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Issue Paper #13

Proposed Regulatory Language

Loans Group

Issue: Total and Permanent Disability Discharge: Single Application Process

Statutory Cites: §§437(a), 464(c)(1)(F), and 464(k)

Regulatory Cites: §§674.61(b), 682.402(c), 682.402(g), 682.402(h), 682.402(k), 682.402(r), 

685.213, and 686.42(B)

Summary of Change: Revised Perkins and FFEL regulations to provide for direct application to the 

Department of Education for total and permanent disability discharge requests. 

Change: See “Proposed Regulatory Language for Issue Papers 13, 14, and 15”

Issue Paper #14

Proposed Regulatory Language

Loans Group

Issue: Total and Permanent Disability Discharge: Borrower Notification of Denial

Statutory Cites: §§437(a), 464(c)(1)(F), and 464(k)

Regulatory Cites: §§674.61(b)(3)(ii), 682.402(c)(3)(iii), and 685.213(b)(2)(iii)

Summary of Change: Modified regulations in the Perkins, FFEL, and Direct Loan program to provide

more detailed information to borrowers in the TPD denial letters. 

Change: See “Proposed Regulatory Language for Issue Papers 13, 14, and 15”

Issue Paper #15

Proposed Regulatory Language

Loans Group

Issue: Total and Permanent Disability Discharge: Post-Discharge Monitoring of 

Employment Earnings

Statutory Cites: §§437(a), 464(c)(1)(F), and 464(k)

Regulatory Cites: §§674.61(b)(5)(i), 682.402(c)(5)(i)(A), and 685.213(b)(4)(i)(A) 

Summary of Change: Modified Perkins, FFEL, and Direct Loan regulations to conduct post-discharge 

income monitoring on a calendar-year basis, beginning with the first complete calendar year after the 

Department grants a total and permanent disability discharge. 

Change: See “Proposed Regulatory Language for Issue Papers 13, 14, and 15.”
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Proposed Regulatory Language

for Issue Papers 13, 14, and 15 

Loans Group

Change:

§ 674.61 Discharge for death or disability

(b) Total and permanent disability as defined in §674.51(aa)(1) —(1) General.(i) A borrower's 

Defense, NDSL, or Perkins loan is discharged if the borrower becomes totally and permanently disabled, 

as defined in §674.51(aa)(1), and satisfies the additional eligibility requirements contained in this 

section.

(ii) For purposes of §674.61(b), a borrower’s representative is a member of the borrower’s family, 

the borrower’s attorney, or another individual authorized to act on behalf of the borrower in connection 

with the borrower’s total and permanent disability discharge request. 

(2) Discharge application process for borrowers who have a total and permanent disability as defined 

in §674.51(aa)(1). (i) If the borrower or the borrower’s representative notifies the institution that the 

borrower claims to be totally and permanently disabled as defined in §674.51(aa)(1), the institution 

must—

(A) Direct the borrower to submit an application for total and permanent disability discharge to the 

Secretary; and

(B) Grant a forbearance to the borrower in accordance with §674.33(d)(5)(ii). The forbearance 

period may not exceed 90 days. 

(ii) To qualify for discharge of a Defense, NDSL, or Perkins loan based on a total and permanent 

disability as defined in §674.51(aa)(1), a The borrower or borrower’s representative must submit to the 

Secretary an application for total and permanent disability discharge discharge applicationon a form

approved by the Secretary. to the institution that holds the loan.

(ii) (iii) 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(aa)(1).

(iv) The borrower or borrower’s representative must submit the application described in paragraph 

(b)(2)(ii) of this section to the Secretary within 90 days of the date the physician certifies the application.

(iii) The borrower must submit the application to the institution within 90 days of the date the 

physician certifies the application.

(v) After the Secretary receives the application described in paragraph (b)(2)(ii) of this section, the 

Secretary identifies any other title IV loans owed by the borrower and notifies the borrower and the 

holders of the loans that the borrower has applied for a disability discharge on those loans.

(vi) If the application is incomplete, the Secretary notifies the borrower of the missing information 

and requests the missing information from the borrower, the borrower’s representative, or the 

physician who provided the certification, as appropriate. The Secretary does not make a determination 

of eligibility until the application is complete. 

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(vii) The lender notification described in paragraph (b)(2)(v) of this section directs the borrower’s 

loan holders to suspend collection activity on the borrower’s title IV loans. 

(viii) The borrower notification described in paragraph (b)(2)(v) of this section—

(A) States that the application will be reviewed by the Secretary;

(B) Informs the borrower that the borrower’s lenders will suspend collection activity on the 

borrower’s title IV loans while the Secretary reviews the borrower’s application for discharge; and 

(C) Explains the process under paragraph (b)(3) of this section for the Secretary’s review of total and 

permanent disability discharge applications.

(iv) Upon receiving the borrower's complete application, the institution must suspend collection 

activity on the loan and inform the borrower that—

(A) The institution will review the application and assign the loan to the Secretary for an eligibility 

determination if the institution determines that the certification supports the conclusion that the 

borrower is totally and permanently disabled, as defined in §674.51(aa)(1);

(B) The institution will resume collection on the loan if the institution determines that the 

certification does not support the conclusion that the borrower is totally and permanently disabled; and

(C) If the Secretary discharges the loan based on a determination that the borrower is totally and 

permanently disabled, as defined in §674.51(aa)(1), the Secretary will reinstate the borrower's 

obligation to repay the loan if, within three years after the date the Secretary granted the discharge, the 

borrower—

( 1 ) Has annual earnings from employment that exceed 100 percent of the poverty guideline for a 

family of two, as published annually by the United States Department of Health and Human Services 

pursuant to 42 U.S.C. 9902(2);

( 2 ) Receives a new TEACH Grant or a new loan under the Perkins, FFEL, or Direct Loan programs, 

except for a FFEL or Direct Consolidation Loan that includes loans that were not discharged; or

( 3 ) Fails to ensure that the full amount of any disbursement of a Title IV loan or TEACH Grant 

received prior to the discharge date that is made during the three-year period following the discharge 

date is returned to the loan holder or to the Secretary, as applicable, within 120 days of the 

disbursement date.

(v) 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 as defined 

in §674.51(aa)(1), the institution must assign the loan to the Secretary.

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

the loan has been assigned to the Secretary for determination of eligibility for a total and permanent 

disability discharge and that no payments are due on the loan.

(33) Secretary's eligibility determinationreview of the total and permanent disability discharge 

application . (i) If, after reviewing the borrower’s completed application, the Secretary determines that 

the physician’s certification supports the conclusion that the borrower is totally and permanently 

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disabled as defined in §674.51(aa)(1), the borrower is considered totally and permanently disabled as of 

the date the physician certifies the borrower’s application.

(ii) The Secretary may require the borrower to submit additional medical evidence if the Secretary 

determines that the borrower’s application does not conclusively prove that the borrower is totally and 

permanently disabled as defined in §674.51(aa)(1). As part of the Secretary’s review of the borrower’s 

discharge application, the Secretary may require and arrange for an additional review of the borrower’s 

condition by an independent physician at no expense to the borrower.

(iii) the Secretary discharges the borrower's obligation to make further payments on the loan and

After determining that the borrower is totally and permanently disabled as defined in §674.51(aa)(1), 

the Secretary notifies the borrower and the borrower’s lenders that the application for a disability 

discharge has been approved. With this notification, the Secretary directs each institution holding a 

Defense, NDSL, or Perkins Loan made to the borrower to assign the loan to the Secretary.that the loan 

has been discharged.

(iv) After the loan is assigned, the Secretary discharges the borrower’s obligation to make further 

payments on the loan and notifies the borrower and the institution that the loan has been discharged. 

The notification to the borrower explains the terms and conditions under which the borrower's 

obligation to repay the loan will be reinstated, as specified in paragraph (b)(56) of this section. Any 

payments received after the date the physician certified the borrower’s loan discharge application are 

returned to the person who made the payments on the loan in accordance with paragraph (b)(8) of this 

section.

(iiv) If the Secretary determines that the certification provided by the borrower does not support the 

conclusion that the borrower is totally and permanently disabled as defined in §674.51(aa)(1), the 

Secretary notifies the borrower and the institution 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. The notification includes—

(A) The reason or reasons for the denial;

(B) An explanation that the loan is due and payable to the institution under the terms of the 

promissory note;

(C) An explanation that the institution will notify the borrower of the date the borrower must 

resume making payments on the loan; 

(D) An explanation of how the borrower may request that the Secretary re-evaluate the application 

for discharge by providing, within 12 months of the date of the notification, additional information that 

supports the borrower’s eligibility for discharge; and 

(E) An explanation of how the borrower may submit a new application for total and permanent 

disability discharge if the borrower does not request re-evaluation of the borrower’s prior discharge 

application within the timeframe specified by the Secretary. 

(vi) If the borrower requests re-evaluation in accordance with paragraph (b)(3)(v)(D) of this section 

or submits a new total and permanent disability discharge application in accordance with paragraph 

(c)(3)(v)(E) of this section, the request must include new information regarding the borrower’s disabling 

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condition that was not available at the time the Secretary reviewed the borrower’s initial application for 

a total and permanent disability discharge.

(iii) The Secretary reserves the right to require the borrower to submit additional medical evidence if 

the Secretary determines that the borrower's application does not conclusively prove that the borrower 

is totally and permanently disabled as defined in §674.51(aa)(1). As part of the Secretary's review of the 

borrower's discharge application, the Secretary may arrange for an additional review of the borrower's 

condition by an independent physician at no expense to the borrower.

(4) Treatment of disbursements made during the period from the date of the physician's certification 

until the date of discharge. If a borrower received a title IV loan or TEACH Grant before the date the 

physician certified the borrower's discharge application and a disbursement of that loan or grant is 

made during the period from the date of the physician's certification until the date the Secretary grants 

a discharge under this section, the processing of the borrower's loan discharge request will be 

suspended until the borrower ensures that the full amount of the disbursement has been returned to 

the loan holder or to the Secretary, as applicable.

(5) Application for new title IV loans or TEACH Grants after the date of the physician’s certification. If 

a borrower initiates an application for a new title IV loan or TEACH Grant on or after the date the 

physician certified the borrower’s discharge application, the Secretary denies the borrower’s discharge 

request and resumes collection on the borrower’s loans.

( 4) Treatment of disbursements made during the period from the date of the physician's certification 

until the date of discharge. If a borrower received a Title IV loan or TEACH Grant prior to the date the 

physician certified the borrower's discharge application and a disbursement of that loan or grant is 

made during the period from the date of the physician's certification until the date the Secretary grants 

a discharge under this section, the processing of the borrower's loan discharge request will be 

suspended until the borrower ensures that the full amount of the disbursement has been returned to 

the loan holder or to the Secretary, as applicable.

(56) Conditions for reinstatement of a loan after a total and permanent disability discharge. (i) The 

Secretary reinstates athe borrower's obligation to repay a loan that was discharged in accordance with 

paragraph (b)(3)(iii) of this section if , within three years after the date the Secretary granted the 

discharge, the borrower—

(A) During the three calendar year period beginning on January 1 of the first calendar year after the 

date the Secretary granted the discharge, the borrower Hhas annual earnings from employment that 

exceed 100 percent of the poverty guideline for a family of two, as published annually by the United 

States Department of Health and Human Services pursuant to 42 U.S.C. 9902(2);

(B) During the period from the date the Secretary granted the discharge until the end of the three 

calendar year period specified in paragraph (b)(6)(i)(A) of this section, the borrower receives a new 

TEACH Grant or a new loan under the Perkins, FFEL or Direct Loan programs, except for a FFEL or Direct 

Consolidation Loan that includes loans that were not discharged; or

(C) The borrower fFails to ensure that the full amount of any disbursement of a Ttitle IV loan or 

TEACH Grant received prior to the discharge date that is made during the period from the date the 

Secretary granted the discharge until the end of the three calendar year period specified in paragraph 

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(b)(6)(i)(A) of this section is returned to the loan holder or to the Secretary, as applicable, within 120 

days of the disbursement date.

(ii) If athe borrower's obligation to repay a loan is reinstated, the Secretary—

(A) Notifies the borrower that the borrower's obligation to repay the loan has been reinstated; and

(B) Does not require the borrower to pay interest on the loan for the period from the date the loan 

was discharged until the date the borrower's obligation to repay the loan was reinstated.

(iii) The Secretary's notification under paragraph (b)(56)(ii)(A) of this section will include—

(A) The reason or reasons for the reinstatement;

(B) An explanation that the first payment due date on the loan following reinstatement will be no 

earlier than 60 days after the date of the notification of reinstatement; and

(C) Information on how the borrower may contact the Secretary if the borrower has questions about 

the reinstatement or believes that the obligation to repay the loan was reinstated based on incorrect 

information.

(67) Borrower's responsibilities after a total and permanent disability discharge. During thethreeyear periods described in paragraphs (b)(56)(i)(A) and (b)(6)(i)(B) of this section, the borrower or, if 

applicable, the borrower's representative must—

(i) Must pPromptly notify the Secretary of any changes in address or phone number;

(ii) Must pPromptly notify the Secretary if the borrower's annual earnings from employment exceed 

the amount specified in paragraph (b)(56)(i)(A) of this section; and

(iii) Must pProvide the Secretary, upon request, with documentation of the borrower's annual 

earnings from employment.

(78) Payments received after the physician's certification of total and permanent disability. (i) If , 

after the date the physician 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 washas been assigned 

to the Secretary forbased on the Secretary’s 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 accountreturn the payments to the sender.

(ii) At the same time that the institution forwardsreturns the payments, it must notify the borrower 

that there is no obligation to make payments on the loan prior to the Secretary's determination of 

eligibility forafter it has been discharged due to a total and permanent disability discharge, unless unless 

the loan is reinstated in accordance with §674.61(b)(6), or the Secretary directs the borrower otherwise.

(iii) When the Secretary makes a determination to discharges the loan, the Secretary returns to the 

sender any payments received on the loan after the date the physician certified the bborrower's became 

totally and permanently disabled. loan discharge application to the person who made the payments on 

the loan.

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(c) Total and permanent disability discharges for veterans —(1) General. A veteran's Defense, NDSL, 

or Perkins loan will be discharged if the veteran is totally and permanently disabled, as defined in 

§674.51(aa)(2).

(2) Discharge application process for veterans who have a total and permanent disability as defined 

in §674.51(aa)(2). (i) If a veteran or veteran’s representative notifies the institution that the veteran

claims to be totally and permanently disabled as defined in §674.51(aa)(2), the institution must—

(A) Direct the veteran to submit an application for a total and permanent disability discharge to the 

Secretary; and

(B) Grant a forbearance to the veteran in accordance with §674.33(d)(5)(ii). The forbearance period 

may not exceed 90 days.

(ii) To qualify for discharge of a Defense, NDSL, or Perkins loan based on a total and permanent 

disability as defined in §674.51(aa)(2), aThe veteran or the veteran’s representative must submit to the 

Secretary an application for total and permanent disability discharge on a form a discharge application 

approved by the Secretary. to the institution that holds the loan.

(iii) ii) With Tthe application, the veteran must submit must be accompanied by documentation from 

the Department of Veterans Affairs showing that the Department of Veterans Affairs has determined 

that the veteran is unemployable due to a service-connected disability. The veteran will not be required 

to provide any additional documentation related to the veteran's disability.

(iv) After the Secretary receives the application and supporting documentation described in 

paragraphs (c)(2)(ii) and (c)(2)(iii) of this section, the Secretary identifies any other title IV loans owed by 

the veteran and notifies the veteran and the holders of the loans that the borrower has applied for a 

disability discharge on those loans.

(v) If the application is incomplete, the Secretary notifies the veteran of the missing information and 

requests the missing information from the veteran or the veteran’s representative. The Secretary does 

not make a determination of eligibility until the application is complete. 

(vi) The lender notification described in paragraph (c)(2)(iv) of this section directs the lenders to 

suspend collection activity on the borrower’s title IV loans. 

(vii) The veteran notification described in paragraph (c)(2)(iv) of this section—

(A) States that the application will be reviewed by the Secretary;

(B) Informs the veteran that the veteran’s lenders will suspend collection activity on the veteran’s

title IV loans while the Secretary reviews the borrower’s application for a discharge; and 

(C) Explains the process under paragraph (c)(3) of this section for the Secretary’s review of total and 

permanent disability discharge applications.

(iii) Upon receiving the veteran's completed application and the required documentation from the 

Department of Veterans Affairs, the institution must suspend collection activity on the loan and inform 

the veteran that—

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(A) The institution will review the application and submit the application and supporting 

documentation to the Secretary for an eligibility determination if the documentation from the 

Department of Veterans Affairs indicates that the veteran is totally and permanently disabled as defined 

in §674.51(aa)(2);

(B) The institution will resume collection on the loan if the documentation from the Department of 

Veterans Affairs does not indicate that the veteran is totally and permanently disabled as defined in 

§674.51(aa)(2); and

(C) If the documentation from the Department of Veterans Affairs does not indicate that the veteran 

is totally and permanently disabled as defined in §674.51(aa)(2), but the documentation indicates that 

the veteran may be totally and permanently disabled as defined in §674.51(aa)(1), the veteran may 

reapply for a total and permanent disability discharge in accordance with the procedures described in 

§674.61(b).

(iv) If the documentation from the Department of Veterans Affairs indicates that the veteran is 

totally and permanently disabled as defined in §674.51(aa)(2), the institution must submit a copy of the 

veteran's application and the documentation from the Department of Veterans Affairs to the Secretary. 

At the time the application and documentation are submitted to the Secretary, the institution must 

notify the veteran that the veteran's discharge request has been referred to the Secretary for 

determination of discharge eligibility and that no payments are due on the loan.

(v) If the documentation from the Department of Veterans Affairs does not indicate that the veteran 

is totally and permanently disabled as defined in §674.51(aa)(2), the institution must resume collection 

on the loan.

(3) Secretary's determination of eligibilityreview of the total and permanent disability discharge 

application. (i) If, after reviewing the veteran’s completed application, the Secretary determines, based 

on a review of the documentation from the Department of Veterans Affairs, that the veteran is totally 

and permanently disabled as defined in §674.51(aa)(2), the Secretary notifies the veteran and the 

veteran’s lenders that the application for disability discharge has been approved. With this notification, 

the Secretary directs each institution holding a Direct, NDSL, or Perkins Loan made to the veteran to 

discharge the loan.institution of this determination, and the institution must—

(A) Discharge the veteran's obligation to make further payments on the loan; and

(ii) The institution returns any payments received on or after the effective date of the date of the 

determination by the Department of Veterans Affairs that the veteran is unemployable due to a serviceconnected disability to the person who made the payments.

(B) Return to the person who made the payments on the loan any payments received on or after the 

effective date of the determination by the Department of Veterans Affairs that the veteran is 

unemployable due to a service-connected disability.

(iiv) If the Secretary determines, based on a review of the documentation from the Department of 

Veterans Affairs, that the veteran is not totally and permanently disabled as defined in §674.51(aa)(2), 

the Secretary notifies the veteran, and the institution that the application for a disability discharge has 

been denied. of this determination, and the institution must resume collection on the loan. The 

notification includes—

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(A) The reason or reasons for the denial;

(B) An explanation that the loan is due and payable to the institution under the terms of the 

promissory note;

(C) An explanation that the institution will notify the borrower of the date the borrower must 

resume making payments on the loan; 

(D) An explanation of how the veteran may request that the Secretary re-evaluate the veteran’s 

application for discharge by providing, within 12 months of the date of the notification, additional 

documentation from the Department of Veterans Affairs that supports the veteran’s eligibility for 

discharge; and 

(E) Information on how the veteran my reapply for a total and permanent disability discharge in 

accordance with the procedures described in paragraphs (b)(1) through (b)(8) of this section, if the 

documentation from the Department of Veterans Affairs does not indicate that the veteran is totally and 

permanently disabled as defined in §674.51(aa)(2), but indicates that the veteran may be totally and 

permanently disabled as defined in §674.51(aa)(1).

(d) No Federal reimbursement. No Federal reimbursement is made to an institution for 

cancellationdischarge of loans due to death or disability.

* * * * * 

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

payments.

(c)(1) Total and permanent disability. (i) A borrower's loan is discharged if the borrower becomes 

totally and permanently disabled, as defined in §682.200(b), and satisfies the eligibility requirements in 

this section.

(ii) For a borrower who becomes totally and permanently disabled as described in paragraph (1) of 

the definition of that term in §682.200(b), the borrower's loan discharge application is processed in 

accordance with paragraphs (c)(2) through (78) of this section.

(iii) For a veteran who is totally and permanently disabled as described in paragraph (2) of the 

definition of that term in §682.200(b), the veteran's loan discharge application is processed in 

accordance with paragraph (c)(89) of this section.

(iv) For purposes of §682.402(c), a borrower’s representative is a member of the borrower’s family, 

the borrower’s attorney, or another individual authorized to act on behalf of the borrower in connection 

with the borrower’s total and permanent disability discharge request. 

(2) Discharge application process for a borrower who is totally and permanently disabled as 

described in paragraph (1) of the definition of that term in §682.200(b).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 t (i) If the borrower or the borrower's representative 

notifies the lender that the borrower claims to be totally and permanently disabled as described in 

paragraph (1) of the definition of that term in §682.200(b), the lender must—

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(A) Direct the borrower to submit an application for total and permanent disability discharge to the 

Secretary; and

(B) Grant a forbearance to the borrower in accordance with §682.211(f)(5). The forbearance period 

may not exceed 90 days. The lender may capitalize, in accordance with §682.202(b), any interest 

accrued and not paid during that period.

(ii) The borrower or borrower’s representative must submit to the Secretary an application for a

total and permanent disability dischargesubmit a discharge application to the lender on a form 

approved by the Secretary. 

(iii) 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 described in paragraph (1) of the definition of that term in §682.200(b).

(iv) The borrower or borrower’s representative must submit the application described in paragraph 

(c)(2)(ii) of this section to the Secretary within 90 days of the date the physician certifies the application. 

(v) After the Secretary receives the application described in paragraph (c)(2)(ii) of this section, the 

Secretary identifies any other title IV loans owed by the borrower and notifies the borrower, the holders 

of the loans, and the applicable guaranty agencies, that the borrower has applied for a disability 

discharge on those loans.

(vi) If the application is incomplete, the Secretary notifies the borrower of the missing information 

and requests the missing information from the borrower, the borrower’s representative, or the 

physician who provided the certification, as appropriate. The Secretary does not make a determination 

of eligibility until the application is complete. 

(vii) The lender notification described in paragraph (c)(2)(v) of this section directs the borrower’s 

loan holders to suspend collection activity on the borrower’s title IV loans.

(viii) The borrower notification described in paragraph (c)(2)(v) of this section—

(A) States that the application will be reviewed by the Secretary;

(B) Informs the borrower that the borrower’s lenders will suspend collection activity on the 

borrower’s title IV loans while the Secretary reviews the borrower’s application for a discharge; and 

(C) Explains the process under paragraph (c)(3) of this section for the Secretary’s review of total and 

permanent disability discharge applications.

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 described in paragraph (1) of the definition of that term in §682.200(b). The borrower must 

submit the application to the lender within 90 days of the date the physician certifies the application. If 

the lender and guaranty agency approve the discharge claim under the procedures described in 

paragraph (c)(7) of this section, the guaranty agency must assign the loan to the Secretary.

(3) Secretary's review of total and permanent disability discharge application eligibility 

determination. (i) If, after reviewing the borrower's completed application, the Secretary determines 

that the physician’s certification provided by the borrower supports the conclusion that the borrower is 

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totally and permanently disabled, as described in paragraph (1) of the definition of that term in 

§682.200(b), the borrower is considered totally and permanently disabled as of the date the physician 

certifieds the borrower's application.

(ii) The Secretary may require the borrower to submit additional medical evidence if the Secretary 

determines that the borrower's application does not conclusively prove that the borrower is totally and 

permanently disabled as described in paragraph (1) of the definition of that term in §682.200(b). As part 

of the Secretary's review of the borrower's discharge application, the Secretary may require and arrange 

for an additional review of the borrower's condition by an independent physician at no expense to the 

borrower.

(iii) Upon making a determinationAfter determining that the borrower is totally and permanently 

disabled as described in paragraph (1) of the definition of that term in §682.200(b), the Secretary 

notifies the borrower and the borrower’s lenders that the application for a disability discharge has been 

approved. With this notification, the Secretary directs each lender to submit a disability claim to the 

guaranty agency and the guaranty agency assigns the loan to the Secretary.

(iv) After the loan is assigned, the Secretary discharges the borrower's obligation to make further 

payments on the loan and notifies the borrower and the lender that the loan has been discharged. Any 

payments received after the date the physician certified the borrower's loan discharge application are 

returned to the person who made the payments on the loan. The notification to the borrower explains 

the terms and conditions under which the borrower's obligation to repay the loan will be reinstated, as 

specified in paragraph (c)(56)(i) of this section. Any payments received after the date the physician 

certified the borrower's loan discharge application are returned to the person who made the payments 

on the loan

(iiiv) If the Secretary determines that the certification provided by the borrower does not support 

the conclusion that the borrower is totally and permanently disabled as described in paragraph (1) of 

the definition of that term in §682.200(b), the Secretary notifies the borrower and the lender that the 

application for a disability discharge has been denied. The notification includes--

(A) The reason or reasons for the denial;

(B) and tAn explanation that the loan is due and payable to the Secretarylender under the terms of 

the promissory note;

(C) An explanation that the lender will notify the borrower of the date the borrower must resume 

making payments on the loan; 

(D) An explanation of how the borrower may request that the Secretary re-evaluate the application 

for discharge by providing, within 12 months of the date of the notification, additional information that 

supports the borrower’s eligibility for discharge; and 

(E) An explanation of how the borrower may submit a new application for total and permanent 

disability discharge if the borrower does not request re-evaluation of the borrower’s prior discharge 

application within the timeframe specified by the Secretary.

(vi) If the borrower requests re-evaluation in accordance with paragraph (c)(3)(v)(D) of this section 

or submits a new total and permanent disability discharge application in accordance with paragraph 

(c)(3)(v)(E) of this section, the request must include new information regarding the borrower’s disabling 

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12

condition that was not available at the time the Secretary reviewed the borrower’s initial application for 

a total and permanent disability discharge.

(iv) The Secretary reserves the right to require the borrower to submit additional medical evidence if 

the Secretary determines that the borrower's application does not conclusively prove that the borrower 

is totally and permanently disabled as described in paragraph (1) of the definition of that term in 

§682.200(b). As part of the Secretary's review of the borrower's discharge application, the Secretary 

may arrange for an additional review of the borrower's condition by an independent physician at no 

expense to the borrower.

(44) Treatment of disbursements made during the period from the date of the physician's 

certification until the date of discharge. If a borrower received a Ttitle IV loan or TEACH Grant prior to

before the date the physician certified the borrower's discharge application and a disbursement of that 

loan or grant is made during the period from the date of the physician's certification until the date the 

Secretary grants a discharge under this section, the processing of the borrower's loan discharge request 

will be suspended until the borrower ensures that the full amount of the disbursement has been 

returned to the loan holder or to the Secretary, as applicable.

(5) Application for new title IV loans or TEACH Grants after the date of the physician’s certification. If 

a borrower initiates an application for a new title IV loan or TEACH Grant on or after the date the 

physician certified the borrower’s discharge application, the Secretary denies the borrower’s discharge

request and resumes collection on the borrower’s loans.

(56) Conditions for reinstatement of a loan after a total and permanent disability discharge. (i) The 

Secretary reinstates the borrower's obligation to repay a loan that was discharged in accordance with 

paragraph (c)(3)(iii) of this section if--, within three years after the date the Secretary granted the 

discharge, the borrower—

(A) During the three calendar year period beginning on January 1 of the first calendar year after the 

date the Secretary granted the discharge, the borrower Hhas annual earnings from employment that 

exceed 100 percent of the poverty guideline for a family of two, as published annually by the United 

States Department of Health and Human Services pursuant to 42 U.S.C. 9902(2); 

(B) During the period from the date the Secretary granted the discharge until the end of the three 

calendar year period specified in paragraph (c)(6)(i)(A) of this section, the borrower Rreceives a new 

TEACH Grant or a new loan under the Perkins, FFEL, or Direct Loan programs, except for a FFEL or Direct 

Consolidation Loan that includes loans that were not discharged; or

(C) The borrower Ffails to ensure that the full amount of any disbursement of a title IV loan or 

TEACH Grant received prior to the discharge date that is made during the period from the date the 

Secretary granted the discharge until the end of the three calendar year period specified in paragraph 

(c)(6)(i)(A) of this section is returned to the loan holder or to the Secretary, as applicable, within 120 

days of the disbursement date.

(ii) If athe borrower's obligation to repay a loan is reinstated, the Secretary—

(A) Notifies the borrower that the borrower's obligation to repay the loan has been reinstated; and

(B) Does not require the borrower to pay interest on the loan for the period from the date the loan 

was discharged until the date the borrower's obligation to repay the loan was reinstated.

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(iii) The Secretary's notification under paragraph (c)(56)(ii)(A) of this section will include—

(A) The reason or reasons for the reinstatement;

(B) An explanation that the first payment due date on the loan following reinstatement will be no 

earlier than 60 days after the date of the notification of reinstatement; and

(C) Information on how the borrower may contact the Secretary if the borrower has questions about 

the reinstatement or believes that the obligation to repay the loan was reinstated based on incorrect 

information.

(67) Borrower's responsibilities after a total and permanent disability discharge. During the threeyear periods described in paragraphs (c)(56)(i)(A) and (c)(6)(i)(B) of this section, the borrower or, if 

applicable, the borrower's representative must—

(i) Promptly notify the Secretary of any changes in address or phone number;

(ii) Promptly notify the Secretary if the borrower's annual earnings from employment exceed the 

amount specified in paragraph (c)(56)(i)(A) of this section; and

(iii) Provide the Secretary, upon request, with documentation of the borrower's annual earnings 

from employment.

(78) Lender and guaranty agency actions. (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 as described 

in paragraph (1) of the definition of that term in §682.200(b). Except as provided in paragraph (c)(7)(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) If the Secretary approves the borrower’s total and permanent disability discharge request—

(A) TThe lender must submit a disability claim to the guaranty agency, documented in accordance 

with paragraph (g)(1) of this section. if the borrower submits a certification by a physician and the 

lender makes a determination that the certification supports the conclusion that the borrower is totally 

and permanently disabled as described in paragraph (1) of the definition of that term in §682.200(b).

(B) If the loan meets the conditions of §682.406, the guaranty agency must pay the claim submitted 

by the lender. 

(C) After receiving a claim payment from the guaranty agency, the lender must return to the sender 

any payments subsequently received from or on behalf of the borrower.

(D) The Secretary reimburses the guaranty agency for a disability claim paid to the lender after the 

agency pays the claim to the lender.

(E) The guaranty agency must assign the loan to the Secretary within 30 days of the date the 

guaranty agency pays the disability claim.

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(iii) If the Secretary does not approve the borrower’s total and permanent disability discharge 

request, the lender determines that a borrower who claims to be totally and permanently disabled is 

not totally and permanently disabled as described in paragraph (1) of the definition of that term in 

§682.200(b), 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)(7)(i) of this section, the lender must resume collection of the loan 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 is totally and permanently disabled as described in paragraph (1) of the definition of that term 

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—

(A) 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

(B) If the Secretary discharges the loan based on a determination that the borrower is totally and 

permanently disabled as described in paragraph (1) of the definition of that term in §682.200(b), the 

Secretary will reinstate the borrower's obligation to repay the loan if, within three years after the date 

the Secretary granted the discharge, the borrower—

( 1 ) Receives annual earnings from employment that exceed 100 percent of the poverty guideline 

for a family of two, as published annually by the United States Department of Health and Human 

Services pursuant to 42 U.S.C. 9902(2);

( 2 ) Receives a new TEACH Grant or a new title IV loan, except for a FFEL or Direct Consolidation 

Loan that includes loans that were not discharged; or

( 3 ) Fails to ensure that the full amount of any disbursement of a title IV loan or TEACH Grant 

received prior to the discharge date that is made during the three-year period following the discharge 

date is returned to the loan holder or to the Secretary, as applicable, within 120 days of the 

disbursement date.

(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.

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(ix) The guaranty agency must assign the loan to the Secretary after the guaranty agency pays the 

disability claim.

(89) Discharge application process for veterans who are totally and permanently disabled as 

described in paragraph (2) of the definition of that term in §682.200(b)—(i) General. If a veteran or 

veteran’s representative notifies the lender that the veteran claims to be totally and permanently 

disabled as described in paragraph (2) of the definition of that term in §682.200(b, the lender must—

(A) Direct the borrower to submit an application for a total and permanent disability discharge to 

the Secretary; and

(B) Grant a forbearance to the veteran in accordance with §682.211(f)(5). The forbearance period 

may not exceed 90 days. The lender may capitalize, in accordance with §682.202(b), any interest 

accrued and not paid during that period.

(ii)After being notified by the veteran or the veteran's representative that the veteran claims to be 

totally and permanently disabled, the lender promptly requests that tThe veteran or the veteran's 

representative must submit to the Secretary an application for a total and permanent disability

discharge application to the lender, on a form approved by the Secretary. 

(iii) The application must be accompanied by documentation from the Department of Veterans 

Affairs showing that the Department of Veterans Affairs has determined that the veteran is 

unemployable due to a service-connected disability. The veteran will not be required to provide any 

additional documentation related to the veteran's disability.

(iv) After the Secretary receives the application and supporting documentation described in 

paragraphs (c)(9)(ii) and (c)(9)(iii) of this section, the Secretary identifies any other title IV loans owed by 

the veteran and notifies the veteran, the holders of the veteran’s loans, and the applicable guaranty

agencies that the borrower has applied for a disability discharge on those loans. 

(v) If the application is incomplete, the Secretary notifies the veteran of the missing information and 

requests the missing information from the veteran or the veteran’s representative. The Secretary does 

not make a determination of eligibility until the application is complete.

(vi) The lender notification described in paragraph (c)(9)(iv) of this section directs the lenders to 

suspend collection activity on the veteran’s title IV loans. 

(vii) The veteran notification described in paragraph (c)(9)(iv) of this section—

(A) States that the application will be reviewed by the Secretary;

(B) Informs the veteran that the veteran’s lenders will suspend collection activity on the veteran’s

title IV loans while the Secretary reviews the veteran’s application for a discharge; and 

(C) Explains the process under paragraph (c)(9) of this section for the Secretary’s review of total and 

permanent disability discharge applications.

(viii) After making a determination that the borrower is totally and permanently disabled as 

described in paragraph (2) of the definition of that term in §682.200(b), the Secretary notifies the 

veteran and the veteran’s lenders that the application for a disability discharge has been approved. 

With this notification, the Secretary directs each lender to submit a disability claim to the guaranty 

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agency. If the loan meets the conditions of §682.406, the guaranty agency must pay the claim and 

discharge the loan.

(ix) The Secretary reimburses the guaranty agency for a disability claim after the agency pays the 

claim to the lender.

(x) If the Secretary determines, based on a review of the documentation from the Department of 

Veterans Affairs, that the veteran is not totally and permanently disabled as described in paragraph (2) 

of the definition of that term in §682.200(b), the Secretary notifies the borrower and the lender that the 

application for a disability discharge has been denied. The notification includes—

(A) The reason or reasons for the denial;

(B) An explanation that the loan is due and payable to the lender under the terms of the promissory 

note;

(C) An explanation that the lender will notify the borrower of the date the veteran must resume 

making payments on the loan; 

(D) An explanation of how the veteran may request that the Secretary re-evaluate the veteran’s 

application for discharge by providing, within 12 months of the date of the notification, additional 

documentation from the Department of Veterans Affairs that supports the veteran’s eligibility for 

discharge; and 

(E) Information on how the veteran may reapply for a total and permanent disability discharge in 

accordance with procedures described in paragraphs (c)(2) through (c)(9) of this section, if the 

documentation from the Department of Veterans Affairs does not indicate that the veteran is totally and 

permanently disabled as described in paragraph (2) of the definition of that term in §682.200(b), but 

indicates that the veteran may be totally and permanently disabled as described in paragraph (1) of the 

definition of that term.

(xiii) Lender and guaranty agency actions. (A) After being notified by a veteran or a veteran's 

representative that the veteran claims to be totally and permanently disabled as described in paragraph 

(2) of the definition of that term in §682.200(b), the lender must continue collection activities until it 

receives the veteran's completed loan discharge application with the required documentation from the 

Department of Veterans Affairs, as described in paragraph (8)(i) of this section. Except as provided in 

paragraph (c)(8)(ii)(C) of this section, the lender will not attempt to collect from the veteran or any 

endorser after receiving the . veteran's discharge application and documentation from the Department 

of Veterans Affairs.

(B) If the Secretary approves the borrower’s total and permanent disability discharge request based 

on veteran submits a completed loan discharge application and the required documentation from the 

Department of Veterans Affairs, and the documentation indicates that the veteran is totally and 

permanently disabled as described in paragraph (2) of the definition of that term in §682.200(b), tthe

lender must submit a disability claim to the guaranty agency, documented in accordance with paragraph 

(g)(1) of this section.

(B) If the loan meets the conditions of §682.406 the guaranty agency must pay the claim submitted 

by the lender.

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(C) Upon receipt of the claim payment from the guaranty agency, the lender returns any payments 

received on or after the effective date of the determination by the Department of Veterans Affairs that 

the veteran is unemployable due to a service-connected disability to the person who made the 

payments.

(D) If the Secretary determines that the certification provided by the borrower does not support the 

conclusion that the veteran is totally and permanently disabled as described in paragraph (2) of the 

definition of that term in §682.200(b), the Secretary notifies the veteran and the lender that the 

application for a disability discharge has been denied. The notification includes--

(1) The reason or reasons for the denial;

(2) An explanation that the loan is due and payable to the lender under the terms of the promissory 

note;

(3) An explanation that the lender will notify the veteran of the date the veteran must resume 

making payments on the loan; 

(4) Information on how the veteran may reapply for a total and permanent disability discharge in 

accordance with the procedures described in paragraphs (c)(1) through (c)(8) of this section if the 

documentation from the Department of Veterans Affairs does not indicate that the veteran is totally and 

permanently disabled as described in paragraph (2) of the definition of that term in §682.200(b), but 

indicates that the veteran may be totally and permanently disabled as described in paragraph (1) of the 

definition of that term.

(EC) If the Secretary does not approve the borrower’s total and permanent disability discharge 

based on documentation from the Department of Veterans Affairs,documentation from the Department 

of Veterans Affairs does not indicate that the veteran is totally and permanently disabled as described in 

paragraph (2) of the definition of that term in §682.200(b), the lender—

( 1 ) Mmust 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.

( 2 ) Must inform the veteran that he or she may reapply for a total and permanent disability 

discharge in accordance with the procedures described in §682.402(c)(2) through (c)(7), if the 

documentation from the Department of Veterans Affairs does not indicate that the veteran is totally and 

permanently disabled as described in paragraph (2) of the definition of that term in §682.200(b), but 

indicates that the veteran may be totally and permanently disabled as described in paragraph (1) of the 

definition of that term.

(D) If the documentation from the Department of Veterans Affairs indicates that the borrower is 

totally and permanently disabled as described in paragraph (2) of the definition of that term in 

§682.200(b), the guaranty agency must submit a copy of the veteran's discharge application and 

supporting documentation to the Secretary, and must notify the veteran that the veteran's loan 

discharge request has been referred to the Secretary for a determination of discharge eligibility.

(E) If the documentation from the Department of Veterans Affairs does not indicate that the veteran 

is totally and permanently disabled as described in paragraph (2) of the definition of that term in 

§682.200(b), the guaranty agency does not pay the disability claim and must return the claim to the 

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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 veteran that the application for a disability discharge has been denied, 

provide the basis for the denial, and inform the veteran 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.

(F) If the Secretary determines, based on a review of the documentation from the Department of 

Veterans Affairs, that the veteran is totally and permanently disabled as described in paragraph (2) of 

the definition of that term in §682.200(b), the Secretary notifies the guaranty agency that the veteran is 

eligible for a total and permanent disability discharge. Upon notification by the Secretary that the 

veteran is eligible for a discharge, the guaranty agency pays the disability discharge claim. Upon receipt 

of the claim payment from the guaranty agency, the lender notifies the veteran that the veteran's 

obligation to make any further payments on the loan has been discharged and returns to the person 

who made the payments on the loan any payments received on or after the effective date of the 

determination by the Department of Veterans Affairs that the veteran is unemployable due to a serviceconnected disability.

(G) If the Secretary determines, based on a review of the documentation from the Department of 

Veterans Affairs, that the veteran is not totally and permanently disabled as described in paragraph (2) 

of the definition of that term in §682.200(b), the Secretary notifies the guaranty agency of this 

determination. Upon notification by the Secretary that the veteran is not eligible for a discharge, the 

guaranty agency and the lender must follow the procedures described in paragraph (c)(8)(ii)(E) of this 

section.

(H) The Secretary reimburses the guaranty agency for a disability claim paid to the lender after the 

agency pays the claim to the lender.

* * * * *

(g) Claim procedures for a loan held by a lender —(1) Documentation. 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 a true and exact copy of the promissory note.

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

(iii) In the case of a death claim, an original or certified death certificate, or other documentation 

supporting the discharge request that formed the basis for the determination of death.

(iv) In the case of a disability claim, a copy of the certification of disability described in paragraph 

(c)(2) of this sectionnotification described in paragraph (c)(3)(iii) or (c)(9)(vii) in which the Secretary 

notifies the lender that the borrower is totally and permanently disabled. .

* * * * *

(g) (2) Filing deadlines. A lender shall file a death, disability, closed school, false certification, or 

bankruptcy claim within the following periods:

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(i) Within 60 days of the date on which the lender determines that a borrower (or the student on 

whose behalf a parent obtained a PLUS loan) has died;

(ii) , Within 30 days of the date the lender received notification from the Secretary that the 

borrower is totally and permanently disabled, in accordance with §682.402(c)(3)(iii) or 

§682.402(c)(9)(viii) or the lender determines that the borrower is totally and permanently disabled.

* * * * *

(h) Payment of death, disability, closed school, false certification, and bankruptcy claims by the 

guaranty agency —(1) General. (i) Except as provided in paragraph (h)(1)(v) of this section, the guaranty 

agency shall review a death, disability, bankruptcy, closed school, or false certification claim promptly 

and shall pay the lender on an approved claim the amount of loss in accordance with paragraphs (h)(2) 

and (h)(3) of this section—

(A) Not later than 45 days after the claim was filed by the lender for death, disability, and 

bankruptcy claims; and

(B) Not later than 90 days after the claim was filed by the lender for disability, closed school, or false 

certification claims.

* * * * *

(h)(1) (v) In the case of a disability claim based on a veteran's discharge request processed in 

accordance with §682.402(c)(89), the guaranty agency shall—

(A) Review the claim promptly and not later than 45 days after the claim was filed by the lender 

submit the veteran's discharge application and supporting documentation to the Secretary discharge the 

loan or return the claim to the lender in accordance with §682.402(c)(8)(ii)(D) or (E), as applicable; and

(B) Not later than 45 days after receiving notification from the Secretary of the veteran's eligibility or 

ineligibility for discharge, pay the claim or return the claim to the lender in accordance with 

§682.402(c)(8)(ii)(F) or (G), as applicable.

(2)(i) The amount of loss payable—

(A) On a death or disability claim is equal to the sum of the remaining principal balance and interest 

accrued on the loan, collection costs incurred by the lender and applied to the borrower's account 

within 30 days of the date those costs were actually incurred, and unpaid interest up to the date the 

lender should have filed the claim.

* * * * *

(h)(3) Payment of interest. If the guarantee covers unpaid interest, the amount payable on an 

approved claim includes the unpaid interest that accrues during the following periods:

(i) During the period before the claim is filed, not to exceed the period provided for in paragraph 

(g)(2) of this section for filing the claim.

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(ii) During a period not to exceed 30 days following the receipt date by the lender of a claim 

returned by the guaranty agency for additional documentation necessary for the claim to be approved 

by the guaranty agency.

(iii) During the period required by the guaranty agency to approve the claim and to authorize 

payment or to return the claim to the lender for additional documentation not to exceed—

(A) 45 days for death, disability or bankruptcy claims; or

(B) 90 days for disability, closed school, or false certification claims.

* * * * *

(k) Claims for reimbursement from the Secretary on loans held by guarantyee agencies. (1)(i) The 

Secretary reimburses the guaranty agency for its losses on bankruptcy claims paid to lenders after—

(A) A determination by the court that the loan is dischargeable under 11 U.S.C. 523(a)(8) with 

respect to a proceeding initiated under chapter 7 or chapter 11; or

(B) With respect to any other loan, after the agency pays the claim to the lender.

(ii) The guaranty agency shall refund to the Secretary the full amount of reimbursement received 

from the Secretary on a loan that a lender repurchases under this section.

(2) The Secretary pays a death, disability, bankruptcy, closed school, or false certification claim in an 

amount determined under §682.402(k)(5) on a loan held by a guaranty agency after the agency has paid 

a default claim to the lender thereon and received payment under its reinsurance agreement. The 

Secretary reimburses the guaranty agency only if—

(i) The Secretary determines that the borrower (or each of the co-makers of a PLUS loan) has 

become totally and permanently disabled since applying for the loan, or Tthe guaranty agency 

determines that the borrower (or the student for whom a parent obtained a PLUS loan or each of the 

co-makers of a PLUS loan) has died, or the borrower (or each of the co-makers of a PLUS loan) has 

become totally and permanently disabled since applying for the loan, or has filed for relief in 

bankruptcy, in accordance with the procedures in paragraphs (b), (c), or (f) of this section, or the student 

was unable to complete an educational program because the school closed, or the borrower's eligibility 

to borrow (or the student's eligibility in the case of a PLUS loan) was falsely certified by an eligible 

school. For purposes of this paragraph, references to the “lender” and “guaranty agency” in paragraphs 

(b) through (f) of this section mean the guaranty agency and the Secretary respectively;

(ii) In the case of a Stafford, SLS, or PLUS loan, the Secretary determines that the borrower (or each 

of the co-makers of a PLUS loan) has become totally and permanently disabled since applying for the 

loan, the guaranty agency determines that the borrower (or the student for whom a parent obtained a 

PLUS loan, or each of the co-makers of a PLUS loan) has died, or the borrower (or each of the co-makers 

of a PLUS loan) has become totally and permanently disabled since applying for the loan, or has filed the 

petition for relief in bankruptcy within 10 years of the date the borrower entered repayment, exclusive 

of periods of deferment or periods of forbearance granted by the lender that extended the 10-year 

maximum repayment period, or the borrower (or the student for whom a parent received a PLUS loan) 

was unable to complete an educational program because the school closed, or the borrower's eligibility 

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to borrow (or the student's eligibility in the case of a PLUS loan) was falsely certified by an eligible 

school;

(iii) In the case of a Consolidation loan, the borrower (or one of the co-makers) has died, is 

determined by the Secretary to be totally and permanently disabled under §682.402(c), or has filed the 

petition for relief in bankruptcy within the maximum repayment period described in §682.209(h)(2), 

exclusive of periods of deferment or periods of forbearance granted by the lender that extended the 

maximum repayment period;

(iv) The guaranty agency has not written off the loan in accordance with the procedures established 

by the agency under §682.410(b)(6)(x), except for closed school and false certification discharges; and

(v) The guaranty agency has exercised due diligence in the collection of the loan in accordance with 

the procedures established by the agency under §682.410(b)(6)(x), until the borrower (or the student 

for whom a parent obtained a PLUS loan, or each of the co-makers of a PLUS loan) has died, or the 

borrower (or each of the co-makers of a PLUS loan) has become totally and permanently disabled or 

filed a Chapter 12 or Chapter 13 petition, or had the loan discharged in bankruptcy, or for closed school 

and false certification claims, the guaranty agency receives a request for discharge from the borrower or 

another party.

* * * * *

(k) (5) The Secretary pays the guaranty agency a percentage of the outstanding principal and 

interest that is equal to the complement of the reinsurance percentage paid on the loan. This interest 

includes interest that accrues during—

(i) For death or bankruptcy claims, the shorter of 60 days or the period from the date the guaranty 

agency determines that the borrower (or the student for whom a parent obtained a PLUS loan, or each 

of the co-makers of a PLUS loan) died, or filed a petition for relief in bankruptcy until the Secretary 

authorizes payment;

(ii) For disability claims, the shorter of 60 days or the period from the date the guaranty 

agencySecretary makes a preliminary determination that the borrower became totally and permanently 

disabled until the Secretary authorizes payment; or

(iii) For closed school or false certification claims, the period from the date on which the guaranty 

agency received payment from the Secretary on a default claim to the date on which the Secretary 

authorizes payment of the closed school or false certification claim.

* * * * *

(r) Payments received after the Secretary's payment of a death, disability, closed school, false 

certification, or bankruptcy claim (1) If the guaranty agency receives any payments from or on behalf of 

the borrower on or attributable to a loan that has been discharged in bankruptcy on which the Secretary 

previously paid a bankruptcy claim, the guaranty agency must return 100 percent of these payments to 

the sender. The guaranty agency must promptly return, to the sender, any payment on a cancelled or 

discharged loan made by the sender and received after the Secretary pays a closed school or false 

certification claim. At the same time that the agency returns the payment, it must notify the borrower 

that there is no obligation to repay a loan discharged on the basis of death, bankruptcy, false 

certification, or closing of the school.
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(2) If the guaranty agency receives any payments from or on behalf of the borrower on or 

attributable to a loan that has been assigned to the Secretary based on the Secretary’s for 

determination of eligibility for a total and permanent disability discharge, the guaranty agency must 

promptly return these payments to the senderforward those payments to the Secretary for crediting to 

the borrower's account. At the same time that the agency forwardsreturns the payments, it must notify 

the borrower that there is no obligation to make payments on the loan while it is conditionallyafter is 

has been discharged due to prior to a final determination of eligibility for a total and permanent 

disability discharge, unless the loan is reinstated in accordance with §682.402(c), or the Secretary directs 

the borrower otherwise.

(3) When the Secretary makes a final determination to discharges the loan, the Secretary returns to 

the sender any payments received on the loan after the date the borrower became totally and 

permanently disabled.

(4) The guaranty agency shall remit to the Secretary all payments received from a tuition recovery 

fund, performance bond, or other third party with respect to a loan on which the Secretary previously 

paid a closed school or false certification claim.

(5) If the guaranty agency has returned a payment to the borrower, or the borrower's 

representative, with the notice described in paragraphs (r)(1) or (r)(2) of this section, and the borrower 

(or representative) continues to send payments to the guaranty agency, the agency must remit all of 

those payments to the Secretary.

* * * * * 

§ 685.213 Total and permanent disability discharge.

(a) General. (1) A borrower's Direct Loan is discharged if the borrower becomes totally and 

permanently disabled, as defined in 34 CFR 682.200(b)§685.102(b), and satisfies the eligibility 

requirements in this section.

(2) For a borrower who becomes totally and permanently disabled as described in paragraph (1) of 

the definition of that term in 34 CFR 682.200(b)§685.102(b), the borrower's loan discharge application is 

processed in accordance with paragraph (b) of this section.

(3) For veterans who are totally and permanently disabled as described in paragraph (2) of the 

definition of that term in 34 CFR 682.200(b)§685.102(b), the veteran's loan discharge application is 

processed in accordance with paragraph (c) of this section.

(4) For purposes of §685.213, a borrower’s representative is a member of the borrower’s family, the 

borrower’s attorney, or another individual authorized to act on behalf of the borrower in connection 

with the borrower’s total and permanent disability discharge request. 

(b) Discharge application process for a borrower who is totally and permanently disabled as 

described in paragraph (1) of the definition of that term in 34 CFR 682.200(b)§685.102(b) —(1) Borrower 

application for discharge. To qualify for a discharge of a Direct Loan based on a total and permanent 

disability, a borrower or borrower’s representative must submit a discharge application to the Secretary 

on a form approved by the Secretary. 

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(2) 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 described in paragraph (1) of the definition of that term in 34 CFR 682.200(b)§685.102(b).

(3) The borrower or borrower’s representative must submit the application described in paragraph 

(b)(1) of this section to the Secretary within 90 days of the date the physician certifies the application. 

Upon receipt of the borrower's application, the Secretary –

(i) Identifies any other title IV loans owed by the borrower and notifies the borrower and the 

holders of the loans that the borrower has applied for a disability discharge on those loans; 

(ii) If the application is incomplete, notifies the borrower or the missing information and requests 

the missing information from the borrower, the borrower’s representative, or the physician who 

certified the application, as appropriate, and does not make a determination of eligibility for discharge

until the application is complete;

(iii) nNotifies the borrower that no payments are due on the loan while the Secretary determines 

the borrower's eligibility for discharge.; and

(iv) Explains the process under paragraph (b)(4) of this section for the Secretary’s review of total and 

permanent disability discharge applications.

(24) Determination of eligibility. (i) If, after reviewing the borrower's completed application, the 

Secretary determines that the physician’s certification provided by the borrower supports the 

conclusion that the borrower meets the criteria for a total and permanent disability discharge, as 

described in paragraph (1) of the definition of that term in 34 CFR 682.200(b)§685.102(b), the borrower 

is considered totally and permanently disabled as of the date the physician certifieds the borrower's 

application.

(ii) The Secretary may require the borrower to submit additional medical evidence if the Secretary 

determines that the borrower's application does not conclusively prove that the borrower is totally and 

permanently disabled as described in paragraph (1) of the definition of that term in §685.102(b). As part 

of the Secretary's review of the borrower's discharge application, the Secretary may require and arrange 

for an additional review of the borrower's condition by an independent physician at no expense to the 

borrower.

(ii)(iii) Upon making a determination After determining that the borrower is totally and permanently 

disabled, as described in paragraph (1) of the definition of that term in 34 CFR 682.200(b)§685.102(b), 

the Secretary discharges the borrower's obligation to make any further payments on the loan, notifies 

the borrower that the loan has been discharged, and returns to the person who made the payments on 

the loan any payments received after the date the physician certified the borrower's loan discharge 

application. The notification to the borrower explains the terms and conditions under which the 

borrower's obligation to repay the loan will be reinstated, as specified in paragraph (b)(47)(i) of this 

section.

(iii)(iv) If the Secretary determines that the certification provided by the borrower does not support 

the conclusion that the borrower is totally and permanently disabled, as described in paragraph (1) of 

the definition of that term in 34 CFR 682.200(b)§685.102(b), 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. The notification to the borrower includes –

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(A) The reason or reasons for the denial;

(B) An explanation that the loan is due and payable to the Secretary under the terms of the 

promissory note;

(C) The date that the borrower must resume making payments; 

(D) An explanation of how the borrower may request that the Secretary re-evaluate the borrower’s 

application for discharge by providing, within 12 months of the date of the notification, additional 

information that supports the borrower’s eligibility for discharge; and

(E) An explanation of how the borrower may submit a new application for total and permanent 

disability discharge if the borrower does not request re-evaluation of the borrower’s prior discharge 

application within the timeframe specified by the Secretary.

(iv) If the borrower requests re-evaluation in accordance with paragraph (b)(24)(iv)(D) of this section 

or submits a new total and permanent disability discharge application in accordance with paragraph 

(b)(24)(iv)(E) of this section, the request must include new information regarding the borrower’s 

disabling condition that was not available at the time the Secretary reviewed the borrower’s initial 

application for total and permanent disability discharge. 

(iv) The Secretary reserves the right to require the borrower to submit additional medical evidence if 

the Secretary determines that the borrower's application does not conclusively prove that the borrower 

is totally and permanently disabled as described in paragraph (1) of the definition of that term in 34 CFR 

682.200(b). As part of the Secretary's review of the borrower's discharge application, the Secretary may 

arrange for an additional review of the borrower's condition by an independent physician at no expense 

to the borrower.

(35) Treatment of disbursements made during the period from the date of the physician's 

certification until the date of discharge. If a borrower received a title IV loan or TEACH Grant prior 

tobefore the date the physician certified the borrower's discharge application and a disbursement of 

that loan or grant is made during the period from the date of the physician's certification until the date 

the Secretary grants a discharge under this section, the processing of the borrower's loan discharge 

request will be suspended until the borrower ensures that the full amount of the disbursement has been 

returned to the loan holder or to the Secretary, as applicable.

(46) Application for new title IV loans or TEACH Grants after the date of the physician’s certification. 

If a borrower initiates an application for a new title IV loan or a TEACH Grant on or after the date the 

physician certified the borrower’s discharge application, the Secretary denies the borrower’s discharge 

request and resume collection on the borrower’s loan.

(4)(57) Conditions for reinstatement of a loan after a total and permanent disability discharge. (i) 

The Secretary reinstates a borrower's obligation to repay a loan that was discharged in accordance with 

paragraph (b)(24)(ii)(iii) of this section if, within three years after the date the Secretary granted the 

discharge, the borrower—

(A) During the three calendar-year period beginning on January 1 of the first calendar year after the 

date the Secretary granted the discharge, the borrower Hhas annual earnings from employment that 

exceed 100 percent of the poverty guideline for a family of two, as published annually by the United 

States Department of Health and Human Services pursuant to 42 U.S.C. 9902(2);

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(B) During the period from the date the Secretary granted the discharge until the end of the three 

calendar year period specified in paragraph (b)(7)(i)(A) of this section, the borrower Rreceives a new 

TEACH Grant or a new loan under the Perkins, FFEL or Direct Loan programs, except for a FFEL or Direct 

Consolidation Loan that includes loans that were not discharged; or

(C) The borrower Ffails to ensure that the full amount of any disbursement of a title IV loan or 

TEACH Grant received prior to the discharge date that is made during the period from the date the 

Secretary granted the discharge until the end of the three calendar year period specified in paragraph 

(b)(7)(i)(A) of this section is returned to the loan holder or to the Secretary, as applicable, within 120 

days of the disbursement date.

(ii) If the borrower's obligation to repay the loan is reinstated, the Secretary—

(A) Notifies the borrower that the borrower's obligation to repay the loan has been reinstated; and

(B) Does not require the borrower to pay interest on the loan for the period from the date the loan 

was discharged until the date the borrower's obligation to repay the loan was reinstated.

(iii) The Secretary's notification under paragraph (b)(4)(57)(ii)(A) of this section will include—

(A) The reason or reasons for the reinstatement;

(B) An explanation that the first payment due date on the loan following reinstatement will be no 

earlier than 60 days after the date of the notification of reinstatement; and

(C) Information on how the borrower may contact the Secretary if the borrower has questions about 

the reinstatement or believes that the obligation to repay the loan was reinstated based on incorrect 

information.

(58) Borrower's responsibilities after a total and permanent disability discharge. During the threeyear periods described in paragraphs (b)(4)(i)(b)(57)(i)(A) and (B) of this section, the borrower or, if 

applicable, the borrower's representative must—

(i) Promptly notify the Secretary of any changes in address or phone number;

(ii) Promptly notify the Secretary if the borrower's annual earnings from employment exceed the 

amount specified in paragraph (b)(4)(57)(i)(A) of this section; and

(iii) Provide the Secretary, upon request, with documentation of the borrower's annual earnings 

from employment.

(c) Discharge application process for veterans who are totally and permanently disabled as described 

in paragraph (2) of the definition of that term in 34 CFR 682.200(b)§685.102(b). (1) Veteran's application 

for discharge. To qualify for a discharge of a Direct Loan based on a total and permanent disability as 

described in paragraph (2) of the definition of that term in 34 CFR 682.200(b)§685.102(b), a veteran or 

veteran’s representative must submit a discharge application to the Secretary on a form approved by 

the Secretary. The application must be accompanied by documentation from the Department of 

Veterans Affairs showing that the Department of Veterans Affairs has determined that the veteran is 

unemployable due to a service-connected disability. The Secretary does not require the veteran to 

provide any additional documentation related to the veteran's disability. Upon receipt of the veteran's 

application, the Secretary –

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(i) Identifies any other title IV loans owed by the veteran and notifies the veteran and the holders of 

the veteran’s loans that veteran has applied for a disability discharge on those loans;

(ii) If the application is incomplete, requests the missing information from the veteran or the 

veteran’s representative, and does not make a determination of eligibility for discharge until the 

application is complete; 

(iii) nNotifies the veteran that no payments are due on the loan while the Secretary determines the 

veteran's eligibility for discharge.; and

(iv) Explains the Secretary’s process under paragraph (c)(2) of this section for reviewing total and 

permanent disability discharge requestsapplications.

(2) Determination of eligibility. (i) If the Secretary determines, based on a review of the 

documentation from the Department of Veterans Affairs, that the veteran is totally and permanently 

disabled as described in paragraph (2) of the definition of that term in §682.200(b)§685.102(b), the 

Secretary discharges the veteran's obligation to make any further payments on the loan and returns to 

the person who made the payments on the loan any payments received on or after the effective date of 

the determination by the Department of Veterans Affairs that the veteran is unemployable due to a 

service-connected disability.

(ii)(A) If the Secretary determines, based on a review of the documentation from the Department of 

Veterans Affairs, that the veteran is not totally and permanently disabled as described in paragraph (2) 

of the definition of that term in 34 CFR 682.200(b)§685.102(b), the Secretary notifies the veteran 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. The notification to the veteran includes –

(A) The reason or reasons for the denial;

(B) An explanation that the loan is due and payable to the Secretary under the terms of the 

promissory note;

(C) The date that the veteran must resume making payments;

(D) An explanation of how the veteran may request that the Secretary re-evaluate the veteran’s 

application for discharge by providing, within 12 months of the date of the notification, additional 

documentation from the Department of Veterans Affairs that supports the veteran’s eligibility for 

discharge; and 

(B)(E) Information on how The Secretary notifies the veteran that he or she may reapply for a total 

and permanent disability discharge in accordance with the procedures described in paragraph (b) of this 

section if the documentation from the Department of Veterans Affairs does not indicate that the 

veteran is totally and permanently disabled as described in paragraph (2) of the definition of that term 

in 34 CFR 682.200(b)§685.102(b), but indicates that the veteran may be totally and permanently 

disabled as described in paragraph (1) of the definition of that term.

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Issue Paper #16

Proposed Regulatory Language

Loans Group

Issue: Title IV Closed School Loan Discharge 

Statutory Cites: §§437(c)(1) and 464(g) 

Regulatory Cites: §§674.33(g), 682.402(d), and 685.214 

Summary of Change:

Under the current closed school discharge regulations in the Perkins, FFEL, and Direct Loan programs, a 

borrower may qualify for a loan discharge if he or she was unable to complete a program of study while 

the school closed, or withdrew from the school no more than 90 days before the school closed. The 90-

day window may be extended if the Department determines that there are exceptional circumstances 

related to the school’s closure. The proposed regulatory language extends the current 90-day window to 

120 days, and adds examples of the types of exceptional circumstances under which the Department 

may extend the 120-day window. 

Change:

§674.33 Closed School Discharge.

* * * * *

(g) Closed school discharge--(1) General. (i) The holder of an NDSL or a Federal Perkins Loan 

discharges the borrower's (and any endorser's) obligation to repay the loan if the borrower did not 

complete the program of study for which the loan was made because the school at which the borrower 

was enrolled closed.

(ii) For the purposes of this section--

(A) A school's closure date is the date that the school ceases to provide educational instruction in all 

programs, as determined by the Secretary;

(B) “School” means a school's main campus or any location or branch of the main campus; and

(C) The “holder” means the Secretary or the school that holds the loan.

(2) Relief pursuant to discharge. (i) Discharge under this section relieves the borrower of any past or 

present obligation to repay the loan and any accrued interest or collection costs with respect to the 

loan.

(ii) The discharge of a loan under this section qualifies the borrower for reimbursement of amounts 

paid voluntarily or through enforced collection on the loan.

(iii) A borrower who has defaulted on a loan discharged under this section is not considered to have 

been in default on the loan after discharge, and such a borrower is eligible to receive assistance under 

programs authorized by title IV of the HEA.
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(iv) The Secretary or the school, if the school holds the loan, reports the discharge of a loan under 

this section to all credit bureaus to which the status of the loan was previously reported.

(3) Determination of borrower qualification for discharge by the Secretary. The Secretary may 

discharge the borrower's obligation to repay an NDSL or Federal Perkins Loan without an application if 

the Secretary determines that--

(i) The borrower qualified for and received a discharge on a loan pursuant to 34 CFR 682.402(d) 

(Federal Family Education Loan Program) or 34 CFR 685.213 (Federal Direct Loan Program), and was 

unable to receive a discharge on an NDSL or Federal Perkins Loan because the Secretary lacked the 

statutory authority to discharge the loan; or

(ii) Based on information in the Secretary's possession, the borrower qualifies for a discharge.

(4) Borrower qualification for discharge. Except as provided in paragraph (g)(3) of this section, in 

order to qualify for discharge of an NDSL or Federal Perkins Loan, a borrower must submit to the holder 

of the loan a written request and sworn statement, and the factual assertions in the statement must be 

true. The statement need not be notarized but must be made by the borrower under penalty of perjury. 

In the statement the borrower must--

(i) State that the borrower--

(A) Received the proceeds of a loan to attend a school;

(B) Did not complete the program of study at that school because the school closed while the 

student was enrolled, or the student withdrew from the school not more than 120 90 days (or longer in 

exceptional circumstances) before the school closed. This 120 day period may be extended if the 

Secretary determines that exceptional circumstances related to a school’s closing justify an extension. 

Exceptional circumstances for this purpose may include, but are not limited to: the school’s loss of 

accreditation that results in school closure, the school’s discontinuation of the majority of its programs,

or state action to revoke the school’s license to operate or award academic credentials in the state.);

and 

(C) Did not complete and is not in the process of completing the program of study through a 

teachout at another school as defined in 34 CFR 602.2 and administered in accordance with 34 CFR 

602.207(b)(6), by transferring academic credit earned at the closed school to another school, or by any 

other comparable means;

(ii) State whether the borrower has made a claim with respect to the school's closing with any third 

party, such as the holder of a performance bond or a tuition recovery program, and, if so, the amount of 

any payment received by the borrower or credited to the borrower's loan obligation; and

(iii) State that the borrower--

(A) Agrees to provide to the holder of the loan upon request other documentation reasonably 

available to the borrower that demonstrates that the borrower meets the qualifications for discharge 

under this section; and
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(B) Agrees to cooperate with the Secretary in enforcement actions in accordance with paragraph 

(g)(6) of this section and to transfer any right to recovery against a third party to the Secretary in 

accordance with paragraph (g)(7) of this section.

(5) Fraudulently obtained loans. A borrower who secured a loan through fraudulent means, as 

determined by the ruling of a court or an administrative tribunal of competent jurisdiction, is ineligible 

for a discharge under this section.

(6) Cooperation by borrower in enforcement actions. (i) In order to obtain a discharge under this 

section, a borrower must cooperate with the Secretary in any judicial or administrative proceeding 

brought by the Secretary to recover amounts discharged or to take other enforcement action with 

respect to the conduct on which the discharge was based. At the request of the Secretary and upon the 

Secretary's tendering to the borrower the fees and costs that are customarily provided in litigation to 

reimburse witnesses, the borrower must--

(A) Provide testimony regarding any representation made by the borrower to support a request for 

discharge;

(B) Provide any documents reasonably available to the borrower with respect to those 

representations; and

(C) If required by the Secretary, provide a sworn statement regarding those documents and 

representations.

(ii) The holder denies the request for a discharge or revokes the discharge of a borrower who--

(A) Fails to provide the testimony, documents, or a sworn statement required under paragraph 

(g)(6)(i) of this section; or

(B) Provides testimony, documents, or a sworn statement that does not support the material 

representations made by the borrower to obtain the discharge.

(7) Transfer to the Secretary of borrower's right of recovery against third parties. (i) In the case of a 

loan held by the Secretary, upon discharge under this section, the borrower is deemed to have assigned 

to and relinquished in favor of the Secretary any right to a loan refund (up to the amount discharged) 

that the borrower may have by contract or applicable law with respect to the loan or the enrollment 

agreement for the program for which the loan was received, against the school, its principals, its 

affiliates and their successors, its sureties, and any private fund, including the portion of a public fund 

that represents funds received from a private party.

(ii) The provisions of this section apply notwithstanding any provision of State law that would 

otherwise restrict transfer of those rights by the borrower, limit or prevent a transferee from exercising 

those rights, or establish procedures or a scheme of distribution that would prejudice the Secretary's 

ability to recover on those rights.

(iii) Nothing in this section limits or forecloses the borrower's right to pursue legal and equitable 

relief regarding disputes arising from matters unrelated to the discharged NDSL or Federal Perkins Loan.
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(8) Discharge procedures. (i) After confirming the date of a school's closure, the holder of the loan 

identifies any NDSL or Federal Perkins Loan borrower who appears to have been enrolled at the school 

on the school closure date or to have withdrawn not more than 120 90 days prior to the closure date.

(ii) If the borrower's current address is known, the holder of the loan mails the borrower a discharge 

application and an explanation of the qualifications and procedures for obtaining a discharge. The 

holder of the loan also promptly suspends any efforts to collect from the borrower on any affected loan. 

The holder of the loan may continue to receive borrower payments.

(iii) In the case of a loan held by the Secretary, if the borrower's current address is unknown, the 

Secretary attempts to locate the borrower and determine the borrower's potential eligibility for a 

discharge under this section by consulting with representatives of the closed school or representatives 

of the closed school's third-party billing and collection servicers, the school's licensing agency, the school 

accrediting agency, and other appropriate parties. If the Secretary learns the new address of a borrower, 

the Secretary mails to the borrower a discharge application and explanation and suspends collection, as 

described in paragraph (g)(8)(ii) of this section.

(iv) In the case of a loan held by a school, if the borrower's current address is unknown, the school 

attempts to locate the borrower and determine the borrower's potential eligibility for a discharge under 

this section by taking steps required to locate the borrower under Sec. 674.44.

(v) If the borrower fails to submit the written request and sworn statement described in paragraph 

(g)(4) of this section within 60 days of the holder of the loan's mailing the discharge application, the 

holder of the loan resumes collection and grants forbearance of principal and interest for the period 

during which collection activity was suspended.

(vi) If the holder of the loan determines that a borrower who requests a discharge meets the 

qualifications for a discharge, the holder of the loan notifies the borrower in writing of that 

determination.

(vii) In the case of a loan held by the Secretary, if the Secretary determines that a borrower who 

requests a discharge does not meet the qualifications for a discharge, the Secretary notifies that 

borrower, in writing, of that determination and the reasons for the determination.

(viii) In the case of a loan held by a school, if the school determines that a borrower who requests a 

discharge does not meet the qualifications for discharge, the school submits that determination and all 

supporting materials to the Secretary for approval. The Secretary reviews the materials, makes an 

independent determination, and notifies the borrower in writing of the determination and the reasons 

for the determination.

(ix) In the case of a loan held by a school and discharged by either the school or the Secretary, the 

school must reimburse its Fund for the entire amount of any outstanding principal and interest on the 

loan, and any collection costs charged to the Fund as a result of collection efforts on a discharged loan. 

The school must also reimburse the borrower for any amount of principal, interest, late charges or 

collection costs the borrower paid on a loan discharged under this section.

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

payments.

* * * * *
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(d) Closed school--(1) General. (i) The Secretary reimburses the holder of a loan received by a 

borrower on or after January 1, 1986, and discharges the borrower's obligation with respect to the loan 

in accordance with the provisions of paragraph (d) of this section, if the borrower (or the student for 

whom a parent received a PLUS loan) could not complete the program of study for which the loan was 

intended because the school at which the borrower (or student) was enrolled, closed, or the borrower 

(or student) withdrew from the school not more than 90 120 days prior to the date the school closed. 

This 12090-day period may be extended if the Secretary determines that exceptional circumstances 

related to a school's closing would justify an extension. Exceptional circumstances for this purpose may 

include, but are not limited to: the school’s loss of accreditation that results in the school’s closure, the 

school’s discontinuation of the majority of its programs, or state action to revoke the school’s license to 

operate or award academic credentials in the state; and

(ii) For purposes of the closed school discharge authorized by this section--

(A) A school's closure date is the date that the school ceases to provide educational instruction in all 

programs, as determined by the Secretary;

(B) The term “borrower” includes all endorsers on a loan; and 

(C) A “school” means a school's main campus or any location or branch of the main campus, 

regardless of whether the school or its location or branch is considered eligible.

(2) Relief available pursuant to discharge. (i) Discharge under paragraph (d) of this section relieves 

the borrower of an existing or past obligation to repay the loan and any charges imposed or costs 

incurred by the holder with respect to the loan that the borrower is, or was otherwise obligated to pay.

(ii) A discharge of a loan under paragraph (d) of this section qualifies the borrower for 

reimbursement of amounts paid voluntarily or through enforced collection on a loan obligation 

discharged under paragraph (d) of this section.

(iii) A borrower who has defaulted on a loan discharged under paragraph (d) of this section is not 

regarded as in default on the loan after discharge, and is eligible to receive assistance under the Title IV, 

HEA programs.

(iv) A discharge of a loan under paragraph (d) of this section must be reported by the loan holder to 

all credit reporting agencies to which the holder previously reported the status of the loan, so as to 

delete all adverse credit history assigned to the loan.

(3) Borrower qualification for discharge. Except as provided in paragraph (d)(8) of this section, in 

order to qualify for a discharge of a loan under paragraph (d) of this section, a borrower must submit a 

written request and sworn statement to the holder of the loan. The statement need not be notarized, 

but must be made by the borrower under the penalty of perjury, and, in the statement, the borrower 

must state--

(i) Whether the student has made a claim with respect to the school's closing with any third party, 

such as the holder of a performance bond or a tuition recovery program, and if so, the amount of any 

payment received by the borrower (or student) or credited to the borrower's loan obligation;

(ii) That the borrower (or the student for whom a parent received a PLUS loan)--
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(A) Received, on or after January 1, 1986, the proceeds of any disbursement of a loan disbursed, in 

whole or in part, on or after January 1, 1986 to attend a school;

(B) Did not complete the educational program at that school because the school closed while the 

student was enrolled or on an approved leave of absence in accordance with Sec. 682.605(c), or the 

student withdrew from the school not more than 120 90 days before the school closed; and

(C) Did not complete the program of study through a teach-out at another school or by transferring 

academic credits or hours earned at the closed school to another school;

(iii) That the borrower agrees to provide, upon request by the Secretary or the Secretary's designee, 

other documentation reasonably available to the borrower that demonstrates, to the satisfaction of the 

Secretary or the Secretary's designee, that the student meets the qualifications in paragraph (d) of this 

section; and

(iv) That the borrower agrees to cooperate with the Secretary or the Secretary's designee in 

enforcement actions in accordance with paragraph (d)(4) of this section, and to transfer any right to 

recovery against a third party in accordance with paragraph (d)(5) of this section.

(4) Cooperation by borrower in enforcement actions. (i) In any judicial or administrative proceeding 

brought by the Secretary or the Secretary's designee to recover for amounts discharged under 

paragraph (d) of this section or to take other enforcement action with respect to the conduct on which 

those claims were based, a borrower who requests or receives a discharge under paragraph (d) of this 

section must cooperate with the Secretary or the Secretary's designee. At the request of the Secretary 

or the Secretary's designee, and upon the Secretary's or the Secretary's designee's tendering to the 

borrower the fees and costs as are customarily provided in litigation to reimburse witnesses, the 

borrower shall--

(A) Provide testimony regarding any representation made by the borrower to support a request for 

discharge; and

(B) Produce any documentation reasonably available to the borrower with respect to those 

representations and any sworn statement required by the Secretary with respect to those 

representations and documents.

(ii) The Secretary revokes the discharge, or denies the request for discharge, of a borrower who--

(A) Fails to provide testimony, sworn statements, or documentation to support material 

representations made by the borrower to obtain the discharge; or

(B) Provides testimony, a sworn statement, or documentation that does not support the material 

representations made by the borrower to obtain the discharge.

(5) Transfer to the Secretary of borrower's right of recovery against third parties.

(i) Upon discharge under paragraph (d) of this section, the borrower is deemed to have assigned to 

and relinquished in favor of the Secretary any right to a loan refund (up to the amount discharged) that 

the borrower (or student) may have by contract or applicable law with respect to the loan or the 

enrollment agreement for the program for which the loan was received, against the school, its 
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principals, affiliates and their successors, its sureties, and any private fund, including the portion of a 

public fund that represents funds received from a private party.

(ii) The provisions of paragraph (d) of this section apply notwithstanding any provision of State law 

that would otherwise restrict transfer of such rights by the borrower (or student), limit or prevent a 

transferee from exercising those rights, or establish procedures or a scheme of distribution that would 

prejudice the Secretary's ability to recover on those rights.

(iii) Nothing in this section shall be construed as limiting or foreclosing the borrower's (or student's) 

right to pursue legal and equitable relief regarding disputes arising from matters otherwise unrelated to 

the loan discharged.

(6) Guaranty agency responsibilities--(i) Procedures applicable if a school closed on or after January 

1, 1986, but prior to June 13, 1994. (A) If a borrower received a loan for attendance at a school with a 

closure date on or after January 1, 1986, but prior to June 13, 1994, the loan may be discharged in 

accordance with the procedures specified in paragraph (d)(6)(i) of this section.

(B) If a loan subject to paragraph (d) of this section was discharged in part in accordance with the 

Secretary's “Closed School Policy” as authorized by section IV of Bulletin 89-G-159, the guaranty agency 

shall initiate the discharge of the remaining balance of the loan not later than August 13, 1994. 

(C) A guaranty agency shall review its records and identify all schools that appear to have closed on 

or after January 1, 1986 and prior to June 13, 1994, and shall identify the loans made to any borrower 

(or student) who appears to have been enrolled at the school on the school closure date or who 

withdrew not more than 120 90 days prior to the closure date.

(D) A guaranty agency shall notify the Secretary immediately if it determines that a school not 

previously known to have closed appears to have closed, and, within 30 days of making that 

determination, notify all lenders participating in its program to suspend collection efforts against 

individuals with respect to loans made for attendance at the closed school, if the student to whom (or 

on whose behalf) a loan was made, appears to have been enrolled at the school on the closing date, or 

withdrew not more than 120 90 days prior to the date the school appears to have closed. Within 30 days 

after receiving confirmation of the date of a school's closure from the Secretary, the agency shall--

(1) Notify all lenders participating in its program to mail a discharge application explaining the 

procedures and eligibility criteria for obtaining a discharge and an explanation of the information that 

must be included in the sworn statement (which may be combined) to all borrowers who may be eligible 

for a closed school discharge; and

(2) Review the records of loans that it holds, identify the loans made to any borrower (or student) 

who appears to have been enrolled at the school on the school closure date or who withdrew not more 

than 90 days prior to the closure date, and mail a discharge application and an explanation of the 

information that must be included in the sworn statement (which may be combined) to the borrower. 

The application shall inform the borrower of the procedures and eligibility criteria for obtaining a 

discharge.

(E) If a loan identified under paragraph (d)(6)(i)(D)(2) of this section is held by the guaranty agency 

as a defaulted loan and the borrower's current address is known, the guaranty agency shall immediately 

suspend any efforts to collect from the borrower on any loan received for the program of study for 

which the loan was made (but may continue to receive borrower payments), and notify the borrower 
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that the agency will provide additional information about the procedures for requesting a discharge 

after the agency has received confirmation from the Secretary that the school had closed.

(F) If a loan identified under paragraph (d)(6)(i)(D)(2) of this section is held by the guaranty agency 

as a defaulted loan and the borrower's current address is unknown, the agency shall, by June 13, 1995, 

further refine the list of borrowers whose loans are potentially subject to discharge under paragraph (d) 

of this section by consulting with representatives of the closed school, the school's licensing agency, 

accrediting agency, and other appropriate parties. Upon learning the new address of a borrower who 

would still be considered potentially eligible for a discharge, the guaranty agency shall, within 30 days 

after learning the borrower's new address, mail to the borrower a discharge application that meets the 

requirements of paragraph (d)(6)(i)(E) of this section.

(G) If the guaranty agency determines that a borrower identified in paragraph (d)(6)(i)(E) or (F) of 

this section has satisfied all of the conditions required for a discharge, the agency shall notify the 

borrower in writing of that determination within 30 days after making that determination.

(H) If the guaranty agency determines that a borrower identified in paragraph (d)(6)(i)(E) or (F) of 

this section does not qualify for a discharge, the agency shall notify the borrower in writing of that 

determination and the reasons for it within 30 days after the date the agency--

(1) Made that determination based on information available to the guaranty agency;

(2) Was notified by the Secretary that the school had not closed;

(3) Was notified by the Secretary that the school had closed on a date that was more than 120 90

days after the borrower (or student) withdrew from the school;

(4) Was notified by the Secretary that the borrower (or student) was ineligible for a closed school 

discharge for other reasons; or

(5) Received the borrower's completed application and sworn statement.

(I) If a borrower described in paragraph (d)(6)(i)(E) or (F) of this section fails to submit the written 

request and sworn statement described in paragraph (d)(3) of this section within 60 days of being 

notified of that option, the guaranty agency shall resume collection and shall be deemed to have 

exercised forbearance of payment of principal and interest from the date it suspended collection 

activity. The agency may capitalize, in accordance with Sec. 682.202(b), any interest accrued and not 

paid during that period.

(J) A borrower's request for discharge may not be denied solely on the basis of failing to meet any 

time limits set by the lender, guaranty agency, or the Secretary.

 (ii) Procedures applicable if a school closed on or after June 13, 1994.

(A) A guaranty agency shall notify the Secretary immediately whenever it becomes aware of reliable 

information indicating a school may have closed. The designated guaranty agency in the state in which 

the school is located shall promptly investigate whether the school has closed and, within 30 days after 

receiving information indicating that the school may have closed, report the results of its investigation 

to the Secretary concerning the date of the school's closure and whether a teach-out of the closed 

school's program was made available to students.
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(B) If a guaranty agency determines that a school appears to have closed, it shall, within 30 days of 

making that determination, notify all lenders participating in its program to suspend collection efforts 

against individuals with respect to loans made for attendance at the closed school, if the student to 

whom (or on whose behalf) a loan was made, appears to have been enrolled at the school on the closing 

date, or withdrew not more than 120 90 days prior to the date the school appears to have closed. 

Within 30 days after receiving confirmation of the date of a school's closure from the Secretary, the 

agency shall--

(1) Notify all lenders participating in its program to mail a discharge application explaining the 

procedures and eligibility criteria for obtaining a discharge and an explanation of the information that 

must be included in the sworn statement (which may be combined) to all borrowers who may be eligible 

for a closed school discharge; and

(2) Review the records of loans that it holds, identify the loans made to any borrower (or student) 

who appears to have been enrolled at the school on the school closure date or who withdrew not more 

than 120 90 days prior to the closure date, and mail a discharge application and an explanation of the 

information that must be included in the sworn statement (which may be combined) to the borrower. 

The application shall inform the borrower of the procedures and eligibility criteria for obtaining a 

discharge.

(C) If a loan identified under paragraph (d)(6)(ii)(B)(2) of this section is held by the guaranty agency 

as a defaulted loan and the borrower's current address is known, the guaranty agency shall immediately 

suspend any efforts to collect from the borrower on any loan received for the program of study for 

which the loan was made (but may continue to receive borrower payments), and notify the borrower 

that the agency will provide additional information about the procedures for requesting a discharge 

after the agency has received confirmation from the Secretary that the school had closed.

(D) If a loan identified under paragraph (d)(6)(ii)(B)(2) of this section is held by the guaranty agency 

as a defaulted loan and the borrower's current address is unknown, the agency shall, within one year 

after identifying the borrower, attempt to locate the borrower and further determine the borrower's 

potential eligibility for a discharge under paragraph (d) of this section by consulting with representatives 

of the closed school, the school's licensing agency, accrediting agency, and other appropriate parties. 

Upon learning the new address of a borrower who would still be considered potentially eligible for a 

discharge, the guaranty agency shall, within 30 days after learning the borrower's new address, mail to 

the borrower a discharge application that meets the requirements of paragraph (d)(6)(ii)(B) of this 

section.

(E) If the guaranty agency determines that a borrower identified in paragraph (d)(6)(ii)(C) or (D) of 

this section has satisfied all of the conditions required for a discharge, the agency shall notify the 

borrower in writing of that determination within 30 days after making that determination.

(F) If the guaranty agency determines that a borrower identified in paragraph (d)(6)(ii)(C) or (D) of 

this section does not qualify for a discharge, the agency shall notify the borrower in writing of that 

determination and the reasons for it within 30 days after the date the agency--

(1) Made that determination based on information available to the guaranty agency;

(2) Was notified by the Secretary that the school had not closed;
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(3) Was notified by the Secretary that the school had closed on a date that was more than 120 90

days after the borrower (or student) withdrew from the school;

(4) Was notified by the Secretary that the borrower (or student) was ineligible for a closed school 

discharge for other reasons; or

(5) Received the borrower's completed application and sworn statement.

(G) Upon receipt of a closed school discharge claim filed by a lender, the agency shall review the 

borrower's request and supporting sworn statement in light of information available from the records of 

the agency and from other sources, including other guaranty agencies, state authorities, and cognizant 

accrediting associations, and shall take the following actions--

(1) If the agency determines that the borrower satisfies the requirements for discharge under 

paragraph (d) of this section, it shall pay the claim in accordance with Sec. 682.402(h) not later than 120 

90 days after the agency received the claim; or

(2) If the agency determines that the borrower does not qualify for a discharge, the agency shall, not 

later than 90 120 days after the agency received the claim, return the claim to the lender with an 

explanation of the reasons for its determination.

(H) If a borrower fails to submit the written request and sworn statement described in paragraph 

(d)(3) of this section within 60 days of being notified of that option, the lender or guaranty agency shall 

resume collection and shall be deemed to have exercised forbearance of payment of principal and 

interest from the date it suspended collection activity. The lender or guaranty agency may capitalize, in 

accordance with Sec. 682.202(b), any interest accrued and not paid during that period.

(I) A borrower's request for discharge may not be denied solely on the basis of failing to meet any 

time limits set by the lender, guaranty agency, or the Secretary.

(7) Lender responsibilities. (i) A lender shall comply with the requirements prescribed in paragraph 

(d) of this section. In the absence of specific instructions from a guaranty agency or the Secretary, if a 

lender receives information from a source it believes to be reliable indicating that an existing or former 

borrower may be eligible for a loan discharge under paragraph (d) of this section, the lender shall 

immediately notify the guaranty agency, and suspend any efforts to collect from the borrower on any 

loan received for the program of study for which the loan was made (but may continue to receive 

borrower payments).

(ii) If the borrower fails to submit the written request and sworn statement described in paragraph 

(d)(3) of this section within 60 days after being notified of that option, the lender shall resume collection 

and shall be deemed to have exercised forbearance of payment of principal and interest from the date 

the lender suspended collection activity. The lender may capitalize, in accordance with Sec. 682.202(b), 

any interest accrued and not paid during that period.

(iii) The lender shall file a closed school claim with the guaranty agency in accordance with Sec. 

682.402(g) no later than 60 days after the lender receives the borrower's written request and sworn 

statement described in paragraph (d)(3) of this section. If a lender receives a payment made by or on 

behalf of the borrower on the loan after the lender files a claim on the loan with the guaranty agency, 

the lender shall forward the payment to the guaranty agency within 30 days of its receipt. The lender 
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shall assist the guaranty agency and the borrower in determining whether the borrower is eligible for 

discharge of the loan.

(iv) Within 30 days after receiving reimbursement from the guaranty agency for a closed school 

claim, the lender shall notify the borrower that the loan obligation has been discharged, and request 

that all credit bureaus to which it previously reported the status of the loan delete all adverse credit 

history assigned to the loan.

(v) Within 30 days after being notified by the guaranty agency that the borrower's request for a 

closed school discharge has been denied, the lender shall resume collection and notify the borrower of 

the reasons for the denial. The lender shall be deemed to have exercised forbearance of payment of 

principal and interest from the date the lender suspended collection activity, and may capitalize, in 

accordance with Sec. 682.202(b), any interest accrued and not paid during that period.

(8) Discharge without an application. A borrower's obligation to repay an FFEL Program loan may be 

discharged without an application from the borrower if the-- 

(i) Borrower received a discharge on a loan pursuant to 34 CFR 674.33(g) under the Federal Perkins 

Loan Program, or 34 CFR 685.213 under the William D. Ford Federal Direct Loan Program; or

(ii) The Secretary or the guaranty agency, with the Secretary's permission, determines that the 

borrower qualifies for a discharge based on information in the Secretary or guaranty agency's 

possession.

* * * * *

§685.214 Closed school discharge.

(a) General. (1) The Secretary discharges the borrower's (and any endorser's) obligation to repay a 

Direct Loan in accordance with the provisions of this section if the borrower (or the student on whose 

behalf a parent borrowed) did not complete the program of study for which the loan was made because 

the school at which the borrower (or student) was enrolled closed, as described in paragraph (c) of this 

section.

(2) For purposes of this section--

(i) A school's closure date is the date that the school ceases to provide educational instruction in all 

programs, as determined by the Secretary; and

(ii) “School” means a school's main campus or any location or branch of the main campus.

(b) Relief pursuant to discharge. (1) Discharge under this section relieves the borrower of any past or 

present obligation to repay the loan and any accrued charges or collection costs with respect to the 

loan.

(2) The discharge of a loan under this section qualifies the borrower for reimbursement of amounts 

paid voluntarily or through enforced collection on the loan.

(3) The Secretary does not regard a borrower who has defaulted on a loan discharged under this 

section as in default on the loan after discharge, and such a borrower is eligible to receive assistance 

under programs authorized by title IV of the Act.
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 (4) The Secretary reports the discharge of a loan under this section to all credit reporting agencies 

to which the Secretary previously reported the status of the loan.

(c) Borrower qualification for discharge. In order to qualify for discharge of a loan under this section, 

a borrower shall submit to the Secretary a written request and sworn statement, and the factual 

assertions in the statement must be true. The statement need not be notarized but must be made by 

the borrower under penalty of perjury. In the statement, the borrower shall-- 

(1) State that the borrower (or the student on whose behalf a parent borrowed)--

(i) Received the proceeds of a loan, in whole or in part, on or after January 1, 1986 to attend a 

school;

(ii) Did not complete the program of study at that school because the school closed while the 

student was enrolled, or the student withdrew from the school not more than 120 90 days before the 

school closed (or longer in exceptional circumstances). This 120 day period may be extended if the 

Secretary determines that exceptional circumstances related to a school’s closing justify an extension. 

Exceptional circumstances for this purpose may include, but are not limited to: the school’s loss of 

accreditation that results in school’s closure, the school’s discontinuation of the majority of its 

programs, or state action to revoke the school’s license to operate or award academic credentials in the 

state; and

(iii) Did not complete the program of study through a teach-out at another school or by transferring 

academic credits or hours earned at the closed school to another school;

(2) State whether the borrower (or student) has made a claim with respect to the school's closing 

with any third party, such as the holder of a performance bond or a tuition recovery program, and, if so, 

the amount of any payment received by the borrower (or student) or credited to the borrower's loan 

obligation; and

(3) State that the borrower (or student)--

(i) Agrees to provide to the Secretary upon request other documentation reasonably available to the 

borrower that demonstrates that the borrower meets the qualifications for discharge under this section; 

and

(ii) Agrees to cooperate with the Secretary in enforcement actions in accordance with paragraph (d) 

of this section and to transfer any right to recovery against a third party to the Secretary in accordance 

with paragraph (e) of this section.

(d) Cooperation by borrower in enforcement actions. (1) In order to obtain a discharge under this 

section, a borrower shall cooperate with the Secretary in any judicial or administrative proceeding 

brought by the Secretary to recover amounts discharged or to take other enforcement action with 

respect to the conduct on which the discharge was based. At the request of the Secretary and upon the 

Secretary's tendering to the borrower the fees and costs that are customarily provided in litigation to 

reimburse witnesses, the borrower shall--

(i) Provide testimony regarding any representation made by the borrower to support a request for 

discharge;
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(ii) Produce any documents reasonably available to the borrower with respect to those 

representations; and

(iii) If required by the Secretary, provide a sworn statement regarding those documents and 

representations.

(2) The Secretary denies the request for a discharge or revokes the discharge of a borrower who--

(i) Fails to provide the testimony, documents, or a sworn statement required under paragraph (d)(1) 

of this section; or

(ii) Provides testimony, documents, or a sworn statement that does not support the material 

representations made by the borrower to obtain the discharge.

(e) Transfer to the Secretary of borrower's right of recovery against third parties. (1) Upon discharge 

under this section, the borrower is deemed to have assigned to and relinquished in favor of the 

Secretary any right to a loan refund (up to the amount discharged) that the borrower (or student) may 

have by contract or applicable law with respect to the loan or the enrollment agreement for the 

program for which the loan was received, against the school, its principals, its affiliates and their 

successors, its sureties, and any private fund, including the portion of a public fund that represents 

funds received from a private party.

(2) The provisions of this section apply notwithstanding any provision of State law that would 

otherwise restrict transfer of those rights by the borrower (or student), limit or prevent a transferee 

from exercising those rights, or establish procedures or a scheme of distribution that would prejudice 

the Secretary's ability to recover on those rights.

(3) Nothing in this section limits or forecloses the borrower's (or student's) right to pursue legal and 

equitable relief regarding disputes arising from matters unrelated to the discharged Direct Loan.

(f) Discharge procedures. (1) After confirming the date of a school's closure, the Secretary identifies 

any Direct Loan borrower (or student on whose behalf a parent borrowed) who appears to have been 

enrolled at the school on the school closure date or to have withdrawn not more than 120 90 days prior 

to the closure date.

(2) If the borrower's current address is known, the Secretary mails the borrower a discharge 

application and an explanation of the qualifications and procedures for obtaining a discharge. The 

Secretary also promptly suspends any efforts to collect from the borrower on any affected loan. The 

Secretary may continue to receive borrower payments.

(3) If the borrower's current address is unknown, the Secretary attempts to locate the borrower and 

determines the borrower's potential eligibility for a discharge under this section by consulting with 

representatives of the closed school, the school's licensing agency, the school's accrediting agency, and 

other appropriate parties. If the Secretary learns the new address of a borrower, the Secretary mails to 

the borrower a discharge application and explanation and suspends collection, as described in 

paragraph (f)(2) of this section.

(4) If a borrower fails to submit the written request and sworn statement described in paragraph (c) 

of this section within 60 days of the Secretary's mailing the discharge application, the Secretary resumes 
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40

collection and grants forbearance of principal and interest for the period in which collection activity was 

suspended. The Secretary may capitalize any interest accrued and not paid during that period.

(5) If the Secretary determines that a borrower who requests a discharge meets the qualifications 

for a discharge, the Secretary notifies the borrower in writing of that determination.

(6) If the Secretary determines that a borrower who requests a discharge does not meet the 

qualifications for a discharge, the Secretary notifies that borrower in writing of that determination and 

the reasons for the determination.

* * * * *
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Issue Paper #17

Proposed Regulatory Language

Loans Group

Issue: Satisfactory Repayment Arrangements on Defaulted Title IV Loans for Borrowers 

who also Rehabilitate the Loan 

Statutory Cite: §428F(b) 

Regulatory Cites: §§674.2(b), 674.9(j), 674.39(a)(2), 682.200(b), 682.401(b)(4), 682.405(a)(2)(i), 

685.102(b), and 685.200(d) 

Summary of Change: The proposed regulatory language amends the definition of “Satisfactory 

repayment arrangement” in the Perkins, FFEL, and Direct Loan programs. The revised definition 

specifies that a borrower who makes 6 monthly qualifying rehabilitation payments without receiving 

additional Title IV aid and then re-defaults, does not lose the option to regain Title IV eligibility by 

making satisfactory repayment arrangements.

Change:

§ 674.2 Definitions.

* * * * *

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

* * * * *

Satisfactory repayment arrangement: (1) For purposes of regaining eligibility for grant, loan, or work 

assistance under Ttitle IV of the HEA, to the extent that the borrower is otherwise eligible, the making of 

six (6) on-time, consecutive, voluntary, full, monthly payments on a defaulted loan. A borrower may 

obtain the benefit of this paragraph with respect to renewed eligibility once on a defaulted loan.

(2) Voluntary payments are payments made directly by the borrower, and do not include payments 

obtained by income tax off-set, garnishment, or income or asset execution.

(3) A borrower has not used the one opportunity to renew eligibility for title IV assistance if the 

borrower makes six consecutive, on-time, voluntary full monthly payments under an agreement to 

rehabilitate a defaulted loan, but does not receive additional title IV assistance prior to defaulting on 

that loan again.

* * * * *

§ 674.9 Student eligibility.

* * * * *

A student at an institution of higher education is eligible to receive a loan under the Federal Perkins 

Loan program for an award year if the student—

Formatted: Font: Not Italic
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* * * * *

(j) In the case of a borrower who is in default on a Federal Perkins Loan, NDSL or Defense loan, 

satisfies one of the conditions contained in §674.5(c)(3)(i) or (ii) except that—

(1) For purposes of this section, voluntary payments made by the borrower under paragraph (i) of 

this section are those payments made directly by the borrower; and

(2) Voluntary payments do not include payments obtained by Federal offset, garnishment, or 

income or asset execution.

(k) In the case of a borrower who is in default on an FFEL Program or a Direct Loan Program Loan, 

makes satisfactory repayment arrangements as defined in §682.200(b) or §685.102(b) on the 

defaulted loan, as determined by the loan holder 

(kl) For purposes of this section, reaffirmation means the acknowledgment of the loan by the 

borrower in a legally binding manner. The acknowledgement may include, but is not limited to, the 

borrower—

(1) Signing a new promissory note or new repayment agreement; or

(2) Making a payment on the loan.

* * * * *

§ 682.200 Definitions.

* * * * *

(b) The following definitions also apply to this part:

* * * * *

Satisfactory repayment arrangement. (1) For purposes of regaining eligibility under §682.401(b)(4), 

the making of six (6) consecutive, on-time, voluntary full monthly payments on a defaulted loan. A 

borrower may only obtain the benefit of this paragraph with respect to renewed eligibility once. 

(2) For purposes of consolidating a defaulted loan under 34 CFR 682.201(c)(1)(iii)(C), the making of 

three (3) consecutive, on-time voluntary full monthly payments on a defaulted loan.

(3) The required full monthly payment amount may not be more than is reasonable and affordable 

based on the borrower's total financial circumstances. Voluntary payments are those payments made 

directly by the borrower, and do not include payments obtained by income tax off-set, garnishment, or 

income or asset execution. On-time means a payment received by the Secretary or a guaranty agency or 

its agent within 15 days of the scheduled due date.

(3) A borrower has not used the one opportunity to renew eligibility for title IV assistance if the 

borrower makes six consecutive, on-time, voluntary full monthly payments under an agreement to 

rehabilitate a defaulted loan but does not receive additional title IV assistance prior to defaulting on that 

loan again.

§ 685.102 Definitions.
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* * * * *

(b) The following definitions also apply to this part:

* * * * *

Satisfactory repayment arrangement. (1) For the purpose of regaining eligibility under section 

428F(b) of the HEA, the making of six consecutive, voluntary, on-time, full monthly payments on a 

defaulted loan. A borrower may only obtain the benefit of this paragraph with respect to renewed 

eligibility once.

(2) For the purpose of consolidating a defaulted loan under 34 CFR 685.220(d)(1)(ii)(C), the making 

of three consecutive, voluntary, on-time, full monthly payments on a defaulted loan.

(3) The required monthly payment amount may not be more than is reasonable and affordable 

based on the borrower's total financial circumstances. “On-time” means a payment made within 15 days 

of the scheduled due date, and voluntary payments are those payments made directly by the borrower 

and do not include payments obtained by Federal offset, garnishment, or income or asset execution.

(4) A borrower has not used the one opportunity to renew eligibility for title IV assistance if the 

borrower makes six consecutive, on-time, voluntary full monthly payments under an agreement to 

rehabilitate a defaulted loan but does not receive additional title IV assistance prior to defaulting on that 

loan again.

* * * * *

§ 685.200 Borrower eligibility.

* * * * *

(d) Defaulted FFEL Program and Direct Loan borrowers. Except as noted in §685.220(d)(1)(ii)(D), in 

the case of a student or parent borrower who is currently in default on an FFEL Program or a Direct Loan 

Program Loan, the borrower shall make satisfactory repayment arrangements, as described in 

paragraph (2) of the definition of that term under §685.102(b), on the defaulted loan.

* * * * *
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Issue Paper #18

Proposed Regulatory Language

Loans Group

Issue: School Enrollment Status Reporting Requirements

Statutory Cites: §§428(b)(1)(P), 454(a)(1)(E)(i), and 487(a)(3) and (5)

Regulatory Cites: §§674.19, 682.610(c), 682.605(a), and 685.309(b).

Summary of Change:

The proposed changes update FFEL and Direct Loan regulatory provisions related to school enrollment 

status reporting to reflect current terminology and procedures, and add comparable enrollment 

reporting provisions to the Perkins Loan regulations. 

Change:

§674.19 Fiscal procedures and records.

(f) Enrollment reporting process. (1) Upon receipt of an enrollment report from the Secretary, an 

institution must update all information included in the report and return the report to the Secretary –

(i) In the manner and format prescribed by the Secretary; and

(ii) Within the timeframe specified by the Secretary.

(2) Unless it expects to submit its next updated enrollment report to the Secretary within the next 

60 days, an institution must notify the Secretary within 15 days after the date the school discovers that –

(i) A Federal Perkins Loan was made to a student who was enrolled or accepted for enrollment at 

the institution, and the student has ceased to be enrolled on at least a half-time basis or failed to enroll 

on at least a half-time basis for the period for which the loan was intended; or

(ii) A student who is enrolled at the institution and who received a Federal Perkins Loan, NDSL, or 

National Defense Loan has changed his or her permanent address.

§ 682.610 Administrative and fiscal requirements for participating schools.
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(c) Student status confirmation reportsEnrollment reporting process. A school shall—

(1) Upon receipt of a student status confirmationan enrollment report form from the Secretary or a 

similar student status confirmation report form from any guaranty agency, a school must complete 

update all information included in the report and return that the report to the Secretary –

(i) In the manner and format prescribed by the Secretary; and

(ii) wWithin the timeframe specified by 30 days of receipt to the Secretary. or the guaranty agency, 

as appropriate; and

(2) Unless it expects to submit its next student status confirmationupdated enrollment report to the 

Secretary or the guaranty agency within the next 60 days, a school must notify the Secretaryguaranty 

agency or lender within 3015 days— after the date the school discovers that –

(i) If it discovers that a Stafford, SLS, or PLUS loan has been made to or on behalf of a student who 

enrolled at that school, but who A Subsidized or Unsubsidized Federal Stafford Loan, or Federal PLUS 

Loan was made to or on behalf of student who was enrolled or accepted for enrollment at the school, 

and the student has ceased to be enrolled on at least a half-time basis or failed to enroll on at least a 

half-time basis for the period for which the loan was intended; or 

(ii) If it discovers that a Stafford, SLS, or PLUS loan has been made to or on behalf of a student who 

has been accepted for enrollment at that school, but who failed to enroll on at least a half-time basis for 

the period for which the loan was intended;

(iii) If it discovers that a Stafford, SLS, or PLUS loan has been made to or on behalf of a full-time 

student who has ceased to be enrolled on a full-time basis; or

(iv)(ii) If it discovers that aA student who is enrolled at the school and who has received a Subsidized 

or Unsubsidized Federal Stafford Loan, or student Federal PLUS Loan or SLS loan has changed his or her 

permanent address.

§682.605 Determining the date of a student's withdrawal. 

(a) Except in the case of a student who does not return for the next scheduled term following a 

summer break, which includes any summer term or terms in which classes are offered but students are 

not generally required to attend, a school must follow the procedures in Sec. 668.22(b) or (c), as 
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46

applicable, for determining the student's date of withdrawal. In the case of a student who does not 

return from a summer break, the school must follow the procedures in Sec. 668.22(b) or (c), as 

applicable, except that the school shall determine the student's withdrawal date no later than 30 days 

after the first day of the next scheduled term. 

(b) The school must use the withdrawal date determined under Sec. 668.22(b) or (c), as applicable 

for the purpose of reporting to the lender and the Secretary the date that the student has withdrawn 

from the school. 

(c) For the purpose of a school's reporting to the lender and the Secretary, a student's withdrawal date 

is the month, day and year of the withdrawal date. 

§ 685.309 Administrative and fiscal control and fund accounting requirements for schools 

participating in the Direct Loan Program.

(b) Student status confirmation reportsEnrollment reporting process. A school shall—

(1) Upon receipt of a student status confirmationan enrollment report from the Secretary, a school 

must update all information included in the report complete and return that the report to the Secretary

–

(i) In the manner and format prescribed by the Secretary; and 

(ii) wWithin 30 days of receipt; andthe timeframe prescribed by the Secretary.

(2) Unless it expects to submit its next student status confirmationupdated enrollment report to the 

Secretary within the next 60 days, a school must notify the Secretary within 3015 days if itafter the date 

the school discovers that a Direct Subsidized, Direct Unsubsidized, or Direct PLUS Loan has been made 

to or on behalf of a student who—

(i) A Direct Subsidized Loan, Direct Unsubsidized Loan, or Direct PLUS Loan was made to or on behalf 

of a student who was Eenrolled or accepted for enrollment at that the school, and the student but has 

ceased to be enrolled on at least a half-time basis or failed to enroll on at least a half-time basis for the 

period for which the loan was intended; or 
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47

(ii) Has been accepted for enrollment at that school but failed to enroll on at least a half-time basis 

for the period for which the loan was intended; or

(iii) A student who is enrolled at the school and who received a Direct Subsidized Loan, Direct 

Unsubsidized Loan, or student Direct PLUS Loan Hhas changed his or her permanent address.

(3) The Secretary provides student status confirmation reports to a school at least semi-annually.

(4) The Secretary may provide the student status confirmation report in either paper or electronic 

format.
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Issue Paper #19

Proposed Regulatory Language

Loans Group

Issue: Federal Perkins Loan Graduate Fellowship Deferment Eligibility

Statutory Cite: §464 (c)(2)(A)(i)(II)

Regulatory Cite: §674.34(f) 

Summary of Change:

The proposed regulatory language incorporates the graduate fellowship deferment eligibility criteria 

from §682.210(d) of the FFEL regulations into the Perkins regulations. 

Change:

§ 674.34 Deferment of repayment—Federal Perkins loans, NDSLs and Defense loans.

* * * * *

(f)(1) To qualify for a deferment for study as part of a graduate fellowship program pursuant to 

paragraph (b)(1)(ii) of this section, a borrower must provide the institution certification that the 

borrower has been accepted for or is engaged in full-time study in the institution's graduate fellowship 

program. with a statement from an authorized official of the borrower’s graduate fellowship program 

certifying—

(i) That the borrower holds at least a baccalaureate degree conferred by an institution of higher 

education;

(ii) That the borrower has been accepted or recommended by an institution of higher education for 

acceptance on a full-time basis into an eligible graduate fellowship program; and

(iii) The borrower's anticipated completion date in the program.

(2) For purposes of paragraph (b)(1)(ii) of this section, an eligible graduate fellowship program is a 

fellowship program that—

(i) Provides sufficient financial support to graduate fellows to allow for full-time study for at least six 

months;

(ii) Requires a written statement from each applicant explaining the applicant's objectives before 

the award of that financial support;

(iii) Requires a graduate fellow to submit periodic reports, projects, or evidence of the fellow's 

progress; and

(iv) In the case of a course of study at a foreign university, accepts the course of study for 

completion of the fellowship program.

Formatted: Font: (Default) Calibri, 11 pt
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Issue Paper #20

Proposed Regulatory Language

Loans Group

Issue: Social Security Number Requirement for Assignment of Federal Perkins Loans to 

the Department of Education

Statutory Cite: N/A

Regulatory Cite: §674.50(e)(1) 

Summary of Change:

The proposed regulatory language amends the Perkins assignment requirements to allow assignment of 

a Perkins Loan Program Loan without a Social Security Number, if the loan was made before the 

Department required Social Security Numbers to be collected on the Perkins Loan Program Loan 

promissory notes.

Change:

§ 674.50 Assignment of defaulted loans to the United States.

* * * * *

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

(1) The institution has not provided the Social Security number of the borrower, unless the loan was 

made before September 13, 1982.is submitted for assignment under 674.8(d)(3);

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

(i) The bankruptcy court has determined that the loan obligation is nondischargeable and has 

entered judgment against the borrower; or

(ii) A court of competent jurisdiction has entered judgment against the borrower on the loan after 

the entry of the discharge order; or

(3) The institution has initiated litigation against the borrower, unless the judgment has been 

entered against the borrower and assigned to the United States.
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Issue Paper #21

Proposed Regulatory Language

Loans Group

Issue: Federal Perkins Loan Cancellation Rate Progression Across Cancellation 

Categories

Statutory Cite: §465(a)(3)(A)

Regulatory Cite: §§674.52, 674.53(d), 674.56(h), 674.57(c)(2), 674.59(c)(2) and 674.60(b)

Summary of Change:

The proposed regulatory language allows a borrower who switches from one cancellation category to 

another to receive cancellation at the same annual cancellation rate the borrower would have received 

if the borrower had continued to provide eligible service under the original cancellation category. To 

qualify for this benefit, the borrower must provide eligible service in cancellation categories that have 

the same cancellation rate progression. 

Change:

§ 674.52 Cancellation procedures.

* * * * * 

Issue Paper #23 redesignates 674.52(e) as 674.52(f). Issue Paper #21 adds a new paragraph 674.52(g) 

to read as follows:

(g) Switching cancellation categories.(1) A borrower who qualifies for a cancellation under one of 

the cancellation categories in paragraphs 674.53, 674.56, 674.57, or 674.59 of this section receives 

cancellation of 15 percent of original principal for the first and second year of qualifying service, 20 

percent of original principal for the third and fourth year of qualifying service, and 30 percent of original 

principal for the fifth year of qualifying service. If, after the first, second, third, or fourth year of 

qualifying service—

(i) The borrower switches to a position that qualifies the borrower for cancellation under a different 

cancellation category under paragraphs 674.53, 674.56, 674.57, or 674.59 of this section, the borrower’s 

cancellation rate progression continues from the last year the borrower received a cancellation under 

the former cancellation category. 

(ii) The borrower switches to a position that qualifies the borrower for cancellation under 

paragraphs 674.58, or 674.60 of this section, the borrower’s cancellation rate progression under the 

new cancellation category begins at the year one cancellation rates specified in paragraphs 674.58(b) or 

674.60(b), respectively.
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Issue Paper #22

Proposed Regulatory Language

Loans Group

Issue: Federal Perkins Loan Economic Hardship Deferment Debt-to-Income Ratio 

Provision 

Statutory Cite: §435(o)

Regulatory Cite: §674.34(e)(4) 

Summary of Change: 

The proposed regulatory language removes the debt-to-income economic hardship deferment category 

and related provisions from the Perkins deferment regulations.

Change:

§ 674.34 Deferment of repayment—Federal Perkins loans, NDSLs and Defense loans.

* * * * * 

(e) The borrower need not repay principal, and interest does not accrue, for periods of up to one 

year at a time (except that a deferment under paragraph (e)(54) of this section may be granted for the 

lesser of the borrower's full term of service in the Peace Corps or the borrower's remaining period of 

economic hardship deferment eligibility) that, collectively, do not exceed 3 years, during which the 

borrower is suffering an economic hardship, if the borrower provides documentation satisfactory to the 

institution showing that the borrower is within any of the categories described in paragraphs (e)(1) 

through (e)(54) of this section.

(1) Has been granted an economic hardship deferment under either the Federal Direct Loan 

Program or the FFEL programs for the period of time for which the borrower has requested an economic 

hardship deferment for his or her Federal Perkins loan.

(2) Is receiving payment under a Federal or state public assistance program, such as Aid to Families 

with Dependent Children, Supplemental Security Income, Food Stamps, or state general public 

assistance.

(3) Is working full-time and earning a total monthly gross income that does not exceed the greater 

of—

(i) The monthly earnings of an individual earning the minimum wage described in section 6 of the 

Fair Labor Standards Act of 1938; or

(ii) An amount equal to 150 percent of the poverty guideline applicable to the borrower's family size 

as published annually by the Department of Health and Human Services pursuant to 42 U.S.C. 9902(2). If 

a borrower is not a resident of a State identified in the poverty guidelines, the poverty guideline to be 

used for the borrower is the poverty guideline (for the relevant family size) used for the 48 contiguous 

States.
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(4) Is not receiving total monthly gross income that exceeds twice the amount specified in paragraph 

(e)(3) of this section and, after deducting an amount equal to the borrower's monthly payments on 

Federal postsecondary education loans, as determined under paragraph (e)(10) of this section, the 

remaining amount of that income does not exceed the amount specified in paragraph (e)(3) of this 

section;

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

(6) For a deferment granted under paragraph (e)(4) of this section, the institution shall require the 

borrower to submit at least the following documentation to qualify for an initial period of deferment—

(i) Evidence showing the amount of the borrower's most recent total monthly gross income, as 

defined in section 674.2; and

(ii) Evidence that would enable the institution to determine the amount of the monthly payments 

that would have been owed by the borrower during the deferment period to other entities for Federal 

postsecondary education loans in accordance with paragraph (e)(9) of this section.

(75) To qualify for a subsequent period of deferment that begins less than one year after the end of 

a period of deferment under paragraphs (e)(3) and (e)(4) of this section, the institution shall require the 

borrower to submit a copy of the borrower's Federal income tax return if the borrower filed a tax return 

within eight months prior to the date the deferment is requested.

(86)(i) For purposes of paragraph (e)(3) of this section, a borrower is considered to be working fulltime if the borrower is expected to be employed for at least three consecutive months at 30 hours per 

week.

(ii) For purposes of paragraph (e)(3)(ii) of this section, family size means the number that is 

determined by counting the borrower, the borrower's spouse, and the borrower's children, including 

unborn children who will be born during the period covered by the deferment, if the children receive 

more than half their support from the borrower. A borrower's family size includes other individuals if, at 

the time the borrower requests the economic hardship deferment, the other individuals—

(A) Live with the borrower; and

(B) Receive more than half their support from the borrower and will continue to receive this support 

from the borrower for the year the borrower certifies family size. Support includes money, gifts, loans, 

housing, food, clothes, car, medical and dental care, and payment of college costs.

(9) In determining a borrower's Federal education debt burden under paragraphs (e)(4) of this 

section, the institution shall—

(i) If the Federal postsecondary education loan is scheduled to be repaid in 10 years or less, use the 

actual monthly payment amount (or a proportional share if the payments are due less frequently than 

monthly); or

(ii) If the Federal postsecondary education loan is scheduled to be repaid in more than 10 years, use 

a monthly payment amount (or a proportional share if the payments are due less frequently than 

monthly) that would have been due on the loan if the loan had been scheduled to be repaid in 10 years.
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Issue Paper #23

Proposed Regulatory Language

Loans Group

Issue: Federal Perkins Loan Program: Break in Cancellation Service Due to a Condition 

Covered Under the Family and Medical Leave Act (29 U.S.C. 2601 et. seq.)

Statutory Cites: §§465(a)(3)(A) and 465(a)(4)

Regulatory Cites: §§674.52(b)(2), 682.216(c)(7)(ii), and 685.217(c)(7)(ii) 

Summary of Change: 

The proposed regulatory language allows a break in Perkins teacher cancellation service due to a 

condition covered by the Family and Medical Leave Act (FMLA), as is currently provided for in the FFEL 

and Direct Loan teacher forgiveness regulations. The proposed regulations also allow for a break in 

service in the other Perkins cancellation categories due to a condition covered by the FMLA.

Change:

§ 674.52 Cancellation procedures.

(a) Application for cancellation. To qualify for cancellation of a loan, a borrower shall submit to the 

institution to which the loan is owed, by the date that the institution establishes, both a written request 

for cancellation and any documentation required by the institution to demonstrate that the borrower 

meets the conditions for the cancellation requested.

(b) Part-time employment. (1)(i) An institution may refuse a request for cancellation based on a 

claim of simultaneously teaching in two or more schools or institutions if it cannot determine easily from 

the documentation supplied by the borrower that the teaching is full-time. However, it shall grant the 

cancellation if one school official certifies that a teacher worked full-time for a full academic year.

(ii) An institution may refuse a request for cancellation based on a claim of simultaneous 

employment as a nurse or medical technician in two or more facilities if it cannot determine easily from 

the documentation supplied by the borrower that the combined employment is full-time. However, it 

shall grant the cancellation if one facility official certifies that a nurse or medical technician worked fulltime for a full year.

(c) Break in service (21) If the borrower is unable to due to illness or pregnancy to complete thean 

academic year, the borrower still qualifies for the cancellation if— of eligible teaching service due to a 

condition that is covered under the Family and Medical Leave Act (FMLA) (29 U.S.C. 2601, et. seq.), the 

period of the qualifying FMLA condition does not constitute a break in the required academic year of 

teaching service if—

(i) The borrower completes the firstone half of the academic year; , and has begun teaching the 

second half; and

(ii) The borrower’s employer considers the borrower to have fulfilled his or her contract 

requirements for the academic year for purposes of salary increases increment, tenure, and retirement; 

and 

Formatted: Font: Italic

Formatted: Font: Italic
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(ii) The borrower resumes eligible teaching service no later than the beginning of the next regularly 

scheduled academic year ..

(2) If the borrower is unable to complete a year of eligible service under paragraphs 674.56; 674.57, 

674.59, or 674.60 of this section due to a condition that is covered under the Family and Medical Leave 

Act (FMLA) (29 U.S.C. 2601, et. seq.), the period of the qualifying FMLA condition does not constitute a 

break in the required year of eligible service if—

(i) The borrower completes at least six consecutive months of eligible service; and 

(ii) The borrower resumes eligible service no later than six months from the beginning date of the

period of the qualifying FMLA condition. 

(cd) Cancellation of a defaulted loan. (1) Except with regard to cancellation on account of the death 

or disability of the borrower, a borrower whose defaulted loan has not been accelerated may qualify for 

a cancellation by complying with the requirements of paragraph (a) of this section.

(2) A borrower whose defaulted loan has been accelerated—

(i) May qualify for a loan cancellation for services performed before the date of acceleration; and

(ii) Cannot qualify for a cancellation for services performed on or after the date of acceleration.

(3) An institution shall grant a request for discharge on account of the death or disability of the 

borrower, or, if the borrower is the spouse of an eligible public servant as defined in §674.64(a)(1), on 

account of the death or disability of the borrower's spouse, without regard to the repayment status of 

the loan.

(de) Concurrent deferment period. The Secretary considers a Perkins Loan, NDSL or Defense Loan 

borrower's loan deferment under §674.34(c) to run concurrently with any period for which cancellation 

under §§674.53, 674.54, 674.55, 674.56, 674.57, 674.58, 674.59, and 674.60 is granted.

(2) For loans made on or after July 1, 1993, the Secretary considers a borrower's loan deferment 

under §674.34 to run concurrently with any period for which a cancellation under §§674.53, 674.56, 

674.57, or 674.58 is granted.

(ef) National community service. No borrower who has received a benefit under subtitle D of title I 

of the National and Community Service Act of 1990 may receive a cancellation under this subpart.
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Issue Paper #24

Proposed Regulatory Language

Loans Group

Issue: Standard for On-Time Rehabilitation Payments in the Federal Perkins Loan 

Program 

Statutory Cites: §§428F(a)(1)(A) and 464(h)(1)(A)

Regulatory Cites: §§674.39(a)(2), 682.405(a)(2)(A)(3), and 685.211(f)(1)

Summary of Change:

The proposed regulatory language requires a payment to be made within 20 days of the due date for 

purposes of Perkins Loan rehabilitation. 

Change:

§ 674.39 Loan rehabilitation.

(a) Each institution must establish a loan rehabilitation program for all borrowers for the purpose of 

rehabilitating defaulted loans made under this part, except for loans for which a judgment has been 

secured or loans obtained by fraud for which the borrower has been convicted of, or has pled nolo 

contendere or guilty to, a crime involving fraud in obtaining title IV, HEA program assistance. The 

institution's loan rehabilitation program must provide that—

(1) A defaulted borrower is notified of the option and consequences of rehabilitating a loan; and

(2) A loan is rehabilitated if the borrower makes an on-time, full monthly payment , as determined 

by the institution, within 20 days of the due date ,each month, for nine consecutive months, and the 

borrower requests rehabilitation.
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Issue Paper #25

Proposed Regulatory Language

Loans Group

Issue: FFEL Program Administrative Wage Garnishment (AWG) Hearings for Defaulted 

Borrowers

Statutory Cite: §488A

Regulatory Cite: §682.410(b)(9)

Summary of Change:

The proposed regulatory language amends the requirements of guaranty agencies using administrative 

wage garnishment for defaulted borrowers to reflect existing Department regulations and subregulatory 

guidance. The language allows borrowers to object to the enforceability of the debt or the amount and 

the rate of the borrower’s disposable pay subject to garnishment for reasons of financial hardship. The 

language specifies the order of compliance and limitations on the amount of garnishment in the case of 

multiple garnishment orders. The language specifies the manner by which agencies may use third-party 

contractors. The language also specifies the manner by which a garnishment order ends.

Change:

§682.410 Fiscal, administrative, and enforcement requirements.

* * * * *

(b) Administrative requirements—

* * * * *

(9) Administrative Garnishment. 

(i) If a guaranty agency decides to garnish the disposable pay of a borrower who is not making 

payments on a loan held by the agency, on which the Secretary has paid a reinsurance claim, it shall do 

so in accordance with the following procedures:

(A)The employer shall deduct and pay to the agency from a borrower’s wages an amount that does 

not exceed the lesser of 15 percent of the borrower’s disposable pay for each pay period or the amount 

permitted by 15 U.S.C. 1673 unless the borrower provides the agency with written consent to deduct a 

greater amount. For this purpose, the term “disposable pay” means that part of the borrower’s 

compensation from an employer remaining after the deduction of any amounts required by law to be 

withheld.

(BA) At least 30 days before the initiation of garnishment proceedings, the guaranty agency shall 

mail to the borrower’s last known address, a written notice described in paragraph (b)(9)(i)(B) of the 

nature and amount of the debt, the intention of the agency to initiate proceedings to collect the debt 

through deductions from pay, and an explanation of the borrower’s rights.
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(B) The notice must describe the nature and amount of the debt, the intention of the agency to 

collect the debt through deductions from pay, an explanation of the borrower’s rights, and the deadlines 

by which a borrower must exercise those rights, and the consequences of failure to exercise those rights 

in a timely manner.

(C) The guaranty agency shall offer the borrower an opportunity to inspect and copy agency records 

related to the debt.

(D) The guaranty agency shall offer the borrower an opportunity to enter into a written repayment 

agreement with the agency under terms agreeable to the agency.

(E)(1) The guaranty agency shall offer the borrower an opportunity for a hearing in accordance with 

paragraphs (b)(9)(i)(FJ)-(J) of this section and other guidance provided by the Secretary for any objection 

regarding concerning the existence, or the amount, or enforceability of the debt, and any objection that 

withholding from the borrower’s disposable pay in the amount or at the rate proposed in the notice 

would cause financial hardship to the borrower and, in the case of a borrower whose proposed 

repayment schedule under the garnishment order is established other than by a written agreement 

under paragraph (b)(9)(i)(D) of this section, the terms of the repayment schedule.

(2) At the borrower’s option, the hearing may be oral or written. The time and location of the

hearing shall be established by the guaranty agency. An oral hearing may, at the borrower’s option, be 

conducted either in-person or by telephone conference. The agency will notify the borrower of the 

process for arranging the time and location of an oral hearing. All telephonic charges are the 

responsibility of the agency. All travel expenses incurred by the borrower in connection with an inperson oral hearing are the responsibility of the borrower.

(F)(1) If the borrower submits a written request for a hearing on the existence or amount of the 

debt, the guaranty agency must provide evidence of the existence of the debt. If the agency provides 

evidence of the existence of the debt, the borrower must prove by the preponderance of the evidence 

that no debt exists, the amount the guaranty agency claims the borrower owes is incorrect, or that the 

debt is not delinquent.

(2) If the borrower submits a written request for a hearing on the amount or rate of the borrower’s 

disposable income that the agency proposes to order withheld on the ground that it would cause 

financial hardship to the borrower and the borrower’s spouse and dependents -- The guaranty agency 

shall sue any employer for any amount that the employer, after receipt of the garnishment notice 

provided by the agency under paragraph (b)(9)(i)(H) of this section, fails to withhold from wages owed 

and payable to an employee under the employer’s normal pay and disbursement cycle.

(a) the borrower bears the burden of proving the claim of financial hardship by a preponderance of 

the credible evidence by providing credible documentation that the amount of wages proposed in the 

notice would leave the borrower unable to meet basic living expenses of the borrower, the borrower’s 

spouse, and the borrower’s dependents. The documentation must show the amount of the costs 

incurred for basic living expenses and the income available from any source to meet those expenses.

(b) the borrower’s claim of financial hardship shall be evaluated by comparing the amounts that the 

borrower proves are being incurred for basic living expenses against the amounts spent for basic living 

expenses by families of the same size and similar income to the borrower’s. The standards published by 

the Internal Revenue Service under 26 U.S.C. 7122(c)(2) (the ‘‘National Standards’’) shall be considered 

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to establish the average amounts spent for basic living expenses for families of the same size as, and 

with family incomes comparable to, the borrower’s family. 

(c) the amount that the borrower proves is incurred for a type of basic living expense shall be 

considered to be reasonable to the extent that the amount does not exceed the amount spent for that 

expense by families of the same size and similar income according to the National Standards. If the 

borrower claims an amount for any basic living expense that exceeds the amount in the National 

Standards, the borrower must prove that the amount claimed is reasonable and necessary.

(d) the garnishment may be ordered at a lesser rate or amount, if any, that is determined will allow 

the borrower to meet basic living expenses proven to be reasonable and necessary if the borrower’s 

objection to the rate or amount proposed in the notice is upheld in whole or in part. If this financial 

hardship determination is made after a garnishment order is already in effect, the guaranty agency shall 

notify the borrower’s employer of any change required by the determination in the amount to be 

withheld or the rate of withholding under that order.

(e) a determination by a hearing official that financial hardship would result from garnishment is 

effective for a period not longer than six months after the date of the finding. After this period, the 

guaranty agency may require the borrower to submit current information regarding the borrower’s 

family income and living expenses. If the guaranty agency concludes from a review of that evidence that 

it should increase the amount or rate of withholding, the guaranty agency must notify the borrower and 

provide the borrower with an opportunity to contest the determination and obtain a hearing on the 

objection under the procedures in paragraph (b)(9)(i).

(G) The guaranty agency may not garnish the wages of a borrower whom it knows has been 

involuntarily separated from employment until the borrower has been reemployed continuously for at 

least 12 months.

(H) Unless the guaranty agency receives information that the agency believes justifies a delay or 

cancellation of the withholding order, it shall send a withholding order to the employer within 20 days 

after the borrower fails to make a timely request for a hearing, or, if a timely request for a hearing is 

made by the borrower, within 20 days after a final decision is made by the agency to proceed with 

garnishment.

(I)The notice given to the employer under paragraph (b)(9)(i)(H) of this section must contain only 

the information as may be necessary for the employer to comply with the withholding order.

(J) The guaranty agency shall provide a hearing, which, at the borrower’s option, may be oral or 

written, if the borrower submits a written request for a hearing on the existence or amount of the debt 

or the terms of the repayment schedule. The time and location of the hearing shall be established by 

the agency. An oral hearing may, at the borrower’s option, be conducted either in-person or by 

telephone conference. All telephonic charges must be the responsibility of the guaranty agency. 

(KG) If the borrower’s written request for a hearing is received by the guaranty agency on or before 

the 15th day following the borrower’s receipt of the notice described in paragraph (b)(9)(i)(B) of this 

section, the guaranty agency may not issue a withholding order until the borrower has been provided 

the requested hearing. For purposes of this paragraph, in the absence of evidence to the contrary, a 

borrower shall be considered to have received the notice described in paragraph (b)(9)(i)(B) of this 

section 5 days after it was mailed by the agency. The guaranty agency shall provide a hearing to the 
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borrower in sufficient time to permit a decision, in accordance with the procedures that the agency may 

prescribe, to be rendered within 60 days.

(LH) If the borrower’s written request for a hearing is received by the guaranty agency after the 15th 

day following the borrower’s receipt of the notice described in paragraph (b)(9)(i)(B) of this section, the 

guaranty agency shall provide a hearing to the borrower in sufficient time that a decision, in accordance 

with the procedures that the agency may prescribe, may be rendered within 60 days, but may not delay 

issuance of a withholding order unless the agency determines that the delay in filing the request was 

caused by factors over which the borrower had no control, or the agency receives information that the 

agency believes justifies a delay or cancellation of the withholding order. For purposes of this paragraph, 

in the absence of evidence to the contrary, a borrower shall be considered to have received the notice 

described in paragraph (b)(9)(i)(B) of this section 5 days after it was mailed by the agency. 

(MI) The hearing official appointed by the agency to conduct the hearing may be any qualified 

individual, including an administrative law judge. Under no circumstance may the hearing official be, 

not under the supervision or control of the head of the guaranty agency or of a third-party servicer or 

collection contractor employed by the agency.

(NJ) The hearing official shall conduct any hearing as an informal proceeding, require witnesses in an 

oral hearing to testify under oath or affirmation, and maintain a summary record of any hearing. The 

hearing official shall issue a final written decision at the earliest practicable date, but not later than 60 

days after the guaranty agency’s receipt of the borrower’s hearing request. However –

(1) The borrower may request an extension of that deadline for a reasonable period, as determined 

by the hearing official, for the purpose of submitting additional evidence; and 

(2) The agency may request, and the hearing official shall grant, a reasonable extension of time 

sufficient to enable the guaranty agency to evaluate and respond to the objection. 

(K) A borrower may, at any time, raise an objection to the amount or the rate of withholding 

specified in the guaranty agency’s order to the borrower’s employer on the ground of financial hardship. 

However, the guaranty agency is not required to consider such an objection and provide the borrower 

with a hearing until at least six months after the agency issued the most recent garnishment order, 

either one for which the borrower did not request a hearing or one that was issued after a hardshiprelated hearing determination. The agency may provide a hearing in extraordinary circumstances 

earlier than six months if the borrower ‘s request for review shows that the borrower’s financial 

circumstances have substantially changed after the garnishment notice because of an event such as 

injury, divorce, or catastrophic illness. 

(AL) AnThe employer served with a garnishment order from the guaranty agency shall deduct and 

pay to the agency from a borrower’s wages an amount that does not exceed the lesser of 15—

(1) The amountpercent specified in the order; or 

(2) of the borrower’s disposable pay for each pay period of Tthe amount permitted by 15 U.S.C. 

1673—that is, the lesser of 25 percent of the borrower’s disposable pay or the amount by which the 

borrower’s disposable pay exceeds 30 times the minimum wage (see 29 CFR 870.10) unless the 

borrower provides the agency with written consent to deduct a greater amount. For this purpose, the 

term “disposable pay” means that part of the borrower’s compensation from the employer remaining 

after the deduction of any amounts required by law to be withheld.

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(O) As specified in section 488A(a)(8) of the HEA, the borrower may seek judicial relief, including 

punitive damages, if the employer discharges, refuses to employ, or takes disciplinary action against the 

borrower due to the issuance of a withholding order.

(M) If a borrower’s pay is subject to more than one garnishment order-

(1) Unless other Federal law requires a different priority, the employer must pay the agency the 

amount calculated under (b)(9)(i)(L) before the employer complies with any later garnishment orders, 

except a family support withholding order.

(2) If an employer is withholding from a borrower’s pay based on a garnishment order served on the 

employer before the guaranty agency’s order, or if a withholding order for family support is served on 

an employer at any time, the employer must comply with the agency’s garnishment order by

withholding an amount that is the lesser of –

(I) the amount specified in the order or;

(II) the amount calculated under (b)(9)(i)(L)(2) less the amount or amounts withheld under the

garnishment order or orders that have priority over the agency’s order.

(3) If a borrower owes debts to one or more guaranty agencies, each agency may issue a

garnishment order to enforce each of those debts. However, no agency may order withholding of a 

total amount for all its claims that exceeds 15 percent of the borrower’s disposable wages. The 

employer must honor these orders as provided in (b)(9)(M)(1) and (2).

(4) An employer may withhold and pay a greater amount than required under the order if the 

borrower gives the employer written consent.

(N) A garnishment order is effective until the guaranty agency rescinds the order or the agency has 

fully recovered the amounts owed by the borrower, including interest, late fees, and collections costs. If 

an employer is unable to honor a garnishment order because the amount available for garnishment is

insufficient to pay any portion of the amount stated in the order, the employer must notify the agency 

and comply with the order when sufficient disposable pay is available. Upon full recovery of the debt, 

the agency shall send the borrower’s employer notification to stop wage withholding.

(O) The guaranty agency shall sue any employer, after receipt of the garnishment notice provided 

by the agency under paragraph (b)(9)(i)(H) of this section, fails to withhold from wages owed and 

payable to an employee under the employer’s normal pay and disbursement cycle. 

(GP) The guaranty agency may not garnish the wages of a borrower whom it knows has been 

involuntarily separated from employment until the borrower has been reemployed continuously for at 

least 12 months. The borrower has the burden of informing the guaranty agency of the circumstances 

surrounding the borrower’s involuntary separation from employment.

(HQ) Unless the guaranty agency receives information that the agency believes justifies a delay or 

cancellation of the withholding order, it shall send a withholding order to the employer within 20 days 

after the borrower fails to make a timely request for a hearing, or, if a timely request for a hearing is 

made by the borrower, within 20 days after a final decision is made by the agency to proceed with 

garnishment.

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(IR) The notice given to the employer under paragraph (b)(9)(i)(H) of this section must contain only 

the information as may be necessary for the employer to comply with the withholding order.

(S)(1) A guaranty agency may use third-party servicer or collection contractor to perform 

administrative activities associated with administrative wage garnishment, but may not allow such a

party to conduct required hearings or to determine that a withholding order is to be issued. 

(2) Only an authorized official of the agency may determine that an individual withholding order is 

to be issued. The guarantor must record the official’s determination for each order it issues, including 

any order which it causes to be prepared or mailed by a third-party servicer or collection contractor. 

The guarantor must evidence the official’s approval, either by including the official’s signature on the 

order or, if the agency uses a form of withholding order that does not provide for execution by 

signature, by retaining in the agency’s records the identity of the approving official, the date of the 

approval, the amount or rate of the order, the name and address of the employer to whom the order 

was issued, and the debt for which the order was issued.

(3) The withholding order must identify the guaranty agency as the holder of the debt, as the issuer 

of the order, and as the sole party legally authorized to issue the withholding order. If a guaranty 

agency uses a third-party servicer or collection contractor to prepare and mail a withholding order that 

includes the name of the servicer or contractor that prepared or mailed the order, the guaranty agency 

shall also ensure that the order contains no captions or representations that the servicer or contractor is 

the party that issued, or was empowered by Federal law or by the agency to issue, the withholding 

order.

(T) As specified in section 488A(a)(8) of the HEA, the borrower may seek judicial relief, including 

punitive damages, if the employer discharges, refuses to employ, or takes disciplinary action against the 

borrower due to the issuance of a withholding order.

(ii) For purposes of paragraph (b)(9)—

(A) References to ‘‘the borrower’’ in this paragraph include all endorsers on a loan.

(B) The term “day” means calendar day.

(C) The term ‘‘disposable pay’’ means that part of a borrower’s compensation for personal services, 

whether or not denominated as wages from an employer, that remains after the deduction of health 

insurance premiums and any amounts required by law to be withheld, and includes, but is not limited 

to, salary, bonuses, commissions, or vacation pay. “Amounts required by law to be withheld” include 

amounts for deductions such as social security taxes and withholding taxes, but do not include any 

amount withheld under a court order.

(D) Employer means a person or entity that employs the services of another and that pays the 

latter’s wages or salary and includes, but is not limited to, State and local governments, but does not 

include an agency of the Federal Government.

(E) Financial hardship means an inability to meet basic living expenses for goods and services 

necessary for the survival of the borrower and the borrower’s spouse and dependents.

(F) Garnishment means the process of withholding amounts from an employee’s disposable pay and 

pays to a creditor in satisfaction of a withholding order.
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(G) Withholding order means any order for withholding or garnishment of pay issued by the 

guaranty agency and may otherwise be referred to as “wage garnishment order” or “garnishment 

order”.