Proposed Regulatory Language

**Loans Committee**

**Origin:** ED and Non-Federal Negotiators

**Issue:** FFEL/DL Identity Theft Discharge

**Regulatory Cite:** §§682.208, 682.211, 682.402, and 682.411

**Summary of Change:** Regulations published in August and November of
2006 implemented changes made to the section 437(c) of the HEA by the
HERA to authorize a discharge of a FFEL or Direct Loan Program loan if
the borrower's eligibility to borrow was falsely certified because the
borrower was a victim of the crime of identity theft. The regulations
base the discharge of a FFEL or Direct Loan on the determination by a
Federal, State or local court that the "crime" of identity theft had
occurred. After careful consideration, the Department decided against
making changes to the regulations as published but agreed with
non-Federal negotiators that lenders should receive relief of certain
due diligence requirements on a loan when identity theft is suspected.

We are proposing changes to allow lenders to temporarily waive credit
bureau reporting requirements and suspend collection requirements for 90
days, and to place the borrower in an administrative forbearance for a
period of up to twelve months while the lender investigates an alleged
incident of identity theft.

**Tentative Agreement:** No

**Change:**

[§682.208 Due diligence in servicing a loan]{.underline}.

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

(b)(1) An eligible lender of a FFEL loan shall report to at least one
national credit bureau---

\(i\) The total amount of FFEL loans the lender has made to the
borrower, within 90 days of each disbursement;

\(ii\) The outstanding balance of the loans;

\(iii\) Information concerning the repayment status of the loan, no less
frequently than every 90 days or quarterly after a change in that status
from current to delinquent;

\(iv\) The date the loan is fully repaid by, or on behalf of, the
borrower, or discharged by reason of the borrower\'s death, bankruptcy,
or total and permanent disability, within 90 days after that date;

\(v\) Other information required by law to be reported.

\(2\) An eligible lender that has acquired a FFEL loan shall report to
at least one national credit bureau the information required by
paragraph (b)(1)(ii)-(v) of this section within 90 days of its
acquisition of the loan.

\(3\) Upon receipt of a valid identity theft report as defined in
section 603(q)(4) of the Fair Credit Reporting Act (15 USC 1681a) or
notification from a credit bureau that information furnished is a result
of an alleged identity theft as defined in §682.402(e)(14), an eligible
lender shall suspend credit bureau reporting for a period not to exceed
90 days while the lender conclusively determines the enforceability of a
loan.

\(i\) If the lender determines that a loan does not qualify for a
discharge under §682.402(e)(1)(i)(C), but is nonetheless unenforceable,
the lender must-

\(A\) Notify the credit bureau of its determination; and

\(B\) Comply with the §682.411(o)(3).

[§682.211 Forbearance]{.underline}.

\* \* \* \* \*

\(f\) A lender may grant forbearance, upon notice to the borrower or if
applicable, the endorser, with respect to payments of interest and
principal that are overdue or would be due---

\(1\) For a properly granted period of deferment for which the lender
learns the borrower did not qualify;

\(2\) Upon the beginning of an authorized deferment period under Sec.
682.210, or an administrative forbearance period as specified under
paragraph (f)(11) or (i)(2) of this section;

\(3\) For the period beginning when the borrower entered repayment
without the lender\'s knowledge until the first payment due date was
established;

\(4\) For the period prior to the borrower\'s filing of a bankruptcy
petition as provided in Sec. 682.402(f);

\(5\) For the periods described in Sec. 682.402(c) in regard to the
borrower\'s total and permanent disability;

\(6\) Upon receipt of a valid identity theft report as defined in
section 603(q)(4) of the Fair Credit Reporting Act (15 USC 1681a) or
notification from a credit bureau that information furnished is a result
of an alleged identity theft as defined in §682.402(e)(14), for a period
not to exceed 90 days necessary for the lender to conclusively determine
the enforceability of a loan. If the lender determines that the loan
does not qualify for discharge under §682.402(e)(1)(i)(C), but is
nonetheless unenforceable, the lender must comply with §682.411(o)(3).

\(7\) For a period not to exceed an additional 60 days after the lender
has suspended collection activity for the initial 60-day period required
pursuant to Sec. 682.**211**(i)(6) and Sec. 682.402(b)(3), when the
lender receives reliable information that the borrower (or student in
the case of a PLUS loan) has died;

\(8\) For periods necessary for the Secretary or guaranty agency to
determine the borrower\'s eligibility for discharge of the loan because
of an unpaid refund, attendance at a closed school or false
certification of loan eligibility, pursuant to Sec. 682.402(d) or (e),
or the borrower\'s or, if applicable, endorser\'s bankruptcy, pursuant
to Sec. 682.402(f);

\(9\) For a period of delinquency at the time a loan is sold or
transferred, if the borrower or endorser is less than 60 days delinquent
on the loan at the time of sale or transfer;

\(10\) For a period of delinquency that may remain after a borrower ends
a period of deferment or mandatory forbearance until the next due date,
which can be no later than 60 days after the period ends;

\(11\) For a period not to exceed 60 days necessary for the lender to
collect and process documentation supporting the borrower\'s request for
a deferment, forbearance, change in repayment plan, or consolidation
loan. Interest that accrues during this period is not capitalized; or

\(12\) For a period not to exceed 3 months when the lender determines
that a borrower\'s ability to make payments has been adversely affected
by a natural disaster, a local or national emergency as declared by the
appropriate government agency, or a military mobilization.

[§682.402 Death, disability, closed school, false certification, unpaid
refunds, and bankruptcy payments]{.underline}.

\* \* \* \* \*

\(e\) False certification by a school of a student\'s eligibility to
borrow and unauthorized disbursements---

\(1\) General. (i) The Secretary reimburses the holder of a loan
received by a borrower on or after January 1, 1986, and discharges a
current or former borrower\'s obligation with respect to the loan in
accordance with the provisions of paragraph (e) of this section, if the
borrower\'s (or the student for whom a parent received a PLUS loan)
eligibility to receive the loan was falsely certified by an eligible
school. For purposes of a false certification discharge, the term
\`\`borrower\'\' includes all endorsers on a loan. A student\'s
eligibility to borrow shall be considered to have been falsely certified
by the school if the school\--

\(A\) Certified the student\'s eligibility for a FFEL Program loan on
the basis of ability to benefit from its training and the student did
not meet the applicable requirements described in 34 CFR part 668 and
section 484(d) of the Act, as applicable and as described in paragraph
(e)(13) of this section; or

\(B\) Signed the borrower\'s name without authorization by the borrower
on the loan application or promissory note.

\(ii\) The Secretary discharges the obligation of a borrower with
respect to a loan disbursement for which the school, without the
borrower\'s authorization, endorsed the borrower\'s loan check or
authorization for electronic funds transfer, unless the student for whom
the loan was made received the proceeds of the loan either by actual
delivery of the loan funds or by a credit in the amount of the contested
disbursement applied to charges owed to the school for that portion of
the educational program completed by the student. However, the Secretary
does not reimburse the lender with respect to any amount disbursed by
means of a check bearing an unauthorized endorsement unless the school
also executed the application or promissory note for that loan for the
named borrower without that individual\'s consent.

\(2\) Relief available pursuant to discharge. (i) Discharge under
paragraph (e)(1)(i) of this section relieves the borrower of an existing
or past obligation to repay the loan certified by the school, and any
charges imposed or costs incurred by the holder with respect to the loan
that the borrower is, or was, otherwise obligated to pay.

\(ii\) A discharge of a loan under paragraph (e) of this section
qualifies the borrower for reimbursement of amounts paid voluntarily or
through enforced collection on a loan obligation discharged under
paragraph (e) of this section.

\(iii\) A borrower who has defaulted on a loan discharged under
paragraph (e) of this section is not regarded as in default on the loan
after discharge, and is eligible to receive assistance under the Title
IV, HEA programs.

\(iv\) A discharge of a loan under paragraph (e) of this section is
reported by the loan holder to all credit reporting agencies to which
the holder previously reported the status of the loan, so as to delete
all adverse or inaccurate credit history assigned to the loan.

\(v\) Discharge under paragraph (e)(1)(ii) of this section qualifies the
borrower for relief only with respect to the amount of the disbursement
discharged.

[§682.411 Lender due diligence in collecting guaranty agency
loans]{.underline}.

\(o\) Preemption. The provisions of this section-

\(1\) Preempt any State law, including State statutes, regulations or
rules that would conflict with or hinder satisfaction of the
requirements or frustrate the purposes of this section; and

\(2\) Do not preempt provisions of the Fair Credit Reporting Act that
provide relief to a borrower while the lender determines the legal
enforceability of a loan when the lender receives a valid identity theft
report or notification from a credit bureau that information furnished
is a result of an alleged identity theft as defined in paragraph
§682.402(e)(14).

\(3\) If the lender determines that a loan does not qualify for a
discharge under §682.402(e)(1)(i)(C), but is nonetheless unenforceable,
the lender must-

\(A\) Cease any claim for special allowance payments in accordance with
§682.302(d)(iv); and

\(B\) Cease any claim for interest payments in accordance with
§682.300(b)(2)(vii).

Proposed Regulatory Language

"Contextual Format"

**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 establishes separate entrance counseling
requirements for Graduate/Professional PLUS student borrowers and
Stafford Loan borrowers.]{.mark}

**Tentative Agreement:** Yes

**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 by the borrower
and, in the case of a parent borrower of a PLUS loan, the student [and
the parent borrower]{.mark}.

\(b\) The information to be provided by the school about the borrower
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 graduate or
professional student borrower, the school must determine the borrower's
eligibility for a Stafford loan. If the borrower is eligible for a
Stafford loan but has not requested the maximum Stafford loan amount for
which the borrower is eligible, the school must---

\(1\) Notify the graduate or professional student borrower of the
maximum Stafford loan amount that he or she is eligible to receive and
provide the borrower with a comparison of\--

\(i\) The maximum interest rate for a Stafford loan and the maximum
interest rate for a PLUS loan;

\(ii\) Periods when interest accrues on a Stafford loan and periods when
interest accrues on a PLUS loan; and

\(iii\) The point at which a Stafford loan enters repayment and the
point at which a PLUS loan enters repayment.

\(2\) Give the graduate or professional student borrower the opportunity
to request the maximum Stafford loan amount for which the borrower is
eligible.

\(e\) A school may not certify a Stafford or PLUS loan, or a combination
of loans , 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 graduate or professional 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. [The initial counseling
must---]{.mark}

[]{.mark}

[(i) Inform the student borrower of sample monthly repayment amounts
based on a range of student levels of indebtedness or on the average
indebtedness of graduate or professional student PLUS loan borrowers, or
student borrowers with Stafford and PLUS loans, depending on the types
of loans the borrower has obtained, at the same school or in the same
program of study at the same school;]{.mark}

[]{.mark}

[(ii) For a graduate or professional student who has received a prior
Federal Stafford, or Direct subsidized or unsubsidized loan provide the
information specified in paragraphs (d)(1)(i) through (d)(1)(iii);
and]{.mark}

[]{.mark}

[(iii) For a graduate or professional student who has not received a
prior Federal Stafford, or Direct subsidized or]{.mark} [unsubsidized
loan provide the information specified in paragraph (f)(5)(i) through
(f)(5)(iv) of this section.]{.mark}

\(3\) 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.

\(5\) [I]{.mark}nitial counseling [for Stafford Loan borrowers]{.mark}
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 (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 loan borrowers, [or student]{.mark} [borrowers
with]{.mark} [Stafford and PLUS loans,]{.mark} [depending on the]{.mark}
[types]{.mark} [of loans the borrower has obtained]{.mark}, 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
loans or student borrowers who have obtained Stafford and PLUS loans,
depending on the types of loans the student borrower has obtained, 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 by the borrower and, in the case
of a parent PLUS loan borrower, the student [and the parent
borrower]{.mark}.

\(2\) 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 graduate or
professional 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 but has not requested the maximum Direct Subsidized or Direct
Unsubsidized Loan amount for which the borrower is eligible, the school
must\--

\(i\) Notify the graduate or professional student borrower of the
maximum Direct Subsidized or Direct Unsubsidized Loan amount that he or
she is eligible to receive and provide the borrower with a comparison
of\--

\(A\) The maximum interest rate for a Direct Subsidized Loan and a
Direct Unsubsidized Loan and the maximum interest rate for a Direct PLUS
Loan;

\(B\) Periods when interest accrues on a Direct Subsidized Loan and a
Direct Unsubsidized Loan, and periods when interest accrues on a Direct
PLUS Loan;

\(C\) The point at which a Direct Subsidized Loan and a Direct
Unsubsidized Loan enters repayment, and the point at which a Direct PLUS
Loan enters repayment.

\(ii\) Give the graduate or professional student borrower the
opportunity to request the maximum Direct Subsidized or Direct
Unsubsidized Loan amount for which the borrower is eligible.

\(4\) 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 graduate or
professional 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. [The initial counseling
must---]{.mark}

[]{.mark}

[(i) Inform the student borrower of sample monthly repayment amounts
based on a range of student levels of indebtedness or on the average
indebtedness of graduate or professional student PLUS loan borrowers, or
student borrowers with]{.mark} [Direct PLUS Loans and]{.mark} [Direct
Subsidized Loans]{.mark} [or Direct Unsubsidized Loans, depending on the
types of loans the borrower has obtained, at the same school or in the
same program of study at the same school;]{.mark}

[]{.mark}

[(ii) For a graduate or professional student who has received a prior
Federal Stafford, or Direct Subsidized or Unsubsidized Loan provide the
information specified in (a)(3)(i); and]{.mark}

[]{.mark}

[(iii) For a graduate or professional student who has not received a
prior Federal Stafford, or Direct Subsidized or Direct Unsubsidized Loan
provide the information specified in paragraph (a)(4)(i) through
(a)(4)(iv) of this section.]{.mark}

\(3\) 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.

\(4\) [I]{.mark}nitial counseling [for Direct Subsidized Loan and Direct
Unsubsidized Loan borrowers]{.mark} 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]{.mark} [borrowers,]{.mark} [or student borrowers with Direct
Subsidized, Direct Unsubsidized, and Direct PLUS Loans,]{.mark}
depending on the types of loans the borrower has obtained, 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 student borrowers who have obtained Direct
Subsidized Loans and Direct Unsubsidized Loans, or student borrowers who
have obtained Direct Subsidized, Direct Unsubsidized and Direct PLUS
Loans, , depending on the types of loans the student borrower has
obtained, for attendance 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.

# **Tentative Agreement:** Yes

**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 time
corresponding 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*) [The]{.mark} 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 [the school in]{.mark}
[accordance with]{.mark} 34 CFR 668.3, except that [the]{.mark} school
may use a longer period of time 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.

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.)

Tentative Agreement: Yes

**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) and (b)(5) 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 Consolidation Loans, the lender may capitalize the unpaid
interest as provided in paragraphs (b)(2) and (b)(3), except the lender
may capitalize the unpaid interest for a period of authorized
[in-school]{.mark} deferment only at the expiration of the deferment or
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

"Contextual Format"

**Loans Committee**

**Origin:** Community

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

**Regulatory Cite:** §§674.38, [682.210(i),]{.mark} 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. Allows Perkins schools to grant deferments based on information from FFEL lenders or the Department of Education[. Allows a borrower's representative to apply for a military deferment on behalf of the borrower.]{.mark}

**Tentative Agreement:** No

**Change:**

##### § 674.38   Deferment procedures.

(a)(1) Except as provided in paragraph (a)(3) of this section, a
borrower must request the deferment and provide the institution with all
information and documents required by the institution by the date that
the institution establishes.

\(2\) After receiving a borrower's written or verbal request, an
institution may grant a deferment under §§ 674.34(b)(1)(ii),
674.34(b)(1)(iii), 674.34(b)(1)(iv), 674.34(d), 674.34(e), and 674.34(h)
if the institution is able to confirm that the borrower has received a
deferment on another Perkins Loan, a FFEL Loan, or a Direct Loan for the
same reason and the same time period. The institution may grant the
deferment based on information from the other Perkins Loan holder, the
FFEL Loan holder or the Secretary or from an authoritative electronic
database maintained or authorized by the Secretary that supports
eligibility for the deferment for the same reason and the same time
period.

[]{.mark}

\(3\) An institution may rely [in good faith]{.mark} on the information
it receives under paragraph (a)(2) of this section when determining a
borrower's eligibility for a deferment unless the institution, as of the
date of the determination, has information indicating that the borrower
does not qualify for the deferment. An institution must resolve any
discrepant information before granting a deferment under paragraph
(a)(2) of this section.

\(4\) An institution that grants a deferment under paragraph (a)(2) of
this section must notify 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.

\(5\) In the case of an in school deferment, the institution may grant
the deferment based on student enrollment information showing that a
borrower is enrolled as a regular student on at least a half-time basis,
if the institution notifies the borrower of the deferment and of the
borrower\'s option to cancel the deferment and continue paying on the
loan.

[(6) In the case of a military]{.mark} [service]{.mark} [deferment under
§§ 674.34(h)]{.mark} [and]{.mark} [674.35(c)(1), a borrower's
representative may request the]{.mark} [military service]{.mark}
[deferment on behalf of the borrower.]{.mark}

([7]{.mark}) If the borrower fails to meet the requirements of paragraph
(a) (1) of this section, the institution may declare the loan to be in
default, and may accelerate the loan.

(b)(1) The institution may grant a deferment to a borrower after it has
declared a loan to be a default.

\(2\) As a condition for a deferment under this paragraph, the
institution---

\(i\) Shall require the borrower to execute a written repayment
agreement on the loan; and

\(ii\) May require the borrower to pay immediately some or all of the
amounts previously scheduled to be repaid before the date on which the
institution determined that the borrower had demonstrated that grounds
for a deferment existed, plus late charges and collection costs.

\(c\) If the information supplied by the borrower demonstrates that for
some or all of the period for which a deferment is requested, the
borrower had retained in-school status or was within the initial grace
period on the loan, the institution shall---

\(1\) Redetermine the date on which the borrower was required to
commence repayment on the loan;

\(2\) Deduct from the loan balance any interest accrued and late charges
added before the date on which the repayment period commenced, as
determined in paragraph (c)(1) of this section; and

\(3\) Treat in accordance with paragraph (b) of this section, the
request for deferment for any remaining portion of the period for which
deferment was requested.

\(d\) The institution must determine the continued eligibility of a
borrower for a deferment at least annually, except that a borrower
engaged in service described in §§674.34(e)(6), 674.35(c)(3),
674.36(c)(2), 674.37(c)(2), and §674.60(a)(1) must be granted a
deferment for the lesser of the borrower\'s full term of service in the
Peace Corps, or the borrower\'s remaining period of eligibility for a
deferment under §674.34(e), not to exceed 3 years.

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

##### §682.210   Deferment.

\* \* \* \* \*

\(i\) *Military deferment.* (1) To qualify for a military deferment, a
borrower [or a borrower's representative]{.mark} shall provide the
lender with---

\(i\) A written statement from the borrower\'s commanding or personnel
officer certifying---

\(A\) That the borrower is on active duty in the Armed Forces of the
United States;

\(B\) The date on which the borrower\'s service began; and

\(C\) The date on which the borrower\'s service is expected to end; or

(ii)(A) A copy of the borrower\'s official military orders;

and

\(B\) A copy of the borrower\'s military identification.

\(2\) For the purpose of this section, the Armed Forces means the Army,
Navy, Air Force, Marine Corps, and the Coast Guard.

\(3\) A borrower enlisted in a reserve component of the Armed Forces may
qualify for a military deferment only for service on a full-time basis
that is expected to last for a period of at least one year in length, as
evidenced by official military orders, unless an order for national
mobilization of reservists is issued.

\(4\) A borrower enlisted in the National Guard qualifies for a military
deferment only while the borrower is on active duty status as a member
of the U.S. Army or Air Force Reserves, and meets the requirements of
paragraph (i)(3) of this section.

\* \* \* \* \*

\(s\) *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 the 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 reason
and same time period. 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 or authorized by the
Secretary that supports eligibility for the deferment for the same
reason and the same time period.

\(iv\) A lender may rely [in good faith]{.mark} 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, as of the
date of the determination, 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, [or the
borrower's representative,]{.mark} 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 the deferment. [In the case of a deferment
granted under paragraph (e)(1) of this section, a borrower's
representative may request the deferment]{.mark} [and provide the
required information and documents]{.mark} [on behalf of the
borrower.]{.mark}

\(2\) 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 [in good faith]{.mark} on the information
obtained under paragraph (g)(2) of this section when determining a
borrower's eligibility for a deferment, unless the Secretary, as of the
date of determination, 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.

**Tentative Agreement:** No

**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)~~]{.mark} [(5),]{.mark} [~~(6)~~]{.mark}, and
[(7),]{.mark}. ~~[(8) and (9)]{.mark}.~~

\* \* \* \* \*

*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,
[foundations]{.mark}, 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~~[January]{.mark} 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)(3)]{.mark}, (a)(4), [(a)(7)]{.mark}, 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),
[(a)(3)]{.mark}, [(a)(4),]{.mark} ~~and~~ (a)(6), [(a)(7)]{.mark}, [and
(a)(9)]{.mark}.

##### 

##### 

Proposed Regulatory Language

**Loans Committee**

**Origin:** ED

**Issue:** FFEL/DL/Perkins -- [Accurate and Complete]{.mark} Copy of
Death Certificates

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

Summary of Change: Allow the use of a [accurate]{.mark} and
[complete]{.mark} 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.

**Tentative Agreement:** Yes

**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 [accurate]{.mark} and [complete]{.mark}
[photo]{.mark}copy of [the original or certified copy of]{.mark} 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 [accurate]{.mark} and [complete]{.mark}
[photo-]{.mark}copy of [the original or certified copy of]{.mark} 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
[accurate]{.mark} and [complete]{.mark} [photo]{.mark}copy of [the
original or certified copy of]{.mark} 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 [accurate]{.mark} and
[complete]{.mark} [photo]{.mark}copy of [the original or certified copy
of]{.mark} 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 [accurate]{.mark} and
[complete]{.mark} [photo-]{.mark}copy of [the original or certified copy
of]{.mark} 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 [accurate]{.mark}
and [complete]{.mark} [photo-]{.mark}copy of [the original or certified
copy of]{.mark} 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

"Contextual Format"

**Loans Committee**

**Origin:** ED

**Issue:** FFEL/DL/Perkins -- Prospective Conditional Discharge Period
to Establish Eligibility for a Total and Permanent Disability Discharge
(i.e. "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.

Tentative Agreement: No

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). [The borrower must submit the application to the institution
within]{.mark} [90]{.mark} [days of the date the physician certifies the
application.]{.mark}

\(ii\) 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 suspend collection activities and assign the loan to the Secretary.

\(iii\) At the time the loan is assigned to the Secretary, the
institution must notify the borrower that---

\(A\) The loan has been assigned to the Secretary for determination of
eligibility for a total and permanent disability discharge and that no
payments are due on the loan; and,

\(B\) In order to remain eligible for the discharge from the date the
physician completes and certifies the borrower's total and permanent
disability on the application until the date the Secretary makes an
initial eligibility determination---

(*1*) The borrower cannot work and earn money or receive any new title
IV loans; and

(*2*) The borrower must, within 120 days of the disbursement date,
ensure that the full amount of any title IV loan disbursement made to
the borrower on or after the date the physician completed and certified
the application is returned to the holder.

\(3\) [Secretary's Initial Eligibility Determination]{.underline}. [(i)
The borrower must continue to meet the conditions]{.mark} [of]{.mark}
[paragraph]{.mark} (b)(2)(iii)(B) of this section from the date the
physician completes and certifies the borrower's total and permanent
disability on the application [until]{.mark} [the]{.mark} [date
the]{.mark} [Secretary]{.mark} [makes an]{.mark} [initial determination
of the borrower's eligibility in accordance with paragraph (b)(3)(ii) of
this section.]{.mark}

(i[i]{.mark}) 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.

(ii[i) Upon making an initial determination that the borrower is totally
and permanently disabled as defined in §674.51(s), t]{.mark}he Secretary
notifies the borrower that the loan will be in a conditional discharge
status for a period of up to three [years, beginning on the date the
Secretary makes the initial determination that the borrower is totally
and permanently disabled..]{.mark} [The]{.mark} notification [to the
borrower]{.mark} identifies the conditions of the conditional discharge
period specified in paragraph (b)(4)(i) of this section.

([iv]{.mark}) 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[; and]{.mark}

[]{.mark}

[(C) The borrower ensures that the full amount of any title IV loan
disbursement made on or after the date of the Secretary's initial
eligibility determination]{.mark} [is returned to the holder within 120
days of the disbursement date.]{.mark}

\(ii\) 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 borrower's 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
[a]{.mark} discharge under this section.

\(iii\) If, at any time during or at the end of the three-year
conditional discharge period, the [Secretary determines]{.mark} [that
the]{.mark} borrower does not continue to meet the eligibility
requirements for a total and permanent disability discharge, the
Secretary [ends the conditional period and]{.mark} 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}. [(1)]{.mark} 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. [The borrower must submit the application to
the Secretary within]{.mark} [90]{.mark} [days of the date the physician
certifies the application.]{.mark}

[(2) Upon receipt of the borrower's application, the Secretary notifies
the borrower that---]{.mark}

[]{.mark}

[(i)]{.mark} [No payments]{.mark} [are due]{.mark} [on the loan;]{.mark}
[and]{.mark}

[(ii)To remain eligible for the discharge]{.mark} [from the date the
physician completes and certifies the borrower's total and permanent
disability on the application until the date the Secretary makes an
initial eligibility determination---]{.mark}

[]{.mark}

[(A)]{.mark} [The borrower]{.mark} [cannot work and earn money]{.mark}
[or receive any new title IV loans; and]{.mark} []{.mark}

[]{.mark}

[(B) The borrower must, within 120 days of the disbursement date, ensure
that the full amount of any]{.mark} [title IV loan]{.mark}
[disbursement]{.mark} [made to the borrower on or after the date the
physician completes and certifies the application]{.mark} [is returned
to the holder.]{.mark}

\(c\) [Initial Determination of Eligibility]{.underline}. (1) [The
borrower must continue to meet the conditions of paragraph
(b)(2)(ii)]{.mark} [of this section from the date the physician
completes and certifies the borrower's total and permanent disability on
the application until the Secretary makes an initial determination of
the borrower's eligibility in accordance with paragraph (c)(2) of this
section.]{.mark}

[(2)]{.mark} 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.

([3]{.mark}) 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.

([4]{.mark}) 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[; and]{.mark}

[]{.mark}

[(C) The borrower ensures that the full amount of any]{.mark} [title IV
loan]{.mark} [disbursement]{.mark} [made to the borrower on or after the
date of the Secretary's initial eligibility determination]{.mark} [is
returned to the holder within 120 days of the disbursement date.]{.mark}

\(2\) 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
[a]{.mark} discharge under this section.

\(3\) If the borrower continues to meet the eligibility requirements for
[a]{.mark} 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.

##### 

##### 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). [The borrower must submit the application to the lender
within]{.mark} [90]{.mark} [days of the date the physician certifies the
application.]{.mark} 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) [From
the]{.mark} [date the]{.mark} [physician completes and certifies the
borrower's total and permanent disability on the application until the
Secretary makes an initial determination of the borrower's eligibility
in accordance with paragraph (c)(3)(ii) of this section---]{.mark}

[(A)]{.mark} [The borrower]{.mark} [cannot work and earn money]{.mark}
[or receive any new title IV loans;]{.mark} [and]{.mark}

[(B) The borrower must, within 120 days of the disbursement date, ensure
that the full amount of any title IV loan]{.mark} [disbursement]{.mark}
[made to the borrower on or after the date the physician completes and
certifies the application]{.mark} [is returned to the holder.]{.mark}

[(ii)]{.mark} 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.

(ii[i) Upon making an initial determination that the borrower is totally
and permanently disabled as defined in §682.200(b),]{.mark} [the]{.mark}
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. 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.

[(iv]{.mark}) 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 [to the Secretary]{.mark} 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[; and]{.mark}

[(C) The borrower ensures that the full amount of any]{.mark} [title IV
loan]{.mark} [disbursement]{.mark} [made to the borrower on or
after]{.mark} [the date of the Secretary's initial eligibility
determination]{.mark} [is returned to the holder within 120 days of the
disbursement date.]{.mark}

\(ii\) During the conditional discharge period, the borrower [or, if
applicable, the borrower's representative]{.mark}---

\(A\) 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 [ends the conditional discharge period and]{.mark} 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.

\(5\) [Lender [and guaranty agency]{.mark}]{.underline}
[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.

(i[v]{.mark}) 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).

[(v]{.mark}) 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.

[(vi]{.mark}) If the guaranty agency pays the disability claim, the
lender must notify the borrower that---

[(1)T]{.mark}he loan will be assigned to the Secretary for determination
of eligibility for a total and permanent disability discharge [and that
no payments are due on the loan; and]{.mark}

[(2)]{.mark} [To remain eligible for the discharge]{.mark} [from the
date the physician completes and certifies the borrower's total and
permanent disability on the application until the Secretary makes an
initial eligibility determination---]{.mark}

[(A)]{.mark} [The]{.mark} [borrower cannot work and earn money]{.mark}
[or receive any new title IV loans; and]{.mark}

[(B)]{.mark} [The borrower must request the cancellation or return to
the holder of any disbursement of a title IV loan]{.mark} [made to the
borrower on or after]{.mark} [date the physician completes and certifies
the application]{.mark}.

([vii]{.mark}) 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.

([viii]{.mark}) The Secretary reimburses the guaranty agency for a
disability claim paid to the lender after the agency pays the claim to
the lender.

([ix]{.mark}) 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.

Tentative Agreement: No

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 [, Title IV loan]{.mark} [related]{.mark} [data]{.underline}
required by the Secretary, to the guaranty agency or to the
[Secretary]{.mark}, 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 [Secretary]{.mark} the
borrower's enrollment and loan status information, or any [, Title IV
loan related]{.mark} [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 [, Title IV loan related]{.mark} information required by the Secretary, to the [Secretary]{.mark} 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

**Regulatory Cite:** §§674.19, 674.50, 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 retained by the institution, or
is submitted to and retained by the FFEL lender and Guaranty Agency.
Upon assignment of a defaulted MPN, a record of the disbursements must
be provided by the institution or the Guaranty Agency to the Secretary.

Tentative Agreement: No

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. [An original electronically signed MPN must be
retained for 7 years after all the loans made on the MPN are
satisfied.]{.mark}

\(iii\) 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~~ [Upon the Secretary's request with respect to]{.mark} 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.

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

##### §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)~~]{.mark} [~~The lender provided---~~]{.mark}

[~~(i)~~]{.mark} [~~The record of the school's delivery of the loan
disbursements to the borrower;~~]{.mark}

[~~(ii)~~]{.mark} [~~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~~]{.mark}

[~~(iii)~~]{.mark} [~~An~~]{.mark}

\(3\) The lender provided 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.

[(c) In evaluating a claim for insurance or reinsurance, the issue of
confirmation of subsequent loans under an MPN will not be reviewed and a
claim will not be denied based on the absence of any evidence relating
to confirmation in a particular loan file. However, if a court rules
that a loan is unenforceable solely because of the lack of evidence of a
confirmation process or processes, insurance and reinsurance benefits
must be repaid.]{.mark}

§ 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 [lender's disbursement of loan funds to the
school for delivery to the borrower]{.mark} [~~school's~~]{.mark}
~~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~~ [the name and
location of the entity in possession of the original electronic
MPN]{.mark}.

\(5\) 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.

\(1\) \* \* \*

(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.

[(iv) If a lender made a loan based on an electronically signed MPN, the
holder of the original electronically signed MPN must retain that
original MPN for at least 7 years after all the loans made on the MPN
have been satisfied.]{.mark}

§ 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: Lender Certification of E-Signatures

**Regulatory Cite:** §§674.19, 674.50, 682.406, 682.409, and 682.414   

**Summary of Change:** Ensure that a record of an institution's or
lender's electronic authentication and signature process is maintained
by the institution or Guaranty Agency. Upon assignment of a defaulted
MPN, a record of the certification of the electronic signature must be
provided by the institution or the Guaranty Agency to the Secretary.

Tentative Agreement: No

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)~~]{.mark}
[~~When assigning an electronically signed promissory note or MPN to the
Secretary, an~~]{.mark} [~~institution~~]{.mark} [~~must
submit~~]{.mark} [~~an affidavit or~~]{.mark}
[~~certification,~~]{.mark} [~~and supporting documentation~~]{.mark}
[~~specified by the Secretary, regarding the creation and maintenance of
the institution's electronic MPN or promissory note, including
the~~]{.mark} [~~of the institution's~~]{.mark} [~~authentication and
signature~~]{.mark} [~~process.~~]{.mark}

\(e\) *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. [An original electronically signed MPN must be
retained for 7 years after all the loans made on the MPN are
satisfied.]{.mark}

\(iii\) 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.

\(12\) [Upon the Secretary's request with respect to]{.mark} 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.

##### §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---~~]{.mark}

[]{.mark}

[~~(i)~~]{.mark} [~~The record of the school's delivery of the loan
disbursements to the borrower;~~]{.mark}

[~~(ii)~~]{.mark} [~~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~~]{.mark}

[]{.mark}

[~~(iii)~~]{.mark} [~~An~~]{.mark}

[]{.mark}

[(3) The lender provided an]{.mark} 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.

[(c) In evaluating a claim for insurance or reinsurance, the issue of
confirmation of subsequent loans under an MPN will not be reviewed and a
claim will not be denied based on the absence of any evidence relating
to confirmation in a particular loan file. However, if a court rules
that a loan is unenforceable solely because of the lack of evidence of a
confirmation process or processes, insurance and]{.mark} [reinsurance
benefits must be repaid.]{.mark}

§ 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~~ [lender's disbursement]{.mark}
~~delivery~~ of ~~the~~ loan [funds to the school for delivery]{.mark}
~~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~~ [the name and
location of the entity in possession of the original electronic
MPN]{.mark}.

\(5\) 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~~G) 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.

[(iv) If a lender made a loan based on an electronically signed MPN, the
holder of the original electronically signed MPN must retain that
original MPN for at least 7 years after all the loans made on the MPN
have been satisfied.]{.mark}

[(6)(i) Upon the Secretary's request with respect to a particular loan
or loans assigned to the Secretary and evidenced by an electronically
signed promissory note, the guaranty agency and the lender that created
the original electronically signed promissory note must cooperate with
the Secretary in all activities necessary to enforce the loan(s). Such
party(ies) must provide --]{.mark}

[]{.mark}

[(A) An affidavit or certification regarding the creation and
maintenance of the electronic records of the loan(s) in a form
appropriate to ensure admissibility of the loan records in a legal
proceeding. With]{.mark} [the Secretary's approval, this certification
may be executed in a single record for multiple loans provided that this
record is reliably associated with the specific loans to which it
pertains; and]{.mark}

[]{.mark}

[(B) Testimony by an authorized official or employee of the guaranty
agency or lender, if necessary, to ensure admission of the electronic
records of the loan in the litigation or legal proceeding to enforce the
loan.]{.mark}

[]{.mark}

[(ii) The certification in subsection (i) must include, if requested by
the Secretary --]{.mark}

[]{.mark}

[(A) A description of the steps followed by a borrower to execute the
promissory note (such as a flowchart);]{.mark}

[]{.mark}

[(B) A copy of each screen as it would have appeared to the borrower of
the loan or loans the Secretary is enforcing when that borrower signed
the note electronically;]{.mark}

[]{.mark}

[(C) A description of the field edits and other security measures used
to ensure integrity of the data submitted to the originator
electronically;]{.mark}

[]{.mark}

[(D) A description of how the executed promissory note has been
preserved to ensure that it has not been altered after it was
executed;]{.mark}

[]{.mark}

[(E) Documentation supporting the lender's authentication and electronic
signature process; and]{.mark}

[]{.mark}

[(F) All other documentary and technical evidence requested by the
Secretary to support the validity or the authenticity of the
electronically signed promissory note.]{.mark}

[]{.mark}

[]{.mark}

[(iii) The Secretary may request a record, affidavit, certification or
evidence under paragraph (a)(6) of this section as needed to resolve any
factual dispute involving a loan that has been assigned to the
Secretary, including but not limited to a factual dispute raised in
connection with litigation or any other legal proceeding, or as needed
in connection with loans assigned to the Secretary that are included in
a Title IV program audit sample, or for other similar purposes.]{.mark}
[The guaranty agency must respond to any]{.mark} [request from the
Secretary within 10 business days.]{.mark}

[]{.mark}

[(iv) As long as any loan made to a borrower under a MPN created by a
lender is not paid in full]{.mark} [or otherwise satisfied, the holder
of the original electronically signed promissory note is responsible for
ensuring that all parties entitled to access, including the guaranty
agency and the Department of Education, have full and complete access to
the electronic loan record.]{.mark}

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.

Tentative Agreement: Yes

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. To qualify for a child or family service
cancellation, a non-supervisory employee of a child or family service
agency must be providing services only to high-risk children from
low-income communities and the families of these children. The employee
must work directly with the high-risk children from low-income
communities, and the services provided to the children's families must
be secondary to the services provided to the 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

"Contextual Format"

**Loans Committee**

**Origin:** ED

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

**Regulatory Cite:** §674.45

Summary of Change: Limit collection costs an institution may assess
against a Perkins Loan borrower to [30 percent of principal, interest,
and late charges collected for first collection efforts, 40 percent for
second collection efforts, and 40 percent plus court costs in cases of
litigation.]{.mark}

Tentative Agreement: No

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---

[(i) For first collection efforts, 30 percent of the amount of
principal, interest, and late charges collected;]{.mark}

[]{.mark}

[(ii) For second and subsequent]{.mark} [collection efforts, 40 percent
of the amount of principal, interest, and late charges collected;
or]{.mark}

[]{.mark}

[(iii) For collection costs resulting from litigation,]{.mark} [40
percent of]{.mark} [the amount of]{.mark} [principal, interest and late
charges collected plus court costs.]{.mark}

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

Proposed Regulatory Language

"Contextual Format"

**Loans Committee**

**Origin:** ED

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

**Regulatory Cite:** §§674.8 and 674.50

Summary of Change: Provide the Department with the authority to require
assignment of a Perkins Loan if the outstanding [principal]{.mark}
balance on the loan is [\$100]{.mark} or more, the loan has been in
default for [seven]{.mark} or more years, and a payment has not been
received on the loan in the [past 12 months.]{.mark}

Tentative Agreement: No

Change:

##### § 674.8   Program participation agreement

To participate in the Federal Perkins Loan program, an institution shall
enter into a participation agreement with the Secretary. The agreement
provides that the institution shall use the funds it receives solely for
the purposes specified in this part and shall administer the program in
accordance with the Act, this part and the Student Assistance General
Provisions regulations, 34 CFR part 668. The agreement further
specifically provides, among other things, that---

\(a\) The institution shall establish and maintain a Fund and shall
deposit into the Fund---

\(1\) FCC received under this subpart;

\(2\) Except as provided in paragraph (a)(1) of §674.7---

\(i\) ICC equal to at least three-seventeenths of the FCC described in
paragraph (a)(1) of this section in award year 1993--94; and

\(ii\) ICC equal to at least one-third of the FCC described in paragraph
(a)(1) of this section in award year 1994--95 and succeeding award
years;

\(3\) ICC equal to the amount of FCC described in paragraph (a)(1) of
§674.7 for an institution that has been granted permission by the
Secretary to participate in the ELO under the Federal Perkins Loan
program;

\(4\) Payments of principal, interest, late charges, penalty charges,
and collection costs on loans from the Fund;

\(5\) Payments to the institution as the result of loan cancellations
under section 465(b) of the Act;

\(6\) Any other earnings on assets of the Fund, including the interest
earnings of the funds listed in paragraphs (a)(1) through (4) of this
section net of bank charges incurred with regard to Fund assets
deposited in interest-bearing accounts; and

\(7\) Proceeds of short-term no-interest loans made to the Fund in
anticipation of collections or receipt of FCC.

\(b\) The institution shall use the money in the Fund only for---

\(1\) Making loans to students;

\(2\) Administrative expenses as provided for in 34 CFR 673.7;

\(3\) Capital distributions provided for in section 466 of the Act;

\(4\) Litigation costs (see §674.47);

\(5\) Other collection costs, agreed to by the Secretary in connection
with the collection of principal, interest, and late charges on a loan
made from the Fund (see §674.47); and

\(6\) Repayment of any short-term, no-interest loans made to the Fund by
the institution in anticipation of collections or receipt of FCC.

\(c\) The institution shall submit an annual report to the Secretary
containing information that determines its cohort default rate that
includes---

\(1\) For institutions in which 30 or more of its current or former
students first entered repayment in an award year---

\(i\) The total number of borrowers who first entered repayment in the
award year; and

\(ii\) The number of those borrowers in default by the end of the
following award year; or

\(2\) For institutions in which less than 30 of its current or former
students entered repayment in an award year---

\(i\) The total number of borrowers who first entered repayment in any
of the three most recent award years; and

\(ii\) The number of those borrowers in default before the end of the
award year immediately following the year in which they entered
repayment.

(d)(1) If an institution determines not to service or collect a loan,
the institution may assign its rights to the loan to the United States
without recompense at the beginning of a repayment period.

\(2\) If a loan is in default despite due diligence on the part of the
institution in collecting the loan, the institution may assign its
rights to the loan to the United States without recompense.

\(3\) [The institution shall, at the]{.underline} [request of
the]{.underline} [Secretary, assign its rights to]{.underline}
[a]{.underline} [loan to the United States without recompense
if\--]{.underline}

[(i) The amount of]{.underline} [[outstanding
principal]{.underline}]{.mark} [[is \$100.00]{.underline}]{.mark} [or
more;]{.underline}

[(ii) The loan has been]{.underline} [in]{.underline} [[default, as
defined in §674.5(c)(1)]{.mark},]{.underline} [for]{.underline}
[[seven]{.underline}]{.mark} [or more years; and]{.underline}

[(iii) A payment has not been received on the loan in the]{.underline}
[[preceding twelve months,]{.underline}]{.mark} [[unless payments were
not due because the loan was in a period of authorized forbearance or
deferment.]{.underline}]{.mark}

\(e\) To assist institutions in collecting outstanding loans, the
Secretary provides to an institution the names and addresses of
borrowers or other information relevant to collection which is available
to the Secretary.

\(f\) The institution shall provide the loan information required by
section 463A of the HEA to a borrower.

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

§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
674.8(d)(3) 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.