[Federal Register Volume 59, Number 126 (Friday, July 1, 1994)]
[Rules and Regulations]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-16073]
[[Page Unknown]]
[Federal Register: July 1, 1994]
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Part IX
Department of Education
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34 CFR Part 685
Federal Direct Student Loan Program; Final Rule
DEPARTMENT OF EDUCATION
34 CFR Part 685
RIN 1840-AC11
Federal Direct Student Loan Program
AGENCY: Department of Education.
ACTION: Final Standards, Criteria, and Procedures.
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SUMMARY: The Secretary of Education issues standards, criteria, and
procedures governing the repayment and consolidation of loans under the
Federal Direct Student Loan (Direct Loan) Program in the academic year
beginning July 1, 1994.
These standards, criteria, and procedures apply to loans under the
Federal Direct Stafford Loans Program, the Federal Direct Unsubsidized
Stafford Loans Program, and the Federal Direct PLUS Program,
collectively referred to as the Direct Loan Program.
EFFECTIVE DATE: July 1, 1994, with the exception of Secs. 685.209,
685.213, 685.214, and 685.215. These sections will become effective
after the information collection requirements contained in those
sections have been submitted by the Department of Education to, and
approved by, the Office of Management and Budget under the Paperwork
Reduction Act of 1980. If you want to know the effective date of these
sections, call or write the Department of Education contact person. A
document announcing the effective date will be published in the Federal
Register.
FOR FURTHER INFORMATION CONTACT: Lynn Mahaffie, U.S. Department of
Education, 400 Maryland Avenue, SW., (Room 4060, ROB-3), Washington, DC
20202-5162. Telephone: (202) 708-9069. 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 Student Loan Reform Act of 1993, enacted
on August 10, 1993, established the Direct Loan Program under the
Higher Education Act of 1965, as amended (HEA). See Subtitle A of the
Omnibus Budget Reconciliation Act of 1993 (Pub. L. 103-66). Under the
Direct Loan Program, loan capital is provided directly to student and
parent borrowers by the Federal Government rather than through private
lenders. Borrowers under the Direct Loan Program are provided a range
of repayment options, including an income contingent repayment plan.
The HEA directs the Secretary to consult with members of the higher
education community and to publish a notice of standards, criteria, and
procedures for the program's first year in lieu of issuing regulations
using the Department's usual procedures. The Secretary's
representatives have consulted with representatives of students,
colleges, universities, proprietary schools, and educational
associations, as well as representatives of the financial aid
community, in developing this notice. In particular, the Secretary's
representatives have had extensive consultations with the other members
of the Direct Student Loan Regulations Negotiated Rulemaking Advisory
Committee established to develop proposed regulations for the second
and subsequent years of the program. See the Secretary's announcement
of his intention to establish this Committee at 58 FR 68619 (December
28, 1993).
This notice establishes the policies and procedures necessary to
govern repayment of loans under the Direct Loan Program and to
establish standards and procedures relating to Federal Direct
Consolidation Loans for the 1994-1995 academic year.
I. Background
On September 10, 1993, the Secretary published a notice in the
Federal Register (58 FR 47816) soliciting applications from schools for
participation in the Direct Loan Program. Over 1,100 schools responded
to that invitation. On December 28, 1993, the Secretary selected 104
schools, representing approximately five percent (5%) of the total
Federal Family Education Loan (FFEL) Program loan volume, to
participate in the Direct Loan Program for the academic year beginning
July 1, 1994 (58 FR 68690). On January 4, 1994, the Secretary published
a notice containing most of the standards, criteria, and procedures
needed for the first-year implementation of the Direct Loan Program (59
FR 472). Cross-references in the repayment and consolidation provisions
of this notice are to sections of 34 CFR Part 685 that were included in
the rules published on January 4, 1994.
The repayment and consolidation rules in this notice complete the
provisions needed for the first year of the program. These rules are
applicable for the period beginning July 1, 1994, and ending June 30,
1995. As required by statute, program regulations for the Direct Loan
Program in future years are being developed through the use of a
negotiated rulemaking process to the extent practicable.
II. Summary of Contents
Section 685.204 Deferment
This section contains revisions to paragraphs (b) and (c) that
clarify the deferment requirements for all Direct Loan borrowers. In
addition, a new paragraph (d) states the deferment requirements for
certain Direct Consolidation Loan borrowers.
Section 685.207 Obligation to Repay
This section contains provisions relating to a borrower's
obligation to repay a Direct Loan that generally parallel provisions
applicable to the FFEL program. On the basis of consultations with
members of the higher education community, the Secretary has included
clarifying provisions concerning (1) the collection costs for which a
borrower is responsible (in paragraph (a)); (2) the borrower's
obligations upon re-enrolling in school after a loan has entered
repayment (in paragraph (b)(1)); and (3) the date on which a grace
period begins for a borrower who withdraws from a correspondence
program (in paragraph (d)).
Section 685.208 Repayment Plans
This section contains descriptions of the various repayment plans
required to be made available to Direct Loan borrowers by section
455(d)(1) of the HEA. To simplify the administration of the program,
paragraph (a)(4) requires that all Direct Loans obtained by a borrower
be repaid together under the same repayment plan. The sole exception to
this requirement is that Direct PLUS loans, which are the only loans
that may not be repaid under the income contingent repayment plan, may
be repaid separately.
The features of the standard repayment plan that is comparable to
the standard repayment plan under the FFEL program are described in
paragraph (b). Generally, a borrower must repay the loan by making
fixed monthly payments for ten years. Under the extended repayment plan
described in paragraph (c), a borrower must repay the loan by making
fixed monthly payments within an extended period of time of 12 to
thirty years that varies with the borrower's debt level. The repayment
period under this plan is the same as the period for repayment of a
consolidation loan under the FFEL program.
Under the graduated repayment plan described in paragraph (d), a
borrower must repay the loan by making monthly payments at two or more
levels within the same period of time as the period applicable under
the extended repayment plan. The Secretary believes that this approach
offers flexibility and at the same time enables a borrower to assess
the relative benefits of various repayment plans with ease. As a result
of consultation with members of the higher education community, this
section provides that the Secretary may adjust the monthly payment
amount under the standard, extended, and graduated repayment plans to
reflect changes in the variable interest rate identified in
Sec. 685.202(a).
The income contingent repayment plan is summarized in paragraph (f)
and described in detail in Sec. 685.209 and Appendix B. Under this
plan, a borrower may choose to repay Direct Loans in one of two ways
described in Sec. 685.209. A borrower's monthly repayment amount
generally varies with the Adjusted Gross Income (AGI) reported by the
borrower, the amount of the borrower's Direct Loan debt, and family
size. Specific provisions in Sec. 685.209 apply in the case of a
married couple who wish to repay their Direct Loans jointly. Payments
under the income contingent repayment plan increase progressively with
debt to discourage excessive borrowing and to ensure that most
borrowers repay their loans within the 25-year period allowed by the
statute. The borrower is not required to repay any amount that remains
outstanding at the end of the repayment period.
The Secretary intends to review periodically the method for
calculating monthly repayment amounts under the income contingent
repayment plan. However, if the Secretary amends the regulations
governing that method, the regulations in effect when a borrower's
first Direct Loan enters repayment determine the monthly repayment
amount for all the borrower's Direct Loans unless the borrower requests
otherwise.
The alternative repayment plan provisions in paragraph (g)
implement the Secretary's statutory authority to provide an alternative
plan, on a case-by-case basis, to a borrower who can demonstrate that
none of the other available plans can accommodate the borrower's
exceptional circumstances.
Section 685.209 Income Contingent Repayment Plan
This section contains provisions governing the two options
available for repayment of Direct Loans under the income contingent
repayment plan (ICRP). The ICRP is designed to be attractive to a broad
range of borrowers. The plan provides reasonable monthly repayment
amounts for borrowers with varying amounts of debt and income and
ensures that most borrowers repay their loans in a reasonable amount of
time. The plan also addresses excessive borrowing through a payback
rate that rises as debt increases. Examples of the calculation of
monthly repayment amounts under both options are included in Appendix B
to the regulations.
Option 1. Calculation of the monthly payment under Option 1 of the
ICRP is described in paragraph (b). In general, the borrower's annual
repayment obligation is the borrower's AGI multiplied by a ``payback
rate'' that is based on the borrower's debt. The monthly payment is the
annual repayment obligation divided by 12, minus an adjustment for
family size. The ``payback rate'' varies from four to 15 percent,
calculated as described in paragraph (b)(2). The family size adjustment
is seven dollars per dependent for up to five dependents. If the
calculated monthly payment is less than $25, the borrower is not
required to make a payment. When a borrower is not required to make a
payment, the principal amount is unchanged and interest on the
principal accrues and may be capitalized.
Option 2. Calculation of the monthly payment under Option 2 of the
ICRP is described in paragraph (c). In general, under this option, a
borrower's monthly payment is the same as under Option 1 except that no
payment exceeds the monthly amount the borrower would repay over 12
years using standard amortization. If a borrower chooses this option:
(1) The borrower's payments do not exceed the 12-year standard
amortization amount regardless of the borrower's income; (2) the
borrower's repayment period may be extended beyond the repayment period
under Option 1 (but not beyond the 25-year maximum repayment period
described in Sec. 685.209(d)(2)(i); and (3) interest accrues throughout
the repayment period and is capitalized until the limitation on
capitalization of interest is reached.
Joint repayment by married borrowers. This section includes
provisions for joint repayment of Direct Loans by married borrowers. A
step-by-step calculation of a combined amount is included as Example 2
in Appendix B.
Repayment period. Provisions governing the repayment period under
the ICRP are contained in paragraph (d)(2). The maximum period is 25
years, excluding periods of authorized deferment and forbearance under
Secs. 685.204 and 685.205, respectively, and periods in which the
borrower made payments under another repayment plan. The Secretary
believes the exclusion of repayment periods under other plans is needed
to prevent abuses through which a borrower might be able to avoid
repaying a portion of the loan by shifting from one plan to another as
the borrower's income changed.
If a borrower repays more than one loan under the ICRP and the
loans enter repayment at different times, a separate repayment period
for each loan begins when the loan enters repayment. This approach
ensures that no loan will be repaid under the ICRP for more than 25
years. If loans enter repayment at the same time, a single repayment
period applies.
To encourage borrowers to begin repaying their loans and to limit
negative amortization at the beginning of the repayment period, a
borrower must make monthly payments of accrued interest until the
Secretary calculates the borrower's monthly payment on the basis of the
borrower's income. A borrower who is unable to make monthly payments of
accrued interest or qualify for a deferment under Sec. 685.204 may
request forbearance under Sec. 685.205.
Limit on capitalization of interest. The Secretary believes a limit
on the amount of interest that is added to principal (the
capitalization of interest) is desirable to prevent an excessive
increase in a borrower's debt burden when the borrower's income is
insufficient to cover accruing interest. Paragraph (d)(3) permits
capitalization of unpaid interest until the outstanding principal
amount increases to one and one-half times the original principal
amount. Thereafter, unpaid interest accrues but is not capitalized.
Consent to disclosure of tax return information. In order to repay
a Direct Loan under the ICRP, a borrower must consent, on a form
provided by the Secretary, to the disclosure of certain tax return
information by the Internal Revenue Service to agents of the Secretary
for purposes of calculating a monthly repayment amount and servicing
and collecting a loan. The information subject to disclosure is
taxpayer identity information as defined in 26 U.S.C. 6103(b)(6)
(including such information as name, address, and social security
number), tax filing status, and AGI. Paragraph (d)(5) describes the
procedures for providing written consent and requires that consent be
provided for a period of five years. If a borrower selects the ICRP but
fails to provide or renew consent, or withdraws consent without
selecting a different repayment plan, the Secretary designates the ten-
year standard repayment plan for the borrower.
Section 685.210 Choice of Repayment Plan
This section governs a borrower's initial selection of a repayment
plan and the borrower's ability to change plans thereafter. Before a
Direct Loan enters repayment, the Secretary sends the borrower a
description of the available repayment plans and requests the borrower
to select one. If the borrower does not select a plan within 45 days,
the Secretary designates the standard repayment plan for the borrower.
To accommodate the many changes in life circumstances that a
borrower may experience over the life of a loan, the Secretary has
placed no limit on the number of times a borrower may change plans,
other than limits on a borrower who is repaying a defaulted loan under
the ICRP. Such a borrower must demonstrate a consistent pattern of
repayment and obtain the Secretary's approval before changing repayment
plans. Under Sec. 685.209(a)(2), a borrower may change options under
the ICRP no more frequently than once a year.
A borrower may change to the ICRP at any time, but may not change
to any other plan if that plan has a maximum repayment period of less
than the period the loan has already been in repayment. For example, a
borrower who makes payments for 12 years under the extended repayment
plan may not change to the standard repayment plan, which has a ten-
year repayment period. The repayment period under the new plan is
calculated from the date the loan initially entered repayment, except
in the case of the ICRP (see Sec. 685.209(d)(2)). Thus, if a borrower
who repays a loan under the extended repayment plan for three years and
then changes to the standard repayment plan, the borrower has seven
more years to repay the loan.
Section 685.211 Miscellaneous Repayment Provisions
This section governs an assortment of topics relating to the
repayment of Direct Loans. Paragraph (a) permits a borrower to prepay
all or part of a loan at any time and states how a prepayment is
applied in the absence of a contrary request from the borrower.
Paragraph (b) states how the Secretary applies a refund due to a
borrower from a school. Paragraph (c) describes the effects of a
borrower's default on a Direct Loan. Paragraph (d) sets out the
standards by which the Secretary determines that a borrower is
ineligible for some or all of a Direct Loan and describes how the
Secretary seeks repayment of the loan.
Section 685.212 Discharge of a Loan Obligation
This section provides for the Secretary's discharge of the
obligation of a borrower and any endorser to repay a loan if (1) the
borrower (or the student on whose behalf a parent borrowed) has died;
(2) the borrower has become totally and permanently disabled, as
described in paragraph (b); (3) the borrower's obligation to repay is
discharged in bankruptcy; (4) the borrower meets the criteria in
Sec. 685.213, relating to closed schools; or (5) the borrower meets the
criteria in Sec. 685.214, relating to false certification or
unauthorized disbursement.
Section 685.213 Closed School Discharge
This section provides for the discharge of the obligation of a
borrower and any endorser to repay a loan if the borrower (or student
on whose behalf the parent borrowed) did not complete the program of
study for which the loan was made because the school closed. The
provisions of this section are modeled on provisions for the FFEL
program published on April 29, 1994, in order to provide borrowers with
comparable protection under both programs (see 59 FR 22462). The
qualifications for discharge under this section are set out in
paragraphs (c) through (e). Among other requirements, a borrower must
cooperate with the Secretary in any judicial or administrative
proceeding to recover for amounts discharged or to take related
enforcement action, and must transfer any rights to a loan refund to
the Secretary. The discharge procedures used by the Secretary are
described in paragraph (f).
Section 685.214 Discharge for False Certification of Student
Eligibility or Unauthorized Disbursement
This section provides for the discharge of the obligation of a
borrower and any endorser to repay a loan if (1) a school falsely
certifies the loan eligibility of the borrower (or the student on whose
behalf a parent borrowed), or (2) the school endorsed the borrower's
loan check or signed the borrower's authorization for electronic funds
transfer without authorization. The provisions of this section are
modeled on provisions for the FFEL program published on April 29, 1994,
in order to provide borrowers with comparable protection under both
programs (see 59 FR 22462). Additional actions that the Secretary may
take against unscrupulous schools are described in the preamble to that
document.
The qualifications for discharge under this section are set out in
paragraph (c) and include the requirements in Sec. 685.213 relating to
cooperation with the Secretary in enforcement actions and transfers to
the Secretary of any rights to a loan refund. The discharge procedures
used by the Secretary are described in paragraph (d).
Section 685.215 Consolidation
This section contains provisions governing the consolidation of
certain Federal education loans into Federal Direct Consolidation
Loans.
Eligible loans. The types of loans that may be consolidated under
this section are listed in paragraph (b) and include all loans made
under the Federal Family Education Loan (FFEL) Program, the Direct Loan
Program, and the National Direct Student Loan Program, as well as
certain loans made under the Public Health Service Act. The Secretary
has included consolidation loans made under the FFEL program to permit
all FFEL borrowers to participate in the income contingent repayment
plan that is available only under the Direct Loan Program.
Types of Federal Direct Consolidation Loans. There are three types
of Federal Direct Consolidation Loans--subsidized, PLUS, and
unsubsidized consolidation loans. The loans that may be consolidated
into each type of consolidation loan are listed in paragraph (c).
Subsidized consolidation loans allow borrowers to continue to be free
of the obligation to pay interest during authorized periods of
deferment. PLUS consolidation loans are available for all loans made to
parents on behalf of students. Unsubsidized consolidation loans are
available for all other eligible types of loans.
Borrower eligibility. The eligibility requirements that a borrower
must meet to obtain a Federal Direct Consolidation Loan are stated in
paragraph (d). Direct Loan borrowers and any FFEL borrower who is
unable to obtain an FFEL consolidation loan or an FFEL consolidation
loan with income sensitive repayment terms acceptable to the borrower
may consolidate their loans under the Direct Loan Program if they meet
the other requirements of paragraph (d). With the exception of
provisions taken from statute concerning the FFEL loans that may be
consolidated into a Direct Loan, most of the requirements parallel
requirements for the FFEL program.
The Secretary has included provisions that prevent consolidation by
(1) a borrower who is in default, unless the borrower has made
satisfactory arrangements to repay the defaulted loan or agrees to
repay the consolidation loan under the ICRP; and (2) a PLUS loan
borrower with an adverse credit history at the time of consolidation,
unless the borrower obtains an endorser or provides evidence of
extenuating circumstances. Married borrowers may consolidate their
loans jointly if they agree to be held jointly and severally liable on
the consolidation loan and meet the other requirements of paragraph
(d)(2).
Loan application and origination. A single application for one or
more consolidation loans is permitted under paragraph (e). That
paragraph also permits a borrower to add eligible loans upon request
within 180 days after the date of the consolidation loan's origination.
Provisions in paragraph (f) that govern origination of consolidation
loans are taken from the FFEL program.
Interest rates. The Secretary has decided to apply to Federal
Direct Consolidation Loans the same variable interest rates that apply
to other Direct Loans. The Secretary believes these rates will be
beneficial to most borrowers.
Repayment and refunds. As provided in paragraph (h), a borrower may
repay a Federal Direct Consolidation Loan under any of the Direct Loan
repayment plans, except that certain restrictions apply to defaulted
borrowers, and the ICRP is not available to a PLUS consolidation loan
borrower. The Secretary has included the exception for PLUS borrowers
to provide consistency with the statutory prohibition against repayment
of Direct Loans by parents under the ICRP. The provisions of paragraph
(i) and (j), relating to repayment periods and repayment schedules,
respectively, are taken from the FFEL program, as are provisions in
paragraph (k), relating to a lender's obligations upon receiving a
refund from a school on a loan that has been consolidated.
Joint consolidation loans. If two married borrowers obtain a joint
consolidation loan, special provisions apply under paragraph (l). This
paragraph provides that both borrowers must meet the requirements of
the applicable section in order to obtain a deferment under
Sec. 685.204 or forbearance under Sec. 685.205. To obtain a discharge
under Sec. 685.212, each spouse must qualify for one of the types of
discharge described in that section. The Secretary discharges a portion
of the loan if one spouse meets the requirements of Sec. 685.212 (d) or
(e).
III. Executive Order 12866
The contents of this notice 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 the standards, criteria,
and procedures in this notice.
The potential costs associated with the contents of this notice 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 standards, criteria, and
procedures, the Secretary has determined that the benefits of these
standards, criteria, and procedures justify the costs.
The Secretary has also determined that the contents of this notice
do not unduly interfere with State, local, and tribal governments in
the exercise of their governmental functions.
The contents of this notice are consistent with the requirements of
the HEA and promote the President's priorities.
IV. Paperwork Reduction Act of 1980
Sections 685.209, 685.213, 685.214, and 685.215 contain information
collection requirements. As required by the Paperwork Reduction Act of
1980, the Department of Education will submit a copy of this notice to
the Office of Management and Budget for its review (44 U.S.C. 3504(h)).
This notice affects borrowers of Federal student loans authorized
by title IV of the HEA and schools that administer the Direct Loan
Program. The annual public reporting burden for the required collection
of information is estimated to be 12,029 hours (an average of 59
minutes for each of the estimated 12,350 individuals who provide
information regarding eligibility for a Federal Direct Consolidation
Loan or income contingent repayment) including the time for reviewing
instructions, searching existing data sources, gathering and
maintaining the data needed, and completing and reviewing the
collection of information.
Organizations and individuals desiring to submit comments on the
information collection requirements should direct them to the Office of
Information and Regulatory Affairs, Office of Management and Budget,
Room 3002, New Executive Office Building, Washington, DC 20503;
Attention: Dan Chenok.
V. Waiver of Rulemaking
It is the practice of the Secretary to offer interested parties an
opportunity to comment on proposed regulations. However, Pub. L. 103-66
requires that the Secretary publish a notice in lieu of regulations for
the first year of the Direct Loan Program and exempts the contents of
the notice from the rulemaking requirements of section 431 of the
General Education Provisions Act. In developing this notice, the
Secretary's representatives have consulted extensively with the other
members of the Direct Student Loan Regulations Negotiated Rulemaking
Advisory Committee established to develop proposed regulations for the
second and subsequent years of the program, as well as other members of
the higher education community. The statutory timeframe for the
implementation of the program does not permit the solicitation of
further public comment. A public comment period, while helpful, would
seriously delay the provision of necessary guidance for the operation
of the Direct Loan Program. Therefore, the Secretary finds that
solicitation of public comments would be impracticable and contrary to
the public interest under 5 U.S.C. 553(b)(B).
List of Subjects in 34 CFR Part 685
Administrative practice or procedure, Colleges and universities,
Education, Loan programs-education, Student aid, Vocational education.
(Catalog of Federal Domestic Assistance Number 84.268, Federal
Direct Student Loan Program)
Dated: June 28, 1994.
Richard W. Riley,
Secretary of Education.
The Secretary amends Part 685 of Title 34 of the Code of Federal
Regulations as follows:
PART 685--STANDARDS, CRITERIA, AND PROCEDURES FOR THE DIRECT LOAN
PROGRAM
1. The authority citation continues to read as follows:
Authority: 20 U.S.C. 1087a et seq.
2. Section 685.204 is amended by revising paragraphs (b) and (c)
and adding a new paragraph (d) to read as follows:
Sec. 685.204 Deferment
* * * * *
(b) Except as provided in paragraph (d) of this section, a Direct
Loan borrower is eligible for a deferment during any period during
which the borrower meets any of the following requirements:
(1)(i) The borrower--
(A) Is carrying at least one-half the normal full-time work load
for the course of study that the borrower is pursuing, as determined by
the eligible school the borrower is attending;
(B) Is pursuing a course of study pursuant to a graduate fellowship
program approved by the Secretary; or
(C) Is pursuing a rehabilitation training program, approved by the
Secretary, for individuals with disabilities; and
(ii) The borrower is not serving in a medical internship or
residency program, except for a residency program in dentistry.
(2) The borrower is seeking and unable to find full-time
employment.
(3)(i) The borrower has experienced or will experience an economic
hardship.
(ii) For purposes of paragraph (b)(3)(i) of this section, the
Secretary determines whether a borrower is eligible for a deferment due
to an economic hardship using the standards and procedures set forth in
34 CFR 682.210(s)(6) with references to the lender understood to mean
the Secretary.
(c) No deferment under paragraphs (b)(2) or (3) of this section may
exceed three years.
(d) If, at the time of consolidation, a Direct Consolidation Loan
borrower has an outstanding balance on an FFEL Program loan that was
made prior to July 1, 1993, the borrower is eligible for a deferment
during--
(1) The periods described in paragraph (b) of this section; and
(2) The periods described in 34 CFR 682.210(b), including those
periods that apply to a ``new borrower'' as that term is defined in 34
CFR 682.210(b)(7).
(Authority: 20 U.S.C. 1087a et seq.)
3. Sections 685.207 through 685.215 are added to Subpart B to read
as follows:
Sec. 685.207 Obligation to repay.
(a) Obligation of repayment in general. (1) A borrower is obligated
to repay the full amount of a Direct Loan, including the principal
balance, fees, any collection costs charged under Sec. 685.202(e), and
any interest not subsidized by the Secretary, unless the borrower is
relieved of the obligation to repay as provided in this part.
(2) The borrower's repayment of a Direct Loan may also be subject
to the deferment provisions in Sec. 685.204, the forbearance provisions
in Sec. 685.205, and the discharge provisions in Sec. 685.212.
(b) Federal Direct Stafford Loan repayment. (1) During the period
in which a borrower is enrolled at an eligible school on at least a
half-time basis, the borrower is in an ``in-school'' period and is not
required to make payments on a Federal Direct Stafford Loan unless--
(i) The loan entered repayment before the in-school period began;
and
(ii) The borrower has not been granted a deferment under
Sec. 685.204(a)(1).
(2)(i) When a borrower ceases to be enrolled at an eligible school
on at least a half-time basis, a six-month grace period begins, unless
the grace period has been previously exhausted.
(ii) During a grace period, the borrower is not required to make
payments on a Federal Direct Stafford Loan.
(3) A borrower is not obligated to pay interest on a Federal Direct
Stafford Loan for in-school or grace periods if the borrower is not
required to make payments on the loan during those periods.
(4) The repayment period for a Federal Direct Stafford Loan begins
when the six-month grace period ends. A borrower is obligated to repay
the loan under paragraph (a) of this section during the repayment
period.
(c) Federal Direct Unsubsidized Stafford Loan repayment. (1) During
the period in which a borrower is enrolled at an eligible school on at
least a half-time basis, the borrower is in an ``in-school'' period and
is not required to make payments of principal on a Federal Direct
Unsubsidized Stafford Loan unless--
(i) The loan entered repayment before the in-school period began;
and
(ii) The borrower has not been granted a deferment under
Sec. 685.204(a)(2).
(2) (i) When a borrower ceases to be enrolled at an eligible school
on at least a half-time basis, a six-month grace period begins, unless
the grace period has been previously exhausted.
(ii) During a grace period, the borrower is not required to make
any principal payments on a Federal Direct Unsubsidized Stafford Loan.
(3) A borrower is responsible for the interest that accrues on a
Federal Direct Unsubsidized Stafford Loan during in-school and grace
periods. Interest that accrues may be capitalized or paid by the
borrower.
(4) The repayment period for a Federal Direct Unsubsidized Stafford
Loan begins when the six-month grace period ends. A borrower is
obligated to repay the loan under paragraph (a) of this section during
the repayment period.
(d) Determining the date on which the grace period begins for
students in correspondence programs. The grace period for students
enrolled in correspondence programs begins on the student's withdrawal
date as determined under Sec. 685.304(b)(3).
(e) Federal Direct PLUS Loan repayment. The repayment period for a
Federal Direct PLUS Loan begins on the day after the loan is fully
disbursed. Interest begins to accrue on the date the first installment
is disbursed. A borrower is obligated to repay the loan under paragraph
(a) of this section during the repayment period.
(f) Federal Direct Consolidation Loan repayment. The repayment
period for a Federal Direct Consolidation Loan begins on the day after
the loan is made. The borrower is obligated to repay the loan under
paragraph (a) of this section during the repayment period.
(Authority: 20 U.S.C. 1087a et seq.)
Sec. 685.208 Repayment plans.
(a) General. (1) A borrower may repay a Federal Direct Stafford
Loan, a Federal Direct Unsubsidized Stafford Loan, a Federal Direct
Subsidized Consolidation Loan, or a Federal Direct Unsubsidized
Consolidation Loan under the standard repayment plan, the extended
repayment plan, the graduated repayment plan, or the income contingent
repayment plan.
(2) A borrower may repay a Federal Direct PLUS Loan or a Federal
Direct PLUS Consolidation Loan under the standard repayment plan, the
extended repayment plan, or the graduated repayment plan.
(3) The Secretary may provide an alternative repayment plan in
accordance with paragraph (g) of this section.
(4) All Direct Loans obtained by one borrower must be repaid
together under the same repayment plan, except that a borrower of a
Federal Direct PLUS Loan or a Federal Direct PLUS Consolidation Loan
may repay the Federal Direct PLUS Loan or the Federal Direct PLUS
Consolidation Loan separately from other Direct Loans obtained by that
borrower.
(b) Standard repayment plan. (1) Under the standard repayment plan,
a borrower shall repay a loan in full within ten years from the date
the loan entered repayment by making fixed monthly payments.
(2) Periods of authorized deferment or forbearance are not included
in the ten-year repayment period.
(3) A borrower's payments under the standard repayment plan are at
least $50 per month, except that a borrower's final payment may be less
than $50.
(4) The fixed monthly repayment amount may be adjusted to reflect
changes in the variable interest rate identified in Sec. 685.202(a).
(c) Extended repayment plan. (1) Under the extended repayment plan,
a borrower shall repay a loan in full by making fixed monthly payments
within an extended period of time that varies with the total amount of
the borrower's loans, as described in paragraph (e) of this section.
(2) Periods of deferment and forbearance are not included in the
number of years of repayment.
(3) A borrower makes fixed monthly payments of at least $50, except
that a borrower's final payment may be less than $50.
(4) The fixed monthly repayment amount may be adjusted to reflect
changes in the variable interest rate identified in Sec. 685.202(a).
(d) Graduated repayment plan. (1) Under the graduated repayment
plan, a borrower shall repay a loan in full by making payments at two
or more levels within a period of time that varies with the total
amount of the borrower's loans, as described in paragraph (e) of this
section.
(2) The monthly repayment amount may be adjusted to reflect changes
in the variable interest rate identified in Sec. 685.202(a).
(3) No scheduled payment under the graduated repayment plan may be
less than the amount of interest accrued on the loan between monthly
payments, less than 50% of the payment amount that would be required
under the standard repayment plan, or more than 150% of the payment
amount that would be required under the standard repayment plan.
(e) Repayment period for the extended and graduated plans. Under
the extended and graduated repayment plans, if the total amount of the
borrower's Direct Loans is--
(1) Less than $10,000, the borrower shall repay the loans within 12
years of entering repayment;
(2) Greater than or equal to $10,000 but less than $20,000, the
borrower shall repay the loans within 15 years of entering repayment;
(3) Greater than or equal to $20,000 but less than $40,000, the
borrower shall repay the loans within 20 years of entering repayment;
(4) Greater than or equal to $40,000 but less than $60,000, the
borrower shall repay the loans within 25 years of entering repayment;
and
(5) Greater than or equal to $60,000, the borrower shall repay the
loans within 30 years of entering repayment.
(f) Income contingent repayment plan. (1) Under the income
contingent repayment plan, a borrower's monthly repayment amount is
generally based on the total amount of the borrower's (and, in some
circumstances, the borrower's spouse's) Direct Loans, family size, and
Adjusted Gross Income (AGI) reported by the borrower for the most
recent year for which the Secretary has obtained income information. In
the case of a married borrower who files a joint Federal income tax
return and is not repaying loans jointly with a spouse under
Sec. 685.209(a)(3), the borrower's AGI includes the income of the
borrower's spouse. A borrower shall make payments on a loan until the
loan is repaid in full or until the loan has been in repayment through
the end of the income contingent repayment period.
(2) The regulations in effect at the time a borrower's first Direct
Loan enters repayment govern the method for determining the borrower's
monthly repayment amount for all of the borrower's Direct Loans,
unless--
(i) The Secretary amends the regulations relating to a borrower's
monthly repayment amount under the income contingent repayment plan;
and
(ii) The borrower submits a written request that the amended
regulations apply to the repayment of the borrower's Direct Loans.
(3) Provisions governing the income contingent repayment plan are
set out in Sec. 685.209.
(g) Alternative repayment. (1) The Secretary may provide an
alternative repayment plan for a borrower who demonstrates to the
Secretary's satisfaction that the terms and conditions of the repayment
plans specified in paragraphs (b) through (f) of this section are not
adequate to accommodate the borrower's exceptional circumstances.
(2) The Secretary may require a borrower to provide evidence of the
borrower's exceptional circumstances before permitting the borrower to
repay a loan under an alternative repayment plan.
(3) If the Secretary agrees to permit a borrower to repay a loan
under an alternative repayment plan, the Secretary notifies the
borrower in writing of the terms of the plan. After the borrower
receives notification of the terms of the plan, the borrower may accept
the plan or choose another repayment plan.
(4) If a borrower's payment under the alternative repayment plan is
less than the accrued interest on the loan, the unpaid interest is
added to the principal balance of the loan.
(Authority: 20 U.S.C. 1087a et seq.)
Sec. 685.209 Income contingent repayment plan.
(a)(1) Under the income contingent repayment plan described in
Sec. 685.208(f), a borrower may choose to repay Direct Loans in one of
two ways. The borrower's options are described in paragraphs (b) and
(c) of this section.
(2) A borrower may change options under the income contingent
repayment plan by notifying the Secretary in writing. However, a
borrower may change options no more frequently than once a year. The
Secretary annually provides the borrower with estimates of monthly
payment amounts under each option.
(3) The Secretary may determine that special circumstances, such as
a loss of employment by the borrower or the borrower's spouse, warrant
an adjustment to the borrower's repayment obligations.
(4) Married borrowers may repay their loans jointly if they meet
the following requirements:
(i) Each spouse is repaying a Direct Loan under the same option of
the income contingent repayment plan.
(ii) The spouses filed a joint Federal income tax return for the
most recent year for which the Secretary has obtained income
information.
(iii) The spouses submit a written request that includes their
names and social security numbers to the Secretary.
(5) Examples of the calculation of the monthly repayment amounts
under both options of the income contingent repayment plan are included
in Appendix B to this part.
(b) Option 1. (1) General. (i) In general, under Option 1, a
borrower shall make monthly payments calculated using a percentage of
the borrower's Adjusted Gross Income (AGI) called the ``payback rate.''
The payback rate is based upon the total amount of the borrower's
Direct Loans, as described under paragraph (b)(2) of this section. The
minimum payback rate is four percent, and the maximum rate is 15
percent.
(ii) If a borrower provides documentation acceptable to the
Secretary that the borrower has one or more dependents other than the
borrower's spouse, the Secretary subtracts from the borrower's monthly
payment a family size adjustment of seven dollars per dependent for up
to five dependents.
(iii) A borrower's monthly payment is equal to the borrower's AGI
multiplied by the payback rate, divided by 12 months, minus the family
size adjustment amount. However, if the monthly repayment amount is
less than $25, the borrower is not required to make a payment.
(2) Payback rate. (i) A borrower's payback rate is based upon the
borrower's Direct Loan debt when the borrower's first loan enters
repayment and does not change unless the borrower obtains another
Direct Loan or the borrower and the borrower's spouse obtain approval
to repay their loans jointly under paragraph (a)(4) of this section. If
the borrower obtains another Direct Loan, a new payback rate for all of
the borrower's Direct Loans is calculated on the basis of the combined
amounts of the loans when they entered repayment.
(ii) If the total amount of a borrower's Direct Loans is less than
or equal to $1,000, the payback rate is four percent. If the total
amount of a borrower's Direct Loans is greater than $1,000, the payback
rate is four percent plus an additional percent that begins at zero and
increases at a rate of 0.2 percent for each additional $1,000 borrowed
up to a maximum payback rate of 15 percent.
(iii) More specifically, if the total amount of a borrower's Direct
Loans is greater than $1,000, the payback rate is the lesser of 0.15 or
the following: 0.04 + (debt-1,000) (0.000002).
(3) Exception for certain married borrowers. The combined monthly
payment amount for married borrowers who repay their loans jointly
under paragraph (a)(4) of this section is the total of the individual
monthly payment amounts for each borrower calculated under paragraph
(b)(1)(iii) of this section. The amount of a borrower's individual
monthly payment amount is applied to that borrower's debt. The payback
rate for each borrower is calculated separately on the basis of the
amount of the borrower's Direct Loans. For purposes of this paragraph,
the Secretary assumes that the AGI for each borrower is proportionate
to the relative size of the borrower's individual debt and subtracts
one half of the applicable family size adjustment from each borrower's
monthly payment amount. If the combined monthly repayment amount is
less than $25, the borrowers are not required to make a payment.
(c) Option 2. (1) General. (i) In general, under Option 2, a
borrower shall make monthly payments as calculated under Option 1,
except that no monthly payment exceeds the amount the borrower would
repay over 12 years using standard amortization. The Secretary
calculates the 12-year standard amortization amount on the basis of the
interest rate in effect when the borrower chooses Option 2. The amount
a borrower would repay over 12 years using standard amortization is
determined without any family size adjustment or minimum monthly
repayment amount.
(ii) More specifically, if a borrower chooses Option 2 under the
income contingent repayment plan--
(A) The borrower's payments do not exceed the 12-year standard
amortization amount regardless of the borrower's income;
(B) The borrower's repayment period may be extended beyond the
repayment period under Option 1 (but not beyond the 25-year maximum
period described in Sec. 685.209(d)(2)(i)); and
(C) Interest accrues throughout the repayment period and is
capitalized until the limitation on capitalization of interest in
paragraph (d)(3) of this section is reached.
(iii) Exception for certain married borrowers. The combined monthly
payment amount for married borrowers who repay their loans jointly
under paragraph (a)(4) of this section is the total of the individual
monthly payment amounts for each borrower calculated under paragraph
(b)(1)(iii) of this section, unless the combined amount exceeds the 12-
year standard amortization amount. If the combined amount exceeds the
12-year standard amortization amount, the couple pays the 12-year
standard amortization amount, and the amount applied to each borrower's
debt is determined by calculating the 12-year standard amortization
amount for that borrower's debt.
(d) Other features of the income contingent repayment plan. (1)
Alternative documentation of income. If a borrower's AGI is not
available or if, in the Secretary's opinion, the borrower's reported
AGI does not reasonably reflect the borrower's current income, the
Secretary may use other documentation of income provided by the
borrower to calculate the borrower's monthly repayment amount.
(2) Repayment period. (i) The maximum repayment period under the
income contingent repayment plan is 25 years.
(ii) The repayment period does not include periods in which the
borrower makes payments under the standard, extended, graduated, or
alternative repayment plan or periods of authorized deferment or
forbearance.
(iii) If a borrower repays more than one loan under the income
contingent repayment plan, a separate repayment period for each loan
begins when that loan enters repayment.
(iv) If a borrower has not repaid a loan in full at the end of the
25-year repayment period under the income contingent repayment plan,
the Secretary cancels the unpaid portion of the loan.
(v) At the beginning of the repayment period, a borrower shall make
monthly payments of the amount of interest that accrues on the
borrower's Direct Loans until the Secretary calculates the borrower's
monthly repayment amount on the basis of the borrower's income.
(3) Limitation on capitalization of interest. If the amount of a
borrower's monthly payment is less than the accrued interest, the
unpaid interest is capitalized until the outstanding principal amount
increases to one and one-half times the original principal amount.
After the outstanding principal amount reaches one and one-half times
the original amount, interest continues to accrue but is not
capitalized.
(4) Notification of terms and conditions. When a borrower selects
or is required by the Secretary to repay a loan under the income
contingent repayment plan, the Secretary notifies the borrower of the
terms and conditions of the plan, including--
(i) That the Internal Revenue Service will disclose certain tax
return information to the Secretary or the Secretary's agents; and
(ii) That if the borrower believes that special circumstances
warrant an adjustment to the borrower's repayment obligations, as
described in Sec. 685.209(a)(3), the borrower may contact the Secretary
and obtain the Secretary's determination as to whether an adjustment is
appropriate.
(5) Consent to disclosure of tax return information. (i) A borrower
shall provide written consent to the disclosure of certain tax return
information by the Internal Revenue Service (IRS) to agents of the
Secretary for purposes of calculating a monthly repayment amount and
servicing and collecting a loan under the income contingent repayment
plan. The borrower shall provide consent by signing a consent form,
developed consistent with 26 CFR 301.6103(c)-1 and provided to the
borrower by the Secretary, and shall return the signed form to the
Secretary.
(ii) The borrower shall consent to disclosure of the borrower's
taxpayer identity information as defined in 26 U.S.C. 6103(b)(6), tax
filing status, and AGI.
(iii) The borrower shall provide consent for a period of five years
from the date the borrower signs the consent form. The Secretary
provides the borrower a new consent form before that period expires.
The IRS does not disclose tax return information after the IRS has
processed a borrower's withdrawal of consent.
(iv) The Secretary designates the standard repayment plan for a
borrower who selects the income contingent repayment plan but--
(A) Fails to provide the required written consent;
(B) Fails to renew written consent upon the expiration of the five-
year period for consent; or
(C) Withdraws consent and does not select another repayment plan.
(v) If a borrower defaults and the Secretary designates the income
contingent repayment plan for the borrower but the borrower fails to
provide the required written consent, the Secretary consults with the
borrower prior to establishing a repayment plan for the borrower.
(Authority: 20 U.S.C. 1087a et seq.)
Sec. 685.210 Choice of repayment plan.
(a) Initial selection of a repayment plan. (1) Before a Direct Loan
enters into repayment, the Secretary provides the borrower a
description of the available repayment plans and requests the borrower
to select one. A borrower may select a repayment plan before the loan
enters repayment by notifying the Secretary of the borrower's selection
in writing.
(2) If a borrower does not select a repayment plan within 45 days
after the Secretary provides the borrower with a description of
available repayment plans, the Secretary designates the standard
repayment plan described in Sec. 685.208(b) for the borrower.
(b) Changing repayment plans. (1) A borrower may change repayment
plans at any time after the loan has entered repayment by notifying the
Secretary in writing. However, a borrower who is repaying a defaulted
loan under the income contingent repayment plan under
Sec. 685.211(c)(3)(ii) may not change to another repayment plan
unless--
(i) The borrower was required to and did make a payment under the
income contingent repayment plan in each of the prior six months; and
(ii) The borrower makes and the Secretary approves a request to
change plans.
(2) (i) A borrower may not change to a repayment plan that has a
maximum repayment period of less than the number of years the loan has
already been in repayment, except that a borrower may change to the
income contingent repayment plan at any time.
(ii) If a borrower changes plans, the repayment period is the
period provided for under the borrower's new repayment plan, calculated
from the date the loan initially entered repayment. However, if a
borrower changes to the income contingent repayment plan, the repayment
period is calculated as described in Sec. 685.209(d)(2).
(Authority: 20 U.S.C. 1087a et seq.)
Sec. 685.211 Miscellaneous repayment provisions.
(a) Payment application and prepayment. (1) The Secretary applies
any payment first to any accrued charges and collection costs, then to
any outstanding interest, and then to outstanding principal.
(2) A borrower may prepay all or part of a loan at any time without
penalty. If a borrower pays any amount in excess of the amount due, the
excess amount is a prepayment.
(3) If a prepayment equals or exceeds the monthly repayment amount
under the borrower's repayment plan, the Secretary--
(i) Applies the prepaid amount according to paragraph (a)(1) of
this section;
(ii) Advances the due date of the next payment unless the borrower
requests otherwise; and
(iii) Notifies the borrower of any revised due date for the next
payment.
(4) If a prepayment is less than the monthly repayment amount, the
Secretary applies the prepayment according to paragraph (a)(1) of this
section.
(b) Refunds from schools. The Secretary applies any refund due to a
borrower that the Secretary receives from a school under Sec. 668.22 to
the borrower's outstanding principal.
(c) Default. (1) Acceleration. If a borrower defaults on a Direct
Loan, the entire unpaid balance and accrued interest are immediately
due and payable.
(2) Collection charges. If a borrower defaults on a Direct Loan,
the Secretary assesses collection charges in accordance with
Sec. 685.202(e).
(3) Collection of a defaulted loan. (i) The Secretary may take any
action authorized by law to collect a defaulted Direct Loan including,
but not limited to, filing a lawsuit against the borrower, reporting
the default to national credit bureaus, requesting the Internal Revenue
Service to offset the borrower's Federal income tax refund, and
garnishing the borrower's wages.
(ii) If a borrower defaults on a Federal Direct Stafford Loan, a
Federal Direct Unsubsidized Stafford Loan, a Federal Direct
Unsubsidized Consolidation Loan or a Federal Direct Subsidized
Consolidation Loan, the Secretary may designate the income contingent
repayment plan for the borrower.
(d) Ineligible borrowers. (1) The Secretary determines that a
borrower is ineligible if, at the time the loan was made and without
the school's or the Secretary's knowledge, the borrower (or the student
on whose behalf a parent borrowed) provided false or erroneous
information or took actions that caused the borrower or student--
(i) To receive a loan for which the borrower is wholly or partially
ineligible;
(ii) To receive interest benefits for which the borrower was
ineligible; or
(iii) To receive loan proceeds for a period of enrollment for which
the borrower was not eligible.
(2) If the Secretary makes the determination described in paragraph
(d)(1) of this section, the Secretary sends an ineligible borrower a
demand letter that requires the borrower to repay some or all of a
loan, as appropriate. The demand letter requires that within 30 days of
the borrower's receipt of the letter, the borrower repay any principal
amount for which the borrower is ineligible and any accrued interest,
including interest subsidized by the Secretary, through the previous
quarter.
(3) If a borrower fails to comply with the demand letter described
in paragraph (d)(2) of this section, the borrower is in default.
(4) A borrower may not consolidate a loan under Sec. 685.215 for
which the borrower is wholly or partially ineligible.
(Authority: 20 U.S.C. 1087a et seq.)
Sec. 685.212 Discharge of a loan obligation.
(a) Death. If the Secretary receives acceptable documentation that
a borrower (or the student on whose behalf a parent borrowed) has died,
the Secretary discharges the obligation of the borrower and any
endorser to make any further payments on the loan.
(b) Total and permanent disability. If the Secretary receives
acceptable documentation that a borrower has become totally and
permanently disabled, the Secretary discharges the obligation of the
borrower and any endorser to make any further payments on the loan. A
borrower is not considered totally and permanently disabled based on a
condition that existed at the time the borrower applied for the loan
unless the borrower's condition substantially deteriorated after the
loan was made so as to render the borrower totally and permanently
disabled.
(c) Bankruptcy. If a borrower's obligation to repay a loan is
discharged in bankruptcy, the Secretary does not require the borrower
or any endorser to make any further payments on the loan.
(d) Closed schools. If a borrower meets the requirements in
Sec. 685.213, the Secretary discharges the obligation of the borrower
and any endorser to make any further payments on the loan.
(e) False certification and unauthorized disbursement. If a
borrower meets the requirements in Sec. 685.214, the Secretary
discharges the obligation of the borrower and any endorser to make any
further payments on the loan.
(f) Payments received after eligibility for discharge. The
Secretary returns to the sender or, for a discharge based on death, the
borrower's estate, those payments received after the requirements for
discharge have been met.
(g) Loan forgiveness demonstration program. If funds are
appropriated for the loan forgiveness demonstration program authorized
by section 428J of the Act, the Secretary follows the procedures and
applies the standards in 34 CFR 682.215 for borrowers under the Direct
Loan Program.
(Authority: 20 U.S.C. 1087a et seq.)
Sec. 685.213 Closed school discharge.
(a) General. (1) The Secretary discharges the borrower's (and any
endorser's) obligation to repay a Direct Loan in accordance with the
provisions of this section if the borrower (or the student on whose
behalf a parent borrowed) did not complete the program of study for
which the loan was made because the school at which the borrower (or
student) was enrolled closed, as described in paragraph (c) of this
section.
(2) For purposes of this section--
(i) A school's closure date is the date that the school ceases to
provide educational instruction in all programs, as determined by the
Secretary; and
(ii) ``School'' means a school's main campus or any location or
branch of the main campus.
(b) Relief pursuant to discharge. (1) Discharge under this section
relieves the borrower of any past or present obligation to repay the
loan and any accrued charges or collection costs with respect to the
loan.
(2) The discharge of a loan under this section qualifies the
borrower for reimbursement of amounts paid voluntarily or through
enforced collection on the loan.
(3) The Secretary does not regard a borrower who has defaulted on a
loan discharged under this section as in default on the loan after
discharge, and such a borrower is eligible to receive assistance under
programs authorized by title IV of the Act.
(4) The Secretary reports the discharge of a loan under this
section to all credit reporting agencies to which the Secretary
previously reported the status of the loan.
(c) Borrower qualification for discharge. In order to qualify for
discharge of a loan under this section, a borrower shall submit to the
Secretary a written request and sworn statement, and the factual
assertions in the statement must be true. The statement need not be
notarized but must be made by the borrower under penalty of perjury. In
the statement, the borrower shall--
(1) State that the borrower (or the student on whose behalf a
parent borrowed)--
(i) Received the proceeds of a loan to attend a school;
(ii) Did not complete the program of study at that school because
the school closed while the student was enrolled, or the student
withdrew from the school not more than 90 days before the school closed
(or longer in exceptional circumstances); and
(iii) Did not complete the program of study through a teach-out at
another school or by transferring academic credits or hours earned at
the closed school to another school;
(2) State whether the borrower (or student) has made a claim with
respect to the school's closing with any third party, such as the
holder of a performance bond or a tuition recovery program, and, if so,
the amount of any payment received by the borrower (or student) or
credited to the borrower's loan obligation; and
(3) State that the borrower (or student)--
(i) Agrees to provide to the Secretary upon request other
documentation reasonably available to the borrower that demonstrates
that the borrower meets the qualifications for discharge under this
section; and
(ii) Agrees to cooperate with the Secretary in enforcement actions
in accordance with paragraph (d) of this section and to transfer any
right to recovery against a third party to the Secretary in accordance
with paragraph (e) of this section.
(d) Cooperation by borrower in enforcement actions. (1) In order to
obtain a discharge under this section, a borrower shall cooperate with
the Secretary in any judicial or administrative proceeding brought by
the Secretary to recover for amounts discharged or to take other
enforcement action with respect to the conduct on which the discharge
was based. At the request of the Secretary and upon the Secretary's
tendering to the borrower the fees and costs that are customarily
provided in litigation to reimburse witnesses, the borrower shall--
(i) Provide testimony regarding any representation made by the
borrower to support a request for discharge;
(ii) Produce any documents reasonably available to the borrower
with respect to those representations; and
(iii) If required by the Secretary, provide a sworn statement
regarding those documents and representations.
(2) The Secretary denies the request for a discharge or revokes the
discharge of a borrower who--
(i) Fails to provide the testimony, documents, or a sworn statement
required under paragraph (d)(1) of this section; or
(ii) Provides testimony, documents, or a sworn statement that does
not support the material representations made by the borrower to obtain
the discharge.
(e) Transfer to the Secretary of borrower's right of recovery
against third parties. (1) Upon discharge under this section, the
borrower is deemed to have assigned to and relinquished in favor of the
Secretary any right to a loan refund (up to the amount discharged) that
the borrower (or student) may have by contract or applicable law with
respect to the loan or the enrollment agreement for the program for
which the loan was received, against the school, its principals, its
affiliates and their successors, its sureties, and any private fund,
including the portion of a public fund that represents funds received
from a private party.
(2) The provisions of this section apply notwithstanding any
provision of State law that would otherwise restrict transfer of those
rights by the borrower (or student), limit or prevent a transferee from
exercising those rights, or establish procedures or a scheme of
distribution that would prejudice the Secretary's ability to recover on
those rights.
(3) Nothing in this section limits or forecloses the borrower's (or
student's) right to pursue legal and equitable relief regarding
disputes arising from matters unrelated to the discharged Direct Loan.
(f) Discharge procedures. (1) After confirming the date of a
school's closure, the Secretary identifies any Direct Loan borrower (or
student on whose behalf a parent borrowed) who appears to have been
enrolled at the school on the school closure date or to have withdrawn
not more than 90 days prior to the closure date.
(2) If the borrower's current address is known, the Secretary mails
the borrower a discharge application and an explanation of the
qualifications and procedures for obtaining a discharge. The Secretary
also promptly suspends any efforts to collect from the borrower on any
affected loan. The Secretary may continue to receive borrower payments.
(3) If the borrower's current address is unknown, the Secretary
attempts to locate the borrower and determines the borrower's potential
eligibility for a discharge under this section by consulting with
representatives of the closed school, the school's licensing agency,
the school's accrediting agency, and other appropriate parties. If the
Secretary learns the new address of a borrower, the Secretary mails to
the borrower a discharge application and explanation and suspends
collection, as described in paragraph (f)(2) of this section.
(4) If a borrower fails to submit the written request and sworn
statement described in paragraph (c) of this section within 60 days of
the Secretary's mailing the discharge application, the Secretary
resumes collection and grants forbearance of principal and interest for
the period in which collection activity was suspended. The Secretary
may capitalize any interest accrued and not paid during that period.
(5) If the Secretary determines that a borrower who requests a
discharge meets the qualifications for a discharge, the Secretary
notifies the borrower in writing of that determination.
(6) If the Secretary determines that a borrower who requests a
discharge does not meet the qualifications for a discharge, the
Secretary notifies that borrower in writing of that determination and
the reasons for the determination.
(Authority: 20 U.S.C. 1087a et seq.)
Sec. 685.214 Discharge for false certification of student eligibility
or unauthorized payment.
(a) (1) False certification. The Secretary discharges a borrower's
( and any endorser's) obligation to repay a Direct Loan in accordance
with the provisions of this section if a school falsely certifies the
eligibility of the borrower (or the student on whose behalf a parent
borrowed) to receive the loan. The Secretary considers a student's
eligibility to borrow to have been falsely certified by the school if
the school--
(i) Admitted the student on the basis of ability to benefit from
its training and the student did not meet the requirements for
admission described in 34 CFR Part 668 and section 484(d) of the Act,
as applicable; or
(ii) Signed the borrower's name on the loan application or
promissory note without the borrower's authorization.
(2) Unauthorized payment. The Secretary discharges a borrower's
(and any endorser's) obligation to repay a Direct Loan if the school,
without the borrower's authorization, endorsed the borrower's loan
check or signed the borrower's authorization for electronic funds
transfer, unless the proceeds of the loan were delivered to the student
or applied to charges owed by the student to the school.
(b) Relief pursuant to discharge. (1) Discharge for false
certification under paragraph (a)(1) of this section relieves the
borrower of any past or present obligation to repay the loan and any
accrued charges and collection costs with respect to the loan.
(2) Discharge for unauthorized payment under paragraph (a)(2) of
this section relieves the borrower of the obligation to repay the
amount of the payment discharged.
(3) The discharge under this section qualifies the borrower for
reimbursement of amounts paid voluntarily or through enforced
collection on the discharged loan or payment.
(4) The Secretary does not regard a borrower who has defaulted on a
loan discharged under this section as in default on the loan after
discharge, and such a borrower is eligible to receive assistance under
programs authorized by title IV of the Act.
(5) The Secretary reports the discharge under this section to all
credit reporting agencies to which the Secretary previously reported
the status of the loan.
(c) Borrower qualification for discharge. In order to qualify for
discharge under this section, the borrower shall submit to the
Secretary a written request and a sworn statement, and the factual
assertions in the statement must be true. The statement need not be
notarized but must be made by the borrower under penalty of perjury. In
the statement, the borrower shall meet the following requirements:
(1) Ability to benefit. In the case of a borrower requesting a
discharge based on the school's defective testing of the student's
ability to benefit, the borrower shall state that the borrower (or the
student on whose behalf a parent borrowed)--
(i) Received a disbursement of a loan to attend a school;
(ii) Received a Direct Loan at that school on the basis of an
ability to benefit from the school's training and did not meet the
eligibility requirements described in 34 CFR Part 668 and section
484(d) of the Act, as applicable; and
(iii) Either--
(A) Withdrew from the school and did not find employment in the
occupation for which the training program was intended; or
(B) Completed the training program for which the loan was made,
attempted to obtain employment in the occupation for which the program
was intended, and was not able to find employment in that occupation or
obtained employment in that occupation only after receiving additional
training that was not provided by the school that certified the loan.
(2) Unauthorized loan. In the case of a borrower requesting a
discharge because the school signed the borrower's name on the loan
application or promissory note without the borrower's authorization,
the borrower shall--
(i) State that he or she did not sign the document in question or
authorize the school to do so; and
(ii) Provide five different specimens of his or her signature, two
of which must be within one year before or after the date of the
contested signature.
(3) Unauthorized payment. In the case of a borrower requesting a
discharge because the school, without the borrower's authorization,
endorsed the borrower's loan check or signed the borrower's
authorization for electronic funds transfer, the borrower shall--
(i) State that he or she did not endorse the loan check or sign the
authorization for electronic funds transfer or authorize the school to
do so;
(ii) Provide five different specimens of his or her signature, two
of which must be within one year before or after the date of the
contested signature;
(iii) State that the proceeds of the contested disbursement were
not delivered to the student or applied to charges owed by the student
to the school.
(4) Claim to third party. The borrower shall state whether the
borrower (or student) has made a claim with respect to the school's
false certification or unauthorized payment with any third party, such
as the holder of a performance bond or a tuition recovery program, and,
if so, the amount of any payment received by the borrower (or student)
or credited to the borrower's loan obligation.
(5) State that the borrower (or student)--
(i) Agrees to provide to the Secretary upon request other
documentation reasonably available to the borrower that demonstrates
that the borrower meets the qualifications for discharge under this
section; and
(ii) Agrees to cooperate with the Secretary in enforcement actions
as described in Sec. 685.213(d) and to transfer any right to recovery
against a third party to the Secretary as described in Sec. 685.213(e).
(d) Discharge procedures. (1) If the Secretary determines that a
borrower's Direct Loan may be eligible for a discharge under this
section, the Secretary mails the borrower a disclosure application and
an explanation of the qualifications and procedures for obtaining a
discharge. The Secretary also promptly suspends any efforts to collect
from the borrower on any affected loan. The Secretary may continue to
receive borrower payments.
(2) If the borrower fails to submit the written request and sworn
statement described in paragraph (c) of this section within 60 days of
the Secretary's mailing the disclosure application, the Secretary
resumes collection and grants forbearance of principal and interest for
the period in which collection activity was suspended. The Secretary
may capitalize any interest accrued and not paid during that period.
(3) If the borrower submits the written request and sworn statement
described in paragraph (c) of the section, the Secretary determines
whether to grant a request for discharge under this section by
reviewing the request and sworn statement in light of information
available from the Secretary's records and from other sources,
including guaranty agencies, State authorities, and cognizant
accrediting associations.
(4) If the Secretary determines that the borrower meets the
applicable requirements for a discharge under paragraph (c) of this
section, the Secretary notifies the borrower in writing of that
determination.
(5) If the Secretary determines that the borrower does not qualify
for a discharge, the Secretary notifies the borrower in writing of that
determination and the reasons for the determination.
(Authority: 20 U.S.C. 1087a et seq.)
Sec. 685.215 Consolidation
(a) Federal Direct Consolidation Loans. A borrower may consolidate
one or more education loans made under certain Federal programs into
one or more Federal Direct Consolidation Loans. Loans consolidated into
a Federal Direct Consolidation Loan are discharged when the Federal
Direct Consolidation Loan is originated.
(b) Loans eligible for consolidation. The following loans may be
consolidated into a Federal Direct Consolidation Loan:
(1) Federal Stafford Loans.
(2) Guaranteed Student Loans.
(3) Federal Insured Student Loans (FISL).
(4) Federal Direct Stafford Loans.
(5) Federal Direct Subsidized Consolidation Loans.
(6) Federal Perkins Loans.
(7) National Direct Student Loans (NDSL).
(8) National Defense Student Loans (NDSL).
(9) Federal PLUS Loans.
(10) Parent Loans for Undergraduate Students (PLUS).
(11) Federal Direct PLUS Loans.
(12) Federal Direct PLUS Consolidation Loans.
(13) Federal Unsubsidized Stafford Loans.
(14) Federal Supplemental Loans for Students (SLS).
(15) Federal Consolidation Loans.
(16) Federal Direct Unsubsidized Stafford Loans.
(17) Federal Direct Unsubsidized Consolidation Loans.
(18) Auxiliary Loans to Assist Students (ALAS).
(19) Health Professions Student Loans (HPSL).
(20) Health Education Assistance Loans (HEAL).
(21) Other loans made under subpart II of part A of title VII of
the Public Health Service Act.
(c) Types of Federal Direct Consolidation Loans. (1) The loans
identified in paragraphs (b) (1) through (8) may be consolidated into a
Federal Direct Subsidized Consolidation Loan.
(2) The loans identified in paragraphs (b) (9) through (12) may be
consolidated into a Federal Direct PLUS Consolidation Loan.
(3) The loans identified in paragraphs (b) (13) through (21) may be
consolidated into a Federal Direct Unsubsidized Consolidation Loan.
(d) Eligibility for a Federal Direct Consolidation Loan. (1) A
borrower may obtain a Federal Direct Consolidation Loan if, at the time
the borrower applies for such a loan, the borrower meets the following
requirements:
(i) The borrower either--
(A) Has an outstanding balance on a Direct Loan; or
(B) Has an outstanding balance on an FFEL loan and asserts either--
(1) That the borrower is unable to obtain an FFEL consolidation
loan; or
(2) That the borrower is unable to obtain an FFEL consolidation
loan with income-sensitive repayment terms acceptable to the borrower
and is eligible for the income contingent repayment plan under the
Direct Loan Program.
(ii) On the loans being consolidated, the borrower is--
(A) In a six-month grace period;
(B) In a repayment period but not in default;
(C) In default but has made satisfactory arrangements to repay the
defaulted loan; or
(D) In default but agrees to repay the consolidation loan under the
income contingent repayment plan described in Sec. 685.208(f) and signs
the consent form described in Sec. 685.209(b)(5).
(iii) The borrower certifies that no other application to
consolidate any of the borrower's loans listed in paragraph (b) of this
section is pending with any other lender.
(iv) The borrower agrees to notify the Secretary of any change in
address.
(v) In the case of a Federal Direct PLUS Consolidation Loan--
(A) The borrower may not have an adverse credit history as defined
in Sec. 685.200(b)(7)(ii); or
(B) If the borrower has such an adverse credit history, the
borrower shall obtain an endorser for the consolidation loan who does
not have an adverse credit history or provide documentation
satisfactory to the Secretary that extenuating circumstances relating
to the borrower's credit history exist.
(2) Two married borrowers may consolidate their loans together if
they meet the following requirements:
(i) At least one spouse meets the requirements of paragraph
(d)(1)(i) of this section.
(ii) Both spouses meet the requirements of paragraphs (d)(2) (ii)
through (v) of this section.
(iii) Each spouse agrees to be held jointly and severally liable
for the repayment of the total amount of the consolidation loan and to
repay the loan regardless of any change in marital status.
(e) Application for a Federal Direct Consolidation Loan. To obtain
a Federal Direct Consolidation Loan, a borrower or borrowers shall
submit a completed application to the Secretary. A single application
may be used for one or more consolidation loans. A borrower may add
eligible loans to a Federal Direct Consolidation Loan by submitting a
request to the Secretary within 180 days after the date on which the
Federal Direct Consolidation Loan is originated.
(f) Origination of a consolidation loan. (1) If the Secretary
approves an application for a consolidation loan, the Secretary pays to
each holder of a loan selected for consolidation an amount equal to the
unpaid balance, accrued interest, fees, and collection costs due on the
loan.
(2) Upon receipt of the proceeds of a Federal Direct Consolidation
Loan, the holder of a consolidated loan shall promptly apply the
proceeds to fully discharge the borrower's obligation on the
consolidated loan. The holder of a consolidated loan must return to the
borrower the promissory note marked ``paid-in-full.''
(3) The principal balance of a Federal Direct Consolidation Loan is
equal to the sum of the amounts paid to the holders of the consolidated
loans.
(4) If the amount paid by the Secretary to the holder of a
consolidated loan exceeds the amount needed to discharge the borrower's
obligation on the loan, the holder of the consolidated loan shall
promptly refund the excess amount to the Secretary to be credited
against the outstanding balance of the Federal Direct Consolidation
Loan.
(5) If the amount paid by the Secretary to the holder of the
consolidated loan is insufficient to discharge the borrower's
obligation on the loan, the lender shall notify the Secretary in
writing of the remaining amount due on the loans. The Secretary
promptly pays the remaining amount due.
(g) Interest rate. The interest rate on a Federal Direct Subsidized
Consolidation Loan or a Federal Direct Unsubsidized Consolidation Loan
is the rate established for a Federal Direct Stafford Loan under
Sec. 685.202(a)(1). The interest rate on a Federal Direct PLUS
Consolidation Loan is the rate established for a Federal Direct PLUS
Loan under Sec. 685.202(a)(2).
(h) Repayment plans. A borrower may repay a Federal Direct
Consolidation Loan under any of the repayment plans described in
Sec. 685.208, except that--
(1) A borrower may not repay a Federal Direct PLUS Consolidation
Loan under the income contingent repayment plan; and
(2) A borrower who became eligible to consolidate a defaulted loan
under paragraph (d)(1)(ii)(D) of this section shall repay the
consolidation loan under the income contingent repayment plan unless--
(i) The borrower was required to and did make a payment under the
income contingent repayment plan in each of the prior six months; and
(ii) The borrower makes and the Secretary approves a request to
change plans.
(i) Repayment period. (1) The repayment period for a Federal Direct
Consolidation Loan begins on the day after the loan is disbursed.
(2) Under the extended or graduated repayment plan, the Secretary
determines the repayment period under Sec. 685.208(e) on the basis of
the outstanding balances on all of the borrower's loans that are
eligible for consolidation and the balances on other education loans
except as provided in paragraph (i)(3) of this section.
(3) (i) The total amount of outstanding balances on the other
education loans used to determine the repayment period under the
graduated or extended repayment plan may not exceed the amount of the
Federal Direct Consolidation Loan.
(ii) The borrower may not be in default on the other education loan
unless the borrower has made satisfactory repayment arrangements with
the holder of the loan.
(iii) The lender of the other educational loan may not be an
individual.
(j) Repayment schedule. (1) The Secretary provides a borrower of a
Federal Direct Consolidation Loan a repayment schedule before the
borrower's first payment is due. The repayment schedule identifies the
borrower's monthly repayment amount under the repayment plan selected.
(2) If a borrower adds an eligible loan to the consolidation loan
under paragraph (d)(2) of this section, the Secretary makes appropriate
adjustments to the borrower's monthly repayment amount and repayment
period.
(k) Refunds received from schools. If a lender receives a refund
from a school on a loan that has been consolidated into a Federal
Direct Consolidation Loan, the lender shall--
(1) Transmit the refund and an explanation of the source of the
refund to the Secretary within 30 days of receipt; and
(2) Inform the borrower in writing that the lender has received the
refund and transmitted it to the Secretary.
(l) Special provisions for joint consolidation loans. The
provisions of paragraphs (l)(1) through (3) of this section apply to a
Federal Direct Consolidation Loan obtained by two married borrowers.
(1) Deferment. To obtain a deferment on a joint Federal Direct
Consolidation Loan under Sec. 685.204, both borrowers shall meet the
requirements of that section.
(2) Forbearance. To obtain forbearance on a joint Federal Direct
Consolidation Loan under Sec. 685.205, both borrowers shall meet the
requirements of that section.
(3) Discharge. (i) To obtain a discharge of a joint Federal Direct
Consolidation Loan under Sec. 685.212, each borrower shall meet the
requirements for one of the types of discharge described in that
section.
(ii) If a borrower meets the requirements for discharge under
Sec. 685.212 (d) or (e) on a loan that was consolidated into a joint
Federal Direct Consolidation Loan and the borrower's spouse does not
meet the requirements for any type of discharge described in
Sec. 685.212, the Secretary discharges a portion of the consolidation
loan equal to the amount of the loan that would have been eligible for
discharge under the provisions of Sec. 685.212 (d) or (e), as
applicable.
(Authority: 20 U.S.C. 1078-8, 1087a et seq.)
4. A new Appendix B is added to part 685 to read as follows:
Appendix B--Income Contingent Repayment Examples of the Calculation
of Monthly Repayment Amounts
Example 1. A single borrower with $12,500 of Direct Loans and an
Adjusted Gross Income (AGI) of $25,000.
Step 1: Under either Option 1 or Option 2, calculate the payback
rate. Because the borrower's debt is greater than $1,000, the
payback rate is calculated on the basis of the formula in
Sec. 685.209(b)(2)(iii), as follows:
Subtract $1,000 from the total amount of the borrower's
Direct Loans: ($12,500-$1,000=$11,500).
Multiply the result by 0.000002:
$11,500 x 0.000002=0.023).
Add the result to 0.04: (0.04+0.023=0.063).
The result is the payback rate.
Step 2: Compare the calculated payback rate (0.063) to the
maximum payback rate (0.15). Because the calculated rate is less
than the maximum rate, the borrower's payback rate is 0.063.
Step 3: Calculate the annual repayment amount by multiplying the
borrower's AGI by the payback rate: ($25,000 x 0.063=$1,575).
Step 4: Calculate the monthly repayment amount by dividing the
annual repayment amount by 12 months: ($1,57512=$131.25).
Step 5: Compare the calculated monthly repayment amount
($131.25) to the $25 minimum repayment amount. Because the
calculated amount is greater than the minimum amount, the borrower's
monthly repayment amount is $131.25 under Option 1.
Step 6: If the borrower has chosen Option 2, compare the monthly
repayment amount under Option 1 ($131.25) to the amount the borrower
would repay under a 12-year standard amortization. The Secretary
calculates the 12-year standard amortization amount using the
interest rate in effect when the borrower chose Option 2. If the
interest rate was seven percent, the 12-year standard amortization
amount is approximately $10.28 for every $1,000 of debt. In this
example, the 12-year standard amortization amount is approximately
$128.50 ($10.28 x 12.5). Because the monthly payment calculated
under Option 1 ($131.25) exceeds the 12-year standard amortization
amount ($128.50), the borrower's monthly repayment amount is $128.50
under Option 2.
Example 2: Married borrowers with a combined Adjusted Gross
Income (AGI) of $30,000. The husband has $5,000 of Direct Loans. The
wife has $15,000 of Direct Loans. The couple has two dependents.
Step 1: Under either Option 1 or Option 2, calculate the
husband's payback rate. Because his debt is greater than $1,000, the
payback rate is calculated on the basis of the formula in
Sec. 685.209(b)(2)(iii) as follows:
Subtract $1,000 from the amount of the husband's loans:
($5,000-$1,000=$4,000).
Multiply the result by 0.000002:
($4,000 x 0.000002=0.008).
Add the result to 0.04: (0.04+0.008=0.048).
The result is the husband's payback rate.
Step 2: Compare the husband's calculated payback rate (0.048) to
the maximum payback rate (0.15). Because the calculated rate is less
than the maximum rate, the husband's payback rate is 0.048.
Step 3: Calculate the husband's assumed AGI by multiplying the
couple's total AGI ($30,000) by the amount of the husband's loans
($5,000), divided by the total amount of the couple's debt
($20,000): ($30,000 x $5,000$20,000=$7,500).
Step 4: Calculate the husband's annual repayment amount by
multiplying the husband's assumed AGI ($7,500) by his payback rate
(0.048): ($7,500 x 0.048=$360).
Step 5: Divide the annual repayment amount by 12 months:
($36012=$30).
Step 6: Calculate the couple's total family size adjustment
amount by multiplying the number of dependents (2) by $7:
(2 x $7=$14).
Step 7: Calculate the couple's individual family size adjustment
amounts by dividing the total family size adjustment ($14) by 2:
($142=$7).
Step 8: Calculate the husband's monthly repayment amount by
subtracting his family size adjustment amount ($7) from the amount
calculated in Step 5 ($30): ($30-$7=$23).
Step 9: Calculate the wife's payback rate. Because her debt is
greater than $1,000, the payback rate is calculated on the basis of
the formula in Sec. 685.209(b)(2)(iii) as follows:
Subtract $1,000 from the amount of the wife's loans:
($15,000-$1,000=$14,000).
Multiply the result by 0.000002:
($14,000 x 0.000002=0.028).
Add the result to 0.04: (0.04+0.028=0.068).
The result is the wife's payback rate.
Step 10: Compare the wife's calculated payback rate (0.068) to
the maximum payback rate (0.15). Because the calculated rate is less
than the maximum rate, the wife's payback rate is 0.068.
Step 11: Calculate the wife's assumed AGI by multiplying the
couple's total AGI ($30,000) by the amount of the wife's loans
($15,000), divided by the total amount of the couple's debt
($20,000): ($30,000 x $15,000$20,000=$22,500).
Step 12: Calculate the wife's annual repayment amount by
multiplying the wife's assumed AGI ($22,500) by her payback rate
(0.068): ($22,500 x 0.068=$1,530).
Step 13: Divide the annual repayment amount by 12 months:
($1,53012=$127.50).
Step 14: Calculate the wife's monthly repayment amount by
subtracting her family size adjustment amount calculated in Step 7
($7) from the amount calculated in Step 13 ($127.50):
($127.50-$7=$120.50).
Step 15: Calculate the couple's combined monthly repayment
amount by adding the husband's monthly repayment amount calculated
in Step 8 ($23) and the wife's monthly repayment amount calculated
in Step 14 ($120.50): ($23+$120.50=$143.50).
Step 16: Compare the couple's combined monthly repayment amount
($143.50) to the $25 minimum repayment amount. Because the
calculated amount is greater than the minimum amount, the couple's
combined monthly repayment amount is $143.50 under Option 1.
Step 17: If the couple has chosen Option 2, compare the combined
monthly repayment amount under Option 1 ($143.50) to the amount the
couple would repay under a 12-year standard amortization. The
Secretary calculates the 12-year standard amortization amount using
the interest rate in effect when the couple chose Option 2. If the
interest rate was seven percent, the 12-year standard amortization
amount is approximately $10.28 for every $1,000 of debt. In this
example, the 12-year standard amortization amount is approximately
$205.60 ($10.28 x 20). Because the monthly payment calculated under
Option 1 ($143.50) does not exceed the 12-year standard amortization
amount ($205.60), the couple's combined monthly repayment amount is
$143.50 under Option 2.
Table--Income Contingent Repayment Plan
Note: This table will not appear in the Code of Federal
Regulations.
BILLING CODE 4000-01-P
TR01JY94.082
[FR Doc. 94-16107 Filed 6-30-94; 8:45 am]
BILLING CODE 4000-01-C
_______________________________________________________________________
Part X
Department of Housing and Urban Development
_______________________________________________________________________
Office of the Assistant for Housing-Federal Housing Commissioner
_______________________________________________________________________
24 CFR Part 3280
Interpretative Bulletin for Manufactured Home Construction and Safety
Standards and Notice of Waiver of Certain Requirements; Rule
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Office of the Assistant Secretary for Housing-Federal Housing
Commissioner
24 CFR Part 3280
[Docket No. R-94-1632; FR-3380-N-06]
Interpretative Bulletin for Manufactured Home Construction and
Safety Standards and Notice of Waiver of Certain Requirements
AGENCY: Office of the Assistant Secretary for Housing-Federal Housing
Commissioner, HUD.
ACTION: Notice of interpretative bulletin and waiver.
-----------------------------------------------------------------------
SUMMARY: HUD published a final rule amending the Federal Manufactured
Home Construction and Safety Standards (FMHCSS) on January 14, 1994 (59
FR 2456) to improve the resistance of manufactured homes to wind forces
in areas prone to hurricanes. An Interpretative Bulletin was issued on
April 15, 1994 and published in the Federal Register on April 21, 1994
to clarify some aspects of the new standards that have been the subject
of questions from the industry and the public. This Interpretative
Bulletin addresses certain additional questions and announces the
issuance of a waiver, pursuant to 24 CFR 3280.1(b), relating to certain
exterior wall cladding.
DATES: Issued June 24, 1994.
FOR FURTHER INFORMATION CONTACT: David C. Nimmer, Director, Office of
Manufactured Housing and Regulatory Functions, Department of Housing
and Urban Development, 451 Seventh Street SW., Attn: Mailroom B-133,
Washington, DC 20410-8000. Telephones: (voice) (202) 755-7410; (TDD)
(202) 708-4594. (These are not toll-free numbers.)
SUPPLEMENTARY INFORMATION: Accordingly, the following Interpretative
Bulletin, which includes the Secretary's determination that it should
not be subject to notice-and-comment, has been issued by the
Department.
Interpretative Bulletin to the Standards
Manufactured Home Construction and Safety Standards
24 CFR Part 3280
Under Section 604 of the National Manufactured Housing Construction
and Safety Standards Act of 1974, 42 U.S.C. 5403, the Secretary of the
U.S. Department of Housing and Urban Development (``HUD'') is
authorized to issue, amend and revoke by order appropriate Federal
manufactured home construction and safety standards. On January 14,
1994 (59 FR 2456), HUD published certain changes to the Federal
Manufactured Home Construction and Safety Standards for high wind
areas. The effective date of the wind standards is July 13, 1994.
Since the publication of this rule, the Department received a
number of questions asking for clarification of certain provisions.
Those who requested the clarifications urged the Department to provide
a timely response so that industry designers can move forward to revise
plans and specifications well ahead of the effective date.
HUD recognized that it was imperative to respond to these requests
for clarification as soon as possible to assist Primary Inspection
Agencies (``PIAs''), manufacturers and State Administrative Agencies in
understanding the changes to the manufactured housing standards in
advance of the effective date. Therefore, on April 21, 1994, the
Department published a series of technical interpretations of the rule
in the Federal Register [59 FR 19072].
In that Interpretative Bulletin, the Department indicated that it
may issue further Interpretative Bulletins to provide further
assistance in the implementation of these new standards. Since the
publication of those interpretations, additional requests for
clarification of both rules have been received.
In addition, certain questions were raised about 24 CFR
3280.305(c)(1)(ii)(B) and Footnote 8 to the ``Table of Design Wind
Pressures.'' The questions related to the requirement that exterior
wall cladding materials be fastened at 6'' on center (``o.c.'') as
provided in Footnote 8. The Department has been advised that the
impracticability of such a fastening requirement may have a significant
negative effect on the manufacturers of certain siding traditionally
used in manufactured housing. The use of these specific requirements
was not intended to prohibit the utilization of any material, piece of
equipment, or system which cannot meet the precise specifications.
24 CFR 3280.1(b) of the Manufactured Home Construction and Safety
Standards provides that where any material, piece of equipment, or
system which does not meet precise specifications set out in the
standard is shown, to the satisfaction of the Secretary, to meet the
level of performance of a material, piece of equipment or system which
meets the precise specifications, the Secretary may waive the
specifications set out in the standard for that material, piece of
equipment, or system. The Secretary, in granting such a waiver, may set
out any limitations or other requirements with respect to how the
material, piece of equipment, or system must be used, including any
tests of the material, piece of equipment, or system which the
Secretary determines must be carried out before it can be used.
Accordingly, this Interpretative Bulletin, in accordance with 24
CFR 3280.1(b), also announces the waiver of certain requirements of 24
CFR 3280.305(c)(1)(ii)(B) and Footnote 8 to the ``Table of Design Wind
Pressures'' applicable to permeable exterior wall cladding materials
which cannot be secured at the 6'' o.c. fastening pattern. This
Interpretative Bulletin, however, sets out limitations and other
requirements with respect to how the waiver applies.
Due to the need for expeditious resolution of the issue relating to
air permeable exterior wall cladding materials and the need for
expeditious resolution and clarification of other issues related to the
wind rule, and since these clarifications do not establish a change in
the position or policy of the Department but merely involved technical
matters, the Secretary deems it not to be in the public interest to
issue the announcement of the waiver or the clarifications for public
comment in the Federal Register or to otherwise treat this
Interpretative Bulletin as rulemaking. The Department is providing this
guidance to manufacturers and PIAs so that they can proceed immediately
with the redesign of their homes.
I. Waiver of Certain Requirements of 24 CFR 3280.305(c)(1)(ii)(B) and
Footnote 8 to the ``Table of Design Wind Pressures'' Relating to
Permeable Exterior Wall Cladding Materials Which Cannot Be Secured at
the 6'' o.c. Fastening Pattern
The Secretary, through his duly authorized designee, finds that it
may be impracticable for certain exterior cladding materials to be
fastened at 6'' o.c. as provided in Footnote 8 of 24 CFR
3280.305(c)(1)(ii)(B). Accordingly, the Secretary hereby grants waiver
of certain requirements of 24 CFR 3280.305(c)(1)(ii)(B) and Footnote 8
to the ``Table of Design Wind Pressures'' applicable to permeable
exterior wall cladding materials which cannot be secured at the
required fastening pattern. Because this waiver has been issued, the
requirements of 24 CFR 3280.305(c)(1)(ii)(B) and Footnote 8 to the
``Table of Design Wind Pressures,'' to which the waiver relates, may be
met either by meeting the specifications set out in the standard or by
meeting the following requirements:
Air permeable exterior wall cladding materials which cannot be
secured at the 6'' o.c. fastening pattern due to the materials'
configuration, such as vinyl lap siding, may be alternatively evaluated
by testing for the design pressures specified in the ``Table of Design
Wind Pressures,'' provided that the following requirements are met:
1. The air permeable siding is intermittently secured through
structural rated wall sheathing at least \3/8\'' thick at a maximum
spacing of 16'' o.c. to the wall framing;
2. The \3/8\'' structural rated wall sheathing is secured to wall
framing members (plates, studs, jamb studs, headers) at 6'' o.c. except
that for vertical wall and jamb studs, the 6'' o.c. orientation is in
the vertical direction;
3. The wall framing members are installed at a maximum spacing no
greater than 16'' o.c.;
4. The exterior cladding materials are fastened in accordance with
the manufacturer's installation instructions; and
5. For vinyl siding, the siding and fastening strip (nailing hem)
is at least .035'' in thickness.
Such tests must be conducted in accordance with 24 CFR 3280.401(b)
and demonstrate the adequacy of the design to resist the negative
design pressures in the ``Table of Design Wind Pressures'' for wall
corners and other areas. The entire exterior wall construction and
fastenings including the exterior wall cladding (siding), \3/8\''
minimum structural rated sheathing, and wall framing members must be
tested for the full negative design pressures specified by the ``Table
of Design Wind Pressures.''
While the above requirement does not meet precise specifications
set out in 24 CFR 3280.305(c)(1)(ii)(b) and Footnote 8 to the ``Table
of Design Wind Pressures,'' the Secretary, through his duly authorized
designee, is satisfied that compliance with this requirement will meet
the level of performance sought in 24 CFR 3280.305(c)(1)(ii)(b) and
Footnote 8 to the ``Table of Design Wind Pressures.''
II. Additional Clarifications of the Wind Standards
The requested clarifications of the Manufactured Home Construction
and Safety Standards have been organized into questions and answers.
Questions: 1. 24 CFR 3280.304--Will the Department accept the
application of a 1.6 load duration factor as permitted in the 91 NDS
for wind loads in designing connections which use staples?
Answer: No. However, as indicated in our response to Question 6 in
the previous Interpretative Bulletin published in the Federal Register
on April 21, 1994 [59 FR 19075], a 1.33 factor may be used in
accordance with UM-25d. No additional test data or adequate technical
substantiation has been provided which changes our prior clarification
on this subject.
2. 24 CFR 3280.304 and 3280.306(f)(2)--Does the 1.6 load duration
factor permitted by the NDS also apply to the design of interior
partitions?
Answer: Yes. 24 CFR 3280.305(f)(2) as amended in the Federal
Register on October 25, 1993 [59 FR 54975] indicates that a 1.33 factor
may be used to increase the allowable design stress. The 1.6 factor
which is permitted under the 1991 National Design Specification for
Wood Products would also be acceptable for interior partition members.
3. 24 CFR 3280.305(c)(1)(i)-(a) Can the dead load of the whole
roof/ceiling assembly including the trusses be subtracted from the
design roof uplift loads to obtain a net uplift for test/design
purposes?
(b) If so, can all of the actual dead loads be used including eave
portions?
Answer: (a) Yes, the dead load may be deducted for homes designed
to be located in high wind areas (Wind Zones II and III). However, the
roof/ceiling dead load (including trusses) cannot be deducted from the
``net'' uplift load for homes designed for Wind Zone I.
(b) Yes, except for Wind Zone I as indicated in the response to 3.
(a) above.
4. 24 CFR 3280.305(c)(1)(ii)-(a) Do the design prints, calculations
and test reports, etc., relating to shear walls, diaphragms, ridge
beams, fastenings and its components and cladding material (roof
trusses, wall studs, exterior sheathing, roofing siding material
exterior glazing, etc.) need to be sealed (stamped) and/or signed by a
registered Professional Engineer or Architect?
(b) Can a Professional Engineer on the staff of a DAPIA, witness
component tests in the capacity of a listing agency [24 CFR
3280.2(a)(14), and 24 CFR 3282.360], provide the professional
certification required, and accept the certified design for clients it
serves as a DAPIA without violating the conflict of interest provisions
of 24 CFR 3282.359 of the Manufactured Housing Procedural and
Enforcement Regulations?
Answer: (a) All of the cited documents are required to be certified
by a Professional Engineer or Architect. If a Professional Engineer or
Architect elects not to seal and/or sign each document, there must be
an up-to-date record in the package (e.g. an index or list of all
documents) which the Professional Engineer or Architect has prepared
and sealed.
(b) Yes, provided a different Professional Engineer on the staff of
the DAPIA who did not witness the tests and certify the design accepts
the listing for any manufacturer clients it serves as a DAPIA.
5. 24 CFR 3280.305(c)(1)(ii)-(a) Do skylights need to be designed
for the same wind design pressure as the roof system? What pressures
would apply?
(b) Do the skylights need to be protected similar to exterior
windows and sliding glass doors of homes designed to be in Wind Zones
II and III?
Answer: (a) Skylights need to be designed to resist the same design
pressures as ``Exterior roof coverings, sheathings, and fastenings''
indicated in the ``Table of Design Wind Pressures''. The location of
the skylight in the roof would determine the specific design pressure
requirements. However, it is not necessary to complete certification of
skylights to the higher wind pressures until January 17, 1995.
(b) The Department believes that the subject needs further
examination before a final judgment is made. The Department will issue
further guidance on this question in the future.
6. 24 CFR 3280.305(c)(1)(ii)(a)--Can the wind design pressures for
Wind Zones II and III be based in part on ASCE 7-88 and in part on the
``Table of Design Wind Pressures''?
Answer: No. The two alternatives cannot be mixed. One of the two
methods must be used to completely design the manufactured home
structure and each of its wind resisting parts for the design wind
pressures designated by ASCE 7-88 or the ``Table''.
7. 24 CFR 3280.305(c)(1)(ii)(a)--What specific design wind
pressures are required to be used for homes designed for high wind
areas with roof slopes less than 10 degrees or greater than 30 degrees?
Answer: The design criteria are those for Overturning, Sliding and
Anchoring, Main Wind Force Resisting Systems, and Components and
Cladding identified in Chapter 6., ``Wind Loads'' of ASCE 7-88.
8. 24 CFR 3280.305(c)(1)(ii)(b)--Additional questions regarding
Footnote 8 in the ``Table of Design Wind Pressures'':
(a) Can air permeable exterior wall cladding materials which cannot
be secured at the 6'' o.c. fastening pattern due to their configuration
be alternatively evaluated by testing for the design pressures
specified in the ``Table''?
(b) If the answer to (a) is yes, can a pressure reduction factor be
applied in testing certain air permeable exterior cladding materials,
such as vinyl lap siding, for the design pressures specified by the
``Table''?
(c) Do the fastening requirements for structural rated sheathing to
wall framing members in Footnote 8 of the Table of Design Pressures
indicated in our response to Question 17, in the previous
Interpretative Bulletin [59 FR 19076], also apply when the material is
both a structural sheathing and an exterior covering material?
(d) Can exterior cladding materials, such as vertical steel siding,
which are directly secured to wall framing members without a \3/8\''
rated structural sheathing be evaluated by testing for the design
pressures specified in the Table?
Answer: (a) Yes, provided that there is compliance with the
requirements of the waiver announced above.
(b) No.
(c) Yes, provided fasteners for any combined \3/8\'' minimum
structural rated sheathing and exterior covering material are installed
at 6'' o.c. from the sheathing to wall framing members (plates, studs,
jamb studs, headers). For vertical wall and jamb studs the orientation
of 6'' o.c. is in the vertical direction.
(d) Yes, provided the exterior covering and its fastenings are
capable of resisting the full positive and negative design pressures
specified in the ``Table'' for wall corners and other areas when tested
in accordance with 24 CFR 3280.401(b) of the Standards.
9. 24 CFR 3280.305(c)(1)(ii)(b)--What uplift loads are required to
be used when evaluating the field connection of ridge beams of multi-
module homes?
Answer: For designs which are prepared in accordance with the
``Table of Design Wind Pressures'', the pressures indicated for the
entry ``Ridge Beams and Other Main Roof Support Beams'' are to be used
to design the connections (-30 PSF Wind Zone II, -36 PSF Wind Zone
III).
10. 24 CFR 3280.305(c)(1)(ii)(b)--Do the higher uplift loads
indicated in the Table within 3'-0'' from the ridge and sidewall need
to be applied to roof trusses in conjunction with the normal uplift
loads when uplift tested/evaluated?
Answer: No. However, trusses are required to be doubled within 3'-
0'' from each end of the roof and all roof trusses are to be capable of
resisting the design pressures indicated in the Table (-39 PSF for Wind
Zone II; -47 PSF for Wind Zone III).
11. 24 CFR 3280.305(c)(1)(ii)(b)--(a) Do manufactured home
sidewalls including header assemblies in high wind areas need to be
calculated/tested for combined horizontal and uplift wind forces?
(b) If yes, what uplift pressures should be applied?
(c) If testing is used to substantiate a manufacturer's design, do
the wall assemblies need to be tested under the combined loading
conditions?
(d) Can the sidewalls be tested for the horizontal wind load only
and calculated for the tensile load independently using accepted
engineering design practices?
(e) If sidewalls are tested, can wall stud requirements for
openings be evaluated separately by calculations using accepted
engineering practices?
(f) Is there a minimum number of wall studs which are required to
be utilized in tested assemblies?
(g) Would any testing procedure employed that applies combined
loading to a sidewall test assembly require HUD approval in accordance
with 24 CFR 3280.303(g)?
Answer: (a) Yes.
(b) For sidewall studs not located at openings, the design uplift
pressure is -39 PSF for Wind Zone II and -47 PSF for Wind Zone III. For
headers and studs at openings, the uplift design pressure is -30 PSF
for Wind Zone II and -36 PSF for Wind Zone III.
(c) Yes.
(d) No.
(e) Yes.
(f) There is no minimum quantity of wall studs which must be
utilized in a test assembly for a sidewall. However, there needs to be
an adequate number of wall studs in the assembly to measure all wind
load effects and the influence of repetitive framing members in
resisting the combined lateral and uplift design wind pressures.
(g) No. The requirement for obtaining HUD approval of testing
procedures pursuant to 24 CFR 3280.303(g) is not effective until
October 25, 1994. However, manufacturers and DAPIAs are encouraged to
submit proposed testing protocols to the Department for review and
evaluation prior to the effective date.
12. For homes with end gables, does the 3'-0'' measurement for
doubling of roof trusses start at the extreme end of the gable or at
the endwall?
Answer: All trusses within 3'-0'' of the extreme end of the gable
are to be doubled.
13. 24 CFR 3280.306(a)--In designing anchoring or foundation
systems, can the dead load of the complete home be deducted to
determine the net overturning wind design forces?
Answer: Yes, the dead load of the entire structure may be used to
resist wind loading effects in all Wind Zones.
14. 24 CFR 3280.305(c)(1)(ii)(b)--If a roof truss forms or contains
an eave at the sidewall, does the overhang or projection have to meet
the higher eave load requirements in the ``Table of Design Pressures''
for Wind Zones II (-51 PSF) and III (-62 PSF)?
Answer: Yes.
15. 24 CFR 3280.305(c)(1)(ii)(b)-(a) Does Footnote 6 of the ``Table
of Design Pressures'' require complete cementing of the underlayment of
asphalt roofing shingles to a \3/8\'' structural rated roof sheathing
or is the cement to be applied to all edges, ends, and end laps of the
underlayment and other areas indicated in the Asphalt Roofing
Manufacturers Association (ARMA) Residential Roofing Manual, Chapter 7,
for low slope applications?
(b) If the cement application is limited to edges, ends and end
laps of the underlayment, is a 6'' minimum wide strip of asphalt cement
acceptable for those areas and a 3'' minimum wide strip of asphalt
cement acceptable for top laps?
Answer: (a) The application of cement for the underlayment need
only be applied to edges, ends and end laps of the underlayment. This
is in addition to cementing required for the starter strip, eave
flashing, and locations 24'' from the inside of the exterior wall as
indicated in the ARMA Residential Roofing Manual, Chapter 7, for low
slope applications.
(b) Yes.
16. 24 CFR 3280.402(c)(2)--Please confirm if the roof trusses
required to be uplift tested for high wind areas shall be tested in the
inverted position and loads applied to the bottom chords of the roof
trusses?
Answer: Roof trusses may be tested for uplift loads either in an
inverted or upright position. The Department is in the process of
examining research and engineering analysis to determine the proper
protocol for testing trusses. Further guidance will be issued on this
subject in the future.
17. Questions regarding the effective date of the new wind safety
standards as related to the Department's statement in the
Interpretative Bulletin published in the Federal Register on April 21,
1994: ``Every home entering the first stage of production as of July
13, 1994 must comply with the new wind safety provisions.'' (59 FR
19075).
(a) Does this mean that every home entering the first stage of
production before July 13, 1994 may still comply with the current wind
standards?
(b) Please clarify that the first stage of production for an
individual manufacturing plant is identified in the approved quality
control manual for that facility?
(c) Can manufacturers produce homes to the new wind standards
earlier than the effective date of July 13, 1994?
Answer: (a) Homes that enter the first stage before July 13, 1994
may not necessarily be built to the current standards. Based on our
review of the National Manufactured Housing Construction and Safety
Standards Act of 1974 (``Act'') and the Manufactured Home Procedural
and Enforcement Regulations (``Regulations''), all homes that are
labeled on or after the effective date of the new standards would be
required to comply with those standards. Pursuant to 24 CFR 3280.8(c),
and 24 CFR 3282.362(c)(2)(i)(c), the label is the certification by the
manufacturer that the home ``is constructed in conformance with the
Federal manufactured home construction and safety standards in effect
on the date of manufacture.''
The ``Date of Manufacture'' is the date on which the label is
affixed to the manufactured home. The label is to be affixed only at
the end of the last stage of production of the manufactured home.
Consequently, a manufacturer labeling a home on or after the effective
date of the new standards must comply with those standards or be in
violation of Section 610(a)(4) of the Act, 42 U.S.C. 5409(a)(4), even
if the home entered the first stage of production before the effective
date. The Department recognizes that, in one respect, the Regulations
are not clear. Because of this lack of clarity, the Department, in this
instance only, will take no action to enforce this requirement if it
can be shown that homes entered the normal first stage of production
before July 13, 1994. In the future, however, the Department will
expect compliance with the standards that are in effect on the date the
home is labeled.
(b) The Regulations, under 24 CFR 3282.203(c), require the DAPIA to
approve the quality assurance manual which includes, among other
information, ``a station-by-station description of the manufacturing
process.'' Therefore, the normal first station in the production
process as identified in the quality control manual would be ``the
first stage of production.''
(c) Yes, provided the manufacturer is completely capable of meeting
all requirements of the new standards, uses the new data plate and
includes a copy of the new wind zone map with each home so produced. In
addition, the Department urges manufacturers to use the time before the
effective date of the standards to prepare for producing homes to the
new standards so that production will continue without interruption.
This includes preparing designs, seeking approval for the designs
ordering any necessary materials, testing, etc. For homes that are
built to the current standards but sold after July 13, 1994 to be sited
in an area designated as Zone II or Zone III in the new rule, the
Department recommends that the consumer be informed: (1) That the home
has been built to previous standards which have since been amended; and
(2) that these new wind standards have been enacted to increase the
safety of manufactured homes in high-wind areas.
Authority: 42 U.S.C. 5403 and 42 U.S.C. 3535(d).
Dated: June 24, 1994.
James E. Schoenberger,
Associate General Deputy Assistant Secretary for Housing-Federal
Housing Commissioner.
[FR Doc. 94-16073 Filed 6-30-94; 8:45 am]
BILLING CODE 4210-27-P
