Vol. 78 Monday, 

No. 145 July 29, 2013 

Part II 

Department of Education 

34 CFR Parts 668, 674, 682, et al. 

Student Assistance General Provisions, Federal Perkins Loan Program, 

Federal Family Education Loan Program, and William D. Ford Federal 

Direct Loan Program; Proposed Rule 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
45618 Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 

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, 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 August 28, 2013. 

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 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: 

mailto: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 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— 

• 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 one-timeonly 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 

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 

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. 


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Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 45619 

• 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 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 

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 

income-based 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 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. 

• 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 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. 

• 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. 

• Clarify the limitations on the 

amount that may be subject to AWG if 

a guaranty agency is garnishing pay 


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45620 Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 

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 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. 

• 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 crossreference 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. 

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: 

• 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 fouryear 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 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 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 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 45621 

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 

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 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. 

• 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. 

• 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. 

• 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. 

• 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 

negotiating committee’s protocols 

provided that, unless agreed to 

otherwise, for the committee to be 

considered to have reached consensus 


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45622 Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 

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 loanrelated 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; 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 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 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 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 

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. 

More information on the work of the 

negotiating committee can be found at: 

www.ed.gov/policy/highered/reg/ 

hearulemaking/2008/loans.html. 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 45623 

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 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 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 

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 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 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: 

Æ 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 

reasonable and affordable rehabilitation 

payment amount. 

Æ 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. 

Æ 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, the amount of unpaid 

collection costs to be added to the 

unpaid principal of the rehabilitated 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
45624 Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 

loan when the loan is sold to an eligible 

FFEL lender. 

Æ 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. 

Æ While a borrower is making 

payments under a rehabilitation 

agreement, the Secretary or guaranty 

agency would limit contact with the 

borrower to collection activities 

required by law or regulation and 

communications that support the 

rehabilitation. 

Æ 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 ‘‘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 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 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 

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: 

Æ 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. 

Æ 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. 

Æ 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. 

Æ 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. 

Æ 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. 

Æ 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 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 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 45625 

amount or percentage to be withheld 

with the borrower’s consent. 

Æ 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. 

Æ 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 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. 

Æ 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 (for example, 

requirements for due diligence in the 

making and disbursing of loans) would 

be eliminated, except for certain schoolbased 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 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 

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 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 

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 × 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 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
45626 Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 

comprising no more than approximately 

15 percent of enrollment (0.401 CDR × 

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 successful 

PRI challenge to or appeal from the loss 

of eligibility (0.401 CDR × 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 ontime, 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 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. 

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 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. 

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 

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 


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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. 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 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 on-time payments made 

under satisfactory repayment 

arrangements in the three title IV loan 

programs, and to 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. 

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, 

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. 

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 


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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 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 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 non-Federal 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. 

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 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) 

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 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 


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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 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 fulltime 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 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 semiannually, 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 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 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 halftime basis; (2) a 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 

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 § 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 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 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
45630 Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 

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 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 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. 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 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. 

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 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 


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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. 

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 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 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 

follow-up 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 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 

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. 

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. 


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45632 Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 

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 

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 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 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. 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 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) 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 

ten-month 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 


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Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 45633 

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 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, 

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 

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 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, 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; 

• Dependent care and other workrelated 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 amount, and the method and 

timeframe for raising an objection to the 

payment amount. The written 

rehabilitation agreement would provide 


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45634 Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 

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 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. 

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 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 

might not have been able to make the 

larger, post-rehabilitation 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 postrehabilitation. 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 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. 

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 


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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. 

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, on-time 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 

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 redefault 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. 

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 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 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. 

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. 


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45636 Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 

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 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. 

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. 

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 

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 nonFederal negotiators argued that 

continuing to 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 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 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 45637 

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 threepayment standard. 

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 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 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 

payments under a loan rehabilitation 

agreement, some non-Federal 

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. 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 make rehabilitation 

payments. The Secretary agreed with 

this suggestion. 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
45638 Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 

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 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. 

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-to-Income 

Ratio Provision (34 CFR 674.34(e)(4)) 

Statute: Section 304 of the College 

Cost Reduction and Access Act 

(CCRAA), Public Law 110–84, amended 

the definition 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-toincome economic hardship deferment 

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-to-income 

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. 

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 

on-time, 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. 

Reasons: The issue of establishing a 

standard for an on-time 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 nonFederal negotiator believed that a 

similar standard for determining ‘‘ontime’’ in the Perkins Loan, FFEL, and 

Direct Loan programs would help 


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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 the Higher 

Education Opportunity Act of 2008, 

Public 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. 

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 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.) 

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 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 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 


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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 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 § 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 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 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 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 

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 


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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. 

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 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 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 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 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 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 


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45642 Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 

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 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 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. 

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 nonFederal 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 nonFederal negotiator that borrowers be 

allowed to object at any time to the 

amount or rate of withholding on the 

basis of financial 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. 

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) 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 


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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 

(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 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. 

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. 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 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). 

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 


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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 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 

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 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 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 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 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 


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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 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 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 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 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. 

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 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-oflast-resort 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 


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45646 Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 

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 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 

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, 

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 nonFederal 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 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 crossreferences 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. 

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 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). 


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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 

§ 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 § 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 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 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, on-time 

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. 

§ 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 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 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
45648 Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 

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 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; 

(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 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 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 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 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 onehalf 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 


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Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 45649 

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. 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 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 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 

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 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) crossreferences would be added to the 

eligibility criteria described in 

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 


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45650 Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 

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 crossreference, 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 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. 

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. 

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 loans, and loans under any Statesponsored 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 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 school-affiliated 

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. 

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; 

• Paragraphs (b)(8) and (b)(9) outline 

when a guaranty agency must guarantee 

loans for students attending out-of-state 


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schools and for out-of-state 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 (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. 

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. 

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 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 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. 

Proposed Regulations: The proposed 

regulations would remove §§ 682.418, 

682.420, 682.421, and 682.422 from the 

FFEL Program regulations. 


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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 

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 

§ 682.601 Rules for a School That 

Makes or Originates Loans 

§ 682.602 Rules for a School or SchoolAffiliated 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 schoolaffiliated 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 schoolaffiliated 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. 

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 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 

by the student. Section 428B(c) of the 

HEA requires that PLUS loan proceeds 


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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 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 in-person 

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-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 studyabroad 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 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 crossreferences 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 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 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 


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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 

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 

third-party 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 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 third-party 

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 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 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. 

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 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 NonStandard 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 non-standard 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, 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 45655 

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 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 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 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). 

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 

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. 

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 non-Federal 

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 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
45656 Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 

Loan Program regulations that would 

include: 

• 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, 

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 nonFederal 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 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 

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’’ 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 multiyear 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 income-contingent repayment plans 

described in § 685.209 or the incomebased 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) 


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Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 45657 

applies only to 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 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 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 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 

• 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 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 active-duty 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. 

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. 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
45658 Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 

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 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. 

Proposed Regulations: Proposed 

§ 685.204(b) would include the 

eligibility requirements and procedures 

for the in-school 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 inschool 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 

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 

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. 

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). 

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 


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Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 45659 

§ 685.204(d). Because relatively few 

Direct Loan borrowers qualify for these 

deferments, the Department believes it 

is preferable to retain the current crossreference 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) 

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 

• 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 incomesensitive repayment terms acceptable to 

the borrower; 

(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 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 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. 

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 wage 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
45660 Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 

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 

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 

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 

non-Federal 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 

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. 

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 halftime 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. 

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 email 

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 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 45661 

§ 685.304(b) 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 

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); 

(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 

(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 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. 

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 ‘‘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. 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
45662 Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 

1U.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-loandefault-rates-published. 

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.’’ 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. 

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 

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 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 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 

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. 


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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, 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. 

[$mns] 

2001 2005 2008 2009 2010 2011 

Total Rehabilitations ............... 224 1,606 3,722 3,504 4,332 5,165 

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. 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. 

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 nonterm 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. 

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 


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45664 Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 

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 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 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. 

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 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 fouryear for-profit institutions, students at 

less than four-year public and non-profit 

institutions, freshmen/sophomores at 

four-year 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 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. 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
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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 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 

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 

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 


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45666 Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 

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 

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 

re-default, 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 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 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 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 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 


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TABLE 1—PERKINS LOAN CANCELLATIONS BY CANCELLATION TYPE—Continued 

[IN $mn] 

Cancellation type 2007 2008 2009 2010 2011 Grand total 

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 

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 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 firstyear 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

Firefighter, Law Enforcement, Teacher, 

Teacher in Shortage Area, Librarian, 

Military Service, Defense Teacher/Military 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%. 

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 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 


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45668 Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 

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. 

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/omb/circulars/a004/a4.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. 

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 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 nonFederal 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 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. 

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. 


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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 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 for-profit institutions as ‘‘small 

businesses’’ if they are independently 

owned and operated and not dominant 

in their field of operation with total 

annual revenue below $7,000,000. The 

SBA Size Standards define nonprofit 

institutions as small organizations if 

they are independently owned and 

operated and not dominant in their field 

of operation, or as small entities if they 

are institutions controlled by 

governmental entities with populations 

below 50,000. The 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 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 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 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

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 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
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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 changes to 

requirements and this is reflected by the 

negative numbers in the table. 

Description OMB Control 

No. 

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) 

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 

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. 

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 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. We have 

asked OMB for emergency review 

because the Department needs to start 

collecting this information before the 

start of the next academic year, as soon 


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as the regulations become final. The 

comment period for the burden 

associated with these regulations is 30 

days. 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 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 

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 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 nonFederal 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 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-for-profit 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 notfor-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 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 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 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
45672 Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 

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 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. 

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 OMBapproved 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. 

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 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-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 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 


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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 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 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. 

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-for-profit 

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 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 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. 

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 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
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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 

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. 

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 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 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 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 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 


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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 

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 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 

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 third-party 

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 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 

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 

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 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
45676 Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 

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-forprofit 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 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 

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-forprofit 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 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-forprofit 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 

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, 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 


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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 

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 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 

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 redesignate 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 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) crossreferences 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 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. 

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. 


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45678 Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 

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 

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. 

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, 

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 crossreferences or obsolete requirements. 

These proposed changes would not 

alter the prior burden assessment of 

325,058 hours under OMB Control 

Number 1845–0020. 

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. 

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 crossreferences 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. 

These proposed changes would not 

alter the prior burden assessment of 

325,058 hours under OMB Control 

Number 1845–0020. 


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Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 45679 

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 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 

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 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 crossreference 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 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 crossreferenced 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 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. 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
45680 Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 

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. 

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 cross-reference 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 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 No. and 

estimated burden 

[change in burden] 

Estimated 

costs 

§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 the 

terms and conditions of the forbearance and 

send a notice confirming the terms within 30 

days of the oral agreement.

OMB 1845–0020 ...................................................

The Department estimates that the burden would 

increase by 9,446 hours.

$232,466. 

§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 

the borrower the terms and conditions of the 

forbearance and send a notice confirming the 

terms within 30 days of the oral agreement.

OMB 1845–NEW2 The Department estimates 

that the burden would decrease by 472 hours.

¥11,616. 

§§ 682.405 and 685.211 

Reasonable and affordable rehabilitation 

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. 

§ 682.405(b) Loan rehabilitation 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. 

§ 685.211(f) Loan rehabilitation 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. 

§§§ 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. 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 45681 

COLLECTION OF INFORMATION—Continued 

Regulatory 

section Information collection 

OMB Control No. and 

estimated burden 

[change in burden] 

Estimated 

costs 

§ 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 in the manner and 

format and within the timeframe prescribed by 

the Secretary.

OMB 1845–0019 ...................................................

The Department estimates that the burden would 

increase by 38,312 hours.

942,858. 

§ 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 borrower 

for a graduate fellowship deferment.

OMB 1845–0019 ...................................................

The Department estimates that the burden would 

increase by 276 hours.

13,585. 

§ 682.410 Fiscal, administrative and enforcement requirements.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 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 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 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.

OMB 1845–0020 ...................................................

The Department estimates that the burden would 

increase by 88,402 hours.

2,175,573. 

§ 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 re-designates the paragraphs 

describing the loan repayment process.

OMB 1845–0020 ...................................................

The Department estimates that the burden would 

remain 325,058 hours.

No change. 

§ 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. 

§ 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. 

§ 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. 

§ 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. 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
45682 Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 

COLLECTION OF INFORMATION—Continued 

Regulatory 

section Information collection 

OMB Control No. and 

estimated burden 

[change in burden] 

Estimated 

costs 

§ 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 half-time basis. The proposed regulations would remove current 

§§ 682.209(e)–(g) and (j) from the regulations 

and re-designate 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 loan.

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. 

§ 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) cross-references would be 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’’.

OMB 1845–0020 ...................................................

The Department estimates that the burden would 

remain 325,058 hours.

No change. 

§ 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 

non-mandatory 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. 

§ 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. 

§ 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. 

§ 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. 

§ 682.301 Eligibility of 

borrowers for interest 

benefits on Stafford 

and Consolidation 

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. 

§ 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 reference to FFEL 

lenders originating loans.

OMB 1845–0020 ...................................................

The Department estimates that the burden would 

remain 325,058 hours.

No change. 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 45683 

COLLECTION OF INFORMATION—Continued 

Regulatory 

section Information collection 

OMB Control No. and 

estimated burden 

[change in burden] 

Estimated 

costs 

§ 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 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.

OMB 1845–0020 ...................................................

The Department estimates that the burden of 

325,058 hours would decrease by 32,506 to 

292,552 hours.

¥799,973. 

§ 682.402 Death, disability, closed school, 

false certification, 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. 

§ 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. 

§ 682.405 Loan rehabilitation 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. 

§ 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 loans.

OMB 1845–0020 ...................................................

The Department estimates that the burden would 

remain 325,058 hours.

No change. 

§ 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. 

§ 682.410 Fiscal, administrative, 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. 

§ 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. 

§ 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. 

§ 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. 

§ 682.417 Determination 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. 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
45684 Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 

COLLECTION OF INFORMATION—Continued 

Regulatory 

section Information collection 

OMB Control No. and 

estimated burden 

[change in burden] 

Estimated 

costs 

§ 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. 

§ 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. 

§ 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. 

§ 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. 

§ 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. 

§ 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. 

§ 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.

OMB 1845–0020 ...................................................

The Department estimates that the burden would 

decrease by 325,058 hours to 0 hours of burden.

¥7,999,677. 

§ 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.

OMB 1845–0020 ...................................................

The Department estimates that the burden would 

remain 325,058 hours.

No change. 

§ 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. 

§ 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. 

§ 682.610 Administrative 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. 

§ 682.711 Reinstatement 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. 

§ 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.OMB 1845–0020 ...................................................

The Department estimates that the burden would 

remain 325,058 hours.

No change. 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 45685 

COLLECTION OF INFORMATION—Continued 

Regulatory 

section Information collection 

OMB Control No. and 

estimated burden 

[change in burden] 

Estimated 

costs 

§ 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 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 

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. 

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 in 34 CFR Parts 668, 

674, 682, and 685 

Administrative practice and 

procedure, Colleges and universities, 

Education, Loan programs—education, 

Reporting and recordkeeping 

requirements, Student aid, Vocational 

education. 

Dated: June 27, 2013. 

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: 

■ 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 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
45686 Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 

title IV of the HEA, to the extent that the 

borrower is otherwise eligible, the 

making of six on-time, 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 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 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 a halftime 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 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: 

§ 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; 

(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 

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. 

* * * * * 


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(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 

(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 

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’’. 

■ 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. 

* * * * * 

(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. 

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. 

■ 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 (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 


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45688 Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 

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 paragraphs 

(5)(i)(A)(10) and 8. 

■ H. In paragraph (b), revising the 

definition of Nationwide consumer 

reporting agency. 

■ I. 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, 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 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 

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. 

* * * * * 

§ 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’’. 

■ 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’’. 

■ K. In paragraph (a)(4)(iv) introductory 

text, adding the words ‘‘and prior to July 


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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’’. 

■ 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. 

(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. 

(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: 

■ 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’’. 

■ 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,’’. 

■ 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) * * * 


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45690 Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 

(1) * * * 

(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 

lllllllllllllllllll

Number of semester, trimester, quarter, 

or clock hours in academic year or 

Number of weeks enrolled 

lllllllllllllllllll

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 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 

lllllllllllllllllll

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 

lllllllllllllllllll

Number of semester, trimester, quarter, 

or clock hours in academic year or 

Number of weeks enrolled 

lllllllllllllllllll

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 enrolled 

lllllllllllllllllll

Number of semester, trimester, quarter, 

or clock hours in academic year or 

Number of weeks enrolled 

lllllllllllllllllll

Number of weeks in academic year 

lllllllllllllllllll

* * * * * 

(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: 

■ 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) * * * 

(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] 

■ 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, 


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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)’’. 

■ 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 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) * * * 

■ (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)’’. 

■ 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 fulltime study at a school in accordance 

with paragraph (c) of this section; 

(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 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 taxexempt 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 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 


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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 nonprofit 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 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 reentering the work force, in accordance 

with paragraph (r) of this section. Fulltime 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 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;’’. 

■ 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 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 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. 

* * * * * 

§ 682.214 [Removed] 

■ 29. Remove § 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’’. 

■ 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’’ 


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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’’. 

■ 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) * * * 

(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 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] 

■ 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. 

* * * * * 

(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 nonprofit 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 nonprofit 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). 

■ 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). 

■ B. Redesignating paragraph (b)(4) as 

paragraph (b)(1). 


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■ 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). 

■ 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)’’. 

■ 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). 

■ 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 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’’. 

■ 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) * * * 

(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 


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Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 45695 

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. 

■ 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. 

* * * * * 

(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) * * * 

(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 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. 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 workrelated 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; 

(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— 

(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 


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45696 Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 

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 

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: 

■ 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). 

■ 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’’. 

■ 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 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. 

(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— 

(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 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 45697 

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 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 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 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 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 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. 

(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 


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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 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 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 hardshiprelated hearing determination. The 

agency may provide a hearing in 

extraordinary circumstances earlier than 

six months if the borrower’s request for 

review shows that the borrower’s 

financial circumstances have 

substantially changed after the 

garnishment notice because of an event 

such as injury, divorce, or catastrophic 

illness. 

(O) A garnishment order is effective 

until the guaranty agency rescinds the 

order or the agency has fully recovered 

the amounts owed by the borrower, 

including interest, late fees, and 

collections costs. If an employer is 

unable to honor a garnishment order 

because the amount available for 

garnishment is insufficient to pay any 

portion of the amount stated in the 

order, the employer must notify the 

agency and comply with the order when 

sufficient disposable pay is available. 

Upon full recovery of the debt, the 

agency 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. 

(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) 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 

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 thirdVerDate Mar<15>2010 18:48 Jul 26, 2013 Jkt 229001 PO 00000 Frm 00082 Fmt 4701 Sfmt 4702 E:\FR\FM\29JYP2.SGM 29JYP2

tkelley on DSK3SPTVN1PROD with PROPOSALS2
Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 45699 

party servicer or collection contractor to 

prepare and mail a withholding order 

that includes the name of the servicer or 

contractor that prepared or mailed the 

order, the guaranty agency 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. 

(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 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, 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’’. 

■ 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, 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’’. 

■ 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. 

§ 682.422 [Removed] 

■ 55. Remove § 682.422. 


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§ 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’’. 

■ C. Revising paragraphs (g), (h), and (i). 

■ D. Removing the second of the two 

paragraphs that are both designated as 

paragraph (j). 

■ E. Revising the first 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— 

(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 

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. 

(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. 

(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). 

■ 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) 


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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; 

(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). 

* * * * * 

§ 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 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 halftime 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. 

* * * * * 

■ 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 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 

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 that the payments or 

activities were offered or provided to 

secure applications for FFEL loans. To 


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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)’’. 

■ 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). 

■ 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 inschool, grace, or 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. 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 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. 

■ E. In paragraph (a)(2), removing the 

term ‘‘Program of study by 

correspondence’’. 

■ F. Removing paragraph (a)(3). 


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■ 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 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) * * * 

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, state-sponsored, 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; 

* * * * * 

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 in-school, 

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. 

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. 

* * * * * 

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)— 

(i) The making of three consecutive, 

voluntary, on-time, 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 incomebased 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 


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45704 Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 

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. 

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 serviceconnected disability. 

* * * * * 

■ 84. Section 685.200, is amended by: 

■ A. Revising paragraph (a)(1)(iv). 

■ B. Revising paragraph (a)(1)(v). 

■ C. Revising paragraph (b)(4). 

■ 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 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; 

(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 

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. 

* * * * * 

■ 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. 

(b) Application for a Direct PLUS 

Loan. (1) For a parent to obtain a Direct 


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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 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) * * * 

(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’’. 

■ 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 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). 

■ 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 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: 

* * * * * 


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(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 

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 

lllllllllllllllllll

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 

lllllllllllllllllll

Number of semester, trimester, quarter 

or clock hours in academic year or 

Number of weeks enrolled 

lllllllllllllllllll

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, 

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. 

* * * * * 

(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. 

(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 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 borrower. If the Secretary 

grants a military service deferment 

based on a request from a borrower’s 


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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 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— 

(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, 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 

(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 halftime 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 

full-time basis into an eligible graduate 

fellowship program, as defined in 

paragraph (d)(2)(ii) of this section; and 

(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 

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; 


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(B) Specifies the date on which the 

services to the borrower are expected to 

end; and 

(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— 

(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 

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. 

(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 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 full-time 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 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 

(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. 


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(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— 

(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 fulltime 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; 

(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 half-time 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. 

(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 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 postactive 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.) 

■ 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). 

(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 


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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 

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 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’’. 

■ 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) * * * 

(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 § 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 § 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 incomecontingent repayment plan or incomebased 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 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 


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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; 

(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 workrelated 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 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 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. 

(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 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’’. 

■ 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) * * * 


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(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 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 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 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’’. 

■ 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 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 

(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)). 

* * * * * 

§ 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’’. 


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■ 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’’. 

■ 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’’. 

■ 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). 

■ 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 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 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 

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: 

§ 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, 


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45714 Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 

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: 

A. Revising paragraph (b). 

■ B. Revising paragraph (c). 

■ 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) * * * 

(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. 

(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 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 

(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 incomecontingent 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 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 45715 

Consolidation Loan in 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. 

(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: 

■ 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 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. 

(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 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)’’. 

■ 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. 

* * * * * 


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(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 

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 

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 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— 

(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 

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. 

(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. 

(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 


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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 nonFederal 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: 

■ 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 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 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). 

* * * * * 

§ 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’’. 

■ 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 

(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 halftime basis or failed to enroll on at least 

a half-time basis for the period for 

which the loan was intended; or 


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(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. 

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/ 

loans.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)) 

(Pub. L. 111–152, enacted March 30, 2010) 

• Higher Education Opportunity Act (HEOA) 

(Pub. L. 110–315, enacted August 14, 2008) 

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.

To ensure accuracy and consistency. 

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.

§ 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 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) 

Changes to § 682.200(a)(1) to ensure accuracy. 

In § 682.200(b), revise definitions of:.

• ’’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 parties ....... No changes 


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APPENDIX A—SUMMARY OF PROPOSED TECHNICAL CHANGES TO 34 CFR PART 682—Continued 

Section Proposed change Reason 

§ 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. 

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 income-based 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 pre-July 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.

§ 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. 


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APPENDIX A—SUMMARY OF PROPOSED TECHNICAL CHANGES TO 34 CFR PART 682—Continued 

Section Proposed change Reason 

§ 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.

§ 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 ............... To remove provisions no longer needed as a result 

of the SAFRA Act. 

• § 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 

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.


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APPENDIX A—SUMMARY OF PROPOSED TECHNICAL CHANGES TO 34 CFR PART 682—Continued 

Section Proposed change Reason 

• § 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 fees’’ to fees included in an unpaid refund 

discharge.

To ensure accuracy. 

§ 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. 

§ 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. 


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APPENDIX A—SUMMARY OF PROPOSED TECHNICAL CHANGES TO 34 CFR PART 682—Continued 

Section Proposed change Reason 

§ 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 establish eligibility.Minor technical change ............................................. Clarity/consistency/accuracy. 

§ 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 thirdparty 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 Federal Fund.Minor technical changes ........................................... Clarity/consistency/accuracy. 

§ 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.

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. 

§§ 682.500 to 682.515.

§ 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. 

§ 682.602 Rules for a school or 

school-affiliated 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: 

To incorporate Department’s earlier policy guidance 

and make necessary conforming changes. 

• Adding another method for providing exit 

counseling materials to students who withdraw or fail to complete exit counseling; 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 45723 

APPENDIX A—SUMMARY OF PROPOSED TECHNICAL CHANGES TO 34 CFR PART 682—Continued 

Section Proposed change Reason 

• 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.

§ 682.605 Determining the date of 

a student’s withdrawal.

Minor technical changes ........................................... Clarity/consistency/accuracy. 

§ 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. 

§ 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.

§ 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. 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
45724 Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 

APPENDIX A—SUMMARY OF PROPOSED TECHNICAL CHANGES TO 34 CFR PART 682—Continued 

Section Proposed change Reason 

§ 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 Purchased With Proceeds of Tax-Exempt Obligations.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. 

§ 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. 

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/loans.html. 

Laws cited in Appendix B: 

• Higher Education Act of 1965, as 

amended (HEA) 

• Consolidated Appropriations Act, 

2012 (Pub. L. 112–74, enacted December 

23, 2011) 

• Budget Control Act of 2011 (BCA) 

(Pub. L. 112–25, enacted August 2, 

2011) 

• SAFRA Act (included in the Health 

Care and Reconciliation Act of 2010) 

(Pub. L. 111–152, enacted March 30, 

2010) 

• Higher Education Opportunity Act 

(HEOA) (Pub. L. 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 

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 ...................... To reflect a change to the HEA made by the BCA. 

• Graduate and professional students are not 

eligible to receive Direct Subsidized Loans 

effective for loan periods beginning on or 

after July 1, 2012; and.

• 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.


tkelley on DSK3SPTVN1PROD with PROPOSALS2
Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 45725 

APPENDIX B—SUMMARY OF PROPOSED TECHNICAL CHANGES TO 34 CFR PART 685—Continued 

Section Proposed change Reason 

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 Applicability of subparts No changes.

§ 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 reflect the elimination of subsidized loan eligibility 

for graduate and professional students for loan 

periods beginning on or after July 1, 2012.

To reflect a change made by the BCA. 

§ 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. 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
45726 Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 

APPENDIX B—SUMMARY OF PROPOSED TECHNICAL CHANGES TO 34 CFR PART 685—Continued 

Section Proposed change Reason 

§ 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 Income-Contingent Repayment Plan.See the final regulations published on November 1, 

2012 (77 FR 66088) for significant regulatory 

changes in § 685.209.

§ 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). 

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. 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 45727 

APPENDIX B—SUMMARY OF PROPOSED TECHNICAL CHANGES TO 34 CFR PART 685—Continued 

Section Proposed change Reason 

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 indebtedness for survivors of 

victims of the September 11, 

2001, attacks.

Minor technical changes ........................................... Clarity/consistency/accuracy. 

§ 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. 

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 Secretary.

Minor technical changes ........................................... Clarity/consistency/accuracy. 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
45728 Federal Register / Vol. 78, No. 145 / Monday, July 29, 2013 / Proposed Rules 

APPENDIX B—SUMMARY OF PROPOSED TECHNICAL CHANGES TO 34 CFR PART 685—Continued 

Section Proposed change Reason 

§ 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 § 685.102(b). 

[FR Doc. 2013–15812 Filed 7–23–13; 11:15 am] 

BILLING CODE 4000–01–P 


tkelley on DSK3SPTVN1PROD with PROPOSALS2