[Federal Register Volume 62, Number 229 (Friday, November 28, 1997)]
[Rules and Regulations]
[Pages 63428-63435]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-31212]



[[Page 63427]]

_______________________________________________________________________

Part III





Department of Education





_______________________________________________________________________



34 CFR Parts 682 and 685



Federal Family Education Loan Program and William D. Ford Federal 
Direct Loan Program; Final Rule

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

[[Page 63428]]


-----------------------------------------------------------------------

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 Sec. 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 student-specific 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 Sec. 455(a) of the HEA, 
which generally requires that the FFEL and Direct Loan Programs have 
the same terms,

[[Page 63429]]

conditions, and benefits unless otherwise specified.
    Changes: None.

Students With Need of $200 or Less (Secs. 682.201 and 685.301)

    Comments: Many commenters asked that a paragraph similar to the 
proposed Sec. 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 Secs. 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 Sec. 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 Sec. 682.201 would remove a dependent student's 
eligibility for a ``base'' unsubsidized Stafford Loan amount, as 
described at Sec. 682.204(c). For example, the commenter noted that 
simply changing ``SLS'' to ``unsubsidized Stafford'' in 
Sec. 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 
Sec. 682.201(a)(2) (ii) and (iii) are no longer needed. Also, as noted 
by the commenter, Sec. 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 Sec. 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 (Secs. 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 
Sec. 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 Sec. 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 Sec. 682.202 and Sec. 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 Sec. 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 
Sec. 682.202(c)(5) are a technical correction. The corresponding 
changes to Secs. 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

[[Page 63430]]

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 Sec. 682.209(b) or Sec. 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 Sec. 682.209(b) or Sec. 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 Sec. 682.209(b) or Sec. 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 Sec. 682.209 or Sec. 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 Sec. 682.209(i)(1) to be consistent with 
corresponding changes at Secs. 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 
Sec. 682.202(c)(5)(i) or Sec. 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 
Sec. 682.202(c)(5)(i) or Sec. 682.401(b)(10)(vi)(B)(1).
    Changes: None.
    Comments: One commenter asked that proposed Sec. 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 
Secs. 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 Secs. 682.401(b)(10)(vi)(B)(3) 
and (4) be revised to conform to the less specific language at 
Sec. 682.202(c)(5)(iii).
    Discussion: The Secretary agrees that Sec. 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 Secs. 682.401(b)(10)(vi)(B)(3) 
and (4).

Discharge of a Loan (Secs. 682.402 and 685.212)

    Comments: Many commenters found the text of Secs. 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 Sec. 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, Secs. 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

[[Page 63431]]

proposed requirements at Secs. 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 Secs. 682.402(c)(1)(iii) and 
685.212(b)(3) to simplify guidance and improve clarity.
    Comments: Many commenters noted that changes proposed for 
Secs. 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 Sec. 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

[[Page 63432]]

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 Secs. 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 Sec. 682.402(c)(1)(ii) or 
Sec. 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 Sec. 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 Sec. 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 (Secs. 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.

[[Page 63433]]

    Also, Sec. 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 Sec. 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 Sec. 682.204(d)'' to read as follows:


Sec. 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

[[Page 63434]]

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:


Sec. 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 Sec. 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 Sec. 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:


Sec. 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 Secs. 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:


Sec. 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 Sec. 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:


Sec. 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:


Sec. 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:


Sec. 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 Sec. 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.

[[Page 63435]]

    10. Section 685.212 is amended by revising paragraph (b) to read as 
follows:


Sec. 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:


Sec. 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:


Sec. 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