Proposed Regulatory Language

**Committee I -- Loans**

**Quick Fix:** Yes

**Origin:** FED UP #25

**Issue:** FFEL -- First Payment Due Date

**Regulatory Cite:** 682.209(a)(3)

**Summary of Change:** Amends the regulations to allow up to 60 days for
the due date of a borrower's first payment of a Stafford loan or the
resumption of payments on a Stafford loan following a deferment or
forbearance. The first payment due date is already up to 60 days for all
loan programs except Stafford.

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

[§682.209 Repayment of a loan.]{.underline}

\(a\) \* \* \* \* \*

\(3\) \* \* \* \* \*

\(ii\) The first payment on a Stafford loan is due on a date established
by the lender that is no more than \--

\(A\) 60 days following the first day that the repayment period begins;

\(B\) 60 days from the expiration of a deferment or forbearance period
unless the borrower during this period has submitted payments with
instructions that those payments are intended for future installment
payments;

\(C\) 60 days following the end of the post deferment grace period;

**(2) Amendatory Language:**

Section 682.209 is amended by removing the number "45" wherever it
appears in paragraph (a)(3)(ii) and adding, in its place, the number
"60" to read as follows:

[§682.209 Repayment of a loan.]{.underline}

\(a\) \* \* \* \* \*

\(3\) \* \* \* \* \*

\(ii\) The first payment on a Stafford loan is due on a date established
by the lender that is no more than \--

\(A\) 60 days following the first day that the repayment period begins;

\(B\) 60 days from the expiration of a deferment or forbearance period
unless the borrower during this period has submitted payments with
instructions that those payments are intended for future installment
payments;

\(C\) 60 days following the end of the post deferment grace period;

\* \* \* \* \*

Proposed Regulatory Language

**Committee I -- Loans**

**Quick Fix:** No

**Origin:** FED UP #26

**Issue:** FFEL -- Repayment -- "Three Times Rule"

**Regulatory Cite:** §682.209(a)(7)(ii)

**Summary of Change:** The proposed change would give lenders and
borrowers more flexibility in establishing repayment schedules by
allowing an installment payment to be up to five times greater than the
smallest scheduled installment payment.

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

[§682.209 Repayment of a loan.]{.underline}

\(a\) [Conversion of a loan to repayment status.]{.underline}

\* \* \* \* \*

\(7\) \* \* \* \* \*

\(ii\) If a graduated or income-sensitive repayment schedule is
established, it may not provide for any single installment that is more
than five times greater than any other installment. An agreement as
specified in paragraph (c)(1)(ii) of this section is not required if the
schedule provides for less than the minimum annual payment amount
specified in paragraph (c)(1)(i) of this section.

**(2) Amendatory Language:**

Section 682.209 is amended by revising paragraph (a)(7)(ii) to read as
follows:

[§682.209 Repayment of a loan.]{.underline}

\(a\) [Conversion of a loan to repayment status.]{.underline}

\* \* \* \* \*

\(7\) \* \* \* \* \*

\(ii\) If a graduated or income-sensitive repayment schedule is
established, it may not provide for any single installment that is more
than five times greater than any other installment. An agreement as
specified in paragraph (c)(1)(ii) of this section is not required if the
schedule provides for less than the minimum annual payment amount
specified in paragraph (c)(1)(i) of this section.

\* \* \* \* \*

Proposed Regulatory Language

**Committee I -- Loans**

**Quick Fix:** No

**Origin:** 1/7/02 Suggestion

**Issue:** FFEL -- Unemployment Deferment

**Regulatory Cite:** 682.210(h)

**Summary of Change:** Simplifies the unemployment deferment rules, and
clarifies the requirement that the borrower register with an employment
agency if one exists within 50 miles of the borrower's address.

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

[§682.210 Deferment.]{.underline}

\* \* \* \* \*

\(h\) [Unemployment deferment.]{.underline}

\* \* \* \* \*

\(2\) A borrower also qualifies for an unemployment deferment by
providing to the lender a written certification that \--

\(i\) The borrower has registered with a public or private employment
agency, if one is available to the borrower within a 50-mile radius of
the borrower\'s current address, ; and

\(ii\) For all requests beyond the initial request, the borrower has
made at least six diligent attempts during the preceding 6‑month period
to secure full-time employment.

\(3\) For purposes of obtaining an unemployment deferment under
paragraph (h)(2) of this section, the following rules apply:

\(i\) A borrower may qualify for an unemployment deferment whether or
not the borrower has been previously employed.

\(ii\) An unemployment deferment is not justified if the borrower
refuses to seek or accept employment in kinds of positions or at salary
and responsibility levels for which the borrower feels overqualified by
virtue of education or previous experience.

\(iii\) Full-time employment involves at least 30 hours of work a week
and is expected to last at least three months.

\(iv\) A borrower requesting an initial period of unemployment deferment
is not required to describe his or her search for full-time employment
at the time the deferment is granted. The initial period of unemployment
deferment can be granted for a period of unemployment beginning up to 6
months before the date the holder receives the borrower's request, and
can be granted for up to 6 months after that date.

\(4\) A lender may not grant an unemployment deferment beyond the date
that is 6 months after the date the borrower provides evidence of the
borrower\'s eligibility for unemployment insurance benefits under
paragraph (h)(1) of this section or the date the borrower provides the
written certification under paragraph (h)(2) of this section.

\* \* \* \* \*

\(2\) Amendatory Language:

**Change:**

Section 682.210 is amended by:

A. Revising paragraph (h)(2).

E. Revising paragraph (h)(3)(iv).

F. Revising paragraph (h)(4).

The revisions read as follows:

[§682.210 Deferment.]{.underline}

\* \* \* \* \*

\(h\) [Unemployment deferment.]{.underline}

\* \* \* \* \*

\(2\) A borrower also qualifies for an unemployment deferment by
providing to the lender a written certification that‑‑

\(i\) The borrower has registered with a public or private employment
agency, if one is available to the borrower within a 50-mile radius of
the borrower\'s current address; and

\(ii\) For all requests beyond the initial request, the borrower has
made at least six diligent attempts during the preceding 6‑month period
to secure full-time employment.

\(3\) \* \* \* \* \*

\(iv\) A borrower requesting an initial period of unemployment deferment
is not required to describe his or her search for full-time employment
at the time the deferment is granted. The initial period of unemployment
deferment can be granted for a period of unemployment beginning up to 6
months before the date the holder receives the borrower's request, and
can be granted for up to 6 months after that date.

\(4\) A lender may not grant an unemployment deferment beyond the date
that is 6 months after the date the borrower provides evidence of the
borrower\'s eligibility for unemployment insurance benefits under
paragraph (h)(1) of this section or the date the borrower provides the
written certification under paragraph (h)(2) of this section.

\* \* \* \* \*

Proposed Regulatory Language

**Committee I -- Loans**

**Quick Fix:** Yes

**Origin:** FED UP #54

**Issue:** FFEL - Copies of Promissory Notes

**Regulatory Cite:** §682.402(g)(1)(i)

**Summary of Change:** Removes the requirement that a lender must
"certify" that a note is a "true and exact" copy as part of its claim
submission.

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

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

\* \* \* \* \*

\(g\) [Claim procedures for a loan held by a lender]{.underline} *\--*
(1) [Documentation]{.underline}*.* A lender shall provide the guaranty
agency with the following documentation when filing a death, disability,
closed school, false certification, or bankruptcy claim:

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

**(2) Amendatory Language:**

Section 682.402 is amended by revising paragraph (g)(1)(i) as follows:

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

\* \* \* \* \*

\(g\) [Claim procedures for a loan held by a lender]{.underline} *\--*
(1) [Documentation]{.underline}*.*

\* \* \* \* \*

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

\* \* \* \* \*

Proposed Regulatory Language

**Committee I -- Loans**

**Quick Fix:** No

**Origin:** FED UP #17

**Issue:** FFEL -- The proposed change would no longer entitle a
borrower to rehabilitate a defaulted FFEL loan for which a judgment has
been secured. \[This is a conforming change to make the FFEL regulations
consistent with the Perkins regulations.\]

**Regulatory Cite:** §682.405

**Summary of Change:** Current FFEL regulations permit rehabilitation of
a loan on which a judgment has been entered if the borrower signs a new
promissory note prior to the sale of the loan to an eligible lender.
That provision will be deleted.

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

[§682.405 Loan rehabilitation agreement]{.underline}.

\(a\) [General]{.underline}. (1) A guaranty agency that has a basic
program agreement must enter into a loan rehabilitation agreement with
the Secretary. The guaranty agency must establish a loan rehabilitation
program for all borrowers with an enforceable promissory note for the
purpose of rehabilitating defaulted loans, except for loans for which a
judgment has been obtained, so that the loan may be purchased, if
practicable, by an eligible lender and removed from default status.

\(2\) A loan is considered to be rehabilitated only after the borrower
has made one voluntary reasonable and affordable full payment each month
and the payment is received by a guaranty agency or its agent within 15
days of the scheduled due date for 12 consecutive months in accordance
with this section, and the loan has been sold to an eligible lender.

\(3\) After the loan has been rehabilitated, the borrower regains all
benefits of the program, including any remaining deferment eligibility
under section 428(b)(1)(M) of the Act, from the date of the
rehabilitation.

\(b\) [Terms of agreement]{.underline}. In the loan rehabilitation
agreement, the guaranty agency agrees to ensure that its loan
rehabilitation program meets the following requirements at all times:

\(1\) A borrower may request the rehabilitation of the borrower's
defaulted FFEL loan held by the guaranty agency. The borrower must make
one on-time voluntary full payment each month for 12 consecutive months
to be eligible to have the defaulted loans rehabilitated. For purposes
of this section, "full payment" means a reasonable and affordable
payment agreed to by the borrower and the agency. The required amount of
such monthly payment may be no more than is reasonable and affordable
based upon the borrower's total financial circumstances. Voluntary
payments are those made directly by the borrower, and do not include
payments obtained by income tax off-set, garnishment, income or asset
execution or after a judgment has been entered on the loan. A guaranty
agency must attempt to secure a lender to purchase the loan at the end
of the twelve-(12-)month payment period.

\* \* \* \* \*

**(2) Amendatory Language:**

Section 682.405 is amended by:

A. Adding the words ", except for loans for which a judgment has been
obtained," after "defaulted loans" in paragraph (a)(1).

B. Removing paragraph (a)(4).

C. Removing the words "regardless of whether there is a judgment against
the borrower" in paragraph (b)(1).

D. Removing the period after the word "execution" in paragraph (b)(1)
and adding, in its place, the words "or after a judgment has been
entered on the loan."

\* \* \* \* \*

Proposed Regulatory Language

**Committee I -- Loans**

**Quick Fix:** No

**Origin:** FED UP #57

**Issue:** FFEL - Reinsurance

**Regulatory Cite:** 682.412

**Summary of Change:** Clarifies the reinsurance percentage rate for
ineligible borrower claims.

\(1\) Change (context):

[§682.412 Consequences of the failure of a borrower or student to
establish eligibility]{.underline}.

\* \* \* \* \*

\(f\) The Secretary will reimburse the guaranty agency for its payment
of the default claim filed by the lender in accordance with
§682.404(a)(1)(i), (ii), or (iii), as applicable.

**(2) Amendatory Language:**

Section 682.412 is amended by adding a new paragraph (f) to read as
follows:

[§682.412 Consequences of the failure of a borrower or student to
establish eligibility]{.underline}.

\* \* \* \* \*

\(f\) The Secretary will reimburse the guaranty agency for its payment
of the default claim filed by the lender in accordance with
§682.404(a)(1)(i), (ii), or (iii), as applicable.

\* \* \* \* \*

Proposed Regulatory Language

**Committee I -- Loans**

**Quick Fix:** No

**Origin:** FFEL Community

**Issue:** FFEL - Promissory Notes

**Regulatory Cite:** 682.414(a)(5)

**Summary of Change:** Clarifies the manner in which promissory notes
are retained and may be stored.

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

[§ 682.414 Records, reports, and inspection requirements for guaranty
agency programs]{.underline}.

\(a\) [Records]{.underline}.

\* \* \* \* \*

\(5\) \* \* \* \* \*

\(ii\) A lender or guaranty agency that holds a loan --

\(A\) Made on the basis of a paper promissory note other than an MPN,
shall retain the original promissory note in its original paper form;

\(B\) Made under an original MPN executed in paper form, shall retain
the original MPN in its paper form;

\(C\) Made on the basis of a true and exact copy of an MPN executed in
paper form, shall retain in paper form the true and exact copy of the
MPN under which the loan was made; or

\(D\) Made on the basis of a promissory note signed by the borrower
electronically, shall retain that note in its original electronic form.

\(6\) A lender or guaranty agency shall retain a promissory note in
accordance with paragraph (a)(5)(ii) of this section until the loan is
paid in full or assigned to the Secretary.

\(7\) When a loan is paid in full by the borrower, the lender or
guaranty agency shall return either the original or a true and exact
copy of the note 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.

**(2) Amendatory Language:**

Section 682.414 is amended by revising paragraph (a)(5)(ii), removing
paragraph (a)(5)(iii), and adding new paragraphs (a)(6) and (7) as
follows:

[§ 682.414 Records, reports, and inspection requirements for guaranty
agency programs]{.underline}.

\(a\) [Records]{.underline}.

\* \* \* \* \*

\(5\) \* \* \* \* \*

\(ii\) A lender or guaranty agency that holds a loan --

\(A\) Made on the basis of a paper promissory note other than an MPN,
shall retain the original promissory note in its original paper form;

\(B\) Made under an original MPN executed in paper form, shall retain
the original MPN note in its paper form;

\(C\) Made on the basis of a true and exact copy of an MPN executed in
paper form, shall retain in paper form the true and exact copy of the
MPN under which the loan was made; or

\(D\) Made on the basis of a promissory note signed by the borrower
electronically, shall retain that note in its original electronic form.

\(6\) A lender or guaranty agency shall retain a promissory note in
accordance with paragraph (a)(5)(ii) of this section until the loan is
paid in full or assigned to the Secretary.

\(7\) When a loan is paid in full by the borrower, the lender or
guaranty agency shall return either the original or a true and exact
copy of the note 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.

\* \* \* \* \*

**Proposed Regulatory Language**

**Committee I -- Loans**

**Quick Fix:** No

**Origin:** FED UP (not on 12/14/01 list)

**Issue:** FFEL -- Entrance and Exit Counseling

**Regulatory Cite:** §682.604(f) and (g)

**Summary of Change:** The proposed changes would update the counseling
requirements, ensure consistency among the FFEL, Perkins, and Direct
loan programs, and clarify that parties other than the school may
provide the counseling.

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

[§682.604 Processing the borrower's loan proceeds and counseling
borrowers.]{.underline}

\(f\) [Initial counseling]{.underline}. (1) A school must ensure that
initial counseling is conducted with each Stafford loan borrower either
in person, by audiovisual presentation, or by interactive electronic
means 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. 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.

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

\* \* \* \* \*

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

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

\(v\) Inform the student borrower of the average anticipated monthly
repayment amount based on the student borrower's anticipated
indebtedness or on the average indebtedness of Stafford loan borrowers
at the same school or in the same program of study at the same school.

\(3\) 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.

\* \* \* \* \*

\(g\) [Exit counseling]{.underline}. (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, ensure that exit counseling must be
provided through either interactive electronic means or by mailing
written counseling materials to the student borrower at the student
borrower's last known address within 30 days after learning that the
student borrower has withdrawn from school or failed to complete the
exit counseling as required.

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

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

\(ii\) Review for the student borrower available repayment options,
including standard, graduated, extended, and income‑sensitive repayment
plans and loan consolidation;

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

\* \* \* \* \*

\(v\) Review for the student borrower the conditions under which the
student borrower may defer or forbear repayment or obtain a full or
partial discharge of a loan;

\(vi\) Require the student borrower to provide current information
concerning name, address, social security number, references, and
driver's license number and State of issuance, as well as the student
borrower's expected permanent address, the address of the student
borrower's next of kin, and the name and address of the student
borrower's expected employer (if known). The school must ensure that
this information is provided to the guaranty agency or agencies listed
in the student borrower's records within 60 days after the student
borrower provides the information;

\(vii\) Review for the student borrower information on the availability
of the Student Loan Ombudsman's office; and

\(viii\) Inform the student borrower of the availability of title IV
loan information in the National Student Loan Data System (NSLDS).

\(3\) If exit counseling is conducted by electronic interactive means,
the school must take reasonable steps to ensure that each student
borrower receives the counseling materials, and participates in and
completes the counseling.

\* \* \* \* \*

**(2) Amendatory Language**:

Section 682.604 is amended by:

A. Revising paragraph (f)(1).

B. Revising the introductory text to paragraph (f)(2).

C. Revising paragraph (f)(2)(iii).

D. Adding a new paragraph (f)(2)(v).

E. Revising paragraph (f)(3).

G. Revising paragraph (g)(1).

H. Revising the introductory text to paragraph (g)(2).

I. Revising paragraphs (g)(2)(i) through (iii) and paragraphs (g)(2)(v)
through (vii).

J. Adding a new paragraph (g)(2)(viii).

K. Revising paragraph (g)(3).

The revisions read as follows:

[§682.604 Processing the borrower's loan proceeds and counseling
borrowers]{.underline}.

\(f\) [Initial counseling]{.underline}. (1) A school must ensure that
initial counseling is conducted with each Stafford loan borrower either
in person, by audiovisual presentation, or by interactive electronic
means 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. 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.

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

\* \* \* \* \*

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

\* \* \* \* \*

\(v\) Inform the student borrower of the average anticipated monthly
repayment amount based on the student borrower's anticipated
indebtedness or on the average indebtedness of Stafford loan borrowers
at the same school or in the same program of study at the same school.

\(3\) 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.

\* \* \* \* \*

\(g\) [Exit counseling]{.underline}. (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, ensure that exit counseling must be
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\--(2) The exit counseling must\--

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

\(ii\) Review for the student borrower available repayment options,
including standard, graduated, extended, and income-sensitive repayment
plans and loan consolidation;

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

\* \* \* \* \*

\(v\) Review for the student borrower the conditions under which the
student borrower may defer or forbear repayment or obtain a full or
partial discharge of a loan;

\(vi\) Require the student borrower to provide current information
concerning name, address, social security number, references, and
driver's license number and State of issuance, as well as the student
borrower's expected permanent address, the address of the student
borrower's next of kin, and the name and address of the student
borrower's expected employer (if known). The school must ensure that
this information is provided to the guaranty agency or agencies listed
in the student borrower's records within 60 days after the student
borrower provides the information;

\(vii\) Review for the student borrower information on the availability
of the Student Loan Ombudsman's office; and

\(viii\) Inform the student borrower of the availability of title IV
loan information in the National Student Loan Data System (NSLDS).

\(3\) If exit counseling is conducted by electronic interactive means,
the school must take reasonable steps to ensure that each student
borrower receives the counseling materials, and participates in and
completes the counseling.

\* \* \* \* \*