29898 Federal Register / Vol. 61, No. 114 / Wednesday, June 12, 1996 / Rules and Regulations

DEPARTMENT OF EDUCATION

34 CFR Parts 600, 668, and 685

RIN 1840–AC18

William D. Ford Federal Direct Loan

Program; Institutional Eligibility Under

the Higher Education Act of 1965, as

Amended; Student Assistance General

Provisions

AGENCY: Department of Education.

ACTION: Final Regulations.

SUMMARY: This document contains

corrections and other technical changes

to the William D. Ford Federal Direct

Loan (Direct Loan) Program final

regulations published in the Federal

Register on December 1, 1994 (59 FR

61664). These regulations apply to loans

under 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,

collectively referred to as the Direct

Loan Program. The Secretary also

corrects minor technical errors and

omissions in the Institutional Eligibility

regulations contained in 34 CFR Part

600, Subpart A, and the Student

Assistance General Provisions

regulations contained in 34 CFR Part

668, Subpart B.

EFFECTIVE DATE: These regulations take

effect July 12, 1996.

FOR FURTHER INFORMATION CONTACT: Ms.

Meredith Merrill, Program Specialist,

U.S. Department of Education, 600

Independence Avenue, S.W. (ROB–3,

Room 3053), Washington, DC 20202–

5400. Telephone: (202) 708–9406.

Individuals who use a

telecommunications device for the Deaf

(TDD) may call the Federal Information

Relay Service (FIRS) at 1–800–877–8339

between 8 a.m. and 8 p.m., Eastern time,

Monday through Friday.

SUPPLEMENTARY INFORMATION: The

following regulations are amended to

clarify the regulations and to correct

errors and omissions in the text of the

Direct Loan Program final regulations

published on December 1, 1994 (59 FR

61664), the Institutional Eligibility

regulations, 34 CFR Part 600, and the

Student Assistance General Provisions

regulations, 34 CFR Part 668.

The Direct Loan Program

Section 685.102 has been amended to

correct a typographical error in a

reference to the Federal Family

Education Loan (FFEL) Program and to

include a reference to grace period,

which was inadvertently omitted in the

description of a Direct Subsidized

Consolidation Loan under the definition

of the Federal Direct Consolidation Loan

Program. In order to reflect a statutory

change made by the Higher Education

Technical Amendments of 1993, Public

Law 103–208, this section also has been

amended to clarify that a borrower may

make satisfactory repayment

arrangements on a defaulted Direct Loan

for the purposes of regaining title IV

eligibility only one time.

Section 685.200 has been amended to

accurately reflect the requirement that a

student must be enrolled or accepted for

enrollment on at least a half-time basis

in order to be eligible to receive a Direct

Loan. Paragraph (c) of this section has

been amended to clarify the definition

of ‘‘satisfactory repayment arrangement’’

for the purpose of consolidating a

defaulted loan. Further, this section has

been amended to correct a grammatical

error in the text and an error in a crossreference to another section in Part 685.

Section 685.202 clarifies the interest

rate calculations for Direct Subsidized

and Direct Unsubsidized Loans. The 2.5

percentage point adjustment on the

interest rate for in-school, grace, and

deferment periods only applies to loans

first disbursed on or after July 1, 1995.

For loans disbursed prior to July 1,

1995, the interest rate calculation for all

periods is based on a 3.1 percentage

point adjustment.

Paragraphs (b)(1) through (5) of

§ 685.202 clarify that the Secretary does

not capitalize all interest that has

accrued on a borrower’s principal

balance. Instead, the Secretary only

capitalizes the amount of interest that

accrues on the loan amount that the

borrower has not paid.

Paragraph (b)(2) of § 685.202 is

amended to clarify that, when a

borrower enters repayment, the

Secretary will capitalize the unpaid

interest that accrued during the inschool and grace periods on a Direct

Unsubsidized Consolidation Loan that

is eligible for a grace period.

Paragraph (b)(3) of § 685.202 also

clarifies the Secretary’s intent that the

limit on the amount of interest that is

capitalized under the Income

Contingent Repayment and Alternative

Repayment plans does not apply during

periods of deferment for unsubsidized

loans and does not apply during periods

of forbearance for any Direct Loan.

Section 685.204 has been amended to

clarify that a Direct Loan borrower who

has an outstanding balance on a FFEL

Program loan made prior to July 1, 1993,

at the time he or she applies for a first

Direct Loan, will remain eligible for the

FFEL Program deferments on all Direct

Loans until all loans with those

deferments are fully repaid, even if the

borrower repays the FFEL Program

loans in full before the Direct Loans are

paid in full.

Section 685.204 also has been

amended to add language that reflects

the existing policy in the Direct Loan

Program that a borrower who has

defaulted on the repayment of a Direct

Loan generally is not eligible for a

deferment. However, comparable to

§ 682.210(a)(8) in the FFEL Program,

§ 685.204(e) allows a borrower who has

defaulted on a Direct Loan to be eligible

for a deferment if the borrower contacts

the Direct Loan Servicing Center and

makes payment arrangements

satisfactory to the Secretary.

Section 685.205 has been corrected to

state that a borrower, not the endorser,

must be the recipient of a national

service educational award in order to

qualify for forbearance.

Section 685.212 has been amended to

clarify which payments the Secretary

returns to a borrower when a loan is

discharged. Once the Secretary receives

acceptable documentation that a

borrower is eligible for a specific

discharge, any payments received

during the period between the date the

borrower met the eligibility

requirements and the date the discharge

was approved will be returned to the

person who sent the payment.

Furthermore, any payments received

after the date the discharge was

approved will be returned to the person

who sent the payment.

Section 685.214 has been amended to

conform with the technical corrections

made in § 685.301.

Section 685.215 has been amended to

specify which loans under subpart II of

part A of title VII of the Public Health

Service Act may be consolidated into a

Direct Consolidation Loan. Paragraph

(d) of this section is amended to reflect

terminology consistent with the

definitions in § 685.102(b). This section

also has been amended to specify that

the limit on collection costs charged to

a borrower who consolidates a defaulted

loan applies only to defaulted Direct

Loans and FFEL Program loans.

Section 685.301 clarifies that,

although certain circumstances allow

for a late disbursement of a loan, a

school must originate a loan while the

student meets the borrower eligibility

requirements in § 685.200. The

terminology in this section has been

changed to reflect that schools certify

loan information in the Direct Loan

Program by means of the origination

process.

Section 685.301 also has been

amended to clarify that a Direct Loan

may be disbursed in a single installment
Federal Register / Vol. 61, No. 114 / Wednesday, June 12, 1996 / Rules and Regulations 29899

prior to the midpoint of the loan period

if the date of the scheduled

disbursement coincides with the

beginning of the next scheduled term for

which the school has an anticipated

disbursement date. For example, a

borrower at a term-based school that

uses quarter hours would be allowed to

receive the first and second Direct Loan

disbursements in a single installment at

the beginning of the second quarter even

though this may occur prior to the midpoint of the loan period.

Section 685.303 has been amended to

clarify that a school must determine

whether or not a student has

continuously maintained eligibility

before Direct PLUS proceeds are

disbursed to the parent borrower.

Paragraph (d) of this section has been

amended to clarify that a school may

not make a late disbursement to a

borrower that exceeds the student’s cost

of attendance for the period of

enrollment completed by the student.

Further, paragraph (d) clarifies that a

school may not make a late

disbursement if the student’s last

recorded date of attendance is earlier

than the 30th day of the period of

enrollment if the loan was subject to the

30-day delayed disbursement

requirements for first-year, first-time

borrowers. These requirements are the

same as in the FFEL Program.

Section 685.305 has been amended to

clarify those procedures a school must

follow for determining the withdrawal

date for a student who did not return for

the next scheduled term following a

summer break. This section also is

amended to correct an error in the crossreference to the Student Assistance

General Provisions regulations.

Institutional Eligibility

Section 600.5 has been amended to

correct a technical error which

references the manner in which certified

public accountants must examine the

accuracy of a proprietary institution’s

calculations regarding the 85 percent

rule contained in § 600.5(a)(8).

Paragraph (e) of this section was

mistakenly amended in the Federal

Register of November 29, 1994, to

reference an accountant performing an

‘‘agreed-upon procedures attestation

engagement.’’ This paragraph has been

corrected to accurately reflect the

Secretary’s intent that a certified public

accountant must engage in an

‘‘examination’’ level attestation

agreement under which he or she

examines management’s assertions that

it satisfied the 85 percent requirement.

General Provisions

Section 668.15 has been amended to

clarify that the audit described in

paragraph (e)(1) also may be performed

by State auditors if they meet the

independence requirements of

Government Auditing Standards.

Waiver of Proposed Rulemaking

In accordance with the

Administrative Procedure Act, 5 U.S.C.

553, it is the practice of the Secretary to

offer interested parties the opportunity

to comment on proposed regulations.

However, the regulatory changes in this

document are necessary to correct minor

technical errors and omissions in the

Direct Loan Program final regulations

published on December 1, 1994, the

Institutional Eligibility regulations, 34

CFR Part 600, and the Student

Assistance General Provisions

regulations, 34 CFR Part 668. The

changes in this document do not

establish any new substantive rules.

Therefore, the Secretary has determined

that publication of a proposed rule is

unnecessary and contrary to the public

interest under 5 U.S.C. 553(b)(B).

Executive Order 12866

These final regulations have been

reviewed in accordance with Executive

Order 12866. Under the terms of the

order, the Secretary has assessed the

potential costs and benefits of this

regulatory action.

The potential costs associated with

these final regulations are those

resulting from statutory requirements

and those determined by the Secretary

as necessary for administering these

programs effectively and efficiently.

Burdens specifically associated with

information collection requirements, if

any, are identified and explained

elsewhere in this preamble under the

heading Paperwork Reduction Act of

1995.

In assessing the potential costs and

benefits—both quantitative and

qualitative—of these final regulations,

the Secretary has determined that the

benefits of the regulations justify the

costs.

The Secretary has also determined

that this regulatory action does not

unduly interfere with State, local, and

tribal governments in the exercise of

their governmental functions.

Paperwork Reduction Act of 1995

These regulations have been

examined under the Paperwork

Reduction Act of 1995 and have been

found to contain no information

collection requirements.

Regulatory Flexibility Act Certification

The Secretary certifies that these

regulations will not have significant

economic impact on a substantial

number of small entities. Small entities

affected by these regulations are small

institutions of higher education. These

regulations contain technical

amendments designed to clarify and

correct current regulations. The changes

will not have a significant economic

impact on the institutions affected.

Assessment of Educational Impact

The Secretary has determined that the

regulations in this document would not

require transmission of information that

is being gathered by or is available from

any other agency or authority of the

United States.

List of Subjects

34 CFR Parts 600 and 668

Administrative practice and

procedure, Colleges and universities,

Consumer protection, Education, Grant

programs-education, Loan programseducation, Reporting and recordkeeping

requirements, Student Aid.

34 CFR Part 685

Administrative practice and

procedure, Colleges and universities,

Education, Loan programs-education,

Reporting and recordkeeping

requirements, Student Aid, Vocational

education.

(Catalog of Federal Domestic Assistance

Numbers: 84.007 Federal Supplemental

Education Opportunity Grant Program;

84.032 Federal Stafford Loan Program; 84.032

Federal PLUS Program; 84.032 Federal

Supplemental Loans for Students Program;

84.033 Federal Work Study Program; 84.038

Federal Perkins Loan Program; 84.063

Federal Pell Grant Program; 84.069 Federal

State Student Incentive Grant Program;

84.268 William D. Ford Federal Direct Loan

Program; and 84.272 National Early

Intervention Scholarship and Partnership

Program.)

Dated: June 3, 1996.

Richard W. Riley,

Secretary of Education.

The Secretary amends Parts 600, 668,

and 685 of title 34 of the Code of

Federal Regulations as follows:

PART 685—WILLIAM D. FORD

FEDERAL DIRECT LOAN PROGRAM

1. The authority citation for Part 685

is revised to read as follows:

Authority: 20 U.S.C. 1087a et seq., unless

otherwise noted.

§ 685.102 [Amended]

2. In § 685.102, paragraph (a)(3),

introductory text, after the word ‘‘Loan’’
29900 Federal Register / Vol. 61, No. 114 / Wednesday, June 12, 1996 / Rules and Regulations

remove the word ‘‘Program’’; in

paragraph (b), in the definition of

‘‘Federal Direct Consolidation Loan

Program’’, in paragraph (1), add ‘‘,

grace,’’ after ‘‘in-school’’; in the

definition of ‘‘Satisfactory repayment

arrangement’’, at the end of paragraph

(1), add a new sentence to read, ‘‘A

borrower may only obtain the benefit of

this paragraph with respect to renewed

eligibility once.’’.

3. In § 685.200, paragraph (a)(1)(i),

add ‘‘, or accepted for enrollment, on at

least a half-time basis’’ after the word

‘‘enrolled’’; in paragraph (b)(7)(iii),

remove the word ‘‘is’’ after the word

‘‘history’’; and paragraph (c) is revised

to read as follows:

§ 685.200 Borrower eligibility.

* * * * *

(c) Defaulted FFEL Program and

Direct Loan borrowers. Except as noted

in § 685.215(d)(1)(ii)(F), in the case of a

student or parent borrower who is

currently in default on an FFEL Program

or a Direct Loan Program Loan, the

borrower shall make satisfactory

repayment arrangements, as described

in paragraph (2) of the definition of that

term under § 685.102(b), on the

defaulted loan.

* * * * *

4. In § 685.202, paragraph (a)(1)(i),

before the first sentence, add, ‘‘Loans

first disbursed prior to July 1, 1995.’’;

remove the words, ‘‘in repayment’’ and

add, in their place, ‘‘during all periods’’;

paragraph (a)(1)(ii) is revised; in

paragraph (b)(1), add the word ‘‘unpaid’’

before the word ‘‘accrued’’; in paragraph

(b)(2), add ‘‘or a Direct Unsubsidized

Consolidation Loan that qualifies for a

grace period’’ after ‘‘Direct

Unsubsidized Loan’’, add the word

‘‘unpaid’’ before the word ‘‘interest’’; in

paragraph (b)(3), remove the word ‘‘For’’

and add ‘‘Notwithstanding

§ 685.208(g)(5) and § 685.209(d)(3), for’’

at the beginning of the sentence, add the

word ‘‘unpaid’’ after the words

‘‘capitalizes the’’; in paragraph (b)(4),

add the word ‘‘unpaid’’ after the word

‘‘capitalizes’’, remove the words,

‘‘payable by the borrower’’; in paragraph

(b)(5), add the word ‘‘unpaid’’ after the

word ‘‘capitalize’’, and remove the

words ‘‘payable by the borrower’’ to

read as follows:

§ 685.202 Charges for which Direct Loan

Program borrowers are responsible.

(a) * * *

(1) * * *

(ii) Loans first disbursed on or after

July 1, 1995.

(A) During the in-school, grace, and

deferment periods. The interest rate

during any twelve-month period

beginning on July 1 and ending on June

30 is determined on the June 1

immediately preceding that period. The

interest rate is equal to the bond

equivalent rate of 91-day Treasury bills

auctioned at the final auction held prior

to that June 1 plus 2.5 percentage

points, but does not exceed 8.25

percent.

(B) During all other periods. The

interest rate during any twelve-month

period beginning on July 1 and ending

on June 30 is determined on the June 1

immediately preceding that period. The

interest rate is equal to the bond

equivalent rate of 91-day Treasury bills

auctioned at the final auction held prior

to that June 1 plus 3.1 percentage

points, but does not exceed 8.25

percent.

* * * * *

5. In § 685.204, in paragraph (b),

remove ‘‘paragraph (d)’’ and add, in its

place, ‘‘paragraphs (d) and (e)’’; in

paragraph (d) introductory text, add

‘‘borrower’s first’’ before ‘‘Direct Loan’’,

and add new paragraph (e) to read as

follows:

§ 685.204 Deferment.

* * * * *

(e) A borrower whose loan is in

default is not eligible for a deferment,

unless the borrower has made payment

arrangements satisfactory to the

Secretary.

§ 685.205 [Amended]

6. In § 685.205, paragraph (a)(4),

remove the words, ‘‘or endorser’’.

7. In § 685.212, paragraph (f) is

revised to read as follows:

§ 685.212 Discharge of a loan obligation.

* * * * *

(f) Payments received after eligibility

for discharge. Upon receipt of

acceptable documentation and approval

of the discharge request, the Secretary

returns to the sender, or, for a discharge

based on death, the borrower’s estate,

those payments received after the date

that the eligibility requirements for

discharge were met but prior to the date

the discharge was approved. The

Secretary also returns any payments

received after the date the discharge was

approved.

* * * * *

§ 685.214 [Amended]

8. In § 685.214, paragraph (a)(1)(iii),

before ‘‘in the occupation,’’ remove the

word ‘‘certified’’ and add, in its place,

the word, ‘‘originated’’; in paragraph

(c)(1)(iii)(B), remove the word

‘‘certified’’ and add, in its place, the

word, ‘‘originated’’.

9. In § 685.215, paragraph (b)(19), add

‘‘and Loans for Disadvantaged Students

(LDS) made under subpart II of part A

of title VII of the Public Health Service

Act’’ after ‘‘(HPSL)’’; paragraph (b)(21) is

removed; paragraph (b)(22) is

redesignated as (b)(21); in redesignated

paragraph (b)(21), remove the word

‘‘Loans’’ and add, at the beginning of the

paragraph, the words ‘‘Nursing loans’’;

in paragraph (c)(3) remove ‘‘(22)’’ and

add, in its place, ‘‘(21)’’; paragraph (d)

(1)(ii)(E) is revised; and, in paragraph

(f)(1)(iii), add ‘‘Direct Loan or FFEL

Program’’ before the word ‘‘loan’’ to

read as follows:

§ 685.215 Consolidation.

* * * * *

(d) * * *

(1) * * *

(ii) * * *

(E) In default but has made

satisfactory repayment arrangements, as

defined in paragraph (2) of that term

under § 685.102(b), on the defaulted

loan; or

* * * * *

10. In § 685.301, in the section

heading, remove the word

‘‘Certification’’ and add, in its place,

‘‘Origination’’; paragraph (a)(1) is

revised; in paragraph (a)(3) introductory

text, remove the word ‘‘certify’’ and add,

in its place, ‘‘originate’’; in paragraph

(a)(4)(ii), remove the word ‘‘certifies’’

and add, in its place, ‘‘originates’’; in

paragraph (b)(2)(iv), add ‘‘or if the date

of the first disbursement coincides with

the beginning of the second or

subsequent semester, quarter, or similar

division of the loan period for which the

loan was made,’’ after ‘‘made’’ to read as

follows:

§ 685.301 Origination of a loan by a Direct

Loan Program school.

(a) * * *

(1) A school participating in the

Direct Loan Program shall ensure that

any information it provides to the

Secretary in connection with loan

origination is complete and accurate. A

school shall originate a Direct Loan

while the student meets the borrower

eligibility requirements of § 685.200.

Except as provided in 34 CFR Part 668,

subpart E, a school may rely in good

faith upon statements made in the

application by the student.

* * * * *

11. In § 685.303, paragraph (b)(2)(i),

add ‘‘, or a parent in the case of a PLUS

Loan,’’ after ‘‘student’’, remove the

words ‘‘whom the school determines’’

and add, in their place, ‘‘if the school

determines the student’’; remove ‘‘or’’ at

the end of paragraph (d)(3)(i), remove

the period at the end of paragraph
Federal Register / Vol. 61, No. 114 / Wednesday, June 12, 1996 / Rules and Regulations 29901

(d)(3)(ii), and add, in its place, a semicolon, and add new paragraphs (d)(3)

(iii) and (iv) to read as follows:

§ 685.303 Processing loan proceeds.

* * * * *

(d) * * *

(3) * * *

(iii) A late disbursement to a borrower

if the student’s last recorded day of

attendance is earlier than the 30th day

of the period of enrollment for which

the loan is intended if the loan was

subject to the delayed disbursement

under § 685.303(b)(4); or

(iv) A late disbursement that,

including all prior disbursements,

exceeds a student’s documented

educational costs for the period of

enrollment completed by the student

before the student ceased to be enrolled

at the school on at least a half-time

basis.

* * * * *

12. Section 685.305 is revised to read

as follows:

§ 685.305 Determining the date of a

student’s withdrawal.

(a) Except as provided in paragraph

(b) of this section, a school shall follow

the procedures in 34 CFR 668.22(j) for

determining the student’s date of

withdrawal.

(b) For a student who does not return

for the next scheduled term following a

summer break, which includes any

summer term(s) in which classes are

offered but students are not generally

required to attend, a school shall follow

the procedures in 34 CFR 668.22(j) for

determining the student’s date of

withdrawal except that the school must

determine the student’s date of

withdrawal no later than 30 days after

the start of the next scheduled term.

(c) The school shall use the date

determined under paragraph (a) or (b) of

this section for the purpose of reporting

to the Secretary the student’s date of

withdrawal and for determining when a

refund must be paid under § 685.306.

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

PART 600—INSTITUTIONAL

ELIGIBILITY UNDER THE HIGHER

EDUCATION ACT OF 1965, AS

AMENDED

1. The authority citation for Part 600

continues to read as follows:

Authority: 20 U.S.C. 1088, 1091, 1094,

1099b, 1099c, and 1141, unless otherwise

noted.

2. Section 600.5 is amended by

revising paragraph (e) to read as follows:

§ 600.5 Proprietary institution of higher

education.

* * * * *

(e)(1) An institution shall substantiate

the required calculations in paragraph

(a)(8) of this section by having the

certified public accountant who

prepares its audited financial statement

required under 34 CFR 668.15 report on

the accuracy of its determination that

the percentage of its revenues derived

from title IV, HEA program funds is not

more than 85 percent of its revenues.

(2) The certified public accountant’s

report shall be based on performing an

examination-level ‘‘attestation

engagement’’ in accordance with the

American Institute of Certified Public

Accountants (AICPA’s) Statement on

Standards for Attestation Engagements

#3, Compliance Attestation, and the

certified public accountant shall include

that attestation report with the audit

report referenced in paragraph (e)(1) of

this section.

(3) The certified public accountant’s

attestation report shall indicate whether

the institution’s determination that the

percentage of its revenues derived from

title IV, HEA program funds is not more

than 85 percent of its revenues, is

accurate, i.e. fairly presented in all

material respects.

* * * * *

PART 668—STUDENT ASSISTANCE

GENERAL PROVISIONS

1. The authority citation for Part 668

continues to read as follows:

Authority: 20 U.S.C. 1085, 1088, 1091,

1092, 1099c, and 1141, unless otherwise

noted.

§ 668.15 [Amended]

2. In § 668.15, paragraph (e)(1), in the

second sentence, remove, ‘‘certified

public accountant’’ and add, in its

place, ‘‘auditor’’; remove ‘‘generally

accepted auditing standards’’ and add,

in its place, ‘‘Government Auditing

Standards’’.

[FR Doc. 96–14820 Filed 6–11–96; 8:45 am]

BILLING CODE 4000–01–P