the lender will presume that the
borrower is agreeable to that type of repayment schedule in the absence
of the borrower's later request for a different repayment schedule. The
Secretary believes that a borrower may not recall that he or she has
that option if the lender does not remind the borrower of it shortly
(three to six months) before the first payment is due.
Changes: None.
3. Comments: Some commenters asked if a lender would be required to
permit a borrower to repay multiple loans under several different
repayment schedules, if that was what the borrower wished.
Discussion: Section 432(l)(1) of the HEA directs the Secretary to
prescribe procedures to standardize servicing of FFEL Program loans. In
addition, section 485C of the HEA directs eligible lenders, to the
extent practicable, to treat all loans made under the same section of
the HEA as one loan and to send the borrower one bill for such loans.
The Secretary believes that the effective implementation of these
statutory provisions would be advanced by allowing a lender to require
a borrower to repay all loans held by the lender in accordance with a
single repayment schedule.
Changes: Section 682.209(a)(6)(ix) has been added to the final
regulations to permit a lender to require that all FFEL loans owed by a
borrower to the lender be combined and repaid under one repayment
schedule.
4. Comments: Some commenters asked if the requirement to offer a
choice of repayment schedules would apply in the case of a borrower who
received a loan on or after a date specified in the proposed
regulations, but who was already in repayment under a schedule
established by the lender.
Discussion: As required by section 428(b)(1)(E)(i) of the HEA, a
new borrower who receives a loan on or after July 1, 1993 must be
offered a choice of repayment schedules. If a borrower has entered the
repayment period on the loan, the lender must notify the borrower of
the new repayment options, and if a new option is selected, provide the
borrower with a new repayment schedule prior to the effective date of
these regulations (July 1, 1995).
Changes: None.
5. Comments: Some commenters requested clarification of what is
meant by a loan ``first disbursed on or after July 1, 1993.'' The
commenters asked if the requirement to offer a choice of repayment
schedules would apply if any disbursement of a loan was made on or
after that date.
Discussion: A lender is required to offer a choice of repayment
schedules to a new borrower whose initial disbursement of a loan is
made on or after July 1, 1993.
Changes: None.
6. Comments: Some commenters objected to the requirement that a
lender must offer a choice of a standard, graduated, or income-
sensitive repayment schedule to certain borrowers. The commenters
believed that section 428(b)(1)(E)(i) of the HEA permits a lender to
offer a borrower a choice of two repayment schedules: (1) a standard
schedule; or (2) a flexible repayment schedule (either graduated or
income-sensitive) chosen by the lender. The commenters stated their
view that there is little or no difference between a graduated
repayment schedule and an income-sensitive repayment schedule.
Therefore, the commenters contended, there would be no harm done if the
lender made the choice for the borrower.
Discussion: It appears that the rationale that the commenters have
based their recommendations upon does not acknowledge the fundamental
differences between graduated and income-sensitive repayment schedules:
a graduated schedule is a modified standard repayment schedule with
preset yearly payment amounts specified when the schedule is
established; an income-sensitive schedule establishes payment amounts
for one year at a time, subject to the borrower's income. The Secretary
believes that Congress intended that the dramatically different method
of repaying a loan under an income-sensitive repayment schedule would
be of great assistance to a borrower because the installment amounts
can be adjusted to reflect the borrower's ability to repay the loan.
Although lenders could have used income-sensitive repayment schedules
in the past, almost none of them chose to do so. As a result, if a
borrower was locked into a standard repayment schedule and was unable
to make scheduled payments or qualify for a deferment, a default was
inevitable if the lender declined to grant forbearance. Congress
therefore concluded, and the Secretary agrees, that a remedy to this
problem (in conjunction with mandatory forbearances and a new economic
hardship deferment) would be to permit the borrower to repay the loan
under an income-sensitive repayment schedule. The Secretary believes
that defaults will decrease if borrowers are given that option.
Changes: None.
7. Comments: Some commenters recommended that the regulations
specifically permit a borrower who has selected one type of repayment
option to later choose a different one. The commenters proposed that a
borrower be restricted to two changes during the repayment period. Some
commenters believed that the lender should be permitted to grant an
administrative forbearance to a borrower during the change, so that any
existing delinquency status on the loan can be waived before the new
repayment schedule commences.
Discussion: Section 428(b)(1)(E)(i) of the HEA neither prohibits a
lender from permitting a borrower to change his or her mind about a
chosen repayment schedule nor requires a lender to comply with a
borrower's request to change the repayment schedule. The Secretary
encourages lenders to revise repayment schedules in response to
borrower requests, if practicable, but does not believe that the
borrower's repayment of the loan needs to be interrupted while the
lender develops a new repayment schedule. The borrower simply continues
to pay under the existing schedule until the new one is in place.
Changes: None.
8. Comments: Some commenters recommended that the regulations
address a lender's obligation to offer a choice of repayment schedules
to a borrower if the lender received notification of the borrower's
withdrawal from school after the repayment period on the borrower's
loan had already begun, or if the notification was received less than
90 days before the repayment period on the loan was due to commence.
Discussion: The Secretary agrees with the commenters. The
Secretary's longstanding policy has been to require a lender to
establish a first payment due date that is not more than 75 days after
the date the lender received the notification that the borrower had
entered the repayment period. Section 428(b)(1)(E)(i) of the HEA
requires the lender to offer a choice of repayment schedules to a
borrower prior to the date that the borrower's first payment is due.
If, because of late notification, the lender does not have sufficient
time to establish an income-sensitive repayment schedule for the
borrower, the lender must convert the loan to a repayment status by
establishing a standard repayment schedule. After receiving the
required documentation from a borrower who wishes to repay his or her
loan through an income-sensitive repayment schedule, the lender must
follow the procedures prescribed in Sec. 682.209(a)(6)(viii).
Changes: Section 682.209(a)(6)(viii)(B) of the final regulations
has been revised to permit a lender to request income documentation
from a borrower for the purpose of estimating an income-sensitive
repayment schedule less than 90 days before the borrower's first
payment is due if the lender receives late notification that the
borrower has entered the repayment period.
Section 682.209(a)(6)(iv)
9. Comment: Some commenters recommended that the requirement that
each scheduled payment equal at least the interest that accrues during
the interval between payments should not apply to an income-sensitive
repayment schedule. The commenters believed that the income of some
borrowers would occasionally be so low that they could not afford to
pay the interest on their loans. The commenters believed that a more
realistic approach would be to recognize that a repayment schedule that
was truly sensitive to a borrower's income may result in scheduled
payments that are less than the interest that accrues. The commenters
recommended that the lender be permitted to schedule payments that are
less than the accruing interest, and capitalize any unpaid interest.
Discussion: With the exception of a loan made under the Federal
Consolidation Loan Program, the maximum repayment period that applies
to an FFEL Program loan is 10 years. Given this constraint, negative
amortization (in which payments are less than the interest that accrued
since the last payment) is not a workable option in the FFEL Program.
Some commenters may have believed that the FFEL repayment regulations
should mirror the regulations that will be promulgated for the Federal
Direct Student Loan (FDSL) Program's income contingent repayment plan.
Although the FFEL and FDSL programs will have comparable repayment
provisions in many respects, the 10-year repayment limit in the FFEL
Program does not exist in the income contingent repayment plan provided
in the FDSL Program under section 455(d)(1)(D) of the HEA. In addition,
unlike in the FFEL Program, negative amortization is specifically
permitted for FDSL loans under section 455(d)(1)(C) of the HEA.
The Secretary believes that if a borrower finds his or her
scheduled FFEL payment amount to be too difficult to maintain, even
though the borrower's scheduled payment represents accrued interest
only, the borrower's difficulties can be ameliorated through the use of
appropriate forbearances and deferments.
Changes: The final regulations have been revised to require a
lender to grant an administrative forbearance under Sec. 682.211(j)(5)
for up to 5 years of borrower payments where the effect of decreased
installment amounts under an income-sensitive repayment schedule would
cause the loan to be in repayment for more than 10 years.
Section 682.209(a)(6)(v)
10. Comments: Some commenters recommended that the regulations
include a time limit for the borrower to choose a repayment schedule
after being notified of the option to choose one.
Discussion: The Secretary agrees with the commenters.
Changes: The final regulations have been revised to require a
lender to grant the borrower's choice of repayment schedule only if the
borrower responds to the lender's offer within 45 days after the lender
makes the offer. As discussed in response to comment 7, a lender is
encouraged to agree to a borrower's request to revise an established
repayment schedule if this request is made after the 45-day period.
11. Comments: Some commenters were confused about the reference to
a borrower who did not ``qualify'' for a graduated repayment schedule
and asked what procedures a lender must follow to determine if a
borrower ``qualifies'' for a graduated repayment schedule.
Discussion: The Secretary agrees that the use of the word
``qualifies'' in the proposed regulation was confusing.
Changes: The final regulations have been revised to require the
lender to establish a standard repayment schedule for a borrower who
does not select an income-sensitive or graduated schedule, or who does
not provide the documentation required for an income-sensitive
schedule.
12. Comments: Some commenters recommended that the regulations
clarify a lender's obligation concerning the offer of an income-
sensitive repayment schedule to a co-maker of a loan.
Discussion: A co-maker of a loan is a borrower of a loan. Any
requirement that applies to a borrower also applies to a co-maker.
Changes: None.
13. Comments: Some commenters recommended that a lender be
permitted to establish either a graduated or a standard repayment
schedule if the borrower does not choose a repayment schedule, or does
not provide income documentation for an income-sensitive repayment
schedule.
Discussion: The Secretary believes that the interests of promoting
consistent treatment of borrowers and simplification of the FFEL
Program is best served if there is one standard repayment schedule that
applies in these situations. Therefore, a lender must establish a
standard repayment schedule if the borrower does not choose a repayment
schedule, or does not provide income documentation for an income-
sensitive repayment schedule. As discussed in response to comment 7, a
lender could agree to a borrower's later request to revise an
established repayment schedule.
Changes: The final regulations have been revised to require a
lender to establish a standard repayment schedule for a borrower who
does not select an income-sensitive repayment schedule or does not
provide the documentation required for an income-sensitive repayment
schedule.
Section 682.209(a)(6)(vi)
14. Comments: Some commenters recommended that a lender be allowed
to adjust the borrower's monthly payment amount owed under a standard
repayment schedule to reflect annual variable interest rate changes.
Discussion: The Secretary believes that such adjustments would be
beneficial to borrowers and that lenders should have the option of
adjusting annual variable interest payment amounts in much the same way
that lenders routinely adjust installment amounts for other variable
interest rate loans they make, e.g., adjustable rate mortgage loans.
Changes: Section 682.209(a)(6) of the final regulations has been
revised to provide a lender the option of making adjustments to the
amount of the borrower's installment payments to reflect annual changes
in the variable interest rate on the borrower's loan, or to grant the
administrative forbearance described in Sec. 682.211(j)(5)(i) for a
period of up to 3 years of payments in cases where the effect of a
variable interest rate on a standard or graduated repayment schedule
would result in a loan not being repaid within the maximum repayment
term.
Section 682.209(a)(6)(vii)
15. Comments: Some commenters believed that a lender should be
permitted to offer a graduated repayment schedule that establishes an
installment amount that exceeds three times the amount of any other
installment. The commenters believed that the income of a borrower
during the early years of repayment may be so low that a strict
adherence to the ``three times rule'' would not be helpful to the
borrower.
Discussion: The Secretary believes that the ``three times rule'' is
needed to prevent excessively large payment amounts that the borrower
may not be able to afford. If a borrower does not have sufficient
income to make scheduled payments that are scheduled within the
constraints of the ``three times rule'' and the lender's application of
the mandatory forbearance described in Sec. 682.211(j)(5)(ii), the
borrower could request assistance through deferments and other
forbearances that would normally be available.
Changes: None.
Section 682.209(a)(6)(viii)(A)
16. Comments: Some commenters believed that there should be an
absolute prohibition against any repayment schedule that establishes an
installment amount that exceeds three times the amount of any other
installment. The commenters were concerned that the Secretary's
encouragement to lenders to stay within the ``three times rule'' for
income-sensitive repayment schedules would be insufficient protection
for some borrowers who initially would be given artificially low
repayment schedules, only to experience significant payment increases
in later years.
Discussion: The Secretary has no reason to believe that lenders
would not have heeded his encouragement in the NPRM to attempt to stay
within the ``three times rule'' for income-sensitive repayment
schedules. However, in the interest of ensuring consistent and
equitable treatment of all borrowers, the Secretary agrees that the
``three times rule'' should apply to all types of repayment schedules.
The Secretary believes that if a borrower finds his or her scheduled
FFEL payment amount to be too difficult to maintain, the borrower's
difficulties can be ameliorated through the use of appropriate
forbearances and deferments.
Changes: The final regulations will retain the ``three times rule''
contained in Sec. 682.209(a)(6)(ii) of the current regulations for all
types of repayment schedules.
17. Comments: Some commenters believed that an income-sensitive
repayment schedule should be based on the borrower's family income,
rather than only on the borrower's income. The commenters believed that
a borrower whose spouse has substantial earnings should be expected to
repay a loan more quickly than a borrower who does not have access to
such resources. The commenters recommended that the regulations
specifically address the treatment of income received by a borrower's
spouse.
Discussion: The statutory provisions governing repayment of an FFEL
Program loan consistently rely on consideration of the borrower's
income. In contrast, in the FDSL Program, section 455(e) of the HEA
specifically authorizes consideration of family income. These
regulations reflect the statutory restrictions in the FFEL Program.
Changes: None.
18. Comments: Some commenters recommended that an income-sensitive
repayment schedule be based on a borrower's gross income, instead of
disposable income. The commenters believed that the term ``gross
income'' is more widely understood and more easily explained. Other
commenters believed exactly the opposite--that the term ``disposable
income'' would be easier to explain and more readily understood by
borrowers.
Discussion: The Secretary believes that the various opinions
presented by the commenters show a need for a simplified and easily
understood definition to be used to determine a borrower's income.
Changes: The final regulations have been revised to add the concept
of ``total monthly gross income.'' This term will mean the gross amount
of income received by the borrower from employment and from other
sources.
19. Comments: Some commenters recommended that the regulations
specify the minimum and maximum monthly payment amounts that the
Secretary would consider reasonable based on the borrower's income. For
example, some commenters suggested that an acceptable range for monthly
payments would be $10 to $20 for each $100 of monthly income.
Discussion: The minimum payment amount must be equal to at least
the interest that accrues during the interval between scheduled
payments. If the borrower finds that payment amount to be too difficult
to maintain, the borrower's difficulties may be ameliorated through the
use of forbearances and deferments. The maximum payment amount may not
exceed three times the amount of any other scheduled payment requested
from the borrower. The Secretary believes that the borrower and the
lender are the parties that can best establish a reasonable payment
amount that falls within these two extremes.
Changes: None.
20. Comments: Some commenters believed that, in addition to a
borrower's income, a lender should be required to take the borrower's
monthly living expenses into consideration when determining the amount
of the borrower's monthly repayment amount under an income-sensitive
repayment schedule. The commenters believed that a lender should be
required to subtract specified monthly living expenses, based on family
size, from the borrower's monthly income.
Discussion: The Secretary does not agree with the commenters. A
lender may take factors other than income into consideration when
establishing a borrower's payment amount, but the Secretary sees no
need to prescribe in the regulations what those factors should be. A
lender's discretion to consider such other factors is limited only by
the basic rule that the borrower's scheduled installment amount must
equal at least the interest accruing on the loan.
Changes: None.
21. Comments: Some commenters believed that an income-sensitive
repayment schedule should be limited to the borrower's initial three
years of repayment. The commenters believed that three years was an
adequate amount of time for a borrower to develop an ability to manage
his or her debt. Following this three-year period, the loan would be
repaid under a standard or a graduated repayment schedule.
Discussion: The HEA permits certain borrowers to repay their loans
through income-sensitive repayment schedules. The HEA does not restrict
the borrower's ability to select this option to only a certain number
of years of the borrower's total repayment period. The Secretary
recognizes, however, that a borrower who has had low monthly payments
scheduled for several years under an income-sensitive repayment
schedule would eventually reach a point where such low payments could
no longer be scheduled in accordance with the maximum 10-year repayment
period, even if the borrower received the maximum 5-year administrative
forbearance authorized under Sec. 682.211(j)(5)(ii). The Secretary
believes that lenders should counsel borrowers on the drawbacks of a
borrower's over-reliance on the ability to continue to have small
scheduled payments under an income-sensitive repayment plan. The
Secretary strongly encourages lenders to counsel borrowers that the
income-sensitive option should be considered a ``safety net'' for
borrowers who are truly in financial need, and that there are many
advantages in repaying loans more rapidly under a standard or graduated
repayment schedule.
Changes: None.
22. Comments: Some commenters recommended that the regulations be
revised to state that an income-sensitive repayment schedule is based
on a borrower's current income, rather than expected income. The
commenters believed it is more appropriate to require a borrower to
certify current income (which is known) than to expect a borrower to
certify an amount of income that is expected in the future.
Discussion: The commenters have overlooked the fact that a
borrower's future payments are based on the borrower's expected income
for the next 12 months. The borrower is not required to ``certify''
events that have not yet occurred, but is merely being asked to provide
recent documentation that could reasonably be used by the lender as a
guide to establish the appropriate installment amount for the borrower
to pay during the next 12 months.
Changes: None.
23. 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.
Other commenters recommended that the three-year forbearance period
authorized in Sec. 682.211(f)(10) be increased to five years.
Discussion: During the negotiated rulemaking sessions, the
Department made it clear that the Secretary had no authority to extend
the 10-year statutory length of the repayment schedule. However, the
Secretary agreed to the creation of a specific forbearance for
borrowers repaying their loans under an income-sensitive repayment
schedule. Periods of authorized forbearance are not included in the
repayment period. The Secretary agrees that a five-year forbearance
period would be more helpful to borrowers and lenders than the three-
year forbearance period that was proposed in the NPRM.
Changes: As discussed in response to comment 55, the final
regulations have been revised to relocate this forbearance from
Sec. 682.211(f)(10) to Sec. 682.211(j)(5)(ii) and to increase it to
five years.
Section 682.209(a)(6)(viii)(C)
24. Comments: Some commenters noted that section 428C(c)(4) of the
HEA mandates that repayment of a Consolidation Loan must begin within
60 days after the consolidating lender has repaid the loans selected by
the borrower for consolidation. The commenters did not believe that the
consolidating lender would have sufficient time to comply with the
provision in Sec. 682.209(a)(6)(viii)(C) for requesting, obtaining, and
evaluating the income documentation submitted by the borrower.
Discussion: The Secretary is not persuaded that a consolidating
lender will not have sufficient time for establishing a borrower's
income-sensitive repayment schedule. The Secretary notes that a lender
could gain additional time to accomplish this process by requesting the
borrower's income documentation at the time the borrower submits an
application for a Consolidation Loan.
Changes: None.
25. Comments: Some commenters believed that a lender should be
permitted to request documentation from a borrower more than 90 days
before the borrower's initial payment is due under an income-sensitive
repayment schedule. The commenters recommended 180 days, rather than 90
days.
Discussion: The Secretary believes that a timely request for
documentation is important, and should be made between 90 days and six
months before the borrower's first payment is due. The Secretary did
not intend for the 90-day restriction to be interpreted as a bar to a
lender's request for additional documentation from the borrower if the
lender believed it to be necessary. However, except in the case of a
late notification (see comment 8), the initial request must be made not
less than 90 days before the borrower's first payment is due.
Changes: None.
26. Comments: Some commenters objected to the requirement that a
borrower must submit documentation of income. The commenters believed
that the borrower should be permitted to self-certify his or her
income, and that the documentation requirements are burdensome and
conflict with the Paperwork Reduction Act of 1980. The commenters also
expressed their belief that there would be little incentive for a
borrower to misrepresent his or her income by providing inaccurate
income data because the cost savings to a borrower increase more
quickly as a loan is repaid. Some commenters suggested that borrowers
would have an incentive to correctly self-certify their income if the
Secretary enforced appropriate penalties against borrowers who
submitted false or incomplete information. Other commenters questioned
why self-certification of income is acceptable for the determination of
eligibility for federal student financial aid but is not acceptable for
purposes of establishing an income-sensitive repayment schedule. The
commenters suggested that the Secretary could ensure that borrowers
correctly self-certify their income by using verification techniques
similar to those that exist for determining eligibility for federal
student financial aid. Some commenters believed that a borrower's
federal income tax return from the previous year would have no
relevance in determining the appropriate amount of the borrower's
monthly repayment amount under an income-sensitive repayment schedule.
The commenters believed that the information on the tax return reflects
a financial status for the borrower that no longer exists. The
commenters recommended a deletion of this requirement.
Discussion: The Secretary disagrees with the presumption that a
borrower would have little incentive to misrepresent his or her income
by providing inaccurate income data. The Secretary has an obligation to
the taxpayers to ensure that their tax dollars are effectively spent.
The Secretary believes that some borrowers may be tempted to
misrepresent their income so that their scheduled monthly payment
amounts can be inappropriately low. As a consequence of earlier
payments that are inappropriately low, the borrower's future payments
may have to be much larger than the borrower could afford, thereby
increasing the risk of default and the exposure of the taxpayers to
increased default costs. Permitting a borrower to self-certify
incorrect income data would also cause the borrower's loan balance to
remain higher than it should for a longer time than it should. The
taxpayer would then be unfairly obligated to pay excessive amounts of
interest benefits (during deferments) and special allowance payments,
in addition to a larger default payment if the borrower defaults.
However, the Secretary has reconsidered the type of documentation
that should be provided by the borrower, and no longer believes it is
necessary to require the lender to obtain a copy of the borrower's
federal income tax return (although a lender could still require one if
the lender thought it was needed). The Secretary believes that evidence
of income is not needed if a borrower voluntarily reports an amount of
income that would result in monthly installment amounts that would be
projected to repay the loan within the maximum 10-year repayment
period. The Secretary also believes that the information on the tax
return may have little or no bearing on the borrower's current or
future financial situation, and would reflect only past income. A
lender could still require a tax return if the lender thought it was
needed to clarify questionable income documentation submitted by the
borrower. If the borrower later requested an additional period of
income-sensitive repayment, a lender may find the information on the
tax return more relevant because it contains information that the
lender can compare to the amount of recent income reported by the
borrower for purposes of establishing the appropriate amount of the
borrower's monthly payment.
The Secretary does not believe that the taxpayers should be
expected to incur the costs associated with permitting a borrower to
make very low monthly payments under an income-sensitive repayment
schedule simply on the strength of the borrower's undocumented
assertion that he or she has a very low income. The Secretary believes
that the public interest justifies the collection of minimal
documentation from a borrower who reports a very low income in order to
obtain the benefit of smaller scheduled monthly payments under an
income-sensitive repayment schedule. The documentation requirements
therefore comply with the provisions of the Paperwork Reduction Act of
1980. The Secretary believes the required documentation of income is
reasonable, easily obtainable by the borrower, and necessary to
maintain the integrity of the FFEL Program. A need for documentation of
a borrower's income exists for other purposes (for example,
documentation of income from a borrower who requests an economic
hardship deferment) and the Secretary believes that documentation also
should be provided by a borrower who requests very low payments under
an income-sensitive repayment schedule. It is the Secretary's belief
that FFEL lenders have sufficient experience and expertise in obtaining
and verifying borrower-supplied income documentation for other purposes
(such as for mortgage applications or car loans), and will be able to
do the same for their FFEL borrowers. The Secretary will, of course,
take appropriate action against individuals who provide fraudulent
information to obtain a federal benefit. The existing enforcement
powers available to the Secretary in this regard are sufficient, and no
new powers specifically created for the purpose of preventing potential
fraud by borrowers in this area are needed.
Changes: The final regulations have been revised to require a
borrower to present evidence of his or her income only if the borrower
reports an amount of income that would be so low that the scheduled
installment amounts would be insufficient to repay the loan within the
maximum 10-year repayment period permitted under the HEA. The final
regulations have deleted the requirement that the lender must require
the borrower to submit a copy of his or her federal income tax return
to be eligible for an income-sensitive repayment schedule.
Section 682.209(a)(6)(viii)(C)(1)
27. Comments: Some commenters recommended that the regulations
require a borrower to certify that he or she has reported all of his or
her monthly income to the lender. The commenters noted that the lender
would not know if the borrower had income other than what the borrower
divulged. The commenters also believed that a borrower who claimed to
have not filed a federal income tax return for the most recent year
should be required to certify the truthfulness of that claim.
Discussion: As discussed in response to comment 26, the requirement
to obtain a borrower's federal income tax return has been deleted. The
Secretary would not object if a lender required the certifications
suggested by the commenters, but does not believe they should be
mandated in the regulations. It is the Secretary's belief that the
lender, who may possess other information about the borrower, is the
most appropriate party to decide if the borrower should provide
verifying information or certifications. As further discussed in
response to comment 26, the Secretary believes that FFEL lenders have
sufficient experience and expertise in obtaining and verifying
borrower-supplied income documentation for other purposes (such as for
mortgage applications or car loans), and will be able to do the same
for their FFEL borrowers.
Changes: None.
28. Comments: Some commenters recommended the deletion of the
requirement that a borrower document his or her income ``from all
sources.'' The commenters believed that this requirement is ambiguous
and burdensome. The commenters also believed that most of the ``other
sources'' would be reluctant to provide documentation to the borrower.
Some commenters interpreted it to mean that the income received by a
borrower's spouse would be included in this determination.
Discussion: The point of a repayment schedule that is based on the
borrower's income is to determine the appropriate monthly installment
amount that the borrower can afford to pay. It would serve no purpose,
other than to establish an artificially low payment amount, if certain
types of income received by the borrower were excluded from this
consideration. As discussed in response to comment 17, for the purposes
of establishing a borrower's income-sensitive repayment schedule for an
FFEL loan (unlike under the FDSL Program), the HEA does not require the
consideration of a borrower's family income.
Changes: None.
Section 682.209(a)(6)(viii)(E)
29. Comments: Some commenters believed that a borrower's monthly
payment amount should not have to be adjusted following three
consecutive months of increased income if there would only be a few
months remaining before the borrower's next scheduled annual
adjustment. The commenters recommended that an adjustment be required
only if the increased income occurred during the first six months of
the borrower's current annual repayment schedule. Other commenters
recommended a complete deletion of the requirement that a borrower's
payment amount be adjusted following three consecutive months of
increased income. The commenters believed this requirement not only is
unduly burdensome for borrowers and lenders, particularly if the
borrower's income is seasonal, it is unnecessary because the next
annual adjustment would take the borrower's increased income into
consideration.
Discussion: The Secretary agrees with the commenters, and
encourages the lender and the borrower to establish realistic monthly
payment amounts that reflect the borrower's expected average monthly
income during the course of the year so as to anticipate periods of
increased seasonal income.
Changes: The requirements contained in paragraphs
682.209(a)(6)(viii) (E) and (F) of the proposed regulations have been
deleted from the final regulations.
Section 682.209(h)(4)
30. Comments: Some commenters believed that the regulations should
state that a defaulted loan that has been included in a Federal
Consolidation Loan is not considered to be in default. Other commenters
recommended that the regulations state that the only defaulted loans
that can be consolidated are loans made under the FFEL Program.
Discussion: A loan that is repaid through consolidation no longer
exists as a separate loan obligation for FFEL Program purposes. It is
therefore unnecessary to say that a non-existent loan obligation is not
a defaulted loan. The commenters' second recommendation conflicts with
the Secretary's policy of permitting a borrower to consolidate a
defaulted Title IV loan if the borrower has made satisfactory
arrangements to repay the loan. However, the Secretary agrees that a
clarification of the type of defaulted loans that may be consolidated
is needed in the regulations.
Changes: The final regulations have been revised to clarify that a
defaulted loan made under Title IV of the HEA may be consolidated if
the borrower has made satisfactory arrangements with the holder to
repay the loan.
Section 682.210 Deferment
31. Comments: Some commenters recommended that the regulations
state that deferments are loan-specific, and not borrower-specific.
Discussion: The Secretary's longstanding policy has been that
deferments are borrower-specific, with the sole exception of the
parental-leave deferment described in Sec. 682.210(o). That exception
has been created because a borrower may be pregnant or caring for a
newborn or newly adopted child more than once.
Changes: Section 682.210(a) of the final regulations has been
revised to clarify that deferments are borrower-specific, with the sole
exception of the parental-leave deferment described in Sec. 682.210(o).
32. Comments: Some commenters stated that it was impractical to
expect that both co-makers must meet the same deferment requirements to
qualify for a deferment. The commenters suggested that if the co-makers
individually qualified for different deferments, the co-makers should
be permitted to decide which of those deferments they would receive.
Discussion: The Secretary agrees with the commenters.
Changes: Section 682.210(a)(11) of the final regulations has been
revised to permit a co-maker to receive a deferment if both co-makers
are simultaneously eligible to receive the same, or different
deferments.
33. Comments: Some commenters believed that the way that the
regulations are written would cause people to conclude that a student
deferment was permitted only if the student was enrolled as a half-time
student, with no other enrollment status acceptable for deferment
eligibility. The commenters recommended that the regulations be revised
to state that the student's status had to be ``at least half-time.''
Discussion: The Secretary did not intend that the regulations be
interpreted in a manner that would deny a student deferment to a
borrower whose enrollment status was greater than half-time.
Changes: Section 682.210(s)(2) of the final regulations have been
revised to read ``at least half-time study.''
Section 682.210(s)(6)(i)
34. Comments: Some commenters recommended that a definition of
``working full-time'' be included in the regulations.
Discussion: The Secretary agrees with the commenters.
Changes: Section 682.210(s)(6)(vii) of the final regulations will
incorporate the definition of ``full-time employment'' that has been
used for the purposes of the unemployment deferment authorized under
Sec. 682.210(h)(4). For the purposes of an economic hardship deferment,
a borrower will be considered to be ``working full-time'' if the
borrower is expected to be employed for at least three consecutive
months at 30 hours per week.
35. Comments: Some commenters recommended that the regulations
should require the Secretary to publish the minimum wage rates and the
poverty levels for a family of two.
Discussion: The Secretary does not agree with the commenters. This
information is in the public domain and readily available to all
parties. It need not be reprocessed through the FFEL Program
regulations. Information concerning the minimum wage rate may be
obtained by calling the Wage and Hour Division of the U.S. Department
of Labor at (202) 219-7043. Annual updates of the poverty level for a
family of two are published in the Federal Register by the U.S.
Department of Health and Human Services. The most recent update was
published on February 10, 1994 (59 FR 6277). The 1994 poverty level for
a family of two in Alaska is $12,300; in Hawaii, $11,320; for all other
states and the District of Columbia, $9,840. Further information may be
obtained by calling the Office of the Assistant Secretary for Planning
and Evaluation, Department of Health and Human Services, (202) 690-
6141.
Changes: None.
Section 682.210(s)(6)(ii)
36. Comments: Some commenters recommended that an economic hardship
deferment be based on a borrower's gross income, instead of disposable
income. The commenters believed that the term ``gross income'' is more
widely understood and more easily explained.
Discussion: The discussion following comment 18 also applies to an
economic hardship deferment.
Changes: None.
37. Comments: Some commenters believed that any borrower who
receives public assistance should automatically qualify for an economic
hardship deferment.
Discussion: The Secretary agrees with the commenters. It is likely
that almost all borrowers who receive some form of public assistance
would be eligible for an economic hardship deferment. While there may
be a few borrowers on public assistance who effectively have access to
greater amounts of income than other borrowers, the Secretary believes
those excess amounts would be marginal and would not justify the need
to inconvenience the vast majority of borrowers who receive some form
of public assistance.
Changes: The final regulations have added a new paragraph
(s)(6)(ii) to Sec. 682.210. A borrower will automatically qualify for
an economic hardship deferment if the borrower provides documentation
to the lender showing that he or she is receiving payment under a
federal or state public assistance program, such as Aid to Families
with Dependent Children, Supplemental Security Income, Food Stamps, or
state general public assistance.
38. Comments: Some commenters believed there should be no income
cap for an economic hardship deferment. The commenters believed that a
debt-to-income ratio would be sufficient by itself. Other commenters
recommended a lower debt-to-income ratio than the 20 percent ratio that
was proposed in the NPRM. Some commenters pointed out that the proposed
regulations would deny a deferment to a borrower who was not working
full-time, but who had very low income (for example, $300 per month) if
the borrower's monthly student loan payments were less than 20 percent
of income (for example, $50). The commenters stated that the borrower
in this example is in a much more disadvantageous financial position
than another borrower who may have $3,000 per month in income and who
owes $600 (20 percent of income) in monthly student loan payments. The
commenters noted that the borrower in the second case would have much
more money available ($2,400) after loan payments had been made than
the first borrower, who would only have $250 available. However, the
borrower with less available money would not qualify for an economic
hardship deferment, while the borrower who had nearly ten times as much
available income, even after accounting for larger student loan debts,
would be considered in need of an economic hardship deferment,
including interest subsidies from the federal government on the
borrower's subsidized loans. The commenters believed that this type of
inequitable result was not intended by Congress.
Discussion: The Secretary agrees that the debt-to-income ratio that
was developed through the negotiated rulemaking process contained the
flaws noted by the commenters. Therefore, the Secretary has decided to
replace that criterion with other measures of a borrower's need for an
economic hardship deferment. A borrower may now receive an economic
hardship deferment by qualifying under any one of the following
criteria: (1) By being granted an economic hardship deferment under
either the FDSL or Federal Perkins Loan Programs for the period of time
for which the borrower has requested an economic hardship deferment for
his or her FFEL loan; (2) by being eligible for a payment under a
federal or state public assistance program, such as Aid to Families
with Dependent Children, Supplemental Security Income, Food Stamps, or
state general public assistance; (3) by working full-time and earning
an amount that does not exceed the greater of the minimum wage rate or
the poverty level for a family of two; or (4) if the borrower's total
monthly gross income was not more than twice the minimum wage or the
poverty level for a family of two, by not having remaining total
monthly gross income, from employment or from other sources, that
exceeds the greater of the minimum wage rate or the poverty level for a
family of two after deducting an amount equal to what the borrower
would owe for monthly payments on postsecondary education loans
obtained through a federal program.
The Secretary believes that the income limitation specified in the
additional eligibility criterion described in (4) above is a reasonable
amount that is consistent with the intent of Congress that an economic
hardship deferment should be restricted to only those borrowers who do
not have substantial incomes. Therefore, although a borrower could have
a total monthly gross income up to twice the greater of the minimum
wage rate or the poverty level for a family of two, the regulations
focus on the amount of such income that would be available to the
borrower after subtracting an amount that represents what the borrower
would have been expected to pay each month on federal postsecondary
education loan debts. If those projected monthly payments would cause a
borrower's remaining total monthly gross income to fall below a certain
level, then the borrower would be considered eligible to receive an
economic hardship deferment. Thus, borrowers with differing amounts of
total income or debts could have approximately the same amount of
remaining total monthly gross income after subtracting their projected
monthly federal postsecondary education loan payments. A borrower on a
standard or graduated repayment schedule who would not qualify under
this criterion because of insufficient debt could request an income-
sensitive repayment schedule or a Federal Consolidation Loan (or both)
that would reduce his or her monthly loan payments and minimize the
need for a deferment.
As an example of the criterion described in (4) above, if the
minimum wage/poverty level was $820 per month, a borrower who had total
monthly gross income of $1,000 and who had projected monthly payments
of $180 per month for federal postsecondary education loans would be
(if those payments were actually made) in approximately the same
financial situation as a borrower working full-time and not earning
more than the minimum wage/poverty level. Both borrowers would have
approximately $820 per month in total income, and would have the same
financial need for a deferment.
Changes: Section 682.210(s)(6) of the final regulations has been
revised to permit a borrower to receive an economic hardship deferment
if the borrower provides documentation to the lender showing that he or
she is on public assistance. In addition, because the same rules will
apply for determining a borrower's eligibility under the FDSL and
Federal Perkins loan programs, a borrower will be eligible to receive a
deferment on an FFEL loan for the same period of time that an economic
hardship deferment is granted on an FDSL or Federal Perkins loan. A
borrower also may be eligible if he or she is not receiving total
monthly gross income greater than twice the amounts specified in
section 435(o)(1)(A) of the HEA, and the borrower's remaining total
monthly gross income, after subtracting an amount equal to the
borrower's monthly payments owed on federal postsecondary education
loans, would not exceed the greater of the minimum wage rate or the
poverty level for a family of two.
39. Comments: Some commenters believed that a borrower whose income
fell below a specified floor should not be expected to make any loan
payment, regardless of the borrower's debt-to-income ratio. The
commenters then went on to propose the concept of ``sliding scales''
that would set the ratios at progressively higher levels as the
borrower's income increased, for example, a borrower whose monthly
income was $1,000 would have a 5 percent ratio, a borrower whose
monthly income was $1,500 would have a 10 percent ratio, a borrower
whose monthly income was $2,000 would have a 15 percent ratio, etc.
Other commenters recommended a similar plan: counting income that
exceeds a threshold amount and increasing the debt-to-income ratio to
25 or 30 percent of the amount by which the borrower's income exceeds
the threshold amount. The commenters believed that this would ensure
that low-income borrowers would qualify for a deferment, as well as
borrowers with higher incomes who also had large debts.
Discussion: While some of the aspects of the various
recommendations made by the commenters have merit, none of the
proposals have the overall fairness and simplicity inherent in the
criteria described in response to comments 37 and 38.
Changes: None.
40. Comments: Some commenters recommended that the regulations
state that a borrower is not required to be working full-time to
qualify for a deferment under Sec. 682.210(s)(6)(ii). The commenters
understood that full-time employment was required for a deferment under
Sec. 682.210(s)(6)(i), but were concerned that others may not notice
the absence of such a requirement in Sec. 682.210(s)(6)(ii) unless it
was specifically stated.
Discussion: The Secretary agrees that a clarification would be
helpful for some readers.
Changes: The final regulations will include a new paragraph
Sec. 682.210(s)(6)(ix) that will define total monthly gross income as
the gross amount of income received by the borrower from employment
(either full-time or part-time) and from other sources.
41. Comments: Some commenters believed there would be widespread
confusion if the Secretary did not specifically list all of the federal
programs through which borrowers could obtain loans for their
education.
Discussion: A list of all federal education loan programs would be
extensive, ever-changing, and would lead to errors in transmission to
and among program participants. It is the Secretary's understanding
that all federal postsecondary education loan programs are clearly
identified as such, and that the vast majority of those programs are
administered through the U.S. Department of Education and the U.S.
Department of Health and Human Services.
Changes: None.
42. Comments: Some commenters objected to the definition of debt
that can be considered when determining a borrower's eligibility for an
economic hardship deferment. The commenters believed that by limiting
eligible debt to only non-defaulted education loans obtained through a
federal program, many borrowers who owe education loans to non-federal
entities may be forced into default on their FFEL Program loans because
they cannot qualify for an economic hardship deferment. The commenters
recommended the inclusion of all education related debts owed by the
borrower, regardless of the source or default status.
Discussion: The Secretary agrees with the commenters that payments
due on a loan obtained through a federal postsecondary education loan
program should be included, even if the borrower is in default on that
loan. However, the Secretary does not believe that Congress intended to
indirectly subsidize non-federal loan programs (by making it easier for
borrowers to repay non-federal debts) by permitting borrowers to use
their non-federal debts as a means to qualify for deferments on their
federal debt.
Changes: The final regulations have been revised to permit any loan
debt (defaulted or otherwise) owed by the borrower for a postsecondary
education loan obtained through a federal educational loan program to
be considered when determining the borrower's eligibility for an
economic hardship deferment. To allow for the consistent and equitable
treatment of borrowers who have repayment obligations based on
different periods of repayment or different repayment options, the
Secretary believes that, for purposes of determining the projected
monthly payment amount that can be considered as a payment that would
have been owed during the deferment period, a federal postsecondary
education loan owed by a borrower should be treated as if it had been
scheduled to be repaid in 10 years from the date the borrower entered
repayment.
Section 682.210(s)(6)(ii)(B)
43. Comments: Some commenters objected to the requirement that a
borrower must submit documentation of income. The commenters believed
that the borrower should be permitted to self-certify his or her
income. The commenters believed that the documentation requirements are
burdensome, and conflict with the Paperwork Reduction Act of 1980. Some
commenters recommended a deletion of the requirement that a borrower
provide a copy of his or her federal income tax return. The commenters
believed that the income reported on the tax return would be of little
relevance in determining that a borrower was currently in need of a
deferment, because the tax return will be for a previous calendar year.
Other commenters believed it would be an invasion of the borrower's
privacy to require a copy of his or her federal income tax return.
Discussion: The Secretary has reconsidered the type of
documentation that should be provided by the borrower to qualify for an
economic hardship deferment, and no longer believes it is necessary to
require the lender to obtain a copy of the borrower's federal income
tax return unless the borrower wishes to receive the deferment for more
than one year. For the initial period of deferment, the information on
the tax return would have little or no bearing on the borrower's
current or future financial situation, and would reflect only past
income. A lender could still require a tax return if the lender thought
it was needed to clarify questionable income documentation submitted by
the borrower. If the borrower later requested an additional period of
deferment, the information on the tax return becomes more relevant
because it contains information that the lender can compare to the
amount of recent income reported by the borrower for purposes of
establishing eligibility for the additional period of deferment.
The Secretary does not believe that the taxpayers should be
expected to incur the substantial costs associated with providing an
economic hardship deferment to a borrower simply on the strength of the
borrower's undocumented assertion that he or she does not have enough
money to repay his or her loan. The Secretary believes that the public
interest justifies the collection of minimal documentation from a
borrower who requests a federal benefit such as an economic hardship
deferment. The documentation requirements therefore comply with the
provisions of the Paperwork Reduction Act of 1980. The Secretary
believes the required documentation of income is reasonable, easily
obtainable by the borrower, and necessary to maintain the integrity of
the FFEL Program. A need for documentation of a borrower's eligibility
status exists for all other deferments, (for example, documentation of
in-school status from a borrower who claims to be enrolled in school),
and the Secretary believes that some form of documentation also should
be provided by a borrower who requests a deferment because of an
economic hardship.
Changes: The final regulations have deleted the requirement that
the borrower must submit a copy of his or her federal income tax return
to be eligible for an initial period of deferment based on the
borrower's economic hardship. To qualify for a period of economic
hardship deferment that begins less than one year after the end of a
previous economic hardship deferment, other than one based solely on
the borrower's status as a recipient of public assistance, the lender
must require the borrower to submit a copy of the borrower's federal
income tax return if the borrower filed a tax return within eight
months prior to the date the deferment is requested. This requirement
does not apply if the borrower provides documentation to the lender
showing that he or she has been granted an economic hardship deferment
under either the FDSL or Federal Perkins Loan Programs for the period
of time for which the borrower has requested an economic hardship
deferment for his or her FFEL loan.
44. Comments: Some commenters believed that a borrower who requests
an economic hardship deferment from a lender should not be required to
provide documentation of the amount owed on loans held by that lender.
The commenters suggested that the regulations be revised to require the
borrower to provide such documentation only for loans owed to other
lenders.
Discussion: The Secretary agrees with the commenters.
Changes: The final regulations have clarified that the lender may
only require the borrower to provide documentation of federal
postsecondary educational debts owed to another entity.
Section 682.211 Forbearance
Section 682.211(a)(4)
45. Comments: Some commenters were opposed to the rule that
forbearance would apply only if both co-makers of a loan had their
ability to make scheduled repayments impaired.
Discussion: A co-maker is an individual who is responsible for
repaying a loan. If a co-maker's ability to make scheduled repayments
has not been impaired, he or she does not need a forbearance.
Changes: None.
46. Comments: Some commenters noted that the language in
Sec. 682.211(a)(4) is essentially the same as in Sec. 682.211(a)(3) of
the existing regulations. The commenters suggested that the existing
paragraph (a)(3) be deleted.
Discussion: The Secretary agrees with the commenters.
Changes: Section 682.211(a)(4) of the NPRM is redesignated as
Sec. 682.211(a)(3) in the final regulations.
47. Comments: Some commenters recommended that the regulations
include a provision to permit a lender to administratively convert a
forbearance previously granted for partial payment amounts to a
forbearance of the entire payment amount if the borrower fails to remit
the partial payments.
Discussion: The Secretary believes that the borrower's sense of
obligation to repay the loan would be undermined if the lender
administratively ignored the borrower's failure to make the loan
payments that the borrower had agreed to make. The Secretary reminds
the commenters that the borrower and the lender are expected to
communicate with each other, and a further reduction of payments could
be agreed to if the borrower experiences difficulty in making
previously promised payments.
Changes: None.
Section 682.211(f)
48. Comments: Some commenters recommended that all forbearances
authorized under Sec. 682.211(f) be classified as ``administrative
forbearances'' to reflect the common usage of that term by FFEL Program
participants.
Discussion: The Secretary has no objection to this terminology.
Changes: The introductory sentence for Sec. 682.211(f) has been
revised to read: ``A lender may grant administrative forbearance * *
*.''
49. Comments: Some commenters observed that some of the proposed
changes would permit forbearances prospectively (for example, during a
military mobilization), even if the borrower would not be delinquent
during such future periods. The commenters recommended that the
introductory sentence in Sec. 682.211(f), which currently refers only
to payments that are overdue, be revised accordingly.
Discussion: The Secretary agrees with the commenters.
Changes: In addition to the change discussed in comment 48, the
introductory sentence for Sec. 682.211(f) has been further revised to
read: ``A lender may grant administrative forbearance, upon notice to
the borrower or if applicable, the endorser, with respect to payments
of interest and principal that are overdue or that would be overdue.''
50. Comments: Some commenters recommended that the regulations
permit a lender to grant a forbearance to a borrower to cover the
period from the end of a deferment period to the date that the lender
processed a borrower's deferment request and documentation. The
commenters noted that borrowers frequently provide documentation of
their deferment eligibility after the deferment period expired. The
commenters believed it is important that the borrower not be considered
delinquent when he or she resumes repayment after deferment.
Discussion: The Secretary does not believe that the commenters'
proposal would promote the timely submission of deferment documentation
by a borrower or strengthen the borrower's awareness of his or her
obligation to repay the loan according to the repayment terms explained
in the borrower's promissory note and other loan documents. The
Secretary reminds the commenters that the borrower and the lender are
expected to communicate with each other, and a forbearance could be
agreed to if the borrower experienced difficulty in making overdue
payments.
Changes: None.
51. Comments: Some commenters recommended that the regulations
permit a lender to grant a forbearance to a borrower to cover the
period between the date that a lender agrees to repurchase a loan and
the date the lender resumes servicing the repurchased loan. The
commenters noted that borrowers are frequently confused about the
status of loans during repurchases, and lenders also have difficulty
determining when to resume the appropriate due diligence activities and
establishing an ``interest paid through'' date. The commenters believed
it is important that the borrower not be considered delinquent when he
or she resumes repayment after a repurchase.
Discussion: Lenders and guaranty agencies must comply with the
requirements in Sec. 682.208 that pertain to notifying a borrower when
there is an assignment of a loan. In addition, specific notification
requirements exist in cases of loans being repurchased under the loan
rehabilitation program, or if the borrower is determined to be
ineligible for a requested loan discharge under Sec. 682.402. The
Secretary has seen no evidence that lenders and guaranty agencies have
not clearly informed borrowers of the date of the next payment due, the
amount of the payment, and to who it should be sent. Without such
evidence of a problem, the Secretary does not agree that a change is
needed.
Changes: None.
52. Comments: Some commenters recommended that the regulations
permit a lender to grant a forbearance to a borrower to cover the
period between the date that a lender filed a claim and the date the
lender resumes servicing the loan if it is returned by the guarantor in
the event of the borrower's ineligibility for a loan discharge. The
commenters believed it is important that the borrower not be considered
delinquent when he or she resumes repayment after his or her request
for a loan discharge has been denied.
Discussion: These types of forbearances have been authorized for
many years in the discharge provisions of Sec. 682.402.
Changes: None.
53. Comments: Some commenters recommended that the regulations
permit a lender to grant a forbearance to a borrower during the time
that a lender is attempting to resolve a dispute with the borrower, or
during periods when the lender is awaiting forbearance or deferment
documentation from the borrower.
Discussion: If a borrower has a dispute with a lender, the dispute
does not negate the borrower's ongoing obligation to repay the loan, or
justify a lender's suspension of collection efforts. A borrower also
has an obligation to provide timely forbearance or deferment
documentation to the lender. The types of forbearances that were
recommended by the commenters would not provide incentives to lenders
and borrowers to promptly resolve disputes or establish eligibility for
deferments or forbearances. In fact, the Secretary believes they would
undermine those incentives.
Changes: None.
Section 682.211(f)(9)
54. Comments: Some commenters believed that one year was an
insufficient forbearance period to cover the effect that variable
interest rate changes may have on a standard or graduated repayment
schedule. Some commenters recommended a three-year period if interest
changes caused the extension of the maximum repayment term; others
recommended an unlimited extension.
Discussion: As discussed in response to comment 14, the final
regulations have been revised to provide a lender the option of making
adjustments to the amount of the borrower's installment payments to
reflect annual changes in the variable interest rate on the borrower's
loan, or to grant the administrative forbearance described in
Sec. 682.211(j)(5)(i) so that the borrower can repay the loan within
the maximum repayment period.
The Secretary agrees that a three-year forbearance period is
reasonable, but believes that an unlimited forbearance period would not
provide an incentive to a borrower to increase the amount of his or her
monthly payments.
Changes: The final regulations have been revised to relocate this
forbearance from Sec. 682.211(f)(9) to Sec. 682.211(j)(5)(i) and to
increase it to three years.
Section 682.211(f)(10)
55. Comments: Some commenters believed that three years was an
insufficient forbearance period to assist a borrower who had low income
during the course of an income-sensitive repayment schedule. Some
commenters recommended that this period be expanded to five years
beyond the maximum repayment term; others recommended ten years.
Discussion: The Secretary agrees that a five-year period is
reasonable, but believes that a 10-year forbearance period would not
provide an adequate incentive to a borrower to increase the amount of
his or her monthly payments.
Changes: The final regulations have been revised to relocate this
forbearance from Sec. 682.211(f)(10) to Sec. 682.211(j)(5)(ii) and to
increase it to five years.
Section 682.211(f) (9) and (10)
56. Comments: Some commenters asked how a lender would apply a
forbearance under this paragraph in light of the general rule in
Sec. 682.211(h) that prohibits a lender from requiring payments from a
borrower during any period of forbearance. The commenters believed that
the borrower should be required to make payments during the extension
period.
Discussion: For those cases where a forbearance would apply, the
Secretary agrees that a clarification is appropriate and the following
example may be helpful: If a borrower was repaying a loan under a 10-
year repayment schedule with standard payments that would not be
adjusted to reflect changes in the variable interest rate on the loan,
the loan could not be repaid within 10 years if the interest rate
increased during the repayment period. The lender would then be
required to schedule one or more extra months of borrower payments so
that the loan will be completely repaid. Those additional monthly
payments will be considered payments made under an administrative
forbearance.
Changes: Section 682.211(f)(9) has been relocated to
Sec. 682.211(j)(5)(i) and revised for clarity to read: ``The lender
shall grant a mandatory administrative forbearance to a borrower (or
endorser, if applicable) during a period when the borrower (or
endorser, if applicable) is making payments for a period of up to 3
years of payments in cases where the effect of a variable interest rate
on a standard or graduated repayment schedule would result in a loan
not being repaid within the maximum repayment term.'' Section
682.211(f)(10) has been relocated to Sec. 682.211(j)(5)(ii) and revised
for clarity to read: ``The lender shall grant a mandatory
administrative forbearance to a borrower (or endorser, if applicable)
during a period when the borrower (or endorser, if applicable) is
making payments for a period of up to 5 years of payments in cases
where the effect of decreased installment amounts paid under an income-
sensitive repayment schedule would result in the loan not being repaid
within the maximum repayment term.'' Section 682.211(h) has been
revised for clarity to read: ``In granting a forbearance under this
section, except for a forbearance under paragraph (j)(5), a lender
shall grant a temporary cessation of payments, unless the borrower
chooses another form of forbearance subject to paragraph (a)(1) of this
section.''
Section 682.211(i)(1)
57. Comments: Some commenters recommended that the Secretary define
what would constitute ``sufficient supporting documentation'' from a
borrower serving in a medical or dental internship or residency
program.
Discussion: The Secretary agrees with the commenters.
Changes: Section 682.211(i)(1) of the final regulations has been
amended by inserting ``as described in Sec. 682.210(n)'' after the
phrase ``sufficient supporting documentation.''
Section 682.211(i)(2)(i)
58. Comments: Some commenters objected to the restriction that only
Title IV loans be considered when determining the amount of a
borrower's debt under the mandatory forbearance provision. The
commenters believed it would be unfair to exclude education loans from
other sources, either private or public.
Discussion: The regulations were written in accordance with section
428(c)(3)(A)(i)(II) of the HEA, which refers to ``the borrower's debt
burden under this title * * *''
Changes: None.
Section 682.211(i)(2)(ii)
59. Comments: Some commenters believed that Congress did not intend
that the definition of income would include public assistance benefits,
food stamps, Aid to Families with Dependent Children, Social Security
benefits, etc. The commenters recommended that all public assistance
benefits be excluded.
Discussion: The Secretary believes that a true measure of a
borrower's actual need for a forbearance would consider all income
received by the borrower, no matter what the source. Therefore, the
Secretary believes that the concept of ``total monthly gross income''
as described in response to comment 18 also should apply in the case of
a forbearance based on the borrower's income.
Changes: The final regulations have been revised to add the concept
of ``total monthly gross income.'' This term will mean the gross amount
of income received by the borrower from employment and from other
sources.
60. Comments: Some commenters recommended that the regulations
incorporate the Secretary's policy of permitting a lender to grant a
forbearance to a borrower who would be eligible for a partial repayment
of his or her loan under the Student Loan Repayment Programs
administered by the Department of Defense under 10 U.S.C. 2171.
Discussion: The Secretary agrees with the commenters.
Changes: Section 682.211(i)(2)(ii)(C) has been added to the final
regulations to permit a lender to grant forbearances in increments of
one year for as long as a borrower is eligible to receive a partial
repayment of his or her loan under the Student Loan Repayment Programs
administered by the Department of Defense. The borrower must provide
documentation to his or her lender showing the beginning and ending
dates that the Department of Defense considers the borrower to be
eligible for such payments. The lender may then grant a forbearance to
the borrower in anticipation of receiving a payment on his or her
behalf from the Department of Defense.
61. Comments: Some commenters recommended that the regulations
include a provision for granting a forbearance to a borrower who served
in a national service position for which the borrower received a
national service educational award under Public Law 103-82. Other
commenters recommended that forbearances be permitted if the borrower
is engaged in certain public service under the terms of section 428J of
the HEA.
Discussion: The Secretary agrees with the commenters.
Changes: Section 682.211(i)(2)(ii) of the final regulations has
been added to require a lender to grant forbearances in increments of
one year for as long as a borrower is serving in a national service
position for which the borrower receives a national service educational
award under the National and Community Service Trust Act of 1993. A
lender shall also grant forbearances to a borrower who is eligible
under the Federal Stafford Loan Forgiveness Demonstration Program, if
that program is funded. Those forbearances shall be in increments of
one year, for as long as a borrower is performing the type of service
described in Sec. 682.215(b).
Section 682.211(i)(3)
62. Comments: Some commenters objected to the requirement that a
borrower must submit documentation of income to receive a mandatory
forbearance. The commenters believed that the borrower should be
permitted to self-certify his or her income. The commenters believed
that the documentation requirements are burdensome, and conflict with
the Paperwork Reduction Act of 1980. The commenters also expressed
their belief that because the cost savings to a borrower increase more
quickly as a loan is repaid, there would be little incentive for a
borrower to misrepresent his or her income by providing inaccurate
income data.
Discussion: The Secretary has reconsidered the type of
documentation that should be provided by the borrower who requests a
mandatory forbearance, and no longer believes it is necessary to
require the lender to obtain a copy of the borrower's federal income
tax return. The information on the tax return would have little or no
bearing on the borrower's current or future financial situation, and
would reflect only past income. A lender could still require a tax
return if the lender thought it was needed to clarify questionable
income documentation submitted by the borrower. If the borrower later
requested an additional period of mandatory forbearance, the lender may
find information on the tax return more relevant because it contains
information that the lender can compare to the amount of recent income
reported by the borrower for purposes of establishing eligibility for
the additional period of mandatory forbearance.
The Secretary does not believe that the taxpayers should be
expected to incur the increased costs resulting from the delayed
repayment of a loan on which payments have been forborne simply on the
strength of the borrower's undocumented assertion that he or she does
not have enough money to repay his or her loan. The Secretary believes
that the public interest justifies the collection of minimal
documentation of recent income and Title IV debt from a borrower who
requests the federal benefit of a mandatory forbearance that is based
on the borrower's income and Title IV debt. The documentation
requirements therefore comply with the provisions of the Paperwork
Reduction Act of 1980. The Secretary believes the required
documentation of income is reasonable, easily obtainable by the
borrower, and necessary to maintain the integrity of the FFEL Program.
A need for documentation of a borrower's eligibility status exists for
other forbearances, and the Secretary believes that some form of
documentation also should be provided by a borrower who requests a
mandatory forbearance because of a high debt-to-income ratio. It is the
Secretary's belief that FFEL lenders have sufficient experience and
expertise in obtaining and verifying borrower-supplied income
documentation for other purposes (such as for mortgage applications or
car loans), and will be able to do the same for their FFEL borrowers.
Changes: The final regulations have deleted the requirement that
the borrower must submit a copy of his or her federal income tax return
to be eligible for a mandatory forbearance based on the borrower's high
debt-to-income ratio.
63. Comments: Some commenters recommended that a mandatory
forbearance be based on a borrower's gross income, instead of
disposable income. The commenters believed that the term ``gross
income'' is more widely understood and more easily explained.
Discussion: The discussion following comment 18 also applies to a
mandatory forbearance.
Changes: None.
Section 682.211(j) Mandatory Administrative Forbearance
64. Comments: Some commenters recommended a deletion of all
references to an endorser.
Discussion: The only time that an endorser becomes obligated to
repay a loan is when the borrower fails to do so. Therefore, the
references to a borrower in the regulations are qualified by the
parenthetical phrase (or endorser, if applicable). The Secretary
believes that if an endorser has become obligated to repay a loan, then
the interests of the endorser and the taxpayers are served if
forbearances are available to the endorser.
Changes: None.
Section 682.211(j)(1)
65. Comments: Some commenters believed that the prohibition against
a lender requiring a borrower to provide documentation for a mandatory
administrative forbearance would be unworkable if a borrower claimed to
be subject to a military mobilization. The commenters noted that the
lender would not know if the borrower was subject to a military
mobilization unless documentation supporting that claim was provided to
the lender. The commenters recommended that a definition of ``military
mobilization'' be included in the regulations, and suggested that the
Secretary use the same rules that applied during Operations Desert
Shield and Desert Storm in 1990 and 1991.
Discussion: The Secretary agrees that documentation will be needed
to establish a borrower's eligibility for a mandatory administrative
forbearance that is based on the borrower's military status. The
Secretary also agrees that the definition of ``military mobilization''
that was suggested by the commenters is appropriate, and it will be
added to the final regulations.
Changes: The final regulations have been revised to define a
``military mobilization'' to mean a situation in which the Department
of Defense orders members of the National Guard or Reserves to active
duty under sections 672(a), 672(g), 673, 673b, 674, or 688 of title 10,
United States Code. This term will also include the assignment of other
members of the Armed Forces to duty stations at locations other than
the locations at which they were normally assigned, only if the
military mobilization involved the activation of the National Guard or
Reserves. Before granting an administrative forbearance, the lender
must obtain documentation of the borrower's military status (which may
be supplied by any party).
66. Comments: Some commenters believed that the regulatory
references to an ``automatic'' forbearance should be changed to
``administrative'' forbearance to reflect the term commonly used by
servicers and lenders.
Discussion: The Secretary agrees with the commenters.
Changes: The references to an ``automatic forbearance'' in
Sec. 682.211(j) have been replaced with ``administrative forbearance''
in the final regulations.
Section 682.211(j)(2)
67. Comments: Some commenters recommended that a guaranty agency,
rather than the Secretary, be permitted to notify a lender that
borrowers be granted mandatory administrative forbearances based on
local emergencies. The commenters believed that a guaranty agency would
frequently be able to know about local emergencies earlier than the
Secretary, and would be able to notify lenders more quickly than the
Secretary.
Discussion: Borrowers who reside in an area where a local emergency
occurs may owe loans to lenders who do not participate with the
guaranty agency in that state, or may owe loans directly to other
guaranty agencies. The Secretary believes it is important that all
holders of loans owed by borrowers affected by a local emergency
receive identical and accurate guidance concerning the treatment of
such borrowers and the dates of the emergency situation. The Secretary
believes that he can communicate that information to all loan holders
in the nation more effectively than could an individual guaranty
agency.
Changes: None.
68. Comments: Some commenters recommended that the regulations
permit a lender to grant a forbearance for a period of delinquency that
may have existed before a borrower is granted a forbearance because of
exceptional circumstances or disasters. The commenters believed it is
important that the borrower not be considered delinquent when he or she
resumes repayment after such forbearance periods.
Discussion: A borrower who has not made scheduled payments prior to
a natural disaster or some other exceptional circumstance is still
responsible for those delinquent payments. After the natural disaster/
exceptional circumstance forbearance ends, the borrower resumes the
delinquency status that existed before that forbearance was granted. As
previously discussed in response to comment 50, the borrower and the
lender are expected to communicate with each other, and a forbearance
could be agreed to if the borrower experienced difficulty in making
those overdue payments.
Changes: None.
Section 682.211(j)(2)(ii)
69. Comments: Some commenters were concerned that a lender would
have difficulty identifying borrowers in a ``geographical area'' if the
Secretary did not specify the precise locations commonly used by a
lender, such as postal zip codes, or telephone area codes.
Discussion: The Secretary will relay the description of the
``geographical area'' as it is described to him by the state, local, or
federal government officials responsible for making those
determinations. If those descriptions are designated according to
geographical areas other than postal zip codes, or telephone area
codes, the Secretary is confident that all lenders will be able to
convert the information into zip codes or area codes, or any other
geographical unit the lender uses.
Changes: None.
70. Comments: Some commenters were opposed to granting a
forbearance to all borrowers whose residence was located in a disaster
area. The commenters believed that not only would this requirement be
burdensome, it would result in forbearances being granted to many
borrowers who may have experienced no actual hardship from the
disaster.
Discussion: The Secretary believes that fairness to borrowers in
difficult situations would be in the best interests of the United
States. In trying to help all such borrowers, the Secretary is willing
to accept the possibility that others may receive unneeded
forbearances.
Changes: None.
Section 682.211(j)(3)
71. Comments: Some commenters noted that if the lender did not know
how long the exceptional conditions would exist for a forbearance under
this paragraph, the lender would be required to send two notices to a
borrower who had been granted a mandatory administrative forbearance:
one notice ``as soon as feasible, or by the date specified by the
Secretary'' and a later notice informing the borrower of the date that
regular payments would resume. The commenters questioned the usefulness
of granting forbearances for potentially brief periods of time, and of
being required to send two notices to a borrower during those brief
periods. The commenters recommended that the minimum period for a
mandatory administrative forbearance should be six months, unless the
borrower chooses a lesser period of time.
Discussion: The Secretary will authorize forbearance periods that
will be long enough to assist borrowers and minimize the administrative
burdens on the holders of their loans.
Changes: None.
Executive Order 12866
These 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. In assessing the potential costs and benefits--both
quantitative and qualitative--of these final regulations, the Secretary
has determined that the benefits of the final 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.
Assessment of Educational Impact
In the notice of proposed rulemaking, the Secretary requested
comments on whether the proposed regulations would require transmission
of information that is being gathered by, or is available from, any
other agency or authority of the United States.
Based on the response to the proposed rules and on its own review,
the Department has determined that the regulations in this document do
not require transmission of information that is being gathered by or is
available from any other agency or authority of the United States.
List of Subjects in 34 CFR Part 682
Administrative practice and procedure, Colleges and universities,
Education, Loan programs-education, Student aid, Vocational education.
(Catalog of Federal Domestic Assistance Numbers: 84.032 Federal
Family Education Loan Program)
Dated: June 23,1994.
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 682.209 has been amended by revising paragraph
(a)(6)(i); by adding paragraphs (a)(6) (iii) through (ix); and by
revising paragraphs (a)(7)(ii) and (h)(4)(ii) to read as follows:
Sec. 682.209 Repayment of a loan.
(a) * * *
(6)(i) The repayment schedule may provide for substantially equal
installment payments or for installment payments that increase or
decrease in amount during the repayment period. If the loan has a
variable interest rate that changes annually, the lender may establish
a repayment schedule that--
(A) Provides for adjustments of the amount of the installment
payment to reflect annual changes in the variable interest rate; or
(B) Contains no provision for an adjustment of the amount of the
installment payment to reflect annual changes in the variable interest
rate, but requires the lender to grant a forbearance to the borrower
(or endorser, if applicable) for a period of up to 3 years of payments
in accordance with Sec. 682.211(j)(5) in cases where the effect of a
variable interest rate on a standard or graduated repayment schedule
would result in a loan not being repaid within the maximum repayment
term.
* * * * *
(iii) Not more than six months prior to the date that the
borrower's first payment is due, the lender shall offer a choice of a
standard, graduated, or income-sensitive repayment schedule to a new
borrower who receives a Stafford or SLS loan first disbursed on or
after July 1, 1993. For purposes of this section, a ``new borrower'' is
an individual who has no outstanding principal or interest balance on
an FFEL Program loan as of July 1, 1993 or on the date he or she
obtains a loan on or after July 1, 1993. This term also includes a
borrower who obtains a Federal Consolidation Loan on or after July 1,
1993 if the borrower has no other outstanding FFEL Program loan when
the Consolidation Loan is made. The lender shall also offer a choice of
repayment schedules to any individual whose Consolidation loan
application is received by the lender on or after January 1, 1993. The
Secretary encourages lenders to offer the choice of repayment schedules
to all other borrowers.
(iv) The repayment schedule must require that each payment equal at
least the interest that accrues during the interval between scheduled
payments.
(v) The lender shall require the borrower to repay the loan under a
standard repayment schedule described in paragraph (a)(6)(vi) of this
section if the borrower--
(A) Does not select an income-sensitive or a graduated repayment
schedule within 45 days after being notified by the lender to choose a
repayment schedule; or
(B) Chooses an income-sensitive repayment schedule, but does not
provide the documentation requested by the lender under paragraph
(a)(6)(viii)(C) of this section within the time period specified by the
lender.
(vi) Under a standard repayment schedule, the borrower is scheduled
to pay either--
(A) The same amount for each installment payment made during the
repayment period, except that the borrower's final payment may be
slightly more or less than the other payments; or
(B) An installment amount that will be adjusted to reflect annual
changes in the loan's variable interest rate.
(vii) Under a graduated repayment schedule--
(A) The amount of the borrower's installment payment is scheduled
to change (usually by increasing) during the course of the repayment
period; and
(B) An agreement as specified in paragraph (c)(1)(ii) of this
section is not required if the schedule provides for less than the
minimum annual payment amount specified in paragraph (c)(1)(i) of this
section.
(viii) Under an income-sensitive repayment schedule--
(A) The amount of the borrower's installment payment is adjusted
annually, based on the borrower's expected total monthly gross income
received by the borrower from employment and from other sources during
the course of the repayment period;
(B) In general, the lender shall request the borrower to inform the
lender of his or her income no earlier than 90 days prior to the due
date of the borrower's initial installment payment and subsequent
annual payment adjustment under an income-sensitive repayment schedule.
The income information must be sufficient for the lender to make a
reasonable determination of what the borrower's payment amount should
be. If the lender receives late notification that the borrower has
dropped below half-time enrollment status at a school, the lender may
request that income information earlier than 90 days prior to the due
date of the borrower's initial installment payment;
(C) If the borrower reports income to the lender that the lender
considers to be insufficient for establishing monthly installment
payments that would repay the loan within the maximum 10-year repayment
period, the lender shall require the borrower to submit evidence
showing the amount of the most recent total monthly gross income
received by the borrower from employment and from other sources
including, if applicable, pay statements from employers and
documentation of any income received by the borrower from other
parties;
(D) The lender shall grant a forbearance to the borrower (or
endorser, if applicable) for a period of up to 5 years of payments in
accordance with Sec. 682.211(j)(5) in cases where the effect of
decreased installment amounts paid under an income-sensitive repayment
schedule would result in a loan not being repaid within the maximum
repayment term; and
(E) The lender shall inform the borrower that the loan must be
repaid within the time limits specified under paragraph (a)(7) of this
section.
(ix) For purposes of this section, a lender may require that all
FFEL loans owed by a borrower to the lender be combined into one
account and repaid under one repayment schedule. In that event, the
word ``loan'' in this section shall mean all of the borrower's loans
that were combined by the lender into that account.
(7) * * *
(ii) If the borrower receives an authorized deferment or is granted
forbearance, as described in Sec. 682.210 or Sec. 682.211 respectively,
the periods of deferment or forbearance are excluded from
determinations of the 5-, 10-, and 15-year periods, and from the 12-,
15-, 20-, 25-, and 30-year periods for repayment of a Consolidation
loan pursuant to Sec. 682.208(h).
* * * * *
(h) * * *
(4) * * *
(ii) Does not include the unpaid balance on any loan not made under
Title IV of the HEA on which the borrower is in default, but may
include the unpaid balance on a defaulted loan made under Title IV of
the HEA if the borrower has made satisfactory repayment arrangements
with the holder to repay that loan.
* * * * *
(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1079,
1082, 1085)
3. Section 682.210 has been amended by revising paragraph (a)(1);
by adding a new paragraph (a)(11); by revising paragraph (c)(4); and by
adding a new paragraph (s) to read as follows:
Sec. 682.210 Deferment.
(a) General. (1)(i) A borrower is entitled to have periodic
installment payments of principal deferred during authorized periods
after the beginning of the repayment period, pursuant to paragraph (b)
of this section.
(ii) With the exception of a deferment authorized under paragraph
(o) of this section, a borrower may continue to receive a specific type
of deferment that is limited to a maximum period of time only if the
total amount of time that the borrower has received the deferment does
not exceed the maximum time period allowed for the deferment.
* * * * *
(11) If two individuals are jointly liable for repayment of a PLUS
loan or a Consolidation loan, the lender shall grant a request for
deferment if both individuals simultaneously meet the requirements of
this section for receiving the same, or different deferments.
* * * * *
(c) * * *
(4) A borrower serving in a medical internship residency program,
except for an internship in dentistry, is prohibited from receiving or
continuing a deferment on a Stafford, SLS, or Consolidation loan under
paragraph (c) of this section.
* * * * *
(s) Deferments for new borrowers on or after July 1, 1993--
(1) General. A new borrower who receives an FFEL Program loan first
disbursed on or after July 1, 1993 is entitled to receive deferments
under paragraphs (s)(2) through (s)(6) of this section. For purposes of
this section, a ``new borrower'' is an individual who has no
outstanding principal or interest balance on an FFEL Program loan as of
July 1, 1993 or on the date he or she obtains a loan on or after July
1, 1993. This term also includes a borrower who obtains a Federal
Consolidation Loan on or after July 1, 1993 if the borrower has no
other outstanding FFEL Program loan when the Consolidation Loan was
made.
(2) Student deferment. An eligible borrower is entitled to a
deferment for at least half-time study in accordance with the rules
prescribed in Sec. 682.210(c), except that the borrower is not required
to obtain a Stafford or SLS loan for the period of enrollment covered
by the deferment.
(3) Graduate fellowship deferment. An eligible borrower is entitled
to a graduate fellowship deferment in accordance with the rules
prescribed in Sec. 682.210(d).
(4) Rehabilitation training program deferment. An eligible borrower
is entitled to a rehabilitation training program deferment in
accordance with the rules prescribed in Sec. 682.210(e).
(5) Unemployment deferment. An eligible borrower is entitled to an
unemployment deferment in accordance with the rules prescribed in
Sec. 682.210(h) for periods that, collectively, do not exceed 3 years.
(6) Economic hardship deferment. An eligible borrower is entitled
to an economic hardship deferment for periods of up to one year at a
time that, collectively, do not exceed 3 years, if the borrower
provides documentation satisfactory to the lender showing that the
borrower--
(i) Has been granted an economic hardship deferment under either
the FDSL or Federal Perkins Loan Programs for the period of time for
which the borrower has requested an economic hardship deferment for his
or her FFEL loan;
(ii) Is receiving payment under a federal or state public
assistance program, such as Aid to Families with Dependent Children,
Supplemental Security Income, Food Stamps, or state general public
assistance;
(iii) Is working full-time and earning a total monthly gross income
that does not exceed the greater of--
(A) The minimum wage rate described in section 6 of the Fair Labor
Standards Act of 1938; or
(B) An amount equal to 100 percent of the poverty line for a family
of two, as determined in accordance with section 673(2) of the
Community Service Block Grant Act; or
(iv) Is not receiving total monthly gross income that exceeds twice
the amount specified in paragraph (s)(6)(iii) of this section and,
after deducting an amount equal to the borrower's monthly payments on
federal postsecondary education loans, as determined under paragraph
(s)(6)(viii) of this section, the remaining amount of that income does
not exceed the amount specified in paragraph (s)(6)(iii) of this
section.
(v) For a deferment granted under paragraph (s)(6)(iv) of this
section, the lender shall require the borrower to submit at least the
following documentation to qualify for an initial period of deferment--
(A) Evidence showing the amount of the borrower's most recent total
monthly gross income, as defined in paragraph (s)(6)(ix) of this
section; and
(B) Evidence that would enable the lender to determine the amount
of the monthly payments that would have been owed by the borrower
during the deferment period to other entities for federal postsecondary
education loans in accordance with paragraph (s)(6)(viii) of this
section.
(vi) To qualify for a subsequent period of deferment that begins
less than one year after the end of a period of deferment under
paragraphs (s)(6)(iii) or (iv) of this section, the lender shall
require the borrower to submit a copy of the borrower's federal income
tax return if the borrower filed a tax return within eight months prior
to the date the deferment is requested.
(vii) For purposes of paragraph (s)(6)(iii) of this section, a
borrower is considered to be working full-time if the borrower is
expected to be employed for at least three consecutive months at 30
hours per week.
(viii) In determining a borrower's eligibility for an economic
hardship deferment under paragraph (s)(6) of this section, the lender
shall count only the monthly payment amount (or a proportional share if
the payments are due less frequently than monthly) that would have been
owed on a federal postsecondary education loan if the loan had been
scheduled to be repaid in 10 years from the date the borrower entered
repayment, regardless of the length of the borrower's actual repayment
schedule or the actual monthly payment amount (if any) that would be
owed during the period that the borrower requested an economic hardship
deferment.
(ix) For purposes of paragraph (s)(6) of this section, a borrower's
total monthly gross income shall be the gross amount of income received
by the borrower from employment (either full-time or part-time) and
from other sources.
(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1082,
1085)
4. Section 682.211 has been amended by revising paragraph (a)(3);
by adding new paragraphs (f) (6) through (8); by revising paragraph
(h); and by adding new paragraphs (i) and (j) to read as follows:
Sec. 682.211 Forbearance.
(a) * * *
(3) If two individuals are jointly liable for repayment of a PLUS
loan or a Consolidation loan, the lender may grant forbearance on
repayment of the loan only if the ability of both individuals to make
scheduled payments has been impaired.
* * * * *
(f) A lender may grant administrative forbearance, upon notice to
the borrower or if applicable, the endorser, with respect to payments
of interest and principal that are overdue or that would be overdue--
* * * * *
(6) For a period not to exceed 60 days after the lender receives
reliable information indicating that the borrower (or student in the
case of a PLUS loan) has died, or the borrower has become totally and
permanently disabled, until the lender receives documentation of death
or total and permanent disability, pursuant to Sec. 682.402(b) or (c);
(7) For periods necessary for the Secretary or guaranty agency to
determine the borrower's eligibility for discharge of the loan because
of attendance at a closed school or false certification of loan
eligibility, pursuant to Sec. 682.402(d) or (e), or the borrower's or,
if applicable, endorser's bankruptcy, pursuant to Sec. 682.402(f); or
(8) For a period of delinquency at the time a loan is sold or
transferred, if the borrower or endorser is less than 60 days
delinquent on the loan at the time of sale or transfer.
* * * * *
(h) In granting a forbearance under this section, except for a
forbearance under paragraph (j)(5), a lender shall grant a temporary
cessation of payments, unless the borrower chooses another form of
forbearance subject to paragraph (a)(1) of this section.
(i) Mandatory forbearance. (1) Medical or dental interns or
residents. Upon receipt of a written request and sufficient supporting
documentation, as described in Sec. 682.210(n), from a borrower serving
in a medical or dental internship or residency program, a lender shall
grant forbearance to the borrower in yearly increments (or a lesser
period equal to the actual period during which the borrower is
eligible) if the borrower has exhausted his or her eligibility for a
deferment under Sec. 682.210(n), or the borrower's promissory note does
not provide for such a deferment--
(i) For the length of time remaining in the borrower's medical or
dental internship or residency that must be successfully completed
before the borrower may begin professional practice or service; or
(ii) For the length of time that the borrower is serving in a
medical or dental internship or residency program leading to a degree
or certificate awarded by an institution of higher education, a
hospital, or a health care facility that offers postgraduate training.
(2) Borrowers who are not medical or dental interns or residents,
and endorsers. Upon receipt of a written request and sufficient
supporting documentation from an endorser (if applicable), or from a
borrower (other than a borrower who is serving in a medical or dental
internship or residency described in paragraph (i)(1) of this section),
a lender shall grant forbearance--
(i) In increments up to one year, for periods that collectively do
not exceed three years, if--
(A) The borrower or endorser is currently obligated to make
payments on Title IV loans; and
(B) The amount of those payments each month (or a proportional
share if the payments are due less frequently than monthly) is
collectively equal to or greater than 20 percent of the borrower's or
endorser's total monthly income;
(ii) In yearly increments (or a lesser period equal to the actual
period during which the borrower is eligible) for as long as a
borrower--
(A) Is serving in a national service position for which the
borrower receives a national service educational award under the
National and Community Service Trust Act of 1993;
(B) Is eligible for loan forgiveness under the Federal Stafford
Loan Forgiveness Demonstration Program, if the program is funded, for
performing the type of service described in Sec. 682.215(b); or
(C) Is performing the type of service that would qualify the
borrower for a partial repayment of his or her loan under the Student
Loan Repayment Programs administered by the Department of Defense under
10 U.S.C. 2171.
(3) Documentation. (i) Before granting a forbearance to a borrower
or endorser under paragraph (i)(2)(i) of this section, the lender shall
require the borrower or endorser to submit at least the following
documentation:
(A) Evidence showing the amount of the most recent total monthly
gross income received by the borrower or endorser from employment and
from other sources; and
(B) Evidence showing the amount of the monthly payments owed by the
borrower or endorser to other entities for the most recent month for
the borrower's or endorser's Title IV loans.
(ii) Before granting a forbearance to a borrower or endorser under
paragraph (i)(2)(ii)(B) of this section, the lender shall require the
borrower or endorser to submit documentation showing the beginning and
ending dates that the borrower is expected to perform the type of
service described in Sec. 682.215(b).
(iii) Before granting a forbearance to a borrower or endorser
under paragraph (i)(2)(ii)(C) of this section, the lender shall require
the borrower or endorser to submit documentation showing the beginning
and ending dates that the Department of Defense considers the borrower
to be eligible for a partial repayment of his or her loan under the
Student Loan Repayment Programs.
(j) Mandatory administrative forbearance. (1) The lender shall
grant a mandatory administrative forbearance for the periods specified
in paragraph (j)(2) of this section until the lender is notified by the
Secretary or a guaranty agency that the forbearance period no longer
applies. The lender may not require a borrower who is eligible for a
forbearance under paragraph (j)(2)(ii) of this section to submit a
request or supporting documentation, but shall require a borrower (or
endorser, if applicable) who requests forbearance because of a military
mobilization to provide documentation showing that he or she is subject
to a military mobilization as described in paragraph (j)(4) of this
section.
(2) The lender is not required to notify the borrower (or endorser,
if applicable) at the time the forbearance is granted, but shall grant
a forbearance to a borrower or endorser during a period, and the 30
days following the period, when the lender is notified by the Secretary
that--
(i) Exceptional circumstances exist, such as a local or national
emergency or military mobilization; or
(ii) The geographical area in which the borrower or endorser
resides has been designated a disaster area by the president of the
United States or Mexico, the prime minister of Canada, or by a governor
of a state.
(3) As soon as feasible, or by the date specified by the
Secretary, the lender shall notify the borrower (or endorser, if
applicable) that the lender has granted a forbearance and the date that
payments should resume. The lender's notification shall state that the
borrower or endorser--
(i) May decline the forbearance and continue to be obligated to
make scheduled payments; or
(ii) Consents to making payments in accordance with the lender's
notification if the forbearance is not declined.
(4) For purposes of paragraph (j)(2)(i) of this section, the term
``military mobilization'' shall mean a situation in which the
Department of Defense orders members of the National Guard or Reserves
to active duty under sections 672(a), 672(g), 673, 673b, 674, or 688 of
title 10, United States Code. This term also includes the assignment of
other members of the Armed Forces to duty stations at locations other
than the locations at which they were normally assigned, only if the
military mobilization involved the activation of the National Guard or
Reserves.
(5) The lender shall grant a mandatory administrative forbearance
to a borrower (or endorser, if applicable) during a period when the
borrower (or endorser, if applicable) is making payments for a period
of--
(i) Up to 3 years of payments in cases where the effect of a
variable interest rate on a standard or graduated repayment schedule
would result in a loan not being repaid within the maximum repayment
term; or
(ii) Up to 5 years of payments in cases where the effect of
decreased installment amounts paid under an income-sensitive repayment
schedule would result in the loan not being repaid within the maximum
repayment term.
(Authority: 20 U.S.C. 1077, 1078, 1078-1, 1078-2, 1078-3, 1080,
1082)
[FR Doc. 94-15666 Filed 6-28-94; 8:45 am]
BILLING CODE 4000-01-P
