37432 Federal Register / Vol. 74, No. 143 / Tuesday, July 28, 2009 / Proposed Rules 

DEPARTMENT OF EDUCATION 

[Docket ID ED–2009–OPE–0003] 

34 CFR Parts 601, 668, 674, 682, and 

685 

RIN 1840–AC95 

Institutions and Lender Requirements 

Relating to Education Loans, Student 

Assistance General Provisions, 

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 

establish new regulations in 34 CFR part 

601, Institutions and Lender 

Requirements Relating to Education 

Loans, to implement requirements 

relating to education loans that were 

added to the Higher Education Act of 

1965, as amended (HEA) by the Higher 

Education Opportunity Act of 2008 

(HEOA). The Secretary also proposes to 

amend the regulations for Student 

Assistance General Provisions in part 

668, the Federal Perkins Loan (Perkins 

Loan) Program in part 674, the Federal 

Family Education Loan (FFEL) Program 

in part 682, and the William D. Ford 

Federal Direct Loan (Direct Loan) 

Program in part 685 to implement 

certain provisions of the HEA that 

involve school-based loan issues and 

that were affected by the statutory 

changes made to the HEA by the HEOA. 

DATES: We must receive your comments 

on or before August 27, 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 Brian 

Smith, 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: 

Marty Guthrie, U.S. Department of 

Education, 1990 K Street, NW., Room 

8042, Washington, DC 20006–8502. 

Telephone: (202) 219–7031 or via the 

Internet at: Marty.Guthrie@ed.gov, or 

Gail McLarnon, U.S. Department of 

Education, 1990 K Street, NW., room 

8026, Washington, DC 20006–8502. 

Telephone: (202) 219–7048 or via the 

Internet at: Gail.McLarnon@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 one of the contact persons 

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 27, 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 part 

674 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—Loans—Schoolbased 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 notice of proposed 

rulemaking that we are publishing as a 

result of the negotiations of Team I— 

Loans—Lender General Loan 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 the Team I notice 

of proposed rulemaking. Comments on 

all other provisions in this section 

should be submitted in the docket 

(Docket ID ED–2009–OPE–0003) for this 

NPRM. 

In addition, in this NPRM we have 

included a proposed change to 

§ 668.184(a)(1). As amended by the 

HEOA, section 498(k) of the HEA states 

that an institution that conducts a teachout under certain circumstances is not 

responsible for any liabilities of the 

closed institution. As a result of this 

statutory change, the Department 

intends to propose, in a separate notice 

of proposed rulemaking (Docket ID ED– 

2009–OPE–0005, an amendment to 34 

CFR 600.32(d) to provide that the 

default rate of an institution that 

establishes an additional location at the 

site of a closed institution for which it 

conducted a teach-out would not be 

affected in any way by the closed 

institution’s cohort default rate. In light 

of this statutory change and our 

intended amendment to 34 CFR 

600.32(d), the Department also proposes 

to amend § 668.184(a)(1) to crossreference 34 CFR 600.32(d) and to 

include a similar cross-reference to 34 

CFR 600.32(d) in new § 668.203(a)(1). 

We have included the proposed 

amendment to § 668.184(a)(1) and 

proposed § 668.203(a)(1) in this NPRM 


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Federal Register / Vol. 74, No. 143 / Tuesday, July 28, 2009 / Proposed Rules 37433 

1As discussed elsewhere in this preamble, Team 

I—Loans—Lender General Loan Issues was 

responsible for negotiating the following provisions, 

which appear in this NPRM: 34 CFR 601.2 

(definitions of the terms lender and private 

education loan), 34 CFR 601.40 (Disclosure and 

reporting requirements for lenders), and 34 CFR 

674.51 (definitions of the terms substantial gainful 

activity and total and permanent disability). 

to enable the public to view all changes 

to these sections in context. These 

proposed changes will also be included 

and discussed in a separate notice of 

proposed rulemaking based on the 

negotiations of the negotiating 

rulemaking committee responsible for 

regulatory issues involving Title IV 

general provisions. Accordingly, we ask 

that when submitting any comments on 

the proposed changes to §§ 600.32(d) or 

the proposed cross-references to that 

section in §§ 668.184(a)(1) and 

668.203(a)(1), you submit any comments 

in the docket for that notice of proposed 

rulemaking (Docket ID ED–2009–OPE– 

0005). 

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 8031, 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 one 

of the persons 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 financial 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 

information on the negotiated 

rulemaking process can be found at: 

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

hea08/index.html. 

On December 31, 2008, the 

Department published a notice in the 

Federal Register (73 FR 80314) 

announcing our intent to establish five 

negotiated rulemaking committees to 

prepare proposed regulations. One 

committee would focus on issues 

related to lender and general loan issues 

(Team I—Loans—Lender General Loan 

Issues). A second committee would 

focus on school-based loan issues (Team 

II—Loans—School-based Loan Issues). 

A third committee would focus on 

accreditation (Team III—Accreditation). 

A fourth committee would focus on 

discretionary grants (Team IV— 

Discretionary Grants). A fifth committee 

would focus on general and non-loan 

programmatic issues (Team V—General 

and Non-Loan Programmatic Issues). 

The notice requested nominations of 

individuals for membership on the 

committees who could represent the 

interests of key stakeholder 

constituencies on each committee. 

Team II—Loans—School-based Loan 

Issues (Team II) met to develop 

proposed regulations during the months 

of March 2009, April 2009, and May 

2009. This NPRM resulted primarily 

from the work of Team II and, in a 

couple of instances where the subject 

matter of the proposed regulations 

overlapped, the work of Team I— 

Loans—Lender General Loan Issues 

(Team I).1 This NPRM proposes 

regulations relating to the 

administration of the Federal student 

loan programs. 

The Department developed a list of 

proposed regulatory provisions based on 

the provisions contained in the HEOA 

and 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 Texas 

Christian University in Fort Worth, 

Texas; 

• September 29, 2008, at the 

University of Rhode Island, in 

Providence, Rhode Island; 

• October 2, 2008, at 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; and 

• October 15, 2008, at Cuyahoga 

Community College, in Cleveland, Ohio. 

In addition, the Department accepted 

written comments on possible 

regulatory provisions 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. 

Staff within the Department also 

identified issues for discussion and 

negotiation. 

At its first meeting, Team II reached 

agreement on its protocols. These 

protocols provided that for each 

community of interest identified as 

having interests that were significantly 

affected by the subject matter of the 

negotiations, the non-Federal 

negotiators would represent the 

organizations listed after their names in 

the protocols in the negotiated 

rulemaking process. 

Team II included the following 

members: 

• Angela Peoples, United States 

Student Association, and Rich Williams 

(alternate), State Public Interest 

Research Groups representing students. 

• Richard Heath, Anne Arundel 

Community College, and Pat Hurley 

(alternate), Glendale Community 

College representing 2-year public 

institutions. 

• Roberta Johnson, Iowa State 

University, and Mr. Kim Jenerette 

(alternate), University of South 

Carolina-Upstate representing 4-year 

public institutions. 

• Elizabeth Hicks, Columbia 

University, and Nancy Hoover 

(alternate), Denison University 

representing private, nonprofit 

institutions. 

• Mary Dorrell, Career Education 

Corporation, and Nancy Broff 

(alternate), Dickstein Shapiro LLP 

representing private, for-profit 

institutions. 

• Thelma Ross, Lincoln University, 

and Helga Greenfield (alternate), 

Spelman College representing minorityserving institutions. 

• Justin Draeger, National Association 

of Student Financial Aid 

Administrators, and Charles ‘‘Buddy’’ 

Mayfield (alternate), Missouri Valley 

College representing financial aid 

administrators. 

• Virginia Layton, Miami University, 

and Anne Gross (alternate), National 

Association of College and University 


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37434 Federal Register / Vol. 74, No. 143 / Tuesday, July 28, 2009 / Proposed Rules 

Business Officers representing business 

officers. 

• Mary Lyn Hammer, Champion 

College Solutions, and James B. Parker 

(alternate), Panhandle Plains Student 

Loan Center representing institutional 

and loan servicers. 

• Scot Williams, EdFund/CSAC, and 

Jacqueline Fairbairn (alternate), Great 

Lakes Higher Education Guaranty Corp. 

representing guaranty agencies. 

• Jackie Ito-Woo, University of 

California, and Beth Stack (alternate), 

University of Pittsburgh representing 

institutions participating in the Perkins 

Loan Program. 

• J.D. LaRock, Massachusetts Office of 

Higher Education representing States. 

• Gail McLarnon, U.S. Department of 

Education representing the Federal 

Government. 

These protocols also provided that, 

unless agreed to otherwise, consensus 

on all of the amendments in the 

proposed regulations had to be achieved 

for consensus to be reached on the 

entire NPRM. Consensus means that 

there must be no dissent by any 

member. 

During the meetings, Team II 

reviewed and discussed drafts of 

proposed regulations. At the final 

meeting in May 2009, Team II reached 

consensus on all of the proposed 

regulations in this document except: 

• The proposed definitions of the 

terms lender and private education loan 

in 34 CFR 601.2 (Definitions). 

• The proposed requirements in 34 

CFR 601.40 (Disclosure and reporting 

requirements for lenders). 

• The proposed definitions of the 

terms substantial gainful employment 

and total and permanent disability in 34 

CFR 674.51 (Special Definitions). 

These proposed regulatory provisions 

were assigned to Team I for negotiated 

rulemaking purposes because the 

substance of the provisions fell within 

the purview of Team I’s expertise. Team 

I reached consensus on all of its 

proposed regulations, including the 

provisions identified in this paragraph, 

in its final meeting in May 2009. 

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 34 CFR 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 notice of 

proposed rulemaking 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 notice of proposed 

rulemaking published as a result of the 

other team’s negotiations. 

More information on the work of 

Team II can be found at http:// 

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

hearulemaking/2009/loans-schoolbased.html and more information on the 

work of Team I can be found at 

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

hearulemaking/2009/loans-lender.html. 

Summary of Proposed Changes 

These proposed regulations would 

implement the school-based loan 

provisions of the HEA, as amended by 

the HEOA. These provisions include: 

• An increase in the period used to 

calculate the cohort default rate (CDR) 

from 2 to 3 years effective for CDRs 

calculated for fiscal year 2009 and 

subsequent years, the requirement that 

an institution whose CDR is greater than 

or equal to 30 percent for any fiscal year 

establish a default prevention plan, and 

an increase from 25 to 30 percent in the 

threshold default that would render an 

institution ineligible to participate in 

the Pell, FFEL, and Direct Loan 

Programs (see section 435(a) and (m) of 

the HEA); 

• An expansion of exit counseling 

requirements in the title IV, HEA loan 

programs (see section 485(b)(1)(A) of the 

HEA); 

• An expansion of entrance 

counseling requirements in the FFEL 

and Direct Loan Programs (see section 

485(l) of the HEA); 

• Additions to the conditions an 

institution must agree to in its program 

participation agreement with the 

Secretary of Education (the agreement 

between the institution and the 

Department that enables the institution 

to participate in the loan programs 

under Title IV of the HEA). These 

conditions include: (1) A requirement 

that an institution develop, publish, 

administer and enforce a code of 

conduct with respect to its FFEL 

Program activities (see section 

487(a)(25) of the HEA); (2) a 

requirement that an institution compile, 

maintain and make available to students 

and their families a list of its preferred 

lenders if it enters into any preferred 

lender arrangement (see section 

487(a)(27) of the HEA); and (3) a 

requirement that an institution, upon 

the request of an applicant of a private 

education loan, provide the applicant 

with the private education loan 

certification form developed by the 

Secretary (see section 487(a)(28) of the 

HEA); 

• The addition of education loan 

borrower disclosures by institutions of 

higher education, and institutionaffiliated organizations, including 

definitions (see sections 151 through 

155, 487(a) and 487(h) of the HEA); 

• The addition of borrower 

disclosures by covered institutions and 

institution-affiliated organizations that 

participate in a preferred lender 

arrangement (see section 153(c) of the 

HEA); 

• The addition of reporting 

requirements for covered institutions 

and institution-affiliated organizations 

(see section 153(c)(2) of the HEA); 

• Dissemination of information to 

prospective and enrolled students 

regarding the terms and conditions of 

title IV, HEA loans (see section 485(a) of 

the HEA); 

• Disclosure to the Secretary of any 

reimbursements made to employees of 

an institution of higher education for 

service on advisory boards (see section 

485(m) of the HEA); and 

• An expansion of cancellation 

benefits for Perkins Loan borrowers, 

including cancellation benefits for 

teachers in an educational service 

agency; staff members in a prekindergarten or childcare program; 

attorneys employed in a Federal Public 

Defender Organization or community 

Defender Organization; fire fighters, 

faculty members of a Tribal College or 

University, librarians with a master’s 

degree employed in an elementary or 

secondary school or in a public library 

that serves one or more schools eligible 

for funding under title I of the 

Elementary and Secondary Education 

Act of 1965, as amended; and speech 

pathologists with a master’s degree who 


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Federal Register / Vol. 74, No. 143 / Tuesday, July 28, 2009 / Proposed Rules 37435 

work exclusively with title I-eligible 

schools (see section 465(a) of the HEA). 

Significant Proposed Regulations 

We discuss substantive issues under 

the sections of the regulations to which 

they pertain. Generally, we do not 

address regulatory changes that are 

technical or otherwise minor in effect. 

Part 601—Institution and Lender 

Requirements Relating to Education 

Loans 

Subpart A—General 

Scope (§ 601.1) 

Statute: Sections 120 and 1021(b) of 

the HEOA added a new part E to title 

I of the HEA, titled Lender and 

Institution Requirements Relating to 

Education Loans. Part E, consisting of 

new sections 151 through 155, requires 

significant new disclosures to borrowers 

of education loans and related 

institutional and lender reporting to the 

Department. The required borrower 

disclosures apply to both Title IV 

student loans and private education 

loans, and are required of institutions of 

higher education, institution-affiliated 

organizations, and lenders. 

Current Regulations: None. 

Proposed Regulations: We propose to 

add a new part 601 to title 34 of the 

Code of Federal Regulations to 

implement the statutory provisions of 

sections 151 through 155 of the HEA. 

Proposed § 601.1 would briefly 

summarize the content of the new part 

601. 

Reasons: Proposed § 601.1 would be 

added to implement part E of title I of 

the HEA, which was added by the 

HEOA. 

Definitions (§ 601.2) 

Statute: Section 120 of the HEOA 

added section 151 to the HEA. Section 

151 of the HEA sets forth the definitions 

for terms used in part E of title I of the 

HEA. These terms include covered 

institution, education loan, institutionaffiliated organization, preferred lender 

arrangement, and private education 

loan. 

The term covered institution is 

defined as an institution of higher 

education, as defined in section 102 of 

the HEA, that receives any Federal 

funding or assistance. Thus, the term 

covered institution includes any 

institution of higher education that 

receives any type of Federal funding or 

assistance, not just any institution of 

higher education that receives Title IV, 

HEA funding or assistance. 

The term institution-affiliated 

organization is defined as any 

organization directly or indirectly 

related to a covered institution, 

including alumni organizations, 

foundations, or social organizations, 

that recommends, promotes, or endorses 

education loans for students attending 

the covered institution. 

The term education loan is defined as 

a FFEL Loan, a Direct Loan, or a private 

education loan. Section 151(9) of the 

HEA defines the term private education 

loan as that term is defined in section 

140 of the Truth in Lending Act (TILA) 

(15 U.S.C. 1631). Under this definition, 

a private education loan is a non-Title 

IV loan provided by a private 

educational lender to a borrower 

expressly for postsecondary educational 

expenses, and that is not an extension 

of credit under an open-end consumer 

credit plan, or secured by real property 

or a dwelling. 

The term preferred lender 

arrangement is defined as an 

arrangement or agreement between a 

lender and a covered institution or an 

institution-affiliated organization, under 

which the lender provides or otherwise 

issues education loans to the covered 

institution’s students or their families, 

and that relates to the covered 

institution or institution-affiliated 

organization recommending, promoting, 

or endorsing the lender’s education loan 

products. The term preferred lender 

arrangement does not include 

arrangements or agreements with 

respect to Direct Loan Program loans or 

loans that originate through the PLUS 

Loan auction pilot program, authorized 

under section 499(b) of the HEA. 

Section 151 of the HEA also provides 

definitions for the terms agent, eligible 

lender, lender, and officer as those terms 

are used in title I, part E of the HEA. 

Section 151(4) of the HEA states that 

the term eligible lender has the same 

meaning as provided in section 435(d) 

of the HEA. The term lender is defined 

in section 151(6) of the HEA as an 

eligible lender for Federal Family 

Education Loan (FFEL) Program loans, 

the Department of Education for 

William D. Ford Direct Loans, and a 

private educational lender as that term 

is defined in section 140 of the TILA (15 

U.S.C. 1631) for private education loans. 

The term lender includes any other 

person engaged in the business of 

securing, making, or extending 

educational loans on behalf of the 

lender. 

The term agent is defined as an officer 

or employee of a covered institution or 

an institution-affiliated organization. 

The definition of the term officer 

includes a director or trustee of a 

covered institution or institutionaffiliated organization, if such 

individual is treated as an employee of 

the covered institution or the 

institution-affiliated organization. 

Current Regulations: None. 

Proposed Regulations: Proposed 

§ 601.2(b) would set forth the 

definitions for the terms described in 

the preceding Statute section that apply 

to new part 601. With one exception, 

the regulatory definitions do not make 

substantive changes to the 

corresponding statutory definitions. 

The one exception is for the term 

preferred lender arrangement. The 

definition for preferred lender 

arrangement in proposed § 601.2(b) 

would track the statutory definition in 

section 151(8) of the HEA, except that 

it would specify that an arrangement or 

agreement does not exist for private 

education loans that a covered 

institution makes to its own students, as 

long as the private education loan is 

funded by the covered institution’s own 

funds; is funded by donor-directed 

contributions; is made under title VII or 

title VIII of the Public Service Health 

Act; or is made under an institutional 

payment plan of the covered institution. 

Reasons: The proposed regulations in 

§ 601.2(b) were negotiated by two teams 

during the negotiated rulemaking 

process. Team I, which covered general 

and lender loan issues, negotiated the 

definitions for the terms eligible lender, 

lender, and private education loan. 

Team II, which covered school-based 

loan issues, negotiated the remaining 

definitions. 

The statutory definitions for the terms 

that would be used in part 601 are 

detailed and specific. Therefore, except 

as noted for the definition of preferred 

lender arrangement, the Department has 

declined to expand on the statutory 

definitions in the regulations. 

The proposed regulations negotiated 

by Team I reflect the statutory 

definitions for the terms lender and 

private education loan. The definition 

of lender, as reflected in the proposed 

regulations, would simply provide a 

cross reference to the definition of that 

term in current § 682.200(b). The 

definition of private education loan 

would mirror the definition provided 

for private education loan in section 140 

of the TILA (15 U.S.C. 1631). Use of this 

TILA definition is required by section 

151(9) of the HEA. 

The Team I non-Federal negotiators 

raised some concern over the cross 

references in our proposed regulations 

to the requirements in the TILA. 

Specifically, there was discussion about 

the regulations implementing the TILA, 

which will not be published in final 

form before the conclusion of the 

negotiation process for these 

regulations. The Department made clear 


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37436 Federal Register / Vol. 74, No. 143 / Tuesday, July 28, 2009 / Proposed Rules 

that, in terms of the definition of private 

education loan, section 151(9) of the 

HEA requires the Department to use the 

TILA definition. Under this 

requirement, the Department has no 

authority to negotiate that definition for 

purposes of these proposed regulations. 

For Team II, discussions regarding the 

proposed definitions focused on two 

terms: Agent and preferred lender 

arrangement. 

The meaning of the term agent came 

up as part of the discussion around the 

code of conduct requirements in 

proposed § 601.21. This discussion is 

summarized in the code of conduct 

section of the preamble. 

The meaning of the term preferred 

lender arrangement came up frequently 

during the negotiated rulemaking 

sessions, and is discussed in the 

following paragraphs. 

Several of the Team II non-Federal 

negotiators argued that a preferred 

lender arrangement can exist only if 

there is a written or verbal agreement 

between a lender and a covered 

institution or institution-affiliated 

organization. One of the non-Federal 

negotiators submitted an alternative 

definition for preferred lender 

arrangement that would have built this 

written or verbal agreement requirement 

into the definition, only allowing 

exceptions to this requirement in cases 

when a course of conduct evidencing 

intention by the parties to create an 

arrangement exists. 

The Department declined to adopt 

this proposed alternative definition 

because the statutory definition of 

preferred lender arrangement does not 

address how the arrangement comes 

about, nor does it specify that a written 

or verbal agreement must exist. Instead, 

section 151(8) of the HEA provides that 

two conditions must be met for a 

preferred lender arrangement to exist 

between a lender and a covered 

institution or an institution-affiliated 

organization. These conditions are 

that— 

(1) A lender provides or issues 

education loans to students, or the 

families of such students, attending a 

covered institution; and 

(2) The covered institution or an 

institution-affiliated organization 

recommends, promotes, or endorses the 

education loan products of the lender. 

If both of those conditions are met, a 

preferred lender arrangement exists, 

whether or not the covered institution 

and the lender entered into a formal 

agreement. 

Several non-Federal negotiators asked 

whether the Department viewed 

institutional loans—that is, loans made 

directly by a covered institution to its 

own students—as being covered by the 

term preferred lender arrangement. 

These non-Federal negotiators identified 

several preferred lender arrangement 

requirements in section 487(e) of the 

HEA (and proposed § 601.21) that they 

believed would be impossible or 

impractical for a covered institution to 

comply with if the preferred lender 

arrangement requirements applied to 

institutional loans (i.e., loans made 

directly by a covered institution to its 

own students). For example, nonFederal negotiators noted that a school, 

in its capacity as a lender, could be 

prohibited from paying its own 

employees. They argued that, if we 

applied the code of conduct 

requirement that a lender not provide 

gifts to employees of a covered 

institution’s financial aid office to a 

covered institution that makes loans 

directly to their students (and, therefore, 

falls within the definition of ‘‘lender’’), 

these covered institutions would be 

prohibited from paying the employees 

in its financial aid office. 

To avoid this unintended 

consequence, some of the Team II nonFederal negotiators recommended that 

the Department exempt institutional 

loans from the definition of private 

education loan. As noted earlier in this 

preamble, the definition of the term 

private education loan is established by 

the TILA and any regulations the 

Federal Reserve issues in connection 

with this statutory definition. The 

Department has no authority to alter the 

statutory definition of private education 

loan. 

Furthermore, we do not agree that the 

Federal Reserve should interpret, 

through its regulations implementing 

TILA, that the term private education 

loan does not include institutional 

loans. If the Federal Reserve did so, 

such loans would not only be exempt 

from the preferred lender arrangement 

requirements in part E, title I of the 

HEA, and proposed 34 CFR part 601, 

but they would also be exempt from 

certain TILA requirements that the 

Department believes provide beneficial 

protections to student borrowers (such 

as requiring private educational lenders 

to inform a potential private education 

loan borrower that the borrower may 

qualify for title IV, HEA student 

financial assistance in addition to or in 

lieu of the private education loan, as 

required under section 128(e)(1)(M) of 

the TILA). 

Recognizing that the Department 

cannot modify the definition of private 

education loan, non-Federal negotiators 

asked that institutional loans, and other 

Federal Loans, be excluded from the 

definition of preferred lender 

arrangement. As an alternative, if that 

approach could not be accepted, several 

non-Federal negotiators offered a 

proposal in which certain types of 

institutional loans, with certain types of 

terms and conditions, would be exempt 

from some or all of the requirements 

governing loans made pursuant to a 

preferred lender arrangement. 

After considering the proposals from 

the non-Federal negotiators, the 

Department declined to adopt this 

approach. The term preferred lender 

arrangement defines a relationship 

between two parties regarding loans 

offered to student borrowers and their 

families. Nothing in the statutory 

definition of the term suggests that the 

relationship is contingent on the terms 

and conditions of the loans being 

provided. The relationship is defined by 

the actions of the two parties—that is, 

the lender provides or issues education 

loans and the covered institution or 

institution-affiliated organization 

recommends, promotes or endorses the 

education loan products of the lender. 

The Department believes that these 

actions must be taken by at least two 

separate parties for a preferred lender 

arrangement to exist. The definition of 

the term preferred lender arrangement 

refers to ‘‘an arrangement or agreement 

between a lender and a covered 

institution or institution-affiliated 

organization.’’ Implicit in the definition 

is the understanding that the lender and 

the covered institution are not one and 

the same entity. 

The Department responded to the 

non-Federal negotiators by proposing to 

expand the regulatory definition for 

preferred lender arrangement in 

proposed § 601.2(b) by specifying that 

such an arrangement does not exist for 

a private education loan made by a 

covered institution to the covered 

institution’s students. 

The proposed definition for preferred 

lender arrangement also would clarify 

that a preferred lender arrangement does 

would not exist for a private education 

loan made by a covered institution to 

the covered institution’s students, but 

only if the covered institution made the 

loan using its own funds. 

Some non-Federal negotiators 

requested clarification of the phrase 

‘‘own funds’’ as used in the proposed 

definition of preferred lender 

arrangement. For example, they 

presented a scenario in which a lender 

provides funds to a covered institution, 

the covered institution uses the funds to 

make loans to its students, and then the 

covered institution sells the loans to the 

lender (possibly immediately after the 

loan is made). These non-Federal 

negotiators requested that funds 


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2 GEN–08–06 was issued by the Department on 

May 9, 2008, and can be accessed on http:// 

www.ifap.ed.gov/dpcletters/GEN0806.html. 

provided under these conditions be 

considered the covered institution’s 

‘‘own funds’’ for purposes of the 

proposed definition of preferred lender 

arrangement. The Department strongly 

disagreed with this suggestion. In the 

current context, the Department does 

not consider funds obtained by covered 

institutions under this or similar 

scenarios in which loans are sold 

shortly after they are made to be the 

covered institution’s ‘‘own funds’’ 

because the covered institution is 

merely acting as a pass-through for the 

lender’s funds in these cases. The 

Department believes that exempting 

loans made under these conditions from 

the preferred lender arrangement 

requirements would open the door to 

abuse, potentially creating a loophole 

that covered institutions might use to 

evade the preferred lender arrangement 

requirements. The Department has long 

been concerned about this type of 

arrangement involving schools which 

are lenders in the FFEL Program but 

which use funds provided by FFEL 

lenders to make the loans and then 

immediately sell the loans. The 

Department believes that such 

arrangements could be a loophole for 

institutions to avoid the limitation on 

improper inducements in the FFEL 

Program. Moreover, these arrangements 

may be deceptive to students who 

believe they are making an arrangement 

with the institution but are quickly 

dealing with a different lender. The 

Department does not want to repeat 

those problems in the area of preferred 

lender arrangements. As the 

Department’s negotiator emphasized to 

the negotiated rulemaking committee, 

the Department intends for the proposed 

definition of preferred lender 

arrangement to be applied in such a 

manner as to avoid the masking of the 

true source of loan funds. 

Team II’s discussions concerning the 

definition of the term preferred lender 

arrangement also focused on the 

requirements surrounding preferred 

lender lists under section 487(h)of the 

HEA (and proposed § 668.14(b)(28)). 

Proposed § 668.14 of the program 

participation agreement regulations, 

which would implement changes made 

to section 487(h) of the HEA by section 

493(c) of the HEOA, would specify that 

for any year in which an institution has 

a preferred lender arrangement, the 

institution must compile, maintain, and 

make available for students attending 

the institution, and their families, a 

preferred lender list. The non-Federal 

negotiators asked for clarification from 

the Department regarding what 

constitutes a preferred lender list. 

The Department referred non-Federal 

negotiators to Dear Colleague Letter 

GEN–08–06 2 in which we stated that if 

a school provides to its students a 

neutral, comprehensive list of lenders 

who have made loans to students at the 

covered institution within a set period 

of time, such as three to five years, and 

the school provides a clear statement on 

the list that a borrower can choose to 

use any FFEL lender, not just the 

lenders identified on the list, the list is 

not a preferred lender list. 

The Department also clarified for the 

non-Federal negotiators that if a covered 

institution provides a list of lenders to 

students, and the list includes some 

lenders who lend to students at the 

school but not others, the Department 

views the covered institution as 

inherently showing a preference for the 

lenders it includes on the list. In this 

case, therefore, the covered institution 

would be considered to have created a 

preferred lender list. 

If a covered institution includes 

certain lenders on the list and leaves 

other lenders off the list, the Department 

views the covered institution as 

recommending, promoting, or endorsing 

the lenders on the list over the lenders 

that it has chosen to leave off the list 

regardless of whether the covered 

institution includes a disclaimer on the 

list, asserting that the covered 

institution does not recommend, 

promote, or endorse the lenders on its 

list. Unless the list is a neutral, 

comprehensive list of lenders who lent 

to students at the school, the list serves 

to recommend, promote, or endorse the 

lenders on the list, despite whatever 

disclaimers the school may attach to the 

list. 

Subpart B—Loan Information To Be 

Disclosed by Covered Institutions and 

Institution-Affiliated Organizations 

Preferred Lender Arrangement 

Disclosures (§ 601.10) 

Statute: Section 152(a)(1)(A)(i) of the 

HEA, as amended by section 120 of the 

HEOA, requires a covered institution or 

an institution-affiliated organization 

with a preferred lender arrangement to 

provide on its Web site and in all 

informational materials including 

publications, mailings, electronic 

messages, or materials that are 

distributed to current or prospective 

students and that describe or discuss 

education loans, the following 

disclosures: 

• The maximum amount of Title IV 

grant and loan aid available to students 

in an easy to understand format. 

• Information on the model 

disclosure form for each FFEL loan 

offered pursuant to a preferred lender 

arrangement, to be determined by the 

Department of Education in 

coordination with the Board of 

Governors of the Federal Reserve 

System. 

• A statement that the institution is 

required to process documents 

necessary to obtain a FFEL loan from 

any eligible lender the student selects. 

Section 152(a)(1)(A)(ii) of the HEA 

also requires a covered institution or 

institution-affiliated organization’s Web 

site or other information materials, 

including publications, electronic 

messages or materials, that describe or 

discuss private education loans made to 

students or the families of such students 

pursuant to a preferred lender 

arrangement to provide the disclosures 

specified in the TILA. A covered 

institution must provide the information 

required by section 128(e)(11) of the 

TILA and an institution-affiliated 

organization must provide the 

information required by section 

128(e)(1) of the TILA. 

Section 493(c) of the HEOA amended 

section 487 of the HEA by adding a new 

subsection (h). Section 487(h)(1)(A) of 

the HEA requires that if a covered 

institution compiles, maintains, and 

makes available a preferred lender list, 

the institution must clearly and fully 

disclose on the preferred lender list (a) 

at least the information required to be 

disclosed under Section 153(a)(2)(A) of 

the HEA; (b) why the institution 

participates in a preferred lender 

arrangement with each lender on the 

preferred lender list, particularly with 

respect to terms and conditions or 

provisions favorable to the borrower; 

and (c) that the students attending the 

institution, or the families of such 

students, do not have to borrow from a 

lender on the preferred lender list. 

Section 487(h)(1)(B) of the HEA 

requires covered institutions to ensure, 

through the use of the list of lender 

affiliates provided by the Secretary 

under Section 487(h)(2) of the HEA, that 

there are not less than three FFEL 

lenders that are not affiliates of each 

other included on the preferred lender 

list and, for institutions that 

recommend, promote, or endorse 

private education loans, that there are 

not less than two lenders of private 

education loans that are not affiliates of 

each other included on the preferred 

lender list. 

The preferred lender list must 

specifically indicate, for each listed 


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lender, whether the lender is or is not 

an affiliate of another lender on the 

preferred lender list; and if a lender is 

an affiliate of another lender on the 

preferred lender list, must describe the 

details of such affiliation. 

Section 487(h)(1)(C) of the HEA 

requires institutions to prominently 

disclose the method and criteria used by 

the institution in selecting lenders with 

which to participate in preferred lender 

arrangements to ensure that such 

lenders are selected on the basis of the 

best interests of the borrowers. These 

criteria include payment of origination 

or other fees on behalf of the borrower; 

highly competitive interest rates, or 

other terms and conditions or 

provisions of Title IV, HEA program 

loans or private education loans; highquality servicing; or additional benefits 

beyond the standard terms and 

conditions or provisions for such loans. 

Section 487(h)(1)(D) of the HEA 

requires institutions to exercise a duty 

of care and a duty of loyalty to compile 

the preferred lender list without 

prejudice and for the sole benefit of the 

students attending the institution, or the 

families of such students. 

Section 487(h)(1)(E) of the HEA 

requires institutions to not deny or 

otherwise impede the borrower’s choice 

of a lender or cause unnecessary delay 

in certification of a Title IV loan for 

those borrowers who choose a lender 

that is not included on the preferred 

lender list. 

Current Regulations: None. 

Proposed Regulations: Under 

proposed § 601.10(a)(1), a covered 

institution, or an institution-affiliated 

organization of a covered institution, 

that participates in a preferred lender 

arrangement would be required to 

disclose to students the maximum 

amount of Federal grant and loan aid 

available under Title IV of the HEA; the 

information identified on the model 

disclosure form developed by the 

Secretary for each type of education 

loan that is offered pursuant to a 

preferred lender arrangement; and a 

statement that the institution is required 

to process the documents required to 

obtain a loan under the FFEL Program 

from any eligible lender the student 

selects. 

Consistent with section 

152(a)(1)(A)(ii) of the HEA, proposed 

§ 601.10(a) would require that these 

disclosures be provided on the covered 

institution’s or institution-affiliated 

organization’s Web site and in all 

informational materials such as 

publications, mailings, or electronic 

messages or materials that are 

distributed to prospective or current 

students of a covered institution and 

families of such students and that 

describe or discuss the financial aid 

opportunities available to students at an 

institution of higher education. 

Proposed § 601.10(a)(2)(i) would 

require a covered institution to provide 

the disclosures required under section 

128(e)(11) of the TILA for each type of 

private education loan offered pursuant 

to a preferred lender arrangement. For 

an institution-affiliated organization, 

proposed § 601.10(a)(2)(ii) would 

require the institution-affiliated 

organization to provide the disclosures 

required under section 128(e)(1) of TILA 

for each type of private education loan 

offered pursuant to a preferred lender 

arrangement. 

Proposed § 601.10(c) would require 

covered institutions and institutionaffiliated organizations that participate 

in a preferred lender arrangement to 

provide the information described in 

proposed § 601.10(a)(1)(ii), and the 

information described in proposed 

§§ 601.10(a)(2)(i) and (a)(2)(ii), 

respectively, for each type of education 

loan offered pursuant to the preferred 

lender arrangement. Covered 

institutions and institution-affiliated 

organizations would be required to 

provide this information to students 

attending the covered institution, or the 

families of such students, as applicable. 

The information would be provided 

annually and must be provided in a 

manner that allows for the students or 

their families to take the information 

into account before selecting a lender or 

applying for an education loan. 

Consistent with new section 

487(h)(1)(A) of the HEA, proposed 

§ 601.10(d) would require that if a 

covered institution compiles, maintains, 

and makes available a preferred lender 

list, the covered institution clearly and 

fully disclose on the preferred lender 

list (a) at least the information required 

to be disclosed under section 

153(a)(2)(A) of the HEA; (b) why the 

institution participates in a preferred 

lender arrangement with each lender on 

the preferred lender list, particularly 

with respect to terms and conditions or 

provisions favorable to the borrower; 

and (c) that the students attending the 

institution, or the families of such 

students, do not have to borrow from a 

lender on the preferred lender list. 

Proposed § 601.10(d)(2) would track 

the statutory requirement reflected in 

section 487(h)(1)(B)(i) of the HEA, 

which requires the covered institution 

to ensure, through the use of the list of 

lender affiliates provided by the 

Secretary under section 487(h)(2) of the 

HEA, that there are not less than three 

FFEL lenders that are not affiliates of 

each other included on the preferred 

lender list and, if the institution 

recommends, promotes, or endorses 

private education loans, that there are 

not less than two lenders of private 

education loans that are not affiliates of 

each other included on the preferred 

lender list. 

Proposed § 601.10(d)(2) would 

incorporate the statutory requirements 

in section 487(h)(1)(B)(ii) of the HEA 

that the preferred lender list (a) 

specifically indicate, for each listed 

lender, whether the lender is or is not 

an affiliate of another lender on the 

preferred lender list, and (b) if a lender 

is an affiliate of another lender on the 

preferred lender list, must describe the 

details of such affiliation. 

Proposed § 601.10(d)(3) would 

incorporate the requirement in section 

487(h)(1)(C) of the HEA that requires the 

preferred lender list to prominently 

disclose the method and criteria used by 

the institution in selecting lenders with 

which to participate in preferred lender 

arrangements to ensure that such 

lenders are selected on the basis of the 

best interests of the borrowers. 

Under proposed § 601.10(d)(4) and 

consistent with section 487(h)(1)(D) of 

the HEA, covered institutions would be 

required to exercise a duty of care and 

a duty of loyalty to compile the 

preferred lender list without prejudice 

and for the sole benefit of the students 

attending the institution, or the families 

of such students. Proposed 

§ 601.10(d)(5) would incorporate the 

requirement from section 487(h)(1)(E) of 

the HEA that requires a covered 

institution to not deny or otherwise 

impede the borrower’s choice of a 

lender or cause unnecessary delay in 

certification of a Title IV loan for those 

borrowers who choose a lender that is 

not included on the preferred lender 

list. 

Reasons: Proposed § 601.10 would be 

included in new part 601 in order to 

implement the provisions relating to 

preferred lender arrangement 

disclosures in new part E, title I of the 

HEA. 

Some non-Federal negotiators 

expressed a concern regarding proposed 

§ 601.10(a)(1)(iii), which would require 

a covered institution that participates in 

a preferred lender arrangement to 

include a statement on its Web site and 

other informational materials that the 

covered institution is required to 

process loan documents from any 

eligible FFEL Program lender. The nonFederal negotiators pointed out that a 

Direct Loan school could have a 

preferred lender arrangement with a 

private education lender (and, therefore, 

be covered by the requirements in 

proposed § 601.10), but that most Direct 


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Loan schools do not also participate in 

the FFEL program, and would not be 

able to process FFEL loans. 

The Department responded that the 

requirement in proposed 

§ 601.10(a)(1)(iii) is not applicable to 

Direct Loan-only schools, and such 

schools would not be required to 

provide this statement on their Web 

sites or other informational materials. 

The non-Federal negotiators asked for 

clarification regarding the information 

that a covered institution is required to 

provide on the informational materials 

referenced in proposed § 601.10(b)(1). 

The informational materials are 

publications, mailings, or electronic 

materials that the covered institution 

makes available to prospective and 

current students and their families. The 

non-Federal negotiators asked whether a 

brochure would be required to provide 

all of the information specified in 

proposed § 601.10(a), or whether the 

brochure could provide a link to an 

institutional Web site with the required 

information. 

The non-Federal negotiators were 

particularly concerned about ‘‘first 

touch’’ information provided to 

prospective students, which is intended 

to provide basic information regarding 

the institution, and might briefly 

summarize financial aid opportunities 

at the school. The non-Federal 

negotiators were concerned that 

including the detailed student loan 

information required by proposed 

§ 601.10(a) in such ‘‘first touch’’ 

materials would be overwhelming to 

potential students. 

The non-Federal negotiators also 

pointed out that information provided 

in print publications can quickly 

become outdated, whereas information 

provided on a Web site can be updated 

easily, on an as-needed basis. 

The Department responded that a link 

to a Web site that contains information 

that meets the requirements in proposed 

§ 601.10(a) would be sufficient for 

printed materials provided to potential 

borrowers, as long as the printed 

materials provide the potential borrower 

with information for a point of contact 

at the school where the potential 

borrower can obtain the information in 

printed form. 

Non-Federal negotiators expressed 

concerns about proposed § 601.10(c)(2), 

which would require a covered 

institution to ‘‘provide’’ certain 

information to students in a manner that 

allows the students to take that 

information into account before 

selecting a lender or applying for an 

education loan. The non-Federal 

negotiators requested the Department to 

change this requirement from ‘‘provide’’ 

to ‘‘make available.’’ 

The Department declined to make this 

requested change. The purpose of the 

requirement to provide the described 

information is to give students current 

information on education loans 

available at the school before the 

student selects a lender or applies for an 

education loan. The term ‘‘make 

available’’ is more passive than the term 

‘‘provide.’’ The Department expects 

schools to be more proactive in 

providing this information to borrowers 

than the phrase ‘‘make available’’ 

implies. However, the Department 

recognizes that, regardless of how 

proactive a school may be, the school 

cannot guaranty that every student 

attending the school will receive the 

information. A school that makes 

reasonable efforts to give this 

information to its students at the 

appropriate time in the award year 

would be in compliance with proposed 

§ 601.10(c)(2), even if not all students at 

the school actually receive the 

information. 

Non-Federal negotiators asked if the 

requirements for a preferred lender list 

specified in proposed § 601.10(d) would 

apply to a neutral, comprehensive list of 

lenders who lent at the school, as 

discussed earlier in the preamble 

discussion regarding proposed § 601.2 

(Definitions). The Department 

responded that a neutral, 

comprehensive list of lenders that have 

provided loans to students at a covered 

institution is not a preferred lender list 

under the HEA or these proposed 

regulations. If the covered institution 

has not made a judgment regarding 

which lenders to include on the list, it 

is not using the list to identify the 

lenders it prefers its students to use. A 

comprehensive, neutral list of lenders is 

not a preferred lender list and is not 

covered by the requirements in 

proposed § 601.10(c). 

Private Education Loan Disclosures and 

Self-Certification Form (§ 601.11) 

Statute: Section 152(a)(1)(B) of the 

HEA, which was added by section 120 

of the HEOA, requires a covered 

institution, or an institution-affiliated 

organization, that provides information 

regarding a private education loan from 

a lender to a prospective borrower, 

regardless of whether the covered 

institution or institution-affiliated 

organization participates in a preferred 

lender arrangement, to provide the 

following disclosures: 

• The information required by section 

128(e)(1) of the TILA. 

• Information on the availability of 

Title IV loans or other assistance. 

• That the terms and conditions of 

Title IV loans or assistance may be more 

beneficial than the terms and conditions 

of private education loans. 

Section 153(c)(1)(B) of the HEA, 

which also was added by section 120 of 

the HEOA, requires covered institutions 

and institution-affiliated organizations 

to provide the information described in 

the previous paragraphs in a manner 

that allows students or their families to 

take that information into account 

before selecting a lender or applying for 

an education loan. 

Section 152(a)(1)(B)(iii) of the HEA 

specifies that the information regarding 

private education loans must be 

presented in a manner that is distinct 

from information regarding Title IV, 

HEA program loans. 

Covered institutions or institutionaffiliated organizations must provide 

these disclosures whether or not they 

have a preferred lender arrangement 

with the lender. 

Section 155(a) of the HEA, as 

amended by section 1021(b) of the 

HEOA, requires the Department, in 

consultation with the Board of 

Governors of the Federal Reserve 

System, to develop a self-certification 

form for private education loans. The 

form must be provided to an applicant 

for a private education loan by an 

institution of higher education at the 

request of the applicant. In addition, the 

institution of higher education is 

required to provide to the applicant the 

information needed to complete the 

form, if the institution of higher 

education has that information. Under 

section 155(a)(4) of the HEA, 

information required to complete the 

self-certification form includes the 

applicant’s cost of attendance at the 

institution, the applicant’s expected 

family contribution, and the applicant’s 

estimated financial assistance. 

Current Regulations: None. 

Proposed Regulations: Proposed 

§ 601.11(a) would provide that a 

covered institution, or an institutionaffiliated organization of a covered 

institution, that provides information 

regarding a private education loan from 

a lender to a prospective borrower must 

provide private education loan 

disclosures to the prospective borrower. 

These disclosures would need to be 

provided regardless of whether the 

covered institution or institutionaffiliated organization participates in a 

preferred lender arrangement. 

The private education loan 

disclosures required under proposed 

§ 601.11(b)(1) and (b)(2) would need to 

provide the prospective borrower with 

the information required under section 

128(e)(1) of the TILA; and would need 


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to inform the prospective borrower that 

he or she may qualify for loans or other 

assistance under title IV of the HEA; and 

that the terms and conditions of Title 

IV, HEA program loans may be more 

favorable than the provisions of private 

education loans. 

Under proposed § 601.11(c), the 

covered institution or institutionaffiliated organization would need to 

ensure that information regarding 

private education loans is presented in 

such a manner as to be distinct from 

information regarding Title IV, HEA 

program loans. 

Proposed § 601.11(d) would require 

that, upon an enrolled or admitted 

student applicant’s request for a private 

education loan self-certification form, 

an institution must provide to the 

applicant, in written or electronic form, 

the self-certification form for private 

education loans developed by the 

Secretary to satisfy the requirements of 

section 128(e)(3) of the TILA. The 

institution would also be required to 

provide the information necessary to 

complete the form, if the institution 

possesses that information. 

Reasons: The Department would 

include proposed § 601.11 in new part 

601 to implement the HEOA provisions 

relating to private education loan 

disclosures and the self-certification 

form the Department is required to 

develop pursuant to section 155(a) of 

the HEA. 

Non-Federal negotiators questioned 

the value of requiring a school to 

provide an applicant with the private 

education loan self-certification form in 

cases where the applicant is applying 

for a private education loan made by the 

covered institution. Non-Federal 

negotiators asserted that in these cases 

the covered institution would simply be 

providing the private education loan 

self-certification form to itself. 

In the Department’s view, the purpose 

of the private education loan selfcertification form is to provide 

disclosure information to the borrower, 

not to the lender. In cases where the 

covered institution is also the lender, 

the Department believes that the 

borrower should still receive and 

complete the private education loan 

self-certification form before obtaining 

the institutional loan. 

In addition, the TILA requires private 

education lenders to obtain the 

completed private education loan selfcertification form from a borrower 

before it makes a private education loan. 

In that regard, the Department advised 

the non-Federal negotiators that 

submitting public comment on the 

Federal Reserve’s TILA proposed 

regulations may be an appropriate 

forum for addressing this issue. 

Further discussion of the private 

education loan self-certification form is 

provided under the program 

participation agreement section of this 

preamble. 

Use of Institution and Lender Name 

(§ 601.12) 

Statute: Section 152(a)(2) of the HEA, 

added by section 120 of the HEOA, 

prohibits a covered institution or an 

institution-affiliated organization from 

allowing a lender with which it has a 

preferred lender arrangement to use the 

name, emblem, mascot, logo, or other 

identifiable symbol of the covered 

institution or institution-affiliated 

organization to market private education 

loans to students. 

Section 152(a)(3) of the HEA, added 

by section 120 of the HEOA, requires a 

covered institution or an institutionaffiliated organization to ensure that the 

name of a lender with which it has a 

preferred lender arrangement is 

displayed in all information and 

documentation related to private 

education loans offered by the lender. 

Current Regulations: None. 

Proposed Regulations: Under 

proposed § 601.12(a), a covered 

institution, or an institution-affiliated 

organization of a covered institution, 

that participates in a preferred lender 

arrangement regarding private education 

loans would be prohibited from agreeing 

to the lender’s use of the name, emblem, 

mascot, or logo of the institution or 

organization, or other words, pictures, 

or symbols readily identified with the 

institution or organization, in the 

marketing of private education loans to 

students attending the institution in any 

way that implies that the loan is offered 

or made by the institution or 

organization instead of the lender. 

Proposed § 601.12(b) also would 

require covered institutions or 

institution-affiliated organizations that 

participate in preferred lender 

arrangements regarding private 

education loans to ensure that the name 

of the lender is displayed in all 

information and documentation related 

to the private education loans. 

Reasons: We propose to include 

proposed § 601.12 in new part 601 to 

implement the provisions relating to the 

use of institution and lender name in 

section 152 of the HEA. 

During the negotiated rulemaking 

process, non-Federal negotiators 

expressed concern about the use of the 

term ‘‘ensure’’ in proposed § 601.12(b). 

The non-Federal negotiators argued that 

covered institutions have no direct 

control over lenders with which they 

have preferred lender arrangements, 

particularly if there is no formal 

agreement between the covered 

institution and the lender. Therefore, 

argued the non-Federal negotiators, a 

covered institution cannot ensure that 

the lender displays its name in all 

information and documentation relating 

to the lender’s private education loans. 

The Department understands that a 

covered institution cannot control a 

lender with which it has a preferred 

lender arrangement. However, we 

believe that a covered institution does 

have leverage over such lenders, and 

can use that leverage to require the 

lender to display the lender’s own name 

on information or documentation about 

private education loans provided by the 

lender. If a lender refuses to display its 

own name on private education loan 

marketing materials that the lender 

provides to students at the covered 

institution, and the covered institution 

cannot convince the lender to do so, the 

covered institution always has the 

option to end the preferred lender 

arrangement with the lender and 

remove the lender from its preferred 

lender list. 

Non-Federal negotiators asked 

whether a credit union that shares its 

name with the name of a covered 

institution would be prohibited under 

proposed § 601.12(a) from using its own 

name in its marketing materials 

regarding private education loans. The 

Department responded that if the name 

of the covered institution is part of the 

name of the credit union, the 

prohibition against allowing the lender 

to use the institution’s name would not 

apply. In these cases, the credit union 

is using its own name, not the 

institution’s name. 

This interpretation is consistent with 

the Manager’s Report for the Higher 

Education Opportunity Act, which 

states that ‘‘the Conferees understand 

that some credit unions share the names 

of the institutions of higher education 

whose communities they serve. Nothing 

in [section 140 of the TILA] is intended 

to prohibit a credit union whose name 

includes the name of a covered 

educational institution from using its 

own name in marketing its private 

education loans’’ (Joint Explanatory 

Statement of the Committee of 

Conference, p. 198). 

Subpart C—Responsibilities of Covered 

Institutions and Institution-Affiliated 

Organizations 

Annual Report (§ 601.20) 

Statute: Section 153(c)(2)(A)(i) of the 

HEA, added by section 120 of the 

HEOA, requires a covered institution 


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and an institution-affiliated organization 

that has a preferred lender arrangement 

to submit to the Department of 

Education an annual report that 

provides the information described in 

section 153(c)(1)(A)(i) and (ii) of the 

HEA. This is the same information 

required under section 152(a)(1)(A)(i) 

and (a)(1)(A)(ii) of the HEA, and 

discussed earlier in the preamble 

discussion for proposed subpart B of 

part 601. 

Section 153(c)(2)(A)(ii) of the HEA, 

added by section 120 of the HEOA, 

requires that the annual report include 

a detailed explanation of why the 

covered institution or institutionaffiliated organization entered into a 

preferred lender arrangement with each 

lender. The explanation must explain 

how the terms, conditions, and 

provisions of each type of education 

loan provided pursuant to the preferred 

lender arrangement are beneficial to 

students attending the covered 

institution. 

Section 153(c)(2)(B) of the HEA 

requires the covered institution and 

institution-affiliated organization to 

ensure that the annual report is made 

available to the public, and is provided 

to students attending or planning to 

attend the covered institution. 

Current Regulations: None. 

Proposed Regulations: Proposed 

§ 601.20(a) would require a covered 

institution and an institution-affiliated 

organization that participates in a 

preferred lender arrangement to prepare 

and submit to the Secretary an annual 

report, by a date determined by the 

Secretary. The annual report would 

include, for each lender that participates 

in a preferred lender arrangement with 

the covered institution or organization, 

the information described in proposed 

§ 601.10(c); and a detailed explanation 

of why the covered institution or 

institution-affiliated organization 

participates in a preferred lender 

arrangement with the lender. Under the 

proposed regulations, this explanation 

would need to include an explanation of 

why the terms, conditions, and 

provisions of each type of education 

loan provided pursuant to the preferred 

lender arrangement are beneficial for 

students attending the institution, or the 

families of such students, as applicable. 

Proposed § 601.20(b) would require a 

covered institution or institutionaffiliated organization to ensure that the 

annual report is made available to the 

public and provided to students 

attending or planning to attend the 

covered institution and the families of 

such students. 

Reasons: Proposed § 601.20 would 

implement the annual report 

requirements governing covered 

institutions and institution-affiliated 

organizations that have a preferred 

lender arrangement in section 153(c) of 

the HEA. 

There was significant discussion 

among the negotiators regarding the 

timing and content of the annual report 

required under 153(c)(2) of the HEA. 

Non-Federal negotiators believed it 

would be reasonable for the annual 

report to be due by July 1st each year. 

However, negotiators decided that 

determining the due date for the annual 

report is an operational issue, not a 

regulatory issue. For this reason, the 

Department does not propose to specify 

a due date for the annual report in the 

regulations. 

The non-Federal negotiators also 

pointed out that in the course of a year, 

lenders on a preferred lender list can 

change. Some lenders might drop off the 

list, or new lenders might be added. The 

negotiators agreed that the annual report 

would have most utility for the 

Department and for potential borrowers 

if it identified the lenders on the 

covered institution’s preferred lender 

list at the time the report is submitted 

to the Department, providing a snapshot 

of the lenders on its preferred lender list 

at that time. The Department agreed that 

covered institutions would not be 

required to update the annual report 

during the year as lenders are added or 

dropped from the preferred lender list. 

The Department believed that a yearly 

snapshot would provide it with 

adequate information to monitor the 

preferred lender activities of covered 

institutions. 

Code of Conduct (§ 601.21) 

Statute: Section 153(c)(3)(A) of the 

HEA, added by Section 120 of the 

HEOA, requires a covered institution 

and an institution-affiliated organization 

that has a preferred lender arrangement 

to comply with the code of conduct 

requirements in section 487(a)(25)(A) 

through (C) of the HEA. 

Section 153(c)(3)(B) of the HEA 

requires an institution-affiliated 

organization of a covered institution to 

comply with the code of conduct 

developed and published by the covered 

institution; publish the code of conduct 

prominently on its Web site, if it has 

one; and administer and enforce the 

code of conduct. At a minimum, the 

institution-affiliated organization must 

require that all of the organization’s 

agents with responsibilities with respect 

to education loans are annually 

informed of the provisions of the code 

of conduct. 

In accordance with section 487(e)(1) 

through (e)(7) of the HEA, as amended 

by section 493(c) of the HEOA, the code 

of conduct must ban revenue-sharing 

arrangements; gifts; consulting or other 

contracting arrangements; directing 

borrowers to particular lenders or 

delaying loan certification; offers of 

funds for private loans, including 

opportunity pool loans; staffing 

assistance; and advisory board 

compensation, as these terms are 

defined and further explained in section 

487(e) of the HEA. 

Current Regulations: None. 

Proposed Regulations: A covered 

institution that participates in a 

preferred lender arrangement would be 

required to comply with the code of 

conduct requirements described in 

proposed § 601.21. Under this section, 

the covered institution would be 

required to develop a code of conduct 

with respect to FFEL Program loans and 

private education loans with which the 

institution’s agents must comply. 

Proposed § 601.21(a)(2)(i) would 

require the code of conduct to prohibit 

a conflict of interest with the 

responsibilities of an agent of an 

institution with respect to FFEL 

Program loans and private education 

loans and, at a minimum, include the 

provisions specified in the following 

paragraphs. Under proposed 

§ 601.21(a)(2)(ii) and (iii), the institution 

would be required to publish the code 

of conduct prominently on the 

institution’s Web site and administer 

and enforce the code by, at a minimum, 

requiring that all of the institution’s 

agents with responsibilities with respect 

to FFEL Program loans or private 

education loans be annually informed of 

the provisions of the code of conduct. 

Proposed § 601.21(b)(1) and (b)(2) 

would require any institution-affiliated 

organization of a covered institution 

that participates in a preferred lender 

arrangement to comply with the code of 

conduct developed and published by 

the covered institution and, if the 

institution-affiliated organization has a 

Web site, publish the code of conduct 

prominently on the Web site. 

Under proposed § 601.21(b)(3), the 

institution-affiliated organization would 

be required to administer and enforce 

the code of conduct by, at a minimum, 

requiring that all of the institutionaffiliated organization’s agents with 

responsibilities with respect to FFEL 

Program loans or private education 

loans be annually informed of the 

provisions of the code of conduct. 

Proposed § 601.21(c) would prescribe 

the minimum requirements of a covered 

institution’s code of conduct. Under this 

section, an institution’s code of conduct 

would be required to prohibit— 


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• Revenue-sharing arrangements with 

any lender; 

• Soliciting or accepting gifts from a 

lender, guarantor, or servicer; 

• Accepting any fee, payment, or 

other financial benefit as compensation 

for any type of consulting or any 

contractual relationship with a lender; 

• Assigning a first-time borrower’s 

loan to a particular lender or refusing to 

certify, or delaying certification of, any 

loan based on a borrower’s selection of 

a particular lender; 

• Requesting offers of funds for 

private education loans, including 

opportunity pool loans, from a lender in 

exchange for providing the lender with 

a specified number or loan volume of 

FFEL Program loans or private 

education loans or a preferred lender 

arrangement; 

• Requesting or accepting staffing 

assistance from a lender; and 

• Receipt of compensation for serving 

on an advisory board, commission, or 

group established by a lender, 

guarantor, or group of lenders or 

guarantors. 

Proposed § 601.21(c)(6) would 

incorporate language from section 

487(e)(6) of the HEA and set forth 

exceptions to the ban on staffing 

assistance, such as staffing assistance 

related to professional development or 

training; providing educational 

counseling materials, or short-term, 

nonrecurring staffing assistance during 

disasters or emergencies. 

In addition, the proposed regulations 

would include the statutory definitions 

provided for the terms revenue-sharing 

arrangement, gift, and opportunity pool 

loan. 

Proposed § 601.21(c)(1) would 

incorporate the definition of the term 

revenue-sharing arrangement from 

section 487(e)(1)(B)of the HEA: An 

arrangement between a covered 

institution and FFEL lender or a private 

education loan lender in which the 

lender pays a fee or provides material 

benefits in exchange for the covered 

institution recommending the lender or 

its loan products to students attending 

the institution or to the families of such 

students. 

Proposed § 601.21(c)(2)(ii) would 

incorporate the definition of the term 

gift from section 487(e)(2)(B)of the HEA: 

As any gratuity, favor, discount, 

entertainment, hospitality, loan or other 

item with a monetary value of more 

than a de minimus amount, including 

gifts of services, transportation, lodging 

or meals. Proposed § 601.21(c)(2)(iii)(A) 

through (F) would identify the items of 

monetary value that are excluded from 

the definition of gift. 

Proposed § 601.21(c)(5)(ii) would 

incorporate the definition of the term 

opportunity pool loan from section 

487(e)(5)(B)of the HEA: As a private 

education loan made by a lender to a 

student, or a family member of a 

student, attending the institution that 

involves a payment, directly or 

indirectly, by the institution of points, 

premiums, additional interest, or 

financial support to the lender for the 

purpose of the lender extending credit 

to the student or the student’s family. 

Reasons: Proposed § 601.21(c) would 

be included in new part 601 to 

implement the code of conduct 

provisions added to section 487(e) of the 

HEA. 

Numerous questions and concerns 

relating to the code of conduct were 

discussed during the negotiated 

rulemaking sessions. For example, nonFederal negotiators asked if the 

prohibition against revenue-sharing 

arrangements would apply to a servicer 

collecting student loans on behalf a 

school. The Department responded that 

this is a standard service provided by 

loan servicers, and that it does not view 

this service as a revenue-sharing 

arrangement that is prohibited under 

section 487(e)(1) of the HEA. 

Non-Federal negotiators pointed out 

that, in some cases, if a borrower selects 

a lender that the covered institution 

does not normally do business with, 

there could be delays in processing the 

borrower’s student loans due to 

compatibility issues with the computer 

programs used by the lender and 

covered institution. These delays would 

not be due to the school deliberately 

attempting to impede the borrower’s 

choice of lender, but simply due to 

processing complications that may 

occur when a school is working with an 

unfamiliar lender. The Department 

agrees that processing delays may occur 

if a borrower selects a lender with 

which the school is unaccustomed to 

doing business. We expect the covered 

institution to do everything it can to 

minimize such delays, but it is the 

Department’s view that reasonable 

delays in situations such as these would 

not be considered to be a violation of 

the code of conduct. That said, the 

Department also points out that the 

requirement in the code of conduct 

refers to certifying a loan, not other 

aspects of processing a loan. Because 

certification of a loan is an internal 

school process, we do not believe that 

choice of a lender would normally affect 

a school’s ability to certify a loan in a 

timely manner. 

Non-Federal negotiators asked about 

proposed § 601.21(c)(4)(ii), which states 

that a borrower may choose a particular 

lender or guaranty agency. The nonFederal negotiators asked about the 

reference to guaranty agencies, pointing 

out that the guaranty agency that 

guarantees a borrower’s loan depends 

on the borrower’s choice of lender. They 

argued that this provision does not 

make sense because a borrower does not 

have the ability to select from among 

different guaranty agencies, except to 

the extent that a borrower does have the 

ability to select from among different 

lenders. The Department clarified that 

guaranty agencies are included in this 

proposed provision because they can 

serve as lenders-of-last-resort. When a 

borrower is using a guaranty agency as 

a lender-of-last-resort, the borrower can 

choose among different guaranty 

agencies. 

Non-Federal negotiators asked about 

proposed § 601.21(c)(2)(iii)(C), which 

would exclude from the definition of 

the term gift, favorable terms, 

conditions, and borrower benefits on a 

loan provided to students employed at 

a covered institution, if the terms, 

conditions, or benefits are comparable 

to those provided to all students at the 

institution. The non-Federal negotiators 

asked the Department to clarify whether 

the reference to ‘‘all students’’ at the 

institution meant the general student 

population, or if it meant other similarly 

situated students. The intent of 

proposed § 601.21(c)(2)(iii)(C) is to 

allow student employees of a covered 

institution’s financial aid office to 

receive favorable terms, conditions, or 

benefits on a student loan, as long as 

those favorable terms, conditions, and 

benefits are comparable to the benefits 

other students at the school receive. In 

recognition of the fact that a lender may 

offer favorable terms, conditions and 

borrower benefits to certain types of 

students at an institution—such as 

students at a particular grade level or in 

a particular program of study—we 

believe that it would be acceptable for 

a school to use benefits offered to 

similarly situated students as a 

benchmark, rather than benefits 

available to all students at the 

institution. 

Non-Federal negotiators asked if 

recourse loans qualify as opportunity 

pool loans, as defined in proposed 

§ 0601.21(c)(5)(ii). Recourse loan 

arrangements are arrangements between 

schools and lenders, in which the 

school provides funds to a lender to 

offset the risk of the lender providing 

loans to students at the school who have 

a high risk of default. As discussed 

earlier in this preamble, an opportunity 

pool loan is defined in section 

487(e)(5)(B) of the HEA as a private 

education loan that involves a payment, 


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either directly or indirectly, from an 

institution to the lender for the purpose 

of the lender offering a loan to a 

borrower at the school. Because the 

Department sees no real distinction 

between the meaning of the terms 

opportunity pool loan and recourse 

loan, we believe that recourse loans 

would be covered by the requirements 

in proposed § 601.21(c)(5)(i). However, 

the Department notes that proposed 

§ 601.21(c)(5)(i) would not prohibit 

opportunity pool loans or recourse loans 

in all cases. It would only prohibit such 

loans if the funds for the opportunity 

pool loan or recourse loan are provided 

in exchange for concessions or promises 

regarding providing the lender with a 

specified number or loan volume of 

FFEL or private education loans, or a 

preferred lender arrangement for FFEL 

or private education loans. 

Consistent with section 487(e)(7) of 

the HEA, proposed § 601.21(c)(7) would 

prohibit compensation from a lender, 

guarantor, or group of lenders or 

guarantors for service on an advisory 

board established by such group. This 

provision would, however, allow for 

reimbursement for reasonable expenses 

incurred for serving on such an advisory 

board. The non-Federal negotiators 

asked that we clarify the meaning of the 

term reasonable expenses for this 

purpose. We agreed that such 

clarification would be useful, and added 

a cross-reference to § 668.16(d)(2)(ii) in 

proposed § 601.21(c)(7). For further 

discussion of this topic, see the 

preamble discussion under ‘‘Standards 

of administrative capability.’’ 

Non-Federal negotiators asked if the 

code of conduct covers employees of a 

covered institution who work on the 

back end of the student loan process, 

such as employees who work on default 

prevention with lenders. In general, it is 

the view of the Department that the 

code of conduct regulations apply to 

agents of a covered institution who are 

employed in the financial aid office of 

a covered institution, or who otherwise 

have responsibilities with respect to 

FFEL program loans or private 

education loans. Nothing in the HEA, as 

amended by the HEOA or these 

proposed regulations would exempt 

agents of a covered institution who are 

involved in the back end of the student 

loan process. We believe that employees 

working at this stage of the process have 

responsibilities with regard to student 

loans and, therefore, are covered by the 

code of conduct. 

Non-Federal negotiators noted that 

the term agent is defined as an officer 

or an employee in section 151(1) of the 

HEA (and proposed § 601.2(b)) and 

asked whether there is a distinction 

between the meaning of agents of a 

covered institution and officers or 

employees of a covered institution. 

The Department agreed that, when 

coupled with the terms ‘‘officer’’ and 

‘‘employee’’, the term agent is 

redundant. The Department also agreed 

that use of all three terms in the code 

of conduct section of the regulations 

could potentially be confusing, given 

that use of all three terms implies that 

the term agent is intended to include 

individuals who are not officers or 

employees of a covered institution, but 

have some other connection to the 

covered institution. To avoid this 

confusion, the Department agreed to 

remove the terms ‘‘officer’’ and 

‘‘employee’’ from those sections of the 

code of conduct regulations where the 

term agent is sufficient. 

Further discussion of the code of 

conduct requirements is provided in the 

program participation agreement section 

of this preamble. 

Duties of Institutions Participating in 

the William D. Ford Direct Loan 

Program (§ 601.30) 

Statute: Section 154(a) of the HEA, as 

amended by section 120 of the HEOA, 

requires a school participating in the 

William D. Ford Direct Loan Program 

(Direct Loan Program) to provide the 

information on a Direct Loan model 

disclosure form developed by the 

Department to students attending or 

planning to attend the school, or to their 

families. If the Direct Loan school 

provides information regarding a private 

education loan to a prospective 

borrower, it must provide the 

information from the Direct Loan model 

disclosure form at the same time. 

The Direct Loan school may use the 

Direct Loan model disclosure form for 

this purpose, or may use a comparable 

form designed by the school. 

Current Regulations: None. 

Proposed Regulations: Under 

proposed § 601.30(a), a covered 

institution participating in the Direct 

Loan Program would be required to 

make the information identified in a 

model disclosure form developed by the 

Secretary available to students attending 

or planning to attend the institution, or 

the families of such students. If the 

institution provides information 

regarding a private education loan to a 

prospective borrower, the institution 

would concurrently provide the 

borrower with the information 

identified on the model disclosure form. 

Proposed § 601.30(b) would allow a 

covered institution to use a comparable 

form designed by the institution to 

provide this information, instead of the 

model disclosure form. 

Reasons: We would include proposed 

§ 601.30(b) in new part 601 to 

implement the requirements in section 

154(a) of the HEA. 

Subpart E—Lender Responsibilities 

Statute: Section 152 of the HEA 

requires lenders to disclose certain 

information to borrowers of a FFEL or 

Federal Direct Loan. These disclosures 

include the information described in 

section 433(a) and (c) of the HEA. In 

addition, for each lender’s private 

education loans, the lender must 

comply with the disclosure 

requirements of section 128(e) of the 

TILA. 

Section 152 of the HEA also requires 

lenders to report certain information 

about its FFEL Program preferred lender 

arrangements to the Secretary. This 

report must include information about 

expenses paid or provided by the lender 

to any agent of a covered institution 

employed in the financial aid office of 

that institution or who otherwise has 

responsibility with respect to education 

loan or other financial aid of the 

institution for service by that employee 

on an advisory board, commission or 

group established by a lender or group 

of lenders. The lender must also report 

this information for expenses paid or 

provided to any agent of an institutionaffiliated organization involved in 

recommending, promoting or endorsing 

education loans. 

Section 153 of the HEA also requires 

FFEL lenders that participate in one or 

more preferred lender arrangements, to 

certify annually to the Secretary, that 

they are in compliance with the 

requirements of the HEA. If the lender 

submits an audit under section 

428(b)(1)(U)(iii) of the HEA, the auditor 

may provide this certification as part of 

that audit. If the lender is not required 

to submit an audit, it must provide the 

certification separately. 

Section 153 of the HEA requires 

lenders to provide an annual report to 

covered institutions or a covered 

institution’s affiliated organization and 

to the Secretary, disclosing certain 

information about its loans. The 

Secretary, in consultation with the 

Federal Reserve will determine the 

information to be disclosed. The 

information will have to address each 

type of FFEL loan the lender plans to 

offer pursuant to the preferred lender 

arrangement to the students or families 

of students attending that institution for 

the next award year. 

Current Regulations: None. 

Proposed Regulations: Proposed 

§ 601.40(a) would require FFEL lenders 

to provide FFEL borrowers the 

disclosures required under current 


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§ 682.205(a) and (b). Proposed 

§ 601.40(a) would require that a lender 

offering private education loans comply 

with the disclosures required under 

section 128(e) of TILA for each type of 

private loan. 

Proposed § 601.40(b) would set forth 

the information the lenders will have to 

provide to the Secretary on an annual 

basis regarding any reasonable expenses 

paid or provided to any agent of a 

covered institution who is employed in 

the financial aid office or has 

responsibilities with respect to 

education loans or other financial aid of 

the institution for service by the 

employee on an advisory board, 

commission or group established by a 

lender or a group of lenders. Under 

proposed § 601.40(b), lenders would be 

required to report this information for 

expenses paid or provided to any agent 

of an institution-affiliated organization 

involved in recommending, promoting 

or endorsing education loans. Lenders 

would be required to report the amount 

of the expenses paid and the specific 

instances for which it was paid; the 

names of the agent to whom expenses 

were paid; and the date and description 

of each activity for which expenses were 

paid. 

Proposed § 601.40(c) would also 

require the lender to submit a 

certification of compliance to the 

Secretary. 

Proposed § 601.40(c) would require 

any FFEL lender participating in one or 

more preferred lender arrangements to 

annually certify to the Secretary its 

compliance with the HEA. Under this 

proposed provision, lenders required to 

file an audit under § 682.305(c) would 

need to include the certification as part 

of the audit and lenders that are not 

required to submit an audit would be 

required to provide the certification 

separately. 

Proposed § 601.40(d) would require 

FFEL lenders with a preferred lender 

arrangement with a covered institution 

or an institution-affiliated organization 

to annually provide to the institution, 

institution-affiliated organization, and 

the Secretary information regarding the 

FFEL loans the lender will provide to 

students and families pursuant to the 

preferred lender arrangement for the 

next award year. The information that 

would be provided will be prescribed by 

the Secretary, after consultation with 

the Federal Reserve, pursuant to section 

153(a)(2)(A)(i) of the HEA. 

Reasons: These regulations are 

provided to implement statutory 

requirements. 

During the negotiations, some 

negotiators raised a question as to the 

lender certification requirements 

proposed as part of § 601.40. In 

particular, a negotiator asked the 

Department to clarify the application of 

the certification requirements to holders 

of FFEL Program loans who make 

private education loans. The 

Department explained that the 

certification requirements apply to any 

lender who holds FFEL loans and has a 

preferred lender arrangement that 

relates to FFEL loans or to private 

education loans. A lender who holds 

FFEL Program loans and has a preferred 

lender arrangement relating to private 

education loans has to provide the 

required certifications even if the lender 

is not actively making new FFEL loans 

and does not have a preferred lender 

arrangement for FFEL loans. 

Under section 152(b)(2) of the HEA, a 

FFEL loan holder that has a preferred 

lender arrangement for FFEL or private 

education loans has to annually certify 

that it is in compliance with the HEA, 

whether or not the lender is actively 

making FFEL Program loans. A lender 

that is required to have an independent 

financial and compliance audit can 

provide the certification through that 

process. The HEA requires a lender to 

provide two specific certifications about 

its private education loans: (1) A 

certification that it is in compliance 

with the disclosure requirements under 

section 128(e) of the Truth in Lending 

Act (reflected in section 152(b)(1)(A)(ii) 

of the HEA); and (2) that it has provided 

the required annual report to the 

Secretary on any reasonable expenses 

paid or provided to any agent of a 

covered institution who is employed in 

the institution’s financial aid office or 

who otherwise has responsibilities with 

respect to education loans or other 

financial aid of the institution and any 

similar expenses paid or provided to 

any agent of an institution-affiliated 

organization who is involved in the 

practice of recommending, promoting or 

endorsing education loans (see section 

152(b)(1)(B) of the HEA). The specific 

requirements for these certifications will 

be addressed in audit guides issued by 

the Department. 

Program Participation Agreement 

(§ 668.14) 

Statute: Section 493(e) of the HEOA 

amended section 487(a)(25) of the HEA 

by adding to the program participation 

agreement (PPA) requirements a 

requirement that an institution 

participating in a Title IV loan program 

develop, publish, administer, and 

enforce a code of conduct that prohibits 

a conflict of interest with the 

responsibilities of an officer, employee 

or agent of the institution with respect 

to any Title IV loan and that contains, 

at a minimum, the provisions described 

in section 487(e) of the HEA. Under 

section 487(a)(25)(B) and (C), the 

institution must publish the code of 

conduct prominently on its Web site 

and annually inform its officers, 

employees, and agents with 

responsibilities for loans made, insured, 

or guaranteed under Title IV loan 

programs of the provisions of the code 

of conduct. 

Current Regulations: The 

Department’s current regulations 

governing PPA requirements appear in 

§ 668.14. 

Proposed Regulations: Consistent 

with section 487(a)(25) of the HEA, we 

propose to amend § 668.14 (Program 

participation agreement) by adding a 

new paragraph (b)(27) that would reflect 

the requirement that institutions agree, 

as part of their PPA, to develop, publish, 

administer, and enforce a code of 

conduct with respect to loans made, 

insured, or guaranteed under Title IV 

loan programs. 

Reason: We propose to add paragraph 

(b)(27) to § 668.14 in order to implement 

the new statutory requirement in section 

487(a)(25) of the HEA. 

Statute: Section 493(a)(1)(A) of the 

HEOA amended section 487(a)(28)(A) of 

the HEA by adding to the PPA 

requirements a requirement that an 

institution will, at the request of an 

applicant for a private education loan, 

provide the applicant with the selfcertification form required under 

section 128(e)(3) of the TILA (15 U.S.C. 

1638(e)(3)). This section also requires 

the institution to provide the applicant 

with the specific information needed to 

complete the form, to the extent that the 

institution possesses the information. 

Section 487(a)(28)(B) of the HEA 

states that the term ‘‘private education 

loan’’ has the meaning given to the term 

in section 140(a)(7) of the TILA. That 

statute defines ‘‘private education loan’’ 

as a loan provided by a private 

educational lender that is not made, 

insured, or guaranteed under Title IV of 

the HEA and is issued expressly for 

postsecondary educational expenses to a 

borrower. It does not include an 

extension of credit under an open end 

consumer credit plan, a reverse 

mortgage transaction, a residential 

mortgage transaction, or any other loan 

secured by real property or a dwelling. 

Under section 155(a)(4) of the HEA, 

the information to be supplied to the 

applicant by the institution (if available) 

includes cost of attendance and resource 

information regarding the applicant. 

Current Regulations: The 

Department’s current regulations 

governing PPA requirements appear in 

§ 668.14. 


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Proposed Regulations: Proposed 

§ 668.14(b)(29) would incorporate the 

requirement for an institution 

participating in the Title IV, HEA 

programs to agree as part of its PPA to 

provide, upon request, an enrolled or 

admitted applicant for a private 

education loan with the selfcertification form and the information to 

complete it, to the extent the institution 

possesses that information. 

In addition, proposed 

§ 668.14(b)(29)(ii) would require the 

institution, at the request of the 

applicant for a private education loan, 

to discuss with the applicant the 

Federal, State, and institutional student 

aid that may be available. 

Reasons: This section implements the 

new statutory requirement in section 

487(a)(25) of the HEA that an institution 

provide a private education loan 

applicant with a self-certification form, 

and the information required to 

complete the form to the extent the 

institution possesses such information, 

in order to participate in the Title IV, 

HEA programs. 

The non-Federal negotiators engaged 

in considerable discussion about the 

information items to be supplied to the 

applicant for a private education loan. 

Negotiators were concerned about 

several aspects, including how an 

institution should provide the 

information to an applicant, how an 

applicant might use the information 

provided by the institution, and how the 

institution could ensure that an 

applicant would complete the selfcertification form accurately using the 

information the institution supplies. In 

addition, non-Federal negotiators were 

concerned about whether the selfcertification information would need to 

be updated if the institution received 

additional information after initially 

providing the self-certification 

information to the applicant. 

The Department explained during 

negotiations that it is bound by the 

specific items and processes required in 

the HEA. We believe that the intent of 

the self-certification form is to prevent 

over-borrowing and provide for a more 

educated private education loan 

consumer by ensuring the provision of 

disclosures, through the institution, 

regarding the availability of Federal 

student aid, information on the cost of 

attendance, expected family 

contribution and the applicant’s 

estimated financial assistance so that 

the applicant will be aware of the 

amount that must be borrowed to cover 

any gaps before consummating a private 

education loan. New section 487(a)(28) 

of the HEA requires that the institution 

provide the form and the required 

information to the applicant. As we 

discussed during negotiations, an 

institution may post the selfcertification form on its Web site for the 

applicant to download or it may provide 

the self-certification form directly 

through its financial aid or other 

designated office. While the Department 

believes that contact between the 

institution and the applicant is an 

essential component of this process, 

once the form and information has been 

disseminated to the applicant, nothing 

in the HEA or the proposed regulations 

require institutions to track the status of 

private education loans. A non-Federal 

negotiator asked whether updates to the 

information provided to the applicant 

would be needed if the applicant 

subsequently filed or updated an 

application. The Department responded 

that when an institution is asked for the 

self-certification form and the required 

information, it should supply the form 

and information available to the 

institution at that time. There is no 

requirement to update it. 

In response to concerns about the 

potential for fraudulent use of the selfcertification form, the negotiating 

committee agreed to specify in the 

proposed regulations that the required 

self-certification form and information 

that must be provided to an applicant 

for a private education loan must be 

provided only to an applicant who is 

‘‘enrolled or admitted’’ to the institution 

rather than to any student who requests 

the information. The non-Federal 

negotiators believed that this 

modification would minimize the 

possibility that a student who is not 

enrolled or admitted to the institution 

may request the form and the requisite 

information—which, if the student has 

not completed a Free Application for 

Federal Student Aid (FAFSA), may be 

limited to the cost of attendance only— 

and receive a private education loan for 

which the student is not eligible. 

The committee also agreed to add a 

provision to the proposed regulations 

requiring an institution to discuss the 

availability of Federal, State, and 

institutional aid with the applicant, at 

the request of the applicant. The 

addition of this requirement (reflected 

in proposed § 668.14(b)(29)(ii)) 

addressed the concerns of several nonFederal negotiators who wanted to 

assure that an applicant for a private 

education loan could receive as much 

information as possible regarding 

available aid options. 

The Department agrees that it is 

important to call attention to the 

availability of other more favorable 

types of aid and believes that the 

addition of the requirement in 

§ 668.14(b)(29)(ii) will support this 

purpose. A request by the applicant for 

a private education loan will initiate the 

discussion about other aid options, 

permit the financial aid administrator to 

counsel the applicant about such 

options, and offer the applicant the 

opportunity to ask any questions he or 

she may have about the aid options or 

how to apply for the aid. 

Statute: The HEOA amended section 

487(h) of the HEA by adding a new 

paragraph (27) to require any institution 

that enters into a preferred lender 

arrangement to agree, as a condition of 

program participation under the PPA, to 

compile, maintain, and make available 

to students and their families a list of 

the specific lenders for loans made 

under a Title IV program and for private 

education loans the institution 

recommends or promotes in accordance 

with its lender arrangement. New 

section 487(h)(27) of the HEA also 

requires that the institution must, at 

least annually, compile and make the 

list available in print or other medium. 

Current Regulations: While current 

§ 668.14(b) does not include any 

information related to preferred lender 

arrangements, current § 682.212(h) 

contains, consistent with our authority 

under sections 432(m)(1)(B)(ii) and 

479A(c) of the HEA, the Department’s 

restrictions on the development and 

content of a preferred lender list. 

Proposed Regulations: Proposed 

§ 668.14(b)(28) would add the 

requirements reflected in section 

487(h)(27) of the HEA to the 

Department’s regulations governing the 

PPA requirements. In conjunction with 

this proposed addition, we also propose 

to amend § 682.212(h) to remove 

information about the preferred lender 

list restrictions and instead provide a 

cross-reference to the requirements in 

proposed § 602.10. We propose to 

include the preferred lender list 

requirements in new § 602.10, rather 

than part 682, because, under section 

152(a)(1)(A) of the HEA, as amended by 

the HEOA, all covered institutions (as 

defined in section 151(2) of the HEA) 

that have preferred lender arrangements 

must comply with these requirements. 

Part 682 only covers the FFEL program. 

Reasons: Proposed § 668.14(b)(28) 

would implement the new statutory 

requirements any institution that has 

established a preferred lender 

arrangement must meet in order to 

participate in the Title IV, HEA 

programs. Please refer to the preamble 

discussions regarding proposed §§ 601.2 

and 601.10 for more information on the 

definition of a preferred lender 

arrangement and the requirements 


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associated with such an arrangement 

and preferred lender lists. 

Standards of Administrative Capability 

(§ 668.16) 

Statute: The HEOA amended section 

485(m) of the HEA by adding a 

requirement that an institution 

participating in any Title IV program 

must report annually to the Secretary, 

any reasonable reimbursements paid or 

provided by a private educational 

lender or group of such lenders for 

service on an advisory board, 

commission, or group established by 

such lenders. 

Under section 485(m) of the HEA, the 

reports must include, among other 

items, the amount for each specific 

instance of reasonable expenses paid or 

provided and a brief description of the 

activity for which the expenses were 

paid or provided. 

Current Regulations: None. 

Proposed Regulations: We propose to 

amend § 668.16 (Standards of 

administrative capability) to incorporate 

the requirement from section 485(m) of 

the HEA that institutions participating 

in the Title IV, HEA Program report 

annually to the Secretary any reasonable 

expenses paid or provided to any 

employee of the financial aid office, or 

any employee who otherwise has 

responsibilities with respect to 

education loans or other financial aid at 

the institution, for service on an 

advisory board, commission, or group 

established by a private educational 

lender or group of lenders. Consistent 

with section 485(m)(1)(A) through (D) of 

the HEA, the information to be reported 

pursuant to proposed § 668.16(d)(2)(i) 

would consist of: (1) The amount for 

each specific instance of reasonable 

expenses paid or provided; (2) The 

name of the individual to whom the 

expenses were paid or provided; (3) The 

dates of the activity for which the 

expenses were paid or provided; and (4) 

A brief description of the activity for 

which the expenses were paid or 

provided. 

Under proposed § 668.16(d)(2)(ii), 

expenses would be considered 

‘‘reasonable’’ if the expenses meet the 

standards of and are paid in accordance 

with an applicable State government 

reimbursement policy or, if no 

applicable State policy exists, in 

accordance with applicable Federal cost 

principles. In addition, for purposes of 

determining whether expenses are 

‘‘reasonable’’ under this provision, the 

applicable policy would need to be 

consistently applied to an institution’s 

employees being reimbursed. 

Reasons: Proposed § 668.16(d)(2)(i) 

would implement the changes made to 

section 485(m) of the HEA by the 

HEOA. We propose to include the 

requirements from section 485(m) of the 

HEA in current § 668.16, because this 

section identifies standards of 

administrative capability applicable to 

all institutions that participate in any 

Title IV program and includes similar 

requirements not specified in the PPA. 

Proposed § 668.16(d)(2)(ii) would 

clarify how to determine whether 

expenses are ‘‘reasonable expenses’’ 

under section 485(m) of the HEA and 

proposed § 668.16(d)(2)(i). Many 

negotiators asked for clarification about 

what constitutes a ‘‘reasonable’’ 

expense. While the Department 

declined to define the term 

‘‘reasonable,’’ the Department 

developed language loosely modeled 

after the language included in 

§ 682.418(b)(10). The language reflected 

in proposed § 668.16(d)(2)(ii) describes 

reasonable expenses as those paid in 

accordance with an applicable State 

government reimbursement policy or 

with applicable Federal cost principles. 

Federal cost principles would include 

those contained in the Office of 

Management and Budget (OMB) 

circulars A–21 and A–122. 

We propose to tie ‘‘reasonable 

expenses’’ to State policies or the 

applicable Federal cost principles 

because we envision that a public 

institution generally would use the State 

government reimbursement policy of 

the State in which the institution is 

located and that a private institution 

generally would use the applicable 

Federal cost principles contained in 

either OMB Circular A–21 or Circular 

A–122. 

In addition, we understand that there 

may be circumstances under which a 

private institution receives funding from 

a State and may therefore use the State 

government reimbursement policy. In 

such cases, private schools may choose 

whether to use a State policy or the 

Federal cost principles. Proposed 

§ 668.16(d)(2)(ii) would not specify 

which policy or principles must be 

used, but rather would provide 

institutions with some flexibility as long 

as the policy or principle is consistently 

applied to an institution’s employees. 

The non-Federal negotiators also had 

concerns regarding how an institution is 

to determine the correct amount to 

report for each expense. The 

Department believes that an institution 

can rely on information provided by a 

third party (in this case, the lender or 

lenders) in reporting the amount of 

reasonable expenses. 

Lastly, non-Federal negotiators 

requested clarification on whether an 

annual report must be filed with the 

Secretary if no employee has received 

reimbursements. After the required form 

is developed, the Department will 

provide clarification on this issue 

through the Federal Register notice that 

announces and describes the reporting 

process. 

Financial Assistance Information 

(§ 668.42) 

Statute: The HEOA amended section 

485(a)(1)(M) of the HEA by adding a 

requirement that institutions that 

participate in the Title IV programs 

describe—for prospective and enrolled 

students—the terms and conditions of 

the loans students receive under the 

FFEL, Direct Loan and Perkins Loan 

programs. 

The HEOA removed from section 

485(a)(1)(M) of the HEA the requirement 

that institutions provide information 

about the terms and conditions under 

which FFEL and Perkins Loans could be 

deferred or partially cancelled for 

service under the Peace Corps Act or the 

Domestic Volunteer Service Act. 

Current Regulations: Current 

§ 668.42(a)(1) requires that an 

institution provide a description of all 

student financial assistance programs to 

prospective and enrolled students. 

For students receiving financial 

assistance, current § 668.42(c)(4) 

requires an institution to provide 

specific information about any loan 

received by the student as part of the aid 

package. 

Proposed Regulations: Proposed 

§ 668.42(a)(4) would require institutions 

to describe for prospective and enrolled 

students the terms and conditions of 

loans students receive under the FFEL, 

Direct Loan, and Perkins Loan programs 

in addition to a general description of 

the programs. 

The proposed regulations also would 

remove the requirement, reflected in 

current § 668.42(c)(7), to describe the 

terms and conditions under which FFEL 

and Perkins Loans could be deferred for 

service under the Peace Corps Act or the 

Domestic Volunteer Service Act. 

Reason: We propose to amend 

§ 668.42 to incorporate the expanded 

information dissemination requirement 

for prospective and enrolled students 

reflected in the new statutory language 

and to remove the description of the 

Peace Corps Act and Domestic 

Volunteer Service Act deferments and 

partial cancellations in accordance with 

changes made to section 485(a)(1)(M) of 

the HEA by the HEOA. 


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Cohort Default Rates 

Three-Year Cohort Default Rate 

(§§ 668.200 Through 668.217) 

Statute: The HEOA amended section 

435(m) of the HEA by increasing the 

period used to calculate the cohort 

default rate from two to three years. 

Under the new three-year method, the 

cohort default rate is the percentage of 

borrowers who default on their FFEL or 

Direct Loans before the end of the 

second fiscal year (instead of the first 

fiscal year) following the fiscal year in 

which the borrowers entered repayment. 

The three-year method is effective for 

cohort default rates calculated for fiscal 

year 2009 and subsequent years. 

However, section 436(e)(2) of the HEA 

provides for a transition period during 

which sanctions will continue to be 

imposed based on the two-year cohort 

default rates until rates based on the 

three-year method are calculated for 

three consecutive years. 

Current Regulations: Current 

§ 668.183 under subpart M of part 668 

provides for a two-year cohort default 

rate. The two-year rate is the percentage 

of borrowers who default on their loans 

by the end of the fiscal year following 

the year those borrowers entered 

repayment. 

Proposed Regulations: We propose to 

add a new subpart N to part 668 to 

provide for regulations for calculating 

the three-year cohort default rate. 

Proposed § 668.202 would describe the 

four steps that the Department follows 

to calculate and apply the three-year 

cohort default rate for a fiscal year. With 

regard to the transition period, proposed 

§§ 668.181 and 668.200(b) would 

specify that the Department will issue 

annually two sets of draft and official 

cohort default rates for fiscal years 2009, 

2010, and 2011. For each of these years, 

an institution would receive one set of 

draft and official rates under proposed 

subpart N and another set under subpart 

M, and could take administrative 

appeals as outlined in those subparts 

from the two-year rates, the three-year 

rates, or both. For consistency with the 

HEOA’s transition provision, proposed 

§ 668.206(a)(1) would specify that 

institutions would not lose eligibility 

based on one three-year rate of 40 

percent or higher until the Department’s 

issuance of official three-year rates for 

the fiscal year 2011 cohort (i.e., in 

2014). 

Reasons: Proposed subpart N would 

include the three-year calculation as 

well as all of the statutory and 

regulatory changes relating to the threeyear default rates. In most other 

respects, the provisions in proposed 

subpart N would parallel the two-year 

provisions in current subpart M. We 

believe that having two subparts for the 

two cohort default rates provides the 

best solution for dealing with the 

transition period during which some 

provisions from both subparts would 

apply. After the transition period, an 

institution would rely solely on the 

provisions in subpart N because the 

Department would no longer be 

calculating or issuing two-year cohort 

default rates. 

Institutional Eligibility and Appeals 

(§ 668.16(m)) 

Statute: For three-year cohort default 

rates, issued beginning in fiscal year 

2012 with the three-year rate for fiscal 

year 2009, section 435(a)(2)(B) of the 

HEA imposes a threshold default rate of 

30 percent (an increase from the 25 

percent rate applicable to the two-year 

default rates under the transition 

provision in section 436(e)(2) of the 

HEOA). Under section 435(a)(2)(B) of 

the HEA, an institution may lose its 

eligibility to participate in the Pell 

Grant, FFEL, and Direct Loan programs 

if its three-year default rate is equal to 

or greater than 30 percent for three 

consecutive years. However, section 

435(a)(3) of the HEA allows an 

institution whose three-year default rate 

is 30 percent or more for two 

consecutive years to file an appeal 

demonstrating exceptional mitigating 

circumstances as described in section 

435(a)(5) of the HEA (this appeal is 

referred to as the ‘‘economically 

disadvantaged’’ appeal in the 

regulations). The institution must file 

the appeal no later than 30 days after it 

receives a notice from the Department 

regarding its second successive threeyear default rate that exceeds the 30 

percent threshold. If the Department 

determines that the institution satisfies 

the requirements specified for the 

appeal, the Department will not place 

the institution on provisional 

certification based solely on its default 

rate. 

In addition, the HEOA increased the 

participation rate index, as reflected in 

section 435(a)(8) of the HEA, from 

0.0375 to 0.0625. Under this section, an 

institution may avoid sanctions based 

on three consecutive years of three-year 

default rates that are 30 percent or 

higher if its participation rate index for 

any of the three years is equal to or 

lower than 0.0625. 

Current Regulations: Under current 

§§ 668.16(m) and 668.187, an institution 

is subject to loss of eligibility if its three 

most recent cohort default rates are 25 

percent but less than 40 percent, or if its 

most recent cohort default rate is 40 

percent or more, and it is subject to 

provisional certification if any of its 

three most recent two-year cohort 

default rates are 25 percent or more. The 

threshold for a participation rate index 

appeal under current § 668.195(a)(2) is 

0.0375. 

Proposed Regulations: Proposed 

§ 668.16(m)(1)(ii) would apply the 

current rules for administrative 

capability based on two-year cohort 

default rates during the transition 

period. Thereafter, a school would be 

administratively capable if two of its 

three most recent three-year rates are 

less than 30 percent. Under proposed 

§ 668.16(m)(2), the current rules for 

provisional certification based on twoyear cohort default rates of 25 percent 

or more but less than 40 percent would 

continue to apply during the transition 

period. Thereafter, an institution whose 

three-year default rates are 30 percent or 

more, but less than 40 percent, for two 

years would not be provisionally 

certified based solely on its default rates 

under the following circumstances: 

(1) The institution files timely a 

request for adjustment or appeal from 

the second such rate under proposed 

§§ 668.209 (Uncorrected data 

adjustments), 668.210 (New data 

adjustments), or 668.212 (Loan servicing 

appeals) and the request or appeal is 

pending or succeeds in reducing the 

institution’s three-year rate below 30 

percent. 

(2) The institution files timely an 

appeal under proposed § 668.213 

(Economically disadvantaged appeals) 

from the second such rate and the 

appeal is pending or successful. 

Proposed § 668.213 provides that the 

two rates of 30 percent or more must be 

successive to permit the appeal. 

(3) The institution files a timely 

participation rate index appeal under 

§ 668.214 and the appeal is pending or 

successful. 

(4) The institution had 30 or fewer 

borrowers in the three most recent 

cohorts of borrowers used to calculate 

the institution’s rates. 

(5) A three-year rate that would 

otherwise potentially subject the 

institution to provisional certification 

was calculated as an average rate. 

To avoid provisional certification by 

invoking exceptions (1), (2) or (3), the 

institution would file a request for 

adjustment or appeal in response to a 

notice from the Department that the 

institution’s second three-year cohort 

default rate, or second successive threeyear default rate for an economically 

disadvantaged appeal, is 30 percent or 

more, but less than 40 percent. 

Under proposed § 668.214, a 

participation rate index appeal could be 

taken from a loss of eligibility, or 


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potential placement on provisional 

certification, based on three-year cohort 

default rates if the participation rate 

index for any of the excessive rates was 

.0625 or less. The appeal would be 

taken within 30 days of receiving the 

most recent excessive official rate. 

In addition, under proposed 

§ 668.204(c)(1)(iii), an institution would 

be allowed to challenge a potential 

placement on provisional certification 

because its three-year cohort default 

rates for two of the most recent three 

years would be 30 percent or more, but 

less than 40 percent, even though the 

second such rate was available only as 

a draft rate, if its participation rate index 

was equal to or less than 0.0625 for 

either its draft rate, or its most recent 

official rate equaling or exceeding 30 

percent but less than 40 percent. The 

challenge would be taken following 

notice to the school of its draft rate. 

Reasons: The proposed amendments 

to § 668.16(m) would incorporate into 

the Department’s cohort default rate 

regulations the statutory requirements 

relating to appeals for extenuating 

circumstances and raising the ceiling for 

the participation rate index appeal. 

The proposed regulations would also 

allow data appeals to ensure that 

schools are not provisionally certified 

based on incorrect data. 

In addition, the Department proposes 

to exempt from provisional certification 

based solely on cohort default rates any 

school that has thirty or fewer borrowers 

included in its most recent three cohort 

default rates, or had its excessive rates 

calculated by the ‘‘average rates’’ 

method, or that qualifies for a successful 

participation rate challenge or appeal. 

The Department believes that two 

relatively high cohort default rates that 

are average rates, or that pertain to very 

small schools, or to schools that certify 

loans for only a very small portion of 

their enrollment, are not necessarily 

indicative of a lack of administrative 

capability necessitating provisional 

certification. 

Default Prevention Plans (§ 668.217) 

Statute: Section 435(a)(7) of the HEA 

requires an institution whose 3-year 

cohort default rate for a fiscal year is 30 

percent or more to establish a default 

prevention task force to prepare a 

default prevention plan to (1) identify 

the factors causing the institution’s rate 

to be 30 percent or more, (2) establish 

measurable objectives and steps to 

improve its default rate, and (3) specify 

actions that can be taken to improve 

student loan repayment, including 

counseling regarding loan repayment 

options. The institution must submit the 

plan to the Department, and, after 

reviewing the plan, the Department 

offers technical assistance to the 

institution to help improve the default 

rate. 

In cases where the institution’s 

default rate is 30 percent or more for 

two consecutive fiscal years, the 

institution’s default prevention task 

force must review and revise its plan. 

The institution must send the revised 

plan to the Department, and, after 

reviewing the plan, we may require the 

institution to take actions that promote 

student loan repayment. 

Current Regulations: The 

Department’s current regulations do not 

address default prevention plans. 

However, current Appendix B to 

subpart M provides guidance to an 

institution on strategies it may employ 

or measures it may use in developing a 

default management plan. 

Proposed Regulations: Proposed 

§ 668.217 would incorporate the 

statutory requirements from section 

435(a)(7) of the HEA, and would apply 

to all 3-year rates published, beginning 

with the 3-year rate to be published in 

2012, that would cover borrowers who 

entered repayment in FY 2009. The 

guidance in current Appendix B to 

subpart M would be slightly modified 

and reorganized and included as 

Appendix A to new subpart N. 

Reasons: The statute provides 

flexibility to an institution to develop a 

default prevention plan pertinent to its 

circumstances, and the Department does 

not wish to specify in regulations what 

the institution may or may not include 

in its default prevention plan. The 

Department already has the authority, 

under the statutory provisions for 

reviewing the plan, to require 

institutions to take actions on a case by 

case basis. For this reason, the 

Department elected not to specify 

detailed requirements for the default 

prevention plan. 

Electronic Processes (§§ 668.186, 

668.190(b), 668.191(b), 668.209, 

668.210, 668.211, and 668.212) 

Statute: Section 435(a)(2) of the HEA 

requires the Department to provide 

institutions that are subject to loss of 

eligibility based on cohort default rates 

with an opportunity to appeal within 30 

days of their receipt of notice of the 

impending loss of eligibility. 

Current Regulations: Under current 

§ 668.186(c), an institution whose 

cohort default rate is less than 10 

percent receives a copy of a loan record 

detail report that lists the loans 

included in its default rate calculation 

only on request. If the institution is 

requesting an adjustment to, or 

appealing, its default rate under current 

subpart M, and does not have a copy of 

its loan record detail report, current 

§ 668.190(b)(1) (Uncorrected data 

adjustments), § 668.191(b) (New data 

adjustments), § 668.192(b)(1) (Erroneous 

data appeals) and § 668.193(c) (Loan 

servicing appeals) require the institution 

to request the report within 15 days 

after it receives notice from the 

Department of its official cohort default 

rate. 

Proposed Regulations: Proposed 

§ 668.186 would eliminate the need to 

request a loan record detail report, and 

the associated 15-day deadline, by 

providing that the report will be sent 

electronically to the institution as part 

of a package notifying the institution of 

its official cohort default rate. The 

institution would have five business 

days, from the transmission date of the 

package as posted on the Department’s 

Web site, to report any problem with 

receiving that transmission. If the 

institution reports a problem within the 

five-day period, and the Department 

agrees that the institution did not cause 

the problem, the Department would 

extend the adjustment, challenge, and 

appeal deadlines and timeframes to 

account for retransmitting the package 

after the problem is resolved. If no 

problems are reported by the institution, 

the timeframe associated with filing or 

requesting the adjustment, challenge, or 

appeal would begin on the sixth day 

following the transmission date of the 

package that is posted on the 

Department’s Web site. The timeframes 

for the adjustments, challenges, and 

appeals, and eliminating the fifteen-day 

deadlines for requesting the loan record 

detail reports are reflected in 

§§ 668.190(b), 668.191(b), 668.192(b), 

and 668.193(c). 

The provisions in proposed § 668.186 

regarding electronic delivery of the loan 

detail report, and the proposed 

elimination, from subpart M provisions 

regarding adjustments, challenges and 

appeals, of the fifteen-day deadline for 

requesting a copy of the report, would 

also be reflected in the following 

parallel provisions in subpart N: 

§§ 668.209, 668.210, 668.211, and 

668.212. 

Reasons: These proposed changes 

merely update the regulations to reflect 

the shift from paper to electronic 

processes, as established by a notice 

published in the Federal Register on 

February 25, 2003 (68 FR 8746). 

Conforming Changes 

Statute: Section 428G(a)(4) and (b)(3) 

of the HEA provide that beginning 

October 1, 2011, an institution whose 

cohort default rate for each of the three 

most recent fiscal years is less than 15 


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percent (1) may disburse a FFEL loan in 

one installment for a period of 

enrollment that is no longer than one 

semester, trimester, quarter, or 4 

months; and (2) does not have to delay 

for 30 days disbursing a FFEL loan to a 

first year, first time borrower. These 

disbursement provisions currently 

apply only to an institution whose 

default rate is less than 10 percent. The 

HEOA added section 428G(a)(4) and 

(b)(3) to the HEA and, in doing so, 

substituted the 15 percent default rate 

for the 10 percent rate beginning on 

October 1, 2011. 

Current regulations: The FFEL 

regulations in § 682.604(c)(5) and (c)(8), 

and the corresponding Direct Loan 

regulations in §§ 685.301(b)(6) and 

685.303(b)(4), make the HEA’s 

disbursement benefits available only to 

institutions whose cohort default rate is 

less than 10 percent. 

Proposed regulations: We propose to 

amend § 668.604(c)(5) and (c)(8), 

668.301(b)(6), and 685.303(b)(4) to use 

the new 15 percent default threshold for 

FFEL and Direct Loans first disbursed 

on or after October 1, 2011. These 

proposed amendments would provide 

the disbursement benefits to an 

institution whose default rate, as 

calculated under either subpart M or 

subpart N, was less than 15 percent. 

Reasons: Because the Department will 

issue cohort default rates for fiscal years 

2009, 2010, and 2011 under both 

subpart M and subpart N, we believe it 

is reasonable to allow an institution to 

use the default rates under either 

subpart for its three most recent fiscal 

years to qualify for the disbursement 

benefits. For this reason, we have 

drafted proposed § 668.604(c)(5) and 

(c)(8), 668.301(b)(6), and 685.303(b)(4) 

to permit institutions to use either 

default rate. 

Statute: As amended by the HEOA, 

sections 487(f) and 498(k) of the HEA 

provide, in part, that an institution that 

conducts a teach-out at a site of a closed 

institution may have that site approved 

as an additional location if— 

(1) The closed institution ceased 

operations as a result of an emergency 

action or other action initiated by the 

Department to limit, suspend, or 

terminate the institution’s participation 

in the Title IV, HEA programs; and 

(2) The closed institution submitted a 

teach-out plan that was approved by its 

accrediting agency. 

Under section 498(k) of the HEA, as 

amended, an institution that conducts a 

teach-out under these circumstances is 

not responsible for any liabilities of the 

closed institution. 

Current Regulations: Current 

§ 668.184 describes how cohort default 

rates are calculated or determined for 

institutions that undergo a change in 

status. A change in status occurs 

whenever an institution acquires or 

merges with another institution, 

acquires a branch or location of another 

institution, or whenever a branch or 

location of an institution becomes a 

separate institution. For these cases, 

current § 668.184 describes how the 

default rate of the merged or acquired 

institution is blended with or used to 

determine the institution’s default rate 

before and after the change in status. 

Proposed Regulations: In a separate 

notice of proposed rulemaking and 

consistent with sections 487(f) and 

498(k) of the HEA, the Department 

intends to propose to amend 34 CFR 

600.32(d) to provide that the default rate 

of an institution that establishes an 

additional location at the site of a closed 

institution for which it conducted a 

teach-out would not be affected in any 

way by the closed institution’s cohort 

default rate. In light of the statutory 

changes and our intended amendment 

to 34 CFR 600.32(d), we propose to 

amend §§ 668.184(a)(1) and 

668.203(a)(1) to cross-reference 34 CFR 

600.32(d). 

Reasons: In keeping with the statutory 

intent to encourage an institution to 

conduct a teach-out of a closed 

institution, we view the cohort default 

rate of a closed institution as a nonmonetary liability that could dissuade 

an institution from conducting the 

teach-out if its cohort default rate would 

be adversely affected by the closed 

institution’s cohort default rate. For this 

reason, we believe that it is appropriate 

to ensure that the default rate of an 

institution that establishes an additional 

location at the site of a closed 

institution for which it conducted a 

teach-out would not be affected in any 

way by the closed institution’s cohort 

default rate. 

Entrance Counseling 

Counseling Borrowers (§§ 682.604 and 

685.304) 

Statute: Section 488(g) of the HEOA 

modified the entrance counseling that 

institutions are required to provide to 

first-time borrowers of FFEL or Direct 

Loan Program loans at or prior to the 

first disbursement of such loans. The 

HEOA added these requirements to new 

section 485(l) of the HEA. Prior to the 

enactment of the HEOA, the 

Department’s entrance counseling 

requirements were purely regulatory. 

Section 485(l) of the HEA modifies and 

expands on the Department’s current 

regulatory entrance counseling 

requirements in §§ 682.604 and 685.304. 

Under section 485(l) of the HEA, 

entrance counseling may be conducted 

during an in-person session, provided to 

a borrower in a separate notice that the 

borrower signs and returns to the 

institution, or provided to a borrower 

online or by interactive electronic 

means, with the borrower 

acknowledging receipt of the 

information. 

The entrance counseling required 

under section 485(l) of the HEA must 

include the following information: 

• To the extent practicable, the effect 

of accepting the loan to be disbursed on 

the eligibility of the borrower for other 

forms of student aid; 

• An explanation of the use of the 

master promissory note; 

• Information on how interest accrues 

and is capitalized during periods when 

the interest is not paid by the borrower 

or the Secretary; 

• For Unsubsidized Stafford Loans or 

PLUS Loans made under the FFEL or 

Direct Loan programs, the option of the 

borrower to pay the interest while in 

school; 

• The definition of half-time 

enrollment at the institution, during 

regular terms and summer school, and 

the consequences of not maintaining 

half-time enrollment; 

An explanation of the importance of 

contacting the appropriate offices at the 

institution if the borrower withdraws 

prior to completing the program of 

study so the institution can provide exit 

counseling, including information 

regarding the borrower’s repayment 

options and loan consolidation; 

• Examples of monthly repayment 

amounts based on a range of level of 

indebtedness of borrowers of Stafford 

Loans and, as appropriate, graduate 

borrowers of Stafford or PLUS loans, or 

the average cumulative indebtedness of 

other borrowers in the same programs as 

the borrower at the same institution; 

• The obligation of the borrower to 

repay the full amount of the loan, 

regardless of whether the borrower 

completes the program in which the 

borrower is enrolled within the regular 

time for completion; 

• The likely consequences of default 

on the loan, including adverse credit 

reports, delinquent debt collection 

procedures under Federal law, and 

litigation; 

• Information on the National 

Student Loan Data System (NSLDS) and 

how the borrower may access his or her 

records; and 

• The name and contact information 

of the individual a borrower can contact 

with questions regarding the borrower’s 

rights and responsibilities or the terms 

and conditions of the loan. 


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When providing entrance counseling, 

institutions are encouraged to use 

interactive programs to test the 

borrower’s understanding of the terms 

and conditions of their student loans. 

Current Regulations: For the FFEL 

Program, current § 682.604(f) requires a 

school to conduct initial counseling 

with each Stafford Loan borrower prior 

to its release of the first disbursement, 

unless the borrower has received a prior 

Stafford, SLS, or Direct Subsidized or 

Unsubsidized loan. Current 

§§ 682.604(f)(1) and 682.604(f)(5) 

describe what must be included in the 

initial counseling for Stafford Loan 

borrowers (e.g., an explanation of the 

use of a Master Promissory Note; the 

seriousness and importance of the 

repayment obligation the student 

borrower is assuming; and the likely 

consequences of default, including 

adverse credit reports, Federal offset, 

and litigation). 

Current § 682.604(f)(2) requires a 

school to ensure that initial counseling 

is conducted with each graduate or 

professional student PLUS loan 

borrower prior to its release of the first 

disbursement of the PLUS Loan, unless 

the student has received a prior FFEL 

PLUS loan or Direct PLUS loan. Current 

§ 682.604(f)(2) also specifies what must 

be included in the initial counseling for 

graduate or professional student PLUS 

Loan borrowers (e.g., sample monthly 

repayment amounts based on a range of 

student levels of indebtedness or on the 

average indebtedness of graduate or 

professional student PLUS loan 

borrowers, or student borrowers with 

Stafford and PLUS loans, depending on 

the types of loans the borrower has 

obtained, at the same school or in the 

same program of study at the same 

school). 

For both Stafford and PLUS loan 

borrowers, current § 682.604(f)(3) 

requires schools to conduct initial 

counseling either in person, by 

audiovisual presentation, or by 

interactive electronic means. Under 

current § 682.604(f)(6), if initial 

counseling is conducted through 

interactive electronic means, the school 

must take reasonable steps to ensure 

that each student borrower receives the 

counseling materials and participates in 

and completes the initial counseling. 

Current § 682.604(f)(4) requires a 

school to ensure that an individual with 

expertise in the Title IV programs is 

reasonably available shortly after the 

counseling to answer the student 

borrower’s questions regarding those 

programs. As an alternative, prior to 

releasing the proceeds of a loan in the 

case of a student borrower enrolled in 

a correspondence program or a student 

borrower enrolled in a study-abroad 

program that the home institution 

approves for credit, the counseling may 

be provided through written materials. 

Current § 682.604(f)(7) requires a 

school to maintain documentation 

substantiating the school’s compliance 

with the entrance counseling 

requirements for each student borrower. 

For the Direct Loan program, current 

§ 685.304(a) requires schools to ensure 

that initial counseling is conducted with 

each Direct Subsidized Loan or Direct 

Unsubsidized Loan student borrower 

prior to making the first disbursement of 

the proceeds of a loan to a student 

borrower unless the student borrower 

has received a prior Direct Subsidized, 

Direct Unsubsidized, FFEL Stafford, or 

Federal SLS Loan. 

Current § 685.304(b) requires schools 

to conduct initial counseling with each 

graduate or professional student Direct 

PLUS Loan borrower prior to making 

the first disbursement of the loan unless 

the student borrower has received a 

prior Direct PLUS Loan or FFEL PLUS 

Loan. 

The entrance counseling requirements 

specified in current §§ 685.304(a) and 

685.304(b) of the Direct Loan Program 

regulations correspond to the entrance 

counseling requirements in the FFEL 

program, except that, as provided for in 

current § 685.304(a)(5), a Direct Loan 

school may adopt an alternative 

approach for initial counseling as part of 

the school’s quality assurance plan. 

Proposed Regulations: The 

Department has restructured and 

modified § 682.604(f) of the FFEL 

regulations to align the regulations with 

section 485(l) of the HEA. Under 

proposed § 682.604(f)(3), initial 

counseling for Stafford and graduate or 

professional student PLUS Loan 

borrowers must provide comprehensive 

information on the terms and conditions 

of the loan and on the responsibilities 

of the borrower with respect to the loan. 

This information would be provided to 

the borrower during an entrance 

counseling session conducted in person; 

on a separate written form provided to 

the borrower that the borrower signs 

and returns to the school; or online or 

by interactive electronic means, with 

the borrower acknowledging receipt of 

the information. 

Proposed § 682.604(f)(4) would 

largely mirror current § 682.604(f)(6) by 

requiring a school that conducts initial 

counseling online or through interactive 

electronic means to take reasonable 

steps to ensure that each student 

borrower receives the counseling 

materials and participates in and 

completes the initial counseling. 

Consistent with new section 485(l)(1)(B) 

of the HEA, proposed § 682.604(f)(4) 

would also provide that such reasonable 

steps may include completion of any 

interactive program that tests the 

borrower’s understanding of the terms 

and conditions of the borrower’s loans. 

Proposed § 682.604(f)(5), which 

provides that a school must ensure that 

an individual with expertise in the Title 

IV programs is reasonably available 

shortly after the counseling to answer 

questions regarding those programs, 

would mirror current § 682.604(f)(4). 

The content of the initial counseling, 

which appears in current § 682.604(f)(1) 

and 682.604(f)(5), would be included, 

with modifications aligning the 

regulatory language with new section 

485(l) of the HEA, in proposed 

§ 682.604(f)(6) (for Stafford Loan 

borrowers) and § 682.604(f)(7) (for 

graduate and professional student PLUS 

Loan borrowers). Under proposed 

§ 682.604(f)(6), initial counseling for 

Stafford Loan borrowers must— 

• Explain the use of a Master 

Promissory Note; 

• Emphasize to the student borrower 

the seriousness and importance of the 

repayment obligation the student 

borrower is assuming; 

• Describe the likely consequences of 

default, including adverse credit 

reports, delinquent debt collection 

procedures under Federal law, and 

litigation; 

• In the case of a student borrower 

(for other than a loan made or originated 

by the school), emphasize that the 

student borrower is obligated to repay 

the full amount of the loan even if the 

student borrower does not complete the 

program, does not complete the program 

within the regular time for program 

completion, is unable to obtain 

employment upon completion, or is 

otherwise dissatisfied with or does not 

receive the educational or other services 

that the student borrower purchased 

from the school; 

• Inform the student borrower of 

sample monthly repayment amounts 

based on a range of student levels of 

indebtedness of Stafford loan borrowers, 

or student borrowers with Stafford and 

PLUS loans, depending on the types of 

loans the borrower has obtained; or the 

average indebtedness of other borrowers 

in the same program at the same school 

as the borrower; 

• To the extent practicable, explain 

the effect of accepting the loan to be 

disbursed on the eligibility of the 

borrower for other forms of student 

financial assistance; 

• Provide information on how 

interest accrues and is capitalized 

during periods when the interest is not 


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paid by either the borrower or the 

Secretary; 

• Inform the borrower of the option to 

pay the interest on an unsubsidized 

Stafford Loan while the borrower is in 

school; 

• Explain the definition of half-time 

enrollment at the school, during regular 

terms and summer school, if applicable, 

and the consequences of not 

maintaining half-time enrollment; 

• Explain the importance of 

contacting the appropriate offices at the 

school if the borrower withdraws prior 

to completing the borrower’s program of 

study so that the school can provide exit 

counseling, including information 

regarding the borrower’s repayment 

options and loan consolidation; 

• Provide information on NSLDS and 

how the borrower can access the 

borrower’s records; and 

• Provide the name of and contact 

information for the individual the 

borrower may contact if the borrower 

has any questions about the borrower’s 

rights and responsibilities or the terms 

and conditions of the loan. 

Under proposed § 682.604(f)(7), initial 

counseling for graduate or professional 

student PLUS Loan borrowers must— 

• Inform the student borrower of 

sample monthly repayment amounts 

based on a range of student levels of 

indebtedness of graduate or professional 

student PLUS loan borrowers, or 

student borrowers with Stafford and 

PLUS loans, depending on the types of 

loans the borrower has obtained; or the 

average indebtedness of other borrowers 

in the same program at the same school 

as the borrower; 

• Inform the borrower of the option to 

pay interest on a PLUS Loan while the 

borrower is in school; 

• For a graduate or professional 

student PLUS Loan borrower who has 

received a prior FFEL Stafford or Direct 

Subsidized or Unsubsidized loan, 

provide the information, specified in 

§ 682.603(d)(1)(i) through 

§ 682.603(d)(1)(iii), that compares 

Stafford and PLUS Loan interest rates, 

interest accrual periods, and repayment 

period begin dates; and 

• For a graduate or professional 

student PLUS Loan borrower who has 

not received a prior FFEL Stafford, or 

Direct Subsidized or Unsubsidized loan, 

provide the Stafford Loan initial 

counseling information specified in 

proposed § 682.604(f)(6)(i) through 

§ 682.604(f)(6)(xii). 

Corresponding initial counseling 

requirements for Direct Subsidized, 

Direct Unsubsidized, and Direct PLUS 

loan borrowers are included in 

proposed § 685.304(a)(1) through 

§ 685.304(a)(9) of the Direct Loan 

regulations. 

Reasons: These proposed 

amendments to §§ 682.694(f) and 

685.304(a) are intended to implement 

the changes made to section 485(l) of 

the HEA. The HEOA incorporated into 

the HEA many of the entrance 

counseling requirements already 

reflected in current §§ 682.694(f) and 

685.304(a) and also added several new 

requirements. In cases where the 

statutory language in the HEA is similar 

to current regulatory language, the 

Department modified the current 

regulations to track more closely the 

new statutory language. In cases where 

no current regulatory requirements 

exist, we propose to incorporate—with 

a few minor changes—the statutory 

language regarding the requirements 

into our regulations. To this end, the 

proposed regulations closely follow the 

language of section 485(l) of the HEA. 

For this reason, only a few issues 

generated extensive discussion during 

the negotiated rulemaking sessions. 

Initially, the Department proposed 

language that would allow schools to 

provide entrance counseling ‘‘online by 

interactive electronic means.’’ The nonFederal negotiators pointed out that the 

term ‘‘online’’ does not necessarily 

mean the same thing as ‘‘interactive.’’ 

The Department agreed with the nonFederal negotiators, and changed the 

wording of the proposed regulations to 

read ‘‘online or through interactive 

electronic means.’’ 

The draft language initially proposed 

by the Department for 

§ 682.604(f)(6)(v)(B) of the Stafford Loan 

entrance counseling requirements 

would have given schools the option to 

provide information on the ‘‘average 

cumulative indebtedness of other 

borrowers in the same program at the 

same school as the borrower’’ during 

Stafford Loan entrance counseling. The 

Department proposed similar language 

in proposed § 682.604(f)(7)(i)(B) for 

PLUS Loan entrance counseling. When 

presented with this draft language, the 

non-Federal negotiators expressed 

concern that requiring the provision of 

‘‘cumulative’’ indebtedness information 

could be misleading, especially in the 

case of graduate or professional student 

PLUS Loan borrowers, whose level of 

undergraduate indebtedness could vary 

significantly by the time the student 

enters a graduate or professional 

program. 

The Department agreed that the 

information on indebtedness provided 

to students would be more useful if it 

were limited to the average 

indebtedness incurred by the borrowers 

while they are in the program of study. 

For this reason, we agreed not to 

include the word ‘‘cumulative’’ in 

proposed §§ 682.604(f)(6)(v)(B) and 

682.604(f)(7)(i)(B), and to make 

corresponding changes in proposed 

§§ 685.304(a)(6)(v)(B) and 

685.304(a)(7)(i)(B) of the Direct Loan 

regulations. 

Some non-Federal negotiators raised 

questions about the scope of proposed 

§ 682.604(f)(6)(iv), which would require 

schools to inform borrowers that the 

borrower is responsible for repaying the 

loan, even if the borrower does not 

complete the program within the regular 

time for completion. The negotiators 

questioned how this requirement would 

affect requests for in-school deferments 

for borrowers who are attending less 

than full time. The Department 

responded that this requirement is 

unrelated to a borrower’s eligibility for 

an in-school deferment and that it 

merely would require that borrowers be 

informed that they are still obligated to 

repay the loan, even if it takes them a 

longer time to complete the program 

than is normally expected (as might be 

the case with a borrower attending less 

than full time). 

Exit Counseling 

Counseling Borrowers (§§ 674.42(b), 

682.604(g) and 685.304(b)) 

Statute: Section 488(b) of the HEOA 

modified section 485(b)(1)(A) of the 

HEA to require each eligible institution, 

through financial aid offices or 

otherwise, to conduct exit counseling 

for borrowers receiving loans made, 

insured or guaranteed under the FFEL 

Program (except for Consolidation 

Loans or Federal PLUS loans made to 

parent borrowers) or loans made under 

the Direct Loan Program (other than 

Federal Direct Consolidation Loans or 

Federal Direct PLUS loans made to 

parent borrowers) or made under the 

Perkins Loan Program prior to the 

completion of the borrower’s course of 

study or the borrower’s departure from 

the institution. Many of the exit 

counseling requirements in section 

485(b)(1)(A) of the HEA are similar to 

the exit counseling requirements in 

current 34 CFR §§ 674.42(b), 682.604(g), 

and 685.304(b). 

Section 485(b)(1)(A) of the HEA, as 

amended by the HEOA, requires exit 

counseling to include: 

• Information on repayment plans, 

including a description of the different 

features of each plan and samples 

showing average anticipated monthly 

payments with the difference in interest 

paid and total payments shown with 

each plan. 


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• Debt management strategies to 

assist the borrower in repaying the debt. 

• Options the borrower has to prepay 

each loan or pay each loan on a shorter 

schedule or to change repayment plans. 

• Information on loan forgiveness and 

cancellation provisions and the 

conditions under which the borrower 

may obtain full or partial forgiveness or 

cancellation of principal and interest. 

• Information on forbearance 

provisions and a general description of 

terms and conditions under which the 

borrower may defer repayment of 

principal or interest or be granted 

forbearance. 

• Information on the consequences of 

default on a loan, including adverse 

credit reports and delinquent debt 

collection procedures under Federal law 

and litigation. 

• Information with respect to 

Consolidation Loans to discharge FFEL, 

Direct Loan, and Perkins Loan program 

loans, which includes— 

(1) The effects of the consolidation on 

total interest to be paid, fees, and length 

of repayment; 

(2) The effect on a borrower’s 

underlying loan benefits, which 

includes grace periods, loan forgiveness, 

cancellation and deferment; 

(3) The option the borrower has to 

prepay the loan or to change repayment 

plans; and 

(4) That borrower benefit programs 

may vary depending on the lender. 

• A general description of the types of 

tax benefits that might be available to 

borrowers. 

• Information on how a borrower can 

use NSLDS to get information on the 

status of his or her loans. 

Current Regulations: Under current 

§§ 674.42(b), 682.604(g), and 685.304(b), 

schools must ensure that exit counseling 

is conducted with Perkins, FFEL 

Stafford, and Direct Subsidized and 

Unsubsidized Loan borrowers. These 

regulations provide that (a) the exit 

counseling must be conducted with 

each borrower either in person, by 

audiovisual presentation, or by 

interactive electronic means; (b) exit 

counseling must be conducted shortly 

before the student borrower ceases at 

least half-time study at the school; and 

(c) an individual with expertise in the 

Title IV programs is reasonably 

available shortly after the counseling to 

answer the student borrower’s 

questions. Current §§ 674.42(b)(1), 

682.604(g)(1), and 685.304(b)(2) also 

provide that, in the case of a student 

borrower enrolled in a correspondence 

program or a study-abroad program that 

the home institution approves for credit, 

written counseling materials may be 

provided by mail within 30 days after 

the student borrower completes the 

program. Under §§ 674.42(b)(1), 

682.604(g)(1), and 685.304(b)(3), if a 

student borrower withdraws from 

school without the school’s prior 

knowledge or fails to complete an exit 

counseling session as required, the 

school must ensure that exit counseling 

is provided through either interactive 

electronic means or by mailing written 

counseling materials to the student 

borrower at the student borrower’s last 

known address within 30 days after 

learning that the student borrower has 

withdrawn from school or failed to 

complete the exit counseling as 

required. 

If exit counseling is conducted by 

electronic interactive means, under 

current §§ 674.42(b)(3), 682.604(g)(3), 

and 685.304(b)(6), the school must take 

reasonable steps to ensure that each 

Perkins, FFEL Stafford and Direct 

Subsidized and Unsubsidized Loan 

student borrower receives the 

counseling materials, and participates in 

and completes the counseling. 

Under current §§ 674.42(b)(4), 

682.604(g)(4), and 685.304(b)(7), the 

school must maintain documentation 

substantiating the school’s compliance 

with the exit counseling requirements 

for each Perkins, FFEL Stafford, and 

Direct Subsidized and Unsubsidized 

Loan student borrower. 

As specified in current 

§§ 674.42(b)(2), 682.604(g)(2), and 

685.304(b)(4), the exit counseling for 

Perkins, FFEL Stafford, and Direct 

Subsidized and Unsubsidized Loan 

borrowers must— 

• Inform the student borrower of the 

average anticipated monthly repayment 

amount based on the student borrower’s 

indebtedness or on the average 

indebtedness of student borrowers who 

have obtained the same types of Title IV 

loans the student borrower has obtained 

for attendance at the same school or in 

the same program of study at the same 

school; 

• Review loan consolidation for the 

student borrower; 

• Suggest to the student borrower 

debt-management strategies that would 

facilitate repayment; 

• Include the entrance counseling 

topics described in the FFEL regulations 

in § 682.604(f)(2)(i) (use of the Master 

Promissory Note), § 682.604(f)(2)(ii) 

(seriousness of the repayment 

obligation), § 682.604(f)(2)(iii) 

(consequences of default), and 

§ 682.604(f)(2)(iv) (obligation to repay 

despite the failure of a borrower to 

complete the program); 

• Review for the student borrower the 

conditions under which the student 

borrower may defer or forbear 

repayment or obtain a full or partial 

forgiveness, discharge or cancellation of 

a loan; 

• Require the student borrower to 

provide current information concerning 

name, address, social security number, 

references, and driver’s license number 

and State of issuance, as well as the 

student borrower’s expected permanent 

address, the address of the student 

borrower’s next of kin, and the name 

and address of the student borrower’s 

expected employer (if known); 

• Review for the student borrower 

information on the availability of the 

Student Loan Ombudsman’s office; and 

• Inform the student borrower of the 

availability of Title IV loan information 

in the National Student Loan Data 

System (NSLDS). 

In addition, current § 685.304(b)(4)(iv) 

of the Direct Subsidized and 

Unsubsidized Loan regulations requires 

that exit counseling for a Direct 

Subsidized and Unsubsidized Loan 

borrower must explain to the borrower 

how to contact the party servicing the 

borrower’s Direct Loan. For FFEL 

Stafford and Direct Subsidized and 

Unsubsidized Loan borrowers, the exit 

counseling must review available 

repayment plan options (see current 

§§ 682.604(g)(2)(ii) and 685.304(b)(4)(ii)) 

and explain the use of the Master 

Promissory Note (see current 

§§ 682.604(g)(2)(iv) and 

685.304(b)(4)(v)). 

Proposed Regulations: Because the 

HEA incorporated the majority of the 

exit counseling requirements from the 

Department’s current regulations, 

proposed § 674.42(b) (Perkins Loan exit 

counseling), § 682.604(g) (FFEL Stafford 

Loan exit counseling), and § 685.304(b) 

(Direct Subsidized and Unsubsidized 

Loan exit counseling) would continue to 

include the substantive requirements 

from current §§ 674.42(b), 682.604(g) 

and 685.304(b). The major proposed 

changes would be as follows: 

Exit Counseling for Perkins Loan 

Borrowers (§ 674.42(b)) 

• The addition of § 674.42(b)(2)(ii), 

which would require that exit 

counseling explain the options the 

borrower has to prepay each loan and 

pay each loan on a shorter schedule. 

• The redesignation of current 

§ 674.42(b)(2)(ii) as proposed 

§ 674.42(b)(2)(iii) and revision of the 

section to focus on reviewing for the 

borrower the option to consolidate a 

Federal Perkins Loan and the 

consequences of doing so. 

• The addition of a new 

§ 674.42(b)(2)(v), which would require 

that exit counseling explain the use of 

a master promissory note. 


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• The redesignation of current 

§ 674.42(b)(2)(v) as proposed 

§ 674.42(b)(2)(vii) and revision of the 

section to include, in the required 

description of the likely consequences 

of default, delinquent debt collection 

procedures under Federal law. 

• The redesignation of current 

§ 674.42(b)(2)(vi) as proposed 

§ 674.42(b)(2)(viii) and revision of the 

section to include, as part of Perkins 

Loan exit counseling, information about 

the borrower’s obligation to repay the 

full amount of the loan even if the 

borrower has not completed the 

program within the regular time for 

completion. 

• The redesignation of current 

§ 674.42(b)(2)(vii) as proposed 

§ 674.42(b)(2)(ix) and revision of the 

section to require that exit counseling 

provide a general description of the 

terms and conditions under which a 

borrower may obtain full or partial 

forgiveness or cancellation of principal 

and interest, defer repayment of 

principal or interest, or be granted an 

extension of the repayment period or a 

forbearance on a Title IV loan; and a 

copy, either in print or by electronic 

means, of the information the Secretary 

makes available pursuant to section 

485(d)of the HEA. 

• The addition of language in 

proposed § 674.42(b)(2)(xi) (current 

§ 674.42(b)(2)(viii)) to clarify that exit 

counseling must not only inform the 

student borrower of the availability of 

information in the National Student 

Loan Data System (NSLDS), but also 

how the NSLDS can be used to obtain 

title IV loan status information. 

• The addition of new 

§ 674.42(b)(2)(xii), which would require 

exit counseling to include a general 

description of the types of tax benefits 

that may be available to borrowers. 

Exit Counseling for FFEL Stafford Loan 

Borrowers (§ 682.604(g)) 

• The revision of current 

§ 682.604(g)(2)(i) to include borrowers 

who have only obtained PLUS Loans, in 

addition to borrowers who have 

obtained both PLUS and Stafford Loans. 

• The revision of current 

§ 682.604(g)(2)(ii) to include, as part of 

the review of borrower repayment plans, 

a description of the different features of 

each repayment plan and sample 

information showing the average 

anticipated monthly payments, and the 

difference in interest paid under each 

plan. 

• The addition of a new 

§ 682.604(g)(2)(iii), which would require 

that exit counseling explain the options 

the borrower has to prepay each loan, 

pay each loan on a shorter schedule, 

and change repayment plans. 

• The addition of a new 

682.604(g)(2)(iv), which would require 

exit counseling to provide information 

on the effects of loan consolidation. 

• The redesignation of current 

§ 682.604(g)(2)(iii) as § 682.604(g)(2)(v), 

and the revision of the section to require 

that exit counseling ‘‘include’’ debtmanagement strategies rather than 

‘‘suggest’’ debt-management strategies. 

• The redesignation of current 

§ 682.604(g)(2)(iv) as § 682.604(g)(2)(vi), 

with no other changes except to update 

the cross-references. 

• The addition of new 

§ 682.604(g)(2)(vii) to describe the likely 

consequences of default, including the 

delinquent debt collection procedures 

under Federal law and litigation. 

• The redesignation of current 

§ 682.604(g)(2)(v) as § 682.604(g)(2)(viii), 

and revision of the section to require 

that exit counseling provide a general 

description of the terms and conditions 

under which a borrower may obtain full 

or partial forgiveness or cancellation of 

principal and interest, defer repayment 

of principal or interest, or be granted an 

extension of the repayment period or a 

forbearance on a title IV loan; and a 

copy, either in print or by electronic 

means, of the information the Secretary 

makes available pursuant to section 

485(d)of the HEA. 

• The redesignation of current 

§ 682.604(g)(2)(vi) as § 682.604(g)(2)(ix), 

with no other revisions. 

• The redesignation of current 

§ 682.604(g)(2)(vii) as § 682.604(g)(2)(x), 

with no other revisions. 

• The redesignation of current 

§ 682.604(g)(2)(viii) as 

§ 682.604(g)(2)(xi), and the addition of 

language to clarify that exit counseling 

must not only inform the student 

borrower of the availability of 

information in the National Student 

Loan Data System (NSLDS), but also 

how the NSLDS can be used to obtain 

title IV loan status information. 

• The addition of new 

§ 682.604(g)(2)(xii), which would 

require exit counseling to include a 

general description of the types of tax 

benefits that may be available to 

borrowers. 

Exit Counseling for Direct Subsidized 

and Unsubsidized Loan Borrowers 

(§ 685.304(b)) 

• The revision of current 

§ 685.304(b)(4)(i) to include borrowers 

who have only obtained PLUS Loans, in 

addition to borrowers who have 

obtained both PLUS and Stafford Loans. 

• The revision of current 

§ 685.304(b)(4)(ii) to include, as part of 

the review of borrower repayment plans, 

a description of the different features of 

each repayment plan and sample 

information showing the average 

anticipated monthly payments, and the 

difference in interest paid under each 

plan. 

• The addition of a new 

§ 685.304(b)(4)(iii), which would require 

that exit counseling explain the options 

the borrower has to prepay each loan, 

pay each loan on a shorter schedule, 

and change repayment plans. 

• The addition of a new 

§ 685.304(b)(4)(iv), which would require 

exit counseling to provide information 

on the effects of loan consolidation. 

• The redesignation of current 

§ 685.304(b)(4)(iii) as § 685.304(b)(4)(v), 

and the revision of the section to require 

that exit counseling ‘‘include’’ debtmanagement strategies rather than 

‘‘suggest’’ debt-management strategies. 

• The redesignation of current 

§ 685.304(b)(4)(iv) as § 685.304(b)(4)(vi), 

with no other changes. 

• The redesignation of current 

§ 685.304(b)(4)(v) as § 685.304(b)(4)(vii), 

with no other changes except to update 

the cross-references. 

• The addition of new 

§ 685.304(b)(4)(viii) to describe the 

likely consequences of default, 

delinquent debt collection procedures 

under Federal law and litigation. 

• The redesignation of current 

§ 685.304(b)(4)(vii) as § 685.304(b)(4)(ix) 

and revision of the section to require 

that exit counseling provide a general 

description of the terms and conditions 

under which a borrower may obtain full 

or partial forgiveness or cancellation of 

principal and interest, defer repayment 

of principal or interest, or be granted an 

extension of the repayment period or a 

forbearance on a title IV loan; and a 

copy, either in print or by electronic 

means, of the information the Secretary 

makes available pursuant to section 

485(d) of the HEA. 

• The redesignation of current 

§ 685.304(b)(4)(vii) as § 685.304(b)(4)(x), 

with no other revisions. 

• The redesignation of current 

§ 685.304(b)(4)(viii) as 

§ 685.304(b)(4)(xi) and the addition of 

language to clarify that exit counseling 

must not only inform the student 

borrower of the availability of 

information in the National Student 

Loan Data System (NSLDS), but also 

how the NSLDS can be used to obtain 

title IV loan status information. 

• The addition of new 

§ 685.304(b)(4)(xii), which would 

require exit counseling to include a 

general description of the types of tax 

benefits that may be available to 

borrowers. 


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37454 Federal Register / Vol. 74, No. 143 / Tuesday, July 28, 2009 / Proposed Rules 

• The redesignation of current 

§ 685.304(b)(4)(ix) as 

§ 685.304(b)(4)(xiii), with no other 

revisions. 

Reasons: These proposed 

amendments to §§ 674.42(b), 682.604(g), 

and 685.304(b) are intended to align the 

Department’s exit counseling 

requirements for its Perkins Loan, FFEL 

Stafford, and Direct Subsidized and 

Unsubsidized Loan programs with the 

exit counseling requirements added to 

section 485(b)(1)(A) of the HEA by 

section 488(b) of the HEOA. 

For the most part, we were able to 

simply incorporate the statutory 

language from section 485(b)(1)(A) of 

the HEA into our current regulations. 

One exception includes the requirement 

that exit counseling include reviewing 

with the borrower different repayment 

plan options. Perkins Loan borrowers, 

unlike FFEL Stafford and Direct 

Subsidized and Unsubsidized Loan 

borrowers, do not have the option to 

choose among different repayment 

plans. For this reason, we did not 

include this requirement in the Perkins 

Loan regulations. 

In addition to implementing the 

statutory changes made by the HEOA, 

we also propose to amend the Perkins 

Loan exit counseling requirements to 

include explaining the use of a Master 

Promissory Note (MPN). The MPN has 

been in use for the Perkins Loan 

program since August 2003, and the 

Department believes it is appropriate to 

require schools to explain the use of the 

MPN as part of Perkins Loan exit 

counseling, just as we do for FFEL and 

Direct Loan exit counseling. 

Several questions and concerns 

relating to the exit counseling 

requirements in the proposed 

regulations were discussed at the 

negotiated rulemaking sessions. 

Although explaining the use of the 

Master Promissory Note (MPN) during 

exit counseling has been a long-standing 

requirement in the FFEL Stafford and 

Direct Subsidized and Unsubsidized 

Loan programs, non-Federal negotiators 

questioned the value of explaining how 

the MPN works during exit counseling, 

at a time when the borrower has already 

received his or her student loans and is 

about to leave the school. The 

Department responded that an MPN 

may be used for up to ten years after a 

borrower initially signs it. Therefore, we 

believe that it would be helpful to 

remind the borrower—during exit 

counseling—that the borrower may 

continue to use the MPN to borrow Title 

IV loans if the borrower returns to 

school before the 10-year period expires. 

Non-Federal negotiators asked the 

Department to clarify the meaning of the 

term ‘‘delinquent debt collection 

procedures under Federal law.’’ The 

Department responded that these 

procedures refer to debt collection 

procedures under the Fair Debt 

Collection Act. During this discussion, 

the Department also noted that the exit 

counseling session would be an 

appropriate time for schools to advise 

FFEL Stafford and Perkins Loan 

borrowers that defaulted FFEL Stafford 

and Perkins Loans may be assigned to 

the Department of Education. In cases 

where the Department accepts the loan 

assignment, borrowers who have 

defaulted on these loans are subject to 

Federal income tax offset. 

Non-Federal negotiators also asked if 

providing borrowers with the 

information relating to forbearance, 

deferment, forgiveness, discharge and 

cancellation that appears on the 

borrower’s MPN would be sufficient to 

meet the requirement of providing a 

description of the terms and conditions 

for obtaining these benefits under 

proposed §§ 674.42(b)(2)(ix)(A), 

682.604(g)(2)(viii)(A), and 

685.304(b)(4)(ix)(A). The Department 

responded that the information relating 

to these benefits available on the MPNs 

is necessarily limited. For this reason, 

we expect schools to provide more 

detailed and comprehensive 

information on these benefits during 

exit counseling. 

Non-Federal negotiators asked about 

the information relating to 

Consolidation Loans that schools are 

required to provide, particularly with 

regard to changing repayment plans. 

Non-Federal negotiators pointed out 

that the Perkins Loan Program does not 

have different repayment plans, and that 

Perkins borrowers do not have this 

option. The Department clarified that 

the reference to changing repayment 

plans in proposed § 674.42(b)(2)(iii)(C) 

refers to the Consolidation Loan, not the 

Perkins Loan. If a borrower consolidates 

his or her Perkins Loan into a FFEL or 

Direct Consolidation Loan, the terms 

and conditions of the Perkins Loan are 

replaced by the terms and conditions of 

the Consolidation Loan. Borrowers with 

Consolidation Loans have the option to 

change repayment plans on the 

Consolidation Loan. 

Special Definitions (§ 674.51) 

Statute: The HEOA amended section 

465(a) of the HEA by expanding the 

existing teacher, Head Start, and law 

enforcement cancellation categories to 

include: 

• A teacher in a designated lowincome elementary or secondary school 

who is employed by, or working in a 

school operated by, an educational 

service agency (see new section 

465(a)(2)(A) of the HEA). 

• Full-time special education teacher, 

including teachers of infants, toddlers, 

children, or youth with disabilities, in a 

public or other nonprofit elementary or 

secondary school system administered 

by an educational service agency (see 

new section 465(a)(2)(C) of the HEA). 

• Full-time staff members in a prekindergarten or childcare program that 

is licensed or regulated by the State (see 

new section 465(a)(2)(B) of the HEA). 

• Full-time attorneys employed in 

Federal Public Defender Organizations 

or Community Defender Organizations, 

established in accordance with section 

3006A(g)(2) of title 18, U.S.C. (see new 

section 465(a)(2)(F) of the HEA). 

Section 465(a) of the HEA also was 

amended to allow for cancellation 

benefits for the following additional 

categories of borrowers: 

• Full-time fire fighters with a local, 

State, or Federal fire department or fire 

district (see new section 465(a)(2)(J) of 

the HEA). 

• Full-time faculty members at a 

Tribal College or University, as defined 

in section 316 of the HEA (see new 

section 465(a)(2)(K) of the HEA). 

• Librarians with a master’s degree in 

library science who are employed in an 

elementary or secondary school that 

qualifies for funding under title I of the 

Elementary and Secondary Education 

Act of 1965, as amended, or in a public 

library that serves a geographic area that 

includes one or more Title I schools (see 

new section 465(a)(2)(L) of the HEA). 

• Full-time speech-language 

pathologists with a master’s degree who 

are working exclusively with Title I 

eligible schools (see new section 

465(a)(2)(M) of the HEA). 

Current regulations: Current § 674.51 

contains the definitions of key terms in 

the Federal Perkins Loan program 

regulations. 

Proposed regulations: With the 

statutory expansion of the categories of 

borrowers eligible for cancellation 

benefits under the Perkins program, it is 

necessary to make several amendments 

to § 674.51. 

For purposes of determining 

cancellation benefits under § 674.53 

(Teacher cancellation—Federal Perkins, 

NDSL and Defense loans), we propose to 

define the term education service 

agency as a regional 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 (see 

proposed § 674.51(g)). 


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For purposes of determining 

cancellation benefits under § 674.57 

(Cancellation for law enforcement or 

corrections officer service—Federal 

Perkins, NDSL and Defense loans), the 

Secretary proposes to define the term 

Community Defender Organizations as 

defender organizations established in 

accordance with section 3006A(g)(2)(B) 

of title 18, United States Code (see 

proposed § 674.51(e)), and the term 

Federal Public Defender Organization as 

defender organizations established in 

accordance with section 3006A(g)(2)(A) 

of title 18, United States Code (see 

proposed § 674.51(j)). 

For purposes of implementing the 

cancellation benefits for full-time 

faculty members at a Tribal College or 

University, full-time firefighters, 

librarians with a master’s degree, and 

full-time speech pathologists with a 

master’s degree under § 674.56 

(employment cancellation—Federal 

Perkins, NDSL and Defense loans), the 

Secretary proposes to add the following 

definitions to § 674.51: 

A faculty member at a Tribal College 

or University is 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 (see proposed § 674.51(i)). 

A Tribal College or University is an 

institution that 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 is cited 

in section 532 of the Equity in 

Education Land Grant Status Act of 

1994 (7 U.S.C. 301 note) (see proposed 

§ 674.51(bb)). 

A firefighter is an individual who is 

employed by a Federal, State, or local 

firefighting agency to extinguish 

destructive fires or provides firefighting 

related services such as (a) providing 

community disaster support and, as a 

first responder, emergency medical 

services; (b) conducting search and 

rescue; or (c) providing hazardous 

material mitigation (HAZMAT) (see 

proposed § 674.51(k)). 

A librarian with a master’s degree is 

an information professional trained in 

library or information science who has 

obtained a postgraduate academic 

degree awarded after the completion of 

an academic program in library science 

of up to six years in duration, excluding 

a doctorate or professional degree (see 

proposed § 674.51(o)). 

A speech language pathologist with a 

master’s degree is an individual who 

evaluates or treat 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 and has obtained a 

postgraduate academic degree awarded 

after the completion of an academic 

program of up to six years in duration, 

excluding a doctorate or professional 

degree. 

Finally, as noted earlier in this 

preamble, Team I, the negotiating 

committee responsible for regulations 

involving issues related to lender and 

general loan issues, negotiated proposed 

definitions for the terms substantial 

gainful activity and total and permanent 

disability, as those terms are used in the 

Perkins Loan Program regulations. In 

proposed § 674.51(x), the term 

substantial gainful activity is defined as 

a level of work performed for pay or 

profit that involves doing significant 

physical or mental activities, or a 

combination of both. Proposed 

§ 674.51(aa) would define total and 

permanent disability as the condition of 

an individual who (a) 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 (b) has been determined by 

the Secretary of Veteran Affairs to be 

unemployable due to a serviceconnected disability. In addition to 

incorporating new definitions to 

implement the expanded cancellation 

benefits provided by the HEOA, we 

propose to update a few of the 

longstanding definitions in § 674.51 that 

are based on the Individuals with 

Disabilities Education Act (IDEA), 

which was reauthorized in 2004. 

Specifically, we propose to replace the 

current definition of the term children 

and youth with disabilities with the 

definition of the term child with a 

disability and the definition of the term 

infants and toddlers with disabilities 

with the definition of the term infant or 

toddler with a disability. These 

proposed definitions align with the 

definitions of these terms in the IDEA. 

Reasons: We propose to revise 

§ 674.51 to incorporate the definitions of 

key terms that are used in section 465(a) 

of the HEA, as amended by the HEOA. 

Definitions of the terms Community 

Defender Organizations, education 

service agency, Federal Public Defender 

Organization, and Tribal College or 

University would be based on the 

statutory language referencing their 

definitions in the HEA. 

The Department developed 

definitions for the terms faculty member 

at a Tribal College or University, 

firefighter, librarian with a master’s 

degree, and speech language pathologist 

with a master’s degree by considering 

the generally accepted meaning of these 

terms as well as the discussion of these 

terms during the negotiated rulemaking 

sessions. During the sessions, there was 

much discussion about how broad these 

definitions should be. The general 

consensus was that the definitions 

should be written to incorporate as 

many eligible borrowers as possible for 

the expanded cancellation benefits. The 

proposed definitions reflect the 

consensus of Team II. 

Expansion of Teacher, Head Start, and 

Law Enforcement Cancellation 

Categories (§§ 674.53, 674.57, 674.58) 

Statute: Effective August 14, 2008, 

section 465 of the HEOA expanded the 

existing teacher, Head Start, and law 

enforcement cancellation provisions in 

section 465(a) of the HEA. 

The cancellation for borrowers who 

teach in a designated low-income 

elementary or secondary school 

authorized by section 465(a)(2)(A) of the 

HEA has been expanded to include 

borrowers who are employed by an 

educational service agency as that term 

is defined section 481(f) of the HEA. 

The cancellation for full-time staff 

members in a Head Start preschool 

program authorized by section 

465(a)(2)(B) of the HEA has been 

expanded to include borrowers who are 

full-time staff members in a prekindergarten or childcare program that 

is licensed or regulated by the State. The 

cancellation authorized by section 

465(a)(2)(C) of the HEA for borrowers 

who are full-time special education 

teachers, including teachers of infants, 

toddlers, children, or youth with 

disabilities in a public or other 

nonprofit elementary or secondary 

school system, has been expanded to 

include borrowers who are special 

education teachers in a system 

administered by an educational service 

agency. Lastly, the cancellation for fulltime local, State, or Federal law 

enforcement or corrections officers 

authorized by section 465(a)(2)(F) of the 

HEA has been expanded to include fulltime attorneys employed in Federal 

Public Defender Organizations or 

Community Defender Organizations 

established in accordance with section 


pwalker on DSK8KYBLC1PROD with PROPOSALS4
37456 Federal Register / Vol. 74, No. 143 / Tuesday, July 28, 2009 / Proposed Rules 

3006A(g)(2) of title 18 of the United 

States Code. 

Effective August 14, 2008, an 

institution must cancel up to 100 

percent of the outstanding balance of a 

borrower’s NDSL, Defense, or Federal 

Perkins loan for eligible service 

performed in each of these expanded 

cancellation categories. 

Current Regulations: Current § 674.53 

of the Perkins Loan Program regulations 

requires an institution to cancel up to 

100 percent of the outstanding balance 

on a Perkins Loan for borrowers who 

perform eligible service as a: 

• Full-time teacher in a designated 

elementary or secondary school serving 

low-income families; 

• Full-time special education teacher 

(including teaching children with 

disabilities in a public or other 

nonprofit elementary or secondary 

school); 

• Full-time teacher of math, science, 

foreign languages, bilingual, or other 

fields designated as teacher shortage 

areas. 

Current § 674.57 requires an 

institution to cancel up to 100 percent 

of the outstanding balance of a Perkins 

Loan for borrowers who perform eligible 

service as a full-time local, State, or 

Federal law enforcement or corrections 

officer and who are employed by an 

eligible employing agency. Lastly, 

current § 674.58 requires an institution 

to cancel up to 100 percent of the 

outstanding balance of a Perkins Loan 

for borrowers who perform eligible 

service as a full-time staff member in the 

educational component of a Head Start 

program. 

Proposed regulations: The proposed 

changes to §§ 674.53, 674.57, 674.58 

would extend the new cancellation 

categories to current Federal Perkins 

Loan borrowers with outstanding 

balances on loans already in repayment 

and all new borrowers who perform 

eligible service that includes August 14, 

2008, or begins on or after that date, 

regardless of whether information on 

the expanded cancellation categories 

appears on the borrower’s promissory 

note. 

Under proposed § 674.53, a teacher 

who is employed by an educational 

service agency, or a full-time special 

education teacher, including teachers of 

infants, toddlers, children, or youth 

with disabilities, who is working in a 

system administered by an educational 

service agency, is eligible for 

cancellation benefits. 

We propose to amend the cancellation 

provisions for law enforcement or 

correction officer regulations in § 674.57 

to include borrowers who are employed 

full-time as an attorney in Federal 

Public Defender Organizations or 

Community Defender Organizations 

established in accordance with section 

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

Code. The HEA provides for 

cancellation benefits for public 

defenders that work in these community 

defender organizations and Federal 

courts only. State public defenders 

(unless they are employed by one of the 

specified organizations) are not eligible 

for cancellation benefits under this 

provision. 

Consistent with section 465(a)(2)(B) of 

the HEA, the Secretary proposes to 

amend current § 674.58 of the Head 

Start cancellation provisions by 

expanding cancellation benefits to 

include borrowers who are performing 

qualifying service as full-time staff 

members in a pre-kindergarten or 

childcare program that is licensed or 

regulated by the State. We propose to 

change the heading of § 674.51 to 

Cancellation for service in an early 

childhood education program to reflect 

the fact that the expansion of 

cancellation benefits available to 

borrowers under this provision are no 

longer limited to service in early 

childhood education programs 

authorized by the Head Start Act. We 

also propose to add ‘‘pre-kindergarten or 

child care program’’ to the definition of 

‘‘full-time staff member’’ in § 674.58. 

We propose to add definitions of the 

terms pre-kindergarten program and 

child care program to § 674.58(c). A prekindergarten program would be defined 

as a State-funded program that serves 

children from birth through age six and 

addresses the children’s cognitive 

(including language, early literacy, and 

early mathematics), social, emotional, 

and physical development (see 

proposed § 674.58(c)(2)). A child care 

program would be defined as a program 

that is licensed and regulated by the 

State and provides child care services 

for fewer than 24 hours per day per 

child, unless care in excess of 24 

consecutive hours is needed due to the 

nature of the parents’ work (see 

proposed § 674.58(c)(3)). 

Reasons: We are proposing to make 

changes to §§ 674.53, 674.57, and 674.58 

to ensure that the Department’s 

regulations reflect the expansion of 

benefits that are now available for 

borrowers in the Federal Perkins Loan 

program as a result of the enactment of 

the HEOA. 

It is important to note that in order to 

be consistent with Team I’s 

development of the proposed 

regulations for the teacher loan 

forgiveness program contained in the 

Federal Family Education Loan (FFEL) 

and William D. Federal Direct Loan 

(Direct Loan) programs, the Department 

proposed regulatory language to allow 

borrowers in the Perkins Loans program 

to receive credit for a full year of 

cancellation, as long as the eligible 

service crossed over the enactment date 

of August 14, 2008. The non-Federal 

negotiators agreed with this proposal as 

it will ensure equitable treatment of 

borrowers in all three loan programs. 

Addition of New Public Service 

Cancellation Categories (§ 674.56) 

Statute: Section 465 of the HEOA 

amended section 465(a)(2) of the HEA 

by adding the following new public 

service cancellation categories for 

borrowers in the Federal Perkins Loan 

program who are performing qualifying 

service: 

• Full-time faculty members at a 

Tribal College or University, as that 

term is defined in section 316 of the 

HEA. 

• Full-time fire fighters who serve a 

local, State, or Federal fire department 

or fire district. 

• Librarians with a master’s degree in 

library science who are employed in an 

elementary or secondary school that 

qualifies for Title I funding, or in a 

public library that serves a geographic 

area that includes one or more Title Ieligible schools. 

• Full-time speech-language 

pathologists with a master’s degree who 

are working exclusively with Title Ieligible schools. 

Current Regulations: None. 

Proposed regulations: The Secretary 

proposes to amend § 674.56 to 

incorporate the new public service 

employment cancellations for borrowers 

in the Federal Perkins Loan program 

who are performing qualifying service 

as full-time faculty members at a Tribal 

College or University, full-time fire 

fighters who serve a local, State, or 

Federal fire department or fire district, 

librarians with a master’s degree in 

library science, and full-time speechlanguage pathologists with a master’s 

degree. 

Under proposed § 674.56, current 

borrowers with outstanding balances on 

loans already in repayment and all new 

borrowers who perform eligible service 

that includes August 14, 2008, or begins 

on or after that date, in these new 

cancellation categories, would qualify 

for cancellation, regardless of whether 

the cancellation category appears on the 

borrower’s promissory note. 

Reasons: The Secretary proposes to 

amend § 674.56 (Employment 

cancellation—Federal Perkins, NDSL 

and Defense loans) to incorporate the 

new public service employment 


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cancellations reflected in amended 

section 465(a) of the HEA. 

Military Service Cancellation (§ 674.59) 

Statute: Section 465 of the HEOA 

amended section 465(a)(3)(A) of the 

HEA to eliminate the provision that 

limited cancellation for eligible military 

service to 50 percent of a borrower’s 

outstanding balance on his or her 

Perkins Loan. 

Current regulations: Current § 674.59 

provides that Federal Perkins Loan 

borrowers who are serving in areas of 

hostility are eligible for cancellation of 

up to 50 percent of their outstanding 

balance, in increments of 12 percent a 

year for each full year of active duty 

service, if the borrower is serving in an 

area of imminent danger that qualifies 

for special pay under section 310 of title 

37 of the United States Code. 

Proposed regulations: Proposed 

§ 674.59 would amend the cancellation 

rate for each year of qualifying service 

for the military service cancellation. 

Specifically, borrowers who are serving 

in areas of hostility are now eligible to 

receive a cancellation of up to 100 

percent of the loan for each full year of 

active duty service that includes August 

14, 2008, or begins on or after that date 

in the following increments: 15 percent 

for the first and second years of service; 

20 percent for the third and fourth years 

of service; and, 30 percent for the fifth 

year of service. 

Reasons: The changes in the military 

service cancellation provisions 

implement the new statutory changes in 

the Federal Perkins Loan program as a 

result of the HEOA. 

Executive Order 12866 

1. 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 the new part E to 

the HEA, Lender and Institution 

Requirements Relating to Education 

Loans, which establishes extensive new 

disclosure requirements for lenders and 

institutions participating in Federal and 

private student loan programs. These 

regulations also implement significant 

changes made by the HEOA to 

provisions related to institutional cohort 

default rates and Perkins Loan 

cancellations. 

In general, these 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: 

Preferred lender arrangement: In 

defining a preferred lender arrangement, 

the Secretary determined that such an 

arrangement does not exist for private 

education loans that a covered 

institution makes to its own students, as 

long as the private education loan is 

funded by the covered institution’s own 

funds; is funded by donor-directed 

contributions; is made under title VII or 

title VIII of the Public Service Health 

Act; or is made under an institutional 

repayment plan of the covered 

institution. 

Disclosures from schools with 

preferred lender lists: In response to 

concerns from a number of non-Federal 

negotiators, the Secretary considered 

whether to require institutions to 

‘‘provide’’ students and parents with the 

required materials or, as suggested by 

the non-Federal negotiators, ‘‘make 

available’’ the required materials. As 

discussed elsewhere in this preamble, 

the Secretary determined that a 

requirement to provide the materials 

was more appropriate. 

Private loan self-certification forms: 

The Secretary determined that private 

education loan borrowers should be 

required to fill out self-certification 

forms even if the lender is their 

institution. 

Definition of ‘‘gift’’: In defining the 

term gift for the purposes of institutional 

codes of conduct, section 487(e)(2)(B)(ii) 

of the HEA excluded favorable terms, 

conditions, and borrower benefits on a 

loan provided to students employed at 

a covered institution, if the terms, 

conditions, or benefits are comparable 

to those provided to all students at the 

institution. As discussed more fully in 

the code of conduct discussion in this 

preamble, the Secretary determined that 

‘‘all students’’ refers to all students 

employed at the covered institution, 

rather than to the general student 

population at that institution. 

Self-certification forms: The Secretary 

determined that self-certification forms 

and information must only be provided 

to an applicant for a private education 

loan who is ‘‘enrolled or admitted’’ to 

an institution rather than to any student 

who requests the information. The 

Secretary also included a provision to 

the proposed regulations to require an 

institution to discuss the availability of 

Federal, State, and institutional aid with 

an applicant for a private loan at the 

request of the applicant. 

Cohort Default Rate: As discussed 

further in the discussion surrounding 

cohort default rates in this preamble, the 

Secretary determined that the default 

rate of an institution that establishes an 

additional location at the site of a closed 

institution for which it conducted a 

teach-out would not be affected in any 

way by the closed institution’s cohort 

default rate. 

Perkins loan cancellations: Following 

discussions with the non-Federal 

negotiators, the Secretary proposed to 

define a number of key terms used for 

purposes of determining cancellation 

benefits in the Perkins Loan Program 

(see proposed § 674.51). It was 

determined that additional clarity was 

needed for some of the terms used in the 

HEA in order for the Department to 

implement the Perkins Loan 

cancellation provisions of the HEA. 

Some of the key terms proposed to be 

defined in these regulations include 

firefighter, faculty member at a Tribal 

College or University, librarian with a 

master’s degree, and speech language 

pathologist with a master’s degree. The 

other definitions provided in proposed 

§ 674.51 incorporate the language from 

the HEA. 


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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 

Preferred lender arrangement: Several 

non-Federal negotiators argued that 

preferred lender arrangements can exist 

only in cases where a written or verbal 

agreement exists between a lender and 

a covered institution or institutionaffiliated organization. One non-Federal 

negotiator submitted an alternative 

definition for preferred lender 

arrangement that would have built this 

requirement into the definition, except 

in cases where conduct by the parties 

indicates an intention to create a 

preferred lender arrangement. The 

Department declined to adopt this 

alternative definition, arguing that the 

statutory definition of preferred lender 

arrangement does not address how the 

arrangement comes about, nor does the 

definition specify that a written or 

verbal agreement must exist. 

Several non-Federal negotiators 

proposed to exempt loans made directly 

by a covered institution to its own 

students from falling under the term 

preferred lender arrangement, arguing 

that under those circumstances covered 

institutions would find it impossible or 

impractical to comply with a number of 

the regulatory requirements that flow 

from having a preferred lender 

arrangement. For example, non-Federal 

negotiators noted that a school, in its 

capacity as a lender, could be prohibited 

from paying its own employees, in its 

capacity as a covered institution, under 

the code of conduct requirement that 

prohibits a lender from providing gifts 

to employees of a covered institution’s 

financial aid office. 

After considering proposals from nonFederal negotiators, the Department 

determined that a preferred lender 

arrangement requires the participation 

of at least two separate parties. 

Accordingly, the Department agreed to 

clarify in the regulatory definition for 

preferred lender arrangement that a 

preferred lender arrangement does not 

exist for a private education loan made 

by a covered institution to the covered 

institution’s own students provided that 

the loan is paid for by the institution’s 

own funds, funded by donor-directed 

contributions, made under title VII or 

title VIII of the Public Service Health 

Act, or made under an institutional 

payment plan of the covered institution. 

Disclosures from schools with 

preferred lender lists: Non-Federal 

negotiators raised concerns about the 

proposed requirement, reflected in 

proposed § 601.10 that covered 

institutions ‘‘provide’’ certain 

information to students before those 

students select a lender or apply for an 

education loan. These negotiators asked 

that the requirement be changed from 

‘‘provide’’ to ‘‘make available.’’ The 

Department declined to make this 

change, arguing that the term ‘‘make 

available’’ is more passive than the term 

‘‘provide,’’ and as such is inconsistent 

with the intent of the requirement. 

While schools are expected to be 

proactive in providing information to 

potential borrowers, the Department did 

acknowledge that schools cannot ensure 

every student receives the required 

information, and that schools making 

reasonable efforts to give this 

information to its students at the 

appropriate time in the award year 

would be considered to have complied 

with the requirement. 

Private loan self-certification forms: 

Non-Federal negotiators questioned the 

value of requiring schools to provide 

applicants with a private education loan 

self-certification form in cases where the 

applicant is applying for a private 

education loan made by the covered 

institution. These negotiators argued 

that there was no reason for the covered 

institution to provide the form to itself. 

The Department determined that, 

because the self-certification form is 

intended to disclose information to the 

borrower, not to the lender, borrowers 

should still receive and complete the 

form before obtaining an institutional 

loan. 

Definition of ‘‘gift’’: Non-Federal 

negotiators raised concerns about 

proposed language excluding from the 

definition of the term gift, favorable 

terms, conditions, and borrower benefits 

on a loan provided to students 

employed at a covered institution, if the 

terms, conditions, or benefits are 

comparable to those provided to all 

students at the institution. These 

negotiators asked whether ‘‘all 

students’’ at the institution meant the 

general student population or only other 

students employed at the institution. 

After considering the intent of the 

statutory requirement underlying the 

proposed regulation and recognizing 

that lenders may offer preferable terms 

and conditions to student employees at 

the school as a matter of course, the 

Department determined that it is 

acceptable to use benefits offered to all 

student employees as a benchmark, 

rather than the benefits the students in 

the general population receive. 

Self-certification forms: A number of 

negotiators raised concerns about the 

potential for fraudulent use of the selfcertification form. In response, it was 

suggested that the required selfcertification form and information only 

must be provided to an applicant who 

is ‘‘enrolled or admitted’’ to the 

institution rather than to any student 

who requests the information. The 

Department agreed to adopt this 

approach, which non-Federal 

negotiators agreed would minimize the 

chances a student who is not enrolled 

or admitted to the institution would use 

the form and information to obtain a 

private education loan for which the 

student is not eligible. 

Several non-Federal negotiators 

requested that an applicant for a private 

education loan receive as much 

information as possible regarding 

available aid options. Accordingly, the 

Department agreed to add a provision to 

proposed § 668.14(29)(ii) that would 

require an institution to discuss the 

availability of Federal, State, and 

institutional aid with the applicant, at 

the request of the applicant. The 

Department and the non-Federal 

negotiators agreed that this would result 

in financial aid administrators 

counseling the applicant and providing 

students with an opportunity to ask 

questions about aid options or how to 

apply for aid. 

Cohort Default Rate: The Department 

and non-Federal negotiators considered 

the best way to support the clear 

statutory intent of the HEA to encourage 

institutions to conduct teach-outs of 

closed institutions. Discussions 

indicated that a requirement to include 

a closed school’s cohort default rate in 

its own rate could dissuade an 

institution from conducting the teachout. Accordingly, the Department 

determined that the cohort default rate 

of an institution that establishes an 

additional location at the site of a closed 

institution for which it conducted a 

teach-out would not be affected in any 

way by the closed institution’s cohort 

default rate. 

Perkins loan cancellations: The 

Department proposed to define a 

number of terms, such as faculty 

member at a Tribal College or 

University, firefighter, librarian with a 

master’s degree, and speech language 

pathologist with a master’s degree in 

proposed § 674.51. The Department 

included definitions for these terms 

after considering the generally accepted 

meaning of the terms as well as the 

discussion of these terms during the 

negotiated rulemaking sessions. In 

addition, to be consistent with proposed 

regulations developed for the teacher 


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loan forgiveness program contained in 

the FFEL and Direct Loan programs, the 

Secretary determined that borrowers in 

the Perkins Loans program should 

receive credit for a full year of 

cancellation, as long as the eligible 

service crossed over the enactment date 

of August 14, 2008. 

Benefits 

Benefits provided in these 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, and expanded eligibility 

for Perkins Loan cancellation 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 

borrowers, institutions, or the Federal 

taxpayer. The Department is interested 

in receiving comments or data that 

would support a more rigorous analysis 

of the impact of these provisions. 

The Department estimates that 

expanded eligibility for Perkins Loan 

cancellations would benefit 

approximately 33,000 borrowers 

annually. This estimate is based on an 

analysis of data from a number of 

sources, including primarily 

Baccalaureate and Beyond 1993/2003, to 

project the number of Perkins Loan 

borrowers in each profession among 

those included in the newly expanded 

cancellation categories. Specific 

estimates by category are shown in the 

following table. 

PERKINS LOAN BORROWERS ELIGIBLE

FOR EXPANDED CANCELLATIONS

ANNUAL BY OCCUPATION

Occupation 

Estimated 

number of 

borrowers 

ESA Teachers .................... 20,000 

Childcare workers ............... 5,296 

Firefighters .......................... 3,240 

Speech pathologists ........... 2,968 

Law enforcement ................ 770 

Librarians ............................ 640 

Tribal college faculty ........... 24 

Total ............................. 32,938 

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 

proposed regulations. As discussed in 

greater detail under Net Budget Impacts, 

these proposed provisions result in net 

costs to the government of $71.953 

million over 2009–2013. 

Costs 

Many of the statutory provisions 

implemented through this NPRM will 

require regulated entities to develop 

new disclosures and other materials, as 

well as accompanying dissemination 

processes. In total, these changes are 

estimated to increase burden on entities 

or individuals participating in the 

student loan programs by 4,636,495 

hours. Of this increased burden, 292 

hours are associated with lenders and 

1,195,769 hours with institutions. An 

additional 3,440,434 hours—or 74.2 

percent of the total burden associated 

with the proposed regulations—are 

associated with borrowers. The 

monetized cost of this additional 

burden, using loaded wage data 

developed by the Bureau of Labor 

Statistics, is $78.5 million. 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 

were used. This was weighted to reflect 

the age profile of the student loan 

portfolio, with half at the $472 per week 

of the 20 to 24 age bracket and half at 

the $674 per week of the 25 to 34 year 

old bracket. This resulted in a $16.37 

hourly wage rate to use in monetizing 

the burden on borrowers. 

While there is additional burden 

associated with a range of proposed 

provisions in this NPRM, as noted 

earlier in this preamble nearly threequarters of this burden is associated 

with individual borrowers. For most 

provisions, this estimated burden 

assumes nearly 3 million borrowers will 

devote very small amounts of time— 

often as little as five minutes—to review 

additional disclosures added to existing 

documents or processes such as 

entrance and exit counseling. In the case 

of private loan borrowers, the 

Department estimates roughly 3.3 

million borrowers will devote fifteen 

minutes to reviewing new Truth in 

Lending Act disclosures required under 

the proposed regulations. 

For provisions affecting entities other 

than borrowers, 92.6 percent of the 

burden hours associated with this 

package—or 1,107,115 hours—result 

from new requirements for institutions 

involving the distribution of private 

education loans. The following 

discussion provides additional detail on 

the impact of this provision. 

The proposed regulations require a 

covered institution, or an institutionaffiliated organization of a covered 

institution, to provide loan disclosures 

to a prospective borrower private 

education. These disclosures must 

provide the prospective borrower with 

the information required under section 

128(e)(1) of the TILA; and must inform 

the prospective borrower that he or she 

may qualify for loans or other assistance 

under Title IV of the HEA; and that the 

terms and conditions of Title IV, HEA 

program loans may be more favorable 

than the provisions of private education 

loans. The information regarding private 

education loans must be presented in 

such a manner as to be distinct from 

information regarding Title IV, HEA 

program loans. 

The proposed regulations require that, 

upon an enrolled or admitted student 

applicant’s request for a private 

education loan self-certification form, 

an institution must provide to the 

applicant, in written or electronic form, 

the self-certification form for private 

education loans developed by the 

Secretary to satisfy the requirements of 

Section 128(e)(3) of the TILA. The 

institution must also provide the 

information required to complete the 

form, if the institution possesses that 

information. 

In assessing burden associated with 

these new requirements, the Department 

estimated 6,264 covered institutions 

(and their institutionally-affiliated 

organizations) must comply with these 

proposed disclosure regulations to be. 

Of these, we estimate 1,757 covered 

institutions and their institutionallyaffiliated organizations will be 

providing private education loans and 

therefore adopting TILA compliant 

disclosures for all private education 

loans they offer. The burden for the 

implementation of the TILA compliant 

disclosures is estimated to be 4 hours 

per institution. We estimate 3,333,600 

borrowers of private education loans 

and that the average amount of burden 

to provide the TILA disclosures to be 

.25 hour per loan, for a total burden of 

7,028 hours. 

The Department will issue a selfcertification form for adoption by all 

covered institutions. We estimate that 

on average, there will be 3 hours of 

additional burden per institution for the 

adoption and implementation of the 

Department’s self-certification. 

Additionally, we estimate that 3,333,600 

borrowers will receive this new selfVerDate Nov<24>2008 20:52 Jul 27, 2009 Jkt 217001 PO 00000 Frm 00029 Fmt 4701 Sfmt 4702 E:\FR\FM\28JYP4.SGM 28JYP4

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certification form in their pursuit of a 

private education loan. We estimate the 

burden to the institution to provide each 

self-certification form to be .33 hours 

per form, for a total burden of 1,100,008 

hours. 

The other provisions that increase 

burden and associated costs are 

relatively minor, especially when 

looked at for an individual entity rather 

than in total. To a large extent, the cost 

of many of these requirements can be 

avoided if institutions choose not to 

maintain a preferred lender 

arrangement. Given that there is little 

data indicating that the absence of such 

an agreement imposes a significant cost 

on institutions or their students— 

particularly given the alternative of 

simply listing all lenders who have 

provided loans to an institution, the 

Department expects few institutions to 

enter into these arrangements. Other 

proposed regulations generally would 

require discrete changes in specific 

parameters associated with existing 

requirements—such as changes to 

entrance and exit counseling, cohort 

default rates, and Perkins Loan 

cancellations—rather than wholly new 

requirements. Accordingly, entities 

wishing to continue to participate in the 

student aid programs have already 

absorbed most of the administrative 

costs related to implementing these 

proposed regulations. Marginal costs 

over this baseline are primarily related 

to one-time system changes that, while 

possibly significant in some cases, are 

an unavoidable cost of continued 

program participation. In assessing the 

potential impact of these proposed 

regulations, the Department recognizes 

that certain provisions are likely to 

increase workload for some program 

participants. In general, the Department 

estimates that it would take institutions 

3 hours to implement each of these 

minor provisions. (This additional 

workload is discussed in more detail 

under the Paperwork Reduction Act of 

1995 section of this preamble.) 

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 private education loans 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 proposed regulations are 

estimated to have a net budget impact 

of $12.408 million in 2009 and $71.953 

million over FY 2009–2013. 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 non-administrative 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 

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 proposed 

regulations. That said, however, in 

developing the following Accounting 

Statement, 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 proposed 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 Department estimates no 

budgetary impact for most of the 

proposed regulations included in this 

NPRM. There is no data indicating that 

the extensive new requirements for 

disclosures and codes of conduct for 

student loan program participants will 

have any impact on the volume or 

composition of Federal student loans. 

Similarly, changes to the cohort default 

rate calculation are not estimated to 

affect Federal costs, as students are 

typically assumed to resume their 

education at another school in the event 

the school they are attending loses 

eligibility to participate in the student 

loan program. In addition, changes to 

the calculation formula are not 

estimated to have a significant effect on 

the number of schools that lose 

eligibility, as the impact of adding a 

third year to the calculation is expected 

to be offset by the higher threshold. 

The Department’s analysis indicates 

that approximately 3 percent of schools 

will be affected by the change to a 3- 

year cohort default rate calculation. In 

an analysis of 4,241 schools, 83 with 2- 

year cohort default rates below 25 were 

estimated to have 3-year cohort default 

rates above 30. A total of 133 schools 

with a 2-year CDR under 25 are 

estimated to have a 3-year CDR between 

25 and 30, demonstrating that the effect 

of changing to the calculation period is 

offset by the increased threshold. The 

small number of schools involved and 

the ability of students to pursue their 

education at other institutions means 

that this change is not expected to affect 

aggregate loan volumes or Federal costs. 

Perkins Loan Cancellations. The 

Department estimates the Perkins Loan 

cancellation provisions in these 

proposed regulations would increase the 

Federal costs by $71.953 million over 

FY 2009–2013. This estimate reflects the 

cost of additional cancellation benefits 

for the newly eligible borrowers 

discussed elsewhere in this analysis, 

under Benefits. 

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 


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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 were used, 

including data from the National 

Student Loan Data System; operational 

and financial data from Department of 

Education systems, including especially 

the Fiscal Operations Report and 

Application to Participate (FISAP); 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 U.S. 

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 earlier in 

this discussion, the Department is 

particularly interested in receiving 

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. 

Accounting Statement 

As required by OMB Circular A–4 

(available at http:// 

www.Whitehouse.gov/omb/Circulars/ 

a004/a-4.pdf), in Table 2, 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 Perkins loan 

cancellations). 

TABLE 2—ACCOUNTING STATEMENT: CLASSIFICATION OF ESTIMATED EXPENDITURES

[In millions] 

Category Transfers 

Annualized Monetized Transfers ............................................................................................ $90.731. 

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

2. Clarity of the Regulations 

Executive Order 12866 and the 

Presidential memorandum on ‘‘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, 

§ 601.30.) 

• 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 largely 

associated with the requirements to 

provide students with new disclosures 

related to preferred lender lists, private 

loan TILA requirements, and other new 

borrower rights and responsibilities. In 

many cases, these requirements only 

require one-time changes to existing 

entrance and exit counseling materials 

and should not represent significant 

new burden. (The Department estimates 

these changes generally require three 

hours or less to implement.) For other 

requirements, such as those affecting 

schools choosing to maintain a preferred 

lender list, the Department is providing 

model disclosure forms the adoption of 

which should minimize institutional 

burden. In addition, FFEL schools 

meeting the definition of small entities 

generally have difficulty accessing 

multiple lenders—during the negotiated 

rule-making process, representatives of 

these schools noted that a requirement 

to include even three lenders on a 

preferred lender list would represent a 

major problem for them. The proposed 

regulation, however, allows these 

schools to avoid the burdens associated 

with maintaining such a list by simply 

providing students with all lenders who 

have provided loans at the schools in 

the past. This would effectively 

accomplish the same thing as the 

schools’ previous preferred lender list 

without adding significant new burden. 

To assess overall burden imposed on 

schools meeting the definition of small 

entities, the Department developed a 


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methodology using IPEDS data and the 

percentage of borrowers attending these 

institutions. Using this methodology, 

the Department estimates the proposed 

regulations will increase total burden 

hours for these schools by 37,723, or 

roughly 32 hours per institution. 

(Monetized using salary data from the 

Bureau of Labor Statistics, this burden 

is $699,384 and $593, respectively.) 

Based on these estimates, the 

Department believes the proposed new 

requirements do not 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 and 

private student loans, is highly unlikely 

to incur significant new compliance 

costs as a result of the proposed 

regulation. Accordingly, the Department 

has determined that the proposed 

regulations do 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. 

In particular, we are interested in 

detailed information on actual staff and 

systems costs related to implementing 

new disclosure requirements, 

particularly related to private loans. 

Paperwork Reduction Act of 1995 

Proposed §§ 601.10, 601.11, 601.20, 

601.21, 601.30, 601.40, 668.16, 668.181, 

668.186, 668.190, 668.191, 668.200, 

668.202, 668.209, 668.210, 668.211, 

668.212, 668.213, 668.214, 668.217, 

674.42, 674.53, 674.57, 674.58, 674.56, 

674.59, 682.604, and 685.304 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. 

Section 601.10—Preferred Lender 

Arrangement Disclosures 

Proposed § 601.10(a) would require 

that a covered institution, or an 

institution-affiliated organization of a 

covered institution, that participates in 

a preferred lender arrangement disclose 

the maximum amount of Federal grant 

and loan aid under Title IV of the HEA 

available to students; the information 

identified on the model disclosure form 

developed by the Secretary for each type 

of education loan that is offered 

pursuant to a preferred lender 

arrangement; and a statement that the 

institution is required to process the 

documents required to obtain a loan 

under the FFEL Program from any 

eligible lender the student selects. 

Proposed § 601.10(a)(2) would require 

a covered institution, or an institutionaffiliated organization of a covered 

institution to provide the disclosures 

required under section 128(e)(11) of the 

TILA for each type of private education 

loan offered pursuant to a preferred 

lender arrangement. 

Proposed § 601.10(c) would require a 

covered institution and institutionaffiliated organization that participates 

in a preferred lender arrangement to 

provide the disclosure of the maximum 

amount of Federal grant and loan aid 

available to students, the information 

identified on a model disclosure form 

developed by the Department, as well as 

a statement indicating to students and 

parents that the institution is required to 

process the documents required to 

obtain a FFEL loan from any eligible 

lender the student selects. This 

information would need to be provided 

to students attending the covered 

institution, or the families of such 

students, as applicable. The information 

would need to be provided annually 

and in a manner that allows for the 

students or their families to take the 

information into account before 

selecting a lender or applying for an 

education loan. 

Proposed § 601.10(d) would require 

that if a covered institution compiles, 

maintains, and makes available a 

preferred lender list, the institution 

must clearly and fully disclose on the 

preferred lender list why the institution 

participates in a preferred lender 

arrangement with each lender on the 

preferred lender list, particularly with 

respect to terms and conditions or 

provisions favorable to the borrower; 

and that the students attending the 

institution, or the families of such 

students, do not have to borrow from a 

lender on the preferred lender list. 

Proposed § 601.10(d)(2) would require 

the covered institution to ensure, 

through the use of the list of lender 

affiliates provided by the Secretary, that 

there are not less than three FFEL 

lenders that are not affiliates of each 

other included on the preferred lender 

list and, if the institution recommends, 

promotes, or endorses private education 

loans, that there are not less than two 

lenders of private education loans that 

are not affiliates of each other included 

on the preferred lender list. 

Proposed § 601.10(d)(1)(ii) would 

require that the preferred lender list 

must specifically indicate, for each 

listed lender, whether the lender is or is 

not an affiliate of another lender on the 

preferred lender list; and if a lender is 

an affiliate of another lender on the 

preferred lender list, must describe the 

details of such affiliation. 

Proposed § 601.10(d)(3) would require 

that the preferred lender list 

prominently disclose the method and 

criteria used by the institution in 

selecting lenders with which to 

participate in preferred lender 

arrangements to ensure that such 

lenders are selected on the basis of the 

best interests of the borrowers. These 

criteria would include payment of 

origination or other fees on behalf of the 

borrower; highly competitive interest 

rates, or other terms and conditions or 

provisions of Title IV, HEA program 

loans or private education loans; highquality servicing; or additional benefits 

beyond the standard terms and 

conditions or provisions for such loans. 

Proposed § 601.10(d)(4)(ii) would 

require that the covered institution 

exercise a duty of care and a duty of 

loyalty to compile the preferred lender 

list without prejudice and for the sole 

benefit of the students attending the 

institution, or the families of such 

students. 

Proposed § 601.10(d)(5) would require 

a covered institution to not deny or 

otherwise impede the borrower’s choice 

of a lender or cause unnecessary delay 

in certification of a Title IV loan for 

those borrowers who choose a lender 

that is not included on the preferred 

lender list. 

These proposed regulations would 

represent an increase in burden. The 

affected entities under the proposed 

regulations are borrowers, and 

institutions and their institutionallyaffiliated organizations. We estimate 

that the burden for borrowers would 

increase by 323,103 hours and the 

burden for institutions and 

institutionally-affiliated organizations 

would increase by 12,078 hours, 

respectively, and we will include the 

total burden of 335,181 hours in OMB 

Control Number 1845–XXXA. 


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Section 601.11—Private Education Loan 

Disclosures and Self-Certification Form 

Proposed § 601.11(a) would require a 

covered institution, or an institutionaffiliated organization of a covered 

institution, to provide to a prospective 

borrower private education loan 

disclosures. The private education loan 

disclosures required would need to 

provide the prospective borrower with 

the information required under section 

128(e)(1) of the TILA; and would need 

to inform the prospective borrower that 

he or she may qualify for loans or other 

assistance under Title IV of the HEA; 

and that the terms and conditions of 

Title IV, HEA program loans may be 

more favorable than the provisions of 

private education loans. 

Proposed § 601.11(c) would require 

the covered institution or institutionaffiliated organization to ensure that 

information regarding private education 

loans is presented in such a manner as 

to be distinct from information 

regarding Title IV, HEA program loans. 

Proposed § 601.11(d) would require 

that, upon an enrolled or admitted 

student applicant’s request for a private 

education loan self-certification form, 

an institution must provide to the 

applicant, in written or electronic form, 

the self-certification form for private 

education loans developed by the 

Secretary to satisfy the requirements of 

section 128(e)(3) of the TILA. The 

institution also would need to provide 

the information required to complete 

the form, if the institution possesses that 

information. 

These proposed regulations would 

represent an increase in burden. The 

affected entities under the proposed 

regulations are borrowers, and 

institutions and institutionally-affiliated 

organizations. We estimate that burden 

to borrowers would increase by 833,400 

hours and the burden to institutions and 

institutionally-affiliated organizations, 

respectively would increase by 

1,107,115 hours and we will include the 

total burden of 1,940,515 hours in OMB 

Control Number 1845–XXXA. 

Section 601.20—Annual Report Due 

From Covered Institutions and 

Institution-Affiliated Organizations 

Proposed § 601.20(a) would require a 

covered institution, and an institutionaffiliated organization, that participates 

in a preferred lender arrangement to 

prepare and submit to the Secretary an 

annual report, by a date determined by 

the Secretary. The annual report would 

include, for each lender that participates 

in a preferred lender arrangement with 

the covered institution or organization, 

the information about preferred lenders 

arrangements that must also be 

described for students and parents; and 

a detailed explanation of why the 

covered institution or institutionaffiliated organization participates in a 

preferred lender arrangement with the 

lender. The explanation would need to 

include an explanation of why the 

terms, conditions, and provisions of 

each type of education loan provided 

pursuant to the preferred lender 

arrangement are beneficial for students 

attending the institution, or the families 

of such students, as applicable. 

Proposed § 601.20(b) would require a 

covered institution or institution 

affiliated organization to ensure that the 

annual report is made available to the 

public and provided to students 

attending or planning to attend the 

covered institution and the families of 

such students. 

These proposed regulations would 

represent an increase in burden. The 

affected entities under the proposed 

regulations are institutions and 

institutionally-affiliated organizations. 

We estimate that burden for institutions 

and institutionally-affiliated 

organizations would increase by 336 

hours in OMB Control Number 1845– 

XXXA. 

Section 601.21—Code of Conduct 

Proposed § 601.21 would require a 

covered institution that participates in a 

preferred lender arrangement to develop 

a code of conduct with respect to FFEL 

Program loans and private education 

loans with which the institution’s 

agents must comply to prohibit a 

conflict of interest with the 

responsibilities of an agent of an 

institution with respect to FFEL 

Program loans and private education 

loans. 

Proposed § 601.21(a)(2)(ii) and (iii) 

would require the institution to publish 

the code of conduct prominently on the 

institution’s Web site; and administer 

and enforce the code by, at a minimum, 

requiring that all of the institution’s 

agents with responsibilities with respect 

to FFEL Program loans or private 

education loans be annually informed of 

the provisions of the code of conduct. 

Proposed § 601.21(b)(1) and (b)(2) 

would require any institution-affiliated 

organization of a covered institution 

that participates in a preferred lender 

arrangement to comply with the code of 

conduct developed and published by 

the covered institution and, if the 

institution-affiliated organization has a 

Web site, publish the code of conduct 

prominently on the Web site. 

Under proposed § 601.21(b)(3), the 

institution-affiliated organization would 

be required to administer and enforce 

the code of conduct by, at a minimum, 

requiring that all of the institutionaffiliated organization’s agents with 

responsibilities with respect to FFEL 

Program loans or private education 

loans be annually informed of the 

provisions of the code of conduct. 

The code of conduct would apply to 

agents of an institution who are 

employees of the financial aid office of 

the institution or who have 

responsibilities with respect to FFEL 

Program loans or private education 

loans. 

Proposed § 601.21(c) would prescribe 

the minimum requirements of a covered 

institution’s code of conduct. An 

institution’s code of conduct must 

prohibit: Revenue-sharing arrangements 

with any lender; soliciting or accepting 

gifts from a lender, guarantor, or 

servicer; accepting any fee, payment, or 

other financial benefit as compensation 

for any type of consulting or any 

contractual relationship with a lender; 

assigning a first-time borrower’s loan to 

a particular lender or refusing to certify, 

or delaying certification of, any loan 

based on a borrower’s selection of a 

particular lender; requesting offers of 

funds for private education loans, 

including opportunity pool loans, from 

a lender in exchange for providing the 

lender with a specified number or loan 

volume of FFEL Program loans or 

private education loans or a preferred 

lender arrangement; requesting or 

accepting staffing assistance from a 

lender; and receipt of compensation for 

serving on an advisory board, 

commission, or group established by a 

lender, guarantor, or group of lenders or 

guarantors. 

Proposed 601.21(c)(6) would provide 

exceptions to the ban on staffing 

assistance, such as staffing assistance 

related to professional development or 

training; providing educational 

counseling materials; or providing 

short-term, nonrecurring staffing 

assistance during disasters or 

emergencies. 

These proposed regulations represent 

an increase in burden. The affected 

entities under the proposed regulations 

are institutions and institutionallyaffiliated organizations. We estimate 

that burden for institutions and 

institutionally-affiliated organizations, 

respectively, would increase to 4,697 in 

OMB Control Number 1845–XXXA. 

Section 601.30—Duties of Institutions 

Participating in the William D. Ford 

Direct Loan Program 

Proposed § 601.30 would require a 

covered institution participating in the 

William D. Ford Direct Loan Program to 

make the information identified in a 


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model disclosure form developed by the 

Secretary available to students attending 

or planning to attend the institution, or 

the families of such students. If the 

institution provides information 

regarding a private education loan to a 

prospective borrower, the institution 

must concurrently provide the borrower 

with the information identified on the 

model disclosure form. 

Proposed § 601.30(b) would allow a 

covered institution to use a comparable 

form designed by the institution to 

provide this information, instead of the 

model disclosure form. 

These proposed regulations represent 

an increase in burden. The affected 

entities under the proposed regulations 

are borrowers, and institutions and their 

institutionally-affiliated organizations. 

We estimate that burden to borrowers 

would increase by 56,671 hours and 

1,353 hours for institutions and 

institutionally-affiliated organizations, 

respectively, and we will include the 

total burden of 58,024 hours in OMB 

Control Number 1845–XXXB. 

Section 601.40—Lender Responsibilities 

Proposed § 601.40(a) would require 

FFEL lenders to provide FFEL 

borrowers the disclosures required 

under current § 682.205(a) and (b). A 

lender offering private education loans 

would be required to comply with the 

disclosures required under section 

128(e) of the TILA for each type of 

private loan. 

Proposed § 601.40(b) would set forth 

the information the lenders will have to 

provide to the Secretary on an annual 

basis regarding any reasonable expenses 

paid or provided to any agent of a 

covered institution who is employed in 

the financial aid office or has 

responsibilities with respect to 

education loans or other financial aid of 

the institution for service by the 

employee on an advisory board, 

commission or group established by a 

lender or a group of lenders. This 

information also would need to be 

reported for expenses paid or provided 

to any agent of an institution-affiliated 

organization involved in 

recommending, promoting or endorsing 

education loans. Lenders would be 

required to report the amount of the 

expenses paid and the specific instances 

for which it was paid; the names of the 

agents to whom expenses were paid; 

and the date and description of each 

activity for which expenses were paid. 

This section of the regulations would 

also require the lender to submit a 

certification of compliance to the 

Secretary. 

Proposed § 601.40(c) would require 

any FFEL lender participating in one or 

more preferred lender arrangements to 

annually certify to the Secretary its 

compliance with the HEA. Lenders 

required to file an audit under 

§ 682.305(c) would be required to 

include the certification as part of the 

audit. A lender that is not required to 

submit an audit would need to provide 

the certification separately. 

Proposed § 601.40(d) would require 

FFEL lenders with a preferred lender 

arrangement with a covered institution 

or an institution-affiliated organization 

to annually provide to the institution, 

institution-affiliated organization and 

the Secretary information regarding the 

FFEL loans the lender will provide to 

students and families pursuant to the 

preferred lender arrangement for the 

next award year. The information will 

be prescribed by the Secretary, after 

consultation with the Federal Reserve. 

These proposed regulations represent 

an increase in burden. The affected 

entities under the proposed regulations 

are borrowers and lenders. We estimate 

that burden to borrowers would increase 

by 632,383 hours and that burden for 

lenders would increase by 292 hours in 

OMB Control Number 1845–XXXA. 

Sections 668.181, 668.200, and 

668.202—Three-Year Cohort Default 

Rates 

The proposed regulations reflected in 

new proposed subpart N of part 668 

would incorporate the three-year cohort 

default method under proposed 

§ 668.202. With regard to the transition 

period for use of the current cohort 

default rate method, proposed 

§§ 668.181 and 668.200(b) would 

specify that the Department will issue 

annually two sets of draft and official 

cohort default rates for fiscal years 2009, 

2010, and 2011. 

These proposed regulations describe 

the purpose of the 3-year rate and 

explain the calculation and application 

of the 3-year cohort default rate. As a 

result, the statement of purpose of this 

subpart and the description of how the 

Department will calculate and apply the 

3-year cohort default rate will not 

impact the burden in OMB 1845–0022. 

Section 668.16—Administrative 

Capabilities and Cohort Default Rate 

Appeals 

Proposed § 668.16(m)(1)(ii) would 

apply the current rules for 

administrative capability based on twoyear cohort default rates during the 

transition period. Thereafter, a school 

would be administratively capable if 

two of its three most recent three-year 

rates are less than 30 percent. Under 

proposed § 668.16(m)(2), the current 

rules for provisional certification based 

on two year cohort default rates of 25 

percent or more but less than 40 percent 

would continue to apply during the 

transition period. Thereafter, an 

institution whose three year default 

rates are 30 percent or more, but less 

than 40 percent, for two years would not 

be provisionally certified based solely 

on its default rates under the following 

circumstances: 

(1) The institution files timely a 

request for adjustment or appeal from 

the second such rate under proposed 

§§ 668.209 (Uncorrected data 

adjustments), 668.210 (New data 

adjustments), or 668.212 (Loan servicing 

appeals) and the request or appeal is 

pending or succeeds in reducing the 

institution’s three-year rate below 30 

percent. 

(2) The institution files timely an 

appeal under proposed § 668.213 

(Economically disadvantaged appeals) 

from the second such rate and the 

appeal is pending or successful. 

proposed § 668.213 would provide that 

the two rates of 30 percent or more must 

be successive to permit the appeal. 

(3) The institution files a timely 

participation rate index appeal under 

proposed § 668.214 and the appeal is 

pending or successful. 

(4) The institution had 30 or fewer 

borrowers in the three most recent 

cohorts of borrowers used to calculate 

the institution’s rates. 

(5) A three-year rate that would 

otherwise potentially subject the 

institution to provisional certification 

was calculated as an average rate. 

To avoid provisional certification by 

invoking exceptions (1), (2) or (3), the 

institution would be required to file a 

request for adjustment or appeal in 

response to a notice from the 

Department that the institution’s second 

three-year cohort default rate, or second 

successive three-year default rate for an 

economically disadvantaged appeal, is 

30 percent or more, but less than 40 

percent. 

Under proposed § 668.214, a 

participation rate index appeal could be 

taken from a loss of eligibility, or 

potential placement on provisional 

certification, based on three-year cohort 

default rates if the participation rate 

index for any of the excessive rates was 

.0625 or less. The appeal would be 

taken within 30 days of receiving the 

notice of loss of eligibility with the most 

recent excessive official rate. 

In addition, under proposed 

§ 668.204(c)(1)(iii), an institution would 

be allowed to challenge a potential 

placement on provisional certification 

because its three-year cohort default 

rates for two of the most recent three 

years would be 30 percent or more, but 


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less than 40 percent, even though the 

second such rate was available only as 

a draft rate, if its participation rate index 

was equal to or less than 0.0625 for 

either its draft rate, or its most recent 

official rate equaling or exceeding 30 

percent but less than 40 percent. The 

challenge would be taken following 

notice to the school of its draft rate. 

The proposed changes in § 668.16 

apply the current rules on 

administrative capability during the 

transition period. We estimate that the 

proposed regulations will not impact 

burden in OMB 1845–0022. 

Section 668.186, 668.190, 668.191, 

668.209, 668.210, 668.211, and 

668.212—Electronic Processes 

Proposed § 668.186 would eliminate 

the need to request a loan record detail 

report by providing that the report will 

be sent electronically to the institution 

as part of a package notifying the 

institution of its official cohort default 

rate. The institution would have five 

business days, from the transmission 

date of the package as posted on the 

Department’s Web site, to report any 

problem with receiving that 

transmission. If the institution reports a 

problem within the five-day period, and 

the Department agrees that the 

institution did not cause the problem, 

we will extend the adjustment, 

challenge, and appeal deadlines and 

timeframes to account for retransmitting 

the package after the problem is 

resolved. If no problems are reported by 

the institution, the timeframe associated 

with filing or requesting the adjustment, 

challenge, or appeal begins on the sixth 

day following the transmission date of 

the package that is posted on the 

Department’s Web site. The timeframes 

for the adjustments, challenges, and 

appeals are reflected in proposed 

§§ 668.190(b) and 668.191(b). 

The subpart M, part 668 provisions 

reflected in § 668.186, and the 

provisions for adjustments, challenges, 

and appeals in the related sections in 

subpart M of part 668 would also be 

reflected in the following parallel 

provisions in subpart N, part 668: 

§§ 668.209, 668.210, 668.211, and 

668.212. 

These proposed regulations represent 

a decrease in burden. The affected 

entities under these proposed 

regulations are institutions. We estimate 

that burden would decrease by ¥725 

hours for institutions which would be 

reflected in OMB Control Number 1845– 

0022. 

Sections 682.604 and 685.304— 

Entrance Counseling 

Proposed § 682.604(f)(3) would 

require that institutions provide initial 

counseling for Stafford and graduate or 

professional student PLUS Loan 

borrowers. Comprehensive information 

on the terms and conditions of the loan 

and on the responsibilities of the 

borrower with respect to the loan would 

need to be provided. Under this 

proposed regulation, this information 

may be provided to the borrower during 

an entrance counseling session 

conducted in person; on a separate 

written form provided to the borrower 

that the borrower signs and returns to 

the school; or online or by interactive 

electronic means, with the borrower 

acknowledging receipt of the 

information. 

Proposed § 682.604(f)(4) would 

require a school that conducts initial 

counseling online or through interactive 

electronic means to take reasonable 

steps to ensure that each student 

borrower receives the counseling 

materials and participates in and 

completes the initial counseling, which 

may include completion of any 

interactive program that tests the 

borrower’s understanding of the terms 

and conditions of the borrower’s loans. 

Proposed § 682.604(f)(6) would 

require that initial counseling for 

Stafford Loan borrowers: Explain the 

use of a Master Promissory Note; 

emphasize to the student borrower the 

seriousness and importance of the 

repayment obligation the student 

borrower is assuming; describe the 

likely consequences of default, 

including adverse credit reports, 

delinquent debt collection procedures 

under Federal law, and litigation; in the 

case of a student borrower (other than 

a loan made or originated by the 

school), emphasize that the student 

borrower is obligated to repay the full 

amount of the loan even if the student 

borrower does not complete the 

program, does not complete the program 

within the regular time for program 

completion, is unable to obtain 

employment upon completion, or is 

otherwise dissatisfied with or does not 

receive the educational or other services 

that the student borrower purchased 

from the school; inform the student 

borrower of sample monthly repayment 

amounts based on a range of student 

levels of indebtedness of Stafford loan 

borrowers, or student borrowers with 

Stafford and PLUS loans, depending on 

the types of loans the borrower has 

obtained—or the average indebtedness 

of other borrowers in the same program 

at the same school as the borrower; to 

the extent practicable, explain the effect 

of accepting the loan to be disbursed on 

the eligibility of the borrower for other 

forms of student financial assistance; 

provide information on how interest 

accrues and is capitalized during 

periods when the interest is not paid by 

either the borrower or the Secretary; 

inform the borrower of the option to pay 

the interest on an unsubsidized Stafford 

Loan while the borrower is in school; 

explain the definition of half-time 

enrollment at the school, during regular 

terms and summer school, if applicable, 

and the consequences of not 

maintaining half-time enrollment; 

explain the importance of contacting the 

appropriate offices at the school if the 

borrower withdraws prior to completing 

the borrower’s program of study so that 

the school can provide exit counseling, 

including information regarding the 

borrower’s repayment options and loan 

consolidation; provide information on 

NSLDS and how the borrower can 

access the borrower’s records; and 

provide the name of and contact 

information for the individual the 

borrower may contact if the borrower 

has any questions about the borrower’s 

rights and responsibilities or the terms 

and conditions of the loan. 

Proposed § 682.604(f)(7) would 

require that initial counseling for 

graduate or professional student PLUS 

Loan borrowers must: Inform the 

student borrower of sample monthly 

repayment amounts based on a range of 

student levels of indebtedness of 

graduate or professional student PLUS 

loan borrowers, or student borrowers 

with Stafford and PLUS loans, 

depending on the types of loans the 

borrower has obtained or the average 

indebtedness of other borrowers in the 

same program at the same school as the 

borrower; inform the borrower of the 

option to pay interest on a PLUS Loan 

while the borrower is in school; for a 

graduate or professional student PLUS 

Loan borrower who has received a prior 

FFEL Stafford, or Direct Subsidized or 

Unsubsidized loan, provide the 

information, specified in 

§ 682.603(d)(1)(i) through (d)(1)(iii), that 

compares Stafford and PLUS Loan 

interest rates, interest accrual periods, 

and repayment period begin dates; and 

for a graduate or professional student 

PLUS Loan borrower who has not 

received a prior FFEL Stafford, or Direct 

Subsidized or Unsubsidized loan, 

provide the Stafford Loan initial 

counseling information specified in 

proposed § 682.604(f)(6)(i) through 

(f)(6)(xii). 

Corresponding initial counseling 

requirements for Direct Subsidized, 

Direct Unsubsidized, and Direct PLUS 


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loan borrowers are proposed in 

§ 685.304(a)(1) through (a)(9) of the 

Direct Loan regulations. 

These proposed regulations would 

represent an increase in burden. The 

affected entities under the proposed 

regulations are borrowers and 

institutions. We estimate that burden in 

OMB 1845–0020 would increase by 

475,152 hours for borrowers and 12,582 

hours for institutions; and we estimate 

that burden in OMB 1845–0021 would 

increase by 217,900 hours for borrowers 

and 12,582 hours for institutions for a 

total of 487,735 hours which would be 

reflected in OMB Control Number 1845– 

0020 and a total of 230,482 hours in 

OMB Control Number 1845–0021. 

Sections 674.42, 682.604 and 685.304— 

Exit Counseling 

Proposed §§ 674.42(b), 682.604(g) and 

685.304(b) would continue to require a 

school to ensure that exit counseling is 

conducted with each Perkins, FFEL 

Stafford, and Direct Subsidized and 

Unsubsidized Loan borrower. In 

addition, schools would be required to 

provide exit counseling to graduate or 

professional student FFEL PLUS Loan 

borrowers and graduate or professional 

student Direct PLUS Loan borrowers. 

Under proposed §§ 674.42(b)(1), 

682.604(g)(1) and 685.304(b)(2) and 

(b)(3), schools would continue to be 

required to conduct exit counseling 

either in person, by audiovisual 

presentation, or by interactive electronic 

means. In each case, the school would 

be required to ensure that the exit 

counseling is conducted shortly before 

the student borrower ceases at least halftime study at the school, and that an 

individual with expertise in the Title IV 

programs is reasonably available shortly 

after the counseling to answer the 

student borrower’s questions. The 

alternative approach for student 

borrowers enrolled in a correspondence 

program or a study-abroad program that 

the home institution approves for credit 

would be maintained in the proposed 

new regulations. The current regulatory 

procedures for student borrowers who 

withdraw from school without the 

school’s prior knowledge or fail to 

complete an exit counseling session as 

required also would be maintained in 

the proposed new regulations. 

Proposed §§ 674.42(b)(3), 

682.604(g)(3) and 685.304(b)(6) would 

continue to require that if exit 

counseling is conducted by electronic 

interactive means, the school must take 

reasonable steps to ensure that each 

student borrower receives the 

counseling materials, and participates in 

and completes the counseling. Proposed 

§§ 674.42(b)(4), 682.604(g)(4) and 

685.304(b)(7) would retain the 

requirement that schools maintain 

documentation substantiating the 

school’s compliance with this section 

for each student borrower. 

Proposed §§ 674.42(b)(2), 

682.604(g)(2) and 685.304(b)(4) also 

would require exit counseling for 

Perkins, FFEL, and Direct Loan student 

borrowers to: Review for the student 

borrower information on the availability 

of the Student Loan Ombudsman’s 

office; inform the student borrower of 

the availability of Title IV loan 

information in the National Student 

Loan Data System (NSLDS) and how 

NSLDS can be used to obtain Title IV 

loan status information; and provide a 

general description of the types of tax 

benefits that may be available to 

borrowers. 

Additionally, proposed 

§§ 682.604(g)(2)(ii) and 685.304(b)(4)(ii) 

would require the exit counseling for 

FFEL and Direct Loan student borrowers 

to review the available FFEL and Direct 

Loan repayment plan options, including 

standard, graduated, extended, income 

sensitive and income-based repayment 

plans, including a description of the 

different features of each plan and 

sample information showing the average 

anticipated monthly payments, and the 

difference in interest paid and total 

payments under each plan. The exit 

counseling also would need to inform 

FFEL and Direct Loan borrowers of their 

option to change repayment plans. 

For Direct Loan borrowers, proposed 

§ 685.304(b)(4)(vi) would retain the 

requirement that schools explain to the 

student borrower how to contact the 

party servicing the Direct Loan. 

These proposed regulations represent 

an increase in burden. The affected 

entities under the proposed regulations 

are borrowers and institutions. We 

estimate that burden would increase by 

444,970 hours for borrowers and 12,582 

hours for institutions for a total of 

457,552 hours which would be reflected 

in OMB Control Number 1845–0020. We 

estimate that burden would increase by 

213,542 hours for borrowers and 12,582 

hours for institutions for a total of 

226,124 hours which would be reflected 

in OMB Control Number 1845–0021. We 

estimate that burden would increase by 

214,022 hours for borrowers and 5,940 

hours for institutions for a total of 

219,962 hours which would be reflected 

in OMB Control Number 1845.0023. 

Sections 674.53, 674.57, and 674.58— 

Expansion of Teacher, Head Start, and 

Law Enforcement Cancellation 

Categories 

These proposed regulations would 

extend the new cancellation categories 

to current Federal Perkins Loan 

borrowers with outstanding balances on 

loans already in repayment and all new 

borrowers who perform eligible service 

that includes August 14, 2008, or begins 

on or after that date, regardless of 

whether information on the expanded 

cancellation categories appears on the 

borrower’s promissory note. 

Proposed § 674.53 would provide that 

a teacher who is employed by an 

educational service agency, or a fulltime special education teacher, 

including teachers of infants, toddlers, 

children, or youth with disabilities, who 

is working in a system administered by 

an educational service agency, is 

eligible for cancellation benefits. 

Proposed § 674.57 would be amended 

such that the cancellation provisions for 

law enforcement or correction officer 

would include borrowers who are 

employed full-time as an attorney in 

Federal Public Defender Organizations 

or Community Defender Organizations. 

Proposed § 674.58 of the Head Start 

cancellation provisions would be 

amended by expanding cancellation 

benefits to include borrowers who are 

performing qualifying service as fulltime staff members in a pre-kindergarten 

or childcare program that is licensed or 

regulated by the State. 

For purposes of determining a 

borrower’s eligibility for cancellation 

benefits, proposed § 674.58(c)(1) and (2) 

would define the terms ‘‘prekindergarten program’’ and ‘‘childcare 

program.’’ A pre-kindergarten program 

would be defined as a State-funded 

program that serves children from birth 

through age six and addresses the 

children’s cognitive (including 

language, early literacy, and early 

mathematics), social, emotional, and 

physical development. A childcare 

program would be defined as a program 

that is licensed and regulated by the 

State and provides child care services 

for fewer than 24 hours per day per 

child, unless care in excess of 24 

consecutive hours is needed due to the 

nature of the parents’ work. 

Proposed § 674.58 also would amend 

the Head Start cancellation provisions 

by renaming the regulation 

‘‘Cancellation for service in an early 

childhood education program’’ to reflect 

the fact that the expansion of 

cancellation benefits available to 

borrowers under this provision are no 

longer limited to service in early 

childhood education programs 

authorized by the Head Start Act. 

These proposed regulations represent 

an increase in burden. The affected 

entities under the proposed regulations 

are borrowers and institutions. We 

estimate that burden as a result of the 


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proposed changes in § 674.53 would 

increase by 2,290 hours for borrowers 

and 1,145 hours for institutions for a 

total of 3,435 hours which would be 

reflected in OMB Control Numbers 

1845–XXXC. We estimate that burden as 

a result of the proposed changes in 

§ 674.57 would increase by 385 hours 

for borrowers and 193 hours for 

institutions for a total of 578 hours 

which would be reflected in OMB 

Control Number 1845–XXXC. We 

estimate that burden as a result of the 

proposed changes in § 674.58 would 

increase by 2,648 hours for borrowers 

and 1,325 hours for institutions for a 

total of 3,973 hours which would be 

reflected in OMB Control Number 1845– 

XXXC. 

Section 674.56—Addition of New 

Public Service Cancellation Categories 

Proposed § 674.56 would add new 

public service cancellation categories 

for borrowers in the Federal Perkins 

Loan program who are performing 

qualifying service as: Full-time faculty 

members at a Tribal College or 

University; full-time fire fighters who 

serve a local, State, or Federal fire 

department or fire district; librarians 

with a master’s degree in library science 

who are employed in an elementary or 

secondary school that qualifies for Title 

I funding, or in a public library that 

serves a geographic area that includes 

one or more Title I-eligible schools; or 

full-time speech-language pathologists 

with a master’s degree who are working 

exclusively with Title I-eligible schools. 

Under these proposed regulations, 

current borrowers with outstanding 

balances on loans already in repayment 

and all new borrowers who perform 

eligible service that includes August 14, 

2008, or begins on or after that date, in 

these new cancellation categories, 

would qualify for cancellation, 

regardless of whether the cancellation 

category appears on the borrower’s 

promissory note. 

These proposed regulations represent 

an increase in burden. The affected 

entities under the proposed regulations 

are borrowers and institutions. We 

estimate that burden would increase by 

3,436 hours for borrowers and 1,718 

hours for institutions for a total of 5,154 

hours which would be reflected in OMB 

Control Number 1845–XXXC. 

Section 674.59—Military Service 

Cancellation 

Proposed § 674.59 would amend the 

cancellation rate for each year of 

qualifying service for the military 

service cancellation. Borrowers who are 

serving in areas of hostility are now 

eligible to receive a cancellation of up 

to 100 percent of the loan for each full 

year of active duty service that includes 

August 14, 2008, or begins on or after 

that date in the following increments: 15 

percent for the first and second years of 

service; 20 percent for the third and 

fourth years of service; and, 30 percent 

for the fifth year of service. 

These proposed regulations represent 

an increase in burden. The affected 

entities under the proposed regulations 

are borrowers and institutions. We 

estimate that burden would increase by 

20,532 hours for borrowers and 10,266 

hours for institutions for a total of 

30,798 hours which would be reflected 

in OMB Control Number 1845–XXXC. 

Consistent with the discussion in the 

preceding paragraphs, 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 and Reduction Act. 

Regulatory section Information section Collection 

601.10 ........................ Proposed § 601.10(a) would require that a covered institution, or an institution-affiliated organization of a covered 

institution, that participates in a preferred lender arrangement disclose the information identified on the 

model disclosure form developed by the Secretary and 

its preferred lender list.

OMB 1845–XXXA. This will be new collection. A separate 

60-day Federal Register notice will be published to solicit comments on the form. 

601.11 ........................ Proposed § 601.11(a) would require a covered institution, 

or an institution-affiliated organization of a covered institution, to provide to a prospective borrower private education loan disclosures consistent with section 128(e)(1) 

of the TILA; to provide a student who requests a private 

education loan a self-certification form; and to inform the 

prospective borrower that he or she may qualify for 

loans or other assistance under Title IV of the HEA; and 

to inform the prospective borrower that the terms and 

conditions of Title IV, HEA program loans may be more 

favorable than the provisions of private education loans.

OMB 1845–XXXA. This will be new collection. A separate 

60-day Federal Register notice will be published to solicit comments on the form. 

601.20 ........................ Proposed § 601.20(a) would require a covered institution, 

and an institution-affiliated organization that participates 

in a preferred lender arrangement to prepare and submit 

to the Secretary an annual report.

OMB 1845–XXXA. This will be new collection. A separate 

60-day Federal Register notice will be published to solicit comments. 

601.21 ........................ Proposed § 601.21 would require a covered institution that 

participates in a preferred lender arrangement to develop a code of conduct with respect to FFEL Program 

loans and private education loans with which the institution’s agents must comply to prohibit a conflict of interest with the responsibilities of an agent of an institution 

with respect to FFEL Program loans and private education loans.

OMB 1845–XXXA. This will be new collection. A separate 

60-day Federal Register notice will be published to solicit comments. 


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Regulatory section Information section Collection 

601.30 ........................ Proposed § 601.30 would require a covered institution participating in the William D. Ford Direct Loan Program to 

make the information identified in a model disclosure 

form developed by the Secretary available to students 

attending or planning to attend the institution, or the 

families of such students. If the institution provides information regarding a private education loan to a prospective borrower, the institution must concurrently provide 

the borrower with the information identified on the model 

disclosure form.

OMB 1845–XXXB. This will be new collection. A separate 

60-day Federal Register notice will be published to solicit comments. 

601.40 ........................ Proposed § 601.40 would set forth the information the 

lenders will have to provide to the Secretary on an annual basis regarding any reasonable expenses paid or 

provided to any agent of a covered institution who is 

employed in the financial aid office or has responsibilities with respect to education loans or other financial 

aid of the institution for service by the employee on an 

advisory board, commission or group established by a 

lender or a group of lenders.

OMB 1845–XXXA. This will be new collection. A separate 

60-day Federal Register notice will be published to solicit comments. 

668.181, 668.200, & 

668.202.

Proposed §§ 668.181, 668.200, and 668.202 would provide a new proposed subpart N, part 668 to incorporate 

the three-year method under § 668.202. With regard to 

the transition period, proposed §§ 668.181 and 

668.200(b) would specify that the Department will issue 

annually two sets of draft and official cohort default rates 

for fiscal years 2009, 2010, and 2011. As a result, the 

statement of purpose of this subpart and the description 

of how the Department will calculate and apply the 3- 

year cohort default rate will not impact the burden in 

OMB 1845–0022.

OMB 1845–0022. 

No change in burden. 

668.16 ........................ Proposed § 668.16(m) would require institutions to have 

the new three-year cohort default rate, and would incorporate the transition rules and the basis for appeals for 

that cohort default rate. The proposed changes in 

§ 668.16 apply the current rules on administrative capability during the transition period. We estimate that the 

proposed regulations will not impact burden in OMB 

1845–0022.

OMB 1845–0022. 

No change in burden. 

668.186, 668.190, 

668.191, 668.209, 

668.210, 668.211, 

and 668.212.

These proposed regulations would eliminate the need to 

request a loan record detail report from the Department; 

instead an electronic loan report would be sent to each 

institution.

OMB 1845–0022. 

682.604 & 685.304 .... Proposed §§ 682.604 and 685.304 would require that institutions provide initial counseling for Stafford and graduate or professional student PLUS Loan borrowers.OMB 1845–0020 and 1845–0021. 

674.42, 682.604, and 

685.304.

Proposed §§ 674.42, 682.604 and 685.304 would continue 

to require a school to ensure that exit counseling is conducted with each Perkins, FFEL Stafford, and Direct 

Subsidized and Unsubsidized Loan borrower. In addition, schools would be required to provide exit counseling to graduate or professional student FFEL PLUS 

Loan borrowers and graduate or professional student Direct PLUS Loan borrowers.

OMB 1845–0020, 1845–0021, and 1845–0023. 

674.53, 674.57, and 

674.58.

Proposed §§ 674.53, 674.57, and 674.58 would extend the 

new cancellation categories to current Federal Perkins 

Loan borrowers with outstanding balances on loans already in repayment and all new borrowers who perform 

eligible service that includes August 14, 2008, or begins 

on or after that date, regardless of whether information 

on the expanded cancellation categories appears on the 

borrower’s promissory note.

OMB 1845–XXXC. This will be new collection. A separate 

60-day Federal Register notice will be published to solicit comments. 


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Regulatory section Information section Collection 

674.56 ........................ Proposed § 674.56 would add new public service cancellation categories for borrowers in the Federal Perkins 

Loan program who are performing qualifying service as: 

Full-time faculty members at a Tribal College or University; full-time fire fighters who serve a local, State, or 

Federal fire department or fire district; librarians with a 

master’s degree in library science who are employed in 

an elementary or secondary school that qualifies for 

Title I funding, or in a public library that serves a geographic area that includes one or more Title I-eligible 

schools; or full-time speech-language pathologists with a 

master’s degree who are working exclusively with Title Ieligible schools.

OMB 1845–XXXC. This will be new collection. A separate 

60-day Federal Register notice will be published to solicit comments. 

674.59 ........................ Proposed § 674.59 would amend the cancellation rate for 

each year of qualifying service for the military service 

cancellation. Borrowers who are serving in areas of hostility are now eligible to receive a cancellation of up to 

100 percent of the loan for each full year of active duty 

service that includes August 14, 2008, or begins on or 

after that date in the following increments: 15 percent for 

the first and second years; 20 percent for the third and 

fourth years of service; and 30 percent for the fifth year 

of service.

OMB 1845–XXXC. This will be new collection. A separate 

60-day Federal Register notice will be published to solicit comments. 

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. 

Intergovernmental Review 

These programs are not subject to 

Executive Order 12372 and the 

regulations in 34 CFR part 79. 

Assessment of Educational Impact 

In accordance with section 411 of the 

General Education Provisions Act, 20 

U.S.C. 1221e–4, the Secretary 

particularly requests comments on 

whether these proposed regulations 

would require transmission of 

information that any other agency or 

authority of the United States gathers or 

makes available. 

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 

34 CFR Part 601 

Administrative practice and 

procedure, Colleges and universities, 

Consumer protection, Education, Loan 

programs—education, Reporting and 

recordkeeping requirements, Student 

aid. 

34 CFR Part 668 

Administrative practice and 

procedure, Colleges and universities, 

Consumer protection, Education, Grant 

programs—education, Loan programs— 

education, Reporting and recordkeeping 

requirements, Student aid, Vocational 

education. 

34 CFR Parts 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 14, 2009. 

Arne Duncan, 

Secretary of Education. 

For the reasons discussed in the 

preamble, the Secretary proposes to 

amend chapter VI of title 34 of the Code 

of Federal Regulations as follows: 

1. Add part 601 to read as follows: 

PART 601—INSTITUTION AND 

LENDER REQUIREMENTS RELATING 

TO EDUCATION LOANS 

Subpart A—General 

Sec. 


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601.1 Scope. 

601.2 Definitions. 

Subpart B—Loan Information To Be 

Disclosed by Covered Institutions and 

Institution-Affiliated Organizations 

601.10 Preferred lender arrangement 

disclosures. 

601.11 Private education loan disclosures 

and self-certification form. 

601.12 Use of institution and lender name. 

Subpart C—Responsibilities of Covered 

Institutions and Institution-Affiliated 

Organizations 

601.20 Annual report. 

601.21 Code of conduct. 

Subpart D—Loan Information To Be 

Disclosed by Institutions Participating in 

the William D. Ford Direct Loan Program 

601.30 Duties of institutions. 

Subpart E—Lender Responsibilities 

601.40 Disclosure and reporting 

requirements for lenders. 

Authority: 20 U.S.C. 1019–1019d, 1021, 

1094(a) and (h). 

Subpart A—General 

§ 601.1 Scope. 

This part establishes disclosure and 

reporting requirements for covered 

institutions, institution-affiliated 

organizations, and lenders that provide, 

issue, recommend, promote, endorse, or 

provide information relating to 

education loans. Education loans 

include loans authorized by the Higher 

Education Act of 1965, as amended 

(HEA) and private education loans. 

(Authority: 20 U.S.C. 1019–1019d, 1021, 

1094(a)(25) and (e)) 

§ 601.2 Definitions. 

(a) The definitions of the following 

terms used in this part are set forth in 

the regulations for Institutional 

Eligibility under the Higher Education 

Act of 1965, as amended, 34 CFR part 

600: 

Federal Family Education Loan (FFEL) 

Program 

Secretary 

Title IV, HEA program 

(b) The following definitions also 

apply to this part: 

Agent: An officer or employee of a 

covered institution or an institutionaffiliated organization. 

Covered institution: Any institution of 

higher education, proprietary institution 

of higher education, postsecondary 

vocational institution, or institution 

outside the United States, as these terms 

are defined in 34 CFR part 600, that 

receives any Federal funding or 

assistance. 

Education loan: Except when used as 

part of the term ‘‘private education 

loan’’, 

(1) Any loan made, insured, or 

guaranteed under the Federal Family 

Education Loan (FFEL) Program; 

(2) Any loan made under the William 

D. Ford Federal Direct Loan Program; or 

(3) A private education loan. 

Institution-affiliated organization: (1) 

Any organization that— 

(i) Is directly or indirectly related to 

a covered institution; and 

(ii) Is engaged in the practice of 

recommending, promoting, or endorsing 

education loans for students attending 

such covered institution or the families 

of such students. 

(2) An institution-affiliated 

organization— 

(i) May include an alumni 

organization, athletic organization, 

foundation, or social, academic, or 

professional organization, of a covered 

institution; and 

(ii) Does not include any lender with 

respect to any education loan secured, 

made, or extended by such lender. 

Lender: (1) An eligible lender in the 

Federal Family Education Loan (FFEL) 

Program, as defined in 34 CFR 

682.200(b); 

(2) The Department in the Direct Loan 

program; 

(3) In the case of a private educational 

loan, a private education lender as 

defined in section 140 of the Truth in 

Lending Act; and 

(4) Any other person engaged in the 

business of securing, making, or 

extending education loans on behalf of 

the lender. 

Officer: A director or trustee of a 

covered institution or institutionaffiliated organization, if such 

individual is treated as an employee of 

such covered institution or institutionaffiliated organization, respectively. 

Preferred lender arrangement: (1) An 

arrangement or agreement between a 

lender and a covered institution or an 

institution-affiliated organization of 

such covered institution— 

(i) Under which a lender provides or 

otherwise issues education loans to the 

students attending such covered 

institution or the families of such 

students; and 

(ii) That relates to such covered 

institution or such institution-affiliated 

organization recommending, promoting, 

or endorsing the education loan 

products of the lender. 

(2) A preferred lender arrangement 

does not include— 

(i) Arrangements or agreements with 

respect to loans made under the William 

D. Ford Federal Direct Loan Program; or 

(ii) Arrangements or agreements with 

respect to loans that originate through 

the PLUS Loan auction pilot program 

under section 499(b) of the HEA. 

(3) For purpose of this definition, an 

arrangement or agreement does not exist 

if the private education loan provided or 

issued to a student attending a covered 

institution is made by the covered 

institution, and the private education 

loan is— 

(i) Funded by the covered institution’s 

own funds; 

(ii) Funded by donor-directed 

contributions; 

(iii) Made under title VII or title VIII 

of the Public Service Health Act; or 

(iv) Made under an institutional 

payment plan of the covered institution. 

Private education loan: As the term is 

defined in section 140 of the Truth in 

Lending Act, a loan provided by a 

private educational lender that is not a 

title IV loan and that is issued expressly 

for postsecondary education expenses to 

a borrower, regardless of whether the 

loan is provided through the 

educational institution that the student 

attends or directly to the borrower from 

the private educational lender. A private 

education loan does not include an 

extension of credit under an open end 

consumer credit plan, a reverse 

mortgage transaction, a residential 

mortgage transaction, or any other loan 

that is secured by real property or a 

dwelling. 

(Authority: 20 U.S.C. 1019) 

Subpart B—Loan Information To Be 

Disclosed by Covered Institutions and 

Institution-Affiliated Organizations 

§ 601.10 Preferred lender arrangement 

disclosures. 

(a) A covered institution, or an 

institution-affiliated organization of 

such covered institution, that 

participates in a preferred lender 

arrangement must disclose— 

(1) On such covered institution’s or 

institution-affiliated organization’s Web 

site and in all informational materials 

described in paragraph (b) of this 

section that describe or discuss 

education loans— 

(i) The maximum amount of Federal 

grant and loan aid under title IV of the 

HEA available to students, in an easy to 

understand format; 

(ii) The information identified on a 

model disclosure form developed by the 

Secretary pursuant to section 

153(a)(2)(B) of the HEA, for each type of 

education loan that is offered pursuant 

to a preferred lender arrangement of the 

institution or institution-affiliated 

organization to students of the 

institution or the families of such 

students; and 

(iii) A statement that such institution 

is required to process the documents 

required to obtain a loan under the 


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Federal Family Education Loan (FFEL) 

Program from any eligible lender the 

student selects; and 

(2) On such covered institution’s or 

institution-affiliated organization’s Web 

site and in all informational materials 

described in paragraph (b) of this 

section that describe or discuss private 

education loans— 

(i) In the case of a covered institution, 

the information that the Board of 

Governors of the Federal Reserve 

System requires to be disclosed under 

section 128(e)(11) of the Truth in 

Lending Act (15 U.S.C. 1638(e)(11)), for 

each type of private education loan 

offered pursuant to a preferred lender 

arrangement of the institution to 

students of the institution or the 

families of such students; and 

(ii) In the case of an institutionaffiliated organization of a covered 

institution, the information the Board of 

Governors of the Federal Reserve 

System requires to be disclosed under 

section 128(e)(1) of the Truth in Lending 

Act (15 U.S.C. 1638(e)(1)), for each type 

of private education loan offered 

pursuant to a preferred lender 

arrangement of the organization to 

students of such institution or the 

families of such students. 

(b) The informational materials 

described in paragraphs (a)(1) and (a)(2) 

of this section are publications, 

mailings, or electronic messages or 

materials that— 

(1) Are distributed to prospective or 

current students of a covered institution 

and families of such students; and 

(2) Describe or discuss the financial 

aid opportunities available to students 

at an institution of higher education. 

(c)(1) Each covered institution and 

each institution-affiliated organization 

that participates in a preferred lender 

arrangement must provide the 

information described in paragraph 

(a)(1)(ii) of this section, and the 

information described in paragraphs 

(a)(2)(i) and (a)(2)(ii) of this section, 

respectively, for each type of education 

loan offered pursuant to the preferred 

lender arrangement. 

(2) The information identified in 

paragraph (c)(1) of this section must be 

provided to students attending the 

covered institution, or the families of 

such students, as applicable, annually 

and must be provided in a manner that 

allows for the students or their families 

to take such information into account 

before selecting a lender or applying for 

an education loan. 

(d) If a covered institution compiles, 

maintains, and makes available a 

preferred lender list as required under 

§ 668.14(b)(28), the institution must— 

(1) Clearly and fully disclose on such 

preferred lender list— 

(i) Not less than the information 

required to be disclosed under section 

153(a)(2)(A) of the HEA; 

(ii) Why the institution participates in 

a preferred lender arrangement with 

each lender on the preferred lender list, 

particularly with respect to terms and 

conditions or provisions favorable to the 

borrower; and 

(iii) That the students attending the 

institution, or the families of such 

students, do not have to borrow from a 

lender on the preferred lender list; 

(2) Ensure, through the use of the list 

of lender affiliates provided by the 

Secretary under section 487(h)(2) of the 

HEA, that— 

(i) There are not less than three FFEL 

lenders that are not affiliates of each 

other included on the preferred lender 

list and, if the institution recommends, 

promotes, or endorses private education 

loans, there are not less than two 

lenders of private education loans that 

are not affiliates of each other included 

on the preferred lender list; and 

(ii) The preferred lender list under 

paragraph (d) of this section— 

(A) Specifically indicates, for each 

listed lender, whether the lender is or is 

not an affiliate of each other lender on 

the preferred lender list; and 

(B) If a lender is an affiliate of another 

lender on the preferred lender list, 

describes the details of such affiliation; 

(3) Prominently disclose the method 

and criteria used by the institution in 

selecting lenders with which to 

participate in preferred lender 

arrangements to ensure that such 

lenders are selected on the basis of the 

best interests of the borrowers, 

including— 

(i) Payment of origination or other 

fees on behalf of the borrower; 

(ii) Highly competitive interest rates, 

or other terms and conditions or 

provisions of Title IV, HEA program 

loans or private education loans; 

(iii) High-quality servicing for such 

loans; or 

(iv) Additional benefits beyond the 

standard terms and conditions or 

provisions for such loans; 

(4) Exercise a duty of care and a duty 

of loyalty to compile the preferred 

lender list under paragraph (d) of this 

section without prejudice and for the 

sole benefit of the students attending the 

institution, or the families of such 

students; and 

(5) Not deny or otherwise impede the 

borrower’s choice of a lender or cause 

unnecessary delay in loan certification 

under title IV of the HEA for those 

borrowers who choose a lender that is 

not included on the preferred lender 

list. 

(Approved by the Office of Management and 

Budget under control number 1845–XXXA) 

(Authority: 20 U.S.C. 1019a(a)(1)(A) and 

1019b(c)) 

§ 601.11 Private education loan 

disclosures and self-certification form. 

(a) A covered institution, or an 

institution-affiliated organization of 

such covered institution, that provides 

information regarding a private 

education loan from a lender to a 

prospective borrower must provide 

private education loan disclosures to the 

prospective borrower, regardless of 

whether the covered institution or 

institution-affiliated organization 

participates in a preferred lender 

arrangement. 

(b) The private education loan 

disclosures must— 

(1) Provide the prospective borrower 

with the information the Board of 

Governors of the Federal Reserve 

System requires to be disclosed under 

section 128(e)(1) of the Truth in Lending 

Act (15 U.S.C. 1638(e)(1)) for such loan; 

(2) Inform the prospective borrower 

that— 

(i) The prospective borrower may 

qualify for loans or other assistance 

under title IV of the HEA; and 

(ii) The terms and conditions of Title 

IV, HEA program loans may be more 

favorable than the provisions of private 

education loans. 

(c) The covered institution or 

institution-affiliated organization must 

ensure that information regarding 

private education loans is presented in 

such a manner as to be distinct from 

information regarding Title IV, HEA 

program loans. 

(d) Upon an enrolled or admitted 

student applicant’s request for a private 

education loan self-certification form, 

an institution must provide to the 

applicant, in written or electronic 

form— 

(1) The self-certification form for 

private education loans developed by 

the Secretary in consultation with the 

Board of Governors of the Federal 

Reserve System, to satisfy the 

requirements of section 128(e)(3) of the 

Truth in Lending Act (15 U.S.C. 

1638(e)(3)); and 

(2) The information required to 

complete the form, to the extent the 

institution possesses such information 

as specified in 34 CFR 668.14(b)(29). 

(Approved by the Office of Management and 

Budget under control number 1845–XXXA) 

(Authority: 20 U.S.C. 1019a(a)(1)(B) and 

1019d) 


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§ 601.12 Use of institution and lender 

name. 

A covered institution, or an 

institution-affiliated organization of 

such covered institution, that 

participates in a preferred lender 

arrangement with a lender regarding 

private education loans must— 

(a) Not agree to the lender’s use of the 

name, emblem, mascot, or logo of such 

institution or organization, or other 

words, pictures, or symbols readily 

identified with such institution or 

organization, in the marketing of private 

education loans to students attending 

such institution in any way that implies 

that the loan is offered or made by such 

institution or organization instead of the 

lender; and 

(b) Ensure that the name of the lender 

is displayed in all information and 

documentation related to the private 

education loans described in this 

section. 

(Authority: 20 U.S.C. 1019a(a)(2)–(a)(3)) 

Subpart C—Responsibilities of 

Covered Institutions and InstitutionAffiliated Organizations 

§ 601.20 Annual report. 

Each covered institution, and each 

institution-affiliated organization of 

such covered institution, that 

participates in a preferred lender 

arrangement, must— 

(a) Prepare and submit to the 

Secretary an annual report, by a date 

determined by the Secretary, that 

includes, for each lender that 

participates in a preferred lender 

arrangement with such covered 

institution or organization— 

(1) The information described in 

§ 601.10(c); and 

(2) A detailed explanation of why 

such covered institution or institutionaffiliated organization participates in a 

preferred lender arrangement with the 

lender, including why the terms, 

conditions, and provisions of each type 

of education loan provided pursuant to 

the preferred lender arrangement are 

beneficial for students attending such 

institution, or the families of such 

students, as applicable; and 

(b) Ensure that the report required 

under this section is made available to 

the public and provided to students 

attending or planning to attend such 

covered institution and the families of 

such students. 

(Approved by the Office of Management and 

Budget under control number 1845–XXXA) 

(Authority: 20 U.S.C. 1019b(c)(2)) 

§ 601.21 Code of conduct. 

(a)(1) A covered institution that 

participates in a preferred lender 

arrangement must comply with the code 

of conduct requirements described in 

this section. 

(2) The covered institution must— 

(i) Develop a code of conduct with 

respect to FFEL Program loans and 

private education loans with which the 

institution’s agents must comply. The 

code of conduct must— 

(A) Prohibit a conflict of interest with 

the responsibilities of an agent of an 

institution with respect to FFEL 

Program loans and private education 

loans; and 

(B) At a minimum, include the 

provisions specified in paragraph (c) of 

this section; 

(ii) Publish such code of conduct 

prominently on the institution’s Web 

site; and 

(iii) Administer and enforce such 

code by, at a minimum, requiring that 

all of the institution’s agents with 

responsibilities with respect to FFEL 

Program loans or private education 

loans be annually informed of the 

provisions of the code of conduct. 

(b) Any institution-affiliated 

organization of a covered institution 

that participates in a preferred lender 

arrangement must— 

(1) Comply with the code of conduct 

developed and published by such 

covered institution under paragraph 

(a)(1) of this section; 

(2) If such institution-affiliated 

organization has a Web site, publish 

such code of conduct prominently on 

the Web site; and 

(3) Administer and enforce such code 

of conduct by, at a minimum, requiring 

that all of such institution-affiliated 

organization’s agents with 

responsibilities with respect to FFEL 

Program loans or private education 

loans be annually informed of the 

provisions of such code of conduct. 

(c) A covered institution’s code of 

conduct must prohibit— 

(1) Revenue-sharing arrangements 

with any lender. The institution must 

not enter into any revenue-sharing 

arrangement with any lender. For 

purposes of this paragraph, the term 

revenue-sharing arrangement means an 

arrangement between a covered 

institution and a lender under which— 

(i) A lender provides or issues a FFEL 

Program loan or private education loan 

to students attending the institution or 

to the families of such students; and 

(ii) The institution recommends the 

lender or the loan products of the lender 

and in exchange, the lender pays a fee 

or provides other material benefits, 

including revenue or profit sharing, to 

the institution, an agent; 

(2)(i) Employees of the financial aid 

office receiving gifts from a lender, a 

guarantor, or a loan servicer. Agents 

who are employed in the financial aid 

office of the institution or who 

otherwise have responsibilities with 

respect to FFEL Program loans or 

private education loans, must not solicit 

or accept any gift from a lender, 

guarantor, or servicer of FFEL Program 

loans or private education loans; 

(ii) For purposes of paragraph (c) of 

this section, the term gift means any 

gratuity, favor, discount, entertainment, 

hospitality, loan, or other item having a 

monetary value of more than a de 

minimus amount. The term includes a 

gift of services, transportation, lodging, 

or meals, whether provided in kind, by 

purchase of a ticket, payment in 

advance, or reimbursement after the 

expense has been incurred; 

(iii) The term gift does not include 

any of the following: 

(A) Standard material, activities, or 

programs on issues related to a loan, 

default aversion, default prevention, or 

financial literacy, such as a brochure, a 

workshop, or training. 

(B) Food, refreshments, training, or 

informational material furnished to an 

agent as an integral part of a training 

session that is designed to improve the 

service of a lender, guarantor, or 

servicer of FFEL Program loans or 

private education loans to the 

institution, if such training contributes 

to the professional development of the 

agent. 

(C) Favorable terms, conditions, and 

borrower benefits on a FFEL Program 

loan or private education loan provided 

to a student employed by the institution 

if such terms, conditions, or benefits are 

comparable to those provided to all 

students of the institution. 

(D) Entrance and exit counseling 

services provided to borrowers to meet 

the institution’s responsibilities for 

entrance and exit counseling as required 

by §§ 682.604(f) and 682.604(g), as long 

as the institution’s staff are in control of 

the counseling (whether in person or via 

electronic capabilities) and such 

counseling does not promote the 

products or services of any specific 

lender. 

(E) Philanthropic contributions to an 

institution from a lender, servicer, or 

guarantor of FFEL Program loans or 

private education loans that are 

unrelated to FFEL Program loans or 

private education loans or any 

contribution from any lender, servicer, 

or guarantor, that is not made in 

exchange for any advantage related to 


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FFEL Program loans or private 

education loans. 

(F) State education grants, 

scholarships, or financial aid funds 

administered by or on behalf of a State; 

and 

(iv) For purposes of paragraph (c) of 

this section, a gift to a family member 

of an agent, or to any other individual 

based on that individual’s relationship 

with the agent, is considered a gift to the 

agent if— 

(A) The gift is given with the 

knowledge and acquiescence of the 

agent; and 

(B) The agent has reason to believe the 

gift was given because of the official 

position of the agent; 

(3) Consulting or other contracting 

arrangements. An agent who is 

employed in the financial aid office of 

the institution or who otherwise has 

responsibilities with respect to FFEL 

Program loans or private education 

loans must not accept from any lender 

or affiliate of any lender any fee, 

payment, or other financial benefit 

(including the opportunity to purchase 

stock) as compensation for any type of 

consulting arrangement or other 

contract to provide services to a lender 

or on behalf of a lender relating to FFEL 

Program loans or private education 

loans. Nothing in paragraph (c)(3) of this 

section will be construed as 

prohibiting— 

(i) An agent who is not employed in 

the institution’s financial aid office and 

who does not otherwise have 

responsibilities with respect to FFEL 

Program loans or private education 

loans from performing paid or unpaid 

service on a board of directors of a 

lender, guarantor, or servicer of 

education loans; 

(ii) An agent who is not employed in 

the institution’s financial aid office but 

who has responsibility with respect to 

FFEL Program loans or private 

education loans from performing paid or 

unpaid service on a board of directors 

of a lender, guarantor, or servicer of 

FFEL Program loans or private 

education loans, if the institution has a 

written conflict of interest policy that 

clearly sets forth that agents must recuse 

themselves from participating in any 

decision of the board regarding FFEL 

Program loans or private education 

loans at the institution; or 

(iii) An officer, employee, or 

contractor of a lender, guarantor, or 

servicer of FFEL Program loans or 

private education loans from serving on 

a board of directors, or serving as a 

trustee, of an institution, if the 

institution has a written conflict of 

interest policy that the board member or 

trustee must recuse themselves from any 

decision regarding FFEL Program loans 

or private education loans at the 

institution; 

(4) Directing borrowers to particular 

lenders or delaying loan certifications. 

The institution must not— 

(i) For any first-time borrower, assign, 

through award packaging or other 

methods, the borrower’s loan to a 

particular lender; or 

(ii) Refuse to certify, or delay 

certification of, any loan based on the 

borrower’s selection of a particular 

lender or guaranty agency; 

(5)(i) Offers of funds for private loans. 

The institution must not request or 

accept from any lender any offer of 

funds to be used for private education 

loans, including funds for an 

opportunity pool loan, to students in 

exchange for the institution providing 

concessions or promises regarding 

providing the lender with— 

(A) A specified number of FFEL 

Program loans or private education 

loans; 

(B) A specified loan volume of such 

loans; or 

(C) A preferred lender arrangement for 

such loans. 

(ii) For purposes of paragraph (c) of 

this section, the term opportunity pool 

loan means a private education loan 

made by a lender to a student attending 

the institution or the family member of 

such a student that involves a payment, 

directly or indirectly, by such 

institution of points, premiums, 

additional interest, or financial support 

to such lender for the purpose of such 

lender extending credit to the student or 

the family; 

(6) Staffing assistance. The institution 

must not request or accept from any 

lender any assistance with call center 

staffing or financial aid office staffing, 

except that nothing in this paragraph 

will be construed to prohibit the 

institution from requesting or accepting 

assistance from a lender related to— 

(i) Professional development training 

for financial aid administrators; 

(ii) Providing educational counseling 

materials, financial literacy materials, or 

debt management materials to 

borrowers, provided that such materials 

disclose to borrowers the identification 

of any lender that assisted in preparing 

or providing such materials; or 

(iii) Staffing services on a short-term, 

nonrecurring basis to assist the 

institution with financial aid-related 

functions during emergencies, including 

State-declared or federally declared 

natural disasters, federally declared 

national disasters, and other localized 

disasters and emergencies identified by 

the Secretary; and 

(7) Advisory board compensation. 

Any employee who is employed in the 

financial aid office of the institution, or 

who otherwise has responsibilities with 

respect to FFEL Program loans or 

private education loans or other student 

financial aid of the institution, and who 

serves on an advisory board, 

commission, or group established by a 

lender, guarantor, or group of lenders or 

guarantors, must not receive anything of 

value from the lender, guarantor, or 

group of lenders or guarantors, except 

that the employee may be reimbursed 

for reasonable expenses, as that term is 

defined in § 668.16(d)(2)(ii), incurred in 

serving on such advisory board, 

commission, or group. 

(Approved by the Office of Management and 

Budget under control number 1845–XXXA) 

(Authority: 20 U.S.C. 1019b(c)(2)), 

1094(a)(25) and (e)) 

Subpart D—Loan Information To Be 

Disclosed by Institutions Participating 

in the William D. Ford Direct Loan 

Program 

§ 601.30 Duties of institutions. 

(a) Each covered institution 

participating in the William D. Ford 

Direct Loan Program under part D of 

title IV of the HEA must— 

(1) Make the information identified in 

a model disclosure form developed by 

the Secretary pursuant to section 154(a) 

of the HEA available to students 

attending or planning to attend the 

institution, or the families of such 

students, as applicable; and 

(2) If the institution provides 

information regarding a private 

education loan to a prospective 

borrower, concurrently provide such 

borrower with the information 

identified on the model disclosure form 

that the Secretary provides to the 

institution under section 154(a) of the 

HEA. 

(b) In providing the information 

required under paragraph (a) of this 

section, a covered institution may use a 

comparable form designed by the 

institution instead of the model 

disclosure form. 

(Approved by the Office of Management and 

Budget under control number 1845–XXXB) 

(Authority: 20 U.S.C. 1019c(b)). 

Subpart E—Lender Responsibilities 

§ 601.40 Disclosure and reporting 

requirements for lenders. 

(a) Disclosures to borrowers. (1) A 

lender must, at or prior to disbursement 

of a FFEL loan, provide the borrower, in 

writing (including through electronic 

means), in clear and understandable 


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terms, the disclosures required in 

§ 682.205(a) and (b). 

(2) A lender must, for each of its 

private education loans, comply with 

the disclosure requirements under 

section 128(e) of the Truth in Lending 

Act (15 U.S.C. 1638(e)). 

(b) Reports to the Secretary. Each 

FFEL lender must report annually to the 

Secretary— 

(1) Any reasonable expenses paid or 

provided to any agent of a covered 

institution who is employed in the 

financial aid office or has other 

responsibilities with respect to 

education loans or other student 

financial aid of the institution for 

service on a lender advisory board, 

commission or group established by a 

lender or group of lenders; or 

(2) Any similar expenses paid or 

provided to any agent of an institutionaffiliated organization who is involved 

in recommending, promoting, or 

endorsing education loans. 

(3) The report required by this 

paragraph must include— 

(i) The amount of expenses paid or 

provided for each specific instance in 

which the lender provided expenses; 

(ii) The name of any agent described 

in paragraph (b)(1) of this section to 

whom the expenses were paid or 

provided; 

(iii) The dates of the activity for 

which the expenses were paid or 

provided; and 

(iv) A brief description of the activity 

for which the expenses were paid or 

provided. 

(c) Lender certification of compliance. 

(1) Any FFEL lender participating in 

one or more preferred lender 

arrangements must annually certify to 

the Secretary its compliance with the 

Higher Education Act of 1965, as 

amended; and 

(2) If the lender is required to submit 

an audit under 34 CFR 682.305(c), the 

lender’s compliance with the 

requirements under this section must be 

reported on and attested to annually by 

the lender’s auditor. 

(3) A lender may comply with the 

certification requirements of this section 

if the certifications are provided as part 

of the annual audit required by 34 CFR 

682.305(c). 

(4) A lender who is not required to 

submit an audit must submit the 

required certification at such time and 

in such manner as directed by the 

Secretary. 

(d) Annual lender report to covered 

institutions. A FFEL lender with a 

preferred lender arrangement with a 

covered institution or an institutionaffiliated organization relating to FFEL 

loans must annually, on a date 

prescribed by the Secretary, provide to 

the covered institution or the 

institution-affiliated organization and to 

the Secretary, such information required 

by the Secretary in relation to the FFEL 

loans the lender plans to offer pursuant 

to that preferred lender arrangement for 

the next award year. 

(Approved by the Office of Management and 

Budget under control number 1845–XXXA) 

(Authority: 20 U.S.C. 1019a(b) and 1019b(b)) 

PART 668—STUDENT ASSISTANCE 

GENERAL PROVISIONS 

2. The authority citation for part 668 

continues to read as follows: 

Authority: 20 U.S.C. 1001, 1002, 1003, 

1070g, 1085, 1088, 1091, 1092, 1094, 1099c, 

and 1099c–1, unless otherwise noted. 

3. Section 668.14 is amended by 

adding new paragraphs (b)(27), (b)(28) 

and (b)(29) as follows: 

§ 668.14 Program participation agreement. 

* * * * * 

(b) * * * 

(27) In the case of an institution 

participating in a Title IV, HEA loan 

program, the institution— 

(i) Will develop, publish, administer, 

and enforce a code of conduct with 

respect to loans made, insured or 

guaranteed under the Title IV, HEA loan 

programs in accordance with 34 CFR 

601.21; and 

(ii) Must inform its officers, 

employees, and agents with 

responsibilities with respect to loans 

made, insured or guaranteed under the 

Title IV, HEA loan programs annually of 

the provisions of the code required 

under paragraph (b)(27) of this section; 

(28) For any year in which the 

institution has a preferred lender 

arrangement (as defined in 34 CFR 

601.2(b)), it will at least annually 

compile, maintain, and make available 

for students attending the institution, 

and the families of such students, a list 

in print or other medium, of the specific 

lenders for loans made, insured, or 

guaranteed under title IV of the HEA or 

private education loans that the 

institution recommends, promotes, or 

endorses in accordance with such 

preferred lender arrangement. In making 

such a list, the institution must comply 

with the requirements in 34 CFR 

682.212(h) and 34 CFR 601.10; 

(29)(i) It will, upon the request of an 

enrolled or admitted student who is an 

applicant for a private education loan 

(as defined in 34 CFR 601.2(b)), provide 

to the applicant the self-certification 

form required under 34 CFR 601.11(d) 

and the information required to 

complete the form, to the extent the 

institution possesses such information, 

including— 

(A) The applicant’s cost of attendance 

at the institution, as determined by the 

institution under part F of title IV of the 

HEA; 

(B) The applicant’s expected family 

contribution, for students who have 

completed the Free Application for 

Federal Student Aid; 

(C) The applicant’s estimated 

financial assistance, as determined by 

the institution in accordance with 34 

CFR 682.200; 

(D) The difference between the 

amounts under paragraphs (b)(29)(i)(A) 

and (29)(i)(C) of this section, as 

applicable; and 

(E) The sum of the amounts under 

paragraphs (b)(29)(i)(B) and (b)(29)(i)(D) 

of this section, as applicable. 

(ii) It will, upon the request of the 

applicant, discuss with the applicant 

the availability of Federal, State, and 

institutional student financial aid; 

* * * * * 

4. Section 668.16 is amended by: 

A. Revising paragraph (d). 

B. Revising paragraph (m). 

C. Revising the authority citation that 

appears at the end of the section. 

The revisions read as follows: 

§ 668.16 Standards of administrative 

capability. 

* * * * * 

(d)(1) Establishes and maintains 

records required under this part and the 

individual Title IV, HEA program 

regulations; and 

(2)(i) Reports annually to the 

Secretary on any reasonable 

reimbursements paid or provided by a 

private education lender or group of 

lenders as described under section 

140(d) of the Truth in Lending Act (15 

U.S.C. 1631(d)) to any employee who is 

employed in the financial aid office of 

the institution or who otherwise has 

responsibilities with respect to 

education loans or other financial aid of 

the institution, including— 

(A) The amount for each specific 

instance of reasonable expenses paid or 

provided; 

(B) The name of the financial aid 

official, other employee, or agent to 

whom the expenses were paid or 

provided; 

(C) The dates of the activity for which 

the expenses were paid or provided; and 

(D) A brief description of the activity 

for which the expenses were paid or 

provided. 

(ii) Expenses are considered to be 

reasonable if the expenses— 

(A) Meet the standards of and are paid 

in accordance with a State government 

reimbursement policy applicable to the 

entity; or 


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(B) Meet the standards of and are paid 

in accordance with the applicable 

Federal cost principles for 

reimbursement, if no State policy that is 

applicable to the entity exists. 

(iii) The policy must be consistently 

applied to an institution’s employees 

reimbursed under this paragraph; 

* * * * * 

(m)(1) Has a cohort default rate— 

(i) That is less than 25 percent for 

each of the three most recent fiscal years 

during which rates have been issued, to 

the extent those rates are calculated 

under subpart M of this part; 

(ii) On or after 2014, that is less than 

30 percent for at least two of the three 

most recent fiscal years during which 

the Secretary has issued rates for the 

institution under subpart N of this part; 

and 

(iii) As defined in 34 CFR 674.5, on 

loans made under the Federal Perkins 

Loan Program to students for attendance 

at that institution that does not exceed 

15 percent. 

(2)(i) However, if the Secretary 

determines that an institution’s 

administrative capability is impaired 

solely because the institution fails to 

comply with paragraph (m)(1) of this 

section, and the institution is not 

subject to a loss of eligibility under 

§§ 668.187(a) or 668.206(a), the 

Secretary allows the institution to 

continue to participate in the Title IV, 

HEA programs. In such a case, the 

Secretary may provisionally certify the 

institution in accordance with 

§ 668.13(c) except as provided in 

paragraphs (m)(2)(ii), (m)(2)(iii), 

(m)(2)(iv), and (m)(2)(v) of this section. 

(ii) An institution that fails to meet 

the standard of administrative capability 

under paragraph (m)(1)(ii) based on two 

cohort default rates that are greater than 

or equal to 30 percent but less than 40 

percent is not placed on provisional 

certification under paragraph (m)(2)(i) of 

this section— 

(A) If it has timely filed a request for 

adjustment or appeal under §§ 668.209, 

668.210, or 668.212 with respect to the 

second such rate, and the request for 

adjustment or appeal is either pending 

or succeeds in reducing the rate below 

30 percent; or 

(B) If it has timely filed an appeal 

under §§ 668.213 or 668.214 after 

receiving the second such rate, and the 

appeal is either pending or successful. 

(iii) The institution may appeal the 

loss of full participation in a Title IV, 

HEA program under paragraph (m)(2)(i) 

of this section by submitting an 

erroneous data appeal in writing to the 

Secretary in accordance with and on the 

grounds specified in §§ 668.192 or 

668.211 as applicable; 

(iv) If you have 30 or fewer borrowers 

in the three most recent cohorts of 

borrowers used to calculate your cohort 

default rate under subpart N of this part, 

we not provisionally certify you solely 

based on cohort default rates; 

(v) If a rate that would otherwise 

potentially subject you to provisional 

certification under paragraph (m)(1)(ii) 

and (m)(2)(i) of this section is calculated 

as an average rate, we will not 

provisionally certify you solely based on 

cohort default rates; 

* * * * * 

(Authority: 20 U.S.C. 1082, 1085, 1092, 1094, 

and 1099c) 

5. Section 668.42 is amended by: 

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

word ‘‘student’s’’ and adding, in its 

place, the word ‘‘students’’. 

B. In paragraph (a), adding a new 

paragraph (4). 

C. In paragraph (c) introductory text, 

removing the word ‘‘shall’’ and adding, 

in its place, the word ‘‘must’’. 

D. In paragraph (c)(5), adding the 

word ‘‘and’’ after the punctuation ‘‘;’’. 

E. In paragraph (c)(6), removing the 

words ‘‘The institution shall provide 

and collect exit counseling information’’ 

and adding, in their place, the words 

‘‘The exit counseling the institution 

provides and collects’’. 

F. In paragraph (c)(6), removing the 

punctuation and word ‘‘; and’’ and 

adding, in their place, the punctuation 

‘‘.’’. 

G. In paragraph (c), removing 

paragraph (7). 

The addition reads as follows: 

§ 668.42 Financial assistance information. 

(a) * * * 

(4) The institution must describe the 

terms and conditions of the loans 

students receive under the Federal 

Family Education Loan Program, the 

William D. Ford Federal Direct Student 

Loan Program, and the Federal Perkins 

Loan Program. 

* * * * * 

6. Revise the subpart heading of 

subpart M to read as follows: 

Subpart M—Two Year Cohort Default 

Rates 

7. Section 668.181 is revised to read 

as follows: 

§ 668.181 Purpose of this subpart. 

(a) General. Your cohort default rate is 

a measure we use to determine your 

eligibility to participate in various Title 

IV, HEA programs. We may also use it 

for determining your eligibility for 

exemptions, such as those for certain 

disbursement requirements under the 

FFEL and Direct Loan Programs. This 

subpart applies solely to cohorts, as 

defined in §§ 668.182(a) and 668.183(b), 

for fiscal years through 2011. For these 

cohorts, this subpart describes how 

cohort default rates are calculated, some 

of the consequences of cohort default 

rates, and how you may request changes 

to your cohort default rates or appeal 

their consequences. Under this subpart, 

you submit a ‘‘challenge’’ after you 

receive your draft cohort default rate, 

and you request an ‘‘adjustment’’ or 

‘‘appeal’’ after your official cohort 

default rate is published. 

(b) Cohort Default Rates. 

Notwithstanding anything to the 

contrary in this subpart, we will issue 

annually two sets of draft and official 

cohort default rates for fiscal years 2009, 

2010, and 2011. For each of these years, 

you will receive one set of draft and 

official cohort default rates under this 

subpart and another set of draft and 

official cohort default rates under 

subpart N of this part. 

(Approved by the Office of Management and 

Budget under control number 1845–0022) 

(Authority: 20 U.S.C. 1082, 1085, 1094, 

1099c) 

§ 668.184 [Amended] 

8. Section 668.184(a)(1) is amended 

by removing the word ‘‘If’’ and adding, 

in its place, the words ‘‘Except as 

provided under 34 CFR 600.32(d), if’’. 

9. Section 668.185(a)(3) is revised to 

read as follows: 

§ 668.185 Draft cohort default rates and 

your ability to challenge before official 

cohort default rates are issued. 

(a) * * * 

(3) Your draft cohort default rate and 

the loan record detail report are not 

considered public information and may 

not be otherwise voluntarily released to 

the public by a data manager. 

* * * * * 

10. Section 668.186 is revised to read 

as follows: 

§ 668.186 Notice of your official cohort 

default rate. 

(a) We electronically notify you of 

your cohort default rate after we 

calculate it, by sending you an eCDR 

notification package to the destination 

point you designate. After we send our 

notice to you, we publish a list of cohort 

default rates calculated under this 

subpart for all institutions. 

(b) If you have one or more borrowers 

entering repayment or are subject to 

sanctions, or if the Department believes 

you will have an official cohort default 

rate calculated as an average rate, you 

will receive a loan record detail report 

as part of your eCDR notification 

package. 


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(c) You have five business days, from 

the transmission date for eCDR 

notification packages as posted on the 

Department’s Web site, to report any 

problem with receipt of the electronic 

transmission of your eCDR notification 

package. 

(d) Except as provided in paragraph 

(e) of this section, timelines for 

submitting challenges, adjustments, and 

appeals begin on the sixth business day 

following the transmission date for 

eCDR notification packages that is 

posted on the Department’s Web site. 

(e) If you timely report a problem with 

the receipt of the electronic 

transmission of your eCDR notification 

package under paragraph (c) of this 

section and the Department agrees that 

the problem with transmission was not 

caused by you, the Department will 

extend the challenge, appeal and 

adjustment deadlines and timeframes to 

account for a retransmission of your 

eCDR notification package after the 

technical problem is resolved. 

(Approved by the Office of Management and 

Budget under control number 1845–0022) 

(Authority: 20 U.S.C. 1082, 1085, 1094, 

1099c) 

11. Section 668.187 is revised to read 

as follows: 

§ 668.187 Consequences of cohort default 

rates on your ability to participate in Title 

IV, HEA programs. 

(a) End of participation. (1) Except as 

provided in paragraph (e) of this 

section, you lose your eligibility to 

participate in the FFEL and Direct Loan 

programs 30 days after you receive our 

notice that your most recent cohort 

default rate is greater than 40 percent. 

(2) Except as provided in paragraphs 

(d) and (e) of this section, you lose your 

eligibility to participate in the FFEL, 

Direct Loan, and Federal Pell Grant 

programs 30 days after you receive our 

notice that your three most recent 

cohort default rates are each 25 percent 

or greater. 

(b) Length of period of ineligibility. 

Your loss of eligibility under this 

section continues— 

(1) For the remainder of the fiscal year 

in which we notify you that you are 

subject to a loss of eligibility; and 

(2) For the next 2 fiscal years. 

(c) Using a cohort default rate more 

than once. The use of a cohort default 

rate as a basis for a loss of eligibility 

under this section does not preclude its 

use as a basis for— 

(1) Any concurrent or subsequent loss 

of eligibility under this section; or 

(2) Any other action by us. 

(d) Continuing participation in Pell. If 

you are subject to a loss of eligibility 

under paragraph (a)(2) of this section, 

based on three cohort default rates of 25 

percent or greater, you may continue to 

participate in the Federal Pell Grant 

Program if we determine that you— 

(1) Were ineligible to participate in 

the FFEL and Direct Loan programs 

before October 7, 1998, and your 

eligibility was not reinstated; 

(2) Requested in writing, before 

October 7, 1998, to withdraw your 

participation in the FFEL and Direct 

Loan programs, and you were not later 

reinstated; or 

(3) Have not certified an FFELP loan 

or originated a Direct Loan Program loan 

on or after July 7, 1998. 

(e) Requests for adjustments and 

appeals. (1) A loss of eligibility under 

this section does not take effect while 

your request for adjustment or appeal, 

as listed in § 668.189(a), is pending, 

provided your request for adjustment or 

appeal is complete, timely, accurate, 

and in the required format. 

(2) Eligibility continued under 

paragraph (e)(1) of this section ends if 

we determine that none of the requests 

for adjustments and appeals you have 

submitted qualify you for continued 

eligibility under § 668.189. Loss of 

eligibility takes effect on the date that 

you receive notice of our determination 

on your last pending request for 

adjustment or appeal. 

(3) You do not lose eligibility under 

this section if we determine that your 

request for adjustment or appeal meets 

all requirements of this subpart and 

qualifies you for continued eligibility 

under § 668.189. 

(4) To avoid liabilities you might 

otherwise incur under paragraph (g) of 

this section, you may choose to suspend 

your participation in the FFEL and 

Direct Loan programs during the 

adjustment or appeal process. 

(f) Liabilities during the adjustment or 

appeal process. If you continued to 

participate in the FFEL or Direct Loan 

Program under paragraph (d)(1) of this 

section, and we determine that none of 

your requests for adjustments or appeals 

qualify you for continued eligibility— 

(1) For any FFEL or Direct Loan 

Program loan that you certified and 

delivered or originated and disbursed 

more than 30 days after you received the 

notice of your cohort default rate, we 

estimate the amount of interest, special 

allowance, reinsurance, and any related 

or similar payments we make or are 

obligated to make on those loans; 

(2) We exclude from this estimate any 

amount attributable to funds that you 

delivered or disbursed more than 45 

days after you submitted your 

completed appeal to us; 

(3) We notify you of the estimated 

amount; and 

(4) Within 45 days after you receive 

our notice of the estimated amount, you 

must pay us that amount, unless— 

(i) You file an appeal under the 

procedures established in subpart H of 

this part (for the purposes of subpart H 

of this part, our notice of the estimate 

is considered to be a final program 

review determination); or 

(ii) We permit a longer repayment 

period. 

(g) Regaining eligibility. If you lose 

your eligibility to participate in a 

program under this section, you may not 

participate in that program until— 

(1) The period described in paragraph 

(b) of this section has ended; 

(2) You pay any amount owed to us 

under this section or are meeting that 

obligation under an agreement 

acceptable to us; 

(3) You submit a new application for 

participation in the program; 

(4) We determine that you meet all of 

the participation requirements in effect 

at the time of your application; and 

(5) You and we enter into a new 

program participation agreement. 

(Approved by the Office of Management and 

Budget under control number 1845–0022) 

(Authority: 20 U.S.C. 1082, 1085, 1094, 

1099c) 

12. In § 668.188, the introductory text 

in paragraph (a) is revised to read as 

follows: 

§ 668.188 Preventing evasion of the 

consequences of cohort default rates. 

(a) General. You are subject to a loss 

of eligibility that has already been 

imposed against another institution as a 

result of cohort default rates if— 

* * * * * 

13. Section 668.190 is revised to read 

as follows: 

§ 668.190 Uncorrected data adjustments. 

(a) Eligibility. You may request an 

uncorrected data adjustment for your 

most recent cohort of borrowers, used to 

calculate your most recent official 

cohort default rate, if in response to 

your challenge under § 668.185(b), a 

data manager agreed correctly to change 

the data, but the changes are not 

reflected in your official cohort default 

rate. 

(b) Deadlines for requesting an 

uncorrected data adjustment. You must 

send us a request for an uncorrected 

data adjustment, including all 

supporting documentation, within 30 

days after you receive your loan record 

detail report from us. 

(c) Determination. We recalculate 

your cohort default rate, based on the 


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corrected data, and electronically 

correct the rate that is publicly released, 

if we determine that— 

(1) In response to your challenge 

under § 668.185(b), a data manager 

agreed to change the data; 

(2) The changes described in 

paragraph (c)(1) of this section are not 

reflected in your official cohort default 

rate; and 

(3) We agree that the data are 

incorrect. 

(Approved by the Office of Management and 

Budget under control number 1845–0022) 

(Authority: 20 U.S.C. 1082, 1085, 1094, 

1099c) 

14. Section 668.191 is revised to read 

as follows: 

§ 668.191 New data adjustments. 

(a) Eligibility. You may request a new 

data adjustment for your most recent 

cohort of borrowers, used to calculate 

your most recent official cohort default 

rate, if— 

(1) A comparison of the loan record 

detail reports that we provide to you for 

the draft and official cohort default rates 

shows that the data have been newly 

included, excluded, or otherwise 

changed; and 

(2) You identify errors in the data 

described in paragraph (a)(1) of this 

section that are confirmed by the data 

manager. 

(b) Deadlines for requesting a new 

data adjustment. (1) You must send to 

the relevant data manager, or data 

managers, and us a request for a new 

data adjustment, including all 

supporting documentation, within 15 

days after you receive your loan record 

detail report from us. 

(2) Within 20 days after receiving 

your request for a new data adjustment, 

the data manager must send you and us 

a response that— 

(i) Addresses each of your allegations 

of error; and 

(ii) Includes the documentation used 

to support the data manager’s position. 

(3) Within 15 days after receiving a 

guaranty agency’s notice that we hold 

an FFELP loan about which you are 

inquiring, you must send us your 

request for a new data adjustment for 

that loan. We respond to your request as 

set forth under paragraph (b)(3) of this 

section. 

(4) Within 15 days after receiving 

incomplete or illegible records or data 

from a data manager, you must send a 

request for replacement records or 

clarification of data to the data manager 

and us. 

(5) Within 20 days after receiving 

your request for replacement records or 

clarification of data, the data manager 

must— 

(i) Replace the missing or illegible 

records; 

(ii) Provide clarifying information; or 

(iii) Notify you and us that no 

clarifying information or additional or 

improved records are available. 

(6) You must send us your completed 

request for a new data adjustment, 

including all supporting 

documentation— 

(i) Within 30 days after you receive 

the final data manager’s response to 

your request or requests; or 

(ii) If you are also filing an erroneous 

data appeal or a loan servicing appeal, 

by the latest of the filing dates required 

in paragraph (b)(7)(i) of this section or 

in § 668.192(b)(6)(i) or 

§ 668.193(c)(10)(i). 

(c) Determination. If we determine 

that incorrect data were used to 

calculate your cohort default rate, we 

recalculate your cohort default rate 

based on the correct data and 

electronically correct the rate that is 

publicly released. 

(Approved by the Office of Management and 

Budget under control number 1845–0022) 

(Authority: 20 U.S.C. 1082, 1085, 1094, 

1099c) 

15. Section 668.192(c) is revised to 

read as follows: 

§ 668.192 Erroneous data appeals. 

* * * * * 

(c) Determination. If we determine 

that incorrect data were used to 

calculate your cohort default rate, we 

recalculate your cohort default rate 

based on the correct data and 

electronically correct the rate that is 

publicly released. 

* * * * * 

16. Section 668.193(f)(2) is revised to 

read as follows: 

§ 668.193 Loan servicing appeals. 

* * * * * 

(2) Based on our determination, we 

use a statistically valid methodology to 

exclude the corresponding percentage of 

borrowers from both the numerator and 

denominator of the calculation of your 

cohort default rate, and electronically 

correct the rate that is publicly released. 

* * * * * 

17. Section 668.196(c) is revised to 

read as follows: 

§ 668.196 Average rates appeals. 

* * * * * 

(c) Determination. You do not lose 

eligibility under § 668.187 if we 

determine that you meet the 

requirements for an average rates 

appeal. In such a case, we electronically 

correct the rate that is publicly released. 

* * * * * 

§ 668.198 [Removed] 

18. Section 668.198 is removed. 

19. Part 668, subpart M, is amended 

by: 

A. Removing appendix A. 

B. Redesignating appendix B as 

appendix A. 

20. Part 668 is amended by adding 

new subpart N to read as follows: 

Subpart N—Cohort Default Rates 

Sec. 

668.200 Purpose of this subpart. 

668.201 Definitions of terms used in this 

subpart. 

668.202 Calculating and applying cohort 

default rates. 

668.203 Determining cohort default rates 

for institutions that have undergone a 

change in status. 

668.204 Draft cohort default rates and your 

ability to challenge before official cohort 

default rates are issued. 

668.205 Notice of your official cohort 

default rate. 

668.206 Consequences of cohort default 

rates on your ability to participate in 

Title IV, HEA programs. 

668.207 Preventing evasion of the 

consequences of cohort default rates. 

668.208 General requirements for adjusting 

official cohort default rates and for 

appealing their consequences. 

668.209 Uncorrected data adjustments. 

668.210 New data adjustments. 

668.211 Erroneous data appeals. 

668.212 Loan servicing appeals. 

668.213 Economically disadvantaged 

appeals. 

668.214 Participation rate index appeals. 

668.215 Average rates appeals. 

668.216 Thirty-or-fewer borrowers appeals. 

668.217 Default prevention plans. 

Appendix A to Subpart N of Part 668— 

Sample Default Prevention Plan 

Subpart N—Cohort Default Rates 

§ 668.200 Purpose of this subpart. 

(a) General. Your cohort default rate is 

a measure we use to determine your 

eligibility to participate in various Title 

IV, HEA programs. We may also use it 

for determining your eligibility for 

exemptions, such as those for certain 

disbursement requirements under the 

FFEL and Direct Loan Programs. This 

subpart applies solely to cohorts, as 

defined in §§ 668.201(a) and 668.202(b), 

for fiscal years 2009 and later. For these 

cohorts, this subpart describes how 

cohort default rates are calculated, some 

of the consequences of cohort default 

rates, and how you may request changes 

to your cohort default rates or appeal 

their consequences. Under this subpart, 

you submit a ‘‘challenge’’ after you 

receive your draft cohort default rate, 

and you request an ‘‘adjustment’’ or 

‘‘appeal’’ after your official cohort 

default rate is published. 

(b) Cohort Default Rates. 

Notwithstanding anything to the 


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contrary in this subpart, we will issue 

annually two sets of draft and official 

cohort default rates for fiscal years 2009, 

2010, and 2011. For each of these years, 

you will receive one set of draft and 

official cohort default rates under this 

subpart and another set of draft and 

official cohort default rates under 

subpart M of this part. 

(Authority: 20 U.S.C. 1082, 1085, 1094, 

1099c) 

§ 668.201 Definitions of terms used in this 

subpart. 

We use the following definitions in 

this subpart: 

(a) Cohort. Your cohort is a group of 

borrowers used to determine your 

cohort default rate. The method for 

identifying the borrowers in a cohort is 

provided in § 668.202(b). 

(b) Data manager. (1) For FFELP loans 

held by a guaranty agency or lender, the 

guaranty agency is the data manager. 

(2) For FFELP loans that we hold, we 

are the data manager. 

(3) For Direct Loan Program loans, the 

Direct Loan Servicer, as defined in 34 

CFR 685.102, is the data manager. 

(c) Days. In this subpart, ‘‘days’’ 

means calendar days. 

(d) Default. A borrower is considered 

to be in default for cohort default rate 

purposes under the rules in 

§ 668.202(c). 

(e) Draft cohort default rate. Your 

draft cohort default rate is a rate we 

issue, for your review, before we issue 

your official cohort default rate. A draft 

cohort default rate is used only for the 

purposes described in § 668.204. 

(f) Entering repayment. (1) Except as 

provided in paragraphs (f)(2) and (f)(3) 

of this section, loans are considered to 

enter repayment on the dates described 

in 34 CFR 682.200 (under the definition 

of ‘‘repayment period’’) and in 34 CFR 

685.207. 

(2) A Federal SLS loan is considered 

to enter repayment— 

(i) At the same time the borrower’s 

Federal Stafford loan enters repayment, 

if the borrower received the Federal SLS 

loan and the Federal Stafford loan 

during the same period of continuous 

enrollment; or 

(ii) In all other cases, on the day after 

the student ceases to be enrolled at an 

institution on at least a half-time basis 

in an educational program leading to a 

degree, certificate, or other recognized 

educational credential. 

(3) For the purposes of this subpart, 

a loan is considered to enter repayment 

on the date that a borrower repays it in 

full, if the loan is paid in full before the 

loan enters repayment under paragraphs 

(f)(1) or (f)(2) of this section. 

(g) Fiscal year. A fiscal year begins on 

October 1 and ends on the following 

September 30. A fiscal year is identified 

by the calendar year in which it ends. 

(h) Loan record detail report. The loan 

record detail report is a report that we 

produce. It contains the data used to 

calculate your draft or official cohort 

default rate. 

(i) Official cohort default rate. Your 

official cohort default rate is the cohort 

default rate that we publish for you 

under § 668.205. Cohort default rates 

calculated under this subpart are not 

related in any way to cohort default 

rates that are calculated for the Federal 

Perkins Loan Program. 

(j) We. We are the Department, the 

Secretary, or the Secretary’s designee. 

(k) You. You are an institution. 

(Authority: 20 U.S.C. 1082, 1085, 1094, 

1099c) 

§ 668.202 Calculating and applying cohort 

default rates. 

(a) General. This section describes the 

four steps that we follow to calculate 

and apply your cohort default rate for a 

fiscal year: 

(1) First, under paragraph (b) of this 

section, we identify the borrowers in 

your cohort for the fiscal year. If the 

total number of borrowers in that cohort 

is fewer than 30, we also identify the 

borrowers in your cohorts for the 2 most 

recent prior fiscal years. 

(2) Second, under paragraph (c) of this 

section, we identify the borrowers in the 

cohort (or cohorts) who are considered 

to be in default by the end of the second 

fiscal year following the fiscal year 

those borrowers entered repayment. If 

more than one cohort will be used to 

calculate your cohort default rate, we 

identify defaulted borrowers separately 

for each cohort. 

(3) Third, under paragraph (d) of this 

section, we calculate your cohort default 

rate. 

(4) Fourth, we apply your cohort 

default rate to all of your locations— 

(i) As you exist on the date you 

receive the notice of your official cohort 

default rate; and 

(ii) From the date on which you 

receive the notice of your official cohort 

default rate until you receive our notice 

that the cohort default rate no longer 

applies. 

(b) Identify the borrowers in a cohort. 

(1) Except as provided in paragraph 

(b)(3) of this section, your cohort for a 

fiscal year consists of all of your current 

and former students who, during that 

fiscal year, entered repayment on any 

Federal Stafford loan, Federal SLS loan, 

Direct Subsidized loan, or Direct 

Unsubsidized loan that they received to 

attend your institution, or on the 

portion of a loan made under the 

Federal Consolidation Loan Program or 

the Federal Direct Consolidation Loan 

Program (as defined in 34 CFR 685.102) 

that is used to repay those loans. 

(2) A borrower may be included in 

more than one of your cohorts and may 

be included in the cohorts of more than 

one institution in the same fiscal year. 

(3) A TEACH Grant that has been 

converted to a Federal Direct 

Unsubsidized Loan is not considered for 

the purpose of calculating and applying 

cohort default rates. 

(c) Identify the borrowers in a cohort 

who are in default. (1) Except as 

provided in paragraph (c)(2) of this 

section, a borrower in a cohort for a 

fiscal year is considered to be in default 

if, before the end of the second fiscal 

year following the fiscal year the 

borrower entered repayment— 

(i) The borrower defaults on any 

FFELP loan that was used to include the 

borrower in the cohort or on any Federal 

Consolidation Loan Program loan that 

repaid a loan that was used to include 

the borrower in the cohort (however, a 

borrower is not considered to be in 

default unless a claim for insurance has 

been paid on the loan by a guaranty 

agency or by us); 

(ii) The borrower fails to make an 

installment payment, when due, on any 

Direct Loan Program loan that was used 

to include the borrower in the cohort or 

on any Federal Direct Consolidation 

Loan Program loan that repaid a loan 

that was used to include the borrower 

in the cohort, and the borrower’s failure 

persists for 360 days (or for 270 days, if 

the borrower’s first day of delinquency 

was before October 7, 1998); or 

(iii) You or your owner, agent, 

contractor, employee, or any other 

affiliated entity or individual make a 

payment to prevent a borrower’s default 

on a loan that is used to include the 

borrower in that cohort. 

(2) A borrower is not considered to be 

in default based on a loan that is, before 

the end of the second fiscal year 

following the fiscal year in which it 

entered repayment— 

(i) Rehabilitated under 34 CFR 

682.405 or 34 CFR 685.211(e); or 

(ii) Repurchased by a lender because 

the claim for insurance was submitted 

or paid in error. 

(d) Calculate the cohort default rate. 

Except as provided in § 668.203, if there 

are— 

(1)(i) Thirty or more borrowers in 

your cohort for a fiscal year, your cohort 

default rate is the percentage that is 

calculated by— 

(ii) Dividing the number of borrowers 

in the cohort who are in default, as 

determined under paragraph (c) of this 


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section by the number of borrowers in 

the cohort, as determined under 

paragraph (b) of this section. 

(2)(i) Fewer than 30 borrowers in your 

cohort for a fiscal year, your cohort 

default rate is the percentage that is 

calculated by— 

(ii) Dividing the total number of 

borrowers in that cohort and in the two 

most recent prior cohorts who are in 

default, as determined for each cohort 

under paragraph (c) of this section by 

the total number of borrowers in that 

cohort and the two most recent prior 

cohorts, as determined for each cohort 

under paragraph (b) of this section. 

(Authority: 20 U.S.C. 1070g, 1082, 1085, 

1094, 1099c) 

§ 668.203 Determining cohort default rates 

for institutions that have undergone a 

change in status. 

(a) General. (1) Except as provided 

under 34 CFR 600.32(d), if you undergo 

a change in status identified in this 

section, your cohort default rate is 

determined under this section. 

(2) In determining cohort default rates 

under this section, the date of a merger, 

acquisition, or other change in status is 

the date the change occurs. 

(3) A change in status may affect your 

eligibility to participate in Title IV, HEA 

programs under § 668.206 or § 668.207. 

(4) If another institution’s cohort 

default rate is applicable to you under 

this section, you may challenge, request 

an adjustment, or submit an appeal for 

the cohort default rate under the same 

requirements that would be applicable 

to the other institution under §§ 668.204 

and 668.208. 

(b) Acquisition or merger of 

institutions. If your institution acquires, 

or was created by the merger of, one or 

more institutions that participated 

independently in the Title IV, HEA 

programs immediately before the 

acquisition or merger— 

(1) For the cohort default rates 

published before the date of the 

acquisition or merger, your cohort 

default rates are the same as those of 

your predecessor that had the highest 

total number of borrowers entering 

repayment in the two most recent 

cohorts used to calculate those cohort 

default rates; and 

(2) Beginning with the first cohort 

default rate published after the date of 

the acquisition or merger, your cohort 

default rates are determined by 

including the applicable borrowers from 

each institution involved in the 

acquisition or merger in the calculation 

under § 668.202. 

(c) Acquisition of branches or 

locations. If you acquire a branch or a 

location from another institution 

participating in the Title IV, HEA 

programs— 

(1) The cohort default rates published 

for you before the date of the change 

apply to you and to the newly acquired 

branch or location; 

(2) Beginning with the first cohort 

default rate published after the date of 

the change, your cohort default rates for 

the next 3 fiscal years are determined by 

including the applicable borrowers from 

your institution and the other 

institution (including all of its locations) 

in the calculation under § 668.202; 

(3) After the period described in 

paragraph (c)(2) of this section, your 

cohort default rates do not include 

borrowers from the other institution in 

the calculation under § 668.202; and 

(4) At all times, the cohort default rate 

for the institution from which you 

acquired the branch or location is not 

affected by this change in status. 

(d) Branches or locations becoming 

institutions. If you are a branch or 

location of an institution that is 

participating in the Title IV, HEA 

programs, and you become a separate, 

new institution for the purposes of 

participating in those programs— 

(1) The cohort default rates published 

before the date of the change for your 

former parent institution are also 

applicable to you; 

(2) Beginning with the first cohort 

default rate published after the date of 

the change, your cohort default rates for 

the next 3 fiscal years are determined by 

including the applicable borrowers from 

your institution and your former parent 

institution (including all of its locations) 

in the calculation under § 668.202; and 

(3) After the period described in 

paragraph (d)(2) of this section, your 

cohort default rates do not include 

borrowers from your former parent 

institution in the calculation under 

§ 668.202. 

(Authority: 20 U.S.C. 1082, 1085, 1094, 

1099c) 

§ 668.204 Draft cohort default rates and 

your ability to challenge before official 

cohort default rates are issued. 

(a) General. (1) We notify you of your 

draft cohort default rate before your 

official cohort default rate is calculated. 

Our notice includes the loan record 

detail report for the draft cohort default 

rate. 

(2) Regardless of the number of 

borrowers included in your cohort, your 

draft cohort default rate is always 

calculated using data for that fiscal year 

alone, using the method described in 

§ 668.202(d)(1). 

(3) Your draft cohort default rate and 

the loan record detail report are not 

considered public information and may 

not be otherwise voluntarily released to 

the public by a data manager. 

(4) Any challenge you submit under 

this section and any response provided 

by a data manager must be in a format 

acceptable to us. This acceptable format 

is described in the ‘‘Cohort Default Rate 

Guide’’ that we provide to you. If your 

challenge does not comply with the 

requirements in the ‘‘Cohort Default 

Rate Guide,’’ we may deny your 

challenge. 

(b) Incorrect data challenges. (1) You 

may challenge the accuracy of the data 

included on the loan record detail 

report by sending a challenge to the 

relevant data manager, or data 

managers, within 45 days after you 

receive the data. Your challenge must 

include— 

(i) A description of the information in 

the loan record detail report that you 

believe is incorrect; and 

(ii) Documentation that supports your 

contention that the data are incorrect. 

(2) Within 30 days after receiving 

your challenge, the data manager must 

send you and us a response that— 

(i) Addresses each of your allegations 

of error; and 

(ii) Includes the documentation that 

supports the data manager’s position. 

(3) If your data manager concludes 

that draft data in the loan record detail 

report are incorrect, and we agree, we 

use the corrected data to calculate your 

cohort default rate. 

(4) If you fail to challenge the 

accuracy of data under this section, you 

cannot contest the accuracy of those 

data in an uncorrected data adjustment, 

under § 668.209, or in an erroneous data 

appeal, under § 668.211. 

(c) Participation rate index 

challenges. (1)(i) You may challenge an 

anticipated loss of eligibility under 

§ 668.206(a)(1), based on one cohort 

default rate over 40 percent, if your 

participation rate index for that cohort’s 

fiscal year is equal to or less than 

0.06015. 

(ii) You may challenge an anticipated 

loss of eligibility under § 668.206(a)(2), 

based on three cohort default rates of 30 

percent or greater, if your participation 

rate index is equal to or less than 0.0625 

for any of those three cohorts’ fiscal 

years. 

(iii) You may challenge a potential 

placement on provisional certification 

under § 668.16(m)(2)(i), based on two 

cohort default rates that fail to satisfy 

the standard of administrative capability 

in § 668.16(m)(1)(ii), if your 

participation rate index is equal to or 

less than 0.0625 for either of the two 

cohorts’ fiscal years. 

(2) For a participation rate index 

challenge, your participation rate index 


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is calculated as described in 

§ 668.214(b), except that— 

(i) The draft cohort default rate is 

considered to be your most recent 

cohort default rate; and 

(ii) If the cohort used to calculate your 

draft cohort default rate included fewer 

than 30 borrowers, you may calculate 

your participation rate index for that 

fiscal year using either your most recent 

draft cohort default rate or the average 

rate that would be calculated for that 

fiscal year, using the method described 

in § 668.202(d)(2). 

(3) You must send your participation 

rate index challenge, including all 

supporting documentation, to us within 

45 days after you receive your draft 

cohort default rate. 

(4) We notify you of our 

determination on your participation rate 

index challenge before your official 

cohort default rate is published. 

(5) If we determine that you qualify 

for continued eligibility or full 

certification based on your participation 

rate index challenge, you will not lose 

eligibility under § 668.206 or be placed 

on provisional certification under 

§ 668.16(m)(2)(i) when your next official 

cohort default rate is published. A 

successful challenge that is based on 

your draft cohort default rate does not 

excuse you from any other loss of 

eligibility or placement on provisional 

certification. However, if your 

successful challenge under paragraph 

(c)(1)(ii) or (c)(1)(iii) of this section is 

based on a prior, official cohort default 

rate, and not on your draft cohort 

default rate, we also excuse you from 

any subsequent loss of eligibility, under 

§ 668.206(a)(2) or placement on 

provisional certification, under 

§ 668.16(m)(2)(i), that would be based 

on that official cohort default rate. 

(Authority: 20 U.S.C. 1082, 1085, 1094, 

1099c) 

§ 668.205 Notice of your official cohort 

default rate. 

(a) We electronically notify you of 

your cohort default rate after we 

calculate it, by sending you an eCDR 

notification package to the destination 

point you designate. After we send our 

notice to you, we publish a list of cohort 

default rates for all institutions. 

(b) If you had one or more borrowers 

entering repayment in the fiscal year for 

which the rate is calculated, or are 

subject to sanctions, or if the 

Department believes you will have an 

official cohort default rate calculated as 

an average rate, you will receive a loan 

record detail report as part of your eCDR 

notification package. 

(c) You have five business days, from 

the transmission date for eCDR 

notification packages as posted on the 

Department’s Web site, to report any 

problem with receipt of the electronic 

transmission of your eCDR notification 

package. 

(d) Except as provided in paragraph 

(e) of this section, timelines for 

submitting challenges, adjustments, and 

appeals begin on the sixth business day 

following the announced transmission 

date. 

(e) If you timely report a problem with 

transmission of your eCDR notification 

package under paragraph (c) of this 

section and the Department agrees that 

the problem with transmission was not 

caused by you, the Department will 

extend the challenge, appeal and 

adjustment deadlines and timeframes to 

account for a retransmission of your 

eCDR notification package after the 

technical problem is resolved. 

(Authority: 20 U.S.C. 1082, 1085, 1094, 

1099c) 

§ 668.206 Consequences of cohort default 

rates on your ability to participate in Title 

IV, HEA programs. 

(a) End of participation. (1) Except as 

provided in paragraph (e) of this 

section, you lose your eligibility to 

participate in the FFEL and Direct Loan 

programs 30 days after you receive our 

notice that your most recent cohort 

default rate for fiscal year 2011 or later 

is greater than 40 percent. 

(2) Except as provided in paragraphs 

(d) and (e) of this section, you lose your 

eligibility to participate in the FFEL, 

Direct Loan, and Federal Pell Grant 

programs 30 days after you receive our 

notice that your three most recent 

cohort default rates are each 30 percent 

or greater. 

(b) Length of period of ineligibility. 

Your loss of eligibility under this 

section continues— 

(1) For the remainder of the fiscal year 

in which we notify you that you are 

subject to a loss of eligibility; and 

(2) For the next 2 fiscal years. 

(c) Using a cohort default rate more 

than once. The use of a cohort default 

rate as a basis for a loss of eligibility 

under this section does not preclude its 

use as a basis for— 

(1) Any concurrent or subsequent loss 

of eligibility under this section; or 

(2) Any other action by us. 

(d) Continuing participation in Pell. If 

you are subject to a loss of eligibility 

under paragraph (a)(2) of this section, 

based on three cohort default rates of 30 

percent or greater, you may continue to 

participate in the Federal Pell Grant 

Program if we determine that you— 

(1) Were ineligible to participate in 

the FFEL and Direct Loan programs 

before October 7, 1998, and your 

eligibility was not reinstated; 

(2) Requested in writing, before 

October 7, 1998, to withdraw your 

participation in the FFEL and Direct 

Loan programs, and you were not later 

reinstated; or 

(3) Have not certified an FFELP loan 

or originated a Direct Loan Program loan 

on or after July 7, 1998. 

(e) Requests for adjustments and 

appeals. (1) A loss of eligibility under 

this section does not take effect while 

your request for adjustment or appeal, 

as listed in § 668.208(a), is pending, 

provided your request for adjustment or 

appeal is complete, timely, accurate, 

and in the required format. 

(2) Eligibility continued under 

paragraph (e)(1) of this section ends if 

we determine that none of the requests 

for adjustments and appeals you have 

submitted qualify you for continued 

eligibility under § 668.208. Loss of 

eligibility takes effect on the date that 

you receive notice of our determination 

on your last pending request for 

adjustment or appeal. 

(3) You do not lose eligibility under 

this section if we determine that your 

request for adjustment or appeal meets 

all requirements of this subpart and 

qualifies you for continued eligibility 

under § 668.208. 

(4) To avoid liabilities you might 

otherwise incur under paragraph (f) of 

this section, you may choose to suspend 

your participation in the FFEL and 

Direct Loan programs during the 

adjustment or appeal process. 

(f) Liabilities during the adjustment or 

appeal process. If you continued to 

participate in the FFEL or Direct Loan 

Program under paragraph (e)(1) of this 

section, and we determine that none of 

your requests for adjustments or appeals 

qualify you for continued eligibility— 

(1) For any FFEL or Direct Loan 

Program loan that you certified and 

delivered or originated and disbursed 

more than 30 days after you received the 

notice of your cohort default rate, we 

estimate the amount of interest, special 

allowance, reinsurance, and any related 

or similar payments we make or are 

obligated to make on those loans; 

(2) We exclude from this estimate any 

amount attributable to funds that you 

delivered or disbursed more than 45 

days after you submitted your 

completed appeal to us; 

(3) We notify you of the estimated 

amount; and 

(4) Within 45 days after you receive 

our notice of the estimated amount, you 

must pay us that amount, unless— 

(i) You file an appeal under the 

procedures established in subpart H of 

this part (for the purposes of subpart H 


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of this part, our notice of the estimate 

is considered to be a final program 

review determination); or 

(ii) We permit a longer repayment 

period. 

(g) Regaining eligibility. If you lose 

your eligibility to participate in a 

program under this section, you may not 

participate in that program until— 

(1) The period described in paragraph 

(b) of this section has ended; 

(2) You pay any amount owed to us 

under this section or are meeting that 

obligation under an agreement 

acceptable to us; 

(3) You submit a new application for 

participation in the program; 

(4) We determine that you meet all of 

the participation requirements in effect 

at the time of your application; and 

(5) You and we enter into a new 

program participation agreement. 

(Authority: 20 U.S.C. 1082, 1085, 1094, 

1099c) 

§ 668.207 Preventing evasion of the 

consequences of cohort default rates. 

(a) General. You are subject to a loss 

of eligibility that has already been 

imposed against another institution as a 

result of cohort default rates if— 

(1) You and the ineligible institution 

are both parties to a transaction that 

results in a change of ownership, a 

change in control, a merger, a 

consolidation, an acquisition, a change 

of name, a change of address, any 

change that results in a location 

becoming a freestanding institution, a 

purchase or sale, a transfer of assets, an 

assignment, a change of identification 

number, a contract for services, an 

addition or closure of one or more 

locations or branches or educational 

programs, or any other change in whole 

or in part in institutional structure or 

identity; 

(2) Following the change described in 

paragraph (a)(1) of this section, you offer 

an educational program at substantially 

the same address at which the ineligible 

institution had offered an educational 

program before the change; and 

(3) There is a commonality of 

ownership or management between you 

and the ineligible institution, as the 

ineligible institution existed before the 

change. 

(b) Commonality of ownership or 

management. For the purposes of this 

section, a commonality of ownership or 

management exists if, at each 

institution, the same person (as defined 

in 34 CFR 600.31) or members of that 

person’s family, directly or indirectly— 

(1) Holds or held a managerial role; or 

(2) Has or had the ability to affect 

substantially the institution’s actions, 

within the meaning of 34 CFR 600.21. 

(c) Teach-outs. Notwithstanding 

paragraph (b)(1) of this section, a 

commonality of management does not 

exist if you are conducting a teach-out 

under a teach-out agreement as defined 

in 34 CFR 602.3 and administered in 

accordance with 34 CFR 602.24(c), 

and— 

(1)(i) Within 60 days after the change 

described in this section, you send us 

the names of the managers for each 

facility undergoing the teach-out as it 

existed before the change and for each 

facility as it exists after you believe that 

the commonality of management has 

ended; and 

(ii) We determine that the 

commonality of management, as 

described in paragraph (b)(1) of this 

section, has ended; or 

(2)(i) Within 30 days after you receive 

our notice that we have denied your 

submission under paragraph (c)(1)(i) of 

this section, you make the management 

changes we request and send us a list of 

the names of the managers for each 

facility undergoing the teach-out as it 

exists after you make those changes; and 

(ii) We determine that the 

commonality of management, as 

described in paragraph (b)(1) of this 

section, has ended. 

(d) Initial determination. We 

encourage you to contact us before 

undergoing a change described in this 

section. If you write to us, providing the 

information we request, we will provide 

a written initial determination of the 

anticipated change’s effect on your 

eligibility. 

(e) Notice of accountability. (1) We 

notify you in writing if, in response to 

your notice or application filed under 

34 CFR 600.20 or 600.21, we determine 

that you are subject to a loss of 

eligibility, under paragraph (a) of this 

section, that has been imposed against 

another institution. 

(2) Our notice also advises you of the 

scope and duration of your loss of 

eligibility. The loss of eligibility applies 

to all of your locations from the date 

you receive our notice until the 

expiration of the period of ineligibility 

applicable to the other institution. 

(3) If you are subject to a loss of 

eligibility under this section that has 

already been imposed against another 

institution, you may only request an 

adjustment or submit an appeal for the 

loss of eligibility under the same 

requirements that would be applicable 

to the other institution under § 668.208. 

(Authority: 20 U.S.C. 1082, 1085, 1094, 

1099c) 

§ 668.208 General requirements for 

adjusting official cohort default rates and 

for appealing their consequences. 

(a) Remaining eligible. You do not 

lose eligibility under § 668.206 if— 

(1) We recalculate your cohort default 

rate, and it is below the percentage 

threshold for the loss of eligibility as the 

result of— 

(i) An uncorrected data adjustment 

submitted under this section and 

§ 668.209; 

(ii) A new data adjustment submitted 

under this section and § 668.210; 

(iii) An erroneous data appeal 

submitted under this section and 

§ 668.211; or 

(iv) A loan servicing appeal submitted 

under this section and § 668.212; or 

(2) You meet the requirements for— 

(i) An economically disadvantaged 

appeal submitted under this section and 

§ 668.213; 

(ii) A participation rate index appeal 

submitted under this section and 

§ 668.214; 

(iii) An average rates appeal 

submitted under this section and 

§ 668.215; or 

(iv) A thirty-or-fewer borrowers 

appeal submitted under this section and 

§ 668.216. 

(b) Limitations on your ability to 

dispute your cohort default rate. (1) You 

may not dispute the calculation of a 

cohort default rate except as described 

in this subpart or in § 668.16(m)(2). 

(2) You may not request an 

adjustment or appeal a cohort default 

rate, under § 668.209, § 668.210, 

§ 668.211, or § 668.212, more than once. 

(3) You may not request an 

adjustment or appeal a cohort default 

rate, under § 668.209, § 668.210, 

§ 668.211, or § 668.212, if you 

previously lost your eligibility to 

participate in a Title IV, HEA program, 

under § 668.206, or were placed on 

provisional certification under 

§ 668.16(m)(2)(i), based entirely or 

partially on that cohort default rate. 

(c) Content and format of requests for 

adjustments and appeals. We may deny 

your request for adjustment or appeal if 

it does not meet the following 

requirements: 

(1) All appeals, notices, requests, 

independent auditor’s opinions, 

management’s written assertions, and 

other correspondence that you are 

required to send under this subpart 

must be complete, timely, accurate, and 

in a format acceptable to us. This 

acceptable format is described in the 

‘‘Cohort Default Rate Guide’’ that we 

provide to you. 

(2) Your completed request for 

adjustment or appeal must include— 


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(i) All of the information necessary to 

substantiate your request for adjustment 

or appeal; and 

(ii) A certification by your chief 

executive officer, under penalty of 

perjury, that all the information you 

provide is true and correct. 

(d) Our copies of your 

correspondence. Whenever you are 

required by this subpart to correspond 

with a party other than us, you must 

send us a copy of your correspondence 

within the same time deadlines. 

However, you are not required to send 

us copies of documents that you 

received from us originally. 

(e) Requirements for data managers’ 

responses. (1) Except as otherwise 

provided in this subpart, if this subpart 

requires a data manager to correspond 

with any party other than us, the data 

manager must send us a copy of the 

correspondence within the same time 

deadlines. 

(2) If a data manager sends us 

correspondence under this subpart that 

is not in a format acceptable to us, we 

may require the data manager to revise 

that correspondence’s format, and we 

may prescribe a format for that data 

manager’s subsequent correspondence 

with us. 

(f) Our decision on your request for 

adjustment or appeal. (1) We determine 

whether your request for an adjustment 

or appeal is in compliance with this 

subpart. 

(2) In making our decision for an 

adjustment, under § 668.209 or 

§ 668.210, or an appeal, under § 668.211 

or § 668.212— 

(i) We presume that the information 

provided to you by a data manager is 

correct unless you provide substantial 

evidence that shows the information is 

not correct; and 

(ii) If we determine that a data 

manager did not provide the necessary 

clarifying information or legible records 

in meeting the requirements of this 

subpart, we presume that the evidence 

that you provide to us is correct unless 

it is contradicted or otherwise proven to 

be incorrect by information we 

maintain. 

(3) Our decision is based on the 

materials you submit under this subpart. 

We do not provide an oral hearing. 

(4) We notify you of our decision— 

(i) If you request an adjustment or 

appeal because you are subject to a loss 

of eligibility under § 668.206 or 

potential placement on provisional 

certification under § 668.16(m)(2)(i) or 

file an economically disadvantaged 

appeal under § 668.213(a)(2), within 45 

days after we receive your completed 

request for an adjustment or appeal; or 

(ii) In all other cases, except for 

appeals submitted under § 668.211(a) 

following placement on provisional 

certification, before we notify you of 

your next official cohort default rate. 

(5) You may not seek judicial review 

of our determination of a cohort default 

rate until we issue our decision on all 

pending requests for adjustments or 

appeals for that cohort default rate. 

(Authority: 20 U.S.C. 1082, 1085, 1094, 

1099c) 

§ 668.209 Uncorrected data adjustments. 

(a) Eligibility. You may request an 

uncorrected data adjustment for your 

most recent cohort of borrowers, used to 

calculate your most recent official 

cohort default rate, if in response to 

your challenge under § 668.204(b), a 

data manager agreed correctly to change 

the data, but the changes are not 

reflected in your official cohort default 

rate. 

(b) Deadlines for requesting an 

uncorrected data adjustment. You must 

send us a request for an uncorrected 

data adjustment, including all 

supporting documentation, within 30 

days after you receive your loan record 

detail report from us. 

(c) Determination. We recalculate 

your cohort default rate, based on the 

corrected data, and electronically 

correct the rate that is publicly released 

if we determine that— 

(1) In response to your challenge 

under § 668.204(b), a data manager 

agreed to change the data; 

(2) The changes described in 

paragraph (c)(1) of this section are not 

reflected in your official cohort default 

rate; and 

(3) We agree that the data are 

incorrect. 

(Approved by the Office of Management and 

Budget under control number 1845–0022) 

(Authority: 20 U.S.C. 1082, 1085, 1094, 

1099c) 

§ 668.210 New data adjustments. 

(a) Eligibility. You may request a new 

data adjustment for your most recent 

cohort of borrowers, used to calculate 

your most recent official cohort default 

rate, if— 

(1) A comparison of the loan record 

detail reports that we provide to you for 

the draft and official cohort default rates 

shows that the data have been newly 

included, excluded, or otherwise 

changed; and 

(2) You identify errors in the data 

described in paragraph (a)(1) of this 

section that are confirmed by the data 

manager. 

(b) Deadlines for requesting a new 

data adjustment. (1) You must send to 

the relevant data manager, or data 

managers, and us a request for a new 

data adjustment, including all 

supporting documentation, within 15 

days after you receive your loan record 

detail report from us. 

(2) Within 20 days after receiving 

your request for a new data adjustment, 

the data manager must send you and us 

a response that— 

(i) Addresses each of your allegations 

of error; and 

(ii) Includes the documentation used 

to support the data manager’s position. 

(3) Within 15 days after receiving a 

guaranty agency’s notice that we hold 

an FFELP loan about which you are 

inquiring, you must send us your 

request for a new data adjustment for 

that loan. We respond to your request as 

set forth under paragraph (b)(2) of this 

section. 

(4) Within 15 days after receiving 

incomplete or illegible records or data 

from a data manager, you must send a 

request for replacement records or 

clarification of data to the data manager 

and us. 

(5) Within 20 days after receiving 

your request for replacement records or 

clarification of data, the data manager 

must— 

(i) Replace the missing or illegible 

records; 

(ii) Provide clarifying information; or 

(iii) Notify you and us that no 

clarifying information or additional or 

improved records are available. 

(6) You must send us your completed 

request for a new data adjustment, 

including all supporting 

documentation— 

(i) Within 30 days after you receive 

the final data manager’s response to 

your request or requests; or 

(ii) If you are also filing an erroneous 

data appeal or a loan servicing appeal, 

by the latest of the filing dates required 

in paragraph (b)(7)(i) of this section or 

in § 668.211(b)(6)(i) or 

§ 668.212(c)(10)(i). 

(c) Determination. If we determine 

that incorrect data were used to 

calculate your cohort default rate, we 

recalculate your cohort default rate 

based on the correct data and make 

electronic corrections to the rate that is 

publicly released. 

(Approved by the Office of Management and 

Budget under control number 1845–0022) 

(Authority: 20 U.S.C. 1082, 1085, 1094, 

1099c) 

§ 668.211 Erroneous data appeals. 

(a) Eligibility. Except as provided in 

§ 668.208(b), you may appeal the 

calculation of a cohort default rate upon 

which a loss of eligibility, under 


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§ 668.206, or provisional certification, 

under § 668.16(m), is based if— 

(1) You dispute the accuracy of data 

that you previously challenged on the 

basis of incorrect data, under 

§ 668.204(b); or 

(2) A comparison of the loan record 

detail reports that we provide to you for 

the draft and official cohort default rates 

shows that the data have been newly 

included, excluded, or otherwise 

changed, and you dispute the accuracy 

of that data. 

(b) Deadlines for submitting an 

appeal. (1) You must send a request for 

verification of data errors to the relevant 

data manager, or data managers, and to 

us within 15 days after you receive the 

notice of your loss of eligibility or 

provisional certification. Your request 

must include a description of the 

information in the cohort default rate 

data that you believe is incorrect and all 

supporting documentation that 

demonstrates the error. 

(2) Within 20 days after receiving 

your request for verification of data 

errors, the data manager must send you 

and us a response that— 

(i) Addresses each of your allegations 

of error; and 

(ii) Includes the documentation used 

to support the data manager’s position. 

(3) Within 15 days after receiving a 

guaranty agency’s notice that we hold 

an FFELP loan about which you are 

inquiring, you must send us your 

request for verification of that loan’s 

data errors. Your request must include 

a description of the information in the 

cohort default rate data that you believe 

is incorrect and all supporting 

documentation that demonstrates the 

error. We respond to your request as set 

forth under paragraph (b)(2) of this 

section. 

(4) Within 15 days after receiving 

incomplete or illegible records or data, 

you must send a request for replacement 

records or clarification of data to the 

data manager and us. 

(5) Within 20 days after receiving 

your request for replacement records or 

clarification of data, the data manager 

must— 

(i) Replace the missing or illegible 

records; 

(ii) Provide clarifying information; or 

(iii) Notify you and us that no 

clarifying information or additional or 

improved records are available. 

(6) You must send your completed 

appeal to us, including all supporting 

documentation— 

(i) Within 30 days after you receive 

the final data manager’s response to 

your request; or 

(ii) If you are also requesting a new 

data adjustment or filing a loan 

servicing appeal, by the latest of the 

filing dates required in paragraph 

(b)(6)(i) of this section or in 

§ 668.210(b)(6)(i) or § 668.212(c)(10)(i). 

(c) Determination. If we determine 

that incorrect data were used to 

calculate your cohort default rate, we 

recalculate your cohort default rate 

based on the correct data and 

electronically correct the rate that is 

publicly released. 

(Approved by the Office of Management and 

Budget under control number 1845–0022) 

(Authority: 20 U.S.C. 1082, 1085, 1094, 

1099c) 

§ 668.212 Loan servicing appeals. 

(a) Eligibility. Except as provided in 

§ 668.208(b), you may appeal, on the 

basis of improper loan servicing or 

collection, the calculation of— 

(1) Your most recent cohort default 

rate; or 

(2) Any cohort default rate upon 

which a loss of eligibility under 

§ 668.206 is based. 

(b) Improper loan servicing. For the 

purposes of this section, a default is 

considered to have been due to 

improper loan servicing or collection 

only if the borrower did not make a 

payment on the loan and you prove that 

the FFEL Program lender or the Direct 

Loan Servicer, as defined in 34 CFR 

685.102, failed to perform one or more 

of the following activities, if that 

activity applies to the loan: 

(1) Send at least one letter (other than 

the final demand letter) urging the 

borrower to make payments on the loan. 

(2) Attempt at least one phone call to 

the borrower. 

(3) Send a final demand letter to the 

borrower. 

(4) For a Direct Loan Program loan 

only, document that skip tracing was 

performed if the Direct Loan Servicer 

determined that it did not have the 

borrower’s current address. 

(5) For an FFELP loan only— 

(i) Submit a request for preclaims or 

default aversion assistance to the 

guaranty agency; and 

(ii) Submit a certification or other 

documentation that skip tracing was 

performed to the guaranty agency. 

(c) Deadlines for submitting an 

appeal. (1) If the loan record detail 

report was not included with your 

official cohort default rate notice, you 

must request it within 15 days after you 

receive the notice of your official cohort 

default rate. 

(2) You must send a request for loan 

servicing records to the relevant data 

manager, or data managers, and to us 

within 15 days after you receive your 

loan record detail report from us. If the 

data manager is a guaranty agency, your 

request must include a copy of the loan 

record detail report. 

(3) Within 20 days after receiving 

your request for loan servicing records, 

the data manager must— 

(i) Send you and us a list of the 

borrowers in your representative 

sample, as described in paragraph (d) of 

this section (the list must be in social 

security number order, and it must 

include the number of defaulted loans 

included in the cohort for each listed 

borrower); 

(ii) Send you and us a description of 

how your representative sample was 

chosen; and 

(iii) Either send you copies of the loan 

servicing records for the borrowers in 

your representative sample and send us 

a copy of its cover letter indicating that 

the records were sent, or send you and 

us a notice of the amount of its fee for 

providing copies of the loan servicing 

records. 

(4) The data manager may charge you 

a reasonable fee for providing copies of 

loan servicing records, but it may not 

charge more than $10 per borrower file. 

If a data manager charges a fee, it is not 

required to send the documents to you 

until it receives your payment of the fee. 

(5) If the data manager charges a fee 

for providing copies of loan servicing 

records, you must send payment in full 

to the data manager within 15 days after 

you receive the notice of the fee. 

(6) If the data manager charges a fee 

for providing copies of loan servicing 

records, and— 

(i) You pay the fee in full and on time, 

the data manager must send you, within 

20 days after it receives your payment, 

a copy of all loan servicing records for 

each loan in your representative sample 

(the copies are provided to you in hard 

copy format unless the data manager 

and you agree that another format may 

be used), and it must send us a copy of 

its cover letter indicating that the 

records were sent; or 

(ii) You do not pay the fee in full and 

on time, the data manager must notify 

you and us of your failure to pay the fee 

and that you have waived your right to 

challenge the calculation of your cohort 

default rate based on the data manager’s 

records. We accept that determination 

unless you prove that it is incorrect. 

(7) Within 15 days after receiving a 

guaranty agency’s notice that we hold 

an FFELP loan about which you are 

inquiring, you must send us your 

request for the loan servicing records for 

that loan. We respond to your request 

under paragraph (c)(3) of this section. 

(8) Within 15 days after receiving 

incomplete or illegible records, you 


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must send a request for replacement 

records to the data manager and us. 

(9) Within 20 days after receiving 

your request for replacement records, 

the data manager must either— 

(i) Replace the missing or illegible 

records; or 

(ii) Notify you and us that no 

additional or improved copies are 

available. 

(10) You must send your appeal to us, 

including all supporting 

documentation— 

(i) Within 30 days after you receive 

the final data manager’s response to 

your request for loan servicing records; 

or 

(ii) If you are also requesting a new 

data adjustment or filing an erroneous 

data appeal, by the latest of the filing 

dates required in paragraph (c)(10)(i) of 

this section or in § 668.210(b)(6)(i) or 

§ 668.211(b)(6)(i). 

(d) Representative sample of records. 

(1) To select a representative sample of 

records, the data manager first identifies 

all of the borrowers for whom it is 

responsible and who had loans that 

were considered to be in default in the 

calculation of the cohort default rate 

you are appealing. 

(2) From the group of borrowers 

identified under paragraph (d)(1) of this 

section, the data manager identifies a 

sample that is large enough to derive an 

estimate, acceptable at a 95 percent 

confidence level with a plus or minus 

5 percent confidence interval, for use in 

determining the number of borrowers 

who should be excluded from the 

calculation of the cohort default rate 

due to improper loan servicing or 

collection. 

(e) Loan servicing records. Loan 

servicing records are the collection and 

payment history records— 

(1) Provided to the guaranty agency by 

the lender and used by the guaranty 

agency in determining whether to pay a 

claim on a defaulted loan; or 

(2) Maintained by our Direct Loan 

Servicer that are used in determining 

your cohort default rate. 

(f) Determination. (1) We determine 

the number of loans, included in your 

representative sample of loan servicing 

records, that defaulted due to improper 

loan servicing or collection, as 

described in paragraph (b) of this 

section. 

(2) Based on our determination, we 

use a statistically valid methodology to 

exclude the corresponding percentage of 

borrowers from both the numerator and 

denominator of the calculation of your 

cohort default rate, and electronically 

correct the rate that is publicly released. 

(Approved by the Office of Management and 

Budget under control number 1845–0022) 

(Authority: 20 U.S.C. 1082, 1085, 1094, 

1099c) 

§ 668.213 Economically disadvantaged 

appeals. 

(a) General. As provided in this 

section you may appeal— 

(1) A notice of a loss of eligibility 

under § 668.206; or 

(2) A notice of a second successive 

official cohort default rate calculated 

under this subpart that is equal to or 

greater than 30 percent but less than or 

equal to 40 percent, potentially 

subjecting you to provisional 

certification under § 668.16(m)(2)(i). 

(b) Eligibility. You may appeal under 

this section if an independent auditor’s 

opinion certifies that your low income 

rate is two-thirds or more and— 

(1) You offer an associate, 

baccalaureate, graduate, or professional 

degree, and your completion rate is 70 

percent or more; or 

(2) You do not offer an associate, 

baccalaureate, graduate, or professional 

degree, and your placement rate is 44 

percent or more. 

(c) Low income rate. (1) Your low 

income rate is the percentage of your 

students, as described in paragraph 

(c)(2) of this section, who— 

(i) For an award year that overlaps the 

12-month period selected under 

paragraph (c)(2) of this section, have an 

expected family contribution, as defined 

in 34 CFR 690.2, that is equal to or less 

than the largest expected family 

contribution that would allow a student 

to receive one-half of the maximum 

Federal Pell Grant award, regardless of 

the student’s enrollment status or cost of 

attendance; or 

(ii) For a calendar year that overlaps 

the 12-month period selected under 

paragraph (c)(2) of this section, have an 

adjusted gross income that, when added 

to the adjusted gross income of the 

student’s parents (if the student is a 

dependent student) or spouse (if the 

student is a married independent 

student), is less than the amount listed 

in the Department of Health and Human 

Services poverty guidelines for the size 

of the student’s family unit. 

(2) The students who are used to 

determine your low income rate include 

only students who were enrolled on at 

least a half-time basis in an eligible 

program at your institution during any 

part of a 12-month period that ended 

during the 6 months immediately 

preceding the cohort’s fiscal year. 

(d) Completion rate. (1) Your 

completion rate is the percentage of 

your students, as described in paragraph 

(d)(2) of this section, who— 

(i) Completed the educational 

programs in which they were enrolled; 

(ii) Transferred from your institution 

to a higher level educational program; 

(iii) Remained enrolled and are 

making satisfactory progress toward 

completion of their educational 

programs at the end of the same 12- 

month period used to calculate the low 

income rate; or 

(iv) Entered active duty in the Armed 

Forces of the United States within 1 

year after their last date of attendance at 

your institution. 

(2) The students who are used to 

determine your completion rate include 

only regular students who were— 

(i) Initially enrolled on a full-time 

basis in an eligible program; and 

(ii) Originally scheduled to complete 

their programs during the same 12- 

month period used to calculate the low 

income rate. 

(e) Placement rate. (1) Except as 

provided in paragraph (e)(2) of this 

section, your placement rate is the 

percentage of your students, as 

described in paragraphs (e)(3) and (e)(4) 

of this section, who— 

(i) Are employed, in an occupation for 

which you provided training, on the 

date following 1 year after their last date 

of attendance at your institution; 

(ii) Were employed for at least 13 

weeks, in an occupation for which you 

provided training, between the date they 

enrolled at your institution and the first 

date that is more than a year after their 

last date of attendance at your 

institution; or 

(iii) Entered active duty in the Armed 

Forces of the United States within 1 

year after their last date of attendance at 

your institution. 

(2) For the purposes of this section, a 

former student is not considered to have 

been employed based on any 

employment by your institution. 

(3) The students who are used to 

determine your placement rate include 

only former students who— 

(i) Were initially enrolled in an 

eligible program on at least a half-time 

basis; 

(ii) Were originally scheduled, at the 

time of enrollment, to complete their 

educational programs during the same 

12-month period used to calculate the 

low income rate; and 

(iii) Remained in the program beyond 

the point at which a student would have 

received a 100 percent tuition refund 

from you. 

(4) A student is not included in the 

calculation of your placement rate if 

that student, on the date that is 1 year 

after the student’s originally scheduled 

completion date, remains enrolled in 

the same program and is making 

satisfactory progress. 

(f) Scheduled to complete. In 

calculating a completion or placement 


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rate under this section, the date on 

which a student is originally scheduled 

to complete a program is based on— 

(1) For a student who is initially 

enrolled full-time, the amount of time 

specified in your enrollment contract, 

catalog, or other materials for 

completion of the program by a full-time 

student; or 

(2) For a student who is initially 

enrolled less than full-time, the amount 

of time that it would take the student to 

complete the program if the student 

remained at that level of enrollment 

throughout the program. 

(g) Deadline for submitting an appeal. 

(1) Within 30 days after you receive the 

notice of your loss of eligibility, you 

must send us your management’s 

written assertion, as described in the 

Cohort Default Rate Guide. 

(2) Within 60 days after you receive 

the notice of your loss of eligibility, you 

must send us the independent auditor’s 

opinion described in paragraph (h) of 

this section. 

(h) Independent auditor’s opinion. (1) 

The independent auditor’s opinion must 

state whether your management’s 

written assertion, as you provided it to 

the auditor and to us, meets the 

requirements for an economically 

disadvantaged appeal and is fairly 

stated in all material respects. 

(2) The engagement that forms the 

basis of the independent auditor’s 

opinion must be an examination-level 

compliance attestation engagement 

performed in accordance with— 

(i) The American Institute of Certified 

Public Accountants’ (AICPA) Statement 

on Standards for Attestation 

Engagements, Compliance Attestation 

(AICPA, Professional Standards, vol. 1, 

AT sec. 500), as amended (these 

standards may be obtained by calling 

the AICPA’s order department, at 1– 

888–777–7077); and 

(ii) Government Auditing Standards 

issued by the Comptroller General of the 

United States. 

(i) Determination. You do not lose 

eligibility under § 668.206, and we do 

not provisionally certify you under 

§ 668.16(m)(2)(i), if— 

(1) Your independent auditor’s 

opinion agrees that you meet the 

requirements for an economically 

disadvantaged appeal; and 

(2) We determine that the 

independent auditor’s opinion and your 

management’s written assertion— 

(i) Meet the requirements for an 

economically disadvantaged appeal; and 

(ii) Are not contradicted or otherwise 

proven to be incorrect by information 

we maintain, to an extent that would 

render the independent auditor’s 

opinion unacceptable. 

(Authority: 20 U.S.C. 1082, 1085, 1094, 

1099c) 

§ 668.214 Participation rate index appeals. 

(a) Eligibility. (1) You may appeal a 

notice of a loss of eligibility under 

§ 668.206(a)(1), based on one cohort 

default rate over 40 percent, if your 

participation rate index for that cohort’s 

fiscal year is equal to or less than 

0.06015. 

(2) You may appeal a notice of a loss 

of eligibility under § 668.206(a)(2), 

based on three cohort default rates of 30 

percent or greater, if your participation 

rate index is equal to or less than 0.0625 

for any of those three cohorts’ fiscal 

years. 

(3) You may appeal potential 

placement on provisional certification 

under § 668.16(m)(2)(i) based on two 

cohort default rates that fail to satisfy 

the standard of administrative capability 

in § 668.16(m)(1)(ii) if your participation 

rate index is equal to or less than 0.0625 

for either of the two cohorts’ fiscal 

years. 

(b) Calculating your participation rate 

index. (1) Except as provided in 

paragraph (b)(2) of this section, your 

participation rate index for a fiscal year 

is determined by multiplying your 

cohort default rate for that fiscal year by 

the percentage that is derived by 

dividing— 

(i) The number of students who 

received an FFELP or a Direct Loan 

Program loan to attend your institution 

during a period of enrollment, as 

defined in 34 CFR 682.200 or 685.102, 

that overlaps any part of a 12-month 

period that ended during the 6 months 

immediately preceding the cohort’s 

fiscal year, by 

(ii) The number of regular students 

who were enrolled at your institution on 

at least a half-time basis during any part 

of the same 12-month period. 

(2) If your cohort default rate for a 

fiscal year is calculated as an average 

rate under § 668.202(d)(2), you may 

calculate your participation rate index 

for that fiscal year using either that 

average rate or the cohort default rate 

that would be calculated for the fiscal 

year alone using the method described 

in § 668.202(d)(1). 

(c) Deadline for submitting an appeal. 

You must send us your appeal under 

this section, including all supporting 

documentation, within 30 days after you 

receive— 

(1) Notice of your loss of eligibility; or 

(2) Notice of a second cohort default 

rate that equals or exceeds 30 percent 

but is less than 40 percent and that, in 

combination with an earlier rate, 

potentially subjects you to provisional 

certification under § 668.16(m)(2)(i). 

(d) Determination. (1) You do not lose 

eligibility under § 668.206 and we do 

not place you on provisional 

certification, if we determine that you 

meet the requirements for a 

participation rate index appeal. 

(2) If we determine that your 

participation rate index for a fiscal year 

is equal to or less than 0.06015 or 

0.0625, under paragraph (d)(1) of this 

section, we also excuse you from any 

subsequent loss of eligibility under 

§ 668.206(a)(2) or placement on 

provisional certification under 

§ 668.16(m)(2)(i) that would be based on 

the official cohort default rate for that 

fiscal year. 

(Authority: 20 U.S.C. 1082, 1085, 1094, 

1099c) 

§ 668.215 Average rates appeals. 

(a) Eligibility. (1) You may appeal a 

notice of a loss of eligibility under 

§ 668.206(a)(1), based on one cohort 

default rate over 40 percent, if that 

cohort default rate is calculated as an 

average rate under § 668.202(d)(2). 

(2) You may appeal a notice of a loss 

of eligibility under § 668.206(a)(2), 

based on three cohort default rates of 30 

percent or greater, if at least two of those 

cohort default rates— 

(i) Are calculated as average rates 

under § 668.202(d)(2); and 

(ii) Would be less than 30 percent if 

calculated for the fiscal year alone using 

the method described in § 668.202(d)(1). 

(b) Deadline for submitting an appeal. 

(1) Before notifying you of your official 

cohort default rate, we make an initial 

determination about whether you 

qualify for an average rates appeal. If we 

determine that you qualify, we notify 

you of that determination at the same 

time that we notify you of your official 

cohort default rate. 

(2) If you disagree with our initial 

determination, you must send us your 

average rates appeal, including all 

supporting documentation, within 30 

days after you receive the notice of your 

loss of eligibility. 

(c) Determination. You do not lose 

eligibility under § 668.206 if we 

determine that you meet the 

requirements for an average rates 

appeal. In such a case, we electronically 

correct the rate that is publicly released. 

(Authority: 20 U.S.C. 1082, 1085, 1094, 

1099c) 

§ 668.216 Thirty-or-fewer borrowers 

appeals. 

(a) Eligibility. You may appeal a 

notice of a loss of eligibility under 

§ 668.206 if 30 or fewer borrowers, in 

total, are included in the 3 most recent 

cohorts of borrowers used to calculate 

your cohort default rates. 


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(b) Deadline for submitting an appeal. 

(1) Before notifying you of your official 

cohort default rate, we make an initial 

determination about whether you 

qualify for a thirty-or-fewer borrowers 

appeal. If we determine that you qualify, 

we notify you of that determination at 

the same time that we notify you of your 

official cohort default rate. 

(2) If you disagree with our initial 

determination, you must send us your 

thirty-or-fewer borrowers appeal, 

including all supporting documentation, 

within 30 days after you receive the 

notice of your loss of eligibility. 

(c) Determination. You do not lose 

eligibility under § 668.206 if we 

determine that you meet the 

requirements for a thirty-or-fewer 

borrowers appeal. 

(Authority: 20 U.S.C. 1082, 1085, 1094, 

1099c) 

§ 668.217 Default prevention plans. 

(a) First year. (1) If your cohort default 

rate is equal to or greater than 30 

percent you must establish a default 

prevention task force that prepares a 

plan to— 

(i) Identify the factors causing your 

cohort default rate to exceed the 

threshold; 

(ii) Establish measurable objectives 

and the steps you will take to improve 

your cohort default rate; 

(iii) Specify the actions you will take 

to improve student loan repayment, 

including counseling students on 

repayment options; and 

(iv) Submit your default prevention 

plan to us. 

(2) We will review your default 

prevention plan and offer technical 

assistance intended to improve student 

loan repayment. 

(b) Second year. (1) If your cohort 

default rate is equal to or greater than 30 

percent for two consecutive fiscal years, 

you must revise your default prevention 

plan and submit it to us for review. 

(2) We may require you to revise your 

default prevention plan or specify 

actions you need to take to improve 

student loan repayment. 

(Authority: 20 U.S.C. 1082, 1085, 1094, 

1099c) 

Appendix A to Subpart N of Part 668— 

Sample Default Prevention Plan 

This appendix is provided as a sample 

plan for those institutions developing a 

default prevention plan in accordance with 

§ 668.199(a)(1). It describes some measures 

you may find helpful in reducing the number 

of students that default on federally funded 

loans. These are not the only measures you 

could implement when developing a default 

prevention plan. 

I. Core Default Reduction Strategies 

1. Establish your default prevention team 

by engaging your chief executive officer and 

relevant senior executive officials and 

enlisting the support of representatives from 

offices other than the financial aid office. 

Consider including individuals and 

organizations independent of your institution 

that have experience in preventing title IV 

loan defaults. 

2. Consider your history, resources, dollars 

in default, and targets for default reduction 

to determine which activities will result in 

the most benefit to you and your students. 

3. Define evaluation methods and establish 

a data collection system for measuring and 

verifying relevant default prevention 

statistics, including a statistical analysis of 

the borrowers who default on their loans. 

4. Identify and allocate the personnel, 

administrative, and financial resources 

appropriate to implement the default 

prevention plan. 

5. Establish annual targets for reductions in 

your rate. 

6. Establish a process to ensure the 

accuracy of your rate. 

II. Additional Default Reduction Strategies 

1. Enhance the borrower’s understanding 

of his or her loan repayment responsibilities 

through counseling and debt management 

activities. 

2. Enhance the enrollment retention and 

academic persistence of borrowers through 

counseling and academic assistance. 

3. Maintain contact with the borrower after 

he or she leaves your institution by using 

activities such as skip tracing to locate the 

borrower. 

4. Track the borrower’s delinquency status 

by obtaining reports from data managers and 

FFEL Program lenders. 

5. Enhance student loan repayments 

through counseling the borrower on loan 

repayment options and facilitating contact 

between the borrower and the data manager 

or FFEL Program lender. 

6. Assist a borrower who is experiencing 

difficulty in finding employment through 

career counseling, job placement assistance, 

and facilitating unemployment deferments. 

7. Identify and implement alternative 

financial aid award policies and develop 

alternative financial resources that will 

reduce the need for student borrowing in the 

first 2 years of academic study. 

III. Statistics for Measuring Progress 

1. The number of students enrolled at your 

institution during each fiscal year. 

2. The average amount borrowed by a 

student each fiscal year. 

3. The number of borrowers scheduled to 

enter repayment each fiscal year. 

4. The number of enrolled borrowers who 

received default prevention counseling 

services each fiscal year. 

5. The average number of contacts that you 

or your agent had with a borrower who was 

in deferment or forbearance or in repayment 

status during each fiscal year. 

6. The number of borrowers at least 60 

days delinquent each fiscal year. 

7. The number of borrowers who defaulted 

in each fiscal year. 

8. The type, frequency, and results of 

activities performed in accordance with the 

default prevention plan. 

PART 674—FEDERAL PERKINS LOAN 

PROGRAM 

21. The authority citation for part 674 

is revised to read as follows: 

Authority: 20 U.S.C. 1070g, 1087aa– 

1087hh, unless otherwise noted. 

22. Section 674.42 is amended by 

revising paragraph (b) to read as follows: 

§ 674.42 Contact with the borrower. 

* * * * * 

(b) Exit interview. (1) An institution 

must ensure that exit counseling is 

conducted with each borrower either in 

person, by audiovisual presentation, or 

by interactive electronic means. The 

institution must ensure that exit 

counseling is conducted shortly before 

the borrower ceases at least half-time 

study at the institution. As an 

alternative, in the case of a student 

enrolled in a correspondence program 

or a study-abroad program that the 

institution approves for credit, the 

borrower may be provided with written 

counseling material by mail within 30 

days after the borrower completes the 

program. If a borrower withdraws from 

the institution without the institution’s 

prior knowledge or fails to complete an 

exit counseling session as required, the 

institution must ensure that exit 

counseling is provided through either 

interactive electronic means or by 

mailing counseling materials to the 

borrower at the borrower’s last known 

address within 30 days after learning 

that the borrower has withdrawn from 

the institution or failed to complete exit 

counseling as required. 

(2) The exit counseling must— 

(i) Inform the student as to the average 

anticipated monthly repayment amount 

based on the student’s indebtedness or 

on the average indebtedness of students 

who have obtained Perkins loans for 

attendance at the institution or in the 

borrower’s program of study; 

(ii) Explain to the borrower the 

options to prepay each loan and pay 

each loan on a shorter schedule; 

(iii) Review for the borrower the 

option to consolidate a Federal Perkins 

Loan, including the consequences of 

consolidating a Perkins Loan. 

Information on the consequences of loan 

consolidation must include, at a 

minimum— 

(A) The effects of consolidation on 

total interest to be paid, fees to be paid, 

and length of repayment; 

(B) The effects of consolidation on a 

borrower’s underlying loan benefits, 

including grace periods, loan 


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forgiveness, cancellation, and deferment 

opportunities; 

(C) The options of the borrower to 

prepay the loan or to change repayment 

plans; and 

(D) That borrower benefit programs 

may vary among different lenders; 

(iv) Include debt-management 

strategies that are designed to facilitate 

repayment; 

(v) Explain the use of a Master 

Promissory Note; 

(vi) Emphasize to the borrower the 

seriousness and importance of the 

repayment obligation the borrower is 

assuming; 

(vii) Describe the likely consequences 

of default, including adverse credit 

reports, delinquent debt collection 

procedures under Federal law, and 

litigation; 

(viii) Emphasize that the borrower is 

obligated to repay the full amount of the 

loan even if the borrower has not 

completed the program, has not 

completed the program within the 

regular time for program completion, is 

unable to obtain employment upon 

completion, or is otherwise dissatisfied 

with or did not receive educational or 

other services that the borrower 

purchased from the institution; 

(ix) Provide— 

(A) A general description of the terms 

and conditions under which a borrower 

may obtain full or partial forgiveness or 

cancellation of principal and interest, 

defer repayment of principal or interest, 

or be granted an extension of the 

repayment period or a forbearance on a 

title IV loan; and 

(B) A copy, either in print or by 

electronic means, of the information the 

Secretary makes available pursuant to 

section 485(d) of the HEA; 

(x) Require the borrower to provide 

current information concerning name, 

address, social security number, 

references, and driver’s license number, 

the borrower’s expected permanent 

address, the address of the borrower’s 

next of kin, as well as the name and 

address of the borrower’s expected 

employer; 

(xi) Review for the borrower 

information on the availability of the 

Student Loan Ombudsman’s office; 

(xii) Inform the borrower of the 

availability of title IV loan information 

in the National Student Loan Data 

System (NSLDS) and how NSLDS can 

be used to obtain title IV loan status 

information; and 

(xiii) A general description of the 

types of tax benefits that may be 

available to borrowers. 

(3) If exit counseling is conducted 

through interactive electronic means, 

the institution must take reasonable 

steps to ensure that each student 

borrower receives the counseling 

materials, and participates in and 

completes the exit counseling. 

(4) The institution must maintain 

documentation substantiating the 

institution’s compliance with this 

section for each borrower. 

* * * * * 

23. 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 designated 

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 

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, 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 need 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 and has obtained a 

postgraduate academic degree awarded 

after the completion of an academic 

program of up to six years in duration, 

excluding a doctorate or professional 

degree. 

(x) Substantial gainful activity: A 

level of work performed for pay or profit 

that involves doing significant physical 


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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). 

* * * * * 

24. Section 674.53 is amended by: 

A. Adding new paragraph (a)(1)(iii). 

B. Revising paragraphs (a)(2)(i) and 

(a)(2)(ii). 

C. Revising paragraph (a)(3). 

D. Revising paragraphs (a)(4)(i) and 

(a)(4)(ii). 

E. Removing paragraph (a)(4)(iii). 

F. Revising paragraph (a)(6). 

G. Adding new paragraph (b)(3). 

H. In paragraph (d)(1), removing the 

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

the word ‘‘must’’. 

I. Revising paragraph (e). 

The revisions and additions read as 

follows: 

§ 674.53 Teacher cancellation—Federal 

Perkins, NDSL and Defense loans. 

* * * * * 

(a) * * * 

(1) * * * 

(iii) An institution must cancel up to 

100 percent of the outstanding balance 

of a Federal Perkins, NDSL, or Defense 

loan for teaching service that includes 

August 14, 2008, or begins on or after 

that date, at an educational service 

agency. 

* * * * * 

(2) * * * 

(i) Is in a school district that qualified 

for funds, in that year, under part A of 

title I of the Elementary and Secondary 

Education Act of 1965, as amended; and 

(ii) Has been selected by the Secretary 

based on a determination that more than 

30 percent of the school’s or educational 

service agency’s total enrollment is 

made up of title I children. 

(3) For each academic year, the 

Secretary notifies participating 

institutions of the schools and 

educational service agencies selected 

under paragraph (a) of this section. 

(4)(i) The Secretary selects schools 

and educational service agencies under 

paragraph (a)(1) of this section based on 

a ranking by the State education agency. 

(ii) The State education agency must 

base its ranking of the schools and 

educational service agencies on 

objective standards and methods. These 

standards must take into account the 

numbers and percentages of title I 

children attending those schools and 

educational service agencies. 

* * * * * 

(6) A teacher, who performs service in 

a school or educational service agency 

that meets the requirement of paragraph 

(a)(1) of this section in any year and in 

a subsequent year fails to meet these 

requirements, may continue to teach in 

that school or educational service 

agency and will be eligible for loan 

cancellation pursuant to paragraph (a) of 

this section in subsequent years. 

* * * * * 

(b) * * * 

(3) An institution must cancel up to 

100 percent of the outstanding balance 

on a borrower’s Federal Perkins, NDSL, 

or Defense loan for a borrower’s service 

that includes August 14, 2008, or begins 

on or after that date, as a full-time 

special education teacher of infants, 

toddlers, children, or youth with 

disabilities, in an educational service 

agency. 

* * * * * 

(e) Teaching in a school system. The 

Secretary considers a borrower to be 

teaching in a public or other nonprofit 

elementary or secondary school system 

or an educational service agency only if 

the borrower is directly employed by 

the school system. 

* * * * * 

25. Section 674.56 is amended by: 

A. Revising paragraph (c)(1). 

B. Redesignating paragraph (d) as 

paragraph (h). 

C. Adding paragraphs (d), (e), (f), and 

(g), respectively. 

C. Revising newly redesignated 

paragraph (h). 

The revisions and additions read as 

follows: 

§ 674.56 Employment cancellation— 

Federal Perkins, NDSL, and Defense loans. 

* * * * * 

(c) * * * (1) An institution must 

cancel up to 100 percent of the 

outstanding balance on a borrower’s 

Federal Perkins or NDSL made on or 

after July 23, 1992, for the borrower’s 

service as a full-time qualified 

professional provider of early 

intervention services in a public or 

other nonprofit program under public 

supervision by the lead agency as 

authorized in section 632 of the 

Individuals with Disabilities Education 

Act. 

* * * * * 

(d) Cancellation for full-time 

employment as a firefighter to a local, 

State, or Federal fire department or fire 

district. An institution must cancel up 

to 100 percent of the outstanding 

balance on a borrower’s Federal Perkins, 

NDSL, or Defense loan for service that 

includes August 14, 2008, or begins on 

or after that date, as a full-time 

firefighter. 

(e) Cancellation for full-time 

employment as a faculty member at a 

Tribal College or University. An 

institution must cancel up to 100 

percent of the outstanding balance on a 

borrower’s Federal Perkins, NDSL, or 

Defense loan for service that includes 

August 14, 2008, or begins on or after 

that date, as a full-time faculty member 

at a Tribal College or University. 

(f) Cancellation for full-time 

employment as a librarian with a 

master’s degree. (1) An institution must 

cancel up to 100 percent of the 

outstanding balance on a borrower’s 

Federal Perkins Loan, NDSL, or Defense 

loan for service that includes August 14, 

2008, or begins on or after that date, as 

a full-time librarian, provided that the 

individual— 

(i) Is a librarian with a master’s 

degree; and 

(ii) Is employed in an elementary 

school or secondary school that is 

eligible for assistance under part A of 

title I of the Elementary and Secondary 

Education Act of 1965, as amended; or 

(iii) Is employed by a public library 

that serves a geographic area that 

contains one or more schools eligible for 

assistance under part A of title I of the 

Elementary and Secondary Education 

Act of 1965, as amended. 

(2) For the purposes of paragraph (f) 

of this section, the term geographic area 

is defined as the area served by the local 

school district. 

(g) Cancellation for full-time 

employment as a speech pathologist 

with a master’s degree. An institution 

must cancel up to 100 percent of the 

outstanding balance on a borrower’s 

Federal Perkins Loan, NDSL, or Defense 

loan for full-time employment that 

includes August 14, 2008, or begins on 

or after that date, as a speech pathologist 


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with a master’s degree who is working 

exclusively with schools eligible for 

funds under part A of title I of the 

Elementary and Secondary Education 

Act of 1965, as amended. 

(h) Cancellation rates. (1) To qualify 

for cancellation under paragraphs (a), 

(b), (c), (d), (e), (f), and (g) of this 

section, a borrower must work full-time 

for 12 consecutive months. 

* * * * * 

26. Section 674.57 is revised to read 

as follows: 

§ 674.57 Cancellation for law enforcement 

or corrections officer service—Federal 

Perkins, NDSL, and Defense loans. 

(a)(1) An institution must cancel up to 

100 percent of the outstanding balance 

on a borrower’s Federal Perkins or 

NDSL made on or after November 29, 

1990, for full-time service as a law 

enforcement or corrections officer for an 

eligible employing agency. 

(2) An institution must cancel up to 

100 percent of the outstanding loan 

balance on a Federal Perkins, NDSL, or 

Defense loan made prior to November 

29, 1990, for law enforcement or 

correction officer service performed on 

or after October 7, 1998, if the 

cancellation benefits provided under 

this section are not included in the 

terms of the borrower’s promissory note. 

(3) An eligible employing agency is an 

agency— 

(i) That is a local, State, or Federal 

law enforcement or corrections agency; 

(ii) That is public-funded; and 

(iii) The principal activities of which 

pertain to crime prevention, control, or 

reduction or the enforcement of the 

criminal law. 

(4) Agencies that are primarily 

responsible for enforcement of civil, 

regulatory, or administrative laws are 

ineligible employing agencies. 

(5) A borrower qualifies for 

cancellation under this section only if 

the borrower is— 

(i) A sworn law enforcement or 

corrections officer; or 

(ii) A person whose principal 

responsibilities are unique to the 

criminal justice system. 

(6) To qualify for a cancellation under 

this section, the borrower’s service must 

be essential in the performance of the 

eligible employing agency’s primary 

mission. 

(7) The agency must be able to 

document the employee’s functions. 

(8) A borrower whose principal 

official responsibilities are 

administrative or supportive does not 

qualify for cancellation under this 

section. 

(b) An institution must cancel up to 

100 percent of the outstanding balance 

of a borrower’s Federal Perkins, NDSL, 

or Defense loan for service that includes 

August 14, 2008, or begins on or after 

that date, as a full-time attorney 

employed in Federal public defender 

organizations or community defender 

organizations, established in accordance 

with section 3006A(g)(2) of title 18, 

U.S.C. 

(c)(1) To qualify for cancellation 

under paragraph (a) of this section, a 

borrower must work full-time for 12 

consecutive months. 

(2) Cancellation rates are— 

(i) 15 percent of the original principal 

loan amount plus the interest on the 

unpaid balance accruing during the year 

of qualifying service, for each of the first 

and second years of full-time 

employment; 

(ii) 20 percent of the original principal 

loan amount plus the interest on the 

unpaid balance accruing during the year 

of qualifying service, for each of the 

third and fourth years of full-time 

employment; and 

(iii) 30 percent of the original 

principal loan amount plus the interest 

on the unpaid balance accruing during 

the year of qualifying service, for the 

fifth year of full-time employment. 

(Authority: 20 U.S.C. 1087ee) 

27. Section 674.58 is amended by: 

A. Revising the section heading. 

B. Redesignating paragraphs (a)(3) and 

(a)(4) as paragraphs (a)(4) and (a)(5), 

respectively. 

C. Adding new paragraph (a)(3). 

D. Revising newly redesignated 

paragraph (a)(4). 

E. Revising newly redesignated 

paragraph (a)(5). 

F. Redesignating paragraph (c)(2) as 

paragraph (c)(4). 

G. Adding new paragraphs (c)(2) and 

(c)(3). 

H. Revising newly redesignated 

paragraph (c)(4). 

The revisions and additions read as 

follows: 

§ 674.58 Cancellation for service in an 

early childhood education program. 

* * * * * 

(a) * * * 

(3) An institution must cancel up to 

100 percent of the outstanding balance 

of a borrower’s NDSL, Defense, or 

Federal Perkins loan for service that 

includes August 14, 2008, or begins on 

or after that date, as a full-time staff 

member of a pre-kindergarten or 

childcare program that is licensed or 

regulated by the State. 

(4) The Head Start, pre-kindergarten 

or child care program in which the 

borrower serves must operate for a 

complete academic year, or its 

equivalent. 

(5) In order to qualify for cancellation, 

the borrower’s salary may not exceed 

the salary of a comparable employee 

working in the local educational agency 

of the area served by the local Head 

Start, pre-kindergarten or child care 

program. 

* * * * * 

(c) * * * 

(2) A pre-kindergarten program is a 

State-funded program that serves 

children from birth through age six and 

addresses the children’s cognitive 

(including language, early literacy, and 

early mathematics), social, emotional, 

and physical development. 

(3) A child care program is a program 

that is licensed and regulated by the 

State and provides child care services 

for fewer than 24 hours per day per 

child, unless care in excess of 24 

consecutive hours is needed due to the 

nature of the parents’ work. 

(4) ‘‘Full-time staff member’’ is a 

person regularly employed in a full-time 

professional capacity to carry out the 

educational part of a Head Start, prekindergarten or child care program. 

* * * * * 

28. Section 674.59 is amended by: 

a. Revising the section heading. 

b. Removing in paragraph (a)(1) the 

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

the word ‘‘must’’. 

c. Revising paragraph (b)(1). 

d. Adding new paragraph (c). 

e. Redesignating paragraph (b)(3) as 

paragraph (d). 

f. Revising the authority citation that 

appears at the end of the section. 

The addition and revisions read as 

follows: 

§ 674.59 Cancellation for military service. 

* * * * * 

(b) * * * (1) An institution must 

cancel up to 50 percent of the 

outstanding balance on an NDSL or 

Perkins loan for active duty service that 

ended before August 14, 2008, as a 

member of the U.S. Army, Navy, Air 

Force, Marine Corps, or Coast Guard in 

an area of hostilities that qualifies for 

special pay under section 310 of title 37 

of the United States Code. 

* * * * * 

(c)(1) An institution must cancel up to 

100 percent of the outstanding balance 

on a borrower’s Federal Perkins or 

NDSL loan for a borrower’s full year of 

active duty service that includes August 

14, 2008, or begins on or after that date, 

as a member of the U.S. Army, Navy, 

Air Force, Marine Corps, or Coast Guard 

in an area of hostilities that qualifies for 

special pay under section 310 of title 37 

of the United States Code. 

(2) The cancellation rate is 15 percent 

for the first and second year of 


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qualifying service, 20 percent for the 

third and fourth year of qualifying 

service, and 30 percent for the fifth year 

of qualifying service. 

* * * * * 

(Authority: 20 U.S.C. 1087ee) 

§ 674.61 [Amended] 

29. Section 674.61 is amended by 

removing the citation ‘‘§ 674.51(s)’’ each 

time it appears and adding, in its place, 

the citation ‘‘§ 674.51(aa)’’. 

PART 682—FEDERAL FAMILY 

EDUCATION LOAN (FFEL) PROGRAM 

30. The authority citation for part 682 

is revised to read as follows: 

Authority: 20 U.S.C. 1070g, 1071 to 

1087–2, unless otherwise noted. 

31. Paragraph (h) of § 682.212 is 

revised to read as follows: 

§ 682.212 Prohibited transactions. 

* * * * * 

(h) A school may, at its option, make 

available a list of recommended or 

suggested lenders, in print or any other 

medium or form, for use by the school’s 

students or their parents provided that 

such list complies with the 

requirements in 34 CFR 601.10 and 

668.14(a)(28). 

* * * * * 

32. Section 682.604 is amended by 

revising paragraphs (c)(5), (c)(8), (f), and 

(g) to read as follows: 

§ 682.604 Processing the borrower’s loan 

proceeds and counseling borrowers. 

* * * * * 

(c) * * * 

(5) A school may not release the first 

installment of a Stafford loan for 

endorsement to a student who is 

enrolled in the first year of an 

undergraduate program of study and 

who has not previously received a 

Stafford, SLS, Direct Subsidized, or 

Direct Unsubsidized loan until 30 days 

after the first day of the student’s 

program of study unless— 

(i) Except as provided in paragraph 

(c)(5)(ii) of this section, the school in 

which the student is enrolled has a 

cohort default rate, calculated under 

subpart M of 34 CFR part 668, of less 

than 10 percent for each of the three 

most recent fiscal years for which data 

are available; or 

(ii) For loans first disbursed on or 

after October 1, 2011, the school in 

which the student is enrolled has a 

cohort default rate, calculated under 

either subpart M or subpart N of 34 CFR 

part 668 of less than 15 percent for each 

of the three most recent fiscal years for 

which data are available; or 

(iii) The school is an eligible home 

institution certifying a loan to cover the 

student’s cost of attendance in a study 

abroad program and has a cohort default 

rate, calculated under either subpart M 

or subpart N of 34 CFR part 668, of less 

than 5 percent for the single most recent 

fiscal year for which data are available. 

* * * * * 

(8) Notwithstanding the requirements 

of paragraphs (c)(6) through (c)(9) of this 

section, a school is not required to 

deliver loan proceeds in more than one 

installment if— 

(i)(A) The student’s loan period is not 

more than one semester, one trimester, 

one quarter, or, for non term-based 

schools or schools with non-standard 

terms, 4 months; and 

(B)(1) Except as provided in 

paragraph (c)(8)(i)(B)(2) of this section, 

the school in which the student is 

enrolled has a cohort default rate, 

calculated under subpart M of 34 CFR 

part 668, of less than 10 percent for each 

of the three most recent fiscal years for 

which data are available; or 

(2) For loan disbursements made on 

or after October 1, 2011, the school in 

which the student is enrolled has a 

cohort default rate, calculated under 

either subpart M or subpart N of 34 CFR 

part 668 of less than 15 percent for each 

of the three most recent fiscal years for 

which data are available; or 

(ii) The school is an eligible home 

institution certifying a loan to cover the 

student’s cost of attendance in a study 

abroad program and has a cohort default 

rate, calculated under subpart M or 

subpart N of 34 CFR part 668, of less 

than 5 percent for the single most recent 

fiscal year for which data are available. 

* * * * * 

(f) Initial counseling. (1) A school 

must ensure that initial counseling is 

conducted with each Stafford loan 

borrower prior to its release of the first 

disbursement, unless the student 

borrower has received a prior Federal 

Stafford, Federal SLS, or Direct 

subsidized or unsubsidized loan. 

(2) A school must ensure that initial 

counseling is conducted with each 

graduate or professional student PLUS 

loan borrower prior to its release of the 

first disbursement, unless the student 

has received a prior Federal PLUS loan 

or Direct PLUS loan. 

(3) Initial counseling for Stafford and 

graduate or professional student PLUS 

Loan borrowers must provide 

comprehensive information on the 

terms and conditions of the loan and on 

the responsibilities of the borrower with 

respect to the loan. This information 

may be provided to the borrower— 

(i) During an entrance counseling 

session conducted in person; 

(ii) On a separate written form 

provided to the borrower that the 

borrower signs and returns to the 

school; or 

(iii) Online or by interactive 

electronic means, with the borrower 

acknowledging receipt of the 

information. 

(4) If initial counseling is conducted 

online or through interactive electronic 

means, the school must take reasonable 

steps to ensure that each student 

borrower receives the counseling 

materials, and participates in and 

completes the initial counseling, which 

may include completion of any 

interactive program that tests the 

borrower’s understanding of the terms 

and conditions of the borrower’s loans. 

(5) A school must ensure that an 

individual with expertise in the title IV 

programs is reasonably available shortly 

after the counseling to answer the 

student borrower’s questions regarding 

those programs. As an alternative, prior 

to releasing the proceeds of a loan, in 

the case of a student borrower enrolled 

in a correspondence program or a 

student borrower enrolled in a studyabroad program that the home 

institution approves for credit, the 

counseling may be provided through 

written materials. 

(6) Initial counseling for Stafford Loan 

borrowers must— 

(i) Explain the use of a Master 

Promissory Note; 

(ii) Emphasize to the student borrower 

the seriousness and importance of the 

repayment obligation the student 

borrower is assuming; 

(iii) Describe the likely consequences 

of default, including adverse credit 

reports, delinquent debt collection 

procedures under Federal law, and 

litigation; 

(iv) In the case of a student borrower 

(other than a loan made or originated by 

the school), emphasize that the student 

borrower is obligated to repay the full 

amount of the loan even if the student 

borrower does not complete the 

program, does not complete the program 

within the regular time for program 

completion, is unable to obtain 

employment upon completion, or is 

otherwise dissatisfied with or does not 

receive the educational or other services 

that the student borrower purchased 

from the school; 

(v) Inform the student borrower of 

sample monthly repayment amounts 

based on— 

(A) A range of student levels of 

indebtedness of Stafford loan borrowers, 

or student borrowers with Stafford and 

PLUS loans, depending on the types of 

loans the borrower has obtained; or 


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(B) The average indebtedness of other 

borrowers in the same program at the 

same school as the borrower; 

(vi) To the extent practicable, explain 

the effect of accepting the loan to be 

disbursed on the eligibility of the 

borrower for other forms of student 

financial assistance; 

(vii) Provide information on how 

interest accrues and is capitalized 

during periods when the interest is not 

paid by either the borrower or the 

Secretary; 

(viii) Inform the borrower of the 

option to pay the interest on an 

unsubsidized Stafford Loan while the 

borrower is in school; 

(ix) Explain the definition of half-time 

enrollment at the school, during regular 

terms and summer school, if applicable, 

and the consequences of not 

maintaining half-time enrollment; 

(x) Explain the importance of 

contacting the appropriate offices at the 

school if the borrower withdraws prior 

to completing the borrower’s program of 

study so that the school can provide exit 

counseling, including information 

regarding the borrower’s repayment 

options and loan consolidation; 

(xi) Provide information on the 

National Student Loan Data System and 

how the borrower can access the 

borrower’s records; and 

(xii) Provide the name of and contact 

information for the individual the 

borrower may contact if the borrower 

has any questions about the borrower’s 

rights and responsibilities or the terms 

and conditions of the loan. 

(7) Initial counseling for graduate or 

professional student PLUS Loan 

borrowers must— 

(i) Inform the student borrower of 

sample monthly repayment amounts 

based on— 

(A) A range of student levels of 

indebtedness of graduate or professional 

student PLUS loan borrowers, or 

student borrowers with Stafford and 

PLUS loans, depending on the types of 

loans the borrower has obtained; or 

(B) The average indebtedness of other 

borrowers in the same program at the 

same school as the borrower; 

(ii) Inform the borrower of the option 

to pay interest on a PLUS Loan while 

the borrower is in school; 

(iii) For a graduate or professional 

student PLUS Loan borrower who has 

received a prior FFEL Stafford, or Direct 

subsidized or unsubsidized loan, 

provide the information specified in 

§ 682.603(d)(1)(i) through 

§ 682.603(d)(1)(iii); and 

(iv) For a graduate or professional 

student PLUS Loan borrower who has 

not received a prior FFEL Stafford, or 

Direct subsidized or unsubsidized loan, 

provide the information specified in 

paragraph (f)(6)(i) through (f)(6)(xii) of 

this section. 

(8) A school must maintain 

documentation substantiating the 

school’s compliance with this section 

for each student borrower. 

(g) Exit counseling. (1) A school must 

ensure that exit counseling is conducted 

with each Stafford loan borrower and 

graduate or professional student PLUS 

Loan borrower either in person, by 

audiovisual presentation, or by 

interactive electronic means. In each 

case, the school must ensure that this 

counseling is conducted shortly before 

the student borrower ceases at least halftime study at the school, and that an 

individual with expertise in the title IV 

programs is reasonably available shortly 

after the counseling to answer the 

student borrower’s questions. As an 

alternative, in the case of a student 

borrower enrolled in a correspondence 

program or a study-abroad program that 

the home institution approves for credit, 

written counseling materials may be 

provided by mail within 30 days after 

the student borrower completes the 

program. If a student borrower 

withdraws from school without the 

school’s prior knowledge or fails to 

complete an exit counseling session as 

required, the school must ensure that 

exit counseling is provided through 

either interactive electronic means or by 

mailing written counseling materials to 

the student borrower at the student 

borrower’s last known address within 

30 days after learning that the student 

borrower has withdrawn from school or 

failed to complete the exit counseling as 

required. 

(2) The exit counseling must— 

(i) Inform the student borrower of the 

average anticipated monthly repayment 

amount based on the student borrower’s 

indebtedness or on the average 

indebtedness of student borrowers who 

have obtained Stafford loans, PLUS 

Loans, or student borrowers who have 

obtained both Stafford and PLUS loans, 

depending on the types of loans the 

student borrower has obtained, for 

attendance at the same school or in the 

same program of study at the same 

school; 

(ii) Review for the student borrower 

available repayment plan options, 

including standard, graduated, 

extended, income sensitive and incomebased repayment plans, including a 

description of the different features of 

each plan and sample information 

showing the average anticipated 

monthly payments, and the difference 

in interest paid and total payments 

under each plan; 

(iii) Explain to the borrower the 

options to prepay each loan, to pay each 

loan on a shorter schedule, and to 

change repayment plans; 

(iv) Provide information on the effects 

of loan consolidation including, at a 

minimum— 

(A) The effects of consolidation on 

total interest to be paid, fees to be paid, 

and length of repayment; 

(B) The effects of consolidation on a 

borrower’s underlying loan benefits, 

including grace periods, loan 

forgiveness, cancellation, and deferment 

opportunities; 

(C) The options of the borrower to 

prepay the loan and to change 

repayment plans; and 

(D) That borrower benefit programs 

may vary among different lenders; 

(v) Include debt-management 

strategies that are designed to facilitate 

repayment; 

(vi) Include the matters described in 

paragraph (f)(6)(i), (f)(6)(ii), and (f)(6)(iv) 

of this section; 

(vii) Describe the likely consequences 

of default, including adverse credit 

reports, delinquent debt collection 

procedures under Federal law, and 

litigation; 

(viii) Provide— 

(A) A general description of the terms 

and conditions under which a borrower 

may obtain full or partial forgiveness or 

discharge of principal and interest, defer 

repayment of principal or interest, or be 

granted forbearance on a title IV loan, 

including forgiveness benefits or 

discharge benefits available to a FFEL 

borrower who consolidates his or her 

loan into the Direct Loan program; and 

(B) A copy, either in print or by 

electronic means, of the information the 

Secretary makes available pursuant to 

section 485(d) of the HEA; 

(ix) Require the student borrower to 

provide current information concerning 

name, address, social security number, 

references, and driver’s license number 

and State of issuance, as well as the 

student borrower’s expected permanent 

address, the address of the student 

borrower’s next of kin, and the name 

and address of the student borrower’s 

expected employer (if known). The 

school must ensure that this information 

is provided to the guaranty agency or 

agencies listed in the student borrower’s 

records within 60 days after the student 

borrower provides the information; 

(x) Review for the student borrower 

information on the availability of the 

Student Loan Ombudsman’s office; 

(xi) Inform the student borrower of 

the availability of title IV loan 

information in the National Student 

Loan Data System (NSLDS) and how 


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NSLDS can be used to obtain title IV 

loan status information; and 

(xii) A general description of the types 

of tax benefits that may be available to 

borrowers. 

(3) If exit counseling is conducted by 

electronic interactive means, the school 

must take reasonable steps to ensure 

that each student borrower receives the 

counseling materials, and participates in 

and completes the counseling. 

(4) The school must maintain 

documentation substantiating the 

school’s compliance with this section 

for each student borrower. 

* * * * * 

PART 685—WILLIAM D. FORD 

FEDERAL DIRECT LOAN PROGRAM 

33. The authority citation for part 685 

continues to read as follows: 

Authority: 20 U.S.C. 1070g, 1087a, et seq., 

unless otherwise noted. 

34. Section 685.301(b)(6) is amended 

by: 

A. Revising paragraph (b)(6)(i). 

B. In paragraph (b)(6)(ii), removing 

the reference to ‘‘Paragraphs (b)(8)(i)(A) 

and (B) of this section’’ and adding, in 

its place, a reference to ‘‘Paragraphs 

(b)(6)(i)(A) and (B) of this section’’. 

C. In paragraph (b)(6)(ii), adding the 

words ‘‘or subpart N’’ after the words 

‘‘under subpart M’’. 

D. In paragraph (b)(6)(iii), removing 

the reference to ‘‘Paragraph (b)(8)(i)(B) 

of this section’’ and adding, in its place, 

a reference to ‘‘Paragraph (b)(6)(i)(B) of 

this section’’. 

E. In paragraph (b)(6)(iii), adding the 

words ‘‘or subpart N’’ after the words 

‘‘under subpart M’’. 

The revision reads as follows: 

§ 685.301 Origination of a loan by a Direct 

Loan Program school. 

* * * * * 

(b) * * * 

(6)(i) A school is not required to make 

more than one disbursement if— 

(A)(1) The loan period is not more 

than one semester, one trimester, one 

quarter, or, for non term-based schools 

or schools with non-standard terms, 4 

months; and 

(2)(i) Except as provided in paragraph 

(b)(6)(i)(A)(2)(ii) of this section, the 

school has a cohort default rate, 

calculated under subpart M of 34 CFR 

part 668 of less than 10 percent for each 

of the three most recent fiscal years for 

which data are available; 

(ii) For loan disbursements made on 

or after October 1, 2011, the school in 

which the student is enrolled has a 

cohort default rate, calculated under 

either subpart M or subpart N of 34 CFR 

part 668 of less than 15 percent for each 

of the three most recent fiscal years, for 

which data are available. 

(B) The school is an eligible home 

institution originating a loan to cover 

the cost of attendance in a study abroad 

program and has a cohort default rate, 

calculated under subpart M or subpart 

N of 34 part 668, of less than 5 percent 

for the single most recent fiscal year for 

which data are available; or 

(C) The school is not in a State. 

* * * * * 

35. Section 685.303(b)(4) is amended 

by: 

A. Revising paragraph (b)(4)(i)(A). 

B. In paragraph (b)(4)(ii), adding the 

words ‘‘or subpart N’’ after the words 

‘‘under subpart M’’. 

C. In paragraph (b)(4)(iii), removing 

the words ‘‘Subpart M’’ and adding in 

their place the words ‘‘subpart M or 

subpart N’’. 

The revision reads as follows: 

§ 685.303 Processing loan proceeds. 

* * * * * 

(b) * * * 

(4) * * * 

(i) * * * 

(A)(1) Except as provided in 

paragraph (b)(4)(i)(A)(2) of this section, 

the school has a cohort default rate, 

calculated under subpart M of 34 CFR 

part 668, or weighted average cohort 

rate of less than 10 percent for each of 

the three most recent fiscal years for 

which data are available; or 

(2) For loans first disbursed on or after 

October 1, 2011, the school in which the 

student is enrolled has a cohort default 

rate, calculated under either subpart M 

or N of 34 CFR part 668 of less than 15 

percent for each of the three most recent 

fiscal years for which data are available; 

* * * * * 

36. Section 685.304 is revised to read 

as follows: 

§ 685.304 Counseling borrowers. 

(a) Initial counseling. (1) Except as 

provided in paragraph (a)(8) of this 

section, a school must ensure that initial 

counseling is conducted with each 

Direct Subsidized Loan or Direct 

Unsubsidized Loan student borrower 

prior to making the first disbursement of 

the proceeds of a loan to a student 

borrower unless the student borrower 

has received a prior Direct Subsidized, 

Direct Unsubsidized, Federal Stafford, 

or Federal SLS Loan. 

(2) Except as provided in paragraph 

(a)(8) of this section, a school must 

ensure that initial counseling is 

conducted with each graduate or 

professional student Direct PLUS Loan 

borrower prior to making the first 

disbursement of the loan unless the 

student borrower has received a prior 

Direct PLUS Loan or Federal PLUS 

Loan. 

(3) Initial counseling for Direct 

Subsidized Loan, Direct Unsubsidized 

Loan, and graduate or professional 

student Direct PLUS Loan borrowers 

must provide the borrower with 

comprehensive information on the 

terms and conditions of the loan and on 

the responsibilities of the borrower with 

respect to the loan. This information 

may be provided to the borrower— 

(i) During an entrance counseling 

session, conducted in person; 

(ii) On a separate written form 

provided to the borrower that the 

borrower signs and returns to the 

school; or 

(iii) Online or by interactive 

electronic means, with the borrower 

acknowledging receipt of the 

information. 

(4) If initial counseling is conducted 

online or through interactive electronic 

means, the school must take reasonable 

steps to ensure that each student 

borrower receives the counseling 

materials, and participates in and 

completes the initial counseling, which 

may include completion of any 

interactive program that tests the 

borrower’s understanding of the terms 

and conditions of the borrower’s loans. 

(5) A school must ensure that an 

individual with expertise in the title IV 

programs is reasonably available shortly 

after the counseling to answer the 

student borrower’s questions. As an 

alternative, in the case of a student 

borrower enrolled in a correspondence 

program or a study-abroad program 

approved for credit at the home 

institution, the student borrower may be 

provided with written counseling 

materials before the loan proceeds are 

disbursed. 

(6) Initial counseling for Direct 

Subsidized Loan and Direct 

Unsubsidized Loan borrowers must— 

(i) Explain the use of a Master 

Promissory Note (MPN); 

(ii) Emphasize to the borrower the 

seriousness and importance of the 

repayment obligation the student 

borrower is assuming; 

(iii) Describe the likely consequences 

of default, including adverse credit 

reports, delinquent debt collection 

procedures under Federal law, and 

litigation; 

(iv) Emphasize that the student 

borrower is obligated to repay the full 

amount of the loan even if the student 

borrower does not complete the 

program, does not complete the program 

within the regular time for program 

completion, is unable to obtain 

employment upon completion, or is 

otherwise dissatisfied with or does not 


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receive the educational or other services 

that the student borrower purchased 

from the school; 

(v) Inform the student borrower of 

sample monthly repayment amounts 

based on— 

(A) A range of student levels of 

indebtedness of Direct Subsidized Loan 

and Direct Unsubsidized Loan 

borrowers, or student borrowers with 

Direct Subsidized, Direct Unsubsidized, 

and Direct PLUS Loans depending on 

the types of loans the borrower has 

obtained; or 

(B) The average indebtedness of other 

borrowers in the same program at the 

same school as the borrower; 

(vi) To the extent practicable, explain 

the effect of accepting the loan to be 

disbursed on the eligibility of the 

borrower for other forms of student 

financial assistance; 

(vii) Provide information on how 

interest accrues and is capitalized 

during periods when the interest is not 

paid by either the borrower or the 

Secretary; 

(viii) Inform the borrower of the 

option to pay the interest on a Direct 

Unsubsidized Loan while the borrower 

is in school; 

(ix) Explain the definition of half-time 

enrollment at the school, during regular 

terms and summer school, if applicable, 

and the consequences of not 

maintaining half-time enrollment; 

(x) Explain the importance of 

contacting the appropriate offices at the 

school if the borrower withdraws prior 

to completing the borrower’s program of 

study so that the school can provide exit 

counseling, including information 

regarding the borrower’s repayment 

options and loan consolidation; 

(xi) Provide information on the 

National Student Loan Data System and 

how the borrower can access the 

borrower’s records; and 

(xii) Provide the name of and contact 

information for the individual the 

borrower may contact if the borrower 

has any questions about the borrower’s 

rights and responsibilities or the terms 

and conditions of the loan. 

(7) Initial counseling for graduate or 

professional student Direct PLUS Loan 

borrowers must— 

(i) Inform the student borrower of 

sample monthly repayment amounts 

based on— 

(A) A range of student levels or 

indebtedness of graduate or professional 

student PLUS loan borrowers, or 

student borrowers with Direct PLUS 

Loans and Direct Subsidized Loans or 

Direct Unsubsidized Loans, depending 

on the types of loans the borrower has 

obtained; or 

(B) The average indebtedness of other 

borrowers in the same program at the 

same school; 

(ii) Inform the borrower of the option 

to pay interest on a PLUS Loan while 

the borrower is in school; 

(iii) For a graduate or professional 

student PLUS Loan borrower who has 

received a prior FFEL Stafford, or Direct 

Subsidized or Unsubsidized Loan, 

provide the information specified in 

§ 685.301(a)(3)(i)(A) through 

§ 685.301(a)(3)(i)(C); and 

(iv) For a graduate or professional 

student PLUS Loan borrower who has 

not received a prior FFEL Stafford, or 

Direct Subsidized or Direct 

Unsubsidized Loan, provide the 

information specified in paragraph 

(a)(6)(i) through paragraph (a)(6)(xii) of 

this section. 

(8) A school may adopt an alternative 

approach for initial counseling as part of 

the school’s quality assurance plan 

described in § 685.300(b)(9). If a school 

adopts an alternative approach, it is not 

required to meet the requirements of 

paragraphs (a)(1) through (a)(7) of this 

section unless the Secretary determines 

that the alternative approach is not 

adequate for the school. The alternative 

approach must— 

(i) Ensure that each student borrower 

subject to initial counseling under 

paragraph (a)(1) or (a)(2) of this section 

is provided written counseling materials 

that contain the information described 

in paragraphs (a)(6)(i) through (a)(6)(v) 

of this section; 

(ii) Be designed to target those student 

borrowers who are most likely to default 

on their repayment obligations and 

provide them more intensive counseling 

and support services; and 

(iii) Include performance measures 

that demonstrate the effectiveness of the 

school’s alternative approach. These 

performance measures must include 

objective outcomes, such as levels of 

borrowing, default rates, and 

withdrawal rates. 

(9) The school must maintain 

documentation substantiating the 

school’s compliance with this section 

for each student borrower. 

(b) Exit counseling. (1) A school must 

ensure that exit counseling is conducted 

with each Direct Subsidized Loan or 

Direct Unsubsidized Loan borrower and 

graduate or professional student Direct 

PLUS Loan borrower shortly before the 

student borrower ceases at least halftime study at the school. 

(2) The exit counseling must be in 

person, by audiovisual presentation, or 

by interactive electronic means. In each 

case, the school must ensure that an 

individual with expertise in the title IV 

programs is reasonably available shortly 

after the counseling to answer the 

student borrower’s questions. As an 

alternative, in the case of a student 

borrower enrolled in a correspondence 

program or a study-abroad program 

approved for credit at the home 

institution, the student borrower may be 

provided with written counseling 

materials within 30 days after the 

student borrower completes the 

program. 

(3) If a student borrower withdraws 

from school without the school’s prior 

knowledge or fails to complete the exit 

counseling as required, exit counseling 

must be provided either through 

interactive electronic means or by 

mailing written counseling materials to 

the student borrower at the student 

borrower’s last known address within 

30 days after the school learns that the 

student borrower has withdrawn from 

school or failed to complete the exit 

counseling as required. 

(4) The exit counseling must— 

(i) Inform the student borrower of the 

average anticipated monthly repayment 

amount based on the student borrower’s 

indebtedness or on the average 

indebtedness of student borrowers who 

have obtained Direct Subsidized Loans 

and Direct Unsubsidized Loans, student 

borrowers who have obtained only 

Direct PLUS Loans, or student 

borrowers who have obtained Direct 

Subsidized, Direct Unsubsidized, and 

Direct PLUS Loans, depending on the 

types of loans the student borrower has 

obtained, for attendance at the same 

school or in the same program of study 

at the same school; 

(ii) Review for the student borrower 

available repayment plan options 

including the standard repayment, 

extended repayment, graduated 

repayment, income contingent 

repayment plans, and income-based 

repayment plans, including a 

description of the different features of 

each plan and sample information 

showing the average anticipated 

monthly payments, and the difference 

in interest paid and total payments 

under each plan; 

(iii) Explain to the borrower the 

options to prepay each loan, to pay each 

loan on a shorter schedule, and to 

change repayment plans; 

(iv) Provide information on the effects 

of loan consolidation including, at a 

minimum— 

(A) The effects of consolidation on 

total interest to be paid, fees to be paid, 

and length of repayment; 

(B) The effects of consolidation on a 

borrower’s underlying loan benefits, 

including grace periods, loan 

forgiveness, cancellation, and deferment 

opportunities; 


pwalker on DSK8KYBLC1PROD with PROPOSALS4
37494 Federal Register / Vol. 74, No. 143 / Tuesday, July 28, 2009 / Proposed Rules 

(C) The options of the borrower to 

prepay the loan and to change 

repayment plans; and 

(D) That borrower benefit programs 

may vary among different lenders; 

(v) Include debt-management 

strategies that are designed to facilitate 

repayment; 

(vi) Explain to the student borrower 

how to contact the party servicing the 

student borrower’s Direct Loans; 

(vii) Meet the requirements described 

in paragraphs (a)(6)(i), (a)(6)(ii), and 

(a)(6)(iv) of this section; 

(viii) Describe the likely consequences 

of default, including adverse credit 

reports, delinquent debt collection 

procedures under Federal law, and 

litigation; 

(ix) Provide— 

(A) A general description of the terms 

and conditions under which a borrower 

may obtain full or partial forgiveness or 

discharge of principal and interest, defer 

repayment of principal or interest, or be 

granted forbearance on a title IV loan; 

and 

(B) A copy, either in print or by 

electronic means, of the information the 

Secretary makes available pursuant to 

section 485(d) of the HEA; 

(x) Review for the student borrower 

information on the availability of the 

Department’s Student Loan 

Ombudsman’s office; 

(xi) Inform the student borrower of 

the availability of title IV loan 

information in the National Student 

Loan Data System (NSLDS) and how 

NSLDS can be used to obtain title IV 

loan status information; 

(xii) A general description of the types 

of tax benefits that may be available to 

borrowers; and 

(xiii) Require the student borrower to 

provide current information concerning 

name, address, social security number, 

references, and driver’s license number 

and State of issuance, as well as the 

student borrower’s expected permanent 

address, the address of the student 

borrower’s next of kin, and the name 

and address of the student borrower’s 

expected employer (if known). 

(5) The school must ensure that the 

information required in paragraph 

(b)(4)(xiii) of this section is provided to 

the Secretary within 60 days after the 

student borrower provides the 

information. 

(6) If exit counseling is conducted 

through interactive electronic means, a 

school must take reasonable steps to 

ensure that each student borrower 

receives the counseling materials, and 

participates in and completes the exit 

counseling. 

(7) The school must maintain 

documentation substantiating the 

school’s compliance with this section 

for each student borrower. 

(Approved by the Office of Management and 

Budget under control number 1845–0021) 

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

[FR Doc. E9–17119 Filed 7–27–09; 8:45 am] 

BILLING CODE 4000–01–P 


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