Proposed Regulatory Language

Committee I -- Loans

**Quick Fix:** No

**Origin:** ED

**Issue:** Perkins -- Loan Disbursements

**Regulatory Cite:** §674.2(b) and §674.16(d)(2)

Summary of Change: The proposed changes would allow for the
implementation of a master promissory note in the Perkins Loan Program.
The proposed language would modify the definition of "making a loan" and
add a definition of "master promissory note" in §674.2(b). Under
§674.16(d)(2), two changes have been proposed. The first change would
remove the requirement that a borrower sign a promissory note for each
award year. The second change would add new language clarifying when the
master promissory note expires.

\(1\) Change (context):

[§674.2 Definitions.]{.underline}

\* \* \* \* \*

\(b\) The Secretary defines other terms used in this part as follows:

\*\*\*

*Making of a loan:* When the institution makes the first disbursement of
a loan to a student for an award year.

Master promissory note (MPN): A promissory note under which the borrower
may receive loans for a single award year or multiple award years.

\* \* \* \* \*

[§674.16 Making and disbursing loans.]{.underline}

\* \* \* \* \*

(d)(1) The institution shall disburse funds to a student or the
student\'s account in accordance with 34 CFR 668.164.

\(2\) The institution shall ensure that each loan is supported by a
legally enforceable promissory note as proof of the borrower's
indebtedness.

\(3\) If the institution uses the Master Promissory Note (MPN), the
institution's ability to make additional loans based on an MPN will
automatically expire upon the earliest of-

(A) The date the institution receives written notification from the
    borrower requesting that the MPN no longer be used as the basis for
    additional loans;

(B) Twelve months after the date the borrower signed the MPN if no
    disbursements are made by the institution under that MPN; or

(C) 

(D) \(C\) Ten years from the date the borrower signed the MPN or the
    date the institution receives the MPN, except that a remaining
    portion of a loan may be disbursed after this date.

> \* \* \* \* \*

**(2) Amendatory Language:**

Section 674.2(b) is amended:

A. By revising the definition of "Making of a loan".

B. By adding a new definition of "Master promissory note".

The revision and addition read as follows:

[§674.2 Definitions]{.underline}.

\* \* \* \* \*

\(b\) \*\*\*

[Making of a loan]{.underline}: When the institution makes the first
disbursement of a loan to a student for an award year.

[Master promissory note]{.underline}: A promissory note under which the
borrower may receive loans for a single award year or multiple award
years.

\* \* \* \* \*

Section 674.16 is amended:

A. In paragraph (d)(2), by removing "obtain the borrower's signature on
a promissory note for each award year before it disburses any loan funds
to the borrower under that note for that award year." and adding, in its
place, "ensure that each loan is supported by a legally enforceable
promissory note as proof of the borrower's indebtedness.".

B. By adding a new paragraph (d)(3).

The addition reads as follows:

[§674.16 Making and disbursing loans]{.underline}.

\* \* \* \* \*

\(d\) \*\*\*

\(3\) If the institution uses the Master Promissory Note (MPN), the
institution's ability to make additional loans based on an MPN will
automatically expire upon the earliest of-

\(A\) The date the institution receives written notification from the
borrower requesting that the MPN no longer be used as the basis for
additional loans;

\(B\) Twelve months after the date the borrower signed the MPN if no
disbursements are made by the institution under that MPN; or

\(C\) Ten years from the date the borrower signed the MPN or the date
the institution receives the MPN, except that a remaining portion of a
loan may be disbursed after this date.

\* \* \* \* \*

Proposed Regulatory Language

**Committee I -- Loans**

**Quick Fix:** Yes

**Origin:** ED Proposed 12/14/2001

**Issue:** Perkins -- Transfer of Fund

**Regulatory Cite:** 674.17

**Summary of Change:** The proposed change to §674.17 would clarify the
existing requirement of assignment of Perkins Loans to the Department
when an institution transfers its fund to the Department when it
withdraws from the Federal Perkins Loan. This change deletes the
references in the regulations to schools assigning their loans to other
institutions.

**(1) Change (context):**

§674.17 Federal Interest in allocated funds -- transfer of Fund.

\(a\) If an institution responsible for a Federal Perkins Loan fund
closes or no longer wants to participate in the program, the Secretary
directs the institution to take the following steps to protect the
outstanding loans and the Federal interest in that Fund:

\(1\) A capital distribution of the liquid assets of the Fund according
to section 466(c) of the Act.

\(2\) The assignment of the outstanding loans to the [United
States]{.underline} ~~Department of Education~~.

\(b\) An institution that assigns outstanding loans under this paragraph
relinquishes its interest in those loans.

\* \* \* \* \*

**(2) Amendatory Language:**

# [§674.17 \[Amended\]]{.underline}

Section 674.17 is amended:

A. In paragraph (a), by removing in the introductory sentence "one or
more of".

B. By removing paragraph (a)(2).

C. By redesignating paragraph (a)(3) as (a)(2).

D. In redesignated paragraph (a)(2), by removing "transfer" and adding,
in its place, "assignment".

E. In redesignated paragraph (a)(2), by removing "Department of
Education" and adding, in its place, "United States".

F. In paragraph (b), by removing "transfers" and adding, in its place,
"assigns".

> G. By removing paragraphs (c), (d), and (e).

Proposed Regulatory Language

**Committee I -- Loans**

**Quick Fix:** Yes

**Origin:** Fed Up -- Additional Agenda Item

**Issue:** Perkins -- Coordinating Multiple Monthly Payments for Perkins
Loans

**Regulatory Cite:** 674.33(b)(2) & 674.42(a)(11)

**Summary of Change:** When an institution requires a borrower to pay a
minimum monthly repayment, it is difficult for institutions to
coordinate the minimum monthly repayment with other institutions unless
notified by the borrower. The revisions require an institution to
coordinate minimum monthly repayments only at the request of a borrower.
In addition, the revisions require an institution to notify the borrower
that the borrower must initiate a request to coordinate minimum monthly
payments among institutions.

**(1) Change (context):**

§674.33 Repayment.

\* \* \* \* \*

\(b\) \*\*\*

\(2\) *Minimum monthly repayment of loans from more than one
institution.* If a borrower has received loans from more than one
institution and has notified the institution that he or she wants the
minimum monthly payment determination to be based on payments due to
other institutions, the following rules apply:

\(i\) If the total of the monthly repayments is equal to at least the
minimum monthly repayment, no institution may exercise a minimum monthly
repayment option.

\(ii\) If only one institution exercises the minimum monthly repayment
option when the monthly repayment would otherwise be less than the
minimum repayment option, that institution receives the difference
between the minimum monthly repayment and the repayment owed to the
other institution.

\(iii\) If each institution exercises the minimum repayment option, the
minimum monthly repayment must be divided among the institutions in
proportion to the amount of principal advanced by each institution.

\(3\) *Minimum monthly repayment of both Defense and NDSL or Federal
Perkins loans from one or more institutions.* If the borrower has
notified the institution that he or she wants the minimum monthly
payment determination to be based on payments due to other institutions,
and if the total monthly repayment is less than \$30 and the monthly
repayment on a Defense loan is less than \$15 a month, the amount
attributed to the Defense loan may not exceed \$15 a month.

\* \* \* \* \*

[§674.42 Contact with the borrower.]{.underline}

\(a\) \*\*\*

\(11\) An explanation that if a borrower is required to make minimum
monthly repayments, and the borrower has received loans from more than
one institution, the borrower must notify the institution if he or she
wants the minimum monthly payment determination to be based on payments
due to other institutions.

**(2) Amendatory Language:**

# [§674.33 \[Amended\]]{.underline}

Section 674.33 is amended:

A. In paragraph (b)(2), by adding, in the introductory sentence, "and
has notified the institution that he or she wants the minimum monthly
payment determination to be based on payments due to other institutions"
after "institution".

B. In paragraph (b)(3), by adding, in the introductory sentence, "the
borrower has notified the institution that he or she wants the minimum
monthly payment determination to be based on payments due to the other
institutions, and if" after "If".\
§[674.42 \[Amended\]]{.underline}

Section 674.42(a) is amended by adding a new paragraph (a)(11) to read
as follows:

[§674.42 Contact with the borrower]{.underline}.

(a)\*\*\*

\(11\) An explanation that if a borrower is required to make minimum
monthly repayments, and the borrower has received loans from more than
one institution, the borrower must notify the institution if he or she
wants the minimum monthly payment determination to be based on payments
due to other institutions.

\* \* \* \* \*

Proposed Regulatory Language

**Committee I -- Loans**

**Quick Fix:** Yes

**Origin:** Fed Up #13

**Issue:** Perkins - Promissory Notes

**Regulatory Cite:** 674.42(a)(10)

**Summary of Change:** Revise the current regulations to require an
institution to provide only, as part of its repayment information or
during the exit interview, contact information that allows the borrower
to request a copy of the borrower's signed promissory note.

**(1) Change (context):**

[§674.42 Contact with the borrower.]{.underline}

\* \* \* \* \*

(a)(10)The contact information of a party who, upon request of the
borrower, will provide the borrower a copy of his or her signed
promissory note.

\* \* \* \* \*

**(2) Amendatory Language:**

Section 674.42 (a)(10) is amended to read as follows:

§674.42 Contact with the borrower.

\(a\) \*\*\*

\(10\) The contact information of a party who, upon the request of the
borrower, will provide the borrower with a copy of his or her signed
promissory note.

\* \* \* \* \*

Proposed Regulatory Language

Committee I -- Loans

**Quick Fix:** No

**Origin:** Fed Up (not on 12/14/01 list)

**Issue:** Perkins -- Exit Counseling

**Regulatory Cite:** §674.42(b)

**Summary of Change:** The proposed change would update the counseling
requirements and clarify that parties other than the school may provide
the counseling.

**(1) Change (context):**

[§674.42 Contact with borrowers.]{.underline}

\* \* \* \* \*

\(b\) *Exit interview.* (1) An institution must ensure that exit
counseling is conducted with each borrower either in person, by
audiovisual presentation, or by interactive electronic means. The
institution must ensure that exit counseling is conducted shortly before
the borrower ceases at least half-time study at the institution. As an
alternative, in the case of a student enrolled in a correspondence
program or a study-abroad program that the school approves for credit,
the school may provide written counseling material by mail within 30
days after the borrower completes the program. If the 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 counseling material to the borrower at the borrower's last known
address within 30 days after learning that the borrower has withdrawn
from school or failed to complete exit counseling as required.

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

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

\(ii\) Review for the borrower available repayment options (*e.g.* loan
consolidation and refinancing, including the consequences of
consolidating a Federal Perkins Loan);

\(iii\) Suggest to the borrower debt-management strategies that would
facilitate repayment;

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

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

\(vi\) Emphasize that the borrower is obligated to repay the full amount
of the loan even if the borrower has not completed 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 borrower purchased from the school;

\(vii\) Review for the borrower the conditions under which the borrower
may defer repayment or obtain partial cancellation of a loan;

\(viii\) Require the borrower to provide current information concerning
name, address, social security number, references, and driver's license
number, the borrower's expected permanent address, the address of the
borrower's next of kin, as well as the name and address of the
borrower's expected employer; and

\(ix\) Review for the borrower information on the availability of the
Student Loan Ombudsman's office.

\(3\) If exit 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 exit counseling.

\(4\) The institution must maintain documentation substantiating the
school's compliance with this section for each borrower.

**(2) Amendatory Language:**

Section 674.42 is amended:

A. By revising paragraph (b)(1).

B. In paragraph (b)(2), in the introductory text, by removing "In
conducting the" and adding, in its place, "The"; and by removing ", the
school".

C. In paragraph (b)(2)(i), by removing "that" and adding, in its place,
"the".

D. By revising paragraph (b)(2)(iii).

E. In paragraph (b)(2)(v), by removing "in forceful terms".

F. In paragraph (b)(2)(vii), by removing "with" and adding, in its
place, "for".

G. In paragraph (b)(2)(viii), by removing "corrections to the
institution's records" and adding, in its place, "current information".

H. In paragraph (b)(2)(ix), by removing "with" and adding, in its place,
"for".

I. By removing paragraph (b)(3).

J. By redesignating paragraphs (b)(4) and (b)(5 as (b)(3) and (b)(4)
respectively.

K. By revising paragraph (b)(3).

The revisions reads as follows:

> [§674.42 Contact with borrowers]{.underline}.
>
> \* \* \* \* \*
>
> \(b\) Exit Interview. (1) An institution must ensure that exit
> counseling is conducted with each borrower either in person, by
> audiovisual presentation, or by interactive electronic means. The
> institution must ensure that exit counseling is conducted shortly
> before the borrower ceases at least half-time study at the
> institution. As an alternative, in the case of a student enrolled in a
> correspondence program or a study-abroad program that the school
> approves for credit, the school may provide written counseling
> material by mail within 30 days after the borrower completes the
> program. If the 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 counseling
> material to the borrower at the borrower's last known address within
> 30 days after learning that the borrower has withdrawn from school or
> failed to complete exit counseling as required.
>
> \* \* \* \* \*

(b)(2)(iii) Suggest to the borrower debt-management strategies that
would facilitate repayment;

> \* \* \* \* \*

(b)(3) If exit 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 exit counseling.

Proposed Regulatory Language

Committee I -- Loans

**Quick Fix:** No

**Origin:** Fed Up #14

**Issue:** Perkins -- Late Charges

**Regulatory Cite:** §674.43(b)(2)

**Summary of Change:** The proposed changes would make the assessment of
late charges optional in the Federal Perkins Loan program instead of
mandatory.

**(1) Change (context):**

[§674.43 -- Billing procedures.]{.underline}

\* \* \* \* \*

\(b\) \*\*\*

\(2\) Subject to §674.47(a), the institution may assess a late charge
for loans made for periods of enrollment beginning on or after January
1, 1986, during the period in which the institution takes any steps
described in this section to secure \--

\(i\) Any part of an installment payment not made when, or

\(ii\) A request for deferment, cancellation, or postponement of
repayment on the loan that contains sufficient information to enable the
institution to determine whether the borrower is entitled to the relief
requested.

3\) The institution may determine the amount of the late charge imposed
for loans described in paragraph (b)(2) of this section based on either
\--

\(i\) Actual costs incurred for actions required under this section to
secure the required payment or information from the borrower; or

\(ii\) The average cost incurred for similar attempts to secure payments
or information from other borrowers.

\* \* \* \* \*

**(2) Amendatory Language:**

§674.43 \[Amended\]

Section 674.43(b) is amended:

A. In paragraph (2), by removing "shall" and adding, in its place,
"may".

B. In paragraph (3), by removing "shall" and adding, in its place,
"may".

Proposed Regulatory Language

**Committee I -- Loans**

**Quick Fix:** Yes

**Origin:** Fed Up #21

**Issue:** Perkins -- Credit Bureau Reporting

**Regulatory Cite:** 674.45(a)(1)

**Summary of Change:** The proposed change to §674.45(a)(i) would
clarify when a borrower's default status is to be reported to at least
one national credit bureau.

**(1) Change (context):**

[§674.45 Collection procedures.]{.underline}

\(a\) The term \"collection procedures,\" as used in this subpart,
includes that series of more intensive efforts, including litigation as
described in §674.46, to recover amounts owed from defaulted borrowers
who do not respond satisfactorily to the demands routinely made as part
of the institution\'s billing procedures. If a borrower does not
satisfactorily respond to the final demand letter or the following
telephone contact made in accordance with §674.43(f), the institution
shall \--

\(1\) Report the account as being in default to any one national credit
bureau; and

\* \* \* \* \*

**(2) Amendatory Language:**

[§674.45 \[Amended\]]{.underline}

Section 674.45 (a)(1) is amended by removing "defaulted account" and
adding, in its place, "the account as being in default".

Proposed Regulatory Language

Committee I -- Loans

**Quick Fix:** No

**Origin:** Fed Up #20

**Issue:** Perkins -- Write-Offs

**Regulatory Cite:** §674.47(h)

**Summary of Change:** The proposed change to §674.47(h) deletes the
requirement that institutions may cease collection activity on a
defaulted account with a balance of less than \$25. New language has
been added to permit institutions to write off an account with a balance
of less than \$25, or less than \$50 if the borrower has been billed for
this balance (in accordance with §674.43(a)) for at least two years. In
addition, new language has been added to indicate that the borrower is
relieved of all repayment obligations when an institution writes off an
account.

**(1) Change (context):**

[§674.47 Costs chargeable to the Fund.]{.underline}

\* \* \* \* \*

\(g\) [Cessation of collection activity of defaulted
accounts]{.underline}*.*

An institution may cease collection activity on a defaulted account with
a balance of less than \$200, including outstanding principal, accrued
interest, collection costs, and late charges, if \--

\(1\) The institution has carried out the due diligence procedures
described in subpart C of this part with regard to this account; and

\(2\) For a period of at least 4 years, the borrower has not made a
payment on the account, converted the account to regular repayment
status, or applied for a deferment, postponement, or cancellation on the
account.

\(h\) Write-offs of accounts. (1) Notwithstanding any other provision in
this subpart, an institution may write off an account, including
outstanding principal, accrued interest, collection costs, and late
charges, with a balance of-

(i) less than \$25; or

(ii) less than \$50 if, for a period of at least 2 years, the borrower
     has been billed for this balance in accordance with §674.43(a).

\(2\) An institution that writes off an account under this paragraph may
no longer include the amount of the account as an asset of the Fund.

[(3) When the institution writes off an account, the borrower is
relieved of all repayment obligations.]{.underline}

**(2) Amendatory Language:**

Section 674.47 is amended:

A. By removing paragraph (g)(1).

B. By redesignating paragraphs (g)(2)(i) and (ii) as (g)(1) and (2).

C. In redesignated paragraph (g)(1), by removing "the" and adding, in
its place, "this".

D. In the heading to paragraph (h), by removing "of less than \$5".

E. By revising paragraph (h)(1).

F. By adding a new paragraph (h)(3).

> The revision and addition read as follows:
>
> [§674.47 Costs chargeable to the Fund]{.underline}.
>
> \* \* \* \* \*
>
> \(h\) \*\*\*
>
> \(1\) Notwithstanding any other provision in this subpart, an
> institution may write off an account, including outstanding principal,
> accrued interest, collection costs, and late charges, with a balance
> of-

(i) less than \$25; or

(ii) less than \$50 if, for a period of at least 2 years, the borrower
     has been billed for this balance in accordance with §674.43(a).

\* \* \* \* \*

(h)\*\*\*

\(3\) When the institution writes off an account, the borrower is
relieved of all repayment obligations.

\* \* \* \* \*

Proposed Regulatory Language

**Committee I -- Loans**

**Quick Fix:** Yes

**Origin:** ED Proposed 12/14/2001

**Issue:** Perkins -- Assignment of Cancelled Loans

**Regulatory Cite:** 674.50(e)(4)

**Summary of Change:** Revisions are made to the assignment regulations
to conform to the assignment requirements for loans that have been
approved preliminarily for a disability discharge on or after July 1,
2002 and have been assigned to the Department \[see § 674.61(b)(3)\].

**(1) Change (context):**

[§674.50 Assignment of defaulted loans to the United
States.]{.underline}

\* \* \* \* \*

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

\*\*\*

\* \* \* \* \*

**Amendatory Language:**

[§674.50 \[Amended\]]{.underline}

Section 674.50 is amended by --

A.  Adding "or" after the semicolon in paragraph (e)(2)(ii).

B.  Deleting "; or" at the end of paragraph (e)(3) and adding a period
    in its place.

C.  Deleting paragraph (e)(4).

Proposed Regulatory Language

**Committee I -- Loans**

**Quick Fix:** Yes

**Origin:** ED Proposed 12/14/2001

**Issue:** Perkins -- Reimbursement to the Fund

**Regulatory Cite:** 674.50(g)(2)

**Summary of Change:** The proposed changed to §674.50(g)(2) would make
it optional for the Secretary to require an institution to reimburse the
Fund if an assigned loan is unenforceable because of an act or omission
by the school (see §674.13(a)). This proposed change conforms to an
earlier change made in §674.13.

**(1) Change (context):**

[§674.50 Assignment of defaulted loans to the United
States.]{.underline}

\* \* \* \* \*

(g)\*\*\*

\(2\) 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.

\* \* \* \* \*

**(2) Amendatory Language:**

[§674.50 \[Amended\]]{.underline}

Section 674.50 (g)(2)is amended by adding "Secretary may require the"
after "The" and by removing "shall" and adding, in its place, "to".