# Student Assistance General Provisions, Federal Perkins Loan Program, Federal Family Education Loan (FFEL) Program, and William D. Ford Federal Direct Loan Program (Fiscal Year 2014)

Small Entity Compliance Guide

## Introduction

The U.S. Department of Education has prepared this document as the “small entity compliance guide” as required by Section 212 of the Small Business Regulatory Enforcement Fairness Act of 1996. This guide summarizes and explains rules adopted by the Department, but is not a substitute for any rule itself. Only the rule itself can provide complete and definitive information regarding its requirements.

## Purpose of this Guidance

On November 1, 2013, the Department published the Final Rule, Student Assistance General Provisions, Federal Perkins Loan Program, Federal Family Education Loan Program, and William D. Ford Federal Direct Loan Program which amended 34 CFR part 668, 34 CFR part 674, 34 CFR part 682, and 34 CFR Part 685. This guidance discusses the major provisions of the final regulations, as well as their impact on small entities.

This guidance restates much of the information published in the original Federal Register Notice, particularly the information directly related to small entities. However, this guidance is not meant to replace the final regulations; instead it has been produced as a reference for small entities seeking information about the impact of the regulations on their respective organizations.

The regulations address issues arising from the changes made to the Higher Education Act of 1965, as amended (HEA) by the SAFRA Act, included in the Health Care and Education Reconciliation Act of 2010 (Pub. L. 111-152). The SAFRA Act ended the origination of new loans under the Federal Family Education Loan (FFEL) 3

0Program after June 30, 2010. With the regulatory change, all new Stafford, PLUS, and Consolidation loans with a first disbursement on or after July 1, 2010, are now made under the Direct Loan Program. Because all new loans are being made under the William D. Ford Federal Direct Loan (Direct Loan) Program, these regulations amend the FFEL Program regulations in 34 CFR Part 682 by removing provisions related to the making of new loans. The final regulations also reflect changes made to interest rates charged in the Direct Loan Program by the Bipartisan Student Loan Certainty Act of 2013 (Pub. L. 113-28). In addition, the regulations amend the Direct Loan Program regulations in 34 CFR part 685 by adding detailed regulations in areas where the Direct Loan Program regulations cross-reference the FFEL Program regulations.

The regulations also strengthen and clarify provisions of the Perkins Loan, FFEL, and Direct Loan Program regulations including, but not limited to, regulations governing:  deferments, forbearances, loan cancellation, rehabilitation of defaulted loans, administrative wage garnishment, and satisfactory repayment arrangements. The regulations also make the rules governing these loan programs more consistent.

## Summary of the Major Provisions

As stated in the Federal Register, the regulations:

· Raised the participation rate index ceiling applicable to institutions that have a single three-year cohort default rate of over 40 percent for purposes of challenges to, and appeals from, sanctions based on that default rate. (34 CFR 668.204(c) and 668.214(a) and (d).)

· Clarified the Perkins Loan, FFEL, and Direct Loan program regulations to provide that a borrower who makes six payments in the course of rehabilitating a defaulted loan, but who does not seek additional title IV aid, will not be considered to have used the one-time-only opportunity to regain title IV eligibility by making satisfactory repayment arrangements. The regulations also defined the term “satisfactory repayment arrangement” more consistently across the title IV, HEA loan programs. (34 CFR 674.2(b), 674.9(k), 682.200(b), 685.102(b), and 685.200(d).)

· Amended the closed school discharge provisions in the Perkins Loan, FFEL, and Direct Loan program regulations to specify that a borrower may qualify for a loan discharge if the borrower withdrew from school not more than 120 days before the school closed, instead of the current 90-day standard. The regulations also added examples of the types of exceptional circumstances under which the Department may extend the 120-day window. (34 CFR 674.33(g), 682.402(d), and 685.214.)

· Updated the FFEL and Direct Loan program enrollment status reporting requirements for institutions to reflect current processes and eliminate obsolete terms and procedures. The regulations also added comparable enrollment status reporting provisions to the Perkins Loan Program regulations. (34 CFR 674.19(f), 682.605, 682.610(c), and 685.309(b).)

· Revised the terms under which a guaranty agency in the FFEL Program may authorize a lender to grant forbearance to permit a borrower or endorser to resume honoring the agreement to repay a debt after default but prior to claim payment to require either a signed written agreement to repay or an oral affirmation of the borrower's or endorser's obligation to repay the debt. The regulations provided that if a forbearance is granted based on the borrower's or endorser's oral request and affirmation of the obligation, the forbearance is limited to 120 days and cannot be granted for consecutive periods. In addition, the lender must orally review with the borrower the terms and conditions of the forbearance and send a notice to the borrower or endorser that confirms the terms of the forbearance. The regulations also defined the term “affirmation.” Finally, the regulations also add comparable provisions to the Direct Loan Program regulations. (34 CFR 682.211(d) and 685.205(a)(8).)

· Required that lenders grant forbearance to FFEL borrowers who are performing service that qualifies them for loan repayment under the Department of Defense student loan repayment programs in addition to the program authorized by 10 U.S.C. 2171 (which is currently referenced in the regulations). A comparable forbearance provision is added to the Direct Loan Program regulations. (34 CFR 682.211(h) and 685.205(a)(9).)

· Authorized a lender to grant an administrative forbearance to a FFEL borrower who is delinquent at the beginning of an authorized period of forbearance and add a corresponding provision to the Direct Loan Program regulations. (34 CFR 682.211(f) and 685.205(b)(2).)

· Provided that the Secretary, in both the FFEL and Direct Loan programs, and the guaranty agency, in the FFEL Program, once the rehabilitation discussion has begun, initially considers a borrower's reasonable and affordable loan rehabilitation payment amount to equal 15 percent of the amount by which the borrower's Adjusted Gross Income (AGI) exceeds 150 percent of the poverty guideline amount applicable to the borrower's family size and State, divided by 12. If the amount determined using this calculation is less than $5, the borrower's monthly rehabilitation payment is $5. (34 CFR 682.405(b) and 685.211(f).)

· Specified in the FFEL and Direct Loan program regulations that a reasonable and affordable loan rehabilitation payment amount must not be a required minimum payment (except that a payment amount calculated as described in the immediately preceding paragraph may not be less than $5), a percentage of the borrower's total loan balance, or an amount based on other criteria unrelated to the borrower's total financial circumstances. 

· Required that the Secretary, in the FFEL and Direct Loan programs, or the guaranty agency, in the FFEL Program, provide the borrower with a written rehabilitation agreement within 15 business days of the determination of the borrower's reasonable and affordable payment amount along with a comprehensive description of the borrower's rights, the terms and conditions of the payments, the effects of loan rehabilitation, and, for a FFEL borrower, the treatment of unpaid collection costs. (34 CFR 682.405(b) and 685.211(f).)

· Provided that, if the borrower objects to the initial payment amount determined by the Secretary or the guaranty agency, the Secretary or the guaranty agency will recalculate the amount of the borrower's rehabilitation payment based on the borrower's and, if applicable, the borrower's spouse's current disposable income, family size, and reasonable and necessary expenses. The information about income and expenses needed to determine the alternative reasonable and affordable payment amount will be provided by the borrower to the Secretary or the guaranty agency on a form approved by the Secretary and, if requested, with supporting documentation from the borrower or other sources. (34 CFR 682.405(b) and 685.211(f).)

· Provided that, while the borrower is making payments under a rehabilitation agreement, the Secretary and the guaranty agency will limit contact with the borrower to collection activities required by law or regulation and communications that support the rehabilitation. (34 CFR 682.405(b) and 685.211(f).)

· Amended the Direct Loan and FFEL program regulations to provide that, when a loan is being collected by administrative wage garnishment (AWG), the Secretary or the guaranty agency, respectively, will suspend AWG after the borrower makes five qualifying monthly payments under a loan rehabilitation agreement, unless the borrower requests that AWG continue. (34 CFR 682.405(a) and 685.211(f).)

· Incorporated into the Perkins Loan Program the same eligibility criteria used in the Direct Loan and FFEL programs to define an “eligible graduate fellowship program” and to establish the eligibility of a Perkins Loan borrower for a graduate fellowship deferment. (34 CFR 674.34(f).)

· Eliminated the debt-to-income economic hardship deferment category in the Perkins Loan Program. (34 CFR 674.34(e).)

· Modified the rehabilitation provisions in the Perkins Loan Program regulations to define the term “on-time” as it relates to the series of payments required to successfully rehabilitate a defaulted loan. (34 CFR 674.39(a)(2).)

· Allowed assignment of a Perkins Loan to the Secretary without the borrower's Social Security Number if the loan was made before September 13, 1982. (34 CFR 674.50(e)(1).)

· Permitted a Perkins Loan borrower who is unable to complete the second half of an academic year of teaching due to a condition covered under the Family and Medical Leave Act (FMLA) to still count that year as eligible teaching service for loan cancellation purposes, if the borrower's employer considers the borrower to have fulfilled the teacher contract requirements for that academic year. (34 CFR 674.52(c)(1).)

· Permitted a Perkins Loan borrower who is unable to complete a full year of eligible public service due to a condition that is covered under the FMLA to count that year as a full year of public service for loan cancellation purposes if the borrower completes at least six months of consecutive eligible service. (34 CFR 674.52(c)(2).)

· Specified that, if a Perkins Loan borrower who is performing service that qualifies the borrower for loan cancellation at a cancellation rate progression of 15 percent for the first and second years of qualifying service, 20 percent for the third and fourth years of qualifying service, and 30 percent for the fifth year of qualifying service, takes a job in a different field that qualifies the borrower under a different cancellation category that provides loan cancellation at the same cancellation rate progression as the prior category, the borrower's cancellation rate under the new cancellation category will continue from the last year the borrower received a cancellation under the former cancellation category, rather than starting over at the first-year cancellation rate. (34 CFR 674.52(g).)

· Changed the timeframe for FFEL lenders to send the required repayment disclosure for borrowers who are 60 days delinquent from five calendar days to five business days after the date the borrower becomes 60 days delinquent. (34 CFR 682.205(a)(5).)

· Amended the FFEL Program regulations to provide that a lender does not have to send a repayment disclosure to a borrower who is having difficulty making payments if the borrower's difficulty has been resolved through contact resulting from an earlier disclosure or from other contact between the lender and the borrower. (34 CFR 682.205(a)(4).)

· Amended the regulations governing AWG to reflect the borrower's right to request a hearing on the enforceability of the debt and to allow the borrower to object to the amount or rate of AWG withholding if such withholding would cause financial hardship to the borrower. (34 CFR 682.410(b)(9).)

· Revised the regulations governing AWG to conform the requirements for borrowers whose defaulted loans are held by a guaranty agency to the rules and procedures used by the Secretary. (34 CFR 682.410(b)(9.))

· Amended the regulations governing AWG to incorporate existing policy guidance related to third-party servicers or collection contractors retained by guaranty agencies. (34 CFR 682.410(b)(9).)

· Amended the regulations governing AWG to more clearly describe the process, from the initial garnishment notice to withholding. (34 CFR 682.410(b)(9).)

· Amended the regulations governing AWG to better reflect due process requirements and to specify the functions, delegations of authority, record-keeping requirements, and permissible activities of guaranty agencies and third-party servicers or collection contractors. (34 CFR 682.410(b)(9).)

· Clarified the limitations on the amount that may be subject to AWG if a guaranty agency is garnishing pay from a borrower who is not already subject to a withholding order or from a borrower who is already subject to one or more withholding orders. The regulations also permit a greater amount or percentage to be withheld with the borrower's consent. (34 CFR 682.410(b)(9).)

· Required that for a borrower to receive a hearing before AWG begins, the borrower's written request for a hearing must be received on or before the 30th day following the date the garnishment notice was sent, and remove a rule providing that a borrower is considered to have received a garnishment notice five days following the date of the notice. (34 CFR 682.410(b)(9).)

· Provided that if a borrower's written request for a hearing is received by the guaranty agency after the 30th day following the date of the garnishment notice, the agency must provide the borrower a hearing and issue a decision within 60 days following receipt of the request. If a decision is not rendered within 60 days, the guaranty agency must suspend the order beginning on the 61st day after the hearing request was received until a hearing is provided and a decision is rendered. (34 CFR 682.410(b)(9).)

· Amended the FFEL Program regulations to: specify the contents of an AWG notice; describe how an AWG hearing is administered, including provisions for the submission of additional evidence and the granting of continuances; provide for the withholding order to end by either rescission or full recovery of amounts owed by the borrower; and clarify that a borrower who wishes to object that he or she is not subject to garnishment because of involuntary separation bears the burden of raising and proving that claim. (34 CFR 682.410(b)(9).)

· Eliminated provisions in the FFEL Program regulations governing loan origination and disbursement and related requirements and activities except for certain school-based requirements and related activities. (34 CFR Part 682.)

· Eliminated obsolete provisions that do not reflect the current procedures in the FFEL Program. (34 CFR Part 682.)

· Made necessary conforming changes in various FFEL Program provisions to update the regulations. (34 CFR Part 682.)

· In the Direct Loan Program regulations, modified the exception to the minimum loan period requirement for clock-hour and certain nonstandard term programs that allows a school, in certain transfer student situations, to originate a loan for a period shorter than the lesser of the academic year or program length only if the school accepts credit or clock hours from the school that the student was previously attending. The regulations remove the provision that limits this exception to situations in which the school into which the student transfers accepts credit or clock hours from the prior school. (34 CFR 685.301(a)(10).)

· Added detailed regulations to 34 CFR Part 685 in areas where the Direct Loan Program regulations cross-reference the FFEL Program regulations. 

· Removed obsolete provisions that do not reflect current procedures used in administering the Direct Loan Program. (34 CFR Part 685.)

## Compliance Date for Entities Subject to These Regulations

Section 482(c) of the Higher Education Act (HEA) requires that regulations affecting programs under title IV of the HEA be published in final form by November 1, prior to the start of the award year (July 1) to which they apply. 

These regulations became effective July 1, 2014.

## Entities Subject to the Rule

The regulations affect institutions that participate in the title IV, HEA programs, including alternative certification programs not housed at institutions, and individual borrowers. The U.S. Small Business Administration (SBA) Size Standards define for-profit institutions as “small businesses” if they are independently owned and operated and not dominant in their field of operation, with total annual revenue below $7,000,000. The SBA Size Standards define nonprofit institutions as “small organizations” if they are independently owned and operated and not dominant in their field of operation, or as “small entities” if they are institutions controlled by governmental entities with populations below 50,000. The number of title IV, HEA-eligible institutions that are small entities would be limited because of the revenues involved in the sector that would be affected by the regulations and the concentration of ownership of institutions by private owners or public systems. However, the definition of “small organization” does not factor in revenue. Accordingly, several of the entities subject to the regulations are “small entities,” and we have prepared this Small Entity Compliance Guide.

## Description of and, Where Feasible, an Estimate of the Number of Small Entities to Which the Regulations Will Apply

The final regulations affect several categories of entities involved in the administration and servicing of Federal student loans. Many of the regulations relate to notifications, servicing, or collection activities done by loan servicers or entities acting for the Federal government. The Department does not expect these entities to meet the applicable definition of “small entity.” The final regulations related to Perkins Loans will affect the institutions that participate in the program, some of which would be classified as small entities. Specifically, private, nonprofit institutions that do not dominate in their field as well as private, for-profit and public institutions with revenues of $7 million or less, are categorized as small entities.

## Description of the Projected Reporting, Record-keeping, and Other Compliance Requirements of the Regulations, Including an Estimate of the Classes of Small Entities That Will Be Subject to the Requirements and the Type of Professional Skills Necessary for Preparation of the Report or Record

The various provisions in the final regulations modified or increase the paperwork burden on entities participating in the FFEL, Direct Loan, or Perkins Loan programs. Much of this burden is associated with borrowers or the Department and its agents, and therefore does not affect small entities.  Several of the provisions reduced the estimated burden on institutions, lenders, and guaranty agencies from the elimination of regulatory provisions or changes to requirements. 

## Other Resources

The final regulations published for the FFEL, Direct Loan, or Perkins programs can be found online at https://www.federalregister.gov/articles/2013/11/01/2013-25331/student-assistance-general-provisions-federal-perkins-loan-program-federal-family-education-loan. 

## Contacting the Department of Education

The Department of Education’s Office of Postsecondary Education is happy to assist small entities with questions regarding the Direct Loan Program rules. Please contact us by telephone at (202) 502-7750.