[Federal Register Volume 66, Number 8 (Thursday, January 11, 2001)]
[Rules and Regulations]
[Pages 2790-2793]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-1039]



[[Page 2789]]

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Part IX





Office of Personnel Management





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5 CFR Part 537



Repayment of Student Loans; Final Rule

Federal Register / Vol. 66, No. 8 / Thursday, January 11, 2001 / 
Rules and Regulations

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OFFICE OF PERSONNEL MANAGEMENT

5 CFR Part 537

RIN: 3206-AJ12


Repayment of Student Loans

AGENCY: Office of Personnel Management.

ACTION: Final rulemaking.

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SUMMARY: The Office of Personnel Management (OPM) is issuing final 
regulations to implement provisions authorizing Federal agencies to 
repay federally insured student loans when necessary to recruit or 
retain highly qualified professional, technical, or administrative 
personnel.

DATES: Effective February 12, 2001.

FOR FURTHER INFORMATION CONTACT: Michael J. Mahoney, (202) 606-0830 
(FAX 202-606-0390).

SUPPLEMENTARY INFORMATION: On June 22, 2000, OPM published proposed 
regulations to implement provisions of 5 U.S.C. 5379 (Public Law 101-
510). Public Law 101-510 (National Defense Authorization Act for Fiscal 
Year 1991), section 1206, amends subchapter VII of 5 U.S.C. chapter 53, 
by adding a new section 5379. This section authorizes agencies to 
establish a program under which they may agree to repay all or part of 
an outstanding federally insured student loan to facilitate the 
recruitment or retention of highly qualified professional, technical, 
or administrative employees.
    The repayment authority is one of several flexibilities made 
available to agencies when trying to attract individuals to the Federal 
service, or retain highly qualified professional, technical, or 
administrative personnel.
    The final regulations describe the following: Loans Qualifying for 
Repayment, Employees Covered, Payment Limitations, Employee Service 
Requirements, and Selection Procedures.

Comments

    OPM received comments from 15 agencies, four professional 
organizations, one labor union, and 14 individuals.
    A few individuals opposed this regulation because they thought it 
was an unfair and inappropriate use of taxpayer monies. OPM disagrees 
and is moving forward with this regulation because we believe this 
incentive will benefit both agencies and employees. One individual 
thought this incentive was not fair to those individuals who never took 
out a student loan. Another individual thought it was inappropriate for 
the Federal government to be repaying loans when no incentive was being 
offered to those who managed to pay off their loans or stay out of debt 
in the first place. OPM disagrees, noting that Congress established 
this authority in statute.
    Several agencies noted that non-General Schedule (GS) employees 
would be excluded from this incentive. Consequently, they asked that 
employees serving on other pay scales (including people serving in 
demonstration projects) be included in the final regulation. OPM did 
not incorporate this suggestion because the limitation to GS employees 
is specified in the authorizing statute.
    Six agencies commented that the two level review process was overly 
burdensome and redundant. OPM agreed and streamlined this section by 
deleting the higher level review and approval portion of this section. 
Agencies must establish student loan repayment plans which include 
delegation of authority to review and approve offering student loan 
repayment benefits, but no further review process is needed.
    Two agencies suggested that the final regulations clarify which 
employees would be eligible for the student loan repayment incentive. 
OPM did not adopt this suggestion because we will address specific 
examples in accompanying Questions and Answers guidance.
    Three agencies suggested that OPM drop the ``case by case'' review 
requirement in the Criteria for Payment section. OPM adopted this 
suggestion. Several agencies complained that the ``factors to be 
considered'' portion of this section were overly restrictive and 
burdensome. OPM adopted this suggestion by deleting these 
considerations.
    Twelve agencies suggested that OPM clarify the tax implications of 
this incentive and offer alternatives to help lessen the impact of a 
potential tax burden on recipients of this incentive. OPM adopted this 
suggestion and added language clarifying how agencies can make payments 
to ease the tax burden on recipients of loan repayment benefits. The 
final regulations specify that tax withholdings must be applied at the 
time any loan repayment is made. The final regulations also advise 
agencies that:
    <bullet> In addition to lump sum payments, smaller, incremental 
payments can be made;
    <bullet> Employees can write checks to the agency to cover their 
tax liability rather than have large withholdings deducted from their 
paychecks;
    <bullet> Withholdings can be deducted from the amount of the loan 
repayment before it is issued; and
    <bullet> The Internal Revenue Service should be consulted for 
specifics concerning the tax withholding implications of this 
incentive.
    Several agencies suggested the final regulations shorten the three-
year service requirement or give agencies the flexibility to prorate 
the service requirement when the full amount of the incentive is not 
being offered. OPM did not adopt this suggestion because the 
requirement is specified in statute. One agency suggested the final 
regulations clarify whether a new service agreement is needed when an 
agency extends or renews loan repayments. OPM adopted this suggestion 
with language stating a new service agreement is not needed in these 
situations but that agencies should say as much in their service 
agreements.
    Several agencies suggested the final regulations require that 
individuals separated involuntarily for performance should have the 
same reimbursement obligation as employees who were separated 
involuntarily for misconduct. OPM adopted this suggestion. Also, 
several agencies suggested the final regulations specify that 
reimbursements to the Government can be made on a pro-rata basis. The 
regulations already provide for agencies to waive, in whole or in part, 
a right of recovery of an employee's debt.
    Finally, one agency suggested the final regulations reduce the 
length of time agencies must keep records for payments made under this 
part from three years to two years. OPM did not adopt this suggestion 
because the 3-year requirement is consistent with the Governmentwide 
standard published by the National Archives and Records Administration 
for retaining records on other recruitment and retention incentives.

Executive Order 12866, Regulatory Review

    This rule has been reviewed by the Office of Management and Budget 
in accordance with Executive Order 12866.

Regulatory Flexibility Act

    I certify that this regulation will not have a significant economic 
impact on a substantial number of small entities because it affects 
only certain Federal employees.

[[Page 2791]]

List of Subjects in 5 CFR Part 537

    Administrative practice and procedure, Government employees, Wages.

Office of Personnel Management.
Janice R. Lachance,
Director.

    Accordingly, OPM is adding part 537 to title 5, Code of Federal 
Regulations, to read as follows:

PART 537--REPAYMENT OF STUDENT LOANS

Sec.
537.101   Purpose.
537.102   Definitions.
537.103   Agency loan repayment plans.
537.104   Employee eligibility.
537.105   Criteria for payment.
537.106   Procedures for making loan repayments.
537.107   Service agreements.
537.108   Loss of eligibility for loan repayment benefits.
537.109   Employee reimbursements to the Government.
537.110   Records.

    Authority:  5 U.S.C. 5379.


Sec. 537.101  Purpose.

    This part provides regulations to implement 5 U.S.C. 5379, which 
authorizes agencies to establish a program under which they may agree 
to repay (by direct payment on behalf of the employee) all or part of 
any outstanding federally insured student loan or loans previously 
taken out by a candidate to whom an offer of employment has been made, 
or a current employee of the agency, in order to recruit or retain 
highly qualified professional, technical or administrative personnel.


Sec. 537.102  Definitions.

    In this part:
    Agency has the same meaning as in 5 U.S.C. 4101(l) subparagraph 
(A), (B), (C), (D), or (E).
    Employee has the meaning given that term in 5 U.S.C. 2105, except 
it does not include an employee occupying a position which --
    (a) Is excepted from the competitive service because of its 
confidential, policy-determining, policy-making, or policy advocating 
character (i.e., employees serving under Schedule C appointments); or
    (b) Is not subject to the General Schedule established under 5 
U.S.C. chapter 53, subchapter III.
    Head of agency means the head of an Executive agency or an official 
who has been delegated the authority to act for the head of the agency 
in the matter concerned.
    Service agreement means a written agreement between an agency and 
an employee under which the employee agrees to a specified period of 
employment with the agency of not less than 3 years, in return for 
payments toward a student loan previously taken out by the employee.
    Student loan means--
    (a) A loan made, insured, or guaranteed under parts B or E of title 
IV of the Higher Education Act of 1965; or
    (b) A health education assistance loan made or insured under part C 
of title VII of the Public Health Service Act, or under part B of title 
VIII of that Act.


Sec. 537.103  Agency loan repayment plans.

    (a) Agency loan repayment plans. Before repaying any student loans 
under this part, the head of an agency must establish a student loan 
repayment plan. This plan must include the following elements:
    (1) The designation of officials with authority to review and 
approve offering student loan repayment benefits (agencies should use 
approval delegations which are similar to those used for other 
recruitment and relocation incentives);
    (2) The situations when the loan repayment authority may be used;
    (3) Criteria that must be met or considered in authorizing loan 
repayments, including criteria for determining the size and timing of a 
payment(s);
    (4) Procedures for making loan payments;
    (5) A system for selecting employees to receive repayment benefits 
that ensures fair and equitable treatment;
    (6) Requirements for service agreements (including a basis for 
determining the length of service to be required if greater than the 
statutory minimum) and provisions for recovering any amount outstanding 
from an employee who fails to complete the period of employment 
established under a service agreement and for conditions when the 
agency decides to waive the employee's obligation to reimburse the 
agency for payments made under this part; and
    (7) Documentation and recordkeeping requirements sufficient to 
allow reconstruction of the action taken in each case. (when an 
employee is considered for the repayment benefit.)
    (b) [Reserved]


Sec. 537.104  Employee eligibility.

    In accordance with the other provisions of this part and 5 U.S.C. 
5379, an agency may authorize offering loan repayments benefits to 
recruit or retain--
    (a) Temporary employees who are serving on appointments leading to 
conversion to term or permanent appointments; or
    (b) Term employees with at least 3 years left on their appointment; 
or
    (c) Permanent employees; or
    (d) Employees serving on excepted appointments with conversion to 
term, career, or career conditional appointments (including, but not 
limited to, Career Intern or Presidential Management Intern 
appointments).


Sec. 537.105  Criteria for payment.

    (a) Written determination. Loan repayments made under this part 
must be based on a written determination that, in the absence of 
offering loan repayment benefits, the agency would encounter difficulty 
either in filling the position with a highly qualified candidate, or 
retaining a highly qualified employee in that position. Agencies can 
decide for themselves who has the authority to make written 
determinations.
    (b) Determination for recruitment. Each determination for 
recruitment purposes (including the amount to be paid) must be made 
before the employee actually enters on duty in the position for which 
he or she was recruited.
    (c) Determination for retention. Payments authorized in order to 
retain an employee must be based upon a written determination that the 
high or unique qualifications of the employee or special need of the 
agency for the employee's services makes it essential to retain the 
employee, and that, in the absence of offering student loan repayment 
benefits, the employee would be likely to leave for employment outside 
the Federal service. This determination must be based on a written 
description of the extent to which the employee's departure would 
affect the agency's ability to carry out an activity or perform a 
function that is deemed essential to the agency's mission.
    (d) Selecting employees. When selecting employees to receive loan 
repayment benefits, agencies must adhere to merit system principles and 
take into consideration the need to maintain a balanced workforce in 
which women and members of racial and ethnic minority groups are 
appropriately represented in Government service.


Sec. 537.106  Procedures for making loan repayments.

    (a) Conditions for payments. Payments will be at the discretion of 
the agency and are subject to such terms, limitations, or conditions as 
may be

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mutually agreed to in writing by the agency and employee. Payments may 
be applied only to the indebtedness outstanding at the time the agency 
and the employee enter into an agreement, and may not begin before the 
employee enters on duty with the agency. Student loan repayment 
benefits must be in addition to basic pay and any other form of 
compensation otherwise payable to the employee involved. Tax 
withholdings must be deducted or applied at the time any payment is 
made. Tax withholdings may not be spread out over time. Since these tax 
implications could create a financial hardship for the recipient of the 
repayment benefit, agencies can lessen the impact of tax withholdings 
on an employee's paycheck in one of the following ways:
    (1) Agencies can make smaller payments at periodic intervals 
throughout the fiscal year rather than issue payments under this part 
in one lump sum;
    (2) Employees can write a check to the paying agency to cover their 
tax liability rather than have the tax liability withheld from the 
employee's paycheck;
    (3) Agencies can deduct the amount of taxes to be withheld from the 
loan repayment benefit before issuing payment to the holder of the 
loan.
    (4) Agencies are strongly advised to consult the Internal Revenue 
Service for further details concerning these options as well as the tax 
withholding implications of payments under this part.
    (b) Loans to be repaid. Before authorizing loan repayments, an 
agency must verify with the holder of the loan that the employee has an 
outstanding student loan that qualifies for repayment under this part. 
Agencies should verify remaining balances to ensure that loans are not 
overpaid. An agency may repay more than one loan as long as the loan 
repayments do not exceed the limits set forth in paragraph (c) of this 
section.
    (c) Size of payments. In determining the size of the loan payments, 
an agency should take into consideration the employee's value to the 
agency, and how far in advance the agency can commit funds. If 
budgetary considerations are an issue, agencies have the discretion to 
determine the repayment benefit amount given to an employee each year. 
This type of arrangement must be included in the written service 
agreement with the employee. The amount paid by the agency is subject 
to all the following maximum limits:
    (1) $6,000 per employee per calendar year; and
    (2) A total of $40,000 per employee.
    (d) Employee responsibility. The employee will be responsible for 
making loan payments on the portion of the loan(s) that continues to be 
the employee's responsibility. Payments under this part do not exempt 
an employee from his or her responsibility and/or liability for any 
loan(s) the individual has taken out. The employee will also be 
responsible for any income tax obligations resulting from the loan 
repayment benefit.


Sec. 537.107  Service agreements.

    (a) Before any loan repayments may be made, an agency must require 
that the employee sign a written agreement to complete a specified 
period of employment with the agency and to reimburse the agency for 
loan repayment benefits, when required by Sec. 537.109. This agreement 
may also specify any other employment conditions the agency considers 
to be appropriate, such as, but not limited to, the employee's position 
and the duties he or she is expected to perform, work schedule, or 
level of performance.
    (b) The minimum period of employment to be established under a 
service agreement must be 3 years, regardless of the amount of loan 
repayment authorized. Agencies can state in their service agreements 
that increases or renewals of payments made under this part can be made 
without requiring the employee to enter into a new service agreement.
    (c) A service agreement made under this part in no way constitutes 
a right, promise, or entitlement for continued employment or 
noncompetitive conversion to the competitive service. This language 
should be stated in the service agreement.


Sec. 537.108  Loss of eligibility for loan repayment benefits.

    (a) An employee receiving loan repayment benefits from an agency 
will be ineligible for continued benefits from that agency if the 
employee:
    (1) Separates from the agency; or
    (2) Does not maintain an acceptable level of performance, as 
determined under standards and procedures prescribed by the head of the 
agency; or
    (3) Violates any of the conditions of the service agreement.
    (b) For the purpose of applying paragraph (a) of this section, in 
the case of an employee covered by an appraisal system established 
under part 430, subpart B, of this chapter, the employee's most recent 
rating of record must be at least level 3 (``Fully Successful'').


Sec. 537.109  Employee reimbursements to the Government.

    (a) Except as provided in paragraph (d) of this section, an 
employee who fails to complete the period of employment established 
under a service agreement will be indebted to the Federal Government 
and must reimburse the paying agency for the amount of any student loan 
repayment benefits the employee received.
    (b) Failure to complete the period of employment established under 
a service agreement occurs when the employee's service with the agency 
terminates before the employee completes the period of employment 
specified in the service agreement because:
    (1) The employee is separated involuntarily on account of 
misconduct or performance; or
    (2) The employee leaves the agency voluntarily.
    (c) If an employee fails to reimburse the agency for the amount 
owed under paragraph (a) of this section, a sum equal to the amount 
outstanding must be recovered from the employee under the agency's 
regulations for collection by offset from an indebted Government 
employee under 5 U.S.C. 5514 and subpart K of part 550 of this chapter, 
or through the appropriate provisions governing debt collection if the 
individual is no longer a Federal employee.
    (d) Paragraph (a) of this section does not apply when the employee 
fails to complete a period of employment established under a service 
agreement because:
    (1) The employee is involuntarily separated for reasons other than 
misconduct or performance; or
    (2) The employee leaves the agency voluntarily to enter into the 
service of any other agency, unless reimbursement to the paying agency 
is otherwise specified in the service agreement.
    (e) The head of an agency may waive, in whole or in part, a right 
of recovery of an employee's debt if he or she determines that recovery 
would be against equity and good conscience or against the public 
interest.
    (f) Any amount repaid, or recovered from, an employee under this 
section will be credited to the appropriation account from which the 
amount involved was originally paid. Any amount so credited will be 
merged with other sums in such account and will be available for the 
same purposes and period, and subject to the same limitations (if any), 
as the sums with which merged.

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Sec. 537.110  Records

    Each agency must keep a record of each determination made under 
this part and make such records available for review upon OPM's 
request. These records may be destroyed after 3 years or after OPM 
formally evaluates the program (whichever comes first).

[FR Doc. 01-1039 Filed 1-9-01; 2:59 pm]
BILLING CODE 6325-01-P