55626 Federal Register / Vol. 74, No. 207 / Wednesday, October 28, 2009 / Rules and Regulations 

DEPARTMENT OF EDUCATION 

[Docket ID ED–2009–OPE–0003] 

34 CFR Parts 601, 668, 674, 682, and 

685 

RIN 1840–AC95 

Institutions and Lender Requirements 

Relating to Education Loans, 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: Final regulations. 

SUMMARY: The Secretary establishes new 

regulations regarding Institutions and 

Lender Requirements Relating to 

Education Loans, to implement 

requirements relating to education loans 

that were added to the Higher Education 

Act of 1965, as amended (HEA) by the 

Higher Education Opportunity Act of 

2008 (HEOA). The Secretary also 

amends the regulations for Student 

Assistance General Provisions, the 

Federal Perkins Loan (Perkins Loan) 

Program, the Federal Family Education 

Loan (FFEL) Program, and the William 

D. Ford Federal Direct Loan (Direct 

Loan) Program to implement certain 

provisions of the HEA that involve 

school-based loan issues and that were 

affected by the statutory changes made 

to the HEA by the HEOA. 

DATES: Effective Date: These regulations 

are effective July 1, 2010. 

Implementation Date: The Secretary 

has determined, in accordance with 

section 482(c)(2)(A) of the HEA (20 

U.S.C. 1089(c)(2)(A)), that institutions, 

lenders, guaranty agencies, or servicers 

may, at their discretion, choose to 

implement the following new and 

amended provisions(as appropriate): 

Sections 601.11(a), (b), and (c), which 

describe the private education loan 

disclosures. 

Section 601.12 describing the use of 

institution and lender name. 

Section 601.21 describing the content 

of the code of conduct. 

Section 601.40(a), which requires 

certain lender disclosures to borrowers. 

Section 668.16(d)(2), which requires 

institutions to report on reimbursements 

received for certain service on advisory 

boards. 

Section 668.42(a)(4), which requires 

institutions to describe for prospective 

and enrolled students the terms and 

conditions of the loans students receive 

under the FFEL, Direct Loan, and 

Perkins Loan programs. 

Section 674.12(a) and (b), which 

increases undergraduate and graduate 

student annual and aggregate loan 

maximums in the Perkins Loan 

Program. 

Section 674.33(d), which eliminates 

the requirement that a borrower make a 

‘‘written’’ request in order to obtain a 

forbearance on his or her Perkins Loan, 

and that the institution confirm the 

terms of the forbearance by notice to the 

borrower and record the terms in the 

borrower’s file. 

Section 674.39(a)(2), which changes 

the number of consecutive on-time, 

monthly payments a borrower must 

make to successfully rehabilitate a 

defaulted Perkins Loan from 12 to 9. 

Sections 674.42(b), 682.604(g), and 

685.304(b), which modify the exit 

counseling provisions. 

Sections 674.53, 674.57, 674.58, and 

674.59, which expand the existing 

cancellation provisions for certain 

teachers, Head Start employees, law 

enforcement employees, and military 

personnel. 

Sections 682.604 and 685.304, which 

modify the entrance counseling 

provisions. 

For further information, see the 

section entitled Implementation Date of 

These Regulations in the 

SUPPLEMENTARY INFORMATION section of 

this preamble. 

FOR FURTHER INFORMATION CONTACT: For 

information related to Part 601— 

Institution and Lender Requirements 

Relating to Education Loans, Gail 

McLarnon or Brian Smith. Telephone: 

(202) 219–7048 or (202) 502–7551 or via 

the Internet at: Gail.McLarnon@ed.gov 

or Brian.Smith@ed.gov. 

For information related to Program 

Participation Agreements and Standards 

of Administrative Capability, Marty 

Guthrie. Telephone: (202) 219–7031 or 

via the Internet at: 

Marty.Guthrie@ed.gov. 

For information related to Exit and 

Entrance Counseling, Brian Smith. 

Telephone: (202) 502–7551 or via the 

Internet at Brian.Smith@ed.gov. 

For information related to Cohort 

Default Rates, John Kolotos. Telephone: 

(202) 502–7762 or via the Internet at 

John.Kolotos@ed.gov. 

For information related to Perkins 

Loan Program Cancellation Provisions, 

Vanessa Freeman. Telephone: (202) 

502–7523 or via the Internet at 

Vanessa.Freeman@ed.gov. 

If you use a telecommunications 

device for the deaf, call the Federal 

Relay Service (FRS), toll free, at 1–800– 

877–8339. 

Individuals with disabilities can 

obtain this document in an accessible 

format (e.g., braille, large print, 

audiotape, or computer diskette) on 

request to one of the contact persons 

listed under FOR FURTHER INFORMATION

CONTACT. 

SUPPLEMENTARY INFORMATION: On July 

28, the Secretary published a notice of 

proposed rulemaking (NPRM) for the 

Institutions and Lender Requirements 

Relating to Education Loans, the 

Student Assistance General Provisions, 

and for the Perkins Loan, FFEL and 

Direct Loan Programs in the Federal 

Register (74 FR 37432). 

In the preamble to the NPRM, the 

Secretary discussed on pages 37434 

through 37457 the major regulations 

proposed in that document to 

implement the provisions of the HEOA, 

including the following: 

• Amending §§ 668.181, 668.184, 

668.185, 668.186, 668.187, 668.188, 

668.190, 668.191, 668.192, 668.193, 

668.196, 668.198, and adding new 

§§ 668.200, 668.201, 668.202, 668.203, 

668.204, 668.205, 668.206, 668.207, 

668.209, 668.210, 668.211, 668.212, 

668.213, 668.214, 668.215, 668.216, and 

668.217 to reflect an increase in the 

period used to calculate the cohort 

default rate (CDR) from 2 to 3 years 

effective for CDRs calculated for fiscal 

year 2009 and subsequent years, the 

requirement that an institution whose 

CDR is greater than or equal to 30 

percent for any fiscal year establish a 

default prevention plan, and an increase 

from 25 to 30 percent in the threshold 

default that would render an institution 

ineligible to participate in the Pell, 

FFEL, and Direct Loan Programs (see 

section 435(a) and (m) of the HEA); 

• Amending §§ 674.42(b), 682.604(g), 

and 685.304(b) to reflect the expansion 

of exit counseling requirements in the 

title IV, HEA loan programs (see section 

485(b)(1)(A) of the HEA); 

• Amending §§ 682.604 and 685.304 

to reflect the expansion of entrance 

counseling requirements in the FFEL 

and Direct Loan Programs (see section 

485(l) of the HEA); 

• Amending § 668.14 to add to the 

conditions an institution must agree to 

in its program participation agreement 

with the Secretary of Education (the 

agreement between the institution and 

the Department that enables the 

institution to participate in the loan 

programs under Title IV of the HEA). 

These conditions include: (1) A 

requirement that an institution develop, 

publish, administer and enforce a code 

of conduct with respect to its FFEL 

Program activities (see section 

487(a)(25) of the HEA); (2) a 

requirement that an institution compile, 

maintain and make available to students 


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Federal Register / Vol. 74, No. 207 / Wednesday, October 28, 2009 / Rules and Regulations 55627 

and their families a list of its preferred 

lenders if it enters into any preferred 

lender arrangement (see section 

487(a)(27) of the HEA); and (3) a 

requirement that an institution, upon 

the request of an applicant of a private 

education loan, provide the applicant 

with the private education loan 

certification form developed by the 

Secretary (see section 487(a)(28) of the 

HEA); 

• Adding new §§ 601.2, 601.11, and 

601.30 to reflect the requirements for 

education loan borrower disclosures by 

institutions of higher education, and 

institution affiliated organizations, 

including definitions (see sections 151 

through 155, 487(a) and 487(h) of the 

HEA); 

• Adding a new § 601.10 to add the 

borrower disclosures by covered 

institutions and institution-affiliated 

organizations that participate in a 

preferred lender arrangement (see 

section 153(c) of the HEA); 

• Adding a new § 601.20 to add the 

reporting requirements for covered 

institutions and institution-affiliated 

organizations (see section 153(c)(2) of 

the HEA); 

• Adding a new § 668.42 to add 

information dissemination requirements 

for prospective and enrolled students 

regarding the terms and conditions of 

title IV, HEA loans (see section 485(a) of 

the HEA); 

• Adding a new § 668.16(d)(2) to 

reflect the disclosure to the Secretary of 

any reimbursements made to employees 

of an institution of higher education for 

service on advisory boards (see section 

485(m) of the HEA); and 

• Amending §§ 674.51, 674.53, 

674.56, 674.57, 674.58, 674.59, and 

674.61 to reflect the expansion of 

cancellation benefits for Perkins Loan 

borrowers, including cancellation 

benefits for teachers in an educational 

service agency; staff members in a prekindergarten or childcare program; 

attorneys employed in a Federal Public 

Defender Organization or Community 

Defender Organization; fire fighters, 

faculty members of a Tribal College or 

University, librarians with a master’s 

degree employed in an elementary or 

secondary school or in a public library 

that serves one or more schools eligible 

for funding under title I of the 

Elementary and Secondary Education 

Act of 1965, as amended; and speech 

pathologists with a master’s degree who 

work exclusively with title I-eligible 

schools (see section 465(a) of the HEA). 

In addition to these changes, we have 

made a number of minor technical 

corrections and conforming changes. 

Changes that are statutory or that 

involve only minor technical 

corrections are generally not discussed 

in the Analysis of Comments and 

Changes section. 

Waiver of Proposed Rulemaking for 

Additional Conforming Changes 

These final regulations incorporate 

certain statutory changes made to the 

HEA by the HEOA that were not 

included on Team II’s negotiating 

agenda. These changes are: 

• Amending §§ 674.12(a) and (b) to 

increase undergraduate and graduate 

student annual and aggregate loan 

maximums in the Perkins Loan 

Program. 

• Amending §§ 674.33(d) to eliminate 

the requirement that a borrower make a 

‘‘written’’ request in order to obtain a 

forbearance on his or her Perkins Loan. 

• Amending §§ 674.39(a) and (b) to 

change the number of consecutive ontime, monthly payments a borrower 

must make to successfully rehabilitate a 

defaulted Perkins Loan from 12 to 9. 

Because these amendments 

implement changes to the HEA that 

were not negotiated, we do not discuss 

them in the Analysis of Comments and 

Changes section. 

Under the Administrative Procedure 

Act (5 U.S.C. 553), the Department is 

generally required to publish a notice of 

proposed rulemaking and provide the 

public with an opportunity to comment 

on proposed regulations prior to issuing 

final regulations. In addition, all 

Department regulations for programs 

authorized under Title IV of the HEA 

are subject to the negotiated rulemaking 

requirements of section 492 of the HEA. 

However, both the APA and HEA 

provide for exemptions from these 

rulemaking requirements. The APA 

provides that an agency is not required 

to conduct notice-and-comment 

rulemaking when the agency for good 

cause finds that notice and comment are 

impracticable, unnecessary or contrary 

to the public interest. Similarly, section 

492 of the HEA provides that the 

Secretary is not required to conduct 

negotiated rulemaking for Title IV, HEA 

program regulations if the Secretary 

determines that applying that 

requirement is impracticable, 

unnecessary or contrary to the public 

interest within the meaning of the HEA. 

Although the regulations 

implementing the HEOA are subject to 

the APA’s notice-and-comment and the 

HEA’s negotiated rulemaking 

requirements, the Secretary determined 

that it was unnecessary to conduct 

negotiated rulemaking or notice-andcomment rulemaking on the changes 

needed in §§ 674.12, 674.33 and 674.39. 

These amendments simply modify the 

Department’s regulations to reflect 

statutory changes made by the HEOA to 

paragraphs (a), (e), and (h) of section 

464 of the HEA and these changes are 

already effective. The Secretary does not 

have discretion in whether or how to 

implement these changes. Accordingly, 

negotiated rulemaking and notice-andcomment rulemaking are unnecessary. 

Implementation Date of These 

Regulations 

Section 482(c) of the HEA requires 

that regulations affecting programs 

under title IV of the HEA be published 

in final form by November 1 prior to the 

start of the award year (July 1) to which 

they apply. However, that section also 

permits the Secretary to designate any 

regulation as one that an entity subject 

to the regulation may choose to 

implement earlier and the conditions 

under which the entity may implement 

the provisions early. 

Consistent with the intent of this 

regulatory effort to strengthen and 

improve the administration of the title 

IV, HEA programs, the Secretary is 

using the authority granted him under 

section 482(c) of the HEA to designate 

the following new and amended 

provisions for early implementation, at 

the discretion of each institution, 

lender, guaranty agency, or servicer, as 

appropriate: §§ 601.11(a), (b), and (c), 

601.12, 601.21, 601.40(a), 668.16(d)(2), 

668.42(a)(4), 674.12(a) and (b), 

674.33(d), 674.39(a)(2), 674.42(b), 

674.53, 674.57, 674.58, 674.59, 682.604, 

and 685.304. 

Analysis of Comments and Changes 

Except as noted earlier in this 

document regarding the limited 

regulations implementing provisions of 

the HEOA, the regulations in this 

document were developed through the 

use of negotiated rulemaking. Section 

492 of the HEA requires that, before 

publishing any proposed regulations to 

implement programs under title IV of 

the HEA, the Secretary must obtain 

public involvement in the development 

of the proposed regulations. After 

obtaining advice and recommendations, 

the Secretary must conduct a negotiated 

rulemaking process to develop the 

proposed regulations. All proposed 

regulations must conform to agreements 

resulting from the negotiated 

rulemaking process unless the Secretary 

reopens that process or explains any 

departure from the agreements to the 

negotiated rulemaking participants. 

These regulations were published in 

proposed form on July 28, 2009, in 

conformance with the consensus of the 

negotiated rulemaking committee. 

Under the committee’s protocols, 

consensus meant that no member of the 


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55628 Federal Register / Vol. 74, No. 207 / Wednesday, October 28, 2009 / Rules and Regulations 

committee dissented from the agreedupon language. The Secretary invited 

comments on the proposed regulations 

by August 27, 2009. More than 25 

parties submitted comments, a number 

of which were substantially similar. An 

analysis of the comments and the 

changes in the regulations since 

publication of the NPRM follows. 

We group major issues according to 

subject, with appropriate sections of the 

regulations referenced in parentheses. 

We discuss other substantive issues 

under the sections of the regulations to 

which they pertain. Generally, we do 

not address minor, non-substantive 

changes, recommended changes that the 

law does not authorize the Secretary to 

make, or comments pertaining to 

operational processes. We also do not 

address comments pertaining to issues 

that were not within the scope of the 

NPRM. 

PART 601—INSTITUTION AND 

LENDER REQUIREMENTS RELATING 

TO EDUCATION LOANS 

Subpart A—General 

Definitions (§ 601.2) 

Comment: Several commenters 

recommended that we modify the 

definition of the term preferred lender 

arrangement in proposed § 601.2(b), 

based on final regulations published in 

the Federal Register by the Federal 

Reserve Board on August 14, 2009 (74 

FR 41194). The Official Staff 

Interpretations included with the 

Federal Reserve’s final regulations state 

that a lender is only required to comply 

with the preferred lender arrangement 

disclosure requirements in 12 CFR 

226.48(f) if the lender is aware that it is 

a party to a preferred lender 

arrangement (74 FR 41236). In the 

commenters’ view, this 

acknowledgement by the Federal 

Reserve Board that a lender may be in 

a preferred lender arrangement without 

realizing it means that a preferred 

lender arrangement does not exist 

unless both parties are aware of the 

arrangement. These commenters 

recommended that we revise our 

proposed definition of preferred lender 

arrangement to specify that a preferred 

lender arrangement can only arise when 

both the lender and the school are aware 

of the arrangement. These commenters 

argued that this change in the definition 

would align our regulations with the 

Official Staff Interpretations included 

with the Federal Reserve’s final 

regulations. 

Discussion: We disagree that there is 

a conflict between our definition of 

preferred lender arrangement and the 

statement in the Official Staff 

Interpretations included with the 

Federal Reserve’s final regulations that 

a lender is only required to comply with 

the preferred lender arrangement 

disclosure requirements in 12 CFR 

226.48(f) if the lender is aware that it is 

a party to a preferred lender 

arrangement. 

The issue of whether a preferred 

lender arrangement exists if a lender is 

not aware that it is a party to the 

arrangement came up frequently during 

the negotiated rulemaking process. As 

we stated during negotiated rulemaking 

and in the preamble to the NPRM, a 

preferred lender arrangement exists if a 

lender provides or issues education 

loans to students (or the families of 

students) attending a covered institution 

and the covered institution or an 

institution-affiliated organization 

recommends, promotes, or endorses the 

education loan products of the lender. If 

both of these conditions are met, a 

preferred lender arrangement exists, 

whether or not the covered institution 

and the lender have entered into a 

formal agreement. 

We agree with the Federal Reserve 

Board that it is possible for a lender to 

make loans to students at a covered 

institution and not be aware that the 

covered institution recommends, 

promotes, or endorses the education 

loan products of the lender. We do not 

view the Federal Reserve Board’s 

position to be, however, that a preferred 

lender arrangement does not exist if the 

lender is not aware of the preferred 

lender arrangement. The Federal 

Reserve Board acknowledges that the 

arrangement exists, but states that the 

lender is not required to comply with 

the preferred lender arrangement 

disclosure requirements in 12 CFR 

226.48(f) unless the lender is aware that 

it is a party to a preferred lender 

arrangement. 

Changes: None. 

Comment: Paragraph (3) of the 

definition of preferred lender 

arrangement specifies that a preferred 

lender arrangement does not exist with 

regard to private education loans made 

by a covered institution to its own 

students, if the private education loans 

meet the requirements in paragraphs 

(3)(i), (3)(ii), (3)(iii) and (3)(iv) of the 

preferred lender arrangement definition 

in proposed § 601.2(b). One commenter 

recommended that private education 

loans made by a foundation created to 

support a covered institution also 

should be exempted, if the loans meet 

the other criteria stipulated in the 

definition. The commenter defined 

‘‘foundations’’ to include non-profit 

endowments, foundations, or other 

entities that are created to support a 

covered institution and its students. The 

commenter stated that these foundations 

are not lenders or lending institutions in 

the traditional sense, but they often 

make loans to students at covered 

institutions, funded by donor-directed 

contributions and other assets of the 

foundation. 

This commenter also recommended 

that we amend paragraph (3)(iii) of the 

definition of preferred lender 

arrangement in proposed § 601.2(b) to 

exempt loans made through State aid 

programs available to in-state students. 

The commenter noted that such State 

aid loan programs may have a service 

requirement, resulting in no monetary 

payback if the borrower meets the 

service obligations. 

Discussion: We agree with the 

comment relating to foundations, and 

note that the lead-in language to the 

definition of the term preferred lender 

arrangement in proposed § 601.2(b) 

refers to both covered institutions and 

institution-affiliated organizations. We 

believe that the exceptions specified in 

paragraph (3) of the preferred lender 

arrangement definition apply to private 

education loans provided or issued by 

institution-affiliated organizations, as 

well as private education loans 

provided or issued by covered 

institutions. The definition of the term 

institution-affiliated organization 

includes foundations and other entities 

of the type the commenter included 

under its definition of the term 

‘‘foundations’’. 

We also agree with the 

recommendation to include loans made 

to students from State-funded financial 

aid programs among the exceptions for 

Public Health Service Loans in 

paragraph (3)(iii) of the preferred lender 

arrangement definition in § 601.2(b), if 

the terms and conditions of the loans 

include a loan forgiveness option for 

public service. However, we have not 

limited this exemption to State-funded 

financial aid programs for in-state 

students, as the commenter suggested. 

We believe that these types of Statefunded loans should be exempt from the 

preferred lender arrangement definition 

regardless of whether the loans are 

limited to in-state students. 

Changes: We have revised paragraphs 

(3) and (3)(i) of the definition of the 

term preferred lender arrangement in 

§ 601.2(b) to reference institutionaffiliated organizations (not only 

covered institutions). We also have 

revised paragraph (3)(iv) of the 

definition to refer to State-funded 

financial aid programs. 

Comment: One commenter requested 

clarification of the provision in the 

definition of preferred lender 


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arrangement that states that an 

arrangement or agreement does not exist 

if the private education loan provided or 

issued to a student attending a covered 

institution is made by the covered 

institution using its own funds. The 

commenter referred to language in the 

preamble of the NPRM stating that an 

institution would not be considered to 

be using its own funds if it borrowed 

money from a lender to make a private 

education loan to a student and then 

sold the loan to that lender shortly after 

making the loan, in effect acting as a 

pass-through for the lender’s funds. 

While sharing the Department’s concern 

that an institution may become a passthrough for a lender if the institution 

sells a private education loan back to 

the lender from which the institution 

received the initial funding, the 

commenter also worried that limitations 

placed on selling private education 

loans made by a covered institution 

would prevent schools from raising 

capital to make additional institutional 

loans. The commenter asked if an 

institution would be permitted to sell a 

private education loan to a different or 

unaffiliated lender that was not the 

source of the funds used to make the 

loan and still be considered to be using 

its own funds. 

Discussion: The Department remains 

concerned about situations where a 

covered institution obtains funds from a 

lender to make private education loans 

to its students and then sells the loans 

back to that lender, or another 

unaffiliated lender, shortly after making 

the loan. As stated in the preamble to 

the NPRM, we believe that the covered 

institution is merely acting as a passthrough for the lender’s funds in these 

situations. Exempting loans made under 

these conditions from the preferred 

lender arrangement requirements would 

create a loophole that covered 

institutions could use to avoid the 

preferred lender requirements. The 

Department also continues to believe 

that these arrangements may be 

deceptive to borrowers who believe they 

are receiving a private education loan 

from the covered institution only to find 

that, very shortly after the loan is made, 

the actual loan holder is another entity 

entirely. 

The Department recognizes, however, 

that borrowing money or using a 

business line of credit from a lender is 

a common form of financing that 

enables a covered institution to meet its 

working capital needs and operating 

expenses. Rather than focus on the use 

of a line of credit or borrowed funds in 

defining an institution’s own funds, the 

Department believes that it is more 

helpful to consider the totality of the 

circumstances around the extension of 

private education loans by a covered 

institution and what happens to these 

loans over a period of time. In that vein, 

the Department will consider a covered 

institution that makes a private 

education loan to be using its own funds 

if the loan is made using funds that 

include, but are not necessarily limited 

to, tuition and fee revenue, investment 

income, endowment funds, borrowed 

money or a line of credit, and the 

covered institution does not sell or 

collateralize the private education loan 

for two years from the date the loan is 

fully disbursed, nor does the covered 

institution engage in an arrangement 

tying the sale of a private education loan 

to a lender after the two year period has 

elapsed. 

Changes: None. 

Comment: The definition of private 

education loan in proposed § 601.2(b) 

corresponds to the definition of private 

education loan in section 140 of the 

Truth in Lending Act (TILA) (15 U.S.C. 

1631). The definition of private 

education loan in 12 CFR 226.46(b)(5) of 

the Federal Reserve’s final regulations is 

also based on the definition in section 

140 of the TILA. However, through 

regulations, the Federal Reserve has 

interpreted the statutory term private 

education loan to include certain 

exemptions. Under 12 CFR 226.46(b)(5), 

an extension of credit provided by a 

covered educational institution is not a 

private education loan if the extension 

of credit is for a term of 90 days or less, 

or if the term of the extension of credit 

is one year or less and an interest rate 

will not be applied to the credit balance. 

Several commenters recommended 

that we revise the definition of private 

education loan in § 601.2(b) by 

including these exemptions. One 

commenter noted that applying the 

private education loan disclosures to 

such short-term extensions of credit 

would not provide meaningful 

disclosures to students. Requiring such 

disclosure for short-term extensions of 

credit could lead schools to stop 

providing such extensions of credit, 

making it more difficult for students to 

benefit from the flexible payment 

options offered by these extensions of 

credit. 

Discussion: We agree with the 

commenters. We also note that the 

Federal Reserve Board’s interpretation 

of the definition of private education 

loan, as reflected in 12 CFR 

226.46(b)(5), renders the proposed 

exception for loans made under an 

institutional payment plan in paragraph 

(3)(iv) of the definition of preferred 

lender arrangement in proposed 

§ 601.2(b) superfluous. 

Changes: We have revised the 

definition of private education loan in 

§ 601.2(b) to exclude extensions of 

credit that meet the criteria specified by 

the Federal Reserve Board in 12 CFR 

226.46(b)(5). We also have removed the 

reference to institutional payment plans 

in subparagraph (3)(iv) of the definition 

of preferred lender arrangement. 

Subpart B—Loan Information To Be 

Disclosed by Covered Institutions and 

Institution-Affiliated Organizations 

Preferred Lender Arrangement 

Disclosures (§ 601.10) 

Comment: One commenter 

recommended that we modify proposed 

§ 601.10(a)(1)(i), which requires a 

covered institution in a preferred lender 

arrangement to disclose the maximum 

amount of title IV grant and loan aid 

available to students in the 

informational materials that discuss 

education loans that the covered 

institution makes available. The 

commenter recommended that instead 

of referring to title IV grant aid that the 

regulations specify Pell Grant aid. The 

commenter also recommended that the 

regulations include a statement that the 

title IV information only address title IV 

aid available to students attending the 

school. The commenter stated that it 

would be misleading to students to 

mandate disclosure of information about 

all title IV grant and loan programs, 

since not all schools participate in all of 

the title IV grant and loan programs. 

Discussion: The information required 

to be disclosed to students by covered 

institutions and institution-affiliated 

organizations is specified in section 

152(a)(1)(i)(I) of the HEA. This section 

specifically refers to grant and loan aid 

under title IV of the HEA, not just Pell 

Grant aid. Limiting the information 

provided to Pell Grant aid would not be 

consistent with the HEA. 

We agree with the commenter that the 

information provided in these materials 

should be specific to the covered 

institution. However, we do not agree 

that a change to § 601.10(a)(1)(i) is 

necessary. In our view, § 601.10(a)(1)(i), 

taken in context with the other 

regulatory provisions in § 601.10, 

clearly refers to title IV information 

specific to the covered institution. 

The information specified in 

§ 601.10(a)(1)(i) must be included in 

information materials that are provided 

to current or prospective students of the 

covered institution and must describe or 

discuss financial aid opportunities 

available to students (see § 601.10(b)). 

This information must be provided in a 

manner that allows a student to take the 

information into account before 


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selecting a lender or applying for an 

education loan (see § 601.10(c)(2)). 

The information provided under this 

section is intended to help students 

make informed decisions when 

applying for student financial aid. 

Providing a student with information on 

title IV financial aid programs not 

available at the covered institution 

could be misleading to the student. In 

addition, for prospective students who 

have not made a final decision on which 

school to attend, we believe it would be 

more helpful for the student to be able 

to easily compare the title IV financial 

aid opportunities available at the 

different schools the student is 

considering. 

Changes: None. 

Comment: The preamble to the NPRM 

makes a reference to Dear Colleague 

Letter GEN–08–06 (DCL GEN–08–06), 

which discusses the use of preferred 

lender lists in the FFEL Program. DCL 

GEN–08–06, which is available at 

http://www.ifap.ed.gov/dpcletters/ 

GEN0806.html, states that a neutral, 

comprehensive list of lenders that have 

made loans to students at a school 

within a set period of time, such as 

three to five years, and that provides a 

clear statement that a borrower can 

choose to use any FFEL lender, is not 

considered a preferred lender list. DCL 

GEN–08–06 also states that the school 

may not provide any additional 

information about the lender on the list. 

Commenters asked whether the 

guidance in DCL GEN–08–06 applies to 

a list of lenders who have made private 

education loans at a covered institution, 

as well as to a list of FFEL lenders. 

Discussion: The guidance in DCL 

GEN–08–06 applies to a list of lenders 

who have made private education loans 

at a covered institution, as well as a list 

of FFEL lenders. During the negotiated 

rulemaking sessions, we stated that the 

list of lenders could also include a 

comparison of terms and conditions 

offered by the lenders on the loans being 

offered. 

As noted in the NPRM, if a covered 

institution includes certain lenders on 

the list and leaves other lenders off the 

list, the Department views the covered 

institution as recommending, 

promoting, or endorsing the lenders on 

the list over the lenders that it has 

chosen to leave off the list regardless of 

whether the covered institution 

includes a disclaimer on the list, 

asserting that the covered institution 

does not recommend, promote, or 

endorse the lenders on its list. Unless 

the list is a neutral, comprehensive list 

of lenders who lent to students at the 

school, the list serves to recommend, 

promote, or endorse the lenders on the 

list, despite whatever disclaimers the 

school may attach to the list. 

Changes: None. 

Comment: One commenter noted that 

many institutions are no longer 

providing students and their families 

with a preferred lender list for private 

education loans. Instead, many 

institutions are referring borrowers to 

Web sites developed by third party 

entities that contain neutral lists of 

private education lenders and the loan 

products they offer. The commenter 

requested that the Department clarify its 

position on the use of these private 

education lender lists by institutions of 

higher education in helping students 

and their families explore their higher 

education financing options. 

Discussion: The Department does not 

consider an institution that refers its 

students to a third party entity that 

maintains a comprehensive, neutral 

listing of private education lenders to be 

participating in a preferred lender 

arrangement as long as the institution 

ensures that the listing is broad in 

scope, does not endorse or recommend 

any of the lenders on the list and the 

lenders on the list do not pay the third 

party entity to be placed on the list or 

pay the third party entity a fee based on 

any loan volume generated. However, if 

an institution retains a third party entity 

to develop a customized lender list for 

the institution to provide to its students 

as a resource, either through a Request 

for Information or some other process, 

the Department does consider the 

institution to be participating in, and 

subject to the requirements of, a 

preferred lender arrangement under part 

601. 

Changes: None. 

Comment: One commenter asked us 

to clarify whether a covered institution 

could be required to comply with the 

preferred lender arrangement 

disclosures if the covered institution 

does not have a preferred lender list. 

The commenter wanted to know if there 

are instances in which an institution 

would be considered to be 

recommending, promoting, or endorsing 

an education loan product in the 

absence of a preferred lender list. The 

commenter expressed concern that a 

covered institution might not realize 

that it is in a preferred lender 

arrangement, and therefore fail to 

comply with the preferred lender 

arrangement requirements. 

Discussion: Any action that a covered 

institution takes to recommend, 

promote, or endorse the education loan 

products of a lender that provides or 

issues education loans to students 

attending the covered institution 

triggers the preferred lender 

arrangement requirements. The actions 

a covered institution may take to 

recommend, promote, or endorse the 

education loan products of a lender are 

not limited to including the lender on 

a preferred lender list. 

If a covered institution is unsure 

whether it is in a preferred lender 

arrangement with a lender, the covered 

institution should review its policies 

and practices with regard to that lender. 

We do not believe that a covered 

institution would have difficulty 

determining whether or not the covered 

institution is recommending, promoting, 

or endorsing a lender’s loan products, or 

whether or not the covered institution is 

complying with DCL GEN–08–06. 

Moreover, the program participation 

agreement requirements in 

§ 668.14(b)(28) require an institution 

that participates in a preferred lender 

arrangement to annually publish a list of 

lenders with which it has preferred 

lender arrangements. To comply with 

this requirement, an institution must 

routinely determine whether it is in a 

preferred lender arrangement with any 

lender that provides education loans to 

the institution’s students. 

Changes: None. 

Private Education Loan Disclosures and 

Self-Certification Form (§ 601.11) 

Comment: Several commenters stated 

that the requirement for a selfcertification form should be confined to 

direct-to-consumer private education 

loans and that the self-certification form 

should not be required if an institution 

is already certifying the borrower’s cost 

of attendance, estimated financial 

assistance, enrollment status and 

academic progress directly to the private 

education lender. These commenters 

stated that requiring an institution to 

provide an enrolled or admitted student 

applicant of a private education loan 

with the self-certification form and the 

information necessary to complete the 

form, in addition to the school 

certification to the private education 

lender, would delay the delivery of loan 

funds to students and families, result in 

conflicting information if the borrower 

changed the information on the form, 

and create a duplicative and 

unnecessary administrative burden on 

institutions. 

Another commenter asked the 

Department to provide relief from the 

self-certification form requirements 

when: 

• The borrower is an international 

student (non-citizen) and not eligible for 

title IV aid; 

• The borrower has been determined 

not eligible for title IV aid; or 


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• The borrower has already received 

all of the title IV funds for which she is 

eligible. 

This commenter further suggested 

that the Department exempt an 

institution of higher education that 

makes private education loans to its 

students from the requirement that it 

provide an applicant for the 

institutional loan with the selfcertification form or, alternatively, to 

allow the institution to provide 

clarification to the prospective borrower 

on his or her eligibility for title IV aid. 

Discussion: The Department 

understands that requiring an 

institution to provide the private selfcertification form, and making available 

the information needed to complete the 

form, represents an increase in burden 

and may, in some cases, create 

duplicative processes. However, the 

statutory language in section 128(e)(3) of 

the TILA and sections 155 and 

487(a)(28)(A) of the HEA is clear: The 

TILA requires private education lenders 

to obtain the self-certification form from 

all borrowers of private education loans, 

as that term is defined in the TILA, 

without exception. The HEA requires 

the form, and the information required 

to complete it, to be made available to 

the applicant by the relevant institution 

of higher education, in written or 

electronic form, upon request of the 

applicant, without exceptions, and 

conditions an institution’s participation 

in any title IV, HEA program, on 

compliance with this requirement. 

The Department, in negotiating rules 

implementing this provision in 

§§ 601.11(d) and 668.14(b)(29)(i), 

clarified that the institution must 

provide the form only to an enrolled or 

admitted student. We believe this 

clarification will help minimize the 

potential burden of this requirement. 

Moreover, the Federal Reserve Board, 

in implementing section 128(e)(3) of the 

TILA provided some flexibility to 

private education lenders in obtaining 

the form that has an impact on an 

institution’s responsibilities. The 

Federal Reserve Board, in 12 CFR 

226.48, provides three ways for a private 

education lender to obtain the selfcertification form: (1) The lender may 

receive the form directly from the 

consumer; (2) the lender may receive 

the form from the consumer through the 

institution of higher education; or (3) 

the lender may provide the form, and 

the information the consumer will 

require to complete the form, directly to 

the consumer. 

While all three of these options 

require the institution to provide the 

form, and the information required to 

complete the form, to either the private 

loan applicant or the private education 

lender, the Department believes that 

options 2 and 3 may be less burdensome 

on the institution, especially if the 

institution has an existing relationship 

with the lender. 

Although the Federal Reserve has 

built some flexibility into the process of 

obtaining the self-certification form for 

the lender, the Department emphasizes 

that an institution is not required to 

provide the form, or the information 

needed to complete the form, to anyone 

other than the borrower in order to 

comply with §§ 601.11(d) and 

668.14(b)(29)(i). An institution may 

provide the form to the lender at its 

option. 

Changes: None. 

Subpart C—Responsibilities of Covered 

Institutions and Institution-Affiliated 

Organizations 

Code of Conduct (§ 601.21) 

Comment: The code of conduct 

provisions in § 601.21(c)(2)(i) prohibit 

employees of the financial aid office of 

a covered institution from soliciting or 

accepting gifts from a lender, guarantor, 

or loan servicer. However, as specified 

in § 601.21(c)(2)(iii)(D), entrance and 

exit counseling services provided to 

borrowers do not qualify as a gift, as 

long as the covered institution’s staff are 

in control of the counseling and the 

counseling does not promote the 

products or services of a specific lender. 

One commenter recommended that the 

Department clarify the meaning of ‘‘in 

control’’ with respect to the counseling, 

and in a manner that minimizes the 

potential for conflicts of interest, 

particularly with regard to opportunities 

for lenders to build awareness of their 

brand through the counseling. This 

commenter also recommended that we 

modify § 601.21(c)(2)(iii)(D) to explicitly 

prohibit lender-provided personnel 

from providing the counseling, except 

in emergency situations as specified in 

§ 601.21(c)(6)(iii)(D). 

Discussion: The code of conduct 

requirements in § 601.21 track very 

closely the code of conduct 

requirements in section 487(e)(1) 

through 487(e)(7) of the HEA. The 

statutory provisions and corresponding 

provision in § 601.21(c)(6)(iii)(D) 

specifically allow a lender to provide 

entrance and exit counseling ‘‘services 

to borrowers.’’ We believe that it would 

be inconsistent with the statute to 

prohibit lender-provided personnel 

from providing these services. However, 

as the commenter points out, the 

covered institution’s staff must be in 

control of the counseling. 

To remain in control of the 

counseling, the covered institution has 

to review and approve the content of the 

counseling and provide oversight over 

how the counseling is conducted. 

Ultimately, the covered institution is 

responsible for the entrance and exit 

counseling that its borrowers receive. 

We believe this oversight by the covered 

institution will mitigate against lenders 

using the counseling to promote their 

products. 

Changes: None. 

Comment: One commenter believed 

that proposed § 601.21(c)(5)(i) goes 

beyond Congressional intent and may 

reduce the availability of private 

education loans to certain students. This 

section prohibits a covered institution 

from accepting any offer from a lender 

for funds to be used for private 

education loans, if the offer is made in 

exchange for the covered institution’s 

providing concessions or promises to 

provide the lender a specified number 

of loans, a specified loan volume, or a 

preferred lender arrangement for FFEL 

loans or private education loans. The 

commenter noted that section 

487(e)(5)(A)(i) of the HEA limits this 

provision to FFEL Loans. The 

commenter recommended that we 

remove the reference to private 

education loans from 

§ 601.21(c)(5)(i)(A). 

Discussion: The code of conduct 

requirements specified in section 487(e) 

of the HEA are from the section of the 

HEA that describes program 

participation agreements for institutions 

that participate in the title IV programs. 

Section 487(a)(25)(A)(ii) of the HEA 

specifies that the code of conduct shall, 

‘‘at a minimum,’’ include the provisions 

described in section 487(e) of the HEA. 

Section 153(c)(3)(A) of the HEA requires 

covered institutions and institutionaffiliated organizations that participate 

in preferred lender arrangements to 

comply with the code of conduct 

requirements in section 487(a)(25) of the 

HEA. Because covered institutions do 

not necessarily participate in the title IV 

programs, and preferred lender 

arrangements may relate to private nontitle IV education loans as well as title 

IV education loans, we continue to 

believe that it is necessary to include 

private education loans in 

§ 601.21(c)(5)(i)(A). 

Changes: None. 

Comment: The code of conduct 

provisions prohibit a covered institution 

from requesting or accepting any 

assistance with call center staffing or 

financial aid office staffing from a 

lender. However, § 601.21(c)(6)(ii) 

specifies that a covered institution may 

request or accept educational 


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counseling materials, financial literacy 

materials, or debt management materials 

from a lender, provided that the 

materials identify any lender that 

assisted in preparing or providing the 

materials. One commenter believed that 

the requirement to identify the lender 

on the materials could result in direct or 

indirect promotional opportunities for 

the lender. The commenter 

recommended that we prescribe the text 

and format of the language that 

identifies the lender on the materials. 

The commenter also recommended that 

we require the language identifying the 

lender to clearly state that the borrower 

is not expected or required to use the 

lender’s products and has the right to 

obtain loans from a lender of the 

borrower’s choice. 

Discussion: We believe that it would 

be overly prescriptive for the 

Department to mandate the specific 

language and formatting used to identify 

the lender or lenders who developed the 

materials. 

Changes: None. 

Comment: While the code of conduct 

provisions generally prohibit a covered 

institution from requesting or accepting 

staffing assistance from a lender, 

§ 601.21(c)(6)(iii) provides an exception 

for staffing assistance provided on a 

short-term, non-recurring basis to assist 

the covered institution with financial 

aid-related functions during 

emergencies. 

One commenter stated that this 

provision conflicts with the prohibited 

inducement provisions in the Team I 

NPRM, published in the Federal 

Register on July 23, 2009 (74 FR 36556). 

Specifically, the commenter stated that 

§ 682.200(b)(5)(i)(A)(10) prohibits 

lenders from offering to perform any 

function required under title IV for a 

school, other than exit counseling. 

Discussion: Section 

682.200(b)(5)(i)(A)(10) does not prohibit 

a lender from providing these services 

to a school in all circumstances. The 

prohibition only applies if a lender 

provides the services ‘‘to secure 

applications for FFEL loans or to secure 

FFEL loan volume’’ (see 

§ 682.200(b)(5)(i)(A)). The Department 

assumes the necessary intent if we take 

action against a lender for providing 

such prohibited inducements, but the 

lender may demonstrate to the 

Department that such intent was not 

present, and there was no quid pro quo 

between the school and the lender. As 

long as there is no evidence that the 

lender was providing the services to 

increase the number or volume of loans, 

there would not be a prohibited 

inducement. Therefore, the provisions 

in § 682.200(b)(5)(i)(A)(10) and 

§ 601.21(c)(6)(iii) do not conflict. 

Changes: None. 

Subpart E—Lender Responsibilities 

Disclosure and Reporting Requirements 

for Lenders (§ 601.21) 

Comment: One commenter noted that 

§ 601.40(c) requires FFEL lenders to 

annually certify to the Secretary their 

compliance with the HEA if they are in 

a preferred lender arrangement with any 

school. The commenter noted that a 

lender could be in a preferred lender 

arrangement without being aware of it, 

and suggested that the requirement in 

§ 601.40(c) only apply to lenders that 

know they are in a preferred lender 

arrangement. 

Discussion: If a lender is providing or 

issuing education loans to students 

attending a covered institution, it is 

incumbent on the lender to determine 

whether or not the lender and the 

covered institution are in a preferred 

lender arrangement. Being unaware of 

its obligation to comply with the 

preferred lender arrangement 

requirements does not exempt a lender 

from its obligation to comply with the 

requirements. 

Given the extensive reporting and 

disclosure requirements specified in 

part 601, we believe that it is extremely 

unlikely that a lender will be unaware 

when it is in a preferred lender 

arrangement with a covered institution. 

Specifically, covered institutions are 

required to provide detailed information 

on private education loans offered 

pursuant to a preferred lender 

arrangement, as well as information on 

why the covered institution participates 

in a preferred lender arrangement with 

the lenders on its preferred lender list. 

The preferred lender list must disclose 

the method and criteria used by the 

covered institution to select lenders for 

inclusion on the list. Covered 

institutions are likely to contact lenders 

to determine if the lender meets the 

selection criteria established by the 

covered institution. 

If the covered institution has not 

directly contacted the lender to obtain 

the information needed for its various 

disclosures and reports, a lender can 

quickly and easily determine whether it 

is in a preferred lender arrangement by 

accessing the covered institution’s Web 

site. A covered institution that 

participates in a preferred lender 

arrangement must post on its Web site 

information on private education loans 

offered through the preferred lender 

arrangement, pursuant to 

§ 601.10(a)(2)(i). The covered institution 

must also submit an annual report to the 

Department, which includes a detailed 

explanation of why the covered 

institution participates in the preferred 

lender arrangement. The covered 

institution must make the annual report 

available to the public, pursuant to 

§ 601.20(b). 

If a lender reviews all of this 

information and still cannot determine 

whether or not it is in a preferred lender 

arrangement with a covered institution, 

the lender can always contact the 

covered institution directly. 

Enforcement actions taken by the 

Department against a lender for failing 

to comply with the preferred lender 

arrangement requirements will take into 

account the extent of the efforts made by 

the lender to determine whether it was 

in a preferred lender arrangement. 

Changes: None. 

Comment: Proposed § 601.40(d) 

requires lenders in a preferred lender 

arrangement to annually provide to the 

institution or institution-affiliated 

organization, and to the Secretary, 

information regarding the FFEL loans 

the lender will provide to students and 

families pursuant to the preferred lender 

arrangement for the next award year. 

One commenter recommended that a 

FFEL lender with a preferred lender 

arrangement with a covered institution 

or an institution-affiliated organization 

relating to FFEL loans must annually, or 

upon the request of the institution, 

provide such information as required. 

Discussion: Proposed § 601.40(d) is 

consistent with the statutory 

requirements in section 153(b) of the 

HEA. Because the commenter provided 

no explanation or justification for the 

requested change, we have no basis for 

making the requested change. 

Changes: None. 

Code of Conduct (§ 668.14(b)(27)) 

Comment: One commenter requested 

that the Department clarify the 

applicability of the code of conduct 

requirements. The commenter asked 

under what circumstances § 601.21(a) 

applies and under what circumstances 

§ 668.14(b)(27) applies. 

Discussion: The HEOA added 

requirements for an institutional code of 

conduct in both section 153(c)(3) and 

section 487(a)(25) of the HEA. These 

changes are reflected in §§ 601.21(a) and 

668.14(b)(27), respectively. The code of 

conduct requirements in § 601.21(a) 

apply to covered institutions and 

institution-affiliated organizations that 

have a preferred lender arrangement. A 

covered institution is any institution 

that receives Federal funding, including 

institutions that do not participate in 

the Title IV programs. The regulations 

in § 668.14(b)(27) require all institutions 


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to develop a code of conduct as a 

condition of program participation in 

any of the Title IV, HEA loan program. 

Changes: None. 

Private Education Loan Certification 

(§ 668.14(b)(29)) 

Comment: Several commenters noted 

that Congress enacted technical 

amendments to the HEA that changed 

the data that must be included on the 

private loan self-certification form. The 

commenters requested that 

corresponding changes be made to 

§ 668.14(b)(29). 

Discussion: The Higher Education 

Technical Corrections (Pub. L. 111–39) 

made technical amendments to the HEA 

that changed the information on the 

private loan self-certification form that 

an institution must provide to any 

enrolled student who requests it. Public 

Law 111–39 added a requirement to 

report amounts of estimated financial 

assistance used to replace the expected 

family contribution and removed the 

requirement to report the expected 

family contribution. 

Changes: We revised § 668.14(b)(29) 

to reflect the changes made by Public 

Law 111–39 to the information to be 

reported to students on the private loan 

self-certification form. 

Disclosures of Reimbursement for 

Service on Advisory Boards 

(§ 668.16(d)(2)) 

Comment: One commenter urged the 

Department to amend § 668.16(d)(2) by 

expanding the requirement to report to 

the Secretary any reasonable expenses 

paid or provided under section 140(d) of 

the TILA to all institutional officials 

with authority or influence on the 

selection of lenders. 

Discussion: The HEOA amended 

section 485(m) of the HEA by adding, as 

a condition of participation in any title 

IV, HEA program, the requirement that 

the institution must annually report to 

the Secretary on any reasonable 

reimbursements paid or provided by a 

private education lender or group of 

lenders to any individual who is 

employed in the financial aid office of 

the institution or who otherwise has 

responsibilities with respect to 

education loans or other financial aid of 

the institution. The institution must 

report the amount of reasonable 

expenses paid or reimbursed, the name 

of the individual to whom the expenses 

were paid or provided, the dates of the 

activity for which the expenses were 

paid or provided, and must provide a 

brief description of the activity for 

which the expenses were paid or 

provided. While we believe that 

individuals who assist in or influence 

the selection of lenders would be 

included in the language as proposed, 

we agree that the recommended change 

is appropriate to highlight the HEOA’s 

goal of transparency and accountability. 

Changes: We have amended 

§ 668.16(d)(2) to specifically reference, 

as an example of individuals who have 

responsibilities with respect to 

education loans, individuals with 

responsibilities for the selection of 

lenders. 

Cohort Default Rates 

Comment: A few commenters asked 

the Department to clarify the 

circumstances under which an 

institution’s published cohort default 

rate would be recalculated as a result of 

an average rates appeal. 

Discussion: Regarding the provision 

for publicly correcting rates as a result 

of average rate appeals, we note that 

average rate appeals under 

§§ 668.196(a)(1)(i) and 668.215(a)(1)(i) 

do not involve new rates, so the 

provision for correction is inapplicable. 

Average rate appeals under 

§§ 668.196(a)(1)(ii) and 668.215(a)(1)(ii) 

do not involve new rates either, but 

instead are a comparison of the average 

rate with the draft rate, as corrected by 

any timely adjustment, challenge or 

appeal. The regulations continue to 

provide that draft rates will be kept 

confidential. As a result, in the case of 

an average rates appeal, there is no 

corrected rate available for the 

Department to publish. 

Changes: We have removed from 

§§ 668.196(c) and 668.215(c) the 

language stating that we will 

electronically correct the rate that is 

publicly released following a successful 

average rates appeal. 

Comment: None. 

Discussion: As part of our 

intradepartmental review of the cohort 

default rate regulations affected by the 

NPRM, we realized that proposed 

§ 668.202(c) and current § 668.183(c), 

which identify the conditions and 

timeframes relating to when a borrower 

is considered to be in default on a loan, 

do not explicitly address uninsured 

loans held by the Department under the 

Ensuring Continued Access to Student 

Loans Act of 2008 (ECASLA)(Pub. L. 

110–227). As explained more fully in a 

notice published in the Federal Register 

on July 1, 2008 (73 FR 37422), under the 

ECASLA, the Secretary has authority to 

purchase, or enter into forward 

commitments to purchase, FFELP loans. 

Loans that the Department holds under 

this authority are not insured. The 

Department is responsible for servicing 

these uninsured FFELP loans. 

The Department’s CDR regulations 

need to identify when these uninsured 

FFELP loans that the Department holds 

are considered in default for CDR 

purposes. The date of default for CDR 

purposes for other FFELP loans is 

defined under § 668.183(c)(1)(i) and 

new § 668.202(c)(1)(i) as the date a 

claim for insurance is paid. Because the 

uninsured FFELP loans are 

indistinguishable from Direct Loan 

Program loans for CDR purposes, we 

have revised §§ 668.183(c) and 

668.202(c) to follow the approach used 

in § 668.183(c)(1)(ii), concerning the 

date of default of Direct Loan Program 

loans, for defining the date of default of 

uninsured FFELP loans held by the 

Department. 

Changes: We have revised 

§§ 668.183(c) and 668.202(c) to clarify 

that FFELP loans held by the 

Department under ECASLA are treated 

in the same way as Direct Loans with 

respect to determining when a borrower 

defaults. 

Special Definitions (§ 674.51(b)) 

Comment: One commenter asked if 

there is a list of institutions that may be 

used as a reference when determining a 

borrower’s eligibility for cancellation 

based on service as a full-time faculty 

member of a Tribal College or 

University, as that term is defined in 

section 316 of the HEA. 

Discussion: The HEOA amended 

section 465(a)(2) of the HEA by adding 

a new public service cancellation 

category for borrowers in the Federal 

Perkins Loan program who are 

performing qualifying service as a fulltime faculty member at a Tribal College 

or University, as that term is defined in 

section 316 of the HEA. We amended 

§ 674.51(b) to reflect this change. 

The Department provides a list of 

Tribal Colleges and Universities on its 

Web site at http://www.ed.gov/about/ 

inits/list/whtc/edlite-tclist.html#MN. 

This list can be used as a resource when 

establishing a borrower’s eligibility for 

cancellation under this provision. 

Changes: None. 

Teacher Cancellation (§ 674.53(e)) 

Comment: One commenter noted that 

proposed § 674.53(e) stated that a 

borrower is eligible for cancellation of a 

Perkins loan if she is a teacher in a 

designated public or other non-profit 

low-income elementary or secondary 

school or an educational service agency 

and the borrower is directly employed 

by the school system. The commenter 

further noted that, in the case of a 

borrower who is teaching in an 

educational service agency, the 

borrower may be working for many 


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school districts. The commenter asked 

the Department to clarify if a borrower 

in this situation would qualify for 

cancellation benefits under this 

provision. 

Discussion: The HEOA amended 

section 465(a)(2)(A) of the HEA to 

expand cancellation benefits to a 

Perkins Loan borrower who is a teacher 

employed by an educational service 

agency, or who is a full-time special 

education teacher, including a teacher 

of infants, toddlers, children, or youth 

with disabilities, who is working in a 

system administered by an educational 

service agency. We amended § 674.53(a) 

to reflect this statutory change. 

With regard to a borrower who is 

employed by an educational service 

agency, we consider the borrower to be 

employed by the school system and to 

qualify for cancellation benefits 

regardless of the number of school 

districts in which the borrower works. 

A more detailed discussion of 

educational service agencies is 

contained in the Department’s final 

regulations implementing the lender 

and guaranty agency provisions (RIN 

1840–AC98) [Docket ID ED–2009– 

OPE—0004]. 

Changes: None. 

Cancellation for Law Enforcement or 

Corrections Officer Service (§ 674.57) 

Comment: One commenter asked the 

Department to clarify how to determine 

if Community Defender Organizations 

and Federal Public Defender 

Organizations are established in 

accordance with section 3006A(g)(2)(B) 

and 3006A(g)(2)(A) of the Criminal 

Justice Act, respectively, when 

establishing a borrower’s eligibility for 

cancellation based on her service as a 

full-time attorney employed in a 

defender organization. 

Discussion: The HEOA amended 

section 465(a)(2)(F) of the HEA to 

extend cancellation benefits to 

borrowers who are employed full-time 

as an attorney in Federal Public 

Defender Organizations or Community 

Defender Organizations established in 

accordance with section 3006A(g)(2) of 

the Criminal Justice Act. We amended 

§ 674.57 of the Perkins Loan Program 

regulations to reflect this change. 

Pursuant to the Criminal Justice Act, 

the Office of Defender Services of the 

Administrative Office of the U.S. Courts 

provides information on its Web site 

that lists these Community Defender 

and Federal Public Defender 

Organizations. The Directory can be 

found at the following address: http:// 

www.fd.org/pdf_lib/ 

defenderdir8_17_09.pdf. 

This Directory is updated daily. 

Although this is not a Web site that is 

administered by the Department of 

Education, the directory provided on 

this site may assist in determining a 

borrower’s eligibility for cancellation 

under this provision. Additional 

guidance on this cancellation benefit 

will be provided in the Department’s 

Federal Student Aid Handbook. 

Changes: None. 

Cancellation for Military Service 

(§ 674.59) 

Comment: One commenter asked the 

Department to clarify the percentage 

rate of cancellation for a borrower in her 

third year of qualifying military service 

under the newly authorized military 

service cancellation rates if the borrower 

had previously received two years of 

cancellation at the previously 

authorized cancellation rate of 121⁄2

percent. 

Discussion: The HEOA amended 

section 465(a)(3)(A) of the HEA to allow 

borrowers who are serving in areas of 

hostility to receive a cancellation of up 

to 100 percent of the loan for each full 

year of qualifying active duty service 

effective on August 14, 2008, in the 

following increments: 15 percent for the 

first and second years of service; 20 

percent for the third and fourth years of 

service; and 30 percent for the fifth year 

of service. Previously, the percentage of 

a loan canceled for qualifying military 

service could not exceed a total of 50 

percent of the loan at a rate of 121⁄2

percent per year. We amended § 674.59 

to reflect these changes. 

To clarify, a borrower who has 

received a military service cancellation 

for two years under the previously 

authorized cancellation rate of 12.5 

percent, and who now qualifies for a 

third year of military service under the 

new cancellation rates, would qualify at 

the third-year 20 percent cancellation 

rate for the third year of eligible military 

service. 

Changes: None. 

Entrance Counseling 

Counseling Borrowers (§§ 682.604 and 

685.304) 

Comment: One commenter 

recommended that the Department add 

disclosures to the entrance counseling 

provisions alerting students to some of 

the negative aspects of private student 

loans and the availability of parent 

PLUS loans. The commenter also 

recommended that the Department 

provide guidance to schools about the 

format, presentation, and timing of the 

information so that it is more useful to 

borrowers. 

Discussion: We believe that the Truthin-Lending Act disclosures private 

education lenders are required to 

provide to borrowers of a private 

education loan, which include a 

disclosure about the availability of 

Federal student aid, adequately address 

the information a borrower needs to 

know before borrowing a private 

education loan. 

Changes: None. 

Exit Counseling 

Counseling Borrowers (§§ 674.42(b), 

682.604(g) and 685.304(b)) 

Comment: One commenter 

encouraged the Department to add 

information about the eligibility criteria 

for the Income-Based Repayment and 

Public Service Loan Forgiveness 

Programs to exit counseling provisions. 

Discussion: The exit counseling 

provisions in §§ 682.604(g)(2)(ii) and 

685.304(b)(4)(ii) require that the features 

of all the available repayment plans be 

reviewed for the borrower. The exit 

counseling provisions in 

§§ 682.604(g)(2)(viii)(A) and 

685.304(b)(4)(ix)(A) require that a 

general description of the terms and 

conditions under which a borrower may 

obtain full or partial forgiveness or 

discharge of a loan be reviewed for the 

borrower. The Department considers the 

eligibility criteria for an income-based 

repayment plan and for public service 

loan forgiveness to be covered under 

these requirements. 

Changes: None. 

Executive Order 12866 

1. Regulatory Impact Analysis 

Under Executive Order 12866, the 

Secretary must determine whether the 

regulatory action is ‘‘significant’’ and 

therefore subject to the requirements of 

the Executive Order and subject to 

review by the 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 


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President’s priorities, or the principles 

set forth in the Executive order. 

Pursuant to the terms of the Executive 

order, it has been determined that this 

regulatory action will not have an 

annual effect on the economy of more 

than $100 million. Therefore, this action 

is not ‘‘economically significant’’ and 

subject to OMB review under section 

3(f)(1) of Executive Order 12866. 

Notwithstanding this determination, the 

Secretary has assessed the potential 

costs and benefits of this regulatory 

action and has determined that the 

benefits justify the costs. 

Need for Federal Regulatory Action 

As discussed in the NPRM, these 

regulations are needed to implement 

provisions of the HEA, as amended by 

the HEOA, particularly related to the 

new part E to the HEA, Lender and 

Institution Requirements Relating to 

Education Loans, which establishes 

extensive new disclosure requirements 

for lenders and institutions participating 

in Federal and private student loan 

programs. These regulations also 

implement significant changes made by 

the HEOA to provisions related to 

institutional cohort default rates and 

Perkins Loan cancellations. 

Regulatory Alternatives Considered 

Regulatory alternatives were 

considered as part of the rulemaking 

process. These alternatives were 

reviewed in detail in the preamble to 

the NPRM under both the Regulatory 

Impact Analysis and the Reasons 

sections accompanying the discussion 

to each proposed regulatory provision. 

To the extent that they were addressed 

in response to comments received on 

the NPRM, alternatives are also 

considered elsewhere in this preamble 

to the final regulations under the 

Discussions sections related to each 

provision. No comments were received 

related to the Regulatory Impact 

Analysis discussion of these 

alternatives. 

As discussed in the Analysis of 

Comments and Changes section of this 

preamble, these final regulations restate 

specific HEOA requirements, in many 

cases using language drawn directly 

from the statute, language for which 

consensus was reached through 

negotiated rulemaking, and minor 

revisions in response to public 

comments. In most cases, these 

revisions were technical in nature and 

intended to address drafting issues or to 

provide additional clarity. None of these 

changes result in revisions to cost 

estimates prepared for and discussed in 

the Regulatory Impact Analysis of the 

NPRM. 

Benefits 

As discussed in the NPRM, benefits 

provided in these regulations include 

greater transparency for borrowers 

participating in the Federal and private 

student loan programs, clearer 

guidelines on acceptable behavior by 

and relationships among institutions 

participating in the student loan 

programs, and expanded eligibility for 

Perkins Loan cancellation benefits. It is 

difficult to quantify benefits related to 

the new institutional and lender 

requirements, as there is little specific 

data available on either the extent of 

improper or questionable relationships 

between institutions and lenders prior 

to the enactment of the HEOA or of the 

harm such relationships actually caused 

for borrowers, institutions, or the 

Federal taxpayer. In the NPRM, the 

Department requested comments or data 

that would support a more rigorous 

analysis of the impact of these 

provisions. No comments or additional 

data were received. 

Benefits under these regulations flow 

directly from statutory changes included 

in the HEOA; they are not materially 

affected by discretionary choices 

exercised by the Department in 

developing these regulations, or by 

changes made in response to comments 

on the NPRM. As noted in the 

Regulatory Impact Analysis in the 

NPRM, these proposed provisions result 

in net costs to the Federal Government 

of $71.953 million over 2009–2013. 

Costs 

As discussed extensively in the 

Regulatory Impact Analysis of the 

NPRM, many of the statutory provisions 

implemented though these regulations 

will require regulated entities to 

develop new disclosures and other 

materials, as well as accompanying 

dissemination processes. In total, these 

changes are estimated to increase 

burden on entities or individuals 

participating in the student loan 

programs by 4,636,495 hours. Of this 

increased burden, 292 hours are 

associated with lenders and 1,195,769 

hours with institutions. An additional 

3,440,434 hours—or 74.2 percent of the 

total burden associated with the 

proposed regulations—are associated 

with borrowers. The monetized cost of 

this additional burden, using loaded 

wage data developed by the Bureau of 

Labor Statistics, is $78.5 million, of 

which $56.3 million is associated with 

borrowers and $22.2 million with 

schools. Lender costs are de minimus 

because of the small number of hours 

associated with those entities. 

Given the limited availability of data 

underlying these burden estimates, in 

the NPRM the Department requested 

comments and supporting information 

for use in developing more robust 

estimates. In particular, we asked 

institutions to provide detailed data on 

actual staffing and system costs 

associated with implementing these 

regulations. No comments or additional 

data were provided. 

Net Budget Impacts 

HEOA provisions implemented by 

these regulations are estimated to have 

a net budget impact of $12.408 million 

in 2009 and $71.953 million over FY 

2009–2013. 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.) 

The budgetary impact of these 

regulations is largely driven by changes 

to Perkins loan cancellations for 

military service. The Department 

estimates no budgetary impact for other 

provisions included in these 

regulations. There is no data indicating 

that the extensive new requirements for 

disclosures and codes of conduct for 

student loan program participants will 

have any impact on the volume or 

composition of Federal student loans. 

Assumptions, Limitations, and Data 

sources 

As noted in the NPRM, because these 

regulations largely restate statutory 

requirements that would be selfimplementing in the absence of 

regulatory action, impact estimates 

provided in the preceding section reflect 

a pre-statutory baseline in which the 

HEOA changes implemented in these 

regulations do not exist. Costs have been 

quantified for five years. 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 2004 National 

Postsecondary Student Aid Survey, the 

1994 National Education Longitudinal 

Study, and the 1996 Beginning 

Postsecondary Student Survey. Data 

from other sources, such as the U.S. 

Census Bureau, were also used. 

Elsewhere in this SUPPLEMENTARY


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INFORMATION section we identify and 

explain burdens specifically associated 

with information collection 

requirements. See the heading 

Paperwork Reduction Act of 1995. 

Accounting Statement 

In Table 2 below, 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 

(for expanded Perkins loan 

cancellations). 

TABLE 2—ACCOUNTING STATEMENT: 

CLASSIFICATION OF ESTIMATED EXPENDITURES

[In millions] 

Category Transfers 

Annualized Monetized 

Transfers 

$90.731. 

From Whom To 

Whom? 

Federal Government 

To Student Loan 

Borrowers. 

Regulatory Flexibility Act Certification 

The Secretary certifies that these 

regulations will not have a significant 

economic impact on a substantial 

number of small entities. These 

regulations will affect institutions of 

higher education, lenders, and guaranty 

agencies that participate in Title IV, 

HEA programs and individual students 

and loan borrowers. The U.S. Small 

Business Administration Size Standards 

define institutions and lenders as ‘‘small 

entities’’ if they are for-profit or 

nonprofit institutions with total annual 

revenue below $5,000,000 or if they are 

institutions controlled by small 

governmental jurisdictions, which are 

comprised of cities, counties, towns, 

townships, villages, school districts, or 

special districts, with a population of 

less than 50,000. 

As discussed in more detail in the 

Regulatory Flexibility Act section of the 

NPRM, data from the Integrated 

Postsecondary Education Data System 

(IPEDS) indicate that roughly 1,200 

institutions participating in the FFEL 

program meet the definition of ‘‘small 

entities.’’ More than half of these 

institutions are short-term, for-profit 

schools focusing on vocational training. 

Other affected small institutions include 

small community colleges and Tribally 

controlled schools. Burden on 

institutions associated with these 

regulations is largely associated with the 

requirements to provide students with 

new disclosures related to preferred 

lender lists, private loan TILA 

requirements, and other new borrower 

rights and responsibilities. In many 

cases, these requirements only require 

one-time changes to existing entrance 

and exit counseling materials and 

should not represent significant new 

burden. (The Department estimates 

these changes generally require three 

hours or less to implement.) For other 

requirements, such as those affecting 

schools choosing to maintain a preferred 

lender list, the Department is providing 

model disclosure forms, the adoption of 

which should minimize institutional 

burden. In addition, the regulations 

allow schools to avoid the burdens 

associated with maintaining preferred 

lender lists with at least three lenders by 

simply providing students with a list of 

all lenders who have provided loans at 

the schools in the past. Accordingly, the 

Department believes the new 

requirements reflected in these 

regulations do not impose significant 

new costs on these institutions. 

The Department believes few if any 

lenders participating in the FFEL 

program have revenues of less than $5 

million. FFEL program activity is highly 

concentrated among the largest lenders; 

should an extremely small number of 

lenders that meet the threshold 

participate in the program, they likely 

are making loans as a service to current 

clients rather than soliciting new 

business. This type of lender, with a 

tangential relationship to Federal and 

private student loans, is highly unlikely 

to incur significant new compliance 

costs as a result of these regulations. 

Accordingly, the Department has 

determined that these regulations do not 

represent a significant burden on small 

lenders. 

Guaranty agencies are State and 

private nonprofit entities that act as 

agents of the Federal government, and 

as such are not considered ‘‘small 

entities’’ under the Regulatory 

Flexibility Act. The impact of the 

regulations on individuals is not subject 

to the Regulatory Flexibility Act. 

In the NPRM, the Secretary invited 

comments from small institutions and 

lenders as to whether they believe the 

proposed changes would have a 

significant economic impact on them 

and requested evidence to support that 

belief. No comments were received. 

Paperwork Reduction Act of 1995 

Final §§ 601.10, 601.11, 601.20, 

601.21, 601.30, 601.40, 668.16, 668.181, 

668.186, 668.190, 668.191, 668.200, 

668.202, 668.209, 668.210, 668.211, 

668.212, 668.213, 668.214, 668.217, 

674.42, 674.53, 674.57, 674.58, 674.56, 

674.59, 682.604, and 685.304 contain 

information collection requirements. 

Under the Paperwork Reduction Act of 

1995 (44 U.S.C. 3507(d)), the 

Department of Education has submitted 

a copy of these sections to the Office of 

Management and Budget (OMB) for its 

review. 

Section 601.10—Preferred Lender 

Arrangement Disclosures 

Final § 601.10(a) requires that a 

covered institution, or an institutionaffiliated organization of a covered 

institution, that participates in a 

preferred lender arrangement disclose 

the maximum amount of Federal grant 

and loan aid under Title IV of the HEA 

available to students; the information 

identified on the model disclosure form 

developed by the Secretary for each type 

of education loan that is offered 

pursuant to a preferred lender 

arrangement; and a statement that the 

institution is required to process the 

documents required to obtain a loan 

under the FFEL Program from any 

eligible lender the student selects. 

Final § 601.10(a)(2) requires a covered 

institution, or an institution-affiliated 

organization of a covered institution, to 

provide the disclosures required under 

section 128(e)(11) of the Truth in 

Lending Act (TILA) for each type of 

private education loan offered pursuant 

to a preferred lender arrangement. 

Final § 601.10(c) requires a covered 

institution and institution-affiliated 

organization that participate in a 

preferred lender arrangement to provide 

the disclosure of the maximum amount 

of Federal grant and loan aid available 

to students, the information identified 

on a model disclosure form developed 

by the Department, as well as a 

statement indicating to students and 

parents that the institution is required to 

process the documents required to 

obtain a FFEL loan from any eligible 

lender the student selects. This 

information needs to be provided to 

students attending the covered 

institution, or the families of such 

students, as applicable. The information 

needs to be provided annually and in a 

manner that allows for the students or 

their families to take the information 

into account before selecting a lender or 

applying for an education loan. 

Final § 601.10(d) requires that if a 

covered institution compiles, maintains, 

and makes available a preferred lender 

list, the institution must clearly and 

fully disclose on the preferred lender 

list why the institution participates in a 

preferred lender arrangement with each 

lender on the preferred lender list, 

particularly with respect to terms and 


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conditions or provisions favorable to the 

borrower; and that the students 

attending the institution, or the families 

of such students, do not have to borrow 

from a lender on the preferred lender 

list. 

Final § 601.10(d)(1)(ii) requires that 

the preferred lender list must 

specifically indicate, for each listed 

lender, whether the lender is or is not 

an affiliate of another lender on the 

preferred lender list; and if a lender is 

an affiliate of another lender on the 

preferred lender list, must describe the 

details of such affiliation. 

Final § 601.10(d)(2) requires the 

covered institution to ensure, through 

the use of the list of lender affiliates 

provided by the Secretary, that there are 

not less than three FFEL lenders that are 

not affiliates of each other included on 

the preferred lender list and, if the 

institution recommends, promotes, or 

endorses private education loans, that 

there are not less than two lenders of 

private education loans that are not 

affiliates of each other included on the 

preferred lender list. 

Final § 601.10(d)(3) requires that the 

preferred lender list prominently 

disclose the method and criteria used by 

the institution in selecting lenders with 

which to participate in preferred lender 

arrangements to ensure that such 

lenders are selected on the basis of the 

best interests of the borrowers. These 

criteria include payment of origination 

or other fees on behalf of the borrower; 

highly competitive interest rates, or 

other terms and conditions or 

provisions of Title IV, HEA program 

loans or private education loans; highquality servicing; or additional benefits 

beyond the standard terms and 

conditions or provisions for such loans. 

Final § 601.10(d)(4)(ii) requires that 

the covered institution exercise a duty 

of care and a duty of loyalty to compile 

the preferred lender list without 

prejudice and for the sole benefit of the 

students attending the institution, or the 

families of such students. 

Final § 601.10(d)(5) requires a covered 

institution to not deny or otherwise 

impede the borrower’s choice of a 

lender or cause unnecessary delay in 

certification of a Title IV loan for those 

borrowers who choose a lender that is 

not included on the preferred lender 

list. 

These final regulations represent an 

increase in burden. The affected entities 

under the final regulations are 

borrowers, and institutions and their 

institutionally-affiliated organizations. 

We estimate that the burden for 

borrowers will increase by 323,103 

hours and the burden for institutions 

and institutionally-affiliated 

organizations will increase by 12,078 

hours, respectively, and we will include 

the total burden of 335,181 hours in 

OMB Control Number 1845–XXXA. 

Section 601.11—Private Education Loan 

Disclosures and Self-Certification Form 

Final § 601.11(a) requires a covered 

institution, or an institution-affiliated 

organization of a covered institution, to 

provide to a prospective borrower 

private education loan disclosures. The 

private education loan disclosures need 

to provide the prospective borrower 

with the information required under 

section 128(e)(1) of the TILA; and need 

to inform the prospective borrower that 

he or she may qualify for loans or other 

assistance under Title IV of the HEA; 

and that the terms and conditions of 

Title IV, HEA program loans may be 

more favorable than the provisions of 

private education loans. 

Final § 601.11(c) requires the covered 

institution or institution-affiliated 

organization to ensure that information 

regarding private education loans is 

presented in such a manner as to be 

distinct from information regarding 

Title IV, HEA program loans. 

Final § 601.11(d) requires that, upon 

an enrolled or admitted student 

applicant’s request for a private 

education loan self-certification form, 

an institution must provide to the 

applicant, in written or electronic form, 

the self-certification form for private 

education loans developed by the 

Secretary to satisfy the requirements of 

section 128(e)(3) of the TILA. The 

institution also needs to provide the 

information required to complete the 

form, if the institution possesses that 

information. 

These final regulations represent an 

increase in burden. The entities affected 

under these regulations are borrowers, 

and institutions and institutionallyaffiliated organizations. We estimate 

that burden to borrowers will increase 

by 833,400 hours and the burden to 

institutions and institutionally-affiliated 

organizations respectively will increase 

by 1,107,115 hours and we will include 

the total burden of 1,940,515 hours in 

OMB Control Number 1845–XXXA. 

Section 601.20—Annual Report Due 

From Covered Institutions and 

Institution-Affiliated Organizations 

Final § 601.20(a) requires a covered 

institution, and an institution-affiliated 

organization, that participates in a 

preferred lender arrangement to prepare 

and submit to the Secretary an annual 

report, by a date determined by the 

Secretary. The annual report includes, 

for each lender that participates in a 

preferred lender arrangement with the 

covered institution or organization, the 

information about preferred lenders 

arrangements that must also be 

described for students and parents; and 

a detailed explanation of why the 

covered institution or institutionaffiliated organization participates in a 

preferred lender arrangement with the 

lender. The explanation needs to 

include an explanation of why the 

terms, conditions, and provisions of 

each type of education loan provided 

pursuant to the preferred lender 

arrangement are beneficial for students 

attending the institution, or the families 

of such students, as applicable. 

Final § 601.20(b) requires a covered 

institution or institution affiliated 

organization to ensure that the annual 

report is made available to the public 

and provided to students attending or 

planning to attend the covered 

institution and the families of such 

students. 

These final regulations represent an 

increase in burden. The affected entities 

under the final regulations are 

institutions and institutionally-affiliated 

organizations. We estimate that burden 

for institutions and institutionallyaffiliated organizations will increase by 

336 hours in OMB Control Number 

1845–XXXA. 

Section 601.21—Code of Conduct 

Final § 601.21 requires a covered 

institution that participates in a 

preferred lender arrangement to develop 

a code of conduct with respect to FFEL 

Program loans and private education 

loans with which the institution’s 

agents must comply to prohibit a 

conflict of interest with the 

responsibilities of an agent of an 

institution with respect to FFEL 

Program loans and private education 

loans. 

Final § 601.21(a)(2)(ii) and (iii) 

requires the institution to publish the 

code of conduct prominently on the 

institution’s Web site; and administer 

and enforce the code by, at a minimum, 

requiring that all of the institution’s 

agents with responsibilities with respect 

to FFEL Program loans or private 

education loans be annually informed of 

the provisions of the code of conduct. 

Final § 601.21(b)(1) and (b)(2) requires 

any institution-affiliated organization of 

a covered institution that participates in 

a preferred lender arrangement to 

comply with the code of conduct 

developed and published by the covered 

institution and, if the institutionaffiliated organization has a Web site, 

publish the code of conduct 

prominently on the Web site. 

Under final § 601.21(b)(3), the 

institution-affiliated organization is 


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55638 Federal Register / Vol. 74, No. 207 / Wednesday, October 28, 2009 / Rules and Regulations 

required to administer and enforce the 

code of conduct by, at a minimum, 

requiring that all of the institutionaffiliated organization’s agents with 

responsibilities with respect to FFEL 

Program loans or private education 

loans be annually informed of the 

provisions of the code of conduct. 

The code of conduct applies to agents 

of an institution who are employees of 

the financial aid office of the institution 

or who have responsibilities with 

respect to FFEL Program loans or 

private education loans. 

Final § 601.21(c) prescribes the 

minimum requirements of a covered 

institution’s code of conduct. An 

institution’s code of conduct must 

prohibit: revenue-sharing arrangements 

with any lender; soliciting or accepting 

gifts from a lender, guarantor, or 

servicer; accepting any fee, payment, or 

other financial benefit as compensation 

for any type of consulting or any 

contractual relationship with a lender; 

assigning a first-time borrower’s loan to 

a particular lender or refusing to certify, 

or delaying certification of, any loan 

based on a borrower’s selection of a 

particular lender; requesting offers of 

funds for private education loans, 

including opportunity pool loans, from 

a lender in exchange for providing the 

lender with a specified number or loan 

volume of FFEL Program loans or 

private education loans or a preferred 

lender arrangement; requesting or 

accepting staffing assistance from a 

lender; and receipt of compensation for 

serving on an advisory board, 

commission, or group established by a 

lender, guarantor, or group of lenders or 

guarantors. 

Final § 601.21(c)(6) provides 

exceptions to the ban on staffing 

assistance, such as staffing assistance 

related to professional development or 

training; providing educational 

counseling materials; or providing 

short-term, nonrecurring staffing 

assistance during disasters or 

emergencies. 

These final regulations represent an 

increase in burden. The affected entities 

under these regulations are institutions 

and institutionally-affiliated 

organizations. We estimate that burden 

for institutions and institutionallyaffiliated organizations, respectively, 

will increase to 4,697 in OMB Control 

Number 1845–XXXA. 

Section 601.30—Duties of Institutions 

Participating in the William D. Ford 

Direct Loan Program 

Final § 601.30 requires a covered 

institution participating in the William 

D. Ford Direct Loan Program to make 

the information identified in a model 

disclosure form developed by the 

Secretary available to students attending 

or planning to attend the institution, or 

the families of such students. If the 

institution provides information 

regarding a private education loan to a 

prospective borrower, the institution 

must concurrently provide the borrower 

with the information identified on the 

model disclosure form. 

Final § 601.30(b) allows a covered 

institution to use a comparable form 

designed by the institution to provide 

this information, instead of the model 

disclosure form. 

These final regulations represent an 

increase in burden. The affected entities 

under the regulations are borrowers, and 

institutions and their institutionallyaffiliated organizations. We estimate 

that burden to borrowers will increase 

by 56,671 hours and 1,353 hours for 

institutions and institutionally-affiliated 

organizations, respectively, and we will 

include the total burden of 58,024 hours 

in OMB Control Number 1845–XXXB. 

Section 601.40—Lender Responsibilities 

Final § 601.40(a) requires FFEL 

lenders to provide FFEL borrowers the 

disclosures required under current 

§ 682.205(a) and (b). A lender offering 

private education loans is required to 

comply with the disclosures required 

under section 128(e) of the TILA for 

each type of private loan. 

Final § 601.40(b) sets forth the 

information the lenders will have to 

provide to the Secretary on an annual 

basis regarding any reasonable expenses 

paid or provided to any agent of a 

covered institution who is employed in 

the financial aid office or has 

responsibilities with respect to 

education loans or other financial aid of 

the institution for service by the 

employee on an advisory board, 

commission or group established by a 

lender or a group of lenders. This 

information also needs to be reported 

for expenses paid or provided to any 

agent of an institution-affiliated 

organization involved in 

recommending, promoting or endorsing 

education loans. Lenders are required to 

report the amount of the expenses paid 

and the specific instances for which it 

was paid; the names of the agents to 

whom expenses were paid; and the date 

and description of each activity for 

which expenses were paid. This section 

of the regulations also requires the 

lender to submit a certification of 

compliance to the Secretary. 

Final § 601.40(c) requires any FFEL 

lender participating in one or more 

preferred lender arrangements to 

annually certify to the Secretary its 

compliance with the HEA. Lenders 

required to file an audit under 

§ 682.305(c) will be required to include 

the certification as part of the audit. A 

lender that is not required to submit an 

audit will need to provide the 

certification separately. 

Final § 601.40(d) requires FFEL 

lenders with a preferred lender 

arrangement with a covered institution 

or an institution-affiliated organization 

to annually provide to the institution, 

institution-affiliated organization and 

the Secretary information regarding the 

FFEL loans the lender will provide to 

students and families pursuant to the 

preferred lender arrangement for the 

next award year. The information will 

be prescribed by the Secretary, after 

consultation with the Federal Reserve. 

These final regulations represent an 

increase in burden. The affected entities 

under the regulations are borrowers and 

lenders. The estimated burden hours in 

the NPRM were inaccurate, and the 

correct estimates follow. We estimate 

that burden to borrowers will increase 

by 293,357 hours and that burden for 

lenders will increase by 623,675 hours 

and we will include the total burden of 

917,032 in OMB Control Number 1845– 

XXXA. 

Sections 668.181, 668.200, and 

668.202—Three Year Cohort Default 

Rates 

The final regulations reflected in new 

subpart N of part 668 incorporate the 

three-year cohort default method under 

final § 668.202. With regard to the 

transition period for use of the current 

cohort default rate method, final 

§§ 668.181 and 668.200(b) specify that 

the Department will issue annually two 

sets of draft and official cohort default 

rates for fiscal years 2009, 2010, and 

2011. 

These final regulations describe the 

purpose of the 3-year rate and explain 

the calculation and application of the 3- 

year cohort default rate. As a result, the 

statement of purpose of this subpart and 

the description of how the Department 

will calculate and apply the 3-year 

cohort default rate will not impact the 

burden in OMB 1845–0022. 

Section 668.16—Administrative 

Capabilities and Cohort Default Rate 

Appeals 

Final § 668.16(m)(1)(ii) applies the 

current rules for administrative 

capability based on two-year cohort 

default rates during the transition 

period. Thereafter, a school will be 

administratively capable if two of its 

three most recent three-year rates are 

less than 30 percent. Under final 

§ 668.16(m)(2), the current rules for 

provisional certification based on two 


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year cohort default rates of 25 percent 

or more but less than 40 percent 

continues to apply during the transition 

period. Thereafter, an institution whose 

three year default rates are 30 percent or 

more, but less than 40 percent, for two 

years would not be provisionally 

certified based solely on its default rates 

under the following circumstances: 

(1) The institution files timely a 

request for adjustment or appeal from 

the second such rate under final 

§§ 668.209 (Uncorrected data 

adjustments), 668.210 (New data 

adjustments), or 668.212 (Loan servicing 

appeals) and the request or appeal is 

pending or succeeds in reducing the 

institution’s three-year rate below 30 

percent. 

(2) The institution files timely an 

appeal under final § 668.213 

(Economically disadvantaged appeals) 

from the second such rate and the 

appeal is pending or successful. Final 

§ 668.213 provides that the two rates of 

30 percent or more must be successive 

to permit the appeal. 

(3) The institution files a timely 

participation rate index appeal under 

final § 668.214 and the appeal is 

pending or successful. 

(4) The institution had 30 or fewer 

borrowers in the three most recent 

cohorts of borrowers used to calculate 

the institution’s rates. 

(5) A three year rate that would 

otherwise potentially subject the 

institution to provisional certification 

was calculated as an average rate. 

To avoid provisional certification by 

invoking exceptions (1), (2) or (3), the 

institution is required to file a request 

for adjustment or appeal in response to 

a notice from the Department that the 

institution’s second three-year cohort 

default rate, or second successive threeyear default rate for an economically 

disadvantaged appeal, is 30 percent or 

more, but less than 40 percent. 

Under final § 668.214, a participation 

rate index appeal is taken from a loss of 

eligibility, or potential placement on 

provisional certification, based on threeyear cohort default rates if the 

participation rate index for any of the 

excessive rates was .0625 or less. The 

appeal is taken within 30 days of 

receiving the notice of loss of eligibility 

with the most recent excessive official 

rate. 

In addition, under final 

§ 668.204(c)(1)(iii), an institution is 

allowed to challenge a potential 

placement on provisional certification 

because its three-year cohort default 

rates for two of the most recent three 

years would be 30 percent or more, but 

less than 40 percent, even though the 

second such rate was available only as 

a draft rate, if its participation rate index 

was equal to or less than 0.0625 for 

either its draft rate, or its most recent 

official rate equaling or exceeding 30 

percent but less than 40 percent. The 

challenge is taken following notice to 

the school of its draft rate. 

The final changes in § 668.16 apply 

the current rules on administrative 

capability during the transition period. 

We estimate that these regulations will 

not impact burden in OMB 1845–0022. 

Sections 668.186, 668.190, 668.191, 

668.209, 668.210, 668.211, and 

668.212—Electronic Processes 

Final § 668.186 eliminates the need to 

request a loan record detail report by 

providing that the report will be sent 

electronically to the institution as part 

of a package notifying the institution of 

its official cohort default rate. The 

institution will have five business days, 

from the transmission date of the 

package as posted on the Department’s 

Web site, to report any problem with 

receiving that transmission. If the 

institution reports a problem within the 

five-day period, and the Department 

agrees that the institution did not cause 

the problem, we will extend the 

adjustment, challenge, and appeal 

deadlines and timeframes to account for 

retransmitting the package after the 

problem is resolved. If no problems are 

reported by the institution, the 

timeframe associated with filing or 

requesting the adjustment, challenge, or 

appeal begins on the sixth day following 

the transmission date of the package 

that is posted on the Department’s Web 

site. The timeframes for the 

adjustments, challenges, and appeals are 

reflected in final §§ 668.190(b) and 

668.191(b). 

The subpart M, part 668 provisions 

reflected in § 668.186, and the 

provisions for adjustments, challenges, 

and appeals in the related sections in 

subpart M of part 668 are also reflected 

in the following parallel provisions in 

subpart N, part 668: §§ 668.209, 

668.210, 668.211, and 668.212. 

These final regulations represent a 

decrease in burden. The affected entities 

under these regulations are institutions. 

We estimate that burden will decrease 

by 725 hours for institutions and this 

decrease in burden will be reflected in 

OMB Control Number 1845–0022. 

Sections 682.604 and 685.304— 

Entrance Counseling 

Final § 682.604(f)(3) requires that 

institutions provide initial counseling 

for Stafford and graduate or professional 

student PLUS Loan borrowers. 

Comprehensive information on the 

terms and conditions of the loan and on 

the responsibilities of the borrower with 

respect to the loan needs to be provided. 

Under the final regulations, this 

information may be provided to the 

borrower during an entrance counseling 

session conducted in person; on a 

separate written form provided to the 

borrower that the borrower signs and 

returns to the school; or online or by 

interactive electronic means, with the 

borrower acknowledging receipt of the 

information. 

Final § 682.604(f)(4) requires a school 

that conducts initial counseling online 

or through interactive electronic means 

to take reasonable steps to ensure that 

each student borrower receives the 

counseling materials and participates in 

and completes the initial counseling, 

which may include completion of any 

interactive program that tests the 

borrower’s understanding of the terms 

and conditions of the borrower’s loans. 

Final § 682.604(f)(6) requires that 

initial counseling for Stafford Loan 

borrowers: explain the use of a Master 

Promissory Note; emphasize to the 

student borrower the seriousness and 

importance of the repayment obligation 

the student borrower is assuming; 

describe the likely consequences of 

default, including adverse credit 

reports, delinquent debt collection 

procedures under Federal law, and 

litigation; in the case of a student 

borrower (other than a loan made or 

originated by the school), emphasize 

that the student borrower is obligated to 

repay the full amount of the loan 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; inform the 

student borrower of sample monthly 

repayment amounts based on a range of 

student levels of indebtedness of 

Stafford loan borrowers, or student 

borrowers with Stafford and PLUS 

loans, depending on the types of loans 

the borrower has obtained—or the 

average indebtedness of other borrowers 

in the same program at the same school 

as the borrower; to the extent 

practicable, explain the effect of 

accepting the loan to be disbursed on 

the eligibility of the borrower for other 

forms of student financial assistance; 

provide information on how interest 

accrues and is capitalized during 

periods when the interest is not paid by 

either the borrower or the Secretary; 

inform the borrower of the option to pay 

the interest on an unsubsidized Stafford 

Loan while the borrower is in school; 


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explain the definition of half-time 

enrollment at the school, during regular 

terms and summer school, if applicable, 

and the consequences of not 

maintaining half-time enrollment; 

explain the importance of contacting the 

appropriate offices at the school if the 

borrower withdraws prior to completing 

the borrower’s program of study so that 

the school can provide exit counseling, 

including information regarding the 

borrower’s repayment options and loan 

consolidation; provide information on 

NSLDS and how the borrower can 

access the borrower’s records; and 

provide the name of and contact 

information for the individual the 

borrower may contact if the borrower 

has any questions about the borrower’s 

rights and responsibilities or the terms 

and conditions of the loan. 

Final § 682.604(f)(7) requires that 

initial counseling for graduate or 

professional student PLUS Loan 

borrowers must: Inform the student 

borrower of sample monthly repayment 

amounts based on a range of student 

levels of indebtedness of graduate or 

professional student PLUS loan 

borrowers, or student borrowers with 

Stafford and PLUS loans, depending on 

the types of loans the borrower has 

obtained or the average indebtedness of 

other borrowers in the same program at 

the same school as the borrower; inform 

the borrower of the option to pay 

interest on a PLUS Loan while the 

borrower is in school; for a graduate or 

professional student PLUS Loan 

borrower who has received a prior FFEL 

Stafford, or Direct Subsidized or 

Unsubsidized loan, provide the 

information, specified in 

§ 682.603(d)(1)(i) through (d)(1)(iii), that 

compares Stafford and PLUS Loan 

interest rates, interest accrual periods, 

and repayment period begin dates; and 

for a graduate or professional student 

PLUS Loan borrower who has not 

received a prior FFEL Stafford, or Direct 

Subsidized or Unsubsidized loan, 

provide the Stafford Loan initial 

counseling information specified in 

proposed § 682.604(f)(6)(i) through 

(f)(6)(xii). 

Corresponding initial counseling 

requirements for Direct Subsidized, 

Direct Unsubsidized, and Direct PLUS 

loan borrowers are included in 

§ 685.304(a)(1) through (a)(9) of the 

Direct Loan regulations. 

These final regulations represent an 

increase in burden. The affected entities 

under the final regulations are 

borrowers and institutions. We estimate 

that burden in OMB 1845–0020 will 

increase by 475,152 hours for borrowers 

and 12,582 hours for institutions; and 

we estimate that burden in OMB 1845– 

0021 will increase by 217,900 hours for 

borrowers and 12,582 hours for 

institutions for a total of 487,734 hours 

which will be reflected in OMB Control 

Number 1845–0020 and a total of 

230,482 hours in OMB Control Number 

1845–0021. 

Sections 674.42, 682.604 and 685.304— 

Exit Counseling 

Final §§ 674.42(b), 682.604(g) and 

685.304(b) continue to require a school 

to ensure that exit counseling is 

conducted with each Perkins, FFEL 

Stafford, and Direct Subsidized and 

Unsubsidized Loan borrower. In 

addition, schools are required to 

provide exit counseling to graduate or 

professional student FFEL PLUS Loan 

borrowers and graduate or professional 

student Direct PLUS Loan borrowers. 

Under final §§ 674.42(b)(1), 

682.604(g)(1) and 685.304(b)(2) and 

(b)(3), schools continue to be required to 

conduct exit counseling either in 

person, by audiovisual presentation, or 

by interactive electronic means. In each 

case, the school is required to ensure 

that the exit counseling is conducted 

shortly before the student borrower 

ceases at least half-time study at the 

school, and that an individual with 

expertise in the Title IV programs is 

reasonably available shortly after the 

counseling to answer the student 

borrower’s questions. The alternative 

approach for student borrowers enrolled 

in a correspondence program or a studyabroad program that the home 

institution approves for credit is 

maintained in the new regulations. The 

current regulatory procedures for 

student borrowers who withdraw from 

school without the school’s prior 

knowledge or fail to complete an exit 

counseling session as required also are 

maintained in these regulations. 

Final §§ 674.42(b)(3), 682.604(g)(3) 

and 685.304(b)(6) continue to require 

that if exit counseling is conducted by 

electronic interactive means, the school 

must take reasonable steps to ensure 

that each student borrower receives the 

counseling materials, participates in and 

completes the counseling. Final 

§§ 674.42(b)(4), 682.604(g)(4) and 

685.304(b)(7) retain the requirement that 

schools maintain documentation 

substantiating the school’s compliance 

with this section for each student 

borrower. 

Final §§ 674.42(b)(2), 682.604(g)(2) 

and 685.304(b)(4) also require exit 

counseling for Perkins, FFEL, and Direct 

Loan student borrowers to: Review for 

the student borrower information on the 

availability of the Student Loan 

Ombudsman’s office; inform the student 

borrower of the availability of Title IV 

loan information in the National 

Student Loan Data System (NSLDS) and 

how NSLDS can be used to obtain Title 

IV loan status information; and provide 

a general description of the types of tax 

benefits that may be available to 

borrowers. 

Additionally, final §§ 682.604(g)(2)(ii) 

and 685.304(b)(4)(ii) require exit 

counseling for FFEL and Direct Loan 

student borrowers to review the 

available FFEL and Direct Loan 

repayment plan options, including 

standard, graduated, extended, income 

sensitive and income-based repayment 

plans, including a description of the 

different features of each plan and 

sample information showing the average 

anticipated monthly payments, and the 

difference in interest paid and total 

payments under each plan. The exit 

counseling also needs to inform FFEL 

and Direct Loan borrowers of their 

option to change repayment plans. 

For Direct Loan borrowers, final 

§ 685.304(b)(4)(vi) retains the 

requirement that schools explain to the 

student borrower how to contact the 

party servicing the Direct Loan. 

These final regulations represent an 

increase in burden. The affected entities 

under the final regulations are 

borrowers and institutions. We estimate 

that burden will increase by 432,388 

hours for borrowers and 12,582 hours 

for institutions for a total of 444,970 

hours which will be reflected in OMB 

Control Number 1845–0020. We 

estimate that burden will increase by 

213,542 hours for borrowers and 12,582 

hours for institutions for a total of 

226,124 hours which will be reflected in 

OMB Control Number 1845–0021. We 

estimate that burden will increase by 

214,022 hours for borrowers and 5,940 

hours for institutions for a total of 

219,962 hours which will be reflected in 

OMB Control Number 1845–0023. 

Sections 674.53, 674.57, and 674.58— 

Expansion of Teacher, Head Start, and 

Law Enforcement Cancellation 

Categories 

These final regulations extend the 

new cancellation categories to current 

Federal Perkins Loan borrowers with 

outstanding balances on loans already 

in repayment and all new borrowers 

who perform eligible service that 

includes August 14, 2008, or begins on 

or after that date, regardless of whether 

information on the expanded 

cancellation categories appears on the 

borrower’s promissory note. 

Final § 674.53 provides that a teacher 

who is employed by an educational 

service agency, or a full-time special 

education teacher, including teachers of 

infants, toddlers, children, or youth 


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with disabilities, who is working in a 

system administered by an educational 

service agency, is eligible for 

cancellation benefits. 

Final § 674.57 is amended so that the 

cancellation provisions for law 

enforcement or correction officers 

include borrowers who are employed 

full-time as an attorney in Federal 

Public Defender Organizations or 

Community Defender Organizations. 

Final § 674.58 of the Head Start 

cancellation provisions is amended by 

expanding cancellation benefits to 

include borrowers who are performing 

qualifying service as full-time staff 

members in a pre-kindergarten or 

childcare program that is licensed or 

regulated by the State. 

For purposes of determining a 

borrower’s eligibility for cancellation 

benefits, final § 674.58(c)(1) and (2) 

define the terms ‘‘pre-kindergarten 

program’’ and ‘‘childcare program.’’ A 

pre-kindergarten program is defined as 

a State-funded program that serves 

children from birth through age six and 

addresses the children’s cognitive 

(including language, early literacy, and 

early mathematics), social, emotional, 

and physical development. A childcare 

program is defined as a program that is 

licensed and regulated by the State and 

provides child care services for fewer 

than 24 hours per day per child, unless 

care in excess of 24 consecutive hours 

is needed due to the nature of the 

parents’ work. 

Final § 674.58 also amends the Head 

Start cancellation provisions by 

renaming the regulatory section 

‘‘Cancellation for service in an early 

childhood education program’’ to reflect 

the fact that the expansion of 

cancellation benefits available to 

borrowers under this provision are no 

longer limited to service in early 

childhood education programs 

authorized by the Head Start Act. 

These final regulations represent an 

increase in burden. The affected entities 

under the final regulations are 

borrowers and institutions. We estimate 

that burden as a result of the final 

changes in § 674.53 will increase by 

2,290 hours for borrowers and 1,145 

hours for institutions for a total of 3,435 

hours which will be reflected in OMB 

Control Numbers 1845–XXXC. We 

estimate that burden as a result of the 

final changes in § 674.57 will increase 

by 385 hours for borrowers and 193 

hours for institutions for a total of 578 

hours which will be reflected in OMB 

Control Number 1845–XXXC. We 

estimate that burden as a result of the 

final changes in § 674.58 will increase 

by 2,648 hours for borrowers and 1,325 

hours for institutions for a total of 3,973 

hours which will be reflected in OMB 

Control Number 1845–XXXC. 

Section 674.56—Addition of New 

Public Service Cancellation Categories 

Final § 674.56 adds new public 

service cancellation categories for 

borrowers in the Federal Perkins Loan 

program who are performing qualifying 

service as: full-time faculty members at 

a Tribal College or University; full-time 

fire fighters who serve a local, State, or 

Federal fire department or fire district; 

librarians with a master’s degree in 

library science who are employed in an 

elementary or secondary school that 

qualifies for Title I funding, or in a 

public library that serves a geographic 

area that includes one or more Title Ieligible schools; or full-time speechlanguage pathologists with a master’s 

degree who are working exclusively 

with Title I-eligible schools. 

These final regulations extend the 

new cancellation categories to current 

Federal Perkins Loan borrowers with 

outstanding balances on loans already 

in repayment and all new borrowers 

who perform eligible service that 

includes August 14, 2008, or begins on 

or after that date, regardless of whether 

information on the expanded 

cancellation categories appears on the 

borrower’s promissory note. 

These final regulations represent an 

increase in burden. The affected entities 

under the final regulations are 

borrowers and institutions. We estimate 

that burden will increase by 3,436 hours 

for borrowers and 1,718 hours for 

institutions for a total of 5,154 hours 

which will be reflected in OMB Control 

Number 1845–XXXC. 

Section 674.59—Military Service 

Cancellation 

Final § 674.59 amends the 

cancellation rate for each year of 

qualifying service for the military 

service cancellation. Borrowers who are 

serving in areas of hostility are now 

eligible to receive a cancellation of up 

to 100 percent of the loan for each full 

year of active duty service that includes 

August 14, 2008, or begins on or after 

that date in the following increments: 15 

percent for the first and second years of 

service; 20 percent for the third and 

fourth years of service; and, 30 percent 

for the fifth year of service. 

These final regulations represent an 

increase in burden. The affected entities 

under the final regulations are 

borrowers and institutions. We estimate 

that burden will increase by 20,532 

hours for borrowers and 10,266 hours 

for institutions for a total of 30,798 

hours which will be reflected in OMB 

Control Number 1845–XXXC. 

Consistent with the discussion in the 

preceding paragraphs, the following 

chart describes the sections of the final 

regulations involving information 

collections, the information collected, 

and the collections that the Department 

submitted to the Office of Management 

and Budget for approval and public 

comment under the Paperwork and 

Reduction Act. 

Regulatory section Information section Collection 

601.10 ...................... Final § 601.10(a) requires that a covered institution, or an 

institution-affiliated organization of a covered institution, 

that participates in a preferred lender arrangement disclose the information identified on the model disclosure 

form developed by the Secretary and its preferred lender 

list.

OMB 1845–XXXA. This is a new collection. A separate 60- 

day Federal Register notice will be published to solicit 

comments on the form. There will be an increase in burden of 335,181 hours. 


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Regulatory section Information section Collection 

601.11 ...................... Final § 601.11(a) requires a covered institution, or an institution-affiliated organization of a covered institution, to 

provide to a prospective borrower private education loan 

disclosures consistent with section 128(e)(1) of the TILA; 

to provide a student who requests a private education 

loan a self-certification form; to inform the prospective 

borrower that he or she may qualify for loans or other assistance under Title IV of the HEA; and to inform the prospective borrower that the terms and conditions of Title 

IV, HEA program loans may be more favorable than the 

provisions of private education loans.

OMB 1845–XXXA. This is a new collection. A separate 60- 

day Federal Register notice will be published to solicit 

comments on the form. There will be an increase in burden of 1,940,515 hours. 

601.20 ...................... Final § 601.20(a) requires a covered institution, and an institution-affiliated organization that participates in a preferred lender arrangement to prepare and submit to the 

Secretary an annual report.

OMB 1845–XXXA. This is a new collection. A separate 60- 

day Federal Register notice will be published to solicit 

comments. There will be an increase in burden of 336 

hours. 

601.21 ...................... Final § 601.21 requires a covered institution that participates in a preferred lender arrangement to develop a 

code of conduct with respect to FFEL Program loans and 

private education loans with which the institution’s agents 

must comply to prohibit a conflict of interest with the responsibilities of an agent of an institution with respect to 

FFEL Program loans and private education loans.

OMB 1845–XXXA. This is a new collection. A separate 60- 

day Federal Register notice will be published to solicit 

comments. There will be an increase in burden of 4,697 

hours. 

601.30 ...................... Final § 601.30 requires a covered institution participating in 

the William D. Ford Direct Loan Program to make the information identified in a model disclosure form developed 

by the Secretary available to students attending or planning to attend the institution, or the families of such students. If the institution provides information regarding a 

private education loan to a prospective borrower, the institution must concurrently provide the borrower with the 

information identified on the model disclosure form.

OMB 1845–XXXB. This is a new collection. A separate 60- 

day Federal Register notice will be published to solicit 

comments. There will be an increase in burden of 58,024 

hours. 

601.40 ...................... Final § 601.40 sets forth the information the lenders must 

provide to the Secretary on an annual basis regarding 

any reasonable expenses paid or provided to any agent 

of a covered institution who is employed in the financial 

aid office or has responsibilities with respect to education 

loans or other financial aid of the institution for service by 

the employee on an advisory board, commission or 

group established by a lender or a group of lenders.

OMB 1845–XXXA. This is a new collection. A separate 60- 

day Federal Register notice will be published to solicit 

comments. There will be an increase in burden of 

917,032 hours. 

668.181, 668.200, & 

668.202.

Final §§ 668.181, 668.200, and 668.202 provides a new 

proposed subpart N, part 668 to incorporate the threeyear method under § 668.202. With regard to the transition period, final §§ 668.181 and 668.200(b) specifies that 

the Department will issue annually two sets of draft and 

official cohort default rates for fiscal years 2009, 2010, 

and 2011. As a result, the statement of purpose of this 

subpart and the description of how the Department will 

calculate and apply the 3-year cohort default rate will not 

impact the burden in OMB 1845–0022.

OMB 1845–0022. No change in burden. 

668.16 ...................... Final § 668.16(m) requires institutions to have the new 

three-year cohort default rate, and incorporates the transition rules and the basis for appeals for that cohort default rate. The final changes in § 668.16 apply the current 

rules on administrative capability during the transition period. We estimate that these regulations will not impact 

burden in OMB 1845–0022.

OMB 1845–0022. No change in burden. 

668.186, 668.190, 

668.191, 668.209, 

668.210, 668.211, 

and 668.212.

These final regulations eliminate the need to request a loan 

record detail report from the Department; instead an 

electronic loan report will be sent to each institution.

OMB 1845–0022. There will be a decrease in burden of 

725 hours. 

682.604 & 685.304 .. Final §§ 682.604 and 685.304 requires that institutions provide initial counseling for Stafford and graduate or professional student PLUS Loan borrowers.OMB 1845–0020. There will be an increase in burden of 

487,734 hours. OMB 1845–0021. There will be an increase in burden of 230,482 hours. 

674.42, 682.604, 

and 685.304.

Final §§ 674.42, 682.604 and 685.304 continues to require 

a school to ensure that exit counseling is conducted with 

each Perkins, FFEL Stafford, and Direct Subsidized and 

Unsubsidized Loan borrower. In addition, schools are required to provide exit counseling to graduate or professional student FFEL PLUS Loan borrowers and graduate 

or professional student Direct PLUS Loan borrowers.

OMB 1845–0020. There will be an increase in burden of 

457,552 hours. OMB 1845–0021. There will be an increase in burden of 226,124 hours. OMB 1845–0023. 

There will be an increase in burden of 219,962 hours. 


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Regulatory section Information section Collection 

674.53, 674.57, and 

674.58.

Final §§ 674.53, 674.57, and 674.58 extends the new cancellation categories to current Federal Perkins Loan borrowers with outstanding balances on loans already in repayment and all new borrowers who perform eligible 

service that includes August 14, 2008, or begins on or 

after that date, regardless of whether information on the 

expanded the cancellation categories appears on the 

borrower’s promissory note.

OMB 1845–XXXC. This is a new collection. A separate 60- 

day Federal Register notice will be published to solicit 

comments. There will be an increase in burden of 7,986 

hours. 

674.56 ...................... Final § 674.56 adds new public service cancellation categories for borrowers in the Federal Perkins Loan program who are performing qualifying service as: full-time 

faculty members at a Tribal College or University; fulltime fire fighters who serve a local, State, or Federal fire 

department or fire district; librarians with a master’s degree in library science who are employed in an elementary or secondary school that qualifies for Title I funding, 

or in a public library that serves a geographic area that 

includes one or more Title I-eligible schools; or full-time 

speech-language pathologists with a master’s degree 

who are working exclusively with Title I-eligible schools.

OMB 1845–XXXC. This is a new collection. A separate 60- 

day Federal Register notice will be published to solicit 

comments. There will be an increase in burden of 5,154 

hours. 

674.59 ...................... Final § 674.59 amends the cancellation rate for each year 

of qualifying service for the military service cancellation. 

Borrowers who are serving in areas of hostility are now 

eligible to receive a cancellation of up to 100 percent of 

the loan for each full year of active duty service that includes August 14, 2008, or begins on or after that date in 

the following increments: 15 percent for the first and second years; 20 percent for the third and fourth years of 

service; and, 30 percent for the fifth year of service.

OMB 1845–XXXC. This is a new collection. A separate 60- 

day Federal Register notice will be published to solicit 

comments. There will be an increase in burden of 30,798 

hours. 

Assessment of Educational Impact 

In accordance with section 411 of the 

General Education Provisions Act, 20 

U.S.C. 1221e–4, and based on our own 

review, we have determined that these 

final regulations do not require 

transmission of information that any 

other agency or authority of the United 

States gathers or makes available. 

Electronic Access to this Document 

You may view this document, as well 

as all other Department of Education 

documents published in the Federal 

Register, in text or Adobe Portable 

Document Format (PDF) on the Internet 

at the following site: http://www.ed.gov/ 

news/fedregister. 

To use PDF you must have Adobe 

Acrobat Reader, which is available free 

at this site. If you have questions about 

using PDF, call the U.S. Government 

Printing Office (GPO), toll free, at 1– 

888–293–6498; or in the Washington, 

DC, area at (202) 512–1530. 

Note: 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 on GPO 

Access at: http://www.gpoaccess.gov/nara/ 

index.html. 

(Catalog of Federal Domestic Assistance 

Numbers: 84.032 Federal Family Education 

Loan Program; 84.038 Federal Perkins Loan 

Program; 84.268 William D. Ford Federal 

Direct Loan Program.) 

List of Subjects 

34 CFR Part 601 

Administrative practice and 

procedure, Colleges and universities, 

Consumer protection, Education, Loan 

programs—education, Reporting and 

recordkeeping requirements, Student 

aid. 

34 CFR Part 668 

Administrative practice and 

procedure, Colleges and universities, 

Consumer protection, Education, Grant 

programs—education, Loan programs— 

education, Reporting and recordkeeping 

requirements, Student aid, Vocational 

education. 

34 CFR Parts 674, 682 and 685 

Administrative practice and 

procedure, Colleges and universities, 

Education, Loan programs—education, 

Reporting and recordkeeping 

requirements, Student aid, Vocational 

education. 

Dated: October 14, 2009. 

Arne Duncan, 

Secretary of Education. 

■ For the reasons discussed in the 

preamble, the Secretary amends chapter 

VI of title 34 of the Code of Federal 

Regulations as follows: 

■ 1. Add part 601 to read as follows: 

PART 601—INSTITUTION AND 

LENDER REQUIREMENTS RELATING 

TO EDUCATION LOANS 

Subpart A—General 

Sec. 

601.1 Scope. 

601.2 Definitions. 

Subpart B—Loan Information To Be 

Disclosed by Covered Institutions and 

Institution-Affiliated Organizations 

Sec. 

601.10 Preferred lender arrangement 

disclosures. 

601.11 Private education loan disclosures 

and self-certification form. 

601.12 Use of institution and lender name. 

Subpart C—Responsibilities of Covered 

Institutions and Institution-Affiliated 

Organizations 

Sec. 

601.20 Annual report. 

601.21 Code of conduct. 

Subpart D—Loan Information To Be 

Disclosed by Institutions Participating in 

the William D. Ford Direct Loan Program 

Sec. 

601.30 Duties of institutions. 

Subpart E—Lender Responsibilities 

Sec. 

601.40 Disclosure and reporting 

requirements for lenders. 

Authority: 20 U.S.C. 1019–1019d, 1021, 

1094(a) and (h). 


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Subpart A—General 

§ 601.1 Scope. 

This part establishes disclosure and 

reporting requirements for covered 

institutions, institution-affiliated 

organizations, and lenders that provide, 

issue, recommend, promote, endorse, or 

provide information relating to 

education loans. Education loans 

include loans authorized by the Higher 

Education Act of 1965, as amended 

(HEA) and private education loans. 

Authority: 20 U.S.C. 1019–1019d, 1021, 

1094(a)(25) and (e). 

§ 601.2 Definitions. 

(a) The definitions of the following 

terms used in this part are set forth in 

the regulations for Institutional 

Eligibility under the Higher Education 

Act of 1965, as amended, 34 CFR part 

600: 

Federal Family Education Loan 

(FFEL) Program 

Secretary 

Title IV, HEA program 

(b) The following definitions also 

apply to this part: 

Agent: An officer or employee of a 

covered institution or an institutionaffiliated organization. 

Covered institution: Any institution of 

higher education, proprietary institution 

of higher education, postsecondary 

vocational institution, or institution 

outside the United States, as these terms 

are defined in 34 CFR part 600, that 

receives any Federal funding or 

assistance. 

Education loan: Except when used as 

part of the term ‘‘private education 

loan’’, 

(1) Any loan made, insured, or 

guaranteed under the Federal Family 

Education Loan (FFEL) Program; 

(2) Any loan made under the William 

D. Ford Federal Direct Loan Program; or 

(3) A private education loan. 

Institution-affiliated organization: (1) 

Any organization that— 

(i) Is directly or indirectly related to 

a covered institution; and 

(ii) Is engaged in the practice of 

recommending, promoting, or endorsing 

education loans for students attending 

such covered institution or the families 

of such students. 

(2) An institution-affiliated 

organization— 

(i) May include an alumni 

organization, athletic organization, 

foundation, or social, academic, or 

professional organization, of a covered 

institution; and 

(ii) Does not include any lender with 

respect to any education loan secured, 

made, or extended by such lender. 

Lender: (1) An eligible lender in the 

Federal Family Education Loan (FFEL) 

Program, as defined in 34 CFR 

682.200(b); 

(2) The Department in the Direct Loan 

program; 

(3) In the case of a private educational 

loan, a private education lender as 

defined in section 140 of the Truth in 

Lending Act; and 

(4) Any other person engaged in the 

business of securing, making, or 

extending education loans on behalf of 

the lender. 

Officer: A director or trustee of a 

covered institution or institutionaffiliated organization, if such 

individual is treated as an employee of 

such covered institution or institutionaffiliated organization, respectively. 

Preferred lender arrangement: (1) An 

arrangement or agreement between a 

lender and a covered institution or an 

institution-affiliated organization of 

such covered institution— 

(i) Under which a lender provides or 

otherwise issues education loans to the 

students attending such covered 

institution or the families of such 

students; and 

(ii) That relates to such covered 

institution or such institution-affiliated 

organization recommending, promoting, 

or endorsing the education loan 

products of the lender. 

(2) A preferred lender arrangement 

does not include— 

(i) Arrangements or agreements with 

respect to loans made under the William 

D. Ford Federal Direct Loan Program; or 

(ii) Arrangements or agreements with 

respect to loans that originate through 

the PLUS Loan auction pilot program 

under section 499(b) of the HEA. 

(3) For purpose of this definition, an 

arrangement or agreement does not exist 

if the private education loan provided or 

issued to a student attending a covered 

institution is made by the covered 

institution or by an institution-affiliated 

organization of the covered institution, 

and the private education loan is— 

(i) Funded by the covered institution’s 

or institution-affiliated organization’s 

own funds; 

(ii) Funded by donor-directed 

contributions; 

(iii) Made under title VII or title VIII 

of the Public Service Health Act; or 

(iv) Made under a State-funded 

financial aid program, if the terms and 

conditions of the loan include a loan 

forgiveness option for public service. 

Private education loan: As the term is 

defined in 12 CFR 226.46(b)(5), a loan 

provided by a private educational 

lender that is not a title IV loan and that 

is issued expressly for postsecondary 

education expenses to a borrower, 

regardless of whether the loan is 

provided through the educational 

institution that the student attends or 

directly to the borrower from the private 

educational lender. A private education 

loan does not include— 

(1) An extension of credit under an 

open end consumer credit plan, a 

reverse mortgage transaction, a 

residential mortgage transaction, or any 

other loan that is secured by real 

property or a dwelling; or 

(2) An extension of credit in which 

the educational institution is the lender 

if— 

(i) The term of the extension of credit 

is 90 days or less; or 

(ii) An interest rate will not be 

applied to the credit balance and the 

term of the extension of credit is one 

year or less, even if the credit is payable 

in more than four installments. 

Authority: 20 U.S.C. 1019. 

Subpart B—Loan Information To Be 

Disclosed by Covered Institutions and 

Institution-Affiliated Organizations 

§ 601.10 Preferred lender arrangement 

disclosures. 

(a) A covered institution, or an 

institution-affiliated organization of 

such covered institution, that 

participates in a preferred lender 

arrangement must disclose— 

(1) On such covered institution’s or 

institution-affiliated organization’s Web 

site and in all informational materials 

described in paragraph (b) of this 

section that describe or discuss 

education loans— 

(i) The maximum amount of Federal 

grant and loan aid under title IV of the 

HEA available to students, in an easy to 

understand format; 

(ii) The information identified on a 

model disclosure form developed by the 

Secretary pursuant to section 

153(a)(2)(B) of the HEA, for each type of 

education loan that is offered pursuant 

to a preferred lender arrangement of the 

institution or institution-affiliated 

organization to students of the 

institution or the families of such 

students; and 

(iii) A statement that such institution 

is required to process the documents 

required to obtain a loan under the 

Federal Family Education Loan (FFEL) 

Program from any eligible lender the 

student selects; and 

(2) On such covered institution’s or 

institution-affiliated organization’s Web 

site and in all informational materials 

described in paragraph (b) of this 

section that describe or discuss private 

education loans— 

(i) In the case of a covered institution, 

the information that the Board of 

Governors of the Federal Reserve 

System requires to be disclosed under 


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section 128(e)(11) of the Truth in 

Lending Act (15 U.S.C. 1638(e)(11)), for 

each type of private education loan 

offered pursuant to a preferred lender 

arrangement of the institution to 

students of the institution or the 

families of such students; and 

(ii) In the case of an institutionaffiliated organization of a covered 

institution, the information the Board of 

Governors of the Federal Reserve 

System requires to be disclosed under 

section 128(e)(1) of the Truth in Lending 

Act (15 U.S.C. 1638(e)(1)), for each type 

of private education loan offered 

pursuant to a preferred lender 

arrangement of the organization to 

students of such institution or the 

families of such students. 

(b) The informational materials 

described in paragraphs (a)(1) and (a)(2) 

of this section are publications, 

mailings, or electronic messages or 

materials that— 

(1) Are distributed to prospective or 

current students of a covered institution 

and families of such students; and 

(2) Describe or discuss the financial 

aid opportunities available to students 

at an institution of higher education. 

(c)(1) Each covered institution and 

each institution-affiliated organization 

that participates in a preferred lender 

arrangement must provide the 

information described in paragraph 

(a)(1)(ii) of this section, and the 

information described in paragraphs 

(a)(2)(i) and (a)(2)(ii) of this section, 

respectively, for each type of education 

loan offered pursuant to the preferred 

lender arrangement. 

(2) The information identified in 

paragraph (c)(1) of this section must be 

provided to students attending the 

covered institution, or the families of 

such students, as applicable, annually 

and must be provided in a manner that 

allows for the students or their families 

to take such information into account 

before selecting a lender or applying for 

an education loan. 

(d) If a covered institution compiles, 

maintains, and makes available a 

preferred lender list as required under 

§ 668.14(b)(28), the institution must— 

(1) Clearly and fully disclose on such 

preferred lender list— 

(i) Not less than the information 

required to be disclosed under section 

153(a)(2)(A) of the HEA; 

(ii) Why the institution participates in 

a preferred lender arrangement with 

each lender on the preferred lender list, 

particularly with respect to terms and 

conditions or provisions favorable to the 

borrower; and 

(iii) That the students attending the 

institution, or the families of such 

students, do not have to borrow from a 

lender on the preferred lender list; 

(2) Ensure, through the use of the list 

of lender affiliates provided by the 

Secretary under section 487(h)(2) of the 

HEA, that— 

(i) There are not less than three FFEL 

lenders that are not affiliates of each 

other included on the preferred lender 

list and, if the institution recommends, 

promotes, or endorses private education 

loans, there are not less than two 

lenders of private education loans that 

are not affiliates of each other included 

on the preferred lender list; and 

(ii) The preferred lender list under 

paragraph (d) of this section— 

(A) Specifically indicates, for each 

listed lender, whether the lender is or is 

not an affiliate of each other lender on 

the preferred lender list; and 

(B) If a lender is an affiliate of another 

lender on the preferred lender list, 

describes the details of such affiliation; 

(3) Prominently disclose the method 

and criteria used by the institution in 

selecting lenders with which to 

participate in preferred lender 

arrangements to ensure that such 

lenders are selected on the basis of the 

best interests of the borrowers, 

including— 

(i) Payment of origination or other 

fees on behalf of the borrower; 

(ii) Highly competitive interest rates, 

or other terms and conditions or 

provisions of Title IV, HEA program 

loans or private education loans; 

(iii) High-quality servicing for such 

loans; or 

(iv) Additional benefits beyond the 

standard terms and conditions or 

provisions for such loans; 

(4) Exercise a duty of care and a duty 

of loyalty to compile the preferred 

lender list under paragraph (d) of this 

section without prejudice and for the 

sole benefit of the students attending the 

institution, or the families of such 

students; and 

(5) Not deny or otherwise impede the 

borrower’s choice of a lender or cause 

unnecessary delay in loan certification 

under title IV of the HEA for those 

borrowers who choose a lender that is 

not included on the preferred lender 

list. 

(Approved by the Office of Management and 

Budget under control number 1845–XXXA) 

Authority: 20 U.S.C. 1019a(a)(1)(A) and 

1019b(c). 

§ 601.11 Private education loan 

disclosures and self-certification form. 

(a) A covered institution, or an 

institution-affiliated organization of 

such covered institution, that provides 

information regarding a private 

education loan from a lender to a 

prospective borrower must provide 

private education loan disclosures to the 

prospective borrower, regardless of 

whether the covered institution or 

institution-affiliated organization 

participates in a preferred lender 

arrangement. 

(b) The private education loan 

disclosures must— 

(1) Provide the prospective borrower 

with the information the Board of 

Governors of the Federal Reserve 

System requires to be disclosed under 

section 128(e)(1) of the Truth in Lending 

Act (15 U.S.C. 1638(e)(1)) for such loan; 

(2) Inform the prospective borrower 

that— 

(i) The prospective borrower may 

qualify for loans or other assistance 

under title IV of the HEA; and 

(ii) The terms and conditions of Title 

IV, HEA program loans may be more 

favorable than the provisions of private 

education loans. 

(c) The covered institution or 

institution-affiliated organization must 

ensure that information regarding 

private education loans is presented in 

such a manner as to be distinct from 

information regarding Title IV, HEA 

program loans. 

(d) Upon an enrolled or admitted 

student applicant’s request for a private 

education loan self-certification form, 

an institution must provide to the 

applicant, in written or electronic 

form— 

(1) The self-certification form for 

private education loans developed by 

the Secretary in consultation with the 

Board of Governors of the Federal 

Reserve System, to satisfy the 

requirements of section 128(e)(3) of the 

Truth in Lending Act (15 U.S.C. 

1638(e)(3)); and 

(2) The information required to 

complete the form, to the extent the 

institution possesses such information 

as specified in 34 CFR 668.14(b)(29). 

(Approved by the Office of Management and 

Budget under control number 1845–XXXA) 

Authority: 20 U.S.C. 1019a(a)(1)(B) and 

1019d. 

§ 601.12 Use of institution and lender 

name. 

A covered institution, or an 

institution-affiliated organization of 

such covered institution, that 

participates in a preferred lender 

arrangement with a lender regarding 

private education loans must— 

(a) Not agree to the lender’s use of the 

name, emblem, mascot, or logo of such 

institution or organization, or other 

words, pictures, or symbols readily 

identified with such institution or 

organization, in the marketing of private 

education loans to students attending 


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such institution in any way that implies 

that the loan is offered or made by such 

institution or organization instead of the 

lender; and 

(b) Ensure that the name of the lender 

is displayed in all information and 

documentation related to the private 

education loans described in this 

section. 

Authority: 20 U.S.C. 1019a(a)(2)–(a)(3). 

Subpart C—Responsibilities of 

Covered Institutions and InstitutionAffiliated Organizations 

§ 601.20 Annual report. 

Each covered institution, and each 

institution-affiliated organization of 

such covered institution, that 

participates in a preferred lender 

arrangement, must— 

(a) Prepare and submit to the 

Secretary an annual report, by a date 

determined by the Secretary, that 

includes, for each lender that 

participates in a preferred lender 

arrangement with such covered 

institution or organization— 

(1) The information described in 

§ 601.10(c); and 

(2) A detailed explanation of why 

such covered institution or institutionaffiliated organization participates in a 

preferred lender arrangement with the 

lender, including why the terms, 

conditions, and provisions of each type 

of education loan provided pursuant to 

the preferred lender arrangement are 

beneficial for students attending such 

institution, or the families of such 

students, as applicable; and 

(b) Ensure that the report required 

under this section is made available to 

the public and provided to students 

attending or planning to attend such 

covered institution and the families of 

such students. 

(Approved by the Office of Management and 

Budget under control number 1845–XXXA) 

Authority: 20 U.S.C. 1019b(c)(2). 

§ 601.21 Code of conduct. 

(a)(1) A covered institution that 

participates in a preferred lender 

arrangement must comply with the code 

of conduct requirements described in 

this section. 

(2) The covered institution must— 

(i) Develop a code of conduct with 

respect to FFEL Program loans and 

private education loans with which the 

institution’s agents must comply. The 

code of conduct must— 

(A) Prohibit a conflict of interest with 

the responsibilities of an agent of an 

institution with respect to FFEL 

Program loans and private education 

loans; and 

(B) At a minimum, include the 

provisions specified in paragraph (c) of 

this section; 

(ii) Publish such code of conduct 

prominently on the institution’s Web 

site; and 

(iii) Administer and enforce such 

code by, at a minimum, requiring that 

all of the institution’s agents with 

responsibilities with respect to FFEL 

Program loans or private education 

loans be annually informed of the 

provisions of the code of conduct. 

(b) Any institution-affiliated 

organization of a covered institution 

that participates in a preferred lender 

arrangement must— 

(1) Comply with the code of conduct 

developed and published by such 

covered institution under paragraph 

(a)(1) of this section; 

(2) If such institution-affiliated 

organization has a Web site, publish 

such code of conduct prominently on 

the Web site; and 

(3) Administer and enforce such code 

of conduct by, at a minimum, requiring 

that all of such institution-affiliated 

organization’s agents with 

responsibilities with respect to FFEL 

Program loans or private education 

loans be annually informed of the 

provisions of such code of conduct. 

(c) A covered institution’s code of 

conduct must prohibit— 

(1) Revenue-sharing arrangements 

with any lender. The institution must 

not enter into any revenue-sharing 

arrangement with any lender. For 

purposes of this paragraph, the term 

revenue-sharing arrangement means an 

arrangement between a covered 

institution and a lender under which— 

(i) A lender provides or issues a FFEL 

Program loan or private education loan 

to students attending the institution or 

to the families of such students; and 

(ii) The institution recommends the 

lender or the loan products of the lender 

and in exchange, the lender pays a fee 

or provides other material benefits, 

including revenue or profit sharing, to 

the institution, an agent; 

(2)(i) Employees of the financial aid 

office receiving gifts from a lender, a 

guarantor, or a loan servicer. Agents 

who are employed in the financial aid 

office of the institution or who 

otherwise have responsibilities with 

respect to FFEL Program loans or 

private education loans, must not solicit 

or accept any gift from a lender, 

guarantor, or servicer of FFEL Program 

loans or private education loans; 

(ii) For purposes of paragraph (c) of 

this section, the term gift means any 

gratuity, favor, discount, entertainment, 

hospitality, loan, or other item having a 

monetary value of more than a de 

minimus amount. The term includes a 

gift of services, transportation, lodging, 

or meals, whether provided in kind, by 

purchase of a ticket, payment in 

advance, or reimbursement after the 

expense has been incurred; 

(iii) The term gift does not include 

any of the following: 

(A) Standard material, activities, or 

programs on issues related to a loan, 

default aversion, default prevention, or 

financial literacy, such as a brochure, a 

workshop, or training. 

(B) Food, refreshments, training, or 

informational material furnished to an 

agent as an integral part of a training 

session that is designed to improve the 

service of a lender, guarantor, or 

servicer of FFEL Program loans or 

private education loans to the 

institution, if such training contributes 

to the professional development of the 

agent. 

(C) Favorable terms, conditions, and 

borrower benefits on a FFEL Program 

loan or private education loan provided 

to a student employed by the institution 

if such terms, conditions, or benefits are 

comparable to those provided to all 

students of the institution. 

(D) Entrance and exit counseling 

services provided to borrowers to meet 

the institution’s responsibilities for 

entrance and exit counseling as required 

by §§ 682.604(f) and 682.604(g), as long 

as the institution’s staff are in control of 

the counseling (whether in person or via 

electronic capabilities) and such 

counseling does not promote the 

products or services of any specific 

lender. 

(E) Philanthropic contributions to an 

institution from a lender, servicer, or 

guarantor of FFEL Program loans or 

private education loans that are 

unrelated to FFEL Program loans or 

private education loans or any 

contribution from any lender, servicer, 

or guarantor, that is not made in 

exchange for any advantage related to 

FFEL Program loans or private 

education loans. 

(F) State education grants, 

scholarships, or financial aid funds 

administered by or on behalf of a State; 

and 

(iv) For purposes of paragraph (c) of 

this section, a gift to a family member 

of an agent, or to any other individual 

based on that individual’s relationship 

with the agent, is considered a gift to the 

agent if— 

(A) The gift is given with the 

knowledge and acquiescence of the 

agent; and 

(B) The agent has reason to believe the 

gift was given because of the official 

position of the agent; 


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(3) Consulting or other contracting 

arrangements. An agent who is 

employed in the financial aid office of 

the institution or who otherwise has 

responsibilities with respect to FFEL 

Program loans or private education 

loans must not accept from any lender 

or affiliate of any lender any fee, 

payment, or other financial benefit 

(including the opportunity to purchase 

stock) as compensation for any type of 

consulting arrangement or other 

contract to provide services to a lender 

or on behalf of a lender relating to FFEL 

Program loans or private education 

loans. Nothing in paragraph (c)(3) of this 

section will be construed as 

prohibiting— 

(i) An agent who is not employed in 

the institution’s financial aid office and 

who does not otherwise have 

responsibilities with respect to FFEL 

Program loans or private education 

loans from performing paid or unpaid 

service on a board of directors of a 

lender, guarantor, or servicer of 

education loans; 

(ii) An agent who is not employed in 

the institution’s financial aid office but 

who has responsibility with respect to 

FFEL Program loans or private 

education loans from performing paid or 

unpaid service on a board of directors 

of a lender, guarantor, or servicer of 

FFEL Program loans or private 

education loans, if the institution has a 

written conflict of interest policy that 

clearly sets forth that agents must recuse 

themselves from participating in any 

decision of the board regarding FFEL 

Program loans or private education 

loans at the institution; or 

(iii) An officer, employee, or 

contractor of a lender, guarantor, or 

servicer of FFEL Program loans or 

private education loans from serving on 

a board of directors, or serving as a 

trustee, of an institution, if the 

institution has a written conflict of 

interest policy that the board member or 

trustee must recuse themselves from any 

decision regarding FFEL Program loans 

or private education loans at the 

institution; 

(4) Directing borrowers to particular 

lenders or delaying loan certifications. 

The institution must not— 

(i) For any first-time borrower, assign, 

through award packaging or other 

methods, the borrower’s loan to a 

particular lender; or 

(ii) Refuse to certify, or delay 

certification of, any loan based on the 

borrower’s selection of a particular 

lender or guaranty agency; 

(5)(i) Offers of funds for private loans. 

The institution must not request or 

accept from any lender any offer of 

funds to be used for private education 

loans, including funds for an 

opportunity pool loan, to students in 

exchange for the institution providing 

concessions or promises regarding 

providing the lender with— 

(A) A specified number of FFEL 

Program loans or private education 

loans; 

(B) A specified loan volume of such 

loans; or 

(C) A preferred lender arrangement for 

such loans. 

(ii) For purposes of paragraph (c) of 

this section, the term opportunity pool 

loan means a private education loan 

made by a lender to a student attending 

the institution or the family member of 

such a student that involves a payment, 

directly or indirectly, by such 

institution of points, premiums, 

additional interest, or financial support 

to such lender for the purpose of such 

lender extending credit to the student or 

the family; 

(6) Staffing assistance. The institution 

must not request or accept from any 

lender any assistance with call center 

staffing or financial aid office staffing, 

except that nothing in this paragraph 

will be construed to prohibit the 

institution from requesting or accepting 

assistance from a lender related to— 

(i) Professional development training 

for financial aid administrators; 

(ii) Providing educational counseling 

materials, financial literacy materials, or 

debt management materials to 

borrowers, provided that such materials 

disclose to borrowers the identification 

of any lender that assisted in preparing 

or providing such materials; or 

(iii) Staffing services on a short-term, 

nonrecurring basis to assist the 

institution with financial aid-related 

functions during emergencies, including 

State-declared or Federally declared 

natural disasters, Federally declared 

national disasters, and other localized 

disasters and emergencies identified by 

the Secretary; and 

(7) Advisory board compensation. 

Any employee who is employed in the 

financial aid office of the institution, or 

who otherwise has responsibilities with 

respect to FFEL Program loans or 

private education loans or other student 

financial aid of the institution, and who 

serves on an advisory board, 

commission, or group established by a 

lender, guarantor, or group of lenders or 

guarantors, must not receive anything of 

value from the lender, guarantor, or 

group of lenders or guarantors, except 

that the employee may be reimbursed 

for reasonable expenses, as that term is 

defined in § 668.16(d)(2)(ii), incurred in 

serving on such advisory board, 

commission, or group. 

(Approved by the Office of Management and 

Budget under control number 1845–XXXA) 

Authority: 20 U.S.C. 1019b(c)(2)), 

1094(a)(25) and (e). 

Subpart D—Loan Information to be 

Disclosed by Institutions Participating 

in the William D. Ford Direct Loan 

Program 

§ 601.30 Duties of institutions. 

(a) Each covered institution 

participating in the William D. Ford 

Direct Loan Program under part D of 

title IV of the HEA must— 

(1) Make the information identified in 

a model disclosure form developed by 

the Secretary pursuant to section 154(a) 

of the HEA available to students 

attending or planning to attend the 

institution, or the families of such 

students, as applicable; and 

(2) If the institution provides 

information regarding a private 

education loan to a prospective 

borrower, concurrently provide such 

borrower with the information 

identified on the model disclosure form 

that the Secretary provides to the 

institution under section 154(a) of the 

HEA. 

(b) In providing the information 

required under paragraph (a) of this 

section, a covered institution may use a 

comparable form designed by the 

institution instead of the model 

disclosure form. 

(Approved by the Office of Management and 

Budget under control number 1845–XXXB) 

Authority: 20 U.S.C. 1019c(b). 

Subpart E—Lender Responsibilities 

§ 601.40 Disclosure and reporting 

requirements for lenders. 

(a) Disclosures to borrowers. (1) A 

lender must, at or prior to disbursement 

of a FFEL loan, provide the borrower, in 

writing (including through electronic 

means), in clear and understandable 

terms, the disclosures required in 

§ 682.205(a) and (b). 

(2) A lender must, for each of its 

private education loans, comply with 

the disclosure requirements under 

section 128(e) of the Truth in Lending 

Act (15 U.S.C. 1638(e)). 

(b) Reports to the Secretary. Each 

FFEL lender must report annually to the 

Secretary— 

(1) Any reasonable expenses paid or 

provided to any agent of a covered 

institution who is employed in the 

financial aid office or has other 

responsibilities with respect to 

education loans or other student 

financial aid of the institution for 

service on a lender advisory board, 

commission or group established by a 

lender or group of lenders; or 


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(2) Any similar expenses paid or 

provided to any agent of an institutionaffiliated organization who is involved 

in recommending, promoting, or 

endorsing education loans. 

(3) The report required by this 

paragraph must include— 

(i) The amount of expenses paid or 

provided for each specific instance in 

which the lender provided expenses; 

(ii) The name of any agent described 

in paragraph (b)(1) of this section to 

whom the expenses were paid or 

provided; 

(iii) The dates of the activity for 

which the expenses were paid or 

provided; and 

(iv) A brief description of the activity 

for which the expenses were paid or 

provided. 

(c) Lender certification of compliance. 

(1) Any FFEL lender participating in 

one or more preferred lender 

arrangements must annually certify to 

the Secretary its compliance with the 

Higher Education Act of 1965, as 

amended; and 

(2) If the lender is required to submit 

an audit under 34 CFR 682.305(c), the 

lender’s compliance with the 

requirements under this section must be 

reported on and attested to annually by 

the lender’s auditor. 

(3) A lender may comply with the 

certification requirements of this section 

if the certifications are provided as part 

of the annual audit required by 34 CFR 

682.305(c). 

(4) A lender who is not required to 

submit an audit must submit the 

required certification at such time and 

in such manner as directed by the 

Secretary. 

(d) Annual lender report to covered 

institutions. A FFEL lender with a 

preferred lender arrangement with a 

covered institution or an institutionaffiliated organization relating to FFEL 

loans must annually, on a date 

prescribed by the Secretary, provide to 

the covered institution or the 

institution-affiliated organization and to 

the Secretary, such information required 

by the Secretary in relation to the FFEL 

loans the lender plans to offer pursuant 

to that preferred lender arrangement for 

the next award year. 

(Approved by the Office of Management and 

Budget under control number 1845–XXXA) 

Authority: 20 U.S.C. 1019a(b) and 

1019b(b). 

PART 668—STUDENT ASSISTANCE 

GENERAL PROVISIONS 

■ 2. The authority citation for part 668 

continues to read as follows: 

Authority: 20 U.S.C. 1001, 1002, 1003, 

1070g, 1085, 1088, 1091, 1092, 1094, 1099c, 

and 1099c–1, unless otherwise noted. 

■ 3. Section 668.14 is amended by 

adding new paragraphs (b)(27), (b)(28) 

and (b)(29) as follows: 

§ 668.14 Program participation agreement. 

* * * * * 

(b) * * * 

(27) In the case of an institution 

participating in a Title IV, HEA loan 

program, the institution— 

(i) Will develop, publish, administer, 

and enforce a code of conduct with 

respect to loans made, insured or 

guaranteed under the Title IV, HEA loan 

programs in accordance with 34 CFR 

601.21; and 

(ii) Must inform its officers, 

employees, and agents with 

responsibilities with respect to loans 

made, insured or guaranteed under the 

Title IV, HEA loan programs annually of 

the provisions of the code required 

under paragraph (b)(27) of this section; 

(28) For any year in which the 

institution has a preferred lender 

arrangement (as defined in 34 CFR 

601.2(b)), it will at least annually 

compile, maintain, and make available 

for students attending the institution, 

and the families of such students, a list 

in print or other medium, of the specific 

lenders for loans made, insured, or 

guaranteed under title IV of the HEA or 

private education loans that the 

institution recommends, promotes, or 

endorses in accordance with such 

preferred lender arrangement. In making 

such a list, the institution must comply 

with the requirements in 34 CFR 

682.212(h) and 34 CFR 601.10; 

(29)(i) It will, upon the request of an 

enrolled or admitted student who is an 

applicant for a private education loan 

(as defined in 34 CFR 601.2(b)), provide 

to the applicant the self-certification 

form required under 34 CFR 601.11(d) 

and the information required to 

complete the form, to the extent the 

institution possesses such information, 

including— 

(A) The applicant’s cost of attendance 

at the institution, as determined by the 

institution under part F of title IV of the 

HEA; 

(B) The applicant’s estimated 

financial assistance, including amounts 

of financial assistance used to replace 

the expected family contribution as 

determined by the institution in 

accordance with title IV, for students 

who have completed the Free 

Application for Federal Student Aid; 

and 

(C) The difference between the 

amounts under paragraphs (b)(29)(i)(A) 

and (29)(i)(B) of this section, as 

applicable. 

(ii) It will, upon the request of the 

applicant, discuss with the applicant 

the availability of Federal, State, and 

institutional student financial aid; 

* * * * * 

■ 4. Section 668.16 is amended by: 

■ A. Revising paragraph (d). 

■ B. Revising paragraph (m). 

■ C. Revising the authority citation that 

appears at the end of the section. 

The revisions read as follows: 

§ 668.16 Standards of administrative 

capability. 

* * * * * 

(d)(1) Establishes and maintains 

records required under this part and the 

individual Title IV, HEA program 

regulations; and 

(2)(i) Reports annually to the 

Secretary on any reasonable 

reimbursements paid or provided by a 

private education lender or group of 

lenders as described under section 

140(d) of the Truth in Lending Act (15 

U.S.C. 1631(d)) to any employee who is 

employed in the financial aid office of 

the institution or who otherwise has 

responsibilities with respect to 

education loans, including 

responsibilities involving the selection 

of lenders, or other financial aid of the 

institution, including— 

(A) The amount for each specific 

instance of reasonable expenses paid or 

provided; 

(B) The name of the financial aid 

official, other employee, or agent to 

whom the expenses were paid or 

provided; 

(C) The dates of the activity for which 

the expenses were paid or provided; and 

(D) A brief description of the activity 

for which the expenses were paid or 

provided. 

(ii) Expenses are considered to be 

reasonable if the expenses— 

(A) Meet the standards of and are paid 

in accordance with a State government 

reimbursement policy applicable to the 

entity; or 

(B) Meet the standards of and are paid 

in accordance with the applicable 

Federal cost principles for 

reimbursement, if no State policy that is 

applicable to the entity exists. 

(iii) The policy must be consistently 

applied to an institution’s employees 

reimbursed under this paragraph; 

* * * * * 

(m)(1) Has a cohort default rate— 

(i) That is less than 25 percent for 

each of the three most recent fiscal years 

during which rates have been issued, to 

the extent those rates are calculated 

under subpart M of this part; 


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(ii) On or after 2014, that is less than 

30 percent for at least two of the three 

most recent fiscal years during which 

the Secretary has issued rates for the 

institution under subpart N of this part; 

and 

(iii) As defined in 34 CFR 674.5, on 

loans made under the Federal Perkins 

Loan Program to students for attendance 

at that institution that does not exceed 

15 percent. 

(2)(i) However, if the Secretary 

determines that an institution’s 

administrative capability is impaired 

solely because the institution fails to 

comply with paragraph (m)(1) of this 

section, and the institution is not 

subject to a loss of eligibility under 

§§ 668.187(a) or 668.206(a), the 

Secretary allows the institution to 

continue to participate in the Title IV, 

HEA programs. In such a case, the 

Secretary may provisionally certify the 

institution in accordance with 

§ 668.13(c) except as provided in 

paragraphs (m)(2)(ii), (m)(2)(iii), 

(m)(2)(iv), and (m)(2)(v) of this section. 

(ii) An institution that fails to meet 

the standard of administrative capability 

under paragraph (m)(1)(ii) based on two 

cohort default rates that are greater than 

or equal to 30 percent but less than or 

equal to 40 percent is not placed on 

provisional certification under 

paragraph (m)(2)(i) of this section— 

(A) If it has timely filed a request for 

adjustment or appeal under §§ 668.209, 

668.210, or 668.212 with respect to the 

second such rate, and the request for 

adjustment or appeal is either pending 

or succeeds in reducing the rate below 

30 percent; or 

(B) If it has timely filed an appeal 

under §§ 668.213 or 668.214 after 

receiving the second such rate, and the 

appeal is either pending or successful. 

(iii) The institution may appeal the 

loss of full participation in a Title IV, 

HEA program under paragraph (m)(2)(i) 

of this section by submitting an 

erroneous data appeal in writing to the 

Secretary in accordance with and on the 

grounds specified in §§ 668.192 or 

668.211 as applicable; 

(iv) If you have 30 or fewer borrowers 

in the three most recent cohorts of 

borrowers used to calculate your cohort 

default rate under subpart N of this part, 

we not provisionally certify you solely 

based on cohort default rates; 

(v) If a rate that would otherwise 

potentially subject you to provisional 

certification under paragraph (m)(1)(ii) 

and (m)(2)(i) of this section is calculated 

as an average rate, we will not 

provisionally certify you solely based on 

cohort default rates; 

* * * * * 

Authority: 20 U.S.C. 1082, 1085, 1092, 

1094, and 1099c. 

■ 5. Section 668.42 is amended by: 

■ A. In paragraph (a)(1), removing the 

word ‘‘student’s’’ and adding, in its 

place, the word ‘‘students’’. 

■ B. In paragraph (a), adding a new 

paragraph (4). 

■ C. In paragraph (c) introductory text, 

removing the word ‘‘shall’’ and adding, 

in its place, the word ‘‘must’’. 

■ D. In paragraph (c)(5), adding the 

word ‘‘and’’ after the punctuation ‘‘;’’. 

■ E. In paragraph (c)(6), removing the 

words ‘‘The institution shall provide 

and collect exit counseling information’’ 

and adding, in their place, the words 

‘‘The exit counseling information the 

institution provides and collects’’. 

■ F. In paragraph (c)(6), removing the 

punctuation and word ‘‘; and’’ and 

adding, in their place, the punctuation 

‘‘.’’. 

■ G. In paragraph (c), removing 

paragraph (7). 

The addition reads as follows: 

§ 668.42 Financial assistance information. 

(a) * * * 

(4) The institution must describe the 

terms and conditions of the loans 

students receive under the Federal 

Family Education Loan Program, the 

William D. Ford Federal Direct Student 

Loan Program, and the Federal Perkins 

Loan Program. 

* * * * * 

■ 6. Revise the subpart heading of 

subpart M to read as follows: 

Subpart M—Two Year Cohort Default 

Rates 

■ 7. Section 668.181 is revised to read 

as follows: 

§ 668.181 Purpose of this subpart. 

(a) General. Your cohort default rate is 

a measure we use to determine your 

eligibility to participate in various Title 

IV, HEA programs. We may also use it 

for determining your eligibility for 

exemptions, such as those for certain 

disbursement requirements under the 

FFEL and Direct Loan Programs. This 

subpart applies solely to cohorts, as 

defined in §§ 668.182(a) and 668.183(b), 

for fiscal years through 2011. For these 

cohorts, this subpart describes how 

cohort default rates are calculated, some 

of the consequences of cohort default 

rates, and how you may request changes 

to your cohort default rates or appeal 

their consequences. Under this subpart, 

you submit a ‘‘challenge’’ after you 

receive your draft cohort default rate, 

and you request an ‘‘adjustment’’ or 

‘‘appeal’’ after your official cohort 

default rate is published. 

(b) Cohort Default Rates. 

Notwithstanding anything to the 

contrary in this subpart, we will issue 

annually two sets of draft and official 

cohort default rates for fiscal years 2009, 

2010, and 2011. For each of these years, 

you will receive one set of draft and 

official cohort default rates under this 

subpart and another set of draft and 

official cohort default rates under 

subpart N of this part. 

(Approved by the Office of Management and 

Budget under control number 1845–0022) 

Authority: 20 U.S.C. 1082, 1085, 1094, 

1099c. 

§ 668.183 [Amended] 

■ 8. Section 668.183(c)(1) is amended 

by: 

■ (A) Removing the word ‘‘or’’ at the 

end of paragraph (c)(1)(ii); 

■ (B) Removing the period at the end of 

paragraph (c)(1)(iii) and adding a colon 

followed by the word ‘‘or’’; 

■ (C) Adding a new paragraph (iv). 

The addition reads as follows: 

§ 668.183 Calculating and applying cohort 

default rates. 

* * * * * 

(c) * * * 

(iv) Before the end of the following 

fiscal year, the borrower fails to make an 

installment payment, when due, on a 

Federal Stafford Loan that is held by the 

Secretary or a Federal Consolidation 

Loan that is held by the Secretary and 

was used to repay a Federal Stafford 

Loan, if such Federal Stafford Loan or 

Federal Consolidation Loan was used to 

include the borrower in the cohort, and 

the borrower’s failure persists for 360 

days. 

* * * * * 

§ 668.184 [Amended] 

■ 9. Section 668.184(a)(1) is amended 

by removing the word ‘‘If’’ and adding, 

in its place, the words ‘‘Except as 

provided under 34 CFR 600.32(d), if’’. 

■ 10. Section 668.185(a)(3) is revised to 

read as follows: 

§ 668.185 Draft cohort default rates and 

your ability to challenge before official 

cohort default rates are issued. 

(a) * * * 

(3) Your draft cohort default rate and 

the loan record detail report are not 

considered public information and may 

not be otherwise voluntarily released to 

the public by a data manager. 

* * * * * 

■ 11. Section 668.186 is revised to read 

as follows: 


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§ 668.186 Notice of your official cohort 

default rate. 

(a) We electronically notify you of 

your cohort default rate after we 

calculate it, by sending you an eCDR 

notification package to the destination 

point you designate. After we send our 

notice to you, we publish a list of cohort 

default rates calculated under this 

subpart for all institutions. 

(b) If you have one or more borrowers 

entering repayment or are subject to 

sanctions, or if the Department believes 

you will have an official cohort default 

rate calculated as an average rate, you 

will receive a loan record detail report 

as part of your eCDR notification 

package. 

(c) You have five business days, from 

the transmission date for eCDR 

notification packages as posted on the 

Department’s Web site, to report any 

problem with receipt of the electronic 

transmission of your eCDR notification 

package. 

(d) Except as provided in paragraph 

(e) of this section, timelines for 

submitting challenges, adjustments, and 

appeals begin on the sixth business day 

following the transmission date for 

eCDR notification packages that is 

posted on the Department’s Web site. 

(e) If you timely report a problem with 

the receipt of the electronic 

transmission of your eCDR notification 

package under paragraph (c) of this 

section and the Department agrees that 

the problem with transmission was not 

caused by you, the Department will 

extend the challenge, appeal and 

adjustment deadlines and timeframes to 

account for a retransmission of your 

eCDR notification package after the 

technical problem is resolved. 

(Approved by the Office of Management and 

Budget under control number 1845–0022) 

Authority: 20 U.S.C. 1082, 1085, 1094, 

1099c. 

■ 12. Section 668.187 is revised to read 

as follows: 

§ 668.187 Consequences of cohort default 

rates on your ability to participate in Title 

IV, HEA programs. 

(a) End of participation. (1) Except as 

provided in paragraph (e) of this 

section, you lose your eligibility to 

participate in the FFEL and Direct Loan 

programs 30 days after you receive our 

notice that your most recent cohort 

default rate is greater than 40 percent. 

(2) Except as provided in paragraphs 

(d) and (e) of this section, you lose your 

eligibility to participate in the FFEL, 

Direct Loan, and Federal Pell Grant 

programs 30 days after you receive our 

notice that your three most recent 

cohort default rates are each 25 percent 

or greater. 

(b) Length of period of ineligibility. 

Your loss of eligibility under this 

section continues— 

(1) For the remainder of the fiscal year 

in which we notify you that you are 

subject to a loss of eligibility; and 

(2) For the next 2 fiscal years. 

(c) Using a cohort default rate more 

than once. The use of a cohort default 

rate as a basis for a loss of eligibility 

under this section does not preclude its 

use as a basis for— 

(1) Any concurrent or subsequent loss 

of eligibility under this section; or 

(2) Any other action by us. 

(d) Continuing participation in Pell. If 

you are subject to a loss of eligibility 

under paragraph (a)(2) of this section, 

based on three cohort default rates of 25 

percent or greater, you may continue to 

participate in the Federal Pell Grant 

Program if we determine that you— 

(1) Were ineligible to participate in 

the FFEL and Direct Loan programs 

before October 7, 1998, and your 

eligibility was not reinstated; 

(2) Requested in writing, before 

October 7, 1998, to withdraw your 

participation in the FFEL and Direct 

Loan programs, and you were not later 

reinstated; or 

(3) Have not certified an FFELP loan 

or originated a Direct Loan Program loan 

on or after July 7, 1998. 

(e) Requests for adjustments and 

appeals. (1) A loss of eligibility under 

this section does not take effect while 

your request for adjustment or appeal, 

as listed in § 668.189(a), is pending, 

provided your request for adjustment or 

appeal is complete, timely, accurate, 

and in the required format. 

(2) Eligibility continued under 

paragraph (e)(1) of this section ends if 

we determine that none of the requests 

for adjustments and appeals you have 

submitted qualify you for continued 

eligibility under § 668.189. Loss of 

eligibility takes effect on the date that 

you receive notice of our determination 

on your last pending request for 

adjustment or appeal. 

(3) You do not lose eligibility under 

this section if we determine that your 

request for adjustment or appeal meets 

all requirements of this subpart and 

qualifies you for continued eligibility 

under § 668.189. 

(4) To avoid liabilities you might 

otherwise incur under paragraph (f) of 

this section, you may choose to suspend 

your participation in the FFEL and 

Direct Loan programs during the 

adjustment or appeal process. 

(f) Liabilities during the adjustment or 

appeal process. If you continued to 

participate in the FFEL or Direct Loan 

Program under paragraph (e)(1) of this 

section, and we determine that none of 

your requests for adjustments or appeals 

qualify you for continued eligibility— 

(1) For any FFEL or Direct Loan 

Program loan that you certified and 

delivered or originated and disbursed 

more than 30 days after you received the 

notice of your cohort default rate, we 

estimate the amount of interest, special 

allowance, reinsurance, and any related 

or similar payments we make or are 

obligated to make on those loans; 

(2) We exclude from this estimate any 

amount attributable to funds that you 

delivered or disbursed more than 45 

days after you submitted your 

completed appeal to us; 

(3) We notify you of the estimated 

amount; and 

(4) Within 45 days after you receive 

our notice of the estimated amount, you 

must pay us that amount, unless— 

(i) You file an appeal under the 

procedures established in subpart H of 

this part (for the purposes of subpart H 

of this part, our notice of the estimate 

is considered to be a final program 

review determination); or 

(ii) We permit a longer repayment 

period. 

(g) Regaining eligibility. If you lose 

your eligibility to participate in a 

program under this section, you may not 

participate in that program until— 

(1) The period described in paragraph 

(b) of this section has ended; 

(2) You pay any amount owed to us 

under this section or are meeting that 

obligation under an agreement 

acceptable to us; 

(3) You submit a new application for 

participation in the program; 

(4) We determine that you meet all of 

the participation requirements in effect 

at the time of your application; and 

(5) You and we enter into a new 

program participation agreement. 

(Approved by the Office of Management and 

Budget under control number 1845–0022) 

Authority: 20 U.S.C. 1082, 1085, 1094, 

1099c. 

■ 13. In § 668.188, the introductory text 

in paragraph (a) is revised to read as 

follows: 

§ 668.188 Preventing evasion of the 

consequences of cohort default rates. 

(a) General. You are subject to a loss 

of eligibility that has already been 

imposed against another institution as a 

result of cohort default rates if— 

* * * * * 

■ 14. Section 668.190 is revised to read 

as follows: 


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§ 668.190 Uncorrected data adjustments. 

(a) Eligibility. You may request an 

uncorrected data adjustment for your 

most recent cohort of borrowers, used to 

calculate your most recent official 

cohort default rate, if in response to 

your challenge under § 668.185(b), a 

data manager agreed correctly to change 

the data, but the changes are not 

reflected in your official cohort default 

rate. 

(b) Deadlines for requesting an 

uncorrected data adjustment. You must 

send us a request for an uncorrected 

data adjustment, including all 

supporting documentation, within 30 

days after you receive your loan record 

detail report from us. 

(c) Determination. We recalculate 

your cohort default rate, based on the 

corrected data, and electronically 

correct the rate that is publicly released, 

if we determine that— 

(1) In response to your challenge 

under § 668.185(b), a data manager 

agreed to change the data; 

(2) The changes described in 

paragraph (c)(1) of this section are not 

reflected in your official cohort default 

rate; and 

(3) We agree that the data are 

incorrect. 

(Approved by the Office of Management and 

Budget under control number 1845–0022) 

Authority: 20 U.S.C. 1082, 1085, 1094, 

1099c. 

■ 15. Section 668.191 is revised to read 

as follows: 

§ 668.191 New data adjustments. 

(a) Eligibility. You may request a new 

data adjustment for your most recent 

cohort of borrowers, used to calculate 

your most recent official cohort default 

rate, if— 

(1) A comparison of the loan record 

detail reports that we provide to you for 

the draft and official cohort default rates 

shows that the data have been newly 

included, excluded, or otherwise 

changed; and 

(2) You identify errors in the data 

described in paragraph (a)(1) of this 

section that are confirmed by the data 

manager. 

(b) Deadlines for requesting a new 

data adjustment. (1) You must send to 

the relevant data manager, or data 

managers, and us a request for a new 

data adjustment, including all 

supporting documentation, within 15 

days after you receive your loan record 

detail report from us. 

(2) Within 20 days after receiving 

your request for a new data adjustment, 

the data manager must send you and us 

a response that— 

(i) Addresses each of your allegations 

of error; and 

(ii) Includes the documentation used 

to support the data manager’s position. 

(3) Within 15 days after receiving a 

guaranty agency’s notice that we hold 

an FFELP loan about which you are 

inquiring, you must send us your 

request for a new data adjustment for 

that loan. We respond to your request as 

set forth under paragraph (b)(2) of this 

section. 

(4) Within 15 days after receiving 

incomplete or illegible records or data 

from a data manager, you must send a 

request for replacement records or 

clarification of data to the data manager 

and us. 

(5) Within 20 days after receiving 

your request for replacement records or 

clarification of data, the data manager 

must— 

(i) Replace the missing or illegible 

records; 

(ii) Provide clarifying information; or 

(iii) Notify you and us that no 

clarifying information or additional or 

improved records are available. 

(6) You must send us your completed 

request for a new data adjustment, 

including all supporting 

documentation— 

(i) Within 30 days after you receive 

the final data manager’s response to 

your request or requests; or 

(ii) If you are also filing an erroneous 

data appeal or a loan servicing appeal, 

by the latest of the filing dates required 

in paragraph (b)(6)(i) of this section or 

in § 668.192(b)(6)(i) or 

§ 668.193(c)(10)(i). 

(c) Determination. If we determine 

that incorrect data were used to 

calculate your cohort default rate, we 

recalculate your cohort default rate 

based on the correct data and 

electronically correct the rate that is 

publicly released. 

(Approved by the Office of Management and 

Budget under control number 1845–0022) 

Authority: 20 U.S.C. 1082, 1085, 1094, 

1099c. 

■ 16. Section 668.192 is amended by: 

■ (A) In paragraph (b)(6)(ii), removing 

the reference § 668.191(b)(7)(i) and 

adding, in its place, § 668.191(b)(6)(i). 

■ (B) Revising paragraph (c). 

The revision reads as follows: 

§ 668.192 Erroneous data appeals. 

* * * * * 

(c) Determination. If we determine 

that incorrect data were used to 

calculate your cohort default rate, we 

recalculate your cohort default rate 

based on the correct data and 

electronically correct the rate that is 

publicly released. 

* * * * * 

■ 17. Section 668.193 is amended by: 

■ (A) In paragraph (c)(10)(ii), removing 

the reference § 668.191(b)(7)(i) and 

adding, in its place, § 668.191(b)(6)(i). 

■ (B) Revising paragraph (f)(2). 

The revision reads as follows: 

§ 668.193 Loan servicing appeals. 

* * * * * 

(f) * * * 

(2) Based on our determination, we 

use a statistically valid methodology to 

exclude the corresponding percentage of 

borrowers from both the numerator and 

denominator of the calculation of your 

cohort default rate, and electronically 

correct the rate that is publicly released. 

* * * * * 

■ 18. Section 668.196(c) is revised to 

read as follows: 

§ 668.196 Average rates appeals. 

* * * * * 

(c) Determination. You do not lose 

eligibility under § 668.187 if we 

determine that you meet the 

requirements for an average rates 

appeal. 

* * * * * 

§ 668.198 [Removed] 

■ 19. Section 668.198 is removed. 

Subpart M—[Amended] 

■ 20. Subpart M of Part 668 is amended 

by removing appendices A and B. 

■ 21. Add a new subpart N to Part 668 

to read as follows: 

Subpart N—Cohort Default Rates 

Sec. 

668.200 Purpose of this subpart. 

668.201 Definitions of terms used in this 

subpart. 

668.202 Calculating and applying cohort 

default rates. 

668.203 Determining cohort default rates 

for institutions that have undergone a 

change in status. 

668.204 Draft cohort default rates and your 

ability to challenge before official cohort 

default rates are issued. 

668.205 Notice of your official cohort 

default rate. 

668.206 Consequences of cohort default 

rates on your ability to participate in 

Title IV, HEA programs. 

668.207 Preventing evasion of the 

consequences of cohort default rates. 

668.208 General requirements for adjusting 

official cohort default rates and for 

appealing their consequences. 

668.209 Uncorrected data adjustments. 

668.210 New data adjustments. 

668.211 Erroneous data appeals. 

668.212 Loan servicing appeals. 

668.213 Economically disadvantaged 

appeals. 

668.214 Participation rate index appeals. 

668.215 Average rates appeals. 

668.216 Thirty-or-fewer borrowers appeals. 


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668.217 Default prevention plans. 

Appendix A to Subpart N of Part 668— 

Sample Default Prevention Plan 

Subpart N—Cohort Default Rates 

§ 668.200 Purpose of this subpart. 

(a) General. Your cohort default rate is 

a measure we use to determine your 

eligibility to participate in various Title 

IV, HEA programs. We may also use it 

for determining your eligibility for 

exemptions, such as those for certain 

disbursement requirements under the 

FFEL and Direct Loan Programs. This 

subpart applies solely to cohorts, as 

defined in §§ 668.201(a) and 668.202(b), 

for fiscal years 2009 and later. For these 

cohorts, this subpart describes how 

cohort default rates are calculated, some 

of the consequences of cohort default 

rates, and how you may request changes 

to your cohort default rates or appeal 

their consequences. Under this subpart, 

you submit a ‘‘challenge’’ after you 

receive your draft cohort default rate, 

and you request an ‘‘adjustment’’ or 

‘‘appeal’’ after your official cohort 

default rate is published. 

(b) Cohort Default Rates. 

Notwithstanding anything to the 

contrary in this subpart, we will issue 

annually two sets of draft and official 

cohort default rates for fiscal years 2009, 

2010, and 2011. For each of these years, 

you will receive one set of draft and 

official cohort default rates under this 

subpart and another set of draft and 

official cohort default rates under 

subpart M of this part. 

Authority: 20 U.S.C. 1082, 1085, 1094, 

1099c. 

§ 668.201 Definitions of terms used in this 

subpart. 

We use the following definitions in 

this subpart: 

(a) Cohort. Your cohort is a group of 

borrowers used to determine your 

cohort default rate. The method for 

identifying the borrowers in a cohort is 

provided in § 668.202(b). 

(b) Data manager. (1) For FFELP loans 

held by a guaranty agency or lender, the 

guaranty agency is the data manager. 

(2) For FFELP loans that we hold, we 

are the data manager. 

(3) For Direct Loan Program loans, the 

Direct Loan Servicer, as defined in 34 

CFR 685.102, is the data manager. 

(c) Days. In this subpart, ‘‘days’’ 

means calendar days. 

(d) Default. A borrower is considered 

to be in default for cohort default rate 

purposes under the rules in 

§ 668.202(c). 

(e) Draft cohort default rate. Your 

draft cohort default rate is a rate we 

issue, for your review, before we issue 

your official cohort default rate. A draft 

cohort default rate is used only for the 

purposes described in § 668.204. 

(f) Entering repayment. (1) Except as 

provided in paragraphs (f)(2) and (f)(3) 

of this section, loans are considered to 

enter repayment on the dates described 

in 34 CFR 682.200 (under the definition 

of ‘‘repayment period’’) and in 34 CFR 

685.207. 

(2) A Federal SLS loan is considered 

to enter repayment— 

(i) At the same time the borrower’s 

Federal Stafford loan enters repayment, 

if the borrower received the Federal SLS 

loan and the Federal Stafford loan 

during the same period of continuous 

enrollment; or 

(ii) In all other cases, on the day after 

the student ceases to be enrolled at an 

institution on at least a half-time basis 

in an educational program leading to a 

degree, certificate, or other recognized 

educational credential. 

(3) For the purposes of this subpart, 

a loan is considered to enter repayment 

on the date that a borrower repays it in 

full, if the loan is paid in full before the 

loan enters repayment under paragraphs 

(f)(1) or (f)(2) of this section. 

(g) Fiscal year. A fiscal year begins on 

October 1 and ends on the following 

September 30. A fiscal year is identified 

by the calendar year in which it ends. 

(h) Loan record detail report. The loan 

record detail report is a report that we 

produce. It contains the data used to 

calculate your draft or official cohort 

default rate. 

(i) Official cohort default rate. Your 

official cohort default rate is the cohort 

default rate that we publish for you 

under § 668.205. Cohort default rates 

calculated under this subpart are not 

related in any way to cohort default 

rates that are calculated for the Federal 

Perkins Loan Program. 

(j) We. We are the Department, the 

Secretary, or the Secretary’s designee. 

(k) You. You are an institution. 

Authority: 20 U.S.C. 1082, 1085, 1094, 

1099c. 

§ 668.202 Calculating and applying cohort 

default rates. 

(a) General. This section describes the 

four steps that we follow to calculate 

and apply your cohort default rate for a 

fiscal year: 

(1) First, under paragraph (b) of this 

section, we identify the borrowers in 

your cohort for the fiscal year. If the 

total number of borrowers in that cohort 

is fewer than 30, we also identify the 

borrowers in your cohorts for the 2 most 

recent prior fiscal years. 

(2) Second, under paragraph (c) of this 

section, we identify the borrowers in the 

cohort (or cohorts) who are considered 

to be in default by the end of the second 

fiscal year following the fiscal year 

those borrowers entered repayment. If 

more than one cohort will be used to 

calculate your cohort default rate, we 

identify defaulted borrowers separately 

for each cohort. 

(3) Third, under paragraph (d) of this 

section, we calculate your cohort default 

rate. 

(4) Fourth, we apply your cohort 

default rate to all of your locations— 

(i) As you exist on the date you 

receive the notice of your official cohort 

default rate; and 

(ii) From the date on which you 

receive the notice of your official cohort 

default rate until you receive our notice 

that the cohort default rate no longer 

applies. 

(b) Identify the borrowers in a cohort. 

(1) Except as provided in paragraph 

(b)(3) of this section, your cohort for a 

fiscal year consists of all of your current 

and former students who, during that 

fiscal year, entered repayment on any 

Federal Stafford loan, Federal SLS loan, 

Direct Subsidized loan, or Direct 

Unsubsidized loan that they received to 

attend your institution, or on the 

portion of a loan made under the 

Federal Consolidation Loan Program or 

the Federal Direct Consolidation Loan 

Program (as defined in 34 CFR 685.102) 

that is used to repay those loans. 

(2) A borrower may be included in 

more than one of your cohorts and may 

be included in the cohorts of more than 

one institution in the same fiscal year. 

(3) A TEACH Grant that has been 

converted to a Federal Direct 

Unsubsidized Loan is not considered for 

the purpose of calculating and applying 

cohort default rates. 

(c) Identify the borrowers in a cohort 

who are in default. (1) Except as 

provided in paragraph (c)(2) of this 

section, a borrower in a cohort for a 

fiscal year is considered to be in default 

if, before the end of the second fiscal 

year following the fiscal year the 

borrower entered repayment— 

(i) The borrower defaults on any 

FFELP loan that was used to include the 

borrower in the cohort or on any Federal 

Consolidation Loan Program loan that 

repaid a loan that was used to include 

the borrower in the cohort (however, a 

borrower is not considered to be in 

default unless a claim for insurance has 

been paid on the loan by a guaranty 

agency or by us); 

(ii) The borrower fails to make an 

installment payment, when due, on any 

Direct Loan Program loan that was used 

to include the borrower in the cohort or 

on any Federal Direct Consolidation 

Loan Program loan that repaid a loan 

that was used to include the borrower 


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in the cohort, and the borrower’s failure 

persists for 360 days (or for 270 days, if 

the borrower’s first day of delinquency 

was before October 7, 1998); 

(iii) You or your owner, agent, 

contractor, employee, or any other 

affiliated entity or individual make a 

payment to prevent a borrower’s default 

on a loan that is used to include the 

borrower in that cohort; or 

(iv) The borrower fails to make an 

installment payment, when due, on a 

Federal Stafford Loan that is held by the 

Secretary or a Federal Consolidation 

Loan that is held by the Secretary and 

that was used to repay a Federal 

Stafford Loan, if such Federal Stafford 

Loan or Federal Consolidation was used 

to include the borrower in the cohort, 

and the borrower’s failure persists for 

360 days. 

(2) A borrower is not considered to be 

in default based on a loan that is, before 

the end of the second fiscal year 

following the fiscal year in which it 

entered repayment— 

(i) Rehabilitated under 34 CFR 

682.405 or 34 CFR 685.211(e); or 

(ii) Repurchased by a lender because 

the claim for insurance was submitted 

or paid in error. 

(d) Calculate the cohort default rate. 

Except as provided in § 668.203, if there 

are— 

(1)(i) Thirty or more borrowers in 

your cohort for a fiscal year, your cohort 

default rate is the percentage that is 

calculated by— 

(ii) Dividing the number of borrowers 

in the cohort who are in default, as 

determined under paragraph (c) of this 

section by the number of borrowers in 

the cohort, as determined under 

paragraph (b) of this section. 

(2)(i) Fewer than 30 borrowers in your 

cohort for a fiscal year, your cohort 

default rate is the percentage that is 

calculated by— 

(ii) Dividing the total number of 

borrowers in that cohort and in the two 

most recent prior cohorts who are in 

default, as determined for each cohort 

under paragraph (c) of this section by 

the total number of borrowers in that 

cohort and the two most recent prior 

cohorts, as determined for each cohort 

under paragraph (b) of this section. 

Authority: 20 U.S.C. 1070g, 1082, 1085, 

1094, 1099c. 

§ 668.203 Determining cohort default rates 

for institutions that have undergone a 

change in status. 

(a) General. (1) Except as provided 

under 34 CFR 600.32(d), if you undergo 

a change in status identified in this 

section, your cohort default rate is 

determined under this section. 

(2) In determining cohort default rates 

under this section, the date of a merger, 

acquisition, or other change in status is 

the date the change occurs. 

(3) A change in status may affect your 

eligibility to participate in Title IV, HEA 

programs under § 668.206 or § 668.207. 

(4) If another institution’s cohort 

default rate is applicable to you under 

this section, you may challenge, request 

an adjustment, or submit an appeal for 

the cohort default rate under the same 

requirements that would be applicable 

to the other institution under §§ 668.204 

and 668.208. 

(b) Acquisition or merger of 

institutions. If your institution acquires, 

or was created by the merger of, one or 

more institutions that participated 

independently in the Title IV, HEA 

programs immediately before the 

acquisition or merger— 

(1) For the cohort default rates 

published before the date of the 

acquisition or merger, your cohort 

default rates are the same as those of 

your predecessor that had the highest 

total number of borrowers entering 

repayment in the two most recent 

cohorts used to calculate those cohort 

default rates; and 

(2) Beginning with the first cohort 

default rate published after the date of 

the acquisition or merger, your cohort 

default rates are determined by 

including the applicable borrowers from 

each institution involved in the 

acquisition or merger in the calculation 

under § 668.202. 

(c) Acquisition of branches or 

locations. If you acquire a branch or a 

location from another institution 

participating in the Title IV, HEA 

programs— 

(1) The cohort default rates published 

for you before the date of the change 

apply to you and to the newly acquired 

branch or location; 

(2) Beginning with the first cohort 

default rate published after the date of 

the change, your cohort default rates for 

the next 3 fiscal years are determined by 

including the applicable borrowers from 

your institution and the other 

institution (including all of its locations) 

in the calculation under § 668.202; 

(3) After the period described in 

paragraph (c)(2) of this section, your 

cohort default rates do not include 

borrowers from the other institution in 

the calculation under § 668.202; and 

(4) At all times, the cohort default rate 

for the institution from which you 

acquired the branch or location is not 

affected by this change in status. 

(d) Branches or locations becoming 

institutions. If you are a branch or 

location of an institution that is 

participating in the Title IV, HEA 

programs, and you become a separate, 

new institution for the purposes of 

participating in those programs— 

(1) The cohort default rates published 

before the date of the change for your 

former parent institution are also 

applicable to you; 

(2) Beginning with the first cohort 

default rate published after the date of 

the change, your cohort default rates for 

the next 3 fiscal years are determined by 

including the applicable borrowers from 

your institution and your former parent 

institution (including all of its locations) 

in the calculation under § 668.202; and 

(3) After the period described in 

paragraph (d)(2) of this section, your 

cohort default rates do not include 

borrowers from your former parent 

institution in the calculation under 

§ 668.202. 

Authority: 20 U.S.C. 1082, 1085, 1094, 

1099c. 

§ 668.204 Draft cohort default rates and 

your ability to challenge before official 

cohort default rates are issued. 

(a) General. (1) We notify you of your 

draft cohort default rate before your 

official cohort default rate is calculated. 

Our notice includes the loan record 

detail report for the draft cohort default 

rate. 

(2) Regardless of the number of 

borrowers included in your cohort, your 

draft cohort default rate is always 

calculated using data for that fiscal year 

alone, using the method described in 

§ 668.202(d)(1). 

(3) Your draft cohort default rate and 

the loan record detail report are not 

considered public information and may 

not be otherwise voluntarily released to 

the public by a data manager. 

(4) Any challenge you submit under 

this section and any response provided 

by a data manager must be in a format 

acceptable to us. This acceptable format 

is described in the ‘‘Cohort Default Rate 

Guide’’ that we provide to you. If your 

challenge does not comply with the 

requirements in the ‘‘Cohort Default 

Rate Guide,’’ we may deny your 

challenge. 

(b) Incorrect data challenges. (1) You 

may challenge the accuracy of the data 

included on the loan record detail 

report by sending a challenge to the 

relevant data manager, or data 

managers, within 45 days after you 

receive the data. Your challenge must 

include— 

(i) A description of the information in 

the loan record detail report that you 

believe is incorrect; and 

(ii) Documentation that supports your 

contention that the data are incorrect. 

(2) Within 30 days after receiving 

your challenge, the data manager must 

send you and us a response that— 


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(i) Addresses each of your allegations 

of error; and 

(ii) Includes the documentation that 

supports the data manager’s position. 

(3) If your data manager concludes 

that draft data in the loan record detail 

report are incorrect, and we agree, we 

use the corrected data to calculate your 

cohort default rate. 

(4) If you fail to challenge the 

accuracy of data under this section, you 

cannot contest the accuracy of those 

data in an uncorrected data adjustment, 

under § 668.209, or in an erroneous data 

appeal, under § 668.211. 

(c) Participation rate index 

challenges. (1)(i) You may challenge an 

anticipated loss of eligibility under 

§ 668.206(a)(1), based on one cohort 

default rate over 40 percent, if your 

participation rate index for that cohort’s 

fiscal year is equal to or less than 

0.06015. 

(ii) You may challenge an anticipated 

loss of eligibility under § 668.206(a)(2), 

based on three cohort default rates of 30 

percent or greater, if your participation 

rate index is equal to or less than 0.0625 

for any of those three cohorts’ fiscal 

years. 

(iii) You may challenge a potential 

placement on provisional certification 

under § 668.16(m)(2)(i), based on two 

cohort default rates that fail to satisfy 

the standard of administrative capability 

in § 668.16(m)(1)(ii), if your 

participation rate index is equal to or 

less than 0.0625 for either of the two 

cohorts’ fiscal years. 

(2) For a participation rate index 

challenge, your participation rate index 

is calculated as described in 

§ 668.214(b), except that— 

(i) The draft cohort default rate is 

considered to be your most recent 

cohort default rate; and 

(ii) If the cohort used to calculate your 

draft cohort default rate included fewer 

than 30 borrowers, you may calculate 

your participation rate index for that 

fiscal year using either your most recent 

draft cohort default rate or the average 

rate that would be calculated for that 

fiscal year, using the method described 

in § 668.202(d)(2). 

(3) You must send your participation 

rate index challenge, including all 

supporting documentation, to us within 

45 days after you receive your draft 

cohort default rate. 

(4) We notify you of our 

determination on your participation rate 

index challenge before your official 

cohort default rate is published. 

(5) If we determine that you qualify 

for continued eligibility or full 

certification based on your participation 

rate index challenge, you will not lose 

eligibility under § 668.206 or be placed 

on provisional certification under 

§ 668.16(m)(2)(i) when your next official 

cohort default rate is published. A 

successful challenge that is based on 

your draft cohort default rate does not 

excuse you from any other loss of 

eligibility or placement on provisional 

certification. However, if your 

successful challenge under paragraph 

(c)(1)(ii) or (c)(1)(iii) of this section is 

based on a prior, official cohort default 

rate, and not on your draft cohort 

default rate, we also excuse you from 

any subsequent loss of eligibility, under 

§ 668.206(a)(2) or placement on 

provisional certification, under 

§ 668.16(m)(2)(i), that would be based 

on that official cohort default rate. 

Authority: 20 U.S.C. 1082, 1085, 1094, 

1099c. 

§ 668.205 Notice of your official cohort 

default rate. 

(a) We electronically notify you of 

your cohort default rate after we 

calculate it, by sending you an eCDR 

notification package to the destination 

point you designate. After we send our 

notice to you, we publish a list of cohort 

default rates for all institutions. 

(b) If you had one or more borrowers 

entering repayment in the fiscal year for 

which the rate is calculated, or are 

subject to sanctions, or if the 

Department believes you will have an 

official cohort default rate calculated as 

an average rate, you will receive a loan 

record detail report as part of your eCDR 

notification package. 

(c) You have five business days, from 

the transmission date for eCDR 

notification packages as posted on the 

Department’s Web site, to report any 

problem with receipt of the electronic 

transmission of your eCDR notification 

package. 

(d) Except as provided in paragraph 

(e) of this section, timelines for 

submitting challenges, adjustments, and 

appeals begin on the sixth business day 

following the transmission date for 

eCDR notification packages that is 

posted on the Department’s Web site. 

(e) If you timely report a problem with 

transmission of your eCDR notification 

package under paragraph (c) of this 

section and the Department agrees that 

the problem with transmission was not 

caused by you, the Department will 

extend the challenge, appeal and 

adjustment deadlines and timeframes to 

account for a retransmission of your 

eCDR notification package after the 

technical problem is resolved. 

Authority: 20 U.S.C. 1082, 1085, 1094, 

1099c. 

§ 668.206 Consequences of cohort default 

rates on your ability to participate in Title 

IV, HEA programs. 

(a) End of participation. (1) Except as 

provided in paragraph (e) of this 

section, you lose your eligibility to 

participate in the FFEL and Direct Loan 

programs 30 days after you receive our 

notice that your most recent cohort 

default rate for fiscal year 2011 or later 

is greater than 40 percent. 

(2) Except as provided in paragraphs 

(d) and (e) of this section, you lose your 

eligibility to participate in the FFEL, 

Direct Loan, and Federal Pell Grant 

programs 30 days after you receive our 

notice that your three most recent 

cohort default rates are each 30 percent 

or greater. 

(b) Length of period of ineligibility. 

Your loss of eligibility under this 

section continues— 

(1) For the remainder of the fiscal year 

in which we notify you that you are 

subject to a loss of eligibility; and 

(2) For the next 2 fiscal years. 

(c) Using a cohort default rate more 

than once. The use of a cohort default 

rate as a basis for a loss of eligibility 

under this section does not preclude its 

use as a basis for— 

(1) Any concurrent or subsequent loss 

of eligibility under this section; or 

(2) Any other action by us. 

(d) Continuing participation in Pell. If 

you are subject to a loss of eligibility 

under paragraph (a)(2) of this section, 

based on three cohort default rates of 30 

percent or greater, you may continue to 

participate in the Federal Pell Grant 

Program if we determine that you— 

(1) Were ineligible to participate in 

the FFEL and Direct Loan programs 

before October 7, 1998, and your 

eligibility was not reinstated; 

(2) Requested in writing, before 

October 7, 1998, to withdraw your 

participation in the FFEL and Direct 

Loan programs, and you were not later 

reinstated; or 

(3) Have not certified an FFELP loan 

or originated a Direct Loan Program loan 

on or after July 7, 1998. 

(e) Requests for adjustments and 

appeals. (1) A loss of eligibility under 

this section does not take effect while 

your request for adjustment or appeal, 

as listed in § 668.208(a), is pending, 

provided your request for adjustment or 

appeal is complete, timely, accurate, 

and in the required format. 

(2) Eligibility continued under 

paragraph (e)(1) of this section ends if 

we determine that none of the requests 

for adjustments and appeals you have 

submitted qualify you for continued 

eligibility under § 668.208. Loss of 

eligibility takes effect on the date that 

you receive notice of our determination 


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on your last pending request for 

adjustment or appeal. 

(3) You do not lose eligibility under 

this section if we determine that your 

request for adjustment or appeal meets 

all requirements of this subpart and 

qualifies you for continued eligibility 

under § 668.208. 

(4) To avoid liabilities you might 

otherwise incur under paragraph (f) of 

this section, you may choose to suspend 

your participation in the FFEL and 

Direct Loan programs during the 

adjustment or appeal process. 

(f) Liabilities during the adjustment or 

appeal process. If you continued to 

participate in the FFEL or Direct Loan 

Program under paragraph (e)(1) of this 

section, and we determine that none of 

your requests for adjustments or appeals 

qualify you for continued eligibility— 

(1) For any FFEL or Direct Loan 

Program loan that you certified and 

delivered or originated and disbursed 

more than 30 days after you received the 

notice of your cohort default rate, we 

estimate the amount of interest, special 

allowance, reinsurance, and any related 

or similar payments we make or are 

obligated to make on those loans; 

(2) We exclude from this estimate any 

amount attributable to funds that you 

delivered or disbursed more than 45 

days after you submitted your 

completed appeal to us; 

(3) We notify you of the estimated 

amount; and 

(4) Within 45 days after you receive 

our notice of the estimated amount, you 

must pay us that amount, unless— 

(i) You file an appeal under the 

procedures established in subpart H of 

this part (for the purposes of subpart H 

of this part, our notice of the estimate 

is considered to be a final program 

review determination); or 

(ii) We permit a longer repayment 

period. 

(g) Regaining eligibility. If you lose 

your eligibility to participate in a 

program under this section, you may not 

participate in that program until— 

(1) The period described in paragraph 

(b) of this section has ended; 

(2) You pay any amount owed to us 

under this section or are meeting that 

obligation under an agreement 

acceptable to us; 

(3) You submit a new application for 

participation in the program; 

(4) We determine that you meet all of 

the participation requirements in effect 

at the time of your application; and 

(5) You and we enter into a new 

program participation agreement. 

Authority: 20 U.S.C. 1082, 1085, 1094, 

1099c. 

§ 668.207 Preventing evasion of the 

consequences of cohort default rates. 

(a) General. You are subject to a loss 

of eligibility that has already been 

imposed against another institution as a 

result of cohort default rates if— 

(1) You and the ineligible institution 

are both parties to a transaction that 

results in a change of ownership, a 

change in control, a merger, a 

consolidation, an acquisition, a change 

of name, a change of address, any 

change that results in a location 

becoming a freestanding institution, a 

purchase or sale, a transfer of assets, an 

assignment, a change of identification 

number, a contract for services, an 

addition or closure of one or more 

locations or branches or educational 

programs, or any other change in whole 

or in part in institutional structure or 

identity; 

(2) Following the change described in 

paragraph (a)(1) of this section, you offer 

an educational program at substantially 

the same address at which the ineligible 

institution had offered an educational 

program before the change; and 

(3) There is a commonality of 

ownership or management between you 

and the ineligible institution, as the 

ineligible institution existed before the 

change. 

(b) Commonality of ownership or 

management. For the purposes of this 

section, a commonality of ownership or 

management exists if, at each 

institution, the same person (as defined 

in 34 CFR 600.31) or members of that 

person’s family, directly or indirectly— 

(1) Holds or held a managerial role; or 

(2) Has or had the ability to affect 

substantially the institution’s actions, 

within the meaning of 34 CFR 600.21. 

(c) Teach-outs. Notwithstanding 

paragraph (b)(1) of this section, a 

commonality of management does not 

exist if you are conducting a teach-out 

under a teach-out agreement as defined 

in 34 CFR 602.3 and administered in 

accordance with 34 CFR 602.24(c), 

and— 

(1)(i) Within 60 days after the change 

described in this section, you send us 

the names of the managers for each 

facility undergoing the teach-out as it 

existed before the change and for each 

facility as it exists after you believe that 

the commonality of management has 

ended; and 

(ii) We determine that the 

commonality of management, as 

described in paragraph (b)(1) of this 

section, has ended; or 

(2)(i) Within 30 days after you receive 

our notice that we have denied your 

submission under paragraph (c)(1)(i) of 

this section, you make the management 

changes we request and send us a list of 

the names of the managers for each 

facility undergoing the teach-out as it 

exists after you make those changes; and 

(ii) We determine that the 

commonality of management, as 

described in paragraph (b)(1) of this 

section, has ended. 

(d) Initial determination. We 

encourage you to contact us before 

undergoing a change described in this 

section. If you write to us, providing the 

information we request, we will provide 

a written initial determination of the 

anticipated change’s effect on your 

eligibility. 

(e) Notice of accountability. (1) We 

notify you in writing if, in response to 

your notice or application filed under 

34 CFR 600.20 or 600.21, we determine 

that you are subject to a loss of 

eligibility, under paragraph (a) of this 

section, that has been imposed against 

another institution. 

(2) Our notice also advises you of the 

scope and duration of your loss of 

eligibility. The loss of eligibility applies 

to all of your locations from the date 

you receive our notice until the 

expiration of the period of ineligibility 

applicable to the other institution. 

(3) If you are subject to a loss of 

eligibility under this section that has 

already been imposed against another 

institution, you may only request an 

adjustment or submit an appeal for the 

loss of eligibility under the same 

requirements that would be applicable 

to the other institution under § 668.208. 

Authority: 20 U.S.C. 1082, 1085, 1094, 

1099c. 

§ 668.208 General requirements for 

adjusting official cohort default rates and 

for appealing their consequences. 

(a) Remaining eligible. You do not 

lose eligibility under § 668.206 if— 

(1) We recalculate your cohort default 

rate, and it is below the percentage 

threshold for the loss of eligibility as the 

result of— 

(i) An uncorrected data adjustment 

submitted under this section and 

§ 668.209; 

(ii) A new data adjustment submitted 

under this section and § 668.210; 

(iii) An erroneous data appeal 

submitted under this section and 

§ 668.211; or 

(iv) A loan servicing appeal submitted 

under this section and § 668.212; or 

(2) You meet the requirements for— 

(i) An economically disadvantaged 

appeal submitted under this section and 

§ 668.213; 

(ii) A participation rate index appeal 

submitted under this section and 

§ 668.214; 

(iii) An average rates appeal 

submitted under this section and 

§ 668.215; or 


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(iv) A thirty-or-fewer borrowers 

appeal submitted under this section and 

§ 668.216. 

(b) Limitations on your ability to 

dispute your cohort default rate. (1) You 

may not dispute the calculation of a 

cohort default rate except as described 

in this subpart or in § 668.16(m)(2). 

(2) You may not request an 

adjustment or appeal a cohort default 

rate, under § 668.209, § 668.210, 

§ 668.211, or § 668.212, more than once. 

(3) You may not request an 

adjustment or appeal a cohort default 

rate, under § 668.209, § 668.210, 

§ 668.211, or § 668.212, if you 

previously lost your eligibility to 

participate in a Title IV, HEA program, 

under § 668.206, or were placed on 

provisional certification under 

§ 668.16(m)(2)(i), based entirely or 

partially on that cohort default rate. 

(c) Content and format of requests for 

adjustments and appeals. We may deny 

your request for adjustment or appeal if 

it does not meet the following 

requirements: 

(1) All appeals, notices, requests, 

independent auditor’s opinions, 

management’s written assertions, and 

other correspondence that you are 

required to send under this subpart 

must be complete, timely, accurate, and 

in a format acceptable to us. This 

acceptable format is described in the 

‘‘Cohort Default Rate Guide’’ that we 

provide to you. 

(2) Your completed request for 

adjustment or appeal must include— 

(i) All of the information necessary to 

substantiate your request for adjustment 

or appeal; and 

(ii) A certification by your chief 

executive officer, under penalty of 

perjury, that all the information you 

provide is true and correct. 

(d) Our copies of your 

correspondence. Whenever you are 

required by this subpart to correspond 

with a party other than us, you must 

send us a copy of your correspondence 

within the same time deadlines. 

However, you are not required to send 

us copies of documents that you 

received from us originally. 

(e) Requirements for data managers’ 

responses. (1) Except as otherwise 

provided in this subpart, if this subpart 

requires a data manager to correspond 

with any party other than us, the data 

manager must send us a copy of the 

correspondence within the same time 

deadlines. 

(2) If a data manager sends us 

correspondence under this subpart that 

is not in a format acceptable to us, we 

may require the data manager to revise 

that correspondence’s format, and we 

may prescribe a format for that data 

manager’s subsequent correspondence 

with us. 

(f) Our decision on your request for 

adjustment or appeal. (1) We determine 

whether your request for an adjustment 

or appeal is in compliance with this 

subpart. 

(2) In making our decision for an 

adjustment, under § 668.209 or 

§ 668.210, or an appeal, under § 668.211 

or § 668.212— 

(i) We presume that the information 

provided to you by a data manager is 

correct unless you provide substantial 

evidence that shows the information is 

not correct; and 

(ii) If we determine that a data 

manager did not provide the necessary 

clarifying information or legible records 

in meeting the requirements of this 

subpart, we presume that the evidence 

that you provide to us is correct unless 

it is contradicted or otherwise proven to 

be incorrect by information we 

maintain. 

(3) Our decision is based on the 

materials you submit under this subpart. 

We do not provide an oral hearing. 

(4) We notify you of our decision— 

(i) If you request an adjustment or 

appeal because you are subject to a loss 

of eligibility under § 668.206 or 

potential placement on provisional 

certification under § 668.16(m)(2)(i) or 

file an economically disadvantaged 

appeal under § 668.213(a)(2), within 45 

days after we receive your completed 

request for an adjustment or appeal; or 

(ii) In all other cases, except for 

appeals submitted under § 668.211(a) 

following placement on provisional 

certification, before we notify you of 

your next official cohort default rate. 

(5) You may not seek judicial review 

of our determination of a cohort default 

rate until we issue our decision on all 

pending requests for adjustments or 

appeals for that cohort default rate. 

Authority: 20 U.S.C. 1082, 1085, 1094, 

1099c. 

§ 668.209 Uncorrected data adjustments. 

(a) Eligibility. You may request an 

uncorrected data adjustment for your 

most recent cohort of borrowers, used to 

calculate your most recent official 

cohort default rate, if in response to 

your challenge under § 668.204(b), a 

data manager agreed correctly to change 

the data, but the changes are not 

reflected in your official cohort default 

rate. 

(b) Deadlines for requesting an 

uncorrected data adjustment. You must 

send us a request for an uncorrected 

data adjustment, including all 

supporting documentation, within 30 

days after you receive your loan record 

detail report from us. 

(c) Determination. We recalculate 

your cohort default rate, based on the 

corrected data, and electronically 

correct the rate that is publicly released 

if we determine that— 

(1) In response to your challenge 

under § 668.204(b), a data manager 

agreed to change the data; 

(2) The changes described in 

paragraph (c)(1) of this section are not 

reflected in your official cohort default 

rate; and 

(3) We agree that the data are 

incorrect. 

(Approved by the Office of Management and 

Budget under control number 1845–0022) 

Authority: 20 U.S.C. 1082, 1085, 1094, 

1099c. 

§ 668.210 New data adjustments. 

(a) Eligibility. You may request a new 

data adjustment for your most recent 

cohort of borrowers, used to calculate 

your most recent official cohort default 

rate, if— 

(1) A comparison of the loan record 

detail reports that we provide to you for 

the draft and official cohort default rates 

shows that the data have been newly 

included, excluded, or otherwise 

changed; and 

(2) You identify errors in the data 

described in paragraph (a)(1) of this 

section that are confirmed by the data 

manager. 

(b) Deadlines for requesting a new 

data adjustment. (1) You must send to 

the relevant data manager, or data 

managers, and us a request for a new 

data adjustment, including all 

supporting documentation, within 15 

days after you receive your loan record 

detail report from us. 

(2) Within 20 days after receiving 

your request for a new data adjustment, 

the data manager must send you and us 

a response that— 

(i) Addresses each of your allegations 

of error; and 

(ii) Includes the documentation used 

to support the data manager’s position. 

(3) Within 15 days after receiving a 

guaranty agency’s notice that we hold 

an FFELP loan about which you are 

inquiring, you must send us your 

request for a new data adjustment for 

that loan. We respond to your request as 

set forth under paragraph (b)(2) of this 

section. 

(4) Within 15 days after receiving 

incomplete or illegible records or data 

from a data manager, you must send a 

request for replacement records or 

clarification of data to the data manager 

and us. 

(5) Within 20 days after receiving 

your request for replacement records or 

clarification of data, the data manager 

must— 


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(i) Replace the missing or illegible 

records; 

(ii) Provide clarifying information; or 

(iii) Notify you and us that no 

clarifying information or additional or 

improved records are available. 

(6) You must send us your completed 

request for a new data adjustment, 

including all supporting 

documentation— 

(i) Within 30 days after you receive 

the final data manager’s response to 

your request or requests; or 

(ii) If you are also filing an erroneous 

data appeal or a loan servicing appeal, 

by the latest of the filing dates required 

in paragraph (b)(6)(i) of this section or 

in § 668.211(b)(6)(i) or 

§ 668.212(c)(10)(i). 

(c) Determination. If we determine 

that incorrect data were used to 

calculate your cohort default rate, we 

recalculate your cohort default rate 

based on the correct data and make 

electronic corrections to the rate that is 

publicly released. 

(Approved by the Office of Management and 

Budget under control number 1845–0022) 

Authority: 20 U.S.C. 1082, 1085, 1094, 

1099c. 

§ 668.211 Erroneous data appeals. 

(a) Eligibility. Except as provided in 

§ 668.208(b), you may appeal the 

calculation of a cohort default rate upon 

which a loss of eligibility, under 

§ 668.206, or provisional certification, 

under § 668.16(m), is based if— 

(1) You dispute the accuracy of data 

that you previously challenged on the 

basis of incorrect data, under 

§ 668.204(b); or 

(2) A comparison of the loan record 

detail reports that we provide to you for 

the draft and official cohort default rates 

shows that the data have been newly 

included, excluded, or otherwise 

changed, and you dispute the accuracy 

of that data. 

(b) Deadlines for submitting an 

appeal. (1) You must send a request for 

verification of data errors to the relevant 

data manager, or data managers, and to 

us within 15 days after you receive the 

notice of your loss of eligibility or 

provisional certification. Your request 

must include a description of the 

information in the cohort default rate 

data that you believe is incorrect and all 

supporting documentation that 

demonstrates the error. 

(2) Within 20 days after receiving 

your request for verification of data 

errors, the data manager must send you 

and us a response that— 

(i) Addresses each of your allegations 

of error; and 

(ii) Includes the documentation used 

to support the data manager’s position. 

(3) Within 15 days after receiving a 

guaranty agency’s notice that we hold 

an FFELP loan about which you are 

inquiring, you must send us your 

request for verification of that loan’s 

data errors. Your request must include 

a description of the information in the 

cohort default rate data that you believe 

is incorrect and all supporting 

documentation that demonstrates the 

error. We respond to your request as set 

forth under paragraph (b)(2) of this 

section. 

(4) Within 15 days after receiving 

incomplete or illegible records or data, 

you must send a request for replacement 

records or clarification of data to the 

data manager and us. 

(5) Within 20 days after receiving 

your request for replacement records or 

clarification of data, the data manager 

must— 

(i) Replace the missing or illegible 

records; 

(ii) Provide clarifying information; or 

(iii) Notify you and us that no 

clarifying information or additional or 

improved records are available. 

(6) You must send your completed 

appeal to us, including all supporting 

documentation— 

(i) Within 30 days after you receive 

the final data manager’s response to 

your request; or 

(ii) If you are also requesting a new 

data adjustment or filing a loan 

servicing appeal, by the latest of the 

filing dates required in paragraph 

(b)(6)(i) of this section or in 

§ 668.210(b)(6)(i) or § 668.212(c)(10)(i). 

(c) Determination. If we determine 

that incorrect data were used to 

calculate your cohort default rate, we 

recalculate your cohort default rate 

based on the correct data and 

electronically correct the rate that is 

publicly released. 

(Approved by the Office of Management and 

Budget under control number 1845–0022) 

Authority: 20 U.S.C. 1082, 1085, 1094, 

1099c. 

§ 668.212 Loan servicing appeals. 

(a) Eligibility. Except as provided in 

§ 668.208(b), you may appeal, on the 

basis of improper loan servicing or 

collection, the calculation of— 

(1) Your most recent cohort default 

rate; or 

(2) Any cohort default rate upon 

which a loss of eligibility under 

§ 668.206 is based. 

(b) Improper loan servicing. For the 

purposes of this section, a default is 

considered to have been due to 

improper loan servicing or collection 

only if the borrower did not make a 

payment on the loan and you prove that 

the FFEL Program lender or the Direct 

Loan Servicer, as defined in 34 CFR 

685.102, failed to perform one or more 

of the following activities, if that 

activity applies to the loan: 

(1) Send at least one letter (other than 

the final demand letter) urging the 

borrower to make payments on the loan. 

(2) Attempt at least one phone call to 

the borrower. 

(3) Send a final demand letter to the 

borrower. 

(4) For a Direct Loan Program loan 

only, document that skip tracing was 

performed if the Direct Loan Servicer 

determined that it did not have the 

borrower’s current address. 

(5) For an FFELP loan only— 

(i) Submit a request for preclaims or 

default aversion assistance to the 

guaranty agency; and 

(ii) Submit a certification or other 

documentation that skip tracing was 

performed to the guaranty agency. 

(c) Deadlines for submitting an 

appeal. (1) If the loan record detail 

report was not included with your 

official cohort default rate notice, you 

must request it within 15 days after you 

receive the notice of your official cohort 

default rate. 

(2) You must send a request for loan 

servicing records to the relevant data 

manager, or data managers, and to us 

within 15 days after you receive your 

loan record detail report from us. If the 

data manager is a guaranty agency, your 

request must include a copy of the loan 

record detail report. 

(3) Within 20 days after receiving 

your request for loan servicing records, 

the data manager must— 

(i) Send you and us a list of the 

borrowers in your representative 

sample, as described in paragraph (d) of 

this section (the list must be in social 

security number order, and it must 

include the number of defaulted loans 

included in the cohort for each listed 

borrower); 

(ii) Send you and us a description of 

how your representative sample was 

chosen; and 

(iii) Either send you copies of the loan 

servicing records for the borrowers in 

your representative sample and send us 

a copy of its cover letter indicating that 

the records were sent, or send you and 

us a notice of the amount of its fee for 

providing copies of the loan servicing 

records. 

(4) The data manager may charge you 

a reasonable fee for providing copies of 

loan servicing records, but it may not 

charge more than $10 per borrower file. 

If a data manager charges a fee, it is not 

required to send the documents to you 

until it receives your payment of the fee. 

(5) If the data manager charges a fee 

for providing copies of loan servicing 


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records, you must send payment in full 

to the data manager within 15 days after 

you receive the notice of the fee. 

(6) If the data manager charges a fee 

for providing copies of loan servicing 

records, and— 

(i) You pay the fee in full and on time, 

the data manager must send you, within 

20 days after it receives your payment, 

a copy of all loan servicing records for 

each loan in your representative sample 

(the copies are provided to you in hard 

copy format unless the data manager 

and you agree that another format may 

be used), and it must send us a copy of 

its cover letter indicating that the 

records were sent; or 

(ii) You do not pay the fee in full and 

on time, the data manager must notify 

you and us of your failure to pay the fee 

and that you have waived your right to 

challenge the calculation of your cohort 

default rate based on the data manager’s 

records. We accept that determination 

unless you prove that it is incorrect. 

(7) Within 15 days after receiving a 

guaranty agency’s notice that we hold 

an FFELP loan about which you are 

inquiring, you must send us your 

request for the loan servicing records for 

that loan. We respond to your request 

under paragraph (c)(3) of this section. 

(8) Within 15 days after receiving 

incomplete or illegible records, you 

must send a request for replacement 

records to the data manager and us. 

(9) Within 20 days after receiving 

your request for replacement records, 

the data manager must either— 

(i) Replace the missing or illegible 

records; or 

(ii) Notify you and us that no 

additional or improved copies are 

available. 

(10) You must send your appeal to us, 

including all supporting 

documentation— 

(i) Within 30 days after you receive 

the final data manager’s response to 

your request for loan servicing records; 

or 

(ii) If you are also requesting a new 

data adjustment or filing an erroneous 

data appeal, by the latest of the filing 

dates required in paragraph (c)(10)(i) of 

this section or in § 668.210(b)(6)(i) or 

§ 668.211(b)(6)(i). 

(d) Representative sample of records. 

(1) To select a representative sample of 

records, the data manager first identifies 

all of the borrowers for whom it is 

responsible and who had loans that 

were considered to be in default in the 

calculation of the cohort default rate 

you are appealing. 

(2) From the group of borrowers 

identified under paragraph (d)(1) of this 

section, the data manager identifies a 

sample that is large enough to derive an 

estimate, acceptable at a 95 percent 

confidence level with a plus or minus 

5 percent confidence interval, for use in 

determining the number of borrowers 

who should be excluded from the 

calculation of the cohort default rate 

due to improper loan servicing or 

collection. 

(e) Loan servicing records. Loan 

servicing records are the collection and 

payment history records— 

(1) Provided to the guaranty agency by 

the lender and used by the guaranty 

agency in determining whether to pay a 

claim on a defaulted loan; or 

(2) Maintained by our Direct Loan 

Servicer that are used in determining 

your cohort default rate. 

(f) Determination. (1) We determine 

the number of loans, included in your 

representative sample of loan servicing 

records, that defaulted due to improper 

loan servicing or collection, as 

described in paragraph (b) of this 

section. 

(2) Based on our determination, we 

use a statistically valid methodology to 

exclude the corresponding percentage of 

borrowers from both the numerator and 

denominator of the calculation of your 

cohort default rate, and electronically 

correct the rate that is publicly released. 

(Approved by the Office of Management and 

Budget under control number 1845–0022) 

Authority: 20 U.S.C. 1082, 1085, 1094, 

1099c. 

§ 668.213 Economically disadvantaged 

appeals. 

(a) General. As provided in this 

section you may appeal— 

(1) A notice of a loss of eligibility 

under § 668.206; or 

(2) A notice of a second successive 

official cohort default rate calculated 

under this subpart that is equal to or 

greater than 30 percent but less than or 

equal to 40 percent, potentially 

subjecting you to provisional 

certification under § 668.16(m)(2)(i). 

(b) Eligibility. You may appeal under 

this section if an independent auditor’s 

opinion certifies that your low income 

rate is two-thirds or more and— 

(1) You offer an associate, 

baccalaureate, graduate, or professional 

degree, and your completion rate is 70 

percent or more; or 

(2) You do not offer an associate, 

baccalaureate, graduate, or professional 

degree, and your placement rate is 44 

percent or more. 

(c) Low income rate. (1) Your low 

income rate is the percentage of your 

students, as described in paragraph 

(c)(2) of this section, who— 

(i) For an award year that overlaps the 

12-month period selected under 

paragraph (c)(2) of this section, have an 

expected family contribution, as defined 

in 34 CFR 690.2, that is equal to or less 

than the largest expected family 

contribution that would allow a student 

to receive one-half of the maximum 

Federal Pell Grant award, regardless of 

the student’s enrollment status or cost of 

attendance; or 

(ii) For a calendar year that overlaps 

the 12-month period selected under 

paragraph (c)(2) of this section, have an 

adjusted gross income that, when added 

to the adjusted gross income of the 

student’s parents (if the student is a 

dependent student) or spouse (if the 

student is a married independent 

student), is less than the amount listed 

in the Department of Health and Human 

Services poverty guidelines for the size 

of the student’s family unit. 

(2) The students who are used to 

determine your low income rate include 

only students who were enrolled on at 

least a half-time basis in an eligible 

program at your institution during any 

part of a 12-month period that ended 

during the 6 months immediately 

preceding the cohort’s fiscal year. 

(d) Completion rate. (1) Your 

completion rate is the percentage of 

your students, as described in paragraph 

(d)(2) of this section, who— 

(i) Completed the educational 

programs in which they were enrolled; 

(ii) Transferred from your institution 

to a higher level educational program; 

(iii) Remained enrolled and are 

making satisfactory progress toward 

completion of their educational 

programs at the end of the same 12- 

month period used to calculate the low 

income rate; or 

(iv) Entered active duty in the Armed 

Forces of the United States within 1 

year after their last date of attendance at 

your institution. 

(2) The students who are used to 

determine your completion rate include 

only regular students who were— 

(i) Initially enrolled on a full-time 

basis in an eligible program; and 

(ii) Originally scheduled to complete 

their programs during the same 12- 

month period used to calculate the low 

income rate. 

(e) Placement rate. (1) Except as 

provided in paragraph (e)(2) of this 

section, your placement rate is the 

percentage of your students, as 

described in paragraphs (e)(3) and (e)(4) 

of this section, who— 

(i) Are employed, in an occupation for 

which you provided training, on the 

date following 1 year after their last date 

of attendance at your institution; 

(ii) Were employed for at least 13 

weeks, in an occupation for which you 

provided training, between the date they 

enrolled at your institution and the first 


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date that is more than a year after their 

last date of attendance at your 

institution; or 

(iii) Entered active duty in the Armed 

Forces of the United States within 1 

year after their last date of attendance at 

your institution. 

(2) For the purposes of this section, a 

former student is not considered to have 

been employed based on any 

employment by your institution. 

(3) The students who are used to 

determine your placement rate include 

only former students who— 

(i) Were initially enrolled in an 

eligible program on at least a half-time 

basis; 

(ii) Were originally scheduled, at the 

time of enrollment, to complete their 

educational programs during the same 

12-month period used to calculate the 

low income rate; and 

(iii) Remained in the program beyond 

the point at which a student would have 

received a 100 percent tuition refund 

from you. 

(4) A student is not included in the 

calculation of your placement rate if 

that student, on the date that is 1 year 

after the student’s originally scheduled 

completion date, remains enrolled in 

the same program and is making 

satisfactory progress. 

(f) Scheduled to complete. In 

calculating a completion or placement 

rate under this section, the date on 

which a student is originally scheduled 

to complete a program is based on— 

(1) For a student who is initially 

enrolled full-time, the amount of time 

specified in your enrollment contract, 

catalog, or other materials for 

completion of the program by a full-time 

student; or 

(2) For a student who is initially 

enrolled less than full-time, the amount 

of time that it would take the student to 

complete the program if the student 

remained at that level of enrollment 

throughout the program. 

(g) Deadline for submitting an appeal. 

(1) Within 30 days after you receive the 

notice of your loss of eligibility, you 

must send us your management’s 

written assertion, as described in the 

Cohort Default Rate Guide. 

(2) Within 60 days after you receive 

the notice of your loss of eligibility, you 

must send us the independent auditor’s 

opinion described in paragraph (h) of 

this section. 

(h) Independent auditor’s opinion. (1) 

The independent auditor’s opinion must 

state whether your management’s 

written assertion, as you provided it to 

the auditor and to us, meets the 

requirements for an economically 

disadvantaged appeal and is fairly 

stated in all material respects. 

(2) The engagement that forms the 

basis of the independent auditor’s 

opinion must be an examination-level 

compliance attestation engagement 

performed in accordance with— 

(i) The American Institute of Certified 

Public Accountants’ (AICPA) Statement 

on Standards for Attestation 

Engagements, Compliance Attestation 

(AICPA, Professional Standards, vol. 1, 

AT sec. 500), as amended (these 

standards may be obtained by calling 

the AICPA’s order department, at 1– 

888–777–7077); and 

(ii) Government Auditing Standards 

issued by the Comptroller General of the 

United States. 

(i) Determination. You do not lose 

eligibility under § 668.206, and we do 

not provisionally certify you under 

§ 668.16(m)(2)(i), if— 

(1) Your independent auditor’s 

opinion agrees that you meet the 

requirements for an economically 

disadvantaged appeal; and 

(2) We determine that the 

independent auditor’s opinion and your 

management’s written assertion— 

(i) Meet the requirements for an 

economically disadvantaged appeal; and 

(ii) Are not contradicted or otherwise 

proven to be incorrect by information 

we maintain, to an extent that would 

render the independent auditor’s 

opinion unacceptable. 

Authority: 20 U.S.C. 1082, 1085, 1094, 

1099c. 

§ 668.214 Participation rate index appeals. 

(a) Eligibility. (1) You may appeal a 

notice of a loss of eligibility under 

§ 668.206(a)(1), based on one cohort 

default rate over 40 percent, if your 

participation rate index for that cohort’s 

fiscal year is equal to or less than 

0.06015. 

(2) You may appeal a notice of a loss 

of eligibility under § 668.206(a)(2), 

based on three cohort default rates of 30 

percent or greater, if your participation 

rate index is equal to or less than 0.0625 

for any of those three cohorts’ fiscal 

years. 

(3) You may appeal potential 

placement on provisional certification 

under § 668.16(m)(2)(i) based on two 

cohort default rates that fail to satisfy 

the standard of administrative capability 

in § 668.16(m)(1)(ii) if your participation 

rate index is equal to or less than 0.0625 

for either of the two cohorts’ fiscal 

years. 

(b) Calculating your participation rate 

index. (1) Except as provided in 

paragraph (b)(2) of this section, your 

participation rate index for a fiscal year 

is determined by multiplying your 

cohort default rate for that fiscal year by 

the percentage that is derived by 

dividing— 

(i) The number of students who 

received an FFELP or a Direct Loan 

Program loan to attend your institution 

during a period of enrollment, as 

defined in 34 CFR 682.200 or 685.102, 

that overlaps any part of a 12-month 

period that ended during the 6 months 

immediately preceding the cohort’s 

fiscal year, by 

(ii) The number of regular students 

who were enrolled at your institution on 

at least a half-time basis during any part 

of the same 12-month period. 

(2) If your cohort default rate for a 

fiscal year is calculated as an average 

rate under § 668.202(d)(2), you may 

calculate your participation rate index 

for that fiscal year using either that 

average rate or the cohort default rate 

that would be calculated for the fiscal 

year alone using the method described 

in § 668.202(d)(1). 

(c) Deadline for submitting an appeal. 

You must send us your appeal under 

this section, including all supporting 

documentation, within 30 days after you 

receive— 

(1) Notice of your loss of eligibility; or 

(2) Notice of a second cohort default 

rate that equals or exceeds 30 percent 

but is less than or equal to 40 percent 

and that, in combination with an earlier 

rate, potentially subjects you to 

provisional certification under 

§ 668.16(m)(2)(i). 

(d) Determination. (1) You do not lose 

eligibility under § 668.206 and we do 

not place you on provisional 

certification, if we determine that you 

meet the requirements for a 

participation rate index appeal. 

(2) If we determine that your 

participation rate index for a fiscal year 

is equal to or less than 0.06015 or 

0.0625, under paragraph (d)(1) of this 

section, we also excuse you from any 

subsequent loss of eligibility under 

§ 668.206(a)(2) or placement on 

provisional certification under 

§ 668.16(m)(2)(i) that would be based on 

the official cohort default rate for that 

fiscal year. 

Authority: 20 U.S.C. 1082, 1085, 1094, 

1099c. 

§ 668.215 Average rates appeals. 

(a) Eligibility. (1) You may appeal a 

notice of a loss of eligibility under 

§ 668.206(a)(1), based on one cohort 

default rate over 40 percent, if that 

cohort default rate is calculated as an 

average rate under § 668.202(d)(2). 

(2) You may appeal a notice of a loss 

of eligibility under § 668.206(a)(2), 

based on three cohort default rates of 30 

percent or greater, if at least two of those 

cohort default rates— 


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55660 Federal Register / Vol. 74, No. 207 / Wednesday, October 28, 2009 / Rules and Regulations 

(i) Are calculated as average rates 

under § 668.202(d)(2); and 

(ii) Would be less than 30 percent if 

calculated for the fiscal year alone using 

the method described in § 668.202(d)(1). 

(b) Deadline for submitting an appeal. 

(1) Before notifying you of your official 

cohort default rate, we make an initial 

determination about whether you 

qualify for an average rates appeal. If we 

determine that you qualify, we notify 

you of that determination at the same 

time that we notify you of your official 

cohort default rate. 

(2) If you disagree with our initial 

determination, you must send us your 

average rates appeal, including all 

supporting documentation, within 30 

days after you receive the notice of your 

loss of eligibility. 

(c) Determination. You do not lose 

eligibility under § 668.206 if we 

determine that you meet the 

requirements for an average rates 

appeal. 

Authority: 20 U.S.C. 1082, 1085, 1094, 

1099c. 

§ 668.216 Thirty-or-fewer borrowers 

appeals. 

(a) Eligibility. You may appeal a 

notice of a loss of eligibility under 

§ 668.206 if 30 or fewer borrowers, in 

total, are included in the 3 most recent 

cohorts of borrowers used to calculate 

your cohort default rates. 

(b) Deadline for submitting an appeal. 

(1) Before notifying you of your official 

cohort default rate, we make an initial 

determination about whether you 

qualify for a thirty-or-fewer borrowers 

appeal. If we determine that you qualify, 

we notify you of that determination at 

the same time that we notify you of your 

official cohort default rate. 

(2) If you disagree with our initial 

determination, you must send us your 

thirty-or-fewer borrowers appeal, 

including all supporting documentation, 

within 30 days after you receive the 

notice of your loss of eligibility. 

(c) Determination. You do not lose 

eligibility under § 668.206 if we 

determine that you meet the 

requirements for a thirty-or-fewer 

borrowers appeal. 

Authority: 20 U.S.C. 1082, 1085, 1094, 

1099c. 

§ 668.217 Default prevention plans. 

(a) First year. (1) If your cohort default 

rate is equal to or greater than 30 

percent you must establish a default 

prevention task force that prepares a 

plan to— 

(i) Identify the factors causing your 

cohort default rate to exceed the 

threshold; 

(ii) Establish measurable objectives 

and the steps you will take to improve 

your cohort default rate; 

(iii) Specify the actions you will take 

to improve student loan repayment, 

including counseling students on 

repayment options; and 

(iv) Submit your default prevention 

plan to us. 

(2) We will review your default 

prevention plan and offer technical 

assistance intended to improve student 

loan repayment. 

(b) Second year. (1) If your cohort 

default rate is equal to or greater than 30 

percent for two consecutive fiscal years, 

you must revise your default prevention 

plan and submit it to us for review. 

(2) We may require you to revise your 

default prevention plan or specify 

actions you need to take to improve 

student loan repayment. 

Authority: 20 U.S.C. 1082, 1085, 1094, 

1099c. 

Appendix A to Subpart N of Part 668— 

Sample Default Prevention Plan 

This appendix is provided as a sample 

plan for those institutions developing a 

default prevention plan in accordance with 

§ 668.217(a). It describes some measures you 

may find helpful in reducing the number of 

students that default on Federally funded 

loans. These are not the only measures you 

could implement when developing a default 

prevention plan. 

I. Core Default Reduction Strategies 

1. Establish your default prevention team 

by engaging your chief executive officer and 

relevant senior executive officials and 

enlisting the support of representatives from 

offices other than the financial aid office. 

Consider including individuals and 

organizations independent of your institution 

that have experience in preventing title IV 

loan defaults. 

2. Consider your history, resources, dollars 

in default, and targets for default reduction 

to determine which activities will result in 

the most benefit to you and your students. 

3. Define evaluation methods and establish 

a data collection system for measuring and 

verifying relevant default prevention 

statistics, including a statistical analysis of 

the borrowers who default on their loans. 

4. Identify and allocate the personnel, 

administrative, and financial resources 

appropriate to implement the default 

prevention plan. 

5. Establish annual targets for reductions in 

your rate. 

6. Establish a process to ensure the 

accuracy of your rate. 

II. Additional Default Reduction Strategies 

1. Enhance the borrower’s understanding 

of his or her loan repayment responsibilities 

through counseling and debt management 

activities. 

2. Enhance the enrollment retention and 

academic persistence of borrowers through 

counseling and academic assistance. 

3. Maintain contact with the borrower after 

he or she leaves your institution by using 

activities such as skip tracing to locate the 

borrower. 

4. Track the borrower’s delinquency status 

by obtaining reports from data managers and 

FFEL Program lenders. 

5. Enhance student loan repayments 

through counseling the borrower on loan 

repayment options and facilitating contact 

between the borrower and the data manager 

or FFEL Program lender. 

6. Assist a borrower who is experiencing 

difficulty in finding employment through 

career counseling, job placement assistance, 

and facilitating unemployment deferments. 

7. Identify and implement alternative 

financial aid award policies and develop 

alternative financial resources that will 

reduce the need for student borrowing in the 

first 2 years of academic study. 

III. Statistics for Measuring Progress 

1. The number of students enrolled at your 

institution during each fiscal year. 

2. The average amount borrowed by a 

student each fiscal year. 

3. The number of borrowers scheduled to 

enter repayment each fiscal year. 

4. The number of enrolled borrowers who 

received default prevention counseling 

services each fiscal year. 

5. The average number of contacts that you 

or your agent had with a borrower who was 

in deferment or forbearance or in repayment 

status during each fiscal year. 

6. The number of borrowers at least 60 

days delinquent each fiscal year. 

7. The number of borrowers who defaulted 

in each fiscal year. 

8. The type, frequency, and results of 

activities performed in accordance with the 

default prevention plan. 

PART 674—FEDERAL PERKINS LOAN 

PROGRAM 

■ 22. The authority citation for part 674 

is revised to read as follows: 

Authority: 20 U.S.C. 1070g, 1087aa– 

1087hh, unless otherwise noted. 

§ 674.12 [Amended] 

■ 23. Section 674.12 is amended by: 

■ (A) In paragraph (a)(1), removing the 

amount ‘‘$4,000’’ and adding, it its 

place, the amount ‘‘$5,500’’. 

■ (B) In paragraph (a)(2), removing the 

amount ‘‘$6,000’’ and adding, in its 

place, the amount ‘‘$8,000’’. 

■ (C) In paragraph (b)(1), removing the 

amount ‘‘$20,000’’ and adding, in its 

place, the amount ‘‘$27,500’’. 

■ (D) In paragraph (b)(2), removing the 

amount ‘‘$40,000’’ and adding, in its 

place, the amount ‘‘$60,000’’. 

■ (E) In paragraph (b)(3), removing the 

amount ‘‘$8,000’’ and adding, in its 

place, the amount ‘‘$11,000’’. 

■ 24. Section 674.33 is amended by: 

■ (A) In paragraph (d)(2), removing the 

word ‘‘written’’. 

■ (B) In paragraph (d)(3), adding the 

words ‘‘The school confirms this 


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agreement by notice to the borrower, 

and by recording the terms in the 

borrower’s file.’’ after the word 

‘‘institution.’’. 

■ (C) Revising the authority citation that 

appears at the end of the section. 

The revision reads as follows: 

§ 674.33 Repayment. 

* * * * * 

Authority: 20 U.S.C. 1087dd. 

■ 25. Section 674.39 is amended by: 

■ (A) In paragraph (a)(2), removing the 

word ‘‘twelve’’ and adding, in its place, 

the word ‘‘nine’’. 

■ (B) In paragraph (b)(2), removing the 

number ‘‘12’’ and adding, in its place, 

the word ‘‘nine’’. 

■ (C) Revising the authority citation that 

appears at the end of the section. 

The revision reads as follows: 

§ 674.39 Loan rehabilitation. 

* * * * * 

Authority: 20 U.S.C. 1087dd. 

■ 26. Section 674.42 is amended by 

revising paragraph (b) to read as follows: 

§ 674.42 Contact with the borrower. 

* * * * * 

(b) Exit counseling. (1) An institution 

must ensure that exit counseling is 

conducted with each borrower either in 

person, by audiovisual presentation, or 

by interactive electronic means. The 

institution must ensure that exit 

counseling is conducted shortly before 

the borrower ceases at least half-time 

study at the institution. As an 

alternative, in the case of a student 

enrolled in a correspondence program 

or a study-abroad program that the 

institution approves for credit, the 

borrower may be provided with written 

counseling material by mail within 30 

days after the borrower completes the 

program. If a borrower withdraws from 

the institution without the institution’s 

prior knowledge or fails to complete an 

exit counseling session as required, the 

institution must ensure that exit 

counseling is provided through either 

interactive electronic means or by 

mailing counseling materials to the 

borrower at the borrower’s last known 

address within 30 days after learning 

that the borrower has withdrawn from 

the institution or failed to complete exit 

counseling as required. 

(2) The exit counseling must— 

(i) Inform the student as to the average 

anticipated monthly repayment amount 

based on the student’s indebtedness or 

on the average indebtedness of students 

who have obtained Perkins loans for 

attendance at the institution or in the 

borrower’s program of study; 

(ii) Explain to the borrower the 

options to prepay each loan and pay 

each loan on a shorter schedule; 

(iii) Review for the borrower the 

option to consolidate a Federal Perkins 

Loan, including the consequences of 

consolidating a Perkins Loan. 

Information on the consequences of loan 

consolidation must include, at a 

minimum— 

(A) The effects of consolidation on 

total interest to be paid, fees to be paid, 

and length of repayment; 

(B) The effects of consolidation on a 

borrower’s underlying loan benefits, 

including grace periods, loan 

forgiveness, cancellation, and deferment 

opportunities; 

(C) The options of the borrower to 

prepay the loan or to change repayment 

plans; and 

(D) That borrower benefit programs 

may vary among different lenders; 

(iv) Include debt-management 

strategies that are designed to facilitate 

repayment; 

(v) Explain the use of a Master 

Promissory Note; 

(vi) Emphasize to the borrower the 

seriousness and importance of the 

repayment obligation the borrower is 

assuming; 

(vii) Describe the likely consequences 

of default, including adverse credit 

reports, delinquent debt collection 

procedures under Federal law, and 

litigation; 

(viii) Emphasize that the borrower is 

obligated to repay the full amount of the 

loan even if the borrower has not 

completed the program, has not 

completed the program within the 

regular time for program completion, is 

unable to obtain employment upon 

completion, or is otherwise dissatisfied 

with or did not receive educational or 

other services that the borrower 

purchased from the institution; 

(ix) Provide— 

(A) A general description of the terms 

and conditions under which a borrower 

may obtain full or partial forgiveness or 

cancellation of principal and interest, 

defer repayment of principal or interest, 

or be granted an extension of the 

repayment period or a forbearance on a 

title IV loan; and 

(B) A copy, either in print or by 

electronic means, of the information the 

Secretary makes available pursuant to 

section 485(d) of the HEA; 

(x) Require the borrower to provide 

current information concerning name, 

address, social security number, 

references, and driver’s license number, 

the borrower’s expected permanent 

address, the address of the borrower’s 

next of kin, as well as the name and 

address of the borrower’s expected 

employer; 

(xi) Review for the borrower 

information on the availability of the 

Student Loan Ombudsman’s office; 

(xii) Inform the borrower of the 

availability of title IV loan information 

in the National Student Loan Data 

System (NSLDS) and how NSLDS can 

be used to obtain title IV loan status 

information; and 

(xiii) A general description of the 

types of tax benefits that may be 

available to borrowers. 

(3) If exit counseling is conducted 

through interactive electronic means, 

the institution must take reasonable 

steps to ensure that each student 

borrower receives the counseling 

materials, and participates in and 

completes the exit counseling. 

(4) The institution must maintain 

documentation substantiating the 

institution’s compliance with this 

section for each borrower. 

* * * * * 

■ 27. Section 674.51 is amended by: 

■ A. Revising paragraph (d). 

■ B. Redesignating paragraphs (e) 

through (s) as follows: 

Old paragraph New paragraph 

674.51(e) ................... 674.51(f). 

674.51(f) .................... 674.51(h). 

674.51(g) ................... 674.51(l). 

674.51(h) ................... 674.51(m). 

674.51(i) .................... 674.51(n). 

674.51(j) .................... 674.51(p). 

674.51(k) ................... 674.51(q). 

674.51(l) .................... 674.51(r). 

674.51(m) .................. 674.51(s). 

674.51(n) ................... 674.51(t). 

674.51(o) ................... 674.51(u). 

674.51(p) ................... 674.51(w). 

674.51(q) ................... 674.51(y). 

674.51(r) .................... 674.51(z). 

674.51(s) ................... 674.51(aa). 

■ C. Adding new paragraphs (e), (g), (i), 

(j), (k), (o), (v), (x), and (bb). 

■ D. In newly redesignated paragraph 

(f), removing the number ‘‘672(2)’’, and 

adding, in its place, the number 

‘‘632(4)’’. 

■ E. Revising newly redesignated 

paragraph (n). 

■ F. In newly redesignated paragraph 

(t), by removing the number ‘‘672(2)’’, 

and adding, in its place, the number 

‘‘632’’. 

■ G. Revising newly designated 

paragraph (aa). 

■ H. Revising the authority citation that 

appears at the end of the section. 

The revisions and additions read as 

follows: 

§ 674.51 Special Definitions. 

* * * * * 


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(d) Child with a disability: A child or 

youth from ages 3 through 21, inclusive, 

who requires special education and 

related services because he or she has 

one or more disabilities as defined in 

section 602(3) of the Individuals with 

Disabilities Education Act. 

(e) Community defender 

organizations: A defender organization 

established in accordance with section 

3006A(g)(2)(B) of title 18, United States 

Code. 

* * * * * 

(g) Educational service agency: A 

regional public multi-service agency 

authorized by State law to develop, 

manage, and provide services or 

programs to local educational agencies 

as defined in section 9101 of the 

Elementary and Secondary Education 

Act of 1965, as amended. 

* * * * * 

(i) Faculty member at a Tribal College 

or University: An educator or tenured 

individual who is employed by a Tribal 

College or University, as that term is 

defined in section 316 of the HEA, to 

teach, research, or perform 

administrative functions. For purposes 

of this definition an educator may be an 

instructor, lecturer, lab faculty, assistant 

professor, associate professor, full 

professor, dean, or academic department 

head. 

(j) Federal public defender 

organization: A defender organization 

established in accordance with section 

3006A(g)(2)(A) of title 18, United States 

Code. 

(k) Firefighter: A firefighter is an 

individual who is employed by a 

Federal, State, or local firefighting 

agency to extinguish destructive fires; or 

provide firefighting related services 

such as— 

(1) Providing community disaster 

support and, as a first responder, 

providing emergency medical services; 

(2) Conducting search and rescue; or 

(3) Providing hazardous materials 

mitigation (HAZMAT). 

* * * * * 

(n) Infant or toddler with a disability: 

An infant or toddler from birth to age 2, 

inclusive, who needs early intervention 

services for specified reasons, as defined 

in section 632(5)(A) of the Individuals 

with Disabilities Education Act. 

(o) Librarian with a master’s degree: A 

librarian with a master’s degree is an 

information professional trained in 

library or information science who has 

obtained a postgraduate academic 

degree in library science awarded after 

the completion of an academic program 

of up to six years in duration, excluding 

a doctorate or professional degree. 

* * * * * 

(v) Speech language pathologist with 

a master’s degree: An individual who 

evaluates or treats disorders that affect 

a person’s speech, language, cognition, 

voice, swallowing and the rehabilitative 

or corrective treatment of physical or 

cognitive deficits/disorders resulting in 

difficulty with communication, 

swallowing, or both and has obtained a 

postgraduate academic degree awarded 

after the completion of an academic 

program of up to six years in duration, 

excluding a doctorate or professional 

degree. 

* * * * * 

(x) 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. 

* * * * * 

(aa) Total and permanent disability: 

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. 

(bb) Tribal College or University: An 

institution that— 

(1) Qualifies for funding under the 

Tribally Controlled Colleges and 

Universities Assistance Act of 1978 (25 

U.S.C. 1801 et seq.) or the Navajo 

Community College Assistance Act of 

1978 (25 U.S.C. 640a note); or 

(2) Is cited in section 532 of the 

Equity in Education Land Grant Status 

Act of 1994 (7 U.S.C. 301 note). 

Authority: 20 U.S.C. 1087ee(a). 

■ 28. Section 674.53 is amended by: 

■ A. Adding new paragraph (a)(1)(iii). 

■ B. Revising paragraphs (a)(2)(i) and 

(a)(2)(ii). 

■ C. Revising paragraph (a)(3). 

■ D. Revising paragraphs (a)(4)(i) and 

(a)(4)(ii). 

■ E. Removing paragraph (a)(4)(iii). 

■ F. Revising paragraph (a)(6). 

■ G. Adding new paragraph (b)(3). 

■ H. In paragraph (d)(1), removing the 

word ‘‘shall’’ and adding, in its place, 

the word ‘‘must’’. 

■ I. Revising paragraph (e). 

The revisions and additions read as 

follows: 

§ 674.53 Teacher cancellation—Federal 

Perkins, NDSL and Defense loans. 

(a) * * * 

(1) * * * 

(iii) An institution must cancel up to 

100 percent of the outstanding balance 

of a Federal Perkins, NDSL, or Defense 

loan for teaching service that includes 

August 14, 2008, or begins on or after 

that date, at an educational service 

agency. 

(2) * * * 

(i) Is in a school district that qualified 

for funds, in that year, under part A of 

title I of the Elementary and Secondary 

Education Act of 1965, as amended; and 

(ii) Has been selected by the Secretary 

based on a determination that more than 

30 percent of the school’s or educational 

service agency’s total enrollment is 

made up of title I children. 

(3) For each academic year, the 

Secretary notifies participating 

institutions of the schools and 

educational service agencies selected 

under paragraph (a) of this section. 

(4)(i) The Secretary selects schools 

and educational service agencies under 

paragraph (a)(1) of this section based on 

a ranking by the State education agency. 

(ii) The State education agency must 

base its ranking of the schools and 

educational service agencies on 

objective standards and methods. These 

standards must take into account the 

numbers and percentages of title I 

children attending those schools and 

educational service agencies. 

* * * * * 

(6) A teacher, who performs service in 

a school or educational service agency 

that meets the requirement of paragraph 

(a)(1) of this section in any year and in 

a subsequent year fails to meet these 

requirements, may continue to teach in 

that school or educational service 

agency and will be eligible for loan 

cancellation pursuant to paragraph (a) of 

this section in subsequent years. 

* * * * * 

(b) * * * 

(3) An institution must cancel up to 

100 percent of the outstanding balance 

on a borrower’s Federal Perkins, NDSL, 

or Defense loan for a borrower’s service 

that includes August 14, 2008, or begins 

on or after that date, as a full-time 

special education teacher of infants, 

toddlers, children, or youth with 

disabilities, in an educational service 

agency. 

* * * * * 

(e) Teaching in a school system. The 

Secretary considers a borrower to be 

teaching in a public or other nonprofit 

elementary or secondary school system 

or an educational service agency only if 

the borrower is directly employed by 

the school system. 

* * * * * 

■ 29. Section 674.56 is amended by: 


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■ A. Revising paragraph (c)(1). 

■ B. Redesignating paragraph (d) as 

paragraph (h). 

■ C. Adding paragraphs (d), (e), (f), and 

(g), respectively. 

■ C. Revising newly redesignated 

paragraph (h). 

The revisions and additions read as 

follows: 

§ 674.56 Employment cancellation— 

Federal Perkins, NDSL, and Defense loans 

* * * * * 

(c) * * * 

(1) An institution must cancel up to 

100 percent of the outstanding balance 

on a borrower’s Federal Perkins or 

NDSL made on or after July 23, 1992, for 

the borrower’s service as a full-time 

qualified professional provider of early 

intervention services in a public or 

other nonprofit program under public 

supervision by the lead agency as 

authorized in section 632 of the 

Individuals with Disabilities Education 

Act. 

* * * * * 

(d) Cancellation for full-time 

employment as a firefighter to a local, 

State, or Federal fire department or fire 

district. An institution must cancel up 

to 100 percent of the outstanding 

balance on a borrower’s Federal Perkins, 

NDSL, or Defense loan for service that 

includes August 14, 2008, or begins on 

or after that date, as a full-time 

firefighter. 

(e) Cancellation for full-time 

employment as a faculty member at a 

Tribal College or University. An 

institution must cancel up to 100 

percent of the outstanding balance on a 

borrower’s Federal Perkins, NDSL, or 

Defense loan for service that includes 

August 14, 2008, or begins on or after 

that date, as a full-time faculty member 

at a Tribal College or University. 

(f) Cancellation for full-time 

employment as a librarian with a 

master’s degree. (1) An institution must 

cancel up to 100 percent of the 

outstanding balance on a borrower’s 

Federal Perkins Loan, NDSL, or Defense 

loan for service that includes August 14, 

2008, or begins on or after that date, as 

a full-time librarian, provided that the 

individual— 

(i) Is a librarian with a master’s 

degree; and 

(ii) Is employed in an elementary 

school or secondary school that is 

eligible for assistance under part A of 

title I of the Elementary and Secondary 

Education Act of 1965, as amended; or 

(iii) Is employed by a public library 

that serves a geographic area that 

contains one or more schools eligible for 

assistance under part A of title I of the 

Elementary and Secondary Education 

Act of 1965, as amended. 

(2) For the purposes of paragraph (f) 

of this section, the term geographic area 

is defined as the area served by the local 

school district. 

(g) Cancellation for full-time 

employment as a speech pathologist 

with a master’s degree. An institution 

must cancel up to 100 percent of the 

outstanding balance on a borrower’s 

Federal Perkins Loan, NDSL, or Defense 

loan for full-time employment that 

includes August 14, 2008, or begins on 

or after that date, as a speech pathologist 

with a master’s degree who is working 

exclusively with schools eligible for 

funds under part A of title I of the 

Elementary and Secondary Education 

Act of 1965, as amended. 

(h) Cancellation rates. (1) To qualify 

for cancellation under paragraphs (a), 

(b), (c), (d), (e), (f), and (g) of this 

section, a borrower must work full-time 

for 12 consecutive months. 

* * * * * 

■ 30. Section 674.57 is revised to read 

as follows: 

§ 674.57 Cancellation for law enforcement 

or corrections officer service—Federal 

Perkins, NDSL, and Defense loans. 

(a)(1) An institution must cancel up to 

100 percent of the outstanding balance 

on a borrower’s Federal Perkins or 

NDSL made on or after November 29, 

1990, for full-time service as a law 

enforcement or corrections officer for an 

eligible employing agency. 

(2) An institution must cancel up to 

100 percent of the outstanding loan 

balance on a Federal Perkins, NDSL, or 

Defense loan made prior to November 

29, 1990, for law enforcement or 

correction officer service performed on 

or after October 7, 1998, if the 

cancellation benefits provided under 

this section are not included in the 

terms of the borrower’s promissory note. 

(3) An eligible employing agency is an 

agency— 

(i) That is a local, State, or Federal 

law enforcement or corrections agency; 

(ii) That is publicly-funded; and 

(iii) The principal activities of which 

pertain to crime prevention, control, or 

reduction or the enforcement of the 

criminal law. 

(4) Agencies that are primarily 

responsible for enforcement of civil, 

regulatory, or administrative laws are 

ineligible employing agencies. 

(5) A borrower qualifies for 

cancellation under this section only if 

the borrower is— 

(i) A sworn law enforcement or 

corrections officer; or 

(ii) A person whose principal 

responsibilities are unique to the 

criminal justice system. 

(6) To qualify for a cancellation under 

this section, the borrower’s service must 

be essential in the performance of the 

eligible employing agency’s primary 

mission. 

(7) The agency must be able to 

document the employee’s functions. 

(8) A borrower whose principal 

official responsibilities are 

administrative or supportive does not 

qualify for cancellation under this 

section. 

(b) An institution must cancel up to 

100 percent of the outstanding balance 

of a borrower’s Federal Perkins, NDSL, 

or Defense loan for service that includes 

August 14, 2008, or begins on or after 

that date, as a full-time attorney 

employed in Federal public defender 

organizations or community defender 

organizations, established in accordance 

with section 3006A(g)(2) of title 18, 

U.S.C. 

(c)(1) To qualify for cancellation 

under paragraph (a) of this section, a 

borrower must work full-time for 12 

consecutive months. 

(2) Cancellation rates are— 

(i) 15 percent of the original principal 

loan amount plus the interest on the 

unpaid balance accruing during the year 

of qualifying service, for each of the first 

and second years of full-time 

employment; 

(ii) 20 percent of the original principal 

loan amount plus the interest on the 

unpaid balance accruing during the year 

of qualifying service, for each of the 

third and fourth years of full-time 

employment; and 

(iii) 30 percent of the original 

principal loan amount plus the interest 

on the unpaid balance accruing during 

the year of qualifying service, for the 

fifth year of full-time employment. 

Authority: 20 U.S.C. 1087ee. 

■ 31. Section 674.58 is amended by: 

■ A. Revising the section heading. 

■ B. Redesignating paragraphs (a)(3) and 

(a)(4) as paragraphs (a)(4) and (a)(5), 

respectively. 

■ C. Adding new paragraph (a)(3). 

■ D. Revising newly redesignated 

paragraph (a)(4). 

■ E. Revising newly redesignated 

paragraph (a)(5). 

■ F. Redesignating paragraph (c)(2) as 

paragraph (c)(4). 

■ G. Adding new paragraphs (c)(2) and 

(c)(3). 

■ H. Revising newly redesignated 

paragraph (c)(4). 

The revisions and additions read as 

follows: 


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§ 674.58 Cancellation for service in an 

early childhood education program. 

(a) * * * 

(3) An institution must cancel up to 

100 percent of the outstanding balance 

of a borrower’s NDSL, Defense, or 

Federal Perkins loan for service that 

includes August 14, 2008, or begins on 

or after that date, as a full-time staff 

member of a pre-kindergarten or 

childcare program that is licensed or 

regulated by the State. 

(4) The Head Start, pre-kindergarten 

or child care program in which the 

borrower serves must operate for a 

complete academic year, or its 

equivalent. 

(5) In order to qualify for cancellation, 

the borrower’s salary may not exceed 

the salary of a comparable employee 

working in the local educational agency 

of the area served by the local Head 

Start, pre-kindergarten or child care 

program. 

* * * * * 

(c) * * * 

(2) A pre-kindergarten program is a 

State-funded program that serves 

children from birth through age six and 

addresses the children’s cognitive 

(including language, early literacy, and 

early mathematics), social, emotional, 

and physical development. 

(3) A child care program is a program 

that is licensed or regulated by the State 

and provides child care services for 

fewer than 24 hours per day per child, 

unless care in excess of 24 consecutive 

hours is needed due to the nature of the 

parents’ work. 

(4) ‘‘Full-time staff member’’ is a 

person regularly employed in a full-time 

professional capacity to carry out the 

educational part of a Head Start, prekindergarten or child care program. 

* * * * * 

■ 32. Section 674.59 is amended by: 

■ A. In paragraph (a)(1), removing the 

word ‘‘shall’’ and adding, in its place, 

the word ‘‘must’’. 

■ B. Revising paragraph (b)(1). 

■ C. Adding new paragraph (c). 

■ D. Redesignating paragraph (b)(3) as 

paragraph (d). 

■ E. Revising the authority citation that 

appears at the end of the section. 

The addition and revisions read as 

follows: 

§ 674.59 Cancellation for military service. 

* * * * * 

(b) * * * 

(1) An institution must cancel up to 

50 percent of the outstanding balance on 

an NDSL or Perkins loan for active duty 

service that ended before August 14, 

2008, as a member of the U.S. Army, 

Navy, Air Force, Marine Corps, or Coast 

Guard in an area of hostilities that 

qualifies for special pay under section 

310 of title 37 of the United States Code. 

* * * * * 

(c)(1) An institution must cancel up to 

100 percent of the outstanding balance 

on a borrower’s Federal Perkins or 

NDSL loan for a borrower’s full year of 

active duty service that includes August 

14, 2008, or begins on or after that date, 

as a member of the U.S. Army, Navy, 

Air Force, Marine Corps, or Coast Guard 

in an area of hostilities that qualifies for 

special pay under section 310 of title 37 

of the United States Code. 

(2) The cancellation rate is 15 percent 

for the first and second year of 

qualifying service, 20 percent for the 

third and fourth year of qualifying 

service, and 30 percent for the fifth year 

of qualifying service. 

Authority: 20 U.S.C. 1087ee. 

§ 674.61 [Amended] 

■ 33. Section 674.61 is amended by 

removing the citation ‘‘§ 674.51(s)’’ each 

time it appears and adding, in its place, 

the citation ‘‘§ 674.51(aa)’’. 

PART 682—FEDERAL FAMILY 

EDUCATION LOAN (FFEL) PROGRAM 

■ 34. The authority citation for part 682 

is revised to read as follows: 

Authority: 20 U.S.C. 1070g, 1071 to 1087– 

2, unless otherwise noted. 

■ 35. In § 682.212, revise paragraph (h) 

to read as follows: 

§ 682.212 Prohibited transactions. 

* * * * * 

(h) A school may, at its option, make 

available a list of recommended or 

suggested lenders, in print or any other 

medium or form, for use by the school’s 

students or their parents provided that 

such list complies with the 

requirements in 34 CFR 601.10 and 

668.14(a)(28). 

* * * * * 

■ 36. Section 682.604 is amended by 

revising paragraphs (c)(5), (c)(8), (f), and 

(g) to read as follows: 

§ 682.604 Processing the borrower’s loan 

proceeds and counseling borrowers. 

* * * * * 

(c) * * * 

(5) A school may not release the first 

installment of a Stafford loan for 

endorsement to a student who is 

enrolled in the first year of an 

undergraduate program of study and 

who has not previously received a 

Stafford, SLS, Direct Subsidized, or 

Direct Unsubsidized loan until 30 days 

after the first day of the student’s 

program of study unless— 

(i) Except as provided in paragraph 

(c)(5)(ii) of this section, the school in 

which the student is enrolled 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 loans first disbursed 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 

(iii) The school is an eligible home 

institution certifying a loan to cover the 

student’s cost of attendance in a study 

abroad program and has a cohort default 

rate, calculated under either subpart M 

or subpart N of 34 CFR part 668, of less 

than 5 percent for the single most recent 

fiscal year for which data are available. 

* * * * * 

(8) Notwithstanding the requirements 

of paragraphs (c)(6) through (c)(9) of this 

section, a school is not required to 

deliver loan proceeds in more than one 

installment if— 

(i)(A) The student’s 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 

(B)(1) Except as provided in 

paragraph (c)(8)(i)(B)(2) of this section, 

the school in which the student is 

enrolled 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 

(2) 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 

(ii) The school is an eligible home 

institution certifying a loan to cover the 

student’s 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 5 percent for the single most recent 

fiscal year for which data are available. 

* * * * * 

(f) Entrance counseling. (1) A school 

must ensure that entrance counseling is 

conducted with each Stafford loan 

borrower prior to its release of the first 

disbursement, unless the student 

borrower has received a prior Federal 

Stafford, Federal SLS, or Direct 

subsidized or unsubsidized loan. 


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(2) A school must ensure that 

entrance counseling is conducted with 

each graduate or professional student 

PLUS loan borrower prior to its release 

of the first disbursement, unless the 

student has received a prior Federal 

PLUS loan or Direct PLUS loan. 

(3) Entrance counseling for Stafford 

and graduate or professional student 

PLUS Loan borrowers must provide 

comprehensive information on the 

terms and conditions of the loan and on 

the responsibilities of the borrower with 

respect to the loan. This information 

may be provided to the borrower— 

(i) During an entrance counseling 

session conducted in person; 

(ii) On a separate written form 

provided to the borrower that the 

borrower signs and returns to the 

school; or 

(iii) Online or by interactive 

electronic means, with the borrower 

acknowledging receipt of the 

information. 

(4) If 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 entrance counseling, 

which may include completion of any 

interactive program that tests the 

borrower’s understanding of the terms 

and conditions of the borrower’s loans. 

(5) A school must ensure that an 

individual with expertise in the title IV 

programs is reasonably available shortly 

after the counseling to answer the 

student borrower’s questions regarding 

those programs. As an alternative, prior 

to releasing the proceeds of a loan, in 

the case of a student borrower enrolled 

in a correspondence program or a 

student borrower enrolled in a studyabroad program that the home 

institution approves for credit, the 

counseling may be provided through 

written materials. 

(6) Entrance counseling for Stafford 

Loan borrowers must— 

(i) Explain the use of a Master 

Promissory Note; 

(ii) Emphasize to the student borrower 

the seriousness and importance of the 

repayment obligation the student 

borrower is assuming; 

(iii) Describe the likely consequences 

of default, including adverse credit 

reports, delinquent debt collection 

procedures under Federal law, and 

litigation; 

(iv) In the case of a student borrower 

(other than a loan made or originated by 

the school), emphasize that the student 

borrower is obligated to repay the full 

amount of the loan 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; 

(v) Inform the student borrower of 

sample monthly repayment amounts 

based on— 

(A) A range of student levels of 

indebtedness of Stafford loan borrowers, 

or student borrowers with Stafford and 

PLUS loans, depending on the types of 

loans the borrower has obtained; or 

(B) The average indebtedness of other 

borrowers in the same program at the 

same school as the borrower; 

(vi) To the extent practicable, explain 

the effect of accepting the loan to be 

disbursed on the eligibility of the 

borrower for other forms of student 

financial assistance; 

(vii) Provide information on how 

interest accrues and is capitalized 

during periods when the interest is not 

paid by either the borrower or the 

Secretary; 

(viii) Inform the borrower of the 

option to pay the interest on an 

unsubsidized Stafford Loan while the 

borrower is in school; 

(ix) Explain the definition of half-time 

enrollment at the school, during regular 

terms and summer school, if applicable, 

and the consequences of not 

maintaining half-time enrollment; 

(x) Explain the importance of 

contacting the appropriate offices at the 

school if the borrower withdraws prior 

to completing the borrower’s program of 

study so that the school can provide exit 

counseling, including information 

regarding the borrower’s repayment 

options and loan consolidation; 

(xi) Provide information on the 

National Student Loan Data System and 

how the borrower can access the 

borrower’s records; and 

(xii) Provide the name of and contact 

information for the individual the 

borrower may contact if the borrower 

has any questions about the borrower’s 

rights and responsibilities or the terms 

and conditions of the loan. 

(7) Entrance counseling for graduate 

or professional student PLUS Loan 

borrowers must— 

(i) Inform the student borrower of 

sample monthly repayment amounts 

based on— 

(A) A range of student levels of 

indebtedness of graduate or professional 

student PLUS loan borrowers, or 

student borrowers with Stafford and 

PLUS loans, depending on the types of 

loans the borrower has obtained; or 

(B) The average indebtedness of other 

borrowers in the same program at the 

same school as the borrower; 

(ii) Inform the borrower of the option 

to pay interest on a PLUS Loan while 

the borrower is in school; 

(iii) For a graduate or professional 

student PLUS Loan borrower who has 

received a prior FFEL Stafford, or Direct 

subsidized or unsubsidized loan, 

provide the information specified in 

§ 682.603(d)(1)(i) through 

§ 682.603(d)(1)(iii); and 

(iv) For a graduate or professional 

student PLUS Loan borrower who has 

not received a prior FFEL Stafford, or 

Direct subsidized or unsubsidized loan, 

provide the information specified in 

paragraph (f)(6)(i) through (f)(6)(xii) of 

this section. 

(8) A school must maintain 

documentation substantiating the 

school’s compliance with this section 

for each student borrower. 

(g) Exit counseling. (1) A school must 

ensure that exit counseling is conducted 

with each Stafford loan borrower and 

graduate or professional student PLUS 

Loan borrower either in person, by 

audiovisual presentation, or by 

interactive electronic means. In each 

case, the school must ensure that this 

counseling is conducted shortly before 

the student borrower ceases at least halftime study at the school, and that an 

individual with expertise in the title IV 

programs is reasonably available shortly 

after the counseling to answer the 

student borrower’s questions. As an 

alternative, in the case of a student 

borrower enrolled in a correspondence 

program or a study-abroad program that 

the home institution approves for credit, 

written counseling materials may be 

provided by mail within 30 days after 

the student borrower completes the 

program. If a student borrower 

withdraws from school without the 

school’s prior knowledge or fails to 

complete an exit counseling session as 

required, the school must ensure that 

exit counseling is provided through 

either interactive electronic means or by 

mailing written counseling materials to 

the student borrower at the student 

borrower’s last known address within 

30 days after learning that the student 

borrower has withdrawn from school or 

failed to complete the exit counseling as 

required. 

(2) The exit counseling must— 

(i) Inform the student borrower of the 

average anticipated monthly repayment 

amount based on the student borrower’s 

indebtedness or on the average 

indebtedness of student borrowers who 

have obtained Stafford loans, PLUS 

Loans, or student borrowers who have 

obtained both Stafford and PLUS loans, 


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55666 Federal Register / Vol. 74, No. 207 / Wednesday, October 28, 2009 / Rules and Regulations 

depending on the types of loans the 

student borrower has obtained, for 

attendance at the same school or in the 

same program of study at the same 

school; 

(ii) Review for the student borrower 

available repayment plan options, 

including standard, graduated, 

extended, income sensitive and incomebased repayment plans, including a 

description of the different features of 

each plan and sample information 

showing the average anticipated 

monthly payments, and the difference 

in interest paid and total payments 

under each plan; 

(iii) Explain to the borrower the 

options to prepay each loan, to pay each 

loan on a shorter schedule, and to 

change repayment plans; 

(iv) Provide information on the effects 

of loan consolidation including, at a 

minimum— 

(A) The effects of consolidation on 

total interest to be paid, fees to be paid, 

and length of repayment; 

(B) The effects of consolidation on a 

borrower’s underlying loan benefits, 

including grace periods, loan 

forgiveness, cancellation, and deferment 

opportunities; 

(C) The options of the borrower to 

prepay the loan and to change 

repayment plans; and 

(D) That borrower benefit programs 

may vary among different lenders; 

(v) Include debt-management 

strategies that are designed to facilitate 

repayment; 

(vi) Include the matters described in 

paragraph (f)(6)(i), (f)(6)(ii), and (f)(6)(iv) 

of this section; 

(vii) Describe the likely consequences 

of default, including adverse credit 

reports, delinquent debt collection 

procedures under Federal law, and 

litigation; 

(viii) Provide— 

(A) A general description of the terms 

and conditions under which a borrower 

may obtain full or partial forgiveness or 

discharge of principal and interest, defer 

repayment of principal or interest, or be 

granted forbearance on a title IV loan, 

including forgiveness benefits or 

discharge benefits available to a FFEL 

borrower who consolidates his or her 

loan into the Direct Loan program; and 

(B) A copy, either in print or by 

electronic means, of the information the 

Secretary makes available pursuant to 

section 485(d) of the HEA; 

(ix) Require the student borrower to 

provide current information concerning 

name, address, social security number, 

references, and driver’s license number 

and State of issuance, as well as the 

student borrower’s expected permanent 

address, the address of the student 

borrower’s next of kin, and the name 

and address of the student borrower’s 

expected employer (if known). The 

school must ensure that this information 

is provided to the guaranty agency or 

agencies listed in the student borrower’s 

records within 60 days after the student 

borrower provides the information; 

(x) Review for the student borrower 

information on the availability of the 

Student Loan Ombudsman’s office; 

(xi) Inform the student borrower of 

the availability of title IV loan 

information in the National Student 

Loan Data System (NSLDS) and how 

NSLDS can be used to obtain title IV 

loan status information; and 

(xii) A general description of the types 

of tax benefits that may be available to 

borrowers. 

(3) If exit counseling is conducted by 

electronic interactive means, the school 

must take reasonable steps to ensure 

that each student borrower receives the 

counseling materials, and participates in 

and completes the counseling. 

(4) The school must maintain 

documentation substantiating the 

school’s compliance with this section 

for each student borrower. 

* * * * * 

PART 685—WILLIAM D. FORD 

FEDERAL DIRECT LOAN PROGRAM 

■ 37. The authority citation for part 685 

continues to read as follows: 

Authority: 20 U.S.C. 1070g, 1087a, et seq., 

unless otherwise noted. 

■ 38. Section 685.301(b)(6) is amended 

by: 

■ A. Revising paragraph (b)(6)(i). 

■ B. In paragraph (b)(6)(ii), removing the 

reference to ‘‘Paragraphs (b)(8)(i)(A) and 

(B) of this section’’ and adding, in its 

place, a reference to ‘‘Paragraphs 

(b)(6)(i)(A) and (B) of this section’’. 

■ C. In paragraph (b)(6)(ii), adding the 

words ‘‘or subpart N’’ after the words 

‘‘under subpart M’’. 

■ D. In paragraph (b)(6)(iii), removing 

the reference to ‘‘Paragraph (b)(8)(i)(B) 

of this section’’ and adding, in its place, 

a reference to ‘‘Paragraph (b)(6)(i)(B) of 

this section’’. 

■ E. In paragraph (b)(6)(iii), adding the 

words ‘‘or subpart N’’ after the words 

‘‘under subpart M’’. 

The revision reads as follows: 

§ 685.301 Origination of a loan by a Direct 

Loan Program school. 

* * * * * 

(b) * * * 

(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 

(b)(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; 

(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. 

(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 part 668, of less than 5 percent 

for the single most recent fiscal year for 

which data are available; or 

(C) The school is not in a State. 

* * * * * 

■ 39. Section 685.303(b)(4) is amended 

by: 

■ A. Revising paragraph (b)(4)(i)(A). 

■ B. In paragraph (b)(4)(ii), adding the 

words ‘‘or subpart N’’ after the words 

‘‘under subpart M’’. 

■ C. In paragraph (b)(4)(iii), removing 

the words ‘‘Subpart M’’ and adding in 

their place the words ‘‘subpart M or 

subpart N’’. 

The revision reads as follows: 

§ 685.303 Processing loan proceeds. 

* * * * * 

(b) * * * 

(4) * * * 

(i) * * * 

(A)(1) Except as provided in 

paragraph (b)(4)(i)(A)(2) of this section, 

the school has a cohort default rate, 

calculated under subpart M of 34 CFR 

part 668, or weighted average cohort 

rate of less than 10 percent for each of 

the three most recent fiscal years for 

which data are available; or 

(2) For loans first disbursed 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 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; 

* * * * * 

■ 40. Section 685.304 is revised to read 

as follows: 

§ 685.304 Counseling borrowers. 

(a) Entrance counseling. (1) Except as 

provided in paragraph (a)(8)of this 

section, a school must ensure that 

entrance counseling is conducted with 


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Federal Register / Vol. 74, No. 207 / Wednesday, October 28, 2009 / Rules and Regulations 55667 

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, 

Direct Unsubsidized, Federal Stafford, 

or Federal SLS Loan. 

(2) Except as provided in paragraph 

(a)(8) of this section, a school must 

ensure that entrance counseling is 

conducted with each graduate or 

professional student Direct PLUS Loan 

borrower prior to making the first 

disbursement of the loan unless the 

student borrower has received a prior 

Direct PLUS Loan or Federal PLUS 

Loan. 

(3) Entrance counseling for Direct 

Subsidized Loan, Direct Unsubsidized 

Loan, and graduate or professional 

student Direct PLUS Loan borrowers 

must provide the borrower with 

comprehensive information on the 

terms and conditions of the loan and on 

the responsibilities of the borrower with 

respect to the loan. This information 

may be provided to the borrower— 

(i) During an entrance counseling 

session, conducted in person; 

(ii) On a separate written form 

provided to the borrower that the 

borrower signs and returns to the 

school; or 

(iii) Online or by interactive 

electronic means, with the borrower 

acknowledging receipt of the 

information. 

(4) If 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 entrance counseling, 

which may include completion of any 

interactive program that tests the 

borrower’s understanding of the terms 

and conditions of the borrower’s loans. 

(5) A school must ensure that an 

individual with expertise in the title IV 

programs is reasonably available shortly 

after the counseling to answer the 

student borrower’s questions. As an 

alternative, in the case of a student 

borrower enrolled in a correspondence 

program or a study-abroad program 

approved for credit at the home 

institution, the student borrower may be 

provided with written counseling 

materials before the loan proceeds are 

disbursed. 

(6) Entrance counseling for Direct 

Subsidized Loan and Direct 

Unsubsidized Loan borrowers must— 

(i) Explain the use of a Master 

Promissory Note (MPN); 

(ii) Emphasize to the borrower the 

seriousness and importance of the 

repayment obligation the student 

borrower is assuming; 

(iii) Describe the likely consequences 

of default, including adverse credit 

reports, delinquent debt collection 

procedures under Federal law, and 

litigation; 

(iv) Emphasize that the student 

borrower is obligated to repay the full 

amount of the loan 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; 

(v) Inform the student borrower of 

sample monthly repayment amounts 

based on— 

(A) A range of student levels of 

indebtedness of Direct Subsidized Loan 

and Direct Unsubsidized Loan 

borrowers, or student borrowers with 

Direct Subsidized, Direct Unsubsidized, 

and Direct PLUS Loans depending on 

the types of loans the borrower has 

obtained; or 

(B) The average indebtedness of other 

borrowers in the same program at the 

same school as the borrower; 

(vi) To the extent practicable, explain 

the effect of accepting the loan to be 

disbursed on the eligibility of the 

borrower for other forms of student 

financial assistance; 

(vii) Provide information on how 

interest accrues and is capitalized 

during periods when the interest is not 

paid by either the borrower or the 

Secretary; 

(viii) Inform the borrower of the 

option to pay the interest on a Direct 

Unsubsidized Loan while the borrower 

is in school; 

(ix) Explain the definition of half-time 

enrollment at the school, during regular 

terms and summer school, if applicable, 

and the consequences of not 

maintaining half-time enrollment; 

(x) Explain the importance of 

contacting the appropriate offices at the 

school if the borrower withdraws prior 

to completing the borrower’s program of 

study so that the school can provide exit 

counseling, including information 

regarding the borrower’s repayment 

options and loan consolidation; 

(xi) Provide information on the 

National Student Loan Data System and 

how the borrower can access the 

borrower’s records; and 

(xii) Provide the name of and contact 

information for the individual the 

borrower may contact if the borrower 

has any questions about the borrower’s 

rights and responsibilities or the terms 

and conditions of the loan. 

(7) Entrance counseling for graduate 

or professional student Direct PLUS 

Loan borrowers must— 

(i) Inform the student borrower of 

sample monthly repayment amounts 

based on— 

(A) A range of student levels or 

indebtedness of graduate or professional 

student PLUS loan borrowers, or 

student borrowers with Direct PLUS 

Loans and Direct Subsidized Loans or 

Direct Unsubsidized Loans, depending 

on the types of loans the borrower has 

obtained; or 

(B) The average indebtedness of other 

borrowers in the same program at the 

same school; 

(ii) Inform the borrower of the option 

to pay interest on a PLUS Loan while 

the borrower is in school; 

(iii) For a graduate or professional 

student PLUS Loan borrower who has 

received a prior FFEL Stafford, or Direct 

Subsidized or Unsubsidized 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 FFEL Stafford, or 

Direct Subsidized or Direct 

Unsubsidized Loan, provide the 

information specified in paragraph 

(a)(6)(i) through paragraph (a)(6)(xii) of 

this section. 

(8) A school may adopt an alternative 

approach for entrance counseling as part 

of the school’s quality assurance plan 

described in § 685.300(b)(9). If a school 

adopts an alternative approach, it is not 

required to meet the requirements of 

paragraphs (a)(1) through (a)(7) of this 

section unless the Secretary determines 

that the alternative approach is not 

adequate for the school. The alternative 

approach must— 

(i) Ensure that each student borrower 

subject to entrance counseling under 

paragraph (a)(1) or (a)(2) of this section 

is provided written counseling materials 

that contain the information described 

in paragraphs (a)(6)(i) through (a)(6)(v) 

of this section; 

(ii) Be designed to target those student 

borrowers who are most likely to default 

on their repayment obligations and 

provide them more intensive counseling 

and support services; and 

(iii) Include performance measures 

that demonstrate the effectiveness of the 

school’s alternative approach. These 

performance measures must include 

objective outcomes, such as levels of 

borrowing, default rates, and 

withdrawal rates. 

(9) The school must maintain 

documentation substantiating the 


srobinson on DSKHWCL6B1PROD with RULES2
55668 Federal Register / Vol. 74, No. 207 / Wednesday, October 28, 2009 / Rules and Regulations 

school’s compliance with this section 

for each student borrower. 

(b) Exit counseling. (1) A school must 

ensure that exit counseling is conducted 

with each Direct Subsidized Loan or 

Direct Unsubsidized Loan borrower and 

graduate or professional student Direct 

PLUS Loan borrower shortly before the 

student borrower ceases at least halftime study at the school. 

(2) The exit counseling must be in 

person, by audiovisual presentation, or 

by interactive electronic means. In each 

case, the school must ensure that an 

individual with expertise in the title IV 

programs is reasonably available shortly 

after the counseling to answer the 

student borrower’s questions. As an 

alternative, in the case of a student 

borrower enrolled in a correspondence 

program or a study-abroad program 

approved for credit at the home 

institution, the student borrower may be 

provided with written counseling 

materials within 30 days after the 

student borrower completes the 

program. 

(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 or by 

mailing written counseling materials to 

the student borrower at the student 

borrower’s last known address within 

30 days after the school learns that the 

student borrower has withdrawn from 

school or failed to complete the exit 

counseling as required. 

(4) The exit counseling must— 

(i) Inform the student borrower of the 

average anticipated monthly repayment 

amount based on the student borrower’s 

indebtedness or on the average 

indebtedness of student borrowers who 

have obtained Direct Subsidized Loans 

and Direct Unsubsidized Loans, student 

borrowers who have obtained only 

Direct PLUS Loans, or student 

borrowers who have obtained Direct 

Subsidized, Direct Unsubsidized, and 

Direct PLUS Loans, depending on the 

types of loans the student borrower has 

obtained, for attendance at the same 

school or in the same program of study 

at the same school; 

(ii) Review for the student borrower 

available repayment plan options 

including the standard repayment, 

extended repayment, graduated 

repayment, income contingent 

repayment plans, and income-based 

repayment plans, including a 

description of the different features of 

each plan and sample information 

showing the average anticipated 

monthly payments, and the difference 

in interest paid and total payments 

under each plan; 

(iii) Explain to the borrower the 

options to prepay each loan, to pay each 

loan on a shorter schedule, and to 

change repayment plans; 

(iv) Provide information on the effects 

of loan consolidation including, at a 

minimum— 

(A) The effects of consolidation on 

total interest to be paid, fees to be paid, 

and length of repayment; 

(B) The effects of consolidation on a 

borrower’s underlying loan benefits, 

including grace periods, loan 

forgiveness, cancellation, and deferment 

opportunities; 

(C) The options of the borrower to 

prepay the loan and to change 

repayment plans; and 

(D) That borrower benefit programs 

may vary among different lenders; 

(v) Include debt-management 

strategies that are designed to facilitate 

repayment; 

(vi) Explain to the student borrower 

how to contact the party servicing the 

student borrower’s Direct Loans; 

(vii) Meet the requirements described 

in paragraphs (a)(6)(i), (a)(6)(ii), and 

(a)(6)(iv) of this section; 

(viii) Describe the likely consequences 

of default, including adverse credit 

reports, delinquent debt collection 

procedures under Federal law, and 

litigation; 

(ix) Provide— 

(A) A general description of the terms 

and conditions under which a borrower 

may obtain full or partial forgiveness or 

discharge of principal and interest, defer 

repayment of principal or interest, or be 

granted forbearance on a title IV loan; 

and 

(B) A copy, either in print or by 

electronic means, of the information the 

Secretary makes available pursuant to 

section 485(d) of the HEA; 

(x) Review for the student borrower 

information on the availability of the 

Department’s Student Loan 

Ombudsman’s office; 

(xi) Inform the student borrower of 

the availability of title IV loan 

information in the National Student 

Loan Data System (NSLDS) and how 

NSLDS can be used to obtain title IV 

loan status information; 

(xii) A general description of the types 

of tax benefits that may be available to 

borrowers; and 

(xiii) Require the student borrower to 

provide current information concerning 

name, address, social security number, 

references, and driver’s license number 

and State of issuance, as well as the 

student borrower’s expected permanent 

address, the address of the student 

borrower’s next of kin, and the name 

and address of the student borrower’s 

expected employer (if known). 

(5) The school must ensure that the 

information required in paragraph 

(b)(4)(xiii) of this section is provided to 

the Secretary within 60 days after the 

student borrower provides the 

information. 

(6) If exit counseling is conducted 

through interactive electronic means, a 

school must take reasonable steps to 

ensure that each student borrower 

receives the counseling materials, and 

participates in and completes the exit 

counseling. 

(7) The school must maintain 

documentation substantiating the 

school’s compliance with this section 

for each student borrower. 

(Approved by the Office of Management and 

Budget under control number 1845–0021) 

Authority: 20 U.S.C. 1087a et seq.). 

[FR Doc. E9–25073 Filed 10–27–09; 8:45 am] 

BILLING CODE 4000–01–P 


srobinson on DSKHWCL6B1PROD with RULES2