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4000-01-U

DEPARTMENT OF EDUCATION

34 CFR Parts 668, 674, 682, and 685 

RIN 1840-AD12

[Docket ID ED-2013-OPE-0063]

Student Assistance General Provisions, Federal Perkins Loan 

Program, Federal Family Education Loan Program, and William 

D. Ford Federal Direct Loan Program

AGENCY: Office of Postsecondary Education, Department of 

Education.

ACTION: Notice of proposed rulemaking.

SUMMARY: The Secretary proposes to amend the Student 

Assistance General Provisions, Federal Perkins Loan 

(Perkins Loan) Program, Federal Family Education Loan 

(FFEL) Program, and William D. Ford Federal Direct Loan 

(Direct Loan) Program regulations. The proposed 

regulations would: amend the FFEL and Direct Loan program 

regulations to reflect 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; 

incorporate other recent statutory changes in the Direct 

Loan Program regulations; update, strengthen, and clarify 

various areas of the Student Assistance General Provisions, 
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Perkins Loan, FFEL, and Direct Loan program regulations; 

and provide for greater consistency in the regulations 

governing the title IV, HEA student loan programs. These 

proposed regulations would ensure that the title IV, HEA 

Federal student aid programs operate as efficiently as 

possible.

DATES: We must receive your comments on or before [INSERT 

DATE 30 DAYS AFTER DATE OF PUBLICATION IN THE FEDERAL 

REGISTER].

ADDRESSES: Submit your comments through the Federal 

eRulemaking Portal or via postal mail, commercial delivery, or 

hand delivery. We will not accept comments by fax or by 

email. To ensure that we do not receive duplicate copies, 

please submit your comments only once. In addition, please 

include the Docket ID at the top of your comments.

• Federal eRulemaking Portal: Go to www.regulations.gov 

to submit your comments electronically. Information on using 

Regulations.gov, including instructions for accessing agency 

documents, submitting comments, and viewing the docket, is 

available on the site under “Are you new to the site?” 

• Postal Mail, Commercial Delivery, or Hand Delivery: 

If you mail or deliver your comments about these proposed 

regulations, address them to Jessica Finkel, U.S. Department 
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of Education, 1990 K Street, NW., room 8031, Washington, DC 

20006-8502.

Privacy Note: The Department’s policy is to make all comments 

received from members of the public available for public 

viewing in their entirety on the Federal eRulemaking Portal at 

www.regulations.gov. Therefore, commenters should be careful 

to include in their comments only information that they wish 

to make publicly available.

FOR FURTHER INFORMATION CONTACT: Jessica Finkel, U.S. 

Department of Education, 1990 K Street, NW., room 8031, 

Washington, DC 20006-8502. Telephone: (202) 502-7647 or by 

email: jessica.finkel@ed.gov. 

If you use a telecommunications device for the deaf (TDD) 

or a text telephone (TTY), call the Federal Relay Service 

(FRS), toll free, at 1-800-877-8339.

SUPPLEMENTARY INFORMATION:

Executive Summary:

Purpose of This Regulatory Action: These regulations 

would address issues arising from the changes made to the 

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 

FFEL Program after June 30, 2010. With this change, all 
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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 Direct Loan Program, the proposed 

regulations would amend the FFEL Program regulations in 34 

CFR part 682 by removing provisions related to the making 

of new loans. The proposed regulations would also amend 

the Direct Loan Program regulations in 34 CFR part 685 by 

adding detailed regulations in areas where the Direct Loan 

Program regulations currently cross-reference the FFEL 

Program regulations.

The proposed regulations would 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 proposed regulations would also make the 

rules governing the various title IV, HEA loan programs 

more consistent.

Summary of the Major Provisions of This Regulatory 

Action: The proposed regulations would--
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• Raise 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.

• Clarify 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 onetime-only opportunity to regain title IV eligibility 

by making satisfactory repayment arrangements. The 

proposed regulations would also define the term 

“satisfactory repayment arrangement” more consistently 

across the title IV, HEA loan programs.

• Amend 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 proposed 

regulations would also add examples of the types of 
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exceptional circumstances under which the Department 

may extend the 120-day window.

• Update the FFEL and Direct Loan program enrollment 

status reporting requirements for institutions to 

reflect current processes and eliminate obsolete terms 

and procedures. The proposed regulations would also 

add comparable enrollment status reporting provisions 

to the Perkins Loan Program regulations.

• Revise 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 proposed regulations would provide 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 
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and send a notice to the borrower or endorser that 

confirms the terms of the forbearance. The proposed 

regulations would also define the term “affirmation.” 

Finally, the proposed regulations would add comparable 

provisions in the Direct Loan Program.

• Require 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 would be added to the 

Direct Loan Program regulations.

• Authorize 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.

• Provide that the Secretary, in the Direct Loan 

Program, and the guaranty agency, in the FFEL Program, 

would determine a borrower’s reasonable and affordable 

payment amount under a loan rehabilitation agreement 
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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 reasonable and affordable payment amount 

would 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. 

• Specify in the FFEL and Direct Loan program 

regulations that a reasonable and affordable loan 

rehabilitation payment amount must not be a required 

minimum payment, a percentage of the borrower’s total 

loan balance, or an amount based on other criteria 

unrelated to the borrower’s total financial 

circumstances.

• Require that the Secretary, in the Direct Loan 

Program, 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 
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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. 

• Provide that, if the borrower objects to the payment 

amount determined by the guaranty agency based on the 

income and expenses shown by the borrower and 

contained in the written repayment agreement offered 

to the borrower, the guaranty agency or the Secretary 

will calculate an amount for the borrower’s 

rehabilitation payment using the formula for 

calculating a monthly payment amount under the incomebased repayment (IBR) plan in the Direct Loan and FFEL 

Program regulations, and offer the borrower the option 

to use that amount as the rehabilitation payment 

amount. The borrower would be free to choose between 

the amount determined initially and the IBR-based 

payment amount.

• Provide that, while the borrower is making payments 

under a rehabilitation agreement, the Secretary and 

the guaranty agency would limit contact with the 

borrower to collection activities required by law or 
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regulation and communications that support the 

rehabilitation.

• Amend 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. 

• Incorporate 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. 

• Eliminate the debt-to-income economic hardship 

deferment category in the Perkins Loan Program.

• Modify 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.
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• Allow assignment of a Perkins Loan to the Secretary 

without the borrower’s Social Security Number if the 

loan was made before September 13, 1982. 

• Permit 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.

• Permit 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.

• Specify 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 
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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 would 

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.

• Change 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.

• Amend 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.
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• Amend 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. 

• Revise 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.

• Amend the regulations governing AWG to incorporate 

existing policy guidance related to third-party 

servicers or collection contractors retained by 

guaranty agencies.

• Amend the regulations governing AWG to more clearly 

describe the process, from the initial garnishment 

notice to withholding.

• Amend the regulations governing AWG to better reflect 

due process requirements and to specify the functions, 

delegations of authority, recordkeeping requirements,

and permissible activities of guaranty agencies and 

third-party servicers or collection contractors.
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• Clarify 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 

proposed regulations would also permit a greater 

amount or percentage to be withheld with the 

borrower’s consent.

• Require 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 delete a provision that a borrower is considered 

to have received a garnishment notice five days 

following the date of the notice.

• Provide 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 
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beginning on the 61st day after the hearing request 

was received until a hearing is provided and a 

decision is rendered.

• Amend 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. 

• Eliminate 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.

• Eliminate obsolete provisions that do not reflect the 

current procedures in the FFEL Program.

• Make necessary conforming changes in various FFEL 

Program provisions to update the regulations.
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• In the Direct Loan Program regulations, modify the 

exception to the minimum loan period requirement for 

clock-hour and certain non-standard 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 proposed regulations would 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.

• Add detailed regulations to 34 CFR part 685 in areas 

where the Direct Loan Program regulations currently 

just cross-reference the FFEL Program regulations.

• Remove obsolete provisions that do not reflect current 

procedures used in administering the Direct Loan 

Program.

• Revise the Direct Loan Program regulations to reflect 

the impact of the SAFRA Act and other recent statutory 

changes. 
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Please refer to the Summary of Proposed Changes

section of this preamble for more details on the major 

provisions contained in this notice of proposed rulemaking 

(NPRM).

Costs and Benefits: The proposed regulations are 

estimated to have a net budget impact of $2.8 to $3.4 million 

over ten years from 2013 to 2022. Consistent with the 

requirements of the Credit Reform Act of 1990 (2 U.S.C. 

661(a)(5)), budget cost estimates for the student loan 

programs reflect the estimated net present value of all 

future non-administrative Federal costs associated with a 

cohort of loans. (A cohort reflects all loans originated 

in a given fiscal year.)

Absent evidence of the impact of these regulations on 

student behavior, budget cost estimates were based on 

behavior as reflected in various Department data sets and 

longitudinal surveys listed under Assumptions, Limitations, 

and Data Sources. Program cost estimates were generated by 

running projected cash flows related to each provision 

through the Department’s student loan cost estimation 

model. Student loan cost estimates are developed across 

five risk categories. The categories are: 
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• Loans for students attending less than four-year 

for-profit institutions; 

• Loans for students attending less than four-year 

public and non-profit institutions; 

• Loans for freshmen or sophomores in four-year 

institutions of all types; 

• Loans for juniors or seniors in four-year 

institutions of all types; and 

• Loans for graduate students in institutions of 

all types. 

Risk categories have separate assumptions based on the 

historical pattern of the behavior of borrowers in each 

category, such as the likelihood of default or of the use 

of statutory deferment or discharge benefits.

Overall, the proposed regulations would strengthen and

streamline the Federal student loan programs and help 

support the American postsecondary education system. As 

more and more students depend on student loans to pay for 

their college education, it is essential that borrowers are 

able to fully understand and comprehend their rights and 

responsibilities in relation to their student debt 

obligations. It is also essential that the student loan 
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programs operate as efficiently as possible. A college 

education has become essential for employment in a large 

part of the American economy and the percentage of jobs 

that require a degree will only increase in the future. 

The Department’s loan programs support over ten million 

students per year, and this number will grow if the country 

pursues the President’s 2020 goal of leading the world in 

college degree attainment. Keeping a strong and efficient 

higher education system is essential to America maintaining 

its economic advantage in the world. 

Invitation to Comment: As outlined in Negotiated Rulemaking, 

significant public participation, through three public 

hearings and three negotiated rulemaking sessions, has 

occurred in developing this NPRM. We invite you to submit 

comments regarding these proposed regulations. To ensure that 

your comments have maximum effect in developing the final 

regulations, we urge you to identify clearly the specific 

section or sections of the proposed regulations that each of 

your comments addresses and to arrange your comments in the 

same order as the proposed regulations.

We invite you to assist us in complying with the specific 

requirements of Executive Orders 12866 and 13563 and their 

overall requirement of reducing regulatory burden that might 
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result from these proposed regulations. Please let us know of 

any further ways we could reduce potential costs or increase 

potential benefits while preserving the effective and 

efficient administration of the Department’s programs and 

activities.

During and after the comment period, you may inspect all 

public comments about these proposed regulations by accessing 

Regulations.gov. You may also inspect the comments in person, 

in room 8031, 1990 K Street, NW., Washington, DC, between 8:30 

a.m. and 4:00 p.m., Washington DC time, Monday through Friday 

of each week except Federal holidays. Please contact the 

person listed under FOR FURTHER INFORMATION CONTACT.

Assistance to Individuals with Disabilities in Reviewing the 

Rulemaking Record: On request we will provide an appropriate 

accommodation or auxiliary aid to an individual with a 

disability who needs assistance to review the comments or 

other documents in the public rulemaking record for these 

proposed regulations. If you want to schedule an appointment 

for this type of accommodation or auxiliary aid, please 

contact the person listed under FOR FURTHER INFORMATION 

CONTACT.

Negotiated Rulemaking
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Section 492 of the HEA requires the Secretary, before 

publishing any proposed regulations for programs authorized by 

title IV of the HEA, to obtain public involvement in the 

development of the proposed regulations. After obtaining 

advice and recommendations from the public, including 

individuals and representatives of groups involved in the 

Federal student financial assistance programs, the Secretary 

must establish a negotiated rulemaking committee and subject 

the proposed regulations to a negotiated rulemaking process. 

All proposed regulations that the Department publishes on 

which the negotiators reached consensus must conform to final 

agreements resulting from that process unless the Secretary 

reopens the process or provides a written explanation to the 

participants stating why the Secretary has decided to depart 

from the agreements. Further information on the negotiated 

rulemaking process may be found at: 

www2.ed.gov/policy/highered/reg/hearulemaking/2011/loans.html. 

On May 5, 2011, the Department published a notice in the 

Federal Register (76 FR 25650) announcing our intent to 

establish up to two negotiated rulemaking committees to 

prepare proposed regulations. One committee would focus on 

issues related to streamlining institutional reporting 

requirements and proposed regulations regarding better State 
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identification of low-performing teacher preparation programs 

pursuant to sections 205 and 207 of the HEA by focusing 

reporting on improved measures of program quality. A second 

committee (the “negotiating committee”) would address Federal 

student loan issues. The regulations considered by the 

negotiating committee would: implement changes made by the 

SAFRA Act (Pub. L. 111-152), which ended the making of new 

loans in the FFEL Program as of July 1, 2010; make 

improvements to the income-contingent and income-based 

repayment plans; and improve the process for consideration of 

applications for total and permanent disability discharges. 

The notice requested nominations of individuals for membership 

on the committees who could represent the interests of key 

stakeholder constituencies on each committee. 

The Department developed a list of proposed regulatory 

provisions from advice and recommendations submitted to the 

Department in testimony by individuals and organizations in a 

series of three public hearings and a roundtable discussion 

held on:

• May 12, 2011, at Tennessee State University, Nashville, 

Tennessee.
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• May 16, 2011, at Pacific Lutheran University, Tacoma, 

Washington.

• May 19, 2011, at Loyola University-Lakeshore Campus, 

Chicago, Illinois.

• May 26, 2011, at College of Charleston, Charleston, South 

Carolina.

In addition, the Department accepted written comments on 

possible regulatory provisions submitted directly to the 

Department by interested parties and organizations. 

Transcripts of the regional meetings can be accessed at 

www2.ed.gov/policy/highered/reg/hearulemaking/2011/loans.html

and are also accessible in the rulemaking docket on 

www.regulations.gov. 

Staff within the Department also identified issues for 

discussion and negotiation.

The negotiating committee included the following members:

• Mr. Getachew Kassa, Legislative Director, United States 

Student Association, and Mr. Abou Amara, Jr. (alternate), 

President, Graduate and Professional Student Association, 

University of Minnesota, Twin Cities.
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• Ms. Deanne Loonin, National Consumer Law Center, and Ms. 

Radhika Miller (alternate), Program Manager, Educational 

Debt Relief and Outreach, Equal Justice Works. 

• Ms. Jennifer Mishory, Deputy Director, Young Invincibles, 

and Ms. Maureen Thompson (alternate), The Hastings Group, 

LLC.

• Ms. Margaret Rodriguez, Senior Associate Director of 

Financial Aid, University of Michigan, and Chair, 

National Direct Student Loan Coalition, and Ms. Elizabeth 

Hicks (alternate), Executive Director, Student Financial 

Services, Massachusetts Institute of Technology.

• Mr. David Glezerman, Assistant Vice President and 

University Bursar, Temple University, and Ms. Maria 

Livolsi (alternate), Student Loan Service Center, State 

University of New York.

• Mr. Robert Perrin, President, Williams & Fudge, Inc.

• Mr. Todd Leatherman, Executive Director, Office of 

Consumer Protection, Office of the Kentucky Attorney 

General, and Ms. Michele Casey (alternate), Assistant 

Attorney General, Consumer Fraud Bureau Office of the 

Illinois Attorney General.
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• Ms. Cristi Millard, Director of Financial Aid, Salt 

Lake Community College, and Mr. Chris Christensen, 

(alternate), Director of Financial Aid, Johnson County 

Community College, Kansas.

• Ms. Kris Wright, Director, Office of Student Finance,

University of Minnesota, and Executive Council Member 

and Secretary, National Direct Student Loan Coalition, 

and Ms. Elaine Papas-Varas (alternate), University 

Director of Student Financial Aid and Director of the 

Primary Care Loan Redemption Program of New Jersey,

University of Medicine and Dentistry of New Jersey.

• Ms. Yvonne Gutierrez-Sandoval, Senior Associate 

Director of Financial Aid, Pitzer College, and Mr. 

Jeffrey A. Gall (alternate), Associate Dean, Office of 

Student Financial Services, Georgetown University.

• Mr. Tom Sakos, Director of Student Lending and 

Regulatory Quality Assurance, DeVry Inc., and Mr. 

Anthony Fragomeni (alternate), Director of 

Governmental Affairs, Empire Education Group, and 

Chairman, American Association of Cosmetology Schools’ 

Government Relations Team.
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• Ms. Betsy Mayotte, Director, Regulatory Compliance and 

Privacy, American Student Assistance, and Mr. Scott Giles 

(alternate), Vice President for Operations, Social 

Marketing and Strategy, Vermont Student Assistance 

Corporation. 

• Mr. Robert Sandlin, Director of Policy and Compliance, 

Higher Education Servicing Corporation, and Ms. Vicki 

Shipley (alternate), Senior Advisor, National Council of 

Higher Education Loan Programs.

• Mr. Albert Gray, Executive Director and CEO, Accrediting 

Council for Independent Colleges and Schools, and Ms. 

Sharon Tanner (alternate), Chief Executive Officer, 

National League for Nursing Accreditation.

• Ms. Pamela Moran and Ms. Gail McLarnon, U.S. Department 

of Education.

The negotiating committee met to develop proposed 

regulations during the months of January, February, and March 

of 2012. These proposed regulations, which reflect the work 

of this committee, relate to the administration of the Federal 

student loan programs. 

At its first meeting, the negotiating committee reached 

agreement on its protocols and proposed agenda. The 
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negotiating committee’s protocols provided that, unless agreed 

to otherwise, for the committee to be considered to have 

reached consensus on the regulations, consensus must be 

reached on all of the proposed regulations. Consensus means 

that there must be no dissent by any member.

During its first meeting, the negotiating committee 

agreed to negotiate an agenda of 25 student loan-related 

issues. The most significant issues were: developing 

regulations necessary to implement the President’s “Pay As 

You Earn” repayment initiative; developing regulations to 

incorporate statutory changes to the IBR plan and to 

address certain problems in the administration of the IBR 

and the income-contingent repayment (ICR) plans; 

overhauling the total and permanent disability discharge 

process; updating the FFEL Program regulations to eliminate 

obsolete and unnecessary provisions governing loan 

origination and disbursement; revising the Direct Loan 

Program regulations to eliminate cross-references to the 

FFEL Program regulations; revising regulations governing 

the determination of a defaulted borrower’s reasonable and 

affordable payment amount for purposes of rehabilitation of 

the borrower’s defaulted loan; revising the regulations 

governing AWG for defaulted borrowers in the FFEL Program; 
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and providing for consistent treatment of borrowers 

requesting forbearance on or after the 270th day of 

delinquency. 

The proposed regulations would also include certain 

technical changes to the regulations that are needed to 

reflect recent amendments to the HEA and to correct 

technical errors. These types of changes are not normally 

subject to the statutory requirements for negotiated 

rulemaking and public notice and comment. However, since 

those changes affected the regulations that would be 

considered by the negotiated rulemaking committee, the 

Secretary chose to include those changes in the proposed 

regulations to be considered by the committee to ensure 

that the committee could evaluate the full scope of changes 

to those regulations. 

The Department stated its commitment to publishing the 

regulations to implement the Pay As You Earn repayment 

initiative and to overhaul and improve the total and 

permanent disability discharge process for borrowers as 

soon as possible. 

During the development of proposed regulatory language 

and prior to the second meeting of the negotiating 

committee, the Department concluded that the scope and 
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volume of the likely resulting proposed regulations 

resulting from the agenda approved by the negotiating 

committee would require extensive and significant changes 

to the regulations. In particular, updating the FFEL 

Program regulations and making major changes to the Direct 

Loan Program regulations involved changes to the entirety 

of those program regulations. The Department determined 

that it was unlikely that one NPRM reflecting all of the 

issues could be published by the deadline established by 

section 482(c) of the HEA. To ensure the earliest possible 

implementation of the Pay As You Earn repayment initiative 

and the revised total and permanent disability discharge 

regulations, which will provide significant benefits to 

student loan borrowers, the Department determined that two 

NPRMs would result from the negotiating committee’s work. 

During the second meeting of the negotiating 

committee, the Department explained to the negotiating 

committee members that one NPRM would contain proposed 

regulations to implement the Pay As You Earn repayment 

initiative, to incorporate statutory changes in the IBR 

plan, to make other changes to improve the administration 

of the IBR and ICR plans, and to overhaul the total and 

permanent disability discharge process. The second NPRM 
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30

would contain all the remaining proposed regulations that 

were on the negotiating committee’s agenda, including 

proposed regulations involving rehabilitation of defaulted 

loans and AWG in the FFEL Program. The Department also 

explained that any final regulations published as a result 

of the second NPRM would not be published by November 1,

2012, and therefore would not become effective until July 

1, 2014, under the master calendar provisions of section 

482(c)(1) of the HEA. The Department committed, however, 

to authorize, to the extent possible, early implementation 

of the final regulations published as a result of the 

second NPRM under the Secretary’s authority to designate 

regulatory provisions for early implementation by program 

participants under section 482(c)(2) of the HEA.

At the final meeting in March 2012, the negotiating 

committee reached consensus on the full agenda of loans 

issues. 

On July 17, 2012, the Secretary published the first 

NPRM to propose changes to implement the President’s Pay As 

You Earn repayment plan and to make changes to the ICR and 

IBR plans and the process for evaluating disability 

discharge requests (77 FR 42086). After reviewing the 

public comments received on the proposed rule, the 
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Secretary published the final regulations on November 1, 

2012 (77 FR 66088).

This NPRM is the second of the two NPRMs resulting 

from the negotiating committee’s negotiations. It contains 

proposed regulations to: amend the provisions governing 

the participation rate index ceiling applicable to 

institutions with a single three-year cohort default rate 

of over 40 percent for purposes of challenges to and 

appeals from sanctions; revise the definitions of 

“satisfactory repayment arrangement” in the Perkins Loan, 

FFEL, and Direct Loan programs; amend the closed school 

loan discharge regulations in the Perkins Loan, FFEL, and 

Direct Loan programs; update the enrollment status 

reporting requirements in the FFEL and Direct Loan program 

regulations and add comparable requirements to the Perkins 

Loan Program regulations; amend the forbearance regulations 

in the FFEL and Direct Loan programs; amend the FFEL and 

Direct Loan program regulations governing the determination 

of a borrower’s reasonable and affordable payment amount 

under a loan rehabilitation agreement, and the treatment of 

payments made through AWG while the borrower is also making 

payments under a loan rehabilitation agreement; amend the 

Perkins Loan Program regulations governing graduate 
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32

fellowship and economic hardship deferments; modify the 

Perkins Loan Program regulations governing rehabilitation 

of a defaulted loan; amend the requirements for assigning a 

Perkins Loan to the Secretary; amend the Perkins Loan 

Program regulations related to loan cancellation; amend the 

FFEL Program regulations governing certain lender 

disclosures to borrowers; amend the FFEL Program 

regulations governing the AWG process; revise the FFEL 

Program regulations by removing provisions that are no 

longer needed and make necessary technical and conforming 

changes; amend the Direct Loan Program regulations 

governing the minimum period of enrollment for which a loan 

may be originated in certain transfer student situations; 

revise the Direct Loan Program regulations by incorporating 

provisions that apply in the Direct Loan Program but are 

currently only incorporated by reference to the FFEL 

Program regulations; amend the Direct Loan Program 

regulations to reflect recent statutory changes; remove 

obsolete provisions from the Direct Loan Program 

regulations; and make necessary technical corrections and 

conforming changes throughout the Direct Loan Program 

regulations. 
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More information on the work of the negotiating 

committee can be found at: 

www.ed.gov/policy/highered/reg/hearulemaking/2008/loan

s.html.

Summary of Proposed Changes

Student Assistance General Provisions

For purposes of challenges to and appeals from 

sanctions, the proposed regulations would raise the 

participation rate index ceiling applicable to institutions 

that have a single three-year cohort default rate of over 

40 percent from 0.06015 to 0.0832.

Changes that Apply to the Perkins Loan, FFEL, and Direct 

Loan Programs

• The definitions of “satisfactory repayment 

arrangement” in the Perkins Loan, FFEL, and Direct 

Loan program regulations would be revised to provide 

that a borrower is not considered to have used the 

one-time-only opportunity to regain eligibility for 

title IV aid by making satisfactory repayment 

arrangements if the borrower makes six payments during 

the course of rehabilitating a defaulted loan, but 

does not seek additional title IV aid after making 
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those six payments. The proposed regulations would 

also extend the time period after the payment due date 

during which a payment is considered to be on-time for 

purposes of making satisfactory repayment arrangements 

in the FFEL and Direct Loan programs from 15 to 20 

days, and would establish the same 20-day standard in 

the Perkins Loan Program. In addition, the proposed 

regulations would define the term “satisfactory 

repayment arrangement” more consistently across the 

title IV, HEA loan programs.

• The closed school loan discharge provisions in the 

Perkins Loan, FFEL, and Direct Loan program 

regulations would be revised to specify that a 

borrower who withdraws from a school prior to the 

school’s closure may qualify for a discharge if the 

borrower withdraws not more than 120 days before the 

date the school closes, instead of the current 

standard of not more than 90 days. The proposed 

regulations would also add examples of the types of 

exceptional circumstances under which the Department 

may allow borrowers who withdraw from a school more 
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35

than 120 days prior to the school’s closure date to 

qualify for loan discharge.

• The FFEL Program enrollment status reporting 

requirements for institutions would be updated by 

eliminating outdated references to receiving 

enrollment reports from guaranty agencies and 

reporting enrollment status information to guaranty 

agencies, and by removing an obsolete requirement to 

report information about students who have ceased to 

be enrolled on a full-time basis. The Direct Loan 

Program enrollment status reporting requirements would 

be revised by eliminating obsolete references to the 

frequency with which the Department provides student 

status confirmation reports to schools and the format 

of those reports. Both the FFEL and Direct Loan 

program enrollment status reporting requirements for 

institutions would be updated to eliminate obsolete 

terms and procedures, reflect current processes, and 

require institutions to report certain enrollment 

status changes for recipients of any type of title IV 

loan. Comparable enrollment status reporting 
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requirements would be added to the Perkins Loan 

Program regulations.

FFEL and Direct Loan Programs

• The proposed regulations would revise 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. The proposed regulations would require the 

borrower or endorser to provide either a signed 

written repayment agreement or an oral affirmation of 

the repayment obligation. The proposed regulations 

would further provide that if a forbearance is granted 

based on the borrower’s or endorser’s oral request and 

affirmation of the obligation: (1) the forbearance 

may not exceed 120 days and cannot be granted for 

consecutive periods; (2) the lender must orally review 

with the borrower the terms and conditions of the 

forbearance, including the consequences of interest 

capitalization and other available repayment options; 

and (3) the lender must send a notice to the borrower 

or endorser that confirms the terms of the forbearance
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37

and the affirmation of the repayment obligation within 

30 days of that affirmation. The proposed regulations 

would also define the term “affirmation.” Finally, 

the proposed regulations would add comparable 

forbearance provisions in the Direct Loan Program.

• The current FFEL Program forbearance provision for 

borrowers who are performing service that qualifies 

them for loan repayment under the student loan 

repayment program administered by the Department of 

Defense under 10 U.S.C. 2171 would be modified to also 

require lenders to grant forbearance to borrowers 

performing service that qualifies them for loan 

repayment under Department of Defense loan repayment 

programs that are authorized under 10 U.S.C. 2173 and 

2174, and any other student loan repayment programs 

administered by the Department of Defense. A 

comparable forbearance provision would be added to the 

Direct Loan Program regulations.

• The conditions under which a FFEL Program lender may

grant an administrative forbearance would be modified 

to include a circumstance in which a borrower is 

delinquent at the beginning of an authorized 
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38

forbearance period, and a corresponding forbearance 

provision would be added to the Direct Loan Program 

regulations.

• The proposed regulations would include the following 

changes to the provisions governing loan 

rehabilitation in the Direct Loan and FFEL programs:

o The Secretary or the guaranty agency, as 

applicable, would determine a borrower’s 

reasonable and affordable payment amount under a 

loan rehabilitation agreement based on the 

borrower's and, if applicable, the borrower’s 

spouse's current disposable income, family size, 

and reasonable and necessary expenses. The 

borrower would be required to provide the 

Secretary or guaranty agency with the information 

needed to determine the reasonable and affordable 

payment amount on a form approved by the 

Secretary and, if requested, would be required to 

provide supporting documentation. The proposed 

regulations would include a detailed list of the 

types of expenses that the Secretary or guaranty 

agency would consider in determining a borrower’s 
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39

reasonable and affordable rehabilitation payment 

amount. 

o The reasonable and affordable loan rehabilitation 

payment amount must not be: (1) a required 

minimum payment, such as $50, if the guaranty 

agency or the Secretary determines that a smaller 

amount is reasonable and affordable; (2) a 

percentage of the borrower’s total loan balance; 

or (3) an amount based on any other formula or 

criteria unrelated to the individual borrower’s 

total financial circumstances.

o The Secretary or the guaranty agency would 

provide the borrower with a written 

rehabilitation agreement within 15 business days 

of the determination of the borrower’s reasonable 

and affordable payment. The agreement would 

include: (1) the rehabilitation payment amount; 

(2) a prominent statement that the borrower may 

object to the payment amount and the method and 

timeframe for raising such an objection; (3) an 

explanation of the terms and conditions of the 

required series of payments, and the effects of 

loan rehabilitation; and (4) for a FFEL borrower, 
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the amount of unpaid collection costs to be added 

to the unpaid principal of the rehabilitated loan 

when the loan is sold to an eligible FFEL lender. 

o A borrower’s rehabilitation payment amount would 

be recalculated if the borrower objects to the 

payment amount in the written repayment 

agreement. If the borrower objects to the amount 

determined based on an evaluation of income and 

expenses documented by the borrower, the 

Secretary or the guaranty agency would 

recalculate an alternative rehabilitation payment 

amount, based on documentation provided by the 

borrower, using the formula for calculating a 

monthly payment amount under the IBR plan in the 

Direct Loan and FFEL program regulations. If the 

recalculated amount using the IBR formula is less 

than $5, the borrower’s recalculated monthly 

rehabilitation payment amount would be $5. The 

borrower may choose either rehabilitation payment 

amount.

o While a borrower is making payments under a 

rehabilitation agreement, the Secretary or 

guaranty agency would limit contact with the 
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borrower to collection activities required by law 

or regulation and communications that support the 

rehabilitation.

o If a borrower who is making voluntary payments on 

a defaulted loan under a loan rehabilitation 

agreement is also making payments through AWG, 

the Secretary or guaranty agency would suspend 

collection through AWG after the borrower has 

made five qualifying monthly payments under the

loan rehabilitation agreement. A borrower would 

have the option of requesting that the Secretary 

or guaranty agency continue collecting on the 

loan through AWG while the borrower continues to 

make voluntary payments under the loan 

rehabilitation agreement. A borrower would have 

only one opportunity to benefit from suspension 

of AWG while attempting to rehabilitate a 

defaulted loan. 

Perkins Loan Program

• Schools that participate in the Perkins Loan Program 

would be required to use the same eligibility criteria 

used in the Direct Loan and FFEL programs to define an 
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“eligible graduate fellowship program” and to 

establish the eligibility of a Perkins Loan borrower 

to receive a deferment while participating in a 

graduate fellowship program. The proposed regulations

would add a definition of the term “eligible graduate 

fellowship program” to the Perkins Loan Program 

regulations consistent with the definition currently 

used in the Direct Loan and FFEL program regulations.

• The Perkins Loan economic hardship deferment 

eligibility criteria would be revised by eliminating 

the deferment category for borrowers who work less 

than full-time and have a specified debt-to-income 

ratio.

• The Perkins Loan rehabilitation provisions would be 

modified to specify that an “on-time” payment, for the 

purpose of loan rehabilitation, is a payment that is 

made within 20 days of the due date.

• For Perkins Loans that were made before September 13, 

1982, the date the Secretary began requiring 

institutions to collect a borrower’s Social Security 

Number (SSN) on the Perkins Loan Program promissory 

notes, the proposed regulations would allow assignment 
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of those loans to the Secretary without the borrower’s 

SSN.

• A Perkins Loan borrower who completes half of an 

academic year of teaching, but who is unable to 

complete the second half of the academic year due to a 

condition covered under the FMLA, would be able to 

count that year as a full year of 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. In addition, the proposed regulations 

would allow a borrower who is unable to complete a 

full year of public service under other loan 

cancellation categories due to a condition 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. 

• 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 
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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 progression 

would be uninterrupted. The borrower’s cancellation 

rate under the new cancellation category would 

continue from the last year the borrower received a 

cancellation under the former cancellation category, 

rather than reverting to the first-year cancellation 

rate of 15 percent.

FFEL Program

• The timeframe for FFEL lenders to send the required 

repayment disclosure for borrowers who are 60 days 

delinquent would be changed from five calendar days to 

five business days after the date the borrower becomes 

60 days delinquent.

• The proposed regulations would eliminate the 

requirement for a lender to provide a repayment 

disclosure to a borrower who is having difficulty 
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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.

• The proposed regulations would include the following 

changes to the rules governing AWG in the FFEL 

Program:

o The proposed regulations would clarify the burden 

of proof that must be met by the borrower during 

the hearing process, specify the procedures that 

must be followed by the borrower and guaranty 

agency when objections are raised, and specify 

requirements that must be followed by a hearing 

official in determining whether the proposed 

withholding amount would cause a financial 

hardship for the borrower.

o The regulations would be revised to provide more 

consistent treatment with respect to AWG for 

borrowers whose defaulted loans are held by a 

guaranty agency and borrowers whose defaulted 

loans are held by the Secretary.
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o Existing policy guidance related to functions 

that may be performed by third-party servicers or 

collection contractors retained by guaranty 

agencies for AWG purposes would be incorporated 

in the regulations, and the regulations would 

include examples of permissible activities of 

third-party contractors.

o The regulations would be revised to more clearly 

describe the complete AWG process, from the 

initial garnishment notice to the withholding of 

the borrower’s wages.

o Regulations would be amended to better reflect 

due process requirements and to specify the 

functions, delegations of authority, 

recordkeeping requirements, and permissible 

activities of guaranty agencies and third-party 

servicers or collection contractors.

o The regulations would be amended to specify 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, and to clarify the withholding 

amount or percentage and priority if a guaranty 
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agency is garnishing the pay of a borrower who is 

already subject to one or more withholding 

orders. The proposed regulations would also 

permit a greater amount or percentage to be 

withheld with the borrower’s consent.

o The proposed regulations would require 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, instead 

of on or before the 15th day following the 

borrower’s receipt of a garnishment notice, as 

under current regulations. The proposed 

regulations would also delete a provision that a 

borrower is considered to have received a 

garnishment notice five days following the date 

of the notice.

o 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 
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rendered within 60 days, the guaranty agency 

would be required to suspend the order beginning 

on the 61st day after the hearing request was 

received until a hearing is provided and a 

decision is rendered.

o The proposed regulations would also: (1) specify 

the information that a guaranty agency must 

provide in the AWG notice it sends to a defaulted 

borrower; (2) describe how an AWG hearing must be 

conducted, including with respect to the 

submission of additional evidence and the 

granting of continuances; (3) provide for the 

withholding order to end by either rescission of 

the order for AWG or full recovery of the amount 

owed by the borrower; and (4) clarify that a 

borrower who wishes to object that he or she 

should not be subject to garnishment because of 

involuntary separation from employment bears the 

burden of raising and proving that claim.

• To reflect the impact of the SAFRA Act, FFEL Program 

regulations governing loan origination and 

disbursement and related requirements and activities 
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(for example, requirements for due diligence in the 

making and disbursing of loans) would be eliminated, 

except for certain school-based requirements and 

related activities (for example, exit counseling 

requirements).

• FFEL Program regulations that are obsolete (for 

example, rules governing the Federal Insured Student 

Loan (FISL) Program) would be eliminated. 

• Conforming changes and technical corrections would be 

made as necessary throughout the regulations to ensure 

consistency and accuracy.

Direct Loan Program

• The Direct Loan Program regulations would be expanded 

by adding provisions that apply in the Direct Loan 

Program, but which are currently reflected in 34 CFR 

part 685 only by cross-reference to the FFEL Program 

regulations (for example, eligibility criteria for 

graduate fellowship and economic hardship deferments). 

• The proposed regulations would remove provisions that 

are obsolete or that do not reflect current procedures 

used in administering the Direct Loan program, such as 

loan limit amounts that are no longer applicable 
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because of recent statutory changes, and outdated 

school loan origination options and eligibility 

criteria for initial participation in the Direct Loan 

Program.

• The Direct Loan Program deferment regulations would be 

restructured for greater clarity. 

• The exception to the minimum loan period requirement 

for clock-hour and certain non-term programs that 

allows a school to originate a loan for a transfer 

student to cover a period of enrollment shorter than 

the academic year or the program length only if the 

school accepts credit or clock hours from the school 

the student previously attended would be revised by 

removing the provision that limits the exception to 

situations in which the new school accepts transfer

credits or clock hours from the prior school.

• Throughout the Direct Loan Program regulations, 

conforming changes would be made to reflect the impact 

of the SAFRA Act and other recent statutory changes, 

and other conforming changes and technical corrections 

would be made as necessary. 

Significant Proposed Regulations
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We group major issues according to subject, with 

appropriate sections of the proposed regulations referenced 

in parentheses. We begin with an issue that involves the 

Student Assistance General Provisions regulations in 34 CFR 

part 668, followed by issues that apply to all three title 

IV loan programs, issues that apply to the FFEL and Direct 

Loan programs, issues that apply only to the Perkins Loan 

Program, issues that apply only to the FFEL Program, and 

finally issues that apply only to the Direct Loan Program. 

We discuss substantive issues under the sections of the 

proposed regulations to which they pertain. Generally, we 

do not address proposed regulatory changes that are 

technical or otherwise minor in effect.

Student Assistance General Provisions

Three-Year Cohort Default Rate Participation Rate Index 

Challenges and Appeals (34 CFR 668.204 and 668.214)

Statute: Under section 435(a)(8) of the HEA, an 

institution's participation rate index (PRI) is determined 

by multiplying the institution's Direct Loan/FFEL cohort 

default rate (CDR) by the percentage of the institution's 

regular students, enrolled on at least a half-time basis, 

who received such a loan for a 12-month period ending 

during the six months immediately preceding the fiscal year 
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for which the cohort of borrowers used to calculate the 

institution's CDR is determined. Effective for fiscal 

years beginning on and after October 1, 2011, section 

435(a)(8)(A) of the HEA provides that an institution that 

demonstrates to the Secretary that its PRI is equal to or 

less than 0.0625 for any of the three most recent fiscal 

years for which data is available will not lose eligibility 

to participate in the FFEL and Direct Loan programs for 

having three three-year CDRs that are equal to or greater 

than 30 percent. 

Current Regulations: Under section 668.206(a)(1), an 

institution that has one three-year CDR of over 40 percent

loses its eligibility to participate in the FFEL and Direct 

Loan programs. Sections 668.204(c)(1)(i), 668.214(a)(1), 

and 668.214(d)(2) use a participation rate index of 0.06015 

as the ceiling for successful PRI challenges and appeals 

brought by institutions having one three-year CDR of over 

40 percent. 

Proposed Regulations: Proposed §§668.204(c)(1)(i) and 

668.214(a)(1) substitute 0.0832 as the PRI ceiling for 

purposes of challenges to and appeals from sanctions based 

on one three-year CDR of over 40 percent. Similarly, in 
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proposed §668.214(d)(2), “0.06015” is replaced with 

“0.0832.”

Reasons: Under the statutory PRI ceiling of 0.0625, which 

applies to sanctions based on three three-year CDRs of 30 

percent or higher, institutions can be excused from 

sanctions based on the percentage of Direct Loan and FFEL 

borrowers among their enrollment even if that percentage is 

as high as almost 21 percent, depending on the lowest of 

the institution's three excessive CDRs (0.30 CDR x 0.20 < 

0.0625 ceiling).

In contrast, using the current regulatory 0.06015 PRI 

ceiling for an institution that has a single three-year CDR

of over 40 percent means that the cutoff for a successful 

PRI appeal of or challenge to the regulatory loss of 

eligibility is a borrower population comprising no more 

than approximately 15 percent of enrollment (0.401 CDR x 

0.15 = 0.06015 ceiling). 

The Department is proposing to raise the PRI ceiling 

applicable to institutions that have a single three-year 

CDR of over 40 percent so that, as with the PRI challenge 

and appeal established by statute for three-year CDRs of 30 

percent or higher, the institution can have borrower 

enrollment as high as almost 21 percent and still bring a 
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54

successful PRI challenge to or appeal from the loss of 

eligibility (0.401 CDR x 0.20 < 0.0832). 

Perkins Loan, FFEL, and Direct Loan Programs:

Satisfactory Repayment Arrangements (34 CFR 674.2(b), 

674.9(k), 682.200(b), 685.102(b), and 685.200)

Statute: Under section 428F(b) of the HEA, which is 

applicable to the Direct Loan Program under section 

455(a)(1) of the HEA, a defaulted FFEL or Direct Loan 

borrower may regain eligibility for title IV student 

financial assistance if the borrower makes six consecutive, 

monthly payments on the defaulted FFEL or Direct Loan 

Program loan. The borrower may only regain eligibility 

once under this provision of the HEA.

Under section 464(h)(2) of the HEA, a defaulted 

Perkins Loan borrower may regain eligibility for title IV 

student financial assistance by making six on-time, 

consecutive, monthly payments on the defaulted Perkins Loan 

Program loan. As with FFEL and Direct Loan borrowers, a 

Perkins Loan borrower may only regain eligibility once 

under this provision of the HEA.

Current Regulations: In the Perkins Loan, FFEL, and Direct 

Loan programs, a defaulted borrower may regain eligibility 

for title IV student financial assistance by making 
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55

satisfactory repayment arrangements with the loan holder. 

The term “satisfactory repayment arrangement” is defined in 

34 CFR 674.2(b), 682.200(b), and 685.102(b) for the Perkins 

Loan, FFEL, and Direct Loan programs, respectively.

The “satisfactory repayment arrangement” definitions 

are slightly different for each of the three loan programs. 

For Perkins Loan borrowers, a satisfactory repayment 

arrangement is the making of six, on-time, consecutive, 

monthly payments on a defaulted loan. 34 CFR 674.2(b) 

(“Satisfactory repayment arrangement”). For FFEL and 

Direct Loan borrowers, for purposes of regaining 

eligibility, a satisfactory repayment arrangement is the 

making of six consecutive, on-time, voluntary, full monthly 

payments on a defaulted loan. 34 CFR 

682.200(b)(“Satisfactory repayment arrangement”) and 

685.102(b)(“Satisfactory repayment arrangement”). For FFEL 

and Direct Loan borrowers, an on-time payment is a payment 

made within 15 days of the due date. The Perkins Loan 

Program regulations do not specify a standard for on-time 

payments. The standard for an on-time payment is 

established by the institution that is collecting the 

Perkins Loan, or by the Secretary if the Secretary holds 

the loan.
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The “satisfactory repayment arrangement” definitions 

in the FFEL and Direct Loan program regulations specify 

that voluntary payments are payments made directly by the 

borrower and do not include payments obtained by income tax 

offset, garnishment, or income or asset execution. These

limitations are not in the Perkins Loan Program definition 

of “satisfactory repayment arrangement,” but are in 

§674.9(j) of the Perkins Loan Program regulations.

The FFEL and Direct Loan program regulations specify 

that a borrower may only obtain the benefit of regaining 

title IV eligibility by making satisfactory repayment 

arrangements once. The Perkins Loan Program regulations 

state that a borrower may only obtain the benefit of 

regaining title IV eligibility by making satisfactory 

repayment arrangements on a defaulted loan once.

None of the definitions address the status of 

borrowers who, in the course of making rehabilitation 

payments on a defaulted title IV loan, also make the 

required number of payments to regain title IV eligibility 

under a satisfactory repayment arrangement.

Proposed Regulations: The proposed regulations would make 

the definitions of “satisfactory repayment arrangement”

more consistent across the three title IV student loan 
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57

programs. Proposed §674.2(b) would add to the definition 

of “satisfactory repayment arrangement” in the Perkins Loan 

Program regulations the requirements that the monthly 

payments be “voluntary” and “full.” The proposed Perkins 

Loan Program regulations would also specify that voluntary 

payments are payments made by the borrower and do not 

include payments obtained by income tax offset, 

garnishment, or income or asset execution. The revised 

definition of “satisfactory repayment arrangement” in the 

Perkins Loan Program regulations would also specify that a 

borrower may only receive the benefit of regaining title IV 

eligibility by a satisfactory repayment arrangement once, 

not once on a defaulted loan, as in the current regulation. 

The revisions to the “satisfactory repayment 

arrangement” definitions for the FFEL and Direct Loan 

programs in proposed §§682.200(b) and 685.102(b) would 

extend the length of time during which a payment would be 

considered on-time from within 15 days of the due date to 

within 20 days of the due date. The revision to the

“satisfactory repayment arrangement” definition for the 

Perkins Loan Program in proposed §674.2(b) would establish 

the same 20-day standard for an on-time payment. 
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The proposed regulations would add a new paragraph to 

the definitions of “satisfactory repayment arrangement” in 

§§674.2(b), 682.200(b), and 685.102(b) of the Perkins Loan, 

FFEL, and Direct Loan program regulations. The proposed 

new paragraph would provide that a borrower who makes six 

qualifying payments under an agreement to rehabilitate a 

loan, but who does not receive additional title IV aid 

prior to defaulting on the loan again, will not be 

considered to have used the one opportunity the borrower 

has to renew eligibility for title IV aid by making 

satisfactory repayment arrangements. 

The proposed regulations would add a new §674.9(k) to 

the Perkins Loan Program regulations, to provide that a 

borrower who is in default on a FFEL or Direct Loan program 

loan may regain eligibility to receive a Perkins Loan if 

the borrower makes satisfactory repayment arrangements on 

the FFEL or Direct Loan program loan, as determined by the 

loan holder. The proposed regulations would also revise 

§685.200(d) of the Direct Loan Program regulations, by 

adding a reference to defaulted Perkins Loans as well as to 

defaulted FFEL and Direct Loan program loans. 

Reasons: A defaulted borrower may regain eligibility for 

Federal student aid by making satisfactory repayment 
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59

arrangements on a title IV loan. In addition, a borrower

also has the option of rehabilitating a defaulted title IV 

loan by making a series of on-time, voluntary, full monthly 

payments as part of a rehabilitation agreement with the 

loan holder. To rehabilitate a loan in the Direct Loan or 

FFEL program, a borrower must make nine reasonable and 

affordable payments within 20 days of the due date during 

ten consecutive months. To rehabilitate a loan in the 

Perkins Loan Program, a borrower is required to make nine 

consecutive monthly payments. In the course of making loan 

rehabilitation payments, a title IV borrower may also make 

the six consecutive on-time monthly payments necessary to 

regain eligibility for title IV aid. 

A borrower making payments under a loan rehabilitation 

agreement might not have plans to return to school or to 

seek additional title IV aid after making the required 

payments. The Department has previously been asked whether 

a borrower who makes the six payments needed under 

satisfactory repayment arrangements in the course of making 

loan rehabilitation payments, but who does not request 

additional title IV aid, will automatically be considered 

to have used the one-time-only opportunity to regain 

eligibility by making satisfactory repayment arrangements. 
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The Secretary’s policy is that a borrower in this situation 

has not used the one-time opportunity to regain title IV 

eligibility by making satisfactory repayment arrangements 

unless the borrower receives title IV aid after regaining 

eligibility. As a result of these inquiries, the Secretary 

proposed amending the “satisfactory repayment arrangement”

definitions in the Perkins Loan, FFEL, and Direct Loan 

program regulations to codify this policy. The negotiating 

committee agreed with the changes proposed by the 

Department.

The Secretary also proposed making the definition of 

“satisfactory repayment arrangement” more consistent across 

the three loan programs. The Secretary proposed removing 

the language in the Perkins Loan Program regulations that 

stated that a borrower may only obtain this benefit once 

“on a defaulted loan.” The proposed change would make the 

Perkins Loan Program definition consistent with the FFEL 

and Direct Loan program definitions, which state that a 

borrower may only obtain this benefit “once.” Non-Federal 

negotiators recommended that the “on a defaulted loan” 

language be added to the FFEL and Direct Loan program 

definitions, rather than removed from the Perkins Loan 

Program definition. The Secretary reviewed the Perkins 
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61

Loan and FFEL program statutory provisions, and determined 

that the HEA restricts this benefit to once per borrower, 

not once per loan, in all three of the title IV student 

loan programs. Accordingly, the Secretary declined to 

accept this recommendation from the non-Federal 

negotiators. 

Non-Federal negotiators recommended expanding the 

standard for an on-time payment in the FFEL and Direct Loan 

definitions of “satisfactory repayment arrangements” from 

within 15 days of the due date to within 20 days of the due 

date. They also recommended adding this on-time payment 

standard to the Perkins Loan Program definition. The 

negotiators noted that the 20-day standard is already 

established for loan rehabilitation payments, and believed 

that it would be appropriate to use the same standard for 

payments made under a satisfactory repayment arrangement. 

Using the same standard for on-time payments for purposes 

of satisfactory repayment arrangements and for purposes of 

loan rehabilitation would reduce complexity and confusion 

for borrowers and loan servicers. The Secretary agreed 

with the recommendation to have the same standard for ontime payments made under satisfactory repayment 

arrangements in the three title IV loan programs, and to 
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62

make that standard consistent with the standard for 

rehabilitation payments.

The Secretary proposed revising the Perkins Loan and 

Direct Loan student and borrower eligibility regulations to 

specify that a defaulted FFEL or Direct Loan program 

borrower can qualify for a new Perkins Loan by making 

satisfactory repayment arrangements on the defaulted loan, 

and to specify that a defaulted Perkins Loan Program 

borrower can qualify for a new Direct Loan by making 

satisfactory repayment arrangements. Sections 428F(b) and 

455(a)(1) of the HEA already provide for this treatment, 

and the Secretary proposed revising the Perkins and Direct 

Loan program regulations to more closely match these HEA 

statutory provisions.

Closed School Discharge (34 CFR 674.33(g), 682.402(d), and 

685.214)

Statute: Sections 437(c)(1) (which is applicable to the 

Direct Loan Program under section 455 of the HEA) and 

464(g) of the HEA provide for a closed school discharge for 

borrowers in the Perkins Loan, Direct Loan, and FFEL 

programs who are unable to complete a program of study 

because of a school closure.
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Current Regulations: Under §§674.33(g), 685.214, and 

682.402(d) of the Department’s current regulations, 

borrowers in the Perkins Loan, Direct Loan, and FFEL 

programs (and PLUS loan endorsers) may receive a loan 

discharge if the borrower (or the student on whose behalf a 

parent borrowed) could not complete the program of study at 

the school because the school closed while the borrower (or 

student) was enrolled, or if the borrower (or student) 

withdrew from the school no more than 90 days before the 

school closed. 

Sections 674.33(g), 685.214, and 682.402(d) of the 

Department’s regulations provide that the 90-day period may 

be extended if the Secretary determines that exceptional 

circumstances related to the school closure justify an 

extension. The school’s closure date is the date the 

school ceases to provide educational instruction in all of 

its programs, as determined by the Secretary. For closed 

school discharge purposes a “school” is the 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 for title IV purposes. 

Proposed Regulations: Proposed §§674.33(g)(4)(i)(B), 

682.402(d)(1)(i), and 685.214(c)(1)(ii), respectively, 
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would extend the current 90-day window for students who 

leave before a school closes to 120 days, and add examples 

of the types of exceptional circumstances under which the 

Department may extend the 120-day window. Specifically, 

the proposed regulations would list the following examples 

of exceptional circumstances for this purpose: the school’s 

loss of accreditation; the school’s discontinuation of the 

majority of its academic programs; action by the State to 

revoke the school’s license to operate or award academic 

credentials in the State; or a finding by a State or 

Federal government agency that the school violated State or 

Federal law.

Reasons: During the public hearings prior to the 

initiation of the negotiated rulemaking sessions, some 

commenters suggested that the 90-day window for student 

withdrawal prior to a school’s closure date may be too 

short because there may be numerous signs of a school’s 

pending closure that may prompt a student to withdraw more 

than 90 days prior to the school’s closure date. The 

commenters also noted that the Department has not 

previously provided examples in the regulations of the 

exceptional circumstances under which the Department would 

extend the 90-day window.
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To inform the discussions around the closed school 

discharge, the Department presented information to the 

negotiating committee on its experience with closed school 

discharges. In the last five years, 128 schools that 

participated in the title IV programs have closed. The 

primary reason for the school closures has been the loss of 

accreditation. Of the 128 schools that closed, 82 were 

proprietary schools.

The non-Federal negotiators raised many questions 

about the Department’s implementation of the statutory 

requirement that a school must close in order for the 

borrower to receive a loan discharge. Some negotiators 

argued that the closed school discharge should include

instances in which a program at the school is discontinued 

but the school continues to operate, especially in the case 

of a school that offers many of its programs online and 

which does not associate its online programs with a 

physical location. The non-Federal negotiators asked the 

Department to clarify whether students would be eligible 

for a closed school loan discharge if a school discontinued

one of its traditional or online programs.

In response to the negotiators’ questions, the 

Department noted that for a borrower to receive a loan 
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66

discharge, current regulations require that the school must 

close. Under §§674.33(g), 682.402(d), and 685.214(a), the 

term “school” means a school’s main campus or any location 

or branch of the main campus, and a school is considered 

closed as of the date that the school ceases to provide 

education in all programs. The law and regulations do not 

provide a loan discharge when a program, either traditional 

or distance, is discontinued. The Department also noted 

that distance education programs are not locations of a 

school for title IV eligibility purposes. A location is a 

physical site where a student can receive instruction in 50 

percent or more of an eligible program. If a school offers 

online programs, the online programs are considered 

associated with the main campus of the school. Thus, a 

borrower enrolled in an online course would receive a 

closed school discharge only if the main campus of the 

school closed. 

The Department proposed expanding from 90 to 120 days 

the window in which a student must be enrolled at a school 

that closed for a borrower to receive the closed school 

loan discharge. Expanding the window should help address 

the circumstances under which a borrower has enough 

information to determine that a school is not providing an 
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67

appropriate education and may close and withdraws from the

school prior to its formal closure date. The Department 

believes that the extra time would help borrowers who are 

in this situation and would allow them to take advantage of 

other opportunities, such as the option to take advantage 

of a teach-out plan.

The non-Federal negotiators agreed that this change 

would be beneficial for borrowers and should be made.

In response to public commenters’ requests that the 

Department provide examples of exceptional circumstances 

that might justify an extension of the window under 

§§674.33(g), 682.402(d), and 685.214(c), the Department 

invited the non-Federal negotiators to provide examples of 

what they believed should be considered exceptional 

circumstances. After much discussion, some of the nonFederal negotiators recommended that the following examples 

be included in the proposed regulations: the school’s loss 

of accreditation; the school’s discontinuation of the 

majority of its academic programs; action by the State to 

revoke the school’s license to operate or award academic 

credentials in the State; or a finding by a State or 

Federal government agency that the school violated State or 

Federal law. 
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In response to a question from some negotiators, in 

regard to the last of the listed examples, we note that we 

would consider the term “finding” to refer to a conclusion 

in a final or formal document issued by the State or 

Federal agency.

Some non-Federal negotiators believed that it was 

particularly important to treat as an exceptional 

circumstance a school’s discontinuance of the majority of 

its programs. Those negotiators noted that while it is 

highly improbable that a school will be able to continue 

its operations after closing the majority of its programs, 

there is a possibility that a school in this situation will 

remain open. In light of the fact that a borrower cannot 

receive a loan discharge based upon a single discontinued 

program, the non-Federal negotiators believed this language 

would cover the exception and provide relief for affected 

borrowers. 

It is important to note that, although the Secretary 

would view the cited examples as exceptional circumstances, 

these examples would not be exclusive or otherwise narrow 

the scope of exceptional circumstances that the Secretary 

would consider. The Secretary has the discretion to 

consider other extenuating circumstances that may warrant a 
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closed school loan discharge for a borrower who withdrew 

from a school more than 120 days before the school closed. 

As the Department noted during the negotiated rulemaking 

session, the Secretary determines whether exceptional 

circumstances exist on a case-by-case basis and takes into 

account the facts of the particular situation.

The Secretary also wants to note that the listing of 

these examples is not intended to provide borrowers with a 

guaranteed right to a discharge. The Secretary would still 

need to determine that the situation presents exceptional 

circumstances justifying an extension of the 120-day 

window. Moreover, these examples are not intended to 

provide a borrower with a private right of action against 

the school; these examples would not establish any rights 

between the student and the school. 

After much deliberation and discussion between the 

Department and the non-Federal negotiators, the Department 

and the non-Federal negotiators reached consensus on the 

proposed changes to the closed school loan discharge

regulations.

School Enrollment Status Reporting Requirements (34 CFR 

674.61, 682.605, 682.610, and 685.309)
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Statute: Section 428(b)(1)(P) of the HEA requires a 

borrower who received a FFEL Program loan to notify the 

school of any change in the borrower’s local address while

the borrower is enrolled. It also requires the borrower 

and the school to promptly notify the loan holder, either 

directly or through the guaranty agency, if there is a 

change in the borrower’s permanent address, if the student 

ceases to be enrolled on at least a half-time basis, or if 

there is any other change in status that affects the 

student’s eligibility for the loan. 

Section 454(a)(1)(E)(i) of the HEA requires a school 

that participates in the Direct Loan Program to provide the 

Secretary with timely and accurate information concerning 

the status of student borrowers (and students on whose 

behalf parents borrow Direct PLUS Loans) while the students 

are in attendance at the school, and any new information 

related to students or parents after the borrowers leave 

the school. This information is provided to the Secretary 

to assist in the servicing and collection of Direct Loan 

Program loans. 

Section 487(a)(3) of the HEA requires a school that

participates in a program under title IV of the HEA to 

establish and maintain such administrative and fiscal 
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procedures and records as are necessary to ensure the 

proper and efficient administration of funds received from 

the Secretary or from students. Upon request and in a 

timely manner, schools must provide information relating to 

their administrative capability and financial 

responsibility to the Secretary, the appropriate guaranty 

agency, and the appropriate accrediting agency or 

association. In addition, section 487(a)(5) of the HEA 

requires a school that participates in the title IV, HEA 

programs to submit reports to the Secretary (and to the 

holders of loans made to the institution’s students) at 

such times and containing such information as the Secretary 

requires to carry out the purpose of title IV of the HEA.

Current Regulations: For the FFEL Program, current 

§682.610(c) requires a school, upon receipt of a student 

status confirmation report from the Secretary or a similar 

report from a guaranty agency, to complete and return the 

report to the Secretary or guaranty agency, as appropriate. 

Unless the school expects to submit its next student status 

confirmation report to the Secretary or guaranty agency 

within the next 60 days, the current regulations require a 

school to notify the guaranty agency or lender within 30 

days if the school discovers that a student who received a 
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FFEL Program loan has changed his or her permanent address, 

or discovers that: (1) a FFEL Program loan has been made 

to or on behalf of a student who enrolled at the school, 

but who has ceased to be enrolled on at least a half-time 

basis; (2) a loan has been made to or on behalf of a 

student who has been accepted for enrollment, but who 

failed to enroll on at least a half-time basis; or (3) a 

loan has been made on behalf of a full-time student who has 

ceased to be enrolled on a full-time basis. Current 

§682.605(b) provides that if a student withdraws, the 

school must use the withdrawal date determined under 

§668.22(b) or 668.22(c), as applicable, for the purpose of 

reporting to the lender the date that the student withdrew 

from the school. Current §682.605(c) provides that, for 

the purpose of a school's reporting to the lender, a 

student's withdrawal date is the month, day, and year of 

the withdrawal date.

For the Direct Loan Program, current §685.309(b) 

includes provisions comparable to §682.610(c). That 

regulation requires schools participating in the Direct 

Loan Program to submit student status confirmation reports 

and information about address and enrollment status changes 

to the Secretary. However, there is no requirement for a 
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school to report that a full-time student who received a 

Direct Loan has ceased to be enrolled on a full-time basis, 

as is the case in the FFEL Program under 

§682.610(c)(2)(iii). In addition, current §§685.309(b)(3) 

and 685.309(b)(4) specify that the Secretary provides 

student status confirmation reports to a school at least 

semi-annually, and that the Secretary may provide these 

reports in either paper or electronic format.

For the Perkins Loan Program, current regulations do 

not include enrollment reporting requirements for schools 

comparable to the FFEL and Direct Loan program 

requirements. 

Proposed Regulations: For the Perkins Loan Program, the 

proposed regulations would add a new §674.19(f) with the 

heading “Enrollment reporting process.” Proposed 

§674.19(f)(1) would provide that, 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 in the manner and format and 

within the timeframe prescribed by the Secretary. Proposed 

§674.19(f)(2) would provide that, unless it expects to 

submit its next updated enrollment report to the Secretary 

within the next 60 days, an institution must notify the 
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Secretary within 30 days after the date the school 

discovers that: (1) a loan under title IV of the HEA 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; (2) a student

failed to enroll on at least a half-time basis for the 

period for which a loan was intended; or (3) a student who 

is enrolled at the institution and who received a loan 

under title IV of the HEA has changed his or her permanent 

address.

For the FFEL Program, the proposed regulations would 

retitle §682.610(c) “Enrollment reporting process,” and 

replace the term “student status confirmation report” with 

“enrollment report.” They would also revise §682.610(c)(1) 

to provide that, upon receipt of an enrollment report from 

the Secretary, a school must update all information 

included in the report and return the report to the 

Secretary in the manner and format and within the timeframe 

specified by the Secretary. Proposed §682.610(c)(2) would 

provide that, unless a school expects to submit its next 

updated enrollment report to the Secretary within the next 

60 days, the school must notify the Secretary within 30 

days after the date the school discovers that: (1) a title 
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IV loan was made to or on behalf of a 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; (2) a student failed to enroll on at least a halftime basis for the intended loan period; or (3) a student 

who is enrolled at the school and who has received a loan 

under title IV of the HEA has changed his or her permanent 

address. References in the current regulations to 

receiving enrollment reports from a guaranty agency or 

reporting enrollment status information to guaranty 

agencies would be removed. The proposed regulations would 

also amend §§682.605(b) and 682.605(c) to require schools 

to report information about a student’s withdrawal to both 

the lender and the Secretary. 

For the Direct Loan Program, the proposed regulations 

would retitle §685.309(b) “Enrollment reporting process,” 

and replace the term “student status confirmation report” 

with the term “enrollment report.” It would also revise 

§685.309(b)(1) to provide that upon receipt of an 

enrollment report from the Secretary, a school must update 

all information included in the report and return the 

report to the Secretary in the manner and format and within 

the timeframe prescribed by the Secretary. Proposed 
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§685.309(b)(2) would provide that, unless a school expects 

to submit its next updated enrollment report to the 

Secretary within the next 60 days, the school must notify 

the Secretary within 30 days after the date the school 

discovers that: (1) a title IV, HEA program loan was made 

to or on behalf of a 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; (2) the student

failed to enroll on at least a half-time basis for the 

intended loan period; or (3) a student who is enrolled at 

the school and who received a title IV loan has changed his 

or her permanent address. Current §§685.309(b)(3) and 

685.309(b)(4) would be removed. 

Reasons: The current FFEL and Direct Loan program 

regulations in §§682.610(c) and 685.309(b) reflect 

terminology and procedures that are not consistent with 

current practices. These obsolete provisions include the 

use of the term “student status confirmation report,” the 

references in the FFEL Program regulations to receiving 

enrollment reports from guaranty agencies and reporting 

information to guaranty agencies, and the references in the 

Direct Loan Program regulations to the frequency with which 

the Secretary provides student status confirmation reports 
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and the format of those reports. In addition, the current 

FFEL Program provision requiring a school to report that a 

student has ceased to be enrolled on a full-time basis 

reflects an obsolete eligibility requirement. The proposed 

regulations would revise §§682.605(a) and 685.309(b) to 

reflect the current processes by which schools receive and 

report student enrollment status information. The proposed 

regulations would also provide the Secretary with greater 

flexibility to modify enrollment reporting procedures in 

the future by providing that schools must update all 

information included in the enrollment report received from 

the Secretary and return the report to the Secretary in the 

manner and format and within the timeframe specified by the 

Secretary. Further, the proposed regulations would replace 

the current provisions in the FFEL Program regulations that 

require a school to report certain status changes only for 

their students who received FFEL Program loans, and the 

comparable provisions in the Direct Loan Program 

regulations that require schools to report information only 

for students who received Direct Loan Program loans, with a 

more general requirement for schools to report these status 

changes for students who received any type of title IV 

loan. The Department believes that it is appropriate to 
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establish this more general requirement, since the National 

Student Loan Data System (NSLDS) enrollment reporting files 

that schools receive from the Department include all of a 

school’s students who have received loans under the Direct 

Loan, FFEL, or Perkins Loan programs. The proposed changes 

to the FFEL and Direct Loan program regulations described 

here would also be incorporated in the proposed new 

enrollment status reporting requirements for the Perkins 

Loan Program that are discussed later in this section. 

To reflect current procedures, current §§682.605(b) 

and 682.605(c) would be modified to state that a school 

must report information about student withdrawals to both 

the FFEL Program lender and the Secretary.

Schools that participate in the Perkins Loan Program 

have indicated to the Department’s NSLDS staff that having 

enrollment status information on Perkins borrowers from all 

schools attended by the borrowers would improve loan 

servicing in the Perkins Loan Program. In response to this 

request, the Department modified the NSLDS enrollment 

reporting file sent to schools by the Department to 

include, beginning in June 2012, all of the school’s 

students who received a Perkins Loan for attendance at any 

school. Perkins Loan schools, or their servicers, may
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enroll with NSLDS to receive enrollment data on their 

Perkins Loan recipients. This will help schools track 

their former students who have enrolled at other schools, 

and will allow schools to use NSLDS for enrollment 

verification rather than having to rely on paper Perkins 

Loan enrollment verification forms. Proposed §674.61(f) 

would establish enrollment reporting requirements for 

Perkins Loan schools to support this new process. 

To ensure more timely reporting of certain student 

status changes, the Department initially proposed to modify 

current §682.610(c)(2) to provide that, unless a school 

expects to submit its next updated enrollment report to the 

Secretary within the next 60 days, a school must notify the 

Secretary within 15 days (instead of the current 30 days) 

after the date the school discovers that certain status 

changes have occurred. The Department proposed to make the 

same change to current §685.309(b)(2), and to incorporate 

the 15-day reporting deadline in proposed §674.19(f). 

Although the non-Federal negotiators generally had no 

objections to the Department’s proposed changes to 

enrollment status reporting requirements, some of the 

negotiators expressed concerns about the proposed change 

from a 30-day reporting deadline to a 15-day deadline. 
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Those negotiators were concerned that it may be difficult 

for some schools to report the required information within 

this shorter timeframe. These negotiators asked that the 

Department retain the current 30-day reporting deadline. 

After further consideration, the Department agreed to 

retain the current 30-day deadline.

FFEL and Direct Loan Program Common Issues

Forbearance for Borrowers Who are 270 or More Days 

Delinquent Prior to Guaranty Agency Default Claim Payment 

or Transfer by the Department to Collection Status (34 CFR 

682.211(d) and 685.205)

Statute: Section 435(l) of the HEA defines default on a 

loan as being 270 days past due in the case of a loan that 

is repayable in monthly installments. Section 428(c)(3) of 

the HEA specifies that a guaranty agency is not precluded 

from permitting the parties to a FFEL Program loan from 

entering into a forbearance agreement solely because the 

loan is in default. Under section 455(a)(1) of the HEA, 

Direct Loans have the same terms and conditions as FFEL 

Program loans unless provided otherwise. 

Current Regulations: Section 682.211(b)(1) of the FFEL 

Program regulations provides that a lender may grant 

forbearance if the lender and the borrower or endorser 
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agree to the terms of a forbearance and, unless the 

agreement was in writing, the lender sends a notice to the 

borrower or endorser confirming the terms of the 

forbearance within 30 days of the agreement and records the 

terms of the forbearance in the borrower’s file. Section 

682.211(c) of the FFEL regulations provides that a lender 

may grant a forbearance for up to one year at a time if 

both the borrower or endorser and the lender agree to the 

terms of the forbearance. If the lender and the borrower 

or endorser agree to the terms of the forbearance orally, 

the lender must send a notice to the borrower or endorser 

confirming the terms of the forbearance within 30 days of 

the agreement. 

Section 682.211(d) of the FFEL regulations provides 

that a guaranty agency may authorize a lender to grant 

forbearance to permit a borrower or endorser to resume 

honoring the agreement to repay the debt after the borrower 

has defaulted on a loan but before the guaranty agency has 

paid the lender’s default claim. The regulations further 

provide that the terms of the forbearance in this situation 

must include a new agreement to repay the debt signed by 

the borrower. 
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The Direct Loan Program regulations governing 

forbearance in §685.205 do not include a comparable 

forbearance provision for borrowers who are 270 or more 

days past due on loan payments. However, Direct Loan 

borrowers are granted forbearance under the same 

circumstances based on the borrower’s written or oral 

request. 

Proposed Regulations: The proposed regulations would amend 

current §682.211(c) to provide that if the forbearance is 

granted based on the borrower’s or endorser’s oral request 

and oral agreement to the terms of the forbearance, the

lender must send a notice confirming the terms of the 

agreement within 30 days of the agreement. Section 

682.211(d) of the proposed regulations would also be 

amended to specify in paragraph (d)(1) that in the case of 

a forbearance granted to a borrower or endorser who is in 

default, but prior to default claim payment, the 

forbearance agreement must include either a new agreement 

to repay the debt signed by the borrower or endorser, or a 

written or oral affirmation of the borrower’s or endorser’s 

obligation to repay the debt. Proposed §682.211(d)(2) of 

the FFEL regulations would require that if a forbearance in 

this situation is based on the borrower’s or endorser’s 
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oral request and affirmation of the obligation to repay the 

debt: (1) the forbearance period is limited to 120 days;

(2) forbearance cannot be granted for consecutive periods; 

(3) the lender must orally review with the borrower the 

terms and conditions of the forbearance, including the 

consequences of interest capitalization and other repayment 

options available to the borrower; and (4) the lender must 

send the borrower or endorser a notice that confirms the 

terms of the forbearance and the borrower’s or endorser’s 

affirmation of the obligation to repay the debt within 30 

days of that agreement, and must retain a record of the 

terms and conditions of the forbearance and affirmation in 

the borrower’s or endorser’s file. Finally, proposed 

§682.211(d)(3) would define “affirmation” for this purpose 

as an acknowledgement of the loan by the borrower or 

endorser in a legally binding manner that can take the form 

of, but is not limited to: (1) a new signed repayment 

agreement or schedule, or another form of signed agreement 

to repay the debt; (2) an oral acknowledgment and agreement 

to repay the debt documented by the lender in the 

borrower’s or endorser’s file and confirmed by the lender 

in a notice to the borrower; or (3) a payment made on the 

loan by the borrower or endorser. 
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The proposed regulations would also add comparable 

forbearance provisions to §685.205(a) for the Direct Loan 

Program. 

Reasons: Prior to the formal negotiated rulemaking 

sessions, the Department received public comments 

requesting that §682.211(d) of the FFEL regulations be 

amended to eliminate the requirement that a lender collect 

a signed repayment agreement from the borrower as a 

condition for granting a forbearance to a borrower who is 

in default on a loan for which the guaranty agency has not 

yet paid the default claim to the lender. Commenters noted 

that under the Department’s current procedures, a 

forbearance may be granted to a defaulted Direct Loan 

borrower under the same circumstances without a signed 

repayment agreement. These commenters argued that the same 

terms and conditions for granting a forbearance to a 

defaulted borrower should apply in both programs.

During the negotiations, the Department stated its 

preference for retaining the requirement for a signed 

repayment agreement in the FFEL regulations and, for 

consistency, adding a comparable provision to the Direct 

Loan Program regulations. The Department indicated that it 

believes a written affirmation of the debt by a borrower 
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who is in default after failing to make payments for 270 or 

more days increases the prospect that the borrower will 

resume repayment following the end of the forbearance 

period. Some non-Federal negotiators argued that lenders 

should have maximum flexibility to work with borrowers at 

the late stages of delinquency to avoid the negative 

consequences of default and supported a policy of allowing 

a lender to grant forbearance based on an oral request and 

oral affirmation of the debt documented in the borrower’s 

file. One non-Federal negotiator noted that granting 

forbearance to a borrower who is more than 270 days 

delinquent is a matter of lender discretion and would be 

granted only when appropriate. Another non-Federal 

negotiator disagreed with permitting oral affirmation of 

the debt without a separate acknowledgment of the 

affirmation from the borrower that would become part of the 

forbearance agreement. 

Some negotiators raised the issue of whether a written 

forbearance request and affirmation is demonstrably more 

effective at ensuring a borrower’s successful repayment 

following the end of a forbearance period than an oral 

request and affirmation. To address this issue, Department 

staff and lender servicing representatives reviewed data on 
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delinquent and defaulted accounts on which forbearance was 

granted, but determined that most servicing systems did not 

capture the method used to request the forbearance. 

Limited data available from one servicer of Department-held 

loans suggested there was virtually no difference in 

successful repayment outcomes for borrowers making written 

requests and providing written affirmation of the debt 

versus those making an oral request and providing an oral 

affirmation of the debt. Taking all of these 

considerations into account, the negotiating committee 

agreed on the approach in the proposed regulations which 

permits forbearance based on the borrower’s oral 

affirmation of the debt but requires the lender to followup on the oral agreement by sending a written notice to the 

borrower.

Non-Federal negotiators representing State Attorneys 

General raised concerns about the possible misuse of oral 

forbearance requests and affirmations by institutions of 

higher education that might try to manipulate their default 

rates. They requested that the Department consider ways to 

address the potential for abuse they believed was inherent 

in an oral forbearance request and authorization process by 

requiring verification of the identity of the borrower 
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through the use of voice recognition software or telephone 

recordings of the borrower’s request and affirmation. The 

Department noted that any conversation between a borrower 

and a lender servicer could lead to a forbearance agreement 

and, given applicable consent requirements, this proposal 

could necessitate recording all loan servicing calls with 

borrowers. The Department also noted that due to varying 

State laws on recording of conversations, it was not 

feasible to add a requirement to program regulations that 

would ensure compliance with all State laws. The 

Department agreed to monitor the use of forbearances in its 

oversight of schools and third-party servicers who are 

working on default aversion services on behalf of the 

schools.

The State Attorneys General representatives and 

student and consumer advocate representatives provided 

evidence to the negotiating committee that suggested that 

some institutions were attempting to manage their student 

loan cohort default rates by convincing borrowers to 

request forbearances for the cohort default rate period, 

whether or not it benefited the borrower. This could allow

the institution to evade the consequences of high default 

rates. To address this potential problem, the Department 
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agreed to include a limit of 120 days on any forbearance 

granted to a defaulted borrower or endorser based on an 

oral request and affirmation, and to prohibit a servicer 

from granting the borrower or endorser consecutive 120-day 

period forbearances. 

Some non-Federal negotiators also expressed concern 

that granting forbearance to a defaulted borrower or 

endorser may simply delay a default claim payment or 

transfer of the loan for default collections if the 

borrower or endorser is not provided with information on 

other repayment options. The Department agreed that a 

lender should be required to orally review with the 

borrower the various repayment options available to the 

borrower for any forbearance that is based on an oral 

request and affirmation. The Department also reminded the 

non-Federal negotiators that information on available 

repayment plans is disclosed to delinquent borrowers in 

their monthly billing statements prior to default claim 

filing or the transfer of the loan to default collections, 

and as part of due diligence and default aversion efforts 

in the FFEL and Direct Loan programs.
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Forbearance Provisions for Borrowers Receiving Department 

of Defense Student Loan Repayment Benefits (34 CFR 

682.211(h) and 685.205)

Statute: Section 428(c)(3)(A)(i)(IV) of the HEA requires 

that, upon the borrower’s request, a FFEL lender shall 

grant forbearance in renewable 12-month intervals to a 

borrower who is eligible for interest payments to be made 

on his or her loans under the repayment benefit program 

authorized in 10 U.S.C. 2174 for service in the Armed 

Forces. Under section 428(c)(3)(A)(ii)(II) of the HEA,

this forbearance may not exceed three years. Under section 

455(a)(1) of the HEA, this forbearance is also available to 

eligible Direct Loan borrowers.

Current Regulations: The mandatory forbearance for 

borrowers who are eligible for interest payments under the 

loan repayment program authorized in 10 U.S.C. 2174 is 

reflected in 34 CFR 682.211(h)(2)(ii)(B), but the current 

regulations include an incorrect statutory citation. There 

is no comparable provision in the Direct Loan Program 

regulations governing forbearance at 34 CFR 685.205.

Proposed Regulations: The proposed regulations would amend 

34 CFR 682.211(h)(2)(ii)(B) of the FFEL regulations to 

require that lenders grant forbearance to borrowers who are 
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performing service that qualifies them for loan repayment 

under the Department of Defense student loan repayment 

programs authorized by 10 U.S.C. 2171, 2173, or 2174, or 

under any other student loan repayment programs 

administered by the Department of Defense. We are also 

proposing to amend 34 CFR 685.205(a)(9) of the Direct Loan 

Program regulations to include a comparable forbearance 

provision. 

Reasons: Current FFEL regulations require a lender to 

grant forbearance to a borrower who is performing service 

that qualifies the borrower for a partial repayment of his 

or her loan only under the Student Loan Repayment Programs 

authorized under 10 U.S.C. 2171. During the public 

hearings prior to the formal negotiated rulemaking 

sessions, a number of commenters recommended that the 

regulations be revised to also include borrowers who 

receive benefits under other student loan repayment 

programs administered by the Department of Defense. The 

commenters also noted that there is no comparable 

forbearance provision in the Direct Loan Program 

regulations and recommended that one be added to ensure 

consistency between the two programs. The negotiating 
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committee agreed that these regulatory changes should be 

made. 

Borrowers Who Are Delinquent When an Authorized Forbearance 

Is Granted (34 CFR 682.211(f) and 685.205)

Statute: Under section 428(c)(3) of the HEA, FFEL Program 

lenders may exercise certain administrative forbearances 

that do not require the agreement of the borrower under 

conditions specified by the Secretary. The HEA specifies 

that such forbearances shall include forbearances for 

borrowers who are delinquent at the time an authorized 

period of deferment is granted and for borrowers who are 

less than 60 days delinquent on their loans at the time the 

loan is sold or transferred to another entity.

Current Regulations: The conditions under which a FFEL 

Program lender may grant an administrative forbearance, a 

form of forbearance that does not require a request and 

documentation from the borrower, are specified in 34 CFR 

682.211(f). In addition to the circumstances identified in 

the HEA for granting such a forbearance, the regulations 

also authorize a FFEL Program lender to grant an 

administrative forbearance in a number of other 

circumstances, including: (1) if the borrower has payments 

that are overdue at the beginning of a properly granted 
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period of deferment for which the lender learns the 

borrower did not qualify; or (2) a forbearance period not 

to exceed three months when the lender determines that a 

borrower’s ability to make payments has been adversely 

affected by a natural disaster, a local or national 

emergency as declared by the appropriate government agency, 

or a military mobilization. The current regulations do not 

authorize a forbearance for a period in which a borrower 

has payments that are overdue at the beginning of an 

authorized period of forbearance.

Proposed Regulations: The proposed regulations would amend 

34 CFR 682.211(f) to authorize a lender to grant an 

administrative forbearance to a borrower who is delinquent 

at the beginning of an authorized period of forbearance and 

would add a corresponding provision to the Direct Loan 

regulations in 34 CFR 685.205(b).

Reasons: Under the FFEL Program regulations, a borrower 

who is delinquent at the beginning of an authorized period 

of forbearance will remain in a delinquent payment status 

on the loan at the end of the authorized forbearance 

period, unless the borrower provides the lender with 

documentation to support granting an authorized forbearance 

that covers the borrower’s entire period of delinquency. 
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During the public comment period prior to the beginning of 

the formal negotiated rulemaking sessions, representatives 

of FFEL lenders and loan servicers asked the Department to 

amend the regulations to authorize FFEL lenders to grant 

administrative forbearances to borrowers to eliminate a 

period of delinquency prior to the borrower’s authorized 

forbearance period that is not covered by the authorized 

forbearance, to ensure that the borrower is current in 

repayment at the end of the authorized forbearance period. 

The negotiating committee agreed that such a change would 

be beneficial for borrowers and would reduce the likelihood 

that a borrower will be confused if the borrower finds that 

the loan is considered delinquent at the end of a 

significant period of authorized forbearance. For purposes 

of consistency, the negotiating committee also agreed to

include a comparable provision in 34 CFR 685.205(b) of the 

Direct Loan Program regulations. 

Loan Rehabilitation Agreement: Reasonable and Affordable 

Payment Standard (34 CFR 682.405(b) and 685.211(f))

Statute: Under section 428F of the HEA, a borrower may 

rehabilitate a defaulted FFEL loan if the borrower makes at 

least nine payments on the loan, each of which is made 

within 20 days of its scheduled due date and all of which 
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are made over a period of 10 consecutive months beginning 

with the month in which the first scheduled payment is to 

be made under the rehabilitation agreement. Once the 

borrower meets this standard the guaranty agency must, if 

practicable, sell the defaulted FFEL loan to an eligible 

lender. The guaranty agency may not demand from the 

borrower a monthly rehabilitation payment amount that is 

more than is reasonable and affordable based on the 

borrower’s total financial circumstances. After selling 

the loan to an eligible FFEL lender, the guaranty agency 

must request any consumer reporting agency to which the 

guaranty agency reported the loan default to remove the 

record of default from the borrower’s credit history. The 

requirements in section 428F(a) of the HEA also apply to 

defaulted FFEL loans held by the Secretary.

Section 428F(a)(1)(D)(i)(II)(aa) of the HEA authorizes 

a guaranty agency to charge the borrower collection costs 

not in excess of 18.5 percent of the outstanding principal 

and interest at the time the guaranty agency sells the 

rehabilitated loan to an eligible lender.

Current Regulations: Sections 685.211(f)(1) and 

682.405(b)(1) of the Direct Loan and FFEL program 

regulations provide that the Secretary (for Direct Loans) 
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and the guaranty agency (in FFEL) will provide a loan 

rehabilitation program for defaulted Direct Loan and FFEL 

borrowers. To rehabilitate a defaulted loan, a Direct Loan 

or FFEL borrower who requests rehabilitation must make 

nine, monthly, voluntary, on-time payments within a tenmonth period. The payments must be for the full monthly 

payment amount required under the rehabilitation agreement, 

and must be received by the Secretary or the guaranty 

agency within 20 days of the payment due date. The monthly 

rehabilitation payment amount must be reasonable and 

affordable as determined by the Secretary under 

§685.211(f)(1) of the Direct Loan regulations or by the 

guaranty agency under §682.405(b)(1)(iii) of the FFEL 

regulations. 

The Direct Loan Program regulations in §685.211(f)(1) 

state that the Secretary’s determination of reasonable and 

affordable payment amounts will be based on the borrower’s 

total financial circumstances. Under 

§682.405(b)(1)(iii)(A), a guaranty agency’s determination 

of reasonable and affordable includes a consideration of 

the disposable income of the borrower and the borrower’s 

spouse and of the borrower’s reasonable and necessary 

expenses. Reasonable and necessary expenses include, but 
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are not limited to: housing, utilities, food, medical 

costs, work-related expenses, dependent care costs, and 

repayment of other title IV loans. 

Section 682.405(b)(1)(iii)(B) of the FFEL regulations 

specifies that a reasonable and affordable payment amount 

may not be a required minimum payment amount, such as $50, 

if the guaranty agency determines that a smaller amount is 

reasonable and affordable based on the borrower's total 

financial circumstances. If the guaranty agency determines 

that a reasonable and affordable payment for the borrower 

is less than $50 or the monthly accrued interest on the 

loan, whichever is greater, the agency must include 

documentation in the borrower's file supporting that 

determination.

Section 682.405(b)(1)(iii)(C) requires a guaranty 

agency to base its determination of a reasonable and 

affordable rehabilitation payment on documentation provided 

by the borrower, or from other sources. The documentation 

that may be considered includes, but is not limited to:

• Evidence of current income (such as proof of welfare 

benefits, Social Security benefits, child support, 

veterans' benefits, Supplemental Security Income, 
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Workmen’s Compensation, the two most recent pay stubs, 

the most recent copy of a U.S. income tax return, or 

State Department of Labor reports);

• Evidence of current expenses (such as a copy of the 

borrower's monthly household budget on a form provided 

by the guaranty agency); and

• A statement of the unpaid balance on all FFEL loans 

held by other lenders.

Section 682.405(b)(1)(v) authorizes a FFEL borrower to 

request that the guaranty agency adjust the monthly payment 

amount due to a change in the borrower’s total financial 

circumstances. The borrower must provide documentation 

supporting this request to the guaranty agency.

Section 682.405(b)(1)(vi) requires a guaranty agency 

to provide a FFEL borrower with a written statement 

confirming the borrower's reasonable and affordable payment 

amount. The written statement must explain any other terms 

and conditions applicable to the required series of 

payments that the borrower must make before the borrower's 

account can be considered for repurchase by an eligible 

FFEL lender. The statement must inform the borrower of the 

effects of loan rehabilitation, and of the amount of the 
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collection costs that will be added to the unpaid principal 

at the time the loan is sold to a FFEL lender. The 

collection costs may not exceed 18.5 percent of the unpaid 

principal and accrued interest at the time of the sale.

Section 682.405(b)(1)(vii) requires a guaranty agency 

to provide a FFEL borrower with an opportunity to object to 

the terms of the rehabilitation agreement.

Section 682.405(b)(2) requires a guaranty agency to 

attempt to secure a lender to purchase the loan after the 

borrower makes the required number of qualifying 

rehabilitation payments. 

Section 682.405(b)(3)(i)(B) requires the guaranty 

agency, within 45 days of selling a rehabilitated loan to 

an eligible FFEL lender, to request that any consumer 

reporting agency to which the default was reported remove 

the record of the default from the borrower’s credit 

history. 

Some of the details related to loan rehabilitation in 

the FFEL Program regulations are not reflected in the 

current Direct Loan Program regulations. These include, 

for example, details such as the specific types of 

documentation of income and expenses that the Secretary 
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uses to determine a borrower’s reasonable and affordable 

payment amount.

Proposed Regulations: The proposed regulations would 

incorporate many of the details in current FFEL Program 

regulations at §682.405(b) into the Direct Loan regulations 

at §685.211(f) and also add new details into both of these 

sections. Specifically, the proposed regulations would add 

new §§685.211(f)(1)(i) and 682.405(b)(1)(iii) to provide 

that the Secretary (in the Direct Loan Program) and the 

guaranty agency (in the FFEL Program) would base the 

determination of reasonable and affordable rehabilitation 

payment amounts on information provided by the borrower on 

a form approved by the Secretary, and, if requested, 

supporting documentation provided by the borrower. 

Proposed §§685.211(f)(1)(i)(A) and 

682.405(b)(1)(iii)(A) would provide that the Secretary and 

the guaranty agency will consider the borrower's and, if 

applicable, the borrower’s spouse's current disposable 

income in determining a reasonable and affordable 

rehabilitation payment. Disposable income includes public 

assistance payments and other income received by the 

borrower and the spouse, such as welfare benefits, Social 

Security benefits, Supplemental Security Income benefits, 
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and workers’ compensation benefits. Under proposed 

§§685.211(f)(1)(i)(A) and 682.405(b)(1)(iii)(A), spousal 

income would not be considered if the spouse does not 

contribute to the borrower’s household income.

Proposed §§685.211(f)(1)(i)(B) and 

682.405(b)(1)(iii)(B) would provide that, in determining 

the reasonable and affordable payment amount, the Secretary 

and the guaranty agency will consider the borrower’s family 

size, as defined in §§685.221(a)(3) and 682.215(a)(3).

Proposed §§685.211(f)(1)(i)(C) and 

682.405(b)(1)(iii)(C) would provide a more detailed list of 

the reasonable and necessary expenses that the Secretary 

and a guaranty agency will consider in determining a 

borrower’s rehabilitation payment amount. The proposed 

expenses include:

• Food;

• Housing;

• Utilities;

• Basic communication expenses;

• Necessary medical and dental costs;

• Necessary insurance costs;

• Transportation costs;
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• Dependent care and other work-related expenses;

• Legally required child and spousal support; 

• Other title IV and non-title IV student loan 

payments; and 

• Other expenses approved by the Secretary.

Proposed §§685.211(f)(1)(ii) and 682.405(b)(1)(iv) 

would provide that a reasonable and affordable 

rehabilitation payment amount must not be a required 

minimum payment, such as $50, if the Secretary or the 

guaranty agency determines that a smaller amount is 

reasonable and affordable. The payment amount also must

not be a percentage of the borrower’s total loan balance, 

or be based on other criteria unrelated to the borrower’s 

total financial circumstances.

Under proposed §§685.211(f)(1)(iii) and 

682.405(b)(1)(v), the Secretary or the guaranty agency 

would provide the borrower with a written rehabilitation 

agreement within 15 business days of the determination of 

the borrower’s reasonable and affordable payment amount. 

The written rehabilitation agreement would include the 

rehabilitation payment amount, a prominent statement that 

the borrower may object orally or in writing to the payment 
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amount, and the method and timeframe for raising an 

objection to the payment amount. The written 

rehabilitation agreement would provide an explanation of 

any other terms and conditions applicable to the required 

series of payments. The Secretary or the guaranty agency 

may not impose any other conditions unrelated to the amount 

or timing of the rehabilitation payments in the 

rehabilitation agreement. The written rehabilitation 

agreement would inform the borrower of the effects of 

having a loan rehabilitated. For FFEL Program loans, the 

written repayment agreement would inform the borrower of 

the amount of any unpaid collection costs to be added to 

the unpaid principal of the loan when the loan is sold to 

an eligible FFEL lender

Proposed §§685.211(f)(3) and 682.405(b)(1)(vi) would 

provide that the borrower’s rehabilitation payment amount 

would be recalculated if the borrower objects to the 

payment amount contained in the written repayment agreement 

that the Secretary or the guaranty agency would send to the 

borrower under proposed §§685.211(f)(4) and 

682.405(b)(1)(vi). 

Under §§685.211(f)(5) and 682.405(b)(1)(vii) a 

borrower who objects to the monthly repayment amount 
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contained in the written repayment agreement would provide 

the Secretary or guaranty agency the documentation needed 

to recalculate a monthly payment amount under the IBR 

formula. The Secretary or the guaranty agency would 

recalculate the rehabilitation payment amount using the 

formula for calculating a monthly payment amount under the 

IBR plan in §685.221(b)(1) and (b)(2) of the Direct Loan 

regulations or §682.215(b)(1) of the FFEL regulations. If 

the recalculated amount using the IBR plan formula is less 

than $5, the borrower’s recalculated monthly rehabilitation 

payment would be $5. If the borrower does not provide the 

required documentation to the Secretary or the guaranty 

agency, the Secretary or the guaranty agency would not 

proceed with the rehabilitation process.

Under proposed §685.211(f)(7), a Direct Loan borrower 

may request that the Secretary adjust the borrower’s 

monthly rehabilitation payment if there is a change in the 

borrower’s financial circumstances. The borrower would be 

required to provide the documentation specified in proposed 

§685.211(f)(1)(i) to support the request. This is 

comparable to the requirement in §682.405(b)(1) of the 

current FFEL regulations.
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Under proposed §§685.211(f)(8) and 682.405(b)(1)(x), 

while the borrower is making payments under a 

rehabilitation agreement, the Secretary and the guaranty 

agency would limit contact with the borrower on the loan 

being rehabilitated. Contact with the borrower would be 

restricted to collection activities that are required by 

law or regulation, and to communications that support the 

rehabilitation.

After a defaulted Direct Loan has been rehabilitated, 

proposed §685.211(f)(9) provides that the Secretary will 

instruct any consumer reporting agency to which the default 

was reported to remove the default from the borrower’s 

credit history. This is comparable to the requirement in 

§682.405(b)(3)(i)(B) of the current FFEL regulations.

Proposed revisions to §§685.211(f) and 682.405(a) 

relating to the interplay of AWG and loan rehabilitation 

payments are discussed in the Loan Rehabilitation 

Agreement: Treatment of Borrowers Subject to 

Administrative Wage Garnishment section of this preamble. 

Reasons: During the public comment period prior to the 

formal negotiated rulemaking sessions, some commenters 

recommended that the Secretary consider using the IBR plan 

formula to determine a borrower’s reasonable and affordable 
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payment amount for loan rehabilitation purposes. IBR, 

which provides for a monthly loan payment that is intended 

to be affordable based on a borrower’s income and family 

size, became available to borrowers in the Direct Loan and 

FFEL programs on July 1, 2009. The commenters believed 

that using the IBR formula would simplify and standardize 

the process for the determination of loan rehabilitation 

payments. In addition, the commenters argued that the 

availability of IBR as a repayment option for borrowers 

after rehabilitation of a loan provides further support for 

using the IBR formula to determine a reasonable and 

affordable payment for loan rehabilitation purposes, since 

borrowers who have rehabilitated their defaulted loans may 

request to repay under IBR. 

Before the availability of IBR as a repayment option, 

a borrower who made very low monthly payments under a 

rehabilitation agreement based on the borrower’s income 

might be faced with a much larger post-rehabilitation 

monthly payment amount that the borrower could not easily 

afford, since there were no available repayment plans that 

would provide for a payment as low as the rehabilitation 

agreement payment. If a FFEL Program borrower made very 

low payments during the rehabilitation period, the borrower 
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might not have been able to make the larger, postrehabilitation payments. Therefore, the guaranty agency 

might have had difficulty selling the loan to a FFEL 

lender, or might have been forced to sell the loan at a 

discount. A FFEL loan is not rehabilitated until the 

guaranty agency sells it to a lender. The Secretary 

believes that using the IBR formula to determine what is a 

reasonable and affordable payment amount for loan 

rehabilitation purposes would address the issue of 

borrowers’ payment amounts being too high after 

rehabilitation, since a borrower who paid the IBR amount 

during the rehabilitation period could choose IBR as his or 

her repayment plan post-rehabilitation. Therefore, the 

Secretary agreed to include this proposal on the agenda for 

negotiated rulemaking. 

At the first meeting of the negotiating committee, 

non-Federal negotiators representing legal aid and consumer 

advocacy organizations proposed that the IBR formula be 

used as the starting point for determining a Direct Loan or 

FFEL borrower’s reasonable and affordable rehabilitation 

payment amount. If the borrower objected to the payment 

amount determined using the IBR formula and could justify a 

lower amount, the Secretary or the guaranty agency could 
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reduce the payment below the amount determined under the 

IBR formula.

Non-Federal negotiators representing guaranty agencies 

argued that requiring the use of the IBR formula would 

reduce their ability to work with borrowers to arrive at a 

rehabilitation payment amount acceptable to both the 

guaranty agency and to the borrower. They pointed out that 

it is not in anyone’s interest to set a borrower’s 

rehabilitation payment so high that the borrower cannot 

meet it. They contended that, under their current 

procedures, negotiations on loan rehabilitation that occur 

between a borrower and a guaranty agency result in 

appropriate rehabilitation payment amounts. Those 

negotiators contended that if the amount initially proposed 

is too high, the borrower will object and that the 

negotiations generally result in an amount acceptable to 

both parties. Using the IBR formula would preclude any 

such negotiations between the borrower and the guaranty 

agency. They argued that any change to the regulations 

with regard to reasonable and affordable rehabilitation 

payment amounts would amount to fixing a problem that does 

not exist.
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Non-Federal negotiators representing consumer advocacy 

groups and students disputed this claim. They contended 

that defaulted borrowers rarely are given an opportunity to 

negotiate their loan rehabilitation payments and are often 

intimidated by the debt collectors trying to collect the 

loan. These negotiators asserted that borrowers are told 

by debt collectors that they have no choice but to accept 

the loan rehabilitation payment amount that is proposed to 

them, even if the borrower has no practical means of paying 

that amount.

These non-Federal negotiators also asserted that the 

statutory requirement that a loan rehabilitation payment 

amount be “reasonable and affordable based on the 

borrower’s total financial circumstances” is routinely 

ignored by guaranty agencies and the Secretary. The 

current calculation methods, in their view, are designed to 

require the borrower to make as high a payment as possible, 

with no consideration of the borrower’s ability to maintain 

that level of payment throughout the rehabilitation period. 

These non-Federal negotiators contended that collection 

agencies working on behalf of guaranty agencies and the 

Secretary on a commission rate basis have no incentive to 

help borrowers successfully rehabilitate their loans. 
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Non-Federal negotiators representing guaranty agencies 

and collection agencies countered by noting that a 

collection agency does not earn a commission unless the 

borrower makes a payment. Setting the payment amount too 

high is counter-productive to that goal. These negotiators 

also stated that guaranty agencies do look at a borrower’s 

total financial situation when determining reasonable and 

affordable payment amounts. They stated that it is routine 

practice to review a borrower’s income and expenses when 

determining rehabilitation payment amounts.

The negotiators representing guaranty agencies also 

pointed out that under the IBR formula a $0 payment is 

possible, and they argued that $0 should not be an 

acceptable payment amount for purposes of rehabilitating a 

defaulted loan. They emphasized that loan rehabilitation 

is a significant benefit. It allows defaulted borrowers to 

have their credit reports cleared of the default and also 

allows them to receive additional title IV aid, including 

new title IV loans. Loan rehabilitation is intended to 

help the borrower develop a pattern of making monthly, ontime payments on the loan. If a borrower succeeds in 

making the required number of monthly payments, the 

borrower is more likely to succeed in continuing to make 
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payments on the loan once the loan goes back into regular 

repayment. These negotiators pointed out that a borrower 

may only rehabilitate a loan once. If a borrower 

rehabilitates a loan, and then re-defaults on the loan, the 

borrower will not have another opportunity to rehabilitate 

that loan. These negotiators contended that allowing a 

borrower to rehabilitate a loan by making monthly payments 

as low as $0 would not be beneficial to the borrower or to 

taxpayers.

Non-Federal negotiators representing consumer advocacy 

groups agreed to address the $0 payment issue by setting a 

minimum payment amount. However, they argued that the 

minimum payment should be a very low amount, such as $5, 

arguing that there is no evidence that borrowers who 

successfully rehabilitate their loans by making small 

monthly payments are more likely to re-default than other 

borrowers or that guaranty agencies have difficulty selling 

these loans after the borrower has made the required 

rehabilitation payments. On the contrary, these 

negotiators asserted that borrowers who make small monthly 

rehabilitation payments are more likely to get into the 

habit of making on-time, monthly payments, and to continue 

making these payments after completing rehabilitation.
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Non-Federal negotiators representing guaranty agencies 

pointed out, however, that, while a low-income borrower 

might have very small monthly payments under the IBR 

formula, a borrower with a high income would have higher 

payments under the IBR formula than under a different 

approach. Using the IBR formula for calculation of the 

reasonable and affordable payment amount could result in 

higher payment amounts than the guaranty agency would 

propose to a borrower under their current methodologies.

The proposed regulations attempt to address the 

concerns expressed on both sides of this debate. The 

proposed regulations would allow the Secretary and the 

guaranty agencies to retain the flexibility to work with 

borrowers to determine reasonable and affordable repayment 

amounts, but would more clearly define the parameters 

within which the guaranty agencies must work. The 

Secretary and the guaranty agencies would still be free, 

under the proposed regulations, to develop their own 

methodologies for determining the reasonable and affordable 

payment amount initially proposed to the borrower. 

However, the Secretary and all of the guaranty agencies 

would base their determinations of loan rehabilitation 

payment amounts on the same factors. Specifically, the 
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proposed regulations would require the Secretary and the 

guaranty agencies to collect information on a borrower’s 

income and expenses using a standardized form. The form 

would identify the sources of income that the Secretary or 

the guaranty agency will consider, apply a consistent 

definition of family size for borrowers, and identify the 

types of expenses the Secretary or the guaranty agency must

take into account in determining the reasonable and 

affordable payment amount for the borrower.

The Secretary invites comment on whether the final 

regulations should require the Secretary and the guaranty 

agencies to use a standardized methodology to determine

reasonable and affordable rehabilitation payment amounts. 

Under a standardized methodology, in addition to 

identifying the types of expenses that the Secretary or the 

guaranty agency may consider, we would use standard 

allowable expense amounts, such as the IRS National 

Standards, for each type of expense reported by the 

borrower so that the payment calculation is based on 

allowable expenses that are consistent across all 

borrowers. The IRS National Standards are described under 

the section of this preamble titled “Borrower Hearing 
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Opportunities on the Enforceability of the Debt and a 

Borrower’s Claim of Financial Hardship.” 

Regardless of the methodology used to determine the 

payment amount, the proposed regulations would establish a 

process by which borrowers may object to the payment amount 

proposed by the Secretary or the guaranty agency. The 

Secretary or the guaranty agency will notify the borrower 

of the reasonable and affordable payment amount the 

Secretary or the agency has calculated for the borrower. 

The notice would include a prominent statement that the 

borrower may object to the amount proposed. The borrower 

would be allowed to object, verbally or in writing, to the 

payment amount that has been determined. If the borrower 

objects, the Secretary or the guaranty agency would 

recalculate the amount using the IBR formula. This 

establishes the IBR formula as a fallback methodology for 

determining reasonable and affordable payment amounts for 

loan rehabilitation purposes. Furthermore, the borrower 

would have the option to reject the amount calculated using 

the IBR formula and accept the amount initially proposed 

for any reason, such as if the initially proposed amount is 

lower than the amount calculated using the IBR formula.
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To address the concerns regarding the potential of 

payments of $0, the proposed regulations specify that if 

the IBR formula results in a payment of $0, the payment 

amount would be set at $5. A payment amount this small 

would apply only to borrowers with extremely low incomes, 

and would help these borrowers establish the habit of 

making monthly, on-time payments on the loan. 

We believe that this approach preserves flexibility 

for the Secretary and the guaranty agencies, while at the 

same time providing a borrower with access to an 

alternative payment amount if the borrower feels the 

payment amount proposed by the Secretary or the guaranty 

agency is too high. The proposed regulations would also 

ensure that, regardless of which method is used to 

determine the borrower’s rehabilitation payment amount, the 

amount will be based on the borrower’s total financial 

circumstances without regard to other factors.

Under proposed §§685.211(f)(5) and 682.405(b)(1)(vii), 

if a borrower objects to the initial monthly payment 

amount, but does not provide the documentation required to 

calculate a monthly payment amount using the income-based 

repayment plan formula, the rehabilitation does not 

proceed. However, the borrower may have already provided 
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some or all of the information required for a recalculation 

when the borrower initially requested rehabilitation. We 

invite comments on whether it would be appropriate to make 

a change in the final regulations to require a borrower to 

submit information needed to recalculate the borrower’s 

reasonable and affordable rehabilitation payment amount

only if new information is required beyond what the 

borrower provided when he or she initially requested loan 

rehabilitation.

To ensure consistency in the treatment of Direct Loan 

and FFEL borrowers, the changes to the regulations 

discussed above would also be made in the Direct Loan 

program regulations and the Secretary would follow these 

same guidelines for defaulted FFEL loans held by the 

Secretary. We are also proposing to incorporate into the 

Direct Loan Program regulations the provision in 

§682.405(b)(1)(v) of the current FFEL Program regulations

that allows a borrower to request that the monthly payment 

amount be adjusted due to a change in the borrower’s total 

financial circumstances and that specifies the 

documentation a borrower must provide to support this 

request.
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The proposed regulations would limit contact between 

the Secretary or a guaranty agency and the borrower during 

the rehabilitation period. Only those contacts required by 

law or regulation, or that support the rehabilitation, 

would be permitted. This addresses a concern raised during

the negotiated rulemaking sessions that borrowers who are 

making good faith efforts to rehabilitate their defaulted 

Direct Loan or FFEL program loans should not be subject to 

inappropriate collection contacts while they are making 

rehabilitation payments.

Loan Rehabilitation Agreement: Treatment of Borrowers 

Subject to Administrative Wage Garnishment (34 CFR 

682.405(a) and 685.211(f))

Statute: Section 428F(a) of the HEA governs rehabilitation 

of defaulted loans; however, it does not address the 

treatment of borrowers who are subject to AWG while making 

voluntary payments under a loan rehabilitation agreement.

Current Regulations: The current Direct Loan and FFEL 

program regulations do not specifically address payments 

collected by AWG while a Direct Loan or FFEL borrower is 

also making voluntary payments under a loan rehabilitation 

agreement.
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Proposed Regulations: The proposed regulations would add 

new §§685.211(f)(12) and 682.405(a)(3) to the Direct Loan 

and FFEL program regulations to provide that the Secretary 

or the guaranty agency, respectively, will suspend 

collection on a defaulted loan through AWG after the 

borrower makes five qualifying payments under a loan 

rehabilitation agreement. The suspension of the AWG 

collection would be automatic after the borrower makes five 

qualifying payments, but the borrower could request that 

the Secretary or the guaranty agency continue collecting on 

the loan through AWG while the borrower also makes 

voluntary payments under the rehabilitation agreement. The 

Secretary or the guaranty agency would not suspend AWG 

unless and until the borrower makes the fifth payment under 

a loan rehabilitation agreement.

Under proposed new §§685.211(f)(12)(ii) and 

682.405(a)(3)(ii), the borrower would have only one 

opportunity to benefit from a suspension of AWG while 

attempting to rehabilitate a defaulted loan.

Reasons: Loan rehabilitation provides a borrower who has 

defaulted on a Direct Loan or a FFEL Program loan the 

opportunity to reaffirm his or her intention to repay the 

defaulted loan and to establish a repayment history 
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sufficient to support treating the loan as no longer in 

default. In addition to regaining the benefits that apply 

to a non-defaulted Direct Loan or FFEL program loan, if a 

borrower successfully rehabilitates a loan the Secretary or 

guaranty agency requests that credit bureaus remove the 

default from the borrower’s credit report. Loan 

rehabilitation payments in the Direct Loan and FFEL 

programs must be made voluntarily. Payments made through 

AWG are not voluntary payments. 

Currently, for loans held by the Secretary, if a 

borrower is subject to AWG at the time the borrower enters 

into a loan rehabilitation agreement, the Secretary will 

continue to collect on the loan by AWG while the borrower 

makes the series of voluntary payments necessary to 

rehabilitate the loan. The voluntary payments the borrower 

must make are over and above the payments secured through 

the AWG process. 

In response to public comments received on this issue 

before the negotiated rulemaking sessions, the Secretary 

initially proposed to relax the requirement that loans 

continue to be collected through AWG while borrowers who 

are subject to AWG attempt to rehabilitate a loan. Many of 

the non-Federal negotiators argued that continuing to 
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collect through AWG while a borrower makes voluntary 

rehabilitation payments makes it harder for a borrower to 

complete loan rehabilitation. The negotiations around this 

issue centered on the following issues: whether there 

should be a distinction between borrowers already subject 

to AWG at the time the borrower requests loan 

rehabilitation and borrowers for whom AWG is about to be 

initiated; the appropriate number of voluntary payments a 

borrower should make before AWG is suspended; and how 

frequently a borrower should be allowed to qualify for this 

opportunity. 

In addition, although the Secretary’s initial proposal 

did not address whether the amount of an AWG payment should 

affect rehabilitation payments, the negotiators discussed 

whether the total amount of an involuntary AWG payment and 

a voluntary rehabilitation payment should be limited to the 

calculated reasonable and affordable payment amount under 

the loan rehabilitation agreement. 

Under current Department policy, a guaranty agency 

should not start AWG for a borrower who has requested loan 

rehabilitation. If the borrower requests the opportunity 

for rehabilitation, the borrower should be allowed that 

opportunity before the guaranty agency initiates AWG. If 
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AWG collections started before the borrower requests 

rehabilitation, guaranty agencies are not required to 

suspend AWG during the loan rehabilitation process. 

Negotiators representing guaranty agencies indicated 

that the guaranty agencies have different policies with 

regard to suspending AWG during the rehabilitation period. 

Some guaranty agencies do not suspend AWG while a borrower 

is making rehabilitation payments out of a concern that the 

borrower will stop making payments as soon as AWG is 

suspended. Other guaranty agencies suspend AWG after six 

rehabilitation payments are received from the borrower; and 

some suspend AWG after three or fewer payments by the 

borrower. 

A non-Federal negotiator representing consumer groups 

argued that having a single standard for all guaranty 

agencies would be preferable to having standards that vary 

from guaranty agency to guaranty agency. Although a 

uniform standard may increase the number of loan 

rehabilitation payments some borrowers would be required to 

make before AWG is suspended, this negotiator contended 

that, overall, standardizing the number of payments would 

be more beneficial to borrowers. That negotiator 

recommended a three-payment standard.
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Borrowers are not subject to AWG unless they have been 

in default on the loan for a lengthy period of time and 

other collection efforts have been unsuccessful. Given the 

administrative requirements for initiating AWG, the 

Secretary does not believe that a standard of three 

voluntary payments is sufficient as a uniform standard for 

suspending AWG. The Secretary initially proposed requiring 

five payments--slightly more than half the number of 

payments needed to rehabilitate a defaulted Direct Loan or 

FFEL program loan--before the Secretary or a guaranty 

agency would suspend AWG. 

A non-Federal negotiator representing students 

proposed that the five-payment requirement be a cap on the 

number of required payments. Under this proposal, guaranty 

agencies could suspend AWG after the borrower has made

fewer than five loan rehabilitation payments, but would be 

required to suspend AWG after the fifth payment. 

The Secretary believes this approach would contravene 

one of the goals of the proposal--to standardize the 

treatment of borrowers who are making loan rehabilitation 

payments while the loan is also being collected by AWG--and 

did not accept this proposal. The negotiating committee 

reached consensus on the Secretary’s initial proposal of 
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requiring five AWG payments before the Secretary or a 

guaranty agency would suspend AWG during a concurrent 

period of rehabilitation.

Some non-Federal negotiators asked whether borrowers 

who are subject to AWG by mistake would be required to 

continue in AWG for five months before AWG could be 

suspended. The proposed regulations would not affect 

longstanding guidance from the Secretary that if a borrower 

is approved for AWG by mistake, the guaranty agency should 

immediately take steps to terminate AWG. The proposed 

regulations only apply to suspension of AWG due to payments 

made under a loan rehabilitation agreement. 

Non-Federal negotiators representing guaranty agencies 

expressed concerns that borrowers who do not intend to 

actually rehabilitate the loan might use this provision to 

force guaranty agencies to suspend AWG indefinitely. 

Although a borrower may only successfully rehabilitate a 

loan once, there is no limit to the number of times a 

borrower may attempt to rehabilitate a loan. The guaranty 

agencies expressed concern that a borrower could interfere 

with the guaranty agency’s ability to collect on a loan 

through AWG by requesting loan rehabilitation over and over 

again. These negotiators pointed out that AWG is an 
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effective tool for collecting on student loans, and that 

the proposed regulations should not provide a loophole for 

defaulted borrowers to indefinitely forestall AWG.

To address the concern raised by these negotiators, 

the proposed regulations specify that a borrower may only 

receive this benefit once. If a borrower subject to AWG 

makes five qualifying payments on a loan under a 

rehabilitation agreement, AWG will be suspended. If the 

borrower fails to make qualifying loan rehabilitation 

payments, the Secretary or the guaranty agency may take the 

steps necessary to reinstate AWG. If the borrower attempts 

to rehabilitate the loan again, AWG would remain in place 

during the entire loan rehabilitation period. 

A non-Federal negotiator asked whether a guaranty 

agency would be required to go through the AWG hearing and 

notice requirements if it resumes AWG. Since AWG would be 

suspended but not withdrawn, the formal hearing 

requirements would not apply. However, consistent with 

requirements to provide other notices to the borrower 

throughout the AWG process, the guaranty agency would be 

expected to notify the borrower of the resumption of AWG.

Although the proposal only addresses the suspension of 

AWG during a period in which the borrower is making 
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payments under a loan rehabilitation agreement, some nonFederal negotiators asked about the relationship between 

the amount of money collected involuntarily from the 

borrower through AWG and the voluntary payments the 

borrower makes under a loan rehabilitation agreement. As 

discussed earlier in the Loan Rehabilitation Agreement: 

Reasonable and Affordable Payment Standard section of this 

preamble, a loan rehabilitation payment amount must be 

reasonable and affordable. Non-Federal negotiators 

representing consumer groups and students recommended that 

the regulations require that the Secretary or the guaranty 

agency adjust the amounts collected under AWG and the loan 

rehabilitation agreement, so that the two payments would 

combine to equal the reasonable and affordable payment 

amount agreed to by the guaranty agency and the borrower in 

the rehabilitation agreement.

Under the HEA, a rehabilitation payment must not only 

be reasonable and affordable, but it must also be made 

voluntarily. AWG payments are not voluntary, and are not 

part of a borrower’s loan rehabilitation payment. 

Non-Federal negotiators representing guaranty agencies 

stated that some guaranty agencies currently do reduce AWG 

payments for borrowers who are rehabilitating their loans. 
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These negotiators indicated that guaranty agencies would 

likely continue this practice under the proposed 

regulations, but, to preserve flexibility for guaranty 

agencies, they did not support requiring this practice in 

the regulations. The Department agreed with these 

negotiators that, since the guaranty agencies work with 

many different types of borrowers, it would be preferable 

to continue to allow the guaranty agencies flexibility in 

making these determinations. Therefore, proposed

§§685.211(f) and 682.405(a) do not require the Secretary or 

the guaranty agencies to reduce AWG payments to reflect the 

amount of payments made by the borrower under a loan 

rehabilitation agreement, nor do they prevent the 

Secretary or a guaranty agency from making such reductions 

at their discretion.

Some non-Federal negotiators suggested that some 

borrowers may prefer to continue AWG payments while they 

are also making loan rehabilitation payments. These 

borrowers might view the AWG payments as similar to 

automatic debit payments that would pay down their loans 

faster than rehabilitation payments alone. These 

negotiators recommended that the proposed regulations allow 

these borrowers to request that AWG continue while they 
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make rehabilitation payments. The Secretary agreed with 

this suggestion.

Perkins Loan Program Issues

Federal Perkins Loan Graduate Fellowship Deferment 

Eligibility (34 CFR 674.34(b)(1) and (f))

Statute: Section 464(c)(2)(A)(i)(II) of the HEA authorizes 

a deferment for a Perkins Loan borrower while the borrower 

is pursuing a course of study pursuant to a graduate 

fellowship program approved by the Secretary, except that a 

borrower is not eligible for a deferment while serving in a 

medical internship or residency program. HEA section 

464(c)(2)(A)(i)(II) does not specify the requirements that 

a Perkins Loan borrower must meet to be eligible for the 

graduate fellowship deferment.

Current Regulations: The Perkins Loan Program regulations 

in §674.34(b)(1)(ii) provide that a Perkins Loan borrower 

is eligible for a graduate fellowship deferment when the 

borrower is enrolled and in attendance as a regular student 

in a course of study that is part of a graduate fellowship 

program approved by the Secretary. To qualify for the 

deferment, §674.34(f) requires a borrower to provide 

certification to the institution that the borrower has been 
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accepted or is engaged in full-time study in the 

institution's graduate fellowship program. 

Proposed Regulations: The proposed regulations in 

§674.34(f)(1) would require schools that participate in the 

Perkins Loan Program to use the same eligibility criteria 

that lenders use in the FFEL Program (under §682.210(d)) to 

define an eligible graduate fellowship program and to 

establish the eligibility of a Perkins Loan borrower for a 

graduate fellowship deferment. Proposed §674.34(f)(2) 

would define an “eligible graduate fellowship program” as a 

program that: 

• Provides sufficient financial support to allow for 

full-time study for at least six months;

• Requires a written statement from each applicant 

explaining the applicant’s objectives before the award 

of that financial support;

• Requires a graduate fellow to submit periodic reports, 

projects, or evidence of the fellow’s progress; and

• In the case of a course of study at a foreign 

university, accepts the course of study for completion 

of the fellowship program.
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Proposed §674.34(f)(1) would also require a statement 

signed by an official of the program certifying:

• That the borrower holds at least a baccalaureate 

degree conferred by an institution of higher 

education;

• 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

• The borrower’s anticipated completion date in the 

program.

Reasons: We are proposing changes to §674.34(f)(1) of the 

Perkins Loan Program regulations to mirror the definition 

of an “eligible graduate fellowship program” and the 

graduate fellowship deferment eligibility criteria that are 

used in the FFEL and Direct Loan programs. These changes 

would provide consistent treatment of borrowers across the 

HEA, title IV loan programs. 

Federal Perkins Loan Economic Hardship Deferment Debt-toIncome Ratio Provision (34 CFR 674.34(e)(4)) 

Statute: Section 304 of the College Cost Reduction and 

Access Act (CCRAA), Pub. L. 110-84, amended the definition 
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of “economic hardship” in section 435(o) of the HEA by 

eliminating section 435(o)(1)(B). That section defined the 

term “economic hardship” to include a borrower who is 

working full-time and has a Federal educational debt burden 

that equals or exceeds 20 percent of the borrower’s 

adjusted gross income (AGI), if the difference between the 

borrower’s AGI and the borrower’s Federal debt burden is 

less than 220 percent of either the annual minimum wage or 

the poverty line.

Current Regulations: Under §674.34(e)(4), a Perkins Loan 

borrower may receive an economic hardship deferment if he 

or she is not receiving total monthly gross income that 

exceeds twice the amount specified in §674.34(e)(3) and, 

after deducting an amount equal to the borrower’s payments 

on Federal postsecondary education loans, the remaining 

amount of the borrower’s income does not exceed the amount 

specified in §674.34(e)(3). The amount specified in 

§674.34(e)(3) is the greater of the monthly earnings of an 

individual earning the minimum wage rate, or an amount 

equal to 150 percent of the poverty guideline for the 

borrower’s family size.

Proposed Regulations: The proposed regulations would 

remove the debt-to-income economic hardship deferment 
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category in §674.34(e)(4) and related provisions in 

§674.34(e)(6) and (e)(9) from the Perkins Loan Program 

regulations.

Reasons: Final regulations published by the Department on 

October 23, 2008, (73 FR 63232) eliminated from the 

Perkins, Direct Loan, and FFEL regulations the debt-toincome economic hardship deferment that was based on former 

section 435(o)(1)(B) of the HEA. The final regulations 

also eliminated a similar debt-to-income economic hardship 

deferment category for a borrower who is working less than 

full-time from the Direct Loan and FFEL regulations, but 

inadvertently retained the comparable category in 

§674.34(e)(4) of the Perkins Loan Program regulations, thus 

creating a disparity between the economic hardship 

deferment eligibility criteria in the Perkins program and 

the eligibility criteria in the Direct Loan and FFEL 

programs. We are proposing to eliminate §674.34(e)(4) and 

related provisions in §674.34(e)(6) and (e)(9) to reflect 

the statutory change made to the definition of “economic 

hardship” in HEA section 435(o) and to make the Perkins 

Loan Program regulations consistent with the comparable 

FFEL and Direct Loan program regulations. 
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Federal Perkins Loan Standard for On-time Loan 

Rehabilitation Payment (34 CFR 674.39(a)(2))

Statute: In accordance with section 464(h)(1)(A) of the 

HEA, a defaulted Perkins loan is successfully rehabilitated 

if a borrower makes nine on-time, consecutive, monthly 

payments of amounts owed on the loan, as determined by the 

institution, or by the Secretary. The term “on-time” is 

not defined.

Current Regulations: Under §674.39(a)(2), a defaulted 

Perkins Loan is rehabilitated if the borrower makes an ontime, monthly payment, as determined by the institution, 

each month for nine consecutive months and the borrower 

requests rehabilitation. The term “on-time” is not 

defined. In §682.405(a)(2)(A)(3) of the FFEL Program 

regulations and §685.211(f)(1) of the Direct Loan Program 

regulations, a payment made within 20 days of the due date 

is considered “on-time” for the purposes of rehabilitating 

a defaulted loan.

Proposed Regulations: The proposed regulations would 

modify §674.39(a)(2) by requiring a borrower to make a 

full, monthly payment, as determined by the institution, 

within 20 days of the due date, each month, for nine 

consecutive months.
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Reasons: The issue of establishing a standard for an ontime payment for the purposes of rehabilitating a defaulted 

Perkins Loan was added to the negotiating agenda at the 

suggestion of a non-Federal negotiator. The non-Federal 

negotiator believed that a similar standard for determining 

“on-time” in the Perkins Loan, FFEL, and Direct Loan 

programs would help borrowers with more than one type of 

title IV loan to successfully rehabilitate the loan and 

would provide consistency across the HEA, title IV loan 

programs in the treatment of borrowers who are 

rehabilitating a defaulted loan. The Department agreed.

Social Security Number Requirement (SSN) for Assignment of 

Defaulted Federal Perkins Loans to the United States (34 

CFR 674.50(e)(1))

Statute: The HEA does not include any specific rules for 

the process for assigning defaulted Perkins Loans.

Current Regulations: The current regulations in 

§674.50(e)(1) provide that the Secretary does not accept 

assignment of a loan if the institution has not provided 

the SSN of the borrower, unless the loan is submitted for 

assignment under §674.8(d)(3). (§674.8(d)(3) refers to the 

Secretary’s authority to mandate assignment of certain 

defaulted Perkins Loans. This authority was eliminated by 
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the Higher Education Opportunity Act of 2008, Pub. Law 110-

315 (HEOA)).

Proposed Regulations: The proposed regulations in 

§674.50(e)(1) would allow assignment of a Perkins Loan 

without the borrower’s SSN if the loan was made before 

September 13, 1982, which was the date the Department began 

requiring institutions to collect the borrower’s SSN on the 

Perkins Loan Program promissory notes.

Reasons: The Department believes that it is unfair to 

require an institution to provide the borrower’s SSN when 

assigning a Perkins Loan if the institution was not 

required to collect the SSN at the time the loan was made. 

The proposed regulations would give the institution the 

option of assigning such a loan to the Department, rather 

than holding on to a defaulted loan that the institution 

has little chance of collecting. 

Federal Perkins Loan Break in Cancellation Service Due to a 

Condition Covered under the Family and Medical Leave Act 

(34 CFR 674.52(b)(2))

Statute: Section 465(a)(3)(A) of the HEA provides that a 

specified percentage of principal and interest on a Perkins 

Loan can be cancelled for each “year” during which the 

borrower is employed in certain specified positions. 
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Section 465(a)(4) provides that the term “year” where 

applied to employment as a teacher means the academic year 

as defined by the Secretary. The HEA does not provide for 

a break in qualified service for cancellation purposes.

Current Regulations: Current regulations in §674.52(b)(2) 

allow a borrower who is performing qualified teaching 

service, but who is unable to complete the academic year

due to illness or pregnancy, to still qualify for 

cancellation of the principal and interest on his or her 

Perkins Loan if the borrower completes the first half of 

the academic year, and has begun teaching the second half, 

and the borrower’s employer considers the borrower to have 

fulfilled his or her contract for the academic year for 

purposes of salary increment, tenure, and retirement. The 

regulations in §674.52(b)(2) address only qualified 

teaching service, not other types of employment which may 

qualify the borrower for loan cancellation, such as nursing 

or law enforcement.

In the FFEL and Direct Loan programs, under 

§§682.216(c)(7)(ii) and 685.217(c)(7)(ii), respectively, if 

the borrower is unable to complete the second half of an 

academic year of teaching due to a condition covered under 

the FMLA, the teaching service for loan cancellation 
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purposes in those programs may still count as a year of 

eligible teaching service if the borrower’s employer 

considers the borrower to have fulfilled the teacher 

contract requirements for that academic year. Conditions 

covered under the FMLA include:

• The birth of a child and to care for the newborn child 

within one year of birth; 

• The placement with the employee of a child for 

adoption or foster care and to care for the newly 

placed child within one year of placement; 

• To care for the employee’s spouse, child, or parent 

who has a serious health condition; 

• A serious health condition that makes the employee 

unable to perform the essential functions of his or 

her job; 

• Any qualifying exigency arising out of the fact that 

the employee’s spouse, son, daughter, or parent is a 

covered military member on “covered active duty;” and

• To care for a covered service member with a serious 

injury or illness who is the spouse, son daughter, 

parent, or next of kin to the employee (military 

caregiver leave). (29 U.S.C. 2601 et seq.)
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Proposed Regulations: The proposed regulations in 

§674.52(c)(1) would allow 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 FMLA to still 

count that year as eligible teaching service if the 

borrower’s employer considers the borrower to have 

fulfilled the teacher contract requirements for that 

academic year. In addition, the proposed regulations in 

§674.52(c)(2) would allow a Perkins Loan borrower who is 

unable to complete a full year of eligible public service 

under §§674.56, 674.57, 674.59, or 674.60 due to a 

condition that is covered under the FMLA to count that year 

as a full year of public service if the borrower completes 

at least six months of consecutive eligible service. 

Reasons: By allowing a Perkins Loan borrower to count a 

year of teaching service that is interrupted by a condition 

covered under the FMLA, the proposed regulations would 

provide for more consistent treatment of similarly situated 

borrowers who are performing teaching service that may 

qualify them for FFEL or Direct Loan teacher loan 

forgiveness. By allowing a Perkins Loan borrower to count 

a year of service that has been interrupted by a condition 

covered under the FMLA for the public service loan 
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cancellations under §§674.56, 674.57, 674.59, or 674.60, 

the proposed regulations would provide for consistent 

treatment of all Perkins Loan borrowers who are seeking 

cancellation benefits on their Perkins Loans, not just 

those borrowers seeking a cancellation based on employment 

as a teacher.

Federal Perkins Loan Cancellation Rate Progression (34 CFR 

674.52(g), 674.53(d), 674.56(h), 674.57(c)(2), 674.59(c)(2) 

and 674.60(b))

Statute: Under section 465(a)(3)(A)(i) of the HEA, the 

percent of original principal on a Perkins Loan that is 

canceled for each year of employment by a Perkins Loan 

borrower in certain qualified public service jobs is 15 

percent for the first and second year of service, 20 

percent for the third and fourth year of service, and 30 

percent for the fifth and final year of service. The 

interest on the unpaid balance of the loan that accrues 

during any year of qualifying service is also canceled. 

Qualified public service under section 465(a)(2) of the HEA 

includes, among other things, teaching, military service in 

an area of hostility, law enforcement, nursing, and 

firefighting. There are two types of public service that 

have a different cancellation rate progression. Under 
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section 465(a)(3)(A)(ii), the cancellation rate for each 

year of qualified service in certain early childhood 

education programs is 15 percent of the original loan 

principal plus the interest on the unpaid balance accruing 

during the year of qualifying service. Under section 

465(a)(3)(A)(iii), the cancellation rate for each year of a 

borrower’s qualified service as a volunteer under the Peace 

Corps Act or a volunteer under the Domestic Volunteer 

Service Act of 1973 is 15 percent of the original loan 

principal for the first or second year of qualified service 

and 20 percent of the original loan principal for the third 

or fourth year of qualified service. The interest on the 

unpaid balance that accrues during any year of qualifying 

service is also canceled. 

Current Regulations: The cancellation progression rate for 

qualified public service performed by a Perkins Loan 

borrower under §§674.53(d) (teachers), 674.56(a) (nurse or 

medical technician), 674.57(c)(2) (law enforcement or 

corrections officer), and 674.59(c)(2) (military service), 

is 15 percent of the original principal for the first and 

second year of service, 20 percent for the third and fourth 

year of service, and 30 percent for the fifth and final 

year of service, consistent with section 465(a)(3)(A)(i) of 
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the HEA. The interest on the unpaid balance that accrues 

during any year of qualifying service is also canceled. 

The cancellation progression rate for each year of 

qualified service in an early childhood education program 

performed by a Perkins Loan borrower under §674.58 is 15 

percent of the original principal plus interest that

accrues during the year of qualifying service on a Perkins 

Loan, which mirrors section 465(a)(3)(A)(ii) of the HEA. 

Lastly, the cancellation progression rate for each year of 

qualified service as a volunteer under the Peace Corps Act 

or a volunteer under §674.60 is 15 percent of the original 

principal for the first or second year of qualified service 

and 20 percent for the third or fourth year of qualified 

service, plus any interest that accrued during the year of 

qualifying service, which mirrors section 465(a)(3)(A)(iii) 

of the HEA.

Proposed Regulations: The proposed regulations would not 

change the current cancellation progression rate under the 

cancellation categories in §§674.53, 674.56, 674.57, or 

674.59. The percentage of original principal canceled 

would remain the same, and any interest on the unpaid 

balance that accrues during any year of qualifying service 

would continue to be canceled. However, under proposed 
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§674.52(g)(1), if, after the first, second, third, or 

fourth complete year of qualifying service the borrower 

switches to a position that qualifies the borrower for 

cancellation under a different cancellation category under 

§§674.53, 674.56, 674.57, or 674.59, the borrower’s 

cancellation rate progression continues from the last year

the borrower received a cancellation under the former 

cancellation category. Under proposed §674.52(g)(2), if, 

after the first, second, third, or fourth complete year of 

qualifying service under §§674.53, 674.56, 674.57, or 

674.59 the borrower switches to a position that qualifies 

the borrower for cancellation under §674.58 or 674.60, the 

borrower’s cancellation rate progression begins at the year 

one cancellation rates specified in §§674.58(b) or 

674.60(b), respectively.

Reasons: We believe that requiring a borrower to restart a 

cancellation progression is unnecessary. In each of these 

situations, the borrower is performing a valuable public 

service which qualifies for loan cancellation. Since the 

cancellation rates in these categories are identical, we 

believe it is more equitable to allow borrowers to continue 

their progression toward full loan cancellation when they 
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change jobs to a position with the same cancellation 

progression.

We are not proposing to allow borrowers who switch to 

or from the cancellation categories in §§674.58 or 674.60 

to continue under the same cancellation rate progression 

because the cancellation rates under these two provisions 

are not comparable to the cancellation rates in §§674.53, 

674.56, 674.57, or 674.59. Under §674.58(b), a borrower 

receives cancellation at the rate of 15 percent for each 

year of eligible service. Under §674.60(a), a borrower may 

only receive cancellation of up to 70 percent of the 

original principal.

FFEL Program Issues

FFEL Lender Repayment Disclosures for Borrowers Who Are 60

Days Delinquent (34 CFR 682.205(c))

Statute: Section 433(e)(3) of the HEA requires FFEL 

Program lenders to provide a borrower who is 60 days 

delinquent in making payments on a FFEL Program loan a 

notice that informs the borrower of: (1) the date on which 

the loan will default if no payment is made; (2) the 

minimum payment the borrower must make to avoid default;

(3) a description of the options available to the borrower 

to avoid default and the relevant fees or costs associated 
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with each option; (4) a description of deferment and 

forbearance options and the requirements to obtain each; 

(5) any discharge options the borrower may be entitled to; 

and (6) any additional resources of which the lender is 

aware that can provide the borrower with advice and 

assistance on student loan repayment, including nonprofit 

organizations, advocates, counselors, and the Department’s 

Student Loan Ombudsman.

Current Regulations: Section 682.205(c)(5)(ii) of the 

Department’s regulations requires FFEL lenders to provide a 

repayment disclosure to a borrower, including all of the 

information listed in section 433(e)(3) of the HEA, within 

five days of the borrower becoming 60 days delinquent on 

the FFEL loan. The Department interprets five days for 

this purpose as five calendar days, rather than business 

days. The regulations also specify that the minimum 

payment necessary to avoid default disclosed to the 

borrower must be the amount as of the disclosure date. The 

lender must also include the amount necessary to bring the 

loan current or pay the loan in full. 

Proposed Regulations: The proposed regulations would 

redesignate current §682.205(c) as §682.205(a). 

Redesignated §682.205(a)(5)(ii) would change the timeframe 
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for FFEL lenders to send the required disclosure from five 

calendar days after the date the borrower becomes 60 days 

delinquent to five business days after that date.

Reasons: The non-Federal negotiators representing lenders 

and lender servicers indicated that the required disclosure 

is often system-generated and sent out automatically on a 

fixed schedule. These negotiators stated that office 

closures and delays due to necessary system maintenance and 

upgrades may result in a technical violation of the 

regulations if the lender is unable to send the required 

notice to the borrower within the five calendar days 

provided under current regulations. The Department and the 

other non-Federal negotiators agreed that unintended 

noncompliance with the regulatory deadline could result 

under these circumstances and that the regulations were not 

intended to penalize the lender for this type of possible 

delay. Accordingly, the proposed regulations would provide 

the lender with five business days to generate the required 

disclosure. 

FFEL Lender Repayment Disclosures to Borrowers Who Are 

Having Difficulty Making Payments (34 CFR 682.205(c))

Statute: Section 433(e)(2) of the HEA requires FFEL 

Program lenders to provide certain information to assist 
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borrowers who notify the lender that they are having 

difficulty making payments on their loans. The lender must 

provide the borrower with information about: (1) the 

repayment plans available to the borrower and how the 

borrower may request a change in repayment plan; (2) the 

requirements for obtaining a forbearance on a loan and any 

expected costs associated with forbearance; and (3) the 

options available to the borrower to avoid default and any 

relevant fees or costs associated with those options. 

Current Regulations: Section 682.205(c)(4) of the 

Department’s regulations requires a lender to provide a 

borrower who is having difficulty making required payments 

on a loan a disclosure that contains the information 

specified in section 433(e)(2) of the HEA. The lender must 

send the disclosure each time the borrower contacts the 

lender and tells the lender that he or she is having 

difficulty making payments on the loan. 

Proposed Regulations: The proposed regulations would amend 

34 CFR 682.205(c)(4) to no longer require a lender to 

provide the disclosure required by that section 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.
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Reasons: The non-Federal negotiators representing FFEL 

lenders and lender servicers noted that providing the 

required disclosure in response to every borrower contact 

may confuse the borrower if prior contact between the 

borrower and the lender or servicer has addressed the 

borrower’s repayment problem. The negotiating committee 

agreed that the disclosure should not be automatically 

triggered under these circumstances because the repeated 

disclosure could confuse the borrower and be 

counterproductive to keeping the borrower in active, timely 

repayment or in another acceptable repayment status. 

Administrative Wage Garnishment of the Disposable Pay of 

Defaulted FFEL Program Borrowers (34 CFR 682.410(b))

Borrower Hearing Opportunities on the Enforceability of the 

Debt and a Borrower’s Claim of Financial Hardship (34 CFR 

682.410(b)(9)(i))

Statute: Section 488A(a)(3) of the HEA provides borrowers 

who have defaulted on a title IV loan and who are subject 

to AWG the opportunity to inspect and copy records relating 

to the debt. Section 488A(a)(5) of the HEA provides that 

these borrowers must be provided the opportunity for a 

hearing concerning the existence or amount of the debt. 

Section 488A(b) of the HEA establishes certain requirements 
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for the hearing opportunity required under subsection 

(a)(5).

Current Regulations: Section 682.410(b)(9)(i)(E) of the 

Department’s regulations reflects the statutory requirement 

that the borrower be provided the opportunity for a hearing 

concerning the existence or amount of the debt. Section 

682.410(b)(9)(i)(J) provides that the borrower has the 

choice of having an oral or written hearing. However, the 

current regulations do not include further details on how 

the hearing should be conducted, the method by which the 

borrower may raise objections to the AWG or how the hearing 

official should make decisions during the hearing. The 

current regulations do not address a borrower’s objections 

to the enforceability of the debt or a claim of financial 

hardship. 

Proposed Regulations: The proposed regulations would amend 

§682.410(b)(9)(i)(E) of the Department’s regulations to 

require that a guaranty agency offer a borrower the 

opportunity to contest the enforceability of the debt in 

addition to the existence or amount of the debt. The 

proposed regulations would also require the guaranty agency 

to provide the borrower with the opportunity to raise an 

objection that withholding from the borrower’s disposable 
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pay--in the amount or at the rate proposed in the notice 

advising the borrower of the planned garnishment--would 

cause financial hardship to the borrower.

The proposed regulations would also amend 

§682.410(b)(9)(i)(F) to clearly address the burden of proof 

that applies with regard to objections by the borrower to 

garnishment, and to describe the procedures that must be 

followed by the borrower and guaranty agency when the 

borrower raises the objections described in paragraph 

§682.410(b)(9)(i)(E). Under proposed 

§682.410(b)(9)(i)(F)(1)(i), as part of the oral or written 

hearing, the guaranty agency would have to provide evidence 

of the existence of the debt. Once the agency provides 

that evidence, the burden of proof would shift to the 

borrower to establish, by a preponderance of the evidence 

that: no debt exists; the amount of the debt the agency

claims is incorrect, including that any amount of 

collection costs assessed to the borrower exceeds the 

regulatory limits; the debt is not enforceable under 

applicable law; or the debt is not delinquent. If the 

borrower objects to the amount of the collection costs 

charged by the agency included in the debt, the borrower 

must prove that collection costs charged on the defaulted 
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loan exceed the amount a guaranty agency is permitted to 

assess a borrower under §682.410(b)(2) of the Department’s 

regulations.

Under proposed §682.410(b)(9)(i)(F)(1)(ii), the 

borrower would be able to raise any of these objections at 

any time before the hearing official closes the record and 

notifies the parties that no additional evidence or 

objections will be accepted.

If the borrower claims that the withholding amount or 

rate that the agency proposed in its notice would cause 

financial hardship to the borrower and the borrower’s 

spouse and dependents, the borrower bears the burden of 

proving the claim of financial hardship by a preponderance 

of the evidence. Under §682.410(b)(9)(i)(F)(2)(ii), in 

determining whether the withholding amount would cause a 

financial hardship for the borrower, the hearing official 

would compare the borrower’s living expenses against the 

amount spent for basic living expenses by families of the 

same size and similar income to the borrower’s, as 

reflected in the IRS National Standards. The term 

“National Standards” is more precisely used by the IRS to 

refer to a subset of living expenses that includes five 

necessary expenses: food, housekeeping supplies, apparel 
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and services, personal care products and services, and 

miscellaneous. In addition, the IRS has established 

standards for: out-of-pocket health care expenses, which 

include medical services, prescription drugs, and medical 

supplies (e.g. eyeglasses, contact lenses, etc.); 

transportation standards for taxpayers with a vehicle; and 

housing and utilities standards, which include mortgage or 

rent, property taxes, interest, insurance, maintenance, 

repairs, gas, electric, water, heating oil, garbage 

collection, residential telephone service, cell phone 

service, cable television, and internet service. The IRS 

refers to these standards collectively as the “Collection 

Financial Standards.” The proposed regulations refer to 

all these standards collectively as the “National 

Standards.” For more information on the IRS National 

Standards refer to www.irs.gov/Individuals/CollectionFinancial-Standards. We invite comment on whether the term 

should be changed to conform to the term used by the IRS, 

which developed the standards. 

Under proposed §682.410(b)(9)(i)(F)(2)(iv), if the 

hearing official upholds the borrower’s objection to the 

amount or rate of withholding in part, then the garnishment 

may be ordered at a lesser rate or amount that would allow 
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the borrower to meet basic living expenses. If the 

garnishment order is already in effect when the hearing 

official makes a decision, the guaranty agency must notify 

the borrower’s employer of any change in the amount to be 

withheld or the rate of withholding. 

The Department notes that the consensus language of 

§682.410(b)(9)(i)(F)(2)(iv) of the proposed regulations 

differs from regulations governing wage garnishment of 

Department-held loans at 34 CFR part 34. The proposed 

regulations state that a withholding order “may be ordered 

at a lesser rate or amount” by a guaranty agency if a 

hearing official upholds, in part, a borrower’s claim of 

financial hardship. The Department believes that the 

proposed language could be interpreted as providing a 

guaranty agency discretion in adjusting a borrower’s 

payment and rate based on a hearing official’s finding, 

rendering the hearing official’s ruling moot and 

potentially resulting in inconsistent treatment of 

similarly situated borrowers. The Department considers the 

hearing official’s determinations whether garnishment would 

cause hardship, and whether garnishment can be ordered only 

at a lesser rate than proposed by the guaranty agency, to 

be binding on the agency, and not a matter left to the 
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discretion of the agency. The Department particularly 

invites comments on whether the agreed-upon language--using 

“may” in this context rather than “must”--is contrary to 

the intent of providing the borrower an opportunity for an 

independent determination on a financial hardship 

objection. 

Proposed §682.410(b)(9)(i)(F)(2)(v) would also require 

that a determination of financial hardship be effective for 

no longer than six months, and that if, after that period, 

the guaranty agency determines that the amount or rate of 

withholding should be increased, the guaranty agency must 

notify the borrower of the increase and provide the 

borrower with an opportunity to contest the determination 

and obtain a hearing on the objection.

The proposed regulations would also add a new 

§682.410(b)(9)(i)(N) to the regulations to specify the 

process by which a borrower may raise an objection to the 

amount or rate of a withholding order on grounds of 

financial hardship. The proposed regulations would allow 

the borrower to raise an objection at any time, but would 

not require the guaranty agency to consider the objection 

until at least six months after the date the order was 

issued. Under the proposed regulations the guaranty agency 
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may provide a hearing earlier than six months after the 

date the order was issued under extraordinary 

circumstances--that is, 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 an injury, divorce, or a 

catastrophic illness.

The Department is also proposing to reorganize current 

provisions in §682.410(b)(9) to more logically reflect the 

AWG process, from the initial garnishment notice, to the 

hearing process, to the withholding of wages. The 

following sections summarize the discussion and proposed 

changes to §682.410(b)(9).

Reasons: The Department did not include the regulations 

governing AWG for defaulted FFEL Program borrowers on the 

original list of regulations to be addressed by the 

negotiated rulemaking process. However, a non-Federal 

negotiator asked that the topic be added to the agenda and 

that §682.410(b)(9) of the regulations be amended to make 

certain provisions consistent with the requirements in 34 

CFR part 34 that govern AWG for loans held by the 

Department.
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Specifically, the negotiator requested that the 

regulations be amended to specifically reflect a 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 on the basis that such withholding 

would cause financial hardship to the borrower. 

As negotiations proceeded, other non-Federal 

negotiators requested that additional changes be made to 

the regulations to provide more detail on the guaranty 

agency’s administration of the AWG notification and hearing 

process. 

The Department agreed to revise the FFEL Program 

regulations to provide more consistent treatment for both 

borrowers whose defaulted loans are held by a guaranty 

agency and those with loans held by the Secretary. In 

addition, the Department is proposing to amend certain 

regulatory provisions to incorporate existing policy 

guidance and, at the request of the non-Federal 

negotiators, to provide examples of permissible activities 

associated with certain phases of AWG.

To respond to a request from a non-Federal negotiator 

that borrowers be allowed to object at any time to the 

amount or rate of withholding on the basis of financial 
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hardship, the negotiators agreed to propose new 

§682.410(b)(9)(i)(N). This proposed paragraph was added to 

balance the ability of borrowers to raise a financial 

hardship objection at any time against the practical 

necessity of limiting the number of hearings to a 

reasonable number. Accordingly, the proposed regulations 

limit such a hearing opportunity to once every six months 

absent extraordinary circumstances that have substantially 

changed the borrower’s financial circumstances.

Use of Third-Party Contractors in AWG Hearings (34 CFR 

682.410(b)(9))

Statute: Section 436(a) of the HEA provides that a FFEL 

Program lender or guaranty agency that delegates its 

functions to another entity is not relieved of its duty to 

comply with the HEA and must monitor the other entity’s 

activities to ensure compliance with the requirements of 

the HEA. Section 488A(b) of the HEA prohibits the use of a 

hearing official who is under the supervision or control of 

the guaranty agency, but does not otherwise prevent a 

guaranty agency from retaining a third-party agent to 

perform AWG-related administrative functions for the 

agency.
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Current Regulations: Section 682.203(a) of the FFEL 

Program regulations reflects section 436(a) of the HEA and 

acknowledges that a guaranty agency may contract or 

otherwise delegate the performance of its functions to a 

servicing agency or other party. Such a delegation does 

not relieve the guaranty agency of its duty to ensure that 

the other party’s actions comply with the requirements 

imposed on the guarantor by the HEA. Section 682.410(b)(9) 

of the regulations governing a guaranty agency’s 

administration of the AWG process does not address the use 

of third-party contractors within the AWG context.

Proposed Regulations: The proposed regulations would add 

new §682.410(b)(9)(i)(I) to specify that the wage 

garnishment hearing official may not be under the control 

of a third-party servicer or collection contractor employed 

by the guaranty agency. Paragraph (b)(9)(i)(I) would also 

clarify that payment of compensation to the hearing 

official for hearing services does not constitute 

impermissible control by the guaranty agency, a third-party 

servicer, or a collection contractor employed by the 

agency. The proposed regulations would also provide that 

all of the hearing official’s oral communications must be 

made with both the guaranty agency (or its representative) 
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and the borrower present, and that all of the hearing 

official’s written communications with one party must be 

promptly shared with the other party, with the exception of 

those communications necessary to plan the time, place, and 

manner of the hearing.

The proposed regulations would also add a new 

§682.410(b)(9)(i)(T) to specify the functions that may be 

performed by a third-party servicer or collection 

contractor employed by the guaranty agency for AWG 

purposes, such as obtaining employment information for the 

purposes of garnishment, negotiating alternative repayment 

arrangements with borrowers, and responding to inquiries 

from borrowers. The proposed regulations would make it 

clear that the guaranty agency may not delegate to a third 

party the decision to order withholding of an individual 

borrower’s wages, and that the agency must create and 

retain records to demonstrate that each AWG order has been 

individually authorized by an appropriate official of the 

guaranty agency. The proposed regulations would also 

specify the manner by which a withholding order may be sent 

to employers.

Reasons: In an effort to ensure that AWG hearings are 

impartial, the Department is proposing new paragraph 
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(b)(9)(i)(I) to clarify that an AWG hearing official may 

not be under the supervision or control of the guaranty 

agency or of a third-party servicer or contractor employed 

by the agency. A non-Federal negotiator requested that

language be added to the regulations to provide that the 

normal payment of compensation to the hearing official for 

performance of his or her duties would not constitute such 

impermissible control. To further ensure a fair hearing, 

the Department also added language to prohibit the hearing 

official from engaging in ex parte communications without

notice to the other party, except in regard to the 

logistical details of the hearing.

Section 488A of the HEA gives the Secretary and 

guaranty agencies authority to issue a garnishment order.

In the case of a guaranty agency, only a guaranty agency 

official, and not a contractor for the agency, can lawfully 

issue an order for the withholding of a borrower’s wages. 

New paragraph (b)(9)(i)(T) reflects that restriction, and 

includes a non-exhaustive list of activities that may be 

performed by a third-party servicer or collection 

contractor employed by the guaranty agency. The proposed 

regulations reflect the Department’s earlier guidance to 

the guaranty agencies on the limitations on the use of 
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collection contractors or other third-party servicers to 

conduct administrative activities for a guaranty agency 

related to the wage garnishment process. The Department 

believes that some guaranty agencies may not be aware of 

the guidance or are no longer monitoring their servicers 

for compliance with that guidance. The Department 

therefore determined that this guidance should be 

incorporated into the proposed regulations. Most 

significantly, a third-party contractor may not make the 

determination that a withholding order is to be issued, and 

the order must clearly identify the guaranty agency as the 

holder of the debt. The order cannot expressly state or 

imply that the third-party agent is the holder of the loan 

or that the third-party agent has authority to initiate a 

withholding order. 

A non-Federal negotiator also requested that the 

proposed regulations include a list of examples of the 

permissible activities that third-party contractors may 

perform in the AWG process. New paragraph (b)(9)(i)(T)(1) 

lists examples of such activities, which are limited to 

administrative tasks, such as obtaining employment 

information, receiving garnishment payments, and providing 

information to borrowers.
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Amount or Rate of Wage Withholding (34 CFR 682.410(b)(9))

Statute: Section 488A(a)(1) of the HEA limits the amount 

of the borrower’s pay that may be subject to garnishment to 

15 percent of the borrower’s disposable pay for any pay 

period. Section 1673 of Title 15 of the U.S. Code limits 

the amount of disposable pay that may be subject to 

garnishment to the lesser of 25 percent of the borrower’s 

disposable pay for any pay period (in cases where multiple 

withholding orders exist) or the amount by which the 

borrower’s disposable pay for any pay period exceeds 30 

times the minimum wage. 

Current Regulations: Current §682.410(b)(9)(i)(A)

describes the statutory limits to garnishment as 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. 

The current regulations do not describe the limitations in 

detail, including the limitation on the amount of 

garnishment in cases where there is a single withholding 

order compared to when multiple orders exist.

Proposed Regulations: The proposed regulations would add a 

new §682.410(b)(9)(i)(K) to the Department’s regulations. 
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The proposed regulation would limit the withholding amount 

or percentage if a guaranty agency is garnishing pay from a 

borrower who is not already subject to a withholding order. 

Unless the individual consents to a greater percentage or 

amount, the guaranty agency would be required to garnish 

the smallest of: (1) the amount specified in the 

withholding order; (2) 15 percent of the borrower’s pay for 

the pay period; or (3) the amount by which the borrower’s 

disposable pay for the pay period exceeds 30 times the 

minimum wage. 

The proposed regulations would also add a new 

§682.410(b)(9)(i)(L) to the regulations to clarify the 

withholding amount or percentage and priority if a guaranty 

agency is garnishing the pay of a borrower who is already 

subject to one or more withholding orders. Unless another 

Federal law dictates a different priority, the borrower’s 

employer would be required to honor the guaranty agency’s

withholding order before any later-received withholding 

orders, except a family support withholding order. The 

proposed regulations clarify that the cumulative allowable 

amount to be withheld under the sum of all withholding 

orders is limited to 25 percent of the borrower’s 

disposable pay for the pay period or the amount by which 
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the borrower’s disposable pay for the pay period exceeds 30 

times the minimum wage. In a case where one or more 

guaranty agencies have issued wage garnishment orders with 

respect to the same individual borrower, no single agency 

would be permitted to order withholding of a total amount 

exceeding 15 percent of the disposable pay for the pay 

period of a borrower to be withheld in response to all of 

the withholding orders it issued for its claims. 

The proposed regulations would also add a new 

§682.410(b)(9)(i)(M) which would permit a greater amount or 

percentage to be withheld if the borrower has given the 

employer written consent to the higher amount or 

percentage.

Reasons: One non-Federal negotiator argued that current 

§682.410(b)(9)(i)(A) was not sufficiently clear with regard 

to the limits on the amount that may be subject to wage 

garnishment, especially in cases in which a borrower is 

subject to more than one withholding order. In an effort 

to clarify the rules regarding wage withholding, the 

Department agreed to propose new paragraphs (b)(9)(i)(K) 

through (M) to provide more clarity as well as the 

statutory basis for the applicable limits in section 

488A(a)(1) of the HEA and 15 U.S.C. 1673(a)(2). 
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Borrower Hearing Requests (34 CFR 682.410(b)(9))

Statute: Sections 488A(a)(5) and (b) of the HEA provide 

borrowers with the opportunity to request a hearing 

concerning the existence or the amount of the debt and the 

terms of the repayment schedule. 

Current Regulations: Current §682.410(b)(9) requires the 

guaranty agency to offer the borrower an opportunity for a 

hearing concerning the existence or the amount of the debt 

and the terms of the repayment schedule. The current 

regulations provide that the guaranty agency may not issue 

a withholding order until the hearing is provided, as long 

as the borrower's written request for a hearing is received 

by the guaranty agency within 15 days after the borrower's 

receipt of the garnishment notice. The current regulations 

further provide that a borrower is considered to have 

received the garnishment notice 5 days after it was mailed 

by the agency. Finally, current regulations provide that 

if the borrower's written request for a hearing is received 

by the guaranty agency after the 15-day period, the 

guaranty agency must provide a hearing to the borrower but 

must still go forward with the withholding order (unless 

the agency determines that the filing delay was caused by 

factors outside the borrower’s control, or receives 
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information that justifies a delay or cancellation of the 

order), and that the withholding order can be rescinded by 

a decision from the hearing official. 

Proposed Regulations: The proposed regulations would 

replace current §682.410(b)(9)(i)(K) with proposed 

§682.410(b)(9)(i)(G) and change the current requirement 

that a borrower’s written request for a hearing be received 

on or before the 15th day following the borrower’s receipt 

of a garnishment notice to be assured of a hearing prior to 

issuance of a garnishment order. The proposed regulations 

would require that if a borrower’s written request for a 

hearing is received on or before the 30th day following the 

date the garnishment notice was sent, the borrower would be 

assured of a hearing prior to issuance of a garnishment 

order. We are also proposing to delete the rule that a 

borrower is considered to have received a garnishment 

notice five days after it was mailed by the agency.

The Department has decided to retain the requirement

in current §682.410(b)(9)(i)(L) (now proposed 

§682.410(b)(9)(i)(H)) that if a borrower does not request a 

hearing within the 30-day time limit, the guaranty agency 

must go forward with the withholding unless the agency 

determines that the filing delay was caused by factors 
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outside the borrower’s control, or receives information 

that justifies a delay or cancellation of the order. If a 

borrower’s request for a hearing is received after the 30th

day, a guaranty agency is still required to provide a 

hearing in enough time to have a decision issued within 60 

days of the date the guaranty agency received the hearing 

request. The Department would add to proposed 

§682.410(b)(9)(i)(H) (which would replace current 

§682.410(b)(9)(i)(L)) a provision specifying that if the 

hearing is not provided and a decision issued within 60 

days following the receipt of the borrower’s written 

request for a hearing, then the agency must suspend the 

order beginning on the 61st day until a decision is 

rendered.

Reasons: In the preamble to the final regulations issued 

by the Department on April 19, 1994, 59 FR 22462, 22475, we 

explained that we agreed with the public comments we had 

received stating that borrowers should be deemed to have 

received a garnishment notice five days after its mailing 

date to prevent disputes about the date the borrower 

received the notice. During the recent negotiated 

rulemaking sessions, a non-Federal negotiator requested 

that the time limit for when the guaranty agency must 
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receive the borrower’s written request for a hearing be 

measured against the date the garnishment notice was sent, 

rather than the date the borrower received the notice. The 

Department accepted this suggestion because measurement of 

the date the notice was sent is more readily verifiable

than the date the notice was received. However, to balance 

this interest against the borrower’s need for time to 

respond, the Department increased the time limit from 15 

days to 30 days, consistent with a suggestion from another 

non-Federal negotiator.

The provision specifying suspension of the order on 

the 61st day was added to make explicit the consequence if 

a decision is not issued within the required time period.

Other Provisions Related to AWG (34 CFR 682.410(b)(9))

Statute: Section 488A of the HEA authorizes the Secretary 

and guaranty agencies in the FFEL Program to garnish up to 

15 percent of a defaulted borrower’s disposable income per 

pay period, unless the individual consents to a greater 

percentage or amount. The statute requires that a notice 

be sent to a borrower no less than 30 days prior to 

initiation of the garnishment proceedings against the 

borrower informing the borrower of the nature and amount of 

the debt, the intention of the guaranty agency or 
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Secretary, as appropriate, to initiate garnishment, and an 

explanation of the rights of the borrower. The statute 

provides the borrower, among other rights, an opportunity 

for a hearing regarding the proposed garnishment. 

Current Regulations: Section 682.410(b)(9) of the FFEL 

Program regulations includes the rules that govern the 

hearing notice and the conduct of the hearing in cases of 

administrative wage garnishment by a guaranty agency. 

Current paragraph (b)(9)(i)(B) requires a guaranty 

agency to mail to the borrower's last known address, at 

least 30 days before the initiation of garnishment 

proceedings, a written notice of the nature and amount of 

the debt, the intention of the agency to initiate 

proceedings to collect the debt through deductions from the 

borrower’s pay, and an explanation of the borrower's 

rights. Current paragraphs (b)(9)(i)(C) and (b)(9)(i)(D) 

require a guaranty agency to offer the borrower an 

opportunity to inspect and copy agency records related to 

the debt and an opportunity to enter into a written 

repayment agreement. 

Proposed Regulations: The proposed regulations would amend 

§682.410(b)(9)(i)(B) of the FFEL Program regulations to 

enumerate the elements that a guaranty agency must include 
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in the garnishment notice it sends to a defaulted borrower. 

Under the proposed regulations, the notice would: describe 

the nature and amount of the debt; the intention of the 

agency to collect the debt through deductions from the 

borrower’s disposable pay; provide an explanation of the 

borrower’s rights; identify the deadlines by which the 

borrower must exercise those rights; and describe the 

consequences of the failure to exercise those rights in a 

timely manner.

The proposed regulations would add new paragraph 

(b)(9)(i)(J), which would specify the rules under which the 

hearing would be conducted, including provisions for 

granting continuances. Specifically, the proposed 

regulations would require that the hearing be conducted as 

an informal proceeding, require witnesses in an oral 

hearing to testify under oath or affirmation, and require 

maintenance of a summary record of any hearing. Proposed 

paragraph (b)(9)(i)(J) would also allow the borrower to 

request a continuance of the hearing to submit additional 

evidence or the agency to request and receive from the 

hearing officer a reasonable extension of time sufficient 

to enable the agency to evaluate and respond to any 
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additional evidence or any objections raised pursuant to 

paragraph (b)(9)(i)(F)(1)(ii).

The proposed regulations would also add new paragraph 

(b)(9)(i)(O), which would provide for the withholding order 

to be effective until the guaranty agency rescinds the 

order or the agency has fully recovered the amount owed by 

the borrower.

The proposed regulations would redesignate paragraphs 

(b)(9)(i)(F) through (b)(9)(i)(I) of §682.410 as new 

paragraphs (b)(9)(i)(P) through (b)(9)(i)(S). Proposed 

§682.410(b)(9)(i)(Q) would clarify that a borrower who 

wishes to object to the garnishment on the basis that he or 

she is not subject to garnishment because of involuntary 

separation from employment bears the burden of raising and 

proving that claim. Proposed §682.410(b)(9)(i)(S) would 

enumerate the information that a guaranty agency must 

include in the withholding order sent to the employer. The 

order may only include the information necessary for the 

employer to comply with the withholding order. Accordingly, 

under the proposed regulations, the order must include the 

borrower’s name, address, and SSN, as well as instructions 

for the employer’s withholding of the borrower’s pay and 
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information as to where the employer must send the withheld 

funds.

The proposed regulations would redesignate paragraph 

§682.410(b)(9)(i)(O) as new paragraph (b)(9)(i)(U).

Finally, §682.410(b)(9)(ii) of the proposed 

regulations would add definitions for certain terms used in 

paragraph (b)(9)(i). These definitions were incorporated 

from other sections of the existing FFEL Program 

regulations and other Department regulations.

Reasons: A non-Federal negotiator requested that the 

regulations be revised to include an expanded description 

of what would be permissible information to include in the 

garnishment notice sent to defaulted borrowers. In an 

effort to provide clear regulatory guidance to guaranty 

agencies sending such notices and to ensure that borrowers 

fully understand the garnishment process and its 

implications, the Department is proposing to list the 

required components of the garnishment notice in the 

regulations. 

The Department added language in new paragraph 

(b)(9)(i)(J) to emphasize that the hearing official in an 

administrative wage garnishment hearing must conduct the 

hearing as an informal proceeding, require witnesses in an 
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oral hearing to testify under oath or affirmation, and 

maintain a summary record of the hearing. The Department 

added this language because FFEL Program garnishment 

hearings and decisions, like those conducted by the 

Department, may be subject to judicial review. This 

judicial review is based on a review of the administrative 

record. The proposed regulatory language ensures that the 

guaranty agency will have a record appropriate for judicial 

review that includes not only the decision issued, but also 

a summary record of the proceedings showing the evidence 

considered and the procedure followed by the guaranty 

agency. 

The Department proposes to allow a borrower to request 

a continuance of the hearing if the borrower needs more 

time to gather, prepare, and present additional evidence. 

Proposed paragraph (b)(9)(i)(F)(1)(ii) would allow a 

borrower to raise permissible objections during the hearing 

even if they were not raised in the borrower’s written 

request for a hearing. Because a borrower has a limited 

period of time to request a hearing, and gathering evidence 

in preparation for such a hearing may identify an 

additional basis for the borrower to object to the 

garnishment, the Department agreed with a negotiator’s 
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proposal to allow the borrower to raise these objections 

any time prior to completion of the hearing and to request 

a continuance if the borrower requires more time to present 

evidence. At the suggestion of another non-Federal 

negotiator, proposed paragraph (b)(9)(i)(J) would require 

the hearing official to grant a guaranty agency’s request 

for a continuance to provide time for the agency to respond 

to such an objection. We propose this requirement to 

ensure that the agency has sufficient time to respond to an 

objection from the borrower, especially because the

borrower may raise the objection without prior notice to 

the guaranty agency. 

Proposed paragraph (b)(9)(i)(O) specifies the process 

by which a wage withholding order may be terminated by the 

guaranty agency and was drafted to reflect similar rules 

under 34 CFR 34.26. The proposed regulations would require 

a withholding order to be effective until the guaranty 

agency rescinds the order or the amount owed has been fully 

recovered. Under the proposed regulations, if the borrower 

does not have enough pay in a pay period to permit 

withholding, the employer must notify the guaranty agency 

and restart garnishment when the borrower’s pay is 

sufficient. We propose this language to provide full 
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information and clarity with regard to the withholding 

process for both the employer and the guaranty agency.

Proposed paragraphs (b)(9)(i)(P) through (b)(9)(i)(S) 

are similar to paragraphs (b)(9)(i)(F) through (b)(9)(i)(I) 

of the current regulations but would be reordered by this 

proposed rule. These provisions, and paragraph (b)(9)(i) 

generally, were reordered to reflect the chronological 

processes of garnishment notification, hearing, and 

withholding orders, and to provide a more logical order to 

the proposed regulations. 

The Department proposes to add new paragraph 

(b)(9)(i)(Q) to clarify that a borrower bears the burden of 

claiming involuntary separation from employment. The 

Department proposes to place that burden on the borrower 

because such information is more easily accessible to and 

reportable by the borrower rather than by the guaranty 

agency. 

At the request of a non-Federal negotiator, new 

paragraph (b)(9)(i)(S) specifies the contents of the 

withholding order, to ensure that the order reflects the 

information necessary for the employer to comply with the 

withholding order. 
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The proposed regulations would redesignate current 

paragraph (b)(9)(i)(O) as new paragraph (b)(9)(i)(U). This 

new paragraph would reflect the statutory provision that 

allows a borrower to seek judicial relief against an 

employer for taking adverse employment action against the 

borrower because of the garnishment. As with other 

provisions in paragraph (b)(9)(i), this paragraph was 

reordered to reflect the chronological processes of 

garnishment notification, hearing, and withholding orders, 

and to provide a more logical order to the proposed 

regulations.

Section 682.410(b)(9)(ii) of the proposed regulations 

would add definitions for certain terms used in paragraph 

(b)(9)(i). The Department incorporated these definitions 

from existing FFEL Program regulations to provide clarity 

and readily-available definitions that affect the preceding 

sections. 

Modification of the FFEL Program Regulations (34 CFR part 

682)

Background: As noted earlier, the SAFRA Act ended the 

making of new FFEL Program loans as of July 1, 2010. The 

current FFEL Program regulations in 34 CFR part 682 contain 

numerous provisions that are no longer needed in light of 
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this change. The regulations that are no longer needed 

include those governing: the FFEL loan application process 

and use of the master promissory note; interest rates for 

loans originated after July 1, 2010; lender loan 

origination, refinancing, and disbursement requirements; 

fees for refinanced loans; lender disclosures for newly 

originated loans; school loan delivery and entrance 

counseling requirements for first-time borrowers; and 

school and school-affiliated organization lender 

requirements. The current regulations also contain other 

provisions that are no longer needed, including regulations 

that require a guaranty agency to: provide lender-of-lastresort services to borrowers; establish regulations for 

eligible schools to participate in the guaranty agency’s 

program; and guarantee loans up to specified annual and 

aggregate limits. Other regulations that are no longer 

necessary include those that: specify a borrower’s 

responsibility in the loan origination process; govern a 

guaranty agency’s authority to limit and suspend school 

participation in its program; govern a guaranty agency’s 

required area of service in guaranteeing loans; prohibit 

guaranty agencies from offering inducements to prospective 

borrowers, schools and school-affiliated organizations, or 
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to any individual or entity to secure loan applications; 

bar guaranty agencies from assessing additional costs or 

denying benefits to schools and lenders participating in 

the agency’s program on the basis of that entity’s failure 

to agree to participate or to provide a specified volume of 

loans for the agency’s guarantee; and prohibit guaranty 

agencies from offering incentive payments or other 

inducements to a lender to secure additional loan 

guarantees. 

The current FFEL Program regulations contain other 

provisions that the Department believes are obsolete. 

Subpart E of 34 CFR part 682 includes regulations governing 

the Federal Insured Student Loan (FISL) Program. No new 

FISL Program loans have been made since 1983. Accordingly, 

subpart E and appendix C to subpart E, which provides 

guidance for curing lender due diligence violations on FISL 

Program loans, are no longer needed. In addition, the FFEL 

Program regulations include some sections implementing

certain time-limited provisions of the HEA, such as the 

regulations governing the creation of the guaranty 

agencies’ Operating Funds and Federal Funds and the 

regulations governing Federal nonliquid assets held by a 

guaranty agency. These regulations are no longer 
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applicable and can be eliminated from the Code of Federal 

Regulations. To address these issues, the Department 

proposes the following technical changes to the FFEL 

Program regulations:

• Eliminating provisions governing loan origination and 

disbursement and related requirements and activities 

except for certain school-based requirements and 

related activities.

• Eliminating obsolete provisions that do not reflect 

the current procedures in the FFEL Program.

• Making necessary conforming changes in various 

provisions to clarify the regulations.

The Department is retaining all of the FFEL Program 

definitions, the provisions and sections of the regulations 

that govern the servicing and collection of FFEL loans, the 

guaranty agency program requirements that are still 

applicable, and the lender participation requirements.

During the negotiated rulemaking sessions, the 

Department provided the non-Federal negotiators with a 

detailed overview of the planned technical changes to the 

FFEL Program regulations that identified all the regulatory 

provisions and sections recommended for elimination,
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identified other provisions that required conforming and 

other clarifying technical changes or corrections, and 

provided the rationale for each proposed technical change.

During the negotiations, many non-Federal negotiators 

representing lenders, guaranty agencies, and loan servicers 

raised questions about the Department’s plan to eliminate

the regulations dealing with loan origination and 

disbursement, the FISL Program, and a guaranty agency’s 

maintenance of its Federal Fund and Operating Fund in the 

first few years after those funds were established. These 

negotiators argued that the FISL provisions should be 

retained because there are still some outstanding FISL 

loans to which some of the regulations may apply and that 

provisions governing loan origination and disbursement are 

needed because they are relevant to guaranty agency 

oversight of lenders and the review of lender claims, and 

were often helpful in resolving borrower disputes. These 

same negotiators stated that the regulations governing a 

guaranty agency’s maintenance of the Federal Fund and 

Operating Fund should be retained because there were crossreferences to these sections elsewhere in the regulations. 

The Department indicated that it sees no basis for 

retaining regulatory provisions that are no longer 
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supported in the HEA or that are obsolete. The Department 

pointed out that there were fewer than 500 FISL loans in 

repayment, many of them defaulted loans held by the 

Department, and also noted that lender requirements and 

activities that were subject to guaranty agency oversight 

remained enforceable even if the regulatory provisions 

governing them are not included in future copies of the 

Code of Federal Regulations. The Department agreed to 

eliminate and make other necessary changes to address 

cross-references that would be rendered obsolete by the 

planned technical changes.

One non-Federal negotiator representing legal 

assistance organizations asked the Department to retain 

§682.103, which identifies the applicability of the various 

subparts in the regulations because the negotiator felt it 

was a useful index to the regulatory subparts. The same 

negotiator also requested that §682.209(k), which 

acknowledges that a lender may be subject to any claims and 

defenses a borrower could assert against a school with 

respect to a loan under certain circumstances, be retained 

to facilitate borrowers raising such defenses against 

repayment. The negotiating committee agreed to retain 

these two provisions. 
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A non-Federal negotiator representing the guaranty 

agencies asked that the Department remove provisions in 

current §682.401(e) identifying guaranty agency payments 

and activities that do not represent prohibited incentives 

to secure new loan guarantees. The negotiator stated that 

removing provisions identifying prohibited payments and 

activities while retaining the related permissible 

activities and payments would result in misleading 

regulations and was unnecessary. The negotiating committee

agreed to remove these provisions. The non-Federal 

negotiators representing lenders, guaranty agencies, and 

loan servicers also identified additional technical 

corrections and minor clarifying technical edits that the 

negotiating committee agreed to make.

Following the Department’s review and discussion with 

the non-Federal negotiators of the technical changes and 

corrections the Department proposed to make in the FFEL 

Program regulations and the rationale for those changes, 

the negotiating committee agreed the changes should be made 

to update and streamline the regulations. 

The more substantive technical changes to the FFEL 

Program regulations are discussed below. A complete 
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summary of the proposed technical changes to 34 CFR part 

682 is found in Appendix A at the end of this NPRM. 

Subpart A -- Purpose and Scope 

§682.102 Obtaining and Repaying a loan.

Statute: Sections 428(a)(2)-(6), 428B (a) and (b), and 

428C(b) of the HEA authorize the application process for 

FFEL Stafford, PLUS, and Consolidation loans. 

Current Regulations: Section 682.102(a)-(d) of the current 

regulations provide a general description of the process by 

which an individual requests a Stafford, PLUS, or 

Consolidation loan. Current §682.102(e) of the regulations 

provides a general summary of FFEL Program loan repayment.

Proposed Regulations: The proposed regulations would amend 

the heading of §682.102 to read “Repaying a loan,” remove 

§682.102(a)-(d), which detail the application process for 

Stafford, PLUS, and Consolidation loans, and redesignate 

the paragraphs in current §682.102(e), which describes the 

loan repayment process, as §682.102(a)-(g).

Reasons: Under the SAFRA Act, no new FFEL Program loans 

may be made after June 30, 2010. Accordingly, the 

provisions that relate to the making of new FFEL Program 

loans are no longer needed.

Subpart B -- General Provisions
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§682.200 Definitions.

Lender

Statute: Section 435(d)(7) of the HEA specifies the 

requirements for an eligible lender that makes or holds 

FFEL loans as a trustee for an institution of higher 

education or a school-affiliated organization. Under the 

HEA, the trustee lender: may not make loans to 

undergraduate students at the school; may only make Federal 

Stafford Loans to graduate and professional students at 

that school; and may only offer loans with an origination 

fee or an interest rate, or both, that are less than the 

fee or rate otherwise authorized for such loans in the HEA. 

In addition, the loans must be included in an annual 

compliance audit that meets the requirements in section 

435(d)(8) of the HEA. 

Current Regulations: Sections 682.601(a)(3), (a)(5), and 

(a)(7) of the current regulations and paragraphs (7) and 

(8) of the definition of “Lender” in §682.200(b) reflect 

the requirements of section 435(d)(7) and (8) of the HEA.

Proposed Regulations: The proposed regulations would move 

the provisions of current §682.601(a)(3), (a)(5), and 

(a)(7) to paragraph (8) of the definition of “Lender” in 
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§682.200(b), and remove from the regulations the remainder 

of §682.601. 

Reasons: We are proposing to remove §682.601 from the 

regulations because (as a result of the SAFRA Act) no new 

loans are being made under the FFEL Program and therefore 

most of the provisions in that section are no longer 

relevant. However, the requirements governing lenders 

operating as trustees on behalf of a school or a schoolaffiliated organization that serves as a FFEL lender were 

retained and relocated to the definition of “Lender” 

consistent with section 435(d)(7) of the HEA. 

Nationwide Consumer Reporting Agency

Statute: A “nationwide consumer reporting agency” is 

defined in 15 U.S.C. 1681a(p).

Current Regulations: The current regulations at 

§682.200(b) define “nationwide consumer reporting agency” 

through a cross-reference to 15 U.S.C. 1681(a).

Proposed Regulations: The proposed regulations would amend 

the definition of “nationwide consumer reporting agency” to 

include a more specific statutory citation for the 

definition of “nationwide consumer reporting agency” at 15 

U.S.C. 1681a(p), and to specify that a “nationwide consumer 

reporting agency” is one that compiles and maintains public 
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record and credit account information on consumers on a 

nationwide basis. 

Reasons: The changes would correct the statutory citation 

for the definition and reflect the terminology used in that 

statute.

Satisfactory Repayment Arrangements

Statute: Section 428F(b) of the HEA provides that a 

borrower with a defaulted loan may renew eligibility for 

title IV student financial assistance after making six 

consecutive monthly payments on the defaulted loan. The 

required monthly payment amount cannot be more than is 

reasonable and affordable based on the borrower’s total 

financial circumstances. A borrower is limited to one 

opportunity to regain eligibility for title IV student 

financial assistance under this provision.

Current Regulations: The definition of “satisfactory 

repayment arrangement” in current §682.200(b) reflects the 

statutory requirements and specifies that the required six 

consecutive monthly payments must be on-time, voluntary, 

full monthly payments. For this purpose, “voluntary 

payments” are those made directly by the borrower and do 

not include payments obtained by income tax offset, 

garnishment, or income or asset execution. The regulations 
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state that “on-time” means a payment received by the 

Secretary or a guaranty agency or its agent within 15 days 

of the scheduled due date. For purposes of consolidating a 

defaulted loan in the FFEL Program, “satisfactory repayment 

arrangements” means the making of three consecutive, ontime voluntary full monthly payments on a defaulted loan.

Proposed Regulations: The proposed regulations would 

replace the current cross-reference to §682.401(b)(4) in 

paragraph (1) of the definition of “satisfactory repayment 

arrangement” with language explaining that the definition 

applies to a borrower who is trying to regain eligibility 

under the title IV student financial assistance programs. 

The proposed regulations would also remove current 

paragraph (2) of the definition, which relates to FFEL 

Program loan consolidation, and renumber current paragraph 

(3) as paragraph (2). 

Reasons: The change to paragraph (1) of the definition is 

intended to clarify that a borrower making satisfactory 

repayment arrangements on a defaulted loan regains 

eligibility for all title IV assistance programs, not just

eligibility for additional title IV loans. Paragraph (2) 

of the definition is no longer needed because no new FFEL 

Consolidation loans are being made.
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§682.204 Maximum loan amounts.

Statute: Sections 428(b)(1)(A) and (B) and 428H(d) of the 

HEA specify the annual and aggregate loan limits that apply 

to Subsidized and Unsubsidized Stafford loans for 

undergraduate and graduate and professional students in the 

FFEL and Direct Loan programs. 

Current Regulations: Section 682.204 of the current FFEL 

Program regulations reflects the annual and aggregate loan 

limits specified in the HEA. The loan limits are the 

combined limits for borrowing under the FFEL Stafford Loan 

(Subsidized and Unsubsidized) and Direct Subsidized and 

Unsubsidized Loan programs. The current regulations also 

include the Stafford Loan annual and aggregate loan limits 

for loans first disbursed prior to July 1, 2008 and, in 

§682.204(f), the annual loan limits for loans made under 

the Supplemental Loans for Students (SLS) program.

Proposed Regulations: The proposed regulations would 

remove references throughout current §682.204 to the annual 

and aggregate Stafford Loan limits that existed prior to 

July 1, 2008 and would also remove §682.204(f), which 

includes the SLS annual loan limits. The remaining 

paragraphs in the section would be redesignated as 

paragraphs (f)-(l). All references in §682.204 to the 
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Federal Direct Stafford/Ford Loan Program would be replaced 

by references to the Direct Subsidized or Direct 

Unsubsidized Loan Program, as applicable. Section 

682.204(a)(1)(iii), (c)(1)(iii) (current (c)(1)(ii)(C), and 

(d)(1)(iii)) would be amended to correct the numerator of 

the second fraction used to calculate the prorated annual 

loan limit when a student is enrolled in a program of study 

that is less than a full academic year in length. 

Specifically, the numerator would be revised to show the 

number of weeks that the student is enrolled in the program 

rather than the number of weeks in the program.

Reasons: The proposed regulations would retain only the 

loan limits that were in effect as of July 30, 2010, the 

last date that new loans were made under the FFEL Program. 

The pre-July 1, 2008, annual and aggregate loan limits that 

had ceased to be effective two years before the last new 

FFEL Program loans were made would be removed from the 

regulations. Similarly, the SLS annual loan limits would 

be removed because the authority to make loans under that 

program ended effective July 1, 1994. 

For consistency with proposed changes in the Direct 

Loan Program regulations, references to “Federal Direct 

Stafford/Ford Loans” and “Federal Direct Unsubsidized 
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Stafford/Ford Loans” would be changed to “Direct Subsidized 

Loans” and “Direct Unsubsidized Loans,” respectively. 

The changes in §682.204(a)(1)(iii), (c)(1)(iii) 

(current (c)(1)(ii)(C)), and (d)(1)(iii)) are necessary to 

make the numerator of the second fraction consistent with 

the numerator of the first fraction that appears in each of 

these paragraphs. In the first fraction, the numerator 

refers to the number of semester, trimester, quarter, or 

clock hours that the student is enrolled in the program. 

§682.205 Disclosure requirements for lenders.

Statute: Section 433(a) of the HEA requires each FFEL 

lender to provide a disclosure to a borrower prior to or at 

the time a FFEL PLUS loan, Stafford loan, or Unsubsidized 

Stafford loan is disbursed. The disclosure must include: 

(1) A statement prominently and clearly displayed and 

in bold print that the borrower is receiving a loan that 

must be repaid; 

(2) The name of the eligible lender, and the address 

to which communications and payments should be sent; 

(3) The principal amount of the loan; 

(4) The interest rate on the loan;

(5) Any charges or fees that may be assessed on the 

loan; 
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(6) The borrower’s option to pay accruing interest on 

an unsubsidized loan while the borrower is a student at an 

institution of higher education and the timing and 

frequency of capitalization if interest is not paid; 

(7) For loans made to a parent borrower on behalf of a 

student under section 428B, information about deferring 

payment on the loan; 

(8) The yearly and cumulative maximum amounts that may 

be borrowed; 

(9) A cumulative balance statement of all loans owed 

by the borrower to the lender, including the loan being 

disbursed, and an estimate of the projected monthly 

payment, given such cumulative balance; 

(10) Information on repayment of the loan; and 

(11) The definition of default and the consequences to 

the borrower of defaulting on the loan. 

Section 433(c) of the HEA also requires the lender to 

provide a separate disclosure to a borrower each time a new 

loan is approved which summarizes, in simple and 

understandable terms, the rights and responsibilities of 

the borrower with respect to the loan. Section 

428C(b)(1)(F) of the HEA requires that when a lender 

provides a borrower with an application for a consolidation 
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loan, the lender must provide the borrower with information 

on whether consolidation would result in the loss of any 

loan benefits for the borrower. The lender providing the 

consolidation loan application must also inform the 

borrower that loan benefits may vary among lenders, tell 

the borrower that simply applying for a consolidation loan

does not obligate the borrower to take out the loan,

provide information on available repayment plans, and 

explain the consequences to the borrower of defaulting on a 

consolidation loan.

Current Regulations: Section 682.205(a) of the current 

regulations reflects the requirements of section 433(a) of 

the HEA. This regulatory section details the initial 

disclosure a FFEL lender must provide to a borrower prior 

to or at the time of the first disbursement of a PLUS, 

Stafford, or Unsubsidized Stafford loan. Consistent with 

section 433(c) of the HEA, §682.205(b) and (g) of the 

regulations require a separate notice of borrower rights 

and responsibilities and a plain language disclosure each 

time a new PLUS, Stafford, or Unsubsidized Stafford loan is 

approved for a borrower. Section 682.205(i) requires that 

at the time a lender provides a Consolidation loan 
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application to a borrower, the lender must disclose the 

information specified in section 428C(b)(1)(F) of the HEA.

Proposed Regulations: The proposed regulations would 

remove §682.205(a), (b), (g), and (i) from the FFEL Program 

regulations and renumber the remaining provisions.

Reasons: The SAFRA Act ended the authority to make new 

FFEL Program loans, including new FFEL Consolidation loans. 

As a result, the lender disclosure requirements for new 

loans are no longer needed and thus should be removed from 

the regulations. 

§682.206 Due Diligence in making a loan.

Statute: Title IV, part B of the HEA includes the terms 

and conditions of FFEL Program loans and the requirements 

for lenders making FFEL Program loans.

Current Regulations: Consistent with title IV, part B of 

the HEA, §682.206 of the current regulations requires a 

FFEL lender to exercise due diligence in making a loan. 

Loan making duties include determining the borrower’s loan 

amount, approving the loan, explaining to the borrower his 

or her rights and responsibilities, and confirming that 

each loan is supported by an executed enforceable 

promissory note or master promissory note. The regulations 

also require a FFEL lender, prior to making a Consolidation 
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loan, to collect from the holder of each loan being repaid 

through the Consolidation loan a certification that the 

loan is a legal, valid, and binding obligation of the 

borrower, that the loan was made and serviced in compliance 

with applicable law and regulations, and that, where 

applicable, the loan’s guarantee remains in full force and 

effect. Before making a Consolidation loan, a lender must 

also notify the applicant of the option to cancel the 

Consolidation loan before it is made and provide the 

deadline for the applicant to exercise this option.

Proposed Regulations: The proposed regulations would 

remove §682.206 from the FFEL Program regulations.

Reasons: The SAFRA Act eliminated the authority to make 

new FFEL Program loans, including new FFEL Consolidation 

loans. As a result, the requirements governing the making 

of new FFEL Program loans are no longer needed and thus

should be eliminated from the regulations. 

§682.207 Due diligence in disbursing a loan.

Statute: Sections 428(b)(1)(N), 428B(c), and 428G of the 

HEA detail the disbursement requirements for FFEL Stafford 

and PLUS loans. Section 428G of the HEA requires that loan 

proceeds be disbursed in two or more installments over the 

course of the loan period, based on a disbursement schedule 
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provided to the lender by the school, unless: (1) the loan 

period is not more than one semester, one trimester, one 

quarter, or four months in duration; and (2) the school has 

a cohort default rate below a certain specified level. 

Section 428G(e) of the HEA allows the proceeds of a loan to 

be disbursed in a single installment if the loan is made to 

a student to cover the cost of attendance in a study abroad 

program offered by a school with a cohort default rate

below a certain specified level. Section 428G(a) specifies 

that no installment may exceed more than one-half of the 

loan. Under section 428G(b), loans may not be disbursed 

earlier than 30 days prior to the first day of the loan 

period and first time borrowers in undergraduate courses of 

study may not receive the first installment until 30 days 

after beginning their course of study. Under section 

428G(d), second or subsequent installments of a loan cannot 

be disbursed if the lender is informed that the student has 

withdrawn from the school and a disbursement that is 

withheld for this reason is treated as a prepayment on the 

borrower’s loan. Section 428(b)(1)(N) requires that funds 

borrowed by a student be disbursed to the school by check 

or other means that is payable to, and requires the 

endorsement of or other certification by, the student. 
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This provision also authorizes, in certain circumstances, 

the direct disbursement of loan proceeds to the student if 

the student is enrolled in a study abroad program or is 

enrolled at an eligible foreign school. Section 428B(c) of 

the HEA requires PLUS loans to be disbursed in accordance 

with the requirements of section 428G of the HEA, and to be 

disbursed by electronic funds transfer to the school or in 

the form of a check co-payable to the school and the PLUS 

borrower.

Current Regulations: Section 682.207 of the regulations 

reflects the requirements in the HEA for disbursement of 

Stafford and PLUS loans. 

Proposed Regulations: The proposed regulations would 

remove §682.207 from the FFEL Program regulations. 

Reasons: The SAFRA Act ended the authority to make new 

FFEL Program loans. As a result, the requirements 

governing loan disbursement are no longer needed and thus

should be removed from the regulations. 

§682.209 Repayment of a loan.

Statute: Section 428(b)(7) of the HEA provides that the 

repayment period on a Federal Stafford loan begins the day 

after six months after the date the student ceases to carry 

at least one-half the normal full-time academic workload as 
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determined by the institution. Section 428B(e) of the HEA 

authorizes the refinancing of FFEL PLUS loans to secure a 

combined repayment plan or to secure a variable interest 

rate. Section 493C of the HEA, governing the IBR plan, 

provides for a borrower’s loan payment to be less than the 

accruing interest on the loan.

Current Regulations: Section 682.209(a)(3) specifies when 

repayment on a Federal Stafford Loan begins. Section 

682.209(e) and (f) govern the refinancing of PLUS and SLS 

loans, respectively, and paragraph (g) specifies the 

conditions under which these loans may be refinanced. 

Section 682.209(j) requires a lender, within 10 business 

days after receiving a written request for a certification 

of payoff information on loans it holds in connection with 

a borrower’s Consolidation loan application, to provide the 

requesting consolidation lender with either the completed 

certification or an explanation of the reasons it is unable 

to do so. 

Proposed Regulations: The proposed regulations would amend 

§682.209(a)(3)(i) by adding new paragraph 

§682.209(a)(3)(i)(D), which specifies that borrowers with 

Stafford loans that have fixed interest rates of 6 percent, 

5.6 percent, or 6.8 percent enter repayment on those loans 
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the day after six months following the date the borrower

was no longer enrolled on at least a half-time basis. The 

proposed regulations would remove current §682.209(e)

through (g) and (j) from the regulations and redesignate 

the remaining paragraphs as paragraphs (e) through (g). 

Redesignated §682.209(e) (current paragraph (h)) would be 

amended to specify that a FFEL Consolidation loan borrower 

repaying under the IBR plan may make a scheduled monthly 

payment of less than the interest that accrues on the loan. 

Reasons: For consistency with the HEA, proposed new 

paragraph §682.209(a)(3)(i)(D) would clarify when borrowers 

with certain fixed interest rate Stafford loans enter 

repayment on those loans. The proposed change to newly 

redesignated §682.209(e) would clarify that the scheduled 

monthly payment amount for a Consolidation Loan borrower 

repaying under the income-based repayment plan may be less 

than the amount of accruing interest on the loan, which 

would otherwise be required under all other FFEL repayment 

plans. Current §682.209(e), (f), (g), and (j) of the 

regulations are removed because no new FFEL loans are being 

made.

§682.210 Deferment.
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Statute: Section 428(b)(1)(M) of the HEA authorizes 

deferments to FFEL Program borrowers when they are: (1) 

pursuing at least a half-time course of study at an 

eligible institution; (2) pursuing a course of study 

pursuant to a graduate fellowship program approved by the 

Secretary or rehabilitation training program for disabled 

individuals approved by the Secretary; (3) seeking but 

unable to find full-time employment; (4) serving on active 

duty or performing qualifying National Guard duty during a 

war or other military operation or national emergency; or 

(5) experiencing an economic hardship as defined in section 

435(o) of the HEA.

Current Regulations: Section 682.210(a) of the FFEL 

Program regulations contains a number of provisions that 

describe the terms of and the rules for granting deferments 

on FFEL Program loans. Section 682.210(a)(1) of the 

regulations reflect the prior statutory provision that 

provided for a six-month post-deferment grace period for 

borrowers with loans made before October 1, 1981. 

Paragraph (b) of this section lists the authorized 

deferments available to borrowers who received FFEL Program 

loans as new borrowers prior to July 1, 1993. Paragraphs 

(c) through (e) and (h) of §682.210 contain the eligibility 
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criteria that all FFEL borrowers must meet to qualify for 

an in-school, graduate fellowship, rehabilitation training

program, or unemployment deferment. Paragraphs (f) through 

(g) and (i) through (r) of §682.210 contain the eligibility 

criteria for deferments that are available to individuals 

who borrowed as new borrowers before July 1, 1993. 

Paragraphs (s) through (v) contain the eligibility criteria 

for deferments available to new borrowers on or after July 

1, 1993, military service deferments, and deferments 

available to PLUS loan borrowers on loans first disbursed 

on or after July 1, 2008. Section 682.210(t)(7) of the 

regulations permits the representative of a borrower who is 

serving in the military to request a military service 

deferment on the borrower’s behalf.

Proposed Regulations: The proposed regulations would amend 

§682.210(a)(4) of the regulations to provide, consistent 

with §682.210(t)(7), that a borrower’s representative may 

request a military service deferment on behalf of the 

borrower. In §682.210(b), the introductory language in 

paragraphs (b)(1) through (6) of §682.210 would be revised

to clearly identify the cohort of borrowers to which each 

paragraph applies. Throughout §682.210(b) cross-references 

would be added to the eligibility criteria described in 
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paragraphs (c) through (r) of §682.210 that are applicable 

to deferments available to these borrowers. The proposed 

regulations would also amend §682.210(s)(2) by removing the 

exception clause at the end of the provision, and would 

amend §682.210(u)(5) by replacing the words “military 

active” with “post-active.”

Reasons: The proposed regulations would amend 

§682.210(a)(4) to facilitate deferment requests by 

borrowers serving in the military by further clarifying 

that a representative of the borrower may apply for the 

deferment on the borrower’s behalf. 

The proposed changes in §682.210(b) would clearly 

identify the pre-July 1, 1993, cohorts of new borrowers to 

which the paragraph applies and would distinguish the 

deferments available to these borrowers from those 

available to new borrowers on or after July 1, 1993. 

Technical changes would be made in §682.210(b)(i) to 

correct a cross-reference, clarify that the deferment 

granted to borrowers in the specified cohort are subject to 

the procedural requirements described in §682.210(c), and 

remove obsolete language related to borrowers attending 

schools operated by the Federal government and to borrowers 
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who are not U.S. nationals attending schools that are not 

located in a State. 

The clause at the end of §682.210(s)(2) should be 

removed because no FFEL borrowers are required to take out 

a new Stafford or SLS loan to qualify for an in-school 

deferment. A technical change would be made in 

§682.210(u)(5) to clarify that the provision applies to 

borrowers seeking a post-active duty student deferment 

rather than a military service deferment.

§682.214 Compliance with equal credit opportunity 

requirements.

Statute: The Equal Credit Opportunity Act, 15 U.S.C. 1601 

et seq., is intended to protect applicants for consumer 

credit, including student loans, against discrimination.

Current Regulations: Current §682.214 provides that a 

lender making subsidized Federal Stafford Loans must comply 

with the requirements of the Equal Credit Opportunity Act 

regulations issued by the Board of Governors of the Federal 

Reserve System in Regulation B (12 CFR part 202). 

Proposed Regulations: The proposed regulations would 

remove §682.214 from the FFEL Program regulations.
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Reasons: The SAFRA Act ended the making of new FFEL loans 

and therefore these requirements should be eliminated from 

the FFEL regulations.

Subpart C -- Federal Payments of Interest and Special 

Allowance

§682.300 Payment of interest benefits on Stafford and 

Consolidation loans.

Statute: Section 428(a)(3) of the HEA provides that the 

Secretary will pay the interest on Stafford Loans on behalf 

of eligible borrowers during certain periods. Section 

428(a)(3)(A)(v) of the HEA specifies that a lender may not 

receive interest payments on a loan for a period any 

earlier than 10 days before the first disbursement of a 

loan if the loan is disbursed by check, three days before 

the first disbursement of the loan if the loan is disbursed 

by electronic funds transfer, or three days before the 

disbursement of the loan if the loan is disbursed through 

an escrow agent on behalf of the lender. Section 428(a)(7) 

of the HEA specifies that a lender may not charge interest 

or receive interest subsidies or special allowance payments 

on loans for which the disbursement checks have not been 

cashed or for which the electronic funds transfers have not 

been completed. 
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Current Regulations: Section 682.300(c) details the 

circumstances under which the Secretary will not make 

interest payments to a loan holder. Section 682.300(c)(3) 

and (4) of the regulations reflect the statutory 

limitations on interest billing on the first disbursement 

of a subsidized Stafford loan and on loans for which the 

check has not been cashed or the electronic funds transfer 

has not been completed.

Proposed Regulations: The proposed regulations would 

remove §682.300(c)(3) and (4) from the FFEL Program 

regulations. 

Reasons: As a result of the SAFRA Act, no new FFEL Program 

loans will be made, and thus these provisions should be 

eliminated from the regulations.

§682.301 Eligibility of borrowers for interest benefits on 

Stafford and Consolidation Loans.

Statute: Section 428(a)(2)(E) of the HEA specifies that in 

determining whether a student has the financial need to 

qualify for the interest subsidy on a FFEL Stafford loan, 

the expected family contribution of the student for the 

academic year for which financial need is being determined 

may be offset by Unsubsidized Stafford loans, parent PLUS 
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loans, and loans under any State-sponsored or private loan 

program that are made for that same academic year. 

Current Regulations: Section 682.301(c) of the regulations 

reflects §428(a)(2)(E) of the HEA.

Proposed Regulations: The proposed regulations would 

remove §682.301(c) from the regulations. 

Reasons: As a result of the SAFRA Act, no new FFEL Program 

loans will be made and, thus, this provision related to 

determining borrower eligibility for the interest subsidy 

on new loans should be eliminated from the FFEL 

regulations. 

§682.305 Procedures for payment of interest benefits and 

special allowance and collection of origination and loan 

fees.

Statute: Section 428(b)(1)(U)(iii)(I) of the HEA requires 

a lender that holds or originates more than $5,000,000 in 

FFEL loans during the lender’s fiscal year to submit to the 

Department an annual compliance audit conducted by a 

qualified, independent organization or individual. Section 

435(d)(2)(A)(vii) of the HEA specifies that an institution 

of higher education engaging in activities as an eligible 

lender must submit to the Secretary an annual compliance 
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audit conducted in accordance with the requirements of 

section 428(b)(1)(U)(iii)(I) of the HEA.

Current Regulations: Section 682.305(c) of the regulations 

reflects the statutory requirement that a FFEL lender 

originating or holding more than $5 million in FFEL Program 

loans during its fiscal year must submit an annual 

independent lender compliance audit. Section 

682.305(c)(1)(ii) specifies that, regardless of the dollar 

volume of loans originated or held, a school lender or an 

eligible lender serving as trustee for a school or schoolaffiliated organization for the purpose of originating FFEL 

loans must submit an independent compliance audit to the 

Department each year. Section 682.305(c)(2)(vi) and 

(c)(2)(vii) details the compliance review requirements for 

such a school or trustee lender audit.

Proposed Regulations: The proposed regulations would 

remove the reference in §682.305(c)(1)(i) to FFEL lenders 

originating loans.

Reasons: As a result of the SAFRA Act, no new loans are 

being made in the FFEL Program. Therefore, we are 

eliminating references to the origination of loans from 

this regulation. 
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Subpart D -- Administration of the Federal Family Education 

Loan Programs by a Guaranty Agency 

§682.401 Basic Program Agreement.

Statute: Sections 428(b) through (o) of the HEA contain 

the requirements that apply to a guaranty agency 

administering the FFEL Program under agreements with the 

Department. 

Current Regulations: Section 682.401 of the regulations 

reflects the statutory requirements that apply to a 

guaranty agency in the FFEL Program, including the 

following provisions: 

• Paragraphs (b)(1) and (b)(2) of the regulations 

require a guaranty agency to make loans available 

to borrowers up to the annual and aggregate loan 

limits specified in the HEA; 

• Paragraph (b)(3) specifies the duration of the 

borrower’s eligibility; 

• Paragraph (b)(5) describes the borrower’s 

responsibilities in the loan origination process; 

• Paragraph (b)(6) details the eligibility 

requirements for a school to participate in a 

guaranty agency’s program; 
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• Paragraphs (b)(8) and (b)(9) outline when a 

guaranty agency must guarantee loans for students 

attending out-of-state schools and for out-ofstate residents; and 

• Paragraphs (b)(12) and (b)(13) authorize a 

guaranty agency to charge lenders an 

administrative fee for Consolidation loans and 

refinanced loans. 

Section 682.401(c) of the regulations requires a 

guaranty agency to ensure that it, or an eligible lender 

described in section 435(d)(1)(D) of the HEA, serves as a 

lender-of-last-resort for students who are otherwise unable 

to secure Federal Stafford loans. Section 682.401(d)(4) 

authorizes the multi-year use of the Master Promissory Note 

(MPN). Section 682.401(e) specifies certain prohibited and 

allowed activities by guaranty agencies.

Proposed Regulations: The proposed regulations would 

remove from §682.401(b) paragraphs (1), (2), (3), (5), (6), 

(8), (9), (12), and (13) and renumber the remaining 

provisions. The proposed regulations would also remove 

§682.401(c), (d)(4), and (e) and redesignate current 

paragraphs (d), (f), and (g) as paragraphs (c), (d), and 
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(e), respectively. In newly redesignated §682.401(c) 

(currently §682.401(d)), paragraphs §682.401(c)(5) and (6) 

would be redesignated as (c)(4) and (5), respectively. 

Reasons: The regulatory provisions that we are proposing 

to remove from §682.401 address new FFEL loan originations, 

the process supporting these originations, and a guaranty 

agency’s efforts to secure new FFEL loan volume. These 

provisions should be eliminated from the regulations 

because no new FFEL loans are being made. The remaining 

provisions proposed for elimination relate to school 

eligibility to participate in a guaranty agency’s program 

and the authority of an agency to limit, suspend, or 

terminate a school from its program. For purposes of new 

loans, schools now participate only in the Direct Loan 

Program. Any future actions to limit, suspend, or 

terminate a school’s participation in the student loan 

programs will be undertaken by the Department under 34 CFR 

part 668, subpart G. Therefore, §682.401(b)(6) should also 

be eliminated from the FFEL regulations. 

§682.403 Federal advances for claim payments.

Statute: Sections 422(a) through (c) of the HEA authorize 

the Secretary to provide Federal advances to guaranty 

agencies for various purposes spelled out in the HEA.
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Current Regulations: Section 682.403 of the FFEL 

regulations reflects the Department’s authority to provide 

advances under certain circumstances to a State guaranty 

agency or to one or more private, nonprofit guaranty 

agencies in a State in certain circumstances and specifies 

the conditions under which the Department will provide such 

advances.

Proposed Regulations: The proposed regulations would 

remove §682.403 from the FFEL Program regulations.

Reasons: Congress has not appropriated funds for advances 

to guaranty agencies for many years, and such funding is 

unnecessary as a result of the end of new loan originations 

in the FFEL Program. The Department notes that most of the 

advances made to the guaranty agencies were returned to the 

Secretary in accordance with sections 422(d), (h), and (i) 

of the HEA.

§682.408 Loan disbursement through an escrow agent.

Statute: Section 428(i) of the HEA authorizes a guaranty 

agency or a FFEL lender to act as an escrow agent by 

entering into an agreement with any other eligible lender 

that is not an eligible institution or an agency or 

instrumentality of the State for the purpose of disbursing 

FFEL Program loans to students. 
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Current Regulations: Section 682.408 of the FFEL Program 

regulations contains provisions governing the use of an 

escrow agent to make Federal Stafford and PLUS loan 

disbursements, including the nature of the agreement that 

must be established between the lender and the escrow 

agent, the escrow agent’s authority, and the requirements 

for the transmittal and disbursement of the loan funds.

Proposed Regulations: The proposed regulations would 

remove §682.408 from the FFEL regulations. 

Reasons: As a result of the SAFRA Act, no new loan 

disbursements are being made in the FFEL Program. 

Therefore, this section is no longer needed and should be 

eliminated. 

§682.418 Prohibited uses of the assets of the Operating 

Fund during periods in which the Operating Fund contains 

transferred funds owed to the Federal Fund.

§682.420 Federal nonliquid assets.

§682.421 Funds transferred from the Federal Fund to the 

Operating Fund by a guaranty agency.

§682.422 Guaranty agency repayment of funds transferred 

from the Federal Fund. 

Statute: We have grouped our discussion of §§682.418, 

682.420, 682.421, and 682.422 together. Sections 422A and 
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422B of the HEA direct a guaranty agency to establish a

Federal Student Loan Reserve Fund (referred to as the 

Federal Fund) and an Operating Fund to manage the funds it 

receives as a guaranty agency.

Section 422A(e) of the HEA provides that the Federal 

Fund and any nonliquid assets (such as a building or 

equipment) developed or purchased by a guaranty agency in 

whole or in part with Federal reserve funds are the 

property of the United States. The Federal interest in 

nonliquid assets is prorated based on the percentage of the 

asset developed or purchased with Federal reserve funds. 

The Secretary is authorized to restrict or regulate the use 

of such assets to the extent necessary to protect the 

Federal share of the asset. 

Section 422A(f) of the HEA authorized a guaranty 

agency to transfer funds from its Federal Fund to establish 

the agency’s Operating Fund for a period not to exceed 

three years following the establishment of the Operating 

Fund. The law also allowed a limited number of agencies, 

with the approval of the Secretary, to transfer interest 

earned on the Federal Fund to their Operating Fund for a 

three-year period. The HEA specifies that the agencies had 

to repay the transferred funds no later than five years 
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from the date the Operating Fund was established, but also 

authorized the Secretary to waive that requirement for 

repayment of transferred amounts of earned interest for up 

to five additional years under certain circumstances. 

Section 422B(e)(3) of the HEA specifies that during 

any period in which a guaranty agency owes transferred 

funds back to the Federal Fund, the guaranty agency is 

limited to using the Operating Fund only for expenses 

related to the FFEL Program. 

Current Regulations: Section 682.418 of the FFEL 

regulations reflects the statutory limits on a guaranty 

agency’s use of the Operating Fund while it contains funds 

transferred from the agency’s Federal Fund. Section 

682.420 reflects section 422A(e) of the HEA and specifies 

the permitted uses of the Federal portion of a nonliquid 

asset and the treatment of any revenue derived from the 

asset. Section 682.421 reflects the statutory authority 

for transferring funds and earned interest from a guaranty 

agency’s Federal Fund to its Operating Fund and the 

requirements for requesting such a transfer. Section 

682.422 reflects the timelines and requirements in section 

422A(f) of the HEA for repayment of transferred funds back 

to the agency’s Federal Fund.
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Proposed Regulations: The proposed regulations would 

remove §§682.418, 682.420, 682.421, and 682.422 from the 

FFEL Program regulations.

Reasons: The Higher Education Amendments of 1998 required 

the financial restructuring of the guaranty agencies, 

including the requirement that each guaranty agency 

establish a Federal Fund and an Operating Fund. Under the 

terms of that law, the period during which an agency could 

transfer funds from the Federal Fund to its Operating Fund 

and the deadline for repayment of transferred funds back to 

the Federal Fund lapsed many years ago. Therefore, the 

regulations governing this process in §§682.418, 682.421, 

and 682.422 are obsolete and should be eliminated from the 

FFEL regulations. Similarly, the Department and the 

guaranty agencies have worked together to resolve each 

instance of nonliquid assets that were purchased or 

developed in whole or in part with Federal Reserve Funds 

and from which revenue could have resulted. Those guaranty 

agencies have reimbursed their Federal Funds for the value 

of the Federal interest. As a result, the requirements of 

§682.420 are also obsolete and should be eliminated. 

Subpart E -- Federal Guaranteed Student Loan Programs 

§§682.500-515 and Appendix C to the regulations
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Statute: Sections 423-425, 427, and 429-430 of the HEA 

authorize and establish the FISL Program, a Federal program 

of loan insurance for lenders that do not have reasonable 

access to State or private nonprofit guaranty agency loan 

programs. 

Current Regulations: Subpart E of 34 CFR part 682 contains 

the regulations that govern the FISL Program. Appendix C 

to part 682 includes certain required procedures for FISL 

lenders for curing due diligence and timely filing 

violations. 

Proposed Regulations: The proposed regulations would 

remove all of the regulations under subpart E (§§682.500 

through 682.515) and reserve the subpart. The proposed 

regulations would also remove Appendix C to part 682 from 

the regulations. 

Reasons: No new loans have been made in the FISL Program 

since 1983. There are fewer than 500 outstanding FISL 

loans, and many of those loans are in default and are held 

by the Department. Under these conditions, there is no 

need to retain the FISL Program regulations.

Subpart F -- Requirements, Standards, and Payments for 

Participating Schools
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§682.601 Rules for a school that makes or originates 

loans.

§682.602 Rules for a school or school-affiliated 

organization that makes or originates loans through an 

eligible lender trustee.

§682.608 Termination of a school’s lending eligibility.

Statute: We have grouped our discussion of §§682.601, 

682.602, and 682.608 together. Section 435(d)(1)(E) of the 

HEA authorizes an institution of higher education to 

participate as an eligible lender in the FFEL Program if it 

meets the requirements in section 435(d)(2) through (d)(5) 

of the HEA. Section 435(d)(2)(A)(ix) of the HEA limits 

this eligibility to those schools that met the requirements 

on February 7, 2006, and that made loans on or before April 

1, 2006. Section 435(d)(7) of the HEA limits the ability 

of an eligible lender to make or hold loans as a trustee 

for a school or a school-affiliated organization to 

eligible lenders serving in that capacity on September 29, 

2006, based on a contract that was in effect before that 

date. Section 435(d)(7) also applies most of the 

requirements of section 435(d)(2) of the HEA (which apply 

to school lenders) to trustee arrangements between an 

eligible lender and a school or a school-affiliated 
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organization for the purpose of originating loans. Section 

435(d)(3) of the HEA provides that a school will be 

disqualified as an eligible lender if the default rate on 

the loans made by the school for each of two consecutive 

years is 15 percent or more of the total amount of the 

loans made by the school lender. Section 435(d)(4) of the 

HEA authorizes the Department to waive a determination that 

a school is disqualified as an eligible lender if the 

school can reasonably be expected to improve loan 

collections within one year after the determination is made 

or the termination would represent a hardship to the 

school’s present or prospective students.

Current Regulations: Section 682.601 includes rules for 

schools that make or originate loans and reflects the 

requirements of section 435(d)(2) through (5) of the HEA. 

Section 682.602 reflects section 435(d)(7) of the HEA and 

provides the regulations for schools or school-affiliated 

organizations that make or originate loans through an 

eligible lender trustee. Section 682.608 details the 

procedures for terminating a school lender from the 

program. 
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Proposed Regulations: The proposed regulations would 

remove §§682.601, 682.602, and 682.608 from the FFEL 

Program regulations.

Reasons: The proposed regulations would remove §§682.601, 

682.602, and 682.608 from the FFEL regulations because they 

are no longer needed. There are 12 school lenders that 

hold FFEL Program loans previously made to their students,

and this number cannot increase. Under §435(d)(2)(A)(ix) 

of the HEA no new school lenders could begin to participate 

after February 8, 2006. Additionally, no new loans are 

authorized to be made under the FFEL program by any lender 

after June 30, 2010.

§682.604 Processing the borrower’s loan proceeds and 

counseling borrowers.

Statute: Sections 428(b)(1)(N), 428B(c), and 428G of the 

HEA detail the disbursement and school delivery 

requirements for FFEL Stafford and PLUS loan funds. 

Section 428G(a) of the HEA requires that loan proceeds be 

delivered to students in two or more installments over the 

course of the loan period unless: (1) the loan period is 

not more than one semester, one trimester, one quarter, or 

four months in duration, and (2) the school has a cohort 

default rate of less than 10 percent for each of the three 
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most recent fiscal years for which data is available. 

Section 428G(e) provides that loan proceeds may be 

delivered in a single installment if the loan is made to a 

student to cover the cost of attendance in a study abroad 

program offered by an eligible home institution that has a 

cohort default rate of less than five percent, as 

calculated under section 435(m) of the HEA. Under section 

428G(a)(1), no installment may exceed more than one-half of 

the loan. Section 428G(b) of the HEA provides that the 

first installment of a loan made to a new borrower who is 

entering the first year of a program of undergraduate study 

cannot be presented to the student for endorsement until 30 

days after the borrower begins a course of study unless the 

school’s cohort default rate is less than 10 percent for 

each of the three most recent fiscal years for which data 

is available. Section 428G(d)(2) of the HEA provides that 

the school must return a portion or all of an installment 

to the lender if the sum of a disbursement and the

student’s other financial aid exceeds the amount for which 

the student is eligible. Section 428(b)(1)(N) of the HEA 

requires that funds borrowed by the student must be 

disbursed by check or other means that is payable to the 

student and requires the endorsement or other certification 
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by the student. Section 428B(c) of the HEA requires that 

PLUS loan proceeds be disbursed in accordance with the 

requirements of section 428G of the HEA and be transmitted 

to the school through an electronic transfer of funds or in 

the form of a co-payable check to the school and the PLUS 

borrower. Section 485(b) of the HEA requires a school to 

conduct exit counseling with its FFEL Stafford and student 

PLUS borrowers, prior to the borrower’s completion of his 

or her course of study or at the time the borrower leaves 

the school, and details the information that must be 

included in the exit counseling. Section 485(l) of the HEA 

requires the school to conduct entrance counseling with its 

first-time Stafford and student PLUS borrowers, at or prior 

to the school’s delivery of the first disbursement of a 

loan. Section 485(l)(2) of the HEA details the information 

that must be included in the entrance counseling. 

Current Regulations: Consistent with sections

428(b)(1)(N), 428B(c), 428G, and 485(l)(2), the current 

FFEL Program regulations in §682.604 govern delivery of 

Stafford or PLUS loan proceeds to borrowers and counseling 

for borrowers. The school must confirm the student’s 

enrollment, secure the student’s endorsement or confirm the 

borrower’s authorization for funds to be delivered and 
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credited electronically. The current regulations also 

require the school to comply with the notification 

requirements of 34 CFR 668.165 prior to delivering loan 

proceeds to a borrower and authorize the school to deliver 

a late disbursement to a borrower under the conditions and 

using the procedures specified in 34 CFR 668.164(g). 

Current §682.604(f) requires a school to provide 

entrance counseling to its student borrowers during an inperson session, on a separate written form provided to the 

borrower that the borrower signs and returns to the school, 

or by online or interactive electronic means with the 

borrower acknowledging receipt of the information. The 

counseling must include the information specified in 

section 485(l) of the HEA. If the entrance counseling is 

conducted online or through interactive electronic means, 

the school must take reasonable steps to ensure that each 

student borrower receives the counseling materials and 

participates in and completes the counseling. The school 

must also maintain documentation that shows it provided the 

entrance counseling for each borrower. 

Current §682.604(g) requires a school to conduct exit 

counseling with its Stafford and PLUS loan student 

borrowers shortly before the borrower ceases at least half-
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time study at the school through an in-person session, by 

audiovisual presentation, or by interactive electronic 

means. Alternatively, the school may provide written 

counseling materials through the mail to borrowers who 

complete correspondence programs or study-abroad programs 

approved for credit by the school. For borrowers who 

withdraw from the school without the school’s prior 

knowledge or who fail to complete the required exit 

counseling session, the regulations require the school to 

ensure that exit counseling is provided to the student 

borrower through interactive means or by mailing written 

counseling materials to the borrower at the student’s last 

known address within 30 days of the school learning that 

the borrower withdrew from the school or failed to complete 

the exit counseling. Exit counseling must include the 

information specified in section 485(b) of the HEA,

regardless of the form in which it is provided.

Proposed Regulations: The proposed regulations would 

change the heading of §682.604 to “Required exit counseling 

for borrowers.” The proposed regulations would remove 

current paragraph (a), remove and reserve paragraph (b), 

and remove paragraphs (c) through (f) and (h). The 

proposed regulations would also redesignate current 
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paragraph (g) as paragraph (a). Newly redesignated 

§682.604(a)(1) would be amended to include another option 

for providing exit counseling to a student borrower who 

withdraws without the school’s knowledge or fails to 

complete required exit counseling. In addition to the 

existing options described above under “Current 

Regulations,” a school could also send written counseling 

materials electronically to an email address provided by 

the student borrower. Newly redesignated §682.604(a)(2) 

would be amended by replacing cross-references to current 

paragraph (a), which we are proposing to remove, with the 

substantive information contained in the cross-referenced 

provision that must be included in the counseling. A new 

paragraph (a)(5) would also be added to newly redesignated 

§682.604(a) to clarify that: (1) a school’s compliance 

with the Direct Loan Program exit counseling requirements 

in 34 CFR 685.304(b) satisfies the FFEL Program regulatory 

exit counseling requirements for student borrowers who 

received both FFEL and Direct Loan program loans for 

attendance at the school if the school provides the 

information required by redesignated §682.604(a)(2)(i) and 

(a)(2)(ii); and (2) a student’s completion of interactive 

exit counseling offered by the Secretary meets both the 
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FFEL exit counseling requirements and the Direct Loan exit 

counseling requirements in 34 CFR 685.304(b).

Reasons: The provisions in current §682.604 that govern 

school delivery of FFEL loan proceeds, required entrance 

counseling with new FFEL Program borrowers, and handling of 

excess loan proceeds that result from a borrower receiving 

an overaward are no longer needed in the regulations since 

no new loans are being made in the FFEL Program. The 

proposed change to redesignated §682.604(a)(1) would 

incorporate into the regulations existing guidance that is 

in the Department’s Federal Student Aid Handbook. 

Similarly, the addition of new paragraph (a)(5) would 

incorporate in the regulations guidance that the Department 

has previously provided in response to questions from 

schools about options for providing exit counseling to 

borrowers who have received loans through both the FFEL and 

Direct Loan programs for attendance at the same school. 

Because the FFEL and Direct Loan exit requirements are 

generally the same, the Department has previously permitted 

schools to provide a single exit counseling session to 

satisfy the exit counseling requirements for students who 

have received both FFEL and Direct Loan program loans for 

attendance at the school, provided that the counseling 
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includes separate loan information for the loans made under 

each program. The Department has also previously clarified 

that the optional interactive electronic exit counseling 

offered by the Secretary is designed to satisfy the exit 

counseling requirements for borrowers who received only 

Direct Loans or those who receive both Direct Loans and 

FFEL Program loans. 

Subpart G -- Limitation, Suspension, or Termination of 

Lender or Third-party Servicer Eligibility and 

Disqualification of Lenders and Schools

§682.702 Effect on participation.

§682.704 Emergency action.

§682.705 Suspension proceedings.

§682.706 Limitation or Termination Proceedings.

§682.709 Reimbursements, refunds, and offsets.

Statute: We have grouped our discussions of §§682.702, 

682.704, 682.705, 682.706, and 682.709 together. Section 

432(h)(1) of the HEA authorizes the Department to initiate 

and impose limitation, suspension, and termination actions 

against lenders participating in the FFEL Program if, after 

reasonable notice and opportunity for a hearing, the 

Department finds that the lender has substantially failed 

to: (1) exercise care and diligence in the making and 
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collecting of FFEL loans, (2) make reports or statements 

that support interest and special allowance payments to the 

lender, or (3) pay required loan insurance premiums to a 

guaranty agency, or the lender has engaged in fraudulent or 

misleading advertising or solicitations that resulted in 

loans being made to ineligible borrowers or made in 

violation of the certification requirements of section 428 

of the HEA. 

Current Regulations: Section 682.702 details the effects 

on a lender of the Department’s action to limit, suspend, 

or terminate the lender from participation in the FFEL 

Program. Section 682.704 states that the Department or a 

guaranty agency may take an emergency action against a 

lender to stop new loan guarantees being issued to the 

lender and to withhold payment of interest and special 

allowance payments to the lender under conditions 

identified in the regulations. Sections 682.705 and 

682.706 detail the procedures for a suspension action or a 

limitation or termination action against a lender or thirdparty servicer. Sections 682.705(c) and 682.706(d) of the 

regulations both provide that if an action to suspend, 

limit, or terminate a lender is based on a violation of 

section 435(d)(5) of the HEA, and the Secretary, a 
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designated Departmental official, or a hearing official 

finds that the lender provided prohibited payments or 

engaged in prohibited activities, the Secretary or official 

will apply a rebuttable presumption that the payments or 

activities were offered to secure applications for FFEL 

loans or to secure new FFEL loan volume. Section 682.709 

provides that as part of a limitation or termination 

proceeding, the Department may require a lender or thirdparty servicer to take reasonable corrective action, which 

may include payments to the Department or other designated 

parties in the form of a refund, reimbursement, or offset. 

Proposed Regulations: Section 682.702(b)(1) would be 

revised to remove the reference to a lender making loans 

and current paragraphs (b)(2) and (d) would be removed. 

Section 682.702(b)(3) would be redesignated as 

§682.702(b)(2). Section 682.704(a) would be amended to 

remove the reference to stopping the issuance of guarantee 

commitments by the Secretary and guaranty agencies. 

Section 682.705(a)(1) would be amended to remove the 

reference to new loans made by a lender and §682.705(c) 

would be removed. Section 682.706 would be amended to 

remove paragraph (d). Section 682.709 would be amended to 

add new paragraph (d) that provides for the application of 
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225

a rebuttable presumption related to future limitation and 

termination actions that may involve findings of violations 

of section 435(d)(5) of the HEA. 

Reasons: Since no new FFEL loans are being made, the 

regulations on possible sanctions on lenders for violations 

of FFEL Program requirements no longer should include 

limits on new loan volume or loan guarantee commitments. 

The application of a rebuttable presumption as part of a 

suspension proceeding or limitation or termination action 

against a lender will apply to existing loans and past 

lender activities during the period when the potential for 

new loan applicants and increased loan volume existed in 

the FFEL Program. As a result, references to the 

application of a rebuttable presumption would be removed 

from §§682.705 and 682.706 and incorporated as new 

paragraph (d) in §682.709 of the regulations. 

§682.713 Disqualification review of limitation, 

suspension, and termination actions taken by guaranty 

agencies against a school.

Statute: Section 432(h)(3) of the HEA requires the 

Department to review any limitation, suspension, or 

termination imposed on an eligible school by a guaranty 

agency under its authority in section 428(b)(1)(T) of the 
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HEA within 60 days of the guaranty agency’s notification 

that the agency has imposed such a sanction, unless the 

school waives its right to a review in writing. The 

Department must uphold the guaranty agency’s imposition of 

the sanction and notify the agency if the review is waived 

by the school. If the review is not waived, the Department 

must determine whether the agency’s sanction was imposed in 

accordance with the requirements of section 428(b)(1)(T) of 

the HEA. The Department’s review of the agency’s sanction 

of the school is limited to a review of the written record 

of the proceedings in which the agency imposed the 

sanction. 

Current Regulations: Section 682.713 of the regulations 

reflects the statutory requirements of section 432(h)(3) of 

the HEA.

Proposed Regulations: The proposed regulations would 

remove §682.713 from the FFEL regulations. 

Reasons: As a result of the SAFRA Act, all schools now 

participate in the Direct Loan Program and are subject to 

oversight by the Department. The Department is the only 

party that will take any limitation, suspension, or 

termination action taken against a school that participates 

in the Direct Loan Program.
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Subpart H -- Special Allowance Payments on Loans Made or 

Purchased With Proceeds of Tax-Exempt Obligations

§682.800 Prohibition against discrimination as a condition 

for receiving special allowance payments.

Statute: Section 438(e) of the HEA states that for the 

holder of loans made or purchased with funds from an 

Authority issuing tax-exempt obligations to receive special 

allowance payments, the Authority cannot engage in any 

pattern or practice which results in a denial of borrower 

access to FFEL Program loans on the basis of a borrower’s 

race, sex, color, religion, national origin, age, 

disability status, income, attendance at a particular 

eligible institution within the area served by the 

Authority, the length of the borrower’s educational 

program, or the borrower’s academic year in school.

Current Regulations: Section 682.800 of the regulations 

reflects the statutory requirements of section 428(e) of 

the HEA and provides that if an Authority makes or acquires 

loans made or guaranteed by an organization that 

discriminates on one or more of the grounds listed, the 

Department will consider the Authority to have adopted a 

discriminatory practice on that basis unless the Authority 
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provides for making loans to the excluded borrowers using 

other resources.

Proposed Regulations: The proposed regulations would 

remove subpart F of part 682, which consists of §682.800, 

from the FFEL regulations.

Reasons: As a result of the SAFRA Act, no new FFEL loans 

are being made with tax-exempt or other funds and this 

provision of the FFEL regulations is no longer needed.

Direct Loan Program Issues

Minimum Loan Period for Transfer Students in Non-Term and 

Certain Non-Standard Term Programs (34 CFR 685.301)

Statute: The HEA does not specify the minimum period for 

which a school may originate a Direct Loan for a student 

who transfers from one school into a non-term or nonstandard term program at another school.

Current Regulations: (Note: The regulatory citations in 

the discussion that follows refer to §685.301(a)(9) as set 

forth in the second Editorial Note at the end of §685.301 

in 34 CFR Part 685, revised as of July 1, 2012.) Under 

§685.301(a)(9)(i)(A), for a school that measures academic 

progress in credit hours and uses a semester, trimester, or 

quarter system, or that has terms substantially equal in 
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length, with no term less than nine weeks in length, the 

minimum period for which the school may originate a Direct 

Loan is a single academic term (e.g., a semester or 

quarter). 

Under current §685.301(a)(9)(i)(B), for a school that 

measures academic progress in clock hours, or measures 

academic progress in credit hours but does not use a 

semester, trimester, or quarter system and does not have 

terms that are substantially equal in length with no term 

less than nine weeks in length, the minimum period for 

which a school may originate a Direct Loan is the lesser 

of: (1) the length of the student’s program at the school 

(or the remaining portion of the program); or (2) the 

academic year as defined by the school in accordance with 

34 CFR 668.3. Current §685.301(a)(9)(ii) provides an 

exception to this requirement in the case of a student who 

transfers into a school with credit or clock hours from 

another school, and the loan period at the prior school 

overlaps the loan period at the new school. In this 

circumstance, the new school may originate a loan for the 

remaining balance of the program or the academic year that 

started at the prior school, in an amount up to the 

remaining balance of the borrower’s annual loan limit (as 
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determined in accordance with §685.203) after subtracting 

the amount borrowed for attendance at the prior school. 

After this initial loan period, the student becomes 

eligible for a new annual loan limit, with a new loan 

period corresponding to the lesser of the program (or the 

remaining portion of the program) or academic year at the 

new school. If the new school does not accept any transfer 

hours from the prior school, the exception does not apply 

and the transfer student is limited to receiving no more 

than the remaining balance under the applicable annual loan 

limit for the entire program or academic year at the new 

school, whichever is less.

The following example illustrates the application of 

the current regulation: A student who received $2,750 in a 

combination of Direct Subsidized and Direct Unsubsidized 

Loan funds (out of a maximum annual loan limit of $5,500) 

for a loan period from October 31, 2011, to June 8, 2012,

at School A transfers into a 1500-clock hour program at 

School B that begins on March 5, 2012. School B defines 

the academic year for the program as 900 clock hours and 26 

weeks of instructional time. 

If School B accepts credit or clock hours from School 

A, current §685.301(a)(9)(ii) allows School B to originate 
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an initial loan for a loan period that begins on March 5, 

2012, and ends on June 8, 2012, the ending date of the 

original loan period at School A. For this initial loan 

period, the student could receive a loan of up to $2,750, 

the difference between the $5,500 annual loan limit and the 

loan amount the student received for the overlapping loan 

period at School A. After the balance of the loan period 

from School A ends (i.e., starting on June 9, 2012), the 

student could receive a new loan for a new academic year 

or, if there is less than an academic year remaining in the 

program at School B, for the remainder of the program.

However, if School B does not accept any transfer 

hours from School A, in accordance with current 

§685.301(a)(9)(i)(B), the initial loan period for the 

program at School B would be March 5, 2012, to August 31, 

2012, corresponding to the period in which the student is 

expected to complete the first academic year of the program 

(900 clock hours and 26 weeks of instructional time). In 

addition, the student’s maximum loan eligibility for that 

loan period would be $2,750 (the difference between the 

annual loan limit of $5,500 and the $2,750 previously 

received for the overlapping loan period at School A).
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Proposed Regulations: The proposed regulations would 

redesignate current §685.301(a)(9)(ii) as 

§685.301(a)(10)(ii) and modify the exception to the minimum 

loan period requirement discussed under “Current 

Regulations” by removing the provision that limits the 

exception to situations where the school the student 

transfers to accepts credit or clock hours from the prior 

school. Under proposed §685.301(a)(10)(ii), if a student 

transfers into a school that measures academic progress in 

clock hours, or measures academic progress in credit hours 

but does not use a semester, trimester, or quarter system 

and does not have terms that are substantially equal in 

length with no term less than nine weeks in length, and the 

prior school originated a loan for a loan period that 

overlaps the loan period at the new school, the new school 

may originate a Direct Loan for the remaining portion of 

the program or academic year that began at the prior 

school, regardless of whether the new school accepts credit 

or clock hours from the prior school. For this loan 

period, the student would be eligible to receive up to the 

difference between the applicable annual loan limit and the 

loan amount the student received at the prior school for 

the overlapping loan period. Using the example presented 
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above under “Current Regulations,” the proposed regulations 

would allow School B in all cases to originate a Direct 

Loan of up to $2,750 for the loan period from March 5, 

2012, to June 8, 2012.

Reasons: The exception to the minimum loan period rule in 

current §685.301(a)(9)(ii) applies only if the new school 

accepts credit or clock hours from the school that the 

student previously attended. If the new school does not 

accept any transfer hours from the prior school, the 

exception does not apply and the transfer student is 

limited to receiving no more than the remaining balance 

under the applicable annual loan limit for the entire 

program or academic year at the new school, whichever is 

less. Thus, in some cases a student may be eligible to 

receive loans only up to one full annual loan limit for a 

combined period of enrollment at the two schools that is 

significantly longer than one academic year. The 

Department believes that the limited scope of the current 

regulatory exception to the minimum loan period rule 

provides a benefit to only a minority of transfer students 

(since many schools do not accept credit or clock hours 

from other schools) and may in some cases discourage 

students from transferring to different schools. 
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Therefore, the Department proposes to modify the current 

regulations by removing the provision that allows the 

exception to be applied only if the new school accepts 

credit or clock hours from the prior school. The nonFederal negotiators supported this proposal. 

Modification of the Direct Loan Program Regulations (34 CFR 

part 685)

Background: The current Direct Loan Program regulations in 

34 CFR Part 685 include numerous cross-references to the 

FFEL Program regulations in 34 CFR Part 682 for provisions 

that apply in both loan programs, such as the definitions 

of certain terms and the eligibility requirements for 

certain types of loan deferments. For certain provisions 

that apply in both the FFEL and Direct Loan programs, the 

Direct Loan Program regulations do not include language 

that is currently only in the corresponding FFEL Program 

regulations. The Direct Loan Program regulations also 

include a number of provisions that are outdated and do not 

reflect current procedures. To address these issues, the 

Department proposes to make technical changes to the Direct 

Loan Program regulations that would include:
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• Adding provisions to 34 CFR Part 685 that apply 

in the Direct Loan Program, but are currently 

included only in 34 CFR Part 682, so that it will 

no longer be necessary to refer to the FFEL 

Program regulations for certain terms and 

conditions of Direct Loan Program loans;

• Where necessary, modifying existing Direct Loan 

Program regulations for consistency with the 

corresponding FFEL Program regulations; and

• Removing obsolete provisions that do not reflect 

current procedures used in the Direct Loan 

Program.

The proposed changes to the Direct Loan Program 

regulations also include minor technical and conforming 

changes in various regulations to correct errors and 

present information more clearly. In addition, the 

proposed changes reflect: (1) the provisions of the SAFRA 

Act that eliminate new loans under the FFEL Program after 

June 30, 2010; (2) the provisions of the Consolidated 

Appropriations Act, 2012 (Pub. L. 112-74) that eliminate 

the grace period interest subsidy on Direct Subsidized 

Loans with a first disbursement date on or after July 1, 
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2012, and before July 1, 2014, and that eliminate Federal 

student aid eligibility for students without a certificate 

of graduation from a school providing secondary education 

or the recognized equivalent of such a certificate; (3) the 

provision of the Budget Control Act of 2011 (Pub. L. 112-

25) that eliminates Direct Subsidized Loan eligibility for 

graduate or professional students effective for loan 

periods beginning on or after July 1, 2012; and (4) the 

provision of the Higher Education Opportunity Act (Pub. L. 

110-315) that replaced the term “credit bureau” with the 

term “consumer reporting agency.” 

During the public negotiating sessions, the Department 

provided the non-Federal negotiators with a comprehensive 

overview of the proposed technical changes to the Direct 

Loan Program regulations and explained the rationale for 

each proposed technical change. Following the Department’s 

review and discussion of these proposed changes with the 

non-Federal negotiators, the negotiating committee agreed 

that the changes should be made. During the negotiations, 

the non-Federal negotiators also recommended additional 

minor technical changes throughout 34 CFR part 685 for 

clarity and consistency. The proposed regulations 
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incorporate many of these additional recommended technical 

changes. 

A complete summary of all of the proposed technical

changes to 34 CFR part 685 may be found in Appendix B at 

the end of this NPRM. A discussion of the more significant 

proposed technical changes follows.

Modification of Direct Loan Program Regulations: 

Definitions (34 CFR 685.102)

Statute: The definitions included in this section reflect 

definitions and the use of terms in various sections of the 

HEA, including provisions of parts B, D, and G. The 

Department has already placed some of these definitions in 

our regulations.

Current Regulations: Current §685.102(a)(3) refers to the 

FFEL Program regulations in 34 CFR part 682 for the 

definitions of the following terms: “Act,” “endorser,” 

“Federal Insured Student Loan (FISL) Program,” “Federal 

Stafford Loan Program,” “guaranty agency,” “holder,” “legal 

guardian,” “lender,” and “totally and permanently 

disabled.” Current §685.102(b) contains definitions of the 

following terms: “alternative originator,” “consortium,” 

“default,” “estimated financial assistance,” “Federal 

Direct Consolidation Loan Program,” “Federal Direct PLUS 
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Program,” “Federal Direct Stafford/Ford Loan Program,” 

“Federal Direct Unsubsidized Stafford/Ford Loan Program,” 

“grace period,” “interest rate,” “loan fee,” “Master 

Promissory Note,” “payment data,” “period of enrollment,” 

“satisfactory repayment arrangement,” “school origination 

option 1,” “school origination option 2,” “servicer,” and 

“standard origination.”

Proposed Regulations: The proposed regulations would 

remove §685.102(a)(3) and add all of its definitions, 

except “legal guardian,” to §685.102(b). The regulations 

would also add a definition of “substantial gainful 

activity” to §685.102(b). 

The definitions currently included only in the FFEL 

Program regulations at §682.200 would be added to 

§685.102(b) without any changes, except for the definitions 

of “holder” and “lender.” The regulations propose a new

definition of “holder” as the entity that owns a loan. The 

regulations would further specify that for a FFEL Program 

loan, the term “holder” refers to an eligible lender owning 

a FFEL Program loan, including a Federal or State agency or 

an organization or corporation acting on behalf of such an 

agency and acting as a conservator, liquidator, or receiver 

of an eligible lender. The proposed definition of “lender” 
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would state that this term has the meaning specified in 

section 435(d) of the HEA for purposes of the FFEL Program.

The proposed regulations would further amend 

§685.102(b) by removing the definitions of “alternative

originator,” “consortium,” “school origination option 1,” 

“school origination option 2,” “servicer,” and “standard 

origination,” and by revising the definitions of “Master 

Promissory Note (MPN)” and “satisfactory repayment 

arrangement.” 

The proposed regulations would add a new paragraph (4) 

to the definition of “Master Promissory Note (MPN)” stating 

that unless the Secretary determines otherwise, a school 

may use a single MPN as the basis for all loans borrowed by 

a student or parent for attendance at that school. 

Proposed new paragraph (4) would further provide that if a 

school is not authorized for multi-year use of the MPN, a 

borrower must sign a new MPN for each academic year. 

The definition of “satisfactory repayment arrangement” 

would be revised by adding a new paragraph (2)(ii) 

providing that, for the purpose of consolidating a 

defaulted loan into a Direct Consolidation Loan, a borrower 

may make satisfactory repayment arrangements by agreeing to 

repay the Direct Consolidation Loan under one of the 
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income-contingent repayment plans described in §685.209 or 

the income-based repayment plan described in §685.221. 

Additional proposed changes to the definition of 

“satisfactory repayment arrangement” are discussed earlier 

in the “Significant Proposed Regulations” section of this 

preamble under the heading “Satisfactory Repayment 

Arrangements.”

Reasons: The Department is proposing to expand §685.102(b) 

to include definitions that apply in the Direct Loan 

Program but that are currently included only in the FFEL 

Program regulations. Readers will not have to refer to 34 

CFR part 682 for these definitions. 

The definition of “legal guardian,” currently listed 

in §685.102(a)(3), would not be added to §685.102(b) 

because that term is not used in 34 CFR part 685. 

Although it is not currently listed in §685.102(a)(3), 

a definition of “substantial gainful activity” would also 

be added to §685.102(b). This term is defined in 

§682.200(b) of the FFEL Program regulations and also 

applies in the Direct Loan Program. 

The definitions of “holder” and “lender” would be 

modified to fit the Direct Loan Program. The current 

definition of “holder” in §682.200(b) applies only to 
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241

holders of FFEL Program loans. However, the term “holder” 

as used in the Direct Loan Program regulations also covers 

holders of other types of loans. The current definition of 

“lender” in §682.200(b) includes numerous provisions 

relevant for purposes of the FFEL Program that would not be 

included in the definition in §685.102(a)(3) because they

are not needed for the Direct Loan Program. 

The definitions of “alternative originator,” 

“consortium,” “school origination option 1,” “school 

origination option 2,” and “standard origination” would be 

removed from §685.102(b) because they describe options for 

school participation in the Direct Loan Program that have 

not been used by schools or reflect obsolete provisions 

that are no longer used in the administration of the 

program. 

The term “servicer” would be removed because the 

Department is proposing to replace all uses of the term 

“servicer” elsewhere in the Direct Loan Program regulations 

with “Secretary” to ensure consistent terminology 

throughout 34 CFR part 685.

The proposed change to the definition of “Master 

Promissory Note (MPN)” would simplify the regulations by 

incorporating a provision governing multi-year use of the 
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242

MPN that is in current §685.402(f) into the definition of 

MPN in §685.102(b). This provision would also be updated 

to reflect the Secretary’s policy on the authority of 

schools to use the MPN as a multi-year promissory note. 

Similarly, the proposed change to the definition of 

“satisfactory repayment arrangement” would provide greater 

clarity by incorporating in that definition, with minor 

technical changes, a provision for making satisfactory 

repayment arrangements that is currently in 

§685.220(d)(1)(ii)(D).

Modification of Direct Loan Program Regulations: Deferment

(34 CFR 685.204)

Statute: Section 455(f)(2) of the HEA provides that a 

Direct Loan borrower is eligible for a deferment during any 

period when the borrower is: enrolled at least half-time 

at an eligible institution; pursuing a course of study 

pursuant to a graduate fellowship program approved by the 

Secretary, or pursuant to a rehabilitation training program 

for individuals with disabilities approved by the 

Secretary; seeking and unable to find full-time employment 

(for not more than three years); serving on active duty or 

performing qualifying National Guard duty during a war or 

other military operation or national emergency, and for the 
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243

180-day period following the demobilization date for such 

service; or experiencing (for not more than three years) an 

economic hardship as determined in accordance with 

regulations prescribed under section 435(o) of the HEA. 

Section 455(f)(4) of the HEA provides that a Direct 

Loan borrower who has an outstanding balance on a FFEL 

Program loan made before July 1, 1993, at the time the 

borrower applies for a Direct Loan, is eligible for 

deferments under section 427(a)(2)(C) or section 

428(b)(1)(M) of the HEA as those sections were in effect on 

July 22, 1992. 

Section 428B(d)(1) of the HEA, which applies to Direct 

Loan borrowers through section 455(a)(1) of the HEA, 

provides that a parent Direct PLUS Loan borrower may defer 

repayment of a Direct PLUS Loan that was first disbursed on

or after July 1, 2008, during any period when the student 

on whose behalf the loan was obtained is enrolled at least 

half-time at an eligible school and during the six-month 

period after the student ceases to be enrolled at least 

half-time. 

Finally, section 493D of the HEA authorizes a 

deferment for the 13-month period following the conclusion 

of active duty service for a Direct Loan borrower who is a 
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244

member of the National Guard or other reserve component of 

the U.S. Armed Forces and who is called or ordered to 

active duty while he or she is enrolled at least half-time 

at an eligible school or within six months of having been 

enrolled at least half-time. 

Current Regulations: Current §685.204(a) provides that 

interest does not accrue on a subsidized Direct Loan during 

periods of deferment. 

Current §685.204(b) provides that a Direct Loan 

borrower is eligible to receive a deferment while he or she 

is--

• enrolled at least half-time at an eligible school 

(in-school deferment);

• pursuing a course of study in a graduate 

fellowship program approved by the Secretary 

(graduate fellowship deferment);

• pursuing an approved rehabilitation training 

program for individuals with disabilities that is 

approved by the Secretary (rehabilitation 

training program deferment);

• seeking but unable to find full-time employment 

(unemployment deferment); or 
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245

• experiencing an economic hardship (economic 

hardship deferment). 

This section also sets forth the eligibility 

requirements for a borrower to receive an in-school 

deferment. 

Current §685.204(b) does not specify the requirements 

for a graduate fellowship program or rehabilitation 

training program to be approved by the Secretary. For the 

graduate fellowship and rehabilitation training program 

deferments, the Direct Loan Program regulations rely on the 

eligibility criteria in §§682.210(d) and 682.210(e) of the 

FFEL Program regulations. For the unemployment and 

economic hardship deferments, current §685.204(b) refers to 

the FFEL Program regulations in §§682.210(h) and 

682.210(s)(6), respectively, for eligibility requirements 

and procedures. 

Current §685.204(c) states that a period of deferment 

based on unemployment or economic hardship may not exceed 

three years.

Current §685.204(d) states that a Direct Loan borrower 

who had an outstanding balance on a FFEL Program loan that 

was made prior to July 1, 1993, at the time the borrower 
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246

applied for his or her first Direct Loan Program loan is 

eligible for all of the deferments described in §685.204 

and the deferments described in §682.210(b), including 

deferments that apply to a “new borrower” as that term is 

defined in §682.210(b)(7). The latter deferments include 

deferments based on: having a temporary total disability,

caring for a disabled dependent, serving in the military,

serving in the United States Public Health Service, serving 

as a Peace Corps volunteer, performing volunteer service in 

the ACTION programs, performing volunteer service for a 

tax-exempt organization, serving in an internship or 

residency program, caring for a newborn or newly adopted 

child, serving in the National Oceanic and Atmospheric 

Administration Corps, teaching in a teacher-shortage area,

and being a full-time working mother of a preschool-age 

child. 

Current §§685.204(e) and 685.204(f) specify the 

eligibility requirements for a deferment based on activeduty military service (military service deferment) and the 

13-month post-active-duty deferment authorized by section 

493D of the HEA (post-active-duty student deferment), 

respectively. 
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Current §685.204(g) contains the eligibility criteria 

for deferments for Direct PLUS Loan borrowers with loans 

first disbursed on or after July 1, 2008, as authorized 

under section 428B(d)(1) of the HEA (in-school PLUS 

deferment). 

Current §685.204(h) specifies that a borrower whose 

loan is in default is not eligible for a deferment, unless 

the borrower has made payment arrangements satisfactory to 

the Secretary. 

Current §685.204(i) describes the Secretary’s 

procedures for granting deferments and the Secretary’s 

actions after a deferment has been granted. 

Proposed Regulations: The proposed regulations would 

significantly restructure current §685.204 without changing 

any of the deferment eligibility requirements.

Proposed §685.204(a) would include general deferment 

provisions. Specifically, proposed §685.204(a)(1) and 

(a)(2) would include, with only minor technical changes, 

the same provisions related to interest subsidy during 

deferment periods that are in current §685.204(a)(1) and 

(a)(2). In addition, proposed §685.204(a)(2) would be 

expanded to include the last sentence of 

§685.204(b)(1)(iii)(B)(2), which notes that the Secretary
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248

provides borrowers with information about the effect of 

interest capitalization at or before the time a deferment 

is granted. 

Proposed §685.204(a)(3) would contain the provision 

currently in §685.204(h) stating that a borrower whose loan 

is in default is not eligible for a deferment unless the 

borrower has made payment arrangements satisfactory to the 

Secretary. 

Proposed §685.204(a)(4) would contain, with minor 

technical changes, the procedures for requesting a 

deferment that are in current §§685.204(i)(1) and 

685.204(i)(5). 

Proposed §685.204(a)(5) would include, with minor 

technical changes, provisions currently in §§685.204(i)(2), 

685.204(i)(3), and 685.204(i)(4) describing the Secretary’s 

procedures for granting a deferment and the actions taken 

by the Secretary after granting a deferment. 

Reasons: To improve the clarity of the regulations, 

general deferment requirements that are currently in 

§§685.204(a), 685.204(b), 685.204(h), and §685.204(i) would 

be consolidated in §685.204(a), followed by individual 

sections, designated §§685.204(b) through (j), containing 

the requirements for the various deferment categories.
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Proposed Regulations: Proposed §685.204(b) would include 

the eligibility requirements and procedures for the inschool deferment that are in current §§685.204(b)(1)(i)(A) 

and 685.204(b)(1)(iii).

Reasons: To make the deferment regulations easier to read, 

the graduate fellowship, rehabilitation training program, 

unemployment, and economic hardship requirements that are 

in current §685.204(b) would be moved to separate 

paragraphs within §685.204, leaving only the in-school 

deferment requirements and procedures in §685.204(b).

Proposed Regulations: Proposed §685.204(c) would include 

the eligibility requirements for the in-school PLUS 

deferment that are in current §685.204(g).

Reasons: Because the in-school PLUS deferment requirements 

are similar to the requirements for a student’s in-school 

deferment, they would be moved to proposed §685.204(c), 

immediately following the in-school deferment requirements 

in proposed §685.204(b). 

Proposed Regulations: Proposed §685.204(d) would include 

the eligibility requirements for the graduate fellowship 

deferment that are in current §685.204(b)(1)(i)(B) and 

(b)(1)(ii), as well as the eligibility criteria for this 
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250

deferment that apply in the Direct Loan Program but that 

are currently only in the FFEL Program regulations.

Reasons: To make the Direct Loan Program regulations 

comprehensive and eliminate the need to refer to the FFEL 

Program regulations, all requirements for the graduate 

fellowship deferment would be placed in §685.204(d). 

Proposed Regulations: Proposed §685.204(e) would include 

the eligibility requirements for the rehabilitation 

training program deferment that are in current 

§685.204(b)(1)(i)(C), as well as the eligibility criteria

for this deferment that apply in the Direct Loan Program 

but that are currently only in the FFEL Program 

regulations.

Reasons: To make the Direct Loan Program regulations 

comprehensive and eliminate the need to refer to the FFEL 

Program regulations, all requirements for the 

rehabilitation training program deferment would be placed 

in §684.204(e).

Proposed Regulations: Proposed §685.204(f) would include 

the eligibility requirements for the unemployment deferment 

that are in current §685.204(b)(2), as well as the 

eligibility criteria and procedures for this deferment that 

apply in the Direct Loan Program but that are currently 
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251

only in the FFEL Program regulations. Proposed 

§685.204(f)(1) would include the provision, currently in 

§685.204(c), that an unemployment deferment may not exceed 

three years.

Reasons: To make the Direct Loan Program regulations 

comprehensive and eliminate the need to refer to the FFEL 

Program regulations, all requirements and procedures for 

the unemployment deferment would be included in 

§685.204(f). For greater clarity, proposed §685.204(f) 

would also incorporate the three-year limit that is 

currently in §685.204(c) so that this provision will be 

included with all of the other requirements of the 

deferments to which it applies instead of in a separate 

stand-alone section of the deferment regulations.

Proposed Regulations: Proposed §685.204(g) would include 

the eligibility requirements for the economic hardship 

deferment that are in current §685.204(b)(3), as well as 

the eligibility requirements and procedures for this 

deferment that apply in the Direct Loan Program but that 

are currently only in the FFEL Program regulations. 

Proposed §685.204(g)(1) would include the provision, 

currently in §685.204(c), that an economic hardship 

deferment may not exceed three years.
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Reasons: To make the Direct Loan Program regulations 

comprehensive and eliminate the need to refer to the FFEL 

Program regulations, all requirements and procedures for 

the economic hardship deferment would be placed in 

§685.204(g). For greater clarity, proposed §685.204(g) 

would incorporate the three-year limit that is currently in 

§685.204(c) so that this provision will be included with 

all of the other requirements of the deferments to which it 

applies instead of in a separate stand-alone section of the 

deferment regulations.

Proposed Regulations: Proposed §685.204(h) would include 

the eligibility requirements for the military service 

deferment that are in current §685.204(e).

Reasons: Because of the restructuring of §685.204, just

described, current §685.204(e) would be redesignated as 

§685.204(h).

Proposed Regulations: Proposed §685.204(i) would include 

the requirements for the post-active-duty student deferment 

that are in current §685.204(f).

Reasons: Because of the restructuring of §685.204, just

described, current §685.204(f) would be redesignated as 

§685.204(i).
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Proposed Regulations: Proposed §685.204(j) would contain 

the provisions currently in §685.204(d) stating that a 

Direct Loan program borrower who had an outstanding balance 

on a FFEL Program loan that was made prior to July 1, 1993, 

at the time the borrower applied for his or her first 

Direct Loan Program loan is eligible for all of the 

deferments described in §685.204 and the additional 

deferments described in §682.210(b) of the FFEL Program 

regulations, including deferments that apply to a “new 

borrower” as that term is defined in §682.210(b)(7).

Reasons: Because of the restructuring of §685.204, just 

described, current §685.204(d) would be redesignated as 

§685.204(j). Proposed §685.204(j) would continue to refer 

to the FFEL Program regulations, as under current 

§685.204(d). Because relatively few Direct Loan borrowers 

qualify for these deferments, the Department believes it is 

preferable to retain the current cross-reference to the 

FFEL Program regulations in this one case rather than to 

significantly expand §685.204 by adding eligibility 

criteria for deferment types that are not available to the 

great majority of Direct Loan borrowers. 

Modification of Direct Loan Program Regulations: 

Consolidation (34 CFR 685.220)
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Statute: Section 455(a)(1) of the HEA provides that unless 

otherwise specified under part D of the HEA, loans made 

under part D have the same terms, conditions, and benefits 

as loans made, and first disbursed before July 1, 2010, 

under sections 428, 428B, 428C, and 428H in part B of the 

HEA. 

Section 428C(a)(3)(B)(i)(I) provides that, in general, 

a borrower who receives a consolidation loan may not repay 

the consolidation loan with a subsequent consolidation loan 

unless the borrower receives eligible loans after the 

consolidation loan is made. However, under section 

428C(a)(3)(B)(i)(V) a borrower may consolidate a FFEL 

consolidation loan into the Direct Loan Program without 

including an additional loan if the borrower is 

consolidating for the purpose of--

• obtaining an income-contingent or income-based 

repayment plan, and the FFEL consolidation loan 

is in default or has been submitted to the 

guaranty agency for default aversion;

• using the Public Service Loan Forgiveness program 

under section 455(m) of the HEA; or 
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• using the no accrual of interest benefit for 

active duty service members under section 455(o) 

of the HEA.

Section 428C(a)(3)(A)(i) of the HEA provides that for 

the purpose of receiving a Federal Consolidation Loan, the 

term “eligible borrower” means a borrower who is not 

subject to a judgment secured through litigation with 

respect to a loan under title IV of the HEA or to an order 

for wage garnishment under section 488A of the HEA.

Current Regulations: Current §685.220(d)(1)(i) provides 

that to obtain a Direct Consolidation Loan, a borrower must 

either have an outstanding balance on a Direct Loan or have 

an outstanding balance on a FFEL Program loan. If a 

borrower does not have an outstanding balance on a Direct 

Loan but has an outstanding balance on a FFEL Program loan, 

current §685.220(d)(1)(i)(B) provides that the borrower 

must: 

(1) be unable to obtain a FFEL consolidation loan; 

(2) be unable to obtain a FFEL consolidation loan with 

income-sensitive repayment terms acceptable to the 

borrower; 
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(3) wish to use the Public Service Loan Forgiveness 

Program or the no accrual of interest benefit for active 

duty service members; 

(4) have a FFEL consolidation loan that is in default 

or that has been submitted to the guaranty agency for 

default aversion and want to consolidate the FFEL 

consolidation loan into the Direct Loan Program to obtain 

an income contingent repayment plan or an income-based 

repayment plan; or 

(5) have a FFEL consolidation loan and want to 

consolidate that loan into the Direct Loan Program for the 

purpose of using the Public Service Loan Forgiveness 

Program or the no accrual of interest benefit for active 

duty service members. 

Current §685.220(d)(1)(ii)(E) and (F) provide that at 

the time a borrower applies for a Direct Consolidation 

Loan, the borrower must not be subject to a judgment 

secured through litigation, unless the judgment has been 

vacated or to an order for wage garnishment under section 

488A of the HEA, unless the order has been lifted. 

Current §685.220(d)(1)(iii)(A) and (B) provide that on 

the loans being consolidated into a Direct Consolidation 

Loan, the borrower must not be subject to a judgment 
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secured through litigation, unless the judgment has been 

vacated, or subject to an order for wage garnishment under 

section 488A of the HEA, unless the order has been lifted. 

Current §685.220(d)(1)(iv) provides that to obtain a 

Direct Consolidation Loan, a borrower must certify that no 

other application to obtain a consolidation loan is pending 

with another lender. 

Current §685.220(d)(2) states that a borrower may not 

consolidate a Direct Consolidation Loan into a new Direct 

Consolidation Loan unless at least one additional eligible 

loan is included in the consolidation.

Current §685.220(f)(1)(iii) provides that if a 

borrower consolidates a FFEL or Direct Loan program loan 

that is in default, the Secretary limits collection charges 

to the borrower to no more than the costs authorized under 

the FFEL Program.

Proposed Regulations: The proposed regulations would 

remove the provisions in current §685.220(d)(1)(i)(B)(1), 

(2) and (3) that allow a borrower who has FFEL Program 

loans, but no Direct Loans, to obtain a Direct 

Consolidation Loan only if the borrower is unable to obtain 

a FFEL consolidation loan, is unable to obtain a FFEL 

consolidation loan with income-sensitive repayment terms 
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that are acceptable to the borrower, or if the borrower 

wishes to use the Public Service Loan Forgiveness Program 

or the no accrual of interest benefit for active duty 

service members. Current §685.220(d)(1)(i) would be 

revised to simply state that a borrower must consolidate at 

least one Direct Loan Program or FFEL Program loan to 

obtain a Direct Consolidation Loan. 

Reasons: Because the SAFRA Act ended the making of new 

FFEL Program loans (including FFEL Consolidation Loans) as 

of July 1, 2010, the current restrictions on consolidation 

into the Direct Loan Program for borrowers who have only 

FFEL Program loans are no longer relevant and can be 

removed from the regulations.

Proposed Regulations: The provisions in current 

§685.220(d)(1)(i)(B)(4) and (5) related to the conditions 

under which a borrower may consolidate a single FFEL 

Consolidation Loan into the Direct Loan Program would be 

moved to proposed revised §685.220(d)(2).

Reasons: For greater clarity, the proposed regulations 

would incorporate all regulations governing the 

consolidation of an existing consolidation loan in the same 

paragraph.
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Proposed Regulations: Current §685.220(d)(1)(ii) would be 

revised to incorporate the requirements currently in 

§685.220(d)(1)(iii) that, on the loans being consolidated,

a borrower must not be subject to a judgment secured 

through litigation or to an order for wage garnishment. 

Current §685.220(d)(1)(iii) would be removed.

Reasons: Some of the non-Federal negotiators noted that 

current §685.220(d)(1)(ii) is ambiguous and could be read 

to suggest that a borrower would be ineligible to receive a 

Direct Consolidation Loan if, at the time the borrower 

applies for a consolidation loan, the borrower is subject 

to a judgment or to an order for wage garnishment for any 

reason, even if it is unrelated to any of the loans that 

the borrower wishes to consolidate. These negotiators did 

not believe that this was the intent of the regulations. 

Rather, the negotiators believed that these limitations 

should apply only to judgments or orders for wage 

garnishment that are related to the loans being 

consolidated, and only at the time of consolidation. They 

noted that there are separate provisions in current 

§685.220(d)(1)(iii) stating that a borrower is not eligible 

for a Direct Consolidation Loan if the borrower is subject 

to a judgment secured through litigation or to an order for 
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wage garnishment under section 488A of the HEA “on the 

loans being consolidated,” unless the judgment has been 

vacated or the wage garnishment order has been lifted. The 

Department agreed with the non-Federal negotiators. 

Because proposed revised §685.220(d)(1)(ii) would 

incorporate the provisions that are currently in 

§685.220(d)(1)(iii), current §685.220(d)(1)(iii) would no 

longer be needed. 

Proposed Regulations: Current §685.220(d)(1)(iv), which 

requires a Direct Consolidation Loan applicant to certify 

that no other application to consolidate the borrower’s 

loans with another lender is pending, would be removed. 

Reasons: This regulation is no longer needed because, as a 

result of the SAFRA Act, FFEL Program lenders are no longer 

authorized to make consolidation loans, and a borrower 

cannot have more than one application for a Direct 

Consolidation Loan.

Proposed Regulations: Current §685.220(d)(2) states that a 

borrower may not consolidate a Direct Consolidation Loan 

into a new consolidation loan unless at least one 

additional loan is included in the consolidation. We would 

revise this section to provide that the same limitation 

applies to a borrower who wishes to consolidate a FFEL 
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Consolidation Loan into a new Direct Consolidation Loan. 

The section would also be expanded to incorporate 

provisions currently in §§685.220(d)(1)(i)(B)(4) and (5) 

that allow a borrower, under certain conditions, to 

consolidate a single FFEL consolidation loan into the 

Direct Loan Program without including an additional 

eligible loan in the consolidation. 

Reasons: For greater clarity, all rules governing the 

conditions under which an existing consolidation loan may 

be consolidated into a new Direct Consolidation Loan would 

be placed in the same section of the regulations.

Proposed Regulations: Current §685.220(f)(1)(iii) would be 

revised to provide that if a borrower consolidates a Direct 

Loan or FFEL program loan that is in default, the Secretary 

limits collection costs that may be charged to the borrower 

to a maximum of 18.5 percent of the outstanding principal 

and interest amount of the defaulted loan. For any other 

defaulted Federal education loan, all collection costs that 

are owed may be charged to the borrower. 

Reasons: Some of the non-Federal negotiators asked the 

Department to expand §685.220 of the Direct Loan 

regulations to include some of the disclosure provisions 

that apply under §682.205(i) of the FFEL Program 
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regulations to lenders that made FFEL Consolidation Loans. 

In particular, these negotiators asked the Department to 

include the provision in current §682.205(i)(7), which 

requires a lender to inform a borrower that applying for a 

consolidation loan does not obligate the borrower to accept 

it, and to explain the process and deadline by which the 

borrower may cancel the consolidation loan. The 

negotiators noted that these requirements are in the HEA 

and also apply in the Direct Loan Program. These nonFederal negotiators also recommended that the Department 

revise current §685.220(f)(1)(iii) to specify the actual 

maximum amount of collection costs that may be charged to a 

borrower who consolidates a defaulted Direct Loan or FFEL 

program loan. 

The Department declined to expand §685.220 to include 

the consolidation disclosure provisions that are in current 

§682.205(i) of the FFEL Program regulations. The FFEL 

Program regulations govern the activities of third parties; 

the Direct Loan Program regulations in this area would 

govern the Department. In general, the Secretary does not 

issue regulations to control the Department’s activities. 

Moreover, the disclosures discussed by the negotiators are 

already provided by the Department in the Direct 
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Consolidation Loan Application and Promissory Note that a 

borrower must complete before receiving a Direct 

Consolidation Loan. The promissory note explains that 

before the Department pays off the loans the borrower has 

selected for consolidation, the Department will send the 

borrower a notice that provides information about the loans 

and payoff amounts that have been verified, and tells the 

borrower the deadline by which the Department must be 

notified if the borrower wants to cancel the consolidation 

loan. The notice also specifies the timeframe during which

the borrower may cancel the entire consolidation loan or 

notify the Department that he or she does not want to 

consolidate one or more of the loans listed in the notice 

that is sent to the borrower. 

However, the Department agreed that for greater 

clarity, current §685.220(f)(1)(iii) should be revised to 

include the specific maximum amount of collection costs 

that may be charged to a borrower who consolidates a 

defaulted loan. The Department noted that the 18.5 percent 

limit on the amount of collection costs that may be charged 

to a borrower is also included on the Direct Consolidation 

Loan Application and Promissory Note. 
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Modification of Direct Loan Program Regulations: 

Counseling Borrowers (34 CFR 685.304)

Statute: Section 485(b) of the HEA requires that schools 

provide FFEL and Direct Loan program borrowers (except for 

consolidation loan borrowers and parent PLUS loan 

borrowers) with exit counseling prior to the borrower’s

completion of his or her course of study at the school or 

at the time of the borrower’s departure from a school. 

This section of the HEA also specifies the information that 

must be included in the exit counseling. Exit counseling 

may be provided through a school’s financial aid office or 

by other means. Section 485(b)(2)(C) allows for exit 

counseling to be provided electronically.

Current Regulations: For the Direct Loan Program, current 

§685.304(b)(1) requires a school to ensure that exit 

counseling is conducted with each borrower of a Direct 

Subsidized Loan or a Direct Unsubsidized Loan and with any 

graduate or professional student Direct PLUS Loan borrower 

shortly before the borrower ceases at least half-time study 

at the school. 

Current §685.304(b)(2) provides that exit counseling 

must be in person, by audiovisual presentation, or by 

interactive electronic means. 
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Current §685.304(b)(3) states that if a borrower 

withdraws from school without the school’s knowledge or 

fails to complete required exit counseling, exit counseling 

must be provided either through interactive electronic 

means or by mailing written counseling materials to the 

borrower at the borrower’s last known address. The school 

must provide the counseling materials to the borrower

within 30 days after the school learns that the student has 

withdrawn or failed to complete exit counseling. 

Current §685.304(b)(4) specifies the information that 

must be included in exit counseling. 

Proposed Regulations: We propose to revise current 

§685.304(b)(3) to include another option for providing exit 

counseling to a student borrower who withdraws without the 

school’s knowledge or fails to complete required exit 

counseling. Under proposed §685.304(b)(3), a school could 

send written counseling materials to an e-mail address 

provided by the student borrower. 

The proposed regulations would also add a new 

§685.304(b)(8)(i). For students who have received both 

FFEL and Direct Loan program loans for attendance at a 

school, the school’s compliance with the Direct Loan 

Program exit counseling requirements in §685.304(b) 
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satisfies the FFEL Program exit counseling requirements in 

proposed redesignated §682.604(a), if the school ensures 

that the exit counseling includes the information related 

to a borrower’s FFEL indebtedness as described in proposed 

§682.604(a)(2)(i) and (ii). 

Finally, proposed §685.304(b)(8)(ii) would state that 

a student’s completion of electronic interactive exit 

counseling offered by the Secretary satisfies the Direct 

Loan exit counseling requirements in §685.304(b) and, for 

students who have also received FFEL Program loans for 

attendance at the school, the FFEL Program exit counseling 

requirements in proposed §682.604(a). 

Reasons: The proposed revision of §685.304(b)(3) reflects

the Department’s existing guidance to schools included in 

the Department’s Federal Student Aid Handbook. Similarly, 

proposed new §685.304(b)(8)(i) and (ii) would incorporate

guidance that the Department has previously provided in 

response to questions from schools about options for 

providing exit counseling to borrowers who have received 

loans through both the FFEL and Direct Loan programs for 

attendance at the same school. Because the Direct Loan and 

FFEL exit counseling requirements are generally the same, 

the Department has previously allowed schools to use a 
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single exit counseling session to satisfy the exit 

counseling requirements for these students, provided that 

the counseling includes the separate loan debt information 

for the loans made under each program. The Department has 

also previously advised schools that the optional 

interactive electronic exit counseling offered by the 

Secretary satisfies the exit counseling requirements for 

borrowers who have received only Direct Loans or who have 

received both Direct Loans and FFEL Program loans. 

Regulatory Impact Analysis

Under Executive Order 12866, the Secretary must 

determine whether this regulatory action is “significant” 

and, therefore, subject to the requirements of the 

Executive order and subject to review by the Office of 

Management and Budget (OMB). Section 3(f) of Executive 

Order 12866 defines a “significant regulatory action” as an 

action likely to result in a rule that may--

(1) Have an annual effect on the economy of $100 

million or more, or adversely affect a sector of the 

economy, productivity, competition, jobs, the environment, 

public health or safety, or State, local or Tribal 

governments or communities in a material way (also referred 

to as an “economically significant” rule);
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(2) Create serious inconsistency or otherwise 

interfere with an action taken or planned by another 

agency;

(3) Materially alter the budgetary impacts of 

entitlement grants, user fees, or loan programs or the 

rights and obligations of recipients thereof; or

(4) Raise novel legal or policy issues arising out of 

legal mandates, the President's priorities, or the 

principles stated in the Executive order.

This proposed regulatory action raises novel policy 

issues relating to the Department’s efforts in support of 

the President’s initiative to increase college attendance 

and completion. Therefore, this proposed action is subject 

to review by OMB under section 3(f) of Executive Order 

12866. 

We have also reviewed these regulations under 

Executive Order 13563, which supplements and explicitly 

reaffirms the principles, structures, and definitions 

governing regulatory review established in Executive Order 

12866. To the extent permitted by law, Executive Order 

13563 requires that an agency--

(1) Propose or adopt regulations only upon a reasoned 

determination that their benefits justify their costs 
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(recognizing that some benefits and costs are difficult to 

quantify);

(2) Tailor its regulations to impose the least burden 

on society, consistent with obtaining regulatory objectives 

and taking into account--among other things and to the 

extent practicable--the costs of cumulative regulations;

(3) In choosing among alternative regulatory 

approaches, select those approaches that maximize net 

benefits (including potential economic, environmental, 

public health and safety, and other advantages; 

distributive impacts; and equity);

(4) To the extent feasible, specify performance 

objectives, rather than the behavior or manner of 

compliance a regulated entity must adopt; and

(5) Identify and assess available alternatives to 

direct regulation, including economic incentives--such as 

user fees or marketable permits--to encourage the desired 

behavior, or provide information that enables the public to 

make choices.

Executive Order 13563 also requires an agency “to use 

the best available techniques to quantify anticipated 

present and future benefits and costs as accurately as 

possible.” The Office of Information and Regulatory 
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Affairs of OMB has emphasized that these techniques may 

include “identifying changing future compliance costs that 

might result from technological innovation or anticipated 

behavioral changes.”

We are issuing these regulations only on a reasoned 

determination that their benefits justify their costs. In 

choosing among alternative regulatory approaches, we 

selected those approaches that maximize net benefits. 

Based on the analysis that follows, the Department believes 

that these regulations are consistent with the principles 

in Executive Order 13563.

We also have determined that this regulatory action 

would not unduly interfere with State, local, and tribal 

governments in the exercise of their governmental 

functions.

In accordance with both Executive orders, the 

Department has assessed the potential costs and benefits of 

this regulatory action. The potential costs associated 

with this regulatory action are those resulting from 

statutory requirements and those we have determined as 

necessary for administering the Department’s programs and 

activities.
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Elsewhere in this section under the heading Paperwork 

Reduction Act of 1995, we identify and explain burdens 

specifically associated with information collection 

requirements.

In this regulatory impact analysis we discuss the need 

for regulatory action, the potential costs and benefits, 

net budget impacts, assumptions, limitations, and data 

sources, as well as regulatory alternatives we considered. 

The Need for Regulatory Action

The Department is responsible for administering the 

Federal student loan programs authorized by title IV of the 

HEA. Federal student loans are a crucial element in 

providing important opportunities for Americans seeking to 

expand their skills and earn postsecondary degrees and 

certificates. 

With these proposed regulations, the Department seeks 

to clarify the rehabilitation process for borrowers with 

defaulted student loans. The Department is addressing

concerns raised by advocates and borrowers about that 

rehabilitation process. The Department wants to ensure 

that borrowers who wish to rehabilitate their defaulted 

loans are properly informed about their rights to 
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“reasonable and affordable” payments and how a reasonable 

and affordable payment is determined.

In addition to the changes made to improve program 

administration, statutory revisions or administration 

priorities sometimes require the Department to revise its 

policies and regulations. 

In the case of these regulations, the passage of the 

SAFRA Act ended the origination of new loans under the FFEL 

Program. Now, new Federal subsidized and unsubsidized 

student loans and PLUS loans are made through the Direct 

Loan Program. The Department therefore also seeks to 

remove regulations governing the FFEL Program that are no 

longer needed and to make the Direct Loan Program 

regulations comprehensive. Finally, the Department seeks 

to add consistency and clarity to all regulations governing 

student loans.

Beyond those details, Executive Order 12866 emphasizes 

that “Federal agencies should promulgate only such 

regulations as are required by law, are necessary to 

interpret the law, or are made necessary by compelling 

public need, such as material failures of private markets 

to protect or improve the health and safety of the public, 

the environment, or the well-being of the American people.” 
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In this case, there is indeed a compelling public need for 

regulation. 

The Secretary recognizes the growth in the number of 

students enrolled in college and the resulting increased 

need for student loans. The Secretary’s goal in regulating 

is to promote viable Federal student loan programs by 

ensuring that the regulations that govern the origination 

and servicing of student loans are clear and concise so 

that borrowers can make informed decisions about borrowing 

and repayment.

Current regulations allow a borrower with defaulted 

student loans to rehabilitate those loans by making 9 full, 

on-time payments (within 20 days of the due date) over a 

10-month period in an amount agreed to by the borrower and 

the loan holder (the Department for a defaulted Direct 

Loan, a guaranty agency or the Department for a defaulted 

FFEL Program loan). These regulations provide that the 

payment amount required by the guaranty agency and the 

Secretary must be reasonable and affordable. However, 

there have been complaints that guaranty agencies, the 

Department, and the debt collection agencies that collect 

Federal student loans require payments that exceed this 

standard. 
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During the negotiated rulemaking sessions, non-Federal 

negotiators representing consumer advocacy groups 

expressed concern that the payments requested by the 

collection agencies often are not reasonable and affordable 

and that borrowers are not informed of their right to 

object to these requested payment amounts. They stated 

that, as a result, many borrowers attempt to rehabilitate 

their loans but are unable to do so because the payments 

are too high or because they are discouraged by the 

process. Similar complaints have been made regularly to 

the Department at public hearings and other venues. 

Under current practices, many collection agencies 

first try to get the defaulted borrower to pay the total 

amount of the defaulted debt because by law, the full 

amount of the loan is due and payable at the time of 

default. If a borrower is unable to pay the full amount, 

collection agencies then attempt to negotiate a payment 

with the borrower that is as close to the 10-year standard 

payment amount as the borrower can afford to pay. These 

amounts are generally based on the borrower’s income and 

expenses. This approach assumes that borrowers who pay an 

amount comparable to the 10-year standard will have an 

easier transition into regular payments after 
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rehabilitating their loans. Generally, for collection 

agencies to receive a commission on successful loan 

rehabilitation, the total amount collected must be 

equivalent to a certain percentage of the total loan amount 

owed. 

While defaulters represent a small portion of the 

total borrower population, the number of defaults has been 

on the rise.1 The Department has sought to reduce the 

number of defaulters by improving borrowers’ payment 

management options through the implementation of the 

President’s Pay As You Earn initiative and other changes to 

the Federal student loan programs. The changes to the loan 

rehabilitation process included in this NPRM are another 

part of this overall effort. Even with these efforts, the 

Department cannot gauge whether or not the default rate 

will increase, decrease, or remain steady. 

Some defaulted borrowers who may be interested in 

rehabilitating their defaulted loans are also subject to 

AWG. Those borrowers may be discouraged from trying to 

 

1 U.S. Department of Education, First Official Three-Year Student Loan 

Default Rates published, September 28, 2012, www.ed.gov/news/pressreleases/first-official-three-year-student-loan-default-ratespublished.
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276

fully rehabilitate their loans because they fear that they 

will not be able to make loan payments in addition to the 

amount garnished. Through the proposed regulations, the 

Department aims to add clarity to the AWG process so that 

affected borrowers will understand what is required for AWG 

to be suspended. 

While defaulted borrowers are subject to immediate 

collection of their total loan debt, the Secretary believes 

that providing them with an improved process to 

rehabilitate the defaulted loan is in the best interests of 

the taxpayers and the borrower. Defaulted borrowers 

continue to accrue interest on the debt and are charged 

collection costs. In addition, the default harms their 

credit scores, and the borrowers may have trouble 

purchasing homes or obtaining auto loans or other types of 

consumer credit. By improving the opportunities for 

defaulted borrowers to rehabilitate their student loans, 

the Department will not only improve its chances for full 

collection of the debt but also help some defaulted 

borrowers return to full economic participation. 

The Secretary is also proposing other changes to the 

FFEL and Direct Loan program regulations. The elimination 

of new loan originations in the FFEL Program means that 
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many of the current FFEL Program regulations are no longer 

necessary. In addition, this change presented the 

Secretary with an opportunity to improve consistency across 

the FFEL, Direct and Perkins loan programs. Currently the 

different Title IV loan programs are regulated and 

administered differently in areas where they could be 

consistent. The Secretary is proposing to eliminate these 

differences where appropriate. 

The Secretary proposes to revise the Direct Loan 

regulations to incorporate provisions from the FFEL 

regulations that are currently only cross-referenced in the 

Direct Loan regulations. By incorporating the substantive 

provisions in the Direct Loan regulations instead of simply 

cross-referencing to the FFEL regulations, the Direct Loan 

regulations will be comprehensive. This step is 

appropriate since the Direct Loan Program is now the 

predominant Federal student loan program.

By proposing revisions to the regulations, the 

Secretary aims to provide clarity and transparency to the 

administration of the loans programs. Over the years there 

have been consistent concerns that borrowers are unable to 

properly manage their Federal student loans because of 

confusion over their rights and options. This is 
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particularly true for borrowers who are delinquent on their 

loans and borrowers who experience personal hardship. The 

revised regulations would clarify the rules for borrowers 

and provide them with a better understanding of their 

rights and responsibilities. Also, the revised rules would 

provide better and clearer guidance to lenders and guaranty 

agencies about their roles and responsibilities in 

servicing Federal student loans. 

Discussion of Costs, Benefits and Transfers

Adding clarity to the loan rehabilitation process 

offers many benefits. The Department believes that 

rehabilitation offers benefits for students, the 

Department, and the Nation. Defaulted borrowers may be 

more willing to complete the rehabilitation process. 

Defaulted borrowers may see significant improvements in 

their credit scores and purchasing power. As these 

borrowers become bigger participants in the economy, an 

improved rehabilitation process should support positive 

growth. 

Improved loan rehabilitation rates will also allow the 

Department and collection agencies to concentrate their 

collection efforts on non-paying borrowers. In general, 

the more student loan accounts that are active and current, 
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the better for the programs. The Department believes these 

proposed regulatory changes will help ensure that the 

Federal student loan programs remain strong and support 

maximum access to higher education for American students.

Over the past decade, the Department has steadily 

increased the number of loans it rehabilitates annually. 

As Chart 1 shows, in FY 2001 the Department and guaranty 

agencies rehabilitated just over $223 million in defaulted 

Federal student loan debt. By FY 2011, this number had 

jumped to $5 billion. The Department and guaranty agencies 

also recovered $12 billion worth of defaulted loan debt in 

FY 2011 compared to $5 billion in FY 2001. Part of the 

increase in loan rehabilitation can be linked to growing 

enrollment, rising tuition, and two economic slowdowns, 

which led to more borrowing. However, the higher 

percentage of total collections that comes from loan 

rehabilitation shows that the Department and guaranty 

agencies are working with borrowers to help them take 

advantage of the opportunity for loan rehabilitation. 

Chart 1: Rehabilitations as a Percent of Defaulted Loan 

Debt Collections, FY 2001, 2005, and 2008-2011 ($mns)

2001 2005 2008 2009 2010 2011

Total Rehabilitations 224 1,606 3,722 3,504 4,332 5,165 
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Total Collections 5,124 5,809 8,580 8,820 10,214 12,006 

Rehabilitations as % 

of Collections 4.4% 27.6% 43.4% 39.7% 42.4% 43.0%

Even though the proposed regulations could possibly 

result in lower payment amounts for borrowers while they 

are rehabilitating their defaulted loans, the borrowers 

would still be responsible for ultimately paying their 

entire debt. Furthermore, even if rehabilitation payments 

are lowered on average across the board, the Department 

believes that the overall benefits of having more borrowers 

current in their debt payments will outweigh any short-term 

cost of reduced payments.

Overall, the true monetary effect of the proposed 

regulations would depend heavily on various factors. The 

Department is currently implementing changes to its income 

driven repayment options and expects these changes to help 

slow down a rising default rate by offering improved 

payment management options to borrowers. Also, as the 

economy continues to improve, the default rate may drop as 

more borrowers find employment. 

The proposed regulations would provide many additional 

benefits to borrowers and promote a more efficient and 

transparent Federal student loan program. 
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By expanding from 90 to 120 days the window during 

which a borrower may qualify for a closed school loan 

discharge after withdrawing from a school that eventually 

closes, the number of borrowers who qualify for the 

discharge may increase. However, school closures are a 

relatively rare occurrence. In 2007, 43 Title IV 

participating schools closed. This number dropped to 30 in 

2008 and to 18 in 2011. Unlike two decades ago, when 

fraudulent institutions would quickly shut their doors 

without any notification to students or regulators, most 

closures these days are due to a loss of accreditation. In 

most cases, students who attend schools that lose 

accreditation are given ample warning about a possible 

closure and can make educated decisions about continuing

their programs beforehand. While the extended window may 

mean that more borrowers qualify under the proposed closed 

school regulations, we do not believe it will present a 

significant cost. In 2011, 214 borrowers received closed 

school loan discharges for loans valued at approximately 

$870,000. This was an increase from the 2010 numbers of 50 

borrowers with a loan value of $467,000 but still 

represents a very small portion of the student loan 

portfolio.
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The proposed revisions to the forbearance process in 

the different loan programs will offer many benefits to 

borrowers. By expanding the circumstances in which lenders 

may grant administrative forbearance, borrowers who had 

difficulty making payments but who are trying to rectify 

the situation, will receive relief. The regulations would 

give the Department and FFEL lenders more flexibility in 

dealing with defaulted borrowers. These revisions would 

also clarify the eligibility for forbearance and promote a 

more transparent loan program.

The proposed revisions to §685.301 would offer 

benefits for certain borrowers in non-traditional programs. 

Under the proposed regulations, students who transfer from 

one school into non-term or certain standard non-term 

programs at a different school during the middle of an 

academic year would initially be eligible for a Direct Loan 

to cover the remainder of the academic year that began at 

the prior school (up to their remaining eligibility under 

the annual loan limits), regardless of whether the new 

school accepts credits from the prior school. The current 

regulation only allows this result if the new school 

accepts transfer credits from the prior school. 
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Eligible borrowers would also be able to receive an 

initial loan at the new school for an amount up to the 

difference between the annual loan limit and the amount 

received at the prior school, with a loan period covering 

the remainder of the academic year that began at the prior 

school, followed by a second loan for up to the full annual 

loan limit for the next academic year at the new school. 

Under the current regulations, if the new school does not 

accept transfer credits from the prior school, the initial 

loan at the new school must be for the lesser of a full 

academic year or for the remainder of the program at the 

new school. The maximum loan amount the student may 

receive for that entire period is the difference between 

the annual loan limit and the loan amount received at the 

prior school. While the ability of these transfer students 

to receive additional loan funds will result in a cost to 

the government, the Department believes it will be minimal 

since these borrowers will repay those loans. 

Borrowers would see other benefits under the proposed 

regulations as well. The proposed revisions to the 

Administrative Wage Garnishment (AWG) hearing process would 

ensure that borrowers have a better understanding of their 

rights and responsibilities in that process and ensure that 
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borrowers are treated consistently by guaranty agencies and 

the Department.

Overall, the proposed regulations would strengthen the 

Federal student loan programs and help support the American 

postsecondary education system. As more and more students 

now depend on student loans to pay for their college 

education, it is essential that borrowers fully understand 

the rights and responsibilities that are a part of their 

student loan obligations. It is also essential that the 

student loan programs operate as efficiently as possible. 

These revisions are part of the Department’s commitment to 

running efficient loan programs that support more than ten

million students per year. This number will grow as the 

country pursues the President’s 2020 goal of leading the 

world in college degree attainment. Keeping a strong 

higher education system will be essential to America 

maintaining its economic advantage in the world. 

Net Budget Impacts

The regulations are estimated to have a net budget 

impact of $2.8 to $3.4 million over ten years from 2013-

2022 driven by the expansion of the time period for 

eligibility for a closed school discharge. Consistent with 

the requirements of the Credit Reform Act of 1990, budget 
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cost estimates for the student loan programs reflect the 

estimated net present value of all future nonadministrative Federal costs associated with a cohort of 

loans. A cohort reflects all loans originated in a given 

fiscal year.

In general, these estimates were developed using the 

Office of Management and Budget’s (OMB’s) credit subsidy 

calculator. The calculator takes projected future cash 

flows from the Department’s student loan cost estimation 

model and produces discounted subsidy rates reflecting the 

net present value of all future Federal costs associated 

with awards made in a given fiscal year. Values are 

calculated using a “basket of zeros” methodology under 

which each cash flow is discounted using the interest rate 

of a zero-coupon Treasury bond with the same maturity as 

that cash flow. To ensure comparability across programs, 

this methodology is incorporated into the calculator and 

used Government wide to develop estimates of the Federal 

cost of credit programs. Accordingly, the Department 

believes it is the appropriate methodology to use in 

developing estimates for these regulations. That said, in 

developing the following Accounting Statement, the 

Department consulted with OMB on how to integrate our 
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discounting methodology with the discounting methodology 

traditionally used in developing regulatory impact 

analyses.

Absent evidence of the effect of these regulations on 

student behavior, budget cost estimates were based on 

behavior as reflected in various Department data sets and 

longitudinal surveys listed under Assumptions, Limitations, 

and Data Sources. Program cost estimates were generated by 

running projected cash flows related to each provision 

through the Department’s student loan cost estimation 

model. Student loan cost estimates are developed across 

five risk categories: students at less than four-year forprofit institutions, students at less than four-year public 

and non-profit institutions, freshmen/sophomores at fouryear institutions, juniors/seniors at four-year 

institutions, and graduate students. Risk categories have 

separate assumptions based on the historical pattern of 

behavior--for example, the likelihood of default or the 

likelihood to use statutory deferment or discharge 

benefits--of borrowers in each category.

Closed School Discharge

Under current regulations §§674.33, 682.404, and 

685.214, student borrowers may qualify for a loan discharge 
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if they are unable to complete a program of study because a 

school closes or if they withdraw no more than 90 days 

before school closure. The Secretary could extend the 90-

day window based on exceptional circumstances. The 

proposed regulations would extend the 90-day period to a 

120-day period and provide examples of what qualifies as an 

exceptional circumstance. We estimate these changes to 

have a cost of approximately $3.1 million over 10 years as 

the pool of borrowers eligible for discharge will increase. 

The costs are limited by the small number of closed 

schools, the availability of teach-outs, and the assignment 

of recoveries to the Department. Chart 2 shows the 128 

closed schools since 2007 by year and institutional 

category.

Chart 2: Annual School Closures by Institutional Control
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Source: U.S. Department of Education 

Since 2007, closed school discharges totaling $5.9 

million have been granted to approximately 1,600 borrowers, 

representing approximately 3.4 percent of borrowers 

estimated to be eligible for discharge under the existing 

90-day window. Some borrowers did not receive a discharge

because the institution arranged a teach-out or students 

completed their educational program with credit for the 

work at the closed school. By extending the window to 120 

days, the Department estimates that an additional 100 

0

5

10

15

20

25

30

2007 2008 2009 2010 2011

Number of Schools Closed

Year of Closure

Foreign Private, Nonprofit

Proprietary Public
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students would receive closed school discharges totaling 

approximately $400,000 annually. 

This projected amount was determined by estimating 

that the almost 1,600 borrowers with discharges over five 

years were evenly distributed, resulting in approximately 

320 borrowers with closed school discharges annually. The 

Department then assumed that extending the window to 120 

days would increase the number of borrowers receiving 

discharges by about a third since some students would 

already have qualified under the 90-day window and we are 

adding 30 days, about a third of the original 90-day 

window. As the discharge amounts involved are small, no 

subsidy impact is estimated. On a cash basis, the 

estimated budget impact of expanding closed school 

discharge is $2.8 to $3.4 million over 10 years when 

discounted at 7 percent or 3 percent. The Department 

welcomes comments about these assumptions and estimates and 

will consider them in drafting the final rule.

Loan Rehabilitation

Two areas related to loan rehabilitation affected by 

the proposed regulations are the determination of the 

reasonable and affordable payment for loan rehabilitation 

and the limitations on the use of administrative wage 
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290

garnishment while a borrower is attempting to rehabilitate 

a defaulted loan. While the proposed regulatory changes in 

both areas would change the period of time and sources of 

payments the Department receives, the Department does not 

estimate that the proposed regulations would have any 

significant budget impact. 

The proposed regulations refine the process for 

determining the reasonable and affordable payment for loan 

rehabilitation to improve consistency across loan programs. 

The current regulations for the FFEL Program require 

guaranty agencies and their collection agents to negotiate 

a reasonable and affordable payment for loan rehabilitation 

with the borrower that takes into account all of the 

borrower’s financial circumstances. The Direct Loan 

Program currently does not have similar regulatory language 

describing how the Department determines a reasonable and 

affordable payment amount, but the program does have a 

similar process for receiving income and expense 

information and negotiating a payment with the borrower. 

Borrower advocates have claimed that this process 

results in inconsistent treatment across guaranty agencies 

and payments that may not be reasonable and affordable for 

borrowers. Borrower advocates have suggested that the 
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291

Department require the use of the IBR formula to establish 

the reasonable and affordable payment for loan 

rehabilitation to improve consistency and potentially 

reduce the borrower’s rehabilitation payment amount. 

Guaranty agencies and the Department wanted to preserve the 

flexibility to work with borrowers, but agreed to have the 

IBR formula as a second option if the borrower objected to 

the reasonable and affordable payment initially determined 

by the Department or the guaranty agency. The Department 

and several negotiators agreed to the use of the IBR 

formula with the caveat that an IBR formula calculation of 

$0 would result in a monthly rehabilitation payment of $5 

(not $0), since a key part of the rehabilitation process is 

getting borrowers in the habit of making payments. 

Additionally, to make the Direct Loan Program regulations 

more comprehensive and informative for borrowers, the 

Department agreed to incorporate the regulations governing 

the determination of a reasonable and affordable payment 

amount into the Direct Loan Program regulations. 

With approximately $1.49 billion in defaulted loan 

balances rehabilitated by the Department in FY 2011, loan 

rehabilitation is a valuable collections tool that also 

allows borrowers to improve their credit history and regain 
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292

eligibility for title IV, HEA Federal student aid. The 

Department and guaranty agencies have emphasized keeping 

the rehabilitation payment amount close to the payment the 

borrower will have to make following rehabilitation to 

avoid sharp increases in the required payment. The 

availability of IBR or ICR payment plans after 

rehabilitation expands the range of payments possible 

during rehabilitation that would be in line with postrehabilitation payments. This new standard may also help 

decrease the number of rehabilitation borrowers who redefault, as their required rehabilitation plan payment 

amount will be very similar to the payment amount they will 

make when they return to regular repayment. The proposed 

regulations would retain the current FFEL Program 

regulations requiring consideration of the borrower’s 

income and expenses while clarifying the types of incomes 

and expenses to consider, require the use of a standardized 

form, and allow borrowers to object to the payment 

determined based on the individual’s income and expenses 

and included in the written rehabilitation agreement 

offered to the borrower. A borrower who objected to the 

amount required under that method would be able to obtain 

an alternative amount determined using the IBR formula. A 
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borrower could choose between the two proposed payment 

amounts. As the negotiation process and factors considered 

in determining the reasonable and affordable payments will 

largely remain the same for FFEL Program loans, the 

Department does not estimate a budget impact from the 

proposed changes. 

With respect to the Direct Loan portfolio, the 

Department would be required to consider the same income 

and expense factors, with the same possibility of the IBR 

formula as a fallback calculation for borrowers who object

to the first payment amount that the Department offers to 

the borrower. For individual borrowers, the payment offered 

as an alternative rehabilitation amount based on IBR might 

be less than what the Department would determine to be 

appropriate based on an assessment of the borrower’s income 

and expenses. If this is the case, the Department would 

collect less money during the months the borrower attempts 

loan rehabilitation, but the borrower would still owe the

remaining balance after rehabilitation. In addition, to 

the extent lower payments encourage borrowers to complete a 

loan rehabilitation and continue payments they otherwise 

would not make, the proposed regulations may increase total 

payments over the life of the loan for some borrowers. The 
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294

likelihood of borrowers paying less, the same, or more over 

the life of a loan over time as a result of the proposed 

changes in defining a reasonable and affordable payment is 

uncertain, but the Department does not expect it to have an 

appreciable budget impact.

Perkins Loans Provisions

The proposed regulations address a few areas related to 

the Perkins Loan Program including: revising cancellation 

progression rates; modifying the treatment of healthrelated breaks in service for certain loan cancellations;

making the eligibility for a graduate fellowship deferment 

consistent with FFEL and Direct Loan program criteria;

making a technical correction to eliminate the debt-toincome economic hardship deferment category for borrowers 

working less than full-time; defining “on-time” for 

rehabilitation payments; and allowing assignment to the 

Department of Perkins Loans made before September 13, 1982, 

without the borrower’s SSN. The Department does not 

estimate a significant budget impact from these provisions. 

No appropriations have been made to support the Perkins 

Loan Program since 2008, and institutions make loans from 

payments made on their portfolios of existing loans. The 

effect on the Federal budget of increased costs in the 
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295

Perkins Loan Program is a possible reduction of Federal 

Perkins assets available to be recalled in future years. 

The technical changes to make the debt-to-income 

economic hardship deferment, graduate deferment 

eligibility, and on-time payment standard for 

rehabilitation payments in the Perkins Loan Program more 

consistent with the FFEL and Direct Loan programs are not 

expected to have any budget impact. Students with graduate 

fellowships are already eligible for deferments in the 

Perkins Loan Program, and the Department estimates that 

aligning the definition of a graduate fellowship in the 

Perkins Loan Program with that used in the FFEL and Direct 

Loan programs will not expand the pool of graduate fellows 

allowed a deferment. For the on-time payments standards 

for loan rehabilitation purposes, the Perkins Loan Program 

does not currently have a regulatory standard, but the 

discretion institutions have in setting their own standard 

is constrained by the requirement that nine monthly 

payments be made for rehabilitation. 

The slight changes in timing associated with defining 

the on-time payment standard at 20 days is not expected to 

change the number of borrowers successfully rehabilitating 

their Perkins loans or the ultimate amount collected from 
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296

those borrowers, so no budget impact is expected. The 

ability to assign loans to the Department without the 

borrower’s SSN may facilitate some institutions leaving the 

program and, if the Department is able to collect on those 

loans, result in some small additional revenues. 

As shown in Table 1, the proposed regulations related 

to Perkins Loan cancellation do involve some substantial 

cancellation amounts (e.g. Teacher Service), but the 

limited scope of the changes and the reduction of Federal 

funding in the Perkins Loan Program limits the net budget 

impact on the Federal government.

Table 1: Perkins Loan Cancellations by Cancellation Type 

(in $mn)

Cancellation Type 2007 2008 2009 2010 2011

Grand 

Total

Nurse/Medical 

Tech 26.3 29.6 32.9 35.2 33.7 157.6 

Teacher Service 20.4 21.1 21.4 22.4 19.9 105.3 

Teaching in 

Teacher Shortage 

Field 5.8 5.5 5.6 5.8 5.0 27.6 

Law Enforcement 4.4 4.4 4.8 5.4 5.7 24.6 
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Early 

Intervention 4.4 4.2 4.1 4.5 4.1 21.2 

Volunteer Service 3.0 3.1 3.4 3.5 3.7 16.7 

Death, 

Disability, and 

Bankruptcy 2.8 3.1 3.2 2.9 2.9 14.8 

Defense 

Teacher/Military 

prior to 1972 0.2 0.1 0.1 0.1 0.0 0.5 

Military Service 0.1 0.1 0.1 0.1 0.1 0.5 

Speech 

Pathologist - - 0.0 0.1 0.2 0.4 

Firefighter - - - 0.1 0.1 0.2 

Librarian - - 0.0 0.0 0.1 0.1 

Other 0.00 0.02 0.0 0.01 0.01 0.1 

Tribal College - - - 0.0 0.0 0.0 

Total 67.4 71.1 75.5 80.0 75.4 369.5 

Source: NSLDS

As detailed in the Summary of Proposed Regulations

section of this preamble, proposed §674.52(g)(1) would 

change the Department’s longstanding policy that switching 

cancellation categories results in a borrower falling back 
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298

to the first-year cancellation rate. Instead, the proposed 

regulations would allow borrowers who switch between 

cancellation categories with the same rate of progression 

to continue the progression from the last year under the 

prior category; however, the borrower would fall back to 

the first-year cancellation rate if the borrower switches 

to a category with a different progression rate. 

The three Perkins Loan cancellation progression rates 

are summarized in Table 2, and all categories except early 

childhood education, Peace Corps volunteer, or voluntary 

service have a 15/15/20/20/30 percent cancellation 

progression. After a Perkins Loan borrower receives 

cancellations for five years at these rates, 100 percent of 

the original principal balance of the borrower’s loan is 

canceled. While some borrowers may be able to accelerate 

their cancellation or achieve full cancellation, the nature 

of the categories affected by the policy change would limit 

the likelihood of borrowers switching between them. To the 

extent a small number of borrowers do switch and are 

allowed to maintain their progression rate instead of 

falling back to year one, the primary effect would be on 

the timing of cancellation received, not the amount.

Table 2: Perkins Loan Cancellation Progression Rates
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Firefighter, 

Law 

Enforcement, 

Teacher, 

Teacher in 

Shortage Area, 

Librarian, 

Military 

Service, 

Defense 

Teacher/Milita

ry prior to 

1972, 

Nurse/Medical 

Tech, Speech 

Pathologist, 

Early 

intervention, 

and Tribal 

College

§674.53, 

§674.56, 

§674.57, 

§674.59

15% 15% 20% 20% 30% 100%

Early 

Childhood 

Education §674.58

15% for each year of service; Up 

to 100% can be cancelled if 

service extends to 7 years

up 

to 

100%

Peace Corps or 

Volunteer 

Service §674.60 15% 15% 20% 20% -- 70%
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Additionally, proposed §674.52(c) would replace the 

current Perkins Loan treatment of a break in teaching 

service for pregnancy or illness. Currently teachers must 

complete the first half of the academic year, begin the 

second half, and have the employer agree that the teacher 

fulfilled that year of the contract. In the FFEL and 

Direct Loan programs, if a borrower is unable to complete 

the second half of the year of teaching for reasons covered 

by the FMLA, the service could count towards cancellation 

if the employer agrees the contract has been fulfilled for 

the year. 

The proposed regulations would apply the FMLA-related 

break-in-service exception to all Perkins Loan cancellation 

categories, not just teachers. As Perkins loan 

cancellation does not require consecutive service, the 

Department expects this provision may allow some borrowers 

to receive credit for a year that would not otherwise have 

counted as service and speed up the ultimate cancellation 

of the loan, but it will not significantly expand the 

number of borrowers who achieve loan cancellation as their 

next year of service could qualify instead. These 

cancellation provisions may affect the timing of when 

borrowers achieve cancellation, but the Department does not 
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301

estimate that they will significantly increase the overall 

amount cancelled. 

Additional Provisions

Many of the proposed regulations have no impact on the 

Federal budget as they reflect statutory changes already 

incorporated into the budget baseline or clarify existing 

practices. Several areas of the current regulations that 

are proposed for removal from the regulations by this NPRM 

relate to origination and administration of FFEL Program 

loans. Those regulations became irrelevant when new FFEL 

Program loan originations ended as of July 1, 2010. Any 

costs or savings resulting from the end of FFEL Program 

loan originations were attributed to the SAFRA Act, so 

there is no estimated budget impact from these provisions. 

The budget impact of these changes was already incorporated 

into the budget baseline. 

Updates were also made to the Direct Loan regulations 

to incorporate specific provisions that previously were 

included in the Direct Loan regulations by cross-reference 

to the FFEL regulations. The restructuring of the Direct 

Loan regulations to remove references to the FFEL Program 

regulations or to reflect current practices is not 

estimated to have a budget impact.
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Assumptions, Limitations, and Data Sources

In developing these estimates, a wide range of data 

sources were used, including data from the National Student 

Loan Data System; operational and financial data from 

Department of Education systems, including especially the 

Fiscal Operations Report and Application to Participate 

(FISAP); and data from a range of surveys conducted by the 

National Center for Education Statistics, such as the 2008 

National Postsecondary Student Aid Survey and the 2004 

Beginning Postsecondary Student Survey. Data from other 

sources, such as the U.S. Census Bureau, were also used. 

Accounting Statement

As required by OMB Circular A-4 (available at 

http://www.whitehouse.gov/sites/default/files/omb/assets/om

b/circulars/a004/a-4.pdf), in Table 3, we have prepared an 

accounting statement showing the classification of the 

expenditures associated with the provisions of these 

regulations. This table provides our best estimate of the 

changes in Federal student aid payments as a result of 

these regulations. Expenditures are classified as 

transfers from the Federal Government to student loan 

borrowers.
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Table 3: Accounting Statement: Classification of Estimated 

Expenditures (in millions)

Category Benefits

7% 3%

Greater consistency between the title 

IV loan programs. Not Quantified

Category Costs

7% 3%

Costs of compliance with paperwork 

requirements

- $93.8 - $94.4

Category Transfers

7% 3%

Reduced payments to Federal Government 

from additional borrowers receiving 

closed school discharges

$0.40 $0.40 

Alternatives Considered

In the spirit of good governance, the Department 

carefully considers any regulatory action or revision to 

ensure that the final decision represents what the 

Department believes is the best feasible option. First and 

foremost, the Department considered whether or not 

negotiated rulemaking was necessary in this instance and 

concluded that the magnitude of the statutory and 

regulatory revisions to these rules would require 

stakeholder input. Many of the regulatory alternatives 
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304

proposed by non-Federal negotiators were ultimately 

rejected by the Department because of statutory 

limitations. 

For example, some non-Federal negotiators raised 

questions about the Department’s implementation of the 

statutory requirement that a school must close in order for 

the borrower to receive a loan discharge. The non-Federal 

negotiators asked the Department to clarify whether 

students would be eligible for a closed school discharge in 

the event an online school closed one of its locations or 

ceased to operate one of its programs.

In response to the negotiators’ questions, the 

Department noted that, for purposes of the discharge, the 

terms “school” and “location” are defined by the HEA. If a 

school (distance education or traditional) closes one of 

its programs, a borrower does not qualify for a closed 

school discharge because the school itself did not close. 

The entire school has to close for online distance 

education students to receive a discharge. The Department 

also noted that, under the regulations, for students 

attending an online school that operates at many different 

locations, the main campus or main location of the online 

school would have to close in order for the online distance 
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305

education student to receive the discharge. Although this 

topic engendered much discussion, the provisions governing 

what constitutes a school and location in the current 

regulations at §§674.33(g), 682.402(d), and 685.214(c) are 

based on statutory requirements. 

The Department proposed amending regulations so that a 

borrower’s reasonable and affordable payment amount for 

loan rehabilitation would be calculated using the IBR

formula. However, there was strong disagreement among the 

non-Federal negotiators about the merits of this proposal. 

Negotiators representing guaranty agencies argued that 

requiring the use of the IBR formula would reduce their 

ability to work with borrowers to arrive at a 

rehabilitation payment amount acceptable to both the 

guaranty agency and to the borrower. Negotiators 

representing borrower advocacy groups strongly disagreed 

with the argument that the use of IBR would reduce the 

agencies’ ability to work with borrowers. After careful 

deliberation, the Department decided to allow guaranty 

agencies to keep their flexibility in negotiating 

reasonable and affordable rehabilitation payments, but it 

ensured that borrowers would be made aware of their right 

to ask for a recalculation of the payment amount.
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The Department considered other smaller proposals and 

alternatives as discussed in the preamble but believes that 

these proposed regulations represent the best possible and 

most feasible outcomes. 

Clarity of the Regulations

Executive Order 12866 and the Presidential memorandum 

“Plain Language in Government Writing” requires each agency 

to write regulations that are easy to understand.

The Secretary invites comments on how to make these 

proposed regulations easier to understand, including 

answers to questions such as the following:

• Are the requirements in the proposed regulations 

clearly stated?

• Do the proposed regulations contain technical 

terms or other wording that interferes with their 

clarity?

• Does the format of the proposed regulations 

(grouping and order of sections, use of headings, 

paragraphing, etc.) aid or reduce their clarity?

• Would the proposed regulations be easier to 

understand if we divided them into more (but 

shorter) sections? (A “section” is preceded by 
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the symbol “§” and a numbered heading; for 

example, §682.209 Repayment of a loan.)

• Could the description of the proposed regulations 

in the “Supplementary Information” section of the 

preamble be more helpful in making the proposed 

regulations easier to understand? If so, how?

• What else could we do to make the proposed 

regulations easier to understand?

To send any comments that concern how the Department 

could make these proposed regulations easier to understand, 

see the instructions in the ADDRESSES section of this 

preamble.

Regulatory Flexibility Act Certification

Initial Regulatory Flexibility Analysis

These proposed regulations would 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 forprofit institutions as “small businesses” if they are 

independently owned and operated and not dominant in their 

field of operation with total annual revenue below 
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$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 revenues involved in the 

sector affected by these regulations, and the concentration 

of ownership of institutions by private owners or public 

systems means that the number of title IV, HEA eligible 

institutions that are small entities would be limited but 

for the fact that the nonprofit entities fit within the 

definition of a small organization regardless of revenue. 

Given the definitions above, several of the entities 

subject to the proposed regulations are small, leading to 

the preparation of the following Initial Regulatory 

Flexibility Analysis.

Description of the Reasons that Action by the Agency Is 

Being Considered

With these proposed regulations, the Department seeks 

to remove certain regulations governing the FFEL Program 

that are no longer needed and to revise Direct Loan Program 

regulations to ensure that they are comprehensive and to 

add consistency and clarity to all regulations governing 
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student loans by revising where applicable. The Department 

also seeks to provide clarity to the loan rehabilitation 

process for borrowers with defaulted student loans by 

developing clear guidance and regulations. 

Succinct Statement of the Objectives of, and Legal Basis 

for, the Regulations

The proposed regulations amend the FFEL and Direct 

Loan program regulations to: reflect changes made to the 

HEA by the SAFRA Act; incorporate other statutory changes 

in the Direct Loan Program regulations; update, strengthen, 

and clarify various areas of the Student Assistance General 

Provisions, Perkins Loan, FFEL, and Direct Loan program 

regulations; and provide for greater consistency in the 

regulations governing title IV, HEA student loan programs.

In addition, On January 21, 2011, President Obama 

issued Executive Order 13563, “Improving Regulation and 

Regulatory Review” (76 FR 3821). The order requires all 

Federal agencies to “consider how best to promote 

retrospective analysis of rules that may be outmoded, 

ineffective, insufficient, or excessively burdensome, and 

to modify, streamline, expand, or repeal them in accordance 

with what has been learned.” Accordingly, on August 22, 

2011, the Department issued its Plan for Retrospective 
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Analysis of Existing Regulations. (See 

ed.gov/policy/gen/reg/retrospective-analysis/index.html). 

Our plan identified a number of regulatory initiatives 

for retrospective review and analysis. One of those 

initiatives was transitioning from the FFEL Program, under 

which new loans ceased on July 1, 2010, to the Direct Loan 

Program. This proposed rule would remove obsolete FFEL 

Program regulations.

Description of and, Where Feasible, an Estimate of the 

Number of Small Entities to which the Regulations Will 

Apply

The proposed regulations would affect several 

categories of entities involved in the administration and 

servicing of Federal student loans. Many of the proposed 

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 proposed regulations related to 

Perkins Loans will affect the institutions that participate 

in the program, some of which would be classified as small 

entities. As discussed above, private non-profit 

institutions that do not dominate in their field are 
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311

defined as small entities and a few other institutions that 

participate in the Perkins Loan Program do not have 

revenues above $7 million and are also categorized as small 

entities. Table 4 summarizes AY 2010-11 Perkins loan 

disbursements by institutions that qualify as small 

entities. Based on the definition of non-profit 

institutions as small entities, approximately 59 percent of 

institutions that disbursed Perkins loans in AY2010-11 were 

small entities.

Table 4: AY2010-11 Perkins Loan Disbursement Summary

AY2010-11 Public PNFP PFP Total

Perkins Loan 

Institutions with 

disbursements 545 874 107 1526

Small entities with 

Perkins 

disbursements 2 874 25 901

% of small entities 

by control 0.4% 100.0% 23.4% 59.0%

Overall 

Disbursements 387,694,908 

 

448,589,990 

 

20,332,961 

 

856,617,859 

% by control 45.26% 52.37% 2.37% 100%

Amounts at Small 

Entities 53,467 

 

448,589,990 

 

1,012,596 

 

2,808,851 
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The Secretary invites comments from small entities as 

to whether they believe the proposed changes would have a 

significant economic impact on them and, if so, requests 

evidence to support that belief.

Description of the Projected Reporting, Recordkeeping and 

Other Compliance Requirements of the Regulations, Including 

an Estimate of the Classes of Small Entities that Will Be 

Subject to the Requirement and the Type of Professional 

Skills Necessary for Preparation of the Report or Record

The various provisions in the proposed regulations 

would modify or increase the paperwork burden on entities 

participating in the FFEL, Direct Loan, or Perkins Loan 

programs, as described in the Paperwork Reduction Act

section of this NPRM. Much of this burden would be 

associated with borrowers or the Department and its agents 

and therefore does not affect small entities. Table 5 

summarizes the estimated burden on small entities, 

primarily institutions and guaranty agencies, from the 

paperwork requirements associated with the proposed 

regulations. As discussed in the Paperwork Reduction Act 

section of this NPRM, several of the provisions reduce the 

estimated burden on institutions, lenders, and guaranty 

agencies from the elimination of regulatory provisions or 
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changes to requirements and this is reflected by the 

negative numbers in the table. 

Table 5: Summary of Paperwork Requirements for Small 

Entities 

Description OMB 

Control 

Number

Small Entity 

Hours

Cost ($) Cost per Small 

Entity

FFEL forbearance 1845-0020 264 6,497 650 

Reasonable and 

Affordable loan rehab 1845-0020 69,161 1,702,052 154,732 

Suspension of AWG for 

rehab borrowers 1845-0020 1,257 30,935 2,812 

School Enrollment Status 

Reporting 1845-0019 24,342 599,068 54,461 

Deferment of repayment -

Federal Perkins Loans -

definition of eligible 

graduate fellowship 

programs 1845-0019 175 4,316 22 

AWG 3rd party 

contractors; hearing 

requests, and hearing 

administration 1845-0020 57,568 1,416,748 128,795 

Lender disclosure 1845-0020 (20,461) (503,556) (50,356)

Due diligence in making a 

loan 1845-0020 (40,923) (1,007,112) (100,711)

Equal credit - - removal of 

provision 1845-0020 (40,923) (1,007,112) (100,711)
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Eligibility for interest 

benefits 1845-0020 (40,923) (1,007,112) (100,711)

Basic program agreement 1845-0020 (11,174) (274,982) (27,498)

Records, reports, 

inspection requirements 

for GA programs 1845-0020 (5,587) (137,495) (12,500)

Prohibited use of 

Operating Fund when it 

contains Federal Fund 

assets - removal of 

provision 1845-0020 (111,739) (2,749,889) (249,990)

Funds transferred to 

Operating Fund by a GA -

removal of provision 1845-0020 (111,739) (2,749,889) (249,990)

FISL loan related - -

removal of provisions 1845-0020 (163,692) (4,028,450) (884.40)

School as lender - removal 

of provision 1845-0020 (206,534) (5,082,791) (1,115.87)

Exit counseling 1845-0020 (134,247) (3,303,819) (725.32)

Disqualification review of 

limitation, suspension, 

and termination actions 

taken by GA against a 

school - removal of 

provision 1845-0020 (111,739) (2,749,889) (249,990)

Identification, to the extent practicable, of all relevant 

Federal regulations that may duplicate, overlap or conflict 

with the proposed regulation
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The proposed regulations are unlikely to conflict with 

or duplicate existing Federal regulations. 

Alternatives Considered

As described above, the Department participated in 

negotiated rulemaking in developing the proposed 

regulations and considered a number of options for some of 

the provisions. No alternatives were aimed specifically at 

small entities.

Paperwork Reduction Act of 1995

Sections 674.19, 674.33, 674.34, 682.102, 682.200, 

682.205, 682.206, 682.208, 682.209, 682.210, 682.211, 

682.212, 682.214, 682.216, 682.301, 682.305, 682.401, 

682.402, 682.404, 682.405, 682.406, 682.409, 682.410, 

682.411, 682.412, 682.414, 682.417, 682.418, 682.421, 

682.507, 682.508, 682.511, 682.515, 682.602, 682.603, 

682.604, 682.605, 682.610, 682.711, 682.712, 682.713, 

685.205, 685.211, 685.214, contain information collection 

requirements. Under the Paperwork Reduction Act of 1995 

(PRA) (44 U.S.C. 3507(d)), the Department of Education has 

submitted a copy of these sections, related forms, and 

Information Collection Requests (ICRs) to the Office of 

Management and Budget (OMB) for its review. 
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316

As part of its continuing effort to reduce paperwork 

and respondent burden, the Department conducts a 

preclearance consultation program to provide the general 

public and Federal agencies with an opportunity to comment 

on proposed and continuing collections of information in 

accordance with the PRA (44 U.S.C. 3506(c)(2)(A)). This 

helps ensure that: the public understands the Department’s 

collection instructions, respondents can provide the 

requested data in the desired format, reporting burden 

(time and financial resources) is minimized, collection 

instruments are clearly understood, and the Department can 

properly assess the impact of collection requirements on 

respondents.

The forms that would be used to collect the 

information related to these proposed regulations and the 

ICRs related to the proposed regulations and forms are 

available for comment on Regulations.gov under the same 

Docket number as the proposed regulations. We ask that 

commenters submit a separate set of comments on the 

paperwork burdens that would be imposed under the proposed 

regulations and associated forms. The OMB Control numbers 

associated with the proposed regulations and related forms 
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are 1845-0015, 1845-0019, 1845-0020, 1845-NEW1, and 1845-

NEW2.

Please note that the comment period regarding 

paperwork burden runs concurrently with the comment period 

for the proposed regulations. OMB is required to make a 

decision concerning the collections of information 

contained in these proposed regulations between 30 and 60 

days after publication of this document in the Federal 

Register. Therefore, to ensure that OMB gives your 

comments full consideration, it is important that OMB 

receives your comments by [INSERT DATE 30 DAYS AFTER DATE 

OF PUBLICATION IN THE FEDERAL REGISTER]. This does not 

affect the deadline for your comments to us on the proposed 

regulations. See the DATES section of this preamble for 

the deadline to submit PRA comments. 

A Federal agency may not conduct or sponsor a 

collection of information unless OMB approves the 

collection under the PRA and the corresponding information 

collection instrument displays a currently valid OMB 

control number. Notwithstanding any other provision of 

law, no person is required to comply with, or is subject to 

penalty for failure to comply with, a collection of 
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318

information if the collection instrument does not display a 

currently valid OMB control number.

In the final regulations we will display the control 

number assigned by OMB to any information collection 

requirement proposed in this NPRM and adopted in the final 

regulations.

Sections 682.211 and 685.205 – Forbearance

The proposed regulations amend the current FFEL 

Program regulations to authorize a lender, prior to 

resolving a default claim payment, to grant forbearance to 

a borrower or endorser who is in default on a loan based on 

the borrower’s or endorser’s oral request. The current 

regulations require borrowers to submit a written request 

for forbearance. The burden calculations address only the 

added burden created by accepting oral requests for 

forbearance. The proposed regulations provide that a 

forbearance agreement in this situation must include a new 

agreement to repay the debt signed by the borrower or 

endorser (as required under the current regulations), or a 

written or oral affirmation of the borrower’s or endorser’s 

obligation to repay the debt. The proposed regulations 

define “affirmation” for this purpose to be an 

acknowledgment of the loan by the borrower or endorser in a 
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319

legally binding manner that can take the form of: (1) a 

new signed repayment agreement or schedule, or another form 

of signed agreement to repay the debt (as under current 

regulations); (2) an oral acknowledgment and agreement to 

repay the debt that is documented by the lender in the 

borrower’s or endorser’s file and confirmed by the lender 

in a notice to the borrower; or (3) a payment made on the 

loan by the borrower or endorser. The proposed regulations 

also specify that if a forbearance in this situation is 

based on the borrower’s or endorser’s oral request and 

affirmation, the lender must orally review with the 

borrower the terms and conditions of the forbearance. The 

lender must also send the borrower or endorser a notice 

that confirms the terms of the forbearance and the 

borrower’s or endorser’s affirmation of the obligation to 

make the first payment under the forbearance agreement 

within 30 days after entering into that agreement. The

proposed regulations require the lender to retain a record 

of the terms and conditions of the forbearance and 

affirmation in the borrower’s or endorser’s file. 

For the 2011 calendar year, the last year for which 

data are available, we estimate that 172,915 FFEL borrowers 

requested forbearance after defaulting on a loan. Of that 
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320

number, 49,350 borrowers have FFEL program loans held by 

lenders. Of those borrowers, we estimate that 25 percent 

(12,338 borrowers) would exercise the option in these 

proposed regulations to orally acknowledge the debt and 

agree to repay the debt. The remaining 123,565 loans for 

which we estimate borrowers will request forbearance after 

defaulting will be held by the Department. We estimate that 

25 percent of those borrowers (30,891 borrowers) who request 

forbearance from the Department will exercise the option to 

orally acknowledge the debt and agree to repay the debt, as 

would be authorized under these proposed regulations. 

Because OMB requires Federal agencies to account for burden 

imposed on non-Federal entities separately by type, i.e. 

public, not-for-profit, and for-profit, the following 

analysis of the burden imposed on lenders other than the 

Department is broken down by the types of entities. Note 

that State guaranty agencies are covered under the “public” 

type of entities.

Of the FFEL Program loans held by lenders, we estimate 

that public holders (State guaranty agencies) will have 2 

FFEL borrowers who seek to orally acknowledge a defaulted 

FFEL Program loan. On average, we estimate that it would 

take the lender 0.17 hours (10 minutes) per oral 
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321

acknowledgment to orally review with the borrower the terms 

and conditions of the forbearance and document the 

conversation and place that documentation in the borrower’s 

or endorser’s file. For public holders, we estimate that 

burden would increase by 0.34 hours (2 borrowers multiplied 

by 0.17 hours per oral forbearance request).

Of the FFEL Program loans, we estimate that not-forprofit holders will have 1,551 FFEL borrowers who seek an 

oral forbearance on a defaulted FFEL program loan. On 

average, we estimate that it would take the lender 0.17 

hours (10 minutes) per oral acknowledgment to orally review 

with the borrower the terms and conditions of the 

forbearance and document the conversation and place that 

documentation in the borrower’s or endorser’s file. For 

not-for-profit holders, we estimate that burden would 

increase by 264 hours (1,551 borrowers multiplied by 0.17 

hours per oral forbearance request). 

Of the FFEL Program loans, we estimate that for-profit 

holders would have 10,785 FFEL borrowers who seek an oral 

forbearance on a defaulted FFEL Program loan. On average, 

we estimate that it would take the lender 0.17 hours (10 

minutes) per oral acknowledgment to orally review with the 

borrower the terms and conditions of the forbearance and 
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document the conversation and place that documentation in 

the borrower’s or endorser’s file. We estimate that burden 

would increase by 1,833 hours (10,785 borrowers multiplied 

by 0.17 hours per oral forbearance request) at for-profit 

holders. 

We estimate there would be an equal amount of burden 

on the borrower engaged in the oral acknowledgement and 

agreement to repay the debt request with the lender. The 

oral acknowledgment process would increase burden by 7,349 

hours for all FFEL borrowers (12,338 held by lenders and 

30,891 ED-held = 43,229 borrowers multiplied by 0.17 hours 

per oral forbearance request). Since there is no FFEL 

general forbearance form approved by OMB, the proposed 

regulations would impose new burden.`

Collectively, we estimate that these proposed FFEL 

forbearance regulations would increase burden by 9,446 

hours under OMB Control Number 1845-0020.

The proposed regulations would amend the current 

Direct Loan Program regulations to authorize the Secretary,

prior to the loan being transferred to the Department’s 

default collections office, to grant forbearance to a 

borrower or endorser who is in default on a loan based on 

the borrower’s or endorser’s oral request. The proposed 
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323

regulations provide that a forbearance agreement in this 

situation must include a new agreement to repay the debt 

signed by the borrower or endorser (as required under the 

current regulations), or a written or oral affirmation of 

the borrower’s or endorser’s obligation to repay the debt. 

The proposed regulations define “affirmation” for this 

purpose to be an acknowledgment of the loan by the borrower 

or endorser in a legally binding manner that can take the 

form of: (1) a new signed repayment agreement or schedule, 

or another form of signed agreement to repay the debt (as 

under current regulations); (2) an oral acknowledgment and 

agreement to repay the debt that is documented by the 

Secretary in the borrower’s or endorser’s file and 

confirmed by the Secretary in a notice to the borrower; or 

(3) a payment made on the loan by the borrower or endorser. 

The proposed regulations also specify that if a forbearance 

in this situation is based on the borrower’s or endorser’s 

oral request and affirmation, the Secretary must orally 

review with the borrower the terms and conditions of the 

forbearance, and that the Secretary must send the borrower 

or endorser a notice that confirms the terms of the 

forbearance and the borrower’s or endorser’s affirmation of 

the obligation to make the first payment under the 
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agreement within 30 days after entering into that 

agreement. The proposed regulations require the Secretary 

to retain a record of the terms and conditions of the 

forbearance and affirmation in the borrower’s or endorser’s 

file. 

For the 2011 calendar year, 62,905 Direct Loan 

borrowers requested forbearance after defaulting on a loan. 

Of that number, we estimate that 25 percent (15,726 

borrowers) would have exercised an option to orally 

acknowledge the debt and agree to repay the debt. On 

average, we estimate that it would take a borrower 0.17 

hours (10 minutes) per oral acknowledgment to listen to the 

list of terms and conditions of the forbearance as they are 

reviewed with the borrower. The burden associated with the 

completion of the General Forbearance Request form, OMB 

1845-0031, is estimated to average 0.2 hours (12 minutes). 

Therefore, the net reduction in burden to provide an oral 

acknowledgement rather than complete the form is the 

difference of the two or 0.03 hours (0.20 hours minus 0.17 

hours or 2 minutes) per oral forbearance.

We estimate that burden would decrease by 472 hours 

(15,726 borrowers multiplied by 0.03 hours per oral 

forbearance) under OMB Control Number 1845-NEW2.
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Sections 682.405(b) and 685.211(f) – Reasonable and 

affordable loan rehabilitation agreement

The proposed regulations would add new 

§§682.405(b)(1)(iii) and 685.211(f)(1)(i), requiring a 

guaranty agency and the Secretary, respectively, to base 

determinations of reasonable and affordable rehabilitation 

payment amounts of defaulted loans on information provided 

on an OMB-approved form, and, if requested, supporting 

documentation. 

Proposed §§682.405(b)(1)(iii)(A) and 

685.211(f)(1)(i)(A) would require a guaranty agency and the 

Secretary to consider the borrower's, and if applicable, 

the borrower’s spouse's current disposable income in 

determining a reasonable and affordable rehabilitation 

payment amount on a defaulted loan. Under proposed 

§§682.405(b)(1)(iii)(A) and 685.211(f)(1)(i)(A), spousal 

income would not be considered if the spouse does not 

contribute to the borrower’s household income.

Proposed §§682.405(b)(1)(iii)(B) and 

685.211(f)(1)(i)(B) would require a guaranty agency and the 

Secretary to consider the borrower’s family size, as 

defined in §682.215(a)(3) in determining the borrower’s 

loan rehabilitation payment amount. 
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In calendar year 2011, there were approximately 

299,159 FFEL borrowers (192,029 borrowers whose FFEL 

program loans are held by lenders and 107,130 FFEL program 

borrowers whose loans are held by the Department) that 

requested and received a loan rehabilitation agreement for 

their defaulted loans. We estimate that on average it 

would take a borrower 1.5 hours (90 minutes) to complete 

and submit the loan rehabilitation form. Under these 

proposed regulations, we estimate that burden will increase 

by 448,739 hours (299,159 borrowers requesting loan 

rehabilitation multiplied by 1.5 hours per loan 

rehabilitation requests) under OMB Control Number 1845-

NEW1. 

In calendar year 2011, there were approximately 92,870 

Direct Loan borrowers that requested and received a loan 

rehabilitation agreement for their defaulted loans. We 

estimate that it would take a borrower on average 1.5 hours 

(90 minutes) to complete and submit the loan rehabilitation 

form. Under these proposed regulations, we estimate that 

burden will increase by 139,305 hours (92,870 borrowers 

requesting loan rehabilitation multiplied by 1.5 hours per 

loan rehabilitation request) under OMB Control Number 1845-

NEW1. Collectively, the proposed changes in §§682.405 and 
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685.211 associated with the completion and submission of 

the reasonable and affordable form would increase burden by 

588,044 hours (448,739 hours plus 139,305 hours) under OMB 

1845-NEW1. 

We estimate that of the 192,029 FFEL loans held by 

lenders, 66,283 loans are held by state guaranty agencies 

and 125,746 loans are held by not-for-profit guaranty 

agencies, with the remaining 107,130 loans (299,159 minus 

192,029) held by the Department. Under the proposed 

regulations, 66,283 FFEL borrowers whose loans are held by 

state guaranty agencies will request rehabilitation of 

their defaulted loans and complete the loan rehabilitation 

form. We estimate that for each loan rehabilitation form 

submitted it would take the guaranty agency on average 0.5 

hours (30 minutes) to review and process the loan 

rehabilitation form. Under these proposed regulations, we 

estimate that burden would increase by 33,142 hours (66,283 

borrowers requesting loan rehabilitation multiplied by 0.5 

hours per loan rehabilitation request) under OMB Control 

Number 1845-0020.

Under the proposed regulations, we estimate that of 

the 192,029 FFEL loans held by non-Federal entities, 

125,746 FFEL borrowers whose loans are held by not-for-
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328

profit guaranty agencies will request rehabilitation and 

complete the loan rehabilitation form. We estimate that 

for each loan rehabilitation form submitted it would take 

the guaranty agency on average 0.5 hours (30 minutes) to 

review and process the loan rehabilitation form. Under 

these proposed regulations, we estimate that burden will 

increase by 62,873 hours (125,746 borrowers requesting loan 

rehabilitation multiplied by 0.5 hours per loan 

rehabilitation request) under OMB Control Number 1845-0020.

Proposed §§682.405(b)(1)(vi) and 685.211(f)(3) would 

require a guaranty agency and the Secretary to recalculate 

the borrower’s rehabilitation payment amount if the 

borrower objects to the payment amount contained in the 

written repayment agreement that the guaranty agency or the 

Secretary sent to the borrower. 

Of the 299,159 FFEL borrowers in calendar year 2011 

that requested rehabilitation of their defaulted loans, we 

estimate that 12 percent or 35,899 borrowers would raise an 

objection to the initial determination of the reasonable 

and affordable monthly payment amount by the guaranty 

agency or the Secretary. We estimate that each objection 

will entail a phone conversation or email that would span 

on average 0.17 hours (10 minutes). This would increase 
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burden to the borrowers for a total of 6,103 hours (35,899 

borrowers objecting to the initial determination of the 

reasonable and affordable payment amount multiplied by 0.17 

hours per loan rehabilitation request) under OMB Control 

Number 1845-0020.

Of the 92,870 Direct Loan borrowers in calendar year 

2011 that requested loan rehabilitation of their defaulted 

loans, we estimate that 11,144 Direct Loan borrowers would 

raise an objection to the initial determination of the 

reasonable and affordable monthly payment amount. We 

estimate that each objection will entail a phone 

conversation or email that would span on average 0.17 hours 

(10 minutes). This would increase burden to the borrowers 

for a total of 1,894 hours (11,144 borrowers objecting to 

the initial determination of the reasonable and affordable 

payment amount multiplied by 0.17 hours per loan 

rehabilitation request) under OMB Control Number 1845-NEW2.

Proposed §§682.405(b)(1)(vii)and 685.211(f)(5) would 

require a borrower who objects to the monthly repayment 

amount contained in the written repayment agreement to 

provide the guaranty agency or the Secretary the 

documentation needed to calculate a monthly payment amount 

under the income-based repayment plan formula. If the 
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borrower does not provide this information to the guaranty 

agency or the Secretary, no rehabilitation agreement would 

exist with the borrower, and the guaranty agency or the 

Secretary would not proceed with the rehabilitation. 

Of the 299,159 FFEL borrowers in calendar year 2011 

that requested rehabilitation of their defaulted loans, we 

estimate that 12 percent or 35,899 borrowers would choose 

to submit documentation for a monthly payment amount to be 

calculated using the income-based repayment plan formula. 

We estimate that on average, each borrower would take 0.33 

hours (20 minutes) to collect, copy, and submit the 

required documentation. We estimate that burden would 

increase by 11,847 hours (35,899 borrowers required to 

submit documentation multiplied by 0.33 hours per loan 

rehabilitation request) under OMB Control Number 1845-0020.

Of the 92,870 Direct Loan borrowers in calendar year 

2011 that requested rehabilitation of their defaulted 

loans, we estimate that 12 percent or 11,144 borrowers 

would choose to submit documentation for a monthly payment 

amount to be calculated using the income-based repayment 

plan formula. We estimate that on average each borrower 

would take 0.33 hours (20 minutes) to collect, copy, and 

submit the required documentation. We estimate that burden 
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would increase by 3,678 hours (11,144 borrowers required to 

submit documentation multiplied by 0.33 hours per loan 

rehabilitation request) under OMB Control Number 1845-NEW2.

Proposed §§682.405(b)(1)(ix) and 685.211(f)(7) would 

require the Secretary or the guaranty agency, upon the 

borrower’s request, to adjust the borrower’s monthly 

rehabilitation payment due to a change in the borrower’s 

financial circumstances. The borrower would be required to 

provide documentation supporting the request. 

We estimate that 10 percent of the 299,159 FFEL 

borrowers who requested rehabilitation of their defaulted 

loans (29,916 FFEL borrowers, 19,203 of whom have FFEL 

program loans that are held by lenders and 10,713 of whom 

have FFEL program loans that are held by the Department) 

would have a change in their financial circumstances in the 

initial year the proposed regulation is implemented. We 

estimate that on average each borrower would take 0.33 

hours (20 minutes) to collect, copy, and submit the 

required documentation. We estimate that burden would 

increase by 9,872 hours (29,916 borrowers with changes in 

financial circumstances multiplied by 0.33 hours per loan 

rehabilitation request) under OMB Control Number 1845-0020.
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Of the 19,203 borrowers with FFEL loans held by 

lenders, 6,628 are held by public guaranty agencies and 

12,575 are held by not-for-profit guaranty agencies. Under 

the proposed regulations, we estimate 6,628 FFEL borrowers 

whose loans are held by public guaranty agencies would have 

a change in their financial circumstances in the initial 

year the proposed regulation is implemented. We estimate 

that for each request submitted it would take on average 

the guaranty agency 0.5 hours (30 minutes) to review and 

process the request. Under these proposed regulations, we 

estimate that burden would increase by 3,314 hours (6,628 

borrowers requesting loan rehabilitation multiplied 0.5 

hours per loan rehabilitation request equals 3,314 hours) 

under OMB Control Number 1845-0020.

Under the proposed regulations, we estimate that 

12,575 FFEL borrowers whose loans are held by not-forprofit guaranty agencies would request a change in their 

reasonable and affordable payment amount due to changed 

financial circumstances in the initial year the proposed 

regulation is implemented. We estimate that for each 

request submitted it would take on average the guaranty 

agency 0.5 hours (30 minutes) to review and process the 

request for a change in the payment amount. Under these 
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proposed regulations, we estimate that burden will increase 

by 6,288 hours (12,575 borrowers requesting a change in the 

loan rehabilitation payment amount multiplied by 0.5 hours 

per request) under OMB Control Number 1845-0020.

We estimate that 10 percent of Direct Loan borrowers 

who are rehabilitating their defaulted loans (9,287 Direct 

Loan borrowers) would request a change in the reasonable 

and affordable payment amount due to a change in their 

financial circumstances in the initial year the proposed 

regulation is implemented. We estimate that on average 

each borrower would take 0.33 hours (20 minutes) to 

collect, copy, and submit the required documentation. We 

estimate that burden would increase by 3,065 hours (9,287 

borrowers requesting a change in the reasonable and 

affordable payment amount multiplied by 0.33 hours per 

payment change request equals 3,065 hours) under OMB 

Control Number 1845-NEW2.

Sections 682.405(a) and 685.211(f) – Suspension of 

Administrative Wage Garnishment for Borrowers 

Rehabilitating Defaulted Loans

The proposed regulations would add new 

§§682.405(a)(3)(i) and 685.211(f)(12)(i) to the FFEL and 

Direct Loan Program regulations requiring a guaranty agency 
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or the Secretary, respectively, to suspend collecting on a 

defaulted loan through Administrative Wage Garnishment 

(AWG) after the borrower makes five qualifying payments 

under a loan rehabilitation agreement. The guaranty agency 

or the Secretary would not be permitted to suspend AWG 

prior to the fifth payment, and, after the fifth payment, 

the borrower would have the option to request that the 

guaranty agency or the Secretary continue collecting on the 

loan through AWG while the borrower makes voluntary 

payments under the rehabilitation agreement. 

Under proposed §682.405(a)(3)(ii), we estimate that 

state guaranty agencies will have 663 FFEL borrowers from 

whom they will be collecting payments through AWG while the 

borrower is also making voluntary repayments to 

rehabilitate the loan. After the borrower has made five 

qualifying voluntary loan payments (in addition to the AWG 

payments), the holder would suspend AWG. We estimate that 

on average each suspension of AWG would take one hour (60 

minutes). We estimate that burden would increase by 663 

hours (663 borrower requests multiplied by 1 hour per AWG 

suspension equals 663 hours) under OMB Control Number 1845-

0020.
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Under proposed §682.405(a)(3)(ii), we estimate that 

not-for-profit guaranty agencies will have 1,257 FFEL 

borrowers from whom they will be collecting payments using 

AWG while the borrower is also making voluntary repayments 

to rehabilitate the loan. After the borrower has made five 

qualifying voluntary loan payments (in addition to the AWG 

payments) the holder would suspend AWG. We estimate that 

on average each suspension of AWG would take 1 hour (60 

minutes). We estimate that burden would increase by 1,257 

hours (1,257 borrower requests multiplied by 1 hour per AWG 

suspension equals 1,257 hours) under OMB Control Number 

1845-0020.

Any burden under proposed §685.211(f)(12)(i) is 

attributable to the Department and therefore not a part of 

this burden assessment of affected entities. 

Collectively, the proposed changes in §682.405(a) and 

(b) would increase burden by 135,359 hours in OMB Control 

Number 1845-0020. 

Collectively, the proposed changes in §685.211(f) 

would increase burden by 8,637 hours in OMB Control Number 

1845-NEW2.

Sections 674.33(g), 682.402(d), and 685.214 - Closed School 

Discharge
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The proposed regulations at §§674.33(a)(4)(i)(B), 

682.402(d)(1), and 685.214(c)(1)(iii) would extend, for 

purposes of the closed school discharge, the current 90-day 

period to 120-days for students who leave before a school 

closes and add examples of the types of exceptional 

circumstances under which the Department may extend the 

120-day window. 

During the 2011 calendar year, 0 Perkins Loan 

borrowers received closed school loan discharges. We 

estimate that 15 Perkins Loan borrowers submitted 

applications for closed school discharges. We estimate 

that the average burden per response is 0.5 hours (30 

minutes) for each loan discharge application and that by 

expanding the period from 90 days to 120 days prior to 

school closure for students who had withdrawn to apply for 

a closed school loan discharge would increase the number of 

applicants by 20 percent. As a result there would be an 

estimated 18 applications under the proposed regulation for 

a total increase in burden of 2 hours (18 borrowers 

applying for loan discharge multiplied by 0.5 hours per 

application minus 15 borrowers applying for loan discharge 

under current regulations multiplied by 0.5 hours per 

application) under OMB Control Number 1845-0015.
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During the 2011 calendar year, 163 FFEL borrowers 

received closed school loan discharges. We estimate that 

230 FFEL borrowers submitted applications for discharge. 

We estimate that the average burden per response is 0.5 

hours (30 minutes) for each loan discharge application and 

that by expanding the period from 90 days to 120 days prior 

to school closure for students who had withdrawn to apply 

for a closed school loan discharge would increase the 

number of applicants by 20 percent. As a result there 

would be 276 applications under the proposed regulation for 

a total increase in burden of 23 hours (276 borrowers 

applying for loan discharge multiplied by 0.5 hours per 

application minus 230 borrowers applying for loan discharge 

under current regulations multiplied by 0.5 hours per 

application) under OMB Control Number 1845-0015.

During the 2011 calendar year, 128 Direct Loan 

borrowers received closed school loan discharges. We 

estimate that 295 Direct Loan borrowers submitted 

applications for discharge. We estimate that the average 

burden per response is 0.5 hours (30 minutes) for each loan 

discharge application and that by expanding the period from 

90 days to 120 days prior to school closure for students 

who had withdrawn to apply for a closed school loan 
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338

discharge would increase the number of applicants by 20 

percent, thus totaling 354 applications under the proposed 

regulation for a total increase in burden of 29 hours (354 

borrowers applying for loan discharge multiplied by 0.5 

hours per application minus 295 borrowers applying for loan 

discharge under current regulations multiplied by 0.5 hours 

per application) under OMB Control Number 1845-0015.

Collectively, the total increase in burden is 54 hours 

under OMB Control Number 1845-0015. 

Sections 674.19, 682.610, and 685.309 - School Enrollment 

Status Reporting Requirements

For the Federal Perkins Loan program, the proposed 

regulations would add a new §674.19(f) with the heading 

“enrollment reporting process.” Proposed §674.19(f)(1) 

would provide that, 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 in the manner and format prescribed by the 

Secretary and within the timeframe prescribed by the 

Secretary. Proposed §674.19(f)(2) would provide that, 

unless it expects to submit its subsequent updated 

enrollment report to the Secretary within the next 60 days, 

an institution must notify the Secretary within 30 days 
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339

after: (1) the date the school discovers that a loan under 

title IV of the HEA 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 has failed to enroll on at least a half-time 

basis for the period for which the loan was intended; or 

(2) the date the school discovers that a student who is 

enrolled at the institution and who received a loan under 

title IV of the HEA has changed his or her permanent 

address. Because the Secretary already receives enrollment 

information on Federal Perkins Loan borrowers who also have 

a FFEL loan or a Direct Loan, the additional burden 

associated with sending enrollment reports to institutions 

for the Federal Perkins Loan program is only associated 

with those Federal Perkins Loan borrowers whose only loan 

received under title IV of the HEA is a Federal Perkins 

Loan and who are enrolled on at least a half-time basis or 

who had recently changed enrollment status. 

In the 2011 calendar year, there were 2,070,514 

Federal Perkins Loan borrowers. Of the 2,070,514 Federal 

Perkins Loan borrowers, 240,959 borrowers have a Federal 

Perkins Loan as the only loan received under title IV of 

the HEA. Of the 240,959 borrowers, 53 percent (127,708 
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340

borrowers) were enrolled at least half-time or had recently 

changed enrollment status. The Secretary will be sending 

enrollment reports to each of the institutions 

approximately every 60 days or 6 reports per year. We 

estimate that on average the completion and submission of 

an enrollment report would take 0.05 hours (3 minutes) per 

borrower. Burden would increase by 38,312 hours (127,708 

borrowers multiplied by 0.05 hours per borrower multiplied 

by 6 reports per year) under OMB Control Number 1845-0019.

For the 2011 calendar year 51 percent of the Federal 

Perkins loan borrowers or 65,131 affected borrowers were at 

public institutions, therefore we estimate that burden 

would increase for public institutions by 19,539 hours 

(38,312 hours multiplied by 0.51) under OMB 1845-0019.

For the 2011 calendar year 45 percent of the Federal 

Perkins loan borrowers or 57,469 affected borrowers were at 

private not-for-profit institutions, therefore we estimate 

that burden would increase for private not-for-profit 

institutions by 17,240 hours (38,312 hours multiplied by 

0.45) under OMB 1845-0019.

For the 2011 calendar year 4 percent of the Federal 

Perkins loan borrowers or 5,108 affected borrowers were at 

proprietary institutions, therefore we estimate that burden 
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341

would increase for proprietary institutions by 1,533 hours 

(38,312 hours multiplied by 0.04) under OMB 1845-0019.

Collectively, the proposed regulatory changes to 

§674.19 would increase burden by 38,312 hours for 127,708 

affected borrowers under OMB 1845-0019.

For the FFEL Program, the proposed regulations would 

replace the term “student status confirmation reports” in 

§682.610(c) with the term “enrollment reporting process,” 

and would revise §682.610(c)(1) to provide that upon 

receipt of an enrollment report from the Secretary, a 

school must update all information included in the report 

and return the report to the Secretary in the manner and 

format prescribed by the Secretary and within the timeframe 

specified by the Secretary. Institutions currently 

participating in the FFEL or Direct Loan programs would 

continue to report enrollment to the Secretary and the 

lender. Because the only change regarding the FFEL Program 

reporting is in the definition of the reporting 

requirement, there is no change in burden for institutions 

participating in the FFEL and Direct Loan programs. 

Section 674.34 – Deferment of repayment – Federal Perkins 

loans
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342

The proposed regulations in §674.34(f)(1) would 

require schools that participate in the Perkins Loan 

Program to use the same eligibility criteria to define an 

eligible graduate fellowship program and to establish the 

eligibility of a borrower for a graduate fellowship 

deferment that lenders and the Department use in the FFEL 

and Direct Loan programs, respectively. The proposed 

regulations would require that a borrower provide the 

institution with a statement from an authorized official of 

the borrower’s graduate fellowship program certifying: (1) 

that the borrower holds at least a bachelor’s degree; and 

(2) the borrower’s anticipated completion date of the 

program. In calendar year 2011 there were 1,104 Perkins 

borrowers who applied for a graduate fellowship deferment. 

We estimate that on average it would take the borrower 0.25 

hours (15 minutes) to obtain the certification from an 

authorized official of the graduate fellowship program and 

to complete and submit the Perkins loan deferment form 

multiplied by an estimated 1,104 deferment applications 

equals 276 hours of increased burden to borrowers under OMB 

Control Number 1845-0019.

For the 2011 calendar year 51 percent of the Federal 

Perkins Loan borrowers or 563 affected borrowers were at 
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343

public institutions, therefore we estimate that burden 

would increase for authorizing officials at public 

institutions by 141 hours (1,104 applications multiplied by 

0.51 multiplied by 0.25 hours per certification) under OMB 

1845-0019.

For the 2011 calendar year 45 percent of the Federal 

Perkins Loan borrowers or 497 affected borrowers were at 

private not-for-profit institutions, therefore we estimate 

that burden would increase authorizing officials at for 

private not-for-profit institutions by 124 hours (1,104 

applications multiplied by 0.45 multiplied by 0.25 hours 

per certification) under OMB 1845-0019.

For the 2011 calendar year 4 percent of the Federal 

Perkins Loan borrowers or 44 affected borrowers were at 

proprietary institutions, therefore we estimate that burden 

would increase for private not-for-profit institutions by 

11 hours (1,104 applications multiplied by 0.04 multiplied 

by 0.25 hours per certification) under OMB 1845-0019.

Collectively, the proposed regulatory changes to 

§674.34 would increase burden by 552 hours under OMB 1845-

0019.

Section 682.410(b)(9)(i)(T)(2) – Administrative Wage 

Garnishment (AWG) – Use of Third-Party Contractors
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344

The proposed regulations would also add a new 

§682.410(b)(9)(i)(T) to the regulations, which specifies 

the functions that may be performed by a third-party 

servicer or collection contractor employed by the guaranty 

agency for services needed in the AWG process. The 

proposed regulations would make clear that the guaranty 

agency may not delegate to any third party the decision to 

order withholding of an individual borrower’s wages, and 

must create and retain records to demonstrate that each 

order issued has been individually authorized by an 

appropriate official of the guaranty agency. The proposed 

regulations would also specify the manner by which a 

withholding order may be sent to employers and the 

permissible activities that may be performed by a thirdparty servicer or collection contractor employed by the 

guaranty agency with respect to withholding orders. Only 

an authorized official of the guaranty 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 by either including the official’s 

signature on the order, or, 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 
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345

and address of the employer to whom the order was issued 

and the debt for which the order was issued.

In calendar year 2011, we estimate there were 84,293 

FFEL Program borrowers whose loans were held by state 

guaranty agencies and for which the guaranty agency had 

initiated AWG. We estimate that on average the guaranty 

agency would take 0.25 hours (15 minutes) to meet the 

recordkeeping requirements specified above. Total burden 

hours would increase by 21,073 hours (84,293 multiplied by 

0.25 hours) under OMB 1845-0020. 

In calendar year 2011, we estimate there were 159,912 

FFEL borrowers whose loans were held by not-for-profit 

guaranty agencies and for which the guaranty agency had 

initiated AWG. We estimate that on average the guaranty 

agency would take 0.25 hours (15 minutes) to meet the 

recordkeeping requirements specified above. Total burden 

hours would increase by 39,978 hours (159,912 multiplied by 

0.25 hours) under OMB 1845-0020.

The proposed changes in §682.410(b)(9)(i)(T)(2) would 

increase burden by 61,051 hours under OMB Control Number 

1845-0020.

Section 682.410(b)(9)(i)(H) Administrative Wage Garnishment 

(AWG) – Borrower Hearing requests
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The proposed regulations would also replace 

§682.410(b)(9)(i)(L) of the FFEL Program regulations with 

§682.410(b)(9)(i)(H) to provide 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 and a decision is not rendered within 60 

days following receipt of the borrower’s written request 

for a hearing, 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.

If a borrower does not request a hearing within the 

30-day time limit, the guaranty agency must go forward with 

the AWG. However, if a borrower does eventually request a 

hearing, a guaranty agency would still be required to 

provide one in sufficient time to have a decision issued 

within 60 days of the request. The Department added a 

provision specifying that if this hearing is not provided 

and a decision issued within 60 days, then the agency must 

suspend the AWG order beginning on the 61st day until a 

decision is issued.

In calendar year 2011, we estimate there were 84,293 

FFEL borrowers whose loans were held by state guaranty 
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347

agencies and for which the agencies had initiated AWG. We 

estimate that 10 percent of these borrowers (8,429) would 

request a hearing and that in 10 percent of those cases 

(843) a decision would not be rendered until after 60 days 

following the receipt of the borrower’s request. On 

average, we estimate that it would take one hour (60 

minutes) to suspend an administrative wage garnishment 

order. The total increase in burden would be 843 hours 

(843 FFEL borrowers undergoing AWG who requested a hearing 

where a decision was not rendered until after 60 days 

following the receipt of the borrower’s request multiplied 

by one hour per suspension) under OMB 1845-0020.

In calendar year 2011, we estimate there were 159,912 

FFEL borrowers whose loans where held by not-for-profit 

guaranty agencies and for which the agencies had initiated 

AWG. We estimate that 10 percent of these borrowers 

(15,991) would request a hearing and that in 10 percent of 

those cases (1,599) a decision would not be rendered until 

after 60 days following the receipt of the borrower’s 

request. On average, we estimate that it would take one 

hour (60 minutes) to suspend an administrative wage 

garnishment order. The total increase in burden would be 

1,599 hours (1,599 FFEL borrowers undergoing AWG who 
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348

requested a hearing where a decision was not rendered until 

after 60 days following the receipt of the borrower’s 

request multiplied by one hour per suspension) under OMB 

1845-0020.

Collectively, the proposed changes in 

§682.410(b)(9)(i)(H) would increase burden by 2,442 hours 

in OMB Control Number 1845-0020.

Section 682.410(b)(9)(i)(J) – Administrative Wage 

Garnishment (AWG) – Hearing Administration

The proposed regulations would add new paragraph 

(b)(9)(i)(J) and would provide for the manner by which the 

hearing is administered and certain provisions relating to 

bringing forth additional evidence and continuances. 

Specifically, the proposed regulations would require that 

the hearing be conducted as an informal proceeding, require 

witnesses in an oral hearing to testify under oath or 

affirmation, and require maintenance of a summary record of 

the hearing. The proposed regulations would also allow the 

borrower to request a continuance to submit additional 

evidence. 

In calendar year 2011, we estimate there were 84,293 

FFEL borrowers whose loans where held by state guaranty 

agencies and for which the agencies had initiated AWG. We 
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349

estimate that 10 percent of these borrowers (8,429) would 

request a hearing. We estimate that on average each 

summary record would take 1 hour (60 minutes). The total 

burden increase for this recordkeeping would be 8,429 hours

(8,429 hearings multiplied by one hour per hearing) under 

OMB 1845-0020. 

In calendar year 2011, we estimate there were 159,912 

FFEL borrowers whose loans where held by not-for-profit 

guaranty agencies and for which the agencies had initiated 

AWG. We estimate that 10 percent of these borrowers 

(15,991) would request a hearing. We estimate that on 

average each summary record would take one hour (60 

minutes). The total burden increase for this recordkeeping 

would be 15,991 hours (15,991 hearings multiplied by one 

hour per hearing) under OMB 1845-0020. 

Collectively, the proposed changes in 

§682.410(b)(9)(i)(J) would increase burden by 24,420 hours 

in OMB Control Number 1845-0020.

Section 682.410(b)(9)(i)(Q) – Administrative Wage 

Garnishment (AWG) – Recent Reemployment After Involuntary 

Unemployment

Proposed §682.410(b)(9)(i)(Q) would clarify that a 

borrower who wishes to object to AWG on the basis that he 
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350

or she is not subject to garnishment because of recent 

reemployment after involuntary separation, bears the burden 

of raising and proving that claim. 

In calendar year 2011, we estimate that there were 

84,293 FFEL borrowers whose loans where held by state 

guaranty agencies and for which the agencies had initiated 

AWG. Of that number, we estimate that 8 percent (6,743) 

became unemployed involuntarily. Furthermore, we estimate 

that a sub-group of those who became unemployed 

involuntarily, 5 percent (337) gained subsequent 

reemployment. We estimate that the average amount of time 

for each borrower subject to AWG in this sub-group to 

provide documentation that supports their claim to not be 

subject to AWG due to their recent reemployment to be 0.5 

hours. The increased burden to provide documentation that 

would support the borrower’s claim that he not be subject 

to AWG due to recent reemployment is 169 hours (337 

borrowers whose student loans were being collected by AWG, 

who became unemployed involuntarily, but subsequently 

gained reemployment multiplied by 0.5 hours per claim) 

under OMB 1845-0020. 

In calendar year 2011, we estimate that there were 

159,912 FFEL borrowers whose loans where held by not-for-
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351

profit guaranty agencies and for which the agencies had 

initiated AWG. Of that number, we estimate that 8 percent 

(12,793) became unemployed involuntarily. Furthermore, we 

estimate that a sub-group of those who became unemployed 

involuntarily, 5 percent (640) gained subsequent 

reemployment. We estimate that the average amount of time 

for each borrower subject to AWG in this sub-group to 

provide documentation that supports their claim to not be 

subject to AWG due to their recent reemployment to be 0.5 

hours. The total amount of increased burden to provide 

documentation that would support the borrower’s claim that 

he not be subject to AWG due to recent reemployment is 320 

hours (640 borrowers whose loans were being collected by 

AWG, who became employed involuntarily, but subsequently 

gained reemployment multiplied by 0.5 hours per claim) 

under OMB 1845-0020.

The proposed changes in §682.410(b)(9)(i)(Q) would 

collectively increase burden by 489 hours in OMB Control 

Number 1845-0020.

Collectively, the proposed changes in all 

subparagraphs of §682.410(b)(9) would increase burden by 

88,402 hours in OMB Control Number 1845-0020.

Repeal of Unnecessary FFEL Program Regulations
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The proposed regulatory language removes provisions 

from 34 CFR part 682 that are no longer required as a 

result of the SAFRA Act included in the Health Care and 

Reconciliation Act of 2010. One of the provisions of the 

SAFRA Act was the termination, as of July 1, 2010, of the 

authority for lenders to make new loans under the FFEL 

program. These proposed regulations would remove the FFEL 

provisions that are now unnecessary in light of this change 

and would also make technical and conforming changes. A 

number of the proposed technical and conforming changes in 

34 CFR Part 682 are for clarity, others are due to the 

elimination of cross-references.

Typically, the results of negotiated rulemaking 

produce some regulatory changes that correspond to 

reporting or recordkeeping burden on affected entities such 

as borrowers, lenders, or guaranty agencies. The primary 

information collection associated with 34 CFR Part 682 is 

the currently approved OMB 1845-0020. Unlike other newly 

proposed regulations where the resultant proposed 

regulation would either increase or decrease burden as a 

result of the change in a regulation, this expansive effort 

to eliminate unneeded regulations includes more wholesale 

changes being proposed to 34 CFR Part 682. As a result, 
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the entire history of burden associated with OMB 1845-0020 

was examined. While the burden assessments for OMB 1845-

0020 stretch back over 13 years, the necessary level of 

detail does not exist to disaggregate the amount of the 

currently approved amount of burden in this collection into 

its corresponding subsections of 34 CFR Part 682.

Therefore, a new methodology to calculate burden is 

required. We are able to establish that there are 38 

subsections of 34 CFR Part 682 that have burden under OMB 

1845-0020. We propose to divide the total of the currently 

approved burden hours of 12,352,197 hours by the 38 

affected subsections which on average yields 325,058 hours 

per affected subsection.

Each of the proposed subsections listed below will use 

this number of burden hours as a starting point. The 

proposed changes as provided below explain the burden 

impact.

The specific number of respondents from the affected 

entities is similarly unavailable, so we have established a 

percentage based on the number of borrowers per loan type 

to distribute the number of respondents across the affected 

entities.

Section 682.102 - Repaying a loan.
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The proposed regulations would amend the section 

heading, remove §682.102(a) through (d), which describe the 

application process for Stafford, PLUS, and Consolidation 

loans, and redesignate the paragraphs in current 

§682.102(e), which describes the loan repayment process, as 

§682.102(a)-(g). 

These proposed changes would not alter the prior 

burden assessment of 325,058 hours under OMB Control Number 

1845-0020.

Section 682.200 - Definitions - Lender.

The proposed regulations would remove the provisions 

of current §682.601(a)(3), (a)(5), and (a)(7), and place 

these provisions into paragraph (8) of the definition of 

“Lender” in §682.200(b). 

These proposed changes would not alter the prior 

burden assessment of 325,058 hours under OMB Control Number 

1845-0020.

Section 682.205 - Disclosure Requirements for Lenders.

The proposed regulations would remove §682.205(a) (the 

initial disclosure statement), (b) (statement of borrower 

rights and responsibilities), (g) (plain language 

disclosure), and (i) (separate disclosure for Consolidation 

loans) from the FFEL Program regulations and renumber the 
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355

remaining provisions. The remaining provisions include 

providing repayment information, providing required 

disclosures during the repayment period, and providing 

required disclosures for borrowers having difficulty making 

payments.

The proposed changes would decrease the required 

burden by 162,529 hours, and therefore the current burden 

hours would decrease from 325,058 hours to 162,529 hours 

under OMB Control Number 1845-0020.

Section 682.206 - Due Diligence in making a loan.

The proposed regulations would remove §682.206 from 

the FFEL regulations. The SAFRA Act eliminated the 

authority to make new FFEL Program loans, including FFEL 

Consolidation loans. As a result, the requirements 

governing the making of new FFEL Program loans are no 

longer needed and the previous burden associated with the 

making of a loan by a lender would be removed.

The proposed change would remove all of the prior 

assessment of 325,058 hours of burden associated under OMB 

Control Number 1845-0020, and therefore burden would 

decrease by 325,058 hours for a total of 0 hours.

Section 682.208 - Due diligence in servicing a loan.
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The proposed regulations would replace the term 

“national credit bureau(s)” with “nationwide consumer 

reporting agency(ies)” to more accurately reflect the 

reporting requirements. 

These proposed changes would not alter the prior 

burden assessment of 325,058 hours under OMB Control Number 

1845-0020.

Section 682.209 - Repayment of a loan.

The proposed regulations would amend §682.209(a)(3)(i) 

by adding a new paragraph that specifies that borrowers 

with fixed interest rates on their Stafford loans enter 

repayment on those loans the day after six months following 

the date the borrower was no longer enrolled on at least a 

half-time basis. The proposed regulations would remove 

current §682.209(e) through (g) and (j) from the 

regulations and re-designate the remaining paragraphs as 

paragraphs (e)-(g). Redesignated §682.209(e) (current 

paragraph (h)) would be amended to specify that a FFEL 

Consolidation loan borrower repaying under the IBR plan may 

make a scheduled monthly payment of less than the interest 

that accrues on the loan. 

The proposed changes would decrease the burden by 

65,012 hours, and therefore the current burden assessment 
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357

would decrease from 325,058 to 260,046 hours under OMB 

Control Number 1845-0020.

Section 682.210 - Deferment.

The proposed regulations would amend §682.210(a)(4) of 

the regulations to provide that a borrower’s representative 

may request a military service deferment on behalf of the 

borrower. In §682.210(b), the introductory language in 

paragraphs (b)(1) through (6) of §682.210 would be revised 

to identify the cohort of borrowers to which each paragraph 

applies. Throughout §682.210(b) cross-references would be 

added to the eligibility criteria that are applicable to 

deferments available to these borrowers. The proposed 

regulations also amend §682.210(s)(2) by removing the 

exception clause at the end of the provision, and amend 

§682.210(u)(5) by replacing the words “military active” 

with “post-active”.

These proposed changes would not alter the prior 

burden assessment of 325,058 hours under OMB Control Number 

1845-0020.

Section 682.211 - Forbearance. 

Substantive changes in this section have been 

identified earlier which added 9,446 hours of burden to OMB 

Control Number 1845-0020. There were no further changes to 
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this section that would alter the prior burden assessment 

of 325,058 hours under OMB Control Number 1845-0020. 

Collectively, the proposed changes would increase the 

burden assessment from 325,058 by 9,446 hours (as 

identified earlier) for a total of 334,504 hours under OMB 

Control Number 1845-0020.

Section 682.212 - Prohibited transactions.

There is no change to the current language in this 

section of the regulations, however the current burden 

referenced in OMB Control Number 1845-0020 is incorrectly 

calculated. 

This section primarily defines “prohibited 

transactions,” but does not impose recordkeeping or 

reporting requirements upon entities and thus does not 

impose burden. Therefore, these proposed regulations 

remove the 325,058 hours of burden that was previously 

incorrectly attributed to this section of the regulations. 

While subsection 34 CFR 682.212(h) provides that an 

institution, at its option, may make available a list of 

recommended or suggested lenders, the burden associated 

with that reporting is accounted for in §§601.10 and 

668.14.
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We propose removal of the prior burden assessment of 

325,058 hours under OMB Control Number 1845-0020, and 

therefore burden would decrease by 325,058 hours for a 

total of 0 hours.

Section 682.214 - Compliance with equal credit opportunity 

requirements.

The proposed regulations would remove §682.214 from 

the FFEL regulations. The SAFRA Act ended the making of 

new FFEL loans and therefore these requirements can be 

eliminated from the FFEL regulations. 

The proposed change would remove the prior burden 

assessment of 325,058 hours under OMB Control Number 1845-

0020, and therefore burden would decrease by 325,058 hours 

for a total of 0 hours.

Section 682.216 - Teacher loan forgiveness program.

The proposed regulations provide for minor language 

changes. 

These proposed changes would not alter the prior 

burden assessment of 325,058 hours under OMB Control Number

1845-0020.

Section 682.301 - Eligibility of borrowers for interest 

benefits on Stafford and Consolidation Loans.
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The proposed regulations would remove §682.301(c) from 

the regulations. The SAFRA Act ended the making of new 

FFEL Program loans and this provision related to 

determining borrower eligibility for the interest subsidy 

on new loans would be eliminated. 

The proposed change would remove the prior burden 

assessment of 325,058 hours under OMB Control Number 1845-

0020, and therefore burden would decrease by 325,058 hours 

for a total of 0 hours under this section.

Section 682.305 - Procedures for payment of interest 

benefits and special allowance and collection of 

origination and loan fees.

Section 682.305(c)(1)(ii) specifies that, regardless 

of the dollar volume of loans originated or held, a school 

lender or an eligible lender serving as trustee for a 

school or school-affiliated organization originating FFEL 

Program loans as a lender must submit an independent 

compliance audit to the Department each year. The proposed 

regulations would remove the reference to FFEL lenders 

originating loans. The proposed regulations would also 

remove the language specifying that a school and lender 

serving as a trustee for a school must submit an 

independent compliance audit to the Department each year.
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361

The number of school lenders or lenders serving as a 

trustee on behalf of a school or a school affiliated 

organization whose purpose is to originate loans for which 

the proposed regulations would provide relief is so small 

as to not be substantive. As a result, these proposed 

changes would not alter the prior burden assessment of 

325,058 hours under OMB Control Number 1845-0020.

Section 682.401 - Basic Program Agreement.

The proposed regulations would remove from §682.401 

language that addresses new loan originations, the process 

supporting loan origination, and a guaranty agency’s 

efforts to secure new loan volume. These provisions can be 

eliminated from the FFEL Program regulations because no new 

FFEL loans are being made. The remaining provisions 

proposed for elimination relate to school eligibility to 

participate in a guaranty agency’s program and the 

authority of an agency to limit, suspend, or terminate a 

school from its program. For purposes of new loans, 

schools now participate only in the Direct Loan Program. 

Any future actions to limit, suspend, or terminate a 

school’s participation in the student loan programs would 

be undertaken by the Department under 34 CFR part 668, 
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362

subpart G. Therefore, §682.401(b)(6) can also be 

eliminated from the FFEL Program regulations.

The proposed changes would decrease the burden related 

to FFEL processes by 32,506 hours, and therefore the 

current burden hours would decrease from 325,058 hours by 

32,506 hours to 292,552 hours under OMB Control Number 

1845-0020.

Section 682.402 - Death, disability, closed school, false 

certification, unpaid refunds, and bankruptcy payments.

Substantive changes in this section have been 

identified earlier under OMB 1845-0015. There were no 

further changes to this section that impacted the burden 

under OMB 1845-0020. 

As a result, the prior burden assessment of 325,058 

hours under OMB Control Number 1845-0020 would not be 

altered.

Section 682.404 - Federal reinsurance agreement.

The proposed regulations would make conforming 

language changes required due to the elimination of 

previous cross-references or obsolete requirements. 

These proposed changes would not alter the prior 

burden assessment of 325,058 hours under OMB Control Number 

1845-0020.
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363

Section 682.405 - Loan rehabilitation agreement.

Substantive changes in this section have been 

identified earlier. There were no further changes to this 

section. 

The substantive changes would be in addition to the 

previous burden assessment of 325,058 hours under OMB 

Control Number 1845-0020 and the earlier assessment 

increases burden by 135,359 hours in OMB 1845-0020 for a 

total burden of 460,417 hours.

Section 682.406 - Conditions for claim payments from the 

Federal Fund and for reinsurance coverage.

The proposed regulations would make a minor wording 

change due to the elimination of previous cross-references 

and add an ending date coinciding with the implementation 

of the SAFRA Act, which ended the making of new FFEL 

Program loans.

These proposed changes would not alter the prior 

burden assessment of 325,058 hours under OMB Control Number 

1845-0020.

Section 682.409 - Mandatory assignment by guaranty agencies 

of defaulted loans to the Secretary.

The proposed regulations would make no changes to this 

section of the regulations. 
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364

These proposed regulations would not alter the prior 

burden assessment of 325,058 hours under OMB Control Number 

1845-0020.

Section 682.410 - Fiscal, administrative, and enforcement 

requirements.

Apart from the earlier discussion of the changes made 

to the administrative wage garnishment provisions in this 

section of the regulations, the proposed regulations would 

only make minor wording changes to correct cross-references 

and delete obsolete references. 

Substantive changes in this section have been 

identified earlier. There are no further changes to this 

section. These proposed changes would not alter the prior 

burden assessment of 325,058 hours under OMB Control Number 

1845-0020 and the earlier assessment that increased burden 

by 88,402 hours in OMB 1845-0020 for a total of 413,460 

hours.

Section 682.411 - Lender due diligence in collecting 

guaranty agency loans.

The proposed regulations would make a minor wording 

change. 
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365

These proposed changes would not alter the prior 

burden assessment of 325,058 hours under OMB Control Number 

1845-0020.

Section 682.412 - Consequences of the failure of a borrower 

or student to establish eligibility.

The proposed regulations would make a minor wording 

change. 

These proposed changes would not alter the prior 

burden assessment of 325,058 hours under OMB Control Number 

1845-0020.

Section 682.414 - Records, reports, and inspection 

requirements for guaranty agency programs.

The proposed regulations would make minor wording

changes. One of the minor wording changes would eliminate 

a reporting category from annual guaranty agency reporting 

requirement. Under proposed §682.414, annually, for each 

State in which it operates, a guaranty agency report of the 

total guaranteed loan volume, default volume, and default 

rate does not have to be categorized by schools for all 

loans guaranteed after December 31, 1980. We estimate that 

this reduction in reporting categories would decrease the 

previous burden assessment by 16,253 hours, and therefore 
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366

the current burden of 325,058 would decrease to 308,805 

hours under OMB Control Number 1845-0020.

Section 682.417 - Determination of Federal funds or assets 

to be returned.

The proposed regulations make no changes to this 

section of the regulations. These proposed changes would 

not alter the prior burden assessment of 325,058 hours 

under OMB Control Number 1845-0020.

Section 682.418 - Prohibited uses of the assets of the 

Operating Fund during periods in which the Operating Fund 

contains transferred funds owed to the Federal Fund.

The proposed regulations would remove §682.418 from 

the FFEL regulations. The proposed change would remove the 

prior burden assessment of 325,058 hours under OMB Control 

Number 1845-0020, and therefore burden would be decreased 

by 325,058 hours for a total of 0 hours based on the 

elimination of the prior FFEL requirements.

Section 682.421 - Funds transferred from the Federal Fund 

to the Operating Fund by a guaranty agency.

The proposed regulations would remove §682.421 from 

the FFEL regulations. The proposed change would remove the 

prior burden assessment of 325,058 hours under OMB Control 

Number 1845-0020, and therefore burden would decrease by 
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367

325,058 hours for a total of 0 hours based on the 

elimination of the prior FFEL requirements.

Section 682.507 - Due diligence in collecting a loan.

Section 682.508 - Assignment of a loan.

Section 682.511 - Procedures for filing a claim.

Section 682.515 - Records, reports, and inspection 

requirements for Federal GSL program lenders

The proposed regulations would remove all of the 

regulations under Part 682, subpart E (§§682.500 through 

682.515) and reserve the subpart. The proposed regulations 

would also remove FISL-related Appendix C to part 682 from 

the regulations.

The proposed change would remove the prior burden 

assessment of 1,300,232 hours under OMB Control Number 

1845-0020, and therefore burden would decrease by 325,058 

hours for each of these four sections and decrease burden 

by 1,300,232 hours for a total of 0 hours based on the 

elimination of the prior FFEL requirements.

Section 682.602 - Rules for a school or school-affiliated 

organization that makes or originates loans through an 

eligible lender trustee.

The proposed regulations would remove §682.602 from 

the FFEL regulations. The proposed change would remove the 
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368

prior burden assessment of 325,058 hours under OMB Control 

Number 1845-0020, and therefore burden would decrease by 

325,058 hours for a total of 0 hours based on the 

elimination of the prior FFEL requirements.

Section 682.603 - Certification by a school that 

participated in connection with a loan application

The proposed regulations would make conforming 

language changes required due to the elimination of a 

cross-reference and reorganization due to a deletion of 

previous requirements. 

These proposed changes would not alter the prior 

burden assessment of 325,058 hours under OMB Control Number 

1845-0020.

Section 682.604 - Processing the borrower’s loan proceeds 

and counseling borrowers (Required exit counseling for 

borrowers).

The proposed regulations would change the heading of 

§682.604, remove current paragraph (a), remove and reserve 

paragraph (b), and remove paragraphs (c) through (f) and 

(h). The proposed regulations would also redesignate 

current paragraph (g) as paragraph (a). Newly redesignated 

§682.604(a)(1) would be amended to include another option 

for providing exit counseling to a student borrower who 
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369

withdraws without the school’s knowledge or fails to 

complete required exit counseling. In addition to the 

existing options described under “Current Regulations,” a 

school could also send written counseling materials to an 

email address provided by the student borrower. Newly 

redesignated §682.604(a)(2) would be amended by replacing 

cross-references to current paragraph (a), which we are 

proposing to remove, with the substantive information 

contained in the cross-referenced provision that must be 

included in the counseling. A new paragraph (a)(5) would 

also be added to newly redesignated §682.604(a) to clarify 

that: (1) a school’s compliance with the Direct Loan 

Program exit counseling requirements in 34 CFR 685.304(b) 

satisfies the FFEL exit counseling requirements for student 

borrowers who received both FFEL and Direct Loan program 

loans for attendance at the school if the school provides 

the information required by §682.604(a)(2)(i) and 

(a)(2)(ii); and (2) a student’s completion of interactive 

exit counseling offered by the Secretary meets both the 

FFEL exit counseling requirements and the Direct Loan exit 

counseling requirements in 34 CFR 685.304(b).

The proposed changes would decrease the previous 

burden assessment of 325,058 hours by 211,288 hours, and 
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370

therefore the current burden of 325,058 hours would 

decrease to 113,770 hours under OMB Control Number 1845-

0020 because the burden associated with new FFEL Program 

loans would be eliminated.

Section 682.605 - Determining the date of a student’s 

withdrawal.

The proposed regulations would not make any changes to

this section. These proposed regulations would not alter 

the prior burden assessment of 325,058 hours under OMB 

Control Number 1845-0020.

Section 682.610 - Administrative and fiscal requirements 

for schools that participated.

Apart from the earlier discussion of the changes made 

to this section, the proposed regulations would only make 

minor wording changes.

These proposed changes would not alter the prior 

burden assessment of 325,058 hours under OMB Control Number 

1845-0020.

Section 682.711 - Reinstatement after termination.

The proposed regulations would remove the language 

regarding the loss of a school lender’s participation upon 

the loss of the school’s eligibility to participate in the 

Title IV, Federal student financial aid programs. 
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371

These proposed changes would not alter the prior 

burden assessment of 325,058 hours under OMB Control Number 

1845-0020.

Section 682.712 - Disqualification review of limitation, 

suspension, and termination actions taken by guarantee 

agencies against lenders.

The proposed regulations would remove a crossreference to a section proposed for deletion. These 

proposed changes would not alter the prior burden 

assessment of 325,058 hours under OMB Control Number 1845-

0020.

Section 682.713 Disqualification review of limitation, 

suspension, and termination actions taken by guaranty 

agencies against a school.

The proposed regulations would remove §682.713 from 

the FFEL Program regulations. The proposed change would 

remove the prior burden assessment of 325,058 hours under 

OMB Control Number 1845-0020, therefore burden would 

decrease by 325,058 hours for a total of 0 hours based upon 

the elimination of the prior FFEL requirements.

Consistent with the discussion above, the following 

chart describes the sections of the proposed regulations 

involving information collections, the information being 
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372

collected, and the collections that the Department will 

submit to the Office of Management and Budget for approval 

and public comment under the Paperwork Reduction Act, and 

the estimated costs associated with the information 

collections. The monetized net savings from of the reduced 

burden on lender/guaranty agencies, institutions, and 

borrowers using wage data developed using BLS data, 

available at http://www.bls.gov/ncs/ect/sp/ecsuphst.pdf, is 

-$86,625,970 as shown in the chart below. This cost was 

based on an hourly rate of $24.61. 

Collection of Information

Regulatory 

Section

Information 

collection 

OMB Control Number 

and estimated burden 

[change in burden]

Estimated 

Costs
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682.211-

Forbearance

These proposed 

regulations 

amend the 

current FFEL 

regulations to 

authorize a 

lender to 

grant 

forbearance to 

a borrower who 

is in default 

on a loan, but 

prior to a 

default claim 

payment based 

on the 

borrower’s 

oral request. 

The lender 

must orally 

review with 

the borrower 

OMB 1845-0020 

The Department 

estimates that the 

burden would 

increase by 9,446 

hours. 

$232,466
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the terms and 

conditions of 

the 

forbearance 

and send a 

notice 

confirming the 

terms within 

30 days of the 

oral 

agreement.
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685.205-

Forbearance

These proposed 

regulations 

amend the 

current Direct 

Loan 

regulations to 

authorize the 

Secretary to 

grant 

forbearance to 

a borrower who 

is in default 

on a loan, but 

prior to a 

default claim 

payment based 

on the 

borrower’s 

oral request. 

The Secretary 

must orally 

review with 

OMB 1845-NEW2 

The Department 

estimates that the 

burden would 

decrease by 472

hours. 

- $11,616
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the borrower 

the terms and 

conditions of 

the 

forbearance 

and send a 

notice 

confirming the 

terms within 

30 days of the 

oral 

agreement.
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377

682.405 and 

685.211-

Reasonable 

and 

affordable 

rehabilitat

ion 

payments 

form

This is the 

form that the 

new 

regulations 

require to be 

used by the 

Secretary and 

a guaranty 

agency to 

determine a 

borrower’s 

request for a 

reasonable and 

affordable 

monthly 

rehabilitation 

payment of a 

defaulted 

loan.

OMB 1845-NEW1 

This would be a new 

collection. A 

separate 60-day 

Federal Register

notice will be 

published to solicit 

comment on the 

proposed form. The 

Department estimates 

that the burden 

would increase by 

588,044 hours.

$14,471,763
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682.405(b)-

Loan 

rehabilitat

ion 

agreement

The proposed 

regulations 

would require 

the guaranty 

agency to base 

determinations 

of reasonable 

and affordable 

rehabilitation 

payment 

amounts of 

defaulted 

loans on 

information 

provided on an 

OMB-approved 

form, and if 

requested, 

supporting 

documentation.

OMB 1845-0020 

The Department 

estimates that the 

burden would 

increase by 135,359 

hours.

$3,331,185
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685.211(f) 

Loan 

rehabilitat

ion 

agreement

The proposed 

regulations 

would require 

the Secretary 

to base 

determinations 

of reasonable 

and affordable 

rehabilitation 

payment 

amounts of 

defaulted 

loans on 

information 

provided on an 

OMB-approved 

form, and if 

requested, 

supporting 

documentation.

OMB 1845-NEW2 

The Department 

estimates that the 

burden would 

increase by 8,637 

hours. 

$212,557
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674.33,

682.402,

685.214 

Closed 

school 

discharge 

form

The proposed 

regulations 

would extend 

the current 

90-day window 

to 120-days 

for students 

who leave 

before a 

school closes 

may apply for 

a discharge of 

a title IV, 

HEA loan.

OMB 1845-0015

The Department 

estimates that the 

burden would 

increase by 54 

hours.

$1,329
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674.19 

School 

enrollment 

status 

reporting 

The proposed 

regulations 

would add a 

new section 

requiring 

institutions 

that 

participate in 

the Federal 

Perkins Loan 

program to, 

upon receipt 

of an 

enrollment 

report from 

the Secretary, 

update all 

information 

included in 

the report and 

return it to 

the Secretary 

OMB 1845-0019 

The Department 

estimates that the 

burden would 

increase by 38,312 

hours.

$942,858
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in the manner 

and format and 

within the 

timeframe 

prescribed by 

the Secretary.
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674.34 –

Deferment 

of 

repayment –

Federal 

Perkins 

Loans

The proposed 

regulations 

would require 

schools that 

participate in 

the Perkins 

Loan Program 

to use the 

same 

eligibility 

criteria that 

FFEL lenders 

and the 

Department use 

to define an 

eligible 

graduate 

fellowship 

program and to 

establish the 

eligibility of 

a Perkins Loan 

OMB 1845-0019 

The Department 

estimates that the 

burden would 

increase by 276 

hours.

$13,585
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borrower for a 

graduate 

fellowship 

deferment.
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682.410 –

Fiscal, 

administrat

ive and 

enforcement 

requirement

s.

The proposed 

regulations 

would add a 

new section to 

specify the 

functions that 

may be 

performed by a 

third-party 

servicer or 

collection 

contractor 

employed by a 

guaranty 

agency (GA) 

for 

administrative 

wage 

garnishment 

(AWG) 

purposes; 

replace a 

OMB 1845-0020 

The Department 

estimates that the 

burden would 

increase by 88,402 

hours. 

$2,175,573
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section of the 

regulations 

with a new 

section to 

provide that 

if a 

borrower’s 

written 

request for a 

hearing is 

received by 

the GA after 

the 30th day 

following the 

date of the 

garnishment 

notice and a 

decision is 

not rendered 

within 60 days 

following 

receipt of a 
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387

borrower’s 

written 

request the GA 

must suspend 

the AWG order 

beginning on 

the 61st day 

after the 

request was 

received until 

the hearing is 

provided and a 

decision 

rendered; 

provide for 

the manner by 

which the 

hearing is 

administered 

and certain 

provisions 

relating to 
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bringing forth 

additional 

evidence and 

continuances; 

clarify that a 

borrower who 

wishes to 

object that 

they are not 

subject to 

garnishment 

because of 

recent 

reemployment 

after 

involuntary 

separation 

bears the 

burden of 

raising and 

proving the 

claim.
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§682.102-

Obtaining 

and 

repaying a 

loan

The proposed 

regulations 

would amend 

the section 

heading,

remove the 

section of the 

regulations 

that describes 

the 

application 

process for 

FFEL loans, 

and redesignates the 

paragraphs 

describing the 

loan repayment 

process.

OMB 1845-0020 

The Department 

estimates that the 

burden would remain 

325,058 hours. 

No Change
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§682.200

Definitions 

- Lender

The proposed 

regulations 

make a 

conforming 

change to the 

definition of 

“Lender” due 

to the 

elimination of 

§682.601

OMB 1845-0020 

The Department 

estimates that the 

burden would remain 

325,058 hours.

No change
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§682.205 

Disclosure 

Requirements 

for Lenders

Removes regulations 

governing required 

lender disclosures 

to borrowers that 

are provided when 

new loans are made. 

The remaining 

provisions include 

providing repayment 

information, 

providing required 

disclosures during 

the repayment 

period, and 

providing required 

disclosures for 

borrowers having 

difficulty making 

payments.

OMB 1845-0020 

The Department 

estimates that the 

burden would 

decrease by 

162,529 hours to 

162,529 hours.

-$3,999,839
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§682.206 

Due 

Diligence in 

making a 

loan.

The proposed 

regulations would 

remove §682.206 

from the FFEL 

regulations. The 

SAFRA Act 

eliminated the 

authority to make 

new FFEL Program 

loans, including 

FFEL consolidation 

loans.

OMB 1845-0020 

The Department 

estimates that the 

burden would 

decrease by 

325,058 hours to 0 

hours of burden. 

-$7,999,677
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§682.208 

Due 

diligence in 

servicing a 

loan.

The proposed 

regulations would 

replace the term 

“national credit 

bureau(s)” with 

“nationwide 

consumer reporting 

agency(ies)” to 

more accurately 

reflect the 

appropriate legal 

terms.

OMB 1845-0020 

The Department 

estimates that the 

burden would 

remain 325,058 

hours.

No change
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§682.209 

Repayment of 

a loan.

The proposed 

regulations would 

amend 

§682.209(a)(3)(i) 

by adding a new 

paragraph which 

specifies that 

borrowers with 

fixed interest 

rates on their 

Stafford loans 

enter repayment on 

those loans the day 

after six months 

following the date 

the borrower was no

longer enrolled on 

at least a halftime basis. The 

proposed 

regulations would 

remove current 

OMB 1845-0020 

The Department 

estimates that the 

burden would 

decrease from 

325,058 by 65,012 

hours to 260,046 

hours.

-$1,599,945
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§§682.209(e)-(g) 

and (j) from the 

regulations and redesignate the 

remaining 

paragraphs as 

paragraphs (e)-(g). 

Re-designated 

§682.209(e) 

(current paragraph 

(h)) would be 

amended to specify 

that a FFEL 

Consolidation loan 

borrower repaying 

under the incomebased repayment 

plan may make a 

scheduled monthly 

payment of less 

than the interest 

that accrues on the 
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loan.
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§682.210 

Deferment.

The proposed 

regulations would 

amend the deferment 

regulations to 

provide that a 

borrower’s 

representative may 

request a military 

service deferment 

on behalf of the 

borrower. In 

§682.210(b), the 

introductory 

language would be 

revised to identify 

the cohort of 

borrowers to which 

each paragraph 

applies. 

Throughout 

§682.210(b) crossreferences would be 

OMB 1845-0020 

The Department 

estimates that the 

burden would 

remain 325,058 

hours.

No change
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398

added to the 

eligibility 

criteria that are 

applicable to 

deferments 

available to these 

borrowers. The 

proposed 

regulations would 

remove the 

exception clause at 

the end of the 

provision, and by 

replacing the words 

“military active” 

with the word 

“post-active”.
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399

§682.211 

Forbearance. 

Substantive changes 

in this section 

have been 

identified earlier. 

The additional 

proposed amendments 

to the regulations 

would allow a 

lender to grant 

forbearance to a 

borrower who is 

delinquent at the 

beginning of a 

period of nonmandatory 

authorized 

forbearance.

OMB 1845-0020 

The Department 

estimates that the 

burden would 

remain 325,058 

hours.

(NOTE: Other 

earlier proposed 

changes increased 

burden by 9,446 

hours for a total 

of 334,504 hours.)

No 

change.
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400

§682.212 

Prohibited 

transactions

.

There is no change 

to the current 

language in this 

section of the 

regulations however 

the current burden 

referenced in OMB 

Control Number 

1845-0020 is 

incorrect.

OMB 1845-0020 

The Department 

estimates that the 

burden would 

decrease by 

325,058 hours to 0 

hours of burden. 

-7,999,677
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401

§682.214 

Compliance 

with equal 

credit 

opportunity 

requirements

.

The proposed 

regulations would 

remove §682.214 

from the FFEL 

regulations. The 

SAFRA Act ended the 

making of new FFEL 

loans and therefore 

these requirements 

can be eliminated 

from the FFEL 

regulations.

OMB 1845-0020 

The Department 

estimates that the 

burden would 

decrease by 

325,058 hours to 0 

hours of burden. 

-7,999,677
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402

§682.216 

Teacher loan 

forgiveness 

program.

The proposed 

regulations provide 

for minor language 

changes.

OMB 1845-0020 

The Department 

estimates that the 

burden would 

remain 325,058 

hours.

No change
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403

§682.301 

Eligibility 

of borrowers 

for interest 

benefits on 

Stafford and 

Consolidatio

n Loans.

The proposed 

regulations would 

remove §682.301(c)

from the 

regulations. The 

SAFRA Act ended the 

making of new FFEL 

loans and this 

provision related 

to determining 

borrower 

eligibility for the 

interest subsidy on 

new loans would be 

eliminated.

OMB 1845-0020 

The Department 

estimates that the 

burden would 

decrease by 

325,058 hours to 0 

hours of burden. 

-7,999,677
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404

§682.305 

Procedures 

for payment 

of interest 

benefits and 

special 

allowance 

and 

collection 

of 

origination 

and loan 

fees.

Section 

682.305(c)(1)(ii) 

specifies that, 

regardless of the 

dollar volume of 

loans originated or 

held, a school 

lender or an 

eligible lender 

serving as trustee 

for a school or 

school-affiliated 

organization 

originating FFEL 

loans as a lender 

must submit an

independent 

compliance audit to 

the Department each 

year. The proposed 

regulations would 

remove the 

OMB 1845-0020 

The Department 

estimates that the 

burden would 

remain 325,058 

hours.

No change
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405

reference to FFEL 

lenders originating 

loans. 
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406

§682.401 

Basic 

Program 

Agreement.

The proposed 

regulations would 

remove from 

§682.401 language 

addressing new loan 

originations, the 

process for loan 

origination, and a 

guaranty agency’s 

efforts to secure 

new loan volume. 

These provisions 

can be eliminated 

from the FFEL 

regulations because 

no new FFEL loans 

are being made. 

The remaining 

provisions proposed 

for elimination 

relate to school 

eligibility to 

OMB 1845-0020 

The Department 

estimates that the 

burden of 325,058 

hours would 

decrease by 32,506 

to 292,552 hours.

-799,973
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407

participate in a 

guaranty agency’s 

program and the 

authority of an 

agency to limit, 

suspend, or 

terminate a school 

from its program. 

For purposes of new 

loans, schools now 

participate only in 

the Direct Loan 

Program. Any 

future actions to 

limit, suspend, or 

terminate a 

school’s 

participation in 

the student loan 

programs will be 

undertaken by the 

Department under 34 
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408

CFR part 668, 

subpart G. 
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409

§682.402 

Death, 

disability, 

closed 

school, 

false 

certificatio

n, unpaid 

refunds, and 

bankruptcy 

payments.

Substantive changes 

in this section 

have been 

identified earlier. 

There were no 

further changes to 

this section. 

OMB 1845-0020 

The Department 

estimates that the 

burden would 

remain 325,058 

hours.

No change
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410

§682.404 

Federal 

reinsurance 

agreement.

The proposed 

regulations would 

make conforming 

language changes 

required due to the 

elimination of 

previous cross 

references or 

obsolete 

requirements.

OMB 1845-0020 

The Department 

estimates that the 

burden would 

remain 325,058 

hours.

No change
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411

§682.405 

Loan 

rehabilitati

on 

agreement.

Substantive changes 

in this section 

have been 

identified earlier. 

There were no 

further changes to 

this section.

OMB 1845-0020 

The Department 

estimates that the 

burden would 

remain 325,058 

hours.

No change
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412

§682.406 

Conditions 

for claim 

payments 

from the 

Federal Fund 

and for 

reinsurance 

coverage.

The proposed 

regulations would 

make a minor 

wording change due 

to the elimination 

of previous crossreferences and add 

an ending date 

coinciding with the 

implementation of 

the SAFRA Act, 

which ended the 

making of new FFEL 

loans.

OMB 1845-0020 

The Department 

estimates that the 

burden would 

remain 325,058 

hours.

No change
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413

§682.409 

Mandatory 

assignment 

by guaranty 

agencies of 

defaulted 

loans to the 

Secretary.

The proposed 

regulations make no 

changes to this 

section of the 

regulations. 

OMB 1845-0020 

The Department 

estimates that the 

burden would 

remain 325,058 

hours.

No change
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414

§682.410 

Fiscal, 

administrati

ve, and 

enforcement 

requirements

.

Apart from the 

earlier discussion 

of the changes made 

to the 

administrative wage 

garnishment 

provisions of this 

section of the 

regulations, the 

proposed 

regulations would 

only make minor 

wording changes to 

conform to cross 

reference changes 

and delete obsolete 

references.

OMB 1845-0020 

The Department 

estimates that the 

burden would 

remain 325,058 

hours.

(NOTE: Other 

earlier proposed 

changes to the 

Administrative 

Wage Garnishment 

regulations 

increase burden by 

88,402 hours for a 

total of 413,460 

hours.)

No change
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415

§682.411 

Lender due 

diligence in 

collecting 

guaranty 

agency 

loans.

The proposed 

regulations would 

make a minor 

wording change.

OMB 1845-0020 

The Department 

estimates that the 

burden would 

remain 325,058 

hours.

No change
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416

§682.412 

Consequences 

of the 

failure of a 

borrower or 

student to

establish 

eligibility.

The proposed 

regulations would 

make a minor 

wording change.

OMB 1845-0020 

The Department 

estimates that the 

burden would 

remain 325,058 

hours.

No change
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417

§682.414 

Records, 

reports, and 

inspection 

requirements 

for guaranty 

agency 

programs.

The proposed 

regulations would 

make a minor 

wording change.

OMB 1845-0020 

The Department 

estimates that the 

burden would 

decrease from 

325,058 hours by 

16,253 hours for a 

total of 308,805 

hours.

-$399,986
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418

§682.417 

Determinatio

n of Federal 

funds or 

assets to be 

returned.

The proposed 

regulations would 

make a minor 

wording change.

OMB 1845-0020 

The Department 

estimates that the 

burden would 

remain 325,058 

hours.

No change
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419

§682.418 

Prohibited 

uses of the 

assets of 

the 

Operating 

Fund during 

periods in 

which the 

Operating 

Fund 

contains 

transferred 

funds owed 

to the 

Federal 

Fund.

The proposed 

regulations would 

remove §682.418 

from the FFEL 

regulations. 

The Department 

estimates that the 

burden would 

decrease by 

325,058 hours to 0 

hours of burden.

-$7,999,677
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420

§682.421 

Funds 

transferred 

from the 

Federal Fund 

to the 

Operating 

Fund by a 

guaranty 

agency.

The proposed 

regulations would 

remove §682.421 

from the FFEL 

regulations. 

OMB 1845-0020 

The Department 

estimates that the 

burden would 

decrease by 

325,058 hours to 0 

hours of burden. 

-7,999,677
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421

§682.507 

Due 

diligence in 

collecting a 

loan.

The proposed 

regulations would 

remove all of the 

regulations under 

subpart E 

(§§682.500 through 

682.515) and 

reserve the 

subpart.

OMB 1845-0020 

The Department 

estimates that the 

burden would 

decrease by 

325,058 hours to 0 

hours of burden. 

-7,999,677
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422

§682.508 

Assignment 

of a loan.

The proposed 

regulations would 

remove all of the 

regulations under 

subpart E 

(§§682.500 through 

682.515) and 

reserve the 

subpart.

OMB 1845-0020 

The Department 

estimates that the 

burden would 

decrease by 

325,058 hours to 0 

hours of burden. 

-7,999,677
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423

§682.511 

Procedures 

for filing a 

claim.

The proposed 

regulations would 

remove all of the 

regulations under 

subpart E 

(§§682.500 through 

682.515) and 

reserve the 

subpart.

OMB 1845-0020 

The Department 

estimates that the 

burden would 

decrease by

325,058 hours to 0 

hours of burden. 

-7,999,677
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424

§682.515 

Records, 

reports, and 

inspection 

requirements 

for Federal 

GSL program 

lenders

The proposed 

regulations would 

remove all of the 

regulations under 

subpart E 

(§§682.500 through 

682.515) and 

reserve the 

subpart.

OMB 1845-0020 

The Department 

estimates that the 

burden would 

decrease by

325,058 hours to 0 

hours of burden. 

-7,999,677
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425

§682.602 

Rules for a 

school or 

schoolaffiliated 

organization 

that makes 

or 

originates 

loans 

through an 

eligible 

lender 

trustee.

The proposed 

regulations would 

remove §682.602 

from the FFEL 

regulations.

OMB 1845-0020 

The Department 

estimates that the 

burden would 

decrease by

325,058 hours to 0 

hours of burden. 

-7,999,677
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426

§682.603 

Certificatio

n by a 

school that 

participated 

in 

connection 

with a loan 

application

The proposed 

regulations would 

make conforming 

language changes 

required due to the 

elimination of a 

cross reference and 

reorganization due 

to a deletion of 

previous 

requirements.

OMB 1845-0020 

The Department 

estimates that the 

burden would 

remain 325,058 

hours.

No change
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427

§682.604 

Processing 

the 

borrower’s 

loan 

proceeds and 

counseling 

borrowers 

(Required 

exit 

counseling 

for 

borrowers).

The proposed 

regulations would 

remove, reserve, 

and redesignate 

paragraphs to 

illustrate the 

counseling 

requirements, 

specifically the 

exit counseling 

requirements.

OMB 1845-0020 

The Department 

estimates that the 

burden would 

decrease from 

325,058 by 211,288 

hours for a total 

of 113,770 hours.

-$5,199,798
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428

§682.605 

Determining 

the date of 

a student’s 

withdrawal.

The Secretary is 

not proposing to 

change the language 

in this section. 

OMB 1845-0020 

The Department 

estimates that the 

burden would 

remain 325,058 

hours.

No change
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429

§682.610 

Administrati

ve and 

fiscal 

requirements 

for schools 

that 

participated

.

The proposed 

regulations would 

only make minor 

wording changes.

OMB 1845-0020 

The Department 

estimates that the 

burden would 

remain 325,058 

hours.

No change
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430

§682.711 

Reinstatemen

t after 

termination.

The proposed 

regulations remove 

the language 

regarding the loss 

of a school 

lender’s 

participation upon 

the loss of the 

school’s 

eligibility to 

participate in the 

Title IV, Federal 

student financial 

assistance 

programs.

OMB 1845-0020 

The Department 

estimates that the 

burden would 

remain 325,058 

hours.

No change
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431

§682.712 

Disqualifica

tion review 

of 

limitation, 

suspension, 

and 

termination 

actions 

taken by 

guarantee 

agencies 

against 

lenders.

The proposed 

regulations would 

remove a crossreference to a 

section proposed 

for deletion.

OMB 1845-0020 

The Department 

estimates that the 

burden would 

remain 325,058 

hours.

No change
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432

§682.713 

Disqualifica

tion review 

of 

limitation, 

suspension, 

and 

termination 

actions 

taken by 

guaranty 

agencies 

against a 

school.

The proposed 

regulations would 

remove §682.713 

from the FFEL 

regulations.

OMB 1845-0020 

The Department 

estimates that the 

burden would 

decrease by

325,058 hours to 0 

hours of burden. 

-7,999,677

The total burden hours and change in burden hours associated 

with each OMB Control number affected by these proposed 

regulations follows:

Control number Total Proposed 

Burden Hours

Proposed Change in 

Burden Hours

1845-0015 14,828 + 54 

1845-0019 6,247,152 + 38,864 

1845-0020 8,197,127 - 4,155,077

1845-NEW1 588,044 +588,044

1845-NEW2 8,165 + 8,165

Total 15,055,316 -3,519,950
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433

Intergovernmental Review

This program is subject to Executive Order 12372 and 

the regulations in 34 CFR part 79. One of the objectives 

of the Executive order is to foster an intergovernmental 

partnership and a strengthened federalism. The Executive 

order relies on processes developed by State and local 

governments for coordination and review of proposed Federal 

financial assistance.

This document provides early notification of our specific 

plans and actions for this program.

Assessment of Educational Impact

In accordance with section 411 of the General Education 

Provisions Act, 20 U.S.C. 1221e–4, the Secretary 

particularly requests comments on whether these proposed 

regulations would require transmission of information that 

any other agency or authority of the United States gathers 

or makes available.

Accessible Format: Individuals with disabilities can 

obtain this document in an accessible format (e.g., 

braille, large print, audiotape, or compact disc) on 

request to the program contact person listed under FOR 

FURTHER INFORMATION CONTACT.
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434

Electronic Access to This Document: The official version 

of this document is the document published in the Federal 

Register. Free Internet access to the official edition of 

the Federal Register and the Code of Federal Regulations is 

available via the Federal Digital System at: 

www.gpo.gov/fdsys. At this site you can view this 

document, as well as all other documents of this Department 

published in the Federal Register, in text or Adobe 

Portable Document Format (PDF). To use PDF you must have 

Adobe Acrobat Reader, which is available free at the site.

You may also access documents of the Department 

published in the Federal Register by using the article 

search feature at: www.federalregister.gov. Specifically, 

through the advanced search feature at this site, you can 

limit your search to documents published by the Department.

(Catalog of Federal Domestic Assistance Numbers: 84.032 

Federal Family Education Loan Program; 84.038 Federal Perkins 

Loan Program; 84.268 William D. Ford Federal Direct Loan 

Program)

List of Subjects

34 CFR Parts 668, 674, 682, and 685 

Administrative practice and procedure, Colleges and 

universities, Education, Loan programs—education, Reporting 
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435

and recordkeeping requirements, Student aid, Vocational 

education.

Dated:

_______________________

Arne Duncan,

Secretary of Education.

For the reasons discussed in the preamble, the 

Secretary proposes to amend title 34 of the Code of Federal 

Regulations chapter VI as follows:

PART 668--STUDENT ASSISTANCE GENERAL PROVISIONS

1. The authority citation for part 668 continues to 

read as follows:

AUTHORITY: 20 U.S.C. 1001, 1002, 1003, 1070(g), 1085, 

1088, 1091, 1092, 1094, 1099c, and 1099c-1, unless 

otherwise noted.

§668.204 [Amended] 

2. Section 668.204(c)(1)(i) is amended by removing 

the figure “0.06015” and adding, in its place, the figure 

“0.0832”.

§668.214 [Amended]

3. Section 668.214 is amended by:
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436

A. In paragraph (a)(1), removing the figure “0.06015” 

and adding, in its place, the figure “0.0832”.

B. In paragraph (d)(2), removing the words “0.06015 

or 0.0625” and adding, in their place, the words “0.0832 or 

0.0625, as applicable”.

PART 674--FEDERAL PERKINS LOAN PROGRAM

4. The authority citation for part 674 continues to 

read as follows:

AUTHORITY: 20 U.S.C. 1070g, 1087aa-1087hh, unless 

otherwise noted.

5. Section 674.2(b) is amended by revising the 

definition of “Satisfactory repayment arrangement” to read 

as follows: 

§674.2 Definitions.

* * * * *

(b) * * *

Satisfactory repayment arrangement: (1) For purposes 

of regaining eligibility for grant, loan, or work 

assistance under title IV of the HEA, to the extent that 

the borrower is otherwise eligible, the making of six ontime, consecutive, voluntary, full monthly payments on a 

defaulted loan. “On-time” means a payment made within 20 

days of the scheduled due date. A borrower may obtain the 
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437

benefit of this paragraph with respect to renewed 

eligibility once. 

(2) Voluntary payments are payments made directly by 

the borrower, and do not include payments obtained by 

income tax offset, 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.

* * * * *

6. Section 674.9 is amended by:

A. In paragraph (j)(1), removing the word “those”.

B. Redesignating paragraph (k) as paragraph (l).

C. Adding a new paragraph (k).

The addition reads as follows:

§674.9 Student eligibility.

* * * * *

(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 34 CFR 
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438

682.200(b) or 685.102(b) on the defaulted loan, as 

determined by the loan holder; and

* * * * *

7. Section 674.19 is amended by adding a new 

paragraph (f) to read as follows: 

§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 30 days 

after the date the school discovers that--

(i) A loan under title IV of the HEA 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 
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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 loan under title IV of the HEA has changed 

his or her permanent address. 

* * * * * 

8. Section 674.33 is amended by:

A. Revising paragraph (g)(4)(i)(B).

B. In paragraph (g)(8)(i), removing the figure “90” 

and adding, in its place, the figure “120”.

The revision reads as follows:

§674.33 Repayment.

* * * * *

(g) * * * 

(4) * * *

(i) * * *

(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 days before the school closed. The Secretary may 

extend the 120-day period if the Secretary determines that 

exceptional circumstances related to the school’s closing 

justify an extension. Exceptional circumstances for this 
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purpose may include, but are not limited to: the school’s 

loss of accreditation; the school’s discontinuation of the 

majority of its academic programs; action by the State to 

revoke the school’s license to operate or award academic 

credentials in the State; or a finding by a State or 

Federal government agency that the school violated State or 

Federal law; and

* * * * *

9. Section 674.34 is amended by:

A. In the introductory text of paragraph (e), 

removing the reference “(e)(5)” and adding, in its place, 

the reference “(e)(4)”, each time it appears.

B. Removing paragraph (e)(4).

C. Redesignating paragraph (e)(5) as paragraph 

(e)(4).

D. Removing paragraph (e)(6).

E. Redesignating paragraphs (e)(7) and (e)(8) as 

paragraphs (e)(5) and (e)(6), respectively.

F. In newly redesignated paragraph (e)(5), removing 

the words “paragraphs (e)(3) and (e)(4)” and adding, in 

their place, the words “paragraph (e)(3)”.

G. Removing paragraph (e)(9).

H. Revising paragraph (f) to read as follows:
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§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 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;
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(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.

* * * * *

10. Section 674.39 is amended by revising paragraph 

(a)(2) to read as follows:

§674.39 Loan rehabilitation.

(a) * * *

(2) A loan is rehabilitated if the borrower--

(i) Requests rehabilitation; and

(ii) Makes a full monthly payment--as determined by 

the institution--within 20 days of the due date, each month 

for 9 consecutive months.

* * * * *

§674.50 [Amended]

11. Section 674.50(e)(1) is amended by removing the 

words “is submitted for assignment under 674.8(d)(3)” and 
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adding, in their place, the words “was made before 

September 13, 1982”.

12. Section 674.52 is amended by:

A. Removing paragraph (b)(2).

B. Redesignating paragraph (b)(1)(i) as paragraph 

(b)(1).

C. Redesignating paragraph (b)(1)(ii) as paragraph 

(b)(2).

D. Redesignating paragraphs (c), (d), and (e) as 

paragraphs (d), (e), and (f), respectively.

E. Adding a new paragraph (c).

F. Adding a new paragraph (g).

The additions read as follows:

§674.52 Cancellation procedures.

* * * * *

(c) Break in service. (1) If the borrower is unable 

to complete an academic year of eligible teaching service 

due to a condition that is covered under the Family and 

Medical Leave Act of 1993 (FMLA) (29 U.S.C. 2601, et seq.), 

the borrower still qualifies for the cancellation if--

(i) The borrower completes one half of the academic 

year; and
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(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, tenure, and 

retirement. 

(2) If the borrower is unable to complete a year of 

eligible service under §§674.56, 674.57, 674.59, or 674.60 

due to a condition that is covered under the FMLA, the 

borrower still qualifies for the cancellation if the 

borrower completes at least six consecutive months of 

eligible service. 

* * * * *

(g) Switching cancellation categories. A borrower 

who qualifies for a cancellation under one of the 

cancellation categories in §§674.53, 674.56, 674.57, or 

674.59 receives cancellation of 15 percent of the original 

principal for the first and second years of qualifying 

service, 20 percent of the original principal for the third 

and fourth years of qualifying service, and 30 percent of 

the original principal for the fifth year of qualifying 

service. If, after the first, second, third, or fourth 

complete year of qualifying service--

(1) The borrower switches to a position that 

qualifies the borrower for cancellation under a different 
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cancellation category under §§674.53, 674.56, 674.57, or 

674.59, the borrower’s cancellation rate progression 

continues from the last year the borrower received a 

cancellation under the former cancellation category; or

(2) The borrower switches to a position that 

qualifies the borrower for cancellation under a different 

cancellation category under §§674.58 or 674.60, the 

borrower’s cancellation rate progression under the new 

cancellation category begins at the year one cancellation 

rates specified in §§674.58(b) or 674.60(b), respectively.

* * * * *

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

13. The authority citation for part 682 continues to 

read as follows:

AUTHORITY: 20 U.S.C. 1071 to 1087-2, unless

otherwise noted. 

14. Section 682.100 is amended by:

A. Revising the introductory text of paragraph (a).

B. In paragraph (a)(1), removing the word

“encourages” and adding, in its place, the 

word “encouraged”.
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C. In the first sentence of paragraph (a)(3), 

removing the word “encourages” and adding, in its place, 

the word “encouraged”.

D. Revising the last sentence of paragraph (a)(3).

E. In paragraph (a)(4), removing the word 

“encourages” and adding, in its place, the word 

“encouraged”.

F. In paragraph (a)(4), adding the words “and prior 

to July 1, 2010” in the last sentence between the date 

“November 13, 1997” and the punctuation “.”.

G. Revising paragraph (b)(2)(iii).

The revisions read as follows:

§682.100 The Federal Family Education Loan programs.

(a) This part governs the following four programs 

collectively referred to in these regulations as “the 

Federal Family Education Loan (FFEL) programs,” in which 

lenders used their own funds prior to July 1, 2010, to make 

loans to enable a student or his or her parents to pay the 

costs of the student’s attendance at postsecondary schools.

* * * * *

(3) * * * The PLUS Program also provided for making 

loans to graduate and professional students on or after 

July 1, 2006 and prior to July 1, 2010.
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* * * * *

(b) * * * 

(2) * * *

(iii) The Federal GSL programs were authorized to 

operate in States not served by a guaranty agency program. 

In addition, the FISL and Federal SLS (as in effect for 

periods of enrollment that began prior to July 1, 1994) 

programs were authorized, under limited circumstances, to 

operate in States in which a guaranty agency program did 

not serve all eligible students.

* * * * * 

15. Section 682.101 is amended by:

A. Adding introductory text to this section.

B. In paragraph (a), removing the words “may make 

loans.” and adding, in their place, the words “made loans 

prior to July 1, 2010.”

C. In paragraph (b), removing the words “may 

participate” and adding, in their place, the word 

“participated”.

D. Revising paragraph (c).

The addition and revision read as follows:

§682.101 Participation in the FFEL programs.
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448

The following entities and persons participate in the 

FFEL programs:

* * * * * 

(c) Students who met certain requirements, including 

enrollment at a participating school, borrowed under the 

Stafford Loan Program prior to July 1, 2010 and, for 

periods of enrollment that began prior to July 1, 1994, the 

SLS program. Parents of eligible dependent undergraduate 

students borrowed under the PLUS Program prior to July 1, 

2010. Borrowers with outstanding Stafford, SLS, FISL, 

Perkins, HPSL, HEAL, ALAS, PLUS, or Nursing Student Loan 

Program loans borrowed under the Consolidation Loan Program 

prior to July 1, 2010. The PLUS Program also provided for 

making loans to graduate and professional students on or 

after July 1, 2006 and prior to July 1, 2010.

* * * * * 

16. Section 682.102 is amended by:

A. Revising the section heading.

B. Removing paragraphs (a), (c), and (d).

C. In the introductory text of paragraph (e), 

removing the paragraph heading.

D. Redesignating paragraphs (e)(1) through (e)(7) as 

paragraphs (a) through (g), respectively.
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449

E. In newly redesignated paragraph (a), revising 

the last sentence.

F. In newly redesignated paragraph (b), removing the 

words “on a Stafford Loan”. 

The revisions read as follows: 

§682.102 Repaying a loan.

(a) * * * The obligation to repay all or a portion of 

a loan may be forgiven for Stafford Loan borrowers who 

enter certain areas of the teaching profession.

* * * * *

§682.103 [Amended]

17. Section 682.103(c) is amended by removing the 

letter and the punctuation “E,”.

18. Section 682.200 is amended by:

A. In paragraph (a)(1) introductory text, removing 

the words “subpart A of”.

B. In paragraph (a)(1), removing from the list, the 

terms Academic Competitiveness Grant (ACG) Program, 

Graduate and professional student, Leveraging Educational 

Assistance Partnership (LEAP) Program, National Science and 

Mathematics Access to Retain Talent Grant (National SMART 

Grant) Program, Supplemental Educational Opportunity Grant 
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450

(SEOG) Program, and Supplemental Loans for Students (SLS) 

Program.

C. In paragraph (a)(1), adding to the list, in 

alphabetical order, the terms Federal Supplemental

Educational Opportunity Grant (SEOG) Program, Federal

Supplemental Loans for Students (SLS) Program, and Graduate 

or professional student.

D. In paragraph (b), in the definition of Authority, 

removing the words “making or purchasing” and adding, in 

their place, the word “purchase”.

E. In paragraph (b), in the definition of Borrower, 

removing the word “is” and adding, in its place, the word 

“was”.

F. In paragraph (b), in the definition of Estimated 

financial assistance, in paragraph (1)(vi), removing the 

words “Academic Competitiveness Grant, National SMART 

Grant,”.

G. In paragraph (b), in the definition of Lender, 

revising paragraph (5)(i)(A)(10).

H. In paragraph (b), in the definition of Lender, 

revising paragraph (8).

I. In paragraph (b), revising the definition of 

Nationwide consumer reporting agency.
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J. In paragraph (b), revising the definition of 

Satisfactory repayment arrangement.

The revisions read as follows:

§682.200 Definitions.

* * * * *

(b) * * *

Lender 

* * * * *

(5) * * *

(i) * * *

(A) * * * 

(10) Performance of, or payment to another third 

party to perform, any school function required under title 

IV, except that the lender may perform entrance counseling 

and, as provided in §682.604(a), exit counseling, and may 

provide services to participating foreign schools at the 

direction of the Secretary, as a third-party servicer; and

* * * * *

(8) As of January 1, 2007, and for loans first 

disbursed on or after that date under a trustee 

arrangement, an eligible lender operating as a trustee 

under a contract entered into on or before September 30, 
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2006, and which continues in effect with a school or a 

school-affiliated organization--

(i) Must not--

(A) Make a loan to any undergraduate student;

(B) Make a loan other than a Federal Stafford loan to 

a graduate or professional student; or

(C) Make a loan to a borrower who is not enrolled at 

that school; 

(ii) Must offer loans that carry an origination fee 

or an interest rate, or both, that are less than the fee or 

rate authorized under the provisions of the Act; and

(iii) Must, for any fiscal year beginning on or after 

July 1, 2006 in which the school engages in activities as 

an eligible lender, submit an annual compliance audit that 

satisfies the following requirements: 

(A) With regard to a school that is a governmental 

entity or a nonprofit organization, the audit must be 

conducted in accordance with §682.305(c)(2)(v) and chapter 

75 of title 31, United States Code, and in addition, during 

years when the student financial aid cluster (as defined in 

Office of Management and Budget Circular A–133, Appendix B, 

Compliance Supplement) is not audited as a “major program” 

(as defined under 31 U.S.C. 7501) must, without regard to 
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the amount of loans made, include in such audit the 

school's lending activities as a major program. 

(B) With regard to a school that is not a 

governmental entity or a nonprofit organization, the audit 

must be conducted annually in accordance with 

§682.305(c)(2)(i) through (iii).

(C) With regard to any school, the audit must include 

a determination that--

(1) The school used all payments and proceeds (i.e., 

special allowance and interest payments from borrowers, 

interest subsidy payments, proceeds from the sale or other 

disposition of loans) from the loans for need-based grant 

programs; 

(2) Those need-based grants supplemented, rather than 

supplanted, the institution’s use of non-Federal funds for 

such grants; and

(3) The school used no more than a reasonable portion 

of payments and proceeds from the loans for direct 

administrative expenses.

* * * * *

Nationwide consumer reporting agency. A consumer 

reporting agency that compiles and maintains files on 
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consumers on a nationwide basis and as defined in 15 U.S.C. 

1681a(p).

* * * * *

Satisfactory repayment arrangement. (1) For purposes 

of regaining eligibility under the title IV student 

financial assistance programs, the making of six 

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) 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 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 20 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. 
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* * * * *

§682.201 [Amended]

19. Section 682.201 is amended by:

A. In paragraph (a) introductory text, removing the 

words “made under §682.209(e) or (f)” .

B. In paragraph (a)(4)(ii) introductory text, adding 

the words “paragraph (a)(4) of” between the words “of” and 

“this”.

C. In paragraph (a)(6) introductory text, removing 

the word “student” and adding, in its place, the word 

“borrower”.

D. In paragraph (c)(2)(i), removing the words “credit 

bureau” and adding, in their place, the words “consumer 

reporting agency”.

20. Section 682.202 is amended by:

A. Revising paragraphs (a)(1)(i), (a)(1)(ii) 

introductory text, (a)(1)(iii), (a)(1)(iv), (a)(1)(v), and 

(a)(1)(vi) introductory text.`

B. In paragraph (a)(1)(vii) introductory text, 

removing the first occurrence of the word “is” and adding, 

in its place, the word “was”.
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C. In paragraph (a)(1)(viii) introductory text, 

removing the first occurrence of the word “is” and adding, 

in its place, the word “was”.

D. In paragraph (a)(1)(ix), removing the first 

occurrence of the word “is” and adding, in its place, the 

word “was”. 

E. In paragraph (a)(1)(x) introductory text, 

removing the word “is” and adding, in its place, the word 

“was”.

F. Removing paragraphs (a)(1)(x)(D) and (a)(1)(x)(E). 

G. In paragraph (a)(2)(ii) introductory text, 

removing the words “loan made under §682.209(e) or (f)” and 

adding, in their place, the words “refinanced PLUS loan”.

H. In paragraph (a)(2)(iv) introductory text, 

removing the first occurrence of the word “is” and adding, 

in its place, the word “was”.

I. In paragraph (a)(2)(v) introductory text, removing 

the first occurrence of the word “is” and adding, in its 

place, the word “was”.

J. In paragraph (a)(3)(ii) introductory text, 

removing the words “loan made under §682.209(e) or (f)” and 

adding, in their place, the words “refinanced SLS loan”.
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K. In paragraph (a)(4)(iv) introductory text, adding 

the words “and prior to July 1, 2010” after the date “1998” 

and before the punctuation “,”.

L. In paragraph (a)(4)(v), adding the words “and 

prior to July 1, 2010” after the date “1997” and before the 

punctuation “,”.

M. In paragraph (a)(7)(iii)(A), removing the citation 

“(a)(6)(ii)” and adding, in its place, the citation 

“(a)(7)(i)”.

N. In paragraph (b)(1), adding the words “or Federal 

default fees” between the words “premiums” and “to”. 

O. Removing paragraph (c)(1)(vi).

P. Redesignating paragraph (c)(1)(vii) as paragraph 

(c)(1)(vi)”.

Q. In paragraphs (c)(5), (c)(6), and the introductory 

text of paragraph (c)(7), removing the word “Shall” and 

adding, in its place, the words “A lender must”. 

R. In paragraph (c)(7)(iv), removing the words “in 

accordance with §682.207(b)(1)(ii)(B) and (C)”.

S. In paragraph (d)(2), removing the words “, other 

than an SLS or PLUS loan refinanced under §682.209(e) or 

(f)” and adding, in their place, the words “and prior to 

July 1, 2010”.
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T. Removing paragraph (e).

U. Redesignating paragraphs (f) through (h) as 

paragraphs (e) through (g), respectively.

V. In newly redesignated paragraph (e)(1), removing 

the citation “(f)(2)” and adding, in its place, the 

citation “(e)(2)”.

W. In newly redesignated paragraph (f)(1)(i), 

removing the punctuation and letter “’s”.

X. In newly redesignated paragraph (f)(2), removing 

the citation “(g)(1)” and adding, in its place, the 

citation “(f)(1)”.

The revisions read as follows:

§682.202 Permissible charges by lenders to borrowers.

* * * * *

(a) * * *

(1) * * *

(i) For loans made prior to July 1, 1994, if the 

borrower, on the date the promissory note evidencing the 

loan was signed, had an outstanding balance of principal or 

interest on a previous Stafford loan, the interest rate is 

the applicable interest rate on that previous Stafford 

loan.
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(ii) If the borrower, on the date the promissory note 

evidencing the loan was signed, had no outstanding balance 

on any FFEL Program loan, and the first disbursement was 

made--

* * * * *

(iii) For a Stafford loan for which the first 

disbursement was made before October 1, 1992--

(A) If the borrower, on the date the promissory note 

was signed, had no outstanding balance on a Stafford loan 

but had an outstanding balance of principal or interest on 

a PLUS or SLS loan made for a period of enrollment 

beginning before July 1, 1988, or on a Consolidation loan 

that repaid a loan made for a period of enrollment 

beginning before July 1, 1988, the interest rate is 8 

percent; or

(B) If the borrower, on the date the promissory note 

evidencing the loan was signed, had an outstanding balance 

of principal or interest on a PLUS or SLS loan made for a 

period of enrollment beginning on or after July 1, 1988, or 

on a Consolidation loan that repaid a loan made for a 

period of enrollment beginning on or after July 1, 1988, 

the interest rate is 8 percent until 48 months elapse after 

the repayment period begins, and 10 percent thereafter.
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(iv) For a Stafford loan for which the first 

disbursement was made on or after October 1, 1992, but 

before December 20, 1993, if the borrower, on the date the 

promissory note evidencing the loan was signed, had no 

outstanding balance on a Stafford loan but had an 

outstanding balance of principal or interest on a PLUS, 

SLS, or Consolidation loan, the interest rate is 8 percent.

(v) For a Stafford loan for which the first 

disbursement was made on or after December 20, 1993 and 

prior to July 1, 1994, if the borrower, on the date the 

promissory note was signed, had no outstanding balance on a 

Stafford loan but had an outstanding balance of principal 

or interest on a PLUS, SLS, or Consolidation loan, the 

interest rate is the rate provided in paragraph 

(a)(1)(ii)(B) of this section.

(vi) For a Stafford loan for which the first 

disbursement was made on or after July 1, 1994 and prior to 

July 1, 1995, for a period of enrollment that included or 

began on or after July 1, 1994, the interest rate is a 

variable rate, applicable to each July 1–June 30 period, 

that equals the lesser of--

* * * * *

21. Section 682.204 is amended by:
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A. In paragraph (a) introductory text, removing the 

words “Federal Direct Stafford/Ford” and adding, in their 

place, the words “Direct Subsidized”.

B. In paragraphs (a)(i) and (a)(1)(ii), removing the 

words “$2,625, or, for a loan disbursed on or after July 1, 

2007, $3,500,” and adding, in their place, the figure 

“$3,500”.

C. Revising paragraph (a)(1)(iii).

D. In paragraph (a)(2) introductory text, removing 

the words “Federal Direct Stafford/Ford” and adding, in 

their place, the words “Direct Subsidized”.

E. In paragraphs (a)(2)(i) and (a)(2)(ii), removing 

the words “$3,500, or, for a loan disbursed on or after 

July 1, 2007, $4,500,” and adding, in their place, the 

figure “$4,500”.

F. In paragraph (a)(3) introductory text, removing 

the words “Federal Direct Stafford/Ford” and adding, in 

their place, the words “Direct Subsidized”.

G. Revising paragraph (a)(5).

H. In paragraph (a)(6) introductory text and 

paragraph (a)(7), removing the words “Federal Direct 

Stafford/Ford” and adding, in their place, the words 

“Direct Subsidized”.
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I. In paragraph (b) introductory text, removing the 

words “Federal Direct Stafford/Ford”, and adding, in their 

place, the words “Direct Subsidized”.

J. Revising paragraph (c)(1).

K. Revising paragraph (c)(2).

L. In paragraph (d) introductory text, removing 

the word “additional” that appears after the word 

“borrow”.

M. In paragraph (d) introductory text, removing 

the words “Federal Direct Unsubsidized Stafford/Ford” 

and adding, in their place, the words “Direct 

Unsubsidized”. 

N. In paragraphs (d)(1)(i), (d)(1)(ii), (d)(2)(i), 

and (d)(2)(ii), removing the words “$4,000, or, for a 

loan first disbursed on or after July 1, 2008, $6,000,” 

and adding, in their place, the figure “$6,000”.

O. Revising paragraph (d)(1)(iii).

P. In paragraphs (d)(3)(i) and (d)(3)(ii), removing 

the words “$5,000, or, for a loan first disbursed on or 

after July 1, 2008, $7,000,” and adding, in their place, 

the figure “$7,000”.

Q. In paragraph (d)(5), removing the words “$10,000, 

or, for a loan disbursed on or after July 1, 2007,”.
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R. In paragraph (d)(6)(i), removing the words 

“$4,000, or, for a loan first disbursed on or after July 1, 

2008, $6,000,” and adding, in their place, the figure 

“$6,000”.

S. In paragraph (d)(6)(ii), removing the words 

“$5,000, or, for a loan disbursed on or after July 1, 2007, 

$7,000,” and adding, in their place, the figure “$7,000”.

T. In paragraph (d)(6)(iii), removing the words 

“$5,000, or, for a loan disbursed on or after July 1, 

2007,”.

U. Revising paragraph (e).

V. Removing paragraph (f).

W. Redesignating paragraphs (g) through (m) as 

paragraphs (f) through (l), respectively.

X. In newly redesignated paragraph (l), removing the 

citation “(d), (e), and (f)” and adding, in its place, the 

citation “(d), and (e)”.

The revisions read as follows:

§682.204 Maximum loan amounts.

(a) * * *

(1) * * *
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(iii) For a program of study that is less than a full 

academic year in length, the amount that is the same ratio 

to $3,500 as the lesser of the--

Number of semester, trimester, quarter, or clock hours 

enrolled

Number of semester, trimester, quarter, or clock hours in 

academic year

or

Number of weeks enrolled

Number of weeks in academic year

* * * * *

(5) In the case of a graduate or professional 

student, the total amount the student may borrow for loans 

made prior to July 1, 2010 for any academic year of study 

under the Stafford Loan Program, in combination with any 

amount borrowed under the Direct Subsidized Loan Program, 

may not exceed $8,500.

* * * * *

(c) * * *

(1) Except for a dependent undergraduate student who 

qualifies for additional Unsubsidized Stafford Loan funds 

because the student’s parents are unable to borrow under 

the PLUS Loan Program, as described in paragraph (d) of 
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465

this section, the total amount the dependent undergraduate 

student may borrow for any academic year under the 

Unsubsidized Stafford Loan Program in combination with the 

Direct Unsubsidized Loan Program is the same amount 

determined under paragraph (a) of this section, less any 

amount received under the Stafford Loan Program or the 

Direct Subsidized Loan program, plus--

(i) $2,000, for a program of study of at least a full 

academic year in length.

(ii) For a program of study that is at least one 

academic year or more in length with less than a full 

academic year remaining, the amount that is the same ratio 

to $2,000 as the--

Number of semester, trimester, quarter, or clock hours 

enrolled

Number of semester, trimester, quarter, or clock hours in 

academic year

(iii) For a program of study that is less than a full 

academic year in length, the amount that is the same ratio 

to $2,000 as the lesser of the--

Number of semester, trimester, quarter, or clock hours 

enrolled
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Number of semester, trimester, quarter, or clock hours in 

academic year

or

Number of weeks enrolled

Number of weeks in academic year

(2) In the case of an independent undergraduate 

student, a graduate or professional student, or certain 

dependent undergraduate students under the conditions 

specified in §682.201(a)(3), the total amount the student 

may borrow for any period of enrollment under the 

Unsubsidized Stafford Loan and Direct Unsubsidized Loan 

programs may not exceed the amounts determined under 

paragraph (a) of this section less any amount received 

under the Federal Stafford Loan Program or the Direct 

Subsidized Loan Program, in combination with the amounts 

determined under paragraph (d) of this section.

(d) * * * 

(1) * * * 

(iii) For a program of study that is less than a full 

academic year in length, an amount that is the same ratio 

to $6,000 as the lesser of—-

Number of semester, trimester, quarter, or clock hours 
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enrolled

Number of semester, trimester, quarter, or clock hours in 

academic year

or

Number of weeks enrolled

Number of weeks in academic year

* * * * * 

(e) Combined Federal Stafford, SLS and Federal 

Unsubsidized Stafford Loan Program aggregate limits. The 

aggregate unpaid principal amount of Stafford Loans, 

Direct Subsidized Loans, Unsubsidized Stafford Loans, 

Direct Unsubsidized Loans and SLS Loans, but excluding the 

amount of capitalized interest, may not exceed the 

following:

(1) $31,000 for a dependent undergraduate student.

(2) $57,500 for an independent undergraduate student 

or a dependent undergraduate student under the conditions 

specified in §682.201(a)(3).

(3) $138,500 for a graduate or professional student.

* * * * * 

22. Section 682.205 is amended by:
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A. Removing paragraphs (a), (b), (g), and (i).

B. Redesignating paragraphs (c), (d), (e), (f), (h), 

and (j) as paragraphs (a), (b), (c), (d), (e), and (f), 

respectively.

C. In newly redesignated paragraph (a)(1), removing

the citation “(c)(2)” and adding, in its place, the 

citation “(a)(2)”.

D. In newly redesignated paragraph (a)(3)

introductory text, removing the citation “(c)(1)” and 

adding, in its place, the citation “(a)(1)”.

E. Revising newly redesignated paragraph (a)(4).

F. In newly redesignated paragraph (a)(5)(ii), adding 

the word “business” after the word “five”.

G. In newly redesignated paragraph (b), removing the 

parenthetical “(c)” and adding, in its place, the 

parenthetical “(a)”.

H. In newly redesignated paragraph (e)(2), removing

the citation “(h)(1)” and adding, in its place, the 

citation “(e)(1)”.

The revision reads as follows:

§682.205 Disclosure requirements for lenders.

* * * * * 

(a) * * * 
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469

(4) Required disclosures for borrowers having 

difficulty making payments. (i) Except as provided in 

paragraph (a)(4)(ii) of this section, the lender must 

provide a borrower who has notified the lender that he or 

she is having difficulty making payments with--

(A) A description of the repayment plans available to 

the borrower, and how the borrower may request a change in 

repayment plan;

(B) A description of the requirements for obtaining 

forbearance on the loan and any costs associated with 

forbearance; and

(C) A description of the options available to the 

borrower to avoid default and any fees or costs associated 

with those options.

(ii) A disclosure under paragraph (a)(4)(i) of this 

section is not required if the borrower’s difficulty has 

been resolved through contact with the borrower resulting 

from an earlier disclosure or other communication between 

the lender and the borrower.

* * * * *

§682.206 [Removed]

23. Remove §682.206.

§682.207 [Removed]
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24. Remove §682.207.

§682.208 [Amended]

25. Section 682.208 is amended by:

A. In paragraph (a), removing the words “national 

credit bureaus” and adding, in their place, the words 

“nationwide consumer reporting agencies”.

B. In paragraph (b)(1) introductory text, removing 

the words “at least one national credit bureau” and adding, 

in their place, the words “each nationwide consumer 

reporting agency”.

C. In paragraph (b)(2), removing the words “at least 

one national credit bureau” and adding, in their place, the 

words “each nationwide consumer reporting agency”.

D. In paragraph (b)(3) introductory text, removing 

both occurrences of the words “credit bureau” and adding, 

in their place, the words “consumer reporting agency”. 

E. In paragraph (b)(3)(i)(A), removing the words 

“credit bureau” and adding, in their place, the words 

“consumer reporting agency”.

F. In paragraph (e)(3), removing the citation 

“§682.401(b)(17)(ii)” and adding, in its place, the 

citation “§682.401(b)(8)(ii)”.
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G. In paragraph (g), removing the citation 

“§682.411(g)” and adding, in its place, the citation 

“§682.411(h)”.

26. Section 682.209 is amended by:

A. In paragraph (a)(3)(i)(B), removing the word 

“and”.

B. In paragraph (a)(3)(i)(C), removing the 

punctuation “.” and adding, in its place, the punctuation 

and the word “; and”.

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

D. In paragraph (a)(3)(ii)(E), removing the citation 

“§682.205(c)(1)” and adding, in its place, the citation 

“§682.205(a)(1)”.

E. In paragraph (b)(2)(ii), revising the last 

sentence.

F. Removing paragraphs (e), (f), (g), and (j).

G. Redesignating paragraphs (h), (i), and (k) as 

paragraphs (e), (f), and (g), respectively.

H. In newly redesignated paragraph (e)(3) 

introductory text, removing the citation “(h)” and adding, 

in its place, the citation “(e)”. 

I. In newly redesignated paragraph (e)(4)(ii), 

removing the word “Must” and adding, in its place, the 
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472

words “Except in the case of an income-based repayment 

schedule, must”.

J. In newly redesignated paragraph (e)(5), removing 

the citation “(h)” and adding, in its place, the citation 

“(e)”.

K. In newly redesignated paragraph (f)(2)(i), 

removing the words “under §682.209(f)”.

L. In newly redesignated paragraph (f)(2)(ii), 

removing the citation “(i)(2)(i)” and adding, in its place, 

the citation “(f)(2)(i)”.

The addition and revision read as follows:

§682.209 Repayment of a loan.

(a) * * *

(3) * * *

(i) * * * 

(D) For a borrower with a loan for which the 

applicable interest rate is fixed at 6.0 percent per year, 

5.6 percent per year, or 6.8 percent per year, the day 

after 6 months following the date on which the borrower is 

no longer enrolled on at least a half-time basis at an 

institution of higher education;

* * * * *

(b) * * *
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473

(2) * * *

(ii) * * * Information related to next scheduled 

payment due date need not be provided to borrowers making 

such prepayments while in an in-school, grace, deferment, 

or forbearance period when payments are not due. 

* * * * *

27. Section 682.210 is amended by:

A. In paragraph (a)(4), adding the words and 

punctuation “, or the borrower’s representative for 

purposes of paragraphs (i) and (t) of this section,” 

between the words “borrower” and “must”.

B. Revising paragraph (b).

C. In paragraph (n)(1) introductory text and in 

paragraph (n)(2), removing the citation “(b)(2)(v)” and 

adding, in its place, the citation “(b)(3)(iv)”.

D. In paragraph (o)(1) introductory text, adding the 

parenthetical “(i)” between the parenthetical “(3)” and the 

word “of”.

E. In paragraph (q)(1) introductory text, removing 

the citation “(b)(5)(ii)” and adding, in its place, the 

citation “(b)(3)(iii)”. 
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F. In paragraph (r)(1) introductory text, removing 

the citation “(b)(5)(iv)” and adding, in its place, the 

citation “(b)(3)(v)”.

G. In paragraph (s)(2), removing the punctuation and 

the words “, except that the borrower is not required to 

obtain a Stafford or SLS loan for the period of enrollment 

covered by the deferment”.

H. In paragraph (s)(6) introductory text, removing 

both occurrences of the citation “(s)(6)(vi)” and adding, 

in their place, the citation “(s)(6)(iv)”.

I. In paragraph (u)(5), removing both occurrences of 

the words “military active” and adding, in their place, the 

words “post-active”.

The revision reads as follows:

§682.210 Deferment.

* * * * *

(b) Authorized deferments for borrowers prior to July 

1, 1993. (1) For all borrowers who are not new borrowers 

on or after July 1, 1993. Deferment is authorized for a 

FFEL borrower during any period when the borrower is--

(i) Except as provided in paragraph (b)(4) of this 

section, engaged in full-time study at a school in 

accordance with paragraph (c) of this section;
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475

(ii) Engaged in a course of study under an eligible 

graduate fellowship program in accordance with paragraph 

(d) of this section;

(iii) Engaged in a rehabilitation training program 

for disabled individuals in accordance with paragraph (e) 

of this section;

(iv) Temporarily totally disabled in accordance with 

paragraph (f) of this section, or unable to secure 

employment because the borrower is caring for a spouse or 

other dependent who is disabled and requires continuous 

nursing or similar services for up to three years in 

accordance with paragraph (g) of this section; or

(v) Conscientiously seeking, but unable to find, 

full-time employment in the United States, for up to two 

years, in accordance with paragraph (h) of this section.

(2) For all Stafford and SLS borrowers who are not 

new borrowers on or after July 1, 1993, and for parent PLUS 

loans made before August 15, 1983. Deferment is authorized 

during any period when the borrower is--

(i) On active duty status in the United States Armed 

Forces in accordance with paragraph (i) of this section, or 

an officer in the Commissioned Corps of the United States 

Public Health Service in accordance with paragraph (j) of 
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476

this section, for up to three years (including any period 

during which the borrower received a deferment authorized 

under paragraph (b)(3)(ii) of this section);

(ii) A full-time volunteer under the Peace Corps Act, 

for up to three years, in accordance with paragraph (k) of 

this section;

(iii) A full-time volunteer under title I of the 

Domestic Volunteer Service Act of 1973 (ACTION programs), 

for up to three years, in accordance with paragraph (l) of 

this section;

(iv) A full-time volunteer for a tax-exempt 

organization, for up to three years, in accordance with 

paragraph (m) of this section; or

(v) Engaged in an internship or residency program, in 

accordance with paragraph (n) of this section, for up to 

two years (including any period during which the borrower 

received a deferment authorized under paragraph (b)(3)(iv) 

of this section).

(3) For new Stafford or SLS borrowers on or after 

July 1, 1987 but before July 1, 1993. Deferment is 

authorized--

(i) In accordance with paragraph (o) of this section, 

if the borrower has been enrolled on at least a half-time 
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basis at an institution of higher education during the six 

months preceding the beginning of the deferment, for a 

period of up to six months during which the borrower is--

(A)(1) Pregnant;

(2) Caring for his or her newborn child; or

(3) Caring for a child immediately following the 

placement of the child with the borrower before or 

immediately following adoption; and

(B) Not attending a school or gainfully employed;

(ii) During a period when the borrower is on active 

duty status in the National Oceanic and Atmospheric 

Administration Corps, for up to three years, in accordance 

with paragraph (p) of this section, (including any period 

during which the borrower received a deferment authorized 

under paragraph (b)(2)(i) of this section);

(iii) During a period of up to three years when the 

borrower is serving as a full-time teacher in a public or 

non-profit private elementary or secondary school in a 

teacher shortage area designated by the Secretary under 

paragraph (q) of this section;

(iv) During a period when the borrower is engaged in 

an internship or residency program, for up to two years, in 

accordance with paragraph (n) of this section, (including 
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478

any period during which the borrower received a deferment 

authorized under paragraph (b)(2)(v) of this section); or

(v) When a mother who has preschool-age children 

(i.e., children who have not enrolled in first grade) and 

who is earning not more than $1 per hour above the Federal 

minimum wage, for up to 12 months of employment, and who 

began that full-time employment within one year of entering 

or re-entering the work force, in accordance with paragraph 

(r) of this section. Full-time employment involves at 

least 30 hours of work a week and it is expected to last at 

least 3 months.

(4) For new Stafford or SLS borrowers on or after 

July 1, 1987. Deferment is authorized during periods when 

the borrower is engaged in at least half-time study at a 

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

(5) For new parent PLUS borrowers on or after July 1, 

1987 and before July 1, 1993. Deferment is authorized 

during any period when a student on whose behalf the parent 

borrower received the loan--

(i) Is not independent as defined in section 480(d) 

of the Act; and

(ii) Meets the conditions and provides the required 

documentation, for any of the deferments described in 
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paragraphs (b)(1)(i) through (iii) and (b)(4) of this 

section.

(6) Definition of a new borrower. For purposes of 

paragraphs (b)(3), (b)(4), and (b)(5) of this section, a 

“new borrower” with respect to a loan is a borrower who, on 

the date he or she signs the promissory note, has no 

outstanding balance on--

(i) A Stafford, SLS, or PLUS loan made prior to July 

1, 1987 for a period of enrollment beginning prior to July 

1, 1987; or

(ii) A Consolidation loan that repaid a loan made 

prior to July 1, 1987 and for a period of enrollment 

beginning prior to July 1, 1987.

* * * * *

28. Section 682.211 is amended by:

A. In paragraph (a)(4), removing the parenthetical 

“(10)” and adding, in its place, the parenthetical “(11)”.

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

C. In paragraph (f)(2), removing the words “or an 

administrative forbearance period as specified under 

paragraph (f)(11) or (i)(2) of this section;” and adding, 

in their place, the words “or an authorized period of 

forbearance;”.
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D. In paragraph (f)(6), removing the words “credit 

bureau” and adding, in their place, the words “consumer 

reporting agency”.

E. In paragraph (h)(2)(ii)(B), removing the words “10 

U.S.C. 2171; or” and adding, in their place, the words “10 

U.S.C. 2171, 2173, 2174 or any other student loan repayment 

programs administered by the Department of Defense; or”.

F. In paragraph (h)(2)(ii)(C), removing the citation 

“§682.215” and adding, in its place, the citation 

“§682.216”.

G. In paragraph (h)(4)(iii)(A), removing the citation 

“§682.215(c)” and adding, in its place the citation 

“§682.216(c)”.

H. In paragraph (h)(4)(iii)(B), removing the citation 

“§682.215(c)” and adding, in its place the citation 

“§682.216(c)”.

The revisions read as follows:

§682.211 Forbearance.

* * * * *

(c) Except as provided in paragraph (d)(2) of this 

section, a lender may grant forbearance for a period of up 

to one year at a time if both the borrower or endorser and 

an authorized official of the lender agree to the terms of 
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the forbearance. If the borrower or endorser requests the 

forbearance orally and the lender and the borrower or 

endorser agree to the terms of the forbearance orally, the 

lender must notify the borrower or endorser of the terms 

within 30 days of that agreement.

(d)(1) A guaranty agency may authorize a lender to 

grant forbearance to permit a borrower or endorser to 

resume honoring the agreement to repay the debt after 

default but prior to claim payment. The forbearance 

agreement in this situation must include a new agreement to 

repay the debt signed by the borrower or endorser or a 

written or oral affirmation of the borrower’s or endorser’s 

obligation to repay the debt.

(2) If the forbearance is based on the borrower’s or 

endorser’s oral request and affirmation of the obligation 

to repay the debt--

(i) The forbearance period is limited to a period of 

120 days;

(ii) Such a forbearance cannot be granted 

consecutively;

(iii) The lender must orally review with the borrower 

the terms and conditions of the forbearance, including the 
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consequences of interest capitalization, and other 

repayment options available to the borrower; and 

(iv) The lender must send a notice to the borrower or 

endorser, as provided in paragraph (c) of this section, 

that confirms the terms of the forbearance and the 

borrower’s or endorser’s affirmation of the obligation to 

repay the debt, and retain a record of the terms of the 

forbearance and affirmation in the borrower’s or endorser’s 

file.

(3) For purposes of this section, an “affirmation” 

means an acknowledgement of the loan by the borrower or 

endorser in a legally binding manner. The form of the 

affirmation may include, but is not limited to, the 

borrower’s or endorser’s--

(i) New signed repayment agreement or schedule, or 

another form of signed agreement to repay the debt;

(ii) Oral acknowledgment and agreement to repay the 

debt documented by the lender in the borrower’s or 

endorser’s file and confirmed by the lender in a notice to 

the borrower; or 

(iii) A payment made on the loan by the borrower or 

endorser. 

* * * * *
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§682.214 [Removed]

29. Remove Section 682.214.

30. Section 682.216 is amended by:

A. In paragraph (a)(2)(iii), removing the first 

occurrence of the word “at” and adding, in its place, the 

word “for”.

B. In paragraph (a)(4)(i), removing the second 

occurrence of the word “at” and adding, in its place, 

the word “for”.

C. In paragraph (c)(1) introductory text, removing 

the words “at an educational” and adding, in their place, 

the words “for an educational”.

D. In paragraph (c)(1)(iii), removing the final 

sentence.

E. Redesignating paragraphs (c)(2) through (c)(11) as 

paragraphs (c)(3) through (c)(12), respectively.

F. Adding a new paragraph (c)(2).

G. In newly redesignated paragraph (c)(4)(ii)(A), 

removing the words “at an eligible educational” and adding, 

in their place, the words “for an eligible educational”.

H. In newly redesignated paragraph (c)(4)(ii)(B), 

adding the words “for an” immediately before the words 

“educational service agency”.
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I. In newly redesignated paragraph (c)(4)(iii), 

removing the first occurrence of the word “at” and adding, 

in its place, the word “for”.

J. In newly redesignated paragraph (c)(5)(i), adding 

the words “for an” immediately before the words 

“educational service”.

K. In newly redesignated paragraph (c)(5)(ii)(A), 

removing the words “students at an eligible” and adding, in 

their place, the words “students for an eligible”.

L. In newly redesignated paragraph (c)(5)(ii)(B), 

adding the words “for an” immediately before the words 

“educational service”.

M. In newly redesignated paragraph (c)(5)(iii), 

removing the first occurrence of the word “at” and adding, 

in its place the word “for”. 

N. In newly redesignated paragraph (c)(10), removing 

the second occurrence of the word “at” and adding, in its 

place, the word “for”.

O. In paragraph (e) introductory text, removing the 

word “discharge” and adding in its place, the word 

“forgiveness”.
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P. In paragraph (e)(1)(i), removing the citation 

“(h)(3)(iii)” and adding, in its place, the citation 

“(h)(4)(iii)”.

Q. In paragraph (e)(1)(iii), removing the word 

“discharge” and adding, in its place, the word 

“forgiveness”.

R. Revising paragraphs (f)(2)(i) and (f)(2)(ii).

S. In paragraph (f)(2)(iii), removing both 

occurrences of the word “discharged” and adding, in their 

place, the words “loan forgiveness”.

T. In paragraph (f)(3)(ii), removing both occurrences 

of the word “discharge” and adding, in their place, the 

words “loan forgiveness”. 

U. In paragraph (f)(4), removing both occurrences of 

the word “discharge” and adding, in their place, the words 

“loan forgiveness”.

V. In paragraph (f)(5), removing the word 

“discharge”.

W. Revising paragraph (g).

The additions and revisions read as follows:

§682.216 Teacher loan forgiveness program.

* * * * *

(c) * * *
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(2) The Secretary considers all elementary and 

secondary schools operated by the Bureau of Indian 

Education (BIE) or operated on Indian reservations by 

Indian tribal groups under contract with the BIE to qualify 

as schools serving low-income students.

* * * * *

(f) * * *

(2) * * *

(i) The holder must file a request for payment with 

the guaranty agency on a teacher loan forgiveness amount no 

later than 60 days after the receipt, from the borrower, of 

a completed teacher loan forgiveness application.

(ii) When filing a request for payment on a teacher 

loan forgiveness, the holder must provide the guaranty 

agency with the completed loan forgiveness application 

submitted by the borrower and any required supporting 

documentation.

* * * * *

(g) Claims for reimbursement from the Secretary on 

loans held by guaranty agencies. In the case of a teacher 

loan forgiveness applied to a defaulted loan held by the 

guaranty agency, the Secretary pays the guaranty agency a 

percentage of the amount forgiven that is equal to the 
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complement of the reinsurance percentage paid on the loan. 

The payment of up to $5,000, or up to $17,500, may also 

include interest that accrues on the forgiveness amount 

during 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 guaranty agency determines 

that the borrower is eligible for the teacher loan 

forgiveness.

* * * * *

§682.300 [Amended]

31. Section 682.300 is amended by:

A. In paragraph (b)(2)(ii) introductory text, 

removing the words “, except as provided in paragraph 

(c)(4) of this section”.

B. In paragraph (b)(2)(ii)(B), removing the words “in 

accordance with §682.207(b)(1)(ii)(B) and (C)”.

C. In paragraph (c)(1), adding the word “or” after 

the punctuation “;”.

D. In paragraph (c)(2), removing the punctuation “;” 

and adding, in its place, the punctuation “.”.

E. Removing paragraphs (c)(3) and (c)(4).

§682.301 [Amended]
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32. Section 682.301 is amended by removing paragraph 

(c).

33. Section 682.302 is amended by:

A. In paragraph (b)(3) introductory text, adding the 

words “and prior to July 1, 2010” after the date “1992” and 

before the punctuation “,”.

B. In paragraph (d)(1)(vi)(B), removing the words 

“the loan proceeds disbursed by electronic funds transfer 

or master check in accordance with §682.207(b)(1)(ii)(B) 

and (C)” and adding, in their place, the words “The loan 

proceeds disbursed by electronic funds transfer or master 

check”.

C. In paragraph (d)(2) introductory text, adding the 

words “and prior to July 1, 2010” after the date “1992” and 

before the punctuation “,”.

D. In paragraph (e)(1)(i), removing the citation 

“§682.800” and adding, in its place, the words “section 

438(e) of the Act”.

E. Revising paragraph (f)(3)(viii)(B).

F. In paragraph (f)(3)(x)(B)(3), removing the figure 

“503” and adding, in its place, the figure “501”.

The revision reads as follows:

§682.302 Payment of special allowance on FFEL loans.
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* * * * *

(f) * * *

(3) * * *

(viii) * * *

(B) Fees are reasonable and customary for purposes of 

paragraph (f)(3)(viii) of this section, if they do not 

exceed the amounts received by the trustee for similar 

services with regard to similar portfolios of loans of that 

State or non-profit entity or its related special purpose 

entity that are not eligible to receive special allowance 

at the rate established under paragraph (f)(2) of this 

section, or if they do not exceed an amount as determined 

by such other method requested by the State or non-profit 

entity that the Secretary considers reliable.

* * * * *

§682.305 [Amended]

34. Section 682.305 is amended by:

A. In paragraph (a)(3)(ii)(B), by adding the words 

“and prior to July 1, 2010” after the date “2007” and 

before the punctuation “,”.

B. In paragraph (c)(1)(i), removing the words 

“originating or”.

C. Removing paragraph (c)(1)(ii).
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490

D. Redesignating paragraph (c)(1)(iii) as paragraph 

(c)(1)(ii).

E. In paragraph (c)(2)(iv), adding the word “and” as 

the last word in the paragraph, immediately following the 

punctuation “;”.

F. In paragraph (c)(2)(v), removing the final 

punctuation “;” and adding, in its place, the punctuation 

“.”.

G. Removing paragraphs (c)(2)(vi) and (c)(2)(vii).

35. Section 682.400 is amended by revising paragraph 

(b)(1)(i) to read as follows:

§682.400 Agreements between a guaranty agency and the 

Secretary.

* * * * *

(b) * * *

(1) * * *

(i) Borrowers whose Stafford or Consolidation loans 

are guaranteed by the agency may qualify for interest 

benefits that are paid to the lender on the borrower’s 

behalf under 34 CFR 682.301; and

* * * * *

36. Section 682.401 is amended by:

A. Removing paragraphs (b)(1), (b)(2), and (b)(3).
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B. Redesignating paragraph (b)(4) as paragraph 

(b)(1).

C. In newly redesignated paragraph (b)(1)

introductory text, removing the citation “(b)(4)” and 

adding, in its place, the citation “(b)(1)”.

D. Removing paragraphs (b)(5) and (b)(6).

E. Redesignating paragraph (b)(7) as paragraph 

(b)(2).

F. Removing paragraphs (b)(8) and (b)(9).

G. Redesignating paragraphs (b)(10) and (b)(11) as 

paragraphs (b)(3) and (b)(4), respectively. 

H. In newly redesignated paragraph (b)(3)(i) 

introductory text, removing the words “SLS or PLUS loans 

refinanced under §682.209(e) or (f)” and adding, in their 

place, the words “refinanced SLS or PLUS loans”.

I. In newly redesignated paragraph (b)(3)(iv)(C), 

adding the words “and prior to July 1, 2010” between the 

date “2006” and the punctuation “.”.

J. In newly redesignated paragraph (b)(3)(vi)(B)(4), 

removing the words “in accordance with 

§682.207(b)(1)(ii)(B) and (C)”.

K. Removing paragraphs (b)(12) and (b)(13).
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L. Redesignating paragraphs (b)(14) through (b)(29) 

as paragraphs (b)(5) through (b)(20), respectively.

M. In newly redesignated paragraph (b)(6), adding the 

words “and N” between the letter “M” and the word “of”.

N. In newly redesignated paragraph (b)(8)(i)

introductory text, removing the parenthetical “(17)” and 

adding, in its place, the parenthetical “(8)”.

O. In newly redesignated paragraph (b)(8)(iii), 

removing the parenthetical “(17)” and adding, in its place, 

the parenthetical “(8)”.

P. In newly redesignated paragraph (b)(10)(i)(B), 

removing the words “School and lender” and adding, in their 

place, the word “Lender”.

Q. In newly redesignated paragraph (b)(10)(i)(C), 

removing the words “school and”.

R. In newly redesignated paragraph (b)(10)(i)(D), 

removing the words “school or”.

S. In newly redesignated paragraph (b)(11) 

introductory text, adding the word “of” between the words 

“days” and “any”.

T. In newly redesignated paragraph (b)(14)(ii), 

removing the parenthetical “(23)” and adding, in its place, 

the parenthetical “(14)”. 
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U. In newly redesignated paragraph (b)(18)(i), 

removing the word “Federal” and adding, in its place, the 

word “Direct”.

V. In newly redesignated paragraph (b)(18), removing 

paragraph (b)(18)(ii).

W. In newly redesignated paragraph (b)(18), 

redesignating paragraphs (b)(18)(iii) through (v) as 

paragraphs (b)(18)(ii) through (iv), respectively. 

X. Revising newly redesignated paragraph 

(b)(18)(iii).

Y. Removing paragraph (c).

Z. Redesignating paragraph (d) as paragraph (c). 

AA. In newly redesignated paragraph (c)(2), removing 

the parenthetical “(d)” and adding, in its place, the 

parenthetical “(c)”.

BB. In newly redesignated paragraph (c)(3), adding a 

final sentence to the end of the paragraph.

CC. In newly redesignated paragraph (c), removing 

paragraph (c)(4).

DD. In newly redesignated paragraph (c), 

redesignating paragraphs (c)(5) and (c)(6) as paragraphs 

(c)(4) and (c)(5), respectively.

EE. Removing paragraph (e).
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FF. Redesignating paragraphs (f) and (g) as 

paragraphs (d) and (e), respectively.

GG. In newly redesignated paragraph (d)(2), removing 

the word “HEA” and adding, in its place, the word “Act”.

HH. In newly redesignated paragraph (e)(1), removing 

the word “participate” and adding, in its place, the word 

“participated”.

II. In newly redesignated paragraph (e)(2), removing 

the parenthetical “(g)” and adding, in its place, the 

parenthetical “(e)”.

JJ. In newly redesignated paragraph (e)(4), removing 

the parenthetical “(g)” and adding, in its place, the 

parenthetical “(e)”.

The revision and addition read as follows:

§682.401 Basic program agreement.

* * * * *

(b) * * *

(18) * * *

(iii) On or after October 1, 2009, when returning 

proceeds to the Secretary from the consolidation of a 

defaulted loan that is paid off with excess consolidation 

proceeds as defined in paragraph (b)(18)(iv) of this 
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495

section, a guaranty agency must remit the entire amount of 

collection costs repaid through the consolidation loan.

* * * * *

(c) * * *

(3) * * * Each loan made under an MPN is enforceable 

in accordance with the terms of the MPN and is eligible for 

claim payment based on a true and exact copy of such MPN.

* * * * *

37. Section 682.402 is amended by:

A. In paragraph (a)(5)(ii), removing the words 

“credit bureau” and adding, in their place, the words 

“consumer reporting agency”.

B. Revising paragraph (d)(1)(i).

C. In paragraph (d)(3)(ii)(B), by removing the figure 

“90” and adding, in its place, the figure “120”.

D. Except for paragraphs (d)(6)(ii)(G)(1) and 

(d)(6)(ii)(G)(2), in paragraph (d)(6), by removing the 

figure “90” each time it appears and adding, in its place, 

the figure “120”.

E. In paragraph (d)(7)(iv), removing the words 

“credit bureaus” and adding, in their place, the words 

“consumer reporting agencies”.
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496

F. In paragraph (d)(8)(i), removing the citation “34 

CFR 685.213” and adding, in its place, the citation “34 CFR 

685.214”.

G. In paragraph (e)(3) introductory text, removing 

the parenthetical “(14)” and adding, in its place, the 

parenthetical “(15)”.

H. In paragraph (e)(3)(v)(C), removing the word 

“identify” and adding, in its place, the word “identity”.

I. In paragraph (e)(12)(v) introductory text, 

removing the words “credit bureaus” and adding, in their 

place, the words “consumer reporting agencies”.

J. In paragraphs (l)(1), (l)(2)(ii), and (l)(3)(i), 

adding the words “or Federal default fees” between the word 

“premiums” and the punctuation “)”.

K. In paragraph (n)(2), adding the words “or Federal 

default fees” between the word “premiums” and the 

punctuation “)”.

The revision reads as follows:

§682.402 Death, disability, closed school, false 

certification, unpaid refunds, and bankruptcy payments.

* * * * *

(d) * * *

(1) * * * 
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(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 120 days prior to the date the school closed. The 

Secretary may extend the 120-day period 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; the 

school’s discontinuation of the majority of its academic 

programs; action by the State to revoke the school’s 

license to operate or award academic credentials in the 

State; or a finding by a State or Federal government agency 

that the school violated State or Federal law.

* * * * *

§682.403 [Removed]

38. Remove §682.403.
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39. Section 682.404 is amended by:

A. Revising paragraph (b)(3)(ii).

B. In paragraph (b)(3)(iii), adding the word “or” 

after the punctuation “;”.

C. In paragraph (b)(4)(ii)(G)(2), removing the words 

“is consistent with §682.509(a)(1)” and adding, in their 

place, the words “addresses the condition identified in 

paragraph (b)(3)(ii) of this section”.

D. In paragraph (d)(1) introductory text, removing 

the words “made under §682.209(e), (f) and (h),” and 

adding, in their place the words “that were refinanced 

pursuant to section 428B(e)(2) and (3) of the Act,”.

E. Removing paragraph (h).

F. Redesignating paragraphs (i) through (l) as 

paragraphs (h) through (k), respectively.

G. In newly redesignated paragraph (j)(3)(i), 

removing the parenthetical “(k)(2)(i)” and adding, in its 

place, the parenthetical “(j)(2)(i)”. 

H. In newly resdesignated paragraph (j)(3)(ii), 

removing the parenthetical “(k)(2)(ii)” and adding, in its 

place, the parenthetical “(j)(2)(ii)”.

The revision reads as follows:

§682.404 Federal reinsurance agreement.
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* * * * *

(b) * * *

(3) * * *

(ii) Under a policy established by the agency that 

addresses instances in which, for a non-school originated 

loan, a lender learns that the school terminated its 

teaching activities while a student was enrolled during the 

academic period covered by the loan; 

* * * * *

40. Section 682.405 is amended by: 

A. In the introductory text of paragraph (a)(2)(i), 

adding the word “qualifying” between the words “ten” and 

“payments”.

B. Revising the introductory text of paragraph 

(a)(2)(i)(A).

C. Redesignating paragraph (a)(3) as paragraph 

(a)(4).

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

E. Revising paragraph (b)(1). 

The revisions and addition read as follows:

§682.405 Loan rehabilitation agreement.

(a) * * *

(2) * * * 
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(i) * * * 

(A) A qualifying payment is--

* * * * * 

(3)(i) If a borrower’s loan is being collected by 

administrative wage garnishment while the borrower is also 

making monthly payments on the same loan under a loan 

rehabilitation agreement, the guaranty agency must continue 

collecting the loan by administrative wage garnishment 

until the borrower makes five qualifying monthly payments 

under the rehabilitation agreement. After the borrower 

makes the fifth qualifying monthly payment, the guaranty 

agency must, unless otherwise directed by the borrower, 

suspend collecting the loan by administrative wage 

garnishment. 

(ii) A borrower may only obtain the benefit of a 

suspension of administrative wage garnishment while also 

attempting to rehabilitate a defaulted loan once.

* * * * *

(b) * * * 

(1) A borrower may request rehabilitation of the 

borrower's defaulted loan held by the guaranty agency. In 

order to be eligible for rehabilitation of the loan, the 
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501

borrower must voluntarily make at least 9 of the 10 

payments required under a monthly repayment agreement.

(i) Each of which payment is--

(A) Made voluntarily;

(B) In the full amount required; 

(C) Received within 20 days of the due date for the 

payment; and

(D) Reasonable and affordable.

(ii) All 9 payments are received within a 10-month 

period that begins with the month in which the first 

required due date falls and ends with the ninth consecutive 

calendar month following that month.

(iii) For the purposes of this section, the 

borrower’s reasonable and affordable payment amount, as 

determined by the guaranty agency or its agents, is based 

solely on information provided on a form approved by the 

Secretary and, if requested, supporting documentation from 

the borrower and other sources, and considers--

(A) The borrower's, and if applicable, the spouse's 

current disposable income, including public assistance 

payments, and other income received by the borrower and the 

spouse, such as welfare benefits, Social Security benefits, 

Supplemental Security Income, and workers’ compensation. 
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Spousal income is not considered if the spouse does not 

contribute to the borrower’s household income;

(B) Family size as defined in §682.215(a)(3); and

(C) Reasonable and necessary expenses, which include-

-

(1) Food;

(2) Housing;

(3) Utilities;

(4) Basic communication expenses;

(5) Necessary medical and dental costs;

(6) Necessary insurance costs;

(7) Transportation costs;

(8) Dependent care and other work-related expenses;

(9) Legally required child and spousal support; 

(10) Other title IV and non-title IV student loan 

payments; and 

(11) Other expenses approved by the Secretary.

(iv) The reasonable and affordable payment amount 

must not be--

(A) A required minimum loan payment amount (e.g., 

$50) if the agency determines that a smaller amount is 

reasonable and affordable;
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(B) A percentage of the borrower’s total loan 

balance; or

(C) Based on other criteria unrelated to the 

borrower’s total financial circumstances.

(v) Within 15 business days of its determination of 

the borrower’s reasonable and affordable payment amount, 

the guaranty agency must provide the borrower with a 

written rehabilitation agreement which includes the 

borrower's reasonable and affordable payment amount, a 

prominent statement that the borrower may object orally or 

in writing to the reasonable and affordable payment amount,

with the method and timeframe for raising such an 

objection, and an explanation of any other terms and 

conditions applicable to the required series of payments 

that must be made before the borrower's account can be 

considered for repurchase by an eligible lender (i.e., 

rehabilitated). The agency may not impose any other 

conditions unrelated to the amount or timing of the 

rehabilitation payments in the rehabilitation agreement. 

The written rehabilitation agreement must inform the 

borrower of--
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504

(A) The effects of having the loans rehabilitated 

(e.g., removal of the record of default from the borrower’s 

credit history and return to normal repayment); and

(B) The amount of any collection costs to be added to 

the unpaid principal of the loan when the loan is sold to 

an eligible lender, which may not exceed 18.5 percent of 

the unpaid principal and accrued interest on the loan at 

the time of the sale. 

(vi) If the borrower objects to the monthly payment 

amount determined under paragraph (b)(1)(iii) of this 

section, the guaranty agency must recalculate the payment 

amount. The guaranty agency must follow the monthly 

payment calculation rules in §682.215(b)(1) to determine a 

borrower’s recalculated reasonable and affordable payment 

amount, except that if the recalculated amount under 

§682.215(b)(1) is less than $5, the borrower’s recalculated 

monthly rehabilitation payment is $5. The guaranty agency 

must provide the borrower with a new written rehabilitation 

agreement confirming the borrower’s recalculated reasonable 

and affordable payment amount within the timeframe 

specified in paragraph (b)(1)(v) of this section.

(vii) If the borrower objects to the monthly payment 

amount determined under paragraph (b)(1)(iii) of this 
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section, but does not provide the documentation required to 

calculate a monthly payment amount under §682.215(b)(1), no 

rehabilitation agreement exists between the borrower and 

the guaranty agency, and the rehabilitation does not 

proceed.

(viii) The agency must include any payment made under 

§682.401(b)(1) in determining whether the 9 out of 10 

payments required under paragraph (b)(1) of this section 

have been made.

(ix) A borrower may request that the monthly payment 

amount be adjusted due to a change in the borrower's total 

financial circumstances only upon providing the 

documentation specified in paragraph (b)(1)(iii) of this 

section.

(x) During the rehabilitation period, the guaranty 

agency must limit contact with the borrower on the loan 

being rehabilitated to collection activities that are 

required by law or regulation and to communications that 

support the rehabilitation.

* * * * *

§682.406 [Amended]

41. Section 682.406 is amended by:
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A. In paragraph (a)(2)(ii), removing the words “in 

accordance with §682.207(b)(1)(ii)(B) and (C)”.

B. In paragraph (a)(12)(iv), adding the words “and 

prior to July 1, 2010” after the date “1999” and before the 

punctuation “,”.

§682.407 [Amended]

42. Section 682.407(e)(1)(ii) is amended by removing 

the figure “24” the first time it appears and adding, in 

its place, the figure “72”.

§682.408 [Removed]

43. Remove §682.408.

§682.409 [Amended]

44. Section 682.409 is amended by:

A. In paragraph (a)(2)(i), removing the citation 

“§682.401(b)(4)” and adding, in its place, the citation 

“§682.401(b)(1)”.

B. In paragraph (a)(3)(i)(B), removing the citation 

“§682.401(b)(4)” and adding, in its place, the citation 

“§682.401(b)(1)”.

45. Section 682.410 is amended by:

A. Revising the introductory text of paragraph 

(a)(2).
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507

B. In paragraph (a)(2)(ii) introductory text, 

removing the word “preclaims” and adding, in its place, the 

words “default aversion”.

C. In paragraph (b)(2) introductory text, removing 

the citation “§682.401(b)(27)” and adding, in its place, 

the citation “§682.401(b)(18)(i)”.

D. In paragraph (b)(5)(i) introductory text, removing 

the parenthetical “(b)(6)(v)” and adding, in its place, the 

parenthetical “(b)(6)(ii)”.

E. In paragraph (b)(7)(i), removing the words 

“conditions described in §682.509(a)(1)” and adding, in 

their place, the words “condition described in 

§682.404(b)(3)(ii)”.

F. In paragraph (b)(7)(ii)(A), removing the words 

“credit bureau” and adding, in their place, the words 

“consumer reporting agency”.

G. Revising paragraph (b)(9).

H. In paragraph (c)(1)(i)(A) introductory text, 

removing the words “made or”.

I. In paragraph (c)(1)(i)(A)(1), removing the words 

“in that year”.

J. In paragraph (c)(1)(i)(A)(2), removing the words 

“in that year”.
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K. Revising paragraph (c)(1)(i)(C).

L. In paragraph (c)(1)(ii), adding the parenthetical 

“(i)” between the parenthetical “(1)” and the parenthetical 

“(A)”.

M. Removing paragraph (c)(4).

N. Redesignating paragraphs (c)(5) through (c)(11) as 

paragraphs (c)(4) through (c)(10), respectively.

O. In newly redesignated paragraphs (c)(8)(i) and 

(c)(8)(ii), adding the words “title IV eligibility of a” 

between the words “or” and “school”.

P. Revising newly redesignated paragraph (c)(10) 

introductory text.

The revisions read as follows:

§682.410 Fiscal, administrative, and enforcement 

requirements.

(a) * * *

(2) Uses of reserve fund assets. A guaranty agency 

may use the assets of the reserve fund established under 

paragraph (a)(1) of this section to pay only--

* * * * *

(b) * * * 

(9) Administrative garnishment. (i) If a guaranty 

agency decides to garnish the disposable pay of a borrower 
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509

who is not making payments on a loan held by the agency, on 

which the Secretary has paid a reinsurance claim, it must 

do so in accordance with the following procedures:

(A) At least 30 days before the initiation of 

garnishment proceedings, the guaranty agency must mail to 

the borrower’s last known address, a written notice 

described in paragraph (b)(9)(i)(B) of this section. 

(B) The notice must describe--

(1) The nature and amount of the debt;

(2) The intention of the agency to collect the debt 

through deductions from disposable pay;

(3) An explanation of the borrower’s rights;

(4) The deadlines by which a borrower must exercise 

those rights; and

(5) The consequences of failure to exercise those 

rights in a timely manner.

(C) The guaranty agency must offer the borrower an 

opportunity to inspect and copy agency records related to 

the debt. 

(D) The guaranty agency must offer the borrower an 

opportunity to enter into a written repayment agreement 

with the agency under terms agreeable to the agency.
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(E)(1) The guaranty agency must offer the borrower an 

opportunity for a hearing in accordance with paragraphs 

(b)(9)(i)(F) through (J) of this section and other guidance 

provided by the Secretary, for any objection regarding the 

existence, 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.

(2) The borrower must request a hearing in writing. 

At the borrower’s option, the hearing may be oral or 

written. The time and location of the hearing is 

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 notifies 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 in-person oral 

hearing are the responsibility of the borrower.

(F)(1) If the borrower submits a written request for 

a hearing on the existence, amount, or enforceability of 

the debt--
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(i) 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 debt 

is not enforceable under applicable law, the amount the 

guaranty agency claims the borrower owes is incorrect,

including that any amount of collection costs assessed to 

the borrower exceeds the limits established under 

§682.410(b)(2), or the debt is not delinquent; and

(ii) The borrower may raise any of the objections 

described in paragraph (b)(9)(i)(F)(1)(i) of this section 

not raised in the written request, but must do so before a 

hearing is completed. For purposes of this paragraph, a 

hearing is completed when the record is closed and the 

hearing official notifies the parties that no additional 

evidence or objections will be accepted.

(2) If the borrower submits a written request for a 

hearing on an objection that withholding the amount or rate 

that the agency proposed in its notice would cause 

financial hardship to the borrower and the borrower’s 

spouse and dependents-- 

(i) The borrower bears the burden of proving the 

claim of financial hardship by a preponderance of the 
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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;

(ii) The borrower’s claim of financial hardship must 

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. For 

the purposes of this section, the standards published by 

the Internal Revenue Service under 26 U.S.C. 7122(c)(2) 

(the National Standards) 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; 

(iii) The amount that the borrower proves is incurred 

for a type of basic living expense is 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 
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513

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; 

(iv) If the borrower’s objection to the rate or 

amount proposed in the notice is upheld in part, the 

garnishment may be ordered at a lesser rate or amount, that 

is determined will allow the borrower to meet basic living 

expenses proven to be reasonable and necessary. If this 

financial hardship determination is made after a 

garnishment order is already in effect, the guaranty agency 

must 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; and

(v) 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 borrower fails to submit current 

information within 30 days of this request, or the guaranty 

agency concludes from a review of the available evidence 
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514

that garnishment should now begin or the rate or the amount 

of an outstanding withholding should be increased, 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) of this section. 

(G) If the borrower’s written request for a hearing 

is received by the guaranty agency on or before the 30th 

day following the date 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 and a decision has been 

rendered. The guaranty agency must provide a hearing to 

the borrower in sufficient time to permit a decision, in 

accordance with the procedures that the agency may 

prescribe, to be rendered within 60 days. 

(H) If the borrower’s written request for a hearing 

is received by the guaranty agency after the 30th day 

following the date of the notice described in paragraph 

(b)(9)(i)(B) of this section, the guaranty agency must 

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 
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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. 

If a decision is not rendered within 60 days following 

receipt of a borrower’s written request for a hearing, 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. 

(I) 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 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. Payment of compensation by the 

guaranty agency, third-party servicer, or collection 

contractor employed by the agency to the hearing official 

for service as a hearing official does not constitute 

impermissible supervision or control under this paragraph. 

The guaranty agency must ensure that, except as needed to 

arrange the type of hearing requested by the borrower and 
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516

the time, place, and manner of conducting an oral hearing, 

all oral communications with any representative of the 

guaranty agency or with the borrower are made within the 

hearing of the other party, and that copies of any written 

communication with either party are promptly provided to 

the other party.

(J) The hearing official must 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 must 

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 

must grant, a reasonable extension of time sufficient to 

enable the guaranty agency to evaluate and respond to any 

such additional evidence or any objections raised pursuant 

to paragraph (b)(9)(i)(F)(1)(ii) of this section.
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(K) An employer served with a garnishment order from 

the guaranty agency with respect to a borrower whose wages 

are not then subject to a withholding order of any kind 

must deduct and pay to the agency from a borrower’s 

disposable pay an amount that does not exceed the smallest 

of--

(1) The amount specified in the guaranty agency 

order;

(2) The amount permitted by section 488A(a)(1) of the 

Act, which is 15 percent of the borrower’s disposable pay; 

or

(3) The amount permitted by 15 U.S.C. 1673(a)(2), 

which is the amount by which the borrower’s disposable pay 

exceeds 30 times the minimum wage.

(L) 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 paragraph (b)(9)(i)(K) of this section 

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 
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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 guaranty agency 

order; or

(ii) The amount calculated under paragraph 

(b)(9)(i)(L)(3) of this section less the amount or amounts 

withheld under the garnishment order or orders that have 

priority over the agency’s order; and

(3) The cumulative withholding for all garnishment 

orders issued by guaranty agencies may not exceed, for an 

individual borrower, the amount permitted by 15 U.S.C. 

1673, which 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. If a 

borrower owes debts to one or more guaranty agencies, each 

agency may issue a garnishment order to enforce each of 

those debts, but no single agency may order a total amount 

exceeding 15 percent of the disposable pay of a borrower to 

be withheld. The employer must honor these orders as 
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519

provided in paragraphs (b)(9)(i)(L)(1) and (2) of this 

section.

(M) Notwithstanding paragraphs (b)(9)(i)(K) and (L) 

of this section, an employer may withhold and pay a greater 

amount than required under the order if the borrower gives 

the employer written consent.

(N) 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 hardship-related 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. 

(O) A garnishment order is effective until the 

guaranty agency rescinds the order or the agency has fully 
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520

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 must send the borrower’s employer 

notification to stop wage withholding. 

(P) The guaranty agency must sue any employer for any 

amount that the employer, after receipt of the withholding 

order provided by the agency under paragraph (b)(9)(i)(R) 

of this section, fails to withhold from wages owed and 

payable to an employee under the employer’s normal pay and 

disbursement cycle. 

(Q) 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.
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521

(R) Unless the guaranty agency receives information 

that the agency believes justifies a delay or cancellation 

of the withholding order, it must 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.

(S) The notice given to the employer under paragraph 

(b)(9)(i)(R) of this section must contain only the 

information as may be necessary for the employer to comply 

with the withholding order and to ensure proper credit for 

payments received. At a minimum, the notice given to the 

employer includes the borrower’s name, address, and Social 

Security Number, as well as instructions for withholding 

and information as to where the employer must send 

payments.

(T)(1) A guaranty agency may use a 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. 

Subject to the limitations of paragraphs (b)(9)(i)(T)(2) 
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522

and (3) of this section, administrative activities 

associated with administrative wage garnishment may include 

but are not limited to--

(i) Identifying to the agency suitable candidates for 

wage garnishment pursuant to agency standards;

(ii) Obtaining employment information for the 

purposes of garnishment;

(iii) Sending candidates selected for garnishment by 

the agency notices prescribed by the agency;

(iv) Negotiating alternative repayment arrangements 

with borrowers;

(v) Responding to inquiries from notified borrowers;

(vi) Receiving garnishment payments on behalf of the 

agency;

(vii) Arranging for the retention of hearing 

officials and for the conduct of hearings on behalf of the 

agency;

(viii) Providing information to borrowers or hearing 

officials on the process or conduct of hearings; and

(ix) Sending garnishment orders and other 

communications to employers on behalf of the agency.

(2) Only an authorized official of the agency may 

determine that an individual withholding order is to be 
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523

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 thirdparty 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 must 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.
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(U) As specified in section 488A(a)(8) of the Act, 

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) of this 

section--

(A) “Borrower” includes all endorsers on a loan;

(B) “Day” means calendar day;

(C) “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 or other withholding order. All 

references to an amount of disposable pay refer to 

disposable pay calculated for a single week;

(D) “Employer” means a person or entity that employs 

the services of another and that pays the latter’s wages or 
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525

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 paying those 

amounts to a creditor in satisfaction of a withholding 

order; and

(G) “Withholding order” means any order for 

withholding or garnishment of pay issued by the guaranty 

agency and may also be referred to as “wage garnishment 

order” or “garnishment order.”

* * * * * 

(c) * * *

(1) * * *

(i) * * *

(C) Each school that participated in the guaranty 

agency’s program, located in a State for which the guaranty 

agency is the principal guaranty agency, that has a cohort 

default rate, as described in subpart M of 34 CFR part 668, 
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that includes FFEL Program loans, for either of the 2 

immediately preceding fiscal years, as defined in 34 CFR 

668.182, that exceeds 20 percent, unless the school is 

under a mandate from the Secretary under subpart M of 34 

CFR part 668 to take specific default reduction measures or 

if the total dollar amount of loans entering repayment in 

each fiscal year on which the cohort default rate of over 

20 percent is based does not exceed $100,000; or

* * * * *

(10) Taking prompt action to protect the rights of 

borrowers and the Federal fiscal interest respecting loans 

that the agency has guaranteed when the agency learns that 

a school that participated in the FFEL Program or a holder 

of loans participating in the program is experiencing 

problems that threaten the solvency of the school or 

holder, including--

* * * * *

§682.411 [Amended]

46. Section 682.411 is amended by:

A. In paragraph (d)(2), removing the words “all 

national credit bureaus” and adding, in their place, the 

words “each nationwide consumer reporting agency”.
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527

B. In paragraph (f), removing the words “a national 

credit bureau” and adding, in their place, the words “each 

nationwide consumer reporting agency”.

C. In paragraph (n)(2), removing the words “a 

national credit bureau” and adding, in their place, the 

words “each nationwide consumer reporting agency”.

D. In paragraph (o)(2), removing the words “credit 

bureau” and adding, in their place, the words “consumer 

reporting agency”.

§682.412 [Amended]

47. Section 682.412(a)(2) is amended by removing the 

words “as provided under §682.301”.

48. Section 682.413 is amended by:

A. In paragraph (c)(1)(vi), removing the words 

“certification required under §682.206(f)(1)” and adding, 

in their place the words “required lender verification 

certification”. 

B. Revising the first sentence of paragraph (h).

The revision reads as follows:

§682.413 Remedial actions.

* * * * * 

(h) In any action to require repayment of funds or to 

withhold funds from a guaranty agency, or to limit, 
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528

suspend, or terminate a guaranty agency based on a 

violation of section 428(b)(3) of the Act, if the Secretary 

finds that the guaranty agency provided or offered the 

prohibited payments or activities, the Secretary applies a 

rebuttable presumption that the payments or activities were 

offered or provided to secure applications for FFEL loans 

or to secure FFEL loan volume. * * *

* * * * *

§682.414 [Amended]

49. Section 682.414 is amended by:

A. In paragraph (a)(1)(ii)(D), removing the words 

“credit bureau” and adding, in their place, the words 

“consumer reporting agency”.

B. In paragraph (a)(4)(ii)(J), removing the words 

“credit bureau” and adding, in their place, the words 

“consumer reporting agency”.

C. In paragraph (a)(6)(ii)(D), removing the word “is” 

and adding, in its place, the word “it”.

D. In paragraph (b)(2), removing paragraph (b)(2)(i).

E. Redesignating paragraphs (b)(2)(ii) through 

(b)(2)(iv), as (b)(2)(i) through (b)(2)(iii), respectively.

F. In paragraph (b)(3)(i), removing the words 

“schools and”.
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529

G. In paragraph (b)(3)(ii), removing the words 

“schools and”.

H. In paragraph (b)(3)(iii), removing the words 

“school or”.

I. In paragraph (c)(2), removing the citation 

“§682.401(b)(21) and (22)” and adding, in its place, the 

citation “§682.401(b)(12) and (13)”.

§682.416 [Amended]

50. Section 682.416(d)(2) is amended by removing the 

word “Title” and adding, in its place, the word “title”.

§682.418 [Removed]

51. Remove §682.418.

§682.419 [Amended]

52. Section 682.419 is amended by:

A. In paragraph (b)(8), removing the words “, in 

accordance with §682.420”.

B. In paragraph (c)(6), removing the citation 

“§682.421” and adding, in its place, the citation “section 

422A(f) of the Act”.

§682.420 [Removed]

53. Remove §682.420.

§682.421 [Removed]

54. Remove §682.421.
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530

§682.422 [Removed]

55. Remove §682.422.

§682.423 [Amended]

56. Section 682.423 is amended by:

A. In the second sentence of paragraph (a), adding 

the word “may” between the words “that” and “have”.

B. In paragraph (a), removing the last sentence. 

Subpart E [Removed and Reserved]

57. Remove and reserve subpart E of part 682.

58. Revising the heading to subpart F of part 682 to 

read as follows:

Subpart F -- Requirements, Standards, and Payments for 

Schools That Participated in the FFEL Program 

* * * * *

§682.601 [Removed]

59. Remove §682.601.

§682.602 [Removed]

60. Remove §682.602.

61. Section 682.603 is amended by:

A. Revising the section heading.

B. In paragraph (b)(3), removing the citation 

“§682.604(c)” and adding, in its place, the citation 

“section 428G of the Act”.
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531

C. Revising paragraphs (g), (h), and (i).

D. Revising the first of the two paragraphs that are 

both designated as paragraph (j).

E. Removing the second of the two paragraphs that are 

both designated as paragraph (j).

F. Adding paragraphs (k) and (l).

The revisions and additions read as follows:

§682.603 Certification by a school that participated in 

the FFEL Program in connection with a loan application.

* * * * *

(g) The maximum period for which a school may certify 

a loan application is--

(1) Generally an academic year, as defined by 34 CFR 

668.3, except that a guaranty agency may allow a school to 

use a longer period of time, corresponding to the period to 

which the agency applies the annual loan limits; or

(2) For a defaulted borrower who has regained 

eligibility under §682.401(b)(1), the academic year in 

which the borrower regained eligibility.

(h) In certifying a Stafford or Unsubsidized Stafford 

loan amount in accordance with §682.204--

(1) A program of study must be considered at least 

one full academic year if--
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532

(i) The number of weeks of instructional time is at 

least 30 weeks; and

(ii) The number of clock hours is a least 900, the 

number of semester or trimester hours is at least 24, or 

the number of quarter hours is at least 36;

(2) A program of study must be considered two-thirds 

(2/3) of an academic year if-–

(i) The number of weeks of instructional time is at 

least 20 weeks; and

(ii) The number of clock hours is at least 600, the 

number of semester or trimester hours is at least 16, or 

the number of quarter hours is at least 24;

(3) A program of study must be considered one-third 

(1/3) of an academic year if--

(i) The number of weeks of instruction time is at 

least 10 weeks; and

(ii) The number of clock hours is at least 300, the 

number of semester or trimester hours is at least 8, or the 

number of quarter hours is at least 12; and

(4) In prorating a loan amount for a student enrolled 

in a program of study with less than a full academic year 

remaining, the school need not recalculate the amount of 

the loan if the number of hours for which an eligible 
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533

student is enrolled changes after the school certifies the 

loan.

(i)(1) If a school measures academic progress in an 

educational program in credit hours and uses either 

standard terms (semesters, trimesters, or quarters) or 

nonstandard terms that are substantially equal in length, 

and each term is at least nine weeks of instructional time 

in length, a student is considered to have completed an 

academic year and progresses to the next annual loan limit 

when the academic year calendar period has elapsed.

(2) If a school measures academic progress in an 

educational program in credit hours and uses nonstandard 

terms that are not substantially equal in length or each 

term is not at least nine weeks of instructional time in 

length, or measures academic progress in credit hours and 

does not have academic terms, a student is considered to 

have completed an academic year and progresses to the next 

annual loan limit at the later of--

(i) The student's completion of the weeks of 

instructional time in the student's academic year; or

(ii) The date, as determined by the school, that the 

student has successfully completed the academic coursework 

in the student's academic year.
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(3) If a school measures academic progress in an 

educational program in clock hours, a student is considered 

to have completed an academic year and progresses to the 

next annual loan limit at the later of--

(i) The student's completion of the weeks of 

instructional time in the student's academic year; or

(ii) The date, as determined by the school, that the 

student has successfully completed the clock hours in the 

student's academic year.

(4) For purposes of this section, terms in a loan 

period are substantially equal in length if no term in the 

loan period is more than two weeks of instructional time 

longer than any other term in that loan period.

(j)(1) A school must cease certifying loans based on 

the exceptions in section 428G(a)(3) of the Act no later 

than--

(i) 30 days after the date the school receives 

notification from the Secretary of an FFEL cohort default 

rate, calculated under subpart M of 34 CFR part 668, that 

causes the school to no longer meet the qualifications 

outlined in those paragraphs; or

(ii) October 1, 2002.
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535

(2) A school must cease certifying loans based on the 

exceptions in section 428G(a)(3) of the Act no later than 

30 days after the date the school receives notification 

from the Secretary of an FFEL cohort default rate, 

calculated under subpart M of 34 CFR part 668, that causes 

the school to no longer meet the qualifications outlined in 

those paragraphs.

(k) A school may not assess the borrower, or the 

student in the case of a parent PLUS loan, a fee for the 

completion or certification of any FFEL Program form or 

information or for providing any information necessary for 

a student or parent to receive a loan under part B of the 

Act or any benefits associated with such a loan.

(l) Pursuant to paragraph (b)(3) of this section, a 

school may not request the disbursement by the lender for 

loan proceeds earlier than the period specified in 34 CFR 

668.167.

* * * * *

62. Section 682.604 is amended by:

A. Revising the section heading.

B. Removing paragraphs (a), (c), (d), (e), (f), (h), 

and (i).

C. Redesignating paragraph (g) as paragraph (a).
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536

D. Removing and reserving paragraph (b).

E. In the last sentence of newly redesignated 

paragraph (a)(1), adding the punctuation and words “, or by 

sending written counseling materials by email to an email

address provided by the student borrower” between the words 

“last known address” and “within 30 days”. 

F. Removing newly redesignated paragraph (a)(2)(vi).

G. In newly redesignated paragraph (a), redesignating 

paragraphs (a)(2)(vii) through (a)(2)(xii) as paragraphs 

(a)(2)(ix) through (a)(2)(xiv), respectively. 

H. Adding new paragraphs (a)(2)(vi) through 

(a)(2)(viii).

I. Adding new paragraph (a)(5).

The revision and additions read as follows:

§682.604 Required exit counseling for borrowers.

(a) * * *

(2) * * *

(vi) Explain to the borrower the use of a Master 

Promissory Note;

(vii) Emphasize to the student borrower the 

seriousness and importance of the repayment obligation the 

borrower has assumed;
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537

(viii) Emphasize to the student borrower that the 

full amount of the loan (other than a loan made or 

originated by the school) must be repaid in full even if 

the student borrower does not complete the program, does 

not complete the program within the regular time for 

program completion, is unable to obtain employment upon 

completion, or is otherwise dissatisfied with or does not 

receive the educational or other services that the student 

borrower purchased from the school; 

* * * * *

(5)(i) For students who have received both FFEL 

Program and Direct Loan Program loans for attendance at a 

school, the school’s compliance with the exit counseling 

requirements in 34 CFR 685.304(b) satisfies the 

requirements of this section if the school ensures that the 

exit counseling also provides the borrower with the 

information described in paragraph (a)(2)(i) and (a)(2)(ii) 

of this section.

(ii) A student’s completion of electronic interactive 

exit counseling offered by the Secretary satisfies the 

requirements of this section, and for students who have 

also received Direct Loan Program loans for attendance at 

the school, the requirements of 34 CFR 685.304(b). 
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538

* * * * *

§682.605 [Amended]

63. Section 682.605 is amended by: 

A. In paragraph (b), adding the words “and the 

Secretary” between the words ”lender” and “the date”.

B. In paragraph (c), adding the words “and the 

Secretary” between the word “lender” and the punctuation 

“,”.

§682.608 [Removed]

64. Remove §682.608.

65. Section 682.610 is amended by:

A. Revising the section heading. 

B. Revising paragraph (b)(5).

C. Revising paragraph (c).

The revisions read as follows:

§682.610 Administrative and fiscal requirements for 

schools that participated.

* * * * *

(b) * * * 

(5) For loans delivered by electronic funds transfer 

or master check, a copy of the borrower's required written 

authorization, if it was not provided in the loan 
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539

application or MPN, to deliver the initial and subsequent 

disbursements of each FFEL Program loan; and

* * * * *

(c) Enrollment reporting process. (1) Upon receipt 

of an enrollment report from the Secretary, a school 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, 

a school must notify the Secretary within 30 days after the 

date that the school discovers that--

(i) A loan under title IV of the Act was made to or

on behalf of a 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) A student who is enrolled at the school and who 

received a loan under title IV of the Act has changed his 

or her permanent address.
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* * * * * 

66. The heading of subpart G of part 682 is revised 

to read as follows:

Subpart G--Limitation, Suspension, or Termination of Lender 

or Third-party Servicer Eligibility and Disqualification of 

Lenders

* * * * *

§682.700 [Amended]

67. Section 682.700 is amended by:

A. In paragraph (a), removing the words “or school” 

in the final sentence.

B. In paragraph (b)(1)(ii), adding the word “or” 

after the punctuation “;”.

C. Removing paragraph (b)(2).

D. Redesignating paragraph (b)(3) as paragraph 

(b)(2).

E. In paragraph (c), removing the words “or schools”.

68. Section 682.701 is amended by revising the 

definition of “Disqualification” to read as follows:

§682.701 Definitions of terms used in this subpart.

* * * * *

Disqualification: The removal of a lender’s 

eligibility for an indefinite period of time by the 
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541

Secretary on review of limitation, suspension, or 

termination action taken against the lender by a guaranty 

agency.

* * * * *

69. Section 682.702 is amended by:

A. In paragraph (a), removing the words “in paragraph 

(d) of this section and”.

B. Revising paragraph (b)(1).

C. Removing paragraph (b)(2).

D. Redesignating paragraph (b)(3) as paragraph 

(b)(2).

E. Removing paragraph (d).

The revision reads as follows:

§682.702 Effect on participation.

* * * * *

(b) * * *

(1) A limit on the number or total amount of loans 

that a lender may purchase or hold under the FFEL Program; 

or

* * * * *

§682.704 [Amended]

70. Section 682.704(a) introductory text is amended, 

by removing the words “stop the issuance of guarantee 
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542

commitments by the Secretary and guarantee agencies and 

to”.

§682.705 [Amended]

71. Section 682.705 is amended by:

A. In paragraph (a)(1) introductory text, removing 

the words “new loan made by the lender or”.

B. In paragraph (b)(2)(v), removing the words “, 

except as provided in paragraph (c)(9) of this section,”.

C. Removing paragraph (c).

§682.706 [Amended]

72. Section 682.706 is amended by removing paragraph 

(d).

73. Section 682.709 is amended by adding paragraph 

(d) to read as follows:

§682.709 Reimbursements, refunds, and offsets.

* * * * *

(d) In any action under this part based on a 

violation of the prohibitions in section 435(d)(5) of the 

Act, if the Secretary, the designated Department official, 

or the hearing official finds that the lender provided or 

offered the payments or activities described in paragraph 

(5)(i) of the definition of “lender” in §682.200(b), the 

Secretary or the official applies a rebuttable presumption 
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543

that the payments or activities were offered or provided to 

secure applications for FFEL loans. To reverse the 

presumption, the lender must present evidence that the 

activities or payments were provided for a reason unrelated 

to securing applications for FFEL loans or securing FFEL 

loan volume.

* * * * * 

§682.711 [Amended]

74. Section 682.711 is amended by:

A. Removing paragraph (c).

B. Redesignating paragraphs (d) and (e) as paragraphs 

(c) and (d), respectively.

C. In newly redesignated paragraph (d)(2), removing 

the parenthetical “(d)” and adding, in its place, the

parenthetical “(c)”.

D. In newly redesignated paragraph (d)(2), removing 

the parenthetical “(e)” and adding, in its place, the 

parenthetical “(d)”.

§682.712 [Amended]

75. Section 682.712 is amended by:

A. In paragraph (g)(2), removing the parenthetical 

“(j)” and adding, in its place, the parenthetical “(i)”.
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544

B. In paragraph (h)(2) and in paragraph (h)(3) 

introductory text, removing the parenthetical “(j)” and 

adding, in its place, the parenthetical “(i)”.

C. Removing paragraph (i).

D. Redesignating paragraph (j) as paragraph (i).

§682.713 [Removed]

76. Remove §682.713.

Subpart H of part 682 [Removed and Reserved]

77. Remove and reserve subpart H of part 682.

Appendix C to part 682 [Removed]

78. Remove and reserve Appendix C to part 682.

Appendix D to part 682 [Amended]

79. In appendix D to part 682, paragraph 3 of the 

introduction is amended by removing the final citation “34 

CFR 682.401(d)” and adding, in its place, the citation “34 

CFR 682.401(c)”.

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

80. The authority citation for part 685 continues to 

read as follows:

AUTHORITY: 20 U.S.C. 1070g, 1087a, et seq., unless 

otherwise noted.

81. Section 685.100 is amended by:

A. Revising paragraph (a).
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545

B. In paragraph (b), removing the words “has been 

selected by the Secretary to participate” and adding, in 

their place, the word “participates”. 

C. Revising paragraph (c).

The revisions read as follows:

§685.100 The William D. Ford Federal Direct Loan Program.

(a) Under the William D. Ford Federal Direct Loan 

(Direct Loan) Program (formerly known as the Federal Direct 

Student Loan Program), the Secretary makes loans to enable 

a student or parent to pay the costs of the student's 

attendance at a postsecondary school. This part governs 

the Federal Direct Stafford/Ford Loan Program, the Federal 

Direct Unsubsidized Stafford/Ford Loan Program, the Federal 

Direct PLUS Program, and the Federal Direct Consolidation 

Loan Program. The Secretary makes loans under the 

following program components:

(1)(i) Federal Direct Stafford/Ford Loan Program 

(Direct Subsidized Loan Program), which provides loans to 

undergraduate, graduate, and professional students. Loans 

made under this program are referred to as Direct 

Subsidized Loans. Except as provided in paragraph 

(a)(1)(ii) of this section, the Secretary subsidizes the 

interest while the borrower is in an in-school, grace, or 
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546

deferment period. Graduate and professional students are 

not eligible to receive Direct Subsidized Loans for any 

period of enrollment beginning on or after July 1, 2012.

(ii) The Secretary does not subsidize the interest 

that accrues during the grace period on any Direct 

Subsidized Loan for which the first disbursement is made on 

or after July 1, 2012 and before July 1, 2014.

(2) Federal Direct Unsubsidized Stafford/Ford Loan 

Program (Direct Unsubsidized Loan Program), which provides 

loans to undergraduate, graduate and professional students. 

Loans made under this program are referred to as Direct 

Unsubsidized Loans. The borrower is responsible for the 

interest that accrues during any period.

(3) Federal Direct PLUS Program (Direct PLUS Loan 

Program), which provides loans to parents of dependent 

students and to graduate or professional students. Loans 

made under this program are referred to as Direct PLUS 

Loans. The borrower is responsible for the interest that 

accrues during any period.

(4) Federal Direct Consolidation Loan Program (Direct 

Consolidation Loan Program), which provides loans to 

borrowers to consolidate certain Federal educational loans. 
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547

Loans made under this program are referred to as Direct 

Consolidation Loans.

* * * * *

(c) The Secretary makes a Direct Consolidation Loan 

only to a borrower who is consolidating at least one loan 

made under the Direct Loan Program or the Federal Family 

Education Loan (FFEL) Program.

* * * * *

82. Section 685.101 is revised to read as follows:

§685.101 Participation in the Direct Loan Program.

(a) Colleges, universities, graduate and professional 

schools, vocational schools, and proprietary schools may 

participate in the Direct Loan Program. Participation in 

the Direct Loan Program enables an eligible student or 

parent to obtain a loan to pay for the student's cost of 

attendance at the school.

(b)(1) An eligible undergraduate student who is 

enrolled at a school participating in the Direct Loan 

Program may borrow under the Direct Subsidized Loan and 

Direct Unsubsidized Loan Programs. 

(2) An eligible graduate or professional student 

enrolled at a school participating in the Direct Loan 

Program may borrow under the Direct Subsidized Loan, Direct 
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548

Unsubsidized Loan, and Direct PLUS Loan Programs, except 

that a graduate or professional student may not borrow 

under the Direct Subsidized Loan Program for any period of 

enrollment beginning on or after July 1, 2012. 

(3) An eligible parent of an eligible dependent 

student enrolled at a school participating in the Direct 

Loan Program may borrow under the Direct PLUS Loan Program.

(Authority: 20 U.S.C. 1087a et seq.)

83. Section 685.102 is amended by:

A. In paragraph (a)(1) introductory text, removing 

the words “subpart A of”.

B. In paragraph (a)(1), removing the terms “Academic 

Competitiveness Grant (ACG) Program”, “Disburse”, “Federal 

Direct Student Loan Program (Direct Loan Program)”, 

“Leveraging Educational Assistance Partnership Program”, 

“National Science and Mathematics Access to Retain Talent 

Grant (National SMART Grant) Program”, and “State”.

C. In paragraph (a)(1), adding the terms 

“Disbursement” and “William D. Ford Federal Direct Loan 

(Direct Loan) Program” in alphabetical order. 

D. In paragraph (a)(2), adding the terms 

“Correspondence course” and “State” in alphabetical order.
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549

E. In paragraph (a)(2), removing the term “Program of 

study by correspondence”.

F. Removing paragraph (a)(3).

G. In paragraph (b), adding the definitions of “Act”, 

“Endorser”, “Federal Insured Student Loan Program”, 

“Federal Stafford Loan Program”, “Guaranty agency”, 

“Holder”, “Lender”, “Nationwide consumer reporting agency”, 

“Substantial gainful activity”, and “Totally and 

permanently disabled”, in alphabetical order.

H. In paragraph (b), removing the definitions of 

“Alternative originator”, “Consortium”, “School origination 

option 1”, “School origination option 2”, “Servicer”, and 

“Standard origination”.

I. In paragraph (b), in the definition of “Estimated 

financial assistance”, revising paragraphs (1)(vi) and 

(2)(i).

J. In paragraph (b), in the heading of the definition 

of “Federal Direct Consolidation Loan Program:”, adding the 

words “(Direct Consolidation Loan Program)” immediately 

before the punctuation “:”.

K. In paragraph (b), in paragraph (4) of the 

definition of “Federal Direct Consolidation Loan Program”, 

removing the words “The term” in the first sentence and 
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550

adding, in their place, the words “In the case of a Direct 

Consolidation Loan that entered repayment prior to July 1, 

2006, the term”.

L. In paragraph (b), in the heading of the definition 

of “Federal Direct PLUS Program:”, adding the words 

“(Direct PLUS Loan Program)” immediately before the 

punctuation “:”.

M. In paragraph (b), revising the definition of 

“Federal Direct Stafford/Ford Loan Program”.

N. In paragraph (b), in the heading of the definition 

of “Federal Direct Unsubsidized Stafford/Ford Loan 

Program:”, adding the words “(Direct Unsubsidized Loan 

Program)” immediately before the punctuation “:”.

O. In paragraph (b), revising the definition of 

“Grace period”.

P. In paragraph (b), in the definition of “Master 

Promissory Note (MPN)”, adding a new paragraph (4). 

Q. In paragraph (b), revising the definition of 

“Satisfactory repayment arrangement”.

The revisions and additions read as follows:

§685.102 Definitions.

* * * * *

(b) * * *
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Act: The Higher Education Act of 1965, as amended, 20 

U.S.C. 1071 et seq.

* * * * *

Endorser: An individual who signs a promissory note 

and agrees to repay the loan in the event that the borrower 

does not.

Estimated financial assistance: (1) * * *

(vi) The estimated amount of other Federal student 

financial aid, including but not limited to a Federal Pell 

Grant, campus-based aid, and the gross amount (including 

fees) of subsidized and unsubsidized Federal Stafford 

Loans, Direct Subsidized and Unsubsidized Loans, and 

Federal PLUS or Direct PLUS Loans.

(2) * * *

(i) Those amounts used to replace the expected family 

contribution (EFC), including the amounts of any TEACH 

Grants, unsubsidized Federal Stafford Loans or Direct 

Unsubsidized Loans, Federal PLUS or Direct PLUS Loans, and 

non-federal non-need-based loans, including private, statesponsored, and institutional loans. However, if the sum of 

the amounts received that are being used to replace the 

student's EFC exceed the EFC, the excess amount must be 

treated as estimated financial assistance;
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* * * * *

Federal Direct Stafford/Ford Loan Program (Direct 

Subsidized Loan Program): A loan program authorized by 

title IV, part D of the Act that provides loans to 

undergraduate, graduate, and professional students 

attending Direct Loan Program schools, and one of the 

components of the Direct Loan Program. The Secretary 

subsidizes the interest while the borrower is in an inschool, grace, or deferment period, except that the 

Secretary does not subsidize the interest that accrues 

during the grace period on a loan for which the first 

disbursement is made on or after July 1, 2012 and before 

July 1, 2014. Loans made under this program are referred 

to as Direct Subsidized Loans. Graduate and professional 

students are not eligible to receive Direct Subsidized 

Loans for any period of enrollment beginning on or after 

July 1, 2012.

* * * * *

Federal Insured Student Loan Program: The loan 

program authorized by title IV, part B of the Act under 

which the Secretary directly insures lenders against 

losses.
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Federal Stafford Loan Program: The loan program 

authorized by title IV, part B of the Act which encouraged 

the making of subsidized and unsubsidized loans to 

undergraduate, graduate, and professional students and is 

one of the Federal Family Education Loan programs.

Grace period: A six-month period that begins on the 

day after a Direct Subsidized Loan borrower, a Direct 

Unsubsidized Loan borrower, or, in some cases, a Direct 

Consolidation Loan borrower whose consolidation application 

was received before July 1, 2006, ceases to be enrolled as 

at least a half-time student at an eligible institution and 

ends on the day before the repayment period begins.

Guaranty agency: A State or private nonprofit 

organization that has an agreement with the Secretary under 

which it will administer a loan guarantee program under the 

Act.

Holder: The entity that owns a loan. For a FFEL 

Program loan, the term “holder” refers to an eligible 

lender owning a FFEL Program loan, including a Federal or 

State agency or an organization or corporation acting on 

behalf of such an agency and acting as a conservator, 

liquidator, or receiver of an eligible lender.

* * * * *
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Lender: As used in this part, the term “lender” has 

the meaning specified in section 435(d) of the Act for 

purposes of the FFEL Program.

* * * * *

Master Promissory Note (MPN):

* * * * *

(4) Unless the Secretary determines otherwise, a 

school may use a single MPN as the basis for all loans 

borrowed by a student or parent borrower for attendance at 

that school. If a school is not authorized by the 

Secretary for multi-year use of the MPN, a student or 

parent borrower must sign a new MPN for each academic year.

Nationwide consumer reporting agency: A consumer 

reporting agency as defined in 15 U.S.C. 1681a(p).

* * * * *

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 §685.220(d)(1)(ii)(A)(3)--
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555

(i) The making of three consecutive, voluntary, ontime, full monthly payments on a defaulted loan prior to 

consolidation; or

(ii) Agreeing to repay the Direct Consolidation Loan 

under one of the income-contingent repayment plans 

described in §685.209 or the income-based repayment plan 

described in §685.221.

(3) For the purpose of paragraph (2)(i) of this 

definition, 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 20 days of the scheduled due date, 

and voluntary payments are 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.
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Substantial gainful activity: A level of work 

performed for pay or profit that involves doing significant 

physical or mental activities, or a combination of both.

Totally and permanently disabled: The condition of an 

individual who--

(1) Is unable to engage in any substantial gainful 

activity by reason of any medically determinable physical 

or mental impairment that--

(i) Can be expected to result in death;

(ii) Has lasted for a continuous period of not less 

than 60 months; or

(iii) Can be expected to last for a continuous period 

of not less than 60 months; or

(2) Has been determined by the Secretary of Veterans 

Affairs to be unemployable due to a service-connected 

disability.

* * * * *

84. Section 685.200, as amended by final regulations 

published in the Federal Register on November 1, 2012 (77 

FR 66088) is further amended by:

A. Revising paragraph (a)(1)(iv).

B. Revising paragraph (a)(1)(v).

C. Revising paragraph (b)(4).
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557

D. In paragraph (c)(1)(vii)(C), adding the word 

“paragraph” immediately before the citation 

“(c)(1)(vii)(A)”.

E. Adding a new paragraph (c)(1)(vii)(D).

F. Revising paragraph (d).

The revisions and addition read as follows:

§685.200 Borrower eligibility.

(a) * * * 

(1) * * * 

(iv) In the case of a borrower whose previous loan or 

TEACH Grant service obligation was discharged due to total 

and permanent disability, the student--

(A) In the case of a borrower whose prior loan under 

title IV of the Act or TEACH Grant service obligation was 

discharged after a final determination of total and 

permanent disability, the borrower--

(1) Obtains a certification from a physician that the 

borrower is able to engage in substantial gainful activity; 

and

(2) Signs a statement acknowledging that neither the 

new Direct Loan the borrower receives nor any previously 

discharged loan on which the borrower is required to resume 

payment in accordance with paragraph (a)(1)(iv)(B) of this 
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558

section can be discharged in the future on the basis of any 

impairment present when the new loan is made, unless that 

impairment substantially deteriorates; 

(B) In the case of a borrower who receives a new

Direct Loan, other than a Direct Consolidation Loan, within 

three years of the date that any previous title IV loan or 

TEACH Grant service obligation was discharged due to a 

total and permanent disability in accordance with 

§685.213(b)(4)(iii), 34 CFR 674.61(b)(3)(v), 34 CFR 

682.402(c)(3)(iv), or 34 CFR 686.42(b) based on a discharge 

request received on or after July 1, 2010, the borrower 

resumes repayment on the previously discharged loan in 

accordance with §685.213(b)(7), 34 CFR 674.61(b)(6), or 34 

CFR 682.402(c)(6), or acknowledges that he or she is once 

again subject to the terms of the TEACH Grant agreement to 

serve before receiving the new loan; and

(C) In the case of a borrower whose prior loan under 

title IV of the Act was conditionally discharged after an 

initial determination that the borrower was totally and 

permanently disabled based on a discharge request received 

prior to July 1, 2010--

(1) The suspension of collection activity on the 

prior loan has been lifted;
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(2) The borrower complies with the requirement in 

paragraph (a)(1)(iv)(A)(1) of this section;

(3) The borrower signs a statement acknowledging that 

neither the new Direct Loan the borrower receives nor the 

loan that has been conditionally discharged prior to a 

final determination of total and permanent disability can 

be discharged in the future on the basis of any impairment 

present when the borrower applied for a total and permanent 

disability discharge or when the new loan is made, unless 

that impairment substantially deteriorates; and

(4) The borrower signs a statement acknowledging that 

the suspension of collection activity on the prior loan 

will be lifted.

(v) In the case of a student who was enrolled in a 

program of study prior to July 1, 2012 and who seeks a loan 

but does not have a certificate of graduation from a school 

providing secondary education or the recognized equivalent 

of such a certificate, the student meets the requirements 

under 34 CFR 668.32(e)(2), (3), (4), or (5).

* * * * *

(b) * * * 

(4) The student has received a determination of his 

or her annual loan maximum eligibility under the Direct 
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Unsubsidized Loan Program and, for periods of enrollment 

beginning before July 1, 2012, the Direct Subsidized Loan 

Program; and

* * * * *

(c) * * *

(1) * * * 

(vii) * * *

(D) For the purposes of paragraph (c)(1)(vii)(A)(3) 

of this section, the Secretary may determine that 

extenuating circumstances exist based on documentation that 

includes, but is not limited to, an updated credit report, 

a statement from the creditor that the borrower has made 

satisfactory arrangements to repay the debt, or a 

satisfactory statement from the borrower explaining any 

delinquencies with outstanding balances of less than $500.

* * * * *

(d) Defaulted Perkins, FFEL, and Direct Loan program 

borrowers. Except as noted in §685.220(d)(1)(ii)(A)(3), in 

the case of a student or parent borrower who is currently 

in default on a Perkins, FFEL, or Direct Loan program loan, 

the borrower must make satisfactory repayment arrangements, 

as described in paragraph (1) of the definition of that 

term under §685.102(b), on the defaulted loan.
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561

* * * * *

85. Section 685.201 is amended by:

A. Revising paragraph (a)(2).

B. Revising paragraph (b).

C. Revising paragraph (c)(1).

D. In paragraph (c)(2), removing the word “Servicer” 

and adding, in its place, the word “Secretary”.

The revisions read as follows:

§685.201 Obtaining a loan.

(a) * * *

(2) If the student is eligible for a Direct 

Subsidized Loan or a Direct Unsubsidized Loan, the school 

in which the student is enrolled must perform the following 

functions:

(i) Create a loan origination record and transmit the 

record to the Secretary.

(ii) Ensure that the loan is supported by a completed 

Master Promissory Note (MPN) and, if applicable, transmit 

the MPN to the Secretary.

(iii) In accordance with 34 CFR 668.162, draw down 

funds or receive funds from the Secretary, and disburse the 

funds to the student.
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562

(b) Application for a Direct PLUS Loan. (1) For a 

parent to obtain a Direct PLUS Loan, the parent must 

complete the Direct PLUS Loan MPN and the dependent student 

on whose behalf the parent is borrowing must complete a 

Free Application for Federal Student Aid and submit it in 

accordance with instructions in the application.

(2) For a graduate or professional student to apply 

for a Direct PLUS Loan, the student must complete a Free 

Application for Federal Student Aid and submit it in 

accordance with instructions in the application. The 

graduate or professional student must also complete the 

Direct PLUS Loan MPN.

(3) For either a parent or student PLUS borrower, as 

applicable, the school must complete its portion of the 

PLUS MPN and, if applicable, submit it to the Secretary. 

The Secretary makes a determination as to whether the 

parent or graduate or professional student has an adverse 

credit history. The school performs the functions 

described in paragraph (a)(2) of this section.

(c) * * *

(1) To obtain a Direct Consolidation Loan, the 

applicant must complete the application and promissory note 

and submit it to the Secretary. The application and 
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563

promissory note sets forth the terms and conditions of the 

Direct Consolidation Loan and informs the applicant how to 

contact the Secretary. The Secretary answers questions 

regarding the process of applying for a Direct 

Consolidation Loan and provides information about the terms 

and conditions of both Direct Consolidation Loans and the 

types of loans that may be consolidated.

* * * * *

86. Section 685.202 is amended by:

A. Revising paragraph (a)(1)(iv).

B. In the introductory text of paragraph (a)(1)(v), 

removing the words “subsidized Stafford loan” and adding, 

in their place, the words “Direct Subsidized Loan”.

C. In paragraph (a)(1)(v)(A), adding the words “or on 

or after July 1, 2013,” immediately before the words “the 

interest rate”.

D. Revising paragraph (b)(2).

The revisions read as follows:

§685.202 Charges for which Direct Loan Program borrowers 

are responsible.

(a) * * *

(1) * * *
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564

(iv) Loans first disbursed on or after July 1, 2006. 

Except as provided in paragraph (a)(1)(v) of this section 

for Direct Subsidized Loans made to undergraduate students, 

the interest rate is 6.8 percent.

* * * * *

(b) * * *

(2) For a Direct Unsubsidized Loan, a Direct 

Unsubsidized Consolidation Loan that qualifies for a grace 

period under the regulations that were in effect for 

consolidation applications received before July 1, 2006, a 

Direct PLUS Loan, or for a Direct Subsidized Loan for which 

the first disbursement is made on or after July 1, 2012 and 

before July 1, 2014, the Secretary may capitalize the 

unpaid interest that accrues on the loan when the borrower 

enters repayment.

* * * * *

87. Section 685.203 is amended by:

A. Revising the introductory text of paragraph 

(a)(1).

B. In paragraphs (a)(1)(i), (a)(1)(ii), and 

(a)(1)(iii), removing the words “$2,625, or, for a loan 

disbursed on or after July 1, 2007, $3,500,” and adding, in 

their place, the figure “$3,500”.
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565

C. Revising the introductory text of paragraph 

(a)(2).

D. In paragraphs (a)(2)(i) and (a)(2)(ii), removing 

the words “$3,500, or, for a loan disbursed on or after 

July 1, 2007, $4,500,” and adding, in their place, the 

figure “$4,500”.

E. Revising the introductory text of paragraph 

(a)(3).

F. Revising paragraph (a)(5).

G. Revising the introductory text of paragraph 

(a)(6).

H. Revising paragraph (a)(7).

I. Revising paragraph (b).

J. In paragraph (c)(1)(i), removing the words 

“Federal Direct Unsubsidized Loan Program” and adding, in 

their place, the words “Direct Unsubsidized Loan Program”.

K. Revising paragraph (c)(1)(ii).

L. In paragraph (c)(1)(iii), in the last sentence, 

removing the words “Federal PLUS Loan or”. 

M. Revising the introductory text of paragraph 

(c)(2).

N. In paragraphs (c)(2)(i)(A), (c)(2)(i)(B), 

(c)(2)(i)(C), (c)(2)(ii)(A), and (c)(2)(ii)(B), removing 
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566

the words “$4,000, or, for a loan first disbursed on or 

after July 1, 2008, $6,000,” and adding, in their place, 

the figure “$6,000”.

O. In paragraphs (c)(2)(iii)(A) and (c)(2)(iii)(B), 

removing the words “$5,000, or, for a loan first disbursed 

on or after July 1, 2008, $7,000,” and adding, in their 

place, the figure “$7,000”.

P. In paragraph (c)(2)(v), removing the words 

“$10,000, or, for a loan disbursed on or after July 1, 

2007,”.

Q. In paragraph (c)(2)(vi)(A), removing the words 

“$4,000, or, for a loan first disbursed on or after July 1, 

2008, $6,000,” and adding, in their place, the figure 

“$6,000”.

R. In paragraph (c)(2)(vi)(B), removing the words 

“$5,000, or, for a loan disbursed on or after July 1, 2007, 

$7,000,” and adding, in their place, the figure “$7,000”.

S. In paragraph (c)(2)(vii), removing the words 

“$5,000, or, for a loan disbursed on or after July 1, 

2007,”.

T. Revising the introductory text of paragraph (d).

U. Revising paragraph (e).
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567

V. In paragraph (i)(1), adding the word “Subsidized” 

immediately before the words “Federal Stafford Loans”.

W. In paragraph (i)(2), removing the words “Federal 

Unsubsidized Stafford Loans” and adding, in their place, 

the words “Unsubsidized Federal Stafford Loans”.

The revisions read as follows:

§685.203 Loan limits.

(a) * * *

(1) In the case of an undergraduate student who has 

not successfully completed the first year of a program of 

undergraduate education, the total amount the student may 

borrow for any academic year of study under the Direct 

Subsidized Loan Program may not exceed the following:

* * * * *

(2) In the case of an undergraduate student who has 

successfully completed the first year of an undergraduate 

program but has not successfully completed the second year 

of an undergraduate program, the total amount the student 

may borrow for any academic year of study under the Direct 

Subsidized Loan Program may not exceed the following:

* * * * *

(3) In the case of an undergraduate student who has 

successfully completed the first and second years of a 
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568

program of study of undergraduate education but has not

successfully completed the remainder of the program, the 

total amount the student may borrow for any academic year 

of study under the Direct Subsidized Loan Program may not 

exceed the following:

* * * * *

(5) In the case of a graduate or professional student 

for periods of enrollment beginning before July 1, 2012, 

the total amount the student may borrow for any academic 

year of study under the Direct Subsidized Loan Program may 

not exceed $8,500.

(6) In the case of a student enrolled for no longer 

than one consecutive 12-month period in a course of study 

necessary for enrollment in a program leading to a degree 

or a certificate, the total amount the student may borrow 

for any academic year of study under the Direct Subsidized 

Loan Program may not exceed the following:

* * * * *

(7) In the case of a student who has obtained a 

baccalaureate degree and is enrolled or accepted for 

enrollment in coursework necessary for a professional 

credential or certification from a State that is required 

for employment as a teacher in an elementary or secondary 
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569

school in that State, the total amount the student may 

borrow for any academic year of study under the Direct 

Subsidized Loan Program may not exceed $5,500.

* * * * *

(b) Direct Unsubsidized Loans. (1) In the case of a 

dependent undergraduate student, except as provided in 

paragraph (c)(3) of this section, the total amount a 

student may borrow for any academic year of study under the 

Direct Unsubsidized Loan Program is the same as the amount 

determined under paragraph (a) of this section, less any 

amount received under the Direct Subsidized Loan Program, 

plus--

(i) $2,000 for a program of study of at least a full 

academic year in length.

(ii) For a program of study that is one academic year 

or more in length with less than a full academic year 

remaining, the amount that is the same ratio to $2,000 as 

the--

Number of semester, trimester, quarter, or 

clock hours enrolled

Number of semester, trimester, quarter or 

clock hours in academic year
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570

(iii) For a program of study that is less than a full 

academic year in length, the amount that is the same ratio 

to $2,000 as the lesser of the--

Number of semester, trimester, quarter, or 

clock hours enrolled

Number of semester, trimester, quarter or 

clock hours in academic year

or

Number of weeks enrolled

Number of weeks in academic year

(2)(i) In the case of an independent undergraduate 

student or certain dependent undergraduate students under 

the conditions specified in paragraph (c)(1)(ii) of this 

section, except as provided in paragraph (c)(3) of this 

section, the total amount the student may borrow for any 

period of enrollment under the Direct Unsubsidized Loan 

Program may not exceed the amounts determined under 

paragraph (a) of this section less any amount received 

under the Direct Subsidized Loan Program in combination 

with the amounts determined under paragraph (c) of this 

section.

(ii) In the case of a graduate or professional 

student for a period of enrollment beginning before July 1, 
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571

2012, the total amount the student may borrow for any 

academic year of study under the Direct Unsubsidized Loan 

Program may not exceed the amount determined under 

paragraph (a)(5) of this section, less any amount received 

under the Direct Subsidized Loan Program.

(iii) In the case of a graduate or professional 

student for a period of enrollment beginning on or after 

July 1, 2012, the total amount the student may borrow for 

any academic year of study under the Direct Unsubsidized 

Loan Program may not exceed $8,500.

(c) * * *

(1) * * *

(ii) In order for a dependent undergraduate student 

to receive this additional loan amount, the financial aid 

administrator must determine that the student's parent 

likely will be precluded by exceptional circumstances from 

borrowing under the Direct PLUS Loan Program and the 

student's family is otherwise unable to provide the 

student's expected family contribution. The financial aid 

administrator must base the determination on a review of 

the family financial information provided by the student 

and consideration of the student's debt burden and must 

document the determination in the school's file.
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* * * * *

(2) The additional amount that a student described in 

paragraph (c)(1)(i) of this section may borrow under the 

Direct Unsubsidized Loan Program for any academic year of 

study may not exceed the following:

* * * * *

(d) Aggregate limits for subsidized loans. The 

aggregate unpaid principal amount of all Direct Subsidized 

Loans and Subsidized Federal Stafford Loans made to a 

student but excluding the amount of capitalized interest 

may not exceed the following:

* * * * * 

(e) Aggregate limits for unsubsidized loans. The 

total amount of Direct Unsubsidized Loans, Unsubsidized 

Federal Stafford Loans, and Federal SLS Loans, excluding 

the amount of capitalized interest, may not exceed the 

following:

(1) For a dependent undergraduate student, $31,000 

minus any Direct Subsidized Loan and Subsidized Federal 

Stafford Loan amounts, unless the student qualifies under 

paragraph (c) of this section for additional eligibility or 

qualified for that additional eligibility under the Federal 

SLS Program.
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(2) For an independent undergraduate or a dependent 

undergraduate who qualifies for additional eligibility 

under paragraph (c) of this section or qualified for this 

additional eligibility under the Federal SLS Program, 

$57,500 minus any Direct Subsidized Loan and Subsidized 

Federal Stafford Loan amounts.

(3) For a graduate or professional student, $138,500, 

including any loans for undergraduate study, minus any 

Direct Subsidized Loan, Subsidized Federal Stafford Loan, 

and Federal SLS Program loan amounts.

* * * * *

88. Section 685.204 is revised to read as follows:

§685.204 Deferment.

(a) General. (1) A Direct Subsidized Loan or Direct 

Subsidized Consolidation Loan borrower who meets the 

requirements described in paragraphs (b), (d), (e), (f), 

(g), (h), (i), and (j) of this section is eligible for a 

deferment during which periodic installments of principal 

and interest need not be paid.

(2) A Direct Unsubsidized Loan, Direct Unsubsidized 

Consolidation Loan, Direct PLUS Loan, or Direct PLUS 

Consolidation Loan borrower who meets the requirements 

described in paragraphs (b) through (j) of this section is 
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574

eligible for a deferment during which periodic installments 

of principal need not be paid but interest does accrue and 

is capitalized or paid by the borrower. At or before the 

time a deferment is granted, the Secretary provides 

information, including an example, to assist the borrower 

in understanding the impact of capitalization of accrued, 

unpaid interest on the borrower’s loan principal and on the 

total amount of interest to be paid over the life of the 

loan.

(3) A borrower whose loan is in default is not 

eligible for a deferment, unless the borrower has made 

payment arrangements satisfactory to the Secretary.

(4)(i) To receive a deferment, except as provided for 

in-school deferments under paragraphs (b)(2)(ii) through 

(iv) of this section, the borrower must request the 

deferment and, except as provided in paragraph (a)(5)(i) of 

this section, provide the Secretary with all information 

and documents required to establish eligibility for the 

deferment. 

(ii) In the case of a military service deferment 

under paragraph (h) of this section, a borrower's 

representative may request the deferment and provide the 

required information and documents on behalf of the 
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borrower. If the Secretary grants a military service 

deferment based on a request from a borrower's 

representative, the Secretary notifies the borrower that 

the deferment has been granted and that the borrower has 

the option to cancel the deferment and continue to make 

payments on the loan. The Secretary may also notify the 

borrower's representative of the outcome of the deferment 

request.

(5)(i) After receiving a borrower's written or verbal 

request for a deferment, the Secretary may grant a graduate 

fellowship deferment under paragraph (d), a rehabilitation 

training deferment under paragraph (e), an unemployment 

deferment under paragraph (f), an economic hardship 

deferment under paragraph (g), a military service deferment 

under paragraph (h), or a post-active duty student 

deferment under paragraph (i) of this section if the 

Secretary confirms that the borrower has received a 

deferment on a FFEL Program loan for the same reason and 

during the same time period.

(ii) The Secretary will grant a deferment based on 

the information obtained under paragraph (a)(5)(i) of this 

section when determining a borrower's eligibility for a 

deferment, unless the Secretary, as of the date of the 
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576

determination, has information indicating that the borrower 

does not qualify for the deferment. The Secretary will 

resolve any discrepant information before granting a 

deferment under paragraph (a)(5)(i) of this section.

(iii) If the Secretary grants a deferment under 

paragraph (a)(5)(i) of this section, the Secretary notifies 

the borrower that the deferment has been granted and that 

the borrower has the option to cancel the deferment and 

continue to make payments on the loan.

(b) In-school deferment. (1) A Direct Loan borrower 

is eligible for a deferment during any period during which-

-

(i) The borrower is carrying at least one-half the 

normal full-time work load for the course of study that the 

borrower is pursuing, as determined by the eligible school 

the borrower is attending; and

(ii) The borrower is not serving in a medical 

internship or residency program, except for a residency 

program in dentistry.

(2) For the purpose of paragraph (b)(1) of this 

section, the Secretary processes a deferment when--
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(i) The borrower submits a request to the Secretary 

along with documentation verifying the borrower's 

eligibility;

(ii) The Secretary receives information from the 

borrower's school indicating that the borrower is eligible 

to receive a new loan;

(iii) The Secretary receives student status 

information from the borrower's school, either directly or 

indirectly, indicating that the borrower is enrolled on at 

least a half-time basis; or

(iv) The Secretary confirms a borrower's half-time 

enrollment status through the use of the National Student 

Loan Data System if requested to do so by the school the 

borrower is attending.

(3)(i) Upon notification by the Secretary that a 

deferment has been granted based on paragraph (b)(2)(ii), 

(iii), or (iv) of this section, the borrower has the option 

to cancel the deferment and continue to make payments on 

the loan.

(ii) If the borrower elects to cancel the deferment 

and continue to make payments on the loan, the borrower has 

the option to make the principal and interest payments that 

were deferred. If the borrower does not make the payments, 
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578

the Secretary applies a deferment for the period in which 

payments were not made and capitalizes the interest. 

(c) In-school deferments for Direct PLUS Loan 

borrowers with loans first disbursed on or after July 1, 

2008. (1)(i) A student Direct PLUS Loan borrower is 

eligible for a deferment on a Direct PLUS Loan first 

disbursed on or after July 1, 2008 during the six-month 

period that begins on the day after the student ceases to 

be enrolled on at least a half-time basis at an eligible 

institution.

(ii) If the Secretary grants an in-school deferment 

to a student Direct PLUS Loan borrower in accordance with 

§685.204(b)(2)(ii), (iii), or (iv), the deferment period 

for a Direct PLUS loan first disbursed on or after July 1, 

2008 includes the six-month post-enrollment period 

described in paragraph (c)(1)(i) of this section. 

(2) A parent Direct PLUS Loan borrower is eligible 

for a deferment on a Direct PLUS Loan first disbursed on or 

after July 1, 2008--

(i) Upon the request of the borrower, during the 

period when the student on whose behalf the loan was 

obtained is enrolled at an eligible institution on at least 

a half-time basis; and
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(ii) Upon the request of the borrower, during the 

six-month period that begins on the later of the day after 

the student on whose behalf the loan was obtained ceases to 

be enrolled on at least a half-time basis or, if the parent 

borrower is also a student, the day after the parent 

borrower ceases to be enrolled on at least a half-time 

basis.

(d) Graduate fellowship deferment. (1) A Direct 

Loan borrower is eligible for a deferment during any period 

in which an authorized official of the borrower’s graduate 

fellowship program certifies that the borrower is pursuing 

a course of study pursuant to an eligible graduate 

fellowship program in accordance with paragraph (d)(2) of 

this section.

(2)(i) To qualify for a deferment under paragraph 

(d)(1) of this section, a borrower must--

(A) Hold at least a baccalaureate degree conferred by 

an institution of higher education; 

(B) Have been accepted or recommended by an 

institution of higher education for acceptance on a fulltime basis into an eligible graduate fellowship program, as 

defined in paragraph (d)(2)(ii) of this section; and
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(C) Not be serving in a medical internship or 

residency program, except for a residency program in 

dentistry.

(ii) An eligible graduate fellowship program is a 

fellowship program that--

(A) Provides sufficient financial support to graduate 

fellows to allow for full-time study for at least six 

months;

(B) Requires a written statement from each applicant 

explaining the applicant's objectives before the award of 

that financial support;

(C) Requires a graduate fellow to submit periodic 

reports, projects, or evidence of the fellow's progress; 

and

(D) In the case of a course of study at a foreign 

university, accepts the course of study for completion of 

the fellowship program.

(e) Rehabilitation training program deferment. (1) 

A Direct Loan borrower is eligible for a deferment during 

any period in which an authorized official of the 

borrower’s rehabilitation training program certifies that 

the borrower is pursuing an eligible rehabilitation 
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training program for individuals with disabilities in 

accordance with paragraph (e)(2) of this section.

(2) For purposes of paragraph (e)(1) of this section, 

an eligible rehabilitation training program for disabled 

individuals is a program that--

(i) Is licensed, approved, certified, or otherwise 

recognized as providing rehabilitation training to disabled 

individuals by--

(A) A State agency with responsibility for vocational 

rehabilitation programs;

(B) A State agency with responsibility for drug abuse 

treatment programs;

(C) A State agency with responsibility for mental 

health services programs;

(D) A State agency with responsibility for alcohol 

abuse treatment programs; or

(E) The Department of Veterans Affairs; and

(ii) Provides or will provide the borrower with 

rehabilitation services under a written plan that--

(A) Is individualized to meet the borrower's needs;

(B) Specifies the date on which the services to the 

borrower are expected to end; and
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(C) Is structured in a way that requires a 

substantial commitment by the borrower to his or her 

rehabilitation. The Secretary considers a substantial 

commitment by the borrower to be a commitment of time and 

effort that normally would prevent an individual from 

engaging in full-time employment, either because of the 

number of hours that must be devoted to rehabilitation or 

because of the nature of the rehabilitation. For the 

purpose of this paragraph, full-time employment involves at 

least 30 hours of work per week and is expected to last at 

least three months.

(f) Unemployment deferment. (1) A Direct Loan 

borrower is eligible for a deferment during periods that, 

collectively, do not exceed three years in which the 

borrower is seeking and unable to find full-time 

employment. 

(2) A borrower qualifies for an unemployment 

deferment by--

(i) Providing evidence of eligibility for 

unemployment benefits to the Secretary; or

(ii) Providing to the Secretary a written 

certification, or an equivalent as approved by the 

Secretary, that--
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(A) The borrower has registered with a public or 

private employment agency, if one is available to the 

borrower within a 50-mile radius of the borrower's current 

address; and

(B) For all requests beyond the initial request, the 

borrower has made at least six diligent attempts during the 

preceding six-month period to secure full-time employment.

(3) For purposes of obtaining an unemployment 

deferment under paragraph (f)(2)(ii) of this section, the 

following rules apply:

(i) A borrower may qualify for an unemployment 

deferment whether or not the borrower has been previously 

employed.

(ii) An unemployment deferment is not justified if 

the borrower refuses to seek or accept employment in kinds 

of positions or at salary and responsibility levels for 

which the borrower feels overqualified by virtue of 

education or previous experience.

(iii) Full-time employment involves at least 30 hours 

of work a week and is expected to last at least 3 months.

(iv) The initial period of unemployment deferment may 

be granted for a period of unemployment beginning up to six 

months before the date the Secretary receives the 
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borrower's request, and may be granted for up to six months 

after that date.

(4) The Secretary does not grant an unemployment 

deferment beyond the date that is six months after the date 

the borrower provides evidence of the borrower's 

eligibility for unemployment insurance benefits under 

paragraph (f)(2)(i) of this section or the date the 

borrower provides the written certification, or an approved 

equivalent, under paragraph (f)(2)(ii) of this section. 

(g) Economic hardship deferment. (1)(i) A Direct 

Loan borrower is eligible for a deferment during periods 

that, collectively, do not exceed three years in which the 

borrower has experienced or will experience an economic 

hardship in accordance with paragraph (g)(2) of this 

section.

(ii) An economic hardship deferment is granted for 

periods of up to one year at a time, except that a borrower 

who receives a deferment under paragraph (g)(2)(iv) of this 

section may receive an economic hardship deferment for the 

lesser of the borrower’s full term of service in the Peace 

Corps or the borrower’s remaining period of economic 

hardship deferment eligibility under the 3-year maximum.
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(2) A borrower qualifies for an economic hardship 

deferment if the borrower--

(i) Has been granted an economic hardship deferment 

under either the FFEL or the Federal Perkins Loan programs 

for the period of time for which the borrower has requested 

an economic hardship deferment for his or her Direct Loan;

(ii) Is receiving payment under a Federal or State 

public assistance program, such as Aid to Families with 

Dependent Children, Supplemental Security Income, Food 

Stamps, or State general public assistance;

(iii) Is working full-time (as defined in paragraph 

(g)(3)(iii) of this section) and has a monthly income (as 

defined in paragraph (g)(3)(iv) of this section) that does 

not exceed the greater of (as calculated on a monthly 

basis)--

(A) The minimum wage rate described in section 6 of 

the Fair Labor Standards Act of 1938; or

(B) An amount equal to 150 percent of the poverty 

guideline applicable to the borrower's family size (as 

defined in paragraph (g)(3)(v) of this section) 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 
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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; or

(iv) Is serving as a volunteer in the Peace Corps.

(3) The following rules apply to a deferment granted 

under paragraph (g)(2)(iii) of this section:

(i) For an initial period of deferment, the Secretary 

requires the borrower to submit evidence showing the amount 

of the borrower's monthly income.

(ii) To qualify for a subsequent period of deferment 

that begins less than one year after the end of a period of 

deferment under paragraph (g)(2)(iii) of this section, the 

Secretary requires the borrower to submit evidence showing 

the amount of the borrower's monthly income or a copy of 

the borrower's most recently filed Federal income tax 

return.

(iii) 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.

(iv) A borrower's monthly income is the gross amount 

of income received by the borrower from employment and from 

other sources, or one-twelfth of the borrower's adjusted 
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587

gross income, as recorded on the borrower's most recently 

filed Federal income tax return.

(v) 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.

(h) Military service deferment. (1) A Direct Loan 

borrower is eligible for a deferment during any period in 

which the borrower is--

(i) Serving on active duty during a war or other 

military operation or national emergency, as defined in 

paragraph (h)(5) of this section; or
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(ii) Performing qualifying National Guard duty during 

a war or other military operation or national emergency, as 

defined in paragraph (h)(5) of this section.

(2) For a borrower whose active duty service includes 

October 1, 2007, or begins on or after that date, the 

deferment period ends 180 days after the demobilization 

date for each period of the service described in paragraphs 

(h)(1)(i) and (h)(1)(ii) of this section.

(3) Without supporting documentation, the military 

service deferment will be granted to an otherwise eligible 

borrower for a period not to exceed the initial 12 months 

from the date the qualifying eligible service began based 

on a request from the borrower or the borrower's 

representative.

(4) The provisions of paragraph (h) of this section 

do not authorize the refunding of any payments made by or 

on behalf of a borrower during a period for which the 

borrower qualified for a military service deferment.

(5) As used in paragraph (h) of this section--

(i) Serving on active duty during a war or other 

military operation or national emergency means service by 

an individual who is--
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(A) A Reserve of an Armed Force ordered to active 

duty under 10 U.S.C. 12301(a), 12301(g), 12302, 12304, or 

12306;

(B) A retired member of an Armed Force ordered to 

active duty under 10 U.S.C. 688 for service in connection 

with a war or other military operation or national 

emergency, regardless of the location at which such active 

duty service is performed; or

(C) Any other member of an Armed Force on active duty 

in connection with such emergency or subsequent actions or 

conditions who has been assigned to a duty station at a 

location other than the location at which the member is 

normally assigned;

(ii) Qualifying National Guard duty during a war or 

other operation or national emergency means service as a 

member of the National Guard on full-time National Guard 

duty, as defined in 10 U.S.C. 101(d)(5) under a call to 

active service authorized by the President or the Secretary 

of Defense for a period of more than 30 consecutive days 

under 32 U.S.C. 502(f) in connection with a war, other 

military operation, or national emergency declared by the 

President and supported by Federal funds;
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590

(iii) Active duty means active duty as defined in 10 

U.S.C. 101(d)(1) except that it does not include active 

duty for training or attendance at a service school;

(iv) Military operation means a contingency operation 

as defined in 10 U.S.C. 101(a)(13); and

(v) National emergency means the national emergency 

by reason of certain terrorist attacks declared by the 

President on September 14, 2001, or subsequent national 

emergencies declared by the President by reason of 

terrorist attacks.

(i) Post-active duty student deferment. (1) A 

Direct Loan borrower is eligible for a deferment for 13 

months following the conclusion of the borrower's active 

duty military service and any applicable grace period if--

(i) The borrower is a member of the National Guard or 

other reserve component of the Armed Forces of the United 

States or a member of such forces in retired status; and

(ii) The borrower was enrolled on at least a halftime basis in a program of instruction at an eligible 

institution at the time, or within six months prior to the 

time, the borrower was called to active duty.
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591

(2) As used in paragraph (i)(1) of this section, 

“active duty” means active duty as defined in 10 U.S.C. 

101(d)(1) for at least a 30-day period, except that--

(i) Active duty includes active State duty for 

members of the National Guard under which a Governor 

activates National Guard personnel based on State statute 

or policy and the activities of the National Guard are paid 

for with State funds;

(ii) Active duty includes full-time National Guard 

duty under which a Governor is authorized, with the 

approval of the President or the U.S. Secretary of Defense, 

to order a member to State active duty and the activities 

of the National Guard are paid for with Federal funds;

(iii) Active duty does not include active duty for 

training or attendance at a service school; and

(iv) Active duty does not include employment in a 

full-time, permanent position in the National Guard unless 

the borrower employed in such a position is reassigned to 

active duty under paragraph (i)(2)(i) of this section or 

full-time National Guard duty under paragraph (i)(2)(ii) of 

this section.

(3) If the borrower returns to enrolled student 

status on at least a half-time basis during the grace 
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592

period or the 13-month deferment period, the deferment 

expires at the time the borrower returns to enrolled 

student status on at least a half-time basis.

(4) If a borrower qualifies for both a military 

service deferment and a post-active duty student deferment, 

the 180-day post-demobilization military service deferment 

period and the 13-month post-active duty student deferment 

period apply concurrently.

(j) Additional deferments for Direct Loan borrowers 

with FFEL Program loans made before July 1, 1993. If, at 

the time of application for a borrower's first Direct Loan, 

a borrower has an outstanding balance of principal or 

interest owing on any FFEL Program loan that was made, 

insured, or guaranteed prior to July 1, 1993, the borrower 

is eligible for a deferment during--

(1) The periods described in paragraphs (b) through 

(i) of this section; and

(2) The periods described in 34 CFR 682.210(b), 

including those periods that apply to a “new borrower” as 

that term is defined in 34 CFR 682.210(b)(7).

(Approved by the Office of Management and Budget under 

control number 1845–0021) 

(Authority: 20 U.S.C. 1087a et seq.)
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89. Section 685.205 is amended by:

A. In paragraph (a)(4), removing the word “or” that 

appears after the punctuation “;”.

B. Revising paragraph (a)(5).

C. Adding new paragraphs (a)(8) and (a)(9).

D. In paragraph (b)(2), removing the words 

“authorized deferment period” and adding, in their place, 

the words “authorized deferment or forbearance period”.

The additions read as follows:

§685.205 Forbearance.

(a) * * *

(5)(i) The borrower is performing the type of service 

that would qualify the borrower for loan forgiveness under 

the requirements of the teacher loan forgiveness program in 

§685.217.

(ii) Before a forbearance is granted under 

§685.205(a)(5)(i), the borrower must--

(A) Submit documentation for the period of the annual 

forbearance request showing the beginning and ending dates 

that the borrower is expected to perform, for that year, 

the type of service described in §685.217(c); and

(B) Certify the borrower’s intent to satisfy the 

requirements of §685.217(c).
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594

(iii) The Secretary grants forbearance under 

paragraph (a)(5) of this section only if the Secretary 

believes, at the time of the borrower’s annual request, 

that the expected forgiveness amount under §685.217(d) will 

satisfy the anticipated remaining outstanding balance on 

the borrower’s loan at the time of the expected 

forgiveness;

* * * * *

(8)(i) The Secretary may grant a forbearance to 

permit a borrower or endorser to resume honoring the 

agreement to repay the debt after default. The terms of 

the forbearance agreement in this situation must include a 

new agreement to repay the debt signed by the borrower or 

endorser or a written or oral affirmation of the borrower’s 

or endorser’s obligation to repay the debt.

(ii) If the forbearance is based on the borrower’s or 

endorser’s oral affirmation of the obligation to repay the 

debt, the forbearance period is limited to 120 days, such a 

forbearance is not granted consecutively, and the Secretary 

will--

(A) Orally review with the borrower the terms and 

conditions of the forbearance, including the consequences 
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595

of interest capitalization, and other repayment options 

available to the borrower;

(B) Send a notice to the borrower or endorser that 

confirms the terms of the forbearance and the borrower’s or 

endorser’s affirmation of the obligation to repay the debt; 

and

(C) Retain a record of the terms of the forbearance 

and affirmation in the borrower’s or endorser’s file.

(iii) For purposes of this section, an “affirmation” 

means an acknowledgement of the loan by the borrower or 

endorser in a legally binding manner. The form of the 

affirmation may include, but is not limited to the 

borrower’s or endorser’s--

(A) New signed repayment agreement or schedule, or 

another form of signed agreement to repay the debt;

(B) Oral acknowledgement and agreement to repay the 

debt documented by the Secretary in the borrower’s or 

endorser’s file and confirmed by the Secretary in a notice 

to the borrower; or

(C) A payment made on the loan by the borrower or 

endorser.

(9)(i) The borrower is performing the type of service 

that would qualify the borrower for a partial repayment of 
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596

his or her loan under the Student Loan Repayment Programs 

administered by the Department of Defense under 10 U.S.C. 

2171, 2173, 2174, or any other student loan repayment 

programs administered by the Department of Defense.

(ii) To receive a forbearance under this paragraph, 

the borrower must submit documentation showing the time 

period during which the Department of Defense considers the 

borrower to be eligible for a partial repayment of his or 

her loan under a student loan repayment program.

* * * * *

§685.206 [Amended]

90. Section 685.206 is amended by:

A. In the introductory text of paragraph (a), 

removing the word “shall” and adding, in its place, the 

word “must”. 

B. In paragraph (b)(1), removing the word “shall” and 

adding, in its place, the word “must”.

C. In paragraph (b)(2), removing the word “shall” and 

adding, in its place, the word “must”. 

D. In paragraph (c)(1)(iv), removing the words 

“Credit bureau” and adding, in their place, the words 

“Consumer reporting agency”. 
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E. In paragraph (c)(2)(iii), removing the words 

“credit bureaus” and adding, in their place, the words 

“consumer reporting agencies”. 

91. Section 685.207 is amended by:

A. Revising paragraph (a)(2).

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

C. In paragraph (b)(1)(ii), removing the citation 

“§685.204” and adding, in its place, the citation 

”§685.204(b)”.

D. Revising paragraph (b)(3).

The revisions and addition read as follows:

§685.207 Obligation to repay.

(a) * * *

(2) The borrower's repayment of a Direct Loan may 

also be subject to the deferment provisions in §685.204, 

the forbearance provisions in §685.205, the discharge 

provisions in §685.212, and the loan forgiveness provisions 

in §§685.217 and 685.219.

(3) A borrower’s first payment on a Direct Loan is 

due within 60 days of the beginning date of the repayment 

period as determined in accordance with paragraph (b), (c), 

(d), or (e) of this section.

(b) * * *
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(3)(i) A borrower is not obligated to pay interest on 

a Direct Subsidized Loan during periods when the borrower 

is enrolled at an eligible school on at least a half-time 

basis unless the borrower is required to make payments on 

the loan during those periods under paragraph (b)(1) of 

this section.

(ii) Except as provided in paragraph (b)(3)(iii) of 

this section, a borrower is not obligated to pay interest 

on a Direct Subsidized Loan during grace periods.

(iii) In the case of a Direct Subsidized Loan for 

which the first disbursement is made on or after July 1, 

2012 and before July 1, 2014, a borrower is responsible for 

the interest that accrues during the grace period. 

* * * * *

§685.208 [Amended]

92. Section 685.208 is amended by:

A. In paragraph (a)(5), removing the words “income 

contingent” and adding, in their place, the words “incomecontingent”. 

B. In paragraph (j)(1), removing the word “then” and 

adding, in its place, the word “than”.

C. In paragraph (m)(1), adding the words “or, for a

new borrower as of July 1, 2014, as defined in 
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§685.221(a)(4), 10 percent” immediately after the words “15 

percent”.

93. Section 685.210 is amended by:

A. Revising paragraph (a)(2).

B. Revising the introductory text of paragraph 

(b)(1).

C. Revising paragraph (b)(1)(i).

D. In paragraph (b)(2)(i), removing the words “income 

contingent” and adding, in their place, the words “incomecontingent”.

The revisions read as follows:

§685.210 Choice of repayment plan.

(a) * * * 

(2) If a borrower does not select a repayment plan, 

the Secretary designates the standard repayment plan 

described in §685.208(b) or (c) for the borrower, as 

applicable.

(b) * * *

(1) A borrower may change repayment plans at any time 

after the loan has entered repayment by notifying the 

Secretary. However, a borrower who is repaying a defaulted 

loan under an income-contingent repayment plan or the 

income-based repayment plan in accordance with 
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§685.211(d)(3)(ii), or who is repaying a Direct 

Consolidation Loan under the income-contingent repayment 

plan or the income-based repayment plan in accordance with 

§685.220(d)(1)(ii)(A)(3) may not change to another 

repayment plan unless--

(i) The borrower was required to and did make a 

payment under the income-contingent repayment plan or 

income-based repayment plan in each of the prior three 

months; or

* * * * *

94. Section 685.211 is amended by:

A. In paragraph (d)(3)(i), removing the words 

“national credit bureaus” and adding, in their place, the 

words “nationwide consumer reporting agencies”.

B. In paragraph (d)(3)(ii), removing the words 

“income contingent” and adding, in their place, the words

“income-contingent”. 

C. Revising paragraph (f).

The revision reads as follows:

§685.211 Miscellaneous repayment provisions.

* * * * *

(f) Rehabilitation of defaulted loans. (1) A 

defaulted Direct Loan, except for a loan on which a 
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601

judgment has been obtained, is rehabilitated if the 

borrower makes 9 voluntary, reasonable and affordable 

monthly payments within 20 days of the due date during 10 

consecutive months. The Secretary determines the amount of 

a borrower’s reasonable and affordable payment on the basis 

of a borrower’s total financial circumstances.

(i) For the purposes of this section, the borrower’s 

reasonable and affordable payment amount, as determined by 

the Secretary, is based solely on information provided on a 

form approved by the Secretary and, if requested, 

supporting documentation from the borrower and other 

sources, and considers--

(A) The borrower's, and if applicable, the spouse's 

current disposable income, including public assistance 

payments, and other income received by the borrower and the 

spouse, such as welfare benefits, Social Security benefits, 

Supplemental Security Income, and workers’ compensation. 

Spousal income is not considered if the spouse does not 

contribute to the borrower’s household income;

(B) Family size as defined in §685.221(a)(3); and

(C) Reasonable and necessary expenses, which include-

-

(1) Food;
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(2) Housing;

(3) Utilities;

(4) Basic communication expenses;

(5) Necessary medical and dental costs;

(6) Necessary insurance costs;

(7) Transportation costs;

(8) Dependent care and other work-related expenses;

(9) Legally required child and spousal support; 

(10) Other title IV and non-title IV student loan 

payments; and 

(11) Other expenses approved by the Secretary.

(ii) The reasonable and affordable payment amount 

must not be--

(A) A required minimum loan payment amount (e.g. $50) 

if the Secretary determines that a smaller amount is 

reasonable and affordable;

(B) A percentage of the borrower’s total loan 

balance; or

(C) Based on other criteria unrelated to the 

borrower’s total financial circumstances.

(iii) Within 15 business days of the Secretary’s 

determination of the borrower’s reasonable and affordable 

payment amount, the Secretary provides the borrower with a 
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written rehabilitation agreement which includes the 

borrower's reasonable and affordable payment amount, a 

prominent statement that the borrower may object orally or 

in writing to the reasonable and affordable payment amount 

with the method and timeframe for raising such an 

objection, and an explanation of any other terms and 

conditions applicable to the required series of payments 

that must be made. The Secretary does not impose any other 

conditions unrelated to the amount or timing of the 

rehabilitation payments in the rehabilitation agreement. 

The written rehabilitation agreement informs the borrower 

of the effects of having the loans rehabilitated (e.g., 

removal of the record of default from the borrower’s credit 

history and return to normal repayment).

(2) The Secretary provides the borrower with a 

written statement confirming the borrower's reasonable and 

affordable payment amount, as determined by the Secretary, 

and explaining any other terms and conditions applicable to 

the required series of payments that must be made before 

the borrower's account can be rehabilitated. The statement 

informs the borrower that the borrower may object to the 

terms and conditions of the rehabilitation agreement, and 
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explains the method and timeframe for objecting to the 

terms and conditions of the rehabilitation agreement.

(3) If the borrower objects to the monthly payment 

amount determined under paragraph (f)(1) of this section, 

the Secretary recalculates the payment amount by using the 

monthly payment calculation rules in §685.221(b)(1) and 

§685.221(b)(2), except that if the calculated amount under 

these sections is less than $5, the monthly rehabilitation 

payment is $5.

(4) The Secretary provides the borrower with a 

written statement confirming the borrower’s recalculated 

reasonable and affordable payment amount.

(5) If the borrower objects to the monthly payment 

amount determined under paragraph (f)(1) of this section, 

but does not provide the documentation required to 

calculate a monthly payment amount under §685.221(b)(1) and 

§685.221(b)(2), no rehabilitation agreement exists between 

the borrower and the Secretary, and the rehabilitation does 

not proceed.

(6) The Secretary includes any payment made under 

§682.401(b)(1) in determining whether the 9 out of 10 

payments required under paragraph (f)(1) of this section 

have been made. 
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(7) A borrower may request that the monthly payment 

amount be adjusted due to a change in the borrower's total 

financial circumstances only upon providing the 

documentation specified in paragraph (f)(1)(i) of this 

section.

(8) During the rehabilitation period, the Secretary 

limits contact with the borrower on the loan being 

rehabilitated to collection activities that are required by 

law or regulation and to communications that support the 

rehabilitation.

(9) If a defaulted loan is rehabilitated, the 

Secretary instructs any consumer reporting agency to which 

the default was reported to remove the default from the 

borrower’s credit history.

(10) A defaulted Direct Loan on which a judgment has 

been obtained may not be rehabilitated.

(11) A Direct Loan 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 may not be rehabilitated.

(12)(i) If a borrower’s loan is being collected by 

administrative wage garnishment while the borrower is also 

making monthly payments on the same loan under a loan 
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rehabilitation agreement, the Secretary continues 

collecting the loan by administrative wage garnishment 

until the borrower makes five qualifying monthly payments 

under the rehabilitation agreement. After the borrower 

makes the fifth qualifying monthly payment, the Secretary, 

unless otherwise directed by the borrower, suspends 

collecting the loan by administrative wage garnishment.

(ii) A borrower may only obtain the benefit of a 

suspension of administrative wage garnishment while also 

attempting to rehabilitate a defaulted loan once.

(13) Effective for any defaulted Direct Loan that is 

rehabilitated on or after August 14, 2008, the borrower 

cannot rehabilitate the loan again if the loan returns to 

default status following the rehabilitation.

* * * * *

§685.212 [Amended]

95. Section 685.212 is amended by:

A. In paragraph (a)(3), removing the words “Direct 

PLUS Consolidation Loan” and adding, in their place, the 

words “Direct Consolidation Loan”.

B. In paragraph (b), removing the citation 

“§685.213(c)” and adding, in its place, the citation 

“§685.213”.
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96. Section 685.214 is amended by:

A. Revising paragraph (a)(2)(ii).

B. Revising paragraph (b)(4). 

C. Revising paragraph (c).

D. In paragraph (d)(1), removing the word “shall” 

each time it appears and adding, in its place, the word 

“must”. 

E. In paragraph (f)(1), removing the number and words 

“90 days” and adding, in their place, the number and words 

“120 days”.

The revisions read as follows:

§685.214 Closed school discharge.

(a) * * *

(2) * * *

(ii) “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.

(b) * * *

(4) The Secretary reports the discharge of a loan 

under this section to all consumer reporting agencies to 

which the Secretary previously reported the status of the 
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loan, so as to delete all adverse credit history assigned 

to the loan.

(c) Borrower qualification for discharge. (1) In 

order to qualify for discharge of a loan under this 

section, a borrower must 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 must--

(i) State that the borrower (or the student on whose 

behalf a parent borrowed)--

(A) Received the proceeds of a loan, in whole or in 

part, on or after January 1, 1986 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 days before the school closed. The Secretary may 

extend the 120-day period 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; the school’s discontinuation of the 

majority of its academic programs; action by the State to 
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revoke the school’s license to operate or award academic 

credentials in the State; or a finding by a State or 

Federal government agency that the school violated State or 

Federal law; 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;

(ii) 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

(iii) State that the borrower (or student)--

(A) 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

(B) 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 
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a third party to the Secretary in accordance with paragraph 

(e) of this section.

(2) The Secretary may discharge a loan under this 

section without an application from the borrower if the 

Secretary determines, based on information in the 

Secretary’s possession, that the borrower qualifies for the 

discharge.

* * * * *

97. Section 685.215 is amended by:

A. In paragraph (a)(1)(iv), removing the citation 

“§682.402(e)(14)” and adding, in its place, the words 

“paragraph (c)(4)(ii) of this section”.

B. Revising paragraph (b)(5). 

C. In the introductory text of paragraph (c), 

removing the word “shall” each time it appears and adding, 

in its place, the word “must”. 

D. In the introductory text of paragraph (c)(1), 

removing the word “shall” and adding, in its place, the 

word “must”. 

E. In the introductory text of paragraph (c)(2), 

removing the word “shall” and adding, in its place, the 

word “must”. 
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F. In the introductory text of paragraph (c)(3), 

removing the word “shall” and adding, in its place, the 

word “must”. 

G. Revising paragraph (c)(4).

H. In paragraph (c)(5), removing the word “shall” and 

adding, it its place, the word “must”. 

I. In the introductory text of paragraph (c)(6), 

removing the word “shall” and adding, in its place, the 

word “must”. 

The revisions read as follows:

§685.215 Discharge for false certification of student 

eligibility or unauthorized payment.

* * * * *

(b) * * *

(5) The Secretary reports the discharge under this 

section to all consumer reporting agencies to which the 

Secretary previously reported the status of the loan, so as 

to delete all adverse credit history assigned to the loan.

(c) * * *

(4) Identity theft. (i) In the case of an 

individual whose eligibility to borrow was falsely 

certified because he or she was a victim of the crime of 
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identity theft and is requesting a discharge, the 

individual must--

(A) Certify that the individual did not sign the 

promissory note, or that any other means of identification 

used to obtain the loan was used without the authorization 

of the individual claiming relief;

(B) Certify that the individual did not receive or 

benefit from the proceeds of the loan with knowledge that 

the loan had been made without the authorization of the 

individual;

(C) Provide a copy of a local, State, or Federal 

court verdict or judgment that conclusively determines that 

the individual who is named as the borrower of the loan was 

the victim of a crime of identity theft; and

(D) If the judicial determination of the crime does 

not expressly state that the loan was obtained as a result 

of the crime of identity theft, provide--

(1) Authentic specimens of the signature of the 

individual, as provided in paragraph (c)(2)(ii) of this 

section, or of other means of identification of the 

individual, as applicable, corresponding to the means of 

identification falsely used to obtain the loan; and
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(2) A statement of facts that demonstrate, to the 

satisfaction of the Secretary, that eligibility for the 

loan in question was falsely certified as a result of the 

crime of identity theft committed against that individual.

(ii)(A) For purposes of this section, identity theft 

is defined as the unauthorized use of the identifying 

information of another individual that is punishable under 

18 U.S.C. 1028, 1028A, 1029, or 1030, or substantially 

comparable State or local law.

(B) Identifying information includes, but is not 

limited to--

(1) Name, Social Security number, date of birth, 

official State or government issued driver's license or 

identification number, alien registration number, 

government passport number, and employer or taxpayer 

identification number;

(2) Unique biometric data, such as fingerprints, 

voiceprint, retina or iris image, or unique physical 

representation;

(3) Unique electronic identification number, address, 

or routing code; or

(4) Telecommunication identifying information or 

access device (as defined in 18 U.S.C. 1029(e)).
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* * * * *

§685.216 [Amended]

98. Section 685.216(b)(2) is amended by removing the 

word “credit” and adding, in its place, the word 

“consumer”. 

99. Section 685.217 is amended by:

A. Revising paragraph (a)(1).

B. In the last sentence of paragraph (a)(2)(i), 

adding the word “for” immediately before the words “an 

eligible educational service agency”.

C. In paragraph (a)(2)(iii), removing the word “at” 

each time it appears and adding, in its place, the word 

“for”. 

D. In paragraph (a)(3), removing the words “FFEL and 

Direct Loan” and adding, in their place, the words “Direct 

Loan and FFEL”. 

E. In the introductory text of paragraph (a)(4), 

removing the words “FFEL and Direct Loan” and adding, in 

their place, the words “Direct Loan and FFEL”.

F. In paragraph (a)(4)(i), removing the word “at” the 

second time it appears and adding, in its place, the word 

“by”.
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G. In paragraph (a)(4)(ii), adding the words “by an 

eligible” immediately before the words “educational service 

agency”. 

H. In the introductory text of paragraph (c)(1), 

adding the word “by” immediately before the words “an 

educational service agency”. 

I. In paragraph (c)(1)(iii), removing the sentence 

“The Secretary considers all elementary and secondary 

schools operated by the Bureau of Indian Education (BIE) or 

operated on Indian reservations by Indian tribal groups 

under contract with the BIE to qualify as schools serving 

low-income students.”

J. Redesignating paragraphs (c)(2) through (c)(11) as 

paragraphs (c)(3) through (c)(12), respectively.

K. Adding a new paragraph (c)(2).

L. In redesignated paragraph (c)(4)(ii)(A), removing 

the word “at” the second time it appears and adding, in its 

place, the word “for”. 

M. In redesignated paragraph (c)(4)(ii)(B), adding 

the words “for an eligible” immediately before the words 

“educational service agency”. 
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N. In redesignated paragraph (c)(4)(iii), removing 

the word “at” each time it appears and adding, in its 

place, the word “for”. 

O. In redesignated paragraph (c)(5)(i), adding the 

words “for an eligible” immediately before the words 

“educational service agency”. 

P. In redesignated paragraph (c)(5)(ii)(A), removing 

the word “at” the second time it appears and adding, in its 

place, the word “for”. 

Q. In redesignated paragraph (c)(5)(ii)(B), adding 

the words “for an eligible” immediately before the words 

“educational service agency”.

R. In redesignated paragraph (c)(5)(iii), removing 

the word “at” each time it appears and adding, in its 

place, the word “for”. 

S. Revising the introductory text of redesignated 

paragraph (c)(7).

T. Revising redesignated paragraph (c)(9).

U. Revising redesignated paragraph (c)(10).

V. Adding a new paragraph (c)(13). 

W. Revising paragraph (d)(1).
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X. In paragraph (d)(2), removing the words 

“paragraphs (c)(3)(ii) or (c)(4)(ii)” and adding, in their 

place, the words “paragraph (c)(4)(ii) or (c)(5)(ii)”.

The revisions and addition read as follows:

§685.217 Teacher loan forgiveness program.

(a) * * *

(1) The teacher loan forgiveness program is intended 

to encourage individuals to enter and continue in the 

teaching profession. For new borrowers, the Secretary 

repays the amount specified in this paragraph (a) on the 

borrower's Direct Subsidized Loans, Direct Unsubsidized 

Loans, Subsidized and Unsubsidized Federal Stafford Loans, 

and in certain cases, Direct Consolidation Loans or Federal 

Consolidation Loans. The forgiveness program is only 

available to a borrower who has no outstanding loan balance 

under the Direct Loan Program or the FFEL Program on 

October 1, 1998 or who has no outstanding loan balance on 

the date he or she obtains a loan after October 1, 1998.

* * * * *

(c) * * *

(2) The Secretary considers all elementary and 

secondary schools operated by the Bureau of Indian 

Education (BIE) or operated on Indian reservations by 
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618

Indian tribal groups under contract with the BIE to qualify 

as schools serving low-income students.

* * * * *

(7) For teacher loan forgiveness applications 

received by the Secretary on or after July 1, 2006, a 

teacher in a private, non-profit elementary or secondary 

school who is exempt from State certification requirements

(unless otherwise applicable under State law) may qualify 

for loan forgiveness under paragraphs (c)(4)(ii) or (c)(5) 

of this section if--

* * * * *

(9) A borrower's period of postsecondary education, 

qualifying FMLA condition, or military active duty as

described in paragraph (c)(8) of this section, including 

the time necessary for the borrower to resume qualifying 

teaching no later than the beginning of the next regularly 

scheduled academic year, does not constitute a break in the 

required five consecutive years of qualifying teaching 

service.

(10) A borrower who was employed as a teacher at more 

than one qualifying school, for more than one qualifying 

educational service agency, or a combination of both during 

an academic year and demonstrates that the combined 
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teaching was the equivalent of full-time, as supported by 

the certification of one or more of the chief 

administrative officers of the schools or educational 

service agencies involved, is considered to have completed 

one academic year of qualifying teaching.

* * * * *

(13) A borrower may request forbearance during each 

of the five years of qualifying teaching service in 

accordance with §685.205(a)(5).

(d) * * *

(1) A qualified borrower is eligible for forgiveness 

of up to $5,000, or up to $17,500 if the borrower meets the 

requirements of paragraph (c)(4)(ii) or (c)(5)(ii) of this 

section. The forgiveness amount is deducted from the 

aggregate amount of the borrower's Direct Subsidized Loan 

or Direct Unsubsidized Loan or Direct Consolidation Loan

obligation that is outstanding after the borrower completes 

his or her fifth consecutive complete academic year of 

teaching as described in paragraph (c) of this section. 

Only the outstanding portion of the Direct Consolidation 

Loan that was used to repay an eligible Direct Subsidized 

Loan, an eligible Direct Unsubsidized Loan, or an eligible 
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Subsidized or Unsubsidized Federal Stafford Loan qualifies 

for loan forgiveness under this section.

* * * * *

100. Section 685.218 is amended by:

A. In paragraph (b)(4), removing the words “FFEL or 

Direct” and adding, in their place, the words “Direct or 

FFEL”.

B. Revising paragraph (d)(3).

C. In paragraph (d)(6), removing the words “a Perkins 

Loan, a FFEL Program loan, or another Direct Loan” and 

adding, in their place, the words “another Direct Loan, a 

FFEL Program Loan, or a Perkins Loan”.

D. In paragraph (d)(7), removing the words “a FFEL 

Program Loan or another Direct Loan” and adding, in their 

place, “another Direct Loan or a FFEL Program Loan”.

E. In paragraph (e)(1)(ii), removing the number and 

word “24 hours” each time they appear and adding, in their 

place, the number and word “72 hours”. 

F. Revising paragraph (f)(4)(iii).

G. In paragraph (g)(2)(i), removing the words “Direct 

Loans” and adding, in their place, the words “Direct Loan”. 

The revisions read as follows:
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§685.218 Discharge of student loan indebtedness for 

survivors of victims of the September 11, 2001, attacks.

* * * * *

(d) * * *

(3) If the individual owed a Direct Loan, a FFEL 

Program Loan, or a Perkins Loan at the time of the 

terrorist attacks on September 11, 2001, documentation that 

the individual's loans were discharged by the Secretary, 

the lender, or the institution due to death may be 

substituted for the original or certified copy of a death 

certificate.

* * * * *

(f) * * *

(4) * * *

(iii) Copies of approved joint Direct Loan or FFEL 

Consolidation Loan applications or an approved Direct or 

FFEL PLUS Loan application.

* * * * *

101. Section 685.220, as amended by final regulations 

published in the Federal Register on November 1, 2012, is 

further amended by:

A. Revising paragraph (b).

B. Revising paragraph (c).
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C. Revising paragraph (d).

D. In paragraph (e), removing the word “shall” and 

adding, it its place, the word “must”.

E. In paragraph (f)(1)(i), removing the word “shall” 

and adding, it its place, the word “must”.

F. Revising paragraph (f)(1)(iii). 

G. In paragraph (f)(2), removing the word “shall” 

each time it appears and adding, in its place, the word 

“must”.

H. In paragraph (f)(4), removing the word “shall” and 

adding, it its place, the word “must”.

I. In paragraph (f)(5), removing the word “shall” and 

adding, in its place, the word “must”. 

J. Revising paragraph (h). 

K. In paragraph (i)(2)(ii), removing the words 

“(i)(3)(1) and (ii)” and adding, in their place, the words 

“(i)(3)(i) through (iii)”.

L. Revising paragraph (i)(4).

M. In paragraph (k), removing the word “shall” and 

adding, in its place, the word “must”. 

The revisions read as follows:

§685.220 Consolidation.

(a) * * *
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(b) Loans eligible for consolidation. The following 

loans may be consolidated into a Direct Consolidation Loan:

(1) Subsidized Federal Stafford Loans.

(2) Guaranteed Student Loans.

(3) Federal Insured Student Loans (FISL).

(4) Direct Subsidized Loans.

(5) Direct Subsidized Consolidation Loans.

(6) Federal Perkins Loans.

(7) National Direct Student Loans (NDSL).

(8) National Defense Student Loans (NDSL).

(9) Federal PLUS Loans.

(10) Parent Loans for Undergraduate Students (PLUS).

(11) Direct PLUS Loans.

(12) Direct PLUS Consolidation Loans.

(13) Federal Consolidation Loans.

(14) Unsubsidized Federal Stafford Loans.

(15) Federal Supplemental Loans for Students (SLS).

(16) Direct Unsubsidized Loans.

(17) Direct Unsubsidized Consolidation Loans.

(18) Auxiliary Loans to Assist Students (ALAS).

(19) Health Professions Student Loans (HPSL) and 

Loans for Disadvantaged Students (LDS) made under subpart 

II of part A of title VII of the Public Health Service Act.
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(20) Health Education Assistance Loans (HEAL).

(21) Nursing loans made under subpart II of part B of 

title VIII of the Public Health Service Act.

(c) Components of Direct Consolidation Loans. (1) 

Subsidized component of Direct Consolidation Loans. The 

term “Direct Subsidized Consolidation Loan” refers to the 

portion of a Direct Consolidation Loan attributable to--

(i) The loans identified in paragraphs (b)(1) through 

(b)(5) of this section; and 

(ii) The portion of a Federal Consolidation Loan 

under paragraph (b)(13) of this section that is eligible 

for interest benefits during a deferment period under 

section 428C(b)(4)(C) of the Act.

(2) Unsubsidized component of Direct Consolidation 

Loans. Except as provided in paragraph (c)(3) of this 

section, the term “Direct Unsubsidized Consolidation Loan” 

refers to the portion of a Direct Consolidation Loan 

attributable to--

(i) The loans identified in paragraphs (b)(6) through 

(b)(12) of this section;

(ii) The portion of a Federal Consolidation Loan 

under paragraph (b)(13) of this section that is not 
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eligible for interest benefits during a deferment period 

under section 428C(b)(4)(C) of the Act; and 

(iii) The loans identified in paragraphs (b)(14) 

through (b)(21) of this section.

(3) PLUS component of Direct Consolidation Loans. In 

the case of a Direct Consolidation Loan made before July 1, 

2006, the term “Direct PLUS Consolidation Loan” refers to 

the portion of a Direct Consolidation Loan attributable to 

the loans identified in paragraphs (b)(9) through (b)(12) 

of this section.

(d) Eligibility for a Direct Consolidation Loan. (1) 

A borrower may obtain a Direct Consolidation Loan if the 

borrower meets the following requirements:

(i) The borrower consolidates at least one Direct 

Loan Program or FFEL Program loan.

(ii) On the loans being consolidated, the borrower 

is--

(A) At the time the borrower applies for the Direct 

Consolidation Loan--

(1) In the grace period;

(2) In a repayment period but not in default; or
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(3) In default but has made satisfactory repayment 

arrangements in accordance with paragraph (2) of the 

definition of that term in §685.102(b);

(B) Not subject to a judgment secured through 

litigation, unless the judgment has been vacated; or

(C) Not subject to an order for wage garnishment 

under section 488A of the Act, unless the order has been 

lifted.

(iii) The borrower agrees to notify the Secretary of 

any change in address.

(2) A borrower may not consolidate a Direct 

Consolidation Loan or a Federal Consolidation Loan into a 

new consolidation loan under this section unless at least 

one additional eligible loan is included in the 

consolidation, except that a borrower may consolidate a 

Federal Consolidation Loan into a new consolidation loan 

under this section without including any additional loans 

if--

(i) The borrower has a Federal Consolidation Loan 

that is in default or has been submitted to the guaranty 

agency by the lender for default aversion, and the borrower 

wants to consolidate the Federal Consolidation Loan into 

the Direct Loan Program for the purpose of obtaining an 
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income-contingent repayment plan or an income-based 

repayment plan; or

(ii) The borrower has a Federal Consolidation Loan 

and the borrower wants to consolidate that loan into the 

Direct Loan Program for the purpose of using the Public 

Service Loan Forgiveness Program or the no accrual of 

interest benefit for active duty service.

(3) Eligible loans received before or after the date 

a Direct Consolidation Loan is made may be added to a 

subsequent Direct Consolidation Loan. 

* * * * *

(f) * * * 

(1) * * *

(iii) For a Direct Loan Program or FFEL Program loan 

that is in default, the Secretary limits collection costs 

that may be charged to the borrower to a maximum of 18.5 

percent of the outstanding principal and interest amount of 

the defaulted loan. For any other defaulted Federal 

education loan, all collection costs that are owed may be 

charged to the borrower.

* * * * *

(h) Repayment plans. A borrower may choose a 

repayment plan for a Direct Consolidation Loan in 
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accordance with §685.208, and may change repayment plans in 

accordance with §685.210(b).

(i) * * *

(4) A Direct Consolidation Loan that was made based 

on an application received before July 1, 2006 receives a 

grace period if it includes a Direct Loan Program or FFEL 

Program loan for which the borrower was in an in-school 

period at the time of consolidation. The repayment period 

begins the day after the grace period ends.

* * * * *

102. Section 685.300 is amended by:

A. Revising paragraph (a).

B. In the introductory text of paragraph (b), 

removing the word “shall” each time it appears and adding, 

in its place, the word “must”. 

C. Removing paragraph (b)(8). 

D. Redesignating paragraphs (b)(5), (6), and (7) as 

paragraphs (b)(6), (7), and (8), respectively. 

E. Adding a new paragraph (b)(5).

F. Revising paragraph (c). 

The revisions and addition read as follows:

§685.300 Agreements between an eligible school and the 

Secretary for participation in the Direct Loan Program.
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(a) General. Participation of a school in the Direct 

Loan Program means that eligible students at the school may 

receive Direct Loans. To participate in the Direct Loan 

Program, a school must--

(1) Demonstrate to the satisfaction of the Secretary 

that the school meets the requirements for eligibility 

under the Act and applicable regulations; and

(2) Enter into a written program participation 

agreement with the Secretary.

(b) * * *

(5) On a monthly basis, reconcile institutional 

records with Direct Loan funds received from the Secretary 

and Direct Loan disbursement records submitted to and 

accepted by the Secretary;

* * * * *

(c) Origination. A school that originates loans in 

the Direct Loan Program must originate loans to eligible 

students and parents in accordance with part D of the Act. 

The note or evidence of the borrower’s obligation on the 

loan originated by the school is the property of the 

Secretary.

* * * * *

103. Section 685.301 is amended by:
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A. In paragraph (a)(1), removing the word “shall” 

each time it appears and adding, in its place, the word 

“must”. 

B. In the introductory text of paragraph (a)(2), 

removing the word “shall” and adding, in its place, the 

word “must”. 

C. In paragraph (a)(2)(iii), adding the words “, as 

determined in accordance with §685.303(d)” at the end of 

the paragraph, immediately after the words “the loan 

proceeds”.

D. Revising paragraph (a)(10).

E. Removing paragraphs (b) and (e).

F. Revising paragraph (c). 

G. Redesignating paragraph (d) as paragraph (b).

The revisions read as follows:

§685.301 Origination of a loan by a Direct Loan Program 

school.

(a) * * *

(10)(i) The minimum period of enrollment for which a 

school may originate a Direct Loan is--

(A) At a school that measures academic progress in 

credit hours and uses a semester, trimester, or quarter 

system, or that has terms that are substantially equal in 
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length with no term less than nine weeks in length, a 

single academic term (e.g., a semester or quarter); or

(B) Except as provided in paragraph (a)(10)(ii) or 

(iii) of this section, at a school that measures academic 

progress in clock hours, or measures academic progress in 

credit hours but does not use a semester, trimester, or 

quarter system and does not have terms that are 

substantially equal in length with no term less than nine 

weeks in length, the lesser of--

(1) The length of the student's program (or the 

remaining portion of that program if the student has less 

than the full program remaining) at the school; or

(2) The academic year as defined by the school in 

accordance with 34 CFR 668.3.

(ii) For a student who transfers into a school from 

another school and the prior school originated a loan for a 

period of enrollment that overlaps the period of enrollment 

at the new school, the new school may originate a loan for 

the remaining portion of the program or academic year. In 

this case the school may originate a loan for an amount 

that does not exceed the remaining balance of the student’s 

annual loan limit.
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632

(iii) For a student who completes a program at a 

school, where the student’s last loan to complete that 

program had been for less than an academic year, and the 

student then begins a new program at the same school, the 

school may originate a loan for the remainder of the 

academic year. In this case the school may originate a 

loan for an amount that does not exceed the remaining 

balance of the student’s annual loan limit at the loan 

level associated with the new program.

(iv) The maximum period for which a school may 

originate a Direct Loan is--

(A) Generally an academic year, as defined by the 

school in accordance with 34 CFR 668.3, except that the 

school may use a longer period of time corresponding to the 

period to which the school applies the annual loan limits 

under §685.203; or

(B) For a defaulted borrower who has regained 

eligibility, the academic year in which the borrower 

regained eligibility.

* * * * * 

(c) Reporting to the Secretary. The Secretary 

accepts a student’s Payment Data that is submitted in 

accordance with procedures established through publication 
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633

in the Federal Register, and that contains information the 

Secretary considers to be accurate in light of other 

available information including that previously provided by 

the student and the institution.

* * * * *

104. Section 685.303 is amended by:

A. In paragraph (a), removing the word “shall” and 

adding, in its place, the word “must”. 

B. Revising paragraph (b)(1).

C. Redesignating paragraphs (b)(2) through (b)(4) as 

paragraphs (b)(3) through (b)(5), respectively. 

D. Adding a new paragraph (b)(2).

E. Revising redesignated paragraph (b)(3)(i).

F. Revising redesignated paragraph (b)(3)(ii).

G. Revising redesignated paragraph (b)(5)(i)

introductory text.

H. In redesignated paragraph (b)(5)(i)(A)(1), 

removing the citation “(b)(4)(i)(A)(2)” and adding, in its 

place, the citation “(b)(5)(i)(A)(2)”.

I. Revising redesignated paragraph (b)(5)(ii).

J. In redesignated paragraph (b)(5)(iii), removing 

the citation “(b)(4)(i)(B)” and adding, in its place, the 

citation “(b)(5)(i)(B)”.
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634

K. In paragraph (c), removing the word “shall” and 

adding, in its place, the word “must”. 

L. Redesignating paragraphs (d) and (e) as paragraphs 

(f) and (g), respectively.

M. Adding a new paragraph (d).

N. Adding a new paragraph (e).

O. Revising redesignated paragraph (g).

P. Adding an authority citation after the OMB control 

number parenthetical at the end of the section. 

The revisions and additions read as follows:

§685.303 Processing loan proceeds.

* * * * *

(b) * * *

(1) A school may not disburse loan proceeds to a 

borrower unless the borrower has executed a legally 

enforceable promissory note.

(2) The Secretary provides Direct Loan funds to a 

school in accordance with 34 CFR 668.162.

(3)(i) Except in the case of a late disbursement 

under paragraph (f) of this section, or as provided in 

paragraph (b)(3)(iii) of this section, a school may 

disburse loan proceeds only to a student, or a parent in 

the case of a Direct PLUS Loan obtained by a parent 
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635

borrower, if the school determines the student has 

continuously maintained eligibility in accordance with the 

provisions of §685.200 from the beginning of the loan 

period for which the loan was intended.

(ii) If a student delays attending school for a 

period of time, the school may consider that student to 

have maintained eligibility for the loan from the first day 

of the period of enrollment. However, the school must 

comply with the requirements under paragraph (b)(4) of this 

section.

* * * * *

(5)(i) If a student is enrolled in the first year of 

an undergraduate program of study and has not previously 

received a Direct Subsidized Loan, a Direct Unsubsidized 

Loan, a Subsidized or Unsubsidized Federal Stafford Loan, 

or a Federal Supplemental Loan for Students, a school may 

not disburse the proceeds of a Direct Subsidized or Direct 

Unsubsidized Loan until 30 days after the first day of the 

student's program of study unless--

* * * * *

(ii) Paragraphs (b)(5)(i)(A) and (B) of this section 

do not apply to any loans originated by the school 

beginning 30 days after the date the school receives 
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636

notification from the Secretary of a cohort default rate, 

calculated under subpart M or subpart N of 34 CFR part 668, 

that causes the school to no longer meet the qualifications 

outlined in paragraph (b)(5)(i)(A) or (B) of this section, 

as applicable.

* * * * *

(d) Determining disbursement dates and amounts. (1) 

Before disbursing a loan, a school must determine that all 

information required by the promissory note has been 

provided by the borrower and, if applicable, the student.

(2) An institution must disburse the loan proceeds on 

a payment period basis in accordance with 34 CFR 

668.164(b).

(3) Unless paragraph (d)(4) or (d)(6) of this section 

applies--

(i) If a loan period is more than one payment period, 

the school must disburse loan proceeds at least once in 

each payment period; and

(ii) If a loan period is one payment period, the 

school must make at least two disbursements during that 

payment period.

(A) For a loan originated under 

§685.301(a)(10)(i)(A), the school may not make the second 
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637

disbursement until the calendar midpoint between the first 

and last scheduled days of class of the loan period.

(B) For a loan originated under 

§685.301(a)(10)(i)(B), the school may not make the second 

disbursement until the student successfully completes half 

of the number of credit hours or clock hours and half of 

the number of weeks of instructional time in the payment 

period.

(4)(i) If one or more payment periods have elapsed 

before a school makes a disbursement, the school may 

include in the disbursement loan proceeds for completed

payment periods.

(ii) If the loan period is equal to one payment 

period and more than one-half of it has elapsed, the school 

may include in the disbursement loan proceeds for the 

entire payment period.

(5) The school must disburse loan proceeds in 

substantially equal installments, and no installment may 

exceed one-half of the loan.

(6)(i) A school is not required to make more than one 

disbursement if--
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(A)(1) The loan period is not more than one semester, 

one trimester, one quarter, or, for non term-based schools 

or schools with non-standard terms, 4 months; and

(2)(i) Except as provided in paragraph 

(d)(6)(i)(A)(2)(ii) of this section, the school has a 

cohort default rate, calculated under subpart M of 34 CFR 

part 668 of less than 10 percent for each of the three most 

recent fiscal years for which data are available; or

(ii) For loan disbursements made on or after October 

1, 2011, the school in which the student is enrolled has a 

cohort default rate, calculated under either subpart M or 

subpart N of 34 CFR part 668, of less than 15 percent for 

each of the three most recent fiscal years for which data 

are available; or

(B) The school is an eligible home institution 

originating a loan to cover the cost of attendance in a 

study abroad program and has a cohort default rate, 

calculated under subpart M or subpart N of 34 CFR part 668, 

of less than five percent for the single most recent fiscal 

year for which data are available.

(ii) Paragraphs (d)(6)(i)(A) and (B) of this section 

do not apply to any loans originated by the school 

beginning 30 days after the date the school receives 
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639

notification from the Secretary of a cohort default rate, 

calculated under subpart M or subpart N of 34 CFR part 668, 

that causes the school to no longer meet the qualifications 

outlined in paragraph (d)(6)(i)(A) or (B) of this section, 

as applicable.

(iii) Paragraph (d)(6)(i)(B) of this section does not 

apply to any loans originated by the school beginning 30 

days after the date the school receives notification from 

the Secretary of a cohort default rate, calculated under 

subpart M or subpart N of 34 CFR part 668, that causes the 

school to no longer meet the qualifications outlined in 

that paragraph.

(e) Annual loan limit progression based on completion 

of an academic year. (1) If a school measures academic 

progress in an educational program in credit hours and uses 

either standard terms (semesters, trimesters, or quarters) 

or nonstandard terms that are substantially equal in 

length, and each term is at least nine weeks of 

instructional time in length, a student is considered to 

have completed an academic year and progresses to the next 

annual loan limit when the academic year calendar period 

has elapsed.
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(2) If a school measures academic progress in an 

educational program in credit hours and uses nonstandard 

terms that are not substantially equal in length or each 

term is not at least nine weeks of instructional time in 

length, or measures academic progress in credit hours and 

does not have academic terms, a student is considered to 

have completed an academic year and progresses to the next 

annual loan limit at the later of--

(i) The student's completion of the weeks of 

instructional time in the student's academic year; or

(ii) The date, as determined by the school, that the 

student has successfully completed the academic coursework 

in the student's academic year.

(3) If a school measures academic progress in an 

educational program in clock hours, a student is considered 

to have completed an academic year and progresses to the 

next annual loan limit at the later of--

(i) The student's completion of the weeks of 

instructional time in the student's academic year; or

(ii) The date, as determined by the school, that the 

student has successfully completed the clock hours in the 

student's academic year.
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641

(4) For purposes of this section, terms in a loan 

period are substantially equal in length if no term in the 

loan period is more than two weeks of instructional time 

longer than any other term in that loan period.

* * * * *

(g) Treatment of excess loan proceeds. Before the 

disbursement of any Direct Subsidized Loan, Direct 

Unsubsidized Loan, or Direct PLUS Loan proceeds, if a 

school learns that the borrower will receive or has 

received financial aid for the period of enrollment for 

which the loan was intended that exceeds the amount of 

assistance for which the student is eligible (except for 

Federal Work-Study Program funds up to $300), the school 

must reduce or eliminate the overaward by either--

(1) Using the student's Direct Unsubsidized Loan, 

Direct PLUS Loan, or State-sponsored or another non-Federal 

loan to cover the expected family contribution, if not 

already done; or

(2) Reducing one or more subsequent disbursements to 

eliminate the overaward.

* * * * *

(Authority: 20 U.S.C. 1087a et seq.)

105. Section 685.304 is amended by:
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642

A. Revising paragraph (a)(1).

B. In paragraph (a)(2), removing the words “prior 

Direct PLUS Loan or Federal PLUS Loan” and adding, in their 

place, the words “prior student Direct PLUS Loan or student 

Federal PLUS Loan”. 

C. In paragraph (a)(7)(i)(A), removing the word “or” 

the first time it appears and adding, in its place, the 

word “of”. 

D. Revising paragraph (a)(7)(iii).

E. Revising paragraph (a)(7)(iv).

F. Revising paragraph (b)(3).

G. In paragraph (b)(4)(ii), removing the words 

“income contingent repayment plans” and adding, in their 

place, the words “income-contingent repayment”.

H. Adding a new paragraph (b)(8).

The revisions and addition read as follows:

§685.304 Counseling borrowers.

(a) * * *

(1) Except as provided in paragraph (a)(8) of this 

section, a school must ensure that entrance counseling is 

conducted with each Direct Subsidized Loan or Direct 

Unsubsidized Loan student borrower prior to making the 

first disbursement of the proceeds of a loan to a student 
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643

borrower unless the student borrower has received a prior 

Direct Subsidized Loan, Direct Unsubsidized Loan, 

Subsidized or Unsubsidized Federal Stafford Loan, or 

Federal SLS Loan.

* * * * *

(7) * * *

(iii) For a graduate or professional student PLUS 

Loan borrower who has received a prior Direct Subsidized 

Loan, Direct Unsubsidized Loan, Subsidized Federal Stafford 

Loan, or Unsubsidized Federal Stafford Loan, provide the 

information specified in §685.301(a)(3)(i)(A) through 

§685.301(a)(3)(i)(C); and

(iv) For a graduate or professional student PLUS Loan 

borrower who has not received a prior Direct Subsidized 

Loan, Direct Unsubsidized Loan, Subsidized Federal Stafford 

Loan, or Unsubsidized Federal Stafford Loan, provide the 

information specified in paragraph (a)(6)(i) through 

paragraph (a)(6)(xii) of this section.

* * * * *

(b) * * *

(3) If a student borrower withdraws from school 

without the school's prior knowledge or fails to complete 

the exit counseling as required, exit counseling must be 
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644

provided either through interactive electronic means, by 

mailing written counseling materials to the student 

borrower at the student borrower's last known address, or 

by sending written counseling materials to an email address 

provided by the student borrower within 30 days after the 

school learns that the student borrower has withdrawn from 

school or failed to complete the exit counseling as 

required.

* * * * *

(8)(i) For students who have received loans under 

both the FFEL Program and the Direct Loan Program for 

attendance at a school, the school’s compliance with the 

exit counseling requirements in paragraph (b) of this 

section satisfies the exit counseling requirements in 34 

CFR 682.604(a) if the school ensures that the exit 

counseling also provides the borrower with the information 

described in 34 CFR 682.604(a)(2)(i) and (ii).

(ii) A student’s completion of electronic interactive 

exit counseling offered by the Secretary satisfies the 

requirements of paragraph (b) of this section and, for 

students who have also received FFEL Program loans for 

attendance at the school, 34 CFR 682.604(a).

* * * * *
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§685.305 [Amended]

106. Section 685.305 is amended by:

A. In paragraph (a), removing the word “shall” and 

adding, in its place, the word “must”. 

B. In paragraph (b), removing the word “shall” and 

adding, in its place, the word “must”.

C. In paragraph (c), removing the word “shall” and 

adding, it its place, the word “must”. 

§685.306 [Amended]

107. Section 685.306 is amended by:

A. In paragraph (a)(1), removing the word “Shall” and 

adding, in its place, the word “Must”. 

B. In paragraph (a)(2), removing the word “Shall” and 

adding, in its place, the word “Must”. 

C. In paragraph (b), removing the word “shall” and 

adding, in its place, the word “must”. 

§685.307 [Amended]

108. Section 685.307(b) is amended by removing the 

word “shall” and adding, in its place, the word “must”. 

109. Section 685.309 is amended by:

A. In the introductory text of paragraph (a), 

removing the word “shall” and adding, in its place, the 

word “must”. 
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646

B. Revising paragraph (b).

C. In paragraph (c), removing the word “shall” and 

adding, in its place, the word “must”.

D. In paragraph (d), removing the word “shall” and 

adding, in its place, the word “must”.

E. In paragraph (e), removing the word “shall” and 

adding, in its place, the word “must”.

F. In paragraph (f), removing the word “shall” and 

adding, in its place, the word “must”.

G. In paragraph (g), removing the words “Except for 

funds paid to a school under section 452(b)(1) of the Act, 

funds” and adding, in their place, the word “Funds”. 

The revision reads as follows:

§685.309 Administrative and fiscal control and fund 

accounting requirements for schools participating in the 

Direct Loan Program.

* * * * *

(b) Enrollment reporting process. (1) Upon receipt 

of an enrollment report from the Secretary, a school 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 
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647

(ii) Within the timeframe prescribed by the 

Secretary.

(2) Unless it expects to submit its next updated 

enrollment report to the Secretary within the next 60 days, 

a school must notify the Secretary within 30 days after the 

date the school discovers that--

(i) A loan under title IV of the Act was made to or 

on behalf of a 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) A student who is enrolled at the school and who 

received a loan under title IV of the Act has changed his 

or her permanent address.

* * * * *

§685.400 [Removed and Reserved]

110. Section 685.400 is removed and reserved.

§685.402 [Removed and Reserved]

111. Section 685.402 is removed and reserved. 
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Appendix

Appendix A below summarizes proposed technical changes 

to the FFEL Program regulations in 34 CFR part 682, 

excluding minor technical or conforming changes. A 

document showing all proposed changes to 34 CFR part 682 

that are included in this notice of proposed rulemaking 

(NPRM) may be found at 

http://www2.ed.gov/policy/highered/reg/hearulemaking/2011/l

oans.html.

Laws cited in Appendix A:

• Higher Education Act of 1965, as amended (HEA)

• SAFRA Act (included in the Health Care and 

Reconciliation Act of 2010 (HCERA)) (Public Law 111-

152, enacted March 30, 2010) 

• Higher Education Opportunity Act (HEOA) (Public Law 

110-315, enacted August 14, 2008)
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Note: The following appendix will not appear in the Code 

of Federal Regulations.

Appendix A: Summary of Proposed Technical Changes to 

34 CFR Part 682

Section Proposed Change Reason

General Revise nomenclature as necessary to ensure 

consistent use of same terms to refer to Direct 

Loan Program components in 34 CFR parts 682 and 

685.

Where applicable, remove or revise language to 

reflect the elimination of authority to make new 

FFEL Program loans effective July 1, 2010. 

Change regulatory citations and redesignate 

paragraphs to conform with revisions, additions, 

and deletions to the regulations.

Replace all references to “credit bureau” with 

“consumer reporting agency”.

Correct spelling and grammatical errors.

To ensure accuracy and consistency.

§682.100

The Federal 

Family Education 

Loan programs

Revise language to use past tense and to reflect 

the elimination of authority to make new FFEL 

Program loans effective July 1, 2010.

The SAFRA Act eliminated the authority 

to make new FFEL Program loans 

effective July 1, 2010.

§682.101

Participation in 

the FFEL 

programs

Revise language to use past tense and to reflect 

the elimination of authority to make new FFEL 

Program loans effective July 1, 2010.

The SAFRA Act eliminated the authority 

to make new FFEL Program loans 

effective July 1, 2010.

§682.102

Obtaining and 

repaying a loan

Retitle the section and remove paragraphs (a) 

through (d), which pertain to the application 

process to obtain a FFEL Program loan.

The SAFRA Act eliminated the authority 

to make new FFEL Program loans 

effective July 1, 2010.

§682.103

Applicability of 

subparts

In paragraph (c), remove reference to deleted 

subpart E governing Federal Insured Student Loan 

(FISL) Program

No new FISL Program loans have been 

made since 1983 and very few of these 

loans are in repayment; therefore 

regulations governing the FISL Program 

are no longer needed. Additionally, the 
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Section Proposed Change Reason

SAFRA Act eliminated the authority to 

make any new loans under Part B of the 

HEA effective July 1, 2010.

§682.200 

Definitions

Remove reference to eliminated programs in 

§682.200(a)(1) and elsewhere in the section and 

reorder remaining listed terms in paragraph (a)(1). 

In §682.200(b), revise definitions of:

Changes to §682.200(a)(1) to ensure 

accuracy.

• ”Lender” to include audit requirements 

for a trustee lender that operated on 

behalf of a school or school-affiliated 

organization to originate FFEL Program 

loans; 

Conforming change to “Lender” due to 

elimination of §682.601.

• “Nationwide consumer reporting agency.” Revision to “Nationwide consumer 

reporting agency” to ensure accuracy 

with statutory citation and distinguish a 

nationwide consumer reporting agency 

from a local or regional agency and 

from a nationwide specialty consumer 

reporting agency.

• “Satisfactory repayment arrangements” to 

replace reference to §682.401(b)(4) with 

the phrase “the title IV student assistance 

programs” and to remove current 

paragraph (2). (See discussion of other 

proposed non-technical changes to the 

definition of “satisfactory repayment 

arrangements” in the “Significant 

Proposed Regulations” section of the 

preamble to these regulations.)

Revisions to “Satisfactory Repayment 

Arrangements” to ensure accuracy and 

clarity and to reflect elimination of 

authority to make FFEL Consolidation 

loans effective July 1, 2010.

§682.201

Eligible 

borrowers

Minor technical changes. Clarity/consistency/accuracy.

§682.202

Permissible 

charges by 

lenders to 

borrowers

Minor technical changes. Clarity/consistency/accuracy.

§682.203

Responsible 

No changes.
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Section Proposed Change Reason

parties

§682.204

Maximum loan 

amounts

Remove language throughout the section that 

refers to loans first disbursed before July 1, 2008.

To remove historical references that 

are no longer needed.

In paragraphs (a)(1)(iii), (c)(1)(iii), and (d)(1)(iii), 

replace the word “program” with the word 

“enrolled” in the fraction for prorating loan 

amounts for programs of study less than a full 

academic year in length.

To ensure consistent treatment of 

students enrolled in programs of less 

than a full academic year, whether 

students are new or transfer students, 

or are students admitted to a program 

with advanced standing.

Remove paragraph (f), as it pertains to the annual 

loan limits in the SLS Program.

To remove regulations that are no 

longer needed; SLS program ended July 

1, 1994.

§682.205

Disclosure 

requirements for 

lenders

Remove regulations governing required lender 

disclosures to borrowers in §682.205(a), (b), (g), 

and (i) that are provided when new loans are 

made.

The SAFRA Act eliminated the authority 

to make new FFEL Program loans 

effective July 1, 2010.

See discussion of proposed non-technical changes 

to the regulations governing lender disclosures to 

FFEL borrowers under “FFEL Lender Disclosures for 

Borrowers Who Are 60 Days Delinquent” and “FFEL 

Lender Repayment Disclosures to Borrowers Who 

Are Having Difficulty Making Payments” in the 

“Significant Proposed Regulations” section of the 

preamble to these regulations.

§682.206

Due diligence in 

making a loan

Remove this section. To remove regulations governing FFEL 

loan origination that are no longer 

needed as a result of the SAFRA Act.

§682.207

Due diligence in 

disbursing a loan

Remove this section. To remove regulations governing the 

disbursement of new FFEL loans that 

are no longer needed as a result of the 

SAFRA Act.

§682.208

Due diligence in 

servicing a loan

Minor technical changes. Clarity/consistency/accuracy.

§682.209

Repayment of a 

loan

Add new §682.209(a)(3)(i)(D) explaining date 

repayment begins for borrowers with 6.0, 5.6, and 

6.8 percent fixed interest rate loans.

To ensure consistency with the HEA.
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Section Proposed Change Reason

Add exception to the repayment schedule 

requirements for consolidation loans in 

redesignated §682.209(e)(4)(ii) for borrowers 

whose payment can be less than the amount of 

accruing interest under the income-based 

repayment plan. 

To conform provision to the incomebased repayment regulations.

Remove §682.209(e) and (f) governing refinancing 

of existing PLUS and SLS loans to secure a variable 

interest rate from the regulations.

To remove obsolete FFEL regulations.

Remove §682.209(j) governing FFEL Consolidation 

Loan lender certifications.

To remove provisions related to making 

new FFEL Consolidation Loans that are 

no longer needed as a result of the 

SAFRA Act.

§682.210 

Deferment

Add reference in §682.210(a)(4) to the ability of a 

representative to request a military deferment on 

behalf of a borrower.

To clarify the ability of a representative 

to act on a borrower’s behalf when the 

borrower is not available to request a 

military deferment.

Identify the applicable borrower cohort in 

introductory language to §682.210(b)(1) - (6) and 

add cross-references to eligibility criteria in 

§682.210 (c)-(r) for each deferment type available 

to these borrowers.

To clarify the regulations by identifying 

the deferment requirements and 

eligibility criteria applicable to the preJuly 1, 1993 cohort of borrowers.

§682.211 

Forbearance

See the discussion of proposed non-technical 

changes in this section under “Forbearance for 

Borrowers Who are 270 or More Days Delinquent 

Prior to Guaranty Agency Default Claim Payment or 

Transfer by the Department to Collection Status.” 

“Forbearance Provisions for Borrowers Receiving 

Department of Defense Student Loan Repayment 

Benefits,” and “Borrowers who are Delinquent 

When Forbearance is Granted” in the “Significant 

Proposed Regulations” section of the preamble to 

these regulations.

§682.212

Prohibited 

transactions

No changes. 

§682.213

Prohibition 

against the use of 

the Rule of the 

78s

No changes.
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653

Section Proposed Change Reason

§682.214

Compliance with 

equal credit 

opportunity 

requirements

Remove this section. To remove regulations related to lender 

compliance with the Equal Credit 

Opportunity Act when making FFEL 

loans; these regulations are no longer 

needed as a result of the SAFRA Act.

§682.215

Income-based 

repayment plan

See the changes to the regulations governing the 

Income-Based Repayment Plan for FFEL borrowers 

in the final regulations published on November 1, 

2012 (77 FR 66088).

§682.216

Teacher loan 

forgiveness 

program

In paragraphs (a) and (c), rephrase to state that a 

borrower works “for” an educational service 

agency, not “at” an educational service agency. 

To clarify that a teacher who is 

employed by an ESA may not always 

teach at an ESA facility.

Redesignate last paragraph of §682.216(c)(1)(iii) as 

paragraph (2) and renumber subsequent 

paragraphs.

To clarify that a borrower employed by 

the school operated by the Bureau of 

Indian Affairs is not subject to the 

requirements of §682.216(1)(i)-(iii).

Replace references to loan “discharge” throughout 

the section with “loan forgiveness”.

To ensure consistency with the HEA and 

section title.

§682.300

Payment of 

interest benefits 

on Stafford and 

Consolidation 

loans

Remove reference to deleted §682.207 in 

paragraph (b)(2)(ii)(B) and remove paragraphs 

(c)(3) and (4) from the regulations 

To remove references to FFEL loan 

disbursement and interest subsidy 

payments to lenders on newly 

disbursed loans that are no longer 

needed as a result of the SAFRA Act. 

§682.301

Eligibility of 

borrowers for 

interest benefits

on Stafford and 

Consolidation 

loans

Remove §682.301(c) allowing use of unsubsidized 

Federal, State-sponsored, and private loans to 

cover expected family contribution when 

determining loan eligibility 

To remove provision related to new 

FFEL loan origination that is no longer 

needed as a result of the SAFRA Act.

§682.302

Payment of 

special allowance 

on FFEL loans

Minor technical changes. Clarity/consistency/accuracy.

§682.303

[Reserved]

N/A
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654

Section Proposed Change Reason

§682.304

Methods for 

computing 

interest benefits 

and special

allowance

No changes.

§682.305

Procedures for 

payment of 

interest benefits 

and special 

allowance and 

collection of 

origination and 

loan fees

Revise §682.305(c) by deleting the phrase 

“originating or” in (c)(1)(i) and removing (c)(1)(ii), 

(vi), and (vii) from the regulations. 

To remove reference to FFEL loan 

originations when determining 

applicability of lender audit 

requirement to non-school lenders and 

to remove school lender audit 

requirement from the regulations. 

School lender audit requirements are 

no longer needed as the authority for 

new school lenders and new FFEL loans 

no longer exists. Audit requirements 

pertaining to lender trustees for schools 

or school-affiliated organizations were 

moved under the definition of “Lender” 

in §682.200(b).

§682.400

Agreements 

between a 

guaranty agency 

and the Secretary

Revise §682.400(b)(1)(i) by replacing the word 

“and” with “or” and by removing the phrase “that 

consolidate only subsidized loans” from the 

paragraph. 

To ensure consistency with the HEA; 

Consolidation Loan borrowers are 

eligible for interest subsidy during 

certain periods on the portion of the 

Consolidation loan that repaid 

subsidized FFEL or Direct loans.

§682.401

Basic program 

agreement

In §682.401, remove from the regulations:

• §682.401(b)(1)-(2), which pertain to 

annual and aggregate loan limits; 

• §682.401(b)(3), which specifies the 

duration of a borrower’s eligibility for 

loans; 

• §682.401(b)(5), which describes borrower 

responsibilities in the loan origination 

process; 

• §682.401(b)(6), which details school 

eligibility requirements to participate in a 

guaranty agency’s program, limits on that 

participation, and an agency’s authority to 

limit, suspend and terminate a school’s 

participation; 

• §§682.401(b)(8) and (b)(9), which outline 

when a guaranty agency must guarantee 

To remove provisions no longer needed 

as a result of the SAFRA Act.
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655

Section Proposed Change Reason

loans for students attending out-of-state 

schools and for out-of-state residents; 

• §682.401(b)(12) and (b)(13), which 

authorize an administrative fee for 

consolidation and refinanced PLUS and 

SLS loans; 

• §682.401(c), which requires guaranty 

agencies to provide lender-of-last resort 

loan origination services; 

• §682.401(d)(4), which details 

requirements for use of the master 

promissory note(MPN); and 

• §682.401(e), which details guaranty 

agency prohibited activities to secure loan 

guarantees and other permissible 

activities.

In redesignated §682.401(b)(3)(i), replace 

reference to deleted §682.209 (e) and (f) with 

program name references; in paragraph 

(b)(3)(vi)(B)(4), remove reference to deleted 

§682.207; and in paragraph (b)(6), insert reference 

to subpart N of 34 CFR part 668.

To ensure accuracy; required 

conforming changes.

In redesignated §682.401(b)(18), delete paragraph 

(b)(18)(ii), which references pre-October 1, 2006 

loan consolidations.

Delete obsolete regulations.

§682.402 

Death, disability, 

closed school, 

false 

certification, 

unpaid refund, 

and bankruptcy 

payments

For §682.402(c), see the final regulations published 

on November 1, 2012 (77 FR 66088) for significant 

changes to regulations governing discharge based 

on total and permanent disability. 

For §682.402(d), see the discussion of proposed 

non-technical changes to regulations governing 

discharge based on school closure under “Closed 

School Discharge” in the “Significant Proposed 

Regulations” section of the preamble to these 

regulations.

In §682.402(l)(1), (l)(2)(ii), (l)(3)(i), and (n)(2), revise 

language to include reference to “Federal default 

To ensure accuracy.
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656

Section Proposed Change Reason

fees” to fees included in an unpaid refund 

discharge.

§682.403

Federal advances 

for claim 

payments

Remove this section. To remove obsolete provisions related 

to Federal advances made to a State or 

guaranty agency.

§682.404

Federal 

reinsurance 

agreement

Minor technical changes. Clarity/consistency/accuracy.

§682.405 

Loan 

rehabilitation 

agreement

For proposed non-technical changes in §682.405, 

see the discussions under “Loan Rehabilitation 

Agreement: Reasonable and Affordable Payment 

Standard” and “Loan Rehabilitation Agreement: 

Treatment of Borrowers Subject to Administrative 

Wage Garnishment” in the “Significant Proposed 

Regulations” section of the preamble to these 

regulations.

§682.406

Conditions for 

claim payments 

from the Federal 

Fund and for 

reinsurance 

coverage

In §682.406(a)(2)(ii), remove reference to deleted 

§682.207.

To ensure accuracy.

§682.407

Discharge of 

student loan 

indebtedness for 

survivors of 

victims of the 

September 11, 

2001, attacks

Minor technical change. 

§682.408

Loan 

disbursement 

through an 

escrow agent

Remove this section. To remove regulations governing FFEL 

loan disbursement through an escrow 

agent that are no longer needed as a 

result of the SAFRA Act. 
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657

Section Proposed Change Reason

§682.409

Mandatory 

assignment by 

guaranty 

agencies of 

defaulted loans 

to the Secretary

Minor technical change. Clarity/consistency/accuracy.

§682.410

Fiscal, 

administrative, 

and enforcement 

requirements

In §682.410(a)(2), remove reference to deleted 

§682.418 and in paragraph (b)(7), replace 

reference to deleted §682.509(a)(1) with reference 

to §682.404(b)(3)(ii).

To ensure accuracy; required 

conforming changes.

In §682.410(a)(2)(ii), replace the word “preclaims” 

with “default aversion”.

To accurately reflect the HEA.

For §682.410(b)(9), see the discussion of proposed 

non-technical changes under “Administrative Wage 

Garnishment (AWG) of the Disposable Pay of 

Defaulted FFEL Program Borrowers” in the 

“Significant Proposed Regulations” section of the 

preamble to these regulations. 

In §682.410(c)(1)(i)(C), revise to limit scope of 

guaranty agency reviews of schools.

To limit required guaranty agency 

reviews of schools that formerly 

participated in the FFEL Program to 

those schools with two-year cohort 

rates that include FFEL loans.

In §682.410(c), remove (c)(4), and in redesignated 

paragraphs (c)(8) and (c)(10), make necessary 

conforming changes.

To remove provision no longer needed 

due to the SAFRA Act and make 

required conforming changes.

§682.411

Lender due 

diligence in 

collecting 

guaranty agency 

loans

Minor technical changes. Clarity/consistency/accuracy.

§82.412

Consequences of 

the failure of a 

borrower or 

student to 

Minor technical change. Clarity/consistency/accuracy.
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658

Section Proposed Change Reason

establish 

eligibility

§682.413

Remedial actions

Minor technical changes. Clarity/consistency/accuracy. 

§682.414

Records, reports, 

and inspection 

requirements for 

guaranty agency 

programs

Remove reference to “schools” in §682.414(b)(2) 

and (b)(3) governing required guaranty agency 

reporting.

To reflect a change to the HEA made by 

the HEOA.

§682.415

[Reserved]

N/A

§682.416

Requirements for 

third-party 

servicers and 

lenders 

contracting with 

third-party 

servicers

No changes.

§682.417

Determination of 

Federal funds or 

assets to be 

returned

No changes.

§682.418

Prohibited uses 

of the assets of 

the Operating 

Fund during 

periods in which 

the Operating 

fund contains 

transferred funds 

owed to the 

Federal Fund

Remove this section. To remove an obsolete section of the 

regulations governing the uses of a 

guaranty agency’s Operating Fund 

when it contains funds transferred from 

the agency’s Federal Fund. 

§682.419

Guaranty agency 

Minor technical changes. Clarity/consistency/accuracy. 
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659

Section Proposed Change Reason

Federal Fund

§682.420

Federal nonliquid 

assets

Remove this section. To remove an obsolete section of the 

regulations that govern a guaranty 

agency’s use of Federal non-liquid 

assets.

§682.421

Funds transferred 

from the Federal 

Fund to the 

Operating Fund 

by a guaranty 

agency

Remove this section. To remove an obsolete section of the 

regulations that govern the transfer of 

funds from a guaranty agency’s 

Federal Fund to its Operating Fund.

§682.422

Guaranty agency 

repayment of 

funds transferred 

from the Federal 

Fund

Remove this section. To remove an obsolete section of the 

regulations that govern a guaranty 

agency’s repayment of funds 

transferred from its Federal Fund to its 

Operating Fund.

§682.423

Guaranty agency 

Operating Fund

Minor technical changes. Clarity/consistency/accuracy.

Subpart E--

Federal 

Guaranteed 

Student Loan 

Programs

§§682.500 to 

682.515 

Remove and reserve this subpart. To remove obsolete subpart that 

governs the Federal Insured Student 

Loan Program (FISL) under which no 

loans have been made since 1983. 

§682.600

[Reserved]

N/A

§682.601

Rules for a school 

that makes or 

originates loans

Remove this section. To remove regulations governing 

schools that make or originate FFEL 

Program loans. No new FFEL school 

lenders were authorized after February 

7, 2006, and no new FFEL loans are 

authorized to be made by any lender as 

a result of the SAFRA Act, effective July 

1, 2010. 
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660

Section Proposed Change Reason

§682.602

Rules for a school 

or schoolaffiliated 

organization that 

makes or 

originates loans 

through an

eligible lender 

trustee

Remove this section. To remove regulations governing 

schools and school-affiliated 

organizations that originate or hold 

FFEL Program loans as a lender through 

an eligible lender trustee. No new 

trustee arrangements for this purpose

are authorized after September 30, 

2006, and no new FFEL loans are 

authorized to be made by any lender as 

a result of SAFRA Act, effective July 1, 

2010. 

§682.603

Certification by a 

participating 

school in 

connection with a 

loan application

In §682.603(h), remove provisions in paragraph 

(h)(1) that duplicate §682.603(f)(1)(i) and 

redesignate current §682.603(h)(2) as §682.603(g). 

To correct technical error in the 

regulatory section.

Replace cross-references to deleted §682.604 

provisions in §682.603((b)(3) and redesignated 

§682.603(j)(1) and (2) with applicable statutory 

citations. 

To ensure accuracy; required 

conforming changes.

§682.604

Processing the 

borrower’s loan 

proceeds and 

counseling 

borrowers

Remove §682.604 (a); remove and reserve 

paragraph (b); remove-paragraphs (c)-(f) and (h); 

and redesignate paragraph (g) as paragraph (a).

To remove provisions governing school 

delivery of loan disbursements and 

entrance counseling with new 

borrowers that are no longer needed as 

a result of the SAFRA Act and to make 

required conforming changes. 

Revise redesignated §682.604(a) governing “exit 

counseling” by:

• Adding another method for providing exit 

counseling materials to students who 

withdraw or fail to complete exit 

counseling;

• Replacing cross-references to deleted 

provisions in paragraph (a)(2)(vi) with the 

content of those cross-references; and

• Adding new paragraph (a)(5) to reflect 

earlier guidance on school compliance 

with the exit counseling requirements.

To incorporate Department’s earlier 

policy guidance and make necessary 

conforming changes.

§682.605

Determining the 

Minor technical changes. Clarity/consistency/accuracy.
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661

Section Proposed Change Reason

date of a 

student’s 

withdrawal

§682.606

[Reserved]

N/A

§682.607

Payment of a 

refund or a 

return of title IV, 

HEA program 

funds to a lender 

upon a student’s 

withdrawal

No changes.

§682.608

Termination of a 

school’s lending 

eligibility

Remove this section. To remove section governing 

termination of a school lender that is 

no longer needed in the regulations. 

§682.609

Remedial actions

No changes.

§682.610

Administrative 

and fiscal 

requirements for 

participating 

schools

For §682.610(c), see the discussion of proposed 

non-technical changes to regulations governing 

student enrollment reporting under ”School 

Enrollment Status Reporting Requirements” in the 

“Significant Proposed Regulations” section of the 

preamble to these regulations. 

Other minor technical changes. Clarity/consistency/accuracy.

§682.611

[Reserved]

N/A

Subpart G--

Limitation, 

suspension, or 

Termination of 

Lender or thirdparty Servicer 

Eligibility and 

Disqualification 

of Lenders and 

Schools

Revise title to subpart by deleting reference to 

schools. 

Required conforming change; 

termination of schools from loan 

programs became purview of 

Department effective July 1, 2010. 
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662

Section Proposed Change Reason

§682.700

Purpose and 

scope

Minor technical changes. Clarity/consistency/accuracy.

§682.701

Definitions of 

terms used in this 

subpart

Minor technical change. Clarity/consistency/accuracy.

§682.702

Effect on 

participation

In paragraph (b), remove reference to the number 

or total amount of new loans in lender limitation 

actions.

As a result of the SAFRA Act, limitation, 

suspension, and termination actions 

against lenders no longer involve loss of 

ability to make new FFEL loans or loan 

guarantees , or to receive benefits on 

those loans, since no new FFEL Program

loans are being made..

Remove paragraph (d) referencing new loan 

guarantees and payment of lender benefits on new 

loans; make related conforming change in 

§682.702(a).

§682.703

Informal 

compliance 

procedures

No changes.

§682.704

Emergency action

In paragraph (a), remove reference to new loan 

guarantee commitments.

As a result of the SAFRA Act, emergency 

actions against lenders no longer 

involve loss of guarantee 

commitments..

§682.705

Suspension 

proceedings

Remove §682.705(c) on the application of a 

“rebuttable presumption” in lender suspension 

proceedings based on prohibitions in section 

435(d)(5) of the HEA.

Use of “rebuttable presumption” in 

lender suspension actions applies only 

to existing loans and lender activities 

prior to July 1, 2010. Moved to 

§682.709(d). 

Make other minor technical changes. Clarity/consistency/accuracy.

§682.706

Limitation or 

termination 

proceedings

Remove §682.706(d) that governs the application 

of a “rebuttable assumption” in lender limitation 

and termination proceedings based on prohibitions 

in section 435(d)(5).

Use of “rebuttable presumption” in 

lender limitation and termination 

proceedings applies only to existing 

loans and lender activities prior to July 

1, 2010. 

§682.707

Appeals in a 

limitation or 

termination 

proceeding

No changes.
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663

Section Proposed Change Reason

§682.708

Evidence of 

mailing and 

receipt dates

No changes.

§682.709

Reimbursements, 

refunds, and 

offsets

Add “rebuttable presumption” provision that is 

being removed from §§682.705 and 682.706 to 

§682.709 as new paragraph(d).

Use of “rebuttable presumption” in 

lender sanctions applies only to existing 

loans and lender activities prior to July 

1, 2010.

§682.710

Removal of 

limitation

No changes.

§682.711

Reinstatement 

after termination

Remove §682.711(c) governing school lender 

termination and reinstatement.

To remove provision governing school 

lenders that is no longer needed.

§682.712

Disqualification 

review of 

limitation, 

suspension, and 

termination 

actions taken by 

guarantee 

agencies against 

lenders

Remove §682.712(i) referencing FISL program 

standards that have been removed from the 

regulations..

To ensure accuracy; required 

confirming change.

§682.713

Disqualification 

review of 

limitation, 

suspension, and 

termination 

actions taken by 

guarantee 

agencies against 

a school

Remove this section. To remove section governing 

Department review of guaranty agency 

sanctions against schools that is no 

longer needed, as Department will 

undertake all such actions. 

Subpart H--

Special 

Allowance 

Payments on 

Loans Made or 

Remove §682.800 and reserve subpart H of part 

682.

To remove a section prohibiting 

discrimination when making new loans 

with tax-exempt funds that, as a result 

of SAFRA, is no longer needed in the 

regulations. 
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664

Section Proposed Change Reason

Purchased With 

Proceeds of TaxExempt 

Obligations

§682.800

Prohibition 

against 

discrimination as 

a condition for 

receiving special 

allowance 

payments

Appendix C to 

Part 682

Remove and reserve this appendix. To remove the appendix containing 

provisions for curing lender due 

diligence violations in the FISL program. 

Appendix D to 

Part 682

Minor technical change. To ensure accuracy and consistency.
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665

Appendix B below summarizes proposed technical changes 

to the Direct Loan Program regulations in 34 CFR part 685, 

excluding minor technical or conforming changes. A document 

showing all proposed changes to 34 CFR part 685 that are 

included in this NPRM may be found at 

http://www2.ed.gov/policy/highered/reg/hearulemaking/2011/l

oans.html. 

Laws cited in Appendix B:

• Higher Education Act of 1965, as amended (HEA)

• Consolidated Appropriations Act, 2012 (Public Law 112-

74, enacted December 23, 2011)

• Budget Control Act of 2011 (BCA) (Public Law 112-25, 

enacted August 2, 2011)

• SAFRA Act (included in the Health Care and 

Reconciliation Act of 2010) (Public Law 111-152, 

enacted March 30, 2010)

• Higher Education Opportunity Act (HEOA) (Public Law 

110-315, enacted August 14, 2008)

Note: The following appendix will not appear in the Code 

of Federal Regulations.

Appendix B: Summary of Proposed Technical Changes to 34 

CFR part 685
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666

Section Proposed Change Reason

General Revise nomenclature as necessary to ensure that the 

same terms are used to refer to Direct Loan Program 

components and Direct Loan types throughout 34 

CFR part 685. 

Greater clarity and consistency.

Where applicable, remove language that is no longer 

needed due to the elimination of the authority for 

new FFEL Program loans after July 1, 2010.

To reflect changes to the HEA made by 

the SAFRA Act.

Where applicable, remove or revise language that 

does not reflect current procedures used in the 

Direct Loan Program. 

To ensure that the Direct Loan Program 

regulations accurately reflect current 

processes. 

Replace all references to “credit bureau” with 

“consumer reporting agency”.

To reflect a change to the HEA made by 

the HEOA.

§685.100

The William D. 

Ford Federal 

Direct Loan 

Program

Revise §685.100(a)(1) to specify that:

• Graduate and professional students are not 

eligible to receive Direct Subsidized Loans 

effective for loan periods beginning on or 

after July 1, 2012; and 

To reflect a change to the HEA made by 

the BCA.

• The Secretary does not subsidize the 

interest that accrues during the grace period 

on Direct Subsidized Loans for which the 

first disbursement is made on or after July 1, 

2012 and before July 1, 2014.

To reflect a change to the HEA made by 

the Consolidated Appropriations Act, 

2012.

§685.101

Participation in 

the Direct Loan 

Program

Revise §685.101(b) to specify that graduate and 

professional students are not eligible to receive 

Direct Subsidized Loans effective for loan periods 

beginning on or after July 1, 2012.

To reflect a change to the HEA made by 

the BCA.

§685.102

Definitions

See the discussion of proposed technical changes to 

the definitions in §685.102 under “Modification of 

Direct Loan Program Regulations: Definitions” in the 

“Significant Proposed Regulations” section of the 

preamble to these proposed regulations.

See the discussion of proposed non-technical 

changes to the definition of “satisfactory repayment 

arrangement” in §685.102(b) under “Satisfactory 

Repayment Arrangements” in the “Significant 

Proposed Regulations” section of the preamble to 

these proposed regulations. 

§685.103 No changes.
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667

Section Proposed Change Reason

Applicability of 

subparts

§685.200

Borrower 

eligibility

In §685.200(a)(1)(iv) introductory text, replace 

“cancelled” with “discharged”.

Technical correction for consistency with 

terminology used in §685.212 and 

§685.213.

Add language to §685.200(a)(1)(iv)(B)(2) stating that 

a borrower who receives a new loan after a prior 

total and permanent disability (TPD) discharge must 

acknowledge that neither the new loan nor any 

previously discharged loan that is reinstated may be 

discharged in the future based on an impairment that 

exists at the time the new loan is made, unless the 

impairment substantially deteriorates.

Technical correction; this provision was 

inadvertently omitted from final 

regulations published by the Department 

on October 29, 2009 (74 FR 55972) and is 

consistent with the provision in current 

§685.200(a)(1)(iv)(B)(3) that applies to 

borrowers who receive new loans within 

three years of being granted a conditional 

TPD discharge under the regulations that 

were in effect for TPD discharge 

applications received prior to July 1, 

2010.

Revise §685.200(a)(1)(v) to provide that this 

paragraph applies only to students who were 

enrolled in a program of study prior to July 1, 2012. 

To reflect a change to the HEA made by 

the Consolidated Appropriations Act, 

2012.

In §685.200(c)(1)(vi), add new paragraph D describing 

examples of extenuating circumstances that the 

Secretary may consider in determining that a 

borrower may receive a Direct PLUS Loan despite 

having an adverse credit history. 

For consistency with the FFEL provision in 

§682.201(c)(2)(v).

§685.201

Obtaining a 

loan

In §685.201(a) and (b), remove or revise language as 

necessary. In §685.201(b)(1), add language stating 

that the dependent student on whose behalf a 

parent obtains a Direct PLUS Loan must complete 

and submit a Free Application for Federal Student Aid 

(FAFSA). 

To remove obsolete language and, where 

applicable, replace with updated 

language that reflects current procedures 

in the Direct Loan Program. In paragraph 

(b)(1), add language to reflect guidance 

provided in the Department’s Dear 

Colleague Letter GEN-11-07.

§685.202

Charges for 

which 

borrowers are 

responsible

In §685.202(b)(2), add language stating that for a 

Direct Subsidized Loan for which the first 

disbursement is made on or after July 1, 2012 and 

before July 1, 2014, interest that accrues during the 

grace period may be capitalized when the loan enters 

repayment. 

To reflect a change made by the 

Consolidated Appropriations Act, 2012, 

that eliminates the grace period interest 

subsidy for Direct Subsidized Loans with a 

first disbursement date on or after July 1, 

2012 and before July 1, 2014.

§685.203

Loan limits

Throughout the section, remove references to loan 

limits that were in effect prior to more recent 

statutory changes.

To simplify the loan limit regulations by 

removing outdated language. 

In §685.203(a)(5) and (b)(2), revise language to To reflect a change made by the BCA.
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668

Section Proposed Change Reason

reflect the elimination of subsidized loan eligibility 

for graduate and professional students for loan 

periods beginning on or after July 1, 2012.

§685.204

Deferment

See the discussion of proposed technical changes in 

this section under “Modification of Direct Loan 

Program Regulations: Deferment” in the “Significant 

Proposed Regulations” section of the preamble to 

these proposed regulations. 

§685.205

Forbearance

Add new §685.205(a)(5)(iii) describing the conditions 

under which a borrower may receive forbearance 

while performing qualifying teaching service for loan 

forgiveness under §685.217.

To reflect the Department’s longstanding 

policy in the Direct Loan Program and for 

consistency with the corresponding FFEL 

Program regulations in §682.216(e). 

See the discussion of proposed non-technical 

changes in this section under “Forbearance for 

Borrowers Who are 270 or More Days Delinquent 

Prior to Guaranty Agency Default Claim Payment or 

Transfer by the Department to Collection Status,” 

“Forbearance Provisions for Borrowers Receiving 

Department of Defense Student Loan Repayment 

Benefits,” and “Borrowers Who are Delinquent when 

Authorized Forbearance is Granted” in the 

“Significant Proposed Regulations” section of the 

preamble to these proposed regulations.

§685.206

Borrower 

responsibilities 

and defenses

Minor technical changes. Clarity/consistency/accuracy.

§685.207

Obligation to 

repay

Add new §685.207(a)(3) stating that a borrower’s 

first payment is due within 60 days of a loan entering 

repayment. 

To reflect the Department’s longstanding 

policy in regulations. 

In §685.207(b)(3), add language to reflect the 

temporary elimination of the grace period interest 

subsidy for Direct Subsidized Loans. 

To reflect a change made by the 

Consolidated Appropriations Act, 2012.

§685.208

Repayment 

plans

See the final regulations published on November 1, 

2012 (77 FR 66088) for technical changes in 

§685.208.

§685.209

IncomeContingent 

Repayment 

See the final regulations published on November 1, 

2012 (77 FR 66088) for significant regulatory changes 

in §685.209.
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669

Section Proposed Change Reason

Plan

§685.210

Choice of 

repayment 

plan

In §685.210(a)(2), add a cross-reference to the 

standard repayment plan for Direct Consolidation 

Loan borrowers entering repayment on/after July 1, 

2006. 

To clarify that a Direct Consolidation Loan 

borrower who does not select a 

repayment plan will be placed on the 

standard repayment plan for Direct 

Consolidation Loan borrowers described 

in §685.208(c) rather than the standard 

repayment plan with a maximum 10-year 

repayment period described in 

§685.208(b).

See the final regulations published on November 1, 

2012 (77 FR 66088) for additional technical changes 

in §685.210(b)(2)(ii).

§685.211

Miscellaneous 

repayment 

provisions

Minor technical changes in §685.211(a) and (d) 

(including technical changes in §685.211(a)(1) 

included in the final regulations published on 

November 1, 2012 (77 FR 66088).

Clarity/consistency/accuracy.

For proposed non-technical changes in §685.211(f), 

see the discussions under “Loan Rehabilitation 

Agreement: Reasonable and Affordable Payment 

Standard” and “Loan Rehabilitation Agreement: 

Treatment of Borrowers Subject to Administrative 

Wage Garnishment” in the “Significant Proposed 

Regulations” section of the preamble to these 

proposed regulations.

§685.212

Discharge of a 

loan obligation

Minor technical changes (including technical changes 

included in the final regulations published on 

November 1, 2012 (77 FR 66088).

Clarity/consistency/accuracy.

§685.213

Total and 

permanent 

disability 

discharge

See the final regulations published on November 1, 

2012 (77 FR 66088) for significant regulatory changes 

in §685.213.

§685.214

Closed school 

discharge

Revise §685.214(a)(2)(ii) to clarify that the definition 

of “school” applies regardless of whether the school 

or its location or branch is considered eligible.

For consistency with the corresponding 

FFEL Program regulation in 

§682.402(d)(1)(ii)(C).

Revise §685.214(b)(4) to state that the Secretary 

reports a discharge to consumer reporting agencies 

“so as to delete all adverse credit history assigned to 

the loan.” 

For consistency with the corresponding 

FFEL Program regulation in 

§682.402(d)(2)(iv).
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670

Section Proposed Change Reason

Add new §685.214(c)(4) describing the conditions 

under which the Secretary may grant a discharge 

without an application from the borrower.

For consistency with §§685.215(c)(7), 

685.216(c)(2), and 682.402(d)(8).

See the discussion of proposed non-technical 

changes in §685.214(c)(1)(ii) under “Closed School 

Discharge” in the “Significant Proposed Regulations” 

section of the preamble to these proposed 

regulations. 

§685.215

Discharge for 

false 

certification of 

student 

eligibility or 

unauthorized 

payment

In §685.215(a)(1)(iv), remove the cross-reference to 

the definition of “identity theft” in the FFEL 

regulations; 

To eliminate the need to refer to the FFEL 

Program regulations for the definition of 

“identity theft.”

In §685.215(c)(4), add the definition of “identity 

theft” from §682.402(e)(2)(iv) of the FFEL Program 

regulations.

To eliminate the need to refer to the FFEL 

Program regulations for the definition of 

“identity theft.”

Revise §685.215(a)(5) to state that the Secretary 

reports a discharge to consumer reporting agencies 

“so as to delete all adverse credit history assigned to 

the loan.”

For consistency with the corresponding 

FFEL Program regulation in 

§682.402(e)(2)(iv).

§685.216

Unpaid refund 

discharge

Minor technical changes. Clarity/consistency/accuracy.

§685.217

Teacher loan 

forgiveness 

program

Throughout section, replace references to 

employment “at” or teaching “at” an education 

service agency (ESA) to employment “by” or teaching 

“for” an ESA. 

To clarify that a teacher who is employed 

by an ESA may not necessarily teach at 

the ESA itself.

Revise §685.217(c)(1)(iii) by making the last sentence 

a new paragraph.

To clarify that Bureau of Indian Education 

schools are not subject to the 

requirements in §685.217(c)(1)(i) - (iii).

Add new §685.217(c)(13) stating that borrowers 

performing qualifying teaching service may request 

forbearance in accordance with §685.205(a)(5).

To reflect longstanding policy in the 

Direct Loan Program and for consistency 

with the corresponding FFEL Program 

regulations in §682.216(e).

§685.218

Discharge of 

student loan 

Minor technical changes. Clarity/consistency/accuracy.
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671

Section Proposed Change Reason

indebtedness 

for survivors of 

victims of the 

September 11, 

2001, attacks

§685.219

Public Service 

Loan 

Forgiveness

No changes. 

§685.220

Consolidation

See the discussion of proposed technical changes 

under “Modification of Direct Loan Program 

Regulations: Consolidation” in the “Significant 

Proposed Regulations” section of the preamble to 

these proposed regulations.

§685.221

Income-based 

repayment 

plan

See the final regulations published on November 1, 

2012 (77 FR 66088) for significant regulatory changes 

in §685.221.

§685.300

Agreements 

between an 

eligible school 

and the 

Secretary for 

participation in 

the Direct Loan 

Program

In §685.300(a), add new paragraph (5) stating that 

schools must, on a monthly basis, reconcile 

institutional records with Direct Loan funds received 

from the Secretary and Direct Loan disbursement 

records submitted to and accepted by the Secretary. 

To reflect in the regulations an existing 

requirement for schools participating in 

the Direct Loan Program.

Remove §685.300(b)(8), which prohibits borrowers 

from receiving the same type of loan under both the 

Direct Loan Program and the FFEL Program for the 

same period of enrollment at the same school.

To eliminate a provision that is no longer 

needed due to the change made by the 

SAFRA Act providing that no new loans 

may be made under the FFEL Program 

effective July 1, 2010.

§685.301

Origination of a 

loan by a Direct 

Loan Program 

school

Move current §685.301(b), which contains provisions 

for determining disbursement dates and amounts, to 

§685.303 as new paragraph §685.303(d). 

These provisions are more appropriately 

included in §685.303, which covers 

processing loan proceeds. 

Move current §685.301(c), which contains provisions 

for governing annual loan limit progression based on 

completion of an academic year, to §685.303 as new 

paragraph §685.303(e).

These provisions are more appropriately 

included in §685.303, which covers 

processing loan proceeds.
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672

Section Proposed Change Reason

Revise §685.301(a)(10). To fix a technical error resulting from 

incorrect amendatory language in final 

regulations published by the Department 

on November 1, 2007 (72 FR 62011 and 

72 FR 62032).

In redesignated §685.301(c), remove paragraph (2) 

and redesignate paragraph (c)(1) as (c). 

To correct a technical error in the final 

regulations published by the Department 

on October 29, 2010 (75 FR 66832). The 

intent of the regulations was to replace 

the original paragraphs §685.301(c)(1) 

and (2) with the text in paragraph (1), but 

paragraph (2) was inadvertently retained.

See the discussion of a proposed non-technical 

change in §685.301(a)(10)(ii) under “Minimum loan 

period for transfer students in non-term and certain 

non-standard term programs” in the “Significant 

Proposed Regulations” section of the preamble to 

these proposed regulations. 

§685.302

[Reserved]

N/A

§685.303

Processing loan 

proceeds

Add new §685.303(d) and 685.303(e) that contain 

the provisions currently in §685.301(b) and 

685.301(c). 

Refer to the proposed changes for 

§685.301.

§685.304

Counseling 

borrowers

See the discussion of technical changes under 

“Modification of Direct Loan Program Regulations: 

Counseling Borrowers” in the “Significant Proposed 

Regulations” section of the preamble to these 

proposed regulations.

§685.305

Determining 

the date of a 

student’s 

withdrawal

Minor technical changes. Clarity/consistency/accuracy.

§685.306

Payment of a 

refund or 

return of title 

IV, HEA 

program funds 

to the 

Minor technical changes. Clarity/consistency/accuracy.
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673

Section Proposed Change Reason

Secretary

§685.307

Withdrawal 

procedure for 

schools 

participating in 

the Direct Loan 

Program

Minor technical changes only. Clarity/consistency/accuracy.

§685.308

Remedial 

actions

No changes.

§685.309

Administrative 

and fiscal 

control and 

fund 

accounting 

requirements 

for schools 

participating in 

the Direct Loan 

Program

In §685.309(g), remove the words “Except for funds 

paid to a school under section 452(b)(1) of the Act.” 

Remove an obsolete reference to a 

statutory provision related to payment of 

administrative fees to Direct Loan schools 

that was removed from the HEA many 

years ago. 

See the discussion of proposed non-technical 

changes in §685.309(b) under “School Enrollment 

Status Reporting Requirements” in the “Significant 

Proposed Regulations” section of the preamble to 

these proposed regulations. 

§685.400

School 

participation 

requirements

Remove this section. To remove obsolete provisions that no 

longer apply to the Direct Loan Program.

§685.401

[Reserved]

N/A

§685.402

Criteria for 

schools to 

originate loans

Remove this section. With the exception of the provisions in 

§685.402(f), the provisions in this section 

are obsolete. The provisions in 

§685.402(f) related to the use of the 

Master Promissory Note (MPN) would be 

updated to reflect current policy and 

incorporated in the definition of MPN in 
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674

Section Proposed Change Reason

§685.102(b).