[Federal Register Volume 65, Number 212 (Wednesday, November 1, 2000)]
[Rules and Regulations]
[Pages 65616-65622]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-27738]



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Part V





Department of Education





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34 CFR Parts 682 and 685



Federal Family Education Loan (FFEL) Program and William D. Ford 
Federal District Loan Program; Final Rule

Federal Register / Vol. 65, No. 212 / Wednesday, November 1, 2000 / 
Rules and Regulations

[[Page 65616]]


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DEPARTMENT OF EDUCATION

34 CFR Parts 682 and 685

RIN 1845-AA16


Federal Family Education Loan (FFEL) Program and William D. Ford 
Federal Direct Loan Program

AGENCY: Office of Postsecondary Education, Department of Education.

ACTION: Final regulations.

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SUMMARY: The Secretary amends the Federal Family Education Loan (FFEL) 
Program regulations and the William D. Ford Federal Direct Loan (Direct 
Loan) Program regulations. These regulations are intended to reduce 
administrative burden for program participants, provide benefits to 
borrowers, and protect the taxpayers' interests.

DATES: Effective Date: These regulations are effective July 1, 2001.
    Implementation Date: The Secretary has determined, in accordance 
with section 482(c)(2)(A) of the HEA (20 U.S.C. 1089(c)(2)(A)), that 
guaranty agencies may, at their discretion, choose to implement 
Sec. 682.410(b)(6) on or after November 1, 2000.

FOR FURTHER INFORMATION CONTACT: For the FFEL Program, Mr. George 
Harris, or for the Direct Loan Program, Mr. Jon Utz; U.S. Department of 
Education, 400 Maryland Avenue, SW., room 3045, ROB-3, Washington, DC 
20202-5449. Telephone: (202) 708-8242. If you use a telecommunications 
device for the deaf (TDD), you may call the Federal Information Relay 
Service (FIRS) at 1-800-877-8339.
    Individuals with disabilities may obtain this document in an 
alternative format (e.g., Braille, large print, audiotape, or computer 
diskette) on request to the contact person listed under FOR FURTHER 
INFORMATION CONTACT.

SUPPLEMENTARY INFORMATION: The regulations in this document were 
developed through the use of negotiated rulemaking. Section 492 of the 
Higher Education Act of 1965, as amended (HEA), requires that, before 
publishing any proposed regulations to implement programs under Title 
IV of the HEA, the Secretary obtain public involvement in the 
development of the proposed regulations. After obtaining advice and 
recommendations, the Secretary must conduct a negotiated rulemaking 
process to develop the proposed regulations.
    On July 27, 2000 the Secretary published a notice of proposed 
rulemaking (NPRM) for parts 682 and 685 in the Federal Register (65 FR 
46316). In the preamble to the NPRM, the Secretary discussed on pages 
46317-46320 the major proposed changes to the regulations. The 
Secretary invited comments on the proposed regulations by September 11, 
2000 and 16 parties submitted comments.
    On August 10, 2000, the Secretary published another NPRM for parts 
600, 668, 675, 682, 685, and 690 in the Federal Register (65 FR 49134). 
In the preamble to that NPRM, the Secretary discussed on pages 49135-
49147 the major proposed changes to the regulations. The Secretary 
invited comments on these proposed regulations by September 25, 2000, 
and 33 parties submitted comments. To consolidate all of the provisions 
for the FFEL and Direct Loan programs, these final regulations include 
not only the provisions from the July 27, 2000 NPRM, but also the 
amendments to parts 682 and 685 from the August 10, 2000 NPRM. We 
strongly urge the reader to refer to the preambles from both of the 
NPRMs for a full discussion of these regulations.
    In addition to minor technical revisions, these regulations contain 
a few significant changes from these two NPRMs that we fully explain in 
the Analysis of Comments and Changes that follows. The only significant 
comment we received concerning the changes to parts 682 and 685 
proposed in the August 10, 2000 NPRM is reflected under our discussion 
related to 682.604(b).

Analysis of Comments and Changes

    We discuss substantive issues under the sections of the regulations 
to which they pertain. Generally, we do not address technical and other 
minor changes--and suggested changes the law does not authorize the 
Secretary to make.

FFEL and Direct Loan Program Changes

Sections 682.210 and 685.204--Deferment

    Comment: One commenter did not agree with the proposal to remove 
the current provisions that prohibit the granting of an economic 
hardship for a period beginning more than 6 months before the date the 
lender receives the request and the supporting documentation. The 
commenter agreed that supporting documentation for other deferments 
(e.g., a military or disability deferment) frequently must be certified 
and provided by other parties, but believed that documentation of a 
borrower's income and debt for purposes of an economic hardship 
deferment should be readily in the borrower's possession.
    Discussion: While some forms of deferment documentation are more 
readily accessible to borrowers than other forms of documentation, the 
accessibility of documentation is not the primary reason why we have 
decided to eliminate the 6-month limitation on the retroactive 
application of a deferment. The primary rationale for eliminating this 
limitation is that borrowers frequently are unaware that they may 
qualify for a deferment until it is too late (because of the 6-month 
limitation) to take full advantage of a deferment they are entitled to 
receive. During the negotiated rulemaking sessions, representatives of 
schools, borrower organizations and FFEL lenders and servicers all 
indicated that this lack of awareness applies to all deferment 
categories, including economic hardship deferments. Therefore, we 
believe it is appropriate to eliminate the 6-month limit for that 
deferment as well as the others.
    Changes: None.
    Comment: One commenter recommended that the removal of the 6-month 
limitation on the application of a deferment be applied retroactively 
to assist borrowers who otherwise would have been eligible for the 
deferment, but who encountered loan problems because they did not 
submit documentation to support their deferment in a timely manner.
    Discussion: We believe that borrowers have been, and should 
continue to be, responsible for providing deferment documentation to 
loan holders on a timely basis. The removal of the 6-month limitation 
on the retroactive application of deferments does not mean that the 
rules for granting deferments that existed in the past should be 
changed. In fact, we believe that applying these new rules to past 
requests for deferments would create significant confusion and 
complications for program participants without helping a significant 
number of borrowers. Upon the effective date of these regulations (July 
1, 2001), the removal of the 6-month limitation on the retroactive 
application of a deferment will apply to any period of authorized 
deferment that includes July 1, 2001 or a later date. For program 
integrity reasons, a period of authorized deferment that does not 
include July 1, 2001 or a later date, and that was subject to the 6-
month limit when the deferment was granted, may not be revised.
    We want to stress that the documentation required to support an 
application for a deferment with a begin

[[Page 65617]]

date more than 6 months prior to the date of the application must be 
related to the date that the borrower claims he or she met the 
requirements for the deferment. For example, if a borrower requests an 
economic hardship deferment for a period that began two years prior to 
the date of the request, the documentation and income must support the 
borrower's qualification for that deferment at the start of that 
period. If the supporting documentation does not support the beginning 
date claimed by the borrower, but the lender determines that the 
borrower met the conditions for the deferment sometime after that date, 
a deferment may be granted retroactively only to the date the borrower 
met the conditions for the deferment.
    Changes: None.
    Comment: One commenter was concerned that the removal of the 6-
month limitation on the retroactive application of a deferment would 
weaken the incentive for borrowers to submit their deferment 
documentation in a timely manner. The commenter envisioned situations 
in which borrowers who had defaulted on their loans would provide 
deferment documentation many months or even years after default. The 
commenter believed that this could result in significant issues related 
to loan repurchases, reapplication of payments, and credit bureau 
reporting. To help retain an incentive for borrowers to provide their 
deferment documentation timely, the commenter recommended a change to 
the existing requirements of Sec. 682.210(a)(7) by removing the 
sentence, ``The 270- or 330-day period required to establish default 
does not run during the deferment and post-deferment grace periods.''
    Discussion: We do not believe that the situation envisioned by the 
commenter is likely to occur. Under 34 CFR 682.210(a)(8), a borrower 
who has failed to make payments for 270 days and for whom the lender 
has submitted a default claim may receive a deferment on a loan only if 
he or she has made repayment arrangements acceptable to the lender. 
After a lender's default claim is paid by a guaranty agency, the 
borrower is ineligible for a deferment on the loan. Thus, unless there 
was a mistake by the lender and the loan was not properly in default at 
the time the claim was paid, the guaranty agency would not consider the 
borrower's request for a deferment under the conditions outlined by the 
commenter.
    Changes: None.
    Comment: One commenter believed that it was illogical to use old 
income data from a borrower's most recently filed Federal income tax 
return to determine if the borrower would qualify for a current or 
future economic hardship deferment.
    Discussion: Section 435(o)(1)(B) of the HEA refers to the 
borrower's ``adjusted gross income'' as an income measurement to be 
used to determine if a borrower would have an economic hardship in 
repaying a loan. The term ``adjusted gross income'' is generally used 
to refer to the amount reported on a Federal income tax return. In 
light of the statutory use of this term, we believe that it is 
appropriate to refer to the borrower's most recent Federal income tax 
return as the source for this amount.
    Changes: None.
    Comment: One commenter thought it was confusing to have a 
stipulation in Sec. 682.210(h)(2)(i) that an initial unemployment 
period may not be granted more than 6 months prospectively. The 
commenter believed that by specifying this requirement here, it was 
unclear why a similar specific restriction was not mentioned for 
subsequent periods of unemployment deferment.
    Discussion: We agree that the clarity of the regulatory language 
concerning an initial period of unemployment deferment could be 
improved. For subsequent periods of unemployment, there already exists 
a 6-month prospective limit on the granting of an unemployment 
deferment in Sec. 682.210(h)(4).
    Changes: We have revised Sec. 682.210(h)(2)(i) to clarify the 
length of time that an initial period of unemployment deferment can be 
granted.

Sections 682.402 and 685.214--False Certification Discharge

    Comment: One commenter advocated a regulatory change in light of 
the ruling of the U.S. Court of Appeals for the District of Columbia, 
in Jordan v. Riley 194 F.3d 169 (D.C. Cir. 1999). In that ruling, the 
court held that the employment attempt provisions in the false 
certification discharge regulations of the FFEL and Direct Loan 
programs were inconsistent with the HEA. Consequently, the commenter 
believed that the regulations should be revised to require guaranty 
agencies or the Department to review all applications for false 
certification discharge that had been denied based on the borrower's 
employment history. The commenter stated that such borrowers should not 
be required to resubmit applications.
    Discussion: The issue raised by the commenter does not relate to 
these regulations, but is more appropriately addressed in other ways. 
Accordingly, the regulations will not be revised, but we will work with 
the Federal student loan community to determine how to make information 
on this case generally available to the public.
    Changes: None.
    Comment: Several commenters noted that the ability-to-benefit 
regulations in 34 CFR 668.32 were revised October 22, 1999, and became 
effective July 1, 2000. The commenters noted that those regulations 
should have been incorporated into the changes proposed for 
Sec. 682.402(e)(13)(ii) in the July 27, 2000 NPRM.
    Discussion: We agree.
    Changes: The regulations have been revised accordingly.

FFEL Changes

Section 682.410--Fiscal, Administrative, and Enforcement Requirements

    Comment: One commenter recommended that the notice a guaranty 
agency is required to send to the borrower within 45 days after paying 
a lender's default claim should advise the borrower that he or she can 
contact the Department's Student Loan Ombudsman Office. The commenter 
believed that this option should be emphasized instead of suggesting 
that the borrower may wish to contact a lawyer. In the commenter's 
opinion, most borrowers who contact lawyers regarding disputed student 
loan repayment obligations incur unnecessary legal costs. Another 
commenter argued that it would be inconsistent to require guaranty 
agencies to advise borrowers that they may wish to contact a lawyer and 
not have the same type of requirement apply to the Federal Perkins Loan 
Program and the Direct Loan Program. The commenter believed that this 
requirement would cause an increase in the number of frivolous lawsuits 
and be detrimental to the interests of all parties, including borrowers 
who contacted lawyers. The commenter recommended a deletion of this 
requirement.
    Discussion: Proposed Sec. 682.410(b)(6)(v) specifically requires 
that the guaranty agency's notice to the borrower include a statement 
that ``borrowers may have certain legal rights in the collection of 
debts, and that borrowers may wish to contact counselors or lawyers 
regarding those rights.'' This language was developed during negotiated 
rulemaking by a group that included representatives of guaranty 
agencies, collection contractors, and borrower and student 
representatives. The Department accepted the language because it

[[Page 65618]]

encouraged borrowers to get help in understanding their legal rights. 
We do not share the commenters' concerns that the addition of this 
language will encourage unnecessary litigation. The proposed rule 
specifically encourages borrowers to contact ``counselors or lawyers'' 
to get assistance. In some cases, a borrower may be helped by a debt 
management or other counselor. In other cases, legal advice may be 
needed. In any case, we believe that encouraging borrowers to get 
assistance in understanding their legal rights and obligations may 
contribute to resolving disputes between guaranty agencies and 
borrowers.
    We do not agree with the commenter's suggestion that we should add 
a specific reference to the availability of the Department's Student 
Loan Ombudsman Office in this notice. Current regulations require a 
lender to notify the borrower of the availability of the Student Loan 
Ombudsman's Office as part of the lender's collection activity on a 
delinquent loan. In addition, under 34 CFR 682.410(b)(5)(vii), a 
guaranty agency is required to provide information on the availability 
of the Department's Student Loan Ombudsman Office if the borrower 
appeals an adverse decision resulting from the agency's administrative 
review of the borrower's loan obligation. We believe that these notices 
provide borrowers with sufficient notice of the opportunity to contact 
the Ombudsman's office. We do not believe that adding a reference to 
the Ombudsman's Office in the notice sent by the guaranty agency to the 
borrower under Sec. 682.410(b)(6)(v) would improve this process. In 
fact, at this stage of the process it is most important for the 
borrower to be in contact with the guaranty agency directly. While the 
Ombudsman's Office may facilitate that communication in some cases, we 
believe it is better to encourage borrowers and their representatives 
to be directly in contact with the guaranty agency rather than to 
contact the Ombudsman's office.
    In regard to the commenter's suggestion that the statement 
regarding the borrower's legal rights also be added to notices in the 
Direct Loan and Perkins programs, we note that the notices sent to 
borrowers in those programs are not the subject of these regulations. 
However, in collecting Direct loans that are in default, we generally 
follow the same or similar collection activities required of guaranty 
agencies under Sec. 682.410(b). We will consider the commenter's 
suggestion when we revise the Direct Loan collection notices and when 
new regulations governing the Perkins Loan Program are developed.
    Changes: None.
    Comment: One commenter believed that the regulations should require 
a guaranty agency to advise borrowers of their legal rights, as known 
by the agency, and to disclose the number and types of court cases 
involving borrowers, and the results of those cases. The commenter also 
believed that the agency should be required to provide the names and 
contact information for at least three attorneys located near the 
borrower who have recently brought successful cases against the agency.
    Discussion: We do not believe it is necessary or appropriate for 
the guaranty agency to provide the borrower the information suggested 
by the commenter. It would put the guaranty agency in the inappropriate 
position of providing legal advice to a possibly adverse party. 
Therefore, we have not accepted the commenter's suggestions.
    Changes: None.
    Comment: One commenter believed that the notice required to be sent 
to the borrower in accordance with Sec. 682.410(b)(6)(vi) should be 
sent within a specified number of days, rather than within ``a 
reasonable time.''
    Discussion: The regulations were revised to give guaranty agencies 
greater flexibility in the collection of defaulted loans from 
borrowers. We see no reason to undermine that goal by revising the 
regulations to be more prescriptive in this area.
    Changes: None.

Section 682.414--Records, Reports, and Inspection Requirements for 
Guaranty Agency Programs

    Comments: One commenter believed that the starting ``clock'' for 
measuring the 3-year (or 5-year) record retention period should be tied 
to the date loans are reported to us on the guaranty agency's quarterly 
report, rather than from the dates provided in the regulations. The 
commenter thought this would make it easier for a guaranty agency to 
schedule its record destruction and facilitate the agency's retention 
of records for longer time periods if needed.
    Discussion: The effect of the commenter's recommendation would be 
to expand the record retention period by requiring a guaranty agency to 
retain loan records for the 3-year period following the date the loan 
is repaid in full by the borrower, plus the additional period from the 
actual paid-in-full date to the date the paid-in-full loan is reported 
on the guaranty agency's next quarterly report. By setting minimum 
retention periods, the regulations already permit a guaranty agency to 
establish its record retention procedures consistent with its 
administrative needs even if that means the records are retained longer 
than the minimum period.
    Changes: None.
    Comment: One commenter recommended that the reduction in a guaranty 
agency's record retention period from 5 years to 3 years should apply 
to loans paid in full by any means, not just to loans repaid in full by 
the borrower.
    Discussion: A loan that is paid in full by the borrower generally 
reflects the borrower's acknowledgment of his or her repayment 
obligation. The borrower also typically has his or her own repayment 
records. In contrast, in cases where parties other than the borrower 
are involved in the repayment of loans (for example, a closed school 
discharge claim), borrowers may have no direct involvement in or 
knowledge of the actual payment mechanisms, and thus have no personal 
repayment records. To protect borrower and taxpayer interests and 
preserve program integrity, we believe the 5-year retention period 
should be preserved in these types of cases.
    Changes: None.
    (The following discussion relates to regulations included in the 
August 10, 2000 NPRM.)

Section 682.604(b)--Releasing Loan Proceeds

    Comments: The commenters supported the proposal eliminating the 
requirement that a school must determine a student's eligibility after 
it receives loan proceeds from a lender. Under the proposed 
regulations, a school may release loan proceeds to a student after it 
determines that the student continuously has maintained eligibility 
under the provisions in Sec. 682.201. However, several of the 
commenters argued that the proposed language could be misinterpreted to 
require that a school continuously verify the eligibility of the 
student under those provisions and suggested that the language be 
revised.
    Discussion: We agree. For the purpose of determining whether a 
school may release FFEL loan proceeds to a student, we wish to make 
clear that the school does not have to continuously verify the 
eligibility of the student. Rather, the school determines whether the 
student has maintained continuous eligibility in accordance with the 
provisions of Sec. 682.201 before it releases loan proceeds.

[[Page 65619]]

    Changes: Section 682.604(b)(2)(i) is revised accordingly.

Paperwork Reduction Act of 1995

    The Paperwork Reduction Act of 1995 does not require you to respond 
to a collection of information unless it displays a valid OMB control 
number. Following OMB approval, we will display the valid OMB control 
numbers assigned to the collections of information in these final 
regulations at the end of the affected sections of the regulations.

Executive Order 12866

    We have reviewed these final regulations in accordance with 
Executive Order 12866. Under the terms of the order we have 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 we have determined to 
be necessary for administering these programs effectively and 
efficiently.
    In assessing the potential costs and benefits--both quantitative 
and qualitative--of these final regulations, we have determined that 
the benefits of the regulations justify the costs.
    We have also determined that this regulatory action does not unduly 
interfere with State, local, and tribal governments in the exercise of 
their governmental functions.
    Summary of potential costs and benefits: We summarized the 
potential costs and benefits of these final regulations in the preamble 
to the July 27, 2000 NPRM on page 46319, and in the preamble to the 
August, 10, 2000 NPRM on page 49147.

Assessment of Educational Impact

    In the NPRMs, we requested comments on whether the proposed 
regulations would require transmission of information that any other 
agency or authority of the United States gathers or makes available.
    Based on the response to the NPRMs and our own review, we have 
determined that these final regulations do not require transmission of 
information that any other agency or authority of the United States 
gathers or makes available.

Electronic Access to This Document

    You may view this document, as well as other Department of 
Education documents published in the Federal Register, in text or Adobe 
Portable Document Format (PDF) on the Internet at either of the 
following sites:

http://ocfo.ed.gov/fedreg. htm 
http://www.ed.gov/news.html

To use PDF you must have Adobe Acrobat Reader, which is available free 
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    You may also view this document in text or PDF at the following 
site:

http://ifap.ed.gov/csb_html/fedlreg.htm

    Note: The official version of this document is the document 
published in the Federal Register. Free Internet access to the 
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Regulations is available on GPO Access at: http://www.access.gpo.gov/nara/index.html

(Catalog of Federal Domestic Assistance Number 84.032 Federal Family 
Education Loan Program, and 84.268, William D. Ford Federal Direct 
Loan Program)

List of Subjects in 34 CFR Parts 682 and 685

    Administrative practice and procedure, Colleges and universities, 
Education, Loan programs--education, Reporting and recordkeeping 
requirements, Student aid, Vocational education.

    Dated: October 24, 2000.
Richard W. Riley,
Secretary of Education.

    For the reasons discussed in the preamble, 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 revising paragraph (b)(1)(vii)(F) 
to read as follows:


Sec. 682.201  Eligible borrowers.

* * * * *
    (b) * * *
    (1) * * *
    (vii) * * *
    (F) The lender must retain a record of its basis for determining 
that extenuating circumstances existed. This record may include, but is 
not limited to, an updated credit report, a statement from the creditor 
that the borrower has made satisfactory arrangements to repay the debt, 
or a satisfactory statement from the borrower explaining any 
delinquencies with outstanding balances of less than $500.
* * * * *

    3. Section 682.207 is amended by:
    A. Revising paragraph (b)(1)(i)(B).
    B. Revising paragraph (b)(1)(vi).
    C. Revising paragraph (c)(3).
    D. Removing ``(1)'' after the paragraph designation ``(f)''; 
removing paragraph (f)(2); and redesignating paragraphs (f)(1)(i), 
(f)(1)(ii), and (f)(1)(iii) as paragraphs (f)(1), (f)(2), and (f)(3), 
respectively.
    The amendments read as follows:


Sec. 682.207  Due diligence in disbursing a loan.

* * * * *
    (b)(1) * * *
    (i) * * *
    (B) Must disburse a Stafford or PLUS loan in accordance with the 
disbursement schedule provided by the school or any request made by the 
school modifying that schedule.
* * * * *
    (vi) Except as provided in paragraph (f) of this section, may not 
disburse a second or subsequent disbursement of a Federal Stafford loan 
to a student who has ceased to be enrolled; and
* * * * *
    (c) * * *
    (3) Disbursement must be made on a payment period basis in 
accordance with the disbursement schedule provided by the school or any 
request made by the school modifying that schedule.
* * * * *

    4. Section 682.210 is amended by:
    A. Revising paragraph (a)(5).
    B. Revising paragraph (h)(2)(i).
    C. Removing the words ``of up to one year at a time'' from 
paragraph (s)(6) introductory text.
    D. Removing the words ``in accordance with paragraph (s)(6)(vi) of 
this section'' from paragraph (s)(6)(vii).
    E. Revising paragraphs (s)(6)(iii), (iv), (v), (viii), (ix), and 
(x).
    The revisions read as follows:


Sec. 682.210  Deferment.

    (a) * * *
    (5) An authorized deferment period begins on the date that the 
holder determines is the date that the condition entitling the borrower 
to the deferment first existed, except that an initial unemployment 
deferment as described in paragraph (h)(2) of this section cannot begin 
more than 6 months before the date the holder receives a request and 
documentation required for the deferment.
* * * * *
    (h) * * *
    (2) * * *
    (i) Describing the borrower's diligent search for full-time 
employment during

[[Page 65620]]

the preceding 6 months, except that a borrower requesting an initial 
period of unemployment deferment is not required to describe his or her 
search for full-time employment at the time the deferment is granted. 
The initial period of unemployment deferment can be granted for a 
period of unemployment beginning up to 6 months before the date the 
holder receives the borrower's request and documentation for the 
deferment, and can be granted for up to 6 months after that date. For a 
continuation of an unemployment deferment following the initial period, 
the borrower's written certification must include information showing 
that the borrower made at least six diligent attempts to secure 
employment to support the prior 6-month period covered by the 
certification. This information could be the name of the employer 
contacted and the employer's address and telephone number, or other 
information acceptable to the holder showing that the borrower made six 
diligent attempts to obtain full-time employment;
* * * * *
    (s) * * *
    (6) * * *
    (iii) Is working full-time and has a monthly income that does not 
exceed the greater of (as calculated on a monthly basis)--
    (A) The minimum wage rate described in section 6 of the Fair Labor 
Standards Act of 1938; or
    (B) An amount equal to 100 percent of the poverty line for a family 
of two, as determined in accordance with section 673(2) of the 
Community Services Block Grant Act.
    (iv) Is working full-time and has a Federal education debt burden 
that equals or exceeds 20 percent of the borrower's monthly income, and 
that income, minus the borrower's Federal education debt burden, is 
less than 220 percent of the amount described in paragraph (s)(6)(iii) 
of this section.
    (v) Is not working full-time and has a monthly income that--
    (A) Does not exceed twice the amount described in paragraph 
(s)(6)(iii) of this section; and
    (B) After deducting an amount equal to the borrower's Federal 
education debt burden, the remaining amount of the borrower's income 
does not exceed the amount described in paragraph (s)(6)(iii) of this 
section.
* * * * *
    (viii) For an initial period of deferment granted under paragraphs 
(s)(6)(iii) through (v) of this section, the lender must require the 
borrower to submit evidence showing the amount of the borrower's 
monthly income.
    (ix) To qualify for a subsequent period of deferment that begins 
less than one year after the end of a period of deferment under 
paragraphs (s)(6)(iii) through (v) of this section, the lender must 
require the borrower to submit--
    (A) Evidence showing the amount of the borrower's monthly income or 
a copy of the borrower's most recently filed Federal income tax return; 
and
    (B) For periods of deferment under paragraphs (s)(6)(iv) and (v) of 
this section, evidence that would enable the lender to determine the 
amount of the monthly payments to all other entities for Federal 
postsecondary education loans that would have been owed by the borrower 
during the deferment period.
    (x) For purposes of paragraph (s)(6) of this section, a borrower's 
monthly income is the gross amount of income received by the borrower 
from employment and from other sources, or one-twelfth of the 
borrower's adjusted gross income, as recorded on the borrower's most 
recently filed Federal income tax return.
* * * * *

    5. Section 682.402 is amended by:
    A. Revising paragraph (e)(3) introductory text.
    B. In paragraph (e)(3)(ii) introductory text, removing the words 
``the school's''.
    C. In paragraph (e)(3)(ii)(A) adding the word ``and'' after the 
semicolon, and in paragraph (e)(3)(ii)(B), removing the word ``and'' 
after the semi-colon.
    D. Removing paragraph (e)(3)(ii)(C).
    E. Revising paragraph (e)(13)(ii)(A).
    F. Revising paragraph (e)(13)(ii)(B) introductory text.
    G. In paragraph (e)(13)(ii)(B)(2), removing the word ``or'' that 
appears after the semi-colon.
    H. In paragraph (e)(13)(ii)(C), removing the period and adding in 
its place, ``; or''.
    I. Adding a new paragraph (e)(13)(ii)(D).
    J. Adding a new paragraph (e)(13)(ii)(E).
    K. Adding a new paragraph (e)(13)(iv).
    L. Adding a new paragraph (e)(14).
    The additions and revisions read as follows:


Sec. 682.402  Death, disability, closed school, false certification, 
unpaid refunds, and bankruptcy payments.

* * * * *
    (e) * * *
    (3) Borrower qualification for discharge. Except as provided in 
paragraph (e)(14) of this section, to qualify for a discharge of a loan 
under paragraph (e) of this section, the borrower must submit to the 
holder of the loan a written request and a sworn statement. The 
statement need not be notarized, but must be made by the borrower under 
penalty of perjury, and, in the statement, the borrower must--
* * * * *
    (13) * * *
    (ii) * * *
    (A) For periods of enrollment beginning prior to July 1, 1987, was 
determined to have the ability to benefit from the school's training in 
accordance with the requirements of 34 CFR 668.6, as in existence at 
the time the determination was made;
    (B) For periods of enrollment beginning between July 1, 1987 and 
June 30, 1996, achieved a passing grade on a test--
* * * * *
    (D) For periods of enrollment beginning on or after July 1, 1996 
through June 30, 2000--
    (1) Obtained, within 12 months before the date the student 
initially receives title IV, HEA program assistance, a passing score 
specified by the Secretary on an independently administered test in 
accordance with subpart J of 34 CFR part 668; or
    (2) Enrolled in an eligible institution that participates in a 
State process approved by the Secretary under subpart J of 34 CFR part 
668.
    (E) For periods of enrollment beginning on or after July 1, 2000--
    (1) Met either of the conditions described in paragraph 
(e)(13)(ii)(D) of this section; or
    (2) Was home schooled and met the requirements of 34 CFR 
668.32(e)(4).
* * * * *
    (iv) Notwithstanding paragraphs (e)(13)(i) and (ii) of this 
section, a student has the ability to benefit from the training offered 
by the school if the student received a high school diploma or its 
recognized equivalent prior to enrollment at the school.
    (14) Discharge without an application. A borrower's obligation to 
repay all or a portion of an FFEL Program loan may be discharged 
without an application from the borrower if the Secretary, or the 
guaranty agency with the Secretary's permission, determines that the 
borrower qualifies for a discharge based on information in the 
Secretary or guaranty agency's possession.
* * * * *

    6. Section 682.406 is amended by revising paragraph (a)(11) to read 
as follows:


Sec. 682.406  Conditions for claim payments from the Federal Fund and 
for reinsurance coverage.

    (a) * * *

[[Page 65621]]

    (11) The agency exercised due diligence in collection of the loan 
in accordance with Sec. 682.410(b)(6).
* * * * *

    7. Section 682.410 is amended by:
    A. Amending paragraph (b)(5)(i) introductory text by removing the 
reference to paragraph ``(b)(6)(iii)'' and adding in its place 
``(b)(6)(v)''.
    B. Amending paragraph (b)(5)(ii) introductory text by removing the 
reference to paragraph ``(b)(6)(ii)'' and adding in its place 
``(b)(6)(v)''.
    C. Revising paragraph (b)(6).
    D. Removing paragraph (b)(7).
    E. Redesignating paragraphs (b)(8) through (b)(11) as paragraphs 
(b)(7) through (b)(10), respectively.
    F. Amending redesignated paragraph (b)(7)(ii) by removing the 
reference to paragraph ``(b)(8)(i)'' and adding in its place 
``(b)(7)(i)''.
    G. Amending redesignated paragraph (b)(7)(ii)(D) by removing the 
reference to paragraph ``(b)(6)(i)'' and adding in its place 
``(b)(6)''.
    H. Amending redesignated paragraph (b)(8) by removing the reference 
to paragraphs ``(b)(2), (5), (6), and (7)'' and adding in its place 
``(b)(2), (5), and (6)''.
    I. Amending redesignated paragraph (b)(9)(i)(E) by removing the 
references to paragraphs ``(b)(10)(i)(D)'' and ``(b)(10)(i)(J)'' and 
adding in their place ``(b)(9)(i)(D)'' and ``(b)(9)(i)(J)'', 
respectively.
    J. Amending redesignated paragraph (b)(9)(i)(F) by removing the 
reference to paragraph ``(b)(10)(i)(H)'' and adding in its place 
``(b)(9)(i)(H)''.
    K. Amending redesignated paragraph (b)(9)(i)(I) by removing the 
reference to paragraph ``(b)(10)(i)(H)'' and adding in its place 
``(b)(9)(i)(H)''.
    L. Amending redesignated paragraph (b)(9)(i)(K) by removing both 
references to paragraph ``(b)(10)(i)(B)'' and adding in their place 
``(b)(9)(i)(B)''.
    M. Amending redesignated paragraph (b)(9)(i)(L) by removing both 
references to paragraph ``(b)(10)(i)(B)'' and adding in their place 
``(b)(9)(i)(B)''.
    N. Amending redesignated paragraph (b)(10)(ii) by removing the 
reference to ``Sec. 682.410(b)(11)(i)'' and adding in its place 
``Sec. 682.410(b)(10)(i)''.
    The revisions read as follows:


Sec. 682.410  Fiscal, administrative, and enforcement requirements.

* * * * *
    (b) * * *
    (6) Collection efforts on defaulted loans.
    (i) A guaranty agency must engage in reasonable and documented 
collection activities on a loan on which it pays a default claim filed 
by a lender. For a non-paying borrower, the agency must perform at 
least one activity every 180 days to collect the debt, locate the 
borrower (if necessary), or determine if the borrower has the means to 
repay the debt.
    (ii) A guaranty agency must attempt an annual Federal offset 
against all eligible borrowers. If an agency initiates proceedings to 
offset a borrower's State or Federal income tax refunds and other 
payments made by the Federal Government to the borrower, it may not 
initiate those proceedings sooner than 60 days after sending the notice 
described in paragraph (b)(5)(ii)(A) of this section.
    (iii) A guaranty agency must initiate administrative wage 
garnishment proceedings against all eligible borrowers, except as 
provided in paragraph (b)(6)(iv) of this section, by following the 
procedures described in paragraph (b)(9) of this section.
    (iv) A guaranty agency may file a civil suit against a borrower to 
compel repayment only if the borrower has no wages that can be 
garnished under paragraph (b)(9) of this section, or the agency 
determines that the borrower has sufficient attachable assets or income 
that is not subject to administrative wage garnishment that can be used 
to repay the debt, and the use of litigation would be more effective in 
collection of the debt.
    (v) Within 45 days after paying a lender's default claim, the 
agency must send a notice to the borrower that contains the information 
described in paragraph (b)(5)(ii) of this section. During this time 
period, the agency also must notify the borrower, either in the notice 
containing the information described in paragraph (b)(5)(ii) of this 
section, or in a separate notice, that if he or she does not make 
repayment arrangements acceptable to the agency, the agency will 
promptly initiate procedures to collect the debt. The agency's 
notification to the borrower must state that the agency may 
administratively garnish the borrower's wages, file a civil suit to 
compel repayment, offset the borrower's State and Federal income tax 
refunds and other payments made by the Federal Government to the 
borrower, assign the loan to the Secretary in accordance with 
Sec. 682.409, and take other lawful collection means to collect the 
debt, at the discretion of the agency. The agency's notification must 
include a statement that borrowers may have certain legal rights in the 
collection of debts, and that borrowers may wish to contact counselors 
or lawyers regarding those rights.
    (vi) Within a reasonable time after all of the information 
described in paragraph (b)(6)(v) of this section has been sent, the 
agency must send at least one notice informing the borrower that the 
default has been reported to all national credit bureaus (if that is 
the case) and that the borrower's credit rating may thereby have been 
damaged.
* * * * *

    8. Section 682.414 is amended by revising paragraph (a)(2) to read 
as follows:


Sec. 682.414  Records, reports, and inspection requirements for 
guaranty agency programs.

    (a) * * *
    (2) A guaranty agency must retain the records required for each 
loan for not less than 3 years following the date the loan is repaid in 
full by the borrower, or for not less than 5 years following the date 
the agency receives payment in full from any other source. However, in 
particular cases, the Secretary may require the retention of records 
beyond these minimum periods.
* * * * *

    9. Section 682.604 is amended by:
    A. Revising paragraph (b)(2)(i).
    B. Revising paragraph (c)(6).
    C. Revising paragraph (c)(7).
    The amendments read as follows:


Sec. 682.604  Processing the borrower's loan proceeds and counseling 
borrowers.

* * * * *
    (b) * * *
    (2)(i) Except in the case of a late disbursement under paragraph 
(e) of this section or as provided in paragraph (b)(2)(iii) or (iv) of 
this section, a school may release the proceeds of any disbursement of 
a loan only to a student whom the school determines has maintained 
continuous eligibility in accordance with the provisions of 
Sec. 682.201 for the loan period certified by the school on the 
student's loan application.
* * * * *
    (c) * * *
    (6) Unless the provision of Sec. 682.207(d) or the provisions of 
paragraph (c)(7) of this section apply--
    (i) If a loan period is more than one payment period, the school 
must deliver loan proceeds at least once in each payment period; and
    (ii) If a loan period is one payment period, the school must make 
at least two deliveries of loan proceeds during that payment period. 
The school may not make the second delivery until the calendar midpoint 
between the first and last scheduled days of class of the loan period.
    (7)(i) If a school measures academic progress in an educational 
program in

[[Page 65622]]

credit hours and either does not use terms or does not use terms that 
are substantially equal in length for a loan period, the school may not 
deliver a second disbursement until the later of--
    (A) The calendar midpoint between the first and last scheduled days 
of class of the loan period; or
    (B) The date, as determined by the school, that the student has 
completed half of the academic coursework in the loan period.
    (ii) For purposes of paragraph (c)(7) of this section, terms in a 
loan period are substantially equal in length if no term in the loan 
period is more than two weeks longer than any other term in that loan 
period.
* * * * *

PART 685--WILLIAM D. FORD FEDERAL DIRECT LOAN PROGRAM

    10. The authority citation for part 685 continues to read as 
follows:

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


    11. Section 685.214 is amended by:
    A. Removing the words ``the school's'' in paragraph (c)(1).
    B. Adding the word ``and'' after the semicolon at the end of 
paragraph (c)(1)(i).
    C. Removing ``; and'' at the end of paragraph (c)(1)(ii) and 
adding, in its place, a period.
    D. Removing paragraph (c)(1)(iii).
    E. Adding a new paragraph (c)(6).
    The revisions read as follows:


Sec. 685.214  Discharge for false certification of student eligibility 
or unauthorized payment.

* * * * *
    (c) * * *
    (6) Discharge without an application. The Secretary may discharge a 
loan under this section without an application from the borrower if the 
Secretary determines, based on information in the Secretary's 
possession, that the borrower qualifies for a discharge.
* * * * *

    12. Section 685.301 is amended by revising paragraph (b)(5) to read 
as follows:


Sec. 685.301  Origination of a loan by a Direct Loan Program school.

* * * * *
    (b) * * *
    (5)(i) If a school measures academic progress in an educational 
program in credit hours and either does not use terms or does not use 
terms that are substantially equal in length for a loan period, the 
school may not make a second disbursement until the later of--
    (A) The calendar midpoint between the first and last scheduled days 
of class of the loan period; or
    (B) The date, as determined by the school, that the student has 
completed half of the academic coursework in the loan period.
    (ii) For purposes of this paragraph, terms in a loan period are 
substantially equal in length if no term in the loan period is more 
than two weeks longer than any other term in that loan period.
* * * * *
[FR Doc. 00-27738 Filed 10-31-00; 8:45 am]
BILLING CODE 4000-01-U