63428 Federal Register / Vol. 62, No. 229 / Friday, November 28, 1997 / Rules and Regulations

DEPARTMENT OF EDUCATION

34 CFR Parts 682 and 685

RIN 1840–AC45

Federal Family Education Loan

Program and William D. Ford Federal

Direct Loan Program

AGENCY: Office of Postsecondary

Education, Department of Education.

ACTION: Final regulations.

SUMMARY: The Secretary amends the

Federal Family Education Loan (FFEL)

Program regulations, 34 CFR Part 682,

and the William D. Ford Federal Direct

Loan (Direct Loan) Program regulations,

34 CFR Part 685, to modify

requirements in these programs. These

modifications eliminate certain

differences in the requirements of the

FFEL and Direct Loan programs and

reduce burden.

DATES: Effective date: These regulations

take effect July 1, 1998. However,

affected parties do not have to comply

with the information collection

requirement in § 685.212 until the

Department of Education publishes in

the Federal Register the control number

assigned by the Office of Management

and Budget (OMB) to this information

collection requirement. Publication of

the control number notifies the public

that OMB has approved this information

collection requirement under the

Paperwork Reduction Act of 1995.

FOR FURTHER INFORMATION CONTACT: Mr.

Kenneth Smith, U.S. Department of

Education, 600 Independence Avenue,

SW, ROB–3, room 3045, Washington,

DC 20202–5346. Telephone: (202) 708–

8242. Individuals who use a

telecommunications device for the deaf

(TDD) may call the Federal Information

Relay Service (FIRS) at 1–800–877–

8339, between 8 a.m. and 8 p.m.,

Eastern time, Monday through Friday.

Individuals with disabilities may

obtain this document in an alternate

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

audiotape, or computer diskette) on

request to the contact person listed in

the preceding paragraph.

SUPPLEMENTARY INFORMATION: On

September 25, 1997, the Secretary

published a notice of proposed

rulemaking (NPRM) for the FFEL

Program and the Direct Loan Program in

the Federal Register (62 FR 50462).

The NPRM included a discussion of

the major issues surrounding the

proposed changes that will not be

repeated here. The following list

summarizes those issues and identifies

the pages of the preamble to the NPRM

on which a discussion of those changes

can be found:

Sections 682.201 and 685.301

Students with Need of $200 or Less

The Secretary proposed to establish a

provision that would allow, but not

require, a school to choose not to

originate a Direct Subsidized Loan for a

student with a calculated need of $200

or less. (page 50462)

Sections 682.202(c)(5), 682.401(b)(10),

and 685.202(c)(4) Refund of FFEL

Program Origination Fees and Insurance

Premiums and of Direct Loan Program

Loan Fees

The Secretary proposed a new

provision that would provide for the

refund of the applicable portion of the

origination fee, insurance premium, or

loan fee that is attributable to that

portion of loan funds that are returned

by the school in order to comply with

the Higher Education Act of 1965, as

amended (HEA) or with applicable

regulations. (page 50463)

Sections 682.402 and 685.212

Discharge of a Loan

The Secretary proposed to provide for

the discharge of a borrower’s or

endorser’s obligation to repay a Direct

Consolidation Loan for a borrower who

became totally and permanently

disabled (or whose condition

substantially deteriorated, so as to

render the borrower totally and

permanently disabled) after applying for

all of the Consolidation Loan’s

underlying loans. The Secretary also

proposed to clarify FFEL Program

regulations that relate to this type of

loan discharge. (page 50463)

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

Exit Counseling

The Secretary proposed to revise the

FFEL and Direct Loan program

regulations that govern exit counseling

to allow a school to base the calculation

of a student’s ‘‘average anticipated

monthly repayments’’ upon either the

student’s individual indebtedness or

upon the average indebtedness of

students who have obtained loans for

attendance at that school or in the

borrower’s program of study. (page

50463)

These final regulations contain

changes from the NPRM. These changes

are fully explained in the Analysis of

Comments and Changes elsewhere in

this preamble.

Analysis of Comments and Changes

In response to the Secretary’s

invitation in the NPRM, a number of

parties submitted comments on the

proposed regulations. An analysis of the

comments and of the changes in the

regulations since publication of the

NPRM follows.

Substantive issues are discussed

under the section of the regulations to

which they pertain. Technical and other

minor changes—and suggested changes

the Secretary is not legally authorized to

make under the applicable statutory

authority—generally are not addressed.

General

Comments: The vast majority of

commenters strongly supported the

Secretary’s efforts to eliminate the

differences in the requirements of the

FFEL and Direct Loan programs and to

reduce burden. However, three

commenters stated that the changes

proposed in the NPRM provide a benefit

to Direct Loan Program participants, but

do not provide a significant benefit to

FFEL Program participants. The

commenters urged the Department to

review other differences between the

Direct Loan and FFEL Programs and to

provide benefits for participants in both

programs. One commenter proposed

additional areas for the Secretary to

consider changing to achieve better

parity between the requirements in the

two programs.

Discussion: The Secretary believes

that FFEL Program participants will

benefit from the changes made in these

regulations. For example, the change to

the exit counseling requirements will

allow FFEL schools to use studentspecific information to inform students

of their anticipated average monthly

repayments. This change will permit

schools to use the most specific

information they have in counseling

borrowers. This change will also ensure

that borrowers receive the best

information available in planning for

their repayment obligations. The other

three revisions will clarify the FFEL

Program regulations and ensure that a

student borrowing in the FFEL Program

receives the same terms, conditions, and

benefits as a student borrowing in the

Direct Loan Program.

In addition, a school that participates

in both the FFEL and Direct Loan

Programs will derive a significant

benefit concerning its participation in

both programs as a result of any change

that reduces the differences between the

programs. Elimination of these

differences will make it easier for

schools to administer the two programs

and reduces the likelihood of confusion.

This final rule does not reduce

benefits in the FFEL Program. Instead,

the regulations help to implement

§ 455(a) of the HEA, which generally

requires that the FFEL and Direct Loan

Programs have the same terms,
Federal Register / Vol. 62, No. 229 / Friday, November 28, 1997 / Rules and Regulations 63429

conditions, and benefits unless

otherwise specified.

Changes: None.

Students With Need of $200 or Less

(§§ 682.201 and 685.301)

Comments: Many commenters asked

that a paragraph similar to the proposed

§ 685.301(a)(6) be included in FFEL

Program regulations, to more clearly

state a school’s authority to choose not

to certify a Stafford Loan of $200 or less

and to include that amount in an

unsubsidized Stafford Loan. One

commenter also asked that the

regulations for both programs specify

that the authority to include the amount

in an unsubsidized loan is subject to

applicable annual and aggregate loan

limits.

Discussion: The result of the changes

made to §§ 682.201(a)(2) and 685.301 by

these regulations will be essentially the

same for schools participating in the

FFEL Program as for schools

participating in the Direct Loan

Program. Schools in each program will

be able to choose whether or not to

certify or originate a subsidized loan for

a student with need of $200 or less.

However, fundamental differences

between the two programs preclude

making the regulatory text identical.

In the FFEL Program, the ability of a

borrower to receive a subsidized loan of

$200 or less rests, ultimately, with the

lender, not with the school. For

example, a school may certify a Stafford

Loan for $100 but cannot compel a

lender to actually make a loan of this

amount to a borrower. However, in the

Direct Loan Program, the school may act

for the Department in determining

whether or not a borrower may receive

a subsidized amount of $200 or less.

As for the commenter’s request to

clarify that the amount of $200 or less

that is provided to the student as an

unsubsidized loan amount is subject to

the applicable annual and aggregate

loan limits, no change is needed. The

FFEL and Direct Loan annual and

aggregate unsubsidized loan limits

include both subsidized and

unsubsidized loan amounts. Therefore

the unsubsidized amount has already

been incorporated into the

determination of the borrower’s annual

and aggregate amount. If a borrower is

eligible to receive the $200 or less

amount, and the school chooses not to

certify or originate a subsidized loan for

the amount, in all cases, the borrower

remains eligible to receive those funds

in an unsubsidized loan.

Changes: None.

Comments: Two commenters asked

that paragraphs § 682.201(a)(2) (ii) and

(iii) be removed, noting that the

requirements in those paragraphs were

specific to loans made under the

Supplemental Loans for Students (SLS)

Program, which has been repealed. The

commenters contended that the

provisions in the NPRM had made them

unnecessary.

Another commenter expressed

concern that, in many cases, the

proposed revisions to § 682.201 would

remove a dependent student’s eligibility

for a ‘‘base’’ unsubsidized Stafford Loan

amount, as described at § 682.204(c).

For example, the commenter noted that

simply changing ‘‘SLS’’ to

‘‘unsubsidized Stafford’’ in

§ 682.201(a)(3) as proposed in the

NPRM would provide that a dependent

undergraduate student would be

ineligible for the ‘‘base,’’ as well as the

‘‘additional’’ unsubsidized amount

unless the student’s parents were

precluded by exceptional circumstances

from borrowing a PLUS loan.

Discussion: The Secretary agrees with

the commenters. Paragraphs

§ 682.201(a)(2) (ii) and (iii) are no longer

needed. Also, as noted by the

commenter, § 682.201(a)(3) would

appear to place a restriction upon a

dependent undergraduate student’s

eligibility to receive unsubsidized

Stafford loan funds. The Secretary did

not intend to propose such a change, but

intended only to clarify a school’s

authority to choose not to certify a

subsidized Stafford loan for a student

with need of $200 or less.

Changes: Section 682.201(a)(2) has

been rewritten to reflect the elimination

of paragraphs (ii) and (iii), and

§ 682.201(a)(3) is revised to more

accurately describe a dependent

undergraduate student’s ability to

receive a ‘‘base’’ unsubsidized Stafford

loan amount.

Refund of FFEL Program Origination

Fees and Insurance Premiums and of

Direct Loan Program Loan Fees

(§§ 682.202(c)(5), 682.209(i)(1),

682.401(b)(10), and 685.202(c)(4))

Comments: One commenter asked

that the Secretary note in this Preamble

that the purpose of the proposed

changes to § 682.202(c)(5)(i) is to clarify

that a refund of the origination fees

must be credited to a student’s loan

balance by the lender even after 120

days, if there is an institutional delay in

processing the refund.

Discussion: The commenter notes a

valid example in which the refund of

the origination fee would be credited

against a borrower’s loan balance.

However, the revision to

§ 682.202(c)(5)(i) is intended to clarify

the conditions under which the fee must

be refunded, rather than the timeframe

in which the refund must be made. The

revision clarifies that the fee must be

refunded by a credit against the

borrower’s loan balance in all cases in

which the school is returning the funds

to comply with its responsibilities

under the HEA or applicable

regulations.

This means that for a fee to be

refunded by a credit under this

provision, the return of funds by the

school must be in keeping with the

school’s normal responsibilities under

the HEA and applicable regulations,

such as when a school is returning or

repaying a title IV refund or overaward

amount. The origination fee would not

be refunded, however, if a school

returned funds as a prepayment for the

borrower later than 120 days after the

date of the loan disbursement.

Changes: None.

Comments: Many commenters noted

that language proposed in the NPRM for

§ 682.202 and § 682.401 would require a

lender to refund to the borrower’s

account a portion of the origination fee

and insurance premium any time that a

payment was made by a borrower

within 120 days of disbursement. The

commenters noted that, under the

proposed rules, if a borrower made a

prepayment, an interest payment, or a

scheduled payment on a loan within

120 days of disbursement, a lender

would be required to return the

applicable portion of the origination fee

and insurance premium. These

commenters stated that they believed

that the corresponding Direct Loan

Program regulations at § 685.202(c)(4)

do not include this requirement.

The commenters requested that the

same rule apply to the FFEL and Direct

Loan Programs. The commenters also

suggested that the return of a portion of

the origination fee or insurance

premium for a disbursement only be

made when the funds are returned by a

school to comply with the HEA or

applicable regulations, and that a

borrower returning funds within 120

days would only receive a refund of an

origination fee or insurance premium

when the borrower pays an amount

equal to the full amount of the

disbursement.

Discussion: As stated in the footnote

in the preamble to the NPRM (62 FR at

50463), the changes to the FFEL

regulations at § 682.202(c)(5) are a

technical correction. The corresponding

changes to §§ 682.401(b)(10)(vi)(B) and

682.209(i)(1) in this final rule are made

as conforming changes to this technical

correction.

The commenters are correct in noting

that FFEL regulations require the return

of a portion of the origination fee or
63430 Federal Register / Vol. 62, No. 229 / Friday, November 28, 1997 / Rules and Regulations

insurance premium when a borrower

repays or returns funds within 120 days

of disbursement. The commenters are

not correct in claiming that a Direct

Loan borrower must return the full

amount of a disbursement in order to

receive a refund of the loan fee. Though

the language in the two regulations is

slightly different, the substance of this

requirement is the same in the FFEL and

Direct Loan Programs. A borrower may

repay or return a portion of a FFEL or

Direct Loan Program disbursement to

receive a partial refund of the fees.

However, the Secretary did not intend

that a portion of an origination fee,

insurance premium, or loan fee would

be automatically refunded to a borrower

within 120 days of disbursement if the

borrower has a loan that is in repayment

unless the borrower specifically

instructs the Secretary or the lender, in

writing, to use the payment to cancel all

or a portion of the loan. If a borrower

is in repayment and does not supply

written instructions to the contrary, the

payment made by the borrower is

applied to the borrower’s loan balance

as provided at § 682.209(b) or

§ 685.211(a).

The regulatory language has been

revised to reflect this clarification.

Specifically, it has been revised to

provide that, unless a borrower in

repayment status instructs otherwise,

any payment by that borrower is applied

in accordance with regular payment

application rules without any effect on

the origination fee, insurance premium,

or loan fee. The regulatory language has

also been revised to provide that, unless

a borrower who is not in a repayment

status instructs otherwise, any payment

by that borrower is applied to cancel all

or a portion of the most recent

disbursement, and correspondingly, all

or a portion of the fees are returned.

For example, if a borrower who is in

repayment status makes a regularly

scheduled payment on a PLUS loan,

within 120 days of the last

disbursement, the fees are not refunded

unless the borrower requests, in writing,

that the funds be applied to cancel all

or a portion of a recent disbursement. If

the same borrower includes an amount

greater than the scheduled payment

amount with the regularly scheduled

payment, the additional amount is

applied to the borrower’s loan balance

under applicable regulations at

§ 682.209(b) or § 685.211(a). If the same

borrower mails a check to the lender

without including any instructions at

all, the amount is applied to the

borrower’s loan balance under

regulations at § 682.209(b) or

§ 685.211(a). In all cases, a borrower

who is in repayment will not receive a

proportional refund of fees unless the

borrower requests in writing that the

payment, or a portion of the payment,

is intended to be applied to cancel all

or a portion of a recent loan

disbursement.

As another example, a borrower who

has not yet entered repayment status on

any loans is scheduled to make a

payment of accruing interest on an

unsubsidized loan within 120 days of

disbursement. If the borrower does not

provide written instructions concerning

the application of the payment (whether

on a payment coupon, in a written note,

or in other written form), then a

payment made within 120 days of

disbursement is applied as a

cancellation of part of the loan, and the

appropriate portion of the fees is

refunded to the borrower. If the

borrower does provide written

instruction that the payment is to be

applied to the accruing interest (by

including the return of a payment

coupon, a written note, etc.), then the

payment is applied to the interest, and

no fees are refunded. However, if a

borrower who is not in repayment status

is making a payment to be applied to the

accruing interest that includes an

amount greater than the amount of the

accrued interest, the excess amount is

used to cancel a portion of the loan and

the corresponding portion of the fees is

refunded to the borrower.

Changes: The regulations have been

revised to clarify that a borrower in

repayment status on any loan must

provide written instructions to prevent

a payment made within 120 days of

disbursement from being applied to the

debt under the regular application of

payment rules in § 682.209 or § 685.211.

A borrower who is not in repayment

status on any loan must provide written

instructions to prevent a payment made

within 120 days of a disbursement from

being applied as a cancellation of all or

part of the loan.

Also, a change is made in

§ 682.209(i)(1) to be consistent with

corresponding changes at

§§ 682.202(c)(5) and

682.401(b)(10)(vi)(B). Additional minor

revisions have also been made to clarify

this rule.

Comments: Several commenters

suggested that the preamble for the final

rule clarify that a lender in the FFEL

Program may assume that any amount

returned by a school was being returned

pursuant to § 682.202(c)(5)(i) or

§ 682.401(b)(10)(vi)(B)(1) unless the

school specifically advised otherwise.

The commenters stated that this

approach would provide for a more

streamlined exchange of data between a

school and a lender.

Discussion: The Secretary agrees with

the commenters. Unless a school

specifically states otherwise, a lender

may assume that the amount being

returned by the school is pursuant to

§ 682.202(c)(5)(i) or

§ 682.401(b)(10)(vi)(B)(1).

Changes: None.

Comments: One commenter asked

that proposed § 682.202(c)(5)(iii) be

expanded to provide more specific

regulations regarding the standards for

the non-delivery of loan funds that will

require the return of an origination fee,

similar to requirements provided in

corresponding regulations for an

insurance premium, at

§§ 682.401(b)(10)(vi)(B)(3) and (4). The

regulations for insurance premiums

provide for different treatment of these

fees depending on the disbursement

method. Another commenter noted the

same disparity, but recommended the

opposite action, that

§§ 682.401(b)(10)(vi)(B)(3) and (4) be

revised to conform to the less specific

language at § 682.202(c)(5)(iii).

Discussion: The Secretary agrees that

§ 682.202(c)(5)(iii) should be expanded

to provide more details concerning

when a loan will be considered to have

not been delivered, thus requiring the

return of the origination fee. This

language was inadvertently omitted

from previous regulations.

Changes: Section 682.202(c)(5) is

revised to more closely correspond to

provisions in paragraphs

§§ 682.401(b)(10)(vi)(B)(3) and (4).

Discharge of a Loan (§§ 682.402 and

685.212)

Comments: Many commenters found

the text of §§ 682.402 and 685.212 to be

difficult to understand, and asked that

it be revised to state the requirements

more directly. Specifically, commenters

proposed language to state more directly

that a borrower is eligible for a total and

permanent disability discharge if he or

she meets the eligibility criteria for each

of the underlying loans included in the

consolidation loan. Another commenter

supported the numbering and lettering

format used, but believed that language

currently in § 682.402(c) was clearer and

suggested that this language be retained.

Discussion: The regulations must

address the timing of the disability to

the underlying loans, for the purpose of

determining eligibility for the discharge

of the consolidation loan, because the

underlying loans no longer exist.

Further, §§ 682.402(c)(1)(iii)(B) and

685.212(b)(3)(ii) provide criteria for the

discharge of an underlying loan that was

made under a federal education loan

program other than the FFEL or Direct

Loan Program. For example, the
Federal Register / Vol. 62, No. 229 / Friday, November 28, 1997 / Rules and Regulations 63431

proposed requirements at

§§ 682.402(c)(1)(iii)(B) and

685.212(b)(3)(ii) provide for the

discharge of a consolidation loan that

includes a Health Professions Student

Loan (HPSL). Otherwise, to discharge a

borrower’s obligation to repay this

consolidation loan, a separate

determination would need to be made

under regulations specific to the HPSL.

In light of the complexity of the

issues, the Secretary believes that the

regulations provide the best statement of

the rules, but the Secretary will

continue to review the language to

determine if simpler wording can be

developed.

Changes: Minor revisions are made to

§§ 682.402(c)(1)(iii) and 685.212(b)(3) to

simplify guidance and improve clarity.

Comments: Many commenters noted

that changes proposed for

§§ 682.402(c)(1)(iii)(A) and

685.212(b)(3)(i) require that all of a

consolidation loan’s underlying loans be

individually dischargeable in order for a

borrower to have an obligation to repay

a consolidation loan discharged due to

a total and permanent disability. These

commenters strongly opposed this

provision.

The commenters presented two

options. The first, and the preferred

option of most commenters, was to

provide that a borrower’s obligation to

repay a consolidation loan be

completely discharged if any one of the

underlying loans meets the criteria for

this type of discharge. Most commenters

reasoned that this option would not

result in a significant loss of funds to

the government, given the limited

number of borrowers who would meet

these discharge criteria. One commenter

reasoned that to do otherwise would

punish a borrower for consolidating

loans, would provide a disincentive for

consolidating loans, would create

significant servicing problems, and

would be neither cost-efficient nor

sensitive to the circumstances of a

borrower.

The second option presented by

commenters was to discharge a portion

of a borrower’s obligation to repay a

consolidation loan that is consistent

with the amount of the eligible

underlying loan(s). The commenters

noted that discharging a portion of a

consolidation loan in this case would be

consistent with rules providing a partial

discharge of a consolidation loan based

on a school’s closure or a false

certification. One commenter reasoned

that the HEA does not preclude a partial

discharge of a loan due to a total and

permanent disability.

The commenters also noted that a

borrower normally consolidates a loan

as the result of financial difficulties, and

in this case, consolidation would

worsen rather than help a borrower’s

financial situation. Rather than

becoming less likely to default, a

borrower would become more likely to

default.

Discussion: Under the proposed rule,

(1) a borrower who receives a

consolidation loan and then becomes

totally and permanently disabled is

eligible for a discharge of the obligation

to repay the consolidation loan; and (2)

a borrower who receives a number of

loans and then becomes totally and

permanently disabled, but consolidates

those loans rather than applying for

their discharge, is eligible for a

discharge of the obligation to repay the

consolidation loan.

In both cases noted above, a borrower

is also considered totally and

permanently disabled based on a

condition that existed at the time the

borrower applied for the loan if the

borrower’s condition substantially

deteriorated after the loan was made so

as to render the borrower totally and

permanently disabled. In order to

determine whether each loan included

in a borrower’s consolidation loan is

eligible for a discharge, the borrower’s

circumstances related to each loan must

be examined individually.

Conversely, a borrower would not be

eligible for the discharge of the

consolidation loan obligation if the

borrower is not considered totally and

permanently disabled for one or more of

the underlying loans or if the borrower’s

condition did not substantially

deteriorate after each underlying loan

was made or after the consolidation loan

itself was made. For example, a

borrower who receives a number of

loans, becomes totally and permanently

disabled, but then becomes able to go

back to school and receives another

loan, and finally consolidates all of

these loans is not eligible to receive a

discharge of the obligation to repay the

consolidation loan unless, for each

underlying loan, (1) a condition existing

at the time the borrower applied for the

underlying loan substantially

deteriorated so as to render the borrower

totally and permanently disabled, or (2)

the borrower had become disabled

based on a condition that did not exist

at the time the borrower applied for the

underlying loan or the consolidation

loan itself.

This proposed rule is not a change to

current FFEL Program requirements.

The requirements proposed in the

NPRM, which specify that all of a

borrower’s underlying loans must

qualify for a discharge in order for the

consolidation loan to be discharged, are

consistent with current § 682.402(c)(1),

which provides that ‘‘the borrower must

certify that the condition did not exist

prior to the time the borrower applied

for each of the underlying loans.’’

The commenters’ proposal, that a

borrower’s obligation to repay a

consolidation loan be completely

discharged if one or more of its

underlying loans meet the criteria,

would enable a borrower to use the

consolidation process to discharge an

obligation to repay a loan that was not

dischargeable prior to consolidation. For

example, a borrower having one loan

that is dischargeable and two

subsequent loans that are not

dischargeable, would be able to

circumvent regulations and discharge

all three loans by consolidating. The

Secretary does not believe that

borrowers who take out loans and do

not qualify for a discharge of those loans

should get a discharge merely by

consolidating.

As to the commenters’ second

proposal for a partial discharge of a

consolidation loan, the Secretary notes

that partial discharge of a consolidation

loan obligation is authorized due to a

school closure or false certification

because, in these cases, either the loan

should not have been made or the

borrower did not receive the benefit of

the education or training for which the

loan was intended. Thus, the basis for

these types of discharge is the result of

the school’s action and beyond the

control of the borrower, rather than

related to the borrower’s individual

condition or actions.

Also, the Secretary notes that the

school closure and false certification

discharges were specifically designed to

address past problems in the loan

programs. They were enacted in 1992,

but applied to loans made on or after

January 1, 1986. The regulations

provided for partial discharges of loans

in these cases in recognition of the fact

that borrowers whose loans were now

subject to discharge may have taken out

consolidation loans that also repaid

other nondischargeable loans prior to

1992. The same type of situation does

not exist in connection with the

disability discharge. Thus, the Secretary

declines to change the longstanding

policy against partial discharges in these

circumstances.

The commenter is correct that the

proposed revision might provide a slight

disincentive for consolidating loans.

However, this disincentive would only

affect borrowers who have loans which

are eligible for discharge. It is in the

borrower’s best interest to have these

loans discharged, rather than take out a

new loan. Given the availability of
63432 Federal Register / Vol. 62, No. 229 / Friday, November 28, 1997 / Rules and Regulations

discharge information to borrowers, the

Secretary estimates that the number of

borrowers who will be affected by the

proposed provision should be extremely

small. That is, most borrowers will be

aware of and will exercise their right to

have the loan discharged due to a

disability rather than consolidate the

loan. However, the Secretary will

continue to work to ensure that all

borrowers are knowledgeable about

their rights to both discharges and

deferments. The Secretary intends to

modify the language in the

consolidation application materials to

encourage applicants to review their

discharge and deferment options prior

to consolidating.

Changes: None.

Comments: Two commenters

recommend removing the proposed

requirements at §§ 682.402(c)(1)(iii)(C)

and 685.212(b)(3)(iii), stating that they

are unnecessarily burdensome. These

provisions would require a borrower to

supply the disbursement dates of the

underlying loans at the request of the

lender or the Secretary in order to

receive a discharge of his or her

obligation to repay the consolidation

loan. One commenter notes that in some

cases, this requirement may impose a

record retention period upon a borrower

that is greater than the retention period

required for a school, a lender, or a

guaranty agency, and asks that, if the

information is necessary, it be stored in

the borrower’s loan record at the time

the consolidation loan is disbursed. The

other commenter proposes that a

borrower be allowed to certify that

eligibility requirements have been met

rather than requiring the borrower to

document that each underlying loan in

the consolidation loan is eligible for

discharge.

Discussion: In order for the Secretary

or a lender to determine whether a

borrower’s obligation to repay a loan

may be discharged due to a total and

permanent disability under

§ 682.402(c)(1)(ii) or § 685.212(b)(2), the

Secretary or lender must consider the

relationship between the date that the

loan was disbursed and the date that the

borrower became totally and

permanently disabled. Without that

information, no determination may be

made, and the borrower’s obligation

may not be discharged.

The Secretary believes that the

required information will likely be

available through the National Student

Loan Data System (NSLDS), and that the

borrower will not need to supply

information about the underlying loans

unless the borrower disputes the NSLDS

record. However, if the Secretary or

lender cannot make a determination, it

is in the borrower’s best interest to have

the opportunity to supply the

information, to assure that his or her

request for a discharge may be

processed as quickly as possible.

Moreover, it is unclear how a borrower’s

burden for providing the disbursement

dates differs significantly from a

borrower’s burden in certifying that he

or she qualifies for this type of

discharge: the borrower must be aware

of the disbursement dates in order to

sign the certification.

Changes: None.

Comments: Many commenters noted

that language in FFEL regulations

requiring a borrower to provide

information about underlying loans ‘‘if

the lender does not possess that

information’’ is not included in

regulations for Direct Loans. Most

commenters proposed that the language

be added to Direct Loan regulations, for

consistency. However, one commenter

proposed that the language be removed

from FFEL regulations, for both

consistency and to ensure that lenders

may make determinations based on the

most accurate information.

Discussion: The proposed

§ 682.402(c)(1)(iii)(C) prevents a lender

from requesting information that it

already possesses and also clarifies that

it is the responsibility of the borrower

to provide the necessary documentation

if the lender does not have the

information needed to determine

eligibility for the discharge. This is not

a change from current FFEL

requirements.

A similar provision is not included at

§ 685.212(b)(3)(iii) because it is not

necessary for the Secretary to regulate

internal agency processes. However, the

Secretary does not intend to request this

documentation from the borrower

unless the information is not contained

in the Secretary’s records.

Changes: None.

Exit Counseling (§§ 682.604(g)(2) and

685.304(b)(2))

Comments: Fourteen commenters

supported the flexibility that would be

provided by the revisions proposed to

the exit counseling requirements. Most

noted that supplying individualized

information to a borrower would allow

the borrower to make a more informed

choice of a repayment plan, but felt that

the flexibility and simplification of the

exit counseling rules better served the

needs of schools and borrowers. These

commenters noted that adequate

individualized information was

available to a borrower from the Direct

Loan Servicer or from the FFEL Program

lender.

Three commenters argued that

allowing a Direct Loan school to base

information that a school provides to a

borrower during exit counseling upon

an average indebtedness would not

provide timely or adequate information

for a Direct Loan borrower to select a

repayment plan or to request a

deferment or forbearance. One of these

commenters noted that the average

indebtedness for students at a school or

in a program may bear little relation to

an individual borrower’s loan balance.

Two of these commenters recommended

that the current requirement for

individualized information be

maintained in the Direct Loan Program

and that the FFEL Program regulations

be amended to require the use of

individualized information for exit

counseling.

One of these two commenters also

recommended that this individualized

information be provided to a borrower

on an on-going basis. For example, the

commenter reasoned that individualized

information about a borrower’s debt

should be available each time a

borrower considers applying for a loan,

so that the borrower could make an

informed decision. The third

commenter recommended that the

Secretary work to provide easy access to

the individualized information to

schools, and when that has been

accomplished, to require a school to

provide counseling based on this

individualized information.

Discussion: The Secretary agrees with

the commenters that it is important for

borrowers to receive individualized

information regarding their debt.

However, the Secretary notes that the

HEA only requires the dissemination of

average information during exit

counseling, and that individualized

information is readily available to

borrowers from a number of sources.

Therefore, the exit counseling session

may not be the most efficient method of

providing this information.

In the Direct Loan Program, the Direct

Loan Servicing Center provides specific

repayment information to borrowers

during the grace period. This

information is mailed to borrowers

along with documents they need to

select a repayment plan. A borrower

may also call the Direct Loan Servicer’s

toll-free telephone number and request

information regarding the repayment

amounts for that borrower under each of

the Direct Loan repayment plans. If a

borrower later decides that a different

repayment plan better suits the

borrower’s needs, the borrower can

generally change to another plan at any

time.
Federal Register / Vol. 62, No. 229 / Friday, November 28, 1997 / Rules and Regulations 63433

Also, § 685.304(b)(2) (ii) and (iii)

require schools to review available

repayment options with a borrower and

to provide the borrower with options

concerning debt-management strategies.

As was noted in the NPRM, to comply

with § 685.304(b)(2) (ii) and (iii), a

school that chooses not to provide the

individualized repayment information

to a student is expected to advise the

student of the availability of the

individualized repayment information

at the student’s Direct Loan servicer and

of its usefulness in selecting the most

appropriate repayment plan.

Further, the Department expects to

begin to allow Direct Loan borrowers

electronic access to their individual

account information (last payment,

account balance, etc.) via the Direct

Loan Web site very soon. Initially,

individual repayment option

calculations will not be available, but

borrowers may use their specific

account information at the Department’s

new Direct Loan repayment calculator

Web site. The repayment calculator

enables borrowers to estimate

repayment amounts under each

repayment plan for any loan amount.

Borrowers may use this information to

decide whether to switch plans or even

to estimate the amount they would

repay based on how much they may

plan to borrow during the course of

their postsecondary education.

In the FFEL Program, most borrowers

may receive this same type of

individualized information from their

lenders. Most lenders or loan servicers

have developed processes like those in

Direct Lending to provide FFEL

borrowers with individualized loan

repayment information by telephone,

electronically, and by other means.

Given the current availability of

borrower-specific repayment

information through a number of

resources, it would be unnecessarily

burdensome to require a school

participating in the Direct Loan Program

or in the FFEL Program to provide

individualized information during exit

counseling. Rather, the Secretary

believes that it is appropriate to allow

a school the flexibility to choose the

repayment counseling option that best

meets its capabilities and the needs of

its students.

Changes: None.

Comments: Several commenters noted

that they assumed that a school would

disclose to a student whether the

repayment information provided was

based on the student’s actual

indebtedness or upon an average.

Discussion: To ‘‘inform’’ a student,

and thus to comply with the regulations,

a school must provide the information

to a student in a format that is

understandable. If a school does not

disclose whether the repayment

information that it provides is based on

the student’s actual indebtedness or

upon an average, then a student cannot

understand or use the information

properly, and the school has not

complied with the provision.

Changes: None.

Executive Order 12866

These final regulations have been

reviewed in accordance with Executive

Order 12866. Under the terms of the

order, the Secretary has assessed the

potential costs and benefits of this

regulatory action.

The potential costs associated with

the final regulations are those resulting

from statutory requirements and those

determined by the Secretary as

necessary for administering these

programs effectively and efficiently.

Burdens specifically associated with

information collection requirements, if

any, were identified and explained in

the preamble to the NPRM.

In assessing the potential costs and

benefits—both quantitative and

qualitative—of these final regulations,

the Secretary has determined that the

benefits of the regulations justify the

costs.

The Secretary has also determined

that this regulatory action does not

unduly interfere with State, local, and

tribal governments in the exercise of

their governmental functions.

The potential costs and benefits of

these final regulations were discussed in

the preamble to the NPRM (62 FR

50462).

Assessment of Educational Impact

In the NPRM, the Secretary requested

comments on whether the proposed

regulations would require transmission

of information that is being gathered by

or is available from any other agency or

authority of the United States.

Based on the response to the NPRM

and on its own review, the Department

has determined that the regulations in

this document do not require

transmission of information that is being

gathered by or is available from any

other agency or authority of the United

States.

Electronic Access to This Document

Anyone may view this document, as

well as all other Department of

Education documents published in the

Federal Register, in text or portable

document format (pdf) on the World

Wide Web at either of the following

sites:

http://gcs.ed.gov/fedreg.htm

http://www.ed.gov/news.html

To use the pdf you must have the Adobe

Acrobat Reader Program with Search,

which is available free at either of the

previous sites. If you have questions

about using the pdf, call the U.S.

Government Printing Office toll free at

1–888–293–6498.

Anyone may also view these

documents in text copy only on an

electronic bulletin board of the

Department. Telephone: (202) 219–1511

or, toll free, 1–800–222–4922. The

documents are located under Option

G—Files/Announcements, Bulletins and

Press Releases.

Note: The official version of this document

is the document published in the Federal

Register.

List of Subjects in 34 CFR Parts 682 and

685

Administrative practice and

procedure, Colleges and universities,

Loan programs-education, Reporting

and recordkeeping requirements,

Student aid, Vocational education.

Dated: November 21, 1997.

Richard W. Riley,

Secretary of Education.

(Catalog of Federal Domestic Assistance

Numbers: 84.032 Federal Stafford Loan

Program; 84.032 Federal PLUS Program;

84.032 Federal Supplemental Loans for

Students Programs; 84.033 and 84.268

Federal Direct Student Loan Program)

The Secretary amends Parts 682 and

685 of Title 34 of the Code of Federal

Regulations as follows:

PART 682—FEDERAL FAMILY

EDUCATION LOAN (FFEL) PROGRAM

1. The authority citation for Part 682

continues to read as follows:

Authority: 20 U.S.C. 1071 to 1087–2,

unless otherwise noted.

2. Section 682.201 is amended by

removing the words ‘‘receive an SLS

loan’’ in the introductory language of

paragraph (a) and adding, in their place,

‘‘receive an unsubsidized Stafford

loan’’; by removing the acronym ‘‘SLS’’

in paragraph (a)(1) and adding, in its

place, ‘‘unsubsidized Stafford’’; by

revising paragraph (a)(2); and by

removing the words ‘‘SLS loan’’ in

paragraph (a)(3) and adding, in their

place, ‘‘additional unsubsidized Stafford

loan amount, as described at

§ 682.204(d)’’ to read as follows:

§ 682.201 Eligible borrowers.

* * * * *

(a) * * *

(2) In the case of any student who

seeks an unsubsidized Stafford loan for

the cost of attendance at a school that
63434 Federal Register / Vol. 62, No. 229 / Friday, November 28, 1997 / Rules and Regulations

participates in the Stafford Loan

Program, the student must have

received a determination of need for a

subsidized Stafford loan, and if

determined to have need in excess of

$200, have filed an application with a

lender for a subsidized Stafford loan;

* * * * *

3. Section 682.202 is amended by

revising paragraph (c)(5) to read as

follows:

§ 682.202 Permissible charges by lenders

to borrowers.

* * * * *

(c) * * *

(5) Shall refund by a credit against the

borrower’s loan balance the portion of

the origination fee previously deducted

from the loan that is attributable to any

portion of the loan—

(i) That is returned by a school to a

lender in order to comply with the Act

or with applicable regulations;

(ii) That is repaid or returned within

120 days of disbursement, unless—

(A) The borrower has no FFEL

Program loans in repayment status and

has requested, in writing, that the repaid

or returned funds be used for a different

purpose; or

(B) The borrower has a FFEL Program

loan in repayment status, in which case

the payment is applied in accordance

with § 682.209(b) unless the borrower

has requested, in writing, that the repaid

or returned funds be applied as a

cancellation of all or part of the loan;

(iii) For which a loan check has not

been negotiated within 120 days of

disbursement; or

(iv) For which loan proceeds

disbursed by electronic funds transfer or

master check in accordance with

§ 682.207(b)(1)(ii) (B) and (C) have not

been released from the restricted

account maintained by the school

within 120 days of disbursement.

* * * * *

4. Section 682.209 is amended by

revising paragraph (i)(1) to read as

follows:

§ 682.209 Repayment of a loan.

* * * * *

(i) * * *

(1) A lender shall treat a payment of

a borrower’s refund of tuition or other

institutional charges received by the

lender from a school as a credit against

the borrower’s loan balance consistent

with the requirements of §§ 682.202 and

682.401.

* * * * *

5. Section 682.401 is amended by

removing the word ‘‘account’’ in the

introductory language of paragraph

(b)(10)(vi)(B) and adding, in its place,

‘‘loan balance’’, and by revising

paragraphs (b)(10)(vi)(B)(1) and

(b)(10)(vi)(B)(2) to read as follows:

§ 682.401 Basic program agreement.

* * * * *

(b) * * *

(10) * * *

(vi) * * *

(B) * * *

(1) The loan or a portion of the loan

is returned by the school to the lender

in order to comply with the Act or with

applicable regulations;

(2) Within 120 days of disbursement,

the loan or a portion of the loan is

repaid or returned, unless—

(i) the borrower has no FFEL Program

loans in repayment status and has

requested, in writing, that the repaid or

returned funds be used for a different

purpose; or

(ii) the borrower has a FFEL Program

loan in repayment status, in which case

the payment is applied in accordance

with § 682.209(b) unless the borrower

has requested, in writing, that the repaid

or returned funds be applied as a

cancellation of all or part of the loan;

* * * * *

6. Section 682.402 is amended by

revising paragraph (c)(1) and by

removing the words ‘‘become totally

and permanently disabled since

applying for the Consolidation loan’’ in

paragraph (k)(2)(iii) and adding, in their

place, ‘‘is determined to be totally and

permanently disabled under Sec.

682.402(c)’’, to read as follows:

§ 682.402 Death, disability, closed school,

false certification, and bankruptcy

payments.

* * * * *

(c) Total and permanent disability. (1)

(i) If a lender determines that an

individual borrower has become totally

and permanently disabled, the

obligation of the borrower and any

endorser to make any further payments

on the loan is discharged.

(ii) Except as provided in paragraph

(c)(1)(iii)(A) of this section, a borrower

is not considered totally and

permanently disabled based on a

condition that existed at the time the

borrower applied for the loan unless the

borrower’s condition substantially

deteriorated after the loan was made so

as to render the borrower totally and

permanently disabled.

(iii)(A) For a Consolidation Loan, a

borrower is considered totally and

permanently disabled if he or she would

be considered totally and permanently

disabled under paragraphs (c)(1) (i) and

(ii) of this section for all of the loans that

were included in the Consolidation

Loan if those loans had not been

consolidated.

(B) For the purposes of discharging a

loan under paragraph (c)(1)(iii)(A) of

this section, provisions in paragraphs

(c)(1) (i) and (ii) of this section apply to

each loan included in the Consolidation

Loan, even if the loan is not a FFEL

Program loan.

(C) If requested, a borrower seeking to

discharge a loan obligation under

paragraph (c)(1)(iii)(A) of this section

must provide the lender with the

disbursement dates of the underlying

loans if the lender does not possess that

information.

* * * * *

7. Section 682.604 is amended by

revising paragraph (g)(2)(i) to read as

follows:

§ 682.604 Processing the borrower’s loan

proceeds and counseling borrowers.

* * * * *

(g) * * *

(2) * * *

(i) Inform the student of the average

anticipated monthly repayment amount

based on the student’s indebtedness or

on the average indebtedness of students

who have obtained Stafford or SLS

loans for attendance at that school or in

the borrower’s program of study.

* * * * *

PART 685—WILLIAM D. FORD

FEDERAL DIRECT LOAN PROGRAM

8. The authority citation for Part 685

continues to read as follows:

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

otherwise noted.

9. Section 685.202 is amended by

revising paragraph (c)(4) to read as

follows:

§ 685.202 Charges for which Direct Loan

Program borrowers are responsible.

* * * * *

(c) * * *

(4) Applies to a borrower’s loan

balance the portion of the loan fee

previously deducted from the loan that

is attributable to any portion of the loan

that is—

(i) Repaid or returned within 120 days

of disbursement, unless—

(A) The borrower has no Direct Loans

in repayment status and has requested,

in writing, that the repaid or returned

funds be used for a different purpose; or

(B) The borrower has a Direct Loan in

repayment status, in which case the

payment is applied in accordance with

§ 685.211(a) unless the borrower has

requested, in writing, that the repaid or

returned funds be applied as a

cancellation of all or part of the loan; or

(ii) Returned by a school in order to

comply with the Act or with applicable

regulations.
Federal Register / Vol. 62, No. 229 / Friday, November 28, 1997 / Rules and Regulations 63435

10. Section 685.212 is amended by

revising paragraph (b) to read as follows:

§ 685.212 Discharge of a loan obligation.

* * * * *

(b) Total and permanent disability. (1)

If the Secretary receives acceptable

documentation that a borrower has

become totally and permanently

disabled, the Secretary discharges the

obligation of the borrower and any

endorser to make any further payments

on the loan.

(2) Except as provided in paragraph

(b)(3)(i) of this section, a borrower is not

considered totally and permanently

disabled based on a condition that

existed at the time the borrower applied

for the loan unless the borrower’s

condition substantially deteriorated

after the loan was made so as to render

the borrower totally and permanently

disabled.

(3)(i) For a Direct Consolidation Loan,

a borrower is considered totally and

permanently disabled if he or she would

be considered totally and permanently

disabled under paragraphs (b) (1) and

(2) of this section for all of the loans that

were included in the Direct

Consolidation Loan if those loans had

not been consolidated.

(ii) For the purposes of discharging a

loan under paragraph (b)(3)(i) of this

section, provisions in paragraphs (b) (1)

and (2) of this section apply to each loan

included in the Direct Consolidation

Loan, even if the loan is not a Direct

Loan Program loan.

(iii) If requested, a borrower seeking

to discharge a loan obligation under

paragraph (b)(3)(i) of this section must

provide the Secretary with the

disbursement dates of the underlying

loans.

* * * * *

11. Section 685.301 is amended by

redesignating paragraphs (a)(6) and

(a)(7) as paragraphs (a)(7) and (a)(8),

respectively, and by adding a new

paragraph (a)(6) to read as follows:

§ 685.301 Origination of a loan by a Direct

Loan Program school.

* * * * *

(a) * * *

(6) If a student has received a

determination of need for a Direct

Subsidized Loan that is $200 or less, a

school may choose not to originate a

Direct Subsidized Loan for that student

and to include the amount as part of a

Direct Unsubsidized Loan.

* * * * *

12. Section 685.304 is amended by

revising paragraph (b)(2)(i) to read as

follows:

§ 685.304 Counseling borrowers.

* * * * *

(b) * * *

(2) * * *

(i) Inform the student of the average

anticipated monthly repayment amount

based on the student’s indebtedness or

on the average indebtedness of students

who have obtained Direct Subsidized or

Direct Unsubsidized Loans for

attendance at that school or in the

borrower’s program of study.

* * * * *

[FR Doc. 97–31212 Filed 11–26–97; 8:45 am]

BILLING CODE 4000–01–P