Proposed Regulatory Language

**Loans Committee**

**Origin:** ED

**Issue:** FFEL/DL -- Entrance Counseling for Graduate/Professional PLUS
Borrowers

**Regulatory Cite:** §§682.603, 682.604(f), 682.604(g), 685.301,
685.304(a), and 685.304(b)

**Summary of Change:** Require institutions, as part of the process for
certifying a loan (in the FFEL program) or originating a loan (in the
Direct Loan program), to notify Graduate/Professional PLUS Loan student
borrowers who are eligible for Stafford Loans of their eligibility for a
Stafford Loan and of the terms and conditions of a Stafford Loan that
are more beneficial to a borrower than the terms and conditions of a
PLUS Loan, and to give borrowers an opportunity to request a Stafford
Loan at that time. Also require entrance counseling for
Graduate/Professional PLUS student borrowers, and inclusion of PLUS Loan
student indebtedness information in the exit counseling for Stafford
Loan borrowers who have also borrowed PLUS Loans

**Change:**

§682.603  Certification by a participating school in connection with a
loan application.

\(a\) A school shall certify that the information it provides in
connection with a loan application about the borrower and, in the case
of a parent borrower, the student for whom the loan is intended, is
complete and accurate. Except as provided in 34 CFR part 668, subpart E,
a school may rely in good faith upon statements made on the application
by the student.

\(b\) The information to be provided by the school about the borrower
making application for the loan pertains to---

\(1\) The borrower\'s eligibility for a loan, as determined in
accordance with §682.201 and §682.204;

\(2\) For a subsidized Stafford loan, the student\'s eligibility for
interest benefits as determined in accordance with §682.301; and

\(3\) The schedule for disbursement of the loan proceeds, which must
reflect the delivery of the loan proceeds as set forth in §682.604(c).

\(c\) Except as provided in paragraph (e) of this section, in certifying
a loan, a school must certify a loan for the lesser of the borrower\'s
request or the loan limits determined under §682.204.

\(d\) Before certifying a PLUS loan application for a student borrower,
the school must determine the borrower's eligibility for a Stafford
loan. If the borrower is eligible for a Stafford loan the school must\--

\(1\) Notify the borrower of his or her eligibility for a Stafford loan,
and of the terms and conditions of a Stafford loan, including but not
limited to interest subsidies, interest rates, and grace periods, that
are more beneficial to a borrower than the terms of a PLUS loan; and

\(2\) Give the borrower the opportunity to request a Stafford loan.

\(e\) A school may not certify a Stafford or PLUS loan application, or a
combination of loan applications, for a loan amount that---

\(1\) The school has reason to know would result in the borrower
exceeding the annual or maximum loan amounts in §682.204; or

\(2\) Exceeds the student\'s estimated cost of attendance, less---

\(i\) The student\'s estimated financial assistance for that period; and

\(ii\) In the case of a Stafford loan that is eligible for interest
benefits, the borrower\'s expected family contribution for that period.

\* \* \* \* \* \*

§ 682.604   Processing the borrower\'s loan proceeds and counseling
borrowers.

\* \* \* \* \* \*

\(f\) *Initial counseling.* (1) A school must ensure that initial
counseling is conducted with each Stafford loan borrower prior to its
release of the first disbursement unless the student borrower has
received a prior Federal Stafford, Federal SLS, or Direct subsidized or
unsubsidized loan.

\(2\) A school must ensure that initial counseling is conducted with
each student PLUS loan borrower prior to its release of the first
disbursement, unless the student has received a prior Federal PLUS loan
or Direct PLUS loan.

\(3\) Initial counseling must be conducted either in person, by
audiovisual presentation, or by interactive electronic means.

(4)A school must ensure that an individual with expertise in the title
IV programs is reasonably available shortly after the counseling to
answer the student borrower\'s questions regarding those programs. As an
alternative, in the case of a student borrower enrolled in a
correspondence program or a student borrower enrolled in a study-abroad
program that the home institution approves for credit, the counseling
may be provided through written materials, prior to releasing those loan
proceeds.

\(5\) The initial counseling must---

\(i\) Explain the use of a Master Promissory Note;

\(ii\) Emphasize to the student borrower the seriousness and importance
of the repayment obligation the student borrower is assuming;

\(iii\) Describe the likely consequences of default, including adverse
credit reports, Federal offset, and litigation;

\(iv\) In the case of a student borrower of a Stafford or PLUS loan
(other than a loan made or originated by the school), emphasize that the
student borrower is obligated to repay the full amount of the loan even
if the student borrower does not complete the program, is unable to
obtain employment upon completion, or is otherwise dissatisfied with or
does not receive the educational or other services that the student
borrower purchased from the school; and

\(v\) Inform the student borrower of sample monthly repayment amounts
based on a range of student levels of indebtedness or on the average
indebtedness of Stafford and of student PLUS loan borrowers at the same
school or in the same program of study at the same school.

\(6\) If initial counseling is conducted through interactive electronic
means, the school must take reasonable steps to ensure that each student
borrower receives the counseling materials, and participates in and
completes the initial counseling.

\(7\) A school must maintain documentation substantiating the school\'s
compliance with this section for each student borrower.

\(g\) *Exit counseling.* (1) A school must ensure that exit counseling
is conducted with each Stafford loan borrower either in person, by
audiovisual presentation, or by interactive electronic means. In each
case, the school must ensure that this counseling is conducted shortly
before the student borrower ceases at least half-time study at the
school, and that an individual with expertise in the title IV programs
is reasonably available shortly after the counseling to answer the
student borrower\'s questions. As an alternative, in the case of a
student borrower enrolled in a correspondence program or a study-abroad
program that the home institution approves for credit, written
counseling materials may be provided by mail within 30 days after the
student borrower completes the program. If a student borrower withdraws
from school without the school\'s prior knowledge or fails to complete
an exit counseling session as required, the school must ensure that exit
counseling is provided through either interactive electronic means or by
mailing written counseling materials to the student borrower at the
student borrower\'s last known address within 30 days after learning
that the student borrower has withdrawn from school or failed to
complete the exit counseling as required.

\(2\) The exit counseling must---

\(i\) Inform the student borrower of the average anticipated monthly
repayment amount based on the student borrower\'s indebtedness or on the
average indebtedness of student borrowers who have obtained Stafford or
PLUS loans for attendance at the same school or in the same program of
study at the same school;

§ 685.301   Origination of a loan by a Direct Loan Program school.

\(a\) *Determining eligibility and loan amount.* (1) A school
participating in the Direct Loan Program shall ensure that any
information it provides to the Secretary in connection with loan
origination is complete and accurate. A school shall originate a Direct
Loan while the student meets the borrower eligibility requirements of
§685.200. Except as provided in 34 CFR part 668, subpart E, a school may
rely in good faith upon statements made in the application by the
student.

\(2\) A school shall provide to the Secretary borrower information that
includes but is not limited to---

\(i\) The borrower\'s eligibility for a loan, as determined in
accordance with §685.200 and §685.203;

\(ii\) The student\'s loan amount; and

\(iii\) The anticipated and actual disbursement date or dates and
disbursement amounts of the loan proceeds.

\(3\) Before originating a Direct PLUS Loan for a student borrower, the
school must determine the borrower's eligibility for a Direct Subsidized
and a Direct Unsubsidized Loan. If the borrower is eligible for a Direct
Subsidized or Direct Unsubsidized Loan, the school must\--

\(i\) Notify the borrower of his or her eligibility for a Direct
Subsidized or Direct Unsubsidized Loan, and of the terms and conditions
of a Direct Subsidized or a Direct Unsubsidized Loan, including but not
limited to interest subsidies, interest rates, and grace periods, that
are more beneficial to a borrower than the terms and conditions of a
PLUS Loan; and

\(ii\) Give the borrower the opportunity to request a Direct Subsidized
or Direct Unsubsidized Loan.

\(4\) A school may not originate a Direct Subsidized, Direct
Unsubsidized, or Direct PLUS Loan, or a combination of loans, for an
amount that---

\(i\) The school has reason to know would result in the borrower
exceeding the annual or maximum loan amounts in §685.203; or

\(ii\) Exceeds the student\'s estimated cost of attendance less---

\(A\) The student\'s estimated financial assistance for that period; and

\(B\) In the case of a Direct Subsidized Loan, the borrower\'s expected
family contribution for that period.

(5)(i) A school determines a Direct Subsidized or Direct Unsubsidized
Loan amount in accordance with §685.203.

\(ii\) When prorating a loan amount for a student enrolled in a program
of study with less than a full academic year remaining, the school need
not recalculate the amount of the loan if the number of hours for which
an eligible student is enrolled changes after the school originates the
loan.

\(6\) The date of loan origination is the date a school creates the
electronic loan origination record.

\(7\) If a student has received a determination of need for a Direct
Subsidized Loan that is \$200 or less, a school may choose not to
originate a Direct Subsidized Loan for that student and to include the
amount as part of a Direct Unsubsidized Loan.

\(8\) A school may refuse to originate a Direct Subsidized, Direct
Unsubsidized, or Direct PLUS Loan or may reduce the borrower\'s
determination of need for the loan if the reason for that action is
documented and provided to the borrower in writing, and if---

\(i\) The determination is made on a case-by-case basis;

\(ii\) The documentation supporting the determination is retained in the
student\'s file; and

\(iii\) The school does not engage in any pattern or practice that
results in a denial of a borrower\'s access to Direct Loans because of
the borrower\'s race, gender, color, religion, national origin, age,
disability status, or income.

\(9\) A school may not assess a fee for the completion or certification
of any Direct Loan Program forms or information or for the origination
of a Direct Loan.

(10)(i) The minimum period of enrollment for which a school may
originate a Direct Loan is---

\(A\) At a school that measures academic progress in credit hours and
uses a semester, trimester, or quarter system, a single academic term
(e.g., a semester or quarter); or

\(B\) At a school that measures academic progress in clock hours, or
measures academic progress in credit hours but does not use a semester,
trimester, or quarter system, the lesser of---

(*1*) The length of the student\'s program at the school; or

(*2*) The academic year as defined by the school in accordance with 34
CFR 668.3.

\(ii\) The maximum period for which a school may originate a Direct Loan
is---

\(A\) Generally an academic year, as defined by 34 CFR 668.3, except
that a school may use a longer period of time, not to exceed 12 months,
corresponding to the period to which the school applies the annual loan
limits under §685.203; or

\(B\) For a defaulted borrower who has regained eligibility, the
academic year in which the borrower regained eligibility.

§ 685.304   Counseling borrowers.

\(a\) *Initial counseling.* (1) Except as provided in paragraph (a)(5)
of this section, a school must ensure that initial counseling is
conducted with each Direct Subsidized Loan or Direct Unsubsidized Loan
student borrower prior to making the first disbursement of the proceeds
of a loan to a student borrower unless the student borrower has received
a prior Direct Subsidized, Direct Unsubsidized, Federal Stafford, or
Federal SLS Loan.

\(2\) Except as provided in paragraph (a)(5) of this section, a school
must ensure that initial counseling is conducted with each student
Direct PLUS Loan borrower prior to making the first disbursement of the
loan unless the student borrower has received a prior Direct PLUS Loan
or Federal PLUS Loan.

\(3\) The initial counseling must be in person, by audiovisual
presentation, or by interactive electronic means. In each case, the
school must ensure that an individual with expertise in the title IV
programs is reasonably available shortly after the counseling to answer
the student borrower\'s questions. As an alternative, in the case of a
student borrower enrolled in a correspondence program or a study-abroad
program approved for credit at the home institution, the student
borrower may be provided with written counseling materials before the
loan proceeds are disbursed.

\(4\) The initial counseling must---

\(i\) Explain the use of a Master Promissory Note (MPN);

\(ii\) Emphasize to the borrower the seriousness and importance of the
repayment obligation the student borrower is assuming;

\(iii\) Describe the likely consequences of default, including adverse
credit reports, garnishment of wages, Federal offset, and litigation;

\(iv\) Inform the student borrower of sample monthly repayment amounts
based on a range of student levels of indebtedness or on the average
indebtedness of Direct Subsidized Loan and Direct Unsubsidized Loan, and
of student Direct PLUS Loan, borrowers at the same school or in the same
program of study at the same school; and

\(v\) Emphasize that the student borrower is obligated to repay the full
amount of the loan even if the student borrower does not complete the
program, is unable to obtain employment upon completion, or is otherwise
dissatisfied with or does not receive the educational or other services
that the student borrower purchased from the school.

\(5\) A school may adopt an alternative approach for initial counseling
as part of the school\'s quality assurance plan described in
§685.300(b)(9). If a school adopts an alternative approach, it is not
required to meet the requirements of paragraphs (a)(1)--(4) of this
section unless the Secretary determines that the alternative approach is
not adequate for the school. The alternative approach must---

\(i\) Ensure that each student borrower subject to initial counseling
under paragraph (a)(1) or (a)(2) of this section is provided written
counseling materials that contain the information described in paragraph
(a)(4) of this section;

\(ii\) Be designed to target those student borrowers who are most likely
to default on their repayment obligations and provide them more
intensive counseling and support services; and

\(iii\) Include performance measures that demonstrate the effectiveness
of the school\'s alternative approach. These performance measures must
include objective outcomes, such as levels of borrowing, default rates,
and withdrawal rates.

\(6\) If initial counseling is conducted through interactive electronic
means, a school must take reasonable steps to ensure that each student
borrower receives the counseling materials, and participates in and
completes the initial counseling.

\(7\) The school must maintain documentation substantiating the
school\'s compliance with this section for each student borrower.

\(b\) *Exit counseling.* (1) A school must ensure that exit counseling
is conducted with each Direct Subsidized Loan or Direct Unsubsidized
Loan borrower shortly before the student borrower ceases at least
half-time study at the school.

\* \* \* \* \*

\(4\) The exit counseling must---

\(i\) Inform the student borrower of the average anticipated monthly
repayment amount based on the student borrower\'s indebtedness or on the
average indebtedness of Direct Subsidized Loan, Direct Unsubsidized
Loan, and Direct

PLUS Loan student borrowers at the same school or in the same program of
study at the same school;

\* \* \* \* \* \*

Proposed Regulatory Language

**Loans Committee**

**Origin:** Community

**Issue:** FFEL/DL -- Maximum Length of Loan Period

**Regulatory Cite: §**§682.401, 682.603 and 685.301**   **

**Summary of Change:** Eliminate the maximum 12-month loan period for
annual loan limits in the FFEL and Direct Loan programs and the 12-month
period of loan guarantee in the FFEL program to allow institutions to
certify a single loan for students in shorter non-term or nonstandard
term programs and to provide greater flexibility in rescheduling
disbursements for students who drop out and return within the permitted
180-day period.

**Change:**

##### §682.401  Basic program agreement.

##### \* \* \* \* \*

\(b\) *Terms of agreement.* In the basic agreement, the guaranty agency
shall agree to ensure that its loan guarantee program meets the
following requirements at all times:

\(1\) *Aggregate loan limits.* The aggregate guaranteed unpaid principal
amount for all Stafford and SLS, loans made to a borrower may not exceed
the amounts set forth in §682.204 (b), (e), and (g).

\(2\) *Annual loan limits.* (i) The annual loan maximum amount for a
borrower that may be guaranteed for an academic year may not exceed the
amounts set forth in §682.204 (a), (c), (d), (f), and (h).

\(ii\) A guaranty agency may make the loan amounts authorized under
paragraph (b)(2)(i) of this section applicable for either---

\(A\) A period of not less than that attributable to the academic year
as defined by 34 CFR 668.3; or

\(B\) A period attributable to the academic year, that is not less than
the period specified in (2)(ii)(A) of this section, in which the student
earns the amount of credit in the student\'s program of study required
by the student\'s school as the amount necessary for the student to
advance in academic standing as normally measured on an academic year
basis (for example, from freshman to sophomore or, in the case of
schools using clock hours, completion of at least 900 clock hours.

\(iii\) The amount of a loan guaranteed may not exceed the

amount set forth in §682.204(k).

##### § 682.603   Certification by a participating school in connection with a loan application.

\* \* \* \* \*

(f)(1) The minimum period of enrollment for which a school may certify a
loan application is---

\(i\) At a school that measures academic progress in credit hours and
uses a semester, trimester, or quarter system, a single academic term
(e.g., a semester or quarter); or

\(ii\) At a school that measures academic progress in clock hours, or
measures academic progress in credit hours but does not use a semester,
trimester, or quarter system, the lesser of---

\(A\) The length of the student\'s program at the school; or

\(B\) The academic year as defined by the school in accordance with 34
CFR 668.3.

\(2\) The maximum period for which a school may certify a loan
application is---

\(i\) Generally an academic year, as defined by 34 CFR 668.3, except
that a guaranty agency may allow a school to use a longer period of
timecorresponding to the period to which the agency applies the annual
loan limits under §682.401(b)(2)(ii); or

\(ii\) For a defaulted borrower who has regained eligibility under
§682.401(b)(4), the academic year in which the borrower regained
eligibility.

##### § 685.301   Origination of a loan by a Direct Loan Program school.

*(a) Determining eligibility and loan amount. (1)*

\* \* \*

(9)(i) The minimum period of enrollment for which a school may originate
a Direct Loan is---

\(A\) At a school that measures academic progress in credit hours and
uses a semester, trimester, or quarter system, a single academic term
(e.g., a semester or quarter); or

\(B\) At a school that measures academic progress in clock hours, or
measures academic progress in credit hours but does not use a semester,
trimester, or quarter system, the lesser of---

(*1*) The length of the student\'s program at the school; or

(*2*) Generally an academic year as defined by the school in accordance
with 34 CFR 668.3 except that the school may use a longer period of
time. A school may not define the period as less than the academic year
as defined in 34 CFR 668.3.

\(ii\) The maximum period for which a school may originate a Direct Loan
is---

\(A\) Generally an academic year, as defined by 34 CFR 668.3, except
that a school may use a longer period of timecorresponding to the period
to which the school applies the annual loan limits under §685.203; or

\(B\) For a defaulted borrower who has regained eligibility, the
academic year in which the borrower regained eligibility.

Proposed Regulatory Language

**Loans Committee**

**Origin:** Community

**Issue:** FFEL/DL -- Frequency of Capitalization

**Regulatory Cite:** §§682.202 and 685.202**   **

Summary of Change: Limit the frequency of capitalization on Federal
Consolidation Loans, consistent with the current treatment in the Direct
Loan program, during any period of authorized deferment or forbearance.
Capitalization will take place when the borrower changes status as the
end of these authorized periods. (Note that the relevant section for
Direct Loans is provided, but no modifications are necessary.)

**Change:**

##### §682.202   Permissible charges by lenders to borrowers.

##### \* \* \* \* \*

\(b\) *Capitalization.* (1) A lender may add accrued interest and unpaid
insurance premiums to the borrower\'s unpaid principal balance in
accordance with this section. This increase in the principal balance of
a loan is called "capitalization."

\(2\) Except as provided in paragraph (b)(4) of this section, a lender
may capitalize interest payable by the borrower that has accrued---

\(i\) For the period from the date the first disbursement was made to
the beginning date of the in-school period;

\(ii\) For the in-school or grace periods, or for a period needed to
align repayment of an SLS with a Stafford loan, if capitalization is
expressly authorized by the promissory note (or with the written consent
of the borrower);

\(iii\) For a period of authorized deferment;

\(iv\) For a period of authorized forbearance; or

\(v\) For the period from the date the first installment payment was due
until it was made.

\(3\) A lender may capitalize accrued interest under paragraphs
(b)(2)(ii) through (iv) of this section no more frequently than
quarterly. Capitalization is again permitted when repayment is required
to begin or resume. A lender may capitalize accrued interest under
paragraph (b)(2) (i) and (v) of this section only on the date repayment
of principal is scheduled to begin.

(4)(i) For unsubsidized Stafford loans disbursed on or after October 7,
1998 and prior to July 1, 2000, the lender may capitalize the unpaid
interest that accrues on the loan according to the requirements of
section 428H(e)(2) of the Act.

\(ii\) For Stafford loans first disbursed on or after July 1, 2000, the
lender may capitalize the unpaid interest---

\(A\) When the loan enters repayment;

\(B\) At the expiration of a period of authorized deferment;

\(C\) At the expiration of a period of authorized forbearance; and

\(D\) When the borrower defaults.

\(5\) For any Consolidation Loan, the lender may capitalize the unpaid
interest---

\(i\) At the expiration of a period of authorized deferment or
forbearance; or

\(ii\) When the borrower defaults.

\(6\) For any borrower in an in-school or grace period or the period
needed to align repayment, deferment, or forbearance status, during
which the Secretary does not pay interest benefits and for which the
borrower has agreed to make payments of interest, the lender may
capitalize past due interest provided that the lender has notified the
borrower that the borrower\'s failure to resolve any delinquency
constitutes the borrower\'s consent to capitalization of delinquent
interest and all interest that will accrue through the remainder of that
period.

##### § 685.202   Charges for which Direct Loan Program borrowers are responsible.

##### \* \* \* \* \*

\(b\) *Capitalization.* (1) The Secretary may add unpaid accrued
interest to the borrower\'s unpaid principal balance. This increase in
the principal balance of a loan is called "capitalization."

\(2\) For a Direct Unsubsidized Loan or a Direct Unsubsidized
Consolidation Loan that qualifies for a grace period under the
regulations that were in effect for consolidation applications received
before July 1, 2006, the Secretary capitalizes the unpaid interest that
accrues on the loan when the borrower enters repayment.

\(3\) Notwithstanding §685.208(l)(5) and §685.209(d)(3), for a Direct
Loan not eligible for interest subsidies during periods of deferment,
and for all Direct Loans during periods of forbearance, the Secretary
capitalizes the unpaid interest that has accrued on the loan upon the
expiration of the deferment or forbearance.

\(4\) Except as provided in paragraph (b)(3) of this section and in
§685.208(l)(5), and §685.209(d)(3), the Secretary annually capitalizes
unpaid interest when the borrower is paying under the alternative or
income contingent repayment plans and the borrower\'s scheduled payments
do not cover the interest that has accrued on the loan.

\(5\) The Secretary may capitalize unpaid interest when the borrower
defaults on the loan.

##### 

Proposed Regulatory Language

**Loans Committee**

**Origin:** Community

**Issue:** FFEL/DL -- Simplification of Deferment Granting Process

**Regulatory Cite:** §§682.210(s), 682.210(t), and 685.204

# **Summary of Change:** Allow FFEL lenders to grant graduate fellowship deferments, rehabilitation training program deferments, unemployment deferments, economic hardship deferments and military service deferments based on information from another FFEL loan holder or from the Department of Education. Also permit the Department of Education to grant a deferment on a Direct Loan based on information from a FFEL loan holder.

**Change:**

##### §682.210   Deferment.

\* \* \* \* \*

\(s\) *Deferments for new borrowers on or after July 1, 1993*---(1)
*General.* (i) A new borrower who receives an FFEL Program loan first
disbursed on or after July 1, 1993 is entitled to receive deferments
under paragraphs (s)(2) through (s)(6) of this section. For purposes of
paragraphs (s)(2) through (s)(6) of this section, a "new borrower" is an
individual who has no outstanding principal or interest balance on an
FFEL Program loan as of July 1, 1993 or on the date he or she obtains a
loan on or after July 1, 1993. This term also includes a borrower who
obtains a Federal Consolidation Loan on or after July 1, 1993 if the
borrower has no other outstanding FFEL Program loan when the
Consolidation Loan was made.

\(ii\) As a condition for receiving a deferment, except for purposes of
paragraph (s)(2) of this section, the borrower must request the
deferment, and provide the lender with all information and documents
required to establish eligibility for a specific type of deferment.

\(iii\) After receiving a borrower's written or verbal request, a lender
may grant a deferment under paragraphs (s)(3) through (s)(6) of this
section if the lender is able to confirm that the borrower has received
a deferment on another FFEL loan or a Direct Loan for the same period of
time. The lender may grant the deferment based on information from the
other FFEL loan holder or the Secretary or from an authoritative
electronic database maintained by the Secretary that supports
eligibility for the deferment for the same reason and the same time
period.

\(iv\) A lender may rely on the information it receives under paragraph
(s)(1)(iii) of this section when determining a borrower's eligibility
for a deferment, unless the lender has information indicating that the
borrower does not qualify for the deferment. A lender must resolve any
discrepant information before granting a deferment under paragraph
(s)(1)(iii) of this section.

\(v\) A lender that grants a deferment under paragraph (s)(1)(iii) of
this section must notify the borrower that the deferment has been
granted and that the borrower has the option to pay interest that
accrues on an unsubsidized FFEL loan or to cancel the deferment and
continue to make payments on the loan.

\(2\) *In-school deferment.* An eligible borrower is entitled to a
deferment based on the borrower\'s at least half-time study in
accordance with the rules prescribed in §682.210(c), except that the
borrower is not required to obtain a Stafford or SLS loan for the period
of enrollment covered by the deferment.

\(3\) *Graduate fellowship deferment.* An eligible borrower is entitled
to a graduate fellowship deferment in accordance with the rules
prescribed in §682.210(d).

\(4\) *Rehabilitation training program deferment.* An eligible borrower
is entitled to a rehabilitation training program deferment in accordance
with the rules prescribed in §682.210(e).

\(5\) *Unemployment deferment.* An eligible borrower is entitled to an
unemployment deferment in accordance with the rules prescribed in
§682.210(h) for periods that, collectively, do not exceed 3 years.

\(6\) *Economic hardship deferment.* An eligible borrower is entitled to
an economic hardship deferment for periods of up to one year at a time
that, collectively, do not exceed 3 years (except that a borrower who
receives a deferment under paragraph (s)(6)(vi) of this section is
entitled to an economic hardship deferment for the lesser of the
borrower\'s full term of service in the Peace Corps or the borrower\'s
remaining period of economic hardship deferment eligibility under the
3-year maximum), if the borrower provides documentation satisfactory to
the lender showing that the borrower is within any of the categories
described in paragraphs (s)(6)(i) through (s)(6)(vi) of this section.

\(i\) Has been granted an economic hardship deferment under either the
Direct Loan or Federal Perkins Loan Programs for the period of time for
which the borrower has requested an economic hardship deferment for his
or her FFEL loan.

\(ii\) Is receiving payment under a Federal or State public assistance
program, such as Aid to Families with Dependent Children, Supplemental
Security Income, Food Stamps, or State general public assistance.

\(iii\) Is working full-time and has a monthly income that does not
exceed the greater of (as calculated on a monthly basis)---

\(A\) The minimum wage rate described in section 6 of the Fair Labor
Standards Act of 1938; or

\(B\) An amount equal to 100 percent of the poverty line for a family of
two, as determined in accordance with section 673(2) of the Community
Services Block Grant Act.

\(iv\) Is working full-time and has a Federal education debt burden that
equals or exceeds 20 percent of the borrower\'s monthly income, and that
income, minus the borrower\'s Federal education debt burden, is less
than 220 percent of the amount described in paragraph (s)(6)(iii) of
this section.

\(v\) Is not working full-time and has a monthly income that---

\(A\) Does not exceed twice the amount described in paragraph
(s)(6)(iii) of this section; and

\(B\) After deducting an amount equal to the borrower\'s Federal
education debt burden, the remaining amount of the borrower\'s income
does not exceed the amount described in paragraph (s)(6)(iii) of this
section.

\(vi\) Is serving as a volunteer in the Peace Corps.

\(vii\) In determining a borrower\'s Federal education debt burden for
purposes of an economic hardship deferment under paragraphs (s)(6)(iv)
and (v) of this section, the lender shall---

\(A\) If the Federal postsecondary education loan is scheduled to be
repaid in 10 years or less, use the actual monthly payment amount (or a
proportional share if the payments are due less frequently than
monthly);

\(B\) If the Federal postsecondary education loan is scheduled to be
repaid in more than 10 years, use a monthly payment amount (or a
proportional share if the payments are due less frequently than monthly)
that would have been due on the loan if the loan had been scheduled to
be repaid in 10 years; and

\(C\) Require the borrower to provide evidence that would enable the
lender to determine the amount of the monthly payments that would have
been owed by the borrower during the deferment period.

\(viii\) For an initial period of deferment granted under paragraphs
(s)(6)(iii) through (v) of this section, the lender must require the
borrower to submit evidence showing the amount of the borrower\'s
monthly income.

\(ix\) To qualify for a subsequent period of deferment that begins less
than one year after the end of a period of deferment under paragraphs
(s)(6)(iii) through (v) of this section, the lender must require the
borrower to submit evidence showing the amount of the borrower\'s
monthly income or a copy of the borrower\'s most recently filed Federal
income tax return.

\(x\) For purposes of paragraph (s)(6) of this section, a borrower\'s
monthly income is the gross amount of income received by the borrower
from employment and from other sources, or one-twelfth of the
borrower\'s adjusted gross income, as recorded on the borrower\'s most
recently filed Federal income tax return.

\(xi\) For purposes of paragraph (s)(6) of this section, a borrower is
considered to be working full-time if the borrower is expected to be
employed for at least three consecutive months at 30 hours per week.

\(t\) *Military service deferments for loans for which the first
disbursement is made on or after July, 1, 2001*---(1) A borrower who
receives an FFEL Program loan first disbursed on or after July 1, 2001,
may receive a military service deferment for such loans for any period
not to exceed 3 years during which the borrower is---

\(i\) Serving on active duty during a war or other military operation or
national emergency; or

\(ii\) Performing qualifying National Guard duty during a war or other
military operation or national emergency.

\(2\) *Serving on active duty during a war or other military operation
or national emergency* means service by an individual who is---

\(i\) A Reserve of an Armed Force ordered to active duty under 10 U.S.C.
12301(a), 12301(g), 12302, 12304 or 12306;

\(ii\) A retired member of an Armed Force ordered to active duty under
10 U.S.C. 688 for service in connection with a war or other military
operation or national emergency, regardless of the location at which
such active duty service is performed; or

\(iii\) Any other member of an Armed Force on active duty in connection
with such emergency or subsequent actions or conditions who has been
assigned to a duty station at a location other than the location at
which member is normally assigned.

\(3\) *Qualifying National Guard duty during a war or other operation or
national emergency* means service as a member of the National Guard on
full-time National Guard duty, as defined in 10 U.S.C. 101(d)(5), under
a call to active service authorized by the President or the Secretary of
Defense for a period of more than 30 consecutive days under 32 U.S.C.
502(f) in connection with a war, other military operation, or national
emergency declared by the President and supported by Federal funds.

\(4\) Payments made by or on behalf of a borrower during a period for
which the borrower qualified for a military service deferment are not
refunded.

\(5\) A borrower is eligible for a military service deferment on a
Federal Consolidation Loan only if the borrower meets the conditions
described in this section and all of the title IV loans included in the
Consolidation Loan were first disbursed on or after July 1, 2001.

\(6\) As used in this section---

\(i\) *Active duty* means active duty as defined in 10 U.S.C. 101(d)(1)
except that it does not include active duty for training or attendance
at a service school;

\(ii\) *Military operation* means a contingency operation as defined in
10 U.S.C. 101(a)(13); and

\(iii\) *National emergency* means the national emergency by reason of
certain terrorist attacks declared by the President on September 14,
2001, or subsequent national emergencies declared by the President by
reason of terrorist attacks.

\(7\) To receive a military service deferment, the borrower must request
the deferment and provide the lender with all information and documents
required to establish eligibility for the deferment, except that a
lender may grant a borrower a military service deferment under the
procedures specified in paragraphs (s)(1)(iii) through (s)(1)(v) of this
section.

#####  685.204   Deferment.

(a)(1) A Direct Loan borrower whose loan is eligible for interest
subsidies and who meets the requirements described in paragraphs (b) and
(e) of this section is eligible for a deferment during which periodic
installments of principal and interest need not be paid.

\(2\) A Direct Loan borrower whose loan is not eligible for interest
subsidies and who meets the requirements described in paragraphs (b) and
(e) of this section is eligible for a deferment during which periodic
installments of principal need not be paid but interest does accrue and
is capitalized or paid by the borrower.

\(b\) Except as provided in paragraphs (d) and (f) 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.

(iii)(A) For the purpose of paragraph (b)(1)(i)(A) of this section, the
Secretary processes a deferment when---

(*1*) The borrower submits a request to the Secretary along with
documentation verifying the borrower\'s eligibility;

(*2*) The Secretary receives information from the borrower\'s school
indicating that the borrower is eligible to receive a new loan; or

(*3*) The Secretary receives student status information from the
borrower\'s school, either directly or indirectly, indicating that the
borrower is enrolled on at least a half-time basis.

(B)(*1*) Upon notification by the Secretary that a deferment has been
granted based on paragraph (b)(1)(iii)(A)(*2*) or (*3*) of this section,
the borrower has the option to continue paying on the loan.

(*2*) If the borrower elects to cancel the deferment and continue paying
on the loan, the borrower has the option to make the principal and
interest payments that were deferred. If the borrower does not make the
payments, the Secretary applies a deferment for the period in which
payments were not made and capitalizes the interest.

(2)(i) The borrower is seeking and unable to find full-time employment.

\(ii\) For purposes of paragraph (b)(2)(i) of this section, the
Secretary determines whether a borrower is eligible for a deferment due
to the inability to find full-time employment using the standards and
procedures set forth in 34 CFR 682.210(h) with references to the lender
understood to mean the Secretary.

(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 application for a borrower\'s first Direct
Loan, a borrower has an outstanding balance of principal or interest
owing on any FFEL Program loan that was made, insured, or guaranteed
prior to July 1, 1993, the borrower is eligible for a deferment
during---

\(1\) The periods described in paragraphs (b) and (e) 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).

(e)(1) A borrower who receives a Direct Loan Program loan first
disbursed on or after July 1, 2001, may receive a military service
deferment for such loan for any period not to exceed 3 years during
which the borrower is---

\(i\) Serving on active duty during a war or other military operation or
national emergency; or

\(ii\) Performing qualifying National Guard duty during a war or other
military operation or national emergency.

\(2\) *Serving on active duty during a war or other military operation
or national emergency* means service by an individual who is---

\(i\) A Reserve of an Armed Force ordered to active duty under 10 U.S.C.
12301(a), 12301(g), 12302, 12304, or 12306;

\(ii\) A retired member of an Armed Force ordered to active duty under
10 U.S.C. 688 for service in connection with a war or other military
operation or national emergency, regardless of the location at which
such active duty service is performed; or

\(iii\) Any other member of an Armed Force on active duty in connection
with such emergency or subsequent actions or conditions who has been
assigned to a duty station at a location other than the location at
which the member is normally assigned.

\(3\) *Qualifying National Guard duty during a war or other operation or
national emergency* means service as a member of the National Guard on
full-time National Guard duty, as defined in 10 U.S.C. 101(d)(5) under a
call to active service authorized by the President or the Secretary of
Defense for a period of more than 30 consecutive days under 32 U.S.C.
502(f) in connection with a war, other military operation, or national
emergency declared by the President and supported by Federal funds.

\(4\) These provisions do not authorize the refunding of any payments
made by or on behalf of a borrower during a period for which the
borrower qualified for a military service deferment.

\(5\) A borrower is eligible for a military service deferment on a
Direct Consolidation Loan only if the borrower meets the conditions
described in this section and all of the title IV loans included in the
Consolidation Loan were first disbursed on or after July 1, 2001.

\(6\) As used in this section---

\(i\) *Active duty* means active duty as defined in 10 U.S.C. 101(d)(1)
except that it does not include active duty for training or attendance
at a service school;

\(ii\) *Military operation* means a contingency operation as defined in
10 U.S.C. 101(a)(13); and

\(iii\) *National emergency* means the national emergency by reason of
certain terrorist attacks declared by the President on September 14,
2001, or subsequent national emergencies declared by the President by
reason of terrorist attacks.

\(f\) A borrower whose loan is in default is not eligible for a
deferment, unless the borrower has made payment arrangements
satisfactory to the Secretary.

(g)(1) To receive a deferment, except as provided under paragraph
(b)(1)(i)(A) of this section, the borrower must request the deferment
and provide the Secretary with all information and documents required to
establish eligibility for a specific type of deferment.

\(2\) After receiving a borrower's written or verbal request, the
Secretary may grant a deferment under (b)(1)(i)(B), (b)(1)(i)(C),
(b)(2)(i), (b)(3)(i) and (e)(1) of this section if the Secretary
confirms that the borrower has received a deferment on a FFEL Loan for
the same reason and the same time period.

\(3\) The Secretary relies on the information obtained under paragraph
(g)(2) of this section when determining a borrower's eligibility for a
deferment, unless the Secretary has information indicating that the
borrower does not qualify for the deferment. The Secretary resolves any
discrepant information before granting a deferment under paragraph
(g)(2) of this section.

\(4\) If the Secretary grants a deferment under paragraph (g)(2) of this
section, the Secretary notifies the borrower that the deferment has been
granted and that the borrower has the option to cancel the deferment and
continue to make payments on the loan.

Proposed Regulatory Language

**Loans Committee**

**Origin:** ED

**Issue:** FFEL -- Eligible Lender Trustees

**Regulatory Cite:** §§682.200 and 682.602 (new)   

Summary of Change: Implement The Third Higher Education Extension Act of
2006 (P.L. 109-292) by amending the definition of "lender" to eliminate
the ability of a FFEL lender to enter into an eligible lender trustee
(ELT) relationship with a school or a school-affiliated organization as
of September 30, 2006, and grandfathering such relationships in
existence prior to that date. Add a new definition of "school-affiliated
organization," and create a new section to apply the same limits imposed
on FFEL school lenders by the Higher Education Reconciliation Act (P.L.
109-148) to school and school-affiliated ELT arrangements as of January
1, 2007.

**Change:**

§682.200   Definitions.

*Lender.* (1) The term "eligible lender" is defined in section 435(d) of
the Act, and in paragraphs (2)--(5) of this definition.

\(2\) With respect to a National or State chartered bank, a mutual
savings bank, a savings and loan association, a stock savings bank, or a
credit union---

\(i\) The phrase "subject to examination and supervision" in section
435(d) of the Act means "subject to examination and supervision in its
capacity as a lender";

\(ii\) The phrase "does not have as its primary consumer credit function
the making or holding of loans made to students under this part" in
section 435(d) of the Act means that the lender does not, or in the case
of a bank holding company, the company\'s wholly-owned subsidiaries as a
group do not at any time, hold FFEL Program loans that total more than
one-half of the lender\'s or subsidiaries\' combined consumer credit
loan portfolio, including home mortgages held by the lender or its
subsidiaries. For purposes of this paragraph, loans held in trust by a
trustee lender are not considered part of the trustee lender\'s consumer
credit function.

\(3\) A bank that is subject to examination and supervision by an agency
of the United States, making student loans as a trustee, may be an
eligible lender if it makes loans under an express trust, operated as a
lender in the FFEL programs prior to January 1, 1975, and met the
requirements of this paragraph prior to July 23, 1992.

\(4\) The corporate parent or other owner of a school that qualifies as
an eligible lender under section 435(d) of the Act is not an eligible
lender unless the corporate parent or owner itself qualifies as an
eligible lender under section 435(d) of the Act.

\(5\) The term "eligible lender" does not include any lender that the
Secretary determines, after notice and opportunity for a hearing before
a designated Department official, has---

\(i\) Offered, directly or indirectly, points, premiums, payments, or
other inducements, to any school or other party to secure applicants for
FFEL loans, except that a lender is not prohibited from providing
assistance to schools comparable to the kinds of assistance provided by
the Secretary to schools under, or in furtherance of, the Federal Direct
Loan Program.

\(ii\) Conducted unsolicited mailings to a student or a student\'s
parents of FFEL loan application forms, except to a student who
previously has received a FFEL loan from the lender or to a student\'s
parent who previously has received a FFEL loan from the lender;

\(iii\) Offered, directly or indirectly, a FFEL loan to a prospective
borrower to induce the purchase of a policy of insurance or other
product or service by the borrower or other person; or

\(iv\) Engaged in fraudulent or misleading advertising with respect to
its FFEL program loan activities.

\(6\) The term eligible lender does not include any lender that---

\(i\) Is debarred or suspended, or any of whose principals or affiliates
(as those terms are defined in 34 CFR part 85) is debarred or suspended
under Executive Order (E.O.) 12549 (3 CFR, 1986 Comp., p. 189) or the
Federal Acquisition Regulation (FAR), 48 CFR part 9, subpart 9.4;

\(ii\) Is an affiliate, as defined in 34 CFR part 85, of any person who
is debarred or suspended under E.O. 12549 (3 CFR, 1986 Comp., p. 189) or
the FAR, 48 CFR part 9, subpart 9.4; or

\(iii\) Employs a person who is debarred or suspended under E.O. 12549
(3 CFR, 1986 Comp., p. 189) or the FAR, 48 CFR part 9, subpart 9.4, in a
capacity that involves the administration or receipt of FFEL Program
funds.

\(7\) An eligible lender may not make or hold a loan as trustee for a
school, or for a school-affiliated organization as defined in this
section unless, on or before September 30, 2006 --

\(i\) The eligible lender was serving as trustee for a school or a
school-affiliated organization under a contract entered into and
continuing in effect as of that date, and

\(ii\) The eligible lender held at least one loan in trust on behalf of
the school or school-affiliated organization on that date.

\(8\) Effective January 1, 2007, and for loans first disbursed on or
after that date under a trustee arrangement, an eligible lender
operating as a trustee under a contract entered into on or before
September 30, 2006 and which continues in effect with a school or a
school-affiliated organization, must comply with the requirements of
§682.601(a)(3), (4), (6), and (8).

\* \* \* \* \*

*School-affiliated organization*. For the purpose of an eligible lender
trustee arrangement with a lender, a school-affiliated organization is
any organization that is directly or indirectly related to a school and
includes, but is not limited to alumni organizations, athletic
organizations, and social, academic, and professional organizations.

\* \* \* \* \*

§682.602 Rules for a school or school-affiliated organization that makes
or originates loans through an eligible lender trustee.

\(a\) A school or school-affiliated organization may not contract with
an eligible lender to serve as trustee for the school or
school-affiliated organization unless---

\(1\) The school or school-affiliated organization originated and
continues or renews a contract made on or before September 30, 2006 with
the eligible lender; and

\(2\) The eligible lender held at least one loan in trust on behalf of
the school or school-affiliated organization on that date.

\(b\) Effective July 1, 2007, and for loans first disbursed on or after
that date under a lender trustee arrangement that continues in effect
after September 30, 2006 ---

\(1\) A school in a trustee arrangement or affiliated with an
organization involved in a trustee arrangement to originate loans must
comply with the requirements of §682.601(a) except for subparagraphs
(a)(4) and (a)(9); and

\(2\) A school-affiliated organization, as defined in §682.200(b),
involved in a trustee arrangement to make loans must comply with the
requirements of §682.601(a) except for subparagraphs (a)(1), (a)(2) and
(a)(6).

Proposed Regulatory Language

**Loans Committee**

**Origin:** ED

**Issue:** FFEL -- Institutional Preferred Lenders

**Regulatory Cite:** §§682.212 and 682.603

**Summary of Change:** Provide limits and conditions on an institution's
development and use of a list of preferred or recommended list of
lenders in the FFEL Program to protect a borrower's choice of lender as
provided by the HEA.

**Change:**

##### §682.212 Prohibited transactions.

\(a\) No points, premiums, payments, or additional interest of any kind
may be paid or otherwise extended to any eligible lender or other party
in order to---

\(1\) Secure funds for making loans; or

\(2\) Induce a lender to make loans to either the students or the
parents of students of a particular school or particular category of
students or their parents.

\(b\) The following are examples of transactions that, if entered into
for the purposes described in paragraph (a) of this section, are
prohibited:

\(1\) Cash payments by or on behalf of a school made to a lender or
other party.

\(2\) The maintaining of a compensating balance by or on behalf of a
school with a lender.

\(3\) Payments by or on behalf of a school to a lender of servicing
costs on loans that the school does not own.

\(4\) Payments by or on behalf of a school to a lender of unreasonably
high servicing costs on loans that the school does own.

\(5\) Purchase by or on behalf of a school of stock of the lender.

\(6\) Payments ostensibly made for other purposes.

\(c\) Except when purchased by the Student Loan Marketing Association,
an agency of any State functioning as a secondary market or in any other
circumstances approved by the Secretary, notes, or any interest in
notes, may not be sold or otherwise transferred at discount if the
underlying loans were made---

\(1\) By a school; or

\(2\) To students or parents of students attending a school by a lender
having common ownership with that school.

\(d\) Except to secure a loan from an agency of a State functioning as a
secondary market or in other circumstances approved by the Secretary, a
school or lender (with respect to a loan made to a student, or a parent
of a student, attending a school having common ownership with that
lender), may not use a loan made under the FFEL programs as collateral
for any loan bearing aggregate interest and other charges in excess of
the sum of the interest rate applicable to the loan plus the rate of the
most recently prescribed special allowance under §682.302.

\(e\) The prohibitions described in paragraphs (a), (b), (c), and (d) of
this section apply to any school, lender, or other party that would
participate in a proscribed transaction.

\(f\) This section does not preclude a buyer of loans made by a school
from obtaining from the loan seller a warranty that---

\(1\) Covers future reductions by the Secretary or a guaranty agency in
computing the amount of loss payable on default claims filed on the
loans, if the reductions are attributable to an act, or failure to act,
on the part of the seller or previous holder; and

\(2\) Does not cover matters for which a purchaser is charged with
responsibility under this part, such as due diligence in collecting
loans.

\(g\) Section 490(c) of the Act provides that any person who knowingly
and willfully makes an unlawful payment to an eligible lender as an
inducement to make, or to acquire by assignment, a FFEL loan shall, upon
conviction thereof, be fined not more than \$10,000 or imprisoned not
more than one year, or both.

\(h\) (1) A School may not provide or make available a list of
recommended or suggested lenders for use by the school's students or
their parents that---

\(i\) Is used to deny or otherwise impede a borrower's choice of lender;

\(ii\) Contains fewer than three lenders who will make loans to
borrowers or students attending the school; and

\(iii\) Includes lenders that have offered, or have been solicited to
offer, financial or other benefits to the school or its borrowers in
exchange for inclusion on the list or any promise that a certain number
of loan applications will be sent to the lender by the school or its
students.

\(2\) A school that provides or makes available a list of recommended or
suggested lenders must---

\(i\) Disclose to prospective borrowers the method and criteria used by
the school to choose the lenders that are recommended or suggested;

\(ii\) Provide comparative information to prospective borrowers about
interest rates and benefits offered by the lenders;

\(iii\) Include a prominent statement in any information related to its
list of lenders advising prospective borrowers that they are not
required to use one of the school's recommended or suggested lenders;

\(iv\) Not assign, through award packaging or other methods, a
borrower's loan to a particular lender; and

\(v\) Not cause unnecessary processing delays for borrowers who use a
lender that has not been recommended or suggested by the school.

##### § 682.603   Certification by a participating school in connection with a loan application.

\(a\) A school shall certify that the information it provides in
connection with a loan application about the borrower and, in the case
of a parent borrower, the student for whom the loan is intended, is
complete and accurate. Except as provided in 34 CFR part 668, subpart E,
a school may rely in good faith upon statements made on the application
by the borrower.

\(b\) The information to be provided by the school about the borrower
making application for the loan pertains to---

\(1\) The borrower\'s eligibility for a loan, as determined in
accordance with §682.201 and §682.204;

\(2\) For a subsidized Stafford loan, the student\'s eligibility for
interest benefits as determined in accordance with §682.301; and

\(3\) The schedule for disbursement of the loan proceeds, which must
reflect the delivery of the loan proceeds as set forth in §682.604(c).

\(c\) Except as provided in paragraph (e) of this section, in certifying
a loan, a school must certify a loan for the lesser of the borrower\'s
request or the loan limits determined under §682.204.

\(d\) A school may not certify a Stafford or PLUS loan application, or
combination of loan applications, for a loan amount that---

\(1\) The school has reason to know would result in the borrower
exceeding the annual or maximum loan amounts in §682.204; or

\(2\) Exceeds the student\'s estimated cost of attendance, less---

\(i\) The student\'s estimated financial assistance for that period; and

\(ii\) In the case of a Subsidized Stafford loan, the borrower\'s
expected family contribution for that period.

\(e\) In certifying loans, a school---

\(1\) May not refuse to certify, or delay certification, of a Stafford
or PLUS loan based on the borrower's selection of a particular lender or
guaranty agency;

\(2\) May refuse to certify a Stafford or PLUS loan or may reduce the
borrower's determination of need for the loan if the reason for that
action is documented and provided to the borrower in writing,
provided---

\(i\) The determination is made on a case-by-case basis;

\(ii\) The documentation supporting the determination is retained in the
student\'s file; and

\(3\) May not, under subsections (1) and (2), engage in any pattern or
practice that results in a denial of a borrower\'s access to FFEL loans
because of the borrower\'s race, sex, color, religion, national origin,
age, handicapped status, or income..

Proposed Regulatory Language

**Loans Committee**

**Origin:** ED

**Issue:** FFEL -- Prohibited Inducements

**Regulatory Cite:** §§682.200 and 682.401(e)

**Summary of Change:** Provide additional detail beyond the statutory
language of §§ 435(d)(5) and 428(b)(3) of the HEA by specifying
prohibited activities used by lenders or guaranty agencies to secure
loan applications or loan volume in the FFEL Program. Also reference
activities of lenders and guaranty agencies that are permissible because
they are comparable to the support provided to Direct Loan schools by
the Department of Education. The detailed prohibitions reflect guidance
provided by the Department in "Dear Colleague" Letters published in 1989
and 1995 and other guidance provided in response to individual inquiries
received by the Department since the prohibitions were first enacted
into law.

**Change:**

##### §682.200   Definitions.

\(b\) \* \* \*

*Lender.* (1) \* \* \*

\(5\) The term "eligible lender" does not include any lender that the
Secretary determines, after notice and opportunity for a hearing before
a designated Department official, has, directly or through an agent,
employee or contractor---

\(i\) Offered directly or indirectly points, premiums, payments, or
other inducements to any school or other party to secure applications
for FFEL loans or to secure FFEL loan volume, which includes but is not
limited to---

\(A\) Payments or offerings of other benefits, including additional
financial aid funds or prizes, to a prospective student, parent, or
Consolidation Loan borrower in exchange for applying for or accepting a
loan from the lender;

\(B\) Payments or other benefits to a school or any organization
directly or indirectly affiliated with the school in exchange for
applications, application referrals, or application processing rights, a
specified volume or dollar amount of loans made, or placement on a
school's list of recommended or suggested lenders;

\(C\) Payments or other benefits to a school or any organization
directly or indirectly affiliated with the school not specifically tied
to loan applications, application referrals, or application processing
rights;

\(D\) Payments or other benefits provided to a student at a school who
acts as the lender's representative to secure loan applicants, or to a
loan solicitor or sales representative who visits campuses to secure
loan applicants;

\(E\) Payment of referral or processing fees to another lender that
exceed reasonable compensation for the administrative handling and
marketing of loan availability by the referring or processing lender, or
are based on loans made;

\(F\) Payment of conference or training registration, transportation,
and lodging costs for an employee of a school or an employee of an
organization directly or indirectly affiliated with a school;

\(G\) Payment of entertainment expenses for employees of a school or
employees of an organization directly or indirectly affiliated with a
school, including private hospitality suites, tickets to shows or
sporting events, meals, alcoholic beverages, and any lodging, rental,
transportation, and other gratuities related to lender-sponsored social
activities; and

\(H\) Providing below market terms of financing or below market rates
for loan origination and servicing to a participating FFEL school
lender.

\(ii\) For these purposes, an organization that is directly or
indirectly affiliated with a school is defined as a school-affiliated
organization in section 682.200. Applications include the Federal
Application for Financial Aid (FAFSA) and master promissory notes. Other
benefits include, but are not limited to, preferential rates or access
to the lender's other financial products, computer hardware or non-loan
processing related computer software at below market rental or purchase
cost, contributions to institutional scholarship funds, printing and
distribution of college catalogs and other materials at reduced or no
cost, and the placement of lender employees or contractors at the
school, except on an occasional, short-term emergency basis.

\(iii\) A lender may provide---

\(A\) Assistance to a school that is comparable to assistance provided
by the Department of Education to a school in the William D. Ford Direct
Loan Program as identified by the Secretary in a notice in the Federal
Register.

\(B\) Staffing services to a school on an occasional, short-term,
emergency basis;

\(C\) Support of and participation in a guaranty agency's student aid
related outreach activities;

\(D\) The cost of meals, refreshments, and receptions that are scheduled
in conjunction with meeting or conference events if those events are
open to all meeting or conference attendees;

\(E\) Toll-free telephone numbers for use by schools or others to obtain
information about FFEL program loans, or for use by schools to
electronically submit applicant loan processing information or student
status confirmation data;

\(F\) A reduced origination fee in accordance with §682.202(c);

\(G\) A reduced interest rate as provided under the Act;

\(H\) Payment of Federal default fees in a non-discriminatory manner;

\(I\) Other benefits to a borrower under a repayment incentive program
that requires, at a minimum, one or more payments to receive or retain
the benefit; and

\(J\) Items of a nominal value offered as a form of general advertising
or creation of good will.

\(iv\) Conducted unsolicited mailings to a student or a student\'s
parents of FFEL loan application forms, except to a student who
previously has received a FFEL loan from the lender or to a student\'s
parent who previously has received a FFEL loan from the lender;

\(v\) Offered, directly or indirectly, a FFEL loan to a prospective
borrower to induce the purchase of a policy of insurance or other
product or service by the borrower or other person; or

\(vi\) Engaged in fraudulent or misleading advertising with respect to
its FFEL program loan activities.

682.401 Basic program agreement.

\* \* \* \* \*

\(e\) *Prohibited inducements.* (1) A guaranty agency may not---

\(i\) Offer directly or indirectly from any fund or assets any premium,
payment, or other inducement to a student or a student's parents or an
employee or an entity or individual affiliated with a school, to secure
applicants for FFEL loans, which includes, but is not limited to---

\(A\) Payments or offerings of other benefits, including additional
financial aid funds or prizes, to a prospective student or parent
borrower in exchange for processing a loan using the agency's loan
guarantee;

\(B\) Payments or other benefits, including additional financial aid
funds under State or private programs, to a school based on the school's
voluntary or coerced agreement to use the guaranty agency for processing
loans, or a specified volume of loans, using the agency's loan
guarantee;

\(C\) Payment or other benefits to a school or any organization directly
or indirectly affiliated with a school, or to any individual in exchange
for applications, application referrals, or application processing
rights, a specified volume or dollar amount of loans, or the placement
of a lender that uses the agency's loan guarantee on a school's list of
recommended or suggested lenders; and

\(D\) Payments or other benefits to a school or any organization
directly or indirectly affiliated with a school not specifically tied to
loan applications, loan referrals, or application processing rights;

\(E\) Payment of entertainment expenses for school employees or
employees of organizations directly or indirectly affiliated with a
school, including private hospitality suites, tickets to shows or
sporting events, meals, alcoholic beverages, and any lodging, rental,
transportation or other gratuities related to any social activity
sponsored by the guaranty agency or a lender participating in the
agency's program.

\(ii\) For these purposes, an organization directly or indirectly
affiliated with a school is defined as a school-affiliated organization
in section 682.200. Applications include the Federal Application for
Financial Aid (FAFSA) and master promissory notes. Other benefits
include, but are not limited to, preferential rates or access to a
guaranty agency's products and services, computer hardware at below
market rental or purchase cost, contributions to institutional
scholarship funds, printing and distribution of college catalogs and
other non-counseling or non-student financial aid related materials at
reduced or no cost, and the placement of guaranty agency employees or
contractors at the school except on an occasional, short-term emergency
basis.

\(iii\) Assess additional costs or deny benefits otherwise provided to
schools and lenders participating in the agency's program on the basis
of the lender's or school's failure to agree to participate in, or
provide a specified volume of loan applications or loan volume; to the
agency's program.

\(2\) A guaranty agency is not prohibited from providing -

\(i\) Assistance to a school that is comparable to that provided by the
Department of Education to a school in the William D. Ford Direct Loan
Program[, as identified by the Secretary in the Federal
Register;]{.underline}

\(ii\) Staffing services to a school on an occasional, short-term,
emergency basis;

> \(iii\) Reasonable costs for light meals and refreshments associated
> with guaranty agency sponsored training of program participants and
> secondary school personnel and with workshops and forums customarily
> used by the agency to fulfill it responsibilities under the Act;
>
> \(iv\) Reasonable costs of receptions that are scheduled training,
> meeting or conference events if those events are open to all training,
> meeting or conference attendees;
>
> \(v\) Travel and lodging costs that are reasonable as to cost,
> location, and duration to facilitate the attendance of school staff in
> training that they would otherwise not be able to undertake, or to
> participate in the activities of an agency's governing board, a
> standing official advisory committee, or in support of other official
> activities of the agency;

\(vi\) Toll-free telephone numbers for use by schools or others to
obtain information about FFEL program loans, or for use by schools to
electronically submit applicant loan processing information or student
status confirmation data; and

\(vii\) Payment of Federal default fees in a non-discriminatory manner.

(3)(i) Offer, directly or indirectly, any premium, incentive payment, or
other inducement to any lender, or any person acting as an agent,
employee, or independent contractor of any lender or other guaranty
agency to administer or market FFEL loans, other than unsubsidized
Stafford loans or subsidized Stafford loans made under a guaranty
agency\'s lender-of-last-resort program, in an effort to secure the
guaranty agency as an insurer of FFEL loans. Examples of prohibited
inducements include, but are not limited to---

\(A\) Compensating lenders or their representatives for the purpose of
securing loan applications for guarantee;

\(B\) Performing functions normally performed by lenders without
appropriate compensation;

\(C\) Providing equipment or supplies to lenders at below market cost or
rental; or

\(D\) Offering to pay a lender, that does not hold loans guaranteed by
the agency, a fee for each application forwarded for the agency\'s
guarantee.

\(ii\) For the purposes of this section, the terms "premium",
"inducement", and "incentive" do not include services directly related
to the enhancement of the administration of the FFEL Program the
guaranty agency generally provides to lenders that participate in its
program. However, the terms "premium", "inducement", and "incentive" do
apply to other activities specifically intended to secure a lender\'s
participation in the agency\'s program.

\(3\) Mail or otherwise distribute unsolicited loan applications to
students enrolled in a secondary school or a postsecondary institution,
or to parents of those students, unless the potential borrower has
previously received loans insured by the guaranty agency;

\(4\) Conduct fraudulent or misleading advertising concerning loan
availability.

Proposed Regulatory Language

**Loans Committee**

**Origin:** ED

**Issue:** FFEL/DL/Perkins -- True and Exact Copy of Death Certificates

**Regulatory Cite:** §§674.61, 682.402 and 685.212

Summary of Change: Allow the use of a true and exact copy of a
borrower's death certificate, in addition to the original or a certified
copy of the death certificate, to support the discharge of a borrower's
or parent borrower's Title IV loan.

**Change:**

##### §674.61   Discharge for death or disability.

\(a\) *Death.* An institution must discharge the unpaid balance of a
borrower\'s Defense, NDSL, or Perkins loan, including interest, if the
borrower dies. The institution must discharge the loan on the basis of
an original, certified, or true and exact copy of the death certificate.
Under exceptional circumstances and on a case-by-case basis, the chief
financial officer of the institution may approve a discharge based upon
other reliable documentation supporting the discharge request.

##### 

##### § 682.402   Death, disability, closed school, false certification, unpaid refunds, and bankruptcy payments.

\(b\) *Death.* (1) If an individual borrower dies, or the student for
whom a parent received a PLUS loan dies, the obligation of the borrower
and any endorser to make any further payments on the loan is discharged.

\(2\) A discharge of a loan based on the death of the borrower (or
student in the case of a PLUS loan) must be based on an original,
certified, or true and exact copy of the death certificate. Under
exceptional circumstances and on a case-by-case basis, the chief
executive officer of the guaranty agency may approve a discharge based
upon other reliable documentation supporting the discharge request.

\(3\) After receiving reliable information indicating that the borrower
(or student) has died, the lender must suspend any collection activity
against the borrower and any endorser for up to 60 days and promptly
request the documentation described in paragraph (b)(2) of this section.
If additional time is required to obtain the documentation, the period
of suspension of collection activity may be extended up to an additional
60 days. If the lender is not able to obtain an original, certified, or
true and exact copy of the death certificate or other documentation
acceptable to the guaranty agency, under the provisions of paragraph
(b)(2) of this section, during the period of suspension, the lender must
resume collection activity from the point that it had been discontinued.
The lender is deemed to have exercised forbearance as to repayment of
the loan during the period when collection activity was suspended.

\(4\) Once the lender has determined under paragraph (b)(2) of this
section that the borrower (or student) has died, the lender may not
attempt to collect on the loan from the borrower\'s estate or from any
endorser.

\(5\) The lender shall return to the sender any payments received from
the estate or paid on behalf of the borrower after the date of the
borrower\'s (or student\'s) death.

\(6\) In the case of a Federal Consolidation Loan that includes a
Federal PLUS or Direct PLUS loan borrowed for a dependent who has died,
the obligation of the borrower or any endorser to make any further
payments on the portion of the outstanding balance of the Consolidation
Loan attributable to the Federal PLUS or Direct PLUS loan is discharged
as of the date of the dependent\'s death.

##### 

##### § 685.212   Discharge of a loan obligation.

\(a\) *Death.* (1) If a borrower (or the student on whose behalf a
parent borrowed a Direct PLUS Loan) dies, the Secretary discharges the
obligation of the borrower and any endorser to make any further payments
on the loan based on an original, certified, or true and exact copy of
the borrower\'s (or student\'s in the case of a Direct PLUS loan
obtained by a parent borrower) death certificate.

\(2\) If an original, certified, or true and exact copy of the death
certificate is not available, the Secretary discharges the loan only
based on other reliable documentation that establishes, to the
Secretary\'s satisfaction, that the borrower (or student) has died. The
Secretary discharges a loan based on documentation other than an
original, certified, or true and exact copy of the death certificate
only under exceptional circumstances and on a case-by-case basis.

\(3\) In the case of a Direct PLUS Consolidation Loan that repaid a
Direct PLUS Loan or a Federal PLUS Loan obtained on behalf of a student
who dies, the Secretary discharges an amount equal to the portion of the
outstanding balance of the consolidation loan, as of the date of the
student\'s death, attributable to that Direct PLUS Loan or Federal PLUS
Loan.

Proposed Regulatory Language

**Loans Committee**

**Origin:** ED

**Issue:** FFEL/DL/Perkins -- "Retroactive" Total and Permanent
Disability Discharges

**Regulatory Cite:** §§674.61, 682.402 and 685.213

**Summary of Change:** Restructure the regulations to ensure alignment
with the discharge process. Provide for a prospective conditional
discharge period to establish eligibility for a total and permanent
disability discharge that is three years in duration beginning on the
date that the Secretary makes an initial determination that a borrower
is totally and permanently disabled. Also, in order to qualify for a
discharge, the borrower must meet the definition of total and permanent
disability and receive no further title IV loans from the date the
physician certifies the borrower's total and permanent disability on the
discharge application.

**Change:**

§674.61 Discharge for death or disability

\* \* \* \* \*

\(b\) [Total and permanent disability]{.underline}. (1)
[General]{.underline}. A borrower's Defense, NDSL or Perkins loan is
discharged if the borrower becomes totally and permanently disabled, as
defined in §674.51(s), and satisfies the additional eligibility
requirements contained in this section.

\(2\) [Discharge application process]{.underline}. (i) To qualify for
discharge of a Defense, NDSL or Perkins loan based on a total and
permanent disability, a borrower must submit a discharge application
approved by the Secretary to the institution that holds the loan. The
application must contain a certification by a physician, who is a doctor
of medicine or osteopathy legally authorized to practice in a State,
that the borrower is totally and permanently disabled as defined in
§674.51(s).

\(ii\) If, after reviewing the borrower's application, the institution
determines that the application is complete and supports the conclusion
that the borrower is totally and permanently disabled, the institution
must assign the loan to the Secretary. At the time the loan is assigned
to the Secretary, the institution must notify the borrower that the loan
has been assigned to the Secretary for determination of eligibility for
a total and permanent disability discharge.

\(3\) [Secretary's Initial Eligibility Determination]{.underline}. (i)
If the Secretary determines that the certification provided by the
borrower supports the conclusion that the borrower meets the criteria
for a total and permanent disability discharge, the borrower is
considered totally and permanently disabled as of the date the physician
completes and certifies the borrower's application. The borrower's
condition must continue to meet the conditions of the definition and the
borrower must not receive any title IV loans until the Secretary makes
an initial determination of the borrower's eligibility in accordance
with paragraph (b)(3)(ii) of this section.

\(ii\) The Secretary notifies the borrower that the loan will be in a
conditional discharge status for a period of up to three years upon
making an initial determination that the borrower is totally and
permanently disabled as defined in §674.51(s). This notification
identifies the conditions of the conditional discharge period specified
in paragraph (b)(4)(i) of this section. The conditional discharge period
begins on the date the Secretary makes the initial determination that
the borrower is totally and permanently disabled.

\(iii\) If the Secretary determines that the certification provided by
the borrower does not support the conclusion that the borrower meets the
criteria for a total and permanent disability discharge, the Secretary
notifies the borrower that the application for a disability discharge
has been denied, and that the loan is due and payable under the terms of
the promissory note.

\(4\) [Eligibility Requirements for a Total and Permanent Disability
Discharge]{.underline}. (i) A borrower meets the eligibility criteria
for a discharge of a loan based on a total and permanent disability if,
during and at the end of the three-year conditional discharge period---

\(A\) The borrower's annual earnings from employment do not exceed 100
percent of the poverty line for a family of two, as determined in
accordance with the Community Service Block Grant Act; and

\(B\) The borrower does not receive a new loan under the Perkins, FFEL
or Direct Loan programs, except for a FFEL or Direct Consolidation Loan
that does not include any loans that are in a conditional discharge
status.

\(ii\) During the conditional discharge period, the borrower or, if
applicable, the borrower's representative---

\(A\) Is not required to make any payments on the loan;

\(B\) Is not considered past due or in default on the loan, unless the
loan was past due or in default at the time the conditional discharge
was granted;

\(C\) Must promptly notify the Secretary of any changes in address or
phone number;

\(D\) Must promptly notify the Secretary if the borrowers annual
earnings from employment exceed the amount specified in paragraph
(4)(i)(A) of this section; and

\(E\) Must provide the Secretary, upon request, with additional
documentation or information related to the borrower's eligibility for
discharge under this section.

\(iii\) If, at any time during or at the end of the three-year
conditional discharge period, the borrower does not continue to meet the
eligibility requirements for a total and permanent disability discharge,
the Secretary resumes collection activity on the loan. The Secretary
does not require the borrower to pay any interest that accrued on the
loan from the date of the Secretary's initial determination described in
paragraph (b)(3) of this section through the end of the conditional
discharge period.

\(5\) [Payments Received After the Physician's Certification of Total
and Permanent Disability]{.underline}. (i) If, after the date the
physician completes and certifies the borrower's loan discharge
application, the institution receives any payments from or on behalf of
the borrower on or attributable to a loan that was assigned to the
Secretary for determination of eligibility for a total and permanent
disability discharge, the institution must forward those payments to the
Secretary for crediting to the borrower's account.

\(ii\) At the same time that the institution forwards the payment, it
must notify the borrower that there is no obligation to make payments on
the loan while it is conditionally discharged prior to a final
determination of eligibility for a total and permanent disability
discharge, unless the Secretary directs the borrower otherwise.

\(iii\) When the Secretary makes a final determination to discharge the
loan, the Secretary returns to the sender any payments received on the
loan after the date the physician completed and certified the borrower's
loan discharge application.

\(c\) [No Federal Reimbursement]{.underline}. No Federal reimbursement
is made to an institution for cancellation of loans due to death or
disability.

\(d\) [Retroactive]{.underline}. Discharge for death applies
retroactively to all Defense, NDSL and Perkins loans.

§685.213 Total and Permanent Disability

\(a\) [General]{.underline}. A borrower's Direct Loan is discharged if
the borrower becomes totally and permanently disabled, as defined in
§682.200(b), and satisfies the additional eligibility requirements
contained in this section.

\(b\) [Discharge application process]{.underline}. To qualify for a
discharge of a Direct Loan based on a total and permanent disability, a
borrower must submit to the Secretary a certification by a physician,
who is a doctor of medicine or osteopathy legally authorized to practice
in a State, that the borrower is totally and permanently disabled as
defined in §682.200(b). The certification must be on a form approved by
the Secretary.

\(c\) [Initial Determination of Eligibility]{.underline}. (1) If, after
reviewing the borrower's application, the Secretary determines that the
certification provided by the borrower supports the conclusion that the
borrower meets the criteria for a total and permanent disability
discharge, the borrower is considered totally and permanently disabled
as of the date the physician completes and certifies the borrower's
application. The borrower's condition must continue to meet the
conditions of the definition and the borrower must not receive any
further title IV loans until the Secretary makes an initial
determination of the borrower's eligibility in accordance with paragraph
(c)(2) of this section.

\(2\) The Secretary suspends collection activity and notifies the
borrower that the loan will be in a conditional discharge status for a
period of up to three years upon making an initial determination that
the borrower is totally and permanently disabled as defined in
§682.200(b). This notification identifies the conditions of the
conditional discharge period specified in paragraph (d)(1) of this
section. The conditional discharge period begins on the date the
Secretary makes the initial determination that the borrower is totally
and permanently disabled.

\(3\) If the Secretary determines that the certification provided by the
borrower does not support the conclusion that the borrower meets the
criteria for a total and permanent disability discharge, the Secretary
notifies the borrower that the application for a disability discharge
has been denied, and that the loan is due and payable under the terms of
the promissory note.

\(d\) [Eligibility Requirements for Total and Permanent
Disability]{.underline}. (1) A borrower meets the eligibility
requirements for a total and permanent disability discharge if, during
and at the end of the three-year conditional discharge period---

\(A\) the borrower's annual earnings from employment do not exceed 100
percent of the poverty line for a family of two, as determined in
accordance with the Community Service Block Grant Act; and

\(B\) The borrower does not receive a new loan under the Perkins, FFEL
or Direct Loan programs, except for a FFEL or Direct Consolidation Loan
that does not include any loans that are in a conditional discharge
status.

\(2\) During the conditional discharge period, the borrower or, if
applicable, the borrower's representative---

\(A\) Is not required to make any payments on the loan;

\(B\) Is not considered past due or in default on the loan, unless the
loan was past due or in default at the time the conditional discharge
was granted;

\(C\) Must promptly notify the Secretary of any changes in address or
phone number;

\(D\) Must promptly notify the Secretary if the borrower's annual
earnings from employment exceed the amount specified in paragraph
(d)(1)(A) of this section; and

\(E\) Must provide the Secretary, upon request, with additional
documentation or information related to the borrower's eligibility for
discharge under this section.

\(3\) If the borrower continues to meet the eligibility requirements for
total and permanent disability discharge during and the end of the
three-year conditional discharge period, the Secretary---

\(i\) Discharges the obligation of the borrower and any endorser to make
any further payments on the loan at the end of that period; and

\(ii\) Returns to the borrower any payments received after the date the
physician completed and certified the borrower's loan discharge
application.

\(4\) If, at any time during or at the end of the three-year conditional
discharge period, the borrower does not continue to meet the eligibility
requirements for total and permanent disability discharge, the Secretary
resumes collection activity on the loan. The Secretary does not require
the borrower to pay any interest that accrued on the loan from the date
of the Secretary's initial determination described in paragraph (c)(2)
of this section through the end of the conditional discharge period.

\(e\) [Provisions for discharge of Direct Consolidation
Loans]{.underline}*.*

\(1\) For a Direct Consolidation Loan, a borrower is considered totally
and permanently disabled if he or she would be considered totally and
permanently disabled under the provisions of this section for all of the
loans that were included in the Direct Consolidation Loan if those loans
had not been consolidated.

\(2\) For the purposes of discharging a loan under paragraph (e)(1) of
this section, the provisions of this section apply to each loan included
in the Direct Consolidation Loan, even if the loan is not a Direct Loan
Program loan.

\(3\) If requested, a borrower seeking to discharge a loan obligation
under paragraph (e)(1) of this section must provide the Secretary with
the disbursement dates of the underlying loans.

##### 

##### §682.402   Death, disability, closed school, false certification, unpaid refunds, and bankruptcy payments.

\* \* \* \* \*

\(c\) *Total and permanent disability.* (1) A borrower's loan is
discharged if the borrower becomes totally and permanently disabled, as
defined in §682.200(b), and satisfies the additional eligibility
requirements contained in this section.

\(2\) *Discharge application process*. (i) After being notified by the
borrower or the borrower\'s representative that the borrower claims to
be totally and permanently disabled, the lender promptly requests that
the borrower or the borrower\'s representative submit, on a form
approved by the Secretary, a certification by a physician, who is a
doctor of medicine or osteopathy legally authorized to practice in a
State, that the borrower is totally and permanently disabled as defined
in §682.200(b). If the lender and guaranty agency approve the discharge
claim, under the procedures in paragraphs (c)(5) through (c)(6) of this
section, the guaranty agency assigns the loan to the Secretary.

\(3\) *Secretary's Initial Eligibility Determination* (i) If the
Secretary determines that the certification provided by the borrower
supports the conclusion that the borrower meets the criteria for a total
and permanent disability discharge, the borrower is considered totally
and permanently disabled as of the date the physician completes and
certifies the borrower's application. The borrower's condition must
continue to meet the conditions of the definition and the borrower must
not receive any further title IV loans until the Secretary makes an
initial determination of the borrower's eligibility in accordance with
paragraph (c)(3)(ii) of this section.

\(ii\) The Secretary suspends collection activity and notifies the
borrower that the loan will be in a conditional discharge status for a
period of up to three years upon making an initial determination that
the borrower is totally and permanently disabled as defined in
§682.200(b). This notification identifies the conditions of the
conditional discharge specified in paragraph (c)(4)(i) of this section.
The conditional period begins on the date the Secretary makes the
initial determination that the borrower is totally and permanently
disabled.

\(iii\) If the Secretary determines that the certification and
information provided by the borrower do not support the conclusion that
the borrower meets the criteria for a total and permanent disability
discharge, the Secretary notifies the borrower that the application for
a disability discharge has been denied, and that the loan is due and
payable under the terms of the promissory note.

\(4\) *Eligibility Requirements for Total and Permanent Disability
Discharge*. (i) A borrower meets the eligibility criteria for a
discharge of a loan based on total and permanent disability if, during
and at the end of the three-year conditional discharge period---

\(A\) The borrower\'s annual earnings from employment do not exceed 100
percent of the poverty line for a family of two, as determined in
accordance with the Community Service Block Grant Act; and

\(B\) The borrower does not receive a new loan under the Perkins, FFEL,
or Direct Loan programs, except for a FFEL or Direct Consolidation loan
that does not include any loans that are in a conditional discharge
status.

\(ii\) During the conditional discharge period, the borrower---

\(A\) Is not required to make any payments on the loan;

\(B\) Is not considered delinquent or in default on the loan, unless the
borrower was delinquent or in default at the time the conditional
discharge was granted;

\(C\) Must promptly notify the Secretary of any changes in address or
phone number;

\(D\) Must promptly notify the Secretary if the borrower\'s annual
earnings from employment exceed the amount specified in paragraph
(c)(1)(ii)(A) of this section; and

\(E\) Must provide the Secretary, upon request, with additional
documentation or information related to the borrower\'s eligibility for
discharge under this section.

\(iii\) If the borrower satisfies the criteria for a total and permanent
disability discharge during and at the end of the conditional discharge
period, the balance of the loan is discharged at the end of the
conditional discharge period and any payments received after the
physician completed and certified the borrower's loan discharge
application, are returned to the sender.

\(iv\) If, at any time during the three-year conditional discharge
period, the borrower does not continue to meet the eligibility
requirements for a total and permanent disability discharge, the
Secretary resumes collection activity on the loan. The Secretary does
not require the borrower to pay any interest that accrued on the loan
from the date of the initial determination described in paragraph
(c)(3)(ii) of this section through the end of the conditional discharge
period.

(v)(A) For a Consolidation Loan, a borrower is considered totally and
permanently disabled if he or she would be considered totally and
permanently disabled under paragraphs (c)(1)(i) through (iii) of this
section for all of the loans that were included in the Consolidation
Loan if those loans had not been consolidated.

\(B\) For the purposes of discharging a loan under paragraph
(c)(1)(iv)(A) of this section, provisions in paragraphs (c)(1) (i)
through (iii) of this section apply to each loan included in the
Consolidation Loan, even if the loan is not a FFEL Program loan.

\(C\) If requested, a borrower seeking to discharge a loan obligation
under paragraph (c)(1)(iv)(A) of this section must provide the lender
with the disbursement dates of the underlying loans if the lender does
not possess that information.

\(5\) [Lender responsibilities]{.underline} (i) After being notified by
a borrower or a borrower's representative that the borrower claims to be
totally and permanently disabled, the lender must continue collection
activities until it receives either the certification of total and
permanent disability from a physician or a letter from a physician
stating that the certification has been requested and that additional
time is needed to determine if the borrower is totally and permanently
disabled. Except as provided in paragraph (c)(5)(iii) of this section,
after receiving the physician\'s certification or letter the lender may
not attempt to collect from the borrower or any endorser.

\(ii\) The lender must submit a disability claim to the guaranty agency
if the borrower submits a certification by a physician and the lender
makes a determination that the certification supports the conclusion
that the borrower meets the criteria for a total and permanent
disability discharge, as defined in §682.200(b).

\(iii\) If the lender determines that a borrower who claims to be
totally and permanently disabled is not totally and permanently
disabled, or if the lender does not receive the physician\'s
certification of total and permanent disability within 60 days of the
receipt of the physician\'s letter requesting additional time, as
described in paragraph (c)(3) of this section, the lender must resume
collection and is deemed to have exercised forbearance of payment of
both principal and interest from the date collection activity was
suspended. The lender may capitalize, in accordance with §682.202(b),
any interest accrued and not paid during that period.

\(6\) [Guaranty agency responsibilities]{.underline} (i) The guaranty
agency must pay a claim submitted by the lender if the guaranty agency
has reviewed the application and determined that it is complete and that
it supports the conclusion that the borrower meets the criteria for a
total and permanent disability discharge, as defined in §682.200(b).

\(ii\) If the guaranty agency does not pay the disability claim, the
guaranty agency must return the claim to the lender with an explanation
of the basis for the agency\'s denial of the claim. Upon receipt of the
returned claim, the lender must notify the borrower that the application
for a disability discharge has been denied, provide the basis for the
denial, and inform the borrower that the lender will resume collection
on the loan. The lender is deemed to have exercised forbearance of both
principal and interest from the date collection activity was suspended
until the first payment due date. The lender may capitalize, in
accordance with §682.202(b), any interest accrued and not paid during
that period.

\(iii\) If the guaranty agency pays the disability claim, the lender
must notify the borrower that the loan will be assigned to the Secretary
for determination of eligibility for a total and permanent disability
discharge.

\(iv\) After receiving a claim payment from the guaranty agency, the
lender must forward to the guaranty agency any payments subsequently
received from or on behalf of the borrower.

\(v\) The Secretary reimburses the guaranty agency for a disability
claim paid to the lender after the agency pays the claim to the lender.

\(vi\) The guaranty agency must assign the loan to the Secretary after
the guaranty agency pays the disability claim.

##### 

Proposed Regulatory Language

**Loans Committee**

**Origin:** ED

**Issue:** FFEL/Perkins -- NSLDS Reporting Timeframes

**Regulatory Cite:** §§682.208, 682.401, 682.414 and
674.16**           **

##### Summary of Change: Require schools, lenders, and guaranty agencies to report enrollment and loan status information, or any other data required by the Secretary, to the National Student Loan Data system by the deadline date established by the Secretary.

Change:

##### §682.208   Due diligence in servicing a loan.

\(a\) The loan servicing process includes reporting to national credit
bureaus, responding to borrower inquiries, establishing the terms of
repayment, and reporting a borrower's enrollment and loan status
information.

##### \* \* \* \* \*

\(i\) A lender shall report enrollment and loan status information, or
any other [data]{.underline} required by the Secretary, to the guaranty
agency or to the National Student Loan Data System, as applicable, by
the deadline date established by the Secretary.

##### 

##### § 682.401   Basic program agreement.

##### (b) \* \* \*

\(20\) *Monitoring student enrollment.* The guaranty agency shall
monitor the enrollment status of a FFEL program borrower or student on
whose behalf a parent has borrowed that includes, at a minimum,
reporting to the current holder of the loan within 30 days any change in
the student\'s enrollment status reported that triggers---

\(i\) The beginning of the borrower\'s grace period; or

\(ii\) The beginning or resumption of the borrower\'s immediate
obligation to make scheduled payments.

##### 

##### § 682.414   Records, reports, and inspection requirements for guaranty agency programs.

##### \* \* \* \* \*

\(b\) *Reports.* A guaranty agency shall accurately complete and submit
to the Secretary the following reports:

\(1\) A report concerning the status of the agency\'s reserve fund and
the operation of the agency\'s loan guarantee program at the time and in
the manner that the Secretary may reasonably require. The Secretary does
not pay the agency any funds, the amount of which are determined by
reference to data in the report, until a complete and accurate report is
received.

\(2\) Annually, for each State in which it operates, a report of the
total guaranteed loan volume, default volume, and default rate for each
of the following categories of originating lenders on all loans
guaranteed after December 31, 1980:

\(i\) Schools.

\(ii\) State or private nonprofit lenders.

\(iii\) Commercial financial institutions (banks, savings and loan
associations, and credit unions).

\(iv\) All other types of lenders.

\(3\) By July 1 of each year, a report on---

\(i\) Its eligibility criteria for schools and lenders;

\(ii\) Its procedures for the limitation, suspension, and termination of
schools and lenders;

\(iii\) Any actions taken in the preceding 12 months to limit, suspend,
or terminate the participation of a school or lender in the agency\'s
program; and

\(iv\) The steps the agency has taken to ensure its compliance with
§682.410(c), including the identity of any law enforcement agency with
which the agency has made arrangements for that purpose.

\(4\) A guaranty agency shall report to the National Student Loan Data
System the borrower's enrollment and loan status information, or any
other [data]{.underline} required by the Secretary, by the deadline date
established by the Secretary.

\(5\) Any other information concerning its loan insurance program
requested by the Secretary.

##### 

##### § 674.16   Making and disbursing loans.

##### \* \* \* \* \*

(i)(1) An institution must report to at least one national credit
bureau---

\(i\) The amount and the date of each disbursement;

\(ii\) Information concerning the repayment and collection of the loan
until the loan is paid in full; and

\(iii\) The date the loan was repaid, canceled, or discharged for any
reason.

\(2\) An institution must promptly report any changes to information
previously reported on a loan to the same credit bureaus to which the
information was previously reported.

##### (j) The institution shall report enrollment and loan status information, or any other information required by the Secretary, to the National Student Loan Data System by the deadline date established by the Secretary. 

Proposed Regulatory Language

**Loans Committee**

**Origin:** ED

**Issue:** FFEL/Perkins -- MPNs: Retention of Records Supporting
Disbursements to Borrowers and Lender Certification of E-Signatures

**Regulatory Cite:** §§682.406, 682.409 and 682.610   

**Summary of Change:** Ensure that a record of an institution's delivery
of loan disbursements to a borrower is submitted to and retained by the
FFEL lender and Guaranty Agency. Also ensure that a record of the
lender's electronic authentication and signature process is submitted to
and maintained by the Guaranty Agency. Upon assignment of a defaulted
MPN, both a record of disbursement and the certification of electronic
signature must be provided by the Guaranty Agency to the Secretary.

Change:

##### §682.406   Conditions for claim payments from the Federal Fund and for reinsurance coverage.

\(a\) A guaranty agency may make a claim payment from the Federal Fund
and receive a reinsurance payment on a loan only if---

\(1\) The lender exercised due diligence in making, disbursing, and
servicing the loan as prescribed by the rules of the agency;

\(2\) With respect to the reinsurance payment on the portion of a loan
represented by a single disbursement of loan proceeds---

\(i\) The check for the disbursement was cashed within 120 days after
disbursement; or

\(ii\) The proceeds of the disbursement made by electronic funds
transfer or master check in accordance with §682.207(b)(1)(ii) (B) and
(C) have been released from the restricted account maintained by the
school within 120 days after disbursement;

\(3\) The lender provided---

\(i\) The record of the school's delivery of the loan disbursements to
the borrower;

\(ii\) If the MPN or promissory note was signed electronically, an
affidavit or certification, and other supporting documentation specified
by the Secretary, regarding the creation and maintenance of the lender's
electronic MPN or promissory note, including the lender's authentication
and signature process; and

\(iii\) An accurate collection history and an accurate payment history
to the guaranty agency with the default claim filed on the loan showing
that the lender exercised due diligence in collecting the loan through
collection efforts meeting the requirements of §682.411, including
collection efforts against each endorser;

\(4\) The loan was in default before the agency paid a default claim
filed thereon;

\(5\) The lender filed a default claim thereon with the guaranty agency
within 90 days of default;

\(6\) The lender resubmitted a properly documented default claim to the
guaranty agency not later than 60 days from the date the agency had
returned that claim due solely to inadequate documentation, except that
interest accruing beyond the 30th day after the date the guaranty agency
returned the claim is not reinsured unless the lender files a claim for
loss on the loan with the guarantor together with all required
documentation, prior to the 30th day;

\(7\) The lender satisfied all conditions of guarantee coverage set by
the agency, unless the agency reinstated guarantee coverage on the loan
following the lender\'s failure to satisfy such a condition pursuant to
written policies and procedures established by the agency;

\(8\) The agency paid or returned to the lender for additional
documentation a default claim thereon filed by the lender within 90 days
of the date the lender filed the claim or, if applicable, the additional
documentation, except that interest accruing beyond the 60th day after
the date the lender originally filed the claim is not reinsured;

\(9\) The agency submitted a request for the payment on a form required
by the Secretary no later than 30 days following payment of a default
claim to the lender;

\(10\) The loan was legally enforceable by the lender when the agency
paid a claim on the loan to the lender;

\(11\) The agency exercised due diligence in collection of the loan in
accordance with §682.410(b)(6);

\(12\) The agency and lender, if applicable, complied with all other
Federal requirements with respect to the loan including---

\(i\) Payment of origination fees;

\(ii\) For Consolidation loans disbursed on or after October 1, 1993,
and prior to October 1, 1998, payment on a monthly basis, of an interest
payment rebate fee calculated on an annual basis and equal to 1.05
percent of the unpaid principal and accrued interest on the loan;

\(iii\) For Consolidation loans for which the application was received
by the lender on or after October 1, 1998 and prior to February 1, 1999,
payment on a monthly basis, of an interest payment rebate fee calculated
on an annual basis and equal to 0.62 percent of the unpaid principal and
accrued interest on the loan;

\(iv\) For Consolidation loans disbursed on or after February 1, 1999,
payment of an interest payment rebate fee in accordance with paragraph
(a)(12)(ii) of this section; and

\(v\) Compliance with all default aversion assistance requirements in
§682.404(a)(2)(ii).

\(13\) The agency assigns the loan to the Secretary, if so directed, in
accordance with the requirements of §682.409; and

\(14\) The guaranty agency certifies to the Secretary that diligent
attempts have been made by the lender and the guaranty agency under
§682.411(h) to locate the borrower through the use of effective
skip-tracing techniques, including contact with the schools the student
attended.

\(b\) Notwithstanding paragraph (a) of this section, the Secretary may
waive his right to refuse to make or require repayment of a reinsurance
payment if, in the Secretary\'s judgment, the best interests of the
United States so require. The Secretary\'s waiver policy for violations
of paragraph (a)(3) or (a)(5) of this section is set forth in appendix D
to this part.

§ 682.409   Mandatory assignment by guaranty agencies of defaulted loans
to the Secretary.

\* \* \* \* \*

(c)(1) A guaranty agency must assign a loan to the Secretary under this
section at the time, in the manner, and with the information and
documentation that the Secretary requires. The agency must submit this
information and documentation in the form (including magnetic media) and
format specified by the Secretary.

\(2\) The guaranty agency must execute an assignment to the United
States of America of all right, title, and interest in the promissory
note or judgment evidencing a loan assigned under this section. If more
than one loan is made under an MPN, the assignment of the note only
applies to the loan or loans being assigned to the Secretary.

\(3\) If the agency does not provide the required information and
documentation in the form and format required by the Secretary, the
Secretary may, at his option---

\(i\) Allow the agency to revise the agency\'s submission to include the
required information and documentation in the specified form and format;

\(ii\) In the case of an improperly formatted computer tape, reformat
the tape and assess the cost of the activity against the agency;

\(iii\) Reorganize the material submitted and assess the cost of that
activity against the agency; or

\(iv\) Obtain from other agency records and add to the agency\'s
submission any information from the original submission, and assess the
cost of that activity against the agency.

\(4\) For each loan assigned, the agency shall submit to the Secretary
the following documents associated for each loan, assembled in the order
listed below:

\(i\) The original or a true and exact copy of the promissory note.

\(ii\) Any documentation of a judgment entered on the loan.

\(iii\) A written assignment of the loan or judgment, unless this
assignment is affixed to the promissory note.

\(iv\) The loan application, if a separate application was provided to
the lender.

\(v\) A payment history for the loan, as described in
§682.414(a)(1)(ii)(C). (vi) A collection history for the loan, as
described in §682.414(a)(1)(ii)(D).

\(vii\) The record of the school's delivery of the loan disbursements to
the borrower.

\(viii\) If the MPN or promissory note was signed electronically, an
affidavit or certification, and other supporting documentation specified
by the Secretary, regarding the creation and maintenance of the lender's
electronic MPN or promissory note, including authentication and
signature process.

\(5\) The agency may submit copies of required documents in lieu of
originals.

\(6\) The Secretary may accept the assignment of a loan without all of
the documents listed in paragraph (c)(4) of this section. If directed to
do so, the agency must retain these documents for submission to the
Secretary at some future date.

(d)(1) If the Secretary determines that the agency has not submitted a
document or record required by paragraph (c) of this section, and the
Secretary decides to allow the agency an additional opportunity to
submit the omitted document under paragraph (c)(3)(i) of this section,
the Secretary notifies the agency and provides a reasonable period of
time for the agency to submit the omitted record or document.

\(2\) If the omitted document is not submitted within the time specified
by the Secretary, the Secretary determines whether that omission impairs
the Secretary\'s ability to collect the loan.

\(3\) If the Secretary determines that the ability to collect the loan
has been impaired under paragraph (d)(2) of this section, the Secretary
assesses the agency the amount paid to the agency under the reinsurance
agreement and accrued interest at the rate applicable to the borrower
under §682.410(b)(3).

\(4\) The Secretary reassigns to the agency that portion of the loan
determined to be unenforceable by the Department.

##### 

##### § 682.414   Records, reports, and inspection requirements for guaranty agency programs.

\(a\) *Records.* (1)(i) The guaranty agency shall maintain current,
complete, and accurate records of each loan that it holds, including,
but not limited to, the records described in paragraph (a)(1)(ii) of
this section. The records must be maintained in a system that allows
ready identification of each loan\'s current status, updated at least
once every 10 business days. Any reference to a guaranty agency under
this section includes a third-party servicer that administers any aspect
of the FFEL programs under a contract with the guaranty agency, if
applicable.

\(ii\) The agency shall maintain---

\(A\) All documentation supporting the claim filed by the lender;

\(B\) Notices of changes in a borrower\'s address;

\(C\) A payment history showing the date and amount of each payment
received from or on behalf of the borrower by the guaranty agency, and
the amount of each payment that was attributed to principal, accrued
interest, and collection costs and other charges, such as late charges;

\(D\) A collection history showing the date and subject of each
communication between the agency and the borrower or endorser relating
to collection of a defaulted loan, each communication between the agency
and a credit bureau regarding the loan, each effort to locate a borrower
whose address was unknown at any time, and each request by the lender
for default aversion assistance on the loan;

\(E\) Documentation regarding any wage garnishment actions initiated by
the agency on the loan;

\(F\) Documentation of any matters relating to the collection of the
loan by tax-refund offset; and

\(G\) If the MPN or promissory note was signed electronically, an
affidavit or certification, and other supporting documentation specified
by the Secretary, regarding the creation and maintenance of the lender's
electronic MPN or promissory note, including the lender's authentication
and signature process.

\(H\) Any additional records that are necessary to document its right to
receive or retain payments made by the Secretary under this part and the
accuracy of reports it submits to the Secretary.

\(2\) A guaranty agency must retain the records required for each loan
for not less than 3 years following the date the loan is repaid in full
by the borrower, or for not less than 5 years following the date the
agency receives payment in full from any other source. However, in
particular cases, the Secretary may require the retention of records
beyond these minimum periods.

\(3\) A guaranty agency shall retain a copy of the audit report required
under §682.410(b) for not less than five years after the report is
issued.

(4)(i) The guaranty agency shall require a participating lender to
maintain current, complete, and accurate records of each loan that it
holds, including, but not limited to, the records described in paragraph
(a)(4)(ii) of this section. The records must be maintained in a system
that allows ready identification of each loan\'s current status.

\(ii\) The lender shall keep---

\(A\) A copy of the loan application if a separate application was
provided to the lender;

\(B\) A copy of the signed promissory note;

\(C\) The repayment schedule;

\(D\) A record of each disbursement of loan proceeds;

\(E\) Notices of changes in a borrower\'s address and status as at least
a half-time student;

\(F\) Evidence of the borrower\'s eligibility for a deferment;

\(G\) The documents required for the exercise of forbearance;

\(H\) Documentation of the assignment of the loan;

\(I\) A payment history showing the date and amount of each payment
received from or on behalf of the borrower, and the amount of each
payment that was attributed to principal, interest, late charges, and
other costs;

\(J\) A collection history showing the date and subject of each
communication between the lender and the borrower or endorser relating
to collection of a delinquent loan, each communication other than
regular reports by the lender showing that an account is current,
between the lender and a credit bureau regarding the loan, each effort
to locate a borrower whose address is unknown at any time, and each
request by the lender for default aversion assistance on the loan;

\(K\) Documentation of any MPN confirmation process or processes; and

\(L\) Any additional records that are necessary to document the validity
of a claim against the guarantee or the accuracy of reports submitted
under this part.

\(iii\) Except as provided in paragraph (a)(4)(iv) of this section, a
lender must retain the records required for each loan for not less than
3 years following the date the loan is repaid in full by the borrower,
or for not less than five years following the date the lender receives
payment in full from any other source. However, in particular cases, the
Secretary or the guaranty agency may require the retention of records
beyond this minimum period.

\(iv\) A lender shall retain a copy of the audit report required under
§682.305(c) for not less than five years after the report is issued.

(5)(i) A guaranty agency or lender may store the records specified in
paragraphs (a)(4)(ii)(C)--(L) of this section in accordance with 34 CFR
668.24(d)(3)(i) through (iv).

\(ii\) If a promissory note was signed electronically, the guaranty
agency or lender must store it electronically and it must be retrievable
in a coherent format.

\(iii\) A lender or guaranty agency holding a promissory note must
retain the original or a true and exact copy of the promissory note
until the loan is paid in full or assigned to the Secretary. When a loan
is paid in full by the borrower, the lender or guaranty agency must
return either the original or a true and exact copy of the note to the
borrower or notify the borrower that the loan is paid in full, and
retain a copy for the prescribed period.

##### § 682.610   Administrative and fiscal requirements for participating schools.

\(a\) *General.* Each school shall---

\(1\) Establish and maintain proper administrative and fiscal procedures
and all necessary records as set forth in the regulations in this part
and in 34 CFR part 668;

\(2\) Follow the record retention and examination provisions in this
part and in 34 CFR 668.24; and

\(3\) Submit all reports required by this part and 34 CFR part 668 to
the Secretary.

\(b\) *Loan record requirements.* In addition to records required by 34
CFR part 668, for each Stafford, SLS, or PLUS loan received by or on
behalf of its students, a school must maintain---

\(1\) A copy of the loan certification or data electronically submitted
to the lender, that includes the amount of the loan and the period of
enrollment for which the loan was intended;

\(2\) The cost of attendance, estimated financial assistance, and
estimated family contribution used to calculate the loan amount;

\(3\) For loans delivered to the school by check, the date the school
endorsed each loan check, if required;

\(4\) The date or dates of delivery of the loan proceeds by the school
to the student or to the parent borrower;

\(5\) For loans delivered by electronic funds transfer or master check,
a copy of the borrower\'s written authorization required under
§682.604(c)(3), if applicable, to deliver the initial and subsequent
disbursements of each FFEL program loan; and

\(6\) Documentation of any MPN confirmation process or processes the
school may have used.

\(c\) *Student status confirmation reports.* A school shall---

\(1\) Upon receipt of a student status confirmation report form from the
Secretary or a similar student status confirmation report form from any
guaranty agency, complete and return that report within 30 days of
receipt to the Secretary or the guaranty agency, as appropriate; and

\(2\) Unless it expects to submit its next student status confirmation
report to the Secretary or the guaranty agency within the next 60 days,
notify the guaranty agency or lender within 30 days---

\(i\) If it discovers that a Stafford, SLS, or PLUS loan has been made
to or on behalf of a student who enrolled at that school, but who has
ceased to be enrolled on at least a half-time basis;

\(ii\) If it discovers that a Stafford, SLS, or PLUS loan has been made
to or on behalf of a student who has been accepted for enrollment at
that school, but who failed to enroll on at least a half-time basis for
the period for which the loan was intended;

\(iii\) If it discovers that a Stafford, SLS, or PLUS loan has been made
to or on behalf of a full-time student who has ceased to be enrolled on
a full-time basis; or

\(iv\) If it discovers that a student who is enrolled and who has
received a Stafford or SLS loan has changed his or her permanent
address.

\(d\) Loan delivery reporting requirements. A school must report
information to the lender on the delivery of each disbursement of loan
funds to a borrower's account. This record must show the date and amount
of each disbursement and must be provided to the lender no later than 30
days after the delivery of the disbursement to the borrower.

##### 

##### 

Proposed Regulatory Language

**Loans Committee**

**Origin:** ED

**Issue:** FFEL/Perkins -- MPNs: Retention of Records Supporting
Disbursements to Borrowers and Lender Certification of E-Signatures

**Regulatory Cite:** §§674.19 and 674.50**    **

Summary of Change: Require an institution to retain a record of its
delivery of loan disbursements to a borrower until the loan repayment
obligation is satisfied and to submit this record when assigning a loan
to the Department for collection. Also ensure that a record of the
institution's electronic authentication and signature process is
maintained by the institution and submitted to the Department when an
institution assigns a Perkins promissory note that was electronically
signed.

Change:

##### §674.19   Fiscal procedures and records.

\* \* \* \* \*

\(d\) *Records and reporting.* (1) An institution shall establish and
maintain program and fiscal records that are reconciled at least
monthly.

\(2\) Each year an institution shall submit a Fiscal Operations Report
plus other information the Secretary requires. The institution shall
insure that the information reported is accurate and shall submit it on
the form and at the time specified by the Secretary. (3) When assigning
an electronically signed promissory note or MPN to the Secretary, an
institution must submit an affidavit or certification, and supporting
documentation specified by the Secretary, regarding the creation and
maintenance of the institution's electronic MPN or promissory note,
including the of the institution's authentication and signature process.

\(e\) *Retention of records*---(1) *Records.* An institution shall
follow the record retention and examination provisions in this part and
in 34 CFR 668.24.

\(2\) *Loan records.*

\(i\) An institution shall retain a record of disbursements for each
loan made to a borrower on an MPN. This record must show the date and
amount of each disbursement.

\(ii\) For any loan signed electronically, an institution must maintain
an affidavit or certification, and other supporting documentation
specified by the Secretary, regarding the creation and maintenance of
the institution's electronic MPN or promissory note, including the
institution's authentication and signature process.

\(iii\) An institution shall maintain a repayment history for each
borrower. This repayment history must show the date and amount of each
repayment over the life of the loan. It must also indicate the amount of
each repayment credited to principal, interest, collection costs, and
either penalty or late charges.

\(iv\) The history must also show the date, nature, and result of each
contact with the borrower in the collection of an overdue loan. The
institution shall include in the repayment history copies of all
correspondence to or from the borrower, except bills, routine overdue
notices, and routine form letters.

\(3\) *Period of retention of disbursement* *records, electronic*
*authentication and signature records,* *and* *repayment records.*

\(i\) An institution shall retain disbursement and electronic
authentication and signature records for each loan made using an MPN
until the loan is canceled, repaid, or otherwise satisfied.

\(ii\) An institution shall retain repayment records, including
cancellation and deferment requests, for at least three years from the
date on which a loan is assigned to the Department of Education,
canceled, or repaid.

\(4\) *Manner of retention of promissory notes and repayment schedules.*
An institution shall keep the original promissory notes and repayment
schedules until the loans are satisfied. If required to release original
documents in order to enforce the loan, the institution must retain
certified true copies of those documents.

\(i\) An institution shall keep the original paper promissory note or
original paper Master Promissory Note (MPN) and repayment schedules in a
locked, fireproof container.

\(ii\) If a promissory note was signed electronically, the institution
must store it electronically and the promissory note must be retrievable
in a coherent format.

\(iii\) After the loan obligation is satisfied, the institution shall
return the original or a true and exact copy of the note marked "paid in
full" to the borrower, or otherwise notify the borrower in writing that
the loan is paid in full, and retain a copy for the prescribed period.

\(iv\) An institution shall maintain separately its records pertaining
to cancellations of Defense, NDSL, and Federal Perkins Loans.

\(v\) Only authorized personnel may have access to the loan documents.

##### 

##### § 674.50   Assignment of defaulted loans to the United States.

\* \* \* \* \*

\(b\) An institution may submit a defaulted note for assignment only
during the submission period established by the Secretary.

\(c\) The Secretary may require an institution to submit the following
documents for any loan it proposes to assign---

\(1\) An assignment form provided by the Secretary and executed by the
institution, which must include a certification by the institution that
it has complied with the requirements of this subpart, including at
least a first level collection effort as described in §674.45(a) in
attempting collection on the loan.

\(2\) The original promissory note or a certified copy of the original
note.

\(3\) A copy of the repayment schedule.

\(4\) A certified copy of any judgment order entered on the loan.

\(5\) A complete statement of the payment history.

\(6\) Copies of all approved requests for deferment and cancellation.

\(7\) A copy of the notice to the borrower of the effective date of
acceleration and the total amount due on the loan.

\(8\) Documentation that the institution has withdrawn the loan from any
firm that it employed for address search, billing, collection or
litigation services, and has notified that firm to cease collection
activity on the loans.

\(9\) Copies of all pleadings filed or received by the institution on
behalf of a borrower who has filed a petition in bankruptcy and whose
loan obligation is determined to be nondischargeable.

\(10\) Documentation that the institution has complied with all of the
due diligence requirements described in paragraph (a)(1) of this section
if the institution has a cohort default rate that is equal to or greater
than 20 percent as of June 30 of the second year preceding the
submission period. (11) A record of disbursements for each loan made to
a borrower on a Master Promissory Note (MPN) that shows the date and
amount of each disbursement.

\(12\) For any electronically signed promissory note or MPN, an
affidavit or certification, and other supporting documentation as
specified by the Secretary, regarding the creation and maintenance of
the institution's electronic MPN or promissory note, including the
institution's authentication and signature process.

Proposed Regulatory Language

**Loans Committee**

**Origin:** ED

**Issue:** Perkins -- Child or Family Service Cancellation

**Regulatory Cite:** §674.56

Summary of Change: Specify that to qualify for child or family service
cancellation on a Perkins Loan, a borrower who is a full-time,
non-supervisory employee of a child or family service agency must be
providing services \"directly and exclusively\" to high-risk children
from low-income communities.

Change:

§674.56   Employment cancellation---Federal Perkins, NDSL and Defense
loans.

\(b\) *Cancellation for full-time employment in a public or private
nonprofit child or family service agency.* (1) An institution must
cancel up to 100 percent of the outstanding balance on a borrower\'s
Federal Perkins or NDSL made on or after July 23, 1992, for service as a
full-time employee in a public or private nonprofit child or family
service agency who is providing services directly and exclusively to
high-risk children who are from low-income communities and the families
of these children, or who is supervising the provision of services to
high-risk children who are from low-income communities and the families
of these children.

\(2\) An institution must cancel up to 100 percent of the outstanding
loan balance on a Federal Perkins, NDSL or Defense loan made prior to
July 23, 1992, for employment in a child or family service agency on or
after October 7, 1998, if the cancellation benefits provided under this
section are not included in the terms of the borrower\'s promissory
note.

Proposed Regulatory Language

**Loans Committee**

**Origin:** ED

**Issue:** Perkins -- "Reasonable" Collection Costs

**Regulatory Cite:** §§674.45 and 674.47

Summary of Change: Limit collection costs an institution may assess
against a Perkins Loan borrower to 24 percent of unpaid principal and
accrued interest.

Change:

§674.45   Collection procedures.

\* \* \* \* \* \* \*

(e)(1) Subject to §674.47(d), the institution shall assess against the
borrower all reasonable costs incurred by the institution with regard to
a loan obligation.

\(2\) The institution shall determine the amount of collection costs
that shall be charged to the borrower for actions required under this
section, and §§674.44, 674.46, 674. 48, and 674.49, based on either---

\(i\) Actual costs incurred for these actions with regard to the
individual borrower\'s loan; or

\(ii\) Average costs incurred for similar actions taken to collect loans
in similar stages of delinquency.

\(3\) Reasonable collection costs charged to the borrower may not exceed
24% of the unpaid principal and accrued interest on the loan.

\(4\) The Fund must be reimbursed for collection costs initially charged
to the Fund and subsequently paid by the borrower.

Proposed Regulatory Language

**Loans Committee**

**Origin:** ED

**Issue:** Perkins -- Mandatory Assignment of Defaulted Loans

**Regulatory Cite:** §674.50

Summary of Change: Provide the Department with the authority to require
assignment of a Perkins Loan if the outstanding balance on the loan is
\$50 or more, the loan has been in default for five or more years, and a
payment has not been received on the loan in the prior year.

Change:

§674.50   Assignment of defaulted loans to the United States.

\(a\) An institution may submit a defaulted loan note to the Secretary
for assignment to the United States if---

\(1\) The institution has been unable to collect on the loan despite
complying with the diligence procedures, including at least a first
level collection effort as described in §674.45(a) and litigation, if
required under §674.46(a), to the extent these actions were required by
regulations in effect on the date the loan entered default;

\(2\) The amount of the borrower\'s account to be assigned, including
outstanding principal, accrued interest, collection costs and late
charges is \$25.00 or greater; and

\(3\) The loan has been accelerated.

\(b\) An institution may submit a defaulted note for assignment only
during the submission period established by the Secretary.

\(c\) The Secretary may require an institution to submit the following
documents for any loan it proposes to assign---

\(1\) An assignment form provided by the Secretary and executed by the
institution, which must include a certification by the institution that
it has complied with the requirements of this subpart, including at
least a first level collection effort as described in §674.45(a) in
attempting collection on the loan.

\(2\) The original promissory note or a certified copy of the original
note.

\(3\) A copy of the repayment schedule.

\(4\) A certified copy of any judgment order entered on the loan.

\(5\) A complete statement of the payment history.

\(6\) Copies of all approved requests for deferment and cancellation.

\(7\) A copy of the notice to the borrower of the effective date of
acceleration and the total amount due on the loan.

\(8\) Documentation that the institution has withdrawn the loan from any
firm that it employed for address search, billing, collection or
litigation services, and has notified that firm to cease collection
activity on the loans.

\(9\) Copies of all pleadings filed or received by the institution on
behalf of a borrower who has filed a petition in bankruptcy and whose
loan obligation is determined to be nondischargeable.

\(10\) Documentation that the institution has complied with all of the
due diligence requirements described in paragraph (a)(1) of this section
if the institution has a cohort default rate that is equal to or greater
than 20 percent as of June 30 of the second year preceding the
submission period.

\(d\) Except as provided in paragraph (e) of this section, and subject
to paragraph (g) of this section, the Secretary accepts an assignment of
a note described in paragraph (a) of this section and submitted in
accordance with paragraph (c) of this section.

\(e\) The Secretary does not accept assignment of a loan if---

\(1\) The institution has not provided the Social Security number of the
borrower, unless the loan is submitted for assignment under paragraph
(i) of this section;

\(2\) The borrower has received a discharge in bankruptcy, unless---

\(i\) The bankruptcy court has determined that the loan obligation is
nondischargeable and has entered judgment against the borrower; or

\(ii\) A court of competent jurisdiction has entered judgment against
the borrower on the loan after the entry of the discharge order; or

\(3\) The institution has initiated litigation against the borrower,
unless the judgment has been entered against the borrower and assigned
to the United States.

(f)(1) The Secretary provides an institution written notice of the
acceptance of the assignment of the note. By accepting assignment, the
Secretary acquires all rights, title, and interest of the institution in
that loan.

\(2\) The institution shall endorse and forward to the Secretary any
payment received from the borrower after the date on which the Secretary
accepted the assignment, as noted in the written notice of acceptance.

(g)(1) The Secretary may determine that a loan assigned to the United
States is unenforceable in whole or in part because of the acts or
omissions of the institution or its agent. The Secretary may make this
determination with or without a judicial determination regarding the
enforceability of the loan.

\(2\) The Secretary may require the institution to reimburse the Fund
for that portion of the outstanding balance on a loan assigned to the
United States which the Secretary determines to be unenforceable because
of an act or omission of that institution or its agent.

\(3\) Upon reimbursement to the Fund by the institution, the Secretary
shall transfer all rights, title and interest of the United States in
the loan to the institution for its own account.

\(h\) An institution shall consider a borrower whose loan has been
assigned to the United States for collection to be in default on that
loan for the purpose of eligibility for title IV financial assistance,
until the borrower provides the institution confirmation from the
Secretary that he or she has made satisfactory arrangements to repay the
loan.

[(i)]{.underline} [The Secretary may require an institution]{.underline}
[to submit a defaulted loan]{.underline} [to the Secretary for
assignment]{.underline} [if]{.underline} [the loan meets
the]{.underline} [following criteria\--]{.underline}

[(1) The amount of the borrower's account to be assigned, including
outstanding principal, accrued interest, collection costs,]{.underline}
[and late charges,]{.underline} [is \$50.00 or]{.underline}
[more;]{.underline}

[(2)]{.underline} [The loan has been in default for]{.underline} [five
or more]{.underline} [years; and]{.underline}

[(3) A payment has not been received on the loan in the past
year.]{.underline}

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