36556 Federal Register / Vol. 74, No. 140 / Thursday, July 23, 2009 / Proposed Rules 

DEPARTMENT OF EDUCATION 

[Docket ID ED–2009–OPE–0004] 

34 CFR Parts 674, 682, and 685 

RIN 1840–AC98 

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 Federal Perkins Loan 

(Perkins Loan) Program, Federal Family 

Education Loan (FFEL) Program, and 

William D. Ford Federal Direct Loan 

(Direct Loan) Program regulations. 

These proposed regulations are needed 

to implement provisions of the Higher 

Education Act of 1965 (HEA), as 

amended by the Higher Education 

Opportunity Act of 2008 (HEOA). 

DATES: We must receive your comments 

on or before August 24, 2009. 

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 e-mail. Please 

submit your comments only one time, in 

order to ensure that we do not receive 

duplicate copies. In addition, please 

include the Docket ID at the top of your 

comments. 

• Federal eRulemaking Portal: Go to 

http://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 ‘‘How To Use 

This Site.’’ 

• Postal Mail, Commercial Delivery, 

or Hand Delivery. 

If you mail or deliver your comments 

about these proposed regulations, 

address them to Pamela Moran, U.S. 

Department of Education, 1990 K Street, 

NW., room 8033, Washington, DC 

20006–8502. 

Privacy Note: The Department’s policy for 

comments received from members of the 

public (including those comments submitted 

by mail, commercial delivery, or hand 

delivery) is to make these submissions 

available for public viewing in their entirety 

on the Federal eRulemaking Portal at http:// 

www.regulations.gov. Therefore, commenters 

should be careful to include in their 

comments only information that they wish to 

make publicly available on the Internet. 

FOR FURTHER INFORMATION CONTACT: 

Pamela Moran, U.S. Department of 

Education, 1990 K Street, NW., Room 

8033, Washington, DC 20006–8502. 

Telephone: (202) 502–7732 or via the 

Internet at: pamela.moran@ed.gov. 

If you use a telecommunications 

device for the deaf, call the Federal 

Relay Service (FRS), toll free, at 1–800– 

877–8339. 

Individuals with disabilities can 

obtain this document in an accessible 

format (e.g., Braille, large print, 

audiotape, or computer diskette) on 

request to the contact person listed 

under FOR FURTHER INFORMATION

CONTACT. 

SUPPLEMENTARY INFORMATION: 

Invitation to Comment 

As outlined in the section of this 

notice entitled ‘‘Negotiated 

Rulemaking,’’ significant public 

participation, through six public 

hearings and three negotiated 

rulemaking sessions, has occurred in 

developing this notice of proposed 

rulemaking (NPRM). In accordance with 

the requirements of the Administrative 

Procedure Act, the Department invites 

you to submit comments regarding these 

proposed regulations on or before 

August 24, 2009. 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 Order 12866, 

including its overall requirements to 

assess both the costs and the benefits of 

the proposed regulations and feasible 

alternatives, and to make a reasoned 

determination that the benefits of these 

proposed regulations justify their costs. 

Please let us know of any further 

opportunities we should take to reduce 

potential costs or increase potential 

benefits while preserving the effective 

and efficient administration of the 

programs. 

As noted elsewhere in this NPRM, 

two of the Department’s negotiated 

rulemaking committees considered 

proposed revisions to 34 CFR 674.51, 

Special Definitions, in Subpart D of the 

Federal Perkins Loan Program 

regulations. Team I—Loans-Lender 

General Loan Issues, the negotiating 

committee responsible for regulations 

involving issues related to lender and 

general loan issues, negotiated the 

proposed definitions of ‘‘substantial 

gainful activity’’ and ‘‘permanent and 

total disability.’’ Team II—LoansSchool-based Loans Issues negotiated all 

other changes in this section. 

We have included all proposed 

changes to 34 CFR 674.51 in this NPRM 

as well as in the NPRM that we are 

publishing as a result of the negotiations 

of Team II—School-based Loans Issues. 

However, we ask that when submitting 

your comments on the proposed 

changes to 34 CFR 674.51, you submit 

any comments on the proposed 

definitions of ‘‘substantial gainful 

activity’’ and ‘‘total and permanent 

disability’’ in the docket (Docket ID ED– 

2009–OPE–0004) for this NPRM. 

Comments on all other provisions in 

this section should be submitted in the 

docket (Docket ID ED–2009–OPE–0003) 

for the Team II—School-based Loans 

Issues NPRM. 

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 8033, 1990 K Street, NW., 

Washington, DC between the hours of 

8:30 a.m. and 4:00 p.m. Eastern Time, 

Monday through Friday of each week 

except Federal holidays. 

Assistance to Individuals With 

Disabilities in Reviewing the 

Rulemaking Record 

On request, we will supply an 

appropriate aid, such as a reader or 

print magnifier, to an individual with a 

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 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 assistance programs, 

the Secretary must 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 


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1As discussed elsewhere in this preamble, Loans 

Team II was responsible for negotiating the 

following provisions, which appear in this NPRM: 

34 CFR 674.51, definitions of the terms child with 

a disability, community defender organizations, 

educational service agency, faculty member at a 

Tribal College or University, Federal public 

defender organization, firefighter, infant or toddler 

with a disability, librarian with a master’s degree, 

speech language pathologist with a master’s degree, 

and Tribal College or University. 

information on the negotiated 

rulemaking process can be found at: 

http://www.ed.gov/policy/highered/leg/ 

hea08/index.html. 

On September 8, 2008, the 

Department published a notice in the 

Federal Register (73 FR 51990) 

announcing our intent to establish 

negotiated rulemaking committees to 

develop proposed regulations to (1) 

implement the changes made to the 

HEA by the Higher Education 

Opportunity Act of 2008 (HEOA, Pub. L. 

110–315) that affected programs 

authorized under title IV of the HEA, 

and (2) possibly address the provision 

added to section 207(c) of the HEA by 

the HEOA regarding the prohibition on 

a teacher preparation program from 

which the State has withdrawn approval 

or terminated financial support from 

accepting or enrolling any student who 

received title IV aid. 

On December 31, 2008, the 

Department published a notice in the 

Federal Register (73 FR 80314) 

announcing our intent to establish up to 

five negotiated rulemaking committees 

to prepare proposed regulations. The 

notice indicated that no requests from 

the public were received to negotiate the 

provision added to section 207(c) of the 

HEA. The Secretary determined it was 

not necessary to issue regulations in that 

area and therefore did not submit that 

issue to a negotiated rulemaking 

committee. The five committees that 

were established were: (1) A committee 

on lender and general loan issues (Loans 

Team I); (2) a committee on schoolbased loan issues (Loans Team II); (3) a 

committee on accreditation; (4) a 

committee on discretionary grant 

programs; and (5) a committee on 

general and non-loan programmatic 

issues. The notice informed the public 

that, due to the large volume of changes 

made by the HEOA that needed to be 

implemented through negotiated 

rulemaking, not all provisions would be 

addressed during this round of 

committee meetings. The notice 

requested nominations of individuals 

for membership on the committees who 

could represent the interests 

significantly affected by the proposed 

regulations and had demonstrated 

expertise or experience in the relevant 

subjects under negotiation. 

Loans Team I met in three sessions to 

develop proposed regulations: Session 

1, February 23–25, 2009; session 2, 

March 30–April 1, 2009; and session 3, 

May 4–6, 2009. These proposed 

regulations relate to the administration 

of the Federal student loan programs. 

This NPRM resulted primarily from the 

work of Loans Team I and, in a couple 

of instances where the subject matter of 

the proposed regulations overlapped, 

the work of Loans Team II.1

The Department developed a list of 

proposed regulatory provisions from 

advice and recommendations submitted 

by individuals and organizations as 

testimony to the Department in a series 

of six public hearings held on: 

• September 19, 2008, at the Texas 

Christian University, in Fort Worth, 

Texas. 

• September 29, 2008, at the 

University of Rhode Island, in 

Providence, Rhode Island. 

• October 2, 2008, at the Pepperdine 

University, in Malibu, California. 

• October 6, 2008, at Johnson C. 

Smith University, in Charlotte, North 

Carolina. 

• October 8, 2008, at the U.S. 

Department of Education, in 

Washington, DC. 

• October 15, 2008, at Cuyahoga 

Community College, in Warrensville 

Heights, Ohio. 

In addition, the Department accepted 

written comments on possible 

regulations submitted directly to the 

Department by interested parties and 

organizations. A summary of all 

comments received orally and in writing 

is posted as background material in the 

docket for this NPRM. Transcripts of the 

regional meetings can be accessed at: 

http://www.ed.gov/policy/highered/leg/ 

hea08/index.html. The Department also 

identified issues for discussion and 

negotiation. 

At its first meeting, the Loans Team 

I Committee reached agreement on its 

protocols and proposed agenda. The 

agenda included the statutory changes 

identified for the Committee’s 

consideration. In addition, at the second 

meeting of the Committee, the 

negotiators agreed by consensus to add 

two additional agenda items affecting 

the determination of eligibility and 

calculation of borrower payment 

amounts under the income-based 

repayment plan in the FFEL and Direct 

Loan programs that becomes available to 

borrowers on July 1, 2009. 

The Loans Team I Committee 

members (and the organizations they 

represented) included the following: 

• Representing students: Jonathan S. 

Sachs, primary, and Adam Briones, 

alternate (U.S. Public Interest Research 

Group; United States Student 

Association; University of Maryland 

Student Government Association; The 

Greenlining Institute); 

• Representing legal assistance 

organizations that represent students 

and borrowers: Deanne Loonin, primary, 

and Lauren Saunders, alternate 

(National Consumer Law Center); 

• Representing 2-year public 

institutions: George Chin, primary 

(American Association of State Colleges 

and Universities); 

• Representing 4-year public 

institutions: Carrie Steere-Salazar, 

primary, and Kris Wright, alternate 

(Association of American Medical 

Colleges; National Direct Loan 

Coalition); 

• Representing private, nonprofit 

institutions of higher education: Heather 

McDonnell, primary, and Bonnie Lee 

Behm, alternate (National Association of 

Student Financial Aid Administrators; 

Pennsylvania Association of Student 

Financial Aid Administrators); 

• Representing private, for-profit 

institutions of higher education: Thomas 

A. Babel, primary, and William Leach, 

alternate (DeVry University; Career 

College Association); 

• Representing guaranty agencies: 

Mary Mowdy, primary, and Dick 

George, alternate (Oklahoma State 

Regents for Higher Education; National 

Council of Higher Education Loan 

Programs (NCHELP)); 

• Representing for-profit lenders: 

Brenda Dillon, primary, and Tom 

Levandowski, alternate (NCHELP; 

Consumer Bankers Association); 

• Representing not-for-profit lenders: 

Cheryl Hughes, primary, and Scott 

Giles, alternate (NCHELP; Education 

Finance Council (EFC)); 

• Representing credit unions: Michael 

Kim, primary, and Rhonda Summerbell, 

alternate (Coalition of the following 

credit unions: University Federal Credit 

Union, USC Credit Union, UW Credit 

Union, Navy Federal Credit Union, 

Notre Dame Federal Credit Union); 

• Representing lender servicers: 

Diane Freundel, primary, and Wanda 

Hall, alternate (EFC; NCHELP; Student 

Loan Servicing Alliance); and 

• Representing the U.S. Department 

of Education: Pam Moran. 

The Committee’s protocols provided 

that the committee would operate by 

consensus, meaning there must be no 

dissent by any member in order for the 

committee to be considered to have 

reached agreement. Under the protocols, 

if the Committee reaches final 

consensus on all issues, the Department 

will use the consensus-based language 

in the proposed regulations and 

committee members and the 


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organizations whom they represent will 

refrain from commenting negatively on 

the package, except where provided for 

in the agreed upon protocols. 

During its meetings, the Loans Team 

I Committee reviewed and discussed 

drafts of the proposed regulations. At 

the final meeting in May 2009, the 

Committee reached consensus on the 

proposed regulations in this document, 

with the exception of those definitions 

included in 34 CFR 674.51 that were 

negotiated by Loans Team II, as 

discussed elsewhere in this notice. 

In addition to the proposed 

regulations considered by Loans Team I, 

this NPRM also includes some 

additional definitions that appear in 34 

CFR 674.51 (Special Definitions). Only 

the definitions of ‘‘substantial gainful 

activity’’ and ‘‘total and permanent 

disability’’ were included in the 

proposed regulations agreed to by Loans 

Team I. The remaining definitions in 

this section were added or amended as 

part of the negotiations of Loans Team 

II, but are being included here to 

provide context for the changes to this 

section. 

Team I and Team II were advised that, 

to ensure transparency and ease of use 

for public commenters, the Department 

would propose the entirety of 34 CFR 

part 601 in a single NPRM. Given Team 

I’s consensus, which included 

consensus on the definitions of the 

terms lender and private education loan 

in proposed § 601.2 as well as the 

requirements in § 601.40, Team I 

members were advised that they may 

not comment negatively on the 

provisions they negotiated 

notwithstanding that they would appear 

in Team II’s NPRM. Likewise, Team II 

members were advised that, while they 

may not comment negatively on the 

majority of proposed 34 CFR part 601 as 

a result of their consensus agreement, 

they may comment on the definitions of 

lender and private education loan as 

well as proposed § 601.40. 

With regard to the proposed changes 

to § 674.51, the Department determined 

that it would be helpful for the public 

to be able to view all proposed changes 

to this special definitions section for the 

Perkins Program in both Team I’s NPRM 

and Team II’s NPRM. Team I and Team 

II were advised that the proposed 

changes to § 674.51 would appear in 

their entirety in both documents to 

provide context and enhance 

understanding of both committees’ 

proposed changes to this section. Each 

team was advised by its respective 

Federal negotiator that its consensus 

agreement did not apply to the 

definitions negotiated by the other team 

and that any comments they may have 

on the definitions negotiated by the 

other team should be submitted in 

response to the NPRM published as a 

result of the other team’s negotiations. 

More information on the work of 

Team I can be found at http:// 

www.ed.gov/policy/highered/reg/ 

hearulemaking/2009/loans-lender.html 

and more information on the work of 

Team II can be found at http:// 

www.ed.gov/policy/highered/reg/ 

hearulemaking/2009/loans-schoolbased. 

Summary of Proposed Changes 

These proposed regulations would 

implement general and lender-based 

loan provisions of the HEA, as amended 

by the HEOA, that include: 

• A revised definition of ‘‘totally and 

permanently disabled’’ for purposes of 

discharging a borrower’s title IV loans 

and a revised disability discharge 

process; 

• Expansion of the conditions under 

which a borrower with only FFEL loans 

may consolidate those loans into a 

Direct Consolidation Loan; 

• Additional disclosures for FFEL 

and Direct consolidation loan 

applicants, and a new requirement for 

FFEL Consolidation loan lenders to 

notify borrowers who have applied for 

a Consolidation loan that they may 

cancel the loan within a specified time 

period; 

• An additional method for granting 

in-school deferments on FFEL or Direct 

Loan program loans, and a new 

notification requirement for FFEL 

lenders when granting a borrower a 

deferment on an unsubsidized loan; 

• New in-school deferment 

provisions for PLUS loan borrowers and 

related changes to administrative 

forbearance provisions; 

• Clarification of PLUS loan interest 

capitalization provisions; 

• A revised definition of ‘‘partial 

financial hardship’’ for purposes of 

determining eligibility for the incomebased repayment (IBR) plan in the FFEL 

and Direct Loan programs, and revised 

regulations for determining the IBR 

payment amount; 

• An expansion of the eligibility 

requirements for teacher loan 

forgiveness in the FFEL and Direct Loan 

programs to allow borrowers who 

perform qualifying teaching service at 

an eligible educational service agency to 

receive forgiveness; 

• A revision of the regulations related 

to loan rehabilitation to provide that a 

FFEL or Direct Loan borrower may 

rehabilitate a defaulted loan only once; 

• Revisions to the regulations 

governing prohibited inducements by 

guaranty agencies and lenders in the 

FFEL Program; 

• Revised and expanded disclosure 

requirements for FFEL Program lenders 

at the time of or prior to loan 

disbursement and during the loan 

repayment period; 

• An expansion of the information 

that must be provided to a FFEL 

borrower when the transfer, sale, or 

assignment of the borrower’s loan 

results in a change in the identity of the 

party to whom payments and 

communications must be sent; 

• Revised forbearance disclosure 

requirements related to interest 

capitalization for FFEL lenders; 

• Revised regulations related to the 

audit requirements for a FFEL school 

lender or an eligible lender trustee that 

originates FFEL loans for a school or 

school-affiliated organization; 

• A new requirement for guaranty 

agencies to work with the schools that 

they serve to develop and make 

available to students and their families 

consumer education materials related to 

budgeting and financial management; 

• A new requirement for guaranty 

agencies to make available certain 

financial and economic education 

materials to borrowers who have 

rehabilitated defaulted loans; 

• Revised consumer credit reporting 

requirements for guaranty agencies and 

prior loan holders after a borrower has 

rehabilitated a defaulted loan; and 

• Revised requirements related to the 

notifications that guaranty agencies 

must send to borrowers with defaulted 

loans. 

Significant Proposed Regulations 

We group major issues according to 

subject, with appropriate sections of the 

proposed regulations referenced in 

parentheses, beginning with issues that 

apply to all three title IV loan programs, 

followed by issues that apply to the 

FFEL and Direct Loan programs, and 

then issues that apply only to the FFEL 

Program. We discuss substantive issues 

under the sections of the proposed 

regulations to which they pertain. 

Generally, we do not address proposed 

regulatory provisions that are technical 

or otherwise minor in effect. 

Total and Permanent Disability Loan 

Discharges 

Definitions (§§ 674.51 and 682.200(b)) 

Statute: Prior to the enactment of the 

HEOA, the HEA provided that a Perkins 

Loan, FFEL, or Direct Loan could be 

discharged if the borrower had a total 

and permanent disability as determined 

in accordance with the regulations of 

the Secretary. The HEOA amended 


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sections 437(a) and 464(c)(1)(F) of the 

HEA to provide for the discharge of a 

borrower’s title IV loans if the borrower 

becomes totally and permanently 

disabled in accordance with the 

Secretary’s regulations, or if the 

borrower is unable to engage in any 

substantial gainful activity by reason of 

any medically determinable physical or 

mental impairment that can be expected 

to result in death, has lasted for a 

continuous period of not less than 60 

months, or can be expected to last for 

a continuous period of not less than 60 

months. 

The HEOA further amended sections 

437(a) and 464(c)(1)(F) of the HEA by 

establishing a separate total and 

permanent disability standard for 

certain veterans. Specifically, the HEA 

now provides that a borrower who is a 

military veteran is considered totally 

and permanently disabled for title IV 

loan discharge purposes if the borrower 

provides documentation showing that 

he or she has been determined by the 

Secretary of Veterans Affairs to be 

unemployable due to a serviceconnected disability. A borrower who 

provides such documentation is not 

required to present additional 

documentation for purposes of 

establishing eligibility for loan 

discharge based on total and permanent 

disability. 

Current Regulations: The current 

regulations governing the Perkins, FFEL, 

and Direct Loan programs define ‘‘total 

and permanent disability’’ as the 

condition of an individual who is 

unable to work and earn money because 

of an injury or illness that is expected 

to continue indefinitely or result in 

death. Current regulations do not define 

‘‘substantial gainful activity.’’ 

Proposed Regulations: Proposed 

§§ 674.51(aa) and 682.200(b) would 

define total and permanent disability as 

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 can be expected 

to result in death, has lasted for a 

continuous period of not less than 60 

months, or can be expected to last for 

a continuous period of not less than 60 

months; or (2) is a veteran and who has 

been determined by the Secretary of 

Veterans Affairs to be unemployable 

due to a service-connected disability. 

The proposed regulations would also 

add a definition of substantial gainful 

activity in §§ 674.51(x) and 682.200(b). 

The proposed definition would specify 

that substantial gainful activity means a 

level of work performed for pay or profit 

that involves doing significant physical 

or mental activities, or both. 

Reasons: The proposed regulations 

reflect the new statutory definition of 

totally and permanently disabled. 

Although the HEA provides that a 

borrower may be considered totally and 

permanently disabled either in 

accordance with the Secretary’s 

regulations or under the standards 

specified in sections 437(a) and 

464(c)(1)(F) of the HEA as described 

above, the Department has decided to 

use only the new specific statutory 

substantial gainful activity standard. 

The Department has decided not to add 

any additional regulatory standards. 

Therefore, the proposed revised 

definition of total and permanent 

disability reflects only the statutory total 

and permanent disability standards that 

were added to the HEA by the HEOA. 

The proposed definition of substantial 

gainful activity is based, in part, on the 

definition of substantial gainful activity 

that the Social Security Administration 

(SSA) uses in connection with 

determining an individual’s eligibility 

for Social Security disability benefits. 

However, the Department’s proposed 

definition relies solely on a medical 

determination and, unlike SSA’s 

definition, does not require a physician 

to consider whether a borrower can earn 

more than a specified amount. The 

Department does not believe that, for 

purposes of the discharge, it is 

necessary for a physician to evaluate 

whether a borrower is able to earn more 

than a specified amount each year. 

Some of the non-Federal negotiators 

asked for clarification of the reference to 

work performed ‘‘for profit’’ in the 

proposed definition of substantial 

gainful activity. They expressed 

concerns that the term ‘‘profit’’ would 

include income from sources other than 

employment. The Department explained 

that the reference to work performed for 

profit was borrowed from the SSA’s 

definition of substantial gainful activity 

and is intended to cover self-employed 

individuals who are not paid by an 

employer. The Department further noted 

that the proposed definition of 

substantial gainful activity refers to 

‘‘work’’ performed for pay or profit. The 

term ‘‘work performed for profit’’ does 

not refer to income from sources other 

than employment (including self 

employment) and non-employment 

income will not be considered when 

determining whether a borrower is 

capable of substantial gainful activity. 

Discharge Process for Borrowers Other 

Than Certain Veterans (§§ 674.61(b), 

682.402(c)(2) Through (c)(7), and 

685.213(b)) 

Statute: Sections 437(a)(1) and 464(k) 

of the HEA, as amended by the HEOA, 

provide for the discharge of a borrower’s 

title IV loans if the borrower becomes 

totally and permanently disabled. Those 

provisions also authorize the Secretary 

to promulgate regulations to reinstate a 

borrower’s obligation to repay a loan 

that was discharged due to disability if, 

after the discharge, the borrower 

receives another title IV loan or has 

earned income in excess of the poverty 

line, or under other circumstances that 

the Secretary determines to be 

necessary. 

Current Regulations: Under current 

regulations, a borrower applies for a 

total and permanent disability discharge 

of a title IV loan by submitting a 

completed loan discharge application 

that has been certified by a physician to 

the borrower’s loan holder. For Perkins 

Loans, the loan holder is the Perkins 

school lender. For FFEL loans, the 

holder is the lender or, if a default claim 

has been paid on the loan, the guaranty 

agency. For Direct Loans and for Perkins 

or FFEL loans that have been assigned 

to the Secretary, the loan holder is the 

Department. 

For a Perkins loan held by a school, 

if the loan holder determines that the 

information provided on the discharge 

application supports the conclusion that 

the borrower is totally and permanently 

disabled in accordance with the current 

regulatory definition, the loan holder 

assigns the loan to the Secretary. 

For a FFEL loan that is held by a 

lender, if the lender determines that the 

discharge application supports the 

conclusion that the borrower is totally 

and permanently disabled, the lender 

files a disability discharge claim with 

the guaranty agency. The guaranty 

agency reviews the borrower’s 

application, and if the guaranty agency 

concurs with the lender’s preliminary 

determination of discharge eligibility, it 

pays the lender’s discharge claim and 

assigns the loan to the Secretary. 

Once the loan has been assigned, the 

Secretary reviews the loan discharge 

application and makes an initial 

determination of the borrower’s 

eligibility for discharge. For Direct 

Loans or for Perkins or FFEL loans that 

were already held by the Secretary, the 

Secretary’s review is the initial review 

of the borrower’s loan discharge 

application. 

If the Secretary concludes that the 

information on the discharge 

application does not support the 

conclusion that the borrower is eligible 

for a total and permanent disability 

discharge, the Secretary notifies the 

borrower that the discharge request has 

been denied and that the loan is due 

and payable to the Secretary under the 


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36560 Federal Register / Vol. 74, No. 140 / Thursday, July 23, 2009 / Proposed Rules 

terms and conditions of the promissory 

note. 

If the Secretary determines that the 

borrower appears to meet the eligibility 

requirements for a total and permanent 

disability discharge, the Secretary grants 

the borrower a conditional discharge for 

a period of up to three years, beginning 

on the date the physician certified the 

borrower’s discharge application. 

During the conditional discharge period, 

the borrower is not required to make 

any payments on the loan and no 

interest accrues on the loan. The 

Secretary grants a final discharge if, 

during and at the end of the conditional 

discharge period, the borrower: (1) Does 

not receive a new title IV loan or a 

Teacher Education Assistance for 

College and Higher Education (TEACH) 

Grant; (2) does not have earnings from 

employment that exceed the poverty 

line amount for a family of two; and (3) 

ensures that the full amount of any title 

IV loan disbursement made after the 

physician’s certification date for a loan 

the borrower received prior to the 

physician’s certification date is returned 

to the holder within 120 days of the 

disbursement date. After granting a final 

discharge of a loan, the Secretary 

returns to the sender any payments on 

the loan that were received after the 

physician’s certification date. 

If at any time during or at the end of 

the conditional discharge period the 

borrower fails to meet one of the 

requirements for a final discharge, the 

Secretary ends the conditional discharge 

period and resumes collection activity 

on the loan. The borrower is not charged 

interest for the period during which the 

loan was conditionally discharged. 

Proposed Regulations: The proposed 

regulations would establish two 

separate loan discharge processes, one 

for veterans who have been determined 

by the Secretary of Veterans Affairs to 

be unemployable due to a serviceconnected disability, and a different 

process (the general discharge process) 

for borrowers who have been 

determined (as certified by a physician) 

to be unable to engage in substantial 

gainful activity due to a physical or 

mental impairment that can be expected 

to result in death or that has lasted for 

a continuous period of not less than 60 

months, or that can be expected to last 

for a continuous period of not less than 

60 months. The discharge process for 

veterans who have been determined to 

be unemployable due to a serviceconnected disability is discussed below 

under the heading ‘‘Discharge Process 

for Veterans Who Have Been 

Determined to be Unemployable Due to 

a Service-Connected Disability.’’ This 

section covers the general discharge 

process for other borrowers. 

The general discharge process 

included in these proposed regulations 

is similar in some respects to the 

discharge process under the current 

regulations. However, instead of using 

the current conditional discharge 

process, the Secretary would discharge 

a borrower’s obligation to repay a loan 

after determining that the borrower 

meets the discharge eligibility 

requirements. The Secretary would then 

reinstate the borrower’s obligation to 

repay the loan if the borrower fails to 

meet certain requirements during a postdischarge monitoring period. 

Under the proposed regulations, a 

borrower who wishes to apply for a total 

and permanent disability loan discharge 

would submit to his or her loan holders 

a completed loan discharge application 

that has been certified by a physician. 

The loan holder review process would 

be the same as under the current 

regulations. If the loan holder and, if 

applicable, the guaranty agency 

determine that the information provided 

on the discharge application supports 

the conclusion that the borrower is 

totally and permanently disabled in 

accordance with the regulatory 

definition, the loan would be assigned 

to the Secretary, as under the current 

regulations. The Secretary would then 

review the loan discharge application 

and make a determination of the 

borrower’s eligibility for discharge. As 

under the current regulations, the 

Secretary’s review would be the initial 

review of the borrower’s discharge 

application in the case of a Direct Loan 

or a Perkins or FFEL loan that is already 

held by the Secretary. 

If the Secretary concludes that the 

information on the discharge 

application does not support the 

conclusion that the borrower is eligible 

for a total and permanent disability loan 

discharge, the Secretary would notify 

the borrower that the discharge request 

has been denied and that the loan is due 

and payable to the Secretary under the 

terms and conditions of the promissory 

note. 

Under the proposed regulations, if the 

Secretary determines that the borrower 

meets the eligibility requirements for a 

total and permanent disability 

discharge, the Secretary would grant a 

final discharge and return to the sender 

any payments on the loan that were 

received after the physician’s 

certification date. At the same time, the 

Secretary would notify the borrower 

that the borrower’s obligation to repay 

the loan will be reinstated if, within 

three years from the discharge date, the 

borrower: (1) Receives a new title IV 

loan or TEACH Grant; (2) has earnings 

from employment that exceed the 

poverty line amount for a family of two; 

or (3) fails to ensure that the full amount 

of any title IV loan or TEACH Grant 

disbursement made after the discharge 

date for a loan or TEACH Grant the 

borrower received prior to the discharge 

date is returned to the holder or to the 

Secretary, as applicable, within 120 

days of the disbursement date. If a 

borrower’s obligation to repay a loan is 

reinstated, the borrower is not charged 

interest for the period from the 

discharge date to the date of the 

reinstatement. 

The proposed regulations would also 

provide that, if a borrower received a 

title IV loan or TEACH Grant before the 

date the physician certified the loan 

discharge application and a 

disbursement of that loan or grant is 

made after the date of the physician’s 

certification but before the date the 

Secretary grants the discharge, the 

processing of the borrower’s loan 

discharge request will be suspended 

until the borrower ensures that the full 

amount of the disbursement has been 

returned to the loan holder or to the 

Secretary, as applicable. 

Finally, the proposed regulations 

would provide that if a borrower’s 

obligation to repay a loan is reinstated 

after a total and permanent disability 

discharge, the Secretary will notify the 

borrower of the reinstatement. The 

notification will provide the borrower 

with the reason or reasons for the 

reinstatement, an explanation that the 

first loan payment following 

reinstatement will be due no earlier 

than 60 days after the date of the 

notification, and information on how 

the borrower may contact the 

Department if the borrower has 

questions about the reinstatement or 

believes that the obligation to repay the 

loan was reinstated based on incorrect 

information. 

Reasons: The proposed regulations 

reflect the statutory provisions that 

authorize the Secretary to reinstate a 

borrower’s obligation to repay a 

previously discharged loan under 

certain conditions. Under the proposed 

regulations, the general discharge 

process would, in many respects, be 

similar to the discharge process under 

the current regulations. The non-Federal 

negotiators were generally supportive of 

this approach. The most significant 

difference between the proposed and 

current regulations is that the current 

conditional discharge process will be 

replaced by a process in which the 

Secretary discharges the borrower’s 

obligation to repay the loan after 

determining that the borrower is totally 


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and permanently disabled, but 

reinstates the borrower’s repayment 

obligation if the borrower fails to meet 

certain requirements during a 3-year 

post-discharge monitoring period. The 

proposed 3-year post-discharge 

monitoring period is consistent with the 

current 3-year conditional discharge 

period, and the conditions that would 

result in the reinstatement of a 

borrower’s obligation to repay a 

previously discharged loan are 

essentially the same as the conditions 

that, under the current regulations, 

result in a conditionally discharged loan 

being returned to repayment status. 

The Department initially proposed a 

5-year post-discharge monitoring period 

and also proposed that upon the 

reinstatement of a borrower’s obligation 

to repay a previously discharged loan 

for failure to meet one of the postdischarge requirements, the borrower 

would be charged interest for the period 

from the date of discharge to the 

reinstatement date. The non-Federal 

negotiators did not support these 

proposals. Some negotiators questioned 

the basis for having a 5-year postdischarge monitoring period, since 

under current regulations the 

conditional discharge period is only 

three years. With regard to the 

Department’s initial proposal to charge 

interest from the discharge date if a 

borrower’s obligation to repay a 

discharged loan is reinstated, the nonFederal negotiators noted that, under 

current regulations, a borrower is not 

charged interest from the conditional 

discharge date if a conditionally 

discharged loan is returned to 

repayment status before the end of the 

conditional discharge period. After 

further consideration of the non-Federal 

negotiators’ concerns, the Department 

revised the proposed regulations by 

changing the post-discharge monitoring 

period from five years to three years, 

and by removing the provision that 

would have required a borrower to pay 

interest from the date of discharge if the 

borrower’s repayment obligation is 

reinstated. 

The Department also initially 

proposed that one of the conditions for 

reinstatement of a borrower’s obligation 

to repay a previously discharged loan 

would be if the borrower had annual 

earnings from employment during the 

post-discharge monitoring period that 

exceeded the poverty guideline amount 

for the borrower’s family size. Current 

regulations provide that a conditionally 

discharged loan is returned to 

repayment status if the borrower has 

employment earnings during the 

conditional discharge period that 

exceed the poverty guideline amount for 

a family of two, regardless of the 

borrower’s actual family size. The 

Department believed that the proposed 

change to a standard based on the 

borrower’s actual family size would be 

more equitable, as it would allow a 

borrower with a family size greater than 

two to have a higher level of 

employment earnings during the postdischarge monitoring period without 

being subject to reinstatement of the 

borrower’s repayment obligation on the 

discharged loan. However, some nonFederal negotiators expressed concerns 

that the proposed change to an 

employment earnings standard based on 

actual family size would be confusing to 

borrowers, since a borrower’s family 

size could change during the postdischarge monitoring period. These 

non-Federal negotiators believed that it 

would be preferable to maintain the 

current standard based on a family size 

of two, so that a borrower would not 

need to monitor changes in the 

employment earnings limit if the 

borrower’s family size increased or 

decreased during the post-discharge 

monitoring period. The Department 

agreed. 

The Department’s initial proposed 

regulations did not include a provision 

comparable to the provision in current 

regulations that addresses the treatment 

of a title IV loan disbursement made 

during the conditional discharge period 

for a loan the borrower received prior to 

the physician’s certification date. Under 

the current regulations, a borrower is 

ineligible for a final discharge unless the 

borrower ensures that such a 

disbursement is returned to the loan 

holder within 120 days of the 

disbursement date. The Department 

initially did not include a similar 

provision in the proposed regulations 

because the current regulatory provision 

is tied to the conditional discharge 

period, which would be eliminated 

under the proposed regulations. Under 

the proposed regulations, the postdischarge monitoring period begins on a 

later date than the current conditional 

discharge period, and a disbursement of 

a title IV loan received prior to the 

physician’s certification date is less 

likely to occur. However, some nonFederal negotiators noted that this 

situation could still arise under the 

proposed regulations and recommended 

that the proposed regulations be revised 

to include a provision comparable to the 

provision in the current regulations. The 

Department agreed. The proposed 

regulations would provide that a 

borrower’s obligation to repay a 

discharged loan will not be reinstated if 

the borrower ensures that a title IV loan 

or TEACH Grant disbursement made 

during the post-discharge monitoring 

period for a loan or TEACH Grant 

received prior to the discharge date is 

returned to the loan holder within 120 

days of the disbursement date. The 

proposed regulations would include 

TEACH Grant disbursements in this 

provision because a condition for 

receiving a TEACH Grant is that the 

student must agree to complete a 

teaching service obligation. A student 

who accepts a TEACH Grant 

presumably would not be totally and 

permanently disabled, as this condition 

would preclude the student from 

completing the TEACH Grant service 

obligation. 

The Committee also discussed the 

possible effect on a borrower’s discharge 

request of a disbursement being made 

during the period between the 

physician’s certification date and the 

discharge date for a loan or TEACH 

Grant received prior to the physician’s 

certification date. This issue does not 

arise under the current regulations 

because of the structure of the 

conditional discharge period. Based on 

these discussions, the Department 

revised the proposed regulations to 

provide that if a disbursement of a title 

IV loan or TEACH Grant is made during 

the period between the physician’s 

certification date and the discharge date, 

the processing of the borrower’s loan 

discharge request will be suspended 

until the borrower ensures that the 

disbursement is returned to the loan 

holder or the Secretary, as applicable. 

Finally, some of the non-Federal 

negotiators expressed concern that the 

Department’s initial proposal did not 

explicitly provide that the Secretary 

would notify a borrower who fails to 

meet one of the eligibility requirements 

during the post-discharge monitoring 

period that the borrower’s obligation to 

repay the discharged loan has been 

reinstated. The Department’s regulations 

generally do not specifically address the 

actions of the Department, but the nonFederal negotiators strongly urged the 

Department to include such a provision 

in the proposed regulations. These 

negotiators also requested that the 

proposed regulations specify that the 

Secretary’s notification of reinstatement 

will tell borrowers the reason for the 

reinstatement and provide the borrower 

with information on how to contact an 

appropriate office or official if they have 

questions or believe that the 

reinstatement was based on incorrect 

information. The Department agreed to 

add to the proposed regulations a 

provision stating that the Secretary will 

notify a borrower that his or her 

obligation to repay a previously 


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36562 Federal Register / Vol. 74, No. 140 / Thursday, July 23, 2009 / Proposed Rules 

discharged loan has been reinstated. 

The proposed regulations also provide 

that the notification of reinstatement 

will include the reason or reasons for 

the reinstatement, an explanation that 

the first payment due date on the loan 

following reinstatement will be no 

earlier than 60 days after the date of the 

notification of reinstatement, and 

information on how the borrower may 

contact the Department if he or she has 

questions about the reinstatement or 

believes that the obligation to repay the 

loan was reinstated based on incorrect 

information. 

The Department also agreed to take 

steps to further improve its notices to 

borrowers who have applied for or 

received disability discharges under the 

proposed regulations to more clearly 

explain the discharge process and the 

borrower’s rights and responsibilities 

with respect to that process. In 

particular, the Department intends to 

take steps to develop a process to 

acknowledge receipt of a borrower’s 

submission of a request that the 

Department reconsider its determination 

and to provide borrowers with 

information on the Secretary’s process 

for considering such requests and how 

the borrower will be made aware of the 

Secretary’s decision. 

Discharge Process for Veterans Who 

Have Been Determined To Be 

Unemployable Due to a ServiceConnected Disability (§§ 674.61(c), 

682.402(c)(8), and 685.213(c)) 

Statute: The HEOA added sections 

437(a)(2) and 464(c)(1)(F)(iv) to the HEA 

to provide that a borrower who has been 

determined by the Secretary of Veterans 

Affairs (VA) to be unemployable due to 

a service-connected disability and who 

provides documentation of that 

determination to the Secretary is to be 

considered totally and permanently 

disabled for the purpose of discharging 

the borrower’s title IV loans. Section 

437(a)(2) of the HEA further specifies 

that a borrower who provides such 

documentation may not be required to 

present additional documentation for 

the purpose of determining eligibility 

for a total and permanent disability loan 

discharge. 

Proposed Regulations: The proposed 

regulations would establish a separate 

discharge application process for 

borrowers who provide documentation 

showing that they have been determined 

by the VA to be unemployable due to a 

service-connected disability. Under the 

proposed regulations, the borrower 

would submit to the loan holder a loan 

discharge application accompanied by 

documentation from the VA showing 

that the borrower has been determined 

to be unemployable due to a serviceconnected disability. The borrower 

would not be required to have a 

physician certify the loan discharge 

application, and would not be required 

to provide any additional 

documentation related to the borrower’s 

service-connected disability. 

If the documentation from the VA 

does not indicate that the borrower has 

been determined to be unemployable 

due to a service-connected disability, 

the loan holder would deny the 

borrower’s discharge request. However, 

if the documentation indicates that the 

borrower may be totally and 

permanently disabled under the general 

definition of a total and permanent 

disability, the loan holder would inform 

the borrower that he or she may reapply 

for a loan discharge under the general 

procedures for a disability discharge. 

If the documentation indicates that 

the VA has determined that a Perkins 

Loan borrower is unemployable due to 

a service-connected disability, the 

Perkins school loan holder would 

submit a copy of the borrower’s 

discharge application and supporting 

documentation to the Secretary, and 

would notify the borrower that the 

discharge request has been referred to 

the Secretary for a determination of 

eligibility. In the case of a FFEL loan 

that is held by a lender, the lender 

would refer the borrower’s application 

to the guaranty agency and file a 

disability discharge claim with the 

agency. If the guaranty agency agrees 

that the VA documentation shows the 

borrower has been determined to be 

unemployable due to a serviceconnected disability, the guaranty 

agency would refer the borrower’s 

application to the Secretary. In contrast 

to the general discharge procedures, the 

borrower’s loan would not be assigned 

to the Secretary. 

Under the proposed regulations, if the 

Secretary determines that the borrower 

meets the total and permanent disability 

standard based on a determination by 

the VA that the borrower is 

unemployable due to a serviceconnected disability, the Secretary 

would notify the Perkins Loan school or 

guaranty agency that the borrower is 

eligible for a total and permanent 

disability loan discharge. The Perkins 

Loan school would then discharge the 

borrower’s loan and return to the sender 

any payments on the loan that were 

received on or after the effective date of 

the VA’s determination that the 

borrower is unemployable due to a 

service-connected disability. The 

guaranty agency would pay the lender’s 

disability discharge claim and notify the 

borrower that the borrower’s obligation 

to make any further payments on the 

loan has been discharged. Upon receipt 

of the claim payment from the guaranty 

agency, the lender would return any 

payments on the loan received on or 

after the effective date of the VA’s 

determination to the person who made 

the payments. There would be no postdischarge monitoring period for a 

borrower who receives a total and 

permanent disability discharge through 

this process, and the borrower would 

not be subject to reinstatement of his or 

her obligation to repay the discharged 

loan based on post-discharge 

employment earnings or receipt of a 

new title IV loan or TEACH Grant. The 

same discharge process would apply to 

borrowers with Direct Loans or Perkins 

or FFEL loans that are held by the 

Department. 

If the Secretary determines, based on 

a review of the documentation from the 

VA, that the borrower does not meet the 

standard for a disability discharge, the 

Secretary would notify the Perkins Loan 

school or guaranty agency of that 

decision, and collection on the loan 

would resume. 

Reasons: The proposed regulations 

are necessary to implement the statutory 

total and permanent disability discharge 

standard for certain veterans. 

Borrower Eligibility for New Title IV 

Loans After a Prior Total and 

Permanent Disability Discharge 

(§§ 674.9(g), 682.201(a), and 685.200(a)) 

Statute: The HEA does not specify 

eligibility requirements for borrowers 

who apply for a new title IV loan after 

a prior loan has been discharged due to 

a total and permanent disability. 

Current Regulations: Under the 

current regulations in the Perkins, FFEL, 

and Direct Loan programs, a borrower 

whose prior title IV loan was discharged 

due to a total and permanent disability 

must meet certain requirements before 

receiving a new loan. Specifically, the 

borrower must: (1) Provide a 

certification from a physician that the 

borrower is able to engage in substantial 

gainful activity; and (2) sign a statement 

acknowledging that any new loan the 

borrower receives cannot be discharged 

in the future based on any present 

condition, unless that condition 

substantially deteriorates. In addition, if 

a borrower’s prior loan is in a 

conditional discharge status, the 

conditionally discharged loan must be 

returned to repayment status before the 

borrower may receive a new loan. 

Proposed Regulations: The proposed 

regulations would retain the current 

requirement that, to receive a new title 

IV loan after a disability discharge, a 

borrower would have to obtain a 


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certification from a physician that the 

borrower is able to engage in substantial 

gainful activity, and acknowledge that 

the new loan may not be discharged in 

the future based on any present 

condition unless the condition 

substantially deteriorates. The proposed 

regulations would also provide that if a 

borrower receives a new title IV loan 

within three years of the date that a 

prior title IV loan or TEACH Grant 

service obligation was discharged on the 

basis of the borrower’s disability, the 

borrower would be required to resume 

repayment on the previously discharged 

loan or acknowledge that he or she is 

again subject to the terms of the TEACH 

Grant agreement to serve before 

receiving the new loan. 

The current total and permanent 

disability discharge regulations will 

continue to apply to any borrower 

whose loan discharge application is 

received prior to the effective date of 

any final regulations published as a 

result of this NPRM. Therefore, the 

proposed regulations would retain the 

current provision that requires a loan in 

a conditional discharge status to be 

returned to repayment status before a 

borrower who received a conditional 

discharge may receive a new loan. 

Reasons: The changes to the borrower 

eligibility regulations are conforming 

changes that are needed to effectively 

implement the new total and permanent 

disability loan discharge process. 

Consolidation Loans (§§ 682.201(e), 

682.206(f) and 685.220(d)) 

Statute: The HEOA amended sections 

428C(a)(3)(B)(i)(V) and 428C(b)(5) of the 

HEA to provide that FFEL loan 

borrowers may consolidate their loans 

into a Direct Consolidation Loan for the 

purpose of using the no interest accrual 

benefit for active duty service members, 

which is only available in the Direct 

Loan Program. This benefit provides 

that interest will not accrue on the 

Direct Loan of an eligible military 

borrower for a period of not more than 

60 months while the borrower is serving 

on active duty during a war or other 

military operation or national 

emergency, or performing qualifying 

National Guard duty during a war or 

other military operation or national 

emergency, and is serving in an area of 

hostilities in which service qualifies for 

special pay under section 310 of title 37 

of the United States Code. 

The HEOA also amended section 433 

of the HEA by adding a separate set of 

disclosures for Consolidation loan 

borrowers. At the time a lender provides 

a Consolidation loan application to a 

prospective borrower, it must provide 

specific information about 

Consolidation loans. In particular, a 

lender must inform the borrower that by 

applying for a Consolidation loan, the 

borrower is not obligated to take the 

loan. 

Current regulations: Section 682.201 

of the regulations establishes the 

eligibility requirements for borrowers 

seeking a FFEL Consolidation loan. 

Section 685.220 of the current 

regulations establishes the eligibility 

requirements for a borrower seeking a 

Direct Consolidation Loan. Current 

regulations permit borrowers who have 

only FFEL loans to consolidate those 

loans into a Direct Consolidation Loan 

to obtain an income contingent 

repayment plan or to qualify for the 

Public Service Loan Forgiveness 

Program. In addition, FFEL borrowers 

whose loans have been submitted to the 

guaranty agency for default aversion 

assistance may apply for a Direct 

Consolidation Loan. 

Section 682.206(f) of the current 

regulations includes requirements for 

lenders in the making of FFEL 

Consolidation loans. Those 

requirements include the requirement 

that the lender obtain lender verification 

certifications from the holders of the 

loans to be repaid by the Consolidation 

loan. 

Proposed regulations: The proposed 

regulations would amend §§ 682.201(e) 

and 685.220(d) to include an additional 

condition under which a borrower with 

only FFEL loans may consolidate those 

loans into a Direct Consolidation Loan. 

The proposed regulations would 

provide that a borrower with only FFEL 

loans may consolidate into the Direct 

Loan Program to use the no accrual of 

interest benefit for active duty military 

service personnel. 

The proposed regulations would also 

incorporate into the regulations a 

statutory change made by the College 

Cost Reduction and Access Act of 2007 

(CCRAA) that is not currently reflected 

in the Department’s regulations. 

Specifically, the proposed regulations 

would provide that a borrower may 

consolidate a FFEL Consolidation loan 

into the Direct Loan Program without 

including another eligible loan in the 

consolidation if the FFEL Consolidation 

loan is in default, or if the borrower 

wishes to obtain an income-based 

repayment plan. 

The proposed regulations would also 

modify section 682.206(f) to incorporate 

a new requirement that is needed to 

fully implement § 682.205(i)(7), which 

requires lenders to inform borrowers 

that, by applying for the Consolidation 

loan, the borrower is not obligated to 

agree to take the loan. Section 682.206(f) 

would be amended to include a 

requirement that the lender provide a 

Consolidation loan borrower a period of 

not less than 10 days, from the date the 

borrower is notified by the lender that 

it is ready to make the Consolidation 

loan, to cancel the loan. The proposed 

regulations would require the lender to 

send the notice of the option to cancel 

the loan to the borrower before making 

any payments to pay off a loan with the 

proceeds of a Consolidation loan. 

Reasons: The proposed changes to 

§§ 682.201(e) and 685.220(d) are being 

made to implement statutory 

requirements. The proposed change to 

§ 682.206(f) is being made to ensure that 

borrowers are given an appropriate 

opportunity to cancel a Consolidation 

loan for which they may have applied. 

The HEOA instituted several new 

disclosure requirements for lenders and 

established very specific disclosures 

requirements for lenders making a 

Consolidation loan. In particular, the 

HEOA requires a lender to inform a 

Consolidation loan applicant that 

applying for the loan does not obligate 

the borrower to agree to take the loan. 

The Department determined that it was 

important to ensure that borrowers are 

given both a clear explanation of the 

process for canceling a Consolidation 

loan and the time frame within which 

they may exercise their right to cancel 

the loan. Therefore, the Department is 

proposing language in § 682.206(f) 

providing borrowers with a 10-day 

period, before a Consolidation loan is 

made, during which the borrower could 

reconsider the Consolidation loan and 

cancel the loan if appropriate. 

There were a number of issues raised 

by the negotiators regarding this 

provision. Some non-Federal negotiators 

expressed concern about the 

Department’s original proposal to 

provide a five-day period for a borrower 

to cancel the loan with the lender. 

These non-Federal negotiators did not 

think the initial proposal provided 

enough clarity as to the date on which 

the five-day period would begin. One 

non-Federal negotiator indicated that 

the consolidation process is highly 

automated and if the servicer of the 

loans to be consolidated is also the 

servicer or lender for the Consolidation 

loan, the loan process could be 

completed in as little as 24–48 hours. 

The Department was asked to provide 

an opportunity for a borrower to waive 

his or her right to cancel the loan to 

allow the process to occur more quickly 

if the borrower chose to do so. 

During the negotiations, the 

Department described how the Direct 

Loan Program currently provides 

borrowers an opportunity to affirm their 

decision to take a Consolidation loan. 


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36564 Federal Register / Vol. 74, No. 140 / Thursday, July 23, 2009 / Proposed Rules 

Based on the practice in the Direct Loan 

Program, the Department proposed 

revised language establishing a 

timeframe for a borrower to cancel a 

Consolidation loan that would be 

similar to the timeframe in the Direct 

Loan Program, and that would be clear 

and understandable to all participants. 

The language in proposed 

§ 682.206(f)(ii) reflects the revised 

proposal. 

The Department strongly believes that 

the HEA clearly intends that a standard 

process should be established to provide 

a Consolidation loan applicant with the 

opportunity to cancel the application for 

the loan. The Department believes the 

proposed regulatory language reflects an 

appropriate balance between allowing 

the borrower sufficient time to make an 

informed determination about moving 

forward with the process for a 

Consolidation loan while not 

unnecessarily delaying its completion. 

The Department does not agree with the 

recommendation that the regulations 

provide an opportunity for a borrower to 

waive the right to cancel a 

Consolidation loan if the borrower 

wants the consolidation process to 

occur more quickly. The Department 

believes that the 10-day cancellation 

period provides appropriate protection 

to the borrower. Accordingly, under the 

proposed regulations, the 10-day 

cancellation period may not be waived 

by the borrower. 

One non-Federal negotiator asked if 

the proposed cancellation notification 

requirement would apply to a request by 

a borrower to add loans to an existing 

Consolidation loan during a 180-day 

period as permitted by the HEA. The 

negotiator was concerned that if the 

requirement applied to requests to add 

loans to an existing Consolidation loan, 

it could have a negative consequence to 

a borrower if a loan was inadvertently 

left out of the consolidation process and 

simply needed to be added. The 

Department agreed that once the loan is 

made, the 10-day waiting period does 

not apply if the borrower adds 

additional loans during the permitted 

180-day period. 

In-School Deferments, Interest 

Capitalization, and Administrative 

Forbearance for PLUS Loans 

(§§ 682.202(b), 682.210(v), 682.211(f), 

685.202(b), 685.204(g), and 685.205(b)) 

Statute: Section 428B(d) of the HEA, 

as amended by the HEOA, adds new inschool deferment provisions for PLUS 

loans first disbursed on or after July 1, 

2008. Specifically, the HEA provides 

that a parent PLUS borrower may defer 

repayment of a PLUS loan first 

disbursed on or after July 1, 2008 during 

the period while the student on whose 

behalf the loan was obtained is enrolled 

at an eligible institution on at least a 

half-time basis, and during the 6-month 

period that begins on the later of the day 

after the student 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 ceases to be 

enrolled on at least a half-time basis. A 

graduate or professional student PLUS 

borrower may defer repayment of a 

PLUS loan first disbursed on or after 

July 1, 2008 during the 6-month period 

that begins on the day after the student 

ceases to be enrolled at an eligible 

institution on at least a half-time basis. 

The HEA does not address the 

capitalization of interest on a PLUS loan 

that accrues during the period from the 

date of the first disbursement until the 

date the repayment period begins. 

Current Regulations: Current 

regulations do not address the 

capitalization of interest on a PLUS loan 

that accrues from the date of the first 

disbursement until the date the 

repayment period begins. 

Proposed Regulations: The proposed 

regulations would revise §§ 682.210 and 

685.204 to provide that, upon the 

request of the borrower, a parent PLUS 

borrower must be granted a deferment 

on a PLUS loan first disbursed on or 

after July 1, 2008, during the period 

when the student on whose behalf the 

loan was obtained is enrolled on at least 

a half-time basis at an eligible 

institution, and during the 6-month 

period that begins on the later of the day 

after the student 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 ceases to be 

enrolled on at least a half-time basis. 

For graduate and professional student 

PLUS borrowers, the proposed 

regulations would provide that a 

borrower may be granted a deferment on 

a PLUS loan first disbursed on or after 

July 1, 2008 during the 6-month period 

that begins on the day after the student 

ceases to be enrolled on at least a halftime basis at an eligible institution. If a 

lender or the Secretary grants an inschool deferment on a student PLUS 

loan based on information from the 

borrower’s school about the borrower’s 

eligibility for a new loan, student status 

information from the school or 

information from the National Student 

Loan Data System (NSLDS) confirming 

the borrower’s half-time enrollment 

status, the in-school deferment period 

for a student PLUS loan first disbursed 

on or after July 1, 2008 would include 

the 6-month period that begins on the 

day after the student PLUS borrower 

ceases to be enrolled on at least a halftime basis. 

The proposed regulations would 

revise the interest capitalization 

provisions in § 682.202(b) to provide 

that a lender may capitalize interest on 

a PLUS loan that has accrued from the 

date of the first disbursement until the 

date the repayment period begins, and 

would make a corresponding change in 

the Direct Loan Program regulations by 

revising § 685.202(b) to provide that the 

Secretary may capitalize unpaid interest 

on a PLUS loan when the loan enters 

repayment. 

Finally, the proposed regulations 

would add a new administrative 

forbearance provision to § 682.211(f) 

allowing a lender to grant a forbearance, 

upon notice to the borrower, on a 

borrower’s PLUS loans first disbursed 

before July 1, 2008 to align repayment 

with a borrower’s PLUS loans first 

disbursed on or after July 1, 2008, or 

with a borrower’s Stafford Loans that 

are subject to a grace period. The lender 

would be required to notify the 

borrower that he or she has the option 

to cancel the forbearance and to 

continue paying on the loan. A 

corresponding administrative 

forbearance provision would be added 

to § 685.205(b) in the Direct Loan 

Program regulations. 

Reasons: The proposed PLUS loan 

deferment regulations implement 

statutory provisions that were added to 

the HEA by the HEOA. 

The Department is proposing to 

amend the current interest 

capitalization provisions for PLUS loans 

to reflect current practice with regard to 

capitalization of unpaid loan interest 

that accrues from the date of the first 

disbursement until the date the loan 

enters repayment. 

The proposed new administrative 

forbearance provision reflects a 

recommendation from one of the nonFederal negotiators. This negotiator was 

concerned that PLUS loan borrowers, 

particularly student PLUS loan 

borrowers, who have both PLUS loans 

first disbursed before July 1, 2008 and 

PLUS loans first disbursed on or after 

July 1, 2008 may believe that all of their 

PLUS loans are eligible for the new 6- 

month post-enrollment deferment 

period. However, this deferment is only 

available on PLUS loans first disbursed 

on or after July 1, 2008. Because the 6- 

month post-enrollment deferment for 

student PLUS loans first disbursed on or 

after July 1, 2008 may be granted 

automatically as an extension of the 

borrower’s in-school deferment period, 

a student PLUS borrower who also has 

pre-July 1, 2008 PLUS loans may not 

understand that the loans first disbursed 


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before July 1, 2008 do not qualify for the 

post-enrollment deferment, and the inschool deferment period on such loans 

will end when the student ceases to be 

enrolled on at least a half-time basis. 

The non-Federal negotiator asked the 

Department to consider amending the 

regulations to provide for the alignment 

of repayment of a borrower’s PLUS 

loans first disbursed before July 1, 2008 

with a borrower’s PLUS loans first 

disbursed on or after July 1, 2008, and 

with a borrower’s Stafford Loans that 

have a grace period, so that the borrower 

would begin making payments on all of 

the loans at the same time. The 

Department agreed. 

Applicability of the Servicemembers 

Civil Relief Act (SCRA) to FFEL and 

Direct Loan Program Loans (§§ 682.202, 

682.302, and 685.202) 

Statute: The HEOA amended section 

428(d) of the HEA to provide that FFEL 

and Direct Loan program loans are 

subject to the provision in section 207 

of the Servicemembers Civil Relief Act 

(50 U.S.C. 527) (SCRA) that limits the 

interest rate on a borrower’s loan to six 

percent during periods of active duty 

military service. The limitation applies 

to loans incurred by the servicemember, 

or by the servicemember and the 

servicemember’s spouse jointly, before 

the servicemember entered military 

service. Section 438 of the HEA was also 

amended to specify that, for any FFEL 

program loan first disbursed on or after 

July 1, 2008 that is subject to the six 

percent interest rate limit of the SCRA, 

the interest rate used to calculate the 

lender’s special allowance payment is 

the rate that is determined in 

accordance with the SCRA. 

Proposed Regulations: The proposed 

regulations would revise §§ 682.202 and 

685.202 to provide that, effective August 

14, 2008, upon a loan holder’s receipt of 

a written request from a borrower and 

a copy of the borrower’s military orders, 

the maximum interest rate (as defined in 

50 U.S.C. 527, App, section 207(d)) that 

may be charged on FFEL or Direct Loan 

program loans made prior to the 

borrower entering active duty status is 

six percent while the borrower is on 

active duty status. The proposed 

regulations would also revise § 682.302 

of the FFEL regulations by adding a new 

paragraph (h) that specifies that for 

FFEL loans first disbursed on or after 

July 1, 2008, that are subject to the 

SCRA interest rate cap, a FFEL lender’s 

special allowance payment is calculated 

as it otherwise would be under program 

requirements, except that the applicable 

interest rate used is six percent. 

Reasons: The proposed regulations 

are necessary to reflect statutory 

requirements. 

During the negotiations, the 

Department clarified that for 

determining compliance with this 

provision, interest under the SCRA 

includes service charges, renewal 

charges, fees, or any other charges 

(except bona fide insurance) with 

respect to an obligation or liability. The 

Department also noted that a lender is 

prohibited from assessing a borrower 

who is subject to the SCRA interest rate 

cap an additional charge after the 

borrower’s period of active duty military 

service that is equal to the difference 

between the otherwise applicable 

interest rate on the FFEL loan and the 

six percent cap. 

In response to questions from the 

negotiators, the Department also 

clarified that the SCRA interest rate cap 

applies to the loan, not to the borrower. 

As long as the debt was incurred before 

the borrower’s military service began, 

the interest rate cap applies to any joint 

consolidation loan or other co-borrowed 

loan, and applies to a PLUS loan made 

to a borrower with an endorser even if 

only one of the individuals is 

performing active duty military service. 

For purposes of this restriction, a loan 

is considered incurred by an endorser 

when the Endorser Addendum to the 

PLUS Loan Master Promissory Note is 

signed, and the requirement that the 

debt be incurred before military service 

is based on that date. The debt-beforeservice date on a consolidation loan is 

the date the consolidation loan was 

made as a new debt, not the 

disbursement date of the loans repaid by 

the consolidation loan. 

In-School Deferment (§§ 682.210(a), 

682.210(c)(1), and 685.204(b)(1)) 

Statute: Section 428(b)(1)(Y) of the 

HEA was amended by the HEOA to 

include an additional method for 

granting an in-school deferment on a 

FFEL or Direct Loan. A loan holder may 

grant an in-school deferment based on 

the lender’s confirmation of the 

borrower’s half-time enrollment status 

through the use of NSLDS, if the 

confirmation is requested by the 

institution of higher education. A new 

provision was also added to the HEA to 

require a lender, at the time the lender 

grants a deferment to a borrower with an 

unsubsidized Stafford Loan, to provide 

the borrower with information to assist 

the borrower in understanding the 

impact of capitalization of interest on 

the borrower’s loan principal and on the 

total amount of interest to be paid 

during the life of the loan. 

Current Regulations: Section 

682.210(c)(1) of the current FFEL 

regulations specifies that a lender must 

grant an in-school deferment when a 

borrower requests and submits 

supporting documentation for the 

deferment or when the lender receives 

information from the school on a 

borrower’s eligibility for an in-school 

deferment in connection with the 

borrower’s receipt of a new loan, or 

when the lender receives student status 

information, directly or indirectly, from 

the borrower’s school indicating the 

borrower’s eligibility for the deferment. 

Section 685.204(b)(1) of the Direct Loan 

program regulations contains 

comparable provisions. 

Section 682.210(c)(2) of the FFEL 

regulations requires the lender, when 

granting an in-school deferment on a 

FFEL program loan based on 

information provided by the school, to 

notify the borrower that the deferment 

has been granted and that the borrower 

has the option to pay the accruing 

interest on an unsubsidized loan or to 

cancel the deferment and continue 

paying on the loan. The lender is also 

required to include in the notice an 

explanation of the consequences of 

those options. Under 

§ 685.204(b)(1)(iii)(B) of the Direct Loan 

regulations, the Secretary notifies the 

borrower after granting an in-school 

deferment based on information 

provided by the school that the 

borrower has the option to continue 

paying on the loan, and that if the 

borrower elects to cancel the deferment, 

the borrower may pay the principal and 

interest payments that were deferred. If 

the borrower fails to do so, the Secretary 

applies a deferment and capitalizes the 

interest that accrued during the period 

in which payments were not made. 

Proposed Regulations: The proposed 

regulations would revise 

§§ 682.210(c)(1) and 

685.204(b)(1)(iii)(A) to reflect the 

additional statutory method a lender or 

the Secretary may use to grant an inschool deferment, based on 

confirmation of the borrower’s half-time 

enrollment status through the use of 

NSLDS if requested by the borrower’s 

school. The proposed regulations would 

also revise § 682.210(a)(3) of the FFEL 

regulations to provide that if a borrower 

is responsible for the interest on a loan 

during a deferment period, the lender, at 

or before the time the deferment is 

granted, must notify the borrower that 

he or she has the option to pay the 

accruing interest or cancel the 

deferment and continue paying on the 

loan. The lender would also be required 

to provide information, including an 

example, on the impact on a borrower’s 


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loan debt of capitalization of accrued 

unpaid interest and on the total amount 

of interest to be paid over the life of the 

loan. A similar notification provision 

that applied only to the granting of inschool deferments would be removed 

from § 682.210(c)(2) of the FFEL 

regulations. A comparable change 

would be made in § 685.204(b)(1)(iii)(B) 

of the Direct Loan regulations to provide 

that borrowers will be notified of their 

option to cancel a deferment and 

continue paying on the loan and will be 

provided with information on the 

impact of capitalization, including an 

example. 

Reasons: The proposed changes are 

necessary to reflect the statutory 

changes made by the HEOA that affect 

the process for granting in-school 

deferments in the FFEL and Direct Loan 

programs and that require that 

additional information be provided so 

that borrowers better understand the 

impact of the capitalization of interest 

on the total cost of the loan. At the 

request of the negotiators, the 

Department clarified that the use of 

NSLDS, at the request of a borrower’s 

school, to confirm a borrower’s 

enrollment status is an additional 

method for granting in-school 

deferments and does not replace other 

pre-existing methods. In-school 

deferments may continue to be granted 

by a lender consistent with the 

requirements of § 682.210(s)(1)(iii) and 

based on student status information 

provided directly or indirectly by a 

school, including status information 

reported to NSLDS, without a specific 

request from the school. 

The Department also clarified that the 

information provided to borrowers on 

the impact of capitalization of accruing 

unpaid interest during deferment 

periods, including the example, may be 

general in nature rather than borrowerspecific. The Department also agreed 

with a proposal from some non-Federal 

negotiators that it would be helpful to 

borrowers to provide the required 

information on capitalization when the 

borrower applies for the deferment, by 

including it in standardized deferment 

forms, rather than only providing the 

information when the borrower is 

granted the deferment. 

Income-Based Repayment (IBR) Plan 

(§§ 682.215 and 685.221) 

Definition of Partial Financial Hardship 

(§§ 682.215(a)(4) and 685.221(a)(4)) 

Statute: Section 493C(a)(3) of the HEA 

provides that a borrower has a partial 

financial hardship, for the purpose of 

establishing eligibility for the incomebased repayment (IBR) plan, if the 

amount due on all of the borrower’s 

eligible FFEL and Direct Loans (as 

calculated under a standard repayment 

plan based on a 10-year repayment 

period) exceeds 15 percent of the 

difference between the borrower’s (and, 

if applicable, the borrower’s spouse’s) 

adjusted gross income (AGI) and 150 

percent of the poverty guideline for the 

borrower’s family size. If a married 

borrower files a separate Federal income 

tax return, section 493C(d) of the HEA 

provides that only the borrower’s 

income and eligible student loan debt 

are used in determining the amount of 

the borrower’s payment under the IBR 

plan. An eligible loan under section 

493C(a)(3) is any loan made, insured, or 

guaranteed under the FFEL and Direct 

Loan programs other than parent PLUS 

loans made under the FFEL and Direct 

Loan programs and consolidation loans 

under both programs that repaid parent 

PLUS loans. 

Current Regulations: The current 

regulations reflect the statutory 

definition of the term partial financial 

hardship and define the terms ‘‘AGI,’’ 

‘‘family size,’’ and ‘‘poverty guideline’’ 

consistent with the use of those terms in 

§ 682.210 for purposes of determining a 

borrower’s eligibility for an economic 

hardship deferment. AGI means the 

income reported by the borrower to the 

Internal Revenue Service (IRS). For a 

married borrower filing jointly, AGI 

includes both the borrower’s and 

spouse’s income. If a married borrower 

files a separate Federal tax return, AGI 

includes only the borrower’s income. A 

borrower’s family size includes the 

borrower, the borrower’s spouse and the 

borrower’s children (including unborn 

children who will be born during the 

year the borrower certifies family size), 

if the children receive more than half 

their support from the borrower for the 

year the borrower certifies family size. 

Other individuals are included in family 

size if, at the time the borrower certifies 

family size, those other individuals live 

with the borrower and receive more 

than half their support 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. The 

poverty guideline is the income 

categorized by State and family size in 

the poverty guidelines published 

annually by the United States 

Department of Health and Human 

Services pursuant to 42 U.S.C. 9902(2). 

If the 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. The 

term eligible loan reflects the statutory 

definition. 

Proposed Regulations: The proposed 

regulations would specify that the 

annual amount due on a borrower’s 

eligible loans for purposes of 

determining whether the borrower has a 

partial financial hardship is the greater 

of the amount due on the eligible loans 

as calculated under a standard 

repayment plan with a 10-year 

repayment period when the borrower 

initially entered repayment on those 

loans, or the annual amount due on 

those loans as calculated under a 

standard repayment plan with a 10-year 

repayment period when the borrower 

elects the IBR plan. The proposed 

regulations would also provide that 

when a married borrower and his or her 

spouse file a joint tax return with the 

IRS and both the borrower and the 

spouse have eligible loans, the joint AGI 

and the total amount of the borrower’s 

and spouse’s eligible loans will be used 

in determining whether each borrower 

has a partial financial hardship. 

Reasons: In the regulations governing 

the IBR Plan, the Department provided 

that, when determining a borrower’s 

partial financial hardship for purposes 

of IBR, the loan holder should compare 

the annual amount the borrower would 

pay on the borrower’s eligible loans at 

the time the borrower initially entered 

repayment on the total outstanding 

balance of those loans, based on a 

standard repayment over a 10-year 

repayment period, to the annual amount 

a borrower would pay under the 

provisions of the IBR plan. During the 

negotiations, a non-Federal negotiator 

pointed out that always using the 

annual amount the borrower would pay 

based on the outstanding balance of the 

loans when the borrower initially 

entered repayment disadvantages those 

borrowers whose outstanding balance 

has increased from the date the 

borrower initially entered repayment 

until the date the borrower requests IBR. 

This is particularly true for borrowers 

who have experienced significant 

difficulty repaying the loans, 

particularly unsubsidized loans, and 

who have used deferments and 

forbearances to avoid delinquency, with 

the result that their outstanding loan 

principal balance has increased due to 

capitalized interest. The Department 

and the other negotiators agreed that a 

borrower whose outstanding balance 

has increased rather than decreased 

during the repayment period prior to the 

borrower’s request for IBR should be 

given the benefit of having partial 

financial hardship determined based on 

the annual amount due, as calculated 


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under a standard repayment plan with 

a 10-year repayment period, on the 

borrower’s increased outstanding loan 

principal balance. 

The Department also proposed a 

change related to how eligibility for 

partial financial hardship is determined 

for married borrowers who file a joint 

Federal tax return and who both have 

eligible loans. The proposed change 

would ensure that if both borrowers 

qualify for IBR, their combined payment 

amounts will not exceed the 15 percent 

threshold under the IBR plan. The 

Department initially proposed the use of 

each individual borrower’s portion of 

the joint AGI and eligible loan amount 

to determine eligibility for IBR. After 

additional discussion, however, the 

Department and the negotiators agreed 

that this approach would impose a 

significant burden on borrowers, who 

would be required to submit additional 

documentation to identify their 

individual portion of any joint income, 

and would also require the loan holder 

to determine each borrower’s eligibility 

using a manual (instead of an 

automated) process. The Department 

and the negotiators agreed to adopt a 

suggestion by one of the non-Federal 

negotiators to use the joint AGI and the 

annual amount due on both the 

borrower’s and the spouse’s eligible 

loans to determine eligibility for IBR 

and the partial financial hardship 

payment amount. That payment amount 

would then be adjusted based on the 

percentage of the combined total eligible 

loan debt attributable to each individual 

borrower, with a further adjustment if 

the borrower has multiple loan holders. 

Income-Based Payment Amount 

(§§ 682.215(b)(1) and 685.221(b)(2)) 

Statute: Under section 493C(b)(1) of 

the HEA, the monthly payment amount 

for a borrower who has a partial 

financial hardship is determined by 

calculating 15 percent of the amount 

obtained by subtracting 150 percent of 

the poverty guideline amount for the 

borrower’s family size from the 

borrower’s AGI, and then dividing this 

amount by 12. 

Current Regulations: Sections 

682.215(b) and 685.221(b) provide that 

if a borrower’s eligible loans are held by 

more than one holder, the loan holder 

must adjust the amount of a borrower’s 

calculated monthly payment. The 

borrower’s adjusted monthly payment is 

determined by multiplying the 

calculated monthly payment amount by 

the percentage of the total outstanding 

principal amount of eligible loans that 

are held by that holder. 

Proposed Regulations: Under the 

proposed regulations, if a borrower and 

a borrower’s spouse both have eligible 

loans and filed a joint Federal tax 

return, each borrower’s percentage of 

the couple’s total eligible loan debt 

would be determined, and the 

calculated partial financial hardship 

payment amount for each borrower 

would be adjusted by multiplying the 

payment by the applicable borrower’s 

percentage. As with other borrowers, 

each borrower’s adjusted payment 

amount would be further adjusted if the 

borrower’s loans are held by multiple 

holders. In this case, the adjusted 

payment amount would be multiplied 

by the percentage of the borrower’s total 

outstanding principal amount of eligible 

loans that are held by the loan holder. 

Reasons: Without the proposed 

payment adjustment based on the 

borrower’s percentage of the combined 

eligible loan debt of the borrower and 

his or her spouse that is used to 

calculate the partial financial hardship 

of both borrowers, the borrower’s 

monthly payment amount could exceed 

the statutory maximum amount the 

borrower can be required to pay. 

FFEL and Direct Loan Program Teacher 

Loan Forgiveness (§§ 682.216 and 

685.217) 

Statute: The HEOA amended the 

FFEL and Direct Loan teacher loan 

forgiveness provisions in sections 428J 

and 460 of the HEA to specify that an 

otherwise eligible borrower may qualify 

for teacher loan forgiveness based on 

teaching service performed at a location 

operated by an educational service 

agency if the educational service agency 

meets the eligibility criteria that apply 

to elementary or secondary schools for 

teacher loan forgiveness purposes. In 

the case of a teacher who is employed 

by an educational service agency, the 

HEA provides that the chief 

administrative officer of the educational 

service agency must certify the 

borrower’s qualifying teaching service. 

The HEOA also amended the teacher 

loan forgiveness provisions to prohibit a 

borrower from receiving double benefits 

for the same teaching service. The HEA 

now prohibits a borrower from receiving 

loan forgiveness under both the FFEL 

and Direct Loan teacher loan forgiveness 

programs for the same qualifying 

teaching service. In addition, a borrower 

may not receive loan forgiveness 

benefits for the same teaching service 

under either the FFEL or Direct Loan 

teacher loan forgiveness programs and 

the Direct Loan public service loan 

forgiveness program (§ 685.219), subtitle 

D of title I of the National and 

Community Service Act of 1990 (the 

AmeriCorps program), or the Loan 

Forgiveness for Service in Areas of 

National Need program authorized by 

section 428K of the HEA. 

Current Regulations: Under current 

regulations, an otherwise eligible FFEL 

or Direct Loan borrower may qualify for 

teacher loan forgiveness only by 

performing qualifying teaching service 

in an eligible elementary or secondary 

school that serves low-income families. 

Borrowers who teach at a location 

operated by an educational service 

agency are not eligible for loan 

forgiveness. 

Current regulations prohibit a 

borrower from receiving loan 

forgiveness for the same teaching 

service under either the FFEL or Direct 

Loan teacher loan forgiveness programs 

and under subtitle D of title I of the 

National and Community Service Act of 

1990. A borrower who has both FFEL 

and Direct Loan program loans may not 

receive more than the maximum loan 

forgiveness amount on the borrower’s 

combined outstanding FFEL and Direct 

Loan balance, but is not otherwise 

prohibited from receiving forgiveness 

under both the FFEL and Direct Loan 

teacher loan forgiveness programs for 

the same qualifying teaching service. 

Proposed Regulations: The proposed 

regulations would allow a borrower who 

otherwise meets the eligibility 

requirements for teacher loan 

forgiveness to receive forgiveness based 

on teaching service performed at one or 

more locations of an eligible educational 

service agency that serves low-income 

families. A borrower could also qualify 

based on teaching service performed at 

a combination of eligible elementary or 

secondary schools and eligible 

educational service agencies. To be 

considered eligible service for teacher 

loan forgiveness purposes, an 

educational service agency would have 

to meet the same eligibility 

requirements that apply to elementary 

and secondary schools under current 

regulations. For a borrower employed at 

an eligible educational service agency, 

the borrower’s qualifying teaching 

service would have to be certified by the 

chief administrative officer of the 

educational service agency. 

Under the proposed regulations, 

qualifying teaching service performed at 

an eligible educational service agency 

could be counted toward the required 

five consecutive complete years of fulltime teaching only if the consecutive 

five-year period includes qualifying 

teaching service performed at an eligible 

educational service agency after the 

2007–2008 academic year. 

The proposed regulations would 

define the term ‘‘educational service 

agency’’ as a regional multiservice 

agency authorized by State law to 


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develop, manage, and provide services 

or programs to local educational 

agencies, as defined in section 9101 of 

the Elementary and Secondary 

Education Act of 1965, as amended. 

Finally, the proposed regulations 

would prohibit a borrower from 

receiving loan forgiveness under both 

the FFEL and Direct Loan teacher loan 

forgiveness programs for the same 

teaching service, or from receiving loan 

forgiveness for the same teaching 

service under either the FFEL or Direct 

Loan teacher loan forgiveness programs 

and: (1) The Direct Loan public service 

loan forgiveness program in § 685.219; 

(2) subtitle D of title I of the National 

and Community Service Act of 1990; or 

(3) the Loan Forgiveness for Service in 

Areas of National Need program 

authorized by section 428K of the HEA. 

Reasons: The proposed changes 

reflect statutory requirements. 

One of the non-Federal negotiators 

noted that some teachers do not have a 

fixed location of employment but 

instead perform qualifying teaching 

service at multiple eligible elementary 

or secondary schools, or at multiple 

eligible educational service agencies. 

This negotiator requested clarification 

that such ‘‘traveling’’ teachers, if 

otherwise eligible, would qualify for 

loan forgiveness if they are not actually 

employed by the individual schools or 

educational service agencies where they 

teach. The Department agreed that such 

teachers, if otherwise eligible, would 

qualify for teacher loan forgiveness. The 

current and proposed regulations 

provide that a borrower’s qualifying 

teaching service must be performed ‘‘in’’ 

or ‘‘at’’ an eligible elementary or 

secondary school or eligible educational 

service agency and do not rely on the 

identity of the employer. 

The Department’s initial proposed 

regulations allowed qualifying teaching 

service performed at an eligible 

educational service agency to be 

counted toward a borrower’s required 

five complete consecutive years of 

teaching service only if the service was 

performed after August 14, 2008, the 

date of enactment of the HEOA. One of 

the non-Federal negotiators argued that 

the amendments to the teacher loan 

forgiveness provisions of the HEA were 

intended to apply retroactively to 

October 1, 1998, the date of enactment 

of the FFEL and Direct Loan teacher 

loan forgiveness provisions. However, 

the Department does not agree with this 

interpretation of the law. The 

Department noted that Congress has 

specifically made other changes to the 

HEA retroactive, but chose not to do so 

in this case. However, the Department 

agreed to revise the proposed 

regulations to provide that the required 

five complete consecutive years of 

teaching may include any combination 

of qualifying teaching service at an 

eligible elementary or secondary school 

or at an eligible educational service 

agency, but teaching at an educational 

service agency may be counted toward 

the five years only if the consecutive 

five-year period includes qualifying 

teaching at an eligible educational 

service agency performed after the 

2007–2008 academic year. 

Eligibility for Rehabilitation of 

Defaulted FFEL and Direct Loans 

(§§ 682.405(a) and (b)(1)(iii) and 

685.211(f)) 

Statute: Section 428F(a) of the HEA 

was amended by the HEOA to prohibit 

a borrower from rehabilitating a 

defaulted loan more than once. 

Current Regulations: The regulations 

in §§ 682.405 and 685.211 provide for 

the rehabilitation of defaulted FFEL and 

Direct Loan program loans after a 

borrower makes nine voluntary, 

reasonable and affordable payments to 

the guaranty agency holding the 

defaulted loan, or to the Secretary in the 

case of a defaulted Direct Loan. After 

the borrower meets the payment 

requirements to reestablish a successful 

repayment pattern, a defaulted FFEL 

loan is rehabilitated upon resale of the 

loan to an eligible FFEL lender, at 

which time the borrower returns to 

normal repayment servicing. In the 

Direct Loan Program, after the borrower 

meets the payment requirements, the 

loan is transferred from a default 

collection status to a normal repayment 

servicing status. Current regulations do 

not include a limit on the number of 

times a borrower may rehabilitate a 

defaulted loan. 

Proposed Regulations: The proposed 

regulations would amend 

§§ 682.405(a)(3) and 685.211(f)(3) to 

provide that for any loan that is 

rehabilitated on or after August 14, 

2008, the borrower may not rehabilitate 

the loan again if the loan returns to a 

default status following the 

rehabilitation. 

The proposed regulations would also 

amend § 682.405(b)(1)(iii) to clarify that 

the guaranty agency and its agents must 

comply with the requirements of that 

section when determining a borrower’s 

‘‘reasonable and affordable’’ payment 

amount for loan rehabilitation purposes. 

Reasons: The proposed regulations 

are necessary to reflect the change in 

section 428F(a) of the HEA that 

prohibits a borrower from rehabilitating 

a defaulted loan more than once, and to 

clarify that guaranty agencies and their 

agents must comply with current 

regulatory requirements for determining 

reasonable and affordable payments. 

The Department’s original proposed 

regulations specified only that a 

borrower is prohibited from 

rehabilitating a defaulted loan more 

than once. Several non-Federal 

negotiators expressed the view that the 

Department’s interpretation of the 

statutory effective date of August 14, 

2008 for this provision should be 

included in the regulations or discussed 

in the preamble to the proposed 

regulations. The non-Federal negotiators 

also requested that the Department 

identify in the regulations the triggering 

event that results in a borrower’s 

inability to rehabilitate the loan again. 

The Department agreed and revised the 

proposed regulations to specify that the 

one-time limit on rehabilitation applies 

only to a defaulted loan that was 

rehabilitated on or after August 14, 

2008. A borrower who rehabilitated a 

defaulted loan before that date, and later 

defaults again on the loan, could 

rehabilitate that loan again. However, if 

the borrower rehabilitates the loan a 

second time, the loan would become 

subject to the limit. The Department 

also revised the proposed regulations to 

specify that the triggering event for the 

application of the one-time 

rehabilitation limit on a loan is the 

borrower’s return to a default status on 

that previously rehabilitated loan. 

Another non-Federal negotiator 

expressed concern about the process for 

determining payment amounts for 

rehabilitation. The negotiator stated that 

there was no consistent, standardized 

approach to determining ‘‘reasonable 

and affordable’’ borrower payments for 

purposes of loan rehabilitation across 

the guaranty agencies and their agents. 

The negotiator stated that some agencies 

and agents demanded a specified 

percentage or payment amount without 

apparent regard to the borrower’s 

financial circumstances, in violation of 

the HEA, and expressed the view that 

this perhaps represented a program 

compliance issue. The Department 

stated its belief that the requirements for 

determining reasonable and affordable 

borrower payments were already 

sufficiently detailed and explicit in 

§ 682.405(b)(1)(iii). However, the 

Department agreed to revise the lead-in 

language to this regulation to make it 

clear that a guaranty agency and all of 

its agents are subject to the requirements 

of § 682.405(b)(1)(iii) when determining 

a borrower’s reasonable and affordable 

payment amount for purposes of loan 

rehabilitation. This clarifying change is 

intended to ensure compliance with this 

requirement by a guaranty agency and 

all of the agency’s agents, particularly 


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collection agents that may be working 

with defaulted borrowers. 

Guaranty Agency and Lender 

Prohibited Inducements (§§ 682.200(b) 

and 682.401(e)) 

Statute: Section 435(d)(5) of the HEA 

provides that, after notice and an 

opportunity for a hearing, the Secretary 

may disqualify a FFEL lender from 

participation in the FFEL Program if it 

is determined that the lender engaged in 

certain prohibited activities to secure 

applicants for FFEL loans. These 

prohibited activities include offering, 

directly or indirectly, points, premiums, 

payments, prizes, stock or other 

securities, travel, entertainment 

expenses, tuition payment or 

reimbursement, providing information 

technology at below-market value, and 

providing additional financial aid funds 

to any institution of higher education or 

its employees. Lenders are prohibited 

from entering into any type of 

consulting arrangement or other type of 

contract to provide services to a lender 

with an employee who is employed in 

an institution’s financial aid office or 

who otherwise has responsibility over 

student loans or other student aid. The 

HEA also prohibits lenders from 

performing any function for an 

institution of higher education that is a 

required function for that institution 

under title IV of the HEA, other than 

exit counseling. 

Similarly, section 428(b)(3) of the 

HEA restricts guaranty agencies from 

offering inducements or engaging in 

certain prohibited activities to secure 

applicants for FFEL loans or to secure 

the designation as the insurer of loans. 

Guaranty agencies are prohibited from 

offering, directly or indirectly, 

premiums, payments, stock or other 

securities, prizes, travel, entertainment 

expenses, tuition payments or 

reimbursements to any institution of 

higher education or to any employee of 

the institution to secure FFEL loan 

applications; or to lenders or their 

agents or employees, or to an 

independent contractor of any lender or 

guaranty agency to administer or market 

FFEL loans for the purpose of securing 

the designation of insurer of the loans. 

In addition, a guaranty agency may not 

conduct fraudulent or misleading 

advertising concerning loan availability, 

terms or conditions and, like lenders, 

guaranty agencies may not perform for 

an institution of higher education any 

function the institution is required to 

perform under title IV, other than exit 

counseling. The statute allows both 

lenders and guarantors to provide 

technical assistance to an institution of 

higher education comparable to the 

technical assistance provided by the 

Department to schools participating in 

the Direct Loan Program. 

Current Regulations: Prohibited 

activities by lenders and guaranty 

agencies are specified in current 

regulations in §§ 682.200(b) and 

682.401(e), respectively. These 

regulations were amended in 2007 and 

provide lists of prohibited and 

permissible activities by lenders and 

guaranty agencies. The regulations 

governing the activities of lenders and 

guaranty agencies are different, most 

specifically in the area of training for 

schools (a guaranty agency may pay for 

travel and lodging for school personnel 

to attend training programs). The 

current regulations also permit guaranty 

agencies to pay school officials to 

participate on governing boards or 

advisory committees. 

Proposed Regulations: The proposed 

regulations would incorporate all of the 

new prohibited and permitted activities 

for lenders and guaranty agencies as 

specified in the HEA. Section 

682.200(b)(5) of the proposed 

regulations specifically addresses the 

prohibition on lenders providing 

processing, referral or finder fees and 

expands the prohibition of such 

payments to institutions, employees of 

the institutions or to any other party, 

including a school-affiliated 

organization or its employees, to secure 

FFEL loans. The payment of stock, 

securities or tuition reimbursements is 

also a prohibited inducement. The 

proposed regulations prohibit a lender 

from providing compensation for 

service on a lender advisory board, 

commission or other group to an 

employee who is employed in an 

institution’s financial aid office or to an 

institutional employee with 

responsibility for student loans or other 

financial aid, but would permit the 

lender to reimburse the employee for 

reasonable expenses related to service 

on the board, commission or group. The 

proposed regulations also specifically 

prohibit a lender from performing any 

function for a school that is a 

requirement of the school except for exit 

counseling. 

Section 682.401(e) of the proposed 

regulations, which governs guaranty 

agency prohibited inducements, 

generally mirrors the proposed 

regulations for lenders. The proposed 

regulations would prohibit guaranty 

agencies from performing any function 

required by a school under title IV 

except for exit counseling. Guaranty 

agencies would be prohibited from 

providing any payments of stock, 

securities or tuition reimbursement to 

any institution of higher education or its 

employees to secure applicants for FFEL 

loans, or to any lender, agent, or 

independent contractor of any lender or 

guaranty agency to administer or market 

FFEL loans for the purpose of securing 

designation as the insurer of the loans. 

A guaranty agency would not be 

permitted to pay travel and lodging 

costs of school employees to attend 

training conducted by the agency. The 

proposed regulations would allow for 

the reimbursement of reasonable 

expenses incurred by school employees 

to participate in an agency’s advisory 

committee or governing board activity. 

The proposed regulations would 

prohibit lenders or guaranty agencies 

from providing staffing services to 

schools under any conditions. Finally, 

the proposed regulations would revise 

the provision that allows a lender or 

guaranty agency to provide assistance to 

schools comparable to the assistance 

that the Secretary provides to schools 

under the Direct Loan Program by 

clarifying that the assistance to schools 

that may be provided is ‘‘technical’’ 

assistance comparable to the technical 

assistance that the Secretary provides to 

Direct Loan schools. 

Reasons: The proposed changes to the 

prohibited inducement regulations for 

both lenders and guaranty agencies 

reflect statutory changes made by the 

HEOA. 

During the negotiated rulemaking 

discussions, non-Federal negotiators 

raised a concern about the prohibition 

on lenders and guaranty agencies paying 

processing fees. Some negotiators asked 

the Department to clarify the term 

‘‘processing fees.’’ The negotiators were 

concerned that a broad definition could 

include permissible borrower benefits 

on FFEL loans. The Department 

clarified that, in this context, processing 

fees do not include permissible 

borrower benefit programs for student 

and parent borrowers that may be 

provided by lenders and guarantors to 

reduce the cost of borrowing for 

students and parents. 

Another non-Federal negotiator raised 

a concern that standard commercial 

practices may be affected by the 

prohibition on inducements with regard 

to the payment of processing fees. The 

Department made it clear that these 

regulations are not intended to thwart 

standard business practices unless there 

is a quid-pro-quo under which a lender 

pays the processing fees to secure loan 

applications or volume. The Department 

believes that these proposed regulations 

appropriately implement the statute and 

will not interfere with standard 

commercial business practices. 

Another negotiator raised a concern 

about what would be deemed 


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‘‘reasonable’’ with regard to the 

payment of reasonable costs in 

association with lenders and guaranty 

agencies paying for items such as meals 

or refreshments. The Department 

believes that the regulations are clear in 

their intent and that the determination 

of reasonable costs should be 

considered carefully by FFEL 

participants and viewed in light of what 

was deemed by the negotiators the 

‘‘prudent person test.’’ 

Disclosure Requirements for Lenders 

(§ 682.205) 

Statute: Section 433 of the HEA 

requires lenders to provide borrowers a 

series of informational disclosures 

throughout the life of a loan. Specific 

types of disclosures are required based 

on the borrower’s status within the 

borrowing process, i.e., at or before 

disbursement, at or before repayment, 

during repayment, during delinquency, 

at a time the borrower may be having 

difficulty making payments, and when 

the borrower considers taking out a 

Consolidation loan. Lenders are 

required to make these required 

disclosures simple and understandable 

for the borrower. 

The information the lender must 

disclose to the borrower at or before 

disbursement of the loan includes: 

Contact information for the lender; the 

amount of any charges on the loan, 

including origination fees and the 

Federal default fee; the interest rate on 

the loan; the annual and aggregate 

maximum amount that may be 

borrowed, when repayment is required 

and when interest must be paid, as well 

as the borrower’s right to prepay all or 

part of the loan at any time without 

penalty; a statement summarizing the 

circumstances in which a borrower may 

obtain a deferment or forbearance; and 

the options for and requirements for 

forgiveness of the loan. For borrowers of 

unsubsidized Stafford loans or 

borrowers of student PLUS loans, the 

lender must also provide information 

about the borrower’s right to pay the 

interest on the loan while the borrower 

is in school and, if interest is not paid, 

when and how often the lender will 

capitalize the interest. For parent PLUS 

loan borrowers, the lender must provide 

information about how the parent may 

defer payment on the loan while the 

student on whose behalf the parent 

borrowed is in school at least half-time. 

The disclosure information that the 

lender must provide to the borrower at 

or before the borrower begins repayment 

includes: The scheduled date repayment 

is to begin; the estimated balance, 

including the amount of interest to be 

capitalized as of the date on which 

repayment is to begin; the borrower’s 

repayment schedule; special loan 

repayment benefits offered on the loan, 

including those contingent on 

repayment behavior; any limitations on 

a repayment benefit provided by the 

lender; information on how a borrower 

may lose eligibility for the repayment 

benefit and whether and how the 

borrower can regain eligibility for the 

benefit; a description of how the 

borrower can avoid or be removed from 

default; and any additional resources 

available to the borrower to assist in 

loan repayment. 

While the borrower is in repayment 

on the loan, the lender must 

periodically provide additional 

disclosure information to the borrower. 

The lender must provide the borrower 

with a bill or statement that corresponds 

to each payment installment time period 

in which a payment is due. That bill or 

statement must also include: The 

borrower’s original principal loan 

amount; the borrower’s current balance, 

as of the time of the bill or statement; 

the interest rate on the loan; the 

aggregate amount the borrower has paid 

on the loan, including the amount of 

interest and fees and the amount paid 

against the balance; a description of any 

fees charged on the loan; the date by 

which the borrower must make a 

payment to avoid additional fees; and a 

reminder that the borrower has the 

option to change repayment plans as 

well as a list of available repayment 

plans. 

The HEA also requires lenders to 

make certain disclosures to borrowers 

who are having difficulty making 

payments, including: A description of 

the repayment plans available to the 

borrower and information as to how the 

borrower may request a change in his or 

her repayment plan; the requirements 

for obtaining forbearance including any 

cost or fees associated with forbearance; 

and a description of the options for the 

borrower to avoid default and any fees 

or costs associated with each option. 

If a borrower is 60 or more days 

delinquent in making payments, the 

lender must provide the borrower with 

information including: The date on 

which the loan will default if no 

payments are made; the minimum 

payment the borrower must make to 

avoid default; a description of the 

options available to the borrower to 

avoid default and any fees or costs 

associated with each option; discharge 

options to which the borrower may be 

entitled; and information about any 

additional resources available to the 

borrower, including the Department’s 

Ombudsman’s Office, to assist the 

borrower in loan repayment. 

Finally, the HEA requires lenders to 

provide a separate disclosure for 

borrowers applying for Consolidation 

loans. When a lender provides a 

borrower with an application for a 

Consolidation loan, the lender must 

disclose information about the loan 

including: Whether or not consolidation 

will result in a loss of loan benefits for 

the borrower, including loan 

forgiveness, cancellation, deferment or a 

reduced interest rate; and if the 

borrower is consolidating a Perkins 

Loan, that the borrower will lose 

interest free periods available on the 

Perkins Loan while the borrower is 

enrolled in school at least half-time, in 

the grace period or in deferment, and 

that the borrower will lose cancellation 

benefits available in the Perkins Loan 

Program. The lender must also provide 

the borrower with: A list of the Perkins 

Loan cancellation benefits that would 

no longer, upon consolidation, be 

available to the borrower; information 

about repayment plans available; 

information about the borrower’s option 

to prepay the Consolidation loan or pay 

on a shorter repayment schedule; and a 

notice that applying for the 

Consolidation loan does not obligate the 

borrower to agree to take the loan. 

Current Regulations: Section 682.205 

of the current regulations reflects the 

pre-HEOA requirements for lender 

disclosures. Lenders are required to 

provide information to borrowers at or 

before the time of loan disbursement, 

and at or prior to the beginning of 

repayment. Information that must be 

disclosed at or prior to disbursement 

includes: The lender’s name and contact 

information; the principal amount of the 

loan; the amount of charges to be 

collected by the lender, including the 

origination fee and if those charges will 

be deducted from the loan; the 

minimum and maximum number of 

years for repayment; deferment options; 

collection costs; and the possible effects 

of accepting the loan on the borrower’s 

eligibility for other aid. The regulations 

also require borrowers to be made aware 

that information concerning the loan, 

including the date of disbursement and 

the amount of the loan, will be reported 

to a national credit bureau. 

Information that must be disclosed at 

or prior to repayment includes: The 

scheduled date repayment is to begin; 

the estimated balance on the loan, 

including estimated interest to be 

capitalized; the interest rate on the loan; 

an explanation of fees that may accrue 

or be charged during the repayment 

period; and an explanation of special 

options the borrower may have for 

consolidating or refinancing the loans 

and the terms of those options. 


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Proposed Regulations: Section 

682.205 of the proposed regulations 

would retain the current regulatory 

language as to required disclosures, but 

would reorganize this section to 

accommodate the new disclosure 

requirements added by the HEOA. The 

HEOA added additional disclosures by 

lenders before disbursement and 

provided for new requirements at 

differing points in the repayment cycle 

of the borrower. The HEOA also added 

a separate set of disclosures specifically 

for Consolidation loan borrowers. 

The proposed regulations would 

incorporate the requirement for new 

disclosures by the lender at or prior to 

disbursement of the loan. In regard to 

unsubsidized loans, these disclosures 

must include: An explanation that the 

borrower may pay accruing interest 

while in school and, if the interest is not 

paid, when and how often it will be 

capitalized; for parent PLUS borrowers, 

an explanation that the payment may be 

deferred while the student on whose 

behalf the parent borrowed is in school 

as well as, if the interest is capitalized, 

when and how often it will be 

capitalized; information on 

forbearances; and a description of loan 

forgiveness options and the 

requirements to receive forgiveness. 

The HEOA also changed the 

numerous references to ‘‘credit bureaus’’ 

to refer to ‘‘consumer reporting 

agencies’’ and the proposed regulations 

reflect that change. 

To incorporate the many new 

disclosures required during the 

repayment period of a loan for a 

borrower, the proposed regulations 

reorganize § 682.205(c) to better separate 

and distinguish the different 

disclosures. 

Under proposed § 682.205(c)(2), the 

lender must disclose to the borrower: 

Information on any special loan 

repayment benefits available, the 

requirements to maintain the benefit, 

and the impact on the borrower’s overall 

repayment; and any limitations 

associated with the benefit and the 

circumstances that would cause the 

borrower to lose the benefit, as well as 

how the borrower may be able to regain 

the benefit. The lender must also 

provide a borrower with the list of 

repayment plans available and remind 

the borrower that he or she may change 

plans at least once a year. The borrower 

must be informed about how to avoid 

default and, if the borrower is in default, 

how to get out of default. The lender 

must also provide the borrower with 

information about additional resources 

available to assist in loan repayment, 

including nonprofit organizations, 

advocates and counselors, and the 

Department’s Ombudsman. 

Proposed § 682.205(c)(3) requires 

lenders to provide specific repayment 

information to the borrower with a bill 

or statement that corresponds to each 

payment installment time period in 

which a payment is due. That 

information must include: The original 

principal amount of the borrower’s loan; 

the current balance as of the time of the 

bill or statement; the interest rate on the 

loan; the interest paid by the borrower 

since the last statement or bill; aggregate 

totals paid; and a description of each fee 

the borrower has been charged for the 

most recent period. The borrower must 

be told the date by which payments 

must be made to avoid additional fees 

and the amount of that payment and the 

fees. Finally, the lender must remind 

the borrower of the option to change 

repayment plans and what plans are 

available with a link to the Department’s 

Web site for that repayment plan 

information. 

Proposed § 682.205(c)(4) adds a new 

section of required disclosures for 

borrowers who contact the lender and 

inform the lender that they are having 

difficulty making their required 

payments. Lenders must inform these 

borrowers of the repayment plans 

available, the requirements for 

forbearance and the options available to 

avoid default as well as any fees or costs 

associated with those options. 

Proposed § 682.205(c)(5) adds a new 

section on the required disclosures for 

borrowers who are 60-days delinquent 

on repayment of their loans. Lenders 

must provide borrowers who are 60- 

days delinquent with information 

regarding the date on which the loan 

will default if no payment is made, the 

minimum payment to avoid default, and 

the payment amount that would bring 

the loan to a current status or pay the 

loan in full. Lenders must inform 

borrowers about: The options for 

avoiding default, including deferments 

and forbearance; any costs associated 

with those options; and any opportunity 

for loan discharge the borrower may 

have. The notice required by 

§ 682.205(c)(5) must be sent to the 

borrower within five days of the 

borrower becoming 60-days delinquent, 

unless the lender has sent the notice 

within the previous 120 days. 

Reasons: The proposed regulations 

implement statutory requirements. 

Negotiators discussed how these 

disclosures could best be managed in a 

way that will be most beneficial to 

borrowers. Negotiators asked if the 

information required under 

§ 682.205(c)(2)(xiii) needed to be 

specific to the individual borrower’s 

circumstances, or if the information 

could be general and outline the options 

for any borrower to avoid default or to 

bring a loan out of default. In 

discussions with the negotiators, the 

Department agreed it would be 

permissible for this information, i.e., 

how a borrower can avoid or remove a 

default status, to be general, since other 

required disclosures will provide the 

borrower with specific information 

pertaining to their individual 

circumstances and account information. 

Negotiators raised questions about the 

disclosures required in 

§ 682.205(c)(2)(xiv) and what 

information would need to be included. 

The Department believes that these 

disclosures should provide borrowers 

with information about an additional set 

of tools that are available to help them 

manage their student loan debt. In doing 

so, lenders need to ensure that 

borrowers are aware of any appropriate 

Web sites, organizations, and counseling 

services of which the lender is aware 

and that can be of assistance to 

borrowers when managing the 

repayment of their debt. The 

Department agreed to provide lenders a 

Web link to its Ombudsman’s Office. 

Lenders may provide borrowers seeking 

to reach the Department’s Ombudsman’s 

Office with the following link: http:// 

www.ombudsman.ed.gov/. 

Some non-Federal negotiators also 

asked for clarification of when a lender 

must send the disclosure that is 

required at or prior to repayment, in 

accordance with § 685.205(c)(1), in the 

case of a PLUS loan that immediately 

enters an in-school deferment status 

upon the start of the repayment period. 

Specifically, the negotiators asked if the 

lender should wait until the end of the 

in-school deferment period (and any 

post-enrollment deferment period, if 

applicable) before sending the 

disclosure, or if the lender would be 

required to send the disclosure when 

the loan has been fully disbursed. The 

Department noted that a PLUS loan 

enters the repayment period on the date 

that the final disbursement of the loan 

is made. Therefore, the disclosure that 

is required at or prior to repayment 

must be sent at or before the time of the 

final loan disbursement rather than at 

the end of the deferment period. 

A non-Federal negotiator raised a 

concern about flexibility in the 

distribution of the disclosures required 

in this section of the regulations in light 

of the regulatory authority in 34 CFR 

682.205(f) that allows a lender to 

provide disclosures through written or 

electronic means. The negotiator wanted 

to ensure that lenders may provide the 

disclosures using the method best suited 


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36572 Federal Register / Vol. 74, No. 140 / Thursday, July 23, 2009 / Proposed Rules 

to the borrower’s repayment method. 

The negotiator asked the Department to 

clarify that a lender would be able to 

provide the required disclosures 

through secure e-mail or electronic links 

to the borrower’s account-specific 

information. 

The Department is concerned that the 

purpose of the statute would not be 

served if a lender simply provides a 

general electronic source for a borrower 

to retrieve the required disclosure 

information. Lenders may use 

appropriate electronic methods to 

provide the required disclosure 

information directly to the borrower. 

For example, if the lender sends an email to the borrower containing the 

required general disclosures as well as 

a secure link to allow the borrower to 

obtain specific account information, the 

lender will have met the requirement. 

However, if the lender receives 

information that the e-mail address used 

is no longer valid or not the borrower’s, 

the lender must take appropriate action 

as it would in situations when a mailing 

address used to communicate with the 

borrower is determined to be incorrect. 

Similarly, a lender may mail the 

required general disclosures to a 

borrower with information about a 

secure Web site for the borrower to 

access specific personal account 

information. If no return mail or 

evidence of a bad address is received by 

the lender, the lender may assume the 

mail has been received. Thus, we are 

proposing to treat these electronic 

disclosures similarly to mailed 

disclosures. 

Many non-Federal negotiators assured 

the Department that the required 

disclosure information, particularly the 

borrower-specific account information, 

could be provided through secure 

means and could provide confirmation 

that the borrower has accessed the 

information. The Department is not 

requiring lenders to document that the 

borrower has accessed the information, 

but would encourage lenders to do so to 

help identify borrowers who may need 

additional contact. 

The Department does not agree with 

the suggestion that it would be 

sufficient for a lender to provide general 

instructions on a statement, bill, coupon 

or other form (electronically or by mail) 

to a borrower that directs the borrower 

to a particular Web site for disclosure 

information. This approach would not 

fulfill the intent of the statute or serve 

the borrower. The Department fully 

supports the appropriate use of 

electronic communication with a 

borrower, but the Department must also 

ensure the statute is properly 

implemented and that borrowers are 

provided the required information in a 

manner that best serves both statutory 

intent and the needs of the borrower. 

Negotiators representing the student 

loan industry raised a concern about the 

impact of the distribution of the 

disclosures required by proposed 

§ 682.205(c)(3), those that are required 

during repayment, on their current loan 

servicing systems. The Department 

expects that the disclosures required by 

§ 682.205(c)(3) will be provided in 

accordance with the lender’s or 

servicer’s current account organizational 

practices. The disclosures may be 

provided by account or by borrower. 

The Department understands that 

lenders and servicers have developed 

systems to comply with disclosure 

requirements during repayment and 

does not intend to require lenders and 

servicers to unnecessarily alter those 

systems. Therefore, lenders and 

servicers may make the disclosures 

pursuant to § 682.205(c)(3) by loan, by 

account, or by borrower. 

Information to Borrowers Upon 

Transfer, Sale or Assignment of a FFEL 

Program Loan (§ 682.208(e)) 

Statute: Section 428(b)(2)(F)(i) of the 

HEA was amended by the HEOA to 

require that a borrower be provided 

with additional information when the 

transfer, sale, or assignment of the 

borrower’s FFEL loan results in a 

change in the identity of the party to 

whom payments and communications 

must be sent. The borrower must now 

be notified of the effective date of the 

assignment or transfer of the loan, the 

date that the current loan servicer will 

stop accepting the borrower’s payments, 

and the date the new loan servicer will 

begin accepting those payments. 

Current Regulations: Current FFEL 

Program regulations require that if the 

assignment of a FFEL Program loan 

results in a change in the identity of the 

party to whom the borrower must send 

subsequent payments, the assignor and 

the assignee of the loan must, within 45 

days from the date the assignee acquires 

the legally enforceable right to receive 

payment from the borrower on the 

assigned loan, provide the borrower 

with a notice, either jointly or 

separately, that informs the borrower of 

the assignment, the identity of the party 

to which the loan is assigned, the name 

and address of the party to whom the 

borrower must send subsequent 

payments or communications, and the 

telephone numbers of both the assignor 

and assignee. If a separate notice is sent 

by each party, each notice must indicate 

that a corresponding notice will be sent 

by the other party. The current 

regulations define assignment for this 

purpose to mean any kind of transfer of 

an interest in the loan, including a 

pledge of such an interest as security. 

The notification requirements apply if 

the borrower is in the grace period or 

has entered repayment on the loan. The 

assignee, or the assignor on the 

assignee’s behalf, must also notify the 

guaranty agency of the assignment, and 

the name, address, and telephone 

number of the assignee within 45 days 

of the date the assignee acquires a 

legally enforceable right to receive 

payment on the loan. 

Proposed Regulations: The proposed 

regulations incorporate the additional 

information specified in the HEA that 

must be provided to a borrower if the 

assignment or transfer of ownership 

interest on a FFEL Program loan results 

in a change in the identity of the party 

to whom subsequent payments must be 

sent. The date on which the current 

servicer will stop accepting payments is 

required only if that is applicable. 

Reasons: The proposed regulations 

reflect the HEOA changes to the HEA. 

Notification of the date on which the 

current servicer will stop accepting 

payments is not required if the servicer 

continues to accept payments 

throughout the assignment process and 

forwards them on to the assignee. NonFederal negotiators with knowledge of 

loan servicing practices indicated that 

loan servicers do not stop accepting 

borrower payments during sales, 

transfers, and assignment. 

Forbearance (§ 682.211) 

Statute: Section 428(c)(3)(C) of the 

HEA outlines what disclosures the 

lender must make to the borrower upon 

granting forbearance and during a 

forbearance period. The HEA requires 

lenders to provide a borrower with 

information regarding the impact that 

capitalizing interest will have on the 

loan and the total balance to be repaid. 

It requires lenders to provide additional 

disclosures to borrowers during a 

forbearance period, including the 

amount of interest that will be 

capitalized, the date on which 

capitalization will occur and the option 

of the borrower to pay the interest that 

has accrued before the interest is 

capitalized. 

Current Regulations: Current 

§ 682.211(e) requires the lender to 

contact a borrower at least once every 

six months during a period of 

forbearance only when the forbearance 

involves the cessation of all payments. 

The lender must provide the borrower 

with a reminder of the obligation to 

repay the loan, the amount of principal 

and interest on the loan, the fact that 

interest will continue to accrue and the 


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borrower’s or endorser’s option to 

cancel the forbearance at any time. 

Proposed Regulations: Section 

682.211(e) of the proposed regulations 

would require the lender, at the time the 

borrower is granted a forbearance, to 

give the borrower information about the 

impact of capitalization of interest on 

the loan and the total amount to be 

repaid over the life of the loan. The 

proposed regulations would also require 

the lender to contact the borrower at 

least once every 180 days during any 

period of forbearance and to give the 

borrower or endorser more specific 

information, in conjunction with that 

required under previous regulations, as 

to the impact of forbearance on the loan. 

This information includes the amount of 

interest that will be capitalized and 

when that capitalization will take place 

and the option of the borrower or 

endorser to pay the interest that has 

accrued before it is capitalized. 

Reasons: The proposed regulations 

implement statutory requirements. 

Some negotiators asked the 

Department to clarify the new 

forbearance disclosure requirement as 

they relate to administrative 

forbearances. Some negotiators were 

concerned that lenders will not be able 

to satisfy the disclosure requirements if 

an administrative forbearance is granted 

to provide a borrower assistance with a 

situation occurring in the past. The 

Department agreed with the other 

negotiators that if an administrative 

forbearance is granted retroactively, the 

lender need not go back in time to 

provide the required information 

retroactively. Lenders must, however, 

contact the borrower as required going 

forward from the date the lender 

applied the forbearance. 

Audit Requirement for a FFEL School 

Lender or an Eligible Lender Trustee 

(ELT) That Originates FFEL Loans for a 

School or School-Affiliated 

Organization (§§ 682.305(c) and 

682.601(a)(7)) 

Statute: The HEOA added section 

435(d)(8) to the HEA which requires any 

school that serves as a FFEL lender or 

any eligible lender that serves as an 

Eligible Lender Trustee (ELT) for a 

school or school-affiliated organization 

for the purpose of making FFEL loans to 

complete and submit annually to the 

Secretary a compliance audit. The 

compliance audit must determine that 

the school or lender: Used all proceeds 

from special allowance payments, 

borrower interest payments, interest 

subsidy payments received from the 

Department and any proceeds from the 

sale or other disposition of the loans 

originated for need-based grants; that no 

more than a reasonable portion of the 

proceeds were used for direct 

administrative expenses; and that the 

need-based grants made from the 

proceeds supplemented and did not 

supplant Federal and non-Federal funds 

that would otherwise have been used by 

the school for need-based grant 

programs. 

Current Regulations: Section 

682.305(c) of the FFEL Program 

regulations requires all FFEL lenders 

that originate or hold at least $5 million 

in FFEL loans during the lender’s fiscal 

year to complete and submit to the 

Department an independent annual 

compliance audit for that year. The 

audit must be completed by a qualified, 

independent organization or person. 

Section 682.601(a)(7) requires a school 

that makes or originates FFEL loans, 

regardless of the dollar volume, to 

submit an annual compliance audit to 

the Department. For a school that is not 

a governmental entity or a nonprofit 

organization, the audit must examine 

the school lender’s compliance with the 

HEA and applicable regulations, 

examine the school lender’s financial 

management of its FFEL Program 

activities, and be conducted in 

accordance with the standards for audits 

issued by the United States Government 

Accountability Office’s Government 

Auditing Standard using the procedures 

outlined in an audit guide produced by 

the Department’s Office of Inspector 

General. For a school lender that is a 

governmental entity or a nonprofit 

organization, the audit must meet the 

same standards as audits for other 

school lenders and be conducted in 

accordance with chapter 75 of title 31 of 

the United States Code. In addition, in 

years in which student financial aid is 

not audited as a ‘‘Major Program,’’ as 

defined under 31 U.S.C. 7501, the 

school’s lending activities, regardless of 

dollar amount, must be included in the 

audit as a Major Program. 

Proposed Regulations: The proposed 

regulations would revise § 682.305(c) to 

require that a FFEL school lender, or a 

lender serving as a trustee on behalf of 

a school or school-affiliated 

organization for the purpose of 

originating loans, submit an annual 

compliance audit to the Department 

regardless of the dollar volume of loans 

originated. The proposed regulations 

also require that the audit be conducted 

by a qualified, independent organization 

or person. A new proposed 

§ 682.305(c)(2)(vii) would govern the 

compliance audit of a school or schoolaffiliated organization’s lender trustee. 

The proposed regulations require that 

the trustee’s audit include a 

determination that the school for whom 

the lender serves as trustee used all the 

proceeds from special allowance 

payments, interest subsidies received 

from the Department, and any proceeds 

from the sale or other disposition of the 

loans originated through the lender for 

need-based grants, and that those funds 

supplemented, but did not supplant, 

other Federal or non-Federal funds 

otherwise available to the school to 

make need-based grants to its students. 

The proposed regulations also require 

that the audit must determine that no 

more than a reasonable portion of the 

payments and proceeds from the loans 

were used for direct administrative 

expenses in accordance with 

§ 682.601(b) of the current regulations. 

These same requirements with regard to 

annual compliance audit determinations 

were also added to the FFEL school 

lender audit requirements in 

§ 682.601(a)(7) of the regulations. 

Reasons: The proposed regulations 

reflect the HEOA changes made to the 

HEA provisions governing the 

compliance audit of a FFEL school 

lender or an eligible FFEL lender in its 

capacity as trustee for a school or 

school-affiliated organization for the 

purpose of making FFEL loans. The 

audit determination will ensure that 

funds received by a school as a lender 

or through an ELT arrangement with an 

eligible FFEL lender will be used to 

benefit students enrolled at the school 

as intended by the HEA. 

Consumer Education Information 

Provided by Guaranty Agencies 

(§ 682.401(g)) 

Statute: The HEOA added a new 

section 433A to the HEA that requires 

a guaranty agency to work with the 

schools that it serves to develop and 

make available high-quality educational 

materials and programs that provide 

training for students and their families 

in budgeting and financial management, 

including debt management and other 

aspects of financial literacy, such as the 

cost of using high-interest loans to pay 

for postsecondary education, and how 

budgeting and financial management 

relate to the title IV student loan 

programs. The HEA requires these 

programs and materials to be in formats 

that are simple and understandable to 

students and their families, and 

specifies that they must be provided 

before, during, and after a student’s 

enrollment at an institution of higher 

education. A guaranty agency’s 

activities under section 433A are 

considered default reduction activities 

for the purposes of section 422 of the 

HEA. 

A guaranty agency is not prohibited 

from using existing activities, programs, 


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36574 Federal Register / Vol. 74, No. 140 / Thursday, July 23, 2009 / Proposed Rules 

and materials to meet the requirements 

of section 433A, and may provide 

programs or materials similar to the 

programs and materials required by 

section 433A to schools that participate 

only in the Direct Loan Program. 

A lender or loan servicer may also 

provide outreach or financial aid 

literacy information in accordance with 

the requirements of section 433A. 

Proposed Regulations: The proposed 

regulations would reflect the 

requirements of section 433A of the 

HEA as described above. 

Reasons: The proposed changes are 

necessary to reflect a statutory 

requirement. 

Financial and Economic Literacy for 

Rehabilitated Borrowers (§ 682.405) 

Statute: The HEOA amended section 

428F of the HEA to require a guaranty 

agency to make available financial and 

economic education materials for a 

borrower who has rehabilitated a 

defaulted loan. 

Proposed Regulations: The proposed 

regulations would revise § 682.405, 

regarding loan rehabilitation 

agreements, by adding a provision 

requiring guaranty agencies to make 

available financial and economic 

education materials, including debt 

management information, to any 

borrower who has rehabilitated a 

defaulted loan. 

Reasons: The proposed change is 

necessary to implement a statutory 

requirement. Some of the non-Federal 

negotiators requested clarification of the 

methods by which a guaranty agency 

may make the required information 

available to borrowers who have 

rehabilitated a defaulted loan. One nonFederal negotiator representing students 

asked for clarification that the required 

information must be provided to 

individual borrowers who have 

rehabilitated defaulted loans, and not 

simply made available on a guaranty 

agency’s Web site or in other general 

materials. 

The Department confirmed that a 

guaranty agency must provide the 

required financial and economic 

education materials to each individual 

borrower who has rehabilitated a 

defaulted loan. A guaranty agency may 

provide the required information to 

individual borrowers by mailing written 

materials or through electronic means. 

The materials may provide general 

financial and economic education 

information that would be applicable to 

any borrower, including information on 

debt management, and need not be 

specific to the individual borrower’s 

circumstances. 

Consumer Credit Reporting Following 

Loan Rehabilitation (§ 682.405(b)(1)(iii) 

and (b)(3)) 

Statute: Section 428F(a)(1)(A) of the 

HEA was amended by the HEOA to 

require that, upon sale of a rehabilitated 

loan to an eligible lender, the guaranty 

agency or other holder of the loan must 

request any consumer reporting agency 

to which the guaranty agency or holder 

had reported the default of the loan to 

remove the record of default from the 

borrower’s credit history. 

Current Regulations: Section 

682.405(b)(3) of the FFEL regulations 

states that the guaranty agency must 

report to all national credit bureaus 

within 90 days of the date the loan was 

rehabilitated that the loan is no longer 

in a default status and that the default 

is to be removed from the borrower’s 

credit history. 

Proposed Regulations: The proposed 

regulations would require the prior 

holder of the loan, in addition to the 

guaranty agency, to request that a 

consumer reporting agency to which the 

default was reported remove the default 

from the borrower’s credit history. The 

proposed regulations would also 

provide more detailed reporting 

deadlines for the guaranty agency and 

the prior loan holder to request removal 

of the report of the default from the 

borrower’s credit history, and would 

reduce the overall period for this 

activity from 90 to 75 days. Under the 

proposed regulations, the guaranty 

agency must, within 45 days of the sale 

of the rehabilitated loan to an eligible 

lender, request that the consumer 

reporting agency remove the record of 

default from the borrower’s credit 

history and notify the prior holder of the 

loan rehabilitation. The proposed 

regulations would require the prior 

holder of the loan, within 30 days of the 

guaranty agency’s notification of the 

loan’s rehabilitation, to request that the 

consumer reporting agency remove the 

loan holder’s default claim record or its 

equivalent from the borrower’s credit 

history. 

Reasons: The proposed regulations 

incorporate the HEOA changes to the 

HEA provisions governing default 

rehabilitation-related reporting to 

consumer reporting agencies. 

Establishing specific deadlines for a 

guaranty agency’s notice to the prior 

holder and for the guaranty agency and 

loan holder to make their requests to 

consumer reporting agencies will ensure 

that affected borrowers receive the 

primary loan rehabilitation benefit in a 

timely and efficient manner. 

The Department initially proposed 

reducing the overall timeframe for 

reporting to the consumer reporting 

organizations from the current 90 days 

to 45 days without separate reporting 

deadlines for the guaranty agency and 

loan holder. Several non-Federal 

negotiators expressed concern that 45 

days did not provide sufficient time for 

both parties to report to consumer 

reporting agencies and noted that the 

prior loan holder would not be aware 

that it was required to initiate such a 

request unless it was informed by the 

guaranty agency of the sale. These 

negotiators also recommended that 

separate deadlines be established for the 

guaranty agency and the loan holder so 

that one party’s failure to meet the 

deadline would not result in a 

compliance failure for both parties. A 

non-Federal negotiator familiar with 

guaranty agency requirements also 

requested that the Department clarify a 

guaranty agency’s responsibilities when 

the prior loan holder that reported the 

default was no longer in existence. The 

negotiators discussed consumer credit 

reporting in greater detail, with the 

Federal negotiator providing an 

overview of the process and information 

on the Department’s consumer credit 

reporting process for rehabilitated Direct 

Loans. In both the FFEL and Direct Loan 

programs a record of the default, or an 

equivalent reporting code, is reported by 

the loan holder (in FFEL) or the Direct 

Loan servicer and by the guaranty 

agency (in FFEL) or the Department’s 

debt collection unit (in Direct Loans) 

and that neither the Department nor a 

guaranty agency has the authority to 

request deletion by the consumer 

reporting organization of another 

creditor’s reported ‘‘trade line.’’ If the 

loan holder that reported a default 

insurance claim no longer exists, the 

borrower’s recourse is to directly 

request that the consumer reporting 

organization remove the defunct loan 

holder’s reported record of default or its 

equivalent from the borrower’s credit 

history. The Department expects 

guaranty agencies to assist borrowers to 

the extent possible under these 

circumstances by informing the 

borrower of the identity of the prior 

holder and of the borrower’s right to 

directly request removal of the default 

by the consumer reporting agency. 

However, the Department understands 

that a guaranty agency’s ability to assist 

borrowers is limited in this area. 

Notifications to Borrowers in Default 

and Definition of Nationwide Consumer 

Reporting Agency (§§ 682.410(b) and 

682.200(b)) 

Statute: The HEOA amended section 

428(k) of the HEA by adding a 

requirement for guaranty agencies that 


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have received a default claim from a 

lender to provide the defaulted 

borrower with at least two separate 

notices, using simple and 

understandable terms, that explain, at a 

minimum, the borrower’s options for 

removing the loan from default, and the 

fees and conditions associated with 

each option. 

The HEOA also changed all current 

references to ‘‘credit bureaus’’ in the 

HEA to ‘‘consumer reporting agencies.’’ 

Current Regulations: Section 

682.410(b)(5)(ii) requires a guaranty 

agency, after it pays a default claim on 

a loan but before it reports the default 

to a credit bureau or assesses collection 

costs against the borrower, to provide 

the borrower, within a specified 

timeframe, with a notice that advises the 

borrower of the actions that will be 

taken with regard to the default claim 

and explains the borrower’s rights in 

connection with the claim. Section 

682.410(b)(6) specifies the collection 

efforts that a guaranty agency must take 

on a defaulted loan. 

Proposed Regulations: The proposed 

regulations would expand the 

information that must be provided in 

the notice required under 

§ 682.410(b)(5)(ii) to include 

information on the options that are 

available to the borrower to remove the 

loan from default, including an 

explanation of the fees and conditions 

associated with each option. The 

proposed regulations would also require 

a guaranty agency to provide this same 

information to a defaulted borrower in 

a second notice that the guaranty agency 

must send as part of its required 

collection efforts on a defaulted loan 

under § 682.410(b)(6). The second 

notice would have to be sent within a 

reasonable time after the end of the 

period during which the borrower may 

request an administrative review as 

specified in § 682.410(b)(5)(iv)(B) or, if 

the borrower has requested an 

administrative review, within a 

reasonable time following the 

conclusion of the administrative review. 

The proposed regulations would also 

remove the definition of National credit 

bureau from § 682.200(b) and replace it 

with a definition of Nationwide 

consumer reporting agency, and would 

replace all references to ‘‘credit bureau’’ 

with ‘‘consumer reporting agency’’ 

throughout § 682.410(b)(5) and (b)(6). 

The proposed regulations would specify 

that a nationwide consumer reporting 

agency is a consumer reporting agency 

as defined in 15 U.S.C. 1681a. 

Reasons: The proposed changes in 

§ 682.410(b) reflect statutory 

requirements. The proposed definition 

of nationwide consumer reporting 

agency refers to the definition of this 

term in the Fair Credit Reporting Act. 

Executive Order 12866 

Regulatory Impact Analysis 

Under Executive Order 12866, the 

Secretary must determine whether the 

regulatory action is ‘‘significant’’ and 

therefore subject to the requirements of 

the Executive Order and subject to 

review by the 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 

set forth in the Executive order. 

Pursuant to the terms of the Executive 

order, it has been determined this 

proposed regulatory action will not have 

an annual effect on the economy of 

more than $100 million. Therefore, this 

action is not ‘‘economically significant’’ 

and subject to OMB review under 

section 3(f)(1) of Executive Order 12866. 

Notwithstanding this determination, the 

Secretary has assessed the potential 

costs and benefits of this regulatory 

action and has determined that the 

benefits justify the costs. 

Need for Federal Regulatory Action 

These proposed regulations are 

needed to implement provisions of the 

HEA, as amended by the HEOA, 

particularly related to changes related to 

loan discharge, deferment, 

consolidation, rehabilitation, and 

repayment plan provisions, and the 

addition of a new Part E to title I of the 

HEA which establishes extensive new 

disclosure requirements for lenders and 

institutions participating in Federal and 

private student loan programs. 

In general, these proposed regulations 

simply restate specific HEOA 

requirements, in many cases using 

language drawn directly from the 

statute. In the following areas, the 

Secretary has exercised limited 

discretion in implementing the HEOA 

provisions through proposed 

regulations: 

Total and permanent disability 

discharges: The Secretary determined 

that the monitoring period after a 

borrower receives a discharge due to 

total and permanent disability would be 

three years; that interest would not 

accrue during this period for loans that 

are ultimately reinstated; that the 

employment earnings standard would 

be based on the poverty guideline 

amount for a family of two; that, for 

student loan and TEACH grant 

disbursements received during the 

monitoring period, a borrower’s 

obligation to repay a discharged loan 

will not be reinstated if funds are 

returned to the holder within 120 days 

of the disbursement date; and that the 

Secretary will provide certain 

information to a borrower as part of a 

notification to the borrower that his or 

her obligation to repay a previously 

discharged loan has been reinstated. 

Opportunity to cancel a consolidation 

loan: The Secretary would require 

lenders to provide a Consolidation loan 

borrower a period of not less than 10 

days, from the date the borrower is 

notified the lender is ready to make the 

Consolidation loan, to cancel the loan. 

PLUS loan deferment: The Secretary 

aligned the repayment of a borrower’s 

PLUS loans first disbursed before July 1, 

2008, with a borrower’s PLUS loans first 

disbursed on or after July 1, 2008, and 

with a borrower’s Stafford Loans that 

have a grace period, so that the borrower 

would begin making payments on all of 

the loans at the same time. 

Income-based repayment: The 

Secretary determined that a borrower 

whose outstanding balance has 

increased rather than decreased 

throughout the repayment period prior 

to the borrower’s request for IBR should 

be given the benefit of determining 

partial financial hardship based on the 

borrower’s increased outstanding loan 

principal balance. 

The Secretary would require that, for 

married borrowers, joint AGI and the 

annual amount due on both the 

borrower’s and the spouse’s eligible 

loans be used to determine eligibility for 

IBR and the partial financial hardship 

payment amount. That payment amount 

would then be adjusted based on the 

percentage of the combined total eligible 

loan debt attributable to each individual 

borrower, with a further adjustment if 

the borrower has multiple loan holders. 

Teacher loan forgiveness: The 

Secretary determined that the five 

complete consecutive years of teaching 

required to qualify for loan forgiveness 

may include any combination of 

qualifying teaching service at an eligible 


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elementary or secondary school or at an 

eligible educational service agency, but 

teaching at an educational service 

agency may be counted toward the five 

years only if the consecutive five-year 

period includes qualifying teaching at 

an eligible educational service agency 

performed after the 2007–2008 

academic year. 

Forbearance: The Secretary 

determined that, if an administrative 

forbearance is granted retroactively, the 

lender need not go back in time to 

provide the required information 

retroactively. Lenders must, however, 

contact the borrower as required going 

forward from the date the lender 

applied the forbearance. 

Consumer credit reporting after loan 

rehabilitation: The Secretary 

determined that guaranty agencies must, 

within 45 days of the sale of the 

rehabilitated loan to an eligible lender, 

request that the consumer reporting 

agency remove the record of default 

from the borrower’s credit history and 

notify the prior holder of the loan 

rehabilitation. The Secretary also 

determined that the prior holder of the 

loan, within 30 days of the guaranty 

agency’s notification of the loan’s 

rehabilitation, must request that the 

consumer reporting agency remove the 

loan holder’s default claim record or its 

equivalent from the borrower’s credit 

history. 

The following section addresses the 

alternatives that the Secretary 

considered in implementing these 

discretionary portions of the HEOA 

provisions. These alternatives are also 

discussed in more detail in the Reasons 

sections of this preamble related to the 

specific regulatory provisions. 

Regulatory Alternatives Considered 

Total and permanent disability 

discharges: The Department’s initial 

proposals included a 5-year postdischarge monitoring period and 

interest charges for the period from the 

date of discharge to the reinstatement 

date when a borrower’s obligation to 

repay a previously discharged loan is 

reinstated for failure to meet one of the 

post-discharge requirements. NonFederal negotiators did not support 

these proposals, questioning the 

rationale for changing the current 

policies—under which the conditional 

discharge period is three years and 

interest is not charged for reinstated 

loans during the conditional period—in 

the absence of a specific statutory 

requirement to do so. After considering 

the negotiators’ concerns, the 

Department revised the proposed 

regulations by changing the postdischarge monitoring period from five 

years to three years, and by removing 

the provision that would have required 

a borrower to pay interest from the date 

of discharge if the borrower’s repayment 

obligation is reinstated. 

Under the Department’s initial 

proposal, a borrower’s obligation to 

repay a previously discharged loan 

would be reinstated if the borrower’s 

annual earnings from employment 

during the monitoring period exceeded 

the poverty guideline amount for the 

borrower’s family size. Non-Federal 

negotiators raised concerns about this 

proposal, noting that while the 

proposed approach could be seen as 

more equitable than the current 

regulatory approach—under which the 

criteria for the reinstatement of a loan is 

tied to poverty guideline amount for a 

family of two, regardless of the 

borrower’s actual family size—it also 

could be confusing to borrowers, since 

a borrower’s family size could change 

during the post-discharge monitoring 

period. These negotiators argued that 

the current standard based on a family 

size of two would be preferable, as it 

would eliminate the need for borrowers 

to monitor changes in the employment 

earnings limit during the post-discharge 

monitoring period. The Department 

agreed. 

Non-Federal negotiators also raised 

concerns about the treatment of a title 

IV loan disbursement made during the 

post-discharge monitoring period for a 

loan the borrower received prior to the 

physician’s certification date. The 

Department initially did address this 

issue in the proposed regulations 

because the current regulatory 

provision, under which a borrower is 

ineligible for a final discharge unless the 

borrower ensures that such a 

disbursement is returned to the loan 

holder within 120 days of the 

disbursement date, is tied to the 

conditional discharge period, which 

would be eliminated under the 

proposed regulations. After considering 

the concerns of the non-Federal 

negotiators, the Department agreed to 

change the proposed regulations to 

provide that a borrower’s obligation to 

repay a discharged loan will not be 

reinstated if the borrower ensures that a 

title IV loan or TEACH Grant 

disbursement made during the postdischarge monitoring period for a loan 

or TEACH Grant received prior to the 

discharge date is returned to the loan 

holder within 120 days of the 

disbursement date. The Department also 

agreed to revise the proposed 

regulations to provide that if a 

disbursement of a title IV loan or 

TEACH Grant is made during the period 

between the physician’s certification 

date and the discharge date, the 

processing of the borrower’s loan 

discharge request will be suspended 

until the borrower ensures the 

disbursement is returned to the loan 

holder or the Secretary, as applicable. 

Lastly, the Department’s initial 

proposal did not explicitly provide that 

the Secretary would notify a borrower 

who fails to meet one of the eligibility 

requirements during the post-discharge 

monitoring period that the borrower’s 

obligation to repay the discharged loan 

has been reinstated. In response to 

serious concerns from non-Federal 

negotiators, the Department agreed to 

add a provision to the proposed 

regulations stating the Secretary will 

notify a borrower that his or her 

obligation to repay a previously 

discharged loan has been reinstated, and 

that the notification of reinstatement 

will explain why the obligation was 

reinstated, that the first payment due 

date following reinstatement will be no 

earlier than 60 days after the date of the 

notification of reinstatement, and how 

the borrower may contact the 

Department if he or she has questions or 

believes the obligation to repay was 

reinstated based on incorrect 

information. 

Opportunity to cancel a consolidation 

loan: A number of non-Federal 

negotiators raised concerns about the 

requirement that lenders provide 

Consolidation loan borrowers an 

explicit period of time to cancel the loan 

after the date the borrower is notified 

that the lender is ready to make the 

Consolidation loan. These negotiators 

argued that the Department’s original 

proposal to provide a five-day period for 

a borrower to cancel the loan with the 

lender lacked clarity and did not fully 

recognize the highly automated 

consolidation process in which some 

loans could be fully processed in as 

little as 24–48 hours. One negotiator 

suggested that the Department provide 

borrowers with the opportunity to 

expedite processing by waiving their 

right to cancel the loan. After 

considering these concerns and 

suggestions, the Department proposed 

revised language establishing a 

timeframe for a borrower to cancel a 

Consolidation loan that would be 

similar to the operational timeframe 

used in the Direct Loan Program, which 

would be clear and understandable to 

all participants. This revised proposal is 

reflected in the proposed regulations. 

PLUS loan deferment: A non-Federal 

negotiator raised concerns that, under 

the Department’s original proposal, 

borrowers with PLUS loans first 

disbursed before July 1, 2008, and PLUS 

loans first disbursed on or after July 1, 


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2008, could erroneously believe that all 

their PLUS loans are eligible for the new 

6-month post-enrollment deferment 

period, which is actually only available 

on PLUS loans first disbursed on or after 

July 1, 2008. This negotiator suggested, 

and the Department agreed, that the 

proposed regulations be revised to 

provide an administrative forbearance 

that would allow a lender to align 

repayment of a borrower’s PLUS loans 

first disbursed before July 1, 2008 with 

a borrower’s PLUS loans first disbursed 

on or after July 1, 2008, and with a 

borrower’s Stafford Loans that have a 

grace period. 

Income-based repayment: A nonFederal negotiator noted that borrowers 

whose outstanding loan balance 

increased after they initially entered 

repayment and before they request IBR 

would be disadvantaged under the 

Department’s original proposal to 

always base a borrower’s annual 

payment amount on the outstanding 

balance when the borrower initially 

entered repayment. The negotiator 

argued that borrowers who have had 

difficulty repaying the loan and who 

have taken advantage of deferments and 

forbearances to avoid delinquency 

would be particularly disadvantaged as 

their outstanding loan principal balance 

would have increased due to capitalized 

interest. After considering these factors, 

the Department agreed that, for a 

borrower whose outstanding balance 

has increased during the repayment 

period prior to the borrower’s request 

for IBR, the determination of partial 

financial hardship should be based on 

the borrower’s increased outstanding 

loan principal balance. 

The Department also considered 

alternative approaches for determining 

eligibility for partial financial hardship 

for married borrowers who file a joint 

Federal tax return and who both have 

eligible loans. The Department initially 

proposed using each individual 

borrower’s portion of the joint AGI and 

eligible loan amount to determine 

eligibility for IBR. Following 

discussions with non-Federal 

negotiators, the Department determined 

that this approach would impose 

significant burdens both on borrowers, 

who would be required to submit 

additional documentation to identify 

the individual portion of any joint 

income, and loan holders, who would 

need to determine each borrower’s 

eligibility using a manual process 

(rather than automated process). As an 

alternative, the Department agreed to 

adopt a non-Federal negotiator’s 

suggestion to determine eligibility for 

IBR using married borrowers’ joint AGI 

and the annual amount due on both the 

borrower’s and the spouse’s eligible 

loans, with the payment amount 

adjusted based on the percentage of the 

combined total eligible loan debt 

attributable to each individual borrower 

and with a further adjustment for 

borrowers with multiple loan holders. 

The alternatives adopted would 

increase Federal costs for fiscal years 

2009 through 2019 related to the IBR 

program by an estimated $101 million 

compared with baseline estimated costs 

for the original authorizing legislation. 

(These costs include the impact of the 

proposed changes on loans made prior 

to FY 2009.) The Department does not 

forecast any new borrowers will choose 

the IBR repayment schedule beyond 

those assumed in the baseline because 

the alternatives adopted were relatively 

minor and, therefore, not likely to 

change borrowers’ repayment choices. 

Projected costs were determined based 

on those borrowers from the 1994 

through 2019 cohorts already assumed 

to choose the IBR repayment schedule. 

Estimates were derived using data from 

the Department’s Direct Loan servicing 

system on borrowers who have chosen 

income-contingent repayment, merged 

with a statistically significant sample of 

National Student Loan Data System 

data. Current Population Survey data 

from the Census Bureau was used to 

project borrower incomes. Estimated 

loan volume associated with borrowers 

affected by the alternatives adopted is 

$93 billion over 1994 through 2019. 

While the cost of these provisions 

would normally need to be offset, the 

Department requested and the Office of 

Management and Budget granted an 

exception to budget neutrality 

requirements. This exception reflects 

the relatively small cost of the 

provisions and the fact that in their 

absence borrowers would be harmed by 

having unduly high payment amounts 

or being denied access to IBR entirely. 

This harm would be most significant to 

married borrowers with significant 

student loan debt, including those 

engaged in public service careers, which 

often pay less than comparable jobs in 

the private sector. 

Teacher loan forgiveness: The 

Department’s initial proposal allowed 

only qualifying teaching service 

performed at an eligible educational 

service agency after August 14, 2008, 

the date of enactment of the HEOA, to 

be counted toward a borrower’s required 

five complete consecutive years of 

teaching service. A non-Federal 

negotiator argued that this approach was 

too restrictive, and that the HEOA’s 

provisions in this area were intended to 

apply retroactively to October 1, 1998, 

the date of enactment of the original 

FFEL and Direct Loan teacher loan 

forgiveness provisions. While the 

Department did not agree with this 

interpretation of the HEOA, the 

proposed regulations were revised to 

provide that the required five complete 

consecutive years of teaching may 

include any combination of qualifying 

teaching service at an eligible 

elementary or secondary school or at an 

eligible educational service agency, 

provided the consecutive five-year 

period includes qualifying teaching at 

an eligible educational service agency 

performed after the 2007–2008 

academic year. 

Forbearance: Some non-Federal 

negotiators raised concerns that lenders 

will not be able to satisfy disclosure 

requirements if an administrative 

forbearance is granted to assist a 

borrower with a situation occurring in 

the past. The Department, after 

discussions with other negotiators, 

agreed that if an administrative 

forbearance is granted retroactively, the 

lender need not go back in time to 

provide the required information 

retroactively. The lender must, however, 

contact the borrower as required going 

forward from the date the lender 

applied the forbearance. 

Consumer credit reporting after loan 

rehabilitation: The Department initially 

proposed reducing the overall 

timeframe for both guaranty agency and 

loan holder reporting to the consumer 

reporting organizations from the current 

90 days to 45 days. Non-Federal 

negotiators argued that 45 days was not 

enough time for both parties to report to 

consumer reporting agencies, noting 

that the prior loan holder would be 

unaware of the requirement until 

informed by the guaranty agency of the 

sale. These negotiators recommended 

separate deadlines for the guaranty 

agency and the loan holder to ensure 

that one party’s failure to comply with 

the deadline would not result in a 

compliance failure for both parties. 

After consideration of these concerns, 

the Department agreed to an alternative 

approach that would reduce the overall 

period for this activity from 90 to 75 

days. Under this alternative approach, 

the guaranty agency must, within 45 

days of the sale of the rehabilitated loan 

to an eligible lender, request that the 

consumer reporting agency remove the 

record of default from the borrower’s 

credit history and notify the prior 

holder of the loan rehabilitation. The 

proposed regulations would require the 

prior holder of the loan, within 30 days 

of the guaranty agency’s notification of 

the loan’s rehabilitation, to request that 

the consumer reporting agency remove 

the loan holder’s default claim record or 


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36578 Federal Register / Vol. 74, No. 140 / Thursday, July 23, 2009 / Proposed Rules 

its equivalent from the borrower’s credit 

history. 

Benefits 

Benefits provided in these proposed 

regulations include greater transparency 

for borrowers participating in the 

Federal and private student loan 

programs; clearer guidelines on 

acceptable behavior by and 

relationships among institutions 

participating in the student loan 

programs; improvements to the IBR 

plan, particularly for married borrowers; 

a simpler process for obtaining loan 

discharges due to total and permanent 

disability; and expanded eligibility for 

Teacher Loan forgiveness benefits. It is 

difficult to quantify benefits related to 

the new institutional and lender 

requirements, as there is little specific 

data available on either the extent of 

improper or questionable relationships 

between institutions and lenders prior 

to the HEOA or of the harm such 

relationships actually caused for either 

borrowers, institutions, or the Federal 

taxpayer. The extent these relationships 

prevented borrowers from accessing the 

most favorable loan terms, however, is 

likely to have changed in any case since 

recent shifts in economic conditions 

and lender net revenues have greatly 

reduced the availability of borrower 

benefits in the FFEL program. The 

Department is interested in receiving 

comments or data that would support a 

more rigorous analysis of the impact of 

these provisions. 

These benefits all flow directly from 

statutory changes included in the 

HEOA; they are not materially affected 

by discretionary choices exercised by 

the Department in developing these 

regulations. As discussed in greater 

detail under Net Budget Impacts, these 

proposed provisions result in net costs 

to the government of $192.7 million 

over 2009–2013. 

Costs 

Many of the statutory provisions 

implemented though this NPRM will 

require regulated entities to develop 

new disclosures and other materials, as 

well as accompanying dissemination 

processes. Other proposed regulations 

generally would require discrete 

changes in specific parameters 

associated with existing guidance—such 

as changes to the process for loan 

discharges, IBR, and various deferment 

and forbearance benefits—rather than 

wholly new requirements. In total, these 

changes are estimated to increase 

burden on entities participating in the 

FFEL program by 1,313,964 hours. Of 

this increased burden, 1,184,115 hours 

are associated with lenders, 110,360 

hours with guaranty agencies, and 7,200 

hours with institutions. An additional 

12,289 hours are associated with 

borrowers, generally reflecting the time 

required to read new disclosures or 

submit required information. The 

monetized cost of this additional 

burden, using loaded wage data 

developed by the Bureau of Labor 

Statistics, is $24,334,225. 

While there is additional burden 

associated with a range of proposed 

provisions in this NPRM, nearly 95 

percent of the burden hours associated 

with this package result from six 

provisions, all with a burden greater 

than 20,000 hours. In estimating the cost 

of these provisions, the Department 

used wage information from the Bureau 

of Labor Statistics. For lenders, 

institutions, and guaranty agencies, the 

May 2009 total private non-agricultural 

average hourly earnings of $18.54 was 

used as the hourly rate to monetize the 

burden of these provisions. For 

borrowers, the first quarter 2009 median 

weekly earnings for full-time wage and 

salary workers by age range were used. 

This was weighted to reflect the age 

profile of the student loan portfolio, 

with 50 percent of the portfolio assigned 

to the 20-to-24 age category and 50 

percent to the 25-to-34 age category. 

Using median weekly earnings of $472 

for workers in the 20-to-24 age category 

and $674 for workers in the 25-to-34 age 

category and assuming a 35-hour work 

week, the Department calculated an 

hourly rate of $16.37 to use in 

monetizing the burden on borrowers. 

The following discussion provides 

additional detail on the impact of these 

provisions. 

The greatest number of burden hours 

is associated with proposed § 682.205, 

which implements new statutory 

requirements for lenders to disclose 

specified information to borrowers 

throughout the life-cycle of the loan. 

These required disclosures include 

information about a 10-day cancellation 

period for consolidation loans, the 

availability of forbearance and its 

effects, discharge options, repayment 

plans, and resources available to 

borrowers, among others. The 

Department determined that the lenders 

will have increased burden due to the 

additional disclosures for two groups of 

borrowers: Borrowers that are having 

difficulty making payments, and 

borrowers that are 60-days delinquent. 

There is no additional burden 

associated with the disclosures that loan 

holders are already required to make to 

borrowers prior to and during 

repayment. An estimated 4,692,126 

borrowers fall within these two 

categories with additional burden, and 

the burden of developing and 

distributing the new disclosures is 

estimated to be .17 hours per borrower, 

for a total burden of 797,661 hours for 

this provision. Using the lender rate of 

$18.54 per hour, the cost associated 

with this provision is $14.8 million. 

The next highest number of burden 

hours is associated with proposed 

§ 682.211, which specifies lender 

disclosure requirements related to 

forbearance and creates a new 

administrative forbearance to align 

repayment of PLUS loans. Lenders must 

disclose the effect of interest 

capitalization and the total to be repaid 

during the life of a loan under this 

provision. An estimated 215,734 

borrowers are affected by this provision, 

and the hour burden on lenders is 

estimated to be .03 hours per borrower, 

for a total of 215,734 hours. Therefore, 

the cost associated with this provision 

is approximately $4.0 million. 

An estimated 90,286 burden hours are 

associated with § 682.215 and § 685.221, 

the provisions related to the definition 

of partial financial hardship and the 

calculation of the borrower’s payment 

under income-based repayment plans. 

The change in the method of calculating 

an income-based repayment will 

increase burden to loan holders by .08 

hours per borrower. The number of 

borrowers expected to qualify for IBR is 

1,128,579, generating a total burden of 

90,286. Using the lender rate, the cost 

associated with this provision is $1.7 

million. 

Another provision that has an 

estimated burden greater than 20,000 

hours is § 682.206, which requires 

lenders to offer consolidation borrowers 

a 10-day cancellation period. The 

burden of this provision falls on 

borrowers, who have to read the 

disclosure about cancellations and act if 

they want to pursue that option, and 

lenders, who have to provide the 

disclosure about cancellation and delay 

loan processing to allow cancellations. 

An estimated 10,032 FFEL 

consolidation borrowers are affected by 

this provision, with an estimated 

burden of one hour for a total of 10,032 

hours. For lenders, the burden of 

providing application disclosures to 

approximately 670,753 potential 

consolidation loan applicants and 

information about cancellations to 

approximately 11,147 consolidated 

borrowers, calculated at a rate of .08 

hours per borrower, totals 54,552 hours. 

Applying the appropriate rates for 

borrowers and lenders, the total cost 

associated with this provision is $1.2 

million. 

An estimated 58,793 burden hours are 

associated with § 682.410, the provision 


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requiring guaranty agencies to provide 

certain notifications to borrowers who 

are in default. Guaranty agency default 

notices must include information on the 

options that are available to the 

borrower to remove the loan from 

default, including an explanation of the 

fees and conditions associated with 

each option. Approximately 734,918 

borrowers in default are affected by this 

provision, with a burden of .08 hours 

per borrower. At the guaranty agency 

rate of $18.54 per hour, the cost 

associated with this provision totals 

$1.1 million. 

The final provision estimated to result 

in over 20,000 burden hours is 

§ 682.405, which requires guaranty 

agencies to provide certain information 

to borrowers who have rehabilitated 

defaulted loans. Guaranty agencies are 

required to provide financial and 

economic educational materials to 

borrowers who have rehabilitated loans. 

Given an estimated 143,687 

rehabilitated loans and an increase in 

burden of .17 hours per loan, the burden 

hours associated with this provision 

total 24,427. Applying the guaranty 

agency rate, the cost associated with this 

provision totals $0.5 million. 

The other provisions that increase 

burden and associated costs are 

relatively minor, especially when 

looked at for an individual entity rather 

than in total. In general, entities wishing 

to continue to participate in the student 

aid programs have already absorbed 

most of the administrative costs related 

to implementing these provisions. 

Marginal costs over this baseline are 

primarily related to one-time system 

changes that, while possibly significant 

for some entities, are an unavoidable— 

and in most cases minor—cost of 

continued program participation. 

Additional workload would normally be 

expected to result in estimated costs 

associated with either the hiring of 

additional employees or opportunity 

costs related to the reassignment of 

existing staff from other activities. 

Given the limited data available, the 

Department is interested in comments 

and supporting information related to 

possible burden stemming from the 

proposed regulations. In particular, we 

ask institutions to provide detailed data 

on actual staffing and system costs 

associated with implementing these 

proposed regulations; data on the 

implementation of proposed regulations 

regarding the adoption and distribution 

of required disclosures would be 

especially helpful. Estimates included 

in this notice will be reevaluated based 

on any information received during the 

public comment period. 

Net Budget Impacts 

HEOA provisions implemented by 

these regulations are estimated to have 

a net budget impact of $34.7 million in 

2009 and $192.7 million over FY 2009– 

2013. (The estimated impact for 2009 

does not include $144.2 million in costs 

related to loans originated in prior fiscal 

years.) 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 nonadministrative Federal costs associated 

with a cohort of loans. (A cohort reflects 

all loans originated in a given fiscal 

year.) 

These estimates were developed using 

the Office of Management and Budget’s 

(OMB’s) Credit Subsidy Calculator. 

(This calculator will also be used for reestimates of prior-year costs, which will 

be performed each year beginning in FY 

2009). The OMB 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 governmentwide 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, however, in 

developing the Accounting Statement 

included below, 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 on 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: Proprietary schools, two-year 

schools, freshmen/sophomores at fouryear schools, juniors/seniors at four-year 

schools, 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. 

The budgetary impact of the proposed 

regulations is largely driven by statutory 

changes involving teacher loan 

forgiveness, loan discharges, and IBR. 

The Department estimates no budgetary 

impact for other proposed regulations 

included in this NPRM; there is no data 

indicating that the new requirements 

related to improper inducements and 

additional loan disclosures will have 

any impact on the volume or 

composition of Federal student loans. 

Assumptions, Limitations, and Data 

Sources 

Because these proposed regulations 

would largely restate statutory 

requirements that would be selfimplementing in the absence of 

regulatory action, impact estimates 

provided in the preceding section reflect 

a pre-statutory baseline in which the 

HEOA changes implemented in these 

proposed regulations do not exist. Costs 

have been quantified for five years. In 

general, these estimates should be 

considered preliminary; they will be 

reevaluated in light of any comments or 

information received by the Department 

prior to the publication of the final 

regulations. The final regulations will 

incorporate this information in a revised 

analysis. 

In developing these estimates, a wide 

range of data sources was used, 

including data from the NSLDS; 

operational and financial data from 

Department systems; and data from a 

range of surveys conducted by the 

National Center for Education Statistics, 

such as the 2004 National 

Postsecondary Student Aid Survey, the 

1994 National Education Longitudinal 

Study, and the 1996 Beginning 

Postsecondary Student Survey. Data 

from other sources, such as the Census 

Bureau, were also used. Data on 

administrative burden at participating 

schools, lenders, guaranty agencies, and 

third-party servicers are extremely 

limited; accordingly, as noted above, the 

Department is particularly interested in 

comments in this area. 

Elsewhere in this SUPPLEMENTARY

INFORMATION section we identify and 

explain burdens specifically associated 

with information collection 

requirements. See the heading 

Paperwork Reduction Act of 1995. 


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36580 Federal Register / Vol. 74, No. 140 / Thursday, July 23, 2009 / Proposed Rules 

Accounting Statement 

As required by OMB Circular A–4 

(available at http:// 

www.Whitehouse.gov/omb/Circulars/ 

a004/a-4.pdf), in Table 2 below, we 

have prepared an accounting statement 

showing the classification of the 

expenditures associated with the 

provisions of these proposed 

regulations. This table provides our best 

estimate of the changes in Federal 

student aid payments as a result of these 

proposed regulations. Expenditures are 

classified as transfers from the Federal 

government to student loan borrowers 

(for expanded loan discharges, teacher 

loan forgiveness payments). 

TABLE 2—ACCOUNTING STATEMENT: CLASSIFICATION OF ESTIMATED EXPENDITURES

[In millions] 

Category Transfers 

Annualized Monetized Transfers .............................................................. $57. 

From Whom To Whom? ........................................................................... Federal Government to Student Loan Borrowers. 

Clarity of the Regulations 

Executive Order 12866 and the 

Presidential memorandum ‘‘Plain 

Language in Government Writing’’ 

require 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 ‘‘§’’ 

and a numbered heading; for example, 

§ 682.209 Repayment of a loan.) 

• Could the description of the 

proposed regulations in the 

SUPPLEMENTARY INFORMATION section of 

this 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 

The Secretary certifies that these 

proposed regulations would not have a 

significant economic impact on a 

substantial number of small entities. 

These proposed regulations would affect 

institutions of higher education, 

lenders, and guaranty agencies that 

participate in Title IV, HEA programs 

and individual students and loan 

borrowers. The U.S. Small Business 

Administration Size Standards define 

institutions and lenders as ‘‘small 

entities’’ if they are for-profit or 

nonprofit institutions with total annual 

revenue below $5,000,000 or if they are 

institutions controlled by small 

governmental jurisdictions, which are 

comprised of cities, counties, towns, 

townships, villages, school districts, or 

special districts, with a population of 

less than 50,000. 

Based on data from the Integrated 

Postsecondary Education Data System 

(IPEDS), roughly 1,200 institutions 

participating in the FFEL program meet 

the definition of ‘‘small entities.’’ More 

than half of these institutions are shortterm, for-profit schools focusing on 

vocational training. Other affected small 

institutions include small community 

colleges and Tribally controlled schools. 

Burden on institutions associated with 

these proposed regulations is associated 

with audit requirements for schools 

serving as lenders. Institutions meeting 

the definition of small entities are 

extremely unlikely to act as lenders in 

the FFEL program. Accordingly, new 

requirements imposed under the 

proposed regulations are not expected to 

impose significant new costs on these 

institutions. 

The Department believes few if any 

lenders participating in the FFEL 

program have revenues of less than $5 

million. FFEL program activity is highly 

concentrated among the largest lenders; 

should an extremely small number of 

lenders that meet the threshold 

participate in the program, they likely 

are making loans as a service to current 

clients rather than soliciting new 

business. This type of lender, with a 

tangential relationship to Federal 

student loans, is extremely unlikely to 

engage in the type of activities— 

inducements, etc.—governed by these 

regulations. Accordingly, the 

Department has determined that the 

regulations would not represent a 

significant burden on small lenders. 

Guaranty agencies are State and 

private nonprofit entities that act as 

agents of the Federal government, and 

as such are not considered ‘‘small 

entities’’ under the Regulatory 

Flexibility Act. The impact of the 

proposed regulations on individuals is 

not subject to the Regulatory Flexibility 

Act. 

The Secretary invites comments from 

small institutions and lenders 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. 

Paperwork Reduction Act of 1995 

Proposed 674.61, 682.202, 682.205, 

682.206, 682.208, 682.210, 682.211, 

682.216, 682.302, 682.305, 682.401, 

682.402, 682.410, 682.601, 685.202, 

685.204, 685.205, 685.213, and 685.217 

contain information collection 

requirements. Under the Paperwork 

Reduction Act of 1995 (44 U.S.C. 

3507(d)), the Department of Education 

has submitted a copy of these sections 

to the Office of Management and Budget 

(OMB) for its review. 

Sections 674.61, 682.402, and 685.213— 

Total and Permanent Disability Loan 

Discharges 

The proposed regulations would 

revise the loan discharge process for 

borrowers seeking to have their title IV 

loans discharged based on a total and 

permanent disability. The proposed 

changes to the loan discharge process 

affect borrowers, loan holders (and their 

servicers), and guaranty agencies. 

The burden hour estimate associated 

with the current total and permanent 

disability loan discharge provisions is 

reported under OMB Control Number 

1845–0065 (Discharge Application: 

Total and Permanent Disability). The 

Department does not expect the 

proposed changes to increase the 

burden for this collection. However, the 

Department will need to revise the 

Discharge Application: Total and 

Permanent Disability currently 

approved under 1845–0065 to reflect the 

final regulations that will be published 

by November 1, 2009. The Department 

will submit a revised form for clearance 


srobinson on DSKHWCL6B1PROD with PROPOSALS2
Federal Register / Vol. 74, No. 140 / Thursday, July 23, 2009 / Proposed Rules 36581 

after the final regulations have been 

published. The revised form will not be 

needed until July 1, 2010, the effective 

date of the final regulations. 

Section 682.206—Consolidation Loans 

The proposed regulations would 

revise § 682.206(f) to incorporate a new 

requirement that is needed to fully 

implement proposed § 682.205(i)(7), 

which requires lenders to inform 

borrowers that, by applying for the 

Consolidation loan, the borrower is not 

obligated to take the loan. Specifically, 

§ 682.206(f) would be revised to include 

a requirement that the lender provide a 

Consolidation loan borrower a period of 

not less than 10 days, from the date the 

borrower is notified by the lender that 

it is ready to make the Consolidation 

loan, to cancel the loan. The proposed 

regulations would require the lender to 

send the notice of the option to cancel 

the loan to the borrower before making 

any payments to pay off a loan with the 

proceeds of a Consolidation loan. 

We estimate that the proposed 

changes will increase burden for 

borrowers by 10,032 hours and for loan 

holders (and their servicers) by 54,552 

hours for a total increase in burden of 

64,584 hours in OMB Control Number 

1845–0020. 

Sections 682.210, 682.211, 685.204 and 

685.205—In-School Deferments and 

Administrative Forbearance for PLUS 

Loans 

The proposed regulations would 

revise §§ 682.210 and 685.204 to reflect 

statutory deferment provisions for FFEL 

and Direct PLUS loan borrowers with 

loans first disbursed on or after July 1, 

2008. Upon the request of the borrower, 

a parent PLUS borrower must be granted 

a deferment on a PLUS loan first 

disbursed on or after July 1, 2008, 

during the period when the student on 

whose behalf the loan was obtained is 

enrolled on at least a half-time basis at 

an eligible institution, and during the 6- 

month period that begins on the later of 

the day after the student 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 ceases to be 

enrolled on at least a half-time basis. 

For graduate and professional student 

PLUS borrowers, the proposed 

regulations would provide that a 

borrower may be granted a deferment on 

a PLUS loan first disbursed on or after 

July 1, 2008 during the 6-month period 

that begins on the day after the student 

ceases to be enrolled on at least a halftime basis at an eligible institution. If a 

lender or the Secretary grants an inschool deferment on a student PLUS 

loan based on information from the 

borrower’s school about the borrower’s 

eligibility for a new loan, student status 

information from the school or 

information from NSLDS confirming the 

borrower’s half-time enrollment status, 

the in-school deferment period for a 

student PLUS loan first disbursed on or 

after July 1, 2008 would include the 6- 

month period that begins on the day 

after the student PLUS borrower ceases 

to be enrolled on at least a half-time 

basis. 

The proposed regulations would also 

add a new administrative forbearance 

provision to § 682.211(f) allowing a 

lender to grant a forbearance, upon 

notice to the borrower, on a borrower’s 

PLUS loans first disbursed before July 1, 

2008 to align repayment of the loans 

with a borrower’s PLUS loans first 

disbursed on or after July 1, 2008, or 

with a borrower’s Stafford loans that are 

subject to a grace period. The lender 

would be required to notify the 

borrower that he or she has the option 

to cancel the forbearance and to 

continue paying on the loan. A 

corresponding administrative 

forbearance provision would be added 

to § 685.205(b) in the Direct Loan 

Program regulations. 

The proposed changes to §§ 682.210 

and 685.204 affect borrowers and loan 

holders (and their servicers). The new 

deferment provisions for certain PLUS 

borrowers are expected to increase the 

number of borrowers who apply for 

deferments. Because these statutory 

provisions could be implemented 

without regulations, the FFEL and 

Direct Loan deferment request forms 

were previously revised to include the 

new deferments for PLUS borrowers and 

have been approved under OMB Control 

Numbers 1845–0005 (FFEL Program 

Deferment Request Forms) and 1845– 

0011 (Direct Loan Program Deferment 

Request Forms). The increased burden 

associated with the proposed regulatory 

changes is reflected in the burden 

estimates reported under those control 

numbers. 

We estimate that the proposed 

regulations in § 682.211(e) related to 

administrative forbearances will 

increase burden for loan holders by 

14,440 hours in OMB Control Number 

1845–0020. 

Sections 682.215 and 685.221—IncomeBased Repayment (IBR) Plan 

The proposed regulations would 

revise the definition of partial financial 

hardship in § 682.215(a)(4) and 

685.221(a)(4) to specify that the annual 

amount due on a borrower’s eligible 

loans for purposes of determining 

whether the borrower has a partial 

financial hardship is the greater of the 

amount due on the eligible loans when 

the borrower initially entered 

repayment on those loans, or the 

amount due on those loans when the 

borrower elects the IBR plan. The 

proposed regulations would also 

provide that when a married borrower 

and his or her spouse file a joint Federal 

tax return with the IRS and both the 

borrower and the spouse have eligible 

loans, the joint AGI and the total 

amount of the borrower’s and spouse’s 

eligible loans will be used in 

determining whether each borrower has 

a partial financial hardship. 

The proposed regulations would 

revise §§ 682.215(b)(1)and 685.221(b)(2) 

to provide that if a borrower and a 

borrower’s spouse both have eligible 

loans and filed a joint Federal tax 

return, each borrower’s percentage of 

the couple’s total eligible loan debt 

would be determined, and the 

calculated partial financial hardship 

payment amount for each borrower 

would be adjusted by multiplying the 

payment by the applicable borrower’s 

percentage. As with all other borrowers, 

each borrower’s adjusted payment 

amount would be further adjusted if the 

borrower’s loans are held by multiple 

holders. 

We estimate that the proposed 

regulations will increase burden for loan 

holders by 90,286 hours in OMB Control 

Number 1845–0020. 

Sections 682.202, 682.302, and 

685.202—Applicability of the 

Servicemembers Civil Relief Act 

(SCRA) to FFEL and Direct Loan 

Program Loans 

The proposed regulations would 

revise §§ 682.202 and 685.202 to 

provide that, effective August 14, 2008, 

upon a loan holder’s receipt of a written 

request from a borrower and a copy of 

the borrower’s military orders, the 

maximum interest rate (as defined in 50 

U.S.C. 527, App, section 207(d)) that 

may be charged on FFEL or Direct Loan 

program loans made prior to the 

borrower entering active duty status is 

six percent while the borrower is on 

active duty status. The proposed 

regulations would also revise § 682.302 

of the FFEL regulations by adding a new 

paragraph (h) that specifies that, for 

FFEL loans first disbursed on or after 

July 1, 2008, that are subject to the 

SCRA interest rate cap, the FFEL 

lender’s special allowance payment is 

calculated as it otherwise would be 

under program requirements, except 

that the applicable interest rate used is 

six percent. 

We estimate that the proposed 

regulations will increase burden for 

borrowers by 1,694 hours and for loan 


srobinson on DSKHWCL6B1PROD with PROPOSALS2
36582 Federal Register / Vol. 74, No. 140 / Thursday, July 23, 2009 / Proposed Rules 

holders by 542 hours in new OMB 

Control Number 1845–XXX1. We 

estimate that the proposed regulations 

will increase burden for borrowers by 

563 hours in new OMB Control Number 

1845–XXX2. 

Sections 682.210 and 685.204—InSchool Deferment 

The proposed regulations would 

revise § 682.210(a)(3) of the FFEL 

regulations to provide that if a borrower 

is responsible for the interest on a loan 

during a deferment period, the lender, at 

or before the time the deferment is 

granted, must notify the borrower that 

he or she has the option to pay the 

accruing interest or cancel the 

deferment and continue paying on the 

loan. The lender would also be required 

to provide information, including an 

example, on the impact on a borrower’s 

loan debt of capitalization of accrued 

unpaid interest and on the total amount 

of interest to be paid over the life of the 

loan. A similar notification provision 

that applied only to the granting of inschool deferments would be removed 

from § 682.210(c)(2) of the FFEL 

regulations. A comparable change 

would be made in § 685.204(b)(1)(iii)(B) 

of the Direct Loan regulations to provide 

that borrowers will be notified of their 

option to cancel a deferment and 

continue paying on the loan and will be 

provided with information on the 

impact of capitalization, including an 

example. 

The proposed changes to §§ 682.210 

and 685.204 affect borrowers and loan 

holders (and their servicers). The FFEL 

and Direct Loan deferment request 

forms currently approved under OMB 

Control Numbers 1845–0005 and 1845– 

0011 already include the information 

that a loan holder must provide to a 

borrower at or before the time a 

deferment is granted, as described 

above. Therefore, there is no increase in 

burden associated with the proposed 

regulations. 

Sections 682.216 and 685.217—FFEL 

and Direct Loan Program Teacher Loan 

Forgiveness 

The proposed regulations would 

allow a borrower who otherwise meets 

the eligibility requirements for teacher 

loan forgiveness to receive forgiveness 

based on teaching service performed at 

one or more eligible elementary or 

secondary schools that serve lowincome families, or one or more eligible 

educational service agencies that serve 

low-income families. A borrower could 

also qualify based on teaching service 

performed at a combination of eligible 

elementary or secondary schools and 

eligible educational service agencies. To 

be considered eligible for teacher loan 

forgiveness purposes, an educational 

service agency would have to meet the 

same eligibility requirements that apply 

to elementary and secondary schools. 

The proposed changes will increase 

the number of borrowers who are 

eligible for teacher loan forgiveness, and 

will require a revision of the FFEL and 

Direct Loan Program Teacher Loan 

Forgiveness Application that is 

currently approved under OMB Control 

Number 1845–0059. The Department 

will submit a change request for 1845– 

0059 (including an adjustment to the 

burden hours associated with this 

collection) after the final regulations 

have been published. 

Section 682.205—Disclosure 

Requirements for Lenders 

The proposed regulations would 

reorganize and expand § 682.205 to 

reflect new disclosure requirements 

added by the HEOA. The HEOA added 

additional disclosures by lenders before 

disbursement and requires new 

disclosures at differing points in the 

borrower’s repayment cycle. The HEOA 

also added a separate set of disclosures 

specifically for Consolidation loan 

borrowers. 

We estimate that the proposed 

regulations will increase burden for loan 

holders (and their servicers) by 797,661 

hours in OMB Control Number 1845– 

0020. 

Section 682.208—Information to 

Borrowers Upon Transfer, Sale or 

Assignment of a FFEL Program Loan 

The proposed regulations incorporate 

three additional information items 

specified in the HEA that must be 

provided to a borrower if the assignment 

or transfer of an ownership interest in 

a FFEL program loan results in a change 

in the identity of the party to whom 

subsequent payments must be sent. The 

three additional data items are: (1) The 

effective date of the assignment or 

transfer of the loan; (2) the date on 

which the current loan servicer will 

cease accepting payments; and (3) the 

date on which the new loan servicer 

will begin accepting payments. The date 

on which the current servicer will stop 

accepting payments is required only if 

that is applicable. 

Loan holders are already required, 

under current regulations, to provide 

certain information to a borrower if the 

assignment of a FFEL Program loan 

results in a change in the identity of the 

party to whom the borrower must send 

payments. The proposed regulations 

merely add three additional items to the 

notice that a loan holder is already 

required to provide. Therefore, the 

Department believes that the proposed 

regulations will not significantly 

increase burden for loan holders (and 

their servicers) in OMB Control Number 

1845–0020. 

Section 682.211—Forbearance 

Section 682.211(e) of the proposed 

regulations would require the lender, at 

the time the borrower is granted a 

forbearance, to give the borrower 

information about the impact of 

capitalization of interest on the loan and 

the total amount to be repaid over the 

life of the loan. The proposed 

regulations would also require the 

lender to contact the borrower at least 

once every 180 days during any period 

of forbearance and to give the borrower 

or endorser more specific information, 

in conjunction with that required under 

existing regulations, as to the impact of 

forbearance on the loan. This 

information includes the amount of 

interest that will be capitalized and 

when that capitalization will take place 

and the option of the borrower or 

endorser to pay the interest that has 

accrued before it is capitalized. 

We estimate that the proposed 

regulations will increase burden for loan 

holders (and their servicers) by 215,734 

hours in OMB Control Number 1845– 

0020. 

Sections 682.305 and 682.601—Audit 

Requirements for a FFEL School Lender 

or an Eligible Lender Trustee (ELT) 

The proposed regulations would 

revise § 682.305(c) to require that a 

FFEL school lender, or a lender serving 

as a trustee on behalf of a school or 

school-affiliated organization for the 

purpose of originating loans, submit an 

annual compliance audit to the 

Department regardless of the dollar 

volume of loans originated. The 

proposed regulations also require that 

the audit be conducted by a qualified, 

independent organization or person. A 

new proposed § 682.305(c)(2)(vii) would 

govern the compliance audit of a school 

or school-affiliated organization lender 

trustee. The proposed regulations 

require that the trustee’s audit include 

a determination that the school for 

whom the lender serves as trustee used 

all the proceeds from special allowance 

payments, interest subsidies received 

from the Department, and any proceeds 

from the sale or other disposition of the 

loans originated through the lender for 

need-based grants, and that those funds 

supplemented, but did not supplant, 

other Federal or non-Federal funds 

otherwise available to the school to 

make need-based grants to its students. 

The proposed regulations also require 

that the audit determine that no more 


srobinson on DSKHWCL6B1PROD with PROPOSALS2
Federal Register / Vol. 74, No. 140 / Thursday, July 23, 2009 / Proposed Rules 36583 

than a reasonable portion of the 

payments and proceeds from the loans 

were used for direct administrative 

expenses in accordance with 

§ 682.601(b) of the current regulations. 

These same requirements with regard to 

annual compliance audit determinations 

were also added to the FFEL school 

lender audit requirements in 

§ 682.601(a)(7) of the regulations. 

We estimate that the proposed 

regulations will increase burden for 

institutions by 7,200 hours and for loan 

holders (and their servicers) by 10,900 

hours for a total increase in burden of 

18,100 hours in OMB Control Number 

1845–0020. 

Section 682.401—Consumer Education 

Information Provided by Guaranty 

Agencies 

The proposed regulations require 

guaranty agencies to work with the 

schools that it serves to develop and 

make available high-quality educational 

materials and programs that provide 

training for students and their families 

in budgeting and financial management, 

including debt management and other 

aspects of financial literacy, such as the 

cost of using high-interest loans to pay 

for postsecondary education, and how 

budgeting and financial management 

relate to the title IV student loan 

programs. 

We estimate that the proposed 

regulations will increase burden for 

institutions and guaranty agencies by 

8,748 hours in OMB Control Number 

1845–0020. 

Section 682.405—Financial and 

Economic Literacy for Rehabilitated 

Borrowers 

The proposed regulations would 

revise § 682.405, regarding loan 

rehabilitation agreements, by adding a 

provision requiring guaranty agencies to 

make available financial and economic 

education materials, including debt 

management information, to any 

borrower who has rehabilitated a 

defaulted loan. 

We estimate that the proposed 

regulations will increase burden for 

guaranty agencies by 24,427 hours in 

OMB Control Number 1845–0020. 

Section 682.405—Consumer Credit 

Reporting Following Loan 

Rehabilitation 

If a borrower successfully 

rehabilitates a previously defaulted 

loan, the proposed regulations would 

require the prior holder of the loan, in 

addition to the guaranty agency, to 

request that a consumer reporting 

agency to which the default was 

reported remove the default from the 

borrower’s credit history. The proposed 

regulations would also provide more 

detailed reporting deadlines for the 

guaranty agency and prior loan holder 

to request removal of the report of the 

default from the borrower’s credit 

history, and would reduce the overall 

period for this activity from 90 to 75 

days. 

We estimate that the proposed 

regulations will increase burden for 

guaranty agencies by 18,392 hours in 

OMB Control Number 1845–0020. 

Section 682.410—Notifications to 

Borrowers in Default 

The proposed regulations would 

expand the information that must be 

provided in the notice required under 

§ 682.410(b)(5)(ii) to include 

information on the options that are 

available to the borrower to remove the 

loan from default, including an 

explanation of the fees and conditions 

associated with each option. The 

proposed regulations would also require 

a guaranty agency to provide this same 

information to a defaulted borrower in 

a second notice that the guaranty agency 

must send as part of its required 

collection efforts on a defaulted loan 

under § 682.410(b)(6). The second 

notice would have to be sent within a 

reasonable time after the end of the 

period during which the borrower may 

request an administrative review as 

specified in § 682.410(b)(5)(iv)(B) or, if 

the borrower has requested an 

administrative review, within a 

reasonable time following the 

conclusion of the administrative review. 

We estimate that the proposed 

regulations will increase burden for 

guaranty agencies by 58,793 hours in 

OMB Control Number 1845–0020. 

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. 

Regulatory section Information collection Collection 

674.61, 682.402, and 

685.213.

The proposed regulations would revise the loan discharge process for borrowers seeking to have their 

title IV loans discharged based on total and permanent disability. Borrowers who apply for a total and 

permanent disability discharge must complete a discharge application that collects the information needed to determine their eligibility for discharge.

OMB 1845–0065. The Discharge Application: Total and 

Permanent Disability that is currently approved under 

1845–0065 will be revised to reflect the final regulations that will be published by November 1, 2009. 

The Department will submit a revised form for clearance after the final regulations have been published. 

The revised form will not be needed until July 1, 

2010, the effective date of the final regulations. 

682.206 ............................... § 682.206(f) would be amended to include a requirement that the lender provide a Consolidation loan 

borrower a period of not less than 10 days, from the 

date the borrower is notified by the lender that it is 

ready to make the Consolidation loan, to cancel the 

loan.

OMB 1845–0020. 

682.210, 682.211, 685.204 

and 685.205.

The proposed regulations implement new deferment 

provisions for FFEL and Direct PLUS loan borrowers 

with loans first disbursed on or after July 1, 2008 that 

were added to the HEA by the HEOA. A loan holder 

must collect the information needed to determine that 

a borrower is eligible for a deferment.

OMB 1845–0005, 1845–0011 and 1845–0020. The 

FFEL and Direct Loan deferment request forms were 

previously revised to include the new deferments for 

PLUS borrowers and have been approved under 

OMB Control Numbers 1845–0005 (FFEL) and 1845– 

0011 (Direct Loan). 


srobinson on DSKHWCL6B1PROD with PROPOSALS2
36584 Federal Register / Vol. 74, No. 140 / Thursday, July 23, 2009 / Proposed Rules 

Regulatory section Information collection Collection 

682.202, 682.302, and 

685.202.

The proposed regulations provide that, effective August 

14, 2008, upon a loan holder’s receipt of a written request from a borrower and a copy of the borrower’s 

military orders, the maximum interest rate that may 

be charged on FFEL or Direct Loan program loans 

made prior to the borrower entering active duty status 

is six percent while the borrower is on active duty 

status.

OMB 1845–XXX1 and 1845–XXX2. These will be new 

collections. A separate 60-day Federal Register Notice will be published to solicit comments. 

682.210 and 685.204 .......... The proposed regulations would require a loan holder 

to provide information about interest capitalization to 

a borrower prior to or at the time of granting a 

deferment on an unsubsidized loan.

OMB 1845–0005 and 1845–0011. These collections 

(FFEL and Direct Loan Program deferment request 

forms) were previously revised to include the required 

information about interest capitalization and have 

been approved by OMB. 

682.215 and 685.221 .......... The proposed regulations would revise the definition of 

partial financial hardship for purposes of determining 

a borrower’s eligibility for the income-based repayment plan and would also revise the provisions governing a loan holder’s calculation of a borrower’s income-based payment amount.

OMB 1845–0020. 

682.216 and 685.217 .......... The proposed regulations would expand eligibility for 

teacher loan forgiveness to allow a borrower who otherwise meets the loan forgiveness eligibility requirements to receive forgiveness based on teaching service performed at one or more eligible educational 

service agencies that serve low-income families.

OMB 1845–0059. The proposed changes will require a 

revision of the FFEL and Direct Loan Program 

Teacher Loan Forgiveness Application currently approved under OMB Control Number 1845–0059. The 

Department will submit a change request for 1845– 

0059 (including an adjustment to the burden hours 

associated with this collection) after the final regulations have been published. 

682.205 ............................... The proposed regulations implement new statutory requirements for lenders to disclosure certain information to borrowers at various points during the lifecycle 

of a borrower’s loan. The proposed regulations also 

add new lender disclosure requirements for consolidation loan borrowers.

OMB 1845–0020. 

682.208 ............................... The proposed regulations incorporate three additional 

information items that must be provided to a borrower 

if the assignment or transfer of an ownership interest 

in a FFEL program loan results in a change in the 

identity of the party to whom subsequent payments 

must be sent.

OMB 1845–0020. 

682.211 ............................... The proposed regulations would require the lender, at 

the time the borrower is granted a forbearance, to 

give the borrower information about the impact of 

capitalization of interest on the loan and the total to 

be repaid over the life of the loan.

OMB 1845–0020. 

682.305 and 682.601 .......... The proposed regulations would amend § 682.305(c) to 

require that a FFEL school lender, or a lender serving 

as a trustee on behalf of a school or school-affiliated 

organization for the purpose of originating loans, submit an annual compliance audit to the Department regardless of the dollar volume of loans originated.

OMB 1845–0020. 

682.401 ............................... The proposed regulations require guaranty agencies to 

work with the schools that it serves to develop and 

make available high-quality educational materials and 

programs to provide training for students and their 

families in budgeting and financial management, including debt management and other aspects of financial literacy, such as the cost of using high-interest 

loans to pay for postsecondary education, and how 

budgeting and financial management relate to the title 

IV student loan programs.

OMB 1845–0020. 

682.405 ............................... The proposed regulations would require guaranty agencies to provide certain information to borrowers who 

have rehabilitated defaulted loans.

OMB 1845–0020. 

682.405 ............................... The proposed regulations would require the prior holder 

of a previously defaulted loan, in addition to the guaranty agency, to request that consumer reporting 

agencies remove the record of the default from the 

borrower’s credit history after the borrower has successfully rehabilitated the loan.

OMB 1845–0020. 

682.410 ............................... The proposed regulations require guaranty agencies to 

provide certain additional notifications to borrowers 

who are in default.

OMB 1845–0020. 


srobinson on DSKHWCL6B1PROD with PROPOSALS2
Federal Register / Vol. 74, No. 140 / Thursday, July 23, 2009 / Proposed Rules 36585 

If you want to comment on the 

proposed information collection 

requirements, please send your 

comments to the Office of Information 

and Regulatory Affairs, OMB, Attention: 

Desk Officer for U.S. Department of 

Education. Send these comments by 

e-mail to OIRA_DOCKET@omb.eop.gov 

or by fax to (202) 395–6974. You may 

also send a copy of these comments to 

the Department contact named in the 

ADDRESSES section of this preamble. 

We consider your comments on these 

proposed collections of information in— 

• Deciding whether the proposed 

collections are necessary for the proper 

performance of our functions, including 

whether the information will have 

practical use; 

• Evaluating the accuracy of our 

estimate of the burden of the proposed 

collections, including the validity of our 

methodology and assumptions; 

• Enhancing the quality, usefulness, 

and clarity of the information we 

collect; and 

• Minimizing the burden on those 

who must respond. This includes 

exploring the use of appropriate 

automated, electronic, mechanical, or 

other technological collection 

techniques or other forms of information 

technology; e.g., permitting electronic 

submission of responses. 

OMB is required to make a decision 

concerning the collections of 

information contained in these 

proposed regulations between 30 and 60 

days after publication of this document 

in the Federal Register. Therefore, to 

ensure that OMB gives your comments 

full consideration, it is important that 

OMB receives the comments within 30 

days of publication. This does not affect 

the deadline for your comments to us on 

the proposed regulations. 

Electronic Access to This Document 

You may view this document, as well 

as all other Department of Education 

documents published in the Federal 

Register, in text or Adobe Portable 

Document Format (PDF) on the Internet 

at the following site: http://www.ed.gov/ 

news/fedregister. 

To use PDF you must have Adobe 

Acrobat Reader, which is available free 

at this site. If you have questions about 

using PDF, call the U.S. Government 

Printing Office (GPO), toll free, at 1– 

888–293–6498; or in the Washington, 

DC, area at (202) 512–1530. 

Note: 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 on GPO 

Access at: http://www.gpoaccess.gov/nara/ 

index.html. 

(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 674, 682 and 

685 

Administrative practice and 

procedure, Colleges and universities, 

Education, Loan programs—education, 

Reporting and recordkeeping 

requirements, Student aid, Vocational 

education. 

Dated: July 13, 2009. 

Arne Duncan, 

Secretary of Education. 

For the reasons discussed in the 

preamble, the Secretary proposes to 

amend 34 CFR chapter VI as follows: 

PART 674—FEDERAL PERKINS LOAN 

PROGRAM 

1. The authority citation for part 674 

continues to read as follows: 

Authority: 20 U.S.C. 1087aa–1087hh and 

20 U.S.C. 421–429 unless otherwise noted. 

2. Section 674.9 is amended by: 

A. Revising paragraph (g). 

B. In the introductory text of 

paragraph (h), removing the words 

‘‘based on’’ and adding, in their place, 

the word ‘‘after’’, and adding the words 

‘‘based on a discharge request received 

prior to July 1, 2010’’ immediately after 

the word ‘‘disabled’’. 

C. In paragraph (h)(1), removing the 

words ‘‘paragraphs (h)(1) and (h)(2)’’ 

and adding, in their place, the words 

‘‘paragraphs (g)(1) and (g)(2)’’. 

D. In paragraph (h)(2)(ii), removing 

the words ‘‘, as described in 

§ 674.61(b)(9)’’ immediately after the 

word ‘‘period’’. 

E. In the second sentence of paragraph 

(i), removing the words ‘‘described in 

§§ 674.61(b), 682.402(e), or 685.213(a)’’ 

immediately after the word ‘‘period’’. 

The revision reads as follows: 

§ 674.9 Student eligibility. 

* * * * * 

(g) In the case of a borrower whose 

prior loan under title IV of the Act was 

discharged after a final determination of 

total and permanent disability— 

(1) Obtains a certification from a 

physician that the borrower is able to 

engage in substantial gainful activity; 

(2) Signs a statement acknowledging 

that any new Federal Perkins Loan the 

borrower receives cannot be discharged 

in the future on the basis of any present 

impairment, unless that condition 

substantially deteriorates; and 

(3) If the borrower receives a new 

Federal Perkins 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 

§ 674.61(b)(3)(i), 34 CFR 682.402(c), 34 

CFR 685.213, or 34 CFR 686.42(b) based 

on a discharge request received on or 

after July 1, 2010, resumes repayment 

on the previously discharged loan in 

accordance with § 674.61(b)(5), 34 CFR 

682.402(c)(5), or 34 CFR 685.213(b)(4), 

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. 

* * * * * 

3. Section 674.51 is amended by: 

A. Revising paragraph (d). 

B. Redesignating paragraphs (e) 

through (s) as follows: 

Old paragraph New paragraph 

674.51(e) ........................... 674.51(f) 

674.51(f) ............................ 674.51(h) 

674.51(g) ........................... 674.51(l) 

674.51(h) ........................... 674.51(m) 

674.51(i) ............................. 674.51(n) 

674.51(j) ............................. 674.51(p) 

674.51(k) ............................ 674.51(q) 

674.51(l) ............................. 674.51(r) 

674.51(m) .......................... 674.51(s) 

674.51(n) ........................... 674.51(t) 

674.51(o) ........................... 674.51(u) 

674.51(p) ........................... 674.51(w) 

674.51(q) ........................... 674.51(y) 

674.51(r) ............................ 674.51(z) 

674.51(s) ............................ 674.51(aa) 

C. Adding new paragraphs (e), (g), (i), 

(j), (k), (o), (v), (x), and (bb). 

D. In newly redesignated paragraph 

(f), removing the number ‘‘672(2)’’, and 

adding, in its place, the number 

‘‘632(4)’’. 

E. Revising newly redesignated 

paragraph (n). 

F. In newly redesignated paragraph 

(t), by removing the number ‘‘672(2)’’, 

and adding, in its place, the number 

‘‘632’’. 

G. Revising newly redesignated 

paragraph (aa). 

H. Revising the authority citation that 

appears at the end of the section. 

The revisions and additions read as 

follows: 

§ 674.51 Special definitions. 

* * * * * 

(d) Child with a disability: A child or 

youth from ages 3 through 21, inclusive, 

who requires special education and 

related services because he or she has 

one or more disabilities as defined in 

section 602(3) of the Individuals with 

Disabilities Education Act. 

(e) Community defender 

organizations: A defender organization 

established in accordance with section 


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3006A(g)(2)(B) of title 18, United States 

Code. 

* * * * * 

(g) Educational service agency: A 

regional public multi-service agency 

authorized by State law to develop, 

manage, and provide services or 

programs to local educational agencies 

as defined in section 9101 of the 

Elementary and Secondary Education 

Act of 1965, as amended. 

* * * * * 

(i) Faculty member at a Tribal College 

or University: An educator or tenured 

individual who is employed by a Tribal 

College or University, as that term is 

defined in section 316 of the HEA, to 

teach, research, or perform 

administrative functions. For purposes 

of this definition an educator may be an 

instructor, lecturer, lab faculty, assistant 

professor, associate professor, or full 

professor, dean or academic department 

head. 

(j) Federal public defender 

organization: A defender organization 

established in accordance with section 

3006A(g)(2)(A) of title 18, United States 

Code. 

(k) Firefighter: A firefighter is an 

individual who is employed by a 

Federal, State, or local firefighting 

agency to extinguish destructive fires; or 

provide firefighting related services 

such as— 

(1) Providing community disaster 

support and, as a first responder, 

providing emergency medical services; 

(2) Conducting search and rescue; or 

(3) Providing hazardous materials 

mitigation (HAZMAT). 

* * * * * 

(n) Infant or toddler with a disability: 

An infant or toddler from birth to age 2, 

inclusive, who needs early intervention 

services for specified reasons, as defined 

in section 632(5)(A) of the Individuals 

with Disabilities Education Act. 

(o) Librarian with a master’s degree: A 

librarian with a master’s degree is an 

information professional trained in 

library or information science who has 

obtained a postgraduate academic 

degree in library science awarded after 

the completion of an academic program 

of up to six years in duration, excluding 

a doctorate or professional degree. 

* * * * * 

(v) Speech language pathologist with 

a master’s degree: An individual who 

evaluates or treats disorders that affect 

a person’s speech, language, cognition, 

voice, swallowing and the rehabilitative 

or corrective treatment of physical or 

cognitive deficits/disorders resulting in 

difficulty with communication, 

swallowing, or both. 

* * * * * 

(x) 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. 

* * * * * 

(aa) Total and permanent disability: 

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 serviceconnected disability. 

(bb) Tribal College or University: An 

institution that— 

(1) Qualifies for funding under the 

Tribally Controlled Colleges and 

Universities Assistance Act of 1978 (25 

U.S.C. 1801 et seq.) or the Navajo 

Community College Assistance Act of 

1978 (25 U.S.C. 640a note); or 

(2) Is cited in section 532 of the 

Equity in Education Land Grant Status 

Act of 1994 (7 U.S.C. 301 note). 

* * * * * 

4. Section 674.61 is amended by: 

A. Revising paragraph (b). 

B. Redesignating paragraphs (c) and 

(d) as paragraphs (d) and (e), 

respectively. 

C. Adding a new paragraph (c). 

The revision and addition read as 

follows: 

§ 674.61 Discharge for death or disability. 

* * * * * 

(b) Total and permanent disability as 

defined in § 674.51(aa)(1)— 

(1) General. A borrower’s Defense, 

NDSL, or Perkins loan is discharged if 

the borrower becomes totally and 

permanently disabled, as defined in 

§ 674.51(aa)(1), and satisfies the 

additional eligibility requirements 

contained in this section. 

(2) Discharge application process for 

borrowers who have a total and 

permanent disability as defined in 

§ 674.51(aa)(1). (i) To qualify for 

discharge of a Defense, NDSL, or 

Perkins loan based on a total and 

permanent disability as defined in 

§ 674.51(aa)(1), a borrower must submit 

a discharge application approved by the 

Secretary to the institution that holds 

the loan. 

(ii) The application must contain a 

certification by a physician, who is a 

doctor of medicine or osteopathy legally 

authorized to practice in a State, that the 

borrower is totally and permanently 

disabled as defined in § 674.51(aa)(1). 

(iii) The borrower must submit the 

application to the institution within 90 

days of the date the physician certifies 

the application. 

(iv) Upon receiving the borrower’s 

complete application, the institution 

must suspend collection activity on the 

loan and inform the borrower that— 

(A) The institution will review the 

application and assign the loan to the 

Secretary for an eligibility 

determination if the institution 

determines that the certification 

supports the conclusion that the 

borrower is totally and permanently 

disabled, as defined in § 674.51(aa)(1); 

(B) The institution will resume 

collection on the loan if the institution 

determines that the certification does 

not support the conclusion that the 

borrower is totally and permanently 

disabled; and 

(C) If the Secretary discharges the loan 

based on a determination that the 

borrower is totally and permanently 

disabled, as defined in § 674.51(aa)(1), 

the Secretary will reinstate the 

borrower’s obligation to repay the loan 

if, within three years after the date the 

Secretary granted the discharge, the 

borrower— 

(1) Has annual earnings from 

employment that exceed 100 percent of 

the poverty line for a family of two, as 

determined in accordance with the 

Community Service Block Grant Act; 

(2) Receives a new TEACH Grant or a 

new loan under the Perkins, FFEL, or 

Direct Loan programs, except for an 

FFEL or Direct Consolidation Loan that 

includes loans that were not discharged; 

or 

(3) Fails to ensure that the full amount 

of any disbursement of a Title IV loan 

or TEACH Grant received prior to the 

discharge date that is made during the 

three-year period following the 

discharge date is returned to the loan 

holder or to the Secretary, as applicable, 

within 120 days of the disbursement 

date. 

(v) If, after reviewing the borrower’s 

application, the institution determines 

that the application is complete and 

supports the conclusion that the 

borrower is totally and permanently 

disabled as defined in § 674.51(aa)(1), 

the institution must assign the loan to 

the Secretary. 

(vi) At the time the loan is assigned 

to the Secretary, the institution must 

notify the borrower that the loan has 

been assigned to the Secretary for 

determination of eligibility for a total 

and permanent disability discharge and 

that no payments are due on the loan. 


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(3) Secretary’s eligibility 

determination. (i) If the Secretary 

determines that the borrower is totally 

and permanently disabled as defined in 

§ 674.51(aa)(1), the Secretary discharges 

the borrower’s obligation to make 

further payments on the loan and 

notifies the borrower that the loan has 

been discharged. The notification to the 

borrower explains the terms and 

conditions under which the borrower’s 

obligation to repay the loan will be 

reinstated, as specified in paragraph 

(b)(5) of this section. 

(ii) If the Secretary determines that 

the certification provided by the 

borrower does not support the 

conclusion that the borrower is totally 

and permanently disabled as defined in 

§ 674.51(aa)(1), the Secretary notifies the 

borrower that the application for a 

disability discharge has been denied, 

and that the loan is due and payable to 

the Secretary under the terms of the 

promissory note. 

(iii) The Secretary reserves the right to 

require the borrower to submit 

additional medical evidence if the 

Secretary determines that the borrower’s 

application does not conclusively prove 

that the borrower is totally and 

permanently disabled as defined in 

§ 674.51(aa)(1). As part of the 

Secretary’s review of the borrower’s 

discharge application, the Secretary may 

arrange for an additional review of the 

borrower’s condition by an independent 

physician at no expense to the borrower. 

(4) Treatment of disbursements made 

during the period from the date of the 

physician’s certification until the date of 

discharge. If a borrower received a Title 

IV loan or TEACH Grant prior to the 

date the physician certified the 

borrower’s discharge application and a 

disbursement of that loan or grant is 

made during the period from the date of 

the physician’s certification until the 

date the Secretary grants a discharge 

under this section, the processing of the 

borrower’s loan discharge request will 

be suspended until the borrower 

ensures that the full amount of the 

disbursement has been returned to the 

loan holder or to the Secretary, as 

applicable. 

(5) Conditions for reinstatement of a 

loan after a total and permanent 

disability discharge. (i) The Secretary 

reinstates a borrower’s obligation to 

repay a loan that was discharged in 

accordance with paragraph (b)(3)(i) of 

this section if, within three years after 

the date the Secretary granted the 

discharge, the borrower— 

(A) Has annual earnings from 

employment that exceed 100 percent of 

the poverty line for a family of two, as 

determined in accordance with the 

Community Service Block Grant Act; 

(B) Receives a new TEACH Grant or 

a new loan under the Perkins, FFEL or 

Direct Loan programs, except for an 

FFEL or Direct Consolidation Loan that 

includes loans that were not discharged; 

or 

(C) Fails to ensure that the full 

amount of any disbursement of a Title 

IV loan or TEACH Grant received prior 

to the discharge date that is made 

during the three-year period following 

the discharge date is returned to the 

loan holder or to the Secretary, as 

applicable, within 120 days of the 

disbursement date. 

(ii) If a borrower’s obligation to repay 

a loan is reinstated, the Secretary— 

(A) Notifies the borrower that the loan 

has been reinstated; and 

(B) Does not require the borrower to 

pay interest on the loan for the period 

from the date the loan was discharged 

until the date the loan was reinstated. 

(iii) The Secretary’s notification under 

paragraph (b)(5)(ii)(A) of this section 

will include— 

(A) The reason or reasons for the 

reinstatement; 

(B) An explanation that the first 

payment due date on the loan following 

reinstatement will be no earlier than 60 

days after the date of the notification of 

reinstatement; and 

(C) Information on how the borrower 

may contact the Secretary if the 

borrower has questions about the 

reinstatement or believes that the 

obligation to repay the loan was 

reinstated based on incorrect 

information. 

(6) Borrower’s responsibilities after a 

total and permanent disability 

discharge. During the three-year period 

described in paragraph (b)(5)(i) of this 

section, the borrower or, if applicable, 

the borrower’s representative— 

(i) Must promptly notify the Secretary 

of any changes in address or phone 

number; 

(ii) Must promptly notify the 

Secretary if the borrower’s annual 

earnings from employment exceed the 

amount specified in paragraph 

(b)(5)(i)(A) of this section; and 

(iii) Must provide the Secretary, upon 

request, with documentation of the 

borrower’s annual earnings from 

employment. 

(7) Payments received after the 

physician’s certification of total and 

permanent disability. (i) If, after the date 

the physician certifies the borrower’s 

loan discharge application, the 

institution receives any payments from 

or on behalf of the borrower on or 

attributable to a loan that was assigned 

to the Secretary for determination of 

eligibility for a total and permanent 

disability discharge, the institution must 

forward those payments to the Secretary 

for crediting to the borrower’s account. 

(ii) At the same time that the 

institution forwards the payment, it 

must notify the borrower that there is no 

obligation to make payments on the loan 

prior to the Secretary’s determination of 

eligibility for a total and permanent 

disability discharge, unless the 

Secretary directs the borrower 

otherwise. 

(iii) When the Secretary makes a 

determination to discharge the loan, the 

Secretary returns any payments received 

on the loan after the date the physician 

certified the borrower’s loan discharge 

application to the person who made the 

payments on the loan. 

(c) Total and permanent disability 

discharges for veterans—(1) General. A 

veteran’s Defense, NDSL, or Perkins 

loan will be discharged if the veteran is 

totally and permanently disabled, as 

defined in § 674.51(aa)(2). 

(2) Discharge application process for 

veterans who have a total and 

permanent disability as defined in 

§ 674.51(aa)(2). (i) To qualify for 

discharge of a Defense, NDSL, or 

Perkins loan based on a total and 

permanent disability as defined in 

§ 674.51(aa)(2), a veteran must submit a 

discharge application approved by the 

Secretary to the institution that holds 

the loan. 

(ii) With the application, the veteran 

must submit documentation from the 

Department of Veterans Affairs showing 

that the Department of Veterans Affairs 

has determined that the veteran is 

unemployable due to a serviceconnected disability. The veteran will 

not be required to provide any 

additional documentation related to the 

veteran’s disability. 

(iii) Upon receiving the veteran’s 

completed application and the required 

documentation from the Department of 

Veterans Affairs, the institution must 

suspend collection activity on the loan 

and inform the veteran that— 

(A) The institution will review the 

application and submit the application 

and supporting documentation to the 

Secretary for an eligibility 

determination if the documentation 

from the Department of Veterans Affairs 

indicates that the veteran is totally and 

permanently disabled as defined in 

§ 674.51(aa)(2); 

(B) The institution will resume 

collection on the loan if the 

documentation from the Department of 

Veterans Affairs does not indicate that 

the veteran is totally and permanently 

disabled as defined in § 674.51(aa)(2); 

and 


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(C) If the documentation from the 

Department of Veterans Affairs does not 

indicate that the veteran is totally and 

permanently disabled as defined in 

§ 674.51(aa)(2), but the documentation 

indicates that the veteran may be totally 

and permanently disabled as defined in 

§ 674.51(aa)(1), the veteran may reapply 

for a total and permanent disability 

discharge in accordance with the 

procedures described in § 674.61(b). 

(iv) If the documentation from the 

Department of Veterans Affairs indicates 

that the veteran is totally and 

permanently disabled as defined in 

§ 674.51(aa)(2), the institution must 

submit a copy of the veteran’s 

application and the documentation from 

the Department of Veterans Affairs to 

the Secretary. At the time the 

application and documentation are 

submitted to the Secretary, the 

institution must notify the veteran that 

the veteran’s discharge request has been 

referred to the Secretary for 

determination of discharge eligibility 

and that no payments are due on the 

loan. 

(v) If the documentation from the 

Department of Veterans Affairs does not 

indicate that the veteran is totally and 

permanently disabled as defined in 

§ 674.51(aa)(2), the institution must 

resume collection on the loan. 

(4) Secretary’s determination of 

eligibility. (i) If the Secretary 

determines, based on a review of the 

documentation from the Department of 

Veterans Affairs, that the veteran is 

totally and permanently disabled as 

defined in § 674.51(aa)(2), the Secretary 

notifies the institution of this 

determination, and the institution 

must— 

(A) Discharge the veteran’s obligation 

to make further payments on the loan; 

and 

(B) Return to the person who made 

the payments on the loan any payments 

received on or after the effective date of 

the determination by the Department of 

Veterans Affairs that the veteran is 

unemployable due to a serviceconnected disability. 

(ii) If the Secretary determines, based 

on a review of the documentation from 

the Department of Veterans Affairs, that 

the veteran is not totally and 

permanently disabled as defined in 

§ 674.51(aa)(2), the Secretary notifies the 

institution of this determination, and 

the institution must resume collection 

on the loan. 

* * * * * 

PART 682—FEDERAL FAMILY 

EDUCATION LOAN (FFEL) PROGRAM 

5. The authority citation for part 682 

continues to read as follows: 

Authority: 20 U.S.C. 1071–1087–2 unless 

otherwise noted. 

6. Section 682.200(b) is amended by: 

A. Revising paragraph (5) of the 

definition of ‘‘Lender.’’ 

B. Removing the definition of 

‘‘National credit bureau.’’ 

C. Adding a definition of ‘‘Nationwide 

consumer reporting agency.’’ 

D. Adding a definition of ‘‘Substantial 

gainful activity.’’ 

E. Revising the definition of ‘‘Totally 

and permanently disabled.’’ 

The revisions and additions read as 

follows: 

§ 682.200 Definitions. 

* * * * * 

(b) * * * 

Lender. * * * 

(5)(i) The term eligible lender does not 

include any lender that the Secretary 

determines, after notice and opportunity 

for a hearing before a designated 

Department official, has, directly or 

through an agent or contractor— 

(A) Except as provided in paragraph 

(5)(ii) of this definition, offered, directly 

or indirectly, points, premiums, 

payments (including payments for 

referrals, finder fees or processing fees), 

or other inducements to any school, any 

employee of a school, or any other party 

to secure applications for FFEL loans or 

to secure FFEL loan volume. This 

includes but is not limited to— 

(1) Payments or offerings of other 

benefits, including prizes or additional 

financial aid funds, to a prospective 

borrower or to a school or school 

employee in exchange for applying for 

or accepting a FFEL loan from the 

lender; 

(2) Payments or other benefits, 

including payments of stock or other 

securities, tuition payments or 

reimbursements, to a school, a school 

employee, any school-affiliated 

organization, or to any other individual 

in exchange for FFEL loan applications, 

application referrals, or a specified 

volume or dollar amount of loans made, 

or placement on a school’s list of 

recommended or suggested lenders; 

(3) Payments or other benefits 

provided to a student at a school who 

acts as the lender’s representative to 

secure FFEL loan applications from 

individual prospective borrowers, 

unless the student is also employed by 

the lender for other purposes and 

discloses that employment to school 

administrators and to prospective 

borrowers; 

(4) Payments or other benefits to a 

loan solicitor or sales representative of 

a lender who visits schools to solicit 

individual prospective borrowers to 

apply for FFEL loans from the lender; 

(5) Payment to another lender or any 

other party, including a school, a school 

employee, or a school-affiliated 

organization or its employees, of referral 

fees, finder fees or processing fees, 

except those processing fees necessary 

to comply with Federal or State law; 

(6) Compensation to an employee of a 

school’s financial aid office or other 

employee who has responsibilities with 

respect to student loans or other 

financial aid provided by the school or 

compensation to a school-affiliated 

organization or its employees, to serve 

on a lender’s advisory board, 

commission or other group established 

by the lender, except that the lender 

may reimburse the employee for 

reasonable expenses incurred in 

providing the service; 

(7) Payment of conference or training 

registration, travel, and lodging costs for 

an employee of a school or schoolaffiliated organization; 

(8) Payment of entertainment 

expenses, including expenses for private 

hospitality suites, tickets to shows or 

sporting events, meals, alcoholic 

beverages, and any lodging, rental, 

transportation, and other gratuities 

related to lender-sponsored activities for 

employees of a school or a schoolaffiliated organization; 

(9) Philanthropic activities, including 

providing scholarships, grants, 

restricted gifts, or financial 

contributions in exchange for FFEL loan 

applications or application referrals, or 

a specified volume or dollar amount of 

FFEL loans made, or placement on a 

school’s list of recommended or 

suggested lenders; 

(10) Performance of, or payment to 

another third party to perform, any 

school function required under title IV, 

except that the lender may perform exit 

counseling as provided in § 682.604(g), 

and may provide services to 

participating foreign schools at the 

direction of the Secretary, as a thirdparty servicer; and 

(11) Any type of consulting 

arrangement or other contract with an 

employee of a financial aid office at a 

school, or an employee of a school who 

otherwise has responsibilities with 

respect to student loans or other 

financial aid provided by the school 

under which the employee would 

provide services to the lender. 

(B) Conducted unsolicited mailings, 

by postal or electronic means, of student 

loan application forms to students 

enrolled in secondary schools or 


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postsecondary institutions or to family 

members of such students, except to a 

student or borrower who previously has 

received a FFEL loan from the lender; 

(C) Offered, directly or indirectly, a 

FFEL loan to a prospective borrower to 

induce the purchase of a policy of 

insurance or other product or service by 

the borrower or other person; or 

(D) Engaged in fraudulent or 

misleading advertising with respect to 

its FFEL loan activities. 

(ii) Notwithstanding paragraph (5)(i) 

of this definition, a lender, in carrying 

out its role in the FFEL program and in 

attempting to provide better service, 

may provide— 

(A) Technical assistance to a school 

that is comparable to the kinds of 

technical assistance provided to a 

school by the Secretary under the Direct 

Loan program, as identified by the 

Secretary in a public announcement, 

such as a notice in the Federal Register; 

(B) Support of and participation in a 

school’s or a guaranty agency’s student 

aid and financial literacy-related 

outreach activities, excluding in-person 

entrance counseling, as long as the 

name of the entity that developed and 

paid for any materials is provided to the 

participants and the lender does not 

promote its student loan or other 

products; 

(C) Meals, refreshments, and 

receptions that are reasonable in cost 

and scheduled in conjunction with 

training, meeting, or conference events 

if those meals, refreshments, or 

receptions are open to all training, 

meeting, or conference attendees; 

(D) Toll-free telephone numbers for 

use by schools or others to obtain 

information about FFEL loans and free 

data transmission service for use by 

schools to electronically submit 

applicant loan processing information 

or student status confirmation data; 

(E) A reduced origination fee in 

accordance with § 682.202(c); 

(F) A reduced interest rate as 

provided under the Act; 

(G) Payment of Federal default fees in 

accordance with the Act; 

(H) Purchase of a loan made by 

another lender at a premium; 

(I) Other benefits to a borrower under 

a repayment incentive program that 

requires, at a minimum, one or more 

scheduled payments to receive or retain 

the benefit or under a loan forgiveness 

program for public service or other 

targeted purposes approved by the 

Secretary, provided these benefits are 

not marketed to secure loan applications 

or loan guarantees; 

(J) Items of nominal value to schools, 

school-affiliated organizations, and 

borrowers that are offered as a form of 

generalized marketing or advertising, or 

to create good will; and 

(K) Other services as identified and 

approved by the Secretary through a 

public announcement, such as a notice 

in the Federal Register. 

(iii) For the purposes of this 

paragraph (5)— 

(A) The term ‘‘school-affiliated 

organization’’ is defined in § 682.200. 

(B) The term ‘‘applications’’ includes 

the Free Application for Federal Student 

Aid (FAFSA), FFEL loan master 

promissory notes, and FFEL 

Consolidation loan application and 

promissory notes. 

(C) The term ‘‘other benefits’’ 

includes, but is not limited to, 

preferential rates for or access to the 

lender’s other financial products, 

information technology equipment, or 

non-loan processing or non-financial 

aid-related computer software at below 

market rental or purchase cost, and 

printing and distribution of college 

catalogs and other materials at reduced 

or no cost. 

* * * * * 

Nationwide consumer reporting 

agency. A consumer reporting agency as 

defined in 15 U.S.C. 1681a. 

* * * * * 

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 serviceconnected disability. 

* * * * * 

7. Section 682.201 is amended by: 

A. In paragraph (a)(4)(i), removing the 

words ‘‘legal costs, and late charges’’ 

and adding, in their place, the words 

‘‘court costs, attorney fees, and late 

charges’’. 

B. In paragraph (a)(5), removing the 

words ‘‘under § 682.402(c)’’. 

C. Revising paragraph (a)(6)(iii). 

D. In the introductory text of 

paragraph (a)(7), removing the words 

‘‘based on’’ and adding, in their place, 

the word ‘‘after’’, and adding the words 

‘‘based on a discharge request received 

prior to July 1, 2010’’ immediately after 

the word ‘‘disabled’’. 

E. In paragraph (a)(7)(ii)(B), removing 

the words ‘‘, as described in paragraph 

682.402(c)(16)’’. 

F. In paragraph (e)(4), adding the 

words ‘‘is in default or’’ immediately 

after the first appearance of the words 

‘‘consolidation loan’’ and adding the 

words ‘‘or an income-based repayment 

plan’’ immediately after the words 

‘‘income contingent repayment plan’’. 

G. In paragraph (e)(5), adding the 

words ‘‘, or the no accrual of interest 

benefit for active duty service’’ 

immediately after the words ‘‘Public 

Service Loan Forgiveness Program’’. 

The revision reads as follows: 

§ 682.201 Eligible borrowers. 

(a) * * * 

(6) * * * 

(iii) If a borrower receives a new FFEL 

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 § 682.402(c)(3)(ii), 

34 CFR 674.61(b)(3)(i), 34 CFR 685.213, 

or 34 CFR 686.42(b) based on a 

discharge request received on or after 

July 1, 2010, resume repayment on the 

previously discharged loan in 

accordance with § 682.402(c)(5), 34 CFR 

674.61(b)(5), or 34 CFR 685.213(b)(4), or 

acknowledge that he or she is once 

again subject to the terms of the TEACH 

Grant agreement to serve before 

receiving the new loan. 

* * * * * 

8. Section 682.202 is amended by: 

A. In the introductory text of 

paragraph (a), adding the words ‘‘and 

(a)(8)’’ after the reference ‘‘(a)(4)’’. 

B. Adding a new paragraph (a)(8). 

C. In paragraph (b)(2)(i), adding the 

words ‘‘or, for a PLUS loan, for the 

period from the date the first 

disbursement was made to the date the 

repayment period begins’’ immediately 

before the semicolon. 

The addition reads as follows: 

§ 682.202 Permissible charges by lenders 

to borrowers. 

* * * * * 

(a) * * * 

(8) Applicability of the 

Servicemembers Civil Relief Act (50 

U.S.C. 527, App. sec. 207). 

Notwithstanding paragraphs (a)(1) 

through (a)(4) of this section, effective 

August 14, 2008, upon the loan holder’s 

receipt of the borrower’s written request 

and a copy of the borrower’s military 

orders, the maximum interest rate, as 

defined in 50 U.S.C. 527, App. section 

207(d), on FFEL Program loans made 


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prior to the borrower entering active 

duty status is 6 percent while the 

borrower is on active duty military 

service. 

* * * * * 

9. Section 682.205 is amended by: 

A. In paragraph (a)(2)(vi), removing 

the words ‘‘insurance premium’’ and 

adding, in their place, the words 

‘‘Federal default fee’’, and adding, 

immediately before the semicolon, the 

words ‘‘or paid by the lender’’. 

B. In paragraph (a)(2)(ix), removing 

the words ‘‘a national credit bureau’’ 

and adding, in their place, the words 

‘‘each nationwide consumer reporting 

agency’’. 

C. In paragraph (a)(2)(x), adding, 

immediately before the semicolon, the 

words ‘‘, and a description of the types 

of repayment plans available’’. 

D. In paragraph (a)(2)(xvi), removing 

the words ‘‘a national credit bureau’’ 

and adding, in their place, the words 

‘‘each nationwide consumer reporting 

agency’’. 

E. In paragraph (a)(2)(xviii), removing 

the words ‘‘in the making or’’ and 

adding, in their place, the words 

‘‘during repayment or in the’’; adding 

the words ‘‘including any fees the 

borrower may be charged’’ immediately 

after the words ‘‘the loan,’’; and 

removing the words ‘‘; and’’ at the end 

of the paragraph and adding, in their 

place, the punctuation ‘‘;’’. 

F. In paragraph (a)(2)(xx), removing 

the punctuation ‘‘.’’ at the end of the 

paragraph and adding, in its place, the 

punctuation ‘‘;’’. 

G. Adding new paragraphs (a)(2)(xxi), 

(a)(2)(xxii), (a)(2)(xxiii), and (a)(2)(xxiv). 

H. In paragraph (b), in the second 

sentence, adding the words ‘‘, and that 

the default will be reported to each 

nationwide consumer reporting agency’’ 

immediately after the word ‘‘loan’’. 

I. In paragraph (c), in the heading, 

removing the words ‘‘Disclosure of 

repayment’’ and adding, in their place, 

the word ‘‘Repayment’’. 

J. In paragraph (c)(1), adding the 

heading ‘‘Disclosures at or prior to 

repayment.’’ immediately after the 

paragraph designation ‘‘(1)’’; removing 

the words ‘‘Federal SLS’’ and adding, in 

their place, the words ‘‘Federal PLUS’’; 

and removing the words ‘‘240 days’’ and 

adding, in their place, the words ‘‘150 

days’’. 

K. In paragraph (c)(2)(ii), adding the 

words ‘‘, or a deferment under 

§ 682.210(v), if applicable, is to end’’ 

immediately after the word ‘‘begin’’ at 

the end of the sentence. 

L. In paragraph (c)(2)(iii), adding the 

words ‘‘a deferment under § 682.210(v), 

if applicable, is to end,’’ immediately 

after the word ‘‘begin’’. 

M. In paragraph (c)(2)(vi), adding the 

words ‘‘based on the repayment 

schedule selected by the borrower’’ 

immediately after the word ‘‘payments’’. 

N. In paragraph (c)(2)(viii), adding the 

words ‘‘if interest has been paid, the 

amount of interest paid’’ immediately 

after the words ‘‘; and’’. 

O. In paragraph (c)(2)(ix), removing 

the punctuation ‘‘.’’ at the end of the 

sentence and adding, in its place, the 

punctuation ‘‘;’’. 

P. Adding new paragraphs (c)(2)(x), 

(c)(2)(xi), (c)(2)(xii), (c)(2)(xiii) and 

(c)(2)(xiv). 

Q. Adding new paragraphs (c)(3), 

(c)(4) and (c)(5). 

R. In paragraph (d), adding the words 

‘‘Federal Unsubsidized Stafford loan or 

a’’ immediately after the words ‘‘In the 

case of a’’ at the beginning of the first 

sentence and removing the words ‘‘the 

student’’ in the first sentence and 

adding, in their place, the words ‘‘the 

borrower or student on whose behalf the 

loan is made’’. 

S. Adding new paragraph (i). 

T. Adding new paragraph (j). 

The additions read as follows: 

§ 682.205 Disclosure requirements for 

lenders. 

(a) * * * 

(1) * * * 

(2) * * * 

(xxi) For unsubsidized Stafford or 

student PLUS borrowers, an explanation 

that the borrower may pay the interest 

while in school and, if the interest is not 

paid by the borrower while in school, 

when and how often the interest will be 

capitalized; 

(xxii) For parent PLUS borrowers, an 

explanation that the parent may defer 

payment on the loan while the student 

on whose behalf the parent borrowed is 

enrolled at least half-time and, if the 

parent does not pay interest while the 

student is in school, when and how 

often interest will be capitalized, and 

that the parent may be eligible for a 

deferment on the loan if the parent is 

enrolled at least half-time; 

(xxiii) A statement summarizing the 

circumstances in which a borrower may 

obtain forbearance on the loan; and 

(xxiv) A description of the options 

available for forgiveness of the loan and 

the requirements to obtain that 

forgiveness. 

* * * * * 

(c) * * * 

(2) * * * 

(x) Information on any special loan 

repayment benefits offered on the loan, 

including benefits that are contingent on 

repayment behavior, and any other 

special loan repayment benefits for 

which the borrower may be eligible that 

would reduce the amount or length of 

repayment; and at the request of the 

borrower, an explanation of the effect of 

a reduced interest rate on the borrower’s 

total payoff amount and time for 

repayment; 

(xi) If the lender provides a repayment 

benefit, any limitations on that benefit, 

any circumstances in which the 

borrower could lose that benefit, and 

whether and how the borrower may 

regain eligibility for the repayment 

benefit; 

(xii) A description of all the 

repayment plans available to the 

borrower and a statement that the 

borrower may change plans during the 

repayment period at least annually; 

(xiii) A description of the options 

available to the borrower to avoid or be 

removed from default, as well as any 

fees associated with those options; and 

(xiv) Any additional resources, 

including nonprofit organizations, 

advocates and counselors, including the 

Department of Education’s Student Loan 

Ombudsman, the lender is aware of 

where the borrower may obtain 

additional advice and assistance on loan 

repayment. 

(3) Required disclosures during 

repayment. In addition to the 

disclosures required in paragraph (c)(1) 

of this section, the lender must provide 

the borrower of an FFEL loan with a bill 

or statement that corresponds to each 

payment installment time period in 

which a payment is due that includes in 

simple and understandable terms— 

(i) The original principal amount of 

the borrower’s loan; 

(ii) The borrower’s current balance, as 

of the time of the bill or statement; 

(iii) The interest rate on the loan; 

(iv) The total amount of interest for 

the preceding installment paid by the 

borrower; 

(v) The aggregate amount paid by the 

borrower on the loan, and separately 

identifying the amount the borrower has 

paid in interest on the loan, the amount 

of fees the borrower has paid on the 

loan, and the amount paid against the 

balance in principal; 

(vi) A description of each fee the 

borrower has been charged for the most 

recent preceding installment time 

period; 

(vii) The date by which a payment 

must be made to avoid additional fees 

and the amount of that payment and the 

fees; 

(viii) The lender’s or servicer’s 

address and toll-free telephone number 

for repayment options, payments and 

billing error purposes; and 

(ix) A reminder that the borrower may 

change repayment plans, a list of all of 

the repayment plans that are available to 


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the borrower, a link to the Department 

of Education’s Web site for repayment 

plan information, and directions on how 

the borrower may request a change in 

repayment plans from the lender. 

(4) Required disclosures for borrowers 

having difficulty making payments. The 

lender shall provide a borrower who has 

notified the lender that he or she is 

having difficulty making payments 

with— 

(i) A description of the repayment 

plans available to the borrower, and 

how the borrower may request a change 

in repayment plan; 

(ii) A description of the requirements 

for obtaining forbearance on the loan 

and any costs associated with 

forbearance; and 

(iii) A description of the options 

available to the borrower to avoid 

default and any fees or costs associated 

with those options. 

(5) Required disclosures for borrowers 

who are 60-days delinquent in making 

payments on a loan. (i) The lender shall 

provide to a borrower who is 60 days 

delinquent in making required 

payments a notice of— 

(A) The date on which the loan will 

default if no payment is made; 

(B) The minimum payment the 

borrower must make, as of the date of 

the notice, to avoid default, including 

the payment amount needed to bring the 

loan current or payment in full; 

(C) A description of the options 

available to the borrower to avoid 

default, including deferment and 

forbearance and any fees and costs 

associated with those options; 

(D) Any options for discharging the 

loan that may be available to the 

borrower; and 

(E) Any additional resources, 

including nonprofit organizations, 

advocates and counselors, including the 

Department of Education’s Student Loan 

Ombudsman, the lender is aware of 

where the borrower may obtain 

additional advice and assistance on loan 

repayment. 

(ii) The notice must be sent within 

five days of the date the borrower 

becomes 60 days delinquent, unless the 

lender has sent such a notice within the 

previous 120 days. 

* * * * * 

(i) Separate disclosure for 

Consolidation loans. At the time the 

lender provides a Consolidation loan 

application to a prospective borrower, it 

must disclose to the prospective 

borrower, in simple and understandable 

terms— 

(1) Whether consolidation will result 

in a loss of loan benefits, including, but 

not limited to, loan forgiveness, 

cancellation, deferment, or a reduced 

interest rate on FFEL or Direct Loans 

repaid through consolidation; 

(2) If a borrower is repaying a Federal 

Perkins Loan with the Consolidation 

loan, that the borrower will lose— 

(i) The interest-free periods available 

on the Perkins Loan while the borrower 

is enrolled in-school at least half-time, 

in the grace period, or in a deferment 

period; and 

(ii) The cancellation benefits on the 

Perkins Loan. The lender must provide 

to the borrower a list of the Perkins 

Loan cancellation benefits that would 

not be available on the Consolidation 

loan. 

(3) The repayment plans available to 

the borrower; 

(4) The borrower’s options to prepay 

the Consolidation loan, to pay the loan 

on a shorter repayment schedule, and to 

change repayment plans; 

(5) That the borrower benefit 

programs for a Consolidation loan vary 

among lenders; 

(6) The consequences of default on 

the Consolidation loan; and 

(7) That applying for the 

Consolidation loan does not obligate the 

borrower to agree to take the 

Consolidation loan, and the process and 

deadline by which the borrower may 

cancel the Consolidation loan. 

(j) Disclosure procedures when a 

borrower’s address is not available. If a 

lender receives information indicating it 

does not know the borrower’s current 

address, the lender is excused from 

providing disclosure information under 

this section unless it receives 

communication indicating a valid 

borrower address before the 241st day of 

delinquency, at which point the lender 

must resume providing the installment 

bill or statement, and any other 

disclosure information required under 

this section not previously provided. 

10. Section 682.206 is amended by 

revising paragraph (f) to read as follows: 

§ 682.206 Due diligence in making a loan. 

* * * * * 

(f) Additional requirements for 

Consolidation loans. (1) Prior to making 

any payments to pay off a loan with the 

proceeds of a Consolidation loan, the 

lender shall— 

(i) Obtain from the holder of each loan 

to be consolidated a certification with 

respect to the loan held by the holder 

that— 

(A) The loan is a legal, valid, and 

binding obligation of the borrower; 

(B) The loan was made and serviced 

in compliance with applicable laws and 

regulations; and 

(C) In the case of a FFEL loan, that the 

guarantee on the loan is in full force and 

effect; and 

(ii) Consistent with the requirements 

of § 682.205(i)(7), notify the borrower, 

upon receipt of all information 

necessary to make the Consolidation 

loan, of the borrower’s option to cancel 

the Consolidation loan, and the 

deadline by which the borrower must 

notify the lender that he or she wishes 

to cancel the loan. The lender must 

allow the borrower no less than 10 days 

from the date of the notice to cancel the 

loan. 

(2) The Consolidation loan lender 

may rely in good faith on the 

certification provided under paragraph 

(f)(1)(i) of this section by the holder of 

a loan to be consolidated. 

11. Section 682.208 is amended by: 

A. In paragraph (e)(1) introductory 

text, adding the words ‘‘or transfer of 

ownership interest’’ immediately after 

the word ‘‘assignment’’. 

B. In paragraph (e)(1)(iii), removing 

the word ‘‘and’’ after the semicolon. 

C. In paragraph (e)(1)(iv), removing 

the punctuation ‘‘.’’ at the end of the 

paragraph and adding, in its place, the 

punctuation ‘‘;’’. 

D. Adding new paragraphs (e)(1)(v), 

(vi), and (vii). 

The additions read as follows: 

§ 682.208 Due diligence in servicing a 

loan. 

* * * * * 

(e) * * * 

(1) * * * 

(v) The effective date of the 

assignment or transfer of the loan; 

(vi) The date, if applicable, on which 

the current loan servicer will stop 

accepting payments; and 

(vii) The date on which the new loan 

servicer will begin accepting payments. 

* * * * * 

§ 682.209 [Amended] 

12. Section 682.209 is amended in 

paragraph (a)(2)(v) by removing the 

reference ‘‘(a)(2)(ii)’’ and adding, in its 

place, the reference ‘‘(a)(2)(i)’’. 

13. Section 682.210 is amended by: 

A. In paragraph (a)(1)(i), adding the 

words ‘‘and paragraphs (s) through (v)’’ 

after the words ‘‘paragraph (b)’’. 

B. Revising paragraph (a)(3). 

C. In paragraph (c)(1)(ii), removing the 

word ‘‘or’’ at the end of the paragraph. 

D. In paragraph (c)(1)(iii), removing 

the punctuation ‘‘.’’ and adding, in its 

place, ‘‘; or’’ at the end of the paragraph. 

E. Adding a new paragraph (c)(1)(iv). 

F. Revising paragraph (c)(2). 

G. In paragraph (c)(3), removing the 

word ‘‘SSCR’’ and adding, in its place, 

the words ‘‘Student Status Confirmation 

Report’’. 

H. Adding a new paragraph (v). 

The revisions and additions read as 

follows: 


srobinson on DSKHWCL6B1PROD with PROPOSALS2
36592 Federal Register / Vol. 74, No. 140 / Thursday, July 23, 2009 / Proposed Rules 

§ 682.210 Deferment. 

(a) * * * 

(3)(i) Interest accrues and is paid by— 

(A) The Secretary during the 

deferment period for a subsidized 

Stafford loan and for all or a portion of 

a Consolidation loan that qualifies for 

interest benefits under § 682.301; or 

(B) The borrower during the 

deferment period and, as applicable, the 

post-deferment grace period, on all 

other loans. 

(ii) A borrower who is responsible for 

payment of interest during a deferment 

period must be notified by the lender, 

at or before the time the deferment is 

granted, that the borrower has the 

option to pay the accruing interest or 

cancel the deferment and continue 

paying on the loan. The lender must 

also provide information, including an 

example, on the impact of capitalization 

of accrued, unpaid interest on loan 

principal, and on the total amount of 

interest to be paid over the life of the 

loan. 

* * * * * 

(c) * * * 

(1) * * * 

(iv) The lender 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. 

(2) The lender must notify the 

borrower that a deferment has been 

granted based on paragraphs (c)(1)(ii), 

(iii), or (iv) of this section and that the 

borrower has the option to cancel the 

deferment and continue paying on the 

loan. 

* * * * * 

(v) In-school deferments for PLUS 

loan borrowers with loans first 

disbursed on or after July 1, 2008. (1)(i) 

A student PLUS borrower is entitled to 

a deferment on a PLUS loan first 

disbursed on or after July 1, 2008 during 

the 6-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 a lender grants an in-school 

deferment to a student PLUS borrower 

based on § 682.210(c)(1)(ii), (iii), or (iv), 

the deferment period for a PLUS loan 

first disbursed on or after July 1, 2008 

includes the 6-month post-enrollment 

period described in paragraph (v)(1)(i) 

of this section. The notice required by 

§ 682.210(c)(2) must inform the 

borrower that the in-school deferment 

on a PLUS loan first disbursed on or 

after July 1, 2008 will end six months 

after the day the borrower ceases to be 

enrolled on at least a half-time basis. 

(2) Upon the request of the borrower, 

an eligible parent PLUS borrower must 

be granted a deferment on a PLUS loan 

first disbursed on or after July 1, 2008— 

(i) 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) During the 6-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. 

14. Section 682.211 is amended by: 

A. Revising paragraph (e). 

B. In paragraph (f)(11), removing the 

word ‘‘or’’ at the end of the paragraph. 

C. In paragraph (f)(12), removing the 

punctuation ‘‘.’’ at the end of the 

paragraph and adding, in its place, the 

punctuation ‘‘;’’. 

D. In paragraph (f)(13), removing the 

punctuation ‘‘.’’ at the end of the 

paragraph and adding, in its place, the 

punctuation ‘‘;’’. 

E. In paragraph (f)(14), removing the 

punctuation ‘‘.’’ at the end of the 

paragraph and adding, in its place, ‘‘; 

or’’. 

F. Adding new paragraph (f)(15). 

The revisions and additions read as 

follows: 

§ 682.211 Forbearance. 

* * * * * 

(e)(1) At the time of granting a 

borrower or endorser a forbearance, the 

lender must provide the borrower or 

endorser with information to assist the 

borrower or endorser in understanding 

the impact of capitalization of interest 

on the loan principal and total interest 

to be paid over the life of the loan; and 

(2) At least once every 180 days 

during the period of forbearance, the 

lender must contact the borrower or 

endorser to inform the borrower or 

endorser of— 

(i) The outstanding obligation to 

repay; 

(ii) The amount of the unpaid 

principal balance and any unpaid 

interest that has accrued on the loan 

since the last notice provided to the 

borrower or endorser under this 

paragraph; 

(iii) The fact that interest will accrue 

on the loan for the full term of the 

forbearance; 

(iv) The amount of interest that will 

be capitalized, as of the date of the 

notice, and the date capitalization will 

occur; 

(v) The option of the borrower or 

endorser to pay the interest that has 

accrued before the interest is 

capitalized; and 

(vi) The borrower’s or endorser’s 

option to discontinue the forbearance at 

any time. 

(f) * * * 

(15) For PLUS loans first disbursed 

before July 1, 2008, to align repayment 

with a borrower’s PLUS loans that were 

first disbursed on or after July 1, 2008, 

or with Stafford Loans that are subject 

to a grace period under § 682.209(a)(3). 

The notice specified in paragraph (f) 

introductory text must inform the 

borrower that the borrower has the 

option to cancel the forbearance and 

continue paying on the loan. 

* * * * * 

15. Section 682.215 is amended by: 

A. Revising paragraph (a)(4). 

B. In paragraph (b)(1), removing the 

words ‘‘Except as provided under 

paragraph (b)(1)(i), (b)(1)(ii), and 

(b)(1)(iii) of this section, the’’ in the 

second sentence and adding, in their 

place, the word ‘‘The’’. 

C. In paragraph (b)(1)(i), removing the 

word ‘‘The’’ at the beginning of the 

paragraph and adding, in its place, the 

words ‘‘Except for borrowers provided 

for in paragraph (b)(1)(ii) of this section, 

the’’. 

D. Redesignating paragraphs (b)(1)(ii) 

and (b)(1)(iii) as paragraphs (b)(1)(iii) 

and (b)(1)(iv), respectively. 

E. Adding a new paragraph (b)(1)(ii). 

F. In newly redesignated paragraph 

(b)(1)(iii), removing the words ‘‘or 

(b)(1)(i)’’ and adding, in their place, the 

words ‘‘, (b)(1)(i), or (b)(1)(ii)’’. 

G. In newly redesignated paragraph 

(b)(1)(iv), removing the words ‘‘or 

(b)(1)(i)’’ and adding, in their place, the 

words ‘‘, (b)(1)(i), or (b)(1)(ii)’’. 

H. In paragraph (b)(2), removing the 

words ‘‘(b)(1)(ii) and (iii)’’ in the second 

sentence and adding, in their place, the 

words ‘‘(b)(1)(iii) and (iv)’’. 

The revision and addition reads as 

follows: 

§ 682.215 Income-based repayment plan. 

(a) * * * 

(4) Partial financial hardship means a 

circumstance in which— 

(i) For an unmarried borrower or a 

married borrower who files an 

individual Federal tax return, the 

annual amount due on all of the 

borrower’s eligible loans, as calculated 

under a standard repayment plan based 

on a 10-year repayment period, using 

the greater of the amount due at the time 

the borrower initially entered 

repayment or at the time the borrower 

elects the income-based repayment 

plan, exceeds 15 percent of the 

difference between the borrower’s AGI 

and 150 percent of the poverty guideline 

for the borrower’s family size; or 

(ii) For a married borrower who files 

a joint Federal tax return with his or her 


srobinson on DSKHWCL6B1PROD with PROPOSALS2
Federal Register / Vol. 74, No. 140 / Thursday, July 23, 2009 / Proposed Rules 36593 

spouse, the annual amount due on all of 

the borrower’s eligible loans and, if 

applicable, the spouse’s eligible loans, 

as calculated under a standard 

repayment plan based on a 10-year 

repayment period, using the greater of 

the amount due at the time the loans 

initially entered repayment or at the 

time the borrower or spouse elects the 

income-based repayment plan, exceeds 

15 percent of the difference between the 

borrower’s and spouse’s AGI, and 150 

percent of the poverty guideline for the 

borrower’s family size. 

* * * * * 

(b) * * * 

(1) * * * 

(ii) Both the borrower and the 

borrower’s spouse have eligible loans 

and filed a joint Federal tax return, in 

which case the loan holder 

determines— 

(A) Each borrower’s percentage of the 

couple’s total eligible loan debt; 

(B) The adjusted monthly payment for 

each borrower by multiplying the 

calculated payment by the percentage 

determined in paragraph (b)(1)(ii)(A) of 

this section; and 

(C) If the borrower’s loans are held by 

multiple holders, the borrower’s 

adjusted monthly payment by 

multiplying the payment determined in 

paragraph (b)(1)(ii)(B) of this section by 

the percentage of the total outstanding 

principal amount of eligible loans that 

are held by the loan holder; 

* * * * * 

16. Section 682.216 is amended by: 

A. Revising paragraph (a). 

B. In paragraph (b), adding, in 

alphabetical order, a definition of 

Educational service agency. 

C. Revising the introductory text of 

paragraph (c)(1). 

D. In paragraph (c)(1)(ii), adding the 

words ‘‘or educational service agency’s’’ 

immediately after the words ‘‘the 

school’s’’. 

E. In paragraph (c)(1)(iii), removing 

the words ‘‘Bureau of Indian Affairs 

(BIA)’’ and adding, in their place, the 

words ‘‘Bureau of Indian Education 

(BIE)’’, and removing the words ‘‘the 

BIA’’ and adding, in their place, the 

words ‘‘the BIE’’. 

F. In paragraph (c)(2), adding the 

words ‘‘or educational service agency’’ 

immediately after the words ‘‘If the 

school’’ at the beginning of the 

paragraph, and removing the words ‘‘the 

school’’ immediately after the words 

‘‘teaching and’’. 

G. In paragraph (c)(3)(i)(A), removing 

the words ‘‘in which’’ and adding, in 

their place, the words ‘‘or educational 

service agency where’’. 

H. In paragraph (c)(3)(i)(B), removing 

the words ‘‘in which’’ and adding, in 

their place, the words ‘‘or educational 

service agency where’’. 

I. In paragraph (c)(3)(ii)(A), removing 

the word ‘‘in’’ and adding, in its place, 

the word ‘‘at’’, and adding the words ‘‘, 

or taught mathematics or science to 

secondary school students on a full-time 

basis at an eligible educational service 

agency,’’ immediately after the words 

‘‘secondary school’’. 

J. In paragraph (c)(3)(ii)(B), removing 

the word ‘‘in’’ the first time it appears 

and adding, in its place, the word ‘‘at’’, 

and adding the words ‘‘or educational 

service agency’’ immediately after the 

words ‘‘secondary school’’ the first time 

they appear. 

K. Adding a new paragraph (c)(3)(iii). 

L. In paragraph (c)(4)(i), removing the 

word ‘‘in’’ and adding, in its place, the 

word ‘‘at’’, and adding the words ‘‘or 

educational service agency’’ 

immediately after the words ‘‘secondary 

school’’ the first time they appear. 

M. In paragraph (c)(4)(ii)(A), removing 

the word ‘‘in’’ and adding, in its place, 

the word ‘‘at’’, and adding the words ‘‘, 

or taught mathematics or science on a 

full-time basis to secondary school 

students at an eligible educational 

service agency,’’ immediately after the 

words ‘‘secondary school’’. 

N. In paragraph (c)(4)(ii)(B), removing 

the word ‘‘in’’ the first time it appears 

and adding, in its place, the word ‘‘at’’, 

and by adding the words ‘‘or 

educational service agency’’ 

immediately after the words ‘‘secondary 

school’’ the first time they appear. 

O. Adding a new paragraph (c)(4)(iii). 

P. Revising paragraph (c)(9). 

Q. Revising paragraph (c)(11). 

The revisions and additions read as 

follows: 

§ 682.216 Teacher loan forgiveness 

program. 

(a) General. (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 on 

the borrower’s subsidized and 

unsubsidized Federal Stafford Loans, 

Direct Subsidized Loans, Direct 

Unsubsidized Loans, and in certain 

cases, Federal Consolidation Loans or 

Direct Consolidation Loans. The 

forgiveness program is only available to 

a borrower who has no outstanding loan 

balance under the FFEL Program or the 

Direct Loan 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. 

(2) The borrower must have been 

employed at an eligible elementary or 

secondary school that serves lowincome families or by an educational 

service agency that serves low-income 

families as a full-time teacher for five 

consecutive complete academic years. 

For teaching service performed at an 

eligible elementary or secondary school, 

at least one of the academic years must 

have been after the 1997–1998 academic 

year. For teaching service performed by 

an employee of an eligible educational 

service agency, at least one of the five 

consecutive complete academic years 

must have been after the 2007–2008 

academic year. 

(3) All borrowers eligible for teacher 

loan forgiveness may receive loan 

forgiveness of up to a combined total of 

$5,000 on the borrower’s eligible FFEL 

and Direct Loan Program loans. 

(4) A borrower may receive loan 

forgiveness of up to a combined total of 

$17,500 on the borrower’s eligible FFEL 

and Direct Loan Program loans if the 

borrower was employed for five 

consecutive years— 

(i) At an eligible secondary school as 

a highly qualified mathematics or 

science teacher, or at an eligible 

educational service agency as a highly 

qualified teacher of mathematics or 

science to secondary school students; or 

(ii) At an eligible elementary or 

secondary school or educational service 

agency as a special education teacher. 

(5) The loan for which the borrower 

is seeking forgiveness must have been 

made prior to the end of the borrower’s 

fifth year of qualifying teaching service. 

(b) * * * 

Educational service agency means a 

regional public multiservice agency 

authorized by State statute to develop, 

manage, and provide services or 

programs to local educational agencies, 

as defined in section 9101 of the 

Elementary and Secondary Education 

Act of 1965, as amended. 

* * * * * 

(c) * * * 

(1) A borrower who has been 

employed at an elementary or secondary 

school or at an educational service 

agency as a full-time teacher for five 

consecutive complete academic years 

may obtain loan forgiveness under this 

program if the elementary or secondary 

school or educational service agency— 

* * * 

(3) * * * 

(iii) For teaching service performed by 

an employee of an eligible educational 

service agency, at least one of the five 

consecutive complete academic years 

must have been after the 2007–2008 

academic year. 

(4) * * * 

(iii) For teaching service performed by 

an employee of an eligible educational 


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service agency, at least one of the five 

consecutive complete academic years 

must have been the 2008–2009 

academic year or a subsequent academic 

year. 

* * * * * 

(9) A borrower who was employed as 

a teacher at more than one qualifying 

school, at more than one qualifying 

educational service agency, or at 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. 

* * * * * 

(11) A borrower may not receive loan 

forgiveness for the same qualifying 

teaching service under this section if the 

borrower receives a benefit for the same 

teaching service under— 

(i) 34 CFR 685.217; 

(ii) Subtitle D of title I of the National 

and Community Service Act of 1990; 

(iii) 34 CFR 685.219; or 

(iv) Section 428K of the Act. 

* * * * * 

17. Section 682.302 is amended by 

adding a new paragraph (h) to read as 

follows: 

§ 682.302 Payment of special allowance on 

FFEL loans. 

* * * * * 

(h) Calculation of special allowance 

payments for loans subject to the 

Servicemembers Civil Relief Act (50 

U.S.C. 527, App. sec. 207). For FFEL 

Program loans first disbursed on or after 

July 1, 2008 that are subject to the 

interest rate limit under the 

Servicemembers Civil Relief Act, special 

allowance is calculated in accordance 

with paragraphs (c) and (f) of this 

section, except the applicable interest 

rate for this purpose shall be 6 percent. 

18. Section 682.305 is amended by: 

A. Revising paragraph (c)(1). 

B. In paragraph (c)(2)(v), removing the 

word ‘‘and’’ immediately after the 

semicolon 

C. In paragraph (c)(2)(vi), removing 

the punctuation ‘‘.’’ at the end of the 

paragraph and adding, in its place, the 

words ‘‘; and’’. 

D. Redesignating paragraph (c)(2)(vii) 

as paragraph (c)(3). 

E. Adding a new paragraph (c)(2)(vii). 

The revision and addition read as 

follows: 

§ 682.305 Procedures for payment of 

interest benefits and special allowance and 

collection of origination and loan fees. 

* * * * * 

(c) Independent audits. (1)(i) A lender 

originating or holding more than $5 

million in FFEL loans during its fiscal 

year must submit an independent 

annual compliance audit for that year, 

conducted by a qualified independent 

organization or person. 

(ii) Notwithstanding the dollar 

volume of loans originated or held, a 

school lender under § 682.601 or a 

lender serving as trustee on behalf of a 

school or a school-affiliated 

organization for the purpose of 

originating loans must submit an 

independent annual compliance audit 

for that year, conducted by a qualified 

independent organization or person. 

(iii) The Secretary may, following 

written notice, suspend the payment of 

interest benefits and special allowance 

to a lender that does not submit its audit 

within the time period prescribed in 

paragraph (c)(2) of this section. 

(2) * * * 

(vii) With regard to a lender serving 

as a trustee for the purpose of 

originating loans for a school or schoolaffiliated organization, the audit must 

include a determination that— 

(A) Except as provided in paragraph 

(c)(2)(vii)(B) of this section, the school 

used all proceeds from special 

allowance payments, interest subsidies 

received from the Department, and any 

proceeds from the sale or other 

disposition of the loans originated 

through the lender for need-based grant 

programs and that those funds 

supplemented, but did not supplant, 

other Federal or non-Federal funds 

otherwise available to be used to make 

need-based grants to its students; and 

(B) The lender used no more than a 

reasonable portion of payments and 

proceeds from the loans for direct 

administrative expenses in accordance 

with § 682.601(b), with all references to 

eligible school lender understood to 

mean a lender in its capacity as trustee 

on behalf of a school or school-affiliated 

organization for the purpose of 

originating loans. 

* * * * * 

19. Section 682.401 is amended by: 

A. In paragraph (e)(1)(i), adding the 

words ‘‘stock or other securities, tuition 

payment or reimbursement’’ 

immediately after the word ‘‘payment’’. 

B. In paragraph (e)(1)(i)(D), adding the 

words ‘‘travel or’’ immediately after the 

words ‘‘Payment of’’. 

C. Revising paragraph (e)(1)(i)(F). 

D. In paragraph (e)(1)(iii)(C), removing 

the word ‘‘and’’ immediately after the 

semicolon. 

E. In paragraph (e)(1)(iii)(D), removing 

the punctuation ‘‘.’’ at the end of the 

paragraph and adding, in its place, the 

punctuation ‘‘;’’. 

F. Adding new paragraphs 

(e)(1)(iii)(E), (F), and (G). 

G. In paragraph (e)(1)(v), adding the 

words ‘‘, terms or conditions’’ 

immediately after the word 

‘‘availability’’. 

H. In paragraph (e)(2)(i), removing the 

word ‘‘Assistance’’ at the beginning of 

the paragraph and adding, in its place, 

the words ‘‘Technical assistance’’, and 

removing the words ‘‘that provided’’ 

and adding, in their place, the words 

‘‘the technical assistance provided’’. 

I. In paragraph (e)(2)(ii), adding the 

words ‘‘and 433A’’ immediately after 

the reference to ‘‘422(h)(4)(B)’’. 

J. In paragraph (e)(2)(iii), removing the 

words ‘‘initial and exit’’ and adding, in 

their place, the word ‘‘entrance’’. 

K. Revising paragraph (e)(2)(vi). 

L. In paragraph (e)(3)(iii), removing 

the words ‘‘The terms’’ and adding, in 

their place, the words ‘‘The term’’, and 

removing the words ‘‘computer 

hardware’’ and adding, in their place, 

the words ‘‘information technology 

equipment’’. 

M. Removing paragraph (e)(3)(v). 

N. Adding a new paragraph (g). 

The revision and additions read as 

follows: 

§ 682.401 Basic Program Agreement. 

* * * * * 

(e) * * * 

(1) * * * 

(i) * * * 

(F) Performance of, or payment to a 

third party to perform, any school 

function required under title IV, except 

that the guaranty agency may provide 

exit counseling as provided in 

§ 682.604(g), and may provide services 

to participating foreign schools at the 

direction of the Secretary, as a thirdparty servicer. 

* * * * * 

(iii) * * * 

(E) Providing or reimbursing travel or 

entertainment expenses; 

(F) Providing or reimbursing tuition 

payments or expenses; and 

(G) Offering prizes, or providing 

payments of stocks or other securities. 

* * * * * 

(g)(1) A guaranty agency must work 

with schools that participate in its 

program to develop and make available 

high-quality educational materials and 

programs that provide training to 

students and their families in budgeting 

and financial management, including 

debt management and other aspects of 

financial literacy, such as the cost of 

using high-interest loans to pay for 

postsecondary education, and how 

budgeting and financial management 

relate to the title IV student loan 

programs. 


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(2) The materials and programs 

described in paragraph (g)(1) of this 

section must be in formats that are 

simple and understandable to students 

and their families, and must be made 

available to students and their families 

by the guaranty agency before, during, 

and after a student’s enrollment at an 

institution of higher education. 

(3) A guaranty agency may provide 

similar programs and materials to an 

institution that participates only in the 

William D. Ford Federal Direct Loan 

Program. 

(4) A lender or loan servicer may also 

provide an institution with outreach 

and financial literacy information 

consistent with the requirements of 

paragraphs (g)(1) and (2) of this section. 

20. Section 682.402 is amended by 

revising paragraph (c) to read as follows: 

§ 682.402 Death, disability, closed school, 

false certification, unpaid refunds, and 

bankruptcy payments. 

* * * * * 

(c)(1) Total and permanent disability. 

(i) A borrower’s loan is discharged if the 

borrower becomes totally and 

permanently disabled, as defined in 

§ 682.200(b), and satisfies the eligibility 

requirements in this section. 

(ii) For a borrower who becomes 

totally and permanently disabled as 

described in paragraph (1) of the 

definition of that term in § 682.200(b), 

the borrower’s loan discharge 

application is processed in accordance 

with paragraphs (c)(2) through (7) of this 

section. 

(iii) For a veteran who is totally and 

permanently disabled as described in 

paragraph (2) of the definition of that 

term in § 682.200(b), the veteran’s loan 

discharge application is processed in 

accordance with paragraph (c)(8) of this 

section. 

(2) Discharge application process for 

a borrower who is totally and 

permanently disabled as described in 

paragraph (1) of the definition of that 

term in § 682.200(b). After being 

notified by the borrower or the 

borrower’s representative that the 

borrower claims to be totally and 

permanently disabled, the lender 

promptly requests that the borrower or 

the borrower’s representative submit a 

discharge application to the lender on a 

form approved by the Secretary. The 

application must contain a certification 

by a physician, who is a doctor of 

medicine or osteopathy legally 

authorized to practice in a State, that the 

borrower is totally and permanently 

disabled as described in paragraph (1) of 

the definition of that term in 

§ 682.200(b). The borrower must submit 

the application to the lender within 90 

days of the date the physician certifies 

the application. If the lender and 

guaranty agency approve the discharge 

claim under the procedures described in 

paragraph (c)(7) of this section, the 

guaranty agency must assign the loan to 

the Secretary. 

(3) Secretary’s eligibility 

determination. (i) If, after reviewing the 

borrower’s application, the Secretary 

determines that the certification 

provided by the borrower supports the 

conclusion that the borrower is totally 

and permanently disabled, as described 

in paragraph (1) of the definition of that 

term in § 682.200(b), the borrower is 

considered totally and permanently 

disabled as of the date the physician 

certifies the borrower’s application. 

(ii) Upon making a determination that 

the borrower is totally and permanently 

disabled as described in paragraph (1) of 

the definition of that term in 

§ 682.200(b), the Secretary discharges 

the borrower’s obligation to make 

further payments on the loan and 

notifies the borrower that the loan has 

been discharged. Any payments 

received after the date the physician 

certified the borrower’s loan discharge 

application are returned to the person 

who made the payments on the loan. 

The notification to the borrower 

explains the terms and conditions under 

which the borrower’s obligation to repay 

the loan will be reinstated, as specified 

in paragraph (c)(5)(i) of this section. 

(iii) If the Secretary determines that 

the certification provided by the 

borrower does not support the 

conclusion that the borrower is totally 

and permanently disabled as described 

in paragraph (1) of the definition of that 

term in § 682.200(b), the Secretary 

notifies the borrower that the 

application for a disability discharge has 

been denied and that the loan is due 

and payable to the Secretary under the 

terms of the promissory note. 

(iv) The Secretary reserves the right to 

require the borrower to submit 

additional medical evidence if the 

Secretary determines that the borrower’s 

application does not conclusively prove 

that the borrower is totally and 

permanently disabled as described in 

paragraph (1) of the definition of that 

term in § 682.200(b). As part of the 

Secretary’s review of the borrower’s 

discharge application, the Secretary may 

arrange for an additional review of the 

borrower’s condition by an independent 

physician at no expense to the borrower. 

(4) Treatment of disbursements made 

during the period from the date of the 

physician’s certification until the date of 

discharge. If a borrower received a Title 

IV loan or TEACH Grant prior to the 

date the physician certified the 

borrower’s discharge application and a 

disbursement of that loan or grant is 

made during the period from the date of 

the physician’s certification until the 

date the Secretary grants a discharge 

under this section, the processing of the 

borrower’s loan discharge request will 

be suspended until the borrower 

ensures that the full amount of the 

disbursement has been returned to the 

loan holder or to the Secretary, as 

applicable. 

(5) Conditions for reinstatement of a 

loan after a total and permanent 

disability discharge. (i) The Secretary 

reinstates the borrower’s obligation to 

repay a loan that was discharged in 

accordance with paragraph (c)(3)(ii) of 

this section if, within three years after 

the date the Secretary granted the 

discharge, the borrower— 

(A) Has annual earnings from 

employment that exceed 100 percent of 

the poverty line for a family of two, as 

determined in accordance with the 

Community Service Block Grant Act; 

(B) Receives a new TEACH Grant or 

a new loan under the Perkins, FFEL, or 

Direct Loan programs, except for a FFEL 

or Direct Consolidation Loan that 

includes loans that were not discharged; 

or 

(C) Fails to ensure that the full 

amount of any disbursement of a title IV 

loan or TEACH Grant received prior to 

the discharge date that is made during 

the three-year period following the 

discharge date is returned to the loan 

holder or to the Secretary, as applicable, 

within 120 days of the disbursement 

date. 

(ii) If a borrower’s obligation to repay 

a loan is reinstated, the Secretary— 

(A) Notifies the borrower that the loan 

has been reinstated; and 

(B) Does not require the borrower to 

pay interest on the loan for the period 

from the date the loan was discharged 

until the date the loan was reinstated. 

(iii) The Secretary’s notification under 

paragraph (c)(5)(ii)(A) of this section 

will include— 

(A) The reason or reasons for the 

reinstatement; 

(B) An explanation that the first 

payment due date on the loan following 

reinstatement will be no earlier than 60 

days after the date of the notification of 

reinstatement; and 

(C) Information on how the borrower 

may contact the Secretary if the 

borrower has questions about the 

reinstatement or believes that the 

obligation to repay the loan was 

reinstated based on incorrect 

information. 

(6) Borrower’s responsibilities after a 

total and permanent disability 

discharge. During the three-year period 


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36596 Federal Register / Vol. 74, No. 140 / Thursday, July 23, 2009 / Proposed Rules 

described in paragraph (c)(5)(i) of this 

section, the borrower or, if applicable, 

the borrower’s representative must— 

(i) Promptly notify the Secretary of 

any changes in address or phone 

number; 

(ii) Promptly notify the Secretary if 

the borrower’s annual earnings from 

employment exceed the amount 

specified in paragraph (c)(5)(i)(A) of this 

section; and 

(iii) Provide the Secretary, upon 

request, with documentation of the 

borrower’s annual earnings from 

employment. 

(7) Lender and guaranty agency 

actions. (i) After being notified by a 

borrower or a borrower’s representative 

that the borrower claims to be totally 

and permanently disabled, the lender 

must continue collection activities until 

it receives either the certification of total 

and permanent disability from a 

physician or a letter from a physician 

stating that the certification has been 

requested and that additional time is 

needed to determine if the borrower is 

totally and permanently disabled as 

described in paragraph (1) of the 

definition of that term in § 682.200(b). 

Except as provided in paragraph 

(c)(7)(iii) of this section, after receiving 

the physician’s certification or letter the 

lender may not attempt to collect from 

the borrower or any endorser. 

(ii) The lender must submit a 

disability claim to the guaranty agency 

if the borrower submits a certification 

by a physician and the lender makes a 

determination that the certification 

supports the conclusion that the 

borrower is totally and permanently 

disabled as described in paragraph (1) of 

the definition of that term in 

§ 682.200(b). 

(iii) If the lender determines that a 

borrower who claims to be totally and 

permanently disabled is not totally and 

permanently disabled as described in 

paragraph (1) of the definition of that 

term in § 682.200(b), or if the lender 

does not receive the physician’s 

certification of total and permanent 

disability within 60 days of the receipt 

of the physician’s letter requesting 

additional time, as described in 

paragraph (c)(7)(i) of this section, the 

lender must resume collection of the 

loan and is deemed to have exercised 

forbearance of payment of both 

principal and interest from the date 

collection activity was suspended. The 

lender may capitalize, in accordance 

with § 682.202(b), any interest accrued 

and not paid during that period. 

(iv) The guaranty agency must pay a 

claim submitted by the lender if the 

guaranty agency has reviewed the 

application and determined that it is 

complete and that it supports the 

conclusion that the borrower is totally 

and permanently disabled as described 

in paragraph (1) of the definition of that 

term in § 682.200(b). 

(v) If the guaranty agency does not 

pay the disability claim, the guaranty 

agency must return the claim to the 

lender with an explanation of the basis 

for the agency’s denial of the claim. 

Upon receipt of the returned claim, the 

lender must notify the borrower that the 

application for a disability discharge has 

been denied, provide the basis for the 

denial, and inform the borrower that the 

lender will resume collection on the 

loan. The lender is deemed to have 

exercised forbearance of both principal 

and interest from the date collection 

activity was suspended until the first 

payment due date. The lender may 

capitalize, in accordance with 

§ 682.202(b), any interest accrued and 

not paid during that period. 

(vi) If the guaranty agency pays the 

disability claim, the lender must notify 

the borrower that— 

(A) The loan will be assigned to the 

Secretary for determination of eligibility 

for a total and permanent disability 

discharge and that no payments are due 

on the loan; and 

(B) If the Secretary discharges the loan 

based on a determination that the 

borrower is totally and permanently 

disabled as described in paragraph (1) of 

the definition of that term in 

§ 682.200(b), the Secretary will reinstate 

the borrower’s obligation to repay the 

loan if, within three years after the date 

the Secretary granted the discharge, the 

borrower— 

(1) Receives annual earnings from 

employment that exceed 100 percent of 

the poverty line for a family of two, as 

determined in accordance with the 

Community Services Block Grant; 

(2) Receives a new TEACH Grant or a 

new title IV loan, except for a FFEL or 

Direct Consolidation Loan that includes 

loans that were not discharged; or 

(3) Fails to ensure that the full amount 

of any disbursement of a title IV loan or 

TEACH Grant received prior to the 

discharge date that is made during the 

three-year period following the 

discharge date is returned to the loan 

holder or to the Secretary, as applicable, 

within 120 days of the disbursement 

date. 

(vii) After receiving a claim payment 

from the guaranty agency, the lender 

must forward to the guaranty agency 

any payments subsequently received 

from or on behalf of the borrower. 

(viii) The Secretary reimburses the 

guaranty agency for a disability claim 

paid to the lender after the agency pays 

the claim to the lender. 

(ix) The guaranty agency must assign 

the loan to the Secretary after the 

guaranty agency pays the disability 

claim. 

(8) Discharge application process for 

veterans who are totally and 

permanently disabled as described in 

paragraph (2) of the definition of that 

term in § 682.200(b)—(i) General. After 

being notified by the veteran or the 

veteran’s representative that the veteran 

claims to be totally and permanently 

disabled, the lender promptly requests 

that the veteran or the veteran’s 

representative submit a discharge 

application to the lender, on a form 

approved by the Secretary. The 

application must be accompanied by 

documentation from the Department of 

Veterans Affairs showing that the 

Department of Veterans Affairs has 

determined that the veteran is 

unemployable due to a serviceconnected disability. The veteran will 

not be required to provide any 

additional documentation related to the 

veteran’s disability. 

(ii) Lender and guaranty agency 

actions. (A) After being notified by a 

veteran or a veteran’s representative that 

the veteran claims to be totally and 

permanently disabled as described in 

paragraph (2) of the definition of that 

term in § 682.200(b), the lender must 

continue collection activities until it 

receives the veteran’s completed loan 

discharge application with the required 

documentation from the Department of 

Veterans Affairs, as described in 

paragraph (8)(i) of this section. Except 

as provided in paragraph (c)(8)(ii)(C) of 

this section, the lender will not attempt 

to collect from the veteran or any 

endorser after receiving the veteran’s 

discharge application and 

documentation from the Department of 

Veterans Affairs. 

(B) If the veteran submits a completed 

loan discharge application and the 

required documentation from the 

Department of Veterans Affairs, and the 

documentation indicates that the 

veteran is totally and permanently 

disabled as described in paragraph (2) of 

the definition of that term in 

§ 682.200(b), the lender must submit a 

disability claim to the guaranty agency. 

(C) If the documentation from the 

Department of Veterans Affairs does not 

indicate that the veteran is totally and 

permanently disabled as described in 

paragraph (2) of the definition of that 

term in § 682.200(b), the lender— 

(1) Must resume collection and is 

deemed to have exercised forbearance of 

payment of both principal and interest 

from the date collection activity was 

suspended. The lender may capitalize, 

in accordance with § 682.202(b), any 


srobinson on DSKHWCL6B1PROD with PROPOSALS2
Federal Register / Vol. 74, No. 140 / Thursday, July 23, 2009 / Proposed Rules 36597 

interest accrued and not paid during 

that period. 

(2) Must inform the veteran that he or 

she may reapply for a total and 

permanent disability discharge in 

accordance with the procedures 

described in § 682.402(c)(2) through 

(c)(7), if the documentation from the 

Department of Veterans Affairs does not 

indicate that the veteran is totally and 

permanently disabled as described in 

paragraph (2) of the definition of that 

term in § 682.200(b), but indicates that 

the veteran may be totally and 

permanently disabled as described in 

paragraph (1) of the definition of that 

term. 

(D) If the documentation from the 

Department of Veterans Affairs indicates 

that the borrower is totally and 

permanently disabled as described in 

paragraph (2) of the definition of that 

term in § 682.200(b), the guaranty 

agency must submit a copy of the 

veteran’s discharge application and 

supporting documentation to the 

Secretary, and must notify the veteran 

that the veteran’s loan discharge request 

has been referred to the Secretary for a 

determination of discharge eligibility. 

(E) If the documentation from the 

Department of Veterans Affairs does not 

indicate that the veteran is totally and 

permanently disabled as described in 

paragraph (2) of the definition of that 

term in § 682.200(b), the guaranty 

agency does not pay the disability claim 

and must return the claim to the lender 

with an explanation of the basis for the 

agency’s denial of the claim. Upon 

receipt of the returned claim, the lender 

must notify the veteran that the 

application for a disability discharge has 

been denied, provide the basis for the 

denial, and inform the veteran that the 

lender will resume collection on the 

loan. The lender is deemed to have 

exercised forbearance of both principal 

and interest from the date collection 

activity was suspended until the first 

payment due date. The lender may 

capitalize, in accordance with 

§ 682.202(b), any interest accrued and 

not paid during that period. 

(F) If the Secretary determines, based 

on a review of the documentation from 

the Department of Veterans Affairs, that 

the veteran is totally and permanently 

disabled as described in paragraph (2) of 

the definition of that term in 

§ 682.200(b), the Secretary notifies the 

guaranty agency that the veteran is 

eligible for a total and permanent 

disability discharge. Upon notification 

by the Secretary that the veteran is 

eligible for a discharge, the guaranty 

agency pays the disability discharge 

claim and notifies the veteran that the 

veteran’s obligation to make any further 

payments on the loan has been 

discharged. Upon receipt of the claim 

payment from the guaranty agency, the 

lender returns to the person who made 

the payments on the loan any payments 

received on or after the effective date of 

the determination by the Department of 

Veterans Affairs that the veteran is 

unemployable due to a serviceconnected disability. 

(G) If the Secretary determines, based 

on a review of the documentation from 

the Department of Veterans Affairs, that 

the veteran is not totally and 

permanently disabled as described in 

paragraph (2) of the definition of that 

term in § 682.200(b), the Secretary 

notifies the guaranty agency of this 

determination. Upon notification by the 

Secretary that the veteran is not eligible 

for a discharge, the guaranty agency and 

the lender must follow the procedures 

described in paragraph (c)(8)(ii)(E) of 

this section. 

(H) The Secretary reimburses the 

guaranty agency for a disability claim 

paid to the lender after the agency pays 

the claim to the lender. 

* * * * * 

21. Section 682.405 is amended by: 

A. In paragraph (a)(3), adding the 

sentence ‘‘Effective for any 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.’’ at the end of the 

paragraph. 

B. In paragraph (b)(1)(iii), adding the 

words ‘‘by the guaranty agency or its 

agents’’ immediately after the word 

‘‘affordable’’. 

C. Revising paragraph (b)(3). 

D. Adding a new paragraph (c). 

The revision and addition read as 

follows: 

§ 682.405 Loan rehabilitation agreement. 

* * * * * 

(b) * * * 

(3) (3) Upon the sale of a rehabilitated 

loan to an eligible lender— 

(i) The guaranty agency must, within 

45 days of the sale— 

(A) Provide notice to the prior holder 

of such sale, and 

(B) Request that any consumer 

reporting agency to which the default 

was reported remove the record of 

default from the borrower’s credit 

history. 

(ii) The prior holder of the loan must, 

within 30 days of receiving the 

notification from the guaranty agency, 

request that any consumer reporting 

agency to which the default claim 

payment or other equivalent record was 

reported remove such record from the 

borrower’s credit history. 

* * * * * 

(c) A guaranty agency must make 

available financial and economic 

education materials, including debt 

management information, to any 

borrower who has rehabilitated a 

defaulted loan in accordance with 

paragraph (a)(2) of this section. 

22. Section 682.410 is amended by: 

A. In paragraph (b)(5), removing the 

heading ‘‘Credit bureau reports’’ and 

adding, in its place, the heading 

‘‘Reports to consumer reporting 

agencies’’. 

B. In paragraph (b)(5)(i), removing the 

words ‘‘national credit bureaus’’ at the 

end of the paragraph and adding, in 

their place, the words ‘‘nationwide 

consumer reporting agencies’’. 

C. In paragraph (b)(5)(ii), removing 

the words ‘‘credit bureau’’ and adding, 

in their place, the words ‘‘consumer 

reporting agency’’, and removing the 

reference ‘‘(b)(6)(v)’’ and adding, in its 

place, the reference ‘‘(b)(6)(ii)’’. 

D. In paragraph (b)(5)(iv)(A), 

removing the words ‘‘credit bureaus’’ 

and adding, in their place, the words 

‘‘consumer reporting agencies’’. 

E. In paragraph (b)(5)(vi)(F), removing 

the words ‘‘national credit bureaus’’ and 

adding, in their place, the words 

‘‘nationwide consumer reporting 

agencies’’. 

F. In paragraph (b)(5)(vi)(G), removing 

the words ‘‘credit bureaus’’ and adding, 

in their place, the words ‘‘consumer 

reporting agencies’’. 

G. In paragraph (b)(5)(vi)(K), removing 

the word ‘‘and’’ at the end of the 

paragraph. 

H. In paragraph (b)(5)(vi)(L), removing 

the punctuation ‘‘.’’ at the end of the 

paragraph and adding, in its place, the 

words ‘‘; and’’. 

I. Adding a new paragraph 

(b)(5)(vi)(M). 

J. Redesignating paragraph (b)(6)(ii) as 

paragraph (b)(6)(v). 

K. Redesignating paragraph (b)(6)(iii) 

as paragraph (b)(6)(vi). 

L. Redesignating paragraph (b)(6)(iv) 

as paragraph (b)(6)(vii). 

M. Redesignating paragraph (b)(6)(v) 

as paragraph (b)(6)(ii). 

N. Redesignating paragraph (b)(6)(vi) 

as paragraph (b)(6)(iii). 

O. In newly redesignated paragraph 

(b)(6)(iii), removing the reference 

‘‘(b)(6)(v)’’ and adding, in its place, the 

reference ‘‘(b)(6)(ii)’’, and removing the 

words ‘‘national credit bureaus (if that 

is the case)’’ and adding, in their place, 

the words ‘‘nationwide consumer 

reporting agencies’’. 

P. Adding a new paragraph (b)(6)(iv). 


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Q. In newly redesignated paragraph 

(b)(6)(vi), removing the reference 

‘‘(b)(6)(iv)’’ and adding, in its place, the 

reference ‘‘(b)(6)(vii)’’. 

The additions read as follows: 

§ 682.410 Fiscal, administrative, and 

enforcement requirements. 

* * * * * 

(b) * * * 

(5) * * * 

(vi) * * * 

(M) Inform the borrower of the 

options that are available to the 

borrower to remove the loan from 

default, including an explanation of the 

fees and conditions associated with 

each option. 

(vii) * * * 

(6) * * * 

(iv) The agency must send a notice 

informing the borrower of the options 

that are available to remove the loan 

from default, including an explanation 

of the fees and conditions associated 

with each option. This notice must be 

sent within a reasonable time after the 

end of the period for requesting an 

administrative review as specified in 

paragraph (b)(5)(iv)(B) of this section or, 

if the borrower has requested an 

administrative review, within a 

reasonable time following the 

conclusion of the administrative review. 

* * * * * 

23. Section 682.601 is amended by 

adding a new paragraph (a)(7)(iii) to 

read as follows: 

§ 682.601 Rules for a school that makes or 

originates loans. 

(a) * * * 

(7) * * * 

(iii) With regard to any school, the 

audit must include a determination 

that— 

(A) Except as provided in paragraphs 

(a)(8) and (b) of this section, the school 

used all payments and proceeds from 

the loans for need-based grant programs; 

(B) The school met the requirements 

of paragraph (c) of this section in 

making the need-based grants; and 

(C) The school used no more than a 

reasonable portion of payments and 

proceeds from the loans for direct 

administrative expenses. 

* * * * * 

PART 685—WILLIAM D. FORD 

FEDERAL DIRECT LOAN PROGRAM 

24. The authority citation for part 685 

continues to read as follows: 

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

otherwise noted. 

25. Section 685.200 is amended by: 

A. In paragraph (a)(1)(iv)(A)(1), 

removing the word ‘‘and’’ at the end of 

the paragraph. 

B. In paragraph (a)(1)(iv)(A)(2), 

removing the punctuation ‘‘.’’ at the end 

of the paragraph and adding, in its 

place, the words ‘‘; and’’. 

C. Adding a new paragraph 

(a)(1)(iv)(A)(3). 

D. Removing paragraph (a)(1)(iv)(B). 

E. Redesignating paragraph 

(a)(1)(iv)(C) as paragraph (a)(1)(iv)(B). 

F. In newly redesignated paragraph 

(a)(1)(iv)(B), removing the words ‘‘based 

on’’ and adding, in their place, the word 

‘‘after’’, and adding the words ‘‘based on 

a discharge request received prior to 

July 1, 2010’’ immediately after the 

word ‘‘disabled’’. 

The addition reads as follows: 

§ 685.200 Borrower eligibility. 

(a) * * * 

(1) * * * 

(iv) * * * 

(A) * * * 

(3) If the borrower receives a new 

Direct Subsidized Loan or Direct 

Unsubsidized 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 

§ 685.213(b)(4), 34 CFR 674.61(b)(3)(i), 

34 CFR 682.402(c), or 34 CFR 686.42(b) 

based on a discharge request received 

on or after July 1, 2010, resumes 

repayment on the previously discharged 

loan in accordance with 

§ 685.213(b)(3)(ii)(A), 34 CFR 

674.61(b)(5), or 34 CFR 682.402(c)(5), 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. 

* * * * * 

26. Section 685.202 is amended by: 

A. Adding a new paragraph (a)(4). 

B. In paragraph (b)(2), removing the 

words ‘‘the Secretary capitalizes’’ and 

adding, in their place, the words ‘‘or for 

a Direct PLUS Loan, the Secretary may 

capitalize’’. 

The addition reads as follows: 

§ 685.202 Charges for which Direct Loan 

Program borrowers are responsible. 

(a) * * * 

(4) Applicability of the 

Servicemembers Civil Relief Act (50 

U.S.C. 527, App. sec. 207). 

Notwithstanding paragraphs (a)(1) 

through (3) of this section, effective 

August 14, 2008, upon the Secretary’s 

receipt of a borrower’s written request 

and a copy of the borrower’s military 

orders, the maximum interest rate, as 

defined in 50 U.S.C. 527, App. section 

207(d), on Direct Loan Program loans 

made prior to the borrower entering 

active duty status is 6 percent while the 

borrower is on active duty military 

service. 

* * * * * 

27. Section 685.204 is amended by: 

A. In paragraph (b)(1)(iii)(A)(2), 

removing the word ‘‘or’’ at the end of 

the paragraph. 

B. In paragraph (b)(1)(iii)(A)(3), 

removing the punctuation ‘‘.’’ and 

adding, in its place, ‘‘; or’’ at the end of 

the paragraph. 

C. Adding a new paragraph 

(b)(1)(iii)(A)(4). 

D. Revising paragraph (b)(1)(iii)(B). 

E. Redesignating paragraphs (g) and 

(h) as paragraphs (h) and (i), 

respectively. 

F. In newly redesignated paragraph 

(i)(3), removing the words ‘‘paragraph 

(h)(2)’’ each time they appear and 

adding, in their place, the words 

‘‘paragraph (i)(2)’’. 

G. In newly redesignated paragraph 

(i)(4), removing the words ‘‘paragraph 

(h)(2)’’ and adding, in their place, the 

words ‘‘paragraph (i)(2)’’. 

H. Adding a new paragraph (g). 

The revisions and additions read as 

follows: 

§ 685.204 Deferment. 

* * * * * 

(b) * * * 

(1)(i) * * * 

(iii)(A) * * * 

(4) 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. 

(B)(1) Upon notification by the 

Secretary that a deferment has been 

granted based on paragraph 

(b)(1)(iii)(A)(2), (3), or (4) of this section, 

the borrower has the option to cancel 

the deferment and continue paying on 

the loan. 

(2) If the borrower elects to cancel the 

deferment and continue paying 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. The 

Secretary will provide 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. 

* * * * * 

(g) 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 


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Federal Register / Vol. 74, No. 140 / Thursday, July 23, 2009 / Proposed Rules 36599 

entitled to a deferment on a Direct PLUS 

Loan first disbursed on or after July 1, 

2008 during the 6-month period that 

begins on the day after the student 

ceases to be enrolled on at least a halftime basis at an eligible institution. 

(ii) If the Secretary grants an in-school 

deferment to a student Direct PLUS 

Loan borrower based on 

§ 682.204(b)(1)(iii)(A)(2), (3), or (4), the 

deferment period for a Direct PLUS 

Loan first disbursed on or after July 1, 

2008 includes the 6-month postenrollment period described in 

paragraph (g)(1)(i) of this section. 

(2) Upon the request of the borrower, 

an eligible parent Direct PLUS Loan 

borrower will receive a deferment on a 

Direct PLUS Loan first disbursed on or 

after July 1, 2008— 

(i) 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) During the 6-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. 

* * * * * 

28. Section 685.205 is amended by: 

A. In paragraph (b)(8), removing the 

word ‘‘or’’ at the end of the paragraph. 

B. In paragraph (b)(9), removing the 

punctuation ‘‘.’’ at the end of the 

paragraph and adding, in its place, ‘‘; 

or’’. 

C. Adding a new paragraph (b)(10) to 

read as follows: 

§ 685.205 Forbearance. 

* * * * * 

(b) * * * 

(10) For Direct PLUS Loans first 

disbursed before July 1, 2008, to align 

repayment with a borrower’s Direct 

PLUS Loans that were first disbursed on 

or after July 1, 2008, or with Direct 

Subsidized Loans or Direct 

Unsubsidized Loans that have a grace 

period in accordance with § 685.207(b) 

or (c). The Secretary notifies the 

borrower that the borrower has the 

option to cancel the forbearance and 

continue paying on the loan. 

* * * * * 

29. Section 685.211 is amended by: 

A. In paragraph (f)(1), removing the 

words ‘‘credit bureau’’ in the third 

sentence and adding, in their place, the 

words ‘‘consumer reporting agency’’. 

B. Adding a new paragraph (f)(4). 

The addition reads as follows: 

§ 685.211 Miscellaneous repayment 

provisions. 

* * * * * 

(f) * * * 

(4) 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. 

30. Section 685.213 is revised to read 

as follows: 

§ 685.213 Total and permanent disability 

discharge. 

(a) General. (1) A borrower’s Direct 

Loan is discharged if the borrower 

becomes totally and permanently 

disabled, as defined in 34 CFR 

682.200(b), and satisfies the eligibility 

requirements in this section. 

(2) For a borrower who becomes 

totally and permanently disabled as 

described in paragraph (1) of the 

definition of that term in 34 CFR 

682.200(b), the borrower’s loan 

discharge application is processed in 

accordance with paragraph (b) of this 

section. 

(3) For veterans who are totally and 

permanently disabled as described in 

paragraph (2) of the definition of that 

term in 34 CFR 682.200(b), the veteran’s 

loan discharge application is processed 

in accordance with paragraph (c) of this 

section. 

(b) Discharge application process for 

a borrower who is totally and 

permanently disabled as described in 

paragraph (1) of the definition of that 

term in 34 CFR 682.200(b). (1) Borrower 

application for discharge. To qualify for 

a discharge of a Direct Loan based on a 

total and permanent disability, a 

borrower must submit a discharge 

application to the Secretary on a form 

approved by the Secretary. The 

application must contain a certification 

by a physician, who is a doctor of 

medicine or osteopathy legally 

authorized to practice in a State, that the 

borrower is totally and permanently 

disabled as described in paragraph (1) of 

the definition of that term in 34 CFR 

682.200(b). The borrower must submit 

the application to the Secretary within 

90 days of the date the physician 

certifies the application. Upon receipt of 

the borrower’s application, the Secretary 

notifies the borrower that no payments 

are due on the loan while the Secretary 

determines the borrower’s eligibility for 

discharge. 

(2) Determination of eligibility. (i) If, 

after reviewing the borrower’s 

application, the Secretary determines 

that the certification provided by the 

borrower supports the conclusion that 

the borrower meets the criteria for a 

total and permanent disability 

discharge, as described in paragraph (1) 

of the definition of that term in 34 CFR 

682.200(b), the borrower is considered 

totally and permanently disabled as of 

the date the physician certifies the 

borrower’s application. 

(ii) Upon making a determination that 

the borrower is totally and permanently 

disabled, as described in paragraph (1) 

of the definition of that term in 34 CFR 

682.200(b), the Secretary discharges the 

borrower’s obligation to make any 

further payments on the loan, notifies 

the borrower that the loan has been 

discharged, and returns to the person 

who made the payments on the loan any 

payments received after the date the 

physician certified the borrower’s loan 

discharge application. The notification 

to the borrower explains the terms and 

conditions under which the borrower’s 

obligation to repay the loan will be 

reinstated, as specified in paragraph 

(b)(4)(i) of this section. 

(iii) If the Secretary determines that 

the certification provided by the 

borrower does not support the 

conclusion that the borrower is totally 

and permanently disabled, as described 

in paragraph (1) of the definition of that 

term in 34 CFR 682.200(b), the Secretary 

notifies the borrower that the 

application for a disability discharge has 

been denied, and that the loan is due 

and payable to the Secretary under the 

terms of the promissory note. 

(iv) The Secretary reserves the right to 

require the borrower to submit 

additional medical evidence if the 

Secretary determines that the borrower’s 

application does not conclusively prove 

that the borrower is totally and 

permanently disabled as described in 

paragraph (1) of the definition of that 

term in 34 CFR 682.200(b). As part of 

the Secretary’s review of the borrower’s 

discharge application, the Secretary may 

arrange for an additional review of the 

borrower’s condition by an independent 

physician at no expense to the borrower. 

(3) Treatment of disbursements made 

during the period from the date of the 

physician’s certification until the date of 

discharge. If a borrower received a title 

IV loan or TEACH Grant prior to the 

date the physician certified the 

borrower’s discharge application and a 

disbursement of that loan or grant is 

made during the period from the date of 

the physician’s certification until the 

date the Secretary grants a discharge 

under this section, the processing of the 

borrower’s loan discharge request will 

be suspended until the borrower 

ensures that the full amount of the 

disbursement has been returned to the 

loan holder or to the Secretary, as 

applicable. 


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36600 Federal Register / Vol. 74, No. 140 / Thursday, July 23, 2009 / Proposed Rules 

(4) Conditions for reinstatement of a 

loan after a total and permanent 

disability discharge. (i) The Secretary 

reinstates a borrower’s obligation to 

repay a loan that was discharged in 

accordance with paragraph (b)(2)(ii) of 

this section if, within three years after 

the date the Secretary granted the 

discharge, the borrower— 

(A) Has annual earnings from 

employment that exceed 100 percent of 

the poverty line for a family of two, as 

determined in accordance with the 

Community Service Block Grant Act; 

(B) Receives a new TEACH Grant or 

a new loan under the Perkins, FFEL or 

Direct Loan programs, except for a FFEL 

or Direct Consolidation Loan that 

includes loans that were not discharged; 

or 

(C) Fails to ensure that the full 

amount of any disbursement of a title IV 

loan or TEACH Grant received prior to 

the discharge date that is made during 

the three-year period following the 

discharge date is returned to the loan 

holder or to the Secretary, as applicable, 

within 120 days of the disbursement 

date. 

(ii) If the borrower’s obligation to 

repay the loan is reinstated, the 

Secretary— 

(A) Notifies the borrower that the loan 

has been reinstated; and 

(B) Does not require the borrower to 

pay interest on the loan for the period 

from the date the loan was discharged 

until the date the loan was reinstated. 

(iii) The Secretary’s notification under 

paragraph (b)(4)(ii)(A) of this section 

will include— 

(A) The reason or reasons for the 

reinstatement; 

(B) An explanation that the first 

payment due date on the loan following 

reinstatement will be no earlier than 60 

days after the date of the notification of 

reinstatement; and 

(C) Information on how the borrower 

may contact the Secretary if the 

borrower has questions about the 

reinstatement or believes that the 

obligation to repay the loan was 

reinstated based on incorrect 

information. 

(5) Borrower’s responsibilities after a 

total and permanent disability 

discharge. During the three-year period 

described in paragraph (b)(4)(i) of this 

section, the borrower or, if applicable, 

the borrower’s representative must— 

(i) Promptly notify the Secretary of 

any changes in address or phone 

number; 

(ii) Promptly notify the Secretary if 

the borrower’s annual earnings from 

employment exceed the amount 

specified in paragraph (b)(4)(i)(A) of this 

section; and 

(iii) Provide the Secretary, upon 

request, with documentation of the 

borrower’s annual earnings from 

employment. 

(c) Discharge application process for 

veterans who are totally and 

permanently disabled as described in 

paragraph (2) of the definition of that 

term in 34 CFR 682.200(b). 

(1) Veteran’s application for 

discharge. To qualify for a discharge of 

a Direct Loan based on a total and 

permanent disability as described in 

paragraph (2) of the definition of that 

term in 34 CFR 682.200(b), a veteran 

must submit a discharge application to 

the Secretary on a form approved by the 

Secretary. The application must be 

accompanied by documentation from 

the Department of Veterans Affairs 

showing that the Department of 

Veterans Affairs has determined that the 

veteran is unemployable due to a 

service-connected disability. The 

Secretary does not require the veteran to 

provide any additional documentation 

related to the veteran’s disability. Upon 

receipt of the veteran’s application, the 

Secretary notifies the veteran that no 

payments are due on the loan while the 

Secretary determines the veteran’s 

eligibility for discharge. 

(2) Determination of eligibility. (i) If 

the Secretary determines, based on a 

review of the documentation from the 

Department of Veterans Affairs, that the 

veteran is totally and permanently 

disabled as described in paragraph (2) of 

the definition of that term in 

§ 682.200(b), the Secretary discharges 

the veteran’s obligation to make any 

further payments on the loan and 

returns to the person who made the 

payments on the loan any payments 

received on or after the effective date of 

the determination by the Department of 

Veterans Affairs that the veteran is 

unemployable due to a serviceconnected disability. 

(ii)(A) If the Secretary determines, 

based on a review of the documentation 

from the Department of Veterans Affairs, 

that the veteran is not totally and 

permanently disabled as described in 

paragraph (2) of the definition of that 

term in 34 CFR 682.200(b), the Secretary 

notifies the veteran that the application 

for a disability discharge has been 

denied, and that the loan is due and 

payable to the Secretary under the terms 

of the promissory note. 

(B) The Secretary notifies the veteran 

that he or she may reapply for a total 

and permanent disability discharge in 

accordance with the procedures 

described in paragraph (b) of this 

section if the documentation from the 

Department of Veterans Affairs does not 

indicate that the veteran is totally and 

permanently disabled as described in 

paragraph (2) of the definition of that 

term in 34 CFR 682.200(b), but indicates 

that the veteran may be totally and 

permanently disabled as described in 

paragraph (1) of the definition of that 

term. 

31. Section 685.217 is amended by: 

A. Revising paragraph (a). 

B. In paragraph (b), adding a 

definition of Educational service 

agency. 

C. Revising the introductory text of 

paragraph (c)(1). 

D. In paragraph (c)(1)(ii), adding the 

words ‘‘or educational service agency’s’’ 

immediately after the words ‘‘the 

school’s’’. 

E. In paragraph (c)(1)(iii), removing 

the words ‘‘Bureau of Indian Affairs 

(BIA)’’ and adding, in their place, the 

words ‘‘Bureau of Indian Education 

(BIE)’’, and removing the words ‘‘the 

BIA’’ and adding, in their place, the 

words ‘‘the BIE’’. 

F. In paragraph (c)(2), adding the 

words ‘‘or educational service agency’’ 

immediately after the words ‘‘If the 

school’’ at the beginning of the 

paragraph, and removing the words ‘‘the 

school failed’’ and adding, in their 

place, the word ‘‘fails’’. 

G. In paragraph (c)(3)(i)(A), removing 

the words ‘‘in which’’ and adding, in 

their place, the words ‘‘or educational 

service agency where’’. 

H. In paragraph (c)(3)(i)(B), removing 

the words ‘‘in which’’ and adding, in 

their place, the words ‘‘or educational 

service agency where’’. 

I. In paragraph (c)(3)(ii)(A), removing 

the word ‘‘in’’ and adding, in its place, 

the word ‘‘at’’, and adding the words ‘‘, 

or taught mathematics or science to 

secondary school students on a full-time 

basis at an eligible educational service 

agency,’’ immediately after the words 

‘‘secondary school’’. 

J. In paragraph (c)(3)(ii)(B), removing 

the word ‘‘in’’ the first time it appears 

and adding, in its place, the word ‘‘at’’, 

and adding the words ‘‘or educational 

service agency’’ immediately after the 

words ‘‘secondary school’’ the first time 

they appear. 

K. Adding a new paragraph (c)(3)(iii). 

L. In paragraph (c)(4)(i), removing the 

word ‘‘in’’ and adding, in its place, the 

word ‘‘at’’, and adding the words ‘‘or 

educational service agency’’ 

immediately after the words ‘‘secondary 

school’’ the first time they appear. 

M. In paragraph (c)(4)(ii)(A), removing 

the word ‘‘in’’ and adding, in its place, 

the word ‘‘at’’, and adding the words ‘‘, 

or taught mathematics or science on a 

full-time basis to secondary school 

students at an eligible educational 


srobinson on DSKHWCL6B1PROD with PROPOSALS2
Federal Register / Vol. 74, No. 140 / Thursday, July 23, 2009 / Proposed Rules 36601 

service agency,’’ immediately after the 

words ‘‘secondary school’’. 

N. In paragraph (c)(4)(ii)(B), removing 

the word ‘‘in’’ the first time it appears 

and adding, in its place, the word ‘‘at’’, 

and by adding the words ‘‘or 

educational service agency’’ 

immediately after the words ‘‘secondary 

school’’ the first time they appear. 

O. Adding a new paragraph (c)(4)(iii). 

P. Revising paragraph (c)(9). 

Q. Revising paragraph (c)(11). 

The revisions and additions read as 

follows: 

§ 685.217 Teacher loan forgiveness 

program. 

(a) General. (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 on 

the borrower’s subsidized and 

unsubsidized Federal Stafford Loans, 

Direct Subsidized Loans, Direct 

Unsubsidized Loans, and in certain 

cases, Federal Consolidation Loans or 

Direct Consolidation Loans. The 

forgiveness program is only available to 

a borrower who has no outstanding loan 

balance under the FFEL Program or the 

Direct Loan 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. 

(2) The borrower must have been 

employed at an eligible elementary or 

secondary school that serves lowincome families or by an educational 

service agency that serves low-income 

families as a full-time teacher for five 

consecutive complete academic years. 

For teaching service performed at an 

eligible elementary or secondary school, 

at least one of the academic years must 

have been after the 1997–1998 academic 

year. For teaching service performed by 

an employee of an eligible educational 

service agency, at least one of the five 

consecutive complete academic years 

must have been after the 2007–2008 

academic year. 

(3) All borrowers eligible for teacher 

loan forgiveness may receive loan 

forgiveness of up to a combined total of 

$5,000 on the borrower’s eligible FFEL 

and Direct Loan Program loans. 

(4) A borrower may receive loan 

forgiveness of up to a combined total of 

$17,500 on the borrower’s eligible FFEL 

and Direct Loan Program loans if the 

borrower was employed for five 

consecutive years— 

(i) At an eligible secondary school as 

a highly qualified mathematics or 

science teacher, or at an eligible 

educational service agency as a highly 

qualified teacher of mathematics or 

science to secondary school students; or 

(ii) At an eligible elementary or 

secondary school or educational service 

agency as a highly qualified special 

education teacher. 

(5) The loan for which the borrower 

is seeking forgiveness must have been 

made prior to the end of the borrower’s 

fifth year of qualifying teaching service. 

(b) * * * 

Educational service agency means a 

regional public multiservice agency 

authorized by State statute to develop, 

manage, and provide services or 

programs to local educational agencies, 

as defined in section 9101 of the 

Elementary and Secondary Education 

Act of 1965, as amended. 

* * * * * 

(c) * * * 

(1) A borrower who has been 

employed at an elementary or secondary 

school or an educational service agency 

as a full-time teacher for five 

consecutive complete academic years 

may obtain loan forgiveness under this 

program if the elementary or secondary 

school or educational service agency— 

* * * 

(3) * * * 

(iii) For teaching service performed by 

an employee of an eligible educational 

service agency, at least one of the five 

consecutive complete academic years 

must have been after the 2007–2008 

academic year. 

(4) * * * 

(iii) For teaching service performed by 

an employee of an eligible educational 

service agency, at least one of the five 

consecutive complete academic years 

must have been after the 2007–2008 

academic year. 

* * * * * 

(9) A borrower who was employed as 

a teacher at more than one qualifying 

school, at more than one qualifying 

educational service agency, or at 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. 

* * * * * 

(11) A borrower may not receive loan 

forgiveness for the same qualifying 

teaching service under this section if the 

borrower receives a benefit for the same 

teaching service under— 

(i) 34 CFR 682.216; 

(ii) Subtitle D of title I of the National 

and Community Service Act of 1990; 

(iii) 34 CFR 685.219; or 

(iv) Section 428K of the Act. 

* * * * * 

§ 685.220 [Amended] 

32. Section 685.220 is amended by: 

A. In paragraph (d)(1)(i)(B)(3), adding 

the words ‘‘or the no accrual of interest 

benefit for active duty service’’ 

immediately after the word ‘‘Program’’. 

B. In paragraph (d)(1)(i)(B)(4), adding 

the words ‘‘or an income-based 

repayment plan’’ immediately after the 

words ‘‘income contingent repayment 

plan’’. 

C. In paragraph (d)(1)(i)(B)(5), adding 

the words ‘‘or the no accrual of interest 

benefit for active duty service’’ 

immediately after the word ‘‘Program’’. 

33. Section 685.221 is amended by: 

A. Revising paragraph (a)(4). 

B. In paragraph (b)(1), removing the 

words ‘‘Except as provided under 

paragraph (b)(2) of this section, the’’ in 

the second sentence and adding, in their 

place, the word ‘‘The’’. 

C. In paragraph (b)(2)(i), removing the 

word ‘‘The’’ at the beginning of the 

sentence and adding, in its place, the 

words ‘‘Except for borrowers provided 

for in paragraph (b)(2)(ii) of this section, 

the’’. 

D. Redesignating paragraphs (b)(2)(ii) 

and (b)(2)(iii) as paragraphs (b)(2)(iii) 

and (b)(2)(iv), respectively. 

E. Adding a new paragraph (b)(2)(ii). 

F. In newly redesignated paragraph 

(b)(2)(iii), removing the words ‘‘or 

(b)(2)(i)’’ and adding, in their place, the 

words ‘‘, (b)(2)(i), or (b)(2)(ii)’’. 

G. In newly redesignated paragraph 

(b)(2)(iv), removing the words ‘‘or 

(b)(2)(i)’’ and adding, in their place, the 

words ‘‘, (b)(2)(i), or (b)(2)(ii)’’. 

The revision and addition read as 

follows: 

§ 685.221 Income-based repayment plan. 

(a) * * * 

(4) Partial financial hardship means a 

circumstance in which— 

(i) For an unmarried borrower or a 

married borrower who files an 

individual Federal tax return, the 

annual amount due on all of the 

borrower’s eligible loans, as calculated 

under a standard repayment plan based 

on a 10-year repayment period, using 

the greater of the amount due at the time 

the borrower initially entered 

repayment or at the time the borrower 

elects the income-based repayment 

plan, exceeds 15 percent of the 

difference between the borrower’s AGI 

and 150 percent of the poverty guideline 

for the borrower’s family size; or 

(ii) For a married borrower who files 

a joint Federal tax return with his or her 

spouse, the annual amount due on all of 

the borrower’s eligible loans and, if 


srobinson on DSKHWCL6B1PROD with PROPOSALS2
36602 Federal Register / Vol. 74, No. 140 / Thursday, July 23, 2009 / Proposed Rules 

applicable, the spouse’s eligible loans, 

as calculated under a standard 

repayment plan based on a 10-year 

repayment period, using the greater of 

the amount due at the time the loans 

initially entered repayment or at the 

time the borrower or spouse elects the 

income-based repayment plan, exceeds 

15 percent of the difference between the 

borrower’s and spouse’s AGI, and 150 

percent of the poverty guideline for the 

borrower’s family size. 

(b) * * * 

(2) * * * 

(ii) Both the borrower and borrower’s 

spouse have eligible loans and filed a 

joint Federal tax return, in which case 

the Secretary determines— 

(A) Each borrower’s percentage of the 

couple’s total eligible loan debt; 

(B) The adjusted monthly payment for 

each borrower by multiplying the 

calculated payment by the percentage 

determined in paragraph (b)(2)(ii)(A) of 

this section; and 

(C) If the borrower’s loans are held by 

multiple holders, the borrower’s 

adjusted monthly Direct Loan payment 

by multiplying the payment determined 

in paragraph (b)(2)(ii)(B) of this section 

by the percentage of the outstanding 

principal amount of eligible loans that 

are Direct Loans; 

* * * * * 

[FR Doc. E9–16952 Filed 7–22–09; 8:45 am] 

BILLING CODE 4000–01–P 


srobinson on DSKHWCL6B1PROD with PROPOSALS2