2790 Federal Register / Vol. 66, No. 8 / Thursday, January 11, 2001 / Rules and Regulations

OFFICE OF PERSONNEL

MANAGEMENT

5 CFR Part 537

RIN: 3206–AJ12

Repayment of Student Loans

AGENCY: Office of Personnel

Management.

ACTION: Final rulemaking.

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 nonGeneral 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:

• In addition to lump sum payments,

smaller, incremental payments can be

made;

• Employees can write checks to the

agency to cover their tax liability rather

than have large withholdings deducted

from their paychecks;

• Withholdings can be deducted from

the amount of the loan repayment before

it is issued; and

• 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.

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

§ 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.

§ 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.

§ 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]

§ 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).

§ 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.

§ 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

2792 Federal Register / Vol. 66, No. 8 / Thursday, January 11, 2001 / Rules and Regulations

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.

§ 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

§ 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.

§ 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’’).

§ 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.

Federal Register / Vol. 66, No. 8 / Thursday, January 11, 2001 / Rules and Regulations 2793

§ 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]

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