[Federal Register Volume 61, Number 119 (Wednesday, June 19, 1996)]
[Rules and Regulations]
[Pages 31358-31362]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-15516]




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Part VII





Department of Education





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34 CFR Part 685



William D. Ford Federal Direct Loan Program; Final Rule

Federal Register / Vol. 61, No. 119 / Wednesday, June 19, 1996 / 
Rules and Regulations

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DEPARTMENT OF EDUCATION

34 CFR Part 685

RIN 1840-AC19


William D. Ford Federal Direct Loan Program

AGENCY: Department of Education.

ACTION: Final Regulations.

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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) and on December 1, 1995 (60 FR 61820 and 60 FR 61790). Most 
of these changes apply to regulations governing the new income 
contingent repayment plan, which becomes effective July 1, 1996. 
However, several amendments correct provisions currently in effect.

EFFECTIVE DATE: These regulations take effect July 1, 1996.

FOR FURTHER INFORMATION CONTACT:
Ms. Rachel Edelstein, Program Specialist, Direct Loan Policy, Policy 
Development Division, U.S. Department of Education, Room 3053, ROB-3, 
600 Independence Avenue, SW., 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 provisions and to correct errors and omissions in the text 
of the Direct Loan Program final regulations published on December 1, 
1994 (59 FR 61664) and on December 1, 1995 (60 FR 61820 and 60 FR 
61790).

Repayment Plans--Section 685.208(f)

    The Secretary has amended section 685.208(f)(1) to clarify that, 
for married borrowers, the borrower's repayment amount is based on the 
Federal adjusted gross income (AGI) of the borrower and the borrower's 
spouse, regardless of whether the borrower files a joint Federal income 
tax return with his or her spouse or files a Federal income tax return 
separately from his or her spouse. In addition, to simplify the 
regulations, language alluding to joint repayment for married borrowers 
has been removed because the subject is addressed in greater detail in 
section 685.209(b).
    The Secretary has also amended section 685.208(f)(2) to clarify 
that the income contingent repayment plan in effect at the time the 
borrower either enters repayment and selects the income contingent 
repayment plan or changes from another repayment plan into the income 
contingent repayment plan governs the method for determining the 
borrower's monthly repayment amount under the income contingent 
repayment plan. The proposed rule published on September 20, 1995, 
clearly states the Secretary's intent to change the policy so that the 
new income contingent repayment plan would apply to borrowers who 
select the income contingent repayment plan when they enter repayment 
and to borrowers who are in other repayment plans and switch into the 
income contingent repayment plan on or after July 1, 1996 (see 60 FR 
48849). While the preamble to the proposed rule clearly states the 
Secretary's intended change in policy, this change was inadvertently 
omitted from the regulations. Please note that, as the existing 
regulations indicate, if the Secretary amends the regulations and a 
borrower who is repaying under the existing income contingent repayment 
plan submits a written request that the amended regulations apply to 
the method of calculation of the borrower's loans, the Secretary would 
grant the borrower's request.

Income Contingent Repayment Plan--Section 685.209

    The preamble to the final regulations states, ``The Secretary has 
decided to require a $5.00 minimum monthly payment of borrowers whose 
calculated monthly payment amount is greater than $0 but less than or 
equal to $5.00.'' Although the preamble to the final regulations 
clearly states the Secretary's intended policy, this policy was 
inadvertently omitted from the regulations. In order to clarify the 
Secretary's intent, section 685.209(a)(6) has been added to the 
regulations.
    An incorrect cross reference has been corrected in paragraph 
(c)(6)(ii) by removing ``Sec. 685.209(a)(3)'', and adding, in its 
place, ``Sec. 685.209(c)(3).''

Origination of Loan by a Direct Loan Program School--Section 685.301

    The terminology of this section has been changed to clarify that 
schools certify loan information in the Direct Loan Program by means of 
the origination process. Throughout this section, the word 
``certification'' has been changed to ``origination.'' This change in 
terminology does not reflect a change in policy or procedures. In the 
Federal Family Education Loan (FFEL) Program, a financial aid 
administrator signs the application, thereby certifying that the 
borrower is eligible. In the Direct Loan Program, the process of 
originating a loan is comparable to the FFEL certification process. 
When the school originates the loan, the school is certifying the 
borrower's eligibility. Paragraph (a)(6) has been amended to reflect 
this concept. This technical change does not impose any new policies or 
procedural requirements.
    In addition, paragraph (a)(7) has been amended to specify that a 
school may not assess a fee for the origination of a Direct Loan. 
According to section 454(a)(6) of the Higher Education Act of 1965, as 
amended, schools may not ``charge any fees of any kind, however 
described, to student or parent borrowers for origination activities . 
. . .'' This statutory requirement was inadvertently omitted from the 
regulations.

Appendix A to Part 685--Income Contingent Repayment

    The Secretary has updated the income percentage factors in the 
appendix to reflect the Department of Health and Human Services (HHS) 
Annual Update of the HHS Poverty guidelines, published in the Federal 
Register on March 4, 1996. In addition, the examples of the calculation 
of monthly repayment amounts and the charts showing sample repayment 
amounts have been amended to reflect the updated income percentage 
factors. Under the updated income percentage factors, at any given 
income, borrowers' payments will be slightly lower than under the 
income percentage factors published in the December 1, 1995 
regulations. The Secretary believes the updated income percentage 
factors more accurately reflect a borrower's ability to repay than 
those previously published.

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, and December 1, 1995. The changes in 
this document do not establish any new 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). For the same 
reasons, the Secretary also waives the 30-day delayed effective date 
under 5 U.S.C. 553(d).

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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 the program 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. 
The regulations will affect borrowers who are in repayment. These 
regulations contain technical amendments designed to clarify and 
correct current regulations. The changes will not have a significant 
economic impact on any small entities under the Regulatory Flexibility 
Act.

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 in 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 Domestic Assistance Number: 84.268, William D. Ford, 
Federal Direct Loan Program)

    Dated: June 12, 1996.
Richard W. Riley,
Secretary of Education.

    The Secretary amends Part 685 of Title 34 of the Code of Federal 
Regulations as follows:

PART 685--[AMENDED]

    1. The authority citation for Part 685 continues to read as 
follows:

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

    2. Section 685.208 is amended by revising paragraphs (f) (1) and 
(2) to read as follows:


Sec. 685.208  Repayment plans.

* * * * *
    (f) * * *
    (1) Under the income contingent repayment plan, a borrower's 
monthly repayment amount is generally based on the total amount of the 
borrower's Direct Loans, family size, and Adjusted Gross Income (AGI) 
reported by the borrower for the most recent year for which the 
Secretary has obtained income information. The borrower's AGI includes 
the income of the borrower's spouse. A borrower shall make payments on 
a loan until the loan is repaid in full or until the loan has been in 
repayment through the end of the income contingent repayment period.
    (2) The regulations in effect at the time a borrower enters 
repayment and selects the income contingent repayment plan or changes 
into the income contingent repayment plan from another plan govern the 
method for determining the borrowers's monthly repayment amount for all 
of the borrower's Direct Loans, unless--
* * * * *
    3. Section 685.209 is amended by redesignating paragraphs (a) (6) 
through (8) as (a) (7) through (9), respectively, and adding a new 
paragraph (a)(6); and by removing ``Sec. 685.209(a)(3)'' in paragraph 
(c)(6)(ii), and adding, in its place, ``Sec. 685.209(c)(3)'' to read as 
follows:


Sec. 685.209  Income contingent repayment plan.

    (a) * * *
    (6) If a borrower's monthly payment is calculated to be greater 
than $0 but less than or equal to $5.00, the amount payable by the 
borrower shall be $5.00.
* * * * *


Sec. 685.301  [Amended]

    4. Section 685.301 is amended by removing the word ``certify'' from 
the introductory text in paragraph (a)(6) and adding, in its place, 
``originate''; and paragraph (a)(7) is amended by adding, before the 
period at the end of the sentence, ``or for the origination of a Direct 
Loan''.
    5. Appendix A is amended by revising the computations following 
Example 1, Steps 2, 3, and 4; revising the computations following 
Example 2, Steps 3, 4, and 5; revising the computations following the 
Interpolation; and by revising the charts of Income Percentage Factors 
(Based on Annual Income), Income Contingent Repayment Plan (Sample 
First-Year Monthly Repayment Amounts for a Single Borrower at Various 
Income and Debt Levels), and Income Contingent Repayment Plan (Sample 
First-Year Monthly Repayment Amounts for a Married or Head-of-Household 
Borrower at Various Income and Debt Levels) to read as follows:

Appendix A to Part 685--Income Contingent Repayment

* * * * * *
    Example 1. * * *
    Step 2: * * *

<bullet> 84.46% (0.8446) x 1,644.315=1,388.7884

    Step 3: * * *

<bullet> $25,000-$7,740=$17,260
<bullet> $17,260 x 0.20=$3,452

    Step 4: * * *

<bullet> 1,388.7884<divide>12=$115.73

    Example 2. * * *
    Step 3: * * *

<bullet> 91.27% (0.9127) x 2,630.904=2,401.2261

    Step 4: * * *

<bullet> $30,000-$10,360=$19,640
<bullet> $19,640 x 0.020=$3,928

    Step 5: * * *

<bullet> 2,401.2261<divide>12=$200.10

    Interpolation: * * *

<bullet> $27,904-$25,000=$2,904
* * * * *
<bullet> 88.77-84.46=4.31
* * * * *
<bullet> $26,000-$25,000=$1,000
* * * * *
<bullet> 1,000<divide>2,904=0.3444
* * * * *
<bullet> 0.3444 x 4.31=1.48
* * * * *
<bullet> 1.48+84.46=85.94%

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[FR Doc. 96-15516 Filed 6-18-96; 8:45 am]
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