Vol. 78 Thursday, 

No. 95 May 16, 2013 

Part II 

Department of Education 

34 CFR Part 685 

William D. Ford Federal Direct Loan Program; Interim Final Rule 


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28954 Federal Register / Vol. 78, No. 95 / Thursday, May 16, 2013 / Rules and Regulations 

DEPARTMENT OF EDUCATION 

34 CFR Part 685 

[Docket ID ED–2013–OPE–0066] 

RIN 1840–AD13 

William D. Ford Federal Direct Loan 

Program 

AGENCY: Office of Postsecondary 

Education, Department of Education. 

ACTION: Interim final rule; request for 

comments. 

SUMMARY: The Secretary amends the 

William D. Ford Federal Direct Loan 

Program (Direct Loan Program) 

regulations to reflect changes made to 

the program by the Moving Ahead for 

Progress in the 21st Century Act (MAP– 

21), Public Law 112–141. Specifically, 

these interim final regulations reflect 

the provisions in MAP–21 that amended 

the Higher Education Act of 1965, as 

amended (HEA) to extend the 3.4 

percent interest rate on Direct 

Subsidized Loans from July 1, 2012, to 

July 1, 2013, and to ensure that a 

borrower may not receive Direct 

Subsidized Loans for more than 150 

percent of the published length of the 

educational program in which the 

borrower is enrolled. Under the changes 

made by MAP–21, if the borrower 

exceeds this Direct Subsidized Loan 

limit, the borrower also becomes 

responsible for the accruing interest on 

the Direct Subsidized Loans. 

DATES: These interim final regulations 

are effective May 16, 2013. We must 

receive your comments on or before July 

1, 2013. 

ADDRESSES: Submit your comments 

through the Federal eRulemaking Portal 

or via U.S. mail, commercial delivery, or 

hand delivery. We will not accept 

comments by fax or by email. Please 

submit your comments only once in 

order to ensure that we do not receive 

duplicate copies. In addition, please 

include the Docket ID at the top of your 

comments. 

• Federal eRulemaking Portal: Go to 

www.regulations.gov to submit your 

comments electronically. Information 

on using regulations.gov, including 

instructions for accessing agency 

documents, submitting comments, and 

viewing the docket, is available on the 

site under ‘‘How To Use This Site.’’ 

• Postal Mail, Commercial Delivery, 

or Hand Delivery: If you mail or deliver 

your comments about these interim final 

regulations, address them to Nathan 

Arnold, U.S. Department of Education, 

1990 K Street NW., Room 8084, 

Washington, DC 20006–8542. 

Privacy Note: The Department’s policy is 

to make all comments received from 

members of the public available for public 

viewing in their entirety on the Federal 

eRulemaking Portal at www.regulations.gov. 

Therefore, commenters should be careful to 

include in their comments only information 

that they wish to make publicly available. 

FOR FURTHER INFORMATION CONTACT: 

Nathan Arnold, U.S. Department of 

Education, 1990 K Street NW., Room 

8084, Washington, DC 20006–8542. 

Telephone: (202) 219–7134 or via 

Internet at: Nathan.Arnold@ed.gov. 

If you use a telecommunications 

device for the deaf (TDD) or a text 

telephone (TTY), call the Federal Relay 

Service (FRS), toll free, at 1–800–877– 

8339. 

SUPPLEMENTARY INFORMATION: 

Executive Summary 

Purpose of This Regulatory Action: 

On July 6, 2012, the President signed 

into law MAP–21, which, among other 

things, made two changes to section 455 

of the HEA. First, the law extended for 

an additional year the 3.4 percent 

interest rate that had applied to Direct 

Subsidized Loans made to 

undergraduate students since July 1, 

2011. Second, the law placed a limit on 

Direct Subsidized Loan eligibility for 

new borrowers on or after July 1, 2013. 

Specifically, the statute provides that a 

new borrower on or after July 1, 2013, 

becomes ineligible to receive additional 

Direct Subsidized Loans if the period 

during which the borrower has received 

such loans exceeds 150 percent of the 

published length of the borrower’s 

educational program. The borrower also 

becomes responsible for accruing 

interest during all periods as of the date 

the borrower exceeds the 150 percent 

limit. The purpose of the statutory 

changes is to encourage students to 

complete their academic programs in a 

timely manner. Timely completion of 

programs will allow borrowers to reap 

the benefits of a postsecondary degree or 

credential and avoid incurring 

unnecessary student loan debt. This 

interim final rule implements the 

required statutory changes. 

Summary of the Major Provisions of 

This Regulation: 

Action: This interim final rule 

incorporates the statutory changes made 

by MAP–21 by— 

• Providing that a Direct Subsidized 

Loan first disbursed on or after July 1, 

2012, and before July 1, 2013, has an 

interest rate of 3.4 percent. 

• Establishing new Direct Loan 

Program regulations that provide that a 

new borrower on or after July 1, 2013, 

is no longer eligible to receive 

additional Direct Subsidized Loans if 

the period during which the borrower 

has received such loans meets or 

exceeds 150 percent of the published 

length of the program in which the 

borrower is currently enrolled. These 

borrowers may still receive Direct 

Unsubsidized Loans for which they are 

otherwise eligible. 

• Establishing new Direct Loan 

Program regulations that provide that 

new borrowers who are ineligible for 

Direct Subsidized Loans as a result of 

these provisions and enroll in a program 

for which the borrower would otherwise 

be eligible for a Direct Subsidized Loan 

become responsible for accruing interest 

on all previously received Direct 

Subsidized Loans during all future 

periods, beginning on the date of the 

triggering enrollment. 

• Prorating periods of Direct 

Subsidized Loan receipt during parttime enrollment for purposes of the 

limit on Direct Subsidized Loan 

eligibility. 

• Establishing special rules for 

applying the limit on Direct Subsidized 

Loan eligibility for borrowers enrolled 

in preparatory coursework required for 

enrollment in an undergraduate or a 

graduate or professional program and 

teacher certification coursework 

necessary for a State teaching credential 

for which the institution awards no 

academic credential. These special rules 

limit the borrower’s responsibility for 

accruing interest in certain 

circumstances. 

• Modifying existing entrance- and 

exit-counseling requirements to provide 

borrowers with information regarding 

the 150 percent limit on Direct 

Subsidized Loans. 

Please refer to the Significant Proposed 

Regulations section of this preamble for 

a detailed discussion of the major 

provisions contained in this interim 

final rule. 

Chart 1 summarizes the interim final 

regulations and related benefits, costs, 

and transfers that are discussed in more 

detail in the Regulatory Impact Analysis 

of this preamble. The Department 

estimates that approximately 62,000 

borrowers will be affected by these 

interim final regulations in the 2013 

loan cohort, with the number of 

borrowers affected increasing in each 

cohort to approximately 578,000 

borrowers in the 2023 loan cohort. The 

benefits of these interim final 

regulations include reduced loan 

balances and lower payments for 

borrowers receiving Direct Subsidized 

Loans between July 1, 2012, and July 1, 

2013, and the creation of incentives for 

first-time borrowers on or after July 1, 

2013, to complete academic programs in 


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a timely manner. The net budget impact 

of the interim final regulations is ¥$3.9 

billion over the 2013 to 2023 loan 

cohorts. 

CHART 1—SUMMARY OF THE PROPOSED REGULATIONS

Issue and key features Benefits Cost/transfers 

Interest rate reduction, limitations on eligibility for Direct Subsidized 

Loans, and responsibility for accruing interest for first-time borrowers on or after July 1, 2013 (34 CFR part 685) 

Reduction of interest rate on Direct Subsidized Loans to 3.4 percent after July 1, 2011, and before July 1, 2013.Reduced loan balance and lower 

payments for borrowers.

Limitation on Direct Subsidized Loan eligibility for borrowers who 

receive such loans for 150 percent of the published length of 

the educational program and borrower responsibility for accruing interest for enrollment after meeting or exceeding this limit.

Create incentives for students to 

complete academic programs in 

a timely manner and avoid incurring unnecessary loan debt.

Prorating periods of Direct Subsidized Loan receipt during parttime enrollment.Account for differing enrollment 

levels for borrower equity.

Estimated net budget impact of 

¥$3.9 billion over the 2013– 

2023 loan cohort. 

Specialized treatment for borrowers enrolled in preparatory 

coursework required for enrollment in an eligible program and 

teacher certification coursework necessary for a State teaching 

credential for which the institution awards no academic credential.

Limit borrower responsibility for 

accruing interest to encourage 

completion.

Modified entrance- and exit-counseling requirements to provide 

borrowers with information regarding the 150 percent limit on 

Direct Subsidized Loans.

Provide borrowers with information 

on eligibility limitations and potential responsibility for accruing 

interest.

Estimated cost of $4.21 million in 

increased burden to institutions 

and borrowers. 

Invitation to Comment 

We invite you to submit comments 

regarding these interim final 

regulations. To ensure that your 

comments have maximum effect in 

developing the final regulations, we 

urge you to identify clearly the specific 

section or sections of the interim final 

regulations that each of your comments 

addresses and to arrange your comments 

in the same order as the interim final 

regulations. We will consider these 

comments in determining whether to 

revise these interim final regulations. 

We invite you to assist us in 

complying with the specific 

requirements of Executive Orders 12866 

and 13563 and their overall requirement 

of reducing regulatory burden that 

might result from these interim final 

regulations. Please let us know of any 

further ways we could reduce potential 

costs or increase potential benefits 

while preserving the effective and 

efficient administration of the Direct 

Loan Program. 

During and after the comment period, 

you may inspect all public comments 

about these interim final regulations by 

accessing www.regulations.gov. You 

may also inspect the comments in 

person in room 8083, 1990 K Street, 

NW., Washington, DC, between 8:30 

a.m. and 4:00 p.m. Washington, DC 

time, Monday through Friday of each 

week, except Federal holidays. 

Assistance to Individuals With 

Disabilities in Reviewing the 

Rulemaking Record 

On request, we will provide an 

appropriate accommodation or auxiliary 

aid to an individual with a disability 

who needs assistance to review the 

comments or other documents in the 

public rulemaking record for these 

interim final regulations. If you want to 

schedule an appointment for this type of 

accommodation or auxiliary aid, please 

contact the person listed under FOR

FURTHER INFORMATION CONTACT. 

Background 

On July 6, 2012, the President signed 

MAP–21 into law. MAP–21 included 

two changes to the Direct Loan Program. 

First, MAP–21 amended section 455 of 

the HEA to extend the 3.4 percent fixed 

interest rate that applies to Direct 

Subsidized Loans made to 

undergraduate students before July 1, 

2013. Second, the law placed a limit on 

Direct Subsidized Loan eligibility for 

new borrowers on or after July 1, 2013. 

Specifically, a new borrower on or after 

July 1, 2013 is no longer eligible to 

receive additional Direct Subsidized 

Loans if the period during which the 

borrower has received such loans 

exceeds 150 percent of the published 

length of the borrower’s educational 

program. Additionally, the borrower 

becomes responsible for accruing 

interest on any Direct Subsidized Loan 

made to the borrower on or after July 1, 

2013 if he or she is enrolled in an 

undergraduate program after reaching 

this 150 percent limit. These restrictions 

apply to a ‘‘first-time borrower’’ on or 

after July 1, 2013; a first-time borrower 

is one who on that date has no 

outstanding balance of principal or 

interest on a Direct Loan Program or 

FFEL Program loan. 

The amendments to section 455 of the 

HEA that limit eligibility for Direct 

Subsidized Loans require implementing 

regulations. Under MAP–21 these 

regulations are not subject to the 

requirements in sections 482 and 492 of 

the HEA for negotiated rulemaking and 

publication of regulations in accordance 

with the master calendar provisions. 

These interim final regulations contain 

the provisions necessary to implement 

the amendments to section 455 of the 

HEA. 

The Department will be making 

significant changes to its student 

financial aid systems to implement the 

new statutory requirements. Those 

changes are described in more detail at 

the conclusion of this preamble. The 

Department will be responsible for the 

following: tracking borrowers’ Direct 

Subsidized Loan borrowing in greater 

detail; informing institutions of the 

number of periods a borrower has 

received Direct Subsidized Loans; and 

informing borrowers when they exceed 

the eligibility limit and become 

responsible for accruing interest. 

Institutions will not be required to track 

this information or inform borrowers of 

their status on a continual basis. 

However, for the Department to ensure 

the integrity of the Direct Loan Program 

and compliance with the new statutory 


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and regulatory requirements, 

institutions will be required to report 

certain additional program and 

borrower enrollment information to the 

Department. 

Significant Regulations 

We discuss substantive issues under 

the sections of the regulations to which 

they pertain. Generally, we do not 

address regulatory provisions that are 

technical or otherwise minor in effect. 

Part 685—William D. Ford Federal 

Direct Loan Program Extension of the 

3.4 Percent Fixed Interest Rate on Direct 

Subsidized Loans until July 1, 2013 

(§ 685.202(a)(1)(v)(E)) 

Statute: MAP–21 amended section 

455(b)(7)(D) of the HEA to extend, until 

July 1, 2013, the period during which 

the fixed interest rate on new Direct 

Subsidized Loans will be 3.4 percent. 

The interest rate on new loans was 

scheduled to increase to a fixed interest 

rate of 6.8 percent beginning with loans 

first disbursed on or after July 1, 2012. 

The increase in the interest rate to 6.8 

percent is now scheduled to begin with 

loans first disbursed on or after July 1, 

2013. 

Current Regulations: Under current 

§ 685.202(a)(1)(v)(E) of the regulations, 

the interest rate on a Direct Subsidized 

Loan first disbursed on or after July 1, 

2011, and before June 30, 2012, is 3.4 

percent. Under § 685.202(a)(1)(iv), the 

interest rate on Direct Subsidized Loans 

disbursed on or after July 1, 2012, is 6.8 

percent. Direct Subsidized Loans are 

only available to undergraduate 

borrowers. 

New Regulations: We are revising 

§ 685.202(a)(1)(v)(E) of the Direct Loan 

regulations to reflect that the unpaid 

balance on a Direct Subsidized Loan 

first disbursed on or after July 1, 2011, 

and before July 1, 2013, has an interest 

rate of 3.4 percent. 

Reasons: This change reflects the 

amendment to section 455(b)(7)(D) of 

the HEA. 

Application of the 150 Percent Direct 

Subsidized Loan Limit to First-Time 

Borrowers on or After July 1, 2013 

(§ 685.200(f)(1)(i)) 

Statute: MAP–21 added section 

455(q)(1) to the HEA, which provides 

that any borrower who is a new 

borrower on or after July 1, 2013, is 

subject to the revised eligibility 

requirements that limit the borrower’s 

receipt of Direct Subsidized Loans to 

150 percent of the published length of 

the borrower’s educational program. 

Current Regulations: There are no 

existing regulations. 

New Regulations: Section 

685.200(f)(1)(i) defines the term ‘‘firsttime borrower’’ as an individual who 

has no outstanding balance of principal 

or interest on a loan made under the 

Direct Loan Program or the FFEL 

Program (regardless of loan type) on July 

1, 2013, or on the date the borrower 

obtains a Direct Loan after July 1, 2013. 

The limitation on Direct Subsidized 

Loan eligibility only applies to a ‘‘firsttime borrower’’ on or after July 1, 2013. 

A borrower who has an outstanding 

loan balance as of that date is not 

subject to the 150 percent Direct 

Subsidized Loan eligibility limit. If the 

borrower had such a loan balance prior 

to July 1, 2013, and paid off that balance 

in full, and then received a new Direct 

Loan on or after July 1, 2013, the 

borrower is considered a ‘‘first-time 

borrower’’ and subject to the Direct 

Subsidized Loan eligibility limit. 

A borrower who has an outstanding 

balance on a Direct Loan or a FFEL 

program loan prior to July 1, 2013, and 

who consolidates those loans on or after 

July 1, 2013, does not become a ‘‘firsttime borrower’’ for this purpose by 

consolidating the loans. Finally, we do 

not consider a borrower’s outstanding 

balance on a Federal Perkins loan in the 

determination of whether a borrower is 

a first-time borrower who will be subject 

to the Direct Subsidized loan eligibility 

limit. 

Reasons: We have defined the term 

‘‘first-time borrower’’ to reflect the 

provision of MAP–21 that applies the 

150 percent Direct Subsidized Loan 

eligibility limit to first-time borrowers 

on or after July 1, 2013. The definition 

of ‘‘first-time borrower’’ for this purpose 

is consistent with how we have treated 

similarly situated borrowers for other 

purposes elsewhere in the Direct Loan 

and FFEL program regulations (see, e.g., 

§§ 685.209(a)(1) and 685.217(a)(1)). 

Limitations on Eligibility for Direct 

Subsidized Loans (§ 685.200(a)(2), 

§ 685.200(f)(2)) 

Statute: MAP–21 added section 

455(q)(1) to the HEA. Section 455(q)(1) 

of the HEA provides that any borrower 

who is a new Direct Loan borrower on 

or after July 1, 2013, is not eligible for 

a Direct Subsidized Loan if the period 

of time for which the borrower has 

received Direct Subsidized Loans, in the 

aggregate, exceeds 150 percent of the 

published length of the borrower’s 

educational program. Such a borrower 

may still receive any Direct 

Unsubsidized Loan for which the 

borrower is otherwise eligible. 

Current Regulations: There are no 

existing regulations. 

New Regulations: Section 

685.200(f)(2) provides that a first-time 

borrower loses eligibility for new Direct 

Subsidized Loans when the borrower 

has no remaining eligibility period, as 

defined in § 685.200(f)(1)(iv) (this and 

other defined terms are discussed in the 

next section of the preamble). The 

interim final regulations also provide 

that such a borrower may still receive a 

Direct Unsubsidized Loan for which the 

borrower is otherwise eligible. In 

addition, we have updated 

§ 685.200(a)(2)(i) to reflect that, in 

addition to demonstrating financial 

need in accordance with Title IV, part 

F of the HEA, a first-time borrower must 

also not have met or exceeded the 

limitations on receipt of Direct 

Subsidized Loans described in 

§ 685.200(f). 

Reasons: Section 685.200(f)(2) reflects 

section 455(q)(1) of the HEA, which 

places a limit on eligibility for Direct 

Subsidized Loans if a first-time 

borrower on or after July 1, 2013, 

receives Direct Subsidized Loans in 

excess of 150 percent of the published 

length of the borrower’s educational 

program. We are including a cross 

reference to § 685.200(f) in 

§ 685.200(a)(2)(i) to ensure that firsttime borrowers understand that 

eligibility for Direct Subsidized Loans 

depends on meeting the eligibility 

requirements in § 685.200(f). 

Calculation of a Borrower’s Maximum 

Eligibility Period, Subsidized Usage 

Period, and Remaining Eligibility Period 

(§ 685.200(f)(1)(ii)–(f)(1)(iv)) 

Statute: Under section 455(q) of the 

HEA a borrower is no longer eligible for 

additional Direct Subsidized Loans if 

the period of time for which the 

borrower has received Direct Subsidized 

Loans exceeds the aggregate period of 

enrollment described in section 

455(q)(3). Section 455(q)(3) defines the 

term ‘‘aggregate period of enrollment’’ 

as the lesser of: (1) a period equal to 150 

percent of the published length of the 

educational program in which the 

student is enrolled; or (2) in the case of 

a borrower who was previously enrolled 

in one or more other educational 

programs that began on or after July 1, 

2013, a period of time equal to the 

difference between 150 percent of the 

published length of the longest 

educational program in which the 

borrower was, or is, enrolled and any 

periods of enrollment in which the 

borrower received a Direct Subsidized 

Loan. 

Current Regulations: There are no 

existing regulations. 

New Regulations: Section 

685.200(f)(1)(ii) defines the term 


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‘‘maximum eligibility period’’ and 

describes how we will calculate it for a 

borrower. The ‘‘maximum eligibility 

period’’ is the regulatory term we have 

adopted to refer to the ‘‘aggregate period 

of enrollment’’ described in section 

455(q)(1) and (q)(3)(A) of the HEA. 

Section 685.200(f)(1)(ii) provides that a 

borrower’s maximum eligibility period 

for Direct Subsidized Loans is equal to 

150 percent of the length of the 

educational program, as published by 

the institution, in which the borrower is 

currently enrolled. Therefore, we will 

calculate a borrower’s ‘‘maximum 

eligibility period’’ by multiplying the 

published length of the borrower’s 

current educational program by 1.5. 

Section 685.200(f)(1)(iii) defines the 

term ‘‘subsidized usage period’’ and 

provides that we will calculate it by 

dividing the number of days in the 

borrower’s loan period for a Direct 

Subsidized Loan by the number of days 

in the academic year for which the 

borrower receives the Direct Subsidized 

Loan. The interim final regulations 

provide that this time period will be 

measured in academic years, which we 

will calculate using the information 

provided by the institution (this 

reporting requirement is discussed in 

more detail in the section of this 

preamble covering operational issues). 

A borrower’s ‘‘subsidized usage period’’ 

includes only those periods of time for 

which the borrower received a Direct 

Subsidized Loan, rather than all of the 

periods that a borrower is enrolled in 

one or more educational programs. 

Section 685.200(f)(1)(iii) also specifies 

that the number of years in a borrower’s 

subsidized usage period will be rounded 

down to the nearest quarter of a year. 

For example, a subsidized usage period 

of 0.53 years would be rounded to 0.5 

years and a subsidized usage period of 

0.88 years would be rounded to 0.75 

years. 

Section 685.200(f)(1)(iv) of the interim 

final regulations defines the term 

‘‘remaining eligibility period’’ and 

provides that it is calculated as the 

difference, measured in academic years, 

between the borrower’s maximum 

eligibility period and the sum of the 

borrower’s subsidized usage periods. 

When the difference between a 

borrower’s maximum eligibility period 

and the sum of the borrower’s 

subsidized usage periods is zero, the 

borrower has no remaining eligibility 

period. As provided in § 685.200(f)(2), a 

first-time borrower who has no 

remaining eligibility period is no longer 

eligible for additional Direct Subsidized 

Loans. A borrower’s ability to regain 

eligibility for Direct Subsidized Loans is 

discussed later in this preamble. 

A borrower’s maximum eligibility 

period and remaining eligibility period 

are calculated in the same manner 

regardless of whether the borrower 

graduates, transfers, or withdraws from 

the program. However, the interim final 

regulations treat a borrower who 

graduates from his or her program in a 

timely manner differently for purposes 

of borrower responsibility for the 

accruing interest (see the preamble 

discussion of § 685.200(f)(3)). 

Section 685.200(f)(1)(ii) provides that 

we will calculate a borrower’s 

maximum eligibility period based on 

the published length of the educational 

program in which the borrower is 

currently enrolled. Therefore, if a 

borrower subsequently enrolls in a 

program that is shorter or longer than 

the borrower’s current program, we will 

recalculate the borrower’s maximum 

eligibility period based on the length of 

the new program. Because 

§ 685.200(f)(1)(iv) provides that a 

borrower’s remaining eligibility period 

is based (in part) on the sum of the 

borrower’s subsidized usage periods, 

subsidized usage periods accrued 

during previously-enrolled programs 

count against the maximum eligibility 

period of the program in which the 

borrower is currently enrolled. 

Examples 1 through 5 illustrate how 

we will calculate a borrower’s 

maximum eligibility period, subsidized 

usage period, and remaining eligibility 

period: 

Example 1: A borrower enrolls in a 

two-year undergraduate program and 

receives Direct Subsidized Loans for one 

academic year. The program’s academic 

year is comprised of 30 weeks (or 210 

days) of instructional time. 

The borrower’s maximum eligibility 

period is 150 percent of the two-year 

program, or three academic years. 

Because the borrower has already 

received a Direct Subsidized Loan for 

one academic year, the borrower’s 

subsidized usage period is one academic 

year. The difference between the 

borrower’s maximum eligibility period 

(three academic years) and the sum of 

the borrower’s subsidized usage periods 

(one academic year) is the borrower’s 

remaining eligibility period (two 

academic years). (For purposes of 

simplicity and clarity, subsequent 

examples will not include the 

conversion from days to years for a 

borrower’s subsidized usage period for 

each loan and will refer to an ‘‘academic 

year’’ as a ‘‘year’’ unless necessary to 

illustrate the operation of a specific 

regulatory provision.) 

Example 2: A borrower enrolls in a 

four-year program and receives Direct 

Subsidized Loans for each of the four 

years. 

Year 1 Year 2 Year 3 Year 4 

Maximum eligibility period for program ................................................ 6 years ............. 6 years ............. 6 years .............. 6 years. 

Subsidized usage period ..................................................................... 1 year ............... 1 year ............... 1 year ............... 1 year. 

Sum of all subsidized usage periods ................................................... 1 year ............... 2 years ............. 3 years .............. 4 years. 


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Year 1 Year 2 Year 3 Year 4 

Remaining eligibility period at end of year .......................................... 5 years .............. 4 years ............. 3 years .............. 2 years. 

The borrower’s program has a 

published length of four years and a 

maximum eligibility period of six years 

(150 percent of the four-year program) 

and the borrower received Direct 

Subsidized Loans for four years. The 

subsidized usage period for each year is 

one year and the sum of the subsidized 

usage periods is four years. At the end 

of the fourth year, the borrower’s 

remaining eligibility period is two years, 

which is the difference between the 

borrower’s maximum eligibility period 

(six years) and the sum of the borrower’s 

subsidized usage periods (four years). 

Example 3: A borrower enrolls in a 

two-year program and receives Direct 

Subsidized Loans for two years. The 

borrower then transfers to a four-year 

program, but has not yet received any 

Direct Subsidized Loans for attendance 

in the four-year program. 

After year 2 of 

two-year program 

Upon transfer to 

four-year program 

Maximum eligibility period for program ............................................................................................................. 3 years ............. 6 years. 

Sum of all subsidized usage periods ................................................................................................................ 2 years ............. 2 years. 

Remaining eligibility period ................................................................................................................................ 1 years ............. 4 years. 

The borrower’s original two-year 

program had a maximum eligibility 

period of three years. Because the 

borrower received Direct Subsidized 

Loans for each of the two years of 

enrollment, the sum of the borrower’s 

subsidized usage periods is two years. 

When the borrower enrolls in the fouryear program, the borrower’s maximum 

eligibility period is recalculated to six 

years (150 percent of the four-year 

program). The borrower’s prior 

subsidized usage periods in the twoyear program count against the 

borrower’s new maximum eligibility 

period. Therefore, the borrower’s 

remaining eligibility period is four 

years, which is the difference between 

the borrower’s new maximum eligibility 

period (six years) and the sum of the 

borrower’s subsidized usage periods 

(two years). (Subsequent examples will 

only detail the sum of all of a borrower’s 

subsidized usage periods unless 

necessary to clarify the application of 

the interim final regulations.) 

Example 4: A borrower enrolls in a 

four-year program and receives Direct 

Subsidized Loans for two years. The 

borrower then withdraws before 

completing the four-year program, and 

subsequently enrolls in a two-year 

program. The borrower has not yet 

received any Direct Subsidized Loans 

for attendance in the two-year program. 

Maximum eligibility period for twoyear program.3 years. 

Sum of all subsidized usage periods.2 years. 

Remaining eligibility period ............ 1 year. 

The borrower’s four-year program has 

a maximum eligibility period of six 

years. When the borrower enrolls in the 

two-year program, the borrower’s 

maximum eligibility period is 

recalculated as three years (150 percent 

of the two-year program). The 

borrower’s prior subsidized usage 

periods (two years) in the four-year 

program count against the borrower’s 

new maximum eligibility period in the 

two-year program. Therefore, the 

borrower’s remaining eligibility period 

is one year, which is the difference 

between the borrower’s maximum 

eligibility period (three years) and the 

sum of the borrower’s subsidized usage 

periods (two years). 

Example 5: A borrower enrolls in a 

four-year program and receives Direct 

Subsidized Loans for three years. The 

borrower completes the degree program 

at the end of the fourth year, but does 

not receive any Direct Subsidized Loans 

for that year. The borrower then enrolls 

in a different four-year undergraduate 

program, but has not yet received any 

Direct Subsidized Loans in the new 

program. 

Maximum eligibility period .............. 6 years. 

Sum of the subsidized usage periods.3 years. 

Remaining eligibility period ............ 3 years. 

The borrower’s original four-year 

program has a maximum eligibility 

period of six years. The borrower 

received Direct Subsidized Loans for 

three years. The borrower’s maximum 

eligibility period in the second four-year 

program is also six years, and the 

borrower’s prior subsidized usage 

periods count against the borrower’s 

maximum eligibility period in the 

second program. Therefore, the 

borrower’s remaining eligibility period 

is three years, which is the difference 

between the borrower’s maximum 

eligibility period (six years) and the sum 

of the borrower’s subsidized usage 

periods (three years). The borrower’s 

fourth year of enrollment in the original 

program has no effect on the borrower’s 

remaining eligibility period because the 

borrower did not receive any Direct 

Subsidized Loans for that year. 

In addition to the standard 

calculations described above, we note 

that § 685.301(a)(10) and (c) continue to 

apply and effectively limit the length of 

time a borrower may receive loans 

under the interim final regulations. 

Specifically, § 685.301(a)(10) 

describes the minimum permissible 

length of a loan period. If the borrower’s 

remaining eligibility period (as 

calculated under § 685.200(f)(1)(iv)) is 

less than the minimum permissible loan 

period associated with the borrower’s 

program of study, then the institution 

may not disburse a Direct Subsidized 

Loan to that borrower. 

Under § 685.301(c), borrowers 

enrolled in clock-hour, non-term, or 

certain non-standard term programs are 

not eligible for a new annual loan limit 

until they complete either the weeks of 

instructional time or clock hours 

required. Thus, students enrolled in 

these types of programs are effectively 

limited to receiving Direct Subsidized 

Loans for 100 percent of the length of 

the program, notwithstanding the 150 

percent maximum eligibility period of 

the program as calculated under section 

455(q) of the HEA. As a result, the 150 

percent limit does not affect a borrower 

enrolled in such a program unless the 

borrower subsequently enrolls in 

another educational program (whether a 

standard-term, non-standard-term, or 

non-term program). 

The requirements of § 685.301(a)(10) 

are summarized in Table 1, below. 

Examples 6 and 7 illustrate the effect on 


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the 150 percent limitations of 

§ 685.301(a)(10) and (c), respectively. 

TABLE 1—MINIMUM LOAN PERIODS FOR DIFFERING PROGRAM TYPES

Type of program Minimum loan period 

Credit hour, standard term program ......................................................... One term. 

Credit hour, non-standard term program with terms substantially equal 

and at least nine weeks of instructional time.

One term. 

Credit hour, non-standard term program without terms substantially 

equal or at least nine weeks of instructional time.

Lesser of the length of the program or the program’s academic year. 

Credit hour, non-term program ................................................................. Lesser of the length of the program or the program’s academic year. 

Clock hour program .................................................................................. Lesser of the length of the program or the program’s academic year. 

Example 6: The borrower is enrolled 

in a 22-week (or 154-day), 800-clockhour certificate program that defines its 

academic year as 26 weeks (or 182 days) 

of instructional time. The borrower 

receives a Direct Subsidized Loan that 

covers the length of the program. Upon 

completing the certificate program, the 

borrower enrolls in a two-year 

associate’s degree program that defines 

its academic year as 30 weeks (or 210 

days) of instructional time, and that 

uses credit hours and semesters. In each 

of the borrower’s first two years in the 

associate’s degree program, the borrower 

receives a Direct Subsidized Loan for 

the academic year. The borrower has not 

yet completed the associate’s degree 

program, and is requesting loans for the 

third year. 

After Certificate 

program After year 1 in the two-year program 

After year 2 in 

the two-year 

program 

Maximum eligibility period of program .... 1.27 years .............................................. 3 years ................................................... 3 years. 

Subsidized usage period ......................... 0.85 years, rounded down to 0.75 years 1 year ..................................................... 1 year. 

Sum of all subsidized usage periods ...... 0.75 years .............................................. 1.75 years .............................................. 2.75 years. 

Remaining eligibility period at end of the 

year.

0.52 years .............................................. 1.25 years .............................................. 0.25 years. 

The borrower’s 22-week certificate 

program, which is the equivalent of 0.85 

academic years 

has a maximum eligibility period of 1.27 

academic years (0.85 academic years 

multiplied by 150 percent). The 

borrower’s subsidized usage period for 

the certificate program is the same as 

the length of the program, 0.85 

academic years 

which is rounded down to the nearest 

quarter-year, or 0.75 years. Upon 

transferring to the two-year program, the 

borrower’s maximum eligibility period 

is three years. After two years in the 

two-year program, during which the 

borrower receives Direct Subsidized 

Loans equaling two years, the sum of 

the borrower’s subsidized usage periods 

is 2.75 years (two years from the twoyear program plus 0.75 years from the 

certificate program). After two years in 

the two-year program, the borrower’s 

remaining eligibility period is 0.25 years 

(the difference between the two-year 

program’s maximum eligibility period 

(three years) and the sum of the 

borrower’s subsidized usage periods 

(2.75 years)). The borrower has a 

remaining eligibility period of 52.5 days 

(0.25 years × 210 days in an academic 

year). Because the borrower is enrolled 

in a program that uses credit hours and 

semesters, under § 685.301(a)(10), the 

minimum loan period for this borrower 

is one term. Because the borrower’s 

remaining eligibility period of 52.5 days 

is less than the length of a semester 

(generally 98–112 days, or 14–16 

weeks), the institution cannot disburse 

a Direct Subsidized Loan to this 

borrower, even though the borrower’s 

remaining eligibility period is greater 

than zero. 

Example 7: The borrower is enrolled 

in a one-year, 900 clock hour certificate 

program that defines its academic year 

as 26 weeks (or 182 days) of 

instructional time. The institution 

disburses a Direct Subsidized Loan to 

the borrower for the academic year. The 

borrower completes only 700 clock 

hours of instructional time during the 

academic year. 

Maximum eligibility period ........................................................................ 1.5 years. 

Subsidized usage period .......................................................................... 1 year. 

Remaining eligibility period ....................................................................... 0.5 years, subject to the limitation below. 

The borrower’s one-year program has 

a maximum eligibility period of 1.5 

years and the borrower’s subsidized 

usage period is one year. The borrower’s 

remaining eligibility period is 0.5 years 

(the difference between the borrower’s 

maximum eligibility period (1.5 years) 

and the sum of the borrower’s 

subsidized usage periods (one year)). 

Because the program is a clock hour 

program, and because the borrower has 

only completed 700 clock hours of 

instructional time, the borrower may not 

progress to the next academic year. 

Because § 685.301(c) applies, this 

borrower is not eligible to receive an 

additional Direct Subsidized Loan in 

this program, notwithstanding the 

borrower’s remaining eligibility period 

of 0.5 years. 

Example 7 illustrates that borrowers 

in clock-hour, non-term, and certain 

non-standard term programs are 

effectively limited to receiving Direct 

Subsidized Loans for 100 percent of the 


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length of the program. Borrowers in 

such programs are not able to receive 

Direct Subsidized Loans for their 

remaining eligibility period unless they 

subsequently enroll in another program, 

as illustrated in example 6. 

Reasons: MAP–21 added section 

455(q)(3)(A) to the HEA, which provides 

the method by which a borrower’s 

eligibility for Direct Subsidized Loans is 

determined. To implement this 

provision, it is necessary to issue 

regulations that describe the statutory 

calculations with greater specificity. 

Section 685.200(f)(1)(ii) implements 

section 455(q)(3) of the HEA and 

establishes the rule for determining a 

borrower’s maximum eligibility period 

for Direct Subsidized Loans. To avoid 

potentially misleading borrowers, we 

elected to use the term ‘‘maximum 

eligibility period’’ rather than the 

statutory term ‘‘aggregate period of 

enrollment.’’ Because the 150 percent 

limit on eligibility is measured by the 

period for which a borrower receives 

Direct Subsidized Loans, rather than the 

period of time that a borrower is 

enrolled, using the statutory term could 

cause borrower confusion. 

Section 685.200(f)(1)(ii) bases the 

calculation of a borrower’s maximum 

eligibility period on the published 

length of the program in which the 

borrower is currently enrolled because 

failing to do so would result in 

inequitable treatment of similarly 

situated borrowers. For example, if 

enrolling in a new, shorter educational 

program did not result in recalculating 

a borrower’s maximum eligibility 

period, transfer and non-transfer 

students would have significantly 

divergent remaining eligibility periods 

simply by virtue of enrollment in a 

different program. Suppose a borrower 

is enrolled in a four-year program, 

receives a Direct Subsidized Loan for 

one year, and then transfers to a twoyear program. If we did not recalculate 

the borrower’s maximum eligibility 

period, that borrower would be eligible 

for five additional years of Direct 

Subsidized Loans. In contrast, a 

borrower who had been enrolled in the 

two-year program from the beginning 

and also received a Direct Subsidized 

Loan for one year would only have two 

years of eligibility remaining. Without 

recalculating a borrower’s maximum 

eligibility period when the borrower 

enrolls in a different program, 

otherwise-equivalent borrowers would 

have inconsistent and inequitable 

eligibility periods. To treat all borrowers 

who receive Direct Subsidized Loans 

equitably, regardless of whether they 

have previously enrolled in programs of 

differing durations for which they 

received Direct Subsidized Loans, we 

are determining eligibility for Direct 

Subsidized Loans in this manner. 

Section 685.200(f)(1)(iii) of the 

interim final regulations, which defines 

the term ‘‘subsidized usage period,’’ is 

necessary to implement the requirement 

in section 455(q)(1) of the HEA that the 

borrower not receive Direct Subsidized 

Loans for a period in excess of the 

borrower’s maximum eligibility period. 

This provision provides a method to 

calculate the period for which a 

borrower has received Direct Subsidized 

Loans to ensure the statutory maximum 

is not exceeded. We chose to round 

borrowers’ subsidized usage periods 

down to the nearest quarter year to 

make it easier for borrowers and 

institutions to understand and 

communicate a borrower’s eligibility for 

Direct Subsidized Loans. In addition, 

we chose to round down to ensure that 

borrowers were not denied eligibility for 

Direct Subsidized Loans solely on the 

basis of rounding. 

Because section 455(q)(3)(A) of the 

HEA does not explicitly provide a 

method for calculating a borrower’s 

remaining eligibility period, we needed 

to issue regulations to establish rules for 

calculation of that period. Section 

685.200(f)(1)(iv) provides that a 

borrower’s ‘‘remaining eligibility 

period’’ is defined as the difference, 

measured in academic years, between 

the borrower’s maximum eligibility 

period and the sum of the borrower’s 

subsidized usage periods with certain 

exceptions as discussed in the next 

paragraph. The remaining eligibility 

period will inform borrowers of the 

period they have remaining before 

becoming ineligible for Direct 

Subsidized Loans. 

Finally, as explained above, 

§ 685.200(f)(1)(iv) is subject to the 

existing provisions of § 685.301(a)(10) 

and (c), which govern the minimum 

length of loan periods for students 

enrolled in clock hour, non-term, or 

certain non-standard term programs. 

Because MAP–21 did not include any 

changes to the statutory provisions 

reflected in § 685.301(a)(10) and (c), the 

calculations specified under 

§ 685.200(f)(1) must be consistent with 

those existing regulatory requirements. 

Exceptions to the Calculation of the 150 

Percent Limit for Students Enrolled on 

Less Than a Full-Time Basis or Who 

Receive the Full Annual Loan Limit for 

a Loan Period of Less Than an 

Academic Year (§ 685.200(f)(4)) 

Statute: MAP–21 added section 

455(q)(3)(B) to the HEA, which directs 

the Department to specify in regulations 

how the aggregate period of enrollment 

will be calculated with respect to 

borrowers who are enrolled on less than 

a full-time basis. While section 

428(b)(1)(A) of the HEA permits 

borrowers to receive an amount equal to 

the full annual loan limit for periods of 

less than an academic year, revised 

section 455(q) of the HEA does not 

provide a specific rule for applying the 

150 percent limit to these borrowers. 

Current Regulations: There are no 

existing regulations. 

New Regulations: The interim final 

regulations provide two exceptions to 

the rules for the calculation of a 

borrower’s subsidized usage period in 

§ 685.200(f)(1)(iii). 

The first exception applies to 

borrowers who receive the full Direct 

Subsidized Loan annual loan limit for a 

period of enrollment that is less than an 

academic year. Section 685.200(f)(4)(i) 

provides that, in this circumstance, a 

borrower’s subsidized usage period is 

one year notwithstanding the subsidized 

usage period calculated under 

§ 685.200(f)(1)(iii). 

The second exception applies to 

borrowers who are enrolled in an 

educational program on less than a fulltime basis. Section 685.200(f)(4)(ii) of 

the interim final regulations provides 

that, except as provided in 

§ 685.200(f)(4)(i) (the exception 

described in the preceding paragraph), 

the Secretary will prorate the subsidized 

usage period for borrowers enrolled on 

a half-time or three-quarter-time basis. 

This proration is done by multiplying 

the borrower’s subsidized usage period 

by 0.5 (for half-time) or 0.75 (for threequarter-time), respectively. 

Examples 8 through 11 illustrate the 

calculation of a borrower’s maximum 

eligibility period, subsidized usage 

period, and remaining eligibility period 

if the borrower receives a Direct 

Subsidized Loan in the amount of the 

full annual loan limit for a period less 

than an academic year, for less than fulltime enrollment, or both. 

Example 8: A first-year borrower is 

enrolled in a four-year, semester-based 

program and has received a Direct 

Subsidized Loan in the amount of 

$3,500 (the full annual loan limit) that 

covers the fall semester. The borrower 

does not enroll in the spring semester. 

Maximum eligibility period .............. 6 years. 

Subsidized usage period ................ 1 year. 

Remaining eligibility period ............ 5 years. 

The borrower’s four-year program has 

a maximum eligibility period of six 

years. The borrower received a Direct 

Subsidized Loan in the amount of the 

full annual loan limit for one term. 

Under § 685.200(f)(1)(iii), the borrower’s 


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subsidized usage period would be 0.5 

years 

However, because the borrower received 

a Direct Subsidized Loan in the amount 

of a full annual loan limit for a period 

of less than a full academic year, 

§ 685.200(f)(4)(i) applies, and the 

borrower’s subsidized usage period is 

one year, notwithstanding the 

subsidized usage period calculated 

under § 685.200(f)(1)(iii). Therefore, the 

borrower’s remaining eligibility period 

is five years, which is the difference 

between the borrower’s maximum 

eligibility period (six years) and the sum 

of the borrower’s subsidized usage 

periods (one year). 

Example 9: A borrower enrolls on a 

half-time basis for two years of a fouryear program and receives Direct 

Subsidized Loans for each of the two 

academic years. 

Maximum eligibility period .............. 6 years. 

Sum of the subsidized usage periods.2 years. 

Applicable Proration ....................... 0.5. 

Prorated subsidized usage period 1 year. 

Remaining eligibility period ............ 5 years. 

The borrower’s four-year program has 

a maximum eligibility period of six 

years. Because the borrower was 

enrolled on a half-time basis, each of the 

borrower’s subsidized usage periods is 

prorated by multiplying the subsidized 

usage period by 0.5, resulting in two 

separate 0.5-year subsidized usage 

periods, for a total subsidized usage 

period of one year. Therefore, the 

borrower’s remaining eligibility period 

is five years, the difference between the 

borrower’s maximum eligibility period 

(six years) and the sum of the borrower’s 

prorated subsidized usage periods (one 

year). 

Example 10: A borrower enrolls in a 

four-year program and receives Direct 

Subsidized Loans for all four academic 

years. The borrower is enrolled full time 

during the first academic year, half time 

during the second and third academic 

years, and three-quarter time during the 

fourth year. 

Year 1 Year 2 Year 3 Year 4 

Maximum eligibility period for 

program.

6 years .................................. 6 years .................................. 6 years .................................. 6 years 

Subsidized usage period ....... 1 year .................................... 1 year .................................... 1 year .................................... 1 year 

Applicable Proration ............... N/A ........................................ 0.5 ......................................... 0.5 ......................................... 0.75 

Prorated subsidized usage 

period (if applicable).

1 year (not prorated) ............. 0.5 years ............................... 0.5 years ............................... 0.75 years 

Remaining eligibility period at 

end of year.

5 years .................................. 4.5 years ............................... 4 years .................................. 3.25 years 

The borrower’s maximum eligibility 

period for the four-year program is six 

years. Because the borrower had varying 

enrollment levels during the four years, 

prorated subsidized usage periods must 

be determined and then added together 

to determine the borrower’s remaining 

eligibility period. As the table above 

shows, in the first year, the borrower’s 

subsidized usage period is not prorated 

because the borrower is enrolled full 

time. In the second and third years, 

however, the borrower’s subsidized 

usage period is prorated by 0.5 because 

the borrower is enrolled half time. In the 

fourth year, the borrower’s subsidized 

usage period is prorated by 0.75 because 

the borrower is enrolled three-quarter 

time. If the borrower had been enrolled 

full time during all four academic years, 

and received Direct Subsidized Loans 

for each of those years, the sum of the 

borrower’s subsidized usage periods 

would be four years at the end of the 

four academic years. However, because 

the borrower was not enrolled on a fulltime basis during all four academic 

years, and has subsidized usage periods 

that are prorated, the sum of the 

borrower’s subsidized usage periods is 

2.75 years. As a result, the borrower’s 

remaining eligibility period is 3.25 

years, which is the difference between 

the borrower’s maximum eligibility 

period (six years) and the sum of the 

borrower’s subsidized usage periods 

(2.75 years). 

Example 11: Two first-year borrowers 

are enrolled in a two-year, semesterbased program. Both borrowers are 

enrolled on a half-time basis. Borrower 

1 receives a Direct Subsidized Loan for 

the fall term in the amount of $3,500, 

which is the full annual loan limit. 

Borrower 2 receives a Direct Subsidized 

Loan for the fall term in the amount of 

$3,000. Neither borrower enrolls in the 

spring semester. 

Borrower 1 Borrower 2 

Maximum eligibility period ............................................................ 3 years ................................................ 3 years. 

Subsidized usage period .............................................................. 1 year .................................................. 0.5 years. 

Applicable proration ...................................................................... N/A ...................................................... 0.5. 

Prorated usage period .................................................................. N/A ...................................................... 0.25 years. 

Remaining eligibility period ........................................................... 2 years ................................................ 2.75 years. 

The two-year program in which the 

borrowers are enrolled has a maximum 

eligibility period of three years. 

Borrower 1 received a Direct Subsidized 

Loan in the amount of the full annual 

loan limit for one term. Borrower 2 

received a Direct Subsidized Loan for 

one term, but for less than the amount 

of the full annual loan limit. Both 

borrowers were enrolled on a half-time 

basis. 

For Borrower 1, the calculated 

subsidized usage period under 

§ 685.200(f)(1)(iii) would be 0.5 years 

However, because Borrower 1 received 

a subsidized loan in the amount of the 

full annual loan limit for a period of less 

than a full academic year, 

§ 685.200(f)(4)(i) applies. Therefore, the 

borrower’s subsidized usage period is 

one year and is not prorated. 

For Borrower 2, the calculated 

subsidized usage period is 0.5 years 

Because the borrower’s loan amount is 

for less than the full annual loan limit, 

§ 685.200(f)(4)(i) does not apply. 

Therefore, in accordance with 


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§ 685.200(f)(4)(ii), Borrower 2’s 

subsidized usage period is prorated 

based on the borrower’s half-time 

enrollment status. Because Borrower 2 

is enrolled on a half-time basis, the 

borrower’s subsidized usage period of 

0.5 years is multiplied by 0.5, resulting 

in a prorated subsidized usage period of 

0.25 years. 

For Borrower 1, the remaining 

eligibility period is two years, which is 

the difference between the borrower’s 

maximum eligibility period (three years) 

and the sum of the borrower’s 

subsidized usage periods (one year). For 

Borrower 2, the remaining eligibility 

period is 2.75 years, which is the 

difference between the borrower’s 

maximum eligibility period (three years) 

and the sum of the borrower’s 

subsidized usage periods (0.25 years). 

Reasons: Section 685.200(f)(4)(i) 

provides the first exception to the 

definition of the term ‘‘subsidized usage 

period’’: If a first-time borrower receives 

a Direct Subsidized Loan in an amount 

that is equal to the annual loan limit for 

a loan period that is less than a full 

academic year in length, the subsidized 

usage period is one year. 

Under current law and regulations, a 

borrower can receive a Direct 

Subsidized Loan in an amount equal to 

the full annual loan limit for a period 

that is as short as a term (e.g., a 

semester). Absent § 685.200(f)(4)(i), a 

borrower would be able to partially 

circumvent the limitations on Direct 

Subsidized Loan eligibility enacted by 

MAP–21: An institution could double a 

borrower’s Direct Subsidized Loan 

eligibility by disbursing the full annual 

Direct Subsidized Loan limit for a single 

term of the academic year (e.g., one 

semester). If this pattern were extended 

for the duration of the program, the 

borrower’s subsidized usage period 

would be only 0.5 years for each 

academic year and the borrower would 

have effectively doubled his or her 

eligibility for Direct Subsidized Loans. 

Section 685.200(f)(4)(i) prevents this 

type of circumvention of MAP–21’s 

limitations on Direct Subsidized Loan 

eligibility. 

Section 685.200(f)(4)(ii) provides the 

second exception to the definition of the 

term ‘‘subsidized usage period’’: If a 

first-time borrower is enrolled on a halftime or three-quarter-time basis, the 

borrower’s subsidized usage period is 

prorated by multiplying the borrower’s 

subsidized usage period, as determined 

in accordance with § 685.200(f)(1)(iii), 

by 0.5 or 0.75, respectively. Section 

685.200(f)(4)(ii) implements revised 

section 455(q)(3)(B)(i) of the HEA, 

which directs the Secretary to specify in 

regulation how a borrower’s subsidized 

usage period will be calculated when 

the borrower is enrolled on less than a 

full-time basis. Unlike other Federal 

student aid programs, such as the 

Federal Pell Grant Program, Direct 

Loans are not prorated based on the 

borrower’s enrollment status. Thus, if a 

borrower who is enrolled on a part-time 

basis has the same costs and financial 

need as a borrower who is enrolled on 

a full-time basis, then both borrowers 

will be eligible for a Direct Subsidized 

Loan in the same amount (assuming the 

borrowers’ years in school are 

equivalent). Because borrowers may 

decide to enroll on less than a full-time 

basis for many different reasons, we 

believe it is unlikely that failing to 

prorate such borrowers’ subsidized 

usage periods would provide a 

sufficient incentive for such borrowers 

to enroll on a full-time basis. 

Furthermore, we believe that not 

prorating a borrower’s subsidized usage 

period based on the borrower’s 

enrollment status would unfairly punish 

borrowers who choose to enroll on a 

part-time basis, by further limiting such 

borrower’s eligibility for Direct 

Subsidized Loans. Finally, prorating a 

borrower’s subsidized usage period will 

not result in these borrowers receiving 

significantly higher levels of Direct 

Subsidized Loan funds than borrowers 

who are enrolled full time, because 

many borrowers who take out Direct 

Subsidized Loans in significant amounts 

will reach the aggregate Direct 

Subsidized Loan limit of $23,000 prior 

to reaching their maximum eligibility 

period under these provisions. 

Borrower Responsibility for Accruing 

Interest on Existing Direct Subsidized 

Loans for Borrowers Who Continue 

Enrollment After Reaching the 150 

Percent Subsidized Loan Limit 

(§ 685.200(f)(3)) 

Statute: Section 455(q)(2) of the HEA, 

added by MAP–21, provides that 

interest accrues on all Direct Subsidized 

Loans disbursed to certain borrowers on 

or after July 1, 2013. A borrower is 

responsible for the accruing interest on 

these loans if the borrower is ineligible 

for additional Direct Subsidized Loans 

because of the 150 percent limitation 

and is enrolled in a program that would 

otherwise qualify the borrower for a 

Direct Subsidized Loan. Section 

455(q)(2) further provides that interest 

on a Direct Subsidized Loan is paid and 

capitalized in the same manner as 

interest on a Direct Unsubsidized Loan. 

Current Regulations: There are no 

existing regulations. 

New Regulations: Section 

685.200(f)(3)(i) describes the 

circumstances under which a first-time 

borrower becomes responsible for 

accruing interest on his or her existing 

Direct Subsidized Loans. 

Notwithstanding any other provision in 

the regulations that limits the 

borrower’s responsibility for accruing 

interest, the borrower exceeds the 

eligibility limit and becomes 

responsible for accruing interest on all 

Direct Subsidized Loans if the borrower: 

(1) has no remaining eligibility period; 

and (2) attends any undergraduate 

program or preparatory coursework on 

at least a half-time basis at an eligible 

institution that participates in the Title 

IV, HEA programs. (Note: throughout 

this preamble the terms enrollment and 

attendance are used interchangeably to 

describe a borrower taking courses at a 

program.) 

Attendance in an eligible 

undergraduate program causes a 

borrower to become responsible for 

accruing interest even if the borrower 

does not request or receive a new loan. 

A borrower’s enrollment in graduate or 

professional programs, enrollment on 

less than a half-time basis, or enrollment 

in programs at an institution that does 

not participate in the Title IV loan 

programs will not result in borrower 

responsibility for accruing interest 

because borrowers in those programs are 

not eligible for Direct Subsidized Loans. 

In addition, if a borrower has a Direct 

Consolidation Loan that repaid a Direct 

Subsidized Loan, and then the borrower 

subsequently becomes responsible for 

accruing interest, interest that accrues 

on that portion of the Direct 

Consolidation Loan is the responsibility 

of the borrower. 

There are three circumstances in 

which a borrower becomes responsible 

for accruing interest on all Direct 

Subsidized Loans. The first is when a 

borrower who has no remaining 

eligibility period for Direct Subsidized 

Loans continues enrollment in the 

program for which the borrower 

received the loans. The second is when 

a borrower has no remaining eligibility 

period for a program and, after 

withdrawing or transferring, enrolls in a 

different program that is equal to or 

shorter in duration than the prior 

program. The third is when a borrower 

who previously received Direct 

Subsidized Loans and who still has 

some remaining eligibility period for 

that program withdraws or transfers 

from that program to a program of a 

shorter duration than the prior program. 

In some cases, enrolling in another 

program results in the sum of the 

borrower’s subsidized usage periods 

equaling or exceeding the new 

program’s maximum eligibility period. 

In such cases, the borrower’s enrollment 


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Federal Register / Vol. 78, No. 95 / Thursday, May 16, 2013 / Rules and Regulations 28963 

in the shorter program causes the 

borrower to have no remaining 

eligibility period (which causes a loss of 

eligibility for additional Direct 

Subsidized Loans) and to become 

responsible for accruing interest on the 

outstanding loans. 

Under § 685.200(f)(3)(i), a borrower 

becomes responsible for accruing 

interest on his or her outstanding loans 

from the date that the conditions of 

§ 685.200(f)(3)(i)(A) and (B) are both 

met. The borrower is responsible for 

accruing interest when the borrower is 

enrolled at least half time at an eligible 

institution, during the grace period, 

during deferment periods, or during 

certain periods when the borrower is 

repaying Direct Loans under the Pay As 

You Earn or Income-Based Repayment 

plans (existing regulations governing 

those repayment plans provide that 

under certain circumstances borrowers 

are not responsible for accruing 

interest). 

Section 685.200(f)(3)(ii) provides that, 

if a borrower previously became 

responsible for accruing interest on a 

Direct Subsidized Loan and then 

receives a Direct Consolidation Loan 

that repays that loan, the borrower 

continues to be responsible for the 

accruing interest on the portion of that 

Direct Consolidation Loan that repaid 

the Direct Subsidized Loan. 

Section 685.200(f)(3)(iii) provides 

that, for any outstanding Direct 

Subsidized Loans for which the 

borrower becomes responsible for 

accruing interest, interest that accrued 

prior to the date on which the borrower 

became responsible for accruing interest 

does not become the borrower’s 

responsibility; rather, the borrower is 

responsible only for the interest that 

accrues after the borrower meets both 

conditions specified in 

§ 685.200(f)(3)(i)(A) and (B) (we use the 

term ‘‘accruing interest’’ in this 

preamble to indicate this distinction). 

Borrowers have the option of paying the 

interest portion or allowing interest to 

be capitalized. Unpaid interest is 

capitalized in the same manner as it is 

on a Direct Unsubsidized Loan. 

Section 685.200(f)(3)(iv) specifies the 

effect on a borrower’s responsibility for 

accruing interest caused by attendance 

in a subsequent program if the borrower 

completes his or her current program in 

a timely manner. If a borrower 

completes an undergraduate program 

without becoming responsible for 

accruing interest, attendance in a 

subsequent program will not cause 

borrower responsibility for accruing 

interest on previously received loans, 

even if the borrower has no remaining 

eligibility period. 

Examples 12 through 16 illustrate 

how a borrower becomes responsible for 

accruing interest under § 685.200(f)(3): 

Example 12: A borrower enrolls in a 

four-year program, but takes six years to 

complete the program and receives 

Direct Subsidized Loans for each of 

those six years. The borrower then 

continues to be enrolled in the same 

program for a seventh year. 

Maximum eligibility period ........................................................................ 6 years. 

Subsidized usage period .......................................................................... 6 years. 

Remaining eligibility period ....................................................................... 0 years. 

Borrower responsibility for accruing interest ............................................ The borrower becomes responsible for accruing interest upon enrollment in the seventh year. 

The maximum eligibility period for 

the four-year program is six years. The 

borrower received Direct Subsidized 

Loans for all six years, meaning that the 

borrower is no longer eligible for 

additional Direct Subsidized Loans. 

Because the borrower continues 

enrollment in the same program after 

losing eligibility for additional Direct 

Subsidized Loans, the borrower 

becomes responsible for accruing 

interest on all of his or her outstanding 

Direct Subsidized Loans, regardless of 

whether he or she requests or receives 

additional Federal student aid. If the 

borrower had graduated or discontinued 

enrollment before the seventh year, the 

borrower would not have become 

responsible for accruing interest on his 

or her Direct Subsidized Loans. 

Example 13: A borrower enrolls in a 

four-year program, receives Direct 

Subsidized Loans for four years, but 

discontinues enrollment before 

completing the program. The borrower 

then enrolls in a two-year program, but 

does not request Federal student aid of 

any kind. 

Maximum eligibility period for 2-year program ......................................... 3 years. 

Subsidized usage period .......................................................................... 4 years. 

Remaining eligibility period ....................................................................... ¥1 years. 

Borrower responsibility for accruing interest ............................................ The borrower becomes responsible for accruing interest upon enrollment in the two-year program. 

The borrower’s four-year program has 

a maximum eligibility period of six 

years. The borrower receives Direct 

Subsidized Loans for the four years the 

borrower is enrolled in that program. 

Upon withdrawing from that program, 

the borrower would have been eligible 

for Direct Subsidized Loans for an 

additional two years if he or she had 

remained in that program. However, 

when the borrower enrolls in the twoyear program, the borrower’s maximum 

eligibility period is recalculated as three 

years. Furthermore, the period during 

which the borrower previously received 

Direct Subsidized Loans counts against 

the borrower’s new maximum eligibility 

period. The borrower is ineligible for 

additional Direct Subsidized Loans 

because the borrower has no remaining 

eligibility period (the borrower’s 

maximum eligibility period upon 

enrollment in the two-year program 

(three years) is less than the sum of the 

borrower’s subsidized usage periods 

(four years)). The borrower’s enrollment 

in the shorter program causes the 

borrower to become ineligible for 

additional Direct Subsidized Loans and 

to become responsible for accruing 

interest on all previously received 

Direct Subsidized Loans. 

We note that, although the 

calculations in example 13 

arithmetically result in a remaining 

eligibility period that is a negative 

number, the effect is the same as if the 

borrower had a remaining eligibility 

period of zero years and then enrolled 

in a program of equal or shorter 

duration. A negative remaining 

eligibility period does not require that 

the borrower or institution return any 

portion of previously disbursed Direct 

Subsidized Loan. 


tkelley on DSK3SPTVN1PROD with RULES2
28964 Federal Register / Vol. 78, No. 95 / Thursday, May 16, 2013 / Rules and Regulations 

1The Senate Appropriations Committee’s report 

on the 2013 Appropriations bill funding the 

Department states that limiting ‘‘subsidy duration 

will encourage borrowers to complete their 

educational program in a timelier manner.’’ S.Rpt. 

112–176, 112th Cong. 2d Sess. at 190 (2012). 

Example 14: A borrower enrolls in a 

four-year undergraduate program and 

receives Direct Subsidized Loans for six 

years. The borrower then enrolls in a 

two-year master’s degree program. 

Maximum eligibility period ........................................................................ Not applicable. 

Subsidized usage period .......................................................................... 6 years. 

Remaining eligibility period ....................................................................... Not applicable. 

Borrower responsibility for accruing interest ............................................ The borrower is not responsible for accruing interest. 

The borrower’s four-year program has 

a maximum eligibility period of six 

years. The borrower received Direct 

Subsidized Loans for six years. When 

the borrower enrolls in the graduate 

program, the borrower is not eligible for 

additional Direct Subsidized Loans 

because graduate students are not 

eligible for Direct Subsidized Loans. 

Under § 685.200(f)(3)(i)(B), enrollment 

in such programs does not result in a 

borrower becoming responsible for 

accruing interest. Therefore, enrollment 

in the master’s degree program does not 

cause the borrower to become 

responsible for accruing interest on 

Direct Subsidized Loans. 

Example 15: A borrower enrolls in a 

four-year undergraduate program, 

receives Direct Subsidized Loans for 

four years, and graduates on time. The 

borrower then enrolls in a two-year 

undergraduate program. 

Maximum eligibility period ........................................................................ 3 years. 

Subsidized usage period .......................................................................... 4 years. 

Remaining eligibility period ....................................................................... ¥1 years. 

Borrower responsibility for accruing interest ............................................ The borrower is not responsible for accruing interest. 

The borrower’s four year program had 

a maximum eligibility period of six 

years and the borrower received Direct 

Subsidized Loans for four years in that 

program. When the borrower enrolls in 

the two-year program, the borrower’s 

maximum eligibility period is 

recalculated as three years. The sum of 

the borrower’s subsidized usage periods 

(four years) exceeds the borrower’s 

maximum eligibility period (three 

years); the borrower has no remaining 

eligibility period and is therefore no 

longer eligible for Direct Subsidized 

Loans. Under § 685.200(f)(3)(i), because 

the borrower had no remaining 

eligibility period upon enrollment in an 

undergraduate program, the borrower 

would normally become responsible for 

accruing interest. However, under 

§ 685.200(f)(3)(iv), because the borrower 

graduated from the four-year program 

before becoming responsible for 

accruing interest, enrollment in the twoyear program does not result in the 

borrower becoming responsible for 

accruing interest on any loans. 

Example 16: A borrower enrolls in a 

two-year program and receives Direct 

Subsidized Loans for two years. The 

borrower does not complete that 

program, but transfers to a four-year 

program and receives four years of 

Direct Subsidized Loans, graduating on 

time. The borrower then enrolls in a 

one-year certificate program. 

After year 2 of two-year program Upon completion of four-year 

program 

Upon attendance in the one-year 

program 

Maximum eligibility period for program.3 years .......................................... 6 years .......................................... 1.5 years. 

Sum of all subsidized usage periods.2 years .......................................... 6 years .......................................... 6 years. 

Remaining eligibility period ............ 1 year ............................................ 0 years .......................................... ¥4.5 years. 

Borrower responsibility for accruing 

interest.

Borrower not responsible for accruing interest.Borrower not responsible for accruing interest.Borrower not responsible for accruing interest. 

The borrower transferred to the fouryear program before becoming 

responsible for accruing interest in the 

two-year program. When the borrower 

transferred, the borrower’s maximum 

eligibility period was recalculated as six 

years, resulting in a remaining eligibility 

period of four years. The borrower 

completed the four-year program before 

becoming responsible for accruing 

interest. Therefore, under 

§ 685.200(f)(3)(iv), upon enrollment in 

the one-year certificate program, the 

borrower does not become responsible 

for accruing interest on any of the 

borrower’s previously received Direct 

Subsidized Loans. However, the 

borrower is not eligible to receive Direct 

Subsidized Loans while attending the 

one-year certificate program. 

Reasons: MAP–21 added section 

455(q)(2) to the HEA, which provides 

that if a borrower is no longer eligible 

for Direct Subsidized Loans and is 

enrolled in a program of education or 

training for which the borrower is 

otherwise eligible to receive Direct 

Subsidized Loans, interest will accrue 

on all of the borrower’s Direct 

Subsidized Loans that were disbursed to 

the borrower on or after July 1, 2013. We 

believe that the limit on subsidy 

duration in MAP–21 was meant to 

encourage timely completion.1 We have 

therefore drafted implementing 

regulations consistent with that goal. 

Section 685.200(f)(3) provides that a 

borrower becomes responsible for 

accruing interest on all Direct 

Subsidized Loans only if the borrower 

has no remaining eligibility period and 

then enrolls at least half time in an 

eligible undergraduate program or 

preparatory coursework at an institution 

that participates in the Title IV, HEA 

programs. This is consistent with the 

requirements of section 455(q) of the 

HEA. Specifically, the statute provides a 

progression of actions and consequences 


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Federal Register / Vol. 78, No. 95 / Thursday, May 16, 2013 / Rules and Regulations 28965 

for Direct Subsidized Loan borrowers 

which ultimately results in a borrower 

becoming responsible for accruing 

interest. First, section 455(q)(3)(A) of the 

HEA provides that a borrower may not 

receive Direct Subsidized Loans in 

excess of the borrower’s maximum 

eligibility period. Second, section 

455(q)(1) of the HEA provides that such 

borrowers lose eligibility for Direct 

Subsidized Loans if the borrower meets 

or exceeds his or her maximum 

eligibility period. Finally, section 

455(q)(2) of the HEA provides that, if 

the borrower is enrolled in a program of 

education or training after having lost 

eligibility for Direct Subsidized Loans, 

interest on the borrower’s Direct 

Subsidized Loans disbursed on or after 

July 1, 2013 accrues, notwithstanding 

any other provision of law that would 

relieve the borrower of the obligation to 

pay interest. 

A consequence of § 685.200(f)(3)(i) is 

that a borrower will become responsible 

for accruing interest on outstanding 

Direct Subsidized Loans by enrolling in 

an undergraduate program that is 

shorter than the program for which the 

borrower previously received Direct 

Subsidized Loans, even if the borrower 

does not receive new Direct Subsidized 

Loans. For the reasons articulated in the 

preamble discussion of 

§ 685.200(f)(1)(ii)–(iv), the interim final 

regulations require that a borrower’s 

maximum eligibility period changes to 

reflect the length of the program in 

which the borrower is currently 

enrolled. If a borrower had previously 

borrowed for a longer program (even if 

the borrower had a remaining eligibility 

period greater than zero for that 

program), then, by virtue of the previous 

borrowing, it is possible for the 

borrower to have no remaining 

eligibility period for the shorter program 

even if the borrower does not receive 

any Direct Subsidized Loans for the 

shorter program. By enrolling in the 

shorter program, the borrower 

immediately satisfies the condition of 

section 455(q)(3)(A) of the HEA (that the 

borrower is no longer eligible for Direct 

Subsidized Loans) as well as the 

condition of section 455(q)(2) of the 

HEA (that the borrower is enrolled after 

losing eligibility for additional Direct 

Subsidized Loans). Therefore, to 

implement section 455(q) of the HEA, 

the interim final regulations require that 

enrollment in a shorter program after 

meeting or exceeding the borrower’s 

maximum eligibility period will result 

in the borrower becoming responsible 

for accruing interest on all outstanding 

Direct Subsidized Loans. 

We recognize that under this 

framework, a borrower could become 

responsible for accruing interest on his 

or her Direct Subsidized Loans by 

enrolling in a program of equal or 

shorter duration even if the borrower 

completed a prior program in a timely 

manner. Because we believe that MAP– 

21 was intended to encourage borrowers 

to complete their programs in a timely 

manner, § 685.200(f)(3)(iv) specifies that 

such a circumstance will not result in 

borrower responsibility for accruing 

interest (see examples 15 and 16). 

Absent such treatment, borrowers who 

complete their programs in a timely 

manner, consistent with the statutory 

intent, could still become responsible 

for accruing interest. In addition, 

without this treatment, the regulations 

would create a disincentive for 

borrowers who completed their 

programs on time but are nevertheless 

unemployed or underemployed and 

need to return to a short-term 

educational program for job retraining. 

For these reasons, we have specified in 

regulation that borrowers who complete 

their programs in a timely manner do 

not become responsible for accruing 

interest, consistent with the intent of 

MAP–21. 

Section 685.200(f)(3)(i) also specifies 

that borrowers who become responsible 

for accruing interest on outstanding 

Direct Subsidized Loans will be 

responsible for such interest for the life 

of the loans, including periods of inschool status, grace periods, deferment 

periods, and certain periods of 

repayment under the Income-Based 

Repayment and Pay As You Earn 

Repayment plans. Section 455(q)(2) of 

the HEA provides that the borrower is 

responsible for accruing interest on 

outstanding Direct Subsidized Loans 

‘‘notwithstanding subsection (f)(1)(A) or 

any other provision of this title.’’ 

Section 455(f)(1)(A) of the HEA provides 

that during periods of eligible 

deferments, interest does not accrue and 

is not paid by the borrower. Therefore, 

under section 455(q)(2) a borrower who 

becomes responsible for accruing 

interest does so even during periods of 

deferment. The interim final regulations 

implement this statutory requirement by 

providing that, when a borrower 

becomes responsible for accruing 

interest on Direct Subsidized Loans, 

interest accrues and is the responsibility 

of the borrower even during periods of 

deferment. Similarly, section 455(a)(2) 

of the HEA requires that the borrower 

becomes responsible for accruing 

interest during similar periods when 

interest would not otherwise be the 

responsibility of the borrower. The 

interim final regulations therefore 

require that, when repaying Direct 

Subsidized Loans under the Pay As You 

Earn or Income-Based Repayment plans, 

a borrower who would otherwise not be 

responsible for accruing interest during 

certain periods of repayment will 

become responsible for such interest if 

the borrower meets the conditions of 

§ 685.200(f)(3). 

Finally, § 685.200(f)(3)(i)(B) reflects 

section 455(q)(2) of the HEA, which 

provides that a borrower becomes 

responsible for accruing interest if the 

borrower is enrolled in a program for 

which the borrower is otherwise eligible 

to receive a Direct Subsidized Loan. 

Regaining Eligibility for Direct 

Subsidized Loans (§ 685.200(f)(5)) 

Statute: MAP–21 added section 

455(q)(1) to the HEA to provide that a 

borrower loses eligibility for Direct 

Subsidized Loans if the period of time 

for which the borrower has received 

Direct Subsidized Loans exceeds the 

aggregate period of enrollment as 

described in section 455(q)(3) of the 

HEA. 

Current Regulations: There are no 

existing regulations. 

New Regulations: Section 

685.200(f)(5) provides that a first-time 

borrower who had previously lost 

eligibility to receive additional Direct 

Subsidized Loans may regain eligibility 

for Direct Subsidized Loans if the 

borrower attends an educational 

program that is longer than the prior 

educational program in which the 

borrower was enrolled. This provision 

applies even if the borrower has become 

responsible for accruing interest on 

previously received Direct Subsidized 

Loans under § 685.200(f)(3). Example 17 

illustrates this regulatory provision: 

Example 17: A borrower enrolls in a 

two-year program and receives Direct 

Subsidized Loans for the maximum 

eligibility period of three years. The 

borrower is no longer eligible for further 

Direct Subsidized Loans in this 

program. Then, the borrower enrolls in 

a four-year undergraduate program. 

Maximum eligibility period for 4- 

year program.

6 years. 

Subsidized usage period ................ 3 years. 

Remaining eligibility period ............ 3 years. 

The borrower’s two-year program had 

a maximum eligibility period of three 

years and the borrower received Direct 

Subsidized Loans for three years for that 

program. Because the borrower had no 

remaining eligibility period in that 

program, the borrower becomes 

ineligible for additional Direct 

Subsidized Loans. However, when the 

borrower enrolls in the four-year 

program the borrower’s maximum 


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28966 Federal Register / Vol. 78, No. 95 / Thursday, May 16, 2013 / Rules and Regulations 

eligibility period is 6 years. Since the 

borrower has used three years of 

eligibility, the borrower now becomes 

eligible for an additional three years of 

Direct Subsidized Loans. Therefore, the 

borrower has regained eligibility by 

enrolling in a program of greater 

duration than the borrower’s previous 

program. 

Reasons: Section 685.200(f)(5) 

incorporates the calculations of section 

455(q)(3) of the HEA into the interim 

final regulations. Specifically, this 

regulatory provision provides that a 

borrower may regain eligibility for 

Direct Subsidized Loans if the borrower 

attends an educational program longer 

than the program in which the borrower 

was previously enrolled. A borrower 

enrolling in such a program would have 

a new, longer eligibility period and 

would regain eligibility for additional 

Direct Subsidized Loans. 

Failing to allow a borrower to regain 

eligibility in this manner would result 

in inequitable treatment of similarly 

situated borrowers. For example, if 

enrolling in a new, longer educational 

program did not expand a borrower’s 

maximum eligibility period, students 

enrolling in two different programs 

would have significantly reduced Direct 

Subsidized Loan eligibility compared to 

borrowers who only enrolled in the 

longer program. Suppose a borrower is 

enrolled in a two-year program and 

receives Direct Subsidized Loans for 

three years. If the borrower then 

transfers to a four-year program and if 

the borrower’s maximum eligibility 

period were not adjusted to six years, 

then the borrower would not be eligible 

for any additional Direct Subsidized 

Loans. In contrast, a borrower who had 

been enrolled in the four-year program 

from the beginning and who had also 

received Direct Subsidized Loans for 

three years would have three years of 

eligibility remaining. Therefore, to 

provide equal treatment to these and 

similar borrowers, under these interim 

final regulations, borrowers who attend 

programs of greater duration can regain 

eligibility for Direct Subsidized Loans. 

Treatment of Preparatory Coursework 

Required for Enrollment in a Degree or 

Certificate Program (§ 685.200(f)(6)) 

Statute: MAP–21 added section 

455(q)(3)(B) to the HEA. This section 

directs the Secretary to specify in 

regulation how the 150 percent limit on 

Direct Subsidized Loans applies to 

students who are enrolled in 

coursework necessary for admission 

into a degree or certificate program. 

Section 484(b)(3)(B) of the HEA 

authorizes an otherwise-eligible student 

to receive a Direct Loan for one 12- 

month period in a course of study 

necessary for enrollment in a degree or 

certificate program. 

Current Regulations: Current 34 CFR 

668.32(a)(1)(ii) reflects the requirements 

of section 484(b)(3)(B) of the HEA. 

Section 685.203(a)(6) provides that, for 

one 12-month period, a student may 

receive a Direct Loan up to an annual 

loan limit of $2,625 for coursework 

necessary for enrollment in an 

undergraduate degree or certificate 

program, and up to an annual loan limit 

of $5,500 for coursework necessary for 

a graduate or professional degree or 

certificate program. There are no current 

regulations that address the application 

of the 150 percent Direct Subsidized 

Loan limit on borrowers enrolled in 

coursework necessary for a graduate or 

professional program. 

New Regulations: The interim final 

regulations provide that the provisions 

of § 685.200(f), which govern the 150 

percent limit on Direct Subsidized Loan 

eligibility, do not supersede the existing 

12-month maximum period of loan 

eligibility limitation imposed by 

§ 668.32(a)(1)(ii). Section 685.200(f)(6) 

of the interim final regulations 

establishes rules for determining the 

eligibility for Direct Subsidized Loans 

received for preparatory coursework 

necessary for enrollment in 

undergraduate or graduate or 

professional programs. Section 

685.200(f)(6) treats coursework required 

for an undergraduate degree or 

certificate program differently than 

coursework required for a graduate or 

professional program. However, 

§ 685.200(f)(6)(i) specifies that Direct 

Subsidized Loans received for either 

type of preparatory coursework are 

included in the calculation of a 

borrower’s subsidized usage period. 

Section 685.200(f)(6)(ii) provides that 

the maximum eligibility period for 

Direct Subsidized Loans for students 

completing preparatory coursework 

required for enrollment in an 

undergraduate program is the maximum 

eligibility period applicable to the 

undergraduate program for which the 

preparatory coursework is required. 

Enrollment in preparatory coursework 

does not increase the borrower’s 

maximum eligibility period. 

Furthermore, § 685.200(f)(6)(iv) 

provides that for undergraduate 

preparatory coursework, the borrower 

becomes responsible for accruing 

interest if the borrower has no 

remaining eligibility period in the 

program for which the coursework is 

required. This occurs if the maximum 

eligibility period of the undergraduate 

program for which the preparatory 

coursework is required is less than the 

sum of the borrower’s subsidized usage 

periods based on the borrower’s prior 

enrollment in one or more educational 

programs. 

Section 685.200(f)(6)(iii) provides that 

the maximum eligibility period for 

preparatory coursework required for 

enrollment in a graduate or professional 

program is the maximum eligibility 

period for the undergraduate program 

for which the borrower most recently 

received a Direct Subsidized Loan. A 

borrower with no remaining eligibility 

period based on the maximum 

eligibility period for that undergraduate 

program may not receive Direct 

Subsidized Loans to complete the 

required coursework; however, the 

borrower may receive Direct 

Unsubsidized Loans. 

Section 685.200(f)(6)(v) provides that 

enrollment in preparatory coursework 

required for enrollment in a graduate or 

professional program does not result in 

the borrower becoming responsible for 

accruing interest on previously received 

Direct Subsidized Loans. Examples 18 

through 22 illustrate the regulatory 

treatment of preparatory coursework: 

Example 18: A borrower enrolls in 

preparatory coursework required for 

enrollment in an undergraduate 

program and receives Direct Subsidized 

Loans for one year. The borrower then 

enrolls in a four-year degree program for 

which the preparatory coursework was 

required. 

Maximum eligibility period .............. 6 years. 

Subsidized usage period ................ 1 year. 

Remaining eligibility period ............ 5 years. 

Under § 685.200(f)(6)(ii), the 

borrower’s maximum eligibility period 

is calculated as 150 percent of the fouryear program, which results in a 

maximum eligibility period of six years. 

The borrower received Direct 

Subsidized Loans for one year of 

preparatory coursework; under 

§ 685.200(f)(6)(i), this period counts 

toward the borrower’s maximum 

eligibility period for the four-year 

program for which the preparatory 

coursework was required. The 

difference between the maximum 

eligibility period (six years) and the sum 

of the borrower’s subsidized usage 

periods from the preparatory 

coursework (one year) results in a 

remaining eligibility period of five years 

for the four-year program. 

Example 19: A borrower enrolls in 

preparatory coursework for enrollment 

in a two-year undergraduate program 

and receives Direct Subsidized Loans 

for one year. The borrower then enrolls 

in the two-year undergraduate program 

for which the preparatory coursework 


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Federal Register / Vol. 78, No. 95 / Thursday, May 16, 2013 / Rules and Regulations 28967 

was required and receives Direct 

Subsidized Loans for two years. The 

borrower then enrolls in a four-year 

program. 

After 

preparatory coursework 

After 

2-year program 

Upon enrollment 

in 

4-year program 

Maximum eligibility period of the program .............................. 3 years ................................... 3 years ................................... 6 years. 

Sum of subsidized usage periods ........................................... 1 year ..................................... 3 years ................................... 3 years. 

Remaining eligibility period ...................................................... 2 years ................................... 0 years ................................... 3 years. 

When the borrower enrolled in the 

preparatory coursework, the borrower’s 

maximum eligibility period under 

§ 685.200(f)(6)(ii) was the maximum 

eligibility period for the two-year 

program for which the coursework is 

required, or three years. The borrower 

received Direct Subsidized Loans for 

one year of preparatory coursework and 

had two years of eligibility remaining. 

The borrower then enrolled in the twoyear program. The borrower received 

Direct Subsidized Loans for two years 

and, after two years, had no remaining 

eligibility for Direct Subsidized Loans. 

When the borrower enrolls in the fouryear program, the borrower’s maximum 

eligibility period under 

§ 685.200(f)(1)(ii) is calculated as 150 

percent of the four-year program, or six 

years. Under §§ 685.200(f)(1)(iii) and 

685.200(f)(6)(i), the period in which the 

borrower previously received Direct 

Subsidized Loans, including the loan 

received for the preparatory coursework, 

count against the borrower’s new sixyear maximum eligibility period. The 

sum of the borrower’s subsidized usage 

periods upon enrollment in the fouryear program is three years. The 

borrower has three years of Direct 

Subsidized Loan eligibility remaining— 

the difference between six years and 

three years. 

Example 20: A borrower enrolls in a 

two-year program and receives Direct 

Subsidized Loans for the maximum 

eligibility period of three years. The 

borrower withdraws and wants to enroll 

in another two-year program, but is 

required to complete preparatory 

coursework for enrollment in that 

program. 

Maximum eligibility period ........................................................................ 3 years. 

Subsidized usage period .......................................................................... 3 years. 

Remaining eligibility period ....................................................................... 0 years. 

Borrower responsibility for accruing interest ............................................ The borrower is responsible for accruing interest. 

When the borrower enrolled in the 

initial two-year program, the borrower’s 

maximum eligibility period was three 

years. The borrower received Direct 

Subsidized Loans for the three-year 

maximum eligibility period. The 

borrower wants to enroll in another twoyear program but is required to 

complete preparatory coursework for 

admission to that program. Under 

§ 685.200(f)(6)(ii), the borrower’s 

maximum eligibility period for the 

preparatory coursework is three years— 

the maximum eligibility period for the 

new two-year program. Upon 

enrollment in the preparatory 

coursework for the new two-year 

program, the borrower does not have 

any remaining eligibility period because 

the borrower has already received Direct 

Subsidized Loans for three years. In 

addition, under § 685.200(f)(6)(iv), 

enrollment in the undergraduate 

preparatory coursework causes the 

borrower to become responsible for 

accruing interest on all of the borrower’s 

previously received Direct Subsidized 

Loans, because the borrower has no 

remaining eligibility period. Finally, 

§ 685.200(f)(3)(iv) does not apply 

because the borrower did not complete 

the initial two-year program. 

Example 21: A borrower enrolls in a 

four-year undergraduate program and 

receives Direct Subsidized Loans for 

five years. The borrower wants to enroll 

in a graduate degree program, but is 

required to complete preparatory 

coursework for enrollment in that 

program. 

Maximum eligibility period ........................................................................ 6 academic years. 

Subsidized usage period .......................................................................... 5 academic years. 

Remaining eligibility period ....................................................................... 1 academic year, subject to the limitation below. 

Under § 685.200(f)(1)(ii), the 

borrower’s maximum eligibility period 

for the four-year program is six 

academic years (150 percent of the fouryear undergraduate program). The 

borrower received Direct Subsidized 

Loans for five years. Under 

§ 685.200(f)(6)(iii), the borrower’s 

eligibility for Direct Subsidized Loans 

for preparatory coursework necessary 

for enrollment in a graduate program is 

based on the borrower’s most recent 

undergraduate program of study in 

which the borrower received a Direct 

Subsidized Loan. The borrower has a 

remaining eligibility period of one 

academic year based on the six 

academic year maximum eligibility 

period for the prior undergraduate 

program, but § 668.32(a)(1)(ii) limits 

loan eligibility for preparatory 

coursework to one consecutive 12- 

calendar month period. The borrower 

therefore has a remaining eligibility 

period of one academic year, but must 

use that eligibility during one 

consecutive 12 calendar month period. 

Example 22: A borrower enrolls in a 

four-year undergraduate program and 

receives Direct Subsidized Loans for the 

maximum eligibility period of six years. 

The borrower wants to enroll in a 

graduate program, but is required to 

complete preparatory coursework for 

enrollment in that program. 

Maximum eligibility period ........................................................................ 6 years. 

Subsidized usage period .......................................................................... 6 years. 


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Remaining eligibility period ....................................................................... 0 years. 

Borrower responsibility for accruing interest ............................................ The borrower is not responsible for accruing interest. 

Under § 685.200(f)(1)(ii), the 

borrower’s maximum eligibility period 

for the four-year program is six years. 

The borrower received Direct 

Subsidized Loans for the maximum 

eligibility period of six years. Under 

§ 685.200(f)(6)(iii), the borrower’s 

eligibility for Direct Subsidized Loans 

for preparatory coursework for 

enrollment in a graduate program is 

based on the borrower’s most recent 

undergraduate program of study in 

which the borrower received a Direct 

Subsidized Loan. In this case, the 

borrower used the six years of 

maximum eligibility for the four-year 

undergraduate program and has no 

remaining eligibility period in the 

preparatory coursework necessary for 

enrollment in the graduate program. 

Although the borrower has lost 

eligibility for Direct Subsidized Loans, 

§ 685.200(f)(6)(v) provides that the 

borrower’s enrollment in the 

preparatory coursework does not result 

in the borrower becoming responsible 

for accruing interest on the borrower’s 

previously received Direct Subsidized 

Loans. 

Reasons: Section 685.200(f)(6) of the 

interim final regulations implements 

section 455(q)(3)(B)(ii) of the HEA, 

which requires the Secretary to 

promulgate regulations that address 

how the 150 percent limitations apply 

to borrowers enrolled in coursework 

necessary for enrollment in an eligible 

undergraduate program or a graduate or 

professional program. 

We chose to treat Direct Subsidized 

Loans received for preparatory 

coursework as part of the borrower’s 

related undergraduate program for 

purposes of the 150 percent limit. This 

approach is consistent with the 

statutory goal of creating an incentive 

for borrowers to complete their 

programs in a timely manner. We also 

believe the maximum eligibility period 

calculated under the 150 percent limit 

will generally allow borrowers to 

receive Direct Subsidized Loans while 

completing 12 calendar months of 

preparatory coursework and the 

undergraduate program for which the 

preparatory coursework is intended. 

Furthermore, borrowers in such 

preparatory coursework that are 

ineligible for further Direct Subsidized 

Loans would still be eligible for Direct 

Unsubsidized Loans to complete their 

preparatory coursework. 

The interim final regulations treat 

preparatory coursework for enrollment 

in a graduate or professional program 

differently than coursework required for 

an undergraduate program. Section 

685.200(f)(6)(iii) limits a borrower’s 

Direct Subsidized Loan eligibility for 

graduate or professional preparatory 

coursework to the maximum eligibility 

period applicable to the undergraduate 

program for which the borrower most 

recently received a Direct Subsidized 

Loan. 

We chose this approach because 

preparatory coursework for graduate or 

professional programs is considered 

baccalaureate in nature for Direct Loan 

purposes and is therefore subject to 

undergraduate loan limits under current 

§ 685.203. Such coursework is also 

limited to one 12-calendar month period 

and is a series of specified courses 

required for admission to a program 

rather than a stand-alone program of 

study. An alternative we considered was 

to treat this coursework as a one-year 

stand-alone program; however, we 

rejected this approach because it would 

cause all borrowers with subsidized 

usage periods of 1.5 years or more from 

their prior undergraduate enrollment to 

become ineligible for Direct Subsidized 

Loans to complete this preparatory 

coursework (see example 13 and 

discussion in the related reasons 

section). 

In addition to addressing borrower 

eligibility for Direct Subsidized Loans 

during preparatory coursework, the 

interim final regulations also address 

the possibility that a borrower will 

become responsible for accruing interest 

that could result from enrollment in 

such coursework after a borrower 

reaches the 150 percent limit and is no 

longer eligible for additional Direct 

Subsidized Loans. For enrollment in 

preparatory coursework necessary for 

enrollment in an undergraduate 

program, § 685.200(f)(6)(iv) provides 

that a borrower would become 

responsible for accruing interest only if 

the borrower had no remaining 

eligibility period in the program for 

which the coursework is required. We 

believe that this provision will be 

inapplicable to most borrowers because 

borrowers rarely enroll in preparatory 

coursework for an undergraduate 

program after having already received a 

significant number of Direct Subsidized 

Loans. In addition, such borrowers will 

ultimately become responsible for 

accruing interest by enrolling in the 

undergraduate program for which the 

preparatory coursework is required. 

Therefore, preventing borrower 

responsibility for accruing interest 

during the related preparatory 

coursework would only delay borrower 

responsibility for accruing interest for a 

short period. 

In contrast, under § 685.200(f)(6)(v), a 

borrower’s enrollment in preparatory 

coursework required for a graduate or 

professional program does not result in 

the borrower becoming responsible for 

accruing interest on previously received 

loans. Borrowers enrolling in graduate 

or professional preparatory coursework 

often have borrowed Direct Subsidized 

Loans during undergraduate programs. 

Borrower responsibility for accruing 

interest caused by enrollment in such 

preparatory coursework could have a 

significant impact on borrowers who 

then enroll in a graduate or professional 

program—such borrowers would be 

responsible for interest that accrues 

during all the years of the graduate or 

professional program. If this were to 

occur, the costs of borrowing for 

graduate or professional programs 

would increase significantly. For 

example, suppose a borrower with no 

remaining eligibility period and $23,000 

in Direct Subsidized Loan principal (the 

aggregate loan limit) enrolled in one 

year of preparatory coursework for a 

two-year master’s degree program. 

Assuming an interest rate of 6.8% on 

the borrower’s loans, the borrower 

would be responsible for more than 

$5,000 in capitalized interest that 

accrued during those three years of 

enrollment. Without § 685.200(f)(6)(v), 

we believe such increased costs of 

borrowing could deter borrowers who 

require preparatory coursework from 

pursuing graduate- or professional-level 

study. 

Furthermore, without 

§ 685.200(f)(6)(v), borrowers who 

require preparatory coursework for 

graduate or professional programs 

would otherwise be treated inequitably 

compared to those who do not need 

such preparatory coursework. Because 

enrollment in graduate and professional 

programs does not result in borrower 

responsibility for accruing interest, 

without § 685.200(f)(6)(v), borrowers 

who need such preparatory coursework 

would become responsible for accruing 

interest while those who do not need 

preparatory coursework would not. This 

would result in significantly divergent 

and inequitable principal balances at 

the conclusion of the graduate or 

professional coursework. For these 


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Federal Register / Vol. 78, No. 95 / Thursday, May 16, 2013 / Rules and Regulations 28969 

reasons, the interim final regulations 

prevent enrollment in such preparatory 

coursework from resulting in borrower 

responsibility for accruing interest. 

Treatment of Teacher Certification 

Coursework for Which the Institution 

Awards No Academic Credential 

(§ 685.200(f)(7)) 

Statute: MAP–21 added section 

455(q)(3)(B) to the HEA. This section 

directs the Secretary to specify in 

regulations how the 150 percent Direct 

Subsidized Loan eligibility limit will 

apply to borrowers at an eligible 

institution who are enrolled in 

coursework required for a professional 

State credential or certification 

necessary for employment as an 

elementary or secondary school teacher, 

but for which the institution awards no 

academic credential. Section 484(b)(4) 

of the HEA authorizes a student to 

receive Title IV student loans for such 

coursework. 

Current Regulations: Current 34 CFR 

668.32(a)(1)(iii) reflects section 484(b)(4) 

of the HEA, which provides that 

students are eligible for Direct Loans if 

they are enrolled in teacher certification 

coursework that does not lead to an 

academic credential awarded by an 

institution, but which is required for 

certification by the State to teach in an 

elementary or secondary school. Current 

§ 685.203(a)(7) provides that a student 

may receive up to an annual Direct 

Subsidized Loan limit of $5,500 for such 

coursework. There are no current 

regulations that specify the treatment of 

students enrolled in teacher certification 

coursework for purposes of the 150 

percent Direct Subsidized Loan limit. 

(Throughout the preamble to this 

interim final regulation, any reference to 

‘‘teacher certification coursework’’ only 

includes teacher certification 

coursework for which the institution 

awards no academic credential, unless 

otherwise specified.) 

New Regulations: Section 

685.200(f)(7)(i) of the regulations 

provides that the maximum eligibility 

period for a first-time borrower enrolled 

in teacher certification coursework is 

calculated as 150 percent of the 

published length of the teacher 

certification coursework in which the 

borrower is currently enrolled. 

Section 685.200(f)(7)(ii) provides that, 

when determining a borrower’s 

remaining eligibility period for teacher 

certification coursework, only periods 

in which a borrower received Direct 

Subsidized Loans for such teacher 

certification coursework are included in 

the borrower’s subsidized usage period. 

Section 685.200(f)(7)(iii) provides 

that, when determining a borrower’s 

remaining eligibility period for any 

program or coursework other than 

teacher certification coursework, 

periods in which a borrower received 

Direct Subsidized Loans for such 

teacher certification coursework are 

excluded. 

Together, these latter two paragraphs 

provide that we treat the sum of the 

borrower’s subsidized usage periods 

accrued during teacher certification 

coursework separately from the 

borrower’s subsidized usage periods 

accrued during all other undergraduate 

programs or coursework in which the 

borrower may have enrolled. Direct 

Subsidized Loans received for teacher 

certification coursework count only 

against the maximum eligibility period 

for the borrower’s teacher certification 

coursework. 

Finally, § 685.200(f)(7)(iv) provides 

that enrollment in teacher certification 

coursework for which an academic 

credential is not awarded by the 

institution does not cause a borrower to 

become responsible for accruing interest 

on the borrower’s outstanding Direct 

Subsidized Loans, including any Direct 

Subsidized Loans received for periods 

of undergraduate study. 

The provisions of § 685.200(f)(7) cover 

teacher certification coursework for 

which an institution does not award an 

academic credential. Teacher 

preparation programs for which an 

institution awards an academic 

credential are governed by 

§ 685.200(f)(1)–(f)(6), similar to other 

undergraduate or graduate programs. 

Examples 23 through 25 illustrate the 

treatment of borrowers enrolled in 

teacher certification coursework. 

Example 23: A borrower completes a 

four-year baccalaureate degree program 

and receives four years of Direct 

Subsidized Loans for that program. The 

borrower then enrolls in teacher 

certification coursework that is one year 

in duration. 

Maximum eligibility period for the 

teacher certification 

coursework.

1.5 years. 

Subsidized usage period ............ 0 years. 

Remaining eligibility period ......... 1.5 years. 

The borrower received Direct 

Subsidized Loans for four years before 

enrolling in the teacher certification 

coursework. When the borrower enrolls 

in the one year of teacher certification 

coursework, the calculation of the 

borrower’s maximum eligibility period, 

subsidized usage period, and remaining 

eligibility period are unaffected by the 

borrower’s prior enrollment or 

borrowing. The borrower therefore has 

1.5 years of eligibility for Direct 

Subsidized Loans remaining. 

Example 24: A borrower enrolls in 

one year of teacher certification 

coursework and receives Direct 

Subsidized Loans for one year. The 

borrower then enrolls in separate 

teacher certification coursework for two 

years. 

Maximum eligibility period for the 

teacher certification coursework.

3 years. 

Subsidized usage period ................ 1 year. 

Remaining eligibility period ............ 2 years. 

The borrower received Direct 

Subsidized Loans for one year of teacher 

certification coursework, and has a 

remaining eligibility period of 0.5 years 

after the first year. When the borrower 

enrolls in the separate two years of 

teacher certification coursework, the 

borrower’s maximum eligibility period 

is three years (150 percent of the two 

years of coursework), but the borrower’s 

previous subsidized usage period of one 

year counts against the borrower’s new 

maximum eligibility period. Therefore, 

the borrower has a remaining eligibility 

period of two years. 

Example 25: A borrower enrolls in a 

two-year undergraduate degree program 

and receives Direct Subsidized Loans 

for three years. The borrower then 

enrolls in two years of teacher 

certification coursework, receives Direct 

Subsidized Loans for three years, and is 

therefore not eligible for more Direct 

Subsidized Loans. The borrower 

continues enrollment in the teacher 

certification coursework. 

Maximum eligibility period for the teacher certification coursework ........ 3 years. 

Subsidized usage period .......................................................................... 3 years. 

Remaining eligibility period ....................................................................... 0 years. 

Borrower responsibility for accruing interest ............................................ The borrower does not become responsible for accruing interest on 

loans for the undergraduate program or teacher certification 

coursework. 


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28970 Federal Register / Vol. 78, No. 95 / Thursday, May 16, 2013 / Rules and Regulations 

After completing the two-year 

undergraduate program, the borrower 

enrolled in two years of teacher 

certification coursework and received 

Direct Subsidized Loans for three years. 

When the borrower enrolled in the 

teacher certification coursework, the 

borrower’s maximum eligibility period 

and remaining eligibility period were 

both three years because the borrower’s 

previous undergraduate borrowing does 

not count against the teacher 

certification maximum eligibility 

period. The borrower subsequently used 

all three years of Direct Subsidized Loan 

eligibility for the teacher certification 

coursework and therefore has no 

remaining eligibility period for Direct 

Subsidized Loans in the teacher 

certification coursework. When the 

borrower continues enrollment in the 

teacher certification coursework, this 

does not result in the borrower 

becoming responsible for accruing 

interest on his or her existing Direct 

Subsidized Loans, either those received 

for the undergraduate degree program or 

those received for the teacher 

certification coursework. 

Reasons: Section 685.200(f)(7) 

implements section 455(q)(3)(B)(ii) of 

the HEA, which requires the Secretary 

to promulgate regulations that address 

how the 150 percent Direct Subsidized 

Loan eligibility limitations apply to 

borrowers enrolled in teacher 

certification coursework for which the 

institution awards no academic 

credential. The interim final regulations 

reflect the unique characteristics of this 

coursework within the general 

requirements of section 455(q)(3)(A) of 

the HEA. 

We chose to calculate the 150 percent 

subsidized limit for teacher certification 

coursework in a manner similar to the 

approach used to calculate the limit for 

undergraduate degree programs. 

However, in calculating the remaining 

eligibility period, we chose to exclude 

Direct Subsidized Loans borrowed for 

earlier undergraduate programs. 

Borrowers enrolled in teacher 

certification coursework required for 

licensure or certification have already 

completed baccalaureate degree 

programs for which they may have 

received numerous Direct Subsidized 

Loans. Because this teacher certification 

coursework is typically one or two years 

in duration, counting earlier 

undergraduate loans would likely cause 

numerous borrowers to lose eligibility 

for further Direct Subsidized Loans and 

to become responsible for accruing 

interest upon enrollment (see example 

13). This may discourage students from 

pursuing education to become teachers. 

Therefore, we chose to treat borrowing 

and enrollment in this coursework 

separately from the borrowing and 

enrollment in undergraduate programs. 

The Secretary believes that 

individuals should be encouraged to 

become teachers and to continue 

teaching. The Secretary also believes 

that teacher certification coursework is 

an important national resource for 

teacher preparation and continued 

professional development. Treating 

borrowing during teacher certification 

coursework separately for purposes of 

the 150 percent limit preserves 

sufficient Direct Subsidized Loan 

eligibility for most borrowers who have 

financial need while preventing such 

borrowers from having unlimited Direct 

Subsidized Loan eligibility for teacher 

certification coursework. Allowing 

unlimited eligibility for such 

coursework would be contrary to the 

intent of MAP–21, which established a 

time limit on eligibility for Direct 

Subsidized Loans and we believe was 

intended to provide incentives for 

timely completion. 

In addition to treating Direct 

Subsidized Loans borrowed for teacher 

certification coursework as separate 

from prior undergraduate Direct 

Subsidized Loan borrowing, 

§ 685.200(f)(7)(iv) also provides that a 

borrower will not be responsible for 

accruing interest on prior loans based 

on subsequent enrollment in teacher 

certification coursework. Many States 

have certification standards that require 

teachers to take teacher certification 

coursework to continue teaching in the 

State. For these teachers, enrollment in 

this coursework is legally required for 

continued employment, not an option 

that a borrower can exercise. Therefore, 

we have determined that enrollment in 

this coursework should not result in the 

borrower becoming responsible for 

accruing interest on all of the borrower’s 

outstanding loans. 

New Entrance and Exit Counseling 

Requirements (§ 685.304(a)(6)(xiii), 

§ 685.304(b)(4)(xii)) 

Statute: Section 485(l) of the HEA 

requires an eligible institution to 

provide entrance counseling to firsttime borrowers at or prior to 

disbursement of a Direct Subsidized 

Loan or a Direct Unsubsidized Loan. 

The counseling may be provided in 

person, on a separate written form 

provided to and signed and returned by 

the borrower, or online with the 

borrower acknowledging receipt. The 

entrance counseling must include: 

• Information on the terms and 

conditions of the loan; 

• The borrower’s responsibilities 

under the loan; 

• The effects of the loan on other 

student aid eligibility; 

• An explanation of the use of the 

master promissory note; 

• An explanation of interest accrual 

and capitalization; 

• The borrower’s option to pay the 

accruing interest while in school; 

• The consequences of not 

maintaining half-time enrollment; 

• The borrower’s responsibility to 

contact the institution if the borrower 

withdraws; 

• Sample monthly repayment 

amounts; 

• Information on the National 

Student Loan Data System (NSLDS); 

• The borrower’s obligation to repay 

the loan regardless of program 

completion or completion within the 

regular timeframe for completion; 

• The consequences of default; and 

• The name and contact information 

for a person the borrower may contact 

if the borrower has any questions. 

Section 485(b) of the HEA requires 

eligible institutions to provide exit 

counseling to Direct Subsidized Loan or 

Direct Unsubsidized Loan borrowers 

prior to the borrower completing the 

course of study or at the time the 

borrower departs from, or drops below 

half-time enrollment at, the institution. 

The exit counseling must provide: 

• Information on the available 

repayment plans and their features; 

• Debt management strategies to 

facilitate loan repayment; 

• Loan forgiveness and cancellation 

provisions with a description of their 

terms and conditions; 

• Forbearance provisions and their 

terms and conditions; 

• The consequences of default; 

• The effects of loan consolidation; 

• The types of tax benefits that may 

be available; and 

• The availability of NSLDS and how 

it can be used by borrowers to access 

their records and obtain information on 

the repayment status of their loans. 

Current Regulations: Current 

§ 685.304(a)(6) and (b)(4) of the 

Department’s regulations reflect the 

borrower entrance and exit counseling 

requirements contained in the HEA. The 

information that institutions are 

required to provide to borrowers during 

entrance and exit counseling does not 

currently include information on the 

Direct Subsidized Loan eligibility limits 

and the potential borrower 

responsibility for accruing interest. 

New Regulations: The regulations 

governing entrance and exit counseling 

requirements are being amended to 

require that institutions inform 

borrowers of the 150 percent Direct 

Subsidized Loan eligibility limitations 


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Federal Register / Vol. 78, No. 95 / Thursday, May 16, 2013 / Rules and Regulations 28971 

and possible borrower responsibility for 

accruing interest. 

We have added § 685.304(a)(6)(xiii) of 

the Direct Loan regulations to require 

that the information provided as part of 

entrance counseling include: 

• The possible loss of eligibility for 

additional Direct Subsidized Loans; 

• How a borrower’s maximum 

eligibility period, remaining eligibility 

period, and subsidized usage period are 

determined; 

• The potential for a borrower 

becoming responsible for all accruing 

interest on Direct Subsidized Loans 

during in-school periods, grace periods, 

and periods of authorized deferment; 

and 

• The impact of borrower 

responsibility for accruing interest on 

the borrower’s total debt. 

We have also amended 

§ 685.304(b)(4)(xii) of the Direct Loan 

regulations governing required exit 

counseling to require, in addition to the 

information required as part of entrance 

counseling, that information be 

provided to the borrower on: 

• The sum of the borrower’s 

subsidized usage periods at the time of 

the exit counseling; 

• How to get information from 

NSLDS on whether he or she has 

become responsible for accruing interest 

on any of his or her Direct Subsidized 

Loans and whether the borrower is 

eligible to receive additional Direct 

Subsidized Loans; 

• The possible consequences of 

receiving additional Direct Subsidized 

Loans for additional undergraduate 

programs; and 

• The potential for a borrower 

becoming responsible for all accruing 

interest on Direct Subsidized Loans 

during in-school periods, grace periods, 

and periods of authorized deferment, 

even if the borrower does not receive an 

additional Direct Subsidized Loan. 

We will modify our entrance 

counseling material prior to July 1 to 

reflect the additional information that 

must be provided to borrowers under 

new § 685.304(a)(6)(xiii). We will also 

modify our exit counseling material to 

reflect the additional information that 

must be provided to borrowers under 

new § 685.304(b)(4)(xii). Institutions 

may continue to rely on the 

Department’s revised counseling 

materials to comply with these revised 

regulatory requirements. The 

Department will post an electronic 

announcement on the Information for 

Financial Aid Professionals Web site 

when revised counseling materials are 

available. 

Reasons: The amendments made to 

the HEA by MAP–21 significantly alter 

borrower eligibility requirements for 

Direct Subsidized Loans for first-time 

borrowers on or after July 1, 2013. The 

amendments also make changes to the 

terms and conditions of those loans. It 

is critical that institutions communicate 

information on these important changes 

to borrowers as part of their entrance 

and exit counseling. Without this 

information, borrowers could be 

affected by the 150 percent limit 

without knowing about the limit, 

without understanding how it is 

calculated, and without understanding 

the significant financial implications for 

them if they reach or exceed the limit. 

Therefore, we have added this 

information to the information that 

institutions must provide during 

entrance and exit counseling. Enhanced 

counseling about these requirements 

will mitigate borrower confusion, 

encourage accurate budgeting and debt 

management by borrowers, and help 

borrowers make informed educational 

plans mindful of all potential costs. 

Additional Reporting Requirements and 

Modifications to Departmental Systems 

To effectively implement the 

regulatory provisions contained in these 

interim final regulations, the 

Department will make a number of 

changes to NSLDS and to the Common 

Origination and Disbursement (COD) 

System. The COD System will collect 

information needed to determine 

whether a borrower continues to be 

eligible for Direct Subsidized Loans; 

NSLDS will collect information needed 

to determine whether a borrower 

becomes responsible for the accruing 

interest on the Direct Subsidized Loans 

the borrower previously received. 

Institutions will not be responsible for 

officially determining whether a 

borrower has a remaining eligibility 

period under these interim final 

regulations. The Department will have 

the primary responsibility for making 

eligibility determinations, determining 

whether a borrower becomes 

responsible for accruing interest, and 

making this information available to 

borrowers. In the event that there are 

questions regarding the validity of any 

determination made by the Department 

with respect to these provisions, we will 

develop a process to research data 

integrity issues, and, if necessary, adjust 

previously made determinations. 

However, institutions will be required 

to report additional information to both 

the COD System and NSLDS, as 

discussed below. We are committed to 

making the necessary systems changes 

as quickly as possible and will issue 

further guidance at a later date. 

The 150 percent limit only applies to 

borrowers who are ‘‘first-time 

borrowers’’ on or after July 1, 2013. The 

Secretary will have the information 

necessary to determine whether a 

borrower is a first-time borrower as 

defined in § 685.200(f)(1)(i). Institutions 

will not be required to determine or 

report this information. However, 

institutions will be required to supply 

the information below for all borrowers 

who receive Direct Loans on or after the 

date that we implement the system 

changes necessary to support these 

interim final regulations. 

To allow the Department to calculate 

a borrower’s maximum eligibility 

period, institutions will be required to 

report additional information to the 

COD System when originating and 

disbursing Direct Loans. The additional 

information will include, but not be 

limited to: 

• The Classification of Instructional 

Programs (CIP) Code for the program in 

which the borrower is enrolled; 

• The credential level for the 

borrower’s program; 

• The length of the borrower’s 

program (in academic years, months, or 

weeks); 

• The enrollment status of the 

borrower at the time the loan is 

disbursed (full time, half time, or threequarter time); 

• If appropriate, an indication that 

the Direct Loan is intended for 

preparatory coursework for an 

undergraduate program; 

• If appropriate, an indication that 

the Direct Loan is intended for 

preparatory coursework for a graduate 

or professional program; and 

• If appropriate, an indication that 

the Direct Loan is intended for teacher 

certification coursework for which the 

institution does not award an academic 

credential. 

Note: An enrollment status of less than half 

time will not be included in the COD System 

because a borrower is not eligible to receive 

a Direct Loan for enrollment on a less than 

half-time basis (this information will 

continue to be included in NSLDS, however). 

We will use the CIP Code, credential 

level, and program length to define the 

program in which the borrower is 

enrolled. We need this information 

because section 455(q) of the HEA and 

these implementing regulations require 

that the borrower’s maximum eligibility 

period be determined program by 

program. 

We are requiring that institutions 

report the borrower’s enrollment status 

as of the date that the loan is disbursed, 

as full time, three-quarter time, or half 

time because the Secretary generally 


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prorates the subsidized usage period in 

cases where the borrower is enrolled 

less than full time. 

Finally, institutions must identify 

Direct Loans that are intended to 

support preparatory coursework for 

undergraduate programs, preparatory 

coursework for graduate or professional 

programs, and teacher certification 

coursework because the interim final 

regulations treat loans for such 

coursework differently than loans for 

other programs. 

To calculate the borrower’s 

subsidized usage period, the COD 

System will divide the number of days 

in each loan period by the number of 

days in the academic year associated 

with the loan, as reported by the 

institution in the award record for the 

loan. An institution’s failure to report 

this information accurately will not only 

cause borrowers to appear to have less 

eligibility for Direct Subsidized Loans 

than they should but may also cause 

disbursement records to be rejected by 

the COD System or result in adverse 

findings in compliance reviews of the 

institution, fines, or other sanctions. 

By comparing the sum of the 

borrower’s subsidized usage periods to 

the borrower’s maximum eligibility 

period, the COD System will reject any 

disbursement record of a Direct 

Subsidized Loan if the borrower has lost 

eligibility for Direct Subsidized Loans as 

a result of new § 685.200(f)(2). 

The COD System will track and 

calculate a borrower’s maximum 

eligibility period, subsidized usage 

period, and remaining eligibility period, 

and the Secretary will provide 

borrowers and institutions with 

information about the borrower’s 

subsidized usage periods using Student 

Aid Reports (SARs) and Institutional 

Student Information Records (ISIRs) 

through the Central Processing System 

(CPS). This will allow institutions to 

counsel Direct Loan borrowers about 

their maximum eligibility periods and 

remaining eligibility periods based on 

the length of the program in which the 

borrower is enrolled. This information 

will also allow institutions to determine 

whether the borrower has any Direct 

Subsidized Loan eligibility remaining 

before submitting an origination or 

disbursement record to the COD System. 

In addition to the additional reporting 

to the COD System, institutions will be 

required to report additional 

information to NSLDS as part of their 

reporting of enrollment information on 

student loan borrowers. The Department 

requires this additional information to 

implement the requirements concerning 

borrowers’ responsibility for accruing 

interest. The additional information will 

include, but not be limited to: 

• The CIP Code and credential level 

for the program in which the borrower 

is enrolled; 

• The length of the program in which 

the borrower is enrolled in academic 

years, months, or weeks (consistent with 

institutional reporting in the COD 

System); 

• The enrollment status of the 

borrower at the time the institution 

completes the enrollment reporting; 

• If appropriate, an indication that 

the borrower is enrolled in preparatory 

coursework for an undergraduate 

program; 

• If appropriate, an indication that 

the borrower is enrolled in preparatory 

coursework for a graduate or 

professional program; and 

• If appropriate, an indication that 

the borrower is enrolled in teacher 

certification coursework for which the 

institution does not award an academic 

credential. 

The Secretary will use the 

information regarding CIP Code, 

credential level, and program length to 

define the program in which the 

borrower is enrolled (e.g., as a graduate 

program or an undergraduate program) 

and to calculate the appropriate 150 

percent limit. 

The Secretary will also use the 

information about the length of the 

borrower’s current program to ensure 

that borrowers do not improperly 

become responsible for accruing 

interest. 

Finally, the Secretary will use 

information that institutions are already 

required to report concerning a 

student’s graduation to determine 

whether a borrower will not become 

responsible for accruing interest under 

§ 685.200(f)(3)(iv) because the borrower 

completed his or her program in a 

timely manner. 

The Secretary is requiring that 

institutions flag borrower enrollment in 

preparatory coursework and teacher 

certification coursework because of the 

special rules that apply to borrowers 

enrolled in those programs. 

We will use this information in 

NSLDS to determine whether a 

borrower becomes responsible for 

accruing interest on his or her Direct 

Subsidized Loans (and the effective date 

on which the borrower becomes 

responsible for that interest). This 

information will be conveyed to the 

borrower’s Federal loan servicer, which 

will notify the borrower that he or she 

is responsible for accruing interest. The 

servicer will also make the necessary 

adjustments to reflect the borrower’s 

responsibility for accruing interest on 

the borrower’s Direct Subsidized Loans. 

The Department will modify its 

entrance and exit counseling material 

on StudentLoans.gov to provide the 

information described in new 

§§ 685.304(a)(6)(xiii) and 

685.304(b)(4)(xii) for institutions that 

use the Department’s online counseling 

material to comply with the regulatory 

entrance and exit counseling 

requirements. 

Executive Orders 12866 and 13563 

Regulatory Impact Analysis 

Under Executive Order 12866, the 

Secretary must determine whether this 

regulatory action is ‘‘significant’’ and, 

therefore, subject to the requirements of 

the Executive order and subject to 

review by the Office of Management and 

Budget (OMB). Section 3(f) of Executive 

Order 12866 defines a ‘‘significant 

regulatory action’’ as an action likely to 

result in a rule that may— 

(1) Have an annual effect on the 

economy of $100 million or more, or 

adversely affect a sector of the economy, 

productivity, competition, jobs, the 

environment, public health or safety, or 

State, local, or tribal governments or 

communities in a material way (also 

referred to as an ‘‘economically 

significant’’ rule); 

(2) Create serious inconsistency or 

otherwise interfere with an action taken 

or planned by another agency; 

(3) Materially alter the budgetary 

impacts of entitlement grants, user fees, 

or loan programs or the rights and 

obligations of recipients thereof; or 

(4) Raise novel legal or policy issues 

arising out of legal mandates, the 

President’s priorities, or the principles 

stated in the Executive Order. 

This regulatory action would have an 

annual effect on the economy of more 

than $100 million because the transfers 

between borrowers who exceed the 150 

percent limit and the government total 

approximately $3.9 billion over loan 

cohorts 2013 to 2023. Therefore, this 

action is ‘‘economically significant’’ and 

subject to review by OMB under section 

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

Notwithstanding this determination, we 

have assessed the potential costs and 

benefits, both quantitative and 

qualitative, of this regulatory action and 

have determined that the benefits justify 

the costs. 

We have also reviewed these interim 

final regulations under Executive Order 

13563, which supplements and 

explicitly reaffirms the principles, 

structures, and definitions governing 

regulatory review established in 

Executive Order 12866. To the extent 


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Federal Register / Vol. 78, No. 95 / Thursday, May 16, 2013 / Rules and Regulations 28973 

permitted by law, Executive Order 

13563 requires that an agency— 

(1) Propose or adopt regulations only 

upon a reasoned determination that 

their benefits justify their costs 

(recognizing that some benefits and 

costs are difficult to quantify); 

(2) Tailor its regulations to impose the 

least burden on society, consistent with 

obtaining regulatory objectives and 

taking into account—among other things 

and to the extent practicable—the costs 

of cumulative regulations; 

(3) In choosing among alternative 

regulatory approaches, select those 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety, 

and other advantages, distributive 

impacts, and equity); 

(4) To the extent feasible, specify 

performance objectives, rather than the 

behavior or manner of compliance a 

regulated entity must adopt; and 

(5) Identify and assess available 

alternatives to direct regulation, 

including economic incentives—such as 

user fees or marketable permits—to 

encourage the desired behavior, or 

provide information that enables the 

public to make choices. 

Executive Order 13563 also requires 

an agency ‘‘to use the best available 

techniques to quantify anticipated 

present and future benefits and costs as 

accurately as possible.’’ The Office of 

Information and Regulatory Affairs of 

OMB has emphasized that these 

techniques may include ‘‘identifying 

changing future compliance costs that 

might result from technological 

innovation or anticipated behavioral 

changes.’’ 

We are issuing these interim final 

regulations only on a reasoned 

determination that their benefits justify 

their costs. In choosing among 

alternative regulatory approaches, we 

selected those approaches that 

maximize net benefits. Based on the 

analysis that follows, the Department 

believes that these regulations are 

consistent with the principles in 

Executive Order 13563. 

We also have determined that this 

regulatory action would not unduly 

interfere with State, local, and tribal 

governments in the exercise of their 

governmental functions. 

In this regulatory impact analysis we 

discuss the need for regulatory action, 

the potential costs and benefits, net 

budget impacts, assumptions, 

limitations, and data sources, as well as 

regulatory alternatives we considered. 

1. Potential costs and benefits 

These interim final regulations 

implement the statutory requirements in 

MAP–21 that limit the availability of 

Direct Subsidized Loans to 150 percent 

of the program length and that cause 

borrowers to become responsible for 

accruing interest if they are no longer 

eligible for Direct Subsidized Loans as 

a result. The net budget savings that will 

be generated by these interim final 

regulations will contribute to paying for 

the extension of the 3.4 percent interest 

rate on Direct Subsidized Loans made 

between July 1, 2012, and June 30, 2013. 

In the following sections, we summarize 

the effects these interim final 

regulations are likely to have on the 

Federal Government, institutions of 

higher education (IHEs), and students. 

Federal Government: The eligibility 

limitations and potential borrower 

responsibility for accruing interest 

implemented in these interim final 

regulations are expected to result in net 

budget savings as some Direct 

Subsidized Loans shift to Direct 

Unsubsidized Loans and as some 

borrowers become responsible for 

accruing interest on their Direct 

Subsidized Loans earlier than they 

otherwise would. The estimated savings 

associated with the interim final 

regulations were initially analyzed as 

PB 2013 budget policy, and that 

estimate of $3.597 billion in savings was 

included in the Department’s midsession review (MSR) budget baseline in 

the summer of 2012, shortly before the 

passage of MAP–21. When the specifics 

of the legislation and interim final 

regulations became available, the 

estimate was updated, using revised 

economic assumptions and loan 

volume, resulting in additional 

estimated savings of approximately 

$325 million. 

Consistent with the requirements of 

the Credit Reform Act of 1990 (CRA), 

budget cost estimates for the Federal 

student loan programs reflect the 

estimated net present value of all future 

non-administrative Federal costs 

associated with a cohort of loans. A 

cohort reflects all loans originated in a 

given fiscal year. These estimates were 

developed using OMB’s Credit Subsidy 

Calculator. The OMB calculator takes 

projected future cash flows from the 

Department’s student loan cost 

estimation model and produces 

discounted subsidy rates reflecting the 

net present value of all future Federal 

costs associated with awards made in a 

given fiscal year. Values are calculated 

using a ‘‘basket of zeros’’ methodology 

under which each cash flow is 

discounted using the interest rate of a 

zero-coupon Treasury bond with the 

same maturity as that cash flow. To 

ensure comparability across programs, 

this methodology is incorporated into 

the calculator and used 

Governmentwide to develop estimates 

of the Federal cost of credit programs. 

Accordingly, the Department believes it 

is the appropriate methodology to use in 

developing estimates for these interim 

final regulations. 

In order to evaluate the effect of these 

interim final regulations, the 

Department used data from NSLDS to 

simulate a representative pool of Direct 

Subsidized Loan borrowers for the 

upcoming cohorts affected by the 

interim final regulations. Based on 

borrowing patterns in the NSLDS data 

for existing cohorts, the Department 

estimated which borrowers will lose 

eligibility for Direct Subsidized Loans 

and which borrowers will become 

responsible for accruing interest. The 

model accounted for program length, 

type, and whether the borrower 

transferred from one institution to 

another to determine the loss of Direct 

Subsidized Loan eligibility and 

borrower responsibility for accruing 

interest. The estimated savings were 

then generated using the Department’s 

Student Loan Model based on the 

anticipated shift in loan volume from 

Direct Subsidized Loans to Direct 

Unsubsidized Loans, a reduction in 

anticipated deferments, and a reduced 

number of days for which the borrower 

is not responsible for interest that 

accrues. Additional information on the 

effect of these factors is available in the 

Students section of this regulatory 

impact analysis. 

Institutions of Higher Education: The 

interim final regulations most directly 

affect the Federal Government and 

student borrowers, with a more limited 

effect on IHEs. While a small percentage 

of student borrowers is expected to lose 

eligibility for additional Direct 

Subsidized Loans or to become 

responsible for accruing interest on 

existing Direct Subsidized Loans, those 

students would still be eligible for 

Direct Unsubsidized Loans and would 

not necessarily withdraw from their 

program of study, potentially limiting 

the effect of the interim final regulations 

on an IHE’s revenues. While some 

Direct Subsidized Loan borrowers may 

shift their educational plans or the 

sources of funding used to pay for their 

programs, the availability of substitute 

sources of funding or other students 

who would fill the IHE’s capacity could 

also limit the effect of the interim final 

regulations on institutions. 

The Paperwork Reduction Act section 

of this preamble describes the 

additional reporting requirements for 

IHEs related to these interim final 

regulations, such as requirements to 

identify the length of the programs in 

which a student borrower is enrolled, 


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28974 Federal Register / Vol. 78, No. 95 / Thursday, May 16, 2013 / Rules and Regulations 

the borrower’s enrollment status, and 

the type of program. In addition, IHEs 

will need to update the financial aid 

counseling they provide to student 

borrowers to reflect the new limitations 

on Direct Subsidized Loans and the 

Department will provide guidance to 

assist with this process. The Department 

estimates that this reporting and 

financial aid counseling activity will 

cost IHEs approximately $1.6 million. 

Students: The effect of these interim 

final regulations on students is the 

potential loss of Direct Subsidized Loan 

eligibility and responsibility for 

accruing interest on existing Direct 

Subsidized Loans for new borrowers 

starting on July 1, 2013. The examples 

presented in this preamble demonstrate 

the effect of the changes in a variety of 

scenarios under the interim final 

regulations. While the specific effects on 

individual students will depend on 

many factors (including the use of 

Direct Subsidized Loans, transfers 

between programs of different published 

lengths, program completion, or 

enrollment in multiple programs), we 

have analyzed the effects of the interim 

final regulations across a simulated pool 

of borrowers subject to the regulations. 

As discussed, first-time borrowers as 

of July 1, 2013, will be subject to the 

new eligibility limitations. Borrowers 

who are otherwise eligible for Direct 

Subsidized Loans will not be eligible for 

additional Direct Subsidized Loans after 

taking out Direct Subsidized Loans for 

a period that equals or exceeds 150 

percent of the published length of their 

program. The limitation has two parts: 

(1) The determination that a borrower 

has received Direct Subsidized Loans 

for a period equal to or greater than 150 

percent of the length of the borrower’s 

program, and (2) once that limit has 

been reached or exceeded, the 

borrower’s responsibility for accruing 

interest on prior undergraduate loans is 

triggered by the borrower’s further 

enrollment in an undergraduate 

program of equal or shorter duration, 

except for borrowers who complete their 

programs before becoming responsible 

for accruing interest. The borrower is 

responsible for interest that accrues 

from the date that he or she becomes 

responsible for accruing interest, not 

from the original disbursement date of 

the loan. As described in more detail in 

the Federal Government section of this 

regulatory impact analysis, the 

Department generated estimates of the 

effect of the interim final regulations on 

the Federal budget and on student 

borrowers using a pool of hypothetical 

borrowers and patterns of borrowing 

behavior from NSLDS. Based on NSLDS 

data, the Department was able to 

estimate the percentage of student 

borrowers in different categories who 

would potentially trigger the eligibility 

limitations and responsibility for 

accruing interest under the interim final 

regulations. Transfer students and those 

at two-year programs were most affected 

by the interim final regulations. The 

estimates presented in Table 2 

demonstrate the effect of the interim 

final regulations by sector. 

TABLE 2—ESTIMATED EFFECT OF INTERIM FINAL REGULATIONS BY SECTOR

First-time borrowers at Percent of loans 

Percent of loans 

in category 

affected by 

the policy 

Percent of 

affected loans in 

each category 

<4-Year Public ................................................................................................................. 16.8 20.0 55.2 

<4-Year Private ................................................................................................................ 10.5 4.8 8.3 

4-Year Public ................................................................................................................... 38.9 3.3 21.5 

4-Year For-Profit .............................................................................................................. 13.6 2.3 5.2 

4-Year Not-for-Profit ........................................................................................................ 20.2 3.0 9.8 

Affected borrowers may be subject to 

different combinations of limitations 

depending on their situations. For 

example, some borrowers who do not 

intend to take out additional Direct 

Subsidized Loans will still become 

responsible for accruing interest on 

existing loans if they enroll in an 

undergraduate program after reaching or 

exceeding the 150 percent limit, except 

for those borrowers who complete their 

first program before becoming 

responsible for accruing interest. In 

contrast, other borrowers may not 

trigger the eligibility limitations on prior 

loans from a two-year program if they 

later transfer to a four-year program and 

become eligible for additional 

subsidized loans for which they are 

otherwise eligible. 

To quantify the effect of the interim 

final regulations on student borrowers, 

the Department estimated the number of 

borrowers in each cohort who would 

exceed the 150 percent Direct 

Subsidized Loan limit. Because 

borrowers can have loans in multiple 

cohorts, Table 3 presents the estimated 

percentage and number of borrowers in 

a particular cohort year affected by the 

interim final regulations, not an 

unduplicated number of borrowers 

across all cohort years. The percentage 

of borrowers affected increases in later 

cohorts as the percentage of the cohort 

representing first-time borrowers after 

July 2013 increases. The percentage of 

borrowers affected reaches 

approximately 6.54 percent by the 2023 

cohort when almost all borrowers 

should be first-time borrowers who are 

subject to the interim final regulations. 

Those included as affected borrowers, 

approximately 578,000 by the 2023 

cohort, would lose eligibility for future 

Direct Subsidized Loans and become 

responsible for accruing interest. 

TABLE 3—ESTIMATED NUMBER OF AFFECTED BORROWERS BY COHORT

2013 2014 2015 2016 2017 

Estimated Borrowers in Cohort ................................................................ 7,149,480 7,319,118 7,493,094 7,671,527 7,854,541 

% affected ................................................................................................ 0.87% 1.87% 3.02% 4.03% 4.78% 

Estimated Borrowers Affected ................................................................. 62,429 136,827 226,332 309,205 375,793 

2018 2019 2020 2021 2022 2023 

Estimated Borrowers in Cohort ........................................ 8,042,264 8,234,825 8,432,361 8,635,008 8,842,911 8,842,911 


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2Tracy Hunt-White, ‘‘2004/2009 Beginning 

Postsecondary Students Longitudinal Study,’’ 

March 2011, http://nces.ed.gov/datalab/ 

index.aspx?ps_x=ceabdef. 

3 ‘‘Stopout’’ is defined as an interruption of 

continuous enrollment during the measured time 

period. Students who did not have a stopout were 

continuously enrolled during the measured time 

period. 

2018 2019 2020 2021 2022 2023 

% affected ........................................................................ 5.28% 5.59% 5.88% 6.11% 6.32% 6.54% 

Estimated Borrowers Affected ......................................... 424,358 460,359 495,568 527,703 558,766 577,928 

Another factor in the savings to the 

Federal Government and the costs to 

affected borrowers is borrower 

responsibility for accruing interest on 

existing Direct Subsidized Loans once 

the borrower enrolls after meeting or 

exceeding the 150 percent Direct 

Subsidized Loan limit. Table 4 presents 

the estimated average number of days 

that borrowers would be responsible for 

accruing interest across the whole 

cohort and for affected borrowers in the 

cohort only. 

TABLE 4—ESTIMATED AVERAGE NUMBER OF DAYS OF BORROWER RESPONSIBILITY FOR INTEREST BY COHORT

Average days interest 2013 2014 2015 2016 2017 

All Borrowers ........................................................................................... 3.7579 8.6056 14.2657 18.9932 21.2188 

Affected Borrowers Only .......................................................................... 430.360 460.328 472.287 482.849 475.775 

Average days interest 2018 2019 2020 2021 2022 2023 

All Borrowers .................................................................... 22.4407 22.9607 23.4826 24.0255 24.4895 24.9137 

Affected Borrowers Only .................................................. 471.536 463.780 457.369 453.188 449.612 444.795 

The Department used this information 

to estimate the cost of the loss of Direct 

Subsidized Loan eligibility and the days 

for which the borrower is responsible 

for accruing interest on existing Direct 

Subsidized Loans for individual affected 

borrowers. While the specific impact on 

a given borrower depends on multiple 

factors, the average cost to affected 

borrowers is approximately $843, based 

on an assumed interest rate of 6.8 

percent. 

In addition to the NSLDS-based 

analysis, the Department also examined 

data from the 2004/2009 Beginning 

Postsecondary Students Longitudinal 

Study 2 (BPS) and analyzed what the 

impacts would have been if the interim 

final regulations had been in place for 

the 2003 cohort. BPS data show that the 

average borrower who started in a fouryear program and who was still enrolled 

in his or her original undergraduate 

program with no stops, transfers, or 

degree after six years had a little under 

$14,000 in outstanding subsidized 

loans. Overall, the average borrower 

who was still enrolled after six 

consecutive years of undergraduate 

studies at the same institution with no 

degree had just under $24,000 in Direct 

Subsidized and Unsubsidized Loans. 

TABLE 5A—LOAN DEBT FOR STUDENTS WHO BEGAN AT A FOUR-YEAR INSTITUTION IN THE 2003–2004 ACADEMIC YEAR

AND HAD NO STOPOUTS 3 THROUGH 2009 (EDUCATION CONTINUED AT FIRST INSTITUTION ONLY) 

Avg total 

unsub. 

through 2009 

Percent of 

students with 

unsub. loan 

debt > 0 

through 2009 

(percent) 

Avg total 

sub. and unsub. 

loan debt 

through 2009 

Avg total 

sub, loan 

debt through 

2009 

Percent of 

students with 

sub. loan 

debt > 0 

through 2009 

No degree, still enrolled ................................... $14,028 57 $23,947 $13,792 74 

No degree, transferred ..................................... 9,046 46 14,687 9,913 58 

No degree, left without return .......................... 6,753 35 9,998 6,364 52 

Attained degree ................................................ 9,014 39 15,574 11,418 49 

When borrowers who transferred to 

another institution but did not have any 

stopouts in the six-year period are 

included, the average subsidized and 

total Stafford loan debts are slightly 

lower, as displayed below in Table 5b. 

TABLE 5B—LOAN DEBT FOR STUDENTS WHO BEGAN AT A FOUR-YEAR INSTITUTION IN THE 2003–2004 ACADEMIC YEAR

AND HAD NO STOPOUTS THROUGH 2009 (EDUCATION CONTINUED ANYWHERE) 

) Avg total 

unsub. 

through 2009 

Percent of 

students with 

unsub. loan 

debt > 0 

through 2009 

(percent) 

Avg total 

sub. and unsub. 

loan debt 

through 2009 

Avg total 

sub. loan 

debt through 

2009 

Percent of 

students with 

sub. loan debt 

> 0 through 

2009 

No degree, still enrolled ................................... $12,741 58 $21,765 $13,128 73 


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TABLE 5B—LOAN DEBT FOR STUDENTS WHO BEGAN AT A FOUR-YEAR INSTITUTION IN THE 2003–2004 ACADEMIC YEAR

AND HAD NO STOPOUTS THROUGH 2009 (EDUCATION CONTINUED ANYWHERE)—Continued 

% Avg total 

unsub. 

through 2009 

Percent of 

students with 

unsub. loan 

debt > 0 

through 2009 

(percent) 

Avg total 

sub. and unsub. 

loan debt 

through 2009 

Avg total 

sub. loan 

debt through 

2009 

Percent of 

students with 

sub. loan debt 

> 0 through 

2009 

No degree, left without return .......................... 6,667 36 9,949 6,416 52 

Attained degree ................................................ 9,067 40 15,558 11,308 50 

Under these interim final regulations, 

a borrower who enrolls in a seventh 

year of undergraduate studies in a fouryear program would become responsible 

for accruing interest on Direct 

Subsidized Loans. Using the data from 

Table 5b, if the interim final regulations 

were in place, the average borrower 

would have entered that seventh year 

with $13,128 in Direct Subsidized 

Loans. In that seventh year, in addition 

to losing eligibility for additional Direct 

Subsidized Loans, the borrower would 

become responsible for $892.67 of 

interest (this and other calculations 

assume that current law applies— 

therefore interest would accrue at a rate 

of 6.8 percent). This is in addition to 

interest accruing on existing Direct 

Unsubsidized Loans as well as any 

Direct Unsubsidized Loans taken out 

during that seventh year. 

Based on data from the 2004/2009 

BPS and assuming these interim final 

regulations were in place, the average 

borrower who became responsible for 

accruing interest on existing Direct 

Subsidized Loans by enrolling in a 

seventh year of undergraduate studies 

but did not take out any additional 

student loans would have accrued 

almost $1,800 more in interest during 

that seventh year of school and the 

following grace period (assuming 

graduation in the seventh year). If the 

borrower had taken out an additional 

loan in the seventh year, he or she 

would have been limited to Direct 

Unsubsidized Loans then and in the 

future, and interest would have accrued 

on all of the borrower’s loans. Under a 

10-year Standard Repayment Plan, the 

additional costs for a borrower who 

becomes responsible for interest on 

previously subsidized loans would be 

about $20 per month and $2,400 over 

the life of the borrower’s loans. This 

estimate does not account for the 

possibility that the borrower could 

request deferments, during which time 

the borrower would also be responsible 

for accruing interest. 

TABLE 6—ESTIMATED IMPACTS OF INTERIM FINAL REGULATIONS ON SIXTH-YEAR AND SEVENTH-YEAR UNDERGRADUATE

STUDENTS WHO BEGAN AT A FOUR-YEAR INSTITUTION IN THE 2003–2004 ACADEMIC YEAR AND HAD NO STOPOUTS

THROUGH 2009 (EDUCATION CONTINUED ANYWHERE). NOTE: CHART CALCULATES INTEREST USING RELEVANT INTEREST RATES FROM 2003–2009 AND ASSUMES AN EQUAL DISTRIBUTION OF LOANS THROUGH GRADUATION. THESE

FIGURES ARE ONLY INTENDED TO SERVE AS EXAMPLES OF HOW THE INTERIM FINAL REGULATIONS COULD AFFECT

BORROWERS, NOT TO FORECAST ACTUAL FUTURE EFFECTS ON INDIVIDUAL BORROWERS

Total 

stafford Sub loans Unsub loans Interest 

Amount 

due at 

repayment 

10-Year 

standard 

monthly 

payments 

(6.8%) 

Total 

amount 

repaid 

(10-year 

standard) 

Borrower 1, graduated at end of year six $21,765 $13,128 $8,638 $1,828 $23,593 $271 $32,507 

Borrower 2, enrolls in seventh year but 

takes out no additional loans ............... 21,765 13,128 8,638 3,531 25,297 291 34,933 

Borrower 3, enrolls in seventh year and 

takes out an additional unsub loan ...... 25,393 13,128 12,265 3,778 29,171 336 40,284 

Borrowers who start in two-year 

programs will have three years of Direct 

Subsidized Loan eligibility. However, 

some borrowers may choose to transfer 

to a longer program (e.g., a four-year 

program) after that third year and 

subsequently increase their maximum 

eligibility for Direct Subsidized Loans. 

Data from the 2004/2009 BPS show that 

the average borrower who began at a 

two-year institution in fall 2003 and was 

still enrolled without a degree at the end 

of the 2005–2006 academic year had 

approximately $4,652 of Direct 

Subsidized Loan debt. However, 

approximately 20 percent of students 

who began at a two-year institution in 

fall 2003 and were still enrolled without 

a degree at the end of the 2005–2006 

academic year had any subsidized loan 

debt. 

Unlike a borrower in a four-year 

program who reaches the eligibility 

limits, a borrower in a two-year program 

who has taken out three years of Direct 

Subsidized Loans will not become 

responsible for interest on existing 

Direct Subsidized Loans if he or she 

enrolls in a longer program instead of 

enrolling in the fourth year of the twoyear program. 


tkelley on DSK3SPTVN1PROD with RULES2
Federal Register / Vol. 78, No. 95 / Thursday, May 16, 2013 / Rules and Regulations 28977 

TABLE 7—LOAN DEBT FOR STUDENTS WHO BEGAN AT A TWO-YEAR INSTITUTION IN THE 2003–2004 ACADEMIC YEAR

AND HAD NO STOPOUTS THROUGH 2006 (EDUCATION CONTINUED AT FIRST INSTITUTION ONLY) 

Avg total 

stafford unsub 

loan debt 

through 2006 

Percent of 

students with 

unsub loan 

debt > 0 

through 2006 

(percent) 

Avg total 

stafford sub 

loan debt 

through 2006 

Percent of 

students with 

sub loan 

debt > 0 

through 2006 

(percent) 

Avg total 

stafford 

loan debt 

through 2006 

Attained associate’s degree ............................. $1,843 29.5 $6,011 39.9 $9,517 

Attained certificate ........................................... 860 17.7 4,157 33.1 6,499 

No degree, still enrolled ................................... 855 17.6 4,652 20.6 7,209 

No degree, not enrolled ................................... 445 12.2 2,954 22.9 4,558 

No degree, transferred ..................................... 997 23.0 4,100 33.9 6,213 

No degree, left without return .......................... 954 19.5 4,051 26.3 6,927 

The data in Table 8 show that 

borrowers in two-year programs who 

become responsible for interest on 

Direct Subsidized Loans by enrolling in 

a fourth year of that program (but who 

do not take out an additional loan) 

would not experience a significant 

financial impact during that fourth year 

under these interim final regulations. 

Those who receive an additional Direct 

Unsubsidized Loan during the fourth 

year would experience a larger impact 

because the loan received in the fourth 

year would be a Direct Unsubsidized 

Loan and such borrowers would be 

responsible for accruing interest on all 

loans, including Direct Subsidized 

Loans. 

TABLE 8—ESTIMATED IMPACT OF INTERIM FINAL REGULATIONS ON THIRD- AND FOURTH-YEAR UNDERGRADUATE STUDENTS WHO STARTED IN A TWO-YEAR PROGRAM IN FALL 2003 AND HAVE NOT TRANSFERRED OR HAD ANY LAPSES

IN ENROLLMENT

[Note: Chart calculates interest using relevant interest rates from 2003–2007 and assumes an equal distribution of loans through graduation. 

These figures are only intended to serve as examples of how the interim final regulations could affect borrowers, not to forecast actual future 

effects on individual borrowers.] 

Total sub. 

and unsub. Sub. loans Unsub. loans Interest 

Amount 

due at 

repayment 

10-year 

standard 

monthly 

payments 

(6.8%) 

Total 

amount 

repaid 

(10-year 

standard) 

Borrower 1, graduates at end of year 3 .. $7,209 $4,652 $2,557 $213 $7,422 $85 $10,250 

Borrower 2, enrolls in fourth year of twoyear program and graduates with no 

additional loans .................................... 7,209 4,652 2,557 782 7,992 92 11,037 

Borrower 2, enrolls in fourth year of twoyear program and graduates with additional loans ........................................... 9,612 4,652 4,960 946 10,558 122 14,580 

As mentioned earlier, some borrowers 

who begin in two-year programs will 

transfer to longer programs. A borrower 

may enroll in a two-year program for 

three years and decide to transfer to a 

four-year program for the fourth year, 

which would prevent the borrower from 

becoming responsible for accruing 

interest and allow the borrower to 

receive three additional years of Direct 

Subsidized Loans. However, there is a 

risk that borrowers who transfer from 

two-year programs after three years 

without completing an associate’s 

degree and who lose some of their 

earned credit hours may become 

responsible for interest on existing 

Direct Subsidized Loans if they are 

unable to complete the four-year degree 

in the three years of remaining 

eligibility. 

The financial impact of these interim 

final regulations on borrowers who are 

responsible for accruing interest during 

the repayment period will depend upon 

a number of factors. As stated earlier, 

borrowers with equal loan debt entering 

repayment may end up paying 

substantially different amounts overall 

depending on whether borrowers 

request deferments because a borrower 

who becomes responsible for interest on 

existing Direct Subsidized Loans will 

also be responsible for such interest 

during any periods of deferment. 

Borrowers who do not continue 

enrollment after meeting or exceeding 

the 150 percent limit are not responsible 

for accruing interest during such 

periods. 

These interim final regulations also 

limit Direct Subsidized Loan eligibility 

for borrowers in teacher certification 

coursework. Previous borrowing for 

other programs does not affect a 

borrower’s eligibility for Direct 

Subsidized Loans for teacher 

certification coursework; instead, 

borrowers will begin new eligibility 

periods upon enrollment in such a 

program and receipt of a Direct 

Subsidized Loan. As with any other 

program, a borrower can only extend his 

or her eligibility period by enrolling in 

longer teacher certification coursework. 

As discussed previously in this 

preamble, subsidized usage periods 

accrued in teacher certification 

coursework will count against the 

maximum eligibility period of other 

teacher certification coursework. Once 

the borrower has met or exceeded the 

150 percent limitation, he or she will 

still be able to use Direct Unsubsidized 

Loans to pay for eligible programs and 

subsequent enrollment in such 

programs will not cause a borrower to 

become responsible for accruing interest 

on any existing Direct Subsidized 

Loans. 

The limits on the use of Direct 

Subsidized Loans to pay for teacher 


tkelley on DSK3SPTVN1PROD with RULES2
28978 Federal Register / Vol. 78, No. 95 / Thursday, May 16, 2013 / Rules and Regulations 

4Paul Attewell et al., ‘‘New Evidence on College 

Remediation,’’ Journal of Higher Education 77, no. 

5 (October 2006): 886–924. 

certification coursework may come at a 

cost to affected borrowers. Some States 

require teachers to complete these 

programs on a periodic basis to 

maintain their ability to teach, and these 

teachers may have to use Direct 

Unsubsidized Loans to pay for 

additional certificates. As with other 

programs, the overall impact of these 

regulations on borrowers will depend 

upon borrower behavior throughout 

repayment. 

These interim final regulations will 

also have potential financial effects on 

borrowers who enroll in preparatory 

coursework for undergraduate or 

graduate programs. Direct Subsidized 

Loans used to pay for preparatory 

coursework for undergraduate programs 

will count against borrowers’ maximum 

eligibility periods. Therefore, borrowers 

enrolled in preparatory courses for 

undergraduate studies will have shorter 

periods to complete their undergraduate 

coursework without losing eligibility for 

Direct Subsidized Loans. Enrolling in 

preparatory coursework for a graduate 

program will not cause a borrower to 

become responsible for interest on 

existing Direct Subsidized Loans, but 

will still count against the maximum 

eligibility period of the undergraduate 

program for which the borrower most 

recently received a Direct Subsidized 

Loan. Borrowers who exhaust their 

Direct Subsidized Loan eligibility 

during their undergraduate studies will 

be limited to Direct Unsubsidized Loans 

during these courses. 

In addition to the estimated costs 

described above, these interim final 

regulations may offer non-quantifiable 

benefits to students and the general 

population. Data from the 2004/2009 

BPS show that about 58 percent of firsttime, full-time students in bachelor 

degree programs completed their 

programs within six years. These 

interim final regulations could motivate 

students to finish on time and increase 

the nation’s on-time college graduation 

rate. An improved on-time graduation 

rate could help reduce student debt and 

provide more qualified and highly 

trained individuals for the country’s 

workforce. Reduced debt levels may 

allow graduates greater economic 

participation, such as by purchasing 

homes or cars or starting small 

businesses. 

We welcome comments about the 

costs and benefits of the changes 

implemented in these interim final 

regulations. 

Elsewhere in this section under the 

heading Paperwork Reduction Act of 

1995, we identify and explain burdens 

specifically associated with information 

collection requirements. 

2. Alternatives considered. 

No alternatives were considered for 

the amendments to §§ 685.202 and 

685.304 because these amendments 

implement changes to the HEA enacted 

by Congress, and we did not have 

discretion in developing these 

amendments. With respect to § 685.200, 

we did discuss and consider alternative 

approaches to the regulations on 

preparatory coursework for 

undergraduate studies and treatment of 

teacher preparatory programs. 

In the case of preparatory coursework, 

the Department wanted to ensure that 

the regulations did not have a 

significant negative impact on 

borrowers who need this coursework to 

prepare for undergraduate studies. 

Research shows that preparatory 

coursework only has a modest effect on 

the length of time that students take to 

graduate.4 For this reason, we declined 

to treat these courses as stand-alone 

programs for the purposes of subsidized 

loan eligibility. 

We also considered multiple 

approaches to the treatment of teacher 

certification coursework. MAP–21 

requires the Secretary to promulgate 

regulations that address how the 

eligibility limit on Direct Subsidized 

Loans and borrower responsibility for 

accruing interest will operate for 

borrowers enrolled at an eligible 

institution in a program necessary for a 

professional credential or a certification 

from a State that is required for 

employment as a teacher in an 

elementary or secondary school in that 

State. Because many States require 

teachers to obtain such certificates as a 

prerequisite for teaching or as a 

requirement to continue teaching, we 

believed that these programs should be 

treated as stand-alone entities not 

affected by Direct Subsidized Loan 

receipt in prior undergraduate 

programs. However, to be consistent 

with the overall intent of the 150 

percent limitation, we provided in these 

interim final regulations that teacher 

certification coursework is a 

continuation of the previous teacher 

certification coursework for the purpose 

of subsidized loan eligibility. 

In the spirit of good governance, the 

Department has done its due diligence 

to ensure that these interim final 

regulations represent the Department’s 

best efforts to regulate and are 

consistent with Congress’s intent in 

passing MAP–21. 

Accounting Statement 

As required by OMB Circular A–4 

(available at www.whitehouse.gov/sites/ 

default/files/omb/assets/omb/circulars/ 

a004/a-4.pdf), in the following table 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 annual 

monetized transfers as a result of these 

interim final regulations. Expenditures 

are classified as transfers from affected 

student loan borrowers to the Federal 

Government and the IHEs’ cost of 

compliance with the paperwork 

requirements. 

ACCOUNTING STATEMENT CLASSIFICATION OF ESTIMATED EXPENDITURES

[In millions] 

Category Amount or description 

Annual Benefits ........................................................................................ Not quantified. The 150% limit may encourage borrowers’ on-time completion of programs. 

Annual Costs ............................................................................................ $5.21 (7%). 

$5.31 (3%). 

Cost of Paperwork Compliance. 

Annualized Monetized Transfers .............................................................. $212.8 (7%). 

$237.6 (3%). 

From Whom To Whom? ........................................................................... From affected student loan borrowers to the Federal Government. 


tkelley on DSK3SPTVN1PROD with RULES2
Federal Register / Vol. 78, No. 95 / Thursday, May 16, 2013 / Rules and Regulations 28979 

Clarity of the Regulations 

Executive Order 12866 and the 

Presidential memorandum ‘‘Plain 

Language in Government Writing’’ 

require each agency to write regulations 

that are easy to understand. 

The Secretary invites comments on 

how to make these regulations easier to 

understand, including answers to 

questions such as the following: 

• Are the requirements in the 

regulations clearly stated? 

• Do the regulations contain technical 

terms or other wording that interferes 

with their clarity? 

• Does the format of the regulations 

(grouping and order of sections, use of 

headings, paragraphing, etc.) aid or 

reduce their clarity? 

• Would the regulations be easier to 

understand if we divided them into 

more (but shorter) sections? (A 

‘‘section’’ is preceded by the symbol 

‘‘§ ’’ and a numbered heading; for 

example, § 685.200.) 

• Could the description of the 

regulations in the SUPPLEMENTARY

INFORMATION section of this preamble be 

more helpful in making the regulations 

easier to understand? If so, how? 

• What else could we do to make the 

regulations easier to understand? 

To send any comments that concern 

how the Department could make these 

interim final regulations easier to 

understand, see the instructions in the 

ADDRESSES section. 

Initial Regulatory Flexibility Act 

Analysis 

These interim final regulations 

primarily affect the terms of loans made 

by the Department to some student loan 

borrowers. However, some of the 

provisions also modify the financial aid 

counseling and reporting requirements 

of IHEs. The U.S. Small Business 

Administration Size Standards define 

‘‘for-profit institutions’’ as ‘‘small 

businesses’’ if they are independently 

owned and operated and not dominant 

in their field of operation with total 

annual revenue below $7,000,000. The 

standards define ‘‘non-profit 

institutions’’ as ‘‘small organizations’’ if 

they are independently owned and 

operated and not dominant in their field 

of operation, or as ‘‘small entities’’ if 

they are institutions controlled by 

governmental entities with populations 

below 50,000. Under these definitions, 

an estimated 4,365 IHEs subject to the 

proposed paperwork compliance 

provisions of the interim final 

regulations are small entities. 

Accordingly, we have prepared this 

initial regulatory flexibility analysis to 

present an estimate of the effect on 

small entities of the statutory changes as 

implemented through these interim 

final regulations. The Department 

welcomes comments and information 

on this analysis. 

Succinct Statement of the Objectives of, 

and Legal Basis for, the Regulations 

The interim final regulations reflect 

changes made to the Direct Loan 

Program by MAP–21. Specifically, these 

regulations reflect the provisions in 

MAP–21 that amended the HEA to 

extend the 3.4 percent interest rate on 

Direct Subsidized Loans from July 1, 

2012 to July 1, 2013, and to limit a 

borrower from receiving Direct 

Subsidized Loans for a period in excess 

of 150 percent of the published length 

of the educational program in which the 

borrower is enrolled. 

Description of and, Where Feasible, an 

Estimate of the Number of Small 

Entities to Which the Regulations Will 

Apply 

These interim final regulations affect 

IHEs that participate in the Federal 

Direct Loan Program and borrowers. 

Approximately 60 percent of IHEs 

qualify as small entities, even if the 

range of revenues at the not-for-profit 

institutions varies greatly. Using data 

from the Integrated Postsecondary 

Education Data System, the Department 

estimates that approximately 4,365 IHEs 

qualify as small entities—1,891 are notfor-profit institutions, 2,196 are forprofit institutions with programs of two 

years or less, and 278 are for-profit 

institutions with four-year programs. 

Description of the Projected Reporting, 

Recordkeeping, and Other Compliance 

Requirements of the Regulations, 

Including an Estimate of the Classes of 

Small Entities That Will Be Subject to 

the Requirements 

The interim final regulations modify 

or increase the paperwork burden on 

entities participating in the Direct Loan 

Program, as described in the Paperwork 

Reduction Act section of this preamble. 

In particular, institutions will be 

required to report information that will 

allow the Department to calculate the 

maximum eligibility period, subsidized 

usage period, and remaining eligibility 

period for each borrower. The 

information will include: The program’s 

CIP Code; the credential level of each 

program; the length of the program for 

which the loan is intended; the 

enrollment status of the borrower at the 

time the loan is disbursed; whether a 

loan is for teacher certification 

coursework for which the institution 

awards no academic credential; whether 

a loan is for preparatory coursework 

necessary for enrollment in an 

undergraduate program; and whether 

the loan is for preparatory coursework 

necessary for enrollment in a graduate 

or professional program. Institutions 

will also provide program information 

to the Department’s NSLDS system and 

include information about the 150 

percent limit in financial aid entrance 

and exit counseling. The estimated 

burden on small entities from these 

requirements is summarized in Table 9. 

TABLE 9—ESTIMATED PAPERWORK BURDEN ON SMALL ENTITIES

Reg section OMB Control No. Cost Cost per 

institution 

COD reporting of enrollment status, program length, teacher 

preparation programs, preparatory coursework, and CIP 

code.

685.301(e) ................. OMB 1845—NEW1 ... $852,234 $195 

NSLDS reporting ...................................................................... 685.309(b) ................. OMB 1845—NEW1 ... 65,953 15 

Additional entrance and exit counseling requirements ............ 685.304 ..................... OMB 1845—NEW1 ... 268,566 62 


tkelley on DSK3SPTVN1PROD with RULES2
28980 Federal Register / Vol. 78, No. 95 / Thursday, May 16, 2013 / Rules and Regulations 

Identification, to the Extent Practicable, 

of All Relevant Federal Regulations 

That May Duplicate, Overlap, or 

Conflict With These Interim Final 

Regulations 

These interim final regulations are 

unlikely to conflict with or duplicate 

existing Federal regulations. 

Alternatives Considered 

No alternatives were considered for 

small entities because these interim 

final regulations implement changes to 

the HEA enacted by Congress, and are 

necessary to implement the statutory 

changes. The information required to be 

reported should be readily available to 

IHEs. Further, the counseling 

information is critically important for 

borrowers to receive when they first 

take out loans subject to the 150 percent 

limitation and as they make their 

educational plans, so delays for small 

entities are not possible. The 

Department is committed to helping all 

institutions meet the financial 

counseling requirements of the interim 

final regulations and will provide 

materials or guidance to assist with this 

requirement. 

Waiver of Rulemaking and Delayed 

Effective Dates 

Under the Administrative Procedure 

Act (APA) (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 establishing a final 

rule. In addition, all Department 

regulations for programs authorized by 

Title IV of the HEA (Title IV, HEA 

programs) are subject to the negotiated 

rulemaking requirements of section 492 

of the HEA. Section 492 provides 

specifically that any regulations issued 

for the Title IV, HEA programs are 

subject to negotiated rulemaking to 

obtain the advice of and 

recommendations from individuals and 

groups involved in the student financial 

assistance programs. 

MAP–21 waives the negotiated 

rulemaking requirements in section 492 

of the HEA (as well as the master 

calendar requirements in section 482 of 

the HEA) for regulations to implement 

the 150 percent limit on Direct 

Subsidized Loan eligibility in the Direct 

Loan Program. Consequently, the 

negotiated rulemaking requirements in 

section 492 of the HEA do not apply to 

these interim final regulations and we 

will not subject them to negotiated 

rulemaking. 

Under section 553(a)(3)(B) of the 

APA, an agency is not required to 

conduct notice-and-comment 

rulemaking when the agency ‘‘for good 

cause finds . . . that notice and public 

procedure thereon are impracticable, 

unnecessary, or contrary to the public 

interest.’’ Although these interim final 

regulations are subject to the APA’s 

notice-and-comment requirements, the 

Secretary has determined that it would 

be impracticable to conduct notice-andcomment rulemaking in time to 

implement these changes by July 1, 

2013. 

In section 455(q) of the HEA, as added 

by MAP–21, Congress made a number of 

changes to the Direct Loan Program to 

be effective on July 1, 2013. Even on an 

extremely expedited timeline, the 

Department could not feasibly conduct 

notice-and-comment rulemaking, 

promulgate final regulations, make 

necessary financial aid systems changes, 

and provide counseling to borrowers in 

time to implement the statutory changes 

by July 1, 2013. 

Though MAP–21 was signed into law 

on July 6, 2012, nearly one year prior to 

the date that the first cohort of 

borrowers could be affected, the 

Department was unable to begin the 

regulatory drafting process immediately. 

In order to ensure the continued 

integrity of the Title IV loan programs, 

the Department first had to assess its 

operational capabilities and what 

limitations these placed on possible 

regulatory approaches. This internal 

analysis took several months and 

therefore limited the period during 

which the Department could draft 

implementing regulations. 

The time period in which the 

Department could conduct notice-andcomment rulemaking was further 

limited by the statute’s specification of 

a July 1, 2013, effective date, and 

requirement that institutions and the 

Department take specific steps in order 

to implement the statutory requirements 

by that date. First, although MAP–21 

specifies that borrowers are not affected 

until July 1, 2013, institutions begin 

preparing financial aid packages in the 

spring that precedes an award year (an 

award year begins on July 1). Shortly 

after a student’s financial aid package is 

prepared, the student must sign a master 

promissory note and complete entrance 

counseling. Only then is the financial 

aid award, effective as of July 1, 

disbursed to the student. Thus, the 

regulations need to be in place long 

enough before July 1 to allow schools to 

prepare, counsel students about, and 

make financial aid awards. 

Second, the Department must make 

certain necessary systems and 

operational changes before July 1 in 

order to comply generally with the HEA 

and protect borrowers, institutions, and 

taxpayers. Without changes to current 

financial aid systems, schools would be 

unable to accurately monitor a 

borrower’s eligibility for Direct 

Subsidized Loans under the 150 percent 

limit because the determination of a 

borrower’s maximum eligibility period 

and remaining eligibility period requires 

information about a borrower’s 

attendance at all institutions, which 

may not be available to the institution 

the borrower is presently attending. 

Therefore, the Department must have 

regulations with legal force to make the 

necessary system changes to NSLDS and 

the COD System to monitor borrower 

eligibility, alert borrowers and 

institutions that a borrower is about to 

reach or has reached the 150 percent 

limit on eligibility for Direct Subsidized 

Loans, and ensure that no additional 

Direct Subsidized Loans are originated 

or disbursed to an ineligible borrower. 

Making such changes in a timely 

manner requires that regulatory drafting 

and operational adjustments occur 

contemporaneously. 

If the Department were required to 

conduct notice-and-comment 

rulemaking first, the Department could 

not begin implementing these changes 

until after final regulations were 

published. Because interim final 

regulations have legal force on the date 

of publication, the Department can 

begin making these necessary changes. 

If the Department were required to 

submit draft regulations for notice-andcomment rulemaking, the Department 

could not begin implementing such 

changes until final regulations were 

published. We would be forced to delay 

the initiation of operational changes 

until late 2013 or early 2014, well after 

the July 1, 2013, date set forth in the 

statute. 

In addition, we need to ensure that 

borrowers are advised of the terms and 

conditions of their eligibility for Direct 

Loans before July 1, 2013. The statute 

itself does not provide sufficient detail 

on the 150 percent limit. Therefore, we 

are not be able to provide borrowers 

with the terms of the 150 percent limit 

on eligibility or with information on 

how they will be affected until the 

interim final regulations are published. 

Notice-and-comment rulemaking is 

impracticable because the Department 

could not conduct notice-and-comment 

rulemaking, issue final regulations, 

make necessary systems changes, and 

provide counseling for borrowers by 

July 1, 2013. In sum, if notice-andcomment rulemaking were not waived, 

the Department would be unable to 

administer the Direct Loan Program in 

compliance with the HEA. 


tkelley on DSK3SPTVN1PROD with RULES2
Federal Register / Vol. 78, No. 95 / Thursday, May 16, 2013 / Rules and Regulations 28981 

Finally, we note that, contrary to 

public interest, there would be a 

substantial loss of revenue for the 

Federal Government if these interim 

final regulations were not implemented 

until after July 1, 2013. As previously 

noted, section 455(q) of the HEA is not 

self-implementing. If the regulations are 

not published until after July 1, 2013, 

the Department will not be able to apply 

the restrictions to borrowers until the 

date the regulations are published. 

Therefore, borrowers who take out loans 

between July 1, 2013, and the date of 

publication would not be subject to the 

150 percent limit. As a result, the 

Government would have increased costs 

for interest subsidies on Direct 

Subsidized Loans and would not receive 

the expected savings from interest 

payments made by the borrowers in this 

cohort who exceed the 150 percent 

limitation. 

The Department estimates that 

approximately 62,000 borrowers in the 

2013 cohort of borrowers (0.87 percent) 

would exceed the 150 percent limit at 

some point during their postsecondary 

education and be affected by the 

proposed regulations. Many of them 

would not be subject to the regulatory 

provisions if the effective date were 

delayed. The estimated savings 

associated with these affected borrowers 

in the 2013 cohort is $197 million. For 

example, the Department estimates that 

if implementation were delayed until 

January 1, 2014, the $197 million in 

outlay savings associated with the 2013 

cohort in the 2013 MSR Baseline would 

be eliminated in addition to $251 

million in outlay savings across the 

2013 to 2023 cohorts from the PB2014 

baseline. This is a total of $448 million 

in savings reductions over the 2013 to 

2023 cohorts. 

For these reasons, the Secretary has 

determined that notice-and-comment 

rulemaking is impracticable and 

contrary to the public interest. Although 

the Department is adopting these 

regulations on an interim final basis, we 

request public comment on these 

regulations. After consideration of 

public comments, the Secretary will 

publish final regulations. 

We also note that the APA generally 

requires that regulations be published at 

least 30 days before their effective date, 

unless the agency has good cause to 

implement the regulations sooner (5 

U.S.C. 553(d)(3)). In addition, these final 

regulations are a major rule for purposes 

of the Congressional Review Act (CRA) 

(5 U.S.C. 801, et seq.). Generally, under 

the CRA, a major rule takes effect 60 

days after the date on which the rule is 

published in the Federal Register. 

Section 808(2) of the CRA, however, 

provides that, if an agency finds for 

good cause (and incorporates the 

finding and a brief statement of reasons 

therefor in the rule issued) that notice 

of, and public procedure on, a rule are 

impracticable, unnecessary, or contrary 

to the public interest, the rule shall take 

effect at such time as the Federal agency 

promulgating the rule determines. We 

are waiving the delayed effective dates 

under both the APA and CRA and thus 

these interim final regulations will take 

effect on their date of publication. We 

are taking this action because if we do 

not waive the delayed effective dates we 

are at risk of not meeting the statutory 

deadline of July 1, 2013, and facing 

significant repercussions, as explained 

in this section of the preamble. Thus, 

we find there is good cause to waive the 

delayed effective dates under the APA 

and the CRA. 

Paperwork Reduction Act of 1995 

As part of its continuing effort to 

reduce paperwork and respondent 

burden, the Department conducts a 

preclearance consultation program to 

provide the general public and Federal 

agencies with an opportunity to 

comment on proposed and continuing 

collections of information in accordance 

with the Paperwork Reduction Act of 

1995 (PRA) (44 U.S.C. 3506(c)(2)(A)). 

This helps ensure that: The public 

understands the Department’s collection 

instructions; respondents can provide 

the requested data in the desired format; 

reporting burden (time and financial 

resources) is minimized; collection 

instruments are clearly understood; and 

the Department can properly assess the 

impact of collection requirements on 

respondents. 

A Federal agency may not conduct or 

sponsor a collection of information 

unless the OMB approves the collection 

under the PRA and the corresponding 

information collection instrument 

displays a currently valid OMB control 

number. No person is required to 

comply with, or is subject to penalty for 

failure to comply with, a collection of 

information if the collection instrument 

does not display a currently valid OMB 

control number. 

Under 5 CFR 1320.13 we have 

requested OMB to conduct its review of 

this collection of information on an 

emergency basis. We have asked OMB 

to approve the collection of information 

on May 16, 2013, the same date these 

interim final regulations are published 

in the Federal Register. This does not 

affect your ability to comment on the 

interim final regulations, or the 

collection associated with it. In 

addition, the Department is 

concurrently asking for comments under 

the 60-day comment period for the 

regular collection. In order for those 

comments to be considered for the 

regular collection, the Department 

requests comments by July 15, 2013. If 

you want to comment on the proposed 

information collection requirements, 

please send your comments through the 

Federal eRulemaking Portal at http:// 

www.regulations.gov through by 

selecting Docket ID number [ED–2013– 

OPE–0066]. 

The manner in which the Department 

will be implementing § 685.200 will 

require institutions to submit additional 

information to the COD System and to 

NSLDS under the authority in 

§§ 685.301(e) and 685.309(b), 

respectively. Therefore, the collection 

requirements associated with 

§§ 685.301(e) and 685.309(b) will 

change as a result of this rulemaking. 

Although §§ 685.301(e) and 685.309(b) 

are not modified by this rulemaking, the 

burden associated with each provision 

will ultimately change as a result of this 

rulemaking and the analysis of the 

burden associated with those provisions 

will accompany this rulemaking. 

Section 685.304 also contains 

information collection requirements. 

The Department has submitted a copy of 

the information collection requests 

associated with these sections to OMB 

for its review. 

Section 685.301(e)—COD Reporting 

Requirements by Institutions 

Section 685.301(e) provides that 

institutions originating and disbursing 

loans under the Direct Loan Program 

must report a student’s ‘‘payment data’’ 

to the Secretary. The term ‘‘payment 

data’’ is defined in § 685.102(b) to mean 

‘‘an electronic record that is provided to 

the Secretary by an institution showing 

student disbursement information’’. The 

Department has implemented this 

provision by requiring that institutions 

electronically report student and Direct 

Loan information to the COD System. 

The provisions of § 685.200(f) provide 

that a borrower is not eligible to receive 

an additional Direct Subsidized Loan if 

the borrower has no remaining 

eligibility period. These interim final 

regulations also provide different rules 

for borrowers who are enrolled in 

teacher certification coursework for 

which the institution awards no 

academic credential, preparatory 

coursework necessary for enrollment in 

an undergraduate program, and 

preparatory coursework necessary for 

enrollment in a graduate or professional 

program. 

The Department will determine 

whether the borrower has continued 

eligibility for Direct Subsidized Loans. 


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To ensure that the Department has the 

information necessary to make that 

determination, institutions will be 

required to report additional 

information to the Department’s COD 

System. For example, institutions will 

be required to report: The program’s CIP 

Code; the credential level of each 

program; the length of the program for 

which the loan is intended; the 

enrollment status of the borrower at the 

time the loan is disbursed; whether a 

loan is for teacher certification 

coursework for which the institution 

awards no academic credential; whether 

a loan is for preparatory coursework 

necessary for enrollment in an 

undergraduate program; and whether 

the loan is for preparatory coursework 

necessary for enrollment in a graduate 

or professional program. 

These data will allow the Department 

to calculate the borrower’s maximum 

eligibility period, subsidized usage 

period, and remaining eligibility period 

as described in § 685.200(f)(1)(ii)– 

(f)(1)(iv), determine whether the 

borrower is eligible to receive an 

additional Direct Subsidized Loan, and 

ensure that borrowers do not receive 

Direct Subsidized Loans if they are no 

longer eligible under § 685.200(f)(2). 

To estimate the total increase in 

burden imposed on institutions, the 

Department estimated the average 

number of reports that each institution 

submitted to COD each business day (by 

institutional type, i.e., public, private, 

proprietary). We based our calculations 

of estimated burdens on a 248 businessday year (365 days, less 104 weekend 

days and 13 Federal holidays) and 

assumed that institutions submit data in 

large batches, not separately, for each 

individual borrower. We estimate that 

the additional reporting will add 1 

minute (0.02 hours) of additional 

burden per report. 

Of the 5,847 institutions that 

disbursed Direct Loans during the most 

recently completed award year, 1,933 of 

them are public institutions. The 

average number of reports per day that 

public institutions submit is 2.73. We 

further estimate that additional 

reporting will add 26,174 hours (1,933 

institutions multiplied by 248 business 

days, multiplied by 2.73 reports per day, 

multiplied by 0.02 hours per report). 

Of the 5,847 institutions that 

disbursed Direct Loans during the most 

recently completed award year, 1,750 of 

them are private, not-for-profit 

institutions. The average number of 

reports per day that private, not-forprofit institutions submit is 1.29. We 

estimate that additional reporting will 

add 11,197 hours (1,750 institutions 

multiplied by 248 business days, 

multiplied by 1.29 reports per day, 

multiplied by 0.02 hours per report). 

Of the 5,847 institutions that 

disbursed Direct Loans during the most 

recently completed award year, 2,164 of 

them are proprietary institutions. The 

average number of reports per day that 

proprietary institutions submit is 0.84. 

We further estimate that additional 

reporting will add 9,016 hours (2,164 

institutions multiplied by 248 business 

days, multiplied by 0.84 reports per day, 

multiplied by 0.02 hours per report). 

Collectively, as a result of the new 

reporting requirements created for 

public, private and proprietary 

institutions, the total burden associated 

with § 685.301(e), under 1845–NEW1, 

will increase by 46,387 hours (26,174 

hours for public institutions + 11,197 

hours for private, not-for-profit 

institutions + 9,016 hours for 

proprietary institutions). 

Section 685.309(b)—NSLDS Enrollment 

Reporting by Institutions 

Section 685.309(b) provides that 

eligible institutions that enroll a Direct 

Loan borrower must report information 

about the borrower’s enrollment to the 

Secretary. The Department has 

implemented these provisions by 

requiring institutions to electronically 

report, at least twice per year, student 

and loan information to NSLDS. The 

new Direct Subsidized Loan regulations 

in § 685.200(f)(3) provide that a 

borrower becomes responsible for 

accruing interest on any Direct 

Subsidized Loans he or she previously 

received if the borrower has no 

remaining eligibility period and enrolls 

in certain eligible programs. The new 

regulations also provide specific rules 

for borrowers who are enrolled in 

teacher certification coursework for 

which the institution awards no 

academic credential, preparatory 

coursework necessary for enrollment in 

a graduate or professional program, and 

programs for which borrowers are not 

otherwise eligible for Direct Subsidized 

Loans. 

The Department will determine 

whether the borrower is responsible for 

accruing interest on his or her 

previously received Direct Subsidized 

Loans. To ensure that the Department 

has the information to necessary to 

make that determination, institutions 

will be required to report additional 

information to NSLDS. For example, 

institutions will be required to report: 

The CIP code and the credential level 

for the program in which a borrower is 

enrolled; the length of the program in 

academic years, weeks, or months 

(consistent with current institutional 

reporting in the COD System); and the 

enrollment status of the borrower. 

These data will allow the Department 

to determine whether a borrower who is 

not eligible for additional Direct 

Subsidized Loans is responsible for 

accruing interest on his or her 

previously received Direct Subsidized 

Loans. 

To estimate the total increase in 

burden imposed on institutions due to 

the new reporting requirements under 

§ 685.309(b), we divided institutions 

into two groups—institutions that use 

enrollment servicers, which are more 

automated and take less time to report 

enrollment to the Department, and 

institutions that do not use enrollment 

servicers and therefore take longer to 

report enrollment to the Department. 

We assumed that each institution that 

reports enrollment does so twice per 

year (as minimally required). We 

estimate that the additional reporting 

will, for institutions using an 

enrollment servicer, add 0.25 hours of 

burden per report. For institutions that 

do not use an enrollment servicer, we 

estimate that the additional reporting 

will add 0.5 hours of additional burden 

per report. 

Of the 8,196 institutions that reported 

enrollment information during the most 

recently completed award year, 2,710 of 

them are public institutions. Of the 

2,710 public institutions, 2,092 use 

enrollment servicers. For the 2,092 

public institutions that use enrollment 

servicers, we estimate that additional 

reporting will add 1,046 hours (2,092 

institutions multiplied by 0.25 

additional hours per report, multiplied 

by 2 reports per year). 

Of the 8,196 institutions that reported 

enrollment information during the most 

recently completed award year, 2,453 of 

them are private, not-for-profit 

institutions. Of the 2,453 private, notfor-profit institutions, 1,894 use 

enrollment servicers. For the 1,894 

private, not-for-profit institutions that 

use enrollment servicers, we estimate 

that additional reporting will add 947 

hours (1,894 institutions multiplied by 

0.25 additional hours per report, 

multiplied by 2 reports per year). 

Of the 8,196 institutions that reported 

enrollment information during the most 

recently completed award year, 3,033 of 

them are proprietary institutions. Of the 

3,033 proprietary institutions, 2,342 use 

enrollment servicers. For the 2,342 

proprietary institutions that use 

enrollment servicers, we estimate that 

additional reporting will add 1,171 

hours (2,342 institutions multiplied by 

0.25 additional hours per report, 

multiplied by 2 reports per year). 


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Of the 8,196 institutions that reported 

enrollment information during the most 

recently completed award year, 2,710 of 

them are public institutions. Of the 

2,710 institutions, 618 of them do not 

use enrollment servicers. For the 618 

public institutions that do not use 

enrollment servicers, we estimate that 

additional reporting will add 618 hours 

(618 institutions multiplied by 0.5 

additional hours per report, multiplied 

by 2 reports per year). 

Of the 8,196 institutions that reported 

enrollment information during the most 

recently completed award year, 2,453 of 

them are private, not-for-profit 

institutions. Of the 2,453 private, notfor-profit institutions, 559 of them do 

not use enrollment servicers. For the 

559 private, not-for-profit institutions 

that do not use enrollment servicers, we 

estimate that additional reporting will 

add 559 hours (559 institutions 

multiplied by 0.5 additional hours per 

report, multiplied by 2 reports per year). 

Of the 8,196 institutions that reported 

enrollment information during the most 

recently completed award year, 3,033 of 

them are proprietary institutions. Of the 

3,033 proprietary institutions, 691 of 

them do not use enrollment servicers. 

For the 691 proprietary institutions that 

do not use enrollment servicers, we 

estimate that additional reporting will 

add 691 hours (691 institutions 

multiplied by 0.5 additional hours per 

report, multiplied by 2 reports per year). 

Collectively, as a result of the new 

reporting requirements, the total burden 

associated with § 685.309(b), under 

1845–NEW1, will be increased by 5,032 

hours (1,046 hours for public 

institutions using enrollment servicers + 

947 hours for private, not-for-profit 

institutions using enrollment servicers + 

1,171 hours for proprietary institutions 

using enrollment servicers + 618 hours 

for public institutions not using 

enrollment servicers + 559 hours for 

private, not-for-profit institutions not 

using enrollment servicers + 691 hours 

for proprietary institutions that do not 

use enrollment servicers). 

Section 685.304—Entrance and Exit 

Counseling for Borrowers by Institutions 

The interim final regulations 

implement a new statutory requirement 

that significantly limits a borrower’s 

eligibility for Direct Subsidized Loans 

and potentially results in the borrower 

becoming responsible for accruing 

interest on existing Direct Subsidized 

Loans. Under section 485 of the HEA, 

which requires that borrowers be 

provided with entrance and exit 

counseling on the provisions governing 

Federal student aid, institutions will be 

required to revise the entrance and exit 

counseling provided to borrowers. 

For entrance counseling, the added 

counseling requirements under 

§ 685.304(a)(6)(xiii) will require 

institutions to explain: (1) The possible 

loss of eligibility for additional Direct 

Subsidized Loans; (2) how a borrower’s 

maximum eligibility period, remaining 

eligibility period, and subsidized usage 

period are calculated; (3) the possibility 

that the borrower could become 

responsible for accruing interest on 

previously received Direct Subsidized 

Loans during all periods; and (4) the 

impact of borrower responsibility for 

accruing interest on the borrower’s total 

debt. 

For exit counseling, the requirements 

added under new § 685.304(b)(4)(xii) 

will require institutions to explain: (1) 

How the borrower’s maximum 

eligibility period, remaining eligibility 

period, and subsidized usage period are 

calculated; (2) the sum of the borrower’s 

subsidized usage periods, as determined 

under § 685.200(f)(1)(iii), at the time of 

the exit counseling; (3) the 

consequences of continued borrowing or 

enrollment; (4) the impact of the 

borrower becoming responsible for 

accruing interest on total student debt; 

(5) that the Secretary will inform the 

student borrower of whether he or she 

is responsible for accruing interest on 

his or her Direct Subsidized Loans; and 

(6) that the borrower can access NSLDS 

to determine whether he or she is 

responsible for accruing interest on any 

Direct Subsidized Loans as provided in 

§ 685.200(f)(3). 

The burden associated with entrance 

and exit counseling is two-fold, there is 

burden on borrowers, who are required 

to complete entrance counseling by 

virtue of their participation in the Title 

IV loan programs and there is burden on 

institutions, which are required to 

provide counseling to such borrowers. 

We estimate that each entrance 

counseling interview will take 2 

additional minutes (0.03 hours) per 

borrower to complete and estimate the 

number of borrowers who took entrance 

counseling in the last award year as 

2,723,751. Therefore, we estimate that 

burden will increase by 81,713 hours 

(2,723,751 borrowers multiplied by 1 

interview per borrower multiplied by 

0.03 additional hours per interview). 

We estimate that, for all institutions, 

the additional entrance counseling 

requirements will add 1 hour of burden 

per institution to incorporate new 

material into their counseling and 

implement new counseling procedures. 

Of the 5,847 institutions that are 

required to perform entrance 

counseling, 1,933 are public 

institutions, 1,750 are private, not-forprofit institutions, and 2,164 are 

proprietary institutions. For the 1,933 

public institutions, we estimate that 

burden will increase by 1,933 hours 

(1,933 institutions multiplied by 1 

hour). For the 1,750 private, not-forprofit institutions, we estimate that 

burden will increase by 1,750 hours 

(1,750 institutions multiplied by 1 

hour). Of the 2,164 proprietary 

institutions, we estimate that burden 

will increase by 2,164 hours (2,164 

institutions multiplied by 1 hour). 

Collectively, we estimate that the total 

burden created for institutions of higher 

education to provide the added entrance 

counseling is 5,847 hours (1,933 hours 

+ 1,750 hours + 2,164 hours). 

We estimate that each exit counseling 

interview will take an additional 3 

minutes (0.05 hours) per borrower to 

complete and estimated that 2,699,275 

borrowers took exit counseling in the 

most recently completed award year. 

Therefore, we estimate that burden will 

increase by 134,964 hours (2,699,275 

borrowers multiplied by 1 interview per 

borrower multiplied by 0.05 additional 

hours per interview). 

Of the 5,847 institutions, 1,933 are 

public institutions, 1,750 are private, 

not-for-profit institutions, and 2,164 are 

proprietary institutions. We estimate 

that, for all institutions, the additional 

exit counseling requirements will add 

1.5 hours of burden per institution to 

incorporate new material into their 

counseling and implement new 

counseling procedures. For the 1,933 

public institutions, we estimate that 

burden will increase by 2,900 hours 

(1,933 institutions multiplied by 1.5 

hours). For the 1,750 private, not-forprofit institutions, we estimate that 

burden will increase by 2,625 hours 

(1,750 institutions multiplied by 1.5 

hours). Of the 2,164 proprietary 

institutions, we estimate that burden 

will increase by 3,246 hours (2,164 

institutions multiplied by 1.5 hours). 

The total burden created for institutions 

of higher education to provide the 

added exit counseling is 8,771 hours 

(2,900 hours + 2,625 hours + 3,246 

hours). 

Collectively, under 1845–NEW1 the 

new entrance and exit counseling 

regulatory requirements in section 

685.304, will add 231,295 hours 

([81,713 + 134,964 for borrowers] + 

[5,847 + 8,771 hours for institutions]) of 

additional burden on institutions and 

borrowers. 

Consistent with the discussion in this 

section, the following chart describes 

the sections of the interim final 

regulations involving information 

collections, the information being 


tkelley on DSK3SPTVN1PROD with RULES2
28984 Federal Register / Vol. 78, No. 95 / Thursday, May 16, 2013 / Rules and Regulations 

collected, and the collections that the 

Department is submitting to OMB for 

approval and public comment under the 

PRA, and the estimated costs associated 

with the information collections. The 

monetized net costs of the additional 

burden on institutions and borrowers 

using wage data developed using BLS 

data, available at http://www.bls.gov/ 

ncs/ect/sp/ecsuphst.pdf, is $5,472,356 

as shown in the chart below. This cost 

was based on an hourly rate of $24.61 

for institutions and $17.88 for 

borrowers. 

COLLECTION OF INFORMATION

Regulatory section Information collection OMB control number and estimated change in the burden Estimated cost 

§ 685.301(e) ......................... The new regulations require institutions to provide program information to the Department’s COD System so that the Department can determine whether and to what extent borrowers continue to have Direct Subsidized Loan eligibility 

under § 685.200(f).

OMB 1845–NEW1 ................... $1,141,584 

The burden will increase by 

46,387 hours on institutions.

§ 685.309(b) ......................... The new regulations require institutions to provide program information to NSLDS so that the Department can determine 

whether borrowers subject to § 685.200(f) with Direct Subsidized Loans have become responsible for accruing interest based on their enrollment.

OMB 1845–NEW1 ................... 123,838 

The burden will increase by 

5,032 hours on institutions.

§ 685.304 ............................. The new regulations require institutions to provide additional 

entrance and exit counseling to borrowers so that they are 

adequately informed of the terms and conditions of their 

loans and understand the consequences of § 685.200(f).

OMB 1845–NEW1. 

The burden will increase by 

216,677 hours on borrowers.

3,847,185 for 

borrowers. 

The burden will increase by 

14,618 hours on institutions.

359,749 for institutions. 

The burden will increase be a 

total of 231,294 hours.

4,206,934 total. 

Total Change in Burden ...... .................................................................................................... Total increase in burden on 

borrowers under part 685 is 

216,677 hours.

3,847,185 for 

borrowers. 

Total increase in burden on institutions under part 685 is 

66,037.

1,625,171 for 

institutions. 

Total increase in burden under 

part 685 is 282,714 hours.

5,472,356 total. 

Intergovernmental Review 

This program is not subject to 

Executive Order 12372 and the 

regulations in 34 CFR part 79. 

Assessment of Educational Impact 

In accordance with section 411 of the 

General Education Provisions Act, 20 

U.S.C. 1221e–4, the Secretary 

particularly requests comments on 

whether these regulations require 

transmission of information that any 

other agency or authority of the United 

States gathers or makes available. 

Accessible Format: Individuals with 

disabilities can obtain this document in 

an accessible format (e.g., braille, large 

print, audiotape, or compact disc) on 

request to the program contact person 

listed under FOR FURTHER INFORMATION

CONTACT. 

Electronic Access to This Document: 

The official version of this document is 

the document published in the Federal 

Register. Free Internet access to the 

official edition of the Federal Register 

and the Code of Federal Regulations is 

available via the Federal Digital System 

at: www.gpo.gov/fdsys. At this site you 

can view this document, as well as all 

other documents of this Department 

published in the Federal Register, in 

text or Adobe Portable Document 

Format (PDF). To use PDF you must 

have Adobe Acrobat Reader, which is 

available free at the site. 

You may also access documents of the 

Department published in the Federal 

Register by using the article search 

feature at: www.federalregister.gov. 

Specifically, through the advanced 

search feature at this site, you can limit 

your search to documents published by 

the Department. 

You may also view this document in 

text or PDF at the following site: 

www.ifap.ed.gov. 

(Catalog of Federal Domestic Assistance 

Number: 84.268 William D. Ford Direct Loan 

Program) 

List of Subjects in 34 CFR Part 685 

Colleges and universities, Education, 

Loan programs—education, Student aid. 

Dated: May 10, 2013. 

Arne Duncan, 

Secretary of Education. 

For the reasons discussed in the 

preamble, the Secretary amends part 

685 of title 34 of the Code of Federal 

Regulations as follows: 

PART 685—WILLIAM D. FORD 

FEDERAL DIRECT LOAN PROGRAM 

■ 1. The authority citation for part 685 

continues to read as follows: 

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

unless otherwise noted. 

■ 2. Section 685.200 is amended by: 

■ A. Revising paragraph (a)(2)(i) and the 

introductory text in paragraph (a)(2)(ii). 

■ B. Adding a new paragraph (f). 

The revisions and addition read as 

follows: 

§ 685.200 Borrower eligibility. 

(a) * * * 

(2)(i) A Direct Subsidized Loan 

borrower must— 


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(A) Demonstrate financial need in 

accordance with title IV, part F of the 

Act; and 

(B) In the case of a first-time borrower 

as defined in paragraph (f)(1)(i) of this 

section, not have met or exceeded the 

limitations on the receipt of Direct 

Subsidized Loans described in 

paragraph (f) of this section. 

(ii) The Secretary considers a member 

of a religious order, group, community, 

society, agency, or other organization 

who is pursuing a course of study at an 

institution of higher education to have 

no financial need as that term is used in 

paragraph (a)(2)(i)(A) of this section if 

that organization— 

* * * * * 

(f) Limitations on eligibility for Direct 

Subsidized Loans and borrower 

responsibility for accruing interest for 

first-time borrowers on or after July 1, 

2013. (1) Definitions. The following 

definitions apply to this paragraph: 

(i) First-time borrower means an 

individual who has no outstanding 

balance of principal or interest on a 

Direct Loan Program or FFEL Program 

loan on July 1, 2013, or on the date the 

borrower obtains a Direct Loan Program 

loan after July 1, 2013. 

(ii) Maximum eligibility period is a 

period of time, measured in academic 

years, equal to 150 percent of the length 

of the educational program, as 

published by the institution, in which 

the borrower is currently enrolled. 

(iii) Subsidized usage period is, 

except as provided in paragraph (f)(4) of 

this section, a period of time measured 

in academic years and rounded down to 

the nearest quarter of a year calculated 

as the— 

Number of days in the borrower’s loan 

period for a Direct Subsidized Loan 

Number of days in the academic year 

for which the borrower receives 

the Direct Subsidized Loan 

(iv) Remaining eligibility period is the 

difference, measured in academic years, 

between the borrower’s maximum 

eligibility period and the sum of the 

borrower’s subsidized usage periods, 

except as provided in paragraphs 

(f)(7)(ii) and (f)(7)(iii) of this section. 

(2) Loss of eligibility for Direct 

Subsidized Loans. A first-time borrower 

is not eligible for additional Direct 

Subsidized Loans when the borrower 

has no remaining eligibility period. 

Such a borrower may still receive Direct 

Unsubsidized Loans for which the 

borrower is otherwise eligible. 

(3) Borrower responsibility for 

accruing interest. (i) Notwithstanding 

any provision of this part that provides 

for the borrower to not be responsible 

for accruing interest on a Direct 

Subsidized Loan or on the portion of a 

Direct Consolidation Loan that repaid a 

Direct Subsidized Loan, and except as 

provided in paragraphs (f)(6)(v) and 

(f)(7)(iv) of this section, a first-time 

borrower becomes responsible for the 

interest that accrues on a previously 

received Direct Subsidized Loan or on 

the portion of a Direct Consolidation 

Loan that repaid a Direct Subsidized 

Loan beginning on the date— 

(A) The borrower has no remaining 

eligibility period; and 

(B) The borrower attends any 

undergraduate program or preparatory 

coursework on at least a half-time basis 

at an eligible institution that 

participates in the title IV, HEA 

programs. 

(ii) The borrower continues to be 

responsible for the interest that accrues 

on the portion of a Direct Consolidation 

Loan that repaid a Direct Subsidized 

Loan for which the borrower previously 

became responsible for accruing interest 

in accordance with paragraph (f)(3)(i) of 

this section. 

(iii) For any loan for which the 

borrower becomes responsible for 

accruing interest in accordance with 

paragraph (f)(3)(i) of this section, the 

borrower is responsible for only the 

interest that accrues after the borrower 

meets the criteria in paragraph (f)(3)(i) 

of this section and unpaid interest is 

capitalized in the same manner as for a 

Direct Unsubsidized Loan. 

(iv) A borrower who completes an 

undergraduate program and who has not 

become responsible for accruing interest 

on Direct Subsidized Loans as a result 

of attendance in that program does not 

become responsible for accruing interest 

under paragraph (f)(3)(i) of this section 

on any Direct Subsidized Loans 

received for attendance in any program 

prior to completing that undergraduate 

program and for which the borrower has 

not previously become responsible for 

accruing interest, regardless of 

subsequent attendance in any other 

program. 

(4) Exceptions to the calculation of 

subsidized usage periods. (i) For a firsttime borrower who receives a Direct 

Subsidized Loan in an amount that is 

equal to the annual loan limit for a loan 

period that is less than a full academic 

year in length, the subsidized usage 

period is one year. 

(ii) Except as provided in paragraph 

(f)(4)(i) of this section, for a first-time 

borrower who is enrolled on a half-time 

or three-quarter-time basis, the 

borrower’s prorated subsidized usage 

period is calculated by multiplying the 

borrower’s subsidized usage period by 

0.5 or 0.75, respectively. 

(5) Subsequent attendance in 

programs of greater duration. A firsttime borrower who subsequently 

attends a program that is longer than the 

program the borrower previously 

attended— 

(i) Is eligible for a Direct Subsidized 

Loan if the borrower’s remaining 

eligibility period is greater than zero; 

and 

(ii) Regains eligibility for Direct 

Subsidized Loans if the borrower 

previously lost eligibility for Direct 

Subsidized Loans in accordance with 

paragraph (f)(2) of this section. 

(6) Treatment of preparatory 

coursework. For first-time borrowers 

who receive a Direct Subsidized Loan 

under 34 CFR 668.32(a)(1)(ii) who are 

enrolled for no longer than one 12- 

month period in a course of study 

necessary for enrollment in an eligible 

program— 

(i) Direct Subsidized Loans received 

for such preparatory coursework are 

included in the calculation of the 

borrower’s subsidized usage period; 

(ii) The maximum eligibility period 

for preparatory coursework necessary 

for enrollment in an undergraduate 

program is the maximum eligibility 

period for the undergraduate program 

for which the preparatory coursework is 

required; 

(iii) The maximum eligibility period 

for preparatory coursework necessary 

for enrollment in a graduate or 

professional program is the maximum 

eligibility period for the undergraduate 

program for which the borrower most 

recently received a Direct Subsidized 

Loan; 

(iv) For enrollment in preparatory 

coursework necessary for enrollment in 

an undergraduate program, the borrower 

becomes responsible for accruing 

interest as described in paragraph (f)(3) 

of this section only if the borrower has 

no remaining eligibility period in the 

program for which the coursework is 

required; and 

(v) Enrollment in preparatory 

coursework necessary for enrollment in 

a graduate or professional program does 

not result in a borrower becoming 

responsible for accruing interest as 

described in paragraph (f)(3) of this 

section. 

(7) Treatment of teacher certification 

programs for which an institution does 

not award an academic credential. For 

first-time borrowers who receive a 

Direct Subsidized Loan under 34 CFR 

668.32(a)(1)(iii) who are enrolled at an 

eligible institution in a program 

necessary for a professional credential 

or certification from a State that is 

required for employment as a teacher in 

an elementary or secondary school in 


tkelley on DSK3SPTVN1PROD with RULES2
28986 Federal Register / Vol. 78, No. 95 / Thursday, May 16, 2013 / Rules and Regulations 

that State but for which the institution 

awards no academic credential— 

(i) The borrower’s maximum 

eligibility period for Direct Subsidized 

Loans is a period of time equal to 150 

percent of the length of the teacher 

certification program, as published by 

the institution, in which the borrower is 

currently enrolled; 

(ii) For purposes of determining a 

borrower’s remaining eligibility period 

for such teacher certification programs, 

only Direct Subsidized Loans the 

borrower received for enrollment in 

such programs are included in the 

borrower’s subsidized usage period; 

(iii) For purposes of determining a 

borrower’s remaining eligibility period 

for programs other than a teacher 

certification program for which an 

institution does not award an academic 

credential, any Direct Subsidized Loans 

that the borrower received for 

enrollment in such a teacher 

certification program are not included 

in a borrower’s subsidized usage period; 

and 

(iv) Enrollment in such a teacher 

certification program does not result in 

a borrower becoming responsible for 

accruing interest on any Direct 

Subsidized Loan under paragraph (f)(3) 

of this section. 

§ 685.202 [Amended] 

■ 3. Section 685.202 is amended, in 

paragraph (a)(1)(v)(E), by removing the 

date ‘‘2012’’ and adding, in its place, the 

date ‘‘1, 2013’’. 

■ 4. Section 685.304 is amended by: 

■ A. In paragraph (a)(6)(xi), removing 

the word ‘‘and’’ that appears after the 

punctuation ‘‘;’’. 

■ B. In paragraph (a)(6)(xii), removing 

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

place, the punctuation and word ‘‘; 

and’’. 

■ C. Adding paragraph (a)(6)(xiii). 

■ D. Redesignating paragraphs (b)(4)(xii) 

and (b)(4)(xiii) as paragraphs (b)(4)(xiii) 

and (b)(4)(xiv), respectively. 

■ E. Adding a new paragraph (b)(4)(xii). 

The additions read as follows: 

§ 685.304 Counseling borrowers. 

(a) * * * 

(6) * * * 

(xiii) For first-time borrowers as 

defined in § 685.200(f)(1)(i), explain the 

limitation on eligibility for Direct 

Subsidized Loans and possible borrower 

responsibility for accruing interest 

described in § 685.200(f), including— 

(A) The possible loss of eligibility for 

additional Direct Subsidized Loans; 

(B) How a borrower’s maximum 

eligibility period, remaining eligibility 

period, and subsidized usage period are 

calculated; 

(C) The possibility that the borrower 

could become responsible for accruing 

interest on previously received Direct 

Subsidized Loans and the portion of a 

Direct Consolidation Loan that repaid a 

Direct Subsidized Loan during in-school 

status, the grace period, authorized 

periods of deferment, and certain 

periods under the Income-Based 

Repayment and Pay As You Earn 

Repayment plans; and 

(D) The impact of borrower 

responsibility for accruing interest on 

the borrower’s total debt. 

* * * * * 

(b) * * * 

(4) * * * 

(xii) Explain to first-time borrowers, 

as defined in § 685.200(f)(1)(i)— 

(A) How the borrower’s maximum 

eligibility period, remaining eligibility 

period, and subsidized usage period are 

determined under § 685.200(f); 

(B) The sum of the borrower’s 

subsidized usage periods, as determined 

under § 685.200(f)(1)(iii), at the time of 

the exit counseling; 

(C) The consequences of continued 

borrowing or enrollment, including-– 

(1) The possible loss of eligibility for 

additional Direct Subsidized Loans; and 

(2) The possibility that the borrower 

could become responsible for accruing 

interest on previously received Direct 

Subsidized Loans and the portion of a 

Direct Consolidation Loan that repaid a 

Direct Subsidized Loan during in-school 

status, the grace period, authorized 

periods of deferment, and certain 

periods under the Income-Based 

Repayment and Pay As You Earn 

Repayment plans; 

(D) The impact of the borrower 

becoming responsible for accruing 

interest on total student debt; 

(E) That the Secretary will inform the 

student borrower of whether he or she 

is responsible for accruing interest on 

his or her Direct Subsidized Loans; and 

(F) That the borrower can access 

NSLDS to determine whether he or she 

is responsible for accruing interest on 

any Direct Subsidized Loans as 

provided in § 685.200(f)(3); 

* * * * * 

[FR Doc. 2013–11515 Filed 5–15–13; 8:45 am] 

BILLING CODE 4000–01–P 


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