65616 Federal Register / Vol. 65, No. 212 / Wednesday, November 1, 2000 / Rules and Regulations

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.

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 § 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

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

§ 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 postdeferment 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

§ 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

§ 682.210(h)(4).

Changes: We have revised

§ 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 § 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

§ 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

65618 Federal Register / Vol. 65, No. 212 / Wednesday, November 1, 2000 / Rules and Regulations

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 § 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 § 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

§ 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

§ 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

§ 682.201 before it releases loan

proceeds.

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

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Note: The official version of this document

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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:

§ 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:

§ 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:

§ 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

65620 Federal Register / Vol. 65, No. 212 / Wednesday, November 1, 2000 / Rules and Regulations

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:

§ 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:

§ 682.406 Conditions for claim payments

from the Federal Fund and for reinsurance

coverage.

(a) * * *

Federal Register / Vol. 65, No. 212 / Wednesday, November 1, 2000 / Rules and Regulations 65621

(11) The agency exercised due

diligence in collection of the loan in

accordance with § 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

‘‘§ 682.410(b)(11)(i)’’ and adding in its

place ‘‘§ 682.410(b)(10)(i)’’.

The revisions read as follows:

§ 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

§ 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:

§ 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:

§ 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

§ 682.201 for the loan period certified by

the school on the student’s loan

application.

* * * * *

(c) * * *

(6) Unless the provision of

§ 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

65622 Federal Register / Vol. 65, No. 212 / Wednesday, November 1, 2000 / Rules and Regulations

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:

§ 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:

§ 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