```

[Federal Register Volume 78, Number 145 (Monday, July 29, 2013)]
[Proposed Rules]
[Pages 45617-45728]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-15812]

[[Page 45617]]

Vol. 78

Monday,

No. 145

July 29, 2013

Part II

Department of Education

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

34 CFR Parts 668, 674, 682, et al.

 Student Assistance General Provisions, Federal Perkins Loan Program, 
Federal Family Education Loan Program, and William D. Ford Federal 
Direct Loan Program; Proposed Rule

Federal Register / Vol. 78 , No. 145 / Monday, July 29, 2013 / 
Proposed Rules

[[Page 45618]]

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

DEPARTMENT OF EDUCATION

34 CFR Parts 668, 674, 682, and 685

RIN 1840-AD12
[Docket ID ED-2013-OPE-0063]

Student Assistance General Provisions, Federal Perkins Loan 
Program, Federal Family Education Loan Program, and William D. Ford 
Federal Direct Loan Program

AGENCY: Office of Postsecondary Education, Department of Education.

ACTION: Notice of proposed rulemaking.

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

SUMMARY: The Secretary proposes to amend the Student Assistance General 
Provisions, Federal Perkins Loan (Perkins Loan) Program, Federal Family 
Education Loan (FFEL) Program, and William D. Ford Federal Direct Loan 
(Direct Loan) Program regulations. The proposed regulations would: 
amend the FFEL and Direct Loan program regulations to reflect changes 
made to the Higher Education Act of 1965, as amended (HEA), by the 
SAFRA Act included in the Health Care and Education Reconciliation Act 
of 2010; incorporate other recent statutory changes in the Direct Loan 
Program regulations; update, strengthen, and clarify various areas of 
the Student Assistance General Provisions, Perkins Loan, FFEL, and 
Direct Loan program regulations; and provide for greater consistency in 
the regulations governing the title IV, HEA student loan programs. 
These proposed regulations would ensure that the title IV, HEA Federal 
student aid programs operate as efficiently as possible.

DATES: We must receive your comments on or before August 28, 2013.

ADDRESSES: Submit your comments through the Federal eRulemaking Portal 
or via postal mail, commercial delivery, or hand delivery. We will not 
accept comments by fax or by email. To ensure that we do not receive 
duplicate copies, please submit your comments only once. In addition, 
please include the Docket ID at the top of your comments.
     Federal eRulemaking Portal: Go to www.regulations.gov to 
submit your comments electronically. Information on using 
Regulations.gov, including instructions for accessing agency documents, 
submitting comments, and viewing the docket, is available on the site 
under ``Are you new to the site?''
     Postal Mail, Commercial Delivery, or Hand Delivery: If you 
mail or deliver your comments about these proposed regulations, address 
them to Jessica Finkel, U.S. Department of Education, 1990 K Street 
NW., Room 8031, Washington, DC 20006-8502.
    Privacy Note: The Department's policy is to make all comments 
received from members of the public available for public viewing in 
their entirety on the Federal eRulemaking Portal at 
www.regulations.gov. Therefore, commenters should be careful to include 
in their comments only information that they wish to make publicly 
available.

FOR FURTHER INFORMATION CONTACT: Jessica Finkel, U.S. Department of 
Education, 1990 K Street NW., Room 8031, Washington, DC 20006-8502. 
Telephone: (202) 502-7647 or by email: mailto:jessica.finkel@ed.gov.
    If you use a telecommunications device for the deaf (TDD) or a text 
telephone (TTY), call the Federal Relay Service (FRS), toll free, at 1-
800-877-8339.

SUPPLEMENTARY INFORMATION: 

Executive Summary

    Purpose of This Regulatory Action: These regulations would address 
issues arising from the changes made to the HEA by the SAFRA Act, 
included in the Health Care and Education Reconciliation Act of 2010 
(Pub. L. 111-152). The SAFRA Act ended the origination of new loans 
under the FFEL Program after June 30, 2010. With this change, all new 
Stafford, PLUS, and Consolidation loans with a first disbursement on or 
after July 1, 2010, are now made under the Direct Loan Program. Because 
all new loans are being made under the Direct Loan Program, the 
proposed regulations would amend the FFEL Program regulations in 34 CFR 
part 682 by removing provisions related to the making of new loans. The 
proposed regulations would also amend the Direct Loan Program 
regulations in 34 CFR part 685 by adding detailed regulations in areas 
where the Direct Loan Program regulations currently cross-reference the 
FFEL Program regulations.
    The proposed regulations would also strengthen and clarify 
provisions of the Perkins Loan, FFEL, and Direct Loan program 
regulations including, but not limited to, regulations governing: 
Deferments, forbearances, loan cancellation, rehabilitation of 
defaulted loans, administrative wage garnishment, and satisfactory 
repayment arrangements. The proposed regulations would also make the 
rules governing the various title IV, HEA loan programs more 
consistent.
    Summary of the Major Provisions of This Regulatory Action: The 
proposed regulations would--
     Raise the participation rate index ceiling applicable to 
institutions that have a single three-year cohort default rate of over 
40 percent for purposes of challenges to and appeals from sanctions 
based on that default rate.
     Clarify the Perkins Loan, FFEL, and Direct Loan program 
regulations to provide that a borrower who makes six payments in the 
course of rehabilitating a defaulted loan, but who does not seek 
additional title IV aid, will not be considered to have used the one-
time-only opportunity to regain title IV eligibility by making 
satisfactory repayment arrangements. The proposed regulations would 
also define the term ``satisfactory repayment arrangement'' more 
consistently across the title IV, HEA loan programs.
     Amend the closed school discharge provisions in the 
Perkins Loan, FFEL, and Direct Loan program regulations to specify that 
a borrower may qualify for a loan discharge if the borrower withdrew 
from school not more than 120 days before the school closed, instead of 
the current 90-day standard. The proposed regulations would also add 
examples of the types of exceptional circumstances under which the 
Department may extend the 120-day window.
     Update the FFEL and Direct Loan program enrollment status 
reporting requirements for institutions to reflect current processes 
and eliminate obsolete terms and procedures. The proposed regulations 
would also add comparable enrollment status reporting provisions to the 
Perkins Loan Program regulations.
     Revise the terms under which a guaranty agency in the FFEL 
Program may authorize a lender to grant forbearance to permit a 
borrower or endorser to resume honoring the agreement to repay a debt 
after default but prior to claim payment to require either a signed 
written agreement to repay or an oral affirmation of the borrower's or 
endorser's obligation to repay the debt. The proposed regulations would 
provide that if a forbearance is granted based on the borrower's or 
endorser's oral request and affirmation of the obligation, the 
forbearance is limited to 120 days and cannot be granted for 
consecutive periods. In addition, the lender must orally review with 
the borrower the terms and conditions of the forbearance and send a 
notice to the borrower or endorser that confirms the terms of the 
forbearance. The proposed regulations would also define the term 
``affirmation.'' Finally, the proposed regulations would add comparable 
provisions in the Direct Loan Program.

[[Page 45619]]

     Require that lenders grant forbearance to FFEL borrowers 
who are performing service that qualifies them for loan repayment under 
the Department of Defense student loan repayment programs in addition 
to the program authorized by 10 U.S.C. 2171 (which is currently 
referenced in the regulations). A comparable forbearance provision 
would be added to the Direct Loan Program regulations.
     Authorize a lender to grant an administrative forbearance 
to a FFEL borrower who is delinquent at the beginning of an authorized 
period of forbearance and add a corresponding provision to the Direct 
Loan Program regulations.
     Provide that the Secretary, in the Direct Loan Program, 
and the guaranty agency, in the FFEL Program, would determine a 
borrower's reasonable and affordable payment amount under a loan 
rehabilitation agreement based on the borrower's and, if applicable, 
the borrower's spouse's current disposable income, family size, and 
reasonable and necessary expenses. The information about income and 
expenses needed to determine the reasonable and affordable payment 
amount would be provided by the borrower to the Secretary or the 
guaranty agency on a form approved by the Secretary and, if requested, 
with supporting documentation from the borrower or other sources.
     Specify in the FFEL and Direct Loan program regulations 
that a reasonable and affordable loan rehabilitation payment amount 
must not be a required minimum payment, a percentage of the borrower's 
total loan balance, or an amount based on other criteria unrelated to 
the borrower's total financial circumstances.
     Require that the Secretary, in the Direct Loan Program, or 
the guaranty agency, in the FFEL Program, provide the borrower with a 
written rehabilitation agreement within 15 business days of the 
determination of the borrower's reasonable and affordable payment 
amount along with a comprehensive description of the borrower's rights, 
the terms and conditions of the payments, the effects of loan 
rehabilitation, and, for a FFEL borrower, the treatment of unpaid 
collection costs.
     Provide that, if the borrower objects to the payment 
amount determined by the guaranty agency based on the income and 
expenses shown by the borrower and contained in the written repayment 
agreement offered to the borrower, the guaranty agency or the Secretary 
will calculate an amount for the borrower's rehabilitation payment 
using the formula for calculating a monthly payment amount under the 
income-based repayment (IBR) plan in the Direct Loan and FFEL Program 
regulations, and offer the borrower the option to use that amount as 
the rehabilitation payment amount. The borrower would be free to choose 
between the amount determined initially and the IBR-based payment 
amount.
     Provide that, while the borrower is making payments under 
a rehabilitation agreement, the Secretary and the guaranty agency would 
limit contact with the borrower to collection activities required by 
law or regulation and communications that support the rehabilitation.
     Amend the Direct Loan and FFEL program regulations to 
provide that, when a loan is being collected by administrative wage 
garnishment (AWG), the Secretary or the guaranty agency, respectively, 
will suspend AWG after the borrower makes five qualifying monthly 
payments under a loan rehabilitation agreement, unless the borrower 
requests that AWG continue.
     Incorporate into the Perkins Loan Program the same 
eligibility criteria used in the Direct Loan and FFEL programs to 
define an ``eligible graduate fellowship program'' and to establish the 
eligibility of a Perkins Loan borrower for a graduate fellowship 
deferment.
     Eliminate the debt-to-income economic hardship deferment 
category in the Perkins Loan Program.
     Modify the rehabilitation provisions in the Perkins Loan 
Program regulations to define the term ``on-time'' as it relates to the 
series of payments required to successfully rehabilitate a defaulted 
loan.
     Allow assignment of a Perkins Loan to the Secretary 
without the borrower's Social Security Number if the loan was made 
before September 13, 1982.
     Permit a Perkins Loan borrower who is unable to complete 
the second half of an academic year of teaching due to a condition 
covered under the Family and Medical Leave Act (FMLA) to still count 
that year as eligible teaching service for loan cancellation purposes, 
if the borrower's employer considers the borrower to have fulfilled the 
teacher contract requirements for that academic year.
     Permit a Perkins Loan borrower who is unable to complete a 
full year of eligible public service due to a condition that is covered 
under the FMLA to count that year as a full year of public service for 
loan cancellation purposes if the borrower completes at least six 
months of consecutive eligible service.
     Specify that, if a Perkins Loan borrower who is performing 
service that qualifies the borrower for loan cancellation at a 
cancellation rate progression of 15 percent for the first and second 
years of qualifying service, 20 percent for the third and fourth years 
of qualifying service, and 30 percent for the fifth year of qualifying 
service, takes a job in a different field that qualifies the borrower 
under a different cancellation category that provides loan cancellation 
at the same cancellation rate progression as the prior category, the 
borrower's cancellation rate under the new cancellation category would 
continue from the last year the borrower received a cancellation under 
the former cancellation category, rather than starting over at the 
first-year cancellation rate.
     Change the timeframe for FFEL lenders to send the required 
repayment disclosure for borrowers who are 60 days delinquent from five 
calendar days to five business days after the date the borrower becomes 
60 days delinquent.
     Amend the FFEL Program regulations to provide that a 
lender does not have to send a repayment disclosure to a borrower who 
is having difficulty making payments if the borrower's difficulty has 
been resolved through contact resulting from an earlier disclosure or 
from other contact between the lender and the borrower.
     Amend the regulations governing AWG to reflect the 
borrower's right to request a hearing on the enforceability of the debt 
and to allow the borrower to object to the amount or rate of AWG 
withholding if such withholding would cause financial hardship to the 
borrower.
     Revise the regulations governing AWG to conform the 
requirements for borrowers whose defaulted loans are held by a guaranty 
agency to the rules and procedures used by the Secretary.
     Amend the regulations governing AWG to incorporate 
existing policy guidance related to third-party servicers or collection 
contractors retained by guaranty agencies.
     Amend the regulations governing AWG to more clearly 
describe the process, from the initial garnishment notice to 
withholding.
     Amend the regulations governing AWG to better reflect due 
process requirements and to specify the functions, delegations of 
authority, recordkeeping requirements, and permissible activities of 
guaranty agencies and third-party servicers or collection contractors.
     Clarify the limitations on the amount that may be subject 
to AWG if a guaranty agency is garnishing pay

[[Page 45620]]

from a borrower who is not already subject to a withholding order or 
from a borrower who is already subject to one or more withholding 
orders. The proposed regulations would also permit a greater amount or 
percentage to be withheld with the borrower's consent.
     Require that for a borrower to receive a hearing before 
AWG begins, the borrower's written request for a hearing must be 
received on or before the 30th day following the date the garnishment 
notice was sent, and delete a provision that a borrower is considered 
to have received a garnishment notice five days following the date of 
the notice.
     Provide that if a borrower's written request for a hearing 
is received by the guaranty agency after the 30th day following the 
date of the garnishment notice, the agency must provide the borrower a 
hearing and issue a decision within 60 days following receipt of the 
request. If a decision is not rendered within 60 days, the guaranty 
agency must suspend the order beginning on the 61st day after the 
hearing request was received until a hearing is provided and a decision 
is rendered.
     Amend the FFEL Program regulations to: Specify the 
contents of an AWG notice; describe how an AWG hearing is administered, 
including provisions for the submission of additional evidence and the 
granting of continuances; provide for the withholding order to end by 
either rescission or full recovery of amounts owed by the borrower; and 
clarify that a borrower who wishes to object that he or she is not 
subject to garnishment because of involuntary separation bears the 
burden of raising and proving that claim.
     Eliminate provisions in the FFEL Program regulations 
governing loan origination and disbursement and related requirements 
and activities except for certain school-based requirements and related 
activities.
     Eliminate obsolete provisions that do not reflect the 
current procedures in the FFEL Program.
     Make necessary conforming changes in various FFEL Program 
provisions to update the regulations.
     In the Direct Loan Program regulations, modify the 
exception to the minimum loan period requirement for clock-hour and 
certain non-standard term programs that allows a school, in certain 
transfer student situations, to originate a loan for a period shorter 
than the lesser of the academic year or program length only if the 
school accepts credit or clock hours from the school that the student 
was previously attending. The proposed regulations would remove the 
provision that limits this exception to situations in which the school 
into which the student transfers accepts credit or clock hours from the 
prior school.
     Add detailed regulations to 34 CFR part 685 in areas where 
the Direct Loan Program regulations currently just cross-reference the 
FFEL Program regulations.
     Remove obsolete provisions that do not reflect current 
procedures used in administering the Direct Loan Program.
     Revise the Direct Loan Program regulations to reflect the 
impact of the SAFRA Act and other recent statutory changes.
    Please refer to the Summary of Proposed Changes section of this 
preamble for more details on the major provisions contained in this 
notice of proposed rulemaking (NPRM).
    Costs and Benefits: The proposed regulations are estimated to have 
a net budget impact of $2.8 to $3.4 million over ten years from 2013 to 
2022. Consistent with the requirements of the Credit Reform Act of 1990 
(2 U.S.C. 661(a)(5)), budget cost estimates for the student loan 
programs reflect the estimated net present value of all future non-
administrative Federal costs associated with a cohort of loans. (A 
cohort reflects all loans originated in a given fiscal year.)
    Absent evidence of the impact of these regulations on student 
behavior, budget cost estimates were based on behavior as reflected in 
various Department data sets and longitudinal surveys listed under 
Assumptions, Limitations, and Data Sources. Program cost estimates were 
generated by running projected cash flows related to each provision 
through the Department's student loan cost estimation model. Student 
loan cost estimates are developed across five risk categories. The 
categories are:
     Loans for students attending less than four-year for-
profit institutions;
     Loans for students attending less than four-year public 
and non-profit institutions;
     Loans for freshmen or sophomores in four-year institutions 
of all types;
     Loans for juniors or seniors in four-year institutions of 
all types; and
     Loans for graduate students in institutions of all types.

Risk categories have separate assumptions based on the historical 
pattern of the behavior of borrowers in each category, such as the 
likelihood of default or of the use of statutory deferment or discharge 
benefits.
    Overall, the proposed regulations would strengthen and streamline 
the Federal student loan programs and help support the American 
postsecondary education system. As more and more students depend on 
student loans to pay for their college education, it is essential that 
borrowers are able to fully understand and comprehend their rights and 
responsibilities in relation to their student debt obligations. It is 
also essential that the student loan programs operate as efficiently as 
possible. A college education has become essential for employment in a 
large part of the American economy and the percentage of jobs that 
require a degree will only increase in the future. The Department's 
loan programs support over ten million students per year, and this 
number will grow if the country pursues the President's 2020 goal of 
leading the world in college degree attainment. Keeping a strong and 
efficient higher education system is essential to America maintaining 
its economic advantage in the world.
    Invitation to Comment: As outlined in Negotiated Rulemaking, 
significant public participation, through three public hearings and 
three negotiated rulemaking sessions, has occurred in developing this 
NPRM. We invite you to submit comments regarding these proposed 
regulations. To ensure that your comments have maximum effect in 
developing the final regulations, we urge you to identify clearly the 
specific section or sections of the proposed regulations that each of 
your comments addresses and to arrange your comments in the same order 
as the proposed regulations.
    We invite you to assist us in complying with the specific 
requirements of Executive Orders 12866 and 13563 and their overall 
requirement of reducing regulatory burden that might result from these 
proposed regulations. Please let us know of any further ways we could 
reduce potential costs or increase potential benefits while preserving 
the effective and efficient administration of the Department's programs 
and activities.
    During and after the comment period, you may inspect all public 
comments about these proposed regulations by accessing Regulations.gov. 
You may also inspect the comments in person, in Room 8031, 1990 K 
Street NW., Washington, DC, between 8:30 a.m. and 4:00 p.m., Washington 
DC time, Monday through Friday of each week except Federal holidays. 
Please contact the person listed under FOR FURTHER INFORMATION CONTACT.
    Assistance to Individuals with Disabilities in Reviewing the 
Rulemaking Record: On request we will provide an appropriate 
accommodation or auxiliary aid to an individual with a

[[Page 45621]]

disability who needs assistance to review the comments or other 
documents in the public rulemaking record for these proposed 
regulations. If you want to schedule an appointment for this type of 
accommodation or auxiliary aid, please contact the person listed under 
FOR FURTHER INFORMATION CONTACT.

Negotiated Rulemaking

    Section 492 of the HEA requires the Secretary, before publishing 
any proposed regulations for programs authorized by title IV of the 
HEA, to obtain public involvement in the development of the proposed 
regulations. After obtaining advice and recommendations from the 
public, including individuals and representatives of groups involved in 
the Federal student financial assistance programs, the Secretary must 
establish a negotiated rulemaking committee and subject the proposed 
regulations to a negotiated rulemaking process. All proposed 
regulations that the Department publishes on which the negotiators 
reached consensus must conform to final agreements resulting from that 
process unless the Secretary reopens the process or provides a written 
explanation to the participants stating why the Secretary has decided 
to depart from the agreements. Further information on the negotiated 
rulemaking process may be found at: www2.ed.gov/policy/highered/reg/hearulemaking/2011/loans.html.
    On May 5, 2011, the Department published a notice in the Federal 
Register (76 FR 25650) announcing our intent to establish up to two 
negotiated rulemaking committees to prepare proposed regulations. One 
committee would focus on issues related to streamlining institutional 
reporting requirements and proposed regulations regarding better State 
identification of low-performing teacher preparation programs pursuant 
to sections 205 and 207 of the HEA by focusing reporting on improved 
measures of program quality. A second committee (the ``negotiating 
committee'') would address Federal student loan issues. The regulations 
considered by the negotiating committee would: Implement changes made 
by the SAFRA Act (Pub. L. 111-152), which ended the making of new loans 
in the FFEL Program as of July 1, 2010; make improvements to the 
income-contingent and income-based repayment plans; and improve the 
process for consideration of applications for total and permanent 
disability discharges. The notice requested nominations of individuals 
for membership on the committees who could represent the interests of 
key stakeholder constituencies on each committee.
    The Department developed a list of proposed regulatory provisions 
from advice and recommendations submitted to the Department in 
testimony by individuals and organizations in a series of three public 
hearings and a roundtable discussion held on:
     May 12, 2011, at Tennessee State University, Nashville, 
Tennessee.
     May 16, 2011, at Pacific Lutheran University, Tacoma, 
Washington.
     May 19, 2011, at Loyola University--Lakeshore Campus, 
Chicago, Illinois.
     May 26, 2011, at College of Charleston, Charleston, South 
Carolina.
    In addition, the Department accepted written comments on possible 
regulatory provisions submitted directly to the Department by 
interested parties and organizations. Transcripts of the regional 
meetings can be accessed at www2.ed.gov/policy/highered/reg/hearulemaking/2011/loans.html and are also accessible in the rulemaking 
docket on www.regulations.gov.
    Staff within the Department also identified issues for discussion 
and negotiation.
    The negotiating committee included the following members:
     Mr. Getachew Kassa, Legislative Director, United States 
Student Association, and Mr. Abou Amara, Jr. (alternate), President, 
Graduate and Professional Student Association, University of Minnesota, 
Twin Cities.
     Ms. Deanne Loonin, National Consumer Law Center, and Ms. 
Radhika Miller (alternate), Program Manager, Educational Debt Relief 
and Outreach, Equal Justice Works.
     Ms. Jennifer Mishory, Deputy Director, Young Invincibles, 
and Ms. Maureen Thompson (alternate), The Hastings Group, LLC.
     Ms. Margaret Rodriguez, Senior Associate Director of 
Financial Aid, University of Michigan, and Chair, National Direct 
Student Loan Coalition, and Ms. Elizabeth Hicks (alternate), Executive 
Director, Student Financial Services, Massachusetts Institute of 
Technology.
     Mr. David Glezerman, Assistant Vice President and 
University Bursar, Temple University, and Ms. Maria Livolsi 
(alternate), Student Loan Service Center, State University of New York.
     Mr. Robert Perrin, President, Williams & Fudge, Inc.
     Mr. Todd Leatherman, Executive Director, Office of 
Consumer Protection, Office of the Kentucky Attorney General, and Ms. 
Michele Casey (alternate), Assistant Attorney General, Consumer Fraud 
Bureau Office of the Illinois Attorney General.
     Ms. Cristi Millard, Director of Financial Aid, Salt Lake 
Community College, and Mr. Chris Christensen, (alternate), Director of 
Financial Aid, Johnson County Community College, Kansas.
     Ms. Kris Wright, Director, Office of Student Finance, 
University of Minnesota, and Executive Council Member and Secretary, 
National Direct Student Loan Coalition, and Ms. Elaine Papas-Varas 
(alternate), University Director of Student Financial Aid and Director 
of the Primary Care Loan Redemption Program of New Jersey, University 
of Medicine and Dentistry of New Jersey.
     Ms. Yvonne Gutierrez-Sandoval, Senior Associate Director 
of Financial Aid, Pitzer College, and Mr. Jeffrey A. Gall (alternate), 
Associate Dean, Office of Student Financial Services, Georgetown 
University.
     Mr. Tom Sakos, Director of Student Lending and Regulatory 
Quality Assurance, DeVry Inc., and Mr. Anthony Fragomeni (alternate), 
Director of Governmental Affairs, Empire Education Group, and Chairman, 
American Association of Cosmetology Schools' Government Relations Team.
     Ms. Betsy Mayotte, Director, Regulatory Compliance and 
Privacy, American Student Assistance, and Mr. Scott Giles (alternate), 
Vice President for Operations, Social Marketing and Strategy, Vermont 
Student Assistance Corporation.
     Mr. Robert Sandlin, Director of Policy and Compliance, 
Higher Education Servicing Corporation, and Ms. Vicki Shipley 
(alternate), Senior Advisor, National Council of Higher Education Loan 
Programs.
     Mr. Albert Gray, Executive Director and CEO, Accrediting 
Council for Independent Colleges and Schools, and Ms. Sharon Tanner 
(alternate), Chief Executive Officer, National League for Nursing 
Accreditation.
     Ms. Pamela Moran and Ms. Gail McLarnon, U.S. Department of 
Education.
    The negotiating committee met to develop proposed regulations 
during the months of January, February, and March of 2012. These 
proposed regulations, which reflect the work of this committee, relate 
to the administration of the Federal student loan programs.
    At its first meeting, the negotiating committee reached agreement 
on its protocols and proposed agenda. The negotiating committee's 
protocols provided that, unless agreed to otherwise, for the committee 
to be considered to have reached consensus

[[Page 45622]]

on the regulations, consensus must be reached on all of the proposed 
regulations. Consensus means that there must be no dissent by any 
member.
    During its first meeting, the negotiating committee agreed to 
negotiate an agenda of 25 student loan-related issues. The most 
significant issues were: Developing regulations necessary to implement 
the President's ``Pay As You Earn'' repayment initiative; developing 
regulations to incorporate statutory changes to the IBR plan and to 
address certain problems in the administration of the IBR and the 
income-contingent repayment (ICR) plans; overhauling the total and 
permanent disability discharge process; updating the FFEL Program 
regulations to eliminate obsolete and unnecessary provisions governing 
loan origination and disbursement; revising the Direct Loan Program 
regulations to eliminate cross-references to the FFEL Program 
regulations; revising regulations governing the determination of a 
defaulted borrower's reasonable and affordable payment amount for 
purposes of rehabilitation of the borrower's defaulted loan; revising 
the regulations governing AWG for defaulted borrowers in the FFEL 
Program; and providing for consistent treatment of borrowers requesting 
forbearance on or after the 270th day of delinquency.
    The proposed regulations would also include certain technical 
changes to the regulations that are needed to reflect recent amendments 
to the HEA and to correct technical errors. These types of changes are 
not normally subject to the statutory requirements for negotiated 
rulemaking and public notice and comment. However, since those changes 
affected the regulations that would be considered by the negotiated 
rulemaking committee, the Secretary chose to include those changes in 
the proposed regulations to be considered by the committee to ensure 
that the committee could evaluate the full scope of changes to those 
regulations.
    The Department stated its commitment to publishing the regulations 
to implement the Pay As You Earn repayment initiative and to overhaul 
and improve the total and permanent disability discharge process for 
borrowers as soon as possible.
    During the development of proposed regulatory language and prior to 
the second meeting of the negotiating committee, the Department 
concluded that the scope and volume of the likely resulting proposed 
regulations resulting from the agenda approved by the negotiating 
committee would require extensive and significant changes to the 
regulations. In particular, updating the FFEL Program regulations and 
making major changes to the Direct Loan Program regulations involved 
changes to the entirety of those program regulations. The Department 
determined that it was unlikely that one NPRM reflecting all of the 
issues could be published by the deadline established by section 482(c) 
of the HEA. To ensure the earliest possible implementation of the Pay 
As You Earn repayment initiative and the revised total and permanent 
disability discharge regulations, which will provide significant 
benefits to student loan borrowers, the Department determined that two 
NPRMs would result from the negotiating committee's work.
    During the second meeting of the negotiating committee, the 
Department explained to the negotiating committee members that one NPRM 
would contain proposed regulations to implement the Pay As You Earn 
repayment initiative, to incorporate statutory changes in the IBR plan, 
to make other changes to improve the administration of the IBR and ICR 
plans, and to overhaul the total and permanent disability discharge 
process. The second NPRM would contain all the remaining proposed 
regulations that were on the negotiating committee's agenda, including 
proposed regulations involving rehabilitation of defaulted loans and 
AWG in the FFEL Program. The Department also explained that any final 
regulations published as a result of the second NPRM would not be 
published by November 1, 2012, and therefore would not become effective 
until July 1, 2014, under the master calendar provisions of section 
482(c)(1) of the HEA. The Department committed, however, to authorize, 
to the extent possible, early implementation of the final regulations 
published as a result of the second NPRM under the Secretary's 
authority to designate regulatory provisions for early implementation 
by program participants under section 482(c)(2) of the HEA.
    At the final meeting in March 2012, the negotiating committee 
reached consensus on the full agenda of loans issues.
    On July 17, 2012, the Secretary published the first NPRM to propose 
changes to implement the President's Pay As You Earn repayment plan and 
to make changes to the ICR and IBR plans and the process for evaluating 
disability discharge requests (77 FR 42086). After reviewing the public 
comments received on the proposed rule, the Secretary published the 
final regulations on November 1, 2012 (77 FR 66088).
    This NPRM is the second of the two NPRMs resulting from the 
negotiating committee's negotiations. It contains proposed regulations 
to: Amend the provisions governing the participation rate index ceiling 
applicable to institutions with a single three-year cohort default rate 
of over 40 percent for purposes of challenges to and appeals from 
sanctions; revise the definitions of ``satisfactory repayment 
arrangement'' in the Perkins Loan, FFEL, and Direct Loan programs; 
amend the closed school loan discharge regulations in the Perkins Loan, 
FFEL, and Direct Loan programs; update the enrollment status reporting 
requirements in the FFEL and Direct Loan program regulations and add 
comparable requirements to the Perkins Loan Program regulations; amend 
the forbearance regulations in the FFEL and Direct Loan programs; amend 
the FFEL and Direct Loan program regulations governing the 
determination of a borrower's reasonable and affordable payment amount 
under a loan rehabilitation agreement, and the treatment of payments 
made through AWG while the borrower is also making payments under a 
loan rehabilitation agreement; amend the Perkins Loan Program 
regulations governing graduate fellowship and economic hardship 
deferments; modify the Perkins Loan Program regulations governing 
rehabilitation of a defaulted loan; amend the requirements for 
assigning a Perkins Loan to the Secretary; amend the Perkins Loan 
Program regulations related to loan cancellation; amend the FFEL 
Program regulations governing certain lender disclosures to borrowers; 
amend the FFEL Program regulations governing the AWG process; revise 
the FFEL Program regulations by removing provisions that are no longer 
needed and make necessary technical and conforming changes; amend the 
Direct Loan Program regulations governing the minimum period of 
enrollment for which a loan may be originated in certain transfer 
student situations; revise the Direct Loan Program regulations by 
incorporating provisions that apply in the Direct Loan Program but are 
currently only incorporated by reference to the FFEL Program 
regulations; amend the Direct Loan Program regulations to reflect 
recent statutory changes; remove obsolete provisions from the Direct 
Loan Program regulations; and make necessary technical corrections and 
conforming changes throughout the Direct Loan Program regulations.
    More information on the work of the negotiating committee can be 
found at: www.ed.gov/policy/highered/reg/hearulemaking/2008/loans.html.

[[Page 45623]]

Summary of Proposed Changes

Student Assistance General Provisions

    For purposes of challenges to and appeals from sanctions, the 
proposed regulations would raise the participation rate index ceiling 
applicable to institutions that have a single three-year cohort default 
rate of over 40 percent from 0.06015 to 0.0832.

Changes That Apply to the Perkins Loan, FFEL, and Direct Loan Programs

     The definitions of ``satisfactory repayment arrangement'' 
in the Perkins Loan, FFEL, and Direct Loan program regulations would be 
revised to provide that a borrower is not considered to have used the 
one-time-only opportunity to regain eligibility for title IV aid by 
making satisfactory repayment arrangements if the borrower makes six 
payments during the course of rehabilitating a defaulted loan, but does 
not seek additional title IV aid after making those six payments. The 
proposed regulations would also extend the time period after the 
payment due date during which a payment is considered to be on-time for 
purposes of making satisfactory repayment arrangements in the FFEL and 
Direct Loan programs from 15 to 20 days, and would establish the same 
20-day standard in the Perkins Loan Program. In addition, the proposed 
regulations would define the term ``satisfactory repayment 
arrangement'' more consistently across the title IV, HEA loan programs.
     The closed school loan discharge provisions in the Perkins 
Loan, FFEL, and Direct Loan program regulations would be revised to 
specify that a borrower who withdraws from a school prior to the 
school's closure may qualify for a discharge if the borrower withdraws 
not more than 120 days before the date the school closes, instead of 
the current standard of not more than 90 days. The proposed regulations 
would also add examples of the types of exceptional circumstances under 
which the Department may allow borrowers who withdraw from a school 
more than 120 days prior to the school's closure date to qualify for 
loan discharge.
     The FFEL Program enrollment status reporting requirements 
for institutions would be updated by eliminating outdated references to 
receiving enrollment reports from guaranty agencies and reporting 
enrollment status information to guaranty agencies, and by removing an 
obsolete requirement to report information about students who have 
ceased to be enrolled on a full-time basis. The Direct Loan Program 
enrollment status reporting requirements would be revised by 
eliminating obsolete references to the frequency with which the 
Department provides student status confirmation reports to schools and 
the format of those reports. Both the FFEL and Direct Loan program 
enrollment status reporting requirements for institutions would be 
updated to eliminate obsolete terms and procedures, reflect current 
processes, and require institutions to report certain enrollment status 
changes for recipients of any type of title IV loan. Comparable 
enrollment status reporting requirements would be added to the Perkins 
Loan Program regulations.

FFEL and Direct Loan Programs

     The proposed regulations would revise the terms under 
which a guaranty agency in the FFEL Program may authorize a lender to 
grant forbearance to permit a borrower or endorser to resume honoring 
the agreement to repay a debt after default but prior to claim payment. 
The proposed regulations would require the borrower or endorser to 
provide either a signed written repayment agreement or an oral 
affirmation of the repayment obligation. The proposed regulations would 
further provide that if a forbearance is granted based on the 
borrower's or endorser's oral request and affirmation of the 
obligation: (1) The forbearance may not exceed 120 days and cannot be 
granted for consecutive periods; (2) the lender must orally review with 
the borrower the terms and conditions of the forbearance, including the 
consequences of interest capitalization and other available repayment 
options; and (3) the lender must send a notice to the borrower or 
endorser that confirms the terms of the forbearance and the affirmation 
of the repayment obligation within 30 days of that affirmation. The 
proposed regulations would also define the term ``affirmation.'' 
Finally, the proposed regulations would add comparable forbearance 
provisions in the Direct Loan Program.
     The current FFEL Program forbearance provision for 
borrowers who are performing service that qualifies them for loan 
repayment under the student loan repayment program administered by the 
Department of Defense under 10 U.S.C. 2171 would be modified to also 
require lenders to grant forbearance to borrowers performing service 
that qualifies them for loan repayment under Department of Defense loan 
repayment programs that are authorized under 10 U.S.C. 2173 and 2174, 
and any other student loan repayment programs administered by the 
Department of Defense. A comparable forbearance provision would be 
added to the Direct Loan Program regulations.
     The conditions under which a FFEL Program lender may grant 
an administrative forbearance would be modified to include a 
circumstance in which a borrower is delinquent at the beginning of an 
authorized forbearance period, and a corresponding forbearance 
provision would be added to the Direct Loan Program regulations.
     The proposed regulations would include the following 
changes to the provisions governing loan rehabilitation in the Direct 
Loan and FFEL programs:
    [cir] The Secretary or the guaranty agency, as applicable, would 
determine a borrower's reasonable and affordable payment amount under a 
loan rehabilitation agreement based on the borrower's and, if 
applicable, the borrower's spouse's current disposable income, family 
size, and reasonable and necessary expenses. The borrower would be 
required to provide the Secretary or guaranty agency with the 
information needed to determine the reasonable and affordable payment 
amount on a form approved by the Secretary and, if requested, would be 
required to provide supporting documentation. The proposed regulations 
would include a detailed list of the types of expenses that the 
Secretary or guaranty agency would consider in determining a borrower's 
reasonable and affordable rehabilitation payment amount.
    [cir] The reasonable and affordable loan rehabilitation payment 
amount must not be: (1) A required minimum payment, such as $50, if the 
guaranty agency or the Secretary determines that a smaller amount is 
reasonable and affordable; (2) a percentage of the borrower's total 
loan balance; or (3) an amount based on any other formula or criteria 
unrelated to the individual borrower's total financial circumstances.
    [cir] The Secretary or the guaranty agency would provide the 
borrower with a written rehabilitation agreement within 15 business 
days of the determination of the borrower's reasonable and affordable 
payment. The agreement would include: (1) The rehabilitation payment 
amount; (2) a prominent statement that the borrower may object to the 
payment amount and the method and timeframe for raising such an 
objection; (3) an explanation of the terms and conditions of the 
required series of payments, and the effects of loan rehabilitation; 
and (4) for a FFEL borrower, the amount of unpaid collection costs to 
be added to the unpaid principal of the rehabilitated

[[Page 45624]]

loan when the loan is sold to an eligible FFEL lender.
    [cir] A borrower's rehabilitation payment amount would be 
recalculated if the borrower objects to the payment amount in the 
written repayment agreement. If the borrower objects to the amount 
determined based on an evaluation of income and expenses documented by 
the borrower, the Secretary or the guaranty agency would recalculate an 
alternative rehabilitation payment amount, based on documentation 
provided by the borrower, using the formula for calculating a monthly 
payment amount under the IBR plan in the Direct Loan and FFEL program 
regulations. If the recalculated amount using the IBR formula is less 
than $5, the borrower's recalculated monthly rehabilitation payment 
amount would be $5. The borrower may choose either rehabilitation 
payment amount.
    [cir] While a borrower is making payments under a rehabilitation 
agreement, the Secretary or guaranty agency would limit contact with 
the borrower to collection activities required by law or regulation and 
communications that support the rehabilitation.
    [cir] If a borrower who is making voluntary payments on a defaulted 
loan under a loan rehabilitation agreement is also making payments 
through AWG, the Secretary or guaranty agency would suspend collection 
through AWG after the borrower has made five qualifying monthly 
payments under the loan rehabilitation agreement. A borrower would have 
the option of requesting that the Secretary or guaranty agency continue 
collecting on the loan through AWG while the borrower continues to make 
voluntary payments under the loan rehabilitation agreement. A borrower 
would have only one opportunity to benefit from suspension of AWG while 
attempting to rehabilitate a defaulted loan.

Perkins Loan Program

     Schools that participate in the Perkins Loan Program would 
be required to use the same eligibility criteria used in the Direct 
Loan and FFEL programs to define an ``eligible graduate fellowship 
program'' and to establish the eligibility of a Perkins Loan borrower 
to receive a deferment while participating in a graduate fellowship 
program. The proposed regulations would add a definition of the term 
``eligible graduate fellowship program'' to the Perkins Loan Program 
regulations consistent with the definition currently used in the Direct 
Loan and FFEL program regulations.
     The Perkins Loan economic hardship deferment eligibility 
criteria would be revised by eliminating the deferment category for 
borrowers who work less than full-time and have a specified debt-to-
income ratio.
     The Perkins Loan rehabilitation provisions would be 
modified to specify that an ``on-time'' payment, for the purpose of 
loan rehabilitation, is a payment that is made within 20 days of the 
due date.
     For Perkins Loans that were made before September 13, 
1982, the date the Secretary began requiring institutions to collect a 
borrower's Social Security Number (SSN) on the Perkins Loan Program 
promissory notes, the proposed regulations would allow assignment of 
those loans to the Secretary without the borrower's SSN.
     A Perkins Loan borrower who completes half of an academic 
year of teaching, but who is unable to complete the second half of the 
academic year due to a condition covered under the FMLA, would be able 
to count that year as a full year of eligible teaching service for loan 
cancellation purposes, if the borrower's employer considers the 
borrower to have fulfilled the teacher contract requirements for that 
academic year. In addition, the proposed regulations would allow a 
borrower who is unable to complete a full year of public service under 
other loan cancellation categories due to a condition covered under the 
FMLA to count that year as a full year of public service for loan 
cancellation purposes if the borrower completes at least six months of 
consecutive eligible service.
     If a Perkins Loan borrower who is performing service that 
qualifies the borrower for loan cancellation at a cancellation rate 
progression of 15 percent for the first and second years of qualifying 
service, 20 percent for the third and fourth years of qualifying 
service, and 30 percent for the fifth year of qualifying service, takes 
a job in a different field that qualifies the borrower under a 
different cancellation category that provides loan cancellation at the 
same cancellation rate progression as the prior category, the 
borrower's cancellation rate progression would be uninterrupted. The 
borrower's cancellation rate under the new cancellation category would 
continue from the last year the borrower received a cancellation under 
the former cancellation category, rather than reverting to the first-
year cancellation rate of 15 percent.

FFEL Program

     The timeframe for FFEL lenders to send the required 
repayment disclosure for borrowers who are 60 days delinquent would be 
changed from five calendar days to five business days after the date 
the borrower becomes 60 days delinquent.
     The proposed regulations would eliminate the requirement 
for a lender to provide a repayment disclosure to a borrower who is 
having difficulty making payments if the borrower's difficulty has been 
resolved through contact resulting from an earlier disclosure or from 
other contact between the lender and the borrower.
     The proposed regulations would include the following 
changes to the rules governing AWG in the FFEL Program:
    [cir] The proposed regulations would clarify the burden of proof 
that must be met by the borrower during the hearing process, specify 
the procedures that must be followed by the borrower and guaranty 
agency when objections are raised, and specify requirements that must 
be followed by a hearing official in determining whether the proposed 
withholding amount would cause a financial hardship for the borrower.
    [cir] The regulations would be revised to provide more consistent 
treatment with respect to AWG for borrowers whose defaulted loans are 
held by a guaranty agency and borrowers whose defaulted loans are held 
by the Secretary.
    [cir] Existing policy guidance related to functions that may be 
performed by third-party servicers or collection contractors retained 
by guaranty agencies for AWG purposes would be incorporated in the 
regulations, and the regulations would include examples of permissible 
activities of third-party contractors.
    [cir] The regulations would be revised to more clearly describe the 
complete AWG process, from the initial garnishment notice to the 
withholding of the borrower's wages.
    [cir] Regulations would be amended to better reflect due process 
requirements and to specify the functions, delegations of authority, 
recordkeeping requirements, and permissible activities of guaranty 
agencies and third-party servicers or collection contractors.
    [cir] The regulations would be amended to specify the limitations 
on the amount that may be subject to AWG if a guaranty agency is 
garnishing pay from a borrower who is not already subject to a 
withholding order, and to clarify the withholding amount or percentage 
and priority if a guaranty agency is garnishing the pay of a borrower 
who is already subject to one or more withholding orders. The proposed 
regulations would also permit a greater

[[Page 45625]]

amount or percentage to be withheld with the borrower's consent.
    [cir] The proposed regulations would require that for a borrower to 
receive a hearing before AWG begins, the borrower's written request for 
a hearing must be received on or before the 30th day following the date 
the garnishment notice was sent, instead of on or before the 15th day 
following the borrower's receipt of a garnishment notice, as under 
current regulations. The proposed regulations would also delete a 
provision that a borrower is considered to have received a garnishment 
notice five days following the date of the notice.
    [cir] If a borrower's written request for a hearing is received by 
the guaranty agency after the 30th day following the date of the 
garnishment notice, the agency must provide the borrower a hearing and 
issue a decision within 60 days following receipt of the request. If a 
decision is not rendered within 60 days, the guaranty agency would be 
required to suspend the order beginning on the 61st day after the 
hearing request was received until a hearing is provided and a decision 
is rendered.
    [cir] The proposed regulations would also: (1) Specify the 
information that a guaranty agency must provide in the AWG notice it 
sends to a defaulted borrower; (2) describe how an AWG hearing must be 
conducted, including with respect to the submission of additional 
evidence and the granting of continuances; (3) provide for the 
withholding order to end by either rescission of the order for AWG or 
full recovery of the amount owed by the borrower; and (4) clarify that 
a borrower who wishes to object that he or she should not be subject to 
garnishment because of involuntary separation from employment bears the 
burden of raising and proving that claim.
     To reflect the impact of the SAFRA Act, FFEL Program 
regulations governing loan origination and disbursement and related 
requirements and activities (for example, requirements for due 
diligence in the making and disbursing of loans) would be eliminated, 
except for certain school-based requirements and related activities 
(for example, exit counseling requirements).
     FFEL Program regulations that are obsolete (for example, 
rules governing the Federal Insured Student Loan (FISL) Program) would 
be eliminated.
     Conforming changes and technical corrections would be made 
as necessary throughout the regulations to ensure consistency and 
accuracy.

Direct Loan Program

     The Direct Loan Program regulations would be expanded by 
adding provisions that apply in the Direct Loan Program, but which are 
currently reflected in 34 CFR part 685 only by cross-reference to the 
FFEL Program regulations (for example, eligibility criteria for 
graduate fellowship and economic hardship deferments).
     The proposed regulations would remove provisions that are 
obsolete or that do not reflect current procedures used in 
administering the Direct Loan program, such as loan limit amounts that 
are no longer applicable because of recent statutory changes, and 
outdated school loan origination options and eligibility criteria for 
initial participation in the Direct Loan Program.
     The Direct Loan Program deferment regulations would be 
restructured for greater clarity.
     The exception to the minimum loan period requirement for 
clock-hour and certain non-term programs that allows a school to 
originate a loan for a transfer student to cover a period of enrollment 
shorter than the academic year or the program length only if the school 
accepts credit or clock hours from the school the student previously 
attended would be revised by removing the provision that limits the 
exception to situations in which the new school accepts transfer 
credits or clock hours from the prior school.
     Throughout the Direct Loan Program regulations, conforming 
changes would be made to reflect the impact of the SAFRA Act and other 
recent statutory changes, and other conforming changes and technical 
corrections would be made as necessary.

Significant Proposed Regulations

    We group major issues according to subject, with appropriate 
sections of the proposed regulations referenced in parentheses. We 
begin with an issue that involves the Student Assistance General 
Provisions regulations in 34 CFR part 668, followed by issues that 
apply to all three title IV loan programs, issues that apply to the 
FFEL and Direct Loan programs, issues that apply only to the Perkins 
Loan Program, issues that apply only to the FFEL Program, and finally 
issues that apply only to the Direct Loan Program. We discuss 
substantive issues under the sections of the proposed regulations to 
which they pertain. Generally, we do not address proposed regulatory 
changes that are technical or otherwise minor in effect.

Student Assistance General Provisions

Three-Year Cohort Default Rate Participation Rate Index Challenges and 
Appeals (34 CFR 668.204 and 668.214)

    Statute: Under section 435(a)(8) of the HEA, an institution's 
participation rate index (PRI) is determined by multiplying the 
institution's Direct Loan/FFEL cohort default rate (CDR) by the 
percentage of the institution's regular students, enrolled on at least 
a half-time basis, who received such a loan for a 12-month period 
ending during the six months immediately preceding the fiscal year for 
which the cohort of borrowers used to calculate the institution's CDR 
is determined. Effective for fiscal years beginning on and after 
October 1, 2011, section 435(a)(8)(A) of the HEA provides that an 
institution that demonstrates to the Secretary that its PRI is equal to 
or less than 0.0625 for any of the three most recent fiscal years for 
which data is available will not lose eligibility to participate in the 
FFEL and Direct Loan programs for having three three-year CDRs that are 
equal to or greater than 30 percent.
    Current Regulations: Under section 668.206(a)(1), an institution 
that has one three-year CDR of over 40 percent loses its eligibility to 
participate in the FFEL and Direct Loan programs. Sections 
668.204(c)(1)(i), 668.214(a)(1), and 668.214(d)(2) use a participation 
rate index of 0.06015 as the ceiling for successful PRI challenges and 
appeals brought by institutions having one three-year CDR of over 40 
percent.
    Proposed Regulations: Proposed Sec. Sec.  668.204(c)(1)(i) and 
668.214(a)(1) substitute 0.0832 as the PRI ceiling for purposes of 
challenges to and appeals from sanctions based on one three-year CDR of 
over 40 percent. Similarly, in proposed Sec.  668.214(d)(2), 
``0.06015'' is replaced with ``0.0832.''
    Reasons: Under the statutory PRI ceiling of 0.0625, which applies 
to sanctions based on three three-year CDRs of 30 percent or higher, 
institutions can be excused from sanctions based on the percentage of 
Direct Loan and FFEL borrowers among their enrollment even if that 
percentage is as high as almost 21 percent, depending on the lowest of 
the institution's three excessive CDRs (0.30 CDR x 0.20  Evidence of current income (such as proof of welfare 
benefits, Social Security benefits, child support, veterans' benefits, 
Supplemental Security Income, Workmen's Compensation, the two most 
recent pay stubs, the most recent copy of a U.S. income tax return, or 
State Department of Labor reports);
     Evidence of current expenses (such as a copy of the 
borrower's monthly household budget on a form provided by the guaranty 
agency); and
     A statement of the unpaid balance on all FFEL loans held 
by other lenders.
    Section 682.405(b)(1)(v) authorizes a FFEL borrower to request that 
the guaranty agency adjust the monthly payment amount due to a change 
in the borrower's total financial circumstances. The borrower must 
provide documentation supporting this request to the guaranty agency.
    Section 682.405(b)(1)(vi) requires a guaranty agency to provide a 
FFEL borrower with a written statement confirming the borrower's 
reasonable and affordable payment amount. The written statement must 
explain any other terms and conditions applicable to the required 
series of payments that the borrower must make before the borrower's 
account can be considered for repurchase by an eligible FFEL lender. 
The statement must inform the borrower of the effects of loan 
rehabilitation, and of the amount of the collection costs that will be 
added to the unpaid principal at the time the loan is sold to a FFEL 
lender. The collection costs may not exceed 18.5 percent of the unpaid 
principal and accrued interest at the time of the sale.
    Section 682.405(b)(1)(vii) requires a guaranty agency to provide a 
FFEL borrower with an opportunity to object to the terms of the 
rehabilitation agreement.
    Section 682.405(b)(2) requires a guaranty agency to attempt to 
secure a lender to purchase the loan after the borrower makes the 
required number of qualifying rehabilitation payments.
    Section 682.405(b)(3)(i)(B) requires the guaranty agency, within 45 
days of selling a rehabilitated loan to an eligible FFEL lender, to 
request that any consumer reporting agency to which the default was 
reported remove the record of the default from the borrower's credit 
history.
    Some of the details related to loan rehabilitation in the FFEL 
Program regulations are not reflected in the current Direct Loan 
Program regulations. These include, for example, details such as the 
specific types of documentation of income and expenses that the 
Secretary uses to determine a borrower's reasonable and affordable 
payment amount.
    Proposed Regulations: The proposed regulations would incorporate 
many of the details in current FFEL Program regulations at Sec.  
682.405(b) into the Direct Loan regulations at Sec.  685.211(f) and 
also add new details into both of these sections. Specifically, the 
proposed regulations would add new Sec. Sec.  685.211(f)(1)(i) and 
682.405(b)(1)(iii) to provide that the Secretary (in the Direct Loan 
Program) and the guaranty agency (in the FFEL Program) would base the 
determination of reasonable and affordable rehabilitation payment 
amounts on information provided by the borrower on a form approved by 
the Secretary, and, if requested, supporting documentation provided by 
the borrower.
    Proposed Sec. Sec.  685.211(f)(1)(i)(A) and 682.405(b)(1)(iii)(A) 
would provide that the Secretary and the guaranty agency will consider 
the borrower's and, if applicable, the borrower's spouse's current 
disposable income in determining a reasonable and affordable 
rehabilitation payment. Disposable income includes public assistance 
payments and other income received by the borrower and the spouse, such 
as welfare benefits, Social Security benefits, Supplemental Security 
Income benefits, and workers' compensation benefits. Under proposed 
Sec. Sec.  685.211(f)(1)(i)(A) and 682.405(b)(1)(iii)(A), spousal 
income would not be considered if the spouse does not contribute to the 
borrower's household income.
    Proposed Sec. Sec.  685.211(f)(1)(i)(B) and 682.405(b)(1)(iii)(B) 
would provide that, in determining the reasonable and affordable 
payment amount, the Secretary and the guaranty agency will consider the 
borrower's family size, as defined in Sec. Sec.  685.221(a)(3) and 
682.215(a)(3).
    Proposed Sec. Sec.  685.211(f)(1)(i)(C) and 682.405(b)(1)(iii)(C) 
would provide a more detailed list of the reasonable and necessary 
expenses that the Secretary and a guaranty agency will consider in 
determining a borrower's rehabilitation payment amount. The proposed 
expenses include:
     Food;
     Housing;
     Utilities;
     Basic communication expenses;
     Necessary medical and dental costs;
     Necessary insurance costs;
     Transportation costs;
     Dependent care and other work-related expenses;
     Legally required child and spousal support;
     Other title IV and non-title IV student loan payments; and
     Other expenses approved by the Secretary.
    Proposed Sec. Sec.  685.211(f)(1)(ii) and 682.405(b)(1)(iv) would 
provide that a reasonable and affordable rehabilitation payment amount 
must not be a required minimum payment, such as $50, if the Secretary 
or the guaranty agency determines that a smaller amount is reasonable 
and affordable. The payment amount also must not be a percentage of the 
borrower's total loan balance, or be based on other criteria unrelated 
to the borrower's total financial circumstances.
    Under proposed Sec. Sec.  685.211(f)(1)(iii) and 682.405(b)(1)(v), 
the Secretary or the guaranty agency would provide the borrower with a 
written rehabilitation agreement within 15 business days of the 
determination of the borrower's reasonable and affordable payment 
amount. The written rehabilitation agreement would include the 
rehabilitation payment amount, a prominent statement that the borrower 
may object orally or in writing to the payment amount, and the method 
and timeframe for raising an objection to the payment amount. The 
written rehabilitation agreement would provide

[[Page 45634]]

an explanation of any other terms and conditions applicable to the 
required series of payments. The Secretary or the guaranty agency may 
not impose any other conditions unrelated to the amount or timing of 
the rehabilitation payments in the rehabilitation agreement. The 
written rehabilitation agreement would inform the borrower of the 
effects of having a loan rehabilitated. For FFEL Program loans, the 
written repayment agreement would inform the borrower of the amount of 
any unpaid collection costs to be added to the unpaid principal of the 
loan when the loan is sold to an eligible FFEL lender
    Proposed Sec. Sec.  685.211(f)(3) and 682.405(b)(1)(vi) would 
provide that the borrower's rehabilitation payment amount would be 
recalculated if the borrower objects to the payment amount contained in 
the written repayment agreement that the Secretary or the guaranty 
agency would send to the borrower under proposed Sec. Sec.  
685.211(f)(4) and 682.405(b)(1)(vi).
    Under Sec. Sec.  685.211(f)(5) and 682.405(b)(1)(vii) a borrower 
who objects to the monthly repayment amount contained in the written 
repayment agreement would provide the Secretary or guaranty agency the 
documentation needed to recalculate a monthly payment amount under the 
IBR formula. The Secretary or the guaranty agency would recalculate the 
rehabilitation payment amount using the formula for calculating a 
monthly payment amount under the IBR plan in Sec.  685.221(b)(1) and 
(b)(2) of the Direct Loan regulations or Sec.  682.215(b)(1) of the 
FFEL regulations. If the recalculated amount using the IBR plan formula 
is less than $5, the borrower's recalculated monthly rehabilitation 
payment would be $5. If the borrower does not provide the required 
documentation to the Secretary or the guaranty agency, the Secretary or 
the guaranty agency would not proceed with the rehabilitation process.
    Under proposed Sec.  685.211(f)(7), a Direct Loan borrower may 
request that the Secretary adjust the borrower's monthly rehabilitation 
payment if there is a change in the borrower's financial circumstances. 
The borrower would be required to provide the documentation specified 
in proposed Sec.  685.211(f)(1)(i) to support the request. This is 
comparable to the requirement in Sec.  682.405(b)(1) of the current 
FFEL regulations.
    Under proposed Sec. Sec.  685.211(f)(8) and 682.405(b)(1)(x), while 
the borrower is making payments under a rehabilitation agreement, the 
Secretary and the guaranty agency would limit contact with the borrower 
on the loan being rehabilitated. Contact with the borrower would be 
restricted to collection activities that are required by law or 
regulation, and to communications that support the rehabilitation.
    After a defaulted Direct Loan has been rehabilitated, proposed 
Sec.  685.211(f)(9) provides that the Secretary will instruct any 
consumer reporting agency to which the default was reported to remove 
the default from the borrower's credit history. This is comparable to 
the requirement in Sec.  682.405(b)(3)(i)(B) of the current FFEL 
regulations.
    Proposed revisions to Sec. Sec.  685.211(f) and 682.405(a) relating 
to the interplay of AWG and loan rehabilitation payments are discussed 
in the Loan Rehabilitation Agreement: Treatment of Borrowers Subject to 
Administrative Wage Garnishment section of this preamble. Reasons: 
During the public comment period prior to the formal negotiated 
rulemaking sessions, some commenters recommended that the Secretary 
consider using the IBR plan formula to determine a borrower's 
reasonable and affordable payment amount for loan rehabilitation 
purposes. IBR, which provides for a monthly loan payment that is 
intended to be affordable based on a borrower's income and family size, 
became available to borrowers in the Direct Loan and FFEL programs on 
July 1, 2009. The commenters believed that using the IBR formula would 
simplify and standardize the process for the determination of loan 
rehabilitation payments. In addition, the commenters argued that the 
availability of IBR as a repayment option for borrowers after 
rehabilitation of a loan provides further support for using the IBR 
formula to determine a reasonable and affordable payment for loan 
rehabilitation purposes, since borrowers who have rehabilitated their 
defaulted loans may request to repay under IBR.
    Before the availability of IBR as a repayment option, a borrower 
who made very low monthly payments under a rehabilitation agreement 
based on the borrower's income might be faced with a much larger post-
rehabilitation monthly payment amount that the borrower could not 
easily afford, since there were no available repayment plans that would 
provide for a payment as low as the rehabilitation agreement payment. 
If a FFEL Program borrower made very low payments during the 
rehabilitation period, the borrower might not have been able to make 
the larger, post-rehabilitation payments. Therefore, the guaranty 
agency might have had difficulty selling the loan to a FFEL lender, or 
might have been forced to sell the loan at a discount. A FFEL loan is 
not rehabilitated until the guaranty agency sells it to a lender. The 
Secretary believes that using the IBR formula to determine what is a 
reasonable and affordable payment amount for loan rehabilitation 
purposes would address the issue of borrowers' payment amounts being 
too high after rehabilitation, since a borrower who paid the IBR amount 
during the rehabilitation period could choose IBR as his or her 
repayment plan post-rehabilitation. Therefore, the Secretary agreed to 
include this proposal on the agenda for negotiated rulemaking.
    At the first meeting of the negotiating committee, non-Federal 
negotiators representing legal aid and consumer advocacy organizations 
proposed that the IBR formula be used as the starting point for 
determining a Direct Loan or FFEL borrower's reasonable and affordable 
rehabilitation payment amount. If the borrower objected to the payment 
amount determined using the IBR formula and could justify a lower 
amount, the Secretary or the guaranty agency could reduce the payment 
below the amount determined under the IBR formula.
    Non-Federal negotiators representing guaranty agencies argued that 
requiring the use of the IBR formula would reduce their ability to work 
with borrowers to arrive at a rehabilitation payment amount acceptable 
to both the guaranty agency and to the borrower. They pointed out that 
it is not in anyone's interest to set a borrower's rehabilitation 
payment so high that the borrower cannot meet it. They contended that, 
under their current procedures, negotiations on loan rehabilitation 
that occur between a borrower and a guaranty agency result in 
appropriate rehabilitation payment amounts. Those negotiators contended 
that if the amount initially proposed is too high, the borrower will 
object and that the negotiations generally result in an amount 
acceptable to both parties. Using the IBR formula would preclude any 
such negotiations between the borrower and the guaranty agency. They 
argued that any change to the regulations with regard to reasonable and 
affordable rehabilitation payment amounts would amount to fixing a 
problem that does not exist.
    Non-Federal negotiators representing consumer advocacy groups and 
students disputed this claim. They contended that defaulted borrowers 
rarely are given an opportunity to negotiate their loan rehabilitation 
payments and are often intimidated by the debt collectors trying to 
collect the loan. These negotiators asserted that borrowers are told by 
debt collectors that they have no choice but to accept the loan 
rehabilitation

[[Page 45635]]

payment amount that is proposed to them, even if the borrower has no 
practical means of paying that amount.
    These non-Federal negotiators also asserted that the statutory 
requirement that a loan rehabilitation payment amount be ``reasonable 
and affordable based on the borrower's total financial circumstances'' 
is routinely ignored by guaranty agencies and the Secretary. The 
current calculation methods, in their view, are designed to require the 
borrower to make as high a payment as possible, with no consideration 
of the borrower's ability to maintain that level of payment throughout 
the rehabilitation period. These non-Federal negotiators contended that 
collection agencies working on behalf of guaranty agencies and the 
Secretary on a commission rate basis have no incentive to help 
borrowers successfully rehabilitate their loans.
    Non-Federal negotiators representing guaranty agencies and 
collection agencies countered by noting that a collection agency does 
not earn a commission unless the borrower makes a payment. Setting the 
payment amount too high is counter-productive to that goal. These 
negotiators also stated that guaranty agencies do look at a borrower's 
total financial situation when determining reasonable and affordable 
payment amounts. They stated that it is routine practice to review a 
borrower's income and expenses when determining rehabilitation payment 
amounts.
    The negotiators representing guaranty agencies also pointed out 
that under the IBR formula a $0 payment is possible, and they argued 
that $0 should not be an acceptable payment amount for purposes of 
rehabilitating a defaulted loan. They emphasized that loan 
rehabilitation is a significant benefit. It allows defaulted borrowers 
to have their credit reports cleared of the default and also allows 
them to receive additional title IV aid, including new title IV loans. 
Loan rehabilitation is intended to help the borrower develop a pattern 
of making monthly, on-time payments on the loan. If a borrower succeeds 
in making the required number of monthly payments, the borrower is more 
likely to succeed in continuing to make payments on the loan once the 
loan goes back into regular repayment. These negotiators pointed out 
that a borrower may only rehabilitate a loan once. If a borrower 
rehabilitates a loan, and then re-defaults on the loan, the borrower 
will not have another opportunity to rehabilitate that loan. These 
negotiators contended that allowing a borrower to rehabilitate a loan 
by making monthly payments as low as $0 would not be beneficial to the 
borrower or to taxpayers.
    Non-Federal negotiators representing consumer advocacy groups 
agreed to address the $0 payment issue by setting a minimum payment 
amount. However, they argued that the minimum payment should be a very 
low amount, such as $5, arguing that there is no evidence that 
borrowers who successfully rehabilitate their loans by making small 
monthly payments are more likely to re-default than other borrowers or 
that guaranty agencies have difficulty selling these loans after the 
borrower has made the required rehabilitation payments. On the 
contrary, these negotiators asserted that borrowers who make small 
monthly rehabilitation payments are more likely to get into the habit 
of making on-time, monthly payments, and to continue making these 
payments after completing rehabilitation.
    Non-Federal negotiators representing guaranty agencies pointed out, 
however, that, while a low-income borrower might have very small 
monthly payments under the IBR formula, a borrower with a high income 
would have higher payments under the IBR formula than under a different 
approach. Using the IBR formula for calculation of the reasonable and 
affordable payment amount could result in higher payment amounts than 
the guaranty agency would propose to a borrower under their current 
methodologies.
    The proposed regulations attempt to address the concerns expressed 
on both sides of this debate. The proposed regulations would allow the 
Secretary and the guaranty agencies to retain the flexibility to work 
with borrowers to determine reasonable and affordable repayment 
amounts, but would more clearly define the parameters within which the 
guaranty agencies must work. The Secretary and the guaranty agencies 
would still be free, under the proposed regulations, to develop their 
own methodologies for determining the reasonable and affordable payment 
amount initially proposed to the borrower. However, the Secretary and 
all of the guaranty agencies would base their determinations of loan 
rehabilitation payment amounts on the same factors. Specifically, the 
proposed regulations would require the Secretary and the guaranty 
agencies to collect information on a borrower's income and expenses 
using a standardized form. The form would identify the sources of 
income that the Secretary or the guaranty agency will consider, apply a 
consistent definition of family size for borrowers, and identify the 
types of expenses the Secretary or the guaranty agency must take into 
account in determining the reasonable and affordable payment amount for 
the borrower.
    The Secretary invites comment on whether the final regulations 
should require the Secretary and the guaranty agencies to use a 
standardized methodology to determine reasonable and affordable 
rehabilitation payment amounts. Under a standardized methodology, in 
addition to identifying the types of expenses that the Secretary or the 
guaranty agency may consider, we would use standard allowable expense 
amounts, such as the IRS National Standards, for each type of expense 
reported by the borrower so that the payment calculation is based on 
allowable expenses that are consistent across all borrowers. The IRS 
National Standards are described under the section of this preamble 
titled ``Borrower Hearing Opportunities on the Enforceability of the 
Debt and a Borrower's Claim of Financial Hardship.''
    Regardless of the methodology used to determine the payment amount, 
the proposed regulations would establish a process by which borrowers 
may object to the payment amount proposed by the Secretary or the 
guaranty agency. The Secretary or the guaranty agency will notify the 
borrower of the reasonable and affordable payment amount the Secretary 
or the agency has calculated for the borrower. The notice would include 
a prominent statement that the borrower may object to the amount 
proposed. The borrower would be allowed to object, verbally or in 
writing, to the payment amount that has been determined. If the 
borrower objects, the Secretary or the guaranty agency would 
recalculate the amount using the IBR formula. This establishes the IBR 
formula as a fallback methodology for determining reasonable and 
affordable payment amounts for loan rehabilitation purposes. 
Furthermore, the borrower would have the option to reject the amount 
calculated using the IBR formula and accept the amount initially 
proposed for any reason, such as if the initially proposed amount is 
lower than the amount calculated using the IBR formula.
    To address the concerns regarding the potential of payments of $0, 
the proposed regulations specify that if the IBR formula results in a 
payment of $0, the payment amount would be set at $5. A payment amount 
this small would apply only to borrowers with extremely low incomes, 
and would help these borrowers establish the habit of making monthly, 
on-time payments on the loan.

[[Page 45636]]

    We believe that this approach preserves flexibility for the 
Secretary and the guaranty agencies, while at the same time providing a 
borrower with access to an alternative payment amount if the borrower 
feels the payment amount proposed by the Secretary or the guaranty 
agency is too high. The proposed regulations would also ensure that, 
regardless of which method is used to determine the borrower's 
rehabilitation payment amount, the amount will be based on the 
borrower's total financial circumstances without regard to other 
factors.
    Under proposed Sec. Sec.  685.211(f)(5) and 682.405(b)(1)(vii), if 
a borrower objects to the initial monthly payment amount, but does not 
provide the documentation required to calculate a monthly payment 
amount using the income-based repayment plan formula, the 
rehabilitation does not proceed. However, the borrower may have already 
provided some or all of the information required for a recalculation 
when the borrower initially requested rehabilitation. We invite 
comments on whether it would be appropriate to make a change in the 
final regulations to require a borrower to submit information needed to 
recalculate the borrower's reasonable and affordable rehabilitation 
payment amount only if new information is required beyond what the 
borrower provided when he or she initially requested loan 
rehabilitation.
    To ensure consistency in the treatment of Direct Loan and FFEL 
borrowers, the changes to the regulations discussed above would also be 
made in the Direct Loan program regulations and the Secretary would 
follow these same guidelines for defaulted FFEL loans held by the 
Secretary. We are also proposing to incorporate into the Direct Loan 
Program regulations the provision in Sec.  682.405(b)(1)(v) of the 
current FFEL Program regulations that allows a borrower to request that 
the monthly payment amount be adjusted due to a change in the 
borrower's total financial circumstances and that specifies the 
documentation a borrower must provide to support this request.
    The proposed regulations would limit contact between the Secretary 
or a guaranty agency and the borrower during the rehabilitation period. 
Only those contacts required by law or regulation, or that support the 
rehabilitation, would be permitted. This addresses a concern raised 
during the negotiated rulemaking sessions that borrowers who are making 
good faith efforts to rehabilitate their defaulted Direct Loan or FFEL 
program loans should not be subject to inappropriate collection 
contacts while they are making rehabilitation payments.

Loan Rehabilitation Agreement: Treatment of Borrowers Subject to 
Administrative Wage Garnishment (34 CFR 682.405(a) and 685.211(f))

    Statute: Section 428F(a) of the HEA governs rehabilitation of 
defaulted loans; however, it does not address the treatment of 
borrowers who are subject to AWG while making voluntary payments under 
a loan rehabilitation agreement.
    Current Regulations: The current Direct Loan and FFEL program 
regulations do not specifically address payments collected by AWG while 
a Direct Loan or FFEL borrower is also making voluntary payments under 
a loan rehabilitation agreement.
    Proposed Regulations: The proposed regulations would add new 
Sec. Sec.  685.211(f)(12) and 682.405(a)(3) to the Direct Loan and FFEL 
program regulations to provide that the Secretary or the guaranty 
agency, respectively, will suspend collection on a defaulted loan 
through AWG after the borrower makes five qualifying payments under a 
loan rehabilitation agreement. The suspension of the AWG collection 
would be automatic after the borrower makes five qualifying payments, 
but the borrower could request that the Secretary or the guaranty 
agency continue collecting on the loan through AWG while the borrower 
also makes voluntary payments under the rehabilitation agreement. The 
Secretary or the guaranty agency would not suspend AWG unless and until 
the borrower makes the fifth payment under a loan rehabilitation 
agreement.
    Under proposed new Sec. Sec.  685.211(f)(12)(ii) and 
682.405(a)(3)(ii), the borrower would have only one opportunity to 
benefit from a suspension of AWG while attempting to rehabilitate a 
defaulted loan.
    Reasons: Loan rehabilitation provides a borrower who has defaulted 
on a Direct Loan or a FFEL Program loan the opportunity to reaffirm his 
or her intention to repay the defaulted loan and to establish a 
repayment history sufficient to support treating the loan as no longer 
in default. In addition to regaining the benefits that apply to a non-
defaulted Direct Loan or FFEL program loan, if a borrower successfully 
rehabilitates a loan the Secretary or guaranty agency requests that 
credit bureaus remove the default from the borrower's credit report. 
Loan rehabilitation payments in the Direct Loan and FFEL programs must 
be made voluntarily. Payments made through AWG are not voluntary 
payments.
    Currently, for loans held by the Secretary, if a borrower is 
subject to AWG at the time the borrower enters into a loan 
rehabilitation agreement, the Secretary will continue to collect on the 
loan by AWG while the borrower makes the series of voluntary payments 
necessary to rehabilitate the loan. The voluntary payments the borrower 
must make are over and above the payments secured through the AWG 
process.
    In response to public comments received on this issue before the 
negotiated rulemaking sessions, the Secretary initially proposed to 
relax the requirement that loans continue to be collected through AWG 
while borrowers who are subject to AWG attempt to rehabilitate a loan. 
Many of the non-Federal negotiators argued that continuing to collect 
through AWG while a borrower makes voluntary rehabilitation payments 
makes it harder for a borrower to complete loan rehabilitation. The 
negotiations around this issue centered on the following issues: 
whether there should be a distinction between borrowers already subject 
to AWG at the time the borrower requests loan rehabilitation and 
borrowers for whom AWG is about to be initiated; the appropriate number 
of voluntary payments a borrower should make before AWG is suspended; 
and how frequently a borrower should be allowed to qualify for this 
opportunity.
    In addition, although the Secretary's initial proposal did not 
address whether the amount of an AWG payment should affect 
rehabilitation payments, the negotiators discussed whether the total 
amount of an involuntary AWG payment and a voluntary rehabilitation 
payment should be limited to the calculated reasonable and affordable 
payment amount under the loan rehabilitation agreement.
    Under current Department policy, a guaranty agency should not start 
AWG for a borrower who has requested loan rehabilitation. If the 
borrower requests the opportunity for rehabilitation, the borrower 
should be allowed that opportunity before the guaranty agency initiates 
AWG. If AWG collections started before the borrower requests 
rehabilitation, guaranty agencies are not required to suspend AWG 
during the loan rehabilitation process.
    Negotiators representing guaranty agencies indicated that the 
guaranty agencies have different policies with regard to suspending AWG 
during the rehabilitation period. Some guaranty agencies do not suspend 
AWG while a borrower is making rehabilitation payments out of a concern 
that the

[[Page 45637]]

borrower will stop making payments as soon as AWG is suspended. Other 
guaranty agencies suspend AWG after six rehabilitation payments are 
received from the borrower; and some suspend AWG after three or fewer 
payments by the borrower.
    A non-Federal negotiator representing consumer groups argued that 
having a single standard for all guaranty agencies would be preferable 
to having standards that vary from guaranty agency to guaranty agency. 
Although a uniform standard may increase the number of loan 
rehabilitation payments some borrowers would be required to make before 
AWG is suspended, this negotiator contended that, overall, 
standardizing the number of payments would be more beneficial to 
borrowers. That negotiator recommended a three-payment standard.
    Borrowers are not subject to AWG unless they have been in default 
on the loan for a lengthy period of time and other collection efforts 
have been unsuccessful. Given the administrative requirements for 
initiating AWG, the Secretary does not believe that a standard of three 
voluntary payments is sufficient as a uniform standard for suspending 
AWG. The Secretary initially proposed requiring five payments--slightly 
more than half the number of payments needed to rehabilitate a 
defaulted Direct Loan or FFEL program loan--before the Secretary or a 
guaranty agency would suspend AWG.
    A non-Federal negotiator representing students proposed that the 
five-payment requirement be a cap on the number of required payments. 
Under this proposal, guaranty agencies could suspend AWG after the 
borrower has made fewer than five loan rehabilitation payments, but 
would be required to suspend AWG after the fifth payment.
    The Secretary believes this approach would contravene one of the 
goals of the proposal--to standardize the treatment of borrowers who 
are making loan rehabilitation payments while the loan is also being 
collected by AWG--and did not accept this proposal. The negotiating 
committee reached consensus on the Secretary's initial proposal of 
requiring five AWG payments before the Secretary or a guaranty agency 
would suspend AWG during a concurrent period of rehabilitation.
    Some non-Federal negotiators asked whether borrowers who are 
subject to AWG by mistake would be required to continue in AWG for five 
months before AWG could be suspended. The proposed regulations would 
not affect longstanding guidance from the Secretary that if a borrower 
is approved for AWG by mistake, the guaranty agency should immediately 
take steps to terminate AWG. The proposed regulations only apply to 
suspension of AWG due to payments made under a loan rehabilitation 
agreement.
    Non-Federal negotiators representing guaranty agencies expressed 
concerns that borrowers who do not intend to actually rehabilitate the 
loan might use this provision to force guaranty agencies to suspend AWG 
indefinitely. Although a borrower may only successfully rehabilitate a 
loan once, there is no limit to the number of times a borrower may 
attempt to rehabilitate a loan. The guaranty agencies expressed concern 
that a borrower could interfere with the guaranty agency's ability to 
collect on a loan through AWG by requesting loan rehabilitation over 
and over again. These negotiators pointed out that AWG is an effective 
tool for collecting on student loans, and that the proposed regulations 
should not provide a loophole for defaulted borrowers to indefinitely 
forestall AWG.
    To address the concern raised by these negotiators, the proposed 
regulations specify that a borrower may only receive this benefit once. 
If a borrower subject to AWG makes five qualifying payments on a loan 
under a rehabilitation agreement, AWG will be suspended. If the 
borrower fails to make qualifying loan rehabilitation payments, the 
Secretary or the guaranty agency may take the steps necessary to 
reinstate AWG. If the borrower attempts to rehabilitate the loan again, 
AWG would remain in place during the entire loan rehabilitation period.
    A non-Federal negotiator asked whether a guaranty agency would be 
required to go through the AWG hearing and notice requirements if it 
resumes AWG. Since AWG would be suspended but not withdrawn, the formal 
hearing requirements would not apply. However, consistent with 
requirements to provide other notices to the borrower throughout the 
AWG process, the guaranty agency would be expected to notify the 
borrower of the resumption of AWG.
    Although the proposal only addresses the suspension of AWG during a 
period in which the borrower is making payments under a loan 
rehabilitation agreement, some non-Federal negotiators asked about the 
relationship between the amount of money collected involuntarily from 
the borrower through AWG and the voluntary payments the borrower makes 
under a loan rehabilitation agreement. As discussed earlier in the Loan 
Rehabilitation Agreement: Reasonable and Affordable Payment Standard 
section of this preamble, a loan rehabilitation payment amount must be 
reasonable and affordable. Non-Federal negotiators representing 
consumer groups and students recommended that the regulations require 
that the Secretary or the guaranty agency adjust the amounts collected 
under AWG and the loan rehabilitation agreement, so that the two 
payments would combine to equal the reasonable and affordable payment 
amount agreed to by the guaranty agency and the borrower in the 
rehabilitation agreement.
    Under the HEA, a rehabilitation payment must not only be reasonable 
and affordable, but it must also be made voluntarily. AWG payments are 
not voluntary, and are not part of a borrower's loan rehabilitation 
payment.
    Non-Federal negotiators representing guaranty agencies stated that 
some guaranty agencies currently do reduce AWG payments for borrowers 
who are rehabilitating their loans. These negotiators indicated that 
guaranty agencies would likely continue this practice under the 
proposed regulations, but, to preserve flexibility for guaranty 
agencies, they did not support requiring this practice in the 
regulations. The Department agreed with these negotiators that, since 
the guaranty agencies work with many different types of borrowers, it 
would be preferable to continue to allow the guaranty agencies 
flexibility in making these determinations. Therefore, proposed 
Sec. Sec.  685.211(f) and 682.405(a) do not require the Secretary or 
the guaranty agencies to reduce AWG payments to reflect the amount of 
payments made by the borrower under a loan rehabilitation agreement, 
nor do they prevent the Secretary or a guaranty agency from making such 
reductions at their discretion.
    Some non-Federal negotiators suggested that some borrowers may 
prefer to continue AWG payments while they are also making loan 
rehabilitation payments. These borrowers might view the AWG payments as 
similar to automatic debit payments that would pay down their loans 
faster than rehabilitation payments alone. These negotiators 
recommended that the proposed regulations allow these borrowers to 
request that AWG continue while they make rehabilitation payments. The 
Secretary agreed with this suggestion.

[[Page 45638]]

Perkins Loan Program Issues

Federal Perkins Loan Graduate Fellowship Deferment Eligibility (34 CFR 
674.34(b)(1) and (f))

    Statute: Section 464(c)(2)(A)(i)(II) of the HEA authorizes a 
deferment for a Perkins Loan borrower while the borrower is pursuing a 
course of study pursuant to a graduate fellowship program approved by 
the Secretary, except that a borrower is not eligible for a deferment 
while serving in a medical internship or residency program. HEA section 
464(c)(2)(A)(i)(II) does not specify the requirements that a Perkins 
Loan borrower must meet to be eligible for the graduate fellowship 
deferment.
    Current Regulations: The Perkins Loan Program regulations in Sec.  
674.34(b)(1)(ii) provide that a Perkins Loan borrower is eligible for a 
graduate fellowship deferment when the borrower is enrolled and in 
attendance as a regular student in a course of study that is part of a 
graduate fellowship program approved by the Secretary. To qualify for 
the deferment, Sec.  674.34(f) requires a borrower to provide 
certification to the institution that the borrower has been accepted or 
is engaged in full-time study in the institution's graduate fellowship 
program.
    Proposed Regulations: The proposed regulations in Sec.  
674.34(f)(1) would require schools that participate in the Perkins Loan 
Program to use the same eligibility criteria that lenders use in the 
FFEL Program (under Sec.  682.210(d)) to define an eligible graduate 
fellowship program and to establish the eligibility of a Perkins Loan 
borrower for a graduate fellowship deferment. Proposed Sec.  
674.34(f)(2) would define an ``eligible graduate fellowship program'' 
as a program that:
     Provides sufficient financial support to allow for full-
time study for at least six months;
     Requires a written statement from each applicant 
explaining the applicant's objectives before the award of that 
financial support;
     Requires a graduate fellow to submit periodic reports, 
projects, or evidence of the fellow's progress; and
     In the case of a course of study at a foreign university, 
accepts the course of study for completion of the fellowship program.
    Proposed Sec.  674.34(f)(1) would also require a statement signed 
by an official of the program certifying:
     That the borrower holds at least a baccalaureate degree 
conferred by an institution of higher education;
     That the borrower has been accepted or recommended by an 
institution of higher education for acceptance on a full-time basis 
into an eligible graduate fellowship program; and
     The borrower's anticipated completion date in the program.
    Reasons: We are proposing changes to Sec.  674.34(f)(1) of the 
Perkins Loan Program regulations to mirror the definition of an 
``eligible graduate fellowship program'' and the graduate fellowship 
deferment eligibility criteria that are used in the FFEL and Direct 
Loan programs. These changes would provide consistent treatment of 
borrowers across the HEA, title IV loan programs.

Federal Perkins Loan Economic Hardship Deferment Debt-to-Income Ratio 
Provision (34 CFR 674.34(e)(4))

    Statute: Section 304 of the College Cost Reduction and Access Act 
(CCRAA), Public Law 110-84, amended the definition of ``economic 
hardship'' in section 435(o) of the HEA by eliminating section 
435(o)(1)(B). That section defined the term ``economic hardship'' to 
include a borrower who is working full-time and has a Federal 
educational debt burden that equals or exceeds 20 percent of the 
borrower's adjusted gross income (AGI), if the difference between the 
borrower's AGI and the borrower's Federal debt burden is less than 220 
percent of either the annual minimum wage or the poverty line.
    Current Regulations: Under Sec.  674.34(e)(4), a Perkins Loan 
borrower may receive an economic hardship deferment if he or she is not 
receiving total monthly gross income that exceeds twice the amount 
specified in Sec.  674.34(e)(3) and, after deducting an amount equal to 
the borrower's payments on Federal postsecondary education loans, the 
remaining amount of the borrower's income does not exceed the amount 
specified in Sec.  674.34(e)(3). The amount specified in Sec.  
674.34(e)(3) is the greater of the monthly earnings of an individual 
earning the minimum wage rate, or an amount equal to 150 percent of the 
poverty guideline for the borrower's family size.
    Proposed Regulations: The proposed regulations would remove the 
debt-to-income economic hardship deferment category in Sec.  
674.34(e)(4) and related provisions in Sec.  674.34(e)(6) and (e)(9) 
from the Perkins Loan Program regulations.
    Reasons: Final regulations published by the Department on October 
23, 2008, (73 FR 63232) eliminated from the Perkins, Direct Loan, and 
FFEL regulations the debt-to-income economic hardship deferment that 
was based on former section 435(o)(1)(B) of the HEA. The final 
regulations also eliminated a similar debt-to-income economic hardship 
deferment category for a borrower who is working less than full-time 
from the Direct Loan and FFEL regulations, but inadvertently retained 
the comparable category in Sec.  674.34(e)(4) of the Perkins Loan 
Program regulations, thus creating a disparity between the economic 
hardship deferment eligibility criteria in the Perkins program and the 
eligibility criteria in the Direct Loan and FFEL programs. We are 
proposing to eliminate Sec.  674.34(e)(4) and related provisions in 
Sec.  674.34(e)(6) and (e)(9) to reflect the statutory change made to 
the definition of ``economic hardship'' in HEA section 435(o) and to 
make the Perkins Loan Program regulations consistent with the 
comparable FFEL and Direct Loan program regulations.

Federal Perkins Loan Standard for On-Time Loan Rehabilitation Payment 
(34 CFR 674.39(a)(2))

    Statute: In accordance with section 464(h)(1)(A) of the HEA, a 
defaulted Perkins loan is successfully rehabilitated if a borrower 
makes nine on-time, consecutive, monthly payments of amounts owed on 
the loan, as determined by the institution, or by the Secretary. The 
term ``on-time'' is not defined.
    Current Regulations: Under Sec.  674.39(a)(2), a defaulted Perkins 
Loan is rehabilitated if the borrower makes an on-time, monthly 
payment, as determined by the institution, each month for nine 
consecutive months and the borrower requests rehabilitation. The term 
``on-time'' is not defined. In Sec.  682.405(a)(2)(A)(3) of the FFEL 
Program regulations and Sec.  685.211(f)(1) of the Direct Loan Program 
regulations, a payment made within 20 days of the due date is 
considered ``on-time'' for the purposes of rehabilitating a defaulted 
loan.
    Proposed Regulations: The proposed regulations would modify Sec.  
674.39(a)(2) by requiring a borrower to make a full, monthly payment, 
as determined by the institution, within 20 days of the due date, each 
month, for nine consecutive months.
    Reasons: The issue of establishing a standard for an on-time 
payment for the purposes of rehabilitating a defaulted Perkins Loan was 
added to the negotiating agenda at the suggestion of a non-Federal 
negotiator. The non-Federal negotiator believed that a similar standard 
for determining ``on-time'' in the Perkins Loan, FFEL, and Direct Loan 
programs would help

[[Page 45639]]

borrowers with more than one type of title IV loan to successfully 
rehabilitate the loan and would provide consistency across the HEA, 
title IV loan programs in the treatment of borrowers who are 
rehabilitating a defaulted loan. The Department agreed.

Social Security Number Requirement (SSN) for Assignment of Defaulted 
Federal Perkins Loans to the United States (34 CFR 674.50(e)(1))

    Statute: The HEA does not include any specific rules for the 
process for assigning defaulted Perkins Loans.
    Current Regulations: The current regulations in Sec.  674.50(e)(1) 
provide that the Secretary does not accept assignment of a loan if the 
institution has not provided the SSN of the borrower, unless the loan 
is submitted for assignment under Sec.  674.8(d)(3). (Sec.  674.8(d)(3) 
refers to the Secretary's authority to mandate assignment of certain 
defaulted Perkins Loans. This authority was eliminated by the Higher 
Education Opportunity Act of 2008, Public Law 110-315 (HEOA)).
    Proposed Regulations: The proposed regulations in Sec.  
674.50(e)(1) would allow assignment of a Perkins Loan without the 
borrower's SSN if the loan was made before September 13, 1982, which 
was the date the Department began requiring institutions to collect the 
borrower's SSN on the Perkins Loan Program promissory notes.
    Reasons: The Department believes that it is unfair to require an 
institution to provide the borrower's SSN when assigning a Perkins Loan 
if the institution was not required to collect the SSN at the time the 
loan was made. The proposed regulations would give the institution the 
option of assigning such a loan to the Department, rather than holding 
on to a defaulted loan that the institution has little chance of 
collecting.

Federal Perkins Loan Break in Cancellation Service Due to a Condition 
Covered Under the Family and Medical Leave Act (34 CFR 674.52(b)(2))

    Statute: Section 465(a)(3)(A) of the HEA provides that a specified 
percentage of principal and interest on a Perkins Loan can be cancelled 
for each ``year'' during which the borrower is employed in certain 
specified positions. Section 465(a)(4) provides that the term ``year'' 
where applied to employment as a teacher means the academic year as 
defined by the Secretary. The HEA does not provide for a break in 
qualified service for cancellation purposes.
    Current Regulations: Current regulations in Sec.  674.52(b)(2) 
allow a borrower who is performing qualified teaching service, but who 
is unable to complete the academic year due to illness or pregnancy, to 
still qualify for cancellation of the principal and interest on his or 
her Perkins Loan if the borrower completes the first half of the 
academic year, and has begun teaching the second half, and the 
borrower's employer considers the borrower to have fulfilled his or her 
contract for the academic year for purposes of salary increment, 
tenure, and retirement. The regulations in Sec.  674.52(b)(2) address 
only qualified teaching service, not other types of employment which 
may qualify the borrower for loan cancellation, such as nursing or law 
enforcement.
    In the FFEL and Direct Loan programs, under Sec. Sec.  
682.216(c)(7)(ii) and 685.217(c)(7)(ii), respectively, if the borrower 
is unable to complete the second half of an academic year of teaching 
due to a condition covered under the FMLA, the teaching service for 
loan cancellation purposes in those programs may still count as a year 
of eligible teaching service if the borrower's employer considers the 
borrower to have fulfilled the teacher contract requirements for that 
academic year. Conditions covered under the FMLA include:
     The birth of a child and to care for the newborn child 
within one year of birth;
     The placement with the employee of a child for adoption or 
foster care and to care for the newly placed child within one year of 
placement;
     To care for the employee's spouse, child, or parent who 
has a serious health condition;
     A serious health condition that makes the employee unable 
to perform the essential functions of his or her job;
     Any qualifying exigency arising out of the fact that the 
employee's spouse, son, daughter, or parent is a covered military 
member on ``covered active duty;'' and
     To care for a covered service member with a serious injury 
or illness who is the spouse, son daughter, parent, or next of kin to 
the employee (military caregiver leave). (29 U.S.C. 2601 et seq.)
    Proposed Regulations: The proposed regulations in Sec.  
674.52(c)(1) would allow a Perkins Loan borrower who is unable to 
complete the second half of an academic year of teaching due to a 
condition covered under the FMLA to still count that year as eligible 
teaching service if the borrower's employer considers the borrower to 
have fulfilled the teacher contract requirements for that academic 
year. In addition, the proposed regulations in Sec.  674.52(c)(2) would 
allow a Perkins Loan borrower who is unable to complete a full year of 
eligible public service under Sec. Sec.  674.56, 674.57, 674.59, or 
674.60 due to a condition that is covered under the FMLA to count that 
year as a full year of public service if the borrower completes at 
least six months of consecutive eligible service.
    Reasons: By allowing a Perkins Loan borrower to count a year of 
teaching service that is interrupted by a condition covered under the 
FMLA, the proposed regulations would provide for more consistent 
treatment of similarly situated borrowers who are performing teaching 
service that may qualify them for FFEL or Direct Loan teacher loan 
forgiveness. By allowing a Perkins Loan borrower to count a year of 
service that has been interrupted by a condition covered under the FMLA 
for the public service loan cancellations under Sec. Sec.  674.56, 
674.57, 674.59, or 674.60, the proposed regulations would provide for 
consistent treatment of all Perkins Loan borrowers who are seeking 
cancellation benefits on their Perkins Loans, not just those borrowers 
seeking a cancellation based on employment as a teacher.

Federal Perkins Loan Cancellation Rate Progression (34 CFR 674.52(g), 
674.53(d), 674.56(h), 674.57(c)(2), 674.59(c)(2) and 674.60(b))

    Statute: Under section 465(a)(3)(A)(i) of the HEA, the percent of 
original principal on a Perkins Loan that is canceled for each year of 
employment by a Perkins Loan borrower in certain qualified public 
service jobs is 15 percent for the first and second year of service, 20 
percent for the third and fourth year of service, and 30 percent for 
the fifth and final year of service. The interest on the unpaid balance 
of the loan that accrues during any year of qualifying service is also 
canceled. Qualified public service under section 465(a)(2) of the HEA 
includes, among other things, teaching, military service in an area of 
hostility, law enforcement, nursing, and firefighting. There are two 
types of public service that have a different cancellation rate 
progression. Under section 465(a)(3)(A)(ii), the cancellation rate for 
each year of qualified service in certain early childhood education 
programs is 15 percent of the original loan principal plus the interest 
on the unpaid balance accruing during the year of qualifying service. 
Under section 465(a)(3)(A)(iii), the cancellation rate for each year of 
a borrower's qualified service as a volunteer under the Peace Corps Act 
or a volunteer under the Domestic Volunteer Service Act of 1973 is 15 
percent of the original loan principal for the first or second year of 
qualified

[[Page 45640]]

service and 20 percent of the original loan principal for the third or 
fourth year of qualified service. The interest on the unpaid balance 
that accrues during any year of qualifying service is also canceled.
    Current Regulations: The cancellation progression rate for 
qualified public service performed by a Perkins Loan borrower under 
Sec. Sec.  674.53(d) (teachers), 674.56(a) (nurse or medical 
technician), 674.57(c)(2) (law enforcement or corrections officer), and 
674.59(c)(2) (military service), is 15 percent of the original 
principal for the first and second year of service, 20 percent for the 
third and fourth year of service, and 30 percent for the fifth and 
final year of service, consistent with section 465(a)(3)(A)(i) of the 
HEA. The interest on the unpaid balance that accrues during any year of 
qualifying service is also canceled. The cancellation progression rate 
for each year of qualified service in an early childhood education 
program performed by a Perkins Loan borrower under Sec.  674.58 is 15 
percent of the original principal plus interest that accrues during the 
year of qualifying service on a Perkins Loan, which mirrors section 
465(a)(3)(A)(ii) of the HEA. Lastly, the cancellation progression rate 
for each year of qualified service as a volunteer under the Peace Corps 
Act or a volunteer under Sec.  674.60 is 15 percent of the original 
principal for the first or second year of qualified service and 20 
percent for the third or fourth year of qualified service, plus any 
interest that accrued during the year of qualifying service, which 
mirrors section 465(a)(3)(A)(iii) of the HEA.
    Proposed Regulations: The proposed regulations would not change the 
current cancellation progression rate under the cancellation categories 
in Sec. Sec.  674.53, 674.56, 674.57, or 674.59. The percentage of 
original principal canceled would remain the same, and any interest on 
the unpaid balance that accrues during any year of qualifying service 
would continue to be canceled. However, under proposed Sec.  
674.52(g)(1), if, after the first, second, third, or fourth complete 
year of qualifying service the borrower switches to a position that 
qualifies the borrower for cancellation under a different cancellation 
category under Sec. Sec.  674.53, 674.56, 674.57, or 674.59, the 
borrower's cancellation rate progression continues from the last year 
the borrower received a cancellation under the former cancellation 
category. Under proposed Sec.  674.52(g)(2), if, after the first, 
second, third, or fourth complete year of qualifying service under 
Sec. Sec.  674.53, 674.56, 674.57, or 674.59 the borrower switches to a 
position that qualifies the borrower for cancellation under Sec.  
674.58 or 674.60, the borrower's cancellation rate progression begins 
at the year one cancellation rates specified in Sec. Sec.  674.58(b) or 
674.60(b), respectively.
    Reasons: We believe that requiring a borrower to restart a 
cancellation progression is unnecessary. In each of these situations, 
the borrower is performing a valuable public service which qualifies 
for loan cancellation. Since the cancellation rates in these categories 
are identical, we believe it is more equitable to allow borrowers to 
continue their progression toward full loan cancellation when they 
change jobs to a position with the same cancellation progression.
    We are not proposing to allow borrowers who switch to or from the 
cancellation categories in Sec. Sec.  674.58 or 674.60 to continue 
under the same cancellation rate progression because the cancellation 
rates under these two provisions are not comparable to the cancellation 
rates in Sec. Sec.  674.53, 674.56, 674.57, or 674.59. Under Sec.  
674.58(b), a borrower receives cancellation at the rate of 15 percent 
for each year of eligible service. Under Sec.  674.60(a), a borrower 
may only receive cancellation of up to 70 percent of the original 
principal.

FFEL Program Issues

FFEL Lender Repayment Disclosures for Borrowers Who Are 60 Days 
Delinquent (34 CFR 682.205(c))

    Statute: Section 433(e)(3) of the HEA requires FFEL Program lenders 
to provide a borrower who is 60 days delinquent in making payments on a 
FFEL Program loan a notice that informs the borrower of: (1) The date 
on which the loan will default if no payment is made; (2) the minimum 
payment the borrower must make to avoid default; (3) a description of 
the options available to the borrower to avoid default and the relevant 
fees or costs associated with each option; (4) a description of 
deferment and forbearance options and the requirements to obtain each; 
(5) any discharge options the borrower may be entitled to; and (6) any 
additional resources of which the lender is aware that can provide the 
borrower with advice and assistance on student loan repayment, 
including nonprofit organizations, advocates, counselors, and the 
Department's Student Loan Ombudsman.
    Current Regulations: Section 682.205(c)(5)(ii) of the Department's 
regulations requires FFEL lenders to provide a repayment disclosure to 
a borrower, including all of the information listed in section 
433(e)(3) of the HEA, within five days of the borrower becoming 60 days 
delinquent on the FFEL loan. The Department interprets five days for 
this purpose as five calendar days, rather than business days. The 
regulations also specify that the minimum payment necessary to avoid 
default disclosed to the borrower must be the amount as of the 
disclosure date. The lender must also include the amount necessary to 
bring the loan current or pay the loan in full.
    Proposed Regulations: The proposed regulations would redesignate 
current Sec.  682.205(c) as Sec.  682.205(a). Redesignated Sec.  
682.205(a)(5)(ii) would change the timeframe for FFEL lenders to send 
the required disclosure from five calendar days after the date the 
borrower becomes 60 days delinquent to five business days after that 
date.
    Reasons: The non-Federal negotiators representing lenders and 
lender servicers indicated that the required disclosure is often 
system-generated and sent out automatically on a fixed schedule. These 
negotiators stated that office closures and delays due to necessary 
system maintenance and upgrades may result in a technical violation of 
the regulations if the lender is unable to send the required notice to 
the borrower within the five calendar days provided under current 
regulations. The Department and the other non-Federal negotiators 
agreed that unintended noncompliance with the regulatory deadline could 
result under these circumstances and that the regulations were not 
intended to penalize the lender for this type of possible delay. 
Accordingly, the proposed regulations would provide the lender with 
five business days to generate the required disclosure.

FFEL Lender Repayment Disclosures to Borrowers Who Are Having 
Difficulty Making Payments (34 CFR 682.205(c))

    Statute: Section 433(e)(2) of the HEA requires FFEL Program lenders 
to provide certain information to assist borrowers who notify the 
lender that they are having difficulty making payments on their loans. 
The lender must provide the borrower with information about: (1) The 
repayment plans available to the borrower and how the borrower may 
request a change in repayment plan; (2) the requirements for obtaining 
a forbearance on a loan and any expected costs associated with 
forbearance; and (3) the options available to the borrower to avoid 
default and any relevant fees or costs associated with those options.
    Current Regulations: Section 682.205(c)(4) of the Department's

[[Page 45641]]

regulations requires a lender to provide a borrower who is having 
difficulty making required payments on a loan a disclosure that 
contains the information specified in section 433(e)(2) of the HEA. The 
lender must send the disclosure each time the borrower contacts the 
lender and tells the lender that he or she is having difficulty making 
payments on the loan.
    Proposed Regulations: The proposed regulations would amend 34 CFR 
682.205(c)(4) to no longer require a lender to provide the disclosure 
required by that section if the borrower's difficulty has been resolved 
through contact resulting from an earlier disclosure or from other 
contact between the lender and the borrower.
    Reasons: The non-Federal negotiators representing FFEL lenders and 
lender servicers noted that providing the required disclosure in 
response to every borrower contact may confuse the borrower if prior 
contact between the borrower and the lender or servicer has addressed 
the borrower's repayment problem. The negotiating committee agreed that 
the disclosure should not be automatically triggered under these 
circumstances because the repeated disclosure could confuse the 
borrower and be counterproductive to keeping the borrower in active, 
timely repayment or in another acceptable repayment status.

Administrative Wage Garnishment of the Disposable Pay of Defaulted FFEL 
Program Borrowers (34 CFR 682.410(b)) Borrower Hearing Opportunities on 
the Enforceability of the Debt and a Borrower's Claim of Financial 
Hardship (34 CFR 682.410(b)(9)(i))

    Statute: Section 488A(a)(3) of the HEA provides borrowers who have 
defaulted on a title IV loan and who are subject to AWG the opportunity 
to inspect and copy records relating to the debt. Section 488A(a)(5) of 
the HEA provides that these borrowers must be provided the opportunity 
for a hearing concerning the existence or amount of the debt. Section 
488A(b) of the HEA establishes certain requirements for the hearing 
opportunity required under subsection (a)(5).
    Current Regulations: Section 682.410(b)(9)(i)(E) of the 
Department's regulations reflects the statutory requirement that the 
borrower be provided the opportunity for a hearing concerning the 
existence or amount of the debt. Section 682.410(b)(9)(i)(J) provides 
that the borrower has the choice of having an oral or written hearing. 
However, the current regulations do not include further details on how 
the hearing should be conducted, the method by which the borrower may 
raise objections to the AWG or how the hearing official should make 
decisions during the hearing. The current regulations do not address a 
borrower's objections to the enforceability of the debt or a claim of 
financial hardship.
    Proposed Regulations: The proposed regulations would amend Sec.  
682.410(b)(9)(i)(E) of the Department's regulations to require that a 
guaranty agency offer a borrower the opportunity to contest the 
enforceability of the debt in addition to the existence or amount of 
the debt. The proposed regulations would also require the guaranty 
agency to provide the borrower with the opportunity to raise an 
objection that withholding from the borrower's disposable pay--in the 
amount or at the rate proposed in the notice advising the borrower of 
the planned garnishment--would cause financial hardship to the 
borrower.
    The proposed regulations would also amend Sec.  682.410(b)(9)(i)(F) 
to clearly address the burden of proof that applies with regard to 
objections by the borrower to garnishment, and to describe the 
procedures that must be followed by the borrower and guaranty agency 
when the borrower raises the objections described in paragraph Sec.  
682.410(b)(9)(i)(E). Under proposed Sec.  682.410(b)(9)(i)(F)(1)(i), as 
part of the oral or written hearing, the guaranty agency would have to 
provide evidence of the existence of the debt. Once the agency provides 
that evidence, the burden of proof would shift to the borrower to 
establish, by a preponderance of the evidence that: No debt exists; the 
amount of the debt the agency claims is incorrect, including that any 
amount of collection costs assessed to the borrower exceeds the 
regulatory limits; the debt is not enforceable under applicable law; or 
the debt is not delinquent. If the borrower objects to the amount of 
the collection costs charged by the agency included in the debt, the 
borrower must prove that collection costs charged on the defaulted loan 
exceed the amount a guaranty agency is permitted to assess a borrower 
under Sec.  682.410(b)(2) of the Department's regulations.
    Under proposed Sec.  682.410(b)(9)(i)(F)(1)(ii), the borrower would 
be able to raise any of these objections at any time before the hearing 
official closes the record and notifies the parties that no additional 
evidence or objections will be accepted.
    If the borrower claims that the withholding amount or rate that the 
agency proposed in its notice would cause financial hardship to the 
borrower and the borrower's spouse and dependents, the borrower bears 
the burden of proving the claim of financial hardship by a 
preponderance of the evidence. Under Sec.  682.410(b)(9)(i)(F)(2)(ii), 
in determining whether the withholding amount would cause a financial 
hardship for the borrower, the hearing official would compare the 
borrower's living expenses against the amount spent for basic living 
expenses by families of the same size and similar income to the 
borrower's, as reflected in the IRS National Standards. The term 
``National Standards'' is more precisely used by the IRS to refer to a 
subset of living expenses that includes five necessary expenses: food, 
housekeeping supplies, apparel and services, personal care products and 
services, and miscellaneous. In addition, the IRS has established 
standards for: Out-of-pocket health care expenses, which include 
medical services, prescription drugs, and medical supplies (e.g. 
eyeglasses, contact lenses, etc.); transportation standards for 
taxpayers with a vehicle; and housing and utilities standards, which 
include mortgage or rent, property taxes, interest, insurance, 
maintenance, repairs, gas, electric, water, heating oil, garbage 
collection, residential telephone service, cell phone service, cable 
television, and internet service. The IRS refers to these standards 
collectively as the ``Collection Financial Standards.'' The proposed 
regulations refer to all these standards collectively as the ``National 
Standards.'' For more information on the IRS National Standards refer 
to www.irs.gov/Individuals/Collection-Financial-Standards. We invite 
comment on whether the term should be changed to conform to the term 
used by the IRS, which developed the standards.
    Under proposed Sec.  682.410(b)(9)(i)(F)(2)(iv), if the hearing 
official upholds the borrower's objection to the amount or rate of 
withholding in part, then the garnishment may be ordered at a lesser 
rate or amount that would allow the borrower to meet basic living 
expenses. If the garnishment order is already in effect when the 
hearing official makes a decision, the guaranty agency must notify the 
borrower's employer of any change in the amount to be withheld or the 
rate of withholding.
    The Department notes that the consensus language of Sec.  
682.410(b)(9)(i)(F)(2)(iv) of the proposed regulations differs from 
regulations governing wage garnishment of Department-held loans at 34 
CFR part 34. The proposed regulations state that a withholding order 
``may be ordered at a lesser rate or amount'' by a guaranty

[[Page 45642]]

agency if a hearing official upholds, in part, a borrower's claim of 
financial hardship. The Department believes that the proposed language 
could be interpreted as providing a guaranty agency discretion in 
adjusting a borrower's payment and rate based on a hearing official's 
finding, rendering the hearing official's ruling moot and potentially 
resulting in inconsistent treatment of similarly situated borrowers. 
The Department considers the hearing official's determinations whether 
garnishment would cause hardship, and whether garnishment can be 
ordered only at a lesser rate than proposed by the guaranty agency, to 
be binding on the agency, and not a matter left to the discretion of 
the agency. The Department particularly invites comments on whether the 
agreed-upon language--using ``may'' in this context rather than 
``must''--is contrary to the intent of providing the borrower an 
opportunity for an independent determination on a financial hardship 
objection.
    Proposed Sec.  682.410(b)(9)(i)(F)(2)(v) would also require that a 
determination of financial hardship be effective for no longer than six 
months, and that if, after that period, the guaranty agency determines 
that the amount or rate of withholding should be increased, the 
guaranty agency must notify the borrower of the increase and provide 
the borrower with an opportunity to contest the determination and 
obtain a hearing on the objection.
    The proposed regulations would also add a new Sec.  
682.410(b)(9)(i)(N) to the regulations to specify the process by which 
a borrower may raise an objection to the amount or rate of a 
withholding order on grounds of financial hardship. The proposed 
regulations would allow the borrower to raise an objection at any time, 
but would not require the guaranty agency to consider the objection 
until at least six months after the date the order was issued. Under 
the proposed regulations the guaranty agency may provide a hearing 
earlier than six months after the date the order was issued under 
extraordinary circumstances--that is, if the borrower's request for 
review shows that the borrower's financial circumstances have 
substantially changed after the garnishment notice because of an event 
such as an injury, divorce, or a catastrophic illness.
    The Department is also proposing to reorganize current provisions 
in Sec.  682.410(b)(9) to more logically reflect the AWG process, from 
the initial garnishment notice, to the hearing process, to the 
withholding of wages. The following sections summarize the discussion 
and proposed changes to Sec.  682.410(b)(9).
    Reasons: The Department did not include the regulations governing 
AWG for defaulted FFEL Program borrowers on the original list of 
regulations to be addressed by the negotiated rulemaking process. 
However, a non-Federal negotiator asked that the topic be added to the 
agenda and that Sec.  682.410(b)(9) of the regulations be amended to 
make certain provisions consistent with the requirements in 34 CFR part 
34 that govern AWG for loans held by the Department.
    Specifically, the negotiator requested that the regulations be 
amended to specifically reflect a borrower's right to request a hearing 
on the enforceability of the debt and to allow the borrower to object 
to the amount or rate of AWG withholding on the basis that such 
withholding would cause financial hardship to the borrower.
    As negotiations proceeded, other non-Federal negotiators requested 
that additional changes be made to the regulations to provide more 
detail on the guaranty agency's administration of the AWG notification 
and hearing process.
    The Department agreed to revise the FFEL Program regulations to 
provide more consistent treatment for both borrowers whose defaulted 
loans are held by a guaranty agency and those with loans held by the 
Secretary. In addition, the Department is proposing to amend certain 
regulatory provisions to incorporate existing policy guidance and, at 
the request of the non-Federal negotiators, to provide examples of 
permissible activities associated with certain phases of AWG.
    To respond to a request from a non-Federal negotiator that 
borrowers be allowed to object at any time to the amount or rate of 
withholding on the basis of financial hardship, the negotiators agreed 
to propose new Sec.  682.410(b)(9)(i)(N). This proposed paragraph was 
added to balance the ability of borrowers to raise a financial hardship 
objection at any time against the practical necessity of limiting the 
number of hearings to a reasonable number. Accordingly, the proposed 
regulations limit such a hearing opportunity to once every six months 
absent extraordinary circumstances that have substantially changed the 
borrower's financial circumstances.

Use of Third-Party Contractors in AWG Hearings (34 CFR 682.410(b)(9))

    Statute: Section 436(a) of the HEA provides that a FFEL Program 
lender or guaranty agency that delegates its functions to another 
entity is not relieved of its duty to comply with the HEA and must 
monitor the other entity's activities to ensure compliance with the 
requirements of the HEA. Section 488A(b) of the HEA prohibits the use 
of a hearing official who is under the supervision or control of the 
guaranty agency, but does not otherwise prevent a guaranty agency from 
retaining a third-party agent to perform AWG-related administrative 
functions for the agency.
    Current Regulations: Section 682.203(a) of the FFEL Program 
regulations reflects section 436(a) of the HEA and acknowledges that a 
guaranty agency may contract or otherwise delegate the performance of 
its functions to a servicing agency or other party. Such a delegation 
does not relieve the guaranty agency of its duty to ensure that the 
other party's actions comply with the requirements imposed on the 
guarantor by the HEA. Section 682.410(b)(9) of the regulations 
governing a guaranty agency's administration of the AWG process does 
not address the use of third-party contractors within the AWG context.
    Proposed Regulations: The proposed regulations would add new Sec.  
682.410(b)(9)(i)(I) to specify that the wage garnishment hearing 
official may not be under the control of a third-party servicer or 
collection contractor employed by the guaranty agency. Paragraph 
(b)(9)(i)(I) would also clarify that payment of compensation to the 
hearing official for hearing services does not constitute impermissible 
control by the guaranty agency, a third-party servicer, or a collection 
contractor employed by the agency. The proposed regulations would also 
provide that all of the hearing official's oral communications must be 
made with both the guaranty agency (or its representative) and the 
borrower present, and that all of the hearing official's written 
communications with one party must be promptly shared with the other 
party, with the exception of those communications necessary to plan the 
time, place, and manner of the hearing.
    The proposed regulations would also add a new Sec.  
682.410(b)(9)(i)(T) to specify the functions that may be performed by a 
third-party servicer or collection contractor employed by the guaranty 
agency for AWG purposes, such as obtaining employment information for 
the purposes of garnishment, negotiating alternative repayment 
arrangements with borrowers, and responding to inquiries from 
borrowers. The proposed regulations would make it clear that the 
guaranty agency may not delegate to a

[[Page 45643]]

third party the decision to order withholding of an individual 
borrower's wages, and that the agency must create and retain records to 
demonstrate that each AWG order has been individually authorized by an 
appropriate official of the guaranty agency. The proposed regulations 
would also specify the manner by which a withholding order may be sent 
to employers.
    Reasons: In an effort to ensure that AWG hearings are impartial, 
the Department is proposing new paragraph (b)(9)(i)(I) to clarify that 
an AWG hearing official may not be under the supervision or control of 
the guaranty agency or of a third-party servicer or contractor employed 
by the agency. A non-Federal negotiator requested that language be 
added to the regulations to provide that the normal payment of 
compensation to the hearing official for performance of his or her 
duties would not constitute such impermissible control. To further 
ensure a fair hearing, the Department also added language to prohibit 
the hearing official from engaging in ex parte communications without 
notice to the other party, except in regard to the logistical details 
of the hearing.
    Section 488A of the HEA gives the Secretary and guaranty agencies 
authority to issue a garnishment order. In the case of a guaranty 
agency, only a guaranty agency official, and not a contractor for the 
agency, can lawfully issue an order for the withholding of a borrower's 
wages. New paragraph (b)(9)(i)(T) reflects that restriction, and 
includes a non-exhaustive list of activities that may be performed by a 
third-party servicer or collection contractor employed by the guaranty 
agency. The proposed regulations reflect the Department's earlier 
guidance to the guaranty agencies on the limitations on the use of 
collection contractors or other third-party servicers to conduct 
administrative activities for a guaranty agency related to the wage 
garnishment process. The Department believes that some guaranty 
agencies may not be aware of the guidance or are no longer monitoring 
their servicers for compliance with that guidance. The Department 
therefore determined that this guidance should be incorporated into the 
proposed regulations. Most significantly, a third-party contractor may 
not make the determination that a withholding order is to be issued, 
and the order must clearly identify the guaranty agency as the holder 
of the debt. The order cannot expressly state or imply that the third-
party agent is the holder of the loan or that the third-party agent has 
authority to initiate a withholding order.
    A non-Federal negotiator also requested that the proposed 
regulations include a list of examples of the permissible activities 
that third-party contractors may perform in the AWG process. New 
paragraph (b)(9)(i)(T)(1) lists examples of such activities, which are 
limited to administrative tasks, such as obtaining employment 
information, receiving garnishment payments, and providing information 
to borrowers.

Amount or Rate of Wage Withholding (34 CFR 682.410(b)(9))

    Statute: Section 488A(a)(1) of the HEA limits the amount of the 
borrower's pay that may be subject to garnishment to 15 percent of the 
borrower's disposable pay for any pay period. Section 1673 of Title 15 
of the U.S. Code limits the amount of disposable pay that may be 
subject to garnishment to the lesser of 25 percent of the borrower's 
disposable pay for any pay period (in cases where multiple withholding 
orders exist) or the amount by which the borrower's disposable pay for 
any pay period exceeds 30 times the minimum wage.
    Current Regulations: Current Sec.  682.410(b)(9)(i)(A) describes 
the statutory limits to garnishment as an amount that does not exceed 
the lesser of 15 percent of the borrower's disposable pay for each pay 
period or the amount permitted by 15 U.S.C. 1673, unless the borrower 
provides the agency with written consent to deduct a greater amount. 
The current regulations do not describe the limitations in detail, 
including the limitation on the amount of garnishment in cases where 
there is a single withholding order compared to when multiple orders 
exist.
    Proposed Regulations: The proposed regulations would add a new 
Sec.  682.410(b)(9)(i)(K) to the Department's regulations. The proposed 
regulation would limit the withholding amount or percentage if a 
guaranty agency is garnishing pay from a borrower who is not already 
subject to a withholding order. Unless the individual consents to a 
greater percentage or amount, the guaranty agency would be required to 
garnish the smallest of: (1) The amount specified in the withholding 
order; (2) 15 percent of the borrower's pay for the pay period; or (3) 
the amount by which the borrower's disposable pay for the pay period 
exceeds 30 times the minimum wage.
    The proposed regulations would also add a new Sec.  
682.410(b)(9)(i)(L) to the regulations to clarify the withholding 
amount or percentage and priority if a guaranty agency is garnishing 
the pay of a borrower who is already subject to one or more withholding 
orders. Unless another Federal law dictates a different priority, the 
borrower's employer would be required to honor the guaranty agency's 
withholding order before any later-received withholding orders, except 
a family support withholding order. The proposed regulations clarify 
that the cumulative allowable amount to be withheld under the sum of 
all withholding orders is limited to 25 percent of the borrower's 
disposable pay for the pay period or the amount by which the borrower's 
disposable pay for the pay period exceeds 30 times the minimum wage. In 
a case where one or more guaranty agencies have issued wage garnishment 
orders with respect to the same individual borrower, no single agency 
would be permitted to order withholding of a total amount exceeding 15 
percent of the disposable pay for the pay period of a borrower to be 
withheld in response to all of the withholding orders it issued for its 
claims.
    The proposed regulations would also add a new Sec.  
682.410(b)(9)(i)(M) which would permit a greater amount or percentage 
to be withheld if the borrower has given the employer written consent 
to the higher amount or percentage.
    Reasons: One non-Federal negotiator argued that current Sec.  
682.410(b)(9)(i)(A) was not sufficiently clear with regard to the 
limits on the amount that may be subject to wage garnishment, 
especially in cases in which a borrower is subject to more than one 
withholding order. In an effort to clarify the rules regarding wage 
withholding, the Department agreed to propose new paragraphs 
(b)(9)(i)(K) through (M) to provide more clarity as well as the 
statutory basis for the applicable limits in section 488A(a)(1) of the 
HEA and 15 U.S.C. 1673(a)(2).

Borrower Hearing Requests (34 CFR 682.410(b)(9))

    Statute: Sections 488A(a)(5) and (b) of the HEA provide borrowers 
with the opportunity to request a hearing concerning the existence or 
the amount of the debt and the terms of the repayment schedule.
    Current Regulations: Current Sec.  682.410(b)(9) requires the 
guaranty agency to offer the borrower an opportunity for a hearing 
concerning the existence or the amount of the debt and the terms of the 
repayment schedule. The current regulations provide that the guaranty 
agency may not issue a withholding order until the hearing is provided, 
as long as the borrower's written request for a hearing is received by 
the guaranty agency within 15 days after the borrower's receipt of the

[[Page 45644]]

garnishment notice. The current regulations further provide that a 
borrower is considered to have received the garnishment notice 5 days 
after it was mailed by the agency. Finally, current regulations provide 
that if the borrower's written request for a hearing is received by the 
guaranty agency after the 15-day period, the guaranty agency must 
provide a hearing to the borrower but must still go forward with the 
withholding order (unless the agency determines that the filing delay 
was caused by factors outside the borrower's control, or receives 
information that justifies a delay or cancellation of the order), and 
that the withholding order can be rescinded by a decision from the 
hearing official.
    Proposed Regulations: The proposed regulations would replace 
current Sec.  682.410(b)(9)(i)(K) with proposed Sec.  
682.410(b)(9)(i)(G) and change the current requirement that a 
borrower's written request for a hearing be received on or before the 
15th day following the borrower's receipt of a garnishment notice to be 
assured of a hearing prior to issuance of a garnishment order. The 
proposed regulations would require that if a borrower's written request 
for a hearing is received on or before the 30th day following the date 
the garnishment notice was sent, the borrower would be assured of a 
hearing prior to issuance of a garnishment order. We are also proposing 
to delete the rule that a borrower is considered to have received a 
garnishment notice five days after it was mailed by the agency.
    The Department has decided to retain the requirement in current 
Sec.  682.410(b)(9)(i)(L) (now proposed Sec.  682.410(b)(9)(i)(H)) that 
if a borrower does not request a hearing within the 30-day time limit, 
the guaranty agency must go forward with the withholding unless the 
agency determines that the filing delay was caused by factors outside 
the borrower's control, or receives information that justifies a delay 
or cancellation of the order. If a borrower's request for a hearing is 
received after the 30th day, a guaranty agency is still required to 
provide a hearing in enough time to have a decision issued within 60 
days of the date the guaranty agency received the hearing request. The 
Department would add to proposed Sec.  682.410(b)(9)(i)(H) (which would 
replace current Sec.  682.410(b)(9)(i)(L)) a provision specifying that 
if the hearing is not provided and a decision issued within 60 days 
following the receipt of the borrower's written request for a hearing, 
then the agency must suspend the order beginning on the 61st day until 
a decision is rendered.
    Reasons: In the preamble to the final regulations issued by the 
Department on April 19, 1994, 59 FR 22462, 22475, we explained that we 
agreed with the public comments we had received stating that borrowers 
should be deemed to have received a garnishment notice five days after 
its mailing date to prevent disputes about the date the borrower 
received the notice. During the recent negotiated rulemaking sessions, 
a non-Federal negotiator requested that the time limit for when the 
guaranty agency must receive the borrower's written request for a 
hearing be measured against the date the garnishment notice was sent, 
rather than the date the borrower received the notice. The Department 
accepted this suggestion because measurement of the date the notice was 
sent is more readily verifiable than the date the notice was received. 
However, to balance this interest against the borrower's need for time 
to respond, the Department increased the time limit from 15 days to 30 
days, consistent with a suggestion from another non-Federal negotiator.
    The provision specifying suspension of the order on the 61st day 
was added to make explicit the consequence if a decision is not issued 
within the required time period.

Other Provisions Related to AWG (34 CFR 682.410(b)(9))

    Statute: Section 488A of the HEA authorizes the Secretary and 
guaranty agencies in the FFEL Program to garnish up to 15 percent of a 
defaulted borrower's disposable income per pay period, unless the 
individual consents to a greater percentage or amount. The statute 
requires that a notice be sent to a borrower no less than 30 days prior 
to initiation of the garnishment proceedings against the borrower 
informing the borrower of the nature and amount of the debt, the 
intention of the guaranty agency or Secretary, as appropriate, to 
initiate garnishment, and an explanation of the rights of the borrower. 
The statute provides the borrower, among other rights, an opportunity 
for a hearing regarding the proposed garnishment.
    Current Regulations: Section 682.410(b)(9) of the FFEL Program 
regulations includes the rules that govern the hearing notice and the 
conduct of the hearing in cases of administrative wage garnishment by a 
guaranty agency.
    Current paragraph (b)(9)(i)(B) requires a guaranty agency to mail 
to the borrower's last known address, at least 30 days before the 
initiation of garnishment proceedings, a written notice of the nature 
and amount of the debt, the intention of the agency to initiate 
proceedings to collect the debt through deductions from the borrower's 
pay, and an explanation of the borrower's rights. Current paragraphs 
(b)(9)(i)(C) and (b)(9)(i)(D) require a guaranty agency to offer the 
borrower an opportunity to inspect and copy agency records related to 
the debt and an opportunity to enter into a written repayment 
agreement.
    Proposed Regulations: The proposed regulations would amend Sec.  
682.410(b)(9)(i)(B) of the FFEL Program regulations to enumerate the 
elements that a guaranty agency must include in the garnishment notice 
it sends to a defaulted borrower. Under the proposed regulations, the 
notice would: Describe the nature and amount of the debt; the intention 
of the agency to collect the debt through deductions from the 
borrower's disposable pay; provide an explanation of the borrower's 
rights; identify the deadlines by which the borrower must exercise 
those rights; and describe the consequences of the failure to exercise 
those rights in a timely manner.
    The proposed regulations would add new paragraph (b)(9)(i)(J), 
which would specify the rules under which the hearing would be 
conducted, including provisions for granting continuances. 
Specifically, the proposed regulations would require that the hearing 
be conducted as an informal proceeding, require witnesses in an oral 
hearing to testify under oath or affirmation, and require maintenance 
of a summary record of any hearing. Proposed paragraph (b)(9)(i)(J) 
would also allow the borrower to request a continuance of the hearing 
to submit additional evidence or the agency to request and receive from 
the hearing officer a reasonable extension of time sufficient to enable 
the agency to evaluate and respond to any additional evidence or any 
objections raised pursuant to paragraph (b)(9)(i)(F)(1)(ii).
    The proposed regulations would also add new paragraph (b)(9)(i)(O), 
which would provide for the withholding order to be effective until the 
guaranty agency rescinds the order or the agency has fully recovered 
the amount owed by the borrower.
    The proposed regulations would redesignate paragraphs (b)(9)(i)(F) 
through (b)(9)(i)(I) of Sec.  682.410 as new paragraphs (b)(9)(i)(P) 
through (b)(9)(i)(S). Proposed Sec.  682.410(b)(9)(i)(Q) would clarify 
that a borrower who wishes to object to the garnishment on the basis 
that he or she is not subject to garnishment because of involuntary 
separation from employment bears the burden of raising

[[Page 45645]]

and proving that claim. Proposed Sec.  682.410(b)(9)(i)(S) would 
enumerate the information that a guaranty agency must include in the 
withholding order sent to the employer. The order may only include the 
information necessary for the employer to comply with the withholding 
order. Accordingly, under the proposed regulations, the order must 
include the borrower's name, address, and SSN, as well as instructions 
for the employer's withholding of the borrower's pay and information as 
to where the employer must send the withheld funds.
    The proposed regulations would redesignate paragraph Sec.  
682.410(b)(9)(i)(O) as new paragraph (b)(9)(i)(U).
    Finally, Sec.  682.410(b)(9)(ii) of the proposed regulations would 
add definitions for certain terms used in paragraph (b)(9)(i). These 
definitions were incorporated from other sections of the existing FFEL 
Program regulations and other Department regulations.
    Reasons: A non-Federal negotiator requested that the regulations be 
revised to include an expanded description of what would be permissible 
information to include in the garnishment notice sent to defaulted 
borrowers. In an effort to provide clear regulatory guidance to 
guaranty agencies sending such notices and to ensure that borrowers 
fully understand the garnishment process and its implications, the 
Department is proposing to list the required components of the 
garnishment notice in the regulations.
    The Department added language in new paragraph (b)(9)(i)(J) to 
emphasize that the hearing official in an administrative wage 
garnishment hearing must conduct the hearing as an informal proceeding, 
require witnesses in an oral hearing to testify under oath or 
affirmation, and maintain a summary record of the hearing. The 
Department added this language because FFEL Program garnishment 
hearings and decisions, like those conducted by the Department, may be 
subject to judicial review. This judicial review is based on a review 
of the administrative record. The proposed regulatory language ensures 
that the guaranty agency will have a record appropriate for judicial 
review that includes not only the decision issued, but also a summary 
record of the proceedings showing the evidence considered and the 
procedure followed by the guaranty agency.
    The Department proposes to allow a borrower to request a 
continuance of the hearing if the borrower needs more time to gather, 
prepare, and present additional evidence. Proposed paragraph 
(b)(9)(i)(F)(1)(ii) would allow a borrower to raise permissible 
objections during the hearing even if they were not raised in the 
borrower's written request for a hearing. Because a borrower has a 
limited period of time to request a hearing, and gathering evidence in 
preparation for such a hearing may identify an additional basis for the 
borrower to object to the garnishment, the Department agreed with a 
negotiator's proposal to allow the borrower to raise these objections 
any time prior to completion of the hearing and to request a 
continuance if the borrower requires more time to present evidence. At 
the suggestion of another non-Federal negotiator, proposed paragraph 
(b)(9)(i)(J) would require the hearing official to grant a guaranty 
agency's request for a continuance to provide time for the agency to 
respond to such an objection. We propose this requirement to ensure 
that the agency has sufficient time to respond to an objection from the 
borrower, especially because the borrower may raise the objection 
without prior notice to the guaranty agency.
    Proposed paragraph (b)(9)(i)(O) specifies the process by which a 
wage withholding order may be terminated by the guaranty agency and was 
drafted to reflect similar rules under 34 CFR 34.26. The proposed 
regulations would require a withholding order to be effective until the 
guaranty agency rescinds the order or the amount owed has been fully 
recovered. Under the proposed regulations, if the borrower does not 
have enough pay in a pay period to permit withholding, the employer 
must notify the guaranty agency and restart garnishment when the 
borrower's pay is sufficient. We propose this language to provide full 
information and clarity with regard to the withholding process for both 
the employer and the guaranty agency.
    Proposed paragraphs (b)(9)(i)(P) through (b)(9)(i)(S) are similar 
to paragraphs (b)(9)(i)(F) through (b)(9)(i)(I) of the current 
regulations but would be reordered by this proposed rule. These 
provisions, and paragraph (b)(9)(i) generally, were reordered to 
reflect the chronological processes of garnishment notification, 
hearing, and withholding orders, and to provide a more logical order to 
the proposed regulations.
    The Department proposes to add new paragraph (b)(9)(i)(Q) to 
clarify that a borrower bears the burden of claiming involuntary 
separation from employment. The Department proposes to place that 
burden on the borrower because such information is more easily 
accessible to and reportable by the borrower rather than by the 
guaranty agency.
    At the request of a non-Federal negotiator, new paragraph 
(b)(9)(i)(S) specifies the contents of the withholding order, to ensure 
that the order reflects the information necessary for the employer to 
comply with the withholding order.
    The proposed regulations would redesignate current paragraph 
(b)(9)(i)(O) as new paragraph (b)(9)(i)(U). This new paragraph would 
reflect the statutory provision that allows a borrower to seek judicial 
relief against an employer for taking adverse employment action against 
the borrower because of the garnishment. As with other provisions in 
paragraph (b)(9)(i), this paragraph was reordered to reflect the 
chronological processes of garnishment notification, hearing, and 
withholding orders, and to provide a more logical order to the proposed 
regulations.
    Section 682.410(b)(9)(ii) of the proposed regulations would add 
definitions for certain terms used in paragraph (b)(9)(i). The 
Department incorporated these definitions from existing FFEL Program 
regulations to provide clarity and readily-available definitions that 
affect the preceding sections.

Modification of the FFEL Program Regulations (34 CFR Part 682)

    Background: As noted earlier, the SAFRA Act ended the making of new 
FFEL Program loans as of July 1, 2010. The current FFEL Program 
regulations in 34 CFR part 682 contain numerous provisions that are no 
longer needed in light of this change. The regulations that are no 
longer needed include those governing: The FFEL loan application 
process and use of the master promissory note; interest rates for loans 
originated after July 1, 2010; lender loan origination, refinancing, 
and disbursement requirements; fees for refinanced loans; lender 
disclosures for newly originated loans; school loan delivery and 
entrance counseling requirements for first-time borrowers; and school 
and school-affiliated organization lender requirements. The current 
regulations also contain other provisions that are no longer needed, 
including regulations that require a guaranty agency to: provide 
lender-of-last-resort services to borrowers; establish regulations for 
eligible schools to participate in the guaranty agency's program; and 
guarantee loans up to specified annual and aggregate limits. Other 
regulations that are no longer necessary include those that: Specify a 
borrower's responsibility in the loan origination process; govern a 
guaranty agency's authority to limit and suspend

[[Page 45646]]

school participation in its program; govern a guaranty agency's 
required area of service in guaranteeing loans; prohibit guaranty 
agencies from offering inducements to prospective borrowers, schools 
and school-affiliated organizations, or to any individual or entity to 
secure loan applications; bar guaranty agencies from assessing 
additional costs or denying benefits to schools and lenders 
participating in the agency's program on the basis of that entity's 
failure to agree to participate or to provide a specified volume of 
loans for the agency's guarantee; and prohibit guaranty agencies from 
offering incentive payments or other inducements to a lender to secure 
additional loan guarantees.
    The current FFEL Program regulations contain other provisions that 
the Department believes are obsolete. Subpart E of 34 CFR part 682 
includes regulations governing the Federal Insured Student Loan (FISL) 
Program. No new FISL Program loans have been made since 1983. 
Accordingly, subpart E and appendix C to subpart E, which provides 
guidance for curing lender due diligence violations on FISL Program 
loans, are no longer needed. In addition, the FFEL Program regulations 
include some sections implementing certain time-limited provisions of 
the HEA, such as the regulations governing the creation of the guaranty 
agencies' Operating Funds and Federal Funds and the regulations 
governing Federal nonliquid assets held by a guaranty agency. These 
regulations are no longer applicable and can be eliminated from the 
Code of Federal Regulations. To address these issues, the Department 
proposes the following technical changes to the FFEL Program 
regulations:
     Eliminating provisions governing loan origination and 
disbursement and related requirements and activities except for certain 
school-based requirements and related activities.
     Eliminating obsolete provisions that do not reflect the 
current procedures in the FFEL Program.
     Making necessary conforming changes in various provisions 
to clarify the regulations.
    The Department is retaining all of the FFEL Program definitions, 
the provisions and sections of the regulations that govern the 
servicing and collection of FFEL loans, the guaranty agency program 
requirements that are still applicable, and the lender participation 
requirements.
    During the negotiated rulemaking sessions, the Department provided 
the non-Federal negotiators with a detailed overview of the planned 
technical changes to the FFEL Program regulations that identified all 
the regulatory provisions and sections recommended for elimination, 
identified other provisions that required conforming and other 
clarifying technical changes or corrections, and provided the rationale 
for each proposed technical change.
    During the negotiations, many non-Federal negotiators representing 
lenders, guaranty agencies, and loan servicers raised questions about 
the Department's plan to eliminate the regulations dealing with loan 
origination and disbursement, the FISL Program, and a guaranty agency's 
maintenance of its Federal Fund and Operating Fund in the first few 
years after those funds were established. These negotiators argued that 
the FISL provisions should be retained because there are still some 
outstanding FISL loans to which some of the regulations may apply and 
that provisions governing loan origination and disbursement are needed 
because they are relevant to guaranty agency oversight of lenders and 
the review of lender claims, and were often helpful in resolving 
borrower disputes. These same negotiators stated that the regulations 
governing a guaranty agency's maintenance of the Federal Fund and 
Operating Fund should be retained because there were cross-references 
to these sections elsewhere in the regulations. The Department 
indicated that it sees no basis for retaining regulatory provisions 
that are no longer supported in the HEA or that are obsolete. The 
Department pointed out that there were fewer than 500 FISL loans in 
repayment, many of them defaulted loans held by the Department, and 
also noted that lender requirements and activities that were subject to 
guaranty agency oversight remained enforceable even if the regulatory 
provisions governing them are not included in future copies of the Code 
of Federal Regulations. The Department agreed to eliminate and make 
other necessary changes to address cross-references that would be 
rendered obsolete by the planned technical changes.
    One non-Federal negotiator representing legal assistance 
organizations asked the Department to retain Sec.  682.103, which 
identifies the applicability of the various subparts in the regulations 
because the negotiator felt it was a useful index to the regulatory 
subparts. The same negotiator also requested that Sec.  682.209(k), 
which acknowledges that a lender may be subject to any claims and 
defenses a borrower could assert against a school with respect to a 
loan under certain circumstances, be retained to facilitate borrowers 
raising such defenses against repayment. The negotiating committee 
agreed to retain these two provisions.
    A non-Federal negotiator representing the guaranty agencies asked 
that the Department remove provisions in current Sec.  682.401(e) 
identifying guaranty agency payments and activities that do not 
represent prohibited incentives to secure new loan guarantees. The 
negotiator stated that removing provisions identifying prohibited 
payments and activities while retaining the related permissible 
activities and payments would result in misleading regulations and was 
unnecessary. The negotiating committee agreed to remove these 
provisions. The non-Federal negotiators representing lenders, guaranty 
agencies, and loan servicers also identified additional technical 
corrections and minor clarifying technical edits that the negotiating 
committee agreed to make.
    Following the Department's review and discussion with the non-
Federal negotiators of the technical changes and corrections the 
Department proposed to make in the FFEL Program regulations and the 
rationale for those changes, the negotiating committee agreed the 
changes should be made to update and streamline the regulations.
    The more substantive technical changes to the FFEL Program 
regulations are discussed below. A complete summary of the proposed 
technical changes to 34 CFR part 682 is found in Appendix A at the end 
of this NPRM.

Subpart A--Purpose and Scope

Sec.  682.102 Obtaining and Repaying a Loan

    Statute: Sections 428(a)(2)-(6), 428B (a) and (b), and 428C(b) of 
the HEA authorize the application process for FFEL Stafford, PLUS, and 
Consolidation loans.
    Current Regulations: Section 682.102(a)-(d) of the current 
regulations provide a general description of the process by which an 
individual requests a Stafford, PLUS, or Consolidation loan. Current 
Sec.  682.102(e) of the regulations provides a general summary of FFEL 
Program loan repayment.
    Proposed Regulations: The proposed regulations would amend the 
heading of Sec.  682.102 to read ``Repaying a loan,'' remove Sec.  
682.102(a)-(d), which detail the application process for Stafford, 
PLUS, and Consolidation loans, and redesignate the paragraphs in 
current Sec.  682.102(e), which describes the loan repayment process, 
as Sec.  682.102(a)-(g).

[[Page 45647]]

    Reasons: Under the SAFRA Act, no new FFEL Program loans may be made 
after June 30, 2010. Accordingly, the provisions that relate to the 
making of new FFEL Program loans are no longer needed.

Subpart B--General Provisions

Sec.  682.200 Definitions

Lender
    Statute: Section 435(d)(7) of the HEA specifies the requirements 
for an eligible lender that makes or holds FFEL loans as a trustee for 
an institution of higher education or a school-affiliated organization. 
Under the HEA, the trustee lender: May not make loans to undergraduate 
students at the school; may only make Federal Stafford Loans to 
graduate and professional students at that school; and may only offer 
loans with an origination fee or an interest rate, or both, that are 
less than the fee or rate otherwise authorized for such loans in the 
HEA. In addition, the loans must be included in an annual compliance 
audit that meets the requirements in section 435(d)(8) of the HEA.
    Current Regulations: Sections 682.601(a)(3), (a)(5), and (a)(7) of 
the current regulations and paragraphs (7) and (8) of the definition of 
``Lender'' in Sec.  682.200(b) reflect the requirements of section 
435(d)(7) and (8) of the HEA.
    Proposed Regulations: The proposed regulations would move the 
provisions of current Sec.  682.601(a)(3), (a)(5), and (a)(7) to 
paragraph (8) of the definition of ``Lender'' in Sec.  682.200(b), and 
remove from the regulations the remainder of Sec.  682.601.
    Reasons: We are proposing to remove Sec.  682.601 from the 
regulations because (as a result of the SAFRA Act) no new loans are 
being made under the FFEL Program and therefore most of the provisions 
in that section are no longer relevant. However, the requirements 
governing lenders operating as trustees on behalf of a school or a 
school-affiliated organization that serves as a FFEL lender were 
retained and relocated to the definition of ``Lender'' consistent with 
section 435(d)(7) of the HEA.
Nationwide Consumer Reporting Agency
    Statute: A ``nationwide consumer reporting agency'' is defined in 
15 U.S.C. 1681a(p).
    Current Regulations: The current regulations at Sec.  682.200(b) 
define ``nationwide consumer reporting agency'' through a cross-
reference to 15 U.S.C. 1681(a).
    Proposed Regulations: The proposed regulations would amend the 
definition of ``nationwide consumer reporting agency'' to include a 
more specific statutory citation for the definition of ``nationwide 
consumer reporting agency'' at 15 U.S.C. 1681a(p), and to specify that 
a ``nationwide consumer reporting agency'' is one that compiles and 
maintains public record and credit account information on consumers on 
a nationwide basis.
    Reasons: The changes would correct the statutory citation for the 
definition and reflect the terminology used in that statute.
Satisfactory Repayment Arrangements
    Statute: Section 428F(b) of the HEA provides that a borrower with a 
defaulted loan may renew eligibility for title IV student financial 
assistance after making six consecutive monthly payments on the 
defaulted loan. The required monthly payment amount cannot be more than 
is reasonable and affordable based on the borrower's total financial 
circumstances. A borrower is limited to one opportunity to regain 
eligibility for title IV student financial assistance under this 
provision.
    Current Regulations: The definition of ``satisfactory repayment 
arrangement'' in current Sec.  682.200(b) reflects the statutory 
requirements and specifies that the required six consecutive monthly 
payments must be on-time, voluntary, full monthly payments. For this 
purpose, ``voluntary payments'' are those made directly by the borrower 
and do not include payments obtained by income tax offset, garnishment, 
or income or asset execution. The regulations state that ``on-time'' 
means a payment received by the Secretary or a guaranty agency or its 
agent within 15 days of the scheduled due date. For purposes of 
consolidating a defaulted loan in the FFEL Program, ``satisfactory 
repayment arrangements'' means the making of three consecutive, on-time 
voluntary full monthly payments on a defaulted loan.
    Proposed Regulations: The proposed regulations would replace the 
current cross-reference to Sec.  682.401(b)(4) in paragraph (1) of the 
definition of ``satisfactory repayment arrangement'' with language 
explaining that the definition applies to a borrower who is trying to 
regain eligibility under the title IV student financial assistance 
programs. The proposed regulations would also remove current paragraph 
(2) of the definition, which relates to FFEL Program loan 
consolidation, and renumber current paragraph (3) as paragraph (2).
    Reasons: The change to paragraph (1) of the definition is intended 
to clarify that a borrower making satisfactory repayment arrangements 
on a defaulted loan regains eligibility for all title IV assistance 
programs, not just eligibility for additional title IV loans. Paragraph 
(2) of the definition is no longer needed because no new FFEL 
Consolidation loans are being made.

Sec.  682.204 Maximum Loan Amounts

    Statute: Sections 428(b)(1)(A) and (B) and 428H(d) of the HEA 
specify the annual and aggregate loan limits that apply to Subsidized 
and Unsubsidized Stafford loans for undergraduate and graduate and 
professional students in the FFEL and Direct Loan programs.
    Current Regulations: Section 682.204 of the current FFEL Program 
regulations reflects the annual and aggregate loan limits specified in 
the HEA. The loan limits are the combined limits for borrowing under 
the FFEL Stafford Loan (Subsidized and Unsubsidized) and Direct 
Subsidized and Unsubsidized Loan programs. The current regulations also 
include the Stafford Loan annual and aggregate loan limits for loans 
first disbursed prior to July 1, 2008 and, in Sec.  682.204(f), the 
annual loan limits for loans made under the Supplemental Loans for 
Students (SLS) program.
    Proposed Regulations: The proposed regulations would remove 
references throughout current Sec.  682.204 to the annual and aggregate 
Stafford Loan limits that existed prior to July 1, 2008 and would also 
remove Sec.  682.204(f), which includes the SLS annual loan limits. The 
remaining paragraphs in the section would be redesignated as paragraphs 
(f)-(l). All references in Sec.  682.204 to the Federal Direct 
Stafford/Ford Loan Program would be replaced by references to the 
Direct Subsidized or Direct Unsubsidized Loan Program, as applicable. 
Section 682.204(a)(1)(iii), (c)(1)(iii) (current (c)(1)(ii)(C), and 
(d)(1)(iii)) would be amended to correct the numerator of the second 
fraction used to calculate the prorated annual loan limit when a 
student is enrolled in a program of study that is less than a full 
academic year in length. Specifically, the numerator would be revised 
to show the number of weeks that the student is enrolled in the program 
rather than the number of weeks in the program.
    Reasons: The proposed regulations would retain only the loan limits 
that were in effect as of July 30, 2010, the last date that new loans 
were made under the FFEL Program. The pre-July 1, 2008, annual and 
aggregate loan limits that had ceased to be effective two years before 
the last new FFEL Program loans

[[Page 45648]]

were made would be removed from the regulations. Similarly, the SLS 
annual loan limits would be removed because the authority to make loans 
under that program ended effective July 1, 1994.
    For consistency with proposed changes in the Direct Loan Program 
regulations, references to ``Federal Direct Stafford/Ford Loans'' and 
``Federal Direct Unsubsidized Stafford/Ford Loans'' would be changed to 
``Direct Subsidized Loans'' and ``Direct Unsubsidized Loans,'' 
respectively.
    The changes in Sec.  682.204(a)(1)(iii), (c)(1)(iii) (current 
(c)(1)(ii)(C)), and (d)(1)(iii)) are necessary to make the numerator of 
the second fraction consistent with the numerator of the first fraction 
that appears in each of these paragraphs. In the first fraction, the 
numerator refers to the number of semester, trimester, quarter, or 
clock hours that the student is enrolled in the program.

Sec.  682.205 Disclosure Requirements for Lenders

    Statute: Section 433(a) of the HEA requires each FFEL lender to 
provide a disclosure to a borrower prior to or at the time a FFEL PLUS 
loan, Stafford loan, or Unsubsidized Stafford loan is disbursed. The 
disclosure must include:
    (1) A statement prominently and clearly displayed and in bold print 
that the borrower is receiving a loan that must be repaid;
    (2) The name of the eligible lender, and the address to which 
communications and payments should be sent;
    (3) The principal amount of the loan;
    (4) The interest rate on the loan;
    (5) Any charges or fees that may be assessed on the loan;
    (6) The borrower's option to pay accruing interest on an 
unsubsidized loan while the borrower is a student at an institution of 
higher education and the timing and frequency of capitalization if 
interest is not paid;
    (7) For loans made to a parent borrower on behalf of a student 
under section 428B, information about deferring payment on the loan;
    (8) The yearly and cumulative maximum amounts that may be borrowed;
    (9) A cumulative balance statement of all loans owed by the 
borrower to the lender, including the loan being disbursed, and an 
estimate of the projected monthly payment, given such cumulative 
balance;
    (10) Information on repayment of the loan; and
    (11) The definition of default and the consequences to the borrower 
of defaulting on the loan.
    Section 433(c) of the HEA also requires the lender to provide a 
separate disclosure to a borrower each time a new loan is approved 
which summarizes, in simple and understandable terms, the rights and 
responsibilities of the borrower with respect to the loan. Section 
428C(b)(1)(F) of the HEA requires that when a lender provides a 
borrower with an application for a consolidation loan, the lender must 
provide the borrower with information on whether consolidation would 
result in the loss of any loan benefits for the borrower. The lender 
providing the consolidation loan application must also inform the 
borrower that loan benefits may vary among lenders, tell the borrower 
that simply applying for a consolidation loan does not obligate the 
borrower to take out the loan, provide information on available 
repayment plans, and explain the consequences to the borrower of 
defaulting on a consolidation loan.
    Current Regulations: Section 682.205(a) of the current regulations 
reflects the requirements of section 433(a) of the HEA. This regulatory 
section details the initial disclosure a FFEL lender must provide to a 
borrower prior to or at the time of the first disbursement of a PLUS, 
Stafford, or Unsubsidized Stafford loan. Consistent with section 433(c) 
of the HEA, Sec.  682.205(b) and (g) of the regulations require a 
separate notice of borrower rights and responsibilities and a plain 
language disclosure each time a new PLUS, Stafford, or Unsubsidized 
Stafford loan is approved for a borrower. Section 682.205(i) requires 
that at the time a lender provides a Consolidation loan application to 
a borrower, the lender must disclose the information specified in 
section 428C(b)(1)(F) of the HEA.
    Proposed Regulations: The proposed regulations would remove Sec.  
682.205(a), (b), (g), and (i) from the FFEL Program regulations and 
renumber the remaining provisions.
    Reasons: The SAFRA Act ended the authority to make new FFEL Program 
loans, including new FFEL Consolidation loans. As a result, the lender 
disclosure requirements for new loans are no longer needed and thus 
should be removed from the regulations.

Sec.  682.206 Due Diligence in Making a Loan

    Statute: Title IV, part B of the HEA includes the terms and 
conditions of FFEL Program loans and the requirements for lenders 
making FFEL Program loans.
    Current Regulations: Consistent with title IV, part B of the HEA, 
Sec.  682.206 of the current regulations requires a FFEL lender to 
exercise due diligence in making a loan. Loan making duties include 
determining the borrower's loan amount, approving the loan, explaining 
to the borrower his or her rights and responsibilities, and confirming 
that each loan is supported by an executed enforceable promissory note 
or master promissory note. The regulations also require a FFEL lender, 
prior to making a Consolidation loan, to collect from the holder of 
each loan being repaid through the Consolidation loan a certification 
that the loan is a legal, valid, and binding obligation of the 
borrower, that the loan was made and serviced in compliance with 
applicable law and regulations, and that, where applicable, the loan's 
guarantee remains in full force and effect. Before making a 
Consolidation loan, a lender must also notify the applicant of the 
option to cancel the Consolidation loan before it is made and provide 
the deadline for the applicant to exercise this option.
    Proposed Regulations: The proposed regulations would remove Sec.  
682.206 from the FFEL Program regulations.
    Reasons: The SAFRA Act eliminated the authority to make new FFEL 
Program loans, including new FFEL Consolidation loans. As a result, the 
requirements governing the making of new FFEL Program loans are no 
longer needed and thus should be eliminated from the regulations.

Sec.  682.207 Due Diligence in Disbursing a Loan

    Statute: Sections 428(b)(1)(N), 428B(c), and 428G of the HEA detail 
the disbursement requirements for FFEL Stafford and PLUS loans. Section 
428G of the HEA requires that loan proceeds be disbursed in two or more 
installments over the course of the loan period, based on a 
disbursement schedule provided to the lender by the school, unless: (1) 
The loan period is not more than one semester, one trimester, one 
quarter, or four months in duration; and (2) the school has a cohort 
default rate below a certain specified level. Section 428G(e) of the 
HEA allows the proceeds of a loan to be disbursed in a single 
installment if the loan is made to a student to cover the cost of 
attendance in a study abroad program offered by a school with a cohort 
default rate below a certain specified level. Section 428G(a) specifies 
that no installment may exceed more than one-half of the loan. Under 
section 428G(b), loans may not be disbursed earlier than 30 days prior 
to the first day of the loan period and first time borrowers in 
undergraduate courses of study may not receive the first installment 
until 30

[[Page 45649]]

days after beginning their course of study. Under section 428G(d), 
second or subsequent installments of a loan cannot be disbursed if the 
lender is informed that the student has withdrawn from the school and a 
disbursement that is withheld for this reason is treated as a 
prepayment on the borrower's loan. Section 428(b)(1)(N) requires that 
funds borrowed by a student be disbursed to the school by check or 
other means that is payable to, and requires the endorsement of or 
other certification by, the student. This provision also authorizes, in 
certain circumstances, the direct disbursement of loan proceeds to the 
student if the student is enrolled in a study abroad program or is 
enrolled at an eligible foreign school. Section 428B(c) of the HEA 
requires PLUS loans to be disbursed in accordance with the requirements 
of section 428G of the HEA, and to be disbursed by electronic funds 
transfer to the school or in the form of a check co-payable to the 
school and the PLUS borrower.
    Current Regulations: Section 682.207 of the regulations reflects 
the requirements in the HEA for disbursement of Stafford and PLUS 
loans.
    Proposed Regulations: The proposed regulations would remove Sec.  
682.207 from the FFEL Program regulations.
    Reasons: The SAFRA Act ended the authority to make new FFEL Program 
loans. As a result, the requirements governing loan disbursement are no 
longer needed and thus should be removed from the regulations.

Sec.  682.209 Repayment of a Loan

    Statute: Section 428(b)(7) of the HEA provides that the repayment 
period on a Federal Stafford loan begins the day after six months after 
the date the student ceases to carry at least one-half the normal full-
time academic workload as determined by the institution. Section 
428B(e) of the HEA authorizes the refinancing of FFEL PLUS loans to 
secure a combined repayment plan or to secure a variable interest rate. 
Section 493C of the HEA, governing the IBR plan, provides for a 
borrower's loan payment to be less than the accruing interest on the 
loan.
    Current Regulations: Section 682.209(a)(3) specifies when repayment 
on a Federal Stafford Loan begins. Section 682.209(e) and (f) govern 
the refinancing of PLUS and SLS loans, respectively, and paragraph (g) 
specifies the conditions under which these loans may be refinanced. 
Section 682.209(j) requires a lender, within 10 business days after 
receiving a written request for a certification of payoff information 
on loans it holds in connection with a borrower's Consolidation loan 
application, to provide the requesting consolidation lender with either 
the completed certification or an explanation of the reasons it is 
unable to do so.
    Proposed Regulations: The proposed regulations would amend Sec.  
682.209(a)(3)(i) by adding new paragraph Sec.  682.209(a)(3)(i)(D), 
which specifies that borrowers with Stafford loans that have fixed 
interest rates of 6 percent, 5.6 percent, or 6.8 percent enter 
repayment on those loans the day after six months following the date 
the borrower was no longer enrolled on at least a half-time basis. The 
proposed regulations would remove current Sec.  682.209(e) through (g) 
and (j) from the regulations and redesignate the remaining paragraphs 
as paragraphs (e) through (g). Redesignated Sec.  682.209(e) (current 
paragraph (h)) would be amended to specify that a FFEL Consolidation 
loan borrower repaying under the IBR plan may make a scheduled monthly 
payment of less than the interest that accrues on the loan.
    Reasons: For consistency with the HEA, proposed new paragraph Sec.  
682.209(a)(3)(i)(D) would clarify when borrowers with certain fixed 
interest rate Stafford loans enter repayment on those loans. The 
proposed change to newly redesignated Sec.  682.209(e) would clarify 
that the scheduled monthly payment amount for a Consolidation Loan 
borrower repaying under the income-based repayment plan may be less 
than the amount of accruing interest on the loan, which would otherwise 
be required under all other FFEL repayment plans. Current Sec.  
682.209(e), (f), (g), and (j) of the regulations are removed because no 
new FFEL loans are being made.

Sec.  682.210 Deferment

    Statute: Section 428(b)(1)(M) of the HEA authorizes deferments to 
FFEL Program borrowers when they are: (1) Pursuing at least a half-time 
course of study at an eligible institution; (2) pursuing a course of 
study pursuant to a graduate fellowship program approved by the 
Secretary or rehabilitation training program for disabled individuals 
approved by the Secretary; (3) seeking but unable to find full-time 
employment; (4) serving on active duty or performing qualifying 
National Guard duty during a war or other military operation or 
national emergency; or (5) experiencing an economic hardship as defined 
in section 435(o) of the HEA.
    Current Regulations: Section 682.210(a) of the FFEL Program 
regulations contains a number of provisions that describe the terms of 
and the rules for granting deferments on FFEL Program loans. Section 
682.210(a)(1) of the regulations reflect the prior statutory provision 
that provided for a six-month post-deferment grace period for borrowers 
with loans made before October 1, 1981. Paragraph (b) of this section 
lists the authorized deferments available to borrowers who received 
FFEL Program loans as new borrowers prior to July 1, 1993. Paragraphs 
(c) through (e) and (h) of Sec.  682.210 contain the eligibility 
criteria that all FFEL borrowers must meet to qualify for an in-school, 
graduate fellowship, rehabilitation training program, or unemployment 
deferment. Paragraphs (f) through (g) and (i) through (r) of Sec.  
682.210 contain the eligibility criteria for deferments that are 
available to individuals who borrowed as new borrowers before July 1, 
1993. Paragraphs (s) through (v) contain the eligibility criteria for 
deferments available to new borrowers on or after July 1, 1993, 
military service deferments, and deferments available to PLUS loan 
borrowers on loans first disbursed on or after July 1, 2008. Section 
682.210(t)(7) of the regulations permits the representative of a 
borrower who is serving in the military to request a military service 
deferment on the borrower's behalf.
    Proposed Regulations: The proposed regulations would amend Sec.  
682.210(a)(4) of the regulations to provide, consistent with Sec.  
682.210(t)(7), that a borrower's representative may request a military 
service deferment on behalf of the borrower. In Sec.  682.210(b), the 
introductory language in paragraphs (b)(1) through (6) of Sec.  682.210 
would be revised to clearly identify the cohort of borrowers to which 
each paragraph applies. Throughout Sec.  682.210(b) cross-references 
would be added to the eligibility criteria described in paragraphs (c) 
through (r) of Sec.  682.210 that are applicable to deferments 
available to these borrowers. The proposed regulations would also amend 
Sec.  682.210(s)(2) by removing the exception clause at the end of the 
provision, and would amend Sec.  682.210(u)(5) by replacing the words 
``military active'' with ``post-active.''
    Reasons: The proposed regulations would amend Sec.  682.210(a)(4) 
to facilitate deferment requests by borrowers serving in the military 
by further clarifying that a representative of the borrower may apply 
for the deferment on the borrower's behalf.
    The proposed changes in Sec.  682.210(b) would clearly identify the 
pre-July 1, 1993, cohorts of new borrowers to which the paragraph 
applies and would

[[Page 45650]]

distinguish the deferments available to these borrowers from those 
available to new borrowers on or after July 1, 1993. Technical changes 
would be made in Sec.  682.210(b)(i) to correct a cross-reference, 
clarify that the deferment granted to borrowers in the specified cohort 
are subject to the procedural requirements described in Sec.  
682.210(c), and remove obsolete language related to borrowers attending 
schools operated by the Federal government and to borrowers who are not 
U.S. nationals attending schools that are not located in a State.
    The clause at the end of Sec.  682.210(s)(2) should be removed 
because no FFEL borrowers are required to take out a new Stafford or 
SLS loan to qualify for an in-school deferment. A technical change 
would be made in Sec.  682.210(u)(5) to clarify that the provision 
applies to borrowers seeking a post-active duty student deferment 
rather than a military service deferment.

Sec.  682.214 Compliance With Equal Credit Opportunity Requirements

    Statute: The Equal Credit Opportunity Act, 15 U.S.C. 1601 et seq., 
is intended to protect applicants for consumer credit, including 
student loans, against discrimination.
    Current Regulations: Current Sec.  682.214 provides that a lender 
making subsidized Federal Stafford Loans must comply with the 
requirements of the Equal Credit Opportunity Act regulations issued by 
the Board of Governors of the Federal Reserve System in Regulation B 
(12 CFR part 202).
    Proposed Regulations: The proposed regulations would remove Sec.  
682.214 from the FFEL Program regulations.
    Reasons: The SAFRA Act ended the making of new FFEL loans and 
therefore these requirements should be eliminated from the FFEL 
regulations.

Subpart C--Federal Payments of Interest and Special Allowance

Sec.  682.300 Payment of Interest Benefits on Stafford and 
Consolidation Loans

    Statute: Section 428(a)(3) of the HEA provides that the Secretary 
will pay the interest on Stafford Loans on behalf of eligible borrowers 
during certain periods. Section 428(a)(3)(A)(v) of the HEA specifies 
that a lender may not receive interest payments on a loan for a period 
any earlier than 10 days before the first disbursement of a loan if the 
loan is disbursed by check, three days before the first disbursement of 
the loan if the loan is disbursed by electronic funds transfer, or 
three days before the disbursement of the loan if the loan is disbursed 
through an escrow agent on behalf of the lender. Section 428(a)(7) of 
the HEA specifies that a lender may not charge interest or receive 
interest subsidies or special allowance payments on loans for which the 
disbursement checks have not been cashed or for which the electronic 
funds transfers have not been completed.
    Current Regulations: Section 682.300(c) details the circumstances 
under which the Secretary will not make interest payments to a loan 
holder. Section 682.300(c)(3) and (4) of the regulations reflect the 
statutory limitations on interest billing on the first disbursement of 
a subsidized Stafford loan and on loans for which the check has not 
been cashed or the electronic funds transfer has not been completed.
    Proposed Regulations: The proposed regulations would remove Sec.  
682.300(c)(3) and (4) from the FFEL Program regulations.
    Reasons: As a result of the SAFRA Act, no new FFEL Program loans 
will be made, and thus these provisions should be eliminated from the 
regulations.

Sec.  682.301 Eligibility of Borrowers for Interest Benefits on 
Stafford and Consolidation Loans

    Statute: Section 428(a)(2)(E) of the HEA specifies that in 
determining whether a student has the financial need to qualify for the 
interest subsidy on a FFEL Stafford loan, the expected family 
contribution of the student for the academic year for which financial 
need is being determined may be offset by Unsubsidized Stafford loans, 
parent PLUS loans, and loans under any State-sponsored or private loan 
program that are made for that same academic year.
    Current Regulations: Section 682.301(c) of the regulations reflects 
Sec.  428(a)(2)(E) of the HEA.
    Proposed Regulations: The proposed regulations would remove Sec.  
682.301(c) from the regulations.
    Reasons: As a result of the SAFRA Act, no new FFEL Program loans 
will be made and, thus, this provision related to determining borrower 
eligibility for the interest subsidy on new loans should be eliminated 
from the FFEL regulations.

Sec.  682.305 Procedures for Payment of Interest Benefits and Special 
Allowance and Collection of Origination and Loan Fees

    Statute: Section 428(b)(1)(U)(iii)(I) of the HEA requires a lender 
that holds or originates more than $5,000,000 in FFEL loans during the 
lender's fiscal year to submit to the Department an annual compliance 
audit conducted by a qualified, independent organization or individual. 
Section 435(d)(2)(A)(vii) of the HEA specifies that an institution of 
higher education engaging in activities as an eligible lender must 
submit to the Secretary an annual compliance audit conducted in 
accordance with the requirements of section 428(b)(1)(U)(iii)(I) of the 
HEA.
    Current Regulations: Section 682.305(c) of the regulations reflects 
the statutory requirement that a FFEL lender originating or holding 
more than $5 million in FFEL Program loans during its fiscal year must 
submit an annual independent lender compliance audit. Section 
682.305(c)(1)(ii) specifies that, regardless of the dollar volume of 
loans originated or held, a school lender or an eligible lender serving 
as trustee for a school or school-affiliated organization for the 
purpose of originating FFEL loans must submit an independent compliance 
audit to the Department each year. Section 682.305(c)(2)(vi) and 
(c)(2)(vii) details the compliance review requirements for such a 
school or trustee lender audit.
    Proposed Regulations: The proposed regulations would remove the 
reference in Sec.  682.305(c)(1)(i) to FFEL lenders originating loans.
    Reasons: As a result of the SAFRA Act, no new loans are being made 
in the FFEL Program. Therefore, we are eliminating references to the 
origination of loans from this regulation.

Subpart D--Administration of the Federal Family Education Loan Programs 
by a Guaranty Agency

Sec.  682.401 Basic Program Agreement

    Statute: Sections 428(b) through (o) of the HEA contain the 
requirements that apply to a guaranty agency administering the FFEL 
Program under agreements with the Department.
    Current Regulations: Section 682.401 of the regulations reflects 
the statutory requirements that apply to a guaranty agency in the FFEL 
Program, including the following provisions:
     Paragraphs (b)(1) and (b)(2) of the regulations require a 
guaranty agency to make loans available to borrowers up to the annual 
and aggregate loan limits specified in the HEA;
     Paragraph (b)(3) specifies the duration of the borrower's 
eligibility;
     Paragraph (b)(5) describes the borrower's responsibilities 
in the loan origination process;
     Paragraph (b)(6) details the eligibility requirements for 
a school to participate in a guaranty agency's program;
     Paragraphs (b)(8) and (b)(9) outline when a guaranty 
agency must guarantee loans for students attending out-of-state

[[Page 45651]]

schools and for out-of-state residents; and
     Paragraphs (b)(12) and (b)(13) authorize a guaranty agency 
to charge lenders an administrative fee for Consolidation loans and 
refinanced loans.
    Section 682.401(c) of the regulations requires a guaranty agency to 
ensure that it, or an eligible lender described in section 435(d)(1)(D) 
of the HEA, serves as a lender-of-last-resort for students who are 
otherwise unable to secure Federal Stafford loans. Section 
682.401(d)(4) authorizes the multi-year use of the Master Promissory 
Note (MPN). Section 682.401(e) specifies certain prohibited and allowed 
activities by guaranty agencies.
    Proposed Regulations: The proposed regulations would remove from 
Sec.  682.401(b) paragraphs (1), (2), (3), (5), (6), (8), (9), (12), 
and (13) and renumber the remaining provisions. The proposed 
regulations would also remove Sec.  682.401(c), (d)(4), and (e) and 
redesignate current paragraphs (d), (f), and (g) as paragraphs (c), 
(d), and (e), respectively. In newly redesignated Sec.  682.401(c) 
(currently Sec.  682.401(d)), paragraphs Sec.  682.401(c)(5) and (6) 
would be redesignated as (c)(4) and (5), respectively.
    Reasons: The regulatory provisions that we are proposing to remove 
from Sec.  682.401 address new FFEL loan originations, the process 
supporting these originations, and a guaranty agency's efforts to 
secure new FFEL loan volume. These provisions should be eliminated from 
the regulations because no new FFEL loans are being made. The remaining 
provisions proposed for elimination relate to school eligibility to 
participate in a guaranty agency's program and the authority of an 
agency to limit, suspend, or terminate a school from its program. For 
purposes of new loans, schools now participate only in the Direct Loan 
Program. Any future actions to limit, suspend, or terminate a school's 
participation in the student loan programs will be undertaken by the 
Department under 34 CFR part 668, subpart G. Therefore, Sec.  
682.401(b)(6) should also be eliminated from the FFEL regulations.

Sec.  682.403 Federal Advances for Claim Payments

    Statute: Sections 422(a) through (c) of the HEA authorize the 
Secretary to provide Federal advances to guaranty agencies for various 
purposes spelled out in the HEA.
    Current Regulations: Section 682.403 of the FFEL regulations 
reflects the Department's authority to provide advances under certain 
circumstances to a State guaranty agency or to one or more private, 
nonprofit guaranty agencies in a State in certain circumstances and 
specifies the conditions under which the Department will provide such 
advances.
    Proposed Regulations: The proposed regulations would remove Sec.  
682.403 from the FFEL Program regulations.
    Reasons: Congress has not appropriated funds for advances to 
guaranty agencies for many years, and such funding is unnecessary as a 
result of the end of new loan originations in the FFEL Program. The 
Department notes that most of the advances made to the guaranty 
agencies were returned to the Secretary in accordance with sections 
422(d), (h), and (i) of the HEA.

Sec.  682.408 Loan Disbursement Through an Escrow Agent

    Statute: Section 428(i) of the HEA authorizes a guaranty agency or 
a FFEL lender to act as an escrow agent by entering into an agreement 
with any other eligible lender that is not an eligible institution or 
an agency or instrumentality of the State for the purpose of disbursing 
FFEL Program loans to students.
    Current Regulations: Section 682.408 of the FFEL Program 
regulations contains provisions governing the use of an escrow agent to 
make Federal Stafford and PLUS loan disbursements, including the nature 
of the agreement that must be established between the lender and the 
escrow agent, the escrow agent's authority, and the requirements for 
the transmittal and disbursement of the loan funds.
    Proposed Regulations: The proposed regulations would remove Sec.  
682.408 from the FFEL regulations.
    Reasons: As a result of the SAFRA Act, no new loan disbursements 
are being made in the FFEL Program. Therefore, this section is no 
longer needed and should be eliminated.

Sec.  682.418 Prohibited Uses of the Assets of the Operating Fund 
During Periods in Which the Operating Fund Contains Transferred Funds 
Owed to the Federal Fund

Sec.  682.420 Federal Nonliquid Assets

Sec.  682.421 Funds Transferred From the Federal Fund to the Operating 
Fund by a Guaranty Agency

Sec.  682.422 Guaranty Agency Repayment of Funds Transferred From the 
Federal Fund

    Statute: We have grouped our discussion of Sec. Sec.  682.418, 
682.420, 682.421, and 682.422 together. Sections 422A and 422B of the 
HEA direct a guaranty agency to establish a Federal Student Loan 
Reserve Fund (referred to as the Federal Fund) and an Operating Fund to 
manage the funds it receives as a guaranty agency.
    Section 422A(e) of the HEA provides that the Federal Fund and any 
nonliquid assets (such as a building or equipment) developed or 
purchased by a guaranty agency in whole or in part with Federal reserve 
funds are the property of the United States. The Federal interest in 
nonliquid assets is prorated based on the percentage of the asset 
developed or purchased with Federal reserve funds. The Secretary is 
authorized to restrict or regulate the use of such assets to the extent 
necessary to protect the Federal share of the asset.
    Section 422A(f) of the HEA authorized a guaranty agency to transfer 
funds from its Federal Fund to establish the agency's Operating Fund 
for a period not to exceed three years following the establishment of 
the Operating Fund. The law also allowed a limited number of agencies, 
with the approval of the Secretary, to transfer interest earned on the 
Federal Fund to their Operating Fund for a three-year period. The HEA 
specifies that the agencies had to repay the transferred funds no later 
than five years from the date the Operating Fund was established, but 
also authorized the Secretary to waive that requirement for repayment 
of transferred amounts of earned interest for up to five additional 
years under certain circumstances.
    Section 422B(e)(3) of the HEA specifies that during any period in 
which a guaranty agency owes transferred funds back to the Federal 
Fund, the guaranty agency is limited to using the Operating Fund only 
for expenses related to the FFEL Program.
    Current Regulations: Section 682.418 of the FFEL regulations 
reflects the statutory limits on a guaranty agency's use of the 
Operating Fund while it contains funds transferred from the agency's 
Federal Fund. Section 682.420 reflects section 422A(e) of the HEA and 
specifies the permitted uses of the Federal portion of a nonliquid 
asset and the treatment of any revenue derived from the asset. Section 
682.421 reflects the statutory authority for transferring funds and 
earned interest from a guaranty agency's Federal Fund to its Operating 
Fund and the requirements for requesting such a transfer. Section 
682.422 reflects the timelines and requirements in section 422A(f) of 
the HEA for repayment of transferred funds back to the agency's Federal 
Fund.
    Proposed Regulations: The proposed regulations would remove 
Sec. Sec.  682.418, 682.420, 682.421, and 682.422 from the FFEL Program 
regulations.

[[Page 45652]]

    Reasons: The Higher Education Amendments of 1998 required the 
financial restructuring of the guaranty agencies, including the 
requirement that each guaranty agency establish a Federal Fund and an 
Operating Fund. Under the terms of that law, the period during which an 
agency could transfer funds from the Federal Fund to its Operating Fund 
and the deadline for repayment of transferred funds back to the Federal 
Fund lapsed many years ago. Therefore, the regulations governing this 
process in Sec. Sec.  682.418, 682.421, and 682.422 are obsolete and 
should be eliminated from the FFEL regulations. Similarly, the 
Department and the guaranty agencies have worked together to resolve 
each instance of nonliquid assets that were purchased or developed in 
whole or in part with Federal Reserve Funds and from which revenue 
could have resulted. Those guaranty agencies have reimbursed their 
Federal Funds for the value of the Federal interest. As a result, the 
requirements of Sec.  682.420 are also obsolete and should be 
eliminated.

Subpart E--Federal Guaranteed Student Loan Programs

Sec. Sec.  682.500-515 and Appendix C to the Regulations

    Statute: Sections 423-425, 427, and 429-430 of the HEA authorize 
and establish the FISL Program, a Federal program of loan insurance for 
lenders that do not have reasonable access to State or private 
nonprofit guaranty agency loan programs.
    Current Regulations: Subpart E of 34 CFR part 682 contains the 
regulations that govern the FISL Program. Appendix C to part 682 
includes certain required procedures for FISL lenders for curing due 
diligence and timely filing violations.
    Proposed Regulations: The proposed regulations would remove all of 
the regulations under subpart E (Sec. Sec.  682.500 through 682.515) 
and reserve the subpart. The proposed regulations would also remove 
Appendix C to part 682 from the regulations.
    Reasons: No new loans have been made in the FISL Program since 
1983. There are fewer than 500 outstanding FISL loans, and many of 
those loans are in default and are held by the Department. Under these 
conditions, there is no need to retain the FISL Program regulations.

Subpart F--Requirements, Standards, and Payments for Participating 
Schools

Sec.  682.601 Rules for a School That Makes or Originates Loans

Sec.  682.602 Rules for a School or School-Affiliated Organization That 
Makes or Originates Loans Through an Eligible Lender Trustee

Sec.  682.608 Termination of a School's Lending Eligibility

    Statute: We have grouped our discussion of Sec. Sec.  682.601, 
682.602, and 682.608 together. Section 435(d)(1)(E) of the HEA 
authorizes an institution of higher education to participate as an 
eligible lender in the FFEL Program if it meets the requirements in 
section 435(d)(2) through (d)(5) of the HEA. Section 435(d)(2)(A)(ix) 
of the HEA limits this eligibility to those schools that met the 
requirements on February 7, 2006, and that made loans on or before 
April 1, 2006. Section 435(d)(7) of the HEA limits the ability of an 
eligible lender to make or hold loans as a trustee for a school or a 
school-affiliated organization to eligible lenders serving in that 
capacity on September 29, 2006, based on a contract that was in effect 
before that date. Section 435(d)(7) also applies most of the 
requirements of section 435(d)(2) of the HEA (which apply to school 
lenders) to trustee arrangements between an eligible lender and a 
school or a school-affiliated organization for the purpose of 
originating loans. Section 435(d)(3) of the HEA provides that a school 
will be disqualified as an eligible lender if the default rate on the 
loans made by the school for each of two consecutive years is 15 
percent or more of the total amount of the loans made by the school 
lender. Section 435(d)(4) of the HEA authorizes the Department to waive 
a determination that a school is disqualified as an eligible lender if 
the school can reasonably be expected to improve loan collections 
within one year after the determination is made or the termination 
would represent a hardship to the school's present or prospective 
students.
    Current Regulations: Section 682.601 includes rules for schools 
that make or originate loans and reflects the requirements of section 
435(d)(2) through (5) of the HEA. Section 682.602 reflects section 
435(d)(7) of the HEA and provides the regulations for schools or 
school-affiliated organizations that make or originate loans through an 
eligible lender trustee. Section 682.608 details the procedures for 
terminating a school lender from the program.
    Proposed Regulations: The proposed regulations would remove 
Sec. Sec.  682.601, 682.602, and 682.608 from the FFEL Program 
regulations.
    Reasons: The proposed regulations would remove Sec. Sec.  682.601, 
682.602, and 682.608 from the FFEL regulations because they are no 
longer needed. There are 12 school lenders that hold FFEL Program loans 
previously made to their students, and this number cannot increase. 
Under Sec.  435(d)(2)(A)(ix) of the HEA no new school lenders could 
begin to participate after February 8, 2006. Additionally, no new loans 
are authorized to be made under the FFEL program by any lender after 
June 30, 2010.

Sec.  682.604 Processing the Borrower's Loan Proceeds and Counseling 
Borrowers

    Statute: Sections 428(b)(1)(N), 428B(c), and 428G of the HEA detail 
the disbursement and school delivery requirements for FFEL Stafford and 
PLUS loan funds. Section 428G(a) of the HEA requires that loan proceeds 
be delivered to students in two or more installments over the course of 
the loan period unless: (1) The loan period is not more than one 
semester, one trimester, one quarter, or four months in duration, and 
(2) the school has a cohort default rate of less than 10 percent for 
each of the three most recent fiscal years for which data is available. 
Section 428G(e) provides that loan proceeds may be delivered in a 
single installment if the loan is made to a student to cover the cost 
of attendance in a study abroad program offered by an eligible home 
institution that has a cohort default rate of less than five percent, 
as calculated under section 435(m) of the HEA. Under section 
428G(a)(1), no installment may exceed more than one-half of the loan. 
Section 428G(b) of the HEA provides that the first installment of a 
loan made to a new borrower who is entering the first year of a program 
of undergraduate study cannot be presented to the student for 
endorsement until 30 days after the borrower begins a course of study 
unless the school's cohort default rate is less than 10 percent for 
each of the three most recent fiscal years for which data is available. 
Section 428G(d)(2) of the HEA provides that the school must return a 
portion or all of an installment to the lender if the sum of a 
disbursement and the student's other financial aid exceeds the amount 
for which the student is eligible. Section 428(b)(1)(N) of the HEA 
requires that funds borrowed by the student must be disbursed by check 
or other means that is payable to the student and requires the 
endorsement or other certification by the student. Section 428B(c) of 
the HEA requires that PLUS loan proceeds

[[Page 45653]]

be disbursed in accordance with the requirements of section 428G of the 
HEA and be transmitted to the school through an electronic transfer of 
funds or in the form of a co-payable check to the school and the PLUS 
borrower. Section 485(b) of the HEA requires a school to conduct exit 
counseling with its FFEL Stafford and student PLUS borrowers, prior to 
the borrower's completion of his or her course of study or at the time 
the borrower leaves the school, and details the information that must 
be included in the exit counseling. Section 485(l) of the HEA requires 
the school to conduct entrance counseling with its first-time Stafford 
and student PLUS borrowers, at or prior to the school's delivery of the 
first disbursement of a loan. Section 485(l)(2) of the HEA details the 
information that must be included in the entrance counseling.
    Current Regulations: Consistent with sections 428(b)(1)(N), 
428B(c), 428G, and 485(l)(2), the current FFEL Program regulations in 
Sec.  682.604 govern delivery of Stafford or PLUS loan proceeds to 
borrowers and counseling for borrowers. The school must confirm the 
student's enrollment, secure the student's endorsement or confirm the 
borrower's authorization for funds to be delivered and credited 
electronically. The current regulations also require the school to 
comply with the notification requirements of 34 CFR 668.165 prior to 
delivering loan proceeds to a borrower and authorize the school to 
deliver a late disbursement to a borrower under the conditions and 
using the procedures specified in 34 CFR 668.164(g).
    Current Sec.  682.604(f) requires a school to provide entrance 
counseling to its student borrowers during an in-person session, on a 
separate written form provided to the borrower that the borrower signs 
and returns to the school, or by online or interactive electronic means 
with the borrower acknowledging receipt of the information. The 
counseling must include the information specified in section 485(l) of 
the HEA. If the entrance counseling is conducted online or through 
interactive electronic means, the school must take reasonable steps to 
ensure that each student borrower receives the counseling materials and 
participates in and completes the counseling. The school must also 
maintain documentation that shows it provided the entrance counseling 
for each borrower.
    Current Sec.  682.604(g) requires a school to conduct exit 
counseling with its Stafford and PLUS loan student borrowers shortly 
before the borrower ceases at least half-time study at the school 
through an in-person session, by audiovisual presentation, or by 
interactive electronic means. Alternatively, the school may provide 
written counseling materials through the mail to borrowers who complete 
correspondence programs or study-abroad programs approved for credit by 
the school. For borrowers who withdraw from the school without the 
school's prior knowledge or who fail to complete the required exit 
counseling session, the regulations require the school to ensure that 
exit counseling is provided to the student borrower through interactive 
means or by mailing written counseling materials to the borrower at the 
student's last known address within 30 days of the school learning that 
the borrower withdrew from the school or failed to complete the exit 
counseling. Exit counseling must include the information specified in 
section 485(b) of the HEA, regardless of the form in which it is 
provided.
    Proposed Regulations: The proposed regulations would change the 
heading of Sec.  682.604 to ``Required exit counseling for borrowers.'' 
The proposed regulations would remove current paragraph (a), remove and 
reserve paragraph (b), and remove paragraphs (c) through (f) and (h). 
The proposed regulations would also redesignate current paragraph (g) 
as paragraph (a). Newly redesignated Sec.  682.604(a)(1) would be 
amended to include another option for providing exit counseling to a 
student borrower who withdraws without the school's knowledge or fails 
to complete required exit counseling. In addition to the existing 
options described above under ``Current Regulations,'' a school could 
also send written counseling materials electronically to an email 
address provided by the student borrower. Newly redesignated Sec.  
682.604(a)(2) would be amended by replacing cross-references to current 
paragraph (a), which we are proposing to remove, with the substantive 
information contained in the cross-referenced provision that must be 
included in the counseling. A new paragraph (a)(5) would also be added 
to newly redesignated Sec.  682.604(a) to clarify that: (1) A school's 
compliance with the Direct Loan Program exit counseling requirements in 
34 CFR 685.304(b) satisfies the FFEL Program regulatory exit counseling 
requirements for student borrowers who received both FFEL and Direct 
Loan program loans for attendance at the school if the school provides 
the information required by redesignated Sec.  682.604(a)(2)(i) and 
(a)(2)(ii); and (2) a student's completion of interactive exit 
counseling offered by the Secretary meets both the FFEL exit counseling 
requirements and the Direct Loan exit counseling requirements in 34 CFR 
685.304(b).
    Reasons: The provisions in current Sec.  682.604 that govern school 
delivery of FFEL loan proceeds, required entrance counseling with new 
FFEL Program borrowers, and handling of excess loan proceeds that 
result from a borrower receiving an overaward are no longer needed in 
the regulations since no new loans are being made in the FFEL Program. 
The proposed change to redesignated Sec.  682.604(a)(1) would 
incorporate into the regulations existing guidance that is in the 
Department's Federal Student Aid Handbook. Similarly, the addition of 
new paragraph (a)(5) would incorporate in the regulations guidance that 
the Department has previously provided in response to questions from 
schools about options for providing exit counseling to borrowers who 
have received loans through both the FFEL and Direct Loan programs for 
attendance at the same school. Because the FFEL and Direct Loan exit 
requirements are generally the same, the Department has previously 
permitted schools to provide a single exit counseling session to 
satisfy the exit counseling requirements for students who have received 
both FFEL and Direct Loan program loans for attendance at the school, 
provided that the counseling includes separate loan information for the 
loans made under each program. The Department has also previously 
clarified that the optional interactive electronic exit counseling 
offered by the Secretary is designed to satisfy the exit counseling 
requirements for borrowers who received only Direct Loans or those who 
receive both Direct Loans and FFEL Program loans.

Subpart G--Limitation, Suspension, or Termination of Lender or Third-
Party Servicer Eligibility and Disqualification of Lenders and Schools

Sec.  682.702 Effect on Participation.

Sec.  682.704 Emergency Action

Sec.  682.705 Suspension Proceedings

Sec.  682.706 Limitation or Termination Proceedings

Sec.  682.709 Reimbursements, Refunds, and Offsets

    Statute: We have grouped our discussions of Sec. Sec.  682.702, 
682.704, 682.705, 682.706, and 682.709 together. Section 432(h)(1) of 
the HEA authorizes the Department to initiate and impose limitation, 
suspension, and termination actions against lenders participating in

[[Page 45654]]

the FFEL Program if, after reasonable notice and opportunity for a 
hearing, the Department finds that the lender has substantially failed 
to: (1) Exercise care and diligence in the making and collecting of 
FFEL loans, (2) make reports or statements that support interest and 
special allowance payments to the lender, or (3) pay required loan 
insurance premiums to a guaranty agency, or the lender has engaged in 
fraudulent or misleading advertising or solicitations that resulted in 
loans being made to ineligible borrowers or made in violation of the 
certification requirements of section 428 of the HEA.
    Current Regulations: Section 682.702 details the effects on a 
lender of the Department's action to limit, suspend, or terminate the 
lender from participation in the FFEL Program. Section 682.704 states 
that the Department or a guaranty agency may take an emergency action 
against a lender to stop new loan guarantees being issued to the lender 
and to withhold payment of interest and special allowance payments to 
the lender under conditions identified in the regulations. Sections 
682.705 and 682.706 detail the procedures for a suspension action or a 
limitation or termination action against a lender or third-party 
servicer. Sections 682.705(c) and 682.706(d) of the regulations both 
provide that if an action to suspend, limit, or terminate a lender is 
based on a violation of section 435(d)(5) of the HEA, and the 
Secretary, a designated Departmental official, or a hearing official 
finds that the lender provided prohibited payments or engaged in 
prohibited activities, the Secretary or official will apply a 
rebuttable presumption that the payments or activities were offered to 
secure applications for FFEL loans or to secure new FFEL loan volume. 
Section 682.709 provides that as part of a limitation or termination 
proceeding, the Department may require a lender or third-party servicer 
to take reasonable corrective action, which may include payments to the 
Department or other designated parties in the form of a refund, 
reimbursement, or offset.
    Proposed Regulations: Section 682.702(b)(1) would be revised to 
remove the reference to a lender making loans and current paragraphs 
(b)(2) and (d) would be removed. Section 682.702(b)(3) would be 
redesignated as Sec.  682.702(b)(2). Section 682.704(a) would be 
amended to remove the reference to stopping the issuance of guarantee 
commitments by the Secretary and guaranty agencies. Section 
682.705(a)(1) would be amended to remove the reference to new loans 
made by a lender and Sec.  682.705(c) would be removed. Section 682.706 
would be amended to remove paragraph (d). Section 682.709 would be 
amended to add new paragraph (d) that provides for the application of a 
rebuttable presumption related to future limitation and termination 
actions that may involve findings of violations of section 435(d)(5) of 
the HEA.
    Reasons: Since no new FFEL loans are being made, the regulations on 
possible sanctions on lenders for violations of FFEL Program 
requirements no longer should include limits on new loan volume or loan 
guarantee commitments. The application of a rebuttable presumption as 
part of a suspension proceeding or limitation or termination action 
against a lender will apply to existing loans and past lender 
activities during the period when the potential for new loan applicants 
and increased loan volume existed in the FFEL Program. As a result, 
references to the application of a rebuttable presumption would be 
removed from Sec. Sec.  682.705 and 682.706 and incorporated as new 
paragraph (d) in Sec.  682.709 of the regulations.

Sec.  682.713 Disqualification Review of Limitation, Suspension, and 
Termination Actions Taken by Guaranty Agencies Against a School

    Statute: Section 432(h)(3) of the HEA requires the Department to 
review any limitation, suspension, or termination imposed on an 
eligible school by a guaranty agency under its authority in section 
428(b)(1)(T) of the HEA within 60 days of the guaranty agency's 
notification that the agency has imposed such a sanction, unless the 
school waives its right to a review in writing. The Department must 
uphold the guaranty agency's imposition of the sanction and notify the 
agency if the review is waived by the school. If the review is not 
waived, the Department must determine whether the agency's sanction was 
imposed in accordance with the requirements of section 428(b)(1)(T) of 
the HEA. The Department's review of the agency's sanction of the school 
is limited to a review of the written record of the proceedings in 
which the agency imposed the sanction.
    Current Regulations: Section 682.713 of the regulations reflects 
the statutory requirements of section 432(h)(3) of the HEA.
    Proposed Regulations: The proposed regulations would remove Sec.  
682.713 from the FFEL regulations.
    Reasons: As a result of the SAFRA Act, all schools now participate 
in the Direct Loan Program and are subject to oversight by the 
Department. The Department is the only party that will take any 
limitation, suspension, or termination action taken against a school 
that participates in the Direct Loan Program.

Subpart H--Special Allowance Payments on Loans Made or Purchased With 
Proceeds of Tax-Exempt Obligations

Sec.  682.800 Prohibition Against Discrimination as a Condition for 
Receiving Special Allowance Payments

    Statute: Section 438(e) of the HEA states that for the holder of 
loans made or purchased with funds from an Authority issuing tax-exempt 
obligations to receive special allowance payments, the Authority cannot 
engage in any pattern or practice which results in a denial of borrower 
access to FFEL Program loans on the basis of a borrower's race, sex, 
color, religion, national origin, age, disability status, income, 
attendance at a particular eligible institution within the area served 
by the Authority, the length of the borrower's educational program, or 
the borrower's academic year in school.
    Current Regulations: Section 682.800 of the regulations reflects 
the statutory requirements of section 428(e) of the HEA and provides 
that if an Authority makes or acquires loans made or guaranteed by an 
organization that discriminates on one or more of the grounds listed, 
the Department will consider the Authority to have adopted a 
discriminatory practice on that basis unless the Authority provides for 
making loans to the excluded borrowers using other resources.
    Proposed Regulations: The proposed regulations would remove subpart 
F of part 682, which consists of Sec.  682.800, from the FFEL 
regulations.
    Reasons: As a result of the SAFRA Act, no new FFEL loans are being 
made with tax-exempt or other funds and this provision of the FFEL 
regulations is no longer needed.

Direct Loan Program Issues

Minimum Loan Period for Transfer Students in Non-Term and Certain Non-
Standard Term Programs (34 CFR 685.301)

    Statute: The HEA does not specify the minimum period for which a 
school may originate a Direct Loan for a student who transfers from one 
school into a non-term or non-standard term program at another school.
    Current Regulations: (Note: The regulatory citations in the 
discussion that follows refer to Sec.  685.301(a)(9) as set forth in 
the second Editorial Note at the end of Sec.  685.301 in 34 CFR Part 
685,

[[Page 45655]]

revised as of July 1, 2012.) Under Sec.  685.301(a)(9)(i)(A), for a 
school that measures academic progress in credit hours and uses a 
semester, trimester, or quarter system, or that has terms substantially 
equal in length, with no term less than nine weeks in length, the 
minimum period for which the school may originate a Direct Loan is a 
single academic term (e.g., a semester or quarter).
    Under current Sec.  685.301(a)(9)(i)(B), for a school that measures 
academic progress in clock hours, or measures academic progress in 
credit hours but does not use a semester, trimester, or quarter system 
and does not have terms that are substantially equal in length with no 
term less than nine weeks in length, the minimum period for which a 
school may originate a Direct Loan is the lesser of: (1) The length of 
the student's program at the school (or the remaining portion of the 
program); or (2) the academic year as defined by the school in 
accordance with 34 CFR 668.3. Current Sec.  685.301(a)(9)(ii) provides 
an exception to this requirement in the case of a student who transfers 
into a school with credit or clock hours from another school, and the 
loan period at the prior school overlaps the loan period at the new 
school. In this circumstance, the new school may originate a loan for 
the remaining balance of the program or the academic year that started 
at the prior school, in an amount up to the remaining balance of the 
borrower's annual loan limit (as determined in accordance with Sec.  
685.203) after subtracting the amount borrowed for attendance at the 
prior school. After this initial loan period, the student becomes 
eligible for a new annual loan limit, with a new loan period 
corresponding to the lesser of the program (or the remaining portion of 
the program) or academic year at the new school. If the new school does 
not accept any transfer hours from the prior school, the exception does 
not apply and the transfer student is limited to receiving no more than 
the remaining balance under the applicable annual loan limit for the 
entire program or academic year at the new school, whichever is less.
    The following example illustrates the application of the current 
regulation: A student who received $2,750 in a combination of Direct 
Subsidized and Direct Unsubsidized Loan funds (out of a maximum annual 
loan limit of $5,500) for a loan period from October 31, 2011, to June 
8, 2012, at School A transfers into a 1500-clock hour program at School 
B that begins on March 5, 2012. School B defines the academic year for 
the program as 900 clock hours and 26 weeks of instructional time.
    If School B accepts credit or clock hours from School A, current 
Sec.  685.301(a)(9)(ii) allows School B to originate an initial loan 
for a loan period that begins on March 5, 2012, and ends on June 8, 
2012, the ending date of the original loan period at School A. For this 
initial loan period, the student could receive a loan of up to $2,750, 
the difference between the $5,500 annual loan limit and the loan amount 
the student received for the overlapping loan period at School A. After 
the balance of the loan period from School A ends (i.e., starting on 
June 9, 2012), the student could receive a new loan for a new academic 
year or, if there is less than an academic year remaining in the 
program at School B, for the remainder of the program.
    However, if School B does not accept any transfer hours from School 
A, in accordance with current Sec.  685.301(a)(9)(i)(B), the initial 
loan period for the program at School B would be March 5, 2012, to 
August 31, 2012, corresponding to the period in which the student is 
expected to complete the first academic year of the program (900 clock 
hours and 26 weeks of instructional time). In addition, the student's 
maximum loan eligibility for that loan period would be $2,750 (the 
difference between the annual loan limit of $5,500 and the $2,750 
previously received for the overlapping loan period at School A).
    Proposed Regulations: The proposed regulations would redesignate 
current Sec.  685.301(a)(9)(ii) as Sec.  685.301(a)(10)(ii) and modify 
the exception to the minimum loan period requirement discussed under 
``Current Regulations'' by removing the provision that limits the 
exception to situations where the school the student transfers to 
accepts credit or clock hours from the prior school. Under proposed 
Sec.  685.301(a)(10)(ii), if a student transfers into a school that 
measures academic progress in clock hours, or measures academic 
progress in credit hours but does not use a semester, trimester, or 
quarter system and does not have terms that are substantially equal in 
length with no term less than nine weeks in length, and the prior 
school originated a loan for a loan period that overlaps the loan 
period at the new school, the new school may originate a Direct Loan 
for the remaining portion of the program or academic year that began at 
the prior school, regardless of whether the new school accepts credit 
or clock hours from the prior school. For this loan period, the student 
would be eligible to receive up to the difference between the 
applicable annual loan limit and the loan amount the student received 
at the prior school for the overlapping loan period. Using the example 
presented above under ``Current Regulations,'' the proposed regulations 
would allow School B in all cases to originate a Direct Loan of up to 
$2,750 for the loan period from March 5, 2012, to June 8, 2012.
    Reasons: The exception to the minimum loan period rule in current 
Sec.  685.301(a)(9)(ii) applies only if the new school accepts credit 
or clock hours from the school that the student previously attended. If 
the new school does not accept any transfer hours from the prior 
school, the exception does not apply and the transfer student is 
limited to receiving no more than the remaining balance under the 
applicable annual loan limit for the entire program or academic year at 
the new school, whichever is less. Thus, in some cases a student may be 
eligible to receive loans only up to one full annual loan limit for a 
combined period of enrollment at the two schools that is significantly 
longer than one academic year. The Department believes that the limited 
scope of the current regulatory exception to the minimum loan period 
rule provides a benefit to only a minority of transfer students (since 
many schools do not accept credit or clock hours from other schools) 
and may in some cases discourage students from transferring to 
different schools. Therefore, the Department proposes to modify the 
current regulations by removing the provision that allows the exception 
to be applied only if the new school accepts credit or clock hours from 
the prior school. The non-Federal negotiators supported this proposal.

Modification of the Direct Loan Program Regulations (34 CFR Part 685)

    Background: The current Direct Loan Program regulations in 34 CFR 
Part 685 include numerous cross-references to the FFEL Program 
regulations in 34 CFR Part 682 for provisions that apply in both loan 
programs, such as the definitions of certain terms and the eligibility 
requirements for certain types of loan deferments. For certain 
provisions that apply in both the FFEL and Direct Loan programs, the 
Direct Loan Program regulations do not include language that is 
currently only in the corresponding FFEL Program regulations. The 
Direct Loan Program regulations also include a number of provisions 
that are outdated and do not reflect current procedures. To address 
these issues, the Department proposes to make technical changes to the 
Direct

[[Page 45656]]

Loan Program regulations that would include:
     Adding provisions to 34 CFR Part 685 that apply in the 
Direct Loan Program, but are currently included only in 34 CFR Part 
682, so that it will no longer be necessary to refer to the FFEL 
Program regulations for certain terms and conditions of Direct Loan 
Program loans;
     Where necessary, modifying existing Direct Loan Program 
regulations for consistency with the corresponding FFEL Program 
regulations; and
     Removing obsolete provisions that do not reflect current 
procedures used in the Direct Loan Program.
    The proposed changes to the Direct Loan Program regulations also 
include minor technical and conforming changes in various regulations 
to correct errors and present information more clearly. In addition, 
the proposed changes reflect: (1) The provisions of the SAFRA Act that 
eliminate new loans under the FFEL Program after June 30, 2010; (2) the 
provisions of the Consolidated Appropriations Act, 2012 (Pub. L. 112-
74) that eliminate the grace period interest subsidy on Direct 
Subsidized Loans with a first disbursement date on or after July 1, 
2012, and before July 1, 2014, and that eliminate Federal student aid 
eligibility for students without a certificate of graduation from a 
school providing secondary education or the recognized equivalent of 
such a certificate; (3) the provision of the Budget Control Act of 2011 
(Pub. L. 112-25) that eliminates Direct Subsidized Loan eligibility for 
graduate or professional students effective for loan periods beginning 
on or after July 1, 2012; and (4) the provision of the Higher Education 
Opportunity Act (Pub. L. 110-315) that replaced the term ``credit 
bureau'' with the term ``consumer reporting agency.''
    During the public negotiating sessions, the Department provided the 
non-Federal negotiators with a comprehensive overview of the proposed 
technical changes to the Direct Loan Program regulations and explained 
the rationale for each proposed technical change. Following the 
Department's review and discussion of these proposed changes with the 
non-Federal negotiators, the negotiating committee agreed that the 
changes should be made. During the negotiations, the non-Federal 
negotiators also recommended additional minor technical changes 
throughout 34 CFR part 685 for clarity and consistency. The proposed 
regulations incorporate many of these additional recommended technical 
changes.
    A complete summary of all of the proposed technical changes to 34 
CFR part 685 may be found in Appendix B at the end of this NPRM. A 
discussion of the more significant proposed technical changes follows.

Modification of Direct Loan Program Regulations: Definitions (34 CFR 
685.102)

    Statute: The definitions included in this section reflect 
definitions and the use of terms in various sections of the HEA, 
including provisions of parts B, D, and G. The Department has already 
placed some of these definitions in our regulations.
    Current Regulations: Current Sec.  685.102(a)(3) refers to the FFEL 
Program regulations in 34 CFR part 682 for the definitions of the 
following terms: ``Act,'' ``endorser,'' ``Federal Insured Student Loan 
(FISL) Program,'' ``Federal Stafford Loan Program,'' ``guaranty 
agency,'' ``holder,'' ``legal guardian,'' ``lender,'' and ``totally and 
permanently disabled.'' Current Sec.  685.102(b) contains definitions 
of the following terms: ``alternative originator,'' ``consortium,'' 
``default,'' ``estimated financial assistance,'' ``Federal Direct 
Consolidation Loan Program,'' ``Federal Direct PLUS Program,'' 
``Federal Direct Stafford/Ford Loan Program,'' ``Federal Direct 
Unsubsidized Stafford/Ford Loan Program,'' ``grace period,'' ``interest 
rate,'' ``loan fee,'' ``Master Promissory Note,'' ``payment data,'' 
``period of enrollment,'' ``satisfactory repayment arrangement,'' 
``school origination option 1,'' ``school origination option 2,'' 
``servicer,'' and ``standard origination.''
    Proposed Regulations: The proposed regulations would remove Sec.  
685.102(a)(3) and add all of its definitions, except ``legal 
guardian,'' to Sec.  685.102(b). The regulations would also add a 
definition of ``substantial gainful activity'' to Sec.  685.102(b).
    The definitions currently included only in the FFEL Program 
regulations at Sec.  682.200 would be added to Sec.  685.102(b) without 
any changes, except for the definitions of ``holder'' and ``lender.'' 
The regulations propose a new definition of ``holder'' as the entity 
that owns a loan. The regulations would further specify that for a FFEL 
Program loan, the term ``holder'' refers to an eligible lender owning a 
FFEL Program loan, including a Federal or State agency or an 
organization or corporation acting on behalf of such an agency and 
acting as a conservator, liquidator, or receiver of an eligible lender. 
The proposed definition of ``lender'' would state that this term has 
the meaning specified in section 435(d) of the HEA for purposes of the 
FFEL Program.
    The proposed regulations would further amend Sec.  685.102(b) by 
removing the definitions of ``alternative originator,'' ``consortium,'' 
``school origination option 1,'' ``school origination option 2,'' 
``servicer,'' and ``standard origination,'' and by revising the 
definitions of ``Master Promissory Note (MPN)'' and ``satisfactory 
repayment arrangement.''
    The proposed regulations would add a new paragraph (4) to the 
definition of ``Master Promissory Note (MPN)'' stating that unless the 
Secretary determines otherwise, a school may use a single MPN as the 
basis for all loans borrowed by a student or parent for attendance at 
that school. Proposed new paragraph (4) would further provide that if a 
school is not authorized for multi-year use of the MPN, a borrower must 
sign a new MPN for each academic year.
    The definition of ``satisfactory repayment arrangement'' would be 
revised by adding a new paragraph (2)(ii) providing that, for the 
purpose of consolidating a defaulted loan into a Direct Consolidation 
Loan, a borrower may make satisfactory repayment arrangements by 
agreeing to repay the Direct Consolidation Loan under one of the 
income-contingent repayment plans described in Sec.  685.209 or the 
income-based repayment plan described in Sec.  685.221. Additional 
proposed changes to the definition of ``satisfactory repayment 
arrangement'' are discussed earlier in the ``Significant Proposed 
Regulations'' section of this preamble under the heading ``Satisfactory 
Repayment Arrangements.''
    Reasons: The Department is proposing to expand Sec.  685.102(b) to 
include definitions that apply in the Direct Loan Program but that are 
currently included only in the FFEL Program regulations. Readers will 
not have to refer to 34 CFR part 682 for these definitions.
    The definition of ``legal guardian,'' currently listed in Sec.  
685.102(a)(3), would not be added to Sec.  685.102(b) because that term 
is not used in 34 CFR part 685.
    Although it is not currently listed in Sec.  685.102(a)(3), a 
definition of ``substantial gainful activity'' would also be added to 
Sec.  685.102(b). This term is defined in Sec.  682.200(b) of the FFEL 
Program regulations and also applies in the Direct Loan Program.
    The definitions of ``holder'' and ``lender'' would be modified to 
fit the Direct Loan Program. The current definition of ``holder'' in 
Sec.  682.200(b)

[[Page 45657]]

applies only to holders of FFEL Program loans. However, the term 
``holder'' as used in the Direct Loan Program regulations also covers 
holders of other types of loans. The current definition of ``lender'' 
in Sec.  682.200(b) includes numerous provisions relevant for purposes 
of the FFEL Program that would not be included in the definition in 
Sec.  685.102(a)(3) because they are not needed for the Direct Loan 
Program.
    The definitions of ``alternative originator,'' ``consortium,'' 
``school origination option 1,'' ``school origination option 2,'' and 
``standard origination'' would be removed from Sec.  685.102(b) because 
they describe options for school participation in the Direct Loan 
Program that have not been used by schools or reflect obsolete 
provisions that are no longer used in the administration of the 
program.
    The term ``servicer'' would be removed because the Department is 
proposing to replace all uses of the term ``servicer'' elsewhere in the 
Direct Loan Program regulations with ``Secretary'' to ensure consistent 
terminology throughout 34 CFR part 685.
    The proposed change to the definition of ``Master Promissory Note 
(MPN)'' would simplify the regulations by incorporating a provision 
governing multi-year use of the MPN that is in current Sec.  685.402(f) 
into the definition of MPN in Sec.  685.102(b). This provision would 
also be updated to reflect the Secretary's policy on the authority of 
schools to use the MPN as a multi-year promissory note.
    Similarly, the proposed change to the definition of ``satisfactory 
repayment arrangement'' would provide greater clarity by incorporating 
in that definition, with minor technical changes, a provision for 
making satisfactory repayment arrangements that is currently in Sec.  
685.220(d)(1)(ii)(D).

Modification of Direct Loan Program Regulations: Deferment (34 CFR 
685.204)

    Statute: Section 455(f)(2) of the HEA provides that a Direct Loan 
borrower is eligible for a deferment during any period when the 
borrower is: enrolled at least half-time at an eligible institution; 
pursuing a course of study pursuant to a graduate fellowship program 
approved by the Secretary, or pursuant to a rehabilitation training 
program for individuals with disabilities approved by the Secretary; 
seeking and unable to find full-time employment (for not more than 
three years); serving on active duty or performing qualifying National 
Guard duty during a war or other military operation or national 
emergency, and for the 180-day period following the demobilization date 
for such service; or experiencing (for not more than three years) an 
economic hardship as determined in accordance with regulations 
prescribed under section 435(o) of the HEA.
    Section 455(f)(4) of the HEA provides that a Direct Loan borrower 
who has an outstanding balance on a FFEL Program loan made before July 
1, 1993, at the time the borrower applies for a Direct Loan, is 
eligible for deferments under section 427(a)(2)(C) or section 
428(b)(1)(M) of the HEA as those sections were in effect on July 22, 
1992.
    Section 428B(d)(1) of the HEA, which applies to Direct Loan 
borrowers through section 455(a)(1) of the HEA, provides that a parent 
Direct PLUS Loan borrower may defer repayment of a Direct PLUS Loan 
that was first disbursed on or after July 1, 2008, during any period 
when the student on whose behalf the loan was obtained is enrolled at 
least half-time at an eligible school and during the six-month period 
after the student ceases to be enrolled at least half-time.
    Finally, section 493D of the HEA authorizes a deferment for the 13-
month period following the conclusion of active duty service for a 
Direct Loan borrower who is a member of the National Guard or other 
reserve component of the U.S. Armed Forces and who is called or ordered 
to active duty while he or she is enrolled at least half-time at an 
eligible school or within six months of having been enrolled at least 
half-time.
    Current Regulations: Current Sec.  685.204(a) provides that 
interest does not accrue on a subsidized Direct Loan during periods of 
deferment.
    Current Sec.  685.204(b) provides that a Direct Loan borrower is 
eligible to receive a deferment while he or she is--
     enrolled at least half-time at an eligible school (in-
school deferment);
     pursuing a course of study in a graduate fellowship 
program approved by the Secretary (graduate fellowship deferment);
     pursuing an approved rehabilitation training program for 
individuals with disabilities that is approved by the Secretary 
(rehabilitation training program deferment);
     seeking but unable to find full-time employment 
(unemployment deferment); or
     experiencing an economic hardship (economic hardship 
deferment).
    This section also sets forth the eligibility requirements for a 
borrower to receive an in-school deferment.
    Current Sec.  685.204(b) does not specify the requirements for a 
graduate fellowship program or rehabilitation training program to be 
approved by the Secretary. For the graduate fellowship and 
rehabilitation training program deferments, the Direct Loan Program 
regulations rely on the eligibility criteria in Sec. Sec.  682.210(d) 
and 682.210(e) of the FFEL Program regulations. For the unemployment 
and economic hardship deferments, current Sec.  685.204(b) refers to 
the FFEL Program regulations in Sec. Sec.  682.210(h) and 
682.210(s)(6), respectively, for eligibility requirements and 
procedures.
    Current Sec.  685.204(c) states that a period of deferment based on 
unemployment or economic hardship may not exceed three years.
    Current Sec.  685.204(d) states that a Direct Loan borrower who had 
an outstanding balance on a FFEL Program loan that was made prior to 
July 1, 1993, at the time the borrower applied for his or her first 
Direct Loan Program loan is eligible for all of the deferments 
described in Sec.  685.204 and the deferments described in Sec.  
682.210(b), including deferments that apply to a ``new borrower'' as 
that term is defined in Sec.  682.210(b)(7). The latter deferments 
include deferments based on: Having a temporary total disability, 
caring for a disabled dependent, serving in the military, serving in 
the United States Public Health Service, serving as a Peace Corps 
volunteer, performing volunteer service in the ACTION programs, 
performing volunteer service for a tax-exempt organization, serving in 
an internship or residency program, caring for a newborn or newly 
adopted child, serving in the National Oceanic and Atmospheric 
Administration Corps, teaching in a teacher-shortage area, and being a 
full-time working mother of a preschool-age child.
    Current Sec. Sec.  685.204(e) and 685.204(f) specify the 
eligibility requirements for a deferment based on active-duty military 
service (military service deferment) and the 13-month post-active-duty 
deferment authorized by section 493D of the HEA (post-active-duty 
student deferment), respectively.
    Current Sec.  685.204(g) contains the eligibility criteria for 
deferments for Direct PLUS Loan borrowers with loans first disbursed on 
or after July 1, 2008, as authorized under section 428B(d)(1) of the 
HEA (in-school PLUS deferment).
    Current Sec.  685.204(h) specifies that a borrower whose loan is in 
default is not eligible for a deferment, unless the borrower has made 
payment arrangements satisfactory to the Secretary.
    Current Sec.  685.204(i) describes the Secretary's procedures for 
granting deferments and the Secretary's actions after a deferment has 
been granted.

[[Page 45658]]

    Proposed Regulations: The proposed regulations would significantly 
restructure current Sec.  685.204 without changing any of the deferment 
eligibility requirements.
    Proposed Sec.  685.204(a) would include general deferment 
provisions. Specifically, proposed Sec.  685.204(a)(1) and (a)(2) would 
include, with only minor technical changes, the same provisions related 
to interest subsidy during deferment periods that are in current Sec.  
685.204(a)(1) and (a)(2). In addition, proposed Sec.  685.204(a)(2) 
would be expanded to include the last sentence of Sec.  
685.204(b)(1)(iii)(B)(2), which notes that the Secretary provides 
borrowers with information about the effect of interest capitalization 
at or before the time a deferment is granted.
    Proposed Sec.  685.204(a)(3) would contain the provision currently 
in Sec.  685.204(h) stating that a borrower whose loan is in default is 
not eligible for a deferment unless the borrower has made payment 
arrangements satisfactory to the Secretary.
    Proposed Sec.  685.204(a)(4) would contain, with minor technical 
changes, the procedures for requesting a deferment that are in current 
Sec. Sec.  685.204(i)(1) and 685.204(i)(5).
    Proposed Sec.  685.204(a)(5) would include, with minor technical 
changes, provisions currently in Sec. Sec.  685.204(i)(2), 
685.204(i)(3), and 685.204(i)(4) describing the Secretary's procedures 
for granting a deferment and the actions taken by the Secretary after 
granting a deferment.
    Reasons: To improve the clarity of the regulations, general 
deferment requirements that are currently in Sec. Sec.  685.204(a), 
685.204(b), 685.204(h), and Sec.  685.204(i) would be consolidated in 
Sec.  685.204(a), followed by individual sections, designated 
Sec. Sec.  685.204(b) through (j), containing the requirements for the 
various deferment categories.
    Proposed Regulations: Proposed Sec.  685.204(b) would include the 
eligibility requirements and procedures for the in-school deferment 
that are in current Sec. Sec.  685.204(b)(1)(i)(A) and 
685.204(b)(1)(iii).
    Reasons: To make the deferment regulations easier to read, the 
graduate fellowship, rehabilitation training program, unemployment, and 
economic hardship requirements that are in current Sec.  685.204(b) 
would be moved to separate paragraphs within Sec.  685.204, leaving 
only the in-school deferment requirements and procedures in Sec.  
685.204(b).
    Proposed Regulations: Proposed Sec.  685.204(c) would include the 
eligibility requirements for the in-school PLUS deferment that are in 
current Sec.  685.204(g).
    Reasons: Because the in-school PLUS deferment requirements are 
similar to the requirements for a student's in-school deferment, they 
would be moved to proposed Sec.  685.204(c), immediately following the 
in-school deferment requirements in proposed Sec.  685.204(b).
    Proposed Regulations: Proposed Sec.  685.204(d) would include the 
eligibility requirements for the graduate fellowship deferment that are 
in current Sec.  685.204(b)(1)(i)(B) and (b)(1)(ii), as well as the 
eligibility criteria for this deferment that apply in the Direct Loan 
Program but that are currently only in the FFEL Program regulations.
    Reasons: To make the Direct Loan Program regulations comprehensive 
and eliminate the need to refer to the FFEL Program regulations, all 
requirements for the graduate fellowship deferment would be placed in 
Sec.  685.204(d).
    Proposed Regulations: Proposed Sec.  685.204(e) would include the 
eligibility requirements for the rehabilitation training program 
deferment that are in current Sec.  685.204(b)(1)(i)(C), as well as the 
eligibility criteria for this deferment that apply in the Direct Loan 
Program but that are currently only in the FFEL Program regulations.
    Reasons: To make the Direct Loan Program regulations comprehensive 
and eliminate the need to refer to the FFEL Program regulations, all 
requirements for the rehabilitation training program deferment would be 
placed in Sec.  684.204(e).
    Proposed Regulations: Proposed Sec.  685.204(f) would include the 
eligibility requirements for the unemployment deferment that are in 
current Sec.  685.204(b)(2), as well as the eligibility criteria and 
procedures for this deferment that apply in the Direct Loan Program but 
that are currently only in the FFEL Program regulations. Proposed Sec.  
685.204(f)(1) would include the provision, currently in Sec.  
685.204(c), that an unemployment deferment may not exceed three years.
    Reasons: To make the Direct Loan Program regulations comprehensive 
and eliminate the need to refer to the FFEL Program regulations, all 
requirements and procedures for the unemployment deferment would be 
included in Sec.  685.204(f). For greater clarity, proposed Sec.  
685.204(f) would also incorporate the three-year limit that is 
currently in Sec.  685.204(c) so that this provision will be included 
with all of the other requirements of the deferments to which it 
applies instead of in a separate stand-alone section of the deferment 
regulations.
    Proposed Regulations: Proposed Sec.  685.204(g) would include the 
eligibility requirements for the economic hardship deferment that are 
in current Sec.  685.204(b)(3), as well as the eligibility requirements 
and procedures for this deferment that apply in the Direct Loan Program 
but that are currently only in the FFEL Program regulations. Proposed 
Sec.  685.204(g)(1) would include the provision, currently in Sec.  
685.204(c), that an economic hardship deferment may not exceed three 
years.
    Reasons: To make the Direct Loan Program regulations comprehensive 
and eliminate the need to refer to the FFEL Program regulations, all 
requirements and procedures for the economic hardship deferment would 
be placed in Sec.  685.204(g). For greater clarity, proposed Sec.  
685.204(g) would incorporate the three-year limit that is currently in 
Sec.  685.204(c) so that this provision will be included with all of 
the other requirements of the deferments to which it applies instead of 
in a separate stand-alone section of the deferment regulations.
    Proposed Regulations: Proposed Sec.  685.204(h) would include the 
eligibility requirements for the military service deferment that are in 
current Sec.  685.204(e).
    Reasons: Because of the restructuring of Sec.  685.204, just 
described, current Sec.  685.204(e) would be redesignated as Sec.  
685.204(h).
    Proposed Regulations: Proposed Sec.  685.204(i) would include the 
requirements for the post-active-duty student deferment that are in 
current Sec.  685.204(f).
    Reasons: Because of the restructuring of Sec.  685.204, just 
described, current Sec.  685.204(f) would be redesignated as Sec.  
685.204(i).
    Proposed Regulations: Proposed Sec.  685.204(j) would contain the 
provisions currently in Sec.  685.204(d) stating that a Direct Loan 
program borrower who had an outstanding balance on a FFEL Program loan 
that was made prior to July 1, 1993, at the time the borrower applied 
for his or her first Direct Loan Program loan is eligible for all of 
the deferments described in Sec.  685.204 and the additional deferments 
described in Sec.  682.210(b) of the FFEL Program regulations, 
including deferments that apply to a ``new borrower'' as that term is 
defined in Sec.  682.210(b)(7).
    Reasons: Because of the restructuring of Sec.  685.204, just 
described, current Sec.  685.204(d) would be redesignated as Sec.  
685.204(j). Proposed Sec.  685.204(j) would continue to refer to the 
FFEL Program regulations, as under current

[[Page 45659]]

Sec.  685.204(d). Because relatively few Direct Loan borrowers qualify 
for these deferments, the Department believes it is preferable to 
retain the current cross-reference to the FFEL Program regulations in 
this one case rather than to significantly expand Sec.  685.204 by 
adding eligibility criteria for deferment types that are not available 
to the great majority of Direct Loan borrowers.

Modification of Direct Loan Program Regulations: Consolidation (34 CFR 
685.220)

    Statute: Section 455(a)(1) of the HEA provides that unless 
otherwise specified under part D of the HEA, loans made under part D 
have the same terms, conditions, and benefits as loans made, and first 
disbursed before July 1, 2010, under sections 428, 428B, 428C, and 428H 
in part B of the HEA.
    Section 428C(a)(3)(B)(i)(I) provides that, in general, a borrower 
who receives a consolidation loan may not repay the consolidation loan 
with a subsequent consolidation loan unless the borrower receives 
eligible loans after the consolidation loan is made. However, under 
section 428C(a)(3)(B)(i)(V) a borrower may consolidate a FFEL 
consolidation loan into the Direct Loan Program without including an 
additional loan if the borrower is consolidating for the purpose of--
     obtaining an income-contingent or income-based repayment 
plan, and the FFEL consolidation loan is in default or has been 
submitted to the guaranty agency for default aversion;
     using the Public Service Loan Forgiveness program under 
section 455(m) of the HEA; or
     using the no accrual of interest benefit for active duty 
service members under section 455(o) of the HEA.
    Section 428C(a)(3)(A)(i) of the HEA provides that for the purpose 
of receiving a Federal Consolidation Loan, the term ``eligible 
borrower'' means a borrower who is not subject to a judgment secured 
through litigation with respect to a loan under title IV of the HEA or 
to an order for wage garnishment under section 488A of the HEA.
    Current Regulations: Current Sec.  685.220(d)(1)(i) provides that 
to obtain a Direct Consolidation Loan, a borrower must either have an 
outstanding balance on a Direct Loan or have an outstanding balance on 
a FFEL Program loan. If a borrower does not have an outstanding balance 
on a Direct Loan but has an outstanding balance on a FFEL Program loan, 
current Sec.  685.220(d)(1)(i)(B) provides that the borrower must:
    (1) be unable to obtain a FFEL consolidation loan;
    (2) be unable to obtain a FFEL consolidation loan with income-
sensitive repayment terms acceptable to the borrower;
    (3) wish to use the Public Service Loan Forgiveness Program or the 
no accrual of interest benefit for active duty service members;
    (4) have a FFEL consolidation loan that is in default or that has 
been submitted to the guaranty agency for default aversion and want to 
consolidate the FFEL consolidation loan into the Direct Loan Program to 
obtain an income contingent repayment plan or an income-based repayment 
plan; or
    (5) have a FFEL consolidation loan and want to consolidate that 
loan into the Direct Loan Program for the purpose of using the Public 
Service Loan Forgiveness Program or the no accrual of interest benefit 
for active duty service members.
    Current Sec.  685.220(d)(1)(ii)(E) and (F) provide that at the time 
a borrower applies for a Direct Consolidation Loan, the borrower must 
not be subject to a judgment secured through litigation, unless the 
judgment has been vacated or to an order for wage garnishment under 
section 488A of the HEA, unless the order has been lifted.
    Current Sec.  685.220(d)(1)(iii)(A) and (B) provide that on the 
loans being consolidated into a Direct Consolidation Loan, the borrower 
must not be subject to a judgment secured through litigation, unless 
the judgment has been vacated, or subject to an order for wage 
garnishment under section 488A of the HEA, unless the order has been 
lifted.
    Current Sec.  685.220(d)(1)(iv) provides that to obtain a Direct 
Consolidation Loan, a borrower must certify that no other application 
to obtain a consolidation loan is pending with another lender.
    Current Sec.  685.220(d)(2) states that a borrower may not 
consolidate a Direct Consolidation Loan into a new Direct Consolidation 
Loan unless at least one additional eligible loan is included in the 
consolidation.
    Current Sec.  685.220(f)(1)(iii) provides that if a borrower 
consolidates a FFEL or Direct Loan program loan that is in default, the 
Secretary limits collection charges to the borrower to no more than the 
costs authorized under the FFEL Program.
    Proposed Regulations: The proposed regulations would remove the 
provisions in current Sec.  685.220(d)(1)(i)(B)(1), (2) and (3) that 
allow a borrower who has FFEL Program loans, but no Direct Loans, to 
obtain a Direct Consolidation Loan only if the borrower is unable to 
obtain a FFEL consolidation loan, is unable to obtain a FFEL 
consolidation loan with income-sensitive repayment terms that are 
acceptable to the borrower, or if the borrower wishes to use the Public 
Service Loan Forgiveness Program or the no accrual of interest benefit 
for active duty service members. Current Sec.  685.220(d)(1)(i) would 
be revised to simply state that a borrower must consolidate at least 
one Direct Loan Program or FFEL Program loan to obtain a Direct 
Consolidation Loan.
    Reasons: Because the SAFRA Act ended the making of new FFEL Program 
loans (including FFEL Consolidation Loans) as of July 1, 2010, the 
current restrictions on consolidation into the Direct Loan Program for 
borrowers who have only FFEL Program loans are no longer relevant and 
can be removed from the regulations.
    Proposed Regulations: The provisions in current Sec.  
685.220(d)(1)(i)(B)(4) and (5) related to the conditions under which a 
borrower may consolidate a single FFEL Consolidation Loan into the 
Direct Loan Program would be moved to proposed revised Sec.  
685.220(d)(2).
    Reasons: For greater clarity, the proposed regulations would 
incorporate all regulations governing the consolidation of an existing 
consolidation loan in the same paragraph.
    Proposed Regulations: Current Sec.  685.220(d)(1)(ii) would be 
revised to incorporate the requirements currently in Sec.  
685.220(d)(1)(iii) that, on the loans being consolidated, a borrower 
must not be subject to a judgment secured through litigation or to an 
order for wage garnishment. Current Sec.  685.220(d)(1)(iii) would be 
removed.
    Reasons: Some of the non-Federal negotiators noted that current 
Sec.  685.220(d)(1)(ii) is ambiguous and could be read to suggest that 
a borrower would be ineligible to receive a Direct Consolidation Loan 
if, at the time the borrower applies for a consolidation loan, the 
borrower is subject to a judgment or to an order for wage garnishment 
for any reason, even if it is unrelated to any of the loans that the 
borrower wishes to consolidate. These negotiators did not believe that 
this was the intent of the regulations. Rather, the negotiators 
believed that these limitations should apply only to judgments or 
orders for wage garnishment that are related to the loans being 
consolidated, and only at the time of consolidation. They noted that 
there are separate provisions in current Sec.  685.220(d)(1)(iii) 
stating that a borrower is not eligible for a Direct Consolidation Loan 
if the borrower is subject to a judgment secured through litigation or 
to an order for wage

[[Page 45660]]

garnishment under section 488A of the HEA ``on the loans being 
consolidated,'' unless the judgment has been vacated or the wage 
garnishment order has been lifted. The Department agreed with the non-
Federal negotiators. Because proposed revised Sec.  685.220(d)(1)(ii) 
would incorporate the provisions that are currently in Sec.  
685.220(d)(1)(iii), current Sec.  685.220(d)(1)(iii) would no longer be 
needed.
    Proposed Regulations: Current Sec.  685.220(d)(1)(iv), which 
requires a Direct Consolidation Loan applicant to certify that no other 
application to consolidate the borrower's loans with another lender is 
pending, would be removed.
    Reasons: This regulation is no longer needed because, as a result 
of the SAFRA Act, FFEL Program lenders are no longer authorized to make 
consolidation loans, and a borrower cannot have more than one 
application for a Direct Consolidation Loan.
    Proposed Regulations: Current Sec.  685.220(d)(2) states that a 
borrower may not consolidate a Direct Consolidation Loan into a new 
consolidation loan unless at least one additional loan is included in 
the consolidation. We would revise this section to provide that the 
same limitation applies to a borrower who wishes to consolidate a FFEL 
Consolidation Loan into a new Direct Consolidation Loan. The section 
would also be expanded to incorporate provisions currently in 
Sec. Sec.  685.220(d)(1)(i)(B)(4) and (5) that allow a borrower, under 
certain conditions, to consolidate a single FFEL consolidation loan 
into the Direct Loan Program without including an additional eligible 
loan in the consolidation.
    Reasons: For greater clarity, all rules governing the conditions 
under which an existing consolidation loan may be consolidated into a 
new Direct Consolidation Loan would be placed in the same section of 
the regulations.
    Proposed Regulations: Current Sec.  685.220(f)(1)(iii) would be 
revised to provide that if a borrower consolidates a Direct Loan or 
FFEL program loan that is in default, the Secretary limits collection 
costs that may be charged to the borrower to a maximum of 18.5 percent 
of the outstanding principal and interest amount of the defaulted loan. 
For any other defaulted Federal education loan, all collection costs 
that are owed may be charged to the borrower.
    Reasons: Some of the non-Federal negotiators asked the Department 
to expand Sec.  685.220 of the Direct Loan regulations to include some 
of the disclosure provisions that apply under Sec.  682.205(i) of the 
FFEL Program regulations to lenders that made FFEL Consolidation Loans. 
In particular, these negotiators asked the Department to include the 
provision in current Sec.  682.205(i)(7), which requires a lender to 
inform a borrower that applying for a consolidation loan does not 
obligate the borrower to accept it, and to explain the process and 
deadline by which the borrower may cancel the consolidation loan. The 
negotiators noted that these requirements are in the HEA and also apply 
in the Direct Loan Program. These non-Federal negotiators also 
recommended that the Department revise current Sec.  685.220(f)(1)(iii) 
to specify the actual maximum amount of collection costs that may be 
charged to a borrower who consolidates a defaulted Direct Loan or FFEL 
program loan.
    The Department declined to expand Sec.  685.220 to include the 
consolidation disclosure provisions that are in current Sec.  
682.205(i) of the FFEL Program regulations. The FFEL Program 
regulations govern the activities of third parties; the Direct Loan 
Program regulations in this area would govern the Department. In 
general, the Secretary does not issue regulations to control the 
Department's activities. Moreover, the disclosures discussed by the 
negotiators are already provided by the Department in the Direct 
Consolidation Loan Application and Promissory Note that a borrower must 
complete before receiving a Direct Consolidation Loan. The promissory 
note explains that before the Department pays off the loans the 
borrower has selected for consolidation, the Department will send the 
borrower a notice that provides information about the loans and payoff 
amounts that have been verified, and tells the borrower the deadline by 
which the Department must be notified if the borrower wants to cancel 
the consolidation loan. The notice also specifies the timeframe during 
which the borrower may cancel the entire consolidation loan or notify 
the Department that he or she does not want to consolidate one or more 
of the loans listed in the notice that is sent to the borrower.
    However, the Department agreed that for greater clarity, current 
Sec.  685.220(f)(1)(iii) should be revised to include the specific 
maximum amount of collection costs that may be charged to a borrower 
who consolidates a defaulted loan. The Department noted that the 18.5 
percent limit on the amount of collection costs that may be charged to 
a borrower is also included on the Direct Consolidation Loan 
Application and Promissory Note.

Modification of Direct Loan Program Regulations: Counseling Borrowers 
(34 CFR 685.304)

    Statute: Section 485(b) of the HEA requires that schools provide 
FFEL and Direct Loan program borrowers (except for consolidation loan 
borrowers and parent PLUS loan borrowers) with exit counseling prior to 
the borrower's completion of his or her course of study at the school 
or at the time of the borrower's departure from a school. This section 
of the HEA also specifies the information that must be included in the 
exit counseling. Exit counseling may be provided through a school's 
financial aid office or by other means. Section 485(b)(2)(C) allows for 
exit counseling to be provided electronically.
    Current Regulations: For the Direct Loan Program, current Sec.  
685.304(b)(1) requires a school to ensure that exit counseling is 
conducted with each borrower of a Direct Subsidized Loan or a Direct 
Unsubsidized Loan and with any graduate or professional student Direct 
PLUS Loan borrower shortly before the borrower ceases at least half-
time study at the school.
    Current Sec.  685.304(b)(2) provides that exit counseling must be 
in person, by audiovisual presentation, or by interactive electronic 
means.
    Current Sec.  685.304(b)(3) states that if a borrower withdraws 
from school without the school's knowledge or fails to complete 
required exit counseling, exit counseling must be provided either 
through interactive electronic means or by mailing written counseling 
materials to the borrower at the borrower's last known address. The 
school must provide the counseling materials to the borrower within 30 
days after the school learns that the student has withdrawn or failed 
to complete exit counseling.
    Current Sec.  685.304(b)(4) specifies the information that must be 
included in exit counseling.
    Proposed Regulations: We propose to revise current Sec.  
685.304(b)(3) to include another option for providing exit counseling 
to a student borrower who withdraws without the school's knowledge or 
fails to complete required exit counseling. Under proposed Sec.  
685.304(b)(3), a school could send written counseling materials to an 
email address provided by the student borrower.
    The proposed regulations would also add a new Sec.  
685.304(b)(8)(i). For students who have received both FFEL and Direct 
Loan program loans for attendance at a school, the school's compliance 
with the Direct Loan Program exit counseling requirements in

[[Page 45661]]

Sec.  685.304(b) satisfies the FFEL Program exit counseling 
requirements in proposed redesignated Sec.  682.604(a), if the school 
ensures that the exit counseling includes the information related to a 
borrower's FFEL indebtedness as described in proposed Sec.  
682.604(a)(2)(i) and (ii).
    Finally, proposed Sec.  685.304(b)(8)(ii) would state that a 
student's completion of electronic interactive exit counseling offered 
by the Secretary satisfies the Direct Loan exit counseling requirements 
in Sec.  685.304(b) and, for students who have also received FFEL 
Program loans for attendance at the school, the FFEL Program exit 
counseling requirements in proposed Sec.  682.604(a).
    Reasons: The proposed revision of Sec.  685.304(b)(3) reflects the 
Department's existing guidance to schools included in the Department's 
Federal Student Aid Handbook. Similarly, proposed new Sec.  
685.304(b)(8)(i) and (ii) would incorporate guidance that the 
Department has previously provided in response to questions from 
schools about options for providing exit counseling to borrowers who 
have received loans through both the FFEL and Direct Loan programs for 
attendance at the same school. Because the Direct Loan and FFEL exit 
counseling requirements are generally the same, the Department has 
previously allowed schools to use a single exit counseling session to 
satisfy the exit counseling requirements for these students, provided 
that the counseling includes the separate loan debt information for the 
loans made under each program. The Department has also previously 
advised schools that the optional interactive electronic exit 
counseling offered by the Secretary satisfies the exit counseling 
requirements for borrowers who have received only Direct Loans or who 
have received both Direct Loans and FFEL Program loans.

Regulatory Impact Analysis

    Under Executive Order 12866, the Secretary must determine whether 
this regulatory action is ``significant'' and, therefore, subject to 
the requirements of the Executive order and subject to review by the 
Office of Management and Budget (OMB). Section 3(f) of Executive Order 
12866 defines a ``significant regulatory action'' as an action likely 
to result in a rule that may--
    (1) Have an annual effect on the economy of $100 million or more, 
or adversely affect a sector of the economy, productivity, competition, 
jobs, the environment, public health or safety, or State, local or 
Tribal governments or communities in a material way (also referred to 
as an ``economically significant'' rule);
    (2) Create serious inconsistency or otherwise interfere with an 
action taken or planned by another agency;
    (3) Materially alter the budgetary impacts of entitlement grants, 
user fees, or loan programs or the rights and obligations of recipients 
thereof; or
    (4) Raise novel legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles stated in the 
Executive order.
    This proposed regulatory action raises novel policy issues relating 
to the Department's efforts in support of the President's initiative to 
increase college attendance and completion. Therefore, this proposed 
action is subject to review by OMB under section 3(f) of Executive 
Order 12866.
    We have also reviewed these regulations under Executive Order 
13563, which supplements and explicitly reaffirms the principles, 
structures, and definitions governing regulatory review established in 
Executive Order 12866. To the extent permitted by law, Executive Order 
13563 requires that an agency--
    (1) Propose or adopt regulations only upon a reasoned determination 
that their benefits justify their costs (recognizing that some benefits 
and costs are difficult to quantify);
    (2) Tailor its regulations to impose the least burden on society, 
consistent with obtaining regulatory objectives and taking into 
account--among other things and to the extent practicable--the costs of 
cumulative regulations;
    (3) In choosing among alternative regulatory approaches, select 
those approaches that maximize net benefits (including potential 
economic, environmental, public health and safety, and other 
advantages; distributive impacts; and equity);
    (4) To the extent feasible, specify performance objectives, rather 
than the behavior or manner of compliance a regulated entity must 
adopt; and
    (5) Identify and assess available alternatives to direct 
regulation, including economic incentives--such as user fees or 
marketable permits--to encourage the desired behavior, or provide 
information that enables the public to make choices.
    Executive Order 13563 also requires an agency ``to use the best 
available techniques to quantify anticipated present and future 
benefits and costs as accurately as possible.'' The Office of 
Information and Regulatory Affairs of OMB has emphasized that these 
techniques may include ``identifying changing future compliance costs 
that might result from technological innovation or anticipated 
behavioral changes.''
    We are issuing these regulations only on a reasoned determination 
that their benefits justify their costs. In choosing among alternative 
regulatory approaches, we selected those approaches that maximize net 
benefits. Based on the analysis that follows, the Department believes 
that these regulations are consistent with the principles in Executive 
Order 13563.
    We also have determined that this regulatory action would not 
unduly interfere with State, local, and tribal governments in the 
exercise of their governmental functions.
    In accordance with both Executive orders, the Department has 
assessed the potential costs and benefits of this regulatory action. 
The potential costs associated with this regulatory action are those 
resulting from statutory requirements and those we have determined as 
necessary for administering the Department's programs and activities.
    Elsewhere in this section under the heading Paperwork Reduction Act 
of 1995, we identify and explain burdens specifically associated with 
information collection requirements.
    In this regulatory impact analysis we discuss the need for 
regulatory action, the potential costs and benefits, net budget 
impacts, assumptions, limitations, and data sources, as well as 
regulatory alternatives we considered.

The Need for Regulatory Action

    The Department is responsible for administering the Federal student 
loan programs authorized by title IV of the HEA. Federal student loans 
are a crucial element in providing important opportunities for 
Americans seeking to expand their skills and earn postsecondary degrees 
and certificates.
    With these proposed regulations, the Department seeks to clarify 
the rehabilitation process for borrowers with defaulted student loans. 
The Department is addressing concerns raised by advocates and borrowers 
about that rehabilitation process. The Department wants to ensure that 
borrowers who wish to rehabilitate their defaulted loans are properly 
informed about their rights to ``reasonable and affordable'' payments 
and how a reasonable and affordable payment is determined.
    In addition to the changes made to improve program administration, 
statutory revisions or administration priorities sometimes require the 
Department to revise its policies and regulations.

[[Page 45662]]

    In the case of these regulations, the passage of the SAFRA Act 
ended the origination of new loans under the FFEL Program. Now, new 
Federal subsidized and unsubsidized student loans and PLUS loans are 
made through the Direct Loan Program. The Department therefore also 
seeks to remove regulations governing the FFEL Program that are no 
longer needed and to make the Direct Loan Program regulations 
comprehensive. Finally, the Department seeks to add consistency and 
clarity to all regulations governing student loans.
    Beyond those details, Executive Order 12866 emphasizes that 
``Federal agencies should promulgate only such regulations as are 
required by law, are necessary to interpret the law, or are made 
necessary by compelling public need, such as material failures of 
private markets to protect or improve the health and safety of the 
public, the environment, or the well-being of the American people.'' In 
this case, there is indeed a compelling public need for regulation.
    The Secretary recognizes the growth in the number of students 
enrolled in college and the resulting increased need for student loans. 
The Secretary's goal in regulating is to promote viable Federal student 
loan programs by ensuring that the regulations that govern the 
origination and servicing of student loans are clear and concise so 
that borrowers can make informed decisions about borrowing and 
repayment.
    Current regulations allow a borrower with defaulted student loans 
to rehabilitate those loans by making 9 full, on-time payments (within 
20 days of the due date) over a 10-month period in an amount agreed to 
by the borrower and the loan holder (the Department for a defaulted 
Direct Loan, a guaranty agency or the Department for a defaulted FFEL 
Program loan). These regulations provide that the payment amount 
required by the guaranty agency and the Secretary must be reasonable 
and affordable. However, there have been complaints that guaranty 
agencies, the Department, and the debt collection agencies that collect 
Federal student loans require payments that exceed this standard.
    During the negotiated rulemaking sessions, non-Federal negotiators 
representing consumer advocacy groups expressed concern that the 
payments requested by the collection agencies often are not reasonable 
and affordable and that borrowers are not informed of their right to 
object to these requested payment amounts. They stated that, as a 
result, many borrowers attempt to rehabilitate their loans but are 
unable to do so because the payments are too high or because they are 
discouraged by the process. Similar complaints have been made regularly 
to the Department at public hearings and other venues.
    Under current practices, many collection agencies first try to get 
the defaulted borrower to pay the total amount of the defaulted debt 
because by law, the full amount of the loan is due and payable at the 
time of default. If a borrower is unable to pay the full amount, 
collection agencies then attempt to negotiate a payment with the 
borrower that is as close to the 10-year standard payment amount as the 
borrower can afford to pay. These amounts are generally based on the 
borrower's income and expenses. This approach assumes that borrowers 
who pay an amount comparable to the 10-year standard will have an 
easier transition into regular payments after rehabilitating their 
loans. Generally, for collection agencies to receive a commission on 
successful loan rehabilitation, the total amount collected must be 
equivalent to a certain percentage of the total loan amount owed.
    While defaulters represent a small portion of the total borrower 
population, the number of defaults has been on the rise.\1\ The 
Department has sought to reduce the number of defaulters by improving 
borrowers' payment management options through the implementation of the 
President's Pay As You Earn initiative and other changes to the Federal 
student loan programs. The changes to the loan rehabilitation process 
included in this NPRM are another part of this overall effort. Even 
with these efforts, the Department cannot gauge whether or not the 
default rate will increase, decrease, or remain steady.
---------------------------------------------------------------------------

    \1\ U.S. Department of Education, First Official Three-Year 
Student Loan Default Rates published, September 28, 2012, 
www.ed.gov/news/press-releases/first-official-three-year-student-loan-default-rates-published.
---------------------------------------------------------------------------

    Some defaulted borrowers who may be interested in rehabilitating 
their defaulted loans are also subject to AWG. Those borrowers may be 
discouraged from trying to fully rehabilitate their loans because they 
fear that they will not be able to make loan payments in addition to 
the amount garnished. Through the proposed regulations, the Department 
aims to add clarity to the AWG process so that affected borrowers will 
understand what is required for AWG to be suspended.
    While defaulted borrowers are subject to immediate collection of 
their total loan debt, the Secretary believes that providing them with 
an improved process to rehabilitate the defaulted loan is in the best 
interests of the taxpayers and the borrower. Defaulted borrowers 
continue to accrue interest on the debt and are charged collection 
costs. In addition, the default harms their credit scores, and the 
borrowers may have trouble purchasing homes or obtaining auto loans or 
other types of consumer credit. By improving the opportunities for 
defaulted borrowers to rehabilitate their student loans, the Department 
will not only improve its chances for full collection of the debt but 
also help some defaulted borrowers return to full economic 
participation.
    The Secretary is also proposing other changes to the FFEL and 
Direct Loan program regulations. The elimination of new loan 
originations in the FFEL Program means that many of the current FFEL 
Program regulations are no longer necessary. In addition, this change 
presented the Secretary with an opportunity to improve consistency 
across the FFEL, Direct and Perkins loan programs. Currently the 
different Title IV loan programs are regulated and administered 
differently in areas where they could be consistent. The Secretary is 
proposing to eliminate these differences where appropriate.
    The Secretary proposes to revise the Direct Loan regulations to 
incorporate provisions from the FFEL regulations that are currently 
only cross-referenced in the Direct Loan regulations. By incorporating 
the substantive provisions in the Direct Loan regulations instead of 
simply cross-referencing to the FFEL regulations, the Direct Loan 
regulations will be comprehensive. This step is appropriate since the 
Direct Loan Program is now the predominant Federal student loan 
program.
    By proposing revisions to the regulations, the Secretary aims to 
provide clarity and transparency to the administration of the loans 
programs. Over the years there have been consistent concerns that 
borrowers are unable to properly manage their Federal student loans 
because of confusion over their rights and options. This is 
particularly true for borrowers who are delinquent on their loans and 
borrowers who experience personal hardship. The revised regulations 
would clarify the rules for borrowers and provide them with a better 
understanding of their rights and responsibilities. Also, the revised 
rules would provide better and clearer guidance to lenders and guaranty 
agencies about their roles and responsibilities in servicing Federal 
student loans.

[[Page 45663]]

Discussion of Costs, Benefits and Transfers

    Adding clarity to the loan rehabilitation process offers many 
benefits. The Department believes that rehabilitation offers benefits 
for students, the Department, and the Nation. Defaulted borrowers may 
be more willing to complete the rehabilitation process. Defaulted 
borrowers may see significant improvements in their credit scores and 
purchasing power. As these borrowers become bigger participants in the 
economy, an improved rehabilitation process should support positive 
growth.
    Improved loan rehabilitation rates will also allow the Department 
and collection agencies to concentrate their collection efforts on non-
paying borrowers. In general, the more student loan accounts that are 
active and current, the better for the programs. The Department 
believes these proposed regulatory changes will help ensure that the 
Federal student loan programs remain strong and support maximum access 
to higher education for American students.
    Over the past decade, the Department has steadily increased the 
number of loans it rehabilitates annually. As Chart 1 shows, in FY 2001 
the Department and guaranty agencies rehabilitated just over $223 
million in defaulted Federal student loan debt. By FY 2011, this number 
had jumped to $5 billion. The Department and guaranty agencies also 
recovered $12 billion worth of defaulted loan debt in FY 2011 compared 
to $5 billion in FY 2001. Part of the increase in loan rehabilitation 
can be linked to growing enrollment, rising tuition, and two economic 
slowdowns, which led to more borrowing. However, the higher percentage 
of total collections that comes from loan rehabilitation shows that the 
Department and guaranty agencies are working with borrowers to help 
them take advantage of the opportunity for loan rehabilitation.

                                                                         [$mns]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                               2001               2005               2008               2009               2010               2011
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total Rehabilitations.................            224              1,606              3,722              3,504              4,332              5,165
Total Collections.....................          5,124              5,809              8,580              8,820             10,214             12,006
Rehabilitations as % of Collections...              4.4%              27.6%              43.4%              39.7%              42.4%              43.0%
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Even though the proposed regulations could possibly result in lower 
payment amounts for borrowers while they are rehabilitating their 
defaulted loans, the borrowers would still be responsible for 
ultimately paying their entire debt. Furthermore, even if 
rehabilitation payments are lowered on average across the board, the 
Department believes that the overall benefits of having more borrowers 
current in their debt payments will outweigh any short-term cost of 
reduced payments.
    Overall, the true monetary effect of the proposed regulations would 
depend heavily on various factors. The Department is currently 
implementing changes to its income driven repayment options and expects 
these changes to help slow down a rising default rate by offering 
improved payment management options to borrowers. Also, as the economy 
continues to improve, the default rate may drop as more borrowers find 
employment.
    The proposed regulations would provide many additional benefits to 
borrowers and promote a more efficient and transparent Federal student 
loan program.
    By expanding from 90 to 120 days the window during which a borrower 
may qualify for a closed school loan discharge after withdrawing from a 
school that eventually closes, the number of borrowers who qualify for 
the discharge may increase. However, school closures are a relatively 
rare occurrence. In 2007, 43 Title IV participating schools closed. 
This number dropped to 30 in 2008 and to 18 in 2011. Unlike two decades 
ago, when fraudulent institutions would quickly shut their doors 
without any notification to students or regulators, most closures these 
days are due to a loss of accreditation. In most cases, students who 
attend schools that lose accreditation are given ample warning about a 
possible closure and can make educated decisions about continuing their 
programs beforehand. While the extended window may mean that more 
borrowers qualify under the proposed closed school regulations, we do 
not believe it will present a significant cost. In 2011, 214 borrowers 
received closed school loan discharges for loans valued at 
approximately $870,000. This was an increase from the 2010 numbers of 
50 borrowers with a loan value of $467,000 but still represents a very 
small portion of the student loan portfolio.
    The proposed revisions to the forbearance process in the different 
loan programs will offer many benefits to borrowers. By expanding the 
circumstances in which lenders may grant administrative forbearance, 
borrowers who had difficulty making payments but who are trying to 
rectify the situation, will receive relief. The regulations would give 
the Department and FFEL lenders more flexibility in dealing with 
defaulted borrowers. These revisions would also clarify the eligibility 
for forbearance and promote a more transparent loan program.
    The proposed revisions to Sec.  685.301 would offer benefits for 
certain borrowers in non-traditional programs. Under the proposed 
regulations, students who transfer from one school into non-term or 
certain standard non-term programs at a different school during the 
middle of an academic year would initially be eligible for a Direct 
Loan to cover the remainder of the academic year that began at the 
prior school (up to their remaining eligibility under the annual loan 
limits), regardless of whether the new school accepts credits from the 
prior school. The current regulation only allows this result if the new 
school accepts transfer credits from the prior school.
    Eligible borrowers would also be able to receive an initial loan at 
the new school for an amount up to the difference between the annual 
loan limit and the amount received at the prior school, with a loan 
period covering the remainder of the academic year that began at the 
prior school, followed by a second loan for up to the full annual loan 
limit for the next academic year at the new school. Under the current 
regulations, if the new school does not accept transfer credits from 
the prior school, the initial loan at the new school must be for the 
lesser of a full academic year or for the remainder of the program at 
the new school. The maximum loan amount the student may receive for 
that entire period is the difference between the annual loan limit and 
the loan amount received at the prior school. While the ability of 
these transfer students to receive additional loan funds will result in 
a cost to the

[[Page 45664]]

government, the Department believes it will be minimal since these 
borrowers will repay those loans.
    Borrowers would see other benefits under the proposed regulations 
as well. The proposed revisions to the Administrative Wage Garnishment 
(AWG) hearing process would ensure that borrowers have a better 
understanding of their rights and responsibilities in that process and 
ensure that borrowers are treated consistently by guaranty agencies and 
the Department.
    Overall, the proposed regulations would strengthen the Federal 
student loan programs and help support the American postsecondary 
education system. As more and more students now depend on student loans 
to pay for their college education, it is essential that borrowers 
fully understand the rights and responsibilities that are a part of 
their student loan obligations. It is also essential that the student 
loan programs operate as efficiently as possible. These revisions are 
part of the Department's commitment to running efficient loan programs 
that support more than ten million students per year. This number will 
grow as the country pursues the President's 2020 goal of leading the 
world in college degree attainment. Keeping a strong higher education 
system will be essential to America maintaining its economic advantage 
in the world.

Net Budget Impacts

    The regulations are estimated to have a net budget impact of $2.8 
to $3.4 million over ten years from 2013-2022 driven by the expansion 
of the time period for eligibility for a closed school discharge. 
Consistent with the requirements of the Credit Reform Act of 1990, 
budget cost estimates for the student loan programs reflect the 
estimated net present value of all future non-administrative Federal 
costs associated with a cohort of loans. A cohort reflects all loans 
originated in a given fiscal year.
    In general, these estimates were developed using the Office of 
Management and Budget's (OMB's) credit subsidy calculator. The 
calculator takes projected future cash flows from the Department's 
student loan cost estimation model and produces discounted subsidy 
rates reflecting the net present value of all future Federal costs 
associated with awards made in a given fiscal year. Values are 
calculated using a ``basket of zeros'' methodology under which each 
cash flow is discounted using the interest rate of a zero-coupon 
Treasury bond with the same maturity as that cash flow. To ensure 
comparability across programs, this methodology is incorporated into 
the calculator and used Government wide to develop estimates of the 
Federal cost of credit programs. Accordingly, the Department believes 
it is the appropriate methodology to use in developing estimates for 
these regulations. That said, in developing the following Accounting 
Statement, the Department consulted with OMB on how to integrate our 
discounting methodology with the discounting methodology traditionally 
used in developing regulatory impact analyses.
    Absent evidence of the effect of these regulations on student 
behavior, budget cost estimates were based on behavior as reflected in 
various Department data sets and longitudinal surveys listed under 
Assumptions, Limitations, and Data Sources. Program cost estimates were 
generated by running projected cash flows related to each provision 
through the Department's student loan cost estimation model. Student 
loan cost estimates are developed across five risk categories: Students 
at less than four-year for-profit institutions, students at less than 
four-year public and non-profit institutions, freshmen/sophomores at 
four-year institutions, juniors/seniors at four-year institutions, and 
graduate students. Risk categories have separate assumptions based on 
the historical pattern of behavior--for example, the likelihood of 
default or the likelihood to use statutory deferment or discharge 
benefits--of borrowers in each category.

Closed School Discharge

    Under current regulations Sec. Sec.  674.33, 682.404, and 685.214, 
student borrowers may qualify for a loan discharge if they are unable 
to complete a program of study because a school closes or if they 
withdraw no more than 90 days before school closure. The Secretary 
could extend the 90-day window based on exceptional circumstances. The 
proposed regulations would extend the 90-day period to a 120-day period 
and provide examples of what qualifies as an exceptional circumstance. 
We estimate these changes to have a cost of approximately $3.1 million 
over 10 years as the pool of borrowers eligible for discharge will 
increase. The costs are limited by the small number of closed schools, 
the availability of teach-outs, and the assignment of recoveries to the 
Department. Chart 2 shows the 128 closed schools since 2007 by year and 
institutional category.

[[Page 45665]]

[GRAPHIC] [TIFF OMITTED] TP29JY13.000

    Since 2007, closed school discharges totaling $5.9 million have 
been granted to approximately 1,600 borrowers, representing 
approximately 3.4 percent of borrowers estimated to be eligible for 
discharge under the existing 90-day window. Some borrowers did not 
receive a discharge because the institution arranged a teach-out or 
students completed their educational program with credit for the work 
at the closed school. By extending the window to 120 days, the 
Department estimates that an additional 100 students would receive 
closed school discharges totaling approximately $400,000 annually.
    This projected amount was determined by estimating that the almost 
1,600 borrowers with discharges over five years were evenly 
distributed, resulting in approximately 320 borrowers with closed 
school discharges annually. The Department then assumed that extending 
the window to 120 days would increase the number of borrowers receiving 
discharges by about a third since some students would already have 
qualified under the 90-day window and we are adding 30 days, about a 
third of the original 90-day window. As the discharge amounts involved 
are small, no subsidy impact is estimated. On a cash basis, the 
estimated budget impact of expanding closed school discharge is $2.8 to 
$3.4 million over 10 years when discounted at 7 percent or 3 percent. 
The Department welcomes comments about these assumptions and estimates 
and will consider them in drafting the final rule.

Loan Rehabilitation

    Two areas related to loan rehabilitation affected by the proposed 
regulations are the determination of the reasonable and affordable 
payment for loan rehabilitation and the limitations on the use of 
administrative wage garnishment while a borrower is attempting to 
rehabilitate a defaulted loan. While the proposed regulatory changes in 
both areas would change the period of time and sources of payments the 
Department receives, the Department does not estimate that the proposed 
regulations would have any significant budget impact.
    The proposed regulations refine the process for determining the 
reasonable and affordable payment for loan rehabilitation to improve 
consistency across loan programs. The current regulations for the FFEL 
Program require guaranty agencies and their collection agents to 
negotiate a reasonable and affordable payment for loan rehabilitation 
with the borrower that takes into account all of the borrower's 
financial circumstances. The Direct Loan Program currently does not 
have similar regulatory language describing how the Department 
determines a reasonable and affordable payment amount, but the program 
does have a similar process for receiving income and expense 
information and negotiating a payment with the borrower.
    Borrower advocates have claimed that this process results in 
inconsistent treatment across guaranty agencies and payments that may 
not be reasonable and affordable for borrowers. Borrower advocates have 
suggested that the Department require the use of the IBR formula to 
establish the reasonable and affordable payment for loan rehabilitation 
to improve consistency and potentially reduce the borrower's 
rehabilitation payment amount. Guaranty agencies and the Department 
wanted to preserve the flexibility to work with borrowers, but agreed 
to have

[[Page 45666]]

the IBR formula as a second option if the borrower objected to the 
reasonable and affordable payment initially determined by the 
Department or the guaranty agency. The Department and several 
negotiators agreed to the use of the IBR formula with the caveat that 
an IBR formula calculation of $0 would result in a monthly 
rehabilitation payment of $5 (not $0), since a key part of the 
rehabilitation process is getting borrowers in the habit of making 
payments. Additionally, to make the Direct Loan Program regulations 
more comprehensive and informative for borrowers, the Department agreed 
to incorporate the regulations governing the determination of a 
reasonable and affordable payment amount into the Direct Loan Program 
regulations.
    With approximately $1.49 billion in defaulted loan balances 
rehabilitated by the Department in FY 2011, loan rehabilitation is a 
valuable collections tool that also allows borrowers to improve their 
credit history and regain eligibility for title IV, HEA Federal student 
aid. The Department and guaranty agencies have emphasized keeping the 
rehabilitation payment amount close to the payment the borrower will 
have to make following rehabilitation to avoid sharp increases in the 
required payment. The availability of IBR or ICR payment plans after 
rehabilitation expands the range of payments possible during 
rehabilitation that would be in line with post-rehabilitation payments. 
This new standard may also help decrease the number of rehabilitation 
borrowers who re-default, as their required rehabilitation plan payment 
amount will be very similar to the payment amount they will make when 
they return to regular repayment. The proposed regulations would retain 
the current FFEL Program regulations requiring consideration of the 
borrower's income and expenses while clarifying the types of incomes 
and expenses to consider, require the use of a standardized form, and 
allow borrowers to object to the payment determined based on the 
individual's income and expenses and included in the written 
rehabilitation agreement offered to the borrower. A borrower who 
objected to the amount required under that method would be able to 
obtain an alternative amount determined using the IBR formula. A 
borrower could choose between the two proposed payment amounts. As the 
negotiation process and factors considered in determining the 
reasonable and affordable payments will largely remain the same for 
FFEL Program loans, the Department does not estimate a budget impact 
from the proposed changes.
    With respect to the Direct Loan portfolio, the Department would be 
required to consider the same income and expense factors, with the same 
possibility of the IBR formula as a fallback calculation for borrowers 
who object to the first payment amount that the Department offers to 
the borrower. For individual borrowers, the payment offered as an 
alternative rehabilitation amount based on IBR might be less than what 
the Department would determine to be appropriate based on an assessment 
of the borrower's income and expenses. If this is the case, the 
Department would collect less money during the months the borrower 
attempts loan rehabilitation, but the borrower would still owe the 
remaining balance after rehabilitation. In addition, to the extent 
lower payments encourage borrowers to complete a loan rehabilitation 
and continue payments they otherwise would not make, the proposed 
regulations may increase total payments over the life of the loan for 
some borrowers. The likelihood of borrowers paying less, the same, or 
more over the life of a loan over time as a result of the proposed 
changes in defining a reasonable and affordable payment is uncertain, 
but the Department does not expect it to have an appreciable budget 
impact.

Perkins Loans Provisions

    The proposed regulations address a few areas related to the Perkins 
Loan Program including: Revising cancellation progression rates; 
modifying the treatment of health-related breaks in service for certain 
loan cancellations; making the eligibility for a graduate fellowship 
deferment consistent with FFEL and Direct Loan program criteria; making 
a technical correction to eliminate the debt-to-income economic 
hardship deferment category for borrowers working less than full-time; 
defining ``on-time'' for rehabilitation payments; and allowing 
assignment to the Department of Perkins Loans made before September 13, 
1982, without the borrower's SSN. The Department does not estimate a 
significant budget impact from these provisions. No appropriations have 
been made to support the Perkins Loan Program since 2008, and 
institutions make loans from payments made on their portfolios of 
existing loans. The effect on the Federal budget of increased costs in 
the Perkins Loan Program is a possible reduction of Federal Perkins 
assets available to be recalled in future years.
    The technical changes to make the debt-to-income economic hardship 
deferment, graduate deferment eligibility, and on-time payment standard 
for rehabilitation payments in the Perkins Loan Program more consistent 
with the FFEL and Direct Loan programs are not expected to have any 
budget impact. Students with graduate fellowships are already eligible 
for deferments in the Perkins Loan Program, and the Department 
estimates that aligning the definition of a graduate fellowship in the 
Perkins Loan Program with that used in the FFEL and Direct Loan 
programs will not expand the pool of graduate fellows allowed a 
deferment. For the on-time payments standards for loan rehabilitation 
purposes, the Perkins Loan Program does not currently have a regulatory 
standard, but the discretion institutions have in setting their own 
standard is constrained by the requirement that nine monthly payments 
be made for rehabilitation.
    The slight changes in timing associated with defining the on-time 
payment standard at 20 days is not expected to change the number of 
borrowers successfully rehabilitating their Perkins loans or the 
ultimate amount collected from those borrowers, so no budget impact is 
expected. The ability to assign loans to the Department without the 
borrower's SSN may facilitate some institutions leaving the program 
and, if the Department is able to collect on those loans, result in 
some small additional revenues.
    As shown in Table 1, the proposed regulations related to Perkins 
Loan cancellation do involve some substantial cancellation amounts 
(e.g. Teacher Service), but the limited scope of the changes and the 
reduction of Federal funding in the Perkins Loan Program limits the net 
budget impact on the Federal government.

                                                Table 1--Perkins Loan Cancellations by Cancellation Type
                                                                        [IN $mn]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                    Cancellation type                          2007            2008            2009            2010            2011         Grand total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Nurse/Medical Tech......................................            26.3            29.6            32.9            35.2            33.7           157.6

[[Page 45667]]

 
Teacher Service.........................................            20.4            21.1            21.4            22.4            19.9           105.3
Teaching in Teacher Shortage Field......................             5.8             5.5             5.6             5.8             5.0            27.6
Law Enforcement.........................................             4.4             4.4             4.8             5.4             5.7            24.6
Early Intervention......................................             4.4             4.2             4.1             4.5             4.1            21.2
Volunteer Service.......................................             3.0             3.1             3.4             3.5             3.7            16.7
Death, Disability, and Bankruptcy.......................             2.8             3.1             3.2             2.9             2.9            14.8
Defense Teacher/Military prior to 1972..................             0.2             0.1             0.1             0.1             0.0             0.5
Military Service........................................             0.1             0.1             0.1             0.1             0.1             0.5
Speech Pathologist......................................  ..............  ..............             0.0             0.1             0.2             0.4
Firefighter.............................................  ..............  ..............  ..............             0.1             0.1             0.2
Librarian...............................................  ..............  ..............             0.0             0.0             0.1             0.1
Other...................................................            0.00            0.02             0.0            0.01            0.01             0.1
Tribal College..........................................  ..............  ..............  ..............             0.0             0.0             0.0
                                                         -----------------------------------------------------------------------------------------------
Total...................................................            67.4            71.1            75.5            80.0            75.4           369.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: NSLDS.

    As detailed in the Summary of Proposed Regulations section of this 
preamble, proposed Sec.  674.52(g)(1) would change the Department's 
longstanding policy that switching cancellation categories results in a 
borrower falling back to the first-year cancellation rate. Instead, the 
proposed regulations would allow borrowers who switch between 
cancellation categories with the same rate of progression to continue 
the progression from the last year under the prior category; however, 
the borrower would fall back to the first-year cancellation rate if the 
borrower switches to a category with a different progression rate.
    The three Perkins Loan cancellation progression rates are 
summarized in Table 2, and all categories except early childhood 
education, Peace Corps volunteer, or voluntary service have a 15/15/20/
20/30 percent cancellation progression. After a Perkins Loan borrower 
receives cancellations for five years at these rates, 100 percent of 
the original principal balance of the borrower's loan is canceled. 
While some borrowers may be able to accelerate their cancellation or 
achieve full cancellation, the nature of the categories affected by the 
policy change would limit the likelihood of borrowers switching between 
them. To the extent a small number of borrowers do switch and are 
allowed to maintain their progression rate instead of falling back to 
year one, the primary effect would be on the timing of cancellation 
received, not the amount.

                                                  Table 2--Perkins Loan Cancellation Progression Rates
--------------------------------------------------------------------------------------------------------------------------------------------------------
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
Firefighter, Law Enforcement, Teacher,    Sec.   674.53, Sec.               15%        15%        20%        20%        30%  100%.
 Teacher in Shortage Area, Librarian,      674.56, Sec.   674.57,
 Military Service, Defense Teacher/        Sec.   674.59.
 Military prior to 1972, Nurse/Medical
 Tech, Speech Pathologist, Early
 intervention, and Tribal College.
                                                                     -------------------------------------------------------
Early Childhood Education...............  Sec.   674.58.............     15% for each year of service; Up to 100% can be     up to 100%.
                                                                             cancelled if service extends to 7 years
                                                                     -------------------------------------------------------
Peace Corps or Volunteer Service........  Sec.   674.60.............        15%        15%        20%        20%  .........  70%.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Additionally, proposed Sec.  674.52(c) would replace the current 
Perkins Loan treatment of a break in teaching service for pregnancy or 
illness. Currently teachers must complete the first half of the 
academic year, begin the second half, and have the employer agree that 
the teacher fulfilled that year of the contract. In the FFEL and Direct 
Loan programs, if a borrower is unable to complete the second half of 
the year of teaching for reasons covered by the FMLA, the service could 
count towards cancellation if the employer agrees the contract has been 
fulfilled for the year.
    The proposed regulations would apply the FMLA-related break-in-
service exception to all Perkins Loan cancellation categories, not just 
teachers. As Perkins loan cancellation does not require consecutive 
service, the Department expects this provision may allow some borrowers 
to receive credit for a year that would not otherwise have counted as 
service and speed up the ultimate cancellation of the loan, but it will 
not significantly expand the number of borrowers who achieve loan 
cancellation as their next year of service could qualify instead. These 
cancellation provisions may affect the timing of when borrowers achieve 
cancellation, but the Department does not estimate that they will 
significantly increase the overall amount cancelled.

Additional Provisions

    Many of the proposed regulations have no impact on the Federal 
budget as they reflect statutory changes already incorporated into the 
budget baseline or clarify existing practices. Several areas of the 
current regulations that are proposed for removal from the regulations 
by this NPRM relate to origination and administration of FFEL Program 
loans. Those regulations became irrelevant when new FFEL Program loan 
originations ended as of July 1, 2010. Any costs or savings resulting 
from the end of FFEL Program loan originations were attributed to the 
SAFRA Act, so there is no estimated

[[Page 45668]]

budget impact from these provisions. The budget impact of these changes 
was already incorporated into the budget baseline.
    Updates were also made to the Direct Loan regulations to 
incorporate specific provisions that previously were included in the 
Direct Loan regulations by cross-reference to the FFEL regulations. The 
restructuring of the Direct Loan regulations to remove references to 
the FFEL Program regulations or to reflect current practices is not 
estimated to have a budget impact.

Assumptions, Limitations, and Data Sources

    In developing these estimates, a wide range of data sources were 
used, including data from the National Student Loan Data System; 
operational and financial data from Department of Education systems, 
including especially the Fiscal Operations Report and Application to 
Participate (FISAP); and data from a range of surveys conducted by the 
National Center for Education Statistics, such as the 2008 National 
Postsecondary Student Aid Survey and the 2004 Beginning Postsecondary 
Student Survey. Data from other sources, such as the U.S. Census 
Bureau, were also used.

Accounting Statement

    As required by OMB Circular A-4 (available at http://www.whitehouse.gov/sites/default/files/omb/assets/omb/circulars/a004/a-4.pdf), in Table 3, we have prepared an accounting statement showing 
the classification of the expenditures associated with the provisions 
of these regulations. This table provides our best estimate of the 
changes in Federal student aid payments as a result of these 
regulations. Expenditures are classified as transfers from the Federal 
Government to student loan borrowers.

 Table 3--Accounting Statement: Classification of Estimated Expenditures
                              [in millions]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
                Category                             Benefits
------------------------------------------------------------------------
                                                      7%              3%
                                         -------------------------------
Greater consistency between the title IV
 loan programs..........................          Not Quantified
------------------------------------------------------------------------
                Category                               Costs
------------------------------------------------------------------------
                                                      7%              3%
                                         -------------------------------
Costs of compliance with paperwork                -$93.8         - $94.4
 requirements...........................
------------------------------------------------------------------------
                Category                             Transfers
------------------------------------------------------------------------
                                                      7%              3%
Reduced payments to Federal Government             $0.40           $0.40
 from additional borrowers receiving
 closed school discharges...............
------------------------------------------------------------------------

Alternatives Considered

    In the spirit of good governance, the Department carefully 
considers any regulatory action or revision to ensure that the final 
decision represents what the Department believes is the best feasible 
option. First and foremost, the Department considered whether or not 
negotiated rulemaking was necessary in this instance and concluded that 
the magnitude of the statutory and regulatory revisions to these rules 
would require stakeholder input. Many of the regulatory alternatives 
proposed by non-Federal negotiators were ultimately rejected by the 
Department because of statutory limitations.
    For example, some non-Federal negotiators raised questions about 
the Department's implementation of the statutory requirement that a 
school must close in order for the borrower to receive a loan 
discharge. The non-Federal negotiators asked the Department to clarify 
whether students would be eligible for a closed school discharge in the 
event an online school closed one of its locations or ceased to operate 
one of its programs.
    In response to the negotiators' questions, the Department noted 
that, for purposes of the discharge, the terms ``school'' and 
``location'' are defined by the HEA. If a school (distance education or 
traditional) closes one of its programs, a borrower does not qualify 
for a closed school discharge because the school itself did not close. 
The entire school has to close for online distance education students 
to receive a discharge. The Department also noted that, under the 
regulations, for students attending an online school that operates at 
many different locations, the main campus or main location of the 
online school would have to close in order for the online distance 
education student to receive the discharge. Although this topic 
engendered much discussion, the provisions governing what constitutes a 
school and location in the current regulations at Sec. Sec.  674.33(g), 
682.402(d), and 685.214(c) are based on statutory requirements.
    The Department proposed amending regulations so that a borrower's 
reasonable and affordable payment amount for loan rehabilitation would 
be calculated using the IBR formula. However, there was strong 
disagreement among the non-Federal negotiators about the merits of this 
proposal. Negotiators representing guaranty agencies argued that 
requiring the use of the IBR formula would reduce their ability to work 
with borrowers to arrive at a rehabilitation payment amount acceptable 
to both the guaranty agency and to the borrower. Negotiators 
representing borrower advocacy groups strongly disagreed with the 
argument that the use of IBR would reduce the agencies' ability to work 
with borrowers. After careful deliberation, the Department decided to 
allow guaranty agencies to keep their flexibility in negotiating 
reasonable and affordable rehabilitation payments, but it ensured that 
borrowers would be made aware of their right to ask for a recalculation 
of the payment amount.
    The Department considered other smaller proposals and alternatives 
as discussed in the preamble but believes that these proposed 
regulations represent the best possible and most feasible outcomes.

[[Page 45669]]

Clarity of the Regulations

    Executive Order 12866 and the Presidential memorandum ``Plain 
Language in Government Writing'' requires each agency to write 
regulations that are easy to understand.
    The Secretary invites comments on how to make these proposed 
regulations easier to understand, including answers to questions such 
as the following:
     Are the requirements in the proposed regulations clearly 
stated?
     Do the proposed regulations contain technical terms or 
other wording that interferes with their clarity?
     Does the format of the proposed regulations (grouping and 
order of sections, use of headings, paragraphing, etc.) aid or reduce 
their clarity?
     Would the proposed regulations be easier to understand if 
we divided them into more (but shorter) sections? (A ``section'' is 
preceded by the symbol ``Sec.  '' and a numbered heading; for example, 
Sec.  682.209 Repayment of a loan.)
     Could the description of the proposed regulations in the 
SUPPLEMENTARY INFORMATION section of the preamble be more helpful in 
making the proposed regulations easier to understand? If so, how?
     What else could we do to make the proposed regulations 
easier to understand?
    To send any comments that concern how the Department could make 
these proposed regulations easier to understand, see the instructions 
in the ADDRESSES section of this preamble.

Regulatory Flexibility Act Certification

Initial Regulatory Flexibility Analysis

    These proposed regulations would affect institutions that 
participate in the title IV, HEA programs, including alternative 
certification programs not housed at institutions, and individual 
borrowers. The U.S. Small Business Administration (SBA) Size Standards 
define for-profit institutions as ``small businesses'' if they are 
independently owned and operated and not dominant in their field of 
operation with total annual revenue below $7,000,000. The SBA Size 
Standards define nonprofit institutions as small organizations if they 
are independently owned and operated and not dominant in their field of 
operation, or as small entities if they are institutions controlled by 
governmental entities with populations below 50,000. The revenues 
involved in the sector affected by these regulations, and the 
concentration of ownership of institutions by private owners or public 
systems means that the number of title IV, HEA eligible institutions 
that are small entities would be limited but for the fact that the 
nonprofit entities fit within the definition of a small organization 
regardless of revenue. Given the definitions above, several of the 
entities subject to the proposed regulations are small, leading to the 
preparation of the following Initial Regulatory Flexibility Analysis.

Description of the Reasons That Action by the Agency Is Being 
Considered

    With these proposed regulations, the Department seeks to remove 
certain regulations governing the FFEL Program that are no longer 
needed and to revise Direct Loan Program regulations to ensure that 
they are comprehensive and to add consistency and clarity to all 
regulations governing student loans by revising where applicable. The 
Department also seeks to provide clarity to the loan rehabilitation 
process for borrowers with defaulted student loans by developing clear 
guidance and regulations.

Succinct Statement of the Objectives of, and Legal Basis for, the 
Regulations

    The proposed regulations amend the FFEL and Direct Loan program 
regulations to: Reflect changes made to the HEA by the SAFRA Act; 
incorporate other statutory changes in the Direct Loan Program 
regulations; update, strengthen, and clarify various areas of the 
Student Assistance General Provisions, Perkins Loan, FFEL, and Direct 
Loan program regulations; and provide for greater consistency in the 
regulations governing title IV, HEA student loan programs.
    In addition, On January 21, 2011, President Obama issued Executive 
Order 13563, ``Improving Regulation and Regulatory Review'' (76 FR 
3821). The order requires all Federal agencies to ``consider how best 
to promote retrospective analysis of rules that may be outmoded, 
ineffective, insufficient, or excessively burdensome, and to modify, 
streamline, expand, or repeal them in accordance with what has been 
learned.'' Accordingly, on August 22, 2011, the Department issued its 
Plan for Retrospective Analysis of Existing Regulations. (See ed.gov/policy/gen/reg/retrospective-analysis/index.html).
    Our plan identified a number of regulatory initiatives for 
retrospective review and analysis. One of those initiatives was 
transitioning from the FFEL Program, under which new loans ceased on 
July 1, 2010, to the Direct Loan Program. This proposed rule would 
remove obsolete FFEL Program regulations.

Description of and, Where Feasible, an Estimate of the Number of Small 
Entities to Which the Regulations Will Apply

    The proposed regulations would affect several categories of 
entities involved in the administration and servicing of Federal 
student loans. Many of the proposed regulations relate to 
notifications, servicing, or collection activities done by loan 
servicers or entities acting for the Federal government. The Department 
does not expect these entities to meet the applicable definition of 
``small entity.'' The proposed regulations related to Perkins Loans 
will affect the institutions that participate in the program, some of 
which would be classified as small entities. As discussed above, 
private non-profit institutions that do not dominate in their field are 
defined as small entities and a few other institutions that participate 
in the Perkins Loan Program do not have revenues above $7 million and 
are also categorized as small entities. Table 4 summarizes AY 2010-11 
Perkins loan disbursements by institutions that qualify as small 
entities. Based on the definition of non-profit institutions as small 
entities, approximately 59 percent of institutions that disbursed 
Perkins loans in AY2010-11 were small entities.

                              Table 4--AY2010-11 Perkins Loan Disbursement Summary
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
Perkins Loan Institutions with disbursements....             545             874             107            1526
Small entities with Perkins disbursements.......               2             874              25             901
% of small entities by control..................            0.4%          100.0%           23.4%           59.0%
Overall Disbursements...........................     387,694,908     448,589,990      20,332,961     856,617,859
% by control....................................          45.26%          52.37%           2.37%            100%
Amounts at Small Entities.......................          53,467     448,589,990       1,012,596       2,808,851
----------------------------------------------------------------------------------------------------------------

[[Page 45670]]

    The Secretary invites comments from small entities as to whether 
they believe the proposed changes would have a significant economic 
impact on them and, if so, requests evidence to support that belief.

Description of the Projected Reporting, Recordkeeping and Other 
Compliance Requirements of the Regulations, Including an Estimate of 
the Classes of Small Entities That Will Be Subject to the Requirement 
and the Type of Professional Skills Necessary for Preparation of the 
Report or Record

    The various provisions in the proposed regulations would modify or 
increase the paperwork burden on entities participating in the FFEL, 
Direct Loan, or Perkins Loan programs, as described in the Paperwork 
Reduction Act section of this NPRM. Much of this burden would be 
associated with borrowers or the Department and its agents and 
therefore does not affect small entities. Table 5 summarizes the 
estimated burden on small entities, primarily institutions and guaranty 
agencies, from the paperwork requirements associated with the proposed 
regulations. As discussed in the Paperwork Reduction Act section of 
this NPRM, several of the provisions reduce the estimated burden on 
institutions, lenders, and guaranty agencies from the elimination of 
regulatory provisions or changes to requirements and this is reflected 
by the negative numbers in the table.

----------------------------------------------------------------------------------------------------------------
                                                    OMB Control    Small entity                   Cost per small
                   Description                          No.            hours          Cost($)         entity
----------------------------------------------------------------------------------------------------------------
FFEL forbearance................................       1845-0020             264           6,497             650
Reasonable and Affordable loan rehab............       1845-0020          69,161       1,702,052         154,732
Suspension of AWG for rehab borrowers...........       1845-0020           1,257          30,935           2,812
School Enrollment Status Reporting..............       1845-0019          24,342         599,068          54,461
Deferment of repayment--Federal Perkins Loans--        1845-0019             175           4,316              22
 definition of eligible graduate fellowship
 programs.......................................
AWG 3rd party contractors; hearing requests, and       1845-0020          57,568       1,416,748         128,795
 hearing administration.........................
Lender disclosure...............................       1845-0020        (20,461)       (503,556)        (50,356)
Due diligence in making a loan..................       1845-0020        (40,923)     (1,007,112)       (100,711)
Equal credit--removal of provision..............       1845-0020        (40,923)     (1,007,112)       (100,711)
Eligibility for interest benefits...............       1845-0020        (40,923)     (1,007,112)       (100,711)
Basic program agreement.........................       1845-0020        (11,174)       (274,982)        (27,498)
Records, reports, inspection requirements for GA       1845-0020         (5,587)       (137,495)        (12,500)
 programs.......................................
Prohibited use of Operating Fund when it               1845-0020       (111,739)     (2,749,889)       (249,990)
 contains Federal Fund assets--removal of
 provision......................................
Funds transferred to Operating Fund by a GA--          1845-0020       (111,739)     (2,749,889)       (249,990)
 removal of provision...........................
FISL loan related--removal of provisions........       1845-0020       (163,692)     (4,028,450)        (884.40)
School as lender--removal of provision..........       1845-0020       (206,534)     (5,082,791)      (1,115.87)
Exit counseling.................................       1845-0020       (134,247)     (3,303,819)        (725.32)
Disqualification review of limitation,                 1845-0020       (111,739)     (2,749,889)       (249,990)
 suspension, and termination actions taken by GA
 against a school--removal of provision.........
----------------------------------------------------------------------------------------------------------------

Identification, to the Extent Practicable, of all Relevant Federal 
Regulations That May Duplicate, Overlap or Conflict With the Proposed 
Regulation

    The proposed regulations are unlikely to conflict with or duplicate 
existing Federal regulations.

Alternatives Considered

    As described above, the Department participated in negotiated 
rulemaking in developing the proposed regulations and considered a 
number of options for some of the provisions. No alternatives were 
aimed specifically at small entities.

Paperwork Reduction Act of 1995

    Sections 674.19, 674.33, 674.34, 682.102, 682.200, 682.205, 
682.206, 682.208, 682.209, 682.210, 682.211, 682.212, 682.214, 682.216, 
682.301, 682.305, 682.401, 682.402, 682.404, 682.405, 682.406, 682.409, 
682.410, 682.411, 682.412, 682.414, 682.417, 682.418, 682.421, 682.507, 
682.508, 682.511, 682.515, 682.602, 682.603, 682.604, 682.605, 682.610, 
682.711, 682.712, 682.713, 685.205, 685.211, 685.214, contain 
information collection requirements. Under the Paperwork Reduction Act 
of 1995 (PRA) (44 U.S.C. 3507(d)), the Department of Education has 
submitted a copy of these sections, related forms, and Information 
Collection Requests (ICRs) to the Office of Management and Budget (OMB) 
for its review.
    As part of its continuing effort to reduce paperwork and respondent 
burden, the Department conducts a preclearance consultation program to 
provide the general public and Federal agencies with an opportunity to 
comment on proposed and continuing collections of information in 
accordance with the PRA (44 U.S.C. 3506(c)(2)(A)). This helps ensure 
that: The public understands the Department's collection instructions, 
respondents can provide the requested data in the desired format, 
reporting burden (time and financial resources) is minimized, 
collection instruments are clearly understood, and the Department can 
properly assess the impact of collection requirements on respondents.
    The forms that would be used to collect the information related to 
these proposed regulations and the ICRs related to the proposed 
regulations and forms are available for comment on Regulations.gov 
under the same Docket number as the proposed regulations. We ask that 
commenters submit a separate set of comments on the paperwork burdens 
that would be imposed under the proposed regulations and associated 
forms. The OMB Control numbers associated with the proposed regulations 
and related forms are 1845-0015, 1845-0019, 1845-0020, 1845-NEW1, and 
1845-NEW2.
    Please note that the comment period regarding paperwork burden runs 
concurrently with the comment period for the proposed regulations. We 
have asked OMB for emergency review because the Department needs to 
start collecting this information before the start of the next academic 
year, as soon

[[Page 45671]]

as the regulations become final. The comment period for the burden 
associated with these regulations is 30 days. See the DATES section of 
this preamble for the deadline to submit PRA comments.
    A Federal agency may not conduct or sponsor a collection of 
information unless OMB approves the collection under the PRA and the 
corresponding information collection instrument displays a currently 
valid OMB control number. Notwithstanding any other provision of law, 
no person is required to comply with, or is subject to penalty for 
failure to comply with, a collection of information if the collection 
instrument does not display a currently valid OMB control number.
    In the final regulations we will display the control number 
assigned by OMB to any information collection requirement proposed in 
this NPRM and adopted in the final regulations.

Sections 682.211 and 685.205--Forbearance

    The proposed regulations amend the current FFEL Program regulations 
to authorize a lender, prior to resolving a default claim payment, to 
grant forbearance to a borrower or endorser who is in default on a loan 
based on the borrower's or endorser's oral request. The current 
regulations require borrowers to submit a written request for 
forbearance. The burden calculations address only the added burden 
created by accepting oral requests for forbearance. The proposed 
regulations provide that a forbearance agreement in this situation must 
include a new agreement to repay the debt signed by the borrower or 
endorser (as required under the current regulations), or a written or 
oral affirmation of the borrower's or endorser's obligation to repay 
the debt. The proposed regulations define ``affirmation'' for this 
purpose to be an acknowledgment of the loan by the borrower or endorser 
in a legally binding manner that can take the form of: (1) A new signed 
repayment agreement or schedule, or another form of signed agreement to 
repay the debt (as under current regulations); (2) an oral 
acknowledgment and agreement to repay the debt that is documented by 
the lender in the borrower's or endorser's file and confirmed by the 
lender in a notice to the borrower; or (3) a payment made on the loan 
by the borrower or endorser. The proposed regulations also specify that 
if a forbearance in this situation is based on the borrower's or 
endorser's oral request and affirmation, the lender must orally review 
with the borrower the terms and conditions of the forbearance. The 
lender must also send the borrower or endorser a notice that confirms 
the terms of the forbearance and the borrower's or endorser's 
affirmation of the obligation to make the first payment under the 
forbearance agreement within 30 days after entering into that 
agreement. The proposed regulations require the lender to retain a 
record of the terms and conditions of the forbearance and affirmation 
in the borrower's or endorser's file.
    For the 2011 calendar year, the last year for which data are 
available, we estimate that 172,915 FFEL borrowers requested 
forbearance after defaulting on a loan. Of that number, 49,350 
borrowers have FFEL program loans held by lenders. Of those borrowers, 
we estimate that 25 percent (12,338 borrowers) would exercise the 
option in these proposed regulations to orally acknowledge the debt and 
agree to repay the debt. The remaining 123,565 loans for which we 
estimate borrowers will request forbearance after defaulting will be 
held by the Department. We estimate that 25 percent of those borrowers 
(30,891 borrowers) who request forbearance from the Department will 
exercise the option to orally acknowledge the debt and agree to repay 
the debt, as would be authorized under these proposed regulations. 
Because OMB requires Federal agencies to account for burden imposed on 
non-Federal entities separately by type, i.e. public, not-for-profit, 
and for-profit, the following analysis of the burden imposed on lenders 
other than the Department is broken down by the types of entities. Note 
that State guaranty agencies are covered under the ``public'' type of 
entities.
    Of the FFEL Program loans held by lenders, we estimate that public 
holders (State guaranty agencies) will have 2 FFEL borrowers who seek 
to orally acknowledge a defaulted FFEL Program loan. On average, we 
estimate that it would take the lender 0.17 hours (10 minutes) per oral 
acknowledgment to orally review with the borrower the terms and 
conditions of the forbearance and document the conversation and place 
that documentation in the borrower's or endorser's file. For public 
holders, we estimate that burden would increase by 0.34 hours (2 
borrowers multiplied by 0.17 hours per oral forbearance request).
    Of the FFEL Program loans, we estimate that not-for-profit holders 
will have 1,551 FFEL borrowers who seek an oral forbearance on a 
defaulted FFEL program loan. On average, we estimate that it would take 
the lender 0.17 hours (10 minutes) per oral acknowledgment to orally 
review with the borrower the terms and conditions of the forbearance 
and document the conversation and place that documentation in the 
borrower's or endorser's file. For not-for-profit holders, we estimate 
that burden would increase by 264 hours (1,551 borrowers multiplied by 
0.17 hours per oral forbearance request).
    Of the FFEL Program loans, we estimate that for-profit holders 
would have 10,785 FFEL borrowers who seek an oral forbearance on a 
defaulted FFEL Program loan. On average, we estimate that it would take 
the lender 0.17 hours (10 minutes) per oral acknowledgment to orally 
review with the borrower the terms and conditions of the forbearance 
and document the conversation and place that documentation in the 
borrower's or endorser's file. We estimate that burden would increase 
by 1,833 hours (10,785 borrowers multiplied by 0.17 hours per oral 
forbearance request) at for-profit holders.
    We estimate there would be an equal amount of burden on the 
borrower engaged in the oral acknowledgement and agreement to repay the 
debt request with the lender. The oral acknowledgment process would 
increase burden by 7,349 hours for all FFEL borrowers (12,338 held by 
lenders and 30,891 ED-held = 43,229 borrowers multiplied by 0.17 hours 
per oral forbearance request). Since there is no FFEL general 
forbearance form approved by OMB, the proposed regulations would impose 
new burden.
    Collectively, we estimate that these proposed FFEL forbearance 
regulations would increase burden by 9,446 hours under OMB Control 
Number 1845-0020.
    The proposed regulations would amend the current Direct Loan 
Program regulations to authorize the Secretary, prior to the loan being 
transferred to the Department's default collections office, to grant 
forbearance to a borrower or endorser who is in default on a loan based 
on the borrower's or endorser's oral request. The proposed regulations 
provide that a forbearance agreement in this situation must include a 
new agreement to repay the debt signed by the borrower or endorser (as 
required under the current regulations), or a written or oral 
affirmation of the borrower's or endorser's obligation to repay the 
debt. The proposed regulations define ``affirmation'' for this purpose 
to be an acknowledgment of the loan by the borrower or endorser in a 
legally binding manner that can take the form of: (1) A new signed 
repayment agreement or schedule, or another form of signed agreement to 
repay the debt (as under current regulations); (2) an oral 
acknowledgment and agreement to

[[Page 45672]]

repay the debt that is documented by the Secretary in the borrower's or 
endorser's file and confirmed by the Secretary in a notice to the 
borrower; or (3) a payment made on the loan by the borrower or 
endorser. The proposed regulations also specify that if a forbearance 
in this situation is based on the borrower's or endorser's oral request 
and affirmation, the Secretary must orally review with the borrower the 
terms and conditions of the forbearance, and that the Secretary must 
send the borrower or endorser a notice that confirms the terms of the 
forbearance and the borrower's or endorser's affirmation of the 
obligation to make the first payment under the agreement within 30 days 
after entering into that agreement. The proposed regulations require 
the Secretary to retain a record of the terms and conditions of the 
forbearance and affirmation in the borrower's or endorser's file.
    For the 2011 calendar year, 62,905 Direct Loan borrowers requested 
forbearance after defaulting on a loan. Of that number, we estimate 
that 25 percent (15,726 borrowers) would have exercised an option to 
orally acknowledge the debt and agree to repay the debt. On average, we 
estimate that it would take a borrower 0.17 hours (10 minutes) per oral 
acknowledgment to listen to the list of terms and conditions of the 
forbearance as they are reviewed with the borrower. The burden 
associated with the completion of the General Forbearance Request form, 
OMB 1845-0031, is estimated to average 0.2 hours (12 minutes). 
Therefore, the net reduction in burden to provide an oral 
acknowledgement rather than complete the form is the difference of the 
two or 0.03 hours (0.20 hours minus 0.17 hours or 2 minutes) per oral 
forbearance.
    We estimate that burden would decrease by 472 hours (15,726 
borrowers multiplied by 0.03 hours per oral forbearance) under OMB 
Control Number 1845-NEW2.

Sections 682.405(b) and 685.211(f)--Reasonable and Affordable Loan 
Rehabilitation Agreement

    The proposed regulations would add new Sec. Sec.  
682.405(b)(1)(iii) and 685.211(f)(1)(i), requiring a guaranty agency 
and the Secretary, respectively, to base determinations of reasonable 
and affordable rehabilitation payment amounts of defaulted loans on 
information provided on an OMB-approved form, and, if requested, 
supporting documentation.
    Proposed Sec. Sec.  682.405(b)(1)(iii)(A) and 685.211(f)(1)(i)(A) 
would require a guaranty agency and the Secretary to consider the 
borrower's, and if applicable, the borrower's spouse's current 
disposable income in determining a reasonable and affordable 
rehabilitation payment amount on a defaulted loan. Under proposed 
Sec. Sec.  682.405(b)(1)(iii)(A) and 685.211(f)(1)(i)(A), spousal 
income would not be considered if the spouse does not contribute to the 
borrower's household income.
    Proposed Sec. Sec.  682.405(b)(1)(iii)(B) and 685.211(f)(1)(i)(B) 
would require a guaranty agency and the Secretary to consider the 
borrower's family size, as defined in Sec.  682.215(a)(3) in 
determining the borrower's loan rehabilitation payment amount.
    In calendar year 2011, there were approximately 299,159 FFEL 
borrowers (192,029 borrowers whose FFEL program loans are held by 
lenders and 107,130 FFEL program borrowers whose loans are held by the 
Department) that requested and received a loan rehabilitation agreement 
for their defaulted loans. We estimate that on average it would take a 
borrower 1.5 hours (90 minutes) to complete and submit the loan 
rehabilitation form. Under these proposed regulations, we estimate that 
burden will increase by 448,739 hours (299,159 borrowers requesting 
loan rehabilitation multiplied by 1.5 hours per loan rehabilitation 
requests) under OMB Control Number 1845-NEW1.
    In calendar year 2011, there were approximately 92,870 Direct Loan 
borrowers that requested and received a loan rehabilitation agreement 
for their defaulted loans. We estimate that it would take a borrower on 
average 1.5 hours (90 minutes) to complete and submit the loan 
rehabilitation form. Under these proposed regulations, we estimate that 
burden will increase by 139,305 hours (92,870 borrowers requesting loan 
rehabilitation multiplied by 1.5 hours per loan rehabilitation request) 
under OMB Control Number 1845-NEW1. Collectively, the proposed changes 
in Sec. Sec.  682.405 and 685.211 associated with the completion and 
submission of the reasonable and affordable form would increase burden 
by 588,044 hours (448,739 hours plus 139,305 hours) under OMB 1845-
NEW1.
    We estimate that of the 192,029 FFEL loans held by lenders, 66,283 
loans are held by state guaranty agencies and 125,746 loans are held by 
not-for-profit guaranty agencies, with the remaining 107,130 loans 
(299,159 minus 192,029) held by the Department. Under the proposed 
regulations, 66,283 FFEL borrowers whose loans are held by state 
guaranty agencies will request rehabilitation of their defaulted loans 
and complete the loan rehabilitation form. We estimate that for each 
loan rehabilitation form submitted it would take the guaranty agency on 
average 0.5 hours (30 minutes) to review and process the loan 
rehabilitation form. Under these proposed regulations, we estimate that 
burden would increase by 33,142 hours (66,283 borrowers requesting loan 
rehabilitation multiplied by 0.5 hours per loan rehabilitation request) 
under OMB Control Number 1845-0020.
    Under the proposed regulations, we estimate that of the 192,029 
FFEL loans held by non-Federal entities, 125,746 FFEL borrowers whose 
loans are held by not-for-profit guaranty agencies will request 
rehabilitation and complete the loan rehabilitation form. We estimate 
that for each loan rehabilitation form submitted it would take the 
guaranty agency on average 0.5 hours (30 minutes) to review and process 
the loan rehabilitation form. Under these proposed regulations, we 
estimate that burden will increase by 62,873 hours (125,746 borrowers 
requesting loan rehabilitation multiplied by 0.5 hours per loan 
rehabilitation request) under OMB Control Number 1845-0020.
    Proposed Sec. Sec.  682.405(b)(1)(vi) and 685.211(f)(3) would 
require a guaranty agency and the Secretary to recalculate the 
borrower's rehabilitation payment amount if the borrower objects to the 
payment amount contained in the written repayment agreement that the 
guaranty agency or the Secretary sent to the borrower.
    Of the 299,159 FFEL borrowers in calendar year 2011 that requested 
rehabilitation of their defaulted loans, we estimate that 12 percent or 
35,899 borrowers would raise an objection to the initial determination 
of the reasonable and affordable monthly payment amount by the guaranty 
agency or the Secretary. We estimate that each objection will entail a 
phone conversation or email that would span on average 0.17 hours (10 
minutes). This would increase burden to the borrowers for a total of 
6,103 hours (35,899 borrowers objecting to the initial determination of 
the reasonable and affordable payment amount multiplied by 0.17 hours 
per loan rehabilitation request) under OMB Control Number 1845-0020.
    Of the 92,870 Direct Loan borrowers in calendar year 2011 that 
requested loan rehabilitation of their defaulted loans, we estimate 
that 11,144 Direct Loan borrowers would raise an objection to the 
initial determination of the reasonable and affordable monthly payment 
amount. We estimate that each

[[Page 45673]]

objection will entail a phone conversation or email that would span on 
average 0.17 hours (10 minutes). This would increase burden to the 
borrowers for a total of 1,894 hours (11,144 borrowers objecting to the 
initial determination of the reasonable and affordable payment amount 
multiplied by 0.17 hours per loan rehabilitation request) under OMB 
Control Number 1845-NEW2.
    Proposed Sec. Sec.  682.405(b)(1)(vii) and 685.211(f)(5) would 
require a borrower who objects to the monthly repayment amount 
contained in the written repayment agreement to provide the guaranty 
agency or the Secretary the documentation needed to calculate a monthly 
payment amount under the income-based repayment plan formula. If the 
borrower does not provide this information to the guaranty agency or 
the Secretary, no rehabilitation agreement would exist with the 
borrower, and the guaranty agency or the Secretary would not proceed 
with the rehabilitation.
    Of the 299,159 FFEL borrowers in calendar year 2011 that requested 
rehabilitation of their defaulted loans, we estimate that 12 percent or 
35,899 borrowers would choose to submit documentation for a monthly 
payment amount to be calculated using the income-based repayment plan 
formula. We estimate that on average, each borrower would take 0.33 
hours (20 minutes) to collect, copy, and submit the required 
documentation. We estimate that burden would increase by 11,847 hours 
(35,899 borrowers required to submit documentation multiplied by 0.33 
hours per loan rehabilitation request) under OMB Control Number 1845-
0020.
    Of the 92,870 Direct Loan borrowers in calendar year 2011 that 
requested rehabilitation of their defaulted loans, we estimate that 12 
percent or 11,144 borrowers would choose to submit documentation for a 
monthly payment amount to be calculated using the income-based 
repayment plan formula. We estimate that on average each borrower would 
take 0.33 hours (20 minutes) to collect, copy, and submit the required 
documentation. We estimate that burden would increase by 3,678 hours 
(11,144 borrowers required to submit documentation multiplied by 0.33 
hours per loan rehabilitation request) under OMB Control Number 1845-
NEW2.
    Proposed Sec. Sec.  682.405(b)(1)(ix) and 685.211(f)(7) would 
require the Secretary or the guaranty agency, upon the borrower's 
request, to adjust the borrower's monthly rehabilitation payment due to 
a change in the borrower's financial circumstances. The borrower would 
be required to provide documentation supporting the request.
    We estimate that 10 percent of the 299,159 FFEL borrowers who 
requested rehabilitation of their defaulted loans (29,916 FFEL 
borrowers, 19,203 of whom have FFEL program loans that are held by 
lenders and 10,713 of whom have FFEL program loans that are held by the 
Department) would have a change in their financial circumstances in the 
initial year the proposed regulation is implemented. We estimate that 
on average each borrower would take 0.33 hours (20 minutes) to collect, 
copy, and submit the required documentation. We estimate that burden 
would increase by 9,872 hours (29,916 borrowers with changes in 
financial circumstances multiplied by 0.33 hours per loan 
rehabilitation request) under OMB Control Number 1845-0020.
    Of the 19,203 borrowers with FFEL loans held by lenders, 6,628 are 
held by public guaranty agencies and 12,575 are held by not-for-profit 
guaranty agencies. Under the proposed regulations, we estimate 6,628 
FFEL borrowers whose loans are held by public guaranty agencies would 
have a change in their financial circumstances in the initial year the 
proposed regulation is implemented. We estimate that for each request 
submitted it would take on average the guaranty agency 0.5 hours (30 
minutes) to review and process the request. Under these proposed 
regulations, we estimate that burden would increase by 3,314 hours 
(6,628 borrowers requesting loan rehabilitation multiplied 0.5 hours 
per loan rehabilitation request equals 3,314 hours) under OMB Control 
Number 1845-0020.
    Under the proposed regulations, we estimate that 12,575 FFEL 
borrowers whose loans are held by not-for-profit guaranty agencies 
would request a change in their reasonable and affordable payment 
amount due to changed financial circumstances in the initial year the 
proposed regulation is implemented. We estimate that for each request 
submitted it would take on average the guaranty agency 0.5 hours (30 
minutes) to review and process the request for a change in the payment 
amount. Under these proposed regulations, we estimate that burden will 
increase by 6,288 hours (12,575 borrowers requesting a change in the 
loan rehabilitation payment amount multiplied by 0.5 hours per request) 
under OMB Control Number 1845-0020.
    We estimate that 10 percent of Direct Loan borrowers who are 
rehabilitating their defaulted loans (9,287 Direct Loan borrowers) 
would request a change in the reasonable and affordable payment amount 
due to a change in their financial circumstances in the initial year 
the proposed regulation is implemented. We estimate that on average 
each borrower would take 0.33 hours (20 minutes) to collect, copy, and 
submit the required documentation. We estimate that burden would 
increase by 3,065 hours (9,287 borrowers requesting a change in the 
reasonable and affordable payment amount multiplied by 0.33 hours per 
payment change request equals 3,065 hours) under OMB Control Number 
1845-NEW2.

Sections 682.405(a) and 685.211(f)--Suspension of Administrative Wage 
Garnishment for Borrowers Rehabilitating Defaulted Loans

    The proposed regulations would add new Sec. Sec.  682.405(a)(3)(i) 
and 685.211(f)(12)(i) to the FFEL and Direct Loan Program regulations 
requiring a guaranty agency or the Secretary, respectively, to suspend 
collecting on a defaulted loan through Administrative Wage Garnishment 
(AWG) after the borrower makes five qualifying payments under a loan 
rehabilitation agreement. The guaranty agency or the Secretary would 
not be permitted to suspend AWG prior to the fifth payment, and, after 
the fifth payment, the borrower would have the option to request that 
the guaranty agency or the Secretary continue collecting on the loan 
through AWG while the borrower makes voluntary payments under the 
rehabilitation agreement.
    Under proposed Sec.  682.405(a)(3)(ii), we estimate that state 
guaranty agencies will have 663 FFEL borrowers from whom they will be 
collecting payments through AWG while the borrower is also making 
voluntary repayments to rehabilitate the loan. After the borrower has 
made five qualifying voluntary loan payments (in addition to the AWG 
payments), the holder would suspend AWG. We estimate that on average 
each suspension of AWG would take one hour (60 minutes). We estimate 
that burden would increase by 663 hours (663 borrower requests 
multiplied by 1 hour per AWG suspension equals 663 hours) under OMB 
Control Number 1845-0020.
    Under proposed Sec.  682.405(a)(3)(ii), we estimate that not-for-
profit guaranty agencies will have 1,257 FFEL borrowers from whom they 
will be collecting payments using AWG while the borrower is also making 
voluntary repayments to rehabilitate the loan. After the borrower has 
made five qualifying voluntary loan payments (in addition to the AWG 
payments) the

[[Page 45674]]

holder would suspend AWG. We estimate that on average each suspension 
of AWG would take 1 hour (60 minutes). We estimate that burden would 
increase by 1,257 hours (1,257 borrower requests multiplied by 1 hour 
per AWG suspension equals 1,257 hours) under OMB Control Number 1845-
0020.
    Any burden under proposed Sec.  685.211(f)(12)(i) is attributable 
to the Department and therefore not a part of this burden assessment of 
affected entities.
    Collectively, the proposed changes in Sec.  682.405(a) and (b) 
would increase burden by 135,359 hours in OMB Control Number 1845-0020.
    Collectively, the proposed changes in Sec.  685.211(f) would 
increase burden by 8,637 hours in OMB Control Number 1845-NEW2.

Sections 674.33(g), 682.402(d), and 685.214--Closed School Discharge

    The proposed regulations at Sec. Sec.  674.33(a)(4)(i)(B), 
682.402(d)(1), and 685.214(c)(1)(iii) would extend, for purposes of the 
closed school discharge, the current 90-day period to 120-days for 
students who leave before a school closes and add examples of the types 
of exceptional circumstances under which the Department may extend the 
120-day window.
    During the 2011 calendar year, 0 Perkins Loan borrowers received 
closed school loan discharges. We estimate that 15 Perkins Loan 
borrowers submitted applications for closed school discharges. We 
estimate that the average burden per response is 0.5 hours (30 minutes) 
for each loan discharge application and that by expanding the period 
from 90 days to 120 days prior to school closure for students who had 
withdrawn to apply for a closed school loan discharge would increase 
the number of applicants by 20 percent. As a result there would be an 
estimated 18 applications under the proposed regulation for a total 
increase in burden of 2 hours (18 borrowers applying for loan discharge 
multiplied by 0.5 hours per application minus 15 borrowers applying for 
loan discharge under current regulations multiplied by 0.5 hours per 
application) under OMB Control Number 1845-0015.
    During the 2011 calendar year, 163 FFEL borrowers received closed 
school loan discharges. We estimate that 230 FFEL borrowers submitted 
applications for discharge. We estimate that the average burden per 
response is 0.5 hours (30 minutes) for each loan discharge application 
and that by expanding the period from 90 days to 120 days prior to 
school closure for students who had withdrawn to apply for a closed 
school loan discharge would increase the number of applicants by 20 
percent. As a result there would be 276 applications under the proposed 
regulation for a total increase in burden of 23 hours (276 borrowers 
applying for loan discharge multiplied by 0.5 hours per application 
minus 230 borrowers applying for loan discharge under current 
regulations multiplied by 0.5 hours per application) under OMB Control 
Number 1845-0015.
    During the 2011 calendar year, 128 Direct Loan borrowers received 
closed school loan discharges. We estimate that 295 Direct Loan 
borrowers submitted applications for discharge. We estimate that the 
average burden per response is 0.5 hours (30 minutes) for each loan 
discharge application and that by expanding the period from 90 days to 
120 days prior to school closure for students who had withdrawn to 
apply for a closed school loan discharge would increase the number of 
applicants by 20 percent, thus totaling 354 applications under the 
proposed regulation for a total increase in burden of 29 hours (354 
borrowers applying for loan discharge multiplied by 0.5 hours per 
application minus 295 borrowers applying for loan discharge under 
current regulations multiplied by 0.5 hours per application) under OMB 
Control Number 1845-0015.
    Collectively, the total increase in burden is 54 hours under OMB 
Control Number 1845-0015.

Sections 674.19, 682.610, and 685.309--School Enrollment Status 
Reporting Requirements

    For the Federal Perkins Loan program, the proposed regulations 
would add a new Sec.  674.19(f) with the heading ``enrollment reporting 
process.'' Proposed Sec.  674.19(f)(1) would provide that, upon receipt 
of an enrollment report from the Secretary, an institution must update 
all information included in the report and return the report to the 
Secretary in the manner and format prescribed by the Secretary and 
within the timeframe prescribed by the Secretary. Proposed Sec.  
674.19(f)(2) would provide that, unless it expects to submit its 
subsequent updated enrollment report to the Secretary within the next 
60 days, an institution must notify the Secretary within 30 days after: 
(1) The date the school discovers that a loan under title IV of the HEA 
was made to a student who was enrolled or accepted for enrollment at 
the institution, and the student has ceased to be enrolled on at least 
a half-time basis, or has failed to enroll on at least a half-time 
basis for the period for which the loan was intended; or (2) the date 
the school discovers that a student who is enrolled at the institution 
and who received a loan under title IV of the HEA has changed his or 
her permanent address. Because the Secretary already receives 
enrollment information on Federal Perkins Loan borrowers who also have 
a FFEL loan or a Direct Loan, the additional burden associated with 
sending enrollment reports to institutions for the Federal Perkins Loan 
program is only associated with those Federal Perkins Loan borrowers 
whose only loan received under title IV of the HEA is a Federal Perkins 
Loan and who are enrolled on at least a half-time basis or who had 
recently changed enrollment status.
    In the 2011 calendar year, there were 2,070,514 Federal Perkins 
Loan borrowers. Of the 2,070,514 Federal Perkins Loan borrowers, 
240,959 borrowers have a Federal Perkins Loan as the only loan received 
under title IV of the HEA. Of the 240,959 borrowers, 53 percent 
(127,708 borrowers) were enrolled at least half-time or had recently 
changed enrollment status. The Secretary will be sending enrollment 
reports to each of the institutions approximately every 60 days or 6 
reports per year. We estimate that on average the completion and 
submission of an enrollment report would take 0.05 hours (3 minutes) 
per borrower. Burden would increase by 38,312 hours (127,708 borrowers 
multiplied by 0.05 hours per borrower multiplied by 6 reports per year) 
under OMB Control Number 1845-0019.
    For the 2011 calendar year 51 percent of the Federal Perkins loan 
borrowers or 65,131 affected borrowers were at public institutions, 
therefore we estimate that burden would increase for public 
institutions by 19,539 hours (38,312 hours multiplied by 0.51) under 
OMB 1845-0019.
    For the 2011 calendar year 45 percent of the Federal Perkins loan 
borrowers or 57,469 affected borrowers were at private not-for-profit 
institutions, therefore we estimate that burden would increase for 
private not-for-profit institutions by 17,240 hours (38,312 hours 
multiplied by 0.45) under OMB 1845-0019.
    For the 2011 calendar year 4 percent of the Federal Perkins loan 
borrowers or 5,108 affected borrowers were at proprietary institutions, 
therefore we estimate that burden would increase for proprietary 
institutions by 1,533 hours (38,312 hours multiplied by 0.04) under OMB 
1845-0019.
    Collectively, the proposed regulatory changes to Sec.  674.19 would 
increase burden by 38,312 hours for 127,708

[[Page 45675]]

affected borrowers under OMB 1845-0019.
    For the FFEL Program, the proposed regulations would replace the 
term ``student status confirmation reports'' in Sec.  682.610(c) with 
the term ``enrollment reporting process,'' and would revise Sec.  
682.610(c)(1) to provide that upon receipt of an enrollment report from 
the Secretary, a school must update all information included in the 
report and return the report to the Secretary in the manner and format 
prescribed by the Secretary and within the timeframe specified by the 
Secretary. Institutions currently participating in the FFEL or Direct 
Loan programs would continue to report enrollment to the Secretary and 
the lender. Because the only change regarding the FFEL Program 
reporting is in the definition of the reporting requirement, there is 
no change in burden for institutions participating in the FFEL and 
Direct Loan programs.

Section 674.34--Deferment of Repayment--Federal Perkins Loans

    The proposed regulations in Sec.  674.34(f)(1) would require 
schools that participate in the Perkins Loan Program to use the same 
eligibility criteria to define an eligible graduate fellowship program 
and to establish the eligibility of a borrower for a graduate 
fellowship deferment that lenders and the Department use in the FFEL 
and Direct Loan programs, respectively. The proposed regulations would 
require that a borrower provide the institution with a statement from 
an authorized official of the borrower's graduate fellowship program 
certifying: (1) That the borrower holds at least a bachelor's degree; 
and (2) the borrower's anticipated completion date of the program. In 
calendar year 2011 there were 1,104 Perkins borrowers who applied for a 
graduate fellowship deferment. We estimate that on average it would 
take the borrower 0.25 hours (15 minutes) to obtain the certification 
from an authorized official of the graduate fellowship program and to 
complete and submit the Perkins loan deferment form multiplied by an 
estimated 1,104 deferment applications equals 276 hours of increased 
burden to borrowers under OMB Control Number 1845-0019.
    For the 2011 calendar year 51 percent of the Federal Perkins Loan 
borrowers or 563 affected borrowers were at public institutions, 
therefore we estimate that burden would increase for authorizing 
officials at public institutions by 141 hours (1,104 applications 
multiplied by 0.51 multiplied by 0.25 hours per certification) under 
OMB 1845-0019.
    For the 2011 calendar year 45 percent of the Federal Perkins Loan 
borrowers or 497 affected borrowers were at private not-for-profit 
institutions, therefore we estimate that burden would increase 
authorizing officials at for private not-for-profit institutions by 124 
hours (1,104 applications multiplied by 0.45 multiplied by 0.25 hours 
per certification) under OMB 1845-0019.
    For the 2011 calendar year 4 percent of the Federal Perkins Loan 
borrowers or 44 affected borrowers were at proprietary institutions, 
therefore we estimate that burden would increase for private not-for-
profit institutions by 11 hours (1,104 applications multiplied by 0.04 
multiplied by 0.25 hours per certification) under OMB 1845-0019.
    Collectively, the proposed regulatory changes to Sec.  674.34 would 
increase burden by 552 hours under OMB 1845-0019.

Section 682.410(b)(9)(i)(T)(2)--Administrative Wage Garnishment (AWG)--
Use of Third-Party Contractors

    The proposed regulations would also add a new Sec.  
682.410(b)(9)(i)(T) to the regulations, which specifies the functions 
that may be performed by a third-party servicer or collection 
contractor employed by the guaranty agency for services needed in the 
AWG process. The proposed regulations would make clear that the 
guaranty agency may not delegate to any third party the decision to 
order withholding of an individual borrower's wages, and must create 
and retain records to demonstrate that each order issued has been 
individually authorized by an appropriate official of the guaranty 
agency. The proposed regulations would also specify the manner by which 
a withholding order may be sent to employers and the permissible 
activities that may be performed by a third-party servicer or 
collection contractor employed by the guaranty agency with respect to 
withholding orders. Only an authorized official of the guaranty agency 
may determine that an individual withholding order is to be issued. The 
guarantor must record the official's determination for each order it 
issues by either including the official's signature on the order, or, 
by retaining in the agency's records, the identity of the approving 
official, the date of the approval, the amount or rate of the order, 
the name and address of the employer to whom the order was issued and 
the debt for which the order was issued.
    In calendar year 2011, we estimate there were 84,293 FFEL Program 
borrowers whose loans were held by state guaranty agencies and for 
which the guaranty agency had initiated AWG. We estimate that on 
average the guaranty agency would take 0.25 hours (15 minutes) to meet 
the recordkeeping requirements specified above. Total burden hours 
would increase by 21,073 hours (84,293 multiplied by 0.25 hours) under 
OMB 1845-0020.
    In calendar year 2011, we estimate there were 159,912 FFEL 
borrowers whose loans were held by not-for-profit guaranty agencies and 
for which the guaranty agency had initiated AWG. We estimate that on 
average the guaranty agency would take 0.25 hours (15 minutes) to meet 
the recordkeeping requirements specified above. Total burden hours 
would increase by 39,978 hours (159,912 multiplied by 0.25 hours) under 
OMB 1845-0020.
    The proposed changes in Sec.  682.410(b)(9)(i)(T)(2) would increase 
burden by 61,051 hours under OMB Control Number 1845-0020.

Section 682.410(b)(9)(i)(H) Administrative Wage Garnishment (AWG)--
Borrower Hearing Requests

    The proposed regulations would also replace Sec.  
682.410(b)(9)(i)(L) of the FFEL Program regulations with Sec.  
682.410(b)(9)(i)(H) to provide that if a borrower's written request for 
a hearing is received by the guaranty agency after the 30th day 
following the date of the garnishment notice and a decision is not 
rendered within 60 days following receipt of the borrower's written 
request for a hearing, the guaranty agency must suspend the order 
beginning on the 61st day after the hearing request was received until 
a hearing is provided and a decision is rendered.
    If a borrower does not request a hearing within the 30-day time 
limit, the guaranty agency must go forward with the AWG. However, if a 
borrower does eventually request a hearing, a guaranty agency would 
still be required to provide one in sufficient time to have a decision 
issued within 60 days of the request. The Department added a provision 
specifying that if this hearing is not provided and a decision issued 
within 60 days, then the agency must suspend the AWG order beginning on 
the 61st day until a decision is issued.
    In calendar year 2011, we estimate there were 84,293 FFEL borrowers 
whose loans were held by state guaranty agencies and for which the 
agencies had initiated AWG. We estimate that 10 percent of these 
borrowers (8,429) would request a hearing and that in 10 percent of 
those cases (843) a decision would not be rendered until after 60 days 
following the receipt of the borrower's request. On average, we 
estimate that it would take one hour (60

[[Page 45676]]

minutes) to suspend an administrative wage garnishment order. The total 
increase in burden would be 843 hours (843 FFEL borrowers undergoing 
AWG who requested a hearing where a decision was not rendered until 
after 60 days following the receipt of the borrower's request 
multiplied by one hour per suspension) under OMB 1845-0020.
    In calendar year 2011, we estimate there were 159,912 FFEL 
borrowers whose loans where held by not-for-profit guaranty agencies 
and for which the agencies had initiated AWG. We estimate that 10 
percent of these borrowers (15,991) would request a hearing and that in 
10 percent of those cases (1,599) a decision would not be rendered 
until after 60 days following the receipt of the borrower's request. On 
average, we estimate that it would take one hour (60 minutes) to 
suspend an administrative wage garnishment order. The total increase in 
burden would be 1,599 hours (1,599 FFEL borrowers undergoing AWG who 
requested a hearing where a decision was not rendered until after 60 
days following the receipt of the borrower's request multiplied by one 
hour per suspension) under OMB 1845-0020.
    Collectively, the proposed changes in Sec.  682.410(b)(9)(i)(H) 
would increase burden by 2,442 hours in OMB Control Number 1845-0020.

Section 682.410(b)(9)(i)(J)--Administrative Wage Garnishment (AWG)--
Hearing Administration

    The proposed regulations would add new paragraph (b)(9)(i)(J) and 
would provide for the manner by which the hearing is administered and 
certain provisions relating to bringing forth additional evidence and 
continuances. Specifically, the proposed regulations would require that 
the hearing be conducted as an informal proceeding, require witnesses 
in an oral hearing to testify under oath or affirmation, and require 
maintenance of a summary record of the hearing. The proposed 
regulations would also allow the borrower to request a continuance to 
submit additional evidence.
    In calendar year 2011, we estimate there were 84,293 FFEL borrowers 
whose loans where held by state guaranty agencies and for which the 
agencies had initiated AWG. We estimate that 10 percent of these 
borrowers (8,429) would request a hearing. We estimate that on average 
each summary record would take 1 hour (60 minutes). The total burden 
increase for this recordkeeping would be 8,429 hours (8,429 hearings 
multiplied by one hour per hearing) under OMB 1845-0020.
    In calendar year 2011, we estimate there were 159,912 FFEL 
borrowers whose loans where held by not-for-profit guaranty agencies 
and for which the agencies had initiated AWG. We estimate that 10 
percent of these borrowers (15,991) would request a hearing. We 
estimate that on average each summary record would take one hour (60 
minutes). The total burden increase for this recordkeeping would be 
15,991 hours (15,991 hearings multiplied by one hour per hearing) under 
OMB 1845-0020.
    Collectively, the proposed changes in Sec.  682.410(b)(9)(i)(J) 
would increase burden by 24,420 hours in OMB Control Number 1845-0020.

Section 682.410(b)(9)(i)(Q)--Administrative Wage Garnishment (AWG)--
Recent Reemployment After Involuntary Unemployment

    Proposed Sec.  682.410(b)(9)(i)(Q) would clarify that a borrower 
who wishes to object to AWG on the basis that he or she is not subject 
to garnishment because of recent reemployment after involuntary 
separation, bears the burden of raising and proving that claim.
    In calendar year 2011, we estimate that there were 84,293 FFEL 
borrowers whose loans where held by state guaranty agencies and for 
which the agencies had initiated AWG. Of that number, we estimate that 
8 percent (6,743) became unemployed involuntarily. Furthermore, we 
estimate that a sub-group of those who became unemployed involuntarily, 
5 percent (337) gained subsequent reemployment. We estimate that the 
average amount of time for each borrower subject to AWG in this sub-
group to provide documentation that supports their claim to not be 
subject to AWG due to their recent reemployment to be 0.5 hours. The 
increased burden to provide documentation that would support the 
borrower's claim that he not be subject to AWG due to recent 
reemployment is 169 hours (337 borrowers whose student loans were being 
collected by AWG, who became unemployed involuntarily, but subsequently 
gained reemployment multiplied by 0.5 hours per claim) under OMB 1845-
0020.
    In calendar year 2011, we estimate that there were 159,912 FFEL 
borrowers whose loans where held by not-for-profit guaranty agencies 
and for which the agencies had initiated AWG. Of that number, we 
estimate that 8 percent (12,793) became unemployed involuntarily. 
Furthermore, we estimate that a sub-group of those who became 
unemployed involuntarily, 5 percent (640) gained subsequent 
reemployment. We estimate that the average amount of time for each 
borrower subject to AWG in this sub-group to provide documentation that 
supports their claim to not be subject to AWG due to their recent 
reemployment to be 0.5 hours. The total amount of increased burden to 
provide documentation that would support the borrower's claim that he 
not be subject to AWG due to recent reemployment is 320 hours (640 
borrowers whose loans were being collected by AWG, who became employed 
involuntarily, but subsequently gained reemployment multiplied by 0.5 
hours per claim) under OMB 1845-0020.
    The proposed changes in Sec.  682.410(b)(9)(i)(Q) would 
collectively increase burden by 489 hours in OMB Control Number 1845-
0020.
    Collectively, the proposed changes in all subparagraphs of Sec.  
682.410(b)(9) would increase burden by 88,402 hours in OMB Control 
Number 1845-0020.

Repeal of Unnecessary FFEL Program Regulations

    The proposed regulatory language removes provisions from 34 CFR 
part 682 that are no longer required as a result of the SAFRA Act 
included in the Health Care and Reconciliation Act of 2010. One of the 
provisions of the SAFRA Act was the termination, as of July 1, 2010, of 
the authority for lenders to make new loans under the FFEL program. 
These proposed regulations would remove the FFEL provisions that are 
now unnecessary in light of this change and would also make technical 
and conforming changes. A number of the proposed technical and 
conforming changes in 34 CFR Part 682 are for clarity, others are due 
to the elimination of cross-references.
    Typically, the results of negotiated rulemaking produce some 
regulatory changes that correspond to reporting or recordkeeping burden 
on affected entities such as borrowers, lenders, or guaranty agencies. 
The primary information collection associated with 34 CFR Part 682 is 
the currently approved OMB 1845-0020. Unlike other newly proposed 
regulations where the resultant proposed regulation would either 
increase or decrease burden as a result of the change in a regulation, 
this expansive effort to eliminate unneeded regulations includes more 
wholesale changes being proposed to 34 CFR Part 682. As a result, the 
entire history of burden associated with OMB 1845-0020 was examined. 
While the burden assessments for OMB 1845-0020 stretch back over 13 
years, the necessary level of detail does not exist to disaggregate

[[Page 45677]]

the amount of the currently approved amount of burden in this 
collection into its corresponding subsections of 34 CFR Part 682.
    Therefore, a new methodology to calculate burden is required. We 
are able to establish that there are 38 subsections of 34 CFR Part 682 
that have burden under OMB 1845-0020. We propose to divide the total of 
the currently approved burden hours of 12,352,197 hours by the 38 
affected subsections which on average yields 325,058 hours per affected 
subsection.
    Each of the proposed subsections listed below will use this number 
of burden hours as a starting point. The proposed changes as provided 
below explain the burden impact.
    The specific number of respondents from the affected entities is 
similarly unavailable, so we have established a percentage based on the 
number of borrowers per loan type to distribute the number of 
respondents across the affected entities.

Section 682.102--Repaying a Loan

    The proposed regulations would amend the section heading, remove 
Sec.  682.102(a) through (d), which describe the application process 
for Stafford, PLUS, and Consolidation loans, and redesignate the 
paragraphs in current Sec.  682.102(e), which describes the loan 
repayment process, as Sec.  682.102(a)-(g).
    These proposed changes would not alter the prior burden assessment 
of 325,058 hours under OMB Control Number 1845-0020.

Section 682.200--Definitions--Lender

    The proposed regulations would remove the provisions of current 
Sec.  682.601(a)(3), (a)(5), and (a)(7), and place these provisions 
into paragraph (8) of the definition of ``Lender'' in Sec.  682.200(b).
    These proposed changes would not alter the prior burden assessment 
of 325,058 hours under OMB Control Number 1845-0020.

Section 682.205--Disclosure Requirements for Lenders

    The proposed regulations would remove Sec.  682.205(a) (the initial 
disclosure statement), (b) (statement of borrower rights and 
responsibilities), (g) (plain language disclosure), and (i) (separate 
disclosure for Consolidation loans) from the FFEL Program regulations 
and renumber the remaining provisions. The remaining provisions include 
providing repayment information, providing required disclosures during 
the repayment period, and providing required disclosures for borrowers 
having difficulty making payments.
    The proposed changes would decrease the required burden by 162,529 
hours, and therefore the current burden hours would decrease from 
325,058 hours to 162,529 hours under OMB Control Number 1845-0020.

Section 682.206--Due Diligence in Making a Loan

    The proposed regulations would remove Sec.  682.206 from the FFEL 
regulations. The SAFRA Act eliminated the authority to make new FFEL 
Program loans, including FFEL Consolidation loans. As a result, the 
requirements governing the making of new FFEL Program loans are no 
longer needed and the previous burden associated with the making of a 
loan by a lender would be removed.
    The proposed change would remove all of the prior assessment of 
325,058 hours of burden associated under OMB Control Number 1845-0020, 
and therefore burden would decrease by 325,058 hours for a total of 0 
hours.

Section 682.208--Due Diligence in Servicing a Loan

    The proposed regulations would replace the term ``national credit 
bureau(s)'' with ``nationwide consumer reporting agency(ies)'' to more 
accurately reflect the reporting requirements.
    These proposed changes would not alter the prior burden assessment 
of 325,058 hours under OMB Control Number 1845-0020.

Section 682.209--Repayment of a Loan

    The proposed regulations would amend Sec.  682.209(a)(3)(i) by 
adding a new paragraph that specifies that borrowers with fixed 
interest rates on their Stafford loans enter repayment on those loans 
the day after six months following the date the borrower was no longer 
enrolled on at least a half-time basis. The proposed regulations would 
remove current Sec.  682.209(e) through (g) and (j) from the 
regulations and re-designate the remaining paragraphs as paragraphs 
(e)-(g). Redesignated Sec.  682.209(e) (current paragraph (h)) would be 
amended to specify that a FFEL Consolidation loan borrower repaying 
under the IBR plan may make a scheduled monthly payment of less than 
the interest that accrues on the loan.
    The proposed changes would decrease the burden by 65,012 hours, and 
therefore the current burden assessment would decrease from 325,058 to 
260,046 hours under OMB Control Number 1845-0020.

Section 682.210--Deferment

    The proposed regulations would amend Sec.  682.210(a)(4) of the 
regulations to provide that a borrower's representative may request a 
military service deferment on behalf of the borrower. In Sec.  
682.210(b), the introductory language in paragraphs (b)(1) through (6) 
of Sec.  682.210 would be revised to identify the cohort of borrowers 
to which each paragraph applies. Throughout Sec.  682.210(b) cross-
references would be added to the eligibility criteria that are 
applicable to deferments available to these borrowers. The proposed 
regulations also amend Sec.  682.210(s)(2) by removing the exception 
clause at the end of the provision, and amend Sec.  682.210(u)(5) by 
replacing the words ``military active'' with ``post-active''.
    These proposed changes would not alter the prior burden assessment 
of 325,058 hours under OMB Control Number 1845-0020.

Section 682.211--Forbearance

    Substantive changes in this section have been identified earlier 
which added 9,446 hours of burden to OMB Control Number 1845-0020. 
There were no further changes to this section that would alter the 
prior burden assessment of 325,058 hours under OMB Control Number 1845-
0020.
    Collectively, the proposed changes would increase the burden 
assessment from 325,058 by 9,446 hours (as identified earlier) for a 
total of 334,504 hours under OMB Control Number 1845-0020.

Section 682.212--Prohibited Transactions

    There is no change to the current language in this section of the 
regulations, however the current burden referenced in OMB Control 
Number 1845-0020 is incorrectly calculated.
    This section primarily defines ``prohibited transactions,'' but 
does not impose recordkeeping or reporting requirements upon entities 
and thus does not impose burden. Therefore, these proposed regulations 
remove the 325,058 hours of burden that was previously incorrectly 
attributed to this section of the regulations. While subsection 34 CFR 
682.212(h) provides that an institution, at its option, may make 
available a list of recommended or suggested lenders, the burden 
associated with that reporting is accounted for in Sec. Sec.  601.10 
and 668.14.
    We propose removal of the prior burden assessment of 325,058 hours 
under OMB Control Number 1845-0020, and therefore burden would decrease 
by 325,058 hours for a total of 0 hours.

[[Page 45678]]

Section 682.214--Compliance With Equal Credit Opportunity Requirements

    The proposed regulations would remove Sec.  682.214 from the FFEL 
regulations. The SAFRA Act ended the making of new FFEL loans and 
therefore these requirements can be eliminated from the FFEL 
regulations.
    The proposed change would remove the prior burden assessment of 
325,058 hours under OMB Control Number 1845-0020, and therefore burden 
would decrease by 325,058 hours for a total of 0 hours.

Section 682.216--Teacher Loan Forgiveness Program

    The proposed regulations provide for minor language changes.
    These proposed changes would not alter the prior burden assessment 
of 325,058 hours under OMB Control Number 1845-0020.

Section 682.301--Eligibility of Borrowers for Interest Benefits on 
Stafford and Consolidation Loans

    The proposed regulations would remove Sec.  682.301(c) from the 
regulations. The SAFRA Act ended the making of new FFEL Program loans 
and this provision related to determining borrower eligibility for the 
interest subsidy on new loans would be eliminated.
    The proposed change would remove the prior burden assessment of 
325,058 hours under OMB Control Number 1845-0020, and therefore burden 
would decrease by 325,058 hours for a total of 0 hours under this 
section.

Section 682.305--Procedures for Payment of Interest Benefits and 
Special Allowance and Collection of Origination and Loan Fees

    Section 682.305(c)(1)(ii) specifies that, regardless of the dollar 
volume of loans originated or held, a school lender or an eligible 
lender serving as trustee for a school or school-affiliated 
organization originating FFEL Program loans as a lender must submit an 
independent compliance audit to the Department each year. The proposed 
regulations would remove the reference to FFEL lenders originating 
loans. The proposed regulations would also remove the language 
specifying that a school and lender serving as a trustee for a school 
must submit an independent compliance audit to the Department each 
year.
    The number of school lenders or lenders serving as a trustee on 
behalf of a school or a school affiliated organization whose purpose is 
to originate loans for which the proposed regulations would provide 
relief is so small as to not be substantive. As a result, these 
proposed changes would not alter the prior burden assessment of 325,058 
hours under OMB Control Number 1845-0020.

Section 682.401--Basic Program Agreement

    The proposed regulations would remove from Sec.  682.401 language 
that addresses new loan originations, the process supporting loan 
origination, and a guaranty agency's efforts to secure new loan volume. 
These provisions can be eliminated from the FFEL Program regulations 
because no new FFEL loans are being made. The remaining provisions 
proposed for elimination relate to school eligibility to participate in 
a guaranty agency's program and the authority of an agency to limit, 
suspend, or terminate a school from its program. For purposes of new 
loans, schools now participate only in the Direct Loan Program. Any 
future actions to limit, suspend, or terminate a school's participation 
in the student loan programs would be undertaken by the Department 
under 34 CFR part 668, subpart G. Therefore, Sec.  682.401(b)(6) can 
also be eliminated from the FFEL Program regulations.
    The proposed changes would decrease the burden related to FFEL 
processes by 32,506 hours, and therefore the current burden hours would 
decrease from 325,058 hours by 32,506 hours to 292,552 hours under OMB 
Control Number 1845-0020.

Section 682.402--Death, Disability, Closed School, False Certification, 
Unpaid Refunds, and Bankruptcy Payments

    Substantive changes in this section have been identified earlier 
under OMB 1845-0015. There were no further changes to this section that 
impacted the burden under OMB 1845-0020.
    As a result, the prior burden assessment of 325,058 hours under OMB 
Control Number 1845-0020 would not be altered.

Section 682.404--Federal Reinsurance Agreement

    The proposed regulations would make conforming language changes 
required due to the elimination of previous cross-references or 
obsolete requirements.
    These proposed changes would not alter the prior burden assessment 
of 325,058 hours under OMB Control Number 1845-0020.

Section 682.405--Loan Rehabilitation Agreement

    Substantive changes in this section have been identified earlier. 
There were no further changes to this section.
    The substantive changes would be in addition to the previous burden 
assessment of 325,058 hours under OMB Control Number 1845-0020 and the 
earlier assessment increases burden by 135,359 hours in OMB 1845-0020 
for a total burden of 460,417 hours.

Section 682.406--Conditions for Claim Payments From the Federal Fund 
and for Reinsurance Coverage

    The proposed regulations would make a minor wording change due to 
the elimination of previous cross-references and add an ending date 
coinciding with the implementation of the SAFRA Act, which ended the 
making of new FFEL Program loans.
    These proposed changes would not alter the prior burden assessment 
of 325,058 hours under OMB Control Number 1845-0020.

Section 682.409--Mandatory Assignment by Guaranty Agencies of Defaulted 
Loans to the Secretary

    The proposed regulations would make no changes to this section of 
the regulations.
    These proposed regulations would not alter the prior burden 
assessment of 325,058 hours under OMB Control Number 1845-0020.

Section 682.410--Fiscal, Administrative, and Enforcement Requirements

    Apart from the earlier discussion of the changes made to the 
administrative wage garnishment provisions in this section of the 
regulations, the proposed regulations would only make minor wording 
changes to correct cross-references and delete obsolete references.
    Substantive changes in this section have been identified earlier. 
There are no further changes to this section. These proposed changes 
would not alter the prior burden assessment of 325,058 hours under OMB 
Control Number 1845-0020 and the earlier assessment that increased 
burden by 88,402 hours in OMB 1845-0020 for a total of 413,460 hours.

Section 682.411--Lender Due Diligence in Collecting Guaranty Agency 
Loans

    The proposed regulations would make a minor wording change.
    These proposed changes would not alter the prior burden assessment 
of 325,058 hours under OMB Control Number 1845-0020.

[[Page 45679]]

Section 682.412--Consequences of the Failure of a Borrower or Student 
To Establish Eligibility

    The proposed regulations would make a minor wording change.
    These proposed changes would not alter the prior burden assessment 
of 325,058 hours under OMB Control Number 1845-0020.

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

    The proposed regulations would make minor wording changes. One of 
the minor wording changes would eliminate a reporting category from 
annual guaranty agency reporting requirement. Under proposed Sec.  
682.414, annually, for each State in which it operates, a guaranty 
agency report of the total guaranteed loan volume, default volume, and 
default rate does not have to be categorized by schools for all loans 
guaranteed after December 31, 1980. We estimate that this reduction in 
reporting categories would decrease the previous burden assessment by 
16,253 hours, and therefore the current burden of 325,058 would 
decrease to 308,805 hours under OMB Control Number 1845-0020.

Section 682.417--Determination of Federal Funds or Assets To Be 
Returned

    The proposed regulations make no changes to this section of the 
regulations. These proposed changes would not alter the prior burden 
assessment of 325,058 hours under OMB Control Number 1845-0020.

Section 682.418--Prohibited Uses of the Assets of the Operating Fund 
During Periods in Which the Operating Fund Contains Transferred Funds 
Owed to the Federal Fund

    The proposed regulations would remove Sec.  682.418 from the FFEL 
regulations. The proposed change would remove the prior burden 
assessment of 325,058 hours under OMB Control Number 1845-0020, and 
therefore burden would be decreased by 325,058 hours for a total of 0 
hours based on the elimination of the prior FFEL requirements.

Section 682.421--Funds Transferred From the Federal Fund to the 
Operating Fund by a Guaranty Agency

    The proposed regulations would remove Sec.  682.421 from the FFEL 
regulations. The proposed change would remove the prior burden 
assessment of 325,058 hours under OMB Control Number 1845-0020, and 
therefore burden would decrease by 325,058 hours for a total of 0 hours 
based on the elimination of the prior FFEL requirements.

Section 682.507--Due Diligence in Collecting a Loan

Section 682.508--Assignment of a Loan

Section 682.511--Procedures for Filing a Claim

Section 682.515--Records, Reports, and Inspection Requirements for 
Federal GSL Program Lenders

    The proposed regulations would remove all of the regulations under 
Part 682, subpart E (Sec. Sec.  682.500 through 682.515) and reserve 
the subpart. The proposed regulations would also remove FISL-related 
Appendix C to part 682 from the regulations.
    The proposed change would remove the prior burden assessment of 
1,300,232 hours under OMB Control Number 1845-0020, and therefore 
burden would decrease by 325,058 hours for each of these four sections 
and decrease burden by 1,300,232 hours for a total of 0 hours based on 
the elimination of the prior FFEL requirements.

Section 682.602--Rules for a School or School-Affiliated Organization 
That Makes or Originates Loans Through an Eligible Lender Trustee

    The proposed regulations would remove Sec.  682.602 from the FFEL 
regulations. The proposed change would remove the prior burden 
assessment of 325,058 hours under OMB Control Number 1845-0020, and 
therefore burden would decrease by 325,058 hours for a total of 0 hours 
based on the elimination of the prior FFEL requirements.

Section 682.603--Certification by a School That Participated in 
Connection With a Loan Application

    The proposed regulations would make conforming language changes 
required due to the elimination of a cross-reference and reorganization 
due to a deletion of previous requirements.
    These proposed changes would not alter the prior burden assessment 
of 325,058 hours under OMB Control Number 1845-0020.

Section 682.604--Processing the Borrower's Loan Proceeds and Counseling 
Borrowers (Required Exit Counseling for Borrowers)

    The proposed regulations would change the heading of Sec.  682.604, 
remove current paragraph (a), remove and reserve paragraph (b), and 
remove paragraphs (c) through (f) and (h). The proposed regulations 
would also redesignate current paragraph (g) as paragraph (a). Newly 
redesignated Sec.  682.604(a)(1) would be amended to include another 
option for providing exit counseling to a student borrower who 
withdraws without the school's knowledge or fails to complete required 
exit counseling. In addition to the existing options described under 
``Current Regulations,'' a school could also send written counseling 
materials to an email address provided by the student borrower. Newly 
redesignated Sec.  682.604(a)(2) would be amended by replacing cross-
references to current paragraph (a), which we are proposing to remove, 
with the substantive information contained in the cross-referenced 
provision that must be included in the counseling. A new paragraph 
(a)(5) would also be added to newly redesignated Sec.  682.604(a) to 
clarify that: (1) A school's compliance with the Direct Loan Program 
exit counseling requirements in 34 CFR 685.304(b) satisfies the FFEL 
exit counseling requirements for student borrowers who received both 
FFEL and Direct Loan program loans for attendance at the school if the 
school provides the information required by Sec.  682.604(a)(2)(i) and 
(a)(2)(ii); and (2) a student's completion of interactive exit 
counseling offered by the Secretary meets both the FFEL exit counseling 
requirements and the Direct Loan exit counseling requirements in 34 CFR 
685.304(b).
    The proposed changes would decrease the previous burden assessment 
of 325,058 hours by 211,288 hours, and therefore the current burden of 
325,058 hours would decrease to 113,770 hours under OMB Control Number 
1845-0020 because the burden associated with new FFEL Program loans 
would be eliminated.

Section 682.605--Determining the Date of a Student's Withdrawal

    The proposed regulations would not make any changes to this 
section. These proposed regulations would not alter the prior burden 
assessment of 325,058 hours under OMB Control Number 1845-0020.

Section 682.610--Administrative and Fiscal Requirements for Schools 
That Participated

    Apart from the earlier discussion of the changes made to this 
section, the proposed regulations would only make minor wording 
changes.
    These proposed changes would not alter the prior burden assessment 
of 325,058 hours under OMB Control Number 1845-0020.

[[Page 45680]]

Section 682.711--Reinstatement After Termination

    The proposed regulations would remove the language regarding the 
loss of a school lender's participation upon the loss of the school's 
eligibility to participate in the Title IV, Federal student financial 
aid programs.
    These proposed changes would not alter the prior burden assessment 
of 325,058 hours under OMB Control Number 1845-0020.

Section 682.712--Disqualification Review of Limitation, Suspension, and 
Termination Actions Taken by Guarantee Agencies Against Lenders

    The proposed regulations would remove a cross-reference to a 
section proposed for deletion. These proposed changes would not alter 
the prior burden assessment of 325,058 hours under OMB Control Number 
1845-0020.

Section 682.713 Disqualification Review of Limitation, Suspension, and 
Termination Actions Taken by Guaranty Agencies Against a School

    The proposed regulations would remove Sec.  682.713 from the FFEL 
Program regulations. The proposed change would remove the prior burden 
assessment of 325,058 hours under OMB Control Number 1845-0020, 
therefore burden would decrease by 325,058 hours for a total of 0 hours 
based upon the elimination of the prior FFEL requirements.
    Consistent with the discussion above, the following chart describes 
the sections of the proposed regulations involving information 
collections, the information being collected, and the collections that 
the Department will submit to the Office of Management and Budget for 
approval and public comment under the Paperwork Reduction Act, and the 
estimated costs associated with the information collections. The 
monetized net savings from of the reduced burden on lender/guaranty 
agencies, institutions, and borrowers using wage data developed using 
BLS data, available at http://www.bls.gov/ncs/ect/sp/ecsuphst.pdf, is -
$86,625,970 as shown in the chart below. This cost was based on an 
hourly rate of $24.61.

                                            Collection of Information
----------------------------------------------------------------------------------------------------------------
                                                                   OMB Control No. and
        Regulatory section            Information collection     estimated burden [change     Estimated costs
                                                                        in burden]
----------------------------------------------------------------------------------------------------------------
Sec.  682.211 Forbearance.........  These proposed regulations  OMB 1845-0020............  $232,466.
                                     amend the current FFEL     The Department estimates
                                     regulations to authorize    that the burden would
                                     a lender to grant           increase by 9,446 hours.
                                     forbearance to a borrower
                                     who is in default on a
                                     loan, but prior to a
                                     default claim payment
                                     based on the borrower's
                                     oral request. The lender
                                     must orally review with
                                     the borrower the terms
                                     and conditions of the
                                     forbearance and send a
                                     notice confirming the
                                     terms within 30 days of
                                     the oral agreement.
Sec.  685.205 ;Forbearance........  These proposed regulations  OMB 1845-NEW2 The          -11,616.
                                     amend the current Direct    Department estimates
                                     Loan regulations to         that the burden would
                                     authorize the Secretary     decrease by 472 hours.
                                     to grant forbearance to a
                                     borrower who is in
                                     default on a loan, but
                                     prior to a default claim
                                     payment based on the
                                     borrower's oral request.
                                     The Secretary must orally
                                     review with the borrower
                                     the terms and conditions
                                     of the forbearance and
                                     send a notice confirming
                                     the terms within 30 days
                                     of the oral agreement.
Sec.  Sec.   682.405 and 685.211    This is the form that the   OMB 1845-NEW1 This would   14,471,763.
 Reasonable and affordable           new regulations require     be a new collection. A
 rehabilitation payments form.       to be used by the           separate 60-day Federal
                                     Secretary and a guaranty    Register notice will be
                                     agency to determine a       published to solicit
                                     borrower's request for a    comment on the proposed
                                     reasonable and affordable   form. The Department
                                     monthly rehabilitation      estimates that the
                                     payment of a defaulted      burden would increase by
                                     loan.                       588,044 hours.
Sec.   682.405(b) Loan              The proposed regulations    OMB 1845-0020 The          3,331,185.
 rehabilitation agreement.           would require the           Department estimates
                                     guaranty agency to base     that the burden would
                                     determinations of           increase by 135,359
                                     reasonable and affordable   hours.
                                     rehabilitation payment
                                     amounts of defaulted
                                     loans on information
                                     provided on an OMB-
                                     approved form, and if
                                     requested, supporting
                                     documentation.
Sec.   685.211(f) Loan              The proposed regulations    OMB 1845-NEW2 The          212,557.
 rehabilitation agreement.           would require the           Department estimates
                                     Secretary to base           that the burden would
                                     determinations of           increase by 8,637 hours.
                                     reasonable and affordable
                                     rehabilitation payment
                                     amounts of defaulted
                                     loans on information
                                     provided on an OMB-
                                     approved form, and if
                                     requested, supporting
                                     documentation.
Sec.  Sec.  Sec.   674.33,          The proposed regulations    OMB 1845-0015............  1,329.
 682.402, 685.214 Closed school      would extend the current   The Department estimates
 discharge form.                     90-day window to 120-days   that the burden would
                                     for students who leave      increase by 54 hours.
                                     before a school closes
                                     may apply for a discharge
                                     of a title IV, HEA loan.

[[Page 45681]]

 
Sec.   674.19 School enrollment     The proposed regulations    OMB 1845-0019............  942,858.
 status reporting.                   would add a new section    The Department estimates
                                     requiring institutions      that the burden would
                                     that participate in the     increase by 38,312 hours.
                                     Federal Perkins Loan
                                     program to, upon receipt
                                     of an enrollment report
                                     from the Secretary,
                                     update all information
                                     included in the report
                                     and return it to the
                                     Secretary in the manner
                                     and format and within the
                                     timeframe prescribed by
                                     the Secretary.
Sec.   674.34 Deferment of          The proposed regulations    OMB 1845-0019............  13,585.
 repayment--Federal Perkins Loans.   would require schools      The Department estimates
                                     that participate in the     that the burden would
                                     Perkins Loan Program to     increase by 276 hours.
                                     use the same eligibility
                                     criteria that FFEL
                                     lenders and the
                                     Department use to define
                                     an eligible graduate
                                     fellowship program and to
                                     establish the eligibility
                                     of a Perkins Loan
                                     borrower for a graduate
                                     fellowship deferment.
Sec.   682.410 Fiscal,              The proposed regulations    OMB 1845-0020............  2,175,573.
 administrative and enforcement      would add a new section    The Department estimates
 requirements.                       to specify the functions    that the burden would
                                     that may be performed by    increase by 88,402 hours.
                                     a third-party servicer or
                                     collection contractor
                                     employed by a guaranty
                                     agency (GA) for
                                     administrative wage
                                     garnishment (AWG)
                                     purposes; replace a
                                     section of the
                                     regulations with a new
                                     section to provide that
                                     if a borrower's written
                                     request for a hearing is
                                     received by the GA after
                                     the 30th day following
                                     the date of the
                                     garnishment notice and a
                                     decision is not rendered
                                     within 60 days following
                                     receipt of a borrower's
                                     written request the GA
                                     must suspend the AWG
                                     order beginning on the
                                     61st day after the
                                     request was received
                                     until the hearing is
                                     provided and a decision
                                     rendered; provide for the
                                     manner by which the
                                     hearing is administered
                                     and certain provisions
                                     relating to bringing
                                     forth additional evidence
                                     and continuances; clarify
                                     that a borrower who
                                     wishes to object that
                                     they are not subject to
                                     garnishment because of
                                     recent reemployment after
                                     involuntary separation
                                     bears the burden of
                                     raising and proving the
                                     claim.
Sec.   682.102 Obtaining and        The proposed regulations    OMB 1845-0020............  No change.
 repaying a loan.                    would amend the section    The Department estimates
                                     heading, remove the         that the burden would
                                     section of the              remain 325,058 hours.
                                     regulations that
                                     describes the application
                                     process for FFEL loans,
                                     and re-designates the
                                     paragraphs describing the
                                     loan repayment process.
Sec.   682.200 Definitions--Lender  The proposed regulations    OMB 1845-0020............  No change.
                                     make a conforming change   The Department estimates
                                     to the definition of        that the burden would
                                     ``Lender'' due to the       remain 325,058 hours.
                                     elimination of Sec.
                                     682.601.
Sec.   682.205 Disclosure           Removes regulations         OMB 1845-0020............  -3,999,839.
 Requirements for Lenders.           governing required lender  The Department estimates
                                     disclosures to borrowers    that the burden would
                                     that are provided when      decrease by 162,529
                                     new loans are made. The     hours to 162,529 hours.
                                     remaining provisions
                                     include providing
                                     repayment information,
                                     providing required
                                     disclosures during the
                                     repayment period, and
                                     providing required
                                     disclosures for borrowers
                                     having difficulty making
                                     payments.
Sec.   682.206 Due Diligence in     The proposed regulations    OMB 1845-0020............  -7,999,677.
 making a loan.                      would remove Sec.          The Department estimates
                                     682.206 from the FFEL       that the burden would
                                     regulations. The SAFRA      decrease by 325,058
                                     Act eliminated the          hours to 0 hours of
                                     authority to make new       burden.
                                     FFEL Program loans,
                                     including FFEL
                                     consolidation loans.
Sec.   682.208 Due diligence in     The proposed regulations    OMB 1845-0020............  No change.
 servicing a loan.                   would replace the term     The Department estimates
                                     ``national credit           that the burden would
                                     bureau(s)'' with            remain 325,058 hours.
                                     ``nationwide consumer
                                     reporting agency(ies)''
                                     to more accurately
                                     reflect the appropriate
                                     legal terms.

[[Page 45682]]

 
Sec.   682.209 Repayment of a loan  The proposed regulations    OMB 1845-0020............  -1,599,945.
                                     would amend Sec.           The Department estimates
                                     682.209(a)(3)(i) by         that the burden would
                                     adding a new paragraph      decrease from 325,058 by
                                     which specifies that        65,012 hours to 260,046
                                     borrowers with fixed        hours.
                                     interest rates on their
                                     Stafford loans enter
                                     repayment on those loans
                                     the day after six months
                                     following the date the
                                     borrower was no longer
                                     enrolled on at least a
                                     half-time basis. The
                                     proposed regulations
                                     would remove current Sec.
                                      Sec.   682.209(e)-(g)
                                     and (j) from the
                                     regulations and re-
                                     designate the remaining
                                     paragraphs as paragraphs
                                     (e)-(g). Re-designated
                                     Sec.   682.209(e)
                                     (current paragraph (h))
                                     would be amended to
                                     specify that a FFEL
                                     Consolidation loan
                                     borrower repaying under
                                     the income-based
                                     repayment plan may make a
                                     scheduled monthly payment
                                     of less than the interest
                                     that accrues on the loan.
Sec.   682.210 Deferment..........  The proposed regulations    OMB 1845-0020............  No change.
                                     would amend the deferment  The Department estimates
                                     regulations to provide      that the burden would
                                     that a borrower's           remain 325,058 hours.
                                     representative may
                                     request a military
                                     service deferment on
                                     behalf of the borrower.
                                     In Sec.   682.210(b), the
                                     introductory language
                                     would be revised to
                                     identify the cohort of
                                     borrowers to which each
                                     paragraph applies.
                                     Throughout Sec.
                                     682.210(b) cross-
                                     references would be added
                                     to the eligibility
                                     criteria that are
                                     applicable to deferments
                                     available to these
                                     borrowers. The proposed
                                     regulations would remove
                                     the exception clause at
                                     the end of the provision,
                                     and by replacing the
                                     words ``military active''
                                     with the word ``post-
                                     active''.
Sec.   682.211 Forbearance........  Substantive changes in      OMB 1845-0020              No change.
                                     this section have been     The Department estimates
                                     identified earlier. The     that the burden would
                                     additional proposed         remain 325,058 hours.
                                     amendments to the           (NOTE: Other earlier
                                     regulations would allow a   proposed changes
                                     lender to grant             increased burden by
                                     forbearance to a borrower   9,446 hours for a total
                                     who is delinquent at the    of 334,504 hours.).
                                     beginning of a period of
                                     non-mandatory authorized
                                     forbearance.
Sec.   682.212 Prohibited           There is no change to the   OMB 1845-0020............  -7,999,677.
 transactions.                       current language in this   The Department estimates
                                     section of the              that the burden would
                                     regulations however the     decrease by 325,058
                                     current burden referenced   hours to 0 hours of
                                     in OMB Control Number       burden.
                                     1845-0020 is incorrect.
Sec.   682.214 Compliance with      The proposed regulations    OMB 1845-0020............  -7,999,677.
 equal credit opportunity            would remove Sec.          The Department estimates
 requirements.                       682.214 from the FFEL       that the burden would
                                     regulations. The SAFRA      decrease by 325,058
                                     Act ended the making of     hours to 0 hours of
                                     new FFEL loans and          burden.
                                     therefore these
                                     requirements can be
                                     eliminated from the FFEL
                                     regulations.
Sec.   682.216 Teacher loan         The proposed regulations    OMB 1845-0020............  No change.
 forgiveness program.                provide for minor          The Department estimates
                                     language changes.           that the burden would
                                                                 remain 325,058 hours.
Sec.   682.301 Eligibility of       The proposed regulations    OMB 1845-0020............  -7,999,677.
 borrowers for interest benefits     would remove Sec.          The Department estimates
 on Stafford and Consolidation       682.301(c) from the         that the burden would
 Loans.                              regulations. The SAFRA      decrease by 325,058
                                     Act ended the making of     hours to 0 hours of
                                     new FFEL loans and this     burden.
                                     provision related to
                                     determining borrower
                                     eligibility for the
                                     interest subsidy on new
                                     loans would be eliminated.
Sec.   682.305 Procedures for       Section 682.305(c)(1)(ii)   OMB 1845-0020............  No change.
 payment of interest benefits and    specifies that,            The Department estimates
 special allowance and collection    regardless of the dollar    that the burden would
 of origination and loan fees.       volume of loans             remain 325,058 hours.
                                     originated or held, a
                                     school lender or an
                                     eligible lender serving
                                     as trustee for a school
                                     or school-affiliated
                                     organization originating
                                     FFEL loans as a lender
                                     must submit an
                                     independent compliance
                                     audit to the Department
                                     each year. The proposed
                                     regulations would remove
                                     the reference to FFEL
                                     lenders originating loans.

[[Page 45683]]

 
Sec.   682.401 Basic Program        The proposed regulations    OMB 1845-0020............  -799,973.
 Agreement.                          would remove from Sec.     The Department estimates
                                     682.401 language            that the burden of
                                     addressing new loan         325,058 hours would
                                     originations, the process   decrease by 32,506 to
                                     for loan origination, and   292,552 hours.
                                     a guaranty agency's
                                     efforts to secure new
                                     loan volume. These
                                     provisions can be
                                     eliminated from the FFEL
                                     regulations because no
                                     new FFEL loans are being
                                     made. The remaining
                                     provisions proposed for
                                     elimination relate to
                                     school eligibility to
                                     participate in a guaranty
                                     agency's program and the
                                     authority of an agency to
                                     limit, suspend, or
                                     terminate a school from
                                     its program. For purposes
                                     of new loans, schools now
                                     participate only in the
                                     Direct Loan Program. Any
                                     future actions to limit,
                                     suspend, or terminate a
                                     school's participation in
                                     the student loan programs
                                     will be undertaken by the
                                     Department under 34 CFR
                                     part 668, subpart G.
Sec.   682.402 Death, disability,   Substantive changes in      OMB 1845-0020............  No change.
 closed school, false                this section have been     The Department estimates
 certification, unpaid refunds,      identified earlier. There   that the burden would
 and bankruptcy payments.            were no further changes     remain 325,058 hours.
                                     to this section.
Sec.   682.404 Federal reinsurance  The proposed regulations    OMB 1845-0020............  No change.
 agreement.                          would make conforming      The Department estimates
                                     language changes required   that the burden would
                                     due to the elimination of   remain 325,058 hours.
                                     previous cross references
                                     or obsolete requirements.
Sec.   682.405 Loan rehabilitation  Substantive changes in      OMB 1845-0020............  No change.
 agreement.                          this section have been     The Department estimates
                                     identified earlier. There   that the burden would
                                     were no further changes     remain 325,058 hours.
                                     to this section.
Sec.   682.406 Conditions for       The proposed regulations    OMB 1845-0020............  No change.
 claim payments from the Federal     would make a minor         The Department estimates
 Fund and for reinsurance coverage.  wording change due to the   that the burden would
                                     elimination of previous     remain 325,058 hours.
                                     cross-references and add
                                     an ending date coinciding
                                     with the implementation
                                     of the SAFRA Act, which
                                     ended the making of new
                                     FFEL loans.
Sec.   682.409 Mandatory            The proposed regulations    OMB 1845-0020............  No change.
 assignment by guaranty agencies     make no changes to this    The Department estimates
 of defaulted loans to the           section of the              that the burden would
 Secretary.                          regulations.                remain 325,058 hours.
Sec.   682.410 Fiscal,              Apart from the earlier      OMB 1845-0020              No change.
 administrative, and enforcement     discussion of the changes  The Department estimates
 requirements.                       made to the                 that the burden would
                                     administrative wage         remain 325,058 hours.
                                     garnishment provisions of   (NOTE: Other earlier
                                     this section of the         proposed changes to the
                                     regulations, the proposed   Administrative Wage
                                     regulations would only      Garnishment regulations
                                     make minor wording          increase burden by
                                     changes to conform to       88,402 hours for a total
                                     cross reference changes     of 413,460 hours.).
                                     and delete obsolete
                                     references.
Sec.   682.411 Lender due           The proposed regulations    OMB 1845-0020............  No change.
 diligence in collecting guaranty    would make a minor         The Department estimates
 agency loans.                       wording change.             that the burden would
                                                                 remain 325,058 hours.
Sec.   682.412 Consequences of the  The proposed regulations    OMB 1845-0020............  No change.
 failure of a borrower or student    would make a minor         The Department estimates
 to establish eligibility.           wording change.             that the burden would
                                                                 remain 325,058 hours.
Sec.   682.414 Records, reports,    The proposed regulations    OMB 1845-0020............  -399,986.
 and inspection requirements for     would make a minor         The Department estimates
 guaranty agency programs.           wording change.             that the burden would
                                                                 decrease from 325,058
                                                                 hours by 16,253 hours
                                                                 for a total of 308,805
                                                                 hours.
Sec.   682.417 Determination of     The proposed regulations    OMB 1845-0020............  No change.
 Federal funds or assets to be       would make a minor         The Department estimates
 returned.                           wording change.             that the burden would
                                                                 remain 325,058 hours.

[[Page 45684]]

 
Sec.   682.418 Prohibited uses of   The proposed regulations    The Department estimates   -7,999,677.
 the assets of the Operating Fund    would remove Sec.           that the burden would
 during periods in which the         682.418 from the FFEL       decrease by 325,058
 Operating Fund contains             regulations.                hours to 0 hours of
 transferred funds owed to the                                   burden.
 Federal Fund.
Sec.   682.421 Funds transferred    The proposed regulations    OMB 1845-0020............  -7,999,677.
 from the Federal Fund to the        would remove Sec.          The Department estimates
 Operating Fund by a guaranty        682.421 from the FFEL       that the burden would
 agency.                             regulations.                decrease by 325,058
                                                                 hours to 0 hours of
                                                                 burden.
Sec.   682.507 Due diligence in     The proposed regulations    OMB 1845-0020............  -7,999,677.
 collecting a loan.                  would remove all of the    The Department estimates
                                     regulations under subpart   that the burden would
                                     E (Sec.  Sec.   682.500     decrease by 325,058
                                     through 682.515) and        hours to 0 hours of
                                     reserve the subpart.        burden.
Sec.   682.508 Assignment of a      The proposed regulations    OMB 1845-0020............  -7,999,677.
 loan.                               would remove all of the    The Department estimates
                                     regulations under subpart   that the burden would
                                     E (Sec.  Sec.   682.500     decrease by 325,058
                                     through 682.515) and        hours to 0 hours of
                                     reserve the subpart.        burden.
Sec.   682.511 Procedures for       The proposed regulations    OMB 1845-0020............  -7,999,677.
 filing a claim.                     would remove all of the    The Department estimates
                                     regulations under subpart   that the burden would
                                     E (Sec.  Sec.   682.500     decrease by 325,058
                                     through 682.515) and        hours to 0 hours of
                                     reserve the subpart.        burden.
Sec.   682.515 Records, reports,    The proposed regulations    OMB 1845-0020............  -7,999,677.
 and inspection requirements for     would remove all of the    The Department estimates
 Federal GSL program lenders.        regulations under subpart   that the burden would
                                     E (Sec.  Sec.   682.500     decrease by 325,058
                                     through 682.515) and        hours to 0 hours of
                                     reserve the subpart.        burden.
Sec.   682.602 Rules for a school   The proposed regulations    OMB 1845-0020............  -7,999,677.
 or school-affiliated organization   would remove Sec.          The Department estimates
 that makes or originates loans      682.602 from the FFEL       that the burden would
 through an eligible lender          regulations.                decrease by 325,058
 trustee.                                                        hours to 0 hours of
                                                                 burden.
Sec.   682.603 Certification by a   The proposed regulations    OMB 1845-0020............  No change.
 school that participated in         would make conforming      The Department estimates
 connection with a loan              language changes required   that the burden would
 application.                        due to the elimination of   remain 325,058 hours.
                                     a cross reference and
                                     reorganization due to a
                                     deletion of previous
                                     requirements.
Sec.   682.604 Processing the       The proposed regulations    OMB 1845-0020............  -5,199,798.
 borrower's loan proceeds and        would remove, reserve,     The Department estimates
 counseling borrowers (Required      and redesignate             that the burden would
 exit counseling for borrowers).     paragraphs to illustrate    decrease from 325,058 by
                                     the counseling              211,288 hours for a
                                     requirements,               total of 113,770 hours.
                                     specifically the exit
                                     counseling requirements.
Sec.   682.605 Determining the      The Secretary is not        OMB 1845-0020............  No change.
 date of a student's withdrawal.     proposing to change the    The Department estimates
                                     language in this section.   that the burden would
                                                                 remain 325,058 hours.
Sec.   682.610 Administrative and   The proposed regulations    OMB 1845-0020............  No change.
 fiscal requirements for schools     would only make minor      The Department estimates
 that participated.                  wording changes.            that the burden would
                                                                 remain 325,058 hours.
Sec.   682.711 Reinstatement after  The proposed regulations    OMB 1845-0020............  No change.
 termination.                        remove the language        The Department estimates
                                     regarding the loss of a     that the burden would
                                     school lender's             remain 325,058 hours.
                                     participation upon the
                                     loss of the school's
                                     eligibility to
                                     participate in the Title
                                     IV, Federal student
                                     financial assistance
                                     programs.
Sec.   682.712 Disqualification     The proposed regulations    OMB 1845-0020............  No change.
 review of limitation, suspension,   would remove a cross-      The Department estimates
 and termination actions taken by    reference to a section      that the burden would
 guarantee agencies against          proposed for deletion.      remain 325,058 hours.
 lenders.

[[Page 45685]]

 
Sec.   682.713 Disqualification     The proposed regulations    OMB 1845-0020............  -7,999,677.
 review of limitation, suspension,   would remove Sec.          The Department estimates
 and termination actions taken by    682.713 from the FFEL       that the burden would
 guaranty agencies against a         regulations.                decrease by 325,058
 school.                                                         hours to 0 hours of
                                                                 burden.
----------------------------------------------------------------------------------------------------------------

    The total burden hours and change in burden hours associated with 
each OMB Control number affected by these proposed regulations follows:

------------------------------------------------------------------------
                                      Total proposed    Proposed change
          Control number               burden hours     in burden hours
------------------------------------------------------------------------
1845-0015.........................             14,828                +54
1845-0019.........................          6,247,152            +38,864
1845-0020.........................          8,197,127         -4,155,077
1845-NEW1.........................            588,044           +588,044
1845-NEW2.........................              8,165             +8,165
                                   -------------------------------------
    Total.........................         15,055,316         -3,519,950
------------------------------------------------------------------------

Intergovernmental Review

    This program is subject to Executive Order 12372 and the 
regulations in 34 CFR part 79. One of the objectives of the Executive 
order is to foster an intergovernmental partnership and a strengthened 
federalism. The Executive order relies on processes developed by State 
and local governments for coordination and review of proposed Federal 
financial assistance.
    This document provides early notification of our specific plans and 
actions for this program.

Assessment of Educational Impact

    In accordance with section 411 of the General Education Provisions 
Act, 20 U.S.C. 1221e-4, the Secretary particularly requests comments on 
whether these proposed regulations would require transmission of 
information that any other agency or authority of the United States 
gathers or makes available.
    Accessible Format: Individuals with disabilities can obtain this 
document in an accessible format (e.g., braille, large print, 
audiotape, or compact disc) on request to the program contact person 
listed under FOR FURTHER INFORMATION CONTACT.
    Electronic Access to This Document: 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 via the Federal Digital System 
at: www.gpo.gov/fdsys. At this site you can view this document, as well 
as all other documents of this Department published in the Federal 
Register, in text or Adobe Portable Document Format (PDF). To use PDF 
you must have Adobe Acrobat Reader, which is available free at the 
site.
    You may also access documents of the Department published in the 
Federal Register by using the article search feature at: 
www.federalregister.gov. Specifically, through the advanced search 
feature at this site, you can limit your search to documents published 
by the Department.

(Catalog of Federal Domestic Assistance Numbers: 84.032 Federal Family 
Education Loan Program; 84.038 Federal Perkins Loan Program; 84.268 
William D. Ford Federal Direct Loan Program)

List of Subjects in 34 CFR Parts 668, 674, 682, and 685

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

    Dated: June 27, 2013.
Arne Duncan,
Secretary of Education.
    For the reasons discussed in the preamble, the Secretary proposes 
to amend title 34 of the Code of Federal Regulations chapter VI as 
follows:

PART 668--STUDENT ASSISTANCE GENERAL PROVISIONS

0
1. The authority citation for part 668 continues to read as follows:

    Authority:  20 U.S.C. 1001, 1002, 1003, 1070(g), 1085, 1088, 
1091, 1092, 1094, 1099c, and 1099c-1, unless otherwise noted.

Sec.  668.204  [Amended]

0
2. Section 668.204(c)(1)(i) is amended by removing the figure 
``0.06015'' and adding, in its place, the figure ``0.0832''.

Sec.  668.214  [Amended]

0
3. Section 668.214 is amended by:
0
A. In paragraph (a)(1), removing the figure ``0.06015'' and adding, in 
its place, the figure ``0.0832''.
0
B. In paragraph (d)(2), removing the words ``0.06015 or 0.0625'' and 
adding, in their place, the words ``0.0832 or 0.0625, as applicable''.

PART 674--FEDERAL PERKINS LOAN PROGRAM

0
4. The authority citation for part 674 continues to read as follows:

    Authority:  20 U.S.C. 1070g, 1087aa-1087hh, unless otherwise 
noted.
0
5. Section 674.2(b) is amended by revising the definition of 
``Satisfactory repayment arrangement'' to read as follows:

Sec.  674.2  Definitions.

* * * * *
    (b) * * *
    Satisfactory repayment arrangement: (1) For purposes of regaining 
eligibility for grant, loan, or work assistance under

[[Page 45686]]

title IV of the HEA, to the extent that the borrower is otherwise 
eligible, the making of six on-time, consecutive, voluntary, full 
monthly payments on a defaulted loan. ``On-time'' means a payment made 
within 20 days of the scheduled due date. A borrower may obtain the 
benefit of this paragraph with respect to renewed eligibility once.
    (2) Voluntary payments are payments made directly by the borrower, 
and do not include payments obtained by income tax offset, garnishment, 
or income or asset execution.
    (3) A borrower has not used the one opportunity to renew 
eligibility for title IV assistance if the borrower makes six 
consecutive, on-time, voluntary, full monthly payments under an 
agreement to rehabilitate a defaulted loan, but does not receive 
additional title IV assistance prior to defaulting on that loan again.
* * * * *
0
6. Section 674.9 is amended by:
0
A. In paragraph (j)(1), removing the word ``those''.
0
B. Redesignating paragraph (k) as paragraph (l).
0
C. Adding a new paragraph (k).
    The addition reads as follows:

Sec.  674.9  Student eligibility.

* * * * *
    (k) In the case of a borrower who is in default on an FFEL Program 
or a Direct Loan Program loan, makes satisfactory repayment 
arrangements as defined in 34 CFR 682.200(b) or 685.102(b) on the 
defaulted loan, as determined by the loan holder; and
* * * * *
0
7. Section 674.19 is amended by adding a new paragraph (f) to read as 
follows:

Sec.  674.19  Fiscal procedures and records.

* * * * *
    (f) Enrollment reporting process. (1) Upon receipt of an enrollment 
report from the Secretary, an institution must update all information 
included in the report and return the report to the Secretary--
    (i) In the manner and format prescribed by the Secretary; and
    (ii) Within the timeframe specified by the Secretary.
    (2) Unless it expects to submit its next updated enrollment report 
to the Secretary within the next 60 days, an institution must notify 
the Secretary within 30 days after the date the school discovers that--
    (i) A loan under title IV of the HEA was made to a student who was 
enrolled or accepted for enrollment at the institution, and the student 
has ceased to be enrolled on at least a half-time basis or failed to 
enroll on at least a half-time basis for the period for which the loan 
was intended; or
    (ii) A student who is enrolled at the institution and who received 
a loan under title IV of the HEA has changed his or her permanent 
address.
* * * * *
0
8. Section 674.33 is amended by:
0
A. Revising paragraph (g)(4)(i)(B).
0
B. In paragraph (g)(8)(i), removing the figure ``90'' and adding, in 
its place, the figure ``120''.
    The revision reads as follows:

Sec.  674.33  Repayment.

* * * * *
    (g) * * *
    (4) * * *
    (i) * * *
    (B) Did not complete the program of study at that school because 
the school closed while the student was enrolled, or the student 
withdrew from the school not more than 120 days before the school 
closed. The Secretary may extend the 120-day period if the Secretary 
determines that exceptional circumstances related to the school's 
closing justify an extension. Exceptional circumstances for this 
purpose may include, but are not limited to: The school's loss of 
accreditation; the school's discontinuation of the majority of its 
academic programs; action by the State to revoke the school's license 
to operate or award academic credentials in the State; or a finding by 
a State or Federal government agency that the school violated State or 
Federal law; and
* * * * *
0
9. Section 674.34 is amended by:
0
A. In the introductory text of paragraph (e), removing the reference 
``(e)(5)'' and adding, in its place, the reference ``(e)(4)'', each 
time it appears.
0
B. Removing paragraph (e)(4).
0
C. Redesignating paragraph (e)(5) as paragraph (e)(4).
0
D. Removing paragraph (e)(6).
0
E. Redesignating paragraphs (e)(7) and (e)(8) as paragraphs (e)(5) and 
(e)(6), respectively.
0
F. In newly redesignated paragraph (e)(5), removing the words 
``paragraphs (e)(3) and (e)(4)'' and adding, in their place, the words 
``paragraph (e)(3)''.
0
G. Removing paragraph (e)(9).
0
H. Revising paragraph (f) to read as follows:

Sec.  674.34  Deferment of repayment--Federal Perkins loans, NDSLs and 
Defense loans.

* * * * *
    (f)(1) To qualify for a deferment for study as part of a graduate 
fellowship program pursuant to paragraph (b)(1)(ii) of this section, a 
borrower must provide the institution with a statement from an 
authorized official of the borrower's graduate fellowship program 
certifying--
    (i) That the borrower holds at least a baccalaureate degree 
conferred by an institution of higher education;
    (ii) That the borrower has been accepted or recommended by an 
institution of higher education for acceptance on a full-time basis 
into an eligible graduate fellowship program; and
    (iii) The borrower's anticipated completion date in the program.
    (2) For purposes of paragraph (b)(1)(ii) of this section, an 
eligible graduate fellowship program is a fellowship program that--
    (i) Provides sufficient financial support to graduate fellows to 
allow for full-time study for at least six months;
    (ii) Requires a written statement from each applicant explaining 
the applicant's objectives before the award of that financial support;
    (iii) Requires a graduate fellow to submit periodic reports, 
projects, or evidence of the fellow's progress; and
    (iv) In the case of a course of study at a foreign university, 
accepts the course of study for completion of the fellowship program.
* * * * *
0
10. Section 674.39 is amended by revising paragraph (a)(2) to read as 
follows:

Sec.  674.39  Loan rehabilitation.

    (a) * * *
    (2) A loan is rehabilitated if the borrower--
    (i) Requests rehabilitation; and
    (ii) Makes a full monthly payment--as determined by the 
institution--within 20 days of the due date, each month for 9 
consecutive months.
* * * * *

Sec.  674.50  [Amended]

0
11. Section 674.50(e)(1) is amended by removing the words ``is 
submitted for assignment under 674.8(d)(3)'' and adding, in their 
place, the words ``was made before September 13, 1982''.
0
12. Section 674.52 is amended by:
0
A. Removing paragraph (b)(2).
0
B. Redesignating paragraph (b)(1)(i) as paragraph (b)(1).
0
C. Redesignating paragraph (b)(1)(ii) as paragraph (b)(2).
0
D. Redesignating paragraphs (c), (d), and (e) as paragraphs (d), (e), 
and (f), respectively.
0
E. Adding a new paragraph (c).
0
F. Adding a new paragraph (g).
    The additions read as follows:

Sec.  674.52  Cancellation procedures.

* * * * *

[[Page 45687]]

    (c) Break in service. (1) If the borrower is unable to complete an 
academic year of eligible teaching service due to a condition that is 
covered under the Family and Medical Leave Act of 1993 (FMLA) (29 
U.S.C. 2601, et seq.), the borrower still qualifies for the 
cancellation if--
    (i) The borrower completes one half of the academic year; and
    (ii) The borrower's employer considers the borrower to have 
fulfilled his or her contract requirements for the academic year for 
purposes of salary increases, tenure, and retirement.
    (2) If the borrower is unable to complete a year of eligible 
service under Sec. Sec.  674.56, 674.57, 674.59, or 674.60 due to a 
condition that is covered under the FMLA, the borrower still qualifies 
for the cancellation if the borrower completes at least six consecutive 
months of eligible service.
* * * * *
    (g) Switching cancellation categories. A borrower who qualifies for 
a cancellation under one of the cancellation categories in Sec. Sec.  
674.53, 674.56, 674.57, or 674.59 receives cancellation of 15 percent 
of the original principal for the first and second years of qualifying 
service, 20 percent of the original principal for the third and fourth 
years of qualifying service, and 30 percent of the original principal 
for the fifth year of qualifying service. If, after the first, second, 
third, or fourth complete year of qualifying service--
    (1) The borrower switches to a position that qualifies the borrower 
for cancellation under a different cancellation category under 
Sec. Sec.  674.53, 674.56, 674.57, or 674.59, the borrower's 
cancellation rate progression continues from the last year the borrower 
received a cancellation under the former cancellation category; or
    (2) The borrower switches to a position that qualifies the borrower 
for cancellation under a different cancellation category under 
Sec. Sec.  674.58 or 674.60, the borrower's cancellation rate 
progression under the new cancellation category begins at the year one 
cancellation rates specified in Sec. Sec.  674.58(b) or 674.60(b), 
respectively.
* * * * *

PART 682--FEDERAL FAMILY EDUCATION LOAN (FFEL) PROGRAM

0
13. The authority citation for part 682 continues to read as follows:

    Authority:  20 U.S.C. 1071 to 1087-2, unless otherwise noted.
0
14. Section 682.100 is amended by:
0
A. Revising the introductory text of paragraph (a).
0
B. In paragraph (a)(1), removing the word ``encourages'' and adding, in 
its place, the word ``encouraged''.
0
C. In the first sentence of paragraph (a)(3), removing the word 
``encourages'' and adding, in its place, the word ``encouraged''.
0
D. Revising the last sentence of paragraph (a)(3).
0
E. In paragraph (a)(4), removing the word ``encourages'' and adding, in 
its place, the word ``encouraged''.
0
F. In paragraph (a)(4), adding the words ``and prior to July 1, 2010'' 
in the last sentence between the date ``November 13, 1997'' and the 
punctuation ``.''.
0
G. Revising paragraph (b)(2)(iii).
    The revisions read as follows:

Sec.  682.100  The Federal Family Education Loan programs.

    (a) This part governs the following four programs collectively 
referred to in these regulations as ``the Federal Family Education Loan 
(FFEL) programs,'' in which lenders used their own funds prior to July 
1, 2010, to make loans to enable a student or his or her parents to pay 
the costs of the student's attendance at postsecondary schools.
* * * * *
    (3) * * * The PLUS Program also provided for making loans to 
graduate and professional students on or after July 1, 2006 and prior 
to July 1, 2010.
* * * * *
    (b) * * *
    (2) * * *
    (iii) The Federal GSL programs were authorized to operate in States 
not served by a guaranty agency program. In addition, the FISL and 
Federal SLS (as in effect for periods of enrollment that began prior to 
July 1, 1994) programs were authorized, under limited circumstances, to 
operate in States in which a guaranty agency program did not serve all 
eligible students.
* * * * *
0
15. Section 682.101 is amended by:
0
A. Adding introductory text to this section.
0
B. In paragraph (a), removing the words ``may make loans.'' and adding, 
in their place, the words ``made loans prior to July 1, 2010.''
0
C. In paragraph (b), removing the words ``may participate'' and adding, 
in their place, the word ``participated''.
0
D. Revising paragraph (c).
    The addition and revision read as follows:

Sec.  682.101  Participation in the FFEL programs.

    The following entities and persons participate in the FFEL 
programs:
* * * * *
    (c) Students who met certain requirements, including enrollment at 
a participating school, borrowed under the Stafford Loan Program prior 
to July 1, 2010 and, for periods of enrollment that began prior to July 
1, 1994, the SLS program. Parents of eligible dependent undergraduate 
students borrowed under the PLUS Program prior to July 1, 2010. 
Borrowers with outstanding Stafford, SLS, FISL, Perkins, HPSL, HEAL, 
ALAS, PLUS, or Nursing Student Loan Program loans borrowed under the 
Consolidation Loan Program prior to July 1, 2010. The PLUS Program also 
provided for making loans to graduate and professional students on or 
after July 1, 2006 and prior to July 1, 2010.
* * * * *
0
16. Section 682.102 is amended by:
0
A. Revising the section heading.
0
B. Removing paragraphs (a), (c), and (d).
0
C. In the introductory text of paragraph (e), removing the paragraph 
heading.
0
D. Redesignating paragraphs (e)(1) through (e)(7) as paragraphs (a) 
through (g), respectively.
0
E. In newly redesignated paragraph (a), revising the last sentence.
0
F. In newly redesignated paragraph (b), removing the words ``on a 
Stafford Loan''.
    The revisions read as follows:

Sec.  682.102  Repaying a loan.

    (a) * * * The obligation to repay all or a portion of a loan may be 
forgiven for Stafford Loan borrowers who enter certain areas of the 
teaching profession.
* * * * *

Sec.  682.103  [Amended]

0
17. Section 682.103(c) is amended by removing the letter and the 
punctuation ``E,''.
0
18. Section 682.200 is amended by:
0
A. In paragraph (a)(1) introductory text, removing the words ``subpart 
A of''.
0
B. In paragraph (a)(1), removing from the list, the terms Academic 
Competitiveness Grant (ACG) Program, Graduate and professional student, 
Leveraging Educational Assistance Partnership (LEAP) Program, National 
Science and Mathematics Access to Retain Talent Grant (National SMART 
Grant) Program, Supplemental Educational Opportunity Grant (SEOG) 
Program, and Supplemental Loans for Students (SLS) Program.
0
C. In paragraph (a)(1), adding to the list, in alphabetical order, the 
terms Federal Supplemental Educational Opportunity Grant (SEOG) 
Program, Federal Supplemental Loans for

[[Page 45688]]

Students (SLS) Program, and Graduate or professional student.
0
D. In paragraph (b), in the definition of Authority, removing the words 
``making or purchasing'' and adding, in their place, the word 
``purchase''.
0
E. In paragraph (b), in the definition of Borrower, removing the word 
``is'' and adding, in its place, the word ``was''.
0
F. In paragraph (b), in the definition of Estimated financial 
assistance, in paragraph (1)(vi), removing the words ``Academic 
Competitiveness Grant, National SMART Grant,''.
0
G. In paragraph (b), in the definition of Lender, revising paragraphs 
(5)(i)(A)(10) and 8.
0
H. In paragraph (b), revising the definition of Nationwide consumer 
reporting agency.
0
I. In paragraph (b), revising the definition of Satisfactory repayment 
arrangement.
    The revisions read as follows:

Sec.  682.200  Definitions.

* * * * *
    (b) * * *
    Lender
* * * * *
    (5) * * *
    (i) * * *
    (A) * * *
    (10) Performance of, or payment to another third party to perform, 
any school function required under title IV, except that the lender may 
perform entrance counseling and, as provided in Sec.  682.604(a), exit 
counseling, and may provide services to participating foreign schools 
at the direction of the Secretary, as a third-party servicer; and
* * * * *
    (8) As of January 1, 2007, and for loans first disbursed on or 
after that date under a trustee arrangement, an eligible lender 
operating as a trustee under a contract entered into on or before 
September 30, 2006, and which continues in effect with a school or a 
school-affiliated organization--
    (i) Must not--
    (A) Make a loan to any undergraduate student;
    (B) Make a loan other than a Federal Stafford loan to a graduate or 
professional student; or
    (C) Make a loan to a borrower who is not enrolled at that school;
    (ii) Must offer loans that carry an origination fee or an interest 
rate, or both, that are less than the fee or rate authorized under the 
provisions of the Act; and
    (iii) Must, for any fiscal year beginning on or after July 1, 2006 
in which the school engages in activities as an eligible lender, submit 
an annual compliance audit that satisfies the following requirements:
    (A) With regard to a school that is a governmental entity or a 
nonprofit organization, the audit must be conducted in accordance with 
Sec.  682.305(c)(2)(v) and chapter 75 of title 31, United States Code, 
and in addition, during years when the student financial aid cluster 
(as defined in Office of Management and Budget Circular A-133, Appendix 
B, Compliance Supplement) is not audited as a ``major program'' (as 
defined under 31 U.S.C. 7501) must, without regard to the amount of 
loans made, include in such audit the school's lending activities as a 
major program.
    (B) With regard to a school that is not a governmental entity or a 
nonprofit organization, the audit must be conducted annually in 
accordance with Sec.  682.305(c)(2)(i) through (iii).
    (C) With regard to any school, the audit must include a 
determination that--
    (1) The school used all payments and proceeds (i.e., special 
allowance and interest payments from borrowers, interest subsidy 
payments, proceeds from the sale or other disposition of loans) from 
the loans for need-based grant programs;
    (2) Those need-based grants supplemented, rather than supplanted, 
the institution's use of non-Federal funds for such grants; and
    (3) The school used no more than a reasonable portion of payments 
and proceeds from the loans for direct administrative expenses.
* * * * *
    Nationwide consumer reporting agency. A consumer reporting agency 
that compiles and maintains files on consumers on a nationwide basis 
and as defined in 15 U.S.C. 1681a(p).
* * * * *
    Satisfactory repayment arrangement. (1) For purposes of regaining 
eligibility under the title IV student financial assistance programs, 
the making of six consecutive, on-time, voluntary full monthly payments 
on a defaulted loan. A borrower may only obtain the benefit of this 
paragraph with respect to renewed eligibility once.
    (2) The required full monthly payment amount may not be more than 
is reasonable and affordable based on the borrower's total financial 
circumstances. Voluntary payments are payments made directly by the 
borrower, and do not include payments obtained by income tax off-set, 
garnishment, or income or asset execution. ``On-time'' means a payment 
received by the Secretary or a guaranty agency or its agent within 20 
days of the scheduled due date.
    (3) A borrower has not used the one opportunity to renew 
eligibility for title IV assistance if the borrower makes six 
consecutive, on-time, voluntary full monthly payments under an 
agreement to rehabilitate a defaulted loan but does not receive 
additional title IV assistance prior to defaulting on that loan again.
* * * * *

Sec.  682.201  [Amended]

0
19. Section 682.201 is amended by:
0
A. In paragraph (a) introductory text, removing the words ``made under 
Sec.  682.209(e) or (f)''.
0
B. In paragraph (a)(4)(ii) introductory text, adding the words 
``paragraph (a)(4) of'' between the words ``of'' and ``this''.
0
C. In paragraph (a)(6) introductory text, removing the word ``student'' 
and adding, in its place, the word ``borrower''.
0
D. In paragraph (c)(2)(i), removing the words ``credit bureau'' and 
adding, in their place, the words ``consumer reporting agency''.
0
20. Section 682.202 is amended by:
0
A. Revising paragraphs (a)(1)(i), (a)(1)(ii) introductory text, 
(a)(1)(iii), (a)(1)(iv), (a)(1)(v), and (a)(1)(vi) introductory text.
0
B. In paragraph (a)(1)(vii) introductory text, removing the first 
occurrence of the word ``is'' and adding, in its place, the word 
``was''.
0
C. In paragraph (a)(1)(viii) introductory text, removing the first 
occurrence of the word ``is'' and adding, in its place, the word 
``was''.
0
D. In paragraph (a)(1)(ix), removing the first occurrence of the word 
``is'' and adding, in its place, the word ``was''.
0
E. In paragraph (a)(1)(x) introductory text, removing the word ``is'' 
and adding, in its place, the word ``was''.
0
F. Removing paragraphs (a)(1)(x)(D) and (a)(1)(x)(E).
0
G. In paragraph (a)(2)(ii) introductory text, removing the words ``loan 
made under Sec.  682.209(e) or (f)'' and adding, in their place, the 
words ``refinanced PLUS loan''.
0
H. In paragraph (a)(2)(iv) introductory text, removing the first 
occurrence of the word ``is'' and adding, in its place, the word 
``was''.
0
I. In paragraph (a)(2)(v) introductory text, removing the first 
occurrence of the word ``is'' and adding, in its place, the word 
``was''.
0
J. In paragraph (a)(3)(ii) introductory text, removing the words ``loan 
made under Sec.  682.209(e) or (f)'' and adding, in their place, the 
words ``refinanced SLS loan''.
0
K. In paragraph (a)(4)(iv) introductory text, adding the words ``and 
prior to July

[[Page 45689]]

1, 2010'' after the date ``1998'' and before the punctuation ``,''.
0
L. In paragraph (a)(4)(v), adding the words ``and prior to July 1, 
2010'' after the date ``1997'' and before the punctuation ``,''.
0
M. In paragraph (a)(7)(iii)(A), removing the citation ``(a)(6)(ii)'' 
and adding, in its place, the citation ``(a)(7)(i)''.
0
N. In paragraph (b)(1), adding the words ``or Federal default fees'' 
between the words ``premiums'' and ``to''.
0
O. Removing paragraph (c)(1)(vi).
0
P. Redesignating paragraph (c)(1)(vii) as paragraph (c)(1)(vi)''.
0
Q. In paragraphs (c)(5), (c)(6), and the introductory text of paragraph 
(c)(7), removing the word ``Shall'' and adding, in its place, the words 
``A lender must''.
0
R. In paragraph (c)(7)(iv), removing the words ``in accordance with 
Sec.  682.207(b)(1)(ii)(B) and (C)''.
0
S. In paragraph (d)(2), removing the words ``, other than an SLS or 
PLUS loan refinanced under Sec.  682.209(e) or (f)'' and adding, in 
their place, the words ``and prior to July 1, 2010''.
0
T. Removing paragraph (e).
0
U. Redesignating paragraphs (f) through (h) as paragraphs (e) through 
(g), respectively.
0
V. In newly redesignated paragraph (e)(1), removing the citation 
``(f)(2)'' and adding, in its place, the citation ``(e)(2)''.
0
W. In newly redesignated paragraph (f)(1)(i), removing the punctuation 
and letter ``'s''.
0
X. In newly redesignated paragraph (f)(2), removing the citation 
``(g)(1)'' and adding, in its place, the citation ``(f)(1)''.
    The revisions read as follows:

Sec.  682.202  Permissible charges by lenders to borrowers.

* * * * *
    (a) * * *
    (1) * * *
    (i) For loans made prior to July 1, 1994, if the borrower, on the 
date the promissory note evidencing the loan was signed, had an 
outstanding balance of principal or interest on a previous Stafford 
loan, the interest rate is the applicable interest rate on that 
previous Stafford loan.
    (ii) If the borrower, on the date the promissory note evidencing 
the loan was signed, had no outstanding balance on any FFEL Program 
loan, and the first disbursement was made--
* * * * *
    (iii) For a Stafford loan for which the first disbursement was made 
before October 1, 1992--
    (A) If the borrower, on the date the promissory note was signed, 
had no outstanding balance on a Stafford loan but had an outstanding 
balance of principal or interest on a PLUS or SLS loan made for a 
period of enrollment beginning before July 1, 1988, or on a 
Consolidation loan that repaid a loan made for a period of enrollment 
beginning before July 1, 1988, the interest rate is 8 percent; or
    (B) If the borrower, on the date the promissory note evidencing the 
loan was signed, had an outstanding balance of principal or interest on 
a PLUS or SLS loan made for a period of enrollment beginning on or 
after July 1, 1988, or on a Consolidation loan that repaid a loan made 
for a period of enrollment beginning on or after July 1, 1988, the 
interest rate is 8 percent until 48 months elapse after the repayment 
period begins, and 10 percent thereafter.
    (iv) For a Stafford loan for which the first disbursement was made 
on or after October 1, 1992, but before December 20, 1993, if the 
borrower, on the date the promissory note evidencing the loan was 
signed, had no outstanding balance on a Stafford loan but had an 
outstanding balance of principal or interest on a PLUS, SLS, or 
Consolidation loan, the interest rate is 8 percent.
    (v) For a Stafford loan for which the first disbursement was made 
on or after December 20, 1993 and prior to July 1, 1994, if the 
borrower, on the date the promissory note was signed, had no 
outstanding balance on a Stafford loan but had an outstanding balance 
of principal or interest on a PLUS, SLS, or Consolidation loan, the 
interest rate is the rate provided in paragraph (a)(1)(ii)(B) of this 
section.
    (vi) For a Stafford loan for which the first disbursement was made 
on or after July 1, 1994 and prior to July 1, 1995, for a period of 
enrollment that included or began on or after July 1, 1994, the 
interest rate is a variable rate, applicable to each July 1-June 30 
period, that equals the lesser of--
* * * * *
0
21. Section 682.204 is amended by:
0
A. In paragraph (a) introductory text, removing the words ``Federal 
Direct Stafford/Ford'' and adding, in their place, the words ``Direct 
Subsidized''.
0
B. In paragraphs (a)(i) and (a)(1)(ii), removing the words ``$2,625, 
or, for a loan disbursed on or after July 1, 2007, $3,500,'' and 
adding, in their place, the figure ``$3,500''.
0
C. Revising paragraph (a)(1)(iii).
0
D. In paragraph (a)(2) introductory text, removing the words ``Federal 
Direct Stafford/Ford'' and adding, in their place, the words ``Direct 
Subsidized''.
0
E. In paragraphs (a)(2)(i) and (a)(2)(ii), removing the words ``$3,500, 
or, for a loan disbursed on or after July 1, 2007, $4,500,'' and 
adding, in their place, the figure ``$4,500''.
0
F. In paragraph (a)(3) introductory text, removing the words ``Federal 
Direct Stafford/Ford'' and adding, in their place, the words ``Direct 
Subsidized''.
0
G. Revising paragraph (a)(5).
0
H. In paragraph (a)(6) introductory text and paragraph (a)(7), removing 
the words ``Federal Direct Stafford/Ford'' and adding, in their place, 
the words ``Direct Subsidized''.
0
I. In paragraph (b) introductory text, removing the words ``Federal 
Direct Stafford/Ford'', and adding, in their place, the words ``Direct 
Subsidized''.
0
J. Revising paragraph (c)(1).
0
K. Revising paragraph (c)(2).
0
L. In paragraph (d) introductory text, removing the word ``additional'' 
that appears after the word ``borrow''.
0
M. In paragraph (d) introductory text, removing the words ``Federal 
Direct Unsubsidized Stafford/Ford'' and adding, in their place, the 
words ``Direct Unsubsidized''.
0
N. In paragraphs (d)(1)(i), (d)(1)(ii), (d)(2)(i), and (d)(2)(ii), 
removing the words ``$4,000, or, for a loan first disbursed on or after 
July 1, 2008, $6,000,'' and adding, in their place, the figure 
``$6,000''.
0
O. Revising paragraph (d)(1)(iii).
0
P. In paragraphs (d)(3)(i) and (d)(3)(ii), removing the words ``$5,000, 
or, for a loan first disbursed on or after July 1, 2008, $7,000,'' and 
adding, in their place, the figure ``$7,000''.
0
Q. In paragraph (d)(5), removing the words ``$10,000, or, for a loan 
disbursed on or after July 1, 2007,''.
0
R. In paragraph (d)(6)(i), removing the words ``$4,000, or, for a loan 
first disbursed on or after July 1, 2008, $6,000,'' and adding, in 
their place, the figure ``$6,000''.
0
S. In paragraph (d)(6)(ii), removing the words ``$5,000, or, for a loan 
disbursed on or after July 1, 2007, $7,000,'' and adding, in their 
place, the figure ``$7,000''.
0
T. In paragraph (d)(6)(iii), removing the words ``$5,000, or, for a 
loan disbursed on or after July 1, 2007,''.
0
U. Revising paragraph (e).
0
V. Removing paragraph (f).
0
W. Redesignating paragraphs (g) through (m) as paragraphs (f) through 
(l), respectively.
0
X. In newly redesignated paragraph (l), removing the citation ``(d), 
(e), and (f)'' and adding, in its place, the citation ``(d), and (e)''.
    The revisions read as follows:

Sec.  682.204  Maximum loan amounts.

    (a) * * *

[[Page 45690]]

    (1) * * *
    (iii) For a program of study that is less than a full academic year 
in length, the amount that is the same ratio to $3,500 as the lesser of 
the--

Number of semester, trimester, quarter, or clock hours enrolled
-----------------------------------------------------------------------
Number of semester, trimester, quarter, or clock hours in academic year 
or Number of weeks enrolled
-----------------------------------------------------------------------
Number of weeks in academic year
* * * * *
    (5) In the case of a graduate or professional student, the total 
amount the student may borrow for loans made prior to July 1, 2010 for 
any academic year of study under the Stafford Loan Program, in 
combination with any amount borrowed under the Direct Subsidized Loan 
Program, may not exceed $8,500.
* * * * *
    (c) * * *
    (1) Except for a dependent undergraduate student who qualifies for 
additional Unsubsidized Stafford Loan funds because the student's 
parents are unable to borrow under the PLUS Loan Program, as described 
in paragraph (d) of this section, the total amount the dependent 
undergraduate student may borrow for any academic year under the 
Unsubsidized Stafford Loan Program in combination with the Direct 
Unsubsidized Loan Program is the same amount determined under paragraph 
(a) of this section, less any amount received under the Stafford Loan 
Program or the Direct Subsidized Loan program, plus--
    (i) $2,000, for a program of study of at least a full academic year 
in length.
    (ii) For a program of study that is at least one academic year or 
more in length with less than a full academic year remaining, the 
amount that is the same ratio to $2,000 as the--

Number of semester, trimester, quarter, or clock hours enrolled
-----------------------------------------------------------------------
Number of semester, trimester, quarter, or clock hours in academic year

    (iii) For a program of study that is less than a full academic year 
in length, the amount that is the same ratio to $2,000 as the lesser of 
the--

Number of semester, trimester, quarter, or clock hours enrolled
-----------------------------------------------------------------------
Number of semester, trimester, quarter, or clock hours in academic year 
or Number of weeks enrolled
-----------------------------------------------------------------------
Number of weeks in academic year

    (2) In the case of an independent undergraduate student, a graduate 
or professional student, or certain dependent undergraduate students 
under the conditions specified in Sec.  682.201(a)(3), the total amount 
the student may borrow for any period of enrollment under the 
Unsubsidized Stafford Loan and Direct Unsubsidized Loan programs may 
not exceed the amounts determined under paragraph (a) of this section 
less any amount received under the Federal Stafford Loan Program or the 
Direct Subsidized Loan Program, in combination with the amounts 
determined under paragraph (d) of this section.
    (d) * * *
    (1) * * *
    (iii) For a program of study that is less than a full academic year 
in length, an amount that is the same ratio to $6,000 as the lesser 
of--

Number of semester, trimester, quarter, or clock hours enrolled
-----------------------------------------------------------------------
Number of semester, trimester, quarter, or clock hours in academic year 
or Number of weeks enrolled
-----------------------------------------------------------------------
Number of weeks in academic year
-----------------------------------------------------------------------

* * * * *
    (e) Combined Federal Stafford, SLS and Federal Unsubsidized 
Stafford Loan Program aggregate limits. The aggregate unpaid principal 
amount of Stafford Loans, Direct Subsidized Loans, Unsubsidized 
Stafford Loans, Direct Unsubsidized Loans and SLS Loans, but excluding 
the amount of capitalized interest, may not exceed the following:
    (1) $31,000 for a dependent undergraduate student.
    (2) $57,500 for an independent undergraduate student or a dependent 
undergraduate student under the conditions specified in Sec.  
682.201(a)(3).
    (3) $138,500 for a graduate or professional student.
* * * * *
0
22. Section 682.205 is amended by:
0
A. Removing paragraphs (a), (b), (g), and (i).
0
B. Redesignating paragraphs (c), (d), (e), (f), (h), and (j) as 
paragraphs (a), (b), (c), (d), (e), and (f), respectively.
0
C. In newly redesignated paragraph (a)(1), removing the citation 
``(c)(2)'' and adding, in its place, the citation ``(a)(2)''.
0
D. In newly redesignated paragraph (a)(3) introductory text, removing 
the citation ``(c)(1)'' and adding, in its place, the citation 
``(a)(1)''.
0
E. Revising newly redesignated paragraph (a)(4).
0
F. In newly redesignated paragraph (a)(5)(ii), adding the word 
``business'' after the word ``five''.
0
G. In newly redesignated paragraph (b), removing the parenthetical 
``(c)'' and adding, in its place, the parenthetical ``(a)''.
0
H. In newly redesignated paragraph (e)(2), removing the citation 
``(h)(1)'' and adding, in its place, the citation ``(e)(1)''.
    The revision reads as follows:

Sec.  682.205  Disclosure requirements for lenders.

* * * * *
    (a) * * *
    (4) Required disclosures for borrowers having difficulty making 
payments. (i) Except as provided in paragraph (a)(4)(ii) of this 
section, the lender must provide a borrower who has notified the lender 
that he or she is having difficulty making payments with--
    (A) A description of the repayment plans available to the borrower, 
and how the borrower may request a change in repayment plan;
    (B) A description of the requirements for obtaining forbearance on 
the loan and any costs associated with forbearance; and
    (C) A description of the options available to the borrower to avoid 
default and any fees or costs associated with those options.
    (ii) A disclosure under paragraph (a)(4)(i) of this section is not 
required if the borrower's difficulty has been resolved through contact 
with the borrower resulting from an earlier disclosure or other 
communication between the lender and the borrower.
* * * * *

Sec.  682.206  [Removed]

0
23. Remove Sec.  682.206.

Sec.  682.207  [Removed]

0
24. Remove Sec.  682.207.

Sec.  682.208  [Amended]

0
25. Section 682.208 is amended by:
0
A. In paragraph (a), removing the words ``national credit bureaus'' and 
adding, in their place, the words ``nationwide consumer reporting 
agencies''.
0
B. In paragraph (b)(1) introductory text, removing the words ``at least 
one national credit bureau'' and adding, in their place, the words 
``each nationwide consumer reporting agency''.
0
C. In paragraph (b)(2), removing the words ``at least one national 
credit bureau'' and adding, in their place, the words ``each nationwide 
consumer reporting agency''.
0
D. In paragraph (b)(3) introductory text, removing both occurrences of 
the words ``credit bureau'' and adding, in their place, the words 
``consumer reporting agency''.
0
E. In paragraph (b)(3)(i)(A), removing the words ``credit bureau'' and 
adding,

[[Page 45691]]

in their place, the words ``consumer reporting agency''.
0
F. In paragraph (e)(3), removing the citation ``Sec.  
682.401(b)(17)(ii)'' and adding, in its place, the citation ``Sec.  
682.401(b)(8)(ii)''.
0
G. In paragraph (g), removing the citation ``Sec.  682.411(g)'' and 
adding, in its place, the citation ``Sec.  682.411(h)''.
0
26. Section 682.209 is amended by:
0
A. In paragraph (a)(3)(i)(B), removing the word ``and''.
0
B. In paragraph (a)(3)(i)(C), removing the punctuation ``.'' and 
adding, in its place, the punctuation and the word ``; and''.
0
C. Adding a new paragraph (a)(3)(i)(D).
0
D. In paragraph (a)(3)(ii)(E), removing the citation ``Sec.  
682.205(c)(1)'' and adding, in its place, the citation ``Sec.  
682.205(a)(1)''.
0
E. In paragraph (b)(2)(ii), revising the last sentence.
0
F. Removing paragraphs (e), (f), (g), and (j).
0
G. Redesignating paragraphs (h), (i), and (k) as paragraphs (e), (f), 
and (g), respectively.
0
H. In newly redesignated paragraph (e)(3) introductory text, removing 
the citation ``(h)'' and adding, in its place, the citation ``(e)''.
0
I. In newly redesignated paragraph (e)(4)(ii), removing the word 
``Must'' and adding, in its place, the words ``Except in the case of an 
income-based repayment schedule, must''.
0
J. In newly redesignated paragraph (e)(5), removing the citation 
``(h)'' and adding, in its place, the citation ``(e)''.
0
K. In newly redesignated paragraph (f)(2)(i), removing the words 
``under Sec.  682.209(f)''.
0
L. In newly redesignated paragraph (f)(2)(ii), removing the citation 
``(i)(2)(i)'' and adding, in its place, the citation ``(f)(2)(i)''.
    The addition and revision read as follows:

Sec.  682.209  Repayment of a loan.

0
(a) * * *
0
(3) * * *
0
(i) * * *
    (D) For a borrower with a loan for which the applicable interest 
rate is fixed at 6.0 percent per year, 5.6 percent per year, or 6.8 
percent per year, the day after 6 months following the date on which 
the borrower is no longer enrolled on at least a half-time basis at an 
institution of higher education;
* * * * *
0
(b) * * *
0
(2) * * *
    (ii) * * * Information related to next scheduled payment due date 
need not be provided to borrowers making such prepayments while in an 
in-school, grace, deferment, or forbearance period when payments are 
not due.
* * * * *
0
27. Section 682.210 is amended by:
0
A. In paragraph (a)(4), adding the words and punctuation ``, or the 
borrower's representative for purposes of paragraphs (i) and (t) of 
this section,'' between the words ``borrower'' and ``must''.
0
B. Revising paragraph (b).
0
C. In paragraph (n)(1) introductory text and in paragraph (n)(2), 
removing the citation ``(b)(2)(v)'' and adding, in its place, the 
citation ``(b)(3)(iv)''.
0
D. In paragraph (o)(1) introductory text, adding the parenthetical 
``(i)'' between the parenthetical ``(3)'' and the word ``of''.
0
E. In paragraph (q)(1) introductory text, removing the citation 
``(b)(5)(ii)'' and adding, in its place, the citation ``(b)(3)(iii)''.
0
F. In paragraph (r)(1) introductory text, removing the citation 
``(b)(5)(iv)'' and adding, in its place, the citation ``(b)(3)(v)''.
0
G. In paragraph (s)(2), removing the punctuation and the words ``, 
except that the borrower is not required to obtain a Stafford or SLS 
loan for the period of enrollment covered by the deferment''.
0
H. In paragraph (s)(6) introductory text, removing both occurrences of 
the citation ``(s)(6)(vi)'' and adding, in their place, the citation 
``(s)(6)(iv)''.
0
I. In paragraph (u)(5), removing both occurrences of the words 
``military active'' and adding, in their place, the words ``post-
active''.
    The revision reads as follows:

Sec.  682.210  Deferment.

* * * * *
    (b) Authorized deferments for borrowers prior to July 1, 1993. (1) 
For all borrowers who are not new borrowers on or after July 1, 1993. 
Deferment is authorized for a FFEL borrower during any period when the 
borrower is--
    (i) Except as provided in paragraph (b)(4) of this section, engaged 
in full-time study at a school in accordance with paragraph (c) of this 
section;
    (ii) Engaged in a course of study under an eligible graduate 
fellowship program in accordance with paragraph (d) of this section;
    (iii) Engaged in a rehabilitation training program for disabled 
individuals in accordance with paragraph (e) of this section;
    (iv) Temporarily totally disabled in accordance with paragraph (f) 
of this section, or unable to secure employment because the borrower is 
caring for a spouse or other dependent who is disabled and requires 
continuous nursing or similar services for up to three years in 
accordance with paragraph (g) of this section; or
    (v) Conscientiously seeking, but unable to find, full-time 
employment in the United States, for up to two years, in accordance 
with paragraph (h) of this section.
    (2) For all Stafford and SLS borrowers who are not new borrowers on 
or after July 1, 1993, and for parent PLUS loans made before August 15, 
1983. Deferment is authorized during any period when the borrower is--
    (i) On active duty status in the United States Armed Forces in 
accordance with paragraph (i) of this section, or an officer in the 
Commissioned Corps of the United States Public Health Service in 
accordance with paragraph (j) of this section, for up to three years 
(including any period during which the borrower received a deferment 
authorized under paragraph (b)(3)(ii) of this section);
    (ii) A full-time volunteer under the Peace Corps Act, for up to 
three years, in accordance with paragraph (k) of this section;
    (iii) A full-time volunteer under title I of the Domestic Volunteer 
Service Act of 1973 (ACTION programs), for up to three years, in 
accordance with paragraph (l) of this section;
    (iv) A full-time volunteer for a tax-exempt organization, for up to 
three years, in accordance with paragraph (m) of this section; or
    (v) Engaged in an internship or residency program, in accordance 
with paragraph (n) of this section, for up to two years (including any 
period during which the borrower received a deferment authorized under 
paragraph (b)(3)(iv) of this section).
    (3) For new Stafford or SLS borrowers on or after July 1, 1987 but 
before July 1, 1993. Deferment is authorized--
    (i) In accordance with paragraph (o) of this section, if the 
borrower has been enrolled on at least a half-time basis at an 
institution of higher education during the six months preceding the 
beginning of the deferment, for a period of up to six months during 
which the borrower is--
    (A)(1) Pregnant;
    (2) Caring for his or her newborn child; or
    (3) Caring for a child immediately following the placement of the 
child with the borrower before or immediately following adoption; and
    (B) Not attending a school or gainfully employed;
    (ii) During a period when the borrower is on active duty status in 
the National Oceanic and Atmospheric Administration Corps, for up to 
three

[[Page 45692]]

years, in accordance with paragraph (p) of this section, (including any 
period during which the borrower received a deferment authorized under 
paragraph (b)(2)(i) of this section);
    (iii) During a period of up to three years when the borrower is 
serving as a full-time teacher in a public or non-profit private 
elementary or secondary school in a teacher shortage area designated by 
the Secretary under paragraph (q) of this section;
    (iv) During a period when the borrower is engaged in an internship 
or residency program, for up to two years, in accordance with paragraph 
(n) of this section, (including any period during which the borrower 
received a deferment authorized under paragraph (b)(2)(v) of this 
section); or
    (v) When a mother who has preschool-age children (i.e., children 
who have not enrolled in first grade) and who is earning not more than 
$1 per hour above the Federal minimum wage, for up to 12 months of 
employment, and who began that full-time employment within one year of 
entering or re-entering the work force, in accordance with paragraph 
(r) of this section. Full-time employment involves at least 30 hours of 
work a week and it is expected to last at least 3 months.
    (4) For new Stafford or SLS borrowers on or after July 1, 1987. 
Deferment is authorized during periods when the borrower is engaged in 
at least half-time study at a school in accordance with paragraph (b) 
of this section.
    (5) For new parent PLUS borrowers on or after July 1, 1987 and 
before July 1, 1993. Deferment is authorized during any period when a 
student on whose behalf the parent borrower received the loan--
    (i) Is not independent as defined in section 480(d) of the Act; and
    (ii) Meets the conditions and provides the required documentation, 
for any of the deferments described in paragraphs (b)(1)(i) through 
(iii) and (b)(4) of this section.
    (6) Definition of a new borrower. For purposes of paragraphs 
(b)(3), (b)(4), and (b)(5) of this section, a ``new borrower'' with 
respect to a loan is a borrower who, on the date he or she signs the 
promissory note, has no outstanding balance on--
    (i) A Stafford, SLS, or PLUS loan made prior to July 1, 1987 for a 
period of enrollment beginning prior to July 1, 1987; or
    (ii) A Consolidation loan that repaid a loan made prior to July 1, 
1987 and for a period of enrollment beginning prior to July 1, 1987.
* * * * *
0
28. Section 682.211 is amended by:
0
A. In paragraph (a)(4), removing the parenthetical ``(10)'' and adding, 
in its place, the parenthetical ``(11)''.
0
B. Revising paragraphs (c) and (d).
0
C. In paragraph (f)(2), removing the words ``or an administrative 
forbearance period as specified under paragraph (f)(11) or (i)(2) of 
this section;'' and adding, in their place, the words ``or an 
authorized period of forbearance;''.
0
D. In paragraph (f)(6), removing the words ``credit bureau'' and 
adding, in their place, the words ``consumer reporting agency''.
0
E. In paragraph (h)(2)(ii)(B), removing the words ``10 U.S.C. 2171; 
or'' and adding, in their place, the words ``10 U.S.C. 2171, 2173, 2174 
or any other student loan repayment programs administered by the 
Department of Defense; or''.
0
F. In paragraph (h)(2)(ii)(C), removing the citation ``Sec.  682.215'' 
and adding, in its place, the citation ``Sec.  682.216''.
0
G. In paragraph (h)(4)(iii)(A), removing the citation ``Sec.  
682.215(c)'' and adding, in its place the citation ``Sec.  
682.216(c)''.
0
H. In paragraph (h)(4)(iii)(B), removing the citation ``Sec.  
682.215(c)'' and adding, in its place the citation ``Sec.  
682.216(c)''.
    The revisions read as follows:

Sec.  682.211  Forbearance.

* * * * *
    (c) Except as provided in paragraph (d)(2) of this section, a 
lender may grant forbearance for a period of up to one year at a time 
if both the borrower or endorser and an authorized official of the 
lender agree to the terms of the forbearance. If the borrower or 
endorser requests the forbearance orally and the lender and the 
borrower or endorser agree to the terms of the forbearance orally, the 
lender must notify the borrower or endorser of the terms within 30 days 
of that agreement.
    (d)(1) A guaranty agency may authorize a lender to grant 
forbearance to permit a borrower or endorser to resume honoring the 
agreement to repay the debt after default but prior to claim payment. 
The forbearance agreement in this situation must include a new 
agreement to repay the debt signed by the borrower or endorser or a 
written or oral affirmation of the borrower's or endorser's obligation 
to repay the debt.
    (2) If the forbearance is based on the borrower's or endorser's 
oral request and affirmation of the obligation to repay the debt--
    (i) The forbearance period is limited to a period of 120 days;
    (ii) Such a forbearance cannot be granted consecutively;
    (iii) The lender must orally review with the borrower the terms and 
conditions of the forbearance, including the consequences of interest 
capitalization, and other repayment options available to the borrower; 
and
    (iv) The lender must send a notice to the borrower or endorser, as 
provided in paragraph (c) of this section, that confirms the terms of 
the forbearance and the borrower's or endorser's affirmation of the 
obligation to repay the debt, and retain a record of the terms of the 
forbearance and affirmation in the borrower's or endorser's file.
    (3) For purposes of this section, an ``affirmation'' means an 
acknowledgement of the loan by the borrower or endorser in a legally 
binding manner. The form of the affirmation may include, but is not 
limited to, the borrower's or endorser's--
    (i) New signed repayment agreement or schedule, or another form of 
signed agreement to repay the debt;
    (ii) Oral acknowledgment and agreement to repay the debt documented 
by the lender in the borrower's or endorser's file and confirmed by the 
lender in a notice to the borrower; or
    (iii) A payment made on the loan by the borrower or endorser.
* * * * *

Sec.  682.214  [Removed]

0
29. Remove Sec.  682.214.
0
30. Section 682.216 is amended by:
0
A. In paragraph (a)(2)(iii), removing the first occurrence of the word 
``at'' and adding, in its place, the word ``for''.
0
B. In paragraph (a)(4)(i), removing the second occurrence of the word 
``at'' and adding, in its place, the word ``for''.
0
C. In paragraph (c)(1) introductory text, removing the words ``at an 
educational'' and adding, in their place, the words ``for an 
educational''.
0
D. In paragraph (c)(1)(iii), removing the final sentence.
0
E. Redesignating paragraphs (c)(2) through (c)(11) as paragraphs (c)(3) 
through (c)(12), respectively.
0
F. Adding a new paragraph (c)(2).
0
G. In newly redesignated paragraph (c)(4)(ii)(A), removing the words 
``at an eligible educational'' and adding, in their place, the words 
``for an eligible educational''.
0
H. In newly redesignated paragraph (c)(4)(ii)(B), adding the words 
``for an'' immediately before the words ``educational service agency''.
0
I. In newly redesignated paragraph (c)(4)(iii), removing the first 
occurrence of the word ``at'' and adding, in its place, the word 
``for''.
0
J. In newly redesignated paragraph (c)(5)(i), adding the words ``for 
an''

[[Page 45693]]

immediately before the words ``educational service''.
0
K. In newly redesignated paragraph (c)(5)(ii)(A), removing the words 
``students at an eligible'' and adding, in their place, the words 
``students for an eligible''.
0
L. In newly redesignated paragraph (c)(5)(ii)(B), adding the words 
``for an'' immediately before the words ``educational service''.
0
M. In newly redesignated paragraph (c)(5)(iii), removing the first 
occurrence of the word ``at'' and adding, in its place the word 
``for''.
0
N. In newly redesignated paragraph (c)(10), removing the second 
occurrence of the word ``at'' and adding, in its place, the word 
``for''.
0
O. In paragraph (e) introductory text, removing the word ``discharge'' 
and adding in its place, the word ``forgiveness''.
0
P. In paragraph (e)(1)(i), removing the citation ``(h)(3)(iii)'' and 
adding, in its place, the citation ``(h)(4)(iii)''.
0
Q. In paragraph (e)(1)(iii), removing the word ``discharge'' and 
adding, in its place, the word ``forgiveness''.
0
R. Revising paragraphs (f)(2)(i) and (f)(2)(ii).
0
S. In paragraph (f)(2)(iii), removing both occurrences of the word 
``discharged'' and adding, in their place, the words ``loan 
forgiveness''.
0
T. In paragraph (f)(3)(ii), removing both occurrences of the word 
``discharge'' and adding, in their place, the words ``loan 
forgiveness''.
0
U. In paragraph (f)(4), removing both occurrences of the word 
``discharge'' and adding, in their place, the words ``loan 
forgiveness''.
0
V. In paragraph (f)(5), removing the word ``discharge''.
0
W. Revising paragraph (g).
    The additions and revisions read as follows:

Sec.  682.216  Teacher loan forgiveness program.

* * * * *
    (c) * * *
    (2) The Secretary considers all elementary and secondary schools 
operated by the Bureau of Indian Education (BIE) or operated on Indian 
reservations by Indian tribal groups under contract with the BIE to 
qualify as schools serving low-income students.
* * * * *
    (f) * * *
    (2) * * *
    (i) The holder must file a request for payment with the guaranty 
agency on a teacher loan forgiveness amount no later than 60 days after 
the receipt, from the borrower, of a completed teacher loan forgiveness 
application.
    (ii) When filing a request for payment on a teacher loan 
forgiveness, the holder must provide the guaranty agency with the 
completed loan forgiveness application submitted by the borrower and 
any required supporting documentation.
* * * * *
    (g) Claims for reimbursement from the Secretary on loans held by 
guaranty agencies. In the case of a teacher loan forgiveness applied to 
a defaulted loan held by the guaranty agency, the Secretary pays the 
guaranty agency a percentage of the amount forgiven that is equal to 
the complement of the reinsurance percentage paid on the loan. The 
payment of up to $5,000, or up to $17,500, may also include interest 
that accrues on the forgiveness amount during the period from the date 
on which the guaranty agency received payment from the Secretary on a 
default claim to the date on which the guaranty agency determines that 
the borrower is eligible for the teacher loan forgiveness.
* * * * *

Sec.  682.300  [Amended]

0
31. Section 682.300 is amended by:
0
A. In paragraph (b)(2)(ii) introductory text, removing the words ``, 
except as provided in paragraph (c)(4) of this section''.
0
B. In paragraph (b)(2)(ii)(B), removing the words ``in accordance with 
Sec.  682.207(b)(1)(ii)(B) and (C)''.
0
C. In paragraph (c)(1), adding the word ``or'' after the punctuation 
``;''.
0
D. In paragraph (c)(2), removing the punctuation ``;'' and adding, in 
its place, the punctuation ``.''.
0
E. Removing paragraphs (c)(3) and (c)(4).

Sec.  682.301  [Amended]

0
32. Section 682.301 is amended by removing paragraph (c).
0
33. Section 682.302 is amended by:
0
A. In paragraph (b)(3) introductory text, adding the words ``and prior 
to July 1, 2010'' after the date ``1992'' and before the punctuation 
``,''.
0
B. In paragraph (d)(1)(vi)(B), removing the words ``the loan proceeds 
disbursed by electronic funds transfer or master check in accordance 
with Sec.  682.207(b)(1)(ii)(B) and (C)'' and adding, in their place, 
the words ``The loan proceeds disbursed by electronic funds transfer or 
master check''.
0
C. In paragraph (d)(2) introductory text, adding the words ``and prior 
to July 1, 2010'' after the date ``1992'' and before the punctuation 
``,''.
0
D. In paragraph (e)(1)(i), removing the citation ``Sec.  682.800'' and 
adding, in its place, the words ``section 438(e) of the Act''.
0
E. Revising paragraph (f)(3)(viii)(B).
0
F. In paragraph (f)(3)(x)(B)(3), removing the figure ``503'' and 
adding, in its place, the figure ``501''.
    The revision reads as follows:

Sec.  682.302  Payment of special allowance on FFEL loans.

* * * * *
    (f) * * *
    (3) * * *
    (viii) * * *
    (B) Fees are reasonable and customary for purposes of paragraph 
(f)(3)(viii) of this section, if they do not exceed the amounts 
received by the trustee for similar services with regard to similar 
portfolios of loans of that State or non-profit entity or its related 
special purpose entity that are not eligible to receive special 
allowance at the rate established under paragraph (f)(2) of this 
section, or if they do not exceed an amount as determined by such other 
method requested by the State or non-profit entity that the Secretary 
considers reliable.
* * * * *

Sec.  682.305  [Amended]

0
34. Section 682.305 is amended by:
0
A. In paragraph (a)(3)(ii)(B), by adding the words ``and prior to July 
1, 2010'' after the date ``2007'' and before the punctuation ``,''.
0
B. In paragraph (c)(1)(i), removing the words ``originating or''.
0
C. Removing paragraph (c)(1)(ii).
0
D. Redesignating paragraph (c)(1)(iii) as paragraph (c)(1)(ii).
0
E. In paragraph (c)(2)(iv), adding the word ``and'' as the last word in 
the paragraph, immediately following the punctuation ``;''.
0
F. In paragraph (c)(2)(v), removing the final punctuation ``;'' and 
adding, in its place, the punctuation ``.''.
0
G. Removing paragraphs (c)(2)(vi) and (c)(2)(vii).
0
35. Section 682.400 is amended by revising paragraph (b)(1)(i) to read 
as follows:

Sec.  682.400  Agreements between a guaranty agency and the Secretary.

* * * * *
    (b) * * *
    (1) * * *
    (i) Borrowers whose Stafford or Consolidation loans are guaranteed 
by the agency may qualify for interest benefits that are paid to the 
lender on the borrower's behalf under 34 CFR 682.301; and
* * * * *
0
36. Section 682.401 is amended by:
0
A. Removing paragraphs (b)(1), (b)(2), and (b)(3).
0
B. Redesignating paragraph (b)(4) as paragraph (b)(1).

[[Page 45694]]

0
C. In newly redesignated paragraph (b)(1) introductory text, removing 
the citation ``(b)(4)'' and adding, in its place, the citation 
``(b)(1)''.
0
D. Removing paragraphs (b)(5) and (b)(6).
0
E. Redesignating paragraph (b)(7) as paragraph (b)(2).
0
F. Removing paragraphs (b)(8) and (b)(9).
0
G. Redesignating paragraphs (b)(10) and (b)(11) as paragraphs (b)(3) 
and (b)(4), respectively.
0
H. In newly redesignated paragraph (b)(3)(i) introductory text, 
removing the words ``SLS or PLUS loans refinanced under Sec.  
682.209(e) or (f)'' and adding, in their place, the words ``refinanced 
SLS or PLUS loans''.
0
I. In newly redesignated paragraph (b)(3)(iv)(C), adding the words 
``and prior to July 1, 2010'' between the date ``2006'' and the 
punctuation ``.''.
0
J. In newly redesignated paragraph (b)(3)(vi)(B)(4), removing the words 
``in accordance with Sec.  682.207(b)(1)(ii)(B) and (C)''.
0
K. Removing paragraphs (b)(12) and (b)(13).
0
L. Redesignating paragraphs (b)(14) through (b)(29) as paragraphs 
(b)(5) through (b)(20), respectively.
0
M. In newly redesignated paragraph (b)(6), adding the words ``and N'' 
between the letter ``M'' and the word ``of''.
0
N. In newly redesignated paragraph (b)(8)(i) introductory text, 
removing the parenthetical ``(17)'' and adding, in its place, the 
parenthetical ``(8)''.
0
O. In newly redesignated paragraph (b)(8)(iii), removing the 
parenthetical ``(17)'' and adding, in its place, the parenthetical 
``(8)''.
0
P. In newly redesignated paragraph (b)(10)(i)(B), removing the words 
``School and lender'' and adding, in their place, the word ``Lender''.
0
Q. In newly redesignated paragraph (b)(10)(i)(C), removing the words 
``school and''.
0
R. In newly redesignated paragraph (b)(10)(i)(D), removing the words 
``school or''.
0
S. In newly redesignated paragraph (b)(11) introductory text, adding 
the word ``of'' between the words ``days'' and ``any''.
0
T. In newly redesignated paragraph (b)(14)(ii), removing the 
parenthetical ``(23)'' and adding, in its place, the parenthetical 
``(14)''.
0
U. In newly redesignated paragraph (b)(18)(i), removing the word 
``Federal'' and adding, in its place, the word ``Direct''.
0
V. In newly redesignated paragraph (b)(18), removing paragraph 
(b)(18)(ii).
0
W. In newly redesignated paragraph (b)(18), redesignating paragraphs 
(b)(18)(iii) through (v) as paragraphs (b)(18)(ii) through (iv), 
respectively.
0
X. Revising newly redesignated paragraph (b)(18)(iii).
0
Y. Removing paragraph (c).
0
Z. Redesignating paragraph (d) as paragraph (c).
0
AA. In newly redesignated paragraph (c)(2), removing the parenthetical 
``(d)'' and adding, in its place, the parenthetical ``(c)''.
0
BB. In newly redesignated paragraph (c)(3), adding a final sentence to 
the end of the paragraph.
0
CC. In newly redesignated paragraph (c), removing paragraph (c)(4).
0
DD. In newly redesignated paragraph (c), redesignating paragraphs 
(c)(5) and (c)(6) as paragraphs (c)(4) and (c)(5), respectively.
0
EE. Removing paragraph (e).
0
FF. Redesignating paragraphs (f) and (g) as paragraphs (d) and (e), 
respectively.
0
GG. In newly redesignated paragraph (d)(2), removing the word ``HEA'' 
and adding, in its place, the word ``Act''.
0
HH. In newly redesignated paragraph (e)(1), removing the word 
``participate'' and adding, in its place, the word ``participated''.
0
II. In newly redesignated paragraph (e)(2), removing the parenthetical 
``(g)'' and adding, in its place, the parenthetical ``(e)''.
0
JJ. In newly redesignated paragraph (e)(4), removing the parenthetical 
``(g)'' and adding, in its place, the parenthetical ``(e)''.
    The revision and addition read as follows:

Sec.  682.401  Basic program agreement.

* * * * *
    (b) * * *
    (18) * * *
    (iii) On or after October 1, 2009, when returning proceeds to the 
Secretary from the consolidation of a defaulted loan that is paid off 
with excess consolidation proceeds as defined in paragraph (b)(18)(iv) 
of this section, a guaranty agency must remit the entire amount of 
collection costs repaid through the consolidation loan.
* * * * *
    (c) * * *
    (3) * * * Each loan made under an MPN is enforceable in accordance 
with the terms of the MPN and is eligible for claim payment based on a 
true and exact copy of such MPN.
* * * * *
0
37. Section 682.402 is amended by:
0
A. In paragraph (a)(5)(ii), removing the words ``credit bureau'' and 
adding, in their place, the words ``consumer reporting agency''.
0
B. Revising paragraph (d)(1)(i).
0
C. In paragraph (d)(3)(ii)(B), by removing the figure ``90'' and 
adding, in its place, the figure ``120''.
0
D. Except for paragraphs (d)(6)(ii)(G)(1) and (d)(6)(ii)(G)(2), in 
paragraph (d)(6), by removing the figure ``90'' each time it appears 
and adding, in its place, the figure ``120''.
0
E. In paragraph (d)(7)(iv), removing the words ``credit bureaus'' and 
adding, in their place, the words ``consumer reporting agencies''.
0
F. In paragraph (d)(8)(i), removing the citation ``34 CFR 685.213'' and 
adding, in its place, the citation ``34 CFR 685.214''.
0
G. In paragraph (e)(3) introductory text, removing the parenthetical 
``(14)'' and adding, in its place, the parenthetical ``(15)''.
0
H. In paragraph (e)(3)(v)(C), removing the word ``identify'' and 
adding, in its place, the word ``identity''.
0
I. In paragraph (e)(12)(v) introductory text, removing the words 
``credit bureaus'' and adding, in their place, the words ``consumer 
reporting agencies''.
0
J. In paragraphs (l)(1), (l)(2)(ii), and (l)(3)(i), adding the words 
``or Federal default fees'' between the word ``premiums'' and the 
punctuation '')''.
0
K. In paragraph (n)(2), adding the words ``or Federal default fees'' 
between the word ``premiums'' and the punctuation '')''.
    The revision reads as follows:

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

* * * * *
    (d) * * *
    (1) * * *
    (i) The Secretary reimburses the holder of a loan received by a 
borrower on or after January 1, 1986, and discharges the borrower's 
obligation with respect to the loan in accordance with the provisions 
of paragraph (d) of this section, if the borrower (or the student for 
whom a parent received a PLUS loan) could not complete the program of 
study for which the loan was intended because the school at which the 
borrower (or student) was enrolled closed, or the borrower (or student) 
withdrew from the school not more than 120 days prior to the date the 
school closed. The Secretary may extend the 120-day period if the 
Secretary determines that exceptional circumstances related to a 
school's closing justify an extension. Exceptional circumstances for 
this purpose may include, but are not limited to: The school's loss of 
accreditation; the school's discontinuation of the majority of its 
academic programs; action by the

[[Page 45695]]

State to revoke the school's license to operate or award academic 
credentials in the State; or a finding by a State or Federal government 
agency that the school violated State or Federal law.
* * * * *

Sec.  682.403  [Removed]

0
38. Remove Sec.  682.403.
0
39. Section 682.404 is amended by:
0
A. Revising paragraph (b)(3)(ii).
0
B. In paragraph (b)(3)(iii), adding the word ``or'' after the 
punctuation ``;''.
0
C. In paragraph (b)(4)(ii)(G)(2), removing the words ``is consistent 
with Sec.  682.509(a)(1)'' and adding, in their place, the words 
``addresses the condition identified in paragraph (b)(3)(ii) of this 
section''.
0
D. In paragraph (d)(1) introductory text, removing the words ``made 
under Sec.  682.209(e), (f) and (h),'' and adding, in their place the 
words ``that were refinanced pursuant to section 428B(e)(2) and (3) of 
the Act,''.
0
E. Removing paragraph (h).
0
F. Redesignating paragraphs (i) through (l) as paragraphs (h) through 
(k), respectively.
0
G. In newly redesignated paragraph (j)(3)(i), removing the 
parenthetical ``(k)(2)(i)'' and adding, in its place, the parenthetical 
``(j)(2)(i)''.
0
H. In newly resdesignated paragraph (j)(3)(ii), removing the 
parenthetical ``(k)(2)(ii)'' and adding, in its place, the 
parenthetical ``(j)(2)(ii)''.
    The revision reads as follows:

Sec.  682.404  Federal reinsurance agreement.

* * * * *
    (b) * * *
    (3) * * *
    (ii) Under a policy established by the agency that addresses 
instances in which, for a non-school originated loan, a lender learns 
that the school terminated its teaching activities while a student was 
enrolled during the academic period covered by the loan;
* * * * *
0
40. Section 682.405 is amended by:
0
A. In the introductory text of paragraph (a)(2)(i), adding the word 
``qualifying'' between the words ``ten'' and ``payments''.
0
B. Revising the introductory text of paragraph (a)(2)(i)(A).
0
C. Redesignating paragraph (a)(3) as paragraph (a)(4).
0
D. Adding a new paragraph (a)(3).
0
E. Revising paragraph (b)(1).
    The revisions and addition read as follows:

Sec.  682.405  Loan rehabilitation agreement.

    (a) * * *
    (2) * * *
    (i) * * *
    (A) A qualifying payment is--
* * * * *
    (3)(i) If a borrower's loan is being collected by administrative 
wage garnishment while the borrower is also making monthly payments on 
the same loan under a loan rehabilitation agreement, the guaranty 
agency must continue collecting the loan by administrative wage 
garnishment until the borrower makes five qualifying monthly payments 
under the rehabilitation agreement. After the borrower makes the fifth 
qualifying monthly payment, the guaranty agency must, unless otherwise 
directed by the borrower, suspend collecting the loan by administrative 
wage garnishment.
    (ii) A borrower may only obtain the benefit of a suspension of 
administrative wage garnishment while also attempting to rehabilitate a 
defaulted loan once.
* * * * *
    (b) * * *
    (1) A borrower may request rehabilitation of the borrower's 
defaulted loan held by the guaranty agency. In order to be eligible for 
rehabilitation of the loan, the borrower must voluntarily make at least 
9 of the 10 payments required under a monthly repayment agreement.
    (i) Each of which payment is--
    (A) Made voluntarily;
    (B) In the full amount required;
    (C) Received within 20 days of the due date for the payment; and
    (D) Reasonable and affordable.
    (ii) All 9 payments are received within a 10-month period that 
begins with the month in which the first required due date falls and 
ends with the ninth consecutive calendar month following that month.
    (iii) For the purposes of this section, the borrower's reasonable 
and affordable payment amount, as determined by the guaranty agency or 
its agents, is based solely on information provided on a form approved 
by the Secretary and, if requested, supporting documentation from the 
borrower and other sources, and considers--
    (A) The borrower's, and if applicable, the spouse's current 
disposable income, including public assistance payments, and other 
income received by the borrower and the spouse, such as welfare 
benefits, Social Security benefits, Supplemental Security Income, and 
workers' compensation. Spousal income is not considered if the spouse 
does not contribute to the borrower's household income;
    (B) Family size as defined in Sec.  682.215(a)(3); and
    (C) Reasonable and necessary expenses, which include--
    (1) Food;
    (2) Housing;
    (3) Utilities;
    (4) Basic communication expenses;
    (5) Necessary medical and dental costs;
    (6) Necessary insurance costs;
    (7) Transportation costs;
    (8) Dependent care and other work-related expenses;
    (9) Legally required child and spousal support;
    (10) Other title IV and non-title IV student loan payments; and
    (11) Other expenses approved by the Secretary.
    (iv) The reasonable and affordable payment amount must not be--
    (A) A required minimum loan payment amount (e.g., $50) if the 
agency determines that a smaller amount is reasonable and affordable;
    (B) A percentage of the borrower's total loan balance; or
    (C) Based on other criteria unrelated to the borrower's total 
financial circumstances.
    (v) Within 15 business days of its determination of the borrower's 
reasonable and affordable payment amount, the guaranty agency must 
provide the borrower with a written rehabilitation agreement which 
includes the borrower's reasonable and affordable payment amount, a 
prominent statement that the borrower may object orally or in writing 
to the reasonable and affordable payment amount, with the method and 
timeframe for raising such an objection, and an explanation of any 
other terms and conditions applicable to the required series of 
payments that must be made before the borrower's account can be 
considered for repurchase by an eligible lender (i.e., rehabilitated). 
The agency may not impose any other conditions unrelated to the amount 
or timing of the rehabilitation payments in the rehabilitation 
agreement. The written rehabilitation agreement must inform the 
borrower of--
    (A) The effects of having the loans rehabilitated (e.g., removal of 
the record of default from the borrower's credit history and return to 
normal repayment); and
    (B) The amount of any collection costs to be added to the unpaid 
principal of the loan when the loan is sold to an eligible lender, 
which may not exceed 18.5 percent of the unpaid principal and accrued 
interest on the loan at the time of the sale.
    (vi) If the borrower objects to the monthly payment amount 
determined under paragraph (b)(1)(iii) of this section, the guaranty 
agency must recalculate the payment amount. The guaranty agency must 
follow the

[[Page 45696]]

monthly payment calculation rules in Sec.  682.215(b)(1) to determine a 
borrower's recalculated reasonable and affordable payment amount, 
except that if the recalculated amount under Sec.  682.215(b)(1) is 
less than $5, the borrower's recalculated monthly rehabilitation 
payment is $5. The guaranty agency must provide the borrower with a new 
written rehabilitation agreement confirming the borrower's recalculated 
reasonable and affordable payment amount within the timeframe specified 
in paragraph (b)(1)(v) of this section.
    (vii) If the borrower objects to the monthly payment amount 
determined under paragraph (b)(1)(iii) of this section, but does not 
provide the documentation required to calculate a monthly payment 
amount under Sec.  682.215(b)(1), no rehabilitation agreement exists 
between the borrower and the guaranty agency, and the rehabilitation 
does not proceed.
    (viii) The agency must include any payment made under Sec.  
682.401(b)(1) in determining whether the 9 out of 10 payments required 
under paragraph (b)(1) of this section have been made.
    (ix) A borrower may request that the monthly payment amount be 
adjusted due to a change in the borrower's total financial 
circumstances only upon providing the documentation specified in 
paragraph (b)(1)(iii) of this section.
    (x) During the rehabilitation period, the guaranty agency must 
limit contact with the borrower on the loan being rehabilitated to 
collection activities that are required by law or regulation and to 
communications that support the rehabilitation.
* * * * *

Sec.  682.406  [Amended]

0
41. Section 682.406 is amended by:
0
A. In paragraph (a)(2)(ii), removing the words ``in accordance with 
Sec.  682.207(b)(1)(ii)(B) and (C)''.
0
B. In paragraph (a)(12)(iv), adding the words ``and prior to July 1, 
2010'' after the date ``1999'' and before the punctuation ``,''.

Sec.  682.407  [Amended]

0
42. Section 682.407(e)(1)(ii) is amended by removing the figure ``24'' 
the first time it appears and adding, in its place, the figure ``72''.

Sec.  682.408  [Removed]

0
43. Remove Sec.  682.408.

Sec.  682.409  [Amended]

0
44. Section 682.409 is amended by:
0
A. In paragraph (a)(2)(i), removing the citation ``Sec.  
682.401(b)(4)'' and adding, in its place, the citation ``Sec.  
682.401(b)(1)''.
0
B. In paragraph (a)(3)(i)(B), removing the citation ``Sec.  
682.401(b)(4)'' and adding, in its place, the citation ``Sec.  
682.401(b)(1)''.
0
45. Section 682.410 is amended by:
0
A. Revising the introductory text of paragraph (a)(2).
0
B. In paragraph (a)(2)(ii) introductory text, removing the word 
``preclaims'' and adding, in its place, the words ``default aversion''.
0
C. In paragraph (b)(2) introductory text, removing the citation ``Sec.  
682.401(b)(27)'' and adding, in its place, the citation ``Sec.  
682.401(b)(18)(i)''.
0
D. In paragraph (b)(5)(i) introductory text, removing the parenthetical 
``(b)(6)(v)'' and adding, in its place, the parenthetical 
``(b)(6)(ii)''.
0
E. In paragraph (b)(7)(i), removing the words ``conditions described in 
Sec.  682.509(a)(1)'' and adding, in their place, the words ``condition 
described in Sec.  682.404(b)(3)(ii)''.
0
F. In paragraph (b)(7)(ii)(A), removing the words ``credit bureau'' and 
adding, in their place, the words ``consumer reporting agency''.
0
G. Revising paragraph (b)(9).
0
H. In paragraph (c)(1)(i)(A) introductory text, removing the words 
``made or''.
0
I. In paragraph (c)(1)(i)(A)(1), removing the words ``in that year''.
0
J. In paragraph (c)(1)(i)(A)(2), removing the words ``in that year''.
0
K. Revising paragraph (c)(1)(i)(C).
0
L. In paragraph (c)(1)(ii), adding the parenthetical ``(i)'' between 
the parenthetical ``(1)'' and the parenthetical ``(A)''.
0
M. Removing paragraph (c)(4).
0
N. Redesignating paragraphs (c)(5) through (c)(11) as paragraphs (c)(4) 
through (c)(10), respectively.
0
O. In newly redesignated paragraphs (c)(8)(i) and (c)(8)(ii), adding 
the words ``title IV eligibility of a'' between the words ``or'' and 
``school''.
0
P. Revising newly redesignated paragraph (c)(10) introductory text.
    The revisions read as follows:

Sec.  682.410  Fiscal, administrative, and enforcement requirements.

    (a) * * *
    (2) Uses of reserve fund assets. A guaranty agency may use the 
assets of the reserve fund established under paragraph (a)(1) of this 
section to pay only--
* * * * *
    (b) * * *
    (9) Administrative garnishment. (i) If a guaranty agency decides to 
garnish the disposable pay of a borrower who is not making payments on 
a loan held by the agency, on which the Secretary has paid a 
reinsurance claim, it must do so in accordance with the following 
procedures:
    (A) At least 30 days before the initiation of garnishment 
proceedings, the guaranty agency must mail to the borrower's last known 
address, a written notice described in paragraph (b)(9)(i)(B) of this 
section.
    (B) The notice must describe--
    (1) The nature and amount of the debt;
    (2) The intention of the agency to collect the debt through 
deductions from disposable pay;
    (3) An explanation of the borrower's rights;
    (4) The deadlines by which a borrower must exercise those rights; 
and
    (5) The consequences of failure to exercise those rights in a 
timely manner.
    (C) The guaranty agency must offer the borrower an opportunity to 
inspect and copy agency records related to the debt.
    (D) The guaranty agency must offer the borrower an opportunity to 
enter into a written repayment agreement with the agency under terms 
agreeable to the agency.
    (E)(1) The guaranty agency must offer the borrower an opportunity 
for a hearing in accordance with paragraphs (b)(9)(i)(F) through (J) of 
this section and other guidance provided by the Secretary, for any 
objection regarding the existence, amount, or enforceability of the 
debt, and any objection that withholding from the borrower's disposable 
pay in the amount or at the rate proposed in the notice would cause 
financial hardship to the borrower.
    (2) The borrower must request a hearing in writing. At the 
borrower's option, the hearing may be oral or written. The time and 
location of the hearing is established by the guaranty agency. An oral 
hearing may, at the borrower's option, be conducted either in-person or 
by telephone conference. The agency notifies the borrower of the 
process for arranging the time and location of an oral hearing. All 
telephonic charges are the responsibility of the agency. All travel 
expenses incurred by the borrower in connection with an in-person oral 
hearing are the responsibility of the borrower.
    (F)(1) If the borrower submits a written request for a hearing on 
the existence, amount, or enforceability of the debt--
    (i) The guaranty agency must provide evidence of the existence of 
the debt. If the agency provides evidence of the existence of the debt, 
the borrower must prove by the preponderance of the evidence that no 
debt exists, the debt is not enforceable under applicable law, the 
amount the guaranty agency claims

[[Page 45697]]

the borrower owes is incorrect, including that any amount of collection 
costs assessed to the borrower exceeds the limits established under 
Sec.  682.410(b)(2), or the debt is not delinquent; and
    (ii) The borrower may raise any of the objections described in 
paragraph (b)(9)(i)(F)(1)(i) of this section not raised in the written 
request, but must do so before a hearing is completed. For purposes of 
this paragraph, a hearing is completed when the record is closed and 
the hearing official notifies the parties that no additional evidence 
or objections will be accepted.
    (2) If the borrower submits a written request for a hearing on an 
objection that withholding the amount or rate that the agency proposed 
in its notice would cause financial hardship to the borrower and the 
borrower's spouse and dependents--
    (i) The borrower bears the burden of proving the claim of financial 
hardship by a preponderance of the credible evidence by providing 
credible documentation that the amount of wages proposed in the notice 
would leave the borrower unable to meet basic living expenses of the 
borrower, the borrower's spouse, and the borrower's dependents. The 
documentation must show the amount of the costs incurred for basic 
living expenses and the income available from any source to meet those 
expenses;
    (ii) The borrower's claim of financial hardship must be evaluated 
by comparing the amounts that the borrower proves are being incurred 
for basic living expenses against the amounts spent for basic living 
expenses by families of the same size and similar income to the 
borrower's. For the purposes of this section, the standards published 
by the Internal Revenue Service under 26 U.S.C. 7122(c)(2) (the 
National Standards) establish the average amounts spent for basic 
living expenses for families of the same size as, and with family 
incomes comparable to, the borrower's family;
    (iii) The amount that the borrower proves is incurred for a type of 
basic living expense is considered to be reasonable to the extent that 
the amount does not exceed the amount spent for that expense by 
families of the same size and similar income according to the National 
Standards. If the borrower claims an amount for any basic living 
expense that exceeds the amount in the National Standards, the borrower 
must prove that the amount claimed is reasonable and necessary;
    (iv) If the borrower's objection to the rate or amount proposed in 
the notice is upheld in part, the garnishment may be ordered at a 
lesser rate or amount, that is determined will allow the borrower to 
meet basic living expenses proven to be reasonable and necessary. If 
this financial hardship determination is made after a garnishment order 
is already in effect, the guaranty agency must notify the borrower's 
employer of any change required by the determination in the amount to 
be withheld or the rate of withholding under that order; and
    (v) A determination by a hearing official that financial hardship 
would result from garnishment is effective for a period not longer than 
six months after the date of the finding. After this period, the 
guaranty agency may require the borrower to submit current information 
regarding the borrower's family income and living expenses. If the 
borrower fails to submit current information within 30 days of this 
request, or the guaranty agency concludes from a review of the 
available evidence that garnishment should now begin or the rate or the 
amount of an outstanding withholding should be increased, the guaranty 
agency must notify the borrower and provide the borrower with an 
opportunity to contest the determination and obtain a hearing on the 
objection under the procedures in paragraph (b)(9)(i) of this section.
    (G) If the borrower's written request for a hearing is received by 
the guaranty agency on or before the 30th day following the date of the 
notice described in paragraph (b)(9)(i)(B) of this section, the 
guaranty agency may not issue a withholding order until the borrower 
has been provided the requested hearing and a decision has been 
rendered. The guaranty agency must provide a hearing to the borrower in 
sufficient time to permit a decision, in accordance with the procedures 
that the agency may prescribe, to be rendered within 60 days.
    (H) If the borrower's written request for a hearing is received by 
the guaranty agency after the 30th day following the date of the notice 
described in paragraph (b)(9)(i)(B) of this section, the guaranty 
agency must provide a hearing to the borrower in sufficient time that a 
decision, in accordance with the procedures that the agency may 
prescribe, may be rendered within 60 days, but may not delay issuance 
of a withholding order unless the agency determines that the delay in 
filing the request was caused by factors over which the borrower had no 
control, or the agency receives information that the agency believes 
justifies a delay or cancellation of the withholding order. If a 
decision is not rendered within 60 days following receipt of a 
borrower's written request for a hearing, the guaranty agency must 
suspend the order beginning on the 61st day after the hearing request 
was received until a hearing is provided and a decision is rendered.
    (I) The hearing official appointed by the agency to conduct the 
hearing may be any qualified individual, including an administrative 
law judge. Under no circumstance may the hearing official be under the 
supervision or control of the head of the guaranty agency or of a 
third-party servicer or collection contractor employed by the agency. 
Payment of compensation by the guaranty agency, third-party servicer, 
or collection contractor employed by the agency to the hearing official 
for service as a hearing official does not constitute impermissible 
supervision or control under this paragraph. The guaranty agency must 
ensure that, except as needed to arrange the type of hearing requested 
by the borrower and the time, place, and manner of conducting an oral 
hearing, all oral communications with any representative of the 
guaranty agency or with the borrower are made within the hearing of the 
other party, and that copies of any written communication with either 
party are promptly provided to the other party.
    (J) The hearing official must conduct any hearing as an informal 
proceeding, require witnesses in an oral hearing to testify under oath 
or affirmation, and maintain a summary record of any hearing. The 
hearing official must issue a final written decision at the earliest 
practicable date, but not later than 60 days after the guaranty 
agency's receipt of the borrower's hearing request. However--
    (1) The borrower may request an extension of that deadline for a 
reasonable period, as determined by the hearing official, for the 
purpose of submitting additional evidence; and
    (2) The agency may request, and the hearing official must grant, a 
reasonable extension of time sufficient to enable the guaranty agency 
to evaluate and respond to any such additional evidence or any 
objections raised pursuant to paragraph (b)(9)(i)(F)(1)(ii) of this 
section.
    (K) An employer served with a garnishment order from the guaranty 
agency with respect to a borrower whose wages are not then subject to a 
withholding order of any kind must deduct and pay to the agency from a 
borrower's disposable pay an amount that does not exceed the smallest 
of--
    (1) The amount specified in the guaranty agency order;
    (2) The amount permitted by section 488A(a)(1) of the Act, which is 
15

[[Page 45698]]

percent of the borrower's disposable pay; or
    (3) The amount permitted by 15 U.S.C. 1673(a)(2), which is the 
amount by which the borrower's disposable pay exceeds 30 times the 
minimum wage.
    (L) If a borrower's pay is subject to more than one garnishment 
order--
    (1) Unless other Federal law requires a different priority, the 
employer must pay the agency the amount calculated under paragraph 
(b)(9)(i)(K) of this section before the employer complies with any 
later garnishment orders, except a family support withholding order;
    (2) If an employer is withholding from a borrower's pay based on a 
garnishment order served on the employer before the guaranty agency's 
order, or if a withholding order for family support is served on an 
employer at any time, the employer must comply with the agency's 
garnishment order by withholding an amount that is the lesser of--
    (i) The amount specified in the guaranty agency order; or
    (ii) The amount calculated under paragraph (b)(9)(i)(L)(3) of this 
section less the amount or amounts withheld under the garnishment order 
or orders that have priority over the agency's order; and
    (3) The cumulative withholding for all garnishment orders issued by 
guaranty agencies may not exceed, for an individual borrower, the 
amount permitted by 15 U.S.C. 1673, which is the lesser of 25 percent 
of the borrower's disposable pay or the amount by which the borrower's 
disposable pay exceeds 30 times the minimum wage. If a borrower owes 
debts to one or more guaranty agencies, each agency may issue a 
garnishment order to enforce each of those debts, but no single agency 
may order a total amount exceeding 15 percent of the disposable pay of 
a borrower to be withheld. The employer must honor these orders as 
provided in paragraphs (b)(9)(i)(L)(1) and (2) of this section.
    (M) Notwithstanding paragraphs (b)(9)(i)(K) and (L) of this 
section, an employer may withhold and pay a greater amount than 
required under the order if the borrower gives the employer written 
consent.
    (N) A borrower may, at any time, raise an objection to the amount 
or the rate of withholding specified in the guaranty agency's order to 
the borrower's employer on the ground of financial hardship. However, 
the guaranty agency is not required to consider such an objection and 
provide the borrower with a hearing until at least six months after the 
agency issued the most recent garnishment order, either one for which 
the borrower did not request a hearing or one that was issued after a 
hardship-related hearing determination. The agency may provide a 
hearing in extraordinary circumstances earlier than six months if the 
borrower's request for review shows that the borrower's financial 
circumstances have substantially changed after the garnishment notice 
because of an event such as injury, divorce, or catastrophic illness.
    (O) A garnishment order is effective until the guaranty agency 
rescinds the order or the agency has fully recovered the amounts owed 
by the borrower, including interest, late fees, and collections costs. 
If an employer is unable to honor a garnishment order because the 
amount available for garnishment is insufficient to pay any portion of 
the amount stated in the order, the employer must notify the agency and 
comply with the order when sufficient disposable pay is available. Upon 
full recovery of the debt, the agency must send the borrower's employer 
notification to stop wage withholding.
    (P) The guaranty agency must sue any employer for any amount that 
the employer, after receipt of the withholding order provided by the 
agency under paragraph (b)(9)(i)(R) of this section, fails to withhold 
from wages owed and payable to an employee under the employer's normal 
pay and disbursement cycle.
    (Q) The guaranty agency may not garnish the wages of a borrower 
whom it knows has been involuntarily separated from employment until 
the borrower has been reemployed continuously for at least 12 months. 
The borrower has the burden of informing the guaranty agency of the 
circumstances surrounding the borrower's involuntary separation from 
employment.
    (R) Unless the guaranty agency receives information that the agency 
believes justifies a delay or cancellation of the withholding order, it 
must send a withholding order to the employer within 20 days after the 
borrower fails to make a timely request for a hearing, or, if a timely 
request for a hearing is made by the borrower, within 20 days after a 
final decision is made by the agency to proceed with garnishment.
    (S) The notice given to the employer under paragraph (b)(9)(i)(R) 
of this section must contain only the information as may be necessary 
for the employer to comply with the withholding order and to ensure 
proper credit for payments received. At a minimum, the notice given to 
the employer includes the borrower's name, address, and Social Security 
Number, as well as instructions for withholding and information as to 
where the employer must send payments.
    (T)(1) A guaranty agency may use a third-party servicer or 
collection contractor to perform administrative activities associated 
with administrative wage garnishment, but may not allow such a party to 
conduct required hearings or to determine that a withholding order is 
to be issued. Subject to the limitations of paragraphs (b)(9)(i)(T)(2) 
and (3) of this section, administrative activities associated with 
administrative wage garnishment may include but are not limited to--
    (i) Identifying to the agency suitable candidates for wage 
garnishment pursuant to agency standards;
    (ii) Obtaining employment information for the purposes of 
garnishment;
    (iii) Sending candidates selected for garnishment by the agency 
notices prescribed by the agency;
    (iv) Negotiating alternative repayment arrangements with borrowers;
    (v) Responding to inquiries from notified borrowers;
    (vi) Receiving garnishment payments on behalf of the agency;
    (vii) Arranging for the retention of hearing officials and for the 
conduct of hearings on behalf of the agency;
    (viii) Providing information to borrowers or hearing officials on 
the process or conduct of hearings; and
    (ix) Sending garnishment orders and other communications to 
employers on behalf of the agency.
    (2) Only an authorized official of the agency may determine that an 
individual withholding order is to be issued. The guarantor must record 
the official's determination for each order it issues, including any 
order which it causes to be prepared or mailed by a third-party 
servicer or collection contractor. The guarantor must evidence the 
official's approval, either by including the official's signature on 
the order or, if the agency uses a form of withholding order that does 
not provide for execution by signature, by retaining in the agency's 
records the identity of the approving official, the date of the 
approval, the amount or rate of the order, the name and address of the 
employer to whom the order was issued, and the debt for which the order 
was issued.
    (3) The withholding order must identify the guaranty agency as the 
holder of the debt, as the issuer of the order, and as the sole party 
legally authorized to issue the withholding order. If a guaranty agency 
uses a third-

[[Page 45699]]

party servicer or collection contractor to prepare and mail a 
withholding order that includes the name of the servicer or contractor 
that prepared or mailed the order, the guaranty agency must also ensure 
that the order contains no captions or representations that the 
servicer or contractor is the party that issued, or was empowered by 
Federal law or by the agency to issue, the withholding order.
    (U) As specified in section 488A(a)(8) of the Act, the borrower may 
seek judicial relief, including punitive damages, if the employer 
discharges, refuses to employ, or takes disciplinary action against the 
borrower due to the issuance of a withholding order.
    (ii) For purposes of paragraph (b)(9) of this section--
    (A) ``Borrower'' includes all endorsers on a loan;
    (B) ``Day'' means calendar day;
    (C) ``Disposable pay'' means that part of a borrower's compensation 
for personal services, whether or not denominated as wages from an 
employer, that remains after the deduction of health insurance premiums 
and any amounts required by law to be withheld, and includes, but is 
not limited to, salary, bonuses, commissions, or vacation pay. 
``Amounts required by law to be withheld'' include amounts for 
deductions such as Social Security taxes and withholding taxes, but do 
not include any amount withheld under a court order or other 
withholding order. All references to an amount of disposable pay refer 
to disposable pay calculated for a single week;
    (D) ``Employer'' means a person or entity that employs the services 
of another and that pays the latter's wages or salary and includes, but 
is not limited to, State and local governments, but does not include an 
agency of the Federal Government;
    (E) ``Financial hardship'' means an inability to meet basic living 
expenses for goods and services necessary for the survival of the 
borrower and the borrower's spouse and dependents;
    (F) ``Garnishment'' means the process of withholding amounts from 
an employee's disposable pay and paying those amounts to a creditor in 
satisfaction of a withholding order; and
    (G) ``Withholding order'' means any order for withholding or 
garnishment of pay issued by the guaranty agency and may also be 
referred to as ``wage garnishment order'' or ``garnishment order.''
* * * * *
    (c) * * *
    (1) * * *
    (i) * * *
    (C) Each school that participated in the guaranty agency's program, 
located in a State for which the guaranty agency is the principal 
guaranty agency, that has a cohort default rate, as described in 
subpart M of 34 CFR part 668, that includes FFEL Program loans, for 
either of the 2 immediately preceding fiscal years, as defined in 34 
CFR 668.182, that exceeds 20 percent, unless the school is under a 
mandate from the Secretary under subpart M of 34 CFR part 668 to take 
specific default reduction measures or if the total dollar amount of 
loans entering repayment in each fiscal year on which the cohort 
default rate of over 20 percent is based does not exceed $100,000; or
* * * * *
    (10) Taking prompt action to protect the rights of borrowers and 
the Federal fiscal interest respecting loans that the agency has 
guaranteed when the agency learns that a school that participated in 
the FFEL Program or a holder of loans participating in the program is 
experiencing problems that threaten the solvency of the school or 
holder, including--
* * * * *

Sec.  682.411  [Amended]

0
46. Section 682.411 is amended by:
0
A. In paragraph (d)(2), removing the words ``all national credit 
bureaus'' and adding, in their place, the words ``each nationwide 
consumer reporting agency''.
0
B. In paragraph (f), removing the words ``a national credit bureau'' 
and adding, in their place, the words ``each nationwide consumer 
reporting agency''.
0
C. In paragraph (n)(2), removing the words ``a national credit bureau'' 
and adding, in their place, the words ``each nationwide consumer 
reporting agency''.
0
D. In paragraph (o)(2), removing the words ``credit bureau'' and 
adding, in their place, the words ``consumer reporting agency''.

Sec.  682.412  [Amended]

0
47. Section 682.412(a)(2) is amended by removing the words ``as 
provided under Sec.  682.301''.
0
48. Section 682.413 is amended by:
0
A. In paragraph (c)(1)(vi), removing the words ``certification required 
under Sec.  682.206(f)(1)'' and adding, in their place the words 
``required lender verification certification''.
0
B. Revising the first sentence of paragraph (h).
    The revision reads as follows:

Sec.  682.413  Remedial actions.

* * * * *
    (h) In any action to require repayment of funds or to withhold 
funds from a guaranty agency, or to limit, suspend, or terminate a 
guaranty agency based on a violation of section 428(b)(3) of the Act, 
if the Secretary finds that the guaranty agency provided or offered the 
prohibited payments or activities, the Secretary applies a rebuttable 
presumption that the payments or activities were offered or provided to 
secure applications for FFEL loans or to secure FFEL loan volume. * * *
* * * * *

Sec.  682.414  [Amended]

0
49. Section 682.414 is amended by:
0
A. In paragraph (a)(1)(ii)(D), removing the words ``credit bureau'' and 
adding, in their place, the words ``consumer reporting agency''.
0
B. In paragraph (a)(4)(ii)(J), removing the words ``credit bureau'' and 
adding, in their place, the words ``consumer reporting agency''.
0
C. In paragraph (a)(6)(ii)(D), removing the word ``is'' and adding, in 
its place, the word ``it''.
0
D. In paragraph (b)(2), removing paragraph (b)(2)(i).
0
E. Redesignating paragraphs (b)(2)(ii) through (b)(2)(iv), as (b)(2)(i) 
through (b)(2)(iii), respectively.
0
F. In paragraph (b)(3)(i), removing the words ``schools and''.
0
G. In paragraph (b)(3)(ii), removing the words ``schools and''.
0
H. In paragraph (b)(3)(iii), removing the words ``school or''.
0
I. In paragraph (c)(2), removing the citation ``Sec.  682.401(b)(21) 
and (22)'' and adding, in its place, the citation ``Sec.  
682.401(b)(12) and (13)''.

Sec.  682.416  [Amended]

0
50. Section 682.416(d)(2) is amended by removing the word ``Title'' and 
adding, in its place, the word ``title''.

Sec.  682.418  [Removed]

0
51. Remove Sec.  682.418.

Sec.  682.419  [Amended]

0
52. Section 682.419 is amended by:
0
A. In paragraph (b)(8), removing the words ``, in accordance with Sec.  
682.420''.
0
B. In paragraph (c)(6), removing the citation ``Sec.  682.421'' and 
adding, in its place, the citation ``section 422A(f) of the Act''.

Sec.  682.420  [Removed]

0
53. Remove Sec.  682.420.

Sec.  682.421  [Removed]

0
54. Remove Sec.  682.421.

Sec.  682.422  [Removed]

0
55. Remove Sec.  682.422.

[[Page 45700]]

Sec.  682.423  [Amended]

0
56. Section 682.423 is amended by:
0
A. In the second sentence of paragraph (a), adding the word ``may'' 
between the words ``that'' and ``have''.
0
B. In paragraph (a), removing the last sentence.

Subpart E [Removed and Reserved]

0
57. Remove and reserve subpart E of part 682.
0
58. Revising the heading to subpart F of part 682 to read as follows:

Subpart F--Requirements, Standards, and Payments for Schools That 
Participated in the FFEL Program

* * * * *

Sec.  682.601  [Removed]

0
59. Remove Sec.  682.601.

Sec.  682.602  [Removed]

0
60. Remove Sec.  682.602.
0
61. Section 682.603 is amended by:
0
A. Revising the section heading.
0
B. In paragraph (b)(3), removing the citation ``Sec.  682.604(c)'' and 
adding, in its place, the citation ``section 428G of the Act''.
0
C. Revising paragraphs (g), (h), and (i).
0
D. Removing the second of the two paragraphs that are both designated 
as paragraph (j).
0
E. Revising the first of the two paragraphs that are both designated as 
paragraph (j).
0
F. Adding paragraphs (k) and (l).
    The revisions and additions read as follows:

Sec.  682.603  Certification by a school that participated in the FFEL 
Program in connection with a loan application.

* * * * *
    (g) The maximum period for which a school may certify a loan 
application is--
    (1) Generally an academic year, as defined by 34 CFR 668.3, except 
that a guaranty agency may allow a school to use a longer period of 
time, corresponding to the period to which the agency applies the 
annual loan limits; or
    (2) For a defaulted borrower who has regained eligibility under 
Sec.  682.401(b)(1), the academic year in which the borrower regained 
eligibility.
    (h) In certifying a Stafford or Unsubsidized Stafford loan amount 
in accordance with Sec.  682.204--
    (1) A program of study must be considered at least one full 
academic year if--
    (i) The number of weeks of instructional time is at least 30 weeks; 
and
    (ii) The number of clock hours is a least 900, the number of 
semester or trimester hours is at least 24, or the number of quarter 
hours is at least 36;
    (2) A program of study must be considered two-thirds (\2/3\) of an 
academic year if--
    (i) The number of weeks of instructional time is at least 20 weeks; 
and
    (ii) The number of clock hours is at least 600, the number of 
semester or trimester hours is at least 16, or the number of quarter 
hours is at least 24;
    (3) A program of study must be considered one-third (\1/3\) of an 
academic year if--
    (i) The number of weeks of instruction time is at least 10 weeks; 
and
    (ii) The number of clock hours is at least 300, the number of 
semester or trimester hours is at least 8, or the number of quarter 
hours is at least 12; and
    (4) In prorating a loan amount for a student enrolled in a program 
of study with less than a full academic year remaining, the school need 
not recalculate the amount of the loan if the number of hours for which 
an eligible student is enrolled changes after the school certifies the 
loan.
    (i)(1) If a school measures academic progress in an educational 
program in credit hours and uses either standard terms (semesters, 
trimesters, or quarters) or nonstandard terms that are substantially 
equal in length, and each term is at least nine weeks of instructional 
time in length, a student is considered to have completed an academic 
year and progresses to the next annual loan limit when the academic 
year calendar period has elapsed.
    (2) If a school measures academic progress in an educational 
program in credit hours and uses nonstandard terms that are not 
substantially equal in length or each term is not at least nine weeks 
of instructional time in length, or measures academic progress in 
credit hours and does not have academic terms, a student is considered 
to have completed an academic year and progresses to the next annual 
loan limit at the later of--
    (i) The student's completion of the weeks of instructional time in 
the student's academic year; or
    (ii) The date, as determined by the school, that the student has 
successfully completed the academic coursework in the student's 
academic year.
    (3) If a school measures academic progress in an educational 
program in clock hours, a student is considered to have completed an 
academic year and progresses to the next annual loan limit at the later 
of--
    (i) The student's completion of the weeks of instructional time in 
the student's academic year; or
    (ii) The date, as determined by the school, that the student has 
successfully completed the clock hours in the student's academic year.
    (4) For purposes 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 of instructional time longer than any other term in that 
loan period.
    (j)(1) A school must cease certifying loans based on the exceptions 
in section 428G(a)(3) of the Act no later than--
    (i) 30 days after the date the school receives notification from 
the Secretary of an FFEL cohort default rate, calculated under subpart 
M of 34 CFR part 668, that causes the school to no longer meet the 
qualifications outlined in those paragraphs; or
    (ii) October 1, 2002.
    (2) A school must cease certifying loans based on the exceptions in 
section 428G(a)(3) of the Act no later than 30 days after the date the 
school receives notification from the Secretary of an FFEL cohort 
default rate, calculated under subpart M of 34 CFR part 668, that 
causes the school to no longer meet the qualifications outlined in 
those paragraphs.
    (k) A school may not assess the borrower, or the student in the 
case of a parent PLUS loan, a fee for the completion or certification 
of any FFEL Program form or information or for providing any 
information necessary for a student or parent to receive a loan under 
part B of the Act or any benefits associated with such a loan.
    (l) Pursuant to paragraph (b)(3) of this section, a school may not 
request the disbursement by the lender for loan proceeds earlier than 
the period specified in 34 CFR 668.167.
* * * * *
0
62. Section 682.604 is amended by:
0
A. Revising the section heading.
0
B. Removing paragraphs (a), (c), (d), (e), (f), (h), and (i).
0
C. Redesignating paragraph (g) as paragraph (a).
0
D. Removing and reserving paragraph (b).
0
E. In the last sentence of newly redesignated paragraph (a)(1), adding 
the punctuation and words ``, or by sending written counseling 
materials by email to an email address provided by the student 
borrower'' between the words ``last known address'' and ``within 30 
days''.
0
F. Removing newly redesignated paragraph (a)(2)(vi).
0
G. In newly redesignated paragraph (a), redesignating paragraphs 
(a)(2)(vii)

[[Page 45701]]

through (a)(2)(xii) as paragraphs (a)(2)(ix) through (a)(2)(xiv), 
respectively.
0
H. Adding new paragraphs (a)(2)(vi) through (a)(2)(viii).
0
I. Adding new paragraph (a)(5).
    The revision and additions read as follows:

Sec.  682.604  Required exit counseling for borrowers.

    (a) * * *
    (2) * * *
    (vi) Explain to the borrower the use of a Master Promissory Note;
    (vii) Emphasize to the student borrower the seriousness and 
importance of the repayment obligation the borrower has assumed;
    (viii) Emphasize to the student borrower that the full amount of 
the loan (other than a loan made or originated by the school) must be 
repaid in full even if the student borrower does not complete the 
program, does not complete the program within the regular time for 
program completion, is unable to obtain employment upon completion, or 
is otherwise dissatisfied with or does not receive the educational or 
other services that the student borrower purchased from the school;
* * * * *
    (5)(i) For students who have received both FFEL Program and Direct 
Loan Program loans for attendance at a school, the school's compliance 
with the exit counseling requirements in 34 CFR 685.304(b) satisfies 
the requirements of this section if the school ensures that the exit 
counseling also provides the borrower with the information described in 
paragraph (a)(2)(i) and (a)(2)(ii) of this section.
    (ii) A student's completion of electronic interactive exit 
counseling offered by the Secretary satisfies the requirements of this 
section, and for students who have also received Direct Loan Program 
loans for attendance at the school, the requirements of 34 CFR 
685.304(b).
* * * * *

Sec.  682.605  [Amended]

0
63. Section 682.605 is amended by:
0
A. In paragraph (b), adding the words ``and the Secretary'' between the 
words ``lender'' and ``the date''.
0
B. In paragraph (c), adding the words ``and the Secretary'' between the 
word ``lender'' and the punctuation ``,''.

Sec.  682.608  [Removed]

0
64. Remove Sec.  682.608.
0
65. Section 682.610 is amended by:
0
A. Revising the section heading.
0
B. Revising paragraph (b)(5).
0
C. Revising paragraph (c).
    The revisions read as follows:

Sec.  682.610  Administrative and fiscal requirements for schools that 
participated.

* * * * *
    (b) * * *
    (5) For loans delivered by electronic funds transfer or master 
check, a copy of the borrower's required written authorization, if it 
was not provided in the loan application or MPN, to deliver the initial 
and subsequent disbursements of each FFEL Program loan; and
* * * * *
    (c) Enrollment reporting process. (1) Upon receipt of an enrollment 
report from the Secretary, a school must update all information 
included in the report and return the report to the Secretary--
    (i) In the manner and format prescribed by the Secretary; and
    (ii) Within the timeframe specified by the Secretary.
    (2) Unless it expects to submit its next updated enrollment report 
to the Secretary within the next 60 days, a school must notify the 
Secretary within 30 days after the date that the school discovers 
that--
    (i) A loan under title IV of the Act was made to or on behalf of a 
student who was enrolled or accepted for enrollment at the school, and 
the student has ceased to be enrolled on at least a half-time basis or 
failed to enroll on at least a half-time basis for the period for which 
the loan was intended; or
    (ii) A student who is enrolled at the school and who received a 
loan under title IV of the Act has changed his or her permanent 
address.
* * * * *
0
66. The heading of subpart G of part 682 is revised to read as follows:

Subpart G--Limitation, Suspension, or Termination of Lender or 
Third-party Servicer Eligibility and Disqualification of Lenders

* * * * *

Sec.  682.700  [Amended]

0
67. Section 682.700 is amended by:
0
A. In paragraph (a), removing the words ``or school'' in the final 
sentence.
0
B. In paragraph (b)(1)(ii), adding the word ``or'' after the 
punctuation ``;''.
0
C. Removing paragraph (b)(2).
0
D. Redesignating paragraph (b)(3) as paragraph (b)(2).
0
E. In paragraph (c), removing the words ``or schools''.
0
68. Section 682.701 is amended by revising the definition of 
``Disqualification'' to read as follows:

Sec.  682.701  Definitions of terms used in this subpart.

* * * * *
    Disqualification: The removal of a lender's eligibility for an 
indefinite period of time by the Secretary on review of limitation, 
suspension, or termination action taken against the lender by a 
guaranty agency.
* * * * *
0
69. Section 682.702 is amended by:
0
A. In paragraph (a), removing the words ``in paragraph (d) of this 
section and''.
0
B. Revising paragraph (b)(1).
0
C. Removing paragraph (b)(2).
0
D. Redesignating paragraph (b)(3) as paragraph (b)(2).
0
E. Removing paragraph (d).
    The revision reads as follows:

Sec.  682.702  Effect on participation.

* * * * *
    (b) * * *
    (1) A limit on the number or total amount of loans that a lender 
may purchase or hold under the FFEL Program; or
* * * * *

Sec.  682.704  [Amended]

0
70. Section 682.704(a) introductory text is amended, by removing the 
words ``stop the issuance of guarantee commitments by the Secretary and 
guarantee agencies and to''.

Sec.  682.705  [Amended]

0
71. Section 682.705 is amended by:
0
A. In paragraph (a)(1) introductory text, removing the words ``new loan 
made by the lender or''.
0
B. In paragraph (b)(2)(v), removing the words ``, except as provided in 
paragraph (c)(9) of this section,''.
0
C. Removing paragraph (c).

Sec.  682.706  [Amended]

0
72. Section 682.706 is amended by removing paragraph (d).
0
73. Section 682.709 is amended by adding paragraph (d) to read as 
follows:

Sec.  682.709  Reimbursements, refunds, and offsets.

* * * * *
    (d) In any action under this part based on a violation of the 
prohibitions in section 435(d)(5) of the Act, if the Secretary, the 
designated Department official, or the hearing official finds that the 
lender provided or offered the payments or activities described in 
paragraph (5)(i) of the definition of ``lender'' in Sec.  682.200(b), 
the Secretary or the official applies a rebuttable presumption that the 
payments or activities were offered or provided to secure applications 
for FFEL loans. To

[[Page 45702]]

reverse the presumption, the lender must present evidence that the 
activities or payments were provided for a reason unrelated to securing 
applications for FFEL loans or securing FFEL loan volume.
* * * * *

Sec.  682.711  [Amended]

0
74. Section 682.711 is amended by:
0
A. Removing paragraph (c).
0
B. Redesignating paragraphs (d) and (e) as paragraphs (c) and (d), 
respectively.
0
C. In newly redesignated paragraph (d)(2), removing the parenthetical 
``(d)'' and adding, in its place, the parenthetical ``(c)''.
0
D. In newly redesignated paragraph (d)(2), removing the parenthetical 
``(e)'' and adding, in its place, the parenthetical ``(d)''.

Sec.  682.712  [Amended]

0
75. Section 682.712 is amended by:
0
A. In paragraph (g)(2), removing the parenthetical ``(j)'' and adding, 
in its place, the parenthetical ``(i)''.
0
B. In paragraph (h)(2) and in paragraph (h)(3) introductory text, 
removing the parenthetical ``(j)'' and adding, in its place, the 
parenthetical ``(i)''.
0
C. Removing paragraph (i).
0
D. Redesignating paragraph (j) as paragraph (i).

Sec.  682.713  [Removed]

0
76. Remove Sec.  682.713.

Subpart H of part 682--[Removed and Reserved]

0
77. Remove and reserve subpart H of part 682.

Appendix C to Part 682 [Removed]

0
78. Remove and reserve Appendix C to part 682.

Appendix D to Part 682 [Amended]

0
79. In appendix D to part 682, paragraph 3 of the introduction is 
amended by removing the final citation ``34 CFR 682.401(d)'' and 
adding, in its place, the citation ``34 CFR 682.401(c)''.

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

0
80. The authority citation for part 685 continues to read as follows:

    Authority:  20 U.S.C. 1070g, 1087a, et seq., unless otherwise 
noted.
0
81. Section 685.100 is amended by:
0
A. Revising paragraph (a).
0
B. In paragraph (b), removing the words ``has been selected by the 
Secretary to participate'' and adding, in their place, the word 
``participates''.
0
C. Revising paragraph (c).
    The revisions read as follows:

Sec.  685.100  The William D. Ford Federal Direct Loan Program.

    (a) Under the William D. Ford Federal Direct Loan (Direct Loan) 
Program (formerly known as the Federal Direct Student Loan Program), 
the Secretary makes loans to enable a student or parent to pay the 
costs of the student's attendance at a postsecondary school. This part 
governs the Federal Direct Stafford/Ford Loan Program, the Federal 
Direct Unsubsidized Stafford/Ford Loan Program, the Federal Direct PLUS 
Program, and the Federal Direct Consolidation Loan Program. The 
Secretary makes loans under the following program components:
    (1)(i) Federal Direct Stafford/Ford Loan Program (Direct Subsidized 
Loan Program), which provides loans to undergraduate, graduate, and 
professional students. Loans made under this program are referred to as 
Direct Subsidized Loans. Except as provided in paragraph (a)(1)(ii) of 
this section, the Secretary subsidizes the interest while the borrower 
is in an in-school, grace, or deferment period. Graduate and 
professional students are not eligible to receive Direct Subsidized 
Loans for any period of enrollment beginning on or after July 1, 2012.
    (ii) The Secretary does not subsidize the interest that accrues 
during the grace period on any Direct Subsidized Loan for which the 
first disbursement is made on or after July 1, 2012 and before July 1, 
2014.
    (2) Federal Direct Unsubsidized Stafford/Ford Loan Program (Direct 
Unsubsidized Loan Program), which provides loans to undergraduate, 
graduate and professional students. Loans made under this program are 
referred to as Direct Unsubsidized Loans. The borrower is responsible 
for the interest that accrues during any period.
    (3) Federal Direct PLUS Program (Direct PLUS Loan Program), which 
provides loans to parents of dependent students and to graduate or 
professional students. Loans made under this program are referred to as 
Direct PLUS Loans. The borrower is responsible for the interest that 
accrues during any period.
    (4) Federal Direct Consolidation Loan Program (Direct Consolidation 
Loan Program), which provides loans to borrowers to consolidate certain 
Federal educational loans. Loans made under this program are referred 
to as Direct Consolidation Loans.
* * * * *
    (c) The Secretary makes a Direct Consolidation Loan only to a 
borrower who is consolidating at least one loan made under the Direct 
Loan Program or the Federal Family Education Loan (FFEL) Program.
* * * * *
0
82. Section 685.101 is revised to read as follows:

Sec.  685.101  Participation in the Direct Loan Program.

    (a) Colleges, universities, graduate and professional schools, 
vocational schools, and proprietary schools may participate in the 
Direct Loan Program. Participation in the Direct Loan Program enables 
an eligible student or parent to obtain a loan to pay for the student's 
cost of attendance at the school.
    (b)(1) An eligible undergraduate student who is enrolled at a 
school participating in the Direct Loan Program may borrow under the 
Direct Subsidized Loan and Direct Unsubsidized Loan Programs.
    (2) An eligible graduate or professional student enrolled at a 
school participating in the Direct Loan Program may borrow under the 
Direct Subsidized Loan, Direct Unsubsidized Loan, and Direct PLUS Loan 
Programs, except that a graduate or professional student may not borrow 
under the Direct Subsidized Loan Program for any period of enrollment 
beginning on or after July 1, 2012.
    (3) An eligible parent of an eligible dependent student enrolled at 
a school participating in the Direct Loan Program may borrow under the 
Direct PLUS Loan Program.

(Authority: 20 U.S.C. 1087a et seq.)

0
83. Section 685.102 is amended by:
0
A. In paragraph (a)(1) introductory text, removing the words ``subpart 
A of''.
0
B. In paragraph (a)(1), removing the terms ``Academic Competitiveness 
Grant (ACG) Program'', ``Disburse'', ``Federal Direct Student Loan 
Program (Direct Loan Program)'', ``Leveraging Educational Assistance 
Partnership Program'', ``National Science and Mathematics Access to 
Retain Talent Grant (National SMART Grant) Program'', and ``State''.
0
C. In paragraph (a)(1), adding the terms ``Disbursement'' and ``William 
D. Ford Federal Direct Loan (Direct Loan) Program'' in alphabetical 
order.
0
D. In paragraph (a)(2), adding the terms ``Correspondence course'' and 
``State'' in alphabetical order.
0
E. In paragraph (a)(2), removing the term ``Program of study by 
correspondence''.
0
F. Removing paragraph (a)(3).

[[Page 45703]]

0
G. In paragraph (b), adding the definitions of ``Act'', ``Endorser'', 
``Federal Insured Student Loan Program'', ``Federal Stafford Loan 
Program'', ``Guaranty agency'', ``Holder'', ``Lender'', ``Nationwide 
consumer reporting agency'', ``Substantial gainful activity'', and 
``Totally and permanently disabled'', in alphabetical order.
0
H. In paragraph (b), removing the definitions of ``Alternative 
originator'', ``Consortium'', ``School origination option 1'', ``School 
origination option 2'', ``Servicer'', and ``Standard origination''.
0
I. In paragraph (b), in the definition of ``Estimated financial 
assistance'', revising paragraphs (1)(vi) and (2)(i).
0
J. In paragraph (b), in the heading of the definition of ``Federal 
Direct Consolidation Loan Program:'', adding the words ``(Direct 
Consolidation Loan Program)'' immediately before the punctuation ``:''.
0
K. In paragraph (b), in paragraph (4) of the definition of ``Federal 
Direct Consolidation Loan Program'', removing the words ``The term'' in 
the first sentence and adding, in their place, the words ``In the case 
of a Direct Consolidation Loan that entered repayment prior to July 1, 
2006, the term''.
0
L. In paragraph (b), in the heading of the definition of ``Federal 
Direct PLUS Program:'', adding the words ``(Direct PLUS Loan Program)'' 
immediately before the punctuation ``:''.
0
M. In paragraph (b), revising the definition of ``Federal Direct 
Stafford/Ford Loan Program''.
0
N. In paragraph (b), in the heading of the definition of ``Federal 
Direct Unsubsidized Stafford/Ford Loan Program:'', adding the words 
``(Direct Unsubsidized Loan Program)'' immediately before the 
punctuation ``:''.
0
O. In paragraph (b), revising the definition of ``Grace period''.
0
P. In paragraph (b), in the definition of ``Master Promissory Note 
(MPN)'', adding a new paragraph (4).
0
Q. In paragraph (b), revising the definition of ``Satisfactory 
repayment arrangement''.
    The revisions and additions read as follows:

Sec.  685.102  Definitions.

* * * * *
    (b) * * *
    Act: The Higher Education Act of 1965, as amended, 20 U.S.C. 1071 
et seq.
* * * * *
    Endorser: An individual who signs a promissory note and agrees to 
repay the loan in the event that the borrower does not.
    Estimated financial assistance: (1) * * *
    (vi) The estimated amount of other Federal student financial aid, 
including but not limited to a Federal Pell Grant, campus-based aid, 
and the gross amount (including fees) of subsidized and unsubsidized 
Federal Stafford Loans, Direct Subsidized and Unsubsidized Loans, and 
Federal PLUS or Direct PLUS Loans.
    (2) * * *
    (i) Those amounts used to replace the expected family contribution 
(EFC), including the amounts of any TEACH Grants, unsubsidized Federal 
Stafford Loans or Direct Unsubsidized Loans, Federal PLUS or Direct 
PLUS Loans, and non-federal non-need-based loans, including private, 
state-sponsored, and institutional loans. However, if the sum of the 
amounts received that are being used to replace the student's EFC 
exceed the EFC, the excess amount must be treated as estimated 
financial assistance;
* * * * *
    Federal Direct Stafford/Ford Loan Program (Direct Subsidized Loan 
Program): A loan program authorized by title IV, part D of the Act that 
provides loans to undergraduate, graduate, and professional students 
attending Direct Loan Program schools, and one of the components of the 
Direct Loan Program. The Secretary subsidizes the interest while the 
borrower is in an in-school, grace, or deferment period, except that 
the Secretary does not subsidize the interest that accrues during the 
grace period on a loan for which the first disbursement is made on or 
after July 1, 2012 and before July 1, 2014. Loans made under this 
program are referred to as Direct Subsidized Loans. Graduate and 
professional students are not eligible to receive Direct Subsidized 
Loans for any period of enrollment beginning on or after July 1, 2012.
* * * * *
    Federal Insured Student Loan Program: The loan program authorized 
by title IV, part B of the Act under which the Secretary directly 
insures lenders against losses.
    Federal Stafford Loan Program: The loan program authorized by title 
IV, part B of the Act which encouraged the making of subsidized and 
unsubsidized loans to undergraduate, graduate, and professional 
students and is one of the Federal Family Education Loan programs.
    Grace period: A six-month period that begins on the day after a 
Direct Subsidized Loan borrower, a Direct Unsubsidized Loan borrower, 
or, in some cases, a Direct Consolidation Loan borrower whose 
consolidation application was received before July 1, 2006, ceases to 
be enrolled as at least a half-time student at an eligible institution 
and ends on the day before the repayment period begins.
    Guaranty agency: A State or private nonprofit organization that has 
an agreement with the Secretary under which it will administer a loan 
guarantee program under the Act.
    Holder: The entity that owns a loan. For a FFEL Program loan, the 
term ``holder'' refers to an eligible lender owning a FFEL Program 
loan, including a Federal or State agency or an organization or 
corporation acting on behalf of such an agency and acting as a 
conservator, liquidator, or receiver of an eligible lender.
* * * * *
    Lender: As used in this part, the term ``lender'' has the meaning 
specified in section 435(d) of the Act for purposes of the FFEL 
Program.
* * * * *
    Master Promissory Note (MPN):
* * * * *
    (4) Unless the Secretary determines otherwise, a school may use a 
single MPN as the basis for all loans borrowed by a student or parent 
borrower for attendance at that school. If a school is not authorized 
by the Secretary for multi-year use of the MPN, a student or parent 
borrower must sign a new MPN for each academic year.
    Nationwide consumer reporting agency: A consumer reporting agency 
as defined in 15 U.S.C. 1681a(p).
* * * * *
    Satisfactory repayment arrangement: (1) For the purpose of 
regaining eligibility under section 428F(b) of the HEA, the making of 
six consecutive, voluntary, on-time, full monthly payments on a 
defaulted loan. A borrower may only obtain the benefit of this 
paragraph with respect to renewed eligibility once.
    (2) For the purpose of consolidating a defaulted loan under Sec.  
685.220(d)(1)(ii)(A)(3)--
    (i) The making of three consecutive, voluntary, on-time, full 
monthly payments on a defaulted loan prior to consolidation; or
    (ii) Agreeing to repay the Direct Consolidation Loan under one of 
the income-contingent repayment plans described in Sec.  685.209 or the 
income-based repayment plan described in Sec.  685.221.
    (3) For the purpose of paragraph (2)(i) of this definition, the 
required monthly payment amount may not be more than

[[Page 45704]]

is reasonable and affordable based on the borrower's total financial 
circumstances. ``On-time'' means a payment made within 20 days of the 
scheduled due date, and voluntary payments are payments made directly 
by the borrower and do not include payments obtained by Federal offset, 
garnishment, or income or asset execution.
    (4) A borrower has not used the one opportunity to renew 
eligibility for title IV assistance if the borrower makes six 
consecutive, on-time, voluntary, full monthly payments under an 
agreement to rehabilitate a defaulted loan, but does not receive 
additional title IV assistance prior to defaulting on that loan again.
    Substantial gainful activity: A level of work performed for pay or 
profit that involves doing significant physical or mental activities, 
or a combination of both.
    Totally and permanently disabled: The condition of an individual 
who--
    (1) Is unable to engage in any substantial gainful activity by 
reason of any medically determinable physical or mental impairment 
that--
    (i) Can be expected to result in death;
    (ii) Has lasted for a continuous period of not less than 60 months; 
or
    (iii) Can be expected to last for a continuous period of not less 
than 60 months; or
    (2) Has been determined by the Secretary of Veterans Affairs to be 
unemployable due to a service-connected disability.
* * * * *
0
84. Section 685.200, is amended by:
0
A. Revising paragraph (a)(1)(iv).
0
B. Revising paragraph (a)(1)(v).
0
C. Revising paragraph (b)(4).
0
D. In paragraph (c)(1)(vii)(C), adding the word ``paragraph'' 
immediately before the citation ``(c)(1)(vii)(A)''.
0
E. Adding a new paragraph (c)(1)(vii)(D).
0
F. Revising paragraph (d).
    The revisions and addition read as follows:

Sec.  685.200  Borrower eligibility.

    (a) * * *
    (1) * * *
    (iv) In the case of a borrower whose previous loan or TEACH Grant 
service obligation was discharged due to total and permanent 
disability, the student--
    (A) In the case of a borrower whose prior loan under title IV of 
the Act or TEACH Grant service obligation was discharged after a final 
determination of total and permanent disability, the borrower--
    (1) Obtains a certification from a physician that the borrower is 
able to engage in substantial gainful activity; and
    (2) Signs a statement acknowledging that neither the new Direct 
Loan the borrower receives nor any previously discharged loan on which 
the borrower is required to resume payment in accordance with paragraph 
(a)(1)(iv)(B) of this section can be discharged in the future on the 
basis of any impairment present when the new loan is made, unless that 
impairment substantially deteriorates;
    (B) In the case of a borrower who receives a new Direct Loan, other 
than a Direct Consolidation Loan, within three years of the date that 
any previous title IV loan or TEACH Grant service obligation was 
discharged due to a total and permanent disability in accordance with 
Sec.  685.213(b)(4)(iii), 34 CFR 674.61(b)(3)(v), 34 CFR 
682.402(c)(3)(iv), or 34 CFR 686.42(b) based on a discharge request 
received on or after July 1, 2010, the borrower resumes repayment on 
the previously discharged loan in accordance with Sec.  685.213(b)(7), 
34 CFR 674.61(b)(6), or 34 CFR 682.402(c)(6), or acknowledges that he 
or she is once again subject to the terms of the TEACH Grant agreement 
to serve before receiving the new loan; and
    (C) In the case of a borrower whose prior loan under title IV of 
the Act was conditionally discharged after an initial determination 
that the borrower was totally and permanently disabled based on a 
discharge request received prior to July 1, 2010--
    (1) The suspension of collection activity on the prior loan has 
been lifted;
    (2) The borrower complies with the requirement in paragraph 
(a)(1)(iv)(A)(1) of this section;
    (3) The borrower signs a statement acknowledging that neither the 
new Direct Loan the borrower receives nor the loan that has been 
conditionally discharged prior to a final determination of total and 
permanent disability can be discharged in the future on the basis of 
any impairment present when the borrower applied for a total and 
permanent disability discharge or when the new loan is made, unless 
that impairment substantially deteriorates; and
    (4) The borrower signs a statement acknowledging that the 
suspension of collection activity on the prior loan will be lifted.
    (v) In the case of a student who was enrolled in a program of study 
prior to July 1, 2012 and who seeks a loan but does not have a 
certificate of graduation from a school providing secondary education 
or the recognized equivalent of such a certificate, the student meets 
the requirements under 34 CFR 668.32(e)(2), (3), (4), or (5).
* * * * *
    (b) * * *
    (4) The student has received a determination of his or her annual 
loan maximum eligibility under the Direct Unsubsidized Loan Program 
and, for periods of enrollment beginning before July 1, 2012, the 
Direct Subsidized Loan Program; and
* * * * *
    (c) * * *
    (1) * * *
    (vii) * * *
    (D) For the purposes of paragraph (c)(1)(vii)(A)(3) of this 
section, the Secretary may determine that extenuating circumstances 
exist based on documentation that includes, 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.
* * * * *
    (d) Defaulted Perkins, FFEL, and Direct Loan program borrowers. 
Except as noted in Sec.  685.220(d)(1)(ii)(A)(3), in the case of a 
student or parent borrower who is currently in default on a Perkins, 
FFEL, or Direct Loan program loan, the borrower must make satisfactory 
repayment arrangements, as described in paragraph (1) of the definition 
of that term under Sec.  685.102(b), on the defaulted loan.
* * * * *
0
85. Section 685.201 is amended by:
0
A. Revising paragraph (a)(2).
0
B. Revising paragraph (b).
0
C. Revising paragraph (c)(1).
0
D. In paragraph (c)(2), removing the word ``Servicer'' and adding, in 
its place, the word ``Secretary''.
    The revisions read as follows:

Sec.  685.201  Obtaining a loan.

    (a) * * *
    (2) If the student is eligible for a Direct Subsidized Loan or a 
Direct Unsubsidized Loan, the school in which the student is enrolled 
must perform the following functions:
    (i) Create a loan origination record and transmit the record to the 
Secretary.
    (ii) Ensure that the loan is supported by a completed Master 
Promissory Note (MPN) and, if applicable, transmit the MPN to the 
Secretary.
    (iii) In accordance with 34 CFR 668.162, draw down funds or receive 
funds from the Secretary, and disburse the funds to the student.
    (b) Application for a Direct PLUS Loan. (1) For a parent to obtain 
a Direct

[[Page 45705]]

PLUS Loan, the parent must complete the Direct PLUS Loan MPN and the 
dependent student on whose behalf the parent is borrowing must complete 
a Free Application for Federal Student Aid and submit it in accordance 
with instructions in the application.
    (2) For a graduate or professional student to apply for a Direct 
PLUS Loan, the student must complete a Free Application for Federal 
Student Aid and submit it in accordance with instructions in the 
application. The graduate or professional student must also complete 
the Direct PLUS Loan MPN.
    (3) For either a parent or student PLUS borrower, as applicable, 
the school must complete its portion of the PLUS MPN and, if 
applicable, submit it to the Secretary. The Secretary makes a 
determination as to whether the parent or graduate or professional 
student has an adverse credit history. The school performs the 
functions described in paragraph (a)(2) of this section.
    (c) * * *
    (1) To obtain a Direct Consolidation Loan, the applicant must 
complete the application and promissory note and submit it to the 
Secretary. The application and promissory note sets forth the terms and 
conditions of the Direct Consolidation Loan and informs the applicant 
how to contact the Secretary. The Secretary answers questions regarding 
the process of applying for a Direct Consolidation Loan and provides 
information about the terms and conditions of both Direct Consolidation 
Loans and the types of loans that may be consolidated.
* * * * *
0
86. Section 685.202 is amended by:
0
A. Revising paragraph (a)(1)(iv).
0
B. In the introductory text of paragraph (a)(1)(v), removing the words 
``subsidized Stafford loan'' and adding, in their place, the words 
``Direct Subsidized Loan''.
0
C. In paragraph (a)(1)(v)(A), adding the words ``or on or after July 1, 
2013,'' immediately before the words ``the interest rate''.
0
D. Revising paragraph (b)(2).
    The revisions read as follows:

Sec.  685.202  Charges for which Direct Loan Program borrowers are 
responsible.

    (a) * * *
    (1) * * *
    (iv) Loans first disbursed on or after July 1, 2006. Except as 
provided in paragraph (a)(1)(v) of this section for Direct Subsidized 
Loans made to undergraduate students, the interest rate is 6.8 percent.
* * * * *
    (b) * * *
    (2) For a Direct Unsubsidized Loan, a Direct Unsubsidized 
Consolidation Loan that qualifies for a grace period under the 
regulations that were in effect for consolidation applications received 
before July 1, 2006, a Direct PLUS Loan, or for a Direct Subsidized 
Loan for which the first disbursement is made on or after July 1, 2012 
and before July 1, 2014, the Secretary may capitalize the unpaid 
interest that accrues on the loan when the borrower enters repayment.
* * * * *
0
87. Section 685.203 is amended by:
0
A. Revising the introductory text of paragraph (a)(1).
0
B. In paragraphs (a)(1)(i), (a)(1)(ii), and (a)(1)(iii), removing the 
words ``$2,625, or, for a loan disbursed on or after July 1, 2007, 
$3,500,'' and adding, in their place, the figure ``$3,500''.
0
C. Revising the introductory text of paragraph (a)(2).
0
D. In paragraphs (a)(2)(i) and (a)(2)(ii), removing the words ``$3,500, 
or, for a loan disbursed on or after July 1, 2007, $4,500,'' and 
adding, in their place, the figure ``$4,500''.
0
E. Revising the introductory text of paragraph (a)(3).
0
F. Revising paragraph (a)(5).
0
G. Revising the introductory text of paragraph (a)(6).
0
H. Revising paragraph (a)(7).
0
I. Revising paragraph (b).
0
J. In paragraph (c)(1)(i), removing the words ``Federal Direct 
Unsubsidized Loan Program'' and adding, in their place, the words 
``Direct Unsubsidized Loan Program''.
0
K. Revising paragraph (c)(1)(ii).
0
L. In paragraph (c)(1)(iii), in the last sentence, removing the words 
``Federal PLUS Loan or''.
0
M. Revising the introductory text of paragraph (c)(2).
0
N. In paragraphs (c)(2)(i)(A), (c)(2)(i)(B), (c)(2)(i)(C), 
(c)(2)(ii)(A), and (c)(2)(ii)(B), removing the words ``$4,000, or, for 
a loan first disbursed on or after July 1, 2008, $6,000,'' and adding, 
in their place, the figure ``$6,000''.
0
O. In paragraphs (c)(2)(iii)(A) and (c)(2)(iii)(B), removing the words 
``$5,000, or, for a loan first disbursed on or after July 1, 2008, 
$7,000,'' and adding, in their place, the figure ``$7,000''.
0
P. In paragraph (c)(2)(v), removing the words ``$10,000, or, for a loan 
disbursed on or after July 1, 2007,''.
0
Q. In paragraph (c)(2)(vi)(A), removing the words ``$4,000, or, for a 
loan first disbursed on or after July 1, 2008, $6,000,'' and adding, in 
their place, the figure ``$6,000''.
0
R. In paragraph (c)(2)(vi)(B), removing the words ``$5,000, or, for a 
loan disbursed on or after July 1, 2007, $7,000,'' and adding, in their 
place, the figure ``$7,000''.
0
S. In paragraph (c)(2)(vii), removing the words ``$5,000, or, for a 
loan disbursed on or after July 1, 2007,''.
0
T. Revising the introductory text of paragraph (d).
0
U. Revising paragraph (e).
0
V. In paragraph (i)(1), adding the word ``Subsidized'' immediately 
before the words ``Federal Stafford Loans''.
0
W. In paragraph (i)(2), removing the words ``Federal Unsubsidized 
Stafford Loans'' and adding, in their place, the words ``Unsubsidized 
Federal Stafford Loans''.
    The revisions read as follows:

Sec.  685.203  Loan limits.

    (a) * * *
    (1) In the case of an undergraduate student who has not 
successfully completed the first year of a program of undergraduate 
education, the total amount the student may borrow for any academic 
year of study under the Direct Subsidized Loan Program may not exceed 
the following:
* * * * *
    (2) In the case of an undergraduate student who has successfully 
completed the first year of an undergraduate program but has not 
successfully completed the second year of an undergraduate program, the 
total amount the student may borrow for any academic year of study 
under the Direct Subsidized Loan Program may not exceed the following:
* * * * *
    (3) In the case of an undergraduate student who has successfully 
completed the first and second years of a program of study of 
undergraduate education but has not successfully completed the 
remainder of the program, the total amount the student may borrow for 
any academic year of study under the Direct Subsidized Loan Program may 
not exceed the following:
* * * * *
    (5) In the case of a graduate or professional student for periods 
of enrollment beginning before July 1, 2012, the total amount the 
student may borrow for any academic year of study under the Direct 
Subsidized Loan Program may not exceed $8,500.
    (6) In the case of a student enrolled for no longer than one 
consecutive 12-month period in a course of study necessary for 
enrollment in a program leading to a degree or a certificate, the total 
amount the student may borrow for any academic year of study under the 
Direct Subsidized Loan Program may not exceed the following:
* * * * *

[[Page 45706]]

    (7) In the case of a student who has obtained a baccalaureate 
degree and is enrolled or accepted for enrollment in coursework 
necessary for a professional credential or certification from a State 
that is required for employment as a teacher in an elementary or 
secondary school in that State, the total amount the student may borrow 
for any academic year of study under the Direct Subsidized Loan Program 
may not exceed $5,500.
* * * * *
    (b) Direct Unsubsidized Loans. (1) In the case of a dependent 
undergraduate student, except as provided in paragraph (c)(3) of this 
section, the total amount a student may borrow for any academic year of 
study under the Direct Unsubsidized Loan Program is the same as the 
amount determined under paragraph (a) of this section, less any amount 
received under the Direct Subsidized Loan Program, plus--
    (i) $2,000 for a program of study of at least a full academic year 
in length.
    (ii) For a program of study that is one academic year or more in 
length with less than a full academic year remaining, the amount that 
is the same ratio to $2,000 as the--

Number of semester, trimester, quarter, or clock hours enrolled
-----------------------------------------------------------------------
Number of semester, trimester, quarter or clock hours in academic year

    (iii) For a program of study that is less than a full academic year 
in length, the amount that is the same ratio to $2,000 as the lesser of 
the--

Number of semester, trimester, quarter, or clock hours enrolled
-----------------------------------------------------------------------
Number of semester, trimester, quarter or clock hours in academic year 
or
Number of weeks enrolled

-----------------------------------------------------------------------
Number of weeks in academic year

    (2)(i) In the case of an independent undergraduate student or 
certain dependent undergraduate students under the conditions specified 
in paragraph (c)(1)(ii) of this section, except as provided in 
paragraph (c)(3) of this section, the total amount the student may 
borrow for any period of enrollment under the Direct Unsubsidized Loan 
Program may not exceed the amounts determined under paragraph (a) of 
this section less any amount received under the Direct Subsidized Loan 
Program in combination with the amounts determined under paragraph (c) 
of this section.
    (ii) In the case of a graduate or professional student for a period 
of enrollment beginning before July 1, 2012, the total amount the 
student may borrow for any academic year of study under the Direct 
Unsubsidized Loan Program may not exceed the amount determined under 
paragraph (a)(5) of this section, less any amount received under the 
Direct Subsidized Loan Program.
    (iii) In the case of a graduate or professional student for a 
period of enrollment beginning on or after July 1, 2012, the total 
amount the student may borrow for any academic year of study under the 
Direct Unsubsidized Loan Program may not exceed $8,500.
    (c) * * *
    (1) * * *
    (ii) In order for a dependent undergraduate student to receive this 
additional loan amount, the financial aid administrator must determine 
that the student's parent likely will be precluded by exceptional 
circumstances from borrowing under the Direct PLUS Loan Program and the 
student's family is otherwise unable to provide the student's expected 
family contribution. The financial aid administrator must base the 
determination on a review of the family financial information provided 
by the student and consideration of the student's debt burden and must 
document the determination in the school's file.
* * * * *
    (2) The additional amount that a student described in paragraph 
(c)(1)(i) of this section may borrow under the Direct Unsubsidized Loan 
Program for any academic year of study may not exceed the following:
* * * * *
    (d) Aggregate limits for subsidized loans. The aggregate unpaid 
principal amount of all Direct Subsidized Loans and Subsidized Federal 
Stafford Loans made to a student but excluding the amount of 
capitalized interest may not exceed the following:
* * * * *
    (e) Aggregate limits for unsubsidized loans. The total amount of 
Direct Unsubsidized Loans, Unsubsidized Federal Stafford Loans, and 
Federal SLS Loans, excluding the amount of capitalized interest, may 
not exceed the following:
    (1) For a dependent undergraduate student, $31,000 minus any Direct 
Subsidized Loan and Subsidized Federal Stafford Loan amounts, unless 
the student qualifies under paragraph (c) of this section for 
additional eligibility or qualified for that additional eligibility 
under the Federal SLS Program.
    (2) For an independent undergraduate or a dependent undergraduate 
who qualifies for additional eligibility under paragraph (c) of this 
section or qualified for this additional eligibility under the Federal 
SLS Program, $57,500 minus any Direct Subsidized Loan and Subsidized 
Federal Stafford Loan amounts.
    (3) For a graduate or professional student, $138,500, including any 
loans for undergraduate study, minus any Direct Subsidized Loan, 
Subsidized Federal Stafford Loan, and Federal SLS Program loan amounts.
* * * * *
0
88. Section 685.204 is revised to read as follows:

Sec.  685.204  Deferment.

    (a) General. (1) A Direct Subsidized Loan or Direct Subsidized 
Consolidation Loan borrower who meets the requirements described in 
paragraphs (b), (d), (e), (f), (g), (h), (i), and (j) of this section 
is eligible for a deferment during which periodic installments of 
principal and interest need not be paid.
    (2) A Direct Unsubsidized Loan, Direct Unsubsidized Consolidation 
Loan, Direct PLUS Loan, or Direct PLUS Consolidation Loan borrower who 
meets the requirements described in paragraphs (b) through (j) of this 
section is eligible for a deferment during which periodic installments 
of principal need not be paid but interest does accrue and is 
capitalized or paid by the borrower. At or before the time a deferment 
is granted, the Secretary provides information, including an example, 
to assist the borrower in understanding the impact of capitalization of 
accrued, unpaid interest on the borrower's loan principal and on the 
total amount of interest to be paid over the life of the loan.
    (3) A borrower whose loan is in default is not eligible for a 
deferment, unless the borrower has made payment arrangements 
satisfactory to the Secretary.
    (4)(i) To receive a deferment, except as provided for in-school 
deferments under paragraphs (b)(2)(ii) through (iv) of this section, 
the borrower must request the deferment and, except as provided in 
paragraph (a)(5)(i) of this section, provide the Secretary with all 
information and documents required to establish eligibility for the 
deferment.
    (ii) In the case of a military service deferment under paragraph 
(h) of this section, a borrower's representative may request the 
deferment and provide the required information and documents on behalf 
of the borrower. If the Secretary grants a military service deferment 
based on a request from a borrower's

[[Page 45707]]

representative, the Secretary notifies the borrower that the deferment 
has been granted and that the borrower has the option to cancel the 
deferment and continue to make payments on the loan. The Secretary may 
also notify the borrower's representative of the outcome of the 
deferment request.
    (5)(i) After receiving a borrower's written or verbal request for a 
deferment, the Secretary may grant a graduate fellowship deferment 
under paragraph (d), a rehabilitation training deferment under 
paragraph (e), an unemployment deferment under paragraph (f), an 
economic hardship deferment under paragraph (g), a military service 
deferment under paragraph (h), or a post-active duty student deferment 
under paragraph (i) of this section if the Secretary confirms that the 
borrower has received a deferment on a FFEL Program loan for the same 
reason and during the same time period.
    (ii) The Secretary will grant a deferment based on the information 
obtained under paragraph (a)(5)(i) of this section when determining a 
borrower's eligibility for a deferment, unless the Secretary, as of the 
date of the determination, has information indicating that the borrower 
does not qualify for the deferment. The Secretary will resolve any 
discrepant information before granting a deferment under paragraph 
(a)(5)(i) of this section.
    (iii) If the Secretary grants a deferment under paragraph (a)(5)(i) 
of this section, the Secretary notifies the borrower that the deferment 
has been granted and that the borrower has the option to cancel the 
deferment and continue to make payments on the loan.
    (b) In-school deferment. (1) A Direct Loan borrower is eligible for 
a deferment during any period during which--
    (i) The borrower is carrying at least one-half the normal full-time 
work load for the course of study that the borrower is pursuing, as 
determined by the eligible school the borrower is attending; and
    (ii) The borrower is not serving in a medical internship or 
residency program, except for a residency program in dentistry.
    (2) For the purpose of paragraph (b)(1) of this section, the 
Secretary processes a deferment when--
    (i) The borrower submits a request to the Secretary along with 
documentation verifying the borrower's eligibility;
    (ii) The Secretary receives information from the borrower's school 
indicating that the borrower is eligible to receive a new loan;
    (iii) The Secretary receives student status information from the 
borrower's school, either directly or indirectly, indicating that the 
borrower is enrolled on at least a half-time basis; or
    (iv) The Secretary confirms a borrower's half-time enrollment 
status through the use of the National Student Loan Data System if 
requested to do so by the school the borrower is attending.
    (3)(i) Upon notification by the Secretary that a deferment has been 
granted based on paragraph (b)(2)(ii), (iii), or (iv) of this section, 
the borrower has the option to cancel the deferment and continue to 
make payments on the loan.
    (ii) If the borrower elects to cancel the deferment and continue to 
make payments on the loan, the borrower has the option to make the 
principal and interest payments that were deferred. If the borrower 
does not make the payments, the Secretary applies a deferment for the 
period in which payments were not made and capitalizes the interest.
    (c) In-school deferments for Direct PLUS Loan borrowers with loans 
first disbursed on or after July 1, 2008. (1)(i) A student Direct PLUS 
Loan borrower is eligible for a deferment on a Direct PLUS Loan first 
disbursed on or after July 1, 2008 during the six-month period that 
begins on the day after the student ceases to be enrolled on at least a 
half-time basis at an eligible institution.
    (ii) If the Secretary grants an in-school deferment to a student 
Direct PLUS Loan borrower in accordance with Sec.  685.204(b)(2)(ii), 
(iii), or (iv), the deferment period for a Direct PLUS loan first 
disbursed on or after July 1, 2008 includes the six-month post-
enrollment period described in paragraph (c)(1)(i) of this section.
    (2) A parent Direct PLUS Loan borrower is eligible for a deferment 
on a Direct PLUS Loan first disbursed on or after July 1, 2008--
    (i) Upon the request of the borrower, during the period when the 
student on whose behalf the loan was obtained is enrolled at an 
eligible institution on at least a half-time basis; and
    (ii) Upon the request of the borrower, during the six-month period 
that begins on the later of the day after the student on whose behalf 
the loan was obtained ceases to be enrolled on at least a half-time 
basis or, if the parent borrower is also a student, the day after the 
parent borrower ceases to be enrolled on at least a half-time basis.
    (d) Graduate fellowship deferment. (1) A Direct Loan borrower is 
eligible for a deferment during any period in which an authorized 
official of the borrower's graduate fellowship program certifies that 
the borrower is pursuing a course of study pursuant to an eligible 
graduate fellowship program in accordance with paragraph (d)(2) of this 
section.
    (2)(i) To qualify for a deferment under paragraph (d)(1) of this 
section, a borrower must--
    (A) Hold at least a baccalaureate degree conferred by an 
institution of higher education;
    (B) Have been accepted or recommended by an institution of higher 
education for acceptance on a full-time basis into an eligible graduate 
fellowship program, as defined in paragraph (d)(2)(ii) of this section; 
and
    (C) Not be serving in a medical internship or residency program, 
except for a residency program in dentistry.
    (ii) An eligible graduate fellowship program is a fellowship 
program that--
    (A) Provides sufficient financial support to graduate fellows to 
allow for full-time study for at least six months;
    (B) Requires a written statement from each applicant explaining the 
applicant's objectives before the award of that financial support;
    (C) Requires a graduate fellow to submit periodic reports, 
projects, or evidence of the fellow's progress; and
    (D) In the case of a course of study at a foreign university, 
accepts the course of study for completion of the fellowship program.
    (e) Rehabilitation training program deferment. (1) A Direct Loan 
borrower is eligible for a deferment during any period in which an 
authorized official of the borrower's rehabilitation training program 
certifies that the borrower is pursuing an eligible rehabilitation 
training program for individuals with disabilities in accordance with 
paragraph (e)(2) of this section.
    (2) For purposes of paragraph (e)(1) of this section, an eligible 
rehabilitation training program for disabled individuals is a program 
that--
    (i) Is licensed, approved, certified, or otherwise recognized as 
providing rehabilitation training to disabled individuals by--
    (A) A State agency with responsibility for vocational 
rehabilitation programs;
    (B) A State agency with responsibility for drug abuse treatment 
programs;
    (C) A State agency with responsibility for mental health services 
programs;
    (D) A State agency with responsibility for alcohol abuse treatment 
programs; or
    (E) The Department of Veterans Affairs; and
    (ii) Provides or will provide the borrower with rehabilitation 
services under a written plan that--
    (A) Is individualized to meet the borrower's needs;

[[Page 45708]]

    (B) Specifies the date on which the services to the borrower are 
expected to end; and
    (C) Is structured in a way that requires a substantial commitment 
by the borrower to his or her rehabilitation. The Secretary considers a 
substantial commitment by the borrower to be a commitment of time and 
effort that normally would prevent an individual from engaging in full-
time employment, either because of the number of hours that must be 
devoted to rehabilitation or because of the nature of the 
rehabilitation. For the purpose of this paragraph, full-time employment 
involves at least 30 hours of work per week and is expected to last at 
least three months.
    (f) Unemployment deferment. (1) A Direct Loan borrower is eligible 
for a deferment during periods that, collectively, do not exceed three 
years in which the borrower is seeking and unable to find full-time 
employment.
    (2) A borrower qualifies for an unemployment deferment by--
    (i) Providing evidence of eligibility for unemployment benefits to 
the Secretary; or
    (ii) Providing to the Secretary a written certification, or an 
equivalent as approved by the Secretary, that--
    (A) The borrower has registered with a public or private employment 
agency, if one is available to the borrower within a 50-mile radius of 
the borrower's current address; and
    (B) For all requests beyond the initial request, the borrower has 
made at least six diligent attempts during the preceding six-month 
period to secure full-time employment.
    (3) For purposes of obtaining an unemployment deferment under 
paragraph (f)(2)(ii) of this section, the following rules apply:
    (i) A borrower may qualify for an unemployment deferment whether or 
not the borrower has been previously employed.
    (ii) An unemployment deferment is not justified if the borrower 
refuses to seek or accept employment in kinds of positions or at salary 
and responsibility levels for which the borrower feels overqualified by 
virtue of education or previous experience.
    (iii) Full-time employment involves at least 30 hours of work a 
week and is expected to last at least 3 months.
    (iv) The initial period of unemployment deferment may be granted 
for a period of unemployment beginning up to six months before the date 
the Secretary receives the borrower's request, and may be granted for 
up to six months after that date.
    (4) The Secretary does not grant an unemployment deferment beyond 
the date that is six months after the date the borrower provides 
evidence of the borrower's eligibility for unemployment insurance 
benefits under paragraph (f)(2)(i) of this section or the date the 
borrower provides the written certification, or an approved equivalent, 
under paragraph (f)(2)(ii) of this section.
    (g) Economic hardship deferment. (1)(i) A Direct Loan borrower is 
eligible for a deferment during periods that, collectively, do not 
exceed three years in which the borrower has experienced or will 
experience an economic hardship in accordance with paragraph (g)(2) of 
this section.
    (ii) An economic hardship deferment is granted for periods of up to 
one year at a time, except that a borrower who receives a deferment 
under paragraph (g)(2)(iv) of this section may receive an economic 
hardship deferment for the lesser of the borrower's full term of 
service in the Peace Corps or the borrower's remaining period of 
economic hardship deferment eligibility under the 3-year maximum.
    (2) A borrower qualifies for an economic hardship deferment if the 
borrower--
    (i) Has been granted an economic hardship deferment under either 
the FFEL or the Federal Perkins Loan programs for the period of time 
for which the borrower has requested an economic hardship deferment for 
his or her Direct Loan;
    (ii) Is receiving payment under a Federal or State public 
assistance program, such as Aid to Families with Dependent Children, 
Supplemental Security Income, Food Stamps, or State general public 
assistance;
    (iii) Is working full-time (as defined in paragraph (g)(3)(iii) of 
this section) and has a monthly income (as defined in paragraph 
(g)(3)(iv) of this section) 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 150 percent of the poverty guideline 
applicable to the borrower's family size (as defined in paragraph 
(g)(3)(v) of this section) as published annually by the Department of 
Health and Human Services pursuant to 42 U.S.C. 9902(2). If a borrower 
is not a resident of a State identified in the poverty guidelines, the 
poverty guideline to be used for the borrower is the poverty guideline 
(for the relevant family size) used for the 48 contiguous States; or
    (iv) Is serving as a volunteer in the Peace Corps.
    (3) The following rules apply to a deferment granted under 
paragraph (g)(2)(iii) of this section:
    (i) For an initial period of deferment, the Secretary requires the 
borrower to submit evidence showing the amount of the borrower's 
monthly income.
    (ii) To qualify for a subsequent period of deferment that begins 
less than one year after the end of a period of deferment under 
paragraph (g)(2)(iii) of this section, the Secretary requires the 
borrower to submit evidence showing the amount of the borrower's 
monthly income or a copy of the borrower's most recently filed Federal 
income tax return.
    (iii) A borrower is considered to be working full-time if the 
borrower is expected to be employed for at least three consecutive 
months at 30 hours per week.
    (iv) 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.
    (v) Family size means the number that is determined by counting the 
borrower, the borrower's spouse, and the borrower's children, including 
unborn children who will be born during the period covered by the 
deferment, if the children receive more than half their support from 
the borrower. A borrower's family size includes other individuals if, 
at the time the borrower requests the economic hardship deferment, the 
other individuals--
    (A) Live with the borrower; and
    (B) Receive more than half their support from the borrower and will 
continue to receive this support from the borrower for the year the 
borrower certifies family size. Support includes money, gifts, loans, 
housing, food, clothes, car, medical and dental care, and payment of 
college costs.
    (h) Military service deferment. (1) A Direct Loan borrower is 
eligible for a deferment during any period in which the borrower is--
    (i) Serving on active duty during a war or other military operation 
or national emergency, as defined in paragraph (h)(5) of this section; 
or
    (ii) Performing qualifying National Guard duty during a war or 
other military operation or national emergency, as defined in paragraph 
(h)(5) of this section.
    (2) For a borrower whose active duty service includes October 1, 
2007, or begins on or after that date, the deferment period ends 180 
days after the demobilization date for each period of the service 
described in paragraphs (h)(1)(i) and (h)(1)(ii) of this section.

[[Page 45709]]

    (3) Without supporting documentation, the military service 
deferment will be granted to an otherwise eligible borrower for a 
period not to exceed the initial 12 months from the date the qualifying 
eligible service began based on a request from the borrower or the 
borrower's representative.
    (4) The provisions of paragraph (h) of this section do not 
authorize the refunding of any payments made by or on behalf of a 
borrower during a period for which the borrower qualified for a 
military service deferment.
    (5) As used in paragraph (h) of this section--
    (i) Serving on active duty during a war or other military operation 
or national emergency means service by an individual who is--
    (A) A Reserve of an Armed Force ordered to active duty under 10 
U.S.C. 12301(a), 12301(g), 12302, 12304, or 12306;
    (B) A retired member of an Armed Force ordered to active duty under 
10 U.S.C. 688 for service in connection with a war or other military 
operation or national emergency, regardless of the location at which 
such active duty service is performed; or
    (C) Any other member of an Armed Force on active duty in connection 
with such emergency or subsequent actions or conditions who has been 
assigned to a duty station at a location other than the location at 
which the member is normally assigned;
    (ii) Qualifying National Guard duty during a war or other operation 
or national emergency means service as a member of the National Guard 
on full-time National Guard duty, as defined in 10 U.S.C. 101(d)(5) 
under a call to active service authorized by the President or the 
Secretary of Defense for a period of more than 30 consecutive days 
under 32 U.S.C. 502(f) in connection with a war, other military 
operation, or national emergency declared by the President and 
supported by Federal funds;
    (iii) Active duty means active duty as defined in 10 U.S.C. 
101(d)(1) except that it does not include active duty for training or 
attendance at a service school;
    (iv) Military operation means a contingency operation as defined in 
10 U.S.C. 101(a)(13); and
    (v) National emergency means the national emergency by reason of 
certain terrorist attacks declared by the President on September 14, 
2001, or subsequent national emergencies declared by the President by 
reason of terrorist attacks.
    (i) Post-active duty student deferment. (1) A Direct Loan borrower 
is eligible for a deferment for 13 months following the conclusion of 
the borrower's active duty military service and any applicable grace 
period if--
    (i) The borrower is a member of the National Guard or other reserve 
component of the Armed Forces of the United States or a member of such 
forces in retired status; and
    (ii) The borrower was enrolled on at least a half-time basis in a 
program of instruction at an eligible institution at the time, or 
within six months prior to the time, the borrower was called to active 
duty.
    (2) As used in paragraph (i)(1) of this section, ``active duty'' 
means active duty as defined in 10 U.S.C. 101(d)(1) for at least a 30-
day period, except that--
    (i) Active duty includes active State duty for members of the 
National Guard under which a Governor activates National Guard 
personnel based on State statute or policy and the activities of the 
National Guard are paid for with State funds;
    (ii) Active duty includes full-time National Guard duty under which 
a Governor is authorized, with the approval of the President or the 
U.S. Secretary of Defense, to order a member to State active duty and 
the activities of the National Guard are paid for with Federal funds;
    (iii) Active duty does not include active duty for training or 
attendance at a service school; and
    (iv) Active duty does not include employment in a full-time, 
permanent position in the National Guard unless the borrower employed 
in such a position is reassigned to active duty under paragraph 
(i)(2)(i) of this section or full-time National Guard duty under 
paragraph (i)(2)(ii) of this section.
    (3) If the borrower returns to enrolled student status on at least 
a half-time basis during the grace period or the 13-month deferment 
period, the deferment expires at the time the borrower returns to 
enrolled student status on at least a half-time basis.
    (4) If a borrower qualifies for both a military service deferment 
and a post-active duty student deferment, the 180-day post-
demobilization military service deferment period and the 13-month post-
active duty student deferment period apply concurrently.
    (j) Additional deferments for Direct Loan borrowers with FFEL 
Program loans made before July 1, 1993. If, at the time of application 
for a borrower's first Direct Loan, a borrower has an outstanding 
balance of principal or interest owing on any FFEL Program loan that 
was made, insured, or guaranteed prior to July 1, 1993, the borrower is 
eligible for a deferment during--
    (1) The periods described in paragraphs (b) through (i) of this 
section; and
    (2) The periods described in 34 CFR 682.210(b), including those 
periods that apply to a ``new borrower'' as that term is defined in 34 
CFR 682.210(b)(7). (Approved by the Office of Management and Budget 
under control number 1845-0021)

(Authority: 20 U.S.C. 1087a et seq.)

0
89. Section 685.205 is amended by:
0
A. In paragraph (a)(4), removing the word ``or'' that appears after the 
punctuation ``;''.
0
B. Revising paragraph (a)(5).
0
C. Adding new paragraphs (a)(8) and (a)(9).
0
D. In paragraph (b)(2), removing the words ``authorized deferment 
period'' and adding, in their place, the words ``authorized deferment 
or forbearance period''.
    The additions read as follows:

Sec.  685.205  Forbearance.

    (a) * * *
    (5)(i) The borrower is performing the type of service that would 
qualify the borrower for loan forgiveness under the requirements of the 
teacher loan forgiveness program in Sec.  685.217.
    (ii) Before a forbearance is granted under Sec.  685.205(a)(5)(i), 
the borrower must--
    (A) Submit documentation for the period of the annual forbearance 
request showing the beginning and ending dates that the borrower is 
expected to perform, for that year, the type of service described in 
Sec.  685.217(c); and
    (B) Certify the borrower's intent to satisfy the requirements of 
Sec.  685.217(c).
    (iii) The Secretary grants forbearance under paragraph (a)(5) of 
this section only if the Secretary believes, at the time of the 
borrower's annual request, that the expected forgiveness amount under 
Sec.  685.217(d) will satisfy the anticipated remaining outstanding 
balance on the borrower's loan at the time of the expected forgiveness;
* * * * *
    (8)(i) The Secretary may grant a forbearance to permit a borrower 
or endorser to resume honoring the agreement to repay the debt after 
default. The terms of the forbearance agreement in this situation must 
include a new agreement to repay the debt signed by the borrower or 
endorser or a written or oral affirmation of the borrower's or 
endorser's obligation to repay the debt.
    (ii) If the forbearance is based on the borrower's or endorser's 
oral affirmation

[[Page 45710]]

of the obligation to repay the debt, the forbearance period is limited 
to 120 days, such a forbearance is not granted consecutively, and the 
Secretary will--
    (A) Orally review with the borrower the terms and conditions of the 
forbearance, including the consequences of interest capitalization, and 
other repayment options available to the borrower;
    (B) Send a notice to the borrower or endorser that confirms the 
terms of the forbearance and the borrower's or endorser's affirmation 
of the obligation to repay the debt; and
    (C) Retain a record of the terms of the forbearance and affirmation 
in the borrower's or endorser's file.
    (iii) For purposes of this section, an ``affirmation'' means an 
acknowledgement of the loan by the borrower or endorser in a legally 
binding manner. The form of the affirmation may include, but is not 
limited to the borrower's or endorser's--
    (A) New signed repayment agreement or schedule, or another form of 
signed agreement to repay the debt;
    (B) Oral acknowledgement and agreement to repay the debt documented 
by the Secretary in the borrower's or endorser's file and confirmed by 
the Secretary in a notice to the borrower; or
    (C) A payment made on the loan by the borrower or endorser.
    (9)(i) The borrower is performing the type of service that would 
qualify the borrower for a partial repayment of his or her loan under 
the Student Loan Repayment Programs administered by the Department of 
Defense under 10 U.S.C. 2171, 2173, 2174, or any other student loan 
repayment programs administered by the Department of Defense.
    (ii) To receive a forbearance under this paragraph, the borrower 
must submit documentation showing the time period during which the 
Department of Defense considers the borrower to be eligible for a 
partial repayment of his or her loan under a student loan repayment 
program.
* * * * *

Sec.  685.206  [Amended]

0
90. Section 685.206 is amended by:
0
A. In the introductory text of paragraph (a), removing the word 
``shall'' and adding, in its place, the word ``must''.
0
B. In paragraph (b)(1), removing the word ``shall'' and adding, in its 
place, the word ``must''.
0
C. In paragraph (b)(2), removing the word ``shall'' and adding, in its 
place, the word ``must''.
0
D. In paragraph (c)(1)(iv), removing the words ``Credit bureau'' and 
adding, in their place, the words ``Consumer reporting agency''.
0
E. In paragraph (c)(2)(iii), removing the words ``credit bureaus'' and 
adding, in their place, the words ``consumer reporting agencies''.
0
91. Section 685.207 is amended by:
0
A. Revising paragraph (a)(2).
0
B. Adding a new paragraph (a)(3).
0
C. In paragraph (b)(1)(ii), removing the citation ``Sec.  685.204'' and 
adding, in its place, the citation ''Sec.  685.204(b)''.
0
D. Revising paragraph (b)(3).
    The revisions and addition read as follows:

Sec.  685.207  Obligation to repay.

    (a) * * *
    (2) The borrower's repayment of a Direct Loan may also be subject 
to the deferment provisions in Sec.  685.204, the forbearance 
provisions in Sec.  685.205, the discharge provisions in Sec.  685.212, 
and the loan forgiveness provisions in Sec. Sec.  685.217 and 685.219.
    (3) A borrower's first payment on a Direct Loan is due within 60 
days of the beginning date of the repayment period as determined in 
accordance with paragraph (b), (c), (d), or (e) of this section.
    (b) * * *
    (3)(i) A borrower is not obligated to pay interest on a Direct 
Subsidized Loan during periods when the borrower is enrolled at an 
eligible school on at least a half-time basis unless the borrower is 
required to make payments on the loan during those periods under 
paragraph (b)(1) of this section.
    (ii) Except as provided in paragraph (b)(3)(iii) of this section, a 
borrower is not obligated to pay interest on a Direct Subsidized Loan 
during grace periods.
    (iii) In the case of a Direct Subsidized Loan for which the first 
disbursement is made on or after July 1, 2012 and before July 1, 2014, 
a borrower is responsible for the interest that accrues during the 
grace period.
* * * * *

Sec.  685.208  [Amended]

0
92. Section 685.208 is amended by:
0
A. In paragraph (a)(5), removing the words ``income contingent'' and 
adding, in their place, the words ``income-contingent''.
0
B. In paragraph (j)(1), removing the word ``then'' and adding, in its 
place, the word ``than''.
0
C. In paragraph (m)(1), adding the words ``or, for a new borrower as of 
July 1, 2014, as defined in Sec.  685.221(a)(4), 10 percent'' 
immediately after the words ``15 percent''.
0
93. Section 685.210 is amended by:
0
A. Revising paragraph (a)(2).
0
B. Revising the introductory text of paragraph (b)(1).
0
C. Revising paragraph (b)(1)(i).
0
D. In paragraph (b)(2)(i), removing the words ``income contingent'' and 
adding, in their place, the words ``income-contingent''.
    The revisions read as follows:

Sec.  685.210  Choice of repayment plan.

    (a) * * *
    (2) If a borrower does not select a repayment plan, the Secretary 
designates the standard repayment plan described in Sec.  685.208(b) or 
(c) for the borrower, as applicable.
    (b) * * *
    (1) A borrower may change repayment plans at any time after the 
loan has entered repayment by notifying the Secretary. However, a 
borrower who is repaying a defaulted loan under an income-contingent 
repayment plan or the income-based repayment plan in accordance with 
Sec.  685.211(d)(3)(ii), or who is repaying a Direct Consolidation Loan 
under the income-contingent repayment plan or the income-based 
repayment plan in accordance with Sec.  685.220(d)(1)(ii)(A)(3) may not 
change to another repayment plan unless--
    (i) The borrower was required to and did make a payment under the 
income-contingent repayment plan or income-based repayment plan in each 
of the prior three months; or
* * * * *
0
94. Section 685.211 is amended by:
0
A. In paragraph (d)(3)(i), removing the words ``national credit 
bureaus'' and adding, in their place, the words ``nationwide consumer 
reporting agencies''.
0
B. In paragraph (d)(3)(ii), removing the words ``income contingent'' 
and adding, in their place, the words ``income-contingent''.
0
C. Revising paragraph (f).
    The revision reads as follows:

Sec.  685.211  Miscellaneous repayment provisions.

* * * * *
    (f) Rehabilitation of defaulted loans. (1) A defaulted Direct Loan, 
except for a loan on which a judgment has been obtained, is 
rehabilitated if the borrower makes 9 voluntary, reasonable and 
affordable monthly payments within 20 days of the due date during 10 
consecutive months. The Secretary determines the amount of a borrower's 
reasonable and affordable payment on the basis of a borrower's total 
financial circumstances.
    (i) For the purposes of this section, the borrower's reasonable and 
affordable payment amount, as determined by the

[[Page 45711]]

Secretary, is based solely on information provided on a form approved 
by the Secretary and, if requested, supporting documentation from the 
borrower and other sources, and considers--
    (A) The borrower's, and if applicable, the spouse's current 
disposable income, including public assistance payments, and other 
income received by the borrower and the spouse, such as welfare 
benefits, Social Security benefits, Supplemental Security Income, and 
workers' compensation. Spousal income is not considered if the spouse 
does not contribute to the borrower's household income;
    (B) Family size as defined in Sec.  685.221(a)(3); and
    (C) Reasonable and necessary expenses, which include--
    (1) Food;
    (2) Housing;
    (3) Utilities;
    (4) Basic communication expenses;
    (5) Necessary medical and dental costs;
    (6) Necessary insurance costs;
    (7) Transportation costs;
    (8) Dependent care and other work-related expenses;
    (9) Legally required child and spousal support;
    (10) Other title IV and non-title IV student loan payments; and
    (11) Other expenses approved by the Secretary.
    (ii) The reasonable and affordable payment amount must not be--
    (A) A required minimum loan payment amount (e.g. $50) if the 
Secretary determines that a smaller amount is reasonable and 
affordable;
    (B) A percentage of the borrower's total loan balance; or
    (C) Based on other criteria unrelated to the borrower's total 
financial circumstances.
    (iii) Within 15 business days of the Secretary's determination of 
the borrower's reasonable and affordable payment amount, the Secretary 
provides the borrower with a written rehabilitation agreement which 
includes the borrower's reasonable and affordable payment amount, a 
prominent statement that the borrower may object orally or in writing 
to the reasonable and affordable payment amount with the method and 
timeframe for raising such an objection, and an explanation of any 
other terms and conditions applicable to the required series of 
payments that must be made. The Secretary does not impose any other 
conditions unrelated to the amount or timing of the rehabilitation 
payments in the rehabilitation agreement. The written rehabilitation 
agreement informs the borrower of the effects of having the loans 
rehabilitated (e.g., removal of the record of default from the 
borrower's credit history and return to normal repayment).
    (2) The Secretary provides the borrower with a written statement 
confirming the borrower's reasonable and affordable payment amount, as 
determined by the Secretary, and explaining any other terms and 
conditions applicable to the required series of payments that must be 
made before the borrower's account can be rehabilitated. The statement 
informs the borrower that the borrower may object to the terms and 
conditions of the rehabilitation agreement, and explains the method and 
timeframe for objecting to the terms and conditions of the 
rehabilitation agreement.
    (3) If the borrower objects to the monthly payment amount 
determined under paragraph (f)(1) of this section, the Secretary 
recalculates the payment amount by using the monthly payment 
calculation rules in Sec.  685.221(b)(1) and Sec.  685.221(b)(2), 
except that if the calculated amount under these sections is less than 
$5, the monthly rehabilitation payment is $5.
    (4) The Secretary provides the borrower with a written statement 
confirming the borrower's recalculated reasonable and affordable 
payment amount.
    (5) If the borrower objects to the monthly payment amount 
determined under paragraph (f)(1) of this section, but does not provide 
the documentation required to calculate a monthly payment amount under 
Sec.  685.221(b)(1) and Sec.  685.221(b)(2), no rehabilitation 
agreement exists between the borrower and the Secretary, and the 
rehabilitation does not proceed.
    (6) The Secretary includes any payment made under Sec.  
682.401(b)(1) in determining whether the 9 out of 10 payments required 
under paragraph (f)(1) of this section have been made.
    (7) A borrower may request that the monthly payment amount be 
adjusted due to a change in the borrower's total financial 
circumstances only upon providing the documentation specified in 
paragraph (f)(1)(i) of this section.
    (8) During the rehabilitation period, the Secretary limits contact 
with the borrower on the loan being rehabilitated to collection 
activities that are required by law or regulation and to communications 
that support the rehabilitation.
    (9) If a defaulted loan is rehabilitated, the Secretary instructs 
any consumer reporting agency to which the default was reported to 
remove the default from the borrower's credit history.
    (10) A defaulted Direct Loan on which a judgment has been obtained 
may not be rehabilitated.
    (11) A Direct Loan obtained by fraud for which the borrower has 
been convicted of, or has pled nolo contendere or guilty to, a crime 
involving fraud in obtaining title IV, HEA program assistance may not 
be rehabilitated.
    (12)(i) If a borrower's loan is being collected by administrative 
wage garnishment while the borrower is also making monthly payments on 
the same loan under a loan rehabilitation agreement, the Secretary 
continues collecting the loan by administrative wage garnishment until 
the borrower makes five qualifying monthly payments under the 
rehabilitation agreement. After the borrower makes the fifth qualifying 
monthly payment, the Secretary, unless otherwise directed by the 
borrower, suspends collecting the loan by administrative wage 
garnishment.
    (ii) A borrower may only obtain the benefit of a suspension of 
administrative wage garnishment while also attempting to rehabilitate a 
defaulted loan once.
    (13) Effective for any defaulted Direct Loan that is rehabilitated 
on or after August 14, 2008, the borrower cannot rehabilitate the loan 
again if the loan returns to default status following the 
rehabilitation.
* * * * *

Sec.  685.212  [Amended]

0
95. Section 685.212 is amended by:
0
A. In paragraph (a)(3), removing the words ``Direct PLUS Consolidation 
Loan'' and adding, in their place, the words ``Direct Consolidation 
Loan''.
0
B. In paragraph (b), removing the citation ``Sec.  685.213(c)'' and 
adding, in its place, the citation ``Sec.  685.213''.
0
96. Section 685.214 is amended by:
0
A. Revising paragraph (a)(2)(ii).
0
B. Revising paragraph (b)(4).
0
C. Revising paragraph (c).
0
D. In paragraph (d)(1), removing the word ``shall'' each time it 
appears and adding, in its place, the word ``must''.
0
E. In paragraph (f)(1), removing the number and words ``90 days'' and 
adding, in their place, the number and words ``120 days''.
    The revisions read as follows:

Sec.  685.214  Closed school discharge.

    (a) * * *
    (2) * * *
    (ii) ``School'' means a school's main campus or any location or 
branch of the main campus, regardless of whether the school or its 
location or branch is considered eligible.
    (b) * * *

[[Page 45712]]

    (4) The Secretary reports the discharge of a loan under this 
section to all consumer reporting agencies to which the Secretary 
previously reported the status of the loan, so as to delete all adverse 
credit history assigned to the loan.
    (c) Borrower qualification for discharge. (1) In order to qualify 
for discharge of a loan under this section, a borrower must submit to 
the Secretary a written request and sworn statement, and the factual 
assertions in the statement must be true. The statement need not be 
notarized but must be made by the borrower under penalty of perjury. In 
the statement, the borrower must--
    (i) State that the borrower (or the student on whose behalf a 
parent borrowed)--
    (A) Received the proceeds of a loan, in whole or in part, on or 
after January 1, 1986 to attend a school;
    (B) Did not complete the program of study at that school because 
the school closed while the student was enrolled, or the student 
withdrew from the school not more than 120 days before the school 
closed. The Secretary may extend the 120-day period if the Secretary 
determines that exceptional circumstances related to a school's closing 
justify an extension. Exceptional circumstances for this purpose may 
include, but are not limited to: the school's loss of accreditation; 
the school's discontinuation of the majority of its academic programs; 
action by the State to revoke the school's license to operate or award 
academic credentials in the State; or a finding by a State or Federal 
government agency that the school violated State or Federal law; and
    (C) Did not complete the program of study through a teach-out at 
another school or by transferring academic credits or hours earned at 
the closed school to another school;
    (ii) State whether the borrower (or student) has made a claim with 
respect to the school's closing with any third party, such as the 
holder of a performance bond or a tuition recovery program, and, if so, 
the amount of any payment received by the borrower (or student) or 
credited to the borrower's loan obligation; and
    (iii) State that the borrower (or student)--
    (A) Agrees to provide to the Secretary upon request other 
documentation reasonably available to the borrower that demonstrates 
that the borrower meets the qualifications for discharge under this 
section; and
    (B) Agrees to cooperate with the Secretary in enforcement actions 
in accordance with paragraph (d) of this section and to transfer any 
right to recovery against a third party to the Secretary in accordance 
with paragraph (e) of this section.
    (2) 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 the discharge.
* * * * *
0
97. Section 685.215 is amended by:
0
A. In paragraph (a)(1)(iv), removing the citation ``Sec.  
682.402(e)(14)'' and adding, in its place, the words ``paragraph 
(c)(4)(ii) of this section''.
0
B. Revising paragraph (b)(5).
0
C. In the introductory text of paragraph (c), removing the word 
``shall'' each time it appears and adding, in its place, the word 
``must''.
0
D. In the introductory text of paragraph (c)(1), removing the word 
``shall'' and adding, in its place, the word ``must''.
0
E. In the introductory text of paragraph (c)(2), removing the word 
``shall'' and adding, in its place, the word ``must''.
0
F. In the introductory text of paragraph (c)(3), removing the word 
``shall'' and adding, in its place, the word ``must''.
0
G. Revising paragraph (c)(4).
0
H. In paragraph (c)(5), removing the word ``shall'' and adding, it its 
place, the word ``must''.
    I. In the introductory text of paragraph (c)(6), removing the word 
``shall'' and adding, in its place, the word ``must''.
    The revisions read as follows:

Sec.  685.215  Discharge for false certification of student eligibility 
or unauthorized payment.

* * * * *
    (b) * * *
    (5) The Secretary reports the discharge under this section to all 
consumer reporting agencies to which the Secretary previously reported 
the status of the loan, so as to delete all adverse credit history 
assigned to the loan.
    (c) * * *
    (4) Identity theft. (i) In the case of an individual whose 
eligibility to borrow was falsely certified because he or she was a 
victim of the crime of identity theft and is requesting a discharge, 
the individual must--
    (A) Certify that the individual did not sign the promissory note, 
or that any other means of identification used to obtain the loan was 
used without the authorization of the individual claiming relief;
    (B) Certify that the individual did not receive or benefit from the 
proceeds of the loan with knowledge that the loan had been made without 
the authorization of the individual;
    (C) Provide a copy of a local, State, or Federal court verdict or 
judgment that conclusively determines that the individual who is named 
as the borrower of the loan was the victim of a crime of identity 
theft; and
    (D) If the judicial determination of the crime does not expressly 
state that the loan was obtained as a result of the crime of identity 
theft, provide--
    (1) Authentic specimens of the signature of the individual, as 
provided in paragraph (c)(2)(ii) of this section, or of other means of 
identification of the individual, as applicable, corresponding to the 
means of identification falsely used to obtain the loan; and
    (2) A statement of facts that demonstrate, to the satisfaction of 
the Secretary, that eligibility for the loan in question was falsely 
certified as a result of the crime of identity theft committed against 
that individual.
    (ii)(A) For purposes of this section, identity theft is defined as 
the unauthorized use of the identifying information of another 
individual that is punishable under 18 U.S.C. 1028, 1028A, 1029, or 
1030, or substantially comparable State or local law.
    (B) Identifying information includes, but is not limited to--
    (1) Name, Social Security number, date of birth, official State or 
government issued driver's license or identification number, alien 
registration number, government passport number, and employer or 
taxpayer identification number;
    (2) Unique biometric data, such as fingerprints, voiceprint, retina 
or iris image, or unique physical representation;
    (3) Unique electronic identification number, address, or routing 
code; or
    (4) Telecommunication identifying information or access device (as 
defined in 18 U.S.C. 1029(e)).
* * * * *

Sec.  685.216  [Amended]

0
98. Section 685.216(b)(2) is amended by removing the word ``credit'' 
and adding, in its place, the word ``consumer''.
0
99. Section 685.217 is amended by:
0
A. Revising paragraph (a)(1).
0
B. In the last sentence of paragraph (a)(2)(i), adding the word ``for'' 
immediately before the words ``an eligible educational service 
agency''.
0
C. In paragraph (a)(2)(iii), removing the word ``at'' each time it 
appears and adding, in its place, the word ``for''.

[[Page 45713]]

0
D. In paragraph (a)(3), removing the words ``FFEL and Direct Loan'' and 
adding, in their place, the words ``Direct Loan and FFEL''.
0
E. In the introductory text of paragraph (a)(4), removing the words 
``FFEL and Direct Loan'' and adding, in their place, the words ``Direct 
Loan and FFEL''.
0
F. In paragraph (a)(4)(i), removing the word ``at'' the second time it 
appears and adding, in its place, the word ``by''.
0
G. In paragraph (a)(4)(ii), adding the words ``by an eligible'' 
immediately before the words ``educational service agency''.
0
H. In the introductory text of paragraph (c)(1), adding the word ``by'' 
immediately before the words ``an educational service agency''.
0
I. In paragraph (c)(1)(iii), removing the sentence ``The Secretary 
considers all elementary and secondary schools operated by the Bureau 
of Indian Education (BIE) or operated on Indian reservations by Indian 
tribal groups under contract with the BIE to qualify as schools serving 
low-income students.''
0
J. Redesignating paragraphs (c)(2) through (c)(11) as paragraphs (c)(3) 
through (c)(12), respectively.
0
K. Adding a new paragraph (c)(2).
0
L. In redesignated paragraph (c)(4)(ii)(A), removing the word ``at'' 
the second time it appears and adding, in its place, the word ``for''.
0
M. In redesignated paragraph (c)(4)(ii)(B), adding the words ``for an 
eligible'' immediately before the words ``educational service agency''.
0
N. In redesignated paragraph (c)(4)(iii), removing the word ``at'' each 
time it appears and adding, in its place, the word ``for''.
0
O. In redesignated paragraph (c)(5)(i), adding the words ``for an 
eligible'' immediately before the words ``educational service agency''.
0
P. In redesignated paragraph (c)(5)(ii)(A), removing the word ``at'' 
the second time it appears and adding, in its place, the word ``for''.
0
Q. In redesignated paragraph (c)(5)(ii)(B), adding the words ``for an 
eligible'' immediately before the words ``educational service agency''.
0
R. In redesignated paragraph (c)(5)(iii), removing the word ``at'' each 
time it appears and adding, in its place, the word ``for''.
0
S. Revising the introductory text of redesignated paragraph (c)(7).
0
T. Revising redesignated paragraph (c)(9).
0
U. Revising redesignated paragraph (c)(10).
0
V. Adding a new paragraph (c)(13).
0
W. Revising paragraph (d)(1).
0
X. In paragraph (d)(2), removing the words ``paragraphs (c)(3)(ii) or 
(c)(4)(ii)'' and adding, in their place, the words ``paragraph 
(c)(4)(ii) or (c)(5)(ii)''.
    The revisions and addition read as follows:

Sec.  685.217  Teacher loan forgiveness program.

    (a) * * *
    (1) The teacher loan forgiveness program is intended to encourage 
individuals to enter and continue in the teaching profession. For new 
borrowers, the Secretary repays the amount specified in this paragraph 
(a) on the borrower's Direct Subsidized Loans, Direct Unsubsidized 
Loans, Subsidized and Unsubsidized Federal Stafford Loans, and in 
certain cases, Direct Consolidation Loans or Federal Consolidation 
Loans. The forgiveness program is only available to a borrower who has 
no outstanding loan balance under the Direct Loan Program or the FFEL 
Program on October 1, 1998 or who has no outstanding loan balance on 
the date he or she obtains a loan after October 1, 1998.
* * * * *
    (c) * * *
    (2) The Secretary considers all elementary and secondary schools 
operated by the Bureau of Indian Education (BIE) or operated on Indian 
reservations by Indian tribal groups under contract with the BIE to 
qualify as schools serving low-income students.
* * * * *
    (7) For teacher loan forgiveness applications received by the 
Secretary on or after July 1, 2006, a teacher in a private, non-profit 
elementary or secondary school who is exempt from State certification 
requirements (unless otherwise applicable under State law) may qualify 
for loan forgiveness under paragraphs (c)(4)(ii) or (c)(5) of this 
section if--
* * * * *
    (9) A borrower's period of postsecondary education, qualifying FMLA 
condition, or military active duty as described in paragraph (c)(8) of 
this section, including the time necessary for the borrower to resume 
qualifying teaching no later than the beginning of the next regularly 
scheduled academic year, does not constitute a break in the required 
five consecutive years of qualifying teaching service.
    (10) A borrower who was employed as a teacher at more than one 
qualifying school, for more than one qualifying educational service 
agency, or a combination of both during an academic year and 
demonstrates that the combined teaching was the equivalent of full-
time, as supported by the certification of one or more of the chief 
administrative officers of the schools or educational service agencies 
involved, is considered to have completed one academic year of 
qualifying teaching.
* * * * *
    (13) A borrower may request forbearance during each of the five 
years of qualifying teaching service in accordance with Sec.  
685.205(a)(5).
    (d) * * *
    (1) A qualified borrower is eligible for forgiveness of up to 
$5,000, or up to $17,500 if the borrower meets the requirements of 
paragraph (c)(4)(ii) or (c)(5)(ii) of this section. The forgiveness 
amount is deducted from the aggregate amount of the borrower's Direct 
Subsidized Loan or Direct Unsubsidized Loan or Direct Consolidation 
Loan obligation that is outstanding after the borrower completes his or 
her fifth consecutive complete academic year of teaching as described 
in paragraph (c) of this section. Only the outstanding portion of the 
Direct Consolidation Loan that was used to repay an eligible Direct 
Subsidized Loan, an eligible Direct Unsubsidized Loan, or an eligible 
Subsidized or Unsubsidized Federal Stafford Loan qualifies for loan 
forgiveness under this section.
* * * * *
0
100. Section 685.218 is amended by:
0
A. In paragraph (b)(4), removing the words ``FFEL or Direct'' and 
adding, in their place, the words ``Direct or FFEL''.
0
B. Revising paragraph (d)(3).
0
C. In paragraph (d)(6), removing the words ``a Perkins Loan, a FFEL 
Program loan, or another Direct Loan'' and adding, in their place, the 
words ``another Direct Loan, a FFEL Program Loan, or a Perkins Loan''.
0
D. In paragraph (d)(7), removing the words ``a FFEL Program Loan or 
another Direct Loan'' and adding, in their place, ``another Direct Loan 
or a FFEL Program Loan''.
0
E. In paragraph (e)(1)(ii), removing the number and word ``24 hours'' 
each time they appear and adding, in their place, the number and word 
``72 hours''.
0
F. Revising paragraph (f)(4)(iii).
0
G. In paragraph (g)(2)(i), removing the words ``Direct Loans'' and 
adding, in their place, the words ``Direct Loan''.
    The revisions read as follows:

Sec.  685.218  Discharge of student loan indebtedness for survivors of 
victims of the September 11, 2001, attacks.

* * * * *
    (d) * * *
    (3) If the individual owed a Direct Loan, a FFEL Program Loan, or a 
Perkins Loan at the time of the terrorist attacks on September 11, 
2001,

[[Page 45714]]

documentation that the individual's loans were discharged by the 
Secretary, the lender, or the institution due to death may be 
substituted for the original or certified copy of a death certificate.
* * * * *
    (f) * * *
    (4) * * *
    (iii) Copies of approved joint Direct Loan or FFEL Consolidation 
Loan applications or an approved Direct or FFEL PLUS Loan application.
* * * * *
0
101. Section 685.220, as amended by: A. Revising paragraph (b).
0
B. Revising paragraph (c).
0
C. Revising paragraph (d).
0
D. In paragraph (e), removing the word ``shall'' and adding, it its 
place, the word ``must''.
0
E. In paragraph (f)(1)(i), removing the word ``shall'' and adding, it 
its place, the word ``must''.
0
F. Revising paragraph (f)(1)(iii).
0
G. In paragraph (f)(2), removing the word ``shall'' each time it 
appears and adding, in its place, the word ``must''.
0
H. In paragraph (f)(4), removing the word ``shall'' and adding, it its 
place, the word ``must''.
0
I. In paragraph (f)(5), removing the word ``shall'' and adding, in its 
place, the word ``must''.
0
J. Revising paragraph (h).
0
K. In paragraph (i)(2)(ii), removing the words ``(i)(3)(1) and (ii)'' 
and adding, in their place, the words ``(i)(3)(i) through (iii)''.
0
L. Revising paragraph (i)(4).
0
M. In paragraph (k), removing the word ``shall'' and adding, in its 
place, the word ``must''.
    The revisions read as follows:

Sec.  685.220  Consolidation.

    (a) * * *
    (b) Loans eligible for consolidation. The following loans may be 
consolidated into a Direct Consolidation Loan:
    (1) Subsidized Federal Stafford Loans.
    (2) Guaranteed Student Loans.
    (3) Federal Insured Student Loans (FISL).
    (4) Direct Subsidized Loans.
    (5) Direct Subsidized Consolidation Loans.
    (6) Federal Perkins Loans.
    (7) National Direct Student Loans (NDSL).
    (8) National Defense Student Loans (NDSL).
    (9) Federal PLUS Loans.
    (10) Parent Loans for Undergraduate Students (PLUS).
    (11) Direct PLUS Loans.
    (12) Direct PLUS Consolidation Loans.
    (13) Federal Consolidation Loans.
    (14) Unsubsidized Federal Stafford Loans.
    (15) Federal Supplemental Loans for Students (SLS).
    (16) Direct Unsubsidized Loans.
    (17) Direct Unsubsidized Consolidation Loans.
    (18) Auxiliary Loans to Assist Students (ALAS).
    (19) Health Professions Student Loans (HPSL) and Loans for 
Disadvantaged Students (LDS) made under subpart II of part A of title 
VII of the Public Health Service Act.
    (20) Health Education Assistance Loans (HEAL).
    (21) Nursing loans made under subpart II of part B of title VIII of 
the Public Health Service Act.
    (c) Components of Direct Consolidation Loans. (1) Subsidized 
component of Direct Consolidation Loans. The term ``Direct Subsidized 
Consolidation Loan'' refers to the portion of a Direct Consolidation 
Loan attributable to--
    (i) The loans identified in paragraphs (b)(1) through (b)(5) of 
this section; and
    (ii) The portion of a Federal Consolidation Loan under paragraph 
(b)(13) of this section that is eligible for interest benefits during a 
deferment period under section 428C(b)(4)(C) of the Act.
    (2) Unsubsidized component of Direct Consolidation Loans. Except as 
provided in paragraph (c)(3) of this section, the term ``Direct 
Unsubsidized Consolidation Loan'' refers to the portion of a Direct 
Consolidation Loan attributable to--
    (i) The loans identified in paragraphs (b)(6) through (b)(12) of 
this section;
    (ii) The portion of a Federal Consolidation Loan under paragraph 
(b)(13) of this section that is not eligible for interest benefits 
during a deferment period under section 428C(b)(4)(C) of the Act; and
    (iii) The loans identified in paragraphs (b)(14) through (b)(21) of 
this section.
    (3) PLUS component of Direct Consolidation Loans. In the case of a 
Direct Consolidation Loan made before July 1, 2006, the term ``Direct 
PLUS Consolidation Loan'' refers to the portion of a Direct 
Consolidation Loan attributable to the loans identified in paragraphs 
(b)(9) through (b)(12) of this section.
    (d) Eligibility for a Direct Consolidation Loan. (1) A borrower may 
obtain a Direct Consolidation Loan if the borrower meets the following 
requirements:
    (i) The borrower consolidates at least one Direct Loan Program or 
FFEL Program loan.
    (ii) On the loans being consolidated, the borrower is--
    (A) At the time the borrower applies for the Direct Consolidation 
Loan--
    (1) In the grace period;
    (2) In a repayment period but not in default; or
    (3) In default but has made satisfactory repayment arrangements in 
accordance with paragraph (2) of the definition of that term in Sec.  
685.102(b);
    (B) Not subject to a judgment secured through litigation, unless 
the judgment has been vacated; or
    (C) Not subject to an order for wage garnishment under section 488A 
of the Act, unless the order has been lifted.
    (iii) The borrower agrees to notify the Secretary of any change in 
address.
    (2) A borrower may not consolidate a Direct Consolidation Loan or a 
Federal Consolidation Loan into a new consolidation loan under this 
section unless at least one additional eligible loan is included in the 
consolidation, except that a borrower may consolidate a Federal 
Consolidation Loan into a new consolidation loan under this section 
without including any additional loans if--
    (i) The borrower has a Federal Consolidation Loan that is in 
default or has been submitted to the guaranty agency by the lender for 
default aversion, and the borrower wants to consolidate the Federal 
Consolidation Loan into the Direct Loan Program for the purpose of 
obtaining an income-contingent repayment plan or an income-based 
repayment plan; or
    (ii) The borrower has a Federal Consolidation Loan and the borrower 
wants to consolidate that loan into the Direct Loan Program for the 
purpose of using the Public Service Loan Forgiveness Program or the no 
accrual of interest benefit for active duty service.
    (3) Eligible loans received before or after the date a Direct 
Consolidation Loan is made may be added to a subsequent Direct 
Consolidation Loan.
* * * * *
    (f) * * *
    (1) * * *
    (iii) For a Direct Loan Program or FFEL Program loan that is in 
default, the Secretary limits collection costs that may be charged to 
the borrower to a maximum of 18.5 percent of the outstanding principal 
and interest amount of the defaulted loan. For any other defaulted 
Federal education loan, all collection costs that are owed may be 
charged to the borrower.
* * * * *
    (h) Repayment plans. A borrower may choose a repayment plan for a 
Direct

[[Page 45715]]

Consolidation Loan in accordance with Sec.  685.208, and may change 
repayment plans in accordance with Sec.  685.210(b).
    (i) * * *
    (4) A Direct Consolidation Loan that was made based on an 
application received before July 1, 2006 receives a grace period if it 
includes a Direct Loan Program or FFEL Program loan for which the 
borrower was in an in-school period at the time of consolidation. The 
repayment period begins the day after the grace period ends.
* * * * *
0
102. Section 685.300 is amended by:
0
A. Revising paragraph (a).
0
B. In the introductory text of paragraph (b), removing the word 
``shall'' each time it appears and adding, in its place, the word 
``must''.
0
C. Removing paragraph (b)(8).
0
D. Redesignating paragraphs (b)(5), (6), and (7) as paragraphs (b)(6), 
(7), and (8), respectively.
0
E. Adding a new paragraph (b)(5).
0
F. Revising paragraph (c).
    The revisions and addition read as follows:

Sec.  685.300  Agreements between an eligible school and the Secretary 
for participation in the Direct Loan Program.

    (a) General. Participation of a school in the Direct Loan Program 
means that eligible students at the school may receive Direct Loans. To 
participate in the Direct Loan Program, a school must--
    (1) Demonstrate to the satisfaction of the Secretary that the 
school meets the requirements for eligibility under the Act and 
applicable regulations; and
    (2) Enter into a written program participation agreement with the 
Secretary.
    (b) * * *
    (5) On a monthly basis, reconcile institutional records with Direct 
Loan funds received from the Secretary and Direct Loan disbursement 
records submitted to and accepted by the Secretary;
* * * * *
    (c) Origination. A school that originates loans in the Direct Loan 
Program must originate loans to eligible students and parents in 
accordance with part D of the Act. The note or evidence of the 
borrower's obligation on the loan originated by the school is the 
property of the Secretary.
* * * * *
0
103. Section 685.301 is amended by:
0
A. In paragraph (a)(1), removing the word ``shall'' each time it 
appears and adding, in its place, the word ``must''.
0
B. In the introductory text of paragraph (a)(2), removing the word 
``shall'' and adding, in its place, the word ``must''.
0
C. In paragraph (a)(2)(iii), adding the words ``, as determined in 
accordance with Sec.  685.303(d)'' at the end of the paragraph, 
immediately after the words ``the loan proceeds''.
0
D. Revising paragraph (a)(10).
0
E. Removing paragraphs (b) and (e).
0
F. Revising paragraph (c).
0
G. Redesignating paragraph (d) as paragraph (b).
    The revisions read as follows:

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

    (a) * * *
    (10)(i) The minimum period of enrollment for which a school may 
originate a Direct Loan is--
    (A) At a school that measures academic progress in credit hours and 
uses a semester, trimester, or quarter system, or that has terms that 
are substantially equal in length with no term less than nine weeks in 
length, a single academic term (e.g., a semester or quarter); or
    (B) Except as provided in paragraph (a)(10)(ii) or (iii) of this 
section, at a school that measures academic progress in clock hours, or 
measures academic progress in credit hours but does not use a semester, 
trimester, or quarter system and does not have terms that are 
substantially equal in length with no term less than nine weeks in 
length, the lesser of--
    (1) The length of the student's program (or the remaining portion 
of that program if the student has less than the full program 
remaining) at the school; or
    (2) The academic year as defined by the school in accordance with 
34 CFR 668.3.
    (ii) For a student who transfers into a school from another school 
and the prior school originated a loan for a period of enrollment that 
overlaps the period of enrollment at the new school, the new school may 
originate a loan for the remaining portion of the program or academic 
year. In this case the school may originate a loan for an amount that 
does not exceed the remaining balance of the student's annual loan 
limit.
    (iii) For a student who completes a program at a school, where the 
student's last loan to complete that program had been for less than an 
academic year, and the student then begins a new program at the same 
school, the school may originate a loan for the remainder of the 
academic year. In this case the school may originate a loan for an 
amount that does not exceed the remaining balance of the student's 
annual loan limit at the loan level associated with the new program.
    (iv) The maximum period for which a school may originate a Direct 
Loan is--
    (A) Generally an academic year, as defined by the school in 
accordance with 34 CFR 668.3, except that the school may use a longer 
period of time corresponding to the period to which the school applies 
the annual loan limits under Sec.  685.203; or
    (B) For a defaulted borrower who has regained eligibility, the 
academic year in which the borrower regained eligibility.
* * * * *
    (c) Reporting to the Secretary. The Secretary accepts a student's 
Payment Data that is submitted in accordance with procedures 
established through publication in the Federal Register, and that 
contains information the Secretary considers to be accurate in light of 
other available information including that previously provided by the 
student and the institution.
* * * * *
0
104. Section 685.303 is amended by:
0
A. In paragraph (a), removing the word ``shall'' and adding, in its 
place, the word ``must''.
0
B. Revising paragraph (b)(1).
0
C. Redesignating paragraphs (b)(2) through (b)(4) as paragraphs (b)(3) 
through (b)(5), respectively.
0
D. Adding a new paragraph (b)(2).
0
E. Revising redesignated paragraph (b)(3)(i).
0
F. Revising redesignated paragraph (b)(3)(ii).
0
G. Revising redesignated paragraph (b)(5)(i) introductory text.
0
H. In redesignated paragraph (b)(5)(i)(A)(1), removing the citation 
``(b)(4)(i)(A)(2)'' and adding, in its place, the citation 
``(b)(5)(i)(A)(2)''.
0
I. Revising redesignated paragraph (b)(5)(ii).
0
J. In redesignated paragraph (b)(5)(iii), removing the citation 
``(b)(4)(i)(B)'' and adding, in its place, the citation 
``(b)(5)(i)(B)''.
0
K. In paragraph (c), removing the word ``shall'' and adding, in its 
place, the word ``must''.
0
L. Redesignating paragraphs (d) and (e) as paragraphs (f) and (g), 
respectively.
0
M. Adding a new paragraph (d).
0
N. Adding a new paragraph (e).
0
O. Revising redesignated paragraph (g).
0
P. Adding an authority citation after the OMB control number 
parenthetical at the end of the section.
    The revisions and additions read as follows:

Sec.  685.303  Processing loan proceeds.

* * * * *

[[Page 45716]]

    (b) * * *
    (1) A school may not disburse loan proceeds to a borrower unless 
the borrower has executed a legally enforceable promissory note.
    (2) The Secretary provides Direct Loan funds to a school in 
accordance with 34 CFR 668.162.
    (3)(i) Except in the case of a late disbursement under paragraph 
(f) of this section, or as provided in paragraph (b)(3)(iii) of this 
section, a school may disburse loan proceeds only to a student, or a 
parent in the case of a Direct PLUS Loan obtained by a parent borrower, 
if the school determines the student has continuously maintained 
eligibility in accordance with the provisions of Sec.  685.200 from the 
beginning of the loan period for which the loan was intended.
    (ii) If a student delays attending school for a period of time, the 
school may consider that student to have maintained eligibility for the 
loan from the first day of the period of enrollment. However, the 
school must comply with the requirements under paragraph (b)(4) of this 
section.
* * * * *
    (5)(i) If a student is enrolled in the first year of an 
undergraduate program of study and has not previously received a Direct 
Subsidized Loan, a Direct Unsubsidized Loan, a Subsidized or 
Unsubsidized Federal Stafford Loan, or a Federal Supplemental Loan for 
Students, a school may not disburse the proceeds of a Direct Subsidized 
or Direct Unsubsidized Loan until 30 days after the first day of the 
student's program of study unless--
* * * * *
    (ii) Paragraphs (b)(5)(i)(A) and (B) of this section do not apply 
to any loans originated by the school beginning 30 days after the date 
the school receives notification from the Secretary of a cohort default 
rate, calculated under subpart M or subpart N of 34 CFR part 668, that 
causes the school to no longer meet the qualifications outlined in 
paragraph (b)(5)(i)(A) or (B) of this section, as applicable.
* * * * *
    (d) Determining disbursement dates and amounts. (1) Before 
disbursing a loan, a school must determine that all information 
required by the promissory note has been provided by the borrower and, 
if applicable, the student.
    (2) An institution must disburse the loan proceeds on a payment 
period basis in accordance with 34 CFR 668.164(b).
    (3) Unless paragraph (d)(4) or (d)(6) of this section applies--
    (i) If a loan period is more than one payment period, the school 
must disburse 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 disbursements during that payment period.
    (A) For a loan originated under Sec.  685.301(a)(10)(i)(A), the 
school may not make the second disbursement until the calendar midpoint 
between the first and last scheduled days of class of the loan period.
    (B) For a loan originated under Sec.  685.301(a)(10)(i)(B), the 
school may not make the second disbursement until the student 
successfully completes half of the number of credit hours or clock 
hours and half of the number of weeks of instructional time in the 
payment period.
    (4)(i) If one or more payment periods have elapsed before a school 
makes a disbursement, the school may include in the disbursement loan 
proceeds for completed payment periods.
    (ii) If the loan period is equal to one payment period and more 
than one-half of it has elapsed, the school may include in the 
disbursement loan proceeds for the entire payment period.
    (5) The school must disburse loan proceeds in substantially equal 
installments, and no installment may exceed one-half of the loan.
    (6)(i) A school is not required to make more than one disbursement 
if--
    (A)(1) The loan period is not more than one semester, one 
trimester, one quarter, or, for non term-based schools or schools with 
non-standard terms, 4 months; and
    (2)(i) Except as provided in paragraph (d)(6)(i)(A)(2)(ii) of this 
section, the school has a cohort default rate, calculated under subpart 
M of 34 CFR part 668 of less than 10 percent for each of the three most 
recent fiscal years for which data are available; or
    (ii) For loan disbursements made on or after October 1, 2011, the 
school in which the student is enrolled has a cohort default rate, 
calculated under either subpart M or subpart N of 34 CFR part 668, of 
less than 15 percent for each of the three most recent fiscal years for 
which data are available; or
    (B) The school is an eligible home institution originating a loan 
to cover the cost of attendance in a study abroad program and has a 
cohort default rate, calculated under subpart M or subpart N of 34 CFR 
part 668, of less than five percent for the single most recent fiscal 
year for which data are available.
    (ii) Paragraphs (d)(6)(i)(A) and (B) of this section do not apply 
to any loans originated by the school beginning 30 days after the date 
the school receives notification from the Secretary of a cohort default 
rate, calculated under subpart M or subpart N of 34 CFR part 668, that 
causes the school to no longer meet the qualifications outlined in 
paragraph (d)(6)(i)(A) or (B) of this section, as applicable.
    (iii) Paragraph (d)(6)(i)(B) of this section does not apply to any 
loans originated by the school beginning 30 days after the date the 
school receives notification from the Secretary of a cohort default 
rate, calculated under subpart M or subpart N of 34 CFR part 668, that 
causes the school to no longer meet the qualifications outlined in that 
paragraph.
    (e) Annual loan limit progression based on completion of an 
academic year. (1) If a school measures academic progress in an 
educational program in credit hours and uses either standard terms 
(semesters, trimesters, or quarters) or nonstandard terms that are 
substantially equal in length, and each term is at least nine weeks of 
instructional time in length, a student is considered to have completed 
an academic year and progresses to the next annual loan limit when the 
academic year calendar period has elapsed.
    (2) If a school measures academic progress in an educational 
program in credit hours and uses nonstandard terms that are not 
substantially equal in length or each term is not at least nine weeks 
of instructional time in length, or measures academic progress in 
credit hours and does not have academic terms, a student is considered 
to have completed an academic year and progresses to the next annual 
loan limit at the later of--
    (i) The student's completion of the weeks of instructional time in 
the student's academic year; or
    (ii) The date, as determined by the school, that the student has 
successfully completed the academic coursework in the student's 
academic year.
    (3) If a school measures academic progress in an educational 
program in clock hours, a student is considered to have completed an 
academic year and progresses to the next annual loan limit at the later 
of--
    (i) The student's completion of the weeks of instructional time in 
the student's academic year; or
    (ii) The date, as determined by the school, that the student has 
successfully completed the clock hours in the student's academic year.
    (4) For purposes 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 of instructional

[[Page 45717]]

time longer than any other term in that loan period.
* * * * *
    (g) Treatment of excess loan proceeds. Before the disbursement of 
any Direct Subsidized Loan, Direct Unsubsidized Loan, or Direct PLUS 
Loan proceeds, if a school learns that the borrower will receive or has 
received financial aid for the period of enrollment for which the loan 
was intended that exceeds the amount of assistance for which the 
student is eligible (except for Federal Work-Study Program funds up to 
$300), the school must reduce or eliminate the overaward by either--
    (1) Using the student's Direct Unsubsidized Loan, Direct PLUS Loan, 
or State-sponsored or another non-Federal loan to cover the expected 
family contribution, if not already done; or
    (2) Reducing one or more subsequent disbursements to eliminate the 
overaward.
* * * * *

(Authority: 20 U.S.C. 1087a et seq.)

0
105. Section 685.304 is amended by:
0
A. Revising paragraph (a)(1).
0
B. In paragraph (a)(2), removing the words ``prior Direct PLUS Loan or 
Federal PLUS Loan'' and adding, in their place, the words ``prior 
student Direct PLUS Loan or student Federal PLUS Loan''.
0
C. In paragraph (a)(7)(i)(A), removing the word ``or'' the first time 
it appears and adding, in its place, the word ``of''.
0
D. Revising paragraph (a)(7)(iii).
0
E. Revising paragraph (a)(7)(iv).
0
F. Revising paragraph (b)(3).
0
G. In paragraph (b)(4)(ii), removing the words ``income contingent 
repayment plans'' and adding, in their place, the words ``income-
contingent repayment''.
0
H. Adding a new paragraph (b)(8).
    The revisions and addition read as follows:

Sec.  685.304  Counseling borrowers.

    (a) * * *
    (1) Except as provided in paragraph (a)(8) of this section, a 
school must ensure that entrance counseling is conducted with each 
Direct Subsidized Loan or Direct Unsubsidized Loan student borrower 
prior to making the first disbursement of the proceeds of a loan to a 
student borrower unless the student borrower has received a prior 
Direct Subsidized Loan, Direct Unsubsidized Loan, Subsidized or 
Unsubsidized Federal Stafford Loan, or Federal SLS Loan.
* * * * *
    (7) * * *
    (iii) For a graduate or professional student PLUS Loan borrower who 
has received a prior Direct Subsidized Loan, Direct Unsubsidized Loan, 
Subsidized Federal Stafford Loan, or Unsubsidized Federal Stafford 
Loan, provide the information specified in Sec.  685.301(a)(3)(i)(A) 
through Sec.  685.301(a)(3)(i)(C); and
    (iv) For a graduate or professional student PLUS Loan borrower who 
has not received a prior Direct Subsidized Loan, Direct Unsubsidized 
Loan, Subsidized Federal Stafford Loan, or Unsubsidized Federal 
Stafford Loan, provide the information specified in paragraph (a)(6)(i) 
through paragraph (a)(6)(xii) of this section.
* * * * *
    (b) * * *
    (3) If a student borrower withdraws from school without the 
school's prior knowledge or fails to complete the exit counseling as 
required, exit counseling must be provided either through interactive 
electronic means, by mailing written counseling materials to the 
student borrower at the student borrower's last known address, or by 
sending written counseling materials to an email address provided by 
the student borrower within 30 days after the school learns that the 
student borrower has withdrawn from school or failed to complete the 
exit counseling as required.
* * * * *
    (8)(i) For students who have received loans under both the FFEL 
Program and the Direct Loan Program for attendance at a school, the 
school's compliance with the exit counseling requirements in paragraph 
(b) of this section satisfies the exit counseling requirements in 34 
CFR 682.604(a) if the school ensures that the exit counseling also 
provides the borrower with the information described in 34 CFR 
682.604(a)(2)(i) and (ii).
    (ii) A student's completion of electronic interactive exit 
counseling offered by the Secretary satisfies the requirements of 
paragraph (b) of this section and, for students who have also received 
FFEL Program loans for attendance at the school, 34 CFR 682.604(a).
* * * * *

Sec.  685.305  [Amended]

0
106. Section 685.305 is amended by:
0
A. In paragraph (a), removing the word ``shall'' and adding, in its 
place, the word ``must''.
0
B. In paragraph (b), removing the word ``shall'' and adding, in its 
place, the word ``must''.
0
C. In paragraph (c), removing the word ``shall'' and adding, it its 
place, the word ``must''.

Sec.  685.306  [Amended]

0
107. Section 685.306 is amended by:
0
A. In paragraph (a)(1), removing the word ``Shall'' and adding, in its 
place, the word ``Must''.
0
B. In paragraph (a)(2), removing the word ``Shall'' and adding, in its 
place, the word ``Must''.
0
C. In paragraph (b), removing the word ``shall'' and adding, in its 
place, the word ``must''.

Sec.  685.307  [Amended]

0
108. Section 685.307(b) is amended by removing the word ``shall'' and 
adding, in its place, the word ``must''.
0
109. Section 685.309 is amended by:
0
A. In the introductory text of paragraph (a), removing the word 
``shall'' and adding, in its place, the word ``must''.
0
B. Revising paragraph (b).
0
C. In paragraph (c), removing the word ``shall'' and adding, in its 
place, the word ``must''.
0
D. In paragraph (d), removing the word ``shall'' and adding, in its 
place, the word ``must''.
0
E. In paragraph (e), removing the word ``shall'' and adding, in its 
place, the word ``must''.
0
F. In paragraph (f), removing the word ``shall'' and adding, in its 
place, the word ``must''.
0
G. In paragraph (g), removing the words ``Except for funds paid to a 
school under section 452(b)(1) of the Act, funds'' and adding, in their 
place, the word ``Funds''.
    The revision reads as follows:

Sec.  685.309  Administrative and fiscal control and fund accounting 
requirements for schools participating in the Direct Loan Program.

* * * * *
    (b) Enrollment reporting process. (1) Upon receipt of an enrollment 
report from the Secretary, a school must update all information 
included in the report and return the report to the Secretary--
    (i) In the manner and format prescribed by the Secretary; and
    (ii) Within the timeframe prescribed by the Secretary.
    (2) Unless it expects to submit its next updated enrollment report 
to the Secretary within the next 60 days, a school must notify the 
Secretary within 30 days after the date the school discovers that--
    (i) A loan under title IV of the Act was made to or on behalf of a 
student who was enrolled or accepted for enrollment at the school, and 
the student has ceased to be enrolled on at least a half-time basis or 
failed to enroll on at least a half-time basis for the period for which 
the loan was intended; or

[[Page 45718]]

    (ii) A student who is enrolled at the school and who received a 
loan under title IV of the Act has changed his or her permanent 
address.
* * * * *

Sec.  685.400  [Removed and Reserved]

0
110. Section 685.400 is removed and reserved.

Sec.  685.402  [Removed and Reserved]

0
111. Section 685.402 is removed and reserved.

Appendix

    Appendix A below summarizes proposed technical changes to the 
FFEL Program regulations in 34 CFR part 682, excluding minor 
technical or conforming changes. A document showing all proposed 
changes to 34 CFR part 682 that are included in this notice of 
proposed rulemaking (NPRM) may be found at http://www2.ed.gov/policy/highered/reg/hearulemaking/2011/loans.html.
    Laws cited in Appendix A:

 Higher Education Act of 1965, as amended (HEA)
 SAFRA Act (included in the Health Care and Reconciliation 
Act of 2010 (HCERA)) (Pub. L. 111-152, enacted March 30, 2010)
 Higher Education Opportunity Act (HEOA) (Pub. L. 110-315, 
enacted August 14, 2008)

    Note: The following appendix will not appear in the Code of 
Federal Regulations.

                      Appendix A--Summary of Proposed Technical Changes to 34 CFR Part 682
----------------------------------------------------------------------------------------------------------------
              Section                           Proposed change                            Reason
----------------------------------------------------------------------------------------------------------------
General............................  Revise nomenclature as necessary to    To ensure accuracy and consistency.
                                      ensure consistent use of same terms
                                      to refer to Direct Loan Program
                                      components in 34 CFR parts 682 and
                                      685.
                                     Where applicable, remove or revise
                                      language to reflect the elimination
                                      of authority to make new FFEL
                                      Program loans effective July 1, 2010.
                                     Change regulatory citations and
                                      redesignate paragraphs to conform
                                      with revisions, additions, and
                                      deletions to the regulations.
                                     Replace all references to ``credit
                                      bureau'' with ``consumer reporting
                                      agency''.
                                     Correct spelling and grammatical
                                      errors.
Sec.   682.100 The Federal Family    Revise language to use past tense and  The SAFRA Act eliminated the
 Education Loan programs.             to reflect the elimination of          authority to make new FFEL Program
                                      authority to make new FFEL Program     loans effective July 1, 2010.
                                      loans effective July 1, 2010.
Sec.   682.101 Participation in the  Revise language to use past tense and  The SAFRA Act eliminated the
 FFEL programs.                       to reflect the elimination of          authority to make new FFEL Program
                                      authority to make new FFEL Program     loans effective July 1, 2010.
                                      loans effective July 1, 2010.
Sec.   682.102 Obtaining and         Retitle the section and remove         The SAFRA Act eliminated the
 repaying a loan.                     paragraphs (a) through (d), which      authority to make new FFEL Program
                                      pertain to the application process     loans effective July 1, 2010.
                                      to obtain a FFEL Program loan.
Sec.   682.103 Applicability of      In paragraph (c), remove reference to  No new FISL Program loans have been
 subparts.                            deleted subpart E governing Federal    made since 1983 and very few of
                                      Insured Student Loan (FISL) Program.   these loans are in repayment;
                                                                             therefore regulations governing the
                                                                             FISL Program are no longer needed.
                                                                             Additionally, the SAFRA Act
                                                                             eliminated the authority to make
                                                                             any new loans under Part B of the
                                                                             HEA effective July 1, 2010.
Sec.   682.200 Definitions.........  Remove reference to eliminated         Changes to Sec.   682.200(a)(1) to
                                      programs in Sec.   682.200(a)(1) and   ensure accuracy.
                                      elsewhere in the section and reorder
                                      remaining listed terms in paragraph
                                      (a)(1)
                                     In Sec.   682.200(b), revise
                                      definitions of:.
                                      ''Lender'' to include audit   Conforming change to ``Lender'' due
                                      requirements for a trustee lender      to elimination of Sec.   682.601.
                                      that operated on behalf of a school
                                      or school-affiliated organization to
                                      originate FFEL Program loans;
                                         ``Nationwide consumer      Revision to ``Nationwide consumer
                                         reporting agency''.                 reporting agency'' to ensure
                                                                             accuracy with statutory citation
                                                                             and distinguish a nationwide
                                                                             consumer reporting agency from a
                                                                             local or regional agency and from a
                                                                             nationwide specialty consumer
                                                                             reporting agency.
                                      ``Satisfactory repayment      Revisions to ``Satisfactory
                                      arrangements'' to replace reference    Repayment Arrangements'' to ensure
                                      to Sec.   682.401(b)(4) with the       accuracy and clarity and to reflect
                                      phrase ``the title IV student          elimination of authority to make
                                      assistance programs'' and to remove    FFEL Consolidation loans effective
                                      current paragraph (2). (See            July 1, 2010.
                                      discussion of other proposed non-
                                      technical changes to the definition
                                      of ``satisfactory repayment
                                      arrangements'' in the ``Significant
                                      Proposed Regulations'' section of
                                      the preamble to these regulations)
Sec.   682.201 Eligible borrowers..  Minor technical changes..............  Clarity/consistency/accuracy.
Sec.   682.202 Permissible charges   Minor technical changes..............  Clarity/consistency/accuracy.
 by lenders to borrowers.
Sec.   682.203 Responsible parties.  No changes

[[Page 45719]]

 
Sec.   682.204 Maximum loan amounts  Remove language throughout the         To remove historical references that
                                      section that refers to loans first     are no longer needed.
                                      disbursed before July 1, 2008.
                                     In paragraphs (a)(1)(iii),             To ensure consistent treatment of
                                      (c)(1)(iii), and (d)(1)(iii),          students enrolled in programs of
                                      replace the word ``program'' with      less than a full academic year,
                                      the word ``enrolled'' in the           whether students are new or
                                      fraction for prorating loan amounts    transfer students, or are students
                                      for programs of study less than a      admitted to a program with advanced
                                      full academic year in length.          standing.
                                     Remove paragraph (f), as it pertains   To remove regulations that are no
                                      to the annual loan limits in the SLS   longer needed; SLS program ended
                                      Program.                               July 1, 1994.
Sec.   682.205 Disclosure            Remove regulations governing required  The SAFRA Act eliminated the
 requirements for lenders.            lender disclosures to borrowers in     authority to make new FFEL Program
                                      Sec.   682.205(a), (b), (g), and (i)   loans effective July 1, 2010.
                                      that are provided when new loans are
                                      made.
                                     See discussion of proposed non-
                                      technical changes to the regulations
                                      governing lender disclosures to FFEL
                                      borrowers under ``FFEL Lender
                                      Disclosures for Borrowers Who Are 60
                                      Days Delinquent'' and ``FFEL Lender
                                      Repayment Disclosures to Borrowers
                                      Who Are Having Difficulty Making
                                      Payments'' in the ``Significant
                                      Proposed Regulations'' section of
                                      the preamble to these regulations.
Sec.   682.206 Due diligence in      Remove this section..................  To remove regulations governing FFEL
 making a loan.                                                              loan origination that are no longer
                                                                             needed as a result of the SAFRA
                                                                             Act.
Sec.   682.207 Due diligence in      Remove this section..................  To remove regulations governing the
 disbursing a loan.                                                          disbursement of new FFEL loans that
                                                                             are no longer needed as a result of
                                                                             the SAFRA Act.
Sec.   682.208 Due diligence in      Minor technical changes..............  Clarity/consistency/accuracy.
 servicing a loan.
Sec.   682.209 Repayment of a loan.  Add new Sec.   682.209(a)(3)(i)(D)     To ensure consistency with the HEA.
                                      explaining date repayment begins for
                                      borrowers with 6.0, 5.6, and 6.8
                                      percent fixed interest rate loans.
                                     Add exception to the repayment         To conform provision to the income-
                                      schedule requirements for              based repayment regulations.
                                      consolidation loans in redesignated
                                      Sec.   682.209(e)(4)(ii) for
                                      borrowers whose payment can be less
                                      than the amount of accruing interest
                                      under the income-based repayment
                                      plan.
                                     Remove Sec.   682.209(e) and (f)       To remove obsolete FFEL regulations.
                                      governing refinancing of existing
                                      PLUS and SLS loans to secure a
                                      variable interest rate from the
                                      regulations.
                                     Remove Sec.   682.209(j) governing     To remove provisions related to
                                      FFEL Consolidation Loan lender         making new FFEL Consolidation Loans
                                      certifications.                        that are no longer needed as a
                                                                             result of the SAFRA Act.
Sec.   682.210 Deferment...........  Add reference in Sec.   682.210(a)(4)  To clarify the ability of a
                                      to the ability of a representative     representative to act on a
                                      to request a military deferment on     borrower's behalf when the borrower
                                      behalf of a borrower.                  is not available to request a
                                                                             military deferment.
                                     Identify the applicable borrower       To clarify the regulations by
                                      cohort in introductory language to     identifying the deferment
                                      Sec.   682.210(b)(1)-(6) and add       requirements and eligibility
                                      cross-references to eligibility        criteria applicable to the pre-July
                                      criteria in Sec.   682.210 (c)-(r)     1, 1993 cohort of borrowers.
                                      for each deferment type available to
                                      these borrowers.
Sec.   682.211 Forbearance.........  See the discussion of proposed non-
                                      technical changes in this section
                                      under ``Forbearance for Borrowers
                                      Who are 270 or More Days Delinquent
                                      Prior to Guaranty Agency Default
                                      Claim Payment or Transfer by the
                                      Department to Collection Status.''
                                      ``Forbearance Provisions for
                                      Borrowers Receiving Department of
                                      Defense Student Loan Repayment
                                      Benefits,'' and ``Borrowers who are
                                      Delinquent When Forbearance is
                                      Granted'' in the ``Significant
                                      Proposed Regulations'' section of
                                      the preamble to these regulations.
Sec.   682.212 Prohibited            No changes...........................
 transactions.
Sec.   682.213 Prohibition against   No changes...........................
 the use of the Rule of the 78s.
Sec.   682.214 Compliance with       Remove this section..................  To remove regulations related to
 equal credit opportunity                                                    lender compliance with the Equal
 requirements.                                                               Credit Opportunity Act when making
                                                                             FFEL loans; these regulations are
                                                                             no longer needed as a result of the
                                                                             SAFRA Act.

[[Page 45720]]

 
Sec.   682.215 Income-based          See the changes to the regulations
 repayment plan.                      governing the Income-Based Repayment
                                      Plan for FFEL borrowers in the final
                                      regulations published on November 1,
                                      2012 (77 FR 66088).
Sec.   682.216 Teacher loan          In paragraphs (a) and (c), rephrase    To clarify that a teacher who is
 forgiveness program.                 to state that a borrower works         employed by an ESA may not always
                                      ``for'' an educational service         teach at an ESA facility.
                                      agency, not ``at'' an educational
                                      service agency.
                                     Redesignate last paragraph of Sec.     To clarify that a borrower employed
                                      682.216(c)(1)(iii) as paragraph (2)    by the school operated by the
                                      and renumber subsequent paragraphs.    Bureau of Indian Affairs is not
                                                                             subject to the requirements of Sec.
                                                                               682.216(1)(i)-(iii).
                                     Replace references to loan             To ensure consistency with the HEA
                                      ``discharge'' throughout the section   and section title.
                                      with ``loan forgiveness''.
Sec.   682.300 Payment of interest   Remove reference to deleted Sec.       To remove references to FFEL loan
 benefits on Stafford and             682.207 in paragraph (b)(2)(ii)(B)     disbursement and interest subsidy
 Consolidation loans.                 and remove paragraphs (c)(3) and (4)   payments to lenders on newly
                                      from the regulations.                  disbursed loans that are no longer
                                                                             needed as a result of the SAFRA
                                                                             Act.
Sec.   682.301 Eligibility of        Remove Sec.   682.301(c) allowing use  To remove provision related to new
 borrowers for interest benefits on   of unsubsidized Federal, State-        FFEL loan origination that is no
 Stafford and Consolidation loans.    sponsored, and private loans to        longer needed as a result of the
                                      cover expected family contribution     SAFRA Act.
                                      when determining loan eligibility.
Sec.   682.302 Payment of special    Minor technical changes..............  Clarity/consistency/accuracy.
 allowance on FFEL loans.
Sec.   682.303 [Reserved]..........  N/A..................................
Sec.   682.304 Methods for           No changes...........................
 computing interest benefits and
 special allowance.
Sec.   682.305 Procedures for        Revise Sec.   682.305(c) by deleting   To remove reference to FFEL loan
 payment of interest benefits and     the phrase ``originating or'' in       originations when determining
 special allowance and collection     (c)(1)(i) and removing (c)(1)(ii),     applicability of lender audit
 of origination and loan fees.        (vi), and (vii) from the regulations.  requirement to non-school lenders
                                                                             and to remove school lender audit
                                                                             requirement from the regulations.
                                                                             School lender audit requirements
                                                                             are no longer needed as the
                                                                             authority for new school lenders
                                                                             and new FFEL loans no longer
                                                                             exists. Audit requirements
                                                                             pertaining to lender trustees for
                                                                             schools or school-affiliated
                                                                             organizations were moved under the
                                                                             definition of ``Lender'' in Sec.
                                                                             682.200(b).
Sec.   682.400 Agreements between a  Revise Sec.   682.400(b)(1)(i) by      To ensure consistency with the HEA;
 guaranty agency and the Secretary.   replacing the word ``and'' with        Consolidation Loan borrowers are
                                      ``or'' and by removing the phrase      eligible for interest subsidy
                                      ``that consolidate only subsidized     during certain periods on the
                                      loans'' from the paragraph.            portion of the Consolidation loan
                                                                             that repaid subsidized FFEL or
                                                                             Direct loans.
Sec.   682.401 Basic program         In Sec.   682.401, remove from the     To remove provisions no longer
 agreement.                           regulations.                           needed as a result of the SAFRA
                                                                             Act.
                                         Sec.   682.401(b)(1)-(2),
                                         which pertain to annual and
                                         aggregate loan limits;.
                                         Sec.   682.401(b)(3),
                                         which specifies the duration of a
                                         borrower's eligibility for loans.
                                         Sec.   682.401(b)(5),
                                         which describes borrower
                                         responsibilities in the loan
                                         origination process.
                                         Sec.   682.401(b)(6),
                                         which details school eligibility
                                         requirements to participate in a
                                         guaranty agency's program, limits
                                         on that participation, and an
                                         agency's authority to limit,
                                         suspend and terminate a school's
                                         participation.
                                         Sec.  Sec.
                                         682.401(b)(8) and (b)(9), which
                                         outline when a guaranty agency
                                         must guarantee loans for students
                                         attending out-of-state schools
                                         and for out-of-state residents.
                                         Sec.   682.401(b)(12) and
                                         (b)(13), which authorize an
                                         administrative fee for
                                         consolidation and refinanced PLUS
                                         and SLS loans.
                                         Sec.   682.401(c), which
                                         requires guaranty agencies to
                                         provide lender-of-last resort
                                         loan origination services.
                                         Sec.   682.401(d)(4),
                                         which details requirements for
                                         use of the master promissory
                                         note(MPN); and.

[[Page 45721]]

 
                                         Sec.   682.401(e), which
                                         details guaranty agency
                                         prohibited activities to secure
                                         loan guarantees and other
                                         permissible activities..
                                       In redesignated Sec.                 To ensure accuracy; required
                                     682.401(b)(3)(i), replace reference     conforming changes.
                                     to deleted Sec.   682.209 (e) and (f)
                                     with program name references; in
                                     paragraph (b)(3)(vi)(B)(4), remove
                                     reference to deleted Sec.   682.207;
                                     and in paragraph (b)(6), insert
                                     reference to subpart N of 34 CFR part
                                     668
                                       In redesignated Sec.                 Delete obsolete regulations.
                                     682.401(b)(18), delete paragraph
                                     (b)(18)(ii), which references pre-
                                     October 1, 2006 loan consolidations
Sec.   682.402 Death, disability,    For Sec.   682.402(c), see the final
 closed school, false                 regulations published on November 1,
 certification, unpaid refund, and    2012 (77 FR 66088) for significant
 bankruptcy payments.                 changes to regulations governing
                                      discharge based on total and
                                      permanent disability.
                                     For Sec.   682.402(d), see the
                                      discussion of proposed non-technical
                                      changes to regulations governing
                                      discharge based on school closure
                                      under ``Closed School Discharge'' in
                                      the ``Significant Proposed
                                      Regulations'' section of the
                                      preamble to these regulations.
                                     In Sec.   682.402(l)(1), (l)(2)(ii),   To ensure accuracy.
                                      (l)(3)(i), and (n)(2), revise
                                      language to include reference to
                                      ``Federal default fees'' to fees
                                      included in an unpaid refund
                                      discharge.
Sec.   682.403 Federal advances for  Remove this section..................  To remove obsolete provisions
 claim payments.                                                             related to Federal advances made to
                                                                             a State or guaranty agency.
Sec.   682.404 Federal reinsurance   Minor technical changes..............  Clarity/consistency/accuracy.
 agreement.
Sec.   682.405 Loan rehabilitation   For proposed non-technical changes in
 agreement.                           Sec.   682.405, see the discussions
                                      under ``Loan Rehabilitation
                                      Agreement: Reasonable and Affordable
                                      Payment Standard'' and ``Loan
                                      Rehabilitation Agreement: Treatment
                                      of Borrowers Subject to
                                      Administrative Wage Garnishment'' in
                                      the ``Significant Proposed
                                      Regulations'' section of the
                                      preamble to these regulations.
Sec.   682.406 Conditions for claim  In Sec.   682.406(a)(2)(ii), remove    To ensure accuracy.
 payments from the Federal Fund and   reference to deleted Sec.   682.207.
 for reinsurance coverage.
Sec.   682.407 Discharge of student  Minor technical change...............
 loan indebtedness for survivors of
 victims of the September 11, 2001,
 attacks.
Sec.   682.408 Loan disbursement     Remove this section..................  To remove regulations governing FFEL
 through an escrow agent.                                                    loan disbursement through an escrow
                                                                             agent that are no longer needed as
                                                                             a result of the SAFRA Act.
Sec.   682.409 Mandatory assignment  Minor technical change...............  Clarity/consistency/accuracy.
 by guaranty agencies of defaulted
 loans to the Secretary.
Sec.   682.410 Fiscal,               In Sec.   682.410(a)(2), remove        To ensure accuracy; required
 administrative, and enforcement      reference to deleted Sec.   682.418    conforming changes.
 requirements.                        and in paragraph (b)(7), replace
                                      reference to deleted Sec.
                                      682.509(a)(1) with reference to Sec.
                                        682.404(b)(3)(ii).
                                     In Sec.   682.410(a)(2)(ii), replace   To accurately reflect the HEA.
                                      the word ``preclaims'' with
                                      ``default aversion''.
                                     For Sec.   682.410(b)(9), see the
                                      discussion of proposed non-technical
                                      changes under ``Administrative Wage
                                      Garnishment (AWG) of the Disposable
                                      Pay of Defaulted FFEL Program
                                      Borrowers'' in the ``Significant
                                      Proposed Regulations'' section of
                                      the preamble to these regulations.
                                     In Sec.   682.410(c)(1)(i)(C), revise  To limit required guaranty agency
                                      to limit scope of guaranty agency      reviews of schools that formerly
                                      reviews of schools.                    participated in the FFEL Program to
                                                                             those schools with two-year cohort
                                                                             rates that include FFEL loans.
                                     In Sec.   682.410(c), remove (c)(4),   To remove provision no longer needed
                                      and in redesignated paragraphs         due to the SAFRA Act and make
                                      (c)(8) and (c)(10), make necessary     required conforming changes.
                                      conforming changes.

[[Page 45722]]

 
Sec.   682.411 Lender due diligence  Minor technical changes..............  Clarity/consistency/accuracy.
 in collecting guaranty agency
 loans.
Sec.   82.412 Consequences of the    Minor technical change...............  Clarity/consistency/accuracy.
 failure of a borrower or student
 to establish eligibility.
Sec.   682.413 Remedial actions....  Minor technical changes..............  Clarity/consistency/accuracy.
Sec.   682.414 Records, reports,     Remove reference to ``schools'' in     To reflect a change to the HEA made
 and inspection requirements for      Sec.   682.414(b)(2) and (b)(3)        by the HEOA.
 guaranty agency programs.            governing required guaranty agency
                                      reporting.
Sec.   682.415 [Reserved]..........  N/A..................................
Sec.   682.416 Requirements for      No changes...........................
 third-party servicers and lenders
 contracting with third-party
 servicers.
Sec.   682.417 Determination of      No changes...........................
 Federal funds or assets to be
 returned.
Sec.   682.418 Prohibited uses of    Remove this section..................  To remove an obsolete section of the
 the assets of the Operating Fund                                            regulations governing the uses of a
 during periods in which the                                                 guaranty agency's Operating Fund
 Operating fund contains                                                     when it contains funds transferred
 transferred funds owed to the                                               from the agency's Federal Fund.
 Federal Fund.
Sec.   682.419 Guaranty agency       Minor technical changes..............  Clarity/consistency/accuracy.
 Federal Fund.
Sec.   682.420 Federal nonliquid     Remove this section..................  To remove an obsolete section of the
 assets.                                                                     regulations that govern a guaranty
                                                                             agency's use of Federal non-liquid
                                                                             assets.
Sec.   682.421 Funds transferred     Remove this section..................  To remove an obsolete section of the
 from the Federal Fund to the                                                regulations that govern the
 Operating Fund by a guaranty                                                transfer of funds from a guaranty
 agency.                                                                     agency's Federal Fund to its
                                                                             Operating Fund.
Sec.   682.422 Guaranty agency       Remove this section..................  To remove an obsolete section of the
 repayment of funds transferred                                              regulations that govern a guaranty
 from the Federal Fund.                                                      agency's repayment of funds
                                                                             transferred from its Federal Fund
                                                                             to its Operating Fund.
Sec.   682.423 Guaranty agency       Minor technical changes..............  Clarity/consistency/accuracy.
 Operating Fund.
Subpart E--Federal Guaranteed        Remove and reserve this subpart......  To remove obsolete subpart that
 Student Loan Programs.                                                      governs the Federal Insured Student
                                                                             Loan Program (FISL) under which no
                                                                             loans have been made since 1983.
Sec.  Sec.   682.500 to 682.515....
Sec.   682.600 [Reserved]..........  N/A..................................
Sec.   682.601 Rules for a school    Remove this section..................  To remove regulations governing
 that makes or originates loans.                                             schools that make or originate FFEL
                                                                             Program loans. No new FFEL school
                                                                             lenders were authorized after
                                                                             February 7, 2006, and no new FFEL
                                                                             loans are authorized to be made by
                                                                             any lender as a result of the SAFRA
                                                                             Act, effective July 1, 2010.
Sec.   682.602 Rules for a school    Remove this section..................  To remove regulations governing
 or school-affiliated organization                                           schools and school-affiliated
 that makes or originates loans                                              organizations that originate or
 through an eligible lender trustee.                                         hold FFEL Program loans as a lender
                                                                             through an eligible lender trustee.
                                                                             No new trustee arrangements for
                                                                             this purpose are authorized after
                                                                             September 30, 2006, and no new FFEL
                                                                             loans are authorized to be made by
                                                                             any lender as a result of SAFRA
                                                                             Act, effective July 1, 2010.
Sec.   682.603 Certification by a    In Sec.   682.603(h), remove           To correct technical error in the
 participating school in connection   provisions in paragraph (h)(1) that    regulatory section.
 with a loan application.             duplicate Sec.   682.603(f)(1)(i)
                                      and redesignate current Sec.
                                      682.603(h)(2) as Sec.   682.603(g).
                                     Replace cross-references to deleted    To ensure accuracy; required
                                      Sec.   682.604 provisions in Sec.      conforming changes.
                                      682.603((b)(3) and redesignated Sec.
                                        682.603(j)(1) and (2) with
                                      applicable statutory citations.
Sec.   682.604 Processing the        Remove Sec.   682.604 (a); remove and  To remove provisions governing
 borrower's loan proceeds and         reserve paragraph (b); remove-         school delivery of loan
 counseling borrowers.                paragraphs (c)-(f) and (h); and        disbursements and entrance
                                      redesignate paragraph (g) as           counseling with new borrowers that
                                      paragraph (a).                         are no longer needed as a result of
                                                                             the SAFRA Act and to make required
                                                                             conforming changes.
                                     Revise redesignated Sec.   682.604(a)  To incorporate Department's earlier
                                      governing ``exit counseling'' by:      policy guidance and make necessary
                                                                             conforming changes.
                                      Adding another method for
                                      providing exit counseling materials
                                      to students who withdraw or fail to
                                      complete exit counseling;

[[Page 45723]]

 
                                      Replacing cross-references
                                      to deleted provisions in paragraph
                                      (a)(2)(vi) with the content of those
                                      cross-references; and
                                         Adding new paragraph
                                         (a)(5) to reflect earlier
                                         guidance on school compliance
                                         with the exit counseling
                                         requirements.
Sec.   682.605 Determining the date  Minor technical changes..............  Clarity/consistency/accuracy.
 of a student's withdrawal.
Sec.   682.606 [Reserved]..........  N/A..................................
Sec.   682.607 Payment of a refund   No changes...........................
 or a return of title IV, HEA
 program funds to a lender upon a
 student's withdrawal.
Sec.   682.608 Termination of a      Remove this section..................  To remove section governing
 school's lending eligibility.                                               termination of a school lender that
                                                                             is no longer needed in the
                                                                             regulations.
Sec.   682.609 Remedial actions....  No changes...........................
Sec.   682.610 Administrative and    For Sec.   682.610(c), see the
 fiscal requirements for              discussion of proposed non-technical
 participating schools.               changes to regulations governing
                                      student enrollment reporting under
                                      ''School Enrollment Status Reporting
                                      Requirements'' in the ``Significant
                                      Proposed Regulations'' section of
                                      the preamble to these regulations.
                                     Other minor technical changes........  Clarity/consistency/accuracy.
Sec.   682.611 [Reserved]..........  N/A..................................
Subpart G--Limitation, suspension,   Revise title to subpart by deleting    Required conforming change;
 or Termination of Lender or third-   reference to schools.                  termination of schools from loan
 party Servicer Eligibility and                                              programs became purview of
 Disqualification of Lenders and                                             Department effective July 1, 2010.
 Schools.
Sec.   682.700 Purpose and scope...  Minor technical changes..............  Clarity/consistency/accuracy.
Sec.   682.701 Definitions of terms  Minor technical change...............  Clarity/consistency/accuracy.
 used in this subpart.
Sec.   682.702 Effect on             In paragraph (b), remove reference to  As a result of the SAFRA Act,
 participation.                       the number or total amount of new      limitation, suspension, and
                                      loans in lender limitation actions.    termination actions against lenders
                                                                             no longer involve loss of ability
                                                                             to make new FFEL loans or loan
                                                                             guarantees , or to receive benefits
                                                                             on those loans, since no new FFEL
                                                                             Program loans are being made.
                                     Remove paragraph (d) referencing new
                                      loan guarantees and payment of
                                      lender benefits on new loans; make
                                      related conforming change in Sec.
                                      682.702(a).
Sec.   682.703 Informal compliance   No changes...........................
 procedures.
Sec.   682.704 Emergency action....  In paragraph (a), remove reference to  As a result of the SAFRA Act,
                                      new loan guarantee commitments.        emergency actions against lenders
                                                                             no longer involve loss of guarantee
                                                                             commitments.
Sec.   682.705 Suspension            Remove Sec.   682.705(c) on the        Use of ``rebuttable presumption'' in
 proceedings.                         application of a ``rebuttable          lender suspension actions applies
                                      presumption'' in lender suspension     only to existing loans and lender
                                      proceedings based on prohibitions in   activities prior to July 1, 2010.
                                      section 435(d)(5) of the HEA.          Moved to Sec.   682.709(d).
                                     Make other minor technical changes...  Clarity/consistency/accuracy.
Sec.   682.706 Limitation or         Remove Sec.   682.706(d) that governs  Use of ``rebuttable presumption'' in
 termination proceedings.             the application of a ``rebuttable      lender limitation and termination
                                      assumption'' in lender limitation      proceedings applies only to
                                      and termination proceedings based on   existing loans and lender
                                      prohibitions in section 435(d)(5).     activities prior to July 1, 2010.
Sec.   682.707 Appeals in a          No changes...........................
 limitation or termination
 proceeding.
Sec.   682.708 Evidence of mailing   No changes...........................
 and receipt dates.
Sec.   682.709 Reimbursements,       Add ``rebuttable presumption''         Use of ``rebuttable presumption'' in
 refunds, and offsets.                provision that is being removed from   lender sanctions applies only to
                                      Sec.  Sec.   682.705 and 682.706 to    existing loans and lender
                                      Sec.   682.709 as new paragraph(d).    activities prior to July 1, 2010.
Sec.   682.710 Removal of            No changes...........................
 limitation.
Sec.   682.711 Reinstatement after   Remove Sec.   682.711(c) governing     To remove provision governing school
 termination.                         school lender termination and          lenders that is no longer needed.
                                      reinstatement.
Sec.   682.712 Disqualification      Remove Sec.   682.712(i) referencing   To ensure accuracy; required
 review of limitation, suspension,    FISL program standards that have       confirming change.
 and termination actions taken by     been removed from the regulations.
 guarantee agencies against lenders.

[[Page 45724]]

 
Sec.   682.713 Disqualification      Remove this section..................  To remove section governing
 review of limitation, suspension,                                           Department review of guaranty
 and termination actions taken by                                            agency sanctions against schools
 guarantee agencies against a                                                that is no longer needed, as
 school.                                                                     Department will undertake all such
                                                                             actions.
Subpart H--Special Allowance         Remove Sec.   682.800 and reserve      To remove a section prohibiting
 Payments on Loans Made or            subpart H of part 682.                 discrimination when making new
 Purchased With Proceeds of Tax-                                             loans with tax-exempt funds that,
 Exempt Obligations.                                                         as a result of SAFRA, is no longer
                                                                             needed in the regulations.
Sec.   682.800 Prohibition against
 discrimination as a condition for
 receiving special allowance
 payments.
Appendix C to Part 682.............  Remove and reserve this appendix.....  To remove the appendix containing
                                                                             provisions for curing lender due
                                                                             diligence violations in the FISL
                                                                             program.
Appendix D to Part 682.............  Minor technical change...............  To ensure accuracy and consistency.
----------------------------------------------------------------------------------------------------------------

    Appendix B below summarizes proposed technical changes to the 
Direct Loan Program regulations in 34 CFR part 685, excluding minor 
technical or conforming changes. A document showing all proposed 
changes to 34 CFR part 685 that are included in this NPRM may be found 
at http://www2.ed.gov/policy/highered/reg/hearulemaking/2011/loans.html.
    Laws cited in Appendix B:
     Higher Education Act of 1965, as amended (HEA)
     Consolidated Appropriations Act, 2012 (Pub. L. 112-74, 
enacted December 23, 2011)
     Budget Control Act of 2011 (BCA) (Pub. L. 112-25, enacted 
August 2, 2011)
     SAFRA Act (included in the Health Care and Reconciliation 
Act of 2010) (Pub. L. 111-152, enacted March 30, 2010)
     Higher Education Opportunity Act (HEOA) (Pub. L. 110-315, 
enacted August 14, 2008)

    Note: The following appendix will not appear in the Code of 
Federal Regulations.

                      Appendix B--Summary of Proposed Technical Changes to 34 CFR Part 685
----------------------------------------------------------------------------------------------------------------
              Section                           Proposed change                            Reason
----------------------------------------------------------------------------------------------------------------
General............................  Revise nomenclature as necessary to    Greater clarity and consistency.
                                      ensure that the same terms are used
                                      to refer to Direct Loan Program
                                      components and Direct Loan types
                                      throughout 34 CFR part 685.
                                     Where applicable, remove language      To reflect changes to the HEA made
                                      that is no longer needed due to the    by the SAFRA Act.
                                      elimination of the authority for new
                                      FFEL Program loans after July 1,
                                      2010.
                                     Where applicable, remove or revise     To ensure that the Direct Loan
                                      language that does not reflect         Program regulations accurately
                                      current procedures used in the         reflect current processes.
                                      Direct Loan Program.
                                     Replace all references to ``credit     To reflect a change to the HEA made
                                      bureau'' with ``consumer reporting     by the HEOA.
                                      agency''
Sec.   685.100 The William D. Ford   Revise Sec.   685.100(a)(1) to         To reflect a change to the HEA made
 Federal Direct Loan Program.         specify that.                          by the BCA.
                                         Graduate and professional
                                         students are not eligible to
                                         receive Direct Subsidized Loans
                                         effective for loan periods
                                         beginning on or after July 1,
                                         2012; and.
                                         The Secretary does not     To reflect a change to the HEA made
                                         subsidize the interest that         by the Consolidated Appropriations
                                         accrues during the grace period     Act, 2012.
                                         on Direct Subsidized Loans for
                                         which the first disbursement is
                                         made on or after July 1, 2012 and
                                         before July 1, 2014.
Sec.   685.101 Participation in the  Revise Sec.   685.101(b) to specify    To reflect a change to the HEA made
 Direct Loan Program.                 that graduate and professional         by the BCA.
                                      students are not eligible to receive
                                      Direct Subsidized Loans effective
                                      for loan periods beginning on or
                                      after July 1, 2012.
Sec.   685.102 Definitions.........  See the discussion of proposed
                                      technical changes to the definitions
                                      in Sec.   685.102 under
                                      ``Modification of Direct Loan
                                      Program Regulations: Definitions''
                                      in the ``Significant Proposed
                                      Regulations'' section of the
                                      preamble to these proposed
                                      regulations.

[[Page 45725]]

 
                                     See the discussion of proposed non-
                                      technical changes to the definition
                                      of ``satisfactory repayment
                                      arrangement'' in Sec.   685.102(b)
                                      under ``Satisfactory Repayment
                                      Arrangements'' in the ``Significant
                                      Proposed Regulations'' section of
                                      the preamble to these proposed
                                      regulations.
Sec.   685.103 Applicability of      No changes...........................
 subparts.
Sec.   685.200 Borrower eligibility  In Sec.   685.200(a)(1)(iv)            Technical correction for consistency
                                      introductory text, replace             with terminology used in Sec.
                                      ``cancelled'' with ``discharged''.     685.212 and Sec.   685.213.
                                     Add language to Sec.                   Technical correction; this provision
                                      685.200(a)(1)(iv)(B)(2) stating that   was inadvertently omitted from
                                      a borrower who receives a new loan     final regulations published by the
                                      after a prior total and permanent      Department on October 29, 2009 (74
                                      disability (TPD) discharge must        FR 55972) and is consistent with
                                      acknowledge that neither the new       the provision in current Sec.
                                      loan nor any previously discharged     685.200(a)(1)(iv)(B)(3) that
                                      loan that is reinstated may be         applies to borrowers who receive
                                      discharged in the future based on an   new loans within three years of
                                      impairment that exists at the time     being granted a conditional TPD
                                      the new loan is made, unless the       discharge under the regulations
                                      impairment substantially               that were in effect for TPD
                                      deteriorates.                          discharge applications received
                                                                             prior to July 1, 2010.
                                     Revise Sec.   685.200(a)(1)(v) to      To reflect a change to the HEA made
                                      provide that this paragraph applies    by the Consolidated Appropriations
                                      only to students who were enrolled     Act, 2012.
                                      in a program of study prior to July
                                      1, 2012.
                                     In Sec.   685.200(c)(1)(vi), add new   For consistency with the FFEL
                                      paragraph D describing examples of     provision in Sec.
                                      extenuating circumstances that the     682.201(c)(2)(v).
                                      Secretary may consider in
                                      determining that a borrower may
                                      receive a Direct PLUS Loan despite
                                      having an adverse credit history.
Sec.   685.201 Obtaining a loan....  In Sec.   685.201(a) and (b), remove   To remove obsolete language and,
                                      or revise language as necessary. In    where applicable, replace with
                                      Sec.   685.201(b)(1), add language     updated language that reflects
                                      stating that the dependent student     current procedures in the Direct
                                      on whose behalf a parent obtains a     Loan Program. In paragraph (b)(1),
                                      Direct PLUS Loan must complete and     add language to reflect guidance
                                      submit a Free Application for          provided in the Department's Dear
                                      Federal Student Aid (FAFSA).           Colleague Letter GEN-11-07.
Sec.   685.202 Charges for which     In Sec.   685.202(b)(2), add language  To reflect a change made by the
 borrowers are responsible.           stating that for a Direct Subsidized   Consolidated Appropriations Act,
                                      Loan for which the first               2012, that eliminates the grace
                                      disbursement is made on or after       period interest subsidy for Direct
                                      July 1, 2012 and before July 1,        Subsidized Loans with a first
                                      2014, interest that accrues during     disbursement date on or after July
                                      the grace period may be capitalized    1, 2012 and before July 1, 2014.
                                      when the loan enters repayment.
Sec.   685.203 Loan limits.........  Throughout the section, remove         To simplify the loan limit
                                      references to loan limits that were    regulations by removing outdated
                                      in effect prior to more recent         language.
                                      statutory changes.
                                     In Sec.   685.203(a)(5) and (b)(2),    To reflect a change made by the BCA.
                                      revise language to reflect the
                                      elimination of subsidized loan
                                      eligibility for graduate and
                                      professional students for loan
                                      periods beginning on or after July
                                      1, 2012.
Sec.   685.204 Deferment...........  See the discussion of proposed
                                      technical changes in this section
                                      under ``Modification of Direct Loan
                                      Program Regulations: Deferment'' in
                                      the ``Significant Proposed
                                      Regulations'' section of the
                                      preamble to these proposed
                                      regulations.
Sec.   685.205 Forbearance.........  Add new Sec.   685.205(a)(5)(iii)      To reflect the Department's
                                      describing the conditions under        longstanding policy in the Direct
                                      which a borrower may receive           Loan Program and for consistency
                                      forbearance while performing           with the corresponding FFEL Program
                                      qualifying teaching service for loan   regulations in Sec.   682.216(e).
                                      forgiveness under Sec.   685.217.
                                     See the discussion of proposed non-
                                      technical changes in this section
                                      under ``Forbearance for Borrowers
                                      Who are 270 or More Days Delinquent
                                      Prior to Guaranty Agency Default
                                      Claim Payment or Transfer by the
                                      Department to Collection Status,''
                                      ``Forbearance Provisions for
                                      Borrowers Receiving Department of
                                      Defense Student Loan Repayment
                                      Benefits,'' and ``Borrowers Who are
                                      Delinquent when Authorized
                                      Forbearance is Granted'' in the
                                      ``Significant Proposed Regulations''
                                      section of the preamble to these
                                      proposed regulations.
Sec.   685.206 Borrower              Minor technical changes..............  Clarity/consistency/accuracy.
 responsibilities and defenses.

[[Page 45726]]

 
Sec.   685.207 Obligation to repay.  Add new Sec.   685.207(a)(3) stating   To reflect the Department's
                                      that a borrower's first payment is     longstanding policy in regulations.
                                      due within 60 days of a loan
                                      entering repayment.
                                     In Sec.   685.207(b)(3), add language  To reflect a change made by the
                                      to reflect the temporary elimination   Consolidated Appropriations Act,
                                      of the grace period interest subsidy   2012.
                                      for Direct Subsidized Loans.
Sec.   685.208 Repayment plans.....  See the final regulations published
                                      on November 1, 2012 (77 FR 66088)
                                      for technical changes in Sec.
                                      685.208.
Sec.   685.209 Income-Contingent     See the final regulations published
 Repayment Plan.                      on November 1, 2012 (77 FR 66088)
                                      for significant regulatory changes
                                      in Sec.   685.209.
Sec.   685.210 Choice of repayment   In Sec.   685.210(a)(2), add a cross-  To clarify that a Direct
 plan.                                reference to the standard repayment    Consolidation Loan borrower who
                                      plan for Direct Consolidation Loan     does not select a repayment plan
                                      borrowers entering repayment on/       will be placed on the standard
                                      after July 1, 2006.                    repayment plan for Direct
                                                                             Consolidation Loan borrowers
                                                                             described in Sec.   685.208(c)
                                                                             rather than the standard repayment
                                                                             plan with a maximum 10-year
                                                                             repayment period described in Sec.
                                                                              685.208(b).
                                     See the final regulations published
                                      on November 1, 2012 (77 FR 66088)
                                      for additional technical changes in
                                      Sec.   685.210(b)(2)(ii).
Sec.   685.211 Miscellaneous         Minor technical changes in Sec.        Clarity/consistency/accuracy.
 repayment provisions.                685.211(a) and (d) (including
                                      technical changes in Sec.
                                      685.211(a)(1) included in the final
                                      regulations published on November 1,
                                      2012 (77 FR 66088).
                                     For proposed non-technical changes in
                                      Sec.   685.211(f), see the
                                      discussions under ``Loan
                                      Rehabilitation Agreement: Reasonable
                                      and Affordable Payment Standard''
                                      and ``Loan Rehabilitation Agreement:
                                      Treatment of Borrowers Subject to
                                      Administrative Wage Garnishment'' in
                                      the ``Significant Proposed
                                      Regulations'' section of the
                                      preamble to these proposed
                                      regulations.
Sec.   685.212 Discharge of a loan   Minor technical changes (including     Clarity/consistency/accuracy.
 obligation.                          technical changes included in the
                                      final regulations published on
                                      November 1, 2012 (77 FR 66088).
Sec.   685.213 Total and permanent   See the final regulations published
 disability discharge.                on November 1, 2012 (77 FR 66088)
                                      for significant regulatory changes
                                      in Sec.   685.213.
Sec.   685.214 Closed school         Revise Sec.   685.214(a)(2)(ii) to     For consistency with the
 discharge.                           clarify that the definition of         corresponding FFEL Program
                                      ``school'' applies regardless of       regulation in Sec.
                                      whether the school or its location     682.402(d)(1)(ii)(C).
                                      or branch is considered eligible.
                                     Revise Sec.   685.214(b)(4) to state   For consistency with the
                                      that the Secretary reports a           corresponding FFEL Program
                                      discharge to consumer reporting        regulation in Sec.
                                      agencies ``so as to delete all         682.402(d)(2)(iv).
                                      adverse credit history assigned to
                                      the loan''.
                                     Add new Sec.   685.214(c)(4)           For consistency with Sec.  Sec.
                                      describing the conditions under        685.215(c)(7), 685.216(c)(2), and
                                      which the Secretary may grant a        682.402(d)(8).
                                      discharge without an application
                                      from the borrower.
                                     See the discussion of proposed non-
                                      technical changes in Sec.
                                      685.214(c)(1)(ii) under ``Closed
                                      School Discharge'' in the
                                      ``Significant Proposed Regulations''
                                      section of the preamble to these
                                      proposed regulations.
Sec.   685.215 Discharge for false   In Sec.   685.215(a)(1)(iv), remove    To eliminate the need to refer to
 certification of student             the cross-reference to the             the FFEL Program regulations for
 eligibility or unauthorized          definition of ``identity theft'' in    the definition of ``identity
 payment.                             the FFEL regulations;.                 theft.''
                                     In Sec.   685.215(c)(4), add the       To eliminate the need to refer to
                                      definition of ``identity theft''       the FFEL Program regulations for
                                      from Sec.   682.402(e)(2)(iv) of the   the definition of ``identity
                                      FFEL Program regulations.              theft.''
                                     Revise Sec.   685.215(a)(5) to state   For consistency with the
                                      that the Secretary reports a           corresponding FFEL Program
                                      discharge to consumer reporting        regulation in Sec.
                                      agencies ``so as to delete all         682.402(e)(2)(iv).
                                      adverse credit history assigned to
                                      the loan''.
Sec.   685.216 Unpaid refund         Minor technical changes..............  Clarity/consistency/accuracy.
 discharge.
Sec.   685.217 Teacher loan          Throughout section, replace            To clarify that a teacher who is
 forgiveness program.                 references to employment ``at'' or     employed by an ESA may not
                                      teaching ``at'' an education service   necessarily teach at the ESA
                                      agency (ESA) to employment ``by'' or   itself.
                                      teaching ``for'' an ESA.

[[Page 45727]]

 
                                     Revise Sec.   685.217(c)(1)(iii) by    To clarify that Bureau of Indian
                                      making the last sentence a new         Education schools are not subject
                                      paragraph.                             to the requirements in Sec.
                                                                             685.217(c)(1)(i)--(iii).
                                     Add new Sec.   685.217(c)(13) stating  To reflect longstanding policy in
                                      that borrowers performing qualifying   the Direct Loan Program and for
                                      teaching service may request           consistency with the corresponding
                                      forbearance in accordance with Sec.    FFEL Program regulations in Sec.
                                       685.205(a)(5).                        682.216(e).
Sec.   685.218 Discharge of student  Minor technical changes..............  Clarity/consistency/accuracy.
 loan indebtedness for survivors of
 victims of the September 11, 2001,
 attacks.
Sec.   685.219 Public Service Loan   No changes...........................
 Forgiveness.
Sec.   685.220 Consolidation.......  See the discussion of proposed
                                      technical changes under
                                      ``Modification of Direct Loan
                                      Program Regulations: Consolidation''
                                      in the ``Significant Proposed
                                      Regulations'' section of the
                                      preamble to these proposed
                                      regulations.
Sec.   685.221 Income-based          See the final regulations published
 repayment plan.                      on November 1, 2012 (77 FR 66088)
                                      for significant regulatory changes
                                      in Sec.   685.221.
Sec.   685.300 Agreements between    In Sec.   685.300(a), add new          To reflect in the regulations an
 an eligible school and the           paragraph (5) stating that schools     existing requirement for schools
 Secretary for participation in the   must, on a monthly basis, reconcile    participating in the Direct Loan
 Direct Loan Program.                 institutional records with Direct      Program.
                                      Loan funds received from the
                                      Secretary and Direct Loan
                                      disbursement records submitted to
                                      and accepted by the Secretary.
                                     Remove Sec.   685.300(b)(8), which     To eliminate a provision that is no
                                      prohibits borrowers from receiving     longer needed due to the change
                                      the same type of loan under both the   made by the SAFRA Act providing
                                      Direct Loan Program and the FFEL       that no new loans may be made under
                                      Program for the same period of         the FFEL Program effective July 1,
                                      enrollment at the same school.         2010.
Sec.   685.301 Origination of a      Move current Sec.   685.301(b), which  These provisions are more
 loan by a Direct Loan Program        contains provisions for determining    appropriately included in Sec.
 school.                              disbursement dates and amounts, to     685.303, which covers processing
                                      Sec.   685.303 as new paragraph Sec.   loan proceeds.
                                        685.303(d).
                                     Move current Sec.   685.301(c), which  These provisions are more
                                      contains provisions for governing      appropriately included in Sec.
                                      annual loan limit progression based    685.303, which covers processing
                                      on completion of an academic year,     loan proceeds.
                                      to Sec.   685.303 as new paragraph
                                      Sec.   685.303(e).
                                     Revise Sec.   685.301(a)(10).........  To fix a technical error resulting
                                                                             from incorrect amendatory language
                                                                             in final regulations published by
                                                                             the Department on November 1, 2007
                                                                             (72 FR 62011 and 72 FR 62032).
                                     In redesignated Sec.   685.301(c),     To correct a technical error in the
                                      remove paragraph (2) and redesignate   final regulations published by the
                                      paragraph (c)(1) as (c).               Department on October 29, 2010 (75
                                                                             FR 66832). The intent of the
                                                                             regulations was to replace the
                                                                             original paragraphs Sec.
                                                                             685.301(c)(1) and (2) with the text
                                                                             in paragraph (1), but paragraph (2)
                                                                             was inadvertently retained.
                                     See the discussion of a proposed non-
                                      technical change in Sec.
                                      685.301(a)(10)(ii) under ``Minimum
                                      loan period for transfer students in
                                      non-term and certain non-standard
                                      term programs'' in the ``Significant
                                      Proposed Regulations'' section of
                                      the preamble to these proposed
                                      regulations.
Sec.   685.302 [Reserved]..........  N/A..................................
Sec.   685.303 Processing loan       Add new Sec.   685.303(d) and          Refer to the proposed changes for
 proceeds.                            685.303(e) that contain the            Sec.   685.301.
                                      provisions currently in Sec.
                                      685.301(b) and 685.301(c).
Sec.   685.304 Counseling borrowers  See the discussion of technical
                                      changes under ``Modification of
                                      Direct Loan Program Regulations:
                                      Counseling Borrowers'' in the
                                      ``Significant Proposed Regulations''
                                      section of the preamble to these
                                      proposed regulations.
Sec.   685.305 Determining the date  Minor technical changes..............  Clarity/consistency/accuracy.
 of a student's withdrawal.
Sec.   685.306 Payment of a refund   Minor technical changes..............  Clarity/consistency/accuracy.
 or return of title IV, HEA program
 funds to the Secretary.

[[Page 45728]]

 
Sec.   685.307 Withdrawal procedure  Minor technical changes only.........  Clarity/consistency/accuracy.
 for schools participating in the
 Direct Loan Program.
Sec.   685.308 Remedial actions....  No changes...........................
Sec.   685.309 Administrative and    In Sec.   685.309(g), remove the       Remove an obsolete reference to a
 fiscal control and fund accounting   words ``Except for funds paid to a     statutory provision related to
 requirements for schools             school under section 452(b)(1) of      payment of administrative fees to
 participating in the Direct Loan     the Act''.                             Direct Loan schools that was
 Program.                                                                    removed from the HEA many years
                                                                             ago.
                                     See the discussion of proposed non-
                                      technical changes in Sec.
                                      685.309(b) under ``School Enrollment
                                      Status Reporting Requirements'' in
                                      the ``Significant Proposed
                                      Regulations'' section of the
                                      preamble to these proposed
                                      regulations.
Sec.   685.400 School participation  Remove this section..................  To remove obsolete provisions that
 requirements.                                                               no longer apply to the Direct Loan
                                                                             Program.
Sec.   685.401 [Reserved]..........  N/A..................................
Sec.   685.402 Criteria for schools  Remove this section..................  With the exception of the provisions
 to originate loans.                                                         in Sec.   685.402(f), the
                                                                             provisions in this section are
                                                                             obsolete. The provisions in Sec.
                                                                             685.402(f) related to the use of
                                                                             the Master Promissory Note (MPN)
                                                                             would be updated to reflect current
                                                                             policy and incorporated in the
                                                                             definition of MPN in Sec.
                                                                             685.102(b).
----------------------------------------------------------------------------------------------------------------

[FR Doc. 2013-15812 Filed 7-23-13; 11:15 am]
BILLING CODE 4000-01-P
```