For the reasons discussed in the preamble, the Secretary amends parts
674, 682, and 685 of title 34 of the Code of Federal Regulations as
follows:

## PART 674 \-- FEDERAL PERKINS LOAN PROGRAM 

x\. The authority citation for part 674 continues to read as follows:

Authority: 20 U.S.C. 1087aa-1087hh and 20 U.S.C. 421-429, unless
otherwise noted.

x\. Section 674.8 is amended by:

A. In paragraph (d)(1), removing the words "; or" and adding in their
place the punctuation ".".

A.  Adding a new paragraph (d)(3).

> The addition reads as follows:

[§674.8 Program participation agreement]{.underline}.

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

> \(d\) \* \* \*

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

\(i\) The amount of the loan, including outstanding principal, accrued
interest, collection costs, and late charges, is \$50.00 or more;

\(ii\) The loan has been past due for five or more years; and

\(iii\) A payment has not been received on the loan in the past year.

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

x\. Section 674.16 is amended by adding new paragraph (j) to read as
follows:

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

\* \* \* \* \*

\(j\) The institution shall report enrollment and loan status
information, or any Title IV loan related information required by the
Secretary, to the Secretary by the deadline date established by the
Secretary**.**

\* \* \* \* \*

x\. Section 674.19 is amended by:

A. Adding new paragraph (d)(1)(3).

B. Redesignating paragraphs (e)(2)(i) and (ii) as paragraphs (e)(2)
(iii) and (iv).

C. Adding new paragraphs (e)(2)(i) and (ii).

D. Revising paragraph (e)(3).

The additions and revisions read as follows:

[§674.19 Fiscal procedures and records]{.underline}.

\* \* \* \* \*

\(d\) \* \* \*

\(e\) 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 institution's authentication and
signature process.

\(e\) \* \* \*

\(2\) \* \* \*

\(i\) 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.

\(3\) [Period of retention of disbursement records, electronic
authentication and signature records, and repayment
records]{.underline}.

\(i\) 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.

\* \* \* \* \*

x\. Section 674.38 is amended by:

A. In paragraph (a)(1), removing the words "(a)(2)" and adding, in their
place, the words "(a)(3)".

B. Redesignating paragraphs (a)(2) and (a)(3) as paragraphs (a)(5) and
(a)(6), respectively.

C. By adding new paragraphs (a)(2), (a)(3) and (a)(4).

> The additions read as follows:

[§674.38 Deferment procedures]{.underline}.

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

\(a\) \* \* \*

\(2\) 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.

\(3\) An institution may rely 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.

\* \* \* \* \*

x\. Section 674.45 is amended by:

> A. Redesignating paragraph (e)(3) as paragraph (e)(4).

B.  Adding a new paragraph (e)(3).

> The addition reads as follows:

[§674.45 Collection procedures]{.underline}.

\* \* \* \* \*

\(e\) \* \* \*

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

\* \* \* \* \*

x\. Section 674.50 is amended by:

A. Adding new paragraphs (b)(11) and (12).

B. In paragraph (e)(1) adding the words ", unless the loan is submitted
for assignment under paragraph 674.8(d)(3) of this section" immediately
after the word "borrower".

The additions read as follows:

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

\* \* \* \* \*

\(c\) \* \* \*

\(11\) A record of disbursements for each loan made to a borrower on a
Master Promissory Note (MPN) that shows the date and amount of each
disbursement.

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

\* \* \* \* \*

x\. Section 674.56 is amended by revising paragraph (b)(1).

The revision reads as follows:

[§674.56 Employment Cancellation -- Federal Perkins, NDSL and Defense
loans]{.underline}.

\* \* \* \* \*

\(b\) [Cancellation for full-time employment in a public or private
nonprofit child or family service agency]{.underline}. (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.

\* \* \* \* \*

x\. Section 674.61 is amended by:

A. Revising the second sentence in paragraphs (a).

B. Revising paragraphs (b), (c) and (d).

The revisions read as follows:

[§674.61 Discharge for death or disability]{.underline}.

\(a\) [Death]{.underline}. \* \* \* The institution must discharge the
loan on the basis of an original, certified, or accurate and complete
photocopy of the original or certified copy of the death certificate. \*
\* \*

\* \* \* \*

\(b\) [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 30 days of the date the physician certifies the application.

\(ii\) 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 land permanent
disability on the application until the date the Secretary makes an
initial eligibility determination---

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

([2]{.underline}) 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 of paragraph
(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 the date the Secretary makes an initial determination
of the borrower's eligibility in accordance with paragraph (b)(3)(ii) of
this section.

\(ii\) 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.

\(iii\) Upon making an initial determination that the borrower is
totally and permanently disabled as defined in §674.51(s), the 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. The notification to the borrower identifies
the conditions of the conditional discharge period specified in
paragraph (b)(4)(i) of this section.

\(iv\) 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

\(C\) 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 is returned to the holder within 120 days of
the disbursement date.

\(ii\) 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
discharge under this section.

\(iii\) If, at any time during or at the end of the three-year
conditional discharge period, the Secretary determines that the borrower
does not continue to meet the eligibility requirements for a total and
permanent disability discharge, the Secretary ends the conditional
period and 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.

\* \* \* \* \*

## 

## PART 682 \-- FEDERAL FAMILY EDUCATION LOAN (FFEL) PROGRAM

## x. The authority citation for part 682 continues to read as follows:

## Authority: 20 U.S.C. 1071 to 1087-2, unless otherwise noted.

## x. Section 682.200 is amended by: 

## Revising the definition of [Lender]{.underline} in paragraph (b). 

## B. Adding a definition of [School-affiliated organization]{.underline} in paragraph (b).

## The revisions and additions read as follows:

[§682.200 Definitions]{.underline}.

\(b\) \* \* \*

[Lender]{.underline}. (1) \* \* \*

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

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

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

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

\(C\) Payments or other benefits provided to a school or
school-affiliated organization under a practice or policy that such
payments or other benefits are provided to the school or organization to
secure applications for FFEL loans or to secure FFEL loan volume;

\(D\) Payments or other benefits provided to a student at a school who
acts as the lender's representative to secure FFEL loan applications
from individual prospective borrowers;

\(E\) Payments or other benefits to a loan solicitor or sales
representative of a lender who visits schools to solicit individual
prospective borrowers to apply for FFEL loans from the lender;

\(F\) Payment of referral or processing fees to another lender that
exceed reasonable compensation for the administrative handling and
marketing of FFEL loans by the referring or processing lender, or that
are based on the volume or dollar amount of FFEL loans made;

\(G\) Payment of conference or training registration, transportation,
and lodging costs for an employee of a school or school-affiliated
organization;

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

\(I\) Undertaking philanthropic activities including providing
scholarships, grants, restricted gifts or financial contributions in
exchange for FFEL loan applications or application referrals, or
specified volume or dollar amount of FFEL loans made, or placement on a
school's list of recommended or suggested lenders.

\(ii\) For these purposes, a school-affiliated organization is defined
in section 682.200. The term "applications" includes the Free
Application for Federal Student Aid (FAFSA) and FFEL loan master
promissory notes. The term "other benefits" includes, but is not limited
to, preferential rates for or access to the lender's other financial
products, computer hardware or non-loan processing or non-financial aid
related computer software at below market rental or purchase cost and
printing and distribution of college catalogs and other materials at
reduced or no cost.

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

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

\(B\) Staffing services to a school as a third-party servicer or
otherwise on an occasional, short-term, emergency basis to assist the
school with financial aid related functions;

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

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

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

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

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

\(H\) Payment of Federal default fees in accordance with the Act;

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

\(J\) Items of a nominal value to school-affiliated organizations, and
borrowers that are offered as a form of generalized marketing or
advertising or to create good will.

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

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

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

\(vii\) Presumptions- (a) For purposes of any action to enforce the
limitations included in paragraph (5), the Secretary applies a
rebuttable presumption that the payments or activities listed in (5)(i)
were offered or provided to secure applications for FFEL loans.

\(b\) For purposes of any action to enforce the limitations included in
paragraph (5), the Secretary applies a rebuttable presumption that the
payments or activities listed in paragraph (5)(ii) were not offered or
provided to secure applications for FFEL loans.

\* \* \* \* \*

\(7\) 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), (5), (7), and (9).

\* \* \* \* \*

[School-affiliated organization]{.underline}. 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, athletic organizations, and social, academic, and
professional organizations.

\* \* \* \* \*

x\. Section 682.202 is amended by:

A. Redesignating paragraph (b)(5) as paragraph (b)(6).

## B. Adding a new paragraph (b)(5). 

## The addition reads as follows:

## [§682.202 Permissible charges by lenders to borrowers]{.underline}.

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

## (b) \* \* \*

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

## (i) At the expiration of a period of authorized in-school deferment; or 

## (ii) When the borrower defaults.

\* \* \* \* \*

x\. Section 682.208 is amended by:

A. Revising paragraph (a).

B. Adding new paragraph (i).

The revisions and addition read as follows:

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

\(a\) 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 related data required by the Secretary, to the
guaranty agency or to the Secretary, applicable, by the deadline date
established by the Secretary.

\* \* \* \* \*

x\. Section 682.210 is amended by:

A. By redesignating paragraph (s)(1) as paragraph (s)(1)(i).

B. By adding new paragraphs (s)(1)(ii), (s)(1)(iii), (s)(1)(iv),
(s)(1)(v), and (t)(7).

The additions read as follows:

[§ 682.210 Deferment]{.underline}.

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

(s)(1)(i) \* \* \*

\(ii\) 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 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.

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

\(t\) \* \* \*

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

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

x\. Section 682.212 is amended by:

A. In paragraphs (c) and (d), by removing the words "the Student Loan
Marketing Association".

B. Adding new paragraph (h).

The addition reads as follows:

[§682.212 Prohibited transactions]{.underline}.

\* \* \* \* \*

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

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

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

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

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

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

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

\(iii\) For first time borrowers, not assign, through award packaging or
other methods, a borrower's loan to a particular lender; and

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

\* \* \* \* \*

x\. Section 682.401 is amended by:

A. In paragraph (b)(2)(ii)(A), removing the punctuation ";" at the end
of the paragraph and adding, in its place, the words "as defined by 34
CFR 668.3; or".

B. Revising paragraph (b)(2)(ii)(B).

C. Removing paragraph (b)(2)(ii)(C).

D. In paragraph (b)(20), by removing the number "60" and adding, in its
place, the number "30".

E. Revising paragraph (e).

The revisions read as follows:

[§682.401 Basic program agreement]{.underline}.

\* \* \* \* \*

\(b\) \* \* \*

(2)(ii) \* \* \*

\(B\) 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.

\* \* \* \* \*

\(e\) [Prohibited inducements]{.underline}*.* (1) A guaranty agency may
not directly or through an agent or contractor---

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

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

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

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

\(D\) Payments or other benefits provided to a school or
school-affiliated organization under a practice or policy that such
payments or other benefits are provided to the school or organization to
secure applications for FFEL loans or to secure FFEL loan volume for the
guaranty agency or a lender that uses the agency's loan guarantee;

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

\(F\) Undertaking philanthropic activities including providing
scholarships, grants, restricted gifts or financial contributions in
exchange for FFEL loan applications or application referrals, a
specified volume or dollar amount of FFEL loans using the agency's loan
guarantee, or the placement of a lender that uses the agency's loan
guarantee on a school's list of recommended or suggested lenders.

\(ii\) For these purposes, a school-affiliated organization is defined
in section 682.200. The term "applications" includes the Free
Application for Federal Student Aid (FAFSA) and FFEL loan master
promissory notes. The term "other benefits" includes, but is not limited
to, preferential rates for or access to a guaranty agency's products and
services, computer hardware at below market rental or purchase cost, and
the printing and distribution of college catalogs and other
non-counseling or non-student financial aid related materials at reduced
or no cost.

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

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

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

\(ii\) Staffing services to a school as a third-party servicer or
otherwise on an occasional, short-term, or emergency basis to assist in
carrying out the school's financial aid related functions or assist the
school in resolving identified compliance-related issues;

\(iii\) Meals and refreshments that are reasonable in cost and provided
in connection with guaranty agency sponsored training of program
participants and elementary, secondary, and postsecondary school
personnel and with workshops and forums customarily used by the agency
to fulfill it responsibilities under the Act;(iv) Meals, refreshments
and receptions that are scheduled in []{.mark}conjunction with training,
meeting or conference events if those meals, refreshments, and
receptions are open to all training, meeting or conference attendees;

> \(iv\) Travel and lodging costs that are reasonable as to cost,
> location, and duration to facilitate the attendance of school staff in
> training or service facility tours that they would otherwise not be
> able to undertake, or to participate in the activities of an agency's
> governing board, a standing official advisory committee, or in support
> of other official activities of the agency;
>
> \(v\) Toll-free telephone numbers for use by schools or others to
> obtain information about FFEL program loans, or for use by schools to
> electronically submit applicant loan processing information or student
> status confirmation data; and

\(vi\) Payment of Federal default fees in accordance with the Act.

\(vii\) Items of nominal value to schools, school-affiliated
organizations, and borrowers that are offered as a form of generalized
marketing or advertising, or to create good will.

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

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

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

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

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

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

\(4\) Mail or otherwise distribute unsolicited loan applications to
students enrolled in a secondary school or a postsecondary institution,
or to parents of those students, unless the potential borrower has
previously received loans insured by the guaranty agency;

\(5\) Conduct fraudulent or misleading advertising concerning loan
availability.

\(6\) Presumptions- (a) For purposes of any action to enforce the
prohibition on inducements included in paragraph (e), the Secretary
applies a rebuttable presumption that the payments or activities listed
in paragraph (e)(1) were offered or provided to secure applications for
FFEL Loans or guarantees.

\(7\) For purposes of any action to enforce the prohibition on
inducements included in paragraph (e), the Secretary applies a
rebuttable presumption that the payments or activities listed in
paragraph (e)(2) were not offered or provided to secure applications for
loans or guarantees.

\* \* \* \* \*

Section 682.402 is amended by:

A. Revising the first sentence in paragraph (b)(2).

B. Revising the third sentence in paragraph (b)(3).

C. Revising paragraph (c).

The revisions read as follows:

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

\* \* \* \* \*

\(b\) \* \* \*

\(1\) \* \* \*

\(2\) 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 and complete photocopy of the original or
certified copy of the death certificate. \* \* \*

\(3\) \* \* \* If the lender is not able to obtain an original,
certified, or accurate and complete photocopy of the original or c
certified copy of the death certificate or other documentation
acceptable to the guaranty agency, under the provisions of paragraph
(b)(2) of this section, during the period of suspension, the lender must
resume collection activity from the point that it had been discontinued.
\* \* \*

\* \* \* \* \*

\(c\) [Total and permanent disability]{.underline}*.* (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]{.underline}. (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 30 days of the date the physician
certifies the application. If the lender and guaranty agency approve the
discharge claim, under the procedures in paragraph (c)(5) of this
section, the guaranty agency assigns the loan to the Secretary.

\(3\) [Secretary's Initial Eligibility Determination.]{.underline} (i)
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)(3)(ii) of this section---

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

\(B\) 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.

\(ii\) 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.

\(iii\) Upon making an initial determination that the borrower is
totally and permanently disabled as defined in §682.200(b), 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. 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.

\(iv\) 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 under the terms of the promissory note*.*

[(4) Eligibility Requirements for Total and Permanent Disability
Discharge]{.underline}. (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

\(C\) 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 is returned to the holder within 120 days of
the disbursement date.

\(ii\) 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 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 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 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.

\(iv\) 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).

\(v\) 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.

\(vi\) If the guaranty agency pays the disability claim, the lender must
notify the borrower that---

\(1\) The 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

\(2\) 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 Secretary makes an initial eligibility
determination---

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

\(B\) 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.

\(vii\) 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.

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

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

\* \* \* \* \*

x\. Section 682.406 is amended by:

A. Revising paragraph (a)(3).

B. Removing paragraph (c).

The revision reads as follows:

[§682.406 Conditions for claim payments from the Federal Fund and for
reinsurance coverage]{.underline}.

\(a\) \* \* \*

\(3\) The lender provided---

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

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

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

\* \* \* \* \*

x\. Section 682.409 is amended by adding new paragraphs (c)(4)(vii) and
(viii).

The additions read as follows:

[§682.409 Mandatory assignment by guaranty agencies of defaulted loans
to the Secretary]{.underline}.

\* \* \* \* \*

\(c\) \* \* \*

\(4\) \* \* \*

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

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

\* \* \* \* \*

x\. Section 682.414 is amended by:

A. Redesignating paragraph (a)(1)(ii)(G) as paragraph (a)(1)(ii)(H).

B. Adding new paragraph (a)(1)(ii)(G).

C. Revising paragraph (b)(4).

The additions and revisions read as follows:

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

\(a\) \* \* \*

\(1\) (ii) \* \* \*

\(G\) 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.

\* \* \* \* \*

\(b\) \* \* \*

\(4\) A guaranty agency shall report to the Secretary the borrower's
enrollment and loan status information, or any Title IV loan related
data required by the Secretary, by the deadline date established by the
Secretary.

\* \* \* \* \*

x\. Section 682.602 is amended to read as follows:

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

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

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

\(2\) A school-affiliated organization, as defined in §682.200(b),
involved in a trustee arrangement to make loans must comply with the
requirements of §682.601(a) except for subparagraphs (a)(1), (a)(2),
(a)(4), (a)(6), and (a)(9).

\* \* \* \* \*

x\. Section 682.603 is amended by:

A. In paragraph (a), at the end of the last sentence, removing the words
"on the application by the student" and adding, in their place, the
words "by the borrower and, in the case of a parent borrower of a PLUS
loan, the student".

B. In paragraph (b), by removing the words "making application for the
loan".

C. Redesignating paragraphs (d), (e), (f), (g), (h), and (i) as
paragraphs (e), (f), (g), (h), (i), and (j), respectively.

D. Adding a new paragraph (d).

E. In newly redesignated paragraph (e), removing the work ",application,
or combination of loan applications," and adding, in their place, the
words ",or a combination of loans,".

F. In newly redesignated paragraph (e)(2)(ii), adding the word
"Subsidized" immediately before the word "loan" and removing the words
"that is eligible for interest benefits" immediately after the word
"loan".

G. Revising new redesignated paragraph (f).

H. In newly redesignated paragraph (g)(2)(i), removing the words ", not
to exceed 12 months,".

The revision reads as follows:

[§682.603 Certification by a participating school in connection with a
loan application]{.underline}.

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

\(d\) 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.

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

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

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

\(2\) May not, for first-time borrowers, assign through award packaging
or other methods, a borrower's loan to a particular lender; and

\(3\) May refuse to certify a Stafford or PLUS loan or may reduce the
borrower's determination of need for the loan if the reason for that
action is documented and provided to the borrower in writing,
provided---

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

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

\(4\) May not, under subsection (1), engage in any pattern or practice
that results in a denial of a borrower's access to FFEL loans because of
the borrower's race, sex, color, religion, national origin, age,
handicapped status, or income, or selection of a particular lender or
guaranty agency.

\* \* \* \* \*

x\. Section 682.604 is amended by:

A. In paragraph (f)(1), removing the words "either in person, by
audiovisual presentation, or by interactive electronic means" and
removing the words "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."

B. Redesignating paragraphs (f)(2), (f)(3), and (f)(4) as paragraphs
(f)(5), (f)(6), and (f)(7), respectively.

C. Adding new paragraphs (f)(2), (f)(3) and (f)(4).

D. In newly redesignated paragraph (f)(5)(iv), adding the words, "or a
graduate or professional student borrower of a PLUS loan" immediately
after the words "Stafford loan".

E. In newly redesignated paragraph (f)(5)(v), adding the words "or
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," immediately after the words "Stafford loan
borrowers".

F. In paragraph (g)(2)(i), removing the words "Stafford or SLS loans"
and adding, in their place, "Stafford loans or, student borrowers who
have obtained Stafford and PLUS loans, depending on the types of loans
the student borrower has obtained,".

The additions read as follows:

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

\* \* \* \* \*

(f)(1) \* \* \*

\(2\) 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.

\(3\) 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.

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

x\. Section 682.610 is amended by adding new paragraph (d).

The addition reads as follows:

[§682.610 Administrative and fiscal requirements for participating
schools]{.underline}.

\* \* \* \* \*

\(d\) [Loan delivery reporting requirements]{.underline}. 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.

\* \* \* \* \*

PART 685 \-- WILLIAM D. FORD FEDERAL DIRECT LOAN PROGRAM

x\. The authority citation for part 685 continues to read as follows:

AUTHORITY: 20 U.S.C. 1087a et. seq., unless otherwise noted.

x\. Section 685.204 is amended by:

A. In paragraph (b)(1)(iii)(A), removing the words "(b)(1)(i)" and
adding, in their place, the words "(b)(1)(i)(A)".

B. In paragraph (d)(1), removing the word "the" and adding, in its
place, the word "The".

C. In paragraph (d)(2), removing the word "the" and adding, in its
place, the word "The".

B. By adding new paragraphs (g)(1), (g)(2), (g)(3), and (g)(4).

The additions read as follows:

[§685.204 Deferments]{.underline}.

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

(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.

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

\(3\) The Secretary relies on the information obtained under paragraph
(g)(2) of this section when determining a borrower's eligibility for a
deferment, unless the Secretary, 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.

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

x\. Section 685.212 is amended by revising paragraphs (a)(1) and (2) to
read as follows:

[§685.212 Discharge of a loan obligation]{.underline}.

\(a\) [Death]{.underline}. (1) If a borrower (or a 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 and complete photocopy of the original or certified copy of the
borrower's (or student's in the case of a Direct PLUS loan obtained by a
parent borrower) death certificate.

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

\* \* \* \* \*

x\. Section 685.213 is revised to read as follows:

[§685.213 Total and Permanent Disability]{.underline}.

\(a\) [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) 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 30 days of the date the physician certifies the application.

\(2\) Upon receipt of the borrower's application, the Secretary notifies
the borrower that---

\(i\) No payments are due on the loan; and

\(ii\) 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---

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

\(B\) The borrower must, within 120days 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.

\(c\) [Initial Determination of Eligibility]{.underline}. (1) The
borrower must continue to meet the conditions of paragraph (b)(2)(ii) 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.

\(2\) 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.

\(3\) 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.

\(4\) 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

\(C\) 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 is returned to the holder within 120 days of
the disbursement date.

\(2\) 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
discharge under this section.

\(3\) If the borrower continues to meet the eligibility requirements for
a 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.

\* \* \* \* \*

x\. Section 685.301 is amended by:

A. In paragraph (a)(1), removing the words "in the application by the
student" and adding, in their place, the words, "by the borrower and, in
the case of a parent PLUS loan borrower, the student."

B. Redesignating paragraphs (a)(3), (a)(4), (a)(5), (a)(6), (a)(7),
(a)(8) and (a)(9) as (a)(4), (a)(5), (a)(6), (a)(7), (a)(8), (a)(9) and
(a)(10), respectively.

C. Adding new paragraph (a)(3).

D. Revising newly redesignated paragraph (a)(10)(i)(B)(2).

E. Revising newly redesignated paragraph (a)(10)(ii)(A).

The revisions read as follows:

[§685.301 Determining eligibility and loan amount]{.underline}.

\(a\) \* \* \*

\(3\) 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.

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

\(10\) \* \* \*

(i)(B)([1]{.underline}) \* \* \*

([2]{.underline}) The academic year as defined by the school in
accordance with 34 CFR 668.3.

\(ii\) \* \* \*

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

\* \* \* \* \*

§685.304 \[Amended\]

x\. Section 685.304 is amended by:

A. In paragraph (a)(1) removing the words "(a)(4)" and adding in their
place the words "(a)(5)".

B. Redesignating paragraphs (a)(3), (a)(4), (a)(5), and (a)(6) as
paragraphs (a)(4), (a)(5), (a)(6), and (a)(7), respectively.

C.  Adding a new paragraph (a)(2).

D. In newly redesignated paragraph (a)(4)(iv) removing the words "Direct
Unsubsidized Loan borrowers" and adding, in their place, the words "and
Direct Unsubsidized Loan borrowers, or graduate or professional student
Direct PLUS Loan borrowers, or student borrowers with Direct Subsidized,
Direct Unsubsidized, and Direct PLUS Loans, depending on the types of
loans the borrower has obtained,".

E. In newly redesignated paragraph (a)(5), removing the words
"(a)(1)-(3)" and adding, in their place, the words "(a)(1)-(4)".

F. In newly redesignated paragraph (a)(5)(i), removing the words
"(a)(1)" and adding in their place the words "(a)(1) or (a)(2)", and
removing the words "(a)(3)" and adding in their place the words
"(a)(4)".

G. In paragraph (b)(4)(i), removing the words "Direct Subsidized Loan
and Direct Unsubsidized Loan borrowers" and adding, in their place, the
words "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".

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