45666 Federal Register / Vol. 71, No. 153 / Wednesday, August 9, 2006 / Rules and Regulations 

DEPARTMENT OF EDUCATION 

34 CFR Parts 600, 668, 673, 674, 675, 

676, 682 and 685 

RIN 1840–AC87 

Federal Student Aid Programs 

AGENCY: Office of Postsecondary 

Education, Department of Education. 

ACTION: Interim final regulations; 

request for comments. 

SUMMARY: The Secretary is amending the 

Federal Student Aid Program 

regulations to implement the changes to 

the Higher Education Act of 1965, as 

amended (HEA), resulting from the 

Higher Education Reconciliation Act of 

2005 (HERA), Public Law No. 109–171, 

and other recently enacted legislation. 

These interim final regulations reflect 

the provisions of the HERA that affect 

students, borrowers and program 

participants in the Federal student aid 

programs authorized under Title IV of 

the HEA. 

Interim final regulations for the two 

new Title IV grant programs created by 

the HERA, the Academic 

Competitiveness Grant Program and the 

National Science and Mathematics 

Access to Retain Talent (SMART) Grant 

Program, are being published in a 

separate notice in the Federal Register. 

DATES: Effective date: These interim 

final regulations are effective September 

8, 2006. 

Comment date: The Department must 

receive any comments on or before 

September 8, 2006. 

Information collection compliance 

date: Affected parties do not have to 

comply with the information collection 

requirements in Sections 600.7, 600.10, 

668.3, 668.8, 668.10, 668.22, 668.173, 

673.5, 674.34, 682.102, 682.200, 

682.207, 682.209, 682.210, 682.211, 

682.215, 682.305, 682.401, 682.402, 

682.404, 682.405, 682.406, 682.410, 

682.415, 682.601, 682.604, 685.102, 

685.204, 685.208, 685.215, 685.217 and 

685.220 until the Department publishes 

in the Federal Register the control 

numbers assigned by the Office of 

Management and Budget (OMB) to these 

information collection requirements. 

Publication of the control numbers 

notifies the public that OMB has 

approved these information collection 

requirements under the Paperwork 

Reduction Act of 1995. 

ADDRESSES: Address all comments about 

these interim final regulations to: Gail 

McLarnon, U.S. Department of 

Education, P.O. Box 33185, Washington, 

DC 20033–3185. 

If you prefer to deliver your 

comments by hand or by using a courier 

service or commercial carrier, address 

your comments to: Gail McLarnon, 1990 

K Street, NW., room 8026, Washington, 

DC 20006–8542. 

If you prefer to send your comments 

through the Internet, you may address 

them to us at: HERAComments@ed.gov. 

Or you may send them to us at the U.S. 

Government Web site: http:// 

www.regulations.gov. You must include 

the term ‘‘HERA Interim Final 

Comments’’ in the subject line of your 

electronic message. 

FOR FURTHER INFORMATION CONTACT: Ms. 

Gail McLarnon, U.S. Department of 

Education, 1990 K Street, NW., 8th 

Floor, Washington, DC 20006. 

Telephone: (202) 219–7048 or via the 

Internet at: Gail.McLarnon@ed.gov. 

If you use a telecommunications 

device for the deaf (TDD), you may call 

the Federal Relay Service (FRS) at 1– 

800–877–8339. 

Individuals with disabilities may 

obtain this document in an alternative 

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

audiotape, or computer diskette) on 

request to the contact person listed 

under FOR FURTHER INFORMATION

CONTACT. 

SUPPLEMENTARY INFORMATION: These 

interim final regulations reflect most of 

the changes made to the HEA by the 

HERA, enacted as part of the Deficit 

Reduction Act of 2005 (Pub. L. 109– 

171), as well as some changes made by 

other recently enacted legislation. The 

changes made by the HERA include: 

• An increase in certain FFEL and 

Direct Loan Program loan limits, 

• A reduction of origination fees in 

the FFEL and Direct Loan Programs, 

• The creation of a deferment for 

FFEL, Direct Loan and Perkins Loan 

Program borrowers who serve on active 

duty military service during times of 

war or national emergency, and a 

reduction of subsidies paid to lenders, 

• Changes to the definition of an 

academic year for programs measured in 

clock hours, 

• Changes and additions to 

provisions related to distance education 

and direct assessment academic 

programs, 

• Modifications to the regulations on 

the eligibility for Title IV, HEA program 

assistance for students with convictions 

for drug-related offenses, specifying that 

a student or parent who has not repaid 

fraudulently obtained Title IV, HEA 

program funds is ineligible for 

additional Title IV, program assistance, 

• Changes to the requirements for the 

treatment of Title IV, HEA program 

funds when a student withdraws, and 

• The re-institution of the previously 

expired FFEL and Direct Loan 

disbursement flexibilities provided to 

institutions with low cohort default 

rates. Effective February 8, 2006, 

institutions with official cohort default 

rates of less than 10 percent for each of 

the three most recent years do not need 

to comply with the ‘‘30-day 

disbursement delay’’ requirement for 

first time, first year students nor with 

the multiple disbursement requirements 

if the loan period is one term or four 

months or less. 

The HERA also modified several Title 

IV, HEA provisions that are not 

addressed in these interim final 

regulations. The HERA made changes to 

the rules governing Cost of Attendance 

calculations, the determination of an 

applicant’s dependency status, and the 

calculation of an applicant’s expected 

family contribution. In accordance with 

section 478(a) of the HEA, the Secretary 

does not issue regulations in this area. 

The HERA also modified and made 

permanent the provisions of the 

Taxpayer-Teacher Protection Act of 

2004 (Pub. L. 108–409) which (1) 

changed the calculation of special 

allowance payments for certain FFEL 

Program loans made with proceeds of 

tax-exempt obligations and (2) increased 

teacher loan forgiveness amounts for 

FFEL and Direct Loan borrowers 

teaching in certain areas. 

In addition to the changes mandated 

by the HERA, these interim final 

regulations also incorporate the 

provisions of Pub. L. 107–139, which 

changed the formula for calculating 

special allowance payments in the FFEL 

Program for loans made on or after July 

1, 2000 and set interest rates for FFEL 

and Direct Loans first disbursed on or 

after July 1, 2006 at fixed interest rates. 

These interim final regulations also 

incorporate the statutory changes made 

to the HEA by the Pell Grant Hurricane 

and Disaster Relief Act (Pub. L. 109–66) 

and the Student Grant Hurricane and 

Disaster Relief Act (Pub. L. 109–67). 

These laws authorize the Secretary to 

waive the requirement that a student 

repay a Title IV, HEA grant if the 

student withdrew from an institution 

because of a major disaster. The 

Secretary initially exercised this waiver 

authority through publication of Dear 

Colleague Letter GEN–05–17 on 

November 9, 2005. 

These interim final regulations also 

incorporate the statutory changes made 

to the HEA by The Emergency 

Supplemental Appropriations Act for 

Defense, the Global War on Terror, and 

Hurricane Recovery, 2006 (Pub. L. 109– 

234). The Emergency Supplemental 

Appropriations Act amended section 

428C(b)(1)(A) of the HEA by repealing 

the single holder rule with respect to 


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any FFEL Consolidation loan for which 

an application is received by an eligible 

lender on or after June 15, 2006. This 

law also repealed section 8009(a)(2) of 

the HERA and reinstated the current 

statutory provisions under which a 

borrower may consolidate outstanding 

FFEL Program loans into the Federal 

Direct Consolidation Loan Program. 

Significant Regulations 

We discuss substantive issues under 

the sections of the regulations to which 

they pertain. Generally, we do not 

address regulatory changes that are 

technical or otherwise minor in effect. 

Distance Education (§§ 600.2, 600.7, 

600.51, 668.8 and 668.38) 

Statute: Section 8020 of the HERA 

modified the institutional eligibility 

requirements in section 102(a)(3) of the 

HEA that generally make institutions 

offering more than 50 percent of their 

courses by correspondence, or a 

combination of correspondence and 

telecommunications, or enrolling 50 

percent or more of their students in 

correspondence courses, ineligible for 

Title IV, HEA program assistance. The 

HERA also modified the student 

eligibility requirements of section 

484(l)(1) of the HEA, by removing 

telecommunications courses from being 

considered as correspondence courses. 

Under the amended HEA, courses 

offered by telecommunications that 

meet certain conditions are no longer 

considered correspondence courses, and 

students enrolled in 

telecommunications courses are no 

longer considered to be correspondence 

students. 

The HERA also modified section 

481(b) of the HEA to reflect certain 

restrictions on the eligibility of 

programs that are offered by 

telecommunications. Consistent with 

prior law, the institution, including its 

distance education programs, must hold 

current accreditation from an 

accrediting agency recognized by the 

Secretary that has the evaluation of 

distance education in its scope of 

recognition. However, under the HERA, 

programs offered by foreign institutions 

that include instruction delivered by 

telecommunication are not eligible. 

Current Regulations: The current 

regulations reflect the previous statutory 

limitations on institutional and student 

eligibility based on the percentage of 

correspondence courses offered by the 

institution and the percentage of 

students enrolled in correspondence 

courses, and the relation of 

telecommunications courses to 

correspondence courses. 

New Regulations: We have amended 

the regulations in § 600.2 by removing 

from the definition of correspondence 

course the paragraph that describes the 

conditions under which a 

telecommunications course is 

considered a correspondence course and 

by revising the definition of 

telecommunications course. The 

definition of telecommunications course 

now specifies that a 

telecommunications course is one that 

uses one or a combination of 

technologies to deliver instruction to 

students who are separated from the 

instructor and to support regular and 

substantive interaction between these 

students and the instructor, either 

synchronously or asynchronously. We 

have amended the regulations relating 

to institutional ineligibility in § 600.7 to 

delete the references to 

telecommunications courses from the 

provisions relating to calculation of the 

percentage of correspondence courses 

offered by an institution. We also 

amended student eligibility regulations 

in § 668.38 to provide that students who 

are enrolled in certificate programs 

offered through telecommunications are 

no longer considered to be 

correspondence students. This change 

applies to institutions regardless of the 

percentage of degree programs offered 

by the institution. 

We have amended the eligible 

program regulations in § 668.8 to 

include programs that are offered in 

whole or in part through 

telecommunications by domestic 

institutions and that are accredited by 

an accrediting agency recognized by the 

Secretary for accreditation of distance 

education. As in the past, the 

accrediting agency’s scope of 

recognition must include the 

accreditation of distance education. 

Interpreting the HEA as amended by the 

HERA, we have also amended § 668.8 

and the regulations related to the 

eligibility of foreign schools in § 600.51 

to specify that programs offered by 

foreign schools through 

telecommunications or correspondence 

are not eligible programs. Recognizing, 

however, that telecommunications 

technologies are frequently used in 

conjunction with classroom instruction, 

we have included a provision 

acknowledging that participating foreign 

schools are free to use 

telecommunications technologies to 

supplement and support instruction 

offered in the foreign classroom. 

Reasons: The interim final regulations 

in § 600.7 will now reflect the statutory 

changes modifying the current 

institutional eligibility requirements 

which provide that institutions offering 

more than 50 percent of their courses 

via correspondence, or a combination of 

correspondence and 

telecommunications, or enrolling 50 

percent or more of their students in 

correspondence courses are ineligible to 

participate in Title IV, HEA programs. 

Under the HERA, courses offered by 

telecommunications are no longer 

considered correspondence courses, and 

students enrolled in 

telecommunications courses are no 

longer considered to be correspondence 

students. As a result, otherwise eligible 

institutions that offer over 50 percent of 

their courses by telecommunications, or 

have 50 percent or more of their regular 

students enrolled in 

telecommunications courses, are now 

eligible to participate in the Title IV, 

HEA programs. The 50 percent 

limitations continue to apply to 

correspondence courses and students. 

Because of the different statutory 

treatment of telecommunications and 

correspondence, we are changing the 

definition of telecommunications 

course. We believe that it is critical to 

differentiate between the two delivery 

modes. A definition of 

telecommunications course that focused 

exclusively on technologies could be 

erroneously interpreted to allow an 

institution to qualify for full 

participation in Title IV, HEA programs 

upon introduction of minor e-mail 

contact between students and a grader 

or instructional assistant (who may or 

may not have subject matter expertise) 

into what is essentially a 

correspondence course. Similarly, a 

course outline or course notes posted to 

an Internet Web site might also meet the 

current definition of a 

telecommunications course. Quality 

standards for electronically-delivered 

education emphasize the importance of 

interaction between the instructor and 

student. The amended definition of a 

telecommunications course 

acknowledges the importance of 

interactivity in electronically-delivered 

instruction and clearly distinguishes 

telecommunications from 

correspondence. 

The interim final regulations in 

§ 668.8 also reflect the statutory changes 

to the requirements for an eligible 

program to include programs offered in 

whole or in part through 

telecommunications by domestic 

institutions with appropriate 

accreditation. Because the HEA 

provides that telecommunications 

programs offered by foreign schools are 

not eligible programs, and the HEA 

provides that foreign schools are schools 

‘‘outside the United States,’’ and since 

Congress has not lifted the limitations 


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on the eligibility of foreign institutions 

that offer correspondence study, we 

believe that Congress did not intend for 

correspondence programs offered by 

foreign schools to be eligible programs. 

The purpose of eligibility for foreign 

schools, which is to permit students 

from the United States to experience life 

and education in foreign countries, is 

not served through correspondence 

study. 

Direct Assessment Programs (§§ 600.2, 

600.10, 600.21, 600.51, 668.8, and 

668.10) 

Statute: Section 8020 of the HERA 

adds a new type of eligible program to 

section 481(b) of the HEA—an 

instructional program that uses direct 

assessment of student learning, or 

recognizes the direct assessment of 

student learning by others, in lieu of 

measuring student learning in credit 

hours or clock hours. The assessment 

must be consistent with the institution’s 

or program’s accreditation. The HERA 

also provides that the Secretary will 

determine initially whether each 

program for which an institution 

proposes to use direct assessment is an 

eligible program. 

Current Regulations: There are no 

current regulations that reflect the use of 

direct assessment instead of credit hours 

or clock hours as a measure of student 

learning. 

New Regulations: We have amended 

the regulations in § 600.2 to include in 

the definition of educational program 

the statutory language describing direct 

assessment programs. 

In addition, we have amended the 

definition to provide that merely giving 

credit for direct assessments does not 

constitute instruction. We have also 

amended § 668.8 to indicate that a direct 

assessment program approved by the 

Secretary is considered an eligible 

program as defined in § 668.8. 

These interim final regulations also 

include a new § 668.10, that provides a 

definition of the term direct assessment 

programs and discusses how key Title 

IV, HEA program requirements apply to 

direct assessment programs. The section 

also includes the information that an 

institution must submit for the Secretary 

to make an eligibility determination of 

a direct assessment program. 

We have amended the regulations 

related to the eligibility of foreign 

schools in § 600.51 to specify that direct 

assessment programs offered by foreign 

schools are not eligible programs. In 

addition, we have amended 

§§ 600.10(c)(2) and 600.21(a)(4) to 

require that an institution must apply to 

the Secretary for approval whenever it 

adds a direct assessment program. 

Reasons: In amending the HEA to 

provide for the Title IV eligibility of 

programs using direct assessment, 

Congress specifically used the term 

‘‘instructional program’’ to clarify what 

types of programs would be eligible. 

Thus, the statute requires that the 

program include ‘‘instruction,’’ as well 

as ‘‘assessment.’’ To meet this 

requirement, programs that measure 

student learning by direct assessment 

must provide some means for students 

to supplement their existing knowledge 

to pass the assessments. An institution 

that is merely conducting direct 

assessments of a student’s knowledge 

and skills, without providing any 

resources to fill those gaps, is not 

providing instruction. 

In new § 668.10, we have adopted a 

definition of direct assessment program 

that reflects common usage by 

assessment experts and the 

accreditation community. In developing 

this definition, we recognized that many 

of the key requirements of the Title IV, 

HEA programs rely on both credit and 

clock hour measurements. By definition, 

direct assessment programs do not use 

credit or clock hours as a measure of 

student learning, but nothing in the 

HEA, as amended by the HERA, 

exempts direct assessment programs 

from the other credit and clock hour 

requirements. To apply the Title IV 

requirements to direct assessment 

programs, it is necessary to determine 

the equivalent number of credit or clock 

hours to the amount of student learning 

being directly assessed. 

Because many of the statutory 

requirements for Title IV, HEA program 

eligibility are stated in terms of time 

and/or credit or clock hours, we 

determined that the time-based 

requirements can and must be applied 

to direct assessment programs to ensure 

that students receive comparable 

amounts of Title IV, HEA program 

assistance for comparable work. This 

approach ensures that while one student 

in a direct assessment program may 

acquire the knowledge and skills 

necessary to pass assessments more 

quickly than does another student, and, 

as a result, may progress more quickly 

through the program, both students 

would receive the same amount of Title 

IV, HEA program assistance for the same 

payment period. However, the student 

who remained in attendance for more 

payment periods to complete the 

program because he or she entered the 

program with less knowledge or learned 

at a slower rate, might receive more 

Title IV, HEA program assistance based 

on the additional payment periods he or 

she attended. Likewise, students in 

direct assessment programs should 

receive no more Title IV, HEA program 

assistance in an academic year than 

would students in credit and clock hour 

programs that are comparable in terms 

of student learning. We applied this 

approach throughout these interim final 

regulations. 

The statute requires an institution to 

apply to the Secretary to have a direct 

assessment program determined to be an 

eligible program. Section 668.10(b) 

specifies the information an institution 

must provide in its application. We 

recognize that there is no single model 

for direct assessment programs and 

therefore have provided that institutions 

must provide detailed information about 

the approach they are using. In addition, 

institutions must indicate equivalencies 

to credit or clock hours in terms of 

instructional time, and to provide a 

factual basis for the claim of 

equivalence. These equivalencies are 

essential because, as mentioned 

previously, many applicable Title IV, 

HEA program requirements use time 

and/or credit or clock hours. 

We also considered that some 

students would have acquired skills and 

knowledge prior to their enrollment in 

the direct assessment program. Title IV, 

HEA program funds are provided to 

help cover the student’s cost of 

obtaining an education. Accordingly, 

Title IV, HEA program funds should be 

used only for learning that occurs after 

a student has enrolled in an educational 

program. Therefore, we have amended 

the regulations to require institutions to 

provide information in the application 

for approval of a direct assessment 

program about how they assess a 

student’s knowledge upon entering the 

program. 

We recognized that institutions 

offering direct assessment programs 

might use courses or learning materials 

developed by other entities, such as 

training and professional development 

organizations and other educational 

institutions, to assist students in 

preparing for the assessments. We 

considered whether the use of outside 

resources could be considered 

contracting out a portion of an 

educational program and determined 

that it could be. Therefore, we included 

in the direct assessment regulations a 

provision that exempts direct 

assessment programs from the 

limitations of contracting for part of an 

educational program. 

We considered whether remedial 

courses using direct assessment of 

student learning in lieu of credit or 

clock hours could be supported with 

Title IV, HEA program funds. 

We determined that remedial courses 

taken in preparation for enrollment in a 


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direct assessment program could be 

paid for with Title IV, HEA program 

funds only if they were offered in credit 

or clock hours. Our conclusion is based 

on the fact that the HERA modified the 

definition of eligible program to include 

direct assessment programs, but did not 

change the fact that remedial 

coursework is not itself a program or 

part of a program. We applied similar 

reasoning to instruction needed for a 

professional credential or certification 

from a State that is required for 

employment as a teacher in an 

elementary or secondary school. 

The HERA specifies that the 

assessment an institution uses in its 

direct assessment program must be 

consistent with the accreditation of the 

institution or program. Foreign schools 

are not accredited by nationally 

recognized accrediting agencies 

recognized by the Department and 

accordingly cannot meet this program 

eligibility requirement. In the future, the 

Secretary may consider developing 

eligibility criteria that are comparable to 

the accreditation requirement to permit 

direct assessment programs offered by 

foreign schools to qualify for Title IV, 

HEA program eligibility. 

The discussion of regulatory 

alternatives considered in the 

Regulatory Impact Analysis provides 

additional details on the factors the 

Secretary considered in developing the 

direct assessment regulations. 

Academic Year (§ 668.3) 

Statute: Section 8020 of the HERA 

amended the definition of academic 

year in section 481(a) of the HEA. The 

revised definition requires a minimum 

of 30 weeks of instructional time for a 

program that measures its program 

length in credit hours or a minimum of 

26 weeks of instructional time for a 

program that measures its program 

length in clock hours, rather than a 

minimum length of 30 weeks of 

instructional time for both credit hour 

and clock-hour programs. 

Current Regulations: The current 

regulations reflect the previous statutory 

definition of an academic year requiring 

a minimum of 30 weeks of instructional 

time for all programs regardless of the 

way in which the program was 

measured. 

New Regulations: Section 668.3(a) of 

the regulations has been amended to 

reflect the change in the statutory 

definition of an academic year. In 

addition, we have modified the 

definition so that academic year is no 

longer defined as a period beginning on 

the first day and ending on the last day 

of classes. 

Reasons: The regulations are modified 

to reflect the change made by the HERA 

to the definition of an academic year. 

Because all programs must define an 

academic year that conforms to the 

minimum requirements even if the 

program itself is shorter than those 

minimum requirements, we modified 

the definition so that an academic year 

is no longer defined as a period of time 

that begins on the first day of classes 

and ends on the last day of classes or 

examinations. 

Treatment of Title IV Funds When a 

Student Withdraws (§§ 668.22, 668.35, 

and 668.173) 

Program Applicability 

Statute: Section 8022 of the HERA 

amended section 484B(a)(3)(C)(i) of the 

HEA to change the applicability of 

section 484B of the HEA (commonly 

referred to as the Return of Title IV 

Funds requirements). Under prior law, 

the Return of Title IV Funds rules 

applied to all Title IV, HEA grant and 

loan assistance other than Federal Work 

Study (FWS) funds. Under the HERA, 

the rules will now apply only to funds 

from the Pell Grant, Federal 

Supplemental Educational Opportunity 

Grant (FSEOG), FFEL, Direct Loan, and 

Perkins Loan programs, and to the new 

Academic Competitiveness Grant (ACG) 

and National Science and Mathematics 

Access to Retain Talent (SMART) Grant 

programs. 

Current Regulations: Section 

668.22(a)(1) provides that the Return of 

Title IV Funds requirements apply to all 

Title IV, HEA grant and loan assistance 

disbursed or that could have been 

disbursed to a withdrawn student, not 

including FWS or the non-Federal share 

of FSEOG awards if an institution meets 

its FSEOG matching share by the 

individual recipient method or the 

aggregate method. 

New Regulations: We have revised 

§ 668.22(a)(2) to reflect the more limited 

applicability of the Return of Title IV 

Funds rules as provided in the HERA. 

Under the revised regulations, an 

institution must perform a Return of 

Title IV Funds calculation when a 

student who withdraws was disbursed, 

or could have been disbursed, funds 

from the following programs: Pell Grant, 

FSEOG, FFEL, Direct Loan, Perkins 

Loan, ACG, or SMART Grant. The 

Return of Title IV Funds requirements 

do not apply to funds from the Gaining 

Early Awareness and Readiness for 

Undergraduate Program (GEAR UP), 

Student Support Services (SSS) or 

Leveraging Educational Assistance 

Partnerships (LEAP) Programs. In 

addition, the interim final regulations 

retain the exemption from the Return of 

Title IV Funds rules for the non-Federal 

share of FSEOG awards if an institution 

meets its FSEOG matching share by the 

individual recipient method or the 

aggregate method. 

Reasons: These changes are made to 

implement the provisions of the HERA. 

The current regulatory exemption from 

the Return of Title IV Funds 

requirements of the non-Federal share of 

FSEOG awards is retained as these 

funds are not considered Federal funds 

and, therefore, are not subject to the 

Federal Return of Title IV Funds 

requirements. 

Post-Withdrawal Disbursement 

Counseling 

Statute: Section 8022 of the HERA 

amended section 484B(a)(4) of the HEA 

to require an institution to contact a 

borrower before making a late 

disbursement or post-withdrawal 

disbursement of Title IV loan funds. 

During this contact, the institution must 

confirm with the borrower that the loan 

funds are still required by the student, 

or parent in the case of a parent PLUS 

loan, and explain to the borrower his or 

her obligation to repay the funds if 

disbursed. An institution must 

document in the student’s file the result 

of the contact and the final 

determination made concerning the 

disbursement. 

Current Regulations: Current 

§ 668.22(a)(4)(i)(B) requires an 

institution to provide a student, or 

parent in the case of a parent PLUS 

loan, an opportunity to cancel some or 

all of a loan disbursement credited to 

the student’s account by providing 

notice to the student or parent when the 

institution credits the account with 

Direct Loan, FFEL, or Federal Perkins 

Loan program funds. In addition, 

§ 668.22(a)(4)(ii) provides that an 

institution must offer any amount of a 

post-withdrawal disbursement (loan and 

grant) that is not credited to the 

student’s account to the student, or 

parent in the case of a parent PLUS 

loan, as a direct disbursement. 

Current regulations do not require 

institutions to explain to students, or 

parents for a parent PLUS loan, the 

obligation to repay disbursed loan 

funds, nor do they specify the 

documentation an institution must 

keep. 

New Regulations: The existing 

regulations, as redesignated in 

§ 668.22(a)(5), have been modified as a 

result of the changes made by the 

HERA. 

While current regulations already 

require an institution to obtain 

confirmation from a student, or parent 


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for a parent PLUS loan, before making 

a direct disbursement of loan or grant 

funds from a post-withdrawal 

disbursement, the regulations have been 

revised to make clear that an institution 

must now obtain this confirmation 

before crediting a student’s account 

with loan funds. As in the past, an 

institution may credit a student’s 

account with any post-withdrawal 

disbursement of grant funds without 

confirmation from the student. 

Thus, the interim final regulations 

require an institution to include in the 

written notification it must provide to a 

student, or parent for a parent PLUS 

loan, notice of any post-withdrawal 

disbursement of loan funds that it 

wishes to credit to the student’s 

account. As currently required for direct 

disbursements of a post-withdrawal 

disbursement, the notice must identify 

the type and amount of the loan funds 

the institution wishes to credit to the 

student’s account, and explain that a 

student, or parent for a parent PLUS 

loan, may accept or decline all or a 

portion of the funds. The notice must 

also make clear that a student, or parent 

for a parent PLUS loan, may not receive 

as a direct disbursement loan funds that 

the institution wishes to credit to the 

student’s account unless the institution 

agrees to do so. If the student, or parent 

for a parent PLUS loan, does not wish 

to accept some or all of the loan funds 

that the institution wishes to credit to 

the student’s account, the institution 

must not disburse those funds. As 

required by the HERA, institutions are 

now required to explain to the student, 

or parent for a parent PLUS loan, the 

obligation to repay any loan funds 

accepted as a post-withdrawal 

disbursement. 

The 14-day deadline (from the date 

the institution sent the notification) for 

a student, or parent for a parent PLUS 

loan, to accept some or all of a direct 

disbursement of a post-withdrawal 

disbursement, now applies to 

confirmation of loan disbursements that 

an institution wishes to credit to a 

student’s account. The interim final 

regulations permit an institution to 

establish a later deadline, provided the 

later deadline applies to both 

confirmation of loan disbursements to 

the student’s account and to direct 

disbursements of a post-withdrawal 

disbursement. In accordance with 

current regulations, the institution’s 

notice to the student, or parent for a 

parent PLUS loan, must advise the 

student or parent of this deadline, 

making clear that a late response to the 

notice is honored only at the 

institution’s discretion. Under the 

interim final regulations, an institution 

that chooses to honor a late response 

must disburse all the funds accepted by 

the student, or parent for a parent PLUS 

loan; for example, it cannot credit loan 

funds to the student’s account in 

accordance with the student’s request, 

but decline to disburse directly postwithdrawal funds accepted by the 

student. As currently required when an 

institution declines to honor a late 

response for direct disbursements of a 

post-withdrawal disbursement, the 

interim final regulations require an 

institution that declines to honor a late 

response accepting loan funds to be 

credited to the student’s account to 

inform the student, or parent for a 

parent PLUS loan, in writing that it will 

not be honoring the late response. 

As with current regulatory 

requirements for making a direct 

disbursement of a post-withdrawal 

disbursement, an institution must make 

a disbursement by crediting a student’s 

account with a post-withdrawal 

disbursement of loan funds within 120 

days of the date of the institution’s 

determination that the student 

withdrew, as that term is defined in 

§ 668.22(l)(3). 

Finally, new paragraph 

§ 668.22(a)(5)(iv) has been added to 

codify the HERA requirement that an 

institution document in the student’s 

file the result of the contact and the 

final determination made concerning a 

post-withdrawal disbursement of loan 

funds. 

Reasons: These changes are made to 

implement the provisions of the HERA. 

We have modified the current 

regulations that require confirmation of 

any post-withdrawal disbursements 

made as a direct disbursement to reflect 

the new statutory requirements. 

A new regulatory provision requires 

the institution to make clear in the 

written notice that a student, or parent 

for a parent PLUS loan, may not receive 

as a direct disbursement loan funds that 

the institution wishes to credit to the 

student’s account, unless the institution 

concurs. This reflects current 

requirements that permit an institution 

to credit Title IV funds to a student’s 

account before disbursing any 

remaining amount to the student, or 

parent for a parent PLUS loan. 

The Secretary has made other changes 

to the regulations with the goal of easing 

implementation of the new 

requirements. The Secretary believes it 

should not be the institution’s decision 

to determine that it is acceptable for a 

student to incur debt and/or use up 

Title IV, HEA program eligibility to 

cover a debt to the institution, but not 

to cover non-institutional educational 

expenses. That decision must be left to 

the student, or parent for a parent PLUS 

loan. Thus, institutions are required to 

use the same deadline for responses for 

both types of confirmations and, if the 

institution acts on a late response, it 

must honor all the confirmations in the 

response. 

In addition, the Secretary now 

permits an institution to establish a 

deadline for confirmation responses 

beyond the 14-day minimum in current 

regulations to ease institutional 

administrative burden. Some 

institutions may desire to give all 

students and parents more time to 

respond now that confirmation of 

disbursement is needed for crediting the 

student’s account with loan funds. Also, 

a later deadline may be beneficial as a 

late confirmation response can now 

result in a student owing a debt to the 

institution for unpaid charges on his or 

her account. 

Withdrawals From Clock Hour Programs 

Statute: The HERA changed section 

484B(d)(2) of the HEA, to provide that 

only scheduled hours, not completed 

hours, will be used to determine the 

percentage of the payment period or 

period of enrollment completed by a 

student withdrawing from a clock hour 

program. Prior to this change, the law 

provided that scheduled hours, rather 

than completed hours, were used only 

if the hours completed by the student 

were equal to a percentage, determined 

by the Secretary in regulations, of the 

hours scheduled to be completed when 

the student withdrew. 

The HERA made a conforming change 

to section 484B(a)(3)(B)(ii) to make clear 

that a student withdrawing from a clock 

hour program earns 100 percent of his 

or her aid if the student’s withdrawal 

date occurs after the point when he or 

she was scheduled to complete 60 

percent of the scheduled hours in the 

payment period or period of enrollment. 

Current Regulations: The current 

regulations in § 668.22(f)(1)(ii) use 

actual hours to determine the 

percentage of the period completed by 

a student withdrawing from a clock 

hour program, unless the student’s 

actual hours of attendance were at least 

70 percent of the hours the student was 

scheduled to have completed at the time 

they withdrew. If so, scheduled hours 

are used. 

Section 668.22(e)(2)(ii)(B) of the 

current regulations provides that a 

student earns 100 percent of his or her 

aid only if he or she actually completed 

60 percent or more of the hours in the 

payment period or period of enrollment 

scheduled to be completed when he or 

she withdrew. 


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New Regulations: Section 

668.22(f)(1)(ii) has been amended to 

reflect the statutory change to section 

484B(d)(2) requiring the use of 

scheduled clock hours in all 

calculations of earned Title IV, HEA 

program funds for students who 

withdraw from clock-hour programs. 

That is, for a student withdrawing from 

a clock-hour program, the ‘‘percentage 

of the payment period or period of 

enrollment completed’’ is determined 

by dividing the total number of clock 

hours comprising the period into the 

number of clock hours scheduled to be 

completed as of the student’s 

withdrawal date. In addition, the 

regulations have been amended to 

require that the scheduled clock hours 

used for a student must be those 

established by the institution prior to 

the student’s beginning class date for 

the payment period or period of 

enrollment, and must have been 

established in accordance with any 

requirements of the State or the 

institution’s accrediting agency. These 

hours must be consistent with the 

published materials describing the 

institution’s programs. However, if an 

institution modified the scheduled 

hours in a student’s program prior to his 

or her withdrawal, and in accordance 

with any State or accrediting agency 

requirements, the new scheduled hours 

must be used. 

New § 668.22(e)(2)(ii)(B) implements 

the statutory change in section 

484B(a)(3)(B)(ii) by clarifying that a 

student withdrawing from a clock-hour 

program earns 100 percent of his or her 

aid if the student’s withdrawal date is 

after the point when he or she was 

scheduled to complete 60 percent of the 

scheduled hours in the payment period 

or period of enrollment. 

Reasons: These changes are made to 

implement the provisions of the HERA. 

To limit the possibility of abuse of this 

rule, the regulations provide that the 

scheduled hours used must be those 

that are part of a schedule that was 

established prior to a student’s 

withdrawal, and must meet any 

applicable State or accrediting agency 

standards. 

Grant Overpayment Requirements 

Statute: Section 8022 of the HERA 

amended section 484B(b)(2)(C) of the 

HEA to change the amount of a grant 

overpayment that must be repaid by a 

student who withdraws from school. 

The amount of a grant overpayment due 

from a student is limited to the amount 

by which the original overpayment 

amount exceeds 50 percent of the total 

grant funds received by the student for 

the payment period or period of 

enrollment. In addition, the HERA 

amended the HEA to specify that a 

student does not have to repay a grant 

overpayment of $50 or less for grant 

overpayments resulting from the 

student’s withdrawal. 

Current Regulations: The current 

regulations in § 668.22(h)(3)(ii) provide 

that a student is not required to repay 

50 percent of the withdrawn student’s 

original grant overpayment amount. 

Under § 668.35(e)(3), an otherwise 

eligible student maintains eligibility and 

does not have to repay a Perkins Loan, 

FSEOG, or Pell Grant overpayment of 

less than $25—resulting from 

withdrawal or otherwise provided that 

the overpayment amount is not a 

remaining balance nor a result of 

applying the overaward threshold for 

the campus-based programs. 

New Regulations: Revised 

§ 668.22(h)(3) reflects the new statutory 

limitation on the amount of a grant 

overpayment that a student is required 

to return. To illustrate the effect of the 

new law, we provide the following 

example: A student who received 

$2,000 in Title IV, HEA grant funds for 

a payment period withdraws from 

school. The institution uses the Return 

of Title IV Funds calculation and 

determines that the student has an 

original grant overpayment of $1,200. 

Under current regulations, the student 

would owe $600 (50 percent of the 

original overpayment amount of 

$1,200). Under the interim final 

regulations, the student owes $200 (the 

amount by which the original 

overpayment amount ($1,200) exceeds 

half of the total grant funds received, 

($1,000) or $1,200–$1,000. In this same 

scenario, if the student’s grant 

overpayment was originally $800, under 

current regulations the student owes 

$400 (50 percent of $800). Under the 

interim final regulations, the student 

owes nothing because the overpayment 

amount ($800) is less than half of the 

total grant funds received ($1,000). 

Section 668.22(h)(3) also reflects the 

statutory provision that a student is not 

obligated to return a grant overpayment 

of $50 or less. As a result, a grant 

overpayment of $50 or less will not 

make the student ineligible to receive 

Title IV, HEA program assistance should 

the student return to school. An 

institution is not required to attempt 

recovery of that overpayment, report it 

to the Department’s National Student 

Loan Data System (NSLDS), or refer it to 

the Secretary. Consistent with 

§ 668.35(e)(3), this new standard does 

not apply to remaining grant 

overpayment balances; that is, a student 

must repay a grant overpayment that has 

been reduced to $50 or less because of 

payments made. 

A conforming change is also being 

made to § 668.35(e) to make it clear that 

the overpayment threshold and 

eligibility requirements of § 668.35(e) do 

not apply to an overpayment resulting 

from the application of the Return of 

Title IV Funds requirements. The lessthan-$25 threshold and eligibility 

requirements specified in § 668.35(e)(3) 

continue to apply to all other 

overpayments. 

Reasons: These changes are made to 

implement the provisions of the HERA. 

Waiver of Grant Overpayment for 

Students Affected by a Disaster 

Statute: The Pell Grant Hurricane and 

Disaster Relief Act (Pub. L. 109–66) and 

the Student Grant Hurricane and 

Disaster Relief Act (Pub. L. 109–67) 

amended section 484B(b)(2) of the HEA 

to permit the Secretary to waive a 

student’s Title IV grant repayment if the 

student withdrew from an institution 

because of a major disaster. 

Current Regulations: Current 

regulations do not address this issue. 

New Regulations: New § 668.22(h)(5) 

incorporates the statutory changes. The 

interim final regulations provide that 

the Secretary may waive grant 

overpayment amounts for individuals 

whose withdrawal ended within the 

award year during which the 

designation of a major disaster area 

occurred, or the subsequent award year. 

On November 9, 2005, the Secretary 

exercised this waiver authority through 

publication of Dear Colleague Letter 

GEN–05–17. It is important to note that 

this waiver authority applies to a grant 

overpayment due from a student and 

not to the required return of unearned 

funds to a grant program by an 

institution. 

Reasons: These changes are made to 

implement the provisions of the Pell 

Grant Hurricane and Disaster Relief Act 

and the Student Grant Hurricane and 

Disaster Relief Act. The interim final 

regulations apply the waivers on an 

award year basis to reflect the fact that 

Pell and FSEOG Grants are awarded on 

an award year basis. 

Order of Return of Grant Funds 

Statute: Section 484B(b)(3)(B) of the 

HEA requires that unearned Title IV, 

HEA grant funds be returned to awards 

under subpart 1 of part A of the HEA 

(for the Pell Grant Program) before they 

are returned to awards under subpart 3 

of part A of the HEA (for the FSEOG 

Program). Under prior law, the Pell 

Grant program was the only program in 

subpart 1 of part A of the HEA. The 

HERA has added the ACG and the 


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National SMART Grant programs to 

subpart 1 of part A of the HEA. As a 

result, unearned funds must be returned 

to the Pell Grant, ACG and National 

SMART Grant programs before they are 

returned to the FSEOG program. The 

statute does not require that unearned 

funds be returned to one subpart 1 

program before another. 

Also, as noted previously, the HERA 

limited the application of the Return of 

Title IV funds requirements to funds 

from the Pell Grant, FSEOG, FFEL, 

Direct Loan, and Perkins Loan 

programs, as well as the new ACG and 

National SMART Grant programs. 

Current Regulations: Section 

668.22(i)(2) currently requires an 

institution or student to return unearned 

funds to the grant programs in the 

following order: (1) The Federal Pell 

Grant Program; (2) the FSEOG Program; 

(3) other Title IV, HEA grant or loan 

assistance programs. 

New Regulations: New § 668.22(i)(2) 

reflects the addition of the new ACG 

and National SMART Grant programs 

and requires that unearned funds be 

returned to those programs before 

unearned funds are returned to the 

FSEOG program. The interim final 

regulations also specify an order of 

return for the three grant programs in 

subpart 1 of part A of the HEA, 

requiring an institution or student to 

return unearned funds to the subpart 1 

grant programs in the following order: 

(1) The Pell Grant Program; (2) the ACG 

Program, and (3) the National SMART 

Grant Program. The interim final 

regulations no longer require an 

institution to return funds to ‘‘other 

Title IV, HEA grant or loan assistance 

programs.’’

Reasons: These changes are made to 

implement the provisions of the HERA. 

The interim final regulations specify 

that an institution or student return 

unearned funds to the Pell Grant 

Program before they are returned to the 

ACG or National SMART Grant 

programs because this approach is the 

most beneficial for students. Returning 

funds to the Pell Grant Program ensures 

that the student’s eligibility for a Pell 

Grant is maintained, which is beneficial 

should the student return to school 

within the same award year and again 

seek an ACG or National SMART Grant. 

Return of Funds Within 45 Days 

Statute: Section 8022 of the HERA 

amended section 484B(b)(1) of the HEA 

to add the requirement that an 

institution return unearned funds for 

which it is responsible no later than 45 

days from the determination of a 

student’s withdrawal. 

Current Regulations: Section 668.22(j) 

of the current regulations requires an 

institution to return the unearned funds 

for which it is responsible as soon as 

possible, but no later than 30 days after 

the date of the institution’s 

determination that the student 

withdrew. 

Section 668.173(b) establishes the 

specific criteria an institution must meet 

to be in compliance with the 30-day 

deadline in § 668.22(j). 

New Regulations: The interim final 

regulations in § 668.22(j) incorporate the 

HERA provision by changing the 

maximum amount of time an institution 

has to return the unearned funds for 

which it is responsible from 30 days to 

45 days. The interim final regulations 

continue to specify that an institution 

must return those funds as soon as 

possible. 

We are also making conforming 

changes to § 668.173(b) to extend the 

deadlines specified in that regulation by 

15 days. An institution will be 

considered to have returned funds 

timely if the institution does one of the 

following no later than 45 days (rather 

than the current 30 days) after the date 

it determines that the student withdrew: 

(1) Deposits or transfers the funds into 

the bank account it is required to 

maintain; (2) initiates an electronic 

funds transfer (EFT); (3) initiates an 

electronic transaction that informs the 

FFEL lender to adjust the borrower’s 

loan account for the amount returned; or 

(4) issues a check. The institution is 

considered to have issued a check 

timely if the institution’s records show 

that the check was issued no more than 

45 days after the date the institution 

determined that the student withdrew, 

or the date on the cancelled check 

shows that the bank endorsed that check 

no more than 60 days (instead of the 

current 45 days) after the date the 

institution determined that the student 

withdrew. 

Reasons: These changes are made to 

implement the provisions of the HERA. 

The interim final regulations retain the 

requirement that an institution return 

funds for which it is responsible as soon 

as possible. The return of funds by an 

institution may result in a decrease in 

the amount of a Title IV loan that the 

student must repay and reduces that 

interest that accrues on the loan. In 

addition, the sooner funds are returned, 

the sooner an otherwise eligible student 

may regain eligibility for those funds 

should the student return to school 

within the same academic period. 

Student Eligibility—General and 

Student Debts Under the HEA and to the 

U.S. (§§ 668.32, 668.35, 674.39, 682.405, 

and 685.211) 

Statute: Section 8021(a) of the HERA 

amended section 484(a) of the HEA by 

adding a new student eligibility 

requirement. The new requirement 

provides that students who have been 

convicted of, or have pled nolo 

contendere or guilty to a crime 

involving fraud in obtaining Title IV, 

HEA program assistance are not eligible 

for additional Title IV assistance unless 

they have repaid the fraudulently 

obtained Title IV, HEA program 

assistance funds to the Secretary or to 

the holder of a loan made under the 

Title IV, HEA programs. 

Current Regulations: Current 

regulations do not address the Title IV 

eligibility of students who have 

obtained Title IV, HEA Program 

assistance through fraud. 

New Regulations: Sections 668.32 and 

668.35 have been amended by adding 

new paragraphs (m) and (i), 

respectively, to provide that a student 

who has been convicted of or has pled 

nolo contendere or guilty to a crime 

involving fraud in obtaining Title IV, 

HEA program assistance is ineligible for 

additional assistance unless he or she 

has repaid the fraudulently obtained 

Title IV, HEA program assistance funds 

to the Secretary or to the holder of a 

loan made under the Title IV, HEA 

programs. In addition, § 682.401(b)(4) 

has been amended to cross-reference the 

new § 668.35(i). 

Sections 674.39(a), 682.405(a)(1), and 

685.211(f) have been amended to 

specify that a Perkins, FFEL, or Direct 

Loan Program loan that was 

fraudulently obtained, and for which 

the borrower has been convicted of, or 

has pled nolo contendere or guilty to, a 

crime involving fraudulently obtained 

Title IV, HEA program assistance, is not 

eligible for rehabilitation. 

Reasons: These regulations have been 

amended to reflect the changes made by 

the HERA. 

Conviction for Possession or Sale of 

Illegal Drugs (§ 668.40) 

Statute: Section 8021(c) of the HERA 

amended section 484(r) of the HEA to 

modify the requirements regarding the 

suspension of eligibility for students 

convicted of drug-related offenses. As 

amended, the HEA now provides that a 

student becomes ineligible for Title IV, 

HEA program assistance only if the 

conviction for a Federal or State offense 

involving the possession or sale of a 

controlled substance is for conduct that 

occurred during a period of enrollment 


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for which the student was receiving 

Title IV, HEA program assistance. The 

period of ineligibility and provisions for 

regaining eligibility were not changed 

by the HERA. 

Current Regulations: The current 

regulations reflect the previous statutory 

requirements that provided that a 

student became ineligible to receive 

Title IV, HEA program assistance if the 

student was convicted of an offense 

involving the possession or sale of 

illegal drugs without regard to when the 

offense occurred. 

New Regulations: Section 668.40(a)(1) 

has been revised to reflect the statutory 

change to section 484(r) of the HEA that 

limits the loss of student eligibility to 

students convicted of drug-related 

offenses to offenses that occurred during 

a period of enrollment for which the 

student was receiving Title IV, HEA 

program assistance. 

The revised student eligibility 

criterion applies to the 2006–2007 

award year for the Pell Grant, ACG, 

National SMART Grant, and campusbased programs and for periods of 

enrollment beginning on or after July 1, 

2006 for the FFEL and Direct Loan 

Programs. 

The period of ineligibility remains 

unchanged and is triggered by the date 

of the conviction. The provisions for 

regaining eligibility also remain 

unchanged. 

Reasons: These regulations have been 

changed to reflect the changes to the 

HEA made by the HERA. 

Estimated Financial Assistance 

(§§ 673.5, 673.6, 674.16, 675.26, 682.200 

and 685.102) 

Statute: Section 8019 of the HERA 

added two new grant programs by 

creating a new HEA section 401A and 

modified the definition of Other 

Financial Assistance in HEA section 

480(j). The two new grant programs are 

considered other financial assistance 

under section 480(j) of the HEA. In 

changing the definition of Other 

Financial Assistance, the HERA added a 

new section to the definition that states, 

‘‘Notwithstanding paragraph (1) and 

section 472, assistance not received 

under this title may be excluded from 

both estimated financial assistance and 

cost of attendance, if that assistance is 

provided by a State and is designated by 

such State to offset a specific 

component of the cost of attendance. If 

that assistance is excluded from either 

estimated financial assistance or cost of 

attendance, it shall be excluded from 

both.’’

The Ronald W. Reagan National 

Defense Authorization Act for Fiscal 

Year 2005 (Pub. L. 108–375) amended 

Title 10 of the United States Code to add 

a new veterans’ education benefit in 

chapter 1607. Veterans’ education 

benefits are considered other financial 

assistance under section 480(j) of the 

HEA. These chapter 1607 benefits, 

which are known as the Reserve 

Educational Assistance Program, benefit 

military reservists called to active duty 

after September 11, 2001 and are 

designated to pay for postsecondary 

education expenses. 

Current Regulations: The current 

regulations do not include the two new 

grant programs, the change in the 

definition of Other Financial 

Assistance, or the added veterans’

educational benefit in the regulatory 

definitions of resources and estimated 

financial assistance. 

New Regulations: We have amended 

§§ 673.5, 682.200 and 685.102 to reflect 

the creation of the two new grant 

programs and the new veterans’

education benefit, as well as the 

modification of the statutory definition 

of Other Financial Assistance. In 

addition, we have made technical 

changes to clarify the existing regulatory 

language, to standardize the definitions 

of resources and estimated financial 

assistance used in §§ 673.5(c), 673.6(a), 

674.16(c), 675.26(a), 682.200(b) and 

685.102(b), to adopt a single regulatory 

term to describe other financial 

assistance, and to make conforming 

changes. 

Historically, the campus-based 

General Provisions have used the term 

resources rather than estimated 

financial assistance in reference to the 

same components. However, the statute 

repeatedly uses the term estimated 

financial assistance, and we believe it is 

necessary to use this term in the interim 

final regulations. Accordingly, the 

interim final regulations in 

§§ 673.6(a)(1), 674.16(c), 675.26(a)(4) 

and 676.16(b) have been amended to 

change the defined term resources to the 

defined term estimated financial 

assistance. 

We have also made some technical 

changes to the regulations. We have 

modified the regulations to provide for 

the consistent use of names for the 

different loan types for each of the loan 

programs. We also clarified that the 

loans that can be used to replace the 

expected family contribution (EFC) 

include non-federal, non-need-based 

loans that come from private, state, or 

institutional sources. We have revised 

the definition of estimated financial 

assistance in §§ 682.200 and 685.102 of 

the FFEL and Direct Loan programs, 

respectively, to reflect our longstanding 

policy that estimated financial 

assistance includes ‘‘Any educational 

benefits paid because of enrollment in a 

postsecondary education institution, or 

to cover postsecondary education 

expenses’’ and by adding the same 

language to § 673.5(c) for the campusbased programs. 

We added non-need-based 

employment as an exclusion to the 

definition of estimated financial 

assistance in §§ 682.200 and 685.102 of 

the FFEL and Direct Loan program 

regulations, respectively. 

In § 673.5 of the campus-based 

General Provisions, we made a technical 

correction to clarify that fellowships 

and assistantships must be counted as 

estimated financial assistance, except 

those portions that are non-need-based 

employment. The current regulation 

states that non-need-based employment 

is not considered estimated financial 

assistance, but fellowships and 

assistantships may include portions that 

are non-need-based employment, but 

are not labeled separately as such. We 

made a technical change to § 673.5 to 

clarify the rules for the consideration of 

these fellowships and assistantships. 

We added to the definition of 

estimated financial assistance in 

§§ 682.200(b) and 685.102(b) two items 

that are in the same definition under 

§ 673.5(c). Those two items are 

insurance programs for the student’s 

education and fellowships and 

assistantships, except non-need-based 

employment portions of such awards. 

This inclusion ensures the three 

sections have similar language. 

Another technical change made for 

consistency was made in §§ 682.200(b) 

and 685.102(b) in which the word 

‘‘AmeriCorps’’ was added 

parenthetically following each instance 

of national service education awards or 

post-service benefits paid under title I of 

the National and Community Service 

Act of 1990 because that is the term 

used in § 673.5(c). 

Reasons: The regulations need to be 

changed to reflect the new grant 

programs and the new veterans’

educational benefits under 10 U.S.C. 

Chapter 1607. As a technical change, we 

have parenthetically inserted the names 

of each of the chapters of eligible 

veterans’ education benefits listed to 

make it easier for the public to identify 

these benefits. We also deleted the 

entries for programs that are obsolete 

and updated the names of programs that 

have been changed. We have also made 

technical changes to clarify the existing 

language and standardize the definitions 

among the regulatory sections 

referencing the definition of estimated 

financial assistance. 


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45674 Federal Register / Vol. 71, No. 153 / Wednesday, August 9, 2006 / Rules and Regulations 

Military Deferment (§§ 674.34, 682.210, 

and 685.204) 

Statute: Section 8007 of the HERA 

amended sections 428, 455, 464 and 481 

of the HEA to create a new deferment 

for borrowers who are serving on active 

duty in the U.S. Armed Forces, or who 

are performing qualifying National 

Guard duty, during a war or other 

military operation or national 

emergency. The deferment is effective 

July 1, 2006, for loans for which the first 

disbursement is made on or after July 1, 

2001. 

Current Regulations: The current 

deferment regulations do not reflect this 

new deferment for military service. This 

new deferment is different from the 

military service deferment available to 

Perkins Loan, FFEL and Direct Loan 

Program borrowers who took out loans 

prior to July 1, 1993. 

New Regulations: Section 674.34 of 

the Perkins regulations, § 682.210 of the 

FFEL regulations, and § 685.204 of the 

Direct Loan regulations have been 

amended to reflect the new military 

service deferment created by the HERA. 

The interim final regulations specify the 

types of active duty service and 

National Guard service that qualifies a 

borrower for the deferment, and define 

active duty, military operation, and 

national emergency for purposes of a 

military deferment. The types of 

qualifying service and the definitions 

are provided in the HERA. 

A borrower may qualify for the 

military deferment if the first 

disbursement of the borrower’s Perkins, 

FFEL, or Direct Loan was made on or 

after July 1, 2001. If the borrower has 

some loans disbursed before July 1, 

2001 and some loans disbursed on or 

after July 1, 2001, the borrower may 

receive a military deferment for the 

loans disbursed on or after July 1, 2001, 

but may not receive a military 

deferment on the loans disbursed before 

July 1, 2001. The period of eligible 

military service must have occurred 

after the borrower received the loan. A 

borrower consolidating loans first 

disbursed on or after July 1, 2001, is 

eligible for the new deferment on the 

entire Consolidation Loan only if all of 

the borrower’s Title IV loans included 

in the Consolidation Loan were first 

disbursed on or after July 1, 2001. The 

HERA does not authorize a loan holder 

to refund payments made during a 

period covered by a retroactive 

deferment. 

Reasons: The regulations are amended 

to reflect changes made by the HERA. 

FFEL and Direct Loan Program Changes 

Graduate and Professional Student 

Eligibility for PLUS Loans (§§ 668.2, 

682.102, 682.201, 685.102, 685.200, and 

685.201) 

Statute: Section 8005 of the HERA 

amended section 428B of the HEA, to 

provide that graduate and professional 

students are eligible for PLUS Loans. In 

addition, section 8014 of the HERA 

added a new eligibility requirement for 

PLUS Loan borrowers. Under this 

requirement, a PLUS Loan borrower 

who has been convicted of, or pled nolo 

contendere or guilty to, a crime 

involving fraud in obtaining Title IV, 

HEA program funds must complete 

repayment of the fraudulently obtained 

funds to be eligible to receive a PLUS 

loan. 

Current Regulations: Under the 

current regulations, only parents of 

eligible students are eligible for PLUS 

Loans. 

New Regulations: The terms Federal 

Direct PLUS Program and Federal PLUS 

Program are defined in §§ 668.2 and 

685.102 to include graduate and 

professional students as eligible 

borrowers. Section 682.102 of the FFEL 

Program regulations and § 685.201 of 

the Direct Loan Program regulations 

have been amended to describe the 

application process for graduate or 

professional students to obtain a PLUS 

loan. Sections 682.201 of the FFEL 

Program regulations and 685.200 of the 

Direct Loan Program regulations have 

been amended to specify that a graduate 

or professional student PLUS borrower 

must meet the same eligibility criteria as 

a student Stafford borrower. This 

includes the new requirement in 

§ 668.32 that a student convicted of 

fraud in obtaining Title IV, HEA 

program funds, or who has pled nolo 

contendere or guilty to such a crime, 

must complete repayment of the 

fraudulently obtained funds. In 

addition, the student PLUS borrower 

must have received a determination of 

his or her annual loan maximum 

eligibility under the Subsidized and 

Unsubsidized Stafford Loan program. A 

student PLUS borrower, like a parent 

PLUS borrower, must not have an 

adverse credit history to be eligible for 

a PLUS Loan. 

We have also amended § 682.201(c) to 

reflect that a parent borrower convicted 

of fraud in obtaining Title IV, HEA 

program funds, or who has pled nolo 

contendere or guilty to such a crime, 

must complete repayment of the 

fraudulently obtained funds in order to 

be eligible for a PLUS loan. 

Reasons: The regulations are amended 

to reflect changes made by the HERA. 

Joint Consolidation Loans (§§ 682.102, 

682.201, and 685.220) 

Statute: Section 8009 of the HERA 

amended section 428C(a)(3)(C) of the 

HEA by eliminating the ability of a 

married couple to jointly consolidate 

their eligible student loans. 

Current Regulations: Current 

regulations permit a married couple to 

consolidate their eligible student loans 

into a joint FFEL or Direct 

Consolidation Loan. 

New Regulations: Sections 682.102(d), 

682.201(c)(2), 682.201(e), and 

685.220(d)(2) have been modified to 

eliminate the possibility of joint 

consolidation of loans by a married 

couple for applications received on or 

after July 1, 2006. 

Reasons: These regulations are 

amended to reflect changes made by the 

HERA. 

Interest Rates (§§ 682.202 and 685.202) 

Statute: Public Law 107–139 amended 

section 427A of the HEA to establish 

fixed interest rates for FFEL and Direct 

Stafford and PLUS loans first disbursed 

on or after July 1, 2006, at 6.8 percent 

for Stafford loans and 7.9 percent for 

PLUS loans. The HERA did not change 

these interest rates for Stafford loans or 

Direct PLUS loans but did increase the 

interest rate for PLUS loans made under 

the FFEL Program to 8.5 percent. For 

FFEL and Direct Consolidation loans, 

the interest rate remains a fixed rate, 

calculated at the time the consolidation 

loan is made, as the weighted average of 

interest rates on the loans consolidated, 

rounded up to the nearest higher 1⁄8th of 

1 percent, not to exceed 8.5 percent. 

Current regulations: Current 

regulations do not reflect the changed 

interest rates on Stafford and PLUS 

loans made under the FFEL and Direct 

Loan programs. Interest rates on FFEL 

and Direct Consolidation loans are 

correctly reflected in the current 

regulations. 

New regulations: Sections 682.202 

and 685.202 of the FFEL and Direct 

Loan program regulations, respectively, 

have been amended to reflect a fixed 

interest rate of 6.8 percent for Stafford 

Loans first disbursed on or after July 1, 

2006. The regulations have also been 

amended to reflect a fixed interest rate 

of 8.5 and 7.9 percent, respectively, for 

FFEL and Direct PLUS loans first 

disbursed on or after July 1, 2006. 

Reasons: The regulations are amended 

to reflect changes made by Public Law 

107–139 and the HERA. 

Origination Fees (§§ 682.202 and 

685.202) 

Statute: Section 8008(c) of the HERA 

amended section 438(c)(2) of the HEA to 


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reduce and eventually eliminate the 3 

percent origination fee that is paid by 

FFEL Program lenders and that the 

lenders may charge to FFEL Stafford 

Loan borrowers. Section 8008(c) of the 

HERA also amended section 

455(b)(8)(A) of the HEA to reduce the 4 

percent origination fee that may be 

charged to Stafford Loan borrowers in 

the Direct Loan Program. The 4 percent 

Direct Stafford Loan origination fee is 

equivalent to the combined 3 percent 

FFEL Stafford Loan origination fee plus 

the 1 percent insurance premium (now 

the Federal default fee) that is 

authorized in the FFEL Program. 

Origination fees currently charged to 

FFEL and Direct PLUS loan borrowers 

are not changed by the HERA. FFEL and 

Direct Consolidation Loan borrowers are 

also not charged origination fees. 

Current Regulations: The current 

regulations authorize lenders in the 

FFEL Program to charge borrowers an 

origination fee of up to 3 percent of the 

amount of a Stafford Loan and the 

Secretary to charge a fee of up to 4 

percent of the amount of a Direct 

Stafford Loan. Lenders in the FFEL 

Program are required to pay the full 

amount of the origination fee to the 

Secretary whether or not they charge the 

fee to the borrower. 

New regulations: The FFEL Program 

regulations have been amended in 

§ 682.202(c) to reduce origination fees as 

follows: Beginning with loans for which 

the first disbursement of principal is 

made on or after July 1, 2006, and before 

July 1, 2007, the maximum origination 

fee that a lender may charge a borrower 

will be 2 percent. The maximum 

origination fee that may be charged to 

an FFEL Stafford loan borrower drops to 

1.5 percent on July 1, 2007, 1.0 percent 

on July 1, 2008, and 0.5 percent on July 

1, 2009. The lender must pay the 

specified maximum fee for each period 

to the Secretary whether or not it is 

charged to the borrower. The fee will be 

eliminated as of July 1, 2010. 

Section 685.202(c) of the Direct Loan 

Program regulations has been amended 

to reduce origination fees as follows: 

Beginning with loans for which the first 

disbursement of principal is made on or 

after February 8, 2006, and before July 

1, 2007, the maximum origination fee 

that may be charged to Direct Stafford 

Loan borrowers is 3 percent. The 

maximum origination fee that may be 

charged drops to 2.5 percent on July 1, 

2007, 2.0 percent on July 1, 2008, 1.5 

percent on July 1, 2009, and 1.0 percent 

on July 1, 2010. 

Reasons: The regulations are amended 

to reflect the changes made by the 

HERA. 

Loan Limits (§§ 682.204 and 685.203) 

Statute: Section 8005 of the HERA 

amended sections 425(a)(1)(A), 

428(b)(1)(A), and 428H(d) of the HEA to 

increase loan limits for certain Stafford 

Loan borrowers. The higher loan limits 

are effective in the FFEL Program for 

loans certified on or after July 1, 2007, 

and, in the Direct Loan Program, for 

loans originated on or after July 1, 2007. 

The HERA did not increase aggregate 

loan limits in either program. 

Current Regulations: Under the 

current regulations, the base subsidized/ 

unsubsidized combined annual loan 

limit for first-year undergraduates is 

$2,625 and $3,500 for second year 

undergraduates. For graduate or 

professional students, the additional 

unsubsidized annual loan limit is 

$10,000. For students who have 

obtained a baccalaureate degree and are 

enrolled in coursework necessary for 

enrollment in a graduate or professional 

program, the additional unsubsidized 

annual loan limit is $5,000. For students 

who have obtained a baccalaureate 

degree, and are enrolled in coursework 

necessary for a professional credential 

or certification from a State required for 

employment as a teacher in an 

elementary school, the additional 

unsubsidized loan limit is $5,000. 

New Regulations: Under the interim 

final regulations, for FFEL loans 

certified on or after July 1, 2007 and for 

Direct Loans originated on or after July 

1, 2007: 

• For first-year undergraduates, the 

base subsidized/unsubsidized combined 

annual loan limit is $3,500; 

• For second year undergraduates, the 

base subsidized/unsubsidized combined 

annual loan limit is $4,500; 

• For graduate or professional 

students, the additional unsubsidized 

annual loan limit is $12,000; 

• For students who have obtained a 

baccalaureate degree and are enrolled in 

coursework necessary for enrollment in 

a graduate or professional program, the 

additional unsubsidized annual loan 

limit is $7,000; and 

• For students who have obtained a 

baccalaureate degree, and are enrolled 

in coursework necessary for a 

professional credential or certification 

from a State required for employment as 

a teacher in an elementary school, the 

additional unsubsidized loan limit is 

$7,000. 

The HERA did not increase the base 

subsidized/unsubsidized combined loan 

limits for third year and above 

undergraduate students and for graduate 

students. The HERA also did not change 

the limits on the additional amount of 

unsubsidized loans that are available to 

all undergraduate students. 

Reasons: These regulations are 

amended to reflect changes made by the 

HERA. 

Elimination of Option of Early Entrance 

Into Repayment (§§ 682.209 and 

685.220) 

Statute: Section 8009 of the HERA 

amended sections 428(b)(7)(A), 

428C(a)(3), and 428C(b)(5) to eliminate 

the ability of FFEL Stafford Loan 

borrowers to request to enter repayment 

on their loans early. Early conversion to 

repayment allows a borrower to 

consolidate FFEL loans while still 

enrolled at least half-time. 

Section 8009 of the HERA also 

amended sections 455(a), 455(d), and 

455(g) of the HEA to require that Direct 

Consolidation Loans have the same 

terms and conditions as FFEL 

Consolidation Loans. For both FFEL 

Stafford Loan and Direct Stafford Loan 

borrowers, the repayment period is now 

defined as the period beginning 6 

months and one day after the date the 

student ceases to carry at least one-half 

the normal full-time academic 

workload, as determined by the 

institution. 

Current Regulations: Section 

682.209(a)(5) of the FFEL program 

regulations permits FFEL Stafford Loan 

borrowers to request and be granted a 

repayment schedule prior to the end of 

their grace period and therefore enter 

repayment on their loans. Current Direct 

Loan regulations in 

§ 685.220(d)(1)(ii)(A) permit borrowers 

in an in-school period with loans made 

under both the FFEL program and the 

Direct Loan program to obtain a Direct 

Consolidation loan. Also, under 

§ 685.220(d)(1)(ii)(B), a borrower with 

FFEL loans only, in an in-school period 

at a school participating in the Direct 

Loan program is eligible to consolidate 

these loans into the Direct Loan 

program. 

New Regulations: To implement the 

HERA, section 682.209(a)(5) of the FFEL 

regulations has been removed. FFEL 

Stafford Loan borrowers may no longer 

request to enter repayment early on 

their loans. Section 685.220(d)(1)(ii)(A) 

of the Direct Loan regulations has been 

removed so that Direct Stafford Loan 

borrowers are no longer able to 

consolidate while in an in-school status. 

Reasons: The regulations were 

modified to reflect the changes made by 

the HERA to the HEA. 

Teacher Loan Forgiveness (§§ 682.215 

and 685.217) 

Statute: Section 8013(c) of the HERA 

eliminated the previous termination 

date of October 1, 2005, for the 

increased teacher loan forgiveness 


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amounts of up to $17,500 for highlyqualified teachers in certain specialties 

as originally provided under the 

Taxpayer-Teacher Protection Act of 

2004 (TTPA). In addition, the HERA 

established an alternative method for 

teachers in private non-profit schools to 

qualify for the same forgiveness benefits 

as ‘‘highly qualified’’ teachers in public 

schools. 

Current Regulations: Sections 682.215 

and 685.217 of the FFEL and Direct 

Loan Program regulations, respectively, 

do not reflect the eligibility 

requirements for teacher loan 

forgiveness established in the TTPA, the 

increased loan forgiveness amount that 

are available for certain teachers, or the 

alternative method for teachers in 

private, non-profit schools to qualify for 

teacher loan forgiveness. 

New Regulations: Sections 682.215 

and 685.217 continue to reflect the 

original eligibility requirements for 

teacher loan forgiveness, and have been 

amended to reflect the eligibility 

requirements, and increased forgiveness 

amounts, established by the TTPA and 

the HERA. 

A borrower whose five, consecutive, 

complete years of qualifying teaching 

service began before October 30, 2004 

may qualify for up to $5,000 of teacher 

loan forgiveness under the original 

eligibility criteria for teacher loan 

forgiveness. 

‘‘Highly qualified’’ teachers whose 

teaching service begins on or after 

October 30, 2004 may qualify for 

forgiveness of up to: 

• $5,000 if the borrower taught fulltime in an eligible elementary or 

secondary school; 

• $17,500 if the borrower taught 

mathematics or science on a full-time 

basis in an eligible secondary school; 

• $17,500 if the borrower taught as a 

special education teacher on a full-time 

basis, the borrower’s primary 

responsibility was to provide special 

education to children with disabilities 

in either an eligible elementary or 

secondary school, if the borrower’s 

special education training corresponded 

to the children’s disabilities and the 

borrower demonstrated knowledge and 

teaching skills in the content areas of 

the elementary or secondary school 

curriculum that the borrower is 

teaching. 

Highly qualified teachers whose 

teaching service began before October 

30, 2004, may also qualify for $17,500 

of loan forgiveness if they meet the 

applicable eligibility requirements. To 

qualify for loan forgiveness based on 

being a ‘‘highly qualified’’ teacher, the 

borrower must have been a ‘‘highly 

qualified’’ teacher for each of the five 

consecutive years of teaching service. 

Teachers in private, non-profit 

schools who are exempt from State 

certification requirements may qualify 

for the same forgiveness benefits as 

‘‘highly qualified’’ public school 

teachers, if the private school teacher is 

otherwise eligible for teacher loan 

forgiveness and: 

• The private school teacher is 

permitted to and does satisfy rigorous 

subject knowledge and skills tests by 

taking competency tests in applicable 

grade levels and subject areas; 

• The competency tests taken by the 

private school teacher are recognized by 

five or more States for the purposes of 

fulfilling the highly qualified teacher 

requirements of the Elementary and 

Secondary Education Act of 1965, as 

amended; and 

• The private school teacher achieves 

a score on each test that equals or 

exceeds the average passing score for 

those five States. 

Reasons: These regulations are 

amended to reflect changes made by the 

TTPA and the HERA. 

Loan Discharge for False Certification as 

a Result of Identity Theft (§§ 682.402 

and 685.215) 

Statute: Section 8012 of the HERA 

amended section 437(c) of the HEA to 

authorize a discharge of a FFEL or 

Direct Loan Program loan if the 

borrower’s eligibility to borrow was 

falsely certified because the borrower 

was a victim of the crime of identity 

theft. This change is effective July 1, 

2006. 

Current Regulations: FFEL and Direct 

Loan Program regulations in §§ 682.402 

and 685.215 do not explicitly authorize 

the discharge of a FFEL or Direct Loan 

Program loan if the borrower’s eligibility 

was falsely certified because the 

borrower was the victim of the crime of 

identity theft. 

New Regulations: Sections 682.402 

and 685.215 of the FFEL and Direct 

Loan Program regulations, respectively, 

have been amended to authorize a 

discharge of an FFEL or Direct Loan 

Program loan if the borrower’s eligibility 

to receive the loan was falsely certified 

because the borrower was a victim of 

the crime of identity theft. The interim 

final regulations provide that the 

borrower’s obligation is discharged if 

the borrower provides the holder of a 

loan, or the Secretary in the case of a 

Direct Loan, a copy of a local, State, or 

Federal court verdict or judgment that 

conclusively determines that the 

individual who is the named borrower 

of the loan was the victim of the crime 

of identity theft, and the borrower 

demonstrates that the loan in question 

was made as a result of that identity 

theft. Discharge relief is available to the 

victim of the proven crime of identity 

theft, whether or not the prosecution 

was based on, or expressly referred to, 

the loan in question. If the conviction or 

judgment did not expressly reference 

that loan, the individual must provide 

authentic examples of his or her other 

identification credentials, and an 

explanation of facts that demonstrate 

that this criminal conduct resulted in 

the school certifying that individual’s 

eligibility to borrow, and, as a result, in 

the loan being made. 

In addition, because the statute 

authorizes discharge for individuals 

who are victims of the crime of identity 

theft, the interim final regulations 

provides relief only to individuals who 

did not knowingly accept the benefit of 

the falsely-certified loan, and require 

individuals who claim relief to certify 

that they did not, with knowledge that 

the loan had been made, receive or 

accept the benefits of the loan. 

Where discharge relief is provided to 

an injured borrower, or where a 

borrower receives FFEL benefits based 

on providing false or erroneous 

information, the HEA and the current 

regulations generally require the 

Secretary and the guarantor, as 

applicable, to pursue claims against the 

responsible party. Approval of an 

identity theft discharge claim will rest 

on a judicial determination that a 

named individual committed the crime 

of identity theft and at very least a 

presentation by the victim of a 

persuasive statement showing that the 

identified perpetrator was responsible 

for the loan obligation. The Secretary 

interprets the enforcement language in 

section 437 of the HEA to include 

enforcement action against the 

identified perpetrator of the identity 

theft. 

By adding this discharge authority, 

the Secretary in no way suggests that 

unless a crime of identity theft has been 

successfully prosecuted, individuals are 

liable for a loan for which they did not 

execute or authorize another to execute 

a promissory note, from which they 

received no benefits, and which they 

have not ratified by later conduct. To 

the contrary, a person is ordinarily not 

liable on an instrument, such as a 

promissory note or check, unless that 

person signed that instrument or 

authorized another to sign on his or her 

behalf. Section 682.402(e)(1)(i)(B) of the 

FFEL Program regulations provide that 

FFEL program benefits are payable to 

the holder of the loan only where the 

lender obtained a legally-enforceable 

promissory note to evidence the loan, 


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1The Department applied this same principle in 

DCL 93–L–156, July 1993, with respect to FFEL 

Program loans disbursed by checks on which the 

borrower’s endorsement had been forged. 

and § 682.406(a)(1) provides that 

reinsurance may be received only with 

respect to a claim on a legallyenforceable loan. Because a forged 

promissory note is not an enforceable 

obligation of the named borrower, FFEL 

Program benefits can not lawfully be 

claimed on a loan evidenced by such a 

note, absent conduct by the individual 

named as borrower that applicable law 

would regard as a ratification of 

knowing acceptance of the loan by the 

individual.1 In § 682.402(e)(1)(i)(B) of 

the FFEL Program regulations that 

implement the discharge authority in 

section 437(c) of the HEA for false 

certification of eligibility to borrow, the 

Secretary carved out a narrow exception 

to this rule to authorize both discharge 

relief to individuals named as borrowers 

and reimbursement to the loan holders 

if the loan application or promissory 

note had been forged by the school. No 

regulation grants relief to those 

individuals who demonstrate that their 

signatures were forged on the note, but 

who cannot credibly assert that the 

forger was a person affiliated with the 

school, because that relief is already 

available for those individuals under the 

common law (and in many instances, 

State law) defense of forgery. That 

defense has applied to FFEL Program 

loans as to any other contracts, and 

therefore no regulations were needed, or 

are now needed, to create relief from 

liability on a forged FFEL Program note. 

Moreover, the rights of the lender, and 

any subsequent holder, have always 

been subject to the obligation of the 

lender to exercise due diligence in 

making the loan in accordance with 

§ 682.206(a)(2). A lender whose 

employee or agent either committed the 

crime of identity theft of that individual, 

or knew at the time the loan was made 

of the identity theft of that individual, 

has not relied in good faith on 

representations made by the borrower or 

the school in the loan application 

process, and is not held harmless under 

FFEL Program regulations from the 

consequences of the making of a loan 

that is not legally enforceable against 

the individual named as borrower. In 

this instance, as with forged or 

unauthorized endorsements on 

disbursement instruments or 

authorizations, the holders of the loan 

must refund to the Secretary any FFEL 

Program benefits received on that loan. 

Reasons: The regulations are amended 

to reflect changes made by the HERA. 

Loan Rehabilitation Agreement 

(§§ 682.405 and 685.211) 

Statute: Section 8014(h) of the HERA 

amended section 428F(a) of the HEA to 

modify the requirements for a borrower 

to rehabilitate a defaulted loan under 

the FFEL and Direct Loan Programs. 

Under the HERA, a borrower will only 

need to make nine payments within 20 

days of the due date during a period of 

10 consecutive months to rehabilitate a 

defaulted loan(s). This change does not 

apply to the Federal Perkins Loan 

Program. 

Current Regulations: Current 

regulations require a defaulted FFEL or 

Direct Loan borrower to make 12 

consecutive monthly payments on the 

defaulted loan to rehabilitate the loan. 

New Regulations: Sections 682.405 

and 685.211 of the FFEL and Direct 

Loan Program regulations, respectively, 

have been amended to provide that a 

borrower meets the requirements for 

rehabilitation if that borrower makes at 

least nine of the ten payments required 

under a monthly repayment, if each 

payment is received within 20 days of 

the scheduled due date for that 

payment, and notwithstanding the 20- 

day grace period otherwise applicable, if 

all nine of those payments are received 

within a period of no more than 10 

consecutive calendar months that begins 

no earlier than the first scheduled due 

date of the nine payments and ends no 

later than the scheduled due date in the 

tenth month following that first due 

date. This change is effective on July 1, 

2006. For a loan rehabilitation 

agreement that began prior to July 1, 

2006, a guaranty agency may consider 

the borrower to have met the new 

rehabilitation standard if at least one of 

the borrower’s payments is due to be 

made on or after July 1, 2006, even if 

that payment is received prior to July 1, 

2006, but within 20 days of the required 

due date in July. The guaranty agency 

must treat all borrowers in this situation 

equally. On defaulted loans held by the 

Department, we will consider the 

borrower to have met the new 

rehabilitation standards if the borrower 

makes payments as required under the 

existing agreement, and at least one of 

the nine payments made by the 

borrower was due on or after July 1, 

2006, even if that specific payment was 

received prior to July 1, 2006, but 

within 20 days of the July due date. 

Reasons: These regulations are 

amended to reflect changes made by the 

HERA. 

FFEL Program Changes 

Single Holder Rule (§§ 682.102 and 

682.201) 

Statute: Section 7015 of The 

Emergency Supplemental 

Appropriations Act for Defense, the 

Global War on Terror, and Hurricane 

Recovery, 2006 (Pub. L. 109–234) 

amended section 428C(b)(1)(A) of the 

HEA by repealing the single holder rule 

with respect to any FFEL Consolidation 

Loan for which an application is 

received by an eligible lender on or after 

June 15, 2006. The single holder rule 

required that a borrower with FFEL 

loans held by a single lender could only 

consolidate his or her loans with that 

lender. 

Current Regulations: Sections 

682.102(d) and 682.201(d) provide that 

a borrower who is applying for a 

Consolidation Loan must certify that the 

lender making the Consolidation Loan 

holds at least one outstanding loan that 

is being consolidated unless the 

borrower has multiple holders of FFEL 

Program loans, or the borrower’s single 

loan holder declines to make a 

Consolidation Loan, or declines to make 

one with income-sensitive repayment 

terms. 

New Regulations: Sections 682.102(d) 

and 682.201(d) have been amended to 

remove these requirements. 

Reasons: The interim final regulations 

are necessary to reflect the changes 

made to the HEA by The Emergency 

Supplemental Appropriations Act for 

Defense, the Global War on Terror, and 

Hurricane Recovery, 2006. 

Federal Default Fee (§§ 682.202, 682.401 

and 682.419) 

Statute: Effective for loans guaranteed 

on or after July 1, 2006, section 8014 of 

the HERA amended section 428(b)(1)(H) 

of the HEA to eliminate the optional 1 

percent insurance premium fee that 

guaranty agencies could charge to 

lenders and that lenders could charge to 

borrowers and establishes a Federal 

default fee equal to 1 percent of the 

principal amount of the loan. The 

default fee must be collected by the 

guaranty agency and deposited into the 

Federal Fund held by a guaranty agency 

under section 422A of the HEA. The 

default fee may be deducted and 

collected by the lender from the 

proceeds of the loan and paid to the 

guaranty agency or paid from other nonFederal sources. If the fee is charged to 

the borrower, it must be deducted 

proportionally from each disbursement 

of the loan proceeds. 

A guaranty agency must ensure that 

the proceeds of the Federal default fee 

will not be used for incentive payments 


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45678 Federal Register / Vol. 71, No. 153 / Wednesday, August 9, 2006 / Rules and Regulations 

to lenders. The Secretary is prohibited 

from waiving these provisions for 

guaranty agencies that have Voluntary 

Flexible Agreements under section 

428A of the HEA. 

Current Regulations: Section 

§ 682.401(b)(10) of the current 

regulations provides that a guaranty 

agency may charge the lender an 

insurance premium equal to 1 percent of 

the principal balance of each Stafford, 

SLS, or PLUS loan it guarantees. Under 

§ 682.202(d) of the current regulations, a 

lender may pass the cost of the 

insurance premium along to the 

borrower by deducting the amount of 

the premium from the borrower’s loan 

proceeds. Section 682.419(b) requires 

the guaranty agency to deposit into its 

Federal Fund the total amount of 

insurance premiums collected from 

lenders. 

New Regulations: Section 

682.401(b)(10) has been amended to 

reflect that insurance premiums will no 

longer be charged on Stafford or PLUS 

loans guaranteed on or after July 1, 

2006. The regulations have been 

amended to reflect the new requirement 

for a Federal default fee. In accordance 

with the HERA, the interim final 

regulations require, for loans guaranteed 

on or after July 1, 2006, that the 

guaranty agency must collect, from the 

borrower or from any non-Federal 

source, a Federal default fee equal to 

one percent of the principal amount of 

the loan. The guaranty agency must 

deposit the proceeds of the default fee 

into its Federal Fund and ensure that 

the proceeds of such fees are not used 

for incentive payments to lenders. 

Section 682.202 has also been amended 

to provide that a lender may pass the 

cost of the Federal default fee along to 

the borrower. If the borrower is charged 

the Federal default fee, the amount of 

the default fee must be deducted 

proportionately from each disbursement 

of the loan. The lender or guaranty 

agency may also use other non-Federal 

sources to pay the default fee that must 

be deposited into the agency’s Federal 

Fund. 

Section 682.419, which regulates the 

guaranty agency Federal Fund, has also 

been amended to require the guaranty 

agencies to deposit Federal default fees 

into the Federal Fund and to use assets 

of the Federal Fund as those assets 

relate to the Federal default fee only as 

directed. 

Reasons: The regulations are modified 

to reflect the change made by the HERA. 

Loan Disbursement Through an Escrow 

Agent (§§ 682.207 and 682.408) 

Statute: Section 8014(j) of the HERA 

amended section 428(i)(1) of the HEA to 

reduce the amount of time before 

disbursement to the borrower that a 

lender may transfer loan funds to an 

escrow agent. Under the HERA, a lender 

may now transfer funds to the escrow 

agent no more than 10 days prior to the 

date the funds are disbursed to the 

borrower. 

Current Regulations: The current 

regulations permit lenders to transfer 

funds to an escrow agent no more than 

21 days prior to the date the funds are 

disbursed to the borrower. 

New Regulations: The regulations in 

§§ 682.207(b)(1)(iv) and 682.408(c) have 

been amended to permit lenders to 

transfer funds to an escrow agent no 

more than 10 days prior to the date the 

funds are disbursed to the borrower. 

Reasons: The regulations were 

modified to reflect the changes made by 

the HERA to the HEA in reducing this 

time period. 

Due Diligence in Disbursing a Loan 

(§§ 682.207 and 682.604) 

Statute: Section 8008 of the HERA 

amended section 428(b)(1)(N) of the 

HEA to provide that, for U.S. students 

attending an eligible foreign school, 

FFEL Stafford Program loans will be 

disbursed directly to the borrower only 

if the foreign school requests this 

method. Prior to the change, a 

disbursement could be made directly to 

a student enrolled in a foreign school at 

the request of the student. No change 

was made to the requirement that a 

disbursement be made directly to a 

student enrolled in a study-abroad 

program that is approved for credit by 

the student’s home institution upon the 

request of the student. However, for 

both borrowers enrolled at a foreign 

school and borrowers enrolled in a 

study-abroad program, section 8008 of 

the HERA specifies that a lender or 

guaranty agency must verify the 

borrower’s enrollment at the foreign 

school before making a disbursement of 

FFEL Stafford funds directly to a 

borrower. Under section 428B of the 

HEA, a lender may not make a 

disbursement of PLUS loan funds 

(including loan funds for graduate and 

professional student PLUS borrowers) 

directly to the borrower. These changes 

are effective for loans first disbursed on 

or after July 1, 2006. 

Current Regulations: The current 

regulations in § 682.207(b)(1)(v)(C) and 

(D) provide that, for both students 

enrolled in an eligible foreign school 

and students enrolled in a study-abroad 

program, FFEL Program loans are 

disbursed directly to the borrower by 

the lender only upon the request of the 

student. Section 682.207(b)(1)(v)(E) 

requires a lender to notify the foreign 

school when the lender makes a 

disbursement directly to a student 

enrolled at the foreign school. 

New Regulations: Section 682.207 has 

been amended to reflect the statutory 

change that provides that a lender may 

disburse FFEL Stafford Loan funds 

directly to a U.S. student attending an 

eligible foreign school only if the school 

requests this method. Without a request 

from the school, lenders must disburse 

loan funds directly to an office of the 

foreign school designated by the school 

to receive them. A foreign school may 

make a single request to a lender to 

disburse all FFEL Stafford Loans 

directly to eligible students who attend 

the foreign school. 

In addition, the interim final 

regulations incorporate the HERA 

change that provides that a lender may 

not make a direct disbursement to a 

borrower enrolled at a foreign school or 

in a study-abroad program until the 

lender or guaranty agency verifies the 

borrower’s enrollment at the foreign 

school. A guaranty agency or lender 

must verify enrollment before each 

disbursement, including second and 

subsequent disbursements, of a Stafford 

loan. If the lender or guaranty agency 

has verified a borrower’s enrollment, the 

lender must honor the student’s or 

school’s request, as appropriate, that a 

direct disbursement be made. As foreign 

schools may not participate in the Direct 

Loan Program and Direct Loan funds are 

disbursed to the borrower in a studyabroad program directly by the school, 

these provisions are not applicable to 

the Direct Loan Program. 

In new paragraph 682.207(b)(2) we 

have listed the requirements a lender or 

guaranty agency must follow to verify a 

student’s enrollment at a foreign school 

or enrollment in a study-abroad 

program. These requirements are based 

on the guaranty agency program 

requirements in Dear Colleague Letter 

(DCL) G–03–348 (August 2003). To 

verify enrollment in a foreign school, a 

guaranty agency must confirm that the 

foreign school the student is to attend is 

currently certified to participate in the 

FFEL Program. To do this, the guaranty 

agency must access the Department’s 

Postsecondary Education Participants 

System (PEPS) Database. As noted in 

DCL G–03–348, schools that have an 

eligibility status of ‘‘Eligible/Loan 

Deferment’’ and a certification status of 

‘‘Not Certified’’ in the PEPS Database 

are eligible for FFEL loan deferment 

purposes only. They are not certified to 

participate in the FFEL programs and 

students attending those schools are not 

eligible to receive FFEL program funds. 

After confirming that a school is 

certified to participate in the FFEL 


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Program, the lender or guaranty agency 

must contact the foreign school by 

telephone or e-mail to verify the 

borrower’s enrollment at the school. 

The interim final regulations have 

different standards for verifying 

enrollment at a foreign school for a new 

student and for verifying enrollment for 

a continuing student. For a new student, 

the lender or guaranty agency must 

verify that the student has been 

admitted to the foreign school. For a 

continuing student, the lender or 

guaranty agency must verify that the 

student is still enrolled as ‘‘enrolled’’ is 

defined in 34 CFR 668.2. Specifically, 

the lender or guaranty agency must 

confirm that the student is admitted/ 

enrolled for the period for which the 

loan is intended at the enrollment status 

for which the loan was certified. 

Finally, the lender or guaranty agency 

must document the student’s file with 

information on the contact. 

Similarly, for a student enrolled in a 

study-abroad program, the lender or 

guaranty agency must contact the home 

institution by telephone or e-mail to 

confirm the student’s admission to the 

program, for a new student, or 

continuing enrollment in the program, 

for a continuing student, for the period 

for which the loan is intended at the 

enrollment status for which the loan 

was certified. 

Guaranty agencies and lenders must 

coordinate their activities to ensure that 

the requirements for verifying the 

borrower’s enrollment are met before 

any disbursement may be made. 

New paragraph § 682.604(b) also 

incorporates the requirements formerly 

found in § 682.207(b)(1)(v)(E) for lender 

notification to the foreign school when 

the lender makes a direct disbursement 

to a student enrolled at a foreign school. 

The interim final regulations now 

require lenders to notify the school 

when the lender makes a disbursement 

directly to a student enrolled in a studyabroad program. In the case of a student 

enrolled in a study-abroad program, the 

lender must notify the home institution 

when the lender makes the 

disbursement directly to the student. 

Section 682.604(b)(1) is amended to 

require that, upon receipt of such a 

notice, a foreign school, or the home 

institution for a student enrolled in a 

study-abroad program, must 

immediately notify the lender if the 

student is no longer eligible to receive 

the disbursement. 

Reasons: These changes are made to 

implement the provisions of the HERA. 

To ensure proper implementation of the 

statutory changes, the interim final 

regulations include procedures issued 

in DCL G–03–348. 

In the past, the Department’s Office of 

the Inspector General and the 

Government Accountability Office have 

found that FFEL funds have been 

disbursed directly to students for 

attendance at foreign schools that either 

did not exist, or that were not 

participating in the FFEL Programs. To 

avoid this problem in the future, 

verification of a student’s enrollment at 

a foreign school must include 

confirmation of the foreign school’s 

certification to participate in the FFEL 

Programs, as currently required by DCL 

G–03–348. 

As a lender may still make an FFEL 

disbursement directly to a student in a 

study-abroad program at the student’s 

request, these regulations require that 

the lender or guaranty agency confirm 

the student’s enrollment in a studyabroad program with the student’s home 

institution prior to any disbursement of 

funds. 

Finally, for consistency in the 

verification of enrollment procedures, 

we have extended the requirement that 

a lender notify a foreign school when 

the lender makes a direct disbursement 

to a student enrolled at the foreign 

school, to require the lender to notify 

the home institution when it makes a 

direct disbursement to a student 

enrolled in a study-abroad program. The 

change to § 682.604(b)(1) is made to 

make clear that an institution that is 

notified by the lender of a disbursement 

directly to a borrower must inform the 

lender if the student is no longer 

eligible. Under § 682.610(c)(2), an 

institution is already required to notify 

a guaranty agency or lender if it 

discovers that a loan has been made to 

or on behalf of a student who enrolled 

at that school, but who has ceased to be 

enrolled on at least a half-time basis. 

However, § 682.610(c) refers to the 

submission of such information in terms 

of the submission of student status 

confirmation reports (SSCRs). The new 

requirement makes clear that all 

institutions, including those that now 

report data through the Department’s 

National Student Loan Data System 

instead of SSCRs, must respond to a 

lender’s notification of a direct 

disbursement if the student is no longer 

eligible. 

Forbearance (§ 682.211) 

Statute: Section 8014(e) of the HERA 

amended section 428(c)(3) of the HEA to 

require that lenders confirm any nonwritten forbearance agreement by 

recording the terms of the agreement in 

the borrower’s file. 

Current Regulations: The current 

regulations state that a lender may grant 

forbearance if the lender and the 

borrower or endorser agree to the terms 

of the forbearance and, unless the 

agreement was in writing, the lender 

sends, within 30 days, a notice to the 

borrower or endorser confirming the 

terms of the forbearance. 

New Regulations: Section 

682.211(b)(1) of the FFEL Program 

regulations has been amended to require 

a lender to record the terms of the 

forbearance in the borrower’s file. This 

change is effective for agreements 

entered into or renegotiated with a 

borrower on or after July 1, 2006. 

Reasons: The regulations are modified 

to reflect the change made by the HERA. 

Loans Disbursed Through an Escrow 

Agent (§ 682.300) 

Statute: Section 8014(j) of the HERA 

amended section 428(a)(3)(A) of the 

HEA to provide that a lender may first 

receive interest subsidy payments on 

loans disbursed by an escrow agent on 

behalf of the lender three days prior to 

the first day of the period of enrollment, 

or if the loan is disbursed after the first 

day of the period of enrollment, three 

days after disbursement. 

Current Regulations: Current 

regulations do not include specific rules 

for interest subsidy payments on loans 

disbursed by an escrow agent. 

New Regulations: Section 

682.300(c)(3) has been amended to 

provide for the payment of interest 

subsidies on loans disbursed through an 

escrow agent no sooner than three days 

prior to the first day of the period of 

enrollment or, if the loan is disbursed 

after the first day of the period of 

enrollment, three days after 

disbursement. 

Reasons: The regulations are modified 

to reflect the change made by the HERA. 

Special Allowance Rates for Loans First 

Disbursed on or After January 1, 2000 

(§ 682.302) 

Statute: Prior to enactment of the 

HERA, section 438(b)(2)(I)(v) of the HEA 

provided that special allowance 

payments (SAPs) were not paid to 

lenders for any PLUS loans that were 

first disbursed on or after January 1, 

2000, unless a calculation using the 

bond equivalent rates of certain 3-month 

commercial paper (financial) plus a 

spread of 3.1 percent, exceeded 9.0 

percent. This provision of the HEA has 

been struck by the HERA effective April 

1, 2006, for claims that accrued on or 

after that date. 

Current Regulations: Current 

regulations do not reflect the changes 

made by the HERA. 

New Regulations: Section 682.302(c) 

of the regulations has been amended to 

reflect the changes made by the HERA 


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regarding special allowance to provide 

for a special allowance payment on 

PLUS loans that were first disbursed on 

or after January 1, 2000 beginning with 

payments made after July 1, 2006. This 

change acknowledges that lenders began 

earning special allowance payments 

April 1, 2006. 

Reasons: The regulations are modified 

to reflect the changes made by the 

HERA. 

Special Allowance Payments on Loans 

Funded by Tax-Exempt Obligations 

(§ 682.302) 

Statute: Effective on February 8, 2006, 

the HERA made the special allowance 

payment provisions of the TaxpayerTeacher Protection Act of 2004 (TTPA) 

permanent by eliminating its January 1, 

2006 sunset provisions. The TTPA 

provided that upon the occurrence of 

specified events after September 30, 

2004 and before January 1, 2006, the 

special allowance paid on loans made or 

purchased with funds from particular 

sources derived by the holder from taxexempt obligations originally issued 

prior to October 1, 1993, would revert 

to the usual rates paid on other loans, 

instead of the otherwise applicable rate 

of not less than 9.5 percent minus the 

applicable interest rate. This change 

affected loans that had qualified for the 

minimum 9.5 percent special allowance 

rate, but were: 

1. Financed by a tax-exempt 

obligation that, after September 30, 

2004, and before January 1, 2006, has 

matured or been refunded, retired or 

defeased; 

2. Refinanced after September 30, 

2004, and before January 1, 2006, with 

funds obtained from a source other than 

those described in section 

438(b)(2)(B)(v)(I) of the HEA; or 

3. Sold or transferred to any other 

holder after September 30, 2004, and 

before January 1, 2006. 

The HERA eliminated the ending 

dates on these limitations. In addition, 

the HERA added two provisions that 

prohibit a loan from acquiring eligibility 

for the 9.5 percent minimum special 

allowance rates under 438(b)(2)(B) of 

the HEA. These new provisions state 

that special allowance is computed at 

the normal, rather than the 9.5 percent 

minimum return rate for any loan: 

• Made or purchased on or after 

February 8, 2006 (the date of enactment 

of the HERA); or 

• Not earning on February 8, 2006 a 

quarterly rate of special allowance 

determined under section 438(b)(2)(B)(i) 

or (ii) of the HEA. 

The HERA delays these new 

requirements for certain holders by 

providing that they take effect later—

substituting ‘‘December 31, 2010,’’ for 

February 8, 2006—for a holder that: 

• Was, as of February 8, 2006, and 

during the quarter for which the special 

allowance is paid, a unit of State or 

local government or a nonprofit private 

entity; 

• Was, as of February 8, 2006, and 

during such quarter, not owned or 

controlled by, or under common 

ownership or control with, a for-profit 

entity; and 

• Held, directly or through any 

subsidiary, affiliate, or trustee, a total 

unpaid balance of principal equal to or 

less than $100 million on loans for 

which special allowances were paid 

under section 438(b)(2)(B) of the HEA in 

the most recent quarterly payment prior 

to September 30, 2005. 

Current Regulations: Current 

regulations in § 682.302(c)(3) provide 

that special allowance rates for loans 

that were made or purchased with funds 

obtained by the holder from the 

issuance of tax-exempt obligations 

originally issued prior to October 1, 

1993, or from other sources listed there 

that were derived from those bond 

proceeds, receive a special allowance at 

a rate that is generally one-half of the 

rate established for other loans, but not 

less than 9.5 percent minus the 

applicable interest rate on such loans 

and, in § 682.302(e), that the issuer of 

such obligations receives special 

allowance payments on these loans at 

the usual rate if the issuer retires the 

tax-exempt obligation or defeases it by 

means of yield-restricted obligations. 

Current regulations refer to obligations 

‘‘originally issued’’ before or after 

specified dates, but do not define that 

term, which derives directly from 

section 438(b)(2)(B) of the HEA. Current 

regulations do not incorporate the 

Department’s interpretation of the term 

‘‘originally issued’’ nor do they 

incorporate the Department’s 

longstanding interpretation of the 

statute and regulations as applicable to 

the treatment of loans acquired from the 

tax-exempt funding sources listed in the 

statute and in § 682.302(c)(3)(i), if the 

‘‘originally issued’’ obligation is later 

refunded by a tax-exempt refunding 

obligation. 

New Regulations: Section 682.302(e) 

has been amended and new paragraph 

§ 682.302(f) has been added to reflect 

the provisions of the HERA and, as 

pertinent, of the TTPA as described 

above and the Department’s 

interpretation of terms found in current 

regulations as necessary for the proper 

implementation of provisions added by 

the HERA and TTPA. In addition, 

§ 682.302(c) has been amended to 

incorporate the various statutory 

changes in special allowance rate 

calculations. 

Reasons: The regulations are modified 

to reflect the changes made by the 

HERA, and as necessary to reflect those 

changes, the changes made by the TTPA 

and the interpretations by the 

Department of terms found in current 

regulations affected by those 

enactments. 

Interest Repayment From Lenders 

(§ 682.305) 

Statute: Section 8006(b) of the HERA 

amended section 438(b)(2)(C)(v) of the 

HEA to require payment by the lender 

of excess interest received by the lender 

when the applicable interest rate on a 

loan for any quarter exceeds the special 

allowance support level for the loan. 

Under the HERA, excess interest is 

calculated each quarter by subtracting 

the ‘‘special allowance support level’’

from the applicable interest, multiplying 

the result by the average daily principal 

balance of the loan (not including 

unearned interest added to principal) 

during the quarter, and dividing by four. 

Current Regulations: Current 

regulations do not provide for the 

recapture of excess interest by the 

Secretary. 

New Regulations: Section 682.305 of 

the regulations has been amended by 

adding a new paragraph (d) that 

provides for the recovery of excess 

interest from a lender in accordance 

with the provisions added by the HERA. 

Section 682.305(d) requires the 

payment by a lender of excess interest 

when the applicable interest rate on a 

loan for any quarter exceeds the special 

allowance support level for the loan. 

This requirement applies to loans for 

which the first disbursement of 

principal is made on or after April 1, 

2006, but does not apply with respect to 

any special allowance payment made 

under section 438 of the HEA before 

April 1, 2006. The Secretary will collect 

the excess interest from lenders 

quarterly. 

The interim final regulations require 

that excess interest is calculated each 

quarter by subtracting the special 

allowance support level from the 

applicable interest rate, multiplying the 

result by the average daily principal 

balance of the loan (not including 

unearned interest added to principal) 

during the quarter and dividing by four. 

For example, if the average daily 

principal balance of a loan was $1,000, 

and the applicable interest rate and 

special allowance support level were 6.8 

percent and 5.8 percent, respectively, 

the excess interest to be rebated would 

be: $1,000 × 1.0 percent/4 = $2.50. 


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Reasons: The regulations are modified 

to reflect the changes made by the 

HERA. 

Lender Insurance (§ 682.401) 

Statute: Section 8014(a) of the HERA 

amended section 428(b)(1)(G) of the 

HEA to require a guaranty agency to 

reduce the amount of insurance to a 

lender to 97 percent of a loan’s unpaid 

principal. 

Current Regulations: Section 

682.401(b)(14)(ii) of the FFEL Program 

regulations provides that a guaranty 

agency insures 98 percent of a loan’s 

unpaid principal. 

New Regulations: The regulations are 

amended by adding new paragraph 

§ 682.401(b)(14)(iii) to require a 

guaranty agency to insure 97 percent of 

the unpaid principal balance on loans 

first disbursed on or after July 1, 2006. 

Reasons: The regulations are modified 

to reflect the change made by the HERA. 

Default Collection (§ 682.401) 

Statute: Section 8014(d) of the HERA 

amended section 428(c) of the HEA to 

require each guaranty agency to ensure 

that consolidation loans are not an 

excessive proportion of the agency’s 

recoveries on defaulted loans. In 

addition, under the HERA, if a borrower 

repays a defaulted loan through a 

Federal Consolidation Loan on or after 

October 1, 2006, a guaranty agency may 

not charge the borrower collection costs 

in an amount in excess of 18.5 percent 

of the outstanding principal and interest 

of the defaulted loan. Also on or after 

October 1, 2006, when returning 

proceeds to the Secretary from the 

consolidation of a defaulted loan, a 

guaranty agency that charged the 

borrower collection costs must remit an 

amount that equals the lesser of the 

actual collection costs charged or 8.5 

percent of the outstanding principal and 

interest of the loan. On or after October 

1, 2009, when returning proceeds to the 

Secretary from the consolidation of a 

defaulted loan that is paid off with 

excess consolidation proceeds, a 

guaranty agency must remit the entire 

collection cost charged. The HERA 

defines the term excess consolidation 

proceeds to mean, for any Federal fiscal 

year beginning on or after October 1, 

2009, the amount of proceeds from the 

consolidation of defaulted loans under 

the FFEL Program that exceed 45 

percent of the agency’s total collections 

on defaulted loans in that Federal fiscal 

year. 

Current Regulations: Current 

regulations in § 682.401(b)(27) allow a 

guaranty agency to charge collection 

costs in an amount not to exceed 18.5 

percent of the outstanding principal and 

interest of a defaulted FFEL Program 

loan that is repaid by a Federal 

Consolidation loan. When returning the 

proceeds from the consolidation of a 

defaulted loan to the Secretary, a 

guaranty agency may retain only the 

actual amount of collection costs 

charged to the borrower on the loan 

repaid by the consolidation loan (which 

may not exceed 18.5 percent). 

New Regulations: Section 

682.401(b)(27) has been amended to 

reflect the new statutory requirements 

regarding the consolidation of defaulted 

FFEL loans and excess consolidation 

proceeds described above. 

Reasons: The regulations are modified 

to reflect the changes made by the 

HERA. 

College Access Initiative (§ 682.401) 

Statute: Section 8023 of the HERA 

amended section 485D of the HEA to 

establish a new College Access 

Initiative. As part of the Initiative, each 

guaranty agency must establish a plan to 

promote access to postsecondary 

education. The HERA requires each 

guaranty agency to provide the 

Secretary and the public with 

information on access to a 

comprehensive listing of postsecondary 

education opportunities, programs and 

publications available in the State or 

States for which the agency is the 

designated guaranty agency. A guaranty 

agency must also promote and publicize 

information for students and 

traditionally underrepresented 

populations on how to plan, prepare 

and pay for college. The guaranty 

agency must pay for these activities 

from its Operating Fund or from 

remaining funds in restricted accounts 

established pursuant to section 

422(h)(4) of the HEA. Finally, a guaranty 

agency must ensure that this 

information is free and available in 

printed format by November 5, 2006. 

Current Regulations: Current 

regulations do not provide for the 

College Access Initiative. 

New Regulations: Section 682.401 has 

been amended to reflect the 

requirements of the College Access 

Initiative. 

Reasons: The regulations are modified 

to reflect the changes made by the 

HERA. 

Reinsurance Claims From Guaranty 

Agencies—Exempt Claims (§ 682.404) 

Statute: Section 8014(c) of the HERA 

amended section 428(c)(1) of the HEA to 

provide that, for loans on which the first 

disbursement of principal is made on or 

after July 1, 2006, a guaranty agency will 

receive 100 percent insurance from the 

Department for exempt claims under 

new section 428(c)(1)(G) of the HEA. 

The statute defines the term exempt 

claims to mean claims with respect to 

loans for which it is determined that the 

borrower (or student on whose behalf a 

parent has borrowed), without the 

lender’s or institution’s knowledge at 

the time the loan was made, provided 

false or erroneous information or took 

actions that caused the borrower or the 

student to be ineligible for all or a 

portion of the loan or for interest 

benefits on the loan. The new statutory 

definition is the same definition used in 

§ 682.412(a). 

Current Regulations: Current 

regulations have addressed exempt 

claims in § 682.412(a). Under prior 

regulations these claims were paid the 

regular reinsurance percentage. 

New Regulations: Section 682.404(a) 

has been amended to provide 100 

percent reinsurance for exempt claims 

and to include the statutory definition 

of exempt claims. 

Reasons: The regulations are modified 

to reflect the changes made by the 

HERA. 

Submission of Reinsurance Claims for 

Payment by the Secretary (§ 682.406) 

Statute: Section 8014(j) of the HERA 

amended section 428(c)(1) of the HEA 

by reducing the amount of time a 

guaranty agency is allowed for filing a 

reinsurance claim with the Department. 

Current Regulations: The current 

regulations allow guaranty agencies 45 

days following the date it paid a 

lender’s claim to file a reinsurance 

claim with the Department. 

New Regulations: The regulations in 

§ 682.406(a) have been amended to 

allow guaranty agencies 30 days 

following the date a lender’s claim has 

been paid to file a reinsurance claim 

with the Department. 

Reasons: The regulations were 

modified to reflect the changes made by 

the HERA to the HEA in reducing this 

time period. 

Wage Garnishment (§ 682.410) 

Statute: Section 8024 of the HERA 

amended section 488A(a)(1) of the HEA 

to increase the amount of a borrower’s 

disposable pay that can be garnished 

from 10 percent to 15 percent effective 

July 1, 2006. 

Current Regulations: Currently, the 

regulations allow a borrower’s 

disposable pay to be garnished at a rate 

of 10 percent. 

New Regulations: Section 

682.410(b)(9)(i)(A) has been amended to 

allow a borrower’s wages to be 

garnished in an amount that does not 

exceed 15 percent of the borrower’s 

disposable pay. If a guaranty agency 


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decides to increase the withholding rate 

for a borrower already being garnished 

at the lesser rate based on a garnishment 

proceeding pre-dating July 1, 2006, the 

agency must notify the borrower that: 

(1) He or she can obtain a hearing upon 

request if he or she objects to the 

increased withholding amount on the 

basis of undue hardship; and (2) a 

borrower who has new information not 

presented at the initial garnishment 

hearing may request a reconsideration of 

the existence or amount of the debt. 

In general, a guaranty agency must 

follow the procedures in § 682.410(b)(9) 

for sending notices to borrowers and 

employers and for scheduling a hearing 

for a borrower who chooses to have one. 

Reasons: The regulations were revised 

to reflect changes made by the HERA. 

Exceptional Performers (§ 682.415) 

Statute: Section 8014 of the HERA 

amended section 428(I) of the HEA to 

decrease from 100 percent to 99 percent 

the insurance percentage paid to lenders 

or lender servicers who are designated 

as exceptional performers. 

Current Regulations: Section 

682.415(a)(1) of the FFEL Program 

regulations provides for reimbursement 

of 100 percent of the unpaid principal 

and interest. 

New Regulations: Section 

682.415(a)(1) is amended to provide for 

reimbursement to a loan holder of 99 

percent of the unpaid principal and 

interest for default claims submitted to 

a guaranty agency on or after July 1, 

2006. 

Reasons: The regulations are modified 

to reflect the change made by the HERA. 

School as Lender (§ 682.601) 

Statute: Section 8011 of the HERA 

amends section 435(d)(2) of the HEA by 

replacing the existing school-as-lender 

requirements with a new set of 

requirements. In addition, to be a school 

lender, a school must have met the 

school-as-lender requirements as they 

existed on February 7, 2006 and must 

have made FFEL loans as a lender on or 

before April 1, 2006. 

Current Regulations: Section 682.601 

of the FFEL Program regulations reflects 

the school-as-lender requirements as 

they existed on February 7, 2006. The 

current regulations stipulate the 

requirements for establishing loan 

denial by a commercial lender, and the 

requirements for qualifying for a waiver 

of the 50 percent lending limit. 

New Regulations: Section 682.601 is 

amended by replacing the existing 

school-as-lender requirements with the 

school-as-lender requirements 

established by the HERA. Under the 

new regulations, a school lender must 

have met the requirements in effect as 

of February 7, 2006, and must have 

made loans on or before April 1, 2006. 

In addition, the school must not: 

• Be a home study school; 

• Make a loan to any undergraduate 

student; 

• Make a loan other than Federal 

Stafford loan to a graduate or 

professional student; or 

• Make a loan to a borrower who is 

not enrolled at the school. 

The school must: 

• Employ at least one person whose 

full-time responsibilities are limited to 

the administration of the programs of 

financial aid for students attending that 

school; 

• Award any contract for financing, 

servicing, or administration of FFEL 

loans on a competitive basis; 

• Offer loans with an origination fee 

and/or interest rate that is less than the 

applicable statutory fee or rate for any 

loan first disbursed on or after July 1, 

2006; 

• Maintain a cohort default rate that 

is not greater than 10 percent; 

• Submit an annual lender 

compliance audit, in accordance with 

the requirements of 34 CFR 

682.305(c)(2), to the Department for any 

fiscal year beginning on or after July 1, 

2006, in which the school engages in 

activities as an eligible lender; and 

• Use any special allowance 

payments, interest payments from 

borrowers, interest subsidy payments 

from the Department, and any proceeds 

from the sale or other disposition of 

loans (exclusive of return of principal, 

any financing costs incurred by the 

school to acquire funds to make the 

loans, and the cost of charging 

origination fees or interest rates at less 

than the fees or rates authorized under 

the HEA) for need-based grants. 

However, school lenders may use a 

portion of these payments or proceeds 

for reasonable and direct administrative 

expenses. Such expenses are those that 

are incurred by the school that are 

directly related to the school’s 

performance of an administrative 

requirement in the FFEL Program, and 

do not include the cost the school pays 

to obtain funding, the cost of paying 

Federal default fees on behalf of 

borrowers, or the cost of providing 

origination fees or interest rates at less 

than the fee or rate authorized under the 

provisions of the Act. 

• Funds for need-based grants must 

supplement, not supplant, non-federal 

funds the school would otherwise use 

for need-based grants. 

Because schools may no longer make 

loans to undergraduate students, the 

requirements for establishing loan 

denial from another lender and for 

qualifying for a waiver of the 50 percent 

lending limit on making loans to 

undergraduates have been removed 

from the regulations. 

The HERA modified the existing 

requirements for audits of school 

lenders. The new requirements will 

apply to audits of lending activities for 

any fiscal year beginning on or after July 

1, 2006. All school lenders are required 

to submit a lender compliance audit 

without regard to the amount of loans 

the lender makes or holds. The 

Department will be issuing further 

guidelines for the lender compliance 

audits that must be submitted by school 

lenders. School lenders subject to the 

Single Audit Act, 31 U.S.C. 7502, will 

be required to include the lending 

activities in the annual audit and to 

include information on those activities 

in the audit report. Other school lenders 

will have to arrange for a separate audit 

of their lending activities. School 

lenders must submit audits for fiscal 

years beginning before July 1, 2006, in 

accordance with current requirements. 

Reasons: The regulations include 

rules for determining how schools may 

use the proceeds of loan making 

activities for need based grants and 

reasonable and direct administrative 

costs. These rules reflect the Secretary’s 

interpretation of the new statutory 

language added by the HERA. 

Disbursement Exemptions for Foreign 

Schools (§ 682.604) 

Statute: Section 8010 of the HERA 

amended sections 428G(a)(3), (b)(1), and 

(e) of the HEA to end the exemption 

from the multiple disbursement 

requirements for eligible foreign 

institutions. 

Current Regulations: Section 

682.604(c) of the FFEL Program 

regulations reflects the previous 

statutory provision exempting eligible 

foreign institutions from the multiple 

disbursement requirements in section 

428G of the HEA. 

New Regulations: The regulations in 

§ 682.604(c) have been amended to 

remove the exemption from the multiple 

disbursement requirements for eligible 

foreign institutions. 

Reasons: The regulations were 

modified to reflect the changes made by 

the HERA to the HEA. 

Direct Loan Program Changes 

Repayment Plans (§ 685.208) 

Statute: Section 8008(b) of the HERA 

amended section 455(d)(1) of the HEA 

to provide the same repayment plans in 

the Direct Loan program as in the FFEL 

program (except for income contingent 

repayment). 


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Current Regulations: Section 685.208 

of the Direct Loan Program regulations 

permits a Direct Loan borrower to 

choose between the standard, extended, 

graduated, income contingent, and if 

appropriate, an alternative repayment 

plan as determined by the Secretary. 

Implementation of the HERA does not 

require any changes to the standard, 

income contingent, or alternative 

repayment plan regulations. 

Under the extended repayment plan, 

a borrower makes fixed monthly 

payments over a period of time that 

varies with the total amount of the 

borrower’s loans. Under the graduated 

repayment plan a borrower makes 

payments at two or more levels within 

a period of time determined by the 

amount of the borrower’s loans. The 

repayment schedule used for these two 

repayment plans is as follows. If the 

total amount of the borrower’s Direct 

Loans is: 

• Less than $10,000, the borrower 

must repay the loans within 12 years of 

entering repayment; 

• Greater than or equal to $10,000 but 

less than $20,000, the borrower must 

repay the loans within 15 years of 

entering repayment; 

• Greater than or equal to $20,000 but 

less than $40,000, the borrower must 

repay the loans within 20 years of 

entering repayment; 

• Greater than or equal to $40,000 but 

less than $60,000, the borrower must 

repay the loans within 25 years of 

entering repayment; and 

• Greater than or equal to $60,000, 

the borrower must repay the loans 

within 30 years of entering repayment. 

New Regulations: Section 685.208 has 

been modified to conform the terms of 

the extended and graduated repayment 

plans offered in the Direct Loan program 

to reflect the similar repayment plans 

available in the FFEL Program. Under 

the graduated repayment plan a 

borrower is required to repay a loan in 

full over a fixed period of time not to 

exceed ten years. Borrowers with 

outstanding loans totaling more than 

$30,000 that had no outstanding 

principal or interest balances on a Direct 

Loan program loan as of October 7, 

1998, or on the date the borrower 

obtains a Direct Loan program loan after 

October 7, 1998, are eligible for the 

extended repayment plan. Under this 

plan, borrowers are required to repay 

either a fixed annual or graduated 

repayment amount over a period of time 

not to exceed 25 years. 

Changes were also made to the 

repayment plans available to Direct 

Consolidation Loan borrowers to reflect 

the terms of the similar repayment plans 

in the FFEL program. Under the revised 

regulations, Direct Loan borrowers must 

repay their loans under the following 

schedule. If the sum of the amount of 

the consolidation loan and the unpaid 

balance on other student loans to the 

applicant: 

• Is less than $7,500, the borrower 

must repay the consolidation loan in not 

more than 10 years; 

• Is equal to or greater than $7,500 

but less than $10,000, the borrower 

must repay the consolidation loan in not 

more than 12 years; 

• Is equal to or greater than $10,000 

but less than $20,000, the borrower 

must repay the consolidation loan in not 

more than 15 years; 

• Is equal to or greater than $20,000 

but less than $40,000, the borrower 

must repay the consolidation loan in not 

more than 20 years; 

• Is equal to or greater than $40,000 

but less than $60,000, the borrower 

must repay the consolidation loan in not 

more than 25 years; or 

• Is equal to or greater than $60,000, 

the borrower must repay the 

consolidation loan in not more than 30 

years. 

Conforming amendments were also 

made to § 685.220(2)(i) regarding the 

repayment of Direct Consolidation 

loans. 

Reasons: The regulations were 

modified to reflect the changes made to 

the HEA by the HERA. 

Eligibility of a FFEL Borrower for a 

Federal Direct Consolidation Loan 

(§§ 685.100 and 685.220) 

Statute: Section 8009 of the HERA 

amended section 428C(a)(3)(B)(i) of the 

HEA and added a provision providing 

limited eligibility for a Direct 

Consolidation Loan to certain FFEL 

Consolidation Loan borrowers. 

Current Regulations: The current 

regulations allow borrowers with FFEL 

Consolidation Loans to obtain a Direct 

Consolidation Loan if they are unable to 

obtain a FFEL Consolidation Loan with 

income-sensitive repayment terms 

acceptable to the borrower. 

New Regulations: The interim final 

regulations implement the HERA and 

modify §§ 685.100(c) and 685.220(d) to 

provide that a borrower with a FFEL 

Consolidation Loan is eligible to receive 

a Direct Consolidation Loan if the loan 

has been submitted to the guaranty 

agency by the lender for default 

aversion, and the borrower wants to 

consolidate the FFEL Consolidation 

Loan into the Direct Loan Program for 

the purpose of obtaining an income 

contingent repayment plan. 

Reasons: The regulations were 

modified to reflect changes made by the 

HERA to the HEA. 

Federal Direct Consolidation Loans 

(§§ 685.102 and 685.220) 

Statute: Section 8009 of the HERA 

amended section 455(a) of the HEA to 

designate that Federal Direct 

Consolidation Loans have the same 

terms, conditions, and benefits as FFEL 

Consolidation Loans, except as 

otherwise provided in the HEA. 

Previously, the HEA did not require 

Federal Direct Consolidation Loans to 

have the same terms and conditions as 

FFEL Consolidation Loans. 

Current Regulations: Under current 

regulations, the Federal Direct 

Consolidation Loan Program does not 

have the same terms, conditions and 

benefits as the FFEL Consolidation Loan 

Program. 

New Regulations: To ensure that 

Direct Consolidation Loans and FFEL 

Consolidation Loans have the same 

terms, conditions and benefits (except 

as otherwise provided in the HEA), the 

definition of Federal Direct 

Consolidation Loan Program in 

§ 685.102 has been revised. The prior 

regulations established three types of 

Direct Consolidation Loans. Under the 

interim final regulations, there is only a 

single Direct Consolidation Loan, but it 

may include up to three separate 

components representing subsidized, 

unsubsidized, and PLUS loans that were 

repaid by the consolidation loan. This 

more accurately reflects operational 

processes and is consistent with 

processes in the FFEL Program. We have 

also revised the definition to reflect that 

effective for consolidation applications 

received on or after July 1, 2006, a 

borrower may not consolidate loans that 

are in an in-school status. In addition, 

the regulations in § 685.220 have been 

changed to eliminate the provision that 

provided for an interest subsidy on 

Direct Subsidized Consolidation Loans 

during in-school and grace periods. 

Reasons: The regulations were revised 

to reflect changes made by the HERA. 

Borrowers Subject to a Judgment or 

Wage Garnishment (§ 685.220) 

Statute: Section 8009 of the HERA 

amended section 455(a)(1), (2), and (g) 

of the HEA to conform the program 

borrower eligibility requirements and 

the terms of Federal Direct 

Consolidation loans to those of FFEL 

Consolidation loans. 

Current Regulations: Generally, the 

borrower eligibility requirements for 

these two programs are similar. 

However, the Direct Consolidation Loan 

program has allowed borrowers to 

obtain a Direct Consolidation Loan 

while the borrower is in school. In 

addition, the two programs have had 


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different rules for borrowers with loans 

on which a judgment has been obtained. 

The regulations for both programs also 

provide for certain situations in which 

a borrower may add loans to an existing 

consolidation loan or obtain a 

subsequent Consolidation Loan. 

New Regulations: Section 685.220(d) 

of the Federal Direct Consolidation Loan 

regulations have been amended to 

reflect program borrower eligibility 

requirements that have been in the FFEL 

Program for loans on which a judgment 

has been obtained and for which wage 

garnishment has been initiated. 

Reasons: The regulations were 

modified to reflect the changes made by 

the HERA. 

Reconsolidation in the Direct Loan 

Program (§ 685.220) 

Statute: Section 8009 of the HERA 

modified section 455(g) of the HEA to 

require borrowers seeking a Direct 

Consolidation loan to meet the same 

eligibility criteria as borrowers seeking 

a FFEL Consolidation Loan. One of 

these criteria provides that an FFEL 

borrower’s eligibility to consolidate is 

terminated upon receipt of a FFEL 

Consolidation loan, except that an 

individual who receives eligible student 

loans after the date of receipt of the 

consolidation loan may receive a 

subsequent consolidation loan. 

Current Regulations: The current 

regulations permit Direct Loan 

borrowers to reconsolidate a Direct 

Consolidation loan into a new Direct 

Loan Consolidation loan without 

including any additional loans. 

New Regulations: The regulations in 

§ 685.220 have been modified by adding 

new paragraph (d)(2), which requires a 

Direct Loan borrower seeking to include 

an existing Direct Consolidation loan in 

a new Direct Consolidation loan to 

include at least one additional eligible 

loan for consolidation. 

Reasons: The regulations were 

modified to reflect the changes made by 

the HERA to the HEA. 

Executive Order 12866 

Regulatory Impact Analysis 

Under Executive Order 12866, the 

Secretary must determine whether this 

regulatory action is ‘‘significant’’ and 

therefore subject to the requirements of 

the Executive order and subject to 

review by the OMB. Section 3(f) of 

Executive Order 12866 defines a 

‘‘significant regulatory action’’ as an 

action likely to result in a rule that may 

(1) have an annual effect on the 

economy of $100 million or more, or 

adversely affect a sector of the economy, 

productivity, competition, jobs, the 

environment, public health or safety, or 

State, local or tribal governments or 

communities in a material way (also 

referred to as an ‘‘economically 

significant’’ rule); (2) create serious 

inconsistency or otherwise interfere 

with an action taken or planned by 

another agency; (3) materially alter the 

budgetary impacts of entitlement grants, 

user fees, or loan programs or the rights 

and obligations of recipients thereof; or 

(4) raise novel legal or policy issues 

arising out of legal mandates, the 

President’s priorities, or the principles 

set forth in the Executive order. 

Pursuant to the terms of the Executive 

order, it has been determined this 

regulatory action will have an annual 

effect on the economy of more than 

$100 million. Therefore, this action is 

‘‘economically significant’’ and subject 

to OMB review under section 3(f)(1) of 

Executive Order 12866. The Secretary 

accordingly has assessed the potential 

costs and benefits of this regulatory 

action and has determined the benefits 

justify the costs. 

Need for Federal Regulatory Action 

These interim final regulations are 

needed to implement provisions of the 

HERA that affect students, borrowers 

and program participants in the Federal 

student aid programs authorized under 

Title IV of the HEA. 

These interim final regulations also 

implement provisions of the HERA that 

modify and make permanent the 

provisions of the Taxpayer-Teacher 

Protection Act of 2004 (Pub. L. 108–

409). This Act changed the calculation 

of special allowance payments for 

certain FFEL Program loans made with 

proceeds of tax-exempt obligations and 

increased teacher loan forgiveness 

amounts for FFEL and Direct Loan 

borrowers teaching in certain areas. 

These interim final regulations are 

also needed to incorporate into the 

regulations the provisions of Public Law 

107–139, which changed the formula for 

calculating special allowance payments 

in the FFEL Program for loans made on 

or after July 1, 2000 and set interest 

rates for FFEL and Direct Loans first 

disbursed on or after July 1, 2006 at 

fixed interest rates. 

These interim final regulations are 

also needed to implement the statutory 

changes made to the HEA by the Pell 

Grant Hurricane and Disaster Relief Act 

(Pub. L. 109–66) and the Student Grant 

Hurricane and Disaster Relief Act (Pub. 

L. 109–67). These laws authorize the 

Secretary to waive the requirement that 

a student repay a Title IV, HEA grant if 

the student withdrew from an 

institution because of a major disaster. 

These interim final regulations also 

change the Department’s regulations to 

reflect changes made to the HEA by the 

Emergency Supplemental 

Appropriations Act for Defense, the 

Global War on Terror, and Hurricane 

Recovery, 2006 (Pub. L. 109–234). The 

Supplemental Appropriations Act 

amended section 428C(b)(1)(A) of the 

HEA to eliminate the single holder rule 

with respect to any FFEL Consolidation 

Loan for which an application is 

received by an eligible lender on or after 

June 15, 2006. This Act also repealed 

section 8009(a)(2) of the HERA and 

added back to the HEA the previous 

statutory conditions under which a 

borrower may consolidate outstanding 

FFEL Program loans into the Federal 

Direct Consolidation Loan Program. 

The Secretary has limited discretion 

in implementing most of the HERA 

provisions. The majority of the changes 

included in these interim final 

regulations simply modify the 

Department’s regulations to reflect 

statutory changes made by the HERA 

and the other laws mentioned earlier. 

These statutory provisions are either 

already effective or will be effective 

shortly. 

The Secretary has exercised limited 

discretion in implementing the HERA 

provisions in the following areas: 

• Direct Assessment: The HERA 

extends eligibility for Title IV, HEA 

programs to instructional programs 

using or recognizing the use by others 

of direct assessment of student learning; 

• Identity Theft: The HERA 

authorizes a discharge of a FFEL or 

Direct Loan Program loan if the 

borrower’s eligibility to borrow was 

falsely certified because the borrower 

was a victim of the crime of identity 

theft; and 

• Special Allowance Payments: The 

HERA modifies the conditions under 

which a loan holder qualifies for special 

allowance interest benefits related to 

PLUS loans the first disbursement of 

which was made on or after January 1, 

2000. 

The following section addresses the 

alternatives that the Secretary 

considered in implementing these 

discretionary portions of the HERA 

provisions. 

Regulatory Alternatives Considered 

Direct Assessment Alternatives: In 

developing the direct assessment 

regulations, the Secretary drew upon the 

Department’s experience with Western 

Governors University (WGU), the only 

institution currently participating in the 

Title IV student financial assistance 

programs that uses direct assessment, in 

lieu of credit or clock hours, as a 


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measure of student learning. WGU 

became an eligible institution by 

participating in the Distance Education 

Demonstration Program. 

The Secretary looked at how the Title 

IV student financial aid rules had been 

applied in both the nonterm and nonstandard term models employed by 

WGU and identified basic principles on 

which to base the regulations. One 

principle is that institutions that use 

direct assessment would need to 

develop equivalencies in credit or clock 

hours in terms of instructional time for 

the amount of student learning being 

assessed. This was necessary because 

many applicable Title IV, HEA program 

requirements use time and/or credit or 

clock hours to measure things other 

than student learning. In addition, 

institutions would have to define 

enrollment status, payment periods, and 

satisfactory academic progress. 

A second principle is tied to the 

statutory language that characterizes 

direct assessment programs as 

instructional programs. The Secretary 

determined that institutions must 

provide a means for students to fill in 

the gaps in their knowledge and that 

Title IV, HEA program funds should 

only be used to pay for learning that 

occurs while the student is enrolled in 

the program. 

The Secretary considered what should 

constitute ‘‘instruction’’ in a direct 

assessment program. The word 

‘‘instruction’’ is not specifically defined 

in the Department’s regulations and, in 

its ordinary meaning the word connotes 

teaching. There are several other ways, 

however, in which an institution might 

assist students to prepare for 

assessments. The Secretary considered 

whether the definition of instructional 

time in § 668.8(b)(3), which is used for 

other types of programs, could be used 

for direct assessment programs and 

determined that the definition was not 

sufficiently broad to be used in this 

context. 

The Secretary recognized that 

institutions offering direct assessment 

programs might use courses or learning 

materials developed by other entities, 

such as training and professional 

development organizations and other 

educational institutions, to assist 

students in preparing for the 

assessments. The Secretary considered 

whether the use of outside resources 

could be considered contracting out a 

portion of an educational program and 

determined that it could be. Therefore, 

the Secretary included in the direct 

assessment regulations a provision that 

exempts direct assessment programs 

from the limitations on contracting for 

part of an educational program. 

Identity Theft Alternatives: Section 

8012 of the HERA authorizes a 

discharge of a FFEL or Direct Loan 

Program loan under section 437(c) of the 

HEA if the eligibility of the borrower 

was falsely certified as a result of the 

crime of identity theft. In developing 

regulations to implement section 8012, 

we sought to reflect the statutory 

language that requires the Department to 

discharge the borrower’s responsibility 

to repay the loan when a ‘‘crime of 

identity theft’’ has occurred. The 

interim final regulations require that to 

receive a discharge on a loan, an 

individual must provide the holder of 

the loan, a copy of a local, State, or 

Federal court verdict or judgment that 

conclusively determines that the 

individual who is the named borrower 

of the loan was the victim of the crime 

of identity theft. We adopted this 

standard as an inexpensive and reliable 

way to implement the new discharge 

provision. If the perpetrator of an 

identity theft is never prosecuted, and 

no judicial determination that a crime 

occurred is rendered, a borrower can 

still be relieved of any responsibility to 

repay the loan under the common law 

(and in many instances, State law) 

defense of forgery. We stress this 

consideration in the preamble to the 

regulations. 

One alternative we considered was to 

authorize a discharge for ‘‘identity 

theft’’ based on representations from the 

individual, much as is now done for 

closed school discharge relief, that the 

crime of identity theft had been 

committed, and that the claimant was 

the victim of that criminal act. We 

rejected this alternative as costly, 

unworkable, and unnecessary to provide 

relief to the individuals who may be 

victims of this crime. Under this 

alternative, the claimant and/or the 

lender would be required to submit 

evidence needed to establish whether 

conduct has occurred that would 

constitute the crime of identity theft. 

That evidence may be voluminous, 

difficult to obtain, and would likely 

include witness testimony. Amassing 

and transmitting that evidence would be 

difficult and costly for lenders and 

claimants. Furthermore, determining 

whether a crime has been committed 

requires discerning the identity of the 

perpetrator and determining the state of 

mind of that person. Neither the 

Department nor the guaranty agency is 

authorized to determine whether that 

evidence shows that a crime has been 

committed. That determination is 

routinely and reliably made through the 

judicial process, which is designed to 

perform this function. Moreover, there 

is no need to ignore the judicial process 

in order to give relief to those 

individuals who did not in fact take out 

the loans for which they are listed as 

borrowers. Under State statutes and 

common law, individuals whose 

signatures have been forged on loan 

documents are not liable for those debts. 

Individuals who show that their 

signatures have been forged on loan 

documents, and that they neither 

authorized nor received a loan made in 

their name, are not held liable by the 

Department. For these reasons, we 

rejected the alternative that would entail 

an extra-judicial proof of a crime. 

Instead, we simply require the claimant 

to submit a copy of a judicial verdict 

that identity theft was committed. 

Special Allowance Payment 

Alternatives: The Department 

considered a number of alternatives 

related to the effective date for 

implementation of Section 8006 of the 

HERA, which eliminates the limitation 

that special allowance payments on 

PLUS loans for which the first 

disbursement was made on or after 

January 1, 2000, only be paid if the 

formula for determining the borrower 

interest rate produces a rate that exceeds 

the statutory maximum borrower rate of 

9 percent. 

The first alternative was to make this 

provision retroactive to January 1, 2000, 

an approach that would result in 

substantial additional special allowance 

payments to many PLUS loan holders. 

Although this option was suggested by 

some members of the student loan 

industry, the Department determined 

that this approach was inconsistent with 

the statute. 

Other alternatives considered 

reflected differing interpretations of the 

provision’s effective date. Section 8006 

states that ‘‘amendments made by this 

subsection shall not apply with respect 

to any special allowance payment made 

under section 438 of the Higher 

Education Act of 1965 (20 U.S.C. 1087–

1) before April 1, 2006.’’ Since special 

allowance payments are made on a 

quarterly basis, the Department had to 

determine whether the statute’s intent 

was to remove the limitation on PLUS 

special allowance payments for the 

quarter of January–March 2006—the 

first quarter for which bills would be 

submitted, verified, and paid after April 

1, 2006 or for the quarter of April–July 

2006, the first full quarter after the 

HERA’s enactment. The Department 

estimated Federal costs would increase 

by $53 million if the limitation was 

removed for the January–March quarter. 

This estimate was based on data on 

special allowance rates and balances for 

the affected quarter. After a careful 


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review of the statutory language, the 

Department determined that the 

statute’s likely intent was to remove the 

limitation for the January March 2006 

quarter, since this was the first quarter 

for which payments would be made 

after April 1, 2006. The interim final 

regulations reflect this determination. 

Benefits 

Given the breadth of these 

regulations, the discussion of benefits 

and costs will be limited in most cases 

to provisions with an economic impact 

of $100 million or more in any one year. 

By facilitating the implementation of 

changes made in the HERA and other 

recent student aid-related statutes, these 

interim final regulations will support 

the provision of a broad range of student 

benefits. In general, these benefits 

reduce the costs of higher education to 

students, increase the amount of Federal 

student aid or increase the number of 

students eligible for Federal student aid. 

The economic benefits of any specific 

change are difficult to discern, as they 

have direct benefit to the individual aid 

recipient and broader societal benefits 

resulting from the economic impact and 

tax-paying potential of a well-educated 

population. Research indicates that 

reductions in the cost of higher 

education are correlated to increased 

student enrollment, retention, and 

completion. The U.S. Census Bureau 

has found people with a bachelor’s 

degree realize as much as 75 percent 

higher lifetime earnings than those 

whose education is limited to a high 

school degree. (‘‘The Big Payoff: 

Educational Attainment and Synthetic 

Estimates of Work-Life Earnings,’’ July 

2002.) 

Specific benefits provided to student 

borrowers in these interim final 

regulations include increases in certain 

FFEL and Direct Loan Program loan 

limits; reduced origination fees in the 

FFEL and Direct Loan Programs; 

broadened eligibility for PLUS loans to 

include graduate and professional 

students; expanded access to distance 

education programs; permanently 

expanded loan forgiveness for highly 

qualified math, science, and special 

education teachers at low-income 

schools; and a new deferment for FFEL, 

Direct Loan and Perkins Loan Program 

borrowers who serve on active duty 

military service during times of war or 

national emergency. These benefits are 

projected to increase Federal outlays by 

$5.2 billion for loans originated in FY 

2006–2010. This estimate was 

developed using projected interest rate, 

loan volume, and borrower 

demographic data used in preparing the 

FY 2007 President’s Budget. Projected 

loan volume and borrower data are 

based on trend analyses of actual 

program activity, primarily drawn from 

the National Student Loan Data System 

(NSLDS) and other Department systems. 

The expansion of distance education 

made possible by the regulation’s 

changes to the ‘‘50 percent rule’’ and the 

definition of correspondence courses 

will allow institutions to more 

aggressively pursue new 

communication technologies to provide 

students significantly greater flexibility 

in the scheduling and location of 

academic programs. The Department 

estimates this expanded flexibility will 

increase the pool of students eligible for 

Federal student aid by 30,000 students 

a year in 2006 and 2007, of whom 

17,000 per year will be eligible to 

receive a Pell Grant. These additional 

Pell Grant recipients will receive an 

estimated $196 million in Pell Grant aid 

over 2006–2010. This estimate is based 

on a trend analysis of Pell Grant 

program data and projections of 

institutional and program eligibility for 

Federal student aid derived through the 

use of accreditation data. 

Lastly, the regulation’s teacher loan 

forgiveness provisions offer incentives 

to help address longstanding national 

and regional elementary and secondary 

school staffing problems. Many studies 

(Boe, Bobbitt, & Cook, 1997; Grissmer & 

Kirby, 1992; Murnane et al., 1991; 

Rumberger, 1987; and extensive 

research prepared for the National 

Commission on Mathematics and 

Science Teaching) have found math, 

science, and special education to be 

fields with especially high turnover and 

those predicted most likely to suffer 

shortages. More than tripling the teacher 

loan forgiveness amount—from $5,000 

to $17,500—for qualifying teachers in 

these fields should offer a powerful 

incentive for recruitment and retention, 

especially given the additional 

eligibility requirement that recipients 

teach for five consecutive years before 

receiving the benefit. The Department 

estimates this expanded benefit will 

increase Federal loan subsidy costs in 

the FFEL and Direct Loan programs by 

$825 million for loans originated in 

2007–2010. (The additional benefits 

were available for loans made in 2006 

as a result of the Taxpayer-Teacher 

Protection Act of 2004, so for the 

purposes of this analysis benefits have 

only been considered for 2007 and 

beyond.) This estimate was developed 

using projected interest rate, loan 

volume, and borrower demographic data 

used in preparing the FY 2007 

President’s Budget. Estimates of 

borrower eligibility were based on 

program data—primarily from NSLDS—

and demographic information from the 

National Center for Education Statistics’

Schools and Staffing Survey. 

In addition to implementing 

expanded borrower benefits, these 

interim final regulations also implement 

a number of provisions intended to 

improve the cost-effectiveness and 

efficiency of the FFEL and Direct Loan 

programs, streamline program 

operations for participating institutions, 

and standardize loan terms and 

conditions across the two programs. 

These changes are estimated to reduce 

Federal outlays by $7.0 billion for loans 

made in FY 2006–2010, freeing up 

resources for other urgent requirements. 

This estimate was also developed using 

projected interest rate, loan volume, and 

borrower demographic data used in 

preparing the FY 2007 President’s 

Budget. Projected loan volume, guaranty 

agency and lender information, and 

borrower data are based on trend 

analyses of actual program activity, 

primarily drawn from the National 

Student Loan Data System (NSLDS) and 

other Department systems. 

Provisions intended to enhance loan 

program efficiency include a number of 

changes intended to promote risksharing by FFEL participants through 

reduced program subsidies, including: 

Restrictions on higher-than-standard 

special allowance payments for loans 

funded through tax-exempt securities; 

provisions under which the Department 

will recover excess interest paid to loan 

holders when student interest payments 

exceed the special allowance level set in 

statute; and a reduction in loan holder’s 

insurance against default from 98 

percent to 97 percent of a loan’s 

principle and accrued interest. Given 

the broad availability of FFEL program 

loans—over 4,000 lenders provided 

more than $43 billion in new loans and 

an additional $53 billion in 

consolidation loans in FY 2005—these 

changes are not expected to reduce 

student and parent access to loan 

capital. 

The student loan industry features 

high competition among loan providers, 

using an array of interest rate discounts 

and other borrower benefits to attract 

volume. The overwhelming majority of 

student loans are sold by the originating 

lender in the secondary market. The 

impact on individual lenders of HERA 

provisions reducing Federal subsidies 

are inestimable; a substitution of 

subsidies for student interest rate cuts 

may occur or the secondary market 

price of securitized loans may be 

revalued. Given the high level of 

government guaranty on these loans, as 

well as the guaranteed rate of return, 

continued access to loan capital for all 


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Federal Register / Vol. 71, No. 153 / Wednesday, August 9, 2006 / Rules and Regulations 45687 

borrowers should be assured. The 

impact on individual loan holders may 

be mitigated by investment and tax 

considerations from their investment 

portfolios as a whole. Higher borrower 

loan limits and standardized repayment 

terms may increase long-term interest 

income to some loan holders under 

these regulations. 

Lastly, the interim final regulations 

include a number of provisions 

intended to standardize terms and 

conditions and broaden borrower 

choices, particularly for consolidation 

loans. These changes include the repeal 

of the single holder rule, which limits 

the ability of FFEL borrowers whose 

loans are held by a single holder to 

consolidate with other lenders, and the 

standardization of graduated and 

extended repayment plans—previously 

different for Direct Loans and FFEL—on 

the FFEL model. The repeal of the single 

holder rule should give all borrowers 

access to interest rate discounts and 

other benefits available through the 

highly competitive consolidation loan 

market. The standardization of 

repayment plan terms will eliminate a 

possible source of confusion for 

borrowers and promote equity across 

the two loan programs. These provisions 

also are expected to improve market 

transparency and remove transaction 

barriers for loan borrowers, improving 

market openness and efficiency for both 

borrowers and loan providers. 

Costs 

These interim final regulations 

include a number of provisions that will 

impose increased costs on some 

borrowers, such as an increase in the 

loan interest rate for FFEL PLUS 

borrowers, the elimination of in-school 

and joint consolidation loans, and the 

mandatory imposition of the previously 

optional 1 percent guaranty agency 

default insurance premium. (At the 

same time, these provisions will reduce 

the Federal costs of these programs and, 

in the case of the guaranty fee, improve 

the financial stability of guaranty 

agencies.) Prior to the HERA, these 

provisions allowed loan providers or 

guaranty agencies to discriminate 

among borrowers through the unequal 

distribution of borrower costs. While 

some borrowers may lose unearned 

benefits through these statutory and 

regulatory changes, market equitability 

and transparency are improved. 

These interim final regulations also 

authorize the Secretary to waive a 

student’s Title IV grant repayment if the 

student withdrew from an institution of 

higher education because of a major 

disaster as declared by the President in 

accordance with the Robert T. Stafford 

Disaster Relief and Emergency 

Assistance Act. The Secretary will 

exercise this waiver authority on a caseby-case basis after determining that a 

major disaster has significantly affected 

recipients of Title IV grant aid. 

Because entities affected by these 

regulations already participate in the 

Title IV, HEA programs, these lenders, 

guaranty agencies, and schools must 

have already established systems and 

procedures in place to meet program 

eligibility requirements. These 

regulations generally involve discrete 

changes in specific parameters 

associated with existing guidance—such 

as changes in origination fees, loan 

limits, or reinsurance percentages—

rather than wholly new requirements. 

Accordingly, institutions wishing to 

continue to participate in the student 

aid programs have already absorbed 

most of the administrative costs related 

to implementing these interim final 

regulations. Marginal costs over this 

baseline are primarily related to onetime system changes that, while 

possibly significant in some cases, are 

an unavoidable cost of continued 

program participation. The Department 

is particularly interested in comments 

on possible administrative burdens 

related to these system or process 

changes. 

Assumptions, Limitations, and Data 

Sources 

Because these interim final 

regulations largely restate statutory 

requirements that would be selfimplementing in the absence of 

regulatory action, cost estimates 

provided above reflect a prestatutory 

baseline in which the HERA and other 

statutory changes implemented in this 

regulation do not exist. In general, these 

estimates should be considered 

preliminary; they will be reevaluated in 

the final rule, based on comments 

received and additional program data 

that may be available at that time. Costs 

have been quantified for five years, as 

over time this has been a typical period 

between reauthorizations of the Higher 

Education Act. 

In developing these estimates, a wide 

range of data sources were used, 

including the National Student Loan 

Data System, operational and financial 

data from Department of Education 

systems, 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. 

Elsewhere in this SUPPLEMENTARY

INFORMATION section we identify and 

explain burdens specifically associated 

with information collection 

requirements. See the heading 

Paperwork Reduction Act of 1995. 

Accounting Statement 

As required by OMB Circular A–4 

(available at http:// 

www.Whitehouse.gov/omb/Circulars/ 

a004/a-4.pdf), in Table 2 below, we 

have prepared an accounting statement 

showing the classification of the 

expenditures associated with the 

provisions of these interim final 

regulations. This table provides our best 

estimate of the changes in Federal 

student aid payments as a result of these 

interim final regulations. Expenditures 

are classified as transfers to 

postsecondary students; savings are 

classified as transfers from program 

participants (lenders, guaranty 

agencies). 

TABLE 2.—ACCOUNTING STATEMENT: CLASSIFICATION OF ESTIMATED EXPENDITURES

[In millions] 

Category Transfers 

Annualized Monetized Transfers .............................................................. $976. 

From Whom To Whom? ........................................................................... Federal Government To Postsecondary Students; Student Aid Program 

Participants to Federal Government. 

Waiver of Proposed Rulemaking 

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 

a final rule. In addition, all Department 

regulations for programs authorized 


jlentini on PROD1PC65 with RULES2
45688 Federal Register / Vol. 71, No. 153 / Wednesday, August 9, 2006 / Rules and Regulations 

2Section 492 provides specifically that any 

regulations issued for the title IV, HEA programs 

shall be subject to negotiated rulemaking to obtain 

the advice of and recommendations from 

individuals and groups involved in the student 

financial assistance programs. 

3See Riverbend Farms, Inc. v. Madigan, 958 F.2d 

1479, 1484, n.2 (9th cir. 1992). The term 

‘‘impracticable’’ has also been described as meaning 

‘‘a situation in which the due and required 

execution of the agency functions would be 

unavoidably prevented by its undertaking 

rulemaking proceedings. Zhang v. Slattery, 55 F.3d 

732, 746 (2d Cir. 1995) citing National Nutiritional 

Foods Ass’n v. Kennedy, 572 F.2d 377, 385 (2d Cir. 

1978) citing S. Rep. No. 752, 79th Cong., 1st Sess. 

(1945). 

under title IV of the HEA are subject to 

the negotiated rulemaking requirements 

of section 492 of the HEA.2 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 a title IV, HEA program 

regulation if the Secretary determines 

that applying that requirement is 

impracticable, unnecessary or contrary 

to the public interest within the 

meaning of the HEA. 

Although these regulations are subject 

to the APA’s notice-and-comment and 

the HEA’s negotiated rulemaking 

requirements, the Secretary has 

determined that it is unnecessary and 

impracticable to either conduct 

negotiated rulemaking or notice-andcomment rulemaking on these 

regulations. Most of the changes made 

by the HERA were effective no later 

than July 1, 2006. To ensure proper 

implementation of these statutory 

changes, they need to be reflected in the 

Department’s regulations. Waiver of 

rulemaking under the impracticability 

exemption in the APA and HEA is 

warranted because it would not be 

possible for the Department to comply 

with the APA’s and HEA’s rulemaking 

mandates and execute its statutory 

duties under the HERA.3

Even on an extremely expedited 

timeline, the Department could not have 

feasibly conduct negotiated or noticeand-comment rulemaking and then 

promulgated these regulations before 

the provisions of the HERA became 

effective on July 1, 2006. Negotiated 

rulemaking requires the Department to 

solicit nominations for negotiators to 

participate in the negotiated rulemaking 

sessions, select a committee of 

negotiators, conduct a series of 

negotiating sessions, publish a notice of 

proposed rulemaking, review public 

comments, and issue final regulations. 

Normally this process would take at 

least 12 months and possibly longer. 

The Department cannot both implement 

the provisions in the HERA and conduct 

negotiated or notice-and-comment 

rulemaking. 

In addition, most of the changes 

included in these regulations simply 

modify the Department’s regulations to 

reflect statutory changes made by the 

HERA. These statutory provisions are 

either already effective or will be 

effective within a short period of time. 

The Secretary does not have discretion 

in implementing these changes. Thus, 

negotiated rulemaking and notice-andcomment rulemaking are unnecessary. 

Other changes in these regulations 

make technical corrections, remove 

obsolete regulatory provisions or 

references or align related regulatory 

provisions as required by the HERA and 

other laws. These latter changes do not 

establish or affect substantive policy. 

Negotiated rulemaking and notice-andcomment rulemaking on these 

provisions is unnecessary. 

Therefore, under 5 U.S.C. 553(b)(B), 

the Secretary has determined that 

conducting notice-and-comment 

rulemaking is unnecessary and 

impracticable. For the same reasons, the 

Secretary has determined, under section 

492(b)(2) of the Higher Education Act of 

1965, as amended, that these regulations 

should not be subject to negotiated 

rulemaking. 

These regulations are final and in 

effect as published, thirty days after 

publication in the Federal Register. 

Although the Department is adopting 

these regulations on an interim final 

basis, the Department requests public 

comment on these regulations. After full 

consideration of public comments, the 

Secretary will publish final regulations 

with any necessary changes to be 

effective July 1, 2007. 

As discussed above, all Department 

regulations for programs authorized 

under the title IV, HEA programs are 

subject to the negotiated rulemaking 

requirements of section 492 of the HEA. 

In addition, section 482 of the HEA 

requires that any title IV regulations that 

have not been published in final form 

by November 1 prior to the start of an 

award year cannot become effective 

until the beginning of the second award 

year following the November 1 date. 

Therefore, the Secretary has 

determined that although it may be 

feasible to conduct notice-and-comment 

rulemaking for the regulations that 

would be effective July 1, 2007, it would 

be impracticable to conduct negotiated 

rulemaking to implement the provisions 

of the HERA contained in these interim 

final regulations. 

Regulatory Flexibility Act Certification 

The Secretary certifies that these 

regulations will not have a significant 

economic impact on a substantial 

number of small entities. 

Paperwork Reduction Act of 1995 

Sections 600.7, 600.10, 668.3, 668.8, 

668.10, 668.22, 668.173, 673.5, 674.34, 

682.102, 682.200, 682.207, 682.209, 

682.210, 682.211, 682.215, 682.305, 

682.401, 682.402, 682.404, 682.405, 

682.406, 682.410, 682.415, 682.601, 

682.604, 685.102, 685.204, 685.208, 

685.215, 685.217 and 685.220 contain 

information collection requirements. As 

required by the Paperwork Reduction 

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

Department of Education is required to 

submit a copy of these sections to the 

Office of Management and Budget 

(OMB) for its review. In many cases, the 

burden associated with the above 

provisions is associated with forms and 

applications currently approved for use 

under existing OMB control numbers. 

The Department will revise the existing 

information collection packages for the 

following sections: §§ 674.34, 682.102, 

682.210, 682.402, 685.204, and 685.220. 

The Department is working with its 

major stakeholders to develop the forms 

and applications necessary to 

implement these provisions and will 

submit these revised packages for OMB 

review soon after publication of the 

interim final regulations and solicit 

comment at that time. 

The Department plans to submit a full 

information collection package for OMB 

review to account for the burden 

associated with §§ 682.207 and 682.401 

upon publication of these interim final 

regulations. We invite comments on 

these information collection sections at 

this time. 

Lastly, the Department has increased 

the burden hours for the existing OMBapproved collections associated with 

§§ 682.215 and 685.217 to account for 

the increased burden. OMB approved 

this burden increase on June 16, 2006. 

Collection of Information: 

Institutional Eligibility Under the 

Higher Education Act of 1965, as 

amended; Student Assistance General 

Provisions; General Provisions for the 

Federal Perkins Loan Program; Federal 

Work-Study Program; and Federal 

Supplemental Educational Opportunity 

Grant Program; Federal Perkins Loan 

Program; Federal Family Education 

Loan Program; and William D. Ford 

Federal Direct Loan Program. 


jlentini on PROD1PC65 with RULES2
Federal Register / Vol. 71, No. 153 / Wednesday, August 9, 2006 / Rules and Regulations 45689 

Sections 600.7 and 600.10—

Modification of the 50 Percent Rules 

The definition of 

‘‘telecommunications course’’ is revised, 

and the references to 

telecommunications courses pertaining 

to calculating the percentage of 

correspondence courses offered by an 

institution are deleted so that an 

otherwise eligible institution that offers 

over 50 percent of its courses by 

telecommunications is now eligible to 

participate in the title IV, HEA 

programs. However, institutions that 

offer over 50 percent of their courses 

through correspondence, and foreign 

institutions that provide any of their 

programs by telecommunications or 

correspondence, continue to be 

ineligible to participate. There is no 

burden associated with the change in 

the definition of telecommunications 

course. 

Section 668.3—Academic Year 

The definition of academic year is 

amended to reduce from 30 to 26 the 

number of weeks of instructional time 

for a program that measures its length in 

clock hours. There is no burden 

associated with the reduction in the 

number of weeks of instructional time. 

Section 668.8—Eligible Program 

An otherwise eligible program that is 

offered in whole or in part through 

telecommunications is an eligible 

program for title IV, HEA program 

purposes. The eligible 

telecommunications program must be 

offered by an institution in the United 

States. The institution must have been 

evaluated and determined to have the 

capability to effectively deliver distance 

education programs by an accrediting 

agency or association. The accrediting 

agencies are currently reviewing 

telecommunications programs 

consistent with the scope of their 

authority. Therefore there is no 

additional burden associated with this 

provision. 

Section 668.10—Direct Assessment 

Programs 

The interim final regulations provide 

that ‘‘direct assessment programs’’ are 

eligible programs for Title IV purposes. 

A direct assessment program is an 

instruction program that, in lieu of 

credit hours or clock hours as a measure 

of student learning, utilizes direct 

assessment of student learning, or 

recognizes the direct assessment of 

student learning by other measures. 

This assessment must be consistent with 

the accreditation of the institution or 

program utilizing the results of the 

assessment. 

In the short-term, we expect no 

additional burden to be associated with 

direct assessment programs. We are 

currently aware of only one institution 

that utilizes such programs. Therefore, 

this section is not subject to the 

Paperwork Reduction Act of 1995. 

Sections 668.22 and 668.173—

Treatment of Title IV Funds When a 

Student Withdraws 

Under these interim final regulations, 

the following provisions apply to title 

IV, HEA program funds when a student 

withdraws: 

• The amount of a grant overpayment 

due from a student is limited to the 

amount by which the original grant 

overpayment amount exceeds half of the 

total title IV grant funds received by the 

student. 

• When the original amount of a 

student’s title IV grant overpayment 

amount is $50 or less, it is considered 

‘‘de minimis’’ and does not have to be 

repaid or reported. 

• An institution must contact a 

withdrawn student prior to making a 

post-withdrawal disbursement of a title 

IV loan. The institution must explain 

the obligation to repay the loan funds, 

if the post-withdrawal disbursement is 

accepted by the borrower. If the 

borrower’s acceptance of the postwithdrawal disbursement is received by 

the institution after the deadline date for 

the return of the acceptance of the 

disbursement, and the institution 

chooses not to make the postwithdrawal disbursement, the 

institution is required to notify the 

borrower of the institution’s action. 

• Only scheduled hours, not 

completed hours, are used to determine 

the percentage of the period completed 

by a student withdrawing from a clock 

hour program. 

• A student withdrawing from a clock 

hour program earns 100 percent of his 

or her aid if the student’s withdrawal 

date occurs after the point when he or 

she was scheduled to complete 60 

percent of the scheduled hours in the 

payment period or period of enrollment. 

• An institution must return 

unearned funds no later than 45 days 

after a student withdraws. 

• An institution may grant more than 

one leave of absence. 

• The return of title IV funds 

provisions no longer apply to LEAP, 

SLEAP, GEAR UP and Student Support 

Services funds. 

The burden associated with the 

requirement that an institution must 

contact and counsel a withdrawn 

student before making a late 

disbursement is offset by the 

requirements that simplify and facilitate 

the return of title IV program funds. 

Consequently, these changes do not 

increase burden. 

Sections 673.5 and 682.200—Estimated 

Financial Assistance 

Under the interim final regulations, 

the term ‘‘resources’’ is changed to 

estimated financial assistance for the 

purposes of the Federal Perkins Loan 

program, the Federal Work-Study 

program, and the FSEOG program. The 

term estimated financial assistance has 

also been modified to include the two 

new grant programs created by the 

HERA, and the new chapter 1607 

veterans education benefits established 

under the Ronald W. Reagan National 

Defense Authorization Act for 2005. The 

interim final regulations also make 

technical changes to help clarify the 

existing regulatory language and to 

standardize the similar definitions used 

in the Federal Perkins Loan program, 

the Federal Work-Study programs, the 

FSEOG program, and the FFEL and 

Direct Loan programs. There is no 

burden associated with these 

provisions. 

Section 674.34, 682.210, and 685.204—

Active Duty Military Deferments 

A new military deferment is 

established for FFEL, Direct and Perkins 

Loan Program borrowers who are 

serving on active duty, or are 

performing qualifying National Guard 

duty during a war or other military 

operation or national emergency. The 

addition of a new deferment will 

increase the burden hours associated 

with two existing OMB Control 

Numbers, 1845–0005—FFEL Deferment 

Requests and 1845–0011—Direct Loan 

Program Deferment Request Forms. 

These forms will be submitted for OMB 

review by November 2006. Until new 

forms are approved, borrowers may 

submit documentation to the loan 

holder demonstrating their eligibility for 

the new deferment. 

Section 682.102—Obtaining and 

Repaying a Loan 

Under the interim final regulations, 

this section is amended to repeal the 

single holder rule and to add graduate 

and professional students as eligible 

borrowers of a PLUS Loan. Repeal of the 

single holder rule will allow borrowers 

to apply to any eligible lender when 

consolidating their loans and will not 

increase or decrease the actual burden 

associated with obtaining a 

Consolidation Loan. The burden 

associated with the addition of the new 

graduate/professional PLUS Program 

will be reflected in the collection of 

information under modified OMB 


jlentini on PROD1PC65 with RULES2
45690 Federal Register / Vol. 71, No. 153 / Wednesday, August 9, 2006 / Rules and Regulations 

Control Numbers 1845–0068—Federal 

Direct PLUS Loan Application and MPN 

and Endorser Addendum and 1845–

0069—Federal PLUS Loan Application 

and MPN, endorser Addendum and 

School Certification. Borrowers may use 

these temporary forms until revised 

forms are submitted for OMB review. 

That submission will occur no later than 

October 2006. 

Section 682.207—Due Diligence in 

Disbursing a Loan for Attendance at a 

Foreign School 

The Department currently has the 

paperwork requirements in this section 

approved under OMB control number 

1845–0020 which will be modified to 

reflect the burden associated with this 

provision. For a U.S. student attending 

an eligible foreign institution, FFEL 

program funds may be disbursed 

directly to the student only if the 

institution requests this method. For a 

student enrolled at a foreign institution, 

and a student enrolled in a study-abroad 

program, the lender must verify the 

student’s enrollment at the foreign 

school before making a direct 

disbursement of FFEL funds. These new 

requirements represent an increased 

burden that will be reflected in OMB 

Control No. 1845–0020. 

Section 682.209—Repayment of a Loan 

An FFEL Stafford loan borrower may 

no longer request to enter repayment 

early on her loans. There is no 

additional burden associated with this 

provision. 

Section 682.211—Forbearance 

Under these interim final regulations, 

a lender must confirm any non-written 

forbearance agreement by recording the 

terms of the agreement in the borrower’s 

file. There is no additional burden 

associated with this provision as the 

current regulations already permit this 

practice under OMB Control Number 

1845–0020. 

Section 682.215 and 685.217—Teacher 

Loan Forgiveness 

Under these interim final regulations, 

increased teacher loan forgiveness in the 

amount of $17,500 is made permanent 

for teachers in certain specialties as 

originally authorized by the TaxpayerTeacher Protection Act (TTPA) of 2004. 

The regulations also provide that 

teachers in private non-profit schools 

may qualify for the same forgiveness 

benefits if they are ‘‘highly qualified.’’

The current teacher loan forgiveness 

form, as currently approved by OMB 

under Control Number 1845–0059, 

reflects all of the new teacher loan 

forgiveness requirements of the TTPA 

with the exception of criteria for 

teachers in a private non-profit school. 

The current form will be revised to 

reflect the new criteria, but we expect 

no additional burden because most 

applicants for forgiveness are employed 

in public elementary and secondary 

schools, not private non-profit schools. 

Section 682.305—Procedures for 

Payment of Interest and Special 

Allowance 

These interim final regulations 

require the repayment by a lender of 

excess interest paid by the Department 

when the applicable interest rate on a 

loan for any quarter exceeds the special 

allowance support level for the loan. 

The Secretary will collect the excess 

interest from lenders quarterly. This 

change represents no increase in 

burden. The Secretary will make the 

calculation of excess interest owed by a 

lender. The lender will pay excess 

interest to the Secretary under existing 

processes. 

Section 682.401—Basic Program 

Agreement 

The HERA establishes a new College 

Access Initiative for guaranty agencies 

to create and carry out a plan to promote 

access to postsecondary education for 

each State. While most of the agencies 

and/or other State government entities 

already offer this information, we expect 

this requirement will affect the 35 

existing guaranty agencies by 100 hours 

each, creating a total burden of 3500 

hours. The Department will amend 

OMB Control Number 1845–0020—

Federal Family Education Loan Program 

Regulations to reflect this increase in 

burden hours. 

The following other provisions are 

being amended but will not produce 

additional burden. The amount of 

lender insurance paid to lenders as 

reimbursement for defaulted loans will 

decrease. This will not require 

additional burden since it is merely a 

change in the percentage used in the 

calculation of the payment to the lender. 

Each guaranty agency must now 

establish procedures to ensure that 

consolidation loans are not an excessive 

proportion of its recoveries on defaulted 

loans. In addition, a guaranty agency 

must now remit to the Secretary 8.5% 

of the collection costs it recovers from 

the borrower or, if the amount of the 

proceeds from the consolidation of 

defaulted loans exceeds 45 percent of 

the agency’s total collections on 

defaulted loans in that Federal fiscal 

year, all of the collection costs 

recovered by payment from the 

consolidation loan. Remitting part or all 

of the collection costs will not result in 

additional burden to the guaranty 

agency since it is already calculated for 

other purposes. The interim final 

regulations eliminate the current, 

optional 1 percent insurance premium 

fee that guaranty agencies may charge 

the lender, and replace it with a 

mandatory 1 percent Federal default fee 

deducted and collected from the 

proceeds of the loan or from other nonfederal sources. This will not result in 

additional burden since the prior fee 

calculation is eliminated and the new 

fee replaces it. 

Sections 682.402 and 685.215—Identity 

Theft 

Under these interim final regulations, 

the regulations have been amended to 

authorize discharge of a FFEL or Direct 

Loan Program loan if the borrower’s 

eligibility was falsely certified because 

the borrower was a victim of the crime 

of identity theft. The regulations 

provide that the borrower’s obligation is 

discharged if the borrower provides the 

holder of a loan, or the Secretary in the 

case of a Direct Loan, a copy of a local, 

State, or Federal court verdict or 

judgment that conclusively determines 

that the individual who is the named 

borrower was the victim of the crime of 

identity theft. If the judgment or 

conviction did not expressly reference 

that loan, the individual must provide 

authentic examples of his other 

identification credentials, and an 

explanation of facts that demonstrate 

that this criminal conduct resulted in 

the school certifying that individual’s 

eligibility to borrow, and, as a result, in 

the loan being made. 

The additions do not change the 

burden hours associated with this 

section of the regulations. The burden 

associated with the new requirements 

will be accounted for under OMB 

Control Number 1845–0015—FFEL, 

Direct Loan and Perkins Loan Discharge 

Applications. These forms will be 

submitted for OMB review by December 

2006. Until new forms are approved, 

borrowers may submit documentation to 

the loan holder demonstrating their 

eligibility for the discharge. 

Section 682.404—Federal Reinsurance 

Agreement 

Under these interim final regulations, 

for loans on which the first 

disbursement of principal is made on or 

after July 1, 2006, a guaranty agency will 

receive 100 percent reinsurance from 

the Department on ‘‘exempt claims.’’

The interim final regulation simply 

increases the amount of reinsurance 

paid to guaranty agencies on these 

claims. This provision does not increase 

burden because payment of these claims 


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is already part of the process under 

which the Secretary pays reinsurance to 

the guaranty agencies. 

Section 682.405—Rehabilitation of a 

Defaulted Loan 

The regulations have been amended 

to require a FFEL borrower to make 9 

payments within 20 days of the due date 

during a period of 10 consecutive 

months to rehabilitate a defaulted loan. 

Previously, the regulations required the 

borrower to make 12 consecutive ontime monthly payments. The new 

requirement that the borrower make 

fewer payments will not change the 

burden associated with the 

rehabilitation of a defaulted FFEL loan. 

The requirements that a borrower must 

request rehabilitation, and that a 

guaranty agency must attempt to secure 

a lender to purchase the loan after it has 

been successfully rehabilitated, remain 

unchanged. 

Section 682.406—Conditions for Claim 

Payments From the Federal Fund and 

Reinsurance Coverage 

The amount of time a guaranty agency 

is allowed for filing a reinsurance claim 

with the Department is reduced from 45 

days to 30 days. However, the process 

under which the guaranty agency is 

required to submit a reinsurance claim 

is unchanged. Consequently, there is no 

change in burden. 

Section 682.410—Fiscal, Administrative 

and Enforcement Procedures 

The amount of a borrower’s 

disposable pay that can be garnished is 

increased from 10 to 15 percent effective 

July 1, 2006. There is no burden 

associated with this change because it 

has no impact on the manner in which 

any borrower’s wages are currently 

garnished. 

Section 682.415—Special Insurance and 

Reinsurance 

The insurance percentage applicable 

to lenders or lenders servicers who are 

designated as exceptional performers is 

decreased from 100 percent to 99 

percent. There is no burden associated 

with this change. All other factors of 

reimbursement remain the same. 

Section 682.601—School-as-Lender 

The current regulations are replaced 

with an expanded set of requirements 

for participation as a school-as-lender. 

The primary requirement to be 

designated a school-as-lender is that the 

institution met the requirements in 

effect as of February 7, 2006, and made 

loans on or before April 1, 2006. There 

is no additional burden for institutions 

since the new requirements are based on 

data already collected by the institution, 

reports that are already required, and/or 

procedures of standard use at 

institutions. 

Section 682.604—Processing Loan 

Proceeds and Counseling the Borrower 

The exemption from the multiple 

disbursement requirements for eligible 

foreign institutions is removed. Lenders 

and guaranty agencies are now required 

to disburse the proceeds of a loan in two 

or more installments, neither of which 

exceeds one-half of the loan. This 

change will not increase burden. In the 

vast majority of cases, the lender or 

guaranty agency is already required to 

disburse a loan in two installments as a 

regular business practice under the 

requirements of the HEA and the FFEL 

Program regulations. 

Section 685.220—Consolidation 

Under these interim final regulations, 

the borrower eligibility requirements of 

the FFEL and Federal Direct 

Consolidation Loan programs are 

harmonized to eliminate program 

differences and to reflect the repeal of 

section 8009(a)(2) of the HERA, which 

restricted the conditions under which a 

FFEL borrower could obtain a Federal 

Consolidation Loan. The burden 

associated with the collection of 

information will be reflected in the 

modified OMB Control Number 1845–

0036—FFEL Consolidation Loan 

Application and Promissory Note and 

OMB Control Number 1845–0053—

Federal Direct Consolidation Loan 

Program Application Documents. 

If you want to comment on the 

information collection requirements, 

please send your comments to the Office 

of Information and Regulatory Affairs, 

OMB, room 10235, New Executive 

Office Building, Washington, DC 20503; 

Attention: Desk Officer for U.S. 

Department of Education. You may also 

send a copy of these comments to the 

Department representative named in the 

FOR FURTHER INFORMATION CONTACT

section of this preamble. 

We consider your comments on these 

proposed collections of information in—

• Deciding whether the proposed 

collections are necessary for the proper 

performance of our functions, including 

whether the information will have 

practical use; 

• Evaluating the accuracy of our 

estimate of the burden of the proposed 

collections, including the validity of our 

methodology and assumptions; 

• Enhancing the quality, usefulness, 

and clarity of the information we 

collect; and 

• Minimizing the burden on those 

who must respond. This includes 

exploring the use of appropriate 

automated, electronic, mechanical, or 

other technological collection 

techniques or other forms of information 

technology; e.g., permitting electronic 

submission of responses. 

OMB is required to make a decision 

concerning the collection of information 

contained in these interim final 

regulations between 30 and 60 days 

after publication of this document in the 

Federal Register. Therefore, to ensure 

that OMB gives your comments full 

consideration, it is important that OMB 

receives the comments within 30 days 

of publication. 

Assessment of Educational Impact 

Based on our own review, we have 

determined that these interim 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 Parts 600 and 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 673, 675 and 676 

Administrative practice and 

procedure, Colleges and universities, 

Consumer protection, Education, 

Employment, Grant programs—

education, Loan programs—education, 


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45692 Federal Register / Vol. 71, No. 153 / Wednesday, August 9, 2006 / Rules and Regulations 

Reporting and recordkeeping 

requirements, Student aid, Vocational 

education. 

34 CFR Parts 674, 682, and 685 

Administrative Practice and 

Procedure, Colleges and universities, 

Education, Loans program—education, 

Reporting and recordkeeping 

requirements, Student aid, Vocational 

education. 

Dated: August 1, 2006. 

Margaret Spellings, 

Secretary of Education. 

■ For the reasons discussed in the 

preamble, the Secretary amends parts 

600, 668, 673, 674, 675, 676, 682, and 

685 of title 34 of the Code of Federal 

Regulations as follows: 

PART 600—INSTITUTIONAL 

ELIGIBILITY UNDER THE HIGHER 

EDUCATION ACT OF 1965, AS 

AMENDED 

■ 1. The authority citation for part 600 

continues to read as follows: 

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

1088, 1091, 1094, 1099b, and 1099(c), unless 

otherwise noted. 

■ 2. Section 600.2 is amended by: 

■ A. In the definition of Correspondence 

course, removing paragraph (3) and 

redesignating paragraph (4) as paragraph 

(3); 

■ B. Adding a definition of Direct 

assessment program; 

■ C. Revising the definitions of 

Educational program and 

Telecommunications course. 

The revisions and addition read as 

follows: 

§ 600.2 Definitions. 

* * * * * 

Direct assessment program: A 

program as described in 34 CFR 668.10. 

Educational program: (1) A legally 

authorized postsecondary program of 

organized instruction or study that: 

(i) Leads to an academic, professional, 

or vocational degree, or certificate, or 

other recognized educational credential; 

and 

(ii) May, in lieu of credit hours or 

clock hours as a measure of student 

learning, utilize direct assessment of 

student learning, or recognize the direct 

assessment of student learning by 

others, if such assessment is consistent 

with the accreditation of the institution 

or program utilizing the results of the 

assessment and with the provisions of 

§ 668.10. 

(2) The Secretary does not consider 

that an institution provides an 

educational program if the institution 

does not provide instruction itself 

(including a course of independent 

study) but merely gives credit for one or 

more of the following: Instruction 

provided by other institutions or 

schools; examinations or direct 

assessments provided by agencies or 

organizations; or other accomplishments 

such as ‘‘life experience.’’

* * * 

Telecommunications course: A course 

offered principally through the use of 

one or a combination of technologies 

including television, audio, or computer 

transmission through open broadcast, 

closed circuit, cable, microwave, or 

satellite; audio conferencing; computer 

conferencing; or video cassettes or discs 

to deliver instruction to students who 

are separated from the instructor and to 

support regular and substantive 

interaction between these students and 

the instructor, either synchronously or 

asynchronously. The term does not 

include a course that is delivered using 

video cassettes or disc recordings unless 

that course is delivered to students 

physically attending classes at the 

institution providing the course during 

the same award year. If the course does 

not qualify as a telecommunications 

course, it is considered to be a 

correspondence course. 

* * * * * 

■ 3. Section 600.7 is amended by: 

■ A. Removing paragraph (b)(1). 

■ B. Redesignating paragraphs (b)(2) and 

(b)(3) as paragraphs (b)(1) and (b)(2), 

respectively; 

■ C. Revising the heading of the newly 

redesignated paragraph (b)(1) to read as 

set forth below; 

■ D. In the newly redesignated 

paragraph (b)(2)(i), removing the words 

‘‘section 521(4)(C)’’ and adding in their 

place the words ‘‘section 3(3)(C)’’ and 

adding at the end of the sentence the 

words ‘‘of 1995.’’

§ 600.7 Conditions of institutional 

ineligibility. 

* * * * * 

(b)* * * 

(1) Calculating the number of 

correspondence courses. * * * 

* * * * * 

§ 600.10 [Amended] 

■ 4. Section 600.10(c)(2) is amended by 

adding the words ‘‘except as provided 

in 34 CFR 668.10’’ after the words 

‘‘eligible program of that institution’’. 

§ 600.21 [Amended] 

■ 5. Section 600.21(a)(4) is amended by 

adding at the beginning of the 

paragraph, the words ‘‘Except as 

provided in 34 CFR 668.10,’’. 

■ 6. Section 600.51 is amended by 

adding a new paragraph (d) to read as 

follows: 

§ 600.51 Purpose and scope. 

* * * * * 

(d)(1) A program offered by a foreign 

school through any use of a 

telecommunications course, 

correspondence course, or direct 

assessment program is not an eligible 

program; 

(2) Correspondence course has the 

meaning given in § 600.2; 

(3) Direct assessment program has the 

meaning given in § 668.10(a)(1) of this 

chapter; 

(4) Telecommunications course is a 

course offered through any one or a 

combination of the technologies listed 

in the definition of telecommunications 

course in § 600.2, except that 

telecommunications technologies may 

be used to supplement and support 

instruction that is offered in a classroom 

located in the foreign country where the 

students and instructor are physically 

present. 

* * * * * 

PART 668—STUDENT ASSISTANCE 

GENERAL PROVISIONS 

■ 7. The authority citation for part 668 

continues to read as follows: 

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

1085, 1091b, 1092, 1094, 1099c, and 1099c–

1, unless otherwise noted. 

■ 8. Section 668.2(b) is amended by 

removing the word ‘‘parent’’ from the 

definition of Federal Consolidation 

Loan Program and by revising the 

definitions of Federal Direct PLUS 

Program and Federal PLUS program. 

The authority citations for these 

definitions remain unchanged. 

The revisions read as follows: 

§ 668.2 General definitions. 

* * * * * 

(b) * * * 

Federal Direct PLUS Program: A loan 

program authorized by title IV, Part D of 

the HEA that is one of the components 

of the Direct Loan Program. The Federal 

Direct PLUS Program provides loans to 

parents of dependent students attending 

schools that participate in the Direct 

Loan Program. The Federal Direct PLUS 

Program also provides loans to graduate 

or professional students attending 

schools that participate in the Direct 

Loan Program. The borrower is 

responsible for the interest that accrues 

during any period. 

* * * * * 

Federal PLUS program: The loan 

program authorized by Title IV–B, 


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section 428B, of the HEA, that 

encourages the making of loans to 

parents of undergraduate students. 

Before October 17, 1986, the PLUS 

Program also provided for making loans 

to graduate, professional, and 

independent undergraduate students. 

Before July 1, 1993, the PLUS Program 

also provided for making loans to 

parents of dependent graduate students. 

Beginning July 1, 2006, the PLUS 

Program provides for making loans to 

graduate and professional students. 

* * * * * 

■ 9. Section 668.3 is amended by 

revising paragraph (a) to read as follows: 

§ 668.3 Academic year. 

(a) General. Except as provided in 

paragraph (c) of this section, an 

academic year for a program of study 

must include—

(1)(i) For a program offered in credit 

hours, a minimum of 30 weeks of 

instructional time; or 

(ii) For a program offered in clock 

hours, a minimum of 26 weeks of 

instructional time; and 

(2) For an undergraduate educational 

program, an amount of instructional 

time whereby a full-time student is 

expected to complete at least—

(i) Twenty-four semester or trimester 

credit hours or 36 quarter credit hours 

for a program measured in credit hours; 

or 

(ii) 900 clock hours for a program 

measured in clock hours. 

* * * * * 

■ 10. Section 668.8 is amended by 

adding new paragraphs (m) and (n) to 

read as follows: 

§ 668.8 Eligible program. 

* * * * * 

(m) An otherwise eligible program 

that is offered in whole or in part 

through telecommunications is eligible 

for title IV, HEA program purposes if the 

program is offered by an institution, 

other than a foreign institution, that has 

been evaluated and is accredited for its 

effective delivery of distance education 

programs by an accrediting agency or 

association that—

(1) Is recognized by the Secretary 

under subpart 2 of part H of the HEA; 

and 

(2) Has accreditation of distance 

education within the scope of its 

recognition. 

(n) For title IV, HEA program 

purposes, the term eligible program 

includes a direct assessment program 

approved by the Secretary under 34 CFR 

668.10. 

* * * * * 

■ 11. New Section 668.10 is added to 

read as follows: 

§ 668.10 Direct assessment programs. 

(a)(1) A direct assessment program is 

an instructional program that, in lieu of 

credit hours or clock hours as a measure 

of student learning, utilizes direct 

assessment of student learning, or 

recognizes the direct assessment of 

student learning by others. The 

assessment must be consistent with the 

accreditation of the institution or 

program utilizing the results of the 

assessment. 

(2) Direct assessment of student 

learning means a measure by the 

institution of what a student knows and 

can do in terms of the body of 

knowledge making up the educational 

program. These measures provide 

evidence that a student has command of 

a specific subject, content area, or skill 

or that the student demonstrates a 

specific quality such as creativity, 

analysis or synthesis associated with the 

subject matter of the program. Examples 

of direct measures include projects, 

papers, examinations, presentations, 

performances, and portfolios. 

(3) All regulatory requirements in this 

chapter that refer to credit or clock 

hours as a measurement apply to direct 

assessment programs. Because a direct 

assessment program does not utilize 

credit or clock hours as a measure of 

student learning, an institution must 

determine the number of credit or clock 

hours that the program (or portion of the 

program, as applicable) is equivalent to 

in credit hours or clock hours in order 

to demonstrate compliance with the 

regulatory requirements in this chapter. 

The institution must provide a factual 

basis satisfactory to the Secretary for its 

claim that the program is equivalent to 

a specific number of credit or clock 

hours. 

(i) An academic year in a direct 

assessment program is a period of 

instructional time that consists of a 

minimum of 30 weeks of instructional 

time during which, for an 

undergraduate educational program, a 

full-time student is expected to 

complete the equivalent of at least 24 

semester or trimester credit hours, 36 

quarter credit hours or 900 clock hours. 

(ii) A payment period in a direct 

assessment program for which 

equivalence in credit hours has been 

established must be determined under 

the requirements in § 668.4(a) or (b), as 

applicable, using the academic year 

determined in accordance with 

paragraph (a)(3)(i) of this section (or the 

portion of that academic year 

comprising or remaining in the 

program). A payment period in a direct 

assessment program for which 

equivalence in clock hours has been 

established must be determined under 

the requirements in § 668.4(c), using the 

academic year determined in 

accordance with paragraph (a)(3)(i) of 

this section (or the portion of that 

academic year comprising or remaining 

in the program). 

(iii) A week of instructional time in a 

direct assessment program is any sevenday period in which at least one day of 

educational activity occurs. Educational 

activity in a direct assessment program 

includes regularly scheduled learning 

sessions, faculty-guided independent 

study, consultations with a faculty 

mentor, development of an academic 

action plan addressed to competencies 

identified by the institution, or, in 

combination with any of the foregoing, 

assessments. It does not include credit 

for ‘‘life experience’’. 

(iv) A full-time student in a direct 

assessment program is an enrolled 

student who is carrying a full-time 

academic workload as determined by 

the institution under a standard 

applicable to all students enrolled in the 

program. However, for an undergraduate 

student, the institution’s minimum 

standard must equal or exceed the 

minimum full-time requirements 

specified in the definition of full-time 

student in § 668.2 based on the credit or 

clock hour equivalency established by 

the institution for the direct assessment 

program. 

(v) A half-time student in a direct 

assessment program is an enrolled 

student who is carrying half of the 

academic workload of a full-time 

student in that program. 

(vi) A three-quarter-time student in a 

direct assessment program is an 

enrolled student who is carrying threequarters of the academic workload of a 

full-time student in that program. 

(b) An institution that offers a direct 

assessment program must apply to the 

Secretary to have that program 

determined to be an eligible program for 

title IV, HEA program purposes. The 

institution’s application must provide 

information satisfactory to the Secretary 

that includes—

(1) A description of the educational 

program, including the educational 

credential offered (degree level or 

certificate) and the field of study; 

(2) A description of how the 

assessment of student learning is done; 

(3) A description of how the direct 

assessment program is structured, 

including information about how and 

when the institution determines on an 

individual basis what each student 

enrolled in the program needs to learn; 

(4) A description of how the 

institution assists students in gaining 

the knowledge needed to pass the 

assessments; 


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(5) The number of semester or quarter 

credit hours, or clock hours, that are 

equivalent to the amount of student 

learning being directly assessed for the 

certificate or degree, as required by 

paragraph (b)(3) of this section; 

(6) The methodology the institution 

uses to determine the number of credit 

or clock hours to which the program is 

equivalent; 

(7) The methodology the institution 

uses to determine the number of credit 

or clock hours to which the portion of 

a program an individual student will 

need to complete is equivalent; 

(8) Documentation from the 

institution’s accrediting agency 

indicating that the agency has evaluated 

the institution’s offering of direct 

assessment program(s) and has included 

the program(s) in the institution’s grant 

of accreditation; 

(9) Documentation from the 

accrediting agency or relevant state 

licensing body indicating agreement 

with the institution’s claim of the direct 

assessment program’s equivalence in 

terms of credit or clock hours; and 

(10) Any other information the 

Secretary may require to determine 

whether to approve the institution’s 

application. 

(c) To be an eligible program, a direct 

assessment program must meet the 

requirements in § 668.8 including, if 

applicable, minimum program length 

and qualitative factors. 

(d) Notwithstanding paragraphs (a) 

through (c) of this section, no program 

offered by a foreign institution that 

involves direct assessment will be 

considered to be an eligible program 

under § 668.8. 

(e) A direct assessment program may 

use learning resources (e.g., courses or 

portions of courses) that are provided by 

entities other than the institution 

providing the direct assessment program 

without regard to the limitations on 

contracting for part of an educational 

program in § 668.5(c)(3). 

(f) Title IV, HEA program funds may 

be used only for learning that results 

from instruction provided, or overseen, 

by the institution, not for the portion of 

the program that the student has 

demonstrated mastery of prior to 

enrollment in the program or tests of 

learning that are not associated with 

educational activities overseen by the 

institution. 

(g) Title IV, HEA program eligibility 

with respect to direct assessment 

programs is limited to direct assessment 

programs approved by the Secretary. 

Title IV, HEA program funds may not be 

used for—

(1) the course of study described in 

§ 668.32(a)(1)(ii) and (iii) if offered by 

direct assessment, or 

(2) remedial coursework described in 

§ 668.20 offered by direct assessment. 

However, remedial instruction that is 

offered in credit or clock hours in 

conjunction with a direct assessment 

program is eligible for title IV, HEA 

program funds. 

(h) The Secretary’s approval of a 

direct assessment program expires on 

the date that the institution changes one 

or more aspects of the program 

described in the institution’s 

application submitted under paragraph 

(b) of this section. To maintain program 

eligibility, the institution must obtain 

prior approval from the Secretary 

through reapplication under paragraph 

(b) of this section that sets forth the 

revisions proposed. 

§ 668.15 [Amended] 

■ 12. Section 668.15 is amended by: 

■ A. In paragraph (d)(1)(i)(C) removing 

the parentheticals ‘‘(j)(4)’’ and adding, 

in their place, the parenthetical ‘‘(j)’’. 

■ B. In paragraph (d)(1)(ii)(B) removing 

the figure ‘‘§ 668.22(h)’’ and adding, in 

its place, the figure ‘‘§ 668.22(i)’’. 

■ 13. Section 668.22 is amended by: 

■ A. Revising paragraph (a)(1). 

■ B. Redesignating paragraphs (a)(2), 

(a)(3), and (a)(4) as paragraphs (a)(3), 

(a)(4), and (a)(5), respectively. 

■ C. Adding a new paragraph (a)(2). 

■ D. In newly redesignated paragraph 

(a)(4) removing the parenthetical 

‘‘(a)(4)’’ and adding, in its place, the 

parenthetical ‘‘(a)(5)’’. 

■ E. Revising newly redesignated 

paragraph (a)(5). 

■ F. Revising paragraph (e)(2). 

■ G. Revising paragraph (f)(1)(ii). 

■ H. In paragraph (h)(3) in the 

introductory text, adding the word 

‘‘parent’’ after the words ‘‘funds due to 

a’’. 

■ I. Revising paragraph (h)(3)(ii). 

■ J. Adding a new paragraph (h)(5). 

■ K. Revising paragraph (i)(2). 

■ L. In paragraph (j)(1), removing the 

figure ‘‘30’’ and adding, in its place, the 

figure ‘‘45’’. 

The revisions and additions read as 

follows: 

§ 668.22 Treatment of title IV funds when 

a student withdraws. 

(a) General. (1) When a recipient of 

title IV grant or loan assistance 

withdraws from an institution during a 

payment period or period of enrollment 

in which the recipient began 

attendance, the institution must 

determine the amount of title IV grant 

or loan assistance that the student 

earned as of the student’s withdrawal 

date in accordance with paragraph (e) of 

this section. 

(2) For purposes of this section, ‘‘title 

IV grant or loan assistance’’ includes 

only assistance from the Federal Perkins 

Loan, Direct Loan, FFEL, Federal Pell 

Grant, Academic Competitiveness 

Grant, National SMART Grant, and 

FSEOG programs, not including the 

non-Federal share of FSEOG awards if 

an institution meets its FSEOG 

matching share by the individual 

recipient method or the aggregate 

method. 

* * * * * 

(5)(i) A post-withdrawal disbursement 

must be made from available grant 

funds before available loan funds. 

(ii)(A) If outstanding charges exist on 

the student’s account, the institution 

may credit the student’s account up to 

the amount of outstanding charges with 

all or a portion of any—

(1) Grant funds that make up the postwithdrawal disbursement in accordance 

with § 668.164(d)(1) and (d)(2); and 

(2) Loan funds that make up the postwithdrawal disbursement in accordance 

with § 668.164(d)(1), (d)(2) and (d)(3) 

only after obtaining confirmation from 

the student or parent, in the case of a 

parent PLUS loan, that they still wish to 

have the loan funds disbursed in 

accordance with paragraph (a)(5)(iii) of 

this section. 

(B)(1) The institution must offer to 

disburse directly to a student, or parent 

in the case of a parent PLUS loan, any 

amount of a post-withdrawal 

disbursement that is not credited to the 

student’s account, or for which the 

institution is not required to obtain 

confirmation to credit to the student’s 

account, to the student, or the parent in 

the case of a parent PLUS loan, in 

accordance with paragraph (a)(5)(iii) of 

this section. 

(2) The institution must make a direct 

disbursement of any grant or loan funds 

that make up the post-withdrawal 

disbursement only after obtaining the 

student’s, or parent’s in the case of a 

parent PLUS loan, confirmation that 

they still wish to have the grant or loan 

funds disbursed in accordance with 

paragraph (a)(5)(iii). 

(iii)(A) The institution must provide 

within 30 days of the date of the 

institution’s determination that the 

student withdrew, as defined in 

paragraph (l)(3) of this section, a written 

notification to the student, or parent in 

the case of parent PLUS loan, that—

(1) Requests confirmation of any postwithdrawal disbursement of loan funds 

that the institution wishes to credit to 

the student’s account in accordance 

with paragraph (a)(5)(ii)(A)(2), 


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identifying the type and amount of 

those loan funds and explaining that a 

student, or parent in the case of a parent 

PLUS loan, may accept or decline some 

or all of those funds; 

(2) Requests confirmation of any postwithdrawal disbursement of grant or 

loan funds that the student, or parent in 

the case of a parent PLUS loan, can 

receive as a direct disbursement, 

identifying the type and amount of these 

title IV funds and explaining that the 

student, or parent in the case of a parent 

PLUS loan, may accept or decline some 

or all of those funds; 

(3.) Explains that a student, or parent 

in the case of a parent PLUS loan, who 

does not confirm that a post-withdrawal 

disbursement of loan funds may be 

credited to the student’s account may 

not receive any of those loan funds as 

a direct disbursement unless the 

institution concurs; 

(4) Explains the obligation of the 

student, or parent in the case of a parent 

PLUS loan, to repay any loan funds he 

or she chooses to have disbursed; and 

(5) Advises the student, or parent in 

the case of a parent PLUS loan, that no 

post-withdrawal disbursement will be 

made, unless the institution chooses to 

make a post-withdrawal disbursement 

based on a late response in accordance 

with paragraph (a)(5)(iii)(C) of this 

section, if the student or parent in the 

case of a parent PLUS loan, does not 

respond within 14 days of the date that 

the institution sent the notification, or a 

later deadline set by the institution. 

(B) The deadline for a student, or 

parent in the case of a parent PLUS 

loan, to accept a post-withdrawal 

disbursement under paragraph 

(a)(5)(iii)(A)(4) must be the same for 

both a confirmation of a direct 

disbursement of the post-withdrawal 

disbursement and a confirmation of a 

post-withdrawal disbursement of loan 

funds to be credited to the student’s 

account; 

(C) If the student, or parent in the case 

of a parent PLUS loan, submits a timely 

response that confirms that they wish to 

receive all or a portion of a direct 

disbursement of the post-withdrawal 

disbursement, or confirms that a postwithdrawal disbursement of loan funds 

may be credited to the student’s 

account, the institution must disburse 

the funds in the manner specified by the 

student, or parent in the case of a parent 

PLUS loan, within 120 days of the date 

of the institution’s determination that 

the student withdrew, as defined in 

paragraph (l)(3) of this section. 

(D) If a student, or parent in the case 

of a parent PLUS loan, submits a late 

response to the institution’s notice 

requesting confirmation, the institution 

may make the post-withdrawal 

disbursement as instructed by the 

student, or parent in the case of a parent 

PLUS loan (provided the institution 

disburses all the funds accepted by the 

student, or parent in the case of a parent 

PLUS loan), or decline to do so. 

(E) If a student, or parent in the case 

of a parent PLUS loan, submits a late 

response to the institution and the 

institution does not choose to make the 

post-withdrawal disbursement, the 

institution must inform the student, or 

parent in the case of a parent PLUS 

loan, electronically or in writing of the 

outcome of the post-withdrawal 

disbursement request. 

(F) If the student, or parent in the case 

of a parent PLUS loan, does not respond 

to the institution’s notice, no portion of 

the post-withdrawal disbursement of 

loan funds that the institution wishes to 

credit to the student’s account, nor any 

portion that would be disbursed directly 

to the student, or parent in the case of 

a parent PLUS loan, may be disbursed. 

(iv) An institution must document in 

the student’s file the result of any 

notification made in accordance with 

paragraph (a)(5)(iii) of this section of the 

student’s right to cancel all or a portion 

of loan funds or of the student’s right to 

accept or decline loan funds, and the 

final determination made concerning 

the disbursement. 

* * * * * 

(e) * * * 

(2) Percentage earned. The percentage 

of title IV grant or loan assistance that 

has been earned by the student is—

(i) Equal to the percentage of the 

payment period or period of enrollment 

that the student completed (as 

determined in accordance with 

paragraph (f) of this section) as of the 

student’s withdrawal date, if this date 

occurs on or before—

(A) Completion of 60 percent of the 

payment period or period of enrollment 

for a program that is measured in credit 

hours; or 

(B) Sixty percent of the clock hours 

scheduled to be completed for the 

payment period or period of enrollment 

for a program that is measured in clock 

hours; or 

(ii) 100 percent, if the student’s 

withdrawal date occurs after—

(A) Completion of 60 percent of the 

payment period or period of enrollment 

for a program that is measured in credit 

hours; or 

(B) Sixty percent of the clock hours 

scheduled to be completed for the 

payment period or period of enrollment 

for a program measured in clock hours. 

* * * * * 

(f) * * * 

(1) * * * 

(ii)(A) In the case of a program that is 

measured in clock hours, by dividing 

the total number of clock hours in the 

payment period or period of enrollment 

into the number of clock hours 

scheduled to be completed as of the 

student’s withdrawal date. 

(B) The scheduled clock hours used 

must be those established by the 

institution prior to the student’s 

beginning class date for the payment 

period or period of enrollment and must 

be consistent with the published 

materials describing the institution’s 

programs, unless the schedule was 

modified prior to the student’s 

withdrawal. 

(C) The schedule must have been 

established in accordance with 

requirements of the accrediting agency 

and the State licensing agency, if such 

standards exist. 

* * * * * 

(h) * * * 

(3) * * * 

(ii) Any title IV grant program as an 

overpayment of the grant; however, a 

student is not required to return the 

following—

(A) The portion of a grant 

overpayment amount that is equal to or 

less than 50 percent of the total grant 

assistance that was disbursed (and that 

could have been disbursed, as defined 

in paragraph (l)(1) of this section) to the 

student for the payment period or 

period of enrollment. 

(B) A grant overpayment amount, as 

determined after application of 

paragraph (h)(3)(ii)(A) of this section, of 

50 dollars or less that is not a remaining 

balance. 

* * * * * 

(5) The Secretary may waive grant 

overpayment amounts that students are 

required to return under this section if 

the withdrawals on which the returns 

are based are withdrawals by students—

(i) Who were residing in, employed 

in, or attending an institution of higher 

education that is located in an area in 

which the President has declared that a 

major disaster exists, in accordance with 

section 401 of the Robert T. Stafford 

Disaster Relief and Emergency 

Assistance Act (42 U.S.C. 5170); 

(ii) Whose attendance was interrupted 

because of the impact of the disaster on 

the student or institution; and 

(iii) Whose withdrawal ended within 

the award year during which the 

designation occurred or during the next 

succeeding award year. 

* * * * * 

(i) * * * 

(2) Remaining funds. If unearned 

funds remain to be returned after 


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repayment of all outstanding loan 

amounts, the remaining excess must be 

credited to any amount awarded for the 

payment period or period of enrollment 

for which a return of funds is required 

in the following order: 

(i) Federal Pell Grants. 

(ii) Academic Competitiveness Grants. 

(iii) National SMART Grants. 

(iv) FSEOG Program aid. 

* * * * * 

■ 14. Section 668.32 is amended by: 

■ A. In paragraph (k)(7), removing the 

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

the end of the paragraph. 

■ B. In paragraph (l), removing the 

punctuation ‘‘.’’ at the end of the 

paragraph and adding, in its place, the 

words ‘‘; and’’. 

■ C. Adding a new paragraph (m). 

The addition reads as follows: 

§ 668.32 Student eligibility—general. 

* * * * * 

(m) In the case of a student who has 

been convicted of, or has pled nolo 

contendere or guilty to, a crime 

involving fraud in obtaining title IV, 

HEA program assistance, has completed 

the repayment of such assistance to: 

(1) The Secretary; or 

(2) The holder, in the case of a title 

IV, HEA program loan. 

* * * * * 

■ 15. Section 668.35 is amended by: 

■ A. Revising the introductory text in 

paragraph (e). 

■ B. In paragraph (h)(2)(ii), removing 

the punctuation ‘‘.’’ at the end of the 

paragraph and adding, in its place, the 

words ‘‘; and’’. 

■ C. Adding new paragraph (i). 

The revisions and additions read as 

follows: 

§ 668.35 Student debts under the HEA and 

to the U.S. 

* * * * * 

(e) Except as provided in 34 CFR 

668.22(h), a student who receives an 

overpayment under the Federal Perkins 

Loan Program, or under a title IV, HEA 

grant program, may nevertheless be 

eligible to receive title IV, HEA program 

assistance if—

* * * * * 

(i) In the case of a student who has 

been convicted of, or has pled nolo 

contendere or guilty to a crime 

involving fraud in obtaining title IV, 

HEA program assistance, has completed 

the repayment of such assistance to: 

(1) The Secretary; or 

(2) The holder, in the case of a title 

IV, HEA program loan. 

* * * * * 

■ 16. Section 668.38 is amended by: 

■ A. Removing paragraph (b)(3); and 

■ B. Revising paragraphs (b)(1) and 

(b)(2). 

The revisions read as follows: 

§ 668.38 Enrollment in 

telecommunications and correspondence 

courses. 

* * * * * 

(b) * * * 

(1) For purposes of this section, a 

student enrolled in a 

telecommunications course at an 

institution of higher education is not 

enrolled in a correspondence course. 

(2) For purposes of paragraph (b)(1) of 

this section, an institution of higher 

education is one that is not an institute 

or school described in section 3(3)(C) of 

the Carl D. Perkins Vocational and 

Applied Technology Act of 1995. 

* * * * * 

■ 17. Section 668.40(a)(1) is revised to 

read as follows: 

§ 668.40 Conviction for possession or sale 

of illegal drugs. 

(a)(1) A student is ineligible to receive 

title IV, HEA program funds, for the 

period described in paragraph (b) of this 

section, if the student has been 

convicted of an offense under any 

Federal or State law involving the 

possession or sale of illegal drugs for 

conduct that occurred during a period of 

enrollment for which the student was 

receiving title IV, HEA program funds. 

However, the student may regain 

eligibility before that time period 

expires under the conditions described 

in paragraph (c) of this section. 

* * * * * 

§ 668.164 [Amended] 

■ 18. Section 668.164 is amended by, in 

paragraph (g)(3)(i), removing the 

parentheticals ‘‘(a)(4)’’ and adding, in 

their place, the parentheticals ‘‘(a)(5)’’

and removing the parentheticals ‘‘(a)(3)’’

and adding, in their place the 

parentheticals ‘‘(a)(4)’’. 

■ 19. Section 668.173 is amended by 

revising paragraph (b) to read as follows: 

§ 668.173 Refund reserve standards. 

* * * * * 

(b) Timely return of title IV, HEA 

program funds. In accordance with 

procedures established by the Secretary 

or FFEL Program lender, an institution 

returns unearned title IV, HEA program 

funds timely if—

(1) The institution deposits or 

transfers the funds into the bank 

account it maintains under § 668.163 no 

later than 45 days after the date it 

determines that the student withdrew; 

(2) The institution initiates an 

electronic funds transfer (EFT) no later 

than 45 days after the date it determines 

that the student withdrew; 

(3) The institution initiates an 

electronic transaction, no later than 45 

days after the date it determines that the 

student withdrew, that informs a FFEL 

lender to adjust the borrower’s loan 

account for the amount returned; or 

(4) The institution issues a check no 

later than 45 days after the date it 

determines that the student withdrew. 

An institution does not satisfy this 

requirement if—

(i) The institution’s records show that 

the check was issued more than 45 days 

after the date the institution determined 

that the student withdrew; or 

(ii) The date on the cancelled check 

shows that the bank used by the 

Secretary or FFEL Program lender 

endorsed that check more than 60 days 

after the date the institution determined 

that the student withdrew. 

* * * * * 

PART 673—GENERAL PROVISIONS 

FOR THE FEDERAL PERKINS LOAN 

PROGRAM, FEDERAL WORK-STUDY 

PROGRAM, AND FEDERAL 

SUPPLEMENTAL EDUCTIONAL 

OPPORTUNITY GRANT PROGRAM 

■ 20. The authority citation for part 673 

continues to read as follows: 

Authority: 20 U.S.C. 421–429, 1070b–

1070b–3, and 1087aa–1087ii; 42 U.S.C. 2751–

2756b, unless otherwise noted. 

■ 21. Section 673.5 is amended by 

revising paragraphs (a), (b), (c) and (d) 

to read as follows: 

§ 673.5 Overaward. 

(a) Overaward prohibited—(1) Federal 

Perkins Loan and FSEOG Programs. An 

institution may only award or disburse 

a Federal Perkins loan or an FSEOG to 

a student if that loan or the FSEOG, 

combined with the other estimated 

financial assistance the student receives, 

does not exceed the student’s financial 

need. 

(2) FWS Program. An institution may 

only award FWS employment to a 

student if the award, combined with the 

other estimated financial assistance the 

student receives, does not exceed the 

student’s financial need. 

(b) Awarding and disbursement. (1) 

When awarding and disbursing a 

Federal Perkins loan or an FSEOG or 

awarding FWS employment to a 

student, the institution shall take into 

account those amounts of estimated 

financial assistance it—

(i) Can reasonably anticipate at the 

time it awards Federal Perkins Loan 

funds, an FSEOG, or FWS funds to the 

student; 

(ii) Makes available to its students; or 


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(iii) Otherwise knows about. 

(2) If a student receives amounts of 

estimated financial assistance at any 

time during the award period that were 

not considered in calculating the 

Federal Perkins Loan amount or the 

FWS or FSEOG award, and the total 

amount of estimated financial assistance 

including the loan, the FSEOG, or the 

prospective FWS wages exceeds the 

student’s need, the overaward is the 

amount that exceeds need. 

(c) Estimated financial assistance. (1) 

Except as provided in paragraphs (c)(2) 

and (c)(3) of this section, the Secretary 

considers that ‘‘estimated financial 

assistance’’ includes, but is not limited 

to, any—

(i) Funds a student is entitled to 

receive from a Federal Pell Grant; 

(ii) William D. Ford Federal Direct 

Loans; 

(iii) Federal Family Education Loans; 

(iv) Long-term need-based loans, 

including Federal Perkins loans; 

(v) Grants, including FSEOGs, State 

grants, Academic Competitiveness 

Grants, National SMART Grants, and 

ROTC subsistence allowances; 

(vi) Scholarships, including athletic 

scholarships and ROTC scholarships; 

(vii) Waivers of tuition and fees; 

(viii) Fellowships or assistantships, 

except non-need-based employment 

portions of such awards; 

(ix) Veterans educational benefits 

paid under Chapters 30 (Montgomery GI 

Bill-Active Duty), 31 (Vocational 

Rehabilitation and Employment 

Program), 32 (Veterans’ Educational 

Assistance Program), and 35 

(Dependents’ Educational Assistance 

Program) of title 38 of the United States 

Code, and Chapters 31 (National Call to 

Service), 1606 (Montgomery GI BillSelected Reserve), and 1607 (Reserve 

Educational Assistance Program) of title 

10 of the United States Code; 

(x) National service education awards 

or post-service benefits paid for the cost 

of attendance under title I of the 

National and Community Service Act of 

1990 (AmeriCorps); 

(xi) Net earnings from need-based 

employment; 

(xii) Insurance programs for the 

student’s education; and 

(xiii) Any educational benefits paid 

because of enrollment in a 

postsecondary education institution, or 

to cover postsecondary education 

expenses. 

(2) The Secretary does not consider as 

estimated financial assistance—

(i) Any portion of the estimated 

financial assistance described in 

paragraph (c)(1) of this section that is 

included in the calculation of the 

student’s expected family contribution 

(EFC); 

(ii) Earnings from non-need-based 

employment; 

(iii) Those amounts used to replace 

EFC, including the amounts of any 

unsubsidized Federal Stafford or Direct 

Loans, Federal PLUS or Federal Direct 

PLUS Loans, and non-federal non-needbased loans, including private, statesponsored, and institutional loans. 

However, if the sum of the loan amounts 

received that are being used to replace 

the student’s EFC actually exceed the 

EFC, the excess amount must be treated 

as estimated financial assistance; and 

(iv) Assistance not received under this 

part if that assistance is designated to 

offset all or a portion of a specific 

component of the cost of attendance and 

that amount is excluded from the cost 

of attendance as well. If that assistance 

is excluded from either estimated 

financial assistance or cost of 

attendance, that amount must be 

excluded from both. 

(3) The institution may also exclude 

as estimated financial assistance any 

portion of a subsidized Federal Stafford 

or Direct Loan that is equal to or less 

than the amount of a student’s veterans 

education benefits paid under Chapter 

30 of title 38 of the United States Code 

(Montgomery GI Bill—Active Duty) and 

national service education awards or 

post service benefits paid for the cost of 

attendance under title I of the National 

and Community Service Act of 1990 

(AmeriCorps). 

(d) Treatment of estimated financial 

assistance in excess of need—General. 

An institution shall take the following 

steps if it learns that a student has 

received additional amounts of 

estimated financial assistance not 

included in the calculation of Federal 

Perkins Loan, FWS, or FSEOG eligibility 

that would result in the student’s total 

amount of estimated financial assistance 

exceeding his or her financial need by 

more than $300: 

(1) The institution shall decide 

whether the student has increased 

financial need that was unanticipated 

when it awarded financial aid to the 

student. If the student demonstrates 

increased financial need and the total 

amount of estimated financial assistance 

does not exceed this increased need by 

more than $300, no further action is 

necessary. 

(2) If the student’s total amount of 

estimated financial assistance still 

exceeds his or her need by more than 

$300, as recalculated pursuant to 

paragraph (d)(1) of this section, the 

institution shall cancel any undisbursed 

loan or grant (other than a Federal Pell 

Grant). 

(3) Federal Perkins loan and FSEOG 

overpayment. If the student’s total 

amount of estimated financial assistance 

still exceeds his or her need by more 

than $300, after the institution takes the 

steps required in paragraphs (d)(1) and 

(2) of this section, the institution shall 

consider the amount by which the 

estimated financial assistance amount 

exceeds the student’s financial need by 

more than $300 as an overpayment. 

* * * * * 

■ 22. Section 673.6 is amended by 

revising paragraph (a) to read as follows: 

§ 673.6 Coordination with BIA grants. 

(a) Coordination of BIA grants with 

Federal Perkins loans, FWS awards, or 

FSEOGs. To determine the amount of a 

Federal Perkins loan, FWS 

compensation, or an FSEOG for a 

student who is also eligible for a Bureau 

of Indian Affairs (BIA) education grant, 

an institution shall prepare a package of 

student aid—

(1) From estimated financial 

assistance other than the BIA education 

grant the student has received or is 

expected to receive; and 

(2) That is consistent in type and 

amount with packages prepared for 

students in similar circumstances who 

are not eligible for a BIA education 

grant. 

* * * * * 

PART 674—FEDERAL PERKINS LOAN 

PROGRAM 

■ 23. The authority citation for part 674 

continues to read as follows: 

Authority: 20 U.S.C. 1087aa–1087hh and 

20 U.S.C. 421–429, unless otherwise noted. 

§ 674.9 [Amended] 

■ 24. Section 674.9 is amended in 

paragraph (a) by removing the words 

‘‘34 CFR 668.32’’ and adding, in its 

place, the words ‘‘34 CFR part 668’’. 

■ 25. Section 674.16 is amended by 

revising paragraph (c) to read as follows: 

§ 674.16 Making and disbursing loans. 

* * * * * 

(c) If a student incurs uneven costs or 

estimated financial assistance amounts 

during an academic year and needs 

additional funds in a particular payment 

period, the institution may disburse 

loan funds to the student for those 

uneven costs. 

* * * * * 

■ 26. Section 674.34 is amended by: 

■ A. In paragraph (a), adding the words 

‘‘paragraphs (b), (c), (d), (e), (f), and (g) 

of’’ immediately after the words 

‘‘described in’’. 

■ B. Redesignating paragraphs (h) and 

(i) as paragraphs (i) and (j), respectively. 

■ C. Adding a new paragraph (h). 


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■ D. In newly redesignated paragraph 

(i), removing the word ‘‘and’’

immediately after the parenthetical 

‘‘(f)’’, adding the words ‘‘, and (h)’’

immediately after the parenthetical 

‘‘(g),’’ and removing the words 

‘‘paragraph (i)’’ and adding, in their 

place, the words ‘‘paragraph (j)’’. 

■ E. In newly redesignated paragraph (j), 

removing the word ‘‘and’’ immediately 

after the parenthetical ‘‘(f)’’, and adding 

the words ‘‘, and (h)’’ immediately after 

the parenthetical ‘‘(g)’’. 

■ F. The addition reads as follows: 

§ 674.34 Deferment of repayment—Federal 

Perkins loans, NDSLs and Defense loans. 

* * * * * 

(h)(1) The borrower need not pay 

principal and interest does not accrue 

on a Federal Perkins Loan made on or 

after July 1, 2001, for any period not to 

exceed 3 years during which the 

borrower is—

(i) Serving on active duty during a 

war or other military operation or 

national emergency; or 

(ii) Performing qualifying National 

Guard duty during a war or other 

military operation or national 

emergency. 

(2) Serving on active duty during a 

war or other military operation or 

national emergency means service by an 

individual who is—

(i) A Reserve of an Armed Force 

ordered to active duty under 10 U.S.C. 

12301(a), 12301(g), 12302, 12304, or 

12306; 

(ii) A retired member of an Armed 

Force ordered to active duty under 10 

U.S.C. 688 for service in connection 

with a war or other military operation 

or national emergency, regardless of the 

location at which such active duty 

service is performed; or 

(iii) Any other member of an Armed 

Force on active duty in connection with 

such emergency or subsequent actions 

or conditions who has been assigned to 

a duty station at a location other than 

the location at which the member is 

normally assigned. 

(3) Qualifying National Guard duty 

during a war or other operation or 

national emergency means service as a 

member of the National Guard on fulltime National Guard duty, as defined in 

10 U.S.C. 101(d)(5), under a call to 

active service authorized by the 

President or the Secretary of Defense for 

a period of more than 30 consecutive 

days under 32 U.S.C. 502(f) in 

connection with a war, other military 

operation, or national emergency 

declared by the President and supported 

by Federal funds. 

(4) As used in this section—

(i) Active duty means active duty as 

defined in 10 U.S.C. 101(d)(1) except 

that it does not include active duty for 

training or attendance at a service 

school; 

(ii) Military operation means a 

contingency operation as defined in 10 

U.S.C. 101(a)(13); and 

(iii) National emergency means the 

national emergency by reason of certain 

terrorist attacks declared by the 

President on September 14, 2001, or 

subsequent national emergencies 

declared by the President by reason of 

terrorist attacks. 

(5) These provisions do not authorize 

the refunding of any payments made by 

or on behalf of a borrower during a 

period for which the borrower qualified 

for a military service deferment. 

* * * * * 

§ 674.39 [Amended] 

■ 27. Section 674.39 is amended in 

paragraph (a) by adding the words ‘‘or 

loans obtained by fraud for which the 

borrower has been convicted of, or has 

pled nolo contendere or guilty to, a 

crime involving fraud in obtaining title 

IV, HEA program assistance.’’ after the 

word ‘‘secured’’. 

PART 675—FEDERAL WORK STUDY 

PROGRAM 

■ 28. The authority citation for part 675 

continues to read as follows: 

Authority: 42 U.S.C. 2751–2756b, unless 

otherwise noted. 

■ 29. Section 675.26 is amended by 

revising paragraph (a)(4) to read as 

follows: 

§ 675.26 FWS Federal share limitations. 

(a) * * * 

(4) An institution may not use FWS 

funds to pay a student after he or she 

has, in addition to other estimated 

financial assistance, earned $300 or 

more over his or her financial need. 

* * * * * 

PART 676—FEDERAL 

SUPPLEMENTAL EDUCATIONAL 

OPPORTUNITY GRANT PROGRAM 

■ 30. The authority citation for part 676 

continues to read as follows: 

Authority: 20 U.S.C. 1070b–1070b–3, 

unless otherwise noted. 

■ 31. Section 676.16 is amended by 

revising paragraph (b) to read as follows: 

§ 676.16 Payment of an FSEOG. 

* * * * * 

(b) If a student incurs uneven cost or 

estimated financial assistance amounts 

during an academic year and needs 

additional funds in a particular payment 

period, the institution may pay FSEOG 

funds to the student for those uneven 

costs. 

* * * * * 

PART 682—FEDERAL FAMILY 

EDUCATION LOAN (FFEL) PROGRAM 

■ 32. The authority citation for part 682 

continues to read as follows: 

Authority: 20 U.S.C. 1071 to 1087–2, 

unless otherwise noted. 

■ 33. Section 682.100 is amended in 

paragraph (a)(3), by adding a sentence to 

the end of the paragraph to read as 

follows: 

§ 682.100 The Federal Family Education 

Loan program. 

* * * * * 

(3) * * * The PLUS Program also 

provides for making loans to graduate 

and professional students on or after 

July 1, 2006. 

* * * * * 

■ 34. Section 682.101 is amended in 

paragraph (c) by adding a sentence to 

the end of the paragraph to read as 

follows: 

§ 682.101 Participation in the FFEL 

programs. 

* * * * * 

(c) * * * The PLUS Program also 

provides for making loans to graduate 

and professional students on or after 

July 1, 2006. 

* * * * * 

■ 35. Section 682.102 is amended by: 

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

words ‘‘or contacting’’ and adding, in 

their place, the words ‘‘and contacting’’. 

■ B. Revising paragraphs (c) and (d). 

■ C. In paragraph (e)(1), in the third 

sentence removing the words ‘‘The 

borrower’s obligation to repay a PLUS 

Loan’’ and adding, in their place, the 

words ‘‘A parent borrower’s obligation 

to repay a PLUS loan’’. 

The revision reads as follows: 

§ 682.102 Obtaining and repaying a loan. 

* * * * * 

(c) PLUS loan application. (1) For a 

parent to obtain a PLUS loan, the parent 

completes an application and submits it 

to the school for certification. After the 

school certifies the application, the 

application is submitted to a 

participating lender. If the lender 

decides to make the loan, the lender 

obtains a loan guarantee from a guaranty 

agency or the Secretary. Prior to loan 

disbursement, the parent completes a 

PLUS MPN, unless the parent has 

previously completed a PLUS MPN that 

the lender may use for the new loan. 

(2) For a graduate or professional 

student to obtain a PLUS loan, the 


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student applies for a PLUS Loan by 

completing a Free Application for 

Federal Student Aid (FAFSA) and 

contacting the school, lender or 

guarantor. The school determines and 

certifies the student’s eligibility for the 

PLUS loan. After the school certifies the 

application, the application is submitted 

to a participating lender. If the lender 

decides to make the loan, the lender 

obtains a loan guarantee from a guaranty 

agency or the Secretary. Prior to loan 

disbursement, the student completes a 

PLUS MPN, unless the student has 

previously completed a PLUS MPN that 

the lender may use for the new loan. 

(d) Consolidation loan application. 

Generally, to obtain a Consolidation 

loan, a borrower completes an 

application and submits it to a lender 

participating in the Consolidation Loan 

Program. If the lender decides to make 

the loan, the lender obtains a loan 

guarantee from a guaranty agency or the 

Secretary. 

* * * * * 

■ 36. Section 682.200(b) is amended by 

revising the definition of estimated 

financial assistance to read as follows: 

§ 682.200 Definitions 

* * * * * 

(b) * * * 

Estimated financial assistance. (1) 

The estimated amount of assistance for 

a period of enrollment that a student (or 

a parent on behalf of a student) will 

receive from Federal, State, 

institutional, or other sources, such as, 

scholarships, grants, the net earnings 

from need-based employment, or loans, 

including but not limited to—

(i) Except as provided in paragraph 

(2)(iii) of this definition, national 

service education awards or post-service 

benefits under title I of the National and 

Community Service Act of 1990 

(AmeriCorps) and veterans’ educational 

benefits paid under chapters 30 

(Montgomery GI Bill—Active Duty), 31 

(Vocational Rehabilitation and 

Employment Program), 32 (Veterans’

Educational Assistance Program, and 35 

(Dependents’ Educational Assistance 

Program) of title 38 of the United States 

Code; 

(ii) Educational benefits paid under 

Chapters 31 (National Call to Service), 

1606 (Montgomery GI Bill-Selected 

Reserve), and 1607 (Reserve Educational 

Assistance Program) of Title 10 of the 

United States Code; 

(iii) Reserve Officer Training Corps 

(ROTC) scholarships and subsistence 

allowances awarded under Chapter 2 of 

Title 10 and Chapter 2 of Title 37 of the 

United States Code; 

(iv) Benefits paid under Pub. L. 96–

342, section 903: Educational Assistance 

Pilot Program; 

(v) Any educational benefits paid 

because of enrollment in a 

postsecondary education institution, or 

to cover postsecondary education 

expenses; 

(vi) Fellowships or assistantships, 

except non-need-based employment 

portions of such awards; 

(vii) Insurance programs for the 

student’s education; and 

(viii) The estimated amount of other 

Federal student financial aid, including 

but not limited to a Federal Pell Grant, 

Academic Competitiveness Grant, 

National SMART Grant, campus-based 

aid, and the gross amount (including 

fees) of subsidized and unsubsidized 

Federal Stafford Loans or subsidized 

and unsubsidized Federal Direct 

Stafford/Ford Loans, and Federal PLUS 

or Federal Direct PLUS Loans. 

(2) Estimated financial assistance does 

not include—(i) Those amounts used to 

replace the expected family 

contribution, including the amounts of 

any unsubsidized Federal Stafford or 

Federal Direct Stafford/Ford Loans, 

Federal PLUS or Federal Direct PLUS 

Loans, and non-federal non-need-based 

loans, including private, statesponsored, and institutional loans. 

However, if the sum of the loan amounts 

received that are being used to replace 

the student’s EFC exceed the EFC, the 

excess amount is treated as estimated 

financial assistance; 

(ii) Federal Perkins loan and Federal 

Work-Study funds that the student has 

declined; 

(iii) For the purpose of determining 

eligibility for a subsidized Stafford loan, 

veterans’ educational benefits paid 

under chapter 30 of title 38 of the 

United States Code (Montgomery GI 

Bill—Active Duty) and national service 

education awards or post-service 

benefits under title I of the National and 

Community Service Act of 1990 

(AmeriCorps); 

(iv) Any portion of the estimated 

financial assistance described in 

paragraph (1) of this definition that is 

included in the calculation of the 

student’s expected family contribution 

(EFC); 

(v) Non-need-based employment 

earnings; and 

(vi) Assistance not received under this 

title, if that assistance is designated to 

offset all or a portion of a specific 

amount of the cost of attendance and 

that component is excluded from the 

cost of attendance as well. If that 

assistance is excluded from either 

estimated financial assistance or cost of 

attendance, it must be excluded from 

both. 

* * * * * 

■ 37. Section 682.201 is amended by: 

■ A. In paragraph (a), revising the 

paragraph heading to read as set forth 

below. 

■ B. Removing paragraph (e). 

■ C. Redesignating paragraphs (b), (c), 

and (d) as paragraphs (c), (d), and (e), 

respectively. 

■ D. Adding a new paragraph (b). 

■ E. In newly redesignated paragraph 

(c), revising the paragraph heading to 

read as set forth below and adding a 

new paragraph (c)(1)(viii). 

■ F. In newly redesignated paragraph 

(d)(1)(i)(B), removing the word ‘‘or’’. 

■ G. Adding new paragraph (d)(1)(i)(D). 

■ H. In newly redesignated paragraph 

(d)(1)(ii), adding the word ‘‘and’’ after 

the punctuation ‘‘;’’. 

■ I. In newly redesignated paragraph 

(d)(1)(iii), removing the words ‘‘; and’’

and inserting, in their place, the 

punctuation ‘‘.’’. 

■ J. In newly redesignated paragraph (d), 

removing paragraphs (d)(1)(iv)(A) and 

(B). 

■ K. Revising newly redesignated 

paragraph (d)(2). 

■ L. In newly redesignated paragraph 

(e)(2), adding the words ‘‘before or’’

immediately after the words ‘‘eligible 

loan’’ and removing the word ‘‘and’’. 

■ M. In newly redesignated paragraph 

(e)(3), removing the word ‘‘only’’, 

removing the punctuation ‘‘.’’ and 

adding in its place the punctuation ‘‘;’’, 

and adding the word ‘‘and’’

immediately after the punctuation ‘‘;’’. 

■ N. Adding a new paragraph (e)(4). 

The additions read as follows: 

§ 682.201 Eligible borrowers. 

(a) Student Stafford borrower. * * * 

* * * * * 

(b) Student PLUS borrower. A 

graduate or professional student who is 

enrolled or accepted for enrollment on 

at least a half-time basis at a 

participating school is eligible to receive 

a PLUS Loan on or after July 1, 2006, if 

the student—

(1) Meets the requirements for an 

eligible student under 34 CFR 668; 

(2) Meets the requirements of 

paragraphs (a)(4), (a)(5), (a)(6), (a)(7), 

(a)(8), and (a)(9) of this section, if 

applicable; 

(3) Has received a determination of 

his or her annual loan maximum 

eligibility under the Federal Subsidized 

and Unsubsidized Stafford Loan 

Program; and 

(4) Does not have an adverse credit 

history in accordance with paragraphs 

(c)(2)(i) through (c)(2)(v) of this section, 


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or obtains an endorser who has been 

determined not to have an adverse 

credit history, as provided for in 

paragraph (c)(1)(vii) of this section. 

* * * * * 

(c) Parent PLUS borrower. 

(1) * * * 

(viii) Has completed repayment of any 

title IV, HEA program assistance 

obtained by fraud, if the parent has been 

convicted of, or has pled nolo 

contendere or guilty to, a crime 

involving fraud in obtaining title IV, 

HEA program assistance. 

* * * * * 

(d) * * * 

(1) * * * 

(i) * * * 

(D) Not in default status resulting 

from a claim filed under § 682.412. 

* * * * * 

(2) A borrower may not consolidate a 

loan under this section for which the 

borrower is wholly or partially 

responsible. 

(e) * * * 

(4) If the consolidation loan has been 

submitted to the guaranty agency for 

default aversion, the borrower may 

obtain a subsequent consolidation loan 

under the Federal Direct Consolidation 

Loan Program for purposes of obtaining 

an income contingent repayment plan. 

* * * * * 

■ 38. Section 682.202 is amended by: 

■ A. In paragraph (a)(1)(viii), by adding 

after the words ‘‘July 1, 1998,’’ the 

words ‘‘ and prior to July 1, 2006,’’. 

■ B. Adding a new paragraph (a)(1)(ix). 

■ C. In paragraph (a)(2)(vi)(A), adding 

after the words ‘‘July 1, 2001,’’ the 

words ‘‘and prior to July 1, 2006,’’. 

■ D. Adding a new paragraph (a)(2)(vii). 

■ E. Revising paragraph (c)(1). 

■ F. Revising paragraph (d). 

The revisions and additions read as 

follows: 

§ 682.202 Permissible charges by lenders 

to borrowers. 

(a) * * * 

(1) * * * 

(ix) For a Stafford loan for which the 

first disbursement is made on or after 

July 1, 2006, the interest rate is 6.8 

percent. 

(2) * * * 

(vii) For a PLUS loan first disbursed 

on or after July 1, 2006, the interest rate 

is 8.5 percent. 

* * * * * 

(c) Fees for FFEL Program loans. (1)(i) 

For Stafford loans first disbursed prior 

to July 1, 2006, a lender may charge a 

borrower an origination fee not to 

exceed 3 percent of the principal 

amount of the loan. 

(ii) For Stafford loans first disbursed 

on or after July 1, 2006, but before July 

1, 2007, a lender may charge a borrower 

an origination fee not to exceed 2 

percent of the principal amount of the 

loan. 

(iii) For Stafford loans first disbursed 

on or after July 1, 2007, but before July 

1, 2008, a lender may charge a borrower 

an origination fee not to exceed 1.5 

percent of the principal amount of the 

loan. 

(iv) For Stafford loans first disbursed 

on or after July 1, 2008, but before July 

1, 2009, a lender may charge a borrower 

an origination fee not to exceed 1 

percent of the principal amount of the 

loan. 

(v) For Stafford loans first disbursed 

on or after July 1, 2009, but before July 

1, 2010, a lender may charge a borrower 

an origination fee not to exceed .5 

percent of the principal amount of the 

loan. 

(vi) For Stafford loans first disbursed 

on or after July 1, 2010, a lender may 

not charge a borrower an origination fee. 

(vii) Except as provided in paragraph 

(c)(2) of this section, a lender must 

charge all borrowers the same 

origination fee. 

* * * * * 

(d) Insurance premium and Federal 

default fee. 

(1) For loans guaranteed prior to July 

1, 2006, a lender may charge the 

borrower the amount of the insurance 

premium paid by the lender to the 

guarantor (up to 1 percent of the 

principal amount of the loan) if that 

charge is provided for in the promissory 

note. 

(2) For loans guaranteed on or after 

July 1, 2006, other than an SLS or PLUS 

loan refinanced under § 682.209(e) or 

(f), a lender may charge the borrower the 

amount of the Federal default fee paid 

by the lender to the guarantor (up to 1 

percent of the principal amount of the 

loan) if that charge is provided for in the 

promissory note. 

(3) If the borrower is charged the 

insurance premium or the Federal 

default fee, the amount charged must be 

deducted proportionately from each 

disbursement of the borrower’s loan 

proceeds, if the loan is disbursed in 

more than one installment. 

(4) The lender shall refund the 

insurance premium or Federal default 

fee paid by the borrower in accordance 

with the circumstances and procedures 

applicable to the return of origination 

fees, as described in paragraph (c)(7) of 

this section. 

* * * * * 

§ 682.204 [Amended] 

■ 39. Section 682.204 is amended by: 

■ A. In paragraph (a)(1)(i), adding the 

words ‘‘, or, for a loan certified on or 

after July 1, 2007, $3,500,’’ immediately 

after the figure ‘‘$2,625’’. 

■ B. In paragraph (a)(1)(ii), adding the 

words ‘‘, or, for a loan certified on or 

after July 1, 2007, $3,500,’’ immediately 

after the figure ‘‘$2,625’’. 

■ C. In paragraph (a)(1)(iii), adding the 

words ‘‘, or, for a loan certified on or 

after July 1, 2007, $3,500’’ immediately 

after the figure ‘‘$2,625’’. 

■ D. In paragraph (a)(2)(i), adding the 

words ‘‘, or, for a loan certified on or 

after July 1, 2007, $4,500,’’ immediately 

after the figure ‘‘$3,500’’. 

■ E. In paragraph (a)(2)(ii), adding the 

words ‘‘, or, for a loan certified on or 

after July 1, 2007, $4,500,’’ immediately 

after the figure ‘‘$3,500’’. 

■ F. In paragraph (d)(5), adding the 

words ‘‘, or, for a loan certified on or 

after July 1, 2007, $12,000.’’

immediately after the figure ‘‘$10,000’’. 

■ G. In paragraph (d)(6)(ii), adding the 

words ‘‘, or, for a loan certified on or 

after July 1, 2007, $7,000,’’ immediately 

after the figure ‘‘$5,000’’. 

■ H. In paragraph (d)(6)(iii), adding the 

words ‘‘, or, for a loan certified on or 

after July 1, 2007, $7,000.’’ immediately 

after the figure ‘‘$5,000’’. 

■ I. In paragraph (h), removing the 

words ‘‘that parents may borrow on 

behalf of each dependent student’’ and 

adding, in their place, the words ‘‘that 

a parent or student may borrow’’. 

■ 40. Section 682.205 is amended by 

revising paragraph (a)(2)(xix) to read as 

follows: 

§ 682.205 Disclosure requirements for 

lenders. 

(a) * * * 

(2) * * * 

(xix) In the case of a Stafford or 

student PLUS loan, a statement that the 

loan proceeds will be transmitted to the 

school for delivery to the borrower; 

* * * * * 

■ 41. Section 682.207 is amended by: 

■ A. In paragraph (b)(1)(iv), removing 

the figure ‘‘21’’ and adding, in its place, 

the figure ‘‘10’’. 

■ B. Revising paragraph (b)(1)(v)(B), (C), 

and (D), and removing paragraph 

(b)(1)(v)(E). 

■ C. Redesignating paragraph (b)(2) as 

paragraph (b)(3). 

■ D. Adding new paragraph (b)(2). 

The revisions and addition read as 

follows: 

§ 682.207 Due diligence in disbursing a 

loan. 

(b) * * * 

(1) * * * 

(v) * * * 

(B) In the case of a Federal PLUS loan 

—

(1) By electronic funds transfer or 

master check from the lender in 


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accordance with the disbursement 

schedule provided by the school to an 

account maintained in accordance with 

§ 668.163 by the school as trustee for the 

lender. A disbursement made by 

electronic funds transfer or master 

check must be accompanied by a list of 

the names, social security numbers, and 

loan amounts for the parent or student 

borrowers who are receiving a portion of 

the disbursement and the names and 

social security numbers of the students 

on whose behalf the parents are 

borrowing parent PLUS loans. 

(2) By a check from the lender that is 

made co-payable to the institution and 

the parent borrower, for a parent PLUS 

loan, or student borrower, for a student 

PLUS loan, directly to the institution of 

higher education. 

(C) In the case of a student enrolled 

in a study-abroad program approved for 

credit at the home institution in which 

the student is enrolled, if the student 

requests—

(1) A Stafford loan directly to the 

student only after verification of the 

student’s enrollment by the lender or 

guaranty agency; or 

(2) To the home institution if the 

borrower provides a power-of-attorney 

to an individual not affiliated with the 

institution to endorse the check or 

complete an electronic funds transfer 

authorization. 

(D) In the case of a student enrolled 

in an eligible foreign school, if the 

foreign school requests, a Stafford loan 

directly to the student only after 

verification of the student’s enrollment 

by the lender or guaranty agency. 

* * * * * 

(2)(i) A lender or guaranty agency 

must verify a borrower’s enrollment at 

the foreign school, or a borrower’s 

enrollment in a study-abroad program, 

prior to each disbursement of Stafford 

loan funds directly to a student by—

(A) For a student enrolled at a foreign 

school—

(1) The guaranty agency accessing the 

Department’s Postsecondary Education 

Participants System (PEPS) Database (or 

any successor system) and confirming 

that the foreign school the student is to 

attend is certified to participate in the 

FFEL program. 

(2) For a new student, contacting the 

foreign school the student is to attend 

by telephone or e-mail to verify the 

student’s admission to the foreign 

school for the period for which the loan 

is intended at the enrollment status for 

which the loan was certified. 

(3) For a continuing student, 

contacting the foreign school the 

student is to attend by telephone or email to verify that the student is still 

enrolled at the foreign school for the 

period for which the loan is intended at 

the enrollment status for which the loan 

was certified. 

(B) For a student enrolled in a studyabroad program, contacting the home 

institution in which the student is 

enrolled by telephone or e-mail to 

verify—

(1) For a new student, the student’s 

admission to the study-abroad program 

for the period for which the loan is 

intended at the enrollment status for 

which the loan is certified. 

(2) For a continuing student, that the 

student is still enrolled in the studyabroad program for the period for which 

the loan is intended at the enrollment 

status for which the loan is certified. 

(ii) The lender or guaranty agency that 

is verifying enrollment at the institution 

the student is to attend must maintain 

the following information in the 

student’s file: 

(A) The name and telephone number 

of the school representative contacted; 

(B) The date of the contact; 

(C) The enrollment period; 

(D) Whether enrollment was verified 

at the enrollment status for which the 

loan was certified; and 

(E) Any other pertinent information 

received from the school. 

(iii) Guaranty agencies and lenders 

must coordinate their activities to 

ensure that the requirements of this 

paragraph are met prior to making any 

direct disbursement to a student. 

(iv) If a lender disburses a Stafford 

loan directly to the borrower for 

attendance at an eligible foreign school, 

or to a borrower enrolled in a studyabroad program approved for credit at 

the home institution, as provided in 

paragraphs (b)(1)(v)(C)(1) and 

(b)(1)(v)(D)(1) of this section, the lender 

must, at the time of disbursement, notify 

the foreign school, for a borrower 

attending a foreign school, or the home 

institution in which the student is 

enrolled, for a borrower enrolled in a 

study-abroad program, of—

(A) The name and social security 

number of the student; 

(B) The type of loan; 

(C) The amount of the disbursement, 

including the amount of any fees 

assessed the borrower; 

(D) The date of the disbursement; and 

(E) The name, address, telephone and 

fax number or electronic address of the 

lender, servicer, or guaranty agency to 

which any inquiries should be 

addressed. 

* * * * * 

§ 682.208 [Amended] 

■ 42. Section 682.208 is amended by: 

■ A. In paragraph (c)(2), adding the 

words ‘‘or a student PLUS loan 

borrower’’ immediately after the words 

‘‘Stafford loan borrower’’. 

■ B. In paragraph (d)(2), adding the 

words ‘‘, as authorized and if 

practicable,’’ immediately after 

‘‘repayment schedule’’. 

■ C. In paragraph (f)(1) introductory 

text, adding the words ‘‘has been 

convicted of, or has pled nolo 

contendere or guilty to, a crime 

involving fraud in obtaining title IV, 

HEA program assistance,’’ immediately 

after the word ‘‘borrowed,’’. 

§ 682.209 [Amended] 

■ 43. Section 682.209 is amended by: 

■ A. In paragraph (a)(3)(i) introductory 

text, removing the words ‘‘paragraphs 

(a)(4) and (5)’’ and adding, in their 

place, the words ‘‘paragraph (a)(4)’’. 

■ B. Removing paragraph (a)(5) and 

redesignating paragraphs (a)(6) through 

(a)(9) as paragraphs (a)(5) through (a)(8), 

respectively. 

■ C. In newly-redesignated paragraph 

(a)(6)(v), removing the parentheticals 

‘‘(a)(7)(vi)’’ and adding, in their place, 

the parentheticals ‘‘(a)(6)(vi)’’. 

■ D. In newly-redesignated paragraphs 

(a)(6)(vii)(A)(2) and (a)(6)(viii)(A)(2), 

removing the parentheticals ‘‘(a)(7)(i)’’

and adding, in their place, the 

parentheticals ‘‘(a)(6)(i)’’. 

■ E. In newly-redesignated paragraph 

(a)(6)(viii)(E), removing the 

parentheticals ‘‘(a)(8)’’ and adding, in 

their place, the parentheticals ‘‘(a)(7)’’. 

■ F. In newly-redesignated paragraph 

(a)(7)(i), removing the parentheticals 

‘‘(a)(7)(ix)’’ and adding, in their place, 

the parentheticals ‘‘(a)(6)(ix)’’. 

■ G. In newly-designated paragraph 

(a)(7)(i), removing the parentheticals 

‘‘(a)(8)(ii)’’ and adding, in their place, 

the parentheticals ‘‘(a)(7)(ii)’’. 

■ H. In paragraph (e)(2)(ii), removing 

the parentheticals ‘‘(a)(8)(i)’’ and 

adding, in their place, the parentheticals 

‘‘(a)(7)(i)’’. 

■ I. In paragraph (e)(3), adding the 

words ‘‘or Federal default fee’’ after the 

word ‘‘premium’’. 

■ J. In paragraph (f)(2)(ii), removing the 

parentheticals ‘‘(a)(8)(i)’’ and adding, in 

their place, the parentheticals 

‘‘(a)(7)(i)’’. 

■ 44. Section 682.210 is amended by 

adding a new paragraph (t) to read as 

follows: 

§ 682.210 Deferment. 

* * * * * 

(t) Military service deferments for 

loans for which the first disbursement is 

made on or after July, 1, 2001—(1) A 

borrower who receives an FFEL Program 

loan first disbursed on or after July 1, 


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45702 Federal Register / Vol. 71, No. 153 / Wednesday, August 9, 2006 / Rules and Regulations 

2001, may receive a military service 

deferment for such loans for any period 

not to exceed 3 years during which the 

borrower is—

(i) Serving on active duty during a 

war or other military operation or 

national emergency; or 

(ii) Performing qualifying National 

Guard duty during a war or other 

military operation or national 

emergency. 

(2) Serving on active duty during a 

war or other military operation or 

national emergency means service by an 

individual who is—

(i) A Reserve of an Armed Force 

ordered to active duty under 10 U.S.C. 

12301(a), 12301(g), 12302, 12304 or 

12306; 

(ii) A retired member of an Armed 

Force ordered to active duty under 10 

U.S.C. 688 for service in connection 

with a war or other military operation 

or national emergency, regardless of the 

location at which such active duty 

service is performed; or 

(iii) Any other member of an Armed 

Force on active duty in connection with 

such emergency or subsequent actions 

or conditions who has been assigned to 

a duty station at a location other than 

the location at which member is 

normally assigned. 

(3) Qualifying National Guard duty 

during a war or other operation or 

national emergency means service as a 

member of the National Guard on fulltime National Guard duty, as defined in 

10 U.S.C. 101(d)(5), under a call to 

active service authorized by the 

President or the Secretary of Defense for 

a period of more than 30 consecutive 

days under 32 U.S.C. 502(f) in 

connection with a war, other military 

operation, or national emergency 

declared by the President and supported 

by Federal funds. 

(4) Payments made by or on behalf of 

a borrower during a period for which 

the borrower qualified for a military 

service deferment are not refunded. 

(5) A borrower is eligible for a 

military service deferment on a Federal 

Consolidation Loan only if the borrower 

meets the conditions described in this 

section and all of the title IV loans 

included in the Consolidation Loan 

were first disbursed on or after July 1, 

2001. 

(6) As used in this section—

(i) Active duty means active duty as 

defined in 10 U.S.C. 101(d)(1) except 

that it does not include active duty for 

training or attendance at a service 

school; 

(ii) Military operation means a 

contingency operation as defined in 10 

U.S.C. 101(a)(13); and 

(iii) National emergency means the 

national emergency by reason of certain 

terrorist attacks declared by the 

President on September 14, 2001, or 

subsequent national emergencies 

declared by the President by reason of 

terrorist attacks. 

* * * * * 

■ 45. Section 682.211 is amended by: 

■ A. Revising paragraph (b)(1). 

■ B. In paragraph (f)(6) adding the word 

‘‘parent’’ immediately after the words 

‘‘in the case of’’. 

The revisions read as follows: 

§ 682.211 Forbearance 

* * * * * 

(b) * * * 

(1) The lender and the borrower or 

endorser agree to the terms of the 

forbearance and, unless the agreement 

was in writing, the lender sends, within 

30 days, a notice to the borrower or 

endorser confirming the terms of the 

forbearance and records the terms of the 

forbearance in the borrower’s file; or 

* * * * * 

■ 46. Section 682.215 is amended by: 

■ A. Revising paragraph (a). 

■ B. In paragraph (b), adding, in 

alphabetical order, a new definition for 

Highly qualified. 

■ C. Revising paragraph (c)(1)(iii). 

■ D. Revising paragraph (c)(3). 

■ E. Revising paragraph (c)(4). 

■ F. Redesignating paragraphs (c)(5), 

(c)(6), (c)(7), (c)(8), and (c)(9) as 

paragraphs (c)(7), (c)(8), (c)(9), (c)(10), 

and (c)(11), respectively. 

■ G. Adding a new paragraph (c)(5). 

■ H. Adding a new paragraph (c)(6). 

■ I. Removing the parentheticals 

‘‘(c)(5)’’ and adding, in their place, the 

parentheticals ‘‘(c)(7)’’ in newly 

redesignated paragraph (c)(8). 

■ J. Revising paragraph (d)(1). 

■ K. Revising paragraph (d)(2). 

■ L. In paragraph (f)(3)(ii), removing the 

figure ‘‘$5,000’’ and adding, in its place, 

the figure ‘‘$17,500’’. 

■ M. In paragraph (f)(3)(ii), removing the 

parentheticals ‘‘(c)(9)’’ and adding, in its 

place, the parentheticals ‘‘(c)(11)’’. 

■ N. In paragraph (g), adding the words 

‘‘, or up to $17,500,’’ immediately after 

the figure ‘‘$5,000’’. 

The revisions and additions read as 

follows: 

§ 682.215 Teacher loan forgiveness 

program. 

(a) General. The teacher loan 

forgiveness program is intended to 

encourage individuals to enter and 

continue in the teaching profession. For 

new borrowers, the Secretary repays the 

amount specified in this paragraph on 

the borrower’s subsidized and 

unsubsidized Federal Stafford Loans, 

Direct Subsidized Loans, Direct 

Unsubsidized Loans, and in certain 

cases, Federal Consolidation Loans or 

Direct Consolidation Loans. The 

forgiveness program is only available to 

a borrower who has no outstanding loan 

balance under the FFEL Program or the 

Direct Loan Program on October 1, 1998 

or who has no outstanding loan balance 

on the date he or she obtains a loan after 

October 1, 1998. The borrower must 

have been employed as a full-time 

teacher for five consecutive complete 

academic years, at least one of which 

was after the 1997–1998 academic year, 

in certain eligible elementary or 

secondary schools that serve lowincome families. All borrowers eligible 

for teacher loan forgiveness may receive 

loan forgiveness of up to a combined 

total of $5,000 on the borrower’s eligible 

FFEL and Direct Loan Program loans. If 

the borrower taught for five consecutive 

years as a highly qualified mathematics 

or science teacher in an eligible 

secondary school or as a special 

education teacher in an eligible 

elementary or secondary school, the 

borrower may receive loan forgiveness 

of up to a combined total of $17,500 on 

the borrower’s eligible FFEL and Direct 

Loan Program loans. The loan for which 

the borrower is seeking forgiveness must 

have been made prior to the end of the 

borrower’s fifth year of qualifying 

teaching service. 

* * * * * 

(b) * * * 

Highly qualified means highly 

qualified as defined in section 9101 of 

the Elementary and Secondary 

Education Act of 1965, as amended. 

* * * * * 

(c) * * * 

(1) * * * 

(iii) Is listed in the Annual Directory 

of Designated Low-Income Schools for 

Teacher Cancellation Benefits. If this 

directory is not available before May 1 

of any year, the previous year’s 

directory may be used. The Secretary 

considers all elementary and secondary 

schools operated by the Bureau of 

Indian Affairs (BIA) or operated on 

Indian reservations by Indian tribal 

groups under contract with the BIA to 

qualify as schools serving low-income 

students. 

* * * * * 

(3) In the case of a borrower whose 

five consecutive complete years of 

qualifying teaching service began before 

October 30, 2004, the borrower—

(i) May receive up to $5,000 of loan 

forgiveness if the borrower—

(A) Demonstrated knowledge and 

teaching skills in reading, writing, 


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mathematics, and other areas of the 

elementary school curriculum, as 

certified by the chief administrative 

officer of the eligible elementary school 

in which the borrower was employed; or 

(B) Taught in a subject area that is 

relevant to the borrower’s academic 

major as certified by the chief 

administrative officer of the eligible 

secondary school in which the borrower 

was employed. 

(ii) May receive up to $17,500 of loan 

forgiveness if the borrower—

(A) Taught mathematics or science on 

a full-time basis in an eligible secondary 

school and was a highly qualified 

mathematics or science teacher; or 

(B) Taught as a special education 

teacher on a full-time basis to children 

with disabilities in either an eligible 

elementary or secondary school and was 

a highly qualified special education 

teacher whose special education 

training corresponded to the children’s 

disabilities and who has demonstrated 

knowledge and teaching skills in the 

content areas of the elementary or 

secondary school curriculum. 

(4) In the case of a borrower whose 

five consecutive years of qualifying 

teaching service began on or after 

October 30, 2004, the borrower—

(i) May receive up to $5,000 of loan 

forgiveness if the borrower taught full 

time in an eligible elementary or 

secondary school and was a highly 

qualified elementary or secondary 

school teacher. 

(ii) May receive up to $17,500 of loan 

forgiveness if the borrower—

(A) Taught mathematics or science on 

a full-time basis in an eligible secondary 

school and was a highly qualified 

mathematics or science teacher; or 

(B) Taught as a special education 

teacher on a full-time basis to children 

with disabilities in either an eligible 

elementary or secondary school and was 

a highly qualified special education 

teacher whose special education 

training corresponded to the children’s 

disabilities and who has demonstrated 

knowledge and teaching skills in the 

content areas of the elementary or 

secondary school curriculum. 

(5) To qualify for loan forgiveness as 

a highly qualified teacher, the teacher 

must have been a highly qualified 

teacher for all five years of eligible 

teaching service. 

(6) For teacher loan forgiveness 

applications received by the loan holder 

on or after July 1, 2006, a teacher in a 

private, non-profit elementary or 

secondary school who is exempt from 

State certification requirements (unless 

otherwise applicable under State law) 

may qualify for loan forgiveness under 

paragraphs (c)(3)(ii) or (c)(4) of this 

section if—

(i) The private school teacher is 

permitted to and does satisfy rigorous 

subject knowledge and skills tests by 

taking competency tests in applicable 

grade levels and subject areas; 

(ii) The competency tests are 

recognized by 5 or more States for the 

purposes of fulfilling the highly 

qualified teacher requirements under 

section 9101 of the Elementary and 

Secondary Education Act of 1965; and 

(iii) The private school teacher 

achieves a score on each test that equals 

or exceeds the average passing score for 

those 5 states. 

* * * * * 

(d) Forgiveness amount. (1) A 

qualified borrower is eligible for 

forgiveness of up to $5,000, or up to 

$17,500 if the borrower meets the 

requirements of paragraphs (c)(3)(ii) or 

(c)(4)(ii) of this section. The forgiveness 

amount is deducted from the aggregate 

amount of the borrower’s subsidized or 

unsubsidized Federal Stafford or 

Federal Consolidation Loan obligation 

that is outstanding after the borrower 

completes his or her fifth consecutive 

complete academic year of teaching as 

described in paragraph (c) of this 

section. Only the outstanding portion of 

the consolidation loan that was used to 

repay an eligible subsidized or 

unsubsidized Federal Stafford Loan, an 

eligible Direct Subsidized Loan, or an 

eligible Direct Unsubsidized Loan 

qualifies for loan forgiveness under this 

section. 

(2) A borrower may not receive more 

than a total of $5,000, or $17,500 if the 

borrower meets the requirements of 

paragraphs (c)(3)(ii) or (c)(4)(ii) of this 

section, in loan forgiveness for 

outstanding principal and accrued 

interest under both this section and 

under section 34 CFR 685.217. 

* * * * * 

■ 47. Section 682.300 is amended by: 

■ A. In paragraph (c)(3)(i), removing the 

word ‘‘or’’ at the end of the paragraph. 

■ B. In paragraph (c)(3)(ii), removing the 

punctuation ‘‘.’’ and adding, in its place, 

the words ‘‘; or’’. 

■ C. Adding new paragraph (c)(3)(iii). 

The addition reads as follows: 

§ 682.300 Payment of interest benefits on 

Stafford and Consolidation Loans. 

* * * * * 

(c) * * * 

(3) * * * 

(iii) In the case of a loan disbursed 

through an escrow agent, 3 days prior to 

the first day of the period of enrollment 

or, if the loan is disbursed after the first 

day of the period of enrollment, 3 days 

after disbursement. 

* * * * * 

■ 48. Section 682.302 is amended by: 

■ A. Revising paragraph (b)(1). 

■ B. In paragraph (b)(2), adding the 

words ‘‘or on or after January 1, 2000 for 

any period prior to April 1, 2006,’’ after 

the words ‘‘on or after July 1, 1998’’. 

■ C. Revising paragraph (c). 

■ D. Revising paragraph (e). 

■ E. Adding a new paragraph (f). 

The revisions and addition read as 

follows: 

§ 682.302 Payment of special allowance on 

FFEL Loans. 

* * * * * 

(b) * * * 

(1) Except for non-subsidized Federal 

Stafford loans disbursed on or after 

October 1, 1981, for periods of 

enrollment beginning prior to October 1, 

1992, or as provided in paragraphs 

(b)(2), (b)(3), or (e)(1) of this section, 

FFEL loans that otherwise meet program 

requirements are eligible for special 

allowance payments. 

* * * * * 

(c) Rate. (1) Except as provided in 

paragraph (c)(2), (c)(3), or (e) of this 

section, the special allowance rate for an 

eligible loan during a 3-month period is 

calculated by—

(i) Determining the average of the 

bond equivalent rates of—

(A) The quotes of the 3-month 

commercial paper (financial) rates in 

effect for each of the days in such 

quarter as reported by the Federal 

Reserve in Publication H–15 (or its 

successor) for such 3-month period for 

a loan for which the first disbursement 

is made on or after January 1, 2000; or 

(B) The 91-day Treasury bills 

auctioned during the 3-month period for 

a loan for which the first disbursement 

is made prior to January 1, 2000; 

(ii) Subtracting the applicable interest 

rate for that loan; 

(iii) Adding—

(A)(1) 2.34 percent to the resulting 

percentage for a Federal Stafford loan 

for which the first disbursement is made 

on or after January 1, 2000; 

(2) 2.64 percent to the resulting 

percentage for a Federal PLUS loan for 

which the first disbursement is made on 

or after January 1, 2000; 

(3) 2.64 percent to the resulting 

percentage for a Federal Consolidation 

Loan that was made based on an 

application received by the lender on or 

after January 1, 2000; 

(4) 1.74 percent to the resulting 

percentage for a Federal Stafford loan 

for which the first disbursement is made 

on or after January 1, 2000 during the 


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borrower’s in-school, grace, and 

authorized period of deferment; 

(5) 2.8 percent to the resulting 

percentage for a Federal Stafford loan 

for which the first disbursement is made 

on or after July 1, 1998 and prior to 

January 1, 2000; 

(6) 2.2 percent to the resulting 

percentage for a Federal Stafford loan 

for which the first disbursement is made 

on or after July 1, 1998 and prior to 

January 1, 2000, during the borrower’s 

in-school, grace, and authorized period 

of deferment; 

(7) 2.5 percent to the resulting 

percentage for a Federal Stafford loan 

for which the first disbursement is made 

on or after July 1, 1995 and prior to July 

1, 1998 for interest that accrues during 

the borrower’s in-school, grace, and 

authorized period of deferment; 

(B) 3.1 percent to the resulting 

percentage for—

(1) A Federal Stafford Loan made on 

or after October 1, 1992 and prior to July 

1, 1998, except as provided in paragraph 

(c)(1)(iii)(A)(7) of this section; 

(2) A Federal SLS Loan made on or 

after October 1, 1992; 

(3) A Federal PLUS Loan made on or 

after October 1, 1992 and prior to July 

1, 1998; 

(4) A Federal PLUS loan made on or 

after July 1, 1998 and prior to October 

1, 1998, except that no special 

allowance shall be paid during any 

quarter unless the average of the 91-day 

Treasury bills auctioned during that 

quarter, plus 3.1 percent, exceeds the 

rate determined under 

§ 682.202(a)(2)(v); 

(5) A Federal PLUS loan made on or 

after October 1, 1998 and prior to 

January 1, 2000, except that no special 

allowance shall be paid during any 

quarter unless the rate determined 

under § 682.202(a)(2)(v) exceeds 9 

percent; 

(6) A Federal Consolidation Loan for 

which the application was received by 

the lender prior to January 1, 2000, 

except that no special allowance shall 

be paid during any quarter on a loan for 

which the application was received on 

or after October 1, 1998 unless the 

average of the bond equivalent rate of 

the 91-day Treasury bills auctioned 

during that quarter, plus 3.1 percent, 

exceeds the rate determined under 

Section 682.202(a)(4)(iv); 

(C) 3.25 percent to the resulting 

percentage, for a loan made on or after 

November 16, 1986, but prior to October 

1, 1992; 

(D) 3.25 percent to the resulting 

percentage, for a loan made on or after 

October 17, 1986 but prior to November 

16, 1986, for a period of enrollment 

beginning on or after November 16, 

1986; 

(E) 3.5 percent to the resulting 

percentage, for a loan made prior to 

October 17, 1986, or a loan described in 

paragraph (c)(2) of this section; or 

(F) 3.5 percent to the resulting 

percentage, for a loan made on or after 

October 17, 1986 but prior to November 

16, 1986, for a period of enrollment 

beginning prior to November 16, 1986; 

(iv) Rounding the result upward to the 

nearest one-eighth of 1 percent, for a 

loan made prior to October 1, 1981; and 

(v) Dividing the resulting percentage 

by 4. 

(2) The special allowance rate 

determined under paragraph 

(c)(1)(iii)(E) of this section applies to 

loans made or purchased from funds 

obtained from the issuance of an 

obligation of the—

(i) Maine Educational Loan Marketing 

Corporation to the Student Loan 

Marketing Association pursuant to an 

agreement entered into on January 31, 

1984; or 

(ii) South Carolina Student Loan 

Corporation to the South Carolina 

National Bank pursuant to an agreement 

entered into on July 30, 1986. 

(3)(i) Subject to paragraphs (c)(3)(iii), 

(c)(3)(iv), and (e) of this section, the 

special allowance rate is that provided 

in paragraph (c)(3)(ii) of this section for 

a loan made or guaranteed on or after 

October 1, 1980 that was made or 

purchased with funds obtained by the 

holder from—

(A) The proceeds of tax-exempt 

obligations originally issued prior to 

October 1, 1993; 

(B) Collections or payments by a 

guarantor on a loan that was made or 

purchased with funds obtained by the 

holder from obligations described in 

paragraph (c)(3)(i)(A) of this section; 

(C) Interest benefits or special 

allowance payments on a loan that was 

made or purchased with funds obtained 

by the holder from obligations described 

in paragraph (c)(3)(i)(A) of this section; 

(D) The sale of a loan that was made 

or purchased with funds obtained by the 

holders from obligations described in 

paragraph (c)(3)(i)(A) of this section; or 

(E) The investment of the proceeds of 

obligations described in paragraph 

(c)(3)(i)(A) of this section. 

(ii) The special allowance rate for a 

loan described in paragraph (c)(3)(i) is 

one-half of the rate calculated under 

paragraph (c)(1) of this section, except 

that in applying paragraph (c)(1)(iii), 3.5 

percent is substituted for the 

percentages specified therein. 

(iii) The special allowance rate 

applicable to loans described in 

paragraph (c)(3)(i) of this section that 

are made prior to October 1, 1992, may 

not be less than—

(A) 2.5 percent per year on eligible 

loans for which the applicable interest 

rate is 7 percent; 

(B) 1.5 percent per year on eligible 

loans for which the applicable interest 

rate is 8 percent; or 

(C) One-half of 1 percent per year on 

eligible loans for which the applicable 

rate is 9 percent. 

(iv) The special allowance rate 

applicable to loans described in 

paragraph (c)(3)(i) of this section that 

are made on or after October 1, 1992, 

may not be less than 9.5 percent minus 

the applicable interest rate. 

(4) Loans made or purchased with 

funds obtained by the holder from the 

issuance of tax-exempt obligations 

originally issued on or after October 1, 

1993, and loans made with funds 

derived from default reimbursement 

collections, interest, or other income 

related to eligible loans made or 

purchased with those tax-exempt funds, 

do not qualify for the minimum special 

allowance rate specified in paragraph 

(c)(3)(iii) or (iv) of this section, and are 

not subject to the 50 percent limitation 

on the maximum rate otherwise 

applicable to loans made with taxexempt funds. 

(5) For purposes of paragraphs (c)(3) 

and (c)(4), a loan is purchased with 

funds described in those paragraphs 

when the loan is refinanced in 

consideration of those funds. 

* * * * * 

(e) Limits on special allowance 

payments on loans made or purchased 

with funds derived from tax-exempt 

obligations. 

(1) General. (i) The Secretary pays a 

special allowance on a loan described in 

paragraph (c)(3) or (c)(4) of this section 

that is held by or on behalf of an 

Authority only if the loan meets the 

requirements of § 682.800. 

(ii) The Secretary pays a special 

allowance at the rate prescribed in 

paragraph (c)(1) or (c)(3) of this section 

on a loan described in paragraph 

(c)(3)(i) of this section that is held by or 

on behalf of an Authority in accordance 

with paragraphs (e)(2) through (e)(5) of 

this section, as applicable. References to 

‘‘loan’’ or ‘‘loans’’ in paragraphs (e)(2) 

through (e)(5) include only loans 

described in paragraph (c)(3)(i). 

(2) Effect of Refinancing on Special 

Allowance Payments. Except as 

provided in paragraphs (e)(3) through 

(e)(5) of this section—

(i) The Secretary pays a special 

allowance at the rate prescribed in 

paragraph (c)(3) of this section to an 

Authority that holds a legal or equitable 


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interest in the loan that is pledged or 

otherwise transferred in consideration 

of—

(A) Funds listed in paragraph (c)(3)(i) 

of this section; 

(B) Proceeds of a tax-exempt 

refunding obligation that refinances a 

debt that—

(1) Was first incurred pursuant to a 

tax-exempt obligation originally issued 

prior to October 1, 1993; 

(2) Has been financed continuously by 

tax-exempt obligation. 

(ii) The Secretary pays a special 

allowance to an Authority that holds a 

legal or equitable interest in the loan 

that is pledged or otherwise transferred 

in consideration of funds other than 

those specified in paragraph (e)(2)(i) of 

this section either—

(A) At the rate prescribed in 

paragraph (c)(1) of this section, ifl 

(1) The prior tax-exempt obligation is 

retired; or 

(2) The prior tax-exempt obligation is 

defeased by means of obligations that 

the Authority certifies in writing to the 

Secretary bears a yield that does not 

exceed the yield restrictions of section 

148 of the Internal Revenue Code and 

the regulations thereunder, or 

(B) At the rate prescribed in paragraph 

(c)(3) of this section. 

(3) Loans affected by transactions or 

events after September 30, 2004. The 

Secretary pays a special allowance to an 

Authority at the rate prescribed in 

paragraph (c)(1) of this section if, after 

September 30, 2004—

(i) The loan is refinanced with funds 

other than those listed in paragraph 

(e)(2)(i) of this section; 

(ii) The loan is sold or transferred to 

any other holder; or 

(iii)(A) The loan is financed by a taxexempt obligation included in the 

sources in paragraph (e)(2)(i), and 

(B) That obligation matures, is 

refunded, is defeased, or is retired, 

whichever occurs earliest. 

(4) Loans Affected by Transactions 

After February 7, 2006. Except as 

provided in paragraph (e)(5) of this 

section, the Secretary pays a special 

allowance at the rate prescribed in 

paragraph (c)(1) of this section on any 

loan—

(i) That was made or purchased on or 

after February 8, 2006, or 

(ii) That was not earning, on February 

8, 2006, a quarterly rate of special 

allowance determined under paragraph 

(c)(3) of this section. 

(5) Loans affected by transactions 

after December 30, 2010. (i) The 

Secretary pays a special allowance to a 

holder described in paragraph (e)(5)(ii) 

of this section at the rate prescribed in 

paragraph (c)(3) of this section only on 

a loan—

(A) That was made or purchased prior 

to December 31, 2010, or 

(B) That was earning, before 

December 31, 2010, a quarterly rate of 

special allowance determined under 

paragraph (c)(3) of this section. 

(ii) A holder for purposes of this 

paragraph is an entity that—

(A) On February 8, 2006 and during 

the quarter for which special allowance 

is determined under this paragraph—

(1) Is a unit of State or local 

government or a private nonprofit 

entity, and 

(2) Is not owned or controlled by, or 

under common ownership or control by, 

a for-profit entity; and 

(B) In the most recent quarterly 

special allowance payment prior to 

September 30, 2005, held, directly or 

through any subsidiary, affiliate, or 

trustee, a total unpaid balance of 

principal of $100,000,000 or less for 

which special allowance was 

determined and paid under paragraph 

(c)(3) of this section. 

(f) As used in this section—

(1) A tax-exempt obligation is an 

obligation the income of which is 

exempt from taxation under the Internal 

Revenue Code of 1986 (26 U.S.C.); 

(2) An obligation is originally issued 

at the time that an Authority issues the 

obligation to obtain funds to make loans 

or to purchase loans that an Authority 

does not hold or have any interest in; 

(3) A loan is refinanced when an 

Authority that has pledged the loan as 

collateral for an obligation of that 

Authority retains an interest in the loan, 

but causes the loan to be released from 

the lien of that obligation and pledged 

as collateral for a different obligation of 

that Authority. 

(4) References to an Authority include 

a successor entity that may not qualify 

as an Authority under § 682.200(b). 

* * * * * 

■ 49. Section 682.305 is amended by: 

■ A. In paragraph (a)(3)(i)(A)(2), 

removing the punctuation ‘‘.’’ at the end 

of the paragraph and adding, in its 

place, the words ‘‘; and’’. 

■ B. Adding a new paragraph 

(a)(3)(i)(A)(3). 

■ C. Revising paragraph (c)(1). 

■ D. Adding a new paragraph (d). 

The revisions and additions read as 

follows: 

§ 682.305 Procedures for payment of 

interest benefits and special allowance and 

collection of origination and loan fees. 

(a) * * * 

(3)(i)(A) * * * 

(3) The amount of excess interest, as 

calculated in accordance with paragraph 

(d) of this section. 

* * * * * 

(c) Independent audits. (1) A lender 

(other than a school lender) originating 

or holding more than $5 million in 

FFEL loans during its fiscal year, and a 

school lender under § 682.601 that 

originates or holds any FFEL loans 

during its fiscal year, must submit an 

independent annual compliance audit 

for that year, conducted by a qualified 

independent organization or person. 

The Secretary may, following written 

notice, suspend the payment of interest 

benefits and special allowance to a 

lender that does not submit its audit 

within the time period prescribed in 

paragraph (c)(2) or this section. 

* * * * * 

(d) Recovery of excess interest paid by 

the Secretary. 

(1) For any loan for which the first 

disbursement of principal is made on or 

after April 1, 2006, the Secretary 

collects the amount of excess interest 

paid to a lender on a quarterly basis 

when the applicable interest rate on a 

loan for each quarter exceeds the special 

allowance support level in paragraph 

(d)(2) of this section for the loan. Excess 

interest is calculated and recovered each 

quarter by subtracting the special 

allowance support level from the 

applicable interest, multiplying the 

result by the average daily principal 

balance of the loan (not including 

unearned interest added to principal) 

during the quarter, and dividing by four. 

(2) The term special allowance 

support level means a number expressed 

as a percentage equal to the sum of—

(i) The average of the bond equivalent 

rates of the quotes of the 3-month 

commercial paper (financial) rates in 

effect for each of the days in such 

quarter as reported by the Federal 

Reserve in Publication H–15 (or its 

successor) for such 3-month period; 

plus 

(ii) 2.34 percent for a Federal Stafford 

loan in repayment; 

(iii) 1.74 percent for a Federal Stafford 

loan during the in-school, grace, and 

deferment periods; or 

(iv) 2.64 percent for a Federal PLUS 

or Consolidation Loan. 

* * * * * 

■ 50. Section 682.401 is amended by: 

■ A. In paragraph (b)(3)(i), removing the 

word ‘‘SLS’’ and inserting, in its place, 

the words ‘‘PLUS Loan’’. 

■ B. Amending the first sentence of 

paragraph (b)(4) by adding the words 

‘‘and § 668.35(i) for a borrower who 

fraudulently obtained title IV, HEA 

program assistance’’ after the word 

‘‘obtained’’. 

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

the figure ‘‘six’’ and inserting, in its 

place, the figure ‘‘three’’. 


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■ D. In paragraph (b)(5)(ii) introductory 

text, by inserting the word ‘‘parent’’

before the word ‘‘PLUS’’. 

■ E. Revising paragraphs (b)(10)(i), (ii), 

(iii), (iv), (v), (vi) introductory text, 

(vi)(A), and (vi)(B) introductory text. 

■ F. In paragraph (b)(14)(i), removing 

the word ‘‘and’’. 

■ G. In paragraph (b)(14)(ii), removing 

the punctuation ‘‘.’’ and adding the 

words ‘‘and before July 1, 2006; and’’

immediately after the date ‘‘October 1, 

1993’’. 

■ H. Adding a new paragraph 

(b)(14)(iii). 

■ I. In paragraph (b)(19)(i)(F), by adding 

the words ‘‘unpaid refunds, identity 

theft’’ after the word ‘‘certification,’’. 

■ J. Revising paragraph (b)(27). 

■ K. Adding a new paragraph (b)(29). 

■ L. Adding a new paragraph (f). 

The revisions and additions read as 

follows: 

§ 682.401 Basic program agreement. 

* * * * * 

(b) * * * 

(10) Insurance premiums and Federal 

default fees. (i) Except for a 

Consolidation Loan or SLS or PLUS 

loans refinanced under § 682.209 (e) or 

(f), a guaranty agency: 

(A) May charge the lender an 

insurance premium for Stafford, SLS, or 

PLUS loans it guarantees prior to July 1, 

2006; and 

(B) Must collect, either from the 

lender or by payment from any other 

non-Federal source, a Federal default 

fee for any Stafford or PLUS loans it 

guarantees on or after July 1, 2006, to be 

deposited into the Federal Fund under 

§ 682.419. 

(ii) The guaranty agency may not use 

the Federal default fee for incentive 

payments to lenders, and may only use 

the insurance premium or the Federal 

default fee for costs incurred in 

guaranteeing loans or in the 

administration of the agency’s loan 

guarantee program, as specified in 

§ 682.410(a)(2) or § 682.419(c). 

(iii) If a lender charges the borrower 

an insurance premium or Federal 

default fee, the lender must deduct the 

charge proportionately from each 

disbursement of the borrower’s loan 

proceeds. 

(iv) The amount of the insurance 

premium or Federal default fee, as 

applicable—

(A) May not exceed 3 percent of the 

principal balance for a loan disbursed 

on or before June 30, 1994; 

(B) May not exceed 1 percent of the 

principal balance for a loan disbursed 

on or after July 1, 1994; 

(C) Shall be 1 percent of the principal 

balance of a loan guaranteed on or after 

July 1, 2006. 

(v) If the circumstances specified in 

paragraph (vi) exist, the guaranty agency 

shall refund to the lender any insurance 

premium or Federal default fee paid by 

the lender. 

(vi) The lender shall refund to the 

borrower by a credit against the 

borrower’s loan balance the insurance 

premium or Federal default fee paid by 

the borrower on a loan under the 

following circumstances: 

(A) The insurance premium or 

Federal default fee attributable to each 

disbursement of a loan must be 

refunded if the loan check is returned 

uncashed to the lender. 

(B) The insurance premium or Federal 

default fee, or an appropriate prorated 

amount of the premium or fee, must be 

refunded by application to the 

borrower’s loan balance if—

* * * * * 

(14) * * * 

(iii) Not more than 97 percent of the 

unpaid principal balance of each loan 

guaranteed for loans first disbursed on 

or after July 1, 2006. 

* * * * * 

(27) Consolidation of defaulted FFEL 

loans. 

(i) A guaranty agency may charge 

collection costs in an amount not to 

exceed 18.5 percent of the outstanding 

principal and interest on a defaulted 

FFEL Program loan that is paid off by a 

Federal Consolidation loan. 

(ii) Prior to October 1, 2006, when 

returning the proceeds from the 

consolidation of a defaulted loan to the 

Secretary, a guaranty agency may only 

retain the amount charged to the 

borrower pursuant to this paragraph. 

(iii) On or after October 1, 2006, when 

returning proceeds to the Secretary from 

the consolidation of a defaulted loan, a 

guaranty agency that charged the 

borrower collection costs must remit an 

amount that equals the lesser of the 

actual collection costs charged or 8.5 

percent of the outstanding principal and 

interest of the loan. 

(iv) On or after October 1, 2009, when 

returning proceeds to the Secretary from 

the consolidation of a defaulted loan 

that is paid off with excess 

consolidation proceeds as defined in 

paragraph (b)(27)(ii)(D) of this section, a 

guaranty agency must remit the entire 

amount of collection costs repaid 

through the consolidation loan pursuant 

to paragraph (b)(27)(ii) of this section. 

(v) The term excess consolidation 

proceeds means, for any Federal fiscal 

year beginning on or after October 1, 

2009, the amount of Consolidation Loan 

proceeds received for defaulted loans 

under the FFEL Program that exceed 45 

percent of the agency’s total collections 

on defaulted loans in that Federal fiscal 

year. 

* * * * * 

(29) Plans to Reduce Consolidation of 

defaulted loans. A guaranty agency shall 

establish and submit to the Secretary for 

approval, procedures to ensure that 

consolidation loans are not an excessive 

proportion of the guaranty agency’s 

recoveries on defaulted loans. 

* * * * * 

(f) College Access Initiative. (1) A 

guaranty agency shall establish a plan to 

promote access to postsecondary 

education by—

(i) Providing the Secretary and the 

public with information on Internet web 

links and a comprehensive listing of 

postsecondary education opportunities, 

programs, publications and other 

services available in the State, or States 

for which the guaranty agency serves as 

the designated guaranty agency; 

(ii) Promoting and publicizing 

information for students and 

traditionally underrepresented 

populations on college planning, career 

preparation, and paying for college in 

coordination with other entities that 

provide or distribute such information 

in the State, or States for which the 

guaranty agency serves as the 

designated guaranty agency; 

(2) The activities required by this 

section may be funded from the 

guaranty agency’s Operating Fund in 

accordance with § 682.423(c)(1)(vii) or 

from funds remaining in restricted 

accounts established pursuant to section 

422(h)(4) of the HEA. 

(3) The guaranty agency shall ensure 

that the information required by this 

subsection is available to the public by 

November 5, 2006 and is—

(i) Free of charge; and 

(ii) Available in print. 

* * * * * 

■ 51. Section 682.402 is amended by: 

■ A. Amending paragraph (a)(4) by 

removing the words ‘‘paragraphs 

(e)(1)(ii)’’ and, inserting in their place, 

the words ‘‘paragraph (e)(1)(ii) or (iii)’’. 

■ B. Revising paragraph (e)(1)(i) 

introductory text. 

■ C. Adding a new paragraph 

(e)(1)(i)(C). 

■ D. Adding a new paragraph (e)(1)(iii). 

■ E. Redesignating paragraphs (e)(3)(v) 

and (e)(3)(vi) as paragraphs (e)(3)(vi) 

and (e)(3)(vii), respectively. 

■ F. Adding a new paragraph (e)(3)(v). 

■ G. In the heading of paragraph (e)(7), 

adding the words ‘‘that he or she was a 

victim of the crime of identity theft’’

after the word ‘‘note.’’

■ H. In paragraph (e)(7)(ii)(C)(2), 

removing the punctuation ‘‘.’’, and 

adding, in its place, the words ‘‘; and’’. 


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■ I. In paragraph (e)(7)(ii), adding a new 

paragraph (e)(7)(ii)(D). 

■ J. In the heading of the paragraph 

(e)(9), adding the words ‘‘that he or she 

was a victim of the crime of identity 

theft,’’ after the word ‘‘note,’’. 

■ K. In paragraph (e)(9)(ii)(B), removing 

the word ‘‘and’’. 

■ L. In paragraph (e)(9)(ii)(C), removing 

the punctuation ‘‘.’’, and adding, in its 

place, the words ‘‘; and’’. 

■ M. In paragraph (e)(9)(ii), adding a 

new paragraph (e)(9)(ii)(D). 

■ N. Redesignating paragraph (e)(14) as 

paragraph (e)(15). 

■ O. Adding a new paragraph (e)(14). 

The revisions and additions read as 

follows: 

§ 682.402 Death, disability, closed school, 

false certification, unpaid refunds, and 

bankruptcy payments. 

* * * * * 

(e) False certification by a school of a 

student’s eligibility to borrower and 

unauthorized disbursements. 

(1) General. (i) The Secretary 

reimburses the holder of a loan received 

by a borrower on or after January 1, 

1986, and discharges a current or former 

borrower’s obligation with respect to the 

loan in accordance with the provisions 

of paragraph (e) of this section, if the 

borrower’s (or the student for whom a 

parent received a PLUS loan) eligibility 

to receive the loan was falsely certified 

by an eligible school. On or after July 1, 

2006, the Secretary reimburses the 

holder of a loan, and discharges a 

borrower’s obligation with respect to the 

loan in accordance with the provisions 

of paragraph (e) of this section, if the 

borrower’s eligibility to receive the loan 

was falsely certified as a result of a 

crime of identity theft. For purposes of 

a false certification discharge, the term 

‘‘borrower’’ includes all endorsers on a 

loan. A student’s or other individual’s 

eligibility to borrow shall be considered 

to have been falsely certified by the 

school if the school—

* * * * * 

(C) Certified the eligibility of an 

individual for an FFEL Program loan as 

a result of the crime of identity theft 

committed against the individual, as 

that crime is defined in § 682.402(e)(14). 

* * * * * 

(iii) If a loan was made as a result of 

the crime of identity theft that was 

committed by an employee or agent of 

the lender, or if at the time the loan was 

made, an employee or agent of the 

lender knew of the identity theft of the 

individual named as the borrower—

(A) The Secretary does pay 

reinsurance, and does not reimburse the 

holder, for any amount disbursed on the 

loan; and 

(B) Any amounts received by a holder 

as interest benefits and special 

allowance payments with respect to the 

loan must be refunded to the Secretary, 

as provided in paragraphs (e)(8)(ii)(B)(4) 

and (e)(10)(ii)(D) of this section. 

* * * * * 

(3) * * * 

(v) In the case of an individual who 

is requesting a discharge of a loan 

because the individual’s eligibility was 

falsely certified as a result of a crime of 

identity theft committed against the 

individual—

(A) Certify that the individual did not 

sign the promissory note, or that any 

other means of identification used to 

obtain the loan was used without the 

authorization of the individual claiming 

relief; 

(B) Certify that the individual did not 

receive or benefit from the proceeds of 

the loan with knowledge that the loan 

had been made without the 

authorization of the individual; 

(C) Provide a copy of a local, State, or 

Federal court verdict or judgment that 

conclusively determines that the 

individual who is named as the 

borrower of the loan was the victim of 

a crime of identify theft; 

(D) If the judicial determination of the 

crime does not expressly state that the 

loan was obtained as a result of the 

crime, provide—

(1) Authentic specimens of the 

signature of the individual, as provided 

in paragraph (e)(3)(iii)(B), or other 

means of identification of the 

individual, as applicable, corresponding 

to the means of identification falsely 

used to obtain the loan; and 

(2) A statement of facts that 

demonstrate, to the satisfaction of the 

Secretary, that eligibility for the loan in 

question was falsely certified as a result 

of the crime of identity theft committed 

against that individual. 

* * * * * 

(7) * * * 

(ii) * * * 

(D) Within 30 days, demand payment 

in full from the perpetrator of the 

identity theft committed against the 

individual, and if payment is not 

received, pursue collection action 

thereafter against the perpetrator. 

* * * * * 

(9) * * * 

(ii) * * * 

(D) Within 30 days, demand payment 

in full from the perpetrator of the 

identity theft committed against the 

individual, and if payment is not 

received, pursue collection action 

thereafter against the perpetrator. 

* * * * * 

(14) Identity theft. (i) The 

unauthorized use of the identifying 

information of another individual that is 

punishable under 18 U.S.C. 1028, 1029, 

or 1030, or substantially comparable 

State or local law. 

(ii) Identifying information includes, 

but is not limited to—

(A) Name, Social Security number, 

date of birth, official State or 

government issued driver’s license or 

identification number, alien registration 

number, government passport number, 

and employer or taxpayer identification 

number; 

(B) Unique biometric data, such as 

fingerprints, voiceprint, retina or iris 

image, or unique physical 

representation; 

(C) Unique electronic identification 

number, address, or routing code; or 

(D) Telecommunication identifying 

information or access device (as defined 

in 18 U.S.C. 1029(e)). 

* * * * * 

■ 52. Section 682.404 is amended by: 

■ A. Redesignating paragraph 

(a)(1)(iii)(D) as paragraph (a)(1)(iii)(E). 

■ B. Adding a new paragraph 

(a)(1)(iii)(D). 

■ C. Adding a new paragraph (a)(2)(iii). 

The additions read as follows: 

§ 682.404 Federal reinsurance agreement. 

(a) * * * 

(1) * * * 

(iii) * * * 

(D) For loans that meet the definition 

of exempt claims in paragraph (a)(2)(iii) 

of this section; 

(2) * * * 

(iii) Exempt claims means claims with 

respect to loans for which it is 

determined that the borrower (or 

student on whose behalf a parent has 

borrowed), without the lender’s or the 

institution’s knowledge at the time the 

loan was made, provided false or 

erroneous information or took actions 

that caused the borrower or the student 

to be ineligible for all of a portion of the 

loan or for interest benefits on the loan. 

* * * * * 

■ 53. Section 682.405 is amended by: 

■ A. Revising paragraphs (a)(1) and (2). 

■ B. Revising paragraph (b)(1). 

■ C. Redesignating paragraphs (b)(2) and 

(b)(3) as paragraphs (b)(3) and (b)(4), 

respectively. 

■ D. In newly redesignated paragraph 

(b)(4), removing the words ‘‘12 

consecutive’’ both times they appear 

and adding, in their place, the figure 

‘‘9’’. 

■ E. Add new paragraph (b)(2). 

The revisions read as follows: 

§ 682.405 Loan rehabilitation agreement. 

(a) General. (1) A guaranty agency that 

has a basic program agreement must 


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enter into a loan rehabilitation 

agreement with the Secretary. The 

guaranty agency must establish a loan 

rehabilitation program for all borrowers 

with an enforceable promissory note for 

the purpose of rehabilitating defaulted 

loans, except for loans for which a 

judgment has been obtained, loans on 

which a default claim was filed under 

§ 682.412, and loans on which the 

borrower has been convicted of, or has 

pled nolo contendere or guilty to, a 

crime involving fraud in obtaining title 

IV, HEA program assistance, so that the 

loan may be purchased, if practicable, 

by an eligible lender and removed from 

default status. 

(2) A loan is considered to be 

rehabilitated only after—

(i) The borrower has made and the 

guaranty agency has received nine of the 

ten payments required under a monthly 

repayment agreement. 

(A) Each of which payments is—

(1) Made voluntarily; 

(2) In the full amount required; and 

(3) Received within 20 days of the due 

date for the payment, and 

(B) All nine payments are received 

within a 10-month period that begins 

with the month in which the first 

required due date falls and ends with 

the ninth consecutive calendar month 

following that month, and 

(ii) The loan has been sold to an 

eligible lender. 

(b) * * * 

(1) A borrower may request 

rehabilitation of the borrower’s 

defaulted loan held by the guaranty 

agency. In order to be eligible for 

rehabilitation of the loan, the borrower 

must voluntarily make at least nine of 

the ten payments required under a 

monthly repayment agreement. 

(i) Each of which payment is—

(A) Made voluntarily, 

(B) In the full amount required, and 

(C) Received within 20 days of the 

due date for the payment, and 

(ii) All nine payments are received 

within a ten-month period that begins 

with the month in which the first 

required due date falls and ends with 

the ninth consecutive calendar month 

following that month. 

(2) For the purposes of this section, 

payment in the full amount required 

means payment of an amount that is 

reasonable and affordable, based on the 

borrower’s total financial circumstances, 

as agreed to by the borrower and the 

agency. Voluntary payments are those 

made directly by the borrower and do 

not include payments obtained by 

Federal offset, garnishment, income or 

asset execution, or after a judgment has 

been entered on a loan. A guaranty 

agency must attempt to secure a lender 

to purchase the loan at the end of the 

9- or 10-month payment period as 

applicable. 

§ 682.406 [Amended] 

■ 54. Section 682.406 is amended in 

paragraph (a)(9) by removing the figure 

‘‘45’’ and adding, in its place, the figure 

‘‘30’’. 

■ 55. Section 682.408 is amended by 

revising paragraph (c) to read as follows: 

§ 682.408 Loan disbursement through an 

escrow agent. 

* * * * * 

(c) Transmittal of FFEL loan proceeds 

by an escrow agent. The escrow agent 

shall transmit Stafford and PLUS loan 

proceeds received from a lender under 

this section to a school in accordance 

with the requirements of 

§ 682.207(b)(1)(ii) and (iv) not later than 

10 days after the agent receives the 

funds from the lender. 

* * * * * 

§ 682.410 [Amended] 

■ 56. Section 682.410 is amended by: 

■ A. In paragraph (a)(1)(i), adding the 

words ‘‘and Federal default fees’’ after 

the word ‘‘premiums’’. 

■ B. In paragraph (a)(2)(vi), adding the 

words ‘‘and Federal default fees’’ after 

the word ‘‘premiums’’. 

■ C. In paragraph (b)(9)(i)(A), removing 

the figure ‘‘10’’ and adding, in its place, 

the figure ‘‘15’’. 

■ 57. Section 682.415 is amended by 

revising paragraph (a)(1) to read as 

follows: 

§ 682.415 Special insurance and 

reinsurance rules. 

(a)(1) A lender or lender servicer (as 

an agent for an eligible lender) 

designated for exceptional performance 

under paragraph (b) of this section shall 

receive reimbursement at the applicable 

rate under paragraphs (a)(1)(i) or 

(a)(1)(ii) of this section on all claims 

submitted for insurance during the 12- 

month period following the date the 

lender or lender servicer and 

appropriate guaranty agencies receive 

notification of the designation of the 

eligible lender or lender servicer under 

paragraph (b) of this section. A guaranty 

agency or a guaranty agency servicer (as 

an agent for a guaranty agency) 

designated for exceptional performance 

under paragraph (c) of this section shall 

receive the applicable reinsurance rate 

under section 428(c)(1) of the Act on all 

claims submitted for payments by the 

guaranty agency or guaranty agency 

servicer during the 12-month period 

following the date the guaranty agency 

receives notification of its designation, 

or its servicer’s designation, under 

paragraph (c) of this section. A notice of 

designation for exceptional performance 

under this section is deemed to have 

been received by the lender, servicer, or 

guaranty agency no later than 3 days 

after the date the notice is mailed, 

unless the lender, servicer, or guaranty 

agency is able to prove otherwise. A 

lender or lender servicer designated for 

exceptional performance shall receive 

reimbursement at the rate of—

(i) 100 percent of the unpaid principal 

and interest for default claims submitted 

to the guaranty agency for payment 

before July 1, 2006; and 

(ii) 99 percent of the unpaid principal 

and interest for default claims submitted 

to the guaranty agency for payment on 

or after July 1, 2006. 

* * * * * 

§ 682.419 [Amended] 

■ 58. Section 682.419 is amended by: 

■ A. In paragraph (b)(2), adding the 

words ‘‘or Federal default fees’’ after the 

word ‘‘premiums’’. 

■ B. In paragraph (c)(7), by adding the 

words ‘‘or Federal default fees’’ after the 

word ‘‘premiums’’. 

■ 59. Section 682.601 is revised to read 

as follows: 

§ 682.601 Rules for a school that makes or 

originates loans. 

(a) General. To make or originate 

loans under the FFEL program, a 

school—

(1) Must employ at least one person 

whose full-time responsibilities are 

limited to the administration of 

programs of financial aid for students 

attending the school; 

(2) Must not be a home study school; 

(3) Must not—

(i) Make a loan to any undergraduate 

student; 

(ii) Make a loan other than a Federal 

Stafford loan to a graduate or 

professional student; or 

(iii) Make a loan to a borrower who 

is not enrolled at that school; 

(4) Must award any contract for 

financing, servicing, or administration 

of FFEL loans on a competitive basis; 

(5) Must offer loans that carry an 

origination fee or an interest rate, or 

both, that are less than the fee or rate 

authorized under the provisions of the 

Act; 

(6) Must not have a cohort default 

rate, as calculated under subpart M of 

34 CFR part 668, greater than 10 

percent; 

(7) Must, for any fiscal year beginning 

on or after July 1, 2006 in which the 

school engages in activities as an 

eligible lender, submit a compliance 

audit conducted in accordance with the 

requirements of 34 CFR 682.305(c)(2); 


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(8) Must use any proceeds from 

special allowance payments and interest 

payments from borrowers, interest 

subsidy payments, and any proceeds 

from the sale or other disposition of 

loans (exclusive of return of principal, 

any financing costs incurred by the 

school to acquire funds to make the 

loans, and the cost of charging 

origination fees or interest rates at less 

than the fees or rates authorized under 

the HEA) for need-based grants which 

does not include providing origination 

fees or interest rates at less than the fee 

or rate authorized under the provisions 

of the Act; and 

(9) Must have met the requirements to 

be an eligible lender as of February 7, 

2006, and must have made loans on or 

before April 1, 2006. 

(b) An eligible school lender may use 

a portion of the proceeds described in 

paragraph (a)(8) of this section for 

reasonable and direct administrative 

expenses. Reasonable and direct 

administrative expenses are those that 

are incurred by the school and are 

directly related to the school’s 

performance of actions required of the 

school under the Act or the regulations 

in this part. Reasonable and direct 

administrative expenses do not include 

financing and similar costs such as costs 

paid by the school to obtain funding to 

make FFEL loans, the cost of paying 

Federal default fees on behalf of 

borrowers, or the cost of providing 

origination fees or interest rates at less 

than the fee or rate authorized under the 

provisions of the Act. 

(c) An eligible school lender must 

ensure that the proceeds described in 

paragraph (a)(8) of this section are used 

to supplement, and not to supplant, 

non-Federal funds that would otherwise 

be used for need-based grant programs. 

(Authority: 20 U.S.C. 1077, 1078–1, 1078–2, 

1078–3, 1082, 1085) 

§ 682.603 [Amended] 

■ 60. Section 682.603 is amended, in 

paragraph (h), by adding the word 

‘‘parent’’ immediately after the words 

‘‘in the case of a’’. 

* * * * * 

■ 61. Section 682.604 is amended by: 

■ A. In paragraph (c)(3) introductory 

text, adding the word ‘‘parent’’

immediately after the words ‘‘in the case 

of’’. 

■ B. Revising paragraph (b)(1). 

■ C. In paragraph (c)(2)(i), removing the 

words ‘‘§ 682.207(b)(1)(v)(C)(1) and 

(D)(1)’’ and adding, in their place, the 

words ‘‘§ 682.207(b)(1)(v)(C)(1) and 

(D)’’. 

■ D. In paragraphs (c)(5)(i) and 

(c)(10)(i)(B), adding the word ‘‘or’’ after 

the punctuation ‘‘;’’. 

■ E. In paragraphs (c)(5)(ii) and 

(c)(10)(ii), removing the words ‘‘; or’’

and adding, in their place, the 

punctuation ‘‘.’’. 

■ F. Removing paragraphs (c)(5)(iii) and 

(c)(10)(iii). 

■ G. In paragraph (h) introductory text, 

removing the words ‘‘, or in the case of 

a student attending a foreign school,’’. 

The revision reads as follows: 

§ 682.604 Processing the borrower’s loan 

proceeds and counseling borrowers. 

* * * * * 

(b) Releasing loan proceeds. (1)(i) 

Except as provided in 

§ 682.207(b)(1)(v)(C)(1) and (D), the 

proceeds of a Stafford or PLUS loan 

disbursed using electronic transfer of 

funds must be sent directly to the school 

by the lender. 

(ii) Upon notification by a lender 

under § 682.207(b)(2)(iv) that it has 

disbursed a loan directly to a borrower 

as provided under 

§ 682.207(b)(1)(v)(C)(1) and (D), the 

institution must immediately notify the 

lender if the student is no longer eligible 

to receive the disbursement. 

* * * * * 

PART 685—WILLIAM D. FORD 

FEDERAL DIRECT LOAN PROGRAM 

■ 62. The authority citation for part 685 

continues to read as follows: 

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

otherwise noted. 

■ 63. Section 685.100 is amended by: 

■ A. In paragraph (a)(3), adding the 

words ‘‘and to graduate or professional 

students’’ immediately after the words 

‘‘dependent students.’’

■ B. Revising paragraph (c)(2). 

The revision reads as follows: 

§ 685.100 The William D. Ford Federal 

Direct Loan Program. 

* * * * * 

(c) * * * 

(2) A borrower with a loan made 

under the Federal Family Education 

Loan Program who—

(i) Is not able to obtain a Federal 

Consolidation Loan; 

(ii) Is not able to obtain a Federal 

Consolidation Loan with incomesensitive repayment terms that are 

satisfactory to the borrower; or 

(iii) Has a Federal Consolidation Loan 

that has been submitted by the lender to 

the guaranty agency for default aversion, 

and wishes to consolidate the Federal 

Consolidation Loan into the Direct Loan 

Program for the purpose of obtaining an 

income contingent repayment plan. 

* * * * * 

■ 64. Section 685.101 is amended by 

revising paragraph (b) to read as follows: 

§ 685.101 Participation in the Direct Loan 

Program. 

* * * * * 

(b) An eligible undergraduate student 

who is enrolled at a school participating 

in the Direct Loan Program may borrow 

under the Federal Direct Stafford/Ford 

Loan and Federal Direct Unsubsidized 

Stafford/Ford Loan Programs. An 

eligible graduate or professional student 

enrolled at a school participating in the 

Direct Loan Program may borrow under 

the Federal Direct Stafford/Ford Loan, 

Federal Direct Unsubsidized Stafford/ 

Ford Loan, and Federal Direct PLUS 

Programs. An eligible parent of an 

eligible dependent student enrolled at a 

school participating in the Direct Loan 

Program may borrow under the Federal 

Direct PLUS Program. 

* * * * * 

■ 65. Section 685.102(b) is amended by: 

■ A. Revising the definition of estimated 

financial assistance. 

■ B. Revising the definition of Federal 

Direct Consolidation Loan Program. 

■ C. Revising the definition of Federal 

Direct PLUS Program. 

■ D. In paragraph (2) of the definition of 

Satisfactory repayment arrangement, 

removing the reference to 

‘‘685.220(d)(1)(ii)(E)’’ and adding, in its 

place, a reference to 

‘‘685.220(d)(1)(ii)(C)’’. 

The revisions read as follows: 

§ 685.102 Definitions. 

* * * * * 

(b) * * * 

Estimated financial assistance. (1) 

The estimated amount of assistance for 

a period of enrollment that a student (or 

a parent on behalf of a student) will 

receive from Federal, State, 

institutional, or other sources, such as 

scholarships, grants, net earnings from 

need-based employment, or loans, 

including but not limited to—

(i) Except as provided in paragraph 

(2)(iv) of this definition, veterans’

educational benefits paid under 

chapters 30 (Montgomery GI Bill—

Active Duty), 31 (Vocational 

Rehabilitation and Employment 

Program), 32 (Veterans’ Educational 

Assistance Program), and 35 

(Dependents’ Educational Assistance 

Program) of title 38 of the United States 

Code; 

(ii) Educational benefits paid under 

chapters 31 (National Call to Service), 

1606 (Montgomery GI Bill—Selected 

Reserve), and 1607 (Reserve Educational 

Assistance Program) of title 10 of the 

United States Code; 


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(iii) Reserve Officer Training Corps 

(ROTC) scholarships and subsistence 

allowances awarded under chapter 2 of 

title 10 and chapter 2 of title 37 of the 

United States Code; 

(iv) Benefits paid under Public Law 

96–342, section 903: Educational 

Assistance Pilot Program; 

(v) Any educational benefits paid 

because of enrollment in a 

postsecondary education institution, or 

to cover postsecondary education 

expenses; 

(vi) Fellowships or assistantships, 

except non-need-based employment 

portions of such awards; 

(vii) Insurance programs for the 

student’s education; 

(viii) The estimated amount of other 

Federal student financial aid, including 

but not limited to a Federal Pell Grant, 

Academic Competitiveness Grant, 

National SMART Grant, campus-based 

aid, and the gross amount (including 

fees) of subsidized and unsubsidized 

Federal Stafford Loans or subsidized 

and unsubsidized Direct Stafford Loans 

and Federal PLUS or Direct PLUS 

Loans; and 

(ix) Except as provided in paragraph 

(2)(iii) of this definition, national 

service education awards or post-service 

benefits under title I of the National and 

Community Service Act of 1990 

(AmeriCorps). 

(2) Estimated financial assistance does 

not include—

(i) Those amounts used to replace the 

expected family contribution (EFC), 

including the amounts of any 

unsubsidized Federal Stafford Loans or 

Direct Stafford Loans, Federal PLUS or 

Direct PLUS Loans, and non-federal 

non-need-based loans, including 

private, state-sponsored, and 

institutional loans. However, if the sum 

of the loan amounts received that are 

being used to replace the student’s EFC 

exceed the EFC, the excess amount must 

be treated as estimated financial 

assistance; 

(ii) Federal Perkins loan and Federal 

Work-Study funds that the student has 

declined; 

(iii) Non-need-based employment 

earnings; 

(iv) For the purpose of determining 

eligibility for a Direct Subsidized Loan, 

veterans’ educational benefits paid 

under chapter 30 of title 38 of the 

United States Code (Montgomery GI 

Bill—Active Duty) and national service 

education awards or post-service 

benefits under title I of the National and 

Community Service Act of 1990 

(AmeriCorps); 

(v) Any portion of the estimated 

financial assistance described in 

paragraph (1) of this definition that is 

included in the calculation of the 

student’s EFC; and 

(vi) Assistance not received under this 

part if that assistance is designated to 

offset all or a portion of a specific 

amount of the cost of attendance and 

that component is excluded from the 

cost of attendance as well. If that 

assistance is excluded from either 

estimated financial assistance or cost of 

attendance, it must be excluded from 

both. 

* * * * * 

Federal Direct Consolidation Loan 

Program: (1) A loan program authorized 

by title IV, part D of the Act that 

provides loans to borrowers who 

consolidate certain Federal educational 

loan(s), and one of the components of 

the Direct Loan Program. Loans made 

under this program are referred to as 

Direct Consolidation Loans. 

(2) The term ‘‘Direct Subsidized 

Consolidation Loan’’ refers to the 

portion of a Direct Consolidation Loan 

attributable to certain subsidized title IV 

education loans that were repaid by the 

consolidation loan. Interest is not 

charged to the borrower during 

deferment periods, or, for a borrower 

whose consolidation application was 

received before July 1, 2006, during inschool and grace periods. 

(3) The term ‘‘Direct Unsubsidized 

Consolidation Loan’’ refers to the 

portion of a Direct Consolidation Loan 

attributable to unsubsidized title IV 

education loans, certain subsidized title 

IV education loans, and certain other 

Federal education loans that were 

repaid by the consolidation loan. The 

borrower is responsible for the interest 

that accrues during any period. 

(4) The term ‘‘Direct PLUS 

Consolidation Loan’’ refers to the 

portion of a Direct Consolidation Loan 

attributable to Direct PLUS Loans, 

Direct PLUS Consolidation Loans, 

Federal PLUS Loans, and Parent Loans 

for Undergraduate Students that were 

repaid by the consolidation loan. The 

borrower is responsible for the interest 

that accrues during any period. 

* * * * * 

Federal Direct PLUS Program: A loan 

program authorized by title IV, Part D of 

the Act that is one of the components of 

the Federal Direct Loan Program. The 

Federal Direct PLUS Program provides 

loans to parents of dependent students 

attending schools that participate in the 

Direct Loan Program. The Federal Direct 

PLUS Program also provides loans to 

graduate or professional students 

attending schools that participate in the 

Direct Loan Program. The borrower is 

responsible for the interest that accrues 

during any period. Loans made under 

this program are referred to as Direct 

PLUS Loans. 

* * * * * 

■ 66. Section 685.200 is amended by: 

■ A. In paragraph (a), revising the 

paragraph heading to read as set forth 

below. 

■ B. Redesignating paragraphs (b), (c), 

and (d) as paragraphs (c), (d), and (e), 

respectively. 

■ C. Adding a new paragraph (b). 

■ D. In newly redesignated paragraph 

(c), revising the paragraph heading to 

read as set forth below and adding a 

new paragraph (c)(3). 

■ E. In newly redesignated paragraph 

(c)(1)(vii)(B) introductory text, removing 

the reference to ‘‘(b)(1)(vii)(A)’’ and 

adding, in its place, a reference to 

‘‘(c)(1)(vii)(A)’’. 

■ F. In newly redesignated paragraph 

(c)(1)(vii)(C), removing the reference to 

‘‘(b)(1)(vii)(A)’’ adding, in its place, a 

reference to ‘‘(c)(1)(vii)(A)’’. 

■ G. In newly redesignated paragraph 

(c)(2), removing the reference to ‘‘(b)(1)’’

and adding, in its place, a reference to 

‘‘(c)(1)’’. 

■ H. In newly redesignated paragraph 

(d), by removing the reference to 

‘‘685.220(d)(1)(ii)(F)’’ and adding, in its 

place, a reference to 

‘‘685.220(d)(1)(ii)(D)’’. 

■ I. Revising newly redesignated 

paragraph (e). 

The additions read as follows: 

§ 685.200 Borrower eligibility. 

(a) Student Direct Subsidized or 

Direct Unsubsidized borrower. 

* * * * * 

(b) Student PLUS borrower. (1) A 

graduate or professional student is 

eligible to receive a Direct PLUS Loan 

originated on or after July 1, 2006, if the 

student meets the following 

requirements—

(i) The student is enrolled, or 

accepted for enrollment, on at least a 

half-time basis in a school that 

participates in the Direct Loan Program. 

(ii) The student meets the 

requirements for an eligible student 

under 34 CFR part 668. 

(iii) The student meets the 

requirements of paragraphs (a)(1)(iv) 

and (a)(1)(v) of this section, if 

applicable. 

(iv) The student has received a 

determination of his or her annual loan 

maximum eligibility under the Federal 

Direct Stafford/Ford Loan Program and 

the Federal Direct Unsubsidized and 

Stafford/Ford Loan Program; and 

(v) The student does not have an 

adverse credit history in accordance 

with paragraph (c)(1)(vii) of this section. 

* * * * * 


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(c) Parent PLUS borrower. 

* * * * * 

(3) Has completed repayment of any 

title IV, HEA program assistance 

obtained by fraud, if the parent has been 

convicted of, or has pled nolo 

contendere or guilty to, a crime 

involving fraud in obtaining title IV, 

HEA program assistance. 

* * * * * 

(e) Use of loan proceeds to replace 

expected family contribution. The 

amount of a Direct Unsubsidized Loan, 

a Direct PLUS loan, or a non-federal 

non-need based loan, including a 

private, state-sponsored, or institution 

loan, obtained for a loan period may be 

used to replace the expected family 

contribution for that loan period. 

* * * * * 

■ 67. Section 685.201 is amended by 

revising paragraph (b) to read as follows: 

§ 685.201 Obtaining a loan. 

* * * * * 

(b) Application for a Direct PLUS 

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

PLUS Loan, the parent must complete 

the Direct PLUS MPN and submit it to 

the school at which the student is 

enrolled. 

(2) For a graduate or professional 

student to apply for a Direct PLUS Loan, 

the student must complete a Free 

Application for Federal Student Aid and 

submit it in accordance with 

instructions in the application. The 

graduate or professional student must 

also complete the PLUS MPN and 

submit it to the school. 

(3) For either a parent or student 

PLUS borrower, as applicable, the 

school must complete its portion of the 

PLUS MPN and submit it to the 

Servicer, which makes a determination 

as to whether the parent or graduate or 

professional student has an adverse 

credit history. Unless a school’s 

agreement with the Secretary specifies 

otherwise, the school must perform the 

following functions: A school 

participating under school origination 

option 2 must draw down funds and 

disburse the funds. For a school 

participating under school origination 

option 1 or standard origination, the 

Servicer initiates the drawdown of 

funds, and the school disburses the 

funds. 

* * * * * 

■ 68. Section 685.202 is amended by: 

■ A. In the heading of paragraph 

(a)(1)(iii), adding the words ‘‘and before 

July 1, 2006’’ immediately after the 

words ‘‘July 1, 1998’’. 

■ B. Adding a new paragraph (a)(1)(iv). 

■ C. In the heading of paragraph 

(a)(2)(ii), adding the words ‘‘and before 

July 1, 2006’’ after the words ‘‘July 1, 

1998’’. 

■ D. Adding a new paragraph (a)(2)(iii). 

■ E. In paragraph (b)(2), adding the 

words ‘‘under the regulations that were 

in effect for consolidation applications 

received before July 1, 2006’’ after the 

words ‘‘grace period’’. 

■ F. In paragraph (b)(3), removing the 

reference to ‘‘685.208(g)(5)’’ and adding, 

in its place, a reference to 

‘‘85.208(l)(5)’’. 

■ G. In paragraph (b)(4), removing the 

reference to ‘‘685.208(g)(5)’’ and adding, 

in its place, a reference to 

‘‘685.208(l)(5)’’. 

■ H. Revising paragraph (c)(1). 

The revisions and additions read as 

follows: 

§ 685.202 Charges for which Direct Loan 

Program borrowers are responsible. 

(a) * * * 

(1) * * * 

(iv) Loans first disbursed on or after 

July 1, 2006. The interest rate is 6.8 

percent. 

(2) * * * 

(iii) Loans first disbursed on or after 

July 1, 2006. The interest rate is 7.9 

percent. 

(c) * * * 

(1)(i) For a Direct Subsidized or Direct 

Unsubsidized loan first disbursed prior 

to February 8, 2006, charges a borrower 

a loan fee not to exceed 4 percent of the 

principal amount of the loan; 

(ii) For a Direct Subsidized or Direct 

Unsubsidized loan first disbursed on or 

after February 8, 2006, but before July 1, 

2007, charges a borrower a loan fee not 

to exceed 3 percent of the principal 

amount of the loan; 

(iii) For a Direct Subsidized or Direct 

Unsubsidized loan first disbursed on or 

after July 1, 2007, but before July 1, 

2008, charges a borrower a loan fee not 

to exceed 2.5 percent of the principal 

amount of the loan; 

(iv) For a Direct Subsidized or Direct 

Unsubsidized loan first disbursed on or 

after July 1, 2008, but before July 1, 

2009, charges the borrower a loan fee 

not to exceed 2 percent of the principal 

amount of the loan; 

(v) For a Direct Subsidized or Direct 

Unsubsidized loan first disbursed on or 

after July 1, 2009, but before July 1, 

2010, charges the borrower a loan fee 

not to exceed 1.5 percent of the 

principal amount of the loan; 

(vi) For a Direct Subsidized or Direct 

Unsubsidized loan first disbursed on or 

after July 1, 2010, charges the borrower 

a loan fee not to exceed 1 percent of the 

principal amount of the loan; and 

(vii) Charges a borrower a loan fee of 

four percent of the principal amount of 

the loan on a Direct PLUS loan. 

* * * * * 

§ 685.203 [Amended] 

■ 69. Section 685.203 is amended by: 

■ A. In paragraph (a)(1)(i), adding the 

words ‘‘, or, for a loan originated on or 

after July 1, 2007, $3,500,’’ immediately 

after the figure ‘‘$2,625’’. 

■ B. In paragraph (a)(1)(ii), adding the 

words ‘‘, or, for a loan originated on or 

after July 1, 2007, $3,500,’’ immediately 

after the figure ‘‘$2,625’’. 

■ C. In paragraph (a)(1)(iii), adding the 

words ‘‘, or, for a loan originated on or 

after July 1, 2007, $3,500’’ immediately 

after the figure ‘‘$2,625’’. 

■ D. In paragraph (a)(2)(i), adding the 

words ‘‘, or, for a loan originated on or 

after July 1, 2007, $4,500,’’ immediately 

after the figure ‘‘$3,500’’. 

■ E. In paragraph (a)(2)(ii), adding the 

words ‘‘, or, for a loan originated on or 

after July 1, 2007, $4,500,’’ immediately 

after the figure ‘‘$3,500’’. 

■ F. In paragraph (c)(2)(v), adding the 

words ‘‘, or, for a loan originated on or 

after July 1, 2007, $12,000.’’

immediately after the figure ‘‘$10,000’’. 

■ G. In paragraph (c)(2)(vi)(B), adding 

the words ‘‘, or, for a loan originated on 

or after July 1, 2007, $7,000,’’

immediately after the figure ‘‘$5,000’’. 

■ H. In paragraph (c)(2)(vii), adding the 

words ‘‘, or, for a loan originated on or 

after July 1, 2007, $7,000.’’ immediately 

after the figure ‘‘$5,000’’. 

■ I. In paragraph (f), adding the words 

‘‘, or that a graduate or professional 

student may borrow,’’ immediately after 

the words ‘‘dependent student’’ and 

removing the words ‘‘that student’’ and 

adding, in their place, the words ‘‘the 

student’’. 

■ J. In paragraph (g), adding the words 

‘‘, or that a graduate or professional 

student may borrow,’’ immediately after 

the words ‘‘dependent student’’. 

■ 70. Section 685.204 is amended by: 

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

words ‘‘paragraph (b)’’ and adding, in 

their place, the words ‘‘paragraphs (b) 

and (e)’’. 

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

words ‘‘paragraph (b)’’ and adding, in 

their place, the words ‘‘paragraphs (b) 

and (e)’’. 

■ C. In paragraph (b), removing the 

parenthetical ‘‘(e)’’ and adding, in its 

place, the parenthetical ‘‘(f)’’. 

■ D. Redesignating paragraph (e) as 

paragraph (f). 

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

words ‘‘paragraph (b)’’ and adding, in 

their place, the words ‘‘paragraphs (b) 

and (e)’’. 

■ F. Adding a new paragraph (e). 

The addition reads as follows: 

§ 685.204 Deferment. 

* * * * * 


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(e)(1) A borrower who receives a 

Direct Loan Program loan first disbursed 

on or after July 1, 2001, may receive a 

military service deferment for such loan 

for any period not to exceed 3 years 

during which the borrower is—

(i) Serving on active duty during a 

war or other military operation or 

national emergency; or 

(ii) Performing qualifying National 

Guard duty during a war or other 

military operation or national 

emergency. 

(2) Serving on active duty during a 

war or other military operation or 

national emergency means service by an 

individual who is—

(i) A Reserve of an Armed Force 

ordered to active duty under 10 U.S.C. 

12301(a), 12301(g), 12302, 12304, or 

12306; 

(ii) A retired member of an Armed 

Force ordered to active duty under 10 

U.S.C. 688 for service in connection 

with a war or other military operation 

or national emergency, regardless of the 

location at which such active duty 

service is performed; or 

(iii) Any other member of an Armed 

Force on active duty in connection with 

such emergency or subsequent actions 

or conditions who has been assigned to 

a duty station at a location other than 

the location at which the member is 

normally assigned. 

(3) Qualifying National Guard duty 

during a war or other operation or 

national emergency means service as a 

member of the National Guard on fulltime National Guard duty, as defined in 

10 U.S.C. 101(d)(5) under a call to active 

service authorized by the President or 

the Secretary of Defense for a period of 

more than 30 consecutive days under 32 

U.S.C. 502(f) in connection with a war, 

other military operation, or national 

emergency declared by the President 

and supported by Federal funds. 

(4) These provisions do not authorize 

the refunding of any payments made by 

or on behalf of a borrower during a 

period for which the borrower qualified 

for a military service deferment. 

(5) A borrower is eligible for a 

military service deferment on a Direct 

Consolidation Loan only if the borrower 

meets the conditions described in this 

section and all of the title IV loans 

included in the Consolidation Loan 

were first disbursed on or after July 1, 

2001. 

(6) As used in this section—

(i) Active duty means active duty as 

defined in 10 U.S.C. 101(d)(1) except 

that it does not include active duty for 

training or attendance at a service 

school; 

(ii) Military operation means a 

contingency operation as defined in 10 

U.S.C. 101(a)(13); and 

(iii) National emergency means the 

national emergency by reason of certain 

terrorist attacks declared by the 

President on September 14, 2001, or 

subsequent national emergencies 

declared by the President by reason of 

terrorist attacks. 

* * * * * 

§ 685.205 [Amended] 

■ 71. Section 685.205 is amended in 

paragraph (b)(5) by adding the words 

‘‘obtained by a parent borrower’’ after 

the words ‘‘Direct PLUS Loan’’. 

■ 72. Section 685.207 is amended by 

revising paragraphs (e)(2) and (3). 

The revisions read as follows: 

§ 685.207 Obligation to repay. 

* * * * * 

(e) * * * 

(2) In the case of a borrower whose 

consolidation application was received 

before July 1, 2006, a borrower who 

obtains a Direct Subsidized 

Consolidation Loan during an in-school 

period will be subject to the repayment 

provisions in paragraph (b) of this 

section. 

(3) In the case of a borrower whose 

consolidation application was received 

before July 1, 2006, a borrower who 

obtains a Direct Unsubsidized 

Consolidation Loan during an in-school 

period will be subject to the repayment 

provisions in paragraph (c) of this 

section. 

* * * * * 

■ 73. Section 685.208 is revised to read 

as follows: 

§ 685.208 Repayment plans. 

(a) General. (1) Borrowers who entered 

repayment before July 1, 2006. (i) A 

borrower may repay a Direct Subsidized 

Loan, a Direct Unsubsidized Loan, a 

Direct Subsidized Consolidation Loan, 

or a Direct Unsubsidized Consolidation 

Loan under the standard repayment 

plan, the extended repayment plan, the 

graduated repayment plan, or the 

income contingent repayment plan, in 

accordance with paragraphs (b), (d), (f), 

and (k) of this section, respectively. 

(ii) A borrower may repay a Direct 

PLUS Loan or a Direct PLUS 

Consolidation Loan under the standard 

repayment plan, the extended 

repayment plan, or the graduated 

repayment plan, in accordance with 

paragraphs (b), (d), and (f) of this 

section, respectively. 

(2) Borrowers entering repayment on 

or after July 1, 2006. (i) A borrower may 

repay a Direct Subsidized Loan or a 

Direct Unsubsidized Loan under the 

standard repayment plan, the extended 

repayment plan, the graduated 

repayment plan, or the income 

contingent repayment plan, in 

accordance with paragraphs (b), (e), (g), 

and (k) of this section, respectively. 

(ii) A borrower may repay a Direct 

PLUS Loan under the standard 

repayment plan, the extended 

repayment plan, or the graduated 

repayment plan, in accordance with 

paragraphs (b), (e), and (g) of this 

section, respectively. 

(iii) A borrower may repay a Direct 

Consolidation Loan under the standard 

repayment plan, the extended 

repayment plan, the graduated 

repayment plan, or the income 

contingent repayment plan, in 

accordance with paragraphs (c), (e), (h), 

and (k) of this section, respectively. 

(3) The Secretary may provide an 

alternative repayment plan in 

accordance with paragraph (l) of this 

section. 

(4) All Direct Loans obtained by one 

borrower must be repaid together under 

the same repayment plan, except that—

(i) A borrower of a Direct PLUS Loan 

may repay the Direct PLUS Loan 

separately from other Direct Loans 

obtained by the borrower; and 

(ii) A borrower of a Direct PLUS 

Consolidation Loan that entered 

repayment before July 1, 2006 may 

repay the Direct PLUS Consolidation 

Loan separately from other Direct Loans 

obtained by that borrower. 

(5) The repayment period for any of 

the repayment plans described in this 

section does not include periods of 

authorized deferment or forbearance. 

(b) Standard repayment plan for all 

Direct Subsidized Loan, Direct 

Unsubsidized Loan, and Direct PLUS 

Loan borrowers, regardless of when they 

entered repayment, and for Direct 

Consolidation Loan borrowers who 

entered repayment before July 1, 2006. 

(1) Under this repayment plan, a 

borrower must repay a loan in full 

within ten years from the date the loan 

entered repayment by making fixed 

monthly payments. 

(2) A borrower’s payments under this 

repayment plan are at least $50 per 

month, except that a borrower’s final 

payment may be less than $50. 

(3) The number of payments or the 

fixed monthly repayment amount may 

be adjusted to reflect changes in the 

variable interest rate identified in 

§ 685.202(a). 

(c) Standard repayment plan for 

Direct Consolidation Loan borrowers 

entering repayment on or after July 1, 

2006. 


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(1) Under this repayment plan, a 

borrower must repay a loan in full by 

making fixed monthly payments over a 

repayment period that varies with the 

total amount of the borrower’s student 

loans, as described in paragraph (j) of 

this section. 

(2) A borrower’s payments under this 

repayment plan are at least $50 per 

month, except that a borrower’s final 

payment may be less than $50. 

(d) Extended repayment plan for all 

Direct Loan borrowers who entered 

repayment before July 1, 2006. 

(1) Under this repayment plan, a 

borrower must repay a loan in full by 

making fixed monthly payments within 

an extended period of time that varies 

with the total amount of the borrower’s 

loans, as described in paragraph (i) of 

this section. 

(2) A borrower makes fixed monthly 

payments of at least $50, except that a 

borrower’s final payment may be less 

than $50. 

(3) The number of payments or the 

fixed monthly repayment amount may 

be adjusted to reflect changes in the 

variable interest rate identified in 

§ 685.202(a). 

(e) Extended repayment plan for all 

Direct Loan borrowers entering 

repayment on or after July 1, 2006. 

(1) Under this repayment plan, a new 

borrower with more than $30,000 in 

outstanding Direct Loans accumulated 

on or after October 7, 1998 must repay 

either a fixed annual or graduated 

repayment amount over a period not to 

exceed 25 years from the date the loan 

entered repayment. For this repayment 

plan, a new borrower is defined as an 

individual who has no outstanding 

principal or interest balance on a Direct 

Loan as of October 7, 1998, or on the 

date the borrower obtains a Direct Loan 

on or after October 7, 1998. 

(2) A borrower’s payments under this 

plan are at least $50 per month, and will 

be more if necessary to repay the loan 

within the required time period. 

(3) The number of payments or the 

monthly repayment amount may be 

adjusted to reflect changes in the 

variable interest rate identified in 

§ 685.202(a). 

(f) Graduated repayment plan for all 

Direct Loan borrowers who entered 

repayment before July 1, 2006. 

(1) Under this repayment plan, a 

borrower must repay a loan in full by 

making payments at two or more levels 

within a period of time that varies with 

the total amount of the borrower’s loans, 

as described in paragraph (i) of this 

section. 

(2) The number of payments or the 

monthly repayment amount may be 

adjusted to reflect changes in the 

variable interest rate identified in 

§ 685.202(a). 

(3) No scheduled payment under this 

repayment plan may be less than the 

amount of interest accrued on the loan 

between monthly payments, less than 

50 percent of the payment amount that 

would be required under the standard 

repayment plan described in paragraph 

(b) of this section, or more than 150 

percent of the payment amount that 

would be required under the standard 

repayment plan described in paragraph 

(b) of this section. 

(g) Graduated repayment plan for 

Direct Subsidized Loan, Direct 

Unsubsidized Loan, and Direct PLUS 

Loan borrowers entering repayment on 

or after July 1, 2006. 

(1) Under this repayment plan, a 

borrower must repay a loan in full by 

making payments at two or more levels 

over a period of time not to exceed ten 

years from the date the loan entered 

repayment. 

(2) The number of payments or the 

monthly repayment amount may be 

adjusted to reflect changes in the 

variable interest rate identified in 

§ 685.202(a). 

(3) A borrower’s payments under this 

repayment plan are at least $50 per 

month, except that a borrower’s final 

payment may be less than $50. No 

single payment under this plan will be 

more than three times greater than any 

other payment. 

(h) Graduated repayment plan for 

Direct Consolidation Loan borrowers 

entering repayment on or after July 1, 

2006. 

(1) Under this repayment plan, a 

borrower must repay a loan in full by 

making monthly payments that 

gradually increase in stages over the 

course of a repayment period that varies 

with the total amount of the borrower’s 

student loans, as described in paragraph 

(j) of this section. 

(2) A borrower’s payments under this 

repayment plan are at least $50 per 

month, except that a borrower’s final 

payment may be less than $50. 

(i) Repayment period for the extended 

and graduated plans described in 

paragraphs (d) and (f) of this section, 

respectively. Under these repayment 

plans, if the total amount of the 

borrower’s Direct Loans is—

(1) Less than $10,000, the borrower 

must repay the loans within 12 years of 

entering repayment; 

(2) Greater than or equal to $10,000 

but less than $20,000, the borrower 

must repay the loans within 15 years of 

entering repayment; 

(3) Greater than or equal to $20,000 

but less than $40,000, the borrower 

must repay the loans within 20 years of 

entering repayment; 

(4) Greater than or equal to $40,000 

but less than $60,000, the borrower 

must repay the loans within 25 years of 

entering repayment; and 

(5) Greater than or equal to $60,000, 

the borrower must repay the loans 

within 30 years of entering repayment. 

(j) Repayment period for the standard 

and graduated repayment plans 

described in paragraphs (c) and (h) of 

this section, respectively. Under these 

repayment plans, if the total amount of 

the Direct Consolidation Loan and the 

borrower’s other student loans, as 

defined in § 685.220(i), is—

(1) Less then $7,500, the borrower 

must repay the Consolidation Loan 

within 10 years of entering repayment; 

(2) Equal to or greater than $7,500 but 

less than $10,000, the borrower must 

repay the Consolidation Loan within 12 

years of entering repayment; 

(3) Equal to or greater than $10,000 

but less than $20,000, the borrower 

must repay the Consolidation Loan 

within 15 years of entering repayment; 

(4) Equal to or greater than $20,000 

but less than $40,000, the borrower 

must repay the Consolidation Loan 

within 20 years of entering repayment; 

(5) Equal to or greater than $40,000 

but less than $60,000, the borrower 

must repay the Consolidation Loan 

within 25 years of entering repayment; 

and 

(6) Equal to or greater than $60,000, 

the borrower must repay the 

Consolidation Loan within 30 years of 

entering repayment. 

(k) Income contingent repayment 

plan. (1) Under the income contingent 

repayment plan, a borrower’s monthly 

repayment amount is generally based on 

the total amount of the borrower’s Direct 

Loans, family size, and Adjusted Gross 

Income (AGI) reported by the borrower 

for the most recent year for which the 

Secretary has obtained income 

information. The borrower’s AGI 

includes the income of the borrower’s 

spouse. A borrower must make 

payments on a loan until the loan is 

repaid in full or until the loan has been 

in repayment through the end of the 

income contingent repayment period. 

(2) The regulations in effect at the 

time a borrower enters repayment and 

selects the income contingent 

repayment plan or changes into the 

income contingent repayment plan from 

another plan govern the method for 

determining the borrower’s monthly 

repayment amount for all of the 

borrower’s Direct Loans, unless—

(i) The Secretary amends the 

regulations relating to a borrower’s 


jlentini on PROD1PC65 with RULES2
45714 Federal Register / Vol. 71, No. 153 / Wednesday, August 9, 2006 / Rules and Regulations 

monthly repayment amount under the 

income contingent repayment plan; and 

(ii) The borrower submits a written 

request that the amended regulations 

apply to the repayment of the 

borrower’s Direct Loans. 

(3) Provisions governing the income 

contingent repayment plan are in 

§ 685.209. 

(l) Alternative repayment. (1) The 

Secretary may provide an alternative 

repayment plan for a borrower who 

demonstrates to the Secretary’s 

satisfaction that the terms and 

conditions of the repayment plans 

specified in paragraphs (b) through (h) 

of this section are not adequate to 

accommodate the borrower’s 

exceptional circumstances. 

(2) The Secretary may require a 

borrower to provide evidence of the 

borrower’s exceptional circumstances 

before permitting the borrower to repay 

a loan under an alternative repayment 

plan. 

(3) If the Secretary agrees to permit a 

borrower to repay a loan under an 

alternative repayment plan, the 

Secretary notifies the borrower in 

writing of the terms of the plan. After 

the borrower receives notification of the 

terms of the plan, the borrower may 

accept the plan or choose another 

repayment plan. 

(4) A borrower must repay a loan 

under an alternative repayment plan 

within 30 years of the date the loan 

entered repayment, not including 

periods of deferment and forbearance. 

(5) If the amount of a borrower’s 

monthly payment under an alternative 

repayment plan is less than the accrued 

interest on the loan, the unpaid interest 

is capitalized until the outstanding 

principal amount is 10 percent greater 

than the original principal amount. 

After the outstanding principal amount 

is 10 percent greater than the original 

principal amount, interest continues to 

accrue but is not capitalized. For 

purposes of this paragraph, the original 

principal amount is the amount owed 

by the borrower when the borrower 

enters repayment. 

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

■ 74. Section 685.209 is amended by 

revising paragraph (c)(4)(ii) to read as 

follows: 

§ 685.209 Income contingent repayment 

plan. 

* * * * * 

(c) * * * 

(4) * * * 

(ii)(A) The repayment period 

includes—

(1) Periods in which the borrower 

makes payments under the standard 

repayment plan described in 

§ 685.208(b); and 

(2) If the repayment period is not 

more than 12 years, periods in which 

the borrower makes payments under the 

extended repayment plans described in 

§ 685.208(d) and (e), or the standard 

repayment plan described in 

§ 685.208(c). 

(B) The repayment period does not 

include—

(1) Periods in which the borrower 

makes payments under the graduated 

repayment plans described in 

§ 685.208(f), § 685.208(g) and 

§ 685.208(h); 

(2) Periods in which the borrower 

makes payments under an alternative 

repayment plan; 

(3) Periods of authorized deferment or 

forbearance; or 

(4) Periods in which the borrower 

makes payments under the extended 

repayment plans described in 

§ 685.208(d) and 

(e) in which payments are based on a 

repayment period that is longer than 12 

years. 

* * * * * 

■ 75. Section 685.211 is amended by: 

■ A. Revising paragraph (d)(3)(ii). 

■ B. In paragraph (e)(1) introductory 

text, adding the words ‘‘, has been 

convicted of, or has pled nolo 

contendere or guilty to, a crime 

involving fraud in obtaining title IV, 

HEA program funds,’’ after the word 

‘‘information’’. 

■ C. In paragraph (f)(1), in the first 

sentence, removing the words ‘‘twelve 

consecutive, on-time,’’ and adding, in 

their place, the words ‘‘nine voluntary,’’

and adding the words ‘‘within 20 days 

of the due date during ten consecutive 

months’’ after the word ‘‘payments’’. 

■ D. Adding a new paragraph (f)(3). 

The additions and revisions read as 

follows: 

§ 685.211 Miscellaneous repayment 

provisions. 

* * * * * 

(d) * * * 

(3) * * * 

(ii) If a borrower defaults on a Direct 

Subsidized Loan, a Direct Unsubsidized 

Loan, or a Direct Consolidation Loan, 

the Secretary may designate the income 

contingent repayment plan for the 

borrower. 

(f) * * * 

(3) A Direct Loan obtained by fraud 

for which the borrower has been 

convicted of, or has pled nolo 

contendere or guilty to, a crime 

involving fraud in obtaining title IV, 

HEA program assistance may not be 

rehabilitated. 

* * * * * 

§ 685.212 [Amended] 

■ 76. Section 685.212 is amended by: 

■ A. In paragraph (a)(1), in the second 

parenthetical, adding the words 

‘‘obtained by a parent borrower’’ after 

the words ‘‘Direct PLUS loan’’. 

■ B. In paragraph (h), adding the words 

‘‘, or up to $17,500,’’ after the figure 

‘‘$5,000’’. 

■ 77. Section 685.215 is amended by: 

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

■ B. In paragraph (c) introductory text, 

in the last sentence, by removing the 

parenthetical ‘‘(5)’’ and, in its place, 

adding the parenthetical ‘‘(6)’’. 

■ C. Redesignating paragraphs (c)(4), 

(c)(5), and (c)(6) as paragraphs (c)(5), 

(c)(6), and (c)(7), respectively. 

■ D. Adding a new paragraph (c)(4). 

The additions read as follows: 

§ 685.215 Discharge for false certification 

of student eligibility or unauthorized 

payment. 

(a) * * * 

(1) * * * 

(iv) Certified the individual’s 

eligibility for a Direct Loan as a result 

of the crime of identity theft committed 

against the individual, as that crime is 

defined in § 682.402(e)(14). 

(c) * * * 

(4) Identity theft. In the case of an 

individual whose eligibility to borrow 

was falsely certified because he or she 

was a victim of the crime of identity 

theft and is requesting a discharge, the 

individual shall—

(i) Certify that the individual did not 

sign the promissory note, or that any 

other means of identification used to 

obtain the loan was used without the 

authorization of the individual claiming 

relief; 

(ii) Certify that the individual did not 

receive or benefit from the proceeds of 

the loan with knowledge that the loan 

had been made without the 

authorization of the individual; 

(iii) Provide a copy of a local, State, 

or Federal court verdict or judgment 

that conclusively determines that the 

individual who is named as the 

borrower of the loan was the victim of 

a crime of identity theft; and 

(iv) If the judicial determination of the 

crime does not expressly state that the 

loan was obtained as a result of the 

crime of identity theft, provide—

(A) Authentic specimens of the 

signature of the individual, as provided 

in paragraph (c)(2)(ii), or of other means 

of identification of the individual, as 

applicable, corresponding to the means 

of identification falsely used to obtain 

the loan; and 

(B) A statement of facts that 

demonstrate, to the satisfaction of the 

Secretary, that eligibility for the loan in 


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question was falsely certified as a result 

of the crime of identity theft committed 

against that individual. 

* * * * * 

■ 78. Section 685.217 is amended by: 

■ A. Revising paragraph (a). 

■ B. In paragraph (b), adding, in 

alphabetical order, a new definition for 

‘‘Highly qualified’’. 

■ C. Revising paragraph (c)(1)(iii). 

■ D. Revising paragraph (c)(3). 

■ E. Revising paragraph (c)(4). 

■ F. Redesignating paragraphs (c)(5), 

(c)(6), (c)(7), (c)(8), and (c)(9) as 

paragraphs (c)(7), (c)(8), (c)(9), (c)(10), 

and (c)(11), respectively. 

■ G. Adding a new paragraph (c)(5). 

■ H. Adding a new paragraph (c)(6). 

■ I. Removing the parentheticals 

‘‘(c)(5)’’ and adding, in their place, the 

parentheticals ‘‘(c)(7)’’ in redesignated 

paragraph (c)(8). 

■ J. Revising paragraph (d)(1). 

■ K. Revising paragraph (d)(2). 

The revisions and additions read as 

follows: 

§ 685.217 Teacher loan forgiveness 

program. 

(a) General. The teacher loan 

forgiveness program is intended to 

encourage individuals to enter and 

continue in the teaching profession. For 

new borrowers, the Secretary repays the 

amount specified in this paragraph on 

the borrower’s subsidized and 

unsubsidized Federal Stafford Loans, 

Direct Subsidized Loans, Direct 

Unsubsidized Loans, and in certain 

cases, Federal Consolidation Loans or 

Direct Consolidation Loans. The 

forgiveness program is only available to 

a borrower who has no outstanding loan 

balance under the FFEL Program or the 

Direct Loan Program on October 1, 1998 

or who has no outstanding loan balance 

on the date he or she obtains a loan after 

October 1, 1998. The borrower must 

have been employed as a full-time 

teacher for five consecutive complete 

academic years, at least one of which 

was after the 1997–1998 academic year, 

in certain eligible elementary or 

secondary schools that serve lowincome families. All borrowers eligible 

for teacher loan forgiveness may receive 

loan forgiveness of up to a combined 

total of $5,000 on the borrower’s eligible 

FFEL and Direct Loan Program loans. If 

the borrower taught for five consecutive 

years as a highly qualified mathematics 

or science teacher in an eligible 

secondary school, or as a highly 

qualified special education teacher in an 

eligible elementary or secondary school, 

the borrower may receive loan 

forgiveness of up to a combined total of 

$17,500 on the borrower’s eligible FFEL 

and Direct Loan Program loans. The 

loan for which the borrower is seeking 

forgiveness must have been made prior 

to the end of the borrower’s fifth year of 

qualifying teaching service. 

(b) * * * 

Highly qualified means highly 

qualified as defined in section 9101 of 

the Elementary and Secondary 

Education Act of 1965, as amended. 

* * * * * 

(c) * * * 

(1) * * * 

(iii) Is listed in the Annual Directory 

of Designated Low-Income Schools for 

Teacher Cancellation Benefits. If this 

directory is not available before May 1 

of any year, the previous year’s 

directory may be used. The Secretary 

considers all elementary and secondary 

schools operated by the Bureau of 

Indian Affairs (BIA) or operated on 

Indian reservations by Indian tribal 

groups under contract with the BIA to 

qualify as schools serving low-income 

students. 

* * * * * 

(3) In the case of a borrower whose 

five consecutive complete years of 

qualifying teaching service began before 

October 30, 2004, the borrower—

(i) May receive up to $5,000 of loan 

forgiveness if the borrower—

(A) Demonstrated knowledge and 

teaching skills in reading, writing, 

mathematics, and other areas of the 

elementary school curriculum, as 

certified by the chief administrative 

officer of the eligible elementary school 

in which the borrower was employed; or 

(B) Taught in a subject area that is 

relevant to the borrower’s academic 

major as certified by the chief 

administrative officer of the eligible 

secondary school in which the borrower 

was employed. 

(ii) May receive up to $17,500 of loan 

forgiveness if the borrower—

(A) Taught mathematics or science on 

a full-time basis in an eligible secondary 

school and was a highly qualified 

mathematics or science teacher; or 

(B) Taught as a special education 

teacher on a full-time basis to children 

with disabilities in either an eligible 

elementary or secondary school and was 

a highly qualified special education 

teacher whose special education 

training corresponded to the children’s 

disabilities and who has demonstrated 

knowledge and teaching skills in the 

content areas of the elementary or 

secondary school curriculum. 

(4) In the case of a borrower whose 

five consecutive years of qualifying 

teaching service began on or after 

October 30, 2004, the borrower—

(i) May receive up to $5,000 of loan 

forgiveness if the borrower taught full 

time in an eligible elementary or 

secondary school and was a highly 

qualified elementary or secondary 

school teacher. 

(ii) May receive up to $17,500 of loan 

forgiveness if the borrower—

(A) Taught mathematics or science on 

a full-time basis in an eligible secondary 

school and was a highly qualified 

mathematics or science teacher; or 

(B) Taught as a special education 

teacher on a full-time basis to children 

with disabilities in either an eligible 

elementary or secondary school and was 

a highly qualified special education 

teacher whose special education 

training corresponded to the children’s 

disabilities and who has demonstrated 

knowledge and teaching skills in the 

content areas of the elementary or 

secondary school curriculum. 

(5) To qualify for loan forgiveness as 

a highly qualified teacher, the teacher 

must have been a highly qualified 

teacher for all five years of eligible 

teaching service. 

(6) For teacher loan forgiveness 

applications received by the Secretary 

on or after July 1, 2006, a teacher in a 

private, non-profit elementary or 

secondary school who is exempt from 

State certification requirements unless 

otherwise applicable under State law 

may qualify for loan forgiveness under 

paragraphs (c)(3)(ii) or (c)(4) of this 

section if—

(i) The private school teacher is 

permitted to and does satisfy rigorous 

subject knowledge and skills tests by 

taking competency tests in applicable 

grade levels and subject areas; 

(ii) The competency tests are 

recognized by 5 or more States for the 

purposes of fulfilling the highly 

qualified teacher requirements under 

section 9101 of the Elementary and 

Secondary Education Act of 1965; and 

(iii) The private school teacher 

achieves a score on each test that equals 

or exceeds the average passing score for 

those 5 states. 

* * * * * 

(d) Forgiveness amount. (1) A 

qualified borrower is eligible for 

forgiveness of up to $5,000, or up to 

$17,500 if the borrower meets the 

requirements of paragraphs (c)(3)(ii) or 

(c)(4)(ii) of this section. The forgiveness 

amount is deducted from the aggregate 

amount of the borrower’s Direct 

Subsidized Loan or Direct Unsubsidized 

Loan or Direct Consolidation Loan 

obligation that is outstanding after the 

borrower completes his or her fifth 

consecutive complete academic year of 

teaching as described in paragraph (c) of 

this section. Only the outstanding 

portion of the Direct Consolidation Loan 


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45716 Federal Register / Vol. 71, No. 153 / Wednesday, August 9, 2006 / Rules and Regulations 

that was used to repay an eligible 

subsidized or unsubsidized Federal 

Stafford Loan, an eligible Direct 

Subsidized Loan, or an eligible Direct 

Unsubsidized Loan qualifies for loan 

forgiveness under this section. 

(2) A borrower may not receive more 

than a total of $5,000, or $17,500 if the 

borrower meets the requirements of 

paragraphs (c)(3)(ii) or (c)(4)(ii) of this 

section, in loan forgiveness for 

outstanding principal and accrued 

interest under both this section and 

under section 34 CFR 682.215. 

* * * * * 

■ 79. Section 685.220 is amended by: 

■ A. In paragraph (a), revising the first 

sentence to read as set forth below. 

■ B. Revising paragraphs (c) and (d). 

■ C. In paragraph (e), in the first 

sentence, removing the words ‘‘or 

borrowers’’ and removing, in its 

entirety, the second sentence. 

■ D. In paragraph (f)(1)(iii), removing 

the words ‘‘and may impose reasonable 

limits on collection costs paid to the 

holder’’. 

■ E. Revising paragraphs (h) and (i). 

■ F. In paragraph (l) introductory text, 

adding the words ‘‘in accordance with 

the regulations that were in effect for 

consolidation applications received 

prior to July 1, 2006’’ after the word 

‘‘borrowers’’. 

The revisions read as follows: 

§ 685.220 Consolidation. 

(a) Direct Consolidation Loans. A 

borrower may consolidate education 

loans made under certain Federal 

programs into a Direct Consolidation 

Loan. * * * 

* * * * * 

(c) Subsidized, unsubsidized, and 

PLUS components of Direct 

Consolidation Loans. (1) The portion of 

a Direct Consolidation Loan attributable 

to the loans identified in paragraphs 

(b)(1) through (5) of this section, and to 

Federal Consolidation Loans under 

paragraph (b)(15) of this section if they 

are eligible for interest benefits during a 

deferment period under Section 

428C(b)(4)(C) of the Act, is referred to as 

a Direct Subsidized Consolidation Loan. 

(2) Except as provided in paragraph 

(c)(1) of this section, the portion of a 

Direct Consolidation Loan attributable 

to the loans identified in paragraphs 

(b)(6) through (8) and (b)(13) through 

(21) of this section is referred to as a 

Direct Unsubsidized Consolidation 

Loan. 

(3) The portion of a Direct 

Consolidation Loan attributable to the 

loans identified in paragraphs (b)(9) 

through (12) of this section is referred to 

as a Direct PLUS Consolidation Loan. 

(d) Eligibility for a Direct 

Consolidation Loan. (1) A borrower may 

obtain a Direct Consolidation Loan if, at 

the time the borrower applies for such 

a loan, the borrower meets the following 

requirements: 

(i) The borrower either—

(A) Has an outstanding balance on a 

Direct Loan; or 

(B) Has an outstanding balance on an 

FFEL loan and—

(1) The borrower is unable to obtain 

a FFEL consolidation loan; 

(2) The borrower is unable to obtain 

a FFEL consolidation loan with incomesensitive repayment terms acceptable to 

the borrower; or 

(3) The borrower has an FFEL 

Consolidation Loan that has been 

submitted to the guaranty agency by the 

lender for default aversion, and the 

borrower wants to consolidate the FFEL 

Consolidation Loan into the Direct Loan 

Program for the purpose of obtaining an 

income contingent repayment plan. 

(ii) On the loans being consolidated, 

the borrower is—

(A) In a six-month grace period; 

(B) In a repayment period but not in 

default; 

(C) In default but has made 

satisfactory repayment arrangements, as 

defined in applicable program 

regulations, on the defaulted loan; or 

(D) Except as provided in paragraph 

(d)(4) of this section, in default but 

agrees to repay the consolidation loan 

under the income contingent repayment 

plan described in § 685.208(k) and signs 

the consent form described in 

§ 685.209(d)(5). 

(E) Not subject to a judgment secured 

through litigation, unless the judgment 

has been vacated; or 

(F) Not subject to an order for wage 

garnishment under section 488A of the 

Act, unless the order has been lifted. 

(iii) The borrower certifies that no 

other application to consolidate any of 

the borrower’s loans listed in paragraph 

(b) of this section is pending with any 

other lender. 

(iv) The borrower agrees to notify the 

Secretary of any change in address. 

(2) A borrower may not consolidate a 

Direct Consolidation Loan into a new 

consolidation loan under this section or 

under § 682.201(c) unless at least one 

additional eligible loan is included in 

the consolidation. 

(3) Eligible loans received before or 

after the date a Direct Consolidation 

Loan is made may be added to a 

subsequent Direct Consolidation Loan. 

(4) A borrower may not consolidate a 

defaulted Direct Consolidation Loan. 

* * * * * 

(h) Repayment plans. A borrower may 

choose a repayment plan for a Direct 

Consolidation Loan in accordance with 

§ 685.208, except that a borrower who 

became eligible to consolidate a 

defaulted loan under paragraph 

(d)(1)(ii)(D) of this section must repay 

the consolidation loan under the income 

contingent repayment plan unless—

(1) The borrower was required to and 

did make a payment under the income 

contingent repayment plan in each of 

the prior three (3) months; or 

(2) The borrower was not required to 

make payments but made three 

reasonable and affordable payments in 

each of the prior three (3) months; and 

(3) The borrower makes and the 

Secretary approves a request to change 

plans. 

(i) Repayment period. (1) Except as 

noted in paragraph (i)(4) of this section, 

the repayment period for a Direct 

Consolidation Loan begins on the day 

the loan is disbursed. 

(2)(i) Borrowers who entered 

repayment before July 1, 2006. The 

Secretary determines the repayment 

period under § 685.208(i) on the basis of 

the outstanding balances on all of the 

borrower’s loans that are eligible for 

consolidation and the balances on other 

education loans except as provided in 

paragraphs (i)(3)(i), (ii), and (iii) of this 

section. 

(ii) Borrowers entering repayment on 

or after July 1, 2006. The Secretary 

determines the repayment period under 

§ 685.208(j) on the basis of the 

outstanding balances on all of the 

borrower’s loans that are eligible for 

consolidation and the balances on other 

education loans except as provided in 

paragraphs (i)(3)(i) and (ii) of this 

section. 

(3)(i) The total amount of outstanding 

balances on the other education loans 

used to determine the repayment period 

under §§ 685.208(i) and (j) may not 

exceed the amount of the Direct 

Consolidation Loan. 

(ii) The borrower may not be in 

default on the other education loan 

unless the borrower has made 

satisfactory repayment arrangements 

with the holder of the loan. 

(iii) The lender of the other 

educational loan may not be an 

individual. 

(4) Borrowers whose consolidation 

application was received before July 1, 

2006. A Direct Consolidation Loan 

receives a grace period if it includes a 

Direct Loan or FFEL Program loan for 

which the borrower is in an in-school 

period at the time of consolidation. The 

repayment period begins the day after 

the grace period ends. 

* * * * * 


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Federal Register / Vol. 71, No. 153 / Wednesday, August 9, 2006 / Rules and Regulations 45717 

■ 80. Section 682.301 is amended by 

revising paragraph (b)(8)(ii) to read as 

follows: 

§ 685.301 Origination of a loan by a Direct 

Loan Program school. 

* * * * * 

(b) * * * 

(8) * * * 

(ii) Paragraphs (b)(8)(i)(A) and (B) of 

this section do not apply to any loans 

originated by the school beginning 30 

days after the date the school receives 

notification from the Secretary of a 

cohort default rate, calculated under 

subpart M of 34 CFR part 668, that 

causes the school to no longer meet the 

qualifications outlined in paragraph (A) 

or (B), as applicable. 

* * * * * 

■ 81. Section 685.303 is amended by: 

■ A. In paragraph (b)(2)(i), by adding the 

words ‘‘obtained by a parent borrower’’

after the words ‘‘PLUS loan’’. 

■ B. By revising paragraph (b)(4)(ii). 

The revisions read as follows: 

§ 685.303 Processing loan proceeds. 

* * * * * 

(b) * * * 

(4) * * * 

(ii) Paragraphs (b)(4)(i)(A) and (B) of 

this section do not apply to any loans 

originated by the school beginning 30 

days after the date the school receives 

notification from the Secretary of a 

cohort default rate, calculated under 

subpart M of 34 CFR part 668, that 

causes the school to no longer meet the 

qualifications outlined in paragraph (A) 

or (B), as applicable. 

* * * * * 

[FR Doc. 06–6696 Filed 8–8–06; 8:45 am] 

BILLING CODE 4000–01–P 


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