65612 Federal Register / Vol. 65, No. 212 / Wednesday, November 1, 2000 / Rules and Regulations

DEPARTMENT OF EDUCATION

34 CFR Part 674

RIN 1845–AA15

Federal Perkins Loan Program

AGENCY: Office of Postsecondary

Education, Department of Education.

ACTION: Final regulations.

SUMMARY: The Secretary amends the

Federal Perkins Loan (Perkins Loan)

Program regulations. These final

regulations are intended to improve

collections in the Perkins Loan Program

by providing greater flexibility in the

process of assigning defaulted Perkins

loans to the Secretary for collection.

They are intended to address the large

number of Perkins loan accounts that

have been in default status for more

than five years.

These regulations also allow State

institutions participating in the Perkins

Loan Program to invoke their right to

sovereign immunity in bankruptcy

proceedings and clarify the maximum

collection costs that may be assessed to

a borrower who defaults again on a

previously rehabilitated defaulted loan.

DATES: These regulations are effective

July 1, 2001.

FOR FURTHER INFORMATION CONTACT:

Vanessa Freeman, Program Analyst,

U.S. Department of Education, 400

Maryland Avenue, SW., Room 3045,

Regional Office Building #3,

Washington, DC 20202–5447.

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 in

the preceding paragraph.

SUPPLEMENTARY INFORMATION: On July

27, 2000, the Secretary published a

notice of proposed rulemaking (NPRM)

for the Federal Perkins Loan Program in

the Federal Register (65 FR 46127). In

the preamble to the NPRM, the

Secretary discussed on pages 46128–

46130 the major proposed changes to

the regulations.

Analysis of Comments and Changes

The regulations in this document

were developed through the use of

negotiated rulemaking. Section 492 of

the Higher Education Act requires that,

before publishing any proposed

regulations to implement programs

under Title IV of the Act, 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.

These regulations were published in

proposed form on July 27, 2000, in

conformance with the consensus of the

negotiated rulemaking committee.

Under the committee’s protocols,

consensus meant that no member of the

committee dissented from the agreedupon language. The Secretary invited

comments on the proposed regulations

by September 11, 2000 and 10

comments were received. An analysis of

the comments follows.

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.

Section 674.49 Bankruptcy of the

Borrower

Comment: All of the commenters

expressed support for the proposed

regulations and specifically applauded

the proposal that will allow a public

institution determined to be an agency

of a State to invoke its right of sovereign

immunity under the eleventh

amendment to the Constitution of the

United States.

Discussion: We thank the commenters

for their support.

Changes: None.

Section 674.39 Loan Rehabilitation

Comment: All of the commenters

expressed support for the technical

provision that reflects the Secretary’s

interpretation that the 24 percent cap on

collection costs that may be charged a

borrower on a rehabilitated defaulted

loan no longer applies if the borrower

defaults again on that loan.

Discussion: We thank the commenters

for their support.

Changes: None.

Sections 674.13 and 674.50

Reimbursement to the Fund and

Assignment of Defaulted Loans to the

United States

Comment: One commenter

recommended that we actively seek

input from institutions participating in

the Federal Perkins Loan Program to

ensure the success of voluntary

assignment of Perkins loans to the

Department. The commenter believes

that if the process is developed in a

vacuum without the advice and input of

Perkins Loan Program participants, the

program will have a very high

probability of failure. The commenter

also recommended that, in the event the

new process is not successful, the

Secretary determine the reasons for the

lack of success before proposing new

requirements, specifically any form of

mandatory assignment.

Discussion: We appreciate the

commenter’s concern and are

committed to developing a simplified

voluntary assignment process for aging

accounts. We will work with interested

institutions and organizations to

develop a less administratively

burdensome process that institutions

will readily use. However, should the

voluntary process prove unsuccessful,

we believe that to preserve program

integrity and support, the Secretary

must consider all other possible

alternatives, including mandatory

assignment of these aging accounts. In

that event, any proposed changes would

be subject to the negotiated rulemaking

process, which provides for active

participation by the student financial

aid community.

Changes: None.

Comment: One commenter expressed

the view that loan assignments by

schools reduce funds available for

future students. The commenter

believes that it is not in the best interest

of an institution to assign loans to the

Department since funds collected by the

Department are not returned to the

Perkins Loan Program.

Discussion: We have researched the

issue of whether collections received by

us on assigned Federal Perkins Loans

can remain in the program. We have

determined that these funds may be

redistributed within the Perkins Loan

Program, although not specifically to the

school that assigned the loan, and we

are committed to doing so.

Changes: None.

Comment: One commenter suggested

a list of documents that should be

required when a loan is assigned to us

for collection.

Discussion: We appreciate the

commenter’s suggestions. However, the

change in section 674.50(c) of the

regulations, which lists all possible

documentation that may be required for

assignment, is intended to improve

Perkins loan collections by providing

greater flexibility in the process of

assigning certain defaulted Perkins

Loans to us. We plan to work closely

with the student aid community to

develop the procedural guidelines for

assignment, including identifying the

minimum required documentation

necessary for us to collect effectively on

the assigned loans. We believe that

separately codifying the required

Federal Register / Vol. 65, No. 212 / Wednesday, November 1, 2000 / Rules and Regulations 65613

documentation for certain categories of

assignments undermines the flexibility

achieved through this regulatory

change.

Changes: None.

Comment: One commenter

recommended that we establish a

referral process on aged Perkins

accounts. The commenter stated that a

referral process would increase the

collection tools available to institutions

while preserving institutional control of

the accounts.

Discussion: Our experience with an

earlier Perkins Loan referral program

was that the program was difficult to

administer for both schools and the

Department. More importantly, we have

collection tools that are not available to

schools, such as administrative wage

garnishment, federal offset, and

litigation by the Department of Justice

that cannot be used if we do not hold

legal title to the loan. We believe that

under certain circumstances, such as an

institution’s inability to collect on a

portion of its default portfolio for a

lengthy period of time, maintaining

program integrity and returning dollars

generally to the Perkins Loan program

outweighs preserving institutional

control of these accounts.

Changes: None.

Comment: One commenter expressed

the view that we should recognize the

fact that accounts that are more than

five years in default are still collectible.

The commenter believes that schools

that have loans in default over five years

would have already obtained judgments

that enable the schools to enforce wage

garnishments. The commenter stated

that borrowers must often satisfy such

judgments before buying and selling real

estate and are therefore highly

motivated to pay the loan in full.

Discussion: We understand that some

schools may have undertaken judicial

wage garnishment to collect some of

these aging, defaulted accounts. Clearly,

if payments related to judicial wage

garnishment are being received, the

account would be an unlikely candidate

for voluntary assignment. However, we

believe that administrative wage

garnishment, which only the Secretary

can undertake on Federal Perkins loans,

is a far more efficient and cost-effective

collection tool than across-the-board

litigation on aging, non-paying

accounts. Such litigation poses

significant costs to the school’s fund

and reduces dollars available for future

students. Further, we believe that some

schools may have exhausted all

available collection efforts on some

unknown number of these accounts and

that we should have the opportunity to

make use of our collection advantages to

return money to the Perkins Loan

Program.

Changes: None.

Comment: One commenter feels that

we should eliminate the provision that

requires institutions to reimburse the

Fund for all loans not accepted for

assignment.

Discussion: The proposed change in

§ 674.13 modifies this provision of the

regulations to allow us discretion in

deciding when to require a school to

reimburse its Perkins Fund. We believe

that there will still be circumstances

under which reimbursement of a

school’s fund would be appropriate,

such as when the actions of a school

render a loan legally unenforceable.

Therefore, we decline to eliminate all

possibility of reimbursement associated

with assignment.

Changes: None.

Section 674.49 Bankruptcy of

Borrower

Comment: One commenter noted that

the proposed regulation that eliminates

the requirement that an institution file

a proof of claim if it wishes to invoke

its right of sovereign immunity

appeared to apply only to Chapter 7

bankruptcy filings.

Discussion: We would like to clarify

that although the preamble to the

proposed regulation only referenced

Chapter 7 bankruptcy proceedings as it

relates to claims of sovereign immunity,

the proposed regulatory language itself

also eliminated the proof of claim filing

requirement for Chapter 13 bankruptcy

proceedings.

Changes: None.

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

these final regulations are those

resulting from statutory requirements

and those we have determined as

necessary for administering this

program effectively and efficiently.

Elsewhere in this SUPPLEMENTARY

INFORMATION section, we identify and

explain any burdens associated with

information collection requirements.

See the heading Paperwork Reduction

Act of 1995.

In assessing the potential costs and

benefits—both quantitative and

qualitative—of these final regulations,

we have determined that the benefits

would justify the costs.

We have also determined that these

final regulations do not unduly interfere

with State, local, and tribal governments

in the exercise of their governmental

functions.

We discussed the potential costs and

benefits of these final regulations in the

preamble to the NPRM (65 FR 46129).

We include additional discussion of

potential costs and benefits in the

section of this preamble titled Analysis

of Comments and Changes.

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.

We 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.

Assessment of Educational Impact

In the NPRM we requested comments

on whether the proposed regulation

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 NPRM

and on our 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 the following sites:

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

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

To use the PDF you must have the

Adobe Acrobat Reader Program with

Search, which is available free at the

previous sites. If you have questions

about using the PDF, call the U.S.

Government Printing Office (GPO), toll

free, at 1–888–293–6498; or in the

Washington, DC, area at (202) 512–1530.

Note: The official version of this document

is the document published in the Federal

Register. Free Internet access to the official

edition of the Federal Register and the Code

of Federal Regulations is available on GPO

Access at: http://www.access.gpo.gov/nara/

index.html

(Catalog of Federal Domestic Assistance

Number: 84.037 Federal Perkins Loan

Program)

List of Subjects in 34 CFR Part 674

Loan programs—education, Student

aid, Reporting and recordkeeping

requirements.

65614 Federal Register / Vol. 65, No. 212 / Wednesday, November 1, 2000 / Rules and Regulations

Dated: October 24, 2000.

Richard W. Riley,

Secretary of Education.

For the reasons discussed in the

preamble, the Secretary amends part

674 of title 34 of the Code of Federal

Regulations as follows:

PART 674—FEDERAL PERKINS LOAN

PROGRAM

1. The authority citation for part 674

continues to read as follows:

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

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

2. Section 674.13 is amended by

revising the introductory text in

paragraph (a) and adding an OMB

control number following the section to

read as follows:

§ 674.13 Reimbursement to the Fund.

(a) The Secretary may require an

institution to reimburse its Fund in an

amount equal to that portion of the

outstanding balance of—

* * * * *

(Approved by the Office of Management and

Budget under control number 1845–0019)

3. Section 674.39 is amended by

revising paragraph (c) and revising the

OMB control number following the

section to read as follows:

§ 674.39 Loan rehabilitation.

* * * * *

(c) Collection costs on a rehabilitated

loan—

(1) If charged to the borrower, may not

exceed 24 percent of the unpaid

principal and accrued interest as of the

date following application of the twelfth

payment;

(2) That exceed the amounts specified

in paragraph (c)(1) of this section, may

be charged to an institution’s Fund until

July 1, 2002 in accordance with

§ 674.47(e)(5); and

(3) Are not restricted to 24 percent in

the event the borrower defaults on the

rehabilitated loan.

* * * * *

(Approved by the Office of Management and

Budget under control number 1845–0023)

4. Section 674.49 is amended by

revising paragraph (b) and revising the

OMB control number following the

section to read as follows:

§ 674.49 Bankruptcy of borrower.

* * * * *

(b) Proof of claim. The institution

must file a proof of claim in the

bankruptcy proceeding unless—

(1) In the case of a proceeding under

chapter 7 of the Bankruptcy Code, the

notice of meeting of creditors states that

the borrower has no assets, or

(2) In the case of a bankruptcy

proceeding under either Chapter 7 or

Chapter 13 of the Bankruptcy Code in

which the repayment plan proposes that

the borrower repay less than the full

amount owed on the loan, the

institution has an authoritative

determination by an appropriate State

official that in the opinion of the State

official, the institution is an agency of

the State and is, on that basis, under

applicable State law, immune from suit.

* * * * *

(Approved by the Office of Management and

Budget under control number 1845–0023)

5. Section 674.50 is amended by

revising paragraph (c) introductory text

and by revising the OMB control

number following the section to read as

follows:

§ 674.50 Assignment of defaulted loans to

the United States.

* * * * *

(c) The Secretary may require an

institution to submit the following

documents for any loan it proposes to

assign—

* * * * *

(Approved by the Office of Management and

Budget under control number 1845–0019)

[FR Doc. 00–27739 Filed 10–31–00; 8:45 am]

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